Description

Cost and Management Accounting
April 2024 Examination
1. The following information in respect of a production process is available for the
month of April 2023.
Budgeted Actual
Output Units 90000 97500
Hours 90000 99000
Fixed Overheads 135000 150000
Variable Overheads 180000 204000
Working Days 75 78
Compute the relevant overheads variances. (10 Marks)
Ans 1.
Introduction
Overhead variances play a critical role in the field of cost and management accounting,
offering insights into the efficiency and financial performance of a production process. These
variances, essentially the differences between actual costs and budgeted or standard costs,
serve as key indicators for management to identify areas of over or underperformance. In
analyzing the production process for April 2023, we delve into the world of fixed and
variable overhead variances. This examination not only aids in understanding how effectively
the business managed its overhead costs in the face of actual production activities but also
provides a foundation for strategic decision-making aimed at improving operational
efficiency and cost control. By computing specific overhead variances, such as the Fixed
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2. In a particular month 1,500 units were introduced in Process A. The normal loss is
estimated at 5% of input. At the end of the month, 1,050 units were produced and
transferred to Process B, 345 were incomplete units and 105 units were scrapped at the
end of the process. The incomplete units had the following degree of completion:
materials 75%, labor 50%, overheads 50%.
Additional details of process A are as follows:
(Rs.)
Cost of 1500 units introduced 43500
Additional materials consumed 10800
Direct Labor 25050
Allocated overheads 12525
The scrapped units were sold at Rs. 10 per unit. Compute:
1. Statement of Equivalent Production
2. Statement of Cost
3. Statement of Evaluation
4. Process A account (10 Marks)
Ans 2.
Introduction
Cost and Management Accounting is a pivotal tool that bridges the gap between financial
accounting and management decision-making. It encompasses various methods and
calculations that enable businesses to track, analyze, and optimize their operations and
financial performance. In the context of manufacturing processes, understanding the flow of
costs and evaluating the efficiency of production processes are essential. The examination of
a specific scenario involving Process A in a manufacturing cycle, where units are introduced,
processed, and then transferred, scrapped, or left incomplete, demonstrates the application of
3.a. From the following information compute the economic batch quantity:
Annual demand for the component 12,000
Set-up cost per batch Rs.120
Carrying cost per unit of production is Rs.0.36. (5 Marks)
Ans 3a.
Introduction:
Calculating the economic batch quantity (EBQ) is crucial for optimizing inventory
management, particularly in manufacturing settings. EBQ helps determine the ideal batch size
to minimize total costs associated with inventory, including setup and carrying costs. In this
scenario, we’ll utilize the annual demand, setup cost per batch, and carrying cost per unit to
b. A hotel rents out room at Rs. 20000 per night, during the tourists’ season calculated
on per night basis as follows:
Particulars Amount
Caretaker’s wages 6000
Electricity 2000
Cleaner’s wages 3200
Fixed Cost 4000
Profit 4800
During off season, a tourist company has offered to hire 10 rooms @ Rs.12800 per night
for 50 nights.
Advise the hotel owner on financial grounds whether rooms should be rented out to the
tourist company? (5 Marks)
Ans 3b.
Introduction:
For hotels, optimizing room rental strategies is vital for maximizing revenue and profitability.
When faced with a potential offer from a tourist company during the off-season, the hotel
owner must carefully evaluate the financial implications to make an informed decision. This
analysis involves comparing the expected revenue from renting rooms to the tourist company