BCOC 138
COST ACCOUNTING
BCOC 138 Solved Free Assignment 2023
BCOC 138 Solved Free Assignment January 2023
Section – A
Q.1 Explain the differences between cost accounting and financial accounting. What are the advantages of cost accounting?
Q.2 From the following particulars of a manufacturing firm, prepare the Cost Sheet showing (i) Prime Cost, (ii) Works Cost, (iii) Cost of Production, and (iv) Cost of Sales.
Q.3 Explain centralized and decentralized purchasing systems along with their merits and demerits.
Q.4 Discuss different items that are taken into account while ascertaining the cost of materials. Support your answer with an illustration.
Q.5 The standard time allowed to complete a job is 100 hours and the hourly rate of wage payment is Rs. 5. The actual time taken by the worker to complete the job is 80 hours.
Calculate the total wages of the worker on the basis of :
i) Time Rate
ii) Piece Rate
iii) Halsey Plan
iv) Rowan Plan
Also compare the effective earnings per hour under the above methods.
Ans 1. Cost accounting and financial accounting are two different branches of accounting that serve different purposes within an organization. While both types of accounting involve the collection, recording, and analysis of financial information, they differ in their focus, principles, and techniques.
Cost Accounting: Accounting is a specialized branch of accounting that focuses on the internal processes of an organization. It involves the detailed tracking, analysis, and reporting of costs associated with the production of goods or services.
Cost accounting aims to determine the actual costs incurred in producing a product or service, and provides management with valuable information for decision-making, planning, and controlling costs. Some of the key features of cost accounting include:
Cost Accumulation: Cost accountants gather data related to various cost elements, such as direct materials, direct labor, and manufacturing overhead, and accumulate these costs in a systematic manner.
This helps in identifying the total cost of production, as well as the cost of individual components or processes. BCOC 138 Solved Free Assignment 2023
Cost Allocation: Cost accountants allocate costs to different products, services, or cost centers based on various allocation methods, such as activity-based costing (ABC) or traditional costing.
This helps in determining the true cost of each product or service, and assists in pricing decisions and profitability analysis.
Cost Analysis: Cost accountants analyze costs in detail to identify cost drivers, cost trends, and cost variances. This helps in identifying inefficiencies, cost-saving opportunities, and areas for improvement in the production process.
Budgeting and Forecasting: Cost accountants prepare budgets and forecasts based on historical cost data, production plans, and market trends.
This helps in setting performance targets, monitoring actual performance, and taking corrective actions to achieve cost objectives.
Financial Accounting: Financial accounting, on the other hand, focuses on the preparation and presentation of financial statements for external stakeholders, such as shareholders, investors, creditors, and regulators.
It involves the recording, summarizing, and reporting of financial transactions in accordance with generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS).
Financial accounting provides a holistic view of the financial performance and position of an organization, and helps stakeholders make informed decisions. Some of the key features of financial accounting include:
Financial Statements: Financial accountants prepare financial statements, such as the balance sheet, income statement, and cash flow statement, which provide an overview of the financial health and performance of an organization.
These statements are prepared in accordance with GAAP or IFRS, and are used by stakeholders to assess the financial position, profitability, and liquidity of a company.
External Reporting: Financial accountants are responsible for preparing financial reports that comply with regulatory requirements and are disclosed to external stakeholders, such as shareholders, investors, and creditors.
These reports provide transparency and accountability to stakeholders, and help in building trust and confidence in an organization’s financial information.
Historical Reporting: Financial accounting primarily focuses on historical financial data, recording transactions that have already occurred.
This helps in providing an accurate and reliable record of an organization’s financial activities over a specific period of time.
Auditing: Financial accountants work closely with auditors who verify the accuracy and reliability of financial statements.
Audits provide assurance to stakeholders that the financial statements are free from material misstatements and are prepared in accordance with applicable accounting standards. BCOC 138 Solved Free Assignment 2023
Differences between Cost Accounting and Financial Accounting:
Focus: Cost accounting focuses on the internal processes of an organization and provides detailed information for management decision-making, planning, and control.
Financial accounting, on the other hand, focuses on the preparation of financial statements for external stakeholders to assess the financial position and performance of an organization.
Purpose: The purpose of cost accounting is to determine the actual costs of production and analyze costs for internal decision-making, while the purpose of financial accounting is to provide an accurate and reliable record of an organization’s financial activities for external stakeholders.
Time Frame: Cost accounting focuses on the present and future, as it provides information for planning and controlling costs in real-time.
Financial accounting, on the other hand, focuses on the past, as it deals with historical financial data and prepares financial statements for a specific period of time.
Users: Cost accounting is primarily used by internal stakeholders, such as managers, executives, and employees, for making operational and strategic decisions.
Financial accounting is used by external stakeholders, such as shareholders, investors, creditors, and regulators, for assessing the financial health and performance of an organization. BCOC 138 Solved Free Assignment 2023
Scope: Cost accounting is more detailed and specific, as it focuses on the costs associated with the production of goods or services, and provides information at the individual product, service, or cost center level.
Financial accounting is more general and provides an overview of the overall financial position and performance of an organization.
Principles and Techniques: Cost accounting uses various principles and techniques, such as standard costing, job costing, process costing, and activity-based costing (ABC), to accumulate, allocate, and analyze costs.
Financial accounting follows generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) for recording, summarizing, and reporting financial transactions.
Advantages of Cost Accounting:
Cost Control: Cost accounting provides detailed information on the costs associated with the production of goods or services, allowing organizations to identify and control costs effectively. This helps in improving operational efficiency, reducing wastage, and maximizing profits.
Pricing Decisions: Cost accounting helps organizations in determining the true cost of products or services, which is crucial for setting competitive prices.
It ensures that prices are set at a level that covers costs and generates a reasonable profit margin, leading to informed pricing decisions.
Performance Measurement: Cost accounting provides performance measures, such as cost variances, cost trends, and cost drivers, that help in evaluating the performance of different products, services, or cost centers.
