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Serial no. Chapter Page no.

1. CHAPTER 1: INTRODUCTION TO COST AND MANAGEMENT 3-6

ACCOUNTING

2. CHAPTER 2: MATERIAL COST 7-16

3. CHAPTER 3:EMPLOYEE COST 17-31

4. CHAPTER 4: OVERHEADS: ABSORPTION 32-45

COSTING METHOD

5. CHAPTER 5: ACTIVITY BASED COSTING 46-62

6. CHAPTER 6: COST SHEET 63-83

7. CHAPTER 7: COST ACCOUNTING SYSTEM 84-91

8. CHAPTER 8: UNIT AND BATCH COSTING 92-94

9. CHAPTER 9: JOB COSTING AND CONTRACT COSTING 95-

98

10. CHAPTER 10: PROCCESS AND OPERATION COSTING 99-

128

11. 129-
CHAPTER 11: JOINT PRODUCTS AND BY PRODUCTS
139

12. 140-
CHAPTER 12: SERVICE COSTING
141

13. 142-
CHAPTER 13: STANDARD COSTING
151

14. 152-
CHAPTER 14:MARGINAL COSTING
165

15. 166-
CHAPTER 15: BUDGET AND BUDGETARY CONTROL
172
16. 173-
REVISION TEST PAPERS
273

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 CA-INTERMEDIATE SCANNER

COST AND MANAGEMENT ACCOUNTING

CHAPTER 1: INTRODUCTION TO COST AND MANAGEMENT ACCOUNTING

NOVEMBER 2020

Question 6

Answer any four of the following:

(a) Differentiate between "Cost Accounting and Management Accounting".
. (4 x 1 = 4 Marks)
Answer
(a) Difference between Cost Accounting and Management Accounting
Basis Cost Accounting Management Accounting
(i) Nature It records the quantitative It records both qualitative and
aspect only. quantitative aspect.
(ii) Objective It records the cost of It Provides information to
producing a product and management for planning
providing a service. and
co-ordination.
(iii) Area It only deals with cost It is wider in scope as it
Ascertainment. includes financial accounting,
budgeting,
taxation, planning etc.
(iv) Recording of It uses both past and It is focused with the
data present figures. projection of figures for
future.
(v) Development Its development is related It develops in accordance to
to industrial revolution. the need of modern business
world.
(vi) Rules and It follows certain It does not follow any specific
Regulation principles and procedures rules and regulations.
for recording costs of
different
products.

JANUARY 2021

Question 6

Answer any four of the following:

(d) State the method of costing that would be most suitable for:

(i) Oil Refinery

(ii) Interior Decoration
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 (iii) Airlines Company
(iv) Advertising
(v) Car Assembly
(e) Give any five examples of the impact of use of Information Technology in Cost Accounting.
(4 x 2 = 8 Marks)

Answer
(d) Method of Costing

S.No. Industry Method of Costing

(i) Oil Refinery Process Costing
(ii) Interior Decoration Job Costing
(iii) Airlines Company Operation/ Service Costing
(iv) Advertising Job Costing
(v) Car Assembly Multiple Costing

(e) Example of Impact of Information Technology in cost accounting may include the
following:

(i) After the introduction of ERPs, different functional activities get integrated and as a
consequence a single entry into the accounting system provides custom made reports for
every purpose and saves an organisation from preparing different sets of documents.
Reconciliation process of results of both cost and financial accounting systems become
simpler and less sophisticated.
(ii) A move towards paperless environment can be seen where documents like Bill of Material,
Material Requisition Note, Goods Received Note, labour utilisation report etc. are no longer
required to be prepared in multiple copies, the related department can get e-copy from the
system.
(iii) Information Technology with the help of internet (including intranet and extranet) helping in
resource procurement and mobilisation. For example, production department can get
materials from the stores without issuing material requisition note physically. Similarly,
purchase orders can be initiated to the suppliers with the help of extranet. This enables an
entity to shift towards Just-in-Time (JIT) approach of inventory management and
production.
(iv) Cost information for a cost centre or cost object is ascertained with accuracy in timely
manner. Each cost centre and cost object is codified and all related costs are assigned to
the cost objects or cost centres using assigned codes. This automates the cost
accumulation and ascertainment process. The cost information can be customised as per the
requirement. For example, when an entity manufacture or provide services, are able to know
information job-wise, batch-wise, process-wise, cost centre wise etc.
(v) Uniformity in preparation of report, budgets and standards can be achieved with the help of
IT. ERP software plays an important role in bringing uniformity irrespective of location,
currency, language and regulations.
(vi) Cost and revenue variance reports are generated in real time basis which enables the
management to take control measures immediately.
(vii) IT enables an entity to monitor and analyse each process of manufacturing or service
activity closely to eliminate non value added activities.

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MOCK TEST PAPER-1

QUES 6 B

(b) EXPLAIN the difference between Cost Accounting and Management Accounting
(b) Difference between Cost Accounting and Management
Accounting
Basi Cost Accounting Management
s Accounting
(i) Nature It records the It records both qualitative
quantitative aspect only. and quantitative aspect.
(ii) Objective It records the cost It Provides information
of producing a to management for
product and planning and
providing a service. co-ordination.
(iii) Area It only deals with cost It is wider in scope as it
Ascertainment. includes financial
accounting, budgeting,
taxation, planning etc.
(iv) Recording of data It uses both past and It is focused with the
present figures. projection of figures for
future.
(v) Development Its development is It develops in accordance to
related to industrial the need of modern
revolution. business world.
(vi) Rules and It follows certain It does not follow any
Regulation principles and specific rules and
procedures for regulations.
recording costs of
different products.
MOCK TEST PAPER-2

QUES6 B

DISCUSS cost classification based on variability and controllability

(b) Cost classification based on variability
(i) Fixed Costs – These are the costs which are incurred for a period, and which,
within certain output and turnover limits, tend to be unaffected by fluctuations
in the levels of activity (output or turnover). They do not tend to increase or
decrease with the changes in output. For example, rent, insurance of factory
building etc., remain the same for different levels of production.
(ii) Variable Costs – These costs tend to vary with the volume of activity. Any
increase in the activity results in an increase in the variable cost and vice-
versa. For example, cost of direct labour, etc.
(iii) Semi-variable Costs – These costs contain both fixed and variable
components and are thus partly affected by fluctuations in the level of activity.
Examples of semi variable costs are telephone bills, gas and electricity etc.
Cost classification based on controllability
(i) Controllable Costs - Cost that can be controlled, typically by a cost, profit or
investment centre manager is called controllable cost. Controllable costs
incurred in a particular responsibility centre can be influenced by the action of

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 the executive heading that responsibility centre. For example, direct costs
comprising direct labour, direct material, direct expenses and some of the
overheads are generally controllable by the shop level management.
(ii) Uncontrollable Costs - Costs which cannot be influenced by the action of a
specified member of an undertaking are known as uncontrollable costs. For
example, expenditure incurred by, say, the tool room is controllable by the
foreman in-charge of that section but the share of the tool-room expenditure
which is apportioned to a machine shop is not to be controlled by the machine
shop foreman.

CHAPTER 2: MATERIAL COSTING

NOVEMBER 2019

Question 1
Answer the following:
(a) Surekha Limited produces 4,000 Litres of paints on a quarterly basis. Each Litre requires 2 kg
of raw material. The cost of placing one order for raw material is ` 40 and the purchasing price
of raw material is ` 50 per kg. The storage cost and interest cost is 2% and 6% per annum
respectively. The lead time for procurement of raw material is 15 days.
Calculate Economic Order Quantity and Total Annual Inventory Cost in respect of
the above raw material. (4 marks)

Answer

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 (a) Working:
Calculation of Annual demand of raw material
= 4,000 Litres (per quarter) x 4 (No. of Quarter in a year) x 2 kg. (raw material required for
each Litre of paint)
= 32,000 kg.
Calculation of Carrying cost
Storage rate = 2%
Interest Rate = 6%
Total = 8% per annum
Carrying cost per unit per annum = 8% of ` 50 = ` 4 per unit per annum
2× Annual demand (A)×Ordering Cost per
(i) EOQ =
order(O) Carrying cost per unit per
annum (C)
= = 800 Kg

Question 6
(c) Define Inventory Control and give its objectives.

List down the basis to be adopted for Inventory Control (4 marks)

Answer
Inventory Control: The Chartered Institute of Management Accountants (CIMA) defines
Inventory Control as “The function of ensuring that sufficient goods are retained in stock to meet
all requirements without carrying unnecessarily large stocks.”
The objective of inventory control is to make a balance between sufficient stock and over-
stock. The stock maintained should be sufficient to meet the production requirements so that
uninterrupted production flow can be maintained. Insufficient stock not only pause the
production but also cause a loss of revenue and goodwill. On the other hand, Inventory
requires some funds for purchase, storage, maintenance of materials with a risk of
obsolescence, pilferage etc. A trade-off between Stock-out and Over-stocking is required. The
management may employ various methods of Inventory control to have a balance.
Management may adopt the following basis for Inventory control:
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 Inventory Control

On the basis Using

By Setting
of Relative Ratio
Quantitative Physical
Classification Analysis
Levels
Control

NOVEMBER 2020

Question 3

(b) An automobile company purchases 27,000 spare parts for its annual requirements.
The cost per order is ` 240 and the annual carrying cost of average inventory is
12.5%. Each spare part costs ` 50.
At present, the order size is 3,000 spare parts.
(Assume that number of days in a year = 360 days)
Find out:
(i) How much the company's cost would be saved by opting EOQ model?
(ii) The Re-order point under EOQ model if lead time is 12 days.
(iii) How frequently should orders for procurement be placed under EOQ model?
(10 Marks)

(b) Working Notes:

Annual requirement (A) = 27,000 units

Cost per order (O) = ` 240

Inventory carrying cost (i) = 12.5%

Cost per unit of spare (c) = ` 50

Carrying cost per unit (i × c) = ` 50 × 12.5% = ` 6.25

Economic Order Quantity (EOQ) = 2×A×O

i×c

2×27,000×240 = 1440 UNITS

=√

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 6.25

JANUARY 2021

Question 6

Answer any four of the following:

(a) State how the following items are treated in arriving at the value of cost of material
purchased:

(i) Detention Charges/Fines

(ii) Demurrage
(iii) Cost of Returnable containers
(iv) Central Goods and Service Tax (CGST)
(v) Shortage due to abnormal reasons. 4 marks

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 Answer
(a) Treatment of items in arriving at the value of cost of material Purchased

S. No. Items Treatme

nt
(i) Detention Detention charges/ fines imposed for non-
charges/ Fine compliance of rule or law by any statutory
authority. It is an abnormal cost and not
included with cost of purchase.
(ii) Demurrage Demurrage is a penalty imposed by the
transporter for delay in uploading or
offloading of materials. It is an abnormal cost
and not included with cost of purchase.
(iii Cost of Treatment of cost of returnable containers
) returnable are as follows:
containers
Returnable Containers: If the containers
are returned and their costs are refunded,
then cost of
containers should not be considered in the
cost of purchase.
If the amount of refund on returning the
container is less than the amount paid, then,
only the short fall is added with the cost of
purchase.
(iv) Central Goods and Central Goods and Service Tax (CGST) is
Service Tax (CGST) paid on manufacture and supply of goods and
collected from the buyer. It is excluded from
the cost of purchase if the input credit is
available for the same. Unless mentioned
specifically CGST is not added with the cost
of purchase.
(v) Shortage due Shortage arises due to abnormal reasons
to abnormal such as material mishandling, pilferage, or
reasons due to any avoidable reasons are not
absorbed by the good units. Losses due to
abnormal reasons are debited to costing
profit and loss account.
JULY 2021

Question 1
Answer the following:
(a) MM Ltd. has provided the following information about the items in its inventory.

Item Code Number Unit Unit Cost

s ( `)
101 25 50
102 300 01
103 50 80
104 75 08

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 105 225 02
106 75 12
MM Ltd. has adopted the policy of classifying the items constituting 15% or above of Total
Inventory Cost as 'A' category, items constituting 6% or less of Total Inventory Cost as 'C'
category and the remaining items as 'B' category.
You are required to:
(i) Rank the items on the basis of % of Total Inventory Cost.
(ii) Classify the items into A, B and C categories as per ABC Analysis of Inventory Control
adopted by MM Ltd. 4 MARKS

Answer
(a) (i) Statement of Total Inventory Cost and Ranking of items

Item Unit % of Uni Total % of Total Rankin

code s Total t Inventory Inventory g
no. units co cost (`) cost
st
(`)
101 25 3.33 50 1,25 16.67 2
0
102 300 40.00 1 300 4.00 6
103 50 6.67 80 4,00 53.33 1
0
104 75 10.00 8 600 8.00 4
105 225 30.00 2 450 6.00 5
106 75 10.00 12 900 12.00 3
750 100 153 7,50 100
0

(ii) Classifying items as per ABC Analysis of Inventory Control

Basis for ABC Classification as % of Total Inventory Cost

15% & above -- ‘A’ items
7% to 14% -- ‘B’ items
6% & Less -- ‘C’ items

Ranking Item % of Total % of Total Catego

code Total Inventory Inventory ry
No. units cost (`) Cost
1 10 6.67 4,000 53.33

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 3
2 10 3.33 1,250 16.67
1
Total 2 10.00 5,250 70.00 A
3 10 10.00 900 12.00
6
4 10 10.00 600 8.00
4
Total 2 20.00 1,500 20.00 B
5 10 30.00 450 6.00
5
6 10 40.00 300 4.00
2
Total 2 70.00 750 10.00 C
Grand 6 100 7,500 100
Total

Question 6
Answer any four of the following:
(e) Write a short note on VED analysis of Inventory Control. (4 Marks)

Answer:

(e) Vital, Essential and Desirable (VED): Under this system of inventory analysis,
inventories are classified on the basis of its criticality for the production function and
final product. Generally, this classification is done for spare parts which are used for
production.
(i) Vital- Items are classified as vital when its unavailability can interrupt the production
process and cause a production loss. Items under this category are strictly
controlled by setting re-order level.
(ii) Essential- Items under this category are essential but not vital. The unavailability may
cause sub standardisation and loss of efficiency in production process. Items
under this category are reviewed periodically and get the second priority.
(iii) Desirable- Items under this category are optional in nature; unavailability does not
cause any production or efficiency loss.
MOCK TEST PAPER-1
QUES2 A
1. ) The yearly production of a company's product which has a steady market is 40,000 units. Each
unit of a product requires 1 kg. of raw material. The cost of placing one order for raw material
is ` 1,000 and the inventory carrying cost is ` 20 per annum. The lead time for procurement
of raw material is 36 days and a safety stock of 1,000 kg. of raw materials is maintained by
the company. The company has been able to negotiate the following discount structure with
the raw material supplier:
Order quantity (kg.) Discount (`)
Upto 6,000 NIL

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 6,001 – 8,000 4,000
8,001 – 16,000 20,000
16,001 – 30,000 32,000
30,001 – 45,000 4,0000
You are REQUIRED to:
(i) Calculate the re-order point considering 30 days in a month.
(ii) Prepare a statement showing the total cost of procurement and storage of raw material
after considering the discount of the company elects to place one, two, four or five orders
in the year.
(iii) State the number of orders which the company should place to minimize the costs after
taking EOQ also into consideration. (10
Marks)
1. (a) Working notes
1. Annual production = 40,000 units
2. Raw material required for 40,000 units (40,000 units × 1 kg.) = 40,000 kg.
2 × 40,000 kgs. × ` 1,000
3. EOQ = √ = 2,000 kgs.
` 20

4. Total cost of procurement and storage when the order size is equal to EOQ or
2,000 kg. No. of orders (40,000 kg. ÷ 2,000 kg.) = 20 times
Ordering cost (20 orders × `1,000) = ` 20,000
Carrying cost (`) (½ × 2,000 kg. × ` 20) = ` 20,000
Total cost ` 40,000
(i) Re-order point = Safety stock + Lead time consumption
40,000kg.
= 1,000 kg. + ×36days
360days
= 1,000 kg. + 4,000 kg. = 5,000 kg.

(ii) Statement showing the total cost of procurement and storage of raw materials
(after considering the
discount)

Orde No. Total cost Avera Total cost Discou Total cost
r of of ge of storage nt
size order procurem stock of raw
s ent materials
Kg. (`) Kg. (`) (`) (`)
(1) (2) (3)=(2)×`1,0 (4)=½×( (5)=(4)×`20 (6) (7)=[(3)+(5)–
00 1) (6)
40,00 1 1,000 20,000 4,00,000 40,000 3,61,000
0
20,00 2 2,000 10,000 2,00,000 32,000 1,70,000
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 0
10,00 4 4,000 5,000 1,00,000 20,000 84,000
0
8,000 5 5,000 4,000 80,000 4,000 81,000
Number of orders which the company should place to minimize the costs after taking EOQ
also into consideration is 20 orders each of size 2,000 kg. The total cost of procurement and
storage in this case comes to ` 40,000, which is minimum. (Refer to working notes 3 and 4)
MOCK TEST PAPER-2

QUESTION 1 B

(a)
(b) The annual demand for an item of raw material is 48,000 units and the purchase price
is
` 80 per unit. The cost of processing an order is ` 1,350 and the annual cost of storage is
` 15 per unit.
(i) DETERMINE is the optimal order quantity and total relevant cost for the order?
(ii) If the cost of processing an order is ` 800 and all other data remain same, then
DETERMINE the differential cost?
(iii) If the supplier offers bulk purchase of 48,000 units at a price of ` 72 and cost of placing
the is Nil, SHOULD the order be accepted?

(b) (i) Optimal order quantity i.e. E.O.Q.

2 × 48, 000 × 1,
= = 86, = 2, 939 units
350
40,000
Relevant Cost of this order quantity `
48, 000
Ordering cost = =16.33, say 17 orders at 22,950.0
`1,350 0
2,939
1
Carrying Cost = × 2, 939 × 15 22,042.5
2 0
Relevant cost 44,992.5
0
2 × 48, 000 ×
(ii) Revised EOQ = = 2,263 units
800

Relevant Cost of this order quantity `

48,000
Ordering cost = = 21.21, say 22 orders at ` 17,600.0
2,263 0
800
1
Carrying cost = × 2,263 × 15 16,972.5
2 0
Relevant cost 34,572.5
0
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 Differential cost = 44,992.50 – 34,572.50 = ` 10,420
(iii) In case of discount in purchase price, the total cost of Purchase cost,
ordering cost and carrying cost should be compared.
Original offer at ` 80 per unit Supplier offered at ` 72 per
unit
` `
Purchase Cost (48,000 × 38,40,000. Purchase 34,56,000.00
80) 00 cost
(48,000 × 72)
Ordering cost 22,950.00 Ordering 0.00
cost
Carrying cost 22,042.50 Carrying cost 3,60,000.00
1
× 48, 000 ×
15
2
Total cost 38,84,992. 38,16,000.00
50

This special offer at ` 72 per unit should be accepted as it saves ` 68,992.50 as compared to
original offer

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 CHAPTER 3: EMPLOYEE COST

NOVEMBER 2019

Question 4
(a) Zico Ltd. has its factory at two locations viz Nasik and Satara. Rowan plan is used at Nasik
factory and Halsey plan at Satara factory.
Standard time and basic rate of wages are same for a job which is similar and is carried
out on similar machinery. Normal working hours is 8 hours per day in a 5 day week.
Job at Nasik factory is completed in 32 hours while at Satara factory it has taken 30
hours. Conversion costs at Nasik and Satara are ` 5,408 and ` 4,950 respectively.
Overheads account for ` 25 per hour.
Required:
(i) To find out the normal wage; and
(ii) To compare the respective conversion costs. (10
Marks)
ANSWER

(a)

Particulars Nasik Satar

a
Hours worked 32 hr. 30 hr.
Conversion Costs `5,408 `4,95
0
Less: Overheads `800 `750
(`25×32 hr.) (`25×30 hr.)
Labour Cost `4,608 `4,20
0

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 (i) Finding of Normal wage rate:
Let Wage rate be `R per hour, this is same for both the Nasik and Satara factory.
Normal wage rate can be found out taking total cost of either factory.
Nasik: Rowan Plan
Satara: Halsey Plan

Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan
` 4,200 = Hours worked × Rate per hour + (50%×Hours saved×Rate per hour)
` 4,200 = 30 hr. × R + 50% × (40 hr. – 30 hr.) × R
` 4,200 = 35 R
Or R = ` 120
Normal Wage = 30 hrs × ` 120 = ` 3,600
(ii) Comparison of conversion costs:
Particulars Nasik Satara
(`) (`)
Normal Wages (32 x 120) 3,840
(30x120) 3,600
Bonus (6.4 x 120) 768
(5 x 120) 600
Overhead 800 750
5,408 4,950

NOVEMBER 2020

Question 4
(a) Following are the particulars of two workers 'R' and 'S' for a month:

17
 Particulars R S
(i) Basic Wages (`) 15,000 30,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to EPF (on basic wages) 7% 7.5%
(iv) Contribution to ESI (on basic wages) 2% 2%
(v) Overtime (hours) 20 -

The normal working hours for the month are 200 hrs. Overtime is paid at double the total of
normal wages and dearness allowance. Employer's contribution to State Insurance and
Provident Fund are at equal rates with employees' contributions.
Both workers were employed on jobs A, B and C in the following proportions :
Jobs A B C
R 75% 10% 15%
S 40% 20% 40%
Overtime was done on job 'A'.
You are required to :
(i) Calculate ordinary wage rate per hour of 'R' and ‘S’.
(ii) Allocate the worker's cost to each job 'A', 'B' and 'C'. (6 Marks)
(b) Discuss any four objectives of 'Time keeping' in relation to attendance and payroll
procedures. (4 Marks)

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ANSWER

(B) (i) Calculation of Net Wages paid to Worker ‘R’ and ‘S’

Particulars R (`) S (`)

Basic Wages 15,000.0 30,000.0
0 0
Dearness Allowance (DA) (50% of Basic 7,500.00 15,000.0
Wages) 0
Overtime Wages (Refer to Working Note 1) 4,500.00 ----
Gross Wages earned 27,000.0 45,000.0
0 0
Less: Provident Fund (7% × ` 15,000); (7.5% × (1,050.0 (2,250.0
` 30,000) 0) 0)
Less: ESI (2% × ` 15,000); (2% × ` 30,000) (300.00) (600.00)
Net Wages paid 25,650.0 42,150.0
0 0
Calculation of ordinary wage rate per hour of Worker ‘R’ and ‘S’

R (`) S (`)
Gross Wages (Basic Wages + DA) 22,500.00 45,000.0
(excluding overtime) 0
Employer’s contribution to P.F. and E.S.I. 1,350.00 2,850.00
23,850.0047,850.0
0
Ordinary wages Labour Rate per hour 119.25 239.25
(` 23,850 ÷ 200 hours); (` 47,850 ÷ 200 hours)

(ii) Statement Showing Allocation of workers cost to each Job

Total Job
Wage s
s A B C
Worker R
Ordinary Wages (15:2:3) 23,850.00 17,887.5 2,385.0 3577.50
0 0
Overtime 4500.00 4500.00 - --
Worker S
Ordinary Wages (2:1:2) 47,850.00 19,140.0 9,570.0 19,140.
0 0 00
76,200.00 41,527.5 11,955. 22,717.
0 00 50
Working Note:

Normal Wages are considered as basic wages.

2 x(Basic wage +D.A.) x

Over time = 20hours 200hours

19
 = 2 x `22,500 x 20hours
200
= ` 4,500

(C) The objectives of time-keeping in relation to attendance and payroll procedures

are as follows:
(i) For the preparation of payrolls.
(ii) For calculating overtime.
(iii) For ascertaining and controlling employee cost.
(iv) For ascertaining idle time.
(v) For disciplinary purposes.
(vi) For overhead distribution

JANUARY 2021

Question 2

(a) Z Ltd is working by employing 50 skilled workers. It is considering the introduction of an

incentive scheme - either Halsey Scheme (with 50% Bonus) or Rowan Scheme - of wage
payment for increasing the labour productivity to adjust with the increasing demand for its
products by 40%. The company feels that if the proposed incentive scheme could bring
about an average 20% increase over the present earnings of the workers, it could act as
sufficient incentive for them to produce more and the company has accordingly given
assurance to the workers.

Because of this assurance, an increase in productivity has been observed as revealed by

the figures for the month of April, 2020:

Hourly rate of wages (guaranteed) ` 50

Average time for producing one unit by one worker at the 1.975
previous hours
performance (this may be taken as time allowed)
Number of working days in a month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120
units
Required:
1. Calculate the effective increase in earnings of workers in percentage terms under
Halsey and Rowan scheme.
2. Calculate the savings to Z Ltd in terms of direct labour cost per unit under both the
schemes.
3. Advise Z Ltd about the selection of the scheme that would fulfil its assurance of
incentivising workers and also to adjust with the increase in demand.
(10Marks)
(b) Working Notes:
1. Total time wages of 50 workers per month:

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 = No. of working days in the month × No. of working hours per day of each worker

× Hourly rate of wages × No. of workers

= 24 days × 8 hrs. × ` 50 × 50 workers = ` 4,80,000

2. Time saved per month:
Time allowed per unit to a worker 1.975 hours

No. of units produced during the month by 50 workers 6,120

units Total time allowed to produce 6,120 units (6,120 × 1.975 hrs)
12,087
hours Actual time taken to produce 6,120 units (24 days × 8 hrs. × 50
workers) 9,600 hours Time saved (12,087 hours – 9,600 hours) 2,487
hours

3. Bonus under Halsey scheme to be paid to 50 workers:

Bonus = (50% of time saved) × hourly rate of wages
= 50/100 × 2,487 hours × ` 50 = ` 62,175
Total wages to be paid to 50 workers are (` 4,80,000 + ` 62,175) ` 5,42,175,
if Z Ltd. considers the introduction of Halsey Incentive Scheme to increase
the worker productivity.

21
(i) Calculation of Productivity:

22
 Normal Production Hours worked/Unit per Hour 4,861
(9,600/1.975) Actual Production Units 6,120
Increase in labour productivity 1,259
% Productivity i.e. increase in production/Normal 25.9%
production
Advice: Rowan plan fulfils the company’s assurance of 20% increase over the
present earnings of workers. This would increase productivity by 25.9% only. It
will not adjust with the increase in demand by 40%.
JULY 2021

QUESTION 2

(a) Following information is given of a newly setup organization for the year ended on
31st March, 2021.

Number of workers replaced during the period 50

Number of workers left and discharged during the 25
period
Average number of workers on the roll during the period 500
You are required to:
(i) Compute the Employee Turnover Rates using Separation Method and Flux Method.
(ii) Equivalent Employee Turnover Rates for (i) above, given that the organization was
setup on 31st January, 2021. (5 Marks)

23
ANSWER

24
Question 6
(a) Rowan Premium Bonus system does not motivate a highly efficient worker as a less efficient
worker and a highly efficient worker can obtain same bonus under this system. Discuss with
an example. 4 MARKS
ANSWER

(b) Rowan Premium Plan: According to this system a standard time

allowance is fixed for the performance of a job and bonus is paid if
time is saved.
Under Rowan System, the bonus is that proportion of the time wages as time saved
bears to the standard time.

Time Saved
Bonus =
Time × Time taken × Rate per hour
Allowed

25
MOCK TEST PAPER-1

QUES 4 B

26
QUES 5 B

27
(b) SR – Standard labour Rate per
Hour AR – Actual labour rate per
hour
SH – Standard
Hours AH – Actual
hours
(i) Labour rate Variance = AH (SR – AR)

MOCK TEST PAPER-2

QUES 1 A
Answer the following:

The following particulars have been compiled in respect of three workers:

28
 M N O
Actual hours worked 380 10 540
0
Hourly rate of wages (in `) 90 10 110
0
Productions in units:
- Product A 210 - 600
- Product B 360 - 1350
- Product C 460 25 -
0
Standard time allowed per unit of each
product is: A B C
Minutes 15 20 30
For the purpose of piece rate, each minute is valued at ` 1.50.
You are required to CALCULATE the wages of each worker under:
(iv) Guaranteed hourly rate basis.
(v) Piece work earning basis but guaranteed at 75% of basic pay (Guaranteed hourly rate if his
earnings are less than 50% of basic pay.)
ANSWER

(i) Computation of wages of each worker under guaranteed hourly rate basis
Work Actual hours Hourly wage rate Wages
er worked (`) (`)
(Hours)
M 38 90 34,200
0
N 10 100 10,000
0
O 54 110 59,400
0
(iii) Computation of Wages of each worker under piece work earning basis

Produc Piece Worker-M Worker-N Worker-O

t rate
per
unit
( `) Units Wages Unit Wages Units Wages
( `) s ( `) (`)
A 22.50 210 4,725 - - 600 13,500
B 30.00 360 10,800 - - 1,350 40,500
C 45.00 460 20,700 250 11,250 - -
Tota 36,225 11,250 54,000
29
 l

Since each worker’s earnings are more than 50% of basic pay. Therefore, worker-M, N and
O will be paid the wages as computed i.e. ` 36,225, ` 11,250 and ` 54,000 respectively.
Working Notes:
1. Piece rate per unit
Produ Standard time Piece rate Piece rate per
ct per unit (in each unit (`)
minutes) minute (`)
A 1 1. 22.5
5 5 0
B 2 1. 30.0
0 5 0
C 3 1. 45.0
0 5 0

CHAPTER 4: OVERHEADS: ABSORPTION COSTING METHOD

NOVEMBER 2019

QUESTION 2

(a) ABS Enterprises produces a product and adopts the policy to recover factory overheads applying
blanket rate based on machine hours. The cost records of the concern reveal the following
information:
Budgeted production overheads ` 10,35,00
0
Budgeted machine hours ` 90,000

30
 Actual machine hours worked ` 45,000
Actual production overheads ` 8,80,00
0
Production overheads (actual) include-
Paid to worker as per court's award ` 50,000
Wages paid for strike period ` 38,000
Stores written off ` 22,000
Expenses of previous year booked in current ` 18,500
year
Production -
Finished goods 30,000 units

Sale of finished goods 27,000 units

The analysis of cost information reveals that 1/3 of the under absorption of overheads
was due to defective production planning and the balance was attributable to increase
in costs.

You are required:

(i) To find out the amount of under absorbed production overheads.
(ii) To give the ways of treating it in Cost Accounts.
(iii) To apportion the under absorbed overheads over the items. (10 Marks)

Answer
(a) (i) Amount of under absorption of production overheads:
Particular Amou Amount
n (`)
t (`)
Total production overheads actually incurred 8,80,000
Less: Amount paid to worker as per court order 50,000
Wages paid for the strike period under an 38,000
award
Stores written off 22,000
Expenses of previous year booked in 18,500 1,28,500
the current year
7,51,500
Less: Production overheads absorbed as per
machine hour rate (45,000 hours × `11.50*) 5,17,500

31
 Amount of under- absorbed production overheads 2,34,000

` 10,35,000 = 11.5 per hr

*Budgeted Machine hour rate (Blanket rate ) =
90,000

(ii) Apportionment of under absorbed production overheads over Finished goods and Cost of
sales:
Particular Unit Amount
s (`)
Finished goods (3,000 units × `5.20) 3,000 15,600
Cost of sales (27,000 units × `5.20) 27,000 1,40,400
Total 30,000 1,56,000

NOVEMBER 2020

Question 2

(B) TEE Ltd. is a manufacturing company having three production departments 'P', 'Q' and
'R' and two service departments 'X' and 'Y' details pertaining to which are as under :

P Q R X Y
Direct wages (`) 5,000 1,500 4,500 2,000 800
Working hours 13,191 7,598 14,995 - -
Value of machine (`) 1,00,000 80,000 1,00,000 20,000 50,000
H.P. of machines 100 80 100 20 50
Light points (Nos.) 20 10 15 5 10
Floor space (sq. ft.) 2,000 2,500 3,500 1,000 1,000

32
 The expenses are as follows:

( `)
Rent and Rates 10,000
General Lighting 600
Indirect Wages 3,450
Power 3,500
Depreciation on Machines 70,000
Sundries (apportionment on the basis of direct wages) 13,800
The expenses of Service Departments are allocated as under :

P Q R X Y
X 45 15 30 - 10
% % % %
Y 35 25 30 10 -
% % % %
Product 'A' is processed for manufacture in Departments P, Q and R for 6, 5 and 2 hours
respectively.
Direct Costs of Product A are :
Direct material cost is ` 65 per unit and Direct labour cost is ` 40 per unit. You are
Required to:
(i) Prepare a statement showing distribution of overheads among the production and service
departments.
(ii) Calculate recovery rate per hour of each production department after redistributing the
service departments costs.
(iii) Find out the Total Cost of a 'Product A'. (10 Marks)
Answer

(B) (i) Statement showing distribution of Overheads

Primary Distribution Summary
Item of Basis of Total P Q R X Y
cost apportionmen (`) (`) (`) (`) (`) (`)
t
Direct wages Actual 2,800 -- -- -- 2,000 800
Rent and Floor area 10,000 2,000 2,500 3,500 1,000 1,000
Rates (4:5:7:2:2)
General Light points 600 200 100 150 50 100
lighting (4:2:3:1:2)
Indirect Direct wages 3,450 1,250 375 1,125 500 200
wages (50:15:45:20:8)
Power Horse Power 3,500 1,000 800 1,000 200 500
of machines
used
(10:8:10:2:5)
Depreciatio Value of 33
70,000 20,000 16,000 20,000 4,000 10,000
n of machinery
machinery (10:8:10:2:5)
Sundries Direct wages 13,800 5,000 1,500 4,500 2,000 800
(50:15:45:20:8)
 Secondary Distribution using simultaneous equation method:
Overheads of service cost centres

Let, X be the overhead of service cost centre X Y

be the overhead of service cost centre Y

X = 9,750 + 0.10 Y

Y = 13,400 + 0.10 X

Substituting the value of Y in X we get X

= 9,750 + 0.10 (13,400 + 0.10 X)

X = 9,750 + 1,340 + 0.01 X

0.99 X = 11,090

 X = ` 11,202

Y = 13,400 + 0.10  11,202

= ` 14,520.20

Secondary Distribution Summary

Particulars Total (`) P (`) Q (`) R (`)

Allocated and Apportioned 29,450.00 21,275.00 30,275.00

over-heads as per primary
distribution
X 11,202.00 5,040.90 1,680.30 3,360.60
Y 14,520.20 5,082.07 3,630.05 4,356.06
Total 39,572.97 26,585.35 37,991.66

(ii) Calculation of Overhead recovery rate per hour

P Q (`) R (`)
(`)
Total overheads cost 39,572.97 26,585.35 37,991.6
6
Working hours 13,191 7,598 14,995
Rate per hour (`) 3 3.50 2.53

34
 (iii) Cost of Product A
(`)
Direct material 65.00
Direct labour 40.00
Prime cost 105.0
0
Production on overheads
P 6 hours  ` 3 = ` 18
Q 5 hours  ` = ` 17.50
3.50
40.56
R 2 hours  ` = ` 5.06
2.53
Total cost 145.5
6
Note: Secondary Distribution can also be done using repeated distribution Method
JANUARY 2021

Question 1
(B) A machine shop has 8 identical machines manned by 6 operators. The machine cannot
work without an operator wholly engaged on it. The original cost of all the 8 machines works
out to ` 32,00,000. The following particulars are furnished for a six months period:

Normal available hours per month per operator 208

Absenteeism (without pay) hours per operator 18
Leave (with pay) hours per operator 20
Normal unavoidable idle time-hours per 10
operator
Average rate of wages per day of 8 hours per ` 100
operator
Production bonus estimated 10% on
wages
Power consumed ` 40,250
Supervision and Indirect Labour ` 16,500
Lighting and Electricity ` 6,000
The following particulars are given for a year:
Insurance ` 3,60,000
Sundry work Expenses ` 50,000
Management Expenses allocated ` 5,00,000
Depreciation 10% on the original cost
Repairs and Maintenance (including consumables): 5% of the value of all the machines.
Prepare a statement showing the comprehensive machine hour rate for the machine
shop.
5 MARKS

35
ANSWER

(B)Workings:

Particulars Six months

6
operators
(Hours)
Normal available hours per month (208 x 6 months x 7,488
6 operators)
Less: Absenteeism hours (18 x 6 operators) (108)
Paid hours (A) 7,380
Less: Leave hours (20 x 6 operators) (120)
Less: Normal idle time (10 x 6 operators) (60)
Effective working hours 7,200

JANUARY, 2021 Computation of Comprehensive Machine Hour Rate

Particulars Amount for

six months
(`)
Operators' wages (7,380/8 x100) 92,250
Production bonus (10% on wages) 9,225
Power consumed 40,250
Supervision and indirect labour 16,500
Lighting and Electricity 6,000
Repair and maintenance {(5% × ` 32,00,000)/2} 80,000
Insurance (` 3,60,000/2) 1,80,000
Depreciation {(` 32,00,000 × 10%)/2} 1,60,000
Sundry Work expenses (` 50,000/2) 25,000
Management expenses (` 5,00,000/2) 2,50,000
Total Overheads for 6 months 8,59,225
Comprehensive Machine Hour Rate = ` 8,59,225/7,200 ` 119.33
hours

(Note: Machine hour rate may be calculated alternatively. Further, presentation of

figures may also be done on monthly or annual basis.)

