SAC (SKP) Costing and Income Tax 2006

Q1.The following are the data of a Stove Manufacturing Company for the year ended 31/march/2005: Rs. Opening Material inventory 70,000 Closing Material inventory 9,800 Purchases of material 1,05,000 Factory wages 1,90,000 Factory expenses 35,000 Establishment expenses 20,000 Opening finished inventory Nil Closing finished inventory 70,000 Sales 3,78,000 The number of stoves manufactured during the year was 8,000. The company wants to quote for the supply of 2000 stoves for the coming year. The stoves to be quoted are similar to those in the current year but the cost of material is likely to increase by 10% and factory labour by 20% Prepare a statement showing:(a) The Work cost ,the Total cost, the percentage that work ohd cost bears to factory wages and the % that establishment expense bear to the works cost. (b) The price to be quoted so as to give the same % of profit realised on turnover as in the current year. Statement showing cost and profit for the year ending 31/march/2005 8000 units Per unit Rs. Rs. Opening stock of raw material Add: Purchases of raw material Less: Closing stock of raw material (a) Cost of material consumed Factory Wages Prime Cost Works OHD charges (Factory expenses) Work Cost Add: Establishment expenses (b)Cost of production (Total Cost) Add: Opening stock of finished goods Less : Closing stock of finished goods Cost of goods sold Profit (Bal. Fig) Sales i. work cost - Rs.3,90,200 ii. Total cost Rs. 4,10,200 iii. % of work ohd to factory wages = 70,000 1,05,000 1,75,000 9,800 1,65,200 1,90,000 3,55,200 35,000 3,90,200 20,000 4,10,200 Nil 4,10,200 70,000 3,40,200 37,800 3,78,000 20.65 23.75 44.40 4.37 48.77 2.5 51.27

35 , 000 100=18 . 42 1,90 , 000

iv. % of establishment expenses to work cost

20 , 000 100=5 .13 3,90 , 200

v. % profit on turnover =

37 , 800 100=10 3,78 , 000

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Statement showing quotation for 2000 units Rs. Material consumed (Rs.20.65 X 2000) Add: 10% Factory Wages (Rs. 23.75 X 2000) Add: 20 % Prime Cost Factory Expenses (Rs.4.375 x 2000) Work Cost Establishment Expenses (Rs.2.50 x 2000) Total Cost Profit (10/90)Rs. 1,16,180 Selling Price OR A product passes through two distinct processes, A and B. From the following information, prepare the Process Accounts, Abnormal Loss or Gain Accounts. 10000 units were issued to Process A at Rs.10 each: Process A Process B Materials added (Rs.) 50,000 40,000 Direct Labour (Rs.) 16,000 20,000 Overheads (Rs.) 10,000 18,000 Normal wastage (% of input) 5 5 Scrap value of normal loss (per unit in Rs.) 5 10 Output (units) 9,500 9,000 Process A A/c Particulars To, Units introduced (@ Rs.10) To, Materials To, Direct Labour To, Overheads unit amount (Rs.) Particulars unit amount (Rs.) 2,500 10,000 1,00,000 By, Normal Loss 500 A/c (5% of 10,000 @ Rs. 5 p/u) By, Process B A/c 9,500 41,300 4130 47,500 9,500 57,000 1,02,430 8,750 1,11,180 5,000 1,16,180 12,908 1,29,088 45,430 Rs.

50,000 16,000 10,000 10,000 1,26,000

1,01,00

10,000

1,26,000

Workings Input (units) Less: Normal loss (5% of input) Normal output Actual out put 10,000 500 9,500 9,500

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Process B A/c Particulars To, Process A A/c To, Materials To, Direct Labour To, Overheads 9,500 Workings Input (units) Less: Normal loss (5% of input) Normal output Less : Actual out put Abnormal Loss 9,500 475 9,025 9,000 25 unit 95,00 amount (Rs.) 1,01,000 40,000 20,000 18,000 1,79,000 9,500 1,79,000 Particulars unit amount (Rs.) 4,750 482.69 1,73,767.31 By, Normal Loss A/c (5% 475 of 9,500 @ Rs. 10 p/u) By, Abnormal Loss A/c * By, Finished Goods A/c 25 9,000

* Abnormal Loss = =482.69

Normalcos t of normaloutput unitsof abnormalloss normal output

120250 25 9025

Abnormal Loss A/c Particular To Process B A/c unit 25 amount (Rs.) 482.69 Particulars By Cash A/c (@ Rs.10) By, Costing profit & Loss A/c 25 482.69 25 unit 25 amount (Rs.) 250 232.69 482.69

