NAME : RAKESH KUMAR

DATE OF BIRTH : 21.11.1990

ROLL NUMBER : 1702005290

1
 Assignment Set – 1

Q. 1. Rainbow Ltd. sold goods for Rs. 30,00,000 in a year. In that year, the variable costs were Rs.
6,00,000 and fixed costs were Rs. 8,00,000?
i) MCSR or P/V Ratio
ii) Break-even sales
iii) Break-even sales, if the selling price was reduced by 10% and fixed costs were increased by Rs.
1,00,000.

Ans: Sales = Rs. 30,00,000/-

Variable Cost = Rs. 6,00,000/-

𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝐶𝑜𝑠𝑡
(i) MCSR or Profit Volume Ratio = 𝑆𝑎𝑙𝑒𝑠 − × 100
𝑆𝑎𝑙𝑒𝑠
6,00,000
= 30,00,000 − 30,00,000 × 100
24,00,000
=30,00,000 × 100

= 0.8 X 100 = 80%

(𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 ×𝑆𝑎𝑙𝑒𝑠)

(ii) Break-even Sales = (𝑆𝑎𝑙𝑒𝑠 –𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡)

(8,00,000×30,00,000)
= 30,00,000−6,00,000

2400000000000
= = Rs. 1,00,000/-
2400000

(iii) Hence, no selling price is given in the question, so there for it is not possible to calculate
break-even sales.

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Q. 2. “The method of costing depends on the nature of the product, production method and specific
business condition”. Enumerate giving examples?

Ans: The different method of costing are:

Job Costing: It is used in those business concerns where production is carried out as per specific order and
customer’s specification.
Example, printers, machine tool manufacturers, foundries, general engineering workshops, etc.

 Batch Costing: This method is used to determine the cost of a group of identical products. The
batch that consists of similar products is a unit and not a single item within the batch.
Example, production of tablets, capsules, nuts and bolts, components or spare parts.
 Contract Costing: This method is based on the principle of job costing used by house builders and
civil contractors. The contract becomes the cost unit for which relevant costs are determined.
Example, construction of an apartment, housing colony, airport, flyovers, etc.
 Composite Costing: This method is used to accumulate costs for different components of the
product and then combine them because the nature of the product is complex.
Example, manufacturing of aeroplanes, motor vehicles, computer, etc.

Process Costing: It is used in those industries where manufacturing is done continuously and hence it is
difficult to trace the cost of specific units. The total cost is averaged for the number of unit manufactured.
Example, textile unit, chemical industries, refineries, tanneries, paper manufacturing, etc.

 Unit Costing: This method is used when a single item is produced and the final product is composed
of homogeneous units. The cost per unit is obtained by dividing the total cost by the total number
of units manufactured.
Example, sugar industry, cement, fertilizer, chemicals, petroleum refining, LPG, paper, etc.
 Operating Costing: This method is used by service industries. The unit cost differs for these services
depending upon the nature of service being rendered.
Example, passenger mile, bed in a hospital, per student in a college.
 Operation Costing: This product costing is used when conversion activities are very similar across
product lines but the direct materials differ significantly.
Example, the professional basketballs are covered with genuine leather whereas the scholastic
basketballs are covered with imitation leather.

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Q. 3. A company making for stock in the first quarter of the year 2017 is assisted by its bankers with
overdraft accommodation. The following are the relevant budget figures:

Sales (Cr.) Purchases (Cr.) Wages & Expenses

Rs. Rs. (Cr.) Rs.
November 2016 1,20,000 83,000 10,000
December 2016 1,28,000 96,000 10,000
January 2017 72,000 1,62,000 11,000
February 2017 1,16,000 1,64,000 10,000
March 2017 84,000 40,000 12,000

Given the following further information you are required to prepare a Cash Budget for the quarter
January to March 2017, showing the budgeted amount of bank facilities required, if any, in each month
end:
a) Budgeted cash at bank on 1st January 2017 Rs. 20,000
b) Credit term of sales are payment by the end of the month following the month of supply. On
average one half of sale are paid on due date, while the other half are paid during the next
month. Creditors are paid during the month following the month of supply.
c) Wages and expenses are paid twice a month on 1st and 16th respectively.
Ans:
Cash Budget for the period 4th quarter ending March 2017

Particulars January (Rs.) February (Rs.) March (Rs.)

Receipts

Opening Balance 20,000.00 37,000.00 (35,000.00)

Collection from Debtors 124,000.00 100,000.00 94,000.00

Total (A) 144,000.00 137,000.00 59,000.00

Payments

Payments to Creditors 96,000.00 162,000.00 164,000.00

Wages 11,000.00 10,000.00 12,000.00

Total (B) 107,000.00 172,000.00 176,000.00

Closing Balance (A)-(B) 37,000.00 (35,000.00) (117,000.00)

Overdraft Needed - 35,000.00 117,000.00

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Working Note:-

Collection from Debtors: As given in the question, Credit terms of sales are payment by the end of the
month following the month of supply. On average one half of sale are paid on due date, while the other
half are paid during the next month.

January = 50% of November and 50% of December = (60,000 + 64,000) = 1, 24,000

February = 50% of December and 50% of January = (36,000 + 64,000) = 1, 00,000

March = 50% of January and 50% of February = (58,000 + 36,000) = 94,000

Payments to Creditors: As given in the question, Creditors are paid during the month following the month
of supply.