36
 Question 6

(C) Explain Blanket Overhead Rate and Departmental Overhead Rate. How they are
calculated? State the conditions required for the application of Blanket Overhead Rate.
4 MARKS

ANSWER

(C) Blanket Overhead Rate: Blanket overhead rate refers to the computation of one
single overhead rate for the whole factory.
This overhead rate is computed as follows:

Blanket Rate = Total overheads for the factory

Total number of units of base for the factory

Departmental Overhead Rate: It refers to the computation of one single

overhead rate for a particular production unit or department.
This overhead rate is determined by the following formula:

Departmental overhead Rate = Overheads of department or cost centre

Corresponding base

Conditions required for the Application of Blanket Overhead:

A blanket rate should be applied in the following cases:
(1) Where only one major product is being produced.
(2) Where several products are produced, but
(a) All products pass through all departments; and
(b) All products are processed for the same length of time in each department.
JULY 2021

Question 1
(B) SNS Trading Company has three Main Departments and two Service Departments. The
data for each department is given below:

Departments Expenses Area in (Sq. Number

Main Department: (in `) Mtr) o
f Employees
Purchase Department 5,00,00 1 800
0 2
Packing Department 8,00,00 1 1700
0 5
Distribution Department 3,50,00 7 700
0
Service Departments:

37
 Maintenance Department 6,40,00 4 200
0
Personnel Department 3,20,00 6 250
0
The cost of Maintenance Department and Personnel Department is distributed on the basis of ‘Area
in Square Metres’ and 'Number of Employees' respectively.
You are required to:
(i) Prepare a Statement showing the distribution of expenses of Service Departments to the
Main Departments using the "Step Ladder method" of Overhead Distribution.
(ii) Compute the Rate per hour of each Main Department, given that, the Purchase Department,
Packing Department and Distribution Department works for 12 hours a day, 24 hours a day
and 8 hours a day respectively. Assume that there are 365 days in a year and there are no
holidays.
5 MARKS

ANSWER

(B) (i) Schedule Showing the Distribution of Expenses of Service Departments using
Step ladder method.

Main Department Service Department

Purchase Packing Distribution Maintenance Personnel
(`) (`) (`) (`) (`)
Expenses 5,00,000 8,00,000 3,50,000 6,40,000 3,20,000
Distribution of
Maintenance
Department
(12:15:7:-:6) 1,92,000 2,40,000 1,12,000 (6,40,000) 96,000
Distribution of
Personnel
Department
(800:1700:700:-:-) 1,04,000 2,21,000 91,000 - (4,16,000)
Total 7,96,000 12,61,000 5,53,000 - -

(ii) Calculation of Expenses rate per hour of Main Department

38
 Purchase Packing Distributio
n
Total apportioned expenses 7,96,000 12,61,000 5,53,000
(`)
Total Hours worked 4,380 8,760 2,920
(12 x 365) (24 x 365) (8 x 365)
Expenses rate per hour (`) 181.74 143.95 189.38

MOCK TEST PAPER-1

(a) A machine costing ` 10 lakhs, was purchased on 01-04-2021. The expected life of the machine is
10 years. At the end of this period its scrap value is likely to be ` 10,000. The total cost of all the
machines including new one was ` 90 lakhs.
The other information is given as follows:
(i) Working hours of the machine for the year was 4,200 including 200 non-productive hours.
(ii) Repairs and maintenance for the new machine during the year was ` 6,000.
(iii) Insurance Premium was paid for all the machine ` 9,000.
(iv) New machine consumes 8 units of electricity per hour, the rate per unit being ` 3.75
(v) The new machine occupies 1/10th area of the department. Rent of the department is
` 2,400 per month.
(vi) Depreciation is charged on straight line
basis. COMPUTE machine hour rate for the new
machine. 5 MARKS

39
 ANSWER

MOCK TEST PAPER-2

QUESTION 2 B
The following account balances and distribution of indirect charges are taken from the accounts of a
manufacturing concern for the year ending on 31st March, 2021:
Total Production Service
Ite Amou Departments Departme
m nt nts
(`) X (`) Y (`) Z (`) A (`) B (`)
Indirect Material 5,00,000 80,000 1,20,00 1,80,00 1,00,00 20,000
0 0 0
Indirect Labour 10,40,000 1,80,00 2,00,00 2,80,00 2,40,00 1,40,00
0 0 0 0 0
Supervisor's 3,84,000 - - 3,84,00 - -
Salary 0

40
 Fuel & Heat 60,000
Power 7,20,000
Rent & Rates 6,00,000
Insurance of 72,000
Assets
Canteen 2,40,000
Charges
Depreciation 10,80,000
The following departmental data are also available:
Production Departments Service
Departments
X Y Z A B
Area (Sq. ft.) 4,400 4,000 3,000 2,400 1,200
Capital Value of
Assets (`) 40,00,0 60,00,0 50,00,0 10,00,0 20,00,0
00 00 00 00 00
Kilowatt Hours 3,500 4,000 3,000 1,500 -
Radiator 20 40 60 50 30
Sections
No. of 60 70 120 30 20
Employees
Expenses charged to the service departments are to be distributed to other departments by the
following percentages:
X Y Z A B
Department A (%) 30 30 20 - 20
Department B (%) 25 40 25 10 -
PREPARE an overhead distribution statement to show the total overheads of production
departments after re-apportioning service departments' overhead by using simultaneous equation
method. Show all the calculations to the nearest rupee. (10 Marks)

ANSWER

Primary Distribution of Overheads

Ite Basis Total Production Service

m Amou Departments Departments
nt (`) X (`) Y (`) Z (`) A (`) B (`)

41
Indirect Material Actual 5,00,000 80,000 1,20,000 1,80,000 1,00,00 20,000
0
Indirect Labour Actual 10,40,00 1,80,00 2,00,000 2,80,000 2,40,00 1,40,00
0 0 0 0
Supervisor’s Actual 3,84,000 - - 3,84,000 - -
Salary
Fuel & Heat Radiator 60,000 6,000 12,000 18,000 15,000 9,000
Sections
{2:4:6:5:3}
Power Kilowatt 7,20,000 2,10,00 2,40,000 1,80,000 90,000 -
Hours 0
{7:8:6:3:-}
Rent & Rates Area (Sq. ft.) 6,00,000 1,76,00 1,60,000 1,20,000 96,000 48,000
{22:20:15:12: 0
6}
Insurance Capital Value 72,000 16,000 24,000 20,000 4,000 8,000
of Assets
{4:6:5:1:2}
Canteen Charges No. of 2,40,000 48,000 56,000 96,000 24,000 16,000
Employees
{6:7:12:3:2}
Depreciation Capital Value 10,80,00 2,40,00 3,60,000 3,00,000 60,000 1,20,00
of Assets 0 0 0
{4:6:5:1:2}
Total overheads 46,96,00 9,56,00 11,72,00 15,78,00 6,29,00 3,61,00
0 0 0 0 0 0

42
 Secondary Distribution of Overheads
Production Departments
X (`) Y (`) Z
( `)
Total overhead as per primary distribution 9,56,00 11,72,00 15,78,000
0 0
Service Department A (80% of 6,78,673) 2,03,60 2,03,602 1,35,734
(3:3:2) 2
Service Department B (90% of 4,96,735) 1,24,18 1,98,694 1,24,184
(5:8:5) 4
Total 12,83,78 15,74,29 18,37,918
6 6

CHAPTER 5: ACTIVITY BASED COSTING

NOVEMBER 2019

43
 QUESTION 2

(a) PQR Ltd has decided to analyse the profitability of its five new customers. It buys soft drink
bottles in cases at ` 45 per case and sells them to retail customers at a list price of
` 54 per case. The data pertaining to five customers are given below:

Particulars
A B C D E
Number of Cases Sold 9,360 14,200 62,000 38,00 9,800
0
List Selling Price (`) 54 54 54 54 54
Actual Selling Price (`) 54 53.40 49 50.20 48.60
Number of Purchase Orders 30 50 60 50 60
Number of Customers visits 4 6 12 4 6
Number of Deliveries 20 60 120 80 40
Kilometers travelled per 40 12 10 20 60
delivery
Number of expediate 0 0 0 0 2
Deliveries
Its five activities and their cost drivers are:

Activity Cost Driver

Order taking ` 200 per purchase order
Customer visits ` 300 per each visit
Deliveries ` 4.00 per delivery km
travelled
Product Handling ` 2.00 per case sold
Expedited deliveries ` 100 per such delivery
You are required to :
(iv) Compute the customer level operating income of each of five retail customers by using the
Cost Driver rates.
(v) Examine the results to give your comments on Customer 'D' in comparison with Customer
'C' and on Customer 'E' in comparison with Customer 'A'. (10 Marks)

ANSWER

(b) Working note:

Computation of revenues (at listed price), discount, cost of goods sold and customer level operating
activities costs:
Customers
Particular A B C D E
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
44
 Revenues (at listed price) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
(`): (b) {(a) × ` 54)}
Discount (`): (c) {(a) × - 8,520 3,10,000 1,44,400 52,920
Discount per case} (14,200 (62,000 (38,000 (9,800
cases × cases × cases × cases ×
` 0.6) ` 5) ` 3.80) ` 5.40)
Cost of goods sold (`): (d) 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
{(a) × ` 45}
Customer level operating activities costs
Order taking costs (`): (No. 6,000 10,000 12,000 10,000 12,000
of purchase × ` 200)
Customer visits costs 1,200 1,800 3,600 1,200 1,800
(`) (No. of customer visits
×
` 300)
Delivery vehicles travel 3,200 2,880 4,800 6,400 9,600
costs (`) (Kms travelled by
delivery vehicles × ` 4 per
km.)
Product handling costs (`) 18,720 28,400 1,24,000 76,000 19,600
{(a) ×` 2}
Cost of expediting - - - - 200
deliveries (`)
{No. of expedited deliveries
× ` 100}
Total cost of customer level 29,120 43,080 1,44,400 93,600 43,200
operating activities (`)

(i) Computation of Customer level operating income

Customers
Particular A B C D E
(`) (`) (`) (`) (`)
Revenues 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
(At list price)
(Refer to working note)
Less: Discount - 8,520 3,10,000 1,44,400 52,920
(Refer to working note)
Revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(At actual price)
Less: Cost of goods 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
sold
(Refer to working note)
Gross margin 84,240 1,19280 2,48,000 1,97,600 35,280
Less: Customer level 29,120 43,080 1,44,400 93,600 43,200
operating activities
costs
(Refer to working note)
Customer level 55,120 76,200 1,03,600 1,04,000 (7,920)
operating income

(ii) Comments
Customer D in comparison with Customer C: Operating income of Customer D is more
than of Customer C, despite having only 61.29% (38,000 units) of the units volume sold in
45
 comparison to Customer C (62,000 units). Customer C receives a higher percent of
discount i.e. 9.26% (` 5) while Customer D receive a discount of 7.04% (` 3.80). Though the
gross margin of customer C (` 2,48,000) is more than Customer D (` 1,97,600) but total
cost of customer level operating activities of C (` 1,44,400)
is more in comparison to Customer D (` 93,600). As a result, operating income is more in
case of Customer D.
Customer E in comparison with Customer A: Customer E is not profitable while Customer
A is profitable. Customer E receives a discount of 10% (` 5.4) while Customer A doesn’t
receive any discount. Sales Volume of Customer A and E is almost same. However,
total cost of customer level operating activities of E is far more (` 43,200) in comparison to
Customer A (` 29,120). This has resulted in occurrence of loss in case of Customer E.
NOVEMBER 2020

Question 5

(B) ABC Ltd. is engaged in production of three types of Fruit Juices:

Apple, Orange and Mixed Fruit.

The following cost data for the month of March 2020 are as under:
Particulars Apple Orange Mixed
Fruit
Units produced and sold 10,000 15,000 20,000
Material per unit (`) 8 6 5
Direct Labour per unit (`) 5 4 3
No. of Purchase Orders 34 32 14
No. of Deliveries 110 64 52
Shelf Stocking Hours 110 160 170
Overheads incurred by the company during the month are as under :
( `)
Ordering costs 64,000
Delivery costs 1,58,200
Shelf Stocking costs 87,560
Required:
(i) Calculate cost driver's rate.
(ii) Calculate total cost of each product using Activity Based Costing. (6 Marks)
(C) Describe the various levels of activities under 'ABC' methodology. (4 Marks)

ANSWER

(B) (i) Calculation Cost-Driver’s rate

Overhead Cost-driver level Cost driver

Activity cost (`) rate (`)
(A) (B) (C) = (A)/(B)
Ordering 64,000 34 + 32 + 14 800
= 80 no. of purchase
46
 orders

Delivery 1,58,200 110 + 64 + 52 700

= 226 no. of deliveries
Shelf 87,560 110 + 160 + 170 199
stocking = 440 shelf stocking
hours
(ii) Calculation of total cost of products using Activity Based Costing

Particulars Fruit
Juices
Apple (`) Orange (`) Mixed Fruit (`)
Material cost 80,000 90,000 1,00,000
(10,000 x ` 8) (15,000 x ` (20,000 x ` 5)
6)
Direct labour cost 50,000 60,000 60,000
(10,000 x ` 5) (15,000 x ` (20,000 x ` 3)
4)
Prime Cost (A) 1,30,000 1,50,000 1,60,000
Ordering cost 27,200 25,600 11,200
(800 x 34) (800 x 32) (800 x 14)
Delivery cost 77,000 44,800 36,400
(700 x 110) (700 x 64) (700 x 52)
Shelf stocking 21,890 31,840 33,830
cost (199 x 110) (199 x 160) (199 x 170)
Overhead Cost (B) 1,26,090 1,02,240 81,430
Total Cost (A + 2,56,090 2,52,240 2,41,430
B)
(C) Various Level of Activities under ABC Methodology

Level of Activities Meanin

g
1. Unit level activities These are those activities for which the
consumption of resources can be identified
with the number of units
produced.
2. Batch level The activities such as setting up of a machine
activities or processing a purchase order are
performed each time
a batch of goods is produced. The cost of
batch related
activities varies with number of batches
made, but is common (or fixed) for all units
within the batch.
3. Product level These are the activities which are performed
activities to support different products in product line.

47
 4. Facilities level These are the activities which cannot be
activities directly attributed to individual products.
These activities are necessary to sustain the
manufacturing process and
are common and joint to all products
manufactured.

JANUARY 2021

Question 4

(B) ABC Ltd. manufactures three products X, Y and Z using the same plant and
resources. It has given the following information for the year ended on 31st March, 2020:

X Y Z
Production Quantity 120 144 196
(units) Cost per unit: 0 0 8
Direct Material (`) 90 84 176

Direct Labour (`) 18 20 30

Budgeted direct labour rate was ` 4 per hour and the production overheads, shown in table
below, were absorbed to products using direct labour hour rate. Company followed Absorption
Costing Method. However, the company is now considering adopting Activity Based Costing
Method.

Budgeted Cost Driver Remarks

Overheads
(`)
Material 50,000 No. of orders No. of orders was
Procurement 25 units for each
product.
Set-up 40,000 No. of production All the three
Runs products are
produced in
production runs of
48 units.
Quality Control 28,240 No. of Done for
Inspections each
production run.
Maintenance 1,28,000 Maintenance Total maintenance
hours hours were 6,400
and was allocated
in the ratio of 1:1:2
between X, Y & Z.
Required:
1. Calculate the total cost per unit of each product using the Absorption Costing Method.

48
 2. Calculate
the total cost per unit of each product using the Activity Based Costing Method. (10
Marks)
ANSWER

(a) 1. Traditional Absorption Costing

X Y Z Total
(a) Quantity (units) 1,20 1,44 1,968 4608
0 0
(b) Direct labour per unit (`) 18 20 30 -
(c) Direct labour hours (a × b)/` 4 5,40 7,20 14,76 27,36
0 0 0 0
Overhead rate per direct labour hour:

= Budgeted overheads Budgeted labour hours

= (` 50,000 + ` 40,000 + ` 28,240 + ` 1,28,000)  27,360 hours

= ` 2,46,240  27,360 hours

= ` 9 per direct labour hour

Unit Costs:

X Y Z
Direct Costs:
- Direct Labour (`) 18.00 20.00 30.00
- Direct Material (`) 90.00 84.00 176.00
Production Overhead: 40.50 45.00 67.50
(`)

Total cost per unit (`) 148.50 149.00 273.50

Calculation of Cost-Driver level under Activity Based Costing

X Y Z Total
Quantity (units) 1,200 1,440 1,968 -
No. of orders (to be 48 58 79 185
rounded off for fraction) (1200 / 25) (1440 / 25) (1968 / 25)
No. of production runs 25 30 41 96
(1200 / 48) (1440 / 48) (1968 / 48)
No. of Inspections 25 30 41 96
(done for each
production run)

49
 Maintenance hours 1,600 1,600 3,200 6400

Calculation of Cost-Driver rate

Activity Budgeted Cost-driver Cost Driver rate

Cost (`) level (`)
(a) (b) (c) = (a) / (b)
Material procurement 50,000 185 270.27
Set-up 40,000 96 416.67
Quality control 28,240 96 294.17
Maintenance 1,28,000 6,400 20.00

Calculation of total cost of products using Activity Based Costing

Particulars Product
X (`) Y (`) Z (`)
Direct Labour 18.00 20.00 30.00
Direct Material 90.00 84.00 176.00
Prime Cost per 108.00 104.00 206.00
unit (A)
Material 10.81 10.89 10.85
procurement [(48 x 270.27)/1200] [(58 x 270.27)/1440] [(79 x 270.27)/1968]
Set-up 8.68 8.68 8.68
[(25 x 416.67)/1200] [(30 x 416.67)/ 1440] [(41 x 416.67)/ 1968]
Quality control 6.13 6.13 6.13
[(25 x 294.17)/1200] [(30 x 294.17)/ 1440] [(41 x 294.17)/ 1968]
Maintenance 26.67 22.22 32.52
[(1,600 x 20)/1200] [(1,600 x 20)/ 1440] [(3,200 x 20)/ 1968]
Overhead Cost per 52.29 47.92 58.18
unit (B)
Total Cost per unit 160.29 151.92 264.18
(A + B)

Note: Question may also be solved assuming no. of orders for material
procurement to be 25 for each product.
JULY 2021

50
 Question 3

(B) PQR Ltd. is engaged in the production of three products P, Q and R. The company
calculates Activity Cost Rates on the basis of Cost Driver capacity which is provided as below:

Activity Cost Driver Cost Driver Cost (`)

Capacity
Direct Labour Labour hours 30,000 Labour 3,00,000
hours hours
Production runs No. of Production 600 Production 1,80,000
runs runs
Quality No. of Inspection 8000 Inspections 2,40,000
Inspections
The consumption of activities during the period is as under:

Activity / Products P Q R
Direct Labour hours 10,000 8,000 6,000
Production runs 200 180 160
Quality Inspection 3,000 2,500 1,500
You are required to:
(i) Compute the costs allocated to each Product from each Activity.
(ii) Calculate the cost of unused capacity for each Activity.
(iii) A potential customer has approached the company for supply of 12,000 units of a new
product. 'S' to be delivered in lots of 1500 units per quarter. This will involve an initial design
cost of ` 30,000 and per quarter production will involve the following:

Direct Material ` 18,000

Direct Labour hours 1,500
hours
No. of Production runs 15
No. of Quality Inspection 250
Prepare cost sheet segregating Direct and Indirect costs and compute the Sales value per
quarter of product 'S' using ABC system considering a markup of 20% on cost.
THIS QUESTION CAN ALSO COME UNDER CHAPTER COST SHEET (10 Marks)

(B) (i) Statement of cost allocation to each product from each activity

Product
P (`) Q (`) R (`) Total (`)
Direct Labour 1,00,000 80,000 60,000 2,40,000
hours (Refer to (10,000 Labour (8,000 Labour (6,000 Labour
working note) hours × `10) hours × `10) hours × `10)
Production runs 60,000 54,000 48,000 1,62,000
(Refer to working (200 Production (180 Production (160 Production
note) runs × ` 300) runs × ` 300) runs × ` 300)

51
Quality 90,000 75,000 45,000 2,10,000
Inspections (Refer (3,000 (2,500 (1,500
to Inspections × Inspections × Inspections ×
working note) `30) ` 30) ` 30)
Working note:

Rate per unit of cost driver

Direct Labour (` 3,00,000/30,000 ` 10 per Labour hour

hours Labour hours)
Production runs (` 1,80,000/600 ` 300 per Production
Production runs) run
Quality (` 2,40,000/8,000 ` 30 per Inspection
Inspection Inspections)
(ii) Computation of cost of unused capacity for each activity

Particulars (`)
Direct Labour hours [(` 3,00,000 – ` 2,40,000) or (6,000 x 60,000
` 10)]
Production runs [(` 1,80,000 – ` 1,62,000) or (60 x ` 300)] 18,000
Quality Inspection [(` 2,40,000 – ` 2,10,000) or (1,000 x ` 30,000
30)]
Total cost of unused capacity 1,08,000
Particulars (`)
Direct Labour hours [(` 3,00,000 – ` 2,40,000) or (6,000 x 60,000
` 10)]
Production runs [(` 1,80,000 – ` 1,62,000) or (60 x ` 300)] 18,000

(ii) Cost sheet and Computation of Sales value per quarter of product ‘S’ using ABC
system

Particulars (`)
1500 units of product ‘S’ to be delivered per quarter
Initial design cost per quarter (` 30,000 / 8 quarters) 3,750
Direct Material Cost 18,000
Direct Labour Cost (1,500 Labour hours x ` 10) 15,000
Direct Costs (A) 36,750
Set up Cost (15 Production runs × ` 300) 4,500
Inspection Cost (250 Inspections × ` 30) 7,500
Indirect Costs (B) 12,000
Total Cost (A + B) 48,750
Add: Mark-up (20% on cost) 9,750

52
 Sale Value 58,500
Selling Price per unit ‘S’ (` 58,500/1500 units) 39

MOCK TEST PAPER-1

QUES 2 B

(b) Breezle Ltd has decided to analyse the profitability of its five new customers. It buys soft drink
bottles in cases at ` 54 per case and sells them to retail customers at a list price of ` 64.80 per
case. The data pertaining to five customers are given below:
Particulars Custome
rs
Aey Bee Cee Dee Eey
Number of Cases Sold 9,360 14,200 62,000 38,000 9,800
List Selling Price (`) 64.80 64.80 64.80 64.80 64.80
Actual Selling Price (`) 64.80 64.08 58.80 60.24 58.32
Number of Purchase Orders 30 50 60 50 60
Number of Customers visits 4 6 12 4 6
Number of Deliveries 20 60 120 80 40
Kilometers travelled per delivery 40 12 10 20 60
Number of expediate Deliveries 0 0 0 0 2
Its five activities and their cost drivers are:
Activity Cost Driver
Order taking ` 240 per purchase order
Customer visits ` 360 per each visit
Deliveries ` 4.80 per delivery km
travelled
Product Handling ` 2.40 per case sold
Expedited ` 120 per such delivery
deliveries
You are REQUIRED to :
(i) Compute the customer level operating income of each of five retail customers by using the
Cost Driver rates.
(ii) Examine the results to give your comments on Customer 'Dee' in comparison with Customer
'Cee' and on Customer 'Eey' in comparison with Customer 'Aey'. (10
Marks)
ANSWER

(b) Working note:

53
 Computation of revenues (at listed price), discount, cost of goods sold and customer
level operating activities costs:

Custome
Particulars rs
Aey Bee Cee Dee Eey
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at listed 6,06,52 9,20,160 40,17,600 24,62,400 6,35,040
price) (`): (b) {(a) × ` 8
64.80)}
Discount (`): (c) {(a) × - 10,224 3,72,000 1,73,280 63,504
Discount per case} (14,200 (62,000 (38,000 (9,800 cases
cases × cases × cases × ×
` 0.72) ` 6) ` 4.56) ` 6.48)
Cost of goods sold (`): 5,05,44 7,66,800 33,48,000 20,52,000 5,29,200
(d) 0
{(a) × ` 54}
Customer level operating activities costs
Order taking costs 7,200 12,000 14,400 12,000 14,400
(`): (No. of purchase
× ` 240)
Customer visits costs 1,440 2,160 4,320 1,440 2,160
(`) (No. of customer
visits
× ` 360)
Delivery vehicles 3,840 3,456 5,760 7,680 11,520
travel costs (`) (Kms
travelled by delivery
vehicles × `
4.80 per km.)
Product handling costs 22,464 34,080 1,48,800 91,200 23,520
(`)
{(a) ×` 2.40}
Cost of expediting - - - - 240
deliveries (`)
{No. of expedited
deliveries × ` 120}
Total cost of 34,944 51,696 1,73,280 1,12,320 51,840
customer level
operating activities (`)
(i) Computation of Customer level operating income
Custome
Particulars rs
Aey (`) Bee (`) Cee (`) Dee (`) Eey (`)
Revenues 6,06,528 9,20,160 40,17,6 24,62,400 6,35,040
(At list 00
price)
(Refer to working note)
Less: Discount - 10,224 3,72,00 1,73,280 63,504
(Refer to working note) 0

54
 Revenue 6,06,528 9,09,936 36,45,6 22,89,120 5,71,536
(At actual price) 00
Less: Cost of goods sold 5,05,440 7,66,800 33,48,0 20,52,000 5,29,200
(Refer to working note) 00
Gross margin 1,01,088 1,43,136 2,97,60 2,37,120 42,336
0
Less: Customer level operating 34,944 51,696 1,73,28 1,12,320 51,840
activities costs 0
(Refer to working note)
Customer level operating 66,144 91,440 1,24,32 1,24,800 (9,504)
income 0
(ii) Comments
Customer Dee in comparison with Customer Cee: Operating income of Customer Dee
is more than that of Customer Cee, despite having only 61.29% (38,000 units) of the units
volume sold in comparison to Customer Cee (62,000 units). Customer Cee receives a higher
percent of discount i.e. 9.26% (` 6) while Customer Dee receive a discount of 7.04% (` 4.56).
Though the gross margin of customer Cee (` 2,97,600) is more than that of Customer Dee
(` 2,37,120) but total cost of customer level operating activities of Cee (` 1,73,280 ) is more
in comparison to Customer Dee (` 1,12,320). As a result, operating income is more in case
of Customer Dee.
Customer Eey in comparison with Customer Aey: Customer Eey is not profitable while
Customer Aey is profitable. Customer Eey receives a discount of 10% (` 6.48) while
Customer Aey doesn’t receive any discount. Sales Volume of Customer Aey and Eey
is almost same. However, total cost of customer level operating activities of Eey is far more
(` 51,840) in comparison to Customer Aey (` 34,944). This has resulted in occurrence of loss
in case of Customer Eey.
MOCK TEST PAPER-2

QUES 5 A

1. (a) The following budgeted information relates to B Ltd. for the year 2021:
Produc
ts
X Y Z
Production and Sales (units) 1,00,00 80,00 60,00
0 0 0
(`) (`) (`)
Selling price per unit 45 90 70
Direct cost per unit 25 45 50
Hours Hour Hour
s s
Machine department 3 4 5
(machine hours per
unit)
Assembly department 6 4 3
(direct labour hours per
unit)
The estimated overhead expenses for the year 2021 will be as below:
55
 Machine Department ` 36,80,000
Assembly Department ` 27,50,000
Overhead expenses are apportioned to the products on the following basis:
Machine Department On the basis of machine hours
Assembly Department On the basis of labour hours
After a detailed study of the activities the following cost pools and their respective cost drivers
are found:

Cost Pool Amount (`) Cost Quantity

Driver
Machining 32,20,000 Machine hours 9,20,000 hours
services
Assembly services 22,00,000 Direct labour hours 11,00,000
hours
Set-up costs 4,50,000 Machine set-ups 9,000 set-ups
Order processing 3,60,000 Customer orders 7,200 orders

Purchasing 2,00,000 Purchase orders 800 orders

As per an estimate the activities will be used by the three products:

Produc
ts
X Y Z
Machine set-ups 4,500 3,000 1,500
Customer orders 2,200 2,400 2,600
Purchase orders 300 350 150
You are required to PREPARE a product-wise profit statement using:
(i) Absorption costing method;
(ii) Activity-based method. (10 Marks)
ANSWER

(a) (i) Profit Statement using Absorption costing method:

Particulars Produ Total

ct
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per unit (`) 45 90 70
C. Sales Value (`) [A×B] 45,00,000 72,00,000 42,00,000 1,59,00,00
0
D. Direct cost per unit (`) 25 45 50
E. Direct Cost (`) [A×D] 25,00,000 36,00,000 30,00,000 91,00,000
56
F. Overheads:
(i) Machine department (`) 12,00,000 12,80,000 12,00,000 36,80,000
(Working note-1)
(ii) Assembly department 15,00,000 8,00,000 4,50,000 27,50,000
(`) (Working note-1)
G. Total Cost (`) [E+F] 52,00,000 56,80,000 46,50,000 1,55,30,00
0
H. Profit (C-G) (7,00,000) 15,20,000 (4,50,000 3,70,000
)
Profit Statement using Activity based costing (ABC) method:
Particulars Produ Total
ct
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling price per unit (`) 45 90 70
C. Sales Value (`) [A×B] 45,00,000 72,00,000 42,00,00 1,59,00,000
0
D. Direct cost per unit (`) 25 45 50
E. Direct Cost (`) [A×D] 25,00,000 36,00,000 30,00,00 91,00,000
0
F. Overheads:
(Ref
er working note-3)
(i) Machining services (`) 10,50,000 11,20,000 10,50,00 32,20,000
0
(ii) Assembly services (`) 12,00,000 6,40,000 3,60,000 22,00,000
(iii) Set-up costs (`) 2,25,000 1,50,000 75,000 4,50,000
(iv Order processing (`) 1,10,000 1,20,000 1,30,000 3,60,000
)
(v) Purchasing (`) 75,000 87,500 37,500 2,00,000
G. Total Cost (`) [E+F] 51,60,000 57,17,500 46,52,50 1,55,30,000
0
H. Profit (`) (C-G) (6,60,000) 14,82,500 (4,52,50 3,70,000
0)
Working Notes:

(1)

Produc
ts
X Y Z Total
A. Production (units) 1,00,000 80,000 60,000
B. Machine hours 3 4 5
per unit

57
 C. Total Machine 3,00,000 3,20,000 3,00,000
9,20,00
hours [A×B] 0
D. Rate per hour (`) 4 4 4

E. Machine Dept. 12,00,00 12,80,00 12,00,00

cost [C×D] 0 0 0
F. Labour hours per 6 4 3
unit
G Total labour hours 6,00,000 3,20,000 1,80,000
. [A×F]
H. Rate per hour (`) 2.5 2.5 2.5

I Assembly Dept. 15,00,00 8,00,000 4,50,000

cost [G×H] 0
Machine hour rate = =`4
9,20,000 hours
` 27,50,000
Labour hour rate = = ` 2.5
11,00,000 hours
2. Calculation of cost driver rate

Cost Pool Amount (`) Cost Driver Quantity Driv

er
rate
(`)
Machining 32,20,000 Machine 9,20,000 3.50
services hours hours
Assembly 22,00,000 Direct labour 11,00,000 2.00
services hours
hours
Set-up costs 4,50,000 Machine set- 9,000 set- 50.00
ups ups
Order 3,60,000 Customer 7,200 orders 50.00
processing orders
Purchasing 2,00,000 Purchase 800 orders 250.00
orders
3. Calculation of activity-wise cost
Produc
ts
X Y Z Total
A. Machining hours (Refer 3,00,00 3,20,000 3,00,00 9,20,00
Working note-1) 0 0 0
B. Machine hour rate (`) 3.5 3.5 3.5
(Refer Working note-2)

58
 C. Machining services cost 10,50,0 11,20,00 10,50,0 32,20,0
(`) [A×B] 00 0 00 00
D. Labour hours (Refer 6,00,00 3,20,000 1,80,00 11,00,0
Working note-1) 0 0 00
E. Labour hour rate (`) 2 2 2
(Refer Working note-2)
F. Assembly services cost 12,00,0 6,40,000 3,60,00 22,00,0
(`) [D×E] 00 0 00
G. Machine set-ups 4,500 3,000 1,500 9,000

H. Rate per set-up (`) 50 50 50

(Refer Working
note-2)
I. Set-up cost (`) [G×H] 2,25,00 1,50,000 75,000 4,50,00
0 0
J. Customer orders 2,200 2,400 2,600 7,200

K. Rate per order (`) 50 50 50

(Refer Working
note-2)
L. Order processing cost 1,10,00 1,20,000 1,30,00 3,60,00
(`) [J×K] 0 0 0
M. Purchase orders 300 350 150 800

N. Rate per order (`) 250 250 250

(Refer Working
note-2)
O. Purchasing cost (`) [M×N] 75,000 87,500 37,500 2,00,00
0

CHAPTER 6: COST SHEET

NOVEMBER 2019

Question 1
(b) The following data is presented by the supervisor of a factory for a Job:

` per unit

Direct Material 120

Direct Wages @ ` 4 per hour
(Departments A-4 hrs, B-7 hrs, C-2 hrs & D-2 60
hrs)
Chargeable Expenses 20
Total 200

59
 Analysis of the Profit and Loss Account for the year
ended 31st March, 2019

Material 2,00,000 Sales 4,30,000

Direct Wages
Dept. A 12,000
Dept. B 8,000
Dept. C 10,000
Dept. D 20,000 50,000
Special Store items 6,000
Overheads
Dept. A 12,000
Dept. B 6,000
Dept. C 9,000
Dept. D 17,000 44,000
Gross Profit c/d 1,30,000
4,30,000
Selling Expenses 90,000
Net Profit 40,000
1,30,000

It is also to be noted that average hourly rates for all the four departments are
similar. Required:

(i) Prepare a Job Cost Sheet.

