Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II

The Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II covered crucial topics such as material cost, labor costing, and process costing. It included detailed solutions for calculating Material Costing such as Economic Order Quantity (EOQ) and managing labor costs through time rate and piece rate systems. The process costing section provided step-by-step methods for assigning costs using weighted average, LIFO and FIFO. Financial statement preparation focused on cost sheets and operating expense statements. Additionally, the paper addressed budgeting and variance analysis, demonstrating practical applications to enhance managerial decision-making. These solved examples are essential for mastering cost accounting principles and practices.

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Paper Solved by Iftikhar Ali, Lecturer Statistics, Accounting & Finance

Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II

Q.1: Explain the scope of cost accounting.

Answer: A specialist area of accounting called cost accounting is concerned with identifying, tracking, and evaluating expenses related to an organization’s internal production or service operations. The following crucial elements are included in the scope of cost accounting:

Cost Determination

Cost Identification: Recognizing and keeping track of every expense spent during the manufacturing process, such as direct labor, direct supplies, and manufacturing overhead.

Cost Classification: Dividing expenses into several categories, such as period and product costs, variable and fixed costs, and direct and indirect costs.

Cost Analysis and Control

Variance Analysis: Identifying variations between standard or projected costs and actual costs, evaluating the causes of these variations, and implementing measures to these fluctuations.

Budgeting: Preparing detailed budgets for the projects to control costs.

Cost-Volume-Profit Analysis: Making decisions after understanding the relationship between cost, volume and profit.

Cost Allocation

Apportionment: Allocating overhead expenses to different departments and cost centers in accordance with preset standards.

Absorption Costing: Assigning all manufacturing expenses to the product in order to guarantee that each product pays a reasonable portion of the overall production costs.

Inventory Valuation

Valuing Inventories: Calculating the worth of inventories of raw materials, work-in-progress, and finished items using cost accounting techniques.

Cost Control Methods

Standard Costing: Establishing uniform prices for goods and services that act as standards by which to evaluate performance.

Marginal Costing: Examining how variable costs affect output in order to help in decision-making and pricing.

Decision-Making Support

Cost-Benefit Analysis: Evaluating the anticipated costs and benefits to determine if a project or action is financially viable.

Break-Even Analysis: Finding the break-even point—the sales volume at which overall revenues and entire costs are equal.

Performance Evaluation

Responsibility Accounting: Assessing the effectiveness of various departments and managers according on how well they manage expenses.

Activity-Based Costing (ABC): Allocating overhead expenses in accordance with the activities that generate costs results in more precise product costing and more efficient use of resources.

Strategic Cost Management

Cost Reduction: Defining strategies to control costs without compromising overall quality of the product.

Value Analysis: Evaluating the way in which goods and services work in order to cut expenses and increase value.

All things considered, cost accounting is more than just keeping track of expenses. It is essential to an organization’s planning, controlling, and decision-making processes, which greatly supports both its strategic objectives and financial stability.

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Q.2: Give a comprehensive list of expenses included in Factory overhead.

Answer:

Factory overhead, also known as manufacturing overhead or production overhead, includes all the indirect costs associated with manufacturing a product. These are costs that are not directly traceable to a specific product but are necessary for the overall production process. Here’s a comprehensive list of expenses typically included in factory overhead:

Indirect Materials:

Lubricants for machinery
Cleaning supplies for the factory
Small tools and supplies that are not part of the finished product

Indirect Labor:

Wages of maintenance workers
Salaries of factory supervisors
Wages of quality control inspectors
Salaries of plant security personnel
Wages of materials handling personnel

Utilities:

Electricity for factory operations
Water and sewage
Gas for heating and production processes

Depreciation:

Depreciation on factory buildings
Depreciation on manufacturing equipment and machinery

Factory Rent and Property Taxes:

Rent for the factory premises
Property taxes on the factory building

Insurance:

Insurance on factory buildings
Insurance on manufacturing equipment and machinery
Workers’ compensation insurance for factory employees

Repairs and Maintenance:

Repairs and maintenance of factory buildings
Repairs and maintenance of manufacturing equipment and machinery

Factory Supplies:

Supplies used in the manufacturing process that are not part of the finished product

Factory Administration:

Salaries of factory administrative staff
Office supplies for factory administration

Other Indirect Costs:

Factory-related office expenses
Equipment leasing costs
Environmental compliance costs related to production
Safety and protective equipment for factory workers

These expenses collectively ensure that the factory operates smoothly and efficiently, even though they are not directly attributable to the creation of a specific product. Properly managing and allocating these costs is crucial for accurate product costing and overall financial management within a manufacturing organization.

