MODEL TEST PAPER 1

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/ her
answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
1. Arnav Ltd. manufactures chemical solutions used in paint and adhesive
products. Chemical solutions are produced in different processes. Some of
the processes are hazardous in nature which may results in fire accidents.
At the end of the last month, one fire accident occurred in the factory. The fire
destroyed some of the paper files containing records of the process
operations for the month.
You being an associate to the Chief Manager (Finance), are assigned to
prepare the process accounts for the month during which the fire occurred.
From the documents and files of other sources, following information could be
retrieved:
Opening work-in-process at the beginning of the month was 500 litres, 80%
complete for labour and 60% complete for overheads. Opening work-in-
process was valued at ` 2,78,000.
Closing work-in-process at the end of the month was 100 litres, 20% complete
for labour and 10% complete for overheads.
Normal loss is 10% of input (fresh) and total losses during the month were
800 litres partly due to the fire damage.
Output transferred to finished goods was 3,400 litres.
Losses have a scrap value of ` 20 per litre.
All raw materials are added at the commencement of the process.

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 The cost per equivalent unit is ` 660 for the month made up as follows:
Raw Material ` 300 Labour ` 200 Overheads ` 160
The company uses FIFO method to value work-in-process and finished goods.
The following information are required for managerial decisions:
i. How much quantity of raw material introduced during the month?
A. 4,300 Litres
B. 3,500 Litres
C. 4,200 Litres
D. 3,800 Litres
ii. The Quantity of normal loss and abnormal loss are:
A. Normal loss- 380 litres & Abnormal loss- 420 litres
B. Normal loss- 350 litres & Abnormal loss – 450 litres
C. Normal loss- 430 litres & Abnormal loss – 370 litres
D. Normal loss- 420 litres & Abnormal loss – 380 litres.
iii. Value of raw material added to the process during the month is:
A. ` 10,10,000
B. ` 10,33,600
C. ` 10,18,400
D. ` 10,20,000
iv. Value of labour and overhead in closing Work-in-process are:
A. ` 4,000 & ` 1,600 respectively
B. ` 20,000 & ` 16,000 respectively
C. ` 16,000 & ` 9,000 respectively
D. ` 13,200 & ` 6,600 respectively
v. Value of output transferred to finished goods is:
A. ` 22,57,200
B. ` 20,06,400
C. ` 22,44,000
D. ` 19,27,200 (5 x 2 = 10 Marks)

2. M Ltd. is producing a single product and may expand into product diversification
in next one to two years. M Ltd. is amongst a labour-intensive company where
majority of processes are done manually. Employee cost is a major cost

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element in the total cost of the company. The company conventionally uses
performance parameters Earnings per manshift (EMS) to measure cost paid
to an employee for a shift of 8 hours, and Output per manshift (OMS) to
measure an employee’s output in a shift of 8 hours.
The Chief Manager (Finance) of the company has emailed you few information
related to the last month. The email contains the following data related to the last
month:
During the last month, the company has produced 2,34,000 tonnes of output.
Expenditures for the last months are:
(i) Raw materials consumed ` 50,00,000
(ii) Power consumed 13,000 Kwh @ ` 8 per Kwh to run the machines for
production.
(iii) Diesels consumed 2,000 litres @ ` 93 per litre to run power generator
used as alternative or backup for power cuts.
(iv) Wages & salary paid – ` 6,40,00,000
(v) Gratuity & leave encashment paid – ` 64,20,000
(vi) Hiring charges paid for HEMM- ` 30,00,000. HEMM are directly used in
production.
(vii) Hiring charges paid for cars used for official purpose – ` 66,000
(viii) Reimbursement of diesel cost for the cars – ` 22,000
(ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final
goods at the time of dispatch) – ` 12,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of
final goods at the time of dispatch) and factory premises is ` 8,000 and
` 18,000 per month respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ` 36,000
(xiii) The company has 1,800 employees works for 26 days in a month.
You are asked to calculate the followings:
i. What is the amount of prime cost incurred during the last month:
A. ` 7,54,20,000
B. ` 7,57,10,000
C. ` 7,56,06,000
D. ` 7,87,10,000
ii. What is the total and per shift cost of production for last month:
A. ` 7,87,10,000 and ` 336.37 respectively

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 B. ` 7,87,10,000 and ` 1,681.84 respectively
C. ` 7,87,28,000 and ` 1,682.22 respectively
D. ` 7,87,28,000 and ` 336.44 respectively
iii. What is the value of administrative cost incurred during the last month:
A. ` 92,400
B. ` 88,000
C. ` 1,48,400
D. ` 1,44,000
iv. What is the value of selling and distribution cost and total cost of sales:
A. ` 36,000 & ` 7,88,76,400 respectively
B. ` 56,000 & ` 7,88,76,400 respectively
C. ` 36,000 & ` 7,88,72,000 respectively
D. ` 56,000 & ` 7,88,72,000 respectively
v. What is the value EMS and OMS for the last month:
A. ` 1,504.70 & 5 tonnes respectively
B. ` 1,367.52 & 5 tonnes respectively
C. ` 1,504.70 & 4.37 tonnes respectively
D. ` 1,367.52 & 4.37 tonnes respectively (5 x 2 = 10 Marks)
3. The wages budget for the last period was based on a standard repair time of
30 minutes per unit and a standard wage rate of ` 50 per hour. The actual
data for the last period are as follows:
Number of units = 30,000
Labour rate variance = 7,500 (A)
Labour efficiency variance = Nil
From the information find out the actual rate of wages per unit
A. ` 50
B. ` 25.50
C. ` 50.50
D. ` 25.25 (2 Marks)
4. The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead (`) 30,00,000 40,00,000
What would be the budgeted overhead for 60% level of activity:

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 A. ` 32,00,0000
B. ` 34,00,000
C. ` 30,00,000
D. ` 36,00,000 (2 Marks)
5. Which of the following statements relating to Zero Based Budgeting (ZBB) is
false:
A. It is a method of budgeting whereby all activities are re-evaluated each
time a budget is formulated.
B. ZBB attempts to eliminate unnecessary expenditure being retained in
budgets.
C. It is probably the least time consuming and least costly approach to
budgeting.
D. It requires that budgets are built up from scratch. (2 Marks)
6. Based on the data below, what is the amount of the overhead under-/over-
absorbed?
Budgeted overhead – ` 5,25,000
Budgeted machine hours- 17,500
Actual machine hours- 17,040
Actual overheads- ` 5,20,000
A. 5,000 under-absorbed
B. 8,800 under-absorbed
C. 8,800 over-absorbed
D. 5,000 over-absorbed (2 Marks)
7. A customer has been ordering 80,000 caps during the year. It is estimated
that it costs ` 1 as inventory holding cost per cap per month and that the set
up cost per run of cap manufacture is ` 3,500
What is optimum run size of cap manufacture?
A. 12 runs
B. 10 runs
C. 15 runs
D. 7 runs (2 Marks)
PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. P Ltd. manufactures two products called ‘X’ and ‘Y’. Both products use a
common raw material Z. The raw material Z is purchased @ ` 72 per kg from

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 the market. The company has decided to review inventory management
policies for the forthcoming year.
The following forecast information has been extracted from departmental
estimates for the year ended 31 st March 2025 (the budget period):
Product X Product Y
Sales (units) 28,000 13,000
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of 5 kg 6 kg
wastage)
Material Z wastage (%) 10 5
Additional information:
- Usage of raw material Z is expected to be at a constant rate over the period.
- Annual cost of holding one unit of raw material in stock is 11% of the
material cost.
- The cost of placing an order is ` 15,600 per order.
- The management of P Ltd. has decided that there should not be more than
40 orders in a year for the raw material Z.
Required:
(a) (i) Prepare Production budget for Products X and Y (in units) for the
year ended 31st March 2025.
(ii) Calculate the Economic Order Quantity for Material Z (in kgs).
(3+2=5 Marks)
(b) Prepare Purchases budget for Material Z (in kgs and value) for the year
ended 31st March 2025. (5 Marks)
(c) If there is a sole supplier for the raw material Z in the market and the
supplier do not sale more than 4,000 kg. of material Z at a time. Keeping
the management purchase policy and production quantity mix into
consideration, calculate the maximum number of units of Product X and
Y that could be produced. (4 Marks)
2. (a) Chiku Transport Service is a Delhi based national goods transport
service provider, owning four trucks for this purpose. The cost of running
and maintaining these trucks are as follows:
Particulars Amount
Diesel cost ` 19.20 per km.
Engine oil ` 4,200 for every 13,000 km.

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 Repair and maintenance ` 36,000 for every 10,000 km.
Driver’s salary ` 24,000 per truck per month
Cleaner’s salary ` 15,000 per truck per month
Supervision and other general ` 14,000 per month
expenses
Cost of loading of goods ` 180 per Metric Ton (MT)
All four trucks were purchased for ` 30 lakhs with an estimated life of
7,20,000 km each.
During the next month, it is expecting 6 bookings, the details are as
follows:
Sl. Journey Distance Weight- Weight- Down
No. in km Up (in MT) (in MT)
1. Delhi to Kochi 2,700 14 6
2. Delhi to Guwahati 1,890 12 0
3. Delhi to Vijayawada 1,840 15 0
4. Delhi to Varanasi 815 10 0
5. Delhi to Asansol 1,280 12 4
6. Delhi to Chennai 2,185 10 8
Total 10,710 73 18
Required
(i) Calculate the total absolute Ton-km for the vehicles. (3 Marks)
(ii) Calculate the cost per ton-km. (6 Marks)
(b) S & Sons, an unregistered supplier under GST, purchases material from
V Ltd. which is a GST registered supplier. The following information is
available for one lot of 5,000 units of material purchased:
Listed price of one lot ` 5,00,000
Trade discount @ 10% on listed price
CGST and SGST (Credit Not available) 18% (9% CGST + 9% SGST)
Cash discount @ 10%
(Will be given only if payment is made within 30 days.)
Toll Tax paid ` 1,800
Freight and Insurance ` 36,000
Demurrage paid to transporter ` 5,000
Commission and brokerage on purchases ` 10,000
Amount deposited for returnable containers ` 30,000

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 Amount of refund on returning the container ` 26,000
Other Expenses @ 2% of total cost
5% of material shortage is due to normal reasons.
The payment to the supplier was made within 21 days of the purchases.
You are required to calculate cost per unit of material purchased by S &
Sons. (5 Marks)
3. (a) What are the important ledgers to be maintained under non-integrated
accounting system in the Cost Accounting? (4 Marks)
(b) The following particulars have been compiled in respect of three
workers, which are under consideration of the management.
I II III
Actual hours worked 380 100 540
Hourly rate of wages (in `) 40 50 60
Productions in units:
- Product X 210 - 600
- Product Y 360 - 1350
- Product Z 460 250 -
Standard time allowed per unit of each
product is:
X Y Z
Minutes 15 20 30
For the purpose of piece rate, each minute is valued at ` 1/-
You are required to calculate the wages of each worker under:
(i) Guaranteed hourly rate basis
(ii) Piece work earning basis, but guaranteed at 75% of basic pay
(Guaranteed hourly rate if his earnings are less than 50% of basic
pay.)
(iii) Premium bonus basis where the worker received bonus based on
Rowan scheme. (10 Marks)
4. (a) AB Ltd produces a single product V2 and sells it at a fixed price of
` 2,050 per unit. The production and sales data for first quarter of the
year 2023-24 are as follows:
April May June
Sales in units 4,200 4,500 5,200
Production in units 4,600 4,400 5,500
Actual/budget information for each month was as follows:

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 Direct materials 4 kilograms at ` 120 per kilogram
Direct labour 6 hours at ` 60 per hour
Variable production overheads 150% of direct labour
Fixed production overheads ` 5,00,000
Fixed selling overheads ` 95,000
There was no opening inventory at the start of the quarter. Fixed
production overheads are budgeted at ` 60,00,000 per annum and are
absorbed into products based on a budgeted normal output of 60,000
units per annum.
Required:
(i) Prepare a profit statement for each of the three months using
absorption costing principles.
(ii) Prepare a profit statement for each of the three months using
marginal costing principles.
(iii) Present a reconciliation of the profit or loss figures given in your
answer to (i) and (ii). (10 Marks)
(b) PQ Ltd. sells bottles and currently is trying to find out the profitability of
opening another store which will have the following expenses and
revenues:
Amount per piece (`)
Selling Price 600
Variable costs:
Material cost 410
Salesmen’s commission 60
Total variable cost 470
Annual fixed expenses are: (`)
- Rent 6,00,000
- Office and administrative expenses 20,00,000
- Advertising 8,00,000
- Other fixed expenses 2,00,000
Calculate the annual break-even point in units and in value. Also
determine the profit or loss if 35,000 units of bottles are sold. (4 Marks)
5. (a) SARA Ltd. has furnished the following standard cost data per' unit of
production:
Material 15 kg @ ` 15 per kg.
Labour 6 hours @ ` 5 per hour
Variable overhead 6 hours @ ` 12 per hour.

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 Fixed overhead ` 4,50,000 per month (Based on a normal volume of
30,000 labour hours.)
The actual cost data for the month of August 2023 are as follows:
Material used 65,000 kg at a cost of ` 9,85,000.
Labour paid ` 1,40,000 for 31,500 hours worked.
Variable overheads ` 3,60,200
Fixed overheads ` 4,70,000
Actual production 4,800 units.
CALCULATE:
(i) Material Cost Variance.
(ii) Labour Cost Variance.
(iii) Fixed Overhead Cost Variance.
(iv) Variable Overhead Cost Variance. (6 Marks)
(b) The following budgeted information relates to Pinku Ltd. for the year
2024:
Products
A B C
Production and Sales (units) 1,00,000 80,000 60,000
(`) (`) (`)
Selling price per unit 90 180 140
Direct cost per unit 50 90 95
Hours Hours Hours
Machine department 3 4 5
(machine hours per unit)
Assembly department 6 4 3
(direct labour hours per unit)
The estimated overhead expenses for the year 2024 will be as below:
Machine Department ` 73,60,000
Assembly Department ` 55,00,000
Overhead expenses are apportioned to the products on the following
basis:
Machine Department On the basis of machine hours
Assembly Department On the basis of labour hours

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 After a detailed study of the activities the following cost pools and their
respective cost drivers are found:
Cost Pool Amount Cost Driver Quantity
(`)
Machining services 64,40,000 Machine hours 9,20,000 hours
Assembly services 44,00,000 Direct labour 11,00,000 hours
hours
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups
Order processing 7,20,000 Customer orders 7,200 orders
Purchasing 4,00,000 Purchase orders 800 orders
As per an estimate the activities will be used by the three products:
Products
A B C
Machine set-ups 4,500 3,000 1,500
Customer orders 2,200 2,400 2,600
Purchase orders 300 350 150
Prepare a product-wise profit statement using Activity-based method.
(8 Marks)
6. (a) EXPLAIN the treatment of over and under absorption of overheads in
cost accounts. (5 Marks)
(b) “Technology has played a significant role in cost accounting enabling
business to automate their process.”
EXPLAIN the impact of Information Technology in Cost Accounting in
the light of above statement. (5 Marks)
(c) As per the controllability, cost can be classified as controllable &
uncontrollable costs. How will you DIFFERENTIATE them? (4 Marks)
OR
(d) How apportionment of joint costs upto the point of separation amongst
the joint products using market value at the point of separation and net
realizable value method is done? DISCUSS. (4 Marks)

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 MODEL TEST PAPER 2
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
1. A meeting of the heads of departments of the Arnav Ltd. has been called to
review the operating performance of the company in the last financial year.
The head of the production department appraised that during the last year the
company could operate at 70% capacity level but in the coming financial year
95% capacity level can be achieved if an additional amount of `100 Crore on
capex and working capital is incurred.
The head of the finance department has presented that during the last
financial year the company had a P/V ratio of 40%, margin of safety and the
break-even were `50 crore and `200 crore respectively.
To the reply to the proposal of increasing the production capacity level to 95%,
the head of the finance department has informed that this could be achieved
if the selling price and variable cost are reduced by 8% and 5% of sales
respectively. Fixed cost will also increase by `20 crore due to increased
depreciation on additional assets. The additional capital will be arranged at a
cost of 15% p.a. from a bank.
In the coming financial year, it has been aimed to achieve an additional profit
of `10 crore over and above the last year’s profit after adjusting the interest
cost on the additional capital.
The following points is required to be calculated on urgent basis to put the
same in the meeting. You being an assistant to the head of finance, has been
asked the followings:
i. What will be the revised sales for the coming financial year?
A. ` 322.22 Crore

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 B. ` 311.11 Crore
C. ` 300.00 Crore
D. ` 324.24 Crore
ii. What will be the revised break-even point for the coming financial year?
A. ` 222.22 Crore
B. ` 252.22 Crore
C. ` 244.44 Crore
D. ` 255.56 Crore
iii. What will be the revised margin of safety for the coming financial year?
A. ` 100 Crore
B. ` 58.89 Crore
C. ` 55.56 Crore
D. ` 66.66 Crore
iv. The profit of the last year and for the coming year are:
A. ` 50 Crore & `95 Crore respectively
B. ` 20 Crore & ` 65 Crore respectively
C. ` 20 Crore & ` 30 Crore respectively
D. ` 45 Crore & ` 66.66 Crore respectively
v. The total cost of the last year and for the coming year are:
A. ` 230 Crore & `292.22
B. ` 230 Crore & `275 Crore
C. ` 220 Crore & `282.22 Crore
D. ` 220 Crore & `292.22 Crore (5 x 2 = 10 Marks)
2. K Ltd. is a manufacturer of a single product A. 8,000 units of the product A
has been produced in the month of March 2024. At the beginning of the year
a total 1,20,000 units of the product-A has been planned for production. The
cost department has provided the following estimates of overheads:
Fixed ` 12,00,000 Variable ` 6,00,000
Semi-Variable ` 1,80,000
Semi-variable charges are considered to include 60 per cent expenses of
fixed nature and 40 per cent of variable character.
The records of the production department shows that the company could have
operated for 20 days but there was a festival holiday during the month.

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The actual cost data for the month of March 2024 are as follows:
Fixed ` 1,19,000 Variable ` 48,000
Semi-Variable ` 19,200
The cost department of the company is now preparing a cost variance report
for managerial information and action. You being an accounts officer of the
company are asked to calculate the following information for preparation of
the variance report:
i. What is the amount of variable overhead cost variance for the month of
March 2024:
A. ` 10,200 (A)
B. ` 10,400 (A)
C. ` 10,800 (A)
D. ` 10,880 (A)
ii. What is the amount of fixed overhead volume variance for the month of
March 2024:
A. ` 9,000 (F)
B. ` 9,000 (A)
C. ` 21,800 (A)
D. ` 11,000 (A)
iii. What is the amount of fixed overhead expenditure variance for the month
of March 2024:
A. ` 21,520 (A)
B. ` 21,500 (A)
C. ` 21,400 (A)
D. ` 21,480 (A)
iv. What is the amount of fixed overhead calendar variance for the month of
March 2024:
A. ` 5,400 (A)
B. ` 5,450 (A)
C. ` 5,480 (A)
D. ` 5.420 (A)
v. What is the amount of fixed overhead cost variance for the month of
March 2024:
A. ` 43,320 (A)
B. ` 43,300 (A)
C. ` 43,200 (A)

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 D. ` 43,380 (A) (5 x 2 = 10 Marks)
3. If the amount of wages under Halsey plan is ` 420, total time allowed is 8
hours and the guaranteed time rate is ` 60 per hour. What is the total time
saved by the worker?
A. 2 hours
B. 3 hours
C. 6 hours
D. 3.5 hours (2 Marks)
4. From the following information, calculate the Total cost of Product A and B
using the ABC analysis:
Product A Product B
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering Cost ` 4,00,000
Delivery Cost ` 1,35,000
A. A = ` 47,500; B = ` 1,27,500
B. A = ` 2,67,500; B = ` 2,67,500
C. A = ` 1,60,00; B = ` 3,75,000
D. A = ` 1,47,500; B = ` 1,47,500 (2 Marks)
5. What would be Prime cost from below information?
Direct materials Purchased : ` 75,000
Direct labour : ` 45,000
Direct expenses : ` 15,000
Manufacturing overheads : ` 22,500
Direct materials consumed : ` 67,500
A. ` 1,35,000
B. ` 1,27,500
C. ` 1,57,500
D. ` 1,50,000 (2 Marks)
6. A product passes through Process-I. Input raw material issued were 8,000
units. Normal loss anticipated was 10% of input with realisable value of ` 5
per unit. 7,600 units of output were produced and transferred to next process.
If the total cost incurred under Process-I was ` 40,000, then amount of
abnormal gain/(loss) is:
A. ` 2,000

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 B. (` 5,000)
C. (` 2,500)
D. ` 3,000 (2 Marks)
7. Find out the most appropriate unit cost from the following information of ZMD
Transport Services Ltd. dealing in goods carriage:
Total cost = ` 5,25,000
Kms. Travelled = 8,75,000
Tonnes carries = 4,000
No. of Drivers = 25
No. of trucks = 20
Tonnes Km carried = 6,55,000
A. ` 0.6
B. ` 0.8
C. ` 21,000
D. ` 131.25 (2 Marks)

PART-II – Descriptive Questions (70 Marks)

Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.

1. (a) The product of a manufacturing concern passes through two processes

A and B and then to finished stock. The details of expenses incurred on
the two processes during the year were as under:
Process A (`) Process B (`)
Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000
On completion, the output of Process A is transferred to Process B at a
price calculated to give a profit of 20% on the transfer price and the
output of Process B is charged to finished stock at a profit of 25% on the
transfer price. The finished stock department realized ` 4,00,000 for the
finished goods received from Process B.
You are asked to SHOW process accounts and total profit, assuming that
there was no opening or closing work-in-progress. (5 Marks)
(b) DSM Ltd manufactures speed boats which require propeller TP-M4. The
following particulars are collected for the year 2023-24:
(i) Annual demand of TP-M4 12,000 units

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 (ii) Cost of placing an order `1,200 per order
(iii) Cost per unit of TP-M4 is `1,740/-
(iv) Carrying cost p.a. 12%
The company has been offered a quantity discount of 5 % on the
purchase of TP-M4, provided the order size is 6,000 units at a time.
Required to:
(i) COMPUTE the economic order quantity (EOQ)
(ii) ADVISE whether the quantity discount offer can be accepted.
(5 Marks)
(c) A skilled worker in Shanu Ltd. is paid a guaranteed wage rate of ` 30 per
hour. The standard time per unit for a particular product is 4 hours. Sam,
a machine-man, has been paid wages under the Rowan Incentive Plan
and he had earned an effective hourly rate of ` 37.50 on the manufacture
of that particular product.
WHAT could have been his total earnings and effective hourly rate, had
he been put on Halsey Incentive Scheme (50%)? (4 Marks)
2. (a) The following information are available for the three machines of a
manufacturing department of KBC Ltd.:
Preliminary estimates of expenses
(per annum)
Total
Machines
P Q R
(`) (`) (`) (`)
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 10,000 4,000 3,000 3,000
Insurance of machinery 8,000
Indirect labour 20,000
Building maintenance expenses 20,000
Annual interest on capital outlay 60,000 25,000 25,000 10,000
Monthly charge for rent and 10,000
rates
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
(The foreman and the attendant control all the three machines and spend
equal time on them.)

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 The following additional information is also available:
Machines
P Q R
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 14 holidays besides Sundays in the year, of which two were
on Saturdays. The manufacturing department works 8 hours in a day
but Saturdays are half days. All machines work at 85% capacity
throughout the year and 2% is reasonable for breakdown.
You are required to :
CALCULATE predetermined machine hour rates for the above machines
after taking into consideration the following factors:
• An increase of 15% in the price of spare parts.
• An increase of 25% in the consumption of spare parts for machine
‘Q’ & ‘R’ only.
• 20% general increase in wages rates.
• An 10% decrease in the consumption of consumable stores.
(10 Marks)
(b) Happi Ltd. Produces product RP in batches, management of the Happi
Ltd. wants to know the number of batches of product RP to be produced
where the cost incurred on batch setup and carrying cost of production
is at optimum level. (4 Marks)
3. (a) Aman International School has a total of 180 students consisting of 6
sections with 30 students per section. The school plans for a picnic
around the city during the week-end to places such as Prayag zoo, the
Capi Park, Azad planetarium etc. A private transport operator has come
forward to lease out the buses for taking the students. Each bus will have
a maximum capacity of 50 (excluding 2 seats reserved for the teachers
accompanying the students). The school will employ two teachers for
each bus, paying them an allowance of ` 500 per teacher. It will also
lease out the required number of buses. The following are the other cost
estimates:
Cost per student (`)
Breakfast 50
Lunch 100
Tea 10
Entrance fee at zoo 20
Rent ` 6500 per bus.
Special permit fee ` 500 per bus.

18
 Block entrance fee at the planetarium ` 2500.
Prizes to students for games ` 500.
No cost are incurred in respect of the accompanying teachers (except
the allowance of ` 500 per teacher).
You are required to PREPARE:
(a) A flexible budget estimating the total cost for the levels of 60,
90,120,150 and 180 students. Each item of cost is to be indicated
separately.
(b) COMPARE the average cost per student at these levels.
(c) WHAT will be your conclusions regarding the break-been level of
student if the school proposes to collect ` 400 per student?
(10 Marks)
(b) Anju Limited has collected the following data for its two activities. It
calculates activity cost rates based on cost driver capacity.
Activity Cost Driver Capacity Cost (`)
Power Kilowatt 60,000 kilowatt 60,00,000
hours hours
Quality Inspections Number of 10,000 Inspections 90,00,000
Inspections
The company makes three products A, B and C. For the year ended
March 31, 20XX, the following consumption of cost drivers was reported:
Product Kilowatt hours Quality Inspections
A 10,000 3,500
B 20,000 2,500
C 15,000 3,000
Required:
(i) PREPARE a statement showing cost allocation to each product
from each activity.
(ii) CALCULATE the cost of unused capacity for each activity.
(4 Marks)
4. (a) The following are the budgeted details are available from the records of
a manufacturing company SP Ltd.:
` `
Direct Materials 2,13,000
Direct Wages:
Machine Shop (12,000 hours) 63,000
Assembly Shop (10,000 hours) 48,000 1,11,000

19
 Works Overhead:
Machine Shop 88,200
Assembly Shop 51,800 1,40,000
Administrative Overhead 92,800
Selling Overhead 81,000
Distribution Overhead 62,100
You are required to:
(a) PREPARE a Schedule of Overhead Rates from the figures
available stating the basis of overhead recovery rates used under
the given circumstances.
(b) WORK OUT a Cost Estimate for the following job based on
overhead calculated on above basis.
Direct Material: 25 kg @ ` 17.20/kg
15 kg @ ` 21.00/kg
Direct labour: (On the basis of hourly Machine shop 30 hours
rate
For machine shop and assembly Assembly shop 42 hours
shop)
(8 Marks)
(b) HOW is slow moving and non-moving item of stores detected and WHAT
steps are necessary to reduce such stocks? (4 Marks)
(c) WHEN is the reconciliation statement of Cost and Financial accounts not
required? (2 Marks)
5. (a) Following information relate to a manufacturing concern for the year
ended 31st March, 2023:
(`)
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 43,50,000
Freight Inwards 1,20,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory Overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to 1,73,000
production)
Distribution Expenses ` 16 per unit

20
 Finished Stock (opening)- 1,320 Units 6,08,500
Sale of scrap of material 7,000
The firm produced 14,350 units of output during the year. The stock of
finished goods at the end of the year is valued at cost of production. The
firm sold 14,903 units at a price of `579 per unit during the year.
PREPARE cost sheet of the firm. (8 Marks)
(b) A hotel having 20 single rooms is having 80% occupancy in normal
season (8 months) and 50% in off- season (4 months) in a year (take 30
days month).
Annual fixed expenses Amount in `
Salary of the staff (excluding room attendant) 15,00,000
Repair & maintenance 12,60,000
Depreciation on building & furniture 12,40,000
Other fixed expenses like dusting, sweeping etc. 13,25,000
53,25,000
Variable expenses (per guest per day)
Linen, laundry & security support 80.00
Electricity & other facilities 120.00
Misc. expenses like attendant etc. 300.00
500.00
Management wishes to make a margin of 25% of total cost.
Required
(a) CALCULATE the Tariff per room per day.
(b) CALCULATE the break-even occupancy in normal season (in
percentage also) assuming there is 50% occupancy in off-season.
(6 Marks)
6. (a) Why is it necessary to reconcile the Profits between the Cost Accounts
and Financial Accounts? (5 Marks)
(b) DISCUSS the essential features of a good cost accounting system?
(5 Marks)
(c) ENUMERATE the remedial steps to be taken to minimize the labour
turnover (4 Marks)
OR
(c) DISCUSS basic assumptions of Cost Volume Profit analysis. (4 Marks)

21
 MODEL TEST PAPER 3
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/ her
answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
1. The board of the J Ltd. has been appraised by the General Manager (HR) that
the employee attrition rate in the company has increased. The following facts
has been presented by the GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this period
their productivity is 60% of the experienced workers. Time required by
an experienced worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of
rectification of a defective unit was ` 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000
hours.
(4) Selling price per unit is ` 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was ` 1,83,480.
(6) Recruitment cost was ` 1,56,340
(7) Training cost was ` 1,13,180
You being an associate finance to GM(HR), has been asked the following
questions:
(i) How much quantity of output is lost due to labour turnover?
(a) 10,000 units
(b) 8,000 units
(c) 12,000 units
(d) 12,600 units
22
 (ii) How much loss in the form of contribution, the company incurred due to
labour turnover?
(a) ` 4,32,000
(b) ` 4,20,000
(c) ` 4,36,000
(d) ` 4,28,000
(iii) What is the cost repairing of defective units?
(a) ` 75,000
(b) ` 15,000
(c) ` 50,000
(d) ` 25,000
(iv) Calculate the profit lost by the company due to increased labour
turnover.
(a) ` 7,50,000
(b) ` 15,00,000
(c) ` 5,00,000
(d) ` 9,00,000
(v) How much quantity of output is lost due to inexperience of the new
worker?
(a) 1,000 units
(b) 2,600 units
(c) 2,000 units
(d) 12,600 units (5 x 2 = 10 Marks)
2. P Ltd. has gathered cost information from ledgers and other sources for the
year ended 31st December 2023. The information are tabulated below:
Sl. Amount Amount (`)
No. (`)
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 40,000

23
 - Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
(xi) Expenses paid for quality control 18,000
check activities
(xii) Research & development cost paid for 20,000
improvement in production process
(xiii) Expenses paid for pollution control and 36,000
engineering & maintenance
(xiv) Salary paid to Sales & Marketing 5,60,000
mangers
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
- Primary packing necessary to 46,000
maintain quality
- For re-distribution of finished 80,000 1,26,000
goods
(xvii) Fee paid to independent directors 1,20,000
(xviii) Performance bonus paid to sales 1,20,000
staffs
(xix) Value of stock as on 1 stJanuary, 2023:
- Raw materials 10,00,000
- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31 stDecember,
2023:
- Raw materials 8,40,000
- Work-in-process 6,60,000
- Finished goods 10,50,000 25,50,000
Amount realized by selling of scrap and waste generated during
manufacturing process – ` 48,000/-
The board meeting is scheduled to be held in next week and you being an
associate to the chief cost controller of the company, has been asked to be
prepared with the following figures:
(i) How much is the prime cost of the company?
(a) ` 5,10,80,600
(b) ` 5,44,40,600
(c) ` 5,36,00,600
(d) ` 5,19,20,600
24
 (ii) How much is the cost of production?
(a) ` 5,49,09,600
(b) ` 5,50,59,600
(c) ` 5,48,73,600
(d) ` 5,50,59,000
(iii) What is the value of cost of goods sold?
(a) ` 5,49,09,600
(b) ` 5,50,59,600
(c) ` 5,48,73,600
(d) ` 5,50,59,000
(iv) How much is the factory cost?
(a) ` 5,49,09,600
(b) ` 5,50,59,600
(c) ` 5,48,73,600
(d) ` 5,50,59,000
(v) What is the value of cost of sales?
(a) ` 5,66,49,600
(b) ` 5,50,59,600
(c) ` 5,48,73,600
(d) ` 5,50,59,000 (5 x 2 = 10 Marks)
3. What is ‘Variable Overhead Efficiency Variance’ based on information given
below:
Budgeted production 12,000 units
Budgeted variable overhead ` 2,40,000
Standard time for one unit of output 2 hours
Actual production 11,800 units
Actual overhead incurred ` 2,44,000
Actual hours worked 23,200 hours
(a) ` 4000 (A)
(b) ` 6000 (A)
(c) ` 2000 (F)
(d) ` 4000 (F) (2 Marks)
4. A company sells two products, A and B. The sales mix is 4 units of A and 3
units of B. The contribution margins per unit are ` 140 for A and ` 70 for B.
Fixed costs are ` 6,16,000 per month. What is Break Even Point for Product
B?

25
 (a) 5,600 units
(b) 2,400 units
(c) 3,200 units
(d) 800 units (2 Marks)
5. Total passenger km run by APL logistic Ltd. was ` 43,80,480 for the year
between Delhi and Manesar. The bus made 3 round trips per day. Seating
capacity of the bus was 52 passengers and average daily occupancy was 75%
and the bus runs on an average 26 days in a month. Calculate the distance
between Delhi and Manesar.
(a) 55 km
(b) 720 km
(c) 65 km
(d) 60 km (2 Marks)
6. Purchase price ` 10,00,000
Custom duty ` 2,00,000
GST @12% on Purchase price
(input credit available)
Octroi ` 5,000
Carriage inward ` 12,000
Demurrage charges ` 16,100
Commission on purchase ` 10,000
Stock of Raw Material:
Opening ` 1,00,000
Closing ` 2,00,000
Raw material consumed will be:
(a) ` 11,27,000
(b) ` 11,43,100
(c) ` 12,63,100
(d) ` 12,58,100 (2 Marks)
7. In case of joint products, the main objective of accounting of the cost is to
apportion the joint costs incurred up to the split off point. For cost
apportionment one company has chosen Physical Quantity Method. Three
joint products ‘A’, ‘B’ and ‘C’ are produced in the same process. Up to the
point of split off the total production of A, B and C is 60,000 kg, out of which
‘A’ produces 30,000 kg and joint costs are ` 3,60,000. Joint costs allocated to
product A is -
(a) ` 1,20,000
(b) ` 60,000
26
 (c) ` 1,80,000
(d) ₹ 2,00,000 (2 Marks)

PART-II – Descriptive Questions (70 Marks)

Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) X Ltd. has entered into an agreement with Y Ltd. for supplying 1,50,000
empty bottles every year. X Ltd. estimates machine set up cost of ` 520
for per set up and carrying cost ` 0.05 per empty bottle per month.
(i) DETERMINE the optimum run size for empty bottle manufacture?
(ii) WHAT would be the interval between two consecutive optimum
runs?
(iii) FIND out the minimum inventory cost per annum. (5 Marks)
(b) CALCULATE a suggested fare per passenger-km from the following
information for a Mini Bus:
(i) Length of route: 30 km
(ii) Purchase price ` 4,00,000
(iii) Part of above cost met by loan, annual interest of which is
` 10,000 p.a.
(iv) Other annual charges: Insurance ` 15,000, Garage rent ` 9,000,
Road tax ` 3,000, Repairs & maintenance ` 15,000, Administrative
charges ` 5,000.
(v) Running Expenses: Driver & Conductor ` 5,000 p.m.,
Repairs/Replacement of tyre-tube ` 3,600 p.a., Diesel and oil cost
per km ` 5.
(vi) Effective life of vehicle is estimated at 5 years at the end of which
it will have a scrap value of ` 10,000.
(vii) Mini Bus has 20 seats and is planned to make Six no. two way trips
for 25 days/p.m.
(viii) Provide profit @ 20% of total revenue. (5 Marks)
(c) 40 units of Part-B is required everyday for producing a product. A cost
of ` 100 is incurred for placing an order and the inventory carrying cost
is ` 0.06 per unit per day and the lead period is 26 days.
You are required to COMPUTE
(i) Economic Order Quantity
(ii) Re-order level (4 Marks)
2. (a) ABC Ltd has calculated a predetermined overhead rate of ` 22 per
machine hour for its Testing department. This rate has been calculated
for the budgeted level of activity and is considered as appropriate for
absorbing overheads. The following overhead expenditures at various
27
 activity levels had been estimated.
Testing department
Total overheads Number of machine hours
` 3,38,875 14,500
` 3,47,625 15,500
` 3,56,375 16,500
You are required to:
(a) CALCULATE the variable overhead absorption rate per machine
hour.
(b) CALCULATE the estimated total fixed overheads.
(c) CALCULATE the budgeted level of activity in machine hours.
(d) CALCULATE the amount of under/over –recovery of overheads if
the actual machine hours were 15,850 and actual overheads were
` 3,55,050.
(e) STATE the arguments for and against using departmental
absorption rates as opposed to a single or blanket factory wide rate.
(10 Marks)
(b) DISCUSS the essentials of good Cost Accounting System. (4 Marks)
3. (a) Cost Ledger of Beta Ltd. shows the following balances as on 31 st March.
Dr. Cr.
` `
Stores ledger control A/c 6,02,870 ⎯
Work-in-progress ledger control A/c 2,44,730 ⎯
Finished stock ledger control A/c 5,03,890 ⎯
Manufacturing overhead control A/c ⎯ 21,050
Cost ledger control A/c ⎯ 13,30,440
13,51,490 13,51,490
During the next three months, the transactions that took place is as
follows:
`
Finished product (at cost) 4,21,670
Manufacturing overhead incurred 1,83,020
Raw materials purchased 2,46,000
Factory wages 1,01,060
Indirect labour 43,330
Cost of sales 3,71,780
28
 Materials issued to production 2,54,630
Sales returned at cost 10,760
Materials returned to suppliers 5,800
Manufacturing overhead charged to production 1,54,400
You are required to WRITE UP the accounts and schedule the balances
stating what each balance represents. (7 Marks)
(b) Outlook Ltd. produces and sells a single product. Sales budget for
calendar year 2023 by quarters is as under:
Quarter I II III IV
No of units to be sold 12,000 15,000 16,500 18,000
The year is expected to open with an inventory of 4,000 units of finished
products and close with an inventory of 6,500 units.
Production is customarily scheduled to provide for two-thirds of the
current quarter’s sales demand plus one-third of the following quarter’s
demand. Thus production anticipates sales volume by about one month.
The standard cost details for one unit of the product is as follows:
Direct materials 10 kgs @ 50 paise per kg.
Direct labour 1 hour 30 minutes @ ` 4 per hour
Variable overhead 1 hour 30 minutes @ ` 1 per hour
Fixed overheads 1 hour 30 minutes @` 2 per hour based on budgeted
production volume of 90,000 direct labour hours for the year.
(i) PREPARE a Production budget for 2023, by quarters, showing the
number of units to be produced and the total costs of direct
material, direct labour, variable overhead and fixed overheads.
(ii) If the budgeted selling price per unit is ` 17, WHAT would be the
budgeted profit for the year as a whole? (7 Marks)
4. (a) R Ltd has set standards for producing a product called ‘X’, which are as
follows:
Direct Materials
3 units of A @ ` 3.5 per unit ` 10.50
6 units of B @ ` 5.00 per unit ` 30.00
4 units of C @ ` 4.25 per unit ` 17.00
Direct Labours
Skilled Semi-Skilled Un-skilled
Workers workers workers
Standard no. of workers 26 10 8
Standard wage rate per 5 4 2
hour (`)

29
 The actual data are as follows:
During the 45 hours working week, the gang produced 1900 standard
labour hours of work.
Company has produced 6000 units of the product during the last week
and the materials and labours are as follows:
17,200 units of A @ ` 4.00 per unit
36,500 units of B @ ` 4.50 per unit
23,800 units of C @ ` 4.30 per unit
Skilled Semi-Skilled Un-skilled
Workers workers workers
Actual no. of workers 24 12 6
Actual wage rate per hour (`) 6 4.25 3.25
You are required to CALCULATE:
(a) Material price variance
(b) Material usage variance
(c) Labour rate variance
(d) Labour mix variance
(e) Labour yield variance (10 Marks)
(b) The ratio of variable cost to sales is 80%. The break-even point occurs
at 65% of the capacity sales. FIND the capacity sales when fixed costs
are ` 65,000. Also COMPUTE profit at 95% of the capacity sales.
(4 Marks)
5. (a) Product-K passes through three processes. The output of each process
is treated as the raw material of the next process to which it is transferred
and output of the third process is transferred to finished stock.
1st Process 2nd Process 3rd Process
` ` `
Material issued 45,000 23,500 11,200
Labour 6,100 4,280 1,200
Manufacturing overhead 9,800 9,800 16,100
10,000 units have been issued to the 1st process and after processing,
the output of each process is as under :
Output Normal Loss
Process No. 1 9,600 units 3%
Process No. 2 9,300 units 6%
Process No. 3 8,000 units 7%

30
 No stock of materials or of work-in-progress was left at the end.
CALCULATE the cost of the finished articles. (10 Marks)
(b) HOW normal and abnormal loss of material arising during storage
treated in Cost Accounts? (4 Marks)
6. (a) EXPLAIN the difference between Cost Accounting and Management
Accounting (5 Marks)
(b) DISCUSS basic assumptions of Cost Volume Profit analysis. (5 Marks)
(c) DISTINGUISH between Fixed and flexible budget. (4 Marks)
OR
(d) DESCRIBE job Costing and Batch Costing giving example of industries
where these are used. (4 Marks)

31
 MODEL TEST PAPER 4
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
Tropic Pvt Ltd was engaged in the business of manufacturing Product P. The
product P required 2 units of Material R. The company intends to sell 24,000 units
of Product P and does not wish to retain any closing stock. However the opening
stock of Product P is 4,000 units. Raw Material R has to be procured after
considering the opening stock of R amounting to 10,000 units. The technical team
further confirms that the yield in the course of manufacture of Product P is 80% of
the input.
The company presently procures its annual requirement of materials on a quarterly
basis from its regular supplier enjoying a discount of 2.5% on the invoice price of
the material of ` 20 per unit. Every time the company places orders for Material R,
it incurs ` 125 for each of the order placed. The company also has taken a rented
warehouse for storing material R and the annual cost of storage is ` 10 per unit.
The company appointed Mr. T a Chartered Accountant to review the cost of
inventory and provide measures of improvement of cost. After reviewing the
material purchase and consumption pattern, Mr. T suggested that the
implementation of Wilson’s EOQ would be beneficial to the company. He
emphasized that the change in the quantity ordered would result in reduction of
inventory carrying costs.
Mr. T further reviewed the labour costing and identified that the employees were
paid overtime wages to ensure timely completion of projects. Overtime wages
comprised of daily wage and 100% of daily wages as overtime premium. Based on
the cost record it was understood that every month had 180 hours of regular

32
working hours which was remunerated at ` 200 per hour and Overtime of 20 hours
which was remunerated at ` 400 per hour. Mr. T suggested that the above time
taken may be considered as standard and a scheme of Incentive be introduced to
reduce overtime cost. He further indicated that Rowan scheme of incentive be used
to measure performance and the improved productivity per hour would be 125 units
per hour.
In this regard, address the following queries in line with the suggestions provided
by Mr. T to Tropic Pvt Ltd.
1. The annual requirement of Material R to meet the target sales of 24,000 units
of Product P is:
(a) 48,000 units
(b) 60,000 units
(c) 40,000 units
(d) 50,000 units
2. The ordering quantity as per the current inventory policy and the proposed
Wilson’s Economic order quantity of Material R are:
(a) Order Quatity as per the current inventory policy – 10,000 units &
Economic Order Quantity – 1,000 units
(b) Order Quantity as per the current inventory policy – 15,000 units &
Economic Order Quantity – 1,225 units
(c) Order Quantity as per the current inventory policy – 12,000 units &
Economic Order Quantity – 1,095 units
(d) Order Quantity as per the current inventory policy – 12,500 units &
Economic Order Quantity – 1,118 units
3. The net savings to inventory cost on migration from the current inventory
policy to the Wilson’s Economic Order Quantity policy would be:
(a) Savings from EOQ as compared to current discount policy –
` 26,820
(b) Savings from EOQ as compared to current discount policy –
` 20,500
(c) Savings from EOQ as compared to current discount policy –
` 33,253
(d) Savings from EOQ as compared to current discount policy –
` 25,546
4. Incentive payable under the Rowan Incentive scheme amounts to:
(a) ` 7,500
(b) ` 6,400

33
 (c) ` 6,000
(d) ` 8,000
5. The savings in labour cost achieved by implementation of incentive scheme
over the overtime payments amounts to:
(a) ` 9,600
(b) ` 5,600
(c) ` 8,000
(d) ` 3,200 (5 x 2 = 10 Marks)
XYZ Manufacturing Pvt. Ltd. is a prominent company in the electric appliances
industry, known for producing a diverse range of high-quality products. The
company has built a reputation for reliability and innovation in the manufacturing of
household appliances, including fans, mixers, and heaters. XYZ Manufacturing Pvt.
Ltd. is dedicated to delivering products that meet the needs of its customers while
adhering to the highest standards of quality and performance.
The company operates a state-of-the-art factory that is fully equipped with
advanced machinery and technology to ensure efficient and consistent production.
The factory operates 25 days a month, running multiple shifts to meet the growing
demand for its products. The company have spare capacity to additional orders.
Each product type—fans, mixers, and heaters—undergoes a meticulous
manufacturing process that includes assembly, quality testing, and packaging.
Cost Category Amount (`)
Fixed Costs (per month)
Factory Rent ` 3,00,000
Depreciation ` 2,00,000
Administrative Expenses ` 1,00,000
Salaries ` 4,00,000
Total Fixed Costs ` 10,00,000
Number of units produced per month 10,000 units
(Note: Last month there was an additional special order of
2000 units which resulted in higher production)
Selling price per unit ` 1,500
Additional Info: Raw Materials include Copper, Plastic, and Other Materials. The
per unit cost of Copper is ` 80 more than the cost of Plastic, while the cost of Other
Materials is twice that of Plastic. And the total Raw Material Cost per unit is ` 210
more than the combined cost of Copper & Plastic.
The Labour Hour Rate is ` 100 per hour. The total labour hours used in the last
month were 36,000 Hours. The Utilities Cost per unit is ` 100, and the Packaging

34
Cost per unit is ` 50. Being a finance manager of the company, you are required to
answer the following:
6. Calculate the contribution margin per unit.
(a) ` 550
(b) ` 600
(c) ` 650
(d) ` 700
7. Determine the break-even point in sales revenue.
(a) ` 31,28,593
(b) ` 25,85,153
(c) ` 27,27,025
(d) ` 27,05,983
8. If the company wants to achieve a target profit of ` 5,00,000, what should be
the sales volume (in units)?
(a) 2,000 units
(b) 2,727 units
(c) 2,750 units
(d) 3,000 units
9. What would be the impact on the break-even point if the variable cost per unit
increases by 10%?
(a) 2,178 units
(b) 2,198 units
(c) 2,248 units
(d) 2,258 units
10. Calculate the margin of safety in percentage if the company sells 4,000 units
if the variable cost per unit increases by 10%
(a) 44.85%
(b) 42.55%
(c) 45.05%
(d) 45.75% (5 x 2 = 10 Marks)
11. A FMCG company has an annual demand of 50,000 units for its specific
product whose setting up cost per batch is ` 10,000 and carrying cost per unit
per month is ` 1. What is the Economic Batch Quantity?
(a) 7,071 units

35
 (b) 10,000 units
(c) 12,641 units
(d) 9,129 units (2 Marks)
12. A furniture company uses premium wood for sofa. Standard quantity of
premium wood per sofa is 5 sq. ft. Standard price per sq. ft. of premium wood
is ` 10. Actual production of sofa is 1,000. Premium wood actually used is
5,300 sq. ft. Actual purchase price of premium wood per sq. ft. is ` 10. What
is material cost variance?
(a) ` 3,000 (A)
(b) ` 4,300 (A)
(c) ` 7,300 (A)
(d) ` 5,300 (F) (2 Marks)
13. One of Pintu Company’s cost pools is parts administration. The budgeted
overhead cost for that cost pool was ` 4,00,000 and the expected activity was
4,000 part types. The actual overhead cost for the cost pool was ` 4,20,000
at an actual activity of 5,000 part types. The activity rate for that cost pool
was:
(a) ` 80 per part type
(b) ` 100 per part type
(c) ` 105 per part type
(d) ` 84 per part type (2 Marks)
14. A truck carrying 10 tons of goods over 200 kilometres per day for 26 days in
a month. The ton kms applicable is -
(a) 52,000
(b) 20,000
(c) 5200
(d) 260 (2 Marks)
15. Standard hours required for doing a work is 100 hours and budgeted hours is
120 hrs while the same work is actually completed by workers in 110 hrs. You
are required to calculate the activity ratio:
(a) 109.09%
(b) 83.33%
(c) 90.90%
(d) 110% (2 Marks)

36
 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) From the following data of Meta Ltd., CALCULATE Cost of production:
Amount
(`)
(i) Repair & maintenance paid for plant & 9,80,500
machinery
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100
(x) Quality control cost for the products in 86,000
manufacturing process
(xi) Research & development cost for improvement 92,600
in production process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated 9,200
during the manufacturing process
(xiv) Packing cost necessary to preserve the goods 10,200
for further processing
(xv) Salary paid to Director (Technical) 8,90,000
(xvi) Expenses paid for pollution control and 22,000
engineering & maintenance
(5 Marks)
(b) A manufacturing company has disclosed net loss of ` 48,700 as per their
cost accounting records for the year ended 31 st March, 2024. However
their financial accounting records disclosed net profit of ` 30,400 for the
same period. A scrutiny of data of both the sets of books of accounts
revealed the following informations:
`
(i) Factory overheads under absorbed 30,500
(ii) Administrative overheads over absorbed 65,000

37
 (iii) Depreciation charged in financial accounts 2,25,000
(iv) Depreciation charged in cost accounts 2,70,000
(v) Income-tax provision 52,400
(vi) Transfer fee (credited in financial accounts) 10,200
(vii) Obsolescence loss charged in financial 20,700
accounts
(viii) Notional rent of own premises charged in 49,000
cost accounts
(ix) Value of opening stock:
(a) in cost accounts 1,38,000
(b) in financial accounts 1,15,000
(x) Value of closing stock:
(a) in cost accounts 1,22,000
(b) in financial accounts 1,12,500
PREPARE a Memorandum Reconciliation Account by taking costing loss
as base. (5 Marks)
(c) A job can be executed either through workman A or B. A takes 32 hours
to complete the job while B finishes it in 30 hours. The standard time to
finish the job is 40 hours.
The hourly wage rate is same for both the workers. In addition workman
A is entitled to receive bonus according to Halsey plan (50%) sharing
while B is paid bonus as per Rowan plan. The works overheads are
absorbed on the job at ` 7.50 per labour hour worked. The factory cost
of the job comes to ` 2,200 irrespective of the workman engaged.
FIND out the hourly wage rate and cost of raw materials input. Also
SHOW cost against each element of cost included in factory cost.
(4 Marks)
2. (a) PQR Company Ltd. provides the following information relating to
Process-P:
(i) Opening Work-in-progress - NIL
(ii) Units Introduced - 45,000 units @ ` 10 per unit
(iii) Expenses debited to the process:
Direct material ` 65,500
Labour ` 90,800
Overhead ` 1,80,700
(iv) Normal loss in the process - 2% of Input

38
 (v) Work-in progress - 1800 units
Degree of completion
Materials - 100%
Labour - 50%
Overhead - 40%
(vi) Finished output - 42,000 units
(vii) Degree of completion of abnormal loss:
Materials - 100%
Labour - 80%
Overhead - 60%
(viii) Units scrapped as normal loss were sold at ` 5 per unit.
(ix) All the units of abnormal loss were sold at ` 2 per unit.
You are required to PREPARE:
➢ Statement of equivalent production.
➢ Statement showing the cost of finished goods, abnormal loss and
closing balance of work-in-progress.
➢ Process-P account and abnormal loss account. (10 Marks)
(b) EXPLAIN the treatment of following items in cost sheet.
(i) Credit for Recoveries
(ii) Packing Cost (primary)
(iii) Joint Products and By-Products
(iv) Quality Control Cost (4 Marks)
3. (a) A company manufactures one main product (MN) and two by-products
AB and PQ. For the month of January 2024, following details are
available:
Total Cost upto separation Point ` 2,12,400
MN AB PQ
Cost after separation - ` 35,000 ` 24,000
No. of units produced 4,000 1,800 3,000
Selling price per unit ` 100 ` 40 ` 30
Estimated net profit as percentage to - 20% 30%
sales value
Estimated selling expenses as 30% 15% 15%
percentage to sales value

39
 There are no beginning or closing inventories.
PREPARE statement showing:
(i) Allocation of joint cost; and
(ii) Product-wise and overall profitability of the company for January
2024. (6 Marks)
(b) A mini-bus, having a capacity of 32 passengers, operates between two
places - 'A' and 'B'. The distance between the place 'A' and place 'B' is
30 km. The bus makes 10 round trips in a day for 25 days in a month.
On an average, the occupancy ratio is 70% and is expected throughout
the year.
The details of other expenses are as under:
Amount (`)
Insurance 15,600 Per annum
Garage Rent 2,400 Per quarter
Road Tax 5,000 Per annum
Repairs 4,800 Per quarter
Salary of operating staff 7,200 Per month
Tyres and Tubes 3,600 Per quarter
Diesel: (one litre is consumed for every 5 km) 13 Per litre
Oil and Sundries 22 Per 100 km run
Depreciation 68,000 Per annum
Passenger tax @ 22% on total taking is to be levied and bus operator
requires a profit of 25% on total taking.
PREPARE operating cost statement on the annual basis and find out the
cost per passenger kilometer and one way fare per passenger.
(8 Marks)
4. (a) The following particulars refer to process used in the treatment of
material subsequently, incorporated in a component forming part of an
electrical appliance:
(i) The original cost of the machine used (Purchased in June 2023)
was ` 10,000. Its estimated life is 10 years, the estimated scrap
value at the end of its life is ` 1,000, and the estimated working time
per year (50 weeks of 44 hours) is 2,200 hours of which machine
maintenance etc., is estimated to take up 200 hours.
No other loss of working time expected. Setting up time, estimated
at 100 hours, is regarded as productive time. (Holiday to be
ignored).

40
 (ii) Electricity used by the machine during production is 16 units per
hour at cost of a 9 paisa per unit. No current is taken during
maintenance or setting up.
(iii) The machine required a chemical solution which is replaced at the
end of week at a cost of ` 20 each time.
(iv) The estimated cost of maintenance per year is ` 1,800.
(v) Two attendants control the operation of machine together with five
other identical machines. Their combined weekly wages, insurance
and the employer's contribution to holiday pay amount ` 120.
(vi) Departmental and general works overhead allocated to this
machine for the current year amount to ` 3,000.
You are required to CALCULATE the machine hour rate of operating the
machine. (6 Marks)
(b) Anju Limited produces a product 'Pect' which is sold in a 10 Kg. packet.
The standard cost card per packet of 'Pect' are as follows:
`
Direct materials 10 kg @ ` 45 per kg 450
Direct labour 8 hours @ ` 50 per hour 400
Variable Overhead 8 hours @ ` 10 per hour 80
Fixed Overhead 200
1,130
Budgeted output for the third quarter of a year was 10,000 Kg. Actual
output is 9,000 Kg.
Actual cost for this quarter are as follows :
`
Direct Materials 8,900 Kg @ ` 46 per Kg. 4,09,400
Direct Labour 7,000 hours @ ` 52 per hour 3,64,000
Variable Overhead incurred 72,500
Fixed Overhead incurred 1,92,000
You are required to CALCULATE:
(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance
(iv) Labour Efficiency Variance
(v) Labour Rate Variance

41
 (vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance (8 Marks)
5. (a) Bicon Ltd. manufactures two products using two types of materials and
one grade of labour. Shown below is an extract from the company’s
working papers for the next month’s budget:
Product - A Product-B
Budgeted sales (in units) 2,400 3,600
Budgeted material consumption per
unit (in kg):
Material-X 5 3
Material-Y 4 6
Standard labour hours allowed per
3 5
unit of product
Material-X and Material-Y cost ` 4 and ` 6 per kg and labours are paid
` 25 per hour. Overtime premium is 50% and is payable, if a worker
works for more than 40 hours a week. There are 180 direct workers.
The target productivity ratio (or efficiency ratio) for the productive hours
worked by the direct workers in actually manufacturing the products is
80%. In addition the non-productive down-time is budgeted at 20% of the
productive hours worked.
There are four 5-days weeks in the budgeted period and it is anticipated
that sales and production will occur evenly throughout the whole period.
It is anticipated that stock at the beginning of the period will be:
Product-A 400 units
Product-B 200 units
Material-X 1,000 kgs.
Material-Y 500 kgs.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for
the direct workers, showing the quantities and values, for the next month.
(7 Marks)

42
 (b) Icecold a FMCG Company manufactures and sells three flavors of ice
cream:
Dark chocolate, Chocolate, and Butterscotch. The batch size for the ice
cream is limited to 1,000 ice cream based on the size of the fridge and
ice cream molds owned by the company. Based on budgetary
projections, the information listed below is available:
Dark chocolate Chocolate Butterscotch
Projected sales in units 500,000 800,000 600,000
PER UNIT data:
Selling price ` 80 ` 75 ` 60
Direct materials ` 20 ` 15 ` 14
Direct labor `4 `2 `2
Hours per 1000-unit batch:
Direct labor hours 20 10 10
Fridge hours 1 1 1
Packaging hours 0.5 0.5 0.5
Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs Activity levels
Direct labor 2,400 hours
Fridge ` 2,10,00,000 1,900 fridge hours
Packaging ` 1,50,00,000 950 packaging hours
` 3,60,00,000
Required:
a. With the help of ABC system, for the Chocolate ice cream:
1. Compute the activity-cost-driver rate
2. Compute the estimated overhead costs per thousand ice cream.
3. Compute the estimated operating profit per thousand ice cream.
b. With the help of traditional system (with direct labor hours as the
overhead allocation base), for the Chocolate ice cream, compute
the estimated operating profit per thousand ice cream. (7 Marks)
6. (a) EXPLAIN the types of responsibility centres. (5 Marks)
(b) EXPLAIN the efficiency rating procedures of the employees. (5 Marks)
(c) WHAT are the essential pre-requisites for integrated accounts?(4 Marks)
OR
(d) WHAT are the principles of estimation of costs and benefits? (4 Marks)

43
 MODEL TEST PAPER 5

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING

Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.

