CA Inter Cost & Management Accounting

12.COST ACCOUNTING SYSTEMS

Q.1) Acme Manufacturing Co. Ltd. opens the costing records, with the balances as on 1st
July, 2020 as follows:
(₹) (₹)
Material Control A/c 1,24,000
Work-in-Process Control A/c 62,500
Finished Goods Control A/c 1,24,000
Production Overhead Control A/c 8,400
Administrative Overhead Control A/c 12,000
Selling & Distribution Overhead Control A/c 6,250
Cost Ledger Control A/c 3,13,150
3,25,150 3,25,150

The following are the transactions for the quarter ended 30th September 2020:
(₹)
Materials purchased 4,80,100
Materials issued to jobs 4,77,400
Materials to works maintenance 41,200
Materials to administrative office 3,400
Materials to sales department 7,200
Wages direct 1,49,300
Wages indirect 65,000
Transportation for indirect materials 8,400
Production overheads incurred 2,42,250
Absorbed production overheads 3,59,100
Administrative overheads incurred 74,000
Administrative overheads allocated to production 52,900
Administrative overheads allocated to sales department 14,800
Selling & Distribution overheads incurred 64,200
Selling & Distribution overheads absorbed 82,000
Finished goods produced 9,58,400
Finished goods sold 9,77,300
Sales 14,43,000
Make up the various accounts as you envisage in the Cost Ledger and PREPARE a Trial
Balance as at 30th September, 2020.

Q.2) As on 31st March, 2020, the following balances existed in a firm’s Cost Ledger:
Dr. (₹) Cr. (₹)
Stores Ledger Control A/c 3,01,435
Work-in-Process Control A/c 1,22,365
Finished Stock Ledger Control A/c 2,51,945

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Manufacturing Overhead Control A/c 10,525

Cost Ledger Control A/c 6,65,220
6,75,745 6,75,745

During the next three months the following items arose:

(₹)
Finished product (at cost) 2,10,835
Manufacturing overhead incurred 91,510
Raw materials purchased 1,23,000
Factory Wages 50,530
Indirect Labour 21,665
Cost of Sales 1,85,890
Material issued to production 1,27,315
Sales returned at Cost 5,380
Material returned to suppliers 2,900
Manufacturing overhead charged to production 77,200

You are required to PASS the Journal Entries; write up the accounts and schedule the
balances, stating what each balance represents.

Q.3) JOURNALISE the following transactions assuming that cost and financial
transactions are integrated:
(₹)
Raw materials purchased 2,00,000
Direct materials issued to production 1,50,000
Wages paid (30% indirect) 1,20,000
Wages charged to production 84,000
Manufacturing expenses incurred 84,000
Manufacturing overhead charged to production 92,000
Selling and distribution costs 20,000
Finished products (at cost) 2,00,000
Sales 2,90,000
Closing stock Nil
Receipts from debtors 69,000
Payments to creditors 1,10,000

Q.4) A fire destroyed some accounting records of a company. You have been able to collect
the following from the spoilt papers/records and as a result of consultation with
accounting staff for the period of January, 2020:

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(i) Incomplete Ledger Entries:

Materials Control A/c
(₹) (₹)
To Balance b/d 32,000

Work-in-Process Control A/c

(₹) (₹)
To Balance b/d 9,200 By Finished Goods Control A/c 1,51,000

Payables (Creditors) A/c

(₹) (₹)
By Balance b/d 16,400
To Balance c/d 19,200
Manufacturing Overheads Control A/c
(₹) (₹)
To Bank A/c (Amount spent) 29,600

Finished Goods Control A/c

(₹) (₹)
To Balance b/d 24,000 By Balance c/d 30,000

(ii) Additional Information:

(1) The bank-book showed that ₹ 89,200 have been paid to creditors for
raw-material.
(2) Ending inventory of work-in-process included materials of ₹ 5,000 on
which 300 direct labour hours have been booked against wages and
overheads.
(3) The job card showed that workers have worked for 7,000 hours. The
wage rate is ₹ 10 per labour hour.
(4) Overhead recovery rate was ₹ 4 per direct labour hour.
You are required to COMPLETE the above accounts in the cost ledger of the
company.

Q.5) The following incomplete accounts are furnished to you for the month ended 31st
October, 2020.
Stores Ledger Control Account
1.10.2020 To Balance ₹ 54,000
Work in Process Control Account
1.10. 2020 To Balance ₹ 6,000

Finished Goods Control Account

1.10. 2020 To Balance ₹ 75,000
Factory Overheads Control Account

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Total debits for October, 2020 ₹ 45,000

