BCOC-138 Solved Assignment 2025
Section – A
Question:-01
State the importance of costing in a modern economy.
Answer:
1. The Strategic Role of Costing in Economic Decision-Making
Costing serves as the backbone of financial planning in modern economies, enabling businesses and policymakers to make data-driven decisions. By systematically tracking resource allocation, costing transforms raw financial data into actionable intelligence. This analytical process allows organizations to identify profitable ventures, eliminate wasteful expenditures, and optimize production processes. In macroeconomic terms, accurate costing informs national industrial policies, helping governments allocate subsidies and incentives effectively while maintaining fiscal discipline.
The precision of costing systems directly impacts competitive advantage in global markets. Companies leveraging activity-based costing or marginal costing techniques gain granular visibility into product profitability, enabling strategic pricing decisions that undercut competitors while maintaining healthy margins. This microeconomic efficiency aggregates at the national level, contributing to overall economic productivity and GDP growth.
2. Costing as a Tool for Inflation Control and Price Stability
Modern economies rely on sophisticated costing methodologies to maintain price equilibrium. When businesses implement target costing, they reverse-engineer product prices based on market willingness to pay, then design cost structures to meet those targets. This proactive approach prevents inflationary pricing while ensuring sustainable profitability. At the industry level, standardized costing practices enable fair competition and prevent predatory pricing strategies that could destabilize markets.
The banking sector demonstrates costing’s macroeconomic importance through credit cost analysis. Financial institutions employ risk-based costing models to price loans appropriately, balancing access to capital with systemic stability. These calculations directly influence monetary policy effectiveness and help central banks fine-tune interest rate decisions that affect entire economies.
3. Technological Integration and Future-Ready Costing Systems
Digital transformation has elevated costing from backward-looking accounting to predictive analytics. Cloud-based enterprise resource planning systems now integrate real-time costing data across global supply chains, allowing for dynamic adjustments to production schedules and inventory management. This technological evolution helps economies respond swiftly to disruptions like pandemics or trade wars by recalculating cost structures across entire value networks.
Artificial intelligence applications in costing enable scenario modeling that forecasts economic outcomes under various policy conditions. Governments utilize these tools to simulate the cost impacts of proposed regulations, tax reforms, or infrastructure projects before implementation. Such capabilities make costing an indispensable tool for sustainable economic development planning.
Conclusion
Costing has evolved from simple bookkeeping to a sophisticated economic management tool that operates at both micro and macroeconomic levels. Its importance in modern economies manifests through optimized resource allocation, inflation control, competitive market structures, and data-driven policy formulation. As global economic systems grow increasingly complex, advanced costing methodologies will continue serving as the compass guiding businesses and nations toward financial stability and growth. The integration of cutting-edge technologies ensures costing remains relevant in an era of rapid economic transformation, solidifying its position as a cornerstone of economic management.
Question:-02
What do you understand by ABC analysis? How is the control of stores items effected through ABC analysis?
Answer:
1. Understanding ABC Analysis in Inventory Management
ABC analysis represents a sophisticated inventory categorization technique that classifies stock items based on their value contribution to business operations. This method operates on the Pareto principle, recognizing that a small percentage of items typically account for a large portion of inventory value. The classification divides inventory into three distinct categories: A, B, and C, each demanding different levels of managerial attention and control measures.
Category A encompasses high-value items constituting approximately 70-80% of total inventory value while representing only 10-20% of total items. Category B contains moderate-value items accounting for 15-25% of value and 30% of quantity. Category C consists of low-value items that make up 5% of total value but nearly 50% of inventory volume. This stratified approach enables organizations to optimize resource allocation and implement targeted control mechanisms.
2. Implementation Framework for ABC Classification
The execution of ABC analysis follows a systematic four-stage process. First, organizations calculate the annual consumption value for each inventory item by multiplying unit cost by annual usage quantity. Subsequently, items are ranked in descending order of their consumption value. The cumulative percentage of total inventory value is then calculated, establishing the breakpoints for category thresholds. Finally, the classification is validated through periodic reviews to maintain accuracy amid changing demand patterns and market conditions.