Time Allowed – 3 Hours Maximum Marks – 100

1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
Mr. Vikas, a toy importer has understood the importance of manufacturing in India. He
is backed up by the new govt. policies that motivate him to manufacture in India. As
per the custom department any import made for the manufacturing under “Made in
India”, custom duty will be refunded upto 80%. Vikas decided not to import toy from
China anymore, instead import raw material from Srilanka, for the manufacturing of
toys in India. Under an agreement of Govt. Of India with Srilankan Govt., any impo8rt
from Srilanka will receive tax benefits.
Vikas ordered material Xendga & material Zenga from Srilanka. Details are given
below:-
Srilankan Rupees (SLR)
Material Xendga (12,000 units * 125 SLR) 15,00,000
Material Zenga (8,000 units * 225 SLR) 18,00,000
Factory cost 33,00,000
Add: Containers cost 2,00,000
Add: Freight upto loading shipment on ship (paid by exporter) 50,000
F.O.B. 35,50,000
• Ocean Freight is $ 2,000
• Insurance is $ 1,500

44
When shipment reached India, it was unloaded at Chennai port. Vikas requested to
put the goods in custom port’s warehouse. Vikas due to cash crunch was not in a
position to pay custom duty and therefore did not file the bill of exchange (B.O.E.).
Custom authorities charged a penalty of INR 15,000.
Finally, after a month Vikas filled B.O.E. and paid custom duty of 20% on CIF value of
the shipment. IGST was also applicable @ 18% on the combined value of CIF &
custom duty paid.
He spent further a sum of INR 12,500 to bring the imported goods to his factory. An
inspection was done on the goods and it was found that 5% of the goods were broken.
This came to management as a surprise because generally such rate of defects on
imports is 8%.
Additional Information:
• Exchange rates:
1) 1 INR = 0.25 SLR
2) 1 USD = 75 INR
• IGST credits are available.
• Containers were refunded at INR 38,000.
• Indian and Srilankan brokers were paid commission by Vikas on factory cost.
Indian broker charged 6% whereas Srilankan broker charged 12%.
• CIF (cost, insurance and Freight) includes F.O.B (Free on Board)., Insurance &
Ocean freight.
You are required to answer the following 5 questions:
1. What is the total cost of shipment to be recorded by Vikas?
(a) INR 13,17,000
(b) INR 13,04,500
(c) INR 13,54,500
(d) INR 13,32,500
2. What is the absorption rate of total cost per unit of Zenga?
(a) INR 90.28
(b) INR 84.44
(c) INR 93.62
(d) INR 85.77
3. What is the absorption rate of total cost per unit of Xendga?
(a) INR 52.01
(b) INR 54.24
(c) INR 58.13
(d) INR 68.65

45
4. Amount of refundable taxes?
(a) INR 4,13,600
(b) INR 4,57,600
(c) INR 2,20,000
(d) INR 2,37,600
5. If loss of goods was 9% instead of 5%, what will be the amount that will be
charged to statement of profit & loss?
(a) INR 13,045
(b) INR 19,898.4
(c) INR 14,178.4
(d) INR 24,045 (5 x 2 = 10 Marks)
Hilfy textiles Ltd. has been a major player in the textile industry, producing high-
quality polyester mix cotton fabric. The production process is complex and involves
multiple stages, including spinning, weaving, quality control, and packaging. The
company has been facing challenges in controlling costs and maintaining
profitability, mainly due to fluctuating material costs and labor inefficiencies.
To address these challenges, the company's management has decided to
implement a standard costing system to better manage costs, set benchmarks,
and identify variances. The goal is to gain better control over production costs,
improve budgeting accuracy, and enhance decision-making.
Hilfy textiles Ltd. had prepared the following estimation for the month of April:
Quantity/Time Rate (`) Amount (`)
Cotton 8,000 m 50.00 4,00,000
Polyester 6,000 m 40.00 2,40,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time
of 5% of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 14,800 m finished product by using the followings:
Quantity/Time Rate (`) Amount (`)
Cotton 9,000 m 48.00 4,32,000
Polyester 6,500 m 37.00 2,40,500
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780

46
On the basis of analysis of standard costing system, company’s management
wants to take actions like supplier negotiation, process optimisation, employee
training, etc.
Being the cost manager of the company, you are required to answer the following
five requirements of the management:
6. Compute Material mix variance and Material Yield Variance
(a) ` 1430 (A) & 43,200 (F)
(b) ` 1430 (F) & 43,200 (F)
(c) ` 24,000 (A) & 37,500 (F)
(d) ` 19,300 (A) & 37,500 (F)
7. Compute Material Price Variance for supplier negotiation
(a) ` 18,000 (A)
(b) ` 43,200 (F)
(c) ` 37,500 (A)
(d) ` 37,500 (F)
8. Compute Material Cost Variance
(a) ` 32,500 (F)
(b) ` 24,500 (A)
(c) ` 79,270 (F)
(d) ` 79,270 (A)
9. Compute Labour Efficiency Variance and Labour Yield Variance.
(a) ` 940 (A) & 1,140 (A)
(b) ` 2,424 (A) & 1,556 (A)
(c) ` 2,424 (A) & 1,556 (A)
(d) ` 940 (A) & 1,140 (F)
10. Compute Labour Cost Variance.
(a) ` 884 (A)
(b) ` 1,556 (F)
(c) ` 884 (F)
(d) ` 1,556 (A) (5 x 2 = 10 Marks)
11. A company’s fixed costs are ` 5,00,000, the selling price per unit is ` 200, and
the variable cost per unit is `100. How many units must the company sell to
earn the targeted profit of ` 2,00,000?
(a) 2,000 units
(b) 5,000 units
(c) 10,000 units

47
 (d) 7,000 units (2 Marks)
12. 1200 Kg of a material were input to a process in a period. The normal loss is
8% of input
There is no opening or closing work-in-progress. Output in the period was
1100 Kg. What was the abnormal gain/loss in the period?
(a) Abnormal gain of 12 Kg
(b) Abnormal loss of 12 kg
(c) Abnormal gain of 108 Kg
(d) Abnormal loss of 4 kg (2 Marks)
13. ABC Manufacturing allocates its factory overhead costs based on machine
hours. The total estimated overhead cost for the year is ` 6,00,000, and the
company expects to use 30,000 machine hours. During the year, job A used
300 machine hours. What amount of overhead costs should be allocated to
this job?
(a) ` 4,000
(b) ` 6,000
(c) ` 10,000
(d) ` 8,000 (2 Marks)
14. A factory has a capacity utilization ratio of 85% and its activity ratio is 95%.
Which one of the following is the efficiency ratio?
(a) 120%
(b) 110%
(c) 112%
(d) 90% (2 Marks)
15. A company uses batch costing and incurs a setup cost of ` 20,000 for a batch
of 300 units. If direct materials cost ` 20 per unit and direct labor costs ` 10
per unit, what is the total cost of the batch?
(a) ` 25,000
(b) ` 29,000
(c) ` 32,000
(d) ` 7,000 (2 Marks)
PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) A skilled worker is paid a guaranteed wage rate of ` 150.00 per hour.
The standard time allowed for a job is 50 hours. He gets an effective
hourly rate of wages of ` 180.00 under Rowan Incentive Plan due to
saving in time. For the same saving in time, CALCULATE the hourly rate

48
 of wages he will get, if he is placed under Halsey Premium Scheme
(50%). (5 Marks)
(b) SpeedEx Logistics, established in 2010 and headquartered in Mumbai,
India, operates within the transportation and logistics industry as a third-
party logistics (3PL) provider. The company’s fleet consists of 10 trucks,
15 vans, and 5 trailer, each serving distinct purposes. The records of
Truck R-40 reveal the following information for July 2024.
Days Maintained 30
Days Operated 25
Total Hours Operated 300
Total Kilometres Covered 2,500
Total Tonnage Carried
(4 tonne-load per trip, return journey empty 2 round trips per
day)
The following further information is made available:
A. Operating Costs for the month: Petrol ₹ 400, oil ₹170, Grease ₹ 90,
Wages to driver ₹ 550, Wages to Worker ₹ 350.
B. Maintenance Costs for the month: Repair ₹ 170, Overhaul ₹ 60,
Tyres ₹ 150, Garage charges ₹ 100.
C. Fixed Costs for the month based on the estimates for the year:
Insurance ₹ 50, Licence, tax etc. ₹ 80, Interest ₹ 40, Other
Overheads ₹ 190
D. Capital costs: Cost of acquisition ₹ 54,000; Residual Value at the
end of 5 years life ₹ 36,000.
You are required to CALCULATE:
(i) cost per days maintained
(ii) cost per days operated
(iii) cost per hours operated
(iv) cost per kilometres covered
(v) cost per commercial tonne km (5 Marks)
(c) Alpha Ltd. has an Annual demand from a single customer for 60,000
Covid-19 vaccines. The customer prefers to order in the lot of 15,000
vaccines per order. The production cost of vaccine is ` 5,000 per
vaccine. The set-up cost per production run of Covid-19 vaccines is
` 4,800. The carrying cost is ` 12 per vaccine per month.
You are required to:
(i) FIND the most Economical Production Run.
(ii) CALCULATE the extra cost that company incurs due to production
of 15,000 vaccines in a batch. (4 Marks)

49
2. (a) As demand for LED light increases, more entrepreneurs are coming into
its manufacturing process. eLED Pvt. Ltd. is also one of the recently
formed company whose main business is related to LED lights.
The company has extended its hand into various LED products like COB
(Chip On Board) LEDs, SMD (Surface Mounted Device) LEDs, RGB
LEDs, Flashing LEDs, Miniature LEDs, OLEDs, Filament Bulbs, etc.
However, at the beginning stage, the company has decided to only
assemble the products and enter into manufacturing stage at later years.
The details relating to the first process of mounting for the month of
August are given below:
Opening Work-in-Process: 31,000 units
Material ` 12,40,000
Labour ` 2,32,500
Overheads ` 6,97,500
Introduction during the process: 5,89,000 units
Material ` 2,29,40,000
Labour ` 55,64,500
Overheads ` 1,66,93,500
The process involve some wastage as well. The management estimated
a normal loss of 5% of total input including opening work-in-process
which can be sold out for ` 20 per unit. However, the workers reported
46,500 units as scrapped in which 100% material was used along with
80% of Labour and overheads.
5,42,500 units were transferred for next process of soldering.
Some units were still in process and thus, shifted for the next month
process of mounting. With 100% material used along with 80% labour
and overheads, 31,000 units were shifted.
Following the average method of inventory, you are required to
PREPARE:
(i) Statement of cost showing cost per equivalent unit
(ii) Statement of distribution cost
(iii) Process Account (Mounting)
(iv) Normal Loss Account and Abnormal Loss Account. (10 Marks)
(b) EXPLAIN the Usefulness/Suitability of ABC. (4 Marks)
3. (a) A company manufactures and sells a product, the price of which is
controlled by the Government. Raw material required for this product is
also made available at a fixed controlled price. The following figures
have been called for the previous two accounting years of the company:

50
 Year- I Year- II
Quantity Sold (tones) 1,26,000 1,44,000
Price per tone ` 185 ` 185
(` In thousands)
Sales Value 23,310 26,640
Raw Materials 11,340 12,960
Direct Labour 1,512 1,872
Factory, Administration and Selling Expenses 9,702 11,232
Profit 756 576
During the year II direct labour rates increased by 8 1/3%. Increases in
factory, administration and selling expenses during the year were
` 8,10,000 on account of factors other than the increased quantities
produced and sold. The managing director desires to know, what
quantity if they had produced and sold would have given the company
the same net profit per tonne in Year II as it earned during the Year I
Advise him. (7 Marks)
(b) ABC Ltd is engaged in producing electronic equipments. It has furnished
following details related to its products produced during a month:
Units Amount (`)

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

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

51
 Administrative overheads related to
3,45,00,000
production
Selling expenses 3,94,50,000
Royalty paid for production 3,10,50,000
Cost of web-site (for online sale)
60,75,000
maintenance
Gifts & Snacks 30,50,000
GST (credit allowed) 5,50,00,000
AMC cost of CCTV 10,00,000
Hiring of cars for the transportation of
25,00,000
employees and guests
Audit and Legal Fees 29,00,000
Secondary packaging cost (per unit) 20

Distribution of the following costs:

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

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

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

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

53
5. (a) The financial books of a company reveal the following data for the year
ended 31st March, 2024:
(`)
Opening Stock:
Finished goods 545 units 48,250
Work-in-process 38,000
01.04.2023 to 31.03.2024
Raw materials consumed 5,00,000
Direct Labour 4,20,000
Factory overheads 3,56,000
Administration overheads 2,10,000
Stores Adjustment debited in financial Account 50,000
Dividend paid 98,000
Bad Debts 16,000
Selling and Distribution Overheads 84,000
Income tax paid 34,000
Interest received 42,000
Sales 14,250 units 13,96,500
Closing Stock: Finished goods 460 units 44,500
Work-in-process 36,200
The cost records provide as under:
 Factory overheads are absorbed at 60% of direct wages.
 Administration overheads are recovered at 20% of factory cost.
 Selling and distribution overheads are charged at ` 6 per unit sold.
 Opening Stock of finished goods is valued at ` 90 per unit.
 The company values work-in-process at factory cost for both Financial
and Cost Profit Reporting.
Required:
(i) Prepare statements for the year ended 31st March, 2024 show
 the profit as per financial records
 the profit as per costing records.
(ii) Present a statement reconciling the profit as per costing records
with the profit as per Financial Records (7 Marks)
(b) PPP Ltd. is currently operating at 80% of its capacity producing 80,000
units. For the past two years, the production is increasing by 10% of its
capacity consistently. The cost details are as follows:

54
 Year 3 Year 2 Year 1
(Current
year)
(`) (`) (`)
Direct Materials 12,00,000 14,00,000 16,00,000
Direct Labour 6,00,000 7,00,000 8,00,000
Factory Overheads 3,20,000 3,40,000 3,60,000
Selling Overheads 3,40,000 3,80,000 4,20,000
Administrative Overheads 1,60,000 1,60,000 1,60,000
26,20,000 29,80,000 33,40,000
The company is planning for 90% capacity level for next year.
Additional information:
Due to increase in demand of the raw material, the distributor is
expected to increase the price by 10% from the next year.
At the beginning of the current year, the dispute occurred between
workers and employees regarding wages which lead them to go on
strike. Later on, they settled for 20% increase in wages from next year.
Following increases in overhead cost are expected for next year:
Variable Factory Overheads 5%
Fixed Factory Overheads 10%
Variable Selling Overheads 10%
Fixed Selling Overheads 15%
Administrative Overheads 15%
Profit is estimated @ 25% on total cost.
You are required to PREPARE flexible budget for the next year at 90%
level of capacity.
Also ascertain profit and contribution. (7 Marks)
6. (a) Management of Tillu manufacturing co. is thinking of installing a costing
system its company. What practical DIFFICULTIES management will
expect and how management will OVERCOME the same? (5 Marks)
(b) Anju Ltd. is engaged in production of butter. While producing butter
buttermilk is also produced. Buttermilk is identified as by-product of
butter. What is the TREATMENT of buttermilk in the cost accounts of
Anju Ltd. (5 Marks)
(c) Fixed budgets are very simple to understand and less time consuming,
however, only flexible budgets are more realistic and practicable
because it gives due consideration to behaviour of revenue and cost at
different levels of activity. But still there are certain demerits of both the
budgets. NARRATE the same. (4 Marks)
OR
(c) DISCUSS the objectives of time keeping & time booking. (4 Marks)

55
 MODEL TEST PAPER 6
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
for 30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-
choice questions by choosing one of the four options given. All
questions are compulsory.
Case Scenario I
XYZ Manufacturing Ltd. is a mid-sized enterprise that has established a strong
reputation in the field of precision engineering. The company specializes in
producing high-quality engineering components that meet the stringent
requirements of various industries including automotive, aerospace, medical
devices, and industrial machinery. With a commitment to precision and
excellence, XYZ Manufacturing Ltd. has positioned itself as a reliable supplier
of critical components that demand the highest levels of accuracy and durability.
To maintain stringent control over its production costs and enhance cost
efficiency, XYZ Manufacturing Ltd. operates under a standard costing system.
This system plays a pivotal role in the company’s financial and operational
management. Standard costing involves setting predetermined costs for each
production element, including materials, labor, and overheads. These
predetermined costs, known as standard costs, serve as benchmarks against
which actual production costs are measured.
Particulars Budgeted Data Actual Data
Units Produced 10,000 units 9,500 units
Fixed Overheads ₹ 20,00,000 ₹ 19,50,000 + ₹ 1,00,000
(additional quality control cost for

56
 1,000 units chosen on sample
basis)
Hours Worked 15,000 hours 14,250 hours
Variable Overhead ₹ 50 per hour ₹ 50 per hour (first 10,000 hours)
Rate ₹ 60 per hour (additional hours)
Based on the given information, you are being required to answer the
following questions (MCQs 1 to 5):
1. What is the Fixed Overhead Cost Variance for XYZ Manufacturing Ltd. in
May 2024?
(a) ` 50,000 (A)
(b) ` 1,00,000 (A)
(c) ` 1,50,000 (A)
(d) ` 2,00,000 (A)
2. What is the Fixed Overhead Volume Variance for XYZ Manufacturing Ltd.
in May 2024?
(a) ` 50,000 (F)
(b) ` 50,000 (A)
(c) ` 1,00,000 (F)
(d) ` 1,00,000 (A)
3. What is the Variable Overhead Efficiency Variance for XYZ Manufacturing
Ltd. in May 2024?
(a) ` 37,500 (A)
(b) ` 42,500 (A)
(c) `0
(d) ` 25,000 (A)
4. What is the Variable Overhead Expenditure Variance for XYZ
Manufacturing Ltd. in May 2024?
(a) ` 40,000 (A)
(b) ` 42,500 (A)
(c) ` 45,000 (A)
(d) ` 45,030 (A)
5. What is the Fixed Overhead Expenditure Variance for XYZ Manufacturing
Ltd. in May 2024?
(a) ` 50,000 (F)
(b) ` 50,000 (A)
(c) ` 1,00,000 (F)
(d) ` 1,00,000 (A) (5 x 2 Marks)

57
Case Scenario II
A garment manufacturer has been producing and selling T-shirts exclusively for
Indian market. His T-shirts are made of a specific material which is eco-friendly.
It means that T-shirts are bio-degradable in soil after it becomes unsuitable for
use.
This invention has been applauded throughout the country. Owner, Vikas,
registered for the patent rights for his invention so that no one else could use it.
Vikas feels that this invention will also be liked in foreign markets, and thus plans
to expand his business outside India. He feels that US market is the first foreign
market he should tap into.
Current cost structure (each T-shirt):
Direct material 90
Direct labour 60
Special service 80
(Used in T-shirt making, 50% fixed)
Fixed overhead 50
Administration overhead (fixed) 20
Total cost per T-shirt 300
(+) Profit margin 200
Selling price in India 500
There is no limitation of any resources in India. Vikas is able to sell 80,000
T-shirts each year. He is currently working at 80% of his total capacity.
After searching for potential customers in US, Vikas received an inquiry for
30,000 units from a wholesale distributor in California. As per the inquiry, order
will be placed if price per T-shirt is reasonable and the order has to be satisfied
in full.
Vikas decided to send a quote and the order was placed by the foreign client,
on the same day. Vikas, without a second thought accepted the order, but did
not feel the need to extend the manufacturing capacity; therefore he decided
forgo a few Indian clients.
This foreign order also required special packaging. It is spent at 20% of the total
prime cost per T-shirt. The production was done quickly and foreign consignment
was transported to custom port via services from a carriage agency. It charged
` 80,000 for 1 truck, whose capacity was 500 kg, to transport whole of the
consignment. Truck was 20% vacant after loading the consignment.
Bill of lading was filed and a professional fee of ` 25,000 for filing this was paid
to a Chartered accountant. Custom port also charged ` 80 per kg per day to
handle the material, storing it in warehouse, and for loading the goods on ship.

58
The shipping company, which was booked by Vikas for taking the consignment
to US, got delayed due to bad weather. Stock was held at port for 5 days and on
6 th day it was loaded on ship. Shipping company charged ` 2,800/ 10kg of goods.
Insurance was charged flat at ` 1,11,000.
There is no custom duty on such exports.
Answer the following questions (MCQs 6 to 10):
6. Vikas had sufficient funds in his hands but he still raised a short-term
working capital loan @ 6.5% p.a. for the satisfaction of this foreign order
because he found a one time investment opportunity which was giving him
9.25% returns. Foreign order was accepted on 1 st June and loan was taken
on the same day. Repayment of the loan will be made on 1 st September.
Calculate net cash outflow due to this export order. Which of the following
is correct?
(a) ` 73,91,000
(b) ` 75,47,750
(c) ` 74,76,500
(d) ` 71,06,000
7. What would have been the minimum price that Vikas could have quoted per
T-shirt in US dollars? (exchange rate on 1 st June, $1 = ` 83.86)
(a) $ 4.23
(b) $ 4.20
(c) $ 4.17
(d) $4.05
8. Payment from foreign client was received on 8 th October when exchange
rate was ` 86 for each US $. Calculate the profit earned from this export
order if actual quoted price was $4.90 per T-shirt. Select the correct
amongst following:
(a) ` 40,65,500
(b) ` 41,51,000
(c) ` 39,94,250
(d) ` 44,36,000
9. What is the net cash Inflow from this export order?
(a) ` 55,36,000
(b) ` 51,65,500
(c) ` 52,51,000
(d) ` 50,94,250

59
10. What is the Incremental benefit from this export order?
(a) ` 19,94,250
(b) ` 21,51,000
(c) ` 20,65,500
(d) ` 24,36,000 (5 x 2 Marks)
11. The rate of change in the composition of employee force over the average
number of employees for the year is computed as 9% under ‘separation
method’. However, the same rate is computed as 15% and 30% under
‘replacement method’ and ‘flux method’ respectively.
Considering the average number of employees on roll during the year as
200, FIND OUT the number of employees -
(i) replaced, (ii) left and discharged and (iii) recruited and joined
(a) Replaced- 18 employees, left and discharged- 30 employees and
recruited & joined- 42 employees
(b) Replaced- 30 employees, left and discharged- 42 employees and
recruited & joined- 18 employees
(c) Replaced- 30 employees, left and discharged- 18 employees and
recruited & joined- 42 employees
(d) Replaced- 42 employees, left and discharged- 18 employees and
recruited & joined- 30 employees (2 Marks)
12. WHICH of the following item is not the cause of differences in Financial and
Cost Accounts?
(a) Income tax not treated in Cost Accounts
(b) Dividends credited in Financial Accounts
(c) Losses on the sale of investments not treated in Financial Accounts
(d) Cost Accounts showing notional depreciation on the assets fully
depreciated for which book value is nil (2 Marks)
13. Mefttal Ltd. is currently operating at 60% of its total capacity which is 1.5
times than the previous year. The total capacity of the company is 2,00,000
units.
Other information relating to the production is provided below:
(i) The total cost of production for the current year is ` 59,28,000, and
for the previous year, it was ` 44,72,000.
(iii) No changes are anticipated in the cost structure for the upcoming
years.
Selling price is ` 52 per unit and is expected to remain the same in the
coming years.

60
 You are required to CALCULATE Break-Even Point (in units).
(a) 1,20,000 units
(b) 40,000 units
(c) 80,000 units
(d) 1,00,000 units (2 Marks)
14. Parth Ltd. operates in insurance business. Previous Year, the company
launched a new term insurance policy called ‘Max Jivan’ and incurred the
following expenditure throughout the year:
Particulars Amount (`)
Claim management cost 52,82,000
Facilities cost 6,49,82,500
Employees cost 2,25,18,000
Cost of marketing of the policy 19,30,71,000
Policy development cost 4,86,50,000
Policy issuance cost 4,10,05,000
Policy servicing cost 13,40,65,500
Sales support expenses 4,44,80,000
Office administration cost 6,67,20,000
I.T. Cost 30,71,90,000
Postage and logistics 4,50,36,000

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

61
15. RN Ltd. manufactures two primary products, P 1 and P 2, through a joint
process and a by-product, R12, is produced spontaneously. The relationship
between output quantities to the direct material input stays stable.
To allocate joint production costs to the primary products, the company
utilizes the physical volume method.
During the month of March, company incurred joint production costs of
` 1,30,00,000. As the primary products are not freely marketable at the
split-off point, they are processed further.
The net realizable value of the by-product is treated as deductions from the
joint production costs before the joint costs are allocated to the primary
products.
The information regarding company’s production and its cost during the
month of March is provided below:
Particulars P1 P2 R 12
Output (kg.) 1,95,000 3,90,000 81,250
Selling price per kg. ` 200 ` 120 ` 40
Further processing costs ` 26,00,000 ` 39,00,000 -

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

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

62
 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) Petro Ltd. is a petroleum refining company which uses cracking process
for producing gasoline, diesel and Heavy fuel oil (HFO). All three final
products are extracted simultaneously at one common split-off point.
Gasoline and diesel are immediately available for sale upon
separation, requiring no further processing. In contrast, heavy fuel oil
(HFO) undergoes additional processing before it can be sold, as there
is no market for it at the split-off point.
Throughout the year, the selling prices and total quantities sold for
each item were as follows:
Product Quantity sold Selling Price per
(Gallons) gallon (`)
Gasoline 1,674 400
Diesel 4,743 300
Heavy fuel oil (HFO) 6,624 200

The selling prices listed above are projected to remain unchanged in

the upcoming year.
The total joint manufacturing costs for the year amounted to
` 15,00,000, with an additional cost of ` 7,44,000 incurred for finishing
Heavy fuel oil (HFO).
There were no opening inventories of gasoline, diesel and Heavy
fuel oil (HFO). Though, at the end of the period, the following
inventories of complete units were available: 1,620 gallons of
gasoline, 540 gallons of diesel, and 225 gallons of Heavy fuel oil
(HFO).
You are required to COMPUTE the following for gasoline, diesel and
Heavy fuel oil (HFO)-
(i) joint cost allocated, and
(ii) cost of goods sold
using Net Realisable Value Method of joint cost allocation.
(5 Marks)
(b) The following information have been extracted from the cost records
of a manufacturing company:
(`)
Stores
* Opening balance 9,000
* Purchases 48,000

63
 * Transfer from WIP 24,000
* Issue to work-in-progress 48,000
* Issue for repairs 6,000
* Deficiency found in stock 1,800
Work-in-Progress:
* Opening balance 18,000
* Direct Wages applied 18,000
* Overhead charged 72,000
* Closing balance 12,000
Finished Production :
* Entire production is sold at a profit of 10% on cost
from work-in-progress
* Wages paid. 21,000
* Overhead incurred 75,000
DRAW the Stores Leger Control A/c, Work-in-Progress Control A/c,
Overheads Control A/c and Costing Profit and Loss A/c. (5 Marks)
(c) The management of a company wants to formulate an incentive plan
for the workers with a view to increase productivity. The following
particulars have been extracted from the books of company:
Piece Wage rate ` 10
Weekly working hours 40
Hourly wages rate ` 40 (guaranteed)
Standard/normal time per unit 15 minutes.
Actual output for a week:
Worker A: 176 pieces
Worker B: 140 pieces

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

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

64
Particulars (`)
Rent and Rates 40,00,000
General Lighting 4,80,000
Indirect Wages 15,51,200
Power 12,00,000
Depreciation on Machines 80,00,000
Sundries 77,56,000
Additional information:
Production Departments Service
Departments
X1 Y2 Z3 QC M
Direct 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000
wages (`)

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

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

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

A technical assessment unveiled the following basis for the

apportionment of expenses of service departments:
X1 Y2 Z3 QC M
QC 20% 30% 40% - 10%
M 40% 20% 30% 10% -
You are required to DETERMINE the following:
(i) Overheads distributed to all the departments, viz. X1, Y2, Z3, QC
and M.
(ii) Overheads total and rate per hour under all the Production
Departments after redistribution of Service Department’s
Overhead.

65
 (iii) Total cost of a bicycle, considering the Direct Material and
labour Cost of ` 20,000 and ` 12,000 respectively, which is
being processed for manufacturing in Departments X1, Y2 and
Z3 for 4, 5 and 3 hours respectively. (5 + 5 + 2 = 12 Marks)
(b) Luxz Ltd. is into luxury pens business manufacturing 120 pens in a
batch. To process a single batch of 120 pens, company needs to
incur following expenditure:
Particulars (`)
Direct Materials 57,375
Direct wages 6,750
Batch Set-up cost 18,900
For each batch, the company absorbs the Production Overheads at
a rate of 20% of direct wages and 15% of the total production cost
is allocated to cover selling, distribution, and administrative
overheads.
During the month of March, Luxz Ltd. received an order for 2,400
pens and the company aims to achieve a profit margin of 25% on its
sales value.
You are required to DETERMINE the total sales value for 2,400
pens. (2 Marks)
3. (a) Following information is available from the books of YSPP Ltd. for the
current year ending 31st March:
S. Particulars (`) (`)
No.
(i) Raw materials purchased 35,00,00,000
(ii) Freight inwards 39,22,100
(iii) Wages paid to factory workers 1,02,20,000
(iv) Contribution made towards 12,60,000
employees’ PF & ESIS
(v) Hire charges paid for hiring 8,40,000
specific equipment
(vi) Amount paid for power & fuel 16,17,000
(vii) Amount paid for purchase of 31,36,000
moulds and patterns (life is
equivalent to four years
production)
(viii) Job charges paid to job 28,42,000
workers
(ix) Lease rent paid for production 3,92,000
assets
(x) Depreciation on:

66
 Factory building 2,94,000
Office building 1,96,000
Plant & Machinery 4,41,000
Delivery vehicles 3,01,000 12,32,000
(xi) Salary paid to supervisors 4,41,000
(xii) Repairs & Maintenance paid 1,68,000
for:
Plant & Machinery
Sales office building 63,000 2,31,000
(xiii) Insurance premium paid for:
Plant & Machinery 1,09,200
Factory building 63,350
Stock of raw materials & WIP 1,26,000 2,98,550
(xiv) Expenses paid for quality 68,600
control check activities
(xv) Salary paid to quality control 3,36,700
staffs
(xvi) Research & development cost 63,700
paid for improvement in
production process
(xvii) Expenses paid for 4,15,100
administration of factory work
(xviii) Salary paid to functional
mangers:
Production control 33,60,000
Finance & Accounts 32,13,000
Sales & Marketing 35,42,000 1,01,15,000
(xix) Salary paid to General 43,96,000
Manager
(xx) Packing cost paid for:
Primary packing necessary to 3,36,000
maintain quality
For re-distribution of finished 3,92,000 7,28,000
goods
(xxi) Fee paid to auditors 6,30,000
(xxii) Fee paid to independent 7,70,000
directors
(xxiii) Value of stock as on 1st April
(beginning):
Raw materials 63,00,000

67
 Work-in-process 32,20,000
Finished goods 38,50,000 1,33,70,000
(xxiv) Value of stock as on
31st March (ending):
Raw materials 33,60,000
Work-in-process 30,45,000
Finished goods 63,00,000 1,27,05,000
Due to delay in picking up cargo from the port, YSPP Ltd. had to pay
` 15,000 as demurrage in the month of March.
From the above data you are required to PREPARE Statement of cost
for YSPP Ltd. for the year ended 31st March, showing (i) Prime cost, (ii)
Factory cost, (iii) Cost of Production, (iv) Cost of sales.
(2 + 2 + 2 + 2 = 8 Marks)
(b) Following information is extracted from the purchase department of A Ltd.:
(i) Number of units to be purchased during the year is 10,000
(ii) Cost of placing a purchase order is ` 40
(iii) Purchase price per unit is ` 80
(iv) Insurance charges to be paid for protecting goods during
transit is ` 20 per unit
(v) Cash discount to be received is 2%
(vi) Annual cost of storage per unit is ` 5
(vii) Details of lead time:
Average- 20 days
Maximum- 30 days
Minimum- 10 days
For emergency purchases- 8 days.
(viii) Rate of consumption:
Average- 30 units per day
Maximum- 40 units per day.
From the information given above, you are required to CALCULATE:
(i) Re-ordering level
(ii) Maximum level
(iii) Minimum level
(iv) Danger level. (6 Marks)
4. (a) Xtyle Ltd. is a leading manufacturer in the textile industry, renowned for
its commitment to quality and innovation. With decades of experience,
the company specializes in producing a diverse range of textile products,
including high-quality towels, designed to meet the varying needs of its

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 customers. The company offers mainly three types of towel, viz. Hand
towels, Kitchen towels and Gym towels, catering to both everyday use
and specialized applications. Below are the key production data for a
recent period:
Particulars Hand Kitchen Gym
towels towels towels
Production (units) 9,000 15,000 60,000
Machine hours per unit 10 18 14
Direct Labour hours per unit 4 12 8
Direct Material per unit (`) 450 400 600
Currently, the company utilizes a traditional costing method, which
assigns all production overhead costs based on the number of
machine hours used. The overhead cost is calculated at a rate of
` 30 per machine hour. Additionally, the direct labor cost is charged
at ` 100 per hour.
Now, the company plans to implement an Activity-Based Costing
(ABC) system to enhance cost accuracy and provide a clearer
understanding of the costs associated with each product.
The activity analysis is provided as under:
Particulars Hand Kitchen Gym
towels towels towels
Batch size (units) 450 1,500 3,000
Number of purchase orders per batch 3 10 8
Store delivery 45 80 125
Number of inspections per batch 5 4 3
Further, the total production overheads can be divided into several
key categories. Machine setup costs account for 20% of the total,
while inspection costs make up 35%. Material procurement-related
costs represent 10%, and store delivery costs also constitute 10%.
Finally, machine operation costs contribute 25% to the overall
overheads. This breakdown provides insight into how resources are
allocated across various activities within the production process.
You are required to CALCULATE the cost per unit of each product
using -
(i) traditional method.
(ii) activity based costing principles. (6 Marks)
(b) The following information relates to Anu Limited, a AI enabled toy
manufacturing company:
The selling price of a toy is ` 3,000, and sales are made on credit and
invoiced on the last day of the month.

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

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 During the month of April, the materials for 1,20,000 toy cars were put
through Process I of which melting process were completed for 90,000
toy cars only before transferring to Process II.
The costs incurred in Process I are as follows:
Direct material ` 22,50,000
Direct wages ` 27,00,000
Factory overheads ` 18,00,000
Degree of completion for those not transferred to Process II is as
follows:
Materials 100%
Labour and overheads 50%
Out of those transferred to Process II for injecting and assembling,
84,000 units of toy car were completed and transferred to finished
goods store for protective packing. The process of protective packing
is done at the end of the Process II and the costs incurred are as
follows:
Packing materials ` 6,00,000
Direct wages ` 5,25,000
Factory overheads ` 6,75,000
There was a normal loss of 600 units in Process II with no salvage
value.
Some units were still in progress under Process II and thus, shifted
for the next month process. The degree of completion for those not
transferred to finished goods store is as follows:
Materials 100%
Labour and overheads 25%
You are required to PREPARE-
(i) Statement of Equivalent Production, Cost per unit and
Process I A/c.
(ii) Statement of Equivalent Production, Cost per unit and
Process II A/c. (10 Marks)
(b) EXPLAIN the Usefulness/Suitability of ABC. (4 Marks)
6. (a) Cost and Management Accounting information is used by different
stakeholders. The users of the information can be broadly categorised
into internal and external to the entity.
GIVE two examples of internal users and three examples of external
users and EXPLAIN how they are concerned with the Cost and
Management Accounting information. (5 Marks)
(b) EXPLAIN the Methods for ascertaining Service Cost Unit. (5 Marks)

71
(c) Despite the many benefits of Budgetary Control System, it does have
its own limitations. DISCUSS those limitations. (4 Marks)
OR
(d) IDENTIFY the method of costing in the following cases and give one
example of industry where this method is followed:
(i) Cost of each job is ascertained separately. It is suitable in all
cases where work is undertaken on receiving a customer’s order.
(ii) Cost of completing each stage of work is ascertained.
(iii) Each group is treated as a unit of cost and thus separately
costed. Here cost per unit is determined by dividing the cost of
the group by the number of units produced.
(iv) A combination of two or more methods of costing. (4 Marks)

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 MODEL TEST PAPER 7

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/
her answer in Hindi will not be valued.
Working notes should form part of the answer.

Time Allowed – 3 Hours Maximum Marks – 100

1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
for 30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-
choice questions by choosing one of the four options given. All
questions are compulsory.
Case Scenario I
A truck driver, named Raju, owns a truck which can carry 5 tonne of material at a
time. Raju has no other truck and he has listed himself with various carriage
services agencies, to offer his services. He gets his work from these agencies and
they pay him as per the load and the distance. Raju has one condition that he must
be paid for at least 75% of his total capacity. Raju charges freight at ` 10 per tonne-
km.
He received a work contract, from one of these agencies, where he has to take 4
tonne from Delhi in the morning and drop it off at Chandigarh. After that he will
move to Ludhiana, where he again loads 3 tonne and come back to Delhi by
evening. This contract is for nearly 3 months.
Raju is excited to accept the order but it is not physically possible for Raju to
complete this project alone. He decides to hire a helper cum driver who will assist
him in this work contract and will also drive in turns with Raju. Thus, such a long
contract will be managed comfortably. This helper will take ` 15,000 per month.
The contract will start from 15th June, 2024 and will run till 14th September, 2024.
Throughout this time period there are only 2 days holidays, both falling in August
(1 for Independence Day and 1 for Raksha Bandhan).

73
Some information about the Truck and its associated costs:
• Truck was purchased on 1st April, 2021 by taking a loan of ` 20,00,000 @
10% p.a. from Punjab national bank for 5 years. Raju mortgaged jewellery of
his wife to get this loan.
• Every year-end he has to pay ` 5,27,595 as instalment.
• Scrap value after 10 years is expected to be ` 500,000.
• Depreciation is charged on straight-line method.
• Services and maintenance charges each month is ` 80,000.
• Truck runs on diesel and its running average is 8kms/ litre.
• Diesel cost per litre:
June 80.30
July 80.50
August 81.25
September 80.90
Yearly interest amount of loan and yearly depreciation is charged to a work contract
on the basis of days worked in a year in the contract.
Distance between these places:
(1) Delhi to Chandigarh = 250 kms
(2) Chandigarh to Ludhiana = 100 kms
(3) Ludhiana to Delhi = 150 kms
Answer the following questions (MCQs 1 to 5):
1. What would be the amount of profit Raju would have earned if he had no
minimum charges limit of 75% of total capacity on absolute Tonne-km
basis? (If the vehicle runs empty then he would only charge for Diesel
expenses).
A. 3,34,249
B. 4,43,249
C. 5,96,977
D. 4,34,249
2. If payment was made on commercial Tonne-km basis and Raju had no
minimum charges limit of 75%, how much he would have lost due to no
minimum requirement?
A. ` 6,37,500
B. ` 5,93,750
C. ` 4,92,438
D. ` 3,91,126

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3. What should be the minimum amount charged on basis of absolute Tonne-
km if Raju wants to earn ` 2,70,000?
A. ` 4.58
B. ` 6.13
C. ` 8.39
D. ` 3.21
4. Choose the correct amount of depreciation and interest that should be
charged to this work contract.
A. 56,983 & 22,588
B. 36,986 & 22,578
C. 63,963 & 12,568
D. 63,953 & 12,558
5. What is the profit as per current rate charged by Raju? (Use absolute
Tonne-Km).
A. 7,34,249
B. 9,44,863
C. 5,96,977
D. 4,34,249 (5 x 2 Marks)
Case Scenario II
eSalt is the biggest producer of sodium hydroxide in India. This main product of
the company has a strong reactivity with other organic compounds. It is highly
versatile and is alkaline in nature. However, the basic material required for the
production of this product is salt along with the electricity.
The manufacturing process involve electrolysis which produces Halogen as co-
product. Modern use of Halogen is widespread. However, the common use is in
disinfection like for purifying drinking water or swimming pool water. It is also an
important ingredient of toothpaste. Thus, the company’s management affirmed
the simultaneous production of Halogen.
During the previous financial year, the company purchased the base material of
` 5,34,000. For the current year, company decided to increase the production by
2 times. Due to increased production, the total conversion cost hiked to 3 times.
Last year, the conversion cost accounted to ` 8,01,000 up to the point at which
two products i.e. sodium hydroxide and Halogen are separated.
The production and sales information for current year is provided as below:
Sodium hydroxide Halogen
Production/ Sales(in tonne) 24,030 16,020
Selling price per tonne (`) 100 150
During the current year, the management of the company pointed the extensive
use of Vinyl which can be produced by further processing Halogen. Having selling

75
price of ` 250 per tonne higher than that of the Halogen, it was decided not to sell
Halogen and further process it into Vinyl. The incremental processing cost took
` 8,01,000 producing 10,012.50 tonnes of Vinyl.
You are required to FIGURE OUT the following for managerial decision (MCQs 6
to 10):
6. For the current year, the amount of base material purchased and the
conversion cost up to the point at which two products i.e. Sodium hydroxide
and Halogen are separated would be:
A. base material ` 10,68,000 and conversion cost ` 24,03,000
B. base material ` 10,68,000 and conversion cost ` 16,02,000
C. base material ` 16,02,000 and conversion cost ` 24,03,000
D. base material ` 24,03,000 and conversion cost ` 16,02,000
7. Joint cost to be apportioned between Sodium hydroxide and Halogen as per
the physical unit method would be:
A. Sodium hydroxide ` 24,03,000 and Halogen ` 10,68,000
B. Sodium hydroxide ` 10,68,000 and Halogen ` 16,02,000
C. Sodium hydroxide ` 16,02,000 and Halogen ` 24,03,000
D. Sodium hydroxide ` 24,03,000 and Halogen ` 16,02,000
8. Joint cost to be apportioned between Sodium hydroxide and Halogen as per
the sales value at split- off point method would be:
A. Sodium hydroxide ` 20,02,500 and Halogen ` 20,02,500
B. Sodium hydroxide ` 16,02,000 and Halogen ` 24,03,000
C. Sodium hydroxide ` 24,03,000 and Halogen ` 16,02,000
D. Sodium hydroxide ` 10,68,000 and Halogen ` 20,02,500
9. Joint cost to be apportioned between Sodium hydroxide and Halogen as per
the estimated net realisable value method would be:
A. Sodium hydroxide ` 23,44,390 and Halogen ` 16,60,610
B. Sodium hydroxide ` 17,16,429 and Halogen ` 22,88,571
C. Sodium hydroxide ` 22,88,571 and Halogen ` 17,16,429
D. Sodium hydroxide ` 16,60,610 and Halogen ` 23,44,390
10. Considering that the decision relating to further processing Halogen is not
approved, suggest whether this would be in favour of the management by
calculating incremental revenue /loss from further processing Halogen into
Vinyl.
A. Incremental loss would be ` 16,02,000, thus the decision of not further
processing Halogen is correct.
B. Incremental loss would be ` 8,01,000, thus the decision of not further
processing Halogen is correct.

76
 C. Incremental revenue would be ` 8,01,000, thus the decision relating to
further processing Halogen needs to be approved.
D. Incremental revenue would be ` 16,02,000, thus the decision relating
to further processing Halogen needs to be approved. (5 x 2 Marks)
11. Mr. Ben is paid higher wages than Mr. Akon. Though their normal wage rate
is same, Mr. Ben gets higher payment as under Halsey system than that to
Mr. Akon as under Rowan System.
The total time allowed to make the same product is 75 hours, however, Mr.
Ben takes 60 hours while Mr. Akon takes 45 hours.
The production of the product also involve other costs that are not traced
directly to the product like salary to quality assurance manager, factory rent,
supplies, salary to production supervisor, electricity consumed, etc. which
comes to ` 2,26,800 leading to factory overhead rate being ` 120 per man-
hour actually worked.
The total factory cost for the product produced by Mr. Akon comes to `
1,25,640 and by Mr. Ben comes to ` 1,29,600.
From the information given above, COMPUTE the normal wage rate along
with the cost of material.
A. Normal wage rate- ` 63 per hour and cost of material- ` 1,20,240
B. Normal wage rate- ` 67.5 per hour and cost of material- ` 1,22,400
C. Normal wage rate- ` 480 per hour and cost of material- ` 90,000
D. Normal wage rate- ` 450 per hour and cost of material- ` 87,840
(2 Marks)
12. WHICH of the following is the correct journal entry as would appear in the
cost books when there is under recovery of overheads?
A. Cost of Sales A/c…………………………………. Dr. xxx
To Administrative Overhead Control A/c xxx
B. Production Overhead Control A/c…………………Dr. xxx
To Work-in-Process Ledger Control A/c xxx
C. Costing Profit & Loss A/c……………………………Dr. xxx
To Administrative Overhead Control A/c xxx
D. Work-in-Process Ledger Control A/c………………Dr. xxx
To Production Overhead Control A/c xxx
(2 Marks)

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13. Due to sudden rise in demand of the product, the sales of Arrow Ltd. for
current year enhanced to 3 times the average of last 4 years. The Break
even point and the variable cost of the company for the current year is
` 1,17,00,000 and 93,60,000 respectively.
The sales data relating to past years is given below:
Year Sales (`)
Year 1 (latest) 62,00,000
Year 2 50,00,000
Year 3 52,00,000
Year 4 44,00,000
Year 5 66,00,000
CALCULATE the fixed cost to the company for the current year.
A. ` 64,35,000
B. ` 48,12,453
C. ` 65,34,340
D. ` 46,80,000 (2 Marks)
14. Due to technical and economical reasons, F8 Ltd. manufactures in batch.
The latest contract requires the company to supply 9,000 bushings per
month to G4 Ltd. The company has estimated that each set up for
manufacturing the bushings will cost ` 16,002.25 and the inventory holding
cost per bushing per annum will come to ` 60.
HOW many runs the company need to make throughout the year to
complete the demand?
A. 5 runs
B. 10 runs
C. 15 runs
D. 20 runs (2 Marks)
15. The Budgeted fixed overhead for the month of August was ` 75,00,000 with
the units of production estimated at 15,000. However, the actual units
produced is 15,600 with no Fixed overhead cost variance.
CALCULATE the actual fixed overhead incurred.
A. ` 75,00,000
B. ` 72,11,538
C. ` 78,00,000
D. ` 79,00,000 (2 Marks)

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 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) Shanu Ltd has calculated a predetermined overhead rate of ` 22 per
machine hour for its Quality Check (QC) department. This rate has been
calculated for the budgeted level of activity and is considered as
appropriate for absorbing overheads. The following overhead
expenditures at various activity levels had been estimated.
Total overheads Number of machine hours
` 3,38,875 14,500
` 3,47,625 15,500
` 3,56,375 16,500
You are required to:
(i) CALCULATE the variable overhead absorption rate per machine
hour.
(ii) CALCULATE the estimated total fixed overheads.
(iii) CALCULATE the budgeted level of activity in machine hours.
(iv) CALCULATE the amount of under/over absorption of overheads if
the actual machine hours were 14,970 and actual overheads were
` 3,22,000.
(v) STATE the arguments for and against using departmental
absorption rates as opposed to a single or blanket factory wide rate.
(5 Marks)
(b) Following standards have been set for manufacturing a product ‘XYZ’:
Direct Material: (`)
4 units of X @ ` 8 per unit 32.00
6 units of Y @ ` 6 per unit 36.00
30 units of Z @ ` 2 per unit 60.00
128.00
Direct Labour:
6 hrs @ ` 16 per hour 96.00
Total standard prime cost 224.00
The company actually manufactured and sold 12,000 units of the
product ‘XYZ’ during the year.
Direct material costs were as follows:
50,000 units of X at ` 8.80 per unit
72,000 units of Y at ` 5.60 per unit

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 354,000 units of Z at ` 2.40 per unit
The company worked 70,000 direct labour hours during the year. For
10,000 of these hours, the company paid at ` 24 per hour while for the
remaining, the wages were paid at standard rate.
You are required to CALCULATE the following:
(i) Material Price Variance
(ii) Material Usage Variance
(iii) Labour Rate Variance
(iv) Labour Efficiency Variance (5 Marks)
(c) Shivi is working by employing 10 skilled workers. It is considering the
introduction of some incentive scheme – either Halsey scheme (with
50% bonus) or Rowan scheme of wage payment for increasing the
labour productivity to cope with the increased demand for the product
by 25%. She feels that, if the proposed incentive scheme could bring
about an average 20% increase over the present earnings of the
workers, it would act as sufficient incentive for them to produce more
and she has accordingly given this assurance to the workers.
As a result of this assurance, the increase in productivity has been
observed as revealed by the following figures for the current month:
Hourly rate of wages (guaranteed) ` 2.00
Average time for producing 1 piece by one worker at the
previous performance (this may be taken as time allowed) 2 hours
Number of working days in the month 25
Number of working hours per day for each worker 8
Actual production during the month 1,250 units
Required:
(1) CALCULATE effective rate of earnings per hour under Halsey
scheme and Rowan scheme.
(2) CALCULATE the savings of Navya in terms of direct labour cost
per piece under the above schemes.
(3) ADVISE Navya about the selection of the scheme to fulfill her
assurance (4 Marks)
2. (a) XYZ Constructions is a leading engineering and construction company
providing a range of infrastructure and industrial services. Recently, they
have been asked to quote for residential building construction (RBC) and
industrial plant construction (IPC) projects. However, they are winning
fewer RBC contracts than expected.
XYZ Constructions has a policy to price all jobs at budgeted total cost
plus 50%. Overheads are currently absorbed on a labour-hour basis.
The company believes that switching to activity-based costing (ABC)

80
 to absorb overheads would reduce the costs associated with RBC and
make them more competitive.
You are provided with the following data:
Overhead Annual Activity driver Total
category Overhead number of
(` Lakhs) activities per
year
Supervisors `120 Site visits 600
Project Planners ` 80 Planning documents 300
Property related `400 Labour hours 50,000
Total `600

For a typical RBC: Material cost: ` 5 lakhs, Labour hours: 1,200 hours,
Site visits: 2 visits, Planning documents: 2 documents
For a typical IPC: Material cost: ` 12 lakhs, Labour hours: 2,500 hours,
Site visits: 10 visits, Planning documents: 8 documents
Labour is paid at ` 100 per hour.
Required:
(a) CALCULATE the cost and quoted price of an RBC and an IPC using
labour hours to absorb the overheads.
(b) CALCULATE the cost and quoted price of an RBC and an IPC using
ABC to absorb the overheads.
(c) Assuming that the cost of an RBC falls by nearly 7% and the price
of an IPC rises by about 2% as a result of the change to ABC,
SUGGEST possible pricing strategies for the two services offered
by XYZ Constructions. Additionally, suggest two reasons other than
high prices for the current poor sales of RBC. (10 Marks)
(b) “Calculation of variances in standard costing is not an end in itself, but
a means to an end.” DISCUSS. (4 Marks)
3. (a) The following are the details in respect of Process A and Process B of a
processing factory:
Process A (`) Process B (`)
Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000

The output of Process A is transferred to Process B at a price

calculated to give a profit of 20% on the transfer price and the output
of Process B is charged to finished stock at a profit of 25% on the
transfer price. The finished stock department realized ` 4,00,000 for
the finished goods received from Process B.

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 You are asked to SHOW process accounts and total profit, assuming
that there was no opening or closing work-in-progress. (6 Marks)
(b) From the following data CALCULATE (i) Administration cost, (ii)
Selling cost and (iii) Distribution cost:
Amount (`)
(i) Rent paid for factory building 96,000
(ii) Salary paid to office staffs 8,20,000
(iii) Fees paid to auditors 92,000
(iv) Salary paid to sales manager 8,00,000
(v) Vehicle hire charges paid for directors attending 10,200
general meeting
(vi) Wages paid to workers engaged in storing goods 7,200
at sales depot
(vii) Travelling allowance paid to sales staffs 9,600
(viii) Cost paid for secondary packing 8,200
(ix) Electricity bill paid for sales office 1,800
(x) Depreciation on goods delivery vehicles 13,000
(xi) Bonus paid to sales staffs for achieving targets 96,000
(xii) Fees paid to independent directors 1,02,000
(6 Marks)
(c) STI is majorly providing education loan in its loan department. For the
month of August, salary paid to the education loan processors is
` 21,60,000. W.r.t. overhead cost, 30% is applicable to the processing
of education loan out of the total overhead cost of loan department.
The total overhead cost for the month of August is ` 16,40,000 which
includes payment of ` 11,000 w.r.t. legal advice relating to one of the
education loan processing.
The education loan applications processed during this month are 500.
You are required to COMPUTE the cost of processing per education
loan application. (2 Marks)
4. (a) Following information is available from the purchase books of a company:
Cost of placing a purchase order ` 10,000
Number of units to be purchased during the year 12,50,000
Purchase price per unit ` 125
Annual cost of storage per unit ` 62.50
Details of lead time:
Maximum 20 days
Minimum 10 days

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 Average 15 days
Emergency 3 days
Rate of consumption:
Average 1,500 units per day
Maximum 2,000 units per day
From the details given above, you are required to CALCULATE:
(i) Re-ordering level
(ii) Maximum level
(iii) Minimum level
(iv) Danger level (6 Marks)
(b) Idle time is the time during which no production is carried-out because
the worker remains idle but are paid. It can be normal or abnormal.
LIST OUT some of the causes/examples of normal and abnormal idle
time. (4 Marks)
(c) Following information is available as per the cost accounts of a
company for the year ended 31st March:
Particulars Amount (`)
Profit 7,77,150
Factory expenses under-charged 2,35,500
Administrative expenses under-charged 1,17,750
Selling & distribution expenses under-charged 31,400
Income from interest and dividends (not adjusted in 2,35,500
cost statement)
You are required to PREPARE a reconciliation statement to ascertain
Profit as per Financial Accounts. (4 Marks)
5. (a) A Korean beverage company plans to set up a subsidiary in India to
manufacture fruit juice. Based on projected annual sales of 40,000
bottles, cost analysis has provided the following estimates for the Indian
subsidiary:
Total Annual Percentage of
Costs Total Annual Cost
(`) which is Variable
Material 3,15,000 100%
Labour 1,40,000 75%
Factory Overheads 1,35,000 50%
Administrative Overheads 50,000 35%
The fruit juice produced in India will be sold through manufacturer’s
representatives, who will earn a commission of 10% of the sales price.

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 Expenses from the Korean office will not be allocated to the Indian
subsidiary.
Required
(i) COMPUTE the sale price per bottle to enable the management to
realise an estimated 10% profit on sale proceeds in India.
(ii) CALCULATE the break-even point in Rupee sales and also in
number of bottles for the Indian subsidiary on the assumption that
the sale price is ` 19 per bottle. (8 Marks)
(b) C Ltd. manufactures two products using two types of materials and
one grade of labour. Shown below is an extract from the company’s
working papers for the next month’s budget:
Product-A Product-B
Budgeted sales (in units) 2,400 3,600
Budgeted material consumption per
unit (in kg):
Material-X 5 3
Material-Y 4 6
Standard labour hours allowed per unit
3 5
of product
Material-X and Material-Y cost ` 4 and ` 6 per kg and labours are paid
` 25 per hour. Overtime premium is 50% and is paid, if a worker works
for more than 40 hours a week. There are 180 direct workers.
The target productivity ratio (or efficiency ratio) for the productive
hours worked by the direct workers in actually manufacturing the
products is 80%. In addition, the non-productive down-time is
budgeted at 20% of the hours worked.
There are four 5-days weeks in the budgeted period and it is
anticipated that sales and production will occur evenly throughout the
whole period.
It is anticipated that stock at the beginning of the period will be:
Product-A 400 units
Product-B 200 units
Material-X 1,000 kg.
Material-Y 500 kg.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption

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 Required:
CALCULATE the Material Purchase Budget and the Wages Budget for
the direct workers, showing the quantities and values, for the next
month.
(6 Marks)
6. (a) As a consultant hired by a manufacturing company, HOW would you go
about assessing the critical factors for designing and implementing a
cost accounting system? (5 Marks)
(b) As a consultant, a client has approached you to set up a budgetary
control system in their organization. WHAT sequential steps would
you follow to design, implement, and monitor the system? (5 Marks)
(c) You are managing the inventory for a manufacturing company and
notice that certain items in the store are not being utilized frequently,
leading to increased holding costs. HOW would you identify slow-
moving and non-moving items, and WHAT strategies would you
implement to minimize such stocks effectively? (4 Marks)
OR
(d) DISCUSS in brief three main methods of allocating support
departments costs to operating departments. (4 Marks)

85
 MODEL TEST PAPER 8
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium his/ her
answer in Hindi will not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for
30 marks
3. Part II comprises questions which require descriptive type answers for 70
marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice
questions by choosing one of the four options given. All questions are
compulsory.
1. The purchase committee of A Ltd. has been entrusted to review the material
procurement policy of the company. The chief marketing manager has
appraised the committee that the company at present produces a single
product X by using two raw materials A and B in the ratio of 3:2. Material A is
perishable in nature and has to be used within 10 days from Goods received
note (GRN) date otherwise material becomes obsolete. Material B is durable
in nature and can be used even after one year. Material A is purchased from
the local market within 1 to 2 days of placing order. Material B, on the other
hand, is purchased from neighbouring state and it takes 2 to 4 days to receive
the material in the store.
The purchase price of per kilogram of raw material A and B is `30 and `44
respectively exclusive of taxes. To place an order, the company has to incur
an administrative cost of `1,200. Carrying cost for Material A and B is 15%
and 5% respectively. At present material A is purchased in a lot of 15,000 kg.
to avail 10% discount on market price. GST applicable for both the materials
is 18% and the input tax credit is availed.
The sales department has provided an estimate that the company could sell
30,000 kg. in January 2024 and also projected the same trend for the entire
year.
The ratio of input and output is 5:3. Company works for 25 days in a month
and production is carried out evenly.
The following queries/ calculations to be kept ready for purchase committees’
reference:

86
 (i) For the month of January 2024, what would be the quantity of the
materials to be requisitioned for both material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.
(ii) The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively
(iii) What would the maximum stock level for material A:
(a) 18,200 kg.
(b) 12,000 kg.
(c) 16,000 kg.
(d) 16,200 kg.
(iv) Calculate saving/ loss in purchase of Material A if the purchase order
quantity is equal to EOQ.
(a) Profit of ` 3,21,201.
(b) Loss of ` 3,21,201.
(c) Profit of ` 2,52,500.
(d) Loss of ` 2,52,500.
(v) What would the minimum stock level for material A:
(a) 1,800 kg.
(b) 1,200 kg.
(c) 600 kg.
(d) 2,400 kg. (5 x 2 = 10 Marks)
2. During half year ending inter departmental review meeting of P Ltd., cost
variance report was discussed and the performance of the departments were
assessed. The following figures were presented.
For a period of first six months of the financial year, following information were
extracted from the books:
Actual production overheads ` 34,08,000
The above amount is inclusive of the following payments
made:
Paid as per court’s order ` 4,50,000

87
 Expenses of previous year booked in current year ` 1,00,000
Paid to workers for strike period under an award ` 4,20,000
Obsolete stores written off ` 36,000
Production and sales data for the six months are as under:
Production:
Finished goods 1,10,000 units
Works-in-progress
(50% complete in every respect) 80,000 units
Sale:
Finished goods 90,000 units
Machine worked during the period was 3,000 hours.
At the of preparation of revenue budget, it was estimated that a total of
`50,40,000 would be required for budgeted machine hours of 6,000 as
production overheads for the entire year.
During the meeting, a data analytic report revealed that 40% of the
over/under-absorption was due to defective production policies and the
balance was attributable to increase in costs.
You were also present at the meeting; the chairperson of the meeting has
asked you to be ready with the followings for the performance appraisal of the
departmental heads:
(i) How much was the budgeted machine hour rate used to recover
overhead?
(a) ` 760
(b) ` 820
(c) ` 780
(d) ` 840
(ii) How much amount of production overhead has been recovered
(absorbed) upto the end of half year end?
(a) ` 25,20,000
(b) ` 34,08,000
(c) ` 24,00,000
(d) ` 24,60,000
(iii) What is the amount of overhead under/ over absorbed?
(a) 1,18,000 over-absorbed
(b) 1,18,000 under- absorbed
(c) 18,000 over-absorbed
(d) 18,000 under-absorbed

88
 (iv) What is the supplementary rate for apportionment of over absorbed
overheads over WIP, Finished goods and Cost of sales?
(a) ` 0.315 per unit
(b) ` 0.472 per unit
(c) ` 0.787 per unit
(d) ` 1 per unit
(v) What is the amount of over absorbed overhead apportioned to Work in
Progress?
(a) ` 9,440
(b) ` 42,480
(c) ` 18,880
(d) ` 70,800 (5 x 2 = 10 Marks)
3. The following details are given to you:
Raw materials consumed 2,40,000
Factory overheads 3/4 of direct wages
Quality control cost and research and development cost 20% of factory cost
Cost of production 7,50,000
The amount of direct wages will be:
(a) 2,50,000
(b) 2,20,000
(c) 2,00,000
(d) 3,00,000 (2 Marks)
4. A hotel having 200 rooms of which 80% are normally occupied in
summer 60% in Autumn and 25% in winter. Period of summer, autumn and
winter be taken as 4 months each and normal days in a month be assumed
to be 30. The total occupied room days will be
(a) 39,200 Room days
(b) 39,600 Room days
(c) 39,000 Room days
(d) 38,000 Room days (2 Marks)
5. The following figures are extracted from the books of a company:
Budgeted overheads ₹20,000 (Fixed ₹12,000, Variable ₹8,000)
Budgeted output 2,500 units
Actual Overheads ₹21,800 (Fixed ₹11,800, Variable ₹10,000)
Actual output 3,000
Variable Overheads and fixed overheads cost variance will be:

89
 (a) 400 (A) and 2600 (F)
(b) 400 (A) and 200 (F)
(c) 2,000 (A) and 200 (F)
(d) 2,000 (F) and 200 (A) (2 Marks)
6. In a particular process 28,000 units are introduced during a period. 5% of input is
normal loss. Closing work in progress 60% complete is 2,600 units. 24,000
completed units are transferred to next process. Equivalent production for the
period is:
(a) 25,040 units
(b) 28,000 units
(c) 25,560 units
(d) 24,000 units (2 Marks)
7. If final sales are ` 50,000 and separable costs are ` 35,000, then net
realizable value will be
(a) 15,000
(b) 85,000
(c) 35,000
(d) 50,000 (2 Marks)
PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) Interio Ltd. manufactures quality furniture to customers' order. It has
three production departments A, B and C which have overhead
absorption rates (per direct labour hour) of `12.86, `12.40 and `14.03
respectively.
Two pieces of furniture are to be manufactured for customer. Direct
costs are as follows:
Job -XYZ Job- MNO
Direct material (`) 15,400 10,800
Direct labour
Dept.-A @ ` 76/ hour 20 hours 16 hours
Dept.-B @ ` 70/ hour 12 hours 10 hours
Dept.-C @ ` 68/ hour 10 hours 14 hours
The firm quotes prices to customers that reflect a required profit of 25%
on selling price. CALCULATE the total cost and selling price of each job.
(5 Marks)

90
 (b) From the following data CALCULATE (i) Administration cost, (ii) Selling
cost and (iii) Distribution cost:
Amount (`)
(i) Rent paid for factory building 96,000
(ii) Salary paid to office staffs 8,20,000
(iii) Fees paid to auditors 92,000
(iv) Salary paid to sales manager 8,00,000
(v) Vehicle hire charges paid for directors attending 10,200
general meeting
(vi) Wages paid to workers engaged in storing goods 7,200
at sales depot
(vii) Travelling allowance paid to sales staffs 9,600
(viii) Cost paid for secondary packing 8,200
(ix) Electricity bill paid for sales office 1,800
(x) Depreciation on goods delivery vehicles 13,000
(xi) Bonus paid to sales staffs for achieving targets 96,000
(xii) Fees paid to independent directors 1,02,000
(5 Marks)
(c) CALCULATE the labour turnover rate by applying:
(i) Separation method
(ii) Replacement method
(iii) Flux method
Number of workers on payroll
At the beginning of the month 1,900
At the end of the month 2,250
During the month 29 workers left, 85 workers were discharged and 480
workers were recruited. Of these 90 workers were recruited in the
vacancies of those separated, while the rest were engaged due to
expansion. (4 Marks)
2. (a) Aviation Ltd. manufactures a range of products and the data below refer
to one product which goes through one process only. The company
operates a thirteen four-weekly reporting system for process and product
costs and the data given below relate to period 2011.
There was no opening work-in-progress stock.
50,000 units of materials input at ` 2.94 per unit entered the process.
Further direct materials added 1,38,300
Direct wages incurred 65,550
Production overhead 74,700
Normal loss is 3% of input.
91
 Closing work-in-progress was 8,000 units but these were incomplete,
having reached the following percentages of completion for each of the
elements of cost listed.
%
Direct materials added 75
Direct wages 50
Production overhead 25
2700 units were scrapped after a quality control check when the units
were at the following degrees of completion.
%
Direct materials added 66.67% or 66.⅔%
Direct wages 33.⅓ or 33.33%
Production overhead 16⅔% or 16.67%
Units scrapped, regardless of the degree of completion, are sold for ` 1
each and it is company policy to credit the process account with the
scrap value of normal loss units.
You are required to PREPARE the Period 2023 accounts for the: (i)
process account; and (ii) abnormal gain or loss. (8 Marks)
(b) The following standards have been set to manufacture a product:
Direct materials: `
2 units of P at ` 4 per unit 8.00
3 units of Q at ` 3 per unit 9.00
15 units of R at ` 1 per unit 15.00
32.00
Direct labour 3 hours @ ` 8 per hour 24.00
Total standard prime cost 56.00
The company manufactured and sold 6,000 units of the product during
the year.
Direct material costs were as follows:
12,500 units of P at ` 4.40 per unit
18,000 units of Q at ` 2.80 per unit
88,500 units of R at ` 1.20 per unit
The company worked 17,500 direct labour hours during the year. For
2,500 of theses hours the company paid at ` 12 per hour while for the
remaining the wages were paid at the standard rate.
CALCULATE material price, usage variances, labour rate, and efficiency
variances. (6 Marks)

92
3. (a) Tetra Automobiles assembles and sells motor vehicles. It uses an actual
costing system, in which unit cost are calculated on a monthly basis.
Data relating to May and June 2011 are
May June
Units Units
Beginning Inventory 0 35
Production 240 260
Sales 205 260
Variable-cost: ` `
Manufacturing Costs per Unit Produced 40,000 40,000
Distribution cost per unit sold 4,000 4,000
Fixed-cost:
Manufacturing Costs 32,00,000 32,00,000
Marketing Costs 6,00,000 6,00,000
The selling price per motor vehicle is 59,000 59,000
Required
(i) PRESENT income statement for Tetra Automobiles in May and
June under:
(a) Marginal Costing
(b) Absorption Costing
(ii) EXPLAIN the differences between (a) and (b) (6 + 2 Marks)
(b) EXPLAIN the difference in Profit under Marginal and Absorption costing
in different circumstances. (4 Marks)
(c) LIST the Financial expenses which are not included in cost. (2 Marks)
4. (a) As on 31st March,2023 the following balances existed in a firm’s Cost
Ledger :
Dr. Cr.
` `
Stores Ledger Control A/c 3,00,000
Work-in-Progress Control A/c 1,20,000
Finished Stock Ledger Control A/c 2,50,000
Manufacturing Overhead Control A/c 10,000
Cost Ledger Control A/c _______ 6,60,000
6,70,000 6,70,000

93
 During the next three months the following items arose:
`
Finished product (at cost) 2,10,000
Manufacturing overhead incurred 90,000
Raw materials purchased 1,23,000
Factory Wages 50,000
Indirect Labour 21,000
Cost of Sales 1,85,000
Material issued to production 1,27,000
Sales returned at Cost 5,000
Material returned to suppliers 3,000
Manufacturing overhead charged to production 77,000
You are required to PASS Journal Entries. (5 Marks)
(b) BABYSOFT is a global brand created by Bio-organic Ltd. The company
manufactures three range of beauty soaps i.e. BABYSOFT- Gold,
BABYSOFT- Pearl, and BABYSOFT- Diamond. The budgeted costs and
production for the month of December, 2023 are as follows:
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT-
Diamond
Production of 4,000 3,000 2,000
soaps (Units)
Resources Quantity Rate Quantity Rate Quantity Rate
per Unit:
- Essential 60 ml ` 200 / 100 55 ml ` 300 / 65 ml ` 300 / 100
Oils ml 100 ml ml
- Cocoa 20 g ` 200 / 100 20 g ` 200 / 20 g ` 200 / 100 g
Butter g 100 g
- Filtered 30 ml ` 15 / 100 30 ml ` 15 / 100 30 ml ` 15 / 100 ml
Water ml ml
- Chemicals 10 g ` 30 / 100 12 g ` 50 / 100 15 g ` 60 / 100 g
g g
- Direct 30 ` 10 / hour 40 ` 10 / 60 ` 10 / hour
Labour minutes minutes hour minutes

Bio-organic Ltd. followed an Absorption Costing System and absorbed its

production overheads, to its products using direct labour hour rate, which
were budgeted at ` 1,98,000.
Now, Bio-organic Ltd. is considering to adopt an Activity Based Costing
system. For this, additional information regarding budgeted overheads
and their cost drivers is provided below:
Particulars (`) Cost drivers
Forklifting cost 58,000 Weight of material lifted

94
 Supervising cost 60,000 Direct labour hours
Utilities 80,000 Number of Machine operations
The number of machine operators per unit of production are 5, 5, and 6
for BABYSOFT- Gold, BABYSOFT- Pearl, and BABYSOFT- Diamond
respectively.
(Consider (i) Mass of 1 litre of Essential Oils and Filtered Water
equivalent to .8 kg and 1 kg respectively (ii) Mass of output product is
equivalent to the mass of input materials taken together.)
You are requested to:
(i) PREPARE a statement showing the unit costs and total costs of
each product using the absorption costing method.
(ii) PREPARE a statement showing the product costs of each product
using the ABC approach (9 Marks)
5. (a) A department of ABC Ltd. attains sales of `9,60,000 at 80% of its normal
capacity. Its expenses are given below:
` Selling Costs :
Office salaries 1,10,000 Salaries 6% of sales
General expenses 2% of sales Travelling expenses 5% of sales
Depreciation 6,200 Sales office 2% of sales
Rent and rates 9,750 General expenses 1% of sales
Distribution costs:
Wages 2% of sales
Rent 1% of sales
Other 6% of sales
expenses
DRAW up Flexible Administration, Selling and Distribution Costs Budget,
operating at 90 per cent, 100 per cent and 110 per cent of normal
capacity. (8 Marks)
(b) Akruti Health Center consists of 20 beds. Health centre remains open for
300 days in a year. For the year ended 31st March 2023, the health
centre was occupied at full capacity for 200 days and at 80% of the
capacity for the remaining days.
Below are the details of the expenditure:
Rent for the premises ` 15,000/- per month
Repair & Maintenance ` 10,000/-
Food supplied to patients ` 72/- per patient per day
Laundry charges ` 30/- per patient per day
Medicines ` 60/- per patient per day
Administrative expenses ` 72,000/-
95
 Salary to two supervisor s ` 2000 p.m. for each.
Salary to four nurses ` 1,500 p.m. for each
Salary to two ward boys ` 1,200 p.m. for each
Expert doctors were called from the outside to visit the patients. Expert
doctors were paid ` 250 for each patient visited by them.
From the above information CALCULATE fee that Health centre should
have been charged to per patient per day to earn a profit of 75% on fees
charged. (6 Marks)
6. (a) DISTINGUISH between fixed and flexible budget. (5 Marks)
(b) WRITE short notes on Scope of Cost Reduction (5 Marks)
(c) DISTINGUISH between Job costing and Batch costing. (4 Marks)
OR
(d) WHAT do you mean by time and motion study? WHY is it so important
to management? (4 Marks)

96
 ANSWER OF MODEL TEST PAPER 1
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs
1. i. D
Inflow into process Litres Outflow from process Litres
Opening WIP 500 Transferred to finished 3,400
goods
Quantity introduced 3,800 Total loss 800
(Balancing figure)
Closing WIP 100
4,300 4,300
ii. A
Total loss 800 litres
Normal loss (10% of fresh input i.e. 3,800) 380 litres
Abnormal loss 420 litres
iii. B
Calculation of Equivalent production units
Equivalent Production
Output
Input Details Units Units Material Labour Overheads
Particulars
% Units % Units % Units
Opening WIP 500 From 500 - - 20 100 40 200
Opening WIP
Fresh inputs 3,800 From fresh 2900 100 2900 100 2900 100 2900
units
Normal loss 380 - - -
Closing WIP 100 100 100 20 20 10 10
Abnormal 420 100 420 100 420 100 420
loss
4,300 4,300 3,420 3,440 3,530

Value of raw materials introduced during the month

Equivalent Cost per EU Total cost
units (`) (`)
Total value of raw material 3420 300 10,26,000
Add: Scrap value of normal 380 20 7,600
loss
Value of raw material 10,33,600
introduced

273
 iv. A
Value of labour and overhead in closing Work in process

Cost elements Equivalent Cost per EU Total cost

units (`) (`)
Labour 20 200 4,000
Overheads 10 160 1,600
v. C
Value of output transferred to finished goods
Output transferred (Units) × Equivalent cost per unit
3,400 Litres × `660 = `22,44,000
2. i. D
ii. C Please refer cost sheet below for cost of production
Cost of production per manshift =
Cost of production ÷ Total manshift
` 7,87,28,000 ÷ 46,800 = `1,682.22
iii. A Car hire charges including GST @5%, please refer the cost sheet
iv. B Selling and distribution cost includes the following:
Maintenance cost for weighing bridge 12,000
AMC cost of CCTV installed at weigh bridge 8,000
TA/ DA & hotel bill of sales manager 36,000
56,000

For Cost of Sale please refer the cost sheet

v. A Manshift = 1,800 employees × 26 days = 46,800 manshifts
Computation of earnings per manshift (EMS):
Total employee benefits paid
EMS =
Manshift
` 7,04,20,000
= =` 1504.70
46,800
Computation of Output per manshift (OMS):
Total Output/ Production
OMS=
Manshift
2,34,000 Tonne
= = 5 tonnes
46,800

274
 Workings
Cost Sheet of M Ltd. for the last month
Particulars Amount (`) Amount (`)
Materials consumed 50,00,000
Wages & Salary 6,40,00,000
Gratuity & leave encashment 64,20,000 7,04,20,000
Power cost (13,000 kwh × `8) 1,04,000
Diesel cost (2,000 ltr × `93) 1,86,000 2,90,000
HEMM hiring charges 30,00,000
Prime Cost 7,87,10,000
AMC cost of CCTV installed at factory 18,000
premises
Cost of Production/ Cost of Goods 7,87,28,000
Sold
Hiring charges of cars 66,000
Reimbursement of diesel cost 22,000
88,000
Add: GST @5% on RCM basis 4,400 92,400
Maintenance cost for weighing bridge 12,000
AMC cost of CCTV installed at weigh 8,000 20,000
bridge
TA/ DA & hotel bill of sales manager 36,000
Cost of Sales 7,88,76,400
3. D Labour rate variance = Standard time for actual production (SR- AR)
7,500 (A) = (30,000 × 30 minutes/60 minutes) × (50-AR)
AR = (7,50,000 + 7,500)/15,000 = `50.50 per hour
Actual wages per unit = 50.50/2 = `25.25
4. B Variable overhead for each % of level of activity
40,00,000−30,00,000
= = 40,000
75−50

Fixed cost = 30,00,000 – (40,000 × 50) = 10,00,000

Total overheads for 60% level of activity
= 10,00,000 + (40,000 × 60) = 34,00,000
5. C
6. B Actual Overhead – (Actual machine hours × machine hour rate)
5,20,000 – (17040 × 30) = 8,800 under absorbed
7. A Optimum batch size or Economic Batch Quantity (EBQ):

275
 2DS 2  80,000  3,500
EBQ = C = 12 = 6,832 units.
Number of Optimum runs = 80,000 ÷ 6,832 = 11.70 or 12 run
PART-II
1. (a) (i) Production Budget (in units) for the year ended 31 st March
2025
Product X Product Y
Budgeted sales (units) 28,000 13,000
Add: Increase in closing stock 320 160
No. good units to be produced 28,320 13,160
Post production rejection rate 4% 6%
No. of units to be produced 29,500 14,000
 28,320   13,160 
   
 0.96   0.94 

(ii) Calculation of Economic Order Quantity for Material Z

2×2,52,310×15,600 5,04,620×15,600
EOQ =√ =√ = 31,526.95 kg.
72×11% 72×11%

(b) Purchase budget (in kgs and value) for Material Z

Product X Product
Y
No. of units to be produced 29,500 14,000
Usage of Material Z per unit of 5 kg. 6 kg.
production
Material needed for production 1,47,500 kg. 84,000 kg.
Materials to be purchased 1,63,889 kg. 88,421 kg.
 1,47,500   84,000 
   
 0.90   0.95 
Total quantity to be purchased 2,52,310 kg.
Rate per kg. of Material Z `72
Total purchase price `1,81,66,320
(c) Since, the maximum number of orders per year cannot be more than 40
orders and the maximum quantity per order that can be purchased is
4,000 kg. Hence, the total quantity of Material Z that can be available for
production:
= 4,000 kg. × 40 orders =1,60,000 kg.
Product X Product Y
Material needed for 1,03,929 kg. 56,071 kg.
production to maintain  1,63,889   88,421 
the same production mix  1,60,000    1,60,000  
 2,52,310   2,52,310 

276
 Less: Process wastage 10,393 kg. 2,804 kg.
Net Material available 93,536 kg. 53,267 kg.
for production
Units to be produced 18,707 units 8,878 units
 93,536kg.   53,267kg. 
   
 5kg.   6kg. 