(ii) Calculate the entire revised cost using the above figures as the base.
(iii) Add 20% profit on selling price to determine the selling price. 5 marks
Answer
(b) Job Cost Sheet

Customer Details ——— Job No._________________

Date of commencement —— Date of completion _________
Particulars Amount (`)
Direct materials 120
Direct wages:
Deptt. A ` 4.00 × 4 hrs. ` 16.00
Deptt. B ` 4.00 × 7 hrs. ` 28.00
Deptt. C ` 4.00 × 2 hrs. ` 8.00
Deptt. D ` 4.00 × 2 hrs. ` 8.00 60
Chargeable expenses 20
Prime cost 200
Overheads

60
 Deptt. A = `12,000 × 100 =100% of ` 16 ` 16
` 12,000
Deptt. B = ` 6,000 × 100 = 75% of ` 28 ` 21
` 8,000
Deptt. C = ` 9,000 × 100 = 90% of ` 8 ` 7.20
` 10,000
= ` 9,000 × 100 = 90% of ` 8 = ` 7.20
` 10,000
Deptt. D = ` 17,000 × 100 = 85% of ` 8 ` 6.80 51.00
` 20,000
Works cost 251.00
Selling expenses = ` 90,000 ×100 = 30% of work cost 75.30
` 3,00,000
Total cost 326.30
Profit (20% profit on selling price i.e 25% of total cost) 81.58
Selling price 407.88
Question 3

(b) XYZ a manufacturing firm, has revealed following information for September ,2019:

1st September 30th September

(`) (`)

Raw Materials 2,42,000 2,92,000

Works-in-progress 2,00,000 5,00,000

The firm incurred following expenses for a targeted production of 1,00,000

61
 units during the month :

ANSWER
(b) Workings:
1. Calculation of Sales Quantity:
Particular Units
Production units 1,00,000
Less: Defectives (4%×1,00,000 units) 4,000
Less: Closing stock of finished goods 5,000
No. of units sold 91,000
2. Calculation of Cost of Production
Particular Amount (`)
Cost of Goods sold (given) 78,26,000
62
 Add: Value of Closing finished goods 4,30,000
 ` 78,26,000  
91,000 units 5,000 units
 
Cost of Production 82,56,000
3. Calculation of Factory Cost
Particular Amount (`)
Cost of Production 82,56,000
Less: Quality Control Cost (2,00,000)
Less: Research and Development Cost (2,50,000)
Add: Credit for Recoveries/Scrap/By- 2,44,000
Products/ misc. income (1,00,000 units ×
4% × ` 61)
Factory Cost 80,50,000
4. Calculation of Gross Factory Cost
Particular Amount (`)
Cost of Factory Cost 80,50,000
Less: Opening Work in Process (2,00,000)
Add: Closing Work in Process 5,00,000
Cost of Gross Factory Cost 83,50,000
1. Calculation of Prime Cost
Particular Amount (`)
Cost of Gross Factory Cost 83,50,000
Less: Consumable stores & spares (3,50,000)
Less: Lease rental of production assets (2,00,000)
Prime Cost 78,00,000
2. Calculation of Cost of Materials Consumed & Labour cost
Let Cost of Material Consumed = M and Labour cost = 0.5M
Prime Cost = Cost of Material Consumed + Labour Cost
78,00,000 = M + 0.5M
M = 52,00,000
Therefore, Cost of Material Consumed = ` 52,00,000 and
Labour Cost = ` 26,00,000
(i) Calculation of Value of Materials Purchased
Particular Amount (`)
Cost of Material Consumed 52,00,000
Add: Value of Closing stock 2,92,000
Less: Value of Opening stock (2,42,000)
Value of Materials Purchased 52,50,000
63
 Cost Sheet

Sl. Particulars Total

Cost
(`)
1. Direct materials consumed:
Opening Stock of Raw Material 2,42,000
Add: Additions/ Purchases [balancing figure as 52,50,000
per requirement (i)]
Less: Closing stock of Raw Material (2,92,000)
Material Consumed 52,00,000
2. Direct employee (labour) cost 26,00,000
3. Prime Cost (1+2) 78,00,000
4. Add: Works/ Factory Overheads Consumable
stores and spares Lease rent of production asset 3,50,000
2,00,000
5. Gross Works Cost (3+4) 83,50,000
6. Add: Opening Work in Process 2,00,000
7. Less: Closing Work in Process (5,00,000)
8. Works/ Factory Cost (5+6-7) 80,50,000
9. Add: Quality Control Cost 2,00,000
10. Add: Research and Development Cost 2,50,000
11. Less: Credit for Recoveries/Scrap/By- (2,44,000)
Products/misc. income
12. Cost of Production (8+9+10-11) 82,56,000
13. Add: Opening stock of finished goods -
14. Less: Closing stock of finished goods (5000 (4,30,000)
Units)
15. Cost of Goods Sold (12+13-14) 78,26,000
16. Add: Administrative Overheads (General) 2,24,000
17. Add: Secondary packing 1,82,000
18. Add: Selling Overheads& Distribution Overheads 4,13,000
19. Cost of Sales (15+16+17+18) 86,45,000
20. Profit 13,65,000
21. Sales 91,000 units@ ` 110 per unit 1,00,10,0
00

NOVEMBER 2020

QUESTION 2

(a) X Ltd. manufactures two types of pens 'Super Pen' and 'Normal Pen'. The
cost data for the year ended 30th September, 2019 is as follows:
( `)

64
 Direct Materials 8,00,000
Direct Wages 4,48,000
Production Overhead 1,92,000
Total 14,40,000

It is further ascertained that :

(1) Direct materials cost in Super Pen was twice as much of direct material in Normal Pen.
(2) Direct wages for Normal Pen were 60% of those for Super Pen.
(3) Production overhead per unit was at same rate for both the types.
(4) Administration overhead was 200% of direct labour for each.
(5) Selling cost was ` 1 per Super pen.
(6) Production and sales during the year were as follow :
Producti Sale
on s
No. of No. of
units units
Super Pen 40,000 Super Pen 36,000
Normal 1,20,000
Pen
(7) Selling price was ` 30 per unit for Super Pen.
Prepare a Cost Sheet for 'Super Pen' showing:
(i) Cost per unit and Total Cost
(ii) Profit per unit and Total Profit (10 Marks)

65
 ANSWER

JANUARY 2021

66
 Question 2

(B) The following data are available from the books and records of Q Ltd. for the month
of April 2020:
Direct Labour Cost = ` 1,20,000 (120% of Factory Overheads)
Cost of Sales = ` 4,00,000
Sales = ` 5,00,000
Accounts show the following figures:
1st April, 30th April,
2020 (`) 2020 (`)
Inventory:
Raw material 20,00 25,00
0 0
Work-in-progress 20,00 30,00
0 0
Finished goods 50,00 60,00
0 0
Other details:
Selling expenses 22,00
0
General & Admin. expenses 18,00
0
You are required to prepare a cost sheet for the month of April 2020 showing:
1. Prime Cost
2. Works Cost
3. Cost of Production
4. Cost of Goods sold
5. Cost of Sales and Profit earned. (10 Marks)

Answer
(b) Cost Sheet for the Month of April 2020

Particulars (`)
Opening stock of Raw Material 20,000
Add: Purchases [Refer Working Note-2] 1,65,000
Less: Closing stock of Raw Material (25,000)
Raw material consumed 1,60,000
Add: Direct labour cost 1,20,000
Prime cost 2,80,000
Add: Factory overheads 1,00,000
Gross Works cost 3,80,000
Add: Opening work-in-progress 20,000
Less: Closing work-in-progress (30,000)

67
 Works Cost 3,70,000
Cost of Production 3,70,000
Add: Opening stock of finished goods 50,000
Less: Closing stock of finished goods (60,000)
Cost of goods sold 3,60,000
Add: General and administration expenses* 18,000
Add: Selling expenses 22,000
Cost of sales 4,00,000
Profit {Balancing figure (` 5,00,000 – ` 4,00,000)} 1,00,000
Sales 5,00,000
*General and administration expenses have been assumed as not relating to the
production activity.

Working Note:
1. Computation of the raw material consumed
Particulars (`)
Cost of Sales 4,00,000
Less: General and administration expenses (18,000)
Less: Selling expenses Cost of (22,000)
goods sold 3,60,000
Add: Closing stock of finished goods 60,000
Less: Opening stock of finished goods Cost (50,000)
of production/Gross works cost Add: Closing 3,70,000
stock of work-in-progress Less: Opening 30,000
stock of work-in-progress Works cost (20,000)
 ` 1,20,000 
Less: Factory overheads  100  3,80,000
120
 
Prime cost (1,00,000)
Less: Direct labour 2,80,000
Raw material consumed (1,20,000)
1,60,000

2. Computation of the raw material purchased

Particulars (`)
Closing stock of Raw Material 25,000
Add: Raw Material consumed 1,60,000
Less: Opening stock of Raw Material (20,000)
Raw Material purchased 1,65,000
Question 3

68
 (B) XYZ Ltd. is engaged in the manufacturing of toys. It can produce
4,20,000 toys at its 70% capacity on per annum basis. Company is in the process of
determining sales price for the financial year 2020-21. It has provided the following
information:

Direct Material ` 60 per unit Direct

Labour ` 30 per unit
Indirect Overheads:
Fixed ` 65,50,000 per annum
Variable ` 15 per unit
Semi-variable ` 5,00,000 per annum up to 60% capacity and ` 50,000 for every 5%
increase in capacity or part thereof up to 80% capacity and thereafter `
75,000 for every 10% increase in capacity or part thereof.
Company desires to earn a profit of ` 25,00,000 for the year. Company has planned that the
factory will operate at 50% of capacity for first six months of the year and at 75% of capacity for
further three months and for the balance three months, factory will operate at full capacity.
You are required to :
(1) Determine the average selling price at which each of the toy should be sold to earn the
desired profit.
(2) Given the above scenario, advise whether company should accept an offer to sell each
Toy at:
(a) ` 130 per Toy
(b) ` 129 per Toy (10 Marks)

Answer

(B) (1) Statement of Cost

For For For Total

first 6 further remaining
mont 3 3 months
hs month
s
6,00,000 6,00,000 6,00,000
x x x
6/12 x 3/12 x 3/12 4,12,50
50% 75% = 0
= = 1,50,000 units
69
 1,50,000 1,12,500 units
units units

Direct Material 90,00,000 67,50,000 90,00,000 2,47,50,0

00
Direct labour 45,00,000 33,75,000 45,00,000 1,23,75,0
00
Indirect – Variable 22,50,000 16,87,500 22,50,000 61,87,500
Expenses
Indirect – Fixed 32,75,000 16,37,500 16,37,500 65,50,000
Expenses
Indirect Semi-
variable expenses
- For first six months 2,50,000
@ 5,00,000 per
annum
- For further three 1,62,500
months @ 6,50,000*
per annum
- For further three 2,12,500 6,25,000
months @
8,50,000** per
annum
Total Cost 1,92,75,00 1,36,12,5 1,76,00,000 5,04,87,5
0 00 00
Desired Profit 25,00,000
Sales value 5,29,87,5
00
Average Sales price per Toy 128.45
* ` 5,00,000+ [3 times (from 60% to 75%) x 50,000] = ` 6,50,000

** ` 6,50,000+ [1 time (from 75% to 80%) x 50,000] + [2 times (from 80% to 100%)

× 75,000] = ` 8,50,000

(2) (a) Company Should accept the offer as it is above its targeted sales price of

` 128.45 per toy.

(b) Company Should accept the offer as it is above its targeted sales price of

` 128.45 per toy.

JULY 2021

QUESTION 2
(a) The following data relates to manufacturing of a standard product during the month of March,
2021:
70
 Particulars Amount (in
`)
Stock of Raw material as on 01-03-2021 80,000
Work in Progress as on 01-03-2021 50,000
Purchase of Raw material 2,00,000
Carriage Inwards 20,000
Direct Wages 1,20,000
Cost of special drawing 30,000
Hire charges paid for Plant 24,000
Return of Raw Material 40,000
Carriage on return 6,000
Expenses for participation in Industrial exhibition 8,000
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000
Depreciation on Delivery van 6,000
Warehousing charges 1,500
Stock of Raw material as on 31-03-2021 30,000
Stock of Work in Progress as on 31-03-2021 24,000
• Store overheads on materials are 10% of material consumed.
• Factory overheads are 20% of the Prime cost.
• 10% of the output was rejected and a sum of ` 5,000 was realized on sale of scrap.
• 10% of the finished product was found to be defective and the defective products were
rectified at an additional expenditure which is equivalent to 20% of proportionate direct
wages.
• The total output was 8000 units during the month.
You are required to prepare a Cost Sheet for the above period showing the:
(i) Cost of Raw Material consumed.
(ii) Prime Cost
(iii) Work Cost
(iv) Cost of Production
(v) Cost of Sales (10 Marks)
Answer
(a) Statement of Cost for the month of March, 2021
Particulars Amoun Amount
t (`)
(`)
(i) Cost of Material Consumed:
Raw materials purchased (` 2,00,000 – ` 1,60,00
40,000) 0
Carriage inwards 20,000
71
 Add: Opening stock of raw materials 80,000
Less: Closing stock of raw materials (30,000 2,30,000
)
Direct Wages 1,20,000
Direct expenses:
Cost of special drawing 30,000
Hire charges paid for Plant 24,000 54,000
(ii) Prime Cost 4,04,00
0
Carriage on return 6,000
Store overheads (10% of material consumed) 23,000
Factory overheads (20% of Prime cost) 80,800
Additional expenditure for rectification of
defective products (refer working note) 2,160
Gross factory cost
Add: Opening value of W-I-P
Less: Closing value of W-I-P
(iii) Works/ Factory Cost
Less: Realisable value on sale of scrap
(iv) Cost of Production
Add: Opening stock of finished goods
Less: Closing stock of finished goods
Cost of Goods Sold
Administrative overheads:
Maintenance of office building 2,000
Salary paid to Office staff 25,000
Legal Charges 2,500
Selling overheads:
8,000
Expenses for participation in Industrial exhibition
Distribution overheads:
Depreciation on delivery van 6,000
Warehousing charges 1,500
(v) Cost of Sales

72
 Alternative Solution

(considering Hire charges paid for Plant as indirect expenses)

Statement of Cost for the month of March, 2021

Particulars Amount Amoun

(`) t
(`)
Cost of Material Consumed:
Raw materials purchased (` 2,00,000 – ` 40,000) 1,60,000
Carriage inwards 20,000
Add: Opening stock of raw materials 80,000
Less: Closing stock of raw materials (30,000) 2,30,00
0
Direct Wages 1,20,00
0
Direct expenses:
30,000
30,000
Cost of special drawing
Prime Cost 3,80,00
0
73
Hire charges paid for Plant 24,000

Carriage on return 6,000

Store overheads (10% of material consumed) 23,000

Factory overheads (20% of Prime cost) 76,000

Additional expenditure for rectification of defective

products (refer working note) 2,160
1,31,16
0
Gross factory cost 5,11,16
0
Add: Opening value of W-I-P 50,000
Less: Closing value of W-I-P (24,000
)
Works/ Factory Cost 5,37,16
0
Less: Realisable value on sale of scrap (5,000)
Cost of Production 5,32,16
0
Add: Opening stock of finished goods -
Less: Closing stock of finished goods -
Cost of Goods Sold 5,32,16
0
Administrative overheads:
Maintenance of office building 2,000

Salary paid to Office staff 25,000

Legal Charges 2,500 29,500

Selling overheads:
8,000
Expenses for participation in Industrial exhibition 8,000
Distribution overheads:
Depreciation on delivery van 6,000

Warehousing charges 1,500 7,500

Cost of Sales 5,77,16
0
Working Notes:
1. Number of Rectified units
Total Output 8,000 units
Less: Rejected 10% 800 units

Finished product 7,200 units

Rectified units (10% of finished product) 720 units

2. Proportionate additional expenditure on 720 units

74
 = 20% of proportionate direct wages

= 0.20 x (` 1,20,000/8,000) x 720

= ` 2,160

MOCK TEST PAPER -1

QUES 3 B
(b) Xim Ltd. manufactures two types of boxes 'Super' and 'Normal'. The cost data for the year ended
31st March, 2021 is as follows:
(`)
Direct Materials 12,00,000
Direct Wages 6,72,000
Production Overhead 2,88,000
Total 21,60,000

There was no work-in-progress at the beginning or at the end of year. It is further ascertained that:
1. Direct materials cost per unit in ‘Super’ was twice as much of direct material in ‘Normal’.
2. 2% cash discount was received for payment made within 30 days to the creditors of Direct
materials.
3. Direct wages per unit for ‘Normal’ were 60% of those of ‘Super’.
4. Production overhead per unit was at same rate for both the types of boxes.
5. Administration overhead was 200% of direct labour for each type.
6. Selling cost was ` 1 per ‘Super’ type.
7. Production and sales during the year were as follows:
Producti Sale
on s
Type No. of units Type No. of
units
Super 60,000 Super 54,000
Normal 1,80,000
8. Selling price was ` 30 per unit for ‘Super’.
9. Company was also involved in a copyright infringement case related to the manufacturing
process of ‘Super’ production. As per the verdict, it had to pay penalty of ` 50,000.
PREPARE Cost Sheet of Xim Ltd. for ‘Super’ showing:
(i) Cost per unit and Total Cost
(ii) Profit per unit and Total Profit (10
Marks)
ANSWER

(b) Cost Sheet of ‘Super’

Particulars Per unit Total (`)
(`)
Direct materials (Working note- (i)) 8.00 4,80,000

75
 Direct wages (Working note- (ii)) 4.00 2,40,000
Prime cost 12.00 7,20,000
Production overhead (Working note- (iii)) 1.20 72,000
Factory Cost 13.20 7,92,000
Administration Overhead (200% of direct wages) 8.00 4,80,000
Cost of production 21.20 12,72,000
Less: Closing stock (60,000 units – 54,000 units) - 1,27,200
Cost of goods sold i.e. 54,000 units 21.20 11,44,800
Selling cost 1.00 54,000
Cost of sales/ Total cost 22.20 11,98,800
Profit 7.80 4,21,200
Sales value (` 30 × 54,000 units) 30.00 16,20,000

MOCK TEST PAPER-2

QUES 4 A
1. (a) G Ltd. has the following expenditures for the year ended 31st March, 2021:
Sl. No. Amount (`) Amount (`)
(i) Raw materials purchased 20,00,00,000
(ii) Freight inward 22,41,200

76
 (iii) Wages paid to factory workers 58,40,000
(iv) Royalty paid for production 3,45,200
(v) Amount paid for power & fuel 9,24,000
(vi) Job charges paid to job workers 16,24,000
(vii) Stores and spares consumed 2,24,000
(viii) Depreciation on office building 1,12,000
(ix) Repairs & Maintenance paid for: 96,000
- Plant & Machinery
- Sales office building 36,000 1,32,000
(x) Insurance premium paid for:
- Plant & Machinery 62,400
- Factory building 36,200 98,600
(xi) Expenses paid for quality control 39,200
check activities
(xii) Research & development cost 36,400
paid improvement in
production process
(xiii) Expenses paid for pollution control 53,200
and engineering & maintenance
(xiv) Salary paid to Sales & Marketing 20,24,000
Managers:
(xv) Salary paid to General Manager 25,12,000
(xvi) Packing cost paid for:
- Primary packing necessary 1,92,000
to maintain quality
- For re-distribution of finished 2,24,000 4,16,000
goods
(xvii) Performance bonus paid to sales 7,20,000
staffs
(xviii) Value of stock as on 1st April, 2020:
- Raw materials 36,00,000
- Work-in-process 18,40,000
- Finished goods 22,00,000 76,40,000
(xix) Value of stock as on 31st March, 2021:
- Raw materials 19,20,000
- Work-in-process 17,40,000
- Finished goods 36,40,000 73,00,000
Amount realized by selling of scrap and waste generated during manufacturing process –
`1,72,000/-
From the above data you are requested to PREPARE Statement of cost for G Ltd. for the year
ended 31st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv)
Cost of goods sold and (v) Cost of sales. (10 Marks)
ANSWER

77
 (a) Statement of Cost of G Ltd. for the year ended 31st March, 2021:
Sl. No. Particulars Amount (`) Amount (`)

(i) Material Consumed:

- Raw materials purchased 20,00,00,0
00
- Freight inward 22,41,200
Add: Opening stock of raw 36,00,000
materials
Less: Closing stock of raw (19,20,000) 20,39,21,200
materials
(ii) Direct employee (labour) cost:
- Wages paid to factory 58,40,000
workers
(iii) Direct expenses:
- Royalty paid for production 3,45,200
- Amount paid for power & 9,24,000
fuel
- Job charges paid to job 16,24,000 28,93,200
workers
Prime Cost 21,26,54,400
(iv) Works/ Factory overheads:
- Stores and spares 2,24,000
consumed
- Repairs & Maintenance 96,000
paid for plant & machinery
- Insurance premium paid 62,400
for plant & machinery
- Insurance premium paid 36,200
for factory building
- Expenses paid for
pollution control and 53,200 4,71,800
engineering & maintenance
Gross factory cost 21,31,26,200
Add: Opening value of W-I-P 18,40,000
Less: Closing value of W-I-P (17,40,000)
Factory Cost 21,32,26,200
(v) Quality control cost:
- Expenses paid for quality 39,200
control check activities
(vi) Research & development cost paid 36,400
improvement in production process

(vii) Less: Realisable value on sale of (1,72,000)

scrap and waste
78
 (viii) Add: Primary packing cost 1,92,000
Cost of Production 21,33,21,800
Add: Opening stock of finished 22,00,000
goods
Less: Closing stock of finished (36,40,000)
goods
Cost of Goods Sold 21,18,81,800
(ix) Administrative overheads:
- Depreciation on office 1,12,000
building
- Salary paid to General 25,12,000 26,24,000
Manager
(x) Selling overheads:
- Repairs & Maintenance 36,000
paid for sales office building
- Salary paid to Manager- 20,24,000
Sales & Marketing
- Performance bonus paid to
sales staffs 7,20,000 27,80,000
(xi) Distribution overheads:
- Packing cost paid for
re- distribution of finished 2,24,000
goods
Cost of Sales 21,75,09,800

CHAPTER 7: COST ACCOUNTING SYSTEM

NOVEMBER 2019

Question 6
Answer any four of the following:

(B) Journalise the following transactions in cost books under Non-Integrated system of
Accounting.

(i) Credit Purchase of Material ` 27,000

(ii) Manufacturing overhead charged to Production ` 6,000
(iii) Selling and Distribution overheads recovered from Sales ` 4,000
(iv) Indirect wages incurred ` 8,000
(v) Material returned from production to stores ` 9,000
5 MARKS

79
 Answer
(B)Journal entries are as follows:
Dr. Cr.
(`) (`)
(i) Stores Ledger Control A/c…………………… Dr. 27,000
To Cost Ledger Control A/c 27,000
(ii) Work-in-Process Control Dr. 6,000
A/c........................... 6,000
To Manufacturing Overhead Control A/c
(iii) Cost of Sales A/c……………………………… Dr. 4,000
To Selling & Dist. Overhead Control A/c 4,000
(iv) (1) Wage Control A/c…………………… Dr. 8,000
To Cost Ledger Control A/c 8,000
(2) Manufacturing Overhead Control A/c……… Dr. 8,000
To Wages Control A/c 8,000
O
R
Manufacturing Overhead Control A/c……………. Dr. 8,000
To Cost Ledger Control A/c 8,000
(v) Stores Ledger Control A/c ……………………… Dr. 9,000
To Work-in-Process Control A/c 9,000
*Cost Ledger Control A/c is also known as General Ledger Control A/c

NOVEMBER 2020

Question 6

(C) Explain what are the pre-requisites of integrated accounting.

Answer
(C) The essential pre-requisites for integrated accounts include the following steps:

• The management’s decision about the extent of integration of the two sets of books. Some
concerns find it useful to integrate up to the stage of prime cost or factory cost while other
prefer full integration of the entire accounting records.
• A suitable coding system must be made available so as to serve the accounting purposes of
financial and cost accounts.
• An agreed routine, with regard to the treatment of provision for accruals, prepaid expenses,
other adjustment necessary for preparation of interim accounts.
• Perfect coordination should exist between the staff responsible for the financial and cost
aspects of the accounts and an efficient processing of accounting documents should be
ensured.
• Under this system there is no need for a separate cost ledger. Of course, there will be a
number of subsidiary ledgers; in addition to the useful
80
 • Customers’ Ledger and the Bought Ledger, there will be: (a) Stores Ledger; (b)
Stock Ledger and (c) Job Ledger
MOCK TEST PAPER-1
QUES 6 A
(a) JOURNALISE the following transactions in cost books under Non-Integrated system of
Accounting.

(i) Credit Purchase of Material ` 27,000

(ii) Manufacturing overhead charged to Production ` 6,000
(iii) Selling and Distribution overheads recovered from Sales ` 4,000
(iv) Indirect wages incurred for Manufacturing department ` 8,000
(v) Material returned from production to stores ` 9,000

ANSWER
(a) Journal entries are as follows:
Dr. Cr.
(`) (`)
(i) Stores Ledger Control A/c…………………… Dr. 27,000
To Cost Ledger Control A/c 27,000
(ii) Work-in-Process Control A/c........................... Dr. 6,000
To Manufacturing Overhead Control A/c 6,000
(iii) Cost of Sales A/c……………………………… Dr. 4,000
To Selling & Dist. Overhead Control A/c 4,000
(iv) (1) Wage Control A/c…………………… Dr. 8,000
To Cost Ledger Control A/c 8,000
(2) Manufacturing Overhead Control A/c……… Dr. 8,000
To Wages Control A/c 8,000
O
R
Manufacturing Overhead Control A/c……………. Dr. 8,000
To Cost Ledger Control A/c 8,000
(v) Stores Ledger Control A/c Dr. 9,000
……………………… 9,000
To Work-in-Process Control A/c
*Cost Ledger Control A/c is also known as General Ledger Control A/c
QUES 6 D
(c) HOW do you deal with the following in cost accounts?

81
 (i) Fringe benefits
(ii) Bad debts.
ANSWER
(i) Fringe benefits: These are the additional payments or facilities provided to the workers
apart from their salary and direct cost-allowances like house rent, dearness and city
compensatory allowances. These benefits are given in the form of overtime, extra shift duty
allowance, holiday pay, pension facilities etc.
These indirect benefits stand to improve the morale, loyalty and stability of employees towards
the organisation. If the amount of fringe benefit is considerably large, it may be recovered as
direct charge by means of a supplementary wage or labour rate; otherwise, these may be
collected as part of production overheads.
(ii) Bad debts: There is no unanimity among different authors of Cost Accounting about the
treatment of bad debts. One view is that ‘bad debts’ should be excluded from cost.
According to this view bad debts are financial losses and therefore, they should not be
included in the cost of a particular job or product.
According to another view it should form part of selling and distribution overheads,
especially when they arise in the normal course of trading. Therefore, bad debts should be
treated in cost accounting in the same way as any other selling and distribution cost.
However extra ordinarily large bad debts should not be included in cost accounts.
MOCK TEST PAPER-2
QUES3 B
XYZ Ltd. maintains a non-integrated accounting system for the purpose of management information.
The following are the data related with year 2020-21:
Particulars Amount
(‘000)
Opening balances:
- Stores ledger control A/c 48,000
- Work-in-process control A/c 12,000
- Finished goods control A/c 2,58,000
- Building construction A/c 6,000
- Cost ledger control A/c 3,24,000
During the year following transactions took place:
Materials:
- Purchased 24,000
- Issued to production 30,000
- Issued to general maintenance 3,600
- Issued to building construction 2,400
Wages:
- Gross wages paid 90,000
- Indirect wages paid 24,000
- For building construction 6,000
Factory overheads:
- Actual amount incurred (excluding items shown 96,000
82
 above)
- Absorbed in building construction 12,000
- Under-absorbed 4,800
Royalty paid 3,000
Selling distribution and administration overheads 15,000
Sales 2,70,000
At the end of the year, the stock of raw material and work-in-process was ` 33,00,000, and
`15,00,000 respectively. The loss arising in the raw material account is treated as factory
overheads. The building under construction was completed during the year. Gross profit margin is
20% on sales.
Required:
PREPARE the relevant control accounts to record the above transactions in the cost ledger of
the company. (10 Marks)
ANSWER
Cost Ledger Control Account

Particulars (` in Particulars (` in
‘000) ‘000)
To Costing P&L A/c 2,70,00 By Balance b/d 3,24,000
0
To Building Construction 26,400 By Stores Ledger control 24,000
A/c A/c
To Balance c/d 2,89,80 By Wages Control A/c 90,000
0
By Factory overhead 96,000
control A/c
By Royalty A/c 3,000
By Selling. Distribution 15,000
and Administration
overheads
By Costing P&L A/c 34,200
5,86,20 5,86,200
0
Stores Ledger Control Account
Particulars (` in Particulars (` in ‘000)
‘000)
To Balance b/d 48,000 By WIP control A/c 30,000
To Cost Ledger control A/c 24,000 By Factory 3,600
overheads control
A/c
By Building construction 2,400
A/c

83
 By Factory overhead 3,000
control A/c (loss) (bal.
fig.)
By Balance c/d 33,000
72,000 72,000

Wages Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost Ledger control A/c 90,000 By Factory overhead 24,000
control A/c
By Building Construction 6,000
A/c
By WIP Control A/c (bal. 60,000
fig.)
90,000 90,000

Factory Overhead Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Stores Ledger control A/c 3,600 By Building Construction 12,000
A/c
To Wages Control A/c 24,000 By Costing P&L A/c 4,800
To Cost Ledger control A/c 96,000 By WIP Control A/c (bal. 1,09,800
fig)
To Stores Ledger control 3,000
A/c (loss)
1,26,600 1,26,600

Royalty Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost Ledger control A/c 3,000 By WIP Control A/c 3,000
3,000 3,000

Work-in-process Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Balance b/d 12,000 By Finished goods 1,99,800
control A/c (bal. fig)
84
To Stores Ledger control A/c 30,000
To Wages Control A/c 60,000
To Factory overhead control 1,09,800
A/c
To Royalty A/c 3,000 By Balance c/d 15,000
2,14,800 2,14,800

Finished Goods Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Balance b/d 2,58,000 By Cost of Goods Sold 2,16,000
A/c (Refer working note)
To WIP control A/c 1,99,800 By Balance c/d 2,41,800
4,57,800 4,57,800

Cost of Goods Sold Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Finished Goods control 2,16,000 By Cost of sales A/c 2,16,000
A/c
2,16,000 2,16,000

Selling, Distribution and Administration Overhead Control

Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost Ledger control A/c 15,000 By Cost of sales A/c 15,000
15,000 15,000

Cost of Sales Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost of Goods Sold A/c 2,16,000 By Costing P&L A/c 2,31,00
To Selling, Distribution 15,000 0
and Administration A/c
2,31,000 2,31,00
0
Costing P&L Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost of Sales A/c 2,31,000 By Cost Ledger control 2,70,00

85
To Factory overhead control 4,800 A/c 0
A/c
To Cost Ledger control A/c 34,200
2,70,000 2,70,00
0
Building Construction Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Balance b/d 6,000 By Cost Ledger control 26,400
To Stores Ledger control A/c 2,400 A/c
To Wages Control A/c 6,000
To Factory overhead control 12,000
A/c
26,400 26,400

Trial Balance

Particulars Dr Cr
. .
(` in ‘000) (` in ‘000)
Stores Ledger Control A/c 33,000
WIP Control A/c 15,000
Finished Goods Control A/c 2,41,800
Cost Ledger Control A/c 2,89,80
0
2,89,800 2,89,80
0

86
 CHAPTER 8: UNIT AND BATCH COSTING
JAUNUARY 2021

Question 1
(a) GHI Ltd. manufactures 'Stent' that is used by hospitals in heart surgery. As per the estimates
provided by Pharmaceutical Industry Bureau, there will be a demand of 40 Million 'Stents' in
the coming year. GHI Ltd. is expected to have a market share of 2.5% of the total market
demand of the Stents in the coming year. It is estimated that it costs
` 1.50 as inventory holding cost per stent per month and that the set-up cost per run of stent
manufacture is ` 225.
Required:
(i) What would be the optimum run size for Stent manufacture?
(ii) What is the minimum inventory holding cost?
(iii) Assuming that the company has a policy of manufacturing 4,000 stents per run, how
much extra costs the company would be incurring as compared to the optimum run
suggested in (i) above? (5 Marks)
Answer

(ii) Minimum inventory holding cost

Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per

annum

= (5,000 ÷ 2) × ` 18

= ` 45,000

(iii) Calculation of the extra cost due to manufacturing policy

87
 When run size is 4,000 When run size is 5,000
units units i.e. at EBQ

Total set up cost 10,00,000 10,00,000

=  ` 225  ` 225
4,000 5,000

= ` 56,250 = ` 45,000

Total Carrying cost ½ × 4,000 × ` 18 ½ × 5,000 × ` 18

= ` 36,000 = ` 45,000

Total Cost ` 92,250 ` 90,000

Extra cost = ` 92,250 - ` 90,000 = ` 2,250

JULY 2021
Question 1
(a) AUX Ltd. has an Annual demand from a single customer for 60,000 Covid-19 vaccines. The
customer prefers to order in the lot of 15,000 vaccines per order. The production cost of vaccine
is ` 5,000 per vaccine. The set-up cost per production run of Covid-19 vaccines is ` 4,800. The
carrying cost is ` 12 per vaccine per month.
You are required to:
(i) Find the most Economical Production Run.
(ii) Calculate the extra cost that company incurs due to production of 15,000 vaccines in a
batch.

Answer
(a) (i) Calculation of most Economical Production Run

= = 2,000 Vaccine

(ii) Calculation of Extra Cost due to processing of 15,000 vaccines in a batch

88
 When run size is When run size is
2,000 vaccines 15,000 vaccines
60,000 60,000
Total set up cost = × ` 4,800 = × ` 4,800
2,000 15,000
= ` 1,44,000 = ` 19,200
Total Carrying cost ½ × 2,000 × ` 144 ½ × 15,000 × ` 144
= ` 1,44,000 = ` 10,80,000
Total Cost ` 2,88,000 ` 10,99,200

Thus, extra cost = ` 10,99,200 – ` 2,88,000 = ` 8,11,200

MOCK TEST PAPER-1

QUESTION 1
(b) Zee Ltd. manufactures pistons used in car engines. As per the study conducted by the Auto Parts
Manufacturers Association, there will be a demand of 80 million pistons in the coming year. A Ltd.
is expected to have a market share of 2.15% of the total market demand of the pistons in the
coming year. It is estimated that it costs ` 2.50 as inventory holding cost per piston per month and
that the set-up cost per run of piston manufacture is ` 4,500.
(i) COMPUTE the optimum run size for piston manufacturing?
(ii) Assuming that the company has a policy of manufacturing 20,000 pistons per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above? 5 MARKS

CHAPTER 9: JOB
COSTING AND CONTRACT COSTING

NOVEMBER 2020

Question 1

(a) W Limited undertook a contract for ` 5,00,000 on 1st July, 2019. On 30th June, 2020 when the
89
 accounts were closed, the following details about the contract were gathered:
Amount (`)
Materials purchased 1,00,000
Wages paid 45,000
General expenses 10,000
Materials on hand (30-6-2020) 25,000
Wages accrued (30-6-2020) 5,000
Work certified 2,00,000
Cash received 1,50,000
Work uncertified 15,000
The above contract contained "Escalation clause" which read as follows :
"In the event of increase in the prices of materials and rates of wages by more than 5%, the
contract price would be increased accordingly by 25% of the rise in the cost of materials and wages
beyond 5% in each case."
It was found that since the date of signing the agreement, the prices of materials and wage rates
increased by 25%. The value of the work certified does not take into account the effect of the
above clause.
Calculate the 'value of work certified' after taking the effect of 'Escalation Clause’ as on 30th June,
2020. ( 5 Marks)
Answer

(iii) Calculation of Value of work certified:

The value of the contract would be increased by 25% of the price increased beyond
5%.
Price increased beyond 5% = ` 25,000 – 5% of ` 1,00,000 = ` 20,000
Value of contract would be increased by 25% of ` 20,000 = ` 5,000
Therefore, the revised contract value = ` 5,00,000 + ` 5,000 = ` 5,05,000

90
 Calculation of the Value of work certified after taking the effect of
escalation clause: Revised contract value × Percentage of work certified

= ` 5,05,000 × 40% = ` 2,02,000

JULY 2021

Question 4

(C) Brick Constructions Ltd. commenced a contract on April 1,2020. The contract was
for

` 10,00,000. The following information relates to the Contract as on 31st March, 2021:
• The value of work completed up to Feb. 28, 2021 was certified by the architect and as a
matter of policy, the Contractee has retained ` 1,30,000 as retention money which is 20%
of the certified work and paid the balance amount.
• The cost of work completed subsequent to the architect's certificate was of
` 30,000.
• The expenditure incurred related to material purchase, wages and other chargeable
expenses were ` 5,10,000
• Materials of the value of ` 20,000 were lying on the site.
• A special plant was purchased specifically for this contract at ` 40,000 and after use on
this contract till 31st March, 2021, it was valued at ` 25,000.
You are required to compute the value of Work Certified, Cash received for certified work and
Notional profit of the contract for the year ended on 31st March, 2021. (5 Marks)
Answer
(b) 1. Value of Work Certified
` 1,30,000
= = ` 6,50,000
20%

2. Cash Received
= Value of Work certified – Retention Money
= 6,50,000 – 1,30,000 = ` 5,20,000
3. Notional Profit
= Value of Work certified – Cost of work certified
= 6,50,000 - 4,75,000* = ` 1,75,000
*Working Note
Cost of work certified = Work cost - Cost of work uncertified
= (Expenditure + Plant used – Material at site) - Cost of work
uncertified
91
 = [5,10,000 + (40,000 - 25,000) - 20,000] - 30,000 = ` 4,75,000

MOCK TEST PAPER-1

QUESTION 1 D
From the following particulars, COMPUTE Notional profit and estimated profit on a contract
(which has been 80% complete):
(`)
Total expenditure to date 4,00,000
Estimated further expenditure to complete the
contract (including contingencies) 22,000
Contract price 5,44,000
Work certified 4,89,600
Work uncertified 30,200
Cash received 3,91,680
(5 Marks)

ANSWER

(b) Computation of Notional Profit (`)

Value of work certified 4,89,600
Less: Cost of work certified

(` 4,00,000 – ` 30,200) 3,69,800

Notional profit 1,19,800
Computation of Estimated Profit (`)
Contract price 5,44,000
Less: Estimated total cost
Cost of work to date 4,00,000
Estimated further expenditure to complete the contract 22,000 4,22,000
Estimated profit 1,22,000

92
 CHAPTER 10: PROCCESS AND OPERATION COSTING

NOVEMBER 2019

Question 3
(a) A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional rates during
six off-season months in a year.
During this period, half of the full room rent is charged. The management's profit margin
is targeted at 20% of the room rent. The following are the cost estimates and other details
for th e year ending 31st March ,2019:
(i) Occupancy during the season is 80% while in the off-season it is 40%.
(ii) Total investment in the hotel is ` 300 lakhs of which 80% relates to Buildings and the
balance to Furniture and other Equipment.
(iii) Room attendants are paid ` 15 per room per day on the basis of occupancy of rooms in a
month.
(iv) Expenses:
• Staff salary (excluding that of room attendants) ` 8,00,000
• Repairs to Buildings ` 3,00,000
• Laundry Charges ` 1,40,000
• Interior Charges ` 2,50,000
• Miscellaneous Expenses ` 2,00,200
93
 (v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on
Furniture and other Equipments on straight line method.
(vi) Monthly lighting charges are ` 110, except in four months in winter when it is ` 30 per
room and this cost is on the basis of full occupancy for a month.
You are required to workout the room rent chargeable per day both during the season
and the off-season months using the foregoing information.
(Assume a month to be of 30 days and winter season to be considered as part of off-
season).

