Solutions to 59 Comprehensive Questions

to score 60+ Marks

in
CA Inter
Cost & Management Accounting

यदा यदा हि धर्मस्य ग्लानिर्मवनि र्ारि ।

अभ्युत्थािर्धर्मस्य िदात्र्ािं सज
ृ ाम्यिर् ् ॥४-७॥

पररत्राणाय साधूिां वविाशाय च दष्ु कृिार् ् ।

धर्मसंस्थापिाथामय सम्र्वामर् यग
ु े यग
ु े ॥४-८॥

CA. Parag Gupta

B. Com (H), FCA, DISA
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 Important Disclaimer & Instructions
1. Comprehensive Coverage: This set of 59 carefully crafted questions covers majority of
concepts from the CA Inter Cost & Management Accounting syllabus. If practiced
thoroughly, these can help you score 60+ marks in the exam. However, do not rely solely
on them—ensure you have studied the full course first.
2. Full Course First: These questions are designed for revision & reinforcement, not as a
shortcut. Do not attempt them without completing the entire syllabus, otherwise, they
won’t be as effective.
3. No Guarantee of Word-to-Word Repetition: I am not an ICAI paper-setter, so do not expect
the exact same questions in the exam. While some questions have matched past papers by
coincidence, this may not repeat. The goal is to strengthen conceptual clarity through
practice.
4. Past Exam-Oriented: Nearly all questions are handpicked from previous ICAI exams &
books and materials of ICAI to give you a realistic exam experience and ensure you’re
prepared for the actual paper’s difficulty level.
5. For Students with Incomplete Coaching: Some teachers skip complex topics or focus only
on basics. If you’re in this situation, first fill your knowledge gaps using standard
books/notes before attempting these questions.
6. Beware of Overemphasis on Few Topics: Certain teachers give excessive weightage to
select chapters, leading to exam failure. Avoid this trap! Cover the entire syllabus
equally before using this question bank.
7. Self-Solving is Mandatory: Reading ≠ Learning. To truly benefit, solve every question
yourself—this builds problem-solving speed and accuracy.
8. Exam Trends Can Vary: While this set is comprehensive, ICAI’s paper pattern can change.
I take no responsibility for unexpected deviations in the exam.

Best of luck for your examinations

May God bless you a bright career & cheerful life ahead

Regards
CA. Parag Gupta
[Faculty- CA Inter (Costing & SM) & CA Final (SCPM & IBS)]
StudyByTech
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 Cost & Management Accounting
Chapter 1 Introduction to Cost and Management Accounting

There is no numerical question in this chapter.

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Page 1-2 | Cost & Management Accounting

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Chapter 2 Material Cost

Solution 1: (a) (i) Calculation of Economic Order Quantity (E.O.Q)

1,00,000 units
Annual requirement (usage) of raw material in kg. (A) = 2.5 units per kg = 40,000 kg.

Ordering Cost (Handling & freight cost) (O) = ` 370 + ` 380 = ` 750

Carrying cost per unit per annum (C) i.e. inventory carrying cost + working capital cost

= (`0.25 × 12 months) + ` 12

= `15 per kg.

2×𝐴×𝑂 2×40,000×750
EOQ = √ =√ = 2,000 kg.
𝐶 15

(ii) Frequency of placing orders for procurement:

Annual consumption (A) = 40,000 kg.

Quantity per order (E.O.Q) = 2,000 kg.

No. of orders per annum (A ÷ E.O.Q) = 40,000 kg. ÷ 2,000kg. = 20 orders

Frequency of placing orders (in days) = 360 days ÷ 20 orders = 18 days

(iii) Percentage of discount in the price of raw materials to be negotiated:

Particulars On Quarterly Basis On E.O.Q Basis

1. Annual Usage (in Kg.) 40,000 kg. 40,000 kg.
2. Size of the order 10,000 kg. 2,000 kg.
3. No. of orders (1 ÷ 2) 4 20
4. Cost of placing orders or Ordering cost ` 3,000 ` 15,000
(No. of orders × Cost per order) (4 order × ` 750) (20 orders × ` 750)
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Page 2-2 | Cost & Management Accounting

5. Inventory carrying cost ` 75,000 ` 15,000

(Average inventory × Carrying cost per unit) (10,000 kg. × ½ × ` 15) (2,000 kg. × ½ × ` 15)
6. Total Cost (4 + 5) ` 78,000 ` 30,000

When order is placed on quarterly basis the ordering cost and carrying cost increased by ` 48,000
(`78,000 - `30,000).

So, discount required = ` 48,000

Total annual purchase = 40,000 kg. × ` 80 = ` 32,00,000

48,000
So, Percentage of discount to be negotiated = × 100 = 1.5%
32,00,000

Solution 2: Working Notes:

Annual requirement (A) = 27,000 units

Cost per order (O) = ` 240

Inventory carrying cost (i) = 12.5%

Cost per unit of spare (c) = ` 50

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

2×𝐴×𝑂 2×27,000×240
EOQ = √ =√ = 1,440 units
𝐶 6.25

(i) Calculation of saving by opting EOQ:

Existing Order policy EOQ Model

No. of orders 9 18.75 or 19
(27,000 ÷ 3,000) (27,000 ÷ 1,440)
A. Ordering Cost (`) 2,160 4,500
(` 240 × 9) {`240 × (27,000 ÷ 1,440)}
B. Carrying cost (`) 9,375 4,500
(3,000 × `6.25) ÷ 2] [(1,440 × `6.25) ÷ 2]
Total cost (A+B) (`) 11,535 9,000

Savings of Cost by opting EOQ Model = ` 11,535 – ` 9,000 = ` 2,535

(ii) Re-order point under EOQ:

Re-order point/ Re-order level = Maximum consumption × Maximum lead time

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 Material Cost | Page 2-3

Consumption per day = 27,000 units ÷ 360 days = 75 units

Re-order point/Re-order level = 75 units × 12 days = 900 units

(iii) Frequency of Orders (in days):

= 360 days ÷ No.of orders a year = 360 days ÷ 19 = 18.95 days or 19 days

Solution 3: (i) Minimum stock of A

Re-order level – (Average rate of consumption × Average time required to obtain fresh delivery) =
8,000 – (200 × 10 × 2) = 4,000 kg

(i) Maximum stock of B

Re-order level + Re-order quantity – (Minimum consumption × Minimum delivery period) = 4,750
+ 5,000 – (175 × 4 × 3) = 9,750 – 2,100 = 7,650 kg

(ii) Re-order level of C

Maximum delivery period × Maximum usage = 4 × 225 × 6 = 5,400 kg

OR

Re-order level of C

= Minimum level of C + [Average rate of consumption × Average time required to obtain fresh
delivery] = 2,000 + [(200 × 6) × 3] kg = 5,600 kg

(iv) Average stock level of A

= Minimum stock level of A + ½ Re-order quantity of A

= 4,000 + ½ × 10,000 = 4,000 + 5,000 = 9,000 kg

OR

Average Stock level of A

(Minimum stock level of A + Maximum stock level of A)/2 = (4,000 + 16,250)/2 = 10,125 kg

(Refer to working note)

Working note:

Maximum stock of A = ROL+ ROQ – (Minimum consumption × Minimum re-order period)

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Page 2-4 | Cost & Management Accounting

= 8,000 + 10,000 – [(175 × 10) × 1] = 16,250 kg

Solution 4: (a)

Price Order EOQ@ Order size No. of Cost of Ordering Carrying Total
per size (Tonne) orders inventory cost cost Cost
ton (Tonne) (q) (A/q) A × Per A/q × p.t. p.a (4+5+6)
(`) tonne ` 1200 ½×q× (`)
cost (`) 20% of
(`) cost p.t.
(`)
1,200 < 500 400 12.5 60,00,000 15,600 48,000 60,63,600
(13)*
(Assumed) (5,000 × (200 × `
`1200) 240)
1,180 500-999 225.49 500 10 59,00,000 12,000 59,000 59,71000
√[(2 × 5,000 (5,000 × ` (250 × `
× 1180) 236)
1,200)/(1,180
× 0.20)]
1,160 1,000- 227.43 1,000 5 58,00,000 6,000 1,16,000 59,22,000
1,999
√[(2 × 5,000 (5,000 × ` (500 × `
× 1160) 232)
1,200)/(1,160
× 0.20)]
1,140 2,000- 229.41 2,000 2.5 57,00,000 2,28,000
2,999 (3)* 3,600 59,31,600
√[(2 × 5,000 (5,000 × ` (1,000 ×
× 1140) `228)
1,200)/(1,140
× 0.20)]
1,120 ≥ 3,000 231.45 3,000 1.666 56,00,000 3,36,000
(2)* 2,400
√[(2 × 5,000 (5,000 × ` (1,500 × 59,38,400
× 1120) `224)
1,200)/(1,120
× 0.20)]

@
Since EOQ for each range falls below the lower limit of respective (500-999), we need to use lower
limit. E.g. EOQ (225.49) falls below the range (500-999), we need to use 500 tons (lower limit). We

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 Material Cost | Page 2-5

may skip this column in examination. The ICAI's BOS made a mistake when they offered the suggested
answer to a similar question posed in November 04 (Q 2c). They incorrectly took the order size as 50 tonnes,
even though the EOQ was 73.09 tonnes within the range of 50-99. They ought to have taken 73 tonnes. Since
it didn't affect the final answer, we may disregard such an error.

* Since number of orders cannot be in decimals, thus 12.5 orders are taken as 13 orders, 2.5 are taken
as 3 order and 1.66 orders are taken as 2 orders. Avoiding rounding off might change the solution but
will be equally good for examination.

The above table shows that the total cost of 5,000 units including ordering and carrying cost is
minimum (` 59,22,000) when the order size is 1,000 units. Hence the most economical purchase
level is 1,000 units.

(b) If there will are no discount offer then the purchase quantity should be equal to EOQ. The
EOQ is as follows:

2×𝐴×𝑂 2×5,000×1,200
EOQ = √ =√ = 200 units
𝐶 1500 ×20%

Solution 5: (i) Computation of Economic Order Quantity (EOQ):

2×𝐴×𝑂 2×37,210×240
EOQ = √ = √ 25 × (10+2)% = 2,440 kg.
𝐶

No. Of orders = 37,210 ÷ 2,440 = 15.25 or 16 Orders

Total cost as per EOQ:

Amount (`)
Material purchase cost (` 25 × 37,210 kgs) 9,30,250
Add: Ordering costs (` 240 × 16 orders) 3,840
Add: Carrying cost [(2,440 ÷ 2) × ` 3] 3,660
Total Cost 9,37,750
OR
Amount (`)
Material purchase cost (` 25 × 37,210 kgs) 9,30,250
Add: Ordering costs (` 240 × 15.25 orders) 3,660
Add: Carrying cost [(2,440 ÷ 2) × ` 3] 3,660
Total Cost 9,37,570
(ii) Computation of Re-order level & Maximum level:

Re-order level = Maximum usage × Maximum lead time

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Page 2-6 | Cost & Management Accounting

= 150 kg × 11 days = 1,650 kg

Maximum level = Re-order level + Re-order Quantity (EOQ) – (Min. usage × Min. lead time)

= 1,650 kg + 2,440 kg – (90 kg × 5 days)

= 4,090 – 450 = 3,640 kg

(iii) Analysis of Offer at order level of 7,500 kgs:

If the company places 7,500 kg REX at a time, number of order and carrying cost per unit would
be:

No. of orders = 37,210 ÷ 7,500 = 4.96 or 5 orders

Carrying cost per unit per annum = ` 25 × 98% × 12% = ` 2.94

Total cost at 7,500 order level:

Amount (`)
Material purchase cost {(` 25×98%) × 37,210 kgs)} 9,11,645
Add: Ordering costs (` 240 × 5 orders) 1,200
Add: Carrying cost [(7,500 ÷ 2) × ` 2.94] 11,025
Total Cost 9,23,870

Since, ordering 7,500 kg at a time, the company saves ` 13,880 (` 9,37,750 - ` 9,23,870) [or, ` 13,700
(` 9,37,570 – ` 9,23,870)]. Hence, the company should accept the offer of 2% discount and 7,500
order size.

OR

Amount (`)
Material purchase cost {(` 25×98%) × 37,210 kgs)} 9,11,645
Add: Ordering costs (` 240 × 4.96 orders) 1,191
Add: Carrying cost [(7,500 ÷ 2) × ` 2.94] 11,025
Total Cost 9,23,861

Since, ordering 7,500 kg. at a time, the company saves ` 13,709 (` 9,37,570 - ` 9,23,861) [or, ` 13,889
(` 9,37,750 – ` 9,23,861)]. Hence, the company should accept the offer of 2% discount and 7,500 order
size.

Working Notes:

1. No. of production units of product EMM: = Forecasted sales + Closing stock – Opening stock

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 Material Cost | Page 2-7

= 45,600 + (45,600 ÷ 12) – 3,150

= 45,600 + 3,800 – 3,150 = 46,250 units of EMM

2. Quantity of REX to be purchased:

In Kgs
No. of units of EMM to be produced 46,250
Quantity of REX required to produce one unit 0.8 kg
of EMM of REX for 46,250 units
Quantity 37,000 kg
Less: Opening stock of REX (2,100)
Add: Closing Stock of REX 2,310
Quantity of REX to be purchased 37,210 kgs

3. Computation of Lead times

Average Lead time = (Max. lead time +Min. lead time) ÷ 2 = 8 days

Or, Max. + Min. lead time = 16 days…………………………………..(i )

And Max – Min. lead time = 6 days (given)………………………….(ii)

Solving both the equations

Max. + Min. lead time = 16

Max – Min. lead time = 6

2 Min lead time = 10

Thus, Minimum lead time = 5 days and Maximum lead time = 5 + 6 = 11 days

Solution 6: Minimum Stock Level = Reorder Level - (Average Consumption × Average Delivery
Time) Reorder Level = Maximum Consumption × Maximum Delivery Time - (Average
Consumption × Average Delivery Time) = 1,200 × 9 - (1,125 × 7) = 2,925 units

Danger Level = Average Consumption × Lead time for emergency purchases = 1,125 × 2 = 2,250
units

Cost of purchase calculation:

1. Purchase price: `4800

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Page 2-8 | Cost & Management Accounting

2. Less: Trade discount (2%): 4800 × 0.02 = `96

3. Add: Duties (8%): 4800 × 0.08 = `384

4. Net price per unit: 4800 - 96 + 384 = `5,088

5. Total for 60,000 units: 60,000 × `5,088 = `30,52,80,000

6. Add: Insurance charges: `62,000

Total cost of purchase: 30,52,80,000 + 62,000 = `30,53,42,000

Total material available:

Opening stock: 5,000 × `5,150 = `2,57,50,000

Purchases: `3,053,42,000

Total value: 2,57,50,000 + 30,53,42,000 = `33,10,92,000

Total units: 5,000 + 60,000 = 65,000

Average Cost per Unit = Total Cost / Total Units = `33,10,92,000 / (65,000-80 units normal wastage)
= `5,100 per unit.

