Cost Accounting Unit-5 Method of Costing Important Question Answer [Gauhati University Bcom 4th Sem]

 

Are you looking for Gauhati University B.Com 4th Sem Cost Accounting Unit-5  : Method of Costing Important Question Answer 2024? If yes, then you have come to the right place. In this page, We The Team Treasure Notes provide you with complete notes of Gauhati University B.Com 4th Sem Cost Accounting Core/Hons subject of BCom. You will also find solved question papers, previous year question papers, important questions for upcoming exams, and self Study Notes ebooks. All these resources are free to read online but PDFs or eBooks are Paid. BCom Cost Accounting Unit 5 - Method of Costing   Important Question Answer Gauhati University in Pdf. GU BCom Cost Accounting Important Question Answer 2024.

Unit - 5

METHOD OF COSTING

Q2. What do you mean by Unit Costing?

Ans: Unit costing is a method of costing used where the output produced by an entity is identical and each unit of output require identical cost. This method of costing is followed by industries which produces single output or few variants of a single output. Unit costing is applied in industries like proper, cement, steel works, mining etc.

Q3. What do you mean by job costing? 10

Ans: Job costing is a method of ascertaining costs of an individual job or work order separately. Each job is treated as a cost unit for which costs are accumulated. Job costing is useful in industries which manufacture a variety of products according to the specifications of customers. Since the jobs have different specifications, it is necessary to record the costs for each job individually. In short job costing shows the costs and profit of each job separately.

Q4. Give examples of industries where job costing is used.

Ans: Job costing is applicable in printing press, ship-building, heavy machinery, foundry, general engineering works, machine tools, interior decoration, repairs and other similar work.

Q5. What do you mean by contract account?

Ans: Contract account is an account which records transactions related to a contracts. Transactions are recorded under the principle of double entry system. A separate account for each contract is opened and a distinguish number is alloted for each contract. A contract account shows the cost of the contract and profit or loss made on that contract.

Q6. What do you mean by process costing?

Ans: Process costingis that aspect of operation costing which is used to ascertain the cost of the product at each process or stage of manufacture. This method of accounting used in industries where the process of manufacture is divided into two or more processes. The objective is to find out the total cost of the process and the unit cost of theprocess foreach and every process. Usually the industries where process costing used are textile, oil industries, cement etc.

Q7. What do you mean by operation costing?

Ans: Cost accounting has been traditionally associated with manufacturing companies. However in the modern competitive market, cost accounting has been increasingly applied in service industries like banks, insurance companies, transportation transport and railways, hotels,road maintenance, educational institutions, road lightin, canteens, port trusts and several other service organisations. The costing method applied in these industries is known as operating costing.

Q8. What do you mean by Notional Profit?

Ans: Contract usually takes several years to get itself completed. If the profit on such contract is recorded only after their completion, then wide fluctuations may be noted in the profit figure of contractors from year to year. To avoid these fluctuations in the reported profit and to reflect the revenue in the accounting period during which the activity is undertaken, the profit in respect of each contract in progress is transferred to the profit and loss account of the year by calculating the notional profit. The portion of notional profit to be transferred to the profit and loss account depends on the stage of completion of a contract. 

Q9. What do you mean by work certified?

Ans: Work certified is the cost of that port of the contract work which is being completed by the contractor for which a completion certificate has been issued by the contractee's architect. The amount of work certified is debited to contractee's account and credited to contract account.

Q10. What do you mean by Work uncertified?

Ans: Work uncertified is the cost of that part of the contract work which is being completed by the contractor but not certified by the architect because of the faulty work or the work not according to the specifications. In respect of such work there will be no payment from contractee. The cost price of each work is debited to work-in-progress account and credited to contract account. 

Q11. What do you mean by Work-in-progress?

Ans: Work-in-progress, goods in process or in process inventory are a company's partially finished goods waiting for completion and eventual sale or the value of these items. These items are either just being fabricated or waiting for further processing in a buffer storage.

Q12. What do you mean by Normal Loss?

Ans: Normal loss is loss which is unavoidable on account of inherent nature of production process. Such loss can be estimated in advance on the basis of part experience or available data. The normal loss can not be avoided, therefore, the border of this loss is charged to the balance production, which increases per unit cost of production.

