SUMIT RASTOGI CLASSES 9810226733

TEST PAPER - 02
(Chapters Covered - Direct Expenses, Overhead, CAS, Cost Book Keeping)

COST ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
Section A contains Question Number 1. All parts of this question are compulsory.
Working notes should form part of the relevant answer.

SECTION-A
1. Choose the correct answer from the given alternatives (you may write only the
Roman number and the alphabet chosen for your answer) (2×15 = 30 Marks)

(i) _______ deals with the principles and methods of determining the production or
operation overheads.
(a) CAS-5
(b) CAS-3
(c) CAS-16
(d) CAS-9

(ii) B Ltd. pays 10 per unit royalty to the designer of a product which it
manufactures and sells. The royalty charge would be classified in the company’s
accounts as a:
(a) Production overhead
(b) Administrative overhead
(c) Selling overhead
(d) Direct expense

(iii) T Ltd. uses pre-determined overhead rate of ₹15 per labour hour. The actual
Labour hours are 5750 and the actual overhead cost is ₹85,000. There is:
(a) ₹1,000 under absorption
(b) ₹1,250 over absorption
(c) ₹1,250 under absorption
(d) ₹1,000 over absorption

(iv) Selling and distribution overheads are absorbed on the basis of:
(a) Percentage on selling price of each unit
(b) Rate per unit
(c) Percentage on works cost
(d) Any of the above

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(v) Calculate the Direct Expenses as per CAS-10 from the following information:
Royalty paid on sales: ₹1,25,000; Royalty paid on production: ₹1,00,000; Design
charges ₹26,000; Machine shop expenses ₹45,000; Software development charges
related to production: ₹55,000.
(a) ₹2,55,000
(b) ₹3,51,000
(c) ₹2,65,000
(d) ₹1,56,000

(vi) Warehouse Expense is an example of:

(a) Selling overhead
(b) Production overhead
(c) Distribution overhead
(d) Administration overhead

(vii) Which of the following items should be added to costing profit to arrive at financial
profit?
(a) Income tax paid
(b) Over absorption of works overhead
(c) Interest paid on bonds
(d) All of the above

(viii) Under Non-Integrated Accounting System, the account made to complete Double
Entry is:
(a) Work-in-progress control account
(b) Finished goods control account
(c) Stores ledger control account
(d) General ledger control account

(ix) BETA LTD. made a profit of ₹2,00,000 during the year ending March 31, 2022 as
per costing records. If interest on investments, and Income Tax paid were ₹15,000
and ₹90,000 respectively, what will be the profit as per financial records?
(a) ₹3,09,000
(b) ₹1,17,000
(c) ₹1,25,000
(d) None of the above

(x) Which of the following items is not included in the preparation of Cost Sheet?
(a) Interest paid
(b) Purchase returns
(c) Carriage inward
(d) Sales commission

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(xi) SANUM P.I.C. producing product-ZEMO provides the following information:
Royalty paid on Sales 35,000
Design Charges paid for the product 8,000
Higher Charges for Equipment used for production 3,000
Direct Expenses will be:
(a) 58,000
(b) 46,000
(c) 55,000
(d) None of these

(xii) When you attempt a reconciliation of profits as per Financial Accounts and Cost
Accounts, the following is done:
(a) Add the under absorption of overheads in Cost Accounts if you start from the profits
as per Financial Accounts.
(b) Add the under absorption of overheads in Cost Accounts if you start from the profits
as per Cost Accounts.
(c) Add the over absorption of overheads in Cost Accounts if you start from the profits
as per Financial Accounts.
(d) Add the over absorption of overheads in Cost Accounts if you start from the profits
as per Cost Accounts.

(xiii) Find the actual overhead for the month of October 2024, when actual machine
hours worked is 10000 and there is under-recovery of overhead of ₹30,000 by using
machine hour rate is ₹30.
(a) ₹3,00,000
(b) ₹30,000
(c) ₹3,30,000
(d) ₹33,000

(xiv) The objective of CAS ______ is to bring uniformity and consistency in the period
and methods of determining the direct expenses with reasonable accuracy.
(a) 10
(b) 50
(c) 30
(d) 60

(xv) What entry will be passed under integrated system for purchase of stores on credit?
(a) Dr. Stores Ledger Control A/c Cr. Creditors
(b) Dr. Purchases Cr. Creditors
(c) Dr. Stores Cr. Creditors
(d) Dr. Stores Ledger Control A/c Cr. General Ledger Adjustment A/c

