Case Study: Batch Costing

Arnav Ltd. operates in beverages industry where it manufactures soft-drink in three sizes
of Large (3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are
processed in batches. The 5,000 litres capacity processing plant consumes electricity of
90 Kilowatts per hour and a batch takes 1 hour 45 minutes to complete. Only symmetric
size of products can be processed at a time. The machine set-up takes 15 minutes to get
ready for next batch processing. During the set-up power consumption is only 20%.
(i) The current price of Large, Medium and Small are `150, `90 and `50 respectively.
(ii) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-
C are required which costs `0.50 and `1,000 per litre respectively.
(iii) 20 direct workers are required. The workers are paid `880 for 8 hours shift of
work.
(iv) The average packing cost per bottle is `3
(v) Power cost is `7 per Kilowatt -hour (Kwh)
(vi) Other variable cost is `30,000 per batch.
(vii) Fixed cost (Administration and marketing) is `4,90,00,000.
(viii) The holding cost is `1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of the product:

Large Medium Small

3,00,000 7,50,000 20,00,000
The following information has been sought from you for the purpose of performance
review meeting:
Q1. Material -W required for small size bottles
Q2. Profit/loss per batch:
Q3. Total number of batches to be run to process medium size bottles
Q4.; Number of large size bottles that can be processed in a batch?
Q5. What is the Economic Batch Quantity (EBQ) small bottles?

Answer 2 : 1,68,00,000 ltrs

Answer 3 : 2,82,17,370
Answer 2 : 225
Answer 2 : 1,666 bottles
Answer 3 : 3,46,592 bottles

Case Study: Service Costing

A LMV Pvt. Ltd, operates cab/ car rental service in Delhi/NCR. It provides its service to the
offices of Noida, Gurugram and Faridabad. At present it operates CNG fuelled cars but it is
 also considering to upgrade these into Electric vehicle (EV). The following details related
with the owning of CNG & EV propelled cars are as tabulated below:

Particulars CNG Car EV Car

Car purchase price 9,20,000 15,20,000
(Rs.)
Govt. subsidy on -- 1,50,000
purchase of car (Rs.)
Life of the car 15 years 10 years
Residual value (Rs.) 95,000 1,70,000
Mileage 20 km/kg 240 km per charge
Electricity -- 30 Kwh
consumption per full
charge
CNG cost per Kg (Rs.) 60 --
Power cost per Kwh -- 7.60
(Rs.)
Annual Maintenance 8,000 5,200
cost (Rs.)
Annual insurance cost 7,600 14,600
(Rs.)
Tyre replacement cost 16,000 16,000
in every 5 -year (Rs.)
Battery replacement 12,000 5,40,000
cost in every 8- year
(Rs.)

Apart from the above, the following are the additional information:

Particulars
Average distance covered by a car 1,500 km
in a month
 Driver’s salary (Rs.) 20,000 p.m
Garage rent per car (Rs.) 4,500 p.m
Share of Office & Administration 1,500 p.m
cost per car (Rs.)
You have been approached by the management of A LMV Pvt. Ltd. for consultation
on the two options of operating the cab service. The expected questions that may be
asked by the management are as follows
Q1. What would be the depreciable value of CNG Car and EV Car respectively?
Q2. What would be the total cost to be incurred for replacement of battery for CNG and
EV car respectively?
Q3. What would be the total cost to be incurred for replacement of tyres for CNG and
EV car respectively?
Q4. What would be the monthly cost of fuel and electricity for an CNG and EV car
respectively?
Q5. What would be the operating cost of vehicle per month per car for both CNG & EV
options?

Answers :
Rs.8,25,000 and Rs.12,00,00
Rs.12,000 and Rs.5,40,000
Rs.32,000 and Rs.16,000
Rs.4,500 and Rs.1,425
Rs. 36,627.78 and Rs. 43,708.33