Q2. (a) Explain the difference between Rowan Premium Plan and the Halsey Premium Plan. (b) From the following information, calculate the total earnings of the workers along with effective rate of earnings under the Halsey Premium Plan and the Rowan Premium Plan : Rate per hour Rs.5; Time allowed for the job 16 hours and Time taken - 13 hours. Earnings under Halsey Premium Plan: Earnings = T X R + 50% (S-T) X R where, T= Actual time taken = 13 hrs. S = Std. time allowed = 16 hrs. R = Wage rate per hrs. = Rs.5 Earnings = 13hrs. Rs.5 + .5(16hrs.-13hrs.) Rs.5 = Rs.65 + Rs.7.50 =Rs.72.50 Earnings under Rowan Premium Plan Earnings=

T R+

ST 16 hrs13hrs T R =13 hrs Rs.5 + 13hrsRs . 5=Rs .77 .19 S 16 hrs 3 hrs Rs. 65 = Rs.77.19 =Rs.65 + 16 hrs .

Effective rate of earning =

Earnings Actual timetaken

SAC (SKP)

Under Halsey Plan =

Rs .72. 50 =Rs. 5 .58 perhrs . 13 hrs Rs .77. 19 =Rs. 5. 94 perhrs . Under Rowan Plan = 13 hrs .

Q. 3. What do you understand by the classification, allocation, apportionment and absorption in relation to OHD expenses? Explain with examples. (5X4=20) Q.4. From the following data, calculate the cost per km of a vehicle: Price of vehicle Road license for the year Insurances charges per year Garage rent per year Drivers wages per month Cost of petrol per litre Proportional charge for tyre and maintenances per km Estimated life (km) Estimated annual mileage (km) Petrol consumption (km/litre) Operating Cost Sheet Items A. Standing Charges Road License charges Insurance charges Garage Rent B. Maintenance Charges Proportionate charges for tyre and maintenance C.Running Charges Drivers wages (Rs.200 X 12) Cost of petrol = ( 6000 Kms Rs. 500 100 600 1,200 1,200 1,200 2,400 34,500 Cost per km Rs. .08 .02 .10 .20 .20 .20 .40 5.75 Rs.15,000 Rs.500 Rs.100 Rs.600 Rs.200 Rs.46 Re.0.20 150000 6000 8

Cost . per .. litre km . run )= km . per .litre

Rs . 46 6000 8
Depreciation 600 .10

cost .of . vehicle Rs. 15 , 000 Kms . run= 6000 Est . life. in . kms 1,50 , 000
Total (A+B+C) 37,500 39,900 6.25 6.65

True/False a. The application of cost accounting system is restricted only to manufacturing concerns. (f) b. Variable cost per unit varies with the increase or decrease in the volume of output. (f) c. The Bin Card is a perpetual inventory record. d. During the period of rising material prices, FIFO methods results in profit inflation. (t) e. A charge for rent is not included in cost when premises are owned by the company. (f) Multiple Choices a. Under the Halsey Premium Plan, a worker gets bonus which is equal to 50% of the time saved. b. The difference between the time for which the workers are paid and the time which they actually spend upon production, is known as Idle time. c. Normal usage-50 units per week; Minimum usage-25 units per week; Maximum usage 75 units per week; Reorder period- 4 to 6 weeks. Therefore ,Re-order level would 450 units (max usage x max re-order period) d. The need for cost accounting arises as it helps in the ascertainment and control of costs.

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e. The amount of abnormal process losses are transferred to Costing P/L A/c. Match items in list A and List B (a) Std. Deduction-(vi) Deduction from salary income (b) Abnormal gain (iii) Process costing. (c) Selling Ohds (vii) Cost Sheet ; (d) Apportionment of Ohds (viii) Allotment of proportional items cost to cost unit. (e) Operation costing (v) Transport undertaking.

Fill in the blanks a. Under LIFO ,issues of materials during a period of time are priced at the latest purchase price. b. Cost of abnormal idle time is transferred to Costing p/l account. c. In ABC technique, A stands for higher value items. d. Under and over-absorption of overheads arises only when overheads are absorbed by Budgeted or Predetermined rates. e. Maximum possible productive capacity of a plant when no operating time is lost is known as Theoritical capacity. Short Notes. a. Describe how normal wastage is treated in process costing. b. Prepare a specimen of the Stores Ledger. c. Elucidate the special features of fixed cost. d. Briefly explain the Taylors Differential Piece Rate System. e. What is weighted average price? f. Give a brief account of motion study. g. Give briefly the meaning of unit costing. h. meaning- Previous year. i. meaning person under IT Act 1961 j. concept of Std. Deduction. ************************