Abnormal loss cost = 40 units × `5,100 per unit = `2,04,000

Units consumed: 65,000 - 4,500 (closing stock) - 80 (normal wastage) - 40 (abnormal wastage) =
60,380 units

Cost of material consumed = 60,380 × `5,100 per unit = `30,79,38,000

Cost of closing stock = 4,500 × `5,100 per unit = `2,29,50,000

Average Inventory = [Opening stock (`2,57,50,000) + Closing stock (`2,29,50,000)]÷2 = `2,43,60,000

Inventory turnover ratio = Cost of material consumed ÷ Cost of Average inventory = `30,79,38,000
÷ `2,43,60,000 = 12.64

Average number of days for which inventory is held (i.e. Inventory turnover days) = 365 ÷ 12.64 =
28.87 days or 29 days (rounded off)

Solution 7: (i) Computation of Value of Inventory as on 30th September 2019:

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 Material Cost | Page 2-9

Date Particulars Units WAM (`) FIFO (`) LIFO (`)

01-07-19 Opening 25,000 50,00,000 50,00,000 50,00,000
Stock (`200×25,000) (`200×25,000) (`200×25,000)
01-07-19 Purchases 50,000 95,50,000 95,50,000 95,50,000
(`191×50,000) (`191×50,000) (`191×50,000)
30-09-19 Purchases 25,000 52,50,000 52,50,000 52,50,000
(`210×25,000) (`210×25,000) (`210×25,000)
01-07-19 Issues/Consumption 68,000 1,34,64,000* 1,32,13,000** 1,34,63,000***
to (Balancing figure)
30-09-19
30-09-19 Closing 32,000 63,36,000 65,87,000 63,37,000
Stock
50,00,000 + 95,50,000 + 52,50,000
Weighted average rate = = ` 198
(25,000 + 50,000 + 25,000) units

* ` 198 x 68,000

** ` 200×25,000 + ` 191×43,000 = ` 50,00,000 + ` 82,13,000

*** ` 210×25,000 + ` 191×43,000 = ` 52,50,000 + ` 82,13,000

(ii) Computation of Profit or Loss for the Quarter ended 30th September 2019

Particulars WAM (`) FIFO (`) LIFO (`)

Sales 1,46,20,000 1,46,20,000 1,46,20,000
Less: Consumption 1,34,64,000 1,32,13,000 1,34,63,000
Less: Administrative 3,75,000 3,75,000 3,75,000
Exp.
Profit or Loss 7,81,000 10,32,000 7,82,000

[Assumption: Issue/ consumption pattern was even throughout the quarter]

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Page 2-10 | Cost & Management Accounting

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Chapter 3 Employee Cost & Direct Expenses

Solution 1: Statement showing Earnings of Workers A and B

A (`) B (`)
Basic wages 10,000 16,000
Dearness Allowance (50% of Basic Wages) 5,000 8,000
Overtime wages (Refer to Working Note 1) 1,500 --
Gross wages earned 16,500 24,000
Less: Contribution to Provident fund (800) (1,280)
Less: Contribution to ESI (200) (320)
Net wages earned 15,500 22,400

Statement of Employee Cost:

A (`) B (`)
Gross Wages (excluding overtime) 15,000 24,000
Add: Employer’s contribution to PF 800 1,280
Add: Employer’s contribution to ESI 200 320
Gross wages earned 16,000 25,600
Normal working hours 200 200
Ordinary wages rate per hour 80 128

Statement Showing Allocation of Wages to Jobs

Total Jobs
Wages (`) X (`) Y (`) Z (`)
Worker A:
- Ordinary Wages (4:3:3) 16,000 6,400 4,800 4,800
- Overtime 1,500 -- 1,500 --

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Page 3-2 | Cost & Management Accounting

Worker B:
- Ordinary Wages (5:2:3) 25,600 12,800 5,120 7,680
43,100 19,200 11,420 12,480

Working Notes

1. Normal Wages are considered as basic wages

2×(Basic wage + DA) ×10 hours
Overtime = 200
2×15,000 ×10 hours
= 200

= `150 × 10 hours = `1,500

Solution 2: Workings

Basic wage rate: ` 100 per hour

Overtime wage rate before and after working hours: ` 100 × 175% = ` 175 per hour

Overtime wage rate for Sundays and holidays: ` 100 × 225% = ` 225 per hour

Computation of average inflated wage rate (including overtime premium)

Particulars (`)
Annual wages for the previous year for normal time (1,00,000 hrs. × `100) 1,00,00,000
Wages for overtime before and after working hours (20,000 hrs. × `175) 35,00,000
Wages for overtime on Sundays and holidays (5,000 hrs. × `225) 11,25,000
Total wages for 1,25,000 hrs. 1,46,25,000

𝑅𝑠. 1,46,25,000
Average inflated wage rate = 1,25,000 ℎ𝑜𝑢𝑟𝑠 = `117

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

The overtime premium is treated as a part of employee cost and job is charged at an inflated wage
rate. Hence, employee cost chargeable to job Z = Total hours × Inflated wage rate = 1,125 hrs. ×
`117 = ` 1,31,625

(b) Where overtime is worked irregularly to meet the requirements of production:

Basic wage rate is charged to the job and overtime premium is charged to factory overheads as
under:

Employee cost chargeable to Job Z: 1,125 hours @ `100 per hour = ` 1,12,500

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 Employee Cost & Direct Expenses | Page 3-3

Factory overhead: {100 hrs. × ` (175 – 100)} + {25 hrs. × ` (225 – 100)} = { `7,500 + `3,125} = `10,625

(c) Where overtime is worked at the request of the customer, overtime premium is also charged
to the job as under:

(`)
Job Z Employee cost 1,125 hrs. @ ` 100 = 1,12,500
Overtime premium 100 hrs. @ ` (175 – 100) = 7,500
25 hrs. @ ` (225 – 100) = 3,125
Total 1,23,125
Solution 3: Calculation of earnings under different wage schemes:

(i) Day wages

Worker Day wages (`) Actual Output (Units) Labour cost per 100 pieces (`)
A 600 180 333.33
B 600 120 500.00
C 600 100 600.00
Total 1,800 400

Total wages paid Rs.1,800

Average labour cost to produce 100 pieces = × 100 = × 100 = `450
Total output 400 units

(ii) Piece rate

Worker Actual Output Piece rate (`) Wages Labour cost per
(Units) earned (`) 100 pieces (`)
A 180 7.50 1,350 750.00
B 120 7.50 900 750.00
C 100 7.50 750 750.00
Total 400 3,000

Rs.3,000
Average cost of labour for the company to produce 100 pieces = 400 units × 100 = `750

(iii) Halsey Scheme

Worker Actual Std. Actual Time Bonus hours Rate per Total Labour cost
Output time time saved (50% of time hour wages per 100
(Units) (Hrs.) (Hrs.) (Hrs.) saved) (`) (`) pieces (`)
A B C D=B-C E F G =F× H=G÷A×100
(C+E)
A 180 18 8 10 5 75 975 541.67

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Page 3-4 | Cost & Management Accounting

B 120 12 8 4 2 75 750 625.00

C 100 10 8 2 1 75 675 675.00
Total 400 2,400

Rs.2,400
Average cost of labour for the company to produce 100 pieces = 400 units × 100 = `600

(iv) Rowan Scheme

Worker Actual Std. Actual Time Bonus Rate per Total wages Labour cost
Output time time saved hours* hour including per 100
(Units) (Hrs.) (Hrs.) (Hrs.) (`) bonus (`) pieces (`)
A B C D=B-C E F G=F×(C+E) H=G÷A×100
A 180 18 8 10 4.44 75 933 518.33
B 120 12 8 4 2.67 75 800 666.67
C 100 10 8 2 1.60 75 720 720.00
Total 400 2,453

Time saved
* Bonus hours = × Actual time
Std.Time

Rs.2,453
Average cost of labour for the company to produce 100 pieces = 400 units × 100 = `613.25

Solution 4: Working Notes:

(1) Effective rate per hour:

Incentive for 60 hours = (` 150 × 48 hours + ` 300 × 12 hours)

= 7,200 + 3,600 = ` 10,800

= ` 10,800 ÷ 60 hours = ` 180 per hour

(2) Time taken/ Allowed to produce 100 toys:

= (60 hours ÷ 80 toys) × 100 toys = 75 hours

(3) Time saved = Time Allowed – Time Taken

= 75 hours – 48 hours = 27 hours

(i) Calculation of weekly earnings for one operator under the existing time rate:

= (48 hours x ` 150) + (12 hours x ` 300) = ` 10,800

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 Employee Cost & Direct Expenses | Page 3-5

Alternative solution

= Effective rate per hour (WN-1) × Time required for 100 toys (WN-2)

= ` 180 × 75 hours = ` 13,500

(ii) Calculation of weekly earnings for one operator under Rowan Premium plan:

(Time taken × Rate per hour) + (Time Saved/ Time Allowed × Time taken × Rate per hour)

= (48 hours × ` 150) + [(27 ÷ 75) × 48 × ` 150]

= 7,200 + 2,592 = ` 9,792

(iii) Calculation of weekly earnings for one operator under Halsey Premium plan:

(Time taken × Rate per hour) + (50% of Time Saved × Rate per hour)

= (48 hours × ` 150) + (50% of 27 hours × ` 150)

= ` 7,200 + ` 2,025 = ` 9,225

Solution 5: Working Note:

Average number of workers on roll (for the quarter):

No.of replacements
Employee Turnover rate using Replacement method = Average number of workers on roll × 100

5 30
= Average number of workers on roll
100

30 × 100
Or, Average number of workers on roll = = 600
5

(i) Number of workers recruited and joined:

No.of Separations∗ (S)+No.of Accessions(A)
Employee turnover rate (Flux method) =
Average number of workers on roll

10 18∗ +A 6000
Or, = Or, A = [ 100 − 80] = 42
100 600

No. of workers recruited and joined 42.

(ii) Number of workers left and discharged:

Employee turnover rate (Separation method) =

No.of Separations(S) 3 S
× 100 = 100 = 600 Or, S* = 18
Average number of workers on roll

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Page 3-6 | Cost & Management Accounting

Hence, number of workers left and discharged comes to 18

(iii) Calculation of Equivalent employee turnover rates:

Employee Turnover rate for the quarter(s)
= × 4 quarters
Number of quarter(s)

10%
Using Flux method = × 4 = 40%
1

5%
Using Replacement method = × 4 = 20%
1

3%
Using Separation method = × 4 = 12%
1

Solution 6: Workings:

(i) Computation of productive hours

Actual hours worked (given) 4,45,000

Less: Unproductive training hours 15,000
Actual productive hours 4,30,000
(ii) Productive hours lost:

Loss of potential productive hours + Unproductive training hours

= 1,00,000 + 15,000 = 1,15,000 hours

(iii) Loss of contribution due to unproductive hours:

Sales value Rs. 83,03,300
= Actual productive hours × Total unproductive hours = 4,30,000 hours × 1,15,000 hours = ` 22,20,650

Rs. 22,20,650
Contribution lost for 1,15,000 hours = ×20 = `4,44,130
100

Computation of profit forgone on account of employee turnover

(`)
Contribution foregone (as calculated above) 4,44,130
Settlement cost due to leaving 43,820
Recruitment cost 26,740
Selection cost 12,750
Training costs 30,490
Profit foregone 5,57,930

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Chapter 4 Overheads – Absorption Costing Method

Solution 1: (i) Overhead Distribution Summary

Basis Total (`) A (`) B (`) C (`) X (`) Y (`)

Direct materials Direct – – – – 2,00,000 1,00,000
Direct wages Direct – – – – 1,00,000 2,00,000
Factory rent Area 4,00,000 1,00,000 50,000 1,00,000 50,000 1,00,000
(2:1:2:1:2)
Power (10:16:16:3:5)* H.P. × 2,50,000 50,000 80,000 80,000 15,000 25,000
Machine
Hrs.
Depreciation Capital 1,00,000 20,000 40,000 20,000 10,000 10,000
(2:4:2:1:1) value
Other overheads Machine 9,00,000 1,00,000 2,00,000 4,00,000 1,00,000 1,00,000
(1:2:4:1:1) hrs.
16,50,000 2,70,000 3,70,000 6,00,000 4,75,000 5,35,000
*{(1000×50) : (2000×40) : (4000×20) : (1000×15) : (1000×25)}
(50000 : 80000 : 80000 : 15000 : 25000)

(ii) Redistribution of Service Department’s expenses:

Service
Departments
X (`) Y (`)
Overheads as per primary distribution 4,75,000 5,35,000
(i) Apportionment of Dept-X expenses to Dept-Y (10% of ` 4,75,000) - 47,500
5,82,500
(ii) Apportionment of Dept-Y expenses to Dept-X [5% of (` 5,35,000 + ` 29,125 -
47,500)]

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(i) Apportionment of Dept-X expenses to Dept-Y (10% of ` 29,125) - 2,913

(ii) Apportionment of Dept-Y expenses to Dept-X (5% of ` 2,913) 146 -
Total 5,04,271 5,85,413

Distribution of Service departments’ overheads to Production departments

Production Departments
A (`) B (`) C (`)
Overhead as per primary distribution 2,70,000 3,70,000 6,00,000
Dept- X (45%, 15%, & 30% of ` 5,04,300 approx.) 2,26,900 75,600 1,51,300
Dept- Y (60%, 35%, & 0% of ` 5,85,400 approx.) 3,51,300 2,04,900 -
8,48,200 6,50,500 7,51,300

Solution 2: Repeated Distribution Method

Secondary Distribution
Re–apportionment of Service Department Overheads to Production Departments

Particulars Ratio Production Service

Departments Departments
A (`) B (`) C (`) X (`) Y (`)
Total departmental overheads Given 13,600 14,700 12,800 9,000 3,000
Distribution of Overhead of Service Dept. X 4:3:2:0:1 3,600 2,700 1,800 -9,000 900
Distribution of Overhead of Service Dept. Y 3:3:2:2:0 1,170 1,170 780 780 -3,900
Distribution of Overhead of Service Dept. X 4:3:2:0:1 312 234 156 -780 78
Distribution of Overhead of Service Dept. Y 3:3:2:2:0 23 23 16 16 -78
Distribution of Overhead of Service Dept. X 4:3:2:0:1 6 5 3 -16 2
Distribution of Overhead of Service Dept. Y 3:3:2:2:0 1 1 – – -2
Total Overheads after Re–apportionment 18,712 18,833 15,555 – –

Trial & Error Method

Particulars X (`) Y (`)

Departmental Overhead 9,000 3,000
First Trial:
(i) Distribution of overhead of X to Y (10% of ` 9,000) -9,000 900
(ii) Distribution of overhead of Y to X (20% of ` 3,900) 780 -3,900
Second Trial:
(i) Distribution of overhead of X to Y (10% of ` 780) -780 78

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 Overheads – Absorption Costing Method | Page 4-3

(ii) Distribution of overhead of Y to X (20% of ` 78) 16 -78

Third Trial :
(i) Distribution of overhead of X to Y (10% of ` 16) -16 2
(approx.)
*9,796 **3,980
* ` 9,000 + ` 780 (from first trial) + ` 16 (from second trial) = ` 9,796.
** ` 3,000 + ` 900 (from first trial) + ` 78 (from second trial) + ` 2 (from third trial) = ` 3,980.
The re–apportionment is done as follows:

Secondary Distribution
Re–apportionment of Service Department Overheads to Production Departments

Particulars Ratio Production Service

Departments Departments
A (`) B (`) C (`) X (`) Y (`)
Total departmental overheads Given 13,600 14,700 12,800 9,000 3,000
Distribution of Overhead of Service Dept. X % Given 3,918 2,939 1,959 -9,796 980
Distribution of Overhead of Service Dept. Y % Given 1,194 1,194 796 796 -3,980
Total Overheads after Re–apportionment 18,712 18,833 15,555 – –

Working Notes:
(1) Distribution of Overhead ` (2) Distribution of Overhead `
of Dept. X of Dept. Y
A – 40% of ` 9,796 3,918 A – 30% of ` 3,980 1,194
B – 30% of ` 9,796 2,939 B – 30% of ` 3,980 1,194
C – 20% of ` 9,796 1,959 C – 20% of ` 3,980 796
Y – 10% of ` 9,796 980 X – 20% of ` 3,980 796
9,796 3,980

Simultaneous Equation Method

Let, x = Total overhead of 'X' department

y = Total overhead of 'Y' department

Total overhead transferred to service departments X and Y can be expressed as:

x = 9,000 + 20% of y … (1)

y = 3,000 + 10% of x … (2)

OR

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Page 4-4 | Cost & Management Accounting

x = 9,000 + 0.2y … (3)

y = 3,000 + 0.1x … (4)

Re–arranging equation (3) and (4), we get

x – 0.2y = 9,000 ... (5)

–0.1x + y = 3,000 … (6)

Multiplying equation (5) by 5 and equation (6) by 1, we get

5x – y = 45,000

–0.1x + y = 3,000

4.9x = 48,000 (Adding we get)

x is therefore (` 48,000 ÷ 4.9) = ` 9,796.

Substituting the value in equation (4) we get

y = 3,000 + (9,796 × 0.1)

= 3,000 + 980

= 3,980

Finally: x = ` 9,796 and y = ` 3,980.

