KSBM – Cost & Management Accounting-Distinguish between direct and indirect cost

Distinguish between direct

Cost & Management Accounting

  1. (i) Distinguish between direct and indirect cost

(ii) Explain the limitations of ratio analysis

  1. State the benefits of value engineering.

  2. Briefly explain the importance of capital budgeting.

  3. The following data relate to the manufacture of a product during the month of January :

Raw materials consumed Rs. 80,000

Direct wages Rs. 48,000

Office overhead 10% of works cost

Units produced 4,000

Machine hours worked 8,000

Machine hour rate Rs. 4

Selling overhead Rs. 1.50 per unit

Units sold 3,600 at Rs. 50 each

Prepare a cost sheet.

  1. Explain the concept of margin of safety and angle of incidence in break-even analysis.

Illustrate your answer graphically

  1. Sales 1,000 units at Rs. 10 each Rs. 10,000; Variable cost Rs. 6 per unit ; Fixed Cost Rs.


(a) Calculate break even point;

(b) if the selling price is reduced to Rs. 9, what is the new break even point?

  1. The standard estimate for materials to manufacture, 1,000 units of a commodity is 400 kgs.,

at Rs. 2.50 per kg.

When 2,000 units of the commodity are manufactured, it is found that 820 kgs. of materials

are consumed at Rs. 2.60 per kg.

Calculate the material variance.

Overhead 70%

Closing work-in progress: 1, 600 units.

  1. Prepare a cash budget for the three months ending 30th June, 2005 from the information

given below:

Month Sales Materials Wages Overheads

Rs. Rs. Rs. Rs.

February 14,000 9,600 3,000 1,700

March 15,000 9,000 3,000 1,900

April 16,000 9,200 3,200 2,000

May 17,000 10,000 3,600 2,200

June 18,000 10,400 4,000 2,300

(a) Credit terms :

Sales/Debtors – 10% sales are on cash, 50% of the credit sales are collected next month

and the balance in the following month.

Creditors: Materials 2 Months

Wages Month

Overheads Month

(b) Cash and bank balance on 1st April 2005 is expected to be Rs. 6,000.

  1. An automobile manufacturing company finds that the cost of making part No. 208 in its own

workshop is Rs. 6. The same part is available in the market at Rs. 5.60 with an assurance of

continuous supply. The cost data to make the part are:

Material Rs. 2.00

Direct labour Rs. 2.50

Other variable costs Re. 0.50

Fixed cost allocated Re. 1.00

Total Rs. 6.00

(a) Should the part be made or bought?

(b) Will your answer be different if the market price is Rs. 4.60? Show your calculations


  1. The following are the particulars applicable to a work process :

Time rate Rs. 5 per hour

High task 40 units per week

Piece rate about high task Rs. 6.50 per unit

In a 40 hour week, the production of the workers was :

A – 35 unit; B – 40 units; C – 41 units and D – 52 units.

Calculate the wages of the workers under Gantt’s task bonus plan

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