Technological integration has enhanced ABC analysis through automated data collection and real-time classification adjustments. Modern inventory systems dynamically recategorize items based on fluctuating usage patterns, ensuring the analysis remains responsive to operational changes. This adaptive capability proves particularly valuable in industries with volatile demand or seasonal variations.
3. Strategic Inventory Control Through ABC Methodology
The control mechanisms for each category reflect their relative importance to organizational operations. Category A items receive intensive management including daily monitoring, stringent record-keeping, and frequent stock verification. These high-value components often justify the implementation of just-in-time inventory systems and vendor-managed inventory arrangements to minimize carrying costs while ensuring availability.
Category B items operate under balanced control systems combining periodic reviews with economic order quantity models. This intermediate approach maintains service levels without excessive administrative burden. Category C items employ simplified control mechanisms such as visual stock checks and bulk ordering, as the cost of sophisticated tracking would outweigh potential benefits.
The analysis informs critical decisions across procurement, warehousing, and financial planning. High-value A items typically warrant centralized purchasing and premium storage conditions, while C items can be managed through decentralized systems with basic storage requirements. This differentiated approach optimizes working capital allocation and storage space utilization across the inventory spectrum.
Conclusion
ABC analysis serves as a powerful tool for implementing selective inventory control, enabling organizations to concentrate resources where they yield maximum operational and financial impact. By recognizing the disproportionate value contribution of certain inventory items, businesses can design tiered management systems that enhance efficiency while reducing costs. The methodology’s flexibility allows adaptation across diverse industries, from manufacturing to retail to healthcare. When integrated with modern inventory management systems, ABC analysis provides dynamic, data-driven insights that support strategic decision-making and continuous operational improvement in today’s complex business environment.
Question:-03
What are the different methods of incentives? Discuss any one of the systems of bonus or premium which you consider as effective.
Answer:
1. Overview of Incentive Methods in Organizational Management
Modern organizations employ diverse incentive structures to enhance employee performance and drive organizational success. These systems can be broadly categorized into financial and non-financial incentives, each serving distinct motivational purposes. Financial incentives include performance bonuses, profit-sharing plans, stock options, commission structures, and merit-based pay increases. Non-financial incentives encompass recognition programs, career advancement opportunities, flexible work arrangements, and professional development initiatives. The strategic implementation of these methods aligns individual objectives with organizational goals, creating a symbiotic relationship between employee satisfaction and business outcomes.
2. Analysis of Effective Incentive Systems
Among various incentive mechanisms, gain-sharing bonus systems have demonstrated particular effectiveness in contemporary workplace environments. This collective incentive approach rewards employees when measurable improvements occur in organizational performance metrics, typically focusing on productivity gains, cost reductions, or quality enhancements. The system establishes a transparent formula that distributes a predetermined percentage of achieved savings or additional profits among participating employees.
Structural Components of Gain-Sharing
The gain-sharing model operates through three fundamental elements: a baseline performance standard, a clearly defined measurement system, and an equitable distribution formula. Baseline metrics are established through historical data analysis, ensuring achievable yet challenging targets. The measurement system tracks relevant key performance indicators with rigorous accuracy, while the distribution formula specifies how financial benefits will be allocated between the organization and its workforce.
The gain-sharing model operates through three fundamental elements: a baseline performance standard, a clearly defined measurement system, and an equitable distribution formula. Baseline metrics are established through historical data analysis, ensuring achievable yet challenging targets. The measurement system tracks relevant key performance indicators with rigorous accuracy, while the distribution formula specifies how financial benefits will be allocated between the organization and its workforce.
Implementation Advantages
This system fosters collaborative effort by emphasizing team achievement over individual performance. It creates a direct line of sight between employee actions and organizational results, enhancing engagement and ownership at all levels. The periodic payout structure, typically quarterly or biannually, provides frequent reinforcement of desired behaviors while allowing for timely adjustments to changing business conditions.
