IGNOU BCOC 138 Free Solved Assignment 2022- Helpfirst

BCOC 138

Cost Accounting

BCOC 138 Free Solved Assignment

BCOC 138 Free Solved Assignment Jan 2022

Section – A

Q1. What are the requisites of an effective system of costing?

Ans. Following are the essentials of a good cost accounting system:

Simple to Operate: The cost accounting system should be simple to understand and operate so that persons involved may not be confused and follow wrong procedures or methods.

Flexibility: The cost accounting system should be flexible to adopt new requirements based on changes occurring in the enterprise due to external conditions.

Comparability: The costing system should be able to provide comparable data. Comparison can be between the figures of two or more periods of the same firm or between the figures of the firm and those of the competitors for a particular period or periods.

Economy: The cost accounting system should justify the cost of operation through resultant benefits. The system should be operated with least cost.

Timeliness: The system must be capable of providing appropriate information in Time for decisions relating to cost control. BCOC 138 Free Solved Assignment

Suitability to the Enterprise: The cost accounting system devised should be suitable to the nature of business done by the enterprise and it should fulfil the requirements of the business.

Minimum Changes in Current Setup: The existing system of Authority and responsibility, delegation etc., should not be disturbed. Changes in the organisational setup should be minimum possible.

Minimum Clerical Work: The clerical work like filling up forms by workers and foremen should be minimum possible so that their basic work rhythm is not disturbed.

Simplicity of Forms and their Standardisation: The forms used as part of the costing system should be minimum in number, standardized in format and simple to operate by the personnel so that required information is obtained in time

Effective System to Control Materials and Wages: The system relating to purchase, receiving, inspection, storage and issue of materials should be effective. The method of pricing material issues should be appropriate to the situation in the firm.

the procedures for Time recording. Time booking, overtime, payroll preparation, etc. should be systematic and effective. BCOC 138 Free Solved Assignment

Procedure for Overheads: The routine prescribed for overheads should lead to proper allocation, apportionment and absorption of overheads.

Reconciliation: Reconciliation of cost accounting with financial accounting is to be facilitated to reveal the reasons for difference in profits.

External Factors: The costing system should ensure compliance of statutory and legal requirements like cost audit, cost accounting rules etc.

Cost Accountant’s Role: The responsibilities, and duties of the cost accountant should be clearly defined. He should have access to all the departments and divisions of the firm.

BCOC 138 Free Solved Assignment
BCOC 138 Free Solved Assignment

Q2. Discuss various methods of wage payment along with their advantages and disadvantages.

Ans. Method # 1. Time-Rate: Time-rate system is the oldest and the most common method of fixing wages. It refers to the payment of a pre-determined rate for normal time of work and relates to a time limit such as an hour, day, week or month.

Broadly speaking, under this system, the basic rate for a job is fixed by negotiation, by reference to local rates, or by job evaluation and only varies with time, never with output or performance. BCOC 138 Free Solved Assignment

This method is generally common for clerical, supervisory and managerial personnel. The characteristic of this method is that the production of a worker is not taken into consideration in fixing the wages.

An employee is paid at the settled rate as soon as the time contracted for is spent.

The minimum wage rate, the need-based minimum wage, for fair wage or the living wage fixed by the government or the wage board or through collective bargaining mechanism, are on time-rate principles.

The merits of the time-rate system are:

• It is a simple and convenient method, for the amount earned by worker can be easily calculated;

• As all workmen employed for doing a particular kind of work receive the same wages, ill-will and jealousy among them are avoided;

• As there is no time limit for the execution of a job, workmen are not in a hurry to finish it and this may mean that they will pay required attention to the quality of their work;

• It provides a regular and steady income to the workers which enables them to adjust their budget accordingly,BCOC 138 Free Solved Assignment

• Due to the slow and steady pace of the worker, there is no rough handling of machinery, which is a distinct advantage for the employer; and

• It is the only system that can be used profitably where the output per worker is not measurable, or where the job involves professional, technical or administrative skills.

The main drawbacks of this system are:

• It does not take into account the fact that men are of different abilities and that if all persons are paid equally, better workmen will have no incentive to work hard;

• As there is no specific demand on the worker to complete a piece of work within a given period of time, there is also the possibility of systematic evasion of work,

• This system sometimes compels a person to take up a job for which he has neither the liking nor ability.

Method # 2. Piece Rate: The piece rate system is the earliest and the simplest of all the bonus plans. BCOC 138 Free Solved Assignment

It is usually implemented as a production incentive scheme, where the objective is to encourage a specific group of workers to fulfill a certain target set by the company.

