UNIVERSITY OF DELHI

B.COM (HONS,) SEM. IV UGCF (NEP)

COST ACCOUNTING, UPC- 2412082402
(MAY, 2024)
Time : 3 Hours Maximum Marks : 90
Instruction to Candidates: Attempt all questions. All questions carry equal marks. Use of simple calculator is
allowed
1. (a) Distinguish between Cost Accounting and Financial Accounting. (6)
(b) The accounts of Flex Manufacturing Company for the year ended 31st March, 2024, show the
following information :
S.No. Particulars Amount (Rs.)
1 Production wages 2,50,000
2 Direct material used 3,18,200
3 Chargeable expenses 30,000
4 Sales 7,80,000
5 Drawing office salaries 10,000
6 Counting office salaries 18,800
7 Cash discount allowed 3,000
8 Carriage outward 5,400
9 Bad debts written off 8,500
10 Rent, rates and taxes:
(i) Office 4,000
(ii) Works 15,400
11 Travelling expenses 3,600
12 Travellers’ salaries and commission 8,500
13 Depreciation on plant and machinery 6,500
14 Depreciation on office furniture 1,000
15 Directors fee 12,000
16 Gas and water (3/4 Factory, 1/4 Office) 2,800
17 Manager’s salary (3/4 Factory, 1/4 Office) 24,000
18 General expenses 4,000
19 Hire of crane 5,000
20 Donations to charitable trust 2,000
Prepare a statement showing (i) Prime Cost (i) Factory Cost and (ii) Total Cost and (iv) Net Profit.
(12)
Solution: Statement of Cost for year ended 31st March, 2024
Particulars Rs.
Direct Material used 3,18,200
Production Wages 2,50,000
Chargeable Expenses 30,000
Prime Cost 5,98,200
Q.2 Fundamentals of Cost Accounting

Factory Overhead:
Drawing Office Salaries 10,000
Rent, Rate and Taxes (Works) 15,400
Depreciation on Plant and Machinery 6,500
Gas and Water (3/4) 2,100
Manager’s Salary (3/4) 18,000
Hire of crane 5,000 57,000
Factory Cost 6,55,200
Office and Selling Overhead:
Counting Office Salaries 18,800
Carriage Outward 5,400
Bad Debts written off 8,500
Rent, Rates and Taxes (Office) 4,000
Travelling Expenses 3,600
Travellers’ Salaries and Commission 8,500
Depreciation on Office Furniture 1,000
Directors’ Fees 12,000
Gas and Water (1/4) 700
Manager’s Salary (1/4) 6,000
General Expenses 4,000 72,500
Total Cost 7,27,700
Net Profit 52,300
Sales 7,80,000
Note : 1. Cash discount allowed and donations are not included in cost.
2. Office and selling overhead have been combined into one category as cost of production is not
required in this question.
Or
(a) The SP Chemicals Ltd. supplies you the following details from its cost records: (15)
S.No. Particulars Amount ( )
1 Stock of raw materials s on January 1,2023 1,50,000
2 Stock of raw materials on January 31, 2023 1,30,000
3 Direct wages 80,000
4 Indirect wages 6,000
5 Work-in-progress 1.1.2023 56,000
6 Work-in-progress 31.1.2023 70,000
7 Purchase of raw materials 1,60,000
8 Factory rent, rates and power 30,000
9 Depreciation of plant and machinery 7,000
10 Royalty payments 25,000
11 Expenses incurred on quality check activities 10,0000
12 Office and Administrative expenses:
Factory Office 25,000
General office expenses 10,000
Question Paper Q.3