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Q.3: The books and record of Khyber Manufacturing Company present the following data for the month of February…….An income statement with supporting schedule of Cost of Goods Manufactured & Sold.

Q.3: The books and record of Khyber Manufacturing Company present the following data for the month of February.

Direct labour cost	Rs. 16,000 (160% of F.O.H)
Cost of goods sold	Rs. 56,000

Inventory accounts showed the following opening and closing balances:

Particulars	Feb. 1	Feb. 28
Raw materials	8,000	8,600
Work in process	8,000	12,000
Finished goods	14,000	18,000

Other Data:

Marketing expenses @ 5% of sales.

General & administrative expenses @ 10% of sales.

Sales for the month Rs. 75,000

REQUIRED:

An income statement with supporting schedule of Cost of Goods Manufactured & Sold.

Solution:

Khyber Manufacturing Company

Income Statement

For the month ended February XXXX

Sales		75,000
Less Cost of Goods Sold		(56,000)
Gross Profit		19,000

Less Operating Expenses:
Marketing Expenses 5% of Sales	(75000 x 0.05)	(3750)
General & administrative expenses @ 10% of sales	(75000 x 0.10)	(7500)
Net Profit		7750

Khyber Manufacturing Company

Schedule of cost of goods manufactured and sold

For the month ended February XXXX

Direct Material:
Opening Raw materials	8000
Add Purchases	38600
Raw Material Available for use	46600
Less Closing Raw Material	(8600)	38000

Direct labour		16000
Factory overhead (Rs. 16,000 ÷ 160 %)		10000
Total Manufacturing Cost		64000

Add opening WIP		8000
Less Closing WIP		(12000)
Add Opening Finished Goods Inventory		14000
Less Closing Finished Goods Inventory		(18000)
Cost of Goods Sold		56000

Q.4: The Babar Company uses both a Factory Ledger and a General Ledger. It records its costs under job order cost system. The following transactions took place during the month of July 2009………..Journal entries in the General office and Factory Office Books.

Q.4: The Babar Company uses both a Factory Ledger and a General Ledger. It records its costs under job order cost system. The following transactions took place during the month of July 2009:

Materials purchased and delivered directly to production (without going to store room), which was used as follows:

Direct Materials	Rs. 2,800
Indirect Materials	Rs. 500	Rs. 3,300

Labour cost charged to production during the month as follows:

Direct labour cost	Rs. 20,000
Indirect labour cost	Rs. 5,000
Sales Salaries	2,000
General Office Salaries	3,000

Factory over applied to production during the month at the rate of 110% of Direct Labour Cost.
Depreciation at an annual rate of 10% of the original cost of machinery Rs. 120,000 was recorded.
Goods completed totaled Rs. 65,000.
Goods Costing Rs. 60,000 were sold for Rs. 100,000 on account.
Sales Returns by the customer Rs. 1,000, the Cost of Sales Return being Rs. 600.

REQUIRED:

Journal entries in the General office and Factory Office Books.

Solution:

General Office Book

Date	Particulars	Dr.	Cr.
(i)	Factory Ledger A/C	3300
	Voucher Payable A/C		3300
	(Direct & Indirect Materials purchased & directly issued to production)

(ii)	Payroll A/C	30,000
	Accrued payroll A/C		30,000
	(Payroll and accrued payroll recorded)

(ii)	Accrued payroll A/C	30,000
	Voucher payable A/C		30,000
	(Accrued payroll vouched)

(ii)	Voucher payable A/C	30,000
	Cash A/C		30,000
	(Payment to workers)

(ii)	Factory ledger A/C	25,000
	Selling expenses A/C	2000
	General office expenses A/C	3000
	Payroll A/C		30,000
	(Distribution of payroll)

(iv)	Factory ledger A/C	12,000
	Allowance for depreciation on machinery A/C		12,000
	(Depreciation on machinery recorded)

(vi)	Cost of goods sold A/C	60,000
	Factory ledger A/C		60,000
	(Cost of goods sold recorded)

(vi)	Accounts receivable A/C	100,000
	Sales A/C		100,000
	(Goods sold on account)

(vii)	Factory ledger A/C	600
	Cost of goods sold A/C		600
	(Cost of sales return recorded)

(vii)	Sales Return A/C	1000
	Accounts receivable A/C		1000
	(Credit sales return by customers)

Factory Office Book

Date	Particulars	Dr.	Cr.
(i)	W.I.P A/C	2800
	F.O.H Control A/C	500	3300
	General Ledger A/C
	(Direct & Indirect Materials purchased & directly issued to production)