Case Study : Material Costing

Arnav Ltd. manufactures chemical solutions used in paint and adhesive products. Chemical
solutions are produced in different processes. Some of the processes are hazardous in nature
which may results in fire accidents.
At the end of the last month, one fire accident occurred in the factory. The fire destroyed some
of the paper files containing records of the process operations for the month.
You being an associate to the Chief Manager (Finance), are assigned to prepare the process
accounts for the month during which the fire occurred. From the documents and files of other
sources, following information could be retrieved:
Opening work-in-process at the beginning of the month was 500 litres, 80% complete for labour
and 60% complete for overheads. Opening work-in-process was valued at Rs.2,78,000.
Closing work-in-process at the end of the month was 100 litres, 20% complete for labour
and 10% complete for overheads.
Normal loss is 10% of input (fresh) and total losses during the month were 800 litres partly
due to the fire damage.
Output transferred to finished goods was 3,400 litres.
Losses have a scrap value of Rs.20 per litre.
All raw materials are added at the commencement of the process.
The cost per equivalent unit is Rs.660 for the month made up as follows:
Raw Material Rs.300 Labour Rs.200 Overheads Rs.160
The company uses FIFO method to value work-in-process and finished goods.
The following information are required for managerial decisions:

Questions

Q1. Value of labour and overhead in closing Work-in-process are:

Q2. The Quantity of normal loss and abnormal loss are:
Q3. How much quantity of raw material introduced during the month?
Q4. Value of raw material added to the process during the month is:
Q5. Value of output transferred to finished goods is:

Answers:
Rs.4,000 & Rs.1,600 respectively.
Normal loss- 380 litres & Abnormal loss- 420 litres.
3,800 Litres.
Rs.10,33,600.
Rs.22,44,000

Case Scenario : Marginal Costing

A meeting of the heads of departments of the Arnav Ltd. has been called to review the operating
performance of the company in the last financial year. The head of the production department
appraised that during the last year the company could operate at 70% capacity level but in the
coming financial year 95% capacity level can be achieved if an additional amount of Rs.100 Crore
on capex and working capital is incurred.
The head of the finance department has presented that during the last financial year the
company had a P/V ratio of 40%, margin of safety and the break-even were Rs.50 crore and
Rs.200 crore respectively.
To the reply to the proposal of increasing the production capacity level to 95%, the head of the
finance department has informed that this could be achieved if the selling price and variable cost
are reduced by 8% and 5% of sales respectively. Fixed cost will also increase by Rs.20 crore due
to increased depreciation on additional assets. The additional capital will be arranged at a cost of
15% p.a. from a bank.
In the coming financial year, it has been aimed to achieve an additional profit of Rs.10 crore over
and above the last year’s profit after adjusting the interest cost on the additional capital.
The following points is required to be calculated on urgent basis to put the same in the meeting.
You being an assistant to the head of finance, has been asked the followings:

Questions:
Q1. What will be the revised break-even point for the coming financial year?
Q2. The total cost of the last year and for the coming year are:
Q3. What will be the revised sales for the coming financial year?
Q4. The profit of the last year and for the coming year are:
Q5. What will be the revised margin of safety for the coming financial year?

Answers:

Rs. 255.56 Crore.

Rs. 230 Crore & Rs.292.22.
Rs. 322.22 Crore.
Rs. 20 Crore & Rs. 30 Crore respectively.
Rs. 66.66 Crore

Case Scenario: Standard Costing

K Ltd. is a manufacturer of a single product A. 8,000 units of the product A has been produced in
the month of March 2024. At the beginning of the year a total 1,20,000 units of the product-A
has been planned for production. The cost department has provided the following estimates of
overheads:

Fixed Rs. 12,00,000 Variable Rs. 6,00,000

Semi-Variable Rs. 1,80,000
Semi-variable charges are considered to include 60 per cent expenses of fixed
nature and 40 per cent of variable character.
The records of the production department shows that the company could have
operated for 20 days but there was a festival holiday during the month.
The actual cost data for the month of March 2024 are as follows:

Fixed Rs. 1,19,000 Variable Rs. 48,000

Semi-Variable Rs. 19,200
The cost department of the company is now preparing a cost variance report for managerial
information and action. You being an accounts officer of the company are asked to calculate the
following information for preparation of the variance report:
Questions :
Q1. What is the amount of variable overhead cost variance for the month of March 2024:
Q2. What is the amount of fixed overhead expenditure variance for the month of March 2024:
Q3. What is the amount of fixed overhead volume variance for the month of March 2024:
Q4. What is the amount of fixed overhead cost variance for the month of March 2024:
Q5. What is the amount of fixed overhead calendar variance for the month of March 2024:

Answers :

Rs. 10,880 (A).

Rs. 21,520 (A).
Rs. 21,800 (A).
Rs. 43,320 (A).
Rs. 5,450 (A).