13 Carriage inward 3,000

14 Carriage outward 2,000
15 Advertising 5,000
16 Traveller’s wages 12,000
17 Stock of finished goods on 1.1.2023 (1,000 units) 54,000
18 Stock of finished goods on 31.1.2023 (2,000 units) ?
19 Bad debts 1,000
20 Interest on the hire-purchase installments 2,000
(a) Solution: Statement of Cost and Profit
Raw material consumed:
Opening Raw Material as on Jan. 1, 2023 1,50,000
Add: Purchases 1,60,000
Add: Carriage inwards 3,000
3,13,000
Less: Closing Raw Materials (-) 1,30,000 1,83,000
Direct wages 80,000
Royalty payments 25,000
PRIME COST 2,88,000
Add: Factory overheads:
Indirect wages 6,000
Factory rent, rates & power 30,000
Depreciation of plant and machinery 7,000 43,000
GROSS FACTORY/WORKS COST 3,31,000
Add: WIP as on Jan. 1, 2023 56,000
Less: WIP as on Jan. 31, 2023 (-) 70,000
NET FACTORY/WORKS COST 3,17,000
Expenses incurred on quality check activities 10,000
Office and Administrative expenses (Factory office) 25,000
COST OF PRODUCTION (10,000 units) 3,52,000
Add: Stock of finished goods on Jan. 1, 2023 (1,000 units) 54,000
Less: Stock of finished goods on Jan. 31, 2023 [(3,52,000/10,000) × 2,000] (-) 70,400
COST OF GOODS SOLD 3,35,600
Add: Office & Adm. O/H: General Office expenses 10,000
Add: Selling & Distribution overheads:
Carriage outward 2,000
Advertising 5,000
Traveller’s wages 12,000
Bad debts (assumed normal and necessary to boost sale) 1,000 20,000
COST OF SALES 3,65,600
PROFIT [25% on cost] [(3,65,600 ×25) / 100] 91,400
SALES
4,76,000
Q.4 Fundamentals of Cost Accounting

(b) Write a short note on: (i) Cost Unit (ii) Cost Centre (3)
2 (a) Calculate the economic order quantity (EOQ) for material M. The following details are
furnished:
Annual usage 90,000 units
Buying cost per order Rs.10
Cost of carrying inventory 10% of cost
Cost per unit Rs.50 (3)
Solution: Given: Annual usage (A) = 90,000 units
Buying Cost /Ordering Cost (B) = 100
Carrying cost per unit per annum (C) = 10% 50 = Rs.5

2AB 2 × 90 , 0 00 × 10
Calculation of Economic Order Quantity (EOQ) = = = 600 units
C 5
(b) The following transactions took place in respect of a material item:
Date Particulars
1 July Opening Stock 500 units @ Rs. 20 each
4 July Purchased GRN 574 400 units @ Rs. 21 each
6 July Issued SR 251 600 units
8 July Purchased GRN 578 800 units @ Rs. 24 each
9 July Issued SR 258 500 units
13 July Issued SR 262 300 units
24 July Purchased GRN 584 500 units @ Rs. 25 each
28 July Issued SR 269 400 units
Prepare Stores Ledger Account by using (i) FIFO, (1) LIFO (10)
Solution: Stores Ledger Method : FIFO
Date Receipts Issues Balance
July G.R.N. Qty. Rate Amt. S.R. Qty. Rate Amt. Qty. Rate Amt.
No. No. Units Units
1 Op. Bal 500 20 10,000 — — — — 500 20 10,000
4 574 400 21 8400 — — — — 500 20 10,000
— — — — — — — — 400 21 8400
6 — — — — 251 500 20 10,000 — — —
— — — — — 100 21 2,100 300 21 6,300
8 578 800 24 19,200 — — — — 300 21 6,300
— — — — — — — — 800 24 19,200
9 — — — — 258 300 21 6,300 — — —
— — — — — 200 24 4,800 600 24 14,400
13 — — — — 262 300 24 7,200 300 24 7,200
24 584 500 25 12,500 — — — — 300 24 7,200
— — — — — — — — 500 25 12,500
28 — — — — 269 300 24 7,200 — — —
— — — — — 100 25 2,500 400 25 10,000
Question Paper Q.5