Q13. What do you mean by Abnormal Loss?

Ans: 

Q14. What do you mean by Abnormal Gain?

Ans: We know that margin allowed for normal loss is an estimate (i.e., on the basis of past experience or available data) and slight differences are found to occur between the actual output of a process and that anticipated. These differences will not always represent increased loss on occasions the actual loss will be less than that expected. If the actual loss is less than the normal loss, it is termed as abnormal gain or effectiveness.

Q15. What do you mean by retention money in contract costing?

Ans: A contractor does not receive the full payment of work certified by the sueveyor of work certified by the surveyor. Contractee retains some amount to be paid after some time, when it is ensured that there is no default in the work done by the contrator. If any deficiency or defect is noticed it is to be rectified by the contractor before the release of the retention money. Thus retention money provides a safeguard against the default risk in contract.

Q16. What do you mean by target costing?

Ans:

LONG ANSWER TYPE QUESTIONS

Q17. What is job costing? What are the features of job costing? Ans: Job costing means the process of identifying the total cost incurred for completion of job according to the specifications and instructions of customers.

ICMA defines job costing as, "that part of specific order costing which applies where work is undertaken to customers special requirements."

The following are the features of job costing:

(i) The products are produced only against customers order and not for maintaining stock for sale.

(ii) The costs are accumulated to each job separately.

(iii) A jobis performed according to the customers specifications.

(iv) The job costing method falls under the category of specific order costing.

(v) Each job is differentiated from others. The reason is that the specification of one customer is differing from other.

(vi) There is no contineous flow of production.

(vii) Each job requires special attention and skill for completion.

(viii) Work-in-progress at any time depends on the number of jobs in hand at that time. A separte work-in-progress record is maintained for each job. 

(ix) If a job involves number of operations for completion, job tickets are issued to know the progress of completion of job.

(x) A separate cost sheet is preapred for each job.

Q18 . Mention the objectives of job costing.

Ans: DOWNLOAD EBOOK FOR COMPLETE SOLUTION

Q19. Give four points of pre-requisites of job costing?

Ans: Successful usage of job costing method in the organisation requires the following:

(i) Material control system involving work orders, material requisitions, specification of materials, scrap reports etc.

(ii) Labour time booking procedure through job tickets or piece work tickets, idle time reports etc.

(iii) An effective production control system. 

(iv) Proper classification, apportionment and absorption methods for the overheads.

Q20. What are the advantages of job costing?

Ans: Job costing offers the following advantages:

(i) The cost of material, labour and overhead for every job or product in a department is available daily, weekly or as often as required while the job is still in progress.

(ii) On completion of a job, the cost under each element is immediately ascertained. Costs may be compared with the selling prices of the products in order to determine their profitability and to decide which product lines should be pushed or discontinued.

(iii) Historical costs for part periods for each product, compiled by orders, departments or machines provided useful statistics for future production planning and for estimating the costs of similar jobs to be taken up in future. This assist in the prompt furnishing of price quotations for specific jobs.

(iv) The adoption of predetermined overhead rates in job costing.necessitates the application of a system of budgetary control of overhead with all its advantages.

(v) The actual overhead costs are compared with the overhead applied at predetermined rates; thus at the end of an accounting period, overhead variances can be analyzed.

(vi) Spoilage and defective work canbe easily identified with specific jobs or products.

Q21. What are the disadvantages of job costing? 

Ans: The disadvantages of job costing are:

(i) Job costing is comparatively more expensive as more elerical work is involved in identifying each element of cost with specific

departments and jobs. 

(ii) With the increase in the elerica processes chances of errors are enhanced.

(iii) The cost compiled under job costing system represents the cost incurred under actual conditions of operation. The system does not have any scientific basis.

(iv) The methods needs an excellent system of production control, material control and labour control system which may not be existing in most of the small firms.

(v) Cost of different jobs are not comparable since each job has its own features.

(vi) Absorption of overheads on the basis of predetermined rates is necessary which makes budgeting a pre-requisites. The firm may not be practising budgeting system. 

(vii) Job costing ascertains costs only after the completion of jobs. So, control purpose it is combined with standard costing system or estmated costing.

