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Cost and Managerial Accounting v2
Assignment - A
Q1: ZEE is product, manufactured out of three raw materials M,N, & Q. Each unit
of ZEE requires 10 kg, 8 kg, & 6 kg of M, N, Q, respectively. The reorder levels
of M, & N are 15000 & 10,000 kg respectively., while the minimum level of Q is
2500 kg. The weekly production of ZEE varies from 300 to 500 units, while the we
ekly average production is 400 units. You are required to compute:1. The minimum stock level of M
2.
The maximum stock level of N
3. the reorder level of Q Additional Information:Please visit for solutions distpub.com/amity.htm
Re-order quantity (kg)
M
20000
N 15000
Q
20000
Delivery time (in weeks)
Minimum
2
4
3
Average
3
5
4
maximum
4
6
5
Q2 M/s Cotton Mills Ltd. Take a periodic inventory of their stocks on chemical Y
at the end of each month, The physical inventory taken on June 30* shows a bala
nce of 1,000 litres of chemical Y in hand@Rs.2.281itre.
The following purchases were made during July.
July 1 14,000Litres @ Rs.2.30 per litre July 7 10,000Litres @ Rs.2.32 per litre
July 9 20,000Litres @ Rs.2.33 per litre July 25
5,000Litres @ Rs.2.3 5 Per
Litre
A physical inventory taken on July 31st discloses that there is a stock of 10,00
0 Litres.
You are required to compute the inventory value on July 31, by each of the follo
wing methods:
i)
LIFO
ii)
FIFO
Q3 From the following figures find B.E volume:
S.P. per tonne
Rs.69.50
V.C per tonne Rs.35.50
F.C.
Rs. 18.02 Lacs
If this volume represents 40% capacity, what is the additional profit for an add
ed production of 40% cpacity, the selling price of which is 10% lower for 20% ca
pacity production and 15% lower than the existing price for the other 20% capaci
ty.

Q4 State whether the following statements are true or false. Give reasons.
a)
Direct costs are costs which vary with variation in output.
b)
Total fixed cost remains unaffected by changes in the volume of output.
c)
In relation to normal sales, a low margin of safety alongwith a
high P/V ratio is generally an indication of high fixed cost.
d)
Cost unit and cost centre have the same meaning.
Q5: P Ltd. Manufactures two products using one type of material. Shown below is
an extract from the company's papers for the next period budget.
Product A
Product B
Budgeted Sales (In units)
3,600
4,800
Budgeted material consumption per products (kg)
5
3
Budgeted material cost Rs. 12 per Kg.
There are 12 five days weeks in a budget period and it is anticipated that sales
and production
will occur evenly throughout.
Opening stock : Product A l,020 units, Product B 2,400 units, Raw material 4,300
kgs.
The target closing stock: Product A = 15 days sales, Product B = 20 days sales,
Raw material =
10 days consumption.
Prepare material purchase budget showing the quantities and values for the next
period.
Assignment - B
Q1: Comment on the relative profitability of the following products when there i
s a) no key factor, b) Machine Hrs are limited (Key factor)
Alpha
Beta
Rs.
Rs.
Selling price
100
150
Material
25
30
Wages
5
10
Machine hr rate:
Variable
2
3
Fixed
1
1
Variable overhead
15
20
Fixed Expenses
2

2
Machine hrs.used
10
15
Production
300Units
250Units
Q2: Define the term "Budgetary Control." Discuss its limitations.
Q3 (a) Discuss various classifications of costs.
Q3 (b) Determine the amount of fixed expenses from the following particulars:
Sales Rs.2,40,000, Direct Material Rs. 80,000, Direct Labour Rs.50,000, variable
overheads Rs. 20, 000, Profit Rs. 50,000
Q4: A product passes through two distinct process A & B & thereafter it is trans
ferred to finished stock. From the following information you are required to pre
pare Process Accounts:
Process A
Process B
Rs
Rs
Material consumed
24000
12000
Wages
28000
16000
Manufacturing expenses'
8000
8000
Input in Process A (units)
20,000
----Input in process A (value in Rs)
20000
---Output (units) 31th Dec 2003
18,800
16,600
Normal wastage percentage of input
5%
10%
Value of normal wastage (per 100 units)
8
10

Assignment

Q1: Which of the following statements is/are true?

a) Cost accounting is not a part of management accounting.
b) Cost accounting is a system to record, summarize and report cost informatio
n.
c)
Cost accounting is a post mortem of past costs.
d) Cost accounting is not necessary if financial accounting provides necessary
analysis.
Q2 Which of the following is least likely to be an objective of cost accounting
system?

