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Answer Paper

Cost Management Accounting Duration:65

Details: Test-3 (Ch-3 ) Marks: 35

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Ans-1

Statement of Profit foregone as a result of labour turnover of M/s. SS Ltd.

Contribution foregone (Refer to working note 5) 3, 00,000

Settlement cost due to leaving 27,420

Recruitment costs 18,725

Selection costs 12,750

Training costs 16,105

Total profit foregone 3,75,000

Working Note:

1. Actual productive hours 3, 30,000

(Actual hours worked – Unproductive training hours) (3, 45,000 hrs. – 15,000 hrs.)

2. Sales per productive hour (Rs20) (Total Sales/Actual productive hours) (Rs66, 00,000/3,
30,000 hrs.)

3. Potential productive hours lost 75,000

4. Sales foregone (Rs) 15, 00,000 (75,000 hours × Rs 20)

5. Contribution foregone (Rs) 3, 00,000 P/V ratio × Sales foregone) (20% × Rs15, 00,000)

(5 Marks)

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Ans-2

Calculation of Total Cash Payment

Total wages paid to 30 workers in 2012-13 Rs

Wages 50,000

D.A. 25,000

Night shift allowance 9,600

Over time allowance 7,000

91,600

Less : Deduction :

P.F. 6,000

ESI 1,170

Rent Recovery 10,200

Recovery of provisions 16,000 33,370

Total Cash Payment 58,230

Total Wages :

Base Wages, DA, etc. 91,600

PF contribution (Employer’s share) 6,000

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ESI Contribution (Employer’s share) 1,638

Expenditure on amenities 4,730

Total Wages 1,03,968

Cost per man-hour

No. of hours worked during the year: 300 x 8 x 30 72,000

Less : 5% leave with pay : 3,600

5% for idle hours (5% of 72,000-3,600) 3,420 7,020

64,980
Cost per man–hour = 1,03,968 ÷ 64,980 = Rs1.60

(5 Marks)

Ans-3

(a) Existing Time Rate

Weekly wages: 45 hrs. @ Rs10.00 per hour 450.00

9 hrs. @ Rs15.00 135.00

Day shift bonus 5 x 25.00 125.00

Late shift bonus 3 x 15.00 45.00

755.00

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(b) Rowan Premium System

Basic time = 5 hrs. for 15 articles

Adding 50% = 7.5 hrs. for 15 articles

 Time for producing one article = 7.5 ÷ 15 = 30 mts.

Time allowed for 135 articles = 67.5 hrs.

Actual time taken for 135 articles - 45 hrs.

(d) Halsey-Weir Premium System

E = RT + 50% (S − T)  R

= 45  10 + 50% (67.5 - 45)  10

= 450 + 112.5 = Rs 562.5

The other requirements of the question have been shown in the following table:

Particulars Methods

(a) (b) (c) (d)

(i) Hours worked 54 45 45 45

(ii) Weekly earnings (Rs) 755 540 600 562.5

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(iii) Articles produced 120 135 135 135

(iv) Labour cost per article (Rs) 6.29 4.00 4.44 4.17

(8 Marks)

Ans-4

Computation of Direct Expenses

Particulars Product X Product Y

Royalty paid on Sales (15000*2) (12000*2) 30,000 24,000

Add Royalty paid on units produced (20000*1) (15000*1) 20,000 15,000

Add Hire charges of equipment used in manufacturing 5,000 -

process of Product X only

Add Design Charges 15,000 18,000

Add Software development charges related to 24,000 36,000

production

Direct Expenses 94,000 93,000

Note:

(i) Royalty on production and royalty on sales are allocated on the basis of units produced and
units sold respectively. These are directly identifiable and traceable to the number of units
produced and units sold. Hence, this is not an apportionment.

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(ii) No adjustments are made related to units held, i.e. closing stock.