Case Scenario : Overhead

The following extract is taken from the overhead budget of X:

Budgeted activity 50% 75%

Budgeted overhead 30,00,000 40,00,000
(Rs.)
Q1. What would be the budgeted overhead for 60% level of activity:
Ans : Rs.34,00,000

CS 2. Based on the data below, what is the amount of the overhead under-/over-absorbed?
Budgeted overhead – Rs.5,25,000
Budgeted machine hours- 17,500
Actual machine hours- 17,040
Actual overheads- Rs.5,20,000

Q1. What is the amount of the overhead under-/over-absorbed?

Ans : 8,800 under-absorbed

Case Scenario : Batch Costing

A customer has been ordering 80,000 caps during the year. It is estimated that it
costs Rs. 1 as inventory holding cost per cap per month and that the set up cost per
 run of cap manufacture is Rs.3,500.
Q1. What is optimum run size of cap manufacture?
Ans : 12 runs

Case Scenario: employee costing

If the amount of wages under Halsey plan is Rs. 420, total time allowed is 8 hours and the
guaranteed time rate is Rs. 60 per hour.
Q1. What is the total time saved by the worker?
Ans : 2 hours

CS : Activity Based costing

From the following information, calculate the Total cost of Product A and B using the
ABC analysis:

Product A Product B
Units 5,000 5,000
Number of purchase 100 220
orders placed
Number of deliveries 70 200
received
Ordering Cost Rs. 4,00,000
Delivery Cost Rs. 1,35,000

Q1. Calculate the Total cost of Product A and B using the ABC analysis:

Ans : Rs. 1,60,00; B = Rs. 3,75,000

CS : cost sheet

What would be Prime cost from below information?

Direct materials Purchased : Rs. 75,000
Direct labour : Rs. 45,000
Direct expenses : Rs. 15,000
Manufacturing overheads : Rs. 22,500
Direct materials consumed : Rs. 67,500
 Q1. What would be Prime cost?
Ans. Rs. 1,27,500

CS : process costing

The following data are available in respect of Process-I for January 2024:
(1) Opening stock of work in process: 600 units at a total cost of Rs.4,200.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of Rs. 55,200 for 9,200 units.
(4) Direct wages incurred Rs. 18,600
(5) Overheads Rs. 8,630.
(6) Units scrapped 200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 700 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 8,900 units were completed and transferred to the next process.
(9) Normal loss is 4% of the total input (opening stock plus units put in)
(10) Scrap value is Rs.6 per unit.
You are required to be ready with the following information:
Q1. What is the cost of the units to be transferred to the next process
using the FIFO method
Q2. What is the total cost of abnormal gain?
Q3. What is the total cost of closing work in process?
Q4. What is the equivalent units for labour?
Q5. What is the total cost of per equivalent units?

Answers
Rs.80,303.20.
Rs.1,743.36.
Rs.5,709.20.
8,838 units.
Rs.9.08
CS: Marginal Costing
Miniso Pvt Ltd a company engaged in the business of manufacturing wireless Bluetooth
earphones. The company wishes to track its operating profitability and the margin it needs to
maintain to sustain profitability in the long run. Further the company has adopted the marginal
costing technique to identify and define operational levels. In this regard the company has
provided the following information for the current year:
Opening stock of earphones - 30,000 units
Selling Price of the earphones - Rs.450 per unit
Variable costs incurred in manufacture - Rs.270 per unit
Units produced during the previous year - 1,80,000 units
Expected production for the current year - 2,25,000 units
Expected sales for the current year - 2,40,000 units
Fixed cost per unit for last year was - Rs.60 per unit
Expected rise in Fixed Cost - 10%
Expected Increase in Variable cost - 25%
Based on the above information available, the following needs to be determined.

Questions:
Q1. Margin of Safety in units amounts to:
Q2. The total fixed cost for the current year post the cost increase amounts to:
Q3. The profit that the company will make on achieving its targeted sales amounts to:
Q4. The quantity of closing stock and its value amounts to:
Q5. The units to be sold by the company to achieve Break-even is

Answers :
1,52,400 units.
Rs.1,18,80,000.
Rs.1,71,45,000.
Closing stock in units – 15,000 and Value – Rs.50,62,500.
87,600 units

CS : Standard Costing

PQR Ltd. has normal monthly machine hour capacity of 120 machines working 8 hours per day
for 24 working days in a month. The budgeted fixed overhead is Rs. 5,60,000. The actual
production was 4,500 units. The actual fixed overhead was Rs. 5,75,000.

