Answer: Cost of Raw Material Consumed 500,000

QUESTION 1 ANSWER
(a)
Rupees
Cost of raw material consumed 500,000
- Closing Stock of raw material 25,000

475,000
+ Opening Stock of raw material 50,000
COST OF RAW MATERIAL PURCHASED 525,000
(b)
(c)
Beginning Inventory + Cost of Good Manufactured = Ending Inventory + Cost of Good Sold
$15,000 + Cost of Good manufactured = $20,000 + 80,000
$15,000 + Cost of Good Manufactured = $100,000
Cost of Good Manufactured = $100,000 - $15,000
Cost of Good Manufactured = $85,000

QUESTION 2 ANSWER
(a)
COSTING
Categorising, allotting and recording the expenses to determine the charge of a service or product is cited as costing.
COST ACCOUNTING
Cost accounting is a process of controlling the cost through various methods like analysing, recording, categorising, summarising,
assessing different courses of action, and funds distribution.
The motto of using cost accounting is to guide the management to take a suitable course of action. The suggestion is based on
capability and cost efficiency.
According to ICWA (The Institute of Cost and Works Accountants),it includes implementation of price control methods and statistical
data preparation. It recognises the profitable activities which are planned beforehand.
Cost accounting can also be defined as the combined implementation of cost accounting principles and costing, and practising to
control the cost and determine profit for an organisation.
OBJECTIVES OF COST ACCOUNTING

1. Cost Accounting is used for estimating the profit and loss of every operation. It also helps to determine the management about
the unit cost of service, department or job and product.
2. It is used for taking necessary financial decisions by collecting and contributing appropriate data.
3. For fixing an accurate selling price of a product, cost accounting provides necessary instructions.
4. It helps in the administration of future production policies.
5. Cost Accounting helps the administrative body to prepare and take important steps regarding the budget. It also assists them to
execute budget control measures for their company.
6. It provides distinguished cost audit services.
7. Cost Accounting helps in interpreting and presenting data related to planning, performance appraisal and control, assisting the
administrative body.
8. It helps the management steer towards proposed capital projects and future expansion programmes.
9. Along with various departmenth eads, it helps to combine the cost reduction programme.
ADVANTAGES OF COST ACCOUNTING

1. Cost Accounting is very advantageous to the government.
2. Every information on the basis of which tenders and estimates rest, is due to cost accounting.
3. It helps in revealing both moneymaking and unprofitable activities of a firm.
4. It supports an organisation by providing appropriate guidance for reducing prices even less than the total cost.
5. It helps management take apropos decision regarding expenditure towards machineries and labours.
6. Cost Accounting assists the management (administrative body) to make steadfast checks on the precision of a financial account.
7. It also helps in detecting losses in a business and also various reasons for the loss.
LIMITATIONS OF COST ACCOUNTING
There are certain limitations regarding cost accounting. Some of the main limitations are stated below.
1. THE PRICE IS VERY HIGH

Installation and maintenance of cost accounting system require a huge amount of money and also more manpower. For keeping
records of cost accounting, two account books are required to be maintained. In case of manpower, cost accounting can only be
done by people who have exceptional knowledge in costing. All of these areas of cost accounting require funds in large quantity.
2. COMPLEX SYSTEM
Cost accounting is used for identifying various expense types and the distribution of funds. For identification, it requires different
formulas and forms for collecting data and preparing reports. Also, there are numerous steps involved in determining the details.
Due to all these various reasons, it makes the system complicated.
3. INCOMPETENCY OF COSTING SYSTEM

Although cost accounting is not considered as a useless system, many times it has been unsuccessful in producing expected
outcomes.
4. POINTLESS APPLICATION
The development of cost account has been recent, and many firms are also progressing with its support. But there are also various
companies who are running their business without this application and faring well. Cost accounting isn’t that impactful for every
industry.
5. ESTIMATIONS BASED ON PREVIOUS DATA

Cost accounting does not use current or actual data. It only uses indirect cost estimations and statement of past data.
6. USE OF NUMEROUS STATEMENTS AND FORMS

Abundant forms and statements are used for sending information of costing to the authoritative body. It simply means that
unnecessary paperwork is required in the costing system
(b)
Job Order Costing

Job order costing or job costing is a system for assigning and accumulating manufacturing costs of an individual unit of output. The
job order costing system is used when the various items produced are sufficiently different from each other and each has a
significant cost. (When a company's output consists of continuous flows of identical, low-cost units, the process costing system is
more appropriate.)
Since there is a significant variation in the items manufactured, the job order costing system requires a separate job cost record for
each item (or each job or special order). The job cost record will report each item's direct materials and direct labor that were
actually used and an assigned amount of manufacturing overhead.
The job cost records also serve as the subsidiary ledger or documentation for the manufacturer's cost of the work-in-process
inventory, the finished goods inventory, and the cost of goods sold.
Examples of Job Order Costing

 A few examples of the use of job order costing are:
 A company that designs and produces custom-made machines and/or machine tooling
 A company that constructs custom-designed buildings
 A company that modifies trucks to meet customers' special needs
The Industries Using Job Order Costing

1. The production is generally against customer’s order but not for stock.
2. Each job has its own characteristics and needs special treatment.
3. There is no uniformity in the flow of production from department to department. The nature of the job determines the
departments through which the job has to be processed. The production is intermittent and not continuous.
4. Each job is treated as a host unit under this method of costing.
5. Each job is distinctively identified by a production order throughout the production stage.
Primary Objective in Job Order Costing

1. It helps to find out the cost of production of every job or order and to know the profit or loss made on its execution. This
ultimately helps the management to judge the profitability of each job and decide the future course of action.
2. It helps the management to make more accurate estimates for costs of similar jobs to be executed in future on the basis of past
records. Management can easily and accurately determine and quote prices of jobs of a similar nature which are in prospect.
3. It helps the management to control the operational inefficiency by making a comparison of actual costs with estimated ones.
4. It helps the management to provide a valuation of work-in-progress.
QUESTION 3 ANSWER
Job Cost Sheets for Job # 303 and 304:

Answer: Cost of Raw Material Consumed 500,000

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QUESTION 1 ANSWER

Cost of raw material consumed 500,000

- Closing Stock of raw material 25,000

+ Opening Stock of raw material 50,000

COST OF RAW MATERIAL PURCHASED 525,000

$15,000 + Cost of Good manufactured = $20,000 + 80,000

$15,000 + Cost of Good Manufactured = $100,000

Cost of Good Manufactured = $100,000 - $15,000

Cost of Good Manufactured = $85,000

OBJECTIVES OF COST ACCOUNTING

ADVANTAGES OF COST ACCOUNTING

1. THE PRICE IS VERY HIGH

3. INCOMPETENCY OF COSTING SYSTEM

5. ESTIMATIONS BASED ON PREVIOUS DATA

6. USE OF NUMEROUS STATEMENTS AND FORMS

Job Order Costing

Examples of Job Order Costing

The Industries Using Job Order Costing

Primary Objective in Job Order Costing

Job Cost Sheets for Job # 303 and 304:

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