(10 Marks)

Answer
(a) Working Notes:
(i) Total Room days in a year
Season Occupancy (Room- Equivalent Full
days) Room charge
days
Season – 200 Rooms × 80% × 6 28,800 Room Days ×
80% months × 30 days in a 100%
Occupancy month = 28,800 Room = 28,800
Days
Off-season – 200 Rooms × 40% × 6 14,400 Room Days ×
40% Occupancy months × 30 days in a 50%
month = 14,400 Room = 7,200
Days
Total Room 28,800 + 14,400 = 36,000 Full Room days
Days 43,200
Room Days
(ii) Lighting Charges:

It is given in the question that lighting charges for 8 months is `110 per month and during
winter season of 4 months it is `30 per month. Further it is also given that peak season is 6
months and off season is 6 months.
It should be noted that – being Hill station, winter season is to be considered as part of Off
season. Hence, the non-winter season of 8 months include – Peak season of 6 months and
Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% 200 Rooms × 80% × 6 months × ` 110
Occupancy per month = ` 1,05,600
Off- season & Non-winter – 200 Rooms × 40% × 2 months × `110
40% Occupancy (8 – 6 per month = ` 17,600
months)
Off- season & -winter – 40% 200 Rooms × 40% × 4 months × ` 30
Occupancy months) per month = ` 9,600
Total Lighting charges ` 1,05,600+ ` 17,600 + ` 9,600 = `

94
 132,800

Statement of total cost:

(`)
Staff salary 8,00,000
Repairs to building 3,00,000
Laundry 1,40,000
Interior 2,50,000
Miscellaneous Expenses 2,00,200
Depreciation on Building (` 300 Lakhs × 80% × 5%) 12,00,00
0
Depreciation on Furniture & Equipment (` 300 Lakhs × 20% 9,00,000
× 15%)
Room attendant’s wages (` 15 per Room Day for 43,200 6,48,000
Room Days)
Lighting charges 1,32,800
Total cost 45,71,00
0
Add: Profit Margin (20% on Room rent or 25% on Cost) 11,42,75
0
Total Rent to be charged 57,13,75
0
Calculation of Room Rent per day:

Total Rent / Equivalent Full Room days = ` 57,13,750/ 36,000 = ` 158.72

Room Rent during Season – ` 158.72
Room Rent during Off season = ` 158.72 × 50% = ` 79.36
Question 4

(b) A product passes through two distinct processes before completion.

Following information are available in this respect :
Process-1 Process-2
Raw materials used 10,000 units -

Raw material cost (per unit) ` 75 -

Transfer to next process/Finished good 9,000 units 8,200

units Normal loss (on inputs) 5% 10%

Direct wages ` 3,00,000 ` 5,60,000

Direct expenses 50% of direct wages 65% of direct
wages Manufacturing overheads 25% of direct wages 15% of direct

95
 wages Realisable value of scrap (per unit) ` 13.50
` 145

8,000 units of finished goods were sold at a profit of 15% on cost. There was no opening
and closing stock of work-in-progress. Prepare:
(i) Process-1 and Process-2 Account
(ii) Finished goods Account
(iii) Normal Loss Account
(iv) Abnormal Loss Account
(v) Abnormal Gain Account. (10 Marks)
Answer
(b) (i)

Dr. Process-1 Account Cr.

Particulars Units Total (`) Particulars Units Total (`)
To Raw Material 10,000 7,50,000 By Normal Loss A/c 500 6,750
Consumed @ 13.5
” Direct Wages -- 3,00,000 ” Process 2 @ 9,000 12,01,500
133.5
” Direct -- 1,50,000 ” By Abnormal 500 66,750
Expenses Loss @ 133.5
“ Manufacturing 75,000
Overheads
10,000 12,75,000 10,000 12,75,000

(ii) Dr. Process-2 Account Cr.

Particulars Units Total (`) Particulars Units Total (`)
To Process-I A/c 9,000 12,01500 By Normal Loss A/c 900 1,30,500
@ 145
” To Direct -- 5,60,000 ” By Finished Stock 8,200 21,04,667
Wages A/c [bal fig]
” Direct -- 3,64,000
Expenses
” Manufacturing -- 84,000
Overheads
” To Abnormal 100 25,667
gain
(` 256.67 × 100
units)

9,100 22,35,167 9,100 22,35,167

Cost per unit of completed units and abnormal gain:

96
 ` 22,09,500 - `130500
= = ` 256.67
8,100units

Dr. Finished Goods A/c Cr.

Particulars Units Total (`) Particulars Units Total (`)
To Process II A/c 8,200 21,04,667 By By Cost of 8,000 20,53,333
Sales
” By Balance c/d 200 51,334
8,200 21,04,667 8,200 21,04,667

(i) Normal Loss A/c

Dr. Cr.
Particular Units Total (`) Particulars Units Total (`)
s
To Process I 500 6,750 By By abnormal Gain II 100 14,500
Process II 900 1,30,500 By Cash 500 6,750
By Cash 800 1,16,000
1400 1,37,250 1400 1,37,250
(ii) Abnormal Loss A/c
Dr. Cr.
Particulars Unit Total Particulars Units Total (`)
s (`)
To Process I 500 66,750 By By Cost Ledger 500 6,750
Control A/c
By Costing P& 60,000
L A/C
(Abnormal
Loss)
66,750 66,750

(iii) Abnormal Gain A/c

Dr. Cr.
Particulars Units Total (`) Particulars Units Total (`)
To Normal Loss 100 14,500 By Process II 100 25,667
A/c @ 145
To Costing P & L 11,167
A/C
100 25,667 100 25,667

97
Question 6
Answer any four of the following:

(a) Describe Composite Cost unit as used in Service Costing and discuss the ways of computing it .

(d) Mention the Cost Unit of the following Industries:

i. Electricity
ii. Automobile
iii. Cement
iv. Steel
v. Gas
vi. Brick Making
vii. Coal Mining
viii. Engineering
ix. Professional Services
x. Hospital
(5x2= 10 marks)

Answer
(a) Composite Cost Unit: Sometime two measurement units are combined together to know the cost
of service or operation. These are called composite cost units. For example, a public transportation
undertaking would measure the operating cost per passenger per kilometre.
Examples of Composite units are Ton- km., Quintal- km, Passenger-km., Patient-day etc.
Composite unit may be computed in two ways:
(i) Absolute (Weighted Average) basis.
(ii) Commercial (Simple Average) basis.
In both bases of computation of service cost unit, weightage is also given to qualitative factors
rather quantitative (which are directly related with variable cost elements) factors alone.
(i) Weighted Average or Absolute basis – It is summation of the products of qualitative and
quantitative factors. For example, to calculate absolute Ton-Km for a goods transport is
calculated as follows.:
∑ (Weight Carried × Distance)1 + (Weight Carried × Distance)2 +….+ (Weight
Carried × Distance)n

Similarly, in case of Cinema theatres, price for various classes of seats are fixed differently.
For example–
First class seat may be provided with higher quality service and hence charged at a higher
rate, whereas Second Class seat may be priced less. In this case, appropriate weight to be
given effect for First Class seat and Second Class seat – to ensure proper cost per composite
unit.

98
 (ii) Simple Average or Commercial basis – It is the product of average
qualitative and total quantitative factors. For example, in case of goods transport, Commercial
Ton-Km is arrived at by multiplying total distance km., by average load quantity.

∑ (Distance + Distance + ...............

In both the example, variable cost is dependent of distance and is a quantitative factor. Since,
the weight carried does not affect the variable cost hence and is a qualitative factor.
(b) Cost Unit of Industries:
S. No. Industry Cost Unit Basis
(i) Electricity Kilowatt-hour (kWh)
(ii) Automobile Number
(iii) Cement Ton/ per bag etc.
(iv) Steel Ton
(v) Gas Cubic feet
(vi) Brick-making 1,000 bricks
(vii) Coal mining Tonne/ton
(viii) Engineering Contract, job
(ix) Professional services Chargeable hour, job, contract
(x) Hospitals Patient day

NOVEMBER 2020

QUESTION 4
(a) Following details are related to the work done in Process-I by ABC Ltd. during the month of
May 2019 :

( `)
Opening work in process (3,000 units)
Materials 1,80,500
Labour 32,400

Overheads 90,000

Materials introduced in Process-I (42,000 units) 36,04,000

Labour 4,50,000

Overheads 15,18,000

Units Scrapped : 4,800

Degree of completion Materials : units

99 : 100%
: 70%
: 4,200
units
:
 Labour &
overhead Closing Work-in-process
Degree of completion Materials
Labour & overhead
Units finished and transferred to Process-II : 36,000 units Normal
loss:
4% of total input including opening work-in-process
Scrapped units fetch ` 62.50 per piece.
Prepare:
(i) Statement of equivalent production.
(ii) Statement of cost per equivalent unit.
(iii) Process-I A/c
(iv) Normal Loss Account and
(v) Abnormal Loss Account (10 Marks)
Answer
(b) (i) Statement of Equivalent Production (Weighted Average method)
Particulars Inpu Particulars Outp Equivalent
t ut Production
Unit Unit Material Labour &
s s O.H.
% Units % Units
Opening WIP 3,000 Completed 36,00 10 36,00 10 36,00
an 0 0 0 0 0
d
transferred
t
o Process-II
Units 42,00 Normal Loss 1,800 -- -- -- --
introduced 0 (4% of 45,000
units)
Abnormal loss 3,000 10 3,000 70 2,100
(Balancing 0
figure)
Closing WIP 4,200 10 4,200 50 2,100
0
45,00 45,00 43,20 40,20
0 0 0 0
(ii) Statement showing cost for each element
Particulars Materials (`) Labour Overhead Total (`)
(`) (`)
Cost of opening 1,80,500 32,400 90,000 3,02,900
work- in-process
Cost incurred 36,04,000 4,50,000 15,18,000 55,72,00
during the month 0
Less: Realisable (1,12,500) -- -- (1,12,50

100
 Value of normal 0)
scrap (` 62.50 ×
1,800
units)
Total cost: (A) 36,72,000 4,82,400 16,08,000 57,62,40
0
Equivalent units: 43,200 40,200 40,200
(B)
Cost per 85.00 12.00 40.00 137.00
equivalent unit:
(C) = (A ÷ B)
Statement of Distribution of cost

Particulars Amount Amount

(`) (`)
1. Value of units completed and 49,32,000
transferred: (36,000 units × ` 137)
2. Value of Abnormal Loss:
- Materials (3,000 units × ` 85) 2,55,000
- Labour (2,100 units × ` 12) 25,200
- Overheads (2,100 units × ` 40) 84,000 3,64,200
3. Value of Closing W-I-P:
- Materials (4,200 units × ` 85) 3,57,000
- Labour (2,100 units × ` 12) 25,200
- Overheads (2,100 units × ` 40) 84,000 4,66,200

(iii) Process-I A/c

101
 Particulars Units (`) Particulars Units (`)

To Opening W.I.P:

− Materials 3,000 1,80,500 By Normal Loss (` 1,800 1,12,500

− Labour -- 32,400 62.5 × 1,800
− Overheads -- 90,000 units)

To Materials introduced 42,000 36,04,000 By Abnormal loss 3,000 3,64,200

To Labour 4,50,000 By Process-I A/c 36,000 49,32,000

To Overheads 15,18,000 By Closing WIP 4,200 4,66,200

45,000 58,74,900 45,000 58,74,900

(ii) Normal Loss A/c

Particulars Units (`) Particulars Units (`)

To 1,800 1,12,500 By Cost 1,800 1,12,50
Process-I Ledger 0
A/c Control A/c
1,800 1,12,500 1,800 1,12,50
0
(iii) Abnormal Loss A/c
Particulars Unit (`) Particulars Units (`)
s
To 3,00 3,64,200 By Cost Ledger 3,000 1,87,50
Process-I 0 Control A/c (` 62.5 0
A/c × 3,000
units)
By Costing Profit & 1,76,70
Loss A/c (Bal. 0
Figure)
3,00 3,64,200 3,000 3,64,20
0 0

Question 5

(A) SEZ Ltd. built a 120 km. long highway and now operates a toll road to collect tolls. The
company has invested ` 900 crore to build the road and has estimated that a total of 120

102
 crore vehicles will be using the highway during the 10 years toll collection
tenure. The other costs for the month of “June 2020” are as follows:
(iii) Salary:
• Collection personnel (3 shifts and 5 persons per shift) - ` 200 per day per person.

• Supervisor (3 shifts and 2 persons per shift) - ` 350 per day per person.
• Security personnel (2 shifts and 2 persons per shift) - ` 200 per day per person.
• Toll Booth Manager (3 shifts and 1 person per shift) - ` 500 per day per person.
(iv) Electricity - ` 1,50,000
(v) Telephone - ` 1,00,000
(vi) Maintenance cost - ` 50 lakhs
(vii) The company needs 30% profit over total cost.
Required:
(1) Calculate cost per kilometre.
(2) Calculate the toll rate per vehicle. (10 Marks)
Answer
(a) Statement of Cost

Particulars (`)
( ` 900crore× 1
A. Apportionment 10years 12months 7,50,00,0
) 00
of capital cost
B. Other Costs
Salary to (3 Shifts × 5 persons per shift × 30 90,000
Collection days
Personnel × ` 200 per day)
Salary to Supervisor (3 Shifts × 2 persons per shift × 30 63,000
days
× ` 350 per day)
Salary to (2 Shifts × 2 persons per shift × 30 24,000
Security days
Personnel × ` 200 per day)
Salary to Toll (3 Shifts × 1 person per shift × 30 45,000
Booth days
Manager × ` 500 per day)
Electricity 1,50,000
Telephone 1,00,000
4,72,000
C. Maintenance cost 50,00,000
Total (A + B + C) 8,04,72,0
00

103
 Question 6
Answer any four of the following:
(D) State the Method of Costing to be used in the following industries:
(i) Real Estate
(ii) Motor repairing workshop
(iii) Chemical Industry
(iv) Transport service
(v) Assembly of bicycles
(vi) Biscuits manufacturing Industry
(vii) Power supply Companies
(viii) Car manufacturing Industry
(ix) Cement Industry
(x) Printing Press 5 MARKS

ANSWER
(D) Method of costing used in different industries:

S. No. Industries Method of Costing

(i) Real Estate Contract Costing
(ii) Motor Repairing Workshop Job Costing
(iii) Chemical Industry Process Costing
(iv) Transport Service Service/Operating Costing
(v) Assembly of Bicycles Unit/ Single/Output/Multiple
Costing

104
 (vi) Biscuits Manufacturing Batch Costing
Industry
(vii) Power Supply Companies Service/Operating Costing
(viii) Car Manufacturing Industry Multiple Costing
(ix) Cement Industry Unit/Single/Output Costing
(x) Printing Press Job Costing

JANUARY 2021

Question 1
(C) MNO Ltd has provided following details:

• Opening work in progress is 10,000 units at ` 50,000 (Material 100%, Labour and
overheads 70% complete).
• Input of materials is 55,000 units at ` 2,20,000. Amount spent on Labour and
Overheads is ` 26,500 and ` 61,500 respectively.
• 9,500 units were scrapped; degree of completion for material 100% and for labour &
overheads 60%.
• Closing work in progress is 12,000 units; degree of completion for material 100% and
for labour & overheads 90%.
• Finished units transferred to next process are 43,500 units.
Normal loss is 5% of total input including opening work in progress. Scrapped units
would fetch ` 8.50 per unit.
You are required to prepare using FIFO method:
(iv) Statement of Equivalent production
(v) Abnormal Loss Account 5 MARKS

Answer
(a) (i) Statement of Equivalent Production (Using FIFO method)
Particulars Input Particulars Output Equivalent Production
Units Units Material Labour &
O.H.
% Units % Units
Opening WIP 10,000 Completed and
transferred to
Process-II
Units introduced 55,000 - From opening 10,000 - 30 3,000
WIP 33,500 100 33,500 100 33,500
- From fresh inputs 43,500 33,500 36,500
3,250 - -

105
 Normal Loss
6,250 100 6,250 60 3,750
{5% (10,000 +
55,000 units)} 12,00 100 12,000 90 10,800
Abnormal loss (9,500 0
65,000 – 3,250) 65,00 51,750 51,050
0

(ii) Abnormal Loss A/c

Particulars Unit (`) Particulars Unit (`)

s s
To Process-I 6,25 29,69 By Cost Ledger Control 6,25 53,12
A/c 0 8 A/c 0 5
(Refer Working (6,250 units × ` 8.5)
Note-2)
To Costing - 23,42
Profit 7
& Loss A/c
6,25 53,12 6,25 53,12
0 5 0 5

Working Notes:
1. Computation of Cost per unit

Particulars Materia Labo Overhe

ls ur ad
(`) (`) (`)
Input costs 2,20,000 26,500 61,500
Less: Realisable value of normal (27,625) -- --
scrap (3,250 units x ` 8.5)
Net cost 1,92,375 26,500 61,500
Equivalent Units 51,750 51,050 51,050
Cost Per Unit 3.7174 0.5191 1.2047
Total cost per unit = ` (3.7174 + 0.5191 + 1.2047) = ` 5.4412
2. Valuation of Abnormal Loss

(`)
Materials (6,250 units × ` 3.7174) 23,233.75
Labour (3,750 units × ` 0.5191) 1,946.63
Overheads (3,750 units × ` 1.2047) 4,517.62

106
 29,698
Question 5
(a) ABC Health care runs an Intensive Medical Care Unit. For this purpose, it has hired a building
at a rent of ` 50,000 per month with the agreement to bear the repairs and maintenance
charges also.
The unit consists of 100 beds and 5 more beds can comfortably be accommodated when the
situation demands. Though the unit is open for patients all the 365 days in a year, scrutiny of
accounts for the year 2020 reveals that only for 120 days in the year, the unit had the full
capacity of 100 patients per day and for another 80 days, it had, on an average only 40 beds
occupied per day. But, there were occasions when the beds were full, extra beds were hired
at a charge of ` 50 per bed per day. This did not come to more than 5 beds above the
normal capacity on any one day. The total hire charges for the extra beds incurred for the
whole year amounted to ` 20,000.
The unit engaged expert doctors from outside to attend on the patients and the fees were paid
on the basis of the number of patients attended and time spent by them which on an average
worked out to ` 30,000 per month in the year 2020.
The permanent staff expenses and other expenses of the unit were as follows:

`
2 Supervisors each at a per month salary of 5,000
4 Nurses each at a per month salary of 3,000
2 Ward boys each at a per month salary of 1,500
Other Expenses for the year were as under:
Repairs and Maintenance 28,000
Food supplied to patients 4,40,000
Caretaker and Other services for patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines supplied 2,80,000
Cost of Oxygen etc. other than directly borne for 75,000
treatment of patients
General Administration Charges allocated to the unit 71,000

Required:
(i) What is the profit per patient day made by the unit in the year 2020, if the unit recovered
an overall amount of ` 200 per day on an average from each patient.
(ii) The unit wants to work on a budget for the year 2021, but the number of patients requiring
medical care is a very uncertain factor. Assuming that same revenue and expenses
prevail in the year 2021 in the first instance, work out the number of patient days required
by the unit to break even. (10 Marks)
Answer
(a) Workings:
Calculation of number of Patient days

107
 100 Beds × 120 days = 12000
40 Beds × 80 days = 3,200
Extra beds = 400
Total = 15,60
0
(i) Statement of Profitability
Particulars Amount Amount (`)
(`)
Income for the year (` 200 per patient per 31,20,000
day × 15,600 patient days)
Variable Costs:
Doctor Fees (` 30,000 per month × 12) 3,60,000
Food to Patients (Variable) 4,40,000
Caretaker Other services to patients 1,25,000
(Variable)
Laundry charges (Variable) 1,40,000
Medicines (Variable) 2,80,000
Bed Hire Charges (` 50 × 400 Beds) 20,000
Total Variable costs (13,65,000)
Contribution 17,55,000
Fixed Costs:
Rent (` 50,000 per month × 12) 6,00,000
Supervisor (2 persons × ` 5,000 × 12) 1,20,000
Nurses (4 persons × ` 3,000 × 12) 1,44,000
Ward Boys (2 persons x ` 1500 x12) 36,000
Repairs (Fixed) 28,000
Cost of Oxygen 75,000
Administration expenses allocated 71,000
Total Fixed Costs (10,74,000)
Profit 6,81,000

Calculation of Contribution and profit per Patient day

Total Contribution = ` 17,55,000

Total Patient days = 15,600 days

Contribution per Patient day = ` 17,55,000 / 15,600 days = `

112.50 Total Profit = ` 6,81,000

Total Patient days = 15,600 days

Profit per Patient day = ` 6,81,000 / 15,600 days = ` 43.65

(ii) Breakeven Point = Fixed Cost / Contribution per Patient day

108
 = ` 10,74,000 / ` 112.50

= 9,547 patient days

JULY 2021

Question 4
(b) A Manufacturing unit manufactures a product 'XYZ' which passes through three distinct
Processes - X, Y and Z. The following data is given:

Process X Process Y Process Z

Material consumed (in `) 2,600 2,250 2,000
Direct wages (in `) 4,000 3,500 3,000
• The total Production Overhead of ` 15,750 was recovered @ 150% of Direct wages.
• 15,000 units at ` 2 each were introduced to Process 'X'.
• The output of each process passes to the next process and finally, 12,000 units were
transferred to Finished Stock Account from Process 'Z'.
• No stock of materials or work in progress was left at the end. The
following additional information is given:
Proces % of wastage to normal Value of Scrap per
s input unit (`)
X 6% 1.10
Y ? 2.00
Z 5% 1.00

You are required to:

(i) Find out the percentage of wastage in process 'Y', given that the output of Process 'Y' is
transferred to Process 'Z' at ` 4 per unit.

109
 (ii) Prepare Process
accounts for all the three processes X, Y and Z. (10 Marks)

110
111
Working Notes:
@ 1. Units Transferred from Process Z Account to Finished Stock = 12,000
Units i.e 95% of Inputs.
So, Input of Z or Output of Y is 12,000 x 100/95 = 12,631 Units and Normal Loss
(5%) is 631 units.
2. Let’s consider number of units lost under process ‘Y’ as:

For Normal loss =A

For Abnormal loss =B

Now, A + B = 1,469 [i.e. 14,100 – 12,631] …(I)

(A x ` 2 per unit) + (B x ` 4 per unit) = [ 52,610 – 50,524]

2A + 4B = 2,086 …(II)

Now, putting the values of (I) in (II), we get,

2(1,469 – B) + 4B = 2,086

112
 2938 – 2B + 4B = 2,086

2B = - 852 => B = - 426 units

Since, the figure of B is in negative, it is an abnormal gain of 426 units.

Further, A (i.e. normal loss) = 1,469 + 426 = 1,895 units

1,895 units
#3. % of wastage in Process Y Account = = 13.44%
14,100 units
Dr. Process-Z Account Cr.
Particulars Units (`) Particulars Units (`)
To Process-Y A/c 12,631 50,524 By Normal Loss A/c [(5% 631 631
of 12,631 units)
x ` 1]
” Additional material -- 2,000
” Direct wages -- 3,000
” Production OH -- 4,500 ” Finished Stock A/c (` 12,000 59,393
4.9494$ × 12,000
units)
12,631 60,024 12,631 60,024

MOCK TEST PAPER-1

QUES 3 A
2. (a) Navyug Ltd. manufactures chemical solutions for the food processing industry. The manufacturing
takes place in a number of processes and the company uses a FIFO process costing system to
value work-in-process and finished goods. At the end of the last month, a fire occurred in the factory
and destroyed some of the paper files containing records of the process operations for the month.
Navyug Ltd. needs your help to prepare the process accounts for the month during which the fire
occurred. You have been able to gather some information about the month’s operating activities
but some of the information could not be retrieved due to the damage. The following information
was salvaged:
• Opening work-in-process at the beginning of the month was 900 litres, 70% complete for
labour and 60% complete for overheads. Opening work-in-process was valued at ` 29,970.
• Closing work-in-process at the end of the month was 160 litres, 30% complete for labour
and 20% complete for overheads.
• Normal loss is 10% of input and total losses during the month were 1,800 litres partly due to
the fire damage.
• Output sent to finished goods warehouse was 4,200 litres.
• Losses have a scrap value of ` 20 per litre.
• All raw materials are added at the commencement of the process.
• The cost per equivalent unit (litre) is `39 for the month made up as follows:
113
 (`)
Raw Material 23
Labour 7
Overheads 9
39
REQUIRED:
(i) Calculate the quantity (in litres) of raw material inputs during the month.
(ii) Calculate the quantity (in litres) of normal loss expected from the process and the quantity
(in litres) of abnormal loss / gain experienced in the month.
(iii) Calculate the values of raw material, labour and overheads added to the process during the
month.
(iv) Prepare the process account for the month. (10
Marks)
ANSWER
3. (a) (i) Calculation of Raw Material inputs during the month:
Quantities Entering Process Litres Quantities Leaving Litres
Process
Opening WIP 900 Transfer to Finished 4,200
Goods
Raw material input (balancing 5,260 Process Losses 1,800
figure)
Closing WIP 160
6,160 6,160
(ii) Calculation of Normal Loss and Abnormal Loss/Gain
Particulars Litres
Total process losses for month 1,800
Normal Loss (10% input) 526
Abnormal Loss (balancing figure) 1,274
(ii) Calculation of values of Raw Material, Labour and Overheads added to the process:

Material Labour Overhead

s
Cost per equivalent unit ` 23.00 ` 7.00 ` 9.00
Equivalent units (litre) (refer 4,734 4,892 4,966
the working note)
Cost of equivalent units ` 1,08,882 ` 34,244 ` 44,694
Add: Scrap value of normal ` 10,520 -- --
loss (526 units × ` 20)
Total value added ` 1,19,402 ` 34,244 ` 44,694
Workings:

Statement of Equivalent Units (litre):

Input Details Unit Output details Units Equivalent Production

114
 s Materi Labo Overhea
al ur ds
Unit (%) Unit (%) Units (%)
s s
Opening WIP 900 Units completed:
Units 5,260 - Opening WIP 900 -- -- 270 30 360 40
introduced
- Fresh inputs 3,300 3,30 10 3,30 100 3,300 10
0 0 0 0
Normal loss 526 -- -- -- -- -- --
Abnormal loss 1,27 1,27 10 1,27 100 1,27 10
4 4 0 4 4 0
Closing WIP 160 160 10 48 30 32 20
0
6,160 6,160 4,73 4,89 4,966
4 2
(iii) Process Account for Month
Litres Amount Litres Amount
(`) (`)
To Opening WIP 900 29,970 By Finished goods 4,200 1,63,800
To Raw Materials 5,260 1,19,402 By Normal loss 526 10,520
To Wages -- 34,244 By Abnormal loss 1,274 49,686
To Overheads -- 44,694 By Closing WIP 160 4,304
6,160 2,28,310 6,160 2,28,310

Ques 4 a
(a) A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional
rates during six off-season (winter) months in a year.
During this period, half of the full room rent is charged. The management's profit margin is targeted
at 20% of the room rent. The following are the cost estimates and other details for the year ending
31st March, 2021:
I. Occupancy during the season is 80% while in the off-season it is 40%.
II. Total investment in the hotel is ` 300 lakhs of which 80% relates to Buildings and the balance to
Furniture and other Equipment.
III. Room attendants are paid ` 15 per room per day on the basis of occupancy of rooms in a month.
IV. Expenses :
a. Staff salary (excluding that of room attendants) ` 8,00,000
b. Repairs to Buildings ` 3,00,000
c. Laundry Charges ` 1,40,000
d. Interior Charges ` 2,50,000
e. Miscellaneous Expenses ` 2,00,200
V. Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture and other Equipments
on straight line method.
VI. Monthly lighting charges are ` 110 per room, except in four months in winter when it is ` 30 per room
and this cost is on the basis of full occupancy for a month.

115
 You are REQUIRED to workout the room rent chargeable per day both during the
season and the off-season months using the foregoing information.
(Assume a month to be of 30 days and winter season to be considered as part of off-season).
(10
Marks)

Answer
1. (a) Working Notes:
(i) Total Room days in a year
Season Occupancy (Room- Equivalent Full Room
days) charge days
Season – 200 Rooms × 80% × 6 28,800 Room Days × 100%
80% months = 28,800
Occupancy × 30 days in a month =
28,800
Room Days
Off-season – 200 Rooms × 40% × 6 14,400 Room Days × 50% =
40% Occupancy months 7,200
× 30 days in a month =
14,400
Room Days
Total Room 28,800 + 14,400 = 43,200 36,000 Full Room days
Days Room Days
(i)
(ii) Lighting Charges:
It is given in the question that lighting charges for 8 months is `110 per month and during
winter season of 4 months it is `30 per month. Further it is also given that peak season is 6
months and off season is 6 months.

It should be noted that – being Hill station, winter season is to be considered as part of Off
season. Hence, the non-winter season of 8 months include – Peak season of 6 months and
Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% 200 Rooms × 80% × 6 months × ` 110 per
Occupancy month
= ` 1,05,600
Off- season & Non-winter – 200 Rooms × 40% × 2 months × `110 per
40% Occupancy (8 – 6 month
months) = ` 17,600
Off- season & -winter – 40% 200 Rooms × 40% × 4 months × ` 30 per month
Occupancy months) = ` 9,600
Total Lighting charges ` 1,05,600+ ` 17,600 + ` 9,600 = ` 132,800

Statement of total cost:

116
 (`)
Staff salary 8,00,000
Repairs to building 3,00,000
Laundry 1,40,000
Interior 2,50,000
Miscellaneous Expenses 2,00,200
Depreciation on Building (` 300 Lakhs × 80% × 5%) 12,00,00
0
Depreciation on Furniture & Equipment (` 300 Lakhs × 20% × 9,00,000
15%)
Room attendant’s wages (` 15 per Room Day for 43,200 Room 6,48,000
Days)
Lighting charges 1,32,800
Total cost 45,71,00
0
Add: Profit Margin (20% on Room rent or 25% on Cost) 11,42,75
0
Total Rent to be charged 57,13,75
0
Calculation of Room Rent per day:

Total Rent / Equivalent Full Room days = ` 57,13,750/ 36,000 = ` 158.72

Room Rent during Season – ` 158.72
Room Rent during Off season = ` 158.72 × 50% = ` 79.36

MOCK TEST PAPER-2

2. (a) Following information is available regarding process A for the month of October, 2021:
Production Record:
Units in process as on 01.10.2021 8,000
(All materials used, 25% complete for labour and
overhead) 32,000
New units introduced
Units completed 28,000
Units in process as on 31.10.2021 12,000
(All materials used, 33-1/3% complete for labour and
overhead)
Cost Records:
Work-in-process as on 01.10.2021 (`)
Materials 12,00,000
Labour 2,00,000
Overhead 2,00,000
16,00,000
Cost during the month
Materials 51,20,000

117
 Labour 30,00,000
Overhead 30,00,000
1,11,20,000
Presuming that average method of inventory is used, PREPARE:
(i) Statement of Equivalent Production.
(ii) Statement showing Cost for each element.
(iii) Statement of Apportionment of cost.
(iv) Process Cost Account for Process A. (10 Marks)

ANSWER
2. (a) (i) Statement of Equivalent Production (Average cost method)

Inpu Particular Outp Equivalent Production

t s ut
Materials Labour Overheads
(Unit Unit
s) s (%*) Units* (% )* Units* (%)* Units*
* * *
40,00 Complete 28,00 100 28,00 100 28,00 100 28,00
0 d 0 0 0 0
WIP 12,00 100 12,00 33- 4,000 33-1/3 4,00
0 0 1/3 0
40,00 40,00 40,00 32,00 32,00
0 0 0 0 0
*Percentage of completion ** Equivalent units

(ii) Statement showing Cost for each element

Particulars Materia Labour Overhea Total

ls d
Cost of opening work-in- 12,00,0 2,00,000 2,00,000 16,00,000
progress (`) 00
Cost incurred during the month 51,20,0 30,00,00 30,00,00 1,11,20,0
(`) 00 0 0 00
Total cost (`) : (a) 63,20,0 32,00,00 32,00,00 1,27,20,0
00 0 0 00
Equivalent units : (B) 40,000 32,000 32,000
Cost per equivalent unit (`) : 158 100 100 358
C= (A ÷ B)

118
 (ii) Statement of Apportionment of cost
(`) (`)
Value of output transferred: (A) (28,000 units × ` 1,00,24,00
358) 0
Value of closing work-in-progress: (B)
Material (12,000 units × `158) 18,96,000
Labour (4,000 units × ` 100) 4,00,000
Overhead (4,000 units × ` 100) 4,00,000 26,96,000
Total cost : (A + B) 1,27,20,00
0

(iii) Process- A Account

Particulars Units (`) Particulars Units (`)
To Opening 8,000 16,00,000 By 28,00 1,00,24,0
WIP Complet 0 00
ed units
To Materials 32,000 51,20,000 By Closing WIP 12,00 26,96,000
0
To Labour 30,00,000
To Overhead 30,00,000
40,000 1,27,20,0 40,00 1,27,20,0
00 0 00
QUES 3 A
3. (a) MKL Infrastructure built and operates 110 k.m. highway on the basis of Built-Operate- Transfer
(BOT) for a period of 21 years. A traffic assessment has been carried out to estimate the traffic
flow per day which shows the following figures:
Sl. Type of vehicle Daily traffic
No. volume
1. Two wheelers 44,500
2. Car and SUVs 3,450
3. Bus and LCV 1,800
4. Heavy commercial 816
vehicles
The following is the estimated cost of the project:

119
 Sl. Activities Amount
no. (` in
lakh)
1 Site clearance 341.00
2 Land development and filling work 9,160.00
3 Sub base and base courses 10,520.00
4 Bituminous work 32,140.00
5 Bridge, flyovers, underpasses, Pedestrian subway, 28,110.00
footbridge, etc
6 Drainage and protection work 9,080.00
7 Traffic sign, marking and road appurtenance 8,810.00
8 Maintenance, repairing and rehabilitation 12,850.00
9 Environmental management 1,964.00
Total Project cost 1,12,975.0
0
An average cost of `1,200 lakh has to be incurred on administration and toll plaza operation.
On the basis of the vehicle specifications (i.e. weight, size, time saving etc.), the following weights
has been assigned to the passing vehicles:
Sl. No. Type of vehicle
1. Two wheelers 5%
2. Car and SUVs 20%
3. Bus and LCV 30%
4. Heavy commercial 45%
vehicles
Required:
(i) CACULATE the total project cost per day of concession period.
(ii) COMPUTE toll fee to be charged for per vehicle of each type, if the company wants earn
a profit of 15% on total cost.
[Note: Concession period is a period for which an infrastructure is allowed to operate and
recover its investment] (10 Marks)

3. (a) (i) Calculation of total project cost per day of concession period:
Activities Amount (` in lakh)

Site clearance 341.00

Land development and filling work 9,160.00
Sub base and base courses 10,520.00
Bituminous work 32,140.00
Bridge, flyovers, underpasses, Pedestrian subway,
footbridge, etc 28,110.00
Drainage and protection work 9,080.00
Traffic sign, marking and road appurtenance 8,810.00
Maintenance, repairing and rehabilitation 12,850.00

120
 Environmental management 1,964.00
Total Project cost 1,12,975.00
Administration and toll plaza operation cost 1,200.00
Total Cost 1,14,175.00
Concession period in days (21 years × 365 days) 7,665
Cost per day of concession period (` in lakh) 14.90

(ii) Computation of toll fee:

Cost to be recovered per day = Cost per day of concession period + 15% profit on
cost
= ` 14,90,000 + ` 2,23,500 = ` 17,13,500
` 17,13,500
Cost per equivalent vehicle =
76,444 units (Refer working note)

= ` 22.42 per equivalent vehicle

Vehicle type-wise toll fee:
Sl. Type of vehicle Equivalent Weig Toll fee per
No. cost ht vehicle
[A] [B] [A×B]
1. Two wheelers `22.42 1 22.42
2. Car and SUVs `22.42 4 89.68
3. Bus and LCV `22.42 6 134.5
2
4. Heavy commercial `22.42 9 201.7
vehicles 8
Working Note:
The cost per day has to be recovered from the daily traffic. The each type of vehicle
is to be converted into equivalent unit. Let’s convert all vehicle types equivalent to
Two-wheelers..
Sl. Type of vehicle Daily traffic Weig Rati Equivalent
No. volume [A] ht o Two- wheeler
[B] [A×B]
1. Two wheelers 44,50 0.05 1 44,50
0 0
2. Car and SUVs 3,450 0.20 4 13,80
0
3. Bus and LCV 1,800 0.30 6 10,80
0
4. Heavy commercial 816 0.45 9 7,344
vehicles
Total 76,44
4

121
 CHAPTER 11: JOINT PRODUCTS AND BY PRODUCTS

NOVEMBER 2019

Question 1
(C)A Factory produces two products, 'A' and 'B' from a single process. The joint processing
costs during a particular month are :

Direct Material `30,000

Direct Labour ` 9,600
Variable Overheads ` 12,000
Fixed Overheads ` 32,000
Sales: A- 100 units@ ` 600 per unit; B – 120 units @ ` 200 per unit.
I. Apportion joints costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and
II. Determine Profit or Loss under both the methods.
5 MARKS

Answer

(C) Total Joint Cost

Amount (`)
Direct Material 30,000
Direct Labour 9,600
Variable Overheads 12,000
Total Variable Cost 51,600
Fixed Overheads 32,000
Total joint cost 83,600

122
Apportionment of Joint Costs:

* The fixed cost of ` 32,000 is to be apportioned over the joint products A and B in the ratio of their
contribution margin but contribution margin of Product B is Negative so fixed cost will be charged
to Product A only.