This enables organizations to identify areas of improvement and take corrective actions to achieve cost objectives. BCOC 138 Solved Free Assignment 2023
Decision-making: Cost accounting provides relevant and timely information for decision-making, such as make-or-buy decisions, product mix decisions, and pricing decisions.
It helps organizations in making informed decisions based on accurate cost data, leading to better strategic and operational decisions.
Budgeting and Forecasting: Cost accounting assists in preparing budgets and forecasts based on historical cost data, production plans, and market trends.
This helps organizations in setting performance targets, monitoring actual performance, and taking corrective actions to achieve cost objectives.
Resource Allocation: Cost accounting provides information on the profitability and contribution margin of different products, services, or cost centers, which helps organizations in allocating resources effectively.
It ensures that resources are allocated to the most profitable and strategic areas of the organization.
Ans 2. Cost Sheet
Particulars Amount (Rs.)
Stock of materials on 1.1.2018 40,000
Purchase of materials 11,00,000
Total Cost of Materials 11,40,000
Add: Direct Labor (Productive wages) 5,00,000
Add: Works Overheads 1,50,000
Prime Cost 17,90,000
Add: Factory or Works Overheads 1,50,000
1,50,000
Works Cost 19,40,000
Add: Office Expenses 1,00,000
Cost of Production 20,40,000
Add: Opening Stock of Finished Goods 50,000
Less: Closing Stock of Finished Goods 1,48,000
Cost of Goods Sold (Cost of Sales) 19,42,000
Explanation:
The Cost Sheet is prepared to determine the various costs associated with the production of goods and to arrive at the cost of goods sold (or cost of sales). Based on the given particulars, the Cost Sheet is prepared as follows:
Prime Cost: Prime Cost includes the direct costs of production, which are the cost of materials and direct labor (productive wages).
In this case:
Cost of Materials = Stock of materials on 1.1.2018 + Purchase of materials = Rs. 40,000 + Rs. 11,00,000 = Rs. 11,40,000
Direct Labor (Productive wages) = Rs. 5,00,000
Therefore, Prime Cost = Cost of Materials + Direct Labor = Rs. 11,40,000 + Rs. 5,00,000 = Rs. 17,90,000
Works Cost: Works Cost includes the total cost of production, which is the sum of Prime Cost and Factory or Works Overheads.
In this case:
Factory or Works Overheads = Rs. 1,50,000
Therefore, Works Cost = Prime Cost + Factory or Works Overheads = Rs. 17,90,000 + Rs. 1,50,000 = Rs. 19,40,000
Cost of Production: Cost of Production includes the Works Cost and other overheads incurred in the production process, such as office expenses. In this case:
Office Expenses = Rs. 1,00,000
Therefore, Cost of Production = Works Cost + Office Expenses = Rs. 19,40,000 + Rs. 1,00,000 = Rs. 20,40,000
Cost of Goods Sold (Cost of Sales): Cost of Goods Sold includes the Cost of Production adjusted for opening and closing stock of finished goods. In this case:
Opening Stock of Finished Goods = Rs. 50,000
Closing Stock of Finished Goods = Rs. 1,48,000
Therefore, Cost of Goods Sold = Cost of Production + Opening Stock of Finished Goods – Closing Stock of Finished Goods
= Rs. 20,40,000 + Rs. 50,000 – Rs. 1,48,000 = Rs. 19,42,000
Thus, the Cost Sheet shows the Prime Cost, Works Cost, Cost of Production, and Cost of Goods Sold (or Cost of Sales) based on the given particulars.
Ans 3. Centralized and Decentralized Purchasing Systems: A Comprehensive Overview BCOC 138 Solved Free Assignment 2023
In the field of procurement and supply chain management, purchasing plays a pivotal role in acquiring goods, services, and raw materials for an organization. The approach taken by an organization in managing its purchasing process can significantly impact its overall efficiency, effectiveness, and ultimately, its bottom line. Two commonly used approaches for purchasing are centralized and decentralized systems.
Centralized Purchasing System: In a centralized purchasing system, the procurement activities are consolidated under a single department or entity within the organization. This department or entity is responsible for making all the purchasing decisions on behalf of the entire organization.
The purchasing activities are standardized, and all the procurement requests from various departments or business units are routed through the central procurement team.
The central procurement team is responsible for selecting suppliers, negotiating contracts, managing vendor relationships, and making procurement decisions based on predetermined procurement policies and procedures.
Merits of Centralized Purchasing System:
Cost Savings: One of the primary advantages of a centralized purchasing system is the potential for cost savings. By consolidating procurement activities, the organization can leverage its buying power to negotiate better pricing and terms with suppliers.
Bulk purchases and long-term contracts can be negotiated, resulting in economies of scale and cost savings for the organization.
Improved Supplier Management: Centralized purchasing allows the organization to establish strategic relationships with suppliers. The central procurement team can select suppliers based on predetermined criteria, such as quality, reliability, and pricing, and can manage these relationships more effectively.
By consolidating the organization’s supplier base, the central procurement team can monitor and evaluate supplier performance, negotiate better terms, and ensure compliance with procurement policies and procedures.
Standardization and Streamlined Processes: Centralized purchasing enables the organization to standardize procurement processes, policies, and procedures across the entire organization. BCOC 138 Solved Free Assignment 2023
This results in streamlined and efficient procurement processes, reducing duplication of efforts, eliminating inconsistencies, and ensuring compliance with procurement policies and procedures.
Standardization also facilitates better data collection and analysis, which can help in identifying cost-saving opportunities, managing risks, and making informed procurement decisions.
Improved Control and Compliance: Centralized purchasing provides better control and visibility over procurement activities. The central procurement team can establish and enforce procurement policies and procedures, ensuring compliance with organizational guidelines and industry regulations.
