2 MARK QUESTION & ANSWER IN COST ACCOUNTING 1.
What is cost Accounting? Cost accounting is “The technique and process of ascertaining costs” and “amount of expenditure incurred on a given thing”.
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Define Ascertain For the period far which the costs are worked out, collect under the different heads of accounts, all the expenses changeable for that particular period.
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Define Analyze Analyze the expenses under each head of a/c, between the various elements of cost.
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Define Allocate Wherever possible charge in firms (I.e., locate the expenditure under a specific element of cost), directly to one or more production dept a cost centers.
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Define Apportion In cases where a direct charge in furs to a specific production dept on a cost center is not possible, apportion such expenses to the relevant depts. on centre’s on an equitable basics.
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Define Absorb Having traced the total expenditure under each element of lost to the production dept or cost centers, through allocation an apportionment, the expenses under each dept should be absorbed over the different product produced in the different for this purpose, there are recognized method laid down far the absorption of each dept’s expenses over the products it produces.
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What is cost unit? The cost unit is a unit of product, service or time in relation to which cost may be ascertained.
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What is Budgeting? As cost accounting, estimation of future needs is known as Budgeting.
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What is profit centre? Profit centre is a segment of a business that is possible for all activities involved in the production and sale of products, system & services.
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What is cost control? Cost control defined as the guidance and regulation by executive action, of costs of operating and under taking.
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What is cost reduction? It is concerned with reducing cost. It’s concerned with reduction programme which is a continuous process. Cost can be reduced on account of saving in cost.
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What is cost Audit? Cost Audit is the rectification of cost accounts & a cheque on the adherence to the cost accounting plan.
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What is cost Manual? A document which sets out the irresponsibility of the persons costing in the routine of and the forms and records required far costing and cost accounting.
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Define Budget “Budget is an estimate of future needs arranged according to an orderly basic, covering some or all of the activities of an enterprise for definite period of time” – George R. Terry.
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What is budgetary control? Budgetary control means establishment of Budget relating to the responsibilities of executives to the requirement of a policy, and continuous comparison of actual with Budgeted results either to secure by individual action the objective of that policy or to provide basis far its revision.
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What is Budget centre? A Budget centre may be a department on a section of the undertaking.
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What is Budget Manual? It is a document which sets out the responsibilities of persons engaged in the routine work.
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What is master Budget? It is the summary Budget far the entire enterprises and embodies the summarized figures far various activities. It is also known as the summary Budget or finalized profit plan.
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What is fixed Budget? This is a Budget which is designed to remain unchanged irrespective of the level of activity actually attained.
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What is flexible Budget? This is a dynamic budget. It’s a budget which is designed to change in accordance with the level of activity.
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What is slab Budget? This is the most important Budget, as it’s usually the most difficult to forecast. It’s prepared by the sales Manager.
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What is production Budget? It is a Budget prepared by productions manager, showing the forecast of output. The objective is determining the quantity of production for a Budgeted period.
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What is Material Budget? The Material Budget helps proper planning of purchases. It shows the estimated quantities as well as the cost of raw materials, required for production as per production Budget. 2
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What is labour Budget? It is a part of production Budget. It’s prepared by personal dept’s. This Budget gives detailed information relating to the number of workers, rate of wages and cost of labour hours to be employed. What is works overhead Budget? It sets out the estimated costs of indirect materials, indirect labour and indirect factory expenses, during the Budget period in order to achieve the target.
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What is Administrative overhead Budget? This Budget covers the expenditure of administrative office and Management salary.
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What is selling & Distribution overhead Budget? This Budget relates to selling & distribution produce for the budget period and is based on sales budget.
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What is capital expenditure Budget? This Budget shows the estimated expenditure on fixed assets, such as land, Building, Plant, machinery.
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What is cash Budget? This Budget represents the amount of cash receipts & payments and a balance during the Budgeted period.
30.
What is labour? Labour constitutes the second important major element of cost, but equally important is the cost of raw materials.
31.
What is labour cost? Labour cost May be more because of a inefficient labour, abnormal idle time, unwarranted over time, increase of wastage, spoilage etc. Labour cost includes Monitory benefits and fringe benefits.
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What is direct labour? The labour spent in altering the construction, composition, or condition of product (i.e.) converting raw materials into finished product is known as direct labour.
33.
What is indirect labour? It is the amount of wages paid to work men, who aren’t engaged in the production of goods & services, but at the same time, indirectly keep to the direct labour. What is a job card? Job cards are prepared by hand or printed. Generally, one land is issued to an operator at a time. When the worker starts the work, the Home is recorded through time recording clock and the same is also punched again when the work is finished.
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What is idle time? When workers spend their whole time at different job, then the time booked for jobs must agree with the gate time.
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36.