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SECTION-B
Answer any five questions from question number 2 to 8. 14x5=70
2(a) ALPHA LTD. has three Production Departments and two Service Departments. The
overhead distribution sheet of the company showed the following totals:
Production Department: Amount (₹)
P 75,500
Q 72,000
R 96,500
Service Department:
X 46,250
Y 15,750
Other information is as follows:
(a) Working hours of production departments are P-6226 hours, Q-4028 hours and
R-4066 hours.
(b) Services rendered by service departments are as under:
P Q R X Y
Department X 20% 30% 40% - 10%
Department Y 40% 20% 30% 10% -
Required:
(i) Calculate the total overhead of production departments distributing the cost of service
departments by Simultaneous Equation Method.
(ii) Calculate the Overhead Rate Per Hour of production departments. (7 Marks)

2 (b) ROS Ltd. showed a Net Loss of ₹ 35,400 as per their Cost Accounts for the year ended 31st
March,2022. However, the Financial Accounts disclosed a net profit of ₹67,800 for the
same period. The following information was revealed as a result of scrutiny of the figures
of cost accounts and financial accounts:
S.No. Particulars Amount (₹)
(i) Administrative overhead under recovered 25,500
(ii) Factory overhead over recovered 1,35,000
(iii) Depreciation under charged in Cost Accounts 26,000
(iv) Dividend received 20,000
(v) Loss due to obsolescence charged in Financial Accounts 16,800
(vi) Income Tax provided 43,600
(vii) Bank interest credited to Financial Accounts 13,600
(viii) Value of Opening Stock:
In Cost Accounts 1,65,000
In Financial Accounts 1,45,000
(ix) Value of Closing Stock:
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
(x) Goodwill written-off in Financial Accounts 25,000
(xi) Notional rent of own premises charged in Cost Accounts 60,000
(xii) Provision for doubtful debts in Financial Accounts 15,000

Prepare a Reconciliation Statement by taking Costing Net Loss as the base. (7 Marks)

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3 (a) P. Ltd. products P-I and P-II. The following information is furnished:
Particulars Product P-I Product P-II
Opening Stock (Tonnes) 25,000 21,000
Sales (Tonnes) 4,15,000 3,10,000
Closing Stock (Tonnes) 32,000 28,000
Machine hours utilized (Hours) 10,000 6,000
Design Charges (₹) 10,80,000 6,50,000
Software Development Charges (₹) 16,50,000 9,00,000
Royalty is paid on units produced @ ₹20 per tonne for both the products. Wages are paid
to machine operators @ ₹75 per machine hour. Hire charges of equipment used in
manufacturing process of only product P-II ₹6,15,000.
You are required to calculate the direct expenses of P-I and P-II as per CAS. (7 Marks)

3 (b) The summary as per primary distribution is as follows:

Production Departments
A : ₹2,500
B : ₹2,300
C : ₹1,700
Service Departments
X : ₹700
Y : ₹900
Expenses of service departments are distributed in the ratios of:
X department: A- 20%, B- 40%, C- 30% Y- 10%
Y department: A- 40%, B- 20%, C- 20% X- 20%
Show the Distribution of Service Costs among A, B and C under Repeated Distribution
Method. (7 Marks)

4 (a) The following information is available from the financial books of BG Mfg. Co.
having a normal production capacity of 1,20,000 units for the year ended 31-03-2021:
• Sales ₹20,00,000 (100,000 units).
• There was no opening and closing stock of finished units.
• Direct material and direct wages cost were ₹ 10,00,000 and ₹ 5,00,000 respectively.
• Actual factory expenses were ₹ 3,00,000 of which 60% are fixed.
• Actual administrative expenses related with production activities were ₹90,000
which are completely fixed.
• Actual selling and distribution expenses were ₹60,000 of which 40% are fixed.
• Interest and dividends received ₹30,000.
REQUIRED:
(i) Find out profit as per financial books for the year ended 31-03-2021;
(ii) What is the amount of profit as per cost accounts for the year ended 31st
March, 2021 assuming that the indirect expenses are absorbed on the basis of
normal production capacity;
(iii) What is the amount of Factory expenses under charged in cost Accounts?
(7 Marks)