This helps in reducing the risk of fraud, corruption, and unethical practices in the procurement process. Centralized purchasing also enables better monitoring and reporting of procurement activities, facilitating audits and compliance assessments.
Demerits of Centralized Purchasing System:
Reduced Flexibility: One of the main drawbacks of a centralized purchasing system is reduced flexibility. Centralized decision-making may not always align with the unique requirements and priorities of individual departments or business units within the organization. BCOC 138 Solved Free Assignment 2023
This can result in delays in procurement activities and dissatisfaction among internal stakeholders who may feel their needs are not adequately addressed.
Lack of Local Market Knowledge: Centralized purchasing may lack local market knowledge and expertise. Local market conditions, supplier capabilities, and cultural factors may vary across different regions or countries.
In a centralized purchasing system, the central procurement team may not always have the necessary knowledge or expertise to fully understand and address these nuances, resulting in suboptimal procurement decisions.
Potential Bottlenecks and Delays: Centralized purchasing may introduce bottlenecks and delays in procurement activities. All procurement requests and decisions are routed through the central procurement team, which can result in delays in decision-making, processing, and approvals.
This can impact the overall speed and responsiveness of the procurement process, potentially affecting the timely delivery of goods and services.
Decentralized Purchasing System: In a decentralized purchasing system, the procurement activities are delegated to individual departments or business units within the organization.
Each department or business unit is responsible for their own procurement decisions, supplier selection, contract negotiations, and vendor management.
The decentralized procurement process allows each department or business unit to have autonomy and flexibility in managing their procurement activities based on their specific needs and priorities. BCOC 138 Solved Free Assignment 2023
Merits of Decentralized Purchasing System:
Faster Decision-making: Decentralized purchasing allows individual departments or business units to make procurement decisions more quickly without having to go through a central procurement team.
This results in faster decision-making and reduced procurement cycle times, enabling departments to procure goods and services more efficiently to meet their specific requirements and deadlines.
Local Market Expertise: Decentralized purchasing enables individual departments or business units to have a better understanding of local market conditions, supplier capabilities, and cultural factors.
This allows them to make procurement decisions that are better aligned with the unique needs and requirements of their respective areas of operation. Local market expertise can lead to better supplier relationships, improved negotiation outcomes, and more effective procurement strategies.
Flexibility and Adaptability: Decentralized purchasing provides departments or business units with the flexibility to adapt their procurement processes based on their changing needs and priorities.
They can quickly respond to changing market conditions, supplier performance, and internal requirements without having to go through a lengthy central approval process. This enables greater agility and responsiveness in procurement activities, which can be particularly beneficial in dynamic business environments.
Accountability and Ownership: Decentralized purchasing fosters a sense of accountability and ownership among individual departments or business units.
They are responsible for their own procurement decisions, and this can result in greater ownership and commitment to procurement goals and objectives.
Departments or business units are more likely to be proactive in managing their procurement activities and ensuring compliance with procurement policies and procedures. BCOC 138 Solved Free Assignment 2023
Demerits of Decentralized Purchasing System:
Lack of Standardization: One of the main challenges of a decentralized purchasing system is the lack of standardization. Different departments or business units may have their own procurement processes, policies, and procedures, which can result in inconsistencies and inefficiencies.
Lack of standardization can also make it difficult to collect and analyze procurement data across the organization, hindering the ability to identify cost-saving opportunities and manage risks effectively.
Reduced Buying Power: Decentralized purchasing may result in reduced buying power for the organization. Each department or business unit may not have the same level of bargaining power with suppliers compared to a centralized procurement team.
This can result in higher prices, less favorable terms, and missed opportunities for cost savings through bulk purchases or long-term contracts.
Fragmented Supplier Management: In a decentralized purchasing system, each department or business unit may have its own set of suppliers, resulting in fragmented supplier management.
This can lead to duplication of efforts, lack of visibility into supplier performance across the organization, and difficulty in managing supplier relationships consistently. Fragmented supplier management can also result in missed opportunities for consolidating spend and negotiating better terms with suppliers.
Ans 4. Ascertaining the cost of materials is a critical aspect of procurement and supply chain management. Accurate cost estimation is essential for budgeting, pricing, and decision-making related to procurement strategies, supplier selection, and negotiation. BCOC 138 Solved Free Assignment 2023
Several items need to be taken into account while determining the cost of materials. In this essay, we will discuss various factors that affect material costs, and provide illustrations to support our analysis.
Raw Material Cost: The cost of raw materials is a significant component of material costs. Raw materials are the basic inputs used in the manufacturing process, and their cost can vary based on factors such as global demand and supply dynamics, availability, quality, transportation costs, tariffs, and exchange rates.
For example, in the steel manufacturing industry, the cost of iron ore, coal, and other raw materials can significantly impact the overall cost of producing steel.
Changes in raw material prices can impact procurement decisions, pricing strategies, and profitability.
Illustration: Let’s take the example of a furniture manufacturing company. The cost of wood, screws, nails, fabric, foam, and other raw materials used in the production of furniture will impact the overall cost of manufacturing a piece of furniture.
If the cost of wood increases due to changes in demand and supply dynamics or environmental regulations, it will directly impact the cost of producing furniture, which may result in higher prices for customers or lower profit margins for the company.
Supplier Pricing and Terms: Supplier pricing and terms play a crucial role in determining the cost of materials. Different suppliers may offer different prices for the same material based on factors such as economies of scale, negotiation skills, market competition, and relationship with the buyer.
Suppliers may also offer various payment terms, such as cash discounts, credit terms, and volume-based discounts, which can impact the cost of materials.
Supplier performance, reliability, and reputation should also be considered while assessing material costs, as poor supplier performance can result in additional costs such as delays, rejections, and rework.
Illustration: Consider a manufacturing company that procures steel from multiple suppliers. Supplier A offers a lower price for steel, but requires payment in advance, while Supplier B offers a slightly higher price but provides a longer credit term.
The company needs to take into account not only the purchase price but also the payment terms and reliability of the supplier.
