Unit II | Cost Accounting | 2 Mark Q & A |

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UNIT - II

Cost sheets - Reconciliation of Cost and financial accounts.

PART-A (THEORY)

1. Write short note on Job Costing.

It is applicable to industry where goods are made against individual orders from customers. It is the form of specific order costing where work is undertaken to customers' specific requirements.

2. What is Cost Sheet?

The expenses of a product are analysed under different heads in the form of a statement. This statement is called Cost Sheet. In other words, Cost sheet is a statement showing the total cost under proper classifications in a logical order.

3. What is Prime Cost?

This is the first cost of production. This is also called direct cost. It is the aggregate of direct materials, direct labour and direct expenses, which are easily identifiable with the product.

4. What is cost unit?

Cost unit is that unit of measurement which is helpful to classify the cost and measure the cost of products and services. Before measuring the cost, we should determine the cost unit. It should be different according the nature of products and nature of business. You normally see, the vendor of medicine will sell you the medicine in the form of batch of 12 or 20 tablets. These batch is also cost unit.

Following are the examples of cost unit:

We measure coal in tonne. So, tonne is the cost unit. One metric ton will be equal to 1000 kgs but our cost unit will be tonne or ton. If you want to buy coal, you buy coal at prices range between Rs 770 and Rs 1,700 a tonne.

We know that wall bricks are measured in one thousand. So, cost unit will thousand bricks. These days, one thousand bricks cost is Rs. 5000

5. Differentiate between cost centre and profit centre.

An activity center or responsibility center is the unit of business organization which is accounted for a specific task or activity. Cost Center and Profit Center are the two major types of the activity centers. A center for which cost is ascertained is known as Cost Center, whereas a center whose performance measurement can be done only through its income earning capacity is known as Profit Center.

6. What are the different types of cost centres?

Production cost centres: This is where the products are manufactured or processed.

Example: Assembly area

Service cost centres: This is where a service is provided to other cost centres.

Example: Personnel department or the canteen.

7. Explain cost driver.

A cost driver is the unit of an activity that causes the change in activity's cost. Cost driver is any factor which causes a change in the cost of an activity. Chartered Institute of Management Accountants

In activity based costing (ABC), an activity cost driver is something that drives the cost of a particular activity. A factory, for example, may have running machinery as an activity.

8. What do you mean by selling and distribution overheads?

All the indirect expenses incurred for selling and distribution of finished goods are known as selling and distribution overheads. Selling overheads are incurred for creating demand, attracting present and potential customers and retaining old customers. Remuneration to sales personnel, advertisement, showroom expenses, samples and free gifts and after sales service expenses are some of the examples of selling overheads and wages of van drivers, godown expenses are examples of distribution overheads.

9. Write a short note on reconciliation.

Reconciliation of Cost and Financial Accounts is process to find all the reasons behind disagreement in profit which is calculated as per cost accounts and as per financial accounts. There are lots of items which are shown in the profit and loss account only when we make it as per financial accounting rules. There are lots of items which are shown in costing profit and loss account only when we calculate profit as per cost accounting.

10. What is the need for reconciliation of cost and financial accounts?

Reconciliation of Cost and Financial Accounts is process to find all the reasons behind disagreement in profit which is calculated as per cost accounts and as per financial accounts. There are lots of items which are shown in the profit and loss account only when we make it as per financial accounting rules. There are lots of items which are shown in costing profit and loss account only when we calculate profit as per cost accounting.

11. Give four items included in cost accounts not in financial accounts.

·         Notional rent on own premises

·         Notional Interest on capital employed in production

·         Salary to proprietor

·         Losses due to defective and spoilage

12. State the two reasons for difference in profits as shown by cost and financial accounts.

·         Excess closing stock shown in cost accounts

·         Excess depreciation in financial accounts

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