Cost and Management AccountingQuestion 5459 of 251
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Question 4 (a) NT Ltd. showed a net loss of ` 9,000 as per their cost accounts for the year ended 31-03-2025. However, the financial books disclosed a net profit of ` 7,000 for the same period. The following information was revealed as a result of scrutiny of the figures of both the sets of books: (`) Factory overheads absorbed 52,000 Selling & distribution overheads over absorbed 6,000 Administrative overheads under absorbed 7,500 Interest on Loan 8,800 Dividend received 9,000 Factory overheads charged 45,000 Depreciation charged in financial accounts 42,000 Depreciation recovered in cost accounts 45,000 There is the difference in the value of closing stock of finished goods due to varying basis of valuation. 500 units of closing stock is valued at ` 41,000 in cost accounts whereas market price per unit of closing stock is ` 80 per unit. It is found that there is still a difference in the reconciliation statement after considering all of the above which is due to the excess of raw material consumption in cost accounts. Prepare: (i) A reconciliation statement taking net loss as per cost accounts as base, and (ii) Find out the excess of material consumption during the period in cost accounts effectuated the difference in reconciliation. (8 Marks) (b) A manufacturing unit using Standard costing system and the following information was obtained from its records: Standard Actual Production 4,800 units 4,560 units Working days 25 27 COST AND MANAGEMENT ACCOUNTING Fixed overhead ` 48,000 ` 46,800 Variable overhead ` 14,400 ` 14,400 Required: Calculate the following overhead variances: (i) Variable overhead variance (ii) Fixed overhead variance (iii) Fixed overhead Expenditure variance (iv) Fixed overhead Volume variance (v) Fixed overhead Calendar variance (6 Marks)

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Detailed Solution & Explanation

### (a) (i) Statement of Reconciliation of profit as obtained under Cost and Financial Accounts | Particulars | Add (₹) | Less (₹) | Net Amount (₹) | | :--- | :---: | :---: | :---: | | **Net Loss as per Cost Records** | | | **(9,000)** | | **Add:** | | | | | - Excess Material Consumption | 8,300 | | | | - Factory Overhead over-absorbed (₹52,000−₹45,000\displaystyle ₹52,000 - ₹45,000) | 7,000 | | | | - Selling & Distribution Overhead over-absorbed | 6,000 | | | | - Dividend Received (Financial only) | 9,000 | | | | - Depreciation over-charged (₹45,000−₹42,000\displaystyle ₹45,000 - ₹42,000) | 3,000 | | 33,300 | | **Less:** | | | | | - Administration Overhead under-absorbed | | 7,500 | | | - Interest on Loan (Financial only) | | 8,800 | | | - Over-valuation of Finished Goods Closing Stock (₹41,000−₹40,000\displaystyle ₹41,000 - ₹40,000) | | 1,000 | (17,300) | | **Net Profit as per Financial Records** | | | **7,000** | ### (a) (ii) Working Note: Calculation of Excess Material Consumption in Cost Accounts Let X\displaystyle X be the excess material consumption in cost accounts: Net Profit as per Financial=Net Loss as per Cost+Adjustments−Deductions\text{Net Profit as per Financial} = \text{Net Loss as per Cost} + \text{Adjustments} - \text{Deductions} 7,000=−9,000+(X+25,000)−17,3007,000 = -9,000 + (X + 25,000) - 17,300 7,000=X−1,300  ⟹  X=₹8,3007,000 = X - 1,300 \implies X = ₹8,300 ### (b) Variance Calculations **1. Variable Overhead Variance:** Variable Overhead Variance=Standard Cost for Actual Production−Actual Overhead\text{Variable Overhead Variance} = \text{Standard Cost for Actual Production} - \text{Actual Overhead} Standard Cost=₹14,4004,800 units×4,560 units=₹13,680\text{Standard Cost} = \frac{₹14,400}{4,800 \text{ units}} \times 4,560 \text{ units} = ₹13,680 Variance=₹13,680−₹14,400=₹720 (Adverse)\text{Variance} = ₹13,680 - ₹14,400 = ₹720 \text{ (Adverse)} **2. Fixed Overhead Variance:** Absorbed Fixed Overhead=₹48,0004,800 units×4,560 units=₹45,600\text{Absorbed Fixed Overhead} = \frac{₹48,000}{4,800 \text{ units}} \times 4,560 \text{ units} = ₹45,600 Fixed Overhead Variance=₹45,600−₹46,800=₹1,200 (Adverse)\text{Fixed Overhead Variance} = ₹45,600 - ₹46,800 = ₹1,200 \text{ (Adverse)} **3. Fixed Overhead Expenditure Variance:** Expenditure Variance=Budgeted Fixed Overhead−Actual Fixed Overhead=₹48,000−₹46,800=₹1,200 (Favourable)\text{Expenditure Variance} = \text{Budgeted Fixed Overhead} - \text{Actual Fixed Overhead} = ₹48,000 - ₹46,800 = ₹1,200 \text{ (Favourable)} **4. Fixed Overhead Volume Variance:** Volume Variance=Absorbed Fixed Overhead−Budgeted Fixed Overhead=₹45,600−₹48,000=₹2,400 (Adverse)\text{Volume Variance} = \text{Absorbed Fixed Overhead} - \text{Budgeted Fixed Overhead} = ₹45,600 - ₹48,000 = ₹2,400 \text{ (Adverse)} **5. Fixed Overhead Calendar Variance:** Calendar Variance=(Actual Days−Budgeted Days)×Standard Rate per Day\text{Calendar Variance} = (\text{Actual Days} - \text{Budgeted Days}) \times \text{Standard Rate per Day} Calendar Variance=(27−25)×₹48,00025 days=2×₹1,920=₹3,840 (Favourable)\text{Calendar Variance} = (27 - 25) \times \frac{₹48,000}{25 \text{ days}} = 2 \times ₹1,920 = ₹3,840 \text{ (Favourable)}

Key Concepts to Understand

Depreciation

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

Net Profit

The final profit of a business after deducting all indirect operating expenses, non-operating expenses, and taxes from Gross Profit. It represents the actual earnings available to the owners.

Variance

A measure of dispersion equal to the average of the squared deviations of each data point from the mean. Formula: σ² = Σ(xᵢ − x̄)² / n. Standard Deviation = √Variance.

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