If Supplier A has a history of delays in delivering steel or poor quality issues, the company may incur additional costs such as production delays, rejections, and rework, which can offset the initial cost advantage.
Transportation and Logistics Costs: Transportation and logistics costs are critical factors in determining the cost of materials, especially for global supply chains.
Transportation costs include freight charges, custom duties, taxes, insurance, and other charges associated with moving materials from suppliers to the buyer’s location. BCOC 138 Solved Free Assignment 2023
These costs can vary based on factors such as distance, mode of transportation, shipment volume, weight, and destination. Efficient logistics management and optimization of transportation routes can result in cost savings.
Illustration: Let’s consider a company that imports electronic components from overseas suppliers. The cost of components may be competitive, but the transportation costs, including freight charges, custom duties, and taxes, can significantly impact the overall cost of materials.
If the company can optimize its logistics management, for example, by consolidating shipments, negotiating better freight rates, or leveraging trade agreements, it can reduce transportation costs and ultimately lower the cost of materials.
Quality and Specifications: The quality and specifications of materials can impact their cost. Higher-quality materials may cost more, but they may result in better product performance, durability, and customer satisfaction.
On the other hand, lower-quality materials may be cheaper initially, but they can lead to higher costs in terms of rejections, rework, and warranty claims.
Illustration: Consider a construction company that is procuring cement for building projects. The company can choose between two suppliers, Supplier X and Supplier Y.
Supplier X offers cement at a lower price per ton, but the cement has a lower compressive strength compared to Supplier Y, whose cement is priced slightly higher but has a higher compressive strength.
The company needs to take into account the cost of potential quality issues, such as lower durability, increased risk of cracks, and potential rework, if they choose the lower-quality cement from Supplier X.
In this case, the company may need to balance the initial cost savings with the potential long-term costs associated with lower-quality materials.
Quantity and Volume Discounts: The quantity and volume of materials procured can impact their cost. Suppliers may offer quantity discounts, also known as volume discounts, for larger orders. BCOC 138 Solved Free Assignment 2023
This can be in the form of lower prices, reduced freight charges, or other incentives. Buyers need to carefully evaluate the quantity and volume discounts offered by suppliers to determine the most cost-effective procurement strategy.
However, it is important to avoid overstocking materials, as it can result in additional costs such as storage, handling, and obsolescence.
Illustration: Let’s take the example of a manufacturing company that procures packaging materials such as boxes, tapes, and labels. Supplier A offers a lower price per unit for boxes, but requires a minimum order quantity of 10,000 units to avail the discount.
Supplier B offers a slightly higher price per unit for boxes, but has no minimum order quantity requirement. The company needs to assess its demand and storage capacity to determine the most cost-effective procurement strategy.
If the company can utilize the entire quantity of 10,000 units within a reasonable timeframe and has adequate storage space, it may be more cost-effective to choose Supplier A and avail the quantity discount.
Lead Time and Urgency: The lead time or delivery time of materials can impact their cost. Materials that need to be procured urgently or have shorter lead times may result in higher costs due to expedited shipping, air freight charges, or other rush fees. BCOC 138 Solved Free Assignment 2023
On the other hand, materials with longer lead times may be more cost-effective, but they require proper planning and coordination to ensure timely availability.
Illustration: Consider a manufacturing company that needs to procure specialized components for a new product launch. The components have a long lead time of 12 weeks from Supplier X, but they are priced lower compared to Supplier Y, who can deliver the components in 4 weeks but at a higher price.
The company needs to assess the urgency of the product launch, the production timeline, and the additional costs associated with expedited shipping from Supplier Y to determine the most cost-effective procurement strategy.
If the product launch timeline allows for the longer lead time, it may be more cost-effective to choose Supplier X and avail the lower price.
Ans 5. i) Time Rate:
As per the given information, the standard time allowed to complete the job is 100 hours, and the hourly rate of wage payment is Rs. 5. The actual time taken by the worker to complete the job is 80 hours.
Total wages under Time Rate = Actual Time Taken x Hourly Rate
= 80 hours x Rs. 5/hour
= Rs. 400
Effective Earnings per Hour = Total wages earned / Actual Time Taken
= Rs. 400 / 80 hours
= Rs. 5/hour
ii) Piece Rate:
In the Piece Rate system, the worker is paid based on the number of pieces produced or tasks completed, rather than the time taken.
Assuming the worker completes the job as per the standard time allowed, which is 100 hours, the total wages under Piece Rate will be based on the total number of pieces or tasks completed by the worker.
As per the given information, there is no information about the number of pieces or tasks completed by the worker. So, the calculation of total wages under Piece Rate is not possible without knowing the relevant piece rate or task rate.
iii) Halsey Plan:
The Halsey Plan is a type of incentive plan where the worker is paid a guaranteed hourly rate for the time taken to complete the job, plus a percentage of time saved.
In the Halsey Plan, the worker is paid for the actual time taken to complete the job at the hourly rate of wage payment, and a percentage of time saved as an incentive.
As per the given information, the standard time allowed to complete the job is 100 hours, and the actual time taken by the worker is 80 hours.
Time saved = Standard Time Allowed – Actual Time Taken
= 100 hours – 80 hours
= 20 hours
In the Halsey Plan, the percentage of time saved that is paid as an incentive is typically 50%.
Total wages under Halsey Plan = (Actual Time Taken x Hourly Rate) + (Percentage of Time Saved x Hourly Rate)
= (80 hours x Rs. 5/hour) + (50% of 20 hours x Rs. 5/hour)
= Rs. 400 + Rs. 50
= Rs. 450
Effective Earnings per Hour = Total wages earned / Actual Time Taken
= Rs. 450 / 80 hours
= Rs. 5.625/hour
iv) Rowan Plan:
The Rowan Plan is a type of incentive plan where the worker is paid a guaranteed hourly rate for the time taken to complete the job, plus a bonus based on the percentage of time saved. BCOC 138 Solved Free Assignment 2023
In the Rowan Plan, the worker is paid for the actual time taken to complete the job at the hourly rate of wage payment, and a bonus calculated based on the percentage of time saved.
