Mock Test Paper - Series I: July, 2024

Date of Paper: 1st August, 2024

Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
Tropic Pvt Ltd was engaged in the business of manufacturing Product P. The
product P required 2 units of Material R. The company intends to sell 24,000 units
of Product P and does not wish to retain any closing stock. However the opening
stock of Product P is 4,000 units. Raw Material R has to be procured after
considering the opening stock of R amounting to 10,000 units. The technical team
further confirms that the yield in the course of manufacture of Product P is 80% of
the input.
The company presently procures its annual requirement of materials on a quarterly
basis from its regular supplier enjoying a discount of 2.5% on the invoice price of
the material of ` 20 per unit. Every time the company places orders for Material R,
it incurs ` 125 for each of the order placed. The company also has taken a rented
warehouse for storing material R and the annual cost of storage is ` 10 per unit.
The company appointed Mr. T a Chartered Accountant to review the cost of
inventory and provide measures of improvement of cost. After reviewing the
material purchase and consumption pattern, Mr. T suggested that the
implementation of Wilson’s EOQ would be beneficial to the company. He
emphasized that the change in the quantity ordered would result in reduction of
inventory carrying costs.

1
Mr. T further reviewed the labour costing and identified that the employees were
paid overtime wages to ensure timely completion of projects. Overtime wages
comprised of daily wage and 100% of daily wages as overtime premium. Based on
the cost record it was understood that every month had 180 hours of regular
working hours which was remunerated at ` 200 per hour and Overtime of 20 hours
which was remunerated at ` 400 per hour. Mr. T suggested that the above time
taken may be considered as standard and a scheme of Incentive be introduced to
reduce overtime cost. He further indicated that Rowan scheme of incentive be used
to measure performance and the improved productivity per hour would be 125 units
per hour.
In this regard, address the following queries in line with the suggestions provided
by Mr. T to Tropic Pvt Ltd.
1. The annual requirement of Material R to meet the target sales of 24,000 units
of Product P is:
(a) 48,000 units
(b) 60,000 units
(c) 40,000 units
(d) 50,000 units
2. The ordering quantity as per the current inventory policy and the proposed
Wilson’s Economic order quantity of Material R are:
(a) Order Quatity as per the current inventory policy – 10,000 units &
Economic Order Quantity – 1,000 units
(b) Order Quantity as per the current inventory policy – 15,000 units &
Economic Order Quantity – 1,225 units
(c) Order Quantity as per the current inventory policy – 12,000 units &
Economic Order Quantity – 1,095 units
(d) Order Quantity as per the current inventory policy – 12,500 units &
Economic Order Quantity – 1,118 units
3. The net savings to inventory cost on migration from the current inventory
policy to the Wilson’s Economic Order Quantity policy would be:
(a) Savings from EOQ as compared to current discount policy –
` 26,820
(b) Savings from EOQ as compared to current discount policy –
` 20,500
(c) Savings from EOQ as compared to current discount policy –
` 33,253
(d) Savings from EOQ as compared to current discount policy –
` 25,546

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4. Incentive payable under the Rowan Incentive scheme amounts to:
(a) ` 7,500
(b) ` 6,400
(c) ` 6,000
(d) ` 8,000
5. The savings in labour cost achieved by implementation of incentive scheme
over the overtime payments amounts to:
(a) ` 9,600
(b) ` 5,600
(c) ` 8,000
(d) ` 3,200 (5 x 2 = 10 Marks)
XYZ Manufacturing Pvt. Ltd. is a prominent company in the electric appliances
industry, known for producing a diverse range of high-quality products. The
company has built a reputation for reliability and innovation in the manufacturing of
household appliances, including fans, mixers, and heaters. XYZ Manufacturing Pvt.
Ltd. is dedicated to delivering products that meet the needs of its customers while
adhering to the highest standards of quality and performance.
The company operates a state-of-the-art factory that is fully equipped with
advanced machinery and technology to ensure efficient and consistent production.
The factory operates 25 days a month, running multiple shifts to meet the growing
demand for its products. The company have spare capacity to additional orders.
Each product type—fans, mixers, and heaters—undergoes a meticulous
manufacturing process that includes assembly, quality testing, and packaging.
Cost Category Amount (`)
Fixed Costs (per month)
Factory Rent ` 3,00,000
Depreciation ` 2,00,000
Administrative Expenses ` 1,00,000
Salaries ` 4,00,000
Total Fixed Costs ` 10,00,000
Number of units produced per month 10,000 units
(Note: Last month there was an additional special order of
2000 units which resulted in higher production)
Selling price per unit ` 1,500
Additional Info: Raw Materials include Copper, Plastic, and Other Materials. The
per unit cost of Copper is ` 80 more than the cost of Plastic, while the cost of Other
Materials is twice that of Plastic. And the total Raw Material Cost per unit is ` 210
more than the combined cost of Copper & Plastic.
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The Labour Hour Rate is ` 100 per hour. The total labour hours used in the last
month were 36,000 Hours. The Utilities Cost per unit is ` 100, and the Packaging
Cost per unit is ` 50. Being a finance manager of the company, you are required to
answer the following:
6. Calculate the contribution margin per unit.
(a) ` 550
(b) ` 600
(c) ` 650
(d) ` 700
7. Determine the break-even point in sales revenue.
(a) ` 31,28,593
(b) ` 25,85,153
(c) ` 27,27,025
(d) ` 27,05,983
8. If the company wants to achieve a target profit of ` 5,00,000, what should be
the sales volume (in units)?
(a) 2,000 units
(b) 2,727 units
(c) 2,750 units
(d) 3,000 units
9. What would be the impact on the break-even point if the variable cost per unit
increases by 10%?
(a) 2,178 units
(b) 2,198 units
(c) 2,248 units
(d) 2,258 units
10. Calculate the margin of safety in percentage if the company sells 4,000 units
if the variable cost per unit increases by 10%
(a) 44.85%
(b) 42.55%
(c) 45.05%
(d) 45.75% (5 x 2 = 10 Marks)
11. A FMCG company has an annual demand of 50,000 units for its specific
product whose setting up cost per batch is ` 10,000 and carrying cost per unit
per month is ` 1. What is the Economic Batch Quantity?
4
 (a) 7,071 units
(b) 10,000 units
(c) 12,641 units
(d) 9,129 units (2 Marks)
12. A furniture company uses premium wood for sofa. Standard quantity of
premium wood per sofa is 5 sq. ft. Standard price per sq. ft. of premium wood
is ` 10. Actual production of sofa is 1,000. Premium wood actually used is
5,300 sq. ft. Actual purchase price of premium wood per sq. ft. is ` 10. What
is material cost variance?
(a) ` 3,000 (A)
(b) ` 4,300 (A)
(c) ` 7,300 (A)
(d) ` 5,300 (F) (2 Marks)
13. One of Pintu Company’s cost pools is parts administration. The budgeted
overhead cost for that cost pool was ` 4,00,000 and the expected activity was
4,000 part types. The actual overhead cost for the cost pool was ` 4,20,000
at an actual activity of 5,000 part types. The activity rate for that cost pool
was:
(a) ` 80 per part type
(b) ` 100 per part type
(c) ` 105 per part type
(d) ` 84 per part type (2 Marks)
14. A truck carrying 10 tons of goods over 200 kilometres per day for 26 days in
a month. The ton kms applicable is -
(a) 52,000
(b) 20,000
(c) 5200
(d) 260 (2 Marks)
15. Standard hours required for doing a work is 100 hours and budgeted hours is
120 hrs while the same work is actually completed by workers in 110 hrs. You
are required to calculate the activity ratio:
(a) 109.09%
(b) 83.33%
(c) 90.90%
(d) 110% (2 Marks)

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 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) From the following data of Meta Ltd., CALCULATE Cost of production:
Amount
(`)
(i) Repair & maintenance paid for plant & 9,80,500
machinery
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100
(x) Quality control cost for the products in 86,000
manufacturing process
(xi) Research & development cost for improvement 92,600
in production process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated 9,200
during the manufacturing process
(xiv) Packing cost necessary to preserve the goods 10,200
for further processing
(xv) Salary paid to Director (Technical) 8,90,000
(xvi) Expenses paid for pollution control and 22,000
engineering & maintenance
(5 Marks)
(b) A manufacturing company has disclosed net loss of ` 48,700 as per their
cost accounting records for the year ended 31 st March, 2024. However
their financial accounting records disclosed net profit of ` 30,400 for the
same period. A scrutiny of data of both the sets of books of accounts
revealed the following informations:
`
(i) Factory overheads under absorbed 30,500
(ii) Administrative overheads over absorbed 65,000

6
 (iii) Depreciation charged in financial accounts 2,25,000
(iv) Depreciation charged in cost accounts 2,70,000
(v) Income-tax provision 52,400
(vi) Transfer fee (credited in financial accounts) 10,200
(vii) Obsolescence loss charged in financial 20,700
accounts
(viii) Notional rent of own premises charged in 49,000
cost accounts
(ix) Value of opening stock:
(a) in cost accounts 1,38,000
(b) in financial accounts 1,15,000
(x) Value of closing stock:
(a) in cost accounts 1,22,000
(b) in financial accounts 1,12,500
PREPARE a Memorandum Reconciliation Account by taking costing loss
as base. (5 Marks)
(c) A job can be executed either through workman A or B. A takes 32 hours
to complete the job while B finishes it in 30 hours. The standard time to
finish the job is 40 hours.
The hourly wage rate is same for both the workers. In addition workman
A is entitled to receive bonus according to Halsey plan (50%) sharing
while B is paid bonus as per Rowan plan. The works overheads are
absorbed on the job at ` 7.50 per labour hour worked. The factory cost
of the job comes to ` 2,200 irrespective of the workman engaged.
FIND out the hourly wage rate and cost of raw materials input. Also
SHOW cost against each element of cost included in factory cost.
(4 Marks)
2. (a) PQR Company Ltd. provides the following information relating to
Process-P:
(i) Opening Work-in-progress - NIL
(ii) Units Introduced - 45,000 units @ ` 10 per unit
(iii) Expenses debited to the process:
Direct material ` 65,500
Labour ` 90,800
Overhead ` 1,80,700
(iv) Normal loss in the process - 2% of Input

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 (v) Work-in progress - 1800 units
Degree of completion
Materials - 100%
Labour - 50%
Overhead - 40%
(vi) Finished output - 42,000 units
(vii) Degree of completion of abnormal loss:
Materials - 100%
Labour - 80%
Overhead - 60%
(viii) Units scrapped as normal loss were sold at ` 5 per unit.
(ix) All the units of abnormal loss were sold at ` 2 per unit.
You are required to PREPARE:
➢ Statement of equivalent production.
➢ Statement showing the cost of finished goods, abnormal loss and
closing balance of work-in-progress.
➢ Process-P account and abnormal loss account. (10 Marks)
(b) EXPLAIN the treatment of following items in cost sheet.
(i) Credit for Recoveries
(ii) Packing Cost (primary)
(iii) Joint Products and By-Products
(iv) Quality Control Cost (4 Marks)
3. (a) A company manufactures one main product (MN) and two by-products
AB and PQ. For the month of January 2024, following details are
available:
Total Cost upto separation Point ` 2,12,400
MN AB PQ
Cost after separation - ` 35,000 ` 24,000
No. of units produced 4,000 1,800 3,000
Selling price per unit ` 100 ` 40 ` 30
Estimated net profit as percentage to - 20% 30%
sales value
Estimated selling expenses as 30% 15% 15%
percentage to sales value
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 There are no beginning or closing inventories.
PREPARE statement showing:
(i) Allocation of joint cost; and
(ii) Product-wise and overall profitability of the company for January
2024. (6 Marks)
(b) A mini-bus, having a capacity of 32 passengers, operates between two
places - 'A' and 'B'. The distance between the place 'A' and place 'B' is
30 km. The bus makes 10 round trips in a day for 25 days in a month.
On an average, the occupancy ratio is 70% and is expected throughout
the year.
The details of other expenses are as under:
Amount (`)
Insurance 15,600 Per annum
Garage Rent 2,400 Per quarter
Road Tax 5,000 Per annum
Repairs 4,800 Per quarter
Salary of operating staff 7,200 Per month
Tyres and Tubes 3,600 Per quarter
Diesel: (one litre is consumed for every 5 km) 13 Per litre
Oil and Sundries 22 Per 100 km run
Depreciation 68,000 Per annum
Passenger tax @ 22% on total taking is to be levied and bus operator
requires a profit of 25% on total taking.
PREPARE operating cost statement on the annual basis and find out the
cost per passenger kilometer and one way fare per passenger.
(8 Marks)
4. (a) The following particulars refer to process used in the treatment of
material subsequently, incorporated in a component forming part of an
electrical appliance:
(i) The original cost of the machine used (Purchased in June 2023)
was ` 10,000. Its estimated life is 10 years, the estimated scrap
value at the end of its life is ` 1,000, and the estimated working time
per year (50 weeks of 44 hours) is 2,200 hours of which machine
maintenance etc., is estimated to take up 200 hours.
No other loss of working time expected. Setting up time, estimated
at 100 hours, is regarded as productive time. (Holiday to be
ignored).
9
 (ii) Electricity used by the machine during production is 16 units per
hour at cost of a 9 paisa per unit. No current is taken during
maintenance or setting up.
(iii) The machine required a chemical solution which is replaced at the
end of week at a cost of ` 20 each time.
(iv) The estimated cost of maintenance per year is ` 1,800.
(v) Two attendants control the operation of machine together with five
other identical machines. Their combined weekly wages, insurance
and the employer's contribution to holiday pay amount ` 120.
(vi) Departmental and general works overhead allocated to this
machine for the current year amount to ` 3,000.
You are required to CALCULATE the machine hour rate of operating the
machine. (6 Marks)
(b) Anju Limited produces a product 'Pect' which is sold in a 10 Kg. packet.
The standard cost card per packet of 'Pect' are as follows:
`
Direct materials 10 kg @ ` 45 per kg 450
Direct labour 8 hours @ ` 50 per hour 400
Variable Overhead 8 hours @ ` 10 per hour 80
Fixed Overhead 200
1,130
Budgeted output for the third quarter of a year was 10,000 Kg. Actual
output is 9,000 Kg.
Actual cost for this quarter are as follows :
`
Direct Materials 8,900 Kg @ ` 46 per Kg. 4,09,400
Direct Labour 7,000 hours @ ` 52 per hour 3,64,000
Variable Overhead incurred 72,500
Fixed Overhead incurred 1,92,000
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

10
 (vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance (8 Marks)
5. (a) Bicon Ltd. manufactures two products using two types of materials and
one grade of labour. Shown below is an extract from the company’s
working papers for the next month’s budget:
Product - A Product-B
Budgeted sales (in units) 2,400 3,600
Budgeted material consumption per
unit (in kg):
Material-X 5 3
Material-Y 4 6
Standard labour hours allowed per
3 5
unit of product
Material-X and Material-Y cost ` 4 and ` 6 per kg and labours are paid
` 25 per hour. Overtime premium is 50% and is payable, if a worker
works for more than 40 hours a week. There are 180 direct workers.
The target productivity ratio (or efficiency ratio) for the productive hours
worked by the direct workers in actually manufacturing the products is
80%. In addition the non-productive down-time is budgeted at 20% of the
productive hours worked.
There are four 5-days weeks in the budgeted period and it is anticipated
that sales and production will occur evenly throughout the whole period.
It is anticipated that stock at the beginning of the period will be:
Product-A 400 units
Product-B 200 units
Material-X 1,000 kgs.
Material-Y 500 kgs.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for
the direct workers, showing the quantities and values, for the next month.
(7 Marks)
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 (b) Icecold a FMCG Company manufactures and sells three flavors of ice
cream:
Dark chocolate, Chocolate, and Butterscotch. The batch size for the ice
cream is limited to 1,000 ice cream based on the size of the fridge and
ice cream molds owned by the company. Based on budgetary
projections, the information listed below is available:
Dark chocolate Chocolate Butterscotch
Projected sales in units 500,000 800,000 600,000
PER UNIT data:
Selling price ` 80 ` 75 ` 60
Direct materials ` 20 ` 15 ` 14
Direct labor `4 `2 `2
Hours per 1000-unit batch:
Direct labor hours 20 10 10
Fridge hours 1 1 1
Packaging hours 0.5 0.5 0.5
Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs Activity levels
Direct labor 2,400 hours
Fridge ` 2,10,00,000 1,900 fridge hours
Packaging ` 1,50,00,000 950 packaging hours
` 3,60,00,000
Required:
a. With the help of ABC system, for the Chocolate ice cream:
1. Compute the activity-cost-driver rate
2. Compute the estimated overhead costs per thousand ice cream.
3. Compute the estimated operating profit per thousand ice cream.
b. With the help of traditional system (with direct labor hours as the
overhead allocation base), for the Chocolate ice cream, compute
the estimated operating profit per thousand ice cream. (7 Marks)
6. (a) EXPLAIN the types of responsibility centres. (5 Marks)
(b) EXPLAIN the efficiency rating procedures of the employees. (5 Marks)
(c) WHAT are the essential pre-requisites for integrated accounts?(4 Marks)
OR
(d) WHAT are the principles of estimation of costs and benefits? (4 Marks)

12
 Mock Test Paper - Series I: July, 2024
Date of Paper: 1 st August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs
1. c. 40,000 units.
Projected Sales of Product P – 24,000 units
Less: Opening stock of Product P- (4,000 units)
Product P to be produced- 20,000 units
Raw Material required- 50,000 units (20,000 x 2/80% yield)
Opening stock of Material R available- 10,000 units
Material to be procured - 40,000 units.
2. a. Order Quantity as per the current inventory policy – 10,000 units
and EOQ – 1,000 units
Annual requirement - Procurement- 40,000 units
Order Quantity as per the current inventory policy (Quarterly) - 10,000 units
Ordering Cost- `125 per order
Carrying Cost- ` 10 per unit p.a.
EOQ - 1,000 units.
3. b. Savings from EOQ as Compared to current discount policy –
` 20,500
Associated Costs under EOQ:
Ordering Costs = No. of orders x Ordering cost per order
No of orders = Annual Requirement/ EOQ (or) current order quantity
Hence No of orders = 40
Therefore Ordering Cost = 40 x 125 = ` 5,000.
Carrying cost = Average Inventory x Carrying cost per unit per annum
Average Inventory = (EOQ/ current order quantity)/2
= 1,000/2 = 500
Carrying cost = 500 x 10 = ` 5,000
1
 Associated Costs under EOQ = Ordering cost + Carrying Cost
= ` 10,000 ---------------- A
Associated Costs under current inventory policy:
No of orders = 4 (Quarterly)
Ordering cost = 4 x 125 = ` 500
Average inventory = 10,000/2 = 5,000
Carrying cost = 5,000x10 = 50,000
Associated Costs = 50,000+500 = 50,500
Less: Discount = 20,000
Net cost = 30,500. -------------- B
Incremental Cost = B – A = 20,500
4. b. ` 6,400
Time taken under the Overtime regime 180 Hours + 20 Hours overtime
= 200 Hours
Time to be taken under the Incentive regime
Units to be produced = 20,000 units
Units produced per hour under incentive scheme = 125 units
Time taken = 160 Hours
Time saved = 200 – 160 = 40 hours.
Incentive under Rowan scheme = (Time saved/Time allowed) x time
taken x Rate
= (40/200) x 160x200 = ` 6,400.
5. b. ` 5,600
Cost under the Overtime scheme:
Base wage = 200 x 200 = 40,000
OT Premium = 20 x 200 = 4,000
Total Wages under Overtime scheme = 44,000
Cost under Incentive scheme:
Base Wage = 160 hours x 200 = 32,000
Incentive = 6,400
Total wages paid = 38,400
Savings in Incentive scheme over Overtime scheme = ` 5,600.

2
6. a ` 550
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per
Unit
= Variable Cost per unit = ` 500*+ ` 300**+ ` 100+ ` 50
Contribution Margin per Unit = ` 1,500 - ` 950 = ` 550
*Raw Material Cost Calculation
Let the cost of Plastic be x
1. The cost of Copper is ` 80 more than the cost of Plastic: Cost of
Copper = x + 80
2. The cost of Other Materials is twice that of Plastic: Cost of Other
Materials = 2x
3. The total Raw Material Cost per unit is ` 210 more than the
combined cost of Copper & Plastic: x + (x+80) + 2x = (x + (x+80)) +
210
Solving for X = 105
Now, calculate the total cost of Raw Materials:
105 + (105+80) +210 = 500
So, the total cost of Raw Materials is ` 500.
** Labour Cost Calculation
1. The Labour Hour Rate is ` 100 per hour.
2. The total labour hours used in the last month were 36,000 hours.
3. The production units last month were 12,000 units (10000 normal
units plus 2000 special order).
Total Labour Cost = Labour Hour Rate × Total Labour Hours
Total Labour Cost= ` 100 /hour × 36,000 hours = ` 3,600,000
Per Unit Labour Cost = Total Labour Cost/Production Units
Per Unit Labour Cost = ` 3,600,000/12000
Per Unit Labour Cost = ` 300
So, the per unit labour cost is ` 300.
7. c ` 27,27,025
- Break-even Point (Sales Revenue) = Total Fixed Costs /
Contribution Margin Ratio
- Contribution Margin Ratio = Contribution Margin per Unit / Selling
Price per Unit
- = ` 550 / ` 1,500 = 0.3667
3
 - Break-even Point = ` 10,00,000 / 0.3667 ≈ ` 27,27,025
8. b 2,727 units
- Required Sales Volume (Units) = (Total Fixed Costs + Target Profit)
/ Contribution Margin per Unit
- = (` 10,00,000 + ` 5,00,000) / ` 550 ≈ 2,727.27 units ≈ 2,727 units
(rounded up)
9. b 2,198 units
- New Variable Cost per Unit = ` 950 + 10% of ` 950 = ` 950 + ` 95
= ` 1,045
- New Contribution Margin per Unit = ` 1,500 - ` 1,045 = ` 455
- New Break-even Point (Units) = Total Fixed Costs / New
Contribution Margin per Unit
- = ` 10,00,000 / ` 455 ≈ 2198 units
10. c 45.05%
- Margin of Safety (Units) = Actual Sales - Break-even Sales
- = 4,000 - 2198 = 1,802 units
- Margin of Safety (%) = (Margin of Safety in Units / Actual Sales in
Units) * 100
- = (1,802 / 4,000) * 100 ≈ 45.05%
11. d 9,129 units
Annual demand (D) = 50,000 units
Setup cost per batch (S) = ` 10,000
Carrying cost per unit per month (C) = ` 1

2×D×S
EBQ = √
C

= 9,129 units
12. a ` 3000(A)
Standard quantity = Standard quantity per sofa × Actual production
= 5 sq. ft x 1000 = 5,000 sq. ft.
Standard material cost = Standard quantity× Standard price per sq. ft.
= 5,000 sq. ft.×` 10/sq. ft.= ` 50,000
Actual material cost = Actual quantity used × Actual purchase price per
sq. ft.
= 5,300 sq. ft.×` 10/sq. ft.= ` 53,000
4
 Material cost variance = Standard material cost−Actual Material cost
= ` 50,000−` 53,000 = −` 3,000
13. b ` 100 per part type
Activity rate = budgeted overhead/budgeted activity level
= 4,00,000/4,000
= ` 100 per part type
14. a 52,000
Ton-kilometers = 10 tons x 200 kilometers x 26 days
= 52,000
15. b 83.33%
Standard Hours
Activity Ratio = ×100
Budgeted Hours

= 83.33%
PART-II Descriptive Questions
1. (a) Calculation of Cost of Production of Meta Ltd for the period…..
Particulars Amount (`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & 9,80,500
machinery
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory 9,00,000
and production
1,07,43,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
5
 Add: Primary packing cost 10,200
Add: Expenses paid for pollution control and 22,000
engineering & maintenance
Cost of Production 1,05,70,000
Notes:
(i) Other administrative overhead does not form part of cost of
production.
(ii) Salary paid to Director (Technical) is an administrative cost.
(b) Memorandum Reconciliation Accounts
Dr. Cr.
Particulars Amount Particulars Amount
(` ) (` )
To Net Loss as per 48,700 By Administration 65,000
Cost Accounts overheads over
recovered in Cost
Accounts
To Factory overheads 30,500 By Depreciation 45,000
under absorbed in Cost overcharged in Cost
Accounts Accounts
(` 2,70,000 –` 2,25,000)
To Provision for Income 52,400 By Transfer fees in 10,200
tax Financial Accounts
To Obsolescence loss 20,700 By Notional Rent of 49,000
own premises
To Overvaluation of 9,500 By Overvaluation of 23,000
closing stock in Cost Opening stock in Cost
Accounts** Accounts*
To Net Profit (as per 30,400
Financial Accounts)
1,92,200 1,92,200

* Overvaluation of Opening Stock as per Cost Accounts

= Value in Cost Accounts – Value in Financial Accounts
= ` 1,38,000 – ` 1,15,000 = ` 23,000.
** Overvaluation of Closing Stock as per Cost Accounts
= Value in Cost Accounts – Value in Financial Accounts
= ` 1,22,000 – ` 1,12,500 = ` 9,500.

6
(c) Calculation of:
(i) Time saved and wages:
Workmen A B
Standard time (hrs.) 40 40
Actual time taken (hrs.) 32 30
Time saved (hrs.) 08 10
Wages paid @ ` x per hr. (`) 32x 30x
(ii) Bonus Plan:
Halsey Rowan
Time saved (hrs.) 8 10
Bonus (`) 4x 7.5x
 8 hrs  ` x   10 hrs 
 2   40 hrs  30hrs  ` x
   
(iii) Total wages:
Workman A: 32x + 4x = ` 36x
Workman B: 30x + 7.5x = ` 37.5x
Statement of factory cost of the job
Workmen A B
` `
Material cost (assumed) y y
Wages (shown above) 36x 37.5x
Works overhead 240 225
Factory cost (given) 2,200 2,200

The above relations can be written as follows:

36x + y + 240 = 2,200 (i)
37.5x+ y+ 225 = 2,200 (ii)
Subtracting (i) from (ii) we get
1.5x – 15 = 0
or 1.5 x = 15
or x = ` 10 per hour
On substituting the value of x in (i) we get y = ` 1,600
Hence the wage rate per hour is ` 10 and the cost of raw material
is ` 1,600 on the job.

7
2. (a) Statement of Equivalent Production
Input Units Output Units Equivalent Production
Details Particulars Material Labour Overhead
% Units % Units % Units
Unit 45,000 Finished 42,000 100 42,000 100 42,000 100 42,000
Introduced output
Normal loss 900 - - - - - -
(2% of
45,000)
Abnormal loss 300 100 300 80 240 60 180
Closing W-I-P 1,800 100 1,800 50 900 40 720
45,000 45,000 44,100 43,140 42,900

Statement of Cost
Particulars Units Rate Amount Amount
(`) (`) (`)
(i) Finished goods 42,000 17.9042 7,51,976.40
(ii) Abnormal Loss
Material 300 11.5873 3,476.19
Labour 240 2.1048 505.15
Overhead 180 4.2121 758.18 4,739.52
(iii) Closing W-I-P:
Material 1,800 11.5873 20,857.14
Labour 900 2.1048 1,894.32
Overhead 720 4.2121 3,032.71 25,784.17
Cost per Unit
Particulars Amount (`) Units Per Unit (`)
(i) Direct Material :
Unit Introduced 4,50,000
Add: Material 65,500
5,15,500
Less: Value of normal
loss (900 units × ` 5) (4,500)
5,11,000 44,100 11.5873
(ii) Labour 90,800 43,140 2.1048
(iii) Overhead 1,80,700 42,900 4.2121
17.9042

8
 Process – P A/c
Particulars Units Amount Particulars Units Amount
(`) (`)
To Input 45,000 4,50,000 By Normal 900 4,500
loss
To Direct - 65,500 By Abnormal 300 4,740
Material loss
To Labour - 90,800 By Finished 42,000 7,51,976
goods
To Overhead 1,80,700 By Closing 1,800 25,784
W-I-P
45,000 7,87,000 45,000 7,87,000
Abnormal Loss A/c
Particulars Units Amount Particulars Units Amount
(`) (`)
To Process-B 300 4,740 By Cost ledger 300 600
A/c control A/c or Bank
A/c
By Costing Profit & - 4,140
loss A/c
300 4,740 300 4,740
(b) Treatment is as follows:
(i) Credit for Recoveries: The realised or realisable value of scrap or
waste is deducted as it reduces the cost of production.
(ii) Packing Cost (primary): Packing material which is essential to hold
and preserve the product for its use by the customer is added in the
factory cost.
(iii) Joint Products and By-Products: Joint costs are allocated
between/among the products on a rational and consistent basis. In
case of by-products, the net realisable value of by-products is
deducted from the cost of production.
(iv) Quality Control Cost: It is added in the factory cost as this is the cost
of resources consumed towards quality control procedures.
3. (a) (i) Statement showing allocation of Joint Cost
Particulars AB PQ
No. of units Produced 1,800 3,000
Selling Price Per unit (`) 40 30
Sales Value (`) 72,000 90,000

9
 Less: Estimated Profit (AB -20% & PQ - (14,400) (27,000)
30%)
Cost of Sales 57,600 63,000
Less: Estimated Selling Expenses (10,800) (13,500)
(AB -15% & PQ -15%)
Cost of Production 46,800 49,500
Less: Cost after separation (35,000) (24,000)
Joint Cost allocated 11,800 25,500
(ii) Statement of Profitability
Particulars MA (`) AB (`) PQ (`)
Sales Value (A) 4,00,000 72,000 90,000
(4,000x ` 100)
Less:- Joint Cost 1,75,100 11,800 25,500
(2,12,400 -11,800
- 25,500)
Cost after separation - 35,000 24,000
Selling Expenses 1,20,000 10,800 13,500
(MA- 30%, AB-15% &
PQ-15%)
(B) 2,95,100 57,600 63,000
Profit (A –B) 1,04,900 14,400 27,000
Overall Profit = 1,04,900 + 14,400 + 27,000 = ` 1,46,300
(b) Operating Cost Statement
Particulars Total Cost Per
annum (`)
A. Fixed Charges:
Insurance 15,600
Garage rent (` 2,400 × 4 quarters) 9,600
Road Tax 5,000
Salary of operating staff (` 7,200 × 12 months) 86,400
Depreciation 68,000
Total (A) 1,84,600
B. Variable Charges:
Repairs (` 4,800 × 4 quarters) 19,200
Tyres and Tubes (` 3,600 × 4 quarters) 14,400
Diesel {(1,80,000 km. ÷ 5 km.) × ` 13} 4,68,000
Oil and Sundries {(1,80,000 km. ÷ 100 km.) × 39,600
` 22}

10
 Total (B) 5,41,200
Total Operating Cost (A+B) 7,25,800
Add: Passenger tax (Refer to WN-1) 3,01,275
Add: Profit (Refer to WN-1) 3,42,359
Total takings 13,69,434
Calculation of Cost per passenger kilometre and one way fare per
passenger:
TotalOperatingCost
Cost per Passenger-Km. =
TotalPassenger -Km.
` 7,25,800
= = ` 0.18
40,32,000Passenger − Km.
TotalTakings
One way fare per passenger =  30Km.
TotalPassenger − Km.

` 13,69,434
= ×30km = ` 10.20
40,32,000Passenger -Km.

Working Notes:
1. Let total taking be X then Passenger tax and profit will be as follows:
X = ` 7,25,800 + 0.22 X + 0.25X
X – 0.47 X = ` 7,25,800
`7,25,800
X= = ` 13,69,434
0.53

Passenger tax = ` 13,69,434 × 0.22 = ` 3,01,275

Profit = ` 13,69,434 × 0.25 = ` 3,42,359
2. Total Kilometres to be run during the year
= 30 km.× 2 sides × 10 trips × 25 days × 12 months = 1,80,000
Kilometres
3. Total passenger Kilometres
= 1,80,000 km. × 32 passengers × 70% = 40,32,000 Passenger-
km.
4. (a) Working Notes:
(i) Total Productive hours = Estimated Working hours – Machine
Maintenance hours
= 2,200 hours – 200 hours = 2,000 hours
` 10,000 - ` 1,000
(ii) Depreciation per annum = = ` 900
10 years
11
 (iii) Chemical solution cost per annum = ` 20 × 50 weeks = ` 1,000
` 120×50 weeks
(iv) Wages of attendants (per annum) = = ` 1,000
6 machines

Calculation of Machine hour rate

Particulars Amount Amount
(per annum) (per hour)
A. Standing Charge
(i) Wages of attendants 1,000
(ii) Departmental and general 3,000
works overheads
Total Standing Charge 4,000
4,000 2.0
Standing Charges per hour
2,000

B. Machine Expense
(iii) Depreciation 900 0.45
(iv) Electricity - 1.37
` 0.09×16units×1,900hours
2,000hours

(v) Chemical solution 1,000 0.50

(vi) Maintenance cost 1,800 0.90
Machine operating cost per hour 5.22
(A + B)
(b) (i) Material Usage Variance = Std. Price (Std. Quantity – Actual
Quantity)
= ` 45 (9,000 kgs. – 8,900 kgs.)
= ` 4,500 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual
Price)
= 8,900 kgs. (` 45 – ` 46)
= ` 8,900 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (9,000 kgs. × ` 45) – (8,900 kgs. × ` 46)
= ` 4,05,000 – ` 4,09,400
= ` 4,400 (Adverse)

12
 (iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
9,000
= ` 50 ( ×8hours – 7,000 hrs.)
10
= ` 50 (7,200 hrs. – 7,000 hrs.)
= ` 10,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 7,000 hrs. (` 50 – ` 52)
= ` 14,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (7,200 hrs. × ` 50) – (7,000 hrs. × ` 52)
= ` 3,60,000 – ` 3,64,000
= ` 4,000 (Adverse)
(vii) Variable Overhead Cost Variance = Std. Overhead for Actual
Production – Actual Variable Overhead Cost
= (7,200 hrs. × ` 10) – ` 72,500
= ` 500 (Adverse)
(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead –
Actual Fixed Overhead
` 200
= ×9,000kgs.- ` 1,92,000
10 kgs.
= ` 1,80,000 – ` 1,92,000
= ` 12,000 (Adverse)
5. (a) Number of days in budget period = 4 weeks × 5 days = 20 days
Number of units to be produced
Product-A Product-B
(units) (units)
Budgeted Sales 2,400 3,600
Add: Closing stock
 2,400units   3,600units  480 900
 × 4days   × 5days 
 20days   20days 

Less: Opening stock 400 200

Production (units) 2,480 4,300

13
(i) Material Purchase Budget
Material-X (Kg.) Material-Y (Kg.)
Material required:
Product-A 12,400 9,920
(2,480 units × 5 kg.) (2,480 units × 4 kg.)
Product-B 12,900 25,800
(4,300 units × 3 kg.) (4,300 units × 6 kg.)
25,300 35,720
Add: Closing stock
 25,300kgs. 
 
