Course: CA Intermediate

Paper: Costing Marks: 100

Test: Free Test Time Allowed: 3 Hours
Question Paper
PART A
MCQ (Each MCQ carry different Marks)
1) The purchase committee of A Ltd. has been entrusted to review the material procurement policy of the
company. The chief marketing manager has appraised the committee that the company at present produces
a single product X by using two raw materials A and B in the ratio of 3:2. Material A is perishable in nature and
has to be used within 10 days from Goods received note (GRN) date otherwise material becomes obsolete.
Material B is durable in nature and can be used even after one year. Material A is purchased from the local
market within 1 to 2 days of placing order. Material B, on the other hand, is purchased from neighbouring
state and it takes 2 to 4 days to receive the material in the store.
The purchase price of per kilogram of raw material A and B is `30 and `44 respectively exclusive of taxes. To
place an order, the company has to incur an administrative cost of `1,200. Carrying cost for Material A and B
is 15% and 5% respectively. At present material A is purchased in a lot of 15,000 kg. to avail 10% discount on
market price. GST applicable for both the materials is 18% and the input tax credit is availed.
The sales department has provided an estimate that the company could sell 30,000 kg. in January 2024 and
also projected the same trend for the entire year.
The ratio of input and output is 5:3. Company works for 25 days in a month and production is carried out
evenly.
The following queries/ calculations to be kept ready for purchase committees’ reference:

(i) For the month of January 2024, what would be the quantity of the materials to be requisitioned for both
material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.

(ii) The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively

(iii)What would the maximum stock level for material A:

(a) 18,200 kg.
(b) 12,000 kg.
(c) 16,000 kg.
(d) 16,200 kg.
(iv) Calculate saving/ loss in purchase of Material A if the purchase order quantity is equal to EOQ.
(a) Profit of Rs. 3,21,201.
(b) Loss of Rs. 3,21,201.
(c) Profit of Rs. 2,52,500.
(d) Loss of Rs. 2,52,500.

(v) What would the minimum stock level for material A:

(a) 1,800 kg.
(b) 1,200 kg.
(c) 600 kg.
(d) 2,400 kg. (5 x 2 Marks)

2) 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 Rs 20 per unit. Every time the company places orders for Material R, it incurs
Rs 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 Rs 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.
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 Rs 200 per hour and Overtime of 20 hours which was remunerated
at Rs 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.
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 – Rs 26,820
(b) Savings from EOQ as compared to current discount policy – Rs 20,500
(c) Savings from EOQ as compared to current discount policy – Rs 33,253
(d) Savings from EOQ as compared to current discount policy – Rs 25,546

4. Incentive payable under the Rowan Incentive scheme amounts to:

(a) Rs 7,500
(b) Rs 6,400
(c) Rs 6,000
(d) Rs 8,000

5. The savings in labour cost achieved by implementation of incentive scheme over the overtime payments
amounts to:
(a) Rs 9,600
(b) Rs 5,600
(c) Rs 8,000
(d) Rs 3,200 (5 x 2 Marks)

GENERAL MCQ (1 Mark Each)

3) 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 Rs 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 Rs 10. What is material cost variance?
A. Rs 3,000 (A)
B. Rs 4,300 (A)
C. Rs 7,300 (A)
D. Rs 5,300 (F)

4) Idle time is
(a) Time spent by workers in factory
(b) Time spent by workers in office
(c) Time spent by workers off their work
(d) Time spent by workers on their job

5) Difference between standard cost and actual cost is called as

(a) Wastage
(b) Loss
(c) Variance
(d) Profit

6) P/V Ratio will increase if the

(a) There is a decrease in fixed cost
(b) There is an increase in fixed cost
(c) There is a decrease in selling price per unit
(d) There is a decrease in variable cost per unit

7) If sales are Rs. 150,000 and variable cost are Rs. 50,000. Compute P/V ratio.
(a) 66.66%
(b) 100%
(c) 133.33%
(d) 65.66%