2. (a) (i) Calculation of Absolute Ton-km for the next month:

Journey Distance Weight- Ton-km Weight- Ton-km Total
in km Up (in Down (in
MT) MT)
(a) (b) (c)=(a)×(b) (d) (e)= (c)+(e)
(a)×(d)
Delhi to Kochi 2,700 14 37,800 6 16,200 54,000
Delhi to 1,890 12 22,680 0 0 22,680
Guwahati
Delhi to 1,840 15 27,600 0 0 27,600
Vijayawada
Delhi to 815 10 8,150 0 0 8,150
Varanasi
Delhi to Asansol 1,280 12 15,360 4 5,120 20,480
Delhi to 2,185 10 21,850 8 17,480 39,330
Chennai
Total 10,710 73 1,33,440 18 38,800 1,72,240

Total Ton-Km = 1,72,240 ton-km

(ii) Calculation of cost per ton-km:
Particulars Amount Amount
(`) (`)
A. Running cost:
- Diesel Cost {`19.20 × 4,11,264.00
(10,710 × 2)}
- Engine oil cost 6,920.31
 `4,200 
  21,420km 
 13,000km 
- Cost of loading of goods 16,380.00
{`180 × (73+18)}
- Depreciation 3,57,000.00 7,91,564.31
{(30,00,000/720,000×21,420
km)×4}
B. Repairs & Maintenance Cost 77,112.00
(36,000/10,000×21,420)
C. Standing Charges

277
 - Drivers’ salary (`24,000 × 4 96,000.00
trucks)
- Cleaners’ salary (`15,000 × 60,000.00
4 trucks)
- Supervision and other 14,000.00 1,70,000.00
general exp.
Total Cost (A + B + C) 10,38,676.31
Total ton-km 1,72,240
Cost per ton-km 6.03
(b) Calculation of cost per unit:
Particulars Units (`)
Listed Price of Materials 5,000 5,00,000
Less: Trade discount @ 10% on invoice (50,000)
price
4,50,000
Add: GST @18% of ` 4,50,000 81,000
5,31,000
Add: Toll Tax 1,800
Freight and Insurance 36,000
Commission and Brokerage Paid 10,000
Add: Cost of returnable containers:
Amount deposited ` 30,000
Less: Amount refunded ` 26,000 4,000
5,82,800
Add: Other Expenses @ 2% of Total Cost 11,894
` 5,82,800
( 98 ×2)
Total cost of material 5,94,694
Less: Shortage material due to normal 250 -
reasons @ 5%
Total cost of material of good units 4,750 5,94,694
Cost per unit (` 5,94,694/4,750 units) 125.20
Note:
1. GST is payable on net price i.e., listed price less discount.
2. GST paid on purchase is added with cost as ITC on GST cannot be
claimed
3. Cash discount is treated as interest and finance item; hence it is
ignored.
4. Demurrage is penalty imposed by the transporter for delay in
uploading or off-loading of materials. It is an abnormal cost and not
included.
278
 5. Shortage due to normal reasons should not be deducted from cost
to ascertain total cost of good units.
3. (a) The important ledgers to be maintained under non-integrated
accounting system in the Cost Accounting are the followings:
(a) Cost Ledger - This is the principle ledger of the cost department in
which impersonal accounts are recorded. This ledger is made self-
balancing by maintaining therein a Control Account for each
subsidiary ledger.
(b) Stores Ledger - It contains an account for each item of stores. The
entries in each account maintained in this ledger are made from the
invoice, goods received note, material requisitions, material
received note etc. Accounts in respect of each item of stores show
receipt, issue and balance in physical as well as in monetary terms.
(c) Work-in-Process Ledger - This ledger is also known as job ledger,
it contains accounts of unfinished jobs and processes. All material
costs, wages and overheads for each job in process are posted to
the respective job accounts in this ledger. The balance in a job
account represents total balance of job/work-in-process, as shown
by the job account.
(d) Finished Goods Ledger - It contains an account for each item of
finished product manufactured or the completed job. If the finished
product is transferred to stock, a credit entry is made in the work-
in-process ledger and a corresponding debit entry is made in this
ledger.
(b) (i) Computation of wages of each worker under guaranteed hourly rate
basis
Worker Actual hours Hourly wage Wages (`)
worked (Hours) rate (`)

I 380 40 15,200
II 100 50 5,000
III 540 60 32,400
(ii) Computation of Wages of each worker under piece work earning
basis
Product Piece Worker-I Worker-II Worker-III
rate per
unit
(`) Units Wages Units Wages Units Wages
(`) (`) (`)
X 15 210 3,150 - - 600 9,000
Y 20 360 7,200 - - 1,350 27,000
Z 30 460 13,800 250 7,500 - -
Total 24,150 7,500 36,000

279
 Since each worker’s earnings are more than 50% of basic pay.
Therefore, worker-I, II and III will be paid the wages as computed
i.e. `24,150, `7,500 and `36,000 respectively.
Working Notes:
1. Piece rate per unit
Product Standard time per Piece rate each Piece rate per
unit in minute minute (`) unit (`)
X 15 1 15
Y 20 1 20
Z 30 1 30
2. Time allowed to each worker
Worker Product-X Product-Y Product-Z Total Time
(Hours)
I 210 units × 360 units × 460 units × 30 24,150/60
15 20 = 13,800 = 402.50
= 3,150 = 7,200
II - - 250 units × 30 7,500/60
= 7,500 = 125
III 600 units × 1, 350 units × - 36,000/60
15 20 = 600
= 9,000 = 27,000
(iii) Computation of wages of each worker under Premium bonus basis
(where each worker receives bonus based on Rowan Scheme)
Worker Time Time Time Wage Earnings Bonus Total
Allowed Taken saved Rate (`) (`)* Earning
(Hr.) (Hr.) (Hr.) per (`)
hour
(`)

I 402.5 380 22.5 40 15,200 850 16,050

II 125 100 25 50 5,000 1,000 6,000
III 600 540 60 60 32,400 3,240 35,640

Time Taken
*  TimeSaved  WageRate
Time Allowed
380 100
Worker-I =  22.5  40 = 850 ; Worker-II =  25  50 = 1,000
402.5 125
540
Worker-III =  60  60 = 3,240
600

280
4. (a) (i) Statement of Profit under Absorption Costing
April May June
Particulars
(`) (`) (`)
Sales (units) 4,200 4,500 5,200
Selling price per unit 2,050 2,050 2,050
Sales value (A) 86,10,000 92,25,000 1,06,60,000
Cost of Goods Sold:
Opening Stock @ `1,480 0 5,92,000 4,44,000
Production cost @ `1,480 68,08,000 65,12,000 81,40,000
Closing Stock @ `1,480 (5,92,000) (4,44,000) (8,88,000)
Under/ (Over) absorption 40,000 60,000 (50,000)
Add: Fixed Selling Overheads 95,000 95,000 95,000
Cost of Sales (B) 63,51,000 68,15,000 77,41,000
Profit (A – B) 22,59,000 24,10,000 29,19,000

Workings:
1. Calculation of full production cost
(`)
Direct Materials (4 kg. × ` 120) 480
Direct labour (6 hours × ` 60) 360
Variable production Overhead (150% of ` 360) 540
Total Variable cost 1,380
 `60,00,000  100
Fixed production overhead  
 60,000units 
1,480

2. Calculation of Opening and Closing stock

April May June
Opening Stock 0 400 300
Add: Production 4,600 4,400 5,500
Less: Sales 4,200 4,500 5,200
Closing Stock 400 300 600
3. Calculation of Under/Over absorption of fixed production
overhead
April (`) May (`) June (`)
Actual Overhead 5,00,000 5,00,000 5,00,000
Overhead absorbed 4,60,000 4,40,000 5,50,000
(4,600 units × (4,400 units × (5,500 units ×
`100) `100) `100)
281
 Under/(Over) 40,000 60,000 (50,000)
absorption
(ii) Statement of Profit under Marginal Costing
April May June
Particulars
(`) (`) (`)
Sales (units) 4,200 4,500 5,200
Selling price per unit 2,050 2,050 2,050
Sales value 86,10,000 92,25,000 1,06,60,000
Less: Variable production 57,96,000 62,10,000 71,76,000
cost @ `1,380
Contribution 28,14,000 30,15,000 34,84,000
Less: Fixed Production 5,00,000 5,00,000 5,00,000
Overheads
Less: Fixed Selling 95,000 95,000 95,000
Overheads
Profit 22,19,000 24,20,000 28,89,000
(iii) Reconciliation of profit under Absorption costing to Marginal
Costing
April May June
Particulars
(`) (`) (`)
Profit under 22,59,000 24,10,000 29,19,000
Absorption Costing
Add: Opening Stock 0 40,000 30,000
(400 × `100) (300 × `100)
Less: Closing Stock 40,000 30,000 60,000
(400 × `100) (300 × `100) (600 × `100)
Profit under Marginal 22,19,000 24,20,000 28,89,000
Costing
(b) Total Fixed Cost = ` 6,00,000 + `20,00,000 + `8,00,000 +
` 2,00,000
= ` 36,00,000
Contribution per unit = `600 - `470 = `130
Contributionper unit `130
P/V Ratio = ×100 =  100 = 21.67%
SellingPrice `600

TotalFixedCost
Break-even Point =
Contributionper unit

`36,00,000
= = 27,692.31 or 27,693 units
`130
TotalFixedCost `36,00,000
Break-even Sales = = = `1,66,12,829
P / VRatio 21.67%

282
 Calculation of Profit/ (loss):
Total Contribution (`130 × 35,000 units) = `45,50,000
Less: Fixed Cost = `36,00,000
Profit = ` 9,50,000
5. (a) Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = ` 4,50,000 ÷ 5,000 units = ` 90 per unit Or
= ` 4,50,000 ÷ 30,000 hours = ` 15 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. ×
Actual Price)
= (4,800 units × 15 kg. × `15) - ` 9,85,000
= ` 10,80,000 – ` 9,85,000
= ` 95,000 (F)
(ii) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours
× Actual rate)
= (4,800 units × 6 hours × ` 5) – `1,40,000
= ` 1,44,000 – ` 1,40,000
= ` 4,000 (F)
(iii) Fixed Overhead Cost Variance = (Budgeted Rate × Actual Qty) – Actual
Overhead = (` 90 x 4,800 units) – ` 4,70,000
= ` 38,000 (A)
OR
= (Budgeted Rate × Std. Hours) – Actual
Overhead
= (` 15 x 4,800 units × 6 hours) – ` 4,70,000
= ` 38,000 (A)
(iv) Variable Overhead Cost Variance = (Std. Rate × Std. Hours) – Actual
Overhead
= (4,800 units × 6 hours × ` 12) -
` 3,60,200
= ` 3,45,600 - ` 3,60,200
= ` 14,600 (A)
(b) Profit Statement using Activity based costing (ABC) method:
Particulars Product Total
A B C
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling price per 90 180 140
unit (`)
C. Sales Value (`) 90,00,000 1,44,00,000 84,00,000 3,18,00,000
[A×B]
283
D. Direct cost per unit 50 90 95
(`)
E. Direct Cost (`) 50,00,000 72,00,000 57,00,000 1,79,00,000
[A×D]
F. Overheads: (Refer
working note-3)
(i) Machining services 21,00,000 22,40,000 21,00,000 64,40,000
(`)
(ii) Assembly services 24,00,000 12,80,000 7,20,000 44,00,000
(`)
(iii) Set-up costs (`) 4,50,000 3,00,000 1,50,000 9,00,000
(iv) Order processing 2,20,000 2,40,000 2,60,000 7,20,000
(`)
(v) Purchasing (`) 1,50,000 1,75,000 75,000 4,00,000
G. Total Cost (`) [E+F] 1,03,20,000 1,14,35,000 90,05,000 3,07,60,000
H. Profit (`) (C-G) (13,20,000) 29,65,000 (6,05,000) 10,40,000

Working Notes:
1.
Products
A B C Total
A. Production 1,00,000 80,000 60,000
(units)
B. Machine hours 3 4 5
per unit
C. Total Machine 3,00,000 3,20,000 3,00,000 9,20,000
hours [A×B]
D. Rate per hour 8 8 8
(`)
E. Machine Dept. 24,00,000 25,60,000 24,00,000 73,60,000
cost [C×D]
F. Labour hours 6 4 3
per unit
G. Total labour 6,00,000 3,20,000 1,80,000 11,00,000
hours [A×F]
H. Rate per hour 5 5 5
(`)
I. Assembly 30,00,000 16,00,000 9,00,000 55,00,000
Dept. cost
[G×H]
`73,60,000
Machine hour rate = = `8
9,20,000hours

284
 `55,00,000
Labour hour rate = = `5
11,00,000hours
2. Calculation of cost driver rate

Cost Pool Amount Cost Driver Quantity Driver

(`) rate (`)
Machining 64,40,000 Machine hours 9,20,000 7.00
services hours
Assembly 44,00,000 Direct labour hours 11,00,000 4.00
services hours
Set-up costs 9,00,000 Machine set-ups 9,000 100.00
set-ups
Order 7,20,000 Customer orders 7,200 100.00
processing orders
Purchasing 4,00,000 Purchase orders 800 500.00
orders
3. Calculation of activity-wise cost
Products
A B C Total
A. Machining hours 3,00,000 3,20,000 3,00,000 9,20,000
(Refer Working
note-1)
B. Machine hour rate 7 7 7
(`) (Refer Working
note-2)
C. Machining 21,00,000 22,40,000 21,00,000 64,40,000
services cost (`)
[A×B]
D. Labour hours 6,00,000 3,20,000 1,80,000 11,00,000
(Refer Working
note-1)
E. Labour hour rate 4 4 4
(`) (Refer Working
note-2)
F. Assembly 24,00,000 12,80,000 7,20,000 44,00,000
services cost (`)
[D×E]
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (`) 100 100 100
(Refer Working
note-2)
I. Set-up cost (`) 4,50,000 3,00,000 1,50,000 9,00,000
[G×H]
J. Customer orders 2,200 2,400 2,600 7,200

285
 K. Rate per order (`) 100 100 100
(Refer Working
note-2)
L. Order processing 2,20,000 2,40,000 2,60,000 7,20,000
cost (`) [J×K]
M. Purchase orders 300 350 150 800
N. Rate per order (`) 500 500 500
(Refer Working
note-2)
O. Purchasing cost 1,50,000 1,75,000 75,000 4,00,000
(`) [M×N]
6. (a) Treatment of over and under absorption of overheads are:-
(i) Writing off to costing P&L A/c:– Small difference between the actual
and absorbed amount should simply be transferred to costing P&L
A/c, if difference is large then investigate the causes and after that
abnormal loss/ gain shall be transferred to costing P&L A/c.
(ii) Use of supplementary Rate: Under this method the balance of
under and over absorbed overheads may be charged to cost of
W.I.P., finished stock and cost of sales proportionately with the help
of supplementary rate of overhead.
(iii) Carry Forward to Subsequent Year: Difference should be carried
forward in the expectation that next year the position will be
automatically corrected.
(b) The impact of IT in cost accounting may include the followings:
(i) After the introduction of ERPs, different functional activities get
integrated and as a consequence a single entry into the accounting
system provides custom made reports for every purpose and saves
an organisation from preparing different sets of documents.
Reconciliation process of results of both cost and financial
accounting systems become simpler and less sophisticated.
(ii) A move towards paperless environment can be seen where
documents like Bill of Material, Material Requisition Note, Goods
Received Note, labour utilisation report etc. are no longer required
to be prepared in multiple copies, the related department can get
e-copy from the system.
(iii) Information Technology with the help of internet (including intranet
and extranet) helps in resource procurement and mobilisation. For
example, production department can get materials from the stores
without issuing material requisition note physically. Similarly,
purchase orders can be initiated to the suppliers with the help of
extranet. This enables an entity to shift towards Just-in-Time (JIT)
approach of inventory management and production.
(iv) Cost information for a cost centre or cost object is ascertained with
accuracy in timely manner. Each cost centre and cost object is
codified and all related costs are assigned to the cost object or cost
centre. This process automates the cost accumulation and
286
 ascertainment process. The cost information can be customised as
per the requirement. For example, when an entity manufactures or
provide services, it can know information job-wise, batch-wise,
process-wise, cost centre wise etc.
(v) Uniformity in preparation of report, budgets and standards can be
achieved with the help of IT. ERP software plays an important role
in bringing uniformity irrespective of location, currency, language
and regulations.
(vi) Cost and revenue variance reports are generated in real time basis
which enables the management to take control measures
immediately.
(vii) IT enables an entity to monitor and analyse each process of
manufacturing or service activity closely to eliminate non-value-
added activities.
The above are examples of few areas where Cost Accounting is done
with the help of IT.
(c) Controllable costs and Uncontrollable costs: Cost that can be
controlled, typically by a cost, profit or investment centre manager is
called controllable cost. Controllable costs incurred in a particular
responsibility centre can be influenced by the action of the executive
heading that responsibility centre.
Costs which cannot be influenced by the action of a specified member
of an undertaking are known as uncontrollable costs.
(d) Apportionment of Joint Cost amongst Joint Products using:
Market value at the point of separation: This method is used for
apportionment of joint costs to joint products upto the split off point. It is
difficult to apply if the market value of the product at the point of
separation is not available. It is useful method where further processing
costs are incurred disproportionately.
Net realizable value Method: From the sales value of joint products (at
finished stage) the followings are deducted:
− Estimated profit margins
− Selling & distribution expenses, if any
− Post split off costs.
The resultant figure so obtained is known as net realizable value of joint
products. Joint costs are apportioned in the ratio of net realizable value.

287
 ANSWER OF MODEL TEST PAPER 2
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs

Revised FixedCost + Expected Profit

1. i. A Revised Sale =
P / V Ratio

= {`115 + (20+10)} ÷ 45% = ` 322.22 crores

Fixed Cost
ii. D Revised Break – even Point =
P / V Ratio

= `115 Crore ÷ 45% = `255.56 Crore (Refer working notes)

iii. D Revised Margin of Safety = Revised Sales – Revised Break–
even Sales
= ` 322.22Crores – ` 255.56Crores = ` 66.66 Crores.
iv. C ` 20 Crore & `30 Crore respectively (Refer working note)
v. A Total cost in last year = `230 Crore
Total cost in coming year = Variable Cost + Fixed Cost
Revised sales × 55% + 115 Crore
= ` 322.22 Crore × 55% + ` 115 Crore = ` 292.22 Crore
Working Note
Present Sales and Profit
Total Sales = Break – even Sales + Margin of Safety
= `200 Crores + `50 Crores
= `250 Crores
P/V Ratio = 40%
Variable Cost = 60% of Sales
= `250 Crores × 60%
= `150 Crores
Fixed Cost = Break – even Sales × P/V Ratio
= `200 Crores × 40%
= `80 Crores
Total Cost = `150 Crores + `80 Crores
= `230 Crores
Profit = Total Sales – Total Cost

288
 = `250 Crores – `230 Crores
= `20 Cores
Revised Sales (` in Crores)
Present Fixed Cost 80.00
Increase in Fixed Cost 20.00
Interest at 15 per cent on Additional Capital (`100Crores × 15%) 15.00
Total Revised Fixed Cost (in crore) 115.00
Assuming that the Present Selling Price is `100
Revised Selling Price will be (8% Less) 92.00
New Variable Cost (Reduced from 60% to 55%) of Sales 50.60
(` 92 × 55%)
Contribution (`92.00 – ` 50.60) 41.40
` 41.40
New P / V Ratio = x 100
` 92.00
= 45%
2. i. D Variable Overhead Cost = Standard Variable Overheads for
Production – Actual
Variance Variable Overheads
= ` 44,800 – ` 55,680
= ` 10,880 (A)
ii. C Fixed Overhead Volume = Absorbed Fixed Overheads –
Budgeted Fixed Overheads
Variance
= ` 87,200 – ` 1,09,000
=` 21,800 (A)
iii. A Fixed Overhead Expenditure = Budgeted Fixed Overheads –
Actual Fixed Overheads
Variance
= ` 10.9 × 10,000 units – ` 1,30,520
= ` 21,520 (A)
iv. B Calendar Variance = Possible Fixed Overheads – Budgeted
Fixed Overheads
= ` 1,03,550 – ` 1,09,000
= ` 5,450 (A)
v. A Fixed Overhead Cost Variance = Absorbed Fixed Overheads –
Actual Fixed Overheads

289
 = ` 87,200 – ` 1,30,520
= ` 43,320 (A)
WORKING NOTE
Budgeted Fixed Overheads ` 10.00
Fixed Overheads =
Budgeted Output
= 12,00,000÷1,20,000
Fixed Overheads element in Semi-Variable Overheads ` 1,08,000
i.e. 60% of ` 1,80,000
Budgeted Fixed Overheads ` 0.90
Fixed Overheads =
Budgeted Output
` 1,08,000/120,000
Standard Rate of Absorption of Fixed Overheads per ` 10.90
unit (` 10.00 + ` 0.90)
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% ` 72,000
of ` 1,80,000
Total Budgeted Variable Overheads ` 6,72,000
Standard Variable Cost per unit `5.60
Budgeted Variable Overheads
=
Budgeted Output
Standard Variable Overheads for 8,000 units @ `5.60 ` 44,800
Budgeted Annual Fixed Overheads (` 12,00,000 + 60% ` 13,08,000
of ` 1,80,000)
Possible Fixed Overheads ` 1,03,550
Budgeted Fixed Overheads
= x Actual Days
Budgeted Days
= 1,09,000/20 days ×19 days
Actual Fixed Overheads (` 1,19,000 + 60% of ` 19,200) ` 1,30,520
Actual Variable Overheads (` 48,000 + 40% of ` 19,200) ` 55,680
3. A (TT x 60) + [0.50 x (8-TT) x 60] = 420 TT* = 6 hours
Time saved = 8-6 = 2
* TT=Total Time Taken
4. C Ordering Cost = 4,00,000/320 = 1,250
Delivery Cost = 1,35,000/270 = 500
A = 1,250 x 100 + 500 x 70 = 1,60,000
B = 1,250 x 220 + 500 x 200 = 3,75,000

290
5. B Direct labour : ` 45,000
Direct expenses : ` 15,000
Direct materials consumed : ` 67,500
Prime Cost ` 1,27,500
6. A Abnormal gain units = 7600 - [8000 - 800] = 400 Abnormal gain
= [40,000 - (800 x 5)]/ 7200 units x 400 units = 2,000
7. B Total cost = ` 5,25,000
Tonnes Km carried = 6,55,000
Unit Cost = ` 525000/655000 Km = ` 0.801
PART-II– Descriptive Questions
1. (a) Process A Account
Dr Cr.
` `
To Materials 40,000 By Transfer to 1,20,000
Process B A/c
To Labour 40,000
To Overheads 16,000
96,000
To Profit (20% of transfer
price, i.e., 25% of cost) 24,000
1,20,000 1,20,000
Process B Account
Dr Cr.
` `
To Transferred from 1,20,000 By Transfer to Finished
Process A A/c Stock A/c 2,88,000
To Labour 56,000
To Overhead 40,000
2,16,000
To Profit (25% of 72,000
transfer price i.e.,
33.33% of cost)
2,88,000 2,88,000

291
 Statement of Total Profit
`
Profit from Process A 24,000
Profit from Process B 72,000
Profit on Sales (` 4,00,000 – ` 2,88,000) 1,12,000
Total Profit 2,08,000
(b) (i) Calculation of Economic Order Quantity
2  Annual Demand  OrderingCost
EOQ =
Carryingcost per unit per annum

2 × 12,000 units × `1,200

= = 371 units (Approx)
` 1,740 × 0.12

(ii) Evaluation of Profitability of Different Options of Order Quantity

(a) When EOQ is ordered
(`)
Purchase Cost (12,000 units  ` 1,740) 2,08,80,000.00

Ordering Cost* [(12,000 units ÷ 371 units) i.e. 33 39,600.00

 ` 1,200]
Carrying Cost** (371 units  ` 1,740  ½ 38,732.40
 12/100)
Total Cost 2,09,58,332.40
(b) When Quantity Discount of 5% is offered.
(`)
Purchase Cost (12,000 units  ` 1,740 × 1,98,36,000.00
0.95)
Ordering Cost* [(12,000 units ÷ 6,000 2,400.00
units)  `1,200]
Carrying Cost** (6,000 units  `1,653  ½ 5,95,080.00
 12/100)
Total Cost 2,04,33,480.00
Advise – The total cost of inventory is lower if quantity discount offer
is accepted. Hence, the company is advised to accept the quantity
discount.
AnnualDemand
* Ordering Cost = × Cost of placing an order
Order Quantity
Cost per unit×Quantity ordered×CarryingCost
** Carrying Cost =
2

292
 (c) Let T hours be the total time worked in hours by the skilled worker
(machine-man Sam); ` 30/- is the rate per hour; standard time is 4 hours
per unit and effective hourly earning rate is ` 37.50 then
Earning = Hours worked × Rate per hour
Time saved
+ × Time taken × Rate per hour
Time allowed
(Under Rowan incentive plan)
(4 - T)
` 37.5 T = (T × ` 30) + × T × ` 30
4
` 37.5 = ` 30 + (4 – T) × ` 7.5
Or ` 7.5 T = ` 22.5
Or T= 3 hours
Total earnings and effective hourly rate of skilled worker (machine
man Sam) under Halsey Incentive Scheme (50%)
Total earnings = (Hours worked × Rate per hour) + (½ Time saved ×
Rate per hour)
(under 50% Halsey Incentive Scheme)
= (3 hours × ` 30) + (½ × 1 hour × ` 30)
Total earnings ` 105
Effective hourly rate = = = ` 35
Hours taken 3 hours
2. (a) Computation of Machine Hour Rate

Basis of Total Machines

apportionme P Q R
nt (`) (`) (`) (`)
(A) Standing
Charges
Insurance Depreciation
8,000 3,000 3,000 2,000
Basis
Indirect Direct
24,000 6,000 9,000 9,000
Labour Labour
Building Floor Space
Maintenance 20,000 8,000 8,000 4,000
expenses
Rent and Floor Space
1,20,000 48,000 48,000 24,000
Rates
Salary of Equal
2,40,000 80,000 80,000 80,000
foreman
Salary of Equal
60,000 20,000 20,000 20,000
attendant

293
 Total
standing 4,72,000 1,65,000 1,68,000 1,39,000
charges
Hourly rate
for standing 90.36 92.00 76.12
charges
(B) Machine
Expenses:
Depreciation Direct 20,000 7,500 7,500 5,000
Spare parts Final
13,225 4,600 5,750 2,875
estimates
Power K.W. rating 40,000 15,000 10,000 15,000
Consumable Direct
9,000 3,600 2,700 2,700
Stores
Total
Machine 82,225 30,700 25,950 25,575
expenses
Hourly Rate
for Machine 16.81 14.21 14.01
expenses
Total (A + B) 5,54,225 1,95,700 1,93,950 1,64,575
Machine
107.17 106.22 90.13
Hour rate

Working Notes:
(i) Calculation of effective working hours:
No. of holidays 52 (Sundays) + 14 (other holidays) = 66
Saturday (52 – 2) = 50
No. of days (Work full time) = 365 – 66 – 50 = 249
Hours
Full days work 249  8 = 1,992
Half days work 50  4 = 200
2,192
Hours
Effective capacity 85% of 2,192 1,863 (Rounded off)
Less: Normal loss of time (Breakdown) 2% 37 (Rounded off)
Effective running hour 1,826
(ii) Amount of spare parts is calculated as under:
P Q R
` ` `
Preliminary estimates 4,000 4,000 2,000

294
 Add: Increase in price @ 15% 600 600 300
4,600 4,600 2,300
Add: Increase in consumption − 1,150 575
@ 25%
Estimated cost 4,600 5,750 2,875
(iii) Amount of Indirect Labour is calculated as under:
`
Preliminary estimates 20,000
Add: Increase in wages @ 20% 4,000
24,000

(iv) Amount of Consumables Stores is calculated as under:

`
Preliminary estimates 10,000
Less: Decrease in consumption @ 10% 1,000
9,000

(v) Interest on capital outlay is a financial matter and, therefore it has

been excluded from the cost accounts.
(b) Economic batch quantity in Batch Costing: In batch costing the most
important problem is the determination of ‘Economic Batch Quantity’.
The determination of economic batch quantity involves two types of
costs viz, (i) set up cost and (ii) carrying cost. With the increase in the
batch size, there is an increase in the carrying cost but the set up cost
per unit of product is reduced. This situation is reversed when the batch
size is reduced. Thus there is one particular batch size for which both
set up and carrying costs are minimum. This size of a batch is known as
economic or optimum batch quantity.
Economic batch quantity can be determined with the help of table, graph
or mathematical formula. The mathematical formula usually used for its
determination is as follows:
2DS
E.B.Q =
C
Where, D= Annual demand for the product
S = Setting up cost per batch
C = Carrying cost per unit of production per annum
3. (a) (a) Flexible Budget for different levels
` ` ` ` `
No. of Students 60 90 120 150 180
VARIABLE COST

295
 Breakfast 3000 4500 6000 7500 9000
Lunch 6000 9000 12000 15000 18000
Tea 600 900 1200 1500 1800
Entrance fee 1200 1800 2400 3000 3600
Sub-total (A) 10800 16200 21600 27000 32400
Variable cost/unit 180 180 180 180 180
SEMI-VARIABLE
COST
Bus rent 13000 13000 19500 19500 26000
Special permit fee 1000 1000 1500 1500 2000
Allowance for
2000 2000 3000 3000 4000
teachers
Sub-total (B) 16000 16000 24000 24000 32000
FIXED COST
Block entrance fee 2500 2500 2500 2500 2500
Prize to students 500 500 500 500 500
Sub total (C) 3000 3000 3000 3000 3000
Total cost (A + B +
29,800 35,200 48,600 54,000 67,400
C)

(b) Cost per student 496.67 391.11 405.00 360.00 374.44

(c) Break-even level `

Collection per students 400
Less Variable Cost 180
Contribution 220
Since semi-fixed costs relate to a block of 50 students, the fixed and
semi-variable cost for three level will be:
Level of Student 51–100 101–150 151-200
Fixed + Semi–variable cost (`) 19,000 27,000 35,000
Contribution per unit (`) 220 220 220
Break Even level of students 86 123 159
(b) (i) Statement of cost allocation to each product from each activity
Product
A (`) B (`) C (`) Total (`)
Power 10,00,000 20,00,000 15,00,000 45,00,000
(Refer to
working note)

296
 (10,000 (20,000 (15,000
kWh × kWh kWh
` 100) × ` 100) × ` 100)
Quality 31,50,000 22,50,000 27,00,000 81,00,000
Inspections (3,500 (2,500 (3,000
(Refer to inspections inspections inspections
working note) × ` 900) × ` 900) × ` 900)

Working Note:
Rate per unit of cost driver:
Power : (` 60,00,000 ÷ 60,000 kWh) = `100/kWh
Quality Inspection: (` 90,00,000 ÷ 10,000 inspections) = `900 per
inspection
(ii) Calculation of cost of unused capacity for each activity:
(`)
Power 15,00,000
(`60,00,000 – `45,00,000)
Quality Inspections 15,00,000
(`90,00,000 – `75,00,000)
Total cost of unused capacity 30,00,000
4. (a) Job Cost Sheet for the period…..
`
Direct materials 2,13,000
Direct wages:
Machine shop 63,000
Assembly shop 48,000 1,11,000
Prime Cost 3,24,000
Works overhead:
Machine shop 88,200
Assembly shop 51,800 1,40,000
Work Cost 4,64,000
Administration overhead 92,800
Cost of Production 5,56,800
Selling overhead 81,000
Distribution overhead 62,100
Total Cost 6,99,900

297
 Schedule of Overhead Rate
(i) Works Overhead : Hourly rate = (Overhead amount ÷ Hours)
Machine shop = (88,200 ÷ 12,000) = ` 7.35 per hour
Assembly shop = (51,800 ÷ 10,000) = ` 5.18 per hour
(ii) Administrative Overhead as a % of works cost
92,800
= 100 = 20%
4,64,000
(iii) Selling and distribution overhead as % of works cost
81,000 + 62,100
= 100 = 30.84%
4,64,000
Labour hour rates are calculated as under:
Machine shop = ` 63,000 ÷ 12,000 hrs. = ` 5.25
Assembly shop = ` 48,000÷10,000 hrs. = ` 4.80
(b) Cost Estimate for Job
Direct Materials ` `
(i) 25 kg @ ` 17.20 per kg 430
(ii) 15 kg @ ` 21 per kg 315 745.00
Direct Labour
Machine shop (30 hrs. @ ` 5.25) 157.50
Assembly shop (42 hrs. @ ` 4.80) 201.60 359.10
Prime Cost 1104.10
Works Overhead
Machine shop (30 hours @ ` 7.35) 220.50
Assembly shop (42 hours @ ` 5.18) 217.56 438.06
Works Cost 1542.16
Administration overhead (20% of works cost) 308.43
Cost of Production 1850.59
Selling and distribution cost (30.84% of works
475.60
cost)
Total Estimated Cost 2326.19
(c) Detection of slow moving and non-moving item of stores:
The existence of slow moving and non-moving item of stores can be
detected in the following ways.
(i) By preparing and perusing periodic reports showing the status of
different items or stores.
(ii) By calculating the inventory turnover period of various items in
terms of number of days/ months of consumption.

298
 (iii) By computing inventory turnover ratio periodically, relating to the
issues as a percentage of average stock held.
(iv) By implementing the use of a well designed information system.
Necessary steps to reduce stock of slow moving and non-moving
item of stores:
(i) Proper procedure and guidelines should be laid down for the
disposal of non-moving items, before they further deteriorates in
value.
(ii) Diversify production to use up such materials.
(iii) Use these materials as substitute, in place of other materials.
(d) When the Cost and Financial Accounts are integrated - there is no need
to have a separate reconciliation statement between the two sets of
accounts. Integration means that the same set of accounts fulfil the
requirement of both i.e., Cost and Financial Accounts.
5. (a) Cost sheet for the year ended 31 st March, 2023.
Units produced - 14,000 units
Units sold - 14,153 units
Particulars Amount (`)
Raw materials purchased 43,50,000
Add: Freight Inward 1,20,000
Add: Opening value of raw materials 2,28,000
Less: Closing value of raw materials (3,05,000)
43,93,000
Less: Sale of scrap of material (7,000)
Materials consumed 43,86,000
Direct Wages (12,56,000 + 1,50,000) 14,06,000
Prime Cost 57,92,000
Factory overheads (20% of Prime Cost) 11,58,400
Add: Opening value of W-I-P 1,92,500
Less: Closing value of W-I-P (1,40,700)
Factory Cost 70,02,200
Add: Administrative overheads 1,73,000
Cost of Production 71,75,200
Add: Value of opening finished stock 6,08,500
Less: Value of closing finished stock
[` 500(71,75,200/14,350) × 767] (3,83,500)
(1,320 + 14,350 – 14,903 = 767 units)
Cost of Goods Sold 74,00,200
Distribution expenses (`16 × 14,903 units) 2,38,448

299
 Cost of Sales 76,38,648
Profit (Balancing figure) 9,90,189
Sales (` 579 × 14,903 units) 86,28,837
(b) Workings:
Total occupancy = Occupancy in normal season + Occupancy in off-
season
= (20 rooms × 80% × 8 months × 30 days) + (20 rooms × 50% × 4 months
× 30 days)
= 3,840 + 1,200 = 5,040 room-days
Total Cost = Variable cost + Fixed cost
= (` 500 × 5,040 room-days) + ` 53,25,000
= ` 25,20,000 + ` 53,25,000
= 78,45,000
(a) Calculation of tariff rate per room
Tariff per room per day = (Total cost + 25% Margin on total cost) ÷
Total occupancy
= (` 78,45,000 + 19,61,250) ÷ 5,040 = ` 1,945.68
(b) Calculation of break-even occupancy
Contribution per day = Tariff – Variable cost
= ` 1,945.68 – 500 = ` 1445.68
Break-even occupancy = ` 53,25,000 ÷ 1445.68
= 3683
Occupancy in normal season = Break-even occupancy – Occupancy
in off-season
= 3683 – (20 rooms × 50% × 4 months × 30 days)
= 3683 – 1200 = 2483 room-days
In Percentage = 2483 ÷ 4800 = 51.73%
6. (a) When the cost and financial accounts are kept separately, It is imperative
that these should be reconciled, otherwise the cost accounts would not
be reliable. The reconciliation of two set of accounts can be made, if both
the sets contain sufficient detail as would enable the causes of
differences to be located. It is therefore, important that in the financial
accounts, the expenses should be analysed in the same way as in cost
accounts. It is important to know the causes which generally give rise to
differences in the costs & financial accounts. These are:
(i) Items included in financial accounts but not in cost accounts
➢ Income-tax
➢ Transfer to reserve

300
 ➢ Dividends paid
➢ Goodwill / preliminary expenses written off
➢ Pure financial items
➢ Interest, dividends
➢ Losses on sale of investments
➢ Expenses of Co’s share transfer office
➢ Damages & penalties
(ii) Items included in cost accounts but not in financial accounts
➢ Opportunity cost of capital
➢ Notional rent
(iii) Under / Over absorption of expenses in cost accounts
(iv) Different bases of inventory valuation
Motivation for reconciliation is:
➢ To ensure reliability of cost data
➢ To ensure ascertainment of correct product cost
➢ To ensure correct decision making by the management based on
Cost & Financial data
➢ To report fruitful financial / cost data.
(b) The essential features, which a good Cost Accounting System should
possess, are as follows:
(a) Informative and Simple: Cost Accounting System should be tailor-
made, practical, simple and capable of meeting the requirements
of a business concern. The system of costing should not sacrifice
the utility by introducing meticulous and unnecessary details.
(b) Accuracy: The data to be used by the Cost Accounting System
should be accurate; otherwise it may distort the output of the
system and a wrong decision may be taken.
(c) Support from Management and subordinates: Necessary
cooperation and participation of executives from various
departments of the concern is essential for developing a good
system of Cost Accounting.
(d) Cost-Benefit: The Cost of installing and operating the system
should justify the results.
(e) Procedure: A carefully phased programme should be prepared by
using network analysis for the introduction of the system.
(f) Trust: Management should have faith in the Costing System and
should also provide a helping hand for its development and
success.

301
(c) The following steps are useful for minimizing labour turnover:
(a) Exit interview: An interview to be arranged with each outgoing
employee to ascertain the reasons of his leaving the organization.
(b) Job analysis and evaluation: to ascertain the requirement of each
job.
(c) Organization should make use of a scientific system of recruitment,
placement and promotion for employees.
(d) Organization should create healthy atmosphere, providing
education, medical and housing facilities for workers.
(e) Committee for settling workers grievances.
OR
(c) CVP Analysis:-Assumptions
(i) Changes in the levels of revenues and costs arise only because of
changes in the number of products (or service) units produced and
sold.
(ii) Total cost can be separated into two components: Fixed and
variable
(iii) Graphically, the behaviour of total revenues and total cost are linear
in relation to output level within a relevant range.
(iv) Selling price, variable cost per unit and total fixed costs are known
and constant.
(v) All revenues and costs can be added, sub traded and compared
without taking into account the time value of money.

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 ANSWER OF MODEL TEST PAPER 3
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
PART I – Case Scenario based MCQs
50,000
1. (i) (c) Output by experienced workers in 50,000 hours = = 5,000
10
units
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
Total loss of output = Due to delay recruitment + Due to
inexperience
= 10,000 + 2,000 = 12,000 units
(ii) (a) Contribution per unit = 20% of `180 = ` 36
Total contribution lost = `36 × 12,000 units = ` 4,32,000
(iii) (b) Cost of repairing defective units = 3,000 units × 0.2 × ` 25
= ` 15,000
(iv) (d) Calculation of loss of profit due to labour turnover
(`)
Loss of Contribution 4,32,000
Cost of repairing defective units 15,000
Recruitment cost 1,56,340
Training cost 1,13,180
Settlement cost of workers leaving 1,83,480
Profit forgone in 2022-23 9,00,000
50,000
(v) (c) Output by experienced workers in 50,000 hours = = 5,000
10
units
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
2. (i) (b)
(ii) (a)
(iii) (b)
(iv) (c)
(v) (a)

303
Statement of Cost of P Ltd. for the year ended 31 st December, 2023:
Sl. Particulars Amount (`) Amount (`)
No.
(i) Material Consumed:
- Raw materials purchased 5,00,00,000
- Freight inward 9,20,600
Add: Opening stock of raw materials 10,00,000
Less: Closing stock of raw materials (8,40,000) 5,10,80,600
(ii) Direct employee (labour) cost:
- Wages paid to factory workers 25,20,000
(iii) Direct expenses:
- Royalty paid for production 1,80,000
- Amount paid for power & fuel 3,50,000
- Job charges paid to job workers 3,10,000 8,40,000
Prime Cost 5,44,40,600
(iv) Works/ Factory overheads:
- Stores and spares consumed 1,10,000
- Repairs & Maintenance paid for plant 40,000
& machinery
- Insurance premium paid for plant & 28,200
machinery
- Insurance premium paid for factory 18,800
building
- Expenses paid for pollution control
and engineering & maintenance 36,000 2,33,000
Gross factory cost 5,46,73,600
Add: Opening value of W-I-P 8,60,000
Less: Closing value of W-I-P (6,60,000)
Factory Cost 5,48,73,600
(v) Quality control cost:
- Expenses paid for quality control 18,000
check activities
(vi) Research & development cost paid for 20,000
improvement in production process
(vii) Less: Realisable value on sale of scrap (48,000)
and waste
(viii) Add: Primary packing cost 46,000
Cost of Production 5,49,09,600
Add: Opening stock of finished goods 12,00,000
Less: Closing stock of finished goods (10,50,000)

304
 Cost of Goods Sold 5,50,59,600
(ix) Administrative overheads:
- Depreciation on office building 50,000
- Salary paid to General Manager 6,40,000
- Fee paid to independent directors 1,20,000 8,10,000
(x) Selling overheads:
- Repairs & Maintenance paid for 20,000
sales office building
- Salary paid to Manager- Sales & 5,60,000
Marketing
- Performance bonus paid to sales
staffs 1,20,000 7,00,000
(xi) Distribution overheads:
- Packing cost paid for re-distribution
of finished goods 80,000
Cost of Sales 5,66,49,600
3. (d)
Variable Overhead Efficiency Variance:
= Std. rate per hour × (Std. hours for actual production – Actual hours)
= `10 (2 hours × 11,800 units – 23,200 hours) = `4,000 (F)
Workings:
` 2,40,000
1. Standard cost per unit = = ` 20
12,000units

` 2,40,000
2. Standard cost per hour = = `10
12,000 units × 2 hours

4. (b)
Sales mix (in quantity) is 4 units of Product- A and 3 units of Product- B
Composite contribution per unit by taking weights for the product sales
quantity
4 𝟑
=Product A: `140 × + Product B: ` 𝟕𝟎 × 𝟕 = ` 80 + ` 30 = ` 110
7
Common Fixed Cost ` 6,16,000
Composite Break-even point = = ` 110
Composite Contribution per unit
= 5,600 units
3
Break-even units of Product- B = 5,600× 7= 2,400 units

5. (d) 60 km
Let’s assume distance between Delhi and Manesar is ‘X’
Therefore: Xx39x2x3x26x12 = ` 43,80,480

305
 X = 60
6 (a) ` 11,27,000
`
Purchase price 10,00,000
Custom duty 2,00,000
Octroi 5,000
Carriage inward 12,000
Commission on Purchase 10,000
Total Purchase 12,27,000
Opening stock of Raw Material 1,00,000
Closing stock of Raw Material (2,00,000)
Raw Material consumed 11,27,000
7. (c) ` 1,80,000
costs allocated to product A is
= (60,000kg/30,000kg)*3,60,000
= 1,80,000
PART-II – Descriptive Questions
1. (a) (i) Optimum run size for empty bottle manufacture
2  Annual sup ply of empty bottles  Set − up cos t per production run
=
Annual holding cos t per bottle

2  1,50,000 bottles  520

= = 16,125 bottles
12 months  0.05 P
(ii) Interval between two consecutive optimum runs
12 months
=
 Annual production 
 
 Optimum run size 
12 months 12 months
= = = 1.29 months or 39 days
 1,50,000 bottles  9.30
 
 16,125 bottles 
approximately.
(iii) Minimum inventory cost per annum
= Total production run cost + Total carrying cost per annum
1,50,000 bearings
= × ` 520 + (1/2) 16125 bottles × ` 0.05 × 12 months
16,125 bearings
= ` 4,836 + ` 4837.50
= ` 9673.50
306
(b) Working Notes:
Purchase price - Scrap value
1. Depreciation per annum:=
Estimated life

` 4,00,000 - ` 10,000
= = ` 78,000
5 years
2. Total distance travelled by mini-bus in 25 days:
= Length of the route (two -sides) × No. of trips per day × No. of
days
= 60 km × 6 trips × 25 days = 9,000 km
3. Total Passenger-Km:
= Total distance travelled by mini-bus in 25 days × No. of seats
= 9,000 km × 20 seats = 1,80,000 passenger-km
Statement suggesting fare per passenger-km
Particulars Cost per Cost per
annum month
` `
Fixed expenses:
Insurance 15,000
Garage rent 9,000
Road tax 3,000
Administrative charges 5,000
Depreciation 78,000
Interest on loan 10,000
1,20,000 10,000
Running expenses:
Repair and maintenance 15,000 1,250
Replacement of tyre-tube 3,600 300
Diesel and oil cost (9,000 km × ` 5) - 45,000
Driver and conductor’s salary - 5,000
Total cost (per month) 61,550.00
Add: Profit 20% of total revenue cost or 15,387.50
25% of total cost
Total revenue 76,937.50
Rate per passenger-km ` 76,937.50/1,80,000 passenger km
= 0.42743 i.e., = 0.43 i.e., 43 paise

307
 2AO
(c) (i) Economic Order Quantity =
C
Where, A= Annual demand
O = Cost of placing an order
C = Carrying cost per unit per annum
2x( 40 x365 ) x100
=
0.06 x365
= 365 units
(ii) Re-Order Level = Maximum usage x maximum lead time
= 40x26
= 1040 units
2. (a) a. Variable overhead absorption rate:
` 3,56,375 – ` 3,38,875 = ` 17,500 ÷ (16,500 – 14,500) = ` 8.75
per machine hour.
b. Total fixed overheads:
`
Total overheads at 14,500 hours 3,38,875
Variable overheads = ` 8.75 × 14,500 1,26,875
Total fixed overheads 2,12,000
c. Budgeted level of activity:
Let budgeted level of activity = x
(` 8.75 x + ` 2,12,000)
= 22
x
8.75x + ` 2,12,000 = 22x
2,12,000 = 13.25x
16,000 = x
Thus, budgeted level of activity = 16,000 machine hours.
d. Under/over – recovery of overheads:
`
Actual overheads 3,55,050
Absorbed = 15,850 hours × ` 22/hour (3,48,700)
Under - recovery 6,350
e. Departmental absorption rates provide Costs which are more
precise than those provided by the use of blanket absorption rates.
Departmental absorption rates facilitate Variance analysis and Cost
control. The application of these rates makes the task of Stock and
WIP valuation easier and more precise. However the setting up and
308
 monitoring of these rates can be time consuming and expensive.
In cases where departments are similar the use of such rates may
not be useful for Costing purposes.
(b) The essential features, which a good cost and management accounting
system should possess, are as follows:
(a) Informative and simple: Cost and management accounting
system should be tailor-made, practical, simple and capable of
meeting the requirements of a business concern. The system of
costing should not sacrifice the utility by introducing meticulous and
unnecessary details.
(b) Accurate and authentic: The data to be used by the cost and
management accounting system should be accurate and
authenticated; otherwise it may distort the output of the system and
a wrong decision may be taken.
(c) Uniformity and consistency: There should be uniformity and
consistency in classification, treatment and reporting of cost data
and related information. This is required for benchmarking and
comparability of the results of the system for both horizontal and
vertical analysis.
(d) Integrated and inclusive: The cost and management accounting
system should be integrated with other systems like financial
accounting, taxation, statistics and operational research etc. to
have a complete overview and clarity in results.
3. (a) COST LEDGER
Dr. Cost Ledger Account Cr.
Particulars ` Particulars `
To Stores ledger 5,800 By Balance b/d 13,30,440
control A/c
To Finished stock 3,71,780 By Stores ledger 2,46,000
ledger control control A/c
A/c
To Balance c/d 15,37,030 By Wages control A/c 1,01,060
By Works overhead 43,330
control A/c
By Works overhead 1,83,020
control A/c
By Finished stock 10,760
ledger control A/c
19,14,610 19,14,610
By Balance b/d 15,37,030

309
 Dr. Stores Ledger Control Account Cr.
Particulars ` Particulars `
To Balance b/d 6,02,870 By Cost ledger control 5,800
A/c

To Cost ledger 2,46,000 By Work-in-progress 2,54,630

control A/c control A/c
By Balance c/d 5,88,440
8,48,870 8,48,870
To Balance b/d 5,88,440
Dr. Manufacturing Overhead Control Account Cr.
Particulars ` Particulars `
To Cost ledger control 1,83,020 By Balance b/d 21,050
A/c
To Cost ledger control 43,330 By Work-in-progress 1,54,400
A/c control A/c
By Balance c/d 50,900
2,26,350 2,26,350
To Balance b/d 50,900
Dr. Work-in-progress Control Account Cr.
Particulars ` Particulars `
To Balance b/d 2,44,730 By Finished stock ledger 4,21,670
control A/c
To Wages control A/c 1,01,060 By Balance c/d 3,33,150
To Stores ledger 2,54,630
control A/c
To Works overhead
control A/c 1,54,400
7,54,820 7,54,820
To Balance b/d 3,33,150
Dr. Finished Stock Ledger Control Account Cr.
Particulars ` Particulars `
To Balance b/d 5,03,890 By Cost ledger control 3,71,780
A/c
To Work-in-progress 4,21,670 By Balance c/d 5,64,540
To Cost ledger
control A/c 10,760
9,36,320 9,36,320
To Balance b/d 5,64,540

310
 Trial Balance
Dr. Cr.
` `
Cost ledger control account ⎯ 15,37,030
Stores ledger control account 5,88,440 ⎯
Mfg. overhead control account 50,900 ⎯
W.I.P. control account 3,33,150 ⎯
Finished stock ledger control account 5,64,540 ⎯
15,37,030 15,37,030
(b) Production budget
(For the year 2023 by quarters)
(a) Units to be produced in each quarters
Quarters
I II III IV Total
2/3 of current
quarter’s sales
demand 8,000 10,000 11,000 12,000 41,000
1/3 of the following
quarter demand* 5,000 5,500 6,000 6,500 23,000
13,000 15,500 17,000 18,500 64,000
(b) Statement showing direct material, variable overhead and
fixed overhead
Quarters
I II III IV Total
Units to be 13,000 15,500 17,000 18,500 64,000
produced
Direct Material @
` 5 Per unit ` 65,000 ` 77,500 ` 85,000 ` 92,500 ` 3,20,000
(Refer to Note 1)
Direct Labour @
` 6 per Unit 78,000 93,000 1,02,000 1,11,000 3,84,000
(Refer to Note 2)
Variable overhead
` 1.50 per unit 19,500 23,250 25,500 27,750 96,000
(Refer to Note 3)
Fixed Overhead 45,000 45,000 45,000 45,000 1,80,000
(Refer to Note 4) 2,07,500 2,38,750 2,57,500 2,76,250 9,80,000

311
 (ii) Budgeted profit for the whole year `
Sales (61,500** units @` 17 per unit) ` 10,45,500
Less: Total variable cost per unit (61,500** unit @ ` 7,68,705
` 12.50 per unit)
2,76,750
Less: Fixed cost 1,80,000
Profit for the whole year 96,750
Variable cost per unit: `
Direct material cost (Refer to Note 1) 5.00
Direct labour cost (Refer to Note 2) 6.00
Variable cost (Refer to Note 3) 1.50
12.50
Working Notes:
1. Direct material cost = 10 kgs @ ` 0.50 per kg = ` 5.00 per unit.
2. Direct labour per unit = 1 hr. 30 minutes @ ` 4 per hour = ` 6 per
unit.
3. Variable overhead per unit = 1 hr. 30 minutes @ ` 1 per hour =
` 1.50 unit
4. Fixed Overhead
Budgeted production volume is 90,000 direct labour hours for the year
@ ` 2 per hour i.e. ` 1,80, 000 for the year. This fixed overhead is spread
over the four quarters equally.
* Inventory is given for the fourth quarter.
** Sales for the year is given i.e. 12,000 + 15,000+16,500 + 18,000
= 61,500 unit.
4. (a) (a) Material Price variance = Actual quantity (Std. Price – Actual Price)
A = 17200(3.5 – 4.00) = 8600(A)
B = 36500(5.00 – 4.50) = 18250(F)
C = 23800(4.25 – 4.30) = 1190(A)
8460(F)
(b) Material usage variance = Std. Price (Std. quantity for actual
production – Actual quantity)
A = 3.50(6000 X 3 – 17200) = 2800(F)
B = 5.00(6000 X 6 – 36500) = 2500(A)
C = 4.25(6000 X 4 – 23800) = 850(F)
1150 (F)

(c) Labour rate variance = Actual hour paid (Std. rate – Actual rate)
312
 Skilled labour = 24 X 45 (5.00 – 6.00) = 1080(A)
Semi-skilled labour = 12 X 45 (4.00 - 4.25) = 135(A)
Un-skilled labour = 6 X 45 (2.00 - 3.25) = 337.50(A)
1552.50(A)
(d) Labour Mix variance = Std. rate (Revised std. hours – Actual hours)
Skilled labour = 5.00(1170 - 1080) = 450(F)
Semi-skilled labour = 4.00(450 – 540) = 360(A)
Un-skilled labour = 2.00(360 – 270) = 180(F)
270(F)
(e) Labour yield variance = Std. rate per hour (Standard hours –
Revised std. hours)
= 8370/1980(1900 – 1980) = 338 (A)
Working notes:
(i)
Standard Actual
Category of Hrs.* Rate Amount Hrs.* Rate Amount
workers ` ` ` `
Skilled 1170 5.00 5850.00 1080 6.00 6480.00
Semi-skilled 450 4.00 1800.00 540 4.25 2295.00
Un-skilled 360 2.00 720.00 270 3.25 877.50
1980 8370.00 1890 9652.50
*Hrs. = No. of workers X 45 hours.
(b) Variable cost to sales = 80%
Contribution to sales = 20%
Or P/V Ratio 20%
We know that: BES x P/V Ratio = Fixed Cost
BES x 0.20 = ` 65,000
Or BES = ` 3,25,000
It is given that break-even occurs at 65% capacity.
Therefore, sales at 100% capacity = ` 3,25,000 / 0.65
= ` 5,00,000
Computation of profit at 95% Capacity
`
95% of capacity sales (i.e. ` 5,00,000 x 0.95) = 4,75,000
Less: Variable cost (i.e. ` 4,75,000 x 0.80) = 3,80,000
Contribution 95,000
313
 Less: Fixed Cost 65,000
Profit 30,000
5. (a) Process- I Account
Units ` Units `
To Material 10,000 45,000 By Normal wastage 300
” Labour 6,100 ” Abnormal wastage 100 628
” Overhead 9,800 (cost per unit, ` 6.278)
” Process No. 2 9,600 60,272
(Transfer of
_____ ______ completed units) _____ ______
10,000 60,900 10,000 60,900

Note : The cost of the abnormal wastage :

Normal Output = 10,000 units – 300 units = 9,700 units
Cost per unit of normal output = ` 60,900 ÷ 9,700 units = ` 6.278
Cost of 100 units = ` 6.278 × 100 = ` 628
Process- II Account
Units ` Units `
To Process No.1 9,600 60,272 By Normal wastage 576 –
” Materials 23,500 (6% of 9,600)
” Labour 4,280 ” Process No.3 9,300 1,00,845
” Overhead 9,800 (cost per unit ` 10.84)
” Abnormal gain 276 2,993
(cost per unit ` 10.84)
9,876 1,00,845 9,876 1,00,845
Note : The cost per unit is obtained by dividing ` 97,852 by 9,024 units,
i.e., 9,600 units less 576 units.

314
 Process- III Account
Units ` Units `
To Process No. 2 9,300 1,00,845 By Normal wastage 651

” Materials 11,200 ” Abnormal wastage 649 9,706

” Labour 1,200 (Cost per unit ` 14.95)

” Overhead 16,100 ” Finished Stock 8,000 1,19,639
_____ _______ _____ _______

9,300 1,29,345 9,300 1,29,345

Note : The calculation of the cost of abnormal wastage :

Normal Output = 9,300 units – 651 units = 8,649 units.
Cost per unit of normal output = ` 1,29,345 ÷ 8,649 = ` 14.95
Cost of 649 units is = ` 9706
(b) Treatment of normal and abnormal loss of material arising during storage
in Cost Accounts.
The difference between the book balance and actual physical stock,
which may either be gain or loss, should be transferred to Inventory
Adjustment Account pending scrutiny to ascertain the reason for the
difference.
If on scrutiny, the difference arrived at is considered as normal, then
such a difference should be transferred to overhead control account and
if abnormal, it should be debited to costing profit and loss account.
In the case of normal losses, an alternative method may be used. Under
this method the price of the material issued to production may be inflated
so as to cover the normal loss.
6. (a) Difference between Cost Accounting and Management Accounting
Basis Cost Accounting Management Accounting
(i) Nature It records the It records both qualitative
quantitative aspect and quantitative aspect.
only.
(ii) Objective It records the cost of It Provides information to
producing a product management for planning
and providing a and co-ordination.
service.
(iii) Area It only deals with cost It is wider in scope as it
Ascertainment. includes financial
accounting, budgeting,
taxation, planning etc.
(iv) Recording of It uses both past and It is focused with the
data present figures. projection of figures for
future.

315
 (v) Development Its development is It develops in accordance
related to industrial to the need of modern
revolution. business world.
(vi) Rules and It follows certain It does not follow any
Regulation principles and specific rules and
procedures for regulations.
recording costs of
different products.
(b) CVP Analysis:-Assumptions
(i) Changes in the levels of revenues and costs arise only because of
changes in the number of products (or service) units produced and
sold.
(ii) Total cost can be separated into two components: Fixed and
variable
(iii) Graphically, the behaviour of total revenues and total cost are linear
in relation to output level within a relevant range.
(iv) Selling price, variable cost per unit and total fixed costs are known
and constant.
(v) All revenues and costs can be added, sub traded and compared
without taking into account the time value of money.
(c) Difference between Fixed and Flexible Budgets
Fixed Budget Flexible Budget
1. It does not change with actual It can be re-casted on the
volume of activity achieved. basis of activity level to be
Thus it is rigid achieved. Thus it is not rigid.
2. It operates on one level of It consists of various budgets
activity and under one set of for different level of activity.
conditions
3. If the budgeted and actual It facilitates the cost
activity levels differ significantly, ascertainment and price
then cost ascertainment and fixation at different levels of
price fixation do not give a activity.
correct picture.
4. Comparisons of actual and It provided meaningful basis
budgeted targets are of comparison of actual and
meaningless particularly when budgeted targets.
there is difference between two
levels.
OR
(d) Job Costing: It is a method of costing which is used when the work is
undertaken as per the customer’s special requirement. When an inquiry
is received from the customer, costs expected to be incurred on the job
are estimated and on the basis of this estimate, a price is quoted to the
316
customer. Actual cost of materials, labour and overheads are
accumulated and on the completion of job, these actual costs are
compared with the quoted price and thus the profit or loss on it is
determined.
Job costing is applicable in printing press, hardware, ship-building,
heavy machinery, foundry, general engineering works, machine tools,
interior decoration, repairs and other similar work.
Batch Costing: It is a variant of job costing. Under batch costing, a lot of
similar units which comprises the batch may be used as a unit for
ascertaining cost. In the case of batch costing separate cost sheets are
maintained for each batch of products by assigning a batch number. Cost
per unit in a batch is ascertained by dividing the total cost of a batch by
the number of units produced in that batch.
Such a method of costing is used in the case of pharmaceutical or drug
industries, readymade garment industries, industries, manufacturing
electronic parts of T.V. radio sets etc.

317
 ANSWER OF MODEL TEST PAPER 4
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
PART I – Case Scenario based MCQs
1. c. 40,000 units.
Projected Sales of Product P – 24,000 units
Less: Opening stock of Product P- (4,000 units)
Product P to be produced- 20,000 units
Raw Material required- 50,000 units (20,000 x 2/80% yield)
Opening stock of Material R available- 10,000 units
Material to be procured - 40,000 units.
2. a. Order Quantity as per the current inventory policy – 10,000 units
and EOQ – 1,000 units
Annual requirement - Procurement- 40,000 units
Order Quantity as per the current inventory policy (Quarterly) - 10,000 units
Ordering Cost- `125 per order
Carrying Cost- ` 10 per unit p.a.
EOQ - 1,000 units.
3. b. Savings from EOQ as Compared to current discount policy –
` 20,500
Associated Costs under EOQ:
Ordering Costs = No. of orders x Ordering cost per order
No of orders = Annual Requirement/ EOQ (or) current order quantity
Hence No of orders = 40
Therefore Ordering Cost = 40 x 125 = ` 5,000.
Carrying cost = Average Inventory x Carrying cost per unit per annum
Average Inventory = (EOQ/ current order quantity)/2
= 1,000/2 = 500
Carrying cost = 500 x 10 = ` 5,000
Associated Costs under EOQ = Ordering cost + Carrying Cost
= ` 10,000 ---------------- A
Associated Costs under current inventory policy:
No of orders = 4 (Quarterly)

318
 Ordering cost = 4 x 125 = ` 500
Average inventory = 10,000/2 = 5,000
Carrying cost = 5,000x10 = 50,000
Associated Costs = 50,000+500 = 50,500
Less: Discount = 20,000
Net cost = 30,500. -------------- B
Incremental Cost = B – A = 20,500
4. b. ` 6,400
Time taken under the Overtime regime 180 Hours + 20 Hours overtime
= 200 Hours
Time to be taken under the Incentive regime
Units to be produced = 20,000 units
Units produced per hour under incentive scheme = 125 units
Time taken = 160 Hours
Time saved = 200 – 160 = 40 hours.
Incentive under Rowan scheme = (Time saved/Time allowed) x time
taken x Rate
= (40/200) x 160x200 = ` 6,400.
5. b. ` 5,600
Cost under the Overtime scheme:
Base wage = 200 x 200 = 40,000
OT Premium = 20 x 200 = 4,000
Total Wages under Overtime scheme = 44,000
Cost under Incentive scheme:
Base Wage = 160 hours x 200 = 32,000
Incentive = 6,400
Total wages paid = 38,400
Savings in Incentive scheme over Overtime scheme = ` 5,600.
6. a ` 550
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per
Unit
= Variable Cost per unit = ` 500*+ ` 300**+ ` 100+ ` 50
Contribution Margin per Unit = ` 1,500 - ` 950 = ` 550

319
 *Raw Material Cost Calculation
Let the cost of Plastic be x
1. The cost of Copper is ` 80 more than the cost of Plastic: Cost of
Copper = x + 80
2. The cost of Other Materials is twice that of Plastic: Cost of Other
Materials = 2x
3. The total Raw Material Cost per unit is ` 210 more than the
combined cost of Copper & Plastic: x + (x+80) + 2x = (x + (x+80)) +
210
Solving for X = 105
Now, calculate the total cost of Raw Materials:
105 + (105+80) +210 = 500
So, the total cost of Raw Materials is ` 500.
** Labour Cost Calculation
1. The Labour Hour Rate is ` 100 per hour.
2. The total labour hours used in the last month were 36,000 hours.
3. The production units last month were 12,000 units (10000 normal
units plus 2000 special order).
Total Labour Cost = Labour Hour Rate × Total Labour Hours
Total Labour Cost= ` 100 /hour × 36,000 hours = ` 3,600,000
Per Unit Labour Cost = Total Labour Cost/Production Units
Per Unit Labour Cost = ` 3,600,000/12000
Per Unit Labour Cost = ` 300
So, the per unit labour cost is ` 300.
7. c ` 27,27,025
- Break-even Point (Sales Revenue) = Total Fixed Costs /
Contribution Margin Ratio
- Contribution Margin Ratio = Contribution Margin per Unit / Selling
Price per Unit
- = ` 550 / ` 1,500 = 0.3667
- Break-even Point = ` 10,00,000 / 0.3667 ≈ ` 27,27,025
8. b 2,727 units
- Required Sales Volume (Units) = (Total Fixed Costs + Target Profit)
/ Contribution Margin per Unit
- = (` 10,00,000 + ` 5,00,000) / ` 550 ≈ 2,727.27 units ≈ 2,727 units

320
 (rounded up)
9. b 2,198 units
- New Variable Cost per Unit = ` 950 + 10% of ` 950 = ` 950 + ` 95
= ` 1,045
- New Contribution Margin per Unit = ` 1,500 - ` 1,045 = ` 455
- New Break-even Point (Units) = Total Fixed Costs / New
Contribution Margin per Unit
- = ` 10,00,000 / ` 455 ≈ 2198 units
10. c 45.05%
- Margin of Safety (Units) = Actual Sales - Break-even Sales
- = 4,000 - 2198 = 1,802 units
- Margin of Safety (%) = (Margin of Safety in Units / Actual Sales in
Units) * 100
- = (1,802 / 4,000) * 100 ≈ 45.05%
11. d 9,129 units
Annual demand (D) = 50,000 units
Setup cost per batch (S) = ` 10,000
Carrying cost per unit per month (C) = ` 1

2×D×S
EBQ = √
C

= 9,129 units
12. a ` 3000(A)
Standard quantity = Standard quantity per sofa × Actual production
= 5 sq. ft x 1000 = 5,000 sq. ft.
Standard material cost = Standard quantity× Standard price per sq. ft.
= 5,000 sq. ft.×` 10/sq. ft.= ` 50,000
Actual material cost = Actual quantity used × Actual purchase price per
sq. ft.
= 5,300 sq. ft.×` 10/sq. ft.= ` 53,000
Material cost variance = Standard material cost−Actual Material cost
= ` 50,000−` 53,000 = −` 3,000
13. b ` 100 per part type
Activity rate = budgeted overhead/budgeted activity level

321
 = 4,00,000/4,000
= ` 100 per part type
14. a 52,000
Ton-kilometers = 10 tons x 200 kilometers x 26 days
= 52,000
15. b 83.33%
Standard Hours
Activity Ratio = ×100
Budgeted Hours

= 83.33%
PART-II Descriptive Questions
1. (a) Calculation of Cost of Production of Meta Ltd for the period…..
Particulars Amount (`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & 9,80,500
machinery
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory 9,00,000
and production
1,07,43,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Add: Expenses paid for pollution control and 22,000
engineering & maintenance
Cost of Production 1,05,70,000

322
 Notes:
(i) Other administrative overhead does not form part of cost of
production.
(ii) Salary paid to Director (Technical) is an administrative cost.
(b) Memorandum Reconciliation Accounts
Dr. Cr.
Particulars Amount Particulars Amount
(` ) (` )
To Net Loss as per 48,700 By Administration 65,000
Cost Accounts overheads over
recovered in Cost
Accounts
To Factory overheads 30,500 By Depreciation 45,000
under absorbed in Cost overcharged in Cost
Accounts Accounts
(` 2,70,000 –` 2,25,000)
To Provision for Income 52,400 By Transfer fees in 10,200
tax Financial Accounts
To Obsolescence loss 20,700 By Notional Rent of 49,000
own premises
To Overvaluation of 9,500 By Overvaluation of 23,000
closing stock in Cost Opening stock in Cost
Accounts** Accounts*
To Net Profit (as per 30,400
Financial Accounts)
1,92,200 1,92,200

* Overvaluation of Opening Stock as per Cost Accounts

= Value in Cost Accounts – Value in Financial Accounts
= ` 1,38,000 – ` 1,15,000 = ` 23,000.
** Overvaluation of Closing Stock as per Cost Accounts
= Value in Cost Accounts – Value in Financial Accounts
= ` 1,22,000 – ` 1,12,500 = ` 9,500.
(c) Calculation of:
(i) Time saved and wages:
Workmen A B
Standard time (hrs.) 40 40

323
 Actual time taken (hrs.) 32 30
Time saved (hrs.) 08 10
Wages paid @ ` x per hr. (`) 32x 30x
(ii) Bonus Plan:
Halsey Rowan
Time saved (hrs.) 8 10
Bonus (`) 4x 7.5x
 8 hrs  ` x   10 hrs 
 2   40 hrs  30hrs  ` x
   
(iii) Total wages:
Workman A: 32x + 4x = ` 36x
Workman B: 30x + 7.5x = ` 37.5x
Statement of factory cost of the job
Workmen A B
` `
Material cost (assumed) y y
Wages (shown above) 36x 37.5x
Works overhead 240 225
Factory cost (given) 2,200 2,200

The above relations can be written as follows:

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

324
2. (a) Statement of Equivalent Production
Input Units Output Units Equivalent Production
Details Particulars Material Labour Overhead
% Units % Units % Units
Unit 45,000 Finished 42,000 100 42,000 100 42,000 100 42,000
Introduced output
Normal loss 900 - - - - - -
(2% of
45,000)
Abnormal loss 300 100 300 80 240 60 180
Closing W-I-P 1,800 100 1,800 50 900 40 720
45,000 45,000 44,100 43,140 42,900

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

325
 Process – P A/c
Particulars Units Amount Particulars Units Amount
(`) (`)
To Input 45,000 4,50,000 By Normal 900 4,500
loss
To Direct - 65,500 By Abnormal 300 4,740
Material loss
To Labour - 90,800 By Finished 42,000 7,51,976
goods
To Overhead 1,80,700 By Closing 1,800 25,784
W-I-P
45,000 7,87,000 45,000 7,87,000
Abnormal Loss A/c
Particulars Units Amount Particulars Units Amount
(`) (`)
To Process-B 300 4,740 By Cost ledger 300 600
A/c control A/c or Bank
A/c
By Costing Profit & - 4,140
loss A/c
300 4,740 300 4,740
(b) Treatment is as follows:
(i) Credit for Recoveries: The realised or realisable value of scrap or
waste is deducted as it reduces the cost of production.
(ii) Packing Cost (primary): Packing material which is essential to hold
and preserve the product for its use by the customer is added in the
factory cost.
(iii) Joint Products and By-Products: Joint costs are allocated
between/among the products on a rational and consistent basis. In
case of by-products, the net realisable value of by-products is
deducted from the cost of production.
(iv) Quality Control Cost: It is added in the factory cost as this is the cost
of resources consumed towards quality control procedures.
3. (a) (i) Statement showing allocation of Joint Cost
Particulars AB PQ
No. of units Produced 1,800 3,000
Selling Price Per unit (`) 40 30
Sales Value (`) 72,000 90,000

326
 Less: Estimated Profit (AB -20% & PQ - (14,400) (27,000)
30%)
Cost of Sales 57,600 63,000
Less: Estimated Selling Expenses (10,800) (13,500)
(AB -15% & PQ -15%)
Cost of Production 46,800 49,500
Less: Cost after separation (35,000) (24,000)
Joint Cost allocated 11,800 25,500
(ii) Statement of Profitability
Particulars MA (`) AB (`) PQ (`)
Sales Value (A) 4,00,000 72,000 90,000
(4,000x ` 100)
Less:- Joint Cost 1,75,100 11,800 25,500
(2,12,400 -11,800
- 25,500)
Cost after separation - 35,000 24,000
Selling Expenses 1,20,000 10,800 13,500
(MA- 30%, AB-15% &
PQ-15%)
(B) 2,95,100 57,600 63,000
Profit (A –B) 1,04,900 14,400 27,000
Overall Profit = 1,04,900 + 14,400 + 27,000 = ` 1,46,300
(b) Operating Cost Statement
Particulars Total Cost Per
annum (`)
A. Fixed Charges:
Insurance 15,600
Garage rent (` 2,400 × 4 quarters) 9,600
Road Tax 5,000
Salary of operating staff (` 7,200 × 12 months) 86,400
Depreciation 68,000
Total (A) 1,84,600
B. Variable Charges:
Repairs (` 4,800 × 4 quarters) 19,200
Tyres and Tubes (` 3,600 × 4 quarters) 14,400
Diesel {(1,80,000 km. ÷ 5 km.) × ` 13} 4,68,000
Oil and Sundries {(1,80,000 km. ÷ 100 km.) × 39,600
` 22}

327
 Total (B) 5,41,200
Total Operating Cost (A+B) 7,25,800
Add: Passenger tax (Refer to WN-1) 3,01,275
Add: Profit (Refer to WN-1) 3,42,359
Total takings 13,69,434
Calculation of Cost per passenger kilometre and one way fare per
passenger:
TotalOperatingCost
Cost per Passenger-Km. =
TotalPassenger -Km.
` 7,25,800
= = ` 0.18
40,32,000Passenger − Km.
TotalTakings
One way fare per passenger =  30Km.
TotalPassenger − Km.