Piece rate bonus plans are based on the physical output of the individual employee. As the output increases, the employee will also expect an increase in his salary.

Individual incentive schemes such as the piece rate should be used when employees have to work independently without the need to coordinate their activities with other workers, where a high level of individual skill is required and where there are good measures of individual performance.

When applied to an individual or a group consisting of a small number of individuals, the piece rate system is a form of payment in which visible performance is immediately rewarded through an increase in the monthly wages.

Generally speaking, the piece rate has lost its attraction round the world. Such system forces the employee to focus his attention to the increase of the production volume without similar attention paid to quality.BCOC 138 Free Solved Assignment

The practice of the piece rate system has also resulted in an increase of industrial accidents and a deterioration of employee’s health.

Furthermore, employees are likely to oppose changes in the product, technology or tools used for the production process because it means that they have to spend time to learn the new method, thus causing a loss in their income.

It is precisely due to these disadvantages that some companies have attempted to establish hybrids of the piece rate system.

Piece rate can be converted into time rate by fixing an output norm. For the adoption of piece-rate as a method of remuneration, the following job characteristics must exist –

(a) the work is standardised, repetitive, and easily measurable;

(b) the work is not continually changing, and

(c) considerations of quality are predominant The system may include a guaranteed minimum wage, thus assuring the worker that whatever his output may be, his hourly or daily earnings will not fall below a specified amount.

Method #3. Payment by Results (PBR): There are many different systems of wage payment under which the worker’s earnings are related directly to some measurement of the work done either by himself or by the groun or working unit to which he belongs Such systems known as Payment By results, can be classified in four main groups such as-

(i) in the same proportion as output;
(ii) proportionately less that output; BCOC 138 Free Solved Assignment

(iii) proportionately more than output; or
(iv) in proportions which differ at different levels of output

Payment by results is a payment system under which money rewards vary with the measured changes in performance according to predetermined rules.

The PBR system relates the pay or a part of the pay received by the worker to a number of items he produces or the time he takes to do a certain amount of work.

Under this system, the worker is paid a wage which bears some fairly direct and continuous relation to his output or performance, or to the average output of the group of workers to which he belongs.

Under this plan, the worker working in a given condition and with the given machinery, is paid exactly in proportion to his physical output.

Under PBR, the workers’ pay during a given period is directly related to the levels of measured performance. BCOC 138 Free Solved Assignment

The essential difference between PBR and time rate system is how performance is related to reward. The basic alternative to PBR is time payment.

The PBR system varies with the variation in individual and group performance at the plant or enterprise as a whole. The most common scheme of payment by results which is purely individual in character is what is called straight piece work.

A worker’s earning can be calculated on the basis of the number of pieces produced and the rate per piece.

This means payment of a uniform price per unit of production, and it is most appropriate where production is repetitive in character and can easily be divided into similar units.

There is also the differential piece work system where the wage cost per unit is adjusted in relation to output. Under this scheme, two piece rates may be fixed – one considerably higher than the going time wage for the job and the other somewhat lower than the time wage.

The lower rate is paid when the workers fail to achieve the standard level of performance.

The main idea behind establishing two differential piece rates has been to reward high production and to discourage low production. BCOC 138 Free Solved Assignment

This system has been used mainly by firms with heavy non-labour costs. The main problem in applying this system is the difficulty of setting the standard and the amount of difference between the two piece rates.

Further, it may lead to excessive speeding by some workers, who then get much higher earnings than others

The PBR has many advantages:

• It pays the workmen according to their efficiency as reflected in the amount of work turned out by them;

• It involves less supervision as the workers are not likely to while away their time;

• Being interested in the continuity of his work, a workman is likely to take greater care in the maintenance of the machine.

Method # 4. Balance or Debt Method: This is a combination of time and piece rate. The worker is guaranteed an hourly or a day rate with an alternative piece rate.

If the earnings of a worker calculated at the piece rate exceeds the amount which he would have earned if paid on the time basis, he gets credit for the balance, namely, the excess piece rate earnings over the time rate earnings.BCOC 138 Free Solved Assignment

If the piece rate earnings are equal to his time rate earnings, the question of excess payment does not arise.

Where piece rate earnings are less than time rate earnings, he is paid on the basis of the time rate; but the excess paid is carried forward as a debt against him to be recovered from any future balance of piece work earnings over time work earnings.

