Cost and Management Accounting Page 1 of 5

Certificate in Accounting and Finance Stage Examination

(Mock) 15 August 2024
3 hours – 100 marks
Additional reading time – 15 minutes

Cost and Management Accounting

Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
Section A

Q-1 APL Ltd. manufactures and sells product Y and the following information relates to the product Y
for the month of December 2019:
i. Actual information for the month is as follows:
Rs.
Selling price per unit 2,000
Variable production cost per unit 1,200
Variable administration and distribution cost 225,000
Fixed production overheads 150,000
Fixed distribution overheads 250,000
ii. Production and sales for the month were as follows:
Actual Budgeted
(Units) (Units)
Sales 800 900
Production 1,000 950
st
iii. Opening stock as at 01 December 2019 was 200 units.
iv. Budgeted fixed production overheads and budgeted fixed distribution overheads were Rs. 175,000/-
and Rs. 250,000/- respectively. Fixed overheads are absorbed on the production unit basis.
Required:
Prepare the Income statement under the marginal costing method for the month ended 31st December
2019. (04)

Q-2 Gaznavi Ltd (GL) has budgeted sales for one of its products for the forthcoming year as 12,500 units,
distributed equally throughout the year. Manufacturing of each unit of this product requires 10 units of
material Y, which is purchased from the external market.
The following information is also relevant for the forthcoming year:
• GL spends a fixed cost of Rs. 100,000 per month. A variable cost of Rs. 8,000 and Rs. 2,000 per order,
for transportation and inspection respectively, is also incurred when material is ordered.
• Unit price of material Y is Rs. 1,000. The holding cost for one unit for one month is 1% of the unit price
of material Y.
Required:
(a) Assess the order size/quantity for material Y that will minimise the cost of inventory of the company for
the forthcoming year. (03)
(b) The supplier has now proposed the following discount scheme for material Y, determine the purchase
order quantity for material Y that will minimise the total cost of inventory of GL for the forthcoming
year. (06)
Order quantity Discount on regularprice
(units)
Below 4,700 Nil
4,700 – 6,999 10%
7,000 and above 12%
 Cost and Management Accounting Page 2 of 5

Q-3 Fortunate Limited (FL) produces three types of products. Following informationpertains to its next year budget:
Description Product A Product B Product C
------------ Rs. in million------------
Sales 2,000 1,000 1,000
Direct material 760 460 316
Direct labour 220 200 180
Selling and distribution expenses 200 150 120
Administration and other expenses (all fixed) 100 60 40
Additional information:
(i) The estimated total factory overheads amount to Rs. 480 million. All factory overheads are fixed except the
following:
• 80% of the total indirect labour of Rs. 50 million varies in proportion to the directlabour.
• 80% of the total power and fuel cost of Rs. 150 million varies in proportion to theproduction
(ii) Selling and distribution expenses include the following:
• Commission on sales @ 4%, 5% and 6% for products A, B and C respectively.
• Distribution expenses which are estimated at 3% of sales for products A and B, and5% of sales for
product C.
• All other expenses are fixed.
(iii) The ratio of product-wise sales is expected to remain the same.
Required:
Compute the break-even sales amount for FL. Also, determine the product-wise break-even sales amount (08)

Q-4 New Wisdom Limited (NWL) produces two products B01 and C02. It has two production departments,
BM01 and IM02 and two service departments S01 and S02. Budgeted information for the six months
ending 31st December 2018 is as follows:
Production Departments Service Departments
BM01 IM02 S01 S02
Indirect wages (Rs.) 1,000,000 1,000,000 300,000 500,000
Indirect material (Rs.) 500,000 805,000 200,000 100,000
Other overheads:
Rs.
Depreciation 1,500,000
Insurance on building 375,000
Building rent 750,000
Staff welfare 425,000
The following information is also available:
Production Service
Departments Departments
BM01 IM02 S01 S02
Book value of machinery (Rs.) 8,000,000 5,000,000 1,000,000 1,000,000
Floor area of the building (square feet) 10,000 15,000 5,000 7,500
Number of employees 150 150 50 75
Budgeted machine hours 18,000 18,000 - -
Apportioning Cost of Service Departments:
S01 40% 60% - -
S02 70% 30% - -
Required:
(i) Prepare a statement showing how the overheads are allocated and apportioned to each of the
production departments. (06)
(ii) Calculate the overhead absorption rate for each of the two production departments based on the
budgeted machine hours. (02)
 Cost and Management Accounting Page 3 of 5