The re–apportionment is done as follows:

Secondary Distribution
Re–apportionment of Service Department Overheads to Production Departments

Particulars Production Service

Departments Departments
A (`) B (`) C (`) X (`) Y (`)
Total departmental overheads 13,600 14,700 12,800 9,000 3,000
Distribution of Overhead of Service Dept. X (Note 1) 3,918 2,939 1,959 -9,796 980
Distribution of Overhead of Service Dept. Y (Note 2) 1,194 1,194 796 796 -3,980
Total Overheads after Re–apportionment 18,712 18,833 15,555 – –

Working Notes:

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 Overheads – Absorption Costing Method | Page 4-5

(1) Distribution of Overhead ` (2) Distribution of Overhead `

of Dept. X of Dept. Y
A – 40% of ` 9,796 3,918 A – 30% of ` 3,980 1,194
B – 30% of ` 9,796 2,939 B – 30% of ` 3,980 1,194
C – 20% of ` 9,796 1,959 C – 20% of ` 3,980 796
Y – 10% of ` 9,796 980 X – 20% of ` 3,980 796
9,796 3,980

Solution 3: Computation of Comprehensive Machine Hour Rate

Per annum (`) Per hour (`)

Fixed costs (Standing Charges)
Depreciation (`1,22,000 ÷ 2,220 hours) 1,22,000 54.95
Rs. 5,94,000 1
Operators’ wages (12 machines × 2,220 hours) 49,500 22.30

Insurance premium 12,600 5.68

Annual maintenance cost 32,500 14.64
Apportioned cost of factory rent 19,200 8.65
2,35,800 106.22
Variable costs:
Electricity (12 units @ 2,100 hours @ ` 6.5) 1,63,800 73.78
Comprehensive Machine Hour rate 3,99,600 180.00

Working Notes:

1. Effective machine hour:

= Budgeted working hours – maintenance time

= (2,400 - 180) hours = 2,220 hours.

2. Electricity consumption hours:

= Budgeted working hours – Maintenance time – Set-up time

= (2,400 – 180 – 120) hours = 2,100 hours.

3. Operators’ wages per annum

Basic wages (3 operators × ` 600 × 300 days) = ` 5,40,000

Add: Production bonus (10% of ` 5,40,000) ` 54,000
` 5,94,000
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Page 4-6 | Cost & Management Accounting

4. Depreciation per annum

(`12,70,000 + `40,000) - `90,000] ÷ 10 years = ` 1,22,000

5. Apportioned cost for factory rent:

(`24,000 × 12 × 200 sq.ft.) ÷ 3,000 sq.ft. = ` 19,200

Solution 4: Working notes:

(i) Total machine hours used (600 + 900 + 400 + 600 + 1,000) 3,500
(ii) Total machine hours without the use of computers (600 + 900) 1,500
(iii) Total machine hours with the use of computer (400 + 600 + 1,000) 2,000
(iv) Total overheads of the machine per month

Rent (` 17,500 ÷ 3 months) ` 5,833.33

Depreciation (` 2,00,000 ÷ 12 months) ` 16,666.67
Indirect Charges (` 1,50,000 ÷ 12 months) ` 12,500.00
Total ` 35,000.00

(v) Computer hire charges for a month (` 4,20,000 ÷ 12 months) ` 35,000

(vi) Overheads for using machines without computer
= `35,000 /3,500 hrs. × 1,500 hrs. = ` 15,000
(vii) Overheads for using machines with computer
= ` 35,000/3,500 hrs. × 2,000 hrs. = ` 20,000

(a) Computation of Machine hour rate for the firm as a whole for a month.

1. When the Computer was used: ` 55,000 ÷ 2,000 hours = ` 27.50 per hour
2. When the computer was not used: `15,000 ÷ 1,500 hrs. = ` 10 per hour

(b) Computation of Machine hour rate for the individual job

Rate per Job

hour A B C
(`) Hrs. (`) Hrs. (`) Hrs. (`)
Overheads
Without Computer 10.0 600 6,000 900 9,000 - -
With computer 27.5 400 11,000 600 16,500 1,000 27,500
Total 1,000 17,000 1,500 25,500 1,000 27,500
Machine hour rate 17 17 27.5

Solution 5: Fabrication of 12 nos. machine parts (Job No….)

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 Overheads – Absorption Costing Method | Page 4-7

Date of commencement: 16th August

Date of Completion:

Cost sheet for the week ending, August 21st:

(`) (`)
Direct materials (all items) 780.00
Direct labour (manual) 20 hours @ ` 15 per hour 300.00
Machine facilities:
Machine No. I: 4 hours @ ` 45 180.00
Machine No. II: 6 hours @ ` 65 390.00 570.00
Total 1,650.00
Overheads @ ` 8 per hour on 20 manual hours 160.00
Total cost 1,810.00
Supplementary Rates
Overheads 20 hours @ ` 2 per hour (Refer WN-1) 40.00
Machine facilities: (Refer WN-2)
Machine No. I - 4 hours @ ` 15 60.00
Machine No. II - 6 hours @ ` 15 90.00 190.00
Cost 2,000.00

Working notes (WN):

1. Overheads budgeted: 3,000 man-hours × `8 = `24,000

Actual hours: 2,400 man-hours

Actual rate per hour `24,000 ÷ 2,400 hours = `10

Supplementary charge ` 2 (`10 – ` 8) per hour

2. Machine facilities:

Machine No. I Machine No. II

Budgeted `1,800 `2,600
(40 × `45) (40 × `65)
Actual number of hours 30 32.5
Actual rate per hour `60.00 `80.00
Supplementary rate per hour ` 15.00 ` 15.00
(`60.00 – `45.00) (`80.00 – `65.00)

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Page 4-8 | Cost & Management Accounting

Solution 6: Computation of predetermined overhead rate for each production departments from
budgeted data

Production
Service Department
Department
P1 P2 S1 S2
Budgeted factory overheads for the year in (`) 25,50,000 21,75,000 6,00,000 4,50,000
Allocation of service department S1’s costs to
3,00,000 3,00,000 (6,00,000) —
production departments P1 and P2 equally in (`)
Allocation of service department S2’s costs to
production departments P1 and P2 in the ratio of 3,00,000 1,50,000 — (4,50,000)
2:1 in (`)
Total 31,50,000 26,25,000 — —
Budgeted machine hours in department P1
1,05,000 —
(working note 1)
Budgeted labour hours in department P2
— 1,75,000
(working note 1)
Budgeted machine/ labour hour rate (`) 30.00 15.00

(ii) Performance report for July, 2022

(When 4,000 and 3,000 units of products A and B respectively were actually produced)

Budgeted (`) Actual (`)

Raw materials used in Dept. P1:
A : 4,000 units × ` 120 4,80,000 4,89,000
B : 3,000 units × ` 150 4,50,000 4,56,000
Direct labour cost
(on the basis of labour hours worked in department P2)
A : 4,000 units × 2 hrs. × ` 72 5,76,000 5,91,900
B : 3,000 units × 2.5 hrs. × ` 75 5,62,500 5,52,000
Overhead absorbed on machine hour basis in Dept. P1:
A : 4,000 units × 1.5 hrs. × `30 1,80,000 1,74,400*
B : 3,000 units × 1 hr. × `30 90,000 1,18,649*
Overhead absorbed on labour hour basis in Dept. P2:
A : 4,000 units × 2 hrs. × ` 15 1,20,000 1,31,364**
B : 3,000 units × 2.5 hrs. × ` 15 1,12,500 1,18,548**
25,71,000 26,31,861
* (Refer to working note 4) **(Refer to working note 5)

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 Overheads – Absorption Costing Method | Page 4-9

Working notes:

1.
Product A Product B Total
Budgeted output (in units) 50,000 30,000
Budgeted machine hours in Dept. P1 75,000 30,000 1,05,000
(50,000×1.5 hrs.) (30,000×1 hr.)
Budgeted labour hours in Dept. P2 1,00,000 75,000 1,75,000
(50,000×2 hrs.) (30,000×2.5 hrs.)

2.
Product A Product B Total
Actual output (in units) 4,000 3,000
Actual machine hours utilized in Dept. P1 6,100 4,150 10,250
Actual labour hours utilised in Dept. P2 8,200 7,400 15,600

3. Computation of actual overhead rates for each production department from actual data

Production Service
Department Department
P1 P2 S1 S2
Actual factory overheads for the month of July, 2,31,000 2,04,000 60,000 48,000
2022 in (`)
Allocation of service Dept. S1’s costs to production 30,000 30,000 (60,000) -
Dept. P1 and P2 equally in (`)
Allocation of service Dept. S2’s costs to production 32,000 16,000 - (48,000)
Dept. P1 and P2 in the ratio of 2:1 in (`)
Total 2,93,000 2,50,000 -- --
Actual machine hours in Dept. P1 (working note 2) 10,250 --
Actual labour hours in Dept. P2 (working note 2) -- 15,600
Actual machine/ labour hour rate (`) 28.59 16.02

4. Actual overheads absorbed (based on machine hours)

A : 6,100 hrs × ` 28.59 = ` 1,74,400

B : 4,150 hrs × ` 28.59 = ` 1,18,649

5. Actual overheads absorbed (based on labour hours)

A : 8,200 hrs × ` 16.02 = ` 1,31,364
B : 7,400 hrs × ` 16.02 = ` 1,18,548

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Chapter 5 Activity Based Costing

Solution 1 (i) Statement Showing “Total Cost - Traditional Method”

Particulars of Costs P Q
(`) (`)
Direct Materials 72,000 50,000
Direct Labour [(800,600 hours) × ` 14.5] 11,600 8,700
Production Overheads [(800,600 hours) × ` 3.75] (WN1) 3,000 2,250
Total Cost 86,600 60,950
Cost per unit (9,000, 7,200) 9.62 8.47

WN1: Calculation of Production Overhead:

(`)
Technical staff salary 45,000
Machine operation expenses 1,62,000
Machine maintenance expenses 27,000
Wages and salary of stores staff 36,000
Total Production Overhead 2,70,000
Total direct labour hours worked 72,000 hours
Production Overhead rate per hour 3.75

(ii) Statement Showing “Total Cost - Activity Based Costing”

Products P Q
Production (units) 9,000 7,200
(`) (`)
Direct Materials 72,000 50,000
Direct Labour [(800,600 hours) × ` 14.5] 11,600 8,700
Requisition Related Costs @ ` 20 per requisition 3,600 2,880
raised
(180,144) (WN2)
Production Setup Costs @ ` 19 per production 2,736 2,052
runs
(144,108) (WN2)
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Quality Inspection Costs @ ` 25 per quality test 675 450

(27,18) (WN2)
Total Costs 90,611 64,082
Cost per unit (9,000, 7,200) 10.07 8.9

WN2: Statement Showing Distribution of Expenses

Machine maintenance Total Production Quality
expenses Stores Setup Control
Technical staff salary 9,000 - 18,000 18,000
of ` 45,000 (1:2:2)
Machine operation - 64,800 97,200 -
expenses of ` 1,62,000
(2:3)
Machine maintenance (9,000) 14,400 21,600 -
expenses of ` 36,000
(2:3)
Wages and salary of - 36,000 - -
stores staff
Total - 1,15,200 1,36,800 18,000

WN3: Cost for each activity cost driver:

Activity Total Cost allocation base Cost driver rate
(1) cost (`) (3) (4) = [(2) ÷ (3)]
(2)
Stores Receiving 1,15,200 5,760 Requisitions Raised ` 20 per requisition raised
Production Setup 1,36,800 7,200 Production Setup ` 19 per production setup
Quality Control 18,000 720 Quality Test ` 25 per quality test

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Chapter 6 Cost Sheet

Solution 1:

I. Statement of Cost (for the month of April, 2022)

S. No. Particulars Amount (`) Amount (`)
Opening stock of Raw material 10,000
Add: Purchase of Raw material 2,80,000
Less: Closing stock of raw materials (40,000)
(i) Raw material consumed 2,50,000
Manufacturing wages 70,000
(ii) Prime Cost
Factory/work overheads:
Depreciation on plant 15,000
Lease rent of production Asset 10,000
Expenses paid for pollution control and engineering & 1,000 26,000
Maintenance
(iii) Factory/Work Cost 3,46,000
Expenses paid for quality control check activity 4,000
Research and Development Cost 5,000
Administration Overheads (Production 15,000
Primary Packing Cost 8,000
(iv) Cost of Production 3,78,000
Add: Opening stock of finished goods 28,000
Less: Closing stock of finished goods (50,400)
(v) Cost of Goods Sold 3,55,600
Advertisement expenses 1,300
Packing cost for re-distribution of finished goods sold 1,500
(vi) Cost of Sales 3,58,400

Note: Valuation of Closing stock of finished goods

3,78,000
= 3000 𝑢𝑛𝑖𝑡𝑠 × 400 𝑢𝑛𝑖𝑡𝑠

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= ` 50,400
3,58,400
II. Cost per unit sold = 200+3,000−400 = ` 128 per unit

128
∴ Selling Price = 80% = ` 160 per unit

Solution 2: (i) Computation of the value of materials purchased

To find out the value of materials purchased, reverse calculations from the given data can be
presented as below:

Particulars (`)
Cost of goods sold 56,000
Add: Closing stock of finished goods 19,000
Less: Opening stock of finished goods (17,600)
Cost of production 57,400
Add: Closing stock of work-in-progress 14,500
Less: Opening stock of work-in-progress (10,500)
Works cost 61,400
Less: Factory overheads: (`17,500 × 100 ÷ 175) (10,000)
Prime cost 51,400
Less: Direct labour (17,500)
Raw material consumed 33,900
Add: Closing stock of raw materials 10,600
Raw materials available 44,500
Less: Opening stock of raw materials (8,000)
Value of materials purchased 36,500

(ii) Cost statement

(`)
Raw material consumed [Refer to statement (i) above] 33,900
Add: Direct labour cost 17,500
Prime cost 51,400
Add: Factory overheads 10,000
Works cost 61,400
Add: Opening work-in-progress 10,500
Less: Closing work-in-progress (14,500)
Cost of production 57,400
Add: Opening stock of finished goods 17,600

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 Cost Sheet | Page 6-3

Less: Closing stock of finished goods (19,000)

Cost of goods sold 56,000
Add: General and administration expenses 2,500
Add: Selling expenses 3,500
Cost of sales 62,000
Profit (Balance figure ` 75,000 – ` 62,000) 13,000
Sales 75,000

Solution 3:
Cost Sheet for the month of March 2024
Quantity Produced of FG = 2000 units
Quantity Sold of FG = 1920 units
Particulars Total
Direct materials consumed:
Add: Net Purchases of M (850000 - 10000) 8,40,000
Add: Purchases of P 90,000
Add: Freight 14,000
Add: GST on RM Purchased 42,500
Less: ITC on GST on RM M -42,500 9,44,000
Direct labour
Wages and salary 4,80,000
Employer's contribution to PF 59,000 5,39,000
Direct expenses (moulds) 4,000
Prime Cost 14,87,000
Works/ Factory Overheads
Rent of Machinery 1,08,000
Rent (100000 x 1620/2000) 81,000
Salary paid to supervisor 40,000
Engineering & Maintenance, Pollution Control etc. 12,000 2,41,000
Factory Cost 17,28,000
Add: Research and Development Cost 37,500
Add: Primary Packing cost 14,000
Cost of Production (2000 units) 17,79,500
Less: Closing stock of finished goods (80 units) ([17,79,500/2000]x80) -71,180
Cost of Goods Sold (1920 units) 17,08,320
Add: Administrative Overheads (General) 21,840
Rent (102000 * 200/2000) 10,000 31,840
Add: S & D Overheads

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Rent (100000 * 180/2000) 9,000

Others (1920 * 8) 15,360 24,360
Add: Interest & Finance Charges paid 18,000
Cost of Sales 17,82,520
Add. Profit 1,00,000
Sales 18,82,520

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Chapter 7 Cost Accounting Systems

Solution 1:
Stores Ledger Control Account
Particulars ` Particulars `
To Balance c/d 63,000 By Work-in-progress 3,36,000
To General Ledger Adjustment A/c 3,36,000 By Overhead A/c 42,000
To Work-in-progress A/c 1,68,000 By Overhead A/c 12,600
(Deficiency Assumed as Normal)
By Balance c/d 1,76,400
5,67,000 5,67,000

Work-in-progress Control Account

Particulars ` Particulars `
To Balance b/d 1,26,000 By Stores Ledger Control A/c 1,68,000
To Stores Ledger Control A/c 3,36,000 By Costing Profits & Loss A/c 8,40,000
(Finished goods at cost)
(Balancing figure)
To Work-in-progress A/c 1,26,000 By Balance c/d 84,000
To Overhead A/c (applied) 5,04,000
10,92,000 10,92,000

Costing Profit and Loss Account

Particulars ` Particulars `
To Work-in-Progress A/c 8,40,000 By General Ledger Adjustment A/c (Sales) 9,24,000
(8,40,000 + 84,000)
To General Ledger Adjustment 84,000
A/c (Profit)
9,24,000 9,24,000

Financial Profit and Loss Account

Particulars ` ` Particulars ` `
To Opening Stock By Sales 9,24,000

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Stores 63,000 By Income from 21,000

Investment
WIP 1,26,000 1,89,000 By Closing Stock
To Purchases 3,36,000 Stores 1,76,400
To Wages 1,47,000 WIP 84,000 2,60,400
To Overhead 5,25,000 By Loss 33,600
To Loss on sale of fixed assets 42,000
12,39,000 12,39,000

Reconciliation Statement
Particulars `
Profit as per Cost Account 84,000
Add: Income from investment 21,000
1,05,000
Less: Under absorption of overhead 96,600
Loss on sale of fixed assets 42,000
Loss as per financial account 33,600

Note: Deficiency in stock taking may be treated as abnormal loss and it can be transferred from
stores ledger Control Account to Costing Profit and Loss Account. Then consequential changes in
accounting entries in overheads Control Account has to be done.