 20days × 10days  12,650 10,716
 
 35,720kgs. 
 × 6days 
 20days 
Less: Opening stock 1,000 500
Quantity to be purchased 36,950 45,936
Rate per kg. of Material `4 `6
Total Cost ` 1,47,800 ` 2,75,616
(ii) Wages Budget
Product-A (Hours) Product-B (Hours)
Units to be produced 2,480 units 4,300 units
Standard hours allowed per
3 5
unit
Total Standard Hours
7,440 21,500
allowed
Productive hours required 7,440hours
=9,300
21,500hours
=26,875
for production 80% 80%

Add: Non-Productive down 1,860 hours. 5,375 hours.

time (20% of 9,300 (20% of 26,875
hours) hours)
Hours to be paid 11,160 32,250
Total Hours to be paid = 43,410 hours (11,160 + 32,250)
Hours to be paid at normal = 4 weeks × 40 hours × 180 workers
rate = 28,800 hours
Hours to be paid at = 43,410 hours – 28,800 hours = 14,610
premium rate hours
Total wages to be paid = 28,800 hours × ` 25 + 14,610 hours ×
` 37.5
= ` 7,20,000 + ` 5,47,875
= ` 12,67,875
14
(b) a.
1. Estimation of cost-driver rate
Activity Overhead cost Cost driver Cost driver rate
(`) (`)
Packaging 1,50,00,000 950 Packaging 15,789.47
hours
Fridge 2,10,00,000 1,900 Fridge 11,052.63
hours

2. Overhead cost for chocolate ice cream

Activity Overhead for a 1,000 ice cream batch Amount (`)
Packaging 1 x ` 11,052.63 11,052.63
Fridge 0.5 x ` 15,789.47 7,894.74
Total 18,947.37

3. Operating profit for chocolate ice cream

Particulars Amount (`)
Revenue (1,000 x ` 75) 75,000.00
Less: Direct Material (1,000 x ` 15) 15,000.00
Less: Direct Labour (10,000 x ` 2) 20,000.00
Less: Overhead 18,947.37
Operating Profit 21,052.63

b. Overhead per direct hour

= Total Overhead / Total Direct Labour Hours
= ` 3,60,00,000 / 24,000 hours
= ` 1,500 per direct labour hour
Since it takes 10 direct labour hour per 1,000 Chocolate ice cream,
the overhead is ` 15,000
Particulars Amount (`)
Revenue (1,000 x ` 75) 75,000.00
Less: Direct Material (1,000 x ` 15) 15,000.00
Less: Direct Labour (10,000 x ` 2) 20,000.00
Less: Overhead 15,000
Operating Profit 25,000
15
6. (a) The various types of responsibility centres are as follows:
(i) Cost Centres: The responsibility centre which is held accountable
for incurrence of costs which are under its control. The performance
of this responsibility centre is measured against pre-determined
standards or budgets. The cost centres are of two types:
(a) Standard Cost Centre and (b) Discretionary Cost Centre
(a) Standard Cost Centre: Cost Centre where output is
measurable and input required for the output can be specified.
Based on a well-established study, an estimate of standard
units of input to produce a unit of output is set. The actual cost
for inputs is compared with the standard cost. Any deviation
(variance) in cost is measured and analysed into controllable
and uncontrollable cost. The manager of the cost centre is
expected to comply with the standard and held responsible for
adverse cost variances. The input-output ratio for a standard
cost centre is clearly identifiable.
(b) Discretionary Cost Centre: The cost centre whose output
cannot be measured in financial terms, thus input-output ratio
cannot be defined. The cost of input is compared with
allocated budget for the activity. Examples of discretionary
cost centres are Research & Development department,
Advertisement department where output of these department
cannot be measured with certainty and co-related with cost
incurred on inputs.
(ii) Revenue Centres: The responsibility centres which are
accountable for generation of revenue for the entity. Sales
Department for example, is responsible for achievement of sales
target and revenue generation. Though, revenue centres do not
have control on expenditures it incurs but sometimes expenditures
related with selling activities like commission to sales person etc.
are incurred by revenue centres.
(iii) Profit Centres: These are the responsibility centres which have
both responsibility of generation of revenue and incurrence of
expenditures. Since, managers of profit centres are accountable for
both costs as well as revenue, profitability is the basis for
measurement of performance of these responsibility centres.
Examples of profit centres are decentralised branches of an
organisation.

16
 (iv) Investment Centres: These are the responsibility centres which
are not only responsible for profitability but also have the authority
to make capital investment decisions. The performance of these
responsibility centres are measured on the basis of Return on
Investment (ROI) besides profit. Examples of investment centres
are Maharatna, Navratna and Miniratna companies of Public Sector
Undertakings of Central Government.
(b) Efficiency is usually related with performance and may be computed by
comparing the time taken with the standard time allotted to perform the
given job/task.
If the time taken by a worker on a job equals or less than the
standard time, then he is rated efficient.
In case he takes more time than the standard time he is rated as
inefficient.
Time allowed as per standard
Efficiency in % = ×100
Time Taken
For efficiency rating of employees the following procedures may be
followed:
1. Determining standard time/performance standards: The first
step is to determine the standard time taken by a worker for
performing a particular job/task. The standard time can be
determined by using Time & Motion study or Work study
techniques. While determining the standard time for a job/task a
heterogeneous group of workers is taken and contingency
allowances are added for determining standard time.
2. Measuring Actual Performance of workers: For computing
efficiency rating it is necessary to develop a procedure for recording
the actual performance of workers. The system developed should
record the output of each worker along with the time taken by him.
3. Computation of efficiency rating: The efficiency rating of each
worker can be computed by using the above mentioned Formula.
(c) The essential pre-requisites for integrated accounts include the following
steps:
1. 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 prefers full
integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve
the accounting purposes of financial and cost accounts.

17
 3. An agreed routine, with regard to the treatment of provision for
accruals, prepaid expenses, other adjustment necessary for
preparation of interim accounts.
4. 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 Customers’ Ledger and the Purchase Ledger, there will
be: (a) Stores Ledger; (b) Stock Ledger and (c) Job Ledger.
(d) After identification of the costs and benefits, it is now required to be
quantified i.e., the cost and benefit should be measured and estimated.
The estimation is done by following the two principles as discusses
below:
(i) Variability: Variability means by how much a cost or benefit
increased or decreased due to the choice of the option. Variable
costs are the cost which differs under the different volume or
activities. On the other hand, fixed costs remain same irrespective
of volume and activities.
(ii) Traceability: Traceability of cost means degree of relationship
between the cost and the choice of the option. Direct costs are
directly assigned to the option on the other hand indirect costs
needs to be apportioned to the option on some reasonable basis.

18
 Mock Test Paper - Series II: August, 2024
Date of Paper: 21st August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
Mr. Vikas, a toy importer has understood the importance of manufacturing in India. He
is backed up by the new govt. policies that motivate him to manufacture in India. As
per the custom department any import made for the manufacturing under “Made in
India”, custom duty will be refunded upto 80%. Vikas decided not to import toy from
China anymore, instead import raw material from Srilanka, for the manufacturing of
toys in India. Under an agreement of Govt. Of India with Srilankan Govt., any impo8rt
from Srilanka will receive tax benefits.
Vikas ordered material Xendga & material Zenga from Srilanka. Details are given
below:-
Srilankan Rupees (SLR)
Material Xendga (12,000 units * 125 SLR) 15,00,000
Material Zenga (8,000 units * 225 SLR) 18,00,000
Factory cost 33,00,000
Add: Containers cost 2,00,000
Add: Freight upto loading shipment on ship (paid by exporter) 50,000
F.O.B. 35,50,000
• Ocean Freight is $ 2,000
• Insurance is $ 1,500
1
When shipment reached India, it was unloaded at Chennai port. Vikas requested to
put the goods in custom port’s warehouse. Vikas due to cash crunch was not in a
position to pay custom duty and therefore did not file the bill of exchange (B.O.E.).
Custom authorities charged a penalty of INR 15,000.
Finally, after a month Vikas filled B.O.E. and paid custom duty of 20% on CIF value of
the shipment. IGST was also applicable @ 18% on the combined value of CIF &
custom duty paid.
He spent further a sum of INR 12,500 to bring the imported goods to his factory. An
inspection was done on the goods and it was found that 5% of the goods were broken.
This came to management as a surprise because generally such rate of defects on
imports is 8%.
Additional Information:
• Exchange rates:
1) 1 SLR = 0.25 INR
2) 1 USD = 75 INR
• IGST credits are available.
• Containers were refunded at INR 38,000.
• Indian and Srilankan brokers were paid commission by Vikas on factory cost.
Indian broker charged 6% whereas Srilankan broker charged 12%.
• CIF (cost, insurance and Freight) includes F.O.B (Free on Board)., Insurance &
Ocean freight.
You are required to answer the following 5 questions:
1. What is the total cost of shipment to be recorded by Vikas?
(a) INR 13,17,000
(b) INR 13,04,500
(c) INR 13,54,500
(d) INR 13,32,500
2. What is the absorption rate of total cost per unit of Zenga?
(a) INR 90.28
(b) INR 84.44
(c) INR 93.62
(d) INR 85.77
3. What is the absorption rate of total cost per unit of Xendga?
(a) INR 52.01
(b) INR 54.24
(c) INR 58.13
(d) INR 68.65

2
4. Amount of refundable taxes?
(a) INR 4,13,600
(b) INR 4,57,600
(c) INR 2,20,000
(d) INR 2,37,600
5. If loss of goods was 9% instead of 5%, what will be the amount that will be
charged to statement of profit & loss?
(a) INR 13,045
(b) INR 19,898.4
(c) INR 14,178.4
(d) INR 24,045 (5 x 2 = 10 Marks)
Hilfy textiles Ltd. has been a major player in the textile industry, producing high-
quality polyester mix cotton fabric. The production process is complex and involves
multiple stages, including spinning, weaving, quality control, and packaging. The
company has been facing challenges in controlling costs and maintaining
profitability, mainly due to fluctuating material costs and labor inefficiencies.
To address these challenges, the company's management has decided to
implement a standard costing system to better manage costs, set benchmarks,
and identify variances. The goal is to gain better control over production costs,
improve budgeting accuracy, and enhance decision-making.
Hilfy textiles Ltd. had prepared the following estimation for the month of April:
Quantity/Time Rate (`) Amount (`)
Cotton 8,000 m 50.00 4,00,000
Polyester 6,000 m 40.00 2,40,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time
of 5% of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 14,800 m finished product by using the followings:
Quantity/Time Rate (`) Amount (`)
Cotton 9,000 m 48.00 4,32,000
Polyester 6,500 m 37.00 2,40,500
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780

3
On the basis of analysis of standard costing system, company’s management
wants to take actions like supplier negotiation, process optimisation, employee
training, etc.
Being the cost manager of the company, you are required to answer the following
five requirements of the management:
6. Compute Material mix variance and Material Yield Variance
(a) ` 1430 (A) & 43,200 (F)
(b) ` 1430 (F) & 43,200 (F)
(c) ` 24,000 (A) & 37,500 (F)
(d) ` 19,300 (A) & 37,500 (F)
7. Compute Material Price Variance for supplier negotiation
(a) ` 18,000 (A)
(b) ` 43,200 (F)
(c) ` 37,500 (A)
(d) ` 37,500 (F)
8. Compute Material Cost Variance
(a) ` 32,500 (F)
(b) ` 24,500 (A)
(c) ` 79,270 (F)
(d) ` 79,270 (A)
9. Compute Labour Efficiency Variance and Labour Yield Variance.
(a) ` 940 (A) & 1,140 (A)
(b) ` 2,424 (A) & 1,556 (A)
(c) ` 2,424 (A) & 1,556 (A)
(d) ` 940 (A) & 1,140 (F)
10. Compute Labour Cost Variance.
(a) ` 884 (A)
(b) ` 1,556 (F)
(c) ` 884 (F)
(d) ` 1,556 (A) (5 x 2 = 10 Marks)
11. A company’s fixed costs are ` 5,00,000, the selling price per unit is ` 200, and
the variable cost per unit is `100. How many units must the company sell to
earn the targeted profit of ` 2,00,000?
(a) 2,000 units
(b) 5,000 units
(c) 10,000 units
4
 (d) 7,000 units (2 Marks)
12. 1200 Kg of a material were input to a process in a period. The normal loss is
8% of input
There is no opening or closing work-in-progress. Output in the period was
1100 Kg. What was the abnormal gain/loss in the period?
(a) Abnormal gain of 12 Kg
(b) Abnormal loss of 12 kg
(c) Abnormal gain of 108 Kg
(d) Abnormal loss of 4 kg (2 Marks)
13. ABC Manufacturing allocates its factory overhead costs based on machine
hours. The total estimated overhead cost for the year is ` 6,00,000, and the
company expects to use 30,000 machine hours. During the year, job A used
300 machine hours. What amount of overhead costs should be allocated to
this job?
(a) ` 4,000
(b) ` 6,000
(c) ` 10,000
(d) ` 8,000 (2 Marks)
14. A factory has a capacity utilization ratio of 85% and its activity ratio is 95%.
Which one of the following is the efficiency ratio?
(a) 120%
(b) 110%
(c) 112%
(d) 90% (2 Marks)
15. A company uses batch costing and incurs a setup cost of ` 20,000 for a batch
of 300 units. If direct materials cost ` 20 per unit and direct labor costs ` 10
per unit, what is the total cost of the batch?
(a) ` 25,000
(b) ` 29,000
(c) ` 32,000
(d) ` 7,000 (2 Marks)
PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) A skilled worker is paid a guaranteed wage rate of ` 150.00 per hour.
The standard time allowed for a job is 50 hours. He gets an effective
hourly rate of wages of ` 180.00 under Rowan Incentive Plan due to
saving in time. For the same saving in time, CALCULATE the hourly rate
5
 of wages he will get, if he is placed under Halsey Premium Scheme
(50%). (5 Marks)
(b) SpeedEx Logistics, established in 2010 and headquartered in Mumbai,
India, operates within the transportation and logistics industry as a third-
party logistics (3PL) provider. The company’s fleet consists of 10 trucks,
15 vans, and 5 trailer, each serving distinct purposes. The records of
Truck R-40 reveal the following information for July 2024.
Days Maintained 30
Days Operated 25
Total Hours Operated 300
Total Kilometres Covered 2,500
Total Tonnage Carried
(4 tonne-load per trip, return journey empty 2 round trips per
day)
The following further information is made available:
A. Operating Costs for the month: Petrol ₹ 400, oil ₹170, Grease ₹ 90,
Wages to driver ₹ 550, Wages to Worker ₹ 350.
B. Maintenance Costs for the month: Repair ₹ 170, Overhaul ₹ 60,
Tyres ₹ 150, Garage charges ₹ 100.
C. Fixed Costs for the month based on the estimates for the year:
Insurance ₹ 50, Licence, tax etc. ₹ 80, Interest ₹ 40, Other
Overheads ₹ 190
D. Capital costs: Cost of acquisition ₹ 54,000; Residual Value at the
end of 5 years life ₹ 36,000.
You are required to CALCULATE:
(i) cost per days maintained
(ii) cost per days operated
(iii) cost per hours operated
(iv) cost per kilometres covered
(v) cost per commercial tonne km (5 Marks)
(c) Alpha 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. (4 Marks)

6
2. (a) As demand for LED light increases, more entrepreneurs are coming into
its manufacturing process. eLED Pvt. Ltd. is also one of the recently
formed company whose main business is related to LED lights.
The company has extended its hand into various LED products like COB
(Chip On Board) LEDs, SMD (Surface Mounted Device) LEDs, RGB
LEDs, Flashing LEDs, Miniature LEDs, OLEDs, Filament Bulbs, etc.
However, at the beginning stage, the company has decided to only
assemble the products and enter into manufacturing stage at later years.
The details relating to the first process of mounting for the month of
August are given below:
Opening Work-in-Process: 31,000 units
Material ` 12,40,000
Labour ` 2,32,500
Overheads ` 6,97,500
Introduction during the process: 5,89,000 units
Material ` 2,29,40,000
Labour ` 55,64,500
Overheads ` 1,66,93,500
The process involve some wastage as well. The management estimated
a normal loss of 5% of total input including opening work-in-process
which can be sold out for ` 20 per unit. However, the workers reported
46,500 units as scrapped in which 100% material was used along with
80% of Labour and overheads.
5,42,500 units were transferred for next process of soldering.
Some units were still in process and thus, shifted for the next month
process of mounting. With 100% material used along with 80% labour
and overheads, 31,000 units were shifted.
Following the average method of inventory, you are required to
PREPARE:
(i) Statement of cost showing cost per equivalent unit
(ii) Statement of distribution cost
(iii) Process Account (Mounting)
(iv) Normal Loss Account and Abnormal Loss Account. (10 Marks)
(b) EXPLAIN the Usefulness/Suitability of ABC. (4 Marks)
3. (a) A company manufactures and sells a product, the price of which is
controlled by the Government. Raw material required for this product is
also made available at a fixed controlled price. The following figures
have been called for the previous two accounting years of the company:

7
 Year- I Year- II
Quantity Sold (tones) 1,26,000 1,44,000
Price per tone ` 185 ` 185
(` In thousands)
Sales Value 23,310 26,640
Raw Materials 11,340 12,960
Direct Labour 1,512 1,872
Factory, Administration and Selling Expenses 9,702 11,232
Profit 756 576
During the year II direct labour rates increased by 8 1/3%. Increases in
factory, administration and selling expenses during the year were
` 8,10,000 on account of factors other than the increased quantities
produced and sold. The managing director desires to know, what
quantity if they had produced and sold would have given the company
the same net profit per tonne in Year II as it earned during the Year I
Advise him. (7 Marks)
(b) ABC Ltd is engaged in producing electronic equipments. It has furnished
following details related to its products produced during a month:
Units Amount (`)

Opening stock 10,000 5,00,00,000

Purchases 4,90,000 25,20,00,000
Closing stock 17,500 85,00,000
Works-in-progress
Opening 20,000 1,20,00,000
Closing 10,000 60,50,000
Direct employees' wages, allowances
5,50,50,000
etc.
Primary packaging cost (per unit) 140
R&D expenses & Quality control
1,90,00,000
expenses
Guards’ salaries 20,00,000
Directors’ salaries 60,00,000
Consumable stores, depreciation on
3,42,00,000
plant related to factory overhead
Product inspection (before primary
22,00,000
packaging)
Rearrangement design of factory
75,00,000
machine

8
 Administrative overheads related to
3,45,00,000
production
Selling expenses 3,94,50,000
Royalty paid for production 3,10,50,000
Cost of web-site (for online sale)
60,75,000
maintenance
Gifts & Snacks 30,50,000
GST (credit allowed) 5,50,00,000
AMC cost of CCTV 10,00,000
Hiring of cars for the transportation of
25,00,000
employees and guests
Audit and Legal Fees 29,00,000
Secondary packaging cost (per unit) 20

Distribution of the following costs:

Guard’s salaries to Factory, Office and Distribution in the ratio 7: 2:1.
Hiring of cars is only for selling and distribution
AMC of CCTV to Factory, Office and Selling in the ratio 6 : 2 : 2.
The company paid EPF of 12% over above basic pay. However, Guards
will not receive any incentive or EPF.
It has lucky draws every month giving the first prize of ` 1,00,000; 2nd
prize of ` 50,000, 3rd prize of ` 20,000 and three consolation prizes of
` 10,000 each to customers buying the product.
It also sponsors a television programme every week at a cost of
` 20,00,000 per month.
The hiring of cars attracts GST under RCM @5% without credit.
There was a normal scrap of 2,000 units of direct material which realized
` 350 per unit. The entire finished product was sold at a profit margin of
25% on sales.
You are required to PREPARE a cost sheet (7 Marks)
4. Allurgy Ltd. is into metallic tools manufacturing. It has four production
departments. The work performed in every department is fairly uniform, thus
the manager of the company created a policy to recover the production
overheads of the entire company by adopting a single blanket rate.
The relevant data for a month are given below:
Departments Direct Direct Factory Direct Machine
Materials Wages Overheads Labour Hours
(`) (`) (`) Hours
Budget:
Operating 64,35,000 7,92,000 35,64,000 1,98,000 7,92,000

9
 Assembly 11,73,000 24,15,000 9,66,000 6,90,000 69,000
Quality Control 5,10,000 10,50,000 4,20,000 3,00,000 30,000
Packing 9,90,000 6,93,000 12,37,500 4,95,000 -
Actual: - - - - -
Operating 77,22,000 9,50,400 38,61,000 2,37,600 9,50,400
Assembly 9,38,400 18,63,000 5,79,600 6,21,000 75,900
Quality Control 4,08,000 8,10,000 2,52,000 2,70,000 33,000
Packing 11,88,000 8,91,000 13,36,500 5,94,000 -

Additional details relating to one of the jobs during the month are also provided
below:
Job No. 157
Departments Direct Direct Direct Machine
Materials (`) Wages (`) Labour Hours Hours
Operating 11,880 2,376 594 1,782
Assembly 4,140 2,484 828 207
Quality Control 1,800 1,080 360 90
Packing 2,970 594 396 -

During Quality Control phase of this particular Job, the company incurred
certain additional expenditure of ` 495 on direct wages as there were certain
production that was not as perfect as the saleable product. The defective units
were normal in nature and after rectification have been brought to the required
degree of perfection.
The company adds 25% on the factory cost to cover administration
overheads and profit.
You are required to figure out the following:
(a) COMPUTE the overhead absorption rate as per the blanket rate based
on the percentage of total factory overheads to total factory wages and
determine the selling price of the Job No. 157. (1 + 2 = 3 Marks)
(b) The new manager thinks that the machinery is used to a varying degree
in the different departments. Thus, it is not appropriate to follow one
blanket rate for the whole company. Therefore, suggest an alternative
method of absorption of the factory overheads and CALCULATE the
overhead rates based on the method so suggested. (4 Marks)
(c) DETERMINE the selling price of Job 157 based on the overhead rates
calculated in (b) above. (3 Marks)
(d) CALCULATE the department-wise under or over recovery of overheads
based on the company’s current policy and the method suggested in (b)
above. (4 Marks)

10
5. (a) The financial books of a company reveal the following data for the year
ended 31st March, 2024:
(`)
Opening Stock:
Finished goods 545 units 48,250
Work-in-process 38,000
01.04.2023 to 31.03.2024
Raw materials consumed 5,00,000
Direct Labour 4,20,000
Factory overheads 3,56,000
Administration overheads 2,10,000
Stores Adjustment debited in financial Account 50,000
Dividend paid 98,000
Bad Debts 16,000
Selling and Distribution Overheads 84,000
Income tax paid 34,000
Interest received 42,000
Sales 14,250 units 13,96,500
Closing Stock: Finished goods 460 units 44,500
Work-in-process 36,200
The cost records provide as under:
 Factory overheads are absorbed at 60% of direct wages.
 Administration overheads are recovered at 20% of factory cost.
 Selling and distribution overheads are charged at ` 6 per unit sold.
 Opening Stock of finished goods is valued at ` 90 per unit.
 The company values work-in-process at factory cost for both Financial
and Cost Profit Reporting.
Required:
(i) Prepare statements for the year ended 31st March, 2024 show
 the profit as per financial records
 the profit as per costing records.
(ii) Present a statement reconciling the profit as per costing records
with the profit as per Financial Records (7 Marks)
(b) PPP Ltd. is currently operating at 80% of its capacity producing 80,000
units. For the past two years, the production is increasing by 10% of its
capacity consistently. The cost details are as follows:

11
 Year 3 Year 2 Year 1
(Current
year)
(`) (`) (`)
Direct Materials 12,00,000 14,00,000 16,00,000
Direct Labour 6,00,000 7,00,000 8,00,000
Factory Overheads 3,20,000 3,40,000 3,60,000
Selling Overheads 3,40,000 3,80,000 4,20,000
Administrative Overheads 1,60,000 1,60,000 1,60,000
26,20,000 29,80,000 33,40,000
The company is planning for 90% capacity level for next year.
Additional information:
Due to increase in demand of the raw material, the distributor is
expected to increase the price by 10% from the next year.
At the beginning of the current year, the dispute occurred between
workers and employees regarding wages which lead them to go on
strike. Later on, they settled for 20% increase in wages from next year.
Following increases in overhead cost are expected for next year:
Variable Factory Overheads 5%
Fixed Factory Overheads 10%
Variable Selling Overheads 10%
Fixed Selling Overheads 15%
Administrative Overheads 15%
Profit is estimated @ 25% on total cost.
You are required to PREPARE flexible budget for the next year at 90%
level of capacity.
Also ascertain profit and contribution. (7 Marks)
6. (a) Management of Tillu manufacturing co. is thinking of installing a costing
system its company. What practical DIFFICULTIES management will
expect and how management will OVERCOME the same? (5 Marks)
(b) Anju Ltd. is engaged in production of butter. While producing butter
buttermilk is also produced. Buttermilk is identified as by-product of
butter. What is the TREATMENT of buttermilk in the cost accounts of
Anju Ltd. (5 Marks)
(c) Fixed budgets are very simple to understand and less time consuming,
however, only flexible budgets are more realistic and practicable
because it gives due consideration to behaviour of revenue and cost at
different levels of activity. But still there are certain demerits of both the
budgets. NARRATE the same. (4 Marks)
OR
(c) DISCUSS the objectives of time keeping & time booking. (4 Marks)
12
 Mock Test Paper - Series II: August, 2024
Date of Paper: 21st August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs
1. (a) Working notes:
Factory cost (33,00,000 x 0.25) INR 8,25,000
Add: Freight (50,000 x 0.25) INR 12,500
F.O.B. (Free On Board) INR 8,37,500
Containers (2,00,000 x 0.25) INR 50,000
Insurance (1,500 x 75) INR 1,12,500
Ocean freight (2,000 x 75) INR 1,50,000
CIF (Cost, Insurance and Freight) = 8,37,500 + 1,12,500 + 1,50,000
= INR 11,00,000
Custom duty = 20% x 11,00,000 = INR 2,20,000
IGST = 18% x (11,00,000 + 2,20,000)
= INR 2,37,600
Penalty = INR 15,000
Commission
Indian = 6% x 8,25,000 = INR 49,500
Srilankan = 12% x 8,25,000 = INR 99,000
Particulars Amount (INR)
Factory cost 8,25,000
Containers (50,000-38,000) 12,000
Insurance 1,12,500
Ocean freight 1,50,000
Freight inwards 12,500
Commission (49,500+99,000) 1,48,500
Custom duty non-refundable 20%* 2,20,000 44,000
TOTAL 13,04,500

1
2. (a) Good units = 8,000* (1-5%) = 7,600 UNITS
Normal loss to be absorbed in good units. No abnormal loss.
Particulars Product Zenga
(INR)
Factory cost 4,50,000
Other cost except commission, insurance and 69,800
custom duty to be absorbed on the basis of quantity
i.e. 12:8 or 3:2 (12,000+1,50,000+12,500)*2/5
Commission, insurance and custom duty to be 1,66,363.63
absorbed on value basis 15:18 or 5:6
(1,48,500+1,12,500+44,000)*6/11
Total Cost 6,86,163.63
Number of good units 7,600 units
Per unit Cost 90.28
3. (b) Good units = 12000 * (1-5%) = 11400 units
Particulars Product Xendga
(INR)
Factory cost 3,75,000
Other cost (12,000+1,50,000+12,500)*3/5 1,04,700
Commission, insurance and custom duty 1,38,636.36
(1,48,500+1,12,500+44,000)*5/11
Total Cost 618,336.36
Number of good units 11,400 units
Per unit Cost 54.24
4 (a) Custom duty 80% x 2,20,000 = 1,76,000
Add: IGST = 2,37,600
4,13,600
5. (c) Normal loss upto 8%
Abnormal loss 1%
Total cost of xendga INR 6,18,336.36
Total cost of zenga INR 6,86,163.63
Particulars XENGDA (INR) ZENGA (INR) (INR)

Normal loss of 960 units 640 units

8%
Good units after 11,040 units 7,360 units
normal loss
Per unit cost to 56 93.23
be absorbed in (6,18,336.36/11,040) (6,86,163.63/7,360)
2
 good units (total
costs/no of good
units after
normal loss)
Abnormal loss in 120 units 80 units
units 1%
Loss in Profit & 56 x 120 = 6,720 93.23 x 80= 7,458.4 14,178.4
Loss

6. (a) Material Mix Variance (Cotton + Polyester) = {(RSQ × SP) – (AQ × SP)}
= {7,08,570- 7,10,000}
= 1,430 (A)
Material Yield Variance (Cotton + Polyester) = {(SQ × SP) – (RSQ × SP)}
= {7,51,770 – 7,08,570}
= 43,200 (F)
7. (d) Material Price Variance (Cotton + Polyester) = {(AQ × SP) – (AQ × AP)
= {7,10,000 – 6,72,500}
= 37,500 (F)
8. (c) Material Cost Variance (Cotton + Polyester) = {(SQ × SP) – (AQ × AP)}
= {7,51,770 – 6,72,500}
= 79,270 (F)
Working Note
Material Variances:
Material SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
(WN-1) (`) (`) (WN-2) (`) (`) (`) (`)
Cotton 9,397 m 50 4,69,850 8,857 m 4,42,850 9,000 m 4,50,000 48 4,32,000
Polyester 7,048 m 40 2,81,920 6,643 m 2,65,720 6,500 m 2,60,000 37 2,40,500
16,445 m 7,51,770 15,500 m 7,08,570 15,500 m 7,10,000 6,72,500

WN-1: Standard Quantity (SQ):

 8,000m 
Cotton -  ×14,800m  = 9,396.8 or 9,397 m
 0.9 ×14,000m 

 6,000m 
Polyester-  ×14,800m  = 7,047.6 or 7048 m
 0.9 ×14,000m 
WN- 2: Revised Standard Quantity (RSQ):
 8,000m 
Cotton -  14,000m ×15,500m  = 8,857.1 or 8857 m
 

3
  6,000m 
Polyester -  14,000m ×15,500m  = 6,642.8 or 6643 m
 
9. (b) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH ×
SR)}
= {61,496 – 63,920}
= 2,424 (A)
Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH ×
SR)}
= {61,496 – 63,052}
= 1,556 (A)
10. (a) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH ×
AR)}
= {61,496 – 62,380}
= 884 (A)
Working Note
Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN-3) (`) (`) (WN-4) (`) (`) (`) (`)
Skilled 1,116 hrs 37.50 41,850 1144 42,900 1,200 45,000 35.50 42,600
Unskilled 893 hrs 22.00 19,646 916 20,152 860 18,920 23.00 19,780
2,009 hrs 61,496 2,060 63,052 2,060 63,920 62,380

WN- 3: Standard Hours (SH):

 0.95 ×1,000hr. 
Skilled labour-  ×14,800m.  =1,115.87 or 1,116 hrs.
 0.90 × 14,000m. 