123
 NOVEMBER 2020
Question 1
(b) A company's plant processes 6,750 units of a raw material in a month to produce two products
'M' and 'N'.
The process yield is as under:
Product M 80%
Product N 12%
Process Loss 8%
The cost of raw material is ` 80 per unit.
Processing cost is ` 2,25,000 of which labour cost is accounted for 66%. Labour is chargeable to
products 'M' and 'N' in the ratio of 100:80.
Prepare a Comprehensive Cost Statement for each product showing:
(i) Apportionment of joint cost among products 'M' and 'N' and
(ii) Total cost of the products 'M' and 'N'.
5 MARKS

Answer

124
JANUARY 2021

Question 4

125
 (a) Mayura Chemicals Ltd buys a particular raw material at ` 8 per litre.
At the end of the processing in Department- I, this raw material splits-off into products X, Y
and Z. Product X is sold at the split-off point, with no further processing. Products Y and Z
require further processing before they can be sold. Product Y is processed in Department-2,
and Product Z is processed in Department-3. Following is a summary of the costs and other
related data for the year 2019-20:

Particulars Departme
nt
1 2 3
Cost of Raw Material ` - -
4,80,000
Direct Labour ` 70,000 ` `
4,50,000 6,50,000
Manufacturing Overhead ` 48,000 ` `
2,10,000 4,50,000
Products
X Y Z
Sales (litres) 10,000 15,000 22,500
Closing inventory (litres) 5,000 - 7,500
Sale price per litre (`) 30 64 50
There were no opening and closing inventories of basic raw materials at the beginning as well
as at the end of the year. All finished goods inventory in litres was complete as to processing.
The company uses the Net-realisable value method of allocating joint costs.
You are required to prepare:
(i) Schedule showing the allocation of joint costs.
(ii) Calculate the Cost of goods sold of each product and the cost of each item in Inventory.
(iii) A comparative statement of Gross profit. (10 Marks)
Answer
(b) (i) Statement of Joint Cost allocation of inventories of X, Y and Z
Products Total (`)
X (`) Y (`) Z (`)
Final sales value of 4,50,000 9,60,000 15,00,000 29,10,000
total production (15,000 x ` 30) (15,000 x ` 64) (30,000 x ` 50)
(Working Note 1)
Less: Additional -- 6,60,000 11,00,000 17,60,000
cost
Net realisable value 4,50, 3,00,000 4,00,000 11,50,000
(at split-off point) 000
Joint cost allocated 2,34, 1,56,000 2,08,000 5,98,000
(Working Note 2) 000
(ii) Calculation of Cost of goods sold and Closing inventory
Produc Total
ts (`)
X Y (`) Z
(`) (`)
126
Allocated joint cost 2,34,000 1,56,00 2,08,000 5,98,00
0 0
Add: Additional -- 6,60,00 11,00,000 17,60,0
costs 0 00
Cost of goods sold 2,34,000 8,16,00 13,08,000 23,58,0
(COGS) 0 00
Less: Cost of 78,000 -- 3,27,00 4,05,00
closing inventory (COGS × 0 0
(Working Note 1) 100/3%) (COGS ×
25%)
Cost of goods sold 1,56,000 8,16,00 9,81,000 19,53,0
0 00
(iii) Comparative Statement of Gross Profit

Produc Total
ts (`)
X (`) Y (`) Z (`)
Sales revenue 3,00,000 9,60,000 11,25,000 23,85,00
(10,000 x ` (15,000 x ` (22,500 x ` 0
30) 64) 50)
Less: Cost of 1,56,000 8,16,000 9,81,000 19,53,00
goods sold 0
Gross Profit 1,44,000 1,44,000 1,44,000 4,32,000

Working Notes:
1. Total production of three products for the year 2019-2020

Produc Quanti Quantity of Total Closing

ts ty sold closing production inventory
in inventory in percentage
litres litres (%)
(1) (2) (3) (4) = [(2) + (5) = (3)/
(3)} (4)
X 10,000 5,00 15,000 100/3
0
Y 15,000 -- 15,000 --
Z 22,500 7,50 30,000 25
0

127
JULY 2021

Question 2

(b) OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process
results in four products at the spilt-off point - S, P, N and A. Product 'A’ is fully processed at
the split-off point. Product S, P and N can be individually further refined into SK, PM, and NL
respectively. The joint cost of purchasing the crude vegetable oi l and processing it were `
40,000. Other details are as follows:

Produ Further processing Sales at split-off Sales after

ct costs point further
(`) (`) processing
(`)
S 80,00 20,000 1,20,00
0 0
P 32,00 12,000 40,000
0
N 36,00 28,000 48,000
0
A - 20,000 -

You are required to identify the products which can be further processed for maximizing profits
and make suitable suggestions. (5 Marks)

ANSWER
(b) Statement of Comparison of Profits before and after further processing

S (`) P (`) N (`) A (`) Total (`)

A. Sales at split off point 20,000 12,000 28,000 20,000 80,000

128
 B. Apportioned Joint Costs 10,000 6,000 14,000 10,000 40,000
(Refer Working Note)
C. Profit at split-off point 10,000 6,000 14,000 10,000 40,000
D. Sales after further 1,20,000 40,000 48,000 - 2,08,000
processing
E. Further processing cost 80,000 32,000 36,000 - 1,48,000
F. Apportioned Joint Costs 10,000 6,000 14,000 - -
(Refer Working Note)
G. Profit if further processing 30000 2,000 (-) 2,000 - -
(D – E + F)
H. Increase/ decrease in profit 20,000 - 4000 - 16,000 - -
after further processing (G- C)

Suggested Product to be further processed for maximising profits:

On comparing the figures of "Profit if no further processing" and "Profits if further

processing", one observes that OPR Ltd. is earning more after further processing of
Product S only i.e. ` 20,000. Hence, for maximizing profits, only Product S should be
further processed and Product P, N and A should be sold at split-off point.

Alternate solution

Decision for further processing of Product S, P and N

Products S (`) P (`) N (`)

Sales revenue after further processing 1,20,000 40,000 48,000
Less: sales value at split-off point 20,000 12,000 28,000

129
 Incremental Sales Revenue 1,00,000 28,000 20,000
Less: Further Processing cost 80,000 32,000 36,000
Profit/ loss arising due to further 20,000 (-)4,000 (-
processing )16,000
Suggested Product to be further processed for maximising profits:

On comparing the figures of "Profit if no further processing" and "Profits if further

processing", one observes that OPR Ltd. is earning more after further processing of
Product S only i.e. ` 20,000. Hence, for maximizing profits, only Product S should be
further processed and Product P, N and A should be sold at split-off point.
MOCK TEST PAPER-1
3. Answer the following:
(a) A factory produces two products, 'Ghee' and 'Cream' from a single process. The joint processing
costs during a particular month are:
Direct Material ` 60,000
Direct Labour ` 19,200
Variable Overheads ` 24,000
Fixed Overheads ` 64,000
Sales: Ghee - 200 litre @ ` 600 per litre; Cream – 240 litre @ ` 200 per litre.
REQUIRED:
I. Apportion joints costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and
II. Determine Profit or Loss under both the methods. 5MARKS

2. (a) Total Joint Cost

Particulars Amount (`)
Direct Material 60,000
Direct Labour 19,200
Variable Overheads 24,000
Total Variable Cost 1,03,200
Fixed Overheads 64,000
Total joint cost 1,67,200

130
MOCK TEST PAPER-2

6 (a) How apportionment of joint costs up-to the point of separation amongst the joint
products using market value at the point of separation and net realizable value method is done?
DISCUSS. 5 MARKS
6 (a) Apportionment of Joint Cost amongst Joint Products using:
Market value at the point of separation: This method is used for apportionment of
joint costs to joint products upto the split off point. It is difficult to apply if the market
value of the product at the point of separation is not available. It is useful method where
further processing costs are incurred disproportionately.
Net realizable value Method: From the sales value of joint products (at finished
stage) the followings are deducted:

− Estimated profit margins

− Selling & distribution expenses, if any
− Post- split off costs.
The resultant figure so obtained is known as net realizable value of joint products. Joint
costs are apportioned in the ratio of net realizable value.
131
 CHAPTER 12: SERVICE COSTING

JULY 2021

Question 4

(B) MRSL Healthcare Ltd. has incurred the following expenditure during the last year for its
newly launched 'COVID-19' Insurance policy:

Office administration cost 48,00,000

Claim management cost 3,80,000
Employees cost 16,20,000
132
 Postage and logistics 32,40,000
Policy issuance cost 29,50,000
Facilities cost 46,75,000
Cost of marketing of the policy 1,38,90,000
Policy development cost 35,00,000
Policy servicing cost 96,45,000
Sales support expenses 32,00,000
I.T. Cost ?
Number of Policy sold: 2,800
Total insured value of policies - ` 3,500 Crores Cost per
rupee of insured value - ` 0.002
You are required to:
(i) Calculate Total Cost for "COVID-19" Insurance policy segregating the costs into four main
activities namely (a) Marketing and Sales support (b) Operations (c) I.T. Cost and (d) Support
functions.
(ii) Calculate Cost Per Policy. (5 Marks)
ANSWER

(B) (i) Calculation of total cost for ‘COVID-19’ Insurance policy

Particulars Amount (`) Amount (`)

a. Marketing and Sales support:
- Policy development cost 35,00,000
- Cost of marketing 1,38,90,000
- Sales support expenses 32,00,000 2,05,90,000
b. Operations:
- Policy issuance cost 29,50,000
- Policy servicing cost 96,45,000
- Claim management cost 3,80,000 1,29,75,000
c. IT Cost* 2,21,00,000
d. Support functions

1,43,35,000
- Postage and logistics 32,40,000
- Facilities cost 46,75,000
- Employees cost 16,20,000
- Office administration cost 48,00,000
Total Cost 7,00,00,000

133
 Question 6
Answer any four of the following:
(b) What do you understand by Build-Operate-Transfer (BOT) approach in Service Costing? How is
the Toll rate computed?
5 MARKS

ANSWER
(b) Build-Operate-Transfer (BOT) Approach: In recent years a growing trend emerged among
Governments in many countries to solicit investments for public projects from the private sector
under BOT scheme. BOT is an option for the Government to outsource public projects to the
private sector.
With BOT, the private sector designs, finances, constructs and operate the facility
and eventually, after specified concession period, the ownership is transferred to the
Government. Therefore, BOT can be seen as a developing technique for
infrastructure projects by making them amenable to private sector participation.
Toll Rate: In general, the toll rate should have a direct relation with the benefits that the
road users would gain from its improvements. The benefits to road users are likely to be
in terms of fuel savings, improvement in travel time and good riding quality.
To compute the toll rate, following formula may be used
Total Cost + Profit
=
Number of Vehicles Or,
to compute the toll rate following formula with rounding off to nearest multiple of five
has been adopted: User fee = Total distance x Toll rate per km.
CHAPTER 13: STANDARD COSTING

NOVEMBER 2019

Question 5

(B) The standard cost of a chemical mixture is as

follows: 60% of Material A @ ` 50 per kg

40% Material B @ ` 60 per kg

A standard loss of 25% on output is expected in production. The cost records for a period
has shown the following usage.

134
 540 kg of Material
A @ ` 60 per kg 260 kg of
Material B @ ` 50 per kg

The quantity processed was 680 kilograms of good

product. From the above given information

Calculate:
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Usage Variance
(iv) Material Mix Variance
(v) Material Yield Variance. (10 Marks)
Answer
(a) Basic Calculation
Material Standard for 640 kg. Actual for 680 kg.
output output
Qty Rate Amount Qt Rate Amount
. (`) (`) y (`) (`)
Kg Kg
. .
A 480 50 24,000 540 60 32,400
B 320 60 19,200 260 50 13,000
Total 800 43,200 800 45,400
Less: Loss 160 − − 120 − −
640 43,200 680 45,400
Std. cost of actual output = ` 43,200 × 680/640 = ` 45,900
Calculation of Variances
(i) Material Cost Variance = (Std. cost of actual output – Actual cost)
= (45,900– 45,400)
= ` 500 (F)

(ii) Material Price Variance = (SP – AP) × AQ

Material A = (50 – 60) × 540 = ` 5400 (A)

135
 Material B = (60 – 50)) × 260 = ` 2600 (F)
MPV = ` 2800 (A)
NOVEMBER 2020

Question 3
(a) ABC Ltd. has furnished the following information regarding the overheads for the month of June
2020 :

(i) Fixed Overhead Cost Variance ` 2,800 (Adverse)

(ii) Fixed Overhead Volume Variance ` 2,000 (Adverse)
(iii) Budgeted Hours for June, 2020 2,400 hours
(iv) Budgeted Overheads for June,2020 ` 12,000
(v) Actual rate of recovery of overheads ` 8 Per Hour
From the above given information
Calculate:
(1) Fixed Overhead Expenditure Variance
(2) Actual Overheads Incurred
(3) Actual Hours for Actual Production
(4) Fixed Overhead Capacity Variance
(5) Standard hours for Actual Production
(6) Fixed Overhead Efficiency Variance (10 Marks)

136
 Answer
(a) (1) Fixed Overhead Expenditure Variance
= Budgeted Fixed Overheads – Actual Fixed Overheads

= ` 12,000 – ` 12,800 (as calculated below) = ` 800 (A)

(2) Fixed Overhead Cost Variance= Absorbed Fixed Overheads – Actual Fixed Overheads
2,800 (A) = ` 10,000 – Actual Overheads
Actual Overheads = ` 12,800

(3) Actual Hours for Actual Production = ` 12,800/ `8 = 1,600 hrs.

(4) Fixed Overhead capacity Variance
= Budgeted Fixed Overheads for Actual Hours– Budgeted Fixed Overheads

= ` 5 x 1600 hrs. – ` 12,000 = ` 4,000 (A)

(5) Standard Hours for Actual Production
= Absorbed Overheads/ Std. Rate

= ` 10,000/ ` 5 = 2,000 hrs.

(6) Fixed Overhead Efficiency Variance
= Absorbed Fixed Overheads – Budgeted Fixed Overheads for Actual Hours

= ` 10,000 – ` 5 x 1,600 hrs. = ` 2,000 (F)

Working Note:
(i) Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed
Overheads
2,000 (A) = Absorbed Fixed Overheads – `12,000
Absorbed Fixed Overheads = ` 10,000

(ii) Standard Rate/ Hour = ` 5 (` 12,000/2,400 hrs.)

JANUARY 2021

QUESTION 5

(B) Premier Industries has a small factory where 52 workers are employed on an average
for 25 days a month and they work 8 hours per day. The normal down time is 15%. The
firm has introduced standard costing for cost control. Its monthly budget for November,
2020 shows that the budgeted variable and fixed overhead are ` 1,06,080 and ` 2,21,000
respectively.
The firm reports the following details of actual performance for November, 2020, after the end of
the month:

Actual hours worked 8,100 hrs.

Actual production expressed in standard hours 8,800 hrs.
137
 Actual Variable Overheads ` 1,02,000
Actual Fixed Overheads ` 2,00,000

You are required to calculate:

(i) Variable Overhead Variances:
(a) Variable overhead expenditure variance.
(b) Variable overhead efficiency variance.
(ii) Fixed Overhead Variances:
(a) Fixed overhead budget variance.
(b) Fixed overhead capacity variance.
(c) Fixed overhead efficiency variance.
(iii) Control Ratios:
(a) Capacity ratio.
(b) Efficiency ratio.
(c) Activity ratio. (10 Marks)
ANSWER

138
JULY 2021

Question 5
(a) The standard output of a Product 'DJ' is 25 units per hour in manufacturing department of a
Company employing 100 workers. In a 40 hours week, the department produced 960 units of
product 'DJ' despite 5% of the time paid was lost due to an abnormal reason. The hourly wage
rates actually paid were ` 6.20, ` 6.00 and ` 5.70 respectively to Group 'A' consisting 10 workers,
Group 'B' consisting 30 workers and Group 'C' consisting 60 workers. The standard wage rate per
labour is same for all the workers. Labour Efficiency Variance is given ` 240 (F).

You are required to compute:

(i) Total Labour Cost Variance.
(ii) Total Labour Rate Variance.
(iii) Total Labour Gang Variance.
(iv) Total Labour Yield Variance, and
(v) Total Labour Idle Time Variance. (10 Marks)

139
1. Calculation of standard man hours for actual output:
= 960 units x 4 hours = 3,840 hours.
2. Calculation of actual cost
Type No of Actual Rat Amou Idle Hours Actual
of Worker Hours e nt (5% of hours hours
Worker s Paid paid) Worked
(`) (`)
s
Group ‘A’ 10 400 6.2 2,480 20 380
Group ‘B’ 30 1,200 6 7,200 60 1,140
Group ‘C’ 60 2,400 5.7 13,680 120 2,280
100 4,000 23,360 200 3,800

3. Calculation of Standard wage Rate:

Labour Efficiency Variance = 240F
(Standard hours for Actual production – Actual Hours) x SR = 240F

(3,840 – 3,800) x SR = 240

Standard Rate (SR) = ` 6 per hour

(i) Total Labour Cost Variance
= (Standard hours x Standard Rate) – (Actual Hours x Actual rate)
= (3,840 x 6) – 23,360 = 320A
(ii) Total Labour Rate Variance
= (Standard Rate – Actual Rate) x Actual Hours

Group ‘A’ = (6- 6.2) = 80A

400
Group ‘B’ = (6- 6) = 0
1,200

140
 Group ‘C’ = (6 – 5.7) = 720
2,400 F
640
F

(i) Total Labour Yield Variance

= Average Standard Rate per hour of Standard Gang ×
{Total Standard Time (hours) - Total Actual Time
worked (hours)}
= 6 x (3,840 – 3,800)
= 240F
(ii) Total Labour idle time variance
= Total Idle hours x standard rate per hour
= 200 hours x 6
= 1,200A

MOCK TEST PAPER-2

Q1 D

(a) JK Ltd. has furnished the following standard cost data per unit of production:

141
 Material 10 kg @ ` 200 per kg.

Labour 6 hours @ ` 110 per hour

Variable overhead 6 hours @ ` 200 per hour.
Fixed overhead ` 90,00,000 per month (Based on a normal volume
of 30,000 labour hours.)
The actual cost data for the month of September 2021 are as follows:
Material used 50,000 kg at a cost of `
1,05,00,000.
Labour paid ` 31,00,000 for 31,000 hours
Variable overheads ` 58,60,000
Fixed overheads ` 94,00,000
Actual production 4,800 units.
CALCULATE:
(vi) Material Cost Variance.
(vii) Labour Cost Variance.
(viii) Fixed Overhead Cost Variance.
(ix) Variable Overhead Cost Variance. (4 × 5 Marks = 20 Marks)
ANSWER

(b) Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = ` 90,00,000 ÷ 5,000 units = ` 1,800 per unit
= ` 90,00,000 ÷ 30,000 hours = ` 300 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. × Actual Price)
= (4,800 units × 10 kg. × `200) - `1,05,00,000

= ` 96,00,000 – ` 1,05,00,000
= ` 9,00,000 (A)
(i) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours × Actual rate)
= (4,800 units × 6 hours × ` 110) – `31,00,000
= ` 31,68,000 – ` 31,00,000
= ` 68,000 (F)
(ii) Fixed Overhead Cost Variance= (Budgeted Rate × Actual Qty) – Actual Overhead
= (` 1,800 × 4,800 units) – ` 94,00,000
= ` 7,60,000 (A)
OR = (Budgeted Rate × Std. Hours) – Actual Overhead
= (` 300 × 4,800 units × 6 hours) – ` 94,00,000

142
 = ` 7,60,000 (A)
(iii) Variable Overhead Cost Variance= (Std. Rate × Std. Hours) – Actual Overhead
= (4,800 units × 6 hours × ` 200) - ` 58,60,000
= ` 57,60,000 - ` 58,60,000
= ` 1,00,000 (A)

CHAPTER 14: MARGINAL COSTING

NOVEMBER 2019

Question 1
(D) When volume is 4,000 units; average cost is ` 3.75 per unit. When volume is 5,000
units, average cost is ` 3.50 per unit. The Break-Even point is 6,000 units.
Calculate: (i) Variable Cost per unit (ii) Fixed Cost and (iii) Profit Volume Ratio.

(5 Marks)

Answer

143
Question 5

(a) PJ Ltd manufactures hockey sticks. It sells the products at ` 500 each and makes a profit of ` 125
on each stick. The Company is producing 5,000 sticks annually by using 50% of its machinery
capacity.
The cost of each stick is as under:

Direct Material ` 150

Direct Wages ` 50

Works Overhead ` 125 (50% fixed)

Selling Expenses ` 50 (25% variable)
The anticipation for the next year is that cost will go up as under:

Fixed Charges 10
%
Direct Wages 20
%
Direct Material 5%
There will not be any change in selling price.
There is an additional order for 2,000 sticks in the
next year.
Calculate the lowest price that can be quoted so that the Company can earn the same
profit as it has earned in the current year? (10 Marks)

144
 Answer
(a) Selling Price = ` 500
Profit = ` 125
No of Sticks = 5,000
Particular Current Year Next Year
(`) (`)
Direct Material 150 157.50
(150 + 5%)
Direct Wages 50 60
(50+20%)
Works Overheads 62.50 62.5
(125 × 50%)
Selling Expenses 12.50 12.5
(50 × 25%)
Total Variable Cost 275 292.50

Fixed Cost (62.5 × 5,000) = 3,12,500; (37.5 × 5,000) = 5,00,000 5,50,000

1,87,500

Let: Lowest Price Quoted = K

Now, Sales = Target Profit (5,000 units × ` 125) + Variable Cost + Fixed Cost
Or, = (5,000 × 500) + (2,000 × K) = 6,25,000 + 20,47,500 + 5,50,000 Or,
K = ` 361.25
So, Lowest Price that can be quoted to earn the profit of ` 6,25,000 (same as current year) is ` 361.25
NOVEMBER 2020
Question 1
(B) Moon Ltd. produces products 'X', 'Y' and 'Z' and has decided to analyse it's production
mix in respect of these three products - 'X', 'Y' and 'Z'.
You have the following information :
X Y Z
Direct Materials ` (per unit) 160 120 80
Variable Overheads ` (per 8 20 12
unit)
Direct labour :
Departments Rate per Hour (`) Hours per Hours per Hours per
: unit unit unit
X Y Z
Department- 4 6 10 5
A
Department- 8 6 15 11
B

145
 From the current budget, further details are as below :
X Y Z
Annual Production at present (in units) 10,00 12,00 20,00
0 0 0
Estimated Selling Price per unit (`) 312 400 240
Sales departments estimate of possible sales in 12,00 16,00 24,00
the coming year (in units) 0 0 0
There is a constraint on supply of labour in Department-A and its manpower cannot be increased
beyond its present level.
Required:
(i) Identify the best possible product mix of Moon Ltd.
(ii) Calculate the total contribution from the best possible product mix.
5 MARKS

ANSWER

(a) (i) Statement Showing “Calculation of Contribution/ unit”

Particulars X Y Z
(`) (`) (`)
Selling Price (A) 31 40 240
2 0
Variable Cost:
Direct Material 16 12 80
0 0
Direct Labour
Dept. A (Rate x 24 40 20
Hours)
Dept. B (Rate x 48 12 88
Hours) 0
Variable 8 20 12
Overheads
Total Variable Cost 24 30 200
(B) 0 0
Contribution per 72 10 40
unit (A - B) 0
Hours in Dept. A 6 10 5
Contribution per 12 10 8
hour
Rank I II III
Existing Hours = 10,000 x 6hrs. + 12,000 x 10 hrs. + 20,000 x 5 hrs. = 2,80,000 hrs.
Best possible product mix (Allocation of Hours on the basis of ranking)

Produce ‘X’ = 12,000 units

Hours Required = 72,000 hrs (12,000 units × 6 hrs.)
146
 Balance Hours Available = 2,08,000 hrs (2,80,000 hrs. –
72,000 hrs.)
Produce ‘Y’ (the Next Best) = 16,000 units
Hours Required = 1,60,000 hrs (16,000 units × 10
hrs.)
Balance Hours Available = 48,000 hrs (2,08,000 hrs. –
1,60,000 hrs.)
Produce ‘Z’ (balance) = 9,600 units (48,000 hrs./ 5 hrs.)
(ii) Statement Showing “Contribution”

Produ Units Contribution/ Unit Total

ct (`) Contribution (`)
X 12,00 72 8,64,000
0
Y 16,00 100 16,00,000
0
Z 9,600 40 3,84,000
Total 28,48,000

Question 6
Answer any four of the following:
(E)Differentiate between "Marginal and Absorption Costing". (5 Marks)
Answer
(E) Difference between Marginal costing and Absorption costing

S. Marginal costing Absorption costing

No.
1. Only variable costs are Both fixed and variable costs are
considered for product costing considered for product costing and
and inventory inventory valuation.
valuation.
2. Fixed costs are regarded as Fixed costs are charged to the cost
period costs. The Profitability of production. Each product bears
of different products is judged a reasonable share of fixed cost
by their P/V ratio. and thus the profitability of a
product is influenced
by the apportionment of fixed costs.
3. Cost data presented highlight Cost data are presented in
the total contribution of each conventional pattern. Net profit of
product. each product is determined after
subtracting fixed cost
along with their variable costs.

147
 4. The difference in the The difference in the magnitude of
magnitude of opening stock opening stock and closing stock
and closing stock does not affects the unit cost of production
affect the unit cost of due to the
production. impact of related fixed cost.
5. In case of marginal costing In case of absorption costing the
the cost per unit remains the cost per unit reduces, as the
same, irrespective of the production increases as it is fixed
production as it is valued at cost which reduces, whereas, the
variable cost variable cost
remains the same per unit.

JANUARY 2021

Question 1
Answer the following:
(a) During a particular period ABC Ltd has furnished the following
data: Sales ` 10,00,000
Contribution to sales ratio 37% and
Margin of safety is 25% of sales.
A decrease in selling price and decrease in the fixed cost could change the "contribution
to sales ratio" to 30% and "margin of safety" to 40% of the revised sales. Calculate:
(i) Revised Fixed Cost.
(ii) Revised Sales and
(iii) New Break-Even Point.

148
 5 MARKS

JULY 2021

Question 1
(b) LR Ltd. is considering two alternative methods to manufacture a new product it intends to market.
The two methods have a maximum output of 50,000 units each and produce identical items with
a selling price of ` 25 each. The costs are:

Method Method
-1 Semi- -2 Fully-
Automatic Automatic
(`) (`)
Variable cost per unit 15 10
Fixed costs 1,00,000 3,00,000
You are required to calculate:
(1) Cost Indifference Point in units. Interpret your results.
(2) The Break-even Point of each method in terms of units. (5 Marks)
(3) (i) Cost Indifference Point

149
 Method-1 and
Method-2
(`)
Differential Fixed Cost (I) ` 2,00,000
(` 3,00,000 – `
1,00,000)
Differential Variable Costs (II) `5
(` 15 – ` 10)
Cost Indifference Point (I/II) 40,000
(Differential Fixed Cost / Differential Variable
Costs
per unit)
Interpretation of Results

At activity level below the indifference points, the alternative with lower fixed costs
and higher variable costs should be used. At activity level above the indifference
point, alternative with higher fixed costs and lower variable costs should be used.

No. of Product Alternative to be Chosen

Product ≤ 40,000 units Method-1, Semi-Automatic
Product ≥ 40,000 units Method-2, Automatic

(ii) Break Even point (in units)

Method-1 Method-2
Fixed cost 1,00,000 3,00,000
BEP (in units) = = 10,000 = 20,000
Contribution per unit (25-15) (25-10)

Question 6
Answer any four of the following
(B) What is Margin of Safety? What does a large Margin of Safety indicates? How can you
calculate Margin of Safety?

5 MARKS

Answer

(c) Margin of Safety: The margin of safety can be defined as the difference
between the expected level of sale and the breakeven sales.
The larger the margin of safety, the higher is the chances of making profits.

The Margin of Safety can be calculated by identifying the difference between the
projected sales and breakeven sales in units multiplied by the contribution per unit. This

150
 is possible because, at the breakeven point all the fixed costs are recovered
and any further contribution goes into the making of profits.

Margin of Safety = (Projected sales – Breakeven sales) in units x contribution per unit

It also can be calculated as:

Profit
Margin of Safety =
P / V Ratio

MOCK TEST PAPER-1

QUES5 A

(a) Amy Ltd. manufacture and sales its product RM. The following figures have been collected
from cost records of last year for the product RM:

Elements of Cost Variable Cost portion Fixed Cost

Direct Material 30% of Cost of Goods --
Sold
Direct Labour 15% of Cost of Goods --
Sold
Factory Overhead 10% of Cost of Goods ` 3,45,000
Sold
Administration Overhead 2% of Cost of Goods Sold ` 1,06,500
Selling & Distribution Overhead 4% of Cost of Sales ` 1,02,000

Last Year, 7,500 units were sold at ` 185 per unit. From the given information, DETERMINE the
followings:
(i) Break-even Sales (in rupees)
(ii) Profit earned during last year
(iii) Margin of safety (in %)
(iv) Profit if the sales were 10% less than the actual sales.
(Assume that Administration Overhead is related with production activity) (10
Marks)

151
ANSWER

152
MOCK TEST PAPER-2

Q1 C

(a) A factory can produce 1,80,000 units per annum at its 60% capacity. The estimated costs of
production are as under:
Direct material ` 50 per unit
Direct employee ` 16 per unit
cost
Indirect expenses:
- Fixed ` 32,50,000 per annum
- Variable ` 10 per unit
- Semi- ` 40,000 per month up to 50% capacity and `
variable 15,000 for every 20% increase in the capacity or
part thereof.
If production program of the factory is as indicated below and the management desires to ensure
a profit of `10,00,000 for the year, DETERMINE the average selling price at which each unit
should be quoted:
First three months of the year- 50% of capacity;
Remaining nine months of the year- 75% of capacity.
ANSWER

(b) Statement of Cost

First Remaining nine Total
three months (`) ( `)
months
(`)
37,500 1,68,750 units 2,06,250 units
units
Direct material 18,75,00 84,37,500 1,03,12,500
0
Direct employee cost 6,00,000 27,00,000 33,00,000
Indirect- 3,75,000 16,87,500 20,62,500
variabl
e expenses
153
 Indirect – fixed 8,12,500 24,37,500 32,50,000
expenses
Indirect- semi-
variable expenses
- For first 1,20,000 1,20,000
three
months @
` 40,000
p.m.
- For 6,30,000 6,30,000
remaining
nine months
@
` 70,000*
p.m.
Total cost 37,82,50 1,58,92,500 1,96,75,000
0
Desired profit - - 10,00,000
Sales value - - 2,06,75,000
Average selling price 100.24
per unit
* ` 40,000 for 50% capacity + ` 15,000 for 20% increase in capacity + ` 15,000 for
5% increase in capacity (because cost is increased for every 20% increase in
capacity or part thereof)

QUES 4 B

(b) A Limited manufactures three different products and the following information has been collected
from the books of accounts:
Produc
ts
S T U
Sales Mix 25% 35% 40
%
Selling Price ` 600 ` 800 ` 400
Variable Cost ` 300 ` 400 ` 240
Total Fixed Costs `
36,00,000
Total Sales `
1,20,00,00
0
The company has currently under discussion, a proposal to discontinue the manufacture of Product
U and replace it with Product M, when the following results are anticipated:
Produc
ts
S T M
154
 Sales Mix 40% 35% 25%
Selling Price ` `80 `600
600 0
Variable Cost ` `40 `300
300 0
Total Fixed Costs `
36,00,000
Total Sales `1,28,00,0
00
Required
(i) Compute the PV ratio, total contribution, profit and Break-even sales for the existing
product mix.
(ii) Compute the PV ratio, total contribution, profit and Break-even sales for the proposed
product mix. (10 Marks)
ANSWER

(i) Computation of PV ratio, contribution and break-even sales for existing

product mix
Produc
ts Total
S T U
Selling Price (`) 600 800 400
Less: Variable Cost (`) 300 400 240
Contribution per unit (`) 300 400 160
P/V Ratio (Contribution/Selling 50% 50% 40%
price)
Sales Mix 25% 35% 40%
Contribution per rupee of sales
12.5% 17.5% 16% 46%
(P/V Ratio × Sales Mix)

Present Total Contribution (` 1,20,00,000 × 46%) `55,20,000

Less: Fixed Costs `36,00,000
Present Profit `19,20,000
Present Break Even Sales (` 36,00,000/0.46) `
78,26,087
(ii) Computation of PV ratio, contribution and break-even sale for proposed
product mix

Produc
ts
S T M Tota
155
 l
Selling Price (`) 600 800 600
Less: Variable Cost (`) 300 400 300
Contribution per unit (`) 300 400 300
P/V Ratio (Contribution/Selling 50% 50% 50%
price)
Sales Mix 40% 35% 25%
Contribution per rupee of sales 50%
20% 17.5% 12.5%
(P/V Ratio x Sales Mix)
Proposed Total Contribution `64,00,0
(`1,28,00,000 x 50%) 00
Less: Fixed Costs `36,00,0
00
Proposed Profit `28,00,0
00
Proposed Break Even Sales `72,00,0
(`36,00,000/0.50) 00

CHAPTER 15: BUDGET AND BUDGETARY CONTROL

NOVEMBER 2019

156
 Question 6
Answer any four of the following:

(E) Define Zero Base Budgeting and mention its various stages. (5 Marks)

Answer
(a) Zero-based Budgeting: (ZBB) is an emergent form of budgeting which arises to overcome the
limitations of incremental (traditional) budgeting system. Zero- based Budgeting (ZBB) is defined
as ‘a method of budgeting which requires each cost element to be specifically justified,
although the activities to which the budget relates are being undertaken for the first time, without
approval, the budget allowance is zero’.
ZBB is an activity based budgeting system where budgets are prepared for each
activities rather than functional department. Justification in the form of cost benefits
for the activity is required to be given. The activities are then evaluated and prioritized
by the management on the basis of factors like synchronisation with organisational
objectives, availability of funds, regulatory requirement etc.
ZBB is suitable for both corporate and non-corporate entities. In case of non-corporate entities like
Government department, local bodies, not for profit organisations, where these entities need to
justify the benefits of expenditures on social programmes like mid-day meal, installation of street
lights, provision of drinking water etc.
ZBB involves the following stages:
(i) Identification and description of Decision packages
(ii) Evaluation of Decision packages
(iii) Ranking (Prioritisation) of the Decision packages
(iv) Allocation of resources

NOVEMBER 2020
Question 1
Answer the following:
(A) G Ltd. manufactures a single product for which market demand exists for additional
quantity. Present sales of ` 6,00,000 utilises only 60% capacity of the plant. The following
data are available:

(1) Selling price : ` 100 per unit

(2) Variable cost : ` 30 per unit
(3) Semi-variable expenses : ` 60,000 fixed + ` 5 per unit
(4) Fixed expenses : ` 1,00,000 at present level, estimated to
increase by 25% at and above 80%
capacity.
You are required to prepare a flexible budget so as to arrive at the operating profit at 60%, 80% and
100% levels.
Answer
(A) Flexible Budget

157
 Activity Level 60% 80% 100%
Production (units) 6,000 8,000 10,000
(`) (`) (`)
Sales @ ` 100 per unit 6,00,000 8,00,000 10,00,000
Variable Cost 2,10,000 2,80,000 3,50,000
(@ ` 35 (` 30 + ` 5) per unit)
Contribution (A) 3,90,000 5,20,000 6,50,000
Fixed Cost (part of semi-variable 60,000 60,000 60,000
cost)
Other Fixed Cost 1,00,000 1,25,000 1,25,000
Total Fixed Cost (B) 1,60,000 1,85,000 1,85,000
Operating Profit (A – B) 2,30,000 3,35,000 4,65,000
Question 6
Answer any four of the following:
(b) What are the important points an organization should consider if it wants to adopt Performance
Budgeting?
5 MARKS

Answer
(b) For an enterprise that wants to adopt Performance Budgeting, it is thus imperative that:
• the objectives of the enterprise are spelt out in concrete terms.
• the objectives are then translated into specific functions, programmes, activities and tasks
for different levels of management within the realities of fiscal constraints.
• realistic and acceptable norms, yardsticks or standards and performance indicators should
be evolved and expressed in quantifiable physical units.
• a style of management based upon decentralised responsibility structure should be
adopted, and
• an accounting and reporting system should be developed to facilities monitoring, analysis
and review of actual performance in relation to budgets .

