SYBMS – SEMESTER I

INTRODUCTION TO COST ACCOUNTING

Question Bank
Q.1. a. Multiple choice questions.
1. Process of ascertainment of cost is known as _____.
a. Costing b. Cost Reporting c. Cost Control d. None

2. Which of the following statements is false ?

a. The limitations of Financial Accounting have led to the origin and evolution of Cost Accounting
b. Financial Accounts fail to give a product-wise break-up of profit or loss
c. Financial Accounts help to judge the efficiency or productivity of the concern
d. Cost Accounting Techniques help the management in making decisions or planning for future

3. Product cost is _______________ cost.

a. Fixed b. Semi Variable c. Indirect d. Variable

4. Which of the following is not a function of Cost Accounting?

a. Cost ascertainment b. Planning and control c. Decision-making d. External reporting

5. A cost which remains fixed, irrespective of the increase or decrease of the volume of output is known as.
a. Fixed b. Semi Variable c. Indirect d. Variable

6. _____ is the cost of next alternative which is foregone due to a decision.

a. Historical Cost b. Opportunity Cost c. Marginal Cost d. Sunk Cost

7. _____ is an example of administration cost.

a. Purchase Cost b. Advertising c. Security Expenses d. Market Research

8. Cost Accounting covers

a. the preparation of statistical data b. the application of cost control methods
c. the ascertainment of the profitability of activities carried out or planned d. all the above

9. Overheads incurred in connection with factory is called _____________ overheads.

a. Office b. Factory c. Selling d. None

10. Variable cost per unit remains _________.

a. Flexible b. Constant c. Both a & b d. None of the above

11. EOQ stands for _____?

a. Economic Order Quantity b. Elastic Order Quantity
c. Economic Operating Quantity d. Economic Operation Quotation

12. Cost behavior refers to

a. how costs react to a change in the level of activity
b. whether a cost is incurred in a manufacturing, trading, or service company
c. classifying costs as either product or period costs
d. whether a particular expense has been incurred honestly
13. The costs that result when a company holds an inventory of goods for sale is _____.
a. Purchasing Cost b. Ordering Cost c. Opportunity Cost d. Carrying Cost

14. _____ is the level of stock at which order should be placed with normal supplier.
a. Minimum Level b. Maximum Level c. Re-order Level d. Danger Level

15. The cost Accounting system is developed for _______________ .

a. Financial institution b. Government c. Management d. Shareholders

16. Which of the following costs will vary directly with the level of production?
a. Total manufacturing costs b. Total cost of sales
c. Variable selling costs d. Variable product costs

17. An example of fixed cost is _____.

a. material consumed b. factory rent c. factory power d. packing material

18. When 10,000 units are produced, variable costs are Rs. 6 per unit. Therefore, when 20 000 units are
produced
a. variable costs will total 1.20,000 b. variable costs will total 760,000
c. variable unit costs will increase to 7 12 per unit d. variable unit costs will decrease to 3 per unit

19. Material cost is an example of _____.

a. Fixed b. Semi Variable c. Indirect d. Variable

20. _____ is a combination of fixed and variable cost.

a. Relevant Cost b. Material Cost c. Labour Cost d. Semi-Variable Cost

21. _____ is an example of production cost.

a. Salary b. Labour Cost c. Printing and Stationery d. Legal Expenses

22. The cost which remains constant irrespective of output is called _____________ cost.
a. Fixed b. Semi Variable c. Indirect d. Variable

23. Fixed cost per unit ___________ .

a. Flexible b. Constant c. Both a & b d. None of the above

24. At EOQ, total inventory carrying cost is _____ total inventory ordering cost.
a. more than b. less than c. equal to d. none

25. Costs which are not relevant for decision-making and are not affected by increase or decrease in volume
are
a. Imputed costs b. Sunk costs c. Historical costs d. Opportunity costs

26. FIFO is _____.

a. Fast Investment in Future Order b. First In First Out
c. Fast In Fast Out d. Fast Issue of Fast Order
27. When premises are owned, a charge in lieu of rent is
a. an opportunity cost b. an imputed cost c. a sunk cost d. an avoidable cost

28. Costs that can be easily traced to a specific department are called
a. Direct costs b. Indirect costs c. Overheads d. Processing costs

29. _____ is the level of stock at which order should be placed with alternate supplier under uncertain
situations.
a. Minimum Level b. Maximum Level c. Re-order Level d. Danger Level

