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Cost & Management Accounting
1. Vimla Spice Company exports spices to Europe and the
Middle East. Given the slowdown in business due to the recent COVID-19 impact,
their profits have been impacted significantly and actual profits are lower
than budgeted sales by almost 30 to 40%. The Management was extremely concerned
and called for a meeting of the top team to decide the way forward.
The following 2 decisions were taken in the meeting:
a. Identify new markets for exporting spices to
increase Sales
b. Hire a Management accountant to understand how
they can reduce costs etc Mr Bond was hired as the Management accountant and he
submitted his report to the Management within a month. The Management had
thought profit reduction was primarily o/a Sales Variance but were indeed
surprised to see the report as there were several other variances analyzed by
Mr Bond concerning various elements of costs, sales and profit as follows:
1. Material cost variances
2. Labour cost variances
3. Overhead variances
4. Sales variances
5. Profit variances
a) Describe Standard Costing and its applicability
in specific industries
Solutions:
Standard
costing is a specialized technique of costing under which we fix up the
standard costs which are predetermined. Once the actual operation is done, we
compare the predetermined prices with the actual. After comparison, we
calculate the deviations, which know as a variance. That is the reason this
chapter is also known as variance analysis. This chapter has been made
explicitly for controlling purposes, and it is a powerful tool for management
accounting. The system of standard costing thus
2. "Eat Healthily" is a start-up venture
started by Ram and Lakhan planning to sell sugar-free cakes, cookies, multi-grain
bread, etc. They are confused as to which type of Costing method should be
employed by them, job costing or Process Costing. Describe job costing and
Process costing to them and explain the differences between Process costing and
Job costing (Any 5). (10 Marks)
Answer :
Job Costing is one of the Methods of
Costing. According to this method, costs are collected and accumulated
according to the job, represents the unit of value.
Type of production activity suitable
for job costing:
(a)
When
jobs are executed for different customers according to their specifications.
(b) When no two orders are alike, and each
order/job needs special treatment.
(c)
Each
job maintains its separate identity throughout the production stage.
(d) Where the work in progress differs from
period to period based on the number of jobs in
(e)
3.
The following data is available for Lucky Soap Manufacturing Co for the year
ended 31st March 2020: -
Particulars
Amt (Rs)
The stock of Materials: Opg
1, 75,000
Closing stock
2, 00,000
Materials purchased during the year 7, 50,000
Direct wages paid
2, 25,000
Indirect Wages
28,000
Salaries to administrative staff
40,000
Repairs to plant and machinery 36,800
Electricity Charges
50,000
Office Expenses
7,300
Traveling expenses 18,000
Salespeople have and commission
28,000
Depreciation is written off: Plant and
machinery 36,400
Depreciation is written off: Office Furniture 5,400
Office Manager's salary
48,000
Rent, rates, and Taxes- Office
7,500
Rent, rates, and Taxes- Factory
12,000
Fuel
64,000
a. Calculate the Factory overheads and Other
Overheads. (5 Marks)
b. Assist the MD of the company in calculating the
following:- -
· Prime Cost
· Factory Cost and
· Cost of Sale
Minimum Sales amount if the profit margin has to be
fixed at 20% on Cost.
(5 Marks)
Solutions a ):
|
Factory overhead |
|
|
Particulars |
Amount |
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