Q-5 Elegant Ltd (EL) manufactures four different types of leather products and exports them in European markets.
EL purchases two types of material for these products leather sheets at Rs. 60 per foot and fabric Rs.10 per
meter. Per unit selling price and cost of all 4 products is given below:
Jacket Coat Bag Gloves
Selling price (Rs.) 1,000 1,200 500 200
Leather (feet) 10 12 4 1.5
Fabric (meter) 2 - 1 -
Labour hours 3 4 2 1
Machine hours (Machine A) 2 2.5 1 0.5
Machine hours (Machine B) 0.5
Total overheads (Rs.) 50 75 40 10
Maximum demand (units) 6,000 8,000 7,000 9,000
The maximum demand levels include the effects of a contract already made between EL and one of its
customers, PML Limited to supply 1,000 units of each of the four products.
Fixed overheads are estimated at Rs. 300,000 per annum and are allocated to each product on the basis of
machine hours (Machine A).
Labours are paid Rs. 3,000 per month (for 200 hours per month on average).
Currently machines are being used at full capacity as follows:
Capacity Used in
Machine A 30,000 hours per annum For all four products
Machine B 3,000 hours per annum For gloves only
Required:
Calculate the net profit of EL for the next year based on the optimum production mix. (10)

Section B

Q-6 Blind Enterprises (BE) manufactures and sells customized products. To utilise its idle facilities, BE is working
on a three-year proposal received from Joy Limited to manufacture and supply a product ‘Crystal’ at Rs.
3,600 per unit. Details of the proposal and relevant information are summarised as under:
(i) In the first year, BE would supply 10,000 units of Crystal that would increase annually by 1,000 units.
(ii) A specialised machine for refining and finishing of Crystal would be purchased at a cost of Rs. 8
million. The machine can be disposed of at 30% of its cost at the end of third year.
(iii) BE depreciates its plant and machinery at 25% using reducing balance method.
(iv) One unit of Crystal would require 2 kg of a raw material Z-plus which is available in the market at Rs.
1,000 per kg. Presently, 12,000 kg of a raw material Z1 is available with BE which was purchased at
Rs. 400 per kg for manufacture of a product which is now discontinued. Currently Z1 has no use.
Available quantity of Z1 can be converted into 8,000 kg of Z-plus at a processing cost of Rs. 550 per
kg of input. Alternatively, Z1 can be sold back to the supplier at 40% of its cost.
(v) Crystal would be produced in batches of 1,000 units each and the first batch would require 2,500 skilled
labour hours. Learning curve effect is estimated at 90% but that would remain effective for the first
nine batches only. At 90%, the index of learning curve is –0.152. BE hires skilled labour at a rate of
Rs. 260 per hour. It is expected that if the project is not accepted then there would be 2,200 idle labour
hours available for each year.
(vi) BE would also require 1,200 semi-skilled labour hours per batch which is available at a cost of Rs. 150
per hour. Alternatively, this work can be outsourced at a cost of Rs. 195 per unit.
(vii) Variable overheads would be charged at Rs. 140 per skilled labour hour. Fixed costs associated with
the proposal (other than depreciation) is expected to be Rs. 3.2 million per annum, 25% of which
would be allocated overheads.
(viii) Inflation is estimated at 5% per annum on sales revenue and all costs, with effect from year one.
Required:
Determine year-wise relevant cost of:
a) Raw material
b) Direct labour
c) Overheads (15)
 Cost and Management Accounting Page 4 of 5