This system fosters collaborative effort by emphasizing team achievement over individual performance. It creates a direct line of sight between employee actions and organizational results, enhancing engagement and ownership at all levels. The periodic payout structure, typically quarterly or biannually, provides frequent reinforcement of desired behaviors while allowing for timely adjustments to changing business conditions.
3. Comparative Effectiveness of Gain-Sharing
Gain-sharing demonstrates superior results compared to traditional bonus systems through several distinctive features. The program’s transparency builds trust as employees understand exactly how performance translates into rewards. Unlike profit-sharing that depends on overall organizational profitability, gain-sharing focuses on controllable operational metrics, making rewards more directly influenced by employee efforts. The system’s flexibility allows customization across various industries and organizational sizes, from manufacturing plants to service-oriented businesses.
The psychological impact of gain-sharing proves particularly powerful. By involving employees in the development of performance metrics and improvement strategies, the system taps into intrinsic motivation factors. Workers become problem-solvers rather than passive recipients, leading to sustainable performance enhancements. The collective nature of rewards promotes knowledge sharing and cross-functional cooperation, breaking down silos within organizations.
Conclusion
Gain-sharing bonus systems represent a sophisticated approach to organizational incentives that effectively balance company objectives with employee motivation. Their success lies in creating a win-win scenario where improved performance benefits both the organization and its workforce. When properly designed and implemented with employee involvement, clear communication, and fair measurement systems, gain-sharing drives continuous improvement while fostering a culture of collaboration and shared purpose. This system’s adaptability to various business contexts and its capacity to engage employees at multiple levels make it a particularly robust choice for organizations seeking to enhance performance through incentive structures.
Question:-04
Explain the computation of machine hour rate with the help of an example.
Answer:
1. Conceptual Foundation of Machine Hour Rate
Machine hour rate represents a sophisticated costing technique that allocates overhead expenses to production based on actual machine utilization time. This method recognizes machinery as a primary cost driver in manufacturing environments, providing precise product costing by correlating expenses directly with equipment usage. The computation involves identifying all costs associated with machine operation and distributing them across productive hours, establishing a standardized rate per machine hour that facilitates accurate job costing and pricing decisions.
2. Components of Machine Hour Rate Calculation
The determination of machine hour rate requires systematic classification of various cost elements associated with equipment operation. Fixed costs include depreciation calculated using either straight-line or diminishing balance methods, insurance premiums covering equipment risks, and occupancy expenses like allocated factory rent. Variable components incorporate power consumption measured through meter readings or horsepower ratings, maintenance costs encompassing both preventive and breakdown repairs, and consumables such as lubricants and coolants. Indirect labor costs for machine operators and supervisors are apportioned based on time studies or work assignments.
Illustrative Example:
Consider a CNC machine with annual operational data:
Consider a CNC machine with annual operational data:
- Capital Cost: ₹2,500,000
- Estimated Life: 10 years
- Annual Running Hours: 2,000
- Power Consumption: 10 units/hour @ ₹8/unit
- Annual Maintenance: ₹45,000
- Operator Salary: ₹360,000/year
- Factory Overhead Allocation: ₹120,000/year
3. Step-by-Step Computation Process
Depreciation Calculation:
Straight-line depreciation = (₹2,500,000 – ₹250,000 salvage value) / 10 years
= ₹225,000 annually
Straight-line depreciation = (₹2,500,000 – ₹250,000 salvage value) / 10 years
= ₹225,000 annually
Power Cost Determination:
Annual power expense = 10 units/hour × ₹8 × 2,000 hours
= ₹160,000
Annual power expense = 10 units/hour × ₹8 × 2,000 hours
= ₹160,000
Labor Cost Allocation:
Operator cost per hour = ₹360,000 / 2,000 hours
= ₹180/hour
Operator cost per hour = ₹360,000 / 2,000 hours
= ₹180/hour
Total Annual Machine Costs:
= Depreciation (₹225,000) + Power (₹160,000) + Maintenance (₹45,000) + Labor (₹360,000) + Overheads (₹120,000)
= ₹910,000
= Depreciation (₹225,000) + Power (₹160,000) + Maintenance (₹45,000) + Labor (₹360,000) + Overheads (₹120,000)
= ₹910,000
Machine Hour Rate:
= Total Annual Costs (₹910,000) / Annual Running Hours (2,000)
= ₹455 per machine hour
= Total Annual Costs (₹910,000) / Annual Running Hours (2,000)
= ₹455 per machine hour
4. Practical Application in Product Costing
For a production batch requiring 15 machine hours:
Total machine cost allocation = 15 hours × ₹455/hour = ₹6,825
This amount would be added to direct material and labor costs to determine total job cost, enabling precise pricing and profitability analysis.