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

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

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

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

328
 (iii) Chemical solution cost per annum = ` 20 × 50 weeks = ` 1,000
` 120×50 weeks
(iv) Wages of attendants (per annum) = = ` 1,000
6 machines

Calculation of Machine hour rate

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

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

(v) Chemical solution 1,000 0.50

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

329
 (iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
9,000
= ` 50 ( ×8hours – 7,000 hrs.)
10
= ` 50 (7,200 hrs. – 7,000 hrs.)
= ` 10,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 7,000 hrs. (` 50 – ` 52)
= ` 14,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (7,200 hrs. × ` 50) – (7,000 hrs. × ` 52)
= ` 3,60,000 – ` 3,64,000
= ` 4,000 (Adverse)
(vii) Variable Overhead Cost Variance = Std. Overhead for Actual
Production – Actual Variable Overhead Cost
= (7,200 hrs. × ` 10) – ` 72,500
= ` 500 (Adverse)
(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead –
Actual Fixed Overhead
` 200
= ×9,000kgs.- ` 1,92,000
10 kgs.
= ` 1,80,000 – ` 1,92,000
= ` 12,000 (Adverse)
5. (a) Number of days in budget period = 4 weeks × 5 days = 20 days
Number of units to be produced
Product-A Product-B
(units) (units)
Budgeted Sales 2,400 3,600
Add: Closing stock
 2,400units   3,600units  480 900
 × 4days   × 5days 
 20days   20days 

Less: Opening stock 400 200

Production (units) 2,480 4,300

330
(i) Material Purchase Budget
Material-X (Kg.) Material-Y (Kg.)
Material required:
Product-A 12,400 9,920
(2,480 units × 5 kg.) (2,480 units × 4 kg.)
Product-B 12,900 25,800
(4,300 units × 3 kg.) (4,300 units × 6 kg.)
25,300 35,720
Add: Closing stock
 25,300kgs. 
 
 20days × 10days  12,650 10,716
 
 35,720kgs. 
 × 6days 
 20days 
Less: Opening stock 1,000 500
Quantity to be purchased 36,950 45,936
Rate per kg. of Material `4 `6
Total Cost ` 1,47,800 ` 2,75,616
(ii) Wages Budget
Product-A (Hours) Product-B (Hours)
Units to be produced 2,480 units 4,300 units
Standard hours allowed per
3 5
unit
Total Standard Hours
7,440 21,500
allowed
Productive hours required 7,440hours
=9,300
21,500hours
=26,875
for production 80% 80%

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

time (20% of 9,300 (20% of 26,875
hours) hours)
Hours to be paid 11,160 32,250
Total Hours to be paid = 43,410 hours (11,160 + 32,250)
Hours to be paid at normal = 4 weeks × 40 hours × 180 workers
rate = 28,800 hours
Hours to be paid at = 43,410 hours – 28,800 hours = 14,610
premium rate hours
Total wages to be paid = 28,800 hours × ` 25 + 14,610 hours ×
` 37.5
= ` 7,20,000 + ` 5,47,875
= ` 12,67,875

331
(b) a.
1. Estimation of cost-driver rate
Activity Overhead cost Cost driver Cost driver rate
(`) (`)
Packaging 1,50,00,000 950 Packaging 15,789.47
hours
Fridge 2,10,00,000 1,900 Fridge 11,052.63
hours

2. Overhead cost for chocolate ice cream

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

3. Operating profit for chocolate ice cream

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

b. Overhead per direct hour

= Total Overhead / Total Direct Labour Hours
= ` 3,60,00,000 / 24,000 hours
= ` 1,500 per direct labour hour
Since it takes 10 direct labour hour per 1,000 Chocolate ice cream,
the overhead is ` 15,000
Particulars Amount (`)
Revenue (1,000 x ` 75) 75,000.00
Less: Direct Material (1,000 x ` 15) 15,000.00
Less: Direct Labour (10,000 x ` 2) 20,000.00
Less: Overhead 15,000
Operating Profit 25,000

332
6. (a) The various types of responsibility centres are as follows:
(i) Cost Centres: The responsibility centre which is held accountable
for incurrence of costs which are under its control. The performance
of this responsibility centre is measured against pre-determined
standards or budgets. The cost centres are of two types:
(a) Standard Cost Centre and (b) Discretionary Cost Centre
(a) Standard Cost Centre: Cost Centre where output is
measurable and input required for the output can be specified.
Based on a well-established study, an estimate of standard
units of input to produce a unit of output is set. The actual cost
for inputs is compared with the standard cost. Any deviation
(variance) in cost is measured and analysed into controllable
and uncontrollable cost. The manager of the cost centre is
expected to comply with the standard and held responsible for
adverse cost variances. The input-output ratio for a standard
cost centre is clearly identifiable.
(b) Discretionary Cost Centre: The cost centre whose output
cannot be measured in financial terms, thus input-output ratio
cannot be defined. The cost of input is compared with
allocated budget for the activity. Examples of discretionary
cost centres are Research & Development department,
Advertisement department where output of these department
cannot be measured with certainty and co-related with cost
incurred on inputs.
(ii) Revenue Centres: The responsibility centres which are
accountable for generation of revenue for the entity. Sales
Department for example, is responsible for achievement of sales
target and revenue generation. Though, revenue centres do not
have control on expenditures it incurs but sometimes expenditures
related with selling activities like commission to sales person etc.
are incurred by revenue centres.
(iii) Profit Centres: These are the responsibility centres which have
both responsibility of generation of revenue and incurrence of
expenditures. Since, managers of profit centres are accountable for
both costs as well as revenue, profitability is the basis for
measurement of performance of these responsibility centres.
Examples of profit centres are decentralised branches of an
organisation.
(iv) Investment Centres: These are the responsibility centres which
are not only responsible for profitability but also have the authority

333
 to make capital investment decisions. The performance of these
responsibility centres are measured on the basis of Return on
Investment (ROI) besides profit. Examples of investment centres
are Maharatna, Navratna and Miniratna companies of Public Sector
Undertakings of Central Government.
(b) Efficiency is usually related with performance and may be computed by
comparing the time taken with the standard time allotted to perform the
given job/task.
If the time taken by a worker on a job equals or less than the
standard time, then he is rated efficient.
In case he takes more time than the standard time he is rated as
inefficient.
Time allowed as per standard
Efficiency in % = ×100
Time Taken
For efficiency rating of employees the following procedures may be
followed:
1. Determining standard time/performance standards: The first
step is to determine the standard time taken by a worker for
performing a particular job/task. The standard time can be
determined by using Time & Motion study or Work study
techniques. While determining the standard time for a job/task a
heterogeneous group of workers is taken and contingency
allowances are added for determining standard time.
2. Measuring Actual Performance of workers: For computing
efficiency rating it is necessary to develop a procedure for recording
the actual performance of workers. The system developed should
record the output of each worker along with the time taken by him.
3. Computation of efficiency rating: The efficiency rating of each
worker can be computed by using the above mentioned Formula.
(c) The essential pre-requisites for integrated accounts include the following
steps:
1. The management’s decision about the extent of integration of the
two sets of books. Some concerns find it useful to integrate up to
the stage of prime cost or factory cost while other prefers full
integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve
the accounting purposes of financial and cost accounts.
3. An agreed routine, with regard to the treatment of provision for
accruals, prepaid expenses, other adjustment necessary for
preparation of interim accounts.

334
 4. Perfect coordination should exist between the staff responsible for
the financial and cost aspects of the accounts and an efficient
processing of accounting documents should be ensured.
Under this system there is no need for a separate cost ledger. Of
course, there will be a number of subsidiary ledgers; in addition to
the useful Customers’ Ledger and the Purchase Ledger, there will
be: (a) Stores Ledger; (b) Stock Ledger and (c) Job Ledger.
(d) After identification of the costs and benefits, it is now required to be
quantified i.e., the cost and benefit should be measured and estimated.
The estimation is done by following the two principles as discusses
below:
(i) Variability: Variability means by how much a cost or benefit
increased or decreased due to the choice of the option. Variable
costs are the cost which differs under the different volume or
activities. On the other hand, fixed costs remain same irrespective
of volume and activities.
(ii) Traceability: Traceability of cost means degree of relationship
between the cost and the choice of the option. Direct costs are
directly assigned to the option on the other hand indirect costs
needs to be apportioned to the option on some reasonable basis.

335
 MODEL TEST PAPER 5

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

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

Normal loss of 960 units 640 units

8%
Good units after 11,040 units 7,360 units
normal loss
Per unit cost to 56 93.23
be absorbed in (6,18,336.36/11,040) (6,86,163.63/7,360)

337
 good units (total
costs/no of good
units after
normal loss)
Abnormal loss in 120 units 80 units
units 1%
Loss in Profit & 56 x 120 = 6,720 93.23 x 80= 7,458.4 14,178.4
Loss

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

WN-1: Standard Quantity (SQ):

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

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

338
  6,000m 
Polyester -  14,000m ×15,500m  = 6,642.8 or 6643 m
 
9. (b) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH ×
SR)}
= {61,496 – 63,920}
= 2,424 (A)
Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH ×
SR)}
= {61,496 – 63,052}
= 1,556 (A)
10. (a) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH ×
AR)}
= {61,496 – 62,380}
= 884 (A)
Working Note
Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN-3) (`) (`) (WN-4) (`) (`) (`) (`)
Skilled 1,116 hrs 37.50 41,850 1144 42,900 1,200 45,000 35.50 42,600
Unskilled 893 hrs 22.00 19,646 916 20,152 860 18,920 23.00 19,780
2,009 hrs 61,496 2,060 63,052 2,060 63,920 62,380

WN- 3: Standard Hours (SH):

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

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

339
12. (d) Expected Output = Input Material−Normal Loss
Expected Output = 1,200 Kg−96 Kg=1,104 kg
Abnormal loss = 1,104 kg – 1,100 kg = 4 kg
13. (b) Overhead Rate = Total Estimated Machine Hours/Total Estimated
Overhead Cost
= ` 6,00,000/30,000 = ` 20
Allocated Overhead = Overhead Rate x Machine Hours Used by the Job
= ` 20 x 300 hrs = ` 6,000
14. (c) Efficiency Ratio = Activity Ratio/Capacity Utilization Ratio
= 0.95/0.85 = 1.117 or 112%
15. (b) Total cost ` 20,000 + (300 units × (` 20 + `10)) = ` 29,000
PART-II– Descriptive Questions
1. (a) Increase in hourly rate of wages under Rowan Plan is ` 30 i.e.
(`180 – ` 150)
Time Saved
× ` 150 = `30 (Please refer Working Note)
Time Allowed

Time Saved
Or, × ` 150 = ` 30
50hours

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

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

Time Taken×Rate per hour Time Taken 1

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

340
 Time Saved
Or, ` 180 – ` 150 = × ` 150
Time Allowed

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

341
 (c) (i) Calculation of most Economical Production Run
2 × 60,000 × ` 4,800
= = 2,000 Vaccine
12 ×12

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

a batch
When run size is When run size is
2,000 vaccines 15,000 vaccines
Total set up cost = 60,000 × ` 4,800 = 60,000 × ` 4,800
2,000 15,000
= ` 1,44,000 = ` 19,200
Total Carrying ½ × 2,000 × ` 144 ½ × 15,000 × ` 144
cost = ` 1,44,000 = ` 10,80,000
Total Cost ` 2,88,000 ` 10,99,200
Thus, extra cost = ` 10,99,200 – ` 2,88,000 = ` 8,11,200
2. (a) (i) Statement of Equivalent Production
Particulars Input Particulars Output Equivalent Production
Units Units
Material Labour &
O.H.
% Units % Units
Opening 31,000 Completed and 5,42,500 100 5,42,500 100 5,42,500
WIP transferred to Process
(Soldering)
Units 5,89,000 Normal Loss (5% of 31,000 -- -- -- --
introduced 6,20,000)
Abnormal loss 15,500 100 15,500 80 12,400
(Balancing figure)
Closing WIP 31,000 100 31,000 80 24,800
6,20,000 6,20,000 5,89,000 5,79,700

Statement showing cost for each element

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

342
 (ii) Statement of Distribution of cost
Amount (`) Amount (`)
1. Value of units completed and 4,34,00,000
transferred
(5,42,500 units × ` 80)
2. Value of Abnormal Loss:
- Materials (15,500 units × ` 40) 6,20,000
- Labour (12,400 units × ` 10) 1,24,000
- Overheads (12,400 units × 3,72,000 11,16,000
` 30)
3. Value of Closing W-I-P:
- Materials (31,000 units × ` 40) 12,40,000
- Labour (24,800 units × ` 10) 2,48,000
- Overheads (24,800 units × 7,44,000 22,32,000
` 30)
Total 4,67,48,000
(iii) Process Account (Mounting)
Particulars Units (`) Particulars Units (`)
To Opening W.I.P: By Normal Loss 31,000 6,20,000
(` 20 × 31,000 units)
- Materials 31,000 12,40,000 By Abnormal 15,500 11,16,000
loss
- Labour -- 2,32,500 By Process A/c 5,42,500 4,34,00,000
(Soldering)
- Overheads -- 6,97,500 By Closing WIP 31,000 22,32,000
To Materials 5,89,000 2,29,40,000
introduced
To Direct Labour 55,64,500
To Overheads 1,66,93,500
6,20,000 4,73,68,000 6,20,000 4,73,68,000

(iv) Normal Loss A/c

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

343
 By Costing Profit & 8,06,000
Loss A/c
15,500 11,16,000 15,500 11,16,000

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

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

344
 2. Labour Cost per tonne in Year II `13
 `18,72,000 
 1,44,000tonnes 
 
3. Variable portion of Factory, Administration and Sell.
Expenditure, etc `
Total in Year II 1,12,32,000
Less: Increase otherwise than on account of 8,10,000
increased turnover
1,04,22,000
Less: Amount Spent in Year I 97,02,000
Increase 7,20,000
Increase in Quantity Sold 18,000
tonnes
Variable Expenses per tonne `40
 `7,20,000 
 18,000tonnes 
 
4. Fixed portion of Factory, Administration and Selling `1,12,32,000
Expenses (Yr. 2)
Variable Expenses @ ` 40 per tonne `57,60,000
Fixed Portion `54,72,000
(b) Cost Sheet
Particulars Units Amount (`)
Material
Opening stock 10,000 5,00,00,000
Add: Purchases 4,90,000 25,20,00,000
Less: Closing stock (17,500) (85,00,000)
4,82,500 29,35,00,000
Less: Normal wastage of materials realized (2,000) (7,00,000)
@ ` 350 per unit
Material consumed 29,28,00,000
Direct employee's wages and allowances 5,50,50,000
Direct expenses- Royalty paid for production 3,10,50,000
Prime cost 4,80,500 37,89,00,000
Factory overheads - Consumable stores,
3,42,00,000
depreciation etc.
Rearrangement design of factory machine 75,00,000
Gross Works Cost 4,80,500 38,64,00,000
Add: Opening WIP 20,000 1,20,00,000
Less: Closing WIP (10,000) (60,50,000)

345
Factory/Works Cost 4,90,500 39,23,50,000
Administration Overheads related to 3,45,00,000
production
R&D expenses and Quality control cost 1,90,00,000
AMC cost of CCTV installed at factory 6,00,000
premises
Guard Salaries for factory premises 14,00,000
Product Inspection 22,00,000
Add: Primary packaging cost @ ` 140 per 6,86,70,000
unit
Cost of production 4,90,500 51,87,20,000
Administration Overheads
Guard salaries for office 4,00,000
Audit and legal fees 29,00,000
Director’s Salaries 60,00,000
EPF Director’s Salaries @12% 7,20,000
AMC cost for CCTV installed at office. 2,00,000
Selling and Distribution Overheads
Cost of maintaining website for online sale 60,75,000
Secondary packaging cost @ ` 20 per unit 4,90,500 98,10,000
Gift and snacks 30,50,000
Guard salaries for selling department 2,00,000
AMC cost for CCTV installed at selling 2,00,000
department
Hiring charges of cars 25,00,000
Add: GST @5% on RCM basis 1,25,000
Television programme sponsorship cost 20,00,000
Customers’ prize cost* 2,00,000
Selling expenses 3,94,50,000
Cost of sales 58,64,75,000
Add: Profit @ 25% on sales or 33.333% of 19,54,89,712
cost
Sales value 78,19,64,712
*Customers’ prize cost:
Amount (`)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000

346
 Consolation Prizes (3 × `10,000) 30,000
Total 2,00,000
*Customers’ prize cost:
Amount (`)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000
Consolation Prizes (3 × `10,000) 30,000
Total 2,00,000
4. Computation of overhead absorption rate
(as per the blanket rate)
Department Budgeted factory Budgeted direct
Overheads (`) wages (`)
Operating 35,64,000 7,92,000
Assembly 9,66,000 24,15,000
Quality Control 4,20,000 10,50,000
Packing 12,37,500 6,93,000
Total 61,87,500 49,50,000
Budgeted factory Overheads
Overhead absorption rate = x 100
Budgeted direct wages
61,87,500
= x 100
49,50,000
= 125% of Direct wages
Selling Price of the Job No. 157
Particulars Operating Assembly Quality Packing Total
Control
(`) (`) (`) (`) (`)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost of
495 495
normal defectives
Overheads
8,786.25
[(125% x (6,534 + 495)]
Total Factory Cost 36,605.25
Add: Mark-up (25% x
9,151.31
` 36,605.25)
Selling Price 45,756.56

347
(b) As the machinery is used to a varying degree in different departments,
the use of departmental rates is to be preferred. The overhead recovery
rates in different departments would be as follows:
(i) Operating Department: The use of machine hours is the
predominant factor of production in Operating Department.
Hence, machine hour rate should be used to recover overheads.
The overhead recovery rate based on machine hours would be
calculated as follows:
Budgeted factory Overheads
Machine hour rate =
Budgeted machine hours
` 35,64,000
= = ` 4.50 per hour
7,92,000
(ii) Assembly Department: Direct labour hours is the main factor of
production in Assembly Department. Hence, direct labour hour
rate should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 9,66,000
= = ` 1.40 per hour
6,90,000
(iii) Quality Control Department: Direct labour hours is the main
factor of production in Quality Control Department. Hence, direct
labour hour rate should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 4,20,000
= = ` 1.40 per hour
3,00,000
(iv) Packing Department: Direct labour hours is the main factor of
production in Packing Department. Hence, direct labour hour rate
should be used to recover overheads.
The overhead recovery rate based on direct labour hours would
be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate =
Budgeted direct labour hours
` 12,37,500
= = ` 2.50 per hour
4,95,000

348
(c) Selling Price of Job No. 157
[based on the overhead rates calculated in (b) above]
Particulars Operating Assembly Quality Packing Total
(`) (`) Control (`) (`)
(`)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost
of normal 495 495
defectives
Overheads
(refer working 10,672
note)
Total Factory
38,491
Cost
Add: Mark-up
9,622.75
(25% x ` 38,491)
Selling Price 48,113.75

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

349
 (ii) As per the method suggested
Machine Direct labour Direct labour Direct Total (`)
hours hours hours (Quality labour hours
(Operating) (Assembly) Control) (Packing)
Hours worked 9,50,400 6,21,000 2,70,000 5,94,000
Rate/hour (`) 4.50 1.40 1.40 2.50
Overhead 70,09,200
42,76,800 8,69,400 3,78,000 14,85,000
recovered (`): (A)
Actual overheads 38,61,000 5,79,600 2,52,000 13,36,500 60,29,100
(`): (B)
(Under)/Over
4,15,800 2,89,800 1,26,000 1,48,500 9,80,100
recovery: (A−B)

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

(for the year ended March 31, 2024)
(`) (`)
To Opening stock of
48,250 By Sales 13,96,500
Finished Goods
By Closing stock of
To Work-in-process 38,000 44,500
finished Goods
To Raw materials
5,00,000 By Work-in-Process 36,200
consumed
To Direct labour 4,20,000 By Interest received 42,000
To Factory overheads 3,56,000 By Loss 3,35,050
To Administration
2,10,000
overheads
To Selling &
84,000
distribution overheads
To Dividend paid 98,000
To Bad debts 16,000
To Stores adjustment 50,000
To Income tax 34,000
18,54,250 18,54,250
Statement of Profit as per costing records
(for the year ended March 31,2024)
(`)
Sales revenue (A)
13,96,500
(14,250 units)
Cost of sales:
Opening stock
49,050
(545 units x ` 90)
Add: Cost of production of 14,165 units
14,08,560
(Refer to working note 2)

350
Less: Closing stock
45,742
(` 99.44 x 460 units)
Production cost of goods sold (14,250 units) 14,11,868
Selling & distribution overheads
(14,250 units x ` 6) 85,500
Cost of sales: (B) 14,97,368
Profit/Loss: {(A) – (B)} (1,00,868)
(ii) Statement of Reconciliation
(Reconciling the profit as per costing records with the profit
as per financial records)
(`) (`)
Loss as per Cost Accounts (1,00,868)
Add: Administration overheads over absorbed 24,760
(` 2,34,760 – ` 2,10,000)
Opening stock overvalued 800
(` 49,050 – ` 48,250)
Interest received 42,000
Selling & distribution overheads over recovered 1,500 69,060
(` 85,500 – ` 84,000)
(31,808)
Less: Factory overheads over recovered 1,04,000
(` 3,56,000 - `2,52,000)
Closing stock overvalued 1,242
(` 45,742 – ` 44,500)
Stores adjustment 50,000
Income tax 34,000
Dividend 98,000
Bad debts 16,000 (3,03,242)
Loss as per financial accounts (3,35,050)
Working notes:
1. Number of units produced
Units
Sales 14,250
Add: Closing stock 460
Total 14,710
Less: Opening stock 545
Number of units produced 14,165

351
 2. Cost Sheet
(`)
Raw materials consumed 5,00,000
Direct labour 4,20,000
Prime cost 9,20,000
Factory overheads 2,52,000
(60% of direct wages)
Factory cost 11,72,000
Add: Opening work-in-process 38,000
Less: Closing work-in-process 36,200
Factory cost of goods produced 11,73,800
Administration overheads 2,34,760
(20% of factory cost)
Cost of production of 14,165 units 14,08,560
(Refer to working note 1)
Cost of production per unit: 99.44
` 14,08,560
14,165
(b) PPP Ltd.
Budget for 90% capacity level for the next year
Budgeted production (units) 90,000
Per Unit Amount
(`) (`)
Direct Material (note 2) 22 19,80,000
Direct Labour (note 3) 12 10,80,000
Variable factory overhead (note 4) 2.10 1,89,000
Variable selling overhead (note 5) 4.40 3,96,000
Variable cost 40.50 36,45,000
Fixed factory overhead (note 4) 2,20,000
Fixed selling overhead (note 5) 1,15,000
Administrative overhead (note 6) 1,84,000
Fixed cost 5,19,000
Total cost 41,64,000
Add: Profit 25% on total cost 10,41,000
Sales 52,05,000
Contribution (Sales – Variable cost) 15,60,000

352
Working Notes:
1. At 80% level of capacity (current year), the production is 80,000
units.
Thus, total level of capacity is 1,00,000 units.
Therefore, Year 2 is at 70% capacity and Year 3 is at 60%
capacity as the production is increasing by 10% of its capacity
consistently.
2. Direct Material
(`) (`)
80% Capacity 16,00,000 70% Capacity 14,00,000
70% Capacity 14,00,000 60% Capacity 12,00,000
10% change 2,00,000 10% change in 2,00,000
in capacity capacity
For 10% increase in capacity, the total direct material cost
regularly changes by ` 2,00,000
Thus, Direct material cost (variable) = ` 2,00,000 ÷ 10,000
= ` 20
After 10% increase in price, direct material cost per unit = ` 20 ×
1.10 = ` 22
Direct material cost at 90,000 budgeted units = 90,000 × ` 22
= ` 19,80,000
3. Direct labour:
(`) (`)
80% Capacity 8,00,000 70% Capacity 7,00,000
70% Capacity 7,00,000 60% Capacity 6,00,000
10% change in 1,00,000 10% change in 1,00,000
capacity capacity
For 10% increase in capacity, direct labour cost regularly
changes by ` 1,00,000.
Direct labour cost per unit = ` 1,00,000 ÷ 10,000 = ` 10
After 20% increase in price, direct labour cost per unit = ` 10 ×
1.20 = ` 12
Direct labour for 90,000 units = 90,000 units × ` 12 = ` 10,80,000.
4. Factory overheads are semi-variable overheads:
(`) (`)
80% Capacity 3,60,000 70% Capacity 3,40,000
70% Capacity 3,40,000 60% Capacity 3,20,000
10% change in 20,000 10% change in 20,000
capacity capacity

353
 Variable factory overhead = ` 20,000 ÷ 10,000 units = ` 2
Variable factory overhead for 80,000 units = 80,000 × ` 2
= ` 1,60,000
Fixed factory overhead = ` 3,60,000 – ` 1,60,000 = ` 2,00,000.
Variable factory overhead after 5% increase = ` 2 × 1.05 = ` 2.10
Fixed factory overhead after 10% increase = ` 2,00,000 × 1.10
= ` 2,20,000.
5. Selling overhead is semi-variable overhead:
(`) (`)
80% Capacity 4,20,000 70% Capacity 3,80,000
70% Capacity 3,80,000 60% Capacity 3,40,000
10% change in 40,000 10% change in 40,000
capacity capacity
Variable selling overhead = ` 40,000 ÷ 10,000 units = ` 4
Variable selling overhead for 80,000 units = 80,000 × ` 4
= ` 3,20,000.
Fixed selling overhead = ` 4,20,000 – ` 3,20,000 = ` 1,00,000
Variable selling overhead after 10% increase = ` 4 × 1.10
= ` 4.40
Fixed selling overhead after 15% increase = ` 1,00,000 × 1.15
= ` 1,15,000
6. Administrative overhead is fixed:
After 15% increase = ` 1,60,000 × 1.15 = ` 1,84,000
6. (a) The Practical difficulties with which a Cost Accountant is usually
confronted with while installing a costing system in a manufacturing
company are as follows:
(i) Lack of top management support: Installation of a costing system
does not receive the support of top management. They consider
it as interference in their work. They believe that such, a system
will involve additional paperwork. They also have a
misconception in their minds that the system is meant for keeping
a check on their activities.
(ii) Resistance from cost accounting departmental staff: The staff
resist because of fear of loosing their jobs and importance after
the implementation of the new system.
(iii) Non co-operation from user departments: The foremen,
supervisor and other staff members may not cooperate in
providing requisite data, as this would not only add to their
responsibilities but will also increase paper work of the entire
team as well.

354
 (iv) Shortage of trained staff: Since cost accounting system’s
installation involves specialised work, there may be a shortage
of trained staff.
To overcome these practical difficulties, necessary steps required are:
- Sell the idea to top management and convince them of the utility
of the system.
- Resistance and non co-operation can be overcome by
behavioural approach. To deal with the staff concerned
effectively.
- Proper training should be given to the staff at each level
- Regular meetings should be held with the cost accounting staff,
user departments, staff and top management to clarify their
doubts/ misgivings.
(b) Buttermilk is a by-product of butter and treatment of by-product in cost
accounting is as follows.
(i) When they are of small total value, the amount realized from their
sale may be dealt as follows:
- Sales value of the by-product may be credited to Profit and Loss
Account and no credit be given in Cost Accounting. The credit
to Profit and Loss Account here is treated either as a
miscellaneous income or as additional sales revenue.
- The sale proceeds of the by-product may be treated as
deduction from the total costs. The sales proceeds should be
deducted either from production cost or cost of sales.
(ii) When the by-products are of considerable total value: Where by-
products are of considerable total value, they may be regarded
as joint products rather than as by- products. To determine exact
cost of by-products the costs incurred upto the point of
separation, should be apportioned over by-products and joint
products by using a logical basis.
(iii) When they require further processing: In this case, the net
realisable value of the by-product at the split-off point may be
arrived at by subtracting the further processing cost from
realisable value of by-product. If the value is small, it may be
treated as discussed in (i) above.
(c)
Demerits of Fixed Budget
1. It does not suite a dynamic organization and may give
misleading results. A poor or good performance may remain
un-noticed.
2. It is not suitable for long period.

355
 3. It is also found unsuitable particularly when the business
conditions are changing constantly.
4. Accurate estimates are not possible.

Demerits of Flexible Budget

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

356
 ANSWER OF MODEL TEST PAPER 6

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING

Suggested Answers/ Solution

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

357
 Variable Overhead Efficiency Variance = (14,250 – 14,250) x ` 50 = 0
4. (b) ` 42,500 (A)
Variable Overhead Expenditure Variance = (Standard Rate - Actual
Rate) x Actual Hours Worked
Total Variable Overhead for Actual Hours: (10,000 x ` 50) + (4,250 x
` 60) = ` 5,00,000 + ` 2,55,000 = ` 7,55,000
Variable Overhead Expenditure Variance = (` 50 x 14,250 hours) -
` 7,55,000
= ` 42,500 (Adverse)
5. (b) ` 50,000 (A)
Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads -
Actual Fixed Overheads
= ` 20,00,000 - ` 20,50,000
= ` 50,000 (Adverse)
6. (b) ` 75,47,750
Funds required for foreign order:
Costs Amounts
Direct material per unit 90
Add: Direct labour per unit 60
Add: special services per unit 40
190
Add: packaging per unit (20% x prime cost, 20% x (90 + 60 46
+ 80))
Variable cost per unit 236
Total variable cost (236x30,000) 70,80,000
Add: freight 80,000
Add: professional fees 25,000
Add: custom charges (500kg x 80% x 80 x 6) 1,92,000
73,77,000
Add: shipping ((500x80%/10) x 2,800) 1,12,000
Add: insurance 1,11,000
Funds required 76,00,000
Net amount of interest earned (interest earned in 9.25% and paid is
6.50% for 3 months) = 76,00,000 x (9.25% - 6.50%) x 3/12 = 52,250
So, net cash outflow due to export order = 76,00,000 - 52,250
= 75,47,750

358
7. (a) $ 4.23
Minimum price :-
Variable cost (net) 75,47,750
Add: fixed cost recovery (110 x 10,000 units) 11,00,000
Add: loss of profit (200 x 10,000 units) 20,00,000
Minimum price 1,06,47,750
Minimum price per unit 1,06,47,750/30,000 ` 354.925
Minimum price is $ ($1 = ` 83.864) $4.23
8. (c) ` 39,94,250
PROFIT EARNED:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
PROFIT ` 39,94,250
9. (d) ` 50,94,250
CASH INFLOW:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
CASH INFLOW ` 50,94,250
10. (a) ` 19,94,250
Incremental benefits:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
(-) loss of profit (10,000x200) (20,00,000)
Incremental benefits 19,94,250
11. (c) Replaced- 30 employees, left and discharged- 18 employees and
recruited & joined- 42 employees
(i) Number of employees replaced:
Employee Turnover rate (Replacement method)
No. of Replacements
=� x 100�
Average number of employees on roll
15 No. of replacements
Or, �100� = � 200
�
200 x 15
Or, Number of Replacements = � � = 30
100

359
 (ii) Number of employees left and discharged:
Employee turnover rate (Separation method)
No. of Separations (S)
=� x 100�
Average number of employees on roll
9 S
Or, �100� = �200�
Or, S = 18
Hence, number of employees left and discharged = 18
(iii) Number of employees recruited and joined:
Employee turnover rate (Flux method)
No. of Separations (S) + No. of Accessions (A)
=� x 100�
Average number of employees on roll
30 18 + A
Or, �100� = � 200
�
6000
Or, A =� - 18 �= 42
100
Hence, number of employees recruited and joined = 42
12. (c) Losses on the sale of investments not treated in Financial
Accounts
13. (d) 1,00,000 units
Current Year production = 60% of 2,00,000 units
= 1,20,000 units
1,20,000 units
Previous Year production =� �
1.5 times

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

= ` 36.40 per unit

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

360
 ` 15,60,000
=� �
` 52- ` 36.40

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

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

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

361
 PART-II Descriptive Questions
1. (a) (i) Statement of Joint Cost allocation of inventories of gasoline,
diesel and Heavy fuel oil (HFO)
(By using Net Realisable Value Method)
Products
Gasoline Diesel Heavy Total
fuel oil
(HFO)
(`) (`) (`) (`)
Final sales value of total 13,17,600 15,84,900 13,69,800 42,72,300
production (Working (3,294 × (5,283 × (6,849 ×
Note 1) ` 400) ` 300) ` 200)
Less: Additional cost - - (7,44,000) (7,44,000)
Net realisable value 13,17,600 15,84,900 6,25,800 35,28,300
(at split-off point)
Joint cost allocated 5,60,156 6,73,795 2,66,049 15,00,000
(Working Note 2)

(ii) Cost of goods sold

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

362
 Diesel 4,743 540 5,283 10.22
Heavy fuel oil 225 6,849 3.29
6,624
(HFO)
2. Joint cost apportioned to each product
Total Joint cost
× Net Realisable Value of each product
TotalNet Realisable Value

Total cost of Gasoline ` 15,00,000

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

(b) Stores Ledger Control A/c

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

363
 To Wages Control A/c 3,000
(` 21,000- `18,000)
To Gen. Ledger Adjust. 75,000
A/c
85,800 85,800
Costing Profit & Loss A/c
Particulars (`) Particulars (`)
1,20,000 By Gen. ledger Adjust.
To Work in progress 1,32,000
A/c (Sales) (1,20,000 +
12,000)
To Gen. Ledger 12,000
Adjust. A/c
(Profit)
1,32,000 1,32,000
(c) Calculation of earnings for workers under different incentive
plans:
Halsey’s Premium Plan:
Worker – A Worker – B
Actual time taken 40 hours 40 hours
Standard time for actual 44 hours 35 hours
Production 176 Pcs × 15 Min. 140 Pcs×15 Min.
( ) ( )
60 Min.
60 Min.
Minimum Wages ` 1,600 ` 1,600
(40 hours x ` 40) (40 hours x ` 40)
Bonus ` 80 No bonus
{50% (44-40) x `40}
Earning ` 1,680 ` 1,600
Rowan’s Premium Plan:
Minimum Wages (as above) ` 1,600 ` 1,600
Bonus = ` 145.45 No bonus
4 hours
( × 40hours ×` 40)
44 hours

Earning ` 1,745.45 ` 1,600

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

364
General Light 4,80,000
80,000 1,20,000 1,60,000 80,000 40,000
lighting points
Indirect Direct 15,51,200 4,80,000 3,20,000 4,80,000 2,40,000 31,200
wages wages
Power H.P. 12,00,000 4,80,000 2,40,000 4,00,000 80,000 −
Depreciation Value of 80,00,000 19,20,000 25,60,000 32,00,000 1,60,000 1,60,000
of machines machines
Sundries Direct 77,56,000 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000
wages
2,43,43,200 61,60,000 58,40,000 78,40,000 37,60,000 7,43,200

(ii) Redistribution of Service Department’s Expenses over

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

(iii) Determination of total cost of a bicycle:

Particulars (`)
Direct material cost 20,000
Direct labour cost 12,000
Overhead cost (See working note) 14,885
46,885

365
 Working Note:
Overhead cost
= (` 1,203 × 4 hrs.) + (` 808 × 5 hrs.) + (` 2,011 × 3 hrs.)
= ` 4,812 + ` 4,040 + ` 6,033 = ` 14,885
(b) Determination of total sales value of Luxury pens
Particulars Amount per Amount for
Batch 2,400 units or
(`) 20 batches
(`)
Direct materials 57,375 11,47,500
Direct wages 6,750 1,35,000
Batch set-up cost 18,900 3,78,000
Production overheads (20% of 1,350
27,000
direct wages)
Total Production Cost 84,375 16,87,500
Selling, distribution and
administration cost (15% of Total 12,656 2,53,125
Production cost)
Total Cost 97,031 19,40,625
Add: Profit (25% of Sales value 32,344
6,46,875
or 1/3 rd of Total cost)
Total Sales value 1,29,375 25,87,500
3. (a) Statement of Cost of YSPP Ltd. for the year ended 31 st March:
S. PARTICULARS (`) (`)
NO.
(I) Material consumed:
Raw materials purchased 35,00,00,000
Freight inwards 39,22,100
Add: opening stock of raw 63,00,000
materials
Less: closing stock of raw (33,60,000) 35,68,62,100
materials
(II) Direct employee (labour) cost:
Wages paid to factory workers 1,02,20,000
Contribution made towards 12,60,000 1,14,80,000
employees’ PF & ESIS
(III) Direct expenses:

366
 Hire charges paid for hiring 8,40,000
specific equipment
Amount paid for power & fuel 16,17,000
Amortised cost of moulds and 7,84,000
patterns
Job charges paid to job 28,42,000 60,83,000
workers
Prime cost 37,44,25,100
(IV) Works/ factory overheads:
Lease rent paid for production 3,92,000
assets
Depreciation on factory 2,94,000
building
Depreciation on plant & 4,41,000
machinery
Repairs & maintenance paid 1,68,000
for plant & machinery
Insurance premium paid for 1,09,200
plant & machinery
Insurance premium paid for 63,350
factory building
Insurance premium paid for 1,26,000
stock of raw materials & WIP
Salary paid to supervisors 4,41,000 20,34,550
Gross factory cost 37,64,59,650
Add: opening value of w-i-p 32,20,000
Less: closing value of w-i-p (30,45,000)
Factory cost 37,66,34,650
(V) Quality control cost:
Expenses paid for quality 68,600
control check activities
Salary paid to quality control 3,36,700 4,05,300
staffs
(VI) Research & development cost 63,700
paid for improvement in
production process
(VII) Administration cost related
with production:
-Expenses paid for 4,15,100
administration of factory work

367
 -Salary paid to production 33,60,000 37,75,100
control manager
(VIII) Add: primary packing cost 3,36,000
Cost of production 38,12,14,750
Add: opening stock of finished 38,50,000
goods
Less: closing stock of finished (63,00,000)
goods
Cost of goods sold 37,87,64,750
(IX) Administrative overheads:
Depreciation on office building 1,96,000
Salary paid to manager- 32,13,000
finance & accounts
Salary paid to general 43,96,000
manager
Fee paid to auditors 6,30,000
Fee paid to independent 7,70,000 92,05,000
directors
(X) Selling overheads:
Repairs & maintenance paid 63,000
for sales office building
Salary paid to manager- sales 35,42,000 36,05,000
& marketing
(XI) Distribution overheads:
Depreciation on delivery 3,01,000
vehicles
(XII) Packing cost paid for re- 3,92,000 6,93,000
distribution of finished goods
Cost of sales 39,22,67,750
Note: Demurrage is a type of penalty, thus will not form part of cost.
(b) Basic Data:
A (Number of units to be purchased annually) = 10,000 units
O (Ordering cost per order) = ` 40
C (Annual cost of storage per unit) =`5
Purchase price per unit = ` 80 + ` 20 (Insurance charges)
= ` 100
(Note: Cash discount is treated as an interest and finance item and
thus, it is ignored.)

368
 Computations:
(i) Re-ordering level = Maximum usage per period ×
Maximum lead time
(ROL) = 40 units per day × 30 days
= 1,200 units
(ii) Maximum level = ROL + ROQ – [Min. rate of
consumption × Min. lead time] (Refer
to working notes 1 and 2)
= 1200 units + 400 units – [20 units per
day × 10 days]
= 1,400 units
(iii) Minimum level = ROL – [Average rate of consumption ×
Average re-order-period]
= 1,200 units – (30 units per day × 20
days)
= 600 units
(iv) Danger level = Average consumption × Lead time for
emergency purchases
= 30 units per day × 8 days
= 240 units
Working Notes:
1. Minimum rate of consumption per day (X)
Minimum rate of Maximum rate of
+
Av. rate of consumption consumption
=
consumption 2

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

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

369
 Direct Labour [(4, 12, 8 hours) 400 1,200 800
× ` 100]
Production Overheads [(10, 300 540 420
18, 14 hours) × ` 30]
Cost per unit 1,150 2,140 1,820
(ii) Statement Showing “Cost per unit - Activity Based Costing”
Products Hand towels Kitchen towels Gym towels
Production (units) 9,000 15,000 60,000
(`) (`) (`)
Direct Materials 40,50,000 60,00,000 3,60,00,000
(9,000 units x (15,000 units x (60,000 units x
` 450) ` 400) ` 600)
Direct Labour 36,00,000 1,80,00,000 4,80,00,000
(refer Part (i) above) (9,000 units x (15,000 units x (60,000 units x
` 400) ` 1,200) ` 800)
Setup Costs @ 28,80,000 14,40,000 28,80,000
` 1,44,000 per setup (20 setups x (10 setups x (20 setups x
` 1,44,000) ` 1,44,000) ` 1,44,000)
Inspection Costs @ 63,00,000 25,20,000 37,80,000
` 63,000 per (100 inspections x (40 inspections x (60 inspections x
inspection ` 63,000) ` 63,000) ` 63,000)
Purchase Related 6,75,000 11,25,000 18,00,000
Costs @ ` 11,250 per (60 purchase (100 purchase (160 purchase
purchase order orders x orders x ` 11,250) orders x
` 11,250) ` 11,250)
Store delivery costs 6,48,000 11,52,000 18,00,000
@ ` 14,400 per store (45 store delivery (80 store delivery (125 store
delivery x x ` 14,400) delivery x
` 14,400) ` 14,400)
Machine Related 6,75,000 20,25,000 63,00,000
Costs @ ` 7.5 per (90,000 hours x (2,70,000 hours x (8,40,000 hours x
hour ` 7.5) ` 7.5) ` 7.5)
Total Costs 1,88,28,000 3,22,62,000 10,05,60,000
Cost per unit (Total
2,092 2,151 1,676
Cost ÷ no. of Units)
Working Notes:
A. Number of Batches, Purchase Orders, Inspections and Store
Deliveries-
Particulars Hand Kitchen Gym Total
towels towels towels
A. Production (units) 9,000 15,000 60,000
B. Batch Size (units) 450 1,500 3,000
C. Number of Batches (A÷B) 20 10 20 50
D. Number of Purchase Order per 3 10 8
batch

370
 E. Total Purchase Orders [C × D] 60 100 160 320
F. Number of Inspections per batch 5 4 3
G. Total Inspections [C × F] 100 40 60 200
H. Total Store Deliveries 45 80 125 250

B. Total Machine Hours-

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

Total Machine Hours = 12,00,000

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

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

371
 2. Variable overheads
Month Nov Dec Jan Feb Mar Apr May Jun
Qty 1,000 1,250 1,500 2,000 1,900 2,200 2,200 2,300
produced
(Q)
` ` ` ` ` ` ` `
Var. 4,00,000 5,00,000 6,00,000 8,00,000 7,60,000
overhead
(Q×400)
Var. 11,00,000 11,00,000 11,50,000
overhead
(Q×500)
Paid one 4,00,000 5,00,000 6,00,000 8,00,000 7,60,000 11,00,000 11,00,000
month later

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

CASH BUDGET – SIX MONTHS ENDED JUNE

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

372
5. (a) (i) Process I – Statement of Equivalent Production
Particulars Completed Closing stock of WIP Equivalent
Units Units % of Equivalent Production
Completion Units units
(1) (2) (1) + (2)
Material 90,000 30,000 100% 30,000 1,20,000
Wages 90,000 30,000 50% 15,000 1,05,000
Overhead 90,000 30,000 50% 15,000 1,05,000
Process I
Particulars Process Equivalent Process WIP stock Cost of Transfer to
Cost Production Cost p.u. Equivalent WIP Stock Process II
(`) (units) (`) units (`) (`)
(2)/(3) (4) x (5) (2)-(6)
(1) (2) (3) (4) (5) (6) (7)
Material 22,50,000 1,20,000 18.750 30,000 5,62,500 16,87,500
Wages 27,00,000 1,05,000 25.714 15,000 3,85,714 23,14,286
Overhead 18,00,000 1,05,000 17.143 15,000 2,57,143 15,42,857
67,50,000 12,05,357 55,44,643
Process I A/c
Particulars Unit (`) Particulars Units (`)
To Direct material 1,20,000 22,50,000 By Process II A/c 90,000 55,44,643
To Direct wages -- 27,00,000 By Closing W-I-P 30,000 12,05,357
To Factory overhead -- 18,00,000
1,20,000 67,50,000 1,20,000 67,50,000

(ii) Process II – Statement of Equivalent Production

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

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

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

373
 Wages 5,25,000 85,350 6.151 1,350 8,304 5,16,696
Overhead 6,75,000 85,350 7.909 1,350 10,677 6,64,323
67,44,643 3,53,892 63,90,751
Add: Packing Material Cost 6,00,000
Cost of Finished Stock 69,90,751
Process II A/c
Particulars Units (`) Particulars Units (`)
To Process I 90,000 55,44,643 By Finished Stock 84,000 69,90,751
To Direct wages -- 5,25,000 By Normal loss 600 --
To Factory overhead -- 6,75,000 By WIP stock 5,400 3,53,892
To Packing charges -- 6,00,000
90,000 73,44,643 90,000 73,44,643

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

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

374
 (iii) to design the organisational structure to get the policy and
strategies implemented. etc.
(b) Managers- The managers use the information
(i) to know the cost of a cost object and cost centre
(ii) to know the price for the product or service
(iii) to measure and evaluate performance of responsibility
centres
(iv) to the know the profitability-product-wise, department-
wise, customer-wise etc.
(v) to evaluate the strategic options and to make decisions
(c) Operational level staff- The operational level staff like
supervisors, foreman, team leaders require information
(i) to know the objectives and performance goals for them
(ii) to know product and service specifications like volume,
quality and process etc.
(iii) to know the performance parameters against which their
performance is measured and evaluated.
(iv) to know divisional (responsibility centre) profitability etc.
(d) Employees- Employees are concerned with the information
related with time and attendance, incentives for work,
performance standards etc.
External Users
External users, who use the Cost and Management
Accounting information may include the followings:
(a) Regulatory Authorities- Regulatory Authorities are
concerned with cost accounting data and information for
different purpose which includes tariff determination,
providing subsidies, rate fixation etc. To do this the
regulatory bodies require information on the basis of some
standards and format in this regard.
(b) Auditors- The auditors while conducting audit of financial
accounts or for some other special purpose audit like cost
audit etc. require information related with costing and
reports reviewed by management etc.
(c) Shareholders- Shareholders are concerned with
information that effect their investment in the entity.
Management communicates to the shareholders through
periodic communique, annual reports etc. regarding new
orders received, product expansion, market share for
products etc.

375
 (d)
Creditors and Lenders- Creditors and lenders are
concerned with data and information which affects an
entity’s ability to serve lenders or creditors. For example,
any financial institutions which provides loan to an entity
against book debts and inventories are more concerned
with regular reporting on net debt position and stock
balances.
(b) Methods for ascertaining Service Cost Unit
Composite Cost Unit
Sometime two measurement units are combined together to know the
cost of service or operation. These are called composite cost units.
For example, a public transportation undertaking would measure the
operating cost per passenger per kilometer.
Examples of Composite units are Tonne- km., Quintal- km, Passenger-
km., Patient-day etc. Composite unit may be computed in two
ways.
(i) Absolute (Weighted Average) basis.
(ii) Commercial (Simple Average) basis.
In both bases of computation of service cost unit, weightage is also
given to qualitative factors rather quantitative (which are directly
related with variable cost elements) factors alone.
(i) Weighted Average or Absolute basis – It is a summation of the
products of qualitative and quantitative factors. For example, to
calculate absolute Tonne-Km for a goods transport is calculated
as follows.:
∑(Weight Carried × Distance)1 + (Weight Carried × Distance)2
+….+(Weight Carried × Distance)n
Similarly, in case of Cinema theatres, price for various classes of
seats is fixed differently. For example–
First class seat may be provided with higher quality service and
hence charged at a higher rate, whereas Second Class seat may
be priced less. In this case, appropriate weight to be given effect
for First Class seat and Second Class seat – to ensure proper
cost per composite unit.
(ii) Simple Average or Commercial Basis – It is the product of
average qualitative and total quantitative factors. For example,
in case of goods transport, Commercial Tonne-Km is arrived at
by multiplying total distance km., by average load quantity.

376
  W1+ W2 +....+ Wn 
∑(Distance1 + Distance2 + …...…+ Distancen) ×  
 n 

In both the example, variable cost is dependent of distance and

is a quantitative factor. Since, the weight carried does not affect
the variable cost hence and is a qualitative factor.
Equivalent Cost Unit/ Equivalent Service Unit:
To calculate cost or pricing of two more different grade of
services which uses common resources, each grade of service
is assigned a weight and converted into equivalent units.
Converting services into equivalent units make different grade of
services equivalent and comparable.
(c)
Points Description
1. Based on Budgets are based on a series of estimates, which
Estimates are based on the conditions prevalent or expected
at the time budget is established. It requires
revision in plan if conditions change.
2. Time factor Budgets cannot be executed automatically. Some
preliminary steps are required to be accomplished
before budgets are implemented. It requires proper
attention and time of management. Management
must not expect too much during the initial
development period.
3. Co-operation Staff co-operation is usually not available during
Required the initial budgetary control exercise. In a
decentralised organisation, each unit has its own
objective and these units enjoy some degree of
discretion. In this type of organisation structure,
coordination among different units is required. The
success of the budgetary control depends upon
willing co-operation and teamwork,
4. Expensive The implementation of budget is somewhat
expensive. For successful implementation of the
budgetary control, proper organisation structure
with responsibility is prerequisite. Budgeting
process start from the collection of information to
for preparing the budget and performance analysis.
It consumes valuable resources (in terms of
qualified manpower, equipment, etc.) for this
purpose; hence, it is an expensive process.
5. Not a Budget is only a managerial tool and must be
substitute for intelligently applied for management to get
management

377
 benefited. Budgets are not a substitute for good
management.
6. Rigid Budgets are sometime considered as rigid
document documents. But in reality, an organisation is
exposed to various uncertain internal and external
factors. Budget should be flexible enough to
incorporate ongoing developments in the internal
and external factors affecting the very purpose of
the budget.
(d)
S. No. Method of costing Example of industry where
this method is followed
(i) Job Costing Printing press
(ii) Process Costing Paper and Pulp
(iii) Batch Costing Bakery
(iv) Multiple Costing Bicycles

378
 ANSWER OF MODEL TEST PAPER 7

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs
1. C Profit if no minimum charges are there, on absolute tonne basis, but
he will charge for diesel petrol when running empty
Absolute tonne-kms: (250 kms x 4 tonnes + 150 kms x 3 tonnes) x 90
days
= 1,30,500 tonne-kms
Vacant moving (Chandigarh to Ludhiana) = 100kms x 90 days = 9,000
kms
Charges for vacant running:
(`)
June (80.30 x 16 x 100)/8 16,060
July (80.50 x 31 x 100) /8 31,194
August (81.25 x 29 x 100) /8 29,453
September (80.90 x 14 x 100) /8 14,158
Total Charges 90,864

(`)
Total revenue (1,30,500 x 10) 13,05,000
Add: diesel recovery for vacant running 90,864
Less: service & maintenance (80,000 x 3) (2,40,000)
Less: salary (15,000 x 3) (45,000)
Less: diesel cost (4,54,323)
Less: interest (22,578)
Less: depreciation (36,986)
Profit 5,96,977

379
 Bifurcation of principal and interest
Years Calculation of interest Interest Principal Loan
(`) (`) repayment balance
(`) (`)
0 - - - 20,00,000
1 20,00,000 x 10% 2,00,000 3,27,595 16,72,405
2 16,72,405 x 10% 1,67,241 3,60,354 13,12,051
3 13,12,051 x 10% 1,31,205 3,96,390 9,15,661
4 9,15,661 x 10% 91,566 4,36,029 4,79,632
5 4,79,632 x 10% 47,963 4,79,632 -

Interest allocated to this job = 91,566 x 90 / 365 = 22,578

20,00,000 − 5,00,000 90
Depreciation = x = 36,986
10 365
Diesel expenses:
(`)
June (80.30 x 16 x 500)/8 80,300
July (80.50 x 31 x 500)/8 1,55,969
August (81.25 x 29 x 500)/8 1,47,266
September (80.90 x 14 x 500)/8 70,788
Total diesel expenses 4,54,322
2. A
With minimum Without minimum limit
limit (`)
(`)
Commercial tonne kms 3.75 x 500 x 90 ((4+0+3)/3) x 500 x 90
= 1,68,750 = 1,05,000
revenue 1,68,750 x 10 1,05,000 x 10
= 16,87,500 = 10,50,000
Less: costs (7,98,887) (7,98,887)
Profit/(loss) 8,88,613 2,51,113
Loss arising due to no minimum limit = 8,88,613-2,51,113 = 6,37,500
3. B Total Revenue = Cost + Profit = 7,98,887+ 2,70,000 = ` 10,68,887
Absolute Tonne-Kms = 1,74,375

Rate = 10,68,887/1,74,375 = ` 6.13

380
4. B
5. B Profit at current rate (based on minimum charges of 75%)
Absolute tonne-kms: (250 kms x 4 tonnes + 100 kms x 3.75 tonnes +
150 kms x 3.75 tonnes) x 90 days = 1,74,375 tonne-kms
(`)
Total revenue (1,74,375 x 10) 17,43,750
Less: service & maintenance (80,000 x 3) (2,40,000)
Less: salary (15,000 x 3) (45,000)
Less: diesel cost (4,54,323)
Less: interest (22,578)
Less: depreciation (36,986)
Profit 9,44,863
6. C
Particulars Base Material Conversion cost
Previous year cost (`) 5,34,000 8,01,000

Increased by 2 times -
Increased to 3 times
Current year cost (`) 5,34,000 + (5,34,000 x 2) 8,01,000 x 3
= 16,02,000 = 24,03,000

7. D
Products Production/ Joint Cost
Sales(in tonne) Apportioned (`)
Sodium hydroxide 24,030 24,03,000
Halogen 16,020 16,02,000
Total 40,050 40,05,000

Joint cost = base material + conversion cost

= 16,02,000 + 24,03,000
= 40,05,000
Total joint cost
Apportioned joint cost = x Physical units of each
Total physical value
product

381
 ` 40,05,000
For Sodium hydroxide = x 24,030 tonnes
40,050 tonnes
= ` 24,03,000
` 40,05,000
For Halogen = x 16,020 tonnes
40,050 tonnes
= ` 16,02,000
8. A
Products Sales Selling Sales Joint Cost
(in Tonne) Price per Revenue Apportioned
Tonne (`) (`) (`)
Sodium 24,030 100 24,03,000 20,02,500
hydroxide
Halogen 16,020 150 24,03,000 20,02,500
Total 40,050 48,06,000 40,05,000
Total joint cost
Apportioned joint cost = x Sale revenue of each
Total sale revenue
product
` 40,05,000
For Sodium hydroxide = x 24,03,000 = ` 20,02,500
` 48,06,000
` 40,05,000
For Halogen =` x 24,03,000 = ` 20,02,500
48,06,000

9. B
Products Sales Selling Sales Post split- Net Joint Cost
(in Price Value (`) off cost Realisable Apportioned
Tonne) per Tonne (`) Value (`) (`)
(`)
Sodium 24,030 100 24,03,000 - 24,03,000 17,16,429
hydroxide
Halogen (Vinyl 10,012.50 150 + 250 40,05,000 8,01,000 32,04,000 22,88,571
after further = 400
processing)
Total 56,07,000 𝟒𝟒𝟒𝟒, 𝟎𝟎𝟎𝟎, 𝟎𝟎𝟎𝟎𝟎𝟎
Total joint cost
Apportioned joint cost = x Net Realisable Value
Total Net Realisable Value
of each product
` 40,05,000
For Sodium hydroxide = x 24,03,000
` 56,07,000
= ` 17,16,429
` 40,05,000
For Halogen = x 32,04,000
` 56,07,000
= ` 22,88,571

382
10. C
Particulars Amount
(in `)
Revenue from sales of Vinyl if Halogen further 40,05,000
processed (10,012.50 tonnes × ` 400) (A)
Revenue from sales of Halogen if no further processing 24,03,000
done (16,020 tonnes × ` 150)(B)
Incremental revenue from further processing of 16,02,000
Halogen into Vinyl (A-B)
Incremental cost of further processing Halogen into 8,01,000
Vinyl
Incremental operating income from further 8,01,000
processing

Incremental revenue would be ` 8,01,000, thus the decision relating

to further processing Halogen needs to be approved.
11. C Let X be the cost of material and Y be the normal rate of wages per
hour.
45
Factory Cost of Mr. Akon (Rowan System) = X + 45Y + 75
x (75 - 45) Y +

(45 x ` 120)
` 1,25,640 = X + 63Y + ` 5,400
X + 63Y = ` 1,20,240 … (i)
Factory Cost of Mr. Ben (Halsey System) = X + 60Y + 50% (75 - 60) Y +
(60 x ` 120)
` 1,29,600 = X + 67.5Y + ` 7,200
X + 67.5Y = ` 1,22,400 … (ii)
From subtracting (i) from (ii), we get,
4.5Y = ` 2,160
Y = ` 480 per hour
Or, normal wage rate = ` 480 per hour
Therefore, X = ` 1,20,240 - 63Y
X = ` 1,20,240 - (63 x ` 480)
X = ` 90,000
Or, cost of material = ` 90,000
12. C

383
 62,00,000 + 50,00,000 + 52,00,000 + 44,00,000
13. D Sales for current year =3x( 4
)
= ` 1,56,00,000
Sales - Variable Cost
P/V ratio =
Sales
` 1,56,00,000 - 93,60,000
=
` 1,56,00,000
= 40%
Fixed Cost
Now, Break even point = P/V ratio

Therefore, Fixed Cost = Break even point x P/V ratio

= ` 1,17,00,000 x 40%
= ` 46,80,000
14. C Annual demand = 9,000 x 12 = 1,08,000
Economic Batch Quantity (EBQ):
2 DS
EBQ =
C
2 x 1,08,000 x 16,002.25
=
60
= 7,590 bushings
1,08,000
Number of runs = = 14.23 = 15 runs
7,590
15. C Fixed Overhead Cost Variance = Absorbed Fixed Overheads - Actual
Fixed Overheads
` 75,00,000
0 =( x 15,600) - Actual Fixed Overheads
15,000
Actual Fixed Overheads = ` 78,00,000

PART-II Descriptive Questions

DifferenceinTotalOverheads
1. (a) (i) Variable overhead absorption rate: =
Differenceinlevelsintermsof machinehours

` 3, 47,625 - ` 3,38,875
= = ` 8.75 per machine hour.
15,500 hours -14,500 hours

384
 (ii) Calculation of Total fixed overheads:
(`)
Total overheads at 14,500 hours 3,38,875
Variable overheads = ` 8.75 × 14,500 1,26,875
Total fixed overheads 2,12,000

(iii) Calculation of Budgeted level of activity in machine hours:

Let budgeted level of activity = X
( ` 8.75 X + ` 2,12,000)
Then, = ` 22
X
8.75X + ` 2,12,000 = 22X
13.25X = 2,12,000
X =16,000
Thus, budgeted level of activity = 16,000 machine hours.
(iv) Calculation of Under / Over absorption of overheads:
(`)
Actual overheads 3,22,000
Absorbed overheads = 14,970 hours × ` 22 per hour 3,29,340
Over-absorption (3,29,340 – 3,22,000) 7,340

(v) Departmental absorption rates provide costs which are more

precise than those provided by the use of blanket absorption
rates. Departmental absorption rates facilitate variance analysis
and cost control. The application of these rates makes the task
of stock and work-in-process (WIP) valuation easier and more
precise. However, the setting up and monitoring of these rates
can be time-consuming and expensive.
(b) For Material Cost Variances:
SQ × SP AQ × AP AQ × SP
X 12,000 x 4 x ` 8 50,000 x ` 8.80 50,000 x ` 8
= ` 3,84,000 = ` 4,40,000 = ` 4,00,000
Y 12,000 x 6 x ` 6 72,000 x ` 5.60 72,000 x ` 6
= ` 4,32,000 = ` 4,03,200 = ` 4,32,000
Z 12,000 x 30 x ` 2 3,54,000 x ` 2.40 3,54,000 x ` 2
= ` 7,20,000 = ` 8,49,600 = ` 7,08,000
Total ` 15,36,000 ` 16,92,800 ` 15,40,000

385
 Material Price Variance = Actual quantity (Std. price – Actual price)
= (AQ x SP) – (AQ x AP)
= ` 15,40,000 – ` 16,92,800
= ` 1,52,800 (A)
Material Usage Variance = Standard Price (Std. Quantity – Actual
Quantity)

= (SP x SQ) – (SP x AQ)

= ` 15,36,000 – ` 15,40,000
= ` 4,000 (A)
For Labour Cost Variance:

SH × SR AH × AR AH × SR
Labour (12,000 x 6) x ` 10,000 x ` 24 70,000 x ` 16
16 = ` 2,40,000 = ` 11,20,000
= ` 11,52,000 60,000 x ` 16
= ` 9,60,000
Total ` 11,52,000 ` 12,00,000 ` 11,20,000
Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= (AH x SR) – (AH x AR)
= ` 11,20,000 – ` 12,00,000
= ` 80,000 (A)
Labour Efficiency Variance = Standard Rate (Std. Hours – Actual
Hours)
= (SR x SH) – (SR x AH)
= ` 11,52,000 – ` 11,20,000
= ` 32,000 (F)
(c) Production during the month 1,250 units
Time allowed for 1,250 units @ 2 hours per unit
(1,250 x 2 hours) 2,500 hours
Actual time taken 25 days x 8 hours x 10 workers 2,000 hours
Time saved 500 hours
Labour cost per piece under time rate scheme: 2 hours x ` 2 = ` 4
Calculation of effective hourly rate under:
Halsey Scheme:
(`)

386
 Basic wages of 10 workers: 2,000 hours @ ` 2 per hour 4,000
Bonus 50% x (500 hours x ` 2) 500
Total wages for 2,000 hours 4,500
` 4,500
Effective hourly rate of earning = = ` 2.25
2,000hours

` 4,500
Labour cost per piece = = ` 3.60
1,250units

Saving in terms of direct labour cost per piece (` 4.00 – ` 3.60) = ` 0.40
Rowan Scheme:
(`)
Basic wages (as calculated under Halsey scheme) 4,000
2,000hours
Bonus: 500hours× ×` 2 800
2,500hours

Total wages for 2,000 hours 4,800

` 4,800
Effective hourly rate of earnings = ` 2.40
2,000hours

` 4,800
Labour cost per piece = ` 3.84
1,250units

Saving in terms of direct labour cost per piece (` 4.00 – ` 3.84) = ` 0.16
Advise: Shivi should introduce Halsey incentive scheme, as it gives
more saving than the Rowan incentive scheme.
2. (a) (a) Cost and Quoted Price Using Labour Hours to Absorb
Overheads
RBC (` in IPC (` in
lakhs) lakhs)
Materials 5.00 12.00
Labour 1200 x ` 100; 2500 x ` 100 1.20 2.50
Overheads 1200 x ` 1200; 2500 x ` 1200 14.40 30.00
Total cost 20.60 44.50
Add: Profit 50% of Total Cost 10.30 22.25
Quoted 30.90 66.75
Price

387
(b) Cost and Quoted Price Using ABC
Step 1: Calculate Overhead Rates for Each Activity
Overhead Total Activity Activity Rate
Category Overhead Driver
(` Lakhs)
Site Engineers `120 Site Visits ` 120 / 600 = ` 20,000
per site visit
Project Planners `80 Planning ` 80 / 300 = ` 26,667
Documents per planning document
Equipment `400 Labour ` 400 / 50,000 = ` 800
Depreciation Hours per labour hour
Step 2: Allocate Overheads Using ABC
RBC IPC
(in lakhs) (in lakhs)
Materials 5.00 12.00
Labour 1200 x `100; 2500 x 1.20 2.50
`100
Overheads
Site Engineers 2 x ` 20,000; 10 x 0.40 2.00
` 20,000
Project Planners 2 x ` 26,667; 8 x 0.53 2.13
` 26,667
Equipment Depreciation 1200 x ` 800; 2500 x 9.60 20.00
` 800
Total cost 16.73 38.63
Add: Profit 50% of Total Cost 8.37 19.32
Quoted Price 25.10 57.95
(c) Possible pricing strategies for the two services offered by XYZ
Constructions
‫ي‬ The pricing policy is a matter for XYZ Constructions to decide.
They could elect to maintain the current 50% mark-up on cost
and if they did the price of the RBC would fall by around 7% in
line with the costs. This should make them more competitive in
the market.
‫ي‬ They could also reduce the prices by a little less than 7% (say
5%) in order to increase internal margins a little.
Reasons other than high prices for the current poor sales of
RBC:
‫ي‬ If the quality of work or the reputation and reliability of the builder
are questionable, lowering prices is unlikely to boost sales.