This system pre-supposes the fixation of time and piece rates on a scientific basis. The obvious merit of this system is that an efficient worker gets an opportunity to improve his earning.

Method # 5. Incentive Rate: Incentive Rates can be used more effectively in a production situation where output is measurable in homogeneous units, where product specifications do not change frequently, and where worker’s effort can directly influence output.

Incentives are difficult to employ where output is fixed substantially by the requirements of production process and cannot be controlled by the workers.

The most common type of incentive system is straight piece work, which simply means a constant rate of pay per unit of output. BCOC 138 Free Solved Assignment

Bonus plans represent another method of incentive pay and involve, in general, the determination of standard tasks. Bonuses are paid for production above standard.

A great many problems arise in connection with incentive plans Of basic importance is the way in which production standards are determined under either straight piece work or bonus systems.

Under bonus plans, the extent to which increased production will be rewarded must be decided. The question of incentive rate adjustment in the light of technical changes is also important.

Another crucial area is the guarantee of minimum earnings under the incentive systems. A substantial amount of controversy between labour and management has arisen over the use of incentive pay methods. Organised labour does not, however, have a uniform position in the matter.

Some unions are opposed in principle to the incentive plans; others accept wage incentives and are concerned primarily with the equitable determination of rates and prevention of abuses.BCOC 138 Free Solved Assignment

Q3. Define job costing. What are the characteristics of an industry where job costing can be applied? Explain giving appropriate illustrations.

Ans. Job costing is defined as a method of recording the costs of a manufacturing job, rather than process. With job costing systems, a project manager or accountant can keep track of the cost of each job, maintaining data which is often more relevant to the operations of the business.

Job Costing Meaning: Job costing, generally, means a specific accounting methodology used to track the expense of creating a unique product.

Due to the fact that certain projects, such as construction, require different operations, accountants use this methodology to trace the expenses of each job in order to use this information for analysis and tax needs.

Job costing forms have spaces to include direct labor, direct materials, and overhead. Costs stay in the work-in-process account throughout the job. When the job is finally completed, they are transferred to the finished goods account.

By using this method, accountants can make sense of complicated jobs which are moving towards the process of completion.BCOC 138 Free Solved Assignment

Indirect costs, like overhead, are applied as a fraction of direct costs. This is usually done in one of two ways: an association with labor hours or using activity based costing.

This way, either through use of labor or certain tools, overhead will not be left out of the equation and a company can make sure to cover all essential costs using job costing.

Industries which produce products as jobs use this method. This includes job costing for construction, but goes much farther than just this.

Shipping, auditing, maintenance and repair, installation, and any industry which creates products unique to each need. In this situation, job costing is often the most efficient method.

Types of business that use job costing system: Generally, the application of job costing method is followed in industries such as printing press, automobile garage, repair workshops, shipbuilding, foundry, and other similar manufacturing units, which manufactures according to customer’s specific requirements.

A business that applies costing method usually has the following characteristics:

• Production is carried out based on the customer’s specification
• Products are manufactured in distinguishable lots

• Products produced are of not uniform nature
• It is practical to maintain a separate record of each lot from the time production is begun until it is completed.BCOC 138 Free Solved Assignment

Advantages of job costing :

• Profitability for each job can be individually determined
• Provides a detailed cost analysis of materials, labour and overheads for each job as and when required

• The efficiency of the plant can be controlled by confining attention to costs relating to individual jobs.
• Helps in preparation of estimates

• Comparison of actual cost with estimated cost and calculation of variances.
• Helps in identifying unprofitable jobs

• Helps in providing a precise quotation for a product

Documents used in job costing

Manufacturing or production order: This document authorizes the manufacturing or production department to produce a specified quantity of a product which
constitutes the job. BCOC 138 Free Solved Assignment

Cost sheet: In job costing, a cost sheet is often used to record costs incurred in stages of production. The cost sheet and job order work may also be combined, when costs are recorded on the production order document

Other documents: The other documents such as material requisition slips, tools and spares order, time tickets, inspection order etc., are used by the dispatching department as a control mechanism to carry out the dispatching functions.

Q4. Explain meanings of joint product and by-product. Describe methods of appointment of the joint production costs.

Ans. Joint product: The products which are simultaneously produced using the same input, in a common process and each product carries considerably high sale value. Also, none of the joint products can be recognized as the major product.

The raw material is processed in order to produce more than two products. A separation point called split-off point segregates the identity of the joint products from where they are either processed further or sold as they are Suppose that a company is trying to process diesel and derives paraffin from the refinery processing.