What is over time? When a worker works above his normal working hours, he is set to be working over time. If a worker works more than 9 hours on any day or 48 hours in a week, the worker is entitled for overtime payment.
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What is labour turn over? It may be defined as the rate of change in a labour force that is it denotes the percentage of change in the labour force of an organization.
38.
What is Time rate system (or) Day rate system? This method relates to the hours, the employee is at work, regardless of output. This is known as Time rate system.
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What is piece rate system? This method relates to the production or output, regardless of the time taken for production. This is known as piece rate system (or) payment by result.
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What are the categories of piece rate system? i) Straight piece rate. ii) Piece rates with guaranteed time rates. iii) Differential piece rate.
41.
What is Pay-Roll? The pay roll (wage sheet) is detailed information of the gross income and net income of each worker. What is process costing? Process costing is a method of costing. This method refers to costing of district process involved, while converting raw material in the finished product.
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What is Normal on uncontrollable loss? Because of the Natural of raw materials, some loss is inherent and is unavoidable. This is known as Normal wastage or Normal loss.
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What is abnormal loss? In certain cases, it can be seen that the loss exceeds the predetermined normal loss any loss exceeding the normal loss is called abnormal loss.
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What is abnormal gain? If the actual wastage is less than the normal wastage it is known as abnormal effectiveness (or) abnormal gain.
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What is abnormal wastage? It is the actual wastage is more than the normal loss. It’s known as abnormal wastage.
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What is by products? By products on joint products are equal economic importances from the same on basic raw materials, possessing comparable value.
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COST 48.
What is meant by cost? According to shilling law, “Cost represents the resources that have been or must be sacrificed to attain a particular objective”.
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What is cost centre? It means, “a production or service location, function, activity or item of equipment for which costs are accumulated.
50.
What is cost elements? The term ‘elements of cost’ has been defined by the official Terminology as “The constituent parts of costs according to the factors upon which expenditure is incurred, namely, material, labour and Expenses”. What is cost Allocation? It means the allotment of whole items of cost to cost centers or cost units.
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What is cost Apportionment? It means the allotment of proportions of items of cost to cost centers or cost units.
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What is overhead Absorption? It means the allotment of overhead to cost units.
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What is cost Accounting? The Institute of cost and Management Accountants, London has defined cost accounting as “the process of accounting for cost which begins with the recording of income and expenditure and ends with the preparation of periodical statements and reports for ascertaining and controlling costs”.
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What is relevant cost? Relevant costs as “Costs appropriate to a specific management decision”.
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What is controllable cost? Controllable cost as “a cost which can be influenced by its budget holder”
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What is uncontrollable cost? Uncontrollable cost is not amenable to any sort of control by the managerial personnel at any level.
OVERHEADS 58. What is overhead? Overhead is defined as “the aggregate of indirect material cost, indirect wages and indirect expenses”. 59.
What is production overhead? Production overhead covers all indirect expenses incurred by the undertaking from the receipt of the order for manufacture till it is completed.
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60. 61.
What is selling overhead? Selling overhead covers all indirect expenses incurred in obtaining and retaining a customer. What is Distribution Overhead? It covers all indirect expenses incurred from the time the product is put in the finished goods godown till it reaches the customers.
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What is Administration overhead? It covers all indirect expenses incurred in the formulation of the policy of the organization, its administration and control.
63.
What is direct wages? The expenses are related to the working hours of the department and the overall hourly wage rates of the workers do not very from department to department.
64.
What is a labour hour Rate? This method refers to the computation of absorption rate on the basis of labour hours spent on producing a particular product. Production overhead The Rate = Labour hours spent
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What is Machine hour Rate? It refers to the cost incurred in running a machine for one hour. Production overhead Machine hour Rate = Total Machine hours MATERIALS 66. What are materials? Materials are the basic substances used in the process of production. These substances are transformed into finished goods in the course of production. 67.
What is Material Control? Material control may thus be defined as “The regulation of the functions of an organisation relating to the procurement, storage and usage of materials in such a way as to maintain an even flow of production without excessive investment in material stock”.
68.
What is a procurement material? Procurement of materials for a price is “Purchasing”. It is usually handled by a separate department, it the size of the concern is large enough, under a purchase manager.
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What is purchase Requisition? Purchase requisition is prepared by storekeeper. The requisitions are usually approved by those who are authorized to approve. The store keeper ensures that he is acting according to policy which is given to him.
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What is purchase procedure? Initiation of purchase Inviting Quotation. Receipt of suppliers Quotation. 6
Preparation of comparative statement. Preparation and placement of purchase order. 71.
What is a Bin Card? Bin cards are a card placed outside the bin to record all the movement of materials in or outside the bin.
72.