 0.95 × 800hr. 
Unskilled labour-  ×14,800m.  = 892.69 or 893 hrs.
 0.90 × 14,000m. 
WN- 4: Revised Standard Hours (RSH):
 1,000hr. 
Skilled labour-  × 2,060hr.  = 1,144.44 or 1,144 hrs.
 1,800hr. 
 800hr. 
Unskilled labour-  × 2,060hr.  = 915.56 or 916 hrs.
 1,800hr. 
Fixed Costs + TargetedProfit
11. (d) Break-even point =
( Selling Price per Unit − Variable Cost per Unit )
= (5,00,000 + 2,00,000)/100 = 7,000 units

4
12. (d) Expected Output = Input Material−Normal Loss
Expected Output = 1,200 Kg−96 Kg=1,104 kg
Abnormal loss = 1,104 kg – 1,100 kg = 4 kg
13. (b) Overhead Rate = Total Estimated Machine Hours/Total Estimated
Overhead Cost
= ` 6,00,000/30,000 = ` 20
Allocated Overhead = Overhead Rate x Machine Hours Used by the Job
= ` 20 x 300 hrs = ` 6,000
14. (c) Efficiency Ratio = Activity Ratio/Capacity Utilization Ratio
= 0.95/0.85 = 1.117 or 112%
15. (b) Total cost ` 20,000 + (300 units × (` 20 + `10)) = ` 29,000
PART-II– Descriptive Questions
1. (a) Increase in hourly rate of wages under Rowan Plan is ` 30 i.e.
(`180 – ` 150)
Time Saved
× ` 150 = `30 (Please refer Working Note)
Time Allowed

Time Saved
Or, × ` 150 = ` 30
50hours

1,500
Or, Time saved = = 10 hours
150
Therefore, Time Taken is 40 hours i.e. (50 hours – 10 hours)
Effective Hourly Rate under Halsey System:
Time saved = 10 hours
Bonus @ 50% = 10 hours × 50% × ` 150 = Rs 750
Total Wages = (`150 × 40 hours + ` 750) = Rs 6,750
Effective Hourly Rate = ` 6,750 ÷ 40 hours = ` 168.75
Working Note:
Effective hourly rate
Time Taken
(Time Taken × Rate per hour) + × Time Saved × Rate per hour
Time Allowed
=
Time Taken

Time Taken
×Time Saved×Rate per hour
Time Taken×Rate per hour Time Allowed
Or, ` 180 = +
Time Taken Time Taken

Time Taken×Rate per hour Time Taken 1

Or, ` 180 - = × Time Saved × Rate per hour ×
Time Taken Time Allowed Time Taken

5
 Time Saved
Or, ` 180 – ` 150 = × ` 150
Time Allowed

(b)
Particulars Amount in ₹
A Operating costs:
Petrol 400
Oil 170
Grease 90
Wages to Driver 550
Wages to Worker 350
(A) 1,560
B Maintenance Costs:
Repairs 170
Overhead 60
Tyres 150
Garage Charges 100
(B) 480
C Fixed Cost:
Insurance 50
License, Tax etc 80
Interest 40
Other Overheads 190
Depreciation
(54,000 - 36,000) 300
5 x 12
(C) 660
Total Cost (A + B + C) 2,700
(i) Cost per days maintained = ₹ 2700/30 days = ₹ 90
(ii) Cost per days operated = ₹ 2700/25 days = ₹ 108
(iii) Cost per hours operated = ₹ 2700/300 hours = ₹ 9
(iv) Cost per kilometres covered = ₹ 2700/2500 kms = ₹ 1.08
(v) Cost per commercial tonne kms= ₹ 2700/5000 tonne kms = ₹ 0.54
*Commercial tonne kms = Total distance travelled x Average load
(4 tonnes+ 0 tonnes)
= x 2500 kms
2
= 5000 tonne kms

6
 (c) (i) Calculation of most Economical Production Run
2 × 60,000 × ` 4,800
= = 2,000 Vaccine
12 ×12

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

a batch
When run size is When run size is
2,000 vaccines 15,000 vaccines
Total set up cost = 60,000 × ` 4,800 = 60,000 × ` 4,800
2,000 15,000
= ` 1,44,000 = ` 19,200
Total Carrying ½ × 2,000 × ` 144 ½ × 15,000 × ` 144
cost = ` 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
2. (a) (i) Statement of Equivalent Production
Particulars Input Particulars Output Equivalent Production
Units Units
Material Labour &
O.H.
% Units % Units
Opening 31,000 Completed and 5,42,500 100 5,42,500 100 5,42,500
WIP transferred to Process
(Soldering)
Units 5,89,000 Normal Loss (5% of 31,000 -- -- -- --
introduced 6,20,000)
Abnormal loss 15,500 100 15,500 80 12,400
(Balancing figure)
Closing WIP 31,000 100 31,000 80 24,800
6,20,000 6,20,000 5,89,000 5,79,700

Statement showing cost for each element

Particulars Materials Labour Overhead Total
(`) (`) (`) (`)
Cost of opening work-in- 12,40,000 2,32,500 6,97,500 21,70,000
process
Cost incurred during the 2,29,40,000 55,64,500 1,66,93,500 4,51,98,000
month
Less: Realisable Value of (6,20,000) -- -- (6,20,000)
normal scrap
(` 20 × 31,000 units)
Total cost: (A) 2,35,60,000 57,97,000 1,73,91,000 4,67,48,000
Equivalent units: (B) 5,89,000 5,79,700 5,79,700
Cost per equivalent 40.00 10.00 30.00 80.00
unit: (C) = (A ÷ B)

7
 (ii) Statement of Distribution of cost
Amount (`) Amount (`)
1. Value of units completed and 4,34,00,000
transferred
(5,42,500 units × ` 80)
2. Value of Abnormal Loss:
- Materials (15,500 units × ` 40) 6,20,000
- Labour (12,400 units × ` 10) 1,24,000
- Overheads (12,400 units × 3,72,000 11,16,000
` 30)
3. Value of Closing W-I-P:
- Materials (31,000 units × ` 40) 12,40,000
- Labour (24,800 units × ` 10) 2,48,000
- Overheads (24,800 units × 7,44,000 22,32,000
` 30)
Total 4,67,48,000
(iii) Process Account (Mounting)
Particulars Units (`) Particulars Units (`)
To Opening W.I.P: By Normal Loss 31,000 6,20,000
(` 20 × 31,000 units)
- Materials 31,000 12,40,000 By Abnormal 15,500 11,16,000
loss
- Labour -- 2,32,500 By Process A/c 5,42,500 4,34,00,000
(Soldering)
- Overheads -- 6,97,500 By Closing WIP 31,000 22,32,000
To Materials 5,89,000 2,29,40,000
introduced
To Direct Labour 55,64,500
To Overheads 1,66,93,500
6,20,000 4,73,68,000 6,20,000 4,73,68,000

(iv) Normal Loss A/c

Particulars Units (`) Particulars Units (`)
To Process 31,000 6,20,000 By Cost Ledger 31,000 6,20,000
Account Control A/c
(Mounting)
31,000 6,20,000 31,000 6,20,000
Abnormal Loss A/c
Particulars Units (`) Particulars Units (`)
To Process Account 15,500 11,16,000 By Cost Ledger 15,500 3,10,000
(Mounting) Control A/c

8
 By Costing Profit & 8,06,000
Loss A/c
15,500 11,16,000 15,500 11,16,000

(b) ABC is particularly needed by organisations for product costing in the

following situations:
1. High amount of overhead: When production overheads are high
and form significant costs, ABC is more useful than traditional
costing system.
2. Wide range of products: ABC is most suitable, when, there is
diversity in the product range or there are multiple products.
3. Presence of non-volume related activities: When non-volume
related activities e.g. material handling, inspection set-up, are
present significantly and traditional system cannot be applied,
ABC is a superior and better option. ABC will identify non-value-
adding activities in the production process that might be a suitable
focus for attention or elimination.
4. Stiff competition: When the organisation is facing stiff competition
and there is an urgent requirement to compute cost accurately and
to fix the selling price according to the market situation, ABC is very
useful. ABC can also facilitate in reducing cost by identifying non-
value-adding activities in the production process that might be a
suitable focus for attention or elimination.
3. (a)
Contribution per tonne (`)
Sales Price 185.00
Variable Cost:
Material (W.N.-1) 90.00
Labour (W.N.-2) 13.00
Variable Overhead (W.N.-3) 40.00
Contribution 42.00
Profit Required (`7,56,000 /1,26,000 tonnes) 6.00
Balance Contribution per tonne for meeting Fixed 36.00
Costs
Fixed Costs (W.N.-4) 54,72,000
Quantity Required (`54,72,000 ÷ `36) 1,52,000
tonnes
Working Notes
1. Materials Cost per tonne in Year II `90
 `1,29,60,000 
 1,44,000tonnes 
 

9
 2. Labour Cost per tonne in Year II `13
 `18,72,000 
 1,44,000tonnes 
 
3. Variable portion of Factory, Administration and Sell.
Expenditure, etc `
Total in Year II 1,12,32,000
Less: Increase otherwise than on account of 8,10,000
increased turnover
1,04,22,000
Less: Amount Spent in Year I 97,02,000
Increase 7,20,000
Increase in Quantity Sold 18,000
tonnes
Variable Expenses per tonne `40
 `7,20,000 
 18,000tonnes 
 
4. Fixed portion of Factory, Administration and Selling `1,12,32,000
Expenses (Yr. 2)
Variable Expenses @ ` 40 per tonne `57,60,000
Fixed Portion `54,72,000
(b) Cost Sheet
Particulars Units Amount (`)
Material
Opening stock 10,000 5,00,00,000
Add: Purchases 4,90,000 25,20,00,000
Less: Closing stock (17,500) (85,00,000)
4,82,500 29,35,00,000
Less: Normal wastage of materials realized (2,000) (7,00,000)
@ ` 350 per unit
Material consumed 29,28,00,000
Direct employee's wages and allowances 5,50,50,000
Direct expenses- Royalty paid for production 3,10,50,000
Prime cost 4,80,500 37,89,00,000
Factory overheads - Consumable stores,
3,42,00,000
depreciation etc.
Rearrangement design of factory machine 75,00,000
Gross Works Cost 4,80,500 38,64,00,000
Add: Opening WIP 20,000 1,20,00,000
Less: Closing WIP (10,000) (60,50,000)
10
Factory/Works Cost 4,90,500 39,23,50,000
Administration Overheads related to 3,45,00,000
production
R&D expenses and Quality control cost 1,90,00,000
AMC cost of CCTV installed at factory 6,00,000
premises
Guard Salaries for factory premises 14,00,000
Product Inspection 22,00,000
Add: Primary packaging cost @ ` 140 per 6,86,70,000
unit
Cost of production 4,90,500 51,87,20,000
Administration Overheads
Guard salaries for office 4,00,000
Audit and legal fees 29,00,000
Director’s Salaries 60,00,000
EPF Director’s Salaries @12% 7,20,000
AMC cost for CCTV installed at office. 2,00,000
Selling and Distribution Overheads
Cost of maintaining website for online sale 60,75,000
Secondary packaging cost @ ` 20 per unit 4,90,500 98,10,000
Gift and snacks 30,50,000
Guard salaries for selling department 2,00,000
AMC cost for CCTV installed at selling 2,00,000
department
Hiring charges of cars 25,00,000
Add: GST @5% on RCM basis 1,25,000
Television programme sponsorship cost 20,00,000
Customers’ prize cost* 2,00,000
Selling expenses 3,94,50,000
Cost of sales 58,64,75,000
Add: Profit @ 25% on sales or 33.333% of 19,54,89,712
cost
Sales value 78,19,64,712
*Customers’ prize cost:
Amount (`)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000

11
 Consolation Prizes (3 × `10,000) 30,000
Total 2,00,000
*Customers’ prize cost:
Amount (`)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000
Consolation Prizes (3 × `10,000) 30,000
Total 2,00,000
4. Computation of overhead absorption rate
(as per the blanket rate)
Department Budgeted factory Budgeted direct
Overheads (`) wages (`)
Operating 35,64,000 7,92,000
Assembly 9,66,000 24,15,000
Quality Control 4,20,000 10,50,000
Packing 12,37,500 6,93,000
Total 61,87,500 49,50,000
Budgeted factory Overheads
Overhead absorption rate = x 100
Budgeted direct wages
61,87,500
= x 100
49,50,000
= 125% of Direct wages
Selling Price of the Job No. 157
Particulars Operating Assembly Quality Packing Total
Control
(`) (`) (`) (`) (`)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost of
495 495
normal defectives
Overheads
8,786.25
[(125% x (6,534 + 495)]
Total Factory Cost 36,605.25
Add: Mark-up (25% x
9,151.31
` 36,605.25)
Selling Price 45,756.56

12
(b) As the machinery is used to a varying degree in different departments,
the use of departmental rates is to be preferred. The overhead recovery
rates in different departments would be as follows:
(i) Operating Department: The use of machine hours is the
predominant factor of production in Operating Department.
Hence, machine hour rate should be used to recover overheads.
The overhead recovery rate based on machine hours would be
calculated as follows:
Budgeted factory Overheads
Machine hour rate =
Budgeted machine hours
` 35,64,000
= = ` 4.50 per hour
7,92,000
(ii) Assembly Department: Direct labour hours is the main factor of
production in Assembly Department. Hence, direct labour hour
rate should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 9,66,000
= = ` 1.40 per hour
6,90,000
(iii) Quality Control Department: Direct labour hours is the main
factor of production in Quality Control Department. Hence, direct
labour hour rate should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 4,20,000
= = ` 1.40 per hour
3,00,000
(iv) Packing Department: Direct labour hours is the main factor of
production in Packing Department. Hence, direct labour hour rate
should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 12,37,500
= = ` 2.50 per hour
4,95,000

13
(c) Selling Price of Job No. 157
[based on the overhead rates calculated in (b) above]
Particulars Operating Assembly Quality Packing Total
(`) (`) Control (`) (`)
(`)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost
of normal 495 495
defectives
Overheads
(refer working 10,672
note)
Total Factory
38,491
Cost
Add: Mark-up
9,622.75
(25% x ` 38,491)
Selling Price 48,113.75

Working note:
Overhead Statement
Department Basis Hours Rate (`) Overheads
(`)
Operating Machine hour 1,782 4.50 8,019
Assembly Direct labour hour 828 1.40 1,159
Quality Control Direct labour hour 360 1.40 504
Packing Direct labour hour 396 2.50 990
Total 10,672
(d) Department-wise statement of under or over recovery of overheads
(i) As per the current policy
Particulars Operating Assembly Quality Packing Total
(`) (`) Control (`) (`)
(`)
Direct wages 9,50,400 18,63,000 8,10,000 8,91,000 45,14,400
(Actual)
Overheads 11,88,000 23,28,750 10,12,500 11,13,750 56,43,000
recovered @ 125%
of Direct wages:
(A)
Actual overheads: 38,61,000 5,79,600 2,52,000 13,36,500 60,29,100
(B)
(Under)/Over (26,73,000) 17,49,150 7,60,500 (2,22,750) (3,86,100)
recovery of
overheads: (A–B)

14
 (ii) As per the method suggested
Machine Direct labour Direct labour Direct Total (`)
hours hours hours (Quality labour hours
(Operating) (Assembly) Control) (Packing)
Hours worked 9,50,400 6,21,000 2,70,000 5,94,000
Rate/hour (`) 4.50 1.40 1.40 2.50
Overhead 70,09,200
42,76,800 8,69,400 3,78,000 14,85,000
recovered (`): (A)
Actual overheads 38,61,000 5,79,600 2,52,000 13,36,500 60,29,100
(`): (B)
(Under)/Over
4,15,800 2,89,800 1,26,000 1,48,500 9,80,100
recovery: (A−B)

5. (a) (i) Statement of Profit as per financial records

(for the year ended March 31, 2024)
(`) (`)
To Opening stock of
48,250 By Sales 13,96,500
Finished Goods
By Closing stock of
To Work-in-process 38,000 44,500
finished Goods
To Raw materials
5,00,000 By Work-in-Process 36,200
consumed
To Direct labour 4,20,000 By Interest received 42,000
To Factory overheads 3,56,000 By Loss 3,35,050
To Administration
2,10,000
overheads
To Selling &
84,000
distribution overheads
To Dividend paid 98,000
To Bad debts 16,000
To Stores adjustment 50,000
To Income tax 34,000
18,54,250 18,54,250
Statement of Profit as per costing records
(for the year ended March 31,2024)
(`)
Sales revenue (A)
13,96,500
(14,250 units)
Cost of sales:
Opening stock
49,050
(545 units x ` 90)
Add: Cost of production of 14,165 units
14,08,560
(Refer to working note 2)
15
Less: Closing stock
45,742
(` 99.44 x 460 units)
Production cost of goods sold (14,250 units) 14,11,868
Selling & distribution overheads
(14,250 units x ` 6) 85,500
Cost of sales: (B) 14,97,368
Profit/Loss: {(A) – (B)} (1,00,868)
(ii) Statement of Reconciliation
(Reconciling the profit as per costing records with the profit
as per financial records)
(`) (`)
Loss as per Cost Accounts (1,00,868)
Add: Administration overheads over absorbed 24,760
(` 2,34,760 – ` 2,10,000)
Opening stock overvalued 800
(` 49,050 – ` 48,250)
Interest received 42,000
Selling & distribution overheads over recovered 1,500 69,060
(` 85,500 – ` 84,000)
(31,808)
Less: Factory overheads over recovered 1,04,000
(` 3,56,000 - `2,52,000)
Closing stock overvalued 1,242
(` 45,742 – ` 44,500)
Stores adjustment 50,000
Income tax 34,000
Dividend 98,000
Bad debts 16,000 (3,03,242)
Loss as per financial accounts (3,35,050)
Working notes:
1. Number of units produced
Units
Sales 14,250
Add: Closing stock 460
Total 14,710
Less: Opening stock 545
Number of units produced 14,165

16
 2. Cost Sheet
(`)
Raw materials consumed 5,00,000
Direct labour 4,20,000
Prime cost 9,20,000
Factory overheads 2,52,000
(60% of direct wages)
Factory cost 11,72,000
Add: Opening work-in-process 38,000
Less: Closing work-in-process 36,200
Factory cost of goods produced 11,73,800
Administration overheads 2,34,760
(20% of factory cost)
Cost of production of 14,165 units 14,08,560
(Refer to working note 1)
Cost of production per unit: 99.44
` 14,08,560
14,165
(b) PPP Ltd.
Budget for 90% capacity level for the next year
Budgeted production (units) 90,000
Per Unit Amount
(`) (`)
Direct Material (note 2) 22 19,80,000
Direct Labour (note 3) 12 10,80,000
Variable factory overhead (note 4) 2.10 1,89,000
Variable selling overhead (note 5) 4.40 3,96,000
Variable cost 40.50 36,45,000
Fixed factory overhead (note 4) 2,20,000
Fixed selling overhead (note 5) 1,15,000
Administrative overhead (note 6) 1,84,000
Fixed cost 5,19,000
Total cost 41,64,000
Add: Profit 25% on total cost 10,41,000
Sales 52,05,000
Contribution (Sales – Variable cost) 15,60,000

17
Working Notes:
1. At 80% level of capacity (current year), the production is 80,000
units.
Thus, total level of capacity is 1,00,000 units.
Therefore, Year 2 is at 70% capacity and Year 3 is at 60%
capacity as the production is increasing by 10% of its capacity
consistently.
2. Direct Material
(`) (`)
80% Capacity 16,00,000 70% Capacity 14,00,000
70% Capacity 14,00,000 60% Capacity 12,00,000
10% change 2,00,000 10% change in 2,00,000
in capacity capacity
For 10% increase in capacity, the total direct material cost
regularly changes by ` 2,00,000
Thus, Direct material cost (variable) = ` 2,00,000 ÷ 10,000
= ` 20
After 10% increase in price, direct material cost per unit = ` 20 ×
1.10 = ` 22
Direct material cost at 90,000 budgeted units = 90,000 × ` 22
= ` 19,80,000
3. Direct labour:
(`) (`)
80% Capacity 8,00,000 70% Capacity 7,00,000
70% Capacity 7,00,000 60% Capacity 6,00,000
10% change in 1,00,000 10% change in 1,00,000
capacity capacity
For 10% increase in capacity, direct labour cost regularly
changes by ` 1,00,000.
Direct labour cost per unit = ` 1,00,000 ÷ 10,000 = ` 10
After 20% increase in price, direct labour cost per unit = ` 10 ×
1.20 = ` 12
Direct labour for 90,000 units = 90,000 units × ` 12 = ` 10,80,000.
4. Factory overheads are semi-variable overheads:
(`) (`)
80% Capacity 3,60,000 70% Capacity 3,40,000
70% Capacity 3,40,000 60% Capacity 3,20,000
10% change in 20,000 10% change in 20,000
capacity capacity
18
 Variable factory overhead = ` 20,000 ÷ 10,000 units = ` 2
Variable factory overhead for 80,000 units = 80,000 × ` 2
= ` 1,60,000
Fixed factory overhead = ` 3,60,000 – ` 1,60,000 = ` 2,00,000.
Variable factory overhead after 5% increase = ` 2 × 1.05 = ` 2.10
Fixed factory overhead after 10% increase = ` 2,00,000 × 1.10
= ` 2,20,000.
5. Selling overhead is semi-variable overhead:
(`) (`)
80% Capacity 4,20,000 70% Capacity 3,80,000
70% Capacity 3,80,000 60% Capacity 3,40,000
10% change in 40,000 10% change in 40,000
capacity capacity
Variable selling overhead = ` 40,000 ÷ 10,000 units = ` 4
Variable selling overhead for 80,000 units = 80,000 × ` 4
= ` 3,20,000.
Fixed selling overhead = ` 4,20,000 – ` 3,20,000 = ` 1,00,000
Variable selling overhead after 10% increase = ` 4 × 1.10
= ` 4.40
Fixed selling overhead after 15% increase = ` 1,00,000 × 1.15
= ` 1,15,000
6. Administrative overhead is fixed:
After 15% increase = ` 1,60,000 × 1.15 = ` 1,84,000
6. (a) The Practical difficulties with which a Cost Accountant is usually
confronted with while installing a costing system in a manufacturing
company are as follows:
(i) Lack of top management support: Installation of a costing system
does not receive the support of top management. They consider
it as interference in their work. They believe that such, a system
will involve additional paperwork. They also have a
misconception in their minds that the system is meant for keeping
a check on their activities.
(ii) Resistance from cost accounting departmental staff: The staff
resist because of fear of loosing their jobs and importance after
the implementation of the new system.
(iii) Non co-operation from user departments: The foremen,
supervisor and other staff members may not cooperate in
providing requisite data, as this would not only add to their
responsibilities but will also increase paper work of the entire
team as well.
19
 (iv) Shortage of trained staff: Since cost accounting system’s
installation involves specialised work, there may be a shortage
of trained staff.
To overcome these practical difficulties, necessary steps required are:
- Sell the idea to top management and convince them of the utility
of the system.
- Resistance and non co-operation can be overcome by
behavioural approach. To deal with the staff concerned
effectively.
- Proper training should be given to the staff at each level
- Regular meetings should be held with the cost accounting staff,
user departments, staff and top management to clarify their
doubts/ misgivings.
(b) Buttermilk is a by-product of butter and treatment of by-product in cost
accounting is as follows.
(i) When they are of small total value, the amount realized from their
sale may be dealt as follows:
- Sales value of the by-product may be credited to Profit and Loss
Account and no credit be given in Cost Accounting. The credit
to Profit and Loss Account here is treated either as a
miscellaneous income or as additional sales revenue.
- The sale proceeds of the by-product may be treated as
deduction from the total costs. The sales proceeds should be
deducted either from production cost or cost of sales.
(ii) When the by-products are of considerable total value: Where by-
products are of considerable total value, they may be regarded
as joint products rather than as by- products. To determine exact
cost of by-products the costs incurred upto the point of
separation, should be apportioned over by-products and joint
products by using a logical basis.
(iii) When they require further processing: In this case, the net
realisable value of the by-product at the split-off point may be
arrived at by subtracting the further processing cost from
realisable value of by-product. If the value is small, it may be
treated as discussed in (i) above.
(c)
Demerits of Fixed Budget
1. It does not suite a dynamic organization and may give
misleading results. A poor or good performance may remain
un-noticed.
2. It is not suitable for long period.

20
 3. It is also found unsuitable particularly when the business
conditions are changing constantly.
4. Accurate estimates are not possible.

Demerits of Flexible Budget

1. The formulation of flexible budget is possible only when there
is proper accounting system maintained, perfect knowledge
about the factors of production and various business
circumstances is available.
2. Flexible Budget also requires the system of standard costing
in business.
3. It is very expensive and labour oriented.
OR
(c) Objectives of time keeping and time booking: Time keeping has the
following two objectives:
(i) Preparation of Payroll: Wage bills are prepared by the payroll
department on the basis of information provided by the time
keeping department.
(ii) Computation of Cost: Labour cost of different jobs, departments
or cost centers are computed by costing department on the basis
of information provided by the time keeping department.
The objectives of time booking are as follows:
(i) To ascertain the labour time spent on a job and the idle labour
hours.
(ii) To ascertain labour cost of various jobs and products.
(iii) To calculate the amount of wages and bonus payable under the
wage incentive scheme.
(iv) To compute and determine overhead rates and absorption of
overheads under the labour and machine hour method.
(v) To evaluate the performance of labour by comparing actual time
booked with standard or budgeted time.

21
 Mock Test Paper - Series I: November, 2024
Date of Paper: 21st November, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
for 30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-
choice questions by choosing one of the four options given. All
questions are compulsory.
Case Scenario I
XYZ Manufacturing Ltd. is a mid-sized enterprise that has established a strong
reputation in the field of precision engineering. The company specializes in
producing high-quality engineering components that meet the stringent
requirements of various industries including automotive, aerospace, medical
devices, and industrial machinery. With a commitment to precision and
excellence, XYZ Manufacturing Ltd. has positioned itself as a reliable supplier
of critical components that demand the highest levels of accuracy and durability.
To maintain stringent control over its production costs and enhance cost
efficiency, XYZ Manufacturing Ltd. operates under a standard costing system.
This system plays a pivotal role in the company’s financial and operational
management. Standard costing involves setting predetermined costs for each
production element, including materials, labor, and overheads. These
predetermined costs, known as standard costs, serve as benchmarks against
which actual production costs are measured.
Particulars Budgeted Data Actual Data
Units Produced 10,000 units 9,500 units
Fixed Overheads ₹ 20,00,000 ₹ 19,50,000 + ₹ 1,00,000
(additional quality control cost for
1
 1,000 units chosen on sample
basis)
Hours Worked 15,000 hours 14,250 hours
Variable Overhead ₹ 50 per hour ₹ 50 per hour (first 10,000 hours)
Rate ₹ 60 per hour (additional hours)
Based on the given information, you are being required to answer the
following questions (MCQs 1 to 5):
1. What is the Fixed Overhead Cost Variance for XYZ Manufacturing Ltd. in
May 2024?
(a) ` 50,000 (A)
(b) ` 1,00,000 (A)
(c) ` 1,50,000 (A)
(d) ` 2,00,000 (A)
2. What is the Fixed Overhead Volume Variance for XYZ Manufacturing Ltd.
in May 2024?
(a) ` 50,000 (F)
(b) ` 50,000 (A)
(c) ` 1,00,000 (F)
(d) ` 1,00,000 (A)
3. What is the Variable Overhead Efficiency Variance for XYZ Manufacturing
Ltd. in May 2024?
(a) ` 37,500 (A)
(b) ` 42,500 (A)
(c) `0
(d) ` 25,000 (A)
4. What is the Variable Overhead Expenditure Variance for XYZ
Manufacturing Ltd. in May 2024?
(a) ` 40,000 (A)
(b) ` 42,500 (A)
(c) ` 45,000 (A)
(d) ` 45,030 (A)
5. What is the Fixed Overhead Expenditure Variance for XYZ Manufacturing
Ltd. in May 2024?
(a) ` 50,000 (F)
(b) ` 50,000 (A)
(c) ` 1,00,000 (F)
(d) ` 1,00,000 (A) (5 x 2 Marks)
2
Case Scenario II
A garment manufacturer has been producing and selling T-shirts exclusively for
Indian market. His T-shirts are made of a specific material which is eco-friendly.
It means that T-shirts are bio-degradable in soil after it becomes unsuitable for
use.
This invention has been applauded throughout the country. Owner, Vikas,
registered for the patent rights for his invention so that no one else could use it.
Vikas feels that this invention will also be liked in foreign markets, and thus plans
to expand his business outside India. He feels that US market is the first foreign
market he should tap into.
Current cost structure (each T-shirt):
Direct material 90
Direct labour 60
Special service 80
(Used in T-shirt making, 50% fixed)
Fixed overhead 50
Administration overhead (fixed) 20
Total cost per T-shirt 300
(+) Profit margin 200
Selling price in India 500
There is no limitation of any resources in India. Vikas is able to sell 80,000
T-shirts each year. He is currently working at 80% of his total capacity.
After searching for potential customers in US, Vikas received an inquiry for
30,000 units from a wholesale distributor in California. As per the inquiry, order
will be placed if price per T-shirt is reasonable and the order has to be satisfied
in full.
Vikas decided to send a quote and the order was placed by the foreign client,
on the same day. Vikas, without a second thought accepted the order, but did
not feel the need to extend the manufacturing capacity; therefore he decided
forgo a few Indian clients.
This foreign order also required special packaging. It is spent at 20% of the total
prime cost per T-shirt. The production was done quickly and foreign consignment
was transported to custom port via services from a carriage agency. It charged
` 80,000 for 1 truck, whose capacity was 500 kg, to transport whole of the
consignment. Truck was 20% vacant after loading the consignment.
Bill of lading was filed and a professional fee of ` 25,000 for filing this was paid
to a Chartered accountant. Custom port also charged ` 80 per kg per day to
handle the material, storing it in warehouse, and for loading the goods on ship.
3
The shipping company, which was booked by Vikas for taking the consignment
to US, got delayed due to bad weather. Stock was held at port for 5 days and on
6 th day it was loaded on ship. Shipping company charged ` 2,800/ 10kg of goods.
Insurance was charged flat at ` 1,11,000.
There is no custom duty on such exports.
Answer the following questions (MCQs 6 to 10):
6. Vikas had sufficient funds in his hands but he still raised a short-term
working capital loan @ 6.5% p.a. for the satisfaction of this foreign order
because he found a one time investment opportunity which was giving him
9.25% returns. Foreign order was accepted on 1 st June and loan was taken
on the same day. Repayment of the loan will be made on 1 st September.
Calculate net cash outflow due to this export order. Which of the following
is correct?
(a) ` 73,91,000
(b) ` 75,47,750
(c) ` 74,76,500
(d) ` 71,06,000
7. What would have been the minimum price that Vikas could have quoted per
T-shirt in US dollars? (exchange rate on 1 st June, $1 = ` 83.86)
(a) $ 4.23
(b) $ 4.20
(c) $ 4.17
(d) $4.05
8. Payment from foreign client was received on 8 th October when exchange
rate was ` 86 for each US $. Calculate the profit earned from this export
order if actual quoted price was $4.90 per T-shirt. Select the correct
amongst following:
(a) ` 40,65,500
(b) ` 41,51,000
(c) ` 39,94,250
(d) ` 44,36,000
9. What is the net cash Inflow from this export order?
(a) ` 55,36,000
(b) ` 51,65,500
(c) ` 52,51,000
(d) ` 50,94,250

4
10. What is the Incremental benefit from this export order?
(a) ` 19,94,250
(b) ` 21,51,000
(c) ` 20,65,500
(d) ` 24,36,000 (5 x 2 Marks)
11. The rate of change in the composition of employee force over the average
number of employees for the year is computed as 9% under ‘separation
method’. However, the same rate is computed as 15% and 30% under
‘replacement method’ and ‘flux method’ respectively.
Considering the average number of employees on roll during the year as
200, FIND OUT the number of employees -
(i) replaced, (ii) left and discharged and (iii) recruited and joined
(a) Replaced- 18 employees, left and discharged- 30 employees and
recruited & joined- 42 employees
(b) Replaced- 30 employees, left and discharged- 42 employees and
recruited & joined- 18 employees
(c) Replaced- 30 employees, left and discharged- 18 employees and
recruited & joined- 42 employees
(d) Replaced- 42 employees, left and discharged- 18 employees and
recruited & joined- 30 employees (2 Marks)
12. WHICH of the following item is not the cause of differences in Financial and
Cost Accounts?
(a) Income tax not treated in Cost Accounts
(b) Dividends credited in Financial Accounts
(c) Losses on the sale of investments not treated in Financial Accounts
(d) Cost Accounts showing notional depreciation on the assets fully
depreciated for which book value is nil (2 Marks)
13. Mefttal Ltd. is currently operating at 60% of its total capacity which is 1.5
times than the previous year. The total capacity of the company is 2,00,000
units.
Other information relating to the production is provided below:
(i) The total cost of production for the current year is ` 59,28,000, and
for the previous year, it was ` 44,72,000.
(iii) No changes are anticipated in the cost structure for the upcoming
years.
Selling price is ` 52 per unit and is expected to remain the same in the
coming years.
5
 You are required to CALCULATE Break-Even Point (in units).
(a) 1,20,000 units
(b) 40,000 units
(c) 80,000 units
(d) 1,00,000 units (2 Marks)
14. Parth Ltd. operates in insurance business. Previous Year, the company
launched a new term insurance policy called ‘Max Jivan’ and incurred the
following expenditure throughout the year:
Particulars Amount (`)
Claim management cost 52,82,000
Facilities cost 6,49,82,500
Employees cost 2,25,18,000
Cost of marketing of the policy 19,30,71,000
Policy development cost 4,86,50,000
Policy issuance cost 4,10,05,000
Policy servicing cost 13,40,65,500
Sales support expenses 4,44,80,000
Office administration cost 6,67,20,000
I.T. Cost 30,71,90,000
Postage and logistics 4,50,36,000

You are required to ASCERTAIN the cost of the policy ‘Max Jivan’
segregated into four main activities namely (a) Marketing and Sales support
(b) Operations (c) I.T. Cost and (d) Support functions.
(a) Marketing and Sales support- ` 23,75,51,000, Operations -
` 22,90,02,500, I.T. Cost- ` 30,71,90,000 and Support functions-
` 19,92,56,500
(b) Marketing and Sales support- ` 28,62,01,000, Operations-
` 22,53,88,500, I.T. Cost- ` 30,71,90,000 and Support functions-
` 15,42,20,500
(c) Marketing and Sales support- ` 28,62,01,000, Operations-
` 18,03,52,500, I.T. Cost- ` 30,71,90,000 and Support functions-
` 19,92,56,500
(d) Marketing and Sales support- ` 24,17,21,000, Operations-
` 22,48,32,500, I.T. Cost- ` 30,71,90,000 and Support functions-
` 19,92,56,500 (2 Marks)

6
15. RN Ltd. manufactures two primary products, P 1 and P 2, through a joint
process and a by-product, R12, is produced spontaneously. The relationship
between output quantities to the direct material input stays stable.
To allocate joint production costs to the primary products, the company
utilizes the physical volume method.
During the month of March, company incurred joint production costs of
` 1,30,00,000. As the primary products are not freely marketable at the
split-off point, they are processed further.
The net realizable value of the by-product is treated as deductions from the
joint production costs before the joint costs are allocated to the primary
products.
The information regarding company’s production and its cost during the
month of March is provided below:
Particulars P1 P2 R 12
Output (kg.) 1,95,000 3,90,000 81,250
Selling price per kg. ` 200 ` 120 ` 40
Further processing costs ` 26,00,000 ` 39,00,000 -

FIND OUT the amount of joint product cost to be allocated to P 2 by using

the physical volume method.
(a) ` 65,00,000
(b) ` 97,50,000
(c) ` 39,00,000
(d) ` 32,50,000 (2 Marks)

7
 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) Petro Ltd. is a petroleum refining company which uses cracking process
for producing gasoline, diesel and Heavy fuel oil (HFO). All three final
products are extracted simultaneously at one common split-off point.
Gasoline and diesel are immediately available for sale upon
separation, requiring no further processing. In contrast, heavy fuel oil
(HFO) undergoes additional processing before it can be sold, as there
is no market for it at the split-off point.
Throughout the year, the selling prices and total quantities sold for
each item were as follows:
Product Quantity sold Selling Price per
(Gallons) gallon (`)
Gasoline 1,674 400
Diesel 4,743 300
Heavy fuel oil (HFO) 6,624 200

The selling prices listed above are projected to remain unchanged in

the upcoming year.
The total joint manufacturing costs for the year amounted to
` 15,00,000, with an additional cost of ` 7,44,000 incurred for finishing
Heavy fuel oil (HFO).
There were no opening inventories of gasoline, diesel and Heavy
fuel oil (HFO). Though, at the end of the period, the following
inventories of complete units were available: 1,620 gallons of
gasoline, 540 gallons of diesel, and 225 gallons of Heavy fuel oil
(HFO).
You are required to COMPUTE the following for gasoline, diesel and
Heavy fuel oil (HFO)-
(i) joint cost allocated, and
(ii) cost of goods sold
using Net Realisable Value Method of joint cost allocation.
(5 Marks)
(b) The following information have been extracted from the cost records
of a manufacturing company:
(`)
Stores
* Opening balance 9,000
* Purchases 48,000
8
 * Transfer from WIP 24,000
* Issue to work-in-progress 48,000
* Issue for repairs 6,000
* Deficiency found in stock 1,800
Work-in-Progress:
* Opening balance 18,000
* Direct Wages applied 18,000
* Overhead charged 72,000
* Closing balance 12,000
Finished Production :
* Entire production is sold at a profit of 10% on cost
from work-in-progress
* Wages paid. 21,000
* Overhead incurred 75,000
DRAW the Stores Leger Control A/c, Work-in-Progress Control A/c,
Overheads Control A/c and Costing Profit and Loss A/c. (5 Marks)
(c) The management of a company wants to formulate an incentive plan
for the workers with a view to increase productivity. The following
particulars have been extracted from the books of company:
Piece Wage rate ` 10
Weekly working hours 40
Hourly wages rate ` 40 (guaranteed)
Standard/normal time per unit 15 minutes.
Actual output for a week:
Worker A: 176 pieces
Worker B: 140 pieces

Under Halsey scheme, worker gets a bonus equal to 50% of Wages

of time saved.
CALCULATE earning of workers under Halsey’s and Rowan’s
premium scheme. (4 Marks)
2. (a) Baba Ltd. belongs to an automotive industry, manufacturing hybrid
bicycles. The production of bicycles passes through three departments,
viz. X1, Y2, Z3. The bicycles being equipped with gears needs quality
check from time to time. Thus, the company also operates two service
departments, namely quality control (QC) and maintenance (M), for its
bicycle.
Following information is extracted from the accounting books
regarding expenses as incurred/ charged:

9
Particulars (`)
Rent and Rates 40,00,000
General Lighting 4,80,000
Indirect Wages 15,51,200
Power 12,00,000
Depreciation on Machines 80,00,000
Sundries 77,56,000
Additional information:
Production Departments Service
Departments
X1 Y2 Z3 QC M
Direct 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000
wages (`)

Working 6,140 8,950 4,838 - -

hours
Value of 4,80,00,000 6,40,00,000 8,00,00,000 40,00,000 40,00,000
machines
(`)
H.P. of 120 60 100 20 -
machines

Light 20 30 40 20 10
points
Floor 4,000 5,000 6,000 4,000 1,000
space
(sq. ft.)

