(a) Discuss briefly the principles to be followed while taking credit for profit on incomplete contracts. (b) A company operates on historic job cost accounting system, which is not integrated with financial accounts. At the beginning of a month, the opening balances in cost ledger were. ` (in lakhs) Stores Ledger Control Account 80 Work-in-Progress Control Account 20 Finished Goods Control Account 430 Building Construction Account 10 Cost Ledger Control Account 540 During the month, the following transactions took place: Material Purchased 40 Issued to production 50 Issued to general maintenance 6 Issued to building construction 4 Wages Gross wages paid 150 Indirect wages 40 For building construction 10

Works Overheads Actual amount incurred (excluding items shown above) 160 Absorbed in building construction 20 Under absorbed 8 Royalty paid 5 Selling, distribution and administration overheads 25 Sales 450 At the end of the month, the stock of raw material and work-in-progress was ` 55 lakhs & ` 25 lakhs respectively. The loss arising in the raw material account is treated as factory overhead. The building under construction was completed during the month. Company's gross profit margin is 20% on sales. Prepare the relevant control accounts to record the above transactions in the cost ledger of company

(a) Discuss different methods of by-product cost accounting. (b) Z Ltd. makes a range of five products to which the following standards apply : Per unit (`) AB C D E Sales price 50 60 70 80 90 Direct materials 9 10 17 12 21 Direct wages 16 20 24 28 32 Variable production overhead 8 10 12 14 16 Variable selling and distribution overheads 5 6 7 8 9 Fixed overhead 4 5 6 7 8 42 51 66 69 86 The direct labour wage rate is ` 4 per hour. Fixed overheads have been allocated on the basis of direct labour hours. The Company has commitments to produce a minimum of 400 units of each product per month. Direct labour hours cannot exceed 13,000 per month due to restriction of space. The Board is now considering an offer of a new three-year contract to produce an additional 400 units of product B per month at a selling price of ` 58 per unit. The contract would involve an outlay of ` 1,00,000 on the lease of additional factory premises and purchases of new plant and equipment. There would be no residual value at the end of the contract. Variable production costs would be in accordance with existing standards, variable selling and distribution costs would be one-half of the existing rate and cash outflows on fixed costs would be ` 20,000 per annum. An outside supplier has offered to supply 400 units of product B per month at a price of ` 48 per unit. If purchased externally cash flows on additional fixed costs will be ` 25,000 per annum. Required : (i) Give recommendations, supported by calculations, to show how direct labour hours in the existing factory should be utilized in order to maximize profits. (ii) Show the budgeted trading results on the basis of your recommendation in (i). (iii) Give calculations to show whether or not the proposed contract for product B should be accepted and, if so whether it should be purchased externally or manufactured in the new premises. The Company's cost of capital is 10% (the present value of an annuity of Re. 1 for three years at 10% is ` 2.49). Ignore taxation and inflation.

ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y and Z. All three end products are separated simultaneously at a single splitoff point. Product X and Y are ready for sale immediately upon split off without further processing or any other additional costs. Product Z, however, is processed further before being sold. There is no available market price for Z at the split-off point. The selling prices quoted here are expected to remain the same in the coming year. During 2009- 10, the selling prices of the items and the total amounts sold were : X - 186 tons sold for ` 1,500 per ton Y - 527 tons sold for ` 1,125 per ton Z - 736 tons sold for ` 750 per ton The total joint manufacturing costs for the year were ` 6,25,000. An additional ` 3,10,000 was spent to finish product Z. There were no opening inventories of X, Y or Z at the end of the year, the following inventories of complete units were on hand : X 180 tons Y 60 Tons Z 25 tons There was no opening or closing work-in-progress.

Required:

(i) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods sold for income statement purpose as of March 31, 2010, using:

(a) Net realizable value (NRV) method of joint cost allocation

(b) Constant gross-margin percentage NRV method of joint-cost allocation.

(ii) Compare the gross-margin percentages for X, Y and Z using two methods given in requirement (I)