Total machine cost allocation = 15 hours × ₹455/hour = ₹6,825
This amount would be added to direct material and labor costs to determine total job cost, enabling precise pricing and profitability analysis.
Conclusion
Machine hour rate methodology provides manufacturing enterprises with an accurate mechanism for overhead absorption, particularly in capital-intensive environments. The example demonstrates how comprehensive consideration of all machine-related expenses, when divided by productive hours, yields a reliable cost driver rate. This approach enhances cost control by identifying inefficiencies in machine utilization and maintenance spending while facilitating informed decisions regarding equipment replacement and production scheduling. The transparency of this costing technique supports better managerial decision-making and strengthens financial planning in industrial operations.
Question:-05
A factory uses job costing. The following data is obtained from its books for the year ended 31st December, 2023;
Rs. Rs.
Direct Materials 90,000 Selling and Distribution Overheads 52,500
Direct Wages 75,000 Administration Overheads 42,000
Profit 60,900 Factory Overheads 45,000
Direct Materials 90,000 Selling and Distribution Overheads 52,500
Direct Wages 75,000 Administration Overheads 42,000
Profit 60,900 Factory Overheads 45,000
a) Prepare a Job Cost Sheet indicating the Prime Cost, Works Cost, Cost of Production, Cost of Sales and Sales Value.
b) In 2023, the factory received an order for a number of jobs. It was estimated that direct materials required would be for Rs. 1,20,000 and direct labour would cost Rs. 75,000. What should be the price for these jobs if factory intends to earn the same rate of profit on sales as in 2023, assuming that the selling and distribution overheads had gone up by 15%? The factory recovers factory overheads as a percentage of direct wages and administration and selling and distribution overheads as a percentage of works cost.
Answer:
Solution to Job Costing Problem
a) Job Cost Sheet for Year Ended 31st December 2023
Particulars | Amount (Rs.) |
---|---|
Direct Materials | 90,000 |
Direct Wages | 75,000 |
Prime Cost | 165,000 |
Add: Factory Overheads | 45,000 |
Works Cost | 210,000 |
Add: Administration Overheads | 42,000 |
Cost of Production | 252,000 |
Add: Selling & Distribution | 52,500 |
Cost of Sales | 304,500 |
Add: Profit | 60,900 |
Sales Value | 365,400 |
Calculation of Overhead Recovery Rates:
-
Factory Overhead % = (Factory OH/Direct Wages) × 100
= (45,000/75,000) × 100 = 60% of Direct Wages -
Administration Overhead % = (Admin OH/Works Cost) × 100
= (42,000/210,000) × 100 = 20% of Works Cost -
Selling & Distribution % = (S&D OH/Works Cost) × 100
= (52,500/210,000) × 100 = 25% of Works Cost
b) Job Price Calculation for New Order (2024)
Given:
- Direct Materials: Rs. 1,20,000
- Direct Wages: Rs. 75,000
- S&D Overheads increased by 15% (new rate = 25% × 1.15 = 28.75%)
- Profit percentage to be maintained at 2023 level
Step-by-Step Calculation:
-
Prime Cost
= Direct Materials + Direct Wages
= 1,20,000 + 75,000 = Rs. 1,95,000 -
Factory Overheads
= 60% of Direct Wages
= 75,000 × 60% = Rs. 45,000 -
Works Cost
= Prime Cost + Factory Overheads
= 1,95,000 + 45,000 = Rs. 2,40,000 -
Administration Overheads
= 20% of Works Cost
= 2,40,000 × 20% = Rs. 48,000 -
Cost of Production
= Works Cost + Administration Overheads
= 2,40,000 + 48,000 = Rs. 2,88,000 -
Selling & Distribution Overheads
= 28.75% of Works Cost
= 2,40,000 × 28.75% = Rs. 69,000 -
Cost of Sales
= Cost of Production + S&D Overheads