Here, both are joint products that are created with intent and have their own market value. While the process begins by using unrefined natural crude oil, the same is segregated into different sections to be made into other fuels and products apart from diesel in the process of distillation.BCOC 138 Free Solved Assignment

Post the split off point, individual processes take care of the production of final joint products like paraffin etc. By-product: Any product that is the incidental result of the process of production is called a byproduct.

Derived from pre-existing material used to manufacture the main products, a by-product has a lower net realizable value as compared to the sale value of main product since its occurrence is not a priority but a consequence of the production process.

The by-product may be processed further to increase its salable value or be sold off at scrap value depending on its usage.

Suppose that a company uses sugarcane to produce sugar, then sugar is the main product and molasses used to make paper and alcohol is a by-product of the process.

When the process begins to crush sugarcane so as to derive the juice to process, the crushed waste is simply of no value to the sugar mill. Hence, this is sold off to paper mills and alcohol distillery at scrap value without further processing

Physical Units Method of apportionment: This method is applied if the joint products are capable of being expressed in the some unit of measurement.

Therefore, the basic of apportionment is the physical volume of units found at the point of separation.BCOC 138 Free Solved Assignment

Moreover, if any loss arising during processing is also apportioned on the same basis.

If the units of measurement of joint products are heterogeneous, this method cannot be applied. This method has the assumption of all the joint products equally desirable and valuable.

Average Unit Cost Method of apportionment: This method is applied if all the joint products are common and inseparable.

Moreover, the joint products are expressed in some common unit. Hence, total costs are assessed to calculate average unit cost and net profit for the total operation. It leads to same unit cost to all joint products.

If high-grade joint products are sold on the basis of average unit cost, the customers will be benefited and vice versa. The following formula is used to calculate average unit cost.

Survey Method of apportionment: This method is also known as points value method and weighted average unit cost method.

The factors involved in the production and distribution of joint products taken into account before apportioning joint costs. BCOC 138 Free Solved Assignment

Hence, this method is called as survey method. Costs are apportioned on the basis of percentage or points value assigned to the products according to their relative importance.

The assignment of points is arbitrarily by management with the help of departmental heads and technical advisers.

Normally, the points are assigned by considering quantities of materials used, time taken, type of labour used, number of labour used, quality of the joint product, changes in the methods of production, selling price and the like.

Standard Cost Method of apportionment: Under this method, standard cost for each joint product are fixed. Then, the joint costs are apportioned on the basis of the standards thus fixed.

If an organization follows standard costing system, this method discloses the efficiency of the concerned process.

Contribution or Gross Margin Method of apportionment: This method helps the management to take a decision whether the concerned joint products have been further processed or not. BCOC 138 Free Solved Assignment

The management decision depends upon the contribution margin of the concerned product.

Joint Cost Method of apportionment: In a manufacturing process, two or more main products as well as a number of minor by-products are produced.

The joint cost is apportioned between the main products and by-products on a suitable basis.

There is no distinction between the joint products and by-products under this method. Accordingly, all the by-products are treated as joint products while apportioning joint cost between the joint products and byproducts.

Market Value Method of apportionment: Under this method, joint costs are apportioned on the basis of market value of joint products.

The apportioning ratio is calculated on the basis of selling price of individual products. This method has two characteristics.

They are all joint products yield same rate of profit margin and cost of each of the joint products being based on selling price. Market value may mean any one of the following

BCOC 138 Free Solved Assignment
BCOC 138 Free Solved Assignment

Q5. Calculate the earnings of a worker from the data given below:

(i) Time wage (ii) Piece Wage

(iii) Halsey Method (iv) Rowan Standard time for completion of job is 30 hrs. Time taken is 20 hours. Hourly rate is Rs. 100 and Dearness allowance @ Rs. 50 per hour worked.


BCOC 138 Free Solved Assignment

Section – B

Q6. Explain differences between cost accounting and financial accounting.

Ans. Difference Between Cost Accounting and Financial Accounting

Cost Accounting

• Cost accounting is referred to as a form of managerial accounting that is used
by businesses to classify, summarize and analyse the different costs with the
purpose of cost control and cost reduction and thereby helping management in making better decisions.BCOC 138 Free Solved Assignment

• Documents the data associated with the labour and material which are utilised
in the manufacturing procedure.

• Stock value is estimated at cost

• Normally, the gains are investigated for a specified job, batch, product and

• Controlling and reducing cost

Financial Accounting :

• Financial accounting is a branch of accounting that is concerned with the summarizing, recording and reporting of financial transactions that take place in a business concern over a time period.