8) A firm has fixed expenses Rs. 90,000, sales Rs. 3,00,000 and profit Rs. 60,000. The P/V ratio of the firm is
(a) 10%
(b) 20%
(c) 30%
(d) 50%

9) Budgets are shown in ……. Terms

(a) Qualitative
(b) Quantitative
(c) Materialistic
(d) both (b) and (c)

10) The following is not treated as a manufacturing overhead:

(a) Lubricants
(b) Cotton waste
(c) Apportioned administration overheads
(d) Night shift allowance paid to a factory worker due to general work pressure.

11) At the economic ordering quantity level, the following is true:

(a) The ordering cost is minimum
(b) The carrying cost is minimum
(c) The ordering cost is equal to the carrying cost
(d) The purchase price is minimum

12) Equivalent production of 1,000 units, 60% complete in all respects, is

(a) 1000 units
(b) 1600 units
(c) 600 units
(d) 1060 units (3-12 1 Mark each)
 PART B
Question No. 1 is Compulsory
Solve any 4 of the remaining 5 questions

Q1)Answer the following:

a) A company manufactures a product from a raw material, which is purchased at Rs.180 per kg. The company
incurs a handling cost of Rs.1,460 plus freight of Rs.940 per order. The incremental carrying cost of inventory
of raw material is Rs.2.5 per kg per month. In addition, the cost of working capital finance on the investment
in inventory of raw material is Rs.18per kg per annum. The annual production of the product is 1,00,000 units
and 2.5 units are obtained from one kg. of raw material.
Required:
(i) CALCULATE the economic order quantity of raw materials.
(ii) DETERMINE, how frequently company should order for procurement be placed.
(iii) If the company proposes to rationalize placement of orders on quarterly basis, DETERMINE the
percentage of discount in the price of raw materials should be negotiated? Assume 360 days in a year.
Marks 5

b) SMC Company Limited is producing a particular design of toys under the following existing incentive
system:
Normal working hours in the week 48 hours
Late shift hours in the week 12 hours
Rate of payment Normal working: Rs. 150 per hour
Late shift: Rs. 300 per hour
Average output per operator for 60 hours per week (including late shift hours): 80 toys.
The company's management has now decided to implement a system of labour cost payment with either
the Rowan Premium Plan or the Halsey Premium Plan in order to increase output, eliminate late shift
overtime, and reduce the labour cost.
The following information is obtained:
The standard time allotted for ten toys is seven and half hours.
Time rate: Rs. 150 per hour (as usual).
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required to
calculate the weekly earnings for one operator under-
(i) The existing Time Rate,
(ii) Rowan Premium Plan and,
(iii) Halsey Premium Plan (50%). Marks 5

c) GK Ltd. showed net loss of Rs. 2,43,300 as per their financial accounts for the year ended 31st March,
2018. However, cost accounts disclosed net loss of Rs. 2,48,300 for the same period. On scrutinizing both the
set of books of accounts, the following information were revealed:
(i) Works overheads over recovered 30,400 30,000
(ii) Selling overheads under recovered 20,300
(iii) Administrative overheads under recovered 27,700
(iv) Depreciation over charged in cost accounts 35,100
(v) Bad debts w/off in financial accounts 15,000
(vi) Preliminary Exp. w/off in financial accounts 5,000
(vii) Interest credited during the year in financial accounts 7,500
Prepare a reconciliation statement reconciling losses shown by financial and cost accounts by taking costing
net loss as base. Marks 4
Q2) Answer the following:
a)