JANUARY 2021

Question 3
(b) Two manufacturing companies A and B are planning to merge. The details are as follows:
A B
Capacity utilisation (%) 90 60
Sales (`) 63,00,00 48,00,000
0
Variable Cost (`) 39,60,00 22,50,000
0
Fixed Cost (`) 13,00,00 15,00,000
0

158
 Assuming that the proposal is implemented, calculate:
(i) Break-Even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales Turnover of the merged plant to earn a profit of ` 60,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of ` 60,00,000, what
percentage of increase in selling price is required to sustain an increase of 5% in fixed
overheads. (10 Marks)

Answer
(a) Workings:
1. Statement showing computation of Breakeven of merged plant and other required
information
S. Plan A Plant B Merged
No. Particulars Before After Before After Plant
(90%) (100%) (60%) (100%) (100%)
(`) (`) (`) (`) (`)
(i) Sales 63,00,000 70,00,000 48,00,000 80,00,000 1,50,00,000
(ii) Variable cost 39,60,000 44,00,000 22,50,000 37,50,000 81,50,000
(iii) Contribution (i - ii) 23,40,000 26,00,000 25,50,000 42,50,000 68,50,000
(iv) Fixed Cost 13,00,000 13,00,000 15,00,000 15,00,000 28,00,000
(v) Profit (iii - iv) 10,40,000 13,00,000 10,50,000 27,50,000 40,50,000
Contribution
2. PV ratio of merged plant = x 100
Sales
` 68,50,000
= x 100 = 45.67 %
` 1,50,00,000

159
Question 6
Answer any four of the following:
(B) State the limitations of Budgetary Control System.
(b) Limitations of Budgetary Control System
Points Descripti
on
1. Based on Estimates Budgets are based on a series of estimates,
which are based on the conditions prevalent or
expected at the time budget is established. It
requires revision in plan if conditions change.

160
 2. Time factor Budgets cannot be executed automatically.
Some preliminary steps are required to be
accomplished before budgets are
implemented. It requires proper attention and
time of management. Management must not
expect too much during the initial development
period.
3. Co-operation Staff co-operation is usually not available
Required during the initial budgetary control exercise. In
a decentralised organisation, each unit has its
own objective and these units enjoy some
degree of discretion. In this type of
organisation structure, coordination among
different units is required. The success of the
budgetary control depends upon willing co-
operation and teamwork,
4. Expensive The implementation of budget is somewhat
expensive. For successful implementation of
the budgetary control, proper organisation
structure with responsibility is prerequisite.
Budgeting process start from the collection of
information to for preparing the budget and
performance analysis. It consumes valuable
resources (in terms of qualified manpower,
equipment, etc.) for this purpose; hence, it is
an expensive process.
5. Not a substitute for Budget is only a managerial tool and must be
management intelligently applied for management to get
benefited. Budgets are not a substitute for
good management.

6. Rigid document Budgets are sometime considered as rigid

documents. But in reality, an organisation is
exposed to various uncertain internal and
external factors. Budget should be flexible
enough to incorporate ongoing developments
in the internal and external factors affecting
the very purpose of the budget.

JULY 2021

161
 Question 5
(b) PSV Ltd. manufactures and sells a single product and estimated the following related
information for the period November, 2020 to March, 2021.

Particulars Novembe Decembe January Februar Marc

r, r, , y, h,
2020 2020 2021 2021 202
1
Opening Stock of 7,500 3,000 9,000 8,000 6,000
Finished Goods (in
Units)
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per 10 12 15 15 20
unit (in `)

Additional Information:
• Closing stock of finished goods at the end of March, 2021 is 10,000 units.
• Each unit of finished output requires 2 kg of Raw Material 'A' and 3 kg of Raw Material 'B'.
You are required to prepare the following budgets for the period November, 2020 to March, 2021
on monthly basis:
(i) Sales Budget (in `)
(ii) Production budget (in units) and
(iii) Raw material Budget for Raw material 'A' and 'B' separately (in units) (10 Marks)
ANSWER
(b) (i) Sales Budget (in `)

Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total

Sales (in Units) 30,000 35,000 38,000 25,000 40,000 1,68,000
Selling Price per
unit (`) 10 12 15 15 20 -

Total Sales (`) 3,00,000 4,20,000 5,70,000 3,75,000 8,00,000 24,65,000

(ii) Production Budget (in units)

Particulars Nov, Dec, Jan, 21 Feb, Mar, 21 Total

20 20 21
Sales 30,000 35,000 38,000 25,000 40,000 1,68,00
0
Add: Closing stock
3,000 9,000 8,000 6,000 10,000 36,000
of finished goods

Total quantity 33,000 44,000 46,000 31,000 50,000 2,04,00

required 0
Less: Opening stock
7,500 3,000 9,000 8,000 6,000 33,500
of finished goods

162
 Units to be 25,500 41,000 37,000 23,000 44,000 1,70,50
produced 0
(iii) Raw material budget (in units)
For Raw material ‘A’

Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total

Units to be produced: (a) 25,500 41,000 37,000 23,000 44,000 1,70,500
Raw material 2 2 2 2 2 -
consumption
p.u. (kg.): (b)
Total raw material 51,000 82,000 74,000 46,000 88,000 3,41,000
consumption (Kg.): (a × b)
For Raw material ‘B’

Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total

Units to be 25,500 41,000 37,000 23,000 44,000 1,70,500
produced: (a)
Raw material 3 3 3 3 3 -
consumption p.u.
(kg.): (b)
Total raw material 76,500 1,23,000 1,11,000 69,000 1,32,000 5,11,500
consumption (Kg.):
(a × b)

REVISION TEST PAPERS

MATERIAL COST

NOV 2020

1. A company uses four raw materials A, B, C and D for a particular product for which the following
data apply :–

163
 Raw Usage Re- Price Delivery Re- Minimu
Materia per order per period (in orde m
l unit of Quantit Kg. weeks) r level
produ y (Kg.) (`) Minimu Averag Maximu leve (Kg.)
ct m e m l
(Kg. (Kg.
) )
A 12 12,000 12 2 3 4 60,00 ?
0
B 8 8,000 22 5 6 7 70,00 ?
0
C 6 10,000 18 3 5 7 ? 25,50
0
D 5 9,000 20 1 2 3 ? ?
Weekly production varies from 550 to 1,250 units, averaging 900 units of the said product.
What would be the following quantities:–
(i) Minimum Stock of A?
(ii) Maximum Stock of B?
(iii) Re-order level of C?
(iv) Average stock level of A?
(v) Re-order level of D?
(vi) Minimum Stock level of D?
1. (i) Minimum stock of A
Re-order level – (Average consumption × Average time required to obtain delivery)
= 60,000 kg. – (900units × 12 kg. × 3 weeks) = 27,600 kg.
(ii) Maximum stock of B
Re-order level + Re-order quantity– (Min. Consumption × Min. Re-order period)
= 70,000 kg.+ 8,000 kg– (550units ×8 kg.× 5 weeks).

164
MAY 2021

1. A Ltd. produces a product ‘X’ using a raw material ‘D’. To produce one unit of X, 4 kg of D is
required. As per the sales forecast conducted by the company, it will be able to sale 20,000 units
of X in the coming year.
The following are the information related to the raw material D:
(i) The Re-order quantity is 400 kg. less than the Economic Order Quantity (EOQ).
(ii) Maximum consumption per day is 40 kg. more than the average consumption per day.
(iii) There is an opening stock of 2,000 kg.
(iv) Time required to get the raw materials from the suppliers is 4 to 8 days.
(v) The purchase price is ` 250 per kg.
There is an opening stock of 1,800 units of the finished product X. The
carrying cost of inventory is 14% p.a.
To place an order company has to incur ` 1,340 on paper and documentation work.
From the above information FIND OUT the followings in relation to raw material D:
(a) Re-order Quantity
(b) Maximum Stock level
165
 (c) Minimum Stock level
(d) Calculate the impact on the profitability of the company by not ordering the EOQ. [Take
300 days for a year]
(e) Working Notes:
• Computation of Annual consumption & Annual Demand for raw material
‘D’:
Sales forecast of the product ‘X’ 20,000
units
Less: Opening stock of ‘X’ 1,800
units
Fresh units of ‘X’ to be produced 18,200
units
Raw material required to produce 18,200 units of ‘X’ 72,800 kg.
(18,200 units × 4 kg.)
Less: Opening Stock of ‘D’ 2,000 kg.
Annual demand for raw material ‘D’ 70,800 kg.
• Computation of Economic Order Quantity (EOQ):

EOQ =

166
167
NOV 2021

1. The following data are available in respect of material X for the year ended 31st March, 2021:
(`)
Opening stock 9,00,000
Purchases during the year 1,70,00,000
Closing stock 11,00,000
(i) CALCULATE:
(a) Inventory turnover ratio, and
(b) The number of days for which the average inventory is held.
(ii) INTERPRET the ratio calculated as above if the industry inventory turnover rate is 10.

168
EMPLOYEE COST

169
 NOV 2020

1. GZ Ld. pays the following to a skilled worker engaged in production works. The following are the
employee benefits paid to the employee:
(a) Basic salary per day `1,000
(b) Dearness allowance 20% of basic salary
(DA)
(c) House rent allowance 16% of basic salary
(d) Transport allowance `50 per day of actual work
(e) Overtime Twice the hourly rate (considers basic and
DA), only if works more than 9 hours a day
otherwise no overtime allowance. If works
for more than 9 hours a day then overtime
is considered after 8th hours.

(f) Work of holiday Double of per day basic rate provided works
and Sunday atleast 4 hours. The holiday and Sunday
basic is eligible for all allowances and
statutory deductions.
(h) Earned leave & These are paid leave.
Casual leave
(h) Employer’s contribution to 12% of basic and DA
Provident fund
(i) Employer’s contribution to 7% of basic and DA
Pension fund
The company normally works 8-hour a day and 26-day in a month. The company provides 30
minutes lunch break in between.
During the month of August 2020, Mr.Z works for 23 days including 15 th August and a Sunday and
applied for 3 days of casual leave. On 15th August and Sunday he worked for 5 and 6 hours
respectively without lunch break.
On 5th and 13th August he worked for 10 and 9 hours respectively. During the
month Mr. Z worked for 100 hours on Job no.HT200. You are required to
CALCULATE:
(i) Earnings per day
(ii) Effective wages rate per hour of Mr. Z.
(iii) Wages to be charged to Job no.HT200.
2. Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of days
= (8 hours – 0.5 hours) × 26 days = 195 hours
2. Hours worked by Mr.Z = No. of normal days worked + Overtime + holiday/ Sunday worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.
(i) Calculation of earnings per day

170
 Particulars Amount (`)
Basic salary (`1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200
31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × `31,200) 3,744
Employer’s contribution to Pension fund (7% × `31,200) 2,184
41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638
(ii) Calculation of effective wage rate per hour of Mr. Z:
Particulars Amount
(`)
Basic salary (`1,000 × 26 days) 26,000
Additional basic salary for Sunday & holiday (`1,000 × 2 2,000
days)
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (`50 × 23 days) 1,150
Overtime allowance (`160 × 2 × 2 hours)* 640
Employer’s contribution to Provident fund (12% × `33,600) 4,032
Employer’s contribution to Pension fund (7% × `33,600) 2,352
Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) ÷ 7.5 hours
= (1,000+200) ÷ 7.5 = `160 per hour
(iii) Calculation of wages to be charged to Job no. HT200
= ` 248 × 100 hours = ` 24,800

MAY 2021
1. JBL Sisters operates a boutique which works for various fashion houses and retail stores. It has
employed 26 workers and pays them on time rate basis. On an average an employee is allowed 8
hours for boutique work on a piece of garment. In the month of December 2020, two workers M
and J were given 15 pieces and 21 pieces of garments respectively for boutique work. The
following are the details of their work:
M J

171
 Work assigned 15 pcs. 21 pcs.
Time taken 100 140
hours hours
Workers are paid bonus as per Halsey System. The existing rate of wages is ` 60 per hour. As per
the new wages agreement the workers will be paid ` 72 per hour w.e.f. 1stJanuary

2021. At the end of the month December 2020, the accountant of the company has wrongly
calculated wages to these two workers taking ` 72 per hour.
Required:
(vi) CALCULATE the loss incurred due to incorrect rate selection.
(vii) CALCULATE the loss incurred due to incorrect rate selection, had Rowan scheme of bonus
payment followed.
(viii) CALCULATE the loss/ savings if Rowan scheme of bonus payment had followed.
(ix) DISCUSS the suitability of Rowan scheme of bonus payment for JBL Sisters?
1. Workings Notes:
Calculation of Total hours saved:
M J
No. of garments assigned (Pieces.) 15 21
Hour allowed per piece (Hours) 8 8
Total hours allowed (Hours) 120 16
8
Hours Taken (Hours) 100 14
0
Hours Saved (Hours) 20 28
(i) Calculation of loss incurred due to incorrect rate selection:
(While calculating loss only excess rate per hour has been taken)
M J Tota
(`) (`) l (`)
Basic Wages 1,200 1,680 2,88
(100 Hrs. × `12) (140 Hrs. × `12) 0
Bonus (as per Halsey 120 168 288
Scheme) (50% of 20 Hrs. × (50% of 28 Hrs. ×
(50% of Time Saved × `12) `12)
Excess Rate)
Excess Wages Paid 1,320 1,848 3,16
8
(ii) Calculation of loss incurred due to incorrect rate selection had Rowan scheme of
bonus payment followed:
M J Total (`)
(`) (`)

172
Basic Wages 1,200 1,680 2,880
(100 Hrs. × `12) (140 Hrs. × `12)

Bonus (as per Rowan Scheme) 200 280 480

 Time Taken   100   140 
 Time AllowedTime Saved  ExcessRate
  12020  `12  16828  `12
     

Excess Wages Paid 1,400 1,960 3,360

(i) Calculation of amount that could have been saved if Rowan Scheme were followed
M J Total
(`) (`) (`)
Wages paid under Halsey 1,32 1,84 3,168
Scheme 0 8
Wages paid under Rowan 1,40 1,96 3,360
Scheme 0 0
Difference (loss) (80) (112 (192)
)
(ii) Rowan Scheme of incentive payment has the following benefits, which is suitable with the
nature of business in which JBL Sisters operates:
(a) Under Rowan Scheme of bonus payment, workers cannot increase their earnings or
bonus by merely increasing its work speed. Bonus under Rowan Scheme is maximum
when the time taken by a worker on a job is half of the time allowed. As this fact is
known to the workers, therefore, they work at such a speed which helps them to
maintain the quality of output too.
(b) If the rate setting department commits any mistake in setting standards for time to be
taken to complete the works, the loss incurred will be relatively low.
NOV 2021
1. Textile Ltd. pays following overtime premium for its labour beside normal wages of ` 100 per
hour:
Before and after normal working hours 80% of basic wage rate
Sundays and holidays 150% of basic wage
rate
During the previous year 2019-20, the following hours were worked:
Normal time 3,00,000 hours
Overtime before and after normal working hours 60,000 hours
Overtime on Sundays and holidays 15,000 hours
Total 3,75,000 hours
During the current year 2020-21, the following hours have been worked on job ‘Spinning’:
Normal 4,000 hours
Overtime before and after normal working hours 400 hours
173
 Overtime on Sundays and holidays 100 hours
Total 4,500 hours

You are required to CALCULATE the labour cost chargeable to job ‘Spinning’ and overhead in
each of the following instances:
(a) Where overtime is worked regularly throughout the year as a policy due to the
workers’ shortage.
(b) Where overtime is worked irregularly to meet the requirements of production.
(c) Where overtime is worked at the request of the customer to expedite the job.
1. Workings:
Basic wage rate = ` 100 per hour
Overtime wage rate before and after working hours = ` 100 + (` 100 × 80%)
= ` 180 per hour Overtime
wage rate for Sundays and holidays = ` 100 + (` 100 × 150%)
= ` 250 per hour
Computation of average inflated wage rate (including overtime premium):
Particulars Amount (`)
Annual wages for the previous year for normal 3,00,00,00
time (3,00,000 hrs. × ` 100) 0
Wages for overtime before and after normal 108,00,000
working hours (60,000 hrs. × ` 180)
Wages for overtime on Sundays and 37,50,000
holidays (15,000 hrs. × ` 250)
Total wages for 3,75,000 hrs. 4,45,50,00
0
` 4,45,50,000
Average inflated wage rate = = ` 118.80
3,75,000 hours

(a) Where overtime is worked regularly as a policy due to workers’ shortage

The overtime premium is treated as a part of employee cost and job is charged at an
inflated wage rate. Hence, employee cost chargeable to job ‘Spinning’
= Total hours × Inflated wage rate = 4,500hrs. × ` 118.80 = ` 5,34,600
(b) Where overtime is worked irregularly to meet the requirements of production
Basic wage rate is charged to the job and overtime premium is charged to factory
overheads as under:
Employee cost chargeable to Job ‘Spinning’ = 4,500hours @ ` 100 per hour
= ` 4,50,000

Factory overhead = {400 hrs. × (` 100 × 80%)} + {100 hrs. × (` 100 × 150%)}
= {` 32,000 + ` 15,000} = ` 47,000
(c) Where overtime is worked at the request of the customer, overtime premium is

174
 also charged to the job as under: (`)
Job ‘Spinning’ Employee cost: 4,500hrs. @ = 4,50,000
` 100
Overtime premium: 400 hrs. @ (` 100 × 80%) = 32,000
100 hrs. @ (` 100 × 150%) =
15,000
Total
4,97,000

OVERHEADS

NOV 2020

1. You are given the following information of the three machines of a manufacturing department of X
Ltd.:
Preliminary estimates of expenses (per
annum)
Machin
Total (`) es
A (`) B (`) C (`)
Depreciation 2,00,000 75,000 75,000 50,00
0
Spare parts 1,00,000 40,000 40,000 20,00
0
Power 4,00,000
Consumable stores 80,000 30,000 25,000 25,00
0
Insurance of machinery 80,000
Indirect labour 2,00,000
Building maintenance 2,00,000
expenses

Annual interest on capital 1,00,000 40,000 40,000 20,000

outlay
Monthly charge for rent and 20,000
rates
Salary of foreman (per month) 42,000
Salary of Attendant (per 12,000
month)
(The foreman and the attendant control all the three machines and spend equal time on them.)
175
 The following additional information is also available:
Machin
es
A B C
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 12 holidays besides Sundays in the year, of which two were on Saturdays. The
manufacturing department works 8 hours in a day but Saturdays are half days. All machines work
at 90% capacity throughout the year and 2% is reasonable for breakdown.
You are required to :
CALCULATE predetermined machine hour rates for the above machines after taking into
consideration the following factors:
• An increase of 15% in the price of spare parts.
• An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only.
• 20% general increase in wages rates.
• a) Computation of Machine Hour Rate
Basis of Machin
apportionmen Total (`) es
t A (`) B (`) C (`)
(A Standing
) Charges
Insurance Depreciation 80,000 30,000 30,000 20,000
Basis (3:3:2)
Indirect Labour Direct Labour 2,40,000 60,000 90,000 90,000
(2:3:3)
Building Floor Space 2,00,000 80,000 80,000 40,000
maintenance (2:2:1)
expenses
Rent and Rates Floor 2,40,000 96,000 96,000 48,000
Spac
e (2:2:1)
Salary of Equal 5,04,000 1,68,00 1,68,000 1,68,000
foreman 0
Salary of Equal 1,44,000 48,000 48,000 48,000
attendant
Total standing charges 14,08,000 4,82,00 5,12,000 4,14,000
0
Hourly rate for standing charges 247.43 262.83 212.53
(B Machine
) Expenses:
Depreciation Direct 2,00,000 75,000 75,000 50,000
Spare parts Final estimates 1,32,250 46,000 57,500 28,750
Power K.W. 4,00,000 1,50,00 1,00,000 1,50,000
ratin 0
g (3:2:3)

176
 Consumable Direct 80,000 30,000 25,000 25,000
Stores
Total Machine expenses 8,12,250 3,01,00 2,57,500 2,53,750
0
Hourly Rate for Machine 154.52 132.19 130.26
expenses
Total (A + B) 22,20,250 7,83,00 7,69,500 6,67,750
0
Machine Hour rate 401.95 395.02 342.79

Working Notes:
• Calculation of effective working hours:
No. of full off-days = No. of Sunday + No. of holidays
= 52 + 12 = 64 days
No. of half working days = 52 days – 2 holidays = 50 days

No. of full working days = 365 days – 64 days – 50 days = 251 days Total
working Hours = {(251 days × 8 hours) + (50 days × 4 hours)}
= 2,008 hours + 200 = 2,208 hours.
Total effective hours = Total working hours × 90% - 2% for break-
down
= 2,208 hours × 90% - 2% (2,208 hours × 90%)
= 1,987.2 hours – 39.74 hours
= 1947.46 or Rounded up to 1948 hours.
(i) Amount of spare parts is calculated as under:
A (`) B (`) C (`)
Preliminary estimates 40,000 40,000 20,000
Add: Increase in price @ 6,000 6,000 3,000
15%
46,000 46,000 23,000
Add: Increase in − 11,500 5,750
consumption @ 25%
Estimated cost 46,000 57,500 28,750
(ii) Amount of Indirect Labour is calculated as under:
(`)
Preliminary estimates 2,00,000
Add: Increase in wages @ 20% 40,000
2,40,000
(iii) Interest on capital outlay is a finance cost, therefore it has been excluded from the cost
accounts.

177
MAY 2021

1. A manufacturing unit has purchased and installed a new machine at a cost of ` 24,90,000 to its
fleet of 5 existing machines. The new machine has an estimated life of 12 years and is expected
to realise ` 90,000 as scrap value at the end of its working life.
Other relevant data are as follows:
(i) Budgeted working hours are 2,496 based on 8 hours per day for 312 days. Plant
maintenance work is carried out on weekends when production is totally halted. The
estimated maintenance hours are 416. During the production hours machine set -up and
change over works are carried out. During the set-up hours no production is done. A total
312 hours are required for machine set-ups and change overs.
(ii) An estimated cost of maintenance of the machine is ` 2,40,000 p.a.
(iii) The machine requires a component to be replaced every week at a cost of ` 2,400.
(iv) There are three operators to control the operations of all the 6 machines. Each operator is
paid ` 30,000 per month plus 20% fringe benefits.
(v) Electricity: During the production hours including set-up hours, the machine consumes 60
units per hour. During the maintenance the machine consumes only 10 units per hour. Rate
of electricity per unit of consumption is ` 6.
(vi) Departmental and general works overhead allocated to the operation during last year was `
5,00,000. During the current year it is estimated to increase by 10%.
Required:
COMPUTE the machine hour rate.
2. Working Note:
1. Effective machine hour:
= Budgeted working hours – Machine Set-up time
= 2,496 hours – 312 hours = 2,184 hours.
2. Operators’ salary per annum:
Salary (3 operators × `30,000 × 12 `
months) 10,80,000
Add: Fringe benefits (20% of ` 2,16,000
`10,80,000)
`
12,96,000
3. Depreciation per annum
`24,90,000−`90,000
= ` 2,00,000
12years

178
NOV 2021

1. PL Ltd. has three production departments P1, P2 and P3 and two service departments S1 and S2.
The following data are extracted from the records of the company for the month of October, 2020:
(`)
Rent and rates 12,50,000
General lighting 1,50,000
Indirect Wages 3,75,000
Power 5,00,000
Depreciation on machinery 10,00,000
Insurance of machinery 4,00,000
Other Information:
P1 P2 P3 S1 S2
Direct wages (`) 7,50,000 5,00,000 7,50,000 3,75,00 1,25,00
0 0

179
 Horse Power 60 30 50 10 −
of
Machines used
Cost of machinery 60,00,00 80,00,00 1,00,00,0 5,00,00 5,00,00
(`) 0 0 00 0 0
Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of 10 15 20 10 5
light
points
Production 6,225 4,050 4,100 − −
hour
s worked
Expenses of the service departments S1 and S2 are reapportioned as below:
P1 P2 P3 S1 S2
S1 20 30 40 − 10
% % % %
S2 40 20 30 10 −
% % % %

Required:
(i) COMPUTE overhead absorption rate per production hour of each production department.
(ii)DETERMINE the total cost of product X which is processed for manufacture in department
P1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its direct material cost
is ` 12,500 and direct labour cost is ` 7,500.
(iii) 3Distribution Summary
Primary
.
Item of cost Basis of Total P1 P2 P3 S1 S2
apportionmen (`) (`) (`) (`) (`) (`)
t
Direct wages Actual 5,00,000 -- -- -- 3,75,0 1,25,00
00 0
Rent Floor area 12,50,00 2,50,00 3,12,50 3,75,000 2,50,0 62,500
an (4 : 5 : 6 : 4 : 1) 0 0 0 00
d Rates
General Light points 1,50,000 25,000 37,500 50,000 25,000 12,500
lighting (2 : 3 : 4 : 2 : 1)
Indirect Direct 3,75,000 1,12,50 75,000 1,12,500 56,250 18,750
wages wages (6 : 4 0
: 6 : 3 : 1)
Power Horse Power of 5,00,000 2,00,00 1,00,00 1,66,667 33,333 −
machines used 0 0
(6 : 3 : 5 : 1)
Depreciation Value of 10,00,00 2,40,00 3,20,00 4,00,000 20,000 20,000
of machinery machinery (12 : 0 0 0
16 : 20 : 1 : 1)
Insurance Value of 4,00,000 96,000 1,28,00 1,60,000 8,000 8,000
o machinery (12 : 0
f machinery 16 : 20 : 1 : 1)
41,75,00 9,23,50 9,73,00 12,64,16 7,67,5 2,46,75
0 0 0 7 83 0
Overheads of service cost centres
Let S1 be the overhead of service cost centre S1 and S2 be the overhead of service cost centre S2.
180
 S1 = 7,67,583 + 0.10 S2
S2 = 2,46,750 + 0.10 S1
Substituting the value of S2 in S1 we get S1 =
7,67,583 + 0.10 (2,46,750 + 0.10 S1)
S1 = 7,67,583 + 24,675 + 0.01 S1
0.99 S1 = 7,92,258
S1 = ` 8,00,260
S2 = 2,46,750 + 0.10  8,00,260
=

181
ACTIVITY BASED COSTING

NOV 2020

182
 1. KD Ltd. is following Activity based costing. Budgeted overheads, cost drivers and
volume are as follows:
Cost pool Budgete Cost driver Budgete
d overheads d
(`) volum
e
Material procurement 18,42,000 No. or orders 1,200
Material handling 8,50,000 No. of movement 1,240
Maintenance 24,56,000 Maintenance 17,550
hours
Set-up 9,12,000 No. of set-ups 1,450
Quality control 4,42,000 No. of inspection 1,820

The company has produced a batch of 7,600 units, its material cost was `24,62,000 and wages
`4,68,500. Usage activities of the said batch are as follows:
Material orders 56
Material movements 84
Maintenance hours 1,420 hours
Set-ups 60
No. of inspections 18
Required:
(i) CALCULATE cost driver rates.
CALCULATE the total and unit cost for the batch

1. i) Calculation of cost driver rate:

Cost pool Budgete Cost Cost driver
d overheads driver rate
(`) (`)
Material 18,42,000 1,200 1,535.00
procurement
Material handling 8,50,000 1,240 685.48
Maintenance 24,56,000 17,550 139.94
Set-up 9,12,000 1,450 628.97
Quality control 4,42,000 1,820 242.86

Calculation of cost for the batch:

Particulars Amount Amount (`)

(`)
Material cost 24,62,000.0
0
Wages 4,68,500.00
Overheads:
- Material procurement (`1,535×56 85,960.00
183
 orders)
- Material handling 57,580.32
(`685.48×84
movements)
- Maintenance (`139.94×1,420 hours) 1,98,714.8
0
- Set-up (`628.97×60 set-ups) 37,738.20
- Quality control (`242.86×18 4,371.48 3,84,364.80
inspections)
Total Cost 33,14,864.8
0
No. of units 7,600
Cost per units 436.17
MAY 2021

1. The following budgeted information relates to N Ltd. for the year 2021:
Produc
ts
X Y Z
Production and Sales (units) 1,00,00 80,00 60,00
0 0 0
(`) (`) (`)
Selling price per unit 90 180 140
Direct cost per unit 50 90 95
Hours Hour Hour
s s
Machine department 3 4 5
(machine hours per
unit)
Assembly department 6 4 3
(direct labour hours per
unit)
The estimated overhead expenses for the year 2021 will be as below:
Machine Department ` 73,60,000
Assembly Department ` 55,00,000
Overhead expenses are apportioned to the products on the following basis:
Machine Department On the basis of machine hours
Assembly Department On the basis of labour hours
After a detailed study of the activities the following cost pools and their respective cost drivers are
found:
Cost Pool Amount Cost Driver Quantity
(`)
Machining services 64,40,000 Machine hours 9,20,000 hours
Assembly services 44,00,000 Direct labour 11,00,000
184
 hours hours
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups
Order processing 7,20,000 Customer orders 7,200 orders
Purchasing 4,00,000 Purchase orders 800 orders
As per an estimate the activities will be used by the three products:
Produc
ts
X Y Z
Machine set-ups 4,500 3,000 1,500

Customer orders 2,200 2,400 2,600

Purchase orders 300 350 150
You are required to PREPARE a product-wise profit statement using:
(x) Absorption costing method;
Activity-based method.
1. (i) Profit Statement using Absorption costing method:
Particulars Produ Tota
ct l
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per unit 90 180 140
(`)
C. Sales Value (`) 90,00,000 1,44,00,0 84,00,00 3,18,00,0
[A×B] 00 0 00
D. Direct cost per unit 50 90 95
(`)
E. Direct Cost (`) [A×D] 50,00,000 72,00,000 57,00,00 1,79,00,0
0 00
F. Overheads:

(i) Machine 24,00,000 25,60,000 24,00,00 73,60,000

departme 0
nt (`) (Working
note-1)
(ii) Assembly 30,00,000 16,00,000 9,00,00 55,00,000
departme 0
nt (`) (Working
note-1)
G. Total Cost (`) [E+F] 1,04,00,0 1,13,60,0 90,00,00 3,07,60,0
00 00 0 00
H. Profit (C-G) (14,00,00 30,40,000 (6,00,00 10,40,000
0) 0)
(ii) Profit Statement using Activity based costing (ABC) method:

185
 Particulars Produ Total
ct
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling price per 90 180 140
unit (`)
C. Sales Value (`) 90,00,000 1,44,00,0 84,00,00 3,18,00,0
[A×B] 00 0 00
D. Direct cost per unit 50 90 95
(`)
E. Direct Cost (`) 50,00,000 72,00,000 57,00,00 1,79,00,0
[A×D] 0 00
F. Overheads:
(Ref
er working note-3)
(i) Machining services 21,00,000 22,40,000 21,00,00 64,40,000
(`) 0
(ii) Assembly services 24,00,000 12,80,000 7,20,000 44,00,000
(`)
(iii) Set-up costs (`) 4,50,000 3,00,000 1,50,000 9,00,000
(iv Order processing 2,20,000 2,40,000 2,60,000 7,20,000
) (`)
(v) Purchasing (`) 1,50,000 1,75,000 75,000 4,00,000
G. Total Cost (`) [E+F] 1,03,20,00 1,14,35,0 90,05,00 3,07,60,0
0 00 0 00
H. Profit (`) (C-G) (13,20,000 29,65,000 (6,05,000) 10,40,000
)

186
 NOV 2021

1. Family Store wants information about the profitability of individual product lines: Soft drinks,
Fresh produce and Packaged food. Family store provides the following data for the year 2020-
21 for each product line:
187
 Soft drinks Fresh Packaged
produce food
Revenues ` 39,67,500 ` 1,05,03,000 ` 60,49,500
Cost of goods sold ` 30,00,000 ` 75,00,000 ` 45,00,000
Cost of bottles returned ` 60,000 `0 `0
Number of purchase orders 360 840 360
placed
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000
Family store also provides the following information for the year 2020-21:
Activity Description of Total Cost-allocation
activity Cos base
t (`)
Bottles returns Returning of 60,000 Direct tracing to soft
empty drink line
bottles
Ordering Placing of orders for 7,80,000 1,560 purchase
purchases orders
Delivery Physical delivery and 12,60,000 3,150 deliveries
receipt of goods
Shelf stocking Stocking of goods on 8,64,000 8,640 hours of shelf-
store shelves and stocking time
on- going restocking
Customer Assistance provided 15,36,000 15,36,000 items sold
Support to customers
including check-out

Required:
(i) Family store currently allocates support cost (all cost other than cost of goods sold) to
product lines on the basis of cost of goods sold of each product line. CALCULATE the
operating income and operating income as a % of revenues for each product line.
(ii) If Family Store allocates support costs (all costs other than cost of goods sold) to product
lines using and activity-based costing system, CALCULATE the operating income and
operating income as a % of revenues for each product line.
(iii) Working notes:
• Total support cost:
(`)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000

188
189
190
 COST SHEET

NOV 2020

1. The following details are available from the books of R Ltd. for the year ending 31st
March 2020:
Particulars Amount (`)
Purchase of raw materials 84,00,000
Consumable materials 4,80,000
Direct wages 60,00,000
Carriage inward 1,72,600
Wages to foreman and store keeper 8,40,000
Other indirect wages to factory staffs 1,35,000
Expenditure on research and development on new 9,60,000
production technology
Salary to accountants 7,20,000
Employer’s contribution to EPF & ESI 7,20,000
Cost of power & fuel 28,00,000
Production planning office expenses 12,60,000
Salary to delivery staffs 14,30,000
Income tax for the assessment year 2019-20 2,80,000
Fees to statutory auditor 1,80,000
Fees to cost auditor 80,000
Fees to independent directors 9,40,000
Donation to PM-national relief fund 1,10,000
Value of sales 2,82,60,000
Position of inventories as on 01-04-2019:
- Raw Material 6,20,000
- W-I-P 7,84,000
- Finished goods 14,40,000
Position of inventories as on 31-03-2020:
- Raw Material 4,60,000
- W-I-P 6,64,000
- Finished goods 9,80,000
From the above information PREPARE a cost sheet for the year ended 31 st March 2020.

