Cost Accounting 2 marks

1.Name two industries where output costing is applicable?

1. Spinning mills- Kilo frame yarn

2. Flour mills – Stock of flour

3. Mines- Tonnes of minerals

4. Cement –ton of cement.

2. What is retention money?

In contract transaction sometimes some part of the total contract price is not paid for certain
specified period after the contract is completed. This amount which is not paid is called
retention money. This amount just a security for any defective work which may be found later
on.

3. What is work certified?

Work certified is that part of contract work completed which has been certified by an architect
or engineer or surveyor as complete during a specified period. It is a part of work in progress.

4. What is normal loss?

Losses which are incidental and which cannot be avoided is the business or process are called
normal losses. Example: Losses due to melting, evaporation, leakage etc.,

5. What is by-product? Give two examples?

Other products which are generated in the production process along with the main product are
called by products. Example: Kerosene, diesel in the manufacturer of petroleum.

6. Calculate ton Kms distance covered 500 kms. No of days 25, capacity of truck 20 tons,
Avg load carried 90% of the capacity.

Ton kilometres: No of trips x distance x no of days x capacity x % of capacity utilised

=1 x 500 x 25 x 20 x 90/100

= 225000 ton kms.

7. What is “work in progress”?

Work commenced but not completed is called work in progress.

or
Work in progress is that part of the total contract which has been actually completed up to a
specific period. It is the total of work certified with work uncertified.

8. What do you mean by abnormal gain?

During the production if the actual output is more than the normal output then the difference
between them is called abnormal gain.

9. What is activity based costing?

In general a method of charging overheads to a cost units, namely products, services or

10. What do you mean by cost drivers?

Cost driver is a factor which determines or influences the cost of a particular activity.

11. Mention two advantages of ABC system of overhead absorption?

1. It helps in the determination of costs.

2. It helps in make and buy decisions.

12. What is composite cost unit? Give the examples of composite cost unit.

A unit which consists of two or more basic units is called composite unit. Example: Passenger
kilometre, kilo-watt hour etc.,

13. Name two industries to which operating costing applies.

1. Road transport companies

2. Railways 3. Airways 4. Shipping companies.

14. What is process costing?

Costing which is applied to the organisation in which raw materials pass through different
process before they are converted into finished goods is called process costing.

15. What is work un-certified?

The amount of work done but for which engineer has not yet certified is called work uncertified.

16. What is abnormal loss?

Loss of goods due to our carelessness and negligence and which can be avoided are called
abnormal loss. Example: Loss of goods due to accidents, fire, breakages, theft etc.,
17. Give two features of job costing?

1. The goods manufactured or jobs undertaken are not identical

2. Each job is done according to the specifications given by the customer.

18. How do you treat sale of scrap in contract account?

Sale of scrap is contract account is credited to the contract account.

19. Calculate passenger kms:

Distance covered 300 kms, no of days 30 days, no of bus 2 buses, capacity 60 passengers,
seat occupied 90%.

Passenger kms= No of buses X No of trips X No of days X Distance X Capacity Utilised X %

=2 X 1 X 30X 300 X 60 X 90%

= 972000 Kms.

20. Find out profit transferred to profit and loss account:

Estimated profit Rs. 32000

Work certified Rs. 180000

Contract price Rs 200000

Profit transferred to P/L a/c:

= 28800

21. What is sub-contract?

It is the cost of a sub contract carried out by a sub contractor. This is paid by the contractor to
the sub contractor.

or

Along with main contract of construction of building other contract works like electrification,
plumbing internal decoration etc.,. These are called sub contracts. Cost of sub contract is
debited to contract a/c only.
22. Write two features of process costing.

1. Production is continuous and uniform

2. Raw materials pass through different processes( stages)before they are converted into
finished goods.

23. What is job costing? Where it is applied?

Job costing means to find out the cost of each job. Units are produced according to
specifications of the customers.

1. Job typing institutions

2. Printing press adopts job costing.

24. What is unit costing?

Unit costing is that costing which is applied where the production is uniform and goods
produced are identical and cost /unit can be ascertained.

25. Name two industries adopt job costing?

1. Job typing institutions

2. Printing press adopts job costing.

26. What is contract price?

Total amount payable by the contractee to the contractor on completion of the contract work is
called the contract price.

27. State the need for preparing profit reconciliation statement.

It is necessary to prepare profit reconciliation statement for the following purpose:

1. to reconcile profit as per financial accounts and profit as per cost accounts.