(ii)	W.I.P A/C	20,000
	F.O.H Control A/C	5000
	General Ledger A/C		25,000
	(Direct& indirect payroll recorded & payroll sheet sent to head office)

(iii)	W.I.P A/C	22,000
	F.O.H Applied A/C		22,000
	(F.O.H cost applied to production @ 110% of direct labour cost)

(iv)	F.O.H Control A/C	12,000
	General Ledger A/C		12,000
	(Depreciation on machinery charged 10% on cost to F.O.H control A/c)

(v)	Finished goods A/C	65,000
	W.I.P A/C		65,000
	(Goods completed)

(vi)	General ledger A/C	60,000
	Finished goods A/C		60,000
	(Cost of goods sold recorded)

(vii)	Finished goods A/C	600
	General ledger A/C		600
	(Cost of sales return recorded)

Q.5: The Shahalam Manufacturing Company uses a process cost system. The costs of Department 2 for the month of April 2009 were as follows……………….The degree of completion of the work in process was: 50% of the units were 40% complete; 20% of the units were 30% complete; and the balance of the units was 20% complete. Prepare the cost of production report of Department 2 for April 2009.

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Q.5: The Shahalam Manufacturing Company uses a process cost system. The costs of Department 2 for the month of April 2009 were as follows:

Cost proceeding department		Rs. 20,000
Cost added by the department:
Materials	Rs. 21,816
Labour	7,776
Factory overhead	4,104	Rs. 33,696

The following information was obtained from the department’s quantity schedule:

Unit received	5,000
Units transferred out	4,000
Units still in process	1,000

The degree of completion of the work in process was: 50% of the units were 40% complete; 20% of the units were 30% complete; and the balance of the units was 20% complete.

REQUIRED:

Prepare the cost of production report of Department 2 for April 2009.

Solution:

Shahalam Manufacturing Company

Cost of Production Report

Month ended April 2009

Quantity Schedule:
Unit received from preceding department		5000
Units transferred out	4000
Units still in process	1000
	5000	5000
Break-up of 1000 units still in process:
50% of the units were 40% completed
20% of the units were 30% completed
Balance 30% units were 20% completed

Cost charged to department:	Total Cost	Per Unit Cost
Cost from preceding department	20,000	(20000/5000) = 4
Cost added by Department: W1 & W2
Materials	21,816	(21816/4320) = 5.05
Labor	7,776	(7776/4320) = 1.8
Factory overhead	4,104	(4104/4320) = 0.95
Total Cost & Total Per Unit Cost	53696	11.8

Cost accounted for as follows:
Cost transferred out (4000 x 11.80)		47200
WIP ending inventory		6496
Total Cost accounted for		53696

Working 1: Average Degree Completion for W.I.P Ending Inventory:

50% of the units were 40% completed =1000 x 0.50 x 0.40	200
20% of the units were 30% completed = 1000 x 0.20 x 0.30	60
Balance 30% units were 20% completed = 1000 x 0.30 x 0.20	60
Equivalent Units WIP	320
Equivalent Units in Percentage (320/1000) x 100 = 32%

Working 2: Equivalent Production:

Units Completed	4000
Equivalent units WIP	320
Total completed units	4320

Working 3: WIP Ending Inventory:

Preceding department 1000 x 4	4000
Materials 320 x 5.05	1616
Labor 320 x 1.8	576
Factory overhead 320 x 0.95	304
WIP ending inventory	6496

Q.6: Faizan & Co. manufactures appliances to be sold to an automobile industry. An order of 1,200 appliances was received at a sales price of Rs. 200 per unit. The cost per unit was as follows…………Use three work in process accounts and assume that: (a) Cost of spoilage is spread over entire production of the period. (b) Cost of spoilage is charged to the job on which it occurred.

Q.6: Faizan & Co. manufactures appliances to be sold to an automobile industry. An order of 1,200 appliances was received at a sales price of Rs. 200 per unit. The cost per unit was as follows:

Material cost Rs. 32.00

Labour cost Rs. 42.00

Factory overhead cost Rs. 22.00

On completion of the order, it was found that 100 units were imperfect and spoiled and could only be sold out at a price of Rs. 48 per unit to a small manufacturing company which would repair and sell them under their own decided to sell 100 spoiled units to this company at a price of Rs. 48 each

REQUIRED:

Prepare all necessary journal entries to record the following:

Putting the 1,200 unites into process.
Placing the spoiled unites in the inventory.
Completion and sale for cash 1,100 good units.
Sale for cash of the 100 spoiled units.

Use three work in process accounts and assume that:

Cost of spoilage is spread over entire production of the period.
Cost of spoilage is charged to the job on which it occurred.