= 2,88,000 + 69,000 = Rs. 3,57,000 -
Profit Calculation
2023 Profit % = (Profit/Sales) × 100
= (60,900/365,400) × 100 = 16.6667% on SalesLet Sales Value = X
Profit = 0.166667X
Cost of Sales = X – 0.166667X = 0.833333X
0.833333X = 3,57,000
X = 3,57,000/0.833333 = Rs. 4,28,400
Final Job Price: Rs. 4,28,400
Verification:
- Cost of Sales = Rs. 3,57,000
- Profit = 4,28,400 – 3,57,000 = Rs. 71,400
- Profit % = (71,400/4,28,400) × 100 = 16.6667% (matches 2023 rate)
This pricing ensures the factory maintains its 16.67% profit margin on sales while accounting for increased selling and distribution costs.
Section – B
Question:-06
State how you would ascertain the actual profit on an incomplete contract. How far such profit is taken to Profit and Loss Account.
Answer:
Ascertaining Actual Profit on Incomplete Contracts and Its Treatment in Profit & Loss Account
To determine the actual profit on an incomplete contract, the following steps are typically followed:
- Calculate Total Estimated Contract Cost – This includes direct materials, labor, and overheads already incurred, plus anticipated future costs to complete the project.
- Determine Total Contract Value – The agreed price between the contractor and the client.
- Compute Estimated Total Profit – Subtract the total estimated cost from the contract value.
- Assess Stage of Completion – The percentage of work done is calculated based on costs incurred relative to total estimated costs or physical completion.
- Recognize Profit Proportionately – Only a portion of the estimated profit is taken to the Profit & Loss Account, depending on the contract’s completion stage and financial prudence.
Treatment in Profit & Loss Account
The profit recognized in the P&L Account is governed by accounting conservatism and contract accounting standards (AS-7/Ind AS 11). The general principles are:
- If the Contract is Less Than 25% Complete – No profit is recognized, as uncertainties are high. Only costs are recorded.
- If Completion is 25% to 50% – A conservative portion (usually 1/3 or 50% of estimated profit) is credited to P&L.
- If Completion Exceeds 50% – A higher percentage (2/3 or more) of the estimated profit is taken, based on reliable cost estimates.
- Full Profit Recognition – Only upon contract completion is the remaining profit fully accounted for.
Adjustments for Foreseeable Losses
If the contract is expected to incur a loss, the entire anticipated loss must be fully recognized immediately in the P&L Account, irrespective of completion percentage.
Conclusion
Profit on incomplete contracts is recognized cautiously to prevent overstatement of earnings. The portion of profit transferred to P&L depends on work certified, costs incurred, and reliability of estimates, ensuring financial statements reflect a true and fair view. This approach balances revenue recognition with risk assessment in long-term contracts.
Question:-07
State the main characteristics of process costing and outline the costing procedure thereof.
Answer:
Main Characteristics of Process Costing and Its Costing Procedure
Characteristics of Process Costing
- Mass Production – Used in industries where homogeneous products are manufactured continuously (e.g., chemicals, textiles, food processing).
- Standardized Processes – Production follows a defined sequence of operations, with costs accumulated for each process.
- Cost Averaging – Total process costs are divided by total output to determine per-unit cost, ensuring uniformity.
- Work-in-Progress (WIP) – Partially completed units at each stage are accounted for using equivalent units.