(a)
(b)
(c)
(d)

Product costing
Optimum sales mix determination
Maximization of profit
Sales commission determination

Q3 Costing Technique in which all costs, variable as well as fixed, are charged
to product, operations or services is
(a) Historical costing
(b) Absorption costing
(c) Marginal costing
(d) Direct costing
Q4 The costing approach wherein actual costs are ascertained after they have bee
n incurred is
(a) Marginal costing
(b) Direct costing
(c) Standard costing
(d) Historical costing
Q5 The cost which reflects the policies of the top management which result in p
eriodic appropriations are called as
(a) Future cost
(b) Discretionary cost
(c) Committed cost
(d) Programmed cost
Q6 In a given situation if a product is not produced the company can save on the
salary of workers to the tune of Rs. 1,00,000. In this case the salary of the w
orker is
(a) Imputed cost
(b) Unavoidable cost
(c) Avoidable cost
(d) None of the above
Q7 Depreciation charged on Plant & Machinery is
(a) Future cost
(b) Discretionary cost
(c) Committed cost
(d) Programmed cost
Q8 Costs that are not relevant for decision-making and are not affected by incre
ase or decrease in volume are
(a) Out of pocket cost
(b) Sunk cost
(c) Differential cost
(d) Imputed cost
Q9 Which of the following statements is not true of pricing of inventories?
a) In FIFO method, the issue of material from the stores will be in the order
which it was received.
b) In LIFO method, the material issued will be priced based on the material th
at has been purchased recently.
c)
Under current price method, material is priced at the value that is realiz
able at the time of issue.
d) Under standard price method, material is priced based on the current market
price.
Q10 Which of the following statements is false?
a) In an inflationary period the FIFO method of inventory pricing tends to inf
late reported profits.

b) LIFO method of inventory pricing causes reported profits to be low in an in

flationary period.
c)
The weighted average cost method of inventory pricing tends to smooth out
price luctuations.
d) None of the above.
11.
(a)
(b)
(c)
(d)

A cost centre is:

The part of the business where all costs are paid to suppliers
A production department where all production costs are aggregated
An area of the business accountable for both costs and revenues
An area for which costs are accumulated

12. An investment centre is a responsibility centre where the manager has contro
l of:
(a) Costs, profits and product quality
(b) Costs
(c) Costs and profits
(d) Costs, profits and assets
13.
(a)
(b)
(c)
(d)

Responsibility accounting aims to:

Ensure that a manager is punished if things go wrong
Reduce the costs that a department incurs
Allocate costs to all areas of a business
Ensure that costs become the responsibility of a specific manager

14. Prime cost can be defined as:

(a) The total costs of operating the production department where the product is
made
(b) The total direct costs of manufacturing a product
(c) The total costs of manufacturing a product
(d) The cost of the first stage of the manufacture of a product
15.
(a)
(b)
(c)
(d)

Which of the following best describes a fixed cost?

Has a direct relationship with output
Increases proportionately with output
Remains constant irrespective of the level of activity
Represents a fixed proportion of total costs

16. A business has the following transactions in a month:

2 Jan Bought 80 units at a total cost of 160
12 Jan Bought 50 units at a total cost of 150
19 Jan Sold 90 units earning total revenue of 540
22 Jan Bought 70 units at a total cost of 280
29 Jan Sold 80 units earning a total revenue of 480
Using the first-in, first-out (FIFO) method of stock valuation the cost of sales
is:
(a)
470
(b)
510
(c)
1,020
(d)
120
17. A business has bought and sold identical items of stock during 2006 as follo
ws:
1/6/06 Bought 1,000 units @ 10 each 1/9/06 Bought 1,000 units @ 16 each 5/9/06 Sol
d 1,200 units @ 20 each
Using the first-in, first-out (FIFO) method what is the value of the 800 units o
f stock left unsold at 31/12/06?
(a)
10,400
(b)
8,000
(c)
16,000
(d)
12,800

18.
:
(a)
(b)
(c)
(d)
19.
(a)
(b)
(c)
(d)
20.
(a)
(b)
(c)
(d)
21.
s?
(a)
(b)
(c)
(d)
22.
(a)
(b)
(c)
(d)
23.
(a)
(b)
(c)
(d)

The weighted average method of stock valuation would be most appropriate for

24.
ice
(a)
(b)
(c)
(d)

Which of the following would be an inappropriate method of apportioning serv

department costs?
Apportioning on the basis of service department activity
Apportioning on the basis of floor area
Sharing costs out equally between departments
Apportioning on the basis of number of employees

A food retailer
A motor components retailer
A building contractor
A chemical manufacturer
Direct labour costs will include:
Total direct labour hours at the normal hourly rate of pay
All labour costs attributable to a product
Direct labour costs plus any bonuses
Direct labour costs plus any bonuses and overtime premiums
An example of a production overhead would be:
Labour costs
Rent
Supervisory costs
Materials
Absorption costing is closely related to which of the following cost element
Overheads
Direct labour
Total costs
Prime costs
Which of the following would not be classed as a service department?
The assembly department
The finance department
The canteen
The maintenance department
Cost apportionment involves:
The sharing out of costs to products
The sharing out of common costs to departments
The allocation of direct costs to departments
The sharing out of overheads to service departments