Working Notes:
Overheads Control Account
Particulars ` Particulars `
To Stores Ledger Control A/c 42,000 By Work-in-Progress 5,04,000
To Stores Ledger Control A/c 12,600 By Balance c/d 96,600
To Wages Control A/c Indirect Wages 21,000
(1,47,000 -- 1,26,000)
To General Ledger Adjustment A/c 5,25,000
6,00,600 6,00,600

Solution 2: Stores Ledger Control A/c

(`) (`)
To Balance b/d 15,000 By Work-in-Process Control 80,000
A/c (Issued to WIP)
To Cost Ledger Control 80,000 By Overhead Control A/c 10,000
A/c (Purchases) (Issued for repairs)
To Work-in-Process Control 40,000 By Cost Ledger Control A/c 5,000
A/c (Return from WIP) (Sold at cost)
By Overheads Control A/c* 3,000

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 Cost Accounting System | Page 7-3

(Shortages)
By Balance c/d 37,000
1,35,000 1,35,000
* Assumed normal
Wages Control A/c
(`) (`)
To Cost Ledger Control 35,000 By Work-in-process 30,000
A/c Control A/c
By Overhead Control A/c 5,000
35,000 35,000

Overhead Control A/c

(`) (`)
To Stores Ledger Control A/c 10,000 By Work-in-Process Control A/c 1,20,000
To Stores Ledger Control A/c 3,000
To Cost Ledger Control A/c 1,25,000
To Wages Control A/c 5,000 By Balance c/d 23,000
1,43,000 1,43,000

WIP Control A/c

(`) (`)
To Balance b/d 30,000 By Stores Ledger Control A/c 40,000
To Stores Ledger Control A/c 80,000 By Finished Goods Control A/c 2,00,000*
To Wages Control A/c 30,000
To Overheads Control A/c 1,20,000 By Balance c/d 20,000
2,60,000 2,60,000
*Finished output at cost 2,00,000
Profit at 10% on actual cost from WIP Sales 20,000
2,20,000

Statement of Profit as per Costing Records

(`)
Direct Material Cost (`80,000 – `40,000) 40,000
Direct wages 30,000
Prime Cost 70,000
Production Overheads 1,20,000
Works Cost 1,90,000
Add: Opening WIP 30,000

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2,20,000
Less: Closing WIP (20,000)
Cost of finished goods 2,00,000
Profit (10% of cost) 20,000
Sales 2,20,000

Profit & Loss A/c

(`) (`)
To Material (Op. bal. + Purchases - Sale) 90,000 By Sales A/c 2,20,000
To Opening WIP 30,000 By Closing WIP 20,000
To Wages for the period 35,000 By Closing stock of 37,000
Raw Material
To Overheads expenses 1,25,000 By Net loss 3,000
2,80,000 2,80,000

Reconciliation Statement
(`)
Profit as per Cost Accounts 20,000
Less: Overheads under absorbed (refer Overhead control A/c) 23,000
Profit (loss) as per Financial Accounts (3,000)

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Chapter 8 Unit and Batch Costing

Solution 1: Statement of Cost and Total Sales Amount (`)

Particulars First 3 months Next 9 months Total
Capacity Utilisation 120,000×3/12×50%=15,000 120,000×9/12×80%=72,000 87,000
(No. of units)
Direct Material 13,50,000 64,80,000 78,30,000
Direct Labour 9,00,000 43,20,000 52,20,000
Add: Overheads:
- Fixed (1:3) 7,50,000 22,50,000 30,00,000
- Variable 15,00,000 72,00,000 87,00,000
Semi Variable 5,00,000 (For first 3 months 21,00,000 (at the rate of ` 26,00,000
at the rate of ` 20,00,000) 28,00,000 for 9 months)
Total cost 50,00,000 2,23,50,000 2,73,50,000
Add: Profit 20,00,000
Sales 2,93,50,000

Average Selling Price = `2,93,50,000 ÷ 87,000 units = ` 337.356

Solution 2: Workings:
5,000 𝑙𝑡𝑟𝑠.
1. Maximum number of bottles that can be processed in a batch = 𝐵𝑜𝑡𝑡𝑙𝑒 𝑉𝑜𝑙𝑢𝑚𝑒

Large Medium Small

Qty (ltr) Max bottles Qty (ltr) Max bottles Qty (ltr) Max bottles
3 1,666 1.5 3,333 0.6 8,333
*For simplicity of calculation small fractions has been ignored.

2. Number of batches to be run:

Large Medium Small Total
A Demand 3,00,000 7,50,000 20,00,000
B Bottles per batch (Refer WN-1) 1,666 3,333 8,333

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C No. of batches [A÷B] 180 225 240 645

*For simplicity of calculation small fractions has been ignored.

Quantity of Material-W and Material C required to meet demand:

Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000
B Qty per bottle (Litre) 3 1.5 0.6
C Output (Litre) [A×B] 9,00,000 11,25,000 12,00,000 32,25,000
D Material-W per litre of output (Litre) 14 14 14
E Material-W required (Litre) [C×D] 1,26,00,000 1,57,50,000 1,68,00,000 4,51,50,000
F Material-C required per litre of 25 25 25
output (ml)
G Material-C required (Litre) 22,500 28,125 30,000 80,625
[(C×F)÷1000]

3. No. of Man-shift required:

Large Medium Small Total
A No. of batches 180 225 240 645
B Hours required per batch 2 2 2
(Hours)
C Total hours required (Hours) [A×B] 360 450 480 1,290
D No. of shifts required [C÷8] 45 57 60 162
E Total manshift [D×20 workers] 900 1,140 1,200 3,240

4. Power consumption in Kwh

Large Medium Small Total
For processing
A No. of batches 180 225 240 645
B Hours required per batch (Hours) 1.75 1.75 1.75 1.75
C Total hours required (Hours) [A×B] 315 393.75 420 1,128.75
D Power consumption per hour 90 90 90 90
E Power consumption in Kwh [C×D] 28,350 35,437.5 37,800 1,01,587.5
F Per batch consumption (Kwh) [E÷A] 157.5 157.5 157.5 157.5
For set-up
G Hours required per batch (Hours) 0.25 0.25 0.25 0.25
H Total hours required (Hours) [A×G] 45 56.25 60 161.25
I Power consumption per hour [20%×90] 18 18 18 18
J Power consumption in Kwh [H×I] 810 1,012.5 1,080 2,902.5

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 Unit & Batch Costing | Page 8-3

K Per batch consumption (Kwh) [J÷A] 4.5 4.5 4.5 4.5

Calculation of Profit/ loss per batch:

Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000 30,50,000
B Price per bottle (`) 150 90 50
C Sales value (`) [A×B] 4,50,00,000 6,75,00,000 10,00,00,000 21,25,00,000
Direct Material cost:
E Material-W (`) [Qty in WN-3 × ` 0.50] 63,00,000 78,75,000 84,00,000 2,25,75,000
F Material-C (`) [Qty in WN-3 × `1,000] 2,25,00,000 2,81,25,000 3,00,00,000 8,06,25,000
G [E+F] 2,88,00,000 3,60,00,000 3,84,00,000 10,32,00,000
H Direct Wages (`) 7,92,000 10,03,200 10,56,000 28,51,200
[Man-shift in WN-4 × ` 880]
I Packing cost (`) [A× `3] 9,00,000 22,50,000 60,00,000 91,50,000
Power cost (`)
J For processing (`) [WN-5 × `7] 1,98,450 2,48,062.5 2,64,600 7,11,112.5
K For set-up time (`) [WN-5 × `7] 5,670 7,087.5 7,560 20,317.5
L [J+K] 2,04,120 2,55,150 2,72,160 7,31,430
M Other variable cost (`) 54,00,000 67,50,000 72,00,000 1,93,50,000
[No. of batch in WN-2 × ` 30,000]
N Total Variable cost per batch 3,60,96,120 4,62,58,350 5,29,28,160 13,52,82,630
[G+H+I+L+M]
O Profit/ loss before fixed cost [C-N] 89,03,880 2,12,41,650 4,70,71,840 7,72,17,370
P Fixed Cost 4,90,00,000
Q Total Profit[O-P] 2,82,17,370

Computation of Economic Batch Quantity (EBQ):

2𝐷𝑆
EBQ = √ 𝐶

D = Annual Demand for the Product = Refer A below

S = Set-up cost per batch = Refer D below

C = Carrying cost per unit per annum =Refer E below

Particulars Large Medium Small

A Annual Demand (bottle) 3,00,000 7,50,000 20,00,000
Set-up Cost:

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B Power cost for set-up time (`) 31.50 31.50 31.50

[Consumption per batch in WN-5 × `7]
C Other variable cost (`) * 30,000 30,000 30,000
D Total Set-up cost [B+C] 30,031.50 30,031.50 30,031.50
E Holding cost: 1.00 1.00 1.00
F EBQ (Bottle) 1,34,234 2,12,243 3,46,592
* Other variable cost is assumed to be part of set-up cost.

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Chapter 9 Job Costing

Good and comprehensive questions on this topic are already covered with other topics

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Page 9-2 | Cost & Management Accounting

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Chapter 10 Process & Operation Costing

Solution 1: Process-X Account

Particulars Units (`) Particulars Units (`)
To Material introduced 15,000 30,000 By Normal Loss A/c [(6% of 900 990
15,000 units) x ` 1.1]
” Additional material -- 2,600 ” Process-Y A/c (` 2.951* × 14,100 14,100 41,610
units)
” Direct wages -- 4,000
” Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units
Total Cost−Realisable value from normal loss Rs.42,600−Rs.990
= = 15,000 units−900 units = `2.951
Input units−Normal loss units

Dr. Process-Y Account Cr.

Particulars Units (`) Particulars Units (`)
To Process-X A/c 14,100 41,610 By Normal Loss A/c [(#13.44% of 1,895 3,790
14,100 units) x ` 2]
” Additional material -- 2,250 ” Process-Z A/c (` 4 × 12,205 units) 12,205 48,820
” Direct wages -- 3,500
” Production OH -- 5,250
14,100 52,610 14,100 52,610
#
Calculation for % of wastage in process ‘Y’:

Let’s consider number of units lost under process ‘Y’ = A

Total Cost−Realisable value from normal loss
Now, =4
Input units−Normal loss units

Rs.52,610−Rs.2A
=`4
14,100 units−A

` 52,610 - ` 2A = ` 56,400 - ` 4A

2A = ` 3,790 => A = 1,895 units

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Page 10-2 | Cost & Management Accounting

1,895 𝑢𝑛𝑖𝑡𝑠
% of wastage = 14,100 𝑢𝑛𝑖𝑡𝑠 = 13.44%

Dr. Process-Z Account Cr.

Particulars Units (`) Particulars Units (`)
To Process-Y A/c 12,205 48,820 By Normal Loss A/c [(5% of 610 610
12,205 units) x ` 1]
” Additional material -- 2,000 ” Finished Stock A/c 12,000 59,726
(` 4.9771$ × 12,000 units)
” Direct wages -- 3,000
” Production OH -- 4,500
” Abnormal gain 405 2,016
(` 4.9771$ × 405 units)
12,610 60,336 12,610 60,336
$
Cost per unit of completed units
Total Cost−Realisable value from normal loss Rs.58,320−Rs.610
= = 12,205 units−610 units = ` 4.9771
Input units−Normal loss units

Alternative Solution

Dr. Process-X Account Cr.

Particulars Units (`) Particulars Units (`)
To Material introduced 15,000 30,000 By Normal Loss A/c [(6% of 900 990
15,000 units) x ` 1.1]
Additional material - 2,600 Process-Y A/c (` 2.951* × 14,100 41,610
14,100 units)
Direct wages -- 4,000
Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units
Total Cost−Realisable value from normal loss Rs.42,600−Rs.900
= = = ` 2.951
Input units−Normal loss units 15,000 units−900 units

Dr. Process-Y Account Cr.

Particulars Units (`) Particulars Units (`)
To Process-X A/c 14,100 41,610 By Normal Loss A/c [(#13.44% 1,895 3,790
of 14,100 units) x ` 2]
” Additional material -- 2,250 ” Process-Z A/c (` 4 × 12,631@ 12,631 50,524
units)
” Direct wages -- 3,500
” Production OH -- 5,250
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 Process & Operation Costing | Page 10-3

” Abnormal gain 426 1,704

(` 4 × 426 units)
14,526 54,314 14,526 54,314

Working Notes:

1. Units Transferred from Process Z Account to Finished Stock = 12,000 Units i.e 95% of
Inputs.

So, Input of Z or Output of Y is 12,000 x 100/95 = 12,631 Units and Normal Loss (5%) is 631
units

2. Let’s consider number of units lost under process ‘Y’ as:

• For Normal loss =A

• For Abnormal loss =B

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

• (A x ` 2 per unit) + (B x ` 4 per unit) = [ 52,610 – 50,524] ∴ 2A + 4B = 2,086 …(II)

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

• 2(1,469 – B) + 4B = 2,086

• 2938 – 2B + 4B = 2,086

• 2B = - 852 => B = - 426 units

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

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

1,895 Units
3. % of wastage in Process Y Account = 14,100 Units = 13.44%

Dr. Process-Z Account Cr.