Solution:

a) Cost of Spoilage is spread over entire production of the period

(i)	W.I.P– Materials	38,400
	W.I.P– Labour	50,400
	W.I.P– F.O.H	26,400
	Materials		38,400
	Payroll		50,400
	F.O.H Applied		26,400

(ii)	Spoiled goods W1	4800
	FOH Control A/c	4800
	W.I.P– Materials		3200
	W.I.P– Labour		4200
	W.I.P– F.O.H		2200

(iii)	Finished Goods W2	105600
	W.I.P– Materials		35200
	W.I.P– Labour		46200
	W.I.P– F.O.H		24200

	Cost of goods sold	105600
	Finished goods		105600

	A/C Receivable	220,000
	Sales		220,000

(iv)	A/C Receivable	4800
	Spoiled goods		4800

Working 1

Materials 100 @ 32	3200
Labour 100 @ 42	4200
F.O.H 100 @ 22	2200
Total	9600
Less 100 @ 48	(4800)
	4800

Working 2

Materials 1100 @ 32	35200
Labour 1100 @ 42	46200
F.O.H 1100 @ 22	24200
	105600

b) Cost of spoilage is charged to the job on which it occurred.

(i)	W.I.P– Materials	38,400
	W.I.P– Labour	50,400
	W.I.P– F.O.H	26,400
	Materials		38,400
	Payroll		50,400
	F.O.H Applied		26,400

(ii)	Spoiled goods W3	4800
	W.I.P– Materials		1600
	W.I.P– Labour		2100
	W.I.P– F.O.H		1100

(iii)	Finished Goods W4	110,400
	W.I.P– Materials		36800
	W.I.P– Labour		48300
	W.I.P– F.O.H		25300

	Cost of goods sold	110400
	Finished goods		110400

	A/C Receivable	220,000
	Sales		220,000

(iv)	A/C Receivable	4800
	Spoiled goods		4800

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Working 3

Sum of proportion = 32 + 42 + 22 =96

$\mathbf{Material:}\frac{\mathbf{4800}}{\mathbf{96}}\mathbf{\times 32 = 1600}\$

$\mathbf{Labour}\mathbf{:}\frac{\mathbf{4800}}{\mathbf{96}}\mathbf{\times}\mathbf{4}\mathbf{2 =}\mathbf{21}\mathbf{00}\$

$\mathbf{F.O.H}\mathbf{:}\frac{\mathbf{4800}}{\mathbf{96}}\mathbf{\times}\mathbf{2}\mathbf{2 =}\mathbf{11}\mathbf{00}\$

Total = 1600 + 2100 + 1100 = 4800

Working 4

Materials = (1100 x 32) + 1600 = 36800

Labour = (1100 x 42) + 2100 = 48300

F.O.H = (1100 x 22) + 1100 = 25300

Total = 36800 + 48300 + 25300 = 110400

Q.7: Normal operating capacity of a company’s power plant is estimated to be 4,750,000 kilowatt-hours per month. At this level of activity fixed overhead is estimated to be Rs. 171,000 and variable overhead Rs. 209,000. During November, the power plant produced 5,000,000 kilowatt-hours. Actual overhead for the month totaled Rs. 393,000

Q.7: Normal operating capacity of a company’s power plant is estimated to be 4,750,000 kilowatt-hours per month. At this level of activity fixed overhead is estimated to be Rs. 171,000 and variable overhead Rs. 209,000. During November, the power plant produced 5,000,000 kilowatt-hours. Actual overhead for the month totaled Rs. 393,000.

REQUIRED:

Over or under applied overhead (Carry all computations to three decimal places)
Spending variance and idle capacity variance.

Solution

Under or overapplied factory overhead.

Actual FOH	393,000
Less Applied FOH:
Capacity attained or Actual Volume Units Produced x FOH Applied Rate
5,000,000 x 0.08 W1 = 400,000	(400,000)
Overapplied	(7,000)

Spending Variance.

Budgeted FOH for Capacity Attained:
Fixed FOH + (Capacity Attained x Variable Rate) W2
171,000 + (5000,000 x 0.044) W2	391,000
Less Actual FOH	(393,000)
Unfavorable	(2,000)

Idle Capacity Variance.

Applied FOH	400,000
Less Budgeted FOH for Capacity Attained	(391,000)
Favorable	9,000

Working

W.1 Calculation of FOH Applied Rate

FOH Applied Rate = Estimated FOH/Estimated Capacity

FOH Applied Rate = (171,000 + 209,000)/47,50,000 kw = 0.08

W.2 Calculation of Variable Rate

Variable Rate = Estimated Variable FOH/Estimated Capacity

Variable Rate = 209,000/47,50,000 kw = 0.044 kw

Q.8: The following information’s relate to payroll department of ABC Co. Using this information, you are required to compute……

(i) Piece work with guaranteed wages. (ii) Hourly rate. (iii) Premium plan in which 2/3^rd of the time saved is paid to the workers.