A technical assessment unveiled the following basis for the

apportionment of expenses of service departments:
X1 Y2 Z3 QC M
QC 20% 30% 40% - 10%
M 40% 20% 30% 10% -
You are required to DETERMINE the following:
(i) Overheads distributed to all the departments, viz. X1, Y2, Z3, QC
and M.
(ii) Overheads total and rate per hour under all the Production
Departments after redistribution of Service Department’s
Overhead.
10
 (iii) Total cost of a bicycle, considering the Direct Material and
labour Cost of ` 20,000 and ` 12,000 respectively, which is
being processed for manufacturing in Departments X1, Y2 and
Z3 for 4, 5 and 3 hours respectively. (5 + 5 + 2 = 12 Marks)
(b) Luxz Ltd. is into luxury pens business manufacturing 120 pens in a
batch. To process a single batch of 120 pens, company needs to
incur following expenditure:
Particulars (`)
Direct Materials 57,375
Direct wages 6,750
Batch Set-up cost 18,900
For each batch, the company absorbs the Production Overheads at
a rate of 20% of direct wages and 15% of the total production cost
is allocated to cover selling, distribution, and administrative
overheads.
During the month of March, Luxz Ltd. received an order for 2,400
pens and the company aims to achieve a profit margin of 25% on its
sales value.
You are required to DETERMINE the total sales value for 2,400
pens. (2 Marks)
3. (a) Following information is available from the books of YSPP Ltd. for the
current year ending 31st March:
S. Particulars (`) (`)
No.
(i) Raw materials purchased 35,00,00,000
(ii) Freight inwards 39,22,100
(iii) Wages paid to factory workers 1,02,20,000
(iv) Contribution made towards 12,60,000
employees’ PF & ESIS
(v) Hire charges paid for hiring 8,40,000
specific equipment
(vi) Amount paid for power & fuel 16,17,000
(vii) Amount paid for purchase of 31,36,000
moulds and patterns (life is
equivalent to four years
production)
(viii) Job charges paid to job 28,42,000
workers
(ix) Lease rent paid for production 3,92,000
assets
(x) Depreciation on:

11
 Factory building 2,94,000
Office building 1,96,000
Plant & Machinery 4,41,000
Delivery vehicles 3,01,000 12,32,000
(xi) Salary paid to supervisors 4,41,000
(xii) Repairs & Maintenance paid 1,68,000
for:
Plant & Machinery
Sales office building 63,000 2,31,000
(xiii) Insurance premium paid for:
Plant & Machinery 1,09,200
Factory building 63,350
Stock of raw materials & WIP 1,26,000 2,98,550
(xiv) Expenses paid for quality 68,600
control check activities
(xv) Salary paid to quality control 3,36,700
staffs
(xvi) Research & development cost 63,700
paid for improvement in
production process
(xvii) Expenses paid for 4,15,100
administration of factory work
(xviii) Salary paid to functional
mangers:
Production control 33,60,000
Finance & Accounts 32,13,000
Sales & Marketing 35,42,000 1,01,15,000
(xix) Salary paid to General 43,96,000
Manager
(xx) Packing cost paid for:
Primary packing necessary to 3,36,000
maintain quality
For re-distribution of finished 3,92,000 7,28,000
goods
(xxi) Fee paid to auditors 6,30,000
(xxii) Fee paid to independent 7,70,000
directors
(xxiii) Value of stock as on 1st April
(beginning):
Raw materials 63,00,000

12
 Work-in-process 32,20,000
Finished goods 38,50,000 1,33,70,000
(xxiv) Value of stock as on
31st March (ending):
Raw materials 33,60,000
Work-in-process 30,45,000
Finished goods 63,00,000 1,27,05,000
Due to delay in picking up cargo from the port, YSPP Ltd. had to pay
` 15,000 as demurrage in the month of March.
From the above data you are required to PREPARE Statement of cost
for YSPP Ltd. for the year ended 31st March, showing (i) Prime cost, (ii)
Factory cost, (iii) Cost of Production, (iv) Cost of sales.
(2 + 2 + 2 + 2 = 8 Marks)
(b) Following information is extracted from the purchase department of A Ltd.:
(i) Number of units to be purchased during the year is 10,000
(ii) Cost of placing a purchase order is ` 40
(iii) Purchase price per unit is ` 80
(iv) Insurance charges to be paid for protecting goods during
transit is ` 20 per unit
(v) Cash discount to be received is 2%
(vi) Annual cost of storage per unit is ` 5
(vii) Details of lead time:
Average- 20 days
Maximum- 30 days
Minimum- 10 days
For emergency purchases- 8 days.
(viii) Rate of consumption:
Average- 30 units per day
Maximum- 40 units per day.
From the information given above, you are required to CALCULATE:
(i) Re-ordering level
(ii) Maximum level
(iii) Minimum level
(iv) Danger level. (6 Marks)
4. (a) Xtyle Ltd. is a leading manufacturer in the textile industry, renowned for
its commitment to quality and innovation. With decades of experience,
the company specializes in producing a diverse range of textile products,
including high-quality towels, designed to meet the varying needs of its
13
 customers. The company offers mainly three types of towel, viz. Hand
towels, Kitchen towels and Gym towels, catering to both everyday use
and specialized applications. Below are the key production data for a
recent period:
Particulars Hand Kitchen Gym
towels towels towels
Production (units) 9,000 15,000 60,000
Machine hours per unit 10 18 14
Direct Labour hours per unit 4 12 8
Direct Material per unit (`) 450 400 600
Currently, the company utilizes a traditional costing method, which
assigns all production overhead costs based on the number of
machine hours used. The overhead cost is calculated at a rate of
` 30 per machine hour. Additionally, the direct labor cost is charged
at ` 100 per hour.
Now, the company plans to implement an Activity-Based Costing
(ABC) system to enhance cost accuracy and provide a clearer
understanding of the costs associated with each product.
The activity analysis is provided as under:
Particulars Hand Kitchen Gym
towels towels towels
Batch size (units) 450 1,500 3,000
Number of purchase orders per batch 3 10 8
Store delivery 45 80 125
Number of inspections per batch 5 4 3
Further, the total production overheads can be divided into several
key categories. Machine setup costs account for 20% of the total,
while inspection costs make up 35%. Material procurement-related
costs represent 10%, and store delivery costs also constitute 10%.
Finally, machine operation costs contribute 25% to the overall
overheads. This breakdown provides insight into how resources are
allocated across various activities within the production process.
You are required to CALCULATE the cost per unit of each product
using -
(i) traditional method.
(ii) activity based costing principles. (6 Marks)
(b) The following information relates to Anu Limited, a AI enabled toy
manufacturing company:
The selling price of a toy is ` 3,000, and sales are made on credit and
invoiced on the last day of the month.

14
 Variable costs of production per toy are materials (` 1,000), labour
(` 800), and overhead (` 400)
The sales manager has forecasted the following volumes:
Month No. of Toys
November 1,000
December 1,000
January 1,000
February 1,250
March 1,500
April 2,000
May 1,900
June 2,200
July 2,200
August 2,300
Customers are expected to pay 50% One month after the sale and
50% Two months after the sale.
The company produces the toys two months before they are sold and
the creditors for materials are paid two months after production.
Variable overheads are paid in the month following production and are
expected to increase by 25 % in April; 75% of wages are paid in the
month of production and 25% in the following month. A wage increase
of 25% will take place on 1st March.
The company needs funds for the running the business and purchase
of new machine so it will sell one of its freehold properties in June for
` 20,00,000, and buy a new machine in June for ` 5,00,000.
Depreciation is currently ` 10,000 per month, and will rise to ` 15,000
after the purchase of the new machine.
The company’s corporation tax of ` 1,00,000 is due for payment in
March.
The company presently has a cash balance at bank on 31 December
2023, of ` 50,000.
You are required to PREPARE a cash budget for the six months from
January to June, 2024. (8 Marks)
5. (a) Hawtt Veel is a renowned brand of HV Ltd. which manufactures toy car.
The manufacturing process of the toy cars at first involve designing the
parts, creating the mold and then simultaneously melting the plastic. As
the mold created last year is being used as it is for the current year, the
first process involves only melting the plastic (Process I). The next
process is about injecting the plastic into the mold and assembling the
parts formed (Process II).

15
 During the month of April, the materials for 1,20,000 toy cars were put
through Process I of which melting process were completed for 90,000
toy cars only before transferring to Process II.
The costs incurred in Process I are as follows:
Direct material ` 22,50,000
Direct wages ` 27,00,000
Factory overheads ` 18,00,000
Degree of completion for those not transferred to Process II is as
follows:
Materials 100%
Labour and overheads 50%
Out of those transferred to Process II for injecting and assembling,
84,000 units of toy car were completed and transferred to finished
goods store for protective packing. The process of protective packing
is done at the end of the Process II and the costs incurred are as
follows:
Packing materials ` 6,00,000
Direct wages ` 5,25,000
Factory overheads ` 6,75,000
There was a normal loss of 600 units in Process II with no salvage
value.
Some units were still in progress under Process II and thus, shifted
for the next month process. The degree of completion for those not
transferred to finished goods store is as follows:
Materials 100%
Labour and overheads 25%
You are required to PREPARE-
(i) Statement of Equivalent Production, Cost per unit and
Process I A/c.
(ii) Statement of Equivalent Production, Cost per unit and
Process II A/c. (10 Marks)
(b) EXPLAIN the Usefulness/Suitability of ABC. (4 Marks)
6. (a) Cost and Management Accounting information is used by different
stakeholders. The users of the information can be broadly categorised
into internal and external to the entity.
GIVE two examples of internal users and three examples of external
users and EXPLAIN how they are concerned with the Cost and
Management Accounting information. (5 Marks)
(b) EXPLAIN the Methods for ascertaining Service Cost Unit. (5 Marks)
16
(c) Despite the many benefits of Budgetary Control System, it does have
its own limitations. DISCUSS those limitations. (4 Marks)
OR
(d) IDENTIFY the method of costing in the following cases and give one
example of industry where this method is followed:
(i) Cost of each job is ascertained separately. It is suitable in all
cases where work is undertaken on receiving a customer’s order.
(ii) Cost of completing each stage of work is ascertained.
(iii) Each group is treated as a unit of cost and thus separately
costed. Here cost per unit is determined by dividing the cost of
the group by the number of units produced.
(iv) A combination of two or more methods of costing. (4 Marks)

17
 Mock Test Paper - Series I: November, 2024
Date of Paper: 21st November, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE: GROUP – II

PAPER – 4: COST AND MANAGEMENT ACCOUNTING

Suggested Answers/ Solution

PART I – Case Scenario based MCQs
1. (c) ` 1,50,000 (A)
Fixed Overhead Cost Variance = Absorbed Fixed Overheads - Actual
Fixed Overheads
Absorbed Fixed Overheads = (Budgeted Fixed Overheads / Budgeted
Production) x Actual Production
= (` 20,00,000 / 10,000 units) x 9,500 units
= ` 19,00,000
Adjusted Actual Fixed Overheads = ` 19,50,000 + ` 1,00,000
= ` 20,50,000
Fixed Overhead Cost Variance = ` 19,00,000 - ` 20,50,000
= ` 1,50,000 (Adverse)
2. (d) ` 1,00,000 (A)
Fixed Overhead Volume Variance = (Actual Production - Budgeted
Production) x Standard Fixed Overhead Rate per Unit
Standard Fixed Overhead Rate per Unit = ` 20,00,000 / 10,000 units
= ` 200 per unit
Fixed Overhead Volume Variance = (9,500 units - 10,000 units) x
` 200
= 500 units x ` 200
= ` 1,00,000 (Adverse)
3. (c) 0
Variable Overhead Efficiency Variance = (Standard Hours for Actual
Production - Actual Hours Worked) x Standard Variable Overhead
Rate
Standard Hours for Actual Production = 9,500 units x 1.5 hours/unit
= 14,250 hours

1
 Variable Overhead Efficiency Variance = (14,250 – 14,250) x ` 50 = 0
4. (b) ` 42,500 (A)
Variable Overhead Expenditure Variance = (Standard Rate - Actual
Rate) x Actual Hours Worked
Total Variable Overhead for Actual Hours: (10,000 x ` 50) + (4,250 x
` 60) = ` 5,00,000 + ` 2,55,000 = ` 7,55,000
Variable Overhead Expenditure Variance = (` 50 x 14,250 hours) -
` 7,55,000
= ` 42,500 (Adverse)
5. (b) ` 50,000 (A)
Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads -
Actual Fixed Overheads
= ` 20,00,000 - ` 20,50,000
= ` 50,000 (Adverse)
6. (b) ` 75,47,750
Funds required for foreign order:
Costs Amounts
Direct material per unit 90
Add: Direct labour per unit 60
Add: special services per unit 40
190
Add: packaging per unit (20% x prime cost, 20% x (90 + 60 46
+ 80))
Variable cost per unit 236
Total variable cost (236x30,000) 70,80,000
Add: freight 80,000
Add: professional fees 25,000
Add: custom charges (500kg x 80% x 80 x 6) 1,92,000
73,77,000
Add: shipping ((500x80%/10) x 2,800) 1,12,000
Add: insurance 1,11,000
Funds required 76,00,000
Net amount of interest earned (interest earned in 9.25% and paid is
6.50% for 3 months) = 76,00,000 x (9.25% - 6.50%) x 3/12 = 52,250
So, net cash outflow due to export order = 76,00,000 - 52,250
= 75,47,750

2
7. (a) $ 4.23
Minimum price :-
Variable cost (net) 75,47,750
Add: fixed cost recovery (110 x 10,000 units) 11,00,000
Add: loss of profit (200 x 10,000 units) 20,00,000
Minimum price 1,06,47,750
Minimum price per unit 1,06,47,750/30,000 ` 354.925
Minimum price is $ ($1 = ` 83.864) $4.23
8. (c) ` 39,94,250
PROFIT EARNED:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
PROFIT ` 39,94,250
9. (d) ` 50,94,250
CASH INFLOW:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
CASH INFLOW ` 50,94,250
10. (a) ` 19,94,250
Incremental benefits:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
(-) loss of profit (10,000x200) (20,00,000)
Incremental benefits 19,94,250
11. (c) Replaced- 30 employees, left and discharged- 18 employees and
recruited & joined- 42 employees
(i) Number of employees replaced:
Employee Turnover rate (Replacement method)
No. of Replacements
=� x 100�
Average number of employees on roll
15 No. of replacements
Or, �100� = � 200
�
200 x 15
Or, Number of Replacements = � � = 30
100
3
 (ii) Number of employees left and discharged:
Employee turnover rate (Separation method)
No. of Separations (S)
=� x 100�
Average number of employees on roll
9 S
Or, �100� = �200�
Or, S = 18
Hence, number of employees left and discharged = 18
(iii) Number of employees recruited and joined:
Employee turnover rate (Flux method)
No. of Separations (S) + No. of Accessions (A)
=� x 100�
Average number of employees on roll
30 18 + A
Or, �100� = � 200
�
6000
Or, A =� - 18 �= 42
100
Hence, number of employees recruited and joined = 42
12. (c) Losses on the sale of investments not treated in Financial
Accounts
13. (d) 1,00,000 units
Current Year production = 60% of 2,00,000 units
= 1,20,000 units
1,20,000 units
Previous Year production =� �
1.5 times

= 80,000 units
Particulars Previous Year Current Year Difference
Sales (Units) 80,000 1,20,000 40,000
Total Cost (`) 44,72,000 59,28,000 14,56,000
ChangeinTotalCost
Variable Cost per unit =
Changein salesvolume
` 14,56,000
=� �
40,000 units

= ` 36.40 per unit

Total Fixed Cost (`) = ` 59,28,000-(1,20,000 units × ` 36.40)
= ` 15,60,000
FixedCost
Break- even point (in units) =
Contributionper unit

4
 ` 15,60,000
=� �
` 52- ` 36.40

= 1,00,000 units
14. (c) Marketing and Sales support- ` 28,62,01,000, Operations-
` 18,03,52,500, I.T. Cost- ` 30,71,90,000 and Support functions-
` 19,92,56,500
Calculation of total cost for ‘Max Jivan’ Insurance policy
Particulars Amount (`) Amount (`)
a. Marketing and Sales
support:
- Policy development cost 4,86,50,000
- Cost of marketing 19,30,71,000
- Sales support expenses 4,44,80,000 28,62,01,000
b. Operations:
- Policy issuance cost 4,10,05,000
- Policy servicing cost 13,40,65,500
- Claim management cost 52,82,000 18,03,52,500
c. IT Cost 30,71,90,000
d. Support functions
- Postage and logistics 4,50,36,000
- Facilities cost 6,49,82,500
- Employees cost 2,25,18,000
- Office administration cost 6,67,20,000 19,92,56,500
Total Cost 97,30,00,000
15. (a) ` 65,00,000
Calculation of Net joint costs to be allocated:
Particulars Amount (`)
Joint Costs 1,30,00,000
Less: Net Realizable value of by-product R 12 32,50,000
(81,250 kg. × ` 40)
Net joint costs to be allocated 97,50,000

Therefore, the amount of joint product cost to be allocated to P 2 by

using the physical volume method
Physical quantity of P2
=�
Total quantity
� x Net joint costs to be allocated
3,90,000 kg
=�
5,85,000 kg
� x ` 97,50,000 = ` 65,00,000

5
 PART-II Descriptive Questions
1. (a) (i) Statement of Joint Cost allocation of inventories of gasoline,
diesel and Heavy fuel oil (HFO)
(By using Net Realisable Value Method)
Products
Gasoline Diesel Heavy Total
fuel oil
(HFO)
(`) (`) (`) (`)
Final sales value of total 13,17,600 15,84,900 13,69,800 42,72,300
production (Working (3,294 × (5,283 × (6,849 ×
Note 1) ` 400) ` 300) ` 200)
Less: Additional cost - - (7,44,000) (7,44,000)
Net realisable value 13,17,600 15,84,900 6,25,800 35,28,300
(at split-off point)
Joint cost allocated 5,60,156 6,73,795 2,66,049 15,00,000
(Working Note 2)

(ii) Cost of goods sold

(By using Net Realisable Value Method)
Products
Gasoline Diesel Heavy fuel oil Total
(HFO)
(`) (`) (`) (`)
Allocated joint cost 5,60,156 6,73,795 2,66,049 15,00,000
(from (i))
Additional costs -- -- 7,44,000 7,44,000
Cost of goods 5,60,156 6,73,795 10,10,049 22,44,000
available for sale
(CGAS)
Less: Cost of ending 2,75,485 68,862 33,231 3,77,578
inventory (CGAS × (CGAS × (CGAS ×
(Working Note 1) 49.18%) 10.22%) 3.29%)
Cost of goods sold 2,84,671 6,04,933 9,76,818 18,66,422
Working Notes
1. Total production of three products for the year
Products Quantity Quantity of Total Ending
sold (in ending production inventory
gallon) inventory (in percentage
gallon) (%)
(1) (2) (3) (4) = [(2) + (5) = (3)/ (4)
(3)}
Gasoline 1,674 1,620 3,294 49.18

6
 Diesel 4,743 540 5,283 10.22
Heavy fuel oil 225 6,849 3.29
6,624
(HFO)
2. Joint cost apportioned to each product
Total Joint cost
× Net Realisable Value of each product
TotalNet Realisable Value

Total cost of Gasoline ` 15,00,000

x ` 13,17,600 ` 5,60,156
` 35,28,300
Total cost of Diesel ` 15,00,000
x ` 15,84,900 ` 6,73,795
` 35,28,300
Total cost of Heavy fuel ` 15,00,000 ` 2,66,049
x ` 6,25,800
oil (HFO) ` 35,28,300

(b) Stores Ledger Control A/c

Particulars (`) Particulars (`)
To Balance b/d 9,000 By Work in Process 48,000
To General Ledger 48,000 By Overhead Control A/c 6,000
Adjustment A/c
To Work in Process A/c 24,000 By Overhead Control A/c 1,800*
(Deficiency)
By Balance c/d 25,200
81,000 81,000
*Deficiency assumed as normal (alternatively can be treated as
abnormal loss)
Work in Progress Control A/c
Particulars (`) Particulars (`)
To Balance b/d 18,000 By Stores Ledger Control a/c 24,000
To Stores Ledger 48,000 By Costing P/L A/c
Control A/c (Balancing figures being 1,20,000
Cost of finished goods)
To Wages 18,000 By Balance c/d 12,000
Control A/c
To Overheads 72,000
Control a/c
1,56,000 1,56,000
Overheads Control A/c
Particulars (`) Particulars (`)
To Stores Ledger 6,000 By Work in Process A/c 72,000
Control A/c
To Stores Ledger 1,800 By Balance c/d (Under 13,800
Control A/c absorption)

7
 To Wages Control A/c 3,000
(` 21,000- `18,000)
To Gen. Ledger Adjust. 75,000
A/c
85,800 85,800
Costing Profit & Loss A/c
Particulars (`) Particulars (`)
1,20,000 By Gen. ledger Adjust.
To Work in progress 1,32,000
A/c (Sales) (1,20,000 +
12,000)
To Gen. Ledger 12,000
Adjust. A/c
(Profit)
1,32,000 1,32,000
(c) Calculation of earnings for workers under different incentive
plans:
Halsey’s Premium Plan:
Worker – A Worker – B
Actual time taken 40 hours 40 hours
Standard time for actual 44 hours 35 hours
Production 176 Pcs × 15 Min. 140 Pcs×15 Min.
( ) ( )
60 Min.
60 Min.
Minimum Wages ` 1,600 ` 1,600
(40 hours x ` 40) (40 hours x ` 40)
Bonus ` 80 No bonus
{50% (44-40) x `40}
Earning ` 1,680 ` 1,600
Rowan’s Premium Plan:
Minimum Wages (as above) ` 1,600 ` 1,600
Bonus = ` 145.45 No bonus
4 hours
( × 40hours ×` 40)
44 hours

Earning ` 1,745.45 ` 1,600

2. (a) (i) Statement Showing Distribution of Overheads of Baba Ltd.
Particulars Basis Total Production Departments Service Departments
X1 Y2 Z3 QC M
(`) (`) (`) (`) (`) (`)
Direct wages Actual 13,56,000 - - - 12,00,000 1,56,000
Rent & rates Area 40,00,000 8,00,000 10,00,000 12,00,000 8,00,000 2,00,000

8
General Light 4,80,000
80,000 1,20,000 1,60,000 80,000 40,000
lighting points
Indirect Direct 15,51,200 4,80,000 3,20,000 4,80,000 2,40,000 31,200
wages wages
Power H.P. 12,00,000 4,80,000 2,40,000 4,00,000 80,000 −
Depreciation Value of 80,00,000 19,20,000 25,60,000 32,00,000 1,60,000 1,60,000
of machines machines
Sundries Direct 77,56,000 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000
wages
2,43,43,200 61,60,000 58,40,000 78,40,000 37,60,000 7,43,200

(ii) Redistribution of Service Department’s Expenses over

Production Departments
X1 Y2 Z3 QC M
(`) (`) (`) (`) (`)
Total overhead 61,60,000 58,40,000 78,40,000 37,60,000 7,43,200
distributed as above
Dept. QC Overheads 7,52,000 11,28,000 15,04,000 -37,60,000 3,76,000
apportioned
(20:30:40:—:10)
Dept. M overheads 4,47,680 2,23,840 3,35,760 1,11,920 -
apportioned 11,19,200
(40:20:30:10:—)
Dept. QC Overheads 22,384 33,576 44,768 -1,11,920 11,192
apportioned
(20:30:40:—:10)
Dept. M overheads 4,477 2,238 3,358 1,119 -11,192
apportioned
(40:20:30:10:—)
Dept. QC Overheads 224 336 448 -1,119 112
apportioned
(20:30:40:—:10)
Dept. M overheads 45 22 34 11 -112
apportioned
(40:20:30:10:—)
Dept. QC Overheads 2 3 5 -11 -
apportioned
(20:30:40:—:10)
Total 73,86,812 72,28,015 97,28,373
Working hours 6,140 8,950 4,838
Rate per hour 1,203 808 2,011

(iii) Determination of total cost of a bicycle:

Particulars (`)
Direct material cost 20,000
Direct labour cost 12,000
Overhead cost (See working note) 14,885
46,885
9
 Working Note:
Overhead cost
= (` 1,203 × 4 hrs.) + (` 808 × 5 hrs.) + (` 2,011 × 3 hrs.)
= ` 4,812 + ` 4,040 + ` 6,033 = ` 14,885
(b) Determination of total sales value of Luxury pens
Particulars Amount per Amount for
Batch 2,400 units or
(`) 20 batches
(`)
Direct materials 57,375 11,47,500
Direct wages 6,750 1,35,000
Batch set-up cost 18,900 3,78,000
Production overheads (20% of 1,350
27,000
direct wages)
Total Production Cost 84,375 16,87,500
Selling, distribution and
administration cost (15% of Total 12,656 2,53,125
Production cost)
Total Cost 97,031 19,40,625
Add: Profit (25% of Sales value 32,344
6,46,875
or 1/3 rd of Total cost)
Total Sales value 1,29,375 25,87,500
3. (a) Statement of Cost of YSPP Ltd. for the year ended 31 st March:
S. PARTICULARS (`) (`)
NO.
(I) Material consumed:
Raw materials purchased 35,00,00,000
Freight inwards 39,22,100
Add: opening stock of raw 63,00,000
materials
Less: closing stock of raw (33,60,000) 35,68,62,100
materials
(II) Direct employee (labour) cost:
Wages paid to factory workers 1,02,20,000
Contribution made towards 12,60,000 1,14,80,000
employees’ PF & ESIS
(III) Direct expenses:

10
 Hire charges paid for hiring 8,40,000
specific equipment
Amount paid for power & fuel 16,17,000
Amortised cost of moulds and 7,84,000
patterns
Job charges paid to job 28,42,000 60,83,000
workers
Prime cost 37,44,25,100
(IV) Works/ factory overheads:
Lease rent paid for production 3,92,000
assets
Depreciation on factory 2,94,000
building
Depreciation on plant & 4,41,000
machinery
Repairs & maintenance paid 1,68,000
for plant & machinery
Insurance premium paid for 1,09,200
plant & machinery
Insurance premium paid for 63,350
factory building
Insurance premium paid for 1,26,000
stock of raw materials & WIP
Salary paid to supervisors 4,41,000 20,34,550
Gross factory cost 37,64,59,650
Add: opening value of w-i-p 32,20,000
Less: closing value of w-i-p (30,45,000)
Factory cost 37,66,34,650
(V) Quality control cost:
Expenses paid for quality 68,600
control check activities
Salary paid to quality control 3,36,700 4,05,300
staffs
(VI) Research & development cost 63,700
paid for improvement in
production process
(VII) Administration cost related
with production:
-Expenses paid for 4,15,100
administration of factory work

11
 -Salary paid to production 33,60,000 37,75,100
control manager
(VIII) Add: primary packing cost 3,36,000
Cost of production 38,12,14,750
Add: opening stock of finished 38,50,000
goods
Less: closing stock of finished (63,00,000)
goods
Cost of goods sold 37,87,64,750
(IX) Administrative overheads:
Depreciation on office building 1,96,000
Salary paid to manager- 32,13,000
finance & accounts
Salary paid to general 43,96,000
manager
Fee paid to auditors 6,30,000
Fee paid to independent 7,70,000 92,05,000
directors
(X) Selling overheads:
Repairs & maintenance paid 63,000
for sales office building
Salary paid to manager- sales 35,42,000 36,05,000
& marketing
(XI) Distribution overheads:
Depreciation on delivery 3,01,000
vehicles
(XII) Packing cost paid for re- 3,92,000 6,93,000
distribution of finished goods
Cost of sales 39,22,67,750
Note: Demurrage is a type of penalty, thus will not form part of cost.
(b) Basic Data:
A (Number of units to be purchased annually) = 10,000 units
O (Ordering cost per order) = ` 40
C (Annual cost of storage per unit) =`5
Purchase price per unit = ` 80 + ` 20 (Insurance charges)
= ` 100
(Note: Cash discount is treated as an interest and finance item and
thus, it is ignored.)

12
 Computations:
(i) Re-ordering level = Maximum usage per period ×
Maximum lead time
(ROL) = 40 units per day × 30 days
= 1,200 units
(ii) Maximum level = ROL + ROQ – [Min. rate of
consumption × Min. lead time] (Refer
to working notes 1 and 2)
= 1200 units + 400 units – [20 units per
day × 10 days]
= 1,400 units
(iii) Minimum level = ROL – [Average rate of consumption ×
Average re-order-period]
= 1,200 units – (30 units per day × 20
days)
= 600 units
(iv) Danger level = Average consumption × Lead time for
emergency purchases
= 30 units per day × 8 days
= 240 units
Working Notes:
1. Minimum rate of consumption per day (X)
Minimum rate of Maximum rate of
+
Av. rate of consumption consumption
=
consumption 2

30 units per day = X units/day + 40 units per day

2
Or, X = 20 units per day.
2. Re-order Quantity (ROQ) or Economic Order Quantity (EOQ)
2 x10,000unitsxRs.40
=
Rs.5
= 400 units
4. (a) (i) Statement Showing “Cost per unit - Traditional Method”
Particulars of Costs Hand Kitchen Gym
towels towels towels
(`) (`) (`)
Direct Materials 450 400 600

13
 Direct Labour [(4, 12, 8 hours) 400 1,200 800
× ` 100]
Production Overheads [(10, 300 540 420
18, 14 hours) × ` 30]
Cost per unit 1,150 2,140 1,820
(ii) Statement Showing “Cost per unit - Activity Based Costing”
Products Hand towels Kitchen towels Gym towels
Production (units) 9,000 15,000 60,000
(`) (`) (`)
Direct Materials 40,50,000 60,00,000 3,60,00,000
(9,000 units x (15,000 units x (60,000 units x
` 450) ` 400) ` 600)
Direct Labour 36,00,000 1,80,00,000 4,80,00,000
(refer Part (i) above) (9,000 units x (15,000 units x (60,000 units x
` 400) ` 1,200) ` 800)
Setup Costs @ 28,80,000 14,40,000 28,80,000
` 1,44,000 per setup (20 setups x (10 setups x (20 setups x
` 1,44,000) ` 1,44,000) ` 1,44,000)
Inspection Costs @ 63,00,000 25,20,000 37,80,000
` 63,000 per (100 inspections x (40 inspections x (60 inspections x
inspection ` 63,000) ` 63,000) ` 63,000)
Purchase Related 6,75,000 11,25,000 18,00,000
Costs @ ` 11,250 per (60 purchase (100 purchase (160 purchase
purchase order orders x orders x ` 11,250) orders x
` 11,250) ` 11,250)
Store delivery costs 6,48,000 11,52,000 18,00,000
@ ` 14,400 per store (45 store delivery (80 store delivery (125 store
delivery x x ` 14,400) delivery x
` 14,400) ` 14,400)
Machine Related 6,75,000 20,25,000 63,00,000
Costs @ ` 7.5 per (90,000 hours x (2,70,000 hours x (8,40,000 hours x
hour ` 7.5) ` 7.5) ` 7.5)
Total Costs 1,88,28,000 3,22,62,000 10,05,60,000
Cost per unit (Total
2,092 2,151 1,676
Cost ÷ no. of Units)
Working Notes:
A. Number of Batches, Purchase Orders, Inspections and Store
Deliveries-
Particulars Hand Kitchen Gym Total
towels towels towels
A. Production (units) 9,000 15,000 60,000
B. Batch Size (units) 450 1,500 3,000
C. Number of Batches (A÷B) 20 10 20 50
D. Number of Purchase Order per 3 10 8
batch
14
 E. Total Purchase Orders [C × D] 60 100 160 320
F. Number of Inspections per batch 5 4 3
G. Total Inspections [C × F] 100 40 60 200
H. Total Store Deliveries 45 80 125 250

B. Total Machine Hours-

Particulars Hand Kitchen Gym
towels towels towels
A. Machine Hours per unit 10 18 14
B. Production (units) 9,000 15,000 60,000
C. Total Machine Hours [A × B] 90,000 2,70,000 8,40,000

Total Machine Hours = 12,00,000

Total Production Overheads-
= 12,00,000 hrs. × ` 30 = ` 3,60,00,000
C. Cost Driver Rates-
Cost Pool % Overheads Cost Driver Cost Driver Cost Driver
Basis Rate
(`) (Units) (`)
Setup 20% Number of 50 1,44,000
72,00,000
batches per Setup
Inspection 35% Number of 200 63,000 per
1,26,00,000 inspections Inspection
Purchases 10% Number of 320 11,250 per
36,00,000 purchase Purchase
order order
Store 10% Number of 250 14,400 per
delivery 36,00,000 store store
deliveries delivery
Machine 25% Machine 12,00,000 7.5 per
Operation 90,00,000 Hours Machine
Hour

(b) Workings:
1. Sale receipts
Month Nov Dec Jan Feb Mar Apr May Jun
Forecast 1,000 1,000 1,000 1,250 1,500 2,000 1,900 2,200
sales (S)
` ` ` ` ` ` ` `
S×3000 30,00,000 30,00,000 30,00,000 37,50,000 45,00,000 60,00,000 57,00,000 66,00,000
Debtors pay:
1 month 50% 15,00,000 15,00,000 15,00,000 18,75,000 22,50,000 30,00,000 28,50,000
2nd month
- 15,00,000 15,00,000 15,00,000 18,75,000 22,50,000 30,00,000
50%
- 15,00,000 30,00,000 30,00,000 33,75,000 41,25,000 52,50,000 58,50,000

15
 2. Variable overheads
Month Nov Dec Jan Feb Mar Apr May Jun
Qty 1,000 1,250 1,500 2,000 1,900 2,200 2,200 2,300
produced
(Q)
` ` ` ` ` ` ` `
Var. 4,00,000 5,00,000 6,00,000 8,00,000 7,60,000
overhead
(Q×400)
Var. 11,00,000 11,00,000 11,50,000
overhead
(Q×500)
Paid one 4,00,000 5,00,000 6,00,000 8,00,000 7,60,000 11,00,000 11,00,000
month later

3. Wages payments
Month Dec Jan Feb Mar Apr May Jun
Qty 1,250 1,500 2,000 1,900 2,200 2,200 2,300
produced
(Q)
` ` ` ` ` ` `
Wages (Q × 10,00,000 12,00,000 16,00,000
800)
Wages (Q × 19,00,000 22,00,000 22,00,000 23,00,000
1,000)
75% this 7,50,000 9,00,000 12,00,000 14,25,000 16,50,000 16,50,000 17,25,000
month
25% next 2,50,000 3,00,000 4,00,000 4,75,000 5,50,000 5,50,000
month
7,50,000 11,50,000 15,00,000 18,25,000 21,25,000 22,00,000 22,75,000

CASH BUDGET – SIX MONTHS ENDED JUNE

Jan Feb Mar Apr May Jun
` ` ` ` ` `
Receipts:
Sales receipts 30,00,000 30,00,000 33,75,000 41,25,000 52,50,000 58,50,000
Freehold property - - - - - 20,00,000
30,00,000 30,00,000 33,75,000 41,25,000 52,50,000 78,50,000
Payments:
Materials 10,00,000 12,50,000 15,00,000 20,00,000 19,00,000 22,00,000
Var. overheads 5,00,000 6,00,000 8,00,000 7,60,000 11,00,000 11,00,000
Wages 11,50,000 15,00,000 18,25,000 21,25,000 22,00,000 22,75,000
Machine - - - - - 5,00,000
Tax - - 1,00,000 - - -
26,50,000 33,50,000 42,25,000 48,85,000 52,00,000 60,75,000
Net cash flow 3,50,000 (3,50,000) (8,50,000) (7,60,000) 50,000 17,75,000
Balance b/f 50,000 4,00,000 50,000 (8,00,000) (15,60,000) (15,10,000)
Cumulative cash flow 4,00,000 50,000 (8,00,000) (15,60,000) (15,10,000) 2,65,000

16
5. (a) (i) Process I – Statement of Equivalent Production
Particulars Completed Closing stock of WIP Equivalent
Units Units % of Equivalent Production
Completion Units units
(1) (2) (1) + (2)
Material 90,000 30,000 100% 30,000 1,20,000
Wages 90,000 30,000 50% 15,000 1,05,000
Overhead 90,000 30,000 50% 15,000 1,05,000
Process I
Particulars Process Equivalent Process WIP stock Cost of Transfer to
Cost Production Cost p.u. Equivalent WIP Stock Process II
(`) (units) (`) units (`) (`)
(2)/(3) (4) x (5) (2)-(6)
(1) (2) (3) (4) (5) (6) (7)
Material 22,50,000 1,20,000 18.750 30,000 5,62,500 16,87,500
Wages 27,00,000 1,05,000 25.714 15,000 3,85,714 23,14,286
Overhead 18,00,000 1,05,000 17.143 15,000 2,57,143 15,42,857
67,50,000 12,05,357 55,44,643
Process I A/c
Particulars Unit (`) Particulars Units (`)
To Direct material 1,20,000 22,50,000 By Process II A/c 90,000 55,44,643
To Direct wages -- 27,00,000 By Closing W-I-P 30,000 12,05,357
To Factory overhead -- 18,00,000
1,20,000 67,50,000 1,20,000 67,50,000

(ii) Process II – Statement of Equivalent Production

Particulars Completed Closing stock of WIP Equivalent
Units Units % of Equivalent Production
Completion Units units

(1) (2) (1) + (2)

Material 84,000 5,400* 100% 5,400 89,400
Wages 84,000 5,400 25% 1,350 85,350
Overhead 84,000 5,400 25% 1,350 85,350
*(90,000 - 84,000 - 600) units = 5,400 units
Process II
Particulars Process Equivalent Process WIP stock Cost of Transfer
Cost Production Cost p.u. Equivalent WIP to
(`) (units) (`) units Stock Finished
(2)/(3) (`) Stock
(4) x (5) (`)
(2)-(6)
(1) (2) (3) (4) (5) (6) (7)
Material 55,44,643 89,400 62.021 5,400 3,34,911 52,09,732

17
 Wages 5,25,000 85,350 6.151 1,350 8,304 5,16,696
Overhead 6,75,000 85,350 7.909 1,350 10,677 6,64,323
67,44,643 3,53,892 63,90,751
Add: Packing Material Cost 6,00,000
Cost of Finished Stock 69,90,751
Process II A/c
Particulars Units (`) Particulars Units (`)
To Process I 90,000 55,44,643 By Finished Stock 84,000 69,90,751
To Direct wages -- 5,25,000 By Normal loss 600 --
To Factory overhead -- 6,75,000 By WIP stock 5,400 3,53,892
To Packing charges -- 6,00,000
90,000 73,44,643 90,000 73,44,643

(b) ABC is particularly needed by organisations for product costing in the

following situations:
1. High amount of overhead: When production overheads are high and
form significant costs, ABC is more useful than traditional costing
system.
2. Wide range of products: ABC is most suitable, when, there is diversity
in the product range or there are multiple products.
3. Presence of non-volume related activities: When non-volume related
activities e.g. material handling, inspection set-up, are present
significantly and traditional system cannot be applied, ABC is a
superior and better option. ABC will identify non-value-adding
activities in the production process that might be a suitable focus for
attention or elimination.
4. Stiff competition: When the organisation is facing stiff competition
and there is an urgent requirement to compute cost accurately and
to fix the selling price according to the market situation, ABC is very
useful. ABC can also facilitate in reducing cost by identifying non-
value-adding activities in the production process that might be a
suitable focus for attention or elimination.
6. (a) Internal Users
Internal users, who use the Cost and Management Accounting
information may include the followings:
(a) Policy Makers- The policy makers are those who formulate
strategies
(i) to achieve the goals (short & long term both) to fulfil the
objectives of the organisation.
(ii) to position the organisation into the competitive market
environment.