Stores Ledger Method : LIFO

Date Receipts Issues Balance
July G.R.N. Qty. Rate Amt. S.R. Qty. Rate Amt. Qty. Rate Amt.
No. No. Units Units
1 Op. Bal 500 20 10,000 — — — — 500 20 10,000
4 574 400 21 8400 — — — — 500 20 10,000
— — — — — — — — 400 21 8,400
6 — — — — 251 400 21 8400 — — —
— — — — — 100 20 2,000 300 20 6,000
8 578 800 24 19,200 — — — — 300 20 6,000
— — — — — — — — 800 24 19,200
9 — — — — 258 500 24 12,000 300 20 6,000
— — — — — — — — 300 24 7,200
13 — — — — 262 300 24 7,200 300 20 6,000
24 584 500 25 12,500 — — — — 300 20 6,000
— — — — — — — — 500 25 12,500
28 — — — — 269 400 25 10,000 300 20 6,000
— — — — — — — — 100 25 2,500

(c) Accounting treatment of Losses- Waste, Scrap, Spoilage and Defectives. (5)
Or
(a) Question & Solution : Illustration 16. Page 4.33 &4.34 (9)

(b) Distinguish between time-keeping and time-booking. Explain methods of time-keeping and time-booking
in brief. (9)
3. (a) Distinguish between allocation and apportionment of overhead. Mention also the basis of
apportionment of expenses explain with suitable example. (6)
(b) A firm has three production departments A, B and C and two service departments X and Y. The
following figures are extracted from the books of the firm.
Depreciation `4,000 Indirect wages `600
Lighting ` 240 Power `600
Rent `2,000 Others `4,000
Other particulars:
A B C X Y
Floor space (sq. feet) 400 500 600 400 100
Direct wages (`) 900 600 900 900 700
Light points 20 30 40 20 10
H.P. of the machines 75 30 25 10 -
Value of machinery (` ) 12,000 16,000 20,000 1,000 1,000
Working hours 3,113 2,014 2,033 - -
The expenses of Service Departments X and Y are to be allocated as follows:
Q.6 Fundamentals of Cost Accounting

A B C X Y
X 20% 30% 40% - 10%
Y 40% 20% 20% 20% -
You are requested to distribute the service department expenses to the production department (A, B,
and C) and calculate hourly rate of each production department. (12)
Solution: Primary Overhead Distribution Summary
Item Basis Total Production Dept. Service Dept.
A B C X Y
1. Depreciation Machine value 4,000 960 1,280 1,600 80 80
2. Lighting Light points 240 40 60 80 40 20
3. Rent Floor space 2,000 400 500 600 400 100
4. Indirect wages Direct wages 600 135 90 135 135 105
5. Power H.P. 600 321 129 107 43 -
6. Others Direct wages 4,000 900 600 900 900 700
7. Direct wages Actual 1,600 - - - 900 700
Total 13,040 2,756 2,659 3,422 2,498 1,705
Secondary Overhead Distribution Summary and Calculation of Hourly Rate
(Repeated Distribution Method)
Particulars A B C X Y
Totals as per primary summary 2,756 2,659 3,422 2,498 1,705
Dept. X 500 749 999 (-) 2498 250
Y 782 391 391 391 (-)1955
X 78 117 157 (-) 391 39
Y 15 8 8 8 (-) 39
X 2 3 3 (-) 8 -
(A) Total Overhead 4,133 3,927 4,980 - -
(B) Working Hours 3,113 2,014 2,033 - -
Hourly Rate (A ÷ B) Rs. 1.33 1.95 2.45 - -
Or
(a) What is meant by under-absorption and over-absorption of overhead? How are under and over-
absorbed overhead treated in cost accounts? (6)
(b) Compute the Machine Hour Rate from the following data:
Cost of machine 1,00,000
Installation charges 10,000
Estimated scrap value after the expiry of its life (15 years) 5,000
Rent and rates for the shop per month 200
General lighting for the shop per month 300
Insurance premium for the machine per annum 960
Repairs and maintenance expenses per annum 1,000
Power consumption 10 units per hour
Rate of power per 100 units 20
Estimated working hours per annum (includes setting up time of 200 hours) 2,200
Shop supervisor’s salary per month 600
Question Paper Q.7

The machine occupied 1/4th of the total area of the shop. The supervisor is expected to devote 1/5th
his time for supervising the machine. (12)

