Question

M/s. Ekta Ltd. has been functioning at its 60% Capacity Level. Prepare a flexible budget of the Company at 50%, 60% and 70% capacity. Particulars At 60% Capacity Rupees Direct Material Cost 60000 Direct Wages 45000 Direct Expenses 30000 Variable overheads: Indirect material 6000 Indirect labour 18000 Semi-variable overheads: Electricity (40% fixed 60% variable) 30000 Repairs (80% fixed 20% variable) 3000 Fixed Overheads: Depreciation 16500 Insurance 4500 Salaries 15000

Answer 1

Answer:

Answer to MTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1

Paper 8 – Cost Accounting & Financial Management

Section A – Cost Accounting – Prime Costs & Overheads

(Full Marks : 60)

Answer Question no.1 which is compulsory and any three from the rest in this section.

1. Answer the following [6 x 2 =12]

(a) What are the items to be „excluded‟ for the purpose of determining valuation of materials

as per CAS -6?

Answer.

The following items are to be „excluded‟ for the purpose of determining valuation of materials:

(i) Finance costs

(ii) Abnormal losses due to shrinkage or evaporation or gain due to elongation or

absorption of moisture before receipt of material

(iii) Changes in foreign exchange rate from the rate on date of transaction till date of

payment

(iv) Demurrage or detention charges or penalty levied by transport or other authorities

(v) Imputed costs

(vi) Cost of self-manufactured components and sub-assemblies shall not include share of

other administrative overheads, finance cost and marketing overheads

(vii) Material cost of abnormal scrap/defectives not to be included

(b) Consider the following data pertaining to the production of a company for a particular

month :

Opening stock of raw material ` 11,570

Closing stock of raw material ` 10,380

Purchase of raw material during the month ` 1,28,450

Total manufacturing cost charged to product ` 3,39,165

Factory overheads are applied at the rate of 45% of direct labour cost.

Calculate the amount of factory overheads applied to production.

Answer.

Raw material used = Op. Stock + Purchases – Cl. Stock

= ` 11,570 + ` 1,28,450 – ` 10,380 = ` 1,29,640

Manufacturing cost = Raw material used + Direct labour + Factory overhead

` 3,39,165 = ` 1,29,640 + Direct labour + 45% of Direct labour

1.45 Direct labour = ` 2,09,525

Direct labour = ` 1,44,500

The amount of factory overhead = 45% of ` 1,44,500 = ` 65,025.

(c) If the minimum stock level and average stock level of raw material “A” are 4,000 and

9,000 units respectively, find out its reorder quantity.

Answer.

Average stock level = Minimum stock level + ½ Reorder quantity

9,000 units = 4,000 units + ½ Reorder quantity

½ Reorder quantity = 9,000 units – 4,000 units

Reorder level = 5, 000 units / 0.5 = 10,000 units