Question: Fixed overhead expenditure variance will be:

Ans : 15,000 (A)

CS: Activity Based Costing

MNP Ltd manufactures three products with total production overheads of Rs. 22,00,000. The
cost of production scheduling/machine set-ups is Rs. 10,00,000 for which cost driver is number
of setups.
Details on the three products are as follows:

L M N
Production(units 10,000 15,000 20,000
)
Number of set 140 160 200
ups

Question:
Q1. What is the charge out rate for production scheduling/machine set ups is?
Ans : Rs. 2,000

CS : Employee Costing

The follwing data is available:

Labour turnover rates are 25%, 12% and 10% respectively under Flux method, Replacement
method and Separation method. No. of workers replaced is 72.

Q1. Calculate average workers on roll

Ans : 600

CS : Employee Costing

The board of the J Ltd. has been appraised by the General Manager (HR) that the employee
attrition rate in the company has increased. The following facts has been presented by the
GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this period
their productivity is 60% of the experienced workers. Time required by an
experienced worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of
rectification of a defective unit was Rs. 25.
(3) Potential productive hours lost due to delay in recruitment were
1,00,000 hours.
(4) Selling price per unit is Rs. 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was
Rs. 1,83,480.
 (6) Recruitment cost was Rs. 1,56,340
(7) Training cost was Rs. 1,13,180
You being an associate finance to GM(HR), has been asked the following questions:

Q1. What is the cost repairing of defective units?

Q2. How much quantity of output is lost due to inexperience of the new worker?
Q3. Calculate the profit lost by the company due to increased labour turnover.
Q4. How much loss in the form of contribution, the company incurred due to labour turnover?
Q5. How much quantity of output is lost due to labour turnover?

Answers :
Rs. 15,000.
2,000 units.
Rs. 9,00,000.
Rs. 4,32,000.
12,000 units.

CS : Cost Sheet

P Ltd. has gathered cost information from ledgers and other sources for the year ended 31st
December 2023. The information are tabulated below:

Sl. No. Amount (Rs.) Amount (Rs.)

(i) Raw materials 5,00,00,000
purchased
(ii) Freight inward 9,20,600
(iii) Wages paid to 25,20,000
factory workers
(iv) Royalty paid for 1,80,000
production
(v) Amount paid for 3,50,000
power & fuel
(vi) Job charges 3,10,000
paid to job
workers
(vii) Stores and 1,10,000
spares
consumed
 1,10,000
spares
consumed
(viii) Depreciation on 50,000
office building
(ix) Repairs & 40,000
Maintenance
paid for:
• Plant &
Machinery
• Sales office 20,000 60,000
building
(x) Insurance
premium paid
for:
• Plant & 28,200
Machinery
• Factory 18,800 47,000
building
(xi) Expenses paid 18,000
for quality
control check
activities
(xii) Research & 20,000
development
cost paid for
improvement in
production
process
(xiii) Expenses paid 36,000
for pollution
control and
engineering &
 control and
engineering &
maintenance
(xiv) Salary paid to 5,60,000
Sales &
Marketing
mangers
(xv) Salary paid to 6,40,000
General
Manager
(xvi) Packing cost
paid for:
• Primary 46,000
packing
necessary to
maintain quality
• For re- 80,000 1,26,000
distribution of
finished goods
(xvii) Fee paid to 1,20,000
independent
directors
(xviii) Performance 1,20,000
bonus paid to
sales staffs
(xix) Value of stock
as on
1stJanuary,
2023:
• Raw 10,00,000
materials
 • Work-in- 8,60,000
process
• Finished 12,00,000 30,60,000
goods
(xx) Value of stock
as on
31stDecember,
2023:
• Raw 8,40,000
materials
• Work-in- 6,60,000
process
• Finished 10,50,000 25,50,000
goods
Amount realized by selling of scrap and waste generated during
manufacturing process – Rs. 48,000/-
The board meeting is scheduled to be held in next week and you being an associate to the
chief cost controller of the company, has been asked to be prepared with the following figures:

Questions
Q1. How much is the cost of production?
Q2. What is the value of cost of sales?
Q3. What is the value of cost of goods sold?
Q4. How much is the factory cost?
Q5. How much is the prime cost of the company?

Answers:
Rs. 5,49,09,600.
Rs. 5,66,49,600.
Rs. 5,50,59,600.
Rs. 5,48,73,600.
Rs. 5,44,40,600

CS: Standard Costing

The following information is given:

 Budgeted production 12,000 units
Budgeted variable overhead Rs. 2,40,000
Standard time for one unit of 2 hours
output
Actual production 11,800 units
Actual overhead incurred Rs. 2,44,000
Actual hours worked 23,200 hours

Q1. What is ‘Variable Overhead Efficiency Variance’?