- No Job Differentiation – Unlike job costing, individual product costs are not tracked separately.
Costing Procedure
- Identify Processes – Break down production into distinct stages (e.g., mixing, refining, packaging).
- Record Costs – Accumulate direct materials, labor, and overheads for each process.
- Calculate Equivalent Units – Convert WIP into completed units based on percentage of completion.
- Compute Cost per Unit –
- Total Process Cost = Direct Costs + Allocated Overheads
- Cost per Unit = Total Cost / Equivalent Units Produced
- Transfer Costs – Output from one process becomes input for the next, with costs carried forward.
- Account for Normal & Abnormal Losses –
- Normal Loss (expected wastage) is absorbed into product costs.
- Abnormal Loss (unexpected) is treated as a separate expense.
- Final Output Valuation – Completed units are valued at cumulative process costs and transferred to finished goods.
Conclusion
Process costing provides a systematic approach for industries with continuous production. By averaging costs across identical units and tracking expenses per process, it ensures accurate product costing and efficient financial control. The method’s structured procedure makes it ideal for large-scale manufacturing where uniformity and cost efficiency are critical.
Question:-08
Explain the various methods of accounting for by – products.
Answer:
Methods of Accounting for By-Products
By-products are secondary products obtained incidentally during the manufacturing of main products. Proper accounting for by-products is essential for accurate cost allocation and profit determination. The following methods are commonly used:
1. Non-Cost Methods
(a) Sales Value Deducted from Total Cost
- The revenue from by-products is subtracted from the total production cost of the main product.
- Advantage: Simple and straightforward.
- Disadvantage: Ignores the production cost of by-products.
(b) Other Income Method
- By-product sales are treated as other income in the Profit & Loss Account.
- Suitable for: Insignificant by-products with minimal value.
2. Cost Methods
(a) Standard Cost Method
- A predetermined cost is assigned to by-products based on historical data.
- Advantage: Helps in budgeting and variance analysis.
(b) Opportunity Cost Method
- The market value of by-products is treated as a reduction in the cost of the main product.
- Useful when: By-products have a stable market price.
3. Reverse Cost Method
- The estimated profit from by-products is deducted from the total production cost.
- Steps:
- Determine sales value of by-products.
- Subtract estimated selling expenses and profit margin.
- The net amount is deducted from the main product’s cost.
4. Joint Cost Allocation Method
- By-products share a portion of the joint production costs based on sales value, weight, or market price.
- Used when: By-products contribute significantly to revenue.
Conclusion
The choice of method depends on:
- Materiality of by-products.
- Market conditions (stable vs. fluctuating prices).
- Management’s financial reporting needs.
Non-cost methods are simpler but less precise, while cost methods provide better cost control. Businesses must select an approach that aligns with their production complexity and financial objectives. Proper accounting ensures accurate product costing and profitability analysis.
Question:-09
What do you mean by ‘Equivalent Production’?
Answer:
Equivalent Production: Concept and Application
Definition:
Equivalent production (or equivalent units) refers to a cost accounting technique used in process costing to express the work done on partially completed units in terms of fully completed units. This method helps in allocating costs accurately when production remains incomplete at the end of an accounting period.
Equivalent production (or equivalent units) refers to a cost accounting technique used in process costing to express the work done on partially completed units in terms of fully completed units. This method helps in allocating costs accurately when production remains incomplete at the end of an accounting period.
Key Features:
- Converts WIP into Completed Units – Accounts for units that are partly finished by assigning a percentage of completion (e.g., 1,000 units 50% complete = 500 equivalent units).
- Cost Allocation Basis – Helps distribute material, labor, and overhead costs fairly between completed and unfinished units.
- Two-Stage Calculation –
- Materials: Often added at the start (100% completion assumed).
- Labor & Overheads: Applied progressively (based on actual completion).
Calculation Steps:
- Determine Physical Units – Identify units in opening/closing WIP, started, and completed.