30. A functional classification of costs would classify "depreciation on office equipment as a

a. Product cost b. Administrative expense c. Selling expense d. Variable cost

31. A location for which cost is incurred is a ___________.

a. Revenue centre b. Cost centre c. Profit centre d. Production centre

32. A cost which increases or decreases with the volume of output is known as _____.
a. Fixed b. Semi Variable c. Indirect d. Variable

33. Costs which are already incurred and are not relevant for any decision making are called as _____.
a. Historical Cost b. Opportunity Cost c. Marginal Cost d. Sunk Cost

34. _____ is an example of selling cost.

a. Purchase Cost b. Advertising c. Accountant's Salary d. Rent

35. Interest on capital is ____________ cost.

a. Sunk b. Opportunity c. Imputed d. Indirect

36. Cost of designing is ___________ expenses.

a. Office b. Production c. Direct d. Indirect

37. ___________ is that portion of cost which is consumed.

a. Income b. Profit c. Expense d. None

38. The costs of preparing, issuing and placing purchase orders, plus receiving and inspecting the items
included in orders is _____.
a. Purchasing Cost b. Ordering Cost c. Stockout Cost d. Carrying Cost

39. _____ is the level of stock beyond which the stock should not go.
a. Minimum Level b. Maximum Level c. Average Level d. Danger Level

40. In most of the manufacturing industries, the most important element of cost is
a. Material b. Labour c. Overheads d. None

41. Which of the following is considered to be a normal loss of material?

a. Loss due to accidents b. Pilferage
c. Loss due to careless handling of material d. Loss due to breaking the bulk
42. Which of the following methods of stock control aims at concentrating efforts on selected items of
materials?
a. Perpetual inventory system b. Materials turnover
c. Maximum, minimum and re-order level setting d. ABC analysis

43. The classification of items in ABC analysis is made on the basis of

a. Investment value of materials b. Consumption value of materials
c. Quantity of materials consumed d. All of these

44. The storekeeper should initiate a purchase requisition when stock reaches
a. Minimum level b. Maximum level c. Re-order level d. Average level

45. A purchase requisition is raised

a. to intimate to the supplier the quantity and quality of new material required
b. when the stock of raw material has fallen to the recorder level
c. when goods are received from a supplier
d. to let the accounts department know that an invoice should be expected from a supplier

46. The reorder level is

a. the number of units that should be ordered
b. the level of inventory when next order should be placed
c. the economic order quantity
d. both (b) and (c)

47. The costs associated with storage are an example of which cost category?
a. Quality costs b. Labour costs c. Ordering costs d. Carrying costs

48. The costs that result when a company holds an inventory of goods for sale.
a. Purchasing costs b. Carrying costs c. Opportunity costs d. Interest costs

49. The costs of goods acquired from suppliers including incoming freight or transportation costs are
a. Purchasing costs b. Ordering costs c. Stockout costs d. Carrying costs

50. If quantity ordered is more than EOQ then _____ will tend to increase.
a. Purchasing Cost b. Ordering Cost c. No Effect d. Carrying Cost

51. Process costing is applied when

a. small number of different products are manufactured
b. large number of different products are manufactured
c. large number of identical products are manufactured
d. small numbers of customised made-to-order products are manufactured

52. Which of the following does not use process costing?

a. Oil refining
b. Distilleries
c. Sugar
d. Air-craft manufacturing
53. Which cost accumulation procedure is most applicable in continuous mass-production manufacturing
environments?
a. Standard
b. Actual
c. Process
d. Job order

54. Which of the following statements is false?

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

55. Process Cost is based on the concept of

a. Average Cost
b. Marginal Cost
c. Standard Cost
d. Differential Cost

56. Normal Loss is equal to

a. Normal Output - Actual Output
b. Actual Output - Normal Output
c. Input x % of Normal Loss
d. None of the above

57. Normal Output is equal to

a. Input Abnormal Loss
b. Input - Normal Loss
c. Input Abnormal Gains
d. None of the above

58. Unit Cost is equal to

a. Normal Cost + Normal Output
b. Total Cost Normal Output
c. Normal Cost + Total Output
d. Total Cost + Total Output

59. Abnormal Loss is equal to

a. Input Actual Output
b. Actual Output Normal Output
c. Normal Output - Actual Output
d. Actual Output Input