388
 While it is possible that XYZ Constructions has a strong
reputation for IPC but not for RBC, it is more likely that a poor
reputation would impact all their products. Poor service or
inflexibility in meeting customer needs may also hurt sales and
can't be fixed by lowering prices.
‫ي‬ Poor marketing strategies also discourage customers from
selecting XYZ Constructions.
‫ي‬ XYZ Constructions faces competition and may need to adopt a
more competitive pricing strategy, such as 'going rate pricing,'
instead of simply adding a markup to costs.
‫ي‬ XYZ Constructions could enter the market by pricing some
projects competitively to establish a foothold. Completed
projects could then be leveraged to attract new customers.
(b) The crux of standard costing lies in variance analysis. Standard
costing is the technique whereby standard costs are predetermined
and subsequently compared with the recorded actual costs. It is a
technique of cost ascertainment and cost control. It establishes
predetermined estimates of the cost of products and services based
on management’s standards of efficient operation. It thus lays
emphasis on “what the cost should be”. These should be costs are
when compared with the actual costs. The difference between
standard cost and actual cost of actual output is defined as the
variance.
The variance in other words in the difference between the actual
performance and the standard performance. The calculations of
variances are simple. A variance may be favourable or unfavourable.
If the actual cost is less than the standard cost, the variance is
favourable but if the actual cost is more than the standard cost, the
variance will be unfavourable. They are easily expressible and do not
provide detailed analysis to enable management of exercise control
over them. It is not enough to know the figures of these variances from
month to month. We in fact are required to trace their origin and
causes of occurrence for taking necessary remedial steps to reduce /
eliminate them.
A detailed probe into the variance particularly the controllable
variances helps the management to ascertain:
(i) the amount of variance
(ii) the factors or causes of their occurrence
(iii) the responsibility to be laid on executives and departments and
(iv) corrective actions which should be taken to obviate or reduce the
variances.

389
 Mere calculation and analysis of variances is of no use. The success
of variance analysis depends upon how quickly and effectively the
corrective actions can be taken on the analysed variances. In fact
variance gives information. The manager needs to act on the
information provided for taking corrective action. Information is the
means and action taken on it is the end. In other words, the calculation
of variances in standard costing is not an end in itself, but a means to
an end.
3. (a) Dr. Process A Account Cr.
` `
To Materials 40,000 By Transfer to Process 1,20,000
B A/c
To Labour 40,000
To Overheads 16,000
96,000
To Profit (20% of
transfer price, i.e., 25% 24,000
of cost)
1,20,000 1,20,000
Dr. Process B Account Cr.
` `
To Transferred from 1,20,000 By Transfer to Finished
Process A A/c Stock A/c 2,88,000
To Labour 56,000
To Overhead 40,000
2,16,000
To Profit (25% of 72,000
transfer price i.e.,
33.33% of cost)
2,88,000 2,88,000
Statement of Total Profit
`
Profit from Process A 24,000
Profit from Process B 72,000
Profit on Sales (` 4,00,000 – ` 2,88,000) 1,12,000
Total Profit 2,08,000

390
(b) (i) Calculation of Administration cost:
Particulars Amount (`)
Salary paid to office staffs 8,20,000
Fees paid to auditors 92,000
Vehicle hire charges paid for directors attending 10,200
general meeting
Fees paid to independent directors 1,02,000
10,24,200
(ii) Calculation of Selling cost:
Particulars Amount
(`)
Salary paid to sales manager 8,00,000
Wages paid to workers engaged in storing goods 7,200
at sales depot
Travelling allowance paid to sales staffs 9,600
Electricity bill paid for sales office 1,800
Bonus paid to sales staffs for achieving targets 96,000
9,14,600
(iii) Calculation of Distribution cost:
Particulars Amount
(`)
Cost paid for secondary packing 8,200
Depreciation on goods delivery vehicles 13,000
21,200
(c) Statement showing computation of the cost of processing
an education loan application
Particulars (`)
Salary paid to the education loan processors 21,60,000
Legal advice cost relating to education loan 11,000
Overhead cost (30% of (` 16,40,000 - ` 11,000)] 4,88,700
Total processing cost per month 26,59,700
No. of applications processed per month 500
Total processing cost per education loan 5,319.40
application
4. (a) (i) Re-ordering level = Maximum usage per period × Maximum
lead time
(ROL) = 2,000 units per day × 20 days
= 40,000 units

391
 (ii) Maximum level= ROL+ROQ–[Min. rate of consumption×
Min. lead time] (Refer to working notes 1 and 2)
= 40,000 units + 20,000 units – [1,000 units
per day x 10 days]
= 50,000 units
(iii) Minimum level = ROL – Average rate of consumption ×
Average re-order-period
= 40,000 units – (1,500 units per day × 15
days)
= 17,500 units
(iv) Danger level = Average consumption × Lead time for
emergency purchases
= 1,500 units per day × 3 days
= 4,500 units
Working Notes:
1. Minimum rate of consumption per day
Average rate of consumption =
Minimum rate of consumption + Maximum rate of consumption
� 2
�
X units per day + 2,000 units per day
1,500 units per day = � 2
�
Or, X = 1,000 units per day
2x12,50,000units x `10,000
2. Re-order Quantity (ROQ) =
62.50
= 20,000 units
(b) Causes/examples of normal idle time:
1. The time lost between factory gate and the place of work.
2. The interval between one job and another.
3. The setting up time for the machine.
4. Normal rest time, break for lunch etc.
Causes/examples of abnormal idle time:
1. Lack of coordination.
2. Power failure, Breakdown of machines.
3. Non-availability of raw materials, strikes, lockouts, poor
supervision, fire, flood etc.

392
 (c) Statement of Reconciliation
(to ascertain Profit as per Financial Accounts)
Particulars (`) (`)
Profit as per Cost Account 7,77,150
Add: Income from interest and dividends 2,35,500
10,12,650
Less: Factory expenses under-charged in 2,35,500
Cost Accounts
Administrative expenses under-charged in 1,17,750
Cost Accounts
Selling & distribution expenses under- 31,400 (3,84,650)
charged in Cost Accounts
Profit as per Financial Accounts 6,28,000
5. (a) (i) Computation of Sale Price Per Bottle
Output: 40,000 Bottles
(`)
Variable Cost:
Material 3,15,000
Labour (` 1,40,000 × 75%) 1,05,000
Factory Overheads (` 1,35,000 × 50%) 67,500
Administrative Overheads (` 50,000 × 35%) 17,500
Commission (10% on ` 8,00,000) (W.N.-1) 80,000
Fixed Cost:
Labour (` 1,40,000 × 25%) 35,000
Factory Overheads (` 1,35,000 × 50%) 67,500
Administrative Overheads (` 50,000 × 65%) 32,500
Total Cost 7,20,000
Profit (W.N.-1) 80,000
Sales Proceeds (W.N.-1) 8,00,000
` 8,00,000 20
Sales Price per bottle � �
40,000Bottles
(ii) Calculation of Break-even Point
Sales Price per Bottle = `19
` 5,85,000 (𝑊𝑊.𝑁𝑁.−2)
Variable Cost per Bottle = 40,000 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵

= ` 14.625
Contribution per Bottle = ` 19 − `14.625
= ` 4.375

393
 Break -even Point
Fixed Costs
(in number of Bottles) =
Contribution per Bottle
`1,35,000
= = 30,857 Bottles
` 4.375
Break- even Point
(in Sales Value) = 30,857 Bottles × ` 19
= ` 5,86,285/-
Working Note
W.N.-1
Let the Sales Price be ‘x’
10𝑥𝑥
Commission = 100
10x
Profit =
100
10𝑥𝑥 10𝑥𝑥
x = 6,40,000 + 100
+ 100
100x - 10x - 10x = 6,40,00,000
80x = 6,40,00,000
x = 6,40,00,000 / 80
= ` 8,00,000
W.N.-2
Total Variable Cost
(`)
Material 3,15,000
Labour 1,05,000
Factory Overheads 67,500
Administrative Overheads 17,500
Commission [(40,000 Bottles x `20) x 10%] 80,000
Total 5,85,000
(b) Number of days in budget period = 4 weeks × 5 days = 20 days
Number of units to be produced
Product-A (units) Product-B (units)
Budgeted Sales 2,400 3,600
Add: Closing stock 480 900
 2,400 units   3,600units 
 × 4 days   × 5 days 
 20 days   20 days 
Less: Opening stock (400) (200)
2,480 4,300

394
(i) Material Purchase Budget
Material-X (Kg.) Material-Y (Kg.)
Material required:
- Product-A 12,400 9,920
(2,480 units × 5 kg.) (2,480 units × 4 kg.)
- Product-B 12,900 25,800
(4,300 units × 3 kg.) (4,300 units × 6 kg.)
25,300 35,720
Add: Closing stock 12,650 10,716
 25,300kgs.   35,720kgs. 
 × 10days   × 6days 
 20days   20days 

Less: Opening stock (1,000) (500)

Quantity to be
36,950 45,936
purchased
Rate per kg. of Material `4 `6
Total Cost ` 1,47,800 ` 2,75,616
(ii) Wages Budget

Product-A Product-B
(Hours) (Hours)
Units to be produced 2,480 units 4,300 units
Standard hours allowed per
3 5
unit
Total Standard Hours allowed 7,440 21,500
Productive hours required for 7,440hours 21,500hours
=9,300 =26,875
production 80% 80%
Add: Non-Productive down 1,860 hours. 5,375 hours.
time (20% of 9,300 (20% of 26,875
hours) hours)
Hours to be paid 11,160 32,250

Total Hours to be paid = 43,410 hours (11,160 + 32,250)

Hours to be paid at normal = 4 weeks × 40 hours × 180 workers
rate = 28,800 hours
Hours to be paid at premium = 43,410 hours – 28,800 hours
rate = 14,610 hours
Total wages to be paid = 28,800 hours × ` 25 + 14,610 hours
× ` 37.5
= ` 7,20,000 + ` 5,47,875
= ` 12,67,875

395
6. (a) Before installation of a system of cost accounting in a manufacturing
organisation the under mentioned factors should be studied:
(a) Objective: The objective of costing system, for example whether it
is being introduced for fixing prices or for insisting a system of cost
control.
(b) Nature of Business or Industry: The Industry in which business
is operating. Every business industry has its own peculiar feature
and costing objectives. According to its cost information
requirement cost accounting methods are followed. For example
Indian Oil Corporation Ltd. has to maintain process wise cost
accounts to find out cost incurred on a particular process say in
crude refinement process etc.
(c) Organisational Hierarchy: Costing system should fulfill the
requirement of different level of management. Top management is
concerned with the corporate strategy, strategic level management
is concerned with marketing strategy, product diversification,
product pricing etc. Operational level management needs the
information on standard quantity to be consumed, report on idle
time etc.
(d) Knowing the product: Nature of product determines the type of
costing system to be implemented. The product which has by-
products requires costing system which account for by-products as
well. In case of perishable or short self- life, marginal costing
method is required to know the contribution and minimum price at
which it can be sold.
(e) Knowing the production process: A good costing system can
never be established without the complete knowledge of the
production process. Cost apportionment can be done on the most
appropriate and scientific basis if a cost accountant can identify
degree of effort or resources consumed in a particular process.
This also includes some basic technical know-how and process
peculiarity.
(f) Information synchronisation: Establishment of a department or a
system requires substantial amount of organisational resources.
While drafting a costing system, information needs of various other
departments should be taken into account. For example in a typical
business organisation accounts department needs to submit
monthly stock statement to its lender bank, quantity wise stock
details at the time filing returns to tax authorities etc.
(g) Method of maintenance of cost records: The manner in which
Cost and Financial accounts could be inter-locked into a single
integral accounting system and in which results of separate sets of
accounts, cost and financial, could be reconciled by means of
control accounts.

396
 (h) Statutory compliances and audit: Records are to be maintained
to comply with statutory requirements, standards to be followed
(Cost Accounting Standards and Accounting Standards).
(i) Information Attributes: Information generated from the Costing
system should be possess all the attributes of an information i.e.
complete, accurate, timeliness, confidentiality etc. This also meets
the requirements of management information system.
(b) The following steps are necessary for establishing a good
budgetary control system:
1. Determining the objectives to be achieved, over the budget period,
and the policy or policies that might be adopted for the achievement
of these objectives.
2. Determining the activities that should be undertaken for the
achievement of the objectives.
3. Drawing up a plan or a scheme of operation in respect of each class
of activity, in quantitative as well as monetary terms for the budget
period.
4. Laying out a system of comparison of actual performance by each
person, or department with the relevant budget and determination
of causes for the variation, if any.
5. Ensuring that corrective action will be taken where the plan has not
been achieved and, if that is not possible, for the revision of the
plan.
(c) Detection of slow moving and non-moving item of stores:
The existence of slow moving and non-moving item of stores can be
detected in the following ways.
(i) By preparing and perusing periodic reports showing the status of
different items or stores.
(ii) By calculating the inventory turnover period of various items in terms
of number of days/ months of consumption.
(iii) By computing inventory turnover ratio periodically, relating to the
issues as a percentage of average stock held.
(iv) By implementing the use of a well-designed information system.
Necessary steps to reduce stock of slow moving and non-moving
item of stores:
(i) Proper procedure and guidelines should be laid down for the disposal
of non-moving items, before they further deteriorate in value.
(ii) Diversify production to use up such materials.
(iii) Use these materials as substitute, in place of other materials.
OR

397
(c) The three main methods of allocating support departments costs to
operating departments are:
(i) Direct re-distribution method: Under this method, support
department costs are directly apportioned to various production
departments only. This method does not consider the service
provided by one support department to another support department.
(ii) Step method: Under this method the cost of the support departments
that serves the maximum numbers of departments is first apportioned
to other support departments and production departments. After this
the cost of support department serving the next largest number of
departments is apportioned. In this manner we finally arrive on the
cost of production departments only.
(iii) Reciprocal service method: This method recognises the fact that
where there are two or more support departments they may render
services to each other and, therefore, these inter-departmental
services are to be given due weight while re-distributing the expenses
of the support departments. The methods available for dealing with
reciprocal services are:
(a) Simultaneous equation method
(b) Repeated distribution method
(c) Trial and error method.

398
 ANSWERS OF MODEL TEST PAPER 8
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs

1. (i) (d) Monthly Production of X = 30,000 kgs.

30,000
Raw Material Required = × 5 = 50,000 kgs.
3
50,000
Material A = × 3 = 30,000 kg.
5
50,000
Material B = × 2 = 20,000 kg.
5
(ii) (a) Calculation of Economic Order Quantity (EOQ):
2 × Annualconsumption× Order cos t
Material A =
Carryingcos t per unit p.a.

2×(30,000×12)×1,200
=� 15% 𝑜𝑜𝑜𝑜 30
= 13,856 kg.

2×(20,000×12)×1,200
Material B =� 5% 𝑜𝑜𝑜𝑜 44
= 16,181 kg.

(iii) (b) Calculation of Maximum Stock level: Since, the Material A is

perishable in nature and it required to be used within 10 days,
hence, the Maximum Stock Level shall be lower of two:
(a) Stock equal to 10 days consumption
30000
= 25
× 10 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 = 12,000 kg.
(b) Maximum Stock Level for Material A:
Re-order Quantity + Re-order level – (Min consumption* ×
Min. lead time)
Where, Re-order Quantity = 15,000 kg.
Re-order level = Max. Consumption* × Max. Lead
time
= 30,000/25×2 days=2,400 kg.
Maximum stock Level = 15,000 kg. + 2,400 kg. -
(30,000/25 × 1 day)
= 17,400 – 1,200 = 16,200 kg.
Stock required for 10 days consumption is lower than the maximum
stock level calculated through the formula. Therefore, Maximum
Stock Level will be 12,000 kg.
399
 (*Since, production is processed evenly throughout the month
hence material consumption will also be even.)
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity
equals to EOQ.
Purchase Quantity Purchase Quantity
= 15,000 kg. = EOQ i.e. 13,856
kg.
Annual 3,60,000 kg. 3,60,000 kg.
consumption (30,000 × 12 months) (30,000 × 12 months)
No. of orders 30 30
[Note- (i)] (3,60,000 ÷ 12,000) (3,60,000 ÷ 12,000)
Ordering Cost (a) ` 36,000 ` 36,000
(` 1200 × 30) (` 1200 × 30)
Carrying Cost (b) `30,375 `31,176
[Note- (ii)] (15% of ` 27 × 7,500) (15% of ` 30 × 6,928)
Purchase Cost ` 97,20,000 ` 1,08,00,000
(c) (` 27 × 3,60,000) (` 30 × 3,60,000)
(for good portion)
Loss due to ` 24,30,000 `16,70,400
obsolescence (d) [` 27 × (30 × 3,000)] [` 30 × (30 × 1,856)]
[Note- (iii)]
Total Cost [(a) + ` 1,22,16,375 ` 1,25,37,576
(b) + (c) + (d)]
Purchasing of material - A at present policy of 15,000 kg. saves
` 3,21,201.
Notes: (i) Since, material gets obsolete after 10 days, the quantity
in excess of 10 days consumption i.e. 12,000 kg. are wasted.
Hence, after 12,000 kg. a fresh order needs to be given.
(ii) Carrying cost is incurred on average stock of Materials
purchased.
(iii) the excess quantity of material gets obsolete and loss has to
be incurred.
(v) (c) Minimum Stock Level for Material A
= Re-order level – (Average Consumption Rate x Average Re-order
Period)
= 2400 – (1200 x 1.5) = 600 kgs
Re-order level = Max. Consumption* × Max. Lead time
= 30,000/25 × 2 days = 2,400 kg.
2. (i) (d) Budgeted Machine hour rate (Blanket rate)
` 50,40,000
= = `840 per hour
6,000 hours

400
(ii) (a)
(iii) (a)
Amount (`) Amount
(`)
Total production overheads actually 34,08,000
incurred during the period
Less: Amount paid to worker as per court 4,50,000
order
Expenses of previous year booked in 1,00,000
the current year
Wages paid for the strike period under 4,20,000
an award
Obsolete stores written off 36,000 10,06,000
24,02,000
Less: Production overheads absorbed as
per machine hour rate (3,000 hours × 25,20,000
`840*)
Amount of over absorbed production 1,18,000
overheads
* Budgeted Machine hour rate (Blanket rate) calculated in part (i)
(iv) (b) Accounting treatment of over absorbed production overheads:
As, 40% of the over absorbed overheads were due to defective
production policies, this being abnormal, hence should be credited
to Costing Profit and Loss Account.
Amount to be credited to Costing Profit and Loss Account
= `1,18,000× 40% = `47,200.
Balance of over absorbed production overheads should be
distributed over Works in progress, Finished goods and Cost of
sales by applying supplementary rate*.
Amount to be distributed = `1,18,000× 60% = `70,800
Supplementary rate =
(v) (c) Apportionment of over absorbed production overheads over WIP,
Finished goods and Cost of sales:
Equivalent Amount
completed (`)
units
Work-in-Progress (80,000 units × 50% × 0.472) 40,000 18,880
Finished goods (20,000 units × 0.472) 20,000 9,440
Cost of sales (90,000 units × 0.472) 90,000 42,480
Total 1,50,000 70,800

401
3. (b) Let the wages be ‘X’
Therefore:
Material 2,40,000
Wages ‘X’
Prime cost 2,40,000 + X
Factory overheads 0.75X
Factory cost 2,40,000 + 1.75X
Quality control cost and 20% (2,40,000 + 1.75X)
research and development cost
Cost of Production 75,000
288000 + 2.1X = 7,50,000
X = 2,20,000
4. (b) Rooms days
Summer 200 x 80% x 30 x 4 =19,200
Winter 200 x 25% x 30 x 4 = 6,000
Autumn 200 x 60% x 30 x 4 = 14,400
Total room days: 39,600
5. (a) Variable overhead cost variance: Standard Variable overheads - Actual
variable overheads
8,000/2,500 x 3,000 – 10,000 = 400A
Fixed overhead cost variance: Standard fixed overheads - Actual fixed
overheads
12,000/2,500 x 3,000 – 11,800 = 2,600F
6. (c) Equivalent Units:
Units transferred: 24,000 x 100% = 24,000
Closing WIP: 2,500 x 60% = 1,560
Total Equivalent units 25,560
7. (a) If final sales are ` 50,000 and separable costs are ` 35,000, then net
realizable value will be `15,000.

402
 PART-II – Descriptive Questions
1. (a) Calculation of Total Cost and Selling Price
Job XYZ Job MNO
(`) (`)
Direct material 15,400 10,800
Direct labour
Department A (20 x `76) 1,520 (16 x` 76) 1,216
Department B (12 x `70) 840 (10 x `70) 700
Department C (10 x ` 68) 680 (14 x `68) 952
Total Direct cost 18,440 13,668
Overhead:
Department A (20 x `12.86) 257.20 (16 x `12.86) 205.76
Department B (12 x `12.40) 148.80 (10 x `12.40) 124.00
Department C (10 x ` 14.03) 140.30 (14 x ` 14.03) 196.42
Total cost 18,986.30 14,194.18
Profit (note) 6,328.77 4,731.39
Quoted selling price 25,315.07 18,925.57

Note: If profit is 25% on selling price this is the same as 33 1/3 % (25/75)
on cost.
(`)
Selling price 100
Cost 75
Profit 25
(b) (i) Calculation of Administration cost:
Particulars Amount (`)
Salary paid to office staffs 8,20,000
Fees paid to auditors 92,000
Vehicle hire charges paid for directors attending 10,200
general meeting
Fees paid to independent directors 1,02,000
10,24,200
(ii) Calculation of Selling cost:
Particulars Amount (`)
Salary paid to sales manager 8,00,000
Wages paid to workers engaged in storing goods 7,200
at sales depot
Travelling allowance paid to sales staffs 9,600
Electricity bill paid for sales office 1,800

403
 Bonus paid to sales staffs for achieving targets 96,000
9,14,600
(iii) Calculation of Distribution cost:
Particulars Amount (`)
Cost paid for secondary packing 8,200
Depreciation on goods delivery vehicles 13,000
21,200
(c) (i) Separation method
Number of workers separated during the year
= x 100
Average number of workers on roll during the year
29+85
= x 100 = 5.49%
(1900+2250)/2
(ii) Replacement method
Number of workers replaced during the year
= x 100
Average number of workers on roll during the year
480
= x 100 = 23.13%
(1900+2250)/2
(iii) Flux method
Number of workers separated+ Number of workers replaced during the year
= x 100
Average number of workers on roll during the year
114+480
= x 100 = 28.63%
(1900+2250)/2
2. (a) Process Account
Particulars Units Amount Particulars Units Amount
` `
To Units introduced 50,000 1,47,000 By Normal loss @ ` 1 1,500 1,500
To Direct material 1,38,300 By Abnormal loss* 1,200 6,960
To Direct wages 65,550 By Finished 39,300 3,65,490
production*
To Production ______ 74,700 By Closing WIP* 8,000 51,600
overhead
50,000 4,25,550 50,000 4,25,550

Abnormal Loss Account

Particulars Amount Particulars Amount
` `
To Process A/c 6,960 By Scrap (120 × ` 1) 1,200
_____ By Profit and Loss A/c 5,760
6,960 6,960
*See working notes.
404
Working Notes:
This is a peculiar question of normal / abnormal loss involving use of
equivalent concept. For valuation of abnormal loss, finished production
and WIP, first of all equivalent units for them will have to be found out as
under:
Statement showing equivalent units
Particulars Input Materials Direct wages P. overheads
% Units % Units % Units
Abnormal loss 1,200 66.67 800 33.33 400 16.67 200
Finished units 39,300 100.00 39,300 100.00 39,300 100.00 39,300
Clg. WIP 8,000 75.00 6,000 50.00 4,000 25.00 2,000
Total 48,500 46,100 43,700 41,500
Statement of Cost per Equivalent unit for each element
Particulars Cost Equivalent Cost per
Unit unit
` ` `
Input material 1,47,000
Less: Scrap realization 1,500 1,45,500 48,500 3.00
Materials added 1,38,300 46,100 3.00
Direct wages 65,550 43,700 1.50
Production overhead 74,700 41,500 1.80

Statement showing cost of Abnormal Loss, finished production and

WIP
Particulars Cost per Equivalen Total cost
unit t units
Abnormal Loss
Input 1,200 3.00 3,600
Material added 800 3.00 2,400
Direct wages 400 1.50 600
Production overheads 200 1.80 360
6,960
Finished Production
Input 39,300 3.00 1,17,900
Material added 39,300 3.00 1,17,900
Direct wages 39,300 1.50 58,950
Production overheads 39,300 1.80 70,740
3,65,490
Closing WIP
Input 8,000 3.00 24,000
405
 Material added 6,000 3.00 18,000
Direct wages 4,000 1.50 6,000
Production overheads 2,000 1.80 3,600
51,600

(b) Standard Quantity of Materials for Actual Output:

P 6,000 × 2 12,000 units
Q 6,000 × 3 18,000 units
R 6,000 × 15 90,000 units
Standard hours for Actual Output:
6,000 × 3 18,000 units

Material price Variance:

(Standard Price − Actual Price) × Actual Quantity `
P (` 4.00 − ` 4.40) × 12,500 5,000 A
Q (` 3.00 − ` 2.80) × 18,000 3,600 F
R (` 1.00 − ` 1.20) × 88,500 17,700 A
19,100 A

Material Usage Variance:

(Standard Usage − Actual Usage) × Standard Price
P (12,000 − 12,500) × ` 4.00 2,000 A
Q (18,000 − 18,000) × ` 3.00 Nil
R (90,000 − 88,500) × ` 1.00 1,500 F
500 A

Labour Rate Variance:

(Standard Rate − Actual Rate) × Actual hours
(` 8.00 − ` 12.00) × 2,500 10,000 A
(` 8.00 − ` 8.00) × 15,000 Nil
10,000 A

Labour Efficiency Variance:

(Standard hours − Actual hours) × Standard Rate
(18,000 − 17,500) × ` 8.00 4,000 F

406
3. (a) Income Statement (under Marginal Costing)
May June
` (‘000) ` (‘000)
(A) Sales 12,095 15,340
Variable manufacturing cost 9,600 10,400
Add: opening inventory @ `40,000 per unit − 1,400
Cost of Goods available for sale 9,600 11,800
Less: Closing inventory @ `40,000 per Unit 1,400 1,400
Variable cost of goods sold 8,200 10,400
Variable distribution cost 820 1,040
(B) Total variable cost 9,020 11,440
(C) Contribution (A-B) 3,075 3,900
Fixed cost:-Manufacturing 3,200 3,200
Marketing 600 600
(D) Total fixed cost 3,800 3,800
Net Income (C-D) (725) 100
Income Statement (under Absorption Costing)
May June
(A) Sales 12,095 15,340
Variable manufacturing 9,600 10,400
Fixed manufacturing cost 3,200 3,200
12,800 13,600
Add: opening inventory* − 1,867
Cost of goods available for sales 12,800 15,467
Less: Closing inventory* 1,867 1,831
Cost of goods sold 10,933 13,636
Add: Distribution cost-variable 820 1,040
Add: Marketing cost-fixed 600 600
(B) Total Cost 12353 15276
Net Income (A-B) (258) 64
Comments Marginal costing rewards sales while absorption costing
rewards production. This means that when sales are more than
production, marginal costing produces higher profit and vice versa, when
production is more than sales, absorption costing shows higher profit.
In August, absorption costing shows higher profit by `6,60,000 (i.e.,
19,10,000 – 12,50,000) than marginal costing because production is
more than sales . In September marginal costing shows higher profit than
absorption costing by ` 4,35,000.

407
 Sales are more than production. Difference in profit is exactly equal to
difference in inventory values in the two months.
*Working Notes:
In marginal costing inventory is valued at variable manufacturing cost
while in absorption costing inventory valuation is done as follows:
For June closing inventory of 35 Units:
`
Variable manufacturing cost ( 35 units @ `40,000) 14,00,000
Fixed manufacturing cost (35 units @ `12,308) 4,30,780
18,30,780
Fixed manufacturing cost per unit is calculated as under:
` 32,00,000
= ` 12,308 per unit
260 units of production
For May, inventory of 35 units:
`
Variable manufacturing cost (35 units @ `40,000) 14,00,000
Fixed manufacturing cost (35 units @ `13,333) 4,66,667
18,66,667

` 32,00,000
Fixed manufacturing
= cost per unit = ` 13,333 per unit
240 units of production
(b) The two approaches will compute the different profit because of the
difference in the stock valuation. This difference is explained as follows
in different circumstances.
1. No opening and closing stock: In this case, profit / loss under
absorption and marginal costing will be equal.
2. When opening stock is equal to closing stock: In this case, profit
/ loss under two approaches will be equal provided the fixed cost
element in both the stocks is same amount.
3. When closing stock is more than opening stock: In other words,
when production during a period is more than sales, then profit as
per absorption approach will be more than that by marginal
approach. The reason behind this difference is that a part of fixed
overhead included in closing stock value is carried forward to next
accounting period.
4. When opening stock is more than the closing stock: In other
words, when production is less than the sales, profit shown by
marginal costing will be more than that shown by absorption
costing. This is because a part of fixed cost from the preceding
period is added to the current year’s cost of goods sold in the form
of opening stock.
408
 (c) Financial expenses which are not included in cost accounting are as
follows:
• Interest on debentures and deposit
• Gratuity
• Pension
• Bonus of Employee,
• Income Tax,
• Preliminary Expenses
• Discount on issue of Share
• Underwriting Commissions.
4. (a) Journal entries are as follows:
Dr. Cr.
` `

1. Finished stock ledger Control A/c Dr. 2,10,000

To Work-in-Progress Control A/c 2,10,000

2. Manufacturing Overhead Control A/c Dr. 90,000

To Cost Ledger Control A/c 90,000

3. Stores Ledger Control A/c Dr. 1,23,000

To Cost Ledger Control A/c 1,23,000

4. (i) Wage Control A/c Dr. 71,000

To Cost Ledger Control A/c 71,000

(ii) Work-in-progress Control A/c Dr. 50,000

To Wage Control A/c 50,000

(iii) Manufacturing Overhead Control A/c Dr. 21,000

To Wage Control A/c 21,000

5. Cost of Sales A/c Dr. 1,85,000

To Finished Stock Ledger A/c 1,85,000

6. Work-in-Progress Control A/c Dr. 1,27,000

To Stores Ledger Control A/c 1,27,000

7. Finished Stock Ledger Control A/c Dr. 5,000

To Cost of Sales A/c 5,000

8. Cost Ledger Control A/c Dr. 3,000

To Stores Ledger Control A/c 3,000

9. Work-in-Progress Control A/c Dr. 77,000

To Manufacturing Overhead Control A/c 77,000

409
(b) (i) Traditional Absorption Costing
BABY BABY BABY Total
SOFT- SOFT- SOFT-
Gold Pearl Diamond
(a) Production of soaps (Units) 4,000 3,000 2,000 9,000
(b) Direct labour (minutes) 30 40 60 -
(c) Direct labour hours 2,000 2,000 2,000 6,000
(a × b)/60 minutes

Overhead rate per direct labour hour:

= Budgeted overheads ÷ Budgeted labour hours
= ` 1,98,000 ÷ 6,000 hours
= ` 33 per direct labour hour
Unit Costs:
BABYSOFT- Gold BABYSOFT- BABYSOFT-
(`) Pearl (`) Diamond (`)
Direct Costs:
- Direct 5.00 6.67 10.00
Labour 10 × 30 10 × 40 10 × 60
� � � � � �
60 60 60
- Direct 167.50 215.50 248.50
Material 200 300 300
�60 × � �55 × � �65 × �
100 100 100
200 200 200
+ �20 × � + �20 × � + �20 × �
100 100 100
15 15 15
+ �30 × � + �30 × � + �30 × �
100 100 100
30 50 60
+ �10 × � + �12 × � + �15 × �
100 100 100
Production 16.50 22.00 33.00
Overhead: 30 40 60
�33 × � �33 × � �33 × �
60 60 60
Total unit costs 189.00 244.17 291.50
Number of units 4,000 3,000 2,000
Total costs 7,56,000 7,32,510 5,83,000

(ii) Activity Based Costing

BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Total
Diamond
Quantity (units) 4,000 3,000 2,000 -
Weight per unit 102 100 111 -
(grams) ((60 × .8) + 20 ((55 × .8) + 20 ((65 × .8) + 20
+ (30 × .8) + 10)) + (30 × .8) + 12)) + (30 × .8) + 15))
Total weight 4,08,000 3,00,000 2,22,000 9,30,000
(grams)
Direct labour 30 40 60 -
(minutes)

410
 Direct labour 2,000 2,000 2,000 6,000
hours 30 40 60
�4,000 × � �3,000 × � �2,000 × �
60 60 60
Machine 5 5 6 -
operations per
unit
Total 20,000 15,000 12,000 47,000
operations

Forklifting rate per gram = ` 58,000 ÷ 9,30,000 grams = ` 0.06 per gram
Supervising rate per direct labour hour = ` 60,000 ÷ 6,000 hours
= ` 10 per labour hour
Utilities rate per machine operations = ` 80,000 ÷ 47,000 machine
operations
= ` 1.70 per machine
operations
Unit Costs:
BABYSOFT- BABYSOFT- BABYSOFT-
Gold (`) Pearl (`) Diamond (`)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct material 167.50 215.50 248.50
Production Overheads:
Forklifting cost 6.12 6.00 6.66
(0.06 × 102) (0.06 × 100) (0.06 × 111)
Supervising cost 5.00 6.67 10.00
10 × 30 10 × 40 10 × 60
� � � � � �
60 60 60
Utilities 8.50 8.50 10.20
(1.70 × 5) (1.70 × 5) (1.70 × 6)
Total unit costs 192.12 243.34 285.36
Number of units 4,000 3,000 2,000
Total costs 7,30,020 5,70,720
7,68,480

5. (a) Flexible Budget for the period ….

80% 90% 100% 110%
` ` ` `
Sales 9,60,000 10,80,000 12,00,000 13,20,000
Administration Costs:
Office Salaries (fixed) 1,10,000 1,10,000 1,10,000 1,10,000
General expenses (2% of 19,200 21,600 24,000 26,400
Sales)
Depreciation (fixed) 6,200 6,200 6,200 6,200
Rent and rates (fixed) 9,750 9,750 9,750 9,750
(A) Total Adm. Costs 1,45,150 1,47,550 1,49,950 1,52,350
411
 Selling Costs :
Salaries (6% of sales) 57,600 64,800 72,000 79,200
Travelling expenses (5% of 48,000 54,000 60,000 66,000
sales)
Sales office (2% of sales) 19,200 21,600 24,000 26,400
General expenses (1% of 9,600 10,800 12,000 13,200
sales)
(B) Total Selling Costs 1,34,400 1,51,200 1,68,000 1,84,800
Distribution Costs :
Wages (2% of sales) 19,200 21,600 24,000 26,400
Rent (1% of sales) 9,600 10,800 12,000 13,200
Other expenses (6% of 57,600 64,800 72,000 79,200
sales)
(C) Total Distribution Costs 86,400 97,200 1,08,000 1,18,800
Total Costs (A + B + C) 3,65,950 3,95,950 4,25,950 4,55,950

Note : All fixed costs have been assumed to remain unchanged even at
110% capacity. However, in practice, fixed costs may change when
capacity utilisation exceeds 100%.
(b) Statement showing cost per patient day
Particulars Amount (`)
A. Variable Cost
Food Supplied to patients (` 72 × 5,600*) 4,03,200
Laundry charges (` 30 × 5,600) 1,68,000
Medicines (` 60 × 5,600) 3,36,000
Expert doctors fee (` 250 × 5,600) 14,00,000
23,07,200
B. Fixed Cost
Rent of the premises (` 15,000 × 12) 1,80,000
Repairs & Maintenance 10,000
Administrative expenses 72,000
Salary expenses:
- Supervisors (2 × ` 2,000 × 12) 48,000
- Nurses (4 × ` 1,500 × 12) 72,000
- Ward Boys (2 × ` 1,200 × 12) 28,800
4,10,800
C Total Cost (A + B) 27,18,000
* Refer to working note -1
(i) Fee should have been charged to earn 75% profit on fees received
Let fee charged is ‘X’, then profit will be 0.75 X
Total fee: X – 0.75 X = ` 27,18,000
Or, X = 1,08,72,000
412
 Fee should have been charged for per patient-day
` 1,08,72,000
= = ` 1941.43
5,600
6. (a) Difference between fixed and flexible budgets
S. Fixed Budget Flexible Budget
No.
1. It does not change with actual It can be recasted on the
volume of activity achieved. Thus basis of activity level to be
it is rigid achieved. Thus it is not
rigid.
2 It operates on one level of activity It consists of various
and under one set of conditions budgets for different level of
activity.
3 If the budgeted and actual activity It facilitates the cost
levels differ significantly, then cost ascertainment and price
ascertainment and price fixation fixation at different levels of
do not give a correct picture. activity.
4. Comparisons of actual and It provided meaningful
budgeted targets are meaningless basis of comparison of
particularly when there is actual and budgeted
difference between two levels. targets.
(b) Scope of Cost Reduction: Cost reduction is attainable in almost all areas
of business activities. There is perhaps no situation which cannot be
improved. It covers a wide range like new layout, product design,
production methods, materials and machines in factories as well as in
offices, innovation in marketing, etc. It also extends to specified
activities like purchasing, handling, packaging, shipping, warehousing,
marketing, use of administrative facilities and even utilisation of financial
resources.
Excessive cost may result in every organisation from:
(a) Lack of information about raw materials, processes, products,
components etc.
(b) Lack of utilisation of ideas generated from performance and
economic analysis.
(c) Honest but wrong beliefs that certain things are impossible for
achievement.
(d) Temporary circumstances like features developed under
pressure or modifications made to meet certain circumstances.
(e) Habits and attitudes of confining to one conventional method.
It is not necessary for management to proceed in any specific sequence
in considering the various aspects of cost reduction and it may be

413
 necessary to start the campaign in more than one direction at the same
time.
(c) Job Costing and Batch Costing : According to Job Costing, costs are
collected and accumulated according to jobs. Each job or unit of
production is treated as a separate entity for the purpose of costing. Job
Costing may be employed when jobs are executed for different
customers according to their specifications.
Batch Costing is a form of Job Costing, a lot of similar units which
comprises the batch may be used as a cost unit for ascertaining job.
Such a method of costing is used in case of pharmaceutical industry
readymade garments industries, manufacturing parts of TV, radio sets
etc.
OR
(d) Time and motions study: It is the study of time taken and motions
(movements) performed by workers while performing their jobs at the
place of their work. Time and motion study has played a significant role
in controlling and reducing labour cost.
Time Study is concerned with the determination of standard time
required by a person of average ability to perform a job. Motion study,
on the other hand, is concerned with determining the proper method of
performing a job so that there are no wasteful movements, hiring the
worker unnecessarily. However, both the studies are conducted
simultaneously. Since materials, tools, equipment and general
arrangement of work, all have vital bearing on the method and time
required for its completion. Therefore, their study would be incomplete
and would not yield its full benefit without a proper consideration of these
factors.
Time and motion study is important to management because of the
following features:
1. Improved methods, layout, and design of work ensure effective use
of men, material and resources.
2. Unnecessary and wasteful methods are pin-pointed with a view to
either improving them or eliminating them altogether. This leads to
reduction in the work content of an operation, economy in human
efforts and reduction of fatigue.
3. Highest possible level of efficiency is achieved in all respect.
4. Provides information for setting labour standards - a step towards
labour cost control and cost reduction.
5. Useful for fixing wage rates and introducing effective incentive
scheme.

414
 PAPER – 4:
COST AND MANAGEMENT
ACCOUNTING

QUESTIONS

Division A: Case Scenario

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

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The ratio of input and output is 5:3. Company works for 25 days in a
month and production is carried out evenly.
The following queries/ calculations to be kept ready for purchase
committees’ reference:
(i) For the month of January 2024, what would be the quantity of the
materials to be requisitioned for both material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.
(ii) The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively
(iii) What would the maximum stock level for material A:
(a) 18,200 kg.
(b) 12,000 kg.
(c) 16,000 kg.
(d) 16,200 kg.
(iv) Calculate saving/ loss in purchase of Material A if the purchase
order quantity is equal to EOQ.
(a) Profit of Rs. 3,21,201.
(b) Loss of Rs. 3,21,201.
(c) Profit of Rs. 2,52,500.
(d) Loss of Rs. 2,52,500.

2 MAY 2024 EXAMINATION

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

(a) 1,800 kg.
(b) 1,200 kg.
(c) 600 kg.
(d) 2,400 kg.
Employee Cost
2. The board of the J Ltd. has been appraised by the General Manager (HR)
that the employee attrition rate in the company has increased. The
following facts has been presented by the GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this
period their productivity is 60% of the experienced workers. Time
required by an experienced worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of
rectification of a defective unit was ` 25.
(3) Potential productive hours lost due to delay in recruitment were
1,00,000 hours.
(4) Selling price per unit is ` 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was
` 1,83,480.
(6) Recruitment cost was ` 1,56,340
(7) Training cost was ` 1,13,180
You being an associate finance to GM(HR), has been asked the following
questions:
(i) How much quantity of output is lost due to labour turnover?
(a) 10,000 units
(b) 8,000 units
(c) 12,000 units
(d) 12,600 units

3 MAY 2024 EXAMINATION

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(ii) How much loss in the form of contribution, the company incurred
due to labour turnover?
(a) ` 4,32,000
(b) ` 4,20,000
(c) ` 4,36,000
(d) ` 4,28,000
(iii) What is the cost repairing of defective units?
(a) ` 75,000
(b) ` 15,000
(c) ` 50,000
d) ` 25,000
(iv) Calculate the profit lost by the company due to increased labour
turnover.
(a) ` 7,50,000
(b) ` 15,00,000
(c) ` 5,00,000
(d) ` 9,00,000
(v) How much quantity of output is lost due to inexperience of the
new worker?
(a) 1,000 units
(b) 2,600 units
(c) 2,000 units
(d) 12,600 units
Overheads: Absorption Costing Method
3. During half year ending inter departmental review meeting of P Ltd.,
cost variance report was discussed and the performance of the
departments were assessed. The following figures were presented.

4 MAY 2024 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

For a period of first six months of the financial year, following

information were extracted from the books:

Actual production overheads ` 34,08,000

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

Production and sales data for the six months are as under:

Production:
Finished goods 1,10,000 units
Works-in-progress
(50% complete in every respect) 80,000 units
Sale:
Finished goods 90,000 units

Machine worked during the period was 3,000 hours.

At the of preparation of revenue budget, it was estimated that a total of
` 50,40,000 would be required for budgeted machine hours of 6,000 as
production overheads for the entire year.
During the meeting, a data analytic report revealed that 40% of the
over/under-absorption was due to defective production policies and the
balance was attributable to increase in costs.
You were also present at the meeting; the chairperson of the meeting
has asked you to be ready with the followings for the performance
appraisal of the departmental heads:
(i) How much was the budgeted machine hour rate used to recover
overhead?
(a) ` 760
(b) ` 820

5 MAY 2024 EXAMINATION

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(c) ` 780
(d) ` 840
(ii) How much amount of production overhead has been recovered
(absorbed) upto the end of half year end?
(a) ` 25,20,000
(b) ` 34,08,000
(c) ` 24,00,000
(d) ` 24,60,000
(iii) What is the amount of overhead under/ over absorbed?
(a) 1,18,000 over-absorbed
(b) 1,18,000 under- absorbed
(c) 18,000 over-absorbed
(d) 18,000 under-absorbed
(iv) What is the supplementary rate for apportionment of over/under
absorbed overheads over WIP, Finished goods and Cost of sales?

(a) ` 0.315 per unit

(b) ` 0.472 per unit
(c) ` 0.787 per unit
(d) ` 1 per unit
(v) What is the amount of over/under absorbed overhead apportioned
to Work in Progress?
(a) ` 9,440
(b) ` 42,480
(c) ` 18,880

(d) ` 70,800

6 MAY 2024 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Division B: Descriptive Questions

Activity Based Costing
4. The sales department of A Limited is analysing the customer profitability
for its Product Z. It has decided to analyse the profitability of its five new
customers using activity-based costing method. It buys Product Z at
` 5,400 per unit and sells to retail customers at a listed price of ` 6,480
per unit. The data pertaining to five customers are:

Customers
A B C D E
Units sold 4,500 6,000 9,500 7,500 12,750
Listed Selling Price `6,480 `6,480 `6,480 `6,480 `6,480
Actual Selling Price `6,480 `6,372 `5,940 `6,264 `5,832
Number of Purchase orders 15 25 30 25 30
Number of Customer visits 2 3 6 2 3
Number of deliveries 10 30 60 40 20
Kilometers travelled per 20 6 5 10 30
delivery
Number of expedited 0 0 0 0 1
deliveries

After a detailed analysis and computation, the following activities has

been identified and respective cost has been calculated:

Activity Cost Driver Rate

Order taking `4,500 per purchase order
Customer visits ` 3,600 per customer visit
Deliveries ` 7.50 per delivery Km travelled
Product handling ` 22.50 per case sold
Expedited deliveries ` 13,500 per expedited delivery

You are required to COMPUTE the customer-level operating income of

each of five retail customers.

7 MAY 2024 EXAMINATION

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

Sl. Amount Amount

No. (`) (`)
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 40,000
- Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
(xi) Expenses paid for quality control 18,000
check activities
(xii) Research & development cost paid for 20,000
improvement in production process
(xiii) Expenses paid for pollution control 36,000
and engineering & maintenance
(xiv) Salary paid to Sales & Marketing 5,60,000
managers
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:

8 MAY 2024 EXAMINATION

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- Primary packing necessary to 46,000

maintain quality
- For re-distribution of finished 80,000 1,26,000
goods
(xvii) Fee paid to independent directors 1,20,000
(xviii) Performance bonus paid to sales staffs 1,20,000
(xix) Value of stock as on 1 January, 2023:
st

- Raw materials 10,00,000

- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31stDecember,
2023:
- Raw materials 8,40,000
- Work-in-process 6,60,000
- Finished goods 10,50,000 25,50,000

Amount realized by selling of scrap and waste generated during

manufacturing process – ` 48,000/-
The board meeting is scheduled to be held in next week and you being
an associate to the chief cost controller of the company, has been asked
to PREPARE a cost sheet.
Cost Accounting System
6. The financial books of a company reveal the following data for the year
ended 31st March, 2023:
(`)

Opening Stock:
Finished goods 875 units 76,525
Work-in-process 33,000
01.04.2022 to 31.03.2023
Raw materials consumed 7,84,000
Direct labour 4,65,000

9 MAY 2024 EXAMINATION

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Factory overheads 2,65,000

Goodwill written off 95,000
Administration overheads 3,15,000
Income tax paid 72,000
Bad debts 21,000
Selling and distribution overheads 65,000
Interest received 18,500
Rent received 72,000
Sales 14,500 units 20,80,000
Closing Stock: Finished goods 375 units 43,250
Work-in-process 48,200

The management of the company, for preparing cost sheet and variance
analysis uses the following cost recovery basis which has been
elaborated by the cost controller of the company:
Factory overheads are absorbed at 60% of direct wages.
Administration overheads (production related) are recovered at 20% of
factory cost.
Selling and distribution overheads are charged at ` 5 per unit sold.
Opening Stock of finished goods is valued at `105 per unit.
The company values work-in-process at factory cost for both financial
and cost accounting purpose.
You being an associate to the cost controller of the company has been
asked to:
(i) PREPARE a statement of profit as per costing records and financial
records.
(ii) CALCULATE cost of production per unit.
(iii) PREPARE a statement reconciling the profit as per costing records
with the profit as per financial records.

10 MAY 2024 EXAMINATION

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

Large Medium Small

3,00,000 7,50,000 20,00,000

You are required to CALCULATE profit/ loss per batch and also
COMPUTE Economic Batch Quantity (EBQ).

11 MAY 2024 EXAMINATION

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

12 MAY 2024 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

(ii) PREPARE Statement of cost,

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

Particulars CNG Car EV Car

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

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

Particulars
Average distance covered by a car in a month 1,500 km

13 MAY 2024 EXAMINATION

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INTERMEDIATE EXAMINATION

Driver’s salary (`) 20,000 p.m

Garage rent per car (`) 4,500 p.m
Share of Office & Administration cost per car (`) 1,500 p.m

You have been approached by the management of A LMV Pvt. Ltd. for
consultation on the two options of operating the cab service.
CALCULATE the operating cost of vehicle per month per car for both
CNG & EV options.
Standard Costing
10. EML operates in coal mining through open cast mining method.
Explosives and detonators are used for excavation of coal from the
mines. The following are the details of standard quantity of explosives
materials used for mining:
Particulars Rate (`) Standard Qty. Standard Qty. for
for Iron ore Overburden (OB)
SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic-
meter
Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic- meter
The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden
soil to be removed to get one tonne of coal).
During the month of December 2023, the company produces 20,000
tonnes of coal and 58,000 cubic- meter of OB. The quantity of explosive
materials used and paid for the month is as below:
Material Quantity Amount (`)
SME 1,67,200 kg. 63,53,600
Detonators 1,18,400 pcs 24,27,200
Explosive suppliers are paid for the explosive materials on the basis of
performance of the explosives which is termed as powder factor. One of
the suppliers has presented their bill for explosive supplied for the
month of December 2023. You being a bill passing officer of EML is
required to COMPUTE the material price variance, material quantity
variance and material cost variance.

14 MAY 2024 EXAMINATION

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Marginal Costing
11. The analysis of cost sheet of A Ltd. for the last financial year has
revealed the following information for it’s product R:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of cost of goods sold --
Direct Labour 15% of cost of goods sold --
Factory Overhead 10% of cost of goods sold ` 2,30,000
General & Administration 2% of cost of goods sold ` 71,000
Overhead
Selling & Distribution 4% of cost of sales ` 68,000
Overhead

Last year 5,000 units were sold at `185 per unit.

You being an associate to cost controller of the A Ltd., CALCULATE :
(i) Break-even Sales (in rupees),
(ii) Profit earned during last year,
(iii) Margin of safety (in %) and
(iv) the profit if the sales were 10% less than the actual sales.
Budget and Budgetary Control
12. M Ltd. is a public sector undertaking (PSU), produces a product A. The
company is in process of preparing its revenue budget for the year 2024.
The company has the following information which can be useful in
preparing the budget:
(i) It has anticipated 12% growth in sales volume from the year 2023
of 4,20,000 tonnes.
(ii) The sales price of ` 23,000 per tonne will be increased by 10%
provided Wholesale Price Index (WPI) increases by 5%.
(iii) To produce one tonne of product A, 2.3 tonnes of raw material are
required. The raw material cost is ` 4,500 per tonne. The price of
raw material will also increase by 10% if WPI increase by 5%.
(iv) The projected increase in WPI for 2024 is 4%

15 MAY 2024 EXAMINATION

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(v) A total of 6,000 employees works for the company. The company
works 26 days in a month.
(vi) 85% of employees of the company are permanent and getting
salary as per 5- year wage agreement. The earnings per manshift
(means an employee cost for a shift of 8 hours) is ` 3,000
(excluding terminal benefits). The new wage agreement will be
implemented from 1 st July 2024 and it is expected that a 15%
increase in pay will be given.
(vii) The casual employees are getting a daily wage of ` 850. The wages
in linked to Consumer Price Index (CPI). The present CPI is 165.17
points and it is expected to be 173.59 points in year 2024.
(viii) Power cost for the year 2023 is ` 42,00,000 for 7,00,000 units
(1 unit = 1 Kwh). 60% of power is used for production purpose
(directly related to production volume) and remaining are for
employee quarters and administrative offices.
(ix) During the year 2023, the company has paid ` 60,00,000 for safety
and maintenance works. The amount will increase in proportion to
the volume of production.
(x) During the year 2023, the company has paid ` 1,20,000 for the
purchase of diesel to be used in car hired for administrative
purposes. The cost of diesel will increase by 15% in year 2024.
(xi) During the year 2023, the company has paid ` 6,00,000 for car hire
charges (excluding fuel cost). In year 2024, the company has
decided to reimburse the diesel cost to the car rental company.
Doing this will attract 5% GST on Reverse Charge Mechanism
(RCM) basis on which the company will not get GST input credit.
(xii) Depreciation on fixed assets for the year 2023 is ` 80,40,00,000
and it will be 15% lower in 2024.
You being an associate to the budget controller of the company,
PREPARE Revenue (Flexible) budget for the year 2024 and also show the
budgeted profit/ loss for the year.

16 MAY 2024 EXAMINATION

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Miscellaneous
13. (a) “Is reconciliation of cost accounts and financial accounts necessary in
case of integrated accounting system?” explain.
(b) Discuss the impact of Information Technology in Cost Accounting.
(c) Explain the difference between controllable & uncontrollable
costs?
(d) How apportionment of joint costs upto the point of separation
amongst the joint products using market value at the point of
separation and net realizable value method is done? Discuss.

SUGGESTED ANSWERS/HINTS

1. (i) (d) Monthly Production of X = 30,000 kgs.

30,000
Raw Material Required = ×5 = 50,000 kgs.
3
50,000
Material A = ×3 = 30,000 kg.
5
50,000
Material B = ×2 = 20,000 kg.
5
(ii) (a) Calculation of Economic Order Quantity (EOQ):
2×Annual consumption× Order cost
Material A =
Carrying cost per unit p.a.

2×(30,000×12)×1,200
= √ = 13,856 kg.
15% of 30

2×(20,000×12)×1,200
Material B = √ = 16,181 kg.
5% of 44

(iii) (b) Calculation of Maximum Stock level: Since, the Material A is

perishable in nature and it required to be used within 10 days,
hence, the Maximum Stock Level shall be lower of two:
(a) Stock equal to 10 days consumption

17 MAY 2024 EXAMINATION

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30000
= ×10 days = 12,000 kg.
25
(b) Maximum Stock Level for Material A:
Re-order Quantity + Re-order level – (Min consumption* ×
Min. lead time)
Where, Re-order Quantity = 15,000 kg.
Re-order level = Max. Consumption* × Max. Lead time
= 30,000/25 × 2 days = 2,400 kg.
Maximum stock Level = 15,000 kg. + 2,400 kg. -
(30,000/25 × 1 day)
= 17,400 – 1,200 = 16,200 kg.
Stock required for 10 days consumption is lower than the
maximum stock level calculated through the formula.
Therefore, Maximum Stock Level will be 12,000 kg.
(*Since, production is processed evenly throughout the
month hence material consumption will also be even.)
(iv) (b) Calculation of Savings/ loss in Material A if purchase
quantity equals to EOQ.
Purchase Quantity = Purchase Quantity =
15,000 kg. EOQ i.e. 13,856 kg.
Annual 3,60,000 kg. 3,60,000 kg.
consumption (30,000 × 12 months) (30,000 × 12 months)
No. of orders 30 30
[Note- (i)] (3,60,000 ÷ 12,000) (3,60,000 ÷ 12,000)
Ordering Cost `36,000 `36,000
(a) (`1200 × 30) (`1200 × 30)
Carrying Cost (b) `30,375 `31,176
[Note- (ii)] (15% of `27 × 7,500) (15% of `30 × 6,928)
Purchase Cost (c) `97,20,000 `1,08,00,000
(for good (`27 × 3,60,000) (`30 × 3,60,000)
portion)

18 MAY 2024 EXAMINATION

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Loss due to `24,30,000 `16,70,400

obsolescence (d) [`27 × (30 × 3,000)] [`30 × (30 × 1,856)]
[Note- (iii)]
Total Cost [(a) + ` 1,22,16,375 ` 1,25,37,576
(b) + (c) + (d)]

Purchasing of material -A at present policy of 15,000 kg.

saves ` 3,21,201.
Notes: (i) Since, material gets obsolete after 10 days, the
quantity in excess of 10 days consumption i.e. 12,000 kg. are
wasted. Hence, after 12,000 kg. a fresh order needs to be
given.
(ii) Carrying cost is incurred on average stock of Materials
purchased.
(iii) the excess quantity of material becomes obsolete and
loss has to be incurred.
(v) (c) Minimum Stock Level for Material A
= Re-order level – (Average Consumption Rate x Average Re-
order Period)
= 2400 – (1200 x 1.5) = 600 kgs
Re-order level = Max. Consumption* × Max. Lead time
= 30,000/25 × 2 days = 2,400 kg.
Average Consumption Rate = (30,000/25 + 30,000/25)/2
= 1,200 Kg
Average Re-order Period = (1 + 2)/2 =1.5 Days
Stock required for 10 days consumption is lower than the
maximum stock level calculated through the formula.
Therefore, Maximum Stock Level will be 12,000 kg.
(*Since, production is processed evenly throughout the
month hence material consumption will also be even.)

19 MAY 2024 EXAMINATION

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50,000
2. (i) (c) Output by experienced workers in 50,000 hours =
10
= 5,000 units
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
Total loss of output = Due to delay recruitment +
Due to inexperience
= 10,000 +2,000=12,000 units
(ii) (a) Contribution per unit = 20% of ` 180 = ` 36
Total contribution lost = ` 36 × 12,000 units = ` 4,32,000
(iii) (b) Cost of repairing defective units = 3,000 units × 0.2 × ` 25
= ` 15,000
(iv) (d) Calculation of loss of profit due to labour turnover
(`)

Loss of Contribution 4,32,000

Cost of repairing defective units 15,000
Recruitment cost 1,56,340
Training cost 1,13,180
Settlement cost of workers leaving 1,83,480
Profit forgone in 2022-23 9,00,000

50,000
(v) (c) Output by experienced workers in 50,000 hours =
10
= 5,000 units
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
3. (i) (d) Budgeted Machine hour rate (Blanket rate)
` 50, 40,000
= = ` 840 per hour
6,000 hours

20 MAY 2024 EXAMINATION

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(ii) (a) ` 25,20,000

(iii) (a)

Amount Amount
(`) (`)
Total production overheads 34,08,000
actually incurred during the
period
Less: Amount paid to worker as 4,50,000
per court order
Expenses of previous year 1,00,000
booked in the current
year
Wages paid for the strike 4,20,000
period under an award
Obsolete stores written off 36,000 10,06,000
24,02,000
Less: Production overheads
absorbed as per machine 25,20,000
hour rate (3,000 hours ×
` 840*)
Amount of over absorbed 1,18,000
production overheads

* Budgeted Machine hour rate (Blanket rate) calculated in

part (i)
(iv) (b) Accounting treatment of over absorbed production
overheads: As, 40% of the over absorbed overheads were due
to defective production policies, this being abnormal, hence
should be credited to Costing Profit and Loss Account.
Amount to be credited to Costing Profit and Loss Account
= ` 1,18,000× 40% = ` 47,200.