Marks 8

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

COMPUTE machine hour rate for the new machine. Marks 6

Q3) Answer the following:

a) Following figures has been extracted from the books of M/s A&R Brothers:
Amount (Rs.)
Stock on 1st March, 2020
- Raw materials 6,06,000
- Finished goods 3,59,000
Stock on 31st March, 2020
- Raw materials 7,50,000
- Finished goods 3,09,000
Work-in-process:
- On 1st March, 2020 12,56,000
- On 31st March, 2020 14,22,000
Purchase of raw materials 28,57,000
 Sale of finished goods 1,34,00,000
Direct wages 37,50,000
Factory expenses 21,25,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Sale of scrap 26,000
You are required to COMPUTE:
(i) Value of material consumed
(ii) Prime cost
(iii) Cost of production
(iv) Cost of goods sold
(v) Cost of sales
(vi) Profit/ loss Marks 6

b) Aditya Agro Ltd. mixes powdered ingredients in two different processes to produce one product.
The output of Process- I becomes the input of Process -II and the output of Process-II is transferred to the
Packing department.
From the information given below, you are required to PREPARE accounts for Process-I, Process-II and
Abnormal loss/ gain A/c to record the transactions for the month of February 20X9.
Process-I
Input:
Material A 6,000 kilograms at Rs. 50 per kilogram
Material B 4,000 kilograms at Rs. 100 per kilogram
Labour 430 hours at Rs. 50 per hour
Normal loss 5% of inputs. Scrap are disposed off at Rs.16 per
kilogram
Output 9,200 kilograms.
There is no work- in- process at the beginning or end of the month.
Process-II
Input:
Material C 6,600 kilograms at Rs. 125 per kilogram
Material D 4,200 kilograms at Rs. 75 per kilogram
Flavouring Essence Rs. 3,300
Labour 370 hours at Rs.50 per hour
Normal loss 5% of inputs with no disposal value
Output 18,000 kilograms.
There is no work-in-process at the beginning of the month but 1,000 kilograms in process at the end of the
month and estimated to be only 50% complete so far as labor and overhead were concerned. Overhead of
Rs. 92 ,000 incurred to be absorbed on the basis of labor hours. Marks 8

Q4) Answer the following:

a) 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 Rs 7.50 per labour hour worked. The factory cost of the job comes to Rs 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. Marks 6

b) AK Ltd. has furnished the following standard cost data per unit of production: Material 10 kg @ ₹ 100 per
kg.
Labour 6 hours @ ₹ 55 per hour
Variable overhead 6 hours @ ₹ 100 per hour.
Fixed overhead ₹45,00,000 per month (Based on a normal volume of 30,000 labour hrs)
The actual cost data for the month of September 2020 are as follows: Material used 50,000 kg at a cost of ₹
52,50,000.
Labour paid ₹ 15,50,000 for 31,000 hours Variable overheads ₹ 29,30,000
Fixed overheads ₹ 47,00,000 Actual production 4,800 units. CALCULATE:
(i) Material Cost Variance.
(ii) Labour Cost Variance.
(iii) Fixed Overhead Cost Variance.
(iv) Variable Overhead Cost Variance Marks 8

Q5) Answer the following:

a) PS Limited is a manufacturing company and is operating at 75% capacity utilization. The PV ratio at this
level of activity is 40%.
The flexible budget drafted by the company for two levels of activity is given below:
Capacity utilization (75 %) Capacity utilization (100 %)
Amount in ₹ (Lakhs) Amount in ₹ (Lakhs)
Direct materials 180 240
Direct wages 120 160
Power and fuel 12 16
Repairs and maintenance 18 21
Consumables 21 28
Supervision 20 20
Indirect labour 36 42
Administrative expenses 21 21
Selling expenses 18 18
Depreciation 54 54
You are required to:
i.CALCULATE the profit earned by PS Limited at 75% level of activity.
ii.CALCULATE the break-even level of activity. Marks 7

b)

Marks 7
Q6) Answer the following:
a) DISTINGUISH between cost control and cost reduction. Marks 5

b) Explain the treatment of over and under absorption of overheads in cost accounts. Marks 4

c) Briefly explain the essential features of a good Cost Accounting System. Marks 5