Solution: Computaion of Machine Hour Rate

Particulars Per month Per hour
Standing Charges:
Rent and Rates (200 × 1/4) 50
General lighting (300 x 1/4) 75
Insurance Premium (960x1/12) 80
Shop supervisor’s salary (600 x 1/5) 120
Total yearly standing charges 325
Standing charges per hour (325 ×12) /2,000 1.95
Variable Charges
Repairs and maintenance (1,000 ÷ 2,000) 0.50
Power consumption (10 × 0.20) 2.00
Depreciation per hour (1,05,000/30,000) 3.50
Machine Hour Rate 7.95
Working Note : Calculation of Depreciation:
Cost of Machine 1,00,000
Installation charges 10,000
Total Cost 1,10,000
Less scrap value 5,000
1,05,000
Effective working life 2,000 hours × 15 years = 30,000 hours
Note:- It is assumed that setting up time of 200 hours is unproductive and thus effective hours are 2,200-
200 = 2,000
4. (a) Explain Normal loss, abnormal loss and abnormal gains with accounting treatment in process costing
(6)
(b) Product B is obtained after it passes through three distinct processes. The following information is
obtained from the accounts for the week ending 31st October, 2022:
Total ( ) Process-I ( ) Process-II ( ) Process-III ( )
Direct materials 7,542 2,600 1,980 2,962
Direct wages 9,000 2,000 3,000 4,000
Production overhead 9,000 - - -
1,000 units at 3 each were introduced to Process I. There was no stock of material or work-in-progress at
the beginning or at the end of the period. The output of each process passes direct to the next process and
finally to finished stock. Production overhead is recovered on 100% of direct wages.
The following additional data are obtained:
Process Output during the week % of normal loss to input Value of scrap p.u.
Process I 950 5% 2
Process II 840 10% 4
Process III 750 15% 5
Prepare process cost accounts and abnormal gain or loss accounts. (12)
Q.8 Fundamentals of Cost Accounting

Solution : Process I Account

Particulars Units Amt. Particulars Units Amt.
To Units introduced 1,000 3,000 By Normal loss 50 100
To Direct Materials 2,600 (5% of 1,000 units)
To Direct Labour 2,000 By Process B (transfer) 950 9,500
To Production overheads 2,000 @ 100 p.u.
1,000 9,600 1,000 9,600
Working Note (WN1) : Calculation of Normal Cost per unit of Normal output (Process I) :

Total Process Cost  Realisable value of Normal loss 9 600  100

   10
Total input (Units)  Normal loss (Units) 1 000  50

Cost of finished goods transferred to Process B = 950 units × 100= 9,500

Process II Account
Particulars Units Amt. Particulars Units Amt.
To Process I 950 9,500 By Normal wastage 95 380
To Direct Materials 1,980 (10% of 950 units)
To Direct Labour 3,000 By Abnormal Wastage 15 300
To Production overheads 3,000 By Process III (transfer) WN2 840 16,800
950 17,480 950 17,480
Working Note (WN2) : Calculation of Normal Cost per unit of Normal output (Process II) :

Total Process Cost  Realisable value of Normal loss 17 480  380

   20
Total input (Units)  Normal loss (Units) 950  95

Hence, Cost of Abnormal Wastage = 15 units × 200 = 300

Cost of finished goods transferred to Process III = 840 units × 20 = 16,800
Process III Account
Particulars Units Amt. Particulars Units Amt.
To Process II 840 16,800 By Normal wastage 126 630
To Direct Materials 2,962 (15% of 840 units)
To Direct Labour 4,000 By Finished Goods(transfer) 750 28,500
To Production overheads 4,000 WN3
To Abnormal gain (WN3) 36 1,368
876 29,130 876 29,130
Question Paper Q.9

Working Note (WN3): Calculation of Normal Cost per unit of Normal output (Process III) :

Total Process Cost  Realisable value of Normal loss 27 762  630

   38
Total input (Units)  Normal loss (Units) 840  126

Value of Abnormal wastage gain = 36 units × 38 = 1,368

Cost of goods transferred to finished stock a/c = 750 units × 38 = 28,500
Normal Wastage Account
Particulars Units Amt. Particulars Units Amt.
To Process I 50 100 By Sales of Scrap :
To Process II 95 380 Process I @ 2 p.u. 50 100
To Process III 126 630 Process II @ 4 p.u. 95 380
Process III @ 5 p.u. 90 450
By Abnormal Gain A/c 36 180
271 1,110 271 1,110

Abnormal Wastage Account

Particulars Units Amt. Particulars Units Amt.

