IPC MAY 2017

Cost Accounting & FM

Test Code COST-1
75 Marks
Coverage
Standard Costing, Operating Costing, JPBP, Contract costing

Question-1

KPR Limited operates a system of standard costing in respect of one of its products
which is manufactured within a single cost centre. The Standard Cost Card of a
product is as under:

Standard Unit cost ( )

Direct material 5 kgs @ 4.20 21.00
Direct labour 3 hours @ 3.00 9.00
Factory overhead 1.20 per labour hour 3.60
Total manufacturing cost 33.60

The production schedule for the month of June, 2007 required completion of 40,000
units. However, 40,960 units were completed during the month without opening and
closing work-in-process inventories.

Purchases during the month of June, 2007, 2,25,000kgs of material at the rate of
4.50 per kg. Production and Sales records for the month showed the following actual
results.

Material used 2,05,600kgs.

Direct labour 1,21,200 hours; cost incurred 3,87,840
Total factory overhead cost incurred 1,00,000
Sales 40,000 units
Selling price to be so fixed as to allow a mark-up of 20 per cent on selling price.
Required:

(i) Calculate material variances based on consumption of material.

(ii) Calculate labour variances and the total variance for factory overhead.
(iii) Prepare Income statement for June, 2007 showing actual gross margin.
(iv) An incentive scheme is in operation in the company whereby employees are paid
a bonus of 50% of direct labour hour saved at standard direct labour hour rate.
Calculate the Bonus amount. (16 Marks)
Question-2

The following information is available from the cost records of Vatika& Co. For the
month of August, 2009:
Material purchased 24,000 kg 1,05,600
Material consumed 22,800 kg
Actual wages paid for 5,940 hours 29,700
Unit produced 2,160 units.
Standard rates and prices are: Direct
material rate is 4.00 per unit Direct
labour rate is 4.00 per hour Standard
input is 10 kg. for one unit
Standard requirement is 2.5 hours per unit.
Calculate all material and labour variances for the month of August, 2009.(8 Marks)

Question-3

SJ Ltd. has furnished the following information:

Standard overhead absorption rate per unit 20

Standard rate per hour 4
Budgeted production 15,000 units
Actual production 15,560 units

Actual overheads were 2,95,000 out of which 62,500 fixed .

Actual hours 74,000
Overheads are based on the following flexible
budget
Production (units) 8,000 10,000 14,000
Total Overheads ( ) 1,80,000 2,10,000 2,70,000

You are required to calculate the following overhead variances (on hours basis) with
appropriate workings:
(i) Variable overhead efficiency and expenditure variance
(ii) Fixed overhead efficiency and capacity variance. (8 Marks)

Question-4

A transport company has a fleet of three trucks of 10 tonnes capacity each plying in
different directions for transport of customer's goods. The trucks run loaded with
goods and return empty. The distance travelled, number of trips made and the load
carried per day by each truck are as under:

2|Page
 Truck No. One way No. of trips Load carried
Distance Km per day per trip / day tonnes
1 16 4 6
2 40 2 9
3 30 3 8

The analysis of maintenance cost and the total distance travelled during the last two
years is as under

Year Total distance travelled Maintenance Cost

1 1,60,200 46,050
2 1,56,700 45,175

The following are the details of expenses for the year under
review:
10 per litre. Each litre gives 4 km per litre of diesel on an
Diesel
average.
Driver's salary 2,000 per month
Licence and taxes 5,000 per annum per truck
Insurance 5,000 per annum for all the three vehicles
Purchase Price per 3,00,000, Life 10 years. Scrap value at the end of life is
truck 10,000.
Oil and sundries 25 per 100 km run.
General Overhead 11,084 per annum

The vehicles operate 24 days per month on an average.

Required
(i) Prepare an Annual Cost Statement covering the fleet of three vehicles.
(ii) Calculate the cost per km. run.
(iii) Determine the freight rate per tonne km. to yield a profit of 10% on freight.
(10 Marks)

Question-5

A transport company has been given a 40 kilometre long route to run 5 buses. The
cost of each bus is 6,50,000. The buses will make 3 round trips per day carrying on
an average 80 percent passengers of their seating capacity. The seating capacity of
each bus is 40 passengers. The buses will run on an average 25 days in a month. The
other information for the year 2013-14 are given below:

Garage rent 4,000 per month

Annual repairs and maintenance 22,500each bus
Salaries of 5 drivers 3,000 each per month

3|Page
 Wages of 5 conductors 1,200 each per month
Managers salary 7,500 per month
Road tax, permit fee, etc. 5,000 for a quarter
Office expenses 2,000 per month
Cost of diesel per litre 33
Kilometre run per litre for each but 6 kilometres
Annual depreciation 15% of cost
Annual Insurance 3% of cost

You are required to calculate the bus fare to be charged from each passenger per
kilometre, if the company wants to earn profits of 331/3 percent on taking (total
receipts from passengers). (8 Marks)

Question-6

PQR Construction Ltd. commenced a contract on April 1, 2009. The total contract
was for 27,12,500. It was decided to estimate the total profit and to take to the credit
of p/L A/c the proportion of estimated profit on cash basis which work completed
bear to the total contract. Actual expenditure in 2009-10 and estimated expenditure in
2010-11 are given below:

2009-10 2010-11
Actual ( ) Estimated ( )
Material
4,56,000 8,14,000
issued
Labour : Paid 3,05,000 3,80,000
: Outstanding at end 24,000 37,500
Plant
2,25,000 -
purchased
Expenses : Paid 1,00,000 1,75,000
: Outstanding at the end - 25,000
: Prepaid at the end 22,500 -
Plant returned to stores (a historical stores) 75,000 1,50,000 (on Dec 31 2010)
Material at site 30,000 75,000
Work-in progress certified 12,75,000 Full
Work-in-progress uncertified 40,000 ----
Cash received 10,00,000 Full

The plant is subject to annual depreciation @ 20% of WDV cost. The contract is
likely to be completed on December 31, 2010.
Required:
1. Prepare the Contract A/c for the year 2009-10.
2. Estimate the profit on the contract for the year 2009-10 on prudent basis which has to
be credited to P/L A/c. (14 Marks)

4|Page
 Question-7

Explain the terms notional profit and retention money in contract costing. (3 Marks)

Question-8

A Company produces two joint products P and Q in 70 : 30 ratio from basic raw
materials in department A. The input output ratio of department A is 100 : 85. Product
P can be sold at the split of stage or can be processed further at department B and sold
as product AR. The input output ratio is 100 : 90 of department B. The department B
is created to process product A only and to make it product AR.

The selling prices per kg.are as under:

Product P 85
Product Q 290
Product AR 115

The production will be taken up in the next month. Raw materials 8,00,000Kgs.
Purchase price 80 per Kg.

Deptt. A Deptt. B
Lacs
Lacs
Direct materials 35.00 5.00
Direct labour 30.00 9.00
Variable overheads 45.00 18.00
Fixed overheads 40.00 32.00
Total 150.00 64.00
in Lacs
Selling Expenses:
Product P 24.60
Product Q 21.60
Product AR 16.80

Required:
(i) Prepare a statement showing the apportionment of joint costs.
(ii) State whether it is advisable to produce product AR or not. (8 Marks)

All the Best

5|Page