(5 Marks)

Ans-5

(i) Calculation of no. of employees at the beginning and end of the year

Particulars At the Beginning of At the end of the

the year year

Data Processors 540 1,560

Payroll Processors [Left- 60 + Closing- 40 – Joined- 80 40

20]

Supervisors* 30 90

Voice Agents* 30 30

Assistant Managers* 20 30

Senior Voice Agents 4 12

Senior Data Processors 8 34

Team Leaders 60 0

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Total 772 1,796

(*) At the beginning of the year:

Strength of Supervisors, Voice Agents and Asst. Managers

= [772 – {540 + 80 + 4 + 8 + 60} employees] or [772 – 692 = 80 employees]

3 3 2
[{Supervisors- 80 ×8= 30, Voice Agents- 80 ×8= 30 & Asst. Managers- 80 ×8 = 20} employees]

At the end of the year:

[Supervisor-(Opening- 30 + 60 Joining) = 90; Voice Agents- (Opening- 30 + 20 Joined – 20 Left) =

30]

(ii) No. of Employees Separated, Replaced and newly recruited during the year

Particulars Separations New Recruitment Replacement Total Joining

Data Processors 60 1,020 60 1,080

Payroll Processors 60 - 20 20

Supervisors - 60 - 60

Voice Agents 20 - 20 20

Assistant Managers 10 10 10 20

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Sr. Voice Agents - 8 - 8

Sr. Data Processors - 26 - 26

Team Leaders 60 - - -

Total 210 1,124 110 1,234

(Since, XYZ Ltd. and its subsidiary are maintaining separate Personnel Department, so transfer-
in and transfer-out are treated as recruitment and separation respectively.)

(a) Calculation of Labour Turnover:

𝐍𝐨 .𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐫𝐞𝐩𝐥𝐚𝐜𝐞𝐝 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫

Replacement Method = × 𝟏𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐧𝐨. 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐨𝐧 𝐫𝐨𝐥𝐥

110
= (772+ 1,796) / 2× 100

110
= 1,284 × 100

= 8.57%

𝐍𝐨. 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐬𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫

Separation Method = × 𝟏𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐧𝐨.𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐨𝐧 𝐫𝐨𝐥𝐥

210
= 1,284 × 100

= 16.36%

(b) Labour Turnover under Flux Method:

𝐍𝐨.𝐨𝐟𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬(𝐉𝐨𝐢𝐧𝐞𝐝+ 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝)𝐝𝐮𝐫𝐢𝐧𝐠𝐭𝐡𝐞𝐲𝐞𝐚𝐫
= × 𝟏𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐧𝐨.𝐨𝐟𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬𝐨𝐧𝐫𝐨𝐥𝐥

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 No.of employees(Replaced+ New recruited+Separated)during the year
= × 100
Averageno.of employeesonroll

1,234+ 210
= × 100
1,284

= 112.46%

Labour Turnover calculated by the executive trainee of the Personnel department is incorrect
as it has not taken the No. of new recruitment while calculating the labour turnover under Flux
method.

(7 Marks)

Ans-6 MCQs

1. Answer: 3. ₹17.49

2. Answer: 2. 50% of the percentage of production in excess of standard

Detailed Solution –

Standard production in actual time = 480 x 200 = 96,000

Excess of actual production over standard = 1, 19,600 – 96,000 = 23,600.

% of excess over standard = (23,600 / 96,000) x 100 = 24.58%

% of bonus = 1/2 x 24.58 = 12.29%

Bonus rate per hour = 3.2 x 12.29% = 0.393 Total bonus for week = 480 x 0.393 = Rs 188.64

Computation of Total Earnings of Jones & Smith:

Particulars Jones Smith

Basic wages 41.5 x 2 83.00 44.5 x 2.5 111.25

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Bonus 41.5 x 0.393 16.31 44.5 x 0.393 17.49
Total Earnings 99.31 128.74

3. Answer: 4. ₹6.10

4. Answer: 3. ₹36.17

Reason : Working notes:

(i) Computation of time saved (in hours) per month:

(Standard production time for 6,120 units) – (Actual time taken by the workers)

= (6,120 units × 1.975 hours) – (24 days × 8 hours per day × 50 skilled workers)

= 2,487 hours

(ii) Computation of bonus for time saved under Halsey and Rowan schemes:

Time saved = 2,487 hours

(Refer to working note 1)

Wages rate per hour = Rs.30

Bonus under Halsey schemes = ½ × 2,487 hours × Rs.30

(With 50% bonus) = Rs.37, 305

Time saved
Bonus under rowan scheme = × Time taken × Rate per hour
Time allowed

2,487 hours
= 12,087 hours× 9,600 hours × Rs.30

= Rs.59, 258.38

(iii) Computation of effective rate of earnings under the Halsey and Rowan scheme:

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Total earnings (under Halsey scheme) (Refer to working note 2)

= Time wages + Bonus

= (24 days × 8 hours × 50 skilled workers × Rs.30) + Rs.37,305

= Rs.2, 88,000 + Rs.37, 305 = Rs.3, 25,305

Total earnings (under Rowan scheme) (Refer to working note 2)

= Time wages + Bonus

= Rs.2, 88,000 + Rs.59, 258.35

= Rs.3, 47,258.38

Rs.3,25,305
Effective rate of earnings per hour (under Halsey plan) = 9,600 hours= Rs.33.89

Rs.3,47,258.38
Effective rate of earnings per hour (under Rowan plan) = = Rs.36.17
9,600 hours

(iv)Savings to the Zed Ltd., in terms of direct labour cost per piece:

Direct labour cost (per unit) under time wages system (1.975 hours per unit × Rs.30) = 59.25

Rs.3,25,305
Direct labour cost (per unit) under Halsey plan [ 6,120 units ] = 53.15

Rs.3,47,258
Direct labour cost (per unit) under Rowan plan [ 6,120 units] = 56.74

Saving of direct labour cost under:

Halsey plan (Rs.59.25 – Rs.53.15) Rs.6.10

Rowan plan (Rs.59.25 – Rs.56.74) Rs.2.51

(v) Advise to ZED Ltd.: (about the selection of the scheme to fulfill assurance)

Halsey scheme brings more savings to the management of ZED Ltd., over the present earnings
of Rs.2,88,000 but the other scheme i.e. Rowan scheme fulfils the promise of 20% increase over

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the present earnings of Rs.2,88,000 by paying 20.58%in the form of bonus. Hence Rowan plan
may be adopted.

5. Answer: 2. ₹60

Calculation of total normal hours to be paid for Mr. Deep (Semi-skilled):

Day Normal Extra Overtime Equivalent normal hour Total normal

hours hours hours for overtime worked hours

A B C D=CX2 E=A+B+D

Monday 8 1 1 1⁄2 3 12

Tuesday 8 --- --- --- 8

Wednesday 8 1 1 1⁄2 3 12

Thursday 8 1 1⁄ 1 10
2

Friday 8 1 1 1⁄2 3 12

Saturday --- --- --- --- ---

Total 40 4 5 10 54

Calculation of total normal hours to be paid for Mr. Sam (Skilled):

Day Normal Extra Overtime Equivalent normal hour Total normal

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 hours hours hours for overtime worked hours

A B C D=CX2 E=A+B+D

Monday 8 1 1 1⁄2 3 12

Tuesday 8 --- --- --- 8

Wednesday 8 1 1 1⁄2 3 12

Thursday 8 1 1⁄ 1 10
2

Friday 8 1 1 1⁄2 3 12

Saturday 5 3+1 1 2 11

Total 45 8 6 12 65

Mr. Sam will be paid for equivalent 8 normal working hours at ordinary wage rate, though 5
hours of working is required on Saturday. Further, extra 9th hour worked will also be paid at
ordinary wage rate.

Overtime of 1 hour worked over and above 9 hours will be paid at overtime rate.

Wages Payable:

Mr. Deep Mr. Sam

Basic Wages per hour (₹ 400/8, ₹600/8) (₹) 50 75

Dearness allowance per hour (@ 20%) (₹) 10 15

Hourly rate (₹) 60 90

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Total equivalent normal hours 54 65

Total Wages payable (₹) 3,240 5,850

(5×1= 5Marks)

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