60. Abnormal Gains are equal to

a. Actual Output - Normal Output
b. Normal Output Actual Output
c. Actual Output Input
d. Input Actual Output
61. Process cost is very much applicable in
a. Construction Industry
b. Pharmaceutical Industry
c. Airline Company
d. None of these

62. In process costing, each producing department is a

a. Cost unit
b. Cost Centre
c. Investment centre
d. Sales centre

63. Which of the given units can never become part of first department of Cost of Production Report
a. Units received from preceding department
b. Units transferred to subsequent department
c. Lost units
d. Units still in process

64. In which of the following incentive plans of wage payment, wages on time basis are NOT guaranteed?
a. Halsey plan
b. Rowan plan
c. Taylor's differential piece rate system
d. Gantt's task and bonus system

65. Under the high wage plan, a worker is paid

a. at a time rate higher than the usual rate
b. according to his efficiency
c. at a double rate for overtime
d. normal wages plus bonus

66. Which of the following methods of wage payment is most suitable where quality and accuracy of work is
of primary importance?
a. Piece rate system
b. Time rate system
c. Differential piece work system
d. Halsey premium system

67. Labour productivity is measured by comparing

a. Actual time with standard time
b. Total output with total man hours
c. Added value for the product with total wage cost
d. All of the above

68. Piece workers are paid on the basis of

a. Output sold
b. Output produced
c. Output in stock
d. Input received
69. Time wages are paid on the basis of
a. Actual time
b. Standard time
c. Time saved
d. Overtime

70. Differential piece wages means

a. different wages for different level of performance
b. different wages for different time consumed
c. different wages for different types of workers
d. different wages for different types of industries

71. Labour productivity cannot be measured by comparing

a. actual time with standard time
b. total output with total man hours
c. added value for the product with total wage cost
d. total wage and total output

72. Comparing Rowan plan and Halsey plan, it is seen that when the time saved is less than 50% of the
standard time
a. Rowan plan allows more wages to a worker than Halsey plan
b. Rowan plan allows less wages to a worker than Halsey plan
c. Rowan and Halsey plan allow equal wages to a worker
d. Rowan plan and Halsey plan are equal to ordinary time wage

73. Halsey premium plan is

a. Individual incentive scheme
b. Group incentive scheme
c. Differential piece wage system
d. Time and piece wage system

74. Bonus under Rowan scheme is paid

a. as a proportion of standard time to actual time
b. as a proportion of actual time to standard time
c. as a proportion of time saved to standard time
d. as a proportion of standard time to time saved

75. Merricks multiple piece rate system has

a. Two rates
b. Three rates
c. Four rates
d. Five rates

76. How many rates are used to calculate wages under Taylor's differential piece rate system?
a. Two
b. Three
c. Four
d. Five
77. When time saved is more than 40% of the standard time, Halsey plan allows.
a. more wages than Rowan plan
b. less wages than Rowan plan
c. equal wages as compared to Rowan plan
d. None of the above

78. Wages under rowan and Halsey plan are exactly when time saved in
a. nil
b. 50% of the standard time
c. both (a) and (b)
d. None of the above

79. Under Gantts task and bonus plan no bonus is payable to a worker if his efficiency is less than
a. 50%
b. 60%
c. 83.5%
d. 100%

80. Bonus under Halsey plan is paid

a. at 50% of time saved
b. at 75% of time saved
c. at 80% of time saved
d. at 90% of time saved

81. Under Emerson's efficiency System, no bonus is payable when efficiency is upto
a. 50%
b. 66 2/3%
c. 83 1/3%
d. 100%

82. The allotment of whole items of cost to cost centres or cost units is called
a. Cost allocation
b. Cost apportionment
c. Overhead absorption
d. None of the above

83. Packing cost is a

a. Production cost
b. Selling cost
c. Distribution cost
d. It may be any of the above

84. Directors' remuneration and expenses form a part of

a. Production overhead
b. Administration overhead
c. Selling overhead
d. Distribution overhead
85. Salary of a foreman should be classified as a
a. Fixed overhead
b. Variable overhead
c. Semi-fixed or semi-variable overhead

86. Charging to a cost centre those overheads that result solely from the existence of that cost centre is known
as
a. Allocation
b. Apportionment
c. Absorption
d. Allotment

87. Which of the following items is not included in preparation of a cost sheet?
a. Carriage inward
b. Purchase returns
c. Sales commission
d. Interest paid