To Process II 15 300 By Sales of Scrap @ 4 p.u. 15 60
By Profit and Loss A/c (bal. fig.) – 240

15 300 15 300

Abnormal Effectiveness Account

Particulars Units Amt. Particulars Units Amt.

To Normal wastage A/c 36 180 By Process III 36 1,368
To Costing P & L A/c (bal. fig.) – 1,188
36 1,368 36 1,368

Or
(a) (Slightly Modified)The following is theTrial Balance of a Construction Company engaged on the
execution of a contract No. 303, for the year ended 31st December, 2022.
Dr. ( ) Cr. ( )
Contractee’s account (amount received) - 3,00,000
Buildings 1,60,000 -
Creditors - 72,000
Bank balance 35,000 -
Capital account - 5,00,000
Q.10 Fundamentals of Cost Accounting

Materials 2,00,000 -
Wages 1,80,000 -
Expenses 47,000 -
Plant 2,50,000 -
8,72,000 8,72,000
The work on Contract No. 303 was commenced on 1st January, 2022. Materials costing `1,70,000 were sent to
the site of the contract but those of `6,000 were destroyed in an accident. Wages of `1,80,000 were paid during
the year. Plant costing `50,000 was used on the contract all through the year. Plant with a cost of `2 lakhs was
used from 1st January to 30th September and was then returned to the stores. Materials of the cost of `4,000
were at site on 31st December, 2022.
The contract was for `6,00,000. Work certified at the end of 2022 was 80% of the contract price. Uncertified
work was estimated at `15,000 on 31st December, 2022. Plant is to be depreciated at 10% for the entire year.
Assuming this was the only contract undertaken by the company during the year, prepare Contract No. 303
Account for the year 2022 and make out the Balance Sheet as on 31st December, 2022 in the books of Construction
Company. (18)
Solution: Contract No. 303 Account for the year ending 31-12-2022
Particulars Amt.( ) Particulars Amt.( )
To Materials 1,70,000 By Work certified 4,80,000
To Wages 1,80,000 By Work uncertified 5,000
To Expenses 45,000 By P&L A/c (Loss by accident) 6,000
To Dep.on plant (5,000 + 15,000) 20,000 By Material at site 4,000
To Notional profit c/d 90,000
5,05,000 5,05,000
To Profit & Loss A/c 37,500 By Notional Profit b/d 90,000
To Balance (Reserve) 52,500
Total 90,000 90,000
Balance Sheet as on 31st Dec., 2022
Liabilities Amt. ( ) Assets Amt. ( )
Capital 5,00,000 Building 1,60,000
P&L A/C 37,500 Plant in stores 1,80,000
Less: Abnormal Loss - 6,000 Materials in store 30,000
31,500 Work-in-progress:
Less: Unabsorbed expenses -2,000 Certified 4,80,000
29,500 Uncertified 15,000
Less Depreciation on Plant -5,000 24,500 Less: Reserve -52,500
Creditors 72,000 Less: Cash Received -3,00,000 1,42,500
Materials at site 4,000
Plant at site 45,000
Bank 35,000
5,96,500 5,96,500
Working Notes :-

WN1 : Calculation of profit transferred to P & L A/c from contract No. 303
Question Paper Q.11

Since more than 50% of the contract price has been certified, profit to be transferred to P & L A/c on this
incomplete contract can be calculated as follows :