• Documents the data that are in monetary terms.

• Stock value is estimated based on the lesser value between net realisable value or Cost

• Profits, Income and expenditure are investigated together for a specific period of the entire trading concern BCOC 138 Free Solved Assignment

• Towards maintaining the complete record of the financial transactions

Q7. Describe briefly different methods of costing.

Ans. The method of costing refers to a system of cost ascertainment and cost accounting. Industries differ in their nature; in the products they produce and the services they offer.

Hence, different methods of costing are used by different industries. For example, the method of costing employed by a building contractor is different from that of a transport company.

Job costing and process costing are the two basic methods of costing. Job costing is suitable to industries which manufacture or execute the work according to the specifications of the customers.

Process costing is suitable to industries where production is continuous, and the units produced are identical.

All other methods are combinations, extensions or improvements of these basic methods. The methods of costing are explained in detail:BCOC 138 Free Solved Assignment

Method # 1 Job Costing: It is also called specific order costing. It is adopted by industries where there is no standard product and each job or work order is different from the others.

The job is done strictly according to the specifications given by the customer and usually the job takes only a short time for completion. The purpose of job costing is to ascertain the cost of each job separately.

Job costing is used by printing presses, motor repair shops, automobile garages, film studios, engineering industries etc

Method # 2 Contract Costing: It is also known as terminal costing. Basically, this method is similar to job costing. However, it is used where the job is big and spread over a long period of time.

The work is done according to the specifications of the customer. The purpose of contract costing is to ascertain the cost incurred on each contract separately.

Hence a separate account is prepared for each contract. This method is used by firms engaged in ship building, construction of buildings, bridges, dams and roads.

Method # 3 Batch Costing: It is an extension of job costing. A batch is a group of identical products. All the units in a particular batch are uniform in nature and size. Hence each batch is treated as a cost unit and costed separately.

The total cost of a batch is ascertained, and it is divided by the number of units in the batch to determine the cost per unit. Batch costing is adopted by manufacturers of biscuits, ready-made garments, spare parts medicines etc.BCOC 138 Free Solved Assignment

Method – 4 Process Costing: It is called continuous costing. In certain industries, the raw material passes through different processes before it takes the shape of a final product.

In other words, the finished product of one process becomes the raw material for the subsequent process. Process costing is used in such industries.

A separate account is opened for each process to find out the total cost as well as cost per unit at the end of each process. Process costing is applied to continuous process industries such as chemicals, textiles, paper, soap, lather etc.

Method # 5 Unit Costing: This method is also known as single or output costing. It is suitable to industries where production is continuous, and units are identical. The objective of this method is to ascertain the total cost as well as the cost per unit.

A cost sheet is prepared taking into account the cost of material, labour and overheads. Unit costing is applicable in the case of mines, oil drilling units, cement works, brick works and units manufacturing cycles, radios, washing machines etc.

Method # 6 Operating Costing: This method is followed by industries which render services. To ascertain the cost of such services, composite units like passenger kilometers and tone kilometers are used for ascertaining costs.

For example, in the case of a bus company, operating costing indicates the cost of carrying a passenger per kilometer. BCOC 138 Free Solved Assignment

Operating costing is adopted by airways railways, road transport companies (goods as well as passengers) hotels, cinema halls, power houses etc.

Method # 7 Operation Costing: This is a more detailed application of process costing. It involves costing by every operation. This method is used where there is mass production of repetitive nature involving a number of operations.

The main purpose of this method is to ascertain the cost of each operation. For instance, the manufacture of handles for bicycles involves a number of operations such as cutting steel sheets into proper strips, moulding, machining and finally polishing.

The cost of these operations may be found out separately. Operation costing provides a minute analysis of costs to achieve accuracy and it is applied in industries such as spare parts, toy making and engineering.

Method # 8 Multiple Costing: It is also known as composite costing. It refers to a combination of two or more of the above methods of costing.

It is adopted in industries where several parts are produced separately and assembled to a single product.BCOC 138 Free Solved Assignment

BCOC 138 Free Solved Assignment
BCOC 138 Free Solved Assignment

Q8. What is meant by contract costing? Explain features of its production and cost.

Ans. Contract Costing is a special type of job costing, where the unit of cost is a single contract. The contract itself is a cost center and is executed under the customer’s specifications.

Contract costing is a variant of job costing system applicable, particularly in case of the organization’s doing construction work.

It is also known as terminal costing. Each contract, short term, or long term is treated as a job.

