IMT 58 Management Accounting M1

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IMT 58: MANAGEMENT ACCOUNTING M1

PART – A

Q1. What do you understand by cost ascertainment? How is it different from cost estimation? Why are both important to a manufacturing firm?

Q2. The following particulars relating to the year 1999 have been taken from the books of a chemical works manufacturing and selling a chemical mixture:

Stock on 1 January, 1999 Kg. Rs.

Raw Material 2,000 2,000

Finished Mixture 500 1,750

Factory Stores 7,250

Purchases

Raw Material 1,60,000 1,80,000

Factory Stores 24,250

Sales

Finished Mixture 1,53,050 9,18,000

Factory Scrap 8,170

Factory Wages 1,78,650

Power 30,400

Depreciation of Machinery 18,000

Salaries :

Factory 72,220

Office 37,220

Selling 41,500

Expenses :

Direct 18,500

Office 18,200

Selling 18,000

Stock on 31 December, 1999

Raw Material 1,200

Finished Mixture 450

Factory Stores 5,550

The stock of finished mixture at the end of 1994 is to be valued at the factory cost of the mixture for that year. The purchase price of raw materials remained unchanged throughout 1999.

Prepare a statement giving the maximum possible information about cost and its break-up for the year 1999.

3. Following is the information about the production and amount of overhead expenses of a seasonal factory;

Month

Direct labour

Hours

Direct Labour

wages

Factory

overhead

January

1050

600

300

February

1100

700

350

March

1600

750

400

April

1800

750

450

May

2500

1250

550

June

3050

1600

600

July

2500

1300

550

August

1750

750

500

September

1500

750

400

October

1250

600

350

November

1000

500

300

December

900

450

250

Calculate the overhead rates on the basis of (i) direct labour hours, and (ii) direct labour wages. State which of the two bases you reconsider equitable.

Find out the cost of the Job No. 101 applying the rates worked out above. The direct costs of the job are:

Rs.

Direct materials 40

Direct labour hours 20

Direct labour wages 20

Q4. Discuss the concept of departmentalization of factory overheads.

Q5. The following details are extracted from the costing records of an oil mill for the year ended 31st March 1994.

Purchase of 500 tonnes Copra Rs. 2,00,000

Crushing Refining Finishing

Rs. Rs. Rs.

Cost of Labour 2,500 1,000 1,500

Electric Power 600 360 240

Sundry Materials 100 2,000 –

Steam 600 450 450

Repairs of Machinery 280 330 140

Factory Expenses 1,320 660 220

Cost of Casks 7,500

300 tonnes of Crude oil were produced.

250 tonnes of Oil were produced by the refining process.

248 tonnes of Refined Oil were finished for delivery.

Copra sacks sold for Rs. 400.

175 tonnes of Copra residue were sold for Rs. 11,000.

Loss in weight in crushing 25 tonnes, 45 tonnes of by-products obtained from refining process Rs. 6,750.

You are required to show the accounts in respect of each of the following stages of manufacture for the purpose of arriving at the cost per tonne of each process and the total cost per tonne of the finished Oil:

(a) Copra crushing process

(b) Refining process

(c) Finishing process including casking

PART – B

Q1. Explain process costing and enumerate its principles.

Q2. (a) Neodrug manufactures and processes a product, a plant food, through three distinct processes, the product of one process being passed on to the next process, and so on till the finished product.

Raw materials, labour and direct expenses incurred on each of the processes are as follows:

Particulars Process A Process B Process C

Rs Rs Rs

Raw Materials 1,000 800 200

Labour 500 600 700

Direct Expenses 150 250 500

The overhead expenses for the period amounted to Rs 3,600 and is to be distributed to the processes on the basis of labour wages.

There were no stocks in any of the processes at the beginning or at the close of the period. Ignore wastages.

Assuming that the output was 1000 kilos, show the process accounts A, B, and C indicating also the unit cost per kilo under each element of cost and the output in each process.

(b) If 10% of the output is estimated to be lost in the course of sale and sampling, what should be the selling price per unit (correct to two decimal places) so as to provide for gross profit of 331/3% on selling price.