As per the given information, the standard time allowed to complete the job is 100 hours, and the actual time taken by the worker is 80 hours.
Time saved = Standard Time Allowed – Actual Time Taken
= 100 hours – 80 hours
= 20 hours
In the Rowan Plan, the bonus is calculated based on the percentage of time saved, and the formula is as follows:
Bonus = (Percentage of Time Saved / 100) x (Standard Time Allowed x Hourly Rate)
As per the given information, the hourly rate of wage payment is Rs. 5.
Total wages under Rowan Plan = (Actual Time Taken x Hourly Rate) + Bonus
= (80 hours x Rs. 5/hour) + ((20/100) x (100 hours x Rs. 5/hour))
= Rs. 400 + Rs.20
= Rs. 400 + Rs. 100
= Rs. 500
Effective Earnings per Hour = Total wages earned / Actual Time Taken
= Rs. 500 / 80 hours
= Rs. 6.25/hour
Comparison of Effective Earnings per Hour under Different Methods:
Time Rate: Rs. 5/hour
Halsey Plan: Rs. 5.625/hour
Rowan Plan: Rs. 6.25/hour
As per the given illustration, the Rowan Plan provides the highest effective earnings per hour of Rs. 6.25, followed by the Halsey Plan with Rs. 5.625, and the Time Rate with Rs. 5. This indicates that under the Rowan Plan, the worker has the potential to earn the highest wages based on the percentage of time saved, compared to the other methods.
Section – B
Q.6 What is meant by time keeping? Describe its forms and purpose.
Q.7 Discuss the characteristics, merits and demerits of time wage system and piece wage system.
Q.8 What is meant by apportionment of costs? Discuss the principles of apportionment.
Q.9 Define job costing. Explain its features and applicability.
Q.10 Giving an appropriate example, explain the calculation of equivalent production of work-in-progress.
Ans 6. Timekeeping refers to the practice of accurately recording and managing the time spent by employees or workers on their work-related activities.
It involves tracking the hours worked by employees, including their arrival and departure times, breaks, and absences, and recording this information for various purposes such as attendance monitoring, payroll calculation, performance evaluation, and compliance with labor laws.
Timekeeping can take different forms depending on the organization’s policies, industry norms, and technological capabilities. Here are some common forms of timekeeping: BCOC 138 Solved Free Assignment 2023
Manual Timekeeping: This traditional method involves employees manually recording their work hours on time sheets or time cards. They may use a clock or a time stamp to punch in and out, or simply write down their start and end times.
Supervisors or managers may review and approve these records before they are used for payroll or other purposes.
Digital Timekeeping: With advancements in technology, many organizations now use digital timekeeping systems that automate the process. This can include using biometric devices such as fingerprint scanners, smart cards, or facial recognition systems to capture employees’ time in and out.
Employees may also use web-based or mobile applications to enter their time worked, breaks taken, and other relevant information. These systems may have built-in features such as reminders, notifications, and alerts to ensure accuracy and compliance.
Time Clocks: Time clocks are mechanical or electronic devices used to track and record employee work hours. They may be standalone machines or integrated with other systems such as payroll or attendance management software.
Employees typically use a physical time card or badge to clock in and out, and the data is automatically captured and stored for further processing.
Time and Attendance Software: Many organizations now use specialized time and attendance software that automates the entire timekeeping process. These software solutions can capture time worked, breaks, leaves, and other relevant information in real-time. BCOC 138 Solved Free Assignment 2023
They may also have additional features such as scheduling, reporting, and integration with other HR and payroll systems.
The purpose of timekeeping in organizations can vary depending on the specific needs and requirements. Here are some common purposes of timekeeping:
Payroll Calculation: Accurate timekeeping is essential for calculating employee wages accurately. It ensures that employees are paid based on the actual hours worked, including overtime, if applicable.
Timekeeping records serve as a basis for preparing payroll reports and processing payroll in compliance with labor laws and company policies.
Attendance Monitoring: Timekeeping helps organizations monitor employee attendance to ensure that employees are adhering to their work schedules and arriving on time.
It helps in identifying patterns of tardiness, absenteeism, or other attendance-related issues that may require corrective action.
Compliance with Labor Laws: Timekeeping is crucial for organizations to comply with labor laws and regulations related to working hours, breaks, and overtime.
It ensures that employees are not overworked and are provided with the required rest periods as mandated by law.
Performance Evaluation: Timekeeping records can be used as a basis for evaluating employee performance. It helps in assessing the productivity and efficiency of employees by comparing their actual hours worked with the expected hours or targets. BCOC 138 Solved Free Assignment 2023
It can also be used for evaluating adherence to work schedules and identifying areas for improvement.
Cost Analysis: Timekeeping data can be used for analyzing labor costs and productivity. It helps in understanding the labor utilization, labor cost per unit of output, and identifying opportunities for optimizing labor resources.
It also helps in budgeting and forecasting labor costs based on historical timekeeping data.
Compliance with Company Policies: Timekeeping records can help organizations ensure that employees are adhering to company policies related to working hours, breaks, leaves, and other attendance-related rules.
It can be used for enforcing policies such as flexible work hours, telecommuting, or time off requests.
Ans The time wage system and the piece wage system are two common methods of compensating employees for their work. Each system has its own characteristics, merits, and demerits. Let’s delve into the details of each system:
Time Wage System:
Characteristics:
Under the time wage system, employees are paid based on the time they spend on the job, usually in the form of an hourly or daily rate.
The emphasis is on the amount of time spent on the job rather than the quantity or quality of work done. BCOC 138 Solved Free Assignment 2023
Employees are paid a fixed rate per unit of time, regardless of their level of productivity or output.