It is understood from common sense that construction work involves massive investment and labor employment. So, no organization can undertake a large number of contracts at a time. BCOC 138 Free Solved Assignment

Features of Contract Costing: A cost unit is a specific contract. Each contract takes a long time to complete. The work being of a constructional nature, the same is executed at the customer’s site, as per his specifications.

Materials: The bulk of the materials purchased and delivered direct to the contract site or obtained from the central stores through the requisition slips.

Wages: The wages which cannot be charged directly to any contract are treated as indirect wages that require apportionment

• Direct Charges: Most of the costs which are normally treated as indirect can be identified specifically with a particular contract and are charged to it as direct costs.

Bill of sub-contractors: Third parties often do parts of large contracts under sub-contracts. Sub-contracts is a practice normally followed on the region of economy, specialized nature of work, want of capacity, etc.

Certificate of completion: The contracts do not pay the full value of the work certified as completed but retain a certain percent under the terms of the agreement.

Generally, there are two types of contract:

• Cost-plus contract: Cost Plus Contract is a contract in which the value-of-the contract is ascertained by adding a fixed margin of profit to the total cost of the contract.

In this case, the manufacturer is assured of a certain percentage of profit in advance and is protected against any fluctuations in the market prices of the various cost elements involved in the production. BCOC 138 Free Solved Assignment

As a result of the viewpoint of the manufacturer, the possibility of incurring any loss is eliminated

• Fixed Price Contract: Under Fixed-Price Contract, the contractor and the contractee both parties agree to a fixed contract price.

In this case, the manufacturer is not assured of a certain percentage of profit in advance and is not protected against any fluctuations in the market prices of the various cost elements involved in the production.

Q 9 Explain classification of selling and distribution overhead.

Ans. Selling expenses are those expenses which are incurred to promote sales and service to customers.

Thus, selling overhead includes Salesmen’s Salaries, Commission, Travelling expenses, Cost of advertisement, Posters, Cost of price list and catalogue, Debt collection charges, Bad debts, Free gift, Showrooms expenses, After-sale service, Legal expenses for recovering debt, etc.

Distribution expenses, on the other hand, are those which are incurred for warehousing and storage, packing for goods sent and making the goods available for delivery to customers.

So, in broader sense of the item, distributions expenses include- Cost of storing, Cost of warehousing, Cost of packing, Cost of delivery, and Cost of preparation of challan.

Thus, from the above discussion, it becomes clear that there are two types of expenses for two types of functions. BCOC 138 Free Solved Assignment

The earlier expenses are incurred for promoting sales whereas the latter expenses are incurred from receiving an order to despatch of goods.

Examples of selling and distribution expenses are:

Selling Overhead:–

Fixed: Showroom expenses, Sales office expenses, Cost of market research, Cost of samples etc.

Variable: Commission on Sales, Travelling Salesmen’ Salary, Carriage Outwards, Discount Allowed, Bad Debts etc.

Distribution Overhead:–

Fixed: Storage, Godown Rent, Rates and Insurance, Distributors’ Commission, etc.

Variable: Insurance on goods-in-transit, Packing charges, etc. Accounting Treatment of Selling and Distribution Overheads: Selling and Distribution expenses are

Accounting Treatment of Selling and Distribution Overheads: Selling and Distribution expenses are apportioned as per different functions viz., Transportation, Advertisement and Sale Promotion, Storage and Warehousing, Direct selling, Credit and Collection etc.

Again, each of them can be subdivided into various territories like, South, North, West etc. It must be remembered here that all identifiable expenses (e.g., commission on sales, travelling expenses of salesmen etc.) can directly be allocated to the respective territories.

But identifiable expenses are apportioned on a suitable basis. However, we are highlighting here the basis of apportionment of Selling and Distribution expenses.

ItemsBasis of Apportionment
AdvertisementValue of sales or space used
Showrooms expensesFloor space
WarehousingDirect allocation/Sales Volume
InsuranceValue of Stock
Collection of overdue accountsNo. of order or Sales Value
RentFloor space
DepreciationValue of assets
TransportNo. of packages/Distance
Materials, freightDirect allocation
Remuneration to SalesmenDirect allocation
CatalogueDirect allocation, space used.

It is needless to say that all expenses are to be added to cost of products sold. We have already shown the classification of a Selling and Distribution overheads into fixed and variable types. This classification is absolutely required for effective control.

Q10. “Service costing is a method of costing whereby the cost of providing service per unit is calculated” Elaborate giving appropriate examples.