What is classification of stores? The official Terminology as “The arrangement of items in logical groups having regard to their nature (subjective classification) or purpose (objective classification)”
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What is codification? The official Terminology defines the term ‘code’ as “A system of symbols designed to be applied to a classified set of items to give a brief, accurate reference, facilitating entry, collation and analysis”.
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What is stock Register? The store-keeper maintains a stock register. This record of stores may either be a bound book or of lose leaves, often referred to as stock ledger cards.
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What is meant by Stores ledger? This is the chief accounting record for materials. It is maintained by the cost accounting department. The stores ledger is the key to an effective system of inventory control.
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What is specific prime method? Specific prime method which is also known as original price method is a method under which materials are issued and balanced at the price at which they were originally purchased.
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What are Inventory control / stock control? It means, “The systematic regulation of stock level”.
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What is Inventory control Techniques? The important techniques covered here are ABC analysis Economic order quantity (EOQ) Reorder - point Safety stock.
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What is Inventory Cost? It is commonly said that “it costs to carry inventories”.
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What is ordering cost? These consist of clerical and administration costs associated with preparing purchase orders, taking delivery and paying invoices.
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What is holding costs? These costs consists of opportunity cost of investment in stocks, storage costs such as rent, insurance, heating and lighting, expenses of stores staff, stores equipment and maintainable, etc. What is EOQ? The CIMA official Terminology defines EOQ or Economic order Quantity as “The most economic stock replenishment order size, which minimizes the sum of stock ordering costs and stock holding costs. EOQ is used in an ‘optimizing’ stock control system”.
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What is Re-order level? The official Terminology defines reorder level as “a level of stock at which a replenishment order should be placed”.
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What is safety stock? Safety stocks “are the amount of stocks that are carried in excess of the expected use during the lead time to provide a cushion against running out of stocks”.
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What is Danger level? This is fixed below minimum level. When the stock reaches this level, urgent action for purchase of material is taken. Danger level : Min. rate of consumption x emergency delivery time.
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What is Bill of materials? It gives a complete list of materials required for a particular job or work order. It is generally prepared by the planning department as soon as the work order is received. When the job is started all the materials listed in the bills are sent to the production department. The bill of material serves as purchase requisition to the purchase department.
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Define Maximum level The level at above the stock should not be allowed to exceed at any time. Maximum Level = Reorder Level + Re order Qty – (Min. consumption x Min. Reorder period)
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Define Minimum level The level below stock should not be allowed to fall at any time. The stock goes below this level; there is a danger of stoppage of production for want of materials. Minimum Level = (Normal Consumption x Normal Reorder period)
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What is meant by Reorder level? The level at which the new order for material in to the placed by the store keeper. It is fixed in between Maximum level and minimum level to ensure that the stock on hand does not fall below the minimum level before the receipt of ordering materials. Reorder level = Maximum consumption x Maximum Reorder period.
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What is job costing?
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It is a method of ascertaining costs of an individual job or work. It is useful in industries which manufacture a variety of products according to the specifications of customers. 91.
What is Batch costing? It is used in industries. Where the goods are manufacture in definite batches. batch is regarded as a cost unit for which costs are computed. Cost per unit ascertained by dividing the total cost of a batch by the number of units produced that batch. It is used in garments manufacture, biscuit manufacture, spare parts Components manufacture.
A is in &
92.
What is meant by Economic order Quantity Economic order quantity (EOQ) refers to the optimum quantity that should be manufactured in a batch. In order words, it is the ideal quantity of production that will minimize cost of production. 2AS EOQ = A = Annual production in units. C B = Setting up cost per batch. C = Carrying cost per unit per year.
93.
What is contract costing? It is a form of specific order costing. It is applicable where the work is undertaken according to the specifications of the customer and each work is of a long duration. Each contract is treated as a separate cost unit and assigned a number to ascertain the cost and profit.
94.
Define work - certified Large contracts take a long time for completion and require high investments. To – enable the contractor to continue with the work, periodic payments are made by the contractee. Such payments are made only after inspection of the work by the contractee engineer or architect. The value of work approved by the contractee engineer is known as work certified.
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What is work uncertified? Work completed but not yet approved by the contractee engineer is known as uncertified work. It is valued at cost.
96.
Define Notional profit? The contract account shows the notional profit which is the excess of the value of work-in-progress over the cost of work done.
96.
What is work-in-progress? When the contract is not complete, to ascertain the profit on the contract for an accounting period, value of work-in-progress includes (a) work certified and (b) work uncertified.
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What is Escalation clause? It is clause in the contract agreement. Under this clause, the contractee agrees to pay the contractor any increase in cost of the contract due to rise in price of material and labour. 9
98.
What is inflated price method? This is not an independent method of pricing the issues. This is used in conjunction with any one of the other methods. Under this method, material issues are valued at an inflated price to cover the cost of contingencies or related costs.
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