IMPORTANT QUESTIONS – CCS

(THEORETICAL PART)
SUGGESTED ANSWERS
Q.1 (a) True / False [5]

Sl.No. T/F
Statements
(i) Subtraction of margin from selling price gives cost of production of a product F
(ii) All overheads are common cost. F
(iii) Effective production is worked out by adding opening balance of WIP to and F
deducting closing balance of WIP from finished production.
(iv) Over-absorption of overheads will reflect as a loss/reduction in profit through F
Costing Profit and Loss Account
(v) Reconciliation between Financial and Costing Profit/Loss is necessitated F
because of abnormal losses
(vi) Profit-Volume Ratio is the relation of profit to realisation expressed in F
percentage
(vii) There is no logical difference between finished production and effective production F
(viii) Absorption of overheads facilitates working out cost of sales of product for T
next period
(ix) Contribution is equal to profit in margin of safety T
(x) Margin of safety is available if actual sale is more than break-even sale. T
Q.3 (a) Write most appropriate answer in your answer book for each of following questions. [5]

(i) EOQ is a quantity for which both ordering cost and inventory carrying cost are:
a. Optimum
b. Minimum
c. Both of above
d. None of above

(ii) Cost includes:

a. Revenue cost
b. Capital cost
c. Revenue and capital cost
d. Revenue, capital and opportunity cost

(iii) Source of data is same for Financial Accounting and Cost Accounting which is:
a. Voucher
b. Journal entry
c. Trial Balance
d. Transaction
 (iv) Net Realisable Value method is mostly used for:
a. Preparation of cost sheet
b. Preparation of costing profit and loss account
c. Finding out total cost of each joint product
d. Finding out basis for separating joint product cost

(v) Contribution is equal to fixed cost at:

a. Margin of Safety
b. Full capacity working
c. Break-even point
d. None of above
Q.3 (b) What is the necessity of classification of overheads into fixed and variable? [5]

Ans.
The necessity for classification of overheads into fixed and variable costs arises from the following:

(i) Effective cost control: Fixed costs are in the nature of policy cost, capacity cost, period
cost and are mostly non-controllable. If at all any control can be exercised, it can be done by
the top management only. Variable overhead, however, can be controlled at lower levels.
Separation of the two elements, therefore, facilitates fixation of responsibility, preparation
of overheads budget and exercise of effective control.

(ii) Decision making: The main problems of decision making are related to volume changes. If
cost information is used in such problems, it is essential that fixed and variable costs which
behave differently with changes in volume should be segregated.

(iii) Computation of break-even-point: Separation of fixed and variable costs is essential for the
study of cost-volume-profit relationship and for the computation of break-even-point.

(iv) Marginal costing: The basic requirement of the technique of marginal costing is the
separation of fixed and variable costs. While the later are taken into consideration for the
determination of marginal costs and contribution, the fixed costs are treated separately in
lump to be met out of the total contribution.

(v) Method of absorption of cost: overhead absorption rates are computed with the help
of (1) total cost; and (2) variable and fixed cost. When an organisation wants variable
overheads rate and fixed overheads rate separately, classification of overheads into variable
and fixed becomes inevitable.

(vi) Flexible budget: In a flexible budget, the budgeted amount for variable costs vary with
the level of production while fixed overheads remain constant upto next few levels.
Therefore, break-up of overhead cost into fixed and variable is necessary.
Q.5(a) Fill in the blanks. Write only answer in your answer sheet with correct Sl. No. [1x6 = 6]

(i) Cost is the amount of Resources consumed for producing or acquiring products and services.
(ii) Providing a basis for operating policy is the Objective of cost Accounting.
(iii)Allocation and apportionment of expenses are Essential Steps of costing.
(iv) The point at which products get their distinct identity after certain processing, it is known as
Split-Off Point/Point of Separation.
(v) Cost Accounting is also known as Analytical Accounting.
(vi) Besides exclusion of past cost, future cost and abnormal cost from computation of cost of a
product, another principle of Cost Accounting is Relation.

(b) Match the following overheads with the bases of apportionment among production
and service cost centres for primary distribution: [2]

BLOCK-A
Sl.No. Overheads
1 General lighting - 3
2 Godown Rent - 1
3 Food expenses - 4
4 Repairs to building - 1
BLOCK-B
Sl.No. Bases of apportionment
1 Area in sq. ft. – 2, 4
2 Direct wages
3 No. of light points - 1
4 Total of staff and workers employed - 3

(c) Match the service cost centres with the bases of apportionment of cost among production
cost centres for secondary distribution. [2]

BLOCK-A
Sl.No. Service cost centres
1 HR department - 3
2 Canteen - 3
3 Maintenance department - 2
4 Stores department - 1
BLOCK-B
Sl.No. Bases of apportionment to production cc
1 Value of material consumption- 4
2 No. of complaints attended - 3
3 No. of employees (workers + staff) – 1, 2
4 No. of workers

Answers for both above should be given in the answer-sheet by mentioning the block name and the
Sl. No. of the items selected against Sl.No. of overheads or service cost centres.