1. Statement of Cost of R Ltd. for the year ended 31st March, 2020:

191
Sl. Particulars Amount Amount
No. (`) (`)
(i) Material Consumed:
- Raw materials purchased 84,00,000
- Carriage inward 1,72,600
Add: Opening stock of raw materials 6,20,000
Less: Closing stock of raw materials (4,60,000) 87,32,600
(ii) Direct employee (labour) cost:
- Direct wages 60,00,000
- Employer’s Contribution towards PF 7,20,000 67,20,000
& ESIS
(iii) Direct expenses:
- Consumable materials 4,80,000
- Cost of power & fuel 28,00,000 32,80,000
Prime Cost 1,87,32,60
(iv) Works/ Factory overheads: 0
- Wages to foreman and store 8,40,00
keeper 0
- Other indirect wages to
factory staffs 1,35,000 9,75,000
Gross factory cost 1,97,07,60
0
Add: Opening value of W-I-P 7,84,000
Less: Closing value of W-I-P (6,64,000)
Factory 1,98,27,60
Cost 0
(v) Research & development cost paid for 9,60,000
improvement in production process
(vi) Production planning office expenses 12,60,000
Cost of Production 2,20,47,60
0
Add: Opening stock of finished goods 14,40,000
Less: Closing stock of finished goods (9,80,000)
Cost of Goods Sold 2,25,07,60
0
(vii Administrative overheads:
)
- Salary to accountants 7,20,000
- Fees to statutory auditor 1,80,000
- Fees to cost auditor 80,000
- Fee paid to independent 9,40,000 19,20,000
directors
(viii Selling overheads& Distribution

192
 ) overheads:
- Salary to delivery staffs 14,30,000
Cost of 2,58,57,60
Sales 0
Profit (balancing figure) 24,02,400
Sales 2,82,60,00
0
Note: Income tax and Donation to PM National Relief Fund is avoided in the cost sheet.
MAY 2021

1. RTA Ltd. has the following expenditures for the year ended 31 st December, 2020:
Sl. Amount Amount
No. (`) (`)
(i) Raw materials purchased 5,00,00,00
0
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid
for: 40,000
- Plant & Machinery
- Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
(xi) Expenses paid for quality control check 18,000
activities
(xii) Research & development cost 20,000
paid for
improvement in production process
(xiii) Expenses paid for pollution control and 36,000
engineering & maintenance
(xiv) Salary paid to Sales & Marketing 5,60,000
mangers
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
- Primary packing necessary 46,000
to maintain quality
- For re-distribution of finished 80,000 1,26,000
goods
193
 (xvii) Fee paid to independent directors 1,20,000
(xviii) Performance bonus paid to sales staffs 1,20,000
(xix) Value of stock as on 1stJanuary, 2020:
- Raw materials 10,00,000
- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31stDecember,
2020:
- Raw materials 8,40,000
- Work-in-process 6,60,000
- Finished goods 10,50,000 25,50,000
Amount realized by selling of scrap and waste generated during manufacturing process –
` 48,000/-
From the above data you are requested to PREPARE Statement of Cost for RTA Ltd. for the year
ended 31st December, 2020, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv)
Cost of goods sold and (v) Cost of sales.
4. Statement of Cost of RTA Ltd. for the year ended 31st December, 2020:
Sl. Particulars Amount Amount
No. (`) (`)
(i) Material Consumed:
- Raw materials purchased 5,00,00,00
0
- Freight inward 9,20,600
Add: Opening stock of raw materials 10,00,000
Less: Closing stock of raw materials (8,40,000) 5,10,80,60
0
(ii) Direct employee (labour) cost:
- Wages paid to factory workers 25,20,000
(iii) Direct expenses:
- Royalty paid for production 1,80,000
- Amount paid for power & fuel 3,50,000
- Job charges paid to job workers 3,10,000 8,40,000

Prime Cost 5,44,40,60

0
(iv) Works/ Factory overheads:
- Stores and spares consumed 1,10,000
- Repairs & Maintenance paid for 40,000
plant & machinery
- Insurance premium paid for plant 28,200
& machinery
- Insurance premium paid for 18,800
factory building
194
 - Expenses paid for pollution control
and engineering & maintenance 36,000 2,33,000
Gross factory cost 5,46,73,60
0
Add: Opening value of W-I-P 8,60,000
Less: Closing value of W-I-P (6,60,000)
Factory Cost 5,48,73,60
0
(v) Quality control cost:
- Expenses paid for quality control 18,000
check activities
(vi) Research & development cost paid for 20,000
improvement in production process
(vii) Less: Realisable value on sale of scrap (48,000)
and waste
(viii) Add: Primary packing cost 46,000
Cost of Production 5,49,09,60
0
Add: Opening stock of finished goods 12,00,000
Less: Closing stock of finished goods (10,50,000)
Cost of Goods Sold 5,50,59,60
0
(ix) Administrative overheads:
- Depreciation on office building 50,000
- Salary paid to General Manager 6,40,000
- Fee paid to independent directors 1,20,000 8,10,000
(x) Selling overheads:
- Repairs & Maintenance paid for 20,000
sales office building
(xi) - Salary paid to Manager-
Sales & Marketing
- Performance bonus paid to sales 7,00,00
staffs
0
Distribution overheads:

- Packing cost paid for re-distribution

of finished goods
80,000
Cost of Sales 5,66,49,
600
NOV 2021

1. Impact Ltd. provides you the following details of its expenditures for the year ended 31st
March, 2021:

195
S. Particulars Amount Amount (`)
No. (`)
(i) Raw materials purchased 5,00,00,000
(ii) GST paid under Composition scheme 10,00,000
(iii) Freight inwards 5,20,600
(iv) Trade discounts received 10,00,000
(v) Wages paid to factory workers 15,20,000
(vi) Contribution made towards employees’ PF &
ESIS 1,90,000
(vii) Production bonus paid to factory 1,50,000
workers
(viii) Fee for technical assistance 1,12,000
(ix) Amount paid for power & fuel 2,62,000
(x) Job charges paid to job workers 4,50,000
(xi) Stores and spares consumed 1,10,000
(xii) Depreciation on:
Factory building 64,000
Office building 46,000
Plant & Machinery 86,000 1,96,000
(xiii) Salary paid to supervisors 1,20,000
(xiv) Repairs & Maintenance paid for:
Plant & Machinery 58,000
Sales office building 50,000
Vehicles used by directors 20,600 1,28,600
(xv) Insurance premium paid for:
Plant & Machinery 31,200
Factory building 28,100 59,300
(xvi) Expenses paid for quality control check
activities 25,000
(xvii) Research & development cost paid for
improvement in production process 48,200
(xviii) Expenses paid for administration of
factory work 1,38,000
(xix) Salary paid to functional mangers:
Production control 4,80,000
Finance & Accounts 9,60,000
Sales & Marketing 12,00,000 26,40,000
(xx) Salary paid to General Manager 13,20,000
(xxi) Packing cost paid for:
Primary packing necessary to maintain
quality 1,06,000
For re-distribution of finished goods 1,12,000 2,18,000
196
 (xxii) Interest and finance charges paid (for
usage of non- equity fund) 3,50,000
(xxiii) Fee paid to auditors 1,80,000
(xxiv) Fee paid to legal advisors 1,20,000
(xxv) Fee paid to independent directors 2,40,000
(xxvi) Payment for maintenance of website for 1,80,000
online sales
(xxvii Performance bonus paid to sales staffs 2,40,000
)
(xxvii Value of stock as on 1st April, 2020:
i)
Raw materials 9,00,000
Work-in-process 4,00,000
Finished goods 7,00,000 20,00,000
(xxix) Value of stock as on 31st March, 2021:

Raw materials 5,60,000

Work-in-process 2,50,000
Finished goods 11,90,000 20,00,000

Amount realized by selling of waste generated during manufacturing process – ` 66,000/-

From the above data, you are required to PREPARE Statement of cost of Impact Ltd. for the year
ended 31st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost
of goods sold and (v) Cost of sales.
4. Statement of Cost of Impact Ltd. for the year ended 31st March, 2021:
Sl. Particulars Amount Amount
No. (`) (`)
(i) Material Consumed:
Raw materials purchased 5,00,00,00
0
GST paid under Composition scheme* 10,00,000
Freight inwards 5,20,600
Less: Trade discounts received (10,00,000
)

Add: Opening stock of raw materials 9,00,000

Less: Closing stock of raw materials (5,60,000) 5,08,60,6
00
(ii) Direct employee (labour) cost:
Wages paid to factory workers 15,20,000
Contribution made towards employees’ PF &
ESIS 1,90,000
Production bonus paid to factory workers 1,50,000 18,60,000
(iii) Direct expenses:
Fee for technical assistance 1,12,000

197
 Amount paid for power & fuel 2,62,000
Job charges paid to job workers 4,50,000 8,24,000
Prime Cost 5,35,44,6
00
(iv) Works/ Factory overheads:
Stores and spares consumed 1,10,000
Depreciation on factory building 64,000
Depreciation on plant & machinery 86,000
Repairs & Maintenance paid for plant &
machinery 58,000
Insurance premium paid for plant & 31,200
machinery
Insurance premium paid for factory 28,100
building
Salary paid to supervisors 1,20,000 4,97,300
Gross factory cost 5,40,41,9
00
Add: Opening value of W-I-P 4,00,000
Less: Closing value of W-I-P (2,50,000)
Factory Cost 5,41,91,9
00
(v) Quality control cost:
Expenses paid for quality control check
activities 25,000
(vi) Research & development cost
paid for 48,200
improvement in production process
(vii) Administration cost related with
production:
-Expenses paid for administration of
factory work 1,38,000
-Salary paid to Production control 4,80,000 6,18,000
manager

(viii) Less: Realisable value on sale of scrap

and waste (66,000)
(ix) Add: Primary packing cost 1,06,000
Cost of Production 5,49,23,1
00
Add: Opening stock of finished goods 7,00,000
Less: Closing stock of finished goods (11,90,00
0)
Cost of Goods Sold 5,44,33,1
00
(x) Administrative overheads:
Depreciation on office building 46,000

198
 Repairs & Maintenance paid for
vehicles used by directors 20,600
Salary paid to Manager- Finance & 9,60,000
Accounts
Salary paid to General Manager 13,20,000
Fee paid to auditors 1,80,000
Fee paid to legal advisors 1,20,000
Fee paid to independent directors 2,40,000 28,86,600
(xi) Selling overheads:
Repairs & Maintenance paid for sales
office building 50,000
Salary paid to Manager- Sales & 12,00,000
Marketing
Payment for maintenance of website for 1,80,000
online sales
Performance bonus paid to sales staffs 2,40,000 16,70,000
(xii) Packing cost paid for re-distribution of
finished goods 1,12,000
(xiii) Interest and finance charges paid 3,50,000
Cost of Sales 5,94,51,7
00
* GST paid under Composition scheme would be included under cost of material as it is not
eligible for input tax credit.

199
COST ACCOUNTING SYSTEM

NOV 2020

1. A manufacturing company disclosed a net loss of `6,94,000 as per their cost accounts for the
year ended March 31,2020. The financial accounts however disclosed a net loss of `10,20,000
for the same period. The following information was revealed as a result of scrutiny of the figures of
both the sets of accounts.
(`)
(i) Factory Overheads under-absorbed 80,000
(ii) Administration Overheads over-absorbed 1,20,000
(iii) Depreciation charged in Financial Accounts 6,50,000
(iv) Depreciation charged in Cost Accounts 5,50,000
(v) Interest on investments not included in Cost Accounts 1,92,000
(vi) Income-tax provided 1,08,000
(vii) Interest on loan funds in Financial Accounts 4,90,000
(viii) Transfer fees (credit in financial books) 48,000
(ix) Stores adjustment (credit in financial books) 28,000
(x) Dividend received 64,000
PREPARE a memorandum Reconciliation Account.
3. Memorandum Reconciliation Accounts
Dr. Cr.
(`) (`)
To Net Loss as per 6,94,000 By Administration 1,20,000
Costing books overheads
over
recovered in
cost
accounts
200
 To Factory overheads 80,000 B Interest on 1,92,000
under absorbed in y investment not
Cost included in Cost
Accounts Accounts
To Depreciation 1,00,000 B Transfer fees 48,000
und y in
er charged in Cost Financial books
Accounts
To Income-Tax not 1,08,000 B Stores adjustment 28,000
provided in Cost y (Credit in
Accounts financial
books)
To Interest on Loan 4,90,000 B Dividend received 64,000
Funds in Financial y in financial books
Accounts
B Net loss as 10,20,00
y per Financial 0
books
14,72,00 14,72,00
0 0
MAY 2021

1. The financial books of a company reveal the following data for the year ended 31 st March, 2020:
(`)
Opening Stock:
Finished goods 625 units 1,06,250
Work-in-process 92,000
01.04.2019 to 31.03.2020
Raw materials consumed 16,80,000
Direct Labour 12,20,000
Factory overheads 8,44,000
Administration overheads (production related) 3,96,000
Dividend paid 2,44,000
Bad Debts 36,000
Selling and Distribution Overheads 1,44,000

Interest received 76,000

Rent received 92,000
Sales 12,615 units 45,60,000
Closing Stock: Finished goods 415 units 91,300
Work-in-process 82,400
The cost records provide as under:
➢ Factory overheads are absorbed at 70% of direct wages.
➢ Administration overheads are recovered at 15% of factory cost.

201
 ➢ Selling and distribution overheads are charged at ` 6 per unit sold.
➢ Opening Stock of finished goods is valued at ` 240 per unit.
➢ The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(xi) PREPARE statements for the year ended 31st March, 2020 showing:
➢ the profit as per financial records
➢ the profit as per costing records.
(xii) PREPARE a statement reconciling the profit as per costing records with the profit as per
financial records.
2. (i) Statement of Profit as per financial records
(for the year ended March 31, 2020)

(`) (`)
To Opening stock of 1,06,25 By Sales 45,60,00
Finished Goods 0 0
To Work-in-process 92,000 By Closing stock of 91,300
finished Goods
To Raw materials 16,80,0 By Work-in-Process 82,400
consumed 00
To Direct labour 12,20,0 By Rent received 92,000
00
To Factory overheads 8,44,00 By Interest received 76,000
0
To Administration 3,96,00
overheads 0
To Selling & 1,44,00
distribution 0
overheads
To Dividend paid 2,44,00
0
To Bad debts 36,000
To Profit 1,39,45
0
49,01,7 49,01,70
00 0
Statement of Profit as per costing records

(for the year ended March 31,2020)

(`)
Sales revenue (A) 45,60,000
(12,615 units)
Cost of sales:

202
 Opening stock 1,50,000
(625 units × `
240)
Add: Cost of production of 12,405 units 43,28,140

(Refer to working note 2)

Less: Closing stock (1,44,795
 ` 43,28,140  415 units  )
 
12,405 units
 
Production cost of goods sold (12,615 units) 43,33,34
5
Selling & distribution overheads
(12,615 units × ` 6) 75,690
Cost of sales: (B) 44,09,03
5
Profit: {(A) – (B)} 1,50,965
(ii) Statement of Reconciliation

(Reconciling the profit as per costing records with the profit as per financial

records)

(`) (`)
Profit as per Cost Accounts 1,50,965
Add: Administration overheads over absorbed 1,68,540
(` 5,64,540 – ` 3,96,000)
Opening stock overvalued 43,750
(`1,50,000 – ` 1,06,250)
Interest received 76,000
Rent received 92,000
Factory overheads over 10,000 3,90,290
recovered (` 8,54,000 – `
8,44,000)
5,41,255
Less: Selling & distribution overheads under 68,310
recovery (` 1,44,000 – ` 75,690)
Closing stock overvalued (`1,44,795 – ` 91,300) 53,495
Dividend 2,44,000
Bad debts 36,000 (4,01,80
5)
Profit as per financial accounts 1,39,450

203
 Working notes:
1. Number of units produced
Units
Sales 12,615
Add: Closing stock 415
Total 13,030
Less: Opening stock (625)
Number of units produced 12,405
2. Cost Sheet
(`)
Raw materials consumed 16,80,000
Direct labour 12,20,000
Prime cost 29,00,000
Factory overheads 8,54,000
(70% of direct
wages)
Factory cost 37,54,000
Add: Opening work-in-process 92,000
Less: Closing work-in-process (82,400)
Factory cost of goods produced 37,63,600
Administration 5,64,540
overheads (15% of
factory cost)
Cost of production of 12,405 43,28,14
units (Refer to working note 1) 0
Cost of production per unit:
TotalCost of Pr oduction `43,28,140
= = =
No.of unitsproduced
`348.90
12,405units
NOV 2021

1. XYZ Ltd. maintains a non-integrated accounting system for the purpose of management
information. The following are the data related with year 2020-21:
Particulars (` in ‘000)
Opening balances:
- Stores ledger control A/c 24,000
- Work-in-process control A/c 6,000
- Finished goods control A/c 1,29,000
- Building construction A/c 3,000
- Cost ledger control A/c 1,62,000
During the year following transactions took place:

204
 Materials:
- Purchased 12,000
- Issued to production 15,000
- Issued to general maintenance 1,800
- Issued to building construction 1,200
Wages:
- Gross wages paid 45,000
- Indirect wages paid 12,000
- For building construction 3,000
Factory overheads:
- Actual amount incurred (excluding items shown 48,000
above)
- Absorbed in building construction 6,000
- Under-absorbed 2,400
Royalty paid 1,500
Selling, distribution and administration overheads 7,500
Sales 1,35,000

At the end of the year, the stock of raw material and work-in-process was ` 1,65,00,000

and ` 75,00,000 respectively. The loss arising in the raw material account is treated as factory
overheads. The building under construction was completed during the year. Gross profit margin
is 20% on sales.
Required:
PREPARE the relevant control accounts to record the above transactions in the cost ledger of
the company.
5. Cost Ledger Control Account
Particulars (` in ‘000) Particulars (` in ‘000)
To Costing P&L A/c 1,35,000 By Balance b/d 1,62,000
To Building Construction 13,200 By Stores Ledger control 12,000
A/c A/c

To Balance c/d 1,44,900 By Wages Control A/c 45,000

By Factory overhead 48,000
control A/c
By Royalty A/c 1,500
By Selling, Distribution 7,500
and Administration
overheads
By Costing P&L A/c 17,100
2,93,100 2,93,100
Stores Ledger Control Account

205
Particulars (` in ‘000) Particulars (` in ‘000)
To Balance b/d 24,000 By WIP control A/c 15,000
To Cost Ledger control 12,000 By Factory 1,800
A/c overheads control
A/c
By Building construction 1,200
A/c
By Factory overhead 1,500
control A/c (bal. fig.)
(loss)
By Balance c/d 16,500
36,000 36,000

Wages Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost Ledger control 45,000 By Factory overhead 12,000
A/c control A/c
By Building Construction 3,000
A/c
By WIP Control A/c (bal. 30,000
fig.)
45,000 45,000
Factory Overhead Control Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Stores Ledger control 1,800 By Building Construction 6,000
A/c A/c
To Wages Control A/c 12,000 By WIP Control A/c (bal. 54,900
fig.)
To Cost Ledger control 48,000 By Costing P&L A/c 2,400
A/c (under- absorption)

To Stores Ledger control 1,500

A/c (loss)
63,300 63,300
Royalty Account

Particulars (` in Particulars (` in ‘000)

‘000)
To Cost Ledger control 1,500 By WIP Control A/c 1,500
A/c
1,500 1,500

206
 Work-in-process Control Account

Particulars (` in Particulars (` in
‘000) ‘000)
To Balance b/d 6,000 By Finished goods 99,900
control A/c (bal. fig.)
To Stores Ledger control 15,000
A/c
To Wages Control A/c 30,000
To Factory overhead 54,900
control A/c
To Royalty A/c 1,500 By Balance c/d 7,500
1,07,400 1,07,400

Finished Goods Control Account

Particulars (` in ‘000) Particulars (` in ‘000)

To Balance b/d 1,29,000 By Cost of Goods Sold 1,08,000
A/c (Refer working note)
To WIP control A/c 99,900 By Balance c/d 1,20,900
2,28,900 2,28,900

Cost of Goods Sold Account

Particulars (` in ‘000) Particulars (` in ‘000)

To Finished Goods 1,08,000 By Cost of sales A/c 1,08,000
control A/c
1,08,000 1,08,000

Selling, Distribution and Administration Overhead Control Account

Particulars (` in ‘000) Particulars (` in ‘000)

To Cost Ledger control 7,500 By Cost of sales A/c 7,500
A/c
7,500 7,500

Cost of Sales Account

Particulars (` in ‘000) Particulars (` in ‘000)

To Cost of Goods Sold 1,08,000 By Costing P&L A/c 1,15,500

A/c
To Selling, Distribution 7,500
and Administration A/c

1,15,500 1,15,500

Costing P&L Account

207
 Particulars (` in Particulars (` in ‘000)
‘000)
To Cost of Sales A/c 1,15,500 By Cost Ledger control 1,35,000
A/c
To Factory overhead 2,400
control A/c
To Cost Ledger control 17,100
A/c (bal. fig.) (Profit)
1,35,000 1,35,000

Building Construction Account

Particulars (` in ‘000) Particulars (` in ‘000)

To Balance b/d 3,000 By Cost Ledger control 13,200
A/c
To Stores Ledger 1,200
control A/c
To Wages Control A/c 3,000
To Factory 6,000
overhead control
A/c
13,200 13,200

Trial Balance

Particulars Dr Cr
. .
(` in ‘000) (` in ‘000)
Stores Ledger Control A/c 16,500
WIP Control A/c 7,500
Finished Goods Control A/c 1,20,900
Cost Ledger Control A/c 1,44,900
1,44,900 1,44,900

Workings:
` 13,50,00,000 × 80
Cost of Goods sold = = ` 10,80,00,000
100

208
BATCH COSTING

NOV 2020

1. A Ltd. manufactures mother boards used in smart phones. A smart phone requires one mother
board. As per the study conducted by the Indian Cellular Association, there will be a demand of
180 million smart phones in the coming year. A Ltd. is expected to have a market share of 5.5%
of the total market demand of the mother boards in the coming
year. It is estimated that it costs `6.25 as inventory holding cost per board per month and that
the set-up cost per run of board manufacture is `33,500.
(i) COMPUTE the optimum run size for board manufacturing?
(ii) Assuming that the company has a policy of manufacturing 80,000 boards per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above?
• (i) Computation of optimum run size

209
 Optimum run size or Economic Batch Quantity (EBQ) =

Where, D = Annual demand i.e. 5.5% of 18,00,00,000 = 99,00,000 units S =

Set-up cost per run = `33,500
C = Inventory holding cost per unit per annum
= `6.25 × 12 months = `75

EBQ = = 94,042.5 units or 94,043 units

(ii) Calculation of Total Cost of set-up and inventory holding

Batch No. of set- Set-up Cost Inventory holding Total Cost

size ups (`) cost (`) (`)
30,00,000
124 41,54,000
80,000  80,000`75 
A 99,00,000  (124 ×   71,54,000
units 80,000  2 
  `33,500)

106 35,51,000 35,26,612.5

94,043  99,00,000  (106 ×  94,043`75 
B 70,77,612.50
units 94,043 `33,500)  
   2 
Extra Cost (A – B) 76,387.50

MAY 2021
3. SM Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for
the year 2019-20:
(`)
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000
(iv) Direct Labour 90,50,000
(v) Factory Overhead 30,80,000
(vi) Administrative Overhead 20,50,400
During the FY 2020-21, the company has received an order from a car manufacturer where it
estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000 respectively. The
company charges factory overhead as a percentage of direct labour and administrative overheads
as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000. You are
required to:
(i) CALCULATE the overhead recovery rates based on actual costs for 2019-20.

210
 PREPARE a Job cost sheet for the order received and the price to be quoted if the
desired profit is 25% on sales.

211
 NOV 2021
2. Rollon Ltd. is committed to supply 96,800 bearings per annum to Racing Ltd. on steady basis. It
is estimated that it costs 25 paise as inventory carrying cost per bearing per month and the set-
up cost per run of bearing manufacture is ` 588.

212
 (a) COMPUTE what would be the optimum run size for bearing manufacture?
(b) Assuming that the company has a policy of manufacturing 8,800 bearings per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (a) above?

JOB COSTING
NOV 2020
2. AP Ltd. received a job order for supply and fitting of plumbing materials. Following are the details
related with the job work:
Direct Materials
AP Ltd. uses a weighted average method for the pricing of materials issues.
Opening stock of materials as on 12th August 2020:
- 15mm GI Pipe, 12 units of (15 feet size) @ `600 each
213
 - 20mm GI Pipe, 10 units of (15 feet size) @ ` 660 each
- Other fitting materials, 60 units @ ` 26 each
- Stainless Steel Faucet, 6 units @ ` 204 each
- Valve, 8 units @ ` 404 each
Purchases:
On 16th August 2020:
- 20mm GI Pipe, 30 units of (15 feet size) @ ` 610 each
- 10 units of Valve @ ` 402 each On
18th August 2020:
- Other fitting materials, 150 units @ ` 28 each
- Stainless Steel Faucet, 15 units @ ` 209 each On
27th August 2020:
- 15mm GI Pipe, 35 units of (15 feet size) @ ` 628 each
- 20mm GI Pipe, 20 units of (15 feet size) @ ` 660 each
- Valve, 14 units @ ` 424 each

Issues for the hostel job:

On 12th August 2020:
- 20mm GI Pipe, 2 units of (15 feet size)
- Other fitting materials, 18 units On
17th August 2020:
- 15mm GI Pipe, 8 units of (15 feet size)
- Other fitting materials, 30 units On
28th August 2020:
- 20mm GI Pipe, 2 units of (15 feet size)
- 15mm GI Pipe, 10 units of (15 feet size)
- Other fitting materials, 34 units
- Valve, 6 units On 30th
August 2020:
- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ `100 per hour (includes 12 hours overtime) Helper:
192 hours @ `70 per hour (includes 24 hours overtime) Overtimes are paid
at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ `26 per labour hour.

214
 Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on sales
price.
You are required to
(a) CALCULATE the total cost of the job.
(b) CALCULATE the price to be charged from the customer.
4. a) Calculation of Total Cost for the Job:
Particulars Amount (`) Amount (`)
Direct Material Cost:
- 15mm GI Pipe (Working Note- 1) 11,051.28
- 20mm GI Pipe (Working Note- 2) 2,588.28
- Other fitting materials (Working Note- 3,866.07
3)
- Stainless steel faucet
 6+̀204 15 ` 209 
15 units ×  
 21units  3,113.57
- Valve
 8+̀404 10 ` 402 +14 ` 424 
6 units ×  
 32units  2,472.75 23,091.95
Direct Labour:
- Plumber [(180 hours × `100) + (12 18,600.00
hours ×
`50)]
- Helper [(192 hours × `70) + (24 hours × 14,280.00 32,880.00
`35)]
- Overheads[`26 × (180 + 192) hours] 9,672.00
Total Cost 65,643.95
(b) Price to be charged for the job work:
Amount (`)
Total Cost incurred on the job 65,643.95
 65,643.95 21,881.32
Add: 25% Profit on Job Price

 25% 
75%
  87,525.27
Working Note:
1. Cost of 15mm GI Pipe

215
 Date Amount (`)
17-08-2020 8 units × ` 600 4,800.00
28-08-2020  4+̀600 35 ` 6,251.28
10 units × 628 
39units
 
11,051.28

MAY 2021
4. SM Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for
the year 2019-20:
(`)
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000
(iv) Direct Labour 90,50,000
(v) Factory Overhead 30,80,000
(vi) Administrative Overhead 20,50,400
During the FY 2020-21, the company has received an order from a car manufacturer where it
estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000 respectively. The

216
 company charges factory overhead as a percentage of direct labour and administrative
overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000. You are
required to:
(ii) CALCULATE the overhead recovery rates based on actual costs for 2019-20.
(iii) PREPARE a Job cost sheet for the order received and the price to be quoted if the desired
profit is 25% on sales.

217
 CONTRACT COSTING
NOV 2021
3. RN Builders Ltd. entered into a contract on April 1, 2019. The total contract was for

218
 ` 2,00,00,000. Actual expenditure for the period April 1, 2019 to March 31, 2020 and
estimated expenditure for April 1, 2020 to December 31, 2020 are given below:
Particulars 2019-20 2020-21
(actual) (9 months)
(`) (estimated)
(`)
Materials issued 36,00,000 34,30,000
Wages: Paid 30,00,000 34,93,000
Outstanding at the end 2,50,000 3,32,000
Plant purchased 10,00,000 -
Sundry expenses: Paid 2,90,000 2,75,000
Prepaid at the end 25,000 -
Establishment charges 5,85,000 -
A part of the material was unsuitable and thus sold for ` 7,25,000 (cost being ` 6,00,000) and a
part of plant was scrapped and disposed-off for ` 1,15,000. The value of plant at site on 31
March, 2020 was ` 3,10,000 and the value of material at site was ` 1,70,000. Cash received on
account to date was ` 70,00,000, representing 80% of the work certified. The cost of work
uncertified was valued at ` 10,95,000.

The contract would be completed by 31st December, 2020 and the contractor estimated further
expenditure that would be incurred in completion of the contract:
➢ A sum of ` 12,50,000 would have to be spent on the plant and the residual value of the
plant on the completion of the contract would be ` 1,50,000.
➢ Establishment charges would cost the same amount per month as in the previous year.
➢ ` 4,32,000 would be sufficient to provide for contingencies.
Required:
PREPARE a Contract Account for the year ended 31st March, 2020, and CALCULATE estimated
total profit on this contract.

6. RN Builders Ltd.
Contract Account (2019-20)

Particulars (`) Particul (`)

ar s
T Materials issued 36,00,000 B Material sold 7,25,000
o y
T Wages paid 30,00,00 B Plant sold 1,15,000
o 0 y
Add: 32,50,000 B Plant at site c/d 3,10,000
Outstanding 2,50,000 y
To Plant 10,00,000 B Material at site c/d 1,70,000
y
To Sundry 2,90,00 B Work-in-progress c/d
Expenses 0 y

219
 Less: 2,65,00 Work 87,50,00
Prepaid (25,000) 0 certified 0
(` 70,00,000 ÷ 80%)
To Establishment charges 5,85,000 Work 98,45,000
uncertifie 10,95,000
d
To Costing P & L A/c 1,25,000
(` 7,25,000 – `
6,00,000)
To Notional profit (Profit 23,40,000
for the year)
1,11,65,0 1,11,65,0
00 00
Calculation of Estimated Profit

Particulars (`) (`)

(1) Material consumed (36,00,000+ 1,25,000– 30,00,00
7,25,000) 0
Add: Further consumption 34,30,00 64,30,000
0
(2) Wages: 32,50,00
0
Add: Further cost (34,93,000 – 2,50,000) 32,43,00
0
Add: Outstanding 3,32,000 68,25,000
(3) Plant used (10,00,000– 1,15,000) 8,85,000
Add: Further plant introduced 12,50,00
0
Less: Closing balance of plant (1,50,00 19,85,000
0)
(4) Establishment charges 5,85,000

Add: Further charges for nine months 4,38,750 10,23,750

(5,85,000 
9/12)
(5) Sundry expenses 2,90,000
Add: Further expenses 2,75,000 5,65,000
(6) Reserve for contingencies 4,32,000
Estimated profit 27,39,250
(balancing
figure)
Contract price 2,00,00,0
00

220
PROCESS COSTING
NOV 2020
1. M Ltd. produces a product-X, which passes through three processes, I, II and III. In Process-III a
by-product arises, which after further processing at a cost of `85 per unit, product Z is produced.
The information related for the month of August 2020 is as follows:
Process-I Process-II Process-
III
Normal loss 5% 10% 5%
Materials introduced (7,000 units) 1,40,000 - -
Other materials added 62,000 1,36,000 84,200
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000
Production overhead for the month is `2,88,000, which is absorbed as a percentage of direct
wages.
The scrapes are sold at `10 per unit

221
 Product-Z can be sold at `135 per unit with a selling cost of `15 per
unit No. of units produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600 There is
not stock at the beginning and end of the month.
You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product process.

222
223
MAY 2021
1. A company produces a component, which passes through two processes. During the month of
November, 2020, materials for 40,000 components were put into Process- I of which 30,000 were
completed and transferred to Process- II. Those not transferred to Process- II were 100%
complete as to materials cost and 50% complete as to labour and overheads cost. The Process-
I costs incurred were as follows:
Direct Materials ` 3,00,000
Direct Wages ` 3,50,000
Factory Overheads ` 2,45,000
Of those transferred to Process II, 28,000 units were completed and transferred to finished goods
stores. There was a normal loss with no salvage value of 200 units in Process II. There were 1,800
units, remained unfinished in the process with 100% complete as to materials and 25% complete
as regard to wages and overheads.
Costs incurred in Process-II are as follows:
Packing Materials ` 80,000
Direct Wages ` 71,125
Factory Overheads ` 85,350
Packing material cost is incurred at the end of the second process as protective packing to
the completed units of production.
Required:
(i) PREPARE Statement of Equivalent Production, Cost per unit and Process I A/c.
(ii) PREPARE statement of Equivalent Production, Cost per unit and Process II A/c.
2. Process I
Statement of Equivalent Production and Cost

Input Particulars Output Equivalent Production

(Units) Units Materials Labour Overheads
(%) Units (%) Units (%) Units
40,000 Completed 30,00 100 30,000 10 30,000 10 30,00
0 0 0 0
Closing 10,00 100 10,000 50 5,000 50 5,000
WIP 0
40,000 40,00 40,000 35,000 35,00
0 0

Particulars Materials Labour Overhead Total

224
 Cost incurred (`) 3,00,000 3,50,000 2,45,000 8,95,00
0
Equivalent units 40,000 35,000 35,000
Cost per equivalent unit (`) 7.50 10.00 7.00 24.50

Process-I Account

Particulars Units (`) Particulars Units (`)

To Materials 40,000 3,00,000 By Process-II A/c 30,00 7,35,00
(30,000 units × 0 0
`24.5)
To Labour 3,50,000 By Closing WIP* 10,00 1,60,00
0 0
To Overhead 2,45,000
40,000 8,95,000 40,00 8,95,00
0 0
* (Material 10,000 units × ` 7.5) + (Labour 5,000 units × ` 10) + (Overheads 5,000 units × `7)

= ` 75,000 + ` 50,000 + ` 35,000 = ` 1,60,000

Process II
Statement of Equivalent Production and Cost
Input Particulars Output Equivalent Production
(Units) Units Materials Labour Overheads
(%) Units (%) Units (%) Units
30,000 Completed 28,000 10 28,00 100 28,00 100 28,00
0 0 0 0
Normal loss 200 -- -- --
Closing 1,800 10 1,800 25 450 25 450
WIP 0
30,000 30,000 29,80 28,45 28,45
0 0 0

Particulars Materials Labour Overhead Total

Process-I Cost 7,35,000 -- -- 7,35,000
Cost incurred (`) -- 71,125 85,350 1,56,475
Equivalent units 29,800 28,450 28,450 --
Cost per equivalent unit (`) 24.6644 2.5000 3.0000 30.1644

Process-II Account

Particulars Units (`) Particulars Units (`)

To Process-I A/c 30,00 7,35,000 By Normal loss 200 --
0 A/c
To Packing -- 80,000 By Finished 28,000 9,24,60
Material Goods Stock A/c * 4

225
 To Direct Wages -- 71,125 By Closing WIP 1,800** 46,871
To Factory -- 85,350
Overhead
30,00 9,71,475 30,000 9,71,47
0 5
* 28,000 × ` 30.1644 = ` 8,44,603 + ` 80,000 (Packing Material Cost) = ` 9,24,604

** 1,800 units × ` 24.6644 + 450 units × (` 2.5 + `3) = ` 46,871

NOV 2021
1. Following information is available regarding Process-I of a manufacturing company for the
month of February:
Production Record:
Units in process as on 1st February 8,000
(All materials used, 1/4th complete for labour and overhead)
New units introduced 32,000
Units completed 28,000
Units in process as on 28th February 12,000
(All materials used, 1/3rd complete for labour and overhead)
Cost Records: (`)
Work-in-process as on 1st February
Materials 1,20,000
Labour 20,000
Overhead 20,000
1,60,000
Cost during the month:
Materials 5,12,000
Labour 3,00,000
Overhead 3,00,000
11,12,00
0
Presuming that average method of inventory is used, PREPARE the following:
(i) Statement of equivalent production.

(ii) Statement showing cost for each element.

(iii) Statement of apportionment of cost.
(iv) Process cost account for Process-I.
7. (i) Statement of equivalent production (Average cost method)
Particulars Inpu Particulars Outpu Equivalent
t t Production
Unit Units Material Labour &
s O.H.
% Units % Unit
s

226
 Opening WIP 8,00 Completed 28,000 100 28,00 10 28,00
0 and 0 0 0
transferred
Units introduced 32,00 Closing WIP 12,000 100 12,00 1/3r 4,000
d
0 0
40,00 40,000 40,00 32,00
0 0 0
(ii) Statement showing cost for each element
Particulars Material Labour Overhea Total
s (`) d (`)
(`) (`)
Cost of opening work- 1,20,000 20,000 20,000 1,60,000
in- process
Cost incurred during the 5,12,000 3,00,00 3,00,000 11,12,00
month 0 0
Total cost: (A) 6,32,000 3,20,00 3,20,000 12,72,00
0 0
Equivalent units: (B) 40,000 32,000 32,000
Cost per equivalent unit: 15.8 10 10 35.8
(C) = (A ÷ B)

(iii) Statement of apportionment of cost

Particulars Amount Amount
(`) (`)
1. Value of units completed and 10,02,40
transferred (28,000 units × ` 35.8) 0
2. Value of Closing W-I-P:
- Materials (12,000 units × ` 15.8) 1,89,600

- Labour (4,000 units × ` 10) 40,000

- Overheads (4,000 units × ` 10) 40,000 2,69,60
0
(iv) Process-I Cost Account
Particulars Units (`) Particulars Units (`)
To Opening W-I- 8,000 1,60,000 By Completed 28,00 10,02,4
P units 0 00
To Materials 32,00 5,12,000 By Closing W-I-P 12,00 2,69,60
0 0 0
To Labour -- 3,00,000
To Overhead -- 3,00,000
40,00 12,72,00 40,00 12,72,0
0 0 0 00

227
JOINT AND BY PRODUCTS

NOV 2020
1. 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
split-off 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 2019-
20, the selling prices of the items and the total amounts sold were:
X – 186 tons sold for `3,000 per ton Y – 527
tons sold for `2,250 per ton

Z – 736 tons sold for `1,500 per ton

The total joint manufacturing costs for the year were `12,50,000. An additional
` 6,20,000 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

228
 Y 60 Tons
Z 25 tons
There was no opening or closing work-in-progress. Required:
COMPUTE the cost of inventories of X, Y and Z and cost of goods sold for year ended March 31,
2020, using Net realizable value (NRV) method of joint cost allocation.