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4 (b) M/s. POR Engineering Ltd. is having 25 different types of automatic machines in its
plant. It furnishes the following information in respect of Machine B for the year
2022-23:
(i) Cost of machine ₹5,00,000
Life of the machine 10 years
Scrap Value NIL
(ii) Overhead expenses:
Factory rent ₹2, 00,000 p.a.
Heating and lighting ₹1,60,000 p.a.
Supervision ₹6, 00,000 p.a.
Reserve equipment of Machine B ₹20,000 p.a.
Area of the factory 80,000 sq. ft.
Area occupied by Machine B 3,000 sq. ft.
(iii) Wages of operator is ₹240 per day of 8 hours including all fringe benefits. He attends
to one machine when it is under set up and two machines while under operation
(iv) Estimated production hours 3,600 p.a.
Estimated set up time 400 p.a.
(v) Power Charges 2.50 per hour
REQUIRED:
Prepare a Schedule of Comprehensive machine hour rate and find the cost of the
following jobs:
JOB 1120 JOB 1150
Set up time (hours) 80 40
Operation time (hours) 130 160 (7 Marks)

5(a) The following information has been obtained from the records of MJ Limited, a
manufacturer of Air-conditioner:
(i) Materials per machine 1,500
Wages per machine 900
Number of machines manufactured and sold 80
Sale price per machine 4,250
(ii) Works expenses to be charged at 60% of the wages
(iii) Office expenses to be charged at 20% of works cost
(iv) There was no stock of machines or work-in-progress at the beginning or at the end of
the period.
As a Cost and Management Accountant Prepare a Statement showing the profit per
machine sold. Also Prepare a Statement Showing the Actual Profit. Works expenses
were ₹43,000 and office expenses were ₹48,000 as per the financial records.
You are also required to reconcile the Profit as per Cost Accounts and Financial
Account. (9 Marks)

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5(b) Compute total direct expenses of product X from the following information, giving
appropriate explanatory notes:
Particulars Figures
Production 20,000 Units
Sales 16,000 Units
Labour hours 10,000 Hrs.
Labour rate per hour ₹8
Royalty per unit of sale ₹2
Royalty per unit of production ₹1
Design Charges ₹12,000
Interest on loan for purchase of machine ₹5,000
Hire charges of equipment used for manufacturing product X ₹6,000
Penalty for violating Patent ₹4,000
(5 Marks)

6(a) PITAB LTD. manufactures a single product and absorbed the production overhead at a
pre-determined rate or 10 per machine hour.
Total production overhead expenses incurred and the actual Machine hours for the
department for the month of September, 2022 were ₹2,00,000 and 10000 hours,
respectively. Of the amount of ₹2,00,000, ₹30,000 became payable due to an award of the
Labour Court and 10,000 was in respect of expenses of the previous year booked in the
current month (September). Actual production was 40,000 units of which 30,000 units
were sold.
On analyzing the reasons, it was found that 60% of the under-absorbed overhead was
due to defective planning and the rest was attributed to the normal cost increase.

REQUIRED:
How would you treat the under-absorbed overhead in the Cost Accounts? (6 Marks)

6(b) Journalize the following transactions assuming that cost and financial accounts are
integrated (Narration is not required):
Particulars Amount (₹)
Raw Material Purchased 8,00,000
Direct Materials Issued to Production 6,00,000
Wages Paid (30% Indirect) 4,80,000
Wages Charged to Production 3,36,000
Manufacturing Expenses Incurred 3,80,000
Manufacturing Overhead Charged to Production 3,60,000
Selling And Distribution Cost 80,000
Finished Products (At Cost) 8,00,000
Sales 11,60,000
Receipts from Debtors 2,76,000
(8 Marks)

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7(a) What are the various Advantages of Cost Accounting Standards? (6 Marks)

7(b) M/s. Lotus Inc. manufactures the fountain pen called 'Pluto'. In the manufacturing of
'Pluto', the overheads were recovered at a pre-determined rate of ₹25 per man-day.
The other information for the month of April, 2023 is as under:
Total factory overheads incurred 83, 00,000
Man-days actually worked 2,97,200
Total units manufactured 80,000
Units sold during the month 60,000
Incomplete units (60% complete) 60,000
REQUIRED:
You, as a qualified cost accountant, are asked to suggest how would unabsorbed
overheads be treated in Cost Accounts?
(8 Marks)

8(a) Distinguish between Cost Allocation and Cost Apportionment. (4 Marks)

8(b) Discuss the objectives and functions of Cost Accounting Standards Board (CASB).
(5 Marks)
8(c) What is Integrated Accounting System? What are its advantages? (5 Marks)