18
 (iii) to design the organisational structure to get the policy and
strategies implemented. etc.
(b) Managers- The managers use the information
(i) to know the cost of a cost object and cost centre
(ii) to know the price for the product or service
(iii) to measure and evaluate performance of responsibility
centres
(iv) to the know the profitability-product-wise, department-
wise, customer-wise etc.
(v) to evaluate the strategic options and to make decisions
(c) Operational level staff- The operational level staff like
supervisors, foreman, team leaders require information
(i) to know the objectives and performance goals for them
(ii) to know product and service specifications like volume,
quality and process etc.
(iii) to know the performance parameters against which their
performance is measured and evaluated.
(iv) to know divisional (responsibility centre) profitability etc.
(d) Employees- Employees are concerned with the information
related with time and attendance, incentives for work,
performance standards etc.
External Users
External users, who use the Cost and Management
Accounting information may include the followings:
(a) Regulatory Authorities- Regulatory Authorities are
concerned with cost accounting data and information for
different purpose which includes tariff determination,
providing subsidies, rate fixation etc. To do this the
regulatory bodies require information on the basis of some
standards and format in this regard.
(b) Auditors- The auditors while conducting audit of financial
accounts or for some other special purpose audit like cost
audit etc. require information related with costing and
reports reviewed by management etc.
(c) Shareholders- Shareholders are concerned with
information that effect their investment in the entity.
Management communicates to the shareholders through
periodic communique, annual reports etc. regarding new
orders received, product expansion, market share for
products etc.

19
 (d)
Creditors and Lenders- Creditors and lenders are
concerned with data and information which affects an
entity’s ability to serve lenders or creditors. For example,
any financial institutions which provides loan to an entity
against book debts and inventories are more concerned
with regular reporting on net debt position and stock
balances.
(b) Methods for ascertaining Service Cost Unit
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 kilometer.
Examples of Composite units are Tonne- 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 a summation of the
products of qualitative and quantitative factors. For example, to
calculate absolute Tonne-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 is 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.
(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 Tonne-Km is arrived at
by multiplying total distance km., by average load quantity.

20
  W1+ W2 +....+ Wn 
∑(Distance1 + Distance2 + …...…+ Distancen) ×  
 n 

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.
Equivalent Cost Unit/ Equivalent Service Unit:
To calculate cost or pricing of two more different grade of
services which uses common resources, each grade of service
is assigned a weight and converted into equivalent units.
Converting services into equivalent units make different grade of
services equivalent and comparable.
(c)
Points Description
1. Based on Budgets are based on a series of estimates, which
Estimates are based on the conditions prevalent or expected
at the time budget is established. It requires
revision in plan if conditions change.
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 during
Required 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 Budget is only a managerial tool and must be
substitute for intelligently applied for management to get
management
21
 benefited. Budgets are not a substitute for good
management.
6. Rigid Budgets are sometime considered as rigid
document 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.
(d)
S. No. Method of costing Example of industry where
this method is followed
(i) Job Costing Printing press
(ii) Process Costing Paper and Pulp
(iii) Batch Costing Bakery
(iv) Multiple Costing Bicycles

22
 PAPER – 4:
COST AND MANAGEMENT
ACCOUNTING

QUESTIONS

PART I - Case Scenario based MCQs

Marginal Costing
1. Popular company produces various articles for student purposes. It has
been in industry since last 25 years. Company had a very humble start
but gained popularity over the years due to excellent quality products
which were sold at very competitive prices. Company has huge reserves
and feel that it is also obligated to give back to the society from which it
has grown.
Last year management decided to produce and supply special quality
school bags, water bottles, & geometry boxes to NGOs, at no price, as a
social responsibility. These articles were simple looking but were more
durable, that would not have wore-off easily and could have been used
for long-term.
This year management wants to add another dimension to this social
work. It approached charitable schools and government run schools and
offered them the supply of the same articles, at cost. This will help
students in these schools to get these things at a very low price
compared to market.
The variable costs are ` 100, ` 80, and ` 40 for school bags, water
bottles, and geometry boxes, respectively. These articles are made using
a single machine. 0.20 hours of machine operation is required for
manufacturing 1 unit of school bag. Similarly, machine hours required
for each units of water bottle and geometry box is 0.15 hours and 0.10

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hours, respectively. Fixed overhead related to machine is ` 7,40,000 per

year. Machine can operate for 8,000 hours in a year.
Company has decided to sell its 80% capacity production in markets.
Rest is divided amongst the 2 undergoing social works, equally.
All Schools requests these items in the ratio of 2:3:5, as per their
demand by the school students.
Company wants to set a price for these articles to be offered to the
schools. Management has few questions they need the answers to. They
assigned the task to their team. Team made rough calculations but as
there were too many people on the team, each came up with different
answers. As a Chartered accountant, you have been approached.
Understand the case closely, find the correct answers and help
management to set a price.
Answer the following:
(i) What is allocated fixed cost per unit of School bags, water bottles,
and geometry boxes?
(a) 18.5, 13.875, 9.75
(b) 18.5, 13.875, 9.25
(c) 18.5, 13.785, 9.25
(d) 18.5, 13.785, 9.50
(ii) If the prices were ` 200, ` 160, and ` 100, what would be the
overall break-even point in units in relation to fixed cost allocated
to these supplies?
(a) 308.33 units
(b) 500 units
(c) 508.33 units
(d) 1,000 units
(iii) Find out the maximum number of units of each article that can be
given at the prices given in Part (ii).
(a) 61, 92, 154

2 JANUARY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

(b) 200, 300, 500

(c) 101, 152, 254
(d) 100, 150, 250
(iv) What will be the maximum units that can be supplied to the
schools of each article?
(a) 1103, 1645, 2726
(b) 1093, 1655, 2748
(c) 1185, 1777, 2962
(d) 1133, 1675, 2958
(v) What should be the correct price for each item as per the
management’s decision?
(a) 118.50, 93.875, 49.75
(b) 118.50, 93.785, 49.25
(c) 118.50, 93.785, 49.50
(d) 118.50, 93.875, 49.25
Process Costing
2. Knowing the hectic schedule of a student preparing for the examination,
a homemaker managing work from home or a new parent busy in
neonatal care, a freshly qualified professional (Mr. Rishi) entered into a
start-up business of manufacturing frozen foods.
The process majorly involve washing and cutting the vegetables (Process
I), blanching, cooling and mixing of ingredients with spices (Process II),
forming, frying and freezing the final product (Process III).
In Accounts, Mr. Rishi normally transfers the output of one process to
another process at cost but, being a young entrepreneur, he is
interested in knowing the profit made at each and every process. Thus, it
was decided to transfer the output of Process I and II to the next process
at cost plus 25%. Further, the output of Process III is also transferred to
finished stock at cost plus 33 1/3%.

3 JANUARY 2025 EXAMINATION

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Following information is extracted from the books of Mr. Rishi for the
current year:

Process I Process II Process III Finished

(`) (`) (`) Stock
(`)
Opening stock 8,02,500 14,44,500 21,40,000 24,07,500
Direct materials 42,80,000 34,77,500 26,75,000 --
Direct wages 66,87,500 57,78,000 49,22,000 --
Factory overheads 51,36,000 38,52,000 35,57,750 --
Closing stock 10,70,000 17,12,000 20,86,500 26,75,000
Inter-process profit 2,14,000 5,35,000 10,70,000
included in opening NIL
stock

Stock in processes is valued at prime cost. The finished stock is valued at

the price at which it is received from Process III.
Mr. Rishi wants you to FIGURE OUT the following to analyse the profit
generated at each process:
(i) What is the transfer price value at which the output of Process I is
transferred to Process II?
(a) ` 1,97,95,000
(b) ` 39,59,000
(c) ` 1,58,36,000
(d) ` 1,69,06,000
(ii) What is the transfer price value at which the output of Process II is
transferred to Process III?
(a) ` 1,20,97,476
(b) ` 4,07,93,750
(c) ` 2,86,96,274
(d) ` 3,43,47,000

4 JANUARY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

(iii) What is the transfer price value at which the output of Process III is
transferred to Finished Stock?
(a) ` 5,40,88,500
(b) ` 3,98,91,140
(c) ` 2,94,44,860
(d) ` 6,93,36,000
(iv) What is the cost value at which the output of Process III is trans-
ferred to Finished Stock?
(a) ` 5,40,88,500
(b) ` 3,98,91,140
(c) ` 2,94,44,860
(d) ` 6,93,36,000
(v) What is the cost value of closing stock of Process III A/c?
(a) ` 20,86,500
(b) ` 15,64,884
(c) ` 3,98,91,140
(d) ` 5,21,616
Employee Cost and Direct Expenses
3. Phalsa Ltd. pays its workers on time-basis because their services cannot
be tangibly measured. The company’s normal working week includes 5
days of 8 hours each. Sometimes, the workers needs to work late at
night which was 3 nights of 3 hours each for the current week. The
average output produced per worker for the week is 120 units.
Information regarding incentive rate is as follows:
Rate of Payment Day shift: ` 320 per hour
Night shift: ` 450 per hour

However, this time-basis payment made workers lazy, making their

expected output lower. As workers started doing more of the night shifts

5 JANUARY 2025 EXAMINATION

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for higher earnings with minimal impact on the outputs, the company
decided to shift on to a system of payments on output basis.
Information regarding amended incentive rate is as follows:

Time-rate (as usual) : ` 320 per hour

Basic time allowed for 15 units : 5 hours
Piece-work rate : Add 15% to basic piece-rate

In the amended incentive system, the normal weekly working hours

remained the same while production increased to 135 units.
CALCULATE the labour cost per unit as per the existing incentive system,
along with the amended incentive system.
(a) ` 140.42 and ` 122.67 respectively
(b) ` 124.81 and ` 138.00 respectively
(c) ` 124.81 and ` 122.67 respectively
(d) ` 140.42 and ` 138.00 respectively
Overheads- Absorption Costing Method
4. Gaarmentz Ltd. run a sewing factory for medical garments. But, the
company suffers from the limiting factor i.e. labor. Each sewing machine
needs 100% attention of one person at a particular point of time to
operate it. The company has 8 number of alike sewing machines on
which 8 operators work separately. The following particulars are
furnished for a six months period:
Paid hours for all the 8 operators 9,594 hours
Effective working hours for all the 8 operators 9,360 hours
Average rate of wages per day of 8 hours per operator ` 110
Power consumed ` 60,125
Supervision and Indirect Labour ` 21,450
The following particulars are given for a year:
Insurance ` 4,68,000
Sundry Expenses ` 7,15,000

6 JANUARY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Depreciation charged is 10% on the original cost of all the sewing

machines.
Repairs and Maintenance comes to 5% of the value of all the sewing
machines.
The original cost of all the sewing machines works out to ` 41,60,000
CALCULATE the Comprehensive Machine Hour Rate.
(a) ` 215.86
(b) ` 217.99
(c) ` 116.43
(d) ` 119.34
Cost Sheet
5. Following information is available for the month of March relating to
manufacturing of a product:

Particulars Amount (`)

Cost of Sales 37,51,540
Stock of Raw material as on 01 March
st
6,50,000
Direct Wages 11,44,000
Hire charges paid for Plant (indirect expenses) 3,24,740
Salary to office staff 1,78,750
Maintenance of office building 13,000
Depreciation on Delivery van 39,000
Warehousing charges 61,750
Stock of Raw material as on 31 March
st
1,95,000
Realisable value on sale of scrap 32,500

Factory overheads are 20% of the Prime cost.

FIND OUT the value of Raw Material purchased with the help of
Statement of Cost.
(a) ` 10,40,000

7 JANUARY 2025 EXAMINATION

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(b) ` 14,95,000
(c) ` 26,39,000
(d) ` 34,91,540
Joint Products and By products
6. ICT Ltd. belongs to pharmaceutical industries. The chemical process that
ICT Ltd. operates convert one compound into three category of
medicines viz. BetaTab, Folick and TegriCap. Though BetaTab and Folick
are already converted to final product at split-off point, Tegricap needs
further processing along with addition of new compound with it.
The market for BetaTab and Folick is highly active, thus the production is
sold at split-off point, however, Tegricap can be sold only after further
processing.
Following information is provided for the current year:

Products Quantity sold (tons) Selling price per ton (`)

BetaTab 372 7,500
Folick 1,054 5,625
TegriCap 1,472 3,750

The selling price is expected to remain the same for coming years.
The total joint manufacturing costs till split-off point is ` 62,50,000 and
the amount spent for further processing w.r.t. Tegricap is ` 31,00,000
The details regarding closing inventories are as follows:

Products Completed units (tons)

BetaTab 360
Folick 120
TegriCap 50

You are required to COMPUTE the joint cost allocated to BetaTab, Folick
and TegriCap using Net realizable value (NRV) method.
(a) BetaTab- ` 15,65,481, Folick - ` 33,26,647 and TegriCap -
` 13,57,872

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(b) BetaTab - ` 23,33,985, Folick - ` 28,07,478 and TegriCap -

` 11,08,537
(c) BetaTab - ` 19,27,533, Folick - ` 23,18,570 and TegriCap -
` 20,03,897
(d) BetaTab - ` 11,08,537, Folick - ` 28,07,478 and TegriCap -
` 23,33,985
Marginal Costing
7. Ms. Gauri has the business of selling pens. She has setup this pen
retailing for over 10 years with good profit volume ratio. Her average
cost from the retailing is ` 11.25 per unit if she sells 16,000 units and is
` 11 per unit if she sells 20,000 units.
For the current month, she also charged ` 5,000 towards depreciation
and the rental payment due.
The excess of sales revenue over the variable costs is ` 3.333 per unit.
You are required to CALCULATE Break-even Point (in units), Cash Break-
even Point (in units) and Profit Volume Ratio.
(a) Break-even Point- 6,000 units, Cash Break-even Point- 6,000 units
and Profit Volume Ratio- 33.33%
(b) Break-even Point- 6,000 units, Cash Break-even Point- 4,500 units
and Profit Volume Ratio- 25%
(c) Break-even Point- 4,500 units, Cash Break-even Point- 4,500 units
and Profit Volume Ratio- 33.33%
(d) Break-even Point- 4,500 units, Cash Break-even Point- 4,500 units
and Profit Volume Ratio- 25%
PART-II Descriptive Questions
Material Cost
8. Ani Ltd. uses 6 kg. of Material ‘EXE’ to produce 1 finished unit of Product
‘EME’. The current demand of Product ‘EME’ is 16,000 units quarterly. 1
kg. of Material ‘EXE’ costs ` 40. The cost relating to quotations,
documentation works, employee cost directly attributable to the
procurement of material, every-time the order is made, is ` 2,000. The

9 JANUARY 2025 EXAMINATION

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cost of fund invested in inventories, cost of storage, insurance cost, etc.

is estimated to be 15% per annum of average inventory.
You are required the following:
(i) CALCULATE the Economic Order Quantity for Material ‘EXE’.
(ii) COMMENT, should Ani Ltd. accept an offer of 2.5% discount by the
supplier of Material ‘EXE’, if supply of the annual requirement of
the Material is made in 4 equal installments?
Employee Cost and Direct Expenses
9. AeBee Publishers works for various educational institutes for editing,
binding, printing of various books and magazines on job work basis.
Currently, the company has employed 30 workers and pays them on
hour rate basis for each job assigned. To complete one of the process of
binding, the average time allowed to an employee is 8 hours for a 10
pages magazine.
In the month of March, two employees ‘Cee’ and ‘Dee’ were given 21
and 30 units of magazines respectively for binding work. The following
are the details of the work assigned:

Particulars ‘Cee’ ‘Dee’

Work assigned 21 units 30 units
Time taken 78 hours 114 hours

The existing rate of wages is ` 60 per hour along with bonus as per
Halsey System.
However, a new wage agreement has been signed between the
employees and the company where, employees will be paid ` 65 per
hour with effect from the April month. But, inadvertently, for the month
of March, the accountant of the company paid the wages to these
employees considering rate of wages as ` 65 per hour.
You are required to CALCULATE the following:
(i) Amount of loss that the company has incurred due to incorrect
rate selection in the month of March.

10 JANUARY 2025 EXAMINATION

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(ii) Loss incurred by the company due to incorrect rate selection if it

had followed Rowan scheme of bonus payment.
(iii) Amount that could have been saved if Rowan Scheme of bonus
payment were followed.
Overheads- Absorption Costing Method
10. Han Ltd. sells three products namely ‘A’, 'B' and ‘C’. The following
information is available regarding sales, costs and activity for the year
ended 31st March:

Particulars A B C
Sales (`) 60,00,000 90,00,000 54,00,000
Cost of Sales (`) 30,00,000 78,00,000 27,00,000
Area of storage (sq.ft.) 72,000 1,08,000 36,000
Number of parcels sent 2,40,000 3,00,000 2,10,000
Number of invoices sent 60,000 90,000 1,44,000

Selling and Distribution overheads and the basis of allocation are as

follows :

Fixed Cost Amount Basis of allocation

(`) to Products
Rent and Insurance 6,00,000 Square feet
Depreciation 2,70,000 Parcel
Salesman's salaries & expenses 11,40,000 Sales Volume
Administrative wages and 9,00,000 No. of Invoices
salaries
Variable Costs:
Packing wages & materials ` 4.80 per parcel
Commission 2.40% of sales
Stationery ` 1.80 per invoice

Finance Manager of the Company has recommended to discontinue the

Product 'C' since it's sales is less compared to other products.

11 JANUARY 2025 EXAMINATION

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You are required to PREPARE the profitability statement of each product,

showing the percentage of profit/ (loss) on sales for each product, and
also EXAMINE the recommendation of Finance Manager.
Cost Sheet
11. IC Ltd. manufactures two types of phone covers, one is ‘plastic’ phone
cover and another is ‘silicon’ phone cover.
The cost data relating to the manufacturing of both the phone covers
for the year ended 31stMarch is provided below:

Particulars Amount (`)

Direct Materials 1,00,00,000
Direct Wages 56,00,000
Production Overhead 32,00,000
Total 1,88,00,000

Other information relating to the production of the phone covers is as

follows:
• Direct material cost per unit of ‘silicon’ phone cover was twice than
that of ‘plastic’ phone cover.
• Direct wages per unit for ‘plastic’ phone cover were 60% of those
for ‘silicon’ phone cover.
• Production overhead per unit was at same rate for both the type of
phone covers.
• Administration overhead being part of cost of production was 50%
of Production overhead.
• Selling cost and Selling Price of ‘silicon’ phone cover were ` 8 and
` 140 per unit respectively.
• No. of units of ‘silicon’ phone covers sold- 90,000
• No. of units of Production of -
‘silicon’ phone cover: 1,00,000
‘plastic’ phone cover: 3,00,000

12 JANUARY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

You are required to PREPARE a cost sheet for ‘silicon’ phone cover
showing Cost and Profit (per unit and Total).
Cost Accounting Systems
12. Following information is extracted as a result of scrutiny of the figures
from both the financial accounts and cost accounts of CK Ltd. for the
year ending 31st March:
Particulars Amount
(`)
Net Profit (as per cost accounts) 57,71,840
Under recovery of selling overheads in cost accounts 1,16,800
Under valuation of closing stock in cost accounts 1,64,000
Rent received credited in financial accounts 87,200
Bad debts provided in financial accounts 52,000
Income tax provided in financial accounts 2,54,400
Under recovery of administration overheads in cost 1,50,400
accounts
You are required to PREPARE a Statement of Reconciliation showing the
profit as per financial records.
Batch Costing
13. Phonick Ltd. accepted an order to supply 2,000 units per month of
Product ‘E’ for the third quarter of the year. Each monthly batch order
records the actual costs of materials and labour. Overheads are charged
at a rate per labour hour. The selling price is established at ` 15 per unit.
Information relating to Material, Labour and Overheads is provided
below:
Month Batch Material Labour Overheads Total
Output Cost Cost Labour
(Numbers) (`) (`) (`) Hours
October 2,500 12,500 5,000 24,000 8,000
November 3,000 18,000 6,000 18,000 9,000
December 2,000 10,000 4,000 30,000 10,000
Labour is paid at the rate of ` 2 per hour.

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CALCULATE the cost and profit per unit of each batch order along with
the overall position of the order for 6,000 units.
Joint Products and By products
14. JPBP Ltd. manufactures two joint products A and B simultaneously from
the same process. The process produces another product C which is
recovered incidentally from the material used in the manufacture of A
and B.
The expenditures incurred up to the point of separation i.e. split-off
point are ` 14,82,000. As the joint products are capable of being
measured in the same units, joint costs are allocated on the basis of
physical unit.
Though the joint products A and B are saleable at split-off point, these
can also be further processed and sold at a higher market price, with
some sales promotion efforts. However, product C can be sold only after
further processing.
The management is of the view that, as the net realisable value of the
product C at split off point is too small, the value may be deducted from
the joint production cost.
The relevant details of the products are as follows:

Particulars Product A Product B Product C

Output (kg.) 16,250 8,125 1,625
Selling price at the split-off 72 80 -
point (per kg.) (`)
Further processing cost (per 16 20 8
kg.) (`)
Further marketing cost (per 8 8 4
kg.) (`)
Selling price after further 112 104 24
processing (per kg.) (`)

14 JANUARY 2025 EXAMINATION

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You are required the following:

(i) DETERMINE the profit/ (loss) of each joint product if these are sold
without further processing.
(ii) WHETHER joint products be processed further? Decide on the
basis of incremental profit/ (loss).
Service Costing
15. Roshan Travels provide bus facility to a College for carrying its students
from home to College and dropping them back at home after study
hours. The travel company runs a fleet of 6 buses for this purpose and
park them in the college premises.
The information regarding bus running is as follows:
(I) The College operates in two shifts (one in the morning and one in
the afternoon).
(II) The distance travelled by each bus one way is 20 kms.
(III) The students need to attend the college for 30 days in a month.
(IV) The seating capacity of each bus is 30 persons.
(V) The seating capacity is normally 80% occupied during the year.
The information regarding expenses incurred for a year is as follows:

Particulars Amount
Driver and attendant salary ` 60,000 per person per month
Cleaner’s salary (One cleaner for 2 ` 30,000 per cleaner per
buses) month
Diesel (Avg. 8 kms per litre) ` 160 per litre
Insurance charges (per annum) 2% of Purchase Price
License fees and taxes ` 10,160 per bus per month
Parking charges paid ` 36,000 per month
Repair & maintenance including ` 5,712 per bus
engine oil and lubricants (for
every 5,760 kms)

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Purchase Price of each bus ` 30,00,000

Residual life of each bus 8 Years
Scrap value per bus at the end of ` 6,00,000
residual life

Students coming from a distance of beyond 10 kms away from the

College are charged double the fare than that from students coming
from a distance of up-to 10 kms. away from the College. 50% of
students travelling in each trip are coming from a distance beyond 10
kms. from the College. The charges are to be based on average cost.
You are required to:
(i) PREPARE a statement showing expenses of operating a single bus
for a year.
(ii) CALCULATE the average cost per student per month in respect of:
(a) Students coming from a distance up-to 10 kms. from the
College.
(b) Students coming from a distance beyond 10 kms. from the
College.
Standard Costing
16. Banku manufacturing Ltd. is engaged in producing a item named ‘ABC’.
It produces ‘ABC’ in a batch of 100 kgs. Standard material inputs
required for 100 kgs. of ‘ABC’ are as below:

Material Quantity (in kgs.) Rate per kg. (in `)

A 50 110
B 30 320
C 30 460

During the month of April, 2024, actual production was 50,000 kgs. of
‘ABC’ for which the actual quantities of material used for a batch and the
prices paid thereof are as under:

16 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Material Quantity (in kgs.) Rate per kg. (in `)

A 60 115
B 25 330
C 20 405

You are required to CALCULATE the following variances based on the

above given information for the month of April, 2024 for Banku
manufacturing Ltd.:
(i) Material Cost Variance;
(ii) Material Price Variance;
(iii) Material Usage Variance;
(iv) Material Mix Variance;
(v) Material Yield Variance.
Marginal Costing
17. XYZ Ltd. is a company involved in production and construction
specialised equipment and machines on the demand of customers. The
company received an order for construction of a specialised machine, it
had nearly completed this job relating to construction of a specialised
machine, when it discovered that the customer had gone out of
business. At this stage, the position of the job was as under:

(`)
Original cost estimate 27,50,000
Costs incurred so far 24,80,000
Costs to be incurred 3,70,000
Progress payment received from original customer 15,50,000

After searches, a new customer for the machine has been found. He is
interested to take the machine, if certain modifications are carried out.
The new customer wanted the machine in its original condition, but
without its AI device and with certain other modifications. The costs of
these additions and modifications are estimated as under:

17 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Direct Materials (at cost) ` 1,05,000

Direct Wages Dept.: X 35 men days
Dept.: Y 55 men days
Variable Overheads 30% of Direct Wages in each Dept.
Delivery Costs ` 15,500

Fixed overheads will be absorbed at 50% of direct wages in each

department.
The following additional information is available:
(1) The direct materials required for the modification are in stock and if
not used for modification of this order, they will be used in another
job in place of materials that will now cost ` 1,50,000.
(2) Department X is working normally and hence any engagement of
labour will have to be paid at the direct wage rate of ` 1,000 per man
day.
(3) Department Y is extremely busy. Its direct wages rate is ` 1,200 per
man day and it is currently yielding a contribution of ` 3 per rupee of
direct wages.
(4) Additional supervisory required for the modification cost ` 80,000.
(5) The cost of the AI device that the new customer does not require is `
1,35,000. If it is taken out, it can be used in another job in place of a
different mechanism. The latter mechanism has otherwise to be
bought for ` 1,05,000. The dismantling and removal of the control
mechanism will take 5 man day in department X.
(6) If the conversion is not carried out, some of the materials in the
original machine can be used in another contract in place of materials
that would have cost ` 2,00,000. It would have taken 5 men days of
work in department X to make them suitable for this purpose. The
remaining materials will realize ` 1,50,000 as scrap. The drawings,
which are included as part for the job can he sold for ` 45,000.

18 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

You are required to CALCULATE the minimum price, which the company
can afford to quote for the new customer as staled above.
Budgets and budgetary control
18. BT Ltd. achieves sale of ` 73,12,500 with COGS of 40% while operating at
75% of its normal capacity during the current financial year.
The information relating to Administration, Selling and Distribution costs
is given below:
Administration costs:
Office salaries ` 11,70,000
General expenses 5 per cent of COGS
Depreciation ` 97,500
Rates and taxes ` 1,13,750
Selling costs:
Salaries 8 per cent of sales
Travelling expenses 5 per cent of COGS
Sales office expenses 2.5 per cent of COGS
General expenses 2.5 per cent of COGS
Distribution costs:
Wages ` 1,95,000
Rent 1 per cent of sales
Other expenses 10 per cent of COGS

Considering some of the expenses like office salaries, depreciation, rates

and taxes, and wages, to remain the same irrespective of the level of
activity, as these expenses are fixed in nature, PREPARE flexible
administration, selling and distribution costs budget, operating at 85%,
100% and 115% of normal capacity.

19 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Miscellaneous
19. (a) DISCUSS advantages of Marginal Costing.
(b) LIST DOWN certain financial expenses and income included in
Financial Accounts only.
(c) DISCUSS the treatment of By-product cost in joint cost accounting
when they are of small total value.
(d) DISCUSS normal and abnormal Process Loss and ENUMERATE their
treatment in Cost Accounts.

SUGGESTED ANSWERS/HINTS

Note: Figures are rounded off to the nearest figures to remove approximation
error, wherever required.

1. (i) (b) Fixed overhead = 740000

Total machine hours = 8000 hours

Fixed OH per hour= ` 92.5

Fixed OH per unit of:

• School bag = 0.20 x 92.5 = ` 18.5

• Water bottle = 0.15 x 92.5 = ` 13.875

• Geometry box = 0.10 x 92.5 = ` 9.25

(ii) (d) Hours allocated = 8000 x 10% = 800 hours

Fixed overhead allocated = 800 x 92.5 = ` 74,000

Contribution:

• Bag = 200-100 = 100

• Bottle = 160-80=80

20 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

• Geometry = 100- 40 = 60

Composite contribution = 100 x 2/10 + 80 x 3 / 10 + 60

x 5/10 = ` 74

Overall breakeven point for this assignment is = fixed cost

allocated/composite contribution = 74,000/74 = 1,000 units

(iii) (b) 1000 units are to be distributed in the ratio of 2:3:5

Bag = 200 units, bottle = 300 units, geometry = 500 units

(iv) (c) Total hours = 800 hours

let total no of units = X

Supply: bag 2/10 x X; bottle 3/10 x X; geometry 5/10 x X

Hours: (2X/10) x 0.20 + (3X/10) x 0.15 + (5X/10) x 0.10 = 800

hours

X = 5925

Units of :

• Bag = 2/10 x 5925 = 1185

• Bottle = 3/10 x 5925 = 1777.5 or 1777

• Geometry = 5/10 x 5925 = 2962.5 or 2962

(v) (d) Correct price is AT COST.

COST = Marginal Cost Per Unit + Fixed Overhead

Cost Allocated Per Unit

Bag Bottle Geometry

Variable cost per unit 100 80 40

Fixed cost per unit 18.5 13.875 9.25

Total 118.5 93.875 49.25

21 JANUARY 2025 EXAMINATION

©The Institute of Chartered Accountants of India

 2.