The wages are predetermined and fixed, and employees receive a consistent income regardless of fluctuations in productivity or demand for their work.
Merits:
Simplicity: The time wage system is relatively simple to administer as wages are calculated based on the time spent on the job.
Guaranteed Income: Employees receive a fixed and regular income, which provides them with financial stability and security.
Employee Protection: The time wage system provides a safety net for employees as they are paid for their time even if the work is slow or the demand for their output is low.
Control over Labor Costs: Employers have more control over labor costs as wages are fixed and predetermined, making it easier to budget and forecast labor expenses.
Demerits:
Lack of Incentive for Productivity: As employees are paid based on time rather than output, there may be a lack of incentive for employees to increase their productivity or improve their performance.
Inefficiency: The time wage system may not provide strong incentives for employees to work efficiently, leading to potential time wastage or idle time.
Difficulty in Measuring Performance: It may be challenging for employers to measure the performance of employees accurately as wages are not directly tied to output or productivity. BCOC 138 Solved Free Assignment 2023
Cost Inefficiency: In industries where productivity is critical, the time wage system may result in higher labor costs as employees are paid regardless of their output level.
Piece Wage System:
Characteristics:
Under the piece wage system, employees are paid based on the quantity or quality of work they produce, usually in the form of a fixed rate per unit of output.
The emphasis is on the quantity or quality of work done rather than the time spent on the job.
Employees are incentivized to produce more by earning more if they produce more units of output.
The wages vary based on the level of productivity or output, providing employees with an opportunity to increase their income based on their performance.
Merits:
Incentive for Productivity: The piece wage system provides strong incentives for employees to increase their productivity, as they are directly rewarded for their output.
Higher Efficiency: Employees under the piece wage system are motivated to work more efficiently, resulting in potentially higher productivity and output.
Transparency in Performance Measurement: Employers can measure the performance of employees more accurately as wages are directly tied to output or productivity.
Cost Efficiency: In industries where productivity is critical, the piece wage system can result in lower labor costs as employees are paid based on their output level, reducing the cost per unit of output.
Demerits:
Complexity: The piece wage system may be more complex to administer compared to the time wage system, as wages are calculated based on the quantity or quality of work produced. BCOC 138 Solved Free Assignment 2023
Quality Concerns: The piece wage system may result in employees focusing solely on producing more units of output, potentially compromising the quality of work.
Ans Apportionment of costs refers to the process of allocating or distributing indirect costs among various departments, products, or cost centers in a business organization.
Indirect costs are expenses that cannot be directly traced to a specific product or service, such as rent, utilities, or depreciation.
These costs need to be allocated or apportioned among different cost centers or products in a systematic and equitable manner to determine the true cost of production and accurately measure profitability.
The principles of apportionment guide this process and ensure that costs are allocated in a fair and reasonable manner. Let’s discuss the principles of apportionment in detail:
Cause-and-Effect: This principle states that costs should be apportioned based on the cause-and-effect relationship between the cost and the cost object.
For example, if a cost can be traced directly to a particular department or product, it should be allocated to that department or product.
For instance, if the cost of a specialized machine is incurred only for a specific department’s use, it should be allocated entirely to that department.
Benefits Received: This principle states that costs should be apportioned based on the benefits received by different cost centers or products.
For example, if a cost is incurred for the benefit of multiple departments or products, it should be apportioned among them in proportion to the benefits received.
For instance, if a company incurs the cost of a common warehouse for storing finished goods used by different products, the cost of the warehouse should be apportioned based on the proportion of finished goods stored for each product.
Ability to Bear: This principle states that costs should be apportioned based on the ability of different cost centers or products to bear the costs. The ability to bear costs is typically measured in terms of the revenue or production level of each cost center or product. BCOC 138 Solved Free Assignment 2023
For example, if a company incurs a cost that is difficult to attribute to a specific department or product, it may apportion the cost based on the revenue or production level of each department or product.
Fairness and Equity: This principle emphasizes that costs should be apportioned in a fair and equitable manner to avoid any bias or favoritism. The allocation of costs should be reasonable and justifiable, considering the circumstances and objectives of the organization.
For example, if a cost cannot be allocated based on a cause-and-effect relationship, benefits received, or ability to bear, it should be apportioned in a fair and equitable manner, such as using a reasonable basis, consensus among stakeholders, or industry standards.
Simplicity and Practicality: This principle states that the method of apportionment should be simple, practical, and cost-effective. The cost of apportionment should not exceed the benefits gained from the allocation of costs.
Complex methods of apportionment may be impractical and may result in inaccurate or misleading cost allocation. Therefore, the method of apportionment should be practical and easy to understand and implement.
Consistency: This principle emphasizes that the method of apportionment should be consistent over time to enable meaningful comparisons and analysis of costs.
Changing the method of apportionment frequently may result in inconsistent and unreliable cost data, making it difficult to assess performance or make informed decisions.
Therefore, the method of apportionment should be consistent unless there are valid reasons for changing it, and any changes should be documented and justified.
Traceability: This principle states that costs should be apportioned based on the availability of reliable data and information.
The apportionment of costs should be supported by verifiable and traceable data to ensure the accuracy and reliability of the cost allocation.
Any assumptions or estimates used in the apportionment process should be based on reasonable and documented grounds.
Ans Job costing is a method of costing used by businesses to allocate costs to individual jobs, projects, or contracts. It is also known as specific order costing, contract costing, or project costing.
Job costing is typically used in industries where each job or project is unique, and costs need to be tracked separately for each job to determine its profitability accurately. BCOC 138 Solved Free Assignment 2023
This method of costing is commonly used in industries such as construction, custom manufacturing, printing, advertising, and consulting, where each job or project has distinct characteristics and costs associated with it. Let’s discuss the features and applicability of job costing in detail.
Features of Job Costing:
Customization: Each job or project is unique and requires customization to meet the specific requirements of the customer.
The costs associated with each job may vary depending on the materials used, labor employed, overheads incurred, and other specific requirements.
