NBU, B.Com Honours Programme: CC8: Cost Accounting Past Solved Paper 2022

UNIVERSITY OF NORTH BENGAL

B.Com. Honours 4th Semester Examination, 2022

 

CC8-COMMERCE

COST ACCOUNTING

 

Time Allotted: 2                                                 Hours Full Marks: 60

 

The figures in the margin indicate full marks.

All symbols are of usual significance. 

 

GROUP-A

 

Answer any two questions 12×2 = 24

 

1. Examine the need and importance of Cost Accounting with reference to the inadequacies of Financial Accounting. Do you think that Cost Accounting has no limitations? 9+3 

Answer: Cost accounting plays a crucial role in modern business environments, especially in a country like India, where diverse industries thrive. To understand its significance, let's examine the need for cost accounting and its importance relative to the inadequacies of financial accounting. 

1. Need for Cost Accounting: 

   a. Internal Decision Making: Unlike financial accounting, which primarily focuses on reporting financial performance to external stakeholders, cost accounting provides detailed information for internal decision-making. It helps management understand the costs associated with various activities, products, and processes, aiding in better resource allocation and pricing decisions. 

   b. Cost Control: Cost accounting facilitates the identification and analysis of costs, enabling businesses to control and manage them effectively. By tracking costs at various levels (e.g., department, product line), organizations can identify areas of inefficiency and take corrective actions to improve cost-effectiveness.

    c. Performance Evaluation: Cost accounting provides valuable insights into the performance of different segments of the organization. Managers can use cost data to evaluate the profitability of products, projects, or divisions, facilitating performance measurement and strategic planning. 

   d. Budgeting and Planning: Cost accounting plays a crucial role in the budgeting and planning process by providing accurate cost estimates and forecasts. This helps in setting realistic financial goals, allocating resources efficiently, and monitoring performance against budgeted targets. 

2. Importance relative to Financial Accounting: 

   a. Focus on Costs: While financial accounting primarily deals with the recording and reporting of financial transactions, cost accounting focuses on analyzing and managing costs. It provides detailed information on the cost behavior, cost structure, and cost drivers, which is essential for effective cost management. 

   b. Decision Relevance: Cost accounting information is more relevant for internal decision-making compared to financial accounting. Financial statements prepared under Generally Accepted Accounting Principles (GAAP) may not always reflect the true economic reality of costs, especially for decision-making purposes. 

   c. Customized Reporting: Cost accounting allows for customized reporting tailored to the specific needs of management. It can provide detailed cost information by product, process, customer, or activity, which is not typically available in financial statements. 

3. Limitations of Cost Accounting: 

   Despite its importance, cost accounting is not without limitations: 

   a. Subjectivity: Cost allocation and estimation involve subjective judgments, which may lead to biases or inaccuracies in cost determination. 

   b. Complexity: Cost accounting systems can be complex and resource-intensive to implement and maintain, especially for small businesses with limited resources. 

   c. Focus on Historical Data: Cost accounting primarily relies on historical cost data, which may not always be indicative of future costs, especially in rapidly changing business environments.

    d. Inability to Capture Intangible Costs: Cost accounting may not capture intangible costs such as brand reputation, employee morale, or environmental impact, which are increasingly important in today's business landscape. 

In conclusion, while cost accounting addresses many of the inadequacies of financial accounting by providing detailed cost information for internal decision-making, it is not without limitations. However, despite its limitations, cost accounting remains a valuable tool for businesses, especially in countries like India, where efficient cost management is crucial for competitiveness and sustainable growth.

 

2. (a) X Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a component ‘X’ which is purchased at Rs. 20 per unit. For every finished product, one unit of component ‘X’ is required. The ordering cost is `120 per order and the holding cost is 10% per annum. 

Calculate:

(i) Economic Order Quantity

(ii) If the minimum lot size to be supplied is 4,000 units, what is the extra cost to the company? 3+6

 Answer: 2. (a)(i)

 Answer: 2. (a)(ii)

2. (b) Calculate Re-order Level, Maximum Level and Minimum Level from the following information: 

Re-order Quantity 1,500 units

Re-order Period 4 to 6 weeks

Maximum Consumption 400 units per week

Minimum Consumption 200 units per week

Answer: 2(b)