Q-7 Olympia Chemicals manufactures two joint products Sigma and Beta in a single process at its production
department. Incidental to the production of these products, it produces a byproduct known as ZEE. Sigma
and ZEE are sold upon completion of processing in production department whereas Beta goes to refining
department where it is converted into Theta.
Joint costs are allocated to Sigma and Beta on the basis of their net realizable values. Proceeds from sale of
by-product are treated as reduction in joint costs. In both the departments, losses upto 5% of the input are
considered as a normal loss.
Actual data for the month of June 2015:
Department
Production Refining
Cost: -------- Rs. in “000” -------
Material input at Rs. 50 per kg 3,000 -
Direct labour at Rs. 100 per hour 2,500 350
Production overheads 1,850 890
Output: ------ Litres -------
Sigma 34,800 -
Beta 16,055 -
ZEE (by-product) 5,845 -
Theta - 15,200
Sigma, Theta and by-product ZEE were sold at Rs. 300, Rs. 500 and Rs. 40 per liter respectively. There was
no work in process at the beginning and the end of the month.
Required:
Compute the cost per liter of Sigma and Theta, for the month of June 2015. (15)

Q-8 Delta Limited (DL) manufactures and markets product Zee. DL uses standard absorption costing. Following
information pertains to product Zee for the month of February 2019.
(i) Data extracted from the budget for the month of February 2019:
Production Units 27,000
Cost of production: Rs.in'000
Direct material X: 16,000 kg @ Rs. 400 per kg 6,400
Y: 14,000 kg @ Rs. 300 per kg 4,200
Direct labour 10,000 hours @ Rs. 220 per hour 2,200
Factory overheads (including fixed overheads of Rs. 900,000) Rs. 250 per labour hour 2,500
(ii) Actual input ratio of X and Y was 55:45 respectively.
(iii) Direct materials are added at the beginning of the process. Actual process losses were 6% of the output.
There is no change in the direct material prices during the month.
(iv) DL increased wages by 12% as against the budgeted increase of 8% which improved labour efficiency
by 5%.
(v) Due to higher than expected inflation, actual factory overhead rate was 6% higher than the budgeted
rate.
(vi) Conversion costs were incurred evenly throughout the process.
(vii) 27,400 units of Zee were transferred to finished goods. There was no opening or closing work in
process. Finished goods inventory at the beginning and closing of the month was 1,000 units and 1,500
units respectively.
Required:
Compute the following:
(a) Material price, mix and yield variances (06)
(b) Labour rate and efficiency variances (04)
(c) Over/under applied overheads and analyse it into:
(i) Variable overhead expenditure and efficiency variances
(ii) Fixed overhead expenditure and volume variances (06)
 Cost and Management Accounting Page 5 of 5

Q-9 Asghar Limited (AL) commenced business on 1 January 2023. It manufactures two products X and Y.
Following information pertains to its activities during the month of January 2023.
(i) Product X requires 6 kg of raw material A and product Y requires 5 kg and 3 kg of raw materials B
and C respectively.
(ii) Data relating to raw materials are as follows:
Description A B C Total
Purchases during the period (kg) 132,000 90,000 50,000
Invoice value (Rs. in '000) 52,800 43,200 30,000 126,000
Carraige-in (Rs. in '000) - - - 21,760
Insurance in transit (Rs. in '000) - - - 3,780
Closing inventory (kg) 36,000 20,000 8,000 -

(iii) Carraige-in and insurance in transit are to be apportioned on the basis of quantity purchased and
invoice value respectively.
(iv) Product X requires 5 labour hours per unit and product Y requires 3 labour hours per unit. The cost
of labour is Rs. 300 per hour.
(v) During the month, sales of X and Y were 11,600 units and 9,400 units respectively. Throughout the
month, AL sold these products at 25% above cost.
(vi) Factory overheads during the period were Rs. 13,320,000.
(vii) Sales includes 200 units of X and 400 units of Y which were returned by the customers because of
being damaged. These are with AAA. The defective units need to be reworked by incurring a per
unit cost of Rs. 1,500 and Rs. 800 on products X and Y respectively, so they can fetch the current
selling price.
Required:
Determine the value of closing finished goods as at 31 January 2023. (15)

***Good Luck***