Job costing allows for tracking and allocating these costs to each job separately, providing a detailed and customized cost analysis.
Cost Accumulation: Job costing involves the accumulation of costs for each job separately. Costs such as direct materials, direct labor, and overheads incurred for each job are recorded and accumulated separately.
This allows for accurate tracking of costs for each job, enabling the business to determine the actual cost of production and calculate the profitability of each job.
Cost Allocation: Job costing involves the allocation of costs to each job based on their actual usage. Direct costs such as direct materials and direct labor are easily traced to each job.
Indirect costs or overheads, such as rent, utilities, and depreciation, are allocated to each job based on a predetermined method, such as labor hours, machine hours, or material usage. This allows for a fair and reasonable allocation of overhead costs to each job. BCOC 138 Solved Free Assignment 2023
Cost Analysis: Job costing provides detailed cost analysis for each job, which helps in evaluating the profitability of each job.
By tracking costs for each job separately, a business can determine the actual cost of production and compare it with the revenue generated from each job.
This allows for effective cost control, pricing decisions, and performance evaluation of each job.
Job-Specific Profitability: Job costing helps in determining the profitability of each job separately. It enables the business to identify which jobs are profitable and which are not.
This information is crucial for making strategic business decisions, such as resource allocation, product pricing, and job selection.
Applicability of Job Costing:
Job costing is applicable in various industries where each job or project is unique and requires customization. Some of the industries where job costing is commonly used include: BCOC 138 Solved Free Assignment 2023
Construction: Construction projects, such as building construction, road construction, and infrastructure projects, are typically unique and require customization based on the project specifications.
Job costing is used to track costs for each project separately, including materials, labor, equipment, subcontractors, and overheads.
Custom Manufacturing: Manufacturing of custom-made products, such as machinery, furniture, and specialized equipment, involves customization based on customer requirements.
Job costing is used to track costs for each customized product separately, including materials, labor, overheads, and other costs incurred for customization.
Printing and Advertising: Printing and advertising companies often work on customized projects, such as printing brochures, banners, and promotional materials.
Job costing is used to track costs for each printing or advertising project separately, including design costs, printing costs, labor costs, and overheads.
Consulting and Professional Services: Consulting firms, law firms, and other professional service providers often work on projects that require customization based on client needs.
Job costing is used to track costs for each consulting or professional service project separately, including labor costs, travel expenses, research costs, and other related expenses.
Ans Equivalent production is a term used in cost accounting to determine the amount of work-in-progress inventory that is considered complete in terms of production, based on the percentage of completion.
It is a method used to account for partially completed units in a production process and is commonly used in industries where work-in-progress inventory is a significant part of the production process, such as manufacturing, processing, and refining.
Let’s discuss the calculation of equivalent production with an appropriate example.
Example:
Let’s consider a manufacturing company that produces widgets. During a particular month, the company started with 1,000 units of work-in-progress inventory at the beginning of the month. BCOC 138 Solved Free Assignment 2023
The company completed 9,000 units during the month and had 2,000 units of work-in-progress inventory at the end of the month.
The company uses the percentage of completion method to account for its work-in-progress inventory, and it has determined that the work-in-progress inventory at the end of the month is 70% complete.
To calculate the equivalent production of work-in-progress, we need to consider both the units completed during the month and the units remaining in work-in-progress inventory at the end of the month.
Step 1: Calculate the equivalent units of production for units completed during the month:
Units completed during the month = 9,000 units
Step 2: Calculate the equivalent units of production for work-in-progress inventory at the end of the month:
Units in work-in-progress inventory at the end of the month = 2,000 units
Percentage of completion of work-in-progress inventory at the end of the month = 70%
Equivalent units of production for work-in-progress inventory at the end of the month = Units in work-in-progress inventory at the end of the month × Percentage of completion
Equivalent units of production for work-in-progress inventory at the end of the month = 2,000 units × 70% = 1,400 units
Step 3: Calculate the total equivalent units of production:
Total equivalent units of production = Equivalent units of production for units completed during the month + Equivalent units of production for work-in-progress inventory at the end of the month
Total equivalent units of production = 9,000 units + 1,400 units = 10,400 units
So, the equivalent production of work-in-progress for the given example is 10,400 units. BCOC 138 Solved Free Assignment 2023
The equivalent production of work-in-progress is used in cost accounting to allocate costs to units that are partially completed.
Once the equivalent production is determined, the costs incurred during the period, such as direct materials, direct labor, and manufacturing overhead, can be divided by the equivalent units to calculate the cost per equivalent unit.
This cost per equivalent unit is then used to value the work-in-progress inventory and calculate the cost of goods completed and transferred out of the production process.
It’s important to note that the percentage of completion for work-in-progress inventory should be determined based on a reliable estimation method, such as physical observation, time taken, or input/output measures.
Additionally, the calculation of equivalent production may vary depending on the specific cost accounting system or method used by a company, and it’s essential to follow the company’s accounting policies and procedures for accurate cost allocation and financial reporting.
Section – C
Q.11 Distinguish between the following:
a) Fixed overheads and variable overheads
b) Job costing and process costing
c) Joint-products and by-products
d) Integral accounting and non integral accounting
Ans a) Fixed overheads and variable overheads:
Fixed overheads refer to the indirect costs incurred in the production process that do not change with the level of production. These costs are incurred regardless of the level of activity and include expenses such as rent, depreciation, and salaries of permanent staff. BCOC 138 Solved Free Assignment 2023
Fixed overheads are considered to be fixed costs because they remain constant over a given period, regardless of the level of production.
On the other hand, variable overheads are the indirect costs incurred in the production process that vary with the level of production.
These costs are directly proportional to the level of activity and include expenses such as raw materials, direct labor, and utilities. Variable overheads are considered to be variable costs because they change in direct proportion to the level of production.
b) Job costing and process costing:
Job costing and process costing are two methods used to determine the cost of production in different types of manufacturing environments.