5. (i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z

(By using Net Realisable Value Method)

Produc
ts Total
X Y Z
(`) (`) (`) (`)
Final sales value 10,98,0 13,20,750 11,41,500 35,60,25
of total 00 (587 × (761 × 0
production (366 × `2,250) `1,500)
(Working Note 1) `3,000)
Less: Additional -- -- (6,20,000) (6,20,00
cost 0)
Net realisable 10,98,0 13,20,750 5,21,500 29,40,25
value 00 0
(at split-off point)
Joint cost 4,66,79 5,61,496 2,21,707 12,50,00
allocated 7 0
(Working Note 2)
Cost of goods sold as on March 31, 2020 (By
using Net Realisable Value Method)
Produc
ts Total
X Y Z
(`) (`) (`) (`)
Allocated 4,66,797 5,61,496 2,21,707 12,50,00
join 0
t cost
Additional costs -- -- 6,20,000 6,20,000
Cost of goods 4,66,797 5,61,496 8,41,707 18,70,00
available for 0
sale (CGAS)
Less: Cost 2,29,571 57,385 27,692 3,14,648
of (CGAS×49.18 (CGAS × (CGAS ×
ending %) 10.22%) 3.29%)
inventory
(Working Note 1)
Cost of 2,37,226 5,04,111 8,14,015 15,55,35
goods 2
sold
229
230
NOV 2021
4. A company produces two joint products A and B from the same basic materials. The processing
is completed in three departments.
Materials are mixed in Department I. At the end of this process, A and B get separated. After
separation, A is completed in the Department II and B in Department III. During a period, 4,00,000
kg of raw material was processed in Department I at a total cost of
` 17,50,000, and the resultant 50% becomes A and 40% becomes B and 10% normally
lost in processing.
In Department II, 1/5th of the quantity received from Department I is lost in processing. A is
further processed in Department II at a cost of ` 2,60,000.
In Department III, further new material is added to the material received from Department I and
weight mixture is doubled, there is no quantity loss in the department III. Further processing cost
(with material cost) in Department III is ` 3,00,000.
The details of sales during the said period are:
Product A Product B
Quantity sold (kg) 1,50,000 3,00,000
Sales price per kg (`) 10 4

There were no opening stocks. If these products sold at split-off-point, the selling price of A
and B would be ` 8 and ` 4 per kg respectively.
Required:
(i) PREPARE a statement showing the apportionment of joint cost to A and B in proportion of
sales value at split off point.
(ii) PREPARE a statement showing the cost per kg of each product indicating joint cost,
processing cost and total cost separately.
(iii) PREPARE a statement showing the product wise profit for the year.
(iv) On the basis of profits before and after further processing of product A and B, give your
COMMENT that products should be further processed or not.
8. Calculation of quantity produced
Dept I (kg) Dept II (kg) Dept III (kg)
Input 4,00,000 2,00,000 1,60,000
(50% of 4,00,000 (40% of 4,00,000
kg.) kg.)
Weight (lost) or (40,000) (40,000) 1,60,000
added (10% of 4,00,000 (1/5th of 2,00,000
kg.) kg.)
3,60,000 1,60,000 3,20,000

231
 Production of A 2,00,000 1,60,000 --
Production of B 1,60,000 -- 3,20,000
(i) Statement of apportionment of joint cost of dept I
Product A Product B
Output (kg) 2,00,000 1,60,000
Selling price per kg (`) 8 4
Sales value (`) 16,00,000 6,40,000
Share in Joint cost (5:2) 12,50,000 5,00,000
(` 17,50,000 × 5 ÷ 7) (` 17,50,000 × 2 ÷ 7)

(ii) Statement of cost per kg

Product A Product
B
Output (kg) 1,60,000 3,20,000
Share in joint cost (`) 12,50,000 5,00,000
Joint Cost per kg (`) (A) 7.8125 1.5625

Further processing cost (`) 2,60,000 3,00,000

Further processing cost per kg (`) (B) 1.625 0.9375
Total cost per kg (`) {(A)+(B)} 9.4375 2.5000

(i) Statement of profit

Product A Product B
Output (kg) 1,60,000 3,20,000
Sales (kg) (1,50,000) (3,00,000)
Closing stock (kg) 10,000 20,000
(`) (`)
Sales 15,00,000 12,00,000
(1,50,000 kg × ` 10) (3,00,000 kg × `
4)
Add: closing stock (at full cost) 94,375 50,000
(10,000 kg × ` (20,000 kg × `
9.4375) 2.5)
Value of production 15,94,375 12,50,000
Less: Share in joint cost 12,50,000 5,00,000
Further processing cost 2,60,000 3,00,000
Profit 84,375 4,50,000

(ii) Profitability statement before and after processing

Product Product
A B
Before (`) After (`) Before (`) After (`)
Sales Value 16,00,000 6,40,000

232
 Share in 12,50,000 5,00,000
joint
costs 84,375 4,50,000
Profit 3,50,000 (as per iii 1,40,000 (as per iii
above) above)
Product A should be sold at split off point and product B after processing because of higher
profitability.

SERVICE COSTING
NOV 2020
1. A transport company has 20 vehicles, the capacities are as follows:
No. of Capacity per

233
 Vehicles vehicle
5 9 MT
6 12 MT
7 15 MT
2 20 MT
The company provides the goods transport service between stations ‘A’ to station ‘B’.
Distance between these stations is 100 kilometers. Each vehicle makes one round trip per day
on an average. Vehicles are loaded with an average of 90 per cent of capacity at the time of
departure from station ‘A’ to station ‘B’ and at the time of return back loaded with 70 per
cent of capacity. 10 per cent of vehicles are laid up for repairs every day. The following information
is related to the month of August, 2020:
Salary of Transport Manager ` 60,000
Salary of 30 drivers ` 20,000 each driver
Wages of 25 Helpers ` 12,000 each helper
Loading and unloading charges ` 850 each trip
Consumable stores (depends on running of ` 1,35,000
vehicles)
Insurance (Annual) ` 8,40,000
Road Licence (Annual) ` 6,00,000
Cost of Diesel per litre ` 78

Kilometres run per litre each vehicle 5 Km.

Lubricant, Oil etc. ` 1,15,000
Cost of replacement of Tyres, Tubes, other parts ` 4,25,000
etc. (on running basis)
Garage rent (Annual) ` 9,00,000
Routine mechanical services ` 3,00,000
Electricity charges (for office, garage and ` 55,000
washing station)
Depreciation of vehicles (on time basis) ` 6,00,000

There is a workshop attached to transport department which repairs these vehicles and other
vehicles also. 40 per cent of transport manager’s salary is debited to the workshop. The
transport department has been apportioned `88,000 by the workshop during the month. During the
month operation was for 25 days.
You are required:
(i) CALCULATE per ton-km operating cost.
(ii) DETERMINE the freight to be charged per ton-km, if the company earned a profit of 25 per
cent on freight.

11. Operating Cost Sheet for the month of August, 2020

Particulars Amount (`)
A. Fixed Charges:
Manager’s salary (`60,000 × 60%) 36,000

234
Drivers’ Salary (`20,000  30 drivers) 6,00,000
Helpers’ wages (`12,000  25 helpers) 3,00,000
Insurance (`8,40,000 ÷ 12 months) 70,000
Road licence (`6,00,000 ÷ 12 months) 50,000
Garage rent (`9,00,000 ÷ 12 months) 75,000
Routine mechanical services 3,00,000
Electricity charges (for office, garage and 55,000
washing station)
Depreciation of vehicles 6,00,000
Apportioned workshop expenses 88,000
Total (A) 21,74,000

235
MAY 2021
1. VPS is a public school having 25 buses each plying in different directions for the transport of its
school students. In view of large number of students availing of the bus service, the buses work
236
 two shifts daily both in the morning and in the afternoon. The buses are garaged in
the school. The workload of the students has been so arranged that in the morning, the first trip
picks up senior students and the second trip plying an hour later picks
up junior students. Similarly, in the afternoon, the first trip takes the junior students and an hour later
the second trip takes the senior students home.
The distance travelled by each bus, one way is 8 km. The school works 22 days in a month and
remains closed for vacation in May and June. The bus fee, however, is payable by the students for
all the 12 months in a year.
The details of expenses for a year are as under:
Driver's salary – payable for all the 12 in months ` 12,000 per month per driver
Cleaner's salary payable for all the 12 months ` 8,000 per month per cleaner
License fees, taxes etc. ` 8,400 per bus per annum
Insurance Premium ` 15,600 per bus per annum
Repairs and Maintenance ` 20,500 per bus per annum
Purchase price of the bus ` 20,00,000 each
Life of the bus 16 years
Scrap value ` 1,60,000
Diesel Cost ` 78.50 per litre
Each bus gives an average of 5 km. per litre of diesel. The seating capacity of each bus is 40
students.
The school follows differential transportation fees based on distance travelled as under:
Students picked up and dropped Transportatio Percentage of
within the range of distance from n fee students availing
the school this facility
2 km. 25% of 15
Full %
4 km. 50% of 30
Full %
8 km. Full 55
%
Due to a pandemic, lockdown imposed on schools and the school remained closed from April
2020 to December 2020. Drivers and cleaners were paid 75% of their salary during the lockdown
period. Repairing cost reduced to 75% for the year 2020.
Ignore the interest cost.
Required:
(i) PREPARE a statement showing the expenses of operating a single bus and the fleet of 25
buses for a year.
(ii) FIND OUT transportation fee per student per month in respect of:
(a) Students coming from a distance of upto 2 km. from the school.
(b) Students coming from a distance of upto 4 km. from the school; and
(c) Students coming from a distance of upto 8 km. from the school.
(iii) CALCULATE the minimum bus fare that has to be recovered from the students for the
year 2020.
5. (i) Statement showing the expenses of operating a single bus and the
237
 fleet of 25 buses for a year
Particula Per Fleet of 25
rs bus per buse
annum s per
(`) annum
(`)
Running costs : (A)
Diesel (Refer to working note 1) 2,21,05 55,26,40
6 0
Repairs & maintenance costs: (B) 20,500 5,12,500
Fixed charges:
Driver's salary 1,44,000 36,00,000
(` 12,000 × 12 months)
Cleaners salary 96,000 24,00,000
(` 8,000 × 12 months)
Licence fee, taxes etc. 8,400 2,10,000
Insurance 15,600 3,90,000
 ` 20,00,000 − `1,60,000  1,15,000 28,75,000
Depreciation 16 years

 

Total fixed charges: (C) 3,79,000 94,75,000

Total expenses: (A+B+C) 6,20,556 1,55,13,90
0
(ii) Average cost per student per month in respect of students coming from a distance
of:
(a) 2 km. from the school {` 6,20,556 / (236 students × 12 ` 219.12
months)} (Refer to Working Note 2)
(b) 4 km. from the school (` 219.12 × 2) ` 438.24
(c) 8 km. from the school (` 219.12 × 4) ` 876.48
(iii) Calculation of minimum bus fare to be recovered from the students during the year
2020:
Statement showing the expenses of operating a single bus in year 2020

Particula Per
rs bus per
annum
(`)
Running costs : (A)
Diesel (Refer to working note 3) 66,316.8
0
Repairs & maintenance costs: (B) 15,375
(` 20,500 x 0.75)
Fixed charges:
Driver's salary 1,17,000
{` 12,000 × 3 months + (75% of ` 12,000 × 9 months)}

238
 Cleaners salary 78,000
{` 8,000 × 3 months + (75% of ` 8,000 × 9 months)}
Licence fee, taxes etc. 8,400
Insurance 15,600

  ` 20,00,000 − `1,60,000
  1,15,000
Depreciation 16 years
 
Total fixed charges: (C) 3,34,000
Total expenses: (A+B+C) 4,15,691.8
0
Minimum bus fare to be recovered:

(a) 2 km. from the school {` 4,15,691.8 / (236 students × ` 146.78

12 months)} (Refer to Working Note 2)
(b) 4 km. from the school (` 146.78 × 2) ` 293.56
(c) 8 km. from the school (`146.78 × 4) ` 587.12

Working Notes:
1. Calculation of diesel cost per bus:
No. of trips made by a bus each day 4
Distance travelled in one trip both ways (8 km. × 2 16 km.
trips)
Distance travelled per day by a bus (16 km. × 4 shifts) 64 km.
Distance travelled during a month (64 km. × 22 days) 1,408 km.
Distance travelled per year (1,408 × 10 months) 14,080 km.
No. of litres of diesel required per bus per year 2,816 litres
(14,080 km. ÷ 5 km.)
Cost of diesel per bus per year (2,816 litres × ` 78.50) ` 2,21,056
2. Calculation of equivalent number of students per bus:
Bus capacity of 2 trips (40 students × 2 trips) 80 students
1/ th fare
students (15% × 80 students) 12 students
4

½ fare students (30% × 80 students × 2) (equivalent 48 students

to 1/4th
fare students)
Full fare students (55% × 80 students × 4) 176 students
(equivalent to 1/4th
fare students)
Total students equivalent to 1/4th fare students 236 students
3. Calculation of diesel cost per bus in Year 2020:
Distance travelled during a month (64 km. × 22 days) 1,408 km.
Distance travelled during the year 2020 (1,408 × 3 4,224 km.
months)

239
 No. of litres of diesel required per bus per year 844.8 litres
(4,224 km. ÷ 5 km.)
Cost of diesel per bus per year (844.8 litres × ` 78.50) ` 66,316.80

NOV 2021
1. Mr. PS owns a bus which runs according to the following schedule:
(i) Delhi to Hisar and back, the same day
Distance covered: 160 km. one
way
Number of days run each month: 9
Seating capacity occupied 90%.
(ii) Delhi to Aligarh and back, the same day
Distance covered: 160 km. one
way
Number of days run each month: 12
Seating capacity occupied 95%
(iii) Delhi to Alwar and back, the same day
Distance covered: 170 km. one
way
Number of days run each month: 6
Seating capacity occupied 100%
(iv Following are the other details:
)
Cost of the bus ` 15,00,000
Salary of the Driver ` 30,000 p.m.
Salary of the Conductor ` 26,000 p.m.
Salary of the part-time Accountant ` 7,000 p.m.
Insurance of the bus ` 6,000 p.a.
Diesel consumption 5 km. per litre at ` 90 per litre
Road tax ` 21,912 p.a.
Lubricant oil ` 30 per 100 km.
Permit fee ` 500 p.m.
Repairs and maintenance ` 5,000 p.m.
Depreciation of the bus @ 30% p.a.
Seating capacity of the bus 50 persons
Passenger tax is 20% of the total takings.
CALCULATE the bus fare to be charged from each passenger to earn a profit of 30% on total takings.
The fares are to be indicated per passenger for the journeys: (i) Delhi to Hisar (ii) Delhi to Aligarh
and (iii) Delhi to Alwar.
9. Working Notes:
1. Total Distance (in km.) covered per month
240
 Bus route Km. per Trips per Days Km.
trip day pe pe
r month r month
Delhi to Hisar 160 2 9 2,880

Delhi to Aligarh 160 2 12 3,840

Delhi to Alwar 170 2 6 2,040
Total 8,760
1. Passenger- km. per month
Total seats Capacit Km Passenger
available per y . -
month (at 100% utilise pe Km.
capacity) d r per
(% Seat tri mont
) s p h
Delhi to Hisar 900 90 810 160 1,29,600
& Back (50 seats  2 trips  (810 seats
9 ×
days) 160 km.)
Delhi to 1,200 95 1,140 160 1,82,400
Aligarh & (50 seats  2 trips  (1,140
Back 12 seats
days) × 160 km.)
Delhi to 600 10 600 170 1,02,000
Alwar & Back (50 seats  2 trips  0 (600 seats
6 ×
days) 170 km.)
Total 4,14,00
0
Monthly Operating Cost Statement

Particulars (`) (`)

(i) Running Costs
Diesel {(8,760 km  5 km)  ` 90} 1,57,680.00
Lubricant oil {(8,760 km  100)  ` 30} 2,628.00 1,60,308.00
(ii) Maintenance Costs
Repairs & Maintenance 5,000.00
(iii) Standing charges
Salary to driver 30,000.0
0
Salary to conductor 26,000.00
Salary of part-time accountant 7,000.00
Insurance (` 6,000 ÷12) 500.00
Road tax (` 21,912 ÷12) 1,826.00
241
 Permit fee 500.00

Depreciation {(` 15,00,000  30%)  12} 37,500.0 1,03,326.00

0
Total costs per month before Passenger 2,68,634.00
Tax (i)+(ii)+(iii)
Passenger Tax* 1,07,453.6
0
Total Cost 3,76,087.6
0
Add: Profit* 1,61,180.4
0
Total takings per month 5,37,268.00
*Let total takings be X then,
X = Total costs per month before passenger tax + 0.2 X (passenger tax) + 0.3 X (profit) X
= ` 2,68,634 + 0.2 X + 0.3 X
0.5 X = ` 2,68,634 or, X = ` 5,37,268
Passenger Tax = 20% of ` 5,37,268 = ` 1,07,453.60 Profit
= 30% of ` 5,37,268 = ` 1,61,180.40
Calculation of Rate per passenger km. and fares to be charged for different routes
Rate per Passenger-Km. = Total takings per month

Total Passenger - Km. per month

` 5,37,268
= = ` 1.30 (approx.)
4,14,000 Passenger-Km.

Bus fare to be charged per passenger:

Delhi to Hisar = ` 1.30  160 km = ` 208.00
Delhi to Aligarh = ` 1.30  160 km = ` 208.00
Delhi to Alwar = ` 1.30  170 km = ` 221.00

242
STANDARD COSTING
NOV 2020
1. Following are the standard cost for a product-X:
(`)
Direct materials 10 kg @ ` 90 per kg 900
Direct labour 8 hours @ `100 per 800
hour
Variable Overhead 8 hours @ `15 per 120
hour
Fixed Overhead 400

2,220
Budgeted output for the year was 2,000 units. Actual output is 1,800 units.
Actual cost for year is as follows:
(`)
Direct Materials 17,800 Kg @ ` 92 per Kg. 16,37,6
00
Direct Labour 14,000 hours @ ` 104 per 14,56,0
hour 00
Variable Overhead incurred 2,17,50
0
Fixed Overhead incurred 7,68,00
0
You are required to CALCULATE:
(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance
(iv) Labour Efficiency Variance
243
 (v) Labour Rate Variance
(vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance.
12. (i) Material Usage Variance = Std. Price (Std. Quantity – Actual Quantity)
= ` 90 (18,000 kg. – 17,800 kg.)
= ` 18,000 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 17,800 kg. (` 90 – ` 92) = ` 35,600 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (18,000 kg. × ` 90) – (17,800 kg. × ` 92)
= ` 16,20,000 – ` 16,37,600
= `17,600 (Adverse)
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
= ` 100 (1,800 units × 8 – 14,000 hrs.)
= ` 100 (14,400 hrs. – 14,000 hrs.)
= ` 40,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 14,000 hrs. (` 100 – `104)
= ` 56,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (14,400 hrs. × ` 100) – (14,000 hrs. × ` 104)
= ` 14,40,000 – ` 14,56,000
= `16,000 (Adverse)
(vii) Variable Cost Variance = Std. Variable Cost – Actual Variable Cost
= (14,400 hrs. × ` 15) – ` 2,17,500
= ` 1,500 (Adverse)

MAY 2021
1. LM Limited produces a product 'SX4' which is sold in a 10 Kg. packet. The standard cost card
per packet of 'SX4' is as follows:
(`)
Direct materials 10 kg @ ` 90 per kg 900
244
 Direct labour 8 hours @ ` 80 per hour 640
Variable Overhead 8 hours @ ` 20 per 160
hour
Fixed Overhead 250
1,950
Budgeted output for a quarter of a year was 10,000 Kg. Actual output is 9,000 Kg.
Actual costs for this quarter are as follows:
(`)
Direct Materials 8,900 Kg @ ` 92 per Kg. 8,18,800
Direct Labour 7,000 hours @ ` 84 per 5,88,000
hour
Variable Overhead incurred 1,40,000
Fixed Overhead incurred 2,60,000
You are required to CALCULATE:
(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance
(iv) Labour Efficiency Variance
(v) Labour Rate Variance
(vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance

10. Material Usage Variance = Std. Price (Std. Quantity – Actual Quantity)
= ` 90 (9,000 kg. – 8,900 kg.)
= ` 9,000 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 8,900 kg. (` 90 – ` 92) = ` 17,800 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (9,000 kg. × ` 90) – (8,900 kg. × ` 92)
= ` 8,10,000 – ` 8,18,800
= ` 8,800 (Adverse)
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
9,000
= ` 80 (  8hours – 7,000 hrs.)
10

= ` 80 (7,200 hrs. – 7,000 hrs.)

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 = ` 16,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 7,000 hrs. (` 80 – ` 84)
= ` 28,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (7,200 hrs. × ` 80) – (7,000 hrs. × ` 84)
= ` 5,76,000 – ` 5,88,000
= ` 12,000 (Adverse)
(vii) Variable Cost Variance = Std. Variable Cost – Actual Variable Cost
= (7,200 hrs. × ` 20) – ` 1,40,000
= ` 4,000 (Adverse)
(viii) Fixed Overhead Cost Variance= Absorbed Fixed Overhead – Actual Fixed Overhead
` 250
= 9,000kgs. − ` 2,60,000
10 kgs.
= ` 2,25,000 – ` 2,60,000 = ` 35,000 (Adverse)
NOV 2021
1. BabyMoon Ltd. uses standard costing system in manufacturing one of its product ‘Baby Cap’.
The details are as follows:
Direct Material 1 Meter @ ` 60 per meter ` 60
Direct Labour 2 hour @ ` 20 per hour ` 40
Variable overhead 2 hour @ ` 10 per hour ` 20 Total
` 120
During the month of August, 10,000 units of ‘Baby Cap’ were manufactured. Details are as
follows:
Direct material consumed 11,400 meters @ ` 58 per meter
Direct labour Hours ? @ ? ` 4,48,800
Variable overhead incurred ` 2,24,400
Variable overhead efficiency variance is ` 4,000 A. Variable overheads are based on Direct Labour
Hours.
You are required to CALCULATE the following Variances:
(a) Material Variances- Material Cost Variance, Material Price Variance and Material Usage
Variance.
(b) Variable Overheads variances- Variable overhead Cost Variance, Variable overhead
Efficiency Variance and Variable overhead Expenditure Variance.
(c) Labour variances- Labour Cost Variance, Labour Rate Variance and Labour Efficiency
Variance.
2. Material Variances
246
 Budg Std. for actual Actu
et al
Quantit Pric Amoun Quantit Pric Amoun Quantit Pric Amou
y e t (`) y e t (`) y e nt
(Meter) (`) (Meter) (`) (Meter) (`) (`)
1 60 6 10,000 60 6,00,00 11,400 58 6,61,20
0 0 0
Material Cost Variance = (SQ × SP – AQ × AP)

= 6,00,000 – 6,61,200 = ` 61,200 (A)

Material Price Variance = (SP – AP) AQ
= (60 - 58) 11,400 = ` 22,800 (F)
Material Usage Variance = (SQ – AQ) SP
= (10,000 – 11,400) 60 = ` 84,000 (A)
(ii) Variable Overheads variances
Variable overhead cost Variance
= Standard variable overhead – Actual Variable Overhead
= (10,000 units × 2 hours × ` 10) – 2,24,400 = ` 24,400 (A)
Variable overhead Efficiency Variance
= (Standard Hours – Actual Hours) × Standard Rate per Hour

Let Actual Hours be ‘X’, then:

(20,000 – X) × 10 = 4,000 (A)
2,00,000 – 10X = - 4,000
X = 2,04,000 ÷ 10
Therefore, Actual Hours (X) = 20,400
Variable overhead Expenditure Variance
= Variable Overhead at Actual Hours - Actual Variable Overheads

= 20,400 × ` 10 – 2,24,400 = ` 20,400 (A)

(iii) Labour variances

Budg Std. for actual Actu

et al
Hour Rat Amou Hour Rat Amoun Hour Rat Amoun
s e nt s e t s e t
(` (`) (` (`) (` (`)
) ) )
2 20 4 20,000 20 4,00,00 20,400 22* 4,48,80
0 0 0
*Actual Rate = ` 4,48,800 ÷ 20,400 hours = ` 22
Labour Cost Variance = (SH × SR) – (AH × AR)
= 4,00,000 – 4,48,800 = ` 48,800 (A)

247
 Labour Rate Variance = (SR – AR) × AH
= (20 – 22) × 20,400 = ` 40,800 (A)
Labour Efficiency Variance = (SH – AH) × SR
= (20,000 – 20,400) × 20 = ` 8,000 (A)

MARGINAL COSTING
NOV 2020
1. J Ltd. manufactures a Product-Y. Analysis of income statement indicated a profit of
` 250 lakhs on a sales volume of 5,00,000 units. Fixed costs are `1,000 lakhs which appears to be
high. Existing selling price is `680 per unit. The company is considering revising the profit target to `

248
 700 lakhs. You are required to COMPUTE –
(i) Break- even point at existing levels in units and in rupees.
(ii) The number of units required to be sold to earn the target profit.
(iii) Profit with 10% increase in selling price and drop in sales volume by 10%.
Volume to be achieved to earn target profit at the revised selling price as calculated in (ii) above, if a
reduction of 10% in the variable costs and ` 170 lakhs in the fixed cost is envisaged.

249
MAY 2021
1. Aditya Limited manufactures three different products and the following information has been
collected from the books of accounts:

Produc
ts
S T U
Sales Mix 35% 35% 30%
Selling Price ` 300 ` 400 ` 200
Variable Cost ` 150 ` 200 ` 120
Total Fixed Costs ` 18,00,000
Total Sales ` 60,00,000
The company has currently under discussion, a proposal to discontinue the manufacture of Product
U and replace it with Product M, when the following results are anticipated:
250
 Produc
ts
S T M
Sales Mix 50% 25% 25%
Selling Price ` 300 ` 400 ` 300
Variable Cost ` 150 ` 200 ` 150
Total Fixed Costs ` 18,00,000
Total Sales ` 64,00,000
Required
(iv) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the existing
product mix.
(v) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the proposed
product mix.
11. (i) Computation of PV ratio, contribution and break-even sales for existing product mix
Produc
ts Total
S T U
Selling Price (`) 300 400 200
Less: Variable Cost (`) 150 200 120

Contribution per unit (`) 150 200 80

P/V Ratio (Contribution/Selling price) 50% 50% 40%
Sales Mix 35% 35% 30%
Contribution per rupee of sales
17.5% 17.5% 12% 47%
(P/V Ratio × Sales Mix)
Present Total Contribution (`60,00,000 × ` 28,20,000
47%)
Less: Fixed Costs ` 18,00,000
Present Profit ` 10,20,000
Present Break Even Sales (`18,00,000/0.47) `
38,29,787
(ii) Computation of PV ratio, contribution and break-even sale for proposed product
mix

Products
S T M Total
Selling Price (`) 300 400 300
Less: Variable Cost (`) 150 200 150
Contribution per unit (`) 150 200 150
P/V Ratio (Contribution/Selling 50% 50% 50%
price)

251
 Sales Mix 50% 25% 25%
Contribution per rupee of sales
25% 12.5% 12.5% 50%
(P/V Ratio x Sales Mix)
Proposed Total Contribution (`64,00,000 x ` 32,00,000
50%)
Less: Fixed Costs ` 18,00,000
Proposed Profit ` 14,00,000
Proposed Break Even Sales ` 36,00,000
(`18,00,000/0.50)
NOV 2021
1. A company has three factories situated in North, East and South with its Head Office in Mumbai.
The Management has received the following summary report on the operations of each factory
for a period:
(` in ‘000)

Factory Sale Profi

s t
Actu Over / (Under) Actu Over / (Under)
al Budget al Budget
North 1,10 (400) 135 (180
0 )
East 1,45 150 210 90
0
South 1,20 (200) 330 (110
0 )
CALCULATE the following for each factory and for the company as a whole for the period:
(i) Fixed Cost
(ii) Break-even Sales

252
BUDGET AND BUDGETARY CONTROL
NOV 2020

253
 1. The information of Z Ltd. for the year ended 31st March 2020 is as below:
Amount (`)
Direct materials 17,50,000
Direct wages 12,50,000
Variable factory overhead 9,50,000
Fixed factory overhead 12,00,000
Other variable costs 6,00,000
Other fixed costs 4,00,000
Profit 8,50,000
Sales 70,00,000

During the year, the company manufactured two products, X and Y, and the output and cost were:
X Y
Output (units) 8,000 4,000
Selling price per unit (`) 600 550
Direct material per unit (`) 140 157.50
Direct wages per unit (`) 90 132.50
Variable factory overheads are absorbed as a percentage of direct wages and other variable costs
are computed as:
Product X – `40 per unit and Product Y- `70 per unit.
For the FY 2020-21, due to a pandemic, it is expected that demand for product X and Y will fall
by 20% & 10% respectively. It is also expected that direct wages cost will raise by 20% and other
fixed costs by 10%. Products will be required to be sold at a discount of 20%.
You are required to:
(i) PREPARE product- wise profitability statement on marginal costing method for the FY 2019-
20 and
(ii) PREPARE a budget for the FY 2020-21.

13. (i) Product-wise Profitability Statement for the FY 2019-20:

Particulars Product-X (`) Product-Y Total (`)

(`)
Output (units) 8,000 4,000
Selling price per unit 600 550
Sales value 48,00,000 22,00,000 70,00,000
Direct material 11,20,000 6,30,00 17,50,000
(`140×8,000) 0
(`157.50×4,000
)
Direct wages 7,20,000 5,30,000 12,50,000
(`90×8,000) (`132.5×4,000)
Variable factory 5,47,200 4,02,800 9,50,000
overheads (76%of (76%of
7,20,000) 5,30,000)
254
 Other variable costs 3,20,000 2,80,000 6,00,000
(`40×8,000) (`70×4,000)
Contribution 20,92,800 3,57,200 24,50,000
Fixed factory overheads - - 12,00,000
Other fixed costs - - 4,00,000
Profit 8,50,000
(ii) Preparation of Budget for the FY 2020-21:

Particulars Product-X (`) Product-Y (`) Total (`)

Output (units) 6,400 3,600
(8,000×80%) (4,000×90%)
Selling price per unit 480 440
(600×80%) (550×80%)
Sales value 30,72,000 15,84,000 46,56,000
Direct material 8,96,000 5,67,00 14,63,000
(`140×6,400) 0
(`157.50×3,600
)
Direct wages per unit 6,91,200 5,72,400 12,63,600
(`108×6,400) (`159×3,600)
Variable factory 5,25,312 4,35,024 9,60,336
overheads (76%of (76%of
6,91,200) 5,72,400)
Other variable costs 2,56,000 2,52,000 5,08,000
(`40×6,400) (`70×3,600)
Contribution 7,03,488 (2,42,424) 4,61,064
Fixed factory overheads - - 12,00,000
Other fixed costs (110%of - - 4,40,000
`4,00,000)
Profit/ (Loss) (11,78,936
)

MAY 2021
1. RS Ltd manufactures and sells a single product and has estimated sales revenue of
` 302.4 lakh during the year based on 20% profit on selling price. Each unit of product requires 6 kg
of material A and 3 kg of material B and processing time of 4 hours in machine shop and 2 hours in
assembly shop. Factory overheads are absorbed at a blanket rate of 20% of direct labour. Variable
selling & distribution overheads are ` 60 per unit sold and fixed selling & distribution overheads are
estimated to be ` 69,12,000.
The other relevant details are as under:
Purchase Price: Material A ` 160 per kg
Materials B ` 100 per kg
Labour Rate: Machine Shop ` 140 per hour
255
 Assembly Shop ` 70 per hour

Finished Stock Material A Material B

Opening Stock 2,500 units 7,500 kg 4,000 kg
Closing Stock 3,000 units 8,000 kg 5,500 kg
Required:
(i) CALCULATE number of units of product proposed to be sold and selling price per unit,
(ii) PREPARE Production Budget in units, and
PREPARE Material Purchase Budget in units
10. Workings:
Statement Showing “Total Variable Cost for the year”

Particulars Amount
(`)
Estimated Sales Revenue 3,02,40,000
Less: Desired Profit Margin on Sale @ 20% 60,48,000

Estimated Total Cost 2,41,92,000

Less: Fixed Selling and Distribution Overheads 69,12,000
Total Variable Cost 1,72,80,000
Statement Showing “Variable Cost per unit”
Particulars Variable
Cost
p.u. (`)
Direct Materials:
A: 6 Kg. @ ` 160 per kg. 960
B: 3 Kg. @ ` 100 per kg. 300
Labour Cost:
Machine Shop: 4 hrs. @ ` 140 per hour 560
Assembly Shop: 2 hrs. @ ` 70 per hour 140
Factory Overheads: 20% of (` 560 + ` 140) 140
Variable Selling & Distribution Expenses 60
Total Variable Cost per unit 2,160
(i) Calculation of number of units of product proposed to be sold and selling price per
unit:
Number of Units Sold = Total Variable Cost / Variable Cost
per unit
= ` 1,72,80,000 / ` 2,160
= 8,000 units
Selling Price per unit = Total Sales Value / Number of Units
Sold
= ` 3,02,40,000 / 8,000 units
256
 = ` 3,780
(ii) Production Budget
(units)
Particulars Units
Budgeted Sales 8,000
Add: Closing Stock 3,000
Total Requirements 11,000
Less: Opening Stock (2,500)
Required Production 8,500

(iii) Materials Purchase Budget (Kg.)

Particulars Material Material

A B
Requirement for Production 51,000 25,500
(8,500 units × 6 (8,500 units × 3
Kg.) Kg.)
Add: Desired Closing Stock 8,000 5,500
Total Requirements 59,000 31,000
Less: Opening Stock (7,500) (4,000)
Quantity to be purchased 51,500 27,000

NOV 2021
1. The accountant of manufacturing company provides you the following details for year 2019- 20:
Particulars (`)
Direct materials 28,00,000
Direct Wages 16,00,000
Fixed factory overheads 16,00,000
Variable factory overheads 16,00,000
Other variable costs 12,80,000
Other fixed costs 12,80,000
Profit 18,40,000
Sales 1,20,00,00
0
During the year, the company manufactured two products A and B and the output and costs
were:
Particulars A B
Output (units) 2,00,000 1,00,000
Selling price per unit ` 32.00 ` 56.00
Direct materials per unit ` 8.00 ` 12.00

257
 Direct wages per unit ` 4.00 ` 8.00
Variable factory overhead is absorbed as a percentage of direct wages. Other variable costs have
been computed as: Product A ` 4.00 per unit; and B ` 4.80 per unit.
During 2020-21, it is expected that the demand for product A will fall by 25% and for B by 50%. It
is decided to manufacture a new product C, the cost for which is estimated as follows:
Particulars Product C
Output (units) 2,00,000
Selling price per unit ` 28.00
Direct materials per unit ` 6.40
Direct wages per unit ` 4.00

It is anticipated that the other variable costs per unit of Product C will be same as for product
A.
PREPARE a budget to present to the management, showing the current position and the
position for 2020-21. COMMENT on the comparative results.

10. Budget Showing Current Position and Position for 2020-21

Position for 2019-20 Position for 2020-21
A B Tota A B C Total
l (A+B+C)
(A+
B)
Sales (units) 2,00,00 1,00,000 – 1,50,000 50,000 2,00,000 –
0
(`) (`) (`) (`) (`) (`) (`)
(A) Sales 64,00,0 56,00,00 1,20,00,0 48,00,00 28,00,00 56,00,00 1,32,00,0
00 0 00 0 0 0 00
Direct Material 16,00,0 12,00,00 28,00,00 12,00,00 6,00,000 12,80,00 30,80,000
00 0 0 0 0
Direct wages 8,00,00 8,00,000 16,00,00 6,00,000 4,00,000 8,00,000 18,00,000
0 0
Factory 8,00,00 8,00,000 16,00,00 6,00,000 4,00,000 8,00,000 18,00,000
overhe 0 0
ad (variable)
Other variable 800,000 4,80,000 12,80,00 6,00,000 240,000 8,00,000 16,40,000
costs 0
(B) Marginal Cost 40,00,0 32,80,00 72,80,00 30,00,00 16,40,00 36,80,00 83,20,000
00 0 0 0 0 0
(C) Contribution 24,00,0 23,20,00 47,20,00 18,00,00 11,60,00 19,20,00 48,80,000
(A- B) 00 0 0 0 0 0
Fixed costs
– Factory 16,00,00 16,00,000
0
– Others 12,80,00 12,80,000
0
(D) Total fixed cost 28,80,00 28,80,000
0
Profit (C – D) 18,40,00 20,00,000
0
258
 Comments: Introduction of Product C is likely to increase profit by ` 1,60,000 (i.e. from
` 18,40,000 to ` 20,00,000) in 2020-21 as compared to 2019-20 even if the demand for Product
A & B falls. Therefore, introduction of product C is recommended.

259