22
Particulars Cost Profit Total Particulars Cost Profit Total (i)
(a)
(`) (`) (`) (`) (`) (`)

Opening 8,02,500 − 8,02,500 Process II 1,58,36,000 39,59,000 1,97,95,000

*Transfer price
Stock A/c
REVISION TEST PAPER

(Transfer)*

©The Institute of Chartered Accountants of India

Direct 42,80,000 − 42,80,000 Closing 10,70,000 − 10,70,000
Material stock

Direct 66,87,500 − 66,87,500

Process I Account

Wages

Prime Cost 1,17,70,000 − 1,17,70,000

Manufactur- 51,36,000 − 51,36,000

ing
Overheads

Total cost 1,69,06,000 − 1,69,06,000

Costing 39,59,000 39,59,000

Profit and
Loss A/c**

= (Total Cost - Closing Stock) (1 + 25%)

1,69,06,000 39,59,000 2,08,65,000 1,69,06,000 39,59,000 2,08,65,000
INTERMEDIATE EXAMINATION

JANUARY 2025 EXAMINATION

 23
(ii)
Cost Profit Total Particulars Cost Profit Total
Particulars

(b)
(`) (`) (`) (`) (`) (`)

Opening 12,30,500 2,14,000 14,44,500 By Process III 2,86,96,274 1,20,97,476 4,07,93,750

Stock A/c
(Transfer)**
REVISION TEST PAPER

Process I 1,58,36,000 39,59,000 1,97,95,000 Closing 14,77,726 2,34,274 17,12,000

©The Institute of Chartered Accountants of India

A/c stock*

Direct -

* Cost of Closing Stock =

34,77,500 34,77,500
Material
Process II Account

Direct -
57,78,000 57,78,000
Wages
= ` 1,97,95,000

Prime Cost 2,63,22,000 41,73,000 3,04,95,000

` 2,63,22,000
Manufactur-

�` 3,04,95,000� x
ing - 38,52,000
38,52,000
Overheads

Total cost 3,01,74,000 41,73,000 3,43,47,000

= (1,69,06,000 - 10,70,000) x 1.25

Costing - 81,58,750 81,58,750

Profit and
Loss A/c***

3,01,74,000 1,23,31,750 4,25,05,750 3,01,74,000 1,23,31,750 4,25,05,750

**Profit on transfer = (1,69,06,000 - 10,70,000) x .25 = ` 39,59,000

` 17,12,000 = ` 14,77,726

JANUARY 2025 EXAMINATION

COST AND MANAGEMENT ACCOUNTING
 24
(iii)
Particulars Cost Profit Total Particulars Cost Profit Total
(`) (`) (`) (`) (`) (`)

(d)
Opening 16,05,000 5,35,000 21,40,000 By Finished 3,98,91,140 2,94,44,860 6,93,36,000
Stock Stock A/c**
(Transfer)
**Transfer price
REVISION TEST PAPER

Process II 2,86,96,274 1,20,97,476 4,07,93,750 Closing 15,64,884 5,21,616 20,86,500

©The Institute of Chartered Accountants of India

A/c stock*

Direct 26,75,000 -- 26,75,000

Material

Direct 49,22,000 -- 49,22,000

Process III Account

Wages

Prime Cost 3,78,98,274 1,26,32,476 5,05,30,750

Manufactur-
ing 35,57,750 -- 35,57,750
Overheads

Total cost 4,14,56,024 1,26,32,476 5,40,88,500

Costing - 1,73,34,000 1,73,34,000

Profit and
Loss A/c***
= (Total Cost - Closing Stock) (1 + 25%)

4,14,56,024 2,99,66,476 7,14,22,500 4,14,56,024 2,99,66,476 7,14,22,500

= (3,43,47,000 - 17,12,000) x 1.25 = ` 4,07,93,750
***Profit on transfer = (3,43,47,000 - 17,12,000) x .25 = ` 81,58,750
INTERMEDIATE EXAMINATION

JANUARY 2025 EXAMINATION

 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

3,78,98,274
�` 5,05,30,750� x
`
* Cost of Closing Stock = ` 20,86,500

= ` 15,64,884
**Transfer price = (Total Cost - Closing Stock) (1 + 33 1/3%)
= (5,40,88,500 - 20,86,500) x (1 + 33 1/3%)
= ` 6,93,36,000
***Profit on transfer = (5,40,88,500 - 20,86,500) x 33 1/3%
= ` 1,73,34,000
(iv) (b) Refer part (iii) above.
(v) (b) Refer part (iii) above.
3. (a) Calculation of existing labour cost per unit (time basis)
Normal weekly hours = 5 days x 8 hours = 40 hours
Night shift hours = 3 nights x 3 hours = 9 hours
Average production per week = 120 units

Weekly wages:
Normal shift (40 hours × ` 320) ` 12,800
Night shift (9 hours × ` 450) ` 4,050
Total wages ` 16,850
` 16,850
Labour cost per unit = �120 units�
= ` 140.42
Calculation of amended labour cost per unit (piece basis)
15 units are produced in 5 hours
Therefore, to produce 135 units, hours required is
5 hours
�15 units� x 135 units = 45 hours.
Labour cost of producing 135 units:
At basic time rate (45 hours × ` 320) = ` 14,400

25 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Add: Bonus @ 15% on basic Piece rate

` 14,400
[� � x 15%] x 135 units = ` 2,160
135 units
Earning for the week ` 16,560
` 16,560
Labour cost per unit = �135 units�
= ` 122.67
4. (d) Computation of Comprehensive Machine Hour Rate
Particulars Amount for
six months
(`)
Operators' wages paid [(9,594 hrs./ 8 hrs.) x 1,31,918
` 110]
Power consumed 60,125
Supervision and indirect labour 21,450
Insurance (` 4,68,000/2) 2,34,000
Sundry expenses (` 7,15,000/2) 3,57,500
Depreciation {(` 41,60,000 × 10%)/2} 2,08,000
Repair and maintenance {(5% × ` 41,60,000)/2} 1,04,000
Total Overheads for 6 months 11,16,993
Comprehensive Machine Hour Rate 119.34
` 11,16,993
= �9,360 hours�

5. (a) Statement of Cost for the month of March

Particulars Amount Amount
(`) (`)
Cost of Material Consumed:
Raw materials purchased 10,40,000**
Add: Opening stock of raw materials 6,50,000
Less: Closing stock of raw materials (1,95,000) 14,95,000
Direct Wages 11,44,000

26 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Prime Cost 26,39,000*

Hire charges paid for Plant (indirect 3,24,740
expenses)
Factory overheads (20% of Prime cost) 5,27,800 8,52,540
Works/ Factory Cost 34,91,540
Less: Realisable value on sale of scrap (32,500)
Cost of Production/ Cost of Goods Sold 34,59,040
Administrative overheads:
Maintenance of office building 13,000
Salary paid to Office staff 1,78,750 1,91,750
Distribution overheads:
Depreciation on delivery van 39,000
Warehousing charges 61,750 1,00,750
Cost of Sales 37,51,540

(Reverse calculation to be done to find out the value of Raw

materials purchased)
* Prime Cost + 3,24,740 + 20% of Prime Cost = 34,91,540
1.2 Prime Cost = 34,91,540 - 3,24,740 = 31,66,800
Prime Cost = 26,39,000
** Raw materials purchased = 14,95,000 - 6,50,000 + 1,95,000
= 10,40,000
6. (b) Calculation of total production of BetaTab, Folick and TegriCap

Products Quantity Quantity of closing Total

sold (tons) inventories (tons) production
(1) (2) (3) (4) = [(2) + (3)]
BetaTab 372 360 732
Folick 1,054 120 1,174
TegriCap 1,472 50 1,522

Calculation of Net Realisable Value (at split-off point)

27 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Products Total (`)

BetaTab Folick TegriCap
Total Production 732 1,174 1,522
(tons) (A)
Selling price per ton 7,500 5,625 3,750
(`) (B)
Final sales value of 54,90,000 66,03,750 57,07,500 1,78,01,250
total production (`)
[(A) x (B)]
Less: Additional - - (31,00,000) (31,00,000)
cost (`)
Net realisable 54,90,000 66,03,750 26,07,500 1,47,01,250
value (`)
(at split-off point)

Joint cost allocated using Net Realisable Value (at split-off point):
Total Jointcost
× NetRealisable Valueof each product
Total Net Realisable Value
` 62,50,000
BetaTab =� � x ` 54,90,000
` 1,47,01,250

= ` 23,33,985
` 62,50,000
Folick =� � x ` 66,03,750
` 1,47,01,250

= ` 28,07,478
` 62,50,000
TegriCap =� � x ` 26,07,500
` 1,47,01,250

= ` 11,08,537
Change inTotal cost
7. (b) Variable cost per unit =
Change in units
(` 11 x 20,000 units) - (` 11.25 x 16,000 units)
=� �
20,000 units - 16,000 units

` 2,20,000 - ` 1,80,000
=� � = ` 10
4,000 units

28 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Fixed cost = Total Cost – Variable cost (at 20,000 units level)
= (` 11 x 20,000 units) – (` 10 x 20,000 units)
= ` 20,000
Fixed Costs
(i) Break-even Point (in units) = �Contribution per unit*�
` 20,000
=� �
` 3.333

= 6,000 units
* Contribution is the excess of sales revenue over the
variable costs.
Cash Fixed Costs**
(ii) Cash Break-even Point (in units) = �Contribution per unit�
` 20,000 - ` 5,000
=� �
` 3.333

= 4,500 units
** depreciation and other non-cash fixed costs are excluded
from the fixed costs to compute cash break-even point.
Contributionperunit
(ii) P/V Ratio =
Salepriceperunit
` 3.333
=� �
` 10 + ` 3.333

= 25%
8. Annual demand of material ‘EXE’
= 16,000 units (per quarter) x 4 (No. of Quarter in a year) x 6 kg. (for
every finished product)
= 3,84,000 kg.
(i) Calculation of Economic Order Quantity (EOQ) for material ‘EXE’

2 x Annual demand x ordering cost

EOQ =
Carrying cost per unit per annum

2x3,84,000kg.x ` 2,000
= = 16,000 kg.
` 40x15%

29 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

(ii) Evaluation of Cost under different options of ‘order quantity’.

Particulars When EOQ is When discount of

ordered 2.5% is accepted and
supply is in 4 equal
installments
Order size 16,000 kg. 96,000 kg.
3,84,000 kg.
=
4
No. of orders 24 4
3,84,000 kg.
=
16,000 kg.
Purchase Cost ` 40 ` 39
per kg. {` 40 - (` 40 × 2.5%)}
Total Purchase ` 1,53,60,000 ` 1,49,76,000
Cost (A) (3,84,000 kg. x ` 40) (3,84,000 kg. x ` 39)
Ordering Cost ` 48,000 ` 8,000
(B) (24 orders x ` 2,000) (4 orders x ` 2,000)
Carrying Cost ` 48,000 ` 2,80,800
(C)
x 15% x ` 40 = 96,000 kg. x 15% x ` 39
16,000 kg.
=
2 2
Total Cost (A + ` 1,54,56,000 ` 1,52,64,800
B + C)

COMMENT – The total cost is lower if Ani Ltd. accept an offer of

2.5% discount by the supplier, when supply of the annual
requirement of material ‘EXE’ is made in 4 equal installments.
9.

Particulars ‘Cee’ ‘Dee’

No. of binding work assigned (units) 21 30
Hour allowed per magazine (Hours) 8 8
Total hours allowed (Hours) 168 240
Hours Taken (Hours) 78 114
Hours Saved (Hours) 90 126

30 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

(i) Calculation of loss incurred due to incorrect rate selection

(While calculating loss only excess rate per hour has been taken)
Particulars ‘Cee’ ‘Dee’ Total
(`) (`) (`)
Basic Wages 390 570 960
(78 Hrs. ×` 5) (114 Hrs. × ` 5)
Bonus (as per Halsey 225 315 540
Scheme) (50% of 90 Hrs. (50% of 126 Hrs.
(50% of Time Saved × × ` 5) × ` 5)
Excess Rate)
Excess Wages Paid 615 885 1,500

(ii) Amount of loss if Rowan scheme of bonus payment were

followed
Particulars ‘Cee’ ‘Dee’ Total (`)
(`) (`)
Basic Wages 390.00 570.00 960.00
(78 Hrs. × ` (114 Hrs. × ` 5)
5)
Bonus (as per Rowan Scheme) 208.93 299.25 508.18
Time Taken 78 114
( × Time Saved x Excess Rate ) =( × 90 × ` 5) =( × 126 × ` 5)
Time Allowed 168 240
Excess Wages Paid 598.93 869.25 1,468.18

(iii) Calculation of amount that could have been saved if Rowan

Scheme were followed
Particulars ‘Cee’ ‘Dee’ Total (`)
(`) (`)
Wages paid under Halsey Scheme 615.00 885.00 1,500.00
Wages paid under Rowan Scheme 598.93 869.25 1,468.18
Difference (Savings) 16.07 15.75 31.82

31 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

10. Profitability statement of each product for the year ended

31st March
Particulars Total (`) Products
A (`) B (`) C (`)
Sales 2,04,00,000 60,00,000 90,00,000 54,00,000
Variable Costs:
Cost of sales 1,35,00,000 30,00,000 78,00,000 27,00,000
Commission @ 4,89,600 1,44,000 2,16,000 1,29,600
2.40% of sales
Packaging wages 36,00,000 11,52,000 14,40,000 10,08,000
and materials @
` 4.80 per parcel
Stationery @ 5,29,200 1,08,000 1,62,000 2,59,200
` 1.80 per invoice
Total Variable 1,81,18,800 44,04,000 96,18,000 40,96,800
Costs
Contribution 22,81,200 15,96,000 (6,18,000) 13,03,200
(sales - variable
cost)
Fixed costs:
Rent and 6,00,000 2,00,000 3,00,000 1,00,000
insurance
Depreciation 2,70,000 86,400 1,08,000 75,600
Salesman’s salary 11,40,000 3,35,294 5,02,941 3,01,765
and expenses
Administrative 9,00,000 1,83,674 2,75,510 4,40,816
wages and salaries
Total Fixed Costs 29,10,000 8,05,368 11,86,451 9,18,181
Profit or loss (6,28,800) 7,90,632 (18,04,451) 3,85,019
(Contribution –
Fixed costs)
Percentage of (3.08)% 13.18% (20.05)% 7.13%
profit or loss on
sales (%)

32 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Recommendation of finance manager is not correct. Product ‘C’ should

not be discontinued as it is profitable.
11. Preparation of Cost Sheet for ‘silicon’ phone covers
No. of units produced = 1,00,000 units
No. of units sold = 90,000 units

Particulars Per unit Total

(`) (`)
Direct Materials (Working note- (i)) 40.00 40,00,000
Direct Wages (Working note- (ii)) 20.00 20,00,000
Prime Cost 60.00 60,00,000
Production Overhead (Working note- (iii)) 8.00 8,00,000
Factory Cost 68.00 68,00,000
Administration Overhead (50% of 4.00 4,00,000
Production Overhead)
Cost of Production 72.00 72,00,000
Less: Closing stock (1,00,000 units – - (7,20,000)
90,000 units)
Cost of Goods Sold i.e. 90,000 units 72.00 64,80,000
Selling cost 8.00 7,20,000
Cost of Sales/ Total Cost 80.00 72,00,000
Profit 60.00 54,00,000
Sales Value (` 140 × 90,000 units) 140.00 1,26,00,000

Working Notes:
(i) Direct material cost per unit of ‘plastic’ phone cover = M
Direct material cost per unit of ‘silicon’ phone cover = 2M
Total Direct Material Cost = 2M × 1,00,000 units + M × 3,00,000
units
Or, ` 1,00,00,000 = 2,00,000 M + 3,00,000 M

33 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
INTERMEDIATE EXAMINATION

` 1,00,00,000
Or, M = = ` 20
5,00,000
Therefore, Direct material Cost per unit of ‘silicon’ phone cover = 2
× ` 20 = ` 40
(ii) Direct wages per unit for ‘silicon’ phone cover = W
Direct wages per unit for ‘plastic’ phone cover = 0.6W
So, (W x 100,000) + (0.6W x 3,00,000) = ` 56,00,000
Or, 1,00,000 W + 1,80,000 W = ` 56,00,000
` 56,00,000
Or, W = = ` 20 per unit
2,80,000
Therefore, Direct wages per unit of ‘silicon’ phone cover = ` 20
` 32,00,000
(iii) Production overhead per unit = = `8
(1,00,000 + 3,00,000)
Production overhead for ‘silicon’ phone cover = ` 8 × 1,00,000
units = ` 8,00,000
12. Statement of Reconciliation
(Reconciling the profit as per costing records with the profit as per
financial records)

Particulars (`) (`)

Net Profit as per Cost Accounts 57,71,840
Add: Under valuation of closing stock in 1,64,000
cost accounts
Rent received credited in financial 87,200 2,51,200
accounts
60,23,040
Less: Under recovery of selling 1,16,800
overheads in cost accounts
Bad debts provided in financial accounts 52,000

34 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Income tax provided in financial accounts 2,54,400

Under recovery of administration 1,50,400 5,73,600
overheads in cost accounts
Profit as per Financial Accounts 54,49,440

13. Statement of Cost and Profit per unit of each batch order
October November December Total

a) Batch Output (Nos.) 2,500 3,000 2,000 7,500

b) Sales Value (@ ` 15 (`) (`) (`) (`)
per unit) 37,500 45,000 30,000 1,12,500
Cost
Material 12,500 18,000 10,000 40,500
Wages 5,000 6,000 4,000 15,000
Overheads (working note) 7,500 6,000 6,000 19,500
c) Total 25,000 30,000 20,000 75,000
d) Profit per batch (b) 12,500 15,000 10,000 37,500
– (c)
e) Cost per unit (c) ÷ 10 10 10
(a)
f) Profit per unit (d) 5 5 5
÷ (a)

Overall Position of the Order for 6,000 Units

Particulars Amount (`)

Sales value (6,000 units × ` 15) 90,000
Less: Total cost (6,000 units × ` 10) 60,000
Profit 30,000

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Working Note:
Calculation of overhead per hour
Particulars October November December
i. Labour hours:
Labour cost ` 5,000 ` 6,000 ` 4,000
= 2 2 2
Labour rates per hour
= 2,500 hrs. = 3,000 hrs. = 2,000 hrs.
ii. Overhead per
hour:
Total Overheads ` 24,000 ` 18,000 ` 30,000
= 8,000 hrs. 9,000 hrs. 10,000 hrs.
Total labour hour
=`3 =`2 =`3
iii. Overhead for the ` 7,500 ` 6,000 ` 6,000
batch (i) × (ii)

14. Workings -
1. Product C is produced incidentally from the material used in
the manufacture of A and B, thus, Product C is a By-product.

Per unit
(`)
Selling price after further processing (per kg.) (`) 24
Less: Further Processing Cost (per kg) 8
Further Marketing Cost (per kg) 4
12

Calculation of Joint Cost to be borne by By-product C

Joint Costs to be borne by By-product C = Output (kg.) x ` 12
= 1,625 kg. × ` 12
= ` 19,500
2. Allocation of joint cost among joint products (on the basis of
physical units) (given)
16,250
Product A: (` 14,82,000 - ` 19,500) x �
24,375
� = ` 9,75,000

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Product B: (` 14,82,000 - ` 19,500) x � ` 4,87,500

8,125
�=
24,375

(i) Statement of Profit/ (Loss) if joint products are sold

without processing
Particulars Product A Product B Total
(a) Output (kg.) 16,250 8,125
(b) Selling price at the
split-off point (per kg.)
(`) 72 80
(c) Sales Value (a) x (b) 11,70,000 6,50,000 18,20,000
(d) Allocation of joint
costs 9,75,000 4,87,500 14,62,500
(e) Profit at the point of
separation (c)-(d) 1,95,000 1,62,500 3,57,500

(ii) Further processing decision

Particulars Product A Product B

(`) (`)
(a) Selling price at split off 72 80
(b) Selling price after further
112 104
processing
(c) Incremental revenue (b)-(a) 40 24
(d) Further processing cost 16 20
(e) Further Marketing Cost 8 8
(f) Incremental cost (d)+(e) 24 28
(g) Incremental profit/ (loss) per 16 (4)
kg (c)-(f)
(h) Total Incremental profit/ ` 16 x (` 4) x
(loss) 16,250 kg 8,125 kg
` 2,60,000 (` 32,500)

Therefore, Product A should be processed further as they give

incremental profit. On the other hand, Product B should be sold at

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split-off point as they suffer incremental losses after further

processing.
15. (i) Statement of Expenses of operating a single bus for a year

Particulars Rate Per Bus per

(`) annum (`)
(A) Standing Charges:
Driver and attendant 60,000 p.m 7,20,000
salary
Average Cleaner’s salary 30,000 p.m 1,80,000
(50%)
Insurance charge 60,000 p.a. 60,000
License fee, taxes etc. 10,160 p.m. 121,920
Average Parking Charges 36,000 p.m 72,000
Depreciation {(30,00,000 – 3,00,000 3,00,000
6,00,000) ÷ 8} p.a.
(B) Maintenance Charges:
Repairs & maintenance 5,7120 p.a. 5,7120
including engine oil and
lubricants (Working Note 1)
(C) Operating Charges:
Diesel (Working Note 2) 11,52,000
Total Cost (A + B + C) 26,63,040
Cost per month 2,21,920

(ii) Average cost per students per month:

A. Student coming from distance of up-to 10 km

Total cost per month ` 2,21,920

= = = ` 3,082.22
Total no. of equivalent student 72*

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B. Student coming from a distance beyond 10 km

= ` 3,082.22 × 2 = ` 6,164.44

* Considering half fare students as a base

Full fare students (12 × 2) 24 students
Add: Half fare students (Working Note 3) 12 students
Total Equivalent number of students per month 36 students
Total Equivalent number of students per month 72 students
(morning + afternoon shift)
Working Notes:
1. Calculation of Repairs and maintenance cost of a bus:
Distance travelled in a year:
(4 trips × 2 × 20 km. × 30 days × 12 months)
Distance travelled p.a.: 57,600 km.
Repairs and maintenance cost per Bus per annum:
57,600 km.
= × ` 5,712 per bus
5,760 km

= ` 57,120 per annum

2. Calculation of diesel cost per bus per annum:
Distance travelled in a year = 57,600 km
Diesel cost per Bus per annum:
57,600 km.
= × ` 160
8 Km
= ` 11,52,000
3. Calculation of equivalent number of students per bus:
Seating capacity of a bus 30 students
Occupancy (80% of capacity) 24 students
Half fare students (50% of 24 students) 12 students
Full fare students (50% of 24 students) 12 students

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16. (i)
Material SQ* × SP AQ** × SP AQ** × AP RSQ*** × SP
(`) (`) (`) (`)
A 27,50,000 33,00,000 34,50,000 26,24,600
(25,000 kg. (30,000 kg. (30,000 kg. (23,860 kg.
× ` 110) × ` 110) × ` 115) × ` 110)
B 48,00,000 40,00,000 41,25,000 45,82,400
(15,000 kg. (12,500 kg. (12,500 kg. (14,320 kg.
× ` 320) × ` 320) × ` 320) × ` 320)
C 69,00,000 46,00,000 40,50,000 65,87,200
(15,000 kg. × (10,000 kg. (10,000 kg. (14,320 kg.
` 460) × ` 460) × ` 405) × ` 460)
Total 1,44,50,000 1,19,00,000 1,16,25,000 1,37,94,200

* Standard Quantity of materials for actual output :

50 kgs.
A = ×50,000 kgs.=25,000 kgs.
100 kgs
30 kgs.
B = × 50,000 kgs. = 15,000 kgs.
100 kgs
30 kgs.
C = × 50,000 kgs. = 15,000 kgs.
100 kgs

** Actual Quantity of Material used for actual output:

60 kgs.
A = ×50,000 kgs.=30,000 kgs.
100 kgs

25 kgs.
B = ×50,000 kgs.=12,500 kgs.
100 kgs

20 kgs.
C = ×50,000 kgs.=10,000 kgs.
100 kgs

***Revised Standard Quantity (RSQ):

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50 kgs.
A = ×52,500 kgs.=23,860 kgs.
110 kgs

30 kgs.
B = ×52,500 kgs.=14,320 kgs.
110 kgs

30 kgs.
C = ×52,500 kgs.=14,320 kgs.
110 kgs

(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. ×
Actual Price)
Or = (SQ × SP) – (AQ × AP)

A = ` 27,50,000 - ` 34,50,000 = ` 7,00,000 (A)

B = ` 48,00,000 - ` 41,25,000 = ` 6,75,000 (F)
C = ` 69,00,000 - ` 40,50,000 = ` 28,50,000 (F)
= ` 28,25,000 (F)

(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= (AQ × SP) – (AQ × AP)

A = ` 33,00,000 - ` 34,50,000 = ` 1,50,000 (A)

B = ` 40,00,000 - ` 41,25,000 = ` 1,25,000 (A)
C = ` 46,00,000 - ` 40,50,000 = ` 5,50,000 (F)
= ` 2,75,000 (F)

(iii) Material Usage Variance = Std. Price (Std. Qty. – Actual Qty.)
Or = (SQ × SP) – (AQ × SP)

A = ` 27,50,000 - ` 33,00,000 = ` 5,50,000 (A)

B = ` 48,00,000 - ` 40,00,000 = ` 8,00,000 (F)
C = ` 69,00,000 - ` 46,00,000 = ` 23,00,000 (F)
= ` 25,50,000 (F)

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(iv) Material Mix Variance = Std. Price (Revised Std. Qty. – Actual Qty.)
Or = (RSQ × SP) – (AQ × SP)

A = ` 26,24,600 - ` 33,00,000 = ` 6,75,400 (A)

B = ` 45,82,400 - ` 40,00,000 = ` 5,82,400 (F)
C = ` 65,87,200 - ` 46,00,000 = ` 19,87,200 (F)
= ` 18,94,200 (F)

(v) Material Yield Variance = Std. Price (Std. Qty. – Revised Std. Qty.)
Or = (SQ × SP) – (RSQ × SP)

A = ` 27,50,000 - ` 26,24,600 = ` 1,25,400 (F)

B = ` 48,00,000 - ` 45,82,400 = ` 2,17,600 (F)
C = ` 69,00,000 - ` 65,87,200 = ` 3,12,800 (F)
= ` 6,55,800 (F)

17. Statement of Minimum Price Which the Company Can Afford to

Quote for the New Customer

(`) (`)
Cost to be incurred to bring the machine in its 3,70,000
original condition
Direct Material (Replacement Value) 1,50,000
Direct Wages
Dept. X: (35 men days × ` 1,000) 35,000
Dept. Y: (55 men days × ` 1,200) 66,000
Opportunity Cost of Contribution Lost by 1,98,000 2,99,000
Dept. Y (`66,000 × `3)
Variable Overheads [30%×(`35,000+` 66,000)] 30,300
Delivery Costs 15,500
Additional Supervisory required for 80,000
modification
Saving Due to Alternative Use of AI Device

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Bought Out Price 1,05,000

Less: Dismantling & Removal Cost (5 men day 5,000
× `1,000)
Less: Variable Cost (30% × ` 5,000) 1,500 (98,500)
Net Loss on Material Cost Savings (W.N.) 1,93,500
Opportunity Cost of Remaining Materials 1,50,000
which can be sold as scrap
Opportunity Cost of Sale of Drawings 45,000
Total Minimum Price which may be quoted 12,34,800

Working Note

(`)
Loss on Material Cost Saving of Machine 2,00,000
Less: Conversion Cost (5 men days × `1,000) 5,000
Less: Variable Cost (30% × `5,000) 1,500
Net Loss on Material Cost Saving of Machine 1,93,500

18. Flexible Budget of BT Ltd.

Particulars 75% 85% 100% 115%
(`) (`) (`) (`)
Sales 73,12,500 82,87,500 97,50,000 1,12,12,500
COGS (40% of
29,25,000 33,15,000 39,00,000 44,85,000
Sales)
Administration
Costs:
Office Salaries 11,70,000 11,70,000 11,70,000 11,70,000
(fixed)
General expenses
1,46,250 1,65,750 1,95,000 2,24,250
(5% of COGS)
Depreciation (fixed) 97,500 97,500 97,500 97,500
Rent and rates 1,13,750 1,13,750 1,13,750 1,13,750
(fixed)

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(A) Total Adm. Costs 15,27,500 15,47,000 15,76,250 16,05,500

Selling Costs:
Salaries (8% of
5,85,000 6,63,000 7,80,000 8,97,000
sales)
Travelling expenses
1,46,250 1,65,750 1,95,000 2,24,250
(5% of COGS)
Sales office (2.5% of
73,125 82,875 97,500 1,12,125
COGS)
General expenses
73,125 82,875 97,500 1,12,125
(2.5% of COGS)
(B) Total Selling
8,77,500 9,94,500 11,70,000 13,45,500
Costs
Distribution Costs:
Wages (fixed) 195,000 195,000 195,000 195,000
Rent (1% of sales) 73,125 82,875 97,500 1,12,125
Other expenses
2,92,500 3,31,500 3,90,000 4,48,500
(10% of COGS)
(C) Total
5,60,625 6,09,375 6,82,500 7,55,625
Distribution Costs
Total Costs (A + B
29,65,625 31,50,875 34,28,750 37,06,625
+ C)

19. (a) Advantages of Marginal Costing:

1. Simplified Pricing Policy: The marginal cost remains
constant per unit of output whereas the fixed cost remains
constant in total. Since marginal cost per unit is constant
from period to period within a short span of time, firm
decisions on pricing policy can be taken.
2. Proper recovery of Overheads: Overheads are recovered in
costing on the basis of pre-determined rates. If fixed
overheads are included on the basis of pre-determined rates,
there will be under- recovery of overheads if production is
less or if overheads are more. There will be over- recovery of
overheads if production is more than the budget or actual

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expenses are less than the estimate. This creates the problem
of treatment of such under or over-recovery of overheads.
Marginal costing avoids such under or over recovery of
overheads.
3. Shows Realistic Profit: Advocates of marginal costing
argues that under the marginal costing technique, the stock
of finished goods and work-in-progress are carried on
marginal cost basis and the fixed expenses are written off to
profit and loss account as period cost. This shows the true
profit of the period.
4. How much to produce: Marginal costing helps in the
preparation of break-even analysis which shows the effect of
increasing or decreasing production activity on the
profitability of the company.
5. More control over expenditure: Segregation of expenses as
fixed and variable helps the management to exercise control
over expenditure. The management can compare the actual
variable expenses with the budgeted variable expenses and
take corrective action through analysis of variances.
6. Helps in Decision Making: Marginal costing helps the
management in taking a number of business decisions like
make or buy, discontinuance of a particular product,
replacement of machines, etc.
7. Short term profit planning: It helps in short term profit
planning by B.E.P charts.
(b) Items included in Financial Accounts only-
(A) Purely Financial Expenses:
(i) Interest on loans or bank mortgages
(ii) Expenses and discounts on issue of shares, debentures
etc.
(iii) Other capital losses i.e., loss by fire not covered by
insurance etc.

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(iv) Losses on the sales of fixed assets and investments

(v) Income tax, donations, subscriptions
(vi) Expenses of the company’s share transfer office, if any.
(B) Purely Financial Income
(i) Interest received on bank deposits, loans and
investments
(ii) Dividends received
(iii) Profits on the sale of fixed assets and investments
(iv) Transfer fee received
(v) Rent receivables.
(c) By-product cost, when they are of small total value, can be
dealt in cost accounting in the following ways:
When the by-products are of small total value, the amount realised
from their sale may be dealt in any one the following two ways:
1. The sales value of the by-products may be credited to the
Costing Profit and Loss Account and no credit be given in
the Cost Accounts. The credit to the Costing Profit and Loss
Account here is treated either as miscellaneous income or as
additional sales revenue.
2. The sale proceeds of the by-product may be treated as
deductions from the total costs. The sale proceeds in fact
should be deducted either from the production cost or from
the cost of sales.
(d) There are two types of material losses viz. (i) Normal loss and
(ii) Abnormal loss.
(i) Normal Process Loss: It is also known as normal wastage. It
is defined as the loss of material which is inherent in the
nature of work. Such a loss can be reasonably anticipated
from the nature of the material, nature of operation, the
experience and technical data. It is unavoidable because of
nature of the material or the process. It also includes units

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withdrawn from the process for test or sampling.

Treatment in Cost Accounts: The cost of normal process
loss in practice is absorbed by good units produced under
the process. The amount realised by the sale of normal
process loss units should be credited to the process account.
(ii) Abnormal Process Loss: It is also known as abnormal
wastage. It is defined as the loss in excess of the pre-
determined loss (Normal process loss). This type of loss may
occur due to the carelessness of workers, a bad plant design
or operation, sabotage etc. Such a loss cannot obviously be
estimated in advance. But it can be kept under control by
taking suitable measures.
Treatment in Cost Accounts: The cost of an abnormal
process loss unit is equal to the cost of a good unit. The total
cost of abnormal process loss is credited to the process
account from which it arises. Cost of abnormal process loss is
not treated as a part of the cost of the product. In fact, the
total cost of abnormal process loss is debited to costing
profit and loss account.