Particulars Units (`) Particulars Units (`)
To Process-Y A/c 12,631 50,524 By Normal Loss A/c [(5% of 12,631 631 631
units) x ` 1]
” Additional material -- 2,000
” Direct wages -- 3,000
” Production OH -- 4,500 ” Finished Stock A/c (` 4.9494$ × 12,000 59,393
12,000 units)

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12,631 60,024 12,631 60,024

$
Cost per unit of completed units
Total Cost−Realisable value from normal loss Rs.60,024−Rs.631
= = 12,631 units−631 units = ` 4.9494
Input units−Normal loss units

Solution 2:
(a) Working Notes:
1. Calculation of Input of Raw Material
Let assume total raw material in Process R be 100%
∴ Output of Process T will be equal to:
Input R 100%
- 10% Normal Loss ` 10
Input S ` 90%
- 10% Normal loss `9
Input T 81%
- 10% Normal loss ` 8.1
Output of T 72.9
Actual output of X 14,580 units
Which is 80% of the total output
∴ Output of Process T = 14580/80% = 18,225
∴ Input of Process R = 18225/72.9% = 25,000 kgs
Alternative presentation for Calculation of Input in Process R, S and T
Working notes:
Process T (Kg.)
To Input (Transfer from process S) 20,250 By Normal loss 2,025
By Output Product X 14,580
By output of by-product Z 3,645
20,250 20,250

Process S (kg.)
To Input (Transfer from process S) 22,500 By Normal loss (10%) 2,250
By Transfer to process T 20,250
22,500 22,500

Process R (kg.)
To Input 25,000 By Normal loss (10%) 2,500
By Transfer to process S 22,500
25,000 25,000

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 Process & Operation Costing | Page 10-5

2. Calculation of Joint Cost

Process Inputs Variable cost per kg Variable cost Fixed Cost Total Cost
R 25,000 5 ` 1,25,000 ` 42,000 ` 1,67,000
S 22,500 4.5 ` 1,01,250 ` 5,000 ` 1,06,250
T 20,250 3.4 ` 68,850 ` 4,800 ` 73,650
` 3,46,900
Raw material J 10000 x 15 ` 1,50,000
K 10000 x 9 ` 90,000
L 5000 x 7 ` 35,000
` 2,75,000
Add: Processing cost (as above) ` 3,46,900
Total Joint Cost ` 6,21,900
(i) Statement showing apportionment of Joint Cost
Particulars Product By-Product Total
X Z
Units 14,580 3,645
Selling price (`) 60 30
Sales Value (`) 8,74,800 1,09,350 9,84,150
(` 6,21,900 to apportioned in ratio of sales value at split 5,52,800 69,100 6,21,900
off point)
(ii) Statement of Profitability
Particulars Product X By-Product Z Total
Sales Value 8,74,800 1,09,350 9,84,150
Joint Cost (5,52,800) (69,100) (6,21,900)
(As apportioned above)
Profit 3,22,000 40,250 3,62,250

Solution 3:

(i) Statement of Equivalent Production

Particulars Input Particulars Output Equivalent Production
Units Units Sugarcane Labour & O.H.
% Units % Units
Opening WIP 4,500 Completed and 39,500 100 39,500 100 39,500
transferred to Process - II
Units introduced 1,00,000 Normal Loss (55%* of 55,000 -- -- -- --
1,00,000)
Abnormal loss 1,000 100 1,000 80 800
Closing WIP 9,000 100 9,000 80 7,200

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1,04,500 1,04,500 49,500 47,500

* 100 kg of sugarcane extracts only 45 litre of juice. Thus, normal loss = 100 − 45 = 55%

(ii) Statement showing cost for each element

Particulars Sugarcane (`) Labour (`) Overhead (`) Total (`)
Cost of opening work-in- process 50,000 15,000 45,000 1,10,000
Cost incurred during the month 5,00,000 2,00,000 6,00,000 13,00,000
Total cost: (A) 5,50,000 2,15,000 6,45,000 14,10,000
Equivalent units: (B) 49,500 47,500 47,500
Cost per equivalent unit: (C) = (A ÷ B) 11.111 4.526 13.579 29.216

(iii) Statement of Distribution of cost

Amount Amount
(`) (`)
1 Value of units completed and transferred (39,500 units × ` 29.216) 11,54,032
2 Value of Abnormal Loss:
- Sugarcane (1,000 units × ` 11.111) 11,111
- Labour (800 units × ` 4.526) 3,621
- Overheads (800 units × ` 13.579) 10,863 25,595
3 Value of Closing W-I-P:
- Sugarcane (9,000 units × ` 11.111) 99,999
- Labour (7,200 units × ` 4.526) 32,587
- Overheads (7,200 units × ` 13.579) 97,769 2,30,355

(iv) Process-I A/c

Particulars Units (`) Particulars Units (`)
To Opening W.I.P: By Normal Loss 55,000 --
- Sugarcane 4,500 50,000 By Abnormal loss 1,000 25,613
[ ` 25,595 + ` 18 (difference
due to approximation)]
- Labour -- 15,000 By Process-II A/c 39,500 11,54,032
- Overheads -- 45,000 By Closing WIP 9,000 2,30,355
To Sugarcane 100,000 5,00,000
introduced
To Direct Labour 2,00,000
To Overheads 6,00,000
104,500 14,10,000 104,500 14,10,000

Solution 4:(a)(i) Statement of Equivalent Production

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 Process & Operation Costing | Page 10-7

Particulars Input Particulars Total Material Processing

quantity Cost
% Units % Units
Opening WIP 9,500 Units completed 83,000 100% 83,000 100% 83,000
Material Input 1,05,000 Normal loss 10,500 - - - -
(10% of 1,05,000)
Abnormal loss 4,500 100% 4,500 100% 4,500
(Bal. fig.)
Closing WIP 16,500 100% 16,500 60% 9,900
1,14,500 1,14,500 1,04,000 97,400

Statement of Cost for each element

Particulars Material Processing Total cost
(`) (`) (`)
Cost of opening WIP 29,500 14,750 44,250
Cost incurred during the month 3,34,500 2,53,100 5,87,600
Total cost (A) 3,64,000 2,67,850 6,31,850
Equivalent production (B) 1,04,000 97,400
Cost per kg of Chemical ‘G’ (A/B) 3.5 2.75 6.25

Alternative Presentation

Statement showing cost per kg of each statement

(`)
Material (29,500 + 3,34,500) ÷ 1,04,000 3.5
Processing cost (14,750 + 2,53,100) ÷ 97,400 2.75
Total Cost per kg 6.25

(ii) Statement showing cost of Chemical ‘G’ transferred to Process II, cost of abnormal loss and
cost of closing work-in- progress
(`)
Units transferred (60,000 × 6.25) 3,75,000
Abnormal loss (4,500 × 6.25) 28,125
Closing work in progress:
Material (16,500 × 3.5) 57,750
Processing cost (9,900 × 2.75) 27,225
84,975

(iii) Calculation of Incremental Profit / Loss after further processing

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Page 10-8 | Cost & Management Accounting

Particulars (`) (`)

Sales if further processed (A) (60,000 x 1.20 x ` 10) 7,20,000
Calculation of cost in Process II
Chemical transferred from Process I 3,75,000
Add: Material cost 85,000
Add: Process cost 50,000
Total cost of finished stock (B) 5,10,000
Profit, if further processed (C = A – B) 2,10,000
If sold without further processing then,
Sales (60,000 x ` 9) 5,40,000
Less: Cost of input without further processing 3,75,000
Profit without further processing (D) 1,65,000
Incremental Profit after further processing (C – D) 45,000

Additional net profit on further processing in Process II is 45,000. Therefore, it is advisable to

process further chemical ‘G’.

Alternative Presentation

Calculation of Incremental Profit / Loss after further processing

(`)
If 60,000 units are sold @ ` 9 5,40,000
If 60,000 units are processed in process II (60,000 × 1.2 × ` 10) 7,20,000
Incremental Revenue (A) 1,80,000
Incremental Cost: (B)
Material Cost 85,000
Processing Cost 50,000
1,35,000
Incremental Profit (A-B) 45,000

Additional net profit on further processing in Process II is 45,000. Therefore, it is advisable to

process further chemical ‘G’.

Solution 5: Process I Account

Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
To Opening 7,500 7,500 By Process II A/c 54,000 40,500 13,500
Stock (Transfer)
To Direct 15,000 15,000
Materials
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 Process & Operation Costing | Page 10-9

To Direct Wages 11,200 11,200

33,700 33,700
Less: Closing 3,700 3,700
Stock
Prime Cost 30,000 30,000
To Factory 10,500 10,500
Overhead
Process Cost 40,500 40,500
To Gross Profit 13,500 - 13,500
(Note 1)
54,000 40,500 13,500 54,000 40,500 13,500
To Opening 3,700 3,700
Stock b/d

Process II Account
Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
To Opening 9,000 7,500 1,500 By Finished Stock 1,12,500 75,750 36,750
Stock A/c (Transfer)
To Process I A/c 54,000 40,500 13,500
(Transfer)
To Direct 15,750 15,750
Materials
To Direct Wages 11,250 11,250
90,000 75,000 15,000
Less: Closing 4,500 3,750 750
Stock (Note 2)
Prime Cost 85,500 71,250 14,250
To Factory 4,500 4,500
Overhead
Process Cost 90,000 75,750 14,250
To Gross Profit 22,500 - 22,500
(Note 3)
1,12,500 75,750 36,750 1,12,500 75,750 36,750
To Opening 4,500 3,750 750
Stock b/d

Finished Stock Account

Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
To Opening Stock 22,500 14,250 8,250 By Sales 1,40,000 82,425 57,575
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To Process II A/c 1,12,500 75,750 36,750

1,35,000 90,000 45,000
Less: Closing Stock 11,250 7,575 3,675
(Note 4)
1,23,750 82,425 41,250
To Gross Profit 16,250 - 16,250
1,40,000 82,425 57,575 1,40,000 82,425 57,575
To Opening Stock b/d 11,250 7,575 3,675

Working Notes:

1. Let the transfer price be ` 100, then profit is ` 25 and cost will be (` 100- ` 25)= ` 75.

When cost is ` 75 then profit is ` 25

When cost is ` 1 then profit is ` 25/75

When cost is ` 40,500 then profit is (` 25 / 75) × 40,500 = ` 13,500.

2. Out of ` 90,000 total cost, profit is ` 15,000.

If total cost is ` 4,500, then profit is 15,000 / 90,000 x 4,500 = ` 750.

3. Let the transfer price be ` 100, then profit is ` 20 and cost will be (` 100- ` 20) = ` 80.

When cost is ` 80 then profit is ` 20

When cost is ` 1 then profit is ` 20/ 80

When cost is ` 90,000 then profit is ` 20 / 80 x ` 90,000 = ` 22,500.

4. Out of `1,12,500 from Process II's total cost, profit is `36,750

If total cost is `11,250, profit is 36,750/1,12,500 x 11,250 = `3,675

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Chapter 11 Joint Product By Product

Solution 1: Working Note:

Apportionment of joint costs on the basis of Net Realisable Value method

Products Sales Value (`) Post separation Net Realisable Apportioned
Cost (`) Value (`) Cost (`)
A 50,00,000 (2,00,000 units × ` 25) 12,50,000 37,50,000 26,25,000
B 5,10,000 (30,000 units × ` 17) 1,50,000 3,60,000 2,52,000
C 3,00,000 (25,000 units × ` 12) 50,000 2,50,000 1,75,000
D 2,00,000 (20,000 units × ` 10) — 2,00,000 1,40,000
E 15,00,000 (75,000 units × ` 20) 1,50,000 13,50,000 9,45,000
59,10,000 41,37,000

Total joint cost = Raw material costs + Manufacturing expenses = ` 35,90,000 + ` 5,47,000 = ` 41,37,000

Total joint cost

Apportioned joint cost = × Net realisable value of each product
Total net realisable value

Rs.41,37,000
Apportioned joint cost for Product A = × ` 37,50,000 = ` 26,25,000
Rs.59,10,000

Similarly, the apportioned joint cost for products B, C, D and E are ` 2,52,000, ` 1,75,000, ` 1,40,000
and ` 9,45,000 respectively.

(a) Statement showing income forecast of the company assuming that none of its products are
further processed
Products

A (`) B (`) C (`) D (`) E (`) Total (`)

Sales revenue 34,00,000 3,90,000 2,00,000 2,00,000 10,50,000 52,40,000
(`17 × (`13 × (`8 × (`10 × (`14 ×
2,00,000) 30,000) 25,000) 20,000) 75,000)
Less: Apportioned Costs 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
(Refer Working note)
7,75,000 1,38,000 25,000 60,000 1,05,000 11,03,000
Less: Fixed Cost 4,73,000

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Page 11-2 | Cost & Management Accounting

Profit 6,30,000

(b) Statement showing income forecast of the company: assuming that products A, B, C, and E
are further processed (Refer to working note)
Products
A (`) B (`) C (`) D (`) E (`) Total (`)
A. Sales revenue 50,00,000 5,10,000 3,00,000 2,00,000 15,00,000 75,10,000
B. Apportioned Costs 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
C. Further processing cost 12,50,000 1,50,000 50,000 - 1,50,000 16,00,000
D. Total processing cost (B+ C) 38,75,000 4,02,000 2,25,000 1,40,000 10,95,000 57,37,000
E. Excess of sales revenue (A-D) 11,25,000 1,08,000 75,000 60,000 4,05,000 17,73,000
F. Fixed Cost 4,73,000
G. Profit (E - F) 13,00,000

Suggested production plan for maximising profits:

On comparing the figures of excess of revenue over cost of manufacturing in the above statements
one observes that the concern is earning more after further processing of A, C and E products but
is losing a sum of `30,000 in the case of product B (if it is processed further). Hence the best
production plan will be to sell A, C and E after further processing and B and D at the point of split
off. The profit statement based on this suggested production plan is as below:

Profit statement based on suggested production plan

Products
A (`) B (`) C (`) D (`) E (`) Total (`)
A. Sales revenue 50,00,000 3,90,000 3,00,000 2,00,000 15,00,000 73,90,000
B. Apportioned Costs 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
C. Further processing cost 12,50,000 - 50,000 - 1,50,000 14,50,000
D. Total processing cost (B+ C) 38,75,000 2,52,000 2,25,000 1,40,000 10,95,000 55,87,000
E. Excess of sales revenue (A-D) 11,25,000 1,38,000 75,000 60,000 4,05,000 18,03,000
F. Fixed Cost 4,73,000
G. Profit (E - F) 13,30,000

Hence the profit of the company has increased by ` 30,000.

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Chapter 12 Service Costing

Solution 1: Statement of Expenses of operating bus/ buses for a year

Particulars Rate (`) Per Bus per Fleet of 5
annum (`) buses p.a. (`)
(i) Standing Charges:
Driver’s salary 4,500 p.m 54,000 2,70,000
Cleaner’s salary 3,500 p.m 8,400 42,000
Licence fee, taxes etc. 8,600 p.a. 8,600 43,000
Insurance 10,000 p.a. 10,000 50,000
Depreciation 1,00,000 p.a. 1,00,000 5,00,000
(15,00,000 – 3,00,000) ÷ 12 yrs
(ii) Maintenance Charges:
Repairs & maintenance 35,000 p.a. 35,000 1,75,000
(iii) Operating Charges:
Diesel (Working Note 1) 1,62,000 8,10,000
Total Cost [(i) + (ii) + (iii)] 3,78,000 18,90,000
Cost per month 31,500 1,57,500
Total no. of equivalent students 150 750
Total Cost per half fare equivalent student ` 210 ` 210

(ii) Average cost per student per month:

A. Students coming from distance of upto 4 km. from school

Total cost per month 31,500
= Total no.of equvalent students = 150 students = ` 210

B. Students coming from a distance beyond 4 km. from school

= Cost of per half fare student = 2 = ` 210 × 2 = ` 420

Working Notes:

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Page 12-2 | Cost & Management Accounting

1. Calculation of Diesel cost per bus:

Distance travelled in a year:

(8 round trip × 8 km. × 25 days × 9 months)

Distance travelled p.a.: 14,400 km.

14,000 km
Cost of diesel (per bus p.a.): × `45 = `1,62,000
4 kmpl

2. Calculation of equivalent number of students per bus:

Seating capacity of a bus 50 students

Half fare students (50% of 50 students) 25 students

Full fare students (50% of 50 students) 25 students

Total number of students equivalent to half fare students

Full fare students (25 students × 2) 50 students

Add: Half fare students 25 students

Total Equivalent number of students in a trip 75 students

Total number of equivalent students in two trips 150 students

(Senior + Junior)

Solution 2: Bharat Transport Ltd.

Operating Cost Sheet for the Month of January, 2008
Particulars `
Fixed Cost for the month (` 60,000 / 12) 5,000
Maintenance Charges per month (` 12,000 / 12) 1,000
Running Charges 2,944
Total Operating Cost for the month of January 8,944

Cost per Absolute Ton-km = Total Cost/Absolute ton-km = 8,944/44,720 (Note 3) = ` 0.20

Statement Showing Profit for the Month of January, 2008

Particulars `
Revenue earned (Note 4) 13,368
Total Operating Cost (see above table) 8,944

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 Service Costing | Page 12-3

Operating Profit 4,424

Less: Fine 1,200
Net Profit 3,224

Working Notes:

Calculation of Ton-km on Outward Journey

(i) From city 'A' to city 'B'

10 Journeys × 300 kms × 6 tons = 18,000 ton-km

(ii) From city 'A' to city 'C'

2 Journeys × 140 kms × 6 tons = 1,680 ton-km

(iii) From city 'C' to city 'B'

2 Journeys × 160 kms × 4 tons = 1,280 ton-km

Total = 20,960 ton-km

Calculation of Ton-km on Return Journey

(i) From city 'B' to city 'A'

5 Journeys × 300 kms × 8 tons = 12,000 ton-km

6 Journeys × 300 kms × 6 tons = 10,800 ton-km

(ii) From city 'B' to city 'C'

1 Journey × 160 kms × 6 tons = 960 ton-km

Total = 23,760 ton-km

Absolute ton-km of Outward and Return Journeys = 20,960 + 23,760 (Note 1 & 2) = 44,720 ton kms.