88. Which of the following items is not excluded while preparing a cost sheet?
a. Goodwill written off
b. Provision for taxation
c. Property tax on Factory Building
d. Transfer to reserves

89. Which of the following are direct expenses?

i. The cost of special designs, drawing or layouts
ii. The hire of tools or equipment for a particular job
iii. Salesman's wages
iv. Rent, rates and insurance of a factory
a. (i) and (ii)
b. (i) and (iii)
c. (i) and (iv)
d. (iii) and (iv)

90. A company has to pay 10,000 per unit royalty to the designer of a product which it manufactures and sells.
The royalty charge would be classified as a
a. Direct expense
b. Production overhead
c. Administrative overhead
d. Selling overhead

91. Wherever part of the manufacturing operation is subcontracted, the subcontract charges related to
materials shall be
a. ignored
b. treated as cost of materials
c. treated as works overheads
d. treated as direct expenses
92. Research and development cost relating to an existing product
a. shall be treated as Capital Expenditure
b. shall be treated as deferred revenue expenditure
c. shall be treated as Direct Expenses
d. shall be ignored

93. Which of the following are prime costs?

i. Direct materials
ii. Direct labour
iii. Indirect labour
iv. Indirect expenses
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. (ii) and (iv)

94. What is prime cost?

a. Total direct costs only
b. Total indirect costs only
c. Total non-production costs
d. Total production costs

95. Which of the following costs are part of the prime cost for a manufacturing company?
a. Cost of transporting raw materials from the supplier's premises
b. Wages of factory workers engaged in machine maintenance
c. Depreciation of lorries used for deliveries to customers
d. Cost of indirect production materials

96. Prime cost is

a. all costs incurred in manufacturing a product
b. the total of direct costs
c. the material cost of a product
d. the cost of operating a department

97. In Reconciliation Statement, Expenses shown only in Financial Accounts are

a. added to financial profit
b. deducted from financial profit
c. ignored
d. added to costing profit

98. In Reconciliation Statement, Expenses shown only in Cost Accounts are

a. added to financial profit
b. deducted from financial profit
c. ignored
d. deducted from costing profit
99. In Reconciliation Statement, transfers to reserves are
a. added to financial profit
b. deducted from financial profit
c. ignored
d. added to costing profit

100. In Reconciliation Statement, Incomes shown only in Financial Accounts are

a. added to financial profit
b. deducted from financial profit
c. ignored
d. deducted from costing profit

Q.1. b. State whether the following statements are true or false.