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 PAPER – 4:
COST AND MANAGEMENT
ACCOUNTING

QUESTIONS

Division A: Case Scenario

Material Cost
1. ‘Axe Trade’, an unregistered supplier under GST, purchased material
from Vye Ltd. which is registered supplier under GST. During the month
of June 2024, the Axe Traders has purchased a lot of 5,000 units on
credit from Vye Ltd. The information related to the purchase are as
follows:
Listed price of one lot of 5,000 units - ` 2,50,000
Trade discount - @ 10% on listed price
CGST and SGST (Credit available) - 18% (9% CGST + 9% SGST)
Cash discount - @ 10%
(Will be given only if payment is made within 30 days.)
Toll Tax paid ` 5,000
Freight and Insurance ` 17,220
Demurrage paid to transporter ` 5,000
Commission and brokerage on purchases ` 10,000
Amount deposited for returnable containers ` 30,000
Amount of refund on returning the container ` 20,000
Other Expenses @ 2% of total cost
REVISION TEST PAPER
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A 20% shortage in material on receipt is expected considering the

nature of the raw material.
The payment to the supplier was made within 21 days of the purchases.
(i) If Axe Traders pays the supplier within 30 days of purchase, then,
what is the total amount of cash discount received from the
supplier and how it is treated to calculate material cost?
(a) ` 25,000 & it will not be deducted from the material cost
(b) ` 26,550 & it will be deducted from the material cost
(c) ` 26,550 & it will not be deducted from the material cost
(d) ` 22,500 & it will not be deducted from the material cost
(ii) What will be the amount of other expenses and how it is treated in
material cost?
(a) ` 6,154.40 & it will be added with the material cost
(b) ` 6,280.00 & it will be added with the material cost
(c) ` 5,344.40 & it will be added with the material cost
(d) ` 5,453.47 & it will not be added with the material cost
(iii) What is the amount of GST and how will it be treated in cost sheet
of Axe Traders?
(a) ` 40,500 & it will not be added with material cost
(b) ` 40,500 & it will be added with material cost
(c) ` 45,000 & it will not be added with material cost
(d) ` 45,000 & it will be added with material cost
(iv) What is the total material cost chargeable in the cost sheet of Axe
Traders?
(a) ` 3,14,000
(b) ` 2,73,500
(c) ` 2,72,673
(d) ` 3,13,874

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(v) The number of good units and cost per unit of the materials
received are:
(a) 5,000 units & ` 62.80
(b) 5,000 units & ` 54.70
(c) 4,000 units & ` 78.50
(d) 4,000 units & ` 68.38
Standard Costing
2. ABC Pvt Ltd is engaged in the manufacture of a Product Q. The product
has the following standard production requirements determined by the
technical team of the company post satisfactory completion of test run.
Raw Material Z – 2 units @ ` 2 per unit
Skilled labour of – 2.5 hours@ ` 5 per hour
Fixed Overheads – ` 7.5 per unit
The input of Raw material Z has a yield of 80% everytime when infused
into production. The actual quantity of Raw material Z consumed for
production during the year was 24,000 units. The Usage variance of
Material Z was 2,000 Favourable. Further the actual amount of material
cost for the material consumed amounted to ` 45,000.
During the said year, the actual working hours were 30,000 for which the
labour cost paid by the company amounted to `1,20,000. The idle time
variance amounted to 10,000 Adverse.
The actual fixed overheads incurred for the year amounted to ` 1,50,000
and the expenditure variance was `25,000 Favourable.
In the context of the above, the following needs to be determined:
(i) The Actual output of Product Q produced during the year is:
(a) 10,000 units
(b) 12,500 units
(c) 25,000 units
(d) 15,000 units

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(ii) The Material price and material cost variance are:

(a) Price variance – 3,000 Adverse, Cost Variance – 5,000 Adverse
(b) Price variance – 3,000 Favourable, Cost Variance – 5,000
Favourable
(c) Price variance – 3,000 Favourable, Cost Variance – 8,000
Adverse
(d) Price variance – 5,000 Adverse, Cost Variance – 3,000
Favourable
(iii) The Standard Hours, Net Actual hours and the idle time are:
(a) Standard Hours – 27,500 Net Actual Hours – 28,000 hours Idle
Time – 2,000 hours
(b) Standard Hours – 22,500 Net Actual Hours – 28,500 hours Idle
Time – 1,500 hours
(c) Standard Hours – 24,000 Net Actual Hours – 29,000 hours Idle
Time – 1,000 hours
(d) Standard Hours – 25,000 hours Net Actual Hours –28,000 hours
Idle Time – 2,000 hours
(iv) Labour Efficiency variance and Labour rate variance are:
(a) Labour Efficiency Variance – 30,000 Favourable Labour rate
Variance – 25,000 Adverse
(b) Labour Efficiency Variance – 25,000 Favourable, Labour rate
Variance – 30,000 Adverse
(c) Labour Efficiency Variance – 25,000 Adverse, Labour rate
Variance – 30,000 Favourable
(d) Labour Efficiency Variance – 30,000 Adverse Labour rate
Variance – 25,000 Favourable
(v) Fixed Overhead volume variance is:
(a) Fixed Overhead volume variance – 1,00,000 Favourable
(b) Fixed Overhead volume variance – 50,000 Adverse

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(c) Fixed Overhead volume variance – 1,00,000 Adverse

(d) Fixed Overhead volume variance – 50,000 Favourable
Overheads: Absorption Costing Method
3. The accountant for Brilliant Tools Ltd applies overhead based on
machine hours. The budgeted overhead and machine hours for the year
are ` 1,30,000 and 8,000 hours, respectively. The actual overhead and
machine hours incurred were ` 1,37,500 and 10,000 hours. The cost of
goods sold and inventory data compiled for the year is as follows:
Direct Material ` 25,000
Cost of Goods Sold ` 2,25,000
Units: WIP 50,000 and Finished Goods 75,000
What is the amount of over/under absorbed overhead for the year?
(a) Over absorbed by ` 25,000
(b) Under absorbed by ` 25,000
(c) Over a absorbed by ` 32,500
(d) Under absorbed by ` 32,500
Process Costing
4. The following information is available in respect of Process I: Raw
material purchased and introduced 10,000 units @ 5 per unit Raw
Material received from store 4000 units @ 6 per unit Direct Labour
40,000 Overheads 28,000 Output of Process is 13,500 units, Normal
wastage 5% of inputs Scrap value of wastage 4 per unit The value of
Abnormal Gain is:
(a) ` 2062.68
(b) ` 2135.34
(c) ` 2103.70
(d) ` 2093.2

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Service Costing
5. A hotel has 200 rooms (120 Deluxe rooms and 80 Premium rooms). The
normal occupancy in summer is 80% and winter 60%. The period of
summer and winter is taken as 8 months and 4 months respectively.
Assume 30 days in each month. Room rent of Premium room will be
double of Deluxe room. Hotel is expecting a profit of 20% on total
revenue, total cost for the year is 2,66,11,200. Calculate the room rent to
be charged for Premium room.
(a) ` 450 per room day
(b) ` 900 per room day
(c) ` 380 per room day
(d) ` 760 per room day
6. ALC Ltd. is a insurance company. It launched a new term insurance
policy Names as Protection Plus. The total cost for the policy during the
year is ` 1,60,00,000. Total number of policies sold is 410 and total
insured value of policies is ` 920 crore.
What is the cost per rupee of insured value?
(a) ` 0.0017
(b) ` 0.18
(c) ` 575
(d) ` 2.24
Budget and Budgetary Control
7. A business manufactures a single product and is preparing its
production budget for the year ahead. It is estimated that 2,00,000 units
of the product can be sold in the year and the opening inventory is
currently 25,000 units. The inventory level is to be reduced by 40% by
the end of the year. What is production budget in units?
(a) 1,95,000 units
(b) 1,90,000 units
(c) 1,84,000 units

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(d) 1,75,000 units

Employee Cost
8. The labour turnover rates for the quarter ended 30th June, 2024 are
computed as 14%, 8% and 6% under Flux method, Replacement method
and Separation method respectively. If the number of workers replaced
during 1st quarter of the financial year 2024-25 is 36, COMPUTE the
following:
(i) The number of workers recruited and joined; and
(ii) The number of workers left and discharged.
Overheads: Absorption Costing Method
9. From the details furnished below you are required to compute a
comprehensive machine-hour rate:

Original purchase price of the machine (subject to

depreciation at 10% per annum on original cost) ` 12,96,000
Normal working hours for the month (The machine 200 hours
works for only 75% of normal capacity)
Wages to Machine-man ` 800 per day
(of 8 hours)
Wages to Helper (machine attendant) ` 500 per day
(of 8 hours)
Power cost for the month for the time worked ` 1,30,000
Supervision charges apportioned for the machine
centre for the month ` 18,000
Electricity & Lighting (fixed in nature) for the month ` 9,500
Repairs & maintenance (machine) including ` 17,500
consumable stores per month
Insurance of Plant & Building (apportioned) for the ` 18,000
year
Other general expense per annum ` 18,000

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INTERMEDIATE EXAMINATION

The workers are paid a fixed dearness allowance of ` 4,500 per month.
Production bonus payable to workers in terms of an award is equal to
10% of basic wages and dearness allowance. Add 10% of the basic wage
and dearness allowance against leave wages and holidays with pay to
arrive at a comprehensive labour-wage for debit to production.
Activity Based Costing
10. SOFTHUG is a global brand created by Green-lush Ltd. The company
manufactures three range of beauty soaps i.e. SOFTHUG- Gold,
SOFTHUG- Pearl, and SOFTHUG- Diamond. The budgeted costs and
production for the month of May, 2024 are as follows:
SOFTHUG- Gold SOFTHUG- Pearl SOFTHUG-
Diamond
Production 4,000 3,000 2,000
of soaps
(Units)
Resources Qty Rate Qty Rate Qty Rate
per Unit:
- Essential 60 ml ` 200/100 55 ml ` 300/100 65 ml ` 300/100
Oils ml ml ml
- Cocoa 20 g ` 200/100 g 20 g ` 200/100 g 20 g ` 200/100
Butter g
- Filtered 30 ml ` 15/100 ml 30 ml ` 15/100 ml 30 ml ` 15/100
Water ml
- Chemicals 10 g ` 30/100 g 12 g ` 50/100 g 15 g ` 60/100 g
- Direct 30 ` 10/hour 40 ` 10/hour 60 ` 10 / hour
Labour minutes minutes minutes

Green-lush Ltd. followed an Absorption Costing System and absorbed its

production overheads, to its products using direct labour hour rate,
which were budgeted at ` 1,98,000.
Now, Green-lush Ltd. is considering adopting an Activity Based Costing
system. For this, additional information regarding budgeted overheads
and their cost drivers is provided below:

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COST AND MANAGEMENT ACCOUNTING

Particulars (`) Cost drivers

Forklifting cost 58,000 Weight of material lifted
Supervising cost 60,000 Direct labour hours
Utility cost 80,000 Number of Machine operations

The number of machine operators per unit of production are 5, 5, and 6 for
SOFTHUG- Gold, SOFTHUG- Pearl, and SOFTHUG- Diamond respectively.
(Consider (i) Mass of 1 litre of Essential Oils and Filtered Water
equivalent to 0.8 kg and 1 kg respectively (ii) Mass of output produced
is equivalent to the mass of input materials taken together.)
You are required to:
(i) PREPARE a statement showing the unit costs and total costs of
each product using the absorption costing method.
(ii) PREPARE a statement showing the product costs of each product
using the ABC approach.
(iii) STATE what are the reasons for the different product costs under
the two approaches?
Cost Sheet
11. From the following data of Appu Ltd., CALCULATE (i) Material
Consumed; (ii) Prime Cost and (iii) Cost of production.

Amount (`)
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100

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(x) Quality control cost for the products in 86,000

manufacturing process
(xi) Research & development cost for improvement in 92,600
production process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during 9,200
the manufacturing process
(xiv) Packing cost necessary to preserve the goods for 10,200
further processing
(xv) Salary paid to Director (Technical) 8,90,000

Cost Accounting System

12. A manufacturing company disclosed a net loss of ` 3,47,000 as per their
cost accounts for the year ended March 31,2024. The financial accounts
however disclosed a net loss of ` 5,10,000 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 40,000
(ii) Administration Overheads over-absorbed 60,000
(iii) Depreciation charged in Financial Accounts 3,25,000
(iv) Depreciation charged in Cost Accounts 2,75,000
(v) Interest on investments not included in Cost Accounts 96,000
(vi) Income-tax provided 54,000
(vii) Interest on loan funds in Financial Accounts 2,45,000
(viii) Transfer fees (credit in financial books) 24,000
(ix) Stores adjustment (credit in financial books) 14,000
(x) Dividend received 32,000

PREPARE a memorandum Reconciliation Account

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Batch Costing
13. A jobbing factory has undertaken to supply 300 pieces of a component
per month for the ensuing six months. Every month a batch order is
opened against which materials and labour hours are booked at actual.
Overheads are levied at a rate per labour hour. The selling price
contracted for is ` 8 per piece. From the following data CALCULATE the
cost and profit per piece of each batch order and overall position of the
order for 1,800 pieces.

Month Batch Material cost Direct wages Direct labour

Output (`) (`) hours
January 310 1150 120 240
February 300 1140 140 280
March 320 1180 150 280
April 280 1130 140 270
May 300 1200 150 300
June 320 1220 160 320

The other details are:

Month Chargeable expenses Direct labour

(`) (Hours)
January 12,000 4,800
February 10,560 4,400
March 12,000 5,000
April 10,580 4,600
May 13,000 5,000
June 12,000 4,800

Process Costing
14. The following data are available in respect of Process-I for June 2024:
(1) Opening stock of work in process: 600 units at a total cost of
` 4,20,000.

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(2) Degree of completion of opening work in process:

Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of ` 55,20,000 for 9,200 units.
(4) Direct wages incurred ` 18,60,000
(5) Production overhead ` 8,63,000.
(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 ` 60 per unit.
You are required to:
(i) COMPUTE equivalent production,
(ii) CALCULATE the cost per equivalent unit for each element.
(iii) CALCULATE the cost of abnormal loss (or gain), closing work in
process and the units transferred to the next process using the
FIFO method.

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Joint Products & By-Products

15. Three products X, Y and Z alongwith a byproduct B are obtained again in
a crude state which require further processing at a cost of ` 5 for X; ` 4
for Y; and ` 2.50 for Z per unit before sale. The byproduct is however
saleable as such to a nearby factory. The selling prices for the three main
products and byproduct, assuming they should yield a net margin of 25
percent of cost, are fixed at ` 13.75 ` 8.75 and ` 7.50 and ` 1.00
respectively – all per unit quantity sold.
During a period, the joint input cost including the material cost was
` 90,800 and the respective outputs were:

X 8,000 units
Y 6,000 units
Z 4,000 units
B 1,000 units

By product should be credited to the joint cost and only the net joint
costs are to be allocated to the main products.
CALCULATE the joint cost per unit of each product and the margin
available as a percentage on cost.
Service Costing
16. BK Infra Ltd. built and operates a 110 k.m. long highway on the basis of
Built-Operate-Transfer (BOT) model for a period of 25 year. A traffic
assessment has been carried out to estimate the traffic flow per day. The
details are as below:

Sl. No. Type of vehicle Daily traffic volume

1. Two wheelers 44,500
2. Car and SUVs 3,450
3. Bus and LCV 1,800
4. Heavy commercial vehicles 816

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The following is the estimated cost of the project:

Sl. Activities Amount

No. (` in lakh)
1 Site clearance 170.70
2 Land development and filling work 9,080.35
3 Sub base and base courses 10,260.70
4 Bituminous work 35,070.80
5 Bridge, flyovers, underpasses, Pedestrian subway, 29,055.60
footbridge, etc.
6 Drainage and protection work 9,040.50
7 Traffic sign, marking and road appurtenance 8,405.00
8 Maintenance, repairing and rehabilitation 12,429.60
9 Environmental management 982.00
Total Project cost 114,495.25

An average cost of ` 1,120 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 vehicles 45%

Required:
(i) CALCULATE 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 to earn a profit of 15% on total cost.
[Note: Concession period is a period for which an infrastructure is
allowed to operate and recovers its investment]

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Marginal Costing
17. RS Ltd. manufactures and sells a single product X whose selling price is
` 100 per unit and the variable cost is ` 60 per unit.
(i) If the Fixed Costs for this year are ` 24,00,000 and the annual sales
are at 60% margin of safety, CALCULATE the rate of net return on
sales, assuming an income tax level of 40%
(ii) For the next year, it is proposed to add another product line Y
whose selling price would be ` 150 per unit and the variable cost
` 100 per unit. The total fixed costs are estimated at ` 28,00,000.
The sales mix of X : Y would be 5 : 3. COMPUTE the break-even
sales in units for both the products.
Budget and Budgetary Control
18. Raja 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

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

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Required
(i) CALCULATE number of units of product proposed to be sold and
selling price per unit,
(ii) PREPARE Production Budget in units and
(iii) PREPARE Material Purchase Budget in units.
Miscellaneous
19. (a) DISCUSS the Net Realisable Value (NRV) method of apportioning
joint costs to by-products.
(b) DIFFERENTIATE between Service costing and Product costing.
(c) DISCUSS the Controllable and un-controllable variances.
(d) DISCUSS the Standard and Discretionary Cost Centres.

SUGGESTED ANSWERS/HINTS

1. (i) (d) Cash discount is received when credit amount is paid within the
stipulated period of 30 days. The amount of cash discount to
be received from the supplier is:

Particulars Amount (`)

A. Listed price 2,50,000
B. Less: Trade Discount @10% (25,000)
C. Taxable value (A-B) 2.25,000
D. Add: GST@18% (18% of C) 40,500
E. Total amount payable to the supplier 2,65,500
F. Cash discount @10% (10% of C) (22,500)
G. Net amount to be paid to the supplier 2,43,000
(E-F)

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(ii) (b)

Particulars Units (`)

Listed Price of Materials 5,000 2,50,000
Less: Trade discount @ 10% on invoice (25,000)
price
2,25,000
Add: GST @ 18% of ` 2,25,000 40,500
2,65,500
Add: Toll Tax 5,000
Freight and Insurance 17,220
Commission and Brokerage Paid 10,000
Add: Cost of returnable containers:
Amount deposited ` 30,000
Less: Amount refunded ` 20,000 10,000
3,07,720
Add: Other Expenses @ 2% of Total Cost 6,280
` 3,07,720
� 98
×2�

Total cost of material 3,14,000

Less: Shortage material due to normal 1,000 -
reasons @ 20%
Total cost of material of good units 4,000 3,14,000
Cost per unit (` 3,14,000/4,000 units) 78.5

(iii) (b) Axe Traders is an unregistered supplier in the GST; thus, GST
credit is not applicable for it. GST paid on the purchase of the
material will be the part of the material cost.
(iv) (a) Please refer the solution above
(v) (c) Please refer the solution above

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2. (i) (a) 10,000 units

Usage variance of Material Z = 2,000 F
Usage Variance = SQ x SP – AQ x SP
SP =`2
AQ = 24,000 units
2 x (SQ – 24,000) = 2,000
2SQ = 50,000
Therefore SQ = 25,000
No of units of Input required per output =2
Yield of input = 80%
= (25000/2) x 80% = 10,000 units.
(ii) (b) Price variance – 3,000 Favourable,
Cost Variance – 5,000 Favourable
Price variance = AQ x (SP-AP)
24,000 x (2-1.875) = 3,000 Favourable.
Cost variance = SQ x SP – AQ x AP
= 50,000–45,000=5,000 Favourable.
(iii) (d) Standard Hours – 25,000 hours Net Actual Hours –28,000 hours
Idle Time – 2,000 hours
Actual output = 10,000 units
Standard hours per unit = 2.5
Therefore standard hours = 10,000 x 2.5 = 25,000 hours.
Idle time variance = SR x (Net AH – AH)
5 x (Net AH – 30,000) = 10,000 Adverse
5 Net AH – 1,50,000 = -10,000
5 Net AH = 1,40,000

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Net AH = 28,000 hours

Idle time = 2,000 hours
(iv) (c) Labour Efficiency Variance – 25,000 Adverse,
Labour rate Variance – 30,000 Favourable
Efficiency Variance = SR x (SH-AH)
= 5 x (25,000 – 30,000)
= 25,000 Adverse
Rate Variance = AH x (SR – AR)
= 30,000 (5 – 4) [1,20,000/30,000]
= 30,000 Favourable.
(v) (c) Fixed Overhead Volume variance – 1,00,000 Adverse
Overhead Volume variance = Actual OutputxSR per unit –
Budgeted FOH
Budgeted FOH = Actual FOH (+/-) Expenditure
variance
1,50,000 + 25,000 = 1,75,000
AO x SR = 10,000 x 7.5 = 75,000
Therefore volume variance = 75,000 – 1,75,000
=1,00,000 Adverse.
3. (a) Overabsorbed by ` 25,000
Predetermined Overhead Rate = Budgeted Overhead / Budgeted
hours i.e. 130,000 / 8,000 = ` 16.25 per hour.
Hence, absorbed overhead = 10,000 X 16.25 = ` 1,62,500.
Since actual overhead incurred were ` 1,37,500
Hence the overhead were over absorbed by 1,62,500 – 1,37,500
= ` 25,000.

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4. (d) ` 2093.2
Process a/c
Particulars Units Amount Particulars units Amount
Raw material 10,000 50,000 Normal loss 700 2,800
Stores 4,000 24,000 Units transferred 13,500 1,41,293.2
Direct
Wages 40,000
Production
overheads 28,000
Abnormal
gain 200 2,093.2
1,44,093.2 1,44,093.2

1, 42,000- 2,800
Cost per unit= = 10.466 per unit
14,000- 700
5. (b) ` 900 per room day
Total Revenue (2,66,11,200/80%) = 3,32,64,000
Calculation of Room Days:

Deluxe Premium
Summer 120 rooms x 80% x 30 80 rooms x 80% x 30
days x 8 months days x 8 months
= 23,040 = 15,360
Winter 120 rooms x 60% x 30 80 rooms x 60% x 30
days x 4 months days x 4 months
= 8,640 = 5,760
Total room days 31,680 21,120

Let’s assume the room rent of Deluxe room be ‘x’

Then rent of Premium room will be ‘2x’
Therefore: 31,680x + 42,240x = 3,32,64,000
X = 450

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Rent of Premium room will be 450 x 2 = ` 900 per room day

6. (a) ` 0.0017
Cost per rupee of insured value
= Total Cost/ Total Insured Value
= 1.6 cr/920 cr = ` 0.0017
7. (b) 1,90,000 units

Units
Sales budget 2,00,000
Add: Closing Inventory (25,000 x 0.6) 15,000
Less: Opening Inventory (25,000)
Production Budget 1,90,000
No. of workers replaced
8. Labour Turnover Rate (Replacement method) =
Average No. of workers

8 36
Or, =
100 Average No. of workers

Or, Average No. of workers = 450

No. of workers separated
Labour Turnover Rate (Separation method) =
Average No. of workers

6 No. of workers separated

Or, =
100 450
Or, No. of workers separated = 27
No. of Separations +No. of accession (Joinings)
Labour Turnover Rate (Flux Method) =
Average No. of workers

14 27 + No. of accessions (Joinings)

Or, =
100 450
Or, 100 (27 + No. of Accessions) = 6,300
Or, No. of Accessions = 36
(i) The No. of workers recruited and Joined = 36

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(ii) The No. of workers left and discharged = 27

9. Effective machine hours = 200 hours × 75% = 150 hours
Computation of Comprehensive Machine Hour Rate

Per month Per hour

(`) (`)
Fixed cost
Supervision charges 18,000.00
Electricity and lighting 9,500.00
Insurance of Plant and building 1,500.00
(` 18,000 ÷12)
Other General Expenses (` 18,000÷12) 1,500.00
Depreciation (` 1,29,600÷12) 10,800.00
41,300.00 275.33
Direct Cost
Repairs and maintenance 17,500.00 116.67
Power 1,30,000.00 866.67
Wages of machine man 196.00
Wages of Helper 136.00
Machine Hour rate (Comprehensive) 1,590.67

Wages per machine hour

Machine man Helper

Wages for 200 hours
Machine-man (` 800 × 25) ` 20,000.00 ---
Helper (` 500 × 25) --- ` 12,500.00

Dearness Allowance (DA) ` 4,500.00 ` 4,500.00

` 24,500.00 ` 17,000.00

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COST AND MANAGEMENT ACCOUNTING

Production bonus (10% of Basic and DA) 2,450.00 1,700.00

Leave wages (10% of Basic and DA) 2,450.00 1,700.00
29,400.00 20,400.00
Effective wage rate per machine 196.00 136.00
hour

10. (i) Traditional Absorption Costing

SOFTHUG- SOFTHUG SOFTHUG Total
Gold - Pearl - Diamond
(a) Production of 4,000 3,000 2,000 9,000
soaps (Units)
(b) Direct labour 30 40 60 -
(minutes)
(c) Direct labour 2,000 2,000 2,000 6,000
hours
(a × b)/60 minutes
Overhead rate per direct labour hour:
= Budgeted overheads ÷ Budgeted labour hours
= ` 1,98,000 ÷ 6,000 hours
= ` 33 per direct labour hour
Unit Costs:

SOFTHUG- SOFTHUG- SOFTHUG-

Gold (`) Pearl (`) Diamond (`)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
 10×30   10×40   10×60 
     
 60   60   60 
- Direct Material 167.50 215.50 248.50
(Refer working note 1)

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Production Overhead: 16.50 22.00 33.00

 33×30   33×40   33×60 
     
 60   60   60 
Total unit costs 189.00 244.17 291.50
Number of units 4,000 3,000 2,000
Total costs 7,56,000 7,32,510 5,83,000

Working note -1
Calculation of Direct material cost
SOFTHUG SOFTHUG SOFTHUG
- Gold (`) - Pearl (`) - Diamond (`)
120.00 165.00 195.00
Essential oils  200×60   300×55   300×65 
     
 100   100   100 
40.00 40.00 40.00
Cocoa Butter  200×20   200×20   200×20 
     
 100   100   100 
Filtered water 4.50 4.50 4.50
 15×30   15×30   15×30 
     
 100   100   100 
Chemicals 3.00 6.00 9.00
 30×10   50×12   60×15 
     
 100   100   100 
Total costs 167.50 215.50 248.50
(ii) Activity Based Costing
SOFTHUG- SOFTHUG- SOFTHUG- Total
Gold Pearl Diamond
Quantity (units) 4,000 3,000 2,000 -
Weight per unit 108 106 117 -
(grams) {(60 × 0.8) + {(55 × 0.8) + {(65 × 0.8) +
20 + 30 + 10} 20 + 30 + 12} 20 + 30 + 15}

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Total weight 4,32,000 3,18,000 2,34,000 9,84,000

(grams)
Direct labour 30 40 60 -
(minutes)
Direct labour 2,000 2,000 2,000 6,000
hours  4,000×30   3,000×40   2,000×60 
     
 60   60   60 
Machine 5 5 6 -
operations per
unit
Total 20,000 15,000 12,000 47,000
operations

Forklifting rate per gram = ` 58,000 ÷ 9,84,000 grams = ` 0.06 per

gram
Supervising rate per direct labour hour = ` 60,000 ÷ 6,000 hours =
` 10 per labour hour
Utilities rate per machine operations = ` 80,000 ÷ 47,000 machine
operations
= ` 1.70 per machine
operations
Unit Costs under ABC:

SOFTHUG SOFTHUG SOFTHUG

- Gold (`) - Pearl (`) - Diamond (`)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct material 167.50 215.50 248.50
Production Overheads:
Forklifting cost 6.48 6.36 7.02
(0.06 × 108) (0.06 × 106) (0.06 × 117)

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Supervising cost 5.00 6.67 10.00

 10×30   10×40   10×60 
     
 60   60   60 
Utilities 8.50 8.50 10.20
(1.70 × 5) (1.70 × 5) (1.70 × 6)

Total unit costs 192.48 243.70 285.72

Number of units 4,000 3,000 2,000
Total costs 7,69,920 7,31,100 5,71,440

(iii) Comments: The difference in the total costs under the two
systems is due to the differences in the overheads borne by each
of the products. The Activity Based Costs appear to be more
precise.
11. Calculation of Cost of Production of Appu Ltd.

Particulars Amount
(`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and 9,00,000
production
1,07,43,100

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Add: Opening value of W-I-P 4,06,000

Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Cost of Production 1,05,48,000

Notes:
(i) Other administrative overhead does not form part of cost of
production.
(ii) Salary paid to Director (Technical) is an administrative cost.
12. Memorandum Reconciliation Accounts

Dr. Cr.
(`) (`)
To Net Loss as per 3,47,000 By Administration 60,000
Costing books overheads over
recovered in cost
accounts
To Factory overheads 40,000 By Interest on investment 96,000
under absorbed in not included in Cost
Cost Accounts Accounts
To Depreciation under 50,000 By Transfer fees in 24,000
charged in Cost financial books
Accounts
To Income-Tax not 54,000 By Stores adjustment 14,000
provided in Cost (Credit in financial
Accounts books)
To Interest on Loan Funds 2,45,000 By Dividend received in 32,000
in Financial Accounts financial books
By Net loss as per 5,10,000
financial books
7,36,000 7,36,000

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13. Statement of Cost and Profit per batch

Particulars Jan. Feb. March April May June Total

Batch output (in 310 300 320 280 300 320 1,830
units)
Sale value (`) 2,480 2,400 2,560 2,240 2,400 2,560 14,640
Material cost (`) 1,150 1,140 1,180 1,130 1,200 1,220 7,020
Direct wages (`) 120 140 150 140 150 160 860
Chargeable 600 672 672 621 780 800 4,145
expenses* (`)
Total cost (`) 1,870 1,952 2,002 1,891 2,130 2,180 12,025
Profit per batch 610 448 558 349 270 380 2,615
(`)
Total cost per 6.03 6.51 6.26 6.75 7.10 6.81 6.57
unit (`)
Profit per unit 1.97 1.49 1.74 1.25 0.90 1.19 1.43
(`)

Overall position of the order for 1,800 units

Sales value of 1,800 units @ ` 8 per unit ` 14,400
Total cost of 1,800 units @ ` 6.57 per unit ` 11,826
Profit ` 2,574
Chargeable expenses
* ×Direct labour hours for batch
Direct labour hour for the month

14. (i) Statement of Equivalent Production (FIFO Method)

Input Output Equivalent Production

Materials Labour Production
Overhead
Details Units Details Units % Units % Units % Units
Opening 600 From opening 600 - - 40 240 40 240
Stock stock

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- From fresh 8,300 100 8,300 100 8,300 100 8,300

materials
Closing W-I-P 700 100 700 70 490 70 490
Fresh inputs 9,200 Normal loss 392 - - - - - -
9,992 9,000 9,030 9,030
Less: Abnormal
Gain (192) 100 (192) 100 (192) 100 (192)
9,800 9,800 8,808 8,838 8,838

(ii) Statement of Cost per equivalent units

Elements Cost Equivalent Cost per
(`) (`) units (EU) EU (`)
Material Cost 55,20,000
Less: Scrap realisation (23,520) 54,96,480 8,808 624.03
392 units @ ` 60/- p.u.
Labour cost 18,60,000 8,838 210.45
Production OH Cost 8,63,000 8,838 97.65
Total Cost 82,19,480 932.13

(iii) Cost of Abnormal Gain – 192 Units

(`) (`)
Material cost of 192 units @ ` 624.03 p.u. 1,19,813.76
Labour cost of 192 units @ ` 210.45 p.u. 40,406.40
Production OH cost of 192 units @ ` 97.65 18,748.80 1,78,968.96
p.u.
Cost of closing WIP – 700 Units
Material cost of 700 equivalent units @ 4,36,821.00
` 624.03 p.u.
Labour cost of 490 equivalent units @ 1,03,120.50
` 210.45 p.u.
Production OH cost of 490 equivalent @ 47,848.50 5,87,790.00
` 97.65 p.u.

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Cost of 8,900 units transferred to next process `

(i) Cost of opening W-I-P Stock b/f – 600 units 4,20,000.00
(ii) Cost incurred on opening W-I-P stock
Material cost —
Labour cost 240 equivalent units @ ` 210.45 p.u. 50,508.00
Production OH cost 240 equivalent units @ ` 97.65 p.u.
23,436.00
4,93,944.00
(iii) Cost of 8,300 completed units
8,300 units @ ` 932.13 p.u. 77,36,679.00
Total cost [(i) + (ii) + (iii))] 82,30,623.00
15. Working Notes:
(i) Computation of Allocation Ratio for Joint Costs

Products
X Y Z.
` ` `
Selling Price 13.75 8.75 7.50
Less: anticipated margin@ 25% on 2.75 1.75 1.50
cost of 20% on sales
Cost of sales 11.00 7.00 6.00
Less: post split off cost 5.00 4.00 2.50
Joint cost per unit 6.00 3.00 3.50
Output (units) 8,000 6,000 4,000
Total output cost 48,000 18,000 14,000
Allocation ratio for joint costs 24 9 7

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(ii) Computation of net allocable joint costs

` `
Joint input cost including material cost 90,800
Less: Credit for realization from by-product B:
Sales revenue (1,000 × Re. 1) 1,000
Less: profit @ 25% on cost or 20% on sales 200 800
Net joint costs to be allocated 90,000

Determination of joint cost per unit of each product

Product Net joint costs Output Joint cost

allocation (units) per unit
` ` `
X 54,000 (Note: 1) 8,000 6.75
Y 20,250 6,000 3.38
Z 15,750 4,000 3.94
90,000

Profit margin available on each product as a percentage on cost

Product Joint Post Total Selling Margin Margin

Cost spilt-off Cost Price % on
cost cost
` ` ` ` ` `
X 6.75 5.00 11.75 13.75 2.00 17.02
Y 3.38 4.00 7.38 8.75 1.37 18.56
Z 3.94 2.50 6.44 7.50 1.06 16.46

Note: 1

24
× 90,000
X= 40 = 54,000
9
×90,000
Y= 40 = 20,250

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7
× 90,000
Z= 40 = 15,750
90,000
16. (i) Calculation of total project cost per day of concession period:

Activities Amount
(` in lakh)
Site clearance 170.70
Land development and filling work 9,080.35
Sub base and base courses 10,260.70
Bituminous work 35,070.80
Bridge, flyovers, underpasses, Pedestrian subway,
footbridge, etc. 29,055.60
Drainage and protection work 9,040.50
Traffic sign, marking and road appurtenance 8,405.00
Maintenance, repairing and rehabilitation 12,429.60
Environmental management 982.00
Total Project cost 114,495.25
Administration and toll plaza operation cost 1,120.00
Total Cost 115,615.25
Concession period in days (25 years × 365 days) 9,125
Cost per day of concession period (` in lakh) 12.67

(ii) Computation of toll fee:

Cost to be recovered per day = Cost per day of concession
period + 15% profit on cost
= ` 12,67,000 + ` 1,90,050
= ` 14,57,050
` 14,57,050
Cost per equivalent vehicle =
76, 444units(Refer workingnote)

= ` 19.06 per equivalent vehicle

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Vehicle type-wise toll fee:

Sl. Type of vehicle Equivalent Weight Toll fee per
No. cost vehicle
[A] [B] [A×B]
1. Two wheelers ` 19.06 1 19.06
2. Car and SUVs ` 19.06 4 76.24
3. Bus and LCV ` 19.06 6 114.36
4. Heavy commercial vehicles ` 19.06 9 171.54

Working Note:
The cost per day has to be recovered from the daily traffic. Each type of
vehicle is to be converted into equivalent unit. Let’s convert all vehicle
types equivalent to Two-wheeler

Sl. Type of vehicle Daily traffic Weight Ratio Equivalent

No. volume Two-wheeler
[A] [B] [A×B]
1. Two wheelers 44,500 0.05 1 44,500
2. Car and SUVs 3,450 0.20 4 13,800
3. Bus and LCV 1,800 0.30 6 10,800
4. Heavy commercial 816 0.45 9 7,344
vehicles
Total 76,444

17. (i) Contribution per unit = Selling price – Variable cost

= ` 100 – ` 60
= ` 40
` 24,00,000
Break-even Point =
` 40
= 60,000 units
Actual Sales – Break - even Sales
Percentage Margin of Safety =
Actual Sales

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Actual Sales – 60,000units

Or, 60% =
Actual Sales

∴ Actual Sales = 1,50,000 units

(`)
Sales Value (1,50,000 units × ` 100) 1,50,00,000
Less: Variable Cost (1,50,000 units × ` 60) (90,00,000)
Contribution 60,00,000
Less: Fixed Cost (24,00,000)
Profit 36,00,000
Less: Income Tax @ 40% (14,40,000)
Net Return 21,60,000
 ` 21,60,000 
Rate of Net Return on Sales = 14.40%  ×100 
 ` 1,50,00,000 

(ii) Products

X (`) Y (`)
Selling Price per unit 100 150
Variable Cost per unit 60 100
Contribution per unit 40 50

Composite contribution will be as follows:

 40   50 
Contribution per unit =  ×5  +  ×3 
 8   8 
= 25 + 18.75 = ` 43.75
 `28,00,000 
Break-even Sale = 64,000 units  
 ` 43.75 

Break-even Sales Mix:

X (64,000 units × 5/8) = 40,000 units
Y (64,000 units × 3/8) = 24,000 units

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18. 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
= ` 3,780

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(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 Kg.) (8,500 units × 3 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

19. (a) Net Realisable Value method: The realisation on the disposal of the
by-product may be deducted from the total cost of production so as
to arrive at the cost of the main product. For example, the amount
realised by the sale of molasses in a sugar factory goes to reduce the
cost of sugar produced in the factory.
When the by-product requires some additional processing and
expenses are incurred in making it saleable to the best advantage
of the concern, the expenses so incurred should be deducted from
the total value realised from the sale of the by-product and only
the net realisations should be deducted from the total cost of
production to arrive at the cost of production of the main product.
Separate accounts should be maintained for collecting additional
expenses incurred on:
(i) further processing of the by-product, and

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(ii) selling, distribution and administration expenses attributable

to the by-product.
(b) Service costing differs from product costing (such as job or
process costing) in the following ways due to some basic and
peculiar nature.
(i) Unlike products, services are intangible and cannot be
stored, hence, there is no inventory for the services.
(ii) Use of Composite cost units for cost measurement and to
express the volume of outputs.
(iii) Unlike a product manufacturing, employee (labour) cost
constitutes a major cost element than material cost.
(iv) Indirect costs like administration overheads are generally
have a significant proportion in total cost of a service as
unlike manufacturing sector, service sector heavily depends
on support services and traceability of costs to a service may
not economically feasible
(c) Controllable and un-controllable variances: The purpose of
the standard costing reports is to investigate the reasons for
significant variances so as to identify the problems and take
corrective action.
Variances are broadly of two types, namely, controllable and
uncontrollable. Controllable variances are those which can be
controlled by the departmental heads whereas uncontrollable
variances are those which are beyond their control. Responsibility
centres are answerable for all adverse variances which are
controllable and are appreciated for favourable variances.
Controllability is a subjective matter and varies from situation to
situation. If the uncontrollable variances are of significant nature
and are persistent, the standard may need revision.
(d) (i) Standards Cost Centres: Cost Centre where output is
measurable and input required for the output can be specified.
Based on a well-established study, an estimate of standard
units of input to produce a unit of output is set. The actual cost
for inputs is compared with the standard cost. Any deviation

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(variance) in cost is measured and analysed into controllable

and uncontrollable cost. The manager of the cost centre is
supposed to comply with the standard and held responsible for
adverse cost variances. The input-output ratio for a standard
cost centre is clearly identifiable.
(ii) Discretionary Cost Centre: The cost centre whose output
cannot be measured in financial terms, thus input-output
ratio cannot be defined. The cost of input is compared with
allocated budget for the activity. Example of discretionary
cost centres are Research & Development department,
Advertisement department where output of these
department cannot be measured with certainty and co-
related with cost incurred on inputs.