Calculation of Net Revenue Earned during January, 2008:

(i) From city 'A' to city 'B'

12 trucks × 6 tons × ` 90 = ` 6,480

(ii) From city 'B' to city 'A'

5 trucks × 8 tons × ` 84 = ` 3,360

6 trucks × 6 tons × ` 84 = ` 3,024

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Page 12-4 | Cost & Management Accounting

(iii) From city 'B' to city 'C'

1 truck × 6 tons × ` 84 = ` 504

Total Revenue = ` 13,368

Solution 3: Working Notes:

(1) Calculation of equivalent numbers of Light weight vehicles (when no concession is provided
on return journey)
Type of vehicle Monthly traffic Return traffic Ratio Equivalent light weight [(A +
(A) (B) (C) B) × C]
Light weight 45,000* 45,000 1 90,000
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,50,000
*50,000 light vehicles less 10% exempted vehicles

(2) Calculation of equivalent numbers of Light weight vehicles (when concession is provided on
return journey)
Type of vehicle Monthly Return traffic (B) Ratio Equivalent light
traffic (A) (C) weight [(A + B) × C]
Light weight 45,000* 41,625 [45,000- (45,000 × 1 86,625
30% × 25%)]
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,46,625

(i) Calculation of toll rate for each type of vehicle:

Total cost to cover ÷ Equivalent type of vehicles

(` 59,09,090 + 10% of ` 59,09,090) ÷ 2,50,000 equivalent vehicles (Refer working note 1)

= 65,00,000 ÷ 2,50,000 = ` 26

Toll rate for:

Light weight vehicle = ` 26

Medium weight vehicle = ` 26 × 2.5 = ` 65

Heavy weight vehicle = ` 26 × 5 = ` 130

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 Service Costing | Page 12-5

(ii) Calculation of toll rate for each type of vehicle:

Revenue earned from Light weight vehicle in (i) above

= 90,000 vehicles × ` 26 = ` 23,40,000

New toll rate to maintain the same revenue from Light weight vehicle

= ` 23,40,000 ÷ 86,625 (Refer working note-2) = ` 27.01

Light weight vehicle = ` 27.01

Rate to be charged from 13,500 light weight vehicles = 27.01 × 0.75 = 20.26

Alternative presentation

(ii) Toll rate to be charged from light weight vehicles if concession applicable

Revenue share in light vehicles = 90,000 × 26 = ` 23,40,000

Suppose rate is x, then outward journey 45,000 x; return journey (45,000 - 30% of 45,000) + 13,500 (x
- 0.25)

45,000x + 31,500x + 13500 (0.75x) = ` 23,40,000

Toll rate to be charged from light weight vehicles: 86,625x = ` 23,40,000 = ` 27.01

Rate to be charged from 76,500 light weight vehicles @ 27.01; revenue will be ` 20,66,494

Rate to be charged from 13,500 light weight vehicles = 27.01 × 0.75 = 20.26 revenue will be ` 2,73,506

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Page 12-6 | Cost & Management Accounting

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Chapter 13 Standard Costing

Solution 1: (i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}

`3,625 = (SQ × SP) – `59,825

(SQ × SP) = ` 63,450

(SQA × SPA) + (SQB × SPB) = ` 63,450

(940 kg × SPA) + (705 kg ×`30) = ` 63,450

(940 kg × SPA) + `21,150 = ` 63,450

(940 kg × SPA) = ` 42,300

SPA = ` 42,300 ÷ 940 kg

Standard Price of Material-A = ` 45

Working Note:

SQ i.e. quantity of inputs to be used to produce actual output = 1,480 kg ÷ 90% = 1,645 kg

SQA = [800 kg ÷ (800 + 600)] × 1,645 kg = 940 kg

SQB = [600 kg ÷ (800 + 600)] × 1,645 kg = 705 kg

(ii) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)}

` 175 = (AQ × SP) – ` 59,825

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(AQ × SP) = ` 60,000

(AQA × SPA) + (AQB × SPB) = ` 60,000

[900 kg × ` 45 (from (i) above)] + (AQB × ` 30) = ` 60,000

` 40,500 + (AQB × ` 30) = ` 60,000

(AQB × ` 30) = ` 19,500

AQB = ` 19,500 ÷ 30 = 650 kg

Actual Quantity of Material B = 650 kg.

(iii) (AQ × AP) = ` 59,825

(AQA × APA) + (AQB × APB) = ` 59,825

(900 kg × APA) + (650 kg (from (ii) above) × ` 32.5) = ` 59,825

(900 kg × APA) + ` 21,125 = ` 59,825

(900 kg × APA) = ` 38,700

APA = 38,700 ÷ 900 = 43

Actual Price of Material-A = ` 43

(iv) Total Actual Quantity of Material-A and Material-B

= AQA + AQB = 900 kg + 650 kg (from (ii) above) = 1,550 kg

Now,

Revised SQA = [800 kg ÷ (800 + 600)] × 1,550 kg = 886 kg

Revised SQB = [600 kg ÷ (800 + 600)] × 1,550 kg = 664 kg

(v) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}

= {(RSQA × SPA) + (RSQB × SPB) – 60,000}

= (886 kg (from (iv) above) × ` 45 (from (i) above)) + (664 kg (from (iv) above)

× ` 30) - ` 60,000

= (39,870+19,920)–60,000 = ` 210 (A)

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 Standard Costing | Page 13-3

Solution 2: Actual material used = 125 kg × 60 = 7,500 kg

Actual cost of actual material used (AQ × AR) (`)

A (60%) 4,500 kg × `21 94,500
B (20%) 1,500 kg × ` 8 12,000
C (20%) 1,500 kg × ` 6 9,000
7,500 1,15,500

Standard cost of actual material used (AQ × SR) (`)

A 4,500 kg × `20 90,000
B 1,500 kg × `10 15,000
C 1,500 kg × ` 5 7,500
7,500 kg 1,12,500

Standard cost of material, if it had been used in standard proportion

(Standard Proportion × Standard Rate) (`)

A (50%) 3,750 kg × `20 75,000
B (30%) 2,250 kg × `10 22,500
C (20%) 1,500 kg × ` 5
7,500 7,5
1,05,000
00
Standard cost of output for 100 kg:

Standard cost of production (SQ for actual production × SR) (`)

A 62.50 kg × `20 1,250
B 37.50 kg × `10 375
C 25.00 kg × ` 5 125
125.00 1,750

Standard cost for output of 5,600 kg. = 1,750 kg ÷ 100 × 5,600 kg. = `98,000

Material Price Variance = Standard cost of actual material used – Actual cost of actual material used
= `1,12,500 – `1,15,500 = `3,000 (A)

Material Usage Variance = Standard cost of production – Standard cost of actual material used =
`98,000 – `1,12,500 = `14,500 (A)

Note: Material Price Variance can be calculated at the time of purchase as well. In that case, material
variance will be as follows:
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Page 13-4 | Cost & Management Accounting

Actual cost of material purchased

A 5,000 kg × ` 21 = ` 1,05,000
B 2,000 kg × ` 8 = ` 16,000
C 1,200 kg × ` 6 = ` 7,200
` 1,28,200
Standard cost of material purchased

A 5,000 kg × ` 20 = ` 1,00,000
B 2,000 kg × ` 10 = ` 20,000
C 1,200 kg × ` 5 = ` 6,000
` 1,26,000

Material Price variance (if calculated at the time of purchase)

= Standard cost of actual material used – Actual cost of actual material used

= ` 1,26,000 – ` 1,28,200 = ` 2,200 (A)

Solution 3: (i) Actual Numbers of Workers in Each Category

Assumed Semi Skilled Workers = L

Total Labour Mix Variance

= Total Actual Time Worked (hours) × {Average Standard Rate per hour of Standard Gang Less:
Average Standard Rate per hour of Actual Gang@}

@on the basis of hours worked

10,800 (A) = 4,500 hrs. × [`60 – (`75 x 180 hrs. x 2L + `50 x 180 hrs. x L + `40 x 180 hrs. x (25 - 3L)) ÷
4,500 hrs.]

L=7

Semi- Skilled = 7 (as above)

Skilled = 14 (twice of 7)

Unskilled = 4 (balance out of 25)

(ii) Labour Rate Variance = Actual Hours Paid × (Standard Rate – Actual Rate)

Skilled Workers = 2,800 hrs. × (` 75 – ` 80)

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 Standard Costing | Page 13-5

= ` 14,000 (A)

Semi- Skilled = 1,400 hrs. × (`50 – `48)

= ` 2,800 (F)

Un Skilled Workers = 800 hrs. × (` 40– `42)

= ` 1,600 (A)

Total = ` 14,000 (A) + ` 2,800 (F) + ` 1,600 (A)

= ` 12,800 (A)

(iii) Labour Yield Variance

= Average Standard Rate per hour of Standard Gang × {Total Standard Time (hours) Less Total
Actual Time Worked (hours)}

= (`2,86,8754,781.25 hrs.) × (4,781.25 hrs. - 4,500 hrs.)

= ` 16,875 (F)

Or

= Std. Rate × (Std. Hours – Revised Actual Hours Worked)

Skilled Workers = ` 75 × (2,295 hrs. – 2,160 hrs.)

= ` 10,125 (F)

Semi-Skilled = ` 50 × (1,530 hrs. – 1,440 hrs.)

= ` 4,500 (F)

Un Skilled Workers = ` 40 × (956.25 hrs. – 900 hrs.)

= ` 2,250 (F)

Total = ` 10,125 (F) + ` 4,500 (F) + ` 2,250 (F)

= ` 16,875 (F)

(iv) Labour Efficiency Variance

= Std. Rate × (Std. Hours – Actual Hours Worked)

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 Page 13-6 | Cost & Management Accounting

Skilled Workers = ` 75 × (2,295 hrs. – 2,520 hrs.)

= ` 16,875 (A)

Semi- Skilled = ` 50 × (1,530 hrs. – 1,260 hrs.)

= ` 13,500 (F)

Un Skilled Workers = ` 40 × (956.25 hrs. – 720 hrs.)

= ` 9,450 (F)

Total = ` 16,875 (A) + ` 13,500 (F) + ` 9,450 (F)

= ` 6,075 (F)

Working Notes:

Statement Showing "Standard & Actual Cost"

Category Standard Cost Actual Cost Revised Actual

Hrs.
Hrs. Rate Amt. Hrs. Rate Amt. (In Std.
Proportion)

Skilled 2,295 75 1,72,125 2,520 80 2,01,600 2,160

(12W×200×2.295/2,400) (14W×180) (4,500 hrs.× 2,295
hrs.4,781.25 hrs.)

Semi- 1,530 50 76,500 1,260 48 60,480 1,440

Skilled (8W×200×2.295/2,400) (7W×180) (4,500 hrs.× 1,530
hrs.4,781.25 hrs.)

Un- 956.25 40 38,250 720 42 30,240 900

Skilled (5W×200×2.295/2,400) (4W×180) (4,500 hrs.× 956.25
hrs.4,781.25 hrs.)

Total 4,781.25 60 2,86,875 4,500 2,92,320 4,500

Solution 4:
Standard Standard Revised Actual
Std Qty
Qty Rate Amount Qty Rate Amount Qty Rate Amount

Material A 800 90 72000 939.6825 90 84571.43 885.7142857 900 86 77400

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 Standard Costing | Page 13-7

Material B 600 60 36000 704.7619 60 42285.71 664.2857143 650 65 42250

1400 108000 1644.44 126857 1550 1550 119650

Loss on material 140 (10%)

input
Output 1260 1480 1480

Standard Standard Revised Std Actual

Hours Productive Rate Amount Hours Rate Amount Hours Hours paid Rate Amount
hours
Unskilled Labour 1000 950 75 75000 1115.873 75 83690.48 1144.444444 1200 71 85200

Skilled Labour 800 760 44 35200 892.6984 44 39278.73 915.5555556 860 46 39560

1800 1710 2008.571 122969.2 2060 2060 124760

Output 1260 1480 1480

WN-1: Standard Quantity (SQ):

Material A- (800kg. / 0.9×1,400kg.) ×1,480kg. = 939.68 or 940 kg.

Material B- (600kg. / 0.9×1,400kg.) ×1,480kg. = 704.76 or 705 kg.

WN-2: Revised Standard Quantity (RSQ):

Material A- (800kg. / 1,400kg.) ×1,550kg. = 885.71 or 886 kg.

Material B- (600kg. / 1,400kg.) ×1,550kg. = 664.28 or 664 kg.

WN-3: Standard Hours (SH):

Skilled labour- (0.95×1,000hr. / 0.90×1,400kg.) ×1,480kg. = 1,115.87 or 1,116 hrs.

Unskilled labour- (0.95×800hr. / 0.90×1,400kg.) ×1,480kg. = 892.69 or 893 hrs.

WN-4: Revised Standard Hours (RSH):

Skilled labour- (1,000hr. / 1,800hr.) ×2,060hr. = 1,144.44 or 1,144 hrs.

Unskilled labour- (800hr. / 1,800hr.) ×2,060hr. = 915.56 or 916 hrs.

(a) Material Cost Variance (A + B) = {(SQ × SP) - (AQ × AP)}

= {1,26,900 - 1,19,650} = 7,250 (F)

(b) Material Price Variance (A + B) = {(AQ × SP) - (AQ × AP)}

= {1,20,000 - 1,19,650} = 350 (F)

(c) Material Mi× Variance (A + B) = {(RSQ × SP) - (AQ × SP)}

= {1,19,580 - 1,20,000} = 420 (A)

(d) Material Yield Variance (A + B) = {(SQ × SP) - (RSQ × SP)}

= {1,26,900 - 1,19,580} = 7,320 (F)

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Page 13-8 | Cost & Management Accounting

(e) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) - (AH × AR)}
= {1,22,992 - 1,24,760} = 1,768 (A)

(f) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) - (AH × SR)}
= {1,22,992 - 1,27,840} = 4,848 (A)

(g) Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) - (RSH × SR)}
= {1,22,992 - 1,26,104} = 3,112 (A)

Solution 5: Working Notes

Fixed Overheads = Budgeted Fixed Overheads ÷ Budgeted Output ` 10
= ` 12,00,000 ÷ 1,20,000 units
Fixed Overheads element in Semi-Variable Overheads i.e. 60% of `1,80,000 ` 1,08,000
Fixed Overheads = Budgeted Fixed Overheads ÷ Budgeted Output ` 0.90
= ` 1,08,000 ÷ 1,20,000 units
Standard Rate of Absorption of Fixed Overheads per unit (`10 + `0.90) ` 10.90
Fixed Overheads Absorbed on 8,000 units @ ` 10.90 ` 87,200
Budgeted Variable Overheads ` 6,00,000
Add: Variable element in Semi-Variable Overheads 40% of ` 1,80,000 ` 72,000
Total Budgeted Variable Overheads ` 6,72,000
Standard Variable Cost per unit = Budgeted Variable Overheads ÷ Budgeted ` 5.60
Output = ` 6,72,000 ÷ 1,20,000 units
Standard Variable Overheads for 8,000 units @ `5.60 ` 44,800
Budgeted Annual Fixed Overheads (` 12,00,000 + 60% of ` 1,80,000) ` 13,08,000
Possible Fixed Overheads = Budgeted Fixed Overheads ÷ Budgeted Days × Actual ` 1,03,550
Days = ` 1,09,000 ÷ 20 Days × 19 Days
Actual Fixed Overheads (`1,10,000 + 60% of ` 19,200) ` 1,21,520
Actual Variable Overheads (`48,000 + 40% of ` 19,200) ` 55,680

COMPUTATION OF VARIANCES

i. Overhead Cost Variance = Absorbed Overheads – Actual Overheads

= (` 87,200 + ` 44,800) – (` 1,21,520 + ` 55,680)
= ` 45,200 (A)

ii. Fixed Overhead Cost Variance = Absorbed Fixed Overheads – Actual Fixed Overheads
= ` 87,200 – ` 1,21,520
= ` 34,320 (A)

iii. Variable Overhead Cost Variance = Standard Variable Overheads for Production – Actual
Variable Overheads
= ` 44,800 – ` 55,680
= ` 10,880 (A)
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 Standard Costing | Page 13-9

iv. Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed Overheads
= ` 87,200 – ` 1,09,000
= ` 21,800 (A)

v. Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads – Actual Fixed Overheads
= ` 10.90 × 10,000 units – ` 1,21,520
= ` 12,520 (A)

vi. Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads

= ` 1,03,550 – ` 1,09,000
= ` 5,450 (A)

