Costing Test – 4

CH- 7,8,9
Total 35 Marks
Question – 1 The following is the summarised Trading and Profit and Loss Account of XYZ
Ltd. for the year ended 31st March 2019:
Particulars Amount Particulars Amount
(Rs) (Rs)
Direct Material 14,16,000 Sales (30,000 units) 30,00,000
Direct wages 7,42,000 Finished stock (2,000 units) 1,67,500
Works overheads 4,26,000 Work-in-progress:

Administration overheads 1,50,000 Materials 34,000

Selling and distribution 1,65,000 Wages 16,000
overheads
Net profit for the year 3,22,500 Works overhead 4,000
32,21,500 32,21,500

The company’s cost records show that in course of manufacturing a standard unit (i) works
overheads have been charged @ 20% on pri me cost, (ii) administration overheads are
related with production activities and are recovered at Rs 5 per finished unit, and (iii) selling
and distribution overheads are recovered at Rs 6 per unit sold.
You are required to PREPARE:
(i) Costing Profit and Loss Account indicating the net profits,
(ii) A Statement showing reconciliation between profit as disclosed by the Cost Accounts and
Financial Accounts.
(10 Marks)

Question – 2 Arnav Confectioners (AC) owns a bakery which is used to make bakery items
like pastries, cakes and muffins. AC use to bake at least 50 units of any item at a time. A
customer has given an order for 600 cakes. To process a batch, the following cost would be
incurred:
Direct materials - Rs 5,000
Direct wages - Rs 500 (irrespective of units)
Oven set- up cost - Rs750 (irrespective of units)
AC absorbs production overheads at a rate of 20% of direct wages cost. 10% is added to the
total production cost of each batch to allow for selling, distribution and administration
overheads. AC requires a profit margin of 25% of sales value.
Required:
(i) Determine the price to be charged for 600 cakes.
(ii) Calculate cost and selling price per cake.
(iii) Determine what would be selling price per unit If the order is for 605 cakes.
(6 Marks)

Question – 3 A Ltd. manufactures mother boards used in smart phones. A smart phone
requires one mother board. As per the study conducted by the Indian Cellular Association,
there will be a demand of 180 million smart phones in the coming year. A Ltd. is expected to
have a market share of 5.5% of the total market demand of the mother boards in the
coming year. It is estimated that it costs ‘6.25 as inventory holding cost per board per month
and that the set-up cost per run of board manufacture is ‘33,500.
(i) COMPUTE the optimum run size for board manufacturing?
(ii) Assuming that the company has a policy of manufacturing 80,000 boards per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above?
(5 Marks)

Question – 4 Ispat Engineers Limited (IEL) undertook a plant manufacturing work for a
client. It will charge a profit mark up of 20% on the full cost of the jobs. The following are
the information related to the job:
Direct materials utilised – Rs1,87,00,000
Direct labour utilised – 2,400 hours at Rs80 per hour
Budgeted production overheads are Rs. 48,00,000 for the period and are recovered on the
basis of 24,000 labour hours.
Budgeted selling and administration overheads are Rs18,00,000 for the period and
recovered on the basis of total budgeted total production cost of Rs36,00,00,000.
Required:
Calculate the price to be charged for the job.
(4 Marks)

Question – 5 A factory uses job costing system. The following data are obtained from its
books for the year ended 31st March, 2020:
Amount (Rs)
Direct materials 18,00,000
Direct wages 15,00,000
Selling and distribution overheads 10,50,000
Administration overheads 8,40,000
Factory overheads 9,00,000
Profit 12,18,000
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of sales and
the Sales value.
(ii) In 2019-20, the factory received an order for a job. It is estimated that direct materials
required will be Rs4,80,000 and direct labour will cost Rs3,00,000. DETERMINE what should
be the price for the job if factory intends to earn the same rate of profit on sales assuming
that the selling and distribution overheads have gone up by 15%. The factory overheads is
recovered as percentage of wages paid, whereas, other overheads as a percentage of cost
of production, based on cost rates prevailing in the previous year.
(5 Marks)

Multiple Choice Questions

1. Opening Work-in-Progress = ₹40,000
Closing Work-in-Progress = ₹30,000
Direct Material = ₹1,00,000
Direct Labour = ₹80,000
Factory Overhead = ₹60,000
Find the Factory Cost.
 a) ₹2,50,000
b) ₹2,60,000
c) ₹2,40,000
d) ₹2,70,000

2. If the total overhead incurred is ₹1,20,000 and the company absorbs overhead at 110%
of actual overhead, what is the Over or Under Absorption?
a) ₹12,000 Over Absorbed
b) ₹10,000 Over Absorbed
c) ₹15,000 Under Absorbed
d) ₹20,000 Over Absorbed

3. A company manufactures 10,000 units of a product. The total cost incurred is ₹6,00,000.
If the company wants a profit margin of 25% on cost, what should be the selling price per
unit?
a) ₹75
b) ₹80
c) ₹85
d) ₹90

4. A company incurs a setup cost of ₹2,500 per batch. The annual demand for the product
is 50,000 units, and the holding cost per unit is ₹5 per year. What is the Economic Batch
Quantity (EBQ)?
a) 1,000 units
b) 2,500 units
c) 5,000 units
d) 4,000 units

5. A job's Total Cost is ₹1,50,000. The company wants to earn a profit of 25% on cost.
What should be the Selling Price of the job?
a) ₹1,75,000
b) ₹1,80,000
c) ₹1,85,000
d) ₹1,87,500
(5 x 1 = 5 Marks)