Q22. Give the main distinguishing features of contract costing? 

Ans: Following are the features of a contract account :

(i) A contract account is opened for each contract and is treated as a cost centre because it shows the cost of a contract.

(ii) It is a nominal account as it shows profit or loss made from a contract.

(iii) Expenses debited to a contract account are mostly direct as the major part of the work is carried out at the site.

(iv) In case of an incomplete contract, work-in-progress account is to be prepared at the end of an accounting year in order to ascertain profit or loss.

(v) Payment from the contractee depends on the stages of completion of the work.

Q23. Write notes on 'Escalation Clause'.

Ans: DOWNLOAD EBOOK FOR COMPLETE SOLUTION

Q24. What is cost plus contract? What are its advantages and disadvantages? 

Ans: DOWNLOAD EBOOK FOR COMPLETE SOLUTION 

25. Distinguish between job costing and contract costing.

Ans: The difference between job costingand contract costing is as follows:

Q26. Explain the basic principles to be following in determining the amount of profit on an incomplete contract.

Or

Discuss briefly the principles to be followed while taking credit for profit on incomplete contract. 

Ans:- DOWNLOAD EBOOK FOR COMPLETE SOLUTION

Q28. What are the circumstances where process costing is applicable? Name the industries where it is applicable?

Ans: The circumstances where process costing is applicables are:

(i) Production is contineous except whereplant and machinery is shut-down for repair, etc. The finished product of one process becomes the raw material of the next independent process and so on until the final product is obtained.

(ii) Output is uniform and all units are exactly identical during one or more process.

(iii) The sequence of operations for processing the product is specific and predetermined. 

(iv) Different products with or without by products are

simultaneously produced at one or more stages or process of manufacture.

The process costing method is applied in the following industries:

(i) Chemical industries such as chemical, perfumercy, soap, oil, medicine, etc.

(ii) Manufacturing industries such as iron and steel, cement, paper, rubber, automobile, plant, ice, prints industries etc.

(iii) Mining such as gas, gold, mineral oil, coal, sulphur, iron, zine etc.

Q29. Explain the objectives or necessities of process costing. Ans: The main objects or necessities of process costing are:

(i) To calculate the cost of different process: Those items or commodities which are manufactured in different stages, the cost at every stage of manufacturing of the items is required to be calculated. it facilitates to establish control on costs. With the help of process costing, the cost of every process can be determined.

(ii) To know departmental efficiency and economy: It is essential to determine the cost of every process for improving departmental efficiency and bringing economy. This work can be done with the help of process costing.

(iii) To know the wastage in various process: Industries which employ process costing, a certain amount of loss or wastage occurs at various stages of production. Such a loss or wastage may be arise due to chemical reaction, inefficiency etc. It is therefore necessary to keep accurate records of both input and output. Process wastages or losses may be classified into two categories: (a) Normal and (b) Abnormal.

(iv) To determine the value of by products: Different Products with or without by- products are simultaneously produced at one or more stages or processes of manufacture. The valuation of by products and apportionment of joint cost before point of separation is an important aspect of process costing method.

Q30. What are the advantages and disadvantages of process costing?

Ans: Advantages of process costing:

(i) Costs are computed periodically at the end of a particular period.

(ii) It is simple and involves less clerical work than job costing.

(iii) It is easy to allocate the expenses to processes in order to have accurate costs.

(iv) Use of standard costing systems is very effective in process costing.

(v) Process costing helps in preparation of tender, quotations.

(vi) Since cost data is available for each process, operation and department, good management control is possible.

Disadvantages of process costing :

(i) Cost obtained at each process is only historical costand are not very useful for effective control.

(ii) Process costing is based on average cost method, which is not suitable for performance analysis, evaluation and managerial control. 

(iii) Work-in-progress is generally done on estimated basis which leads to inaccuracy in total cost calculations.

PRACTICAL PROBLEM

"DOWNLOAD" EBOOK FOR COMPLETE PRACTICAL PROBLEM SOLUTION

******

Also Read : 

• GU Cost Accounting Chapter wise Important Question Answer and Solved Papers

• GU Bcom 4th Sem Previous years Question paper , Solved Papers and Notes in PDF