Question 6 (a) Explain the steps involved in procedure for reconciliation of Cost & Financial accounts. Also explain the circumstances where reconc...

Question

Question 6 (a) Explain the steps involved in procedure for reconciliation of Cost & Financial accounts. Also explain the circumstances where reconciliation statement can be avoided. (3+2 = 5 Marks) (b) State cost unit of the following Industry Sector: Industry Sector Cost Unit Oil Professional services Education Brick-making Education Brick-making Engineering Electricity Hotel/Catering Coal mining Brewing Hospitals (5 Marks) (c) Explain the methods that can be used for controlling Selling and Distribution Overheads. (4 Marks) OR (c) Suggest any one basis of re-apportionment of service department overheads over production departments in the following contexts: Cost of the Service Departments Basis Planning and progress Transport Department Personnel Department Fire Protection Power House (electric lighting cost) Computer Section Canteen and Welfare Hospital and Dispensary (4 Marks)

Accepted Answer

Answer Solution: (a) Steps involved in the Reconciliation Procedure There are 3 primary steps involved in the procedure for reconciling Cost and Financial Accounts: 1. Ascertainment of profit/loss as per Financial Accounts 2. Ascertainment of profit/loss as per Cost Accounts 3. Reconciliation of both the profits/losses using a Reconciliation Statement or Memorandum Reconciliation Account. Circumstances where reconciliation can be avoided: When the company maintains an Integrated Accounting System, there is no need to prepare a separate reconciliation statement. Under an integrated system, cost and financial transactions are recorded in a single set of books, ensuring that a single profit or loss figure is generated. (b) Cost Units for Service/Other Industries | Industry | Cost Unit | | :--- | :--- | | Oil | Per barrel, per gallon/litre | | Professional Services | Per service/project, per hour | | Education | Per course, per student, per batch, per lecture, etc. | | Brick-making | Per brick, per thousand bricks | | Engineering | Per project, per hour, per job, per contract | | Electricity | Per kilowatt-hour (kWh) | | Hotel/Catering | Guest Days or Room Days, per item, per meal, etc. | | Coal Mining | Per ton, per quintal | | Brewing | Per gallon/litre, per barrel | | Hospital | Patient per day, room per day or per bed, per operation, etc. | (c) Steps to Tackle Control of Selling & Distribution Overheads 1. Comparison with past performance: Comparing the current period's selling and distribution overheads with previous periods to detect anomalies. 2. Budgetary Control: Preparing selling and distribution overhead budgets, comparing budgeted figures with actuals, calculating variances, and taking corrective actions. 3. Standard Costing: Setting up standard selling and distribution rates for salesmen, territories, products, etc., to measure efficiency. OR Basis of Apportionment of Service Departments Costs | Service Department | Basis of Apportionment | | :--- | :--- | | Planning and Progress | Direct labour hours, Machine hours, Direct labour wages, Asset value × Hours worked | | Transport Department | Crane hours, Truck hours, Truck mileage, Truck tonnage, Truck ton-hours, Tonnage handled, No. of packages of standard size | | Personnel Department | Number of direct workers, Number of employees, etc. | | Fire Protection | Capital values | | Power House (electric lighting cost) | Floor area, Cubic content, Number of electric points, Wattage | | Computer Section | Computer hours, Specific allocation to departments | | Canteen and Welfare | Number of direct workers, Number of employees, etc. | | Hospital and Dispensary | Number of direct workers, Number of employees, etc. |

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