1. Financial Accounts fail to give a product-wise break-up of profit or loss.
2. Financial Accounts fail to show whether there was any abnormal waste during the process of
production.
3. Cost Accounting ascertains the individual costs of each contract.
4. Cost Accounting helps the management to control the cost of Materials, Labour and Expenses
5. Cost Accounting helps in controlling the leakage and wastage of materials.
6. Cost Accounting is used by investors, creditors etc.
7. Costing is a comprehensive term which includes Cost Accounting.
8. Periodical Matching of income and expenses is one of the fundamental assumptions of Cost
Accounting.
9. Cost Accounting provides data for managerial decision-making.
10. Cost Accounting gets its basic data for estimates from the financial accounting system.
11. Cost accounting can be used only in manufacturing concerns.
12. Costing, cost accounting and cost accountancy mean one and the same thing.
13. Cost accounting is a branch of financial accounting.
14. Cost accounting provides cost information not only to management but also to shareholders.
15. Cost accounting information focuses on external reporting.
16. A profitable business concern does not need costing system. 17. Cost accounting is not needed by a
non-profit organization such as a hospital.
17. Cost accounting is not needed if the price is beyond the control of the firm.
18. Cost accounting assists financial accounting with regard to the valuation of inventory.
19. The scope of cost accounting includes cost ascertainment, cost presentation and cost control. 21. Since
pricing is a matter of managerial policy, cost information is useless for price fixation.
20. Cost accounting provides information for ascertaining the financial position as on a particular date.
21. Cost accounting helps in controlling cost.
22. Costing and cost accounting are the same.
23. Cost Control means a lower amount of profit to the company.
24. Cost reduction is the primary responsibility of the cost accountant in any organization.
25. All costs are controllable.
26. Interest on capital, payment for which is not actually made, is an example of imputed cost. 29. An item
of cost which is uncontrollable by one Manager may be controllable by another.
27. Only variable costs are controllable.
28. Variable cost remains constant per unit within a range of activity.
29. Sunk costs are relevant to present decisions. 33. Imputed costs are a type of opportunity costs.
30. Variable overheads vary with time.
31. Fixed costs vary with the level of production or sales volume.
32. Marginal costs are not at all helpful to management for decision-making.
33. Cost Accounting Standard 2 deals with Classification of Cost.
34. The sale value of residue etc. is credited to the Process Account
35. Invisible waste has no sale value.
36. Normal Loss is treated as normal cost of production.
37. The sale value of scrap, is always more than the cost of production, leading to abnormal gains.
38. The actual sale of units of scrap representing normal loss is credited to the Profit & Loss A/c.
39. The sale value of the units of abnormal loss is credited to the Process A/c.
40. The sale value of units of abnormal gains is debited to the abnormal gains account and credited to the
normal loss account.
41. The cost of units of abnormal loss is credited to the Process account.
42. The cost of units of abnormal gain is debited to the Process account. 10. The sale value of units of
abnormal loss is credited to the abnormal loss account.
43. Abnormal loss is charged to costing profit and loss account.
44. Costs are accumulated by time period in a process costing system.
45. Process costing is ordinarily applied where all the operations are performed in one department.
46. Process Costing is used in case of industries where work is done against specific order.
47. The cost of good units is reduced by the abnormal gain in process costing.
48. Perpetual inventory system enables management to ascertain stock at any time without the expense of
physical stock-taking.
49. Annual stock-taking confirms that the perpetual inventory is functioning properly.
50. Weighted average method of pricing stores involves adding all the different prices and dividing by the
number of such prices.
51. When maximum stock level is fixed, the stock in hand should never exceed this level.
52. Re-ordering level is always fixed somewhere between maximum and minimum stock levels.
53. The economic order quantity is the re-order quantity.
54. In FIFO method, closing stock is valued at oldest prices of materials.
55. FIFO method of pricing results in higher profits during the period of falling prices.
56. Weighted average method of pricing stores involves adding all the different prices and dividing by the
number of such prices.
57. Re-order level means the quantity to be ordered.
58. Economic order quantity is that order size at which each of the Ordering Cost and Carrying Cost is
minimum.
59. The perpetual inventory system enables management to ascertain stock without physical verification.
60. Perpetual inventory system and continuous stock taking are synonymous.
61. In Taylor's differential Piece Rate plan, time wages are guaranteed to each worker
62. Rowan incentive plan distributes the benefit of time saved equally between employee and employer.
63. When wages are paid on piece basis, the quality of work deteriorates
64. In Halsey Premium Plan, time wages are guaranteed.
65. In Emerson's Efficiency System, bonus is paid only when efficiency is 100%. 6. Merrick's Differential
Prece Rate System is less punitive than Taylor's system.
66. Under the Rowan Plan, bonus is a fixed percentage.
67. When the time saved is 50% of the standard time, both the Rowan and Halsey plans pay the same
amount of bonus.
68. Labour productivity automatically increases when production increases.
69. Factory overhead includes all production costs other than direct materials and salaries. 2. Departments
that assist producing departments indirectly are called service departments.
70. Allocation of overhead implies the identification of overhead cost centres to which they relate.
71. Apportionment of overhead is the allotment of whole items of cost to cost centres or cost units.
72. Overhead absorption is the allotment of overhead to cost units.
73. The word 'allocation apportionment' and 'allotment' have exactly the same meaning in costing.
74. Profit as per cost accounts is the same as profit as per the financial accounts.
75. Notional interest on Owner's capital appears only in financial profit and loss a/c.
76. Goodwill written off appears only in cost accounts.
77. Overheads are taken on estimated basis in Financial Accounts. 5. Profit as per cost accounts is the
same as profit as per the financial accounts, in case of integrated system of accounts.
78. Reconciliation of cost and financial accounts is necessary, in case of non-integrated system of
accounts.
79. Expenses which appear only in Financial Accounts and not in Cost Accounts are generally notional
items.
80. Need for Reconciliation arises in case of Integrated System of Accounts. 9. Need for Reconciliation
does not arise in case of Non-Integral system of Accounts.
81. Closing Stock of finished goods in Cost Books is valued at cost or net realizable value whichever
lower. 11. Closing Stock of work-in-progress in financial books is generally valued at cost of goods
produced.
82. The under / over recovery of overheads may result in difference between Financial profit and Cost
profit when such under / over recovery is charged to Costing Profit & Loss Account.
83. Divided paid is a financial income,
84. Transfer to general reserve is credited to financial profit and loss a/c.
 MATERIAL COSTING