21 MAY 2024 EXAMINATION

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Balance of over absorbed production overheads should be

distributed over Works in progress, Finished goods and Cost
of sales by applying supplementary rate*.
Amount to be distributed = ` 1,18,000× 60% = ` 70,800
` 70,800
Supplementary rate = = ` 0.472 per unit
1,50,000 units

(v) (c) Apportionment of over absorbed production overheads over

WIP, Finished goods and Cost of sales:

Equivalent Amount
completed (`)
units
Work-in-Progress (80,000 units 40,000 18,880
× 50% ×0.472)
Finished goods (20,000 units 20,000 9,440
× 0.472)
Cost of sales (90,000 units 90,000 42,480
× 0.472)
Total 1,50,000 70,800

4. Working note:
1. Computation of revenues (at listed price), discount, cost of
goods sold and customer level operating activities costs:
Customers
A B C D E
Units sold: (a) 4,500 6,000 9,500 7,500 12,750
Revenues (at listed 2,91,60,000 3,88,80,000 6,15,60,000 4,86,00,000 8,26,20,000
price) (`): (b)
{(a) ×`6,480)}
Revenues (at listed 2,91,60,000 3,82,32,000 5,64,30,000 4,69,80,000 7,43,58,000
price) (`): (c) (4,500 × (6,000 × 6,372) (9,500 × (7,500 × (12,750 ×
{(a) ×Actual selling 6,480) 5,940) 6,264) 5,832)
price)}
Discount (`) (d) 0 6,48,000 51,30,000 16,20,000 82,62,000
{(b) – (c)}

22 MAY 2024 EXAMINATION

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Cost of goods sold 2,43,00,000 3,24,00,000 5,13,00,000 4,05,00,000 6,88,50,000

(`) : (e)
{(a) x `5,400}
Customer level operating activities costs
Order taking costs 67,500 1,12,500 1,35,000 1,12,500 1,35,000
(`):
(No. of purchase
orders × ` 4,500)
Customer visits costs 7,200 10,800 21,600 7,200 10,800
(`)
(No. of customer
visits x ` 3,600)
Delivery vehicles 1,500 1,350 2,250 3,000 4,500
travel costs (`)
(Kms travelled by
delivery vehicles x
` 7.50 per km.)
Product handling 1,01,250 1,35,000 2,13,750 1,68,750 2,86,875
costs (`)
{(a) x ` 22.50}
Cost of expediting - - - - 13,500
deliveries (`)
{No. of expedited
deliveries x ` 13,500}
Total cost of
customer level
operating activities
(`) 1,77,450 2,59,650 3,72,600 2,91,450 4,50,675

Computation of Customer level operating income

Customers

A B C D E

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

Revenues 2,91,60,000 3,82,32,000 5,64,30,000 4,69,80,000 7,43,58,000

(At list price)
(Refer to working
note)

Less: Cost of (2,43,00,000) (3,24,00,000) (5,13,00,000) (4,05,00,000) (6,88,50,000)

23 MAY 2024 EXAMINATION

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goods sold
(Refer to working
note)

Gross margin 48,60,000 58,32,000 51,30,000 64,80,000 55,08,000

Less: Customer
level operating
activities costs
(Refer to working
note) (1,77,450) (2,59,650) (3,72,600) (2,91,450) (4,50,675)

Customer level 46,82,550 55,72,350 47,57,400 61,88,550 50,57,325

operating income

5. Statement of Cost of P Ltd. for the year ended 31 st December, 2023:

Sl. Particulars Amount Amount
No. (`) (`)
(i) Material Consumed:
- Raw materials purchased 5,00,00,000
- Freight inward 9,20,600
Add: Opening stock of raw materials 10,00,000
Less: Closing stock of raw materials (8,40,000) 5,10,80,600
(ii) Direct employee (labour) cost:
- Wages paid to factory workers 25,20,000
(iii) Direct expenses:
- Royalty paid for production 1,80,000
- Amount paid for power & fuel 3,50,000
- Job charges paid to job workers 3,10,000 8,40,000
Prime Cost 5,44,40,600
(iv) Works/ Factory overheads:
- Stores and spares consumed 1,10,000
- Repairs & Maintenance paid for plant 40,000
& machinery
- Insurance premium paid for plant & 28,200
machinery
- Insurance premium paid for factory 18,800
building

24 MAY 2024 EXAMINATION

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- Expenses paid for pollution control and

engineering & maintenance 36,000 2,33,000
Gross factory cost 5,46,73,600
Add: Opening value of W-I-P 8,60,000
Less: Closing value of W-I-P (6,60,000)
Factory Cost 5,48,73,600
(v) Quality control cost:
- Expenses paid for quality control check 18,000
activities
(vi) Research & development cost paid for 20,000
improvement in production process
(vii) Less: Realisable value on sale of scrap and (48,000)
waste
(viii) Add: Primary packing cost 46,000
Cost of Production 5,49,09,600
Add: Opening stock of finished goods 12,00,000
Less: Closing stock of finished goods (10,50,000)
Cost of Goods Sold 5,50,59,600
(ix) Administrative overheads:
- Depreciation on office building 50,000
- Salary paid to General Manager 6,40,000
- Fee paid to independent directors 1,20,000 8,10,000
(x) Selling overheads:
- Repairs & Maintenance paid for sales 20,000
office building
- Salary paid to Manager- Sales & 5,60,000
Marketing
- Performance bonus paid to sales staffs 1,20,000 7,00,000
(xi) Distribution overheads:
- Packing cost paid for re-distribution of
finished goods 80,000
Cost of Sales 5,66,49,600

25 MAY 2024 EXAMINATION

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6. Statement of Profit as per financial records

(for the year ended March 31, 2023)
(`) (`)

To Opening stock: By Sales 20,80,000

Finished goods 76,525 By Closing stock:
Work-in-process 33,000 Finished Goods 43,250
To Raw materials 7,84,000 Work-in-Process 48,200
consumed
To Direct labour 4,65,000 By Rent received 72,000
To Factory overheads 2,65,000 By Interest received 18,500
To Goodwill written off 95,000
To Administration 3,15,000
overheads
To Selling & distribution 65,000
overheads
To Income tax paid 72,000
To Bad debts 21,000
To Profit 70,425
22,61,950 22,61,950

Statement of Profit as per costing records

(for the year ended March 31,2023)
(`) (`)
Sales revenue (14,500 units) (A) 20,80,000
Cost of Sales:
Opening stock (875 units x ` 105) 91,875
Add: Cost of production of 14,000 units 18,15,360
(Refer to Working Note 1& 2)
 `18,15,360 × 375 units  (48,626)
Less: Closing stock  
 14,000 units 

26 MAY 2024 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Production cost of goods sold (14,500 units) 18,58,609

Selling & distribution overheads (14,500 units x 72,500
` 5)
Cost of sales: (B) 19,31,109 19,31,109
Profit: {(A) – (B)} 1,48,891
Workings:

1. Number of units produced Units

Sales 14,500
Add: Closing stock 375
Total 14,875
Less: Opening stock 875
Number of units produced 14,000
Cost Sheet
(`) (`)
Raw materials consumed 7,84,000
Direct labour 4,65,000
Prime cost 12,49,000
Factory overheads (60% of direct wages) 2,79,000
Factory cost 15,28,000
Add: Opening work-in-process 33,000
Less: Closing work-in-process (48,200)
Factory cost of goods produced 15,12,800
Administration overheads (20% of factory cost) 3,02,560
Cost of production of 14,000 units 18,15,360

Cost of production per unit:

Total Cost of Production ` 18,15,360
= = = `129.67
No. of units produced 14,000 units

27 MAY 2024 EXAMINATION

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Statement of Reconciliation
(Reconciling the profit as per costing records with the profit as
per financial records)
(`) (`)
Profit as per Cost Accounts 1,48,891
Add: Factory overheads over absorbed 14,000
(` 2,79,000 – ` 2,65,000)
S & D overheads over absorbed 7,500
(` 72,500 - ` 65,000)
Opening stock overvalued (` 91,875 – ` 76,525) 15,350
Interest received 18,500
Rent received 72,000 1,27,350
2,76,241
Less: Administration overheads under recovery 12,440
(` 3,15000 – ` 3,02,560)
Closing stock overvalued (` 48,626 – ` 43,250) 5,376
Goodwill written off 95,000
Income tax paid 72,000
Bad debts 21,000 2,05,816
Profit as per financial accounts 70,425

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

28 MAY 2024 EXAMINATION

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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 1,666 3,333 8,333
(Refer WN-1)
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 3 1.5 0.6

(Litre)

C Output (Litre) 9,00,000 11,25,000 12,00,000 32,25,000

[A×B]

D Material-W per 14 14 14
litre of output
(Litre)

E Material-W 1,26,00,000 1,57,50,000 1,68,00,000 4,51,50,000

required (Litre)
[C×D]

F Material-C 25 25 25
required per litre
of output (ml)

G Material-C 22,500 28,125 30,000 80,625

required (Litre)
[(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

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(Hours)
C Total hours required (Hours) 360 450 480 1,290
[A×B]
D No. of shifts required [C÷8] 45 57 60 162
E Total manshift [D×20 900 1,140 1,200 3,240
workers]

4. Power consumption in Kwh

Large Medium Small Total
For processing
A No. of batches 180 225 240 645
B Hours required per 1.75 1.75 1.75 1.75
batch (Hours)
C Total hours required 315 393.75 420 1,128.75
(Hours) [A×B]
D Power consumption per 90 90 90 90
hour
E Power consumption in 28,350 35,437.5 37,800 1,01,587.5
Kwh [C×D]
F Per batch consumption 157.5 157.5 157.5 157.5
(Kwh) [E÷A]
For set-up
G Hours required per 0.25 0.25 0.25 0.25
batch (Hours)
H Total hours required 45 56.25 60 161.25
(Hours) [A×G]
I Power consumption per 18 18 18 18
hour [20%×90]
J Power consumption in 810 1,012.5 1,080 2,902.5
Kwh [H×I]
K Per batch consumption 4.5 4.5 4.5 4.5
(Kwh) [J÷A]

30 MAY 2024 EXAMINATION

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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 (`) 4,50,00,000 6,75,00,000 10,00,00,000 21,25,00,000
[A×B]
Direct Material
cost:
E Material-W (`) 63,00,000 78,75,000 84,00,000 2,25,75,000
[Qty in WN-3 ×
` 0.50]
F Material-C (`) 2,25,00,000 2,81,25,000 3,00,00,000 8,06,25,000
[Qty in WN-3 ×
`1,000]
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 (`) 9,00,000 22,50,000 60,00,000 91,50,000
[A×`3]
Power cost (`)
J For processing (`) 1,98,450 2,48,062.5 2,64,600 7,11,112.5
[WN-5 × `7]
K For set-up time 5,670 7,087.5 7,560 20,317.5
(`) [WN-5 × `7]
L [J+K] 2,04,120 2,55,150 2,72,160 7,31,430
M Other variable 54,00,000 67,50,000 72,00,000 1,93,50,000
cost (`) [No. of
batch in WN-2 ×
` 30,000]
N Total Variable 3,60,96,120 4,62,58,350 5,29,28,160 13,52,82,630
cost per batch

31 MAY 2024 EXAMINATION

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[G+H+I+L+M]
O Profit/ loss 89,03,880 2,12,41,650 4,70,71,840 7,72,17,370
before fixed cost
[C-N]
P Fixed Cost 4,90,00,000
Q Total Cost 2,82,17,370
[O-P]

Computation of Economic Batch Quantity (EBQ):

2×D×S
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:
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.
8. (i) Statement of Equivalent Production (FIFO Method)

Input Output Equivalent Production

Materials Labour Overheads
Details Units Details Units % Units % Units % Units
Opening 600 Finished goods

32 MAY 2024 EXAMINATION

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Stock transferred to
next process:
-From opening
stock 600 - - 40 240 40 240
-From fresh 8,300 100 8,300 100 8,300 100 8,300
materials
Closing W-I-P 700 100 700 70 490 70 490
Fresh 9,200 Normal loss 392 - - - - - -
inputs
9,992 9,000 9,030 9,030
Less: Abnormal (192) 100 (192) 100 (192) 100 (192)
Gain
9,800 9,800 8,808 8,838 8,838

(ii) Statement of Cost per equivalent units

Elements Cost Equivalent Cost per

units equivalent
Unit
(`) (`) (`)

Material Cost 55,200

Less: Scrap realisation 2,352 52,848 8,808 6.00
392 units @ ` 6/- p.u.
Labour cost 18,600 8,838 2.10
Overheads 8,630 8,838 0.98
Total Cost 80,078 9.08

Cost of Abnormal Gain – 192 Units

(`) (`)

Material cost of 192 units @ ` 6.00/- p.u. 1,152.00

Labour cost of 192 units @ ` 2.10/- p.u. 403.20
Overheads of 192 units @ ` 0.98/- p.u. 188.16 1,743.36
(iii) Cost of closing WIP – 700 Units

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Material cost of 700 equivalent units @ ` 6.00/- p.u. 4,200.00

Labour cost of 490 equivalent units @ `2.10/- p.u. 1,029.00
Overheads of 490 equivalent @ ` 0.98/- p.u. 480.20 5709.20

(iv) Calculation of cost of 8,900 units transferred to next process

(`)

(i) Cost of opening W-I-P Stock b/f – 600 units 4,200.00

(ii) Cost incurred on opening W-I-P stock
Material cost —
Labour cost 240 equivalent units @ ` 2.10 p.u. 504.00
Overheads 240 equivalent units @ ` 0.98/- p.u. 235.20
739.20
(iii) Cost of 8,300 completed units
8,300 units @ `9.08 p.u. 75,364.00
Total cost [(i) + (ii) + (iii))] 80,303.20
9. Workings:
1. Calculation of Depreciation per month:

Particulars CNG Car EV Car

A Car purchase price (`) 9,20,000 15,20,000
B Less: Govt. subsidy (`) -- (1,50,000)
C Less: Residual value (`) (95,000) (1,70,000)
D Depreciable value of car (`) [A-B-C] 8,25,000 12,00,000
E Life of the car 15 years 10 years
F Annual depreciation (`) [D÷E] 55,000 1,20,000
G Depreciation per month (`) [F÷12] 4,583.33 10,000

34 MAY 2024 EXAMINATION

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2. Fuel/ Electricity consumption cost per month:

Particulars CNG Car EV Car

A Average distance covered in a month (KM) 1,500 1,500
B Mileage (KM) 20 240
C Qty. of CNG/ Full charge required [A÷B] 75 kg. 6.25
D Electricity Consumption [C×30kwh] - 187.5
E Cost of CNG per kg (`) 60 -
F Power cost per Kwh (`) - 7.60
G CNG Cost per month (`) [C×E] 4,500 -
H Power cost per month (`) [D×F] - 1,425

3. Amortised cost of Tyre replacement:

Particulars CNG Car EV Car

A Life of vehicle 15 years 10 years
B Replacement interval 5 years 5 years
C No. of time replacement required 2 times 1 time
D Cost of tyres for each replacement (`) 16,000 16,000
E Total replacement cost (`) [C×D] 32,000 16,000
F Amortised cost per year (`) [E÷A] 2,133.33 1,600
E Cost per month (`) [F÷12] 177.78 133.33

4. Amortised cost of Battery replacement:

Particulars CNG Car EV Car

A Life of vehicle 15 years 10 years
B Replacement interval 8 years 8 years
C No. of time replacement required 1 time 1 time
D Cost of battery for each replacement (`) 12,000 5,40,000
E Total replacement cost (`) [C×D] 12,000 5,40,000
F Amortised cost per year (`) [E÷A] 800 54,000
E Cost per month (`) [F÷12] 66.67 4,500

35 MAY 2024 EXAMINATION

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Calculation of Operating cost per month

Particulars CNG Car (`) EV Car (`)

A Running cost:
Fuel cost/ Power consumption cost 4,500 1,425
[Refer WN-2]
B Maintenance cost:
Annual Maintenance cost [Annual cost 666.67 433.33
÷12]
Annual Insurance cost [Annual cost ÷12] 633.33 1,216.67
Amortised cost of Tyre replacement 177.78 133.33
[Refer WN-3]
Amortised cost of Battery replacement 66.67 4,500
[Refer WN-4]
1,544.45 6,283.33
C Fixed cost:
Depreciation [Refer WN-1] 4,583.33 10,000
Driver’s salary 20,000 20,000
Garage rent 4,500 4,500
Share of Office & Administration cost 1,500 1,500
30,583.33 36,000
D Operating cost per month [A+B+C] 36,627.78 43,708.33

10. Workings:
1. Calculation of Standard Qty. of Explosives and Detonators for
actual output:

Particulars Coal Overburden Total

(OB)
SME:
A Actual Output 20,000 tonne 58,000 M3

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B Standard Qty 2.4 kg./ tonne 1.9 kg./M3

per unit
C Standard Qty. 48,000 kg. 1,10,200 kg. 1,58,200 kg.
for actual
production
[A×B]
Detonators:
D Standard Qty 2 pcs/ tonne 2 pcs/ M3
per unit
E Standard Qty. 40,000 pcs. 1,16,000 pcs 1,56,000 pcs
for actual
production
[A × D]

2. Calculation of Actual Price per unit of materials:

Material Quantity [A] Amount (`) [B] Rate (`) [C = B÷A]

SME 1,67,200 kg. 63,53,600 38.00
Detonators 1,18,400 pcs 24,27,200 20.50

Computation of material price variance:

Material Price Variance = Actual Qty. × (Std. Price - Actual Price)
SME = 1,67,200 kg. × (`40 – `38) = `3,34,400 (F)
Detonators = 1,18,400 pcs × (`20 – `20.5) = `59,200 (A)
Total = `2,75,200 (F)
Computation of material quantity variance:
Material Qty. Variance = Std. Price × (Std. Qty for actual output - Actual
Qty.)
SME = `40 × (1,58,200 kg. - 1,67,200 kg.) = `3,60,000 (A)
Detonators = `20 × (1,56,000 pcs -1,18,400 pcs) = `7,52,000 (F)
Total = `3,92,000 (F)

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Computation of material cost variance:

Material cost variance = Std. cost – Actual Cost
Or, (Std. Price × Std. Qty) – (Actual Price × Actual Qty.)
SME = (` 40 × 1,58,200 kg) – (` 38 × 1,67,200 kg.)
= ` 63,28,000 – ` 63,53,600 = ` 25,600 (A)
Detonators = (` 20 × 1,56,000 pcs) – (` 20.50 × 1,18,400 pcs)
= `31,20,000 – `24,27,200 = 6,92,800 (F)
Total = `6,67,200 (F)
11. Workings:
Calculation of Cost of Goods Sold (COGS):
COGS = {(DM- 0.3 COGS) + (DL- 0.15 COGS) + (FOH- 0.10 COGS +
` 2,30,000) + (G&AOH- 0.02 COGS + ` 71,000)}
Or COGS = 0.57 COGS + ` 3,01,000
`3,01,000
Or COGS = = ` 7,00,000
0.43
Calculation of Cost of Sales (COS):
COS = COGS + (S&DOH- 0.04 COS + ` 68,000)
Or COS = ` 7,00,000 + (0.04 COS + ` 68,000)
`7,68,000
Or COS = = ` 8,00,000
0.96
Calculation of total Fixed Costs:

Factory Overhead ` 2,30,000

General & Administration OH ` 71,000
Selling & Distribution OH ` 68,000
` 3,69,000

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Calculation of Variable Costs:

Direct Material (0.3 × ` 7,00,000) ` 2,10,000

Direct Labour (0.15 × ` 7,00,000) ` 1,05,000
Factory Overhead (0.10 × ` 7,00,000) ` 70,000
General & Administration OH (0.02 × ` 7,00,000) ` 14,000
Selling & Distribution OH (0.04 × ` 8,00,000) ` 32,000
` 4,31,000

Calculation of P/V Ratio:

Contribution Sales-VariableCosts
P/V Ratio = ×100 = ×100
Sales Sales
(`185×5,000 units)- `4,31,000
= ×100 = 53.41%
`185×5,000 units

Fixed Costs `3,69,000

(i) Break-Even Sales = = = ` 6,90,882
P / V Ratio 53.41%

(ii) Profit earned during the last year

= (Sales – Total Variable Costs) – Total Fixed Costs
= (` 9,25,000 - ` 4,31,000) - ` 3,69,000
= ` 1,25,000
Sales-Breakevensales
(iii) Margin of Safety (%) = ×100
Sales
` 9,25,000- ` 6,90,882
= ×100 = 25.31%
` 9,25,000

(iv) Profit if the sales were 10% less than the actual sales:
Profit = 90% (` 9,25,000 - ` 4,31,000) - ` 3,69,000
= ` 4,44,600 - ` 3,69,000 = ` 75,600

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12. Revenue Budget (Flexible Budget) of M Ltd. for the Year 2024

Particulars PY 2023 CY 2024

A Sales Volume (Tonnes) 4,20,000 4,70,400
[112%×4,20,000]
B Selling Price per tonne 23,000 23,000
(`)
(` in lakh) (` in lakh)
C Sales value [A×B] 96,600 1,08,192
D Raw material Cost:
(i) Qty. of Material [2.3 9,66,000 10,81,920
tonnes × A] (tonnes)
(ii) Price per tonne (`) 4,500 4,500
(iii) Total raw material 43,470 48,686.40
cost [(i)×(ii)]
E Wages & Salary Cost:
(i) Wages to casual 2,386.80 2,508.47
employees [900×26×12×`850] [900×26×12×`893.33]
(15%×6,000 = 900
employees)
(ii) Salary to permanent 47,736 51,316.20
employees [5100×26×12×`3,000] [(5100×26×6×`3,000) +
(85%×6,000 = 5,100 (5100×26×6×`3,450)]
employees)
(iii) Total wages & salary 50,122.80 53,824.67
[(i)+(ii)+(iii)]
F Power cost:
(i) For production (units) 4,20,000 4,70,400
[60%×7,00,000] [112%×4,20,000]
(ii) For employees & 2,80,000 2,80,000
offices (units)
[40%×7,00.000]

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(iii) Total Power 7,00,000 7,50,400

consumption (units)
[(i)+(ii)]
(iv) Power rate per unit (`) 6.00 6.00
[`42,00,000÷7,00,000]
(v) Total power cost 42 45.024
[(iii)×(iv)]
G Safety and 60 67.20
maintenance Cost [112%×4,20,000]
H Diesel cost 1.2 -
I Car Hire charge:
(i) Car hire charge 6 6
(ii) Fuel reimbursement - 1.38
cost [115%×1.2]
(iii) GST@5% on RCM - 0.369
basis
[5%×(i+ii)]
(iv) Total Car hire charge 6 7.749
cost [(i)+(ii)+(iii)]
J Depreciation 8,040 6,834
[85%×8040]
K Total Cost [Sum of D 1,01,742 1,09,465.043
to J]
L Profit/ (Loss) [C-L] (5,142) (1273.043)

13. (a) In integrated accounting system cost and financial accounts are kept
in the same set of books. Such a system will have to afford full
information required for Costing as well as for Financial Accounts. In
other words, information and data should be recorded in such a way
so as to enable the firm to ascertain the cost (together with the
necessary analysis) of each product, job, process, operation or any
other identifiable activity. It also ensures the ascertainment of
marginal cost, variances, abnormal losses and gains. In fact, all

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information that management requires from a system of Costing for

doing its work properly is made available. The integrated accounts
give full information in such a manner so that the profit and loss
account and the balance sheet can be prepared according to the
requirements of law and the management maintains full control over
the liabilities and assets of its business.
Since, only one set of books are kept for both cost accounting and
financial accounting purpose so there is no necessity of
reconciliation of cost and financial accounts.
(b) The impact of IT in cost accounting may include the
followings:
(i) After the introduction of ERPs, different functional activities
get integrated and as a consequence a single entry into the
accounting system provides custom made reports for every
purpose and saves an organisation from preparing different
sets of documents. Reconciliation process of results of both
cost and financial accounting systems become simpler and
less sophisticated.
(ii) A move towards paperless environment can be seen where
documents like Bill of Material, Material Requisition Note,
Goods Received Note, labour utilisation report etc. are no
longer required to be prepared in multiple copies, the
related department can get e-copy from the system.
(iii) Information Technology with the help of internet (including
intranet and extranet) helps in resource procurement and
mobilisation. For example, production department can get
materials from the stores without issuing material requisition
note physically. Similarly, purchase orders can be initiated to
the suppliers with the help of extranet. This enables an entity
to shift towards Just-in-Time (JIT) approach of inventory
management and production.
(iv) Cost information for a cost centre or cost object is
ascertained with accuracy in timely manner. Each cost centre
and cost object is codified and all related costs are assigned

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to the cost object or cost centre. This process automates the

cost accumulation and ascertainment process. The cost
information can be customised as per the requirement. For
example, when an entity manufactures or provide services, it
can know information job-wise, batch-wise, process-wise,
cost centre wise etc.
(v) Uniformity in preparation of report, budgets and standards
can be achieved with the help of IT. ERP software plays an
important role in bringing uniformity irrespective of location,
currency, language and regulations.
(vi) Cost and revenue variance reports are generated in real time
basis which enables the management to take control
measures immediately.
(vii) IT enables an entity to monitor and analyse each process of
manufacturing or service activity closely to eliminate non-
value-added activities.
The above are examples of few areas where Cost Accounting is
done with the help of IT.
(c) Controllable costs and Uncontrollable costs: Cost that can be
controlled, typically by a cost, profit or investment centre manager
is called controllable cost. Controllable costs incurred in a
particular responsibility centre can be influenced by the action of
the executive heading that responsibility centre.
Costs which cannot be influenced by the action of a specified
member of an undertaking are known as uncontrollable costs.
(d) Apportionment of Joint Cost amongst Joint Products using:
Market value at the point of separation: This method is used for
apportionment of joint costs to joint products upto the split off
point. It is difficult to apply if the market value of the product at
the point of separation is not available. It is useful method where
further processing costs are incurred disproportionately.

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Net realizable value Method: From the sales value of joint

products (at finished stage) the followings are deducted:
− Estimated profit margins
− Selling & distribution expenses, if any
− Post split off costs.
The resultant figure so obtained is known as net realizable value of
joint products. Joint costs are apportioned in the ratio of net
realizable value.

44 MAY 2024 EXAMINATION

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 PAPER – 4:
COST AND MANAGEMENT
ACCOUNTING

QUESTIONS

Division A: Case Scenario

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

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

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

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

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

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

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

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

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(d) 1,75,000 units

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

Original purchase price of the machine (subject to

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

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

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

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

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Particulars (`) Cost drivers

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

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

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

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

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

Cost Accounting System

12. A manufacturing company disclosed a net loss of ` 3,47,000 as per their
cost accounts for the year ended March 31,2024. The financial accounts
however disclosed a net loss of ` 5,10,000 for the same period. The
following information was revealed as a result of scrutiny of the figures
of both the sets of accounts.

(`)
(i) Factory Overheads under-absorbed 40,000
(ii) Administration Overheads over-absorbed 60,000
(iii) Depreciation charged in Financial Accounts 3,25,000
(iv) Depreciation charged in Cost Accounts 2,75,000
(v) Interest on investments not included in Cost Accounts 96,000
(vi) Income-tax provided 54,000
(vii) Interest on loan funds in Financial Accounts 2,45,000
(viii) Transfer fees (credit in financial books) 24,000
(ix) Stores adjustment (credit in financial books) 14,000
(x) Dividend received 32,000

PREPARE a memorandum Reconciliation Account

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

Month Batch Material cost Direct wages Direct labour

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

The other details are:

Month Chargeable expenses Direct labour

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

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

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

Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of ` 55,20,000 for 9,200 units.
(4) Direct wages incurred ` 18,60,000
(5) Production overhead ` 8,63,000.
(6) Units scrapped 200 units. The stage of completion of these units
was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 700 units. The stage of completion of
these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 8,900 units were completed and transferred to the next process.
(9) Normal loss is 4% of the total input (opening stock plus units put
in)
(10) Scrap value is ` 60 per unit.
You are required to:
(i) COMPUTE equivalent production,
(ii) CALCULATE the cost per equivalent unit for each element.
(iii) CALCULATE the cost of abnormal loss (or gain), closing work in
process and the units transferred to the next process using the
FIFO method.

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Joint Products & By-Products

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

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

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

Sl. No. Type of vehicle Daily traffic volume

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

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The following is the estimated cost of the project:

Sl. Activities Amount

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

An average cost of ` 1,120 lakh has to be incurred on administration and

toll plaza operation.
On the basis of the vehicle specifications (i.e. weight, size, time saving
etc.), the following weights has been assigned to the passing vehicles:

Sl. No. Type of vehicle

1. Two wheelers 5%
2. Car and SUVs 20%
3. Bus and LCV 30%
4. Heavy commercial vehicles 45%

Required:
(i) CALCULATE the total project cost per day of concession period.
(ii) COMPUTE toll fee to be charged for per vehicle of each type, if the
company wants to earn a profit of 15% on total cost.
[Note: Concession period is a period for which an infrastructure is
allowed to operate and recovers its investment]

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COST AND MANAGEMENT ACCOUNTING

Marginal Costing
17. RS Ltd. manufactures and sells a single product X whose selling price is
` 100 per unit and the variable cost is ` 60 per unit.
(i) If the Fixed Costs for this year are ` 24,00,000 and the annual sales
are at 60% margin of safety, CALCULATE the rate of net return on
sales, assuming an income tax level of 40%
(ii) For the next year, it is proposed to add another product line Y
whose selling price would be ` 150 per unit and the variable cost
` 100 per unit. The total fixed costs are estimated at ` 28,00,000.
The sales mix of X : Y would be 5 : 3. COMPUTE the break-even
sales in units for both the products.
Budget and Budgetary Control
18. Raja Ltd manufactures and sells a single product and has estimated sales
revenue of ` 302.4 lakh during the year based on 20% profit on selling
price. Each unit of product requires 6 kg of material A and 3 kg of
material B and processing time of 4 hours in machine shop and 2 hours
in assembly shop. Factory overheads are absorbed at a blanket rate of
20% of direct labour. Variable selling & distribution overheads are ` 60
per unit sold and fixed selling & distribution overheads are estimated to
be ` 69,12,000.
The other relevant details are as under:

Purchase Price: Material A ` 160 per kg

Materials B ` 100 per kg

Labour Rate: Machine Shop ` 140 per hour

Assembly Shop ` 70 per hour
Finished Stock Material A Material B
Opening Stock 2,500 units 7,500 kg 4,000 kg
Closing Stock 3,000 units 8,000 kg 5,500 kg

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

SUGGESTED ANSWERS/HINTS

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

Particulars Amount (`)

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

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(ii) (b)

Particulars Units (`)

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

Total cost of material 3,14,000

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

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

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

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

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Net AH = 28,000 hours

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

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

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

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

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

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

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COST AND MANAGEMENT ACCOUNTING

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

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

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

8 36
Or, =
100 Average No. of workers

Or, Average No. of workers = 450

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

6 No. of workers separated

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

14 27 + No. of accessions (Joinings)

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

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

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

Per month Per hour

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

Wages per machine hour

Machine man Helper

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

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

` 24,500.00 ` 17,000.00

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COST AND MANAGEMENT ACCOUNTING

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

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

10. (i) Traditional Absorption Costing

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

SOFTHUG- SOFTHUG- SOFTHUG-

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

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Production Overhead: 16.50 22.00 33.00

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

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

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COST AND MANAGEMENT ACCOUNTING

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

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

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

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

SOFTHUG SOFTHUG SOFTHUG

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

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Supervising cost 5.00 6.67 10.00

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

Total unit costs 192.48 243.70 285.72

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

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

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

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

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

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

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

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13. Statement of Cost and Profit per batch

Particulars Jan. Feb. March April May June Total

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

Overall position of the order for 1,800 units

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

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

Input Output Equivalent Production

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

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

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

(ii) Statement of Cost per equivalent units

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

(iii) Cost of Abnormal Gain – 192 Units

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

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Cost of 8,900 units transferred to next process `

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

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

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(ii) Computation of net allocable joint costs

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

Determination of joint cost per unit of each product

Product Net joint costs Output Joint cost

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

Profit margin available on each product as a percentage on cost

Product Joint Post Total Selling Margin Margin

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

Note: 1

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

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

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

(ii) Computation of toll fee:

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

= ` 19.06 per equivalent vehicle

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Vehicle type-wise toll fee:

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

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

Sl. Type of vehicle Daily traffic Weight Ratio Equivalent

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

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

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

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Actual Sales – 60,000units

Or, 60% =
Actual Sales

∴ Actual Sales = 1,50,000 units

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

(ii) Products

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

Composite contribution will be as follows:

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

Break-even Sales Mix:

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

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18. Workings
Statement Showing “Total Variable Cost for the year”

Particulars Amount (`)

Estimated Sales Revenue 3,02,40,000
Less: Desired Profit Margin on Sale @ 20% 60,48,000
Estimated Total Cost 2,41,92,000
Less: Fixed Selling and Distribution Overheads 69,12,000
Total Variable Cost 1,72,80,000

Statement Showing “Variable Cost per unit”

Particulars Variable Cost p.u. (`)
Direct Materials:
A: 6 Kg. @ ` 160 per kg. 960
B: 3 Kg. @ ` 100 per kg. 300
Labour Cost:
Machine Shop: 4 hrs @ ` 140 per hour 560
Assembly Shop: 2 hrs @ ` 70 per hour 140
Factory Overheads: 20% of (` 560 + ` 140) 140
Variable Selling & Distribution Expenses 60
Total Variable Cost per unit 2,160

(i) Calculation of number of units of product proposed to be sold

and selling price per unit:
Number of Units Sold = Total Variable Cost/Variable Cost per unit
= ` 1,72,80,000 / ` 2,160
= 8,000 units
Selling Price per unit = Total Sales Value / Number of Units Sold
= ` 3,02,40,000 / 8,000 units
= ` 3,780

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(ii) Production Budget (units)

Particulars Units
Budgeted Sales 8,000
Add: Closing Stock 3,000
Total Requirements 11,000
Less: Opening Stock (2,500)
Required Production 8,500

(iii) Materials Purchase Budget (Kg.)

Particulars Material Material

A B
Requirement for Production 51,000 25,500
(8,500 units × 6 Kg.) (8,500 units × 3 Kg.)
Add: Desired Closing Stock 8,000 5,500
Total Requirements 59,000 31,000
Less: Opening Stock (7,500) (4,000)
Quantity to be purchased 51,500 27,000

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

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(ii) selling, distribution and administration expenses attributable

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

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(variance) in cost is measured and analysed into controllable

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

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ACCOUNTING

QUESTIONS

PART I - Case Scenario based MCQs

Marginal Costing
1. Popular company produces various articles for student purposes. It has
been in industry since last 25 years. Company had a very humble start
but gained popularity over the years due to excellent quality products
which were sold at very competitive prices. Company has huge reserves
and feel that it is also obligated to give back to the society from which it
has grown.
Last year management decided to produce and supply special quality
school bags, water bottles, & geometry boxes to NGOs, at no price, as a
social responsibility. These articles were simple looking but were more
durable, that would not have wore-off easily and could have been used
for long-term.
This year management wants to add another dimension to this social
work. It approached charitable schools and government run schools and
offered them the supply of the same articles, at cost. This will help
students in these schools to get these things at a very low price
compared to market.
The variable costs are ` 100, ` 80, and ` 40 for school bags, water
bottles, and geometry boxes, respectively. These articles are made using
a single machine. 0.20 hours of machine operation is required for
manufacturing 1 unit of school bag. Similarly, machine hours required
for each units of water bottle and geometry box is 0.15 hours and 0.10
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hours, respectively. Fixed overhead related to machine is ` 7,40,000 per

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

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(b) 200, 300, 500

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

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

Process I Process II Process III Finished

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

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

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

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

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

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

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

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

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

In the amended incentive system, the normal weekly working hours

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

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

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

Particulars Amount (`)

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

Factory overheads are 20% of the Prime cost.

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

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

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

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

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

Products Completed units (tons)

BetaTab 360
Folick 120
TegriCap 50

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

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

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

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

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

Particulars ‘Cee’ ‘Dee’

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

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

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

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

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

Selling and Distribution overheads and the basis of allocation are as

follows :

Fixed Cost Amount Basis of allocation

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

Finance Manager of the Company has recommended to discontinue the

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

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

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

Particulars Amount (`)

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

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

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

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

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

Particulars Product A Product B Product C

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

14 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

You are required the following:

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

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

15 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Purchase Price of each bus ` 30,00,000

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

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

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

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

A 50 110
B 30 320
C 30 460

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

16 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

A 60 115
B 25 330
C 20 405

You are required to CALCULATE the following variances based on the

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

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

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

17 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

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

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

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

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

18 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

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

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

19 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

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

SUGGESTED ANSWERS/HINTS

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

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

Total machine hours = 8000 hours

Fixed OH per hour= ` 92.5

Fixed OH per unit of:

• School bag = 0.20 x 92.5 = ` 18.5

• Water bottle = 0.15 x 92.5 = ` 13.875

• Geometry box = 0.10 x 92.5 = ` 9.25

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

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

Contribution:

• Bag = 200-100 = 100

• Bottle = 160-80=80

20 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

• Geometry = 100- 40 = 60

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

x 5/10 = ` 74

Overall breakeven point for this assignment is = fixed cost

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

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

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

(iv) (c) Total hours = 800 hours

let total no of units = X

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

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

hours

X = 5925

Units of :

• Bag = 2/10 x 5925 = 1185

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

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

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

COST = Marginal Cost Per Unit + Fixed Overhead

Cost Allocated Per Unit

Bag Bottle Geometry

Variable cost per unit 100 80 40

Fixed cost per unit 18.5 13.875 9.25

Total 118.5 93.875 49.25

21 JANUARY 2025 EXAMINATION

 2.

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

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

*Transfer price
Stock A/c
REVISION TEST PAPER

(Transfer)*

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

Material stock

Direct 66,87,500 − 66,87,500

Process I Account

Wages

Prime Cost 1,17,70,000 − 1,17,70,000

Manufactur- 51,36,000 − 51,36,000

ing
Overheads

Total cost 1,69,06,000 − 1,69,06,000

Costing 39,59,000 39,59,000

Profit and
Loss A/c**

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

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

JANUARY 2025 EXAMINATION

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

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

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

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

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

A/c stock*

Direct -

* Cost of Closing Stock =

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

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

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

` 2,63,22,000
Manufactur-

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

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

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

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

Profit and
Loss A/c***

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

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

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

JANUARY 2025 EXAMINATION

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

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

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

A/c stock*

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

Material

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

Process III Account

Wages

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

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

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

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

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

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

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

JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

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

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

25 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Add: Bonus @ 15% on basic Piece rate

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

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

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

26 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Prime Cost 26,39,000*

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

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

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

Products Quantity Quantity of closing Total

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

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

27 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Products Total (`)

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

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

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

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

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

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

28 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

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

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

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

2 x Annual demand x ordering cost

EOQ =
Carrying cost per unit per annum

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

29 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

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

Particulars When EOQ is When discount of

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

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

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

Particulars ‘Cee’ ‘Dee’

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

30 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

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

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

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

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

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

31 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

10. Profitability statement of each product for the year ended

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

32 JANUARY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

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

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

Particulars Per unit Total

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

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

33 JANUARY 2025 EXAMINATION

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

Particulars (`) (`)

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

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Income tax provided in financial accounts 2,54,400

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

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

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

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

Overall Position of the Order for 6,000 Units

Particulars Amount (`)

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

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

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

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

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

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

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

8,125
�=
24,375

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

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

(ii) Further processing decision

Particulars Product A Product B

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

Therefore, Product A should be processed further as they give

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

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split-off point as they suffer incremental losses after further

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

Particulars Rate Per Bus per

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

(ii) Average cost per students per month:

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

Total cost per month ` 2,21,920

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

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B. Student coming from a distance beyond 10 km

= ` 3,082.22 × 2 = ` 6,164.44

* Considering half fare students as a base

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

= ` 57,120 per annum

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

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

* Standard Quantity of materials for actual output :

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

** Actual Quantity of Material used for actual output:

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

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

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

***Revised Standard Quantity (RSQ):

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Quote for the New Customer

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

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Bought Out Price 1,05,000

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

Working Note

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

18. Flexible Budget of BT Ltd.

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

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

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

19. (a) Advantages of Marginal Costing:

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

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

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

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

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withdrawn from the process for test or sampling.

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

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 PAPER – 4:
COST AND MANAGEMENT
ACCOUNTING

QUESTIONS

PART I - Case Scenario based MCQs

Integrated
1. Mr. Linde is a German national, who came to India again on 1st April,
2024. He represents his company and wants to start business in India as
well. His company expertise in the manufacturing of Industrial machines.
Recently launched “Make in India” movement has motivated Mr. Linde
thinks that this might be the perfect opportunity for his company to
establish his company in India.
Last, Mr. Linde came to India on 1st April, 2012. He purchased a land for
` 50,00,000 and constructed a building by spending ` 16,00,000. After
that he opened a Private limited company in that building. He spent
another ` 2,80,000 for this. He also employed 3 people for survey and to
understand the need of Indian customers and spent ` 1,50,000 in
salaries.
He was disappointed in the response of market, who were importing
everything from China back then. He closed the office & went back to
Germany. All these years the office was closed and only an amount of
` 12,500 per month was paid to a guard and property tax was also paid.
Property tax was paid on an average of ` 18,000 per year.
Now when Mr. Linde is back, he opens the office and starts to plan on
how this time he will capture the Indian market.
Expenses started to incur as soon as the office opened:
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• Salaries of staff ` 2,50,000 per month.

• Electricity, water, & maintenance of office at ` 50,000 per month.
• Security staff at ` 15,000 per month.
Linde plans to purchase a land in Manesar which will be used for the
factory. After a search he found an appropriate land and purchased a
land for ` 1.50 crores. He handed over the land to a SPV company of a
REIT to build a state of the art facility for their factory. Factory will be
built in 2 years. They will spend ` 85 lacs each year for this construction.
Linde, back in the Noida office, made 3 departments:
(1) Office and administration
(2) Sales and marketing
(3) Account and Finance
Expenses for these departments (except for salaries) are expected to be:-
• Office and administration = ` 95,000 per year
• Sales and marketing = ` 1,12,000 per year
• Accounts and Finance = ` 88,000 per year
Office overheads are to be bifurcated in these departments on the basis
of their individual spending ratio.
Technology is developed in Germany but at present its execution is not
required. Therefore, they do not require any expert as of now and also
because the factory is not ready.
Mr. Linde, being the only person representing his company and lone
German in the Indian office feels difficult to manage everything as he
finds Indian corporate environment very challenging. He asked his
company to deploy another German manager to India. This will cost the
company additional two million Indian national rupee per year to
relocate this additional manager in India. The German management is
divided on this decision. The ones who disagree say “Mr. Linde is
competent enough to run a small extension of our company in India. We
will allocate more resources to Indian subsidiary when actual operations
will start, till then everything can be managed by Mr. Linde alone. Right

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Indian Company is itself a cost centre and we are already paying him 3.5
million INR annually, therefore we are not ready to invest until it starts
generating revenue”.
Linde has another opportunity to relocate the head office, also, to
Manesar, where the factory building is being constructed. The distance
between head office and factory will reduce greatly, which will be highly
beneficial when the factory will become operative. He will have to sale
the old office in Noida, which will be sold at ` 2.50 crores and purchase
a ready-made building in Manesar for ` 3.75 crores. This new building
will have larger space that can accommodate the future needs for space,
when company will grow. It seems to be like perfect investment
opportunity to Linde.
Expenses in this new building are expected to be:-
• Salaries of staff ` 3,00,000 per month
• Electricity, water, & maintenance of office at ` 80,000 per month.
• Security at ` 30,000 per month.
Indexed cost of building in Noida is ` 2.25 crores and tax on long-term
capital gain is 12.5%.
On the basis of above information, answer the following 5 MCQs:
i. Find out an avoidable cost till the factory becomes operative. What
is its value?
(a) 20,00,000
(b) 49,20,000
(c) 98,40,000
(d) 40,00,000
ii. Find out the total of Sunk and shut down cost in the given case
study. Select the correct option from below.
(a) 4,30,000
(b) 70,30,000
(c) 24,46,000

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(d) 90,46,000
iii. What is total out-of-pocket cost for the company in Noida branch,
after factory land in Manesar is purchased, till the factory
operation begins?
(a) 3,21,50,000
(b) 1,51,50,000
(c) 81,50,000
(d) 40,75,000
iv. What will be out of pocket expenses incurred in relocation of Head
office to Manesar?
(a) 3,75,00,000
(b) 1,28,12,500
(c) 1,25,00,000
(d) 4,24,20,000
v. How much is the unexpired cost of the Noida office as on 1st
October, 2024, if salaries to all the employees are paid till 31st
March, 2025?
(a) 33,40,000
(b) 30,00,000
(c) 15,90,000
(d) 15,00,000
Activity based Costing
2. The HomeMart is the latest trending brand offering home improvement
appliances with broadest selection of products with highly competitive
prices. The sale is increasing year by year with huge multiples. Current
year also the sales reached triple the last year. The reason being
company having good customer support where it provides after sales
assistance over phone per item sold. Though it costs only Re. 1 per item
sold to the company, it enhanced to ` 49,15,200 last year making a huge
impact on the total support cost.

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All the company’s appliances have been majorly categorised into three
product lines namely Fancy fans, Home decors, Assembled furniture.
During the current year, the company’s revenue as generated is
` 3,80,88,000, ` 10,08,28,800 and ` 5,80,75,200 respectively. However,
the cost of god sold is ` 2,88,00,000, ` 7,20,00,000 and ` 4,32,00,000
respectively.
In business, there’s a saying “The packaging sells the product the first
time, but what’s inside sells the product a second time”. Following the
saying, the company has the policy of taking back the cartons of the
products sold relating to Fancy fans to reduce the packaging cost.
However, for smooth returning of cartons, the company has to incur
certain carrier cost on its own which is ` 5,76,000 for the current year
and allocating the same directly to the said product.
Some other information relating to each of the product lines is provided
below:

Fancy Home Assembled

fans decors furniture
Items sold 12,09,600 1,05,98,400 29,37,600
Number of deliveries 600 4,380 1,320
received
Number of purchase 720 1,680 720
orders placed
Hours of shelf-stocking 1,080 10,800 5,400
time

The company also provides the following basis of cost allocation:

Activity Description of Total Cost Cost-allocation base

activity
Delivery Physical delivery 1,20,96,000 6,300 deliveries
and receipt of
products
Ordering Placing of orders 74,88,000 3,120 purchase orders
for purchases

5 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Shelf Stocking of 82,94,400 17,280 hours of shelf-

stocking products in stocking time
warehouse

The company wants you to FIGURE OUT the following to ascertain which
of the product line is more profitable:
i. The total support cost and its percentage to the cost of goods sold
would be:
(a) ` 3,33,69,600 and 23.17%
(b) ` 4,32,00,000 and 30%
(c) ` 3,33,69,600 and 30%
(d) ` 4,32,00,000 and 23.17%
ii. Operating income as a percentage of revenues of each product
line, namely Fancy fans, Home decors, Assembled furniture, when
all the support costs are allocated on the basis of cost of goods
sold would be:
A. 6.87%, 12.05% and 8.38% respectively
B. 12.05%, 6.87% and 8.38% respectively
C. 1.70%, 7.17% and 3.30% respectively
D. 7.17%, 3.30% and 1.70% respectively
iii. The cost driver rate relating to Delivery, Ordering, Shelf stocking
and Customer support would be:
(a) Delivery- ` 1,920 per delivery, Ordering- ` 2,400 per purchase
order, Shelf stocking- ` 480 per stocking hour and Customer
support- Re. 1 per item sold
(b) Delivery- ` 2,400 per delivery, Ordering- ` 1,920 per purchase
order, Shelf stocking- ` 480 per stocking hour and Customer
support- Re. 1 per item sold
(c) Delivery- ` 1,920 per delivery, Ordering- ` 2,400 per purchase
order, Shelf stocking- ` 480 per stocking hour and Customer
support- ` 3 per item sold

6 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

(d) Delivery- ` 480 per delivery, Ordering- ` 2,400 per purchase

order, Shelf stocking- `1,920 per stocking hour and Customer
support- ` 3 per item sold
iv. Operating income of each product line, namely Fancy fans, Home
decors, Assembled furniture, when all the support costs are
allocated using an activity-based costing system would be:
(a) ` 16,84,800, ` -2,05,92,000 and ` -7,92,000 respectively
(b) ` 3,64,03,200, ` 12,14,20,800 and ` 5,88,67,200 respectively
(c) ` 92,88,000, ` 2,88,28,800 and ` 1,48,75,200 respectively
(d) ` 41,04,000, ` 6,04,800 and ` 50,83,200 respectively
v. Operating income as a percentage of revenues of each product
line, namely Fancy fans, Home decors, Assembled furniture, when
all the support costs are allocated using an activity-based costing
system would be:
(a) 4.42%, -20.42% and -1.36% respectively
(b) 10.78%, 0.60% and 8.75% respectively
(c) 24.39%, 28.59% and 25.61% respectively
(d) 4.39%, 8.59% and -1.36% respectively
Employee Cost and Direct Expenses
3. Mr. A works in a manufacturing company where he is paid bonus
according to the Halsey 50% plan, besides the normal wages. The
relevant data is as below:
Time Rate (per hour) ` 100
Time allowed 10 hours
Time taken 5 hours
Time saved 5 hours
Mr. A believes that his bonus under Halsey system is getting reduced by
50%, thus intending to shift towards Rowan Premium Plan.

7 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

You are required to CALCULATE the total earnings of Mr. A as per Halsey
plan and Rowan Premium plan & ENUMERATE the reason for difference
in both the earnings.
(a) Total earnings as per Halsey plan- ` 500 and as per Rowan
Premium plan- ` 750. Earnings under Halsey Plan is lower than that
of Rowan Premium plan as the bonus is getting reduced by 50%.
(b) Total earnings as per Halsey plan- ` 750 and as per Rowan
Premium plan- ` 500. Earnings under Rowan Premium plan is lower
than that of Halsey plan as the actual time taken is 50% of the time
allowed.
(c) Total earnings as per Halsey plan- ` 750 and as per Rowan
Premium plan- ` 750. When the actual time taken is 50% of the
time allowed, the earnings under Halsey and Rowan Plans are
equal.
(d) Total earnings as per Halsey plan- ` 250 and as per Rowan
Premium plan- ` 250. Total earnings under both the Plans are
equal as the time taken under both the plans are same.
Cost Accounting Systems
4. WHICH of the following is the correct journal entry as would appear in
the cost books when Material (Direct) is issued to production?
(a) Store Ledger Control A/c Dr. xxx
To Work-in-Process Control A/c xxx
(b) Store Ledger Control A/c Dr. xxx
To Production Overhead Control A/c xxx
(c) Production Overhead Control A/c Dr. xxx
To Store Ledger Control A/c xxx
(d) Work-in-Process Control A/c Dr. xxx
To Store Ledger Control A/c xxx

8 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Process & Operation Costing

5. A product passes through two processes. The output of Process-I is
treated as the raw material of Process-II. The cost incurred at Process- II
is as follows:

Particulars Process-II (`)

Transferred from Process-I A/c 27,85,700
Materials issued 10,00,000
Labour 2,00,000
Manufacturing overhead 5,00,000

The output of each process is as under:

Process Output Normal Loss

Process-I 48,750 units 2%
Process-II 47,000 units 5%

No stock of materials or of work-in-process was left at the end.

You are required to CALCULATE the value of Abnormal Gain/Loss in
Process-II A/c.
(a) Abnormal Gain of ` 66,626
(b) Abnormal Loss of ` 66,626
(c) Abnormal Gain of ` 72,776
(d) Abnormal Loss of ` 72,776
Joint Products and By products
6. Sterling Industries manages various manufacturing processes. In process
I, joint products P1 and P2 are produced in the ratio of 6:4 in units from
the raw material input. A normal loss of 2% of the raw material input is
expected in this process, with losses having a realizable value of ` 12.5
per kg. The company has no work in progress. The joint costs are
apportioned between the joint products using the physical measure
basis.

9 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

The following information relates to process I for last month:

Raw materials input 75,000 kg (at a cost of ` 4,76,250)
Direct labour ` 2,25,000
Direct expenses ` 67,500
Production Overheads 110% of direct labour cost
Abnormal gain 1,250 kg
You are required to CALCULATE the number of unit and its value of the
Normal loss, Abnormal gain and joint products P1 & P2.
(a) Normal loss: 1,500 units ` 16,964; Abnormal gain: 1,250 units
` 18,750; Product P1: 44,850 units ` 6,08,678 and Product P2:
29,900 units ` 4,05,786.
(b) Normal loss: 1,250 units ` 18,750; Abnormal gain: 1,500 units
` 16,964; Product P1: 44,850 units ` 6,08,678 and Product P2:
29,900 units ` 4,05,786.
(c) Normal loss: 1,500 units ` 18,750; Abnormal gain: 1,250 units
` 16,964; Product P1: 44,850 units ` 6,08,678 and Product P2:
29,900 units ` 4,05,786.
(d) Normal loss: 1,500 units ` 18,750; Abnormal gain: 1,250 units
` 16,964; Product P1: 44,850 units ` 4,05,786 and Product P2:
29,900 units ` 6,08,678.
Marginal Costing
7. PR Ltd. sells two types of pen, ball pen and gel pen. Currently, the
company is expecting to sell 6,000 units of ball pen along with 3,600
units of gel pen in the coming month. Other information as forecasted is
provided below:

Particulars Ball pen Gel pen

Selling price (per unit) ` 150 ` 100
Variable cost (per unit) ` 90 ` 60
Contribution (per unit) ` 60 ` 40
Fixed Costs ` 3,36,000

10 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

You are required to CALCULATE the Composite Break-even Batch and

individual break-even of the pens (in units).
(a) Composite Break-even Batch- 6,400 batches, Break-even units of
Ball pen- 4,000 units, Break-even units of Gel pen- 2,400 units.
(b) Composite Break-even Batch- 800 batches, Break-even units of Ball
pen- 500 units, Break-even units of Gel pen- 300 units.
(c) Composite Break-even Batch- 800 batches, Break-even units of Ball
pen- 4,000 units, Break-even units of Gel pen- 2,400 units.
(d) Composite Break-even Batch- 6,400 batches, Break-even units of
Ball pen- 500 units, Break-even units of Gel pen- 300 units.
PART-II Descriptive Questions
Material Cost
8. Catalist Ltd. is a distributor of industrial chemicals, providing the
chemical in drum packaging.
Each drum of the chemical costs ` 200 from a supplier and the company
sells it for ` 240.
Annual demand is estimated to be for 2,50,000 drums.
The cost of delivery is estimated at ` 100 per order and the annual
variable holding cost per drum at ` 180 plus 10% of purchase cost.
Based on above data, the managing director calculates the economic
order quantity and suggests that it should serve as the foundation for
purchasing decisions in upcoming periods.
However, the purchasing manager states that the managing director has
ignored his share of bonus of 10% of the amount by which total annual
inventory holding and order costs (before such remuneration) are below
` 2,00,000. He further points out that the suppliers also offer quantity
discounts on purchase orders, i.e. if the order size is 1,000 drums or
above, the price per drum is only ` 199.60, compared to ` 200 when an
order is between 500 and 999 drums.

11 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

You are required to:

(i) CALCULATE the economic order quantity as calculated by the
company’s managing director.
(ii) COMMENT whether Catalist Ltd. can look forward to the quantity
discount offered for purchasing 1,000 drums, after CALCULATING
total cost considering purchasing manager’s bonus along with
supplier quantity discounts.
Employee Cost and Direct Expenses
9. Pi and Qu are part of a manufacturing team that handles multiple jobs
within the production process. Detailed description of their respective
monthly wages is provided below:
The standard working hours for the month are 210. Overtime is
compensated at twice the sum of basic wages and dearness allowance.
The employer’s contributions to State Insurance and the Provident Fund
are equal to the employees' contributions. Employees Pi and Qu were
assigned to jobs A, S, and D in the following proportions:
Particulars Pi Qu
(i) Basic Wages (`) 12,000 15,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to provident Fund (on basic 10% 10%
wages)
(iv) Contribution to Employee’s State Insurance 1.75% 1.75%
(on basic wages)
(v) Overtime (Hours) 8 --

Jobs A S D
Worker Pi 30% 30% 40%
Worker Qu 30% 50% 20%

Overtime was done on job S.

12 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

You are required to CALCULATE the earnings of Pi and Qu and allocate

the employee cost to each job A, S, and D.
Overheads- Absorption Costing Method
10. X Corp. produces two products, X and Y. The production division is
made up of two manufacturing departments, P1 and P2, along with two
support departments, S1 and S2.
Pre-determined Overhead Rates are applied in the production
departments to allocate factory overhead costs to the products. The rate
for Department P1 is determined by direct machine hours, while
Department P2's rate is based on direct labor hours.
A technical assessment of the apportionment of expenses of service
departments is as under:

Production Department
P1 P2
Service Dept. ‘S 1’ (ratio) 3 3
Service Dept. ‘S 2 ’ (ratio) 30 15

Following budgeted data is available:

Factory overheads for the year:
Production Departments Service Departments
P1 P2 S1 S2
` 2,80,50,000 ` 2,39,25,000 ` 66,00,000 ` 49,50,000

Details relating to production of the Products X and Y is as follows:

Products
X Y
Budgeted output 1,00,000 60,000
(units)
Budgeted raw-material ` 660 ` 825
cost per unit (All
materials are used in
Department P 1 only.)

13 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Budgeted time required P 1 : 1.5 machine P 1 : 1.0 machine

for production per unit hours hours
P 2 : 2 Direct labour P 2 : 2.5 Direct
hours labour hours
Average wage rate ` 396 per hour ` 412.50 per
budgeted in hour
Department P 2

Following actual data is available (for the month of December, 2024):

Products
X Y
Actual output (units) 8,000 6,000
Actual hours worked P1: 12,200 P1: 8,300 machine
for production machine hours hours
P2: 16,400 Direct P2: 14,800 Direct
labour hours labour hours
Raw materials cost ` 53,79,000 ` 50,16,000
Wages paid ` 65,10,900 ` 60,72,000

Actual factory overheads incurred is as follows:

Production Departments Service Departments

P1 P2 S1 S2
` 25,41,000 ` 22,44,000 ` 6,60,000 ` 5,28,000

You are required to:

(i) COMPUTE the pre-determined overhead rate for department P1
and P2.
(ii) PREPARE a comparative statement reflecting Budgeted cost and
Actual cost for production of the Products X and Y during the
month of December, 2024.
(iii) CALCULATE the amount of under/ over-absorption of production
overheads

14 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Cost Sheet
11. (a) The figures listed below are derived from the Trial Balance of EVS &
Co. as of 31st March:

Dr. (`) Cr. (`)

Opening Inventories:
Finished Stock 10,96,000
Raw Materials 19,18,000
Work-in-Process 27,40,000
Office Appliances 2,38,380
Plant & Machinery 63,08,850
Building 27,40,000
Sales 1,35,21,600
Sales Return and Rebates 1,91,800
Cash discount allowed on sales 1,17,820
Materials Purchased 43,84,000
Freight incurred on Materials 2,19,200
Purchase Returns 65,760
Direct employee cost 21,92,000
Indirect employee cost 2,46,600
Drawing and Designing cost 1,37,000
Repairs and maintenance of factory 1,91,800
Heat, Light and Power expenses 8,90,500
Pollution Control Expenses 2,56,190
Sales Commission 4,60,320
Sales Promotion 3,08,250
Distribution Deptt. - Salaries and Expenses 2,46,600
Office - Salaries and Expenses 1,17,820
Packing Cost to make the product 3,15,100
marketable

15 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Printing and Stationery expenses 89,050

Bank Charges paid 8,220

Further details are available as follows:

(i) Closing Inventories:

Finished Goods ` 15,75,500
Raw Materials ` 24,66,000
Work-in-Process ` 26,30,400
(ii) Outstanding direct employee cost ` 1,09,600
(iii) Depreciation to be provided on:
Office Appliances 15%
Plant and Machinery 40%
Buildings 10%
(iv) 70% of the Heat, Light and Power expenses is related to
the Factory and the remaining 30% is equally shared
between the Office and Selling Department.
Depreciation on Buildings is to be distributed at a similar
percentage between the Factory, Office and the Selling
Department as that of the Heat, Light and Power.

With the help of the above information, you are required to

PREPARE a condensed Profit and Loss Statement of EVS & Co. for
the year ended 31st March along with the following schedules:
(i) Cost of Sales (showing Prime Cost, Gross Works Cost, Cost of
production, Cost of Goods Sold and Cost of Sales)
(ii) Selling and Distribution Expenses.
(iii) Administration Expenses
Cost Accounting Systems
12. Amy Ltd. uses a batch costing system that is fully integrated with its
financial accounts. Balances at the beginning of the period is provided
below:

16 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Particulars (`)
Stores Ledger Control Account 4,83,250
Work-in-Process Control Account 3,86,600
Finished Goods Control Account 6,76,550

Other information is as under:

Particulars
Materials purchased during the period 14,49,750
Materials issued to production 5,79,900
Total wages paid (1/6 being indirect)
th
5,79,900
Direct wages charged to batches 3,86,600
Payment for non-productive time of direct 1/5th of direct
workers wages paid
Production Overheads incurred 2,31,960
Sales 19,33,000
Cost of Finished Goods Sold 15,46,400
Cost of Goods completed and transferred into 12,56,450
finished goods during the period
Physical value of Work-in-Process at the end of 7,73,200
the period
Production overhead absorption rate 130% of direct
wages charged to
Work-in-Process

You are required to PREPARE the following accounts:

(i) Stores Ledger Control Account.
(ii) Wages Control Account.
(iii) Production Overhead Control Account.
(iv) Work-in-Process Control Account.
(v) Finished Goods Control Account.
(vi) Costing Profit and Loss Account.

17 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Job and Batch Costing

13. X Ltd. provides the following cost details for calculating the selling price
of Job No. X2X:

Particulars Per unit (`)

Materials 1,330
Direct wages 18 hours @ ` 47.50 855
(Deptt. X: 8 hours; Deptt. Y: 6 hours; Deptt. Z: 4 hours)
Chargeable expenses 95
2,280
Add: 1/3 for expenses cost
rd
760
3,040

Analysis of the Profit/Loss Account

(for the current financial year)
(`) (`)
Materials 28,50,000 Sales 47,50,000
used
Direct wages:
Deptt. X 1,90,000
Deptt. Y 2,28,000
Deptt. Z 1,52,000 5,70,000
Special stores 76,000
items
Overheads:
Deptt. X 95,000
Deptt. Y 1,71,000
Deptt. Z 38,000 3,04,000
Works cost 38,00,000
Gross profit 9,50,000
c/d
47,50,000 47,50,000
Selling 3,80,000 Gross profit b/d 9,50,000
expenses

18 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Net profit 5,70,000

9,50,000 9,50,000

It is also noted that average hourly rates for the three Departments X, Y
and Z are similar.
You are required to prepare a job cost sheet to DETERMINE the selling
price by calculating the entire revised cost using above figures as the
base and adding 20% to the total cost.
Process & Operation Costing
14. Following data are available for a product for the month of July, 2024:
Particulars Process- I (`) Process- II (`)
Opening work-in- progress Nil Nil
Costs incurred during the month:
- Direct materials 6,00,000
- Labour 1,20,000 1,60,000
- Factory overheads 2,40,000 2,00,000
Units of production:
Received in process 40,000 36,000
Completed and transferred 36,000 32,000
Closing work-in-progress 2,000 ?
Normal loss in process 2,000 1,500

Production remaining in process has to be valued as follows:

Materials 100% Labour 50% Overheads 50%
There has been no abnormal loss in Process- II.
The company follows weighted average method for valuing inventory.
PREPARE Process Accounts after working out the missing figures and
with detailed workings.
Joint Products and By products
15. JB Ltd. manufactures three chemical products, XR, YS, and ZT. It
processes input material in common plant facility to generate two

19 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

intermediate products, X and Y, in 4:1 proportion after a normal loss of

1/12th of the input material. There is no market for these two
intermediate products. Thus, X is processed further through separate
finishing process R to yield the product XR and Y is converted into
product YS by a process S. The S finishing process also produces a waste
material, Z, which has no market value. Thus, the company converts Z,
after additional processing through process T, into a saleable by-
product, ZT.
11,40,000 kg of the common input material are processed each month in
common plant facility. And after the separate finishing processes (all
losses are normal losses), proportions of XR, YS and ZT emerge as
follows:

Product Quantity (kg) Market price per kg

(`)
XR 7,60,000 38.80
YS 1,90,000 72.00
ZT 19,000 24.00

The material and processing costs are as follows:

Particulars Common Separate finishing processes

plant R (`) S (`) T (`)
facility (`)
Direct material 97,28,000 33,44,000 4,56,000 30,400
Direct labour 45,60,000 68,40,000 27,36,000 1,67,200
Factory 24,32,000 22,80,000 9,12,000 1,06,400
overhead
Total 1,67,20,000 1,24,64,000 41,04,000 3,04,000

You are required to CALCULATE the cost per unit and total operating
profit/loss attributed to both the products XR and YS considering all
joint costs are allocated based on net realisable value method.

20 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Service Costing
16. Mr. Intell newly sets up a Home Stay in Hanle, Ladakh offering two types
of room, single and double. The expected occupancy percentage for the
rooms is provided below:

Type of rooms Number Occupancy percentage

Single 20 100%
Double 10 80%

The details of the expenses as forecasted are provided below:

Particulars (`)
Staff salaries 30,20,000
Food and beverage costs 20,16,000
Lighting and power 8,60,000
Repairs and renovation 4,94,000
Laundry charges 3,22,000
Building rent 14,40,000
Miscellaneous expenses 6,12,000

Room attendants to be paid @ ` 125 per room day.

Mr. Intell knowing about the power cut during nights at Hanle to
preserve the natural light for astronomical research, sets up emergency
power backup, being charged from the customers separately @ ` 200
per room, if requested.
The rent of the double room is to be fixed at 1.5 times the single room.
In the month of June, Mr. Matrix along with his family visited Hanle Dark
Sky Reserve to experience the breathtaking view of the stars. For one
night stay at the place, he approached Mr. Intell to book a double
bedroom and also requested for emergency power backup at night.
You are required to CALCULATE the rent to be charged from Mr. Matrix,
considering the profit @ 25% on total taking.
(Assume 360 days in a year for calculation purpose.)

21 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

Standard Costing
17. COMPUTE the missing data indicated by the question marks from the
following:

Particulars A B
Standard Price/ unit ` 12 ` 15
Actual Price/ unit ` 15 ` 20
Standard Input (kgs.) 50 ?
Actual Input (kgs.) ? 70
Material Price Variance ? ?
Material Usage Variance ? ` 300 Adverse
Material Cost Variance ? ?

Material mix variance for both products together was ` 45 Adverse.

Marginal Costing
18. Gourmet Food Products is a new entrant in the market for chocolates. It
has introduced a new product—Sweetee. This is a small rectangular
chocolate bar. The bars are wrapped in aluminium foil and packed in
attractive cartons containing 50 bars. A carton, is therefore, considered
the basic sales unit. Although management had made detailed estimates
of costs and volumes prior to undertaking this venture, new projections
based on actual cost experience are now required.
Income Statements for the last two quarters are each thought to be
representative of the costs and productive efficiency we can expected in
the next few quarter. There were virtually no inventories on hand at the
end of each quarter. The income statements reveal the following:–

First Quarter Second Quarter

(`) (`)
Sales :
50,000 × ` 24 12,00,000 —
70,000 × ` 24 — 16,80,000
Less: Cost of Goods Sold 7,00,000 8,80,000

22 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Gross Margin 5,00,000 8,00,000

Less: Selling and Administration 6,50,000 6,90,000
Net Income / (Loss) before Taxes (1,50,000) 1,10,000
Less: Tax (60,000) 44,000
Net Income / (Loss) (90,000) 66,000

The firm’s overall marginal and average income tax rate is 40%. This 40%
figure has been used to estimate the tax liability arising from the
chocolate operations.
REQUIRED:
(a) Management would like to know the breakeven point in terms of
quarterly carton sales for the chocolates.
(b) Management estimates that there is an investment of ` 30,00,000
in this product line. What quarterly carton sales and total revenue
are required in each quarter to earn an after tax return of 20% per
annum on investment?
(c) The firm’s marketing people predict that if the selling price is
reduced by ` 1.50 per carton (` 0.03 off per chocolate bar) and a `
1,50,000 advertising campaign among school children is mounted,
sales will increase by 20% over the second quarter sales. Should
the plan be implemented?
Budgets and budgetary control
19. The budgets for activity and cost of PQR Ltd. for the first three quarters
of operation are shown below:

Period Covered Budgets Quarters I – III

Q–I Q – II Q – III
Months 1–3 4–6 7–9
(‘000) (‘000) (‘000)
Activity :
Sales (Units) 9 17 15
Production (Units) 10 20 15

23 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

Costs (`) :
Direct Material
A 60 120 90
B 50 100 75
Production Labour 180 285 230
Manufacturing Overheads 90 120 105
Excluding Depreciation
Depreciation of Production 20 20 20
Machinery
Administration Expenses 25 25 25
Selling & Distribution Expenses 38 54 50

The figures shown above represent the costs structure of PQR Ltd.,
which have the following major features:
(i) Fixed element of any cost is completely independent of activity
levels.
(ii) Any variable element of each cost displays a linear relationship
with activity level, except that the variable labour cost become
50% higher for activity in excess of 19,000 units per quarter due to
the necessity for overtime working.
(iii) The variable element of selling and distribution expenses is a
function of sales. All other costs with a variable element are a
function of production volume.
Activity for each quarter is spread evenly throughout that quarter.
In Quarter IV Production level will be set equal to sales level. Production
and sales in this quarter is expected to range between 15,000 units and
21,000 units. The most likely volume is 18,000 units. In month 9 it will
be possible to accurately estimate the sales for Quarter IV.
Cost structure will remain the same as in Quarters I to III except the
following:
(i) Labour cost will rise by 12½%.