Factory Overheads Applied Account
Cost of Goods Sold Account
Creditors for Purchases Account
1.10. 2020 By Balance ₹ 30,000
Additional information:
(i) The factory overheads are applied by using a budgeted rate based on direct
labour hours. The budget for overheads for 2020 is ₹ 6,75,000 and the budget
of direct labour hours is 4,50,000.
(ii) The balance in the account of creditors for purchases on 31.10.2020 is ₹ 15,000
and the payments made to creditors in October, 2020 amount to ₹ 1,05,000.
(iii) The finished goods inventory as on 31st October, 2020 is ₹ 66,000.
(iv) The cost of goods sold during the month was ₹ 1,95,000.
(v) On 31st October, 2020 there was only one unfinished job in the factory. The
cost records show that ₹ 3,000 (1,200 direct labour hours) of direct labour
cost and ₹ 6,000 of direct material cost had been charged.
(vi) A total of 28,200 direct labour hours were worked in October, 2020. All
factory workers earn same rate of pay.
(vii) All actual factory overheads incurred in October, 2020 have been posted.
You are required to FIND:
(a) Materials purchased during October, 2020.
(b) Cost of goods completed in October, 2020.
(c) Overheads applied to production in October, 2020.
(d) Balance of Work-in-process Control A/c on 31st October, 2020.
(e) Direct materials consumed during October, 2020.
(f) Balance of Stores Ledger Control Account on 31st October, 2020.
(g) Over absorbed or under absorbed overheads for October, 2020.

Q.6) A company operates on historic job cost accounting system, which is not integrated
with the financial accounts. At the beginning of a month, the opening balances in cost
ledger were:
(₹ in lakhs)
Stores Ledger Control Account 80
Work-in-Process Control Account 20
Finished Goods Control Account 430
Building Construction Account 10
Cost Ledger Control Account 540
During the month, the following transactions took place:
(Amounts in lakh)
Materials − Purchased 40
Issued to production 50
Issued to factory maintenance 6
Issued to building construction 4
Wages − Gross wages paid 150
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Indirect wages 40
For building construction 10
Works Overheads− Actual amount incurred 160
(excluding items shown above)
Absorbed in building construction 20
Under absorbed 8
Royalty paid (related to production) 5
Selling, distribution and administration overheads 25
Sales 450
At the end of the month, the stock of raw material and work-in-Process was ₹
55 lakhs and ₹ 25 lakhs respectively. The loss arising in the raw material accounts is
treated as factory overheads. The building under construction was completed during
the month. Company’s gross profit margin is 20% on sales.
PREPARE the relevant control accounts to record the above transactions in the
cost ledger of the company.

Q.7) In the absence of the Chief Accountant, you have been asked to prepare a month’s
cost accounts for a company which operates a batch costing system fully integrated
with the financial accounts. The following relevant information is provided to you:
(₹) (₹)
Balances at the beginning of the month:
Stores Ledger Control Account 25,000
Work-in-Process Control Account 20,000
Finished Goods Control Account 35,000
Prepaid Production Overheads brought forward from previous month 3,000
Transactions during the month:
Materials Purchased 75,000
Materials Issued:
To production 30,000
To factory maintenance 4,000 34,000
Materials transferred between batches 5,000
Total wages paid:
To direct workers 25,000
To indirect workers 5,000 30,000
Direct wages charged to batches 20,000
Recorded non-productive time of direct workers 5,000
Selling and Distribution Overheads Incurred 6,000
Other Production Overheads Incurred 12,000
Sales 1,00,000
Cost of Finished Goods Sold 80,000
Cost of Goods completed and transferred into finished goods during 65,000
the month
Physical value of work-in-Process at the end of the month 40,000

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The production overhead absorption rate is 150% of direct wages charged to work-in-
Process.
Required:
PREPARE the following accounts for the month:
(a) Stores Ledger Control Account.
(b) Work-in-Process Control Account.
(c) Finished Goods Control Account.
(d) Production Overhead Control Account.
(e) Costing Profit and Loss Account.

Q.8) Following are the figures extracted from the Cost Ledger of a manufacturing unit.
(₹)
Stores:
Opening balance 15,000
Purchases 80,000
Transfer from WIP 40,000
Issue to WIP 80,000
Issue to repairs and maintenance 10,000
Sold as a special case at cost 5,000
Shortage in the year 3,000
Work-in-Process:
Opening inventory 30,000
Direct labour cost charged 30,000
Overhead cost charged 1,20,000
Closing Balance 20,000
Finished Products:
Entire output is sold at 10% profit on actual cost from work-in-process.
Others:
Wages for the period 35,000
Overhead Expenses 1,25,000
ASCERTAIN the profit or loss as per financial account and cost accounts and reconcile them.

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CA Inter Cost & Management Accounting

HOME WORK
Q.1) Dutta Enterprises operates an Integral system of accounting. You are required to
PASS the Journal Entries for the following transactions that took place for the year
ended 30th June, 2020.
(Narrations are not required.)
(₹)
Raw materials purchased (50% on Credit) 6,00,000
Materials issued to production 4,00,000
Wages paid (50% Direct) 2,00,000
Wages charged to production 1,00,000
Factory overheads incurred 80,000
Factory overheads charged to production 1,00,000
Selling and distribution overheads incurred 40,000
Finished goods at cost 5,00,000
Sales (50% Credit) 7,50,000
Closing stock Nil
Receipts from debtors 2,00,000
Payments to creditors 2,00,000

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