Ans. The term service costing or operating costing refers to the computation of the total operational cost incurred on each unit of the intangible product.

These intangible products or services can be either in the form of internal services that are carried out by industries as supporting activities for the manufacturing of goods. Or in the way of external services that are offered as a significant product to the customers by the service sector companies.BCOC 138 Free Solved Assignment

Features of Service Costing: The costing in a service industry can be better understood with the help of the following characteristics:

Intangible Products: Service costing deals with the operating cost of products which does not
have any physical form but satisfies consumer needs and wants.

Collection of Cost Data: The documents used for service costing of products include cost sheet, bills payables, daily log sheet, etc.

Unique and Standard Service: The services so offered by such organizations are specialized and exclusive. BCOC 138 Free Solved Assignment

Less Working Capital: The service costing involves less working capital since the direct cost of raw material and other direct expenses is comparatively low.

Cost Per Unit: The cost per unit is mainly calculated in service costing. Here, the cost unit is determined by the type of service industry the business belongs to, and it usually differs from company to company.

Like, in the case of goods transport it is ‘tonne-miles’; whereas, in boilers, it is ‘per cubic centimetre-litre’.

Internal or External Service: The service costing can be performed internally, to determine the operating cost of the supporting activities in manufacturing industries.

Else, it can be carried out externally, by the companies dedicated to rendering such services.

Cost Classification by Behaviour: In the operating cost sheet format, all the business costs are classified according to their behaviour, i.e., fixed costs, semi-variable costs and variable costs. BCOC 138 Free Solved Assignment

Periodic or Order Wise Computation: The service costing records the overheads at regular intervals, i.e., monthly or yearly but for operating cost of vehicles like tractors and JCB machines, order wise computation is adopted.


Q11. Distinguish between the following:

(a) Direct costs and indirect costs

Ans. A direct cost is a price that can be directly tied to the production of specific goods or services. A direct cost can be traced to the cost object, which can be a service, product, or department.

Direct and indirect costs are the two major types of expenses or costs that companies can incur.

Direct costs are often variable costs, meaning they fluctuate with production levels such as inventory.BCOC 138 Free Solved Assignment

However, some costs, such as indirect costs are more difficult to assign to a specific product. Examples of indirect costs include depreciation and administrative expenses. Direct costs are fairly straightforward in determining their cost object.

For example, Ford Motor Company (F) manufactures automobiles and trucks. The steel and bolts needed for the production of a car or truck would be classified as direct costs.

However, an indirect cost would be the electricity for the manufacturing plant. Although the electricity expense can be tied to the facility, it can’t be directly tied to a specific unit and is, therefore, classified as indirect.

b) Fixed costs and variable costs

Ans. Fixed Cost

** Fixed cost is referred to as that cost which does not register a change with an increase or decrease in the quantity of goods produced by a firm

** It is time dependent and changes after a certain time period

** Fixed costs are incurred irrespective of any units are produced or not

** Fixed cost decreases with increase in number of units produced

** Higher production results in reduced costs which increases profits

Examples: Rent, Salaries, Property taxes BCOC 138 Free Solved Assignment

Variable Cost

** Variable cost is referred to as that type of cost that will show variations as per the changes in the levels of production.

** It is volume dependent and changes based on volume produced

** Variable costs are incurred as and when any units are produced

** Variable cost remains same irrespective of number of units produced

** There is no impact on profit with the level of production

Examples:Labour cost, cost of raw materials, sales commissions

(c) Joint product and by-product

Ans. The major points of difference between joint product and by-product are given below:

(1.) Meaning: A Joint product is one which is manufactured ancillary to the production of the main production, hence the purpose is intentional. However, a by-product is purely an unintentional consequence of the production of the main product.

Input: Joint products are manufactured using raw materials from the first step. By-products arise out of the scrap of a given production process since there is no intention to create a by-product. BCOC 138 Free Solved Assignment

Further processing: After the split-off point, the joint products go through their own further processing to be turned into individual final products.

By-products are generally end resultants that are not processed further and simply sold off to its concerned industry.

Economic value: All the joint products are priced equally when it comes to their economic value.

They also share production costs up to the split-off point, which is called the joint cost, after which individual further processing costs are added to the products. By-products are sold at a lower net realizable value or at scrap value.

Production: A joint product is manufactured consciously and simultaneously along with the main product, whereas the by-product is simply an incidental result of the manufacturing of the main product. BCOC 138 Free Solved Assignment

Usage: The joint-products have independent uses of their own in the market or may be used as ancillary counterparts, but the by-products are not contributory to the main product in any manner whatsoever.

