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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:
- When jobs are executed for different customers according to their specifications.
- When no two orders are alike, and each order/job needs special treatment.
- Each job maintains its separate identity throughout the production stage.
- Where the work in progress differs from period to period based on the number of jobs in
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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