COST SYSTEM AND CONTROL-KANNUR UNIVERSITY

III Semester M.B.A. Degree (Regular )Examination,January 2016
                                         (2014 Admn.)
                                Elective- II :FINANCEE
                 MBA 3E12 :Cost systems and Control
       Instruction : Answer to all the Section.
                                  SECTION-A
Answer two questions in this Section . Each question carries 13 marks.
1 Zenith Ltd. has prepared the following Sales Budget for the first five months of 2015.
   Month                   Sales Budget (units)
   January                  10,800
   February                15,600
   March                    12,200
   April                       10,400
   May                        9,800
   Inventory of finished goods at the end of every month is to be equal to 25% of
   sales estimate for the next month. On Ist January 2015, there were 2,700 units
   of product on hand. There is no work in progress at the end of any month. Every
   unit of product require two types of materials in the following quantities.
   Material A:4kg
   Material B:5kg
   Materials equal to one half of the requirements of the next month's production
   are to be in hand at the end of every month. This requirement was met on
   Ist January 2015. Prepare the  following budgets for the quarter ending on
   31st March  2015.
   1) Production Budget-Quantity Wise
   11)Material Purchase Budget-Quantity Wise.
    Define'budgetary control' and explain its objectives. Discuss how the funtionaL
    Budgets are built up taking any one
                                   OR
    Define 'budgetary control' and explain its objectives. Discuss how the funtional
    budgets are built up taking any one specific example.
2. Explain the behavioural aspects which should be borne in mind by those who are
    designing and operating standard costing and budgetary control system.
                                   OR
    The standard material inputs required for1,000of a finished output are given
    below:
    Material             Quantity (kg.)         Standard Rate Per Kg.-Rs.
       P                      450                                          20
      Q                      400                                           40
      R                      250                                           60
                            1,100
   Less:Standard loss 100
   Standard output 1,000
   Actual production in a period was 20,000kg of the finished product for which the
   actual quantities of materials used and the prices paid thereof are as under:
   Material                 Material Quantity used kg.    Purchased Price Per Unit (Rs.)
     P                                      10000                                      19
    Q                                       8500                                        42
    R                                        4500                                        65
   Calculate Material Cost, Price, Quantity, Mix and Yield Variances. Prepare
    reconciliation among the variances.
                                      SECTION-B
   Answer any six questions in this Section.Each question carries 9 marks (1 mark
   for Part (a), 3 marks for Part (b) and 5 Marks for Part (c).

3.  a) What is master budget ?
     b) Explain the drawbacks of zero based budgeting.
     c) A factory engaged in manufacturing plastic toys is working at 40% capacity
        and produces 10,000 toys per month. The present cost break up for one toys is
        as under.
     Material : Rs.10
     Labour  : Rs.3
     Overheads :Rs.5 (60% fixed)
     The selling price is Rs. 20 per toy.
If it is decided to work the factory at 50% capacity, the selling price falls by
3%.At 90% capacity, the selling price falls by 5% accompanied by a similar
fall in the price of material. You are required to prepare a statement showing
the profits/losses at 40%,50% and 90% capacity utilizations.

4.  a) What is cost system ?
     b) Write the difficulties in installing a cost system.
     c) In a manufacturing unit, raw material passes through four processes,I,II,III
        and IV and the output of each process is the input for the subsequent process.
        The losses in the four processes are respectively 25%,20%,20% and 162/3%
        respectively for I,II,III and  IV processes of the input. If the end product at the
        end of the IV process is 40,000 kg, what is the quantity of  raw material
        required to be fed at the beginning of Process I and the cost of the same at
       Rs.5 per kg ?
5.  a) Define marginal costing.
     b) Distinguish between marginal costing and absorption costing.
     c) From the following data, draw a simple break even chart : Selling price per
        unit Rs.10. Trade discount 5%, direct material cost per unit Rs.3. Direct
        labour cost per unit Rs.2, fixed overheads Rs.10,000. Variable overheads
       are 100% on direct labour cost. If sales are 10% and 15% above the
       break even volume, determine the net profit.
6.  a) What is analysis of variance ?
     b) Explain the causes and disposition of variances.
     c) Standard hours for manufacturing two products M and N are 15 hours per unit
        and 20 hours per unit respectively. Both products require identical kind of
        labour and the standard wages rate per hour is Rs.5. In the year 2015,
        10,000 units of M and 15,000 units of N were manufactured. The total labour
       hours actually worked were 4,50,000 and the actual wages bill came to
       Rs.23,00,000. This includes 12,000 hours paid for @ Rs. 7 per hour and
      9,400 hours paid for @ Rs.7.50 per hour, the balance having been paid
      @ Rs.5 per hour. Calculate labour variances.
7.  a) What is escalation clause ?
     b) Explain the basic priciples of batch costing.
     c) Computer a conservative estimate of profit on a contract (80% complete)
         from the following particulars. lllustrate at least four methods of computing
        the profit.
Particulars                                                                                Amount (Rs.)
 Total expenditure to date                                                             1,02,000
Estimated further expenditure to complete the contract
(including contingencies)                                                                   20,400      
Contract price                                                                               1,83,600
Work certified                                                                                1,20,000
Work uncertified                                                                               10,200
Cash received                                                                                   97,920
    
8.  a) What is fixed overhead variance ?
     b) What is a cost plus contract ? Discuss this from the point of view of
        manufacturer and
        The buyer
    c)  A factory uses a job costing system. The following data are available from the
        books at the year ending on 31st March 2015.
        Particulars                                                   Amount (Rs)
Direct Materials                                                        18,00,000
Direct Wages                                                            15,00,000
Profit                                                                        12,18,000
Selling and Distribution Overheads                             10,50,000
Administrative Overheads                                             8,40,000
Factory Overheads                                                       9,00,000
In the year 2015-16, the factory has received an order for a number of jobs.It
is estimated that the direct materials would be  Rs.24,00,000 and direct labour
would cost Rs.15,00,000. What would be the price for these jobs if the factory
intends to earn the same rate of profit on sales, assuming that the selling and
distribution overheads  have gone up by 15%. The factory recovers factory
overhead as a percentage of works cost, based on the cost rates
prevalent in the previous year.

9.  a) What is cost reduction ?
     b) Explain the concept of value analysis and value engineering.
     c) Explain the areas of cost reduction and major difficulties in cost reduction.
                 

























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