Ans : Rs. 4000 (F)

CS : Marginal Costing
A company sells two products, A and B. The sales mix is 4 units of A and 3 units of B. The
contribution margins per unit are Rs. 140 for A and Rs. 70 for B. Fixed costs are Rs. 6,16,000 per
month.

Q1. What is Break Even Point for Product B?

Ans : 2,400 units

CS : Service Costing
Total passenger km run by APL logistic Ltd. was Rs. 43,80,480 for the year between Delhi and
Manesar. The bus made 3 round trips per day. Seating capacity of the bus was 52 passengers
and average daily occupancy was 75% and the bus runs on an average 26 days in a month.
Calculate the distance between Delhi and Manesar.
Ans: Answer 4 : 60 km

CS: material costing

Purchase price Rs. 10,00,000

Custom duty Rs. 2,00,000
GST @12% on Purchase price
(input credit available)
Octroi Rs. 5,000
Carriage inward Rs. 12,000
Demurrage charges Rs. 16,100
Commission on purchase Rs. 10,000
Stock of Raw Material:
Opening Rs. 1,00,000
 Closing Rs. 2,00,000

Q Raw material consumed will be: Answer 1 : Rs. 11,27,000

CS: Joint and by product

In case of joint products, the main objective of accounting of the cost is to apportion the joint
costs incurred up to the split off point. For cost apportionment one company has chosen
Physical Quantity Method. Three joint products ‘A’, ‘B’ and ‘C’ are produced in the same process.
Up to the point of split off the total production of A, B and C is 60,000 kg, out of which ‘A’
produces 30,000 kg and joint costs are Rs. 3,60,000. Joint costs allocated to product A is
Answer 3 : Rs. 1,80,000

CS: overhead
During half year ending inter departmental review meeting of P Ltd., cost variance report was
discussed and the performance of the departments were assessed. The following figures were
presented.
For a period of first six months of the financial year, following information were
extracted from the books:

Actual production overheads Rs.34,08,000

The above amount is inclusive of
the following payments made:
Paid as per court’s order Rs.4,50,000
Expenses of previous year booked Rs.1,00,000
in current year
Paid to workers for strike period Rs.4,20,000
under an award
Obsolete stores written off Rs.36,000
Production and sales data for the six months are as under:

Production:
Finished goods 1,10,000 units
Works-in-progress
(50% complete in every respect) 80,000 units
Sale:
Finished goods 90,000 units
Machine worked during the period was 3,000 hours. At the of preparation of revenue budget, it
was estimated that a total of Rs.50,40,000 would be required for budgeted machine hours of
6,000 as production overheads for the entire year.During the meeting, a data analytic report
revealed that 40% of the over/under-absorption was due to defective production policies and the
balance was attributable to increase in costs.You were also present at the meeting; the
chairperson of the meeting has asked you to be ready with the followings for the performance
appraisal of the departmental heads:
How much was the budgeted machine hour rate used to recover overhead?
How much amount of production overhead has been recovered (absorbed) upto the end of
half year end?
What is the amount of over absorbed overhead apportioned to Work in Progress?
What is the amount of overhead under/ over absorbed?
What is the supplementary rate for apportionment of over absorbed overheads over WIP,
Finished goods and Cost of sales?

Answer 4 : Rs.840
Answer 1 : Rs.25,20,000
Answer 3 : Rs.18,880
Answer 1 : 1,18,000 over-absorbed
Answer 2 : Rs.0.472 per unit

CS: Marginal Costing

The analysis of cost sheet of A Ltd. for the last financial year has revealed the following
information for it’s product R:

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 Rs. 2,30,000
sold
General & 2% of cost of goods Rs. 71,000
Administration sold
Overhead
Selling & Distribution 4% of cost of sales Rs. 68,000
Overhead
 Last year 5,000 units were sold at Rs.185 per unit.
You being an associate to cost controller of the A Ltd., is expected to answer the
followings:

What is the Margin of safety (in %)?

The total fixed cost is :
What is the cost of sales for the last year?
What is the cost of goods sold for the last year?
Calculate Break-even Sales (in rupees)

Answer 2 : 25.31%
Answer 4 : Rs.3,69,000
Answer 1 : Rs.8,00,000
Answer 2 : Rs.7,00,000
Answer 1 : Rs.6,90,882