- Apply Completion Percentage – Assess stage of completion for materials and conversion costs separately.
- Compute Equivalent Units –
- Completed Units = Fully processed units.
- WIP Units = Partially completed units × % completion.
- Allocate Costs – Divide total costs by equivalent units to derive cost per unit.
Example:
- Units Completed: 8,000
- WIP Units (60% Complete): 2,000
- Equivalent Units = 8,000 + (2,000 × 0.6) = 9,200 units.
Importance in Process Costing:
- Ensures accurate cost assignment in continuous production.
- Facilitates comparison across periods by standardizing WIP valuation.
- Aids in pricing decisions and profitability analysis.
Conclusion:
Equivalent production bridges the gap between actual output and cost allocation, providing a realistic measure of work done. It is indispensable in industries like chemicals, textiles, and food processing, where partial completion is common. By converting WIP into comparable completed units, it enhances cost control and financial reporting accuracy.
Equivalent production bridges the gap between actual output and cost allocation, providing a realistic measure of work done. It is indispensable in industries like chemicals, textiles, and food processing, where partial completion is common. By converting WIP into comparable completed units, it enhances cost control and financial reporting accuracy.
Question:-10
A transport company runs buses at two places – A and B. From following particulars calculate (a) Total kilometers (b) Total passenger kilometers for both places.
A B
Number of buses 4 5
Days operated in a month 30 25
Trip made by each bus 4 4
Distance of route (one way) 30 kilometers 25 kilometers
Capacity of bus 60 passengers 50 passengers
Normal passengers travelling 80% of capacity 90% of capacity
Number of buses 4 5
Days operated in a month 30 25
Trip made by each bus 4 4
Distance of route (one way) 30 kilometers 25 kilometers
Capacity of bus 60 passengers 50 passengers
Normal passengers travelling 80% of capacity 90% of capacity
Answer:
Solution:
(a) Total Kilometers Calculation
Formula:
Total Kilometers = (Number of buses × Days operated × Trips per day × One-way distance × 2)
Total Kilometers = (Number of buses × Days operated × Trips per day × One-way distance × 2)
For Place A:
= 4 buses × 30 days × 4 trips × 30 km × 2 (round trip)
= 28,800 kilometers
= 4 buses × 30 days × 4 trips × 30 km × 2 (round trip)
= 28,800 kilometers
For Place B:
= 5 buses × 25 days × 4 trips × 25 km × 2 (round trip)
= 25,000 kilometers
= 5 buses × 25 days × 4 trips × 25 km × 2 (round trip)
= 25,000 kilometers
Total Kilometers (A + B):
= 28,800 + 25,000 = 53,800 kilometers
= 28,800 + 25,000 = 53,800 kilometers
(b) Total Passenger Kilometers Calculation
Formula:
Passenger Kilometers = (Total Kilometers × Capacity × Occupancy %)
Passenger Kilometers = (Total Kilometers × Capacity × Occupancy %)
For Place A:
= 28,800 km × 60 passengers × 80%
= 28,800 × 48 = 1,382,400 passenger-km
= 28,800 km × 60 passengers × 80%
= 28,800 × 48 = 1,382,400 passenger-km
For Place B:
= 25,000 km × 50 passengers × 90%
= 25,000 × 45 = 1,125,000 passenger-km
= 25,000 km × 50 passengers × 90%
= 25,000 × 45 = 1,125,000 passenger-km
Total Passenger Kilometers (A + B):
= 1,382,400 + 1,125,000 = 2,507,400 passenger-km
= 1,382,400 + 1,125,000 = 2,507,400 passenger-km
Summary of Results
Place | Total Kilometers | Total Passenger Kilometers |
---|---|---|
A | 28,800 km | 1,382,400 passenger-km |
B | 25,000 km | 1,125,000 passenger-km |
Total | 53,800 km | 2,507,400 passenger-km |
Section – C
Question:-11
Distinguish between the following:
a) Direct costs and Indirect costs
b) First in First out method (FIFO) and Last in First out method (LIFO)
c) Time Wage System and Piece Wage System
d) Job costing and Contract costing
b) First in First out method (FIFO) and Last in First out method (LIFO)
c) Time Wage System and Piece Wage System
d) Job costing and Contract costing
Answer:
a) Direct Costs vs. Indirect Costs
Direct Costs | Indirect Costs |
---|---|
Traceable to a specific product/unit (e.g., raw materials, direct labor). | Not directly traceable (e.g., rent, utilities, administrative salaries). |
Varies with production volume. | Fixed or semi-variable (e.g., factory maintenance). |
Allocated to cost objects easily. | Apportioned using cost drivers (e.g., machine hours). |
Example: Wood used in furniture. | Example: Factory manager’s salary. |
b) FIFO vs. LIFO (Inventory Valuation)
FIFO (First In, First Out) | LIFO (Last In, First Out) |
---|---|
Assumes oldest inventory is sold first. | Assumes newest inventory is sold first. |
Matches historical costs with revenue. | Matches recent costs with revenue. |
Higher net income during inflation (lower COGS). | Lower net income during inflation (higher COGS). |
GAAP-compliant; preferred globally. | Not allowed under IFRS; used in the US (GAAP). |
c) Time Wage System vs. Piece Wage System
Time Wage System | Piece Wage System |
---|---|
Wages paid based on time worked (e.g., hourly/daily rates). | Wages paid per unit produced (e.g., ₹10 per piece). |
Guarantees fixed income regardless of output. | Income varies with productivity. |
Suitable for quality-focused tasks (e.g., supervision). | Suitable for measurable output (e.g., garment stitching). |
Example: Office staff salaries. | Example: Paying laborers for 100 shirts/day. |
d) Job Costing vs. Contract Costing
Job Costing | Contract Costing |
---|---|
Used for small, customized orders (e.g., printing, repairs). | Used for large, long-term projects (e.g., construction, dams). |
Short duration (days/weeks). | Long duration (months/years). |
Costs tracked per job order. | Costs tracked per contract stage. |
Example: Manufacturing a machine. | Example: Building a highway. |
Question:-12
Write short notes on the following:
a) Cost Unit
b) Payroll Accounting
c) Process Loss
d) Integral Accounting
b) Payroll Accounting
c) Process Loss
d) Integral Accounting
Answer:
a) Cost Unit
- Definition: A quantitative unit of product/service for which costs are ascertained (e.g., per kg, per hour, per unit)
- Key Aspects:
- Serves as measurement base for cost calculation
- Varies by industry (e.g., per patient-day in hospitals, per tonne-km in transport)
- Essential for uniform cost comparison and pricing decisions
- Examples:
- Manufacturing: Per machine component
- Education: Per student enrolled
- Power: Per kilowatt-hour
b) Payroll Accounting
- Definition: System for recording and managing employee compensation
- Core Components:
- Gross wages calculation (basic pay + allowances)
- Statutory deductions (PF, ESI, TDS)
- Net pay determination
- Employer contribution accounting
- Importance:
- Ensures legal compliance
- Facilitates labor cost analysis
- Provides data for budgeting
- Process Flow: Attendance → Timekeeping → Wage computation → Payment → Record-keeping
c) Process Loss
- Definition: Material quantity lost during manufacturing
- Types:
- Normal loss (unavoidable; absorbed in product cost)
- Abnormal loss (avoidable; charged to P&L)
- Accounting Treatment:
- Normal: Cost per unit increases as loss is spread over good output
- Abnormal: Investigated as variance; may indicate inefficiencies
- Example: In oil refining, evaporation is normal loss while spillage is abnormal
d) Integral Accounting
- Definition: Unified system combining cost and financial accounts
- Characteristics:
- Single set of books
- Automatic cost/financial data reconciliation
- Eliminates need for separate cost ledger
- Advantages:
- Reduces duplication
- Provides real-time cost information
- Enhances reporting accuracy
- Implementation: Requires careful design of chart of accounts to capture cost/financial data simultaneously