EOQ = √2 X A X Co
Ci

EOQ = Economic Ordering Quantity

A = Annual Demand

Co = Ordering Cost Per Order

Ci = Inventory Carrying Cost Per Unit Per Annum

i. Re-order Level = Maximum Consumption X Maximum Lead Time

ii. Maximum Level = Re-order Level + Re-order Quantity – (Minimum Consumption x Minimum Lead Time)

iii. Minimum Level = Re-order Level - (Average Consumption X Average Lead Time)

iv. Danger level = Average Consumption X Lead Time for Emergency Purchases

v. Average Level = (Maximum Level + Minimum Level) ÷ 2

vi. Average Level = Minimum Level + ½(Re-Order Quantity)

 LABOUR COSTING
1. Time Rate System
Payment = Hours Worked × Rate per Hour

2. Piece Rate System

Wages = Rate per unit × Number of units produced

3. Taylor Differential Piece Rate System

Lower Piece Rate = 80% of Normal Piece Rate
Higher Piece Rate = 120% of Normal Piece Rate

4. Merrick Differential Piece Rate System

Efficiency Piece Rate Applicable
Upto 83% Normal Rate
Above 83% and upto 100% 10% Above Normal Rate
Above 100% 20% Above Normal Rate

5. Gantt Task Bonus Plan

Output Piece Rate Applicable
Output below Standard Guaranteed Time Rate
Output at Standard Bonus of 20% of the time/piece rate
Output above Standard High piece-rate on Worker’s Whole Output

6. Halsey Premium Plan

Total Earnings = Time Wages + [50% of Time Saved x Time Rate]
= [H x R] + [50% (S – H) x R]
H = Hours Worked
R = Rate Per Hour
S = Standard Time

7. Halsey-Weir Premium System

Total Earnings = [H x R] + [33 1/3 % (S – H) x R]
H = Hours Worked
R = Rate Per Hour
S = Standard Time

8. Rowan Premium Plan

Total Earnings = [H x R] + [(S – H) / S x H x R]
H = Hours Worked
R = Rate Per Hour
S = Standard Time

9. Barth Variable Sharing Plan

Total Earnings =R√SxH
H = Hours Worked
R = Rate Per Hour
S = Standard Time
 OVERHEAD COSTING

APPORTIONMENT/PRIMARY DISTRIBUTION OF OVERHEAD

Sr.
Overhead Basis of Apportionment
No.
1 i. Rent and other building expenses
ii. Lighting and heating
Floor area
iii. Fire precaution service
iv. Air-conditioning
2 i. Perquisites
ii. Labour welfare expenses
iii. Time keeping Number of workers
iv. Personnel office
v. Supervision
3 i. Compensation to workers
ii. Holiday pay
Direct wages
iii. ESI and PF contribution
iv. Perquisites
4 i. Depreciation of plant and machinery
ii. Repairs and maintenance of plant and Capital values of assets
machinery
5 Insurance of stock Stock Value
6 Lighting expenses No. of light points, or Area or Metered units
Horse power of machines, or Number of
7 Electric power machine hour, or Value of machines or Units
consumed
8 i. Material handing Weight of materials, or volume of materials,
or value of materials or unit of materials
ii. Stores overhead
Direct labour hour, or Direct wages, or
9 General overhead
Machine hours
10 Other Technical estimates, surveys, analysis
 RE-APPORTIONMENT/SECONDARY DISTRIBUTION
Sr.
Cost of the Service Departments Basis
No.
1 Maintenance and Repair Shop
Direct Labour Hours, Machine Hours, Direct
2 Planning and Progress Labour Wages. (x Hours Worked)
3 Tool Room
4 Canteen and Welfare
5 Hospital and Dispensary
No. of Direct Workers, No. of Employees, etc.
6 Personnel Department
7 Time-keeping
No. of card punched, Computer hours,
8 Computer Section
Specific allocation to departments
Floor area, Cubic content, No. of Electric
9 Power House (Electric Lighting Cost)
Points, Wattage
Horse Power, Kwh; Horse Power x Machine
10 Power House (Electric Power Cost)
Hours; Kwh x Machine Hours
No. of Requisitions, Weight or value of
11 Stores Department
Materials issued
Crane hours, Truck hours, Truck mileage.
12 Transport Department Truck tonnage, Truck ton-hours, Tonnage
handled, No. of packages of Standard size
13 Fire Protection Capital Values of Assets
14 Inspection/Quality Inspection Hours
15 Purchase Department No. of Purchase Orders, Value of Purchases
 COST SHEET