OR

Calendar Variance = (Actual days – Budgeted days) × Standard fixed overhead rate per day
Standard fixed overhead rate per day = 1308000/20*12 = ` 5450
Fixed Overhead Calendar Variance = (19-20) × 5450 = 5450(A)

Solution 6: (i) Statement Showing Cost Elements Equivalent Units of Performance and the
Actual Cost per Equivalent Unit

Detail of Detail of Details Equivalent Units

Returns Input Units
Output Labour Overhead
Units s
Units % Units %
Returns in 200 Returns Completed in 900 900 100 900 100
Process at Start July
Returns Started 825 Returns in Process at 125 100 80 100 80
in July the end of July
1,025 1,025 1,000 1,000

Costs: Labour (`) Overhead (`)

From previous month 12,000 5,000
During the month 1,78,000 90,000
Total Cost 1,90,000 95,000
Cost per Equivalent Unit 190.00 95.00
(ii) Actual cost of returns in process on July 31:
Numbers Stage of Completion Rate per Return (`) Total (`)
Labour 125 returns 0.80 190.00 19,000
Overhead 125 returns 0.80 95.00 9,500
28,500
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Page 13-10 | Cost & Management Accounting

(iii) Standard Cost per Return:

Labour 5 hrs × ` 40 per hour = `200
Overhead 5 hrs × ` 20 per hour = `100
`300
Budgeted volume for July = ` 98,000 / 1000 = 980 Returns
Actual labour rate = ` 178000 / 4000 = ` 44.50
(iv) Computation of Variances:
Statement Showing Output (July only) Element Wise Labour Overhead
Actual performance in July in terms of equivalent units as Calculated 1,000 1,000
above
Less: Returns in process at the beginning of July in terms of equivalent 50 50
units i.e. 25% of returns (200)
950 950
Variance Analysis:
Labour Rate Variance
= Actual Time × (Standard Rate – Actual Rate)
= Standard Rate × Actual Time – Actual Rate × Actual Time
= ` 40 × 4,000 hrs. – ` 1,78,000 = ` 18,000(A)
Labour Efficiency Variance
= Standard Rate × (Standard Time – Actual Time)
= Standard Rate × Standard Time – Standard Rate × Actual Time
= ` 40 × (950 units × 5 hrs.) – ` 40 × 4,000 hrs.
= ` 30,000(F)
Overhead Expenditure or Budgeted Variance
= Budgeted Overhead – Actual Overhead
= ` 98,000 – ` 90,000
= ` 8,000(F)
Overhead Volume Variance
= Recovered/Absorbed Overhead – Budgeted Overhead
= 950 Units × 5 hrs. × ` 20 – ` 98,000 = ` 3,000(A)

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Chapter 14 Marginal Costing

Solution 1: Year 2007

A. Sales (`) 24

B. P/V Ratio 33.3333

C. Total Contribution (`) 8

D. Total Variable Cost (A – C) (`) 16

Alternative I

E. MOS (%) 25%

F. Total Profit (`) [A × E × B] 2,00,000

G. Fixed Cost (C – F) 6,00,000

Alternative II

E. MOS (%) 25%

F. BES (%) 75%

G. Fixed Cost [A × F × B] 6

H. Profit (C – G) 2

Year 2008

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Page 14-2 | Cost & Management Accounting

Assumption: Variable Cost p.u. is same in year 2008 as it was in year 2007

A. Total Variable Cost (same as above) (`) 16

B. P/V Ratio 30%

C. Variable Cost Ratio 70%

D. Sales (`) 22,85,714

E. Total Contribution (`) 6,85,714

F. MOS (%) 40%

Alternative I

G. Profit [D × F × B] (`) 2,74,285

H. Fixed Cost (E – G) 4,11,429

Alternative II

G. BES (%) 60%

H. Fixed Cost [D × G × B] 4,11,429

I. Profit [E – H] 2,74,285

Solution 2:

(a) Margin of Safety (%) = MoS Units ÷ Actual Sales Units

= 7500 ÷ (7500+2500) = 75%

Total Sales = 187500 ÷ 0.75 = `2,50,000/-

Profit = Total sales – Total Cost

= 250000 - 193750 = `56,250

P/V Ratio = Profit ÷ MoS (`) × 100

= 56,250 ÷ 1,87,500 × 100

= 30%

BEP Sales = Total Sales ÷ (100 – MS)

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 Marginal Costing | Page 14-3

= 2,50,000 × 0.25 = `62,500

Fixed Cost = Sales × P/V Ratio

= 2,50,000 × 0.30 – 56,250 = 18,750

Margin of Safety = Selling Price per unit × (7,500 units)

` 1,87,500 = Selling Price per unit × (7,500 units)

Profit `
Sales 10000 × 25 2,50,000
Less: Total Cost 1,93,750
Profit 56,250
P/V Ratio Profit ÷ Margin of Safety
56250 ÷ 187500 30%
BEP Sales 2500 × 25 ` 62,500
Fixed Cost 62500 × 30% ` 18,750

Solution 3: (i) Calculation of Break-even point:

= Total fixed cost ÷ Contribution per unit = `32,89,000 ÷ `110 = 29,900 units

Activity level = (29,900 ÷ 48,000) × 100 = 62.29%

(ii) Number of units to be sold to earn profit of ` 25 per unit:

No. of units = Total fixed cost at 75%level ÷ (Contribution per unit -Desired profit per unit) =
`32,89,000 ÷ (`110 - `25) = 38,694 units

This is more than 80% capacity level, hence fixed overheads would increase by `2,38,500 and so the
Break-even point. Thus, the actual BEP would be

= Total fixed cost beyond 80% level ÷ (Contribution per unit - Desired profit per unit)

= (`32,89,000 + `2,38,500) ÷ (`110 – `25) = `35,27,500 ÷ `85 = 41,500 units.

Working Notes:

1. No. of units at 75% level = `99,00,000 ÷ `275 = 36,000 units.

No. of units at 100% level = 36,000 ÷ 75% = 48,000 units.

No. of units at 80% level = (36,000 ÷ 75%) × 80% = 38,400 units.

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2. P/V ratio is 40% (given), thus, total variable cost per unit and contribution per unit would be:

Contribution per unit = Selling price × P/V Ratio = ` 275 × 40% = ` 110

Variable cost per unit = Selling price per unit – Contribution per unit = ` 275 – 110 = ` 165

3. Variable cost per unit in semi variable cost:

= Total variable cost – (Direct Material + Direct wages +Variable Overheads)

= ` 165 – (96 + 42 + 18) = ` 9 per unit

Calculation of Total fixed cost:

= Fixed cost part of semi-variable cost + Fixed overheads

= (Total Semi-variable cost at 75% level – Variable cost part) + Fixed Overheads

= {` 7,32,000 – (` 9 × 36,000 units)} + ` 28,81,000

= ` 4,08,000 + ` 28,81,000 = ` 32,89,000

Solution 4: Working Note:

1. Current utilization 90% capacity and Turnover is ` 9,45,000

No. of units = `9,45,000 ÷ `30 = 31,500 units

Variable Cost per units (`):

Material 9.00
Labour cost 7.00
Variable overheads 4.25
Total Variable Cost 20.25
Selling price 30.00
Contribution per unit (Selling price – Variable Cost) 9.75

Calculation of Total Fixed Cost

Particulars (`)
Semi-variable cost 2,10,000
Less: Variable cost (31,500 units × `4.25) 1,33,875
Fixed Cost 76,125
Add: Fixed cost upto 90% level 94,500
Total Fixed Cost 1,70,625
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 Marginal Costing | Page 14-5

2. Present Profit:

Contribution (31,500 units at ` 9.75) `3,07,125

Less: Fixed cost `1,70,625
Profit `1,36,500

(i) Break-even point = Total Fixed Cost ÷ Contribution per unit

= `1,70,625 ÷ ` 9.75 = 17,500 Units

At 17,500 units, output level is = (17,500 ÷ 31,500) × 90% = 50%

So, at 50% activities level, this company reaches at BEP

(ii) Sales (Units) = (Fixed Cost + Profit) ÷ Contribution per unit

10% of sales = 10% of ` 30 = ` 3 per unit profit.

Let us assume ‘S’ is the no. of units to be sold, hence profit will be 3S

So, S = (1,70,625 + 3S) ÷ `9.75

Or, 9.75 S = 1,70,625 + 3S

Or, S = 1,70,625 ÷ 6.75 = 25,278 units.

(iii) Sales (units) = (`1,70,625 + `1,41,375) ÷ `9.75

= `3,12,000 ÷ ` 9.75 = 32,000 units

32,000 units is beyond 90% activity level. In such case, the fixed cost will be increased by
`15,000 to `3,27,000.

Then, S = `3,27,000 ÷ `9.75 = 33,538 units i.e. (`33,538 ÷ 35,000) × 100 = 95.82% activity level.

Solution 5: (a) Workings:

1. Statement showing computation of Breakeven of merged plant and other required

information

S. No. Particulars Plan A Plant B Merged

Before After Before After Plant
(90%) (`) (100%) (`) (60%) (`) (100%) (`) (100%) (`)
(i) Sales 63,00,000 70,00,000 48,00,000 80,00,000 1,50,00,000
(ii) Variable cost 39,60,000 44,00,000 22,50,000 37,50,000 81,50,000

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(iii) Contribution (i - ii) 23,40,000 26,00,000 25,50,000 42,50,000 68,50,000

(iv) Fixed Cost 13,00,000 13,00,000 15,00,000 15,00,000 28,00,000
(v) Profit (iii - iv) 10,40,000 13,00,000 10,50,000 27,50,000 40,50,000

Contribution Rs.68,50,000
2. P/V ratio of merged plant = × 100 = Rs.1,50,00,000 × 100 = 45.67%
Sales

(i) Break even sales of merged plant = Fixed ratio ÷ P/V Ratio = `28,00,000 ÷ 45.67%

= `61,31,387 approx.
Rs.61,31,387
Capacity utilization = Rs.1,50,00,000 × 100 = 40.88%

(ii) Profitability of the merged plant at 80% capacity utilization

= (`1,50,00,000 × 80% - `81,50,000 × 80%) – fixed cost

= ` 54,80,000 – ` 28,00,000

= ` 26,80,000

(iii) Sales to earn a profit of ` 60,00,000

Fixed Cost+Desired Profit
Desired Sales =
P/V Ratio

Rs.28,00,000+Rs.60,00,000
= 45.67%

= `1,92,68,666 approx.

(iv) Increase in fixed cost = `28,00,000 × 5% = `1,40,000

Therefore, percentage increase in sales price

Rs.1,40,000
= Rs.1,92,68,666 × 100 = 0.726%

Solution 6: (i) Cost Indifference Point

A and B A and C B and C

(`) (`) (`)
Differential Fixed Cost (I) `30,000 `1,10,000 `80,000
(`45,000 – (`1,25,000 – `15,000) (`1,25,000 – `45,000)
`15,000)
Differential Variable Costs (II) `100 `200 `100
(`240 – `140) (`240 – `40) (`140 – `40)
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 Marginal Costing | Page 14-7

Cost Indifference Point (I/II) 300 550 800

(Differential Fixed Cost/ Cases Cases Cases
Differential Variable Costs per
case)

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

No. of Cases Alternative to be Chosen

Cases ≤ 300 Alternative ‘A’
300 ≥ Cases ≤ 800 Alternative ‘B’
Cases ≥ 800 Alternative ‘C’

(ii) Present case load is 600. Therefore, alternative B is suitable. As the number of cases is
expected to go upto 850 cases, alternative C is most appropriate.

Solution 7: Let Cx be the Contribution per unit of Product X.

Therefore, Contribution per unit of Product Y = Cy = ⅘ Cx = 0.8Cx

Given F1 + F2 = 1,50,000,

F1 = 1,800 Cx (Break even Volume × Contribution per unit)

Therefore, F2 = 1,50,000 – 1,800 Cx.

3,000 Cx –F1 =3,000 × 0.8 Cx – F2 or 3,000 Cx – F1 =2,400 Cx-F2 (Indifference Point)

i.e., 3,000 Cx – 1,800 Cx = 2,400 Cx – 1,50,000 + 1,800 Cx

i.e., 3,000 Cx = 1,50,000, Therefore, Cx = ` 50/- (1,50,000 / 3,000)

Therefore, Contribution per unit of X = ` 50

Fixed Cost of X = F1 = ` 90,000 (1,800 × 50)

Therefore, Contribution per unit of Y is ` 50 × 0.8 = ` 40 and

Fixed Cost of Y = F2 = ` 60,000 (1,50,000 – 90,000)

The Value of F1 = ` 90,000, F2 = ` 60,000 and X = ` 50 and Y = ` 40

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Page 14-8 | Cost & Management Accounting

Solution 8:
Particulars
Suppose sales `100
Variable cost `60
Contribution `40
P/V ratio 40%
Fixed cost `80,000
(i) Break-even point = Fixed Cost ÷ P/V ratio = 80,000 ÷ 40% `2,00,000
(ii) 15% return on ` 2,00,000 `30,000
Fixed Cost `80,000
Contribution required `1,10,000
Sales volume required = ` 1,10,000 ÷ 40% `2,75,000
(iii) Avoidable fixed cost if business is locked up = ` 80,000 - ` 25,000 `55,000
Minimum sales required to meet this cost: ` 55,000 ÷ 40% `1,37,500

Mr. X will be better off by locking his business up, if the sale is less than ` 1,37,500

Solution 9: (a) (i) Statement showing Ranking of crops on the basis of Contribution per
hectare

Sl. No Particulars Wheat Rice Maize

(I) Sales price per kg (`) 20 40 250
(II) Variable cost* per kg (`) 14 13 150
(III) Contribution per kg (`) 6 27 100
(IV) Yield (in kgs per hectare) 2,000 500 100
(V) Contribution per hectare (`) 12,000 13,500 10,000
(VI) Ranking II I III
*Variable cost = Labour Charges + Packing Material + Other Variable Expenses

Therefore, to maximize profits, the order of priority of production would be Rice, Wheat and Maize.

(ii) & (iii) Statement showing optimum product mix considering that all the three cereals are to
be produced and maximum profit thereof
Sl. No. Particulars Wheat Rice Maize Total
(i) Minimum Area (in hectare) 100 40 10 150
(ii) Remaining area (in hectare) 60
(iii) Distribution of remaining area based 50 10 - 60
on ranking considering Maximum area
(iv) Optimum mix (in hectare) 150 50 10 210

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 Marginal Costing | Page 14-9

(v) Contribution per hectare (`) 12,000 13,500 10,000

(vi) Total contribution (`) 18,00,000 6,75,000 1,00,000 25,75,000
(vii) Fixed cost (`) 21,45,000
(viii) Maximum Profit (`) 4,30,000

Optimum Product Mix and calculation of maximum profit earned by company can also be
presented as below

(ii) Optimum Product Mix:

Particular Area Yield Total Production
(in hectares) (kg per hectare) (in kgs)
(a) Maximum of Rice 50 500 25,000
(b) Minimum of Maize 10 100 1,000
(c) Balance of Wheat 150 2,000 3,00,000
210 3,26,000

(iii) Calculation of maximum profit earned by the company:

Production Contribution Total (`)
(in kgs) (` per kg)
(a) Rice 25,000 24 6,75,000
(b) Maize 1,000 100 1,00,000
(c) Wheat 3,00,000 6 18,00,000
Total contribution 25,75,000
Less: Total Fixed Cost per annum -21,45,000
Maximum profits earned by the company 4,30,000

Solution 10:

Part A Part B
Target Price (`) 145 115
Less: Variable Cost p.u. (`)
Material (1.6 kg. @ `12.5 p.kg.) (`) 20 20
Variable OH Machine A (0.6/0.25 hrs @ `80 p.h.) (`) 48 20
Variable OH: Machine B (0.5/0.55 hrs @ `100 p.h.) (`) 50 55
Total Variable Cost p.u. (`) 118 95
Contribution p.u. (`) 27 20
Number of parts can be manufactured on the basis of:
Alloy Available (13000kg ÷ 1.6/1.6) 8,125 8,125
Machine A (4000 hrs ÷ 0.6/0.25) 6,666 16,000
Machine B (4500 hrs ÷ 0.5/0.55) 9,000 8,181
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Page 14-10 | Cost & Management Accounting

Maximum units that can be manufactured 6,666 8,125

Total Contribution (6,666 units × 27; 8,125 × 20) 179,982 162,500

Hence it is recommended to produce Part A.