January = Purchases of December = 96,000

February = Purchases of January = 1, 62,000

March = Purchases of February = 1, 64,000

Payment to Wages: According to the question, they are paying wages in the same month so we take
amount of wages of current months only i.e. January month wages are Rs.11000 so we consider Rs.11000
paid in January only.

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 Assignment Set – II

Q. 1. 1 ton of material input yield standard output of 1,00,000 units. The standard price of material is Rs.
20 per kg. The actual quantity of material use is 10 tons and the actual price paid is Rs. 21 per kg. Actual
output obtained is 9,00,000 units. Compute Material Variances?
Ans: Computation of Material Variance:

Budgeted (Rs. 1,00,000) Standard (Rs. 9,00,000) Actual (Rs. 9,00,000)

Ton Rate Amount Ton Rate Amount Ton Rate Amount

1 20 20 9 20 180 10 21 210

Material Cost Variance:

It is the difference between the standard cost of materials allowed for the actual output and the actual
cost of materials used. It may be calculated as:

Material Cost Variance = Standard Cost of Materials – Actual Cost of Materials

= 180 – 210
= -30

Material Price Variance:

Under Material price variance, the price paid for materials is different from the pre-determined price. It is
calculated by multiplying the actual quantity of materials used with the difference between standard and
actual prices. It may be calculated as:

Material Price Variance = (Standard Rate – Actual Rate) X Actual Quantity

= (20 – 21) X 10
= (-1) X 10
= -10

Material Usage Variance:

It is also known as material quantity variance or efficiency variance. It is that portion of material cost
variance which measures the difference in material cost arising from higher or less a consumption of
materials than the standard material consumption for the actual output. It is calculated by multiplying the
standard price with the difference between the standard and actual quantitative of materials. It may be
calculated as:

Material Usage Variance = Standard Unit Rate (Standard Usage Quantity – Actual Usage Quantity)
= 20 (9 – 10)
= 20 (-1)
= -20

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Q. 2. There are errors which do not affect the Trial Balance and it is difficult to locate them. Do you
agree? Justify your agreement/disagreement?
Ans: There are four errors which do not affect trail balance and it is difficult to locate them. A brief
description of the four errors is offered in the following paragraphs.
 Error of Complete Omission: Error of omission occurs when a transaction is completely omitted
from the books of accounts. Example, If purchase of goods from Jairam on credit is not recorded
either in the general journal or in the purchases book, it is termed as error of omission.

 Error of Commission: If the errors wrong posting, wrong casting, wrong calculation etc., are
committed in the books of original entry or ledger, it is said to be error commission.
Example: Purchase invoice of Rs.1730 may have been entered as Rs.1370 in the purchases book
itself, then, in the subsequent ledger accounts the same mistake continues and thereby cannot be
disclosed by trial balance. The difference of Rs.360 (1730-1370) should be added to purchases
account and to the respective supplier’s account. The error can be detected only when the original
invoice is referred to after getting the complaint from the supplier.
Rectification Entry
Purchases a/c Dr. Rs. 360
To Suppliers a/c Rs. 360

 Error of principle: While drawing journal entries, often error of principle is committed and this
goes unnoticed because it does not affect the total of trial balance. Example, Wages paid to
workers engaged in the construction of building
Rectification Entry
Building a/c Dr.
To Wages a/c

 Compensating errors –It is also called off-setting error. Compensating error is one which is
counter balanced by another error. Example, Mr. X account was debited Rs. 100 as against Rs.1000
while the account of Mrs. X account was debited Rs.1000 as against the correct amount of Rs. 100.

Rectification Entry
Mr. X’s account Dr. 900
To Mrs. X’s account Rs. 900

Steps to Locate the Errors:-

 Check the total on both debit side and credit side of the trial balance.
 Check the total of debtors and creditors accounts.
 Find out whether all ledger balances are carried to trial balance.
 Verify the total of all the ledger accounts.
 Divide the amount of difference in the trial balance by 2 and see if any item of the debit or credit side
equal to that amount has been posted to the opposite side.
 Check whether the opening balances are brought down correctly from the previous accounting
period.
 Compare with trial balance of the previous year to find out if there are any items missing.
 Where the difference in the trial balance is divisible by 9 then the difference is likely to be due to
misplacement of figures like 12 for 21, 24 for 42, 36 for 63, etc.
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Q.3. From the following data prepare a Cost Sheet.

Rs.
Opening cost of Raw materials 30,000
Closing stock of Raw materials 20,000
Purchase of Raw materials 1,90,000
Sales 6,50,000
Prime Cost 4,10,000
Factory Overhead 1,20,000
Administration Overhead 90,000
10% of the output remined unsold. There was no Direct Expenses

Ans:
Cost Sheet

Particulars Amount (Rs.) Total Amount (Rs.)

Opening Cost of Raw Materials 30,000.00

Add: Purchases of Raw Materials 190,000.00

220,000.00

Less: Closing Stock of Raw Materials 20,000.00

Raw Materials Consumed 200,000.00

Add: Direct Wages 210,000.00

Prime Cost 410,000.00

Add: Factory Overhead 120,000.00

Work Cost 530,000.00

Add: Administration Overhead 90,000.00

Cost of Production 620,000.00

Less: Closing Stock of finished goods 10% of 6,20,000 62,000.00

Cost of Sales 558,000.00

Profit (Sales - Cost of Sales) 92,000.00

Total Sales 650,000.00