Cost Sheet for the Period Ended _____

Amount Amount
Particulars
(₹) (₹)
A)Direct Material Consumed
Opening Stock of Raw Material XXX
Add :- Purchase of Raw Material XXX
Add :- Purchase of Related Expenses (Carriage Inward, Freight etc.) XXX
Less :- Closing Stock of Raw Material (XXX) XXX
B) Direct Wages / Direct Labour XXX
C) Direct Expenses / Overheads XXX
PRIME COST (A + B + C) XXX
Factory Cost XXX
Less :- Sale of Scrap (XXX)
Work-in-Progress
Opening Stock of WIP XXX
Less :- Closing Stock of WIP (XXX) XXX
FACTORY COST XXX
Office and Administrative Expenses XXX
Quality Control Costs XXX
R&D Cost XXX XXX
COST OF PRODUCTION XXX
Finished Goods
Opening Stock of Finished Goods XXX
Less :- Closing Stock of Finished Goods (XXX) XXX
COST OF GOODS SOLD XXX
Sales and Distribution Expenses XXX
COST OF SALES XXX
Add :- Profit / (Loss) XXX
SALES XXX

Cost Per Unit

The Cost Per Unit at each stage is obtained as follows:
Total Prime Cost = Prime Cost Per Unit ÷ Total Units Produced
Works Cost Per Unit = Total Works Cost ÷ Total Units Produced
Cost of Production Per Unit = Total Cost of Production ÷ Total Units Produced
Thus, the costs upto the stage of production are divided by Total Units Produced to determine the Cost Per
Unit
Adjusting Units of Finished Goods Stock
The Total No. of Units produced are thereafter adjusted for the opening and closing stock of finished goods
to arrive at the Quantity of Units Sold. Thus,

Adjusting Finished Stock Units

Particulars Quantity
No. of Units Produced XXX
Add: No. of Units in Opening Stock XXX
XXX
Less: No. of Units in Closing Stock (XXX)
No. of Units Sold XXX

Cost of Goods Sold Per Unit = Total Cost of Goods Sold ÷ Total No. of Units Sold
Cost of Sales Per Unit = Total Cost of Sales ÷ Total No. of Units Sold
Thus, the costs pertaining to Sales are divided by Units Sold to arrive at the Cost Per Unit.
Note: If the value of closing stock of finished goods is not given, it is to be determined by the following
formula:
Units of Closing Stock x Cost of Production Per Unit
Thus, Closing Stock of Finished Goods has always to be valued at the cost of production.

Items Excluded From Cost Sheet

Purely financial items (incomes/expenses/losses/appropriations) such as interest, loss on sale of fixed assets,
dividends paid etc, are not shown in the cost sheet. (see Chapter 7, Para 3 for detailed list of such items).
 RECONCILIATION OF FINANCE AND COST ACCOUNTS
A. Reconciliation Statement Starting from Financial Profit
Statement Of Reconciliation Between Financial Profit and Costing Profit for the Year
Ended 31st March, 2014
Amount
Particulars Amount (₹)
(₹)
Profit As Per Financial Books XXX
Add :-
Expenses/Losses / Appropriations Debited only in Financial A/cs XXX
Closing Stock Undervalued in Financial A/cs XXX
Opening Stock Overvalued in Financial A/cs XXX
Depreciation Overcharged in Financial A/cs XXX
Overheads Under-recovered in Cost A/cs XXX
Income Credited only in Cost A/cs XXX XXX
XXX
Less :-
Income Credited only in Financial A/cs XXX
Closing Stock Overvalued in Financial A/cs XXX
Opening Stock Undervalued in Financial A/cs XXX
Depreciation Undercharged in Financial A/cs XXX
Overheads Over-recovered in Cost A/cs XXX
Expenses Debited only in Cost A/cs XXX (XXX)
Profit As Per Costing Books XXX