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Q.8: The following information’s relate to payroll department of ABC Co. Using this information, you are required to compute.

The wages earned by the workers.
Cross wages payable under the following wage payment plans.

Particulars	Workers
Particulars	A	B	C
Time allowed for 100 units	23 hours	32 hours	38 hours
Wage rate per hour	Rs. 12.50	Rs. 10.00	Rs. 11.50
Time taken	40 hours	42 hours	39 hours
Units produced	220 units	150 units	125 units

Piece work with guaranteed wages.
Hourly rate.
Premium plan in which 2/3^rd of the time saved is paid to the workers.

Solution

W:1Supporting Calculations:

$Piece\ rate\ = \ Hourly\ rate\ \div \ Standard\ Output\ per\ hour\$

$A\ = \ Rs.\ 12.50\ \div \ (100\ pieces\ \div \ 23\ hours)\ = \ Rs.\ 2.875\$

$B\ = \ Rs.\ 10.00\ \div \ (100\ pieces\ \div \ 32\ hours)\ = \ Rs.\ 3.20\$

$C\ = \ Rs.\ 11.50\ \div \ (100\ pieces\ \div \ 38\ hours)\ = \ Rs.\ 4.37\$

$Guaranteed\ earnings\ = \ Hours\ worked\ \times \ Hourly\ rate\$

$Price\ rate earnings\ = \ Piece\ produced\ \times \ Piece\ rate\$

Wages Earned Under Places Work with Guaranteed Hourly Wages

Worker	Hours Worked	Units Produced	Hourly Rate	Piece Rate W:1	Guaranteed Earning	Piece Rate Earning	Wages Earned
A	40	220	12.50	2.875	500	632.5	632.5
B	42	150	10	3.20	420	480	480
C	39	125	11.50	4.37	448.5	546.25	546.25

Wages Earned under Hourly Rate

Calculated above under Guaranteed Earning

Worker	Hours Worked	Hourly Rate	Hourly Rate
A	40	12.50	12.50
B	42	10	10
C	39	11.50	11.50

Premium plan in which 2/3^rd of the time saved is paid to the workers.

Worker	Standard Time for 1 unit	Units Produced	Standard Time Required	Actual Hours Worked	Hours Saved	2/3 rd of the saved time	Total Earnings
A	(23/100) = 0.23	220	50.6 Hours	40	10.6 Hours	7.066 Hours	47.066 x 12.50 = 588.325
B	(32/100) = 0.32	150	48 Hours	42	6 Hours	4 Hours	46 x 10 = 460
C	(38/100) = 0.38	125	47.5 Hours	39	8.5 Hours	5.67 Hours	44.67 x 11.50 = 513.705

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Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II

Table of Contents

Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II

Q.1: Explain the scope of cost accounting.

Q.2: Give a comprehensive list of expenses included in Factory overhead.

Q.3: The books and record of Khyber Manufacturing Company present the following data for the month of February…….An income statement with supporting schedule of Cost of Goods Manufactured & Sold.

Q.4: The Babar Company uses both a Factory Ledger and a General Ledger. It records its costs under job order cost system. The following transactions took place during the month of July 2009………..Journal entries in the General office and Factory Office Books.

Q.8: The following information’s relate to payroll department of ABC Co. Using this information, you are required to compute……

(i) Piece work with guaranteed wages. (ii) Hourly rate. (iii) Premium plan in which 2/3^rd of the time saved is paid to the workers.

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Table of Contents

Cost Accounting Solved Paper 2010 Punjab University BCOM ADC II

Q.1: Explain the scope of cost accounting.

Q.2: Give a comprehensive list of expenses included in Factory overhead.

Q.3: The books and record of Khyber Manufacturing Company present the following data for the month of February…….An income statement with supporting schedule of Cost of Goods Manufactured & Sold.

Q.4: The Babar Company uses both a Factory Ledger and a General Ledger. It records its costs under job order cost system. The following transactions took place during the month of July 2009………..Journal entries in the General office and Factory Office Books.

Q.8: The following information’s relate to payroll department of ABC Co. Using this information, you are required to compute……

(i) Piece work with guaranteed wages. (ii) Hourly rate. (iii) Premium plan in which 2/3rd of the time saved is paid to the workers.

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(i) Piece work with guaranteed wages. (ii) Hourly rate. (iii) Premium plan in which 2/3^rd of the time saved is paid to the workers.