25. Which of the following is an unsatisfactory method of dealing with reciproca

l service costs?
(a) Ignore the service department costs
(b) Use mathematical apportionment techniques
(c) Apportion the service costs over production departments only
(d) Use a specified order of apportioning service department costs
26.
(a)
(b)
(c)
(d)

The most appropriate method of apportioning the rent of a building would be:
On the basis of value of assets
To share them out equally amongst all departments
On the basis of number of employees
On the basis of area of each department

27. Absorption costing refers to the process of:

(a) Absorbing the direct costs of production and service departments into produ
cts
(b) Absorbing direct costs of production into products
(c) Absorbing only production service cost centre costs into product costs
(d) Absorbing both production and non-production service cost centre costs into
product costs

28. Which of the following would not normally be a suitable method of absorbing
costs into products
(a) Total cost centre overhead / Number of employees
(b) Total cost centre overhead / Number of units processed in department
(c) Total cost centre overhead / Cost centre total machine hours
(d) Total cost centre overhead / Total cost centre direct labour cost
29. The following details relate to a particular company:
i.
Machining Assembly
ii.
Total cost centre overhead 120,000 180,000
iii.
Machine hours 15,000 9,000
iv.
Labour hours 2,000 8,000
The most appropriate overhead rate to use for the machining department would be:
(a)
5 per direct machine hour
(b)
7.06 per hour
(c)
8 per direct machine hour
(d)
60 per direct labour hour
30. The following details were extracted from the cost records of a company:
Machining Assembly Maintenance Administration Area sq/m 5,000 6,000 2,000 1,200
No. of employees 6 13 2 3
If it cost 3,500 to insure the buildings, the amount that would be apportioned to
the assembly department would be:
(a)
1,479
(b)
72
(c)
1,896
(d)
372
31 . Which of the following is true?
(a)
Overhead absorption rates will normally be based on estimates of wh
at costs are expected to be
(b)
Once set, overhead absorption rates will not change from one year to
the next
(c)
Absorption rates will change continuously to reflect changes in out
put and costs
(d)
Overhead absorption rates will only be calculated when all actual cos
ts are known
32.The total cost of a product will include:
(a)
Prime cost only
(b)
Prime cost plus non production overhead
(c)
Prime costs plus direct production overhead plus indirect production
overhead plus tax
(d)
Prime costs plus direct production overhead plus indirect production o
verhead
33.Overhead absorption exercises will be most useful where:
(a)
The market determines the selling price of a product
(b)
The total direct cost of a department is needed
(c)
Selling prices can be based on costs
(d)
A departmental manager will be held responsible for the costs that ar
e apportioned to them
34.A company has a budgeted level of fixed overheads of 385,000 and the overhead
recovery rate is 4.25 per machine hour, What is the number of machine hours we ex
pect to use?
(a)
90,600
(b)
4,250
(c)
385,000
(d)
1,636,25
35.Under-recovery of overheads occurs when:

(a)
ad incurred
(b)
(c)
d to be
(d)
en charged to

The overhead charged to production is lower than the actual overhe

The basis of apportioning overheads has changed during the period
Actual overheads have fallen in relation to what they were expecte
The actual overhead incurred is less than the overhead that has be
production

36. A semi variable cost would:

(a)
Be more than zero if no products were made and would then increase
in direct proportion to output
(b)
Be zero if output were zero and would change erratically as output
increased
(c)
Be zero when output is zero and would increase in direct proportio
n to output
(d)
Be a fixed amount when output was zero and would not increase in d
irect proportion to output
37.
(a)
(b)
(c)
(d)

An example of a semi variable cost would be:

The costs of insuring assets
The costs of material to be used for production
The salaries of supervisors in a department
Electricity costs

38.
If actual units produced are lower than the budgeted level of produ
ction which of the following types of cost would you expect to be lower than the
budget?
(a)
Variable costs per unit
(b)
Fixed costs per unit
(c)
Total fixed costs
(d)
Total variable costs
39.
(a)
(b)
(c)
(d)

In the long run

Charge a price
Charge a price
Charge a price
Charge a price

a business must:
that covers its variable costs only
that covers both fixed and variable costs
that covers its fixed costs only
that leads to a positive contribution

40. The break even point in units is represented by the equation:

(a)
(Sales revenue - Fixed costs) / Contribution per unit
(b)
Fixed costs / selling price per unit
(c)
Fixed costs / Contribution per unit
(d)
Fixed costs / Variable costs
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