2. To find out the reasons for differences between profits/losses of cost accounts and financial
accounts.

28. Name four items of expenses which appears in financial accounts only.

Following expenses appear only in financial accounts:

1. Provision for doubtful debts

2. Loss on sale of capital assets

4. Preliminary expenses.

29. What is operating costing?

Costing which is applied to the organisation which are engaged in rendering service to the
customers and engaged in producing and selling the goods is called operating cost. Example:
costing applied to transportation of goods, railways, airways, road transportation etc.,

30. Calculate ton Kms:

Distance coverd 250 kms, No of days 25, capacity 15 tons, average load carried 80% of the
capacity.

Ton kms:

= No of km X No of days X Capacity x % of capacity

=250 x 25 x 15 x 80%

=75000 ton kms.

31. Give two features of output costing?

1. It is simple method for ascertaining the cost of production.

2. Standard products i.e outputs are identical

3. This method is used for finding out cost per unit of output.

32. What is service costing? Name two industries using service costing.

Costing which is applied to the organisation which are engaged in rendering service to the
customers and engaged in producing and selling the goods is called operating cost. Example:
costing applied to transportation of goods, railways, airways, road transportation etc.,

33. Total operating cost of a transport co. For a month is Rs800000, distance covered 400
kms and passengers carried were 100. Calculate fare to be charged per passenger km if co.
wants to earn profit of 20% of bus fare.

400x 100 =400000

Cost per passenger km= 800000/ 40000km = Rs. 20.

Profit is 20% of fare charged:

If fare charged Rs 100 .it includes profit Rs 20.

=20/80x20=Rs 5.

34.What is abnormal gain? How it is treated in process account?

Actual loss is less than normal loss a gain is obtained which is called abnormal gain or
effectiveness. The value is calculated as if it good units. It is debited to the process account and
credited to abnormal gain account.

35. What do you mean by cost plus contract?

When the contractor and contractee are unable to calculate the amount of the cost of contract
(advance)in such cases cost plus contract is used. In this case price ascertained by adding a
specified amount of profit to the costs allowed on the contract.

36. What is profit reconciliation statement?

It is the statement explaining causes of disagreement and prepared to get confirmed about the
equalisation of profits of cost accounting and financial records.

37. Mention two advantages of ABC system?

1. It helps in determination of costs

2. it helps in improving performance

3. It helps in fixing selling prices of products because of ready availability of more accurate data
relating to product cost.

4. it improves managers decision making as they can use more reliable product cost data.

38. What is notional profit?

Notional profit is an estimate of earnings primarily used in the building and construction
industry. It is used to smooth out fluctuations in reported revenue due to contracts that take a
long time to complete.

39. What is normal loss?

Any loss arising due to normal factors like evaporation , withdrawals for tests, shrinkage or
sampling, unavoidable spoiled quantities etc., constitute normal loss. These losses cannot be
avoided.

40.What is operating costing?

Operating costing is a special method of cost computation which is suitable for the industries
which render services as distinct from these which manufacture goods. The cost of operating a
service is called operating costing.
41.Calculate passenger Kms:

Distance covered 200 kms, no of days 25 days, capacity 40 passengers, seat occupied 60%

=200x 25x 40 x60/100

=120000 passenger Kms

42. State the method of valuation of stock in cost accounts and financial accounts.

In cost account, stocks are valued either at actual cost price namely FIFO OR LIFO or average
cost methods or notional price.

In financial account stocks are valued at either cost price or market price whichever is less.

43. How the abnormal loss and abnormal gain are treated?

Abnormal loss is transferred to costing P &L a/c.

Abnormal gain is calculated as if it good unit. It is debited to the process account and credited to
abnormal gain account.

44.What is break even point? How is it calculated?

The break even point is that volume of output at which total cost is equal to sales. It is a point of
no profit and no loss.

BEP = fixed cost

Contribution per unit.

contribution

45. What is separation point?

The point at which joint products becomes separately identifiable is called split off point or
separation point.

46. Define marginal costing?

According to ICMA London “ marginal costing is the ascertainment of marginal cost by

47.Calculate P/V ratio and BEP: Fixed costs Rs. 180000, sales Rs. 600000 and profits Rs.
120000.
P/V ratio= contribution
Sales
= 120000
600000
=20%
BEP=fixed cost
p/v ratio
= 180000
20/100
=90.