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ACCOUNTING

Question No. 1 is compulsory.

Attempt any four questions out of the remaining five questions.
In case, any candidate answers extra question(s)/ sub-question(s) over and
above the required number, then only the requisite number of questions first
answered in the answer book shall be valued and subsequent extra
question(s) answered shall be ignored.
Working notes should form part of the answer.
Question 1
(a) Tesco cycles Ltd. used about 3,60,000 cycle locks per annum and the usage
is fairly constant at 30,000 per month. The cycle lock costs ` 240 each at
wholesale rate and carrying cost is estimated to be 10% of the annual
average inventory value. The cost to place an order is ` 1200. It takes 45 days
to receive delivery from the date of order. In order to avoid any kind of
disruption in assembly line, safety stock of 6,500 cycle locks is always
maintained by Tesco Cycles Ltd.
(Assume 360 days in a year).
Compute:
(i) E.O.Q.
(ii) The re-order level.
(iii) The company has been offered a quantity discount of 2% on the purchase
of cycle locks provided the order size is 30,000 units at a time. Advise
whether quantity discount offer can be accepted?
(b) A company produces two products, A and B, through a joint production
process. The total joint production cost incurred is as under:

Material ` 20,000
Labour ` 10,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Variable overheads ` 6,000

Fixed Overheads ` 24,000
Product A and B can be sold for ` 20 per unit and ` 15 per unit respectively
at split off point. The produced quantities are Product A-2,000 units and
Product B – 4,000 units.
(i) You are required to calculate the joint production cost allocation for each
product using the:
(a) Physical unit method.
(b) Contribution margin method.
(ii) Product B can be further processed by incurring expenditure of
` 12,000. Loss in further processing is 2%. It can be sold @ ` 18 per unit.
Explain the impact on profitability if Product B is further processed.
(c) Following data is available for XYZ Ltd. for the month of February 2024:

Standard working hours 8 hours per day of 6 days per week

No. of weeks in the month 4
Maximum capacity 150 employees
Actual working 125 employees
Actual usage of Budgeted Capacity 86%
Ratio
Efficiency Ratio 110%

You are required to calculate the following:

(i) Actual Hours worked.
(ii) Standard Hours for actual output.
(iii) Activity Ratio.
(iv) Standard Capacity Usage Ratio.
Answer
(a) (i) Calculation of Economic Order Quantity

2AO 2 ×3,60,000 units × `1200

EOQ = = = 6,000 units
C `24

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Where,
A = Annual Demand = 3,60,000 units
O = Ordering cost per order = `1200
C = Inventory carrying cost per unit per annum = 10% of `240 = ` 24
(ii) Re-order Level = Safety Stock + Lead Time Consumption
= 6,500 + (1,000 x 45) units = 51,500 units
Or,
Minimum level of cycle locks + [Average rate of consumption ×
Average time required to obtain fresh delivery]
= 6,500 + (1,000 x 45) units = 51,500 units
(iii) Evaluation of Profitability of Different Options of Order Quantity
(a) When EOQ is ordered (order size of 6,000 units)

(`)
Purchase Cost (3,60,000 units  ` 240) 8,64,00,000
Ordering Cost [(3,60,000 units/6,000 units) 
72,000
` 1,200]
Carrying Cost (6,000 units  `240  ½ 
72,000
10/100)
Total Cost 8,65,44,000
(b) When Quantity Discount is accepted (order size of 30,000 units)

(`)
Purchase Cost [3,60,000 units  ` 235.2 (240-
8,46,72,000
4.8)]
Ordering Cost [(3,60,000 units/30,000 units) 
14,400
`1,200]
Carrying Cost (30,000 units  ` 235.2 ½ 
3,52,800
10/100)
Total Cost 8,50,39,200

Advise – The total cost of inventory is lower if discount is accepted.

Hence, the company is advised to accept the quantity discount.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(b) Working
Calculation of joint cost

Description Amount (`)

Material 20,000
Labour 10,000
Variable overheads 6,000
Total variable cost 36,000
Fixed overheads 24,000
Total joint cost 60,000

(i) (a) Allocation of joint cost using physical unit method:

Product A = `60,000 × 2,000/6,000 = ` 20,000
Product B = `60,000 × 4,000/6,000 = ` 40,000
(b) Allocation of joint cost using contribution margin method:

Description Product-A Product-B

Units produced 2,000 4,000
Selling price per unit (`) 20 15
A. Sales value (`) 40,000 60,000
B. Allocation of joint
variable cost on the basis
of physical unit
`36,000 × 2,000/6,000 (12,000)
`36,000 × 4,000/6,000 (24,000)
C= A-B Contribution 28,000 36,000
D Allocation of fixed joint
cost on the basis of
contribution margin
`24,000 × 28,000/64,000 (10,500)
`24,000 × 36,000/64,000 (13,500)
C-D Profit at split off point 17,500 22,500

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Allocation of Joint Cost on the basis of Contribution Margin Method:

Particulars Product A Product B

Allocation of Variable Cost ` 12,000 ` 24,000
Allocation of Fixed Cost ` 10,500 ` 13,500
Total Joint Cost ` 22,500 ` 37,500

(ii) Profitability after further processing of Product B

Description Amount (`)

Units produced and sold 98% of 4,000 units 3,920
Selling price per unit (`) 18
Sales value (`) 70,560
Joint cost upto split off point (37,500)
Further processing cost (12,000)
Profit after further processing 21,060

Calculation of the profitability after further processing of product

B can also be done in the following manner:
Profitability after further processing of Product B

Description Amount (`)

Incremental revenue on further processing 10,560
(3,920 x `18)- (4,000 x `15)
Further processing cost (12,000)
Incremental loss after further processing 1,440

Impact on profitability on Product B

If Product B is sold at split off point it earns profit of ` 22,500, but after
further processing the profit is reduced to ` 21,060/- i.e. an opportunity
loss of ` 1,440/-.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(c) (i) Actual Hours worked

Actual working Hours
Actual Usage of Budgeted Capacity Ratio = ×100
Budgeted Hours

86% = (Actual working hours÷ Budgeted hours) × 100

Budgeted hours=125 workers × 8 hours× 6 days × 4 weeks = 24,000
hours
Actual hours= 24,000 × 86% = 20,640 hours

(ii) Standard hours for actual output

Standard Hrs
Efficiency ratio = ×100
Actual Hrs
110% = Standard hours÷ Actual hours
Standard hours= 20,640 × 110% = 22,704 hours
Standard Hrs
(iii) Activity ratio = ×100
Budgeted Hrs

= (22,704 ÷ 24,000) × 100 = 94.6%

(iv) Standard capacity usage ratio
Budgeted Hours
= ×100
Max. possible hours in the budgeted period

= {24,000 hours÷ (150 workers × 8 hours× 6 days × 4 weeks)} × 100

= (24,000 ÷ 28,800) × 100 = 83.33%

Question 2
(a) Luxury Designer Pvt. Ltd. is a manufacturing company, which manufactures
readymade designer shirts. It has four customers: two wholesale category
customers and two retail category customers. It has developed the following
Activity- Based Costing system:

Activity Cost Driver Rate ( `)

Order Processing 1,260 per purchase order
Customer Visits 1,500 per customer visit

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Regular Delivery 30 per delivery Km. travelled

Expedited Delivery 4,490 per expedited delivery

List selling price per shirt is ` 1,000 and average cost per shirt is ` 600. CEO
of Luxury Designer Pvt. Ltd. wants to evaluate the profitability of each of the
four customers for the year 2023, to explore opportunities for increasing
profitability of his Company in the next year 2024. The following data in
context of four customers are available for 2023:

Wholesale Retail
Customers Customers
WC-1 WC-2 RC-1 RC-2
Number of Purchase orders 50 65 224 245
Number of Customer visits 10 13 25 22
Regular Deliveries 46 52 175 198
Kilometers travelled per delivery 20 15 10 25
Expedited Deliveries 5 16 50 62
Average Number of Shirts per Shirt 215 110 18 15
Average Selling Price per Shirt ` 700 ` 800 ` 900 ` 950
You are required to:
Calculate the customer-level operating income and operating income as a %
of revenues in 2023 and rank them on the basis of relative profitability.
(b) Star Airlines operates a single aircraft of 180 seats capacity between city 'ND'
and 'GA'. The average normal occupancy is estimated at 70% per flight. The
average one-way fare is ` 12,500 from city 'ND" to 'GA'. The costs of
operation of the flight as collected by an expert analyst are:

Fuel cost (Variable) per flight from ‘ND’ to ‘GA’ ` 2,28,000 per flight
Food served on flight from ‘ND’ to ‘GA’ ` 270 per passenger
(no charge to passenger)
Commission paid to Travel Agents 7.5% of fare
(All ticket booking through agents)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Fixed costs:
Lease & landing charges per flight ‘ND’ to ‘GA’ ` 9,12,000
Salaries of flight crew per flight ‘ND’ to ‘GA’ ` 90,000
Note: Assume that fuel costs are unaffected by the actual number of
passengers on a flight.
You are required to:
(i) Calculate the net operating income that Star Airlines makes per flight
from 'ND' to 'GA'.
(ii) Star Airlines expects that its occupancy will increase to 144 passengers
per flight if the fare is reduced to ` 11,670. Advise whether this proposal
should be implemented or not.
Answer
(a) Working note:
Computation of revenues (at listed price), discount, cost of goods sold
and customer level operating activities costs:

Wholesale Category Retail Category

Customers Customers
WC-1 WC-2 RC-1 RC-2
Number of shirts 10,750 7,150 4,032 3,675
sold (a) (215x50) (110x65) (18x224) (15x245)
Revenues (at listed
price) (`): (b) 1,07,50,000 71,50,000 40,32,000 36,75,000
{(a) × ` 1,000)}
Discount (`): (c)
{(a) × Discount per 32,25,000 14,30,000 4,03,200 1,83,750
shirt}
Cost of shirts (`) : (d)
64,50,000 42,90,000 24,19,200 22,05,000
{(a) × ` 600}
Order taking costs
63,000 81,900 2,82,240 3,08,700
(`):

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(No. of purchase ×
`1,260)
Customer visits
costs (`)
15,000 19,500 37,500 33,000
(No. of customer
visits × ` 1,500)
Delivery vehicles
travel costs (`)
(Kms travelled by 27,600 23,400 52,500 1,48,500
delivery vehicles ×
` 30 per km.)
Cost of expediting
deliveries (`)
{No. of expedited 22,450 71,840 2,24,500 2,78,380
deliveries ×
` 4,490}
Total cost of
customer level
1,28,050 1,96,640 5,96,740 7,68,580
operating activities
(`)

Computation of Customer level operating income

Wholesale Category Retail Category

Customers Customers
WC-1 WC-2 RC-1 RC-2
Revenues
(At list price)
1,07,50,000 71,50,000 40,32,000 36,75,000
(Refer to working
note)
Less: Discount
(Refer to working 32,25,000 14,30,000 4,03,200 1,83,750
note)
Revenue 75,25,000 57,20,000 36,28,800 34,91,250

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(At actual price)

Less: Cost of shirts
(Refer to working 64,50,000 42,90,000 24,19,200 22,05,000
note)
Gross margin 10,75,000 14,30,000 12,09,600 12,86,250
Less: Customer level
operating activities
costs 1,28,050 1,96,640 5,96,740 7,68,580
(Refer to working
note)
Customer level
9,46,950 12,33,360 6,12,860 5,17,670
operating income
Operating income as
12.584% 21.562% 16.889% 14.828%
a % of revenues
Rank IV I II III

(b) (i) No. of passengers 180 seats  70% = 126

(`) (`)
Fare collection (126 passengers  `12,500) 15,75,000
Variable costs:
Fuel 2,28,000
Food (126 passengers  `270) 34,020
Commission (7.5 % of `15,75,000) 1,18,125 3,80,145
Contribution per flight 11,94,855
Fixed costs:
Lease and Landing Charges 9,12,000
Salaries of flight Crew 90,000 10,02,000
Net income per flight 1,92,855

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(ii)

Fare collection (144 passengers  `11,670) 16,80,480

Variable costs:
Fuel 2,28,000
Food (144 passengers  `270) 38,880
Commission (7.5% of `16,80,480) 1,26,036 3,92,916
Contribution 12,87,564
Fixed costs:
Lease and Landing Charges 9,12,000
Salaries of flight Crew 90,000 10,02,000
Net income per flight 2,85,564

There is an increase in contribution by ` 92,709. Hence the proposal is

acceptable.
Question 3
(a) A factory is currently working at 60% capacity and produces 12,000 units of
a product. Management is thinking to increase the working capacity either
to 70% or 90% level. It is estimated that at both the levels, it will be able to
sell all the produced units. The other details are as under:
• At 70% capacity, the cost of raw materials increases by 4% and the
selling price falls by 3%.
• At 90% capacity, the cost of raw materials increases by 5% and selling
price falls by 4%.
• At 60% capacity, the product cost is ` 360 per unit and it is sold at ` 400
per unit.
• The unit cost of 360 consists of the following:

Material ` 200
Labour ` 60
Factory overhead ` 60 (50 % fixed)
Administrative & Selling overhead ` 40 (60 % fixed)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

• Additional advertising cost of ` 20,000 is to be incurred for selling the

product above 80% capacity.
You are required to:
(i) Calculate the profits of the company when the factory works at 60%,
70% and 90% capacity level.
(ii) Offer your comments regarding increase in the capacity based on profit
calculated.
(b) S.K. Manufacturing Co. Ltd. showed a net profit of ` 5,40,400 as per their cost
accounts for the year ended 31.03.2004. However, the financial books
disclosed a net profit of ` 2,60,500 for the same period. The following
information was revealed as a result of scrutiny of the figures of both the sets
of books:
`
Factory overheads under absorbed 84,800
Administrative overheads over absorbed 24,000
Interest paid on bank borrowings 50,000
Interest & Divided received 65,200
Notional rent of own premises charged in cost accounts 60,000
Losses on the sales of fixed assets and investments 48,000
Donations and subscriptions 18,800
Overvaluation of closing stock of finished goods in Cost 1,25,000
accounts
Store adjustments (credited in financial books) 7,500
Depreciation over charged in cost accounts 40,000
Income tax provided 1,50,000

You are required to:

(i) Prepare a reconciliation statement taking net profit as per cost accounts
as base.
(ii) State when is the reconciliation statement of Cost and Financial accounts
not required?

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Answer
(a) (i) Expense Budget at 60%, 70% & 90% level

60% (12,000 70% (14,000 90% (18,000

units) units) units)
Per Per Per
Amount Amount Amount
unit unit unit
(`) (`) (`)
(`) (`) (`)
Sales (A) 400 48,00,000 388 54,32,000 384 69,12,000
Variable Costs:
210
Direct Material 200 24,00,000 208 29,12,000
37,80,000
Direct Wages 60 7,20,000 60 8,40,000 60 10,80,000
Variable Factory
30 3,60,000 30 4,20,000 30 5,40,000
Overheads
Variable
Administrative &
16 1,92,000 16 2,24,000 16 2,88,000
Selling
Overheads
Total Variable
306 36,72,000 314 43,96,000 316 56,88,000
Cost (B)
Contribution
94 11,28,000 74 10,36,000 68 12,24,000
(C)=(A–B)
Fixed Costs:
Fixed Factory
-- 3,60,000 -- 3,60,000 -- 3,60,000
Overheads (50%)
Fixed
Administrative &
-- 2,88,000 -- 2,88,000 -- 2,88,000
Selling
Overheads (60%)
Adverting Cost -- -- -- -- -- 20,000
Total Fixed Costs
-- 6,48,000 -- 6,48,000 -- 6,68,000
(D)
Profit (C – D) -- 4,80,000 -- 3,88,000 -- 5,56,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(ii) Comment: Increase of production capacity to 90% is likely to increase

the profit to maximum of ` 5,56,000 due to increase in contribution
while fixed cost is slightly increased due to in advertising cost. At 70%
capacity, profit is reduced to minimum of ` 3,88,00 due to decrease in
selling price by 3% along with increase in raw material cost by 4%
resulting in decrease of contribution. Therefore, it is recommended
that factory should operate at 90% capacity.
(b) (i) Statement of Reconciliation of profit as obtained under Cost and
Financial Accounts

(`) (`)
Profit as per Cost Records 5,40,400
Add: Administrative Overhead over
absorbed 24,000
Interest & Dividend Received 65,200
Notional rent of own premises 60,000
Stores adjustments (credited in
financial books) 7,500
Depreciation over charged in cost
accounts 40,000 1,96,700
7,37,100
Less: Factory overheads under absorbed 84,800
Interest paid on bank borrowings 50,000
Losses on sale of fixed assets and
investments 48,000
Donations and subscriptions 18,800
Over-valuation of closing stock of
finished goods in cost accounts 1,25,000
Income tax 1,50,000 (4,76,600)
Profit as per Financial Records 2,60,500

(ii) Circumstances where reconciliation statement can be avoided:

When the Cost and Financial Accounts are integrated - there is no need

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

to have a separate reconciliation statement between the two sets of

accounts. Integration means that the same set of accounts fulfil the
requirement of both i.e., Cost and Financial Accounts.
Question 4
(a) Meta Company Ltd. is engaged in the production of product ‘Trio' which
passes through two different processes Process P and Process Q. Other
information obtained from books of account for the year is as follows:

Particulars Process P Process Q

Raw material used 10,000 ---
Raw material cost per unit ` 80 ---
Direct wages ` 52,000 ` 78,000
Direct Expenses ` 8,600 ` 11,100
Selling price per unit of output ` 130 ` 190
Production overheads of ` 3,00,000 are recovered as percentage of direct
wages.
Actual output of the two processes was:
P-9,200 units and Q-6,400 units. 3/4 thof the output of Process P was passed
on to the Process Q and the balance was sold. The entire output of process Q
was sold.
Management & Selling expenses during the year were ` 1,70,000.
These are not allocable to the processes.
The normal loss of the two processes, calculated on the input of every process
was:
Process P- 6% and Process Q-10%
The Loss of Process P was sold at ` 5 per unit and that of Q at ` 8 per unit.
Assume that Process P and Process Q are not the responsibility centres.
You are required to prepare:
(i) Process P Account
(ii) Process Q Account
(iii) Abnormal Loss and Abnormal Gain Account

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(iv) Costing Profit & Loss Account.

(b) The cost variance report was being discussed at a review meeting where in
Cost Accountant of the company reported under-absorption of production
overheads.
The following information was available from the cost records of the
company at the end of financial year 2023-24:
• Actual production overheads incurred were ` 4,50,000 which included
` 42,000 on account of 'written off obsolete stores.
• 18,000 units were produced during the year out of which 10,000 units
were sold and 8,000 units of finished goods were in stock.
• There were also 5,000 units in progress which may be reckoned as 40%
complete.
• The actual machine hours worked during the period were 43,000.
ABC Ltd. absorbs the production overheads at a predetermined rate of ` 8
per machine hour.
On investigation, it has been found that 20% of the under-absorption of
production overheads was due to defective planning and the rest was
attributable to normal increase in costs of indirect materials and indirect
labour.
You are required to:
(i) Calculate the amount of under-absorption of production overheads
during the year 2023-24; and
(ii) Show the treatment of under-absorption of production overheads in cost
accounts.
Answer
(a) Process- P Account
Particulars Units Amount Particulars Units Amount
(`) (`)
To Material 10,000 8,00,000 By Normal 600 3,000
Loss
To Wages 52,000 By Process Q

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

To Direct Exp. 8,600 (9,200 × 3/4) 6,900 7,17,600

To Production 1,20,000 By Costing
Overheads Profit and Loss
(3,00,000 × 2/5) (P&L) (9,200 ×
1/4) 2,300 2,39,200
By Abnormal
Loss 200 20,800
10,000 9,80,600 10,000 9,80,600
9,80,600-3,000
Cost per unit = = ` 104 per unit
10,000-600
Process- Q Account
Particulars Units Amount Particulars Units Amount
(`) (`)
To Process P 6,900 7,17,600 By Normal 690 5,520
Loss
To Wages 78,000
To Direct Exp. 11,100 By Costing 6,400 10,11,200
P&L
To Production 180,000
Overheads
(3,00,000 × 3/5)
To Abnormal Gain 190 30,020
7,090 10,16,720 7,090 10,16,720
9,86,700-5,520
Cost per unit = = `158 per unit
6900-690
Abnormal Loss Account

Particulars Units Amount Particulars Units Amount

(`) (`)
To Process- P 200 20,800 By Bank 200 1,000
By Costing P&L 19,800

200 20,800 200 20,800

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Abnormal Gain Account

Particulars Units Amount Particulars Units Amount

(`) (`)
To Normal Loss 190 1,520 By Process 190 30,020
Q
To Costing Profit and 28,500
Loss
190 30,020 190 30,020

Costing Profit & Loss Account for the year

Dr. Cr.

Particulars Amount Particulars Amount

(`) (`)
To Cost of Sales By Sales
P - 2,39,200 P 2300 @ 130
Q - 10,11,200 12,50,400 Q 6400 @ 190 15,15,000
To Abnormal Loss 19,800 By Abnormal Gain 28,500
To Selling Expense 1,70,000

To Net Profit 1,03,300

15,43,500 15,43,500
(b) (i) Amount of under-absorption of production overheads during the
current year
(`)
Total production overheads actually incurred 4,50,000
during the current year
Less : ‘Written off’ obsolete stores 42,000
Net production overheads actually incurred : (A) 4,08,000
Production overheads absorbed by 43,000 machine
hours@ ` 8 per hour : (B) 3,44,000

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Amount of under – absorption of production overheads :

[(A) – (B)] 64,000
(ii) Accounting treatment of under absorption of production
overheads
It is given in the statement of the question that 18,000 units were
produced, and 5,000 units were 40% complete, 20% of the under-
absorbed overheads were due to defective planning and the rest were
attributable to normal increase in costs of indirect materials and
indirect labour.

1. (20 % of ` 64,000) i.e., ` 12,800 of under-absorbed

overheads were due to defective planning. This ` 12,800
being abnormal, should be debited to the Costing
Profit and Loss A/c.
2. Balance (80% of ` 64,000) i.e., ` 51,200
of under-absorbed overheads should be ` 51,200
distributed over work-in-progress, finished goods
and cost of sales by using supplementary rate.
Total under-absorbed overheads ` 64,000

Apportionment of unabsorbed overheads of ` 51,200 over, work-in progress,

finished goods and cost of sales

Equivalent (`)
Completed Units
Work-in-Progress
(5,000 units × 40%×` 2.56) 2,000 5,120
(Refer to working note)
Finished goods
(8,000 units × ` 2.56) 8,000 20,480
Cost of sales
(10,000 units × ` 2,56) 10,000 25,600
20,000 51,200

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Working Note
51,200
Supplementary rate per unit = = ` 2.56
20,000

Question 5
(a) Super Ltd, a manufacturing company is facing the problem of high labour
turnover in the factory. Before analysing the causes and taking remedial
steps, the management of the company wants to ascertain the profit lost for
the year 2022-23 on account of labour turnover. For this purpose, it has given
you the following information:
(i) Sales for the last year 2022-23 was ` 2,16,80,000 and P/V ratio was 15%.
(ii) The total number of actual hours worked by the direct labour force was
5,00,000 hours. The actual direct labour hours included 60,000 hours
attributable to training new recruits, out of which 40% of the hours were
unproductive.
(iii) Due to delays by the Personnel Department in filling vacancies on
account of labour turnover, 95,000 potential productive hours (excluding
unproductive training hours) were lost.
(iv) 1,500 units of the output produced during training period were defective.
Cost of rectification of defective units was ` 40 per unit.
(v) Settlement cost of the workers leaving the organization was ` 2,37,880.
(vi) Recruitment and Selection cost was ` 1,40,000.
(vii) Cost of Training and Induction was ` 1,61,950.
Assuming that the potential production lost as a consequence of labour
turnover could have been sold at prevailing prices, find the profit lost for the
year 2022-23 on account of labour turnover.
(b) The following information is given by PQR Ltd:

Year Sales (`) Profit (Loss ( `)

2022-23 1,80,00,000 (3,80,000)
2023-24 2,40,00,000 11,20,000

You are required to:

(i) Calculate the Break even sales.

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(ii) In 2024-25, it is estimated that the variable cost will go up by 5% and

fixed cost will reduce by ` 4,80,000. Selling price will remain same.
Calculate the sales volume to earn a profit of ` 15,00,000.
(c) Discuss Feedback Control and Feedforward Control system of budgetary
control.
Answer
(a) Workings:
(i) Computation of productive hours
Actual hours worked (given) 5,00,000
Less: Unproductive training hours 24,000
Actual productive hours 4,76,000
(ii) Productive hours lost:
Loss of potential productive hours+ Unproductive training hours
= 95,000 + 24,000 = 1,19,000 hours
(iii) Loss of contribution due to unproductive hours :
Salesvalue
= ×Total unproductive hours
Actual productive hours
` 2,16,80,000
= × 1,19,000 hours= ` 54,20,000
4,76,000 hrs

Contribution lost for 1,19,000 hours= ` 54,20,000 x 15% = `8,13,000

Computation of profit forgone on account of employee turnover

(`)
Contribution foregone (as calculated above) 8,13,000
Settlement cost due to leaving 2,37,880
Recruitment and Selection cost 1,40,000
Training and Induction costs 1,61,950
Cost of Rectification (1500 units x `40) 60,000
Profit foregone 14,12,830

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The above question can also be solved in alternative way after

taking proper assumptions
Workings:
(i) Computation of productive hours

Actual hours worked (given) 5,00,000

Less: Unproductive training hours 24,000
Actual productive hours 4,76,000

(ii) Productive hours lost:

Loss of potential productive hours
= 95,000 hours
(iii) Loss of contribution due to unproductive hours :
Salesvalue
= ×Total unproductive hours
Actual productive hours
` 2,16,80,000
= × 95,000 hours = ` 43,26,891
4,76,000 hrs

Contribution lost for 95,000 hours= ` 43,26,891 x 15%

= ` 6,49,034(approx.)
Computation of profit forgone on account of employee
turnover

(`)
Contribution foregone (as calculated above) 6,49,034
Settlement cost due to leaving 2,37,880
Recruitment and Selection cost 1,40,000
Training and Induction costs 1,61,950
Cost of Rectification (1500 units x `40) 60,000
Profit foregone 12,48,864

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Fixed Cost
(b) (i) Break-even sales =
P/V Ratio
Change in Profit 15,00,000
P/V Ratio = ×100 or, 2,40,00,000-1,80,00,000 ×100
Change in Sales
15,00,00
Or, ×100 or, 25%
60,00,000

Fixed Cost = Contribution – Profit

= ` 2,40,00,000 × 25% - ` 11,20,000
= ` 60,00,000 – ` 11,20,000 = ` 48,80,000
48,80,000
Break-even sales = = ` 1,95,20,000
25%
(iii) Desired Contribution in 2024-25 = Revised Fixed Cost + Target Profit
= (` 48,80,000- ` 4,80,000) + ` 15,00,000
= ` 59,00,000
Earlier P/V ratio = 25%. So Variable Cost ratio =75%.
Selling price remain the same.
Variable cost increased by 5% i.e. Variable Cost ratio will be 78.75%
(75+5%of 75).
Now revised P/V ratio=21.25%
59,00,000
Sales Volume in 2024-25= = ` 2,77,64,706(approx.)
21.25%
If it is assumed that variable cost will go up by 5% on total. So, it will
be increased from 75% to 80% and solution can be done in following
way:
(i) Desired Contribution in 2024-25 = Revised Fixed Cost + Target Profit
= (` 48,80,000-` 4,80,000) + ` 15,00,000
= ` 59,00,000
Earlier P/V ratio = 25%. So Variable Cost ratio =75%.
Selling price remain the same.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Variable cost increased by 5% i.e. Variable Cost ratio will be 80%

(75%+5%).
Now revised P/V ratio=20%
59,00,000
Sales Volume in 2024-25== = ` 2,95,00,000
20%
(c) There are two types of budgetary control system based on timing of action:
Feedback Control: The feedback system of budgetary control, the actual
results for the budgeted period are collected and compared with the
budgeted figures. The exercise of variance identification is done after the
completion of the budget period. The variances are reported and based on
the report corrective actions are taken, responsibility is fixed and based on
experience, modification in future targets is implemented. As the name
suggests, it is an Ex-post Corrective control system of budget.
This system of budgetary control is common in organistions where
Management Information System (MIS) is not so robust and where data is
obtained only after the finalisation of books of account. Though this type
of control system is less expensive to maintain but has limitations.
Feedforward Control: This the opposite of feedback control system of
budgetary control. It is Ex-Ante Preventive control mechanism of budgetary
control. The budgets are set at the inception of the budgeted period and
the actual results are continuously monitored and compared. The targets
are kept realistic as far as possible and the targets are reviewed and reset
if necessary.
This budgetary control system requires a robust MIS supported by
integrated ERP system enabling an entity to get data as and when desired
basis. This system is very expensive and beneficial for the organisations
where the business environment is dynamic and information has important
role in getting edge in competition and todays data warfare.
Question 6
(a) Distinguish between cost control and cost reduction.
(b) Distinguish between Waste and Scrap. Discuss the treatment of normal and
abnormal scrap in Cost Accounts.

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(c) Describe Unit Costing and Batch Costing. Give three examples of industries
for each method where these are used.
OR
(d) Describe briefly idle time and explain the treatment of idle time in cost
accounts in following situations:
(i) The setting up time for the machine in case of Direct Worker Mr. A.
(ii) Normal break time for lunch in case of Indirect Worker Mr. B.
(iii) Time lost due to breakdown of machine in case of Worker Mr. C.
Answer
(a)

Cost Control Cost Reduction

1. Cost control aims at 1. Cost reduction is concerned

maintaining the costs in with reducing costs. It
accordance with the challenges all standards and
established standards. endeavours to improvise them
continuously
2. Cost control seeks to attain 2. Cost reduction recognises no
lowest possible cost under condition as permanent, since a
existing conditions. change will result in lower cost.
3. In case of cost control, 3. In case of cost reduction, it is on
emphasis is on past and present and future.
present
4. Cost control is a preventive 4. Cost reduction is a corrective
function function. It operates even when
an efficient cost control system
exists.
5. Cost control ends when 5. Cost reduction has no visible
targets are achieved. end and is a continuous
process.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(b) Difference between Waste and Scrap

Waste Scrap
1. The portion of raw material 1. The output which is
which is lost during storage/ discarded and disposed off
production and discarded. without further treatment.
2. It is connected with raw material 2. It is the loss connected with
or inputs to the production the output
process.
3. Waste of materials may be visible 3. Scraps are generally
or invisible. identifiable and has
physical substance.
4. Generally, waste has no 4. Scraps are termed as by-
recoverable value. products and has small
recoverable value.

Treatment of Scrap
Normal- The cost of scrap is borne by good units and income arises on
account of realisable value is deducted from the cost.
Abnormal- The scrap account should be charged with full cost. The credit
is given to the job or process concerned. The profit or loss in the scrap
account, on realisation, will be transferred to the Costing Profit and Loss
Account.
(c) Unit costing is that method of costing where the output produced is
identical and each unit of output requires identical cost. Under this method
costs, are collected and analysed element wise and then total cost per unit
is ascertained by dividing the total cost with the number of units produced.
Such a method of costing is used in the industries like paper, cement, steel
works, mining, breweries etc.
Batch Costing: Batch Costing is a type of specific order costing where
articles are manufactured in predetermined lots, known as batch. Cost per
unit in a batch is ascertained by dividing the total cost of a batch by the
number of units produced in that batch.

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 SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Such a method of costing is used in the case of pharmaceutical or drug

industries, readymade garment industries, industries, manufacturing
electronic parts of T.V. radio sets etc.
OR
(c) The time during which no production is carried-out because the worker
remains idle but are paid. In other words, it is the difference between the
time paid and the time booked. Idle time can be normal or abnormal.

Situation Idle Time Treatment

The setting up time for the Normal idle time It is treated as a part of
machine in case of Direct cost of production. It is
Worker Mr. A to be considered while
setting of standard
hours or standard rate.
Normal rest time, break Normal idle time It is to be considered
time for lunch in case of for the computation of
Indirect Worker Mr. B overhead rate.
Time lost due to break- Abnormal idle It is to be shown as a
down of machines in case time separate item in the
of Worker Mr. C Costing Profit and Loss
Account.

27