Q3. What do you understand by absorption costing and marginal costing? Point out the differences between the two.

Q4. An analysis of Sultan Manufacturing Co. Ltd. led to the following information:

Cost element Variable cost Fixed costs

(% of sales) Rs

Direct Material 32.8

Direct Labour – 28.4

Factory Overheads 12.6 1,89,900

Distribution Overheads 4.1 58,400

General Administration Overheads 1.1 66,700

Budgeted sales are Rs 18,50,000. You are required to determine:

(i) The break-even sales volume.

(ii) The profit at the budgeted sales volume

(iii) The profit if actual sales:

(a) drop by 10%

(b) increase by 5% from budgeted sale

Q5. Explain the concept of decision making in the context of management accounting. What are the steps involved in decision making?
PART – C

(a) A company is manufacturing three products, details of which for the year are given below:

Product Price Variable Per cent

cost of total

Rs Rs Sales value

A 20 10 40

B 25 15 35

C 20 12 25

Total Fixed Costs per Year Rs 1,10,000

Total Sales Rs 5,00,000

You are required to work out the break-even point in rupee sales for each product assuming that the sales mix is to be retained.

(b) The management has approved a proposal to substitute product C by product D in the coming year. The latter product has a selling price of Rs 25 with a variable cost of Rs 12.50 per unit. The new sales mix of A ,B and D is expected to be 50: 30 : 20. Next year fixed costs are expected to increase by Rs 31,000. Total sales are expected to remain at Rs 5,00,000. You are required to work out the new break-even point in rupees sales and units for each product.

(c) What is your comment on the decision of the management regarding changing product mix?

Q2. Briefly examine the concept of responsibility accounting.

Q3. For production of 10,000 electrical automatic irons, the following are the budgeted expenses:

Per unit

Direct Materials Rs 60

Direct Labour 30

Variable Overheads 25

Fixed Overheads (Rs 1,50,000) 15

Variable Expenses (Direct) 5

Selling Expenses (10% fixed) 15

Administration Expenses (Rs 50,000 rigid for all levels of production) 5

Distribution Expenses (20% fixed) 5

Total Cost of Sale per Unit 160

Prepare a budget for production of 6,000, 7,000 and 8,000 irons showing distinctly the marginal cost and total costs.

Q4. ‘Calculation of variances in standard costing is not an end in itself, but a means to an end.’ Explain.

Q5. In department A the following data is submitted for the week ended 31 October:

Standard Output for 40 hours per Week 1,400 units

Standard Fixed Overhead Rs 1,400

Actual Output 1,200 units

Actual Hours Worked 32 hours

Actual Fixed Overhead Rs 1,500

Prepare a statement of variances.
CASE STUDY – 1

The expenses budgeted for production of 10,000 units in a factory are furnished below:

Per Unit Rs

Materials 70

Labour 25

Variable Factory Overheads 20

Fixed Factory Overheads (Rs.1,00,000) 10

Variable Expenses (Direct) 5

Selling Expenses (10% fixed) 13

Distribution Expenses (20% fixed) 7

Administrative Expenses (Fixed – Rs 50,000) 5

Total cost of sales per unit 155

 

Prepare a budget for the production of 6000 units and 8000 units.

CASE STUDY – 2

A company is presently working at 90 per cent capacity and producing 13,500 units per annum. It operates a flexible budgetary control system. The following figures are obtained from its budget:

90 per cent 100 per cent

 

Sales Rs 15,00,000 Rs 16,00,000

Fixed Expenses Rs 3,00,500 Rs 3,00,500

Semi-fixed Expenses Rs 97,500 Rs 1,00,500

Variable Expenses Rs 1,45,000 Rs 1,49,500

Units Made Rs 13,500 Rs 15,000

 

 

Labour and material cost per unit are constant under present conditions. Profit margin is 10 per cent.

(i) Determine the differential cost of producing 1500 units by increasing capacity to 100 per cent.

(ii) What would you recommend for an export price of these 1500 units taking into consideration that overseas prices are much lower than indigenous prices?

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