Costing Test Series-1
Marks: 40 Marks
Timed Allowed: 1 hours and 12 minutes
Chapter covered: Material cost, Employee Cost and Overhead.
Part-1: Multiple Choice Question( 6Qx2 = 12 marks)
Case scenario:
A l p h a Limited produces product 'M' which has a quarterly demand of 20,000 units.
Each product requires 3 kg. and 4 kg. of material X and Y respectively. Material X is
supplied by a local supplier and can be procured at factory stores at any time, hence, no
need to keep inventory for material X. The material Y is not locally available, it requires to
be purchased from other states in a specially designed truck container with a capacity of 10
tons.
The cost and other information related with the materials
Particulars are as–X
Material follows: Material-Y
Purchase price per kg. (excluding GST) ₹140 ₹640
Rate of GST 18% 18%
Freight per trip (fixed, irrespective of quantity) - ₹28,000
Loss of materials in transit* - 2%
Loss in process* 4% 5%
*On purchased quantity Other information:
- The company has to pay 15% p.a. to bank for cash credit facility.
- Input credit is available on GST paid on materials.
- Note: safety stock of material Y= 5,000 units and
lead time is 12 days.
1. Total purchase quantity of material X and Y.
a) 2,40,000 and 3,20,000.
b) 2,50,000 and 3,44,086.
c) 2,80,000 and 3,65,000.
d) 2,20,000 and 3,40,000.
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2. Cost per unit of material X and Y.
a) 145.83 and 691.23
b) 140 and 640
c) 148.5 and 694.5
d) 144 and 690.
3. Economic order quantity for material X and Y.
a) 23,664.32 and 13,632.62
b) 0 and 13,632.62
c) 24,320 and 13,500
d) 20,000 and 30,000.
4. If company decides to reduce safety stock by 2000 units for material Y, what will
be impact on profitability:
a) Increase by 3,11,040.
b) Decrease by 3,11,040.
c) Increase by 2,07,360.
d) Decrease by 2,07,360.
5. If there is 10% probability( of lead time consumption) that material Y will be stock
out and each unit of stock out will involve ₹ 30 penalty for emergency purchase, what
will be stock out unit and its cost:
a) 1052 units and 31,560.
b) 876 units and 26,280.
c) 10,512 units and 3,15,360
d) 8875 units and 2,66,250.
6. Your company uses a historical cost system and applies overheads on the
basis of “pre determined” rates. The following are the figure from the Trial
Balance as at 30th September, 2013:-
Manufacturing overheads ₹ 4,26,544 Dr.
Manufacturing overheads applied ₹ 3,65,904 Cr.
Work-in-progress ₹ 1,41,480 Dr.
Finished goods stocks ₹ 2,30,732 Dr.
Cost of goods sold ₹ 8,40,588 Dr.
What will be the under absorption attributable to work in progress:
a) 7,074.
b) 11,537.
c) 42,029.
d) 60,640.
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Part-2 Descriptive Questions: 2Qx14 marks = 28 marks
Q. 1(a)- 8 marks
The particulars relating to 1,200 kgs of a certain raw material purchased by a company during June,
were as
follows:
Lot prices quoted by supplier and accepted by the company for placing the purchase order:
Lot size upto 1,000 kgs
@ ₹ 22 per kg
Between 1,000 – 1,500 kgs
@ ₹ 20 per kg
Between 1,500 – 2,000 kgs
@ ₹ 18 per kg
Trade discount – 20%
Additional charge for containers @ ₹ 10 per drum of 25 kgs
Credit allowed on return of containers @ ₹ 8 per drum
GST @ 12% on raw material and 5% on drums
Total freight paid by the purchaser ₹ 240.
Insurance @ 2.5% (on net invoice value) paid by the purchaser
Stores overhead applied @ 5% on total purchase cost of material
The entire quantity was received and issued to production
The containers are returned in due course. Draw up a suitable statement to show:
a. Total cost of material purchased and
b. Unit cost of material issued to production
.
Q. 1(b) – 6 marks
An article passes through five hand operations as follows:
Operation No. Timeper article Gradeof worker Wagerateper hour
(₹)
1 15 minutes A 0.65
2 25 minutes B 0.50
3 10 minutes C 0.40
4 30 minutes D 0.35
5 20 minutes E 0.30
The factory works 40 hours a week and the production target is 600 dozens per week. Prepare a statement
showing for each operation and in total the number of operations required, the labour cost per dozen and the
total labour cost per week to produce the total targeted output.
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Q. 2(a) – 8 marks
A company has three production departments (M1, M2 and A1) and three service department, one
of which Engineering service department, servicing the M1 and M2 only. The relevant information
are as follows:
Product X Product Y
M1 10 Machine hours 6 Machine hours
M2 4 Machine hours 14 Machine hours
A1 14 Direct Labour hours 18 Direct Labour hours
The annual budgeted overhead cost for the year are
Indirect Wages (₹) Consumable Supplies(₹)
M1 46,520 12,600
M2 41,340 18,200
A1 16,220 4,200
Stores 8,200 2,800
Engineering Service 5,340 4,200
General Service 7,520 3,200
(₹)
- Depreciation on Machinery 39,600
- Insurance of Machinery 7,200
- Insurance of Building 3,240
(Total building insurance cost for M1 is one third of annual premium)
- Power 6,480
- Light 5,400
- Rent 12,675
(The general service deptt. is located in a building owned by the company. It is valued at ₹6,000
and is charged into cost at notional value of 8% per annum. This cost is additional to the rent
shown above)
The value of issues of materials to the production departments are in the same proportion as shown
above for the Consumable supplies.
The following data are also available:
Department Book value Area Effective Production Capacity
Machinery (₹) (Sq. ft.) H.P. hours % Direct Labour Machine
hour hour
M1 1,20,000 5,000 50 2,00,000 40,000
M2 90,000 6,000 35 1,50,000 50,000
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A1 30,000 8,000 05 3,00,000 -
Stores 12,000 2,000 - - -
Engg. Service 36,000 2,500 10 - -
General Service 12,000 1,500 - - -
Required:
(i) Prepare a overhead analysis sheet, showing the bases of apportionment of overhead to
departments.
(ii) Allocate service department overheads to production department ignoring the
apportionment of service department costs among service departments.
(iii) Calculate suitable overhead absorption rate for the production departments.
Q. 2(b) – 6 marks
The standard hours of job X is 100 hours. The job has been completed by A in 60 hours, B in 70 hours
and C in 95 hours.
The bonus system applicable to the job is as follows:-
Percentage of time saved to time allowed (Slab rate) Bonus Saving
Upto 10% 10% of time saved
From 11% to 20% 15% of time saved
From 21% to 40% 20% of time saved
From 41% to 100% 25% of time saved
The rate of pay is ₹ 2.5 per hour, Calculate the total earnings of each worker and also the rate of
earnings per hour.
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