Job costing is used in situations where each unit of production is unique and distinct, and costs can be traced to specific jobs or orders.
It is commonly used in industries where customized or made-to-order products are produced, such as construction, custom manufacturing, and printing.
In job costing, costs are accumulated for each specific job or order separately, and the total cost of each job is determined by summing up the direct materials, direct labor, and manufacturing overhead costs incurred for that particular job.
Process costing, on the other hand, is used in situations where products are produced in a continuous or repetitive process, and it is difficult to trace costs to individual units of production.
It is commonly used in industries where large volumes of identical or similar products are produced, such as food processing, chemical manufacturing, and oil refining. BCOC 138 Solved Free Assignment 2023
In process costing, costs are accumulated for each production process or department, and the total cost of production is determined by spreading the accumulated costs over the total units produced during a specific period, resulting in a per-unit cost.
c) Joint products and by-products:
Joint-products and by-products are two types of products that can result from a common production process.
Joint-products are two or more products that are produced simultaneously from the same raw materials or production process, and each product has a significant value and identifiable characteristics.
These products have a common cost up to the point of separation and are then processed separately to obtain their individual characteristics.
Examples of joint-products include lumber and sawdust from a sawmill, or gasoline, diesel, and jet fuel from an oil refinery.
By-products, on the other hand, are secondary products that are produced incidentally or as a result of the production process of the main product.
By-products are typically of lower value compared to the main product, and their production is not the primary objective of the production process.
Examples of by-products include scrap metal, wood shavings, or animal fat obtained during the production of main products like cars, furniture, or meat products.
d) Integral accounting and non-integral accounting:
Integral accounting and non-integral accounting are two approaches used in cost accounting to allocate overhead costs to products or services.
Integral accounting, also known as absorption costing or full costing, is a method where all manufacturing costs, including both variable and fixed overheads, are allocated to products or services.
In integral accounting, overhead costs are considered an integral part of the cost of production and are allocated to products based on a predetermined allocation rate, such as direct labor hours, machine hours, or production volume.
The rationale behind integral accounting is that all costs, both variable and fixed, should be absorbed by the products to determine their true cost of production.
Non-integral accounting, also known as direct costing or variable costing, is a method where only variable manufacturing costs, such as direct materials, direct labor, and variable overheads, are allocated to products or services.
Fixed overhead costs are not allocated to products, but are treated as period costs and are expensed in the period in which they are incurred.
Non-integral accounting focuses only on the variable costs that directly vary with the level of production, and does not consider fixed overhead costs as part of the cost of production. BCOC 138 Solved Free Assignment 2023
The main differences between integral accounting and non-integral accounting are the treatment of fixed overhead costs and the determination of product costs.
In integral accounting, fixed overhead costs are allocated to products, resulting in higher product costs compared to non-integral accounting.
However, integral accounting provides a more comprehensive view of the total cost of production, as it includes all costs incurred in the manufacturing process.
On the other hand, non-integral accounting provides a more simplified approach, focusing only on the variable costs that vary with production levels.
Q.12 Write short notes on the following:
a) Inventory control
b) Idle time
c) Incentive plans
d) Computation of transport service costing
Ans. a) Inventory control:
Inventory control refers to the process of managing and regulating the levels of inventory in an organization to ensure optimal inventory levels that meet customer demand while minimizing inventory costs.
The main objectives of inventory control are to prevent stockouts (i.e., running out of stock) and overstocks (i.e., excessive inventory), minimize holding costs (such as storage costs, obsolescence costs, and carrying costs), and optimize order quantities and reorder points.
Efficient inventory control involves various activities, including demand forecasting, setting inventory levels, determining reorder points, calculating safety stock, implementing inventory valuation methods (such as FIFO or LIFO), implementing inventory tracking and monitoring systems, and implementing inventory replenishment strategies (such as just-in-time or economic order quantity).
b) Idle time:
Idle time refers to the time during which employees or resources are not engaged in productive work, despite being available for work.
It can occur due to various reasons, such as machine breakdowns, material shortages, labor unavailability, or scheduling gaps. Idle time is considered as unproductive time and represents a loss of potential output for an organization.
Idle time can impact productivity, efficiency, and costs. Organizations need to monitor and manage idle time effectively to minimize its occurrence and impact on operations. BCOC 138 Solved Free Assignment 2023
This may involve measures such as improving scheduling, maintenance, resource allocation, training, and motivation to reduce or eliminate idle time and maximize productivity.
c) Incentive plans:
Incentive plans, also known as incentive programs or incentive schemes, are designed to motivate and reward employees based on their performance or achievements.
Incentive plans are used by organizations to align employee efforts with organizational goals, improve performance, enhance motivation, and increase productivity.
Incentive plans can take various forms, such as bonuses, commissions, profit sharing, stock options, gain-sharing, and recognition programs. These plans can be tailored to different levels of employees, departments, or specific goals or metrics.
Incentive plans are typically based on predetermined performance criteria, such as sales targets, cost reduction targets, production targets, quality metrics, or customer satisfaction scores.
d) Computation of transport service costing:
Computation of transport service costing refers to the process of calculating the costs associated with providing transportation services.
Transport service costing involves identifying, quantifying, and allocating costs incurred in the transportation process to determine the total cost of providing transportation services. BCOC 138 Solved Free Assignment 2023
The computation of transport service costing typically includes various costs, such as vehicle costs (e.g., fuel, maintenance, depreciation), labor costs (e.g., driver wages, benefits), overhead costs (e.g., administrative costs, insurance), and other costs (e.g., tolls, permits).
These costs are allocated to different cost objects, such as shipments, routes, or customers, based on appropriate cost drivers or allocation methods, such as mileage, weight, or time.
Accurate computation of transport service costing is essential for pricing decisions, profitability analysis, and cost management in transportation companies, logistics providers, or any organization that provides transportation services as part of their operations.