(d) Normal process loss and abnormal process loss


• Normal loss cannot be avoided.

• This loss is due to nature of the goods such as evaporation, loss weight, drying etc.

• This loss is not calculated separately.

• Normal loss cannot be insured.

• No separate journal entries are posted to show the normal loss.

• The value of remaining goods/units is inflated by the cost of such loss as under: Value of closing stock={Total Cost/ (Total quantity-normal loss quantity)}* unsold stock

• Cost of normal loss is borne by the remaining goods.

• It is treated as a part of cost. BCOC 138 Free Solved Assignment


• Abnormal Loss is avoidable account of precautions.

• This loss arises due to of external reasons like loss by theft, fire, carelessness etc.

• Value of abnormal loss is calculated in the same manner as the value of stock on consignment.

• Abnormal loss can be insured.

• Proper journal entries are required to be made to treat the abnormal loss in consignor’s books.

• The value of abnormal loss is credited to consignment account in order to calculate the normal profit or loss on consignment BCOC 138 Free Solved Assignment

• Cost of abnormal losses is not borne by remaining goods.

• It is charged to profit, and loss account not being treated as a part of cost.

Q12. Write short notes on the following:

(a) Absorption of factory overheads

Ans. Once the total overhead cost of various production departments is ascertained by means of allocation, apportionment and re-apportionment, these costs should be charged to the cost units i.c., the products that pass through these production cost centres.

As the ultimate objective is to find out the cost of production it is necessary to distribute the overhead costs of production departments/cost centres to the cost units.

This method is suitable when
(a) the production units are uniform in size and make,
(b)require same type of material in equal quantities,

(c) where material cost constitutes a substantial proportion of prime cost, and
(d) where overhead contains a large proportion of

The limitations of this method are:

(1) When there are wide fluctuations in material prices, it gives rise to misleading overhead absorption rates because overheads are not necessarily accompanied by similar changes;

ii)If different materials are required for different jobs, job cost comparisons would give misleading results and a wrong idea of profitability because of difference in the prices of materials. BCOC 138 Free Solved Assignment

(iii) This method does not recognise the importance of time factor. Two jobs using the same raw material would absorb the same amount of overhead though the time consumed by the jobs differ.

iv) This method does not recognise the difference between the work done by skilled and unskilled workers.

(b) Integral and non-integral accounting

Ans. Integrated Accounting System: Integrated accounting system is a method of accounting for financial and costing transactions in which self-integrated accounts are maintained such that the cost profit and financial profits are one and the same.

The main advantages of the integrated accounting system are:

• Accounting procedure is simplified.

• Here transactions are not accounted for twice thereby saving labour, time, and money.

• There is no possibility of omission of any business transaction in this system. .

• Mechanized Accounting can be applied to this system.

: Limitations of the integrated accounting system are: The accounting system is sophisticated and requires efficient and trained staff.

• Not suitable if cost and financial data are required to be separately presented.
• This accounting system is complicated and costly.

Non-integrated Accounting System: Other name of cost control accounts system is the Nonintegrated system of accounting. It is an accounting system where separate account books are maintained to record financial and cost transactions with the help of cost control accounts.


• Control account presents detailed information recorded in memorandum account books in an abridged manner to help managers in planning policy.

• Control accounts serve the purpose of internal check too.

• It helps to prepare to costing profit and loss account.


• Separate account books are maintained to record financial and cost transactions. • Financial and cost accountant both are responsible to record transactions in the book separately.

• The double entry system is adapted for recording the transactions in both accounts books.

(c) Unit Costing

Ans. A unit cost is a total expenditure incurred by a company to produce, store, and sell one unit of a particular product or service. Unit costs are synonymous with cost of goods sold (COGS).

This accounting measure includes all of the fixed and variable costs associated with the production of a good or service.

Unit cost is a crucial cost measure in the operational analysis of a company. Identifying and analyzing a company’s unit costs is a quick way to check if a company is producing a product efficiently

(d) Service Costing

Ans. Service costing is a type of operation costing which is used in organizations that provide services instead of producing goods.

In this method of cost accounting, all the costs incurred in the production of a service are added together.

They are then divided by the total number of service units rendered. The total cost is then divided by the total units to arrive at per unit cost.

BCOC 132 Free Solved Assignment Jan 2022

BCOC 133 Free Solved Assignment jan 2022

BCOC 136 Free Solved Assignment July 2021 & Jan 2022

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