B. Reconciliation Statement Starting from Financial Profit

Statement Of Reconciliation Between Financial Profit and Costing Profit for the Year
Ended 31st March, 2014
Amount
Particulars Amount (₹)
(₹)
Profit As Per Costing Books XXX
Add :-
Income Credited only in Financial A/cs XXX
Closing Stock Overvalued in Financial A/cs XXX
Opening Stock Undervalued in Financial A/cs XXX
Depreciation Undercharged in Financial A/cs XXX
Overheads Over-recovered in Cost A/cs XXX
Expenses Debited only in Cost A/cs XXX XXX
XXX
Less :-
Expenses/Losses / Appropriations Debited only in Financial A/cs XXX
Closing Stock Undervalued in Financial A/cs XXX
Opening Stock Overvalued in Financial A/cs XXX
Depreciation Overcharged in Financial A/cs XXX
Overheads Under-recovered in Cost A/cs XXX
Income Credited only in Cost A/cs XXX (XXX)
Profit As Per Financial Books XXX
 PROCESS COSTING
Calculations for Normal Loss etc.
Step What is to be calculated How it is to be calculated
1. Normal Loss = Input x % of Normal Loss
2. Normal Output = Input - Normal Loss
3. Unit Cost = Normal Cost / Normal Output
= (Cost of Process - Sale Value of Normal Loss) / Input - Normal Loss
4. Abnormal Loss = Normal Output - Actual Output
Or
Abnormal Gains = Actual Output - Normal Output
5. Cost of Actual Output = Unit Cost x Units of Actual Output
6. Cost of Abnormal Loss = Unit Cost x Units of Abnormal Loss
7. Cost of Abnormal Gains = Unit Cost x Units of Abnormal Gains
Adjustments: After the above calculations are done, the final adjustments are as follows:
(1) Record Actual Sale of Scrap / Loss:
(a) Normal: The actual sale (cash or credit) of units of scrap representing normal loss is credited
to the Normal Loss A/c.
(b) Abnormal: The sale value of the units of abnormal loss (Actual Loss Less Normal Loss) is
credited to the Abnormal Loss A/c.
(2) Transfer Shortfall in Sale of Abnormal Gains from Normal Loss to Abnormal Loss A/c:
Abnormal gains indicate that the good output is more than expected and the scrap is less than normal. For
example, if the input is 2.000 units and the normal loss is 20%, the normal output is 2,000-400 1,600. If the
actual output is 1,800, it indicates an abnormal gain of 1,800 - 1,600 200 units. The normal loss account,
however, has already been credited with the sale value of the normal loss i.e. 400 units (say 400 x 50
20,000). Since the actual loss is only 200 units there is an excess credit in the normal loss account to the
extent of sale value of units of abnormal gains i.e. 200 x 50 10,000. This means that though the sale value of
normal loss is expected to be total 20,000, actually the sale value will be only 10.000. This shortfall of
10,000 has to be set off and adjusted against the cost of abnormal gains. This is done by debiting the sale
value of units of abnormal gains to the abnormal gains account and crediting the same to the normal loss
account. The sale value is equal to Units Of Abnormal Gain x Sale Price

(3) Close Abnormal Loss A/c: The abnormal loss account will show some balance representing loss. This
will be transferred to the costing profit and loss account.

(4) Close Abnormal Gains A/c: The abnormal gains account will show some balance representing net gains
or profit. This will be transferred to the costing profit and loss account.
Short notes and answer in brief

1. Write a short note on classification of cost on the basis of behaviour.

2. Write a short note on classification of cost on the basis of functions.
3. Write a short note on classification of cost on the basis of time.
4. Write a short note on classification of cost for management.
5. Write a short note on classification of cost on the basis of nature wise elements.
6. Write short note on purchase cost of material.
7. Write short note on Economic Ordering Quantity.
8. Write short note on Minimum and Maximum Stock Level.
9. Write short note on Re-order and Danger Stock Level.
10. Write short note on ABC analysis.
11. What is FIFO method of stock valuation. Explain with examples.
12. Process Costing
13. Features of Process Costing
14. Waste and losses in process costing
15. Advantages of process costing
16. Disadvantages of process costing
17. Time rate wages
18. Piece rate wages
19. Incentive Schemes
20. Halsey Premium Plan
21. Rowan System
22. Gantt’s Task Bonus Plan
23. Allocation of Overheads
24. Apportionment of Overheads
25. Direct Material in Cost Sheet
26. Direct Wages in Cost Sheet
27. Direct Overheads in Cost Sheet
28. Factory Overheads in Cost Sheet
29. Items of Reconciliation between Cost and Financial Accounts
30. Reasons of Difference between Cost and Financial Accounts