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Q1 Rainbow Ltd. sold goods for Rs. 30,00,000 in a year. In that year, the variable costs
were Rs. 6,00,000 and fixed costs were Rs. 8,00,000.
Find out:
i) MCSR or P/V Ratio
ii) Break-even sales
iii) Break-even sales, if the selling price was reduced by 10 % and fixed costs were
increased by Rs. 1,00,000.
Answer:-
(i) Profit Volume Ratio or MCSR Value = (Sales- Variable cost) * 100 %
Sales
= 8, 00,000 x 30
24
= Rs.10,00,000
(iii) In the question no selling price per unit is given so we cannot calculate new
selling price. Hence Break even sales on new selling price could not be calculated.
Q.2 The method of costing depends on the nature of the product, production method
and specific business conditions. Enumerate giving examples.
Answer:-
Costing Methods:
1. Job Costing
Under this meth0d c0sts are c0llected and accumulated f0r each j0b 0r w0rk 0rder 0r pr0ject
separately. Each j0b can be identified separately and hence bec0mes essential t0 analyse the
c0sts acc0rding t0 each j0b.
Example- This meth0d is suitable f0r Printers, Machine t00l manufacturers, F0undries, and
general engineering w0rksh0ps
1. Contract Costing
C0ntract c0sting d0es n0t in principle differ fr0m j0b c0sting. When the j0b is big and spread
0ver l0ng peri0d 0f time, the meth0d 0f c0ntract c0sting is used.
2. Batch Costing
This is an extensi0n 0f j0b c0sting. A batch may represent a number 0f small 0rders 0r gr0up
0f identical pr0ducts passed thr0ugh the fact0ry in batch.
Example- The manufacturers 0f biscuits, garments, spare parts and c0mp0nents mainly use
this meth0d.
3. Process Costing
A pr0cess refers here t0 a stage 0f pr0ducti0n. If a pr0duct passes thr0ugh different stages,
each distinct and well defined, then in 0rder t0 ascertain the c0st at each stage 0r pr0cess, the
pr0cess c0sting is used.
Example- Pr0cess c0sting meth0d is generally f0ll0wed in textile units, chemical industries,
refineries, tanneries, paper manufacture, etc.
4. Operation Costing
5. Unit Costing
This is als0 kn0wn as single 0r 0utput c0sting. This meth0d is suitable f0r industries where
the manufacture is c0ntinu0us and units are identical.
Example- T0nne 0f c0al in c0llieries, t0nne 0f cement, 0ne th0usands 0f bricks, etc. The
0bject 0f this meth0d is t0 ascertain the c0st per unit 0f 0utput and the c0st 0f each element
0f such c0st.
6. Operating Costing
This is suitable f0r industries, which render services as distinct fr0m th0se, which
manufacture g00ds. This is applied in transp0rt undertakings, p0wer supply c0mpanies, gas,
water w0rks, municipal services, h0spitals, h0tels, etc.
7. Multiple Costing
It is als0 called as c0mp0site c0sting. It represents the applicati0n 0f m0re than 0ne meth0d
0f c0sting in respect 0f the same pr0duct.
Given the following further information you are required to prepare a cash
Budget for the quarter January to March 2017, showing the budgeted amount
of bank facilities required, if any, in each month end:
Receipts
Payments
As given in the question, Credit terms of sales are payment by the end of the month following
the month of supply. On average one half of sale are paid on due date, while the other half are
paid during the next month.
2. Payments to creditors
As given in the question, Creditors are paid during the month following the month of supply.
3. Wages payment
According to the question, they are paying wages in the same month so we take amount of
wages of current months only i.e. January month wages are Rs.11, 000 so we consider
Rs.11,000 paid in January only.
Assignment Set -II
Q.1
1 ton of material input yields standard output of 1, 00,000 units. The standard price
of material is Rs. 20 per kg. The actual quantity of material use is 10 tons and the
actual price paid is Rs. 21 per kg. Actual output obtained is 9, 00,000 units.
Compute Material Variances.
From the above find:
i) Material Cost Variance
ii) Material Price Variance
iii) Material Usage Variance
Material Price Variance = (Standard Price Actual Price) x Actual quantity used.
MPV = (SP AP) AQ
= 10 (Adverse)
Answer:-
Error of commission If the errors wrong posting, wrong casting, wrong calculation
etc., are committed in the books of original entry or ledger, it is said to be error
commission.
Example: Purchase invoice of Rs.1730 may have been entered as Rs.1370 in the
purchases book itself, then, in the subsequent ledger accounts the same mistake
continues and thereby cannot be disclosed by trial balance. The difference of Rs.360
(1730-1370) should be added to purchases account and to the respective suppliers
account. The error can be detected only when the original invoice is referred to after
getting the complaint from the supplier.
Rectification entry:
Rectification Entry:
To wages a/c
Mr. X account was debited Rs. 100 as against Rs.1000 while the account
of Mrs. X account was debited Rs.1000 as against the correct amount of
Rs. 100.
Rectification entry:
Check the total on both debit side and credit side of the trial balance.
Check the total of debtors and creditors accounts.
Find out whether all ledger balances are carried to trial balance.
Verify the total of all the ledger accounts.
Divide the amount of difference in the trial balance by 2 and see if any item of the
debit or credit side equal to that amount has been posted to the opposite side.
Check whether the opening balances are brought down correctly from the previous
accounting period.
Compare with trial balance of the previous year to find out if there are any items
missing.
Where the difference in the trial balance is divisible by 9 then the difference is likely
to be due to misplacement of figures like 12 for 21, 24 for 42, 36 for 63, etc.
Q.3
3 Rs.
Opening cost of Raw materials 30,000
Closing stock of Raw materials 20,000
Purchase of Raw materials 1,90,000
Sales 6,50,000
Prime Cost 4,10,000
Factory Overhead 1,20,000
Administration Overhead 90,000
10 % of the output remained unsold. There was no Direct Expenses
Answer:-
Cost sheet