2 Cash received 2 3 00 000

= Notional profit × ×  90 000    37,500
3 Work certified 3 4 80 000

80
Where Work certified = 6 00 000   4,80,000
100
WN2 : Depreciation on plant costing Rs. 2,00,000 has been charged to contract only for 9 months. For
remaining three months it has been charged from profit in the balance sheet. However, Depreciation on
plant costing Rs. 50,000 has been charged to contract for the whole year.
5. (a) The following information for the year ended 31-12-2022 is obtained from the books and records of a
factory.
Completed Jobs (Rs.) Work-in-Progress (Rs.)
Raw materials supplied from stores 90,000 30,000
Wages 1,00,000 40,000
Chargeable expenses 10,000 4,000
Materials transferred to work-in-progress 2,000 2,000
Materials retuned to stores 1,000 -
Factory overhead is 80% of wages and office overhead is 25% of factory cost. The price of the executed
contracts during 2022 was `4,10,000.
Prepare (i) Consolidated Completed Jobs Account showing the profit made or loss incurred.
(ii) Consolidated Work-in-Progress Account. (9)
Solution: Consolidated Completed Jobs Account
Particulars Amt.( ) Particulars Amt. ( )
To Materials 90,000 By Sales 4,10,000
Less: Transfer 2,000
Less: Return 1,000 87,000
To Wages 1,00,000
To Chargeable expenses 10,000
Prime Cost 1,97,000
To Factory overhead (80% of wages) 80,000
Factory Cost 2,77,000
To Office overheads (25% of factory cost) 69,250
Total Cost 3,46,250
To Net Profit 63,750
Total 4,10,000 4,10,000

Consolidated Work-in-progress Account

Particulars Amt.( ) Particulars Amt. ( )
To Materials 30,000 By Balance c/d 1,35,000
Add: Transfer 2,000 32,000
To Wages 40,000
Q.12 Fundamentals of Cost Accounting

To Chargeable expenses 4,000

Prime Cost 76,000
To Factory overhead (80% of wages) 32,000
Factory Cost 1,08,000
To Office overheads (25% of factory cost) 27,000
Total Cost 1,35,000
1,35,000 1,35,000
(b) What do you understand by reconciliation of cost and financial accounts? Indicate the reasons why it is
necessary for the cost and financial accounts of an organisation to be reconciled. Examine the reasons for the
difference between cost and financial accounts maintained by an organisation. (9)
Or
(a) Joseph owns a fleet of taxis and the following information is available from the records maintained by
him:
Number of taxis 10
Cost of each taxi `20,000
Salary of manager `7,600 p.m.
Salary of accountant `500 p.m
Salary of cleaner `7,200 p.m.
Salary of mechanic `7,400 p.m
Garage rent `7,600 p.m
Insurance premium 5% per annum
Annual tax `600 per taxi
Driver’s salary `200 p,m. per taxi
Annual repair `1,000 per taxi

Total life of a taxi is 2,00,000 km. A taxi runs in all 3,000 km. in a month of which 30% it runs empty. Petrol
consumption is one litre for 10 km. @ Rs.11.80 per litre, 0il and other sundries are Rs.5.00 per 100 km.
Calculate the cost of running a taxi per km. (9)
Or
Solution: (a) Operating Cost sheet
Per month per Taxi ( ) Per Km. ( )
Standing Charges/Fixed costs:
Manager’s salary760.00
Accountant’s salary 50.00
Salary of cleaner 720.00
Salary of mechanic 740.00
Garage rent 760.00
Insurance premium ( 20,000 × 5% ×1/12) 83.33
Annual Taxes (600 ÷ 12) 50.00
Driver’s salary per taxi 200.00
Total Standing Charges 3363.33
Standing Charges per km. (3363.33/2,100) 1.60
Operating and Maintenance Charges:
Question Paper Q.13

(a) Depreciation 0.14

(b) Petrol [(11.80/10 × 3,000) / 2,100] 1.69
(c) Repairs [(1,000/12) / 2,100] 0.04
(d) Oil and other sundries [(5× 3,000/100) / 2,100] 0.07
Total cost per km. 3.54
Working Notes :-

WN1 : It has been assumed that 30% empty run of the taxi is a normal in trade and hence assumed as normal
loss. Therefore, all costs have been inflated to cover this normal loss.

70
Calculation of effective km. (For entire life) = 2,00,000× = 1,40,000 kms.
100

70
Calculation of effective km. (per month) = 3, 000 × = 2,100 kms.
100
(b) Question & Solution : Illustration 5 Page 14.10&14.11 (9)