(b)
Parts A to be Manufactured 6,666 units
Hours utilized Idle hours
Machine A usage (6,666 × 0.6) 3,999.6 0.4
Machine B usage 3,333 1167
Compensation for unutilized machine hour (1167.4 @ `70,044
` 60/ hour)
Revised contribution after reduction of 10% in S.P. `83,325
[6,666 × (145 × 0.9 – 118)]
Total Contribution
`153,369

Solution 11:
X Y Z
Contribution per unit (`) 4 3 5
Units (lower of production/ market demand) 2000 2000 900
Possible Contribution (`) 8000 6000 4500
Opportunity Cost (`) 6000 8000 8000
Solution 12:
Contribution per unit = Selling price – Variable cost
= `40 - `15 = `24
Rs.4,80,000
Break-even Point = = 20,000 units
Rs.24
Actual Sales−Break−even Sales
Or 60% =
Actual Sales
∴ Actual Sales = 50,000 units
(`)
Sales Value (50,000 units × `40) 20,00,000
Less: Variable Cost (50,000 units × `16) 8,00,000
Contribution 12,00,000
Less: Fixed Cost 4,80,000
Profit 7,20,000
Less: Income Tax @ 40% 2,88,000
Net Return 4,32,000

Rs.4,32,000
Rates of Net Return on Sales = 21.6% ( × 100)
Rs.20,00,000

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 Marginal Costing | Page 14-11

Products
X Y
(`) (`)
Selling Price 40 50
Less: Variable Cost 16 10
Contribution per unit 24 40
Sales Ratio 7 3
Contribution in Sales Ratio 168 120

Based on Weighted Contribution

24 ×7+40 ×3
Weighted Contribution = = ` 28.8 per unit
10

Total Fixed Cost 6,66,600

Total Break-ever Point = = = 23,145.80 units
Weighted Contribution 28.80

Break-even Point
7
X = × 23,145.80 = 16,202 units
10

Or 16.202 × ` 40 = ` 6,48,080
3
Y = × 23,145.80 = 6,944 units or 6,944 × `50 = `3,47,200
10

Based on distributing fixed cost in the weighted Contribution Ratio

Fixed Cost
168
X = × 6,66,600 = ` 3,88,850
288

120
Y = × 6,66,600 = ` 2,77,750
288

Break-even Point

Fixed Cost 3,88,850

X = ×= = 16,202 units or ` 6,48,000
Contribution per unit 24

Fixed Cost 2,77,750

Y = ×= = 6,944 units or ` 3,47,200
Contribution per unit 40

Solution 13: Income Statement (Absorption Costing) for the year ending 31st March
(`) (`)
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Sales (1,50,000 units @ `20) 30,00,000

Production Costs:
Variable (1,60,000 units @ `11) 17,60,000
Add: Increase 35,000 17,95,000
Fixed (1,60,000 units @ `2*) 3,20,000
Cost of Goods Produced 21,15,000
Add: Opening stock (10,000 units @ `13)* 1,30,000
22,45,000
𝐑𝐬.𝟐𝟏,𝟏𝟓,𝟎𝟎𝟎
Less: Closing stock ( × 𝟐𝟎, 𝟎𝟎𝟎 𝐮𝐧𝐢𝐭𝐬) 2,64,375
𝟏,𝟔𝟎,𝟎𝟎𝟎
Cost of Goods Sold 19,80,625
Add: Under absorbed fixed production overhead (3,60,000 – 3,20,000) 40,000
20,20,625
Add: Non-production costs:
Variable selling costs (1,50,000 units @ `3) 4,50,000
Fixed selling costs 2,70,000
Total cost 27,40,625
Profit (Sales – Total Cost) 2,59,375

*Working Notes:

1. Fixed production overhead is absorbed at a pre-determined rate based on normal capacity, i.e.
`3,60,000 ÷ 1,80,000 units = ` 2.

2. Opening stock is 10,000 units, i.e., 1,50,000 units + 20,000 units – 1,60,000 units. It is valued at
`13 per unit, i.e., `11 + `2 (Variable + fixed).

Income Statement (Marginal Costing) for the year ended 31st March
(`) (`)
Sales (1,50,000 units @ `20) 30,00,000
Variable production cost (1,60,000 unit @ `11 + `35,000) 17,95,000
Variable selling cost (1,50,000 units @ `3) 4,50,000
22,45,000
Add: Opening Stock (10,000 units @ `11) 1,10,000
23,55,000
𝐑𝐬.𝟏𝟕,𝟗𝟓,𝟎𝟎𝟎
Less: Closing stock (𝟏,𝟔𝟎,𝟎𝟎𝟎 𝐮𝐧𝐢𝐭𝐬 × 𝟐𝟎, 𝟎𝟎𝟎 𝐮𝐧𝐢𝐭𝐬) 2,24,375
Variable cost of goods sold 21,30,625
Contribution (Sales – Variable cost of goods sold) 8,69,375
Less: Fixed cost – Production 3,60,000

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 Marginal Costing | Page 14-13

– Selling 2,70,000 6,30,000

Profit 2,39,375

Reasons for Difference in Profit: (`)

Profit as per absorption costing 2,59,375
Add: Op. stock under –valued in marginal costing (`1,30,000 – 1,10,000) 20,000
2,79,375
Less: Cl. Stock under –valued in marginal closing (`2,64,375 – 2,24,375) 40,000
Profit as per marginal costing 2,39,375

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Page 14-14 | Cost & Management Accounting

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Chapter 15 Budgets and Budgetary Control

Solution 1: Working Note:

Calculation of total annual production

(Units)
Sales in 4 quarters 1,53,750
Add: Closing balance 12,250
1,66,000
Less: Opening balance (6,000)
Total number of units to be produced in the next year 1,60,000

Production Budget (in units)

Quarters I Units II Units III Units IV Units Total
Sales 30,000 37,500 41,250 45,000 1,53,750
Production in current quarter (80% 24,000 30,000 33,000 36,000
of the sale of current quarter)
Production for next quarter (20% of 7500 8250 9000 12250
the sale of next quarter)
Total production 31,500 38,250 42,000 48,250 1,60,000

Raw material consumption budget in quantity

Quarters I II III IV Total
Units to be produced in each quarter: (A) 31,500 38,250 42,000 48,250 1,60,000
Raw material consumption p.u. (kg.): (B) 2 2 2 2
Total raw material consumption (Kg.): (A × B) 63,000 76,500 84,000 96,500 3,20,000

Raw material purchase budget (in quantity)

Qty. (kg.)
Raw material required for production 3,20,000
Add: Closing balance of raw material 5,000
3,25,000

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Less: Opening balance 10000

Material to be purchased 3,15,000

Raw material purchase budget (in value)

Quarters % of annual Qty. of material Rate per Amount (`)
requirement kg. (`)
(1) (2) (3) (4) (5) = (3×4)
I 30 94500 (3,15,000 kg. × 30%) 2 1,89,000
II 50 1,57,500 (3,15,000 kg. × 50%) 3 4,72,500
III 20 63000 (3,15,000 kg. × 20%) 4 2,52,000
Total 3,15,000 9,13,500

Quarters

I II III IV

Kg. Rate Value Kg. Rate Value Kg. Rate Value Kg. Rate Value

(`) (`) (`) (`) (`) (`) (`) (`)

Opening balance 10,000 2 20,000 41,500 2 83,000 1,22,500 3 3,67,500 38,500 3 1,15,500

(A) 63,000 4 2,52,000

Purchases: (B) 94,500 2 1,89,000 1,57,500 3 4,72,500 63,000 4 2,52,000 – – –

Consumption: (C) 63,000 2 1,26,000 41,500 2 83,000 84,000 3 2,52,000 38,500 3 1,15,500

35,000 3 1,05,000 58,000 4 2,32,000

Balance: (D) 41,500 2 83,000 1,22,500 3 3,67,500 38,500 3 1,15,500 5,000 4 20,000

(D) = (A) +(B)– (C) 63,000 4 2,52,000

Solution 2: Working Note:

1. Statement showing contribution:

Sub- assemblies ABC MCB DP Total
(`) (`) (`) (`)
Selling price per unit (p.u.) : 520 500 350
(A) Marginal Cost per unit. Components - Base board
Base board 60 60 60
IC08 160 40 40
IC12 48 120 48
IC26 16 48 64
Labour
- Grade A 40 30 20

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 Budgets and Budgetary Control | Page 15-3

- Grade B 64 48 32
Variable production overhead 36 24 24
Total marginal cost per unit: (B) 424 370 288
Contribution per unit: (C) = (A) – (B) 96 130 62
Sales ratio: (D) 3 4 2
Contribution × Sales ratio: [(E) = (C) × (D)] 288 520 124 932

2. Desired Contribution for the forthcoming month December

(`)

Fixed overheads 7,57,200

Desired profit 12,00,000

Desired contribution 19,57,200

3. Sales mix required i.e. number of batches for the forthcoming month December

Sales mix required = Desired contribution/contribution × Sales ratio

= `19,57,200 ÷ 932 (Refer to Working notes 1 and 2)

= 2,100 batches

Budgets for the month of December

(a) Sales budget in quantity and value

Sub-assemblies ACB MCB DP Total
Sales (Qty.) 6,300 8,400 4,200
(2,100×3) (2,100×4) (2,100×2)
Selling price p.u. (`) 520 500 300
Sales value (`) 32,76,000 42,00,000 14,70,000 89,46,000

(b) Production budget in quantity

Sub-assemblies ACB MCB DP
Sales 6,300 8,400 4,200
Add: Closing stock 720 1,080 2,520
(Opening stock less 10%)
Total quantity required 7,020 9,480 6,720
Less: Opening stock (800) (1200) (2,800)
Production 6,220 8,280 3,920

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(c) Component usage budget in quantity

Sub-assemblies ACB MCB DP Total
Production 6,220 8,280 3,920 -
Base board (1 each) 6,220 8,280 3,920 18,420
Component IC08 (8:2:2) 49,760 16,560 7,840 74,160
(6,220 × 8) (8,280 × 2) (3,920 × 2)
Component IC12 (4:10:4) 24,880 82,800 15,680 1,23,360
(6,220× 4) (8,280 × 10) (3,920 × 4)
Component IC26 (2:6:8) 12,440 49,680 31,360 93480
(6,220× 2) (8,280 × 6) (3,920 × 8)

(d) Component Purchase budget in quantity and value

Sub-assemblies Base board IC08 IC12 IC26 Total
Usage in production 18,420 74,160 1,23,360 93,480
Add: Closing stock 1,440 1,080 5,400 3,600
(Opening stock less 10%)
19,860 75,240 1,28,760 97,080
Less: Opening stock (1,600) (1,200) (6,0000 (4,000)
Purchase (Qty.) 18,260 74,040 1,22,760 93,080
Purchase price (`) 60 20 12 8
Purchase value (`) 10,95,600 14,80,800 14,73,120 7,44,640 47,94,160

(e) Manpower budget showing the number of workers and the amount of wages payable
Sub- Budgeted Direct labour Total
assemblies Production Grade A Grade B
Hours Total Hours Total
p.u. hours p.u. hours
ACB 6,220 8 49,760 16 99,520
MCB 8,280 6 49,680 12 99,360
DP 3,920 4 15,680 8 31,360
(A) Total hours 1,15,120 2,30,240
(B) Hours per man per month 200 200
(C) Number of workers per month: 576 1,152
(A/B)
(D) Wage rate per month (`) 1,000 800
(E) Wages payable (`): (C × D) 5,76,000 9,21,600 14,97,600

Solution 3: Production Budget (in units)

Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated Soft Drink

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 Budgets and Budgetary Control | Page 15-5

October 2023
Sales* 2,10,000 2,38,000 3,36,000 60,000
Add: Closing stock 15,000 14,000 12,000 5,500
Total Quantity Required 2,25,000 2,52,000 3,48,000 65,500
Less: Opening stock 12,000 13,000 11,000 7,500
Production 2,13,000 2,39,000 3,37,000 58,000
November 2023
Sales* 3,15,000 1,66,600 3,36,000 50,000
Add: Closing stock 13,000 15,000 10,000 6,000
Total Quantity Required 3,28,000 1,81,600 3,46,000 56,000
Less: Opening stock 15,000 14,000 12,000 5,500
Production 3,13,000 1,67,600 3,34,000 50,500
December 2023
Sales* 4,72,500 1,16,620 3,36,000 30,000
Add: Closing stock 11,000 16,000 13,000 7,000
Total Quantity Required 4,83,500 1,32,620 3,49,000 37,000
Less: Opening stock 13,000 15,000 10,000 6,000
Production 4,70,500 1,17,620 3,39,000 31,000

Sales Budget (in Units and sales value)

Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated
October 2023 2,10,000 2,38,000 3,36,000 60,000
(in units) [1,40,000 + [1,40,000 + [4,20,000 -
(1,40,000 × 50%)] (3,40,000 × 30%)] (4,20,000×20%)]
October 2023 42,00,000 95,20,000 67,20,000 12,00,000
(Sales Value in `) (2,10,000 × ` 20) (2,38,000 × ` 40) (3,36,000 × ` (60,000 × ` 20)
20)
November 2023 3,15,000 1,66,600 3,36,000 50,000
(in units) [2,10,000 + [2,38,000 -
(2,10,000 × 50%)] (2,38,000 × 30%)]
November 2023 63,00,000 66,64,000 67,20,000 10,00,000
(Sales Value in `) (3,15,000 × ` 20) (1,66,600 × ` 40) (3,36,000 × ` (50,000 × ` 20)
20)
December 2023 4,72,500 1,16,620 3,36,000 30,000
(in units) [3,15,000 + [1,66,600 -
(3,15,000 × 50%)] (1,66,600 × 30%)]
December 2023 94,50,000 46,64,800 67,20,000 6,00,000
(Sales Value in `) (4,72,500 × ` 20) (1,16,620 × ` 40) (3,36,000 × `20) (30,000 × ` 20)

Sales Budget can also be presented in following way:

Oct 2023 Nov 2023 Dec 2023
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Page 15-6 | Cost & Management Accounting

Quantity Amount Quantity Amount Quantity Amount

(units) (`) (units) (`) (units) (`)
Hot Coffee @ ` 20 2,10,000 42,00,000 3,15,000 63,00,000 4,72,500 94,50,000
per unit
Cold Coffee @ ` 40 2,38,000 95,20,000 1,66,600 66,64,000 1,16,620 46,64,800
per unit
Fruit Juice @ ` 20 3,36,000 67,20,000 3,36,000 67,20,000 3,36,000 67,20,000
per unit
Carbonated Soft 60,000 12,00,000 50,000 10,00,000 30,000 6,00,000
Drink @ ` 20 per
unit
2,16,40,000 2,06,84,000 2,14,34,800
*sales units are taken from sales budget

Solution 4: Maximum Capacity in a budget period

= 50 Employees × 8 Hrs. × 5 Days × 4 Weeks = 8,000 Hrs.

Budgeted Hours

40 Employees × 8 Hrs. × 5 Days × 4 Weeks = 6,400 Hrs.

Actual Hrs. = 6,000 Hrs. (given)

Standard Hrs. for Actual Output = 7,000 Hrs.

Budget No. of Days = 20 Days = 20 Days (4 Weeks x 5 Days)

Actual No. of Days = 20 – 1 = 19 Days

1. Efficiency Ratio = (Standard Hrs ÷ Actual Hrs) × 100 = (7,000 hours ÷ 6,000 hours) × 100 = 116.67%

2. Activity Ratio = (Standard Hrs ÷ Budgeted Hrs) × 100 = (7,000 hours ÷ 6,400 hours) × 100 =
109.375%

3. Calendar Ratio = (Available working days ÷ Budgeted working days) × 100 = (19 days ÷ 20 days)
× 100 = 95%

4. Standard Capacity Usage Ratio = (Budgeted Hours ÷ Max. possible hours in the budgeted
period) × 100 = 6,400 hours ÷ 8,000 hours × 100 = 80%

5. Actual Capacity Usage Ratio = (Actual Hours worked ÷ Max. possible working hours in a
period) × 100 = 6,000 hours ÷ 8,000 hours ×100 = 75%

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 Budgets and Budgetary Control | Page 15-7

6. Actual Usage of Budgeted Capacity Ratio = (Actual working Hours ÷ Budgeted Hours) × 100 =
6,000 hours ÷ 6,400 hours × 100 = 93.75%

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