24 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

(ii) Variable labour input per unit of output will decrease, due to
learning curve effect, such that 80% of the previous labour input
per unit of output will be required in Quarter IV. The threshold for
overtime working remains at 19,000 units per quarter.
(iii) Fixed factory overheads and the fixed element of selling and
distribution costs will each rise by 20% (The variable element of
selling and distribution costs will be unaltered.)
Required
(i) PREPARE a Statement to show, under each cost classification given
in the budgets, the variable cost per unit and fixed costs which will
be effective in Quarter IV.
(ii) PREPARE a flexible budget of production costs for the Quarter IV.
Miscellaneous
20. (a) DEFINE Product costs. Describe three different purposes for
computing product costs.
(b) WHAT do you understand by Operating Costs? DESCRIBE its
essential features and state where it can be usefully implemented?
(c) How apportionment of joint costs upto the point of separation
amongst the joint products using market value at the point of
separation and net realizable value method is done? DISCUSS.
(d) EXPLAIN:
(i) Pre-production Costs
(ii) Research and Development Costs
(iii) Training Costs

SUGGESTED ANSWERS

1. i. (d) Only avoidable cost is a new managers salary for 2 years

= ` 20,00,000 x 2 = ` 40,00,000
ii. (d) Shut down cost is the cost spent when the company was shut
down for 12 years in India

25 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

= 12,500 x 12 x 12 + 18,000 x 12 = ` 20,16,000

Sunk cost are all the costs that was spent in 2012
= 50,00,000+16,00,000+2,80,000+1,50,000
= ` 70,30,000
Total = ` 90,46,000
iii. (a) Calculation

Particulars Amount (`)

Salary 2,50,000 x 12 x 2 60,00,000
Electricity, etc 50,000 x 12 x 2 12,00,000
Security 15,000 x 12months x 2 3,60,000
years
O&A 95,000 x 2 years 1,90,000
Sales 1,12,000 x 2 years 2,24,000
Accounts 88,000 x 2 years 1,76,000
Salary of linde 35,00,000 x 2 70,00,000
Construction 85,00,000 x 2 1,70,00,000
Total 3,21,50,000

iv. (b) Cost of new office = ` 3,75,00,000

Money received from sale of Noida office
= 2,50,00,000 – (2,50,00,000 – 2,25,00,000) x 12.5%
= ` 2,46,87,500
Out of pocket expenses for relocation of head office
= 3,75,00,000 – 2,46,87,500 = ` 1,28,12,500
v. (a) Unexpired cost = advance salary paid till march of next year
= (2,50,000+15,000) x 6months + 35,00,000/2 = ` 33,40,000

26 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

2. i. (b)

Total support cost (`)

Cartons returned 5,76,000
Delivery 1,20,96,000
Ordering 74,88,000
Shelf stocking 82,94,400
Customer support (` 49,15,200 x 3) 1,47,45,600
Total support cost 4,32,00,000
(`)
Fancy fans 2,88,00,000
Home decors 7,20,00,000
Assembled furniture 4,32,00,000
Total cost of goods sold (COGS) 14,40,00,000

Percentage of support cost to the cost of goods sold (COGS):

Total support cost
= x 100
Total cost of goods sold (COGS)
4,32,00,000
= x 100 = 30%
14,40,00,000
ii. (c)

Particulars Fancy Fans Home Assembled

(`) decors (`) furniture (`)
Revenue: (A) 3,80,88,000 10,08,28,800 5,80,75,200
Cost of Goods sold 2,88,00,000 7,20,00,000 4,32,00,000
(COGS): (B)
Support cost (30% 86,40,000 2,16,00,000 1,29,60,000
of COGS): (C)
(as calculated in i.
above)
Total cost: (D) = {(B) 3,74,40,000 9,36,00,000 5,61,60,000
+ (C)}

27 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

Operating income: 6,48,000 72,28,800 19,15,200

E= {(A)-(D)}
Operating income 1.70% 7.17% 3.30%
as a percentage of
revenues: (E/A) ×
100)

iii. (a)
Activity Total cost (`) Cost allocation Cost driver rate
(1) (2) base (3) (4) = [(2) ÷ (3)]
Delivery 1,20,96,000 6,300 deliveries ` 1,920 per
delivery
Ordering 74,88,000 3,120 purchase ` 2,400 per
orders purchase order
Shelf-stocking 82,94,400 17,280 hours of ` 480 per stocking
shelf-stocking hour
time
Customer 1,47,45,600 1,47,45,600 items Re. 1 per item sold
support sold (given)

iv. (d)
Fancy Fans (`) Home decors (`) Assembled
furniture (`)
Revenues: (A) 3,80,88,000 10,08,28,800 5,80,75,200
Cost & Goods 2,88,00,000 7,20,00,000 4,32,00,000
sold
Carton return 5,76,000 0 0
costs (Directly
attributable to
Fancy fans)
Delivery cost 11,52,000 84,09,600 25,34,400
(` 1,920 per (600 x ` 1,920) (4,380 x ` 1,920) (1,320 x ` 1,920)
delivery)
Ordering cost 17,28,000 40,32,000 17,28,000
(` 2,400 per (720 x ` 2,400) (1,680 x ` 2,400) (720 x ` 2,400)
purchase order)

28 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Shelf stocking 5,18,400 51,84,000 25,92,000

cost (1,080 x ` 480) (10,800 x ` 480) (5,400 x ` 480)
(` 480 per
stocking hour)
Customer 12,09,600 1,05,98,400 29,37,600
Support cost (12,09,600 x ` 1) (1,05,98,400 x ` 1) (29,37,600 x ` 1)
(` 1 per item
sold)
Total Cost: (B) 3,39,84,000 10,02,24,000 5,29,92,000
Operating 41,04,000 6,04,800 50,83,200
income: (C) =
(A) - (B)

v. (b)
Fancy Fans Home decors Assembled
(`) (`) furniture (`)
Operating income (from iv. 41,04,000 6,04,800 50,83,200
Above) (A)
Revenues (B) 3,80,88,000 10,08,28,800 5,80,75,200
Operating income as a 10.78% 0.60% 8.75%
percentage of revenues:
(A/B) × 100)

3. (c) Calculation of total earnings:

As per Halsey 50% plan
= Time taken × Time rate + (50% of Time saved × Time rate)
= 5 hrs. × ` 100 + [1/2 × (5 hrs. × ` 100)]
= ` 500 + ` 250 = ` 750
As per Rowan Premium plan
Time Saved
=Time taken × Rate per hour +( × Time taken × Rate
Time Allowed
per hour)
5 Hours
= 5 hours × ` 100 + [� � × 5 hours × ` 100]
10 Hours
= ` 500 + ` 250 = ` 750

29 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

When the actual time taken is 50% of the time allowed, the
earnings under Halsey and Rowan Plans are equal.
4. (d) Work-in-Process Control A/c Dr. xxx
To Store Ledger Control A/c xxx
5. (a)
Dr. Process-II Account Cr.
Particulars Units Total (`) Particulars Units Total (`)

To Process-I A/c 48,750 27,85,700 By Normal Loss 2,438 --

A/c
(5% of 48,750
units)
” Material -- 10,00,000 ” Output 47,000 45,52,326
(` 96.858 ×
47,000 units)
” Labour -- 2,00,000
” Manufacturing -- 5,00,000
OH
” Abnormal Gain 688 66,626
A/c (round off)
(` 96.858 × 688
units)
49,438 45,52,326 49,438 45,52,326

Cost per unit of completed units and abnormal gain:

Total Cost
=� �
Input units - Normal Loss
` 44,85,700
= �48,750 units - 2,438 units �
= ` 96.858
6. (c) Process- I Account
Particulars Units (`) Particulars Units (`)
To Raw 75,000 4,76,250 By Normal 1,500 18,750
material loss (W.N. (ii))

30 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

To Direct 2,25,000 By Output

labour (W.N. (iii))
To Direct 67,500 P1 (W.N. (iv)) 44,850 6,08,678
expenses
To Production 2,47,500 P2 (W.N. (iv)) 29,900 4,05,786
overheads
(W.N.(i))
To Abnormal 1,250 16,964
gain (W.N. (iv))
76,250 10,33,214 76,250 10,33,214

Working Note Working Notes (W.N.):

(i) Production overheads = 110% x 2,25,000
= ` 2,47,500
(ii) Normal loss = 2% x 75,000 = 1,500 kg at ` 12.5
= ` 18,750
(iii) Total output = 75,000 input + 1,250 abnormal gain - 1,500
normal loss
= 74,750 kg
P1 and P2 is produced in the ratio 6:4

P1 = �10� x 74,750 = 44,850 kg

6

P2 = � � x 74,750 = 29,900 kg
4
10

(iv) Value of Abnormal Gain:

Total Cost - Realisable value of normal loss
=� x Abnormal Gain units�
Total input units - Normal Loss units

` 4,76,250 + ` 2,25,000 + ` 67,500 + ` 2,47,500 - ` 18,750

=� x 1,250 units�
75,000 - 1,500 units
= ` 16,964
Value of Joint Products:
Total Cost - Realisable value of normal loss
=� x Output units�
Total input units - Normal Loss units
` 4,76,250 + ` 2,25,000 + ` 67,500 + ` 2,47,500 - ` 18,750
P1= � x 44,850 units�
75,000 - 1,500 units

31 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

= ` 6,08,679
` 4,76,250 + ` 2,25,000 + ` 67,500 + ` 2,47,500 - ` 18,750
P2=� x 29,900 units�
75,000 - 1,500 units

= ` 4,05,786
7. (c) PR Ltd. is expecting to sell 6,000 units of ball pen along with
3,600 units of gel pen, resulting in a sales mix of 5:3 per batch.
Thus, composite contribution per batch = (` 60 x 5 ball pens) +
(` 40 x 3 gel pens)
= ` 420
Commom fixed costs
Composite Break-even Batch = �Composite contribution per batch�
` 3,36,000
=� �
` 420
= 800 batches
Break-even units of Ball pen = 800 x 5= 4,000 units
Break-even units of Gel pen = 800 x 3= 2,400 units
8. (i) Economic order quantity (EOQ) as calculated by the company’s
managing director

2AO
EOQ =
C
where A = annual inventory requirement,
O = ordering cost per order and
C = carrying cost per unit per annum

2x2,50,000 drums x ` 100

=�
[` 180+(10% of ` 200)]
= 500 units

32 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

(ii) Comparison of total cost considering purchasing manager’s

bonus and supplier quantity discounts
Particulars At EOQ of If considered
500 units quantity
(`) discount at
1000 units (`)
Ordering Cost [(2,50,000 units/500 units) × 50,000
` 100]
[(2,50,000 units/1000 units) 25,000
× ` 100]

Carrying Cost {500 units/ 2 x [(` 180 + 50,000

(10% of ` 200)]}
{1,000 units/ 2 x [(` 180 + 99,980
(10% of ` 199.60)]}
1,00,000 1,24,980
Purchasing 10% of (` 2,00,000 - 10,000
manager’s ` 1,00,000)
bonus 10% of (` 2,00,000 - 7,502
` 1,24,980)
Annual 2,50,000 units x ` 200 5,00,00,000
inventory cost 2,50,000 units x ` 199.60 4,99,00,000
Total Cost 5,01,10,000 5,00,32,482

In above comparison, the potential savings from purchasing in

bulk outweigh the higher carrying costs associated with holding
more inventory. Thus, Catalist Ltd. may look forward to the
quantity discount offered at 1,000 units.
9. Statement showing Earnings of Workers Pi and Qu

Pi (`) Qu (`)
Basic wages 12,000 15,000
Dearness Allowance (50% of Basic Wages) 6,000 7,500
Overtime wages (Refer to Working Note) 1,371 --
Gross wages earned 19,371 22,500

33 MAY 2025 EXAMINATION

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Less: Contribution to Provident fund (1,200) (1,500)

Less: Contribution to ESI (210) (263)
Net wages earned 17,961 20,737

Statement of Employee Cost:

Pi (`) Qu (`)
Gross Wages (excluding overtime) 18,000 22,500
Add: Employer’s contribution to PF 1,200 1,500
Add: Employer’s contribution to ESI 210 263
Gross wages earned 19,410 24,263

Statement Showing Allocation of Wages to Jobs

Total Jobs
Wages A (`) S (`) D (`)
(`)
Worker Pi:
- Ordinary Wages (3: 3 : 4) 19,410 5,823 5,823 7,764
- Overtime 1,371 -- 1,371 --
Worker Qu:
- Ordinary Wages (3 : 5 : 2) 24,263 7,279 12,131 4,853
45,044 13,102 19,325 12,617

Working Note:
Basic wage + DA
Over time = 2 x � � x 8 hours
210 hours
` 18,000
= 2x � � x 8 hours
210 hours
= ` 1,371

34 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

10. (i) Computation of predetermined overhead rate for each

production departments from budgeted data
Production Service Department
Department
P1 P2 S1 S2
Budgeted factory 2,80,50,000 2,39,25,000 66,00,000 49,50,000
overheads for the year (`)
Allocation of service 33,00,000 33,00,000 (66,00,000) —
department S1’s costs to
production departments
P 1 and P2 equally (`)

Allocation of service 33,00,000 16,50,000 — (49,50,000)

department S2’s costs to
production departments
P1 and P 2 in the ratio of
2:1 (`)
Total 3,46,50,000 2,88,75,000 — —
Budgeted machine hours 2,10,000 —
in department P 1 (working
note 1)
Budgeted labour hours in — 3,50,000
department P2 (working
note 1)
Budgeted machine/ labour 165 82.50
hour rate (`)

(ii) Comparative statement reflecting Budgeted cost and Actual

cost for production of the Products X and Y during the month
of December, 2024
(When 8,000 and 6,000 units of products X and Y respectively were
actually produced)
Budgeted (`) Actual (`)
Raw materials used in Dept. P1:
X : 8,000 units × ` 660 52,80,000 53,79,000

35 MAY 2025 EXAMINATION

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Y : 6,000 units × ` 825 49,50,000 50,16,000

Direct labour cost
(on the basis of labour hours worked in
department P2)
X : 8,000 units × 2 hrs. × ` 396 63,36,000 65,10,900
Y : 6,000 units × 2.5 hrs. × ` 412.50 61,87,500 60,72,000
Overhead absorbed on machine hour
basis in Dept. P1:
X : 8,000 units × 1.5 hrs. × ` 165 19,80,000 19,18,084*
Y : 6,000 units × 1 hr. × ` 165 9,90,000 13,04,926*
Overhead absorbed on labour hour
basis in Dept. P2:
X : 8,000 units × 2 hrs. × ` 82.50 13,20,000 14,45,496**
Y : 6,000 units × 2.5 hrs. × ` 82.50 12,37,500 13,04,472**
* (Refer to working note 4)
**(Refer to working note 5)
(iii) Amount of under/ over-absorption of production overheads
Overhead Overhead Overhead under/
absorbed actually over-absorbed
incurred
Overhead in Dept. P1
Product X 19,80,000 19,18,084 ` 61,916
over-absorbed
Product Y 9,90,000 13,04,926 ` 3,14,926
under-absorbed
Overhead in Dept. P2
Product X 13,20,000 14,45,496 ` 1,25,496
under-absorbed
Product Y 12,37,500 13,04,472 ` 66,972
under-absorbed

36 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Working notes:
1.
Product X Product Y Total
Budgeted output (in 1,00,000 60,000
units)
Budgeted machine 1,50,000 60,000 2,10,000
hours in Dept. P 1 (1,00,000×1.5 hrs.) (60,000×1 hr.)
Budgeted labour 2,00,000 1,50,000 3,50,000
hours in Dept. P 2 (1,00,000×2 hrs.) (60,000×2.5 hrs.)

2.
Product X Product Y Total
Actual output (in units) 8,000 6,000
Actual machine hours utilized in 12,200 8,300 20,500
Dept. P 1
Actual labour hours utilised in Dept. 16,400 14,800 31,200
P2

3. Computation of actual overhead rates

Production Service
Department Department
P1 P2 S1 S2
Actual factory overheads for the 25,41,000 22,44,000 6,60,000 5,28,000
month of December, 2024 (`)
Allocation of service Dept. S1’s 3,30,000 3,30,000 (6,60,000) −
costs to production Dept. P 1 and
P 2 equally (`)
Allocation of service Dept. S2’s 3,52,000 1,76,000 − (5,28,000)
costs to production Dept. P 1 and
P 2 in the ratio of 2:1 (`)
Total 32,23,000 27,50,000 -- --
Actual machine hours in Dept. P 1 20,500 --
(working note 2)
Actual labour hours in Dept. P2 -- 31,200
(working note 2)
Actual machine/ labour hour rate 157.22 88.14
(`)

37 MAY 2025 EXAMINATION

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4. Actual overheads absorbed in Department P 1 (based on

machine hours)
X : 12,200 hrs × ` 157.22 = ` 19,18,084
Y : 8,300 hrs × ` 157.22 = ` 13,04,926

5. Actual overheads absorbed in Department P 2 (based on

labour hours)
X : 16,400 hrs × ` 88.14 = ` 14,45,496
Y : 14,800 hrs × ` 88.14 = ` 13,04,472
11. Profit and Loss Statement of EVS & Co. for the
year ended 31st March
Particulars (`) (`)
Gross Sales 1,35,21,600
Less: Returns and rebates (1,91,800) 1,33,29,800
Less: Cost of Sales [See Schedule (i)] (1,20,21,887)
Net Operating Profit 13,07,913
Less: Cash discount allowed on sales (1,17,820)
Net Profit 11,90,093
(i) Schedule of Cost of Sales

Particulars (`) (`)

Raw Material (Inventory opening 19,18,000
balance)
Add: Material Purchased 43,84,000
Add: Freight on Material 2,19,200
Less: Purchase Returns (65,760) 45,37,440
64,55,440
Less: Closing Raw Material Inventory (24,66,000)
Materials consumed in Production 39,89,440
Direct employee cost (` 21,92,000 + 23,01,600
` 1,09,600)

38 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Prime Cost 62,91,040

Factory Overheads:
Indirect employee cost 2,46,600
Drawing and Designing cost 1,37,000
Repairs and maintenance of factory 1,91,800
Heat, Light and Power (` 8,90,500 × 6,23,350
70%)
Pollution Control Expenses 2,56,190
Depreciation of Plant (40% of 25,23,540
` 63,08,850)
Depreciation of Building (10% of 1,91,800 41,70,280
` 27,40,000 × 70%)
Gross Works Cost 1,04,61,320
Add: Opening Work-in-Process 27,40,000
inventory
Less: Closing Work-in-Process (26,30,400)
inventory
Cost of production 1,05,70,920
Add: Opening Finished Goods 10,96,000
inventory
Less: Closing Finished Goods (15,75,500)
inventory
Cost of Goods Sold 1,00,91,420
Add: Administration Expenses 4,25,522
[See Schedule (iii)]
Add: Selling and Distribution 15,04,945
Expenses [See Schedule (ii)]
Cost of Sales 1,20,21,887

Note: Cash discount allowed on sales will not form part of Cost
Sheet.

39 MAY 2025 EXAMINATION

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(ii) Schedule of Selling and Distribution Expenses

Particulars (`)
Sales Commission 4,60,320
Sales Promotion 3,08,250
Distribution Deptt. - Salaries and Expenses 2,46,600
Heat, Light and Power (` 8,90,500 x 15%) 1,33,575
Depreciation of Building (10% of ` 27,40,000 × 41,100
15%)
Packing Cost to make the product marketable 3,15,100
15,04,945

(iii) Schedule of Administration Expenses

Particulars (`)
Office Salaries and Expenses 1,17,820
Depreciation of Office Appliances (` 2,38,380 x 35,757
15%)
Depreciation of Building (10% of ` 27,40,000 × 41,100
15%)
Heat, Light and Power (` 8,90,500 x 15%) 1,33,575
Printing and Stationery expenses 89,050
Bank Charges paid 8,220
4,25,522
12. (i) Stores Ledger Control Account
(`) (`)
To Balance b/d 4,83,250 By Work in Process 5,79,900
Control A/c
” Creditors/ 14,49,750 ” Balance c/d 13,53,100
Bank A/c
19,33,000 19,33,000

40 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

(ii) Wages Control Account

(`) (`)
To Bank A/c 5,79,900 By Work in Process Control A/c 3,86,600
(Charged to batches)
,, Production Oh Control A/c 96,650
(Indirect wages)
(1/6th of ` 5,79,900)
” Production Oh Control A/c 96,650
(Non-productive wages)
[1/5th of (` 5,79,900 -` 96,650)]
5,79,900 5,79,900

(iii) Production Overhead Control Account

(`) (`)
To Bank A/c 2,31,960 By Work-in-Process 5,02,580
Control A/c (130%
of ` 3,86,600)
” Wages Control A/c 1,93,300
(` 96,650 +` 96,650)
” Costing P&L A/c 77,320
(Over-absorption,
balancing figure)
5,02,580 5,02,580

(iv) Work-in-Process Control Account

(`) (`)
To Balance b/d 3,86,600 By Finished Goods 12,56,450
Control A/c
” Store Ledger 5,79,900 ” Balance c/d 7,73,200
Control A/c (Physical value)
” Wages Control 3,86,600
A/c
” Production OH 5,02,580
Control A/c
” Costing P&L A/c 1,73,970
(Stock Gains)
20,29,650 20,29,650

41 MAY 2025 EXAMINATION

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(v) Finished Goods Control Account

(`) (`)
To Balance b/d 6,76,550 By Costing Profit & Loss A/c 15,46,400
(Cost of Goods Sold)
” Work-in-Process 12,56,450 ” Balance c/d 3,86,600
Control A/c
19,33,000 19,33,000

(vi) Costing Profit & Loss Account

(`) (`)
To Finished Goods 15,46,400 By Sales A/c 19,33,000
Control A/c
” Balance c/d 6,37,890 ” Production OH 77,320
Control A/c
” Work-in-Process 1,73,970
Control A/c
(Stock gain)
21,84,290 21,84,290

13. Job cost Sheet

Particulars Amount (`)

Direct materials 1,330.00

Direct wages:
Deptt. X ` 47.50 × 8 hrs. = ` 380
Deptt. Y ` 47.50 × 6 hrs. = ` 285
Deptt. Z ` 47.50 × 4 hrs. = ` 190 855.00
Chargeable expenses 95.00
Prime cost 2,280.00
Overheads:
` 95,000
Deptt. X = � x 100� = 50% of ` 380 = ` 190.00
` 1,90,000

42 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

` 1,71,000
Deptt. Y = � x 100� = 75% of ` 285 = ` 213.75
` 2,28,000
` 38,000
Deptt. Z = � x 100� = 25% of ` 190 = ` 47.50 451.25
` 1,52,000

Works cost 2,731.25

` 3,80,000
Selling expenses= � x 100� = 10% of work cost 273.13
` 38,00,000

Total cost 3,004.38

Profit (20% of total cost) 600.88
Selling price 3,605.26
14. Statement of Equivalent Units (Process- I)
Input Particulars Output Equivalent Production
(Units) (Units) Materials Labour and
Overheads
Units (%) Units (%)
40,000 Introduced and 36,000 36,000 100 36,000 100
completed
Normal loss 2,000 - - - -
Closing stock 2,000 2,000 100 1,000 50
40,000 40,000 38,000 37,000

Computation of cost per Equivalent Unit for each element of

cost (Process- I)

Elements of Cost Total Cost Equivalent Cost per

units Equivalent units
(`) (`)
Direct Materials 6,00,000 38,000 15.7895
Labour 1,20,000 37,000 3.2432
Factory Overheads 2,40,000 37,000 6.4865

43 MAY 2025 EXAMINATION

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Statement of Apportionment of Cost

Items Elements Equivalent Cost Cost (`) Total (`)

units per unit
(`)
Units Materials 36,000 15.7895 5,68,422.00
introduced Labour 36,000 3.2432 1,16,755.20
and
Overheads 36,000 6.4865 2,33,514.00 9,18,691.20
completed
Closing Materials 2,000 15.7895 31,579.00
stock Labour 1,000 3.2432 3,243.20
Overheads 1,000 6.4865 6,486.50 41,308.70

Process- I Account
Particulars Units Amount Particulars Units Amount
(`) (`)
To Materials 40,000 6,00,000 By Normal loss 2,000 -
To Labour 1,20,000 By Process II 36,000 9,18,691
To Overheads 2,40,000 By Closing stock 2,000 41,309
40,000 9,60,000 40,000 9,60,000

Statement of Equivalent Units (Process- II)

Input Particulars Output Equivalent Production
(Units) (Units) Materials Labour and
Overheads
Units (%) Units (%)
36,000 Units transferred from
Process- I
Normal loss 1,500 - - - -
Completed 32,000 32,000 100 32,000 100
Closing stock 2,500 2,500 100 1,250 50
(balancing figure)
36,000 36,000 34,500 33,250

44 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Computation of cost per Equivalent Unit for each element of cost

(Process- I)

Elements of Cost Total Equivalent Cost per

Cost (`) units Equivalent
units (`)
Cost of 36,000 units 9,18,691 34,500 26.6287
transferred from Process- I
Labour 1,60,000 33,250 4.8120
Factory Overheads 2,00,000 33,250 6.0150

Statement of Apportionment of Cost

Items Elements Equivalent Cost per Cost (`) Total (`)
units unit (`)
Units Materials 32,000 26.6287 8,52,118.40
introduced Labour 32,000 4.8120 1,53,984.00
and
completed Overheads 32,000 6.0150 1,92,480.00 11,98,582.40

Closing stock Materials 2,500 26.6287 66,571.75

Labour 1,250 4.8120 6,015.00
Overheads 1,250 6.0150 7,518.75 80,105.50

Process- II Account
Particulars Units Amount Particulars Units Amount
(`) (`)
To Units introduced 36,000 9,18,691 By Normal loss 1,500 -
To Labour 1,60,000 By Finished stock 32,000 11,98,582
To Overheads 2,00,000 By Closing stock 2,500 80,109*
36,000 12,78,691 36,000 12,78,691

*Difference arose due to rounding-off has been adjusted.

45 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

15. Statement showing operating profit/loss by each product after

further processing
Product XR Product YS
(7,60,000 kg) (1,90,000 kg)
Total (`) Cost per Total (`) Cost per
unit (`) unit (`)
Joint costs (W.N.) 1,06,40,000 14.0 60,80,000 32.0
Further processing costs 1,24,64,000 16.40 41,04,000 21.60
By-product net revenues (1,52,000) (0.80)
Total cost 2,31,04,000 30.40 1,00,32,000 52.80
Sales 2,94,88,000 38.80 1,36,80,000 72.00
Operating profit 63,84,000 8.40 36,48,000 19.20

Working Note:
Calculation of joint costs using Net realisable value method:

Particulars Product XR Product YS (`)

(`)
Sales Value 2,94,88,000 1,36,80,000
(` 38.80 (` 72.00
× 7,60,000 kg) × 1,90,000 kg)
Add: By-product net revenue - 1,52,000
[(` 24.00 x 19,000
kg) - ` 3,04,000]
Less: Post split-off cost (Further
processing cost) (1,24,64,000) (41,04,000)
Net Realisable Value 1,70,24,000 97,28,000
Apportionment of Joint Cost of 1,06,40,000 60,80,000
` 1,67,20,000 in ratio of
1,70,24:97,28

46 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

16. Working Notes:

Total equivalent single rooms
Nature of Occupancy (Room-days) Equivalent single
room rooms (Room-
days)
Single room 7,200 7,200
(20 rooms × 360 days × 100%) (7,200 × 1)
Double rooms 2,880 4,320
(10 rooms × 360 days × 80%) (2,880 × 1.5)
10,080 11,520
Statement of total cost

Particulars (`)
Staff salaries 30,20,000
Room attendant’s wages (` 125 per Room Day for 12,60,000
10,080 Room Days)
Food and beverage costs 20,16,000
Lighting and power 8,60,000
Repairs and renovation 4,94,000
Laundry charges 3,22,000
Building rent 14,40,000
Miscellaneous expenses 6,12,000
Total cost 1,00,24,000

Profit is 25% on total taking

∴ Total taking = ` 1,00,24,000 + 25% of total taking
Let R be rent for single room
Then 11,520 R = 1,00,24,000 + (0.25 × 11,520 R)
Or, 8,640 R = 1,00,24,000
Or, R = ` 1,160 (approx.)
Rent to be charged for single room = ` 1,160

47 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Rent for double room ` 1,160 × 1.5 = ` 1,740

Rent to be charged from Mr. Matrix
Double room rent ` 1,740
Add: Power backup charges ` 200
` 1,940
17. (i) Standard input (kgs.) of Material- B:
Material usage variance = Std. Rate (Std. Quantity – Actual
Quantity)
` 300 Adverse = ` 15 (SQ – 70)
Or, -300 = 15 SQ – 1,050
Or, SQ = 50 kgs.
(ii) Actual Input (kgs) of Material- A:
Let the actual input in for Material-A is X kgs.
Material Mix Variance = Std. Price (Actual Quantity in Std. mix –
Actual Quantity)
Or, Material Mix Variance (A+B) = Material Mix Variance for
Material - A + Material Mix Variance for Material -B
X + 70 X + 70
Or, - 45 = [ `12{( ) − X}] + [ `15{( ) − 70}]
2 2
X + 70 − 2X X + 70 − 140
Or, - 45 = [ `12{ } ] + [ `15{ }]
2 2
70 − X X − 70
Or, - 45 = [ `12 { } ] + [ `15 { }]
2 2
15X − 1,050
Or, - 45 = [ - 6X + 420] + [ ]
2
− 12X + 840 + 15X −1,050
Or, - 45 = [ ]
2
Or, - 90 = 3X − 210

48 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

120
Or, X = = 40kgs.
3
(iii) (a) Material Price Variance of A = Actual Quantity (Std. Rate –
Actual Rate)
= 40 kg. (12–15) = ` 120 Adverse
(b) Material Price Variance of B = 70 kg. (15 – 20) = ` 350 Adverse
(iv) Material usage variance of A = Std. Rate (Std. Quantity – Actual
Quantity)
= 12 (50 – 40) = ` 120 Favourable
(v) (a) Material Cost variance of A = Std. Cost – Actual Cost
= (50 kgs. @ ` 12) – (40 kgs. @ ` 15)
= 600 – 600 = Nil
(b) Material Cost variance of B = (50 kgs. @ ` 15) – (70 kgs. @ ` 20)
= 750 – 1,400 = ` 650 Adverse
18. (a) Estimation of the Fixed and Variable Costs.
Variable Manufacturing Cost per carton:
Change inCosts
=
Change in Activity
`8,80,000 − `7,00,000
=
70,000 − 50,000
` 1,80,000
=
20,000
= ` 9 per carton
Fixed Manufacturing Costs:
Costs of Goods Sold = Fixed Manufacturing Cost + Variable
Manufacturing Cost
` 7,00,000 = Fixed Manufacturing Cost + (50,000
Cartons × `9)

49 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Fixed Manufacturing Cost = `7,00,000 – `4,50,000

= `2,50,000
Variable Selling and Administration Cost per unit:
`6,90,000 − `6,50,000
=
70,000 − 50,000
` 40,000
=
20,000
= ` 2 per unit
Fixed Selling & Administration Costs:
Total Selling & Admn. Costs = Fixed Selling & Admn. Cost +
Variable Selling & Admn. Costs
`6,50,000 = Fixed Selling & Admn. Costs +
(50,000 Cartons × ` 2)
Fixed Selling & Admn. Cost = `6,50,000 – `1,00,000
= `5,50,000
So the Total Variable Costs per unit are ` 11 per unit (` 9 + ` 2).
Total Fixed Costs are `8,00,000 per quarter (` 2,50,000 +
` 5,50,000).
Given Sale Price of `24 per carton and Variable Costs of ` 11 per
carton, the Contribution per carton is ` 13 (` 24 – ` 11).
Breakeven Point (in terms of carton units)
Fixedcost (per quarter)
=
Contribution per Carton
` 8,00,000
=
` 13
= 61,539 Cartons
(b) To earn an After Tax Return of 20% on `30,00,000, the Desired
Annual After Tax Net Income is `6,00,000 (`30,00,000 × 20%). The
Quarterly After Tax Net Income will be `1,50,000. Given the Tax

50 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Rate of 40%, the Pre-tax Return will be ` 2,50,000 (` 1,50,000 ×

100/60).
FixedCost + DesiredReturn
Quarterly Sales (units) =
Contribution per unit

` (8,00,000 + 2,50,000)
=
` 13
` 10,50,000
=
` 13

= 80,769 Cartons
Quarterly Sales Revenue = `19,38,456 (80,769 Cartons × ` 24)
(c) The proposal involves reducing Selling Price from `24 per carton to
` 22.50 per carton. Hence the Contribution per carton will be
` 11.50 (`22.50 – `11.00).
The increase in Advertising Costs will push Fixed Costs up by
`1,50,000 to `9,50,000.
A 20% increase over second quarter’s Sales would increase Sales
form 70,000 cartons to 84,000 cartons.
The Expected Earnings Before Taxes will be ` 16,000 [(84,000
Cartons × ` 11.50) – ` 9,50,000].
After deducting Tax at 40%, the Net Income will be `9,600
(` 16,000 – ` 6,400).
Earning has reduced from ` 66,000 to ` 9,600, accordingly this plan
should not be implemented.
19. (i) Statement of Variable Cost per unit and Fixed Costs under Given
Cost Classification Effective for Quarter IV

Particulars Total Fixed Variable

Cost (`) Cost p.u. (`)
Direct Materials (W.N.1)
A ----- 6
B ----- 5

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Production Labour (W.N.2) 90,000 9

Manufacturing Overhead Ex. 72,000 3
Depreciation (W.N.3)
Depreciation of Production 20,000 -----
Machinery
Administration Expenses 25,000 -----
Selling & Distribution Expenses 24,000 2
(W.N.4)

(ii) Flexible Budget of Production Costs for the Quarter IV

Particulars 15,000 units 18,000 units 21,000 units

(`) (`) (`)
Direct Material
A 90,000 1,08,000 1,26,000
(15,000 units × (18,000 units × ` 6) (21,000 × ` 6)
` 6)
B 75,000 90,000 1,05,000
(15,000 units × (18,000 × ` 5) (21,000 units ×
` 5) ` 5)
Production 2,25,000 2,52,000 2,88,000*
Labour (15,000 units × (18,000 units × ` 9
` 9 + ` 90,000) + ` 90,000
Manufacturing 1,17,000 1,26,000 1,35,000
Overhead (15,000 units × (18,000 units × ` 3 (21,000 units ×
`3 `3
+ ` 72,000) ` 72,000) + ` 72,000)
Depreciation 20,000 20,000 20,000
Total Production 5,27,000 5,96,000 6,74,000
Cost

* Production Labour (21,000 units level)

`
Variable Cost (21,000 units × ` 9) 1,89,000

52 MAY 2025 EXAMINATION

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COST AND MANAGEMENT ACCOUNTING

Fixed Cost 90,000

Overtime (2,000 units × ` 9 × 0.50) 9,000
2,88,000
Working Notes
1. Direct Material Cost:
` 60,000
A: =`6
10,000 units
` 50,000
B: =`5
10,000 units

Direct material cost (variable cost) for material A and B for all the
quarters on computation comes to ` 6 /- and ` 5 /- for materials A
and B respectively.
2. Fixed and Variable Cost Component of production labour cost:

Particulars Quarter I Quarter III Change

Production (units) 10,000 15,000 5,000
Production labour (`) 1,80,000 2,30,000 50,000

Change in Production Labour Cost

Variable Cost (per unit) =
Change in Production Units

` 16,000
Change in Production units =
8,000
` 50,000
=
5,000
= ` 10
Fixed Cost = ` 1,80,000 – ` 1,00,000
= ` 80,000
For Quarter II (20,000 units):
`
Variable Cost of 20,000 units @ ` 10 p.u. 2,00,000

53 MAY 2025 EXAMINATION

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INTERMEDIATE EXAMINATION

Fixed Cost 80,000

Overtime Premium on 1,000 @ ` 5 p.u. 5,000
Total Production Labour Cost 2,85,000
For Quarter IV (18,000 units):
`
Variable Cost of 18,000 units @ ` 9 p.u. 1,62,000
(` 10 × 1.125 × 0.80 = ` 9)
Fixed Cost (` 80,000 × 1.125) 90,000
Total Production Labour Cost 2,52,000
3. Fixed and Variable Cost Component of manufacturing overhead:
Quarter I Quarter II Change
Production (units) 10,000 20,000 10,000
Manufacturing Overhead (`) 90,000 1,20,000 30,000
(Excluding Depreciation)
Variable Cost Component of manufacturing overhead:
Change in Manufacturing Overhead Costs
=
Change in Production Units
` 30,000
=
10,000 units
= ` 3 p.u
Fixed Cost Component of manufacturing overhead:
= ` 1,20,000 – 20,000 units × ` 3
= ` 60,000
For Quarter IV:
`
Fixed Cost = 60,000
Add: 20% Increase = 12,000

54 MAY 2025 EXAMINATION

REVISION TEST PAPER
COST AND MANAGEMENT ACCOUNTING

Total Fixed Cost = 72,000

4. Fixed and Variable Cost Component of selling and distribution
expenses
Quarter I Quarter II Change
Sales (units) 9,000 17,000 8,000
Selling & Distribution Expenses 38,000 54,000 16,000
Variable Cost Component of selling & distribution expenses:
Change in selling & Distribution expenses
=
Change in sales units
` 16,000
=
8,000
= ` 2 per unit
Fixed Cost Component of selling & distribution expenses:
= ` 54,000 – 17,000 units × ` 2
= ` 20,000
Fixed Cost Component for IV Quarter:
= ` 20,000 × 1.20
= ` 24,000
20. (a) Definition of product costs: Product costs are inventoriable costs.
These are the costs, which are assigned to the product. Under
marginal costing variable manufacturing costs and under absorption
costing, total manufacturing costs constitute product costs.
Purposes for computing product costs:
The three different purposes for computing product costs are as
follows:
(i) Preparation of financial statements: Here focus is on
inventoriable costs.
(ii) Product pricing: It is an important purpose for which product
costs are used. For this purpose, the cost of the areas along

55 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

with the value chain should be included to make the product

available to the customer.
(iii) Contracting with government agencies: For this purpose
government agencies may not allow the contractors to
recover research and development and marketing costs
under cost plus contracts.
(b) Operating Costs or Service Costing are the costs incurred by
undertakings which do not manufacture any product but provide a
service. Such undertakings for example are — Transport concerns,
Gas agencies; Electricity Undertakings; Hospitals; Theatres etc.
Because of the varied nature of activities carried out by the service
undertakings, the cost system used is obviously different from that
followed in manufacturing concerns.
The essential features of operating costs are as follows:
(1) The operating costs can be classified under three categories.
For example in the case of transport undertaking these three
categories are as follows:
(a) Operating and running charges: It includes expenses of
variable nature. For example expenses on petrol, diesel,
lubricating oil, and grease etc.
(b) Maintenance charges: These expenses are of semi-
variable nature and includes the cost of tyres and
tubes, repairs and maintenance, spares and accessories,
overhaul, etc.
(c) Fixed or standing charges: These includes garage rent,
insurance, road licence, depreciation, interest on
capital, salary of operating manager, etc.
(2) The cost unit used is composite like passenger-mile;
Kilowatt-hour, etc.
It can be implemented in all firms of transport, airlines, bus-
service, etc., and by all firms of distribution undertakings.

56 MAY 2025 EXAMINATION

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(c) Apportionment of Joint Cost amongst Joint Products using:

Market value at the point of separation
This method is used for apportionment of joint costs to joint
products upto the split off point. It is difficult to apply if the
market value of the product at the point of separation is not
available. It is useful method where further processing costs are
incurred disproportionately.
Net realizable value Method
From the sales value of joint products (at finished stage) the
followings are deducted:
− Estimated profit margins
− Selling & distribution expenses, if any
− Post split off costs.
The resultant figure so obtained is known as net realizable value of
joint products. Joint costs are apportioned in the ratio of net
realizable value.
(d) (i) Pre-production Costs: These costs forms the part of
development cost, incurred in making a trial production run,
preliminary to formal production. These costs are incurred
when a new factory is in the process of establishment or a new
project is undertaken or a new product line or product is taken
up, but there is no established or formal production to which
such costs may be charged.
(ii) Research and Development Costs: Research costs are the
costs incurred for the original and planned investigation
undertaken with a prospect of gaining new scientific or
technical knowledge and understanding.

57 MAY 2025 EXAMINATION

REVISION TEST PAPER
INTERMEDIATE EXAMINATION

Development costs are the cost incurred in applying research

findings or other knowledge to a plan or design for the
production of new or substantially improved materials,
devices, products, processes, systems or services prior to the
commencement of commercial production or use.
(iii) Training Costs: Costs which are incurred in and in relation to
providing training to the workers, apprentices, executives etc.
Training cost consists of wages and salaries paid to new
trainees, fees paid to trainers, cost of materials and
properties used to train the trainees, costs associated with
training centre, loss suffered due to lower production and
extra spoilage etc. The total cost of training section is
thereafter apportioned to production centers.

58 MAY 2025 EXAMINATION

 Mock Test Paper - Series I: March 2025
Date of Paper: 15th March 2025
Time of Paper: 10 AM – 1 PM
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING

Answers are to be given only in English except in the case of the candidates who have opted
for Hindi medium. If a candidate has not opted for Hindi medium his/ her answer in Hindi will
not be valued.

Working notes should form part of the answer.

Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for 30 marks
3. Part II comprises questions which require descriptive type answers for 70 marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario I
Rinku Ltd is a manufacturing company which is producing bags of different varieties. The
company is planning to establish a new plant in the neighboring country to produce the bags.
New plant has a production capacity of 2,00,000 units per year. As per the studies, normal
capacity utilization is 90% of the production capacity. The company will be able to sell the whole
production after making price adjustments.
The following are the annual cost data on the basis of cost studies for the new plant in the
neighboring country:
Material Cost = ` 42,00,000 (100% variable)

Labour = ` 40,00,000 (70% variable)

Factory Overheads = ` 35,00,000 (60% variable)

1
Administrative Overheads = ` 10,00,000 (30% variable)
Bags are being produced and sold on steady basis. It is estimated that it costs ` 1 as inventory
holding cost per bag per month and that the set up cost per run of bag manufacture is ` 1,000.
The production of the new plant will be sold only the sales agent in the neighboring country who
will receive ` 5 per bag. There is no other selling expenses other than commission. Fixed cost
are calculated on the basis of normal capacity utilization of the plant.
Assume 365 days in a year.
Being a cost manager of the company, you are required answer the following questions being
asked by the management of the company:
1. What is the total variable cost of the bags being produced?
(a) ` 80,00,000
(b) ` 93,00,000
(c) ` 1,03,00,000
(d) ` 33,00,000
2. What is the total fixed cost of the bags being produced?
(a) ` 40,00,000
(b) ` 35,00,000
(c) ` 53,00,000
(d) ` 33,00,000
3. Calculate the break-even point if the sales price is `100 per bag?
(a) 65,159 bags
(b) 77,139 bags
(c) 93,000 bags
(d) 86,503 bags
4. Calculate the optimum run size and number of runs for bag manufacturing?
(a) 7,746 bags and 24 runs

2
 (b) 8,000 bags and 23 runs
(c) 6,503 bags and 28 runs

(d) 5,478 bags and 33 runs

5. What is the interval between two consecutive runs?
(a) 11 days
(b) 10 days
(c) 15 days
(d) 19 days (5 x 2 = 10 Marks)
Case Scenario II
A company is working in manufacturing sector and uses labour-force, which consists of skilled,
semi-skilled, and unskilled workers.
The rate of Labour per week for skilled worker is ` 120, for semi-skilled workers is ` 80 and for
unskilled worker is ` 60.
It had planned the labour for a job that would take 60 weeks to be completed, ideally. Ratio of
workers employed in skilled, semi-skilled, and unskilled would be 5:3:4. The management
consultant who was employed to handle this job died in an accident. Board hired a new
consultant to take over this job.
This new consultant had a different approach for doing this job. He thought that workers actually
required would be in the ratio of 7:3:8. He changed the composition of labour-force and
employed the workers in the new ratio.
Project was carried out successfully and it turned out that this change in Mix of labour-force
saved the company ` 76,800 in the job but at the same time company also lost
` 1,29,600 due to poor productivity of the labourers.
As a result, management consultant was promoted and labour force was fired & was replaced
with more experienced labour-force.
As the new management consultant was promoted, company found a new one to replace him.
This 3rd management consultant was asked to understand and analyse the previous job done
by the 2nd management consultant. Data in addition to above-given information was provided as
follows:-
• Total time period taken for the job was 64 weeks.

3
• Net extra cost spent, in comparison to planned cost, was ` 1,04,000.
• Total number of weeks worked by all the type of labourers was 23,040 weeks.

• Skilled and semi-skilled labourers in reality charged ` 20 extra per week, whereas
unskilled labourers were negotiated to charge ` 20 less per week, than what they had
charged earlier.
Let say, you are the 3rd management consultant, and you have been given with all this
information. Work out calculations and answer the following questions (MCQs 6 to 10) based
on the information given above.
6. If the total of labour efficiency variance of skilled and semiskilled labourers is ` 1,29,600
(Favourable), what is the labour efficiency variance of unskilled labour?
(a) 1,82,400 (Adverse)
(b) 52,800 (Adverse)
(c) 1,29,600 (Adverse)
(d) 76,800 (Favourable)
7. What are the amounts that company saved & paid extra to labourers, respectively?

(a) 2,56,000 & 2,04,800

(b) 1,79,200 & 204,800
(c) 2,04,800 & 2,56,000
(d) 204,800 & 1,79,200
8. If in total 1,440 weeks were worked in addition to what was planned, how many extra/less
workers were used in actual, compared to standard? (Answer in sequence of skilled,
semi-skilled, & unskilled).
(a) -10, -30, -40
(b) -10, -30, +40

(c) +10, +30, -40

(d) +10, +30, +40
9. Calculate revised standard weeks for all 3 types of labour forces? (Answer in sequence
of skilled, semi-skilled, & unskilled).

4
 (a) 9,400, 5,650, & 7,990
(b) 9,550, 6,280, & 7,210
(c) 8,520, 6,850, & 7,670
(d) 9,600, 5,760, & 7,680
10. If standard rates charged by skilled, semi-skilled, and unskilled were ` 120, ` 80, & ` 60,
respectively, then which labour force performed worst, better, & best, due to change in
labour composition?
(a) Semi-skilled, skilled, & unskilled
(b) Skilled, semi-skilled, unskilled
(c) Unskilled, skilled, & semi-skilled
(d) Unskilled, semi-skilled, & skilled (5 x 2 = 10 Marks)
11. A manufacturing firm is presently producing and selling 10,000 units of a product at `
500 per unit in the domestic market. The fixed cost per unit at the current level of
operation is ` 150 and variable cost is ` 300 per unit. The firm has received an export
order for supply of 5,000 units of the product at ` 400 per unit. After meeting the domestic
demand, if the firm accepts the export offer, the profit of the firm is expected to:
(a) decrease by ` 5,00,000.
(b) increase by ` 2,00,000.
(c) decrease by ` 3,00,000.
(d) increase by ` 5,00,000. (2 Marks)
12. A truck having a capacity of 5 tonnes of goods normally carries 80% of the load on the
outward journey and 40% of the load on inward journey. The distance is 300 km for one
side. It takes 2 days to complete the round trip. The truck is on the road for 310 days in
a year. Which one of the following is the total tonne-km in a year?
(a) 3,70,000
(b) 3,20,000
(c) 2,79,000
(d) 2,50,000 (2 Marks)

5
13. A company manufactures 5,000 units of a product per month. The cost of placing an
order is ` 100. The purchase price of the raw material is ` 10 per kg. The re-order
period is 4 to 8 weeks. The consumption of raw materials varies from 100 kg to 450 kg
per week, the average consumption being 275 kg. The carrying cost of inventory is
20% per annum. What is Maximum level of stock?
(a) 4,396 kg.
(b) 5,500 kg
(c) 6,210 kg
(d) 3,956 kg (2 Marks)
14. Product Y yields two by-products A and B. The joint cost of manufacture is ` 2,00,000.
Sales of A and B are ` 80,000 and ` 50,000 respectively. Manufacturing expenses
after separation of A and B are ` 10,000 and ` 8,000 respectively while their respective
estimated selling expenses on sales is 20% for both products. The estimated profit on
sales of A and B is 25% and 30% respectively. What is the cost of product Y after
adjusting joint cost apportioned to by-products A and B?
(a) ` 1,50,000
(b) ` 1,49,000
(c) ` 1,82,000
(d) ` 1,20,000 (2 Marks)
15. The accountant for Brilliant Tools Ltd applies overhead based on machine hours. The
budgeted overhead and machine hours for the year are ` 1,30,000 and 8,000 hours,
respectively. The actual overhead and machine hours incurred were ` 1,37,500 and
10,000 hours.
What is the amount of over/under absorbed overhead for the year?
(a) Over absorbed by ` 25,000
(b) Under absorbed by ` 25,000
(c) Over a absorbed by ` 32,500
(d) Under absorbed by ` 32,500 (2 Marks)

6
 PART-II – Descriptive Questions (70 Marks)
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) A company uses three raw materials A, B and C for a particular product for which
the following data apply:
Raw Usage Re- Price Delivery period Re- Minimum
Material per unit order per (in weeks) order level
of Quantity Kg. level (Kg.)
product (Kg.) (`) (Kg.)
(Kg.) Minimum Average Maximum
A 10 10,000 0.10 1 2 3 8,000 ?
B 4 5,000 0.30 3 4 5 4,750 ?
C 6 10,000 0.15 2 3 4 ? 2,000

Weekly production varies from 175 to 225 units, averaging 200 units of the said
product.
WHAT would be the following quantities:
(i) Minimum Stock of A?
(ii) Maximum Stock of B?
(iii) Re-order level of C?
(iv) Average stock level of A? (5 Marks)
(b) S Travels has been promised a contract to run a tourist car on a 20 km. long route
for a multinational firm. He buys a car costing ` 4,50,000. The annual cost of
insurance and taxes are ` 7,500 and ` 1,800 respectively. He has to pay
` 2,500 per month for a garage where he keeps the car when it is not in use. The
annual repair costs are estimated at ` 12,000. The car is estimated to have a life
of 10 years at the end of which the scrap value is likely to be ` 50,000.
He hires a driver who is to be paid ` 3,000 per month plus 10% of the takings as
commission. Other incidental expenses are estimated at ` 2,000 per month.
Petrol and oil will cost ` 220 per 100 kms. The car will make 4 round trips each
day. Assuming that a profit of 15% on takings is desired and that the car will be
on the road for 25 days on an average per month, WHAT should he charge per
round-trip? (5 Marks)
(c) PR Ltd. totally understands the importance of employee motivation and retention,
thus, it has implemented a structured wage policy. The basic wage rate is set at

7
 ` 100 per hour along with Dearness Allowance (DA) of 50%, which is competitive
within the industry. To encourage productivity and compensate for the demands
of overtime, the company offers enhanced rates for hours worked beyond the
standard schedule. The normal working days are from Monday to Saturday, and
the worker would be paid overtime premium of-
75% of basic wage rate (inclusive of DA) for working before and after normal
working hours, and
125% of basic wage rate (inclusive of DA) for working on Sundays.
Throughout the previous year, the following hours were worked-
Normal time 4,00,000 hours
Overtime before and after normal working hours 80,000 hours
Overtime on Sundays 20,000 hours
Total 5,00,000 hours

However, the hours recorded for job ‘PR123’ are as follows:

Normal time 4,000 hours
Overtime before and after normal working hours 400 hours
Overtime on Sundays 100 hours
Total 4,500 hours
You are required to CALCULATE the employee cost chargeable to job ‘PR123’
and the treatment of overtime premium:
(i) where overtime is worked regularly throughout the year as a policy due to
the workers’ shortage.
(ii) where overtime is worked irregularly to meet the requirements of
production. (4 Marks)
2. (a) Electraunika Ltd. manufactures two types of cables- 'USB Type C Cable' and ‘USB
Lightning Cable'. As the market is currently dominated by 'USB Type C Cable', it
is produced 3 times the ‘USB Lightning Cable'.
The combined cost data of both the cables for the month of March is given below:
Particulars (`)
Direct Materials 2,06,25,000
Direct Wages 1,15,50,000
Production Overhead 66,00,000

8
 Administration overhead (related to production) 33,00,000
Selling Cost 59,40,000

Cost bifurcation between both the cables is ascertained as follows:

(i) Direct material cost per unit of ‘USB Lightning Cable' was twice than that
of 'USB Type C Cable'.
(ii) Direct wages per unit for ‘USB Lightning Cable' were 5/3 times the rate of
'USB Type C Cable'.
(iii) Production overhead, Administration overhead and selling cost per unit
were at same rate for both the types of cable.
Other information:
(i) 75,000 units of ‘USB Lightning Cable’ were produced.
(ii) 90% of both the cables produced were sold.
(iii) Selling Price was ` 385 per unit for ‘USB Lightning Cable’.
You are required to PREPARE a cost sheet for ‘USB Lightning Cable’ showing per
unit and Total Sales Value. (8 Marks)
(b) DISCUSS the effect of overtime payment on productivity. (4 Marks)
(c) DESCRIBE briefly, how joint costs upto the point of separation may be
apportioned amongst the joint products under the following methods:
(i) Market value after further processing
(ii) Net realizable value method (2 Marks)
3. (a) PR Ltd., a leading chemical company specializing in the production of specialty
chemicals and industrial products, manufactures Product X through two distinct
processes – Process-I and Process-II. Known for its innovation in chemical
manufacturing, the company uses advanced technologies and industry best
practices to ensure high-quality production. The following information is provided
from the books of account for the year:
Particulars Process- I Process- II
Raw materials used 1,50,000 units --
Raw materials cost per unit ` 400 --
Actual Output 1,38,000 units 96,000 units
Output transferred to next process 3/4th --

9
 Output sold 1/4th 96,000 units
Normal loss (on inputs) 6% 10%
Direct wages ` 39,00,000 ` 58,50,000
Direct Expenses 20% of Direct 15% of Direct
wages wages
Manufacturing overheads ` 2,25,00,000 to be recovered as a
percentage of direct wages
Realisable value of scrap per unit ` 25 ` 40
Selling price per unit of output ` 650 ` 950

Management & Selling expenses of ` 1,27,50,000 are directly attributable to the

Costing Profit & Loss Account.
You are required to PREPARE the following:
(i) Process-I Account
(ii) Process-II Account
(iii) Abnormal Loss
(iv) Abnormal Gain Account
(v) Costing Profit & Loss Account (10 Marks)
(b) AeBee Ltd. disclosed a net loss of ` 9,02,200 as per their cost accounts for the
year ending 31st March. However, the financial accounts disclosed a net loss of
` 13,26,000 for the same period. On scrutiny of both the sets of accounts,
following information was revealed-
Particulars (`)
(i) Depreciation charged in Financial Accounts 8,45,000
(ii) Factory Overheads under-absorbed in Cost Accounts 7,41,000
(iii) Depreciation charged in Cost Accounts 7,15,000
(iv) Interest on investments not included in Cost Accounts 3,12,000
(v) Administration Overheads over-absorbed in cost accounts 1,56,000
(vi) Income-tax provided 1,40,400
(vii) Dividend received 83,200
(viii) Stores adjustment (credit in financial books) 36,400

PREPARE a memorandum Reconciliation Account. (4 Marks)

10
4. (a) ChispyChip Ltd. manufactures 3 types of packed chips namely Crunchy Potato,
Crispy Corn and Crumbly Banana and offers to sell them at wholesale price to the
retailers. The following data is available for the current year:
Crunchy Potato Crispy corn Crumbly Banana
(`) (`) (`)
Revenues 1,53,35,250 1,63,36,900 1,55,23,850
Cost of goods sold 1,12,70,000 1,27,37,400 1,18,45,000

The information regarding cost pool activities and their cost driver is also provided
below:
Cost Pool Activity Total Cost (`) Cost Driver
Placing of orders 17,94,000 No. of purchase orders
Physical delivery of goods 28,98,000 No. of deliveries
Stocking of goods on store 19,87,200 Hours of shelf-stocking time
shelves
Supervising cost 13,80,000 Direct labour hours
Quality Inspections 9,03,900 No. of Inspections

Further, bifurcation of cost driver of the individual type of Chips is as follows:

Particulars Crunchy Crispy corn Crumbly
Potato Banana
Number of purchase orders placed 1,127 1,242 1,219
Number of deliveries made 2,185 2,668 2,392
Hours of shelf-stocking time 6,072 7,130 6,670
Direct Labour hours 19,159 19,435 18,906
Number of Inspections done 759 782 736
Due to banana being ripening in nature, it takes double the time during inspection
than the other type of Chips.
You are required to CALCULATE the operating income and its percentage of the
revenue for each product line:
(i) if the company allocates all the support cost to product lines on the basis
of cost of goods sold.
(ii) if the company allocates all the support cost to product lines using an
activity-based costing system. (6 Marks)

11
(b) A company manufactures two products, X and Y, which are sold to retailers. These
products are part of the company’s core offerings and are crucial to meeting the
demands of its retail partners. The company is anticipating a specific sales volume
for each product in the upcoming quarter, which is expected to play a significant role
in production planning, inventory management, and overall financial forecasting.
The budgeted sales volumes for the next quarter are as follows:
Product Units
X 64,000
Y 1,12,000

The finished goods inventory is projected to rise by 2,000 units of Product X and
fall by 4,000 units of Product Y by the end of the quarter.
Raw materials A and B are essential for the production of both products. The
quantities needed of each raw material to produce one unit of the finished product,
along with their purchase prices, are outlined in the table below:
Raw Material A Raw Material B
Product X 24 kg 12 kg
Product Y 12 kg 9 kg
Purchase price per kg ` 18.75 ` 27.00
Budgeted opening inventory 1,80,000 kg 1,20,000 kg

The company intends to maintain a raw material inventory at the end of the quarter
equivalent to 5% of the quarter's total raw material usage budget.
Additional information is provided relating to production of the products, X and Y:
(i) Product X requires 16 minutes of direct labour, while Product Y requires 20
minutes of direct labour. Labour cost is ` 540 for 1 day of 9 hours.
(ii) Variable manufacturing overhead of ` 8 per unit is same for both the
products.
(iii) Variable selling and administration expenses are 10% of sales.
You are required to:
(i) PREPARE Production budget for the quarter(in units)
(ii) PREPARE Raw material usage budget for the quarter (in kg)

12
 (iii) PREPARE Raw material purchase budget for the quarter(in kg and `)
(iv) COMPUTE the budgeted variable cost to produce one unit of Product Y.
(2 + 2 + 2 + 2 = 8 Marks)
5. (a) RN Ltd. is a manufacturing company producing single product. The following
information is available relating to current financial year:
Activity Level 100%
Sales and production (units) 4,400
(`)
Sales 88,00,000
Production costs:
- Variable 35,20,000
- Fixed 8,80,000
Selling and distribution costs:
- Variable 17,60,000
- Fixed 13,20,000

Fixed costs are incurred evenly throughout the year, and actual fixed costs are
the same as budgeted. Thus, at 50% activity level, fixed production cost and fixed
selling and distribution costs remains the same and other data/figures which are
variable changes proportionately.
The normal level of activity for the year is 4,400 units.
There were no stock at the beginning of the year.
In the first quarter, 1,210 units were produced and 880 units were sold.
You are required to COMPUTE the profit for the quarter using-
(i) Absorption costing
(ii) Marginal costing. (3 + 3 = 6 Marks)
(b) Arnav Ltd. has three production departments M, N and O and two service
departments P and Q. The following particulars are available for the month of
September, 2024:
(`)
Lease rental 35,000

13
 Power & Fuel 4,20,000
Wages to factory supervisor 6,400
Electricity 5,600
Depreciation on machinery 16,100
Depreciation on building 18,000
Payroll expenses 21,000
Canteen expenses 28,000
ESI and Provident Fund Contribution 58,000

Followings are the further details available:

Particulars M N O P Q
Floor space (square
1,200 1,000 1,600 400 800
meter)
Light points (nos.) 42 52 32 18 16
Cost of machines (`) 12,00,000 10,00,000 14,00,000 4,00,000 6,00,000
No. of employees
48 52 45 15 25
(nos.)
Direct Wages (`) 1,72,800 1,66,400 1,53,000 36,000 53,000
HP of Machines 150 180 120 - -
Working hours
1,240 1,600 1,200 1,440 1,440
(hours)

The expenses of service department are to be allocated in the following manner:

M N O P Q
P 30% 35% 25% - 10%
Q 40% 25% 20% 15% -

You are required to CALCULATE the overhead absorption rate per hour in respect
of the three production departments. (8 Marks)
6. (a) Standard costs, marginal costs are some of the types of cost which helps the
management in decision making. DISCUSS any five types of costs categorised
based on its use in Managerial Decision Making. (5 Marks)

14
(b) Provide EXAMPLE(S) of the cost driver for the following cost pools:
Cost Pool
Quality Control
Research and Development
Machine Maintenance
Employee Training Costs
Customer Service
(5 Marks)
(c) Besides having advantages of Budgetary Control System being a powerful
instrument used by business entity for the control of their expenditure, it has
certain limitations as well. ELABORATE any four limitations of Budgetary Control
System. (4 Marks)
OR
(d) Cost control emphasis is on past and present, while cost reduction emphasis is
on present and future. DISCUSS some more differences between Cost control
and Cost reduction. (4 Marks)

15
 Mock Test Paper - Series I: March 2025
Date of Paper: 15th March 2025
Time of Paper: 10 AM – 1 PM
INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Solution
PART I – Case Scenario based MCQs
1. (c) ` 1,03,00,000
2. (d) ` 33,00,000
Working note
Particulars `
Variable Cost:
Material 42,00,000
Labour (40,00,000 x 70%) 28,00,000
Factory Overheads (35,00,000 x 60%) 21,00,000
Administrative Overheads (10,00,000 x 30%) 3,00,000
Commission (1,80,000 x 5) 9,00,000
Total Variable cost 1,03,00,000
Fixed Cost:
Labour (40,00,000 x 30%) 12,00,000
Factory Overheads (35,00,000 x 40%) 14,00,000
Administrative Overheads (10,00,000 x 70%) 7,00,000
Total Fixed Cost 33,00,000

3. (b) 77,139 bags

Variable cost per bag = ` 1,03,00,000/1,80,000
= ` 57.22

Contribution per bag = ` 100 – ` 57.22 = ` 42.78

Break-even point (in number of bags)
= Fixed cost/Contribution per bag

1
 = `33,00,000/`42.78
= 77,139 bags
4. (d) 5,478 bags and 33 runs
2DS
EBQ = √
C
Where,
D = no. of bags to be produced annually
S = Set up cost per production run
C = Carrying cost per unit per annum
2 x 1,80,000 x 1000
EBQ = √
1 x 12
= 5,478 bags
No. of optimum runs = 1,80,000/5,478
= 32.86 or 33 runs
5. (a) 11 days
Interval between 2 runs (in days) = 365 days/33 = 11 days
6. (a) 1,82,400 (Adverse)
Working Note
Total actual weeks = 23,040
Ratio of actual workers = 7:3:8

Let’s assume that total number of workers is ‘X’

(7/18 x X x64) + (3/18 x X x 64) + (8/18 x X x 64) = 23,040
X = 360
Standard Actual
Workers Rate per week Workers Rate per week
Skilled 150 120 140 140
Semi-skilled 90 80 60 100
unskilled 120 60 160 40

2
Standard time = 60 weeks
Actual time = 64 weeks
Standard Actual
Weeks Rate Amount Weeks Rate Amount
Skilled 9,000 120 10,80,000 8,960 140 12,54,400
Semi- 5,400 80 4,32,000 3,840 100 3,84,000
skilled
unskilled 7,200 60 4,32,000 10,240 40 4,09,600
total 21,600 19,44,000 23,040 20,48,000
1. Cost Variance = 19,44,000 – 20,48,000 = 1,04,000(A)
2. Rate Variance =
Skilled 8,960x(120-140) 1,79,200 (A)
Semi-skilled 3,840x(80-100) 76,800 (A)
unskilled 10,240x(60-40) 2,04,800 (F)
51,200 (A)
3. Efficiency Variance =
Skilled 120x(9,000-8,960) 4,800(F)
Semi-skilled 80x(5,400-3,840) 1,24,800(F)
unskilled 60x(7,200-10,240) 1,82,400(A)
52,800(A)
4. Revised Labour Efficiency Rate=
Skilled 120x(9,000-9,600) 72,000(A)
Semi-skilled 80x(5,400-5,760) 28,800(A)
unskilled 60x(7,200-7,680) 28,800(A)
1,29,600(A)
5. Labour Mix Variance=
Skilled 120x(9,600-8,960) 76,800(F)
Semi-skilled 80x(5,760-3,840) 1,53,600(F)
unskilled 60x(7,680-10,240) 1,53,600(A)
76,800(F)

3
 Labour Mix Variance (76,800 F) + Revised Labour Efficiency Variance
(1,29,600 A)

= Total Labour Efficiency (52,800 A)

Total Lab Efficiency Variance – Labour Efficiency Variance of Skilled And Semi
Skilled
= Labour Efficiency Variance of Unskilled
52,800A – 1,29,600A = 1,82,400A,
So, Labour Efficiency Variance of Unskilled = 1,82,400A
No. of workers Weeks worked
Skilled 140 140x64= 8,960
Semi-skilled 60 60x64= 3,840
unskilled 160 160x64= 10,240

7. (c) 2,04,800 & 2,56,000

Money saved or spent:
Weeks worked Saved/spent extra, per week Total
Skilled 8,960 20 spent extra -1,79,200
Semi-skilled 3,840 20 spent extra -76,800
unskilled 10,240 20 saved +2,04,800

Saved = 2,04,800
Spent = 2,56,000
8. (b) -10, -30, +40
Actual weeks = 23,040
(-) extra = (1,440)
Planned weeks =21,600

Original standard ratio = 5:3:4

4
 Standard weeks chart:
Weeks Workers
Skilled 21,600x5/12 = 9,000 9,000/60 weeks = 150
Semi-skilled 21,600x3/12 = 5,400 5,400/60 weeks = 90
unskilled 21,600x4/12 = 7,200 7,200/60 weeks = 120

Planned workers Actual workers Actual compared to

standard
Skilled 150 140 -10
Semi-skilled 90 60 -30
unskilled 120 160 +40

9. (d) 9,600, 5,760, & 7,680

Actual weeks is divided in standard ratio of workers

23,040 in 5:3:4
Revised Standard Weeks
Skilled 9,600
Semi-skilled 5,760
unskilled 7,680

10. (c) Unskilled, skilled, & semi-skilled

Change in performance of workers, due to change in labour composition can
be evaluated through labour mix variance. We have already calculated labour
mix variance above. Answers are:
Labour mix variance
Skilled 76,800 F
Semi-skilled 1,53,600 F
unskilled 1,53,600 A
This means unskilled labour performed the worst, skilled labour performed
better than unskilled, and semi skilled performed the best.
11. (d) increase by ` 5,00,000.
Total Revenue (Domestic) = 10,000 × 500 = 50,00,000

5
 Total Cost (Domestic) = Fixed Cost + Variable Cost
= (10,000 × 150) + (10,000 × 300) = 15,00,000+30,00,000 = 45,00,000
Profit (Domestic) =Total Revenue−Total Cost = 50,00,000−45,00,000 = 5,00,000
Contribution per Unit (Export) = Export Price−Variable Cost = 400−300 = 100
Total Contribution from Export = 100 × 5,000 = 5,00,000
12. (c) 2,79,000
Tonne-Km for Outward Journey = 4 tonnes × 300 km = 1,200 tonne-km
Tonne-Km for Inward Journey = 2 tonnes × 300 km = 600 tonne-km
Total Tonne-Km per Round Trip = 1,200 + 600 = 1,800 tonne-km
Total Tonne-Km in a year = 1,800 × 155 = 2,79,000 tonne-km
13. (a) 4,396 kg.
Annual consumption of raw material (A) = (275 kg. × 52 weeks) = 14,300 kg.
Cost of placing an order (O) = ` 100
Carrying cost per kg. Per annum (c × i) = ` 10 × 20% = ` 2
2AO
Economic order quantity (EOQ)/ Reorder Quantity (ROQ) =
C×i

2 ×14,300 kgs. × ` 100

=
`2
= 1,196 Kg. (Approx)
Reorder level (ROL) = Maximum usage × Maximum re-order period
= 450 kg. × 8 weeks = 3,600 kg.
Maximum level = ROL + ROQ – (Min. usage × Min. re-order period)
= 3,600 kg. + 1,196 kg. – (100 kg. × 4 weeks)
= 4,396 kg.
14. (b) ` 1,49,000
Total Cost=Sales Revenue−Profit
For A:
Total Cost of A = 80,000−20,000=60,000
For B:
Total Cost of B = 50,000−15,000=35,000

6
 For A:
Joint Cost Allocated to A = 60,000−(Manufacturing Expenses + Selling Expenses)
= 60,000−(10,000+16,000) = 34,000
For B:
Joint Cost Allocated to B = 35,000−(Manufacturing Expenses + Selling Expenses)
= 35,000 − (8,000 + 10,000) = 17,000
Cost of Product Y = Total Joint Cost−Joint Cost Allocated to A and B
= 2,00,000 − 51,000 = 1,49,000
15. (a) Overabsorbed by ` 25,000
Predetermined Overhead Rate = Budgeted Overhead / Budgeted hours i.e.
1,30,000 / 8,000 = ` 16.25 per hour.
Hence, absorbed overhead = 10,000 X 16.25 = ` 1,62,500.
Since actual overhead incurred were ` 1,37,500
Hence the overhead were over absorbed by 1,62,500 – 1,37,500 = ` 25,000.
PART II Descriptive Questions
1. (a) (i) Minimum stock of A
Re-order level – (Average consumption × Average time required to obtain
delivery)
= 8,000 kg. – (200 units × 10 kg. × 2 weeks) = 4,000 kg.
(ii) Maximum stock of B
Re-order level – (Min. Consumption × Min. Re-order period) + Re-order
quantity
= 4,750 kg. – (175 units × 4 kg. × 3 weeks) + 5,000 kg.
= 9,750 - 2,100 = 7,650 kg.
(iii) Re-order level of C
Maximum re-order period × Maximum Usage
= 4 weeks × (225 units × 6 kg.) = 5,400 kg.
OR
= Minimum stock of C + (Average consumption × Average delivery time)

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 = 2,000 kg. + [(200 units × 6 kg.) × 3 weeks] = 5,600 kg.
(iv) Average stock level of A

= Minimum stock level of A + 1 Re-order quantity

2

= 4,000 kg. + 1 10,000 kg. = 4,000 + 5,000 = 9,000 kg.

2
OR
Minimum stock + Maximum stock
= (Refer to Working Note)
2
4,000 + 16,250
= = 10,125 kg.
2
Working note

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

order period)
= 8,000 kg. + 10,000 kg. – [(175 units × 10 kg.) × 1 week] = 16,250 kg.

(b) Statement of Operating cost.

Per Annum (`) Per Month (`)
Standing charges:
Depreciation [(4,50,000- 50,000)/10] 40,000 3,333.33
Insurance 7,500 625.00
Taxes 1,800 150.00
Garage (` 2,500 × 12) 30,000 2,500.00
Annual repairs 12,000 1,000.00
Driver's Salary (` 3,000× 12) 36,000 3,000.00
Incidental expenses (` 2,000 × 12) 24,000 2,000.00
1,51,300 12,608.33
Variable expenses:
Petrol and Oil 8,800.00
 1 
 4,000 * kms × kms. × Rs. 220 
 100 
Total Cost (without commission) 21,408.33

8
 [* 20 km. × 2 × 4 round trips × 25 days = 4,000 km.]
Let X be the total takings per month
X
Driver's Commission = 10% of X =
10
15 3X
Profit = 15% of X = X=
100 20
Total takings per month = Total cost + Driver's Commission + Profit
X 3X
or X = ` 21,408.33 + +
10 20
3X X
or X− − = ` 21,408.33
20 10
20X – 3X – 2X
or = ` 21,408.33
20
15X
or = ` 21,408.33
20
Rs. 21,408.33 × 4
or X =
3
X = ` 28,544.44
Total number of round trips per month: 25 days × 4 round trips per day = 100 trips
` 28,544.44
Hence the charge per round trip =
100
= ` 285.44
(c) Workings
Basic wage rate = ` (100 + ` 50 for DA) per hour
= ` 150 per hour
Overtime wage rate before and after working hours
= ` 150 + 75% of ` 150
= ` 262.50 per hour
Overtime wage rate for Sundays = ` 150 + 125% of ` 150
= ` 337.50 per hour

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 Computation of average inflated wage rate (including overtime
premium)
Particulars (`)
Annual wages for the previous year for normal time 6,00,00,000
(4,00,000 hrs. × ` 150)
Wages for overtime before and after working hours 2,10,00,000
(80,000 hrs. × ` 262.50)
Wages for overtime on Sundays (20,000 hrs. × ` 337.50) 67,50,000
Total wages for 5,00,000 hrs. 8,77,50,000
` 8,77,50,000
Average inflated wage rate = = ` 175.50
5,00,000 hrs.
(i) 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 ‘PR123’
= Total hours × Inflated wage rate
= 4,500 hrs. × ` 175.50 = ` 7,89,750
(ii) 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 ‘PR123’
= 4,500 hours @ ` 150 per hour
= ` 6,75,000
Factory overhead = {400 hrs. × ` (75% of ` 150)} +
{100 hrs. × ` (125% of ` 150)}
= {` 45,000 + ` 18,750}
= ` 63,750
2. (a) Preparation of Cost Sheet for ‘USB Lightning Cable’
No. of units produced = 75,000 units
No. of units sold = 90% of 75,000 units
= 67,500 units

10
Particulars Per unit (`) Total (`)
Direct materials (Working note- (ii)) 110.00 82,50,000
Direct wages (Working note- (iii)) 55.00 41,25,000
Prime cost 165.00 1,23,75,000
Production overhead (Working note- (iv)) 22.00 16,50,000
Factory Cost 187.00 1,40,25,000
Administration Overhead (Working note- (v)) 11.00 8,25,000
Cost of production 198.00 1,48,50,000
Less: Closing stock (10% of 75,000 units) - (14,85,000)
Cost of goods sold i.e. 67,500 units 198.00 1,33,65,000
Selling cost (Working note- (vi)) 22.00 14,85,000
Cost of sales/ Total cost 220.00 1,48,50,000
Profit 165.00 1,11,37,500
Sales value (` 385 × 67,500 units) 385.00 2,59,87,500

Working Notes:
(i) No. of units produced for 'USB Type C Cable' is 3 times the ‘USB Lightning
Cable'
= 3 x 75,000 units
= 2,25,000 units
(ii) Direct material cost per unit of 'USB Type C Cable' = M
Direct material cost per unit of ‘USB Lightning Cable' = 2M
Total Direct Material cost = 2M × 75,000 units + M × 2,25,000 units
` 2,06,25,000 = 1,50,000 M + 2,25,000 M
` 2,06,25,000
M =
3,75,000
= ` 55
Therefore, Direct material Cost per unit of ‘USB Lightning Cable'
= 2 × ` 55 = ` 110
(iii) Direct wages per unit for ‘USB Lightning Cable' were 5/3 times the rate of
'USB Type C Cable'.
Direct wages per unit for 'USB Type C Cable' =W

11
 5
Direct wages per unit for ‘USB Lightning Cable' = W
3
5
So, ( W x 75,000) + (W x 2,25,000) = ` 1,15,50,000
3
Or, W (3,75,000 + 6,75,000) = ` 3,46,50,000
Or, W = ` 33 per unit
Therefore, Direct material Cost per unit of ‘USB Lightning Cable' -
5
= x ` 33 = ` 55 per unit
3
` 66,00,000
(iv) Production overhead per unit = = ` 22
(75,000+2,25,000)
` 33,00,000
(v) Administration overhead per unit = = ` 11
(75,000+2,25,000)
` 59,40,000
(vi) Selling cost per unit = = ` 22
90% of (75,000+2,25,000)

(b) Effect of overtime payment on productivity: Overtime work should be resorted

to only when it is extremely essential because it involves extra cost. The
overtime payment increases the cost of production in the following ways:
1. The overtime premium paid is an extra payment in addition to the normal
rate.
2. The efficiency of operators during overtime work may fall and thus output
may be less than normal output.
3. In order to earn more the workers may not concentrate on work during
normal time and thus the output during normal hours may also fall.
4. Reduced output and increased premium of overtime will bring about an
increase in cost of production.
(c) (i) Market Value after further Processing: Here the basis of apportionment
of joint costs is the total sales value of finished products at the further
processing. The use of this method is unfair where further processing costs
after the point of separation are disproportionate or when all the joint
products are not subjected to further processing.
(ii) Net Realisable Value Method: Here joint costs is apportioned on the
basis of net realisable value of the joint products,
Net Realisable Value = Sale value of joint products (at finished stage)

12
 (-) estimated profit margin
(-) selling & distribution expenses, if any
(-) post split off cost
3. (a) Process- I A/c
Particulars Units (`) Particulars Units (`)
To Raw material 1,50,000 6,00,00,000 By Normal loss 9,000 2,25,000
used (6% of 1,50,000 units) ×
(` 400 × 1,50,000 ` 25
units)
To Direct wages -- 39,00,000 By Process- II A/c 1,03,500 5,39,19,360
(` 520.96 × 1,03,500
units)
To Direct expenses -- 7,80,000 By Abnormal loss 3,000 15,62,880
(20% of Direct (` 520.96 × 3,000 units)
wages)
To Manufacturing 90,00,000 By Costing Profit and 34,500
overhead Loss (P&L)
1,79,72,760
[` 2,25,00,000 ×
(390/975)]
1,50,000 7,36,80,000 1,50,000 7,36,80,000

Cost per unit:

Total Cost - Realisable value of normal loss
� �
Total input units - Normal Loss units
` 7,36,80,000 - ` 2,25,000
= �1,50,000 units - 9,000 units� = ` 520.96 per unit
Process- II A/c
Particulars Units (`) Particulars Units (`)
To Process- I A/c 1,03,500 5,39,19,360 By Normal loss 10,350 4,14,000
(10% of 1,03,500
units) × ` 40
To Direct wages -- 58,50,000 By Costing P & L A/c 96,000
7,59,88,778

To Direct expenses -- 8,77,500

(15% of Direct wages)
To Manufacturing -- 1,35,00,000
overhead
[` 2,25,00,000 ×
(585/975)]

13
To Abnormal gain 2,850 22,55,918
(` 791.55 × 2,850
units)
1,06,350 7,64,02,778 1,06,350 7,64,02,778

Cost per unit:

Total Cost - Realisable value of normal loss
� �
Total input units - Normal Loss units

` 7,41,46,860 - ` 4,14,000
= �1,03,500 units - 10,350 units� = ` 791.55 per unit

Abnormal Loss A/c

Particulars Units (`) Particulars Units (`)
To Process- I A/c 3,000 15,62,880 By Bank 3,000 75,000
By Costing P & L A/c 14,87,880
3,000 15,62,880 3,000 15,62,880

Abnormal Gain A/c

Particulars Units (`) Particulars Units (`)
To Normal Loss 2,850 1,14,000 By Process- II A/c 2,850 22,55,918
To Costing P & L A/c 21,41,918

2,850 22,55,918 2,850 22,55,918

Costing Profit & Loss Account

Particulars (`) Particulars (`)
To Cost of sales 9,39,61,538 By Sales
Process I- 1,79,72,760 Process I- 34,500 @ 650 11,36,25,000
Process II- 7,59,88,778 Process II- 96,000 @ 950
To Abnormal loss 14,87,880 By Abnormal gain 21,41,918
To Selling Expenses 1,27,50,000
To Net Profit 75,67,500
11,57,66,918 11,57,66,918

14
 (b) Memorandum Reconciliation Accounts
Dr. Cr.
(`) (`)
To Net Loss as per Costing 9,02,200 By Administration overheads 1,56,000
books over recovered in cost
accounts
To Factory overheads under 7,41,000 By Interest on investment 3,12,000
absorbed in Cost Accounts not included in Cost
Accounts
To Depreciation under 1,30,000 By Stores adjustment 36,400
charged in Cost Accounts (Credit in financial books)
To Income-Tax not provided 1,40,400 By Dividend received in 83,200
in Cost Accounts financial books
By Net loss as per Financial 13,26,000
books
19,13,600 19,13,600

4. (a) Working notes:

1. Total support cost:
Particulars Amount (`)
Placing of orders 17,94,000
Physical delivery of goods 28,98,000
Stocking of goods on store shelves 19,87,200
Supervising cost 13,80,000
Quality Inspections 9,03,900
Total 89,63,100
2. Percentage of support cost to cost of goods sold (COGS):
Totalsupportcost
= ×100
Totalcostofgoodssold
` 89,63,100
= �` 3,58,52,400 x 100�
= 25%

15
3. Cost for each activity cost driver:
Activity Total cost Cost allocation Cost driver
(1) (`) base rate
(2) (3) (4) = [(2) ÷ (3)]
Placing of orders 17,94,000 1,127 + 1,242 + 1,219 ` 500 per
= 3,588 purchase purchase order
orders
Physical delivery of 28,98,000 2,185 + 2,668 + 2,392 ` 400 per
goods = 7,245 deliveries delivery
Stocking of goods 19,87,200 6,072 + 7,130 + 6,670 ` 100 per
on store shelves = 19,872 hours of stocking hour
shelf-stocking
Supervising cost 13,80,000 19,159 + 19,435 + ` 24 per direct
18,906 = 57,500 labour hour
direct labour hour
Quality Inspections 9,03,900 759 + 782 + (736 x 2*) ` 300 per
= 3,013 inspections inspection

* As the inspection duration for Crumbly Banana Chips is double, its base
would be doubled to calculate cost driver rate under Activity Based Costing.
(i) Statement of Operating income and its percentage of revenues for
each product line
(When support costs are allocated to product lines on the basis of cost of
goods sold of each product)
Crunchy Crispy corn Crumbly Total (`)
Potato (`) (`) Banana (`)
Revenues: (A) 1,53,35,250 1,63,36,900 1,55,23,850 4,71,96,000
Cost of Goods sold
1,12,70,000 1,27,37,400 1,18,45,000 3,58,52,400
(COGS): (B)
Support cost (25% of
COGS): (C) 28,17,500 31,84,350 29,61,250 89,63,100
(Refer working notes)
Total cost: (D) = {(B) +
1,40,87,500 1,59,21,750 1,48,06,250 4,48,15,500
(C)}
Operating income: E= 12,47,750 4,15,150 7,17,600 23,80,500
{(A)-(D)}
Operating income as a 8.14% 2.54% 4.62% 5.04%
percentage of revenues:
(E/A) × 100)

16
 (ii) Statement of Operating income and its percentage of revenues for
each product line
(When support costs are allocated to product lines using an activity-based
costing system)
Crunchy Crispy corn Crumbly Total
Potato (`) Banana (`) (`)
(`)
Revenues: (A) 1,53,35,250 1,63,36,900 1,55,23,850 4,71,96,000
Cost & Goods sold 1,12,70,000 1,27,37,400 1,18,45,000 3,58,52,400
Placing of orders 5,63,500 6,21,000 6,09,500 17,94,000
(1,127 x (1,242 x (1,219 x
` 500) ` 500) ` 500)
Physical delivery of 8,74,000 10,67,200 9,56,800 28,98,000
goods (2,185 x (2,668 x (2,392 x
` 400) ` 400) ` 400)
Stocking of goods on 6,07,200 7,13,000 6,67,000 19,87,200
store shelves (6,072 x (7,130 x (6,670 x
` 100) ` 100) ` 100)
Supervising cost 4,59,816 4,66,440 4,53,744 13,80,000
(19,159 x (19,435 x ` (18,906 x
` 24) 24) ` 24)
Quality Inspections 2,27,700 2,34,600 4,41,600 9,03,900
(759 x (782 x (736 x 2 x
` 300) ` 300) ` 300)
Total cost: (B) 1,40,02,216 1,58,39,640 1,49,73,644 4,48,15,500
Operating income C:{(A)- 13,33,034 4,97,260 5,50,206 23,80,500
(B)}
Operating income as a 8.69% 3.04% 3.54% 5.04%
percentage of revenues:
(C/A) × 100)

(b) (i) Production budget (in units)

Particulars Product X Product Y
Budgeted Sales (units) 64,000 1,12,000
Increase/(decrease) in inventory 2,000 (4,000)
Production budget (units) 66,000 108,000

17
(ii) Raw material usage budget (in kg)
Raw material A Raw material B
X Y Total X Y Total
Production 66,000 108,000 1,74,000 66,000 108,000 1,74,000
budget (units)
(a)
Kg per unit (b) 24 12 -- 12 9 --

Material usage
(kg) (a x b) 15,84,000 12,96,000 28,80,000 7,92,000 9,72,000 17,64,000

(iii) Raw material purchase budget (in kg and `)

Particulars Raw Material Raw
A material B
Material usage (kg) (Total from (ii)) 28,80,000 17,64,000
Add: Desired Closing Stock (5% of the 1,44,000 88,200
quarter’s material usage Budget)
Total Requirements 30,24,000 18,52,200
Less: Opening Stock (1,80,000) (1,20,000)
Quantity to be purchased (kg) 28,44,000 17,32,200
Price per kg ` 18.75 ` 27.00
Cost of Purchase (`) 5,33,25,000 4,67,69,400
(iv) Computation of the budgeted variable cost to produce one unit
of Product Y
Particulars (`)
Raw – Material
A: 12 kg @ ` 18.75 225
B: 9 kg @ ` 27.00 243
` 540 20
Direct Labour �9 hours x 60 minutes� x 20 minutes
Variable Manufacturing Overheads 8
Variable Cost of Production per unit of Product Y 496

18
5. (a) (i) Profit for the Quarter (Absorption Costing)
Particulars (`) (`)
Sales revenue (880 units ×
` 88,00,000
� 4,400 units �): (A) 17,60,000

Less: Production costs:

- Variable cost (1,210 units × �
` 35,20,000
�) 9,68,000
4,400 units
- Fixed overheads absorbed (1,210 units × 2,42,000 12,10,000
` 200*)
Add: Opening stock --
Less: Closing Stock[ �
` 12,10,000
� x 330 units] (3,30,000)
1,210 units
Cost of Goods sold 8,80,000
Less: Adjustment for over-absorption of fixed (22,000)
production overheads **
Add: Selling & Distribution Overheads:
` 17,60,000
- Variable (880 units × � 4,400 units �) 3,52,000

- Fixed (1/4 th of ` 13,20,000) 3,30,000 6,82,000

Cost of Sales (B) 15,40,000
Profit {(A) – (B)} 2,20,000
* absorption rate: ` 8,80,000/4,400 = ` 200 per unit
** Actual fixed production overhead - Absorbed fixed production overhead
= ` 8,80,000/4 - 2,42,000 = ` (22,000)
(ii) Profit for the Quarter (Marginal Costing)
(`) (`)
Sales revenue (880 units × �
` 88,00,000
�): (A) 17,60,000
4,400 units
Less: Production costs:
` 35,20,000
- Variable cost (1,210 units × � 4,400 units �) 9,68,000

Add: Opening stock --

Less: Closing Stock
` 9,68,000
[�1,210 units� x 330 units] (2,64,000)

Variable cost of goods sold 7,04,000

Add: Selling & Distribution Overheads:

19
 - Variable (880 units × �
` 17,60,000
�) 3,52,000
4,400 units
Cost of Sales (B) 10,56,000
Contribution {(C) = (A) – (B)} 7,04,000
Less: Fixed Costs:
- Production cost �
` 8,80,000
� (2,20,000)
4

- Selling & distribution cost �

` 13,20,000
� (3,30,000) (5,50,000)
4
Profit 1,54,000

(b) Primary Distribution Summary

Total Production Dept. Service Dept.
Basis of
Item of cost M N O P Q
apportionment
(`) (`) (`) (`) (`) (`)
Floor space 35,000 8,400 7,000 11,200 2,800 5,600
Lease rental
(6 : 5 : 8 : 2 : 4)
HP of Machines × 4,20,000 1,26,408 1,95,728 97,864 - -
Power & Fuel Working hours
(93: 144 : 72)
Supervisor’s Working hours 6,400 1,964 2,535 1,901 - -
wages* (31 : 40 : 30)
Light points 5,600 1,470 1,820 1,120 630 560
Electricity
(21: 26: 16 : 9 : 8)
Depreciation on Value of machinery 16,100 4,200 3,500 4,900 1,400 2,100
machinery (6 : 5 : 7 : 2 : 3)
Depreciation on Floor space 18,000 4,320 3,600 5,760 1,440 2,880
building (6 : 5 : 8 : 2 : 4)
No. of employees 21,000 5,448 5,903 5,108 1,703 2,838
Payroll expenses
(48: 52: 45: 15: 25)
Canteen No. of employees 28,000 7,265 7,870 6,811 2,270 3,784
expenses (48: 52: 45: 15: 25)
Direct wages 58,000 17,244 16,606 15,268 3,593 5,289
ESI and PF
contribution (864: 832: 765:
180: 265)
6,08,100 1,76,719 2,44,562 1,49,932 13,836 23,051

* Wages to supervisor is to be distributed to production departments only.

Let ‘P’ be the overhead of service department P and ‘Q’ be the overhead of
service department Q.

20
 P = 13,836 + 0.15 Q
Q = 23,051 + 0.10 P
Substituting the value of Q in P we get
P = 13,836 + 0.15 (23,051 + 0.10 P)
P = 13,836 + 3,457.65 + 0.015 P
0.985 P = 17,293.65
∴P = ` 17,557
∴Q = 23,051 + 0.10 × 17,557
= ` 24,806.70 or ` 24,807
Secondary Distribution Summary
Total M N O
Particulars
(`) (`) (`) (`)
Allocated and Apportioned 5,71,213 1,76,719 2,44,562 1,49,932
over-heads as per primary
distribution
P (90% of `17,557) 15,801 5,267 6,145 4,389
Q (85% of `24,807) 21,086 9,923 6,202 4,961
1,91,909 2,56,909 1,59,282
Overhead rate per hour
M N O
Total overheads cost 1,91,909 2,56,909 1,59,282
(`)
Working hours 1,240 1,600 1,200
Rate per hour (`) 154.77 160.57 132.74

6. (a) Type of costs categorised based on its use in Managerial Decision Making:
(i) Pre-determined Cost - A cost which is computed in advance before
production or operations start, on the basis of specification of all the factors
affecting cost, is known as a pre-determined cost.
(ii) Standard Cost - A pre-determined cost, which is calculated from
managements ‘expected standard of efficient operation’ and the relevant
necessary expenditure. It may be used as a basis for price fixation and for
cost control through variance analysis.

21
(iii) Marginal Cost - The amount at any given volume of output by which
aggregate costs increases if the volume of output is increased or
decreased by one unit.
(iv) Estimated Cost - Kohler defines estimated cost as “the expected cost of
manufacture, or acquisition, often in terms of a unit of product computed
on the basis of information available in advance of actual production or
purchase”. Estimated costs are prospective costs since they refer to
prediction of costs.
(v) Differential Cost - (Incremental and decremental costs). It represents the
change (increase or decrease) in total cost (variable as well as fixed) due
to change in activity level, technology, process or method of production,
etc. For example, if any change is proposed in the existing level or in the
existing method of production, the increase or decrease in total cost or in
specific elements of cost as a result of this decision will be known as
incremental cost or decremental cost.
(vi) Imputed Costs - These costs are notional costs which do not involve any
cash outlay. Interest on capital, the payment for which is not actually made,
is an example of imputed cost. These costs are similar to opportunity costs.
(vii) Capitalized Costs -These are costs which are initially recorded as assets
and subsequently treated as expenses. Example, installation expenses on
the erection of a machine are added to the cost of a machine.
(viii) Product Costs - These are the costs which are associated with the
purchase and sale of goods (in the case of merchandise inventory). In the
production scenario, such costs are associated with the acquisition and
conversion of materials and all other manufacturing inputs into finished
product for sale. Hence, under marginal costing, variable manufacturing
costs and under absorption costing, total manufacturing costs (variable and
fixed) constitute inventoriable or product costs.
(ix) Opportunity Cost - This cost refers to the value of sacrifice made or
benefit of opportunity foregone in accepting an alternative course of action.
For example, a firm financing its expansion plan by withdrawing money
from its bank deposits. In such a case the loss of interest on the bank
deposit is the opportunity cost for carrying out the expansion plan.
(x) Out-of-pocket Cost - It is that portion of total cost, which involves cash
outflow. This cost concept is a short-run concept and is used in decisions
relating to fixation of selling price in recession, make or buy, etc. Out–of–
pocket costs can be avoided or saved if a particular proposal under
consideration is not accepted.

22
(xi) Shut down Costs - Those costs, which continue to be, incurred even when
a plant is temporarily shut-down e.g. rent, rates, depreciation, etc. These
costs cannot be eliminated with the closure of the plant. In other words, all
fixed costs, which cannot be avoided during the temporary closure of a
plant, will be known as shut down costs.
(xii) Sunk Costs - Historical costs incurred in the past are known as sunk costs.
They play no role in decision making in the current period. For example, in
the case of a decision relating to the replacement of a machine, the written
down value of the existing machine is a sunk cost and therefore, not
considered.
(xiii) Absolute Cost - These costs refer to the cost of any product, process or
unit in its totality. When costs are presented in a statement form, various
cost components may be shown in absolute amount or as a percentage of
total cost or as per unit cost or all together. Here the costs depicted in
absolute amount may be called absolute costs and are base costs on which
further analysis and decisions are made.
(xiv) Discretionary Costs – Such costs are not tied to a clear cause and effect
relationship between inputs and outputs. They usually arise from periodic
decisions regarding the maximum outlay to be incurred. Examples include
advertising, public relations, executive training etc.
(xv) Period Costs - These are the costs, which are not assigned to the products
but are charged as expenses against the revenue of the period in which
they are incurred. All non-manufacturing costs such as general &
administrative expenses, selling and distribution expenses are recognised
as period costs.
(xvi) Engineered Costs - These are costs that result specifically from a clear
cause and effect relationship between inputs and outputs. The relationship
is usually personally observable. Examples of inputs are direct material
costs, direct labour costs etc. Examples of output are cars, computers etc.
(xvii) Explicit Costs - These costs are also known as out-of-pocket costs and
refer to costs involving immediate payment of cash. salaries, wages,
postage and telegram, printing and stationery, interest on loan etc. are
some examples of explicit costs involving immediate cash payment.
(xviii) Implicit Costs - These costs do not involve any immediate cash payment.
They are not recorded in the books of account. They are also known as
economic costs.

23
(b)
Cost Pool Cost Driver
Quality Control • Number of Inspections
• Product Units Produced
Research and Development • Number of research projects
• Personnel hours on a project
Machine Maintenance • Machine Hours
Employee Training Costs • Number of Training Hours
• Employees Trained
Customer Service • Number of service calls
• Number of products serviced
• Hours spent on servicing products

(c) Limitations of Budgetary Control System

Points Description
1. Based on Estimates Budgets are based on a series of estimates,
which are based on the conditions prevalent
or expected at the time budget is
established. It requires revision in plan if
conditions change.
2. Time factor Budgets cannot be executed automatically.
Some preliminary steps are required to be
accomplished before budgets are
implemented. It requires proper attention
and time of management. Management
must not expect too much during the initial
development period.
3. Co-operation Required Staff co-operation is usually not available
during the initial budgetary control exercise.
In a decentralised organisation, each unit
has its own objective and these units enjoy
some degree of discretion. In this type of
organisation structure, coordination among
different units is required. The success of
the budgetary control depends upon willing
co-operation and teamwork.
4. Expensive The implementation of budget is somewhat

24
 expensive. For successful implementation
of the budgetary control, proper
organisation structure with responsibility is
prerequisite. Budgeting process start from
the collection of information to for preparing
the budget and performance analysis. It
consumes valuable resources (in terms of
qualified manpower, equipment, etc.) for
this purpose; hence, it is an expensive
process.
5. Not a substitute for Budget is only a managerial tool and must
management be intelligently applied for management to
get benefited. Budgets are not a substitute
for good management.
6. Rigid document Budgets are sometime considered as rigid
documents. But in reality, an organisation is
exposed to various uncertain internal and
external factors. Budget should be flexible
enough to incorporate ongoing
developments in the internal and external
factors affecting the very purpose of the
budget.
(d)
Cost Control Cost Reduction
1. Cost control aims at maintaining 1. Cost reduction is concerned with
the costs in accordance with the reducing costs. It challenges all
established standards. standards and endeavours to
improvise them continuously
2. Cost control seeks to attain 2. Cost reduction recognises no
lowest possible cost under condition as permanent, since a
existing conditions. change will result in lower cost.
3. Cost control is a preventive 3. Cost reduction is a corrective
function. function. It operates even when
an efficient cost control system
exists.
4. Cost control ends when targets 4. Cost reduction has no visible end
are achieved. and is a continuous process.

25
 Mock Test Paper - Series II: April, 2025
Date of Paper: 3rd April, 2025
Time of Paper: 10 A.M. – 1 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who have opted
for Hindi medium. If a candidate has not opted for Hindi medium his/ her answer in Hindi will
not be valued.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) for 30 marks
3. Part II comprises questions which require descriptive type answers for 70 marks.
PART I – Case Scenario based MCQs
Part I is compulsory.
Write the most appropriate answer to each of the following multiple-choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario 1
Company Rontomax maintains its accounts in Delhi head office. All the records of Rontomax
are safely kept in this office only. In the 2 nd quarter Delhi office went under repair. Thus, for the
2nd quarter records were maintained in Gurugram branch office. This branch’s main work is to
bring business to the company and thus generally no records are maintained in this branch
office.
So for 2nd quarter all the records were recorded and maintained in this Gurugram office only. At
the end of 2nd quarter, fire broke out in this branch and unfortunately all the records were burned.
In the beginning of 3rd quarter a board meeting was going to be conducted and performance of
2nd quarter were to be discussed. Company secretary, Mr. Manoj, was responsible for preparing
a report of performance to be presented to the board. Now he is under immense pressure as
the records were burned and thus he was not able to prepare a performance report.
Manoj contacted the Delhi head office and received a copy of 1st quarter records. He also got
some information through emails shared between head office and branch office. He somehow

1
got a lot of information but this information doesn’t make any sense as it is in parts and pieces.
He called out for help of Finance and cost head, Miss Bharti, who is also a Chartered accountant.
Now both of them are at task to work out this information and be able to present a summary
performance report to be presented to the board in the board meeting. Data that Manoj was able
to gather was:
• Rontomax garnered revenue of ` 80,00,000 in 1st quarter of 2023. Its tax provision expense
was ` 4,50,000 calculated on earning before tax in the same period.
• Cost of Goods Sold (COGS) and Operating expenses in 1st quarter were Rs, 38,00,000 and
` 12,50,000 respectively.
• Quarterly interest expense was ` 1,50,000.
• Non-operating expense other than interest was ` 13,00,000 in the 1st quarter.
• Selling price was reduced by 8% & no. of units sold increased by 25% from 1st quarter to 2nd
quarter.
• Variable cost per unit for maintaining the day-to-day business operations is 30% of variable
cost per unit of producing the goods.
• EBIT per unit for 2nd quarter is ` 38.857 which has gone down by ` 8.285 from 1st quarter.
Manoj tells Bharti about the general format of questions that board asks from him, every quarter.
So, they decide to find out the answers of such questions before-hand so that meeting can be
conducted smoothly.
Following are those questions that they are seeking for solutions. Consider yourself as their
assistant trainee and help to find these answers (MCQs 5 to 10).
1. Find out the sales amount of Quarter 2. Select the correct answer.
(a) ` 76,50,000
(b) ` 86,00,000
(c) ` 92,00,000
(d) ` 96,50,000
2. What is the total variable cost & fixed cost in quarter 1 as per marginal costing income
statement, respectively?
(a) ` 49,40,000 & ` 1,10,000
(b) ` 3,26,000 & ` 17,90,000
(c) ` 17,90,000 & ` 3,26,000

2
 (d) ` 4,94,000 & ` 11,10,000
3. If Fixed cost & total variable cost as per marginal costing doesn’t change, what is the
cost change in 2nd quarter?
(a) Operating expenses increased by ` 11,50,000
(b) Non-operating expense decreased by ` 11,50,000
(c) Operating expenses decreased by ` 11,50,000
(d) Non-operating expenses increased by ` 11,50,000
4. If operating fixed cost, total variable cost, & interest cost remains same in quarter 2, what
is the tax provision for 2nd quarter?
(a) ` 4,65,000
(b) ` 4,75,000
(c) ` 4,85,000
(d) ` 4,45,000
5. What is the amount of profit excluding non-operating expenses in quarter 2?
(a) ` 38,50,000
(b) ` 36,50,000
(c) ` 41,50,000
(d) ` 29,50,000 (5 x 2 = 10 Marks)
Case Scenario 2
ABC Transport Services Pvt. Ltd. is a private bus company renowned for providing reliable and
comfortable intercity passenger services. The company operates a fleet of buses that connect
two major cities, Mumbai and Pune, which are 150 kilometers apart. By ensuring timely and
efficient services, ABC Transport Services has become a preferred choice for travelers
commuting between these two bustling cities.
Fleet and Operations
The company operates a total of 10 buses, each designed for optimal comfort and safety. Every
bus in the fleet has a seating capacity of 50 passengers, equipped with modern amenities to
enhance the travel experience. The buses adhere to strict maintenance schedules to ensure
safety and reliability on the road. The company operates multiple trips daily to accommodate
the high demand for travel between Mumbai and Pune. The buses normally operate at 80%
capacity.

3
Cost Data:

Cost Category Amount (`)

Fixed Costs (per month)
Insurance 2,00,000
License Fees 50,000
Salaries to Driver and Conductor 5,00,000
Garage Rent 1,00,000
Depreciation 3,00,000
Administration Expenses 1,50,000
Variable Costs (per kilometer)
Fuel ` 35 per km
Lubricants and Oils ` 5 per km
Wages per bus (additional per trip) ` 10,000 per trip
Operational Data
Number of round trips per bus in this month 20 trips
Average occupancy rate 80%

Additional Info:
In the past few months, the repairs and maintenance costs for ABC Transport Services Pvt. Ltd.
have shown some variability due to fluctuating operational conditions. For instance, in April, the
total repairs & maintenance costs amounted to ` 1,40,000, with the company reporting 18 trips
per bus. In May, these costs increased to ` 1,60,000 due to additional maintenance activities
and 22 trips per bus.
You are required to answer the following requirements (MCQs 6 to 10)
6. Calculate the cost per trip per bus.
(a) ` 21,750
(b) ` 29,250
(c) ` 23,450
(d) ` 28,250

4
7. Determine the total cost of operating one bus for a month.
(a) ` 5,20,000
(b) ` 4,45,000
(c) ` 6,10,000
(d) ` 5,85,000
8. What is the monthly revenue if each ticket is priced at `1,000 per trip?
(a) ` 90,00,000
(b) ` 1,00,00,000
(c) ` 80,00,000
(d) ` 75,00,000
9. Calculate the break-even number of passengers per trip if the ticket price is `635.
(a) 44 passengers
(b) 49 passengers
(c) 47 passengers
(d) 50 passengers
10. Calculate the cost per passenger-kilometer.
(a) ` 2.438
(b) ` 4.88
(c) ` 3.75
(d) ` 5.25 (5 x 2 = 10 Marks)
11. The following figures are extracted from the books of a company:
Budgeted overheads ` 20,000 (Fixed ` 12,000, Variable ` 8,000)
Budgeted output 2,500 units
Actual Overheads ` 21,800 (Fixed ` 11,800, Variable ` 10,000)
Actual output 3000
Variable Overheads and fixed overheads cost variance will be:
(a) 400 (A) and 2600 (F)

5
 (b) 400 (A) and 200 (F)
(c) 2000 (A) and 200 (F)
(d) 2000 (F) and 200 (A) (2 Marks)
12. Pre-determined factory overhead rate was ` 15 per labour hour. Actual labour hour
worked 60,000. Actual factory overhead was ` 11,00,000 however it includes ` 26,000
being the wages paid for strike period and overtime wages amounting to ` 9,000. It was
observed that 2/3 of the under absorbed were due to inflation and rest were due to faulty
planning. The amount of over/under absorbed factory overhead transferred to costing
P&L will be:
(a) 58,000 under-absorbed
(b) 55,000 over-absorbed
(c) 58,000 over-absorbed
(d) 55,000 under-absorbed (2 Marks)
13. PG Ferry services Pvt Ltd. provide ferry services between two towns. Distance one way
is 18.52 nautical miles. Seating capacity of a ferry is 125 passengers. Actual passengers
carried in each trip is 80% of seating capacity. Ferry run on all days of month (30 days).
Ferry makes a round trips in a day. company is expecting a monthly revenue of
` 55,56,000. Calculate fare to be charged from a passenger for round trip.
(a) 100
(b) 926
(c) 1852
(d) 50.95 (2 Marks)
14. A firm introduced 3,000 units of material in the manufacturing process. During the period
2,500 units were completed and transferred to next process. However, the degree of
completion on remaining 500 units was 100%, 60%, and 30% for materials, labour and
overheads respectively. Which one of the following is the equivalent complete units with
regard to labour?
(a) 2,500
(b) 2,800
(c) 2,650
(d) 2,500 (2 Marks)

6
15. Production set up costs ` 3,50,000; Total production is 50,000 units of each of the
products X and Y; Production in each run is 2,000 units of X or 5,000 units of Y. Company
uses activity-based costing to calculate the unit cost of its products. Set-up cost per unit
of Y will be
(a) ` 4.00
(b) ` 2.40
(c) ` 2.00
(d) ` 3.60 (2 Marks)

PART-II – Descriptive Questions (70 Marks)

Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
1. (a) Aditya Ltd. has a monthly requirement for an item of raw material is 1,000 units.
The purchase price per unit of material is `60. The cost of processing an order is
` 540 and the carrying cost is 20%. There is a single supplier for the material
which offers quantity discounts as under:
Order Quantity (in units) Price per unit (`)
Less than 2,000 units 60.00
2,000 units and less than 4,000 units 59.80
4,000 units and less than 6,000 units 59.50
6,000 units and less than 8,000 units 58.90
8,000 units and above 58.40

The company uses the cash credit facility provided by the company’s banker to
finance its raw material purchase. The bank due to its own infrastructural
constraint, can accommodate a maximum of five fund transfer (NEFT/ RTGS)
requests for any single beneficiary per annum. The company in short term is
unable to arrange any other source of finance.
Required:
(i) CALCULATE the optimum purchase order size for the company;
(ii) CALCULATE the order level where the company could have minimised its
total cost;

7
 (iii) The amount of loss that the company has to bear due to bank’s inability to
process fund transfer requests. (5 Marks)
(b) A company has 120 direct labourers. Each labourer is paid ` 800 per 40 hour
week. Owing to customer demands and timelines, Overtime is resorted to a
maximum of 30 hours per week compensated at the weekly time rate with a
premium of 50% over the regular wage. The current output works out to 6 units
per man hour which is the standard output. The introduction of an incentive
scheme could enhance productivity to 8 units per man hour. However, the
incentive scheme if introduced would not have an overtime policy in place for extra
hours worked. Budgeted weekly production is 38,400 units. The selling price is
` 22 per unit and direct costs other than labour is ` 16 per unit. The variable
overheads is ` 1 per labour hour and Fixed overhead is ` 18,000 per week.
PREPARE a statement to demonstrate the effect of shifting from an overtime
policy to:
(i) Halsey Incentive Scheme
(ii) Rowan Incentive Scheme (5 Marks)
(c) A company having a factory in Chennai has a 8 machineries in the process of
manufacture. The company has purchased a new machinery costing ` 19,05,000
with a useful life of 12 years and a salvage value of ` 1,05,000 at the end of its
useful life. The following data are as follows:
(i) The factory works for 324 days a year with 8 hours shift daily. Plant
maintenance of 300 hours and set up of 92 hours are included in the above.
(ii) Estimated cost of maintenance of a machine is ` 37,500 per annum.
(iii) Operators wages amounts to ` 3,630 per week with additional benefits of
15%. 4 Operators are required to operate the machinery.
(iv) Electricity consumed during production is 16 units per hour at a cost of
` 4.5 per unit. No power is consumed during maintenance and set up.
(v) General overheads allocated amounts to 75,000 upto the prior year is
expected to increase by 10% during the current year.
(vi) Special performance chemical at ` 600 for every 6 days of operation.
DETERMINE Machine hour rate if set up time is (a) productive (b) unproductive.
(4 Marks)

8
2. (a) The following information is made available:
Opening stock of Work in progress – ` 60,000
Opening Raw Materials – ` 1,20,000
Opening Finished Goods – ` 1,13,250
Purchase of Materials – ` 7,50,000
Indirect manufacturing costs – 40% of conversion costs
Sales Revenue – ` 22,50,000
Direct Labour – ` 6,66,750
Prime Costs – ` 11,93,250
Gross margin – 30% of revenue
Cost of goods available for sale – ` 16,67,325
From the above DETERMINE the following:
a. Closing Raw Materials
b. Closing Work in progress
c. Closing Finished Goods. (6 Marks)
(b) The following is the summarised Trading and Profit and Loss Account of XYZ Ltd.
for the year ended 31st March 2024:
Particulars Amount Particulars Amount
(`) (`)
Direct Material 14,16,000 Sales (30,000 units) 30,00,000
Direct wages 7,42,000 Finished stock (2,000 units) 1,67,500
Works overheads 4,26,000 Work-in-progress:
Administration 1,50,000 - Materials 34,000
overheads - Wages 16,000
Selling and distribution 1,65,000 - Works overhead 4,000 54,000
overheads
Net profit for the year 3,22,500
32,21,500 32,21,500

The company’s cost records show that in course of manufacturing a standard unit
(i) works overheads have been charged @ 20% on prime cost, (ii) administration

9
 overheads are related with production activities and are recovered at `5 per
finished unit, and (iii) selling and distribution overheads are recovered at `6 per
unit sold.
You are required to PREPARE:
(i) Costing Profit and Loss Account indicating the net profits,
(ii) A Statement showing reconciliation between profit as disclosed by the Cost
Accounts and Financial Accounts. (8 Marks)
3. (a) The details corresponding to the manufacture of a product X is as follows:
Materials 20 units @ ` 3 per unit – ` 60
Wages 10 hours @ 16 per hour – ` 160
Production OH 10 hours @ 20 – ` 200
Actual Material cost amounts to ` 25,740 and labour cost amounts to ` 65,368.
The variances have been analysed and the following information is being made
available:
1. Material Price Variance - 1170A
2. Material Usage Variance - 750F
3. Wages Rate Variance - 1352F
4. Wages Efficiency - 800A
5. POH Expenditure - 900F
6. POH Volume Variance - 1400F
From the above DETERMINE:
i. Actual output in Units
ii. Actual price of material per unit
iii. Actual quantity of materials consumed
iv. Actual wage rate
v. Actual hours worked and Standard Hours
vi. Amount of overhead absorbed
vii. Amount of Overhead incurred
viii. Production Overhead capacity variance

10
 ix. Production Overhead efficiency variance
x. Budgeted output in units. (10 Marks)
(b) EXPLAIN the treatment of given items of Cost in Cost Sheet/Statement
(i) Abnormal costs
(ii) Subsidy/Grant/Incentives
(iii) Penalty, fine, damages, and demurrage
(iv) Interest and other finance costs (4 Marks)
4. (a) A factory uses job costing system. The following data are obtained from its books
for the year ended 31st March, 2025:
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000
Selling and distribution overheads 10,50,000
Administration overheads 8,40,000
Factory overheads 9,00,000
Profit 12,18,000

(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production,
Cost of sales and the Sales value.
(ii) In 2025-26, the factory received an order for a job. It is estimated that direct
materials required will be ` 4,80,000 and direct labour will cost ` 3,00,000.
DETERMINE what should be the price for the job if factory intends to earn
the same rate of profit on sales assuming that the selling and distribution
overheads have gone up by 15%. The factory overheads is recovered as
percentage of wages paid, whereas, other overheads as a percentage of
cost of production, based on cost rates prevailing in the previous year.
(6 Marks)
(b) H-2025 Ltd. is a manufacturer of a range of goods. The cost structure of its
different products is as follows:
Product Product Product
Particulars
A B C
Direct Materials 50 40 40 `/u

11
 Direct Labour @ ` 10/ hour 30 40 50 `/u
Production Overheads 30 40 50 `/u
Total Cost 110 120 140 `/u
Quantity Produced 10,000 20,000 30,000 Units

H-2025 Ltd. was absorbing overheads on the basis of direct labour hours. A newly
appointed management accountant has suggested that the company should
introduce ABC system and has identified cost drivers and cost pools as follows:
Activity Cost Pool Cost Driver Associated Cost
Stores Receiving Purchase Requisitions 2,96,000
Inspection Number of Production Runs 8,94,000
Dispatch Orders Executed 2,10,000
Machine Setup Number of Setups 12,00,000
The following information is also supplied:
Details Product A Product B Product C
No. of Setups 360 390 450
No. of Orders Executed 180 270 300
No. of Production Runs 750 1,050 1,200
No. of Purchase Requisitions 300 450 500
Required
CALCULATE activity based production cost of all the three products. (6 Marks)
(c) EXPLAIN how would you treat the idle capacity costs in Cost Accounts.
(2 Marks)
5. (a) In a chemical manufacturing company, three products A, B and C emerge at a single
split off stage in department P. Product A is further processed in department Q,
product B in department R and product C in department S. There is no loss in further
Processing of any of the three products. The cost data for a month are as under:
Cost of raw materials introduced in department P ` 12,68,800
Direct Wages Department (`)
P 3,84,000
Q 96,000
R 64,000
S 36,000

12
 Factory overheads of ` 4,64,000 are to be apportioned to the departments on
direct wage basis.
During the month under reference, the company sold all three products after
processing them further as under:
Products A B C
Output sold (kg.) 44,000 40,000 20,000
Selling Price per kg. (`) 32 24 16

There is no opening or closing stocks. If these products were sold at the split off
stage, that is, without further processing, the selling prices would have been ` 20,
` 22 and ` 10 each per kg respectively for A, B and C.
Required:
(i) PREPARE a statement showing the apportionment of joint costs to joint
products.
(ii) PRESENT a statement showing product-wise and total profit for the month
under reference as per the company’s current processing policy.
(iii) WHAT processing decision should have been taken to improve the
profitability of the company?
(iv) CALCULATE the product-wise and total profit arising from your
recommendation in (iii) above. (8 Marks)
(b) Bricks & Cement Pvt. Ltd. is a building supplies company offering a wide range of
materials like bricks, cement, and aggregates to both trade professionals and
private customers. The company focuses on providing high-quality products and
reliable service for all type of construction projects.
The management provides the following budgeted data for each of the six months
in the first half of the year:
Particulars April May June July August September
(`) (`) (`) (`) (`) (`)
Credit sales 22,50,000 22,50,000 22,50,000 23,40,000 23,40,000 25,20,000
Cash sales 5,40,000 5,40,000 5,85,000 6,75,000 7,20,000 8,10,000
Credit 15,30,000 16,20,000 16,20,000 18,00,000 18,00,000 18,00,000
purchases

13
 Other 8,10,000 8,10,000 8,10,000 10,98,000 11,07,000 11,07,000
operating
costs
(excluding
depreciation)

Following table shows the distribution of payments received against credit sales:
Value of credit sales Payment received
80% One month after sale
10% Two months after sale
8% Three months after sale
Balance Written off as a bad debt

However, credit purchases are paid in the following manner:

Value of credit purchases Payment made
75% One month after purchase
Balance Two months after purchase

Any remaining operational costs, including overheads, utilities, and day-to-day

expenses, are paid in the month they are incurred. This ensures that all routine
expenses are settled promptly without delay, maintaining smooth financial
operations throughout the period.
During the month of July, the company has also placed an order for four pallet
jacks that wiII cost around ` 2,25,000 each, the payment of which is divided into
four equal instalments following the month of purchase.
The cash balance at the beginning of 2nd quarter is projected to be ` 1,35,000.
You are required to PREPARE a cash budget for each of the three months of 2nd
Quarter. (6 Marks)
6. (a) ENUMERATE the factors which are to be considered before installing a system of
cost accounting in a manufacturing organization. (5 Marks)
(b) EXPLAIN the difference between Bill of Materials and Material Requisition Note.
(5 Marks)
(c) EXPLAIN the meaning of Idle time and SHOW the treatment for the following
causes of Idle time.

14
 Causes Treatment
1. The time lost between factory gate and
the place of work,
2. The interval between one job and
another,
3. Idle time may also arise due to
abnormal factors like lack of
coordination
4. Power failure, Breakdown of machines
(4 Marks)
OR
(c) ABC Ltd., a mid-sized manufacturing company, has been facing frequent cost
overruns and profit fluctuations over the past year. The management is
considering implementing a Budgetary Control System to improve financial
planning and operational efficiency.
As a financial consultant, you have been asked to IDENTIFY any EXPLAIN at
least four key objectives of a Budgetary Control System that would benefit ABC
Ltd. (4 Marks)

15
 Mock Test Paper - Series II: April, 2025
Date of Paper: 3rd April, 2025
Time of Paper: 10 A.M. – 1 P.M.

INTERMEDIATE: GROUP – II
PAPER – 4: COST AND MANAGEMENT ACCOUNTING
ANSWERS
Part 1
1. (c) ` 92,00,000
Quarter 1:
Amount (` )
Sales 80,00,000
(-) COGS (38,00,000)
(-) Operating expenses (12,50,000)
(-) Non-operating expenses (13,00,000)
EBIT of 1ST Quarter 16,50,000

Let’s assume no. of units sold in 1st quarter = X

EBIT per unit of 1st quarter = 38.857 + 8.285 = ` 47.142
Then, 16,50,000/X = 47.142
X = 35,000 units
Number of units sold in 2nd Qtr. = 35,000 + 35,000x0.25 = 43,750 units
Selling price in Qtr 1 = 80,00,000/35,000 = ` 228.571
Selling price in Qtr 2 = ` 210.285
Sales in Qtr 2 = 210.285 x 43,750 = ` 92,00,000
2. (a) ` 49,40,000 & ` 1,10,000
COGS is 100% variable
VC per unit of operating expenses = 30% of COGS per unit
COGS per unit = 38,00,000/35,000 = ` 108.571

1
 VC per unit of operating expenses = 30% x 108.571 = ` 32.571
VC in operating expenses = 32.571 x 35,000 = 11,40,000
Fixed cost in operating expenses = 12,50,000 – 11,40,000 = ` 1,10,000
Total Variable Cost = 11,40,000 + 38,00,000 = ` 49,40,000
Total fixed cost = ` 1,10,000
3. (d) Non-operating expenses increased by ` 11,50,000
EBIT in Qtr 2 = 38.857 x 43,750 = ` 17,00,000
Non operating expenses in 2nd Qtr = Revenue – VC – FC - EBIT
= 92,00,000 – 49,40,000 – 1,10,000 – 17,00,000
= ` 24,50,000
Non operating expenses in 1st Qtr = ` 13,00,000
NOE increased by 11,50,000
4. (a) ` 4,65,000
EBIT of 1ST Qtr = ` 16,50,000
EBT of 1ST Qtr = EBIT – Int = 16,50,000 – 1,50,000 = ` 15,00,000
Tax Provision for 1st Qtr = ` 4,50,000
Tax rate = 4,50,000/15,00,000 = 30%
EBT for 2nd Qtr = 17,00,000 – 1,50,000 = ` 15,50,000
Tax provision for 2nd Qtr = 15,50,000 x 30% = ` 4,65,000
5. (c) ` 41,50,000
Profit in 2nd Qtr as per Marginal Costing
= Sales – VC – FC
= 92,00,000 - 49,40,000 - 1,10,000 = ` 41,50,000
6. (b) ` 29,250
Fixed Costs per Trip per Bus

= Total Fixed Costs

Number of Buses x Number of Trips

= ` 13,00,000 / (10 x 20) = ` 6,500

2
Semi-Variable Costs (Repairs & Maintenance) per Trip per Bus

= Total Semi − Variable Costs

Number of Buses x Number of Trips

= ` 1,50,000 / (10 x 20) = ` 750

Variable Costs per Trip per Bus
= (Fuel + Lubricants and Oils) x Distance per Trip + Wages
= (` 35 + ` 5) x (150 kms x 2) + ` 10,000 = ` 22,000
Total Cost per Trip per Bus = ` 6,500 + ` 750 + ` 22,000 = ` 29,250
Total Fixed Costs:
● Insurance: ` 2,00,000
● License Fees: ` 50,000
● Salaries to Driver and Conductor: ` 5,00,000
● Garage Rent: ` 1,00,000
● Depreciation: ` 3,00,000
● Administration Expenses: ` 1,50,000
● Total Fixed Costs: ` 13,00,000
Repairs & Maintenance calculation
● Let x be the fixed portion of the semi-variable costs.
● Let y be the variable cost per trip.
Formulate Equations from Given Data:
● April: x + 18y = 1,40,000
● May: x + 22y = 1,60,000
Solve for y:
● Subtract the April equation from the May equation:
● (x+22y) − (x+18y) = 1,60,000 – 1,40,000
● y = 5,000
● Using the April equation:
● x + 18 x (5,000) = 1,40,000

3
 ● x = 50,000
Calculate Semi-Variable Costs for 20 Trips:
● Semi-variable costs = x + 20y
● Semi-variable costs = 50,000 + 20 x 5,000 = 1,50,000
7. (d) ` 5,85,000
Fixed Costs per Bus per Month = ` 13,00,000 / 10 = ` 1,30,000
Semi-Variable Costs per Bus per Month = ` 1,50,000 / 10 = ` 15,000
Variable Costs per Trip = (Fuel + Lubricants and Oils) x Distance per Trip + Wages
= (` 35 + ` 5) x 300 + ` 10,000 = ` 22,000
Variable Costs for 20 trips = ` 4,40,000
Total Cost per Bus per Month = ` 1,30,000 + ` 15,000 + ` 4,40,000 = ` 5,85,000
8. (c) ` 80,00,000
Monthly Revenue = Number of Buses x Number of Trips x Average Occupancy
Rate x Ticket Price
= 10 x 20 x 50 x 80% x ` 1,000 = ` 80,00,000
9. (c) 47 passengers
No. of Passengers per trip to recover total cost = Total Cost per Trip / Ticket Price
= ` 29,250 / ` 635 = 46.03 passengers per trip ≈ 47 passengers per trip
10. (a) ` 2.438
Total Passenger-Kilometers = 10 buses x 20 trips x 40 passengers (50 x 80%) x
150 km x 2
= 24,00,000 passenger-kms
Cost per Passenger-Kilometer = Total Monthly Cost / Total Passenger-Kilometers
= ` 29,250 x (10x20) / 24,00,000
= ` 58,50,000/24,00,000
= ` 2.438 per passenger-kilometer

4
11. (a) 400 (A) and 2,600 (F)
Variable overhead cost variance: Standard Variable overheads - Actual variable
overheads
8,000/2,500 x 3,000 – 10,000 = 400A
Fixed overhead cost variance: Standard fixed overheads - Actual fixed overheads
12,000/2,500 x 3,000 – 11,800 = 2,600F
12. (a) 58,000 under-absorbed

Particulars Amount (`)

Absorption rate 15
Actual hours 60,000
Absorbed Overheads 9,00,000
Actual overheads (11,00,000 - 26,000) 10,74,000
Under absorption 1,74,000
1/3 of 1,74,000 58,000

13. (c) 1,852

Calculation of fare per passenger nautical mile:
55,56,000
18.52 x 100 x 2 x 30
= 50 per passenger nautical mile
Fare for round trip = 50 x 18.52 x 2 = 1,852
14. (b) 2,800 units
Equivalent Units = Units Completed + (Units in Process x Degree of
Completion)
Equivalent Units for Labour = 2,500 + (500 x 0.60)
= 2,800 units
15. (c) ` 2 per unit
Total production of X
Number of runs for X = = 50,000/2,000 = 25 runs
Batch size of X
Total production of Y
Number of runs for Y = = 50,000/5,000 = 10 runs
Batch size of Y

5
 Total set-up cost
Set-up cost per run = = 3,50,000/35 = ` 10,000 per run
Total Runs
set-up cost per run
Set-up cost per unit of Y = = 10,000/5, 000 = ` 2 per unit
Batch size of Y

Part II – Descriptive Question

1. (a) (i) Calculation of optimum purchase order size or Economic Order
Quantity (EOQ):
2 × A ×O
EOQ =
C×i
Where, A = Annual requirement for inventory = 1,000 units × 12 months
= 12,000 units
O = Ordering cost = ` 540
C = Cost per unit = ` 60
C × i = Carrying cost per unit per annum = 20% × ` 60 = ` 12
2 ×12,000units ×`540 1,29,60,000
EOQ = = = 1,039.23 or 1,039 units.
`12 12
(ii)
Order Size (in 1,500 2,000 4,000 6,000 8,000
units)
No. of order 8 6 3 2 1.5*
Cost per order (`) 540 540 540 540 540
Average inventory 750 1,000 2,000 3,000 4,000
Cost per unit (`) 60.00 59.80 59.50 58.90 58.40
Carrying cost per 12.00 11.96 11.90 11.78 11.68
unit @ 20% (`)
(a) Ordering Cost (`) 4,320 3,240 1,620 1,080 810
(b) Carrying cost (`) 9,000 11,960 23,800 35,340 46,720
(c) Material cost (`) 7,20,000 7,17,600 7,14,000 7,06,800 7,00,800
Total Cost {(a) + (b) 7,33,320 7,32,800 7,39,420 7,43,220 7,48,330
+ (c)} (`)
*(This may also be taken as 2 orders)
At order level of 2,000 units, the total cost to the company is least.

6
 (iii) Calculation of amount of loss due to bank’s inability to process more
than five fund transfer requests:
No. of orders 5
Purchase quantity per order (12,000 units ÷ 5) 2,400 units
Cost per unit ` 59.80
(a) Ordering Cost (` 540 × 5 orders) ` 2,700
(b) Carrying Cost (20% of ` 59.80 ×1,200 units) ` 14,352
(c) Material Cost (` 59.80 × 12,000 units) ` 7,17,600
Total Cost {(a) + (b) + (c)} ` 7,34,652
Minimum cost at 2,000 units order level ` 7,32,800
Loss ` 1,852

(b) Projected weekly output - 38,400 units

No of units per man hour - 6 units
No of Manhours needed - 6,400 hours
No of hours available - 4,800 hours
Overtime needed - 1,600 hours
Therefore, total wages during overtime:
Normal Wages (6,400 x 20) - 1,28,000
Overtime premium (1,600 x 10) - 16,000
Total Wages - 1,44,000
Upon introduction of incentive scheme
No of units per man hour - 8 units
No of manhours needed - 4,800 hours
Time saved (OT saved) - 1,600 hours
Halsey Scheme Incentive
= 50% of time saved × Time rate
= 1,600 hours x 20 per hour x 50% = 16,000
Total Labour Cost = 96,000 + 16,000 = 1,12,000

7
 Rowan Scheme Incentive
Time taken
= × Time saved × hourly rate
Time allowed
= (1,600/6,400) x 4,800 x 20 = 24,000
Total Labour Cost = 96,000 + 24,000 = 1,20,000
Statement of profitability

Particulars Overtime Halsey Rowan

Sales @ ` 22 8,44,800 8,44,800 8,44,800
Less: Direct costs 6,14,400 6,14,400 6,14,400
Less: Labour 1,44,000 1,12,000 1,20,000
Less: Variable Overhead 6,400 4,800 4,800
Less: Fixed Overhead 18,000 18,000 18,000
Profit 62,000 95,600 87,600

(c) Statement of Overhead costs

Particulars Computation Amount (`)
Depreciation (19,05,000 – 1,05,000)/12 1,50,000
Operator’s wages (` 3,630 x 4 Operators x 54 Weeks x 1,12,711.5
115%) / 8 Machines
Maintenance Cost Given – ` 37,500 37,500
Electricity (2,592 hours – 392 hours) x 16 x ` 4.5 1,58,400
General Overhead (75,000 x 110%/8 machines) 10,312.5
allocated
Performance Chemical (` 600/6 days) x 324 32,400
Total Overheads 5,01,324

Computation of Machine Hour Rate

When set up time is productive,
Effective machine hours = 2,592 hours – 300 hours maintenance = 2,292 hours
Hence Machine hour rate = 5,01,324/2,292 = ` 218.73

8
 When set up time is unproductive,
Effective machine hours = 2,592 hours – 300 hours maintenance – 92 hours set
up = 2,200 hours.
Machine hour rate = 5,01,324/2,200 = ` 227.87 per hour
2. (a) Prime cost = 11,93,250
Direct Labour = 6,66,750
Direct Material consumed (Prime cost – Direct Labour) = 5,26,500
Opening Raw Material (RM) = 1,20,000
Purchase of RM = 7,50,000
Closing RM (Op RM + Purchases – Materials Consumed) = 3,43,500
Sales 22,50,000
Less: Gross profit @ 30% 6,75,000
Cost of Sales 15,75,000
Cost of goods available for sales 16,67,325
Hence Closing Finished goods (FG) 92,325 (16,67,325 – 15,75,000)
Opening Finished goods 1,13,250
Cost of Production (Cost of Sales + Closing FG – Opening FG) =15,54,075
Conversion costs = Labour + Production Overhead
Overhead = 40% and hence labour = 60%
Hence total conversion cost = 6,66,750/60% = 11,11,250
Hence POH (Total conversion – Labour cost) = 4,44,500
Works Cost = 16,37,750
Opening Work in progress (WIP) = 60,000
Closing Work in progress (Work Cost + Opening WIP – Closing WIP)
= 1,43,675

9
(b) (i) Costing Profit and Loss Account for the year ended 31st March 2024:
Particulars Amount Particulars Amount
(`) (`)
Material consumed 14,16,000 Sales (30,000 units) 30,00,000
Direct wages 7,42,000
Prime Cost 21,58,000
Works overheads 4,31,600
(20% of Prime cost)
25,89,600
Less: Work in progress (54,000)
Factory cost 25,35,600
Administration overheads 1,60,000
(` 5 × 32,000 units)
Cost of production of goods 26,95,600
produced
Less: Finished stock (1,68,475)
Cost of production of goods sold 25,27,125
Selling and distribution 1,80,000
overheads
(` 6 × 30,000 unit)
Cost of sales 27,07,125
Profit (balancing figure) 2,92,875
30,00,000 30,00,000

(ii) Statement reconciling the profit as per costing profit and loss account with
the profit as per financial accounts
Particulars Amount Amount
(`) (`)
Profit as per cost records 2,92,875
Add: Overheads over-absorbed:
- Works overheads (` 4,31,600 – ` 4,26,000) 5,600
- Administration OH (` 1,60,000 – ` 1,50,000) 10,000
- Selling and Distribution (` 1,80,000 – ` 1,65,000) 15,000 30,600
Less: Closing stock overvalued (` 1,68,475 – ` 1,67,500) (975)
Profit as per financial accounts 3,22,500

*It is assumed that there is no opening stock

10
 No. of units produced = Number of units sold + Finished stock
= 30,000 + 2,000 = 32,000 units.
3. (a) Actual Cost of Material (Actual Quantity x Actual Price) = 25,740
Material Cost Variance = Price Variance + Usage Variance
= 1,170A + 750F = 420A
Standard Cost of Materials (Standard Quantity x Standard Price)
= Actual cost + Cost variance
= 25,740 – 1170 + 750 = 25,320
SQ x SP = 25,320, SP = 3 per unit hence SQ = 8,440
AQ x SP = (SQ x SP) + Usage Variance = 25,320 – 750 = 24,570
Hence AQ of Material = 8,190
AQ x AP = 25,740
Hence AP of Material = ` 3.142
Actual Wages paid (AH x AR) = 65,368
Wage cost variance = Wage efficiency variance + Wage rate variance
= 1352 F – 800 A = 552 F
SH x SR = Actual Wages paid + Wage cost variance
= 65,368 + 552 = 65,920
SH = 4,120 hours
AH x SR = SH x SR + Efficiency variance = 66,720
AH thereon = 4,170 hours
AH x AR = 65,368
AR = 15.676
SH x SR (Absorbed Overheads) = 4,120 x 20 = 82,400
Actual Output = 4,120/10 = 412 units
OH Cost variance = Volume Variance + Expenditure Variance
= 1,400 F + 900 F

11
 = 2,300 F
Actual FOH = 82,400 – 2,300 = 80,100
Budgeted FOH = Actual FOH + Expenditure Variance
Budgeted FOH = 80,100 + 900 = 81,000
BO x SR = BFOH = 81,000/200 = 405 units
Budgeted Units = 405 units
(SH x SR – AH x SR) = 82,400 – (4,170 x 20) = 1,000A
OH Efficiency Variance = 1,000A
AH x SR – BFOH = 83,400 – 81,000
OH Capacity Variance = 2,400 F
(b) Treatment of various items of Cost in Cost Sheet/Statement
(i) Abnormal costs: Any abnormal cost, where it is material and quantifiable,
shall not form part of cost of production or acquisition or supply of goods
or provision of service. Examples of abnormal costs are:
(a) Cost pertaining to or arising out of a pandemic e.g. COVID-19
(b) Cost associated with employees due to sudden lockdown.
(ii) Subsidy/Grant/Incentives: Any such type of payment received/
receivable are reduced from the cost objects to which such amount
pertains.
(iii) Penalty, fine, damages, and demurrage: These types of expenses are
not form part of cost.
(iv) Interest and other finance costs: Interest, including any payment in the
nature of interest for use of non-equity funds and incidental cost that an
entity incurs in arranging those funds. Interest and finance charges are not
included in cost of production. Interest and Financing Charges shall be
presented in the cost statement as a separate item of cost of sales.
4. (a) (i) Production Statement
For the year ended 31st March, 2025
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000

12
 Prime Cost 33,00,000
Factory overheads 9,00,000
Cost of Production 42,00,000
Administration overheads 8,40,000
Selling and distribution overheads 10,50,000
Cost of Sales 60,90,000
Profit 12,18,000
Sales value 73,08,000
Calculation of Rates:
1. Percentage of factory overheads to direct wages
`9,00,000
= × 100 = 60%
`15,00,000

2. Percentage of administration overheads to Cost of production

`8,40,000
= × 100 = 20%
` 42,00,000
3. Selling and distribution overheads = ` 10,50,000 × 115%
= ` 12,07,500
Selling and distribution overhead % to Cost of production
`12,07,500
= × 100 = 28.75%
` 42,00,000
`12,18,000
4. Percentage of profit to sales = × 100 = 16.67% or, 1/6
`73,08,000
(ii) Calculation of price for the job received in 2025-26
Amount (`)
Direct materials 4,80,000
Direct wages 3,00,000
Prime Cost 7,80,000
Factory overheads (60% of ` 3,00,000) 1,80,000
Cost of Production 9,60,000
Administration overheads (20% of ` 9,60,000) 1,92,000

13
 Selling and distribution overheads (28.75% of 2,76,000
` 9,60,000)
Cost of Sales 14,28,000
Profit (1/5 of ` 14,28,000) 2,85,600
Sales value 17,13,600
(b) The total production overheads are ` 26,00,000:
Product A: 10,000 × ` 30 = ` 3,00,000
Product B: 20,000 × ` 40 = ` 8,00,000
Product C: 30,000 × ` 50 = ` 15,00,000
On the basis of ABC analysis this amount will be apportioned as follows:
Statement Showing “Activity Based Production Cost”
Activity Cost Driver Ratio Total A B C
Cost Pool Amount (`) (`) (`)
(`)
Stores Purchase 6:9:10 2,96,000 71,040 1,06,560 1,18,400
Receiving Requisition
Inspection Production Runs 5:7:8 8,94,000 2,23,500 3,12,900 3,57,600
Dispatch Orders Executed 6:9:10 2,10,000 50,400 75,600 84,000
Machine Setups 12:13:15 12,00,000 3,60,000 3,90,000 4,50,000
Setups
Total Activity Cost 7,04,940 8,85,060 10,10,000
Quantity Sold 10,000 20,000 30,000
Unit Cost (Overheads) 70.49 44.25 33.67
Add: Conversion Cost 80 80 90
Total 150.49 124.25 123.67
(c) Idle capacity costs can be treated in product costing, in the following ways:
(a) If the idle capacity cost is due to unavoidable reasons such as repairs,
maintenance, changeover of job etc., a supplementary overhead rate may
be used to recover the idle capacity cost. In this case, the costs are
charged to the production capacity utilised.
(b) If the idle capacity cost is due to avoidable reasons such as faulty planning,
power failure etc.; the cost should be charged to costing profit and loss
account.

14
 (c) If the idle capacity cost is due to seasonal factors, then, the cost should be
charged to the cost of production by inflating overhead rates.
5 (a) (i) Statement showing the apportionment of joint costs to joint products
Products
A B C Total
Output sold Kg.: (I) 44,000 40,000 20,000
Selling price per kg. at split 20 22 10
off (`): (II)
Sales value at split off (`): (I) 8,80,000 8,80,000 2,00,000 19,60,000
x (II)
Joint costs (costs incurred in 8,80,000 8,80,000 2,00,000 19,60,000
department P (`)
(apportioned on the basis of
sales value at the point of
split off) i.e. (22:22:5)
(Working Note 1)

(ii) Statement showing product-wise and total profit for the month under
reference (as per the company’s current processing policy)
Products
A B C Total
Output (kg.) : (a) 44,000 40,000 20,000
Selling price per kg. after 32 24 16
further processing (`): (b)
Sales value after further 14,08,000 9,60,000 3,20,000 26,88,000
processing (`).:(c) = {(a) x
(b)}
Joint costs (`): (d) 8,80,000 8,80,000 2,00,000 19,60,000
Further processing costs
(`): (e) 1,72,800 1,15,200 64,800 3,52,800
(Working Note 2)
Total costs (`): (f) = [(d) + 10,52,800 9,95,200 2,64,800 23,12,800
(e)}
Profit/ (Loss) (`): [(c))– (f)} 3,55,200 (35,200) 55,200 3,75,200

15
 (iii) Processing decision to improve the profitability of the company.
44,000 units of product A and 20,000 units of product C should be further
processed because the incremental sales revenue generated after further
processing is more than the further processing costs incurred. 40,000 units
of product B should be sold at the point of-split off because the incremental
revenue generated after further processing is less than the further
processing costs.
(iv) The product wise and total profit arising from the recommendation in
(iii) above is as follows:
Product A B C Total
Profit (`) 3,55,200 - 55,200 4,10,400
Working Notes:
1. Statement of department-wise costs
P Q R S
(`) (`) (`) (`)
Raw materials 12,68,800
Wages 3,84,000 96,000 64,000 36,000
Overheads 3,07,200 76,800 51,200 28,800
(Apportioned on the basis
of departmental direct
wages i.e. 96:24:16:9)
Total Cost 19,60,000 1,72,800 1,15,200 64,800
2. Joint costs and further processing costs
(i) Costs incurred in the department P are joint costs of products A, B
and C and are equal to ` 19,60,000.
(ii) Costs incurred in the departments Q, R and S are further processing
costs of products A, B and C respectively. Further processing costs
of products A, B and C thus are ` 1,72,800; ` 1,15,200 and ` 64,800
respectively.
(b) Cash Budget
Particulars July August September
(`) (`) (`)
Cash sales 6,75,000 7,20,000 8,10,000

16
 Receipts from credit sales (WN1) 22,05,000 22,77,000 22,86,000
Total receipts (A) 28,80,000 29,97,000 30,96,000
Payment for purchases (WN2) (16,20,000) (17,55,000) (18,00,000)
Other operating costs paid (10,98,000) (11,07,000) (11,07,000)
Pallet jacks (2,25,000) (2,25,000)
Total payments (B) (27,18,000) (30,87,000) (31,32,000)
Net cash (A - B) 1,62,000 (90,000) (36,000)
Opening balance 1,35,000 2,97,000 2,07,000
Closing balance 2,97,000 2,07,000 1,71,000

Working Notes:
(WN1) Credit sales - receipts
Particulars Total Sales July August September
(`) (`) (`) (`)
April 22,50,000 1,80,000 - -
May 22,50,000 2,25,000 1,80,000 -
June 22,50,000 18,00,000 2,25,000 1,80,000
July 23,40,000 - 18,72,000 2,34,000
August 23,40,000 - - 18,72,000
Total 22,05,000 22,77,000 22,86,000

(WN2) Credit purchases – payments

Particulars Total purchases July August September
(`) (`) (`) (`)
May 16,20,000 4,05,000 - -
June 16,20,000 12,15,000 4,05,000 -
July 18,00,000 - 13,50,000 4,50,000
August 18,00,000 - - 13,50,000
Total 16,20,000 17,55,000 18,00,000

6. (a) Before installation of a system of cost accounting in a manufacturing organisation

the under mentioned factors should be studied:
(a) Objective: The objective of costing system, for example whether it is being
introduced for fixing prices or for insisting a system of cost control.

17
(b) Nature of Business or Industry: The Industry in which business is
operating. Every business industry has its own peculiar feature and costing
objectives. According to its cost information requirement cost accounting
methods are followed. For example Indian Oil Corporation Ltd. has to
maintain process wise cost accounts to find out cost incurred on a
particular process say in crude refinement process etc.
(c) Organisational Hierarchy: Costing system should fulfill the requirement
of different level of management. Top management is concerned with the
corporate strategy, strategic level management is concerned with
marketing strategy, product diversification, product pricing etc. Operational
level management needs the information on standard quantity to be
consumed, report on idle time etc.
(d) Knowing the product: Nature of product determines the type of costing
system to be implemented. The product which has by-products requires
costing system which account for by-products as well. In case of perishable
or short self- life, marginal costing method is required to know the
contribution and minimum price at which it can be sold.
(e) Knowing the production process: A good costing system can never be
established without the complete knowledge of the production process.
Cost apportionment can be done on the most appropriate and scientific
basis if a cost accountant can identify degree of effort or resources
consumed in a particular process. This also includes some basic technical
know-how and process peculiarity.
(f) Information synchronisation: Establishment of a department or a system
requires substantial amount of organisational resources. While drafting a
costing system, information needs of various other departments should be
taken into account. For example in a typical business organisation accounts
department needs to submit monthly stock statement to its lender bank,
quantity wise stock details at the time filing returns to tax authorities etc.
(g) Method of maintenance of cost records: The manner in which Cost and
Financial accounts could be inter-locked into a single integral accounting
system and in which results of separate sets of accounts, cost and
financial, could be reconciled by means of control accounts.
(h) Statutory compliances and audit: Records are to be maintained to
comply with statutory requirements, standards to be followed (Cost
Accounting Standards and Accounting Standards).

18
 (i) Information Attributes: Information generated from the Costing system
should be possess all the attributes of an information i.e. complete,
accurate, timeliness, confidentiality etc. This also meets the requirements
of management information system.
(b) Difference between Bill of Materials and Material Requisition Note
Bill of Materials Material Requisition Note
1. It is the document prepared by 1. It is prepared by the production
the engineering or planning dept. or other consuming
department.
2. It is a complete schedule of 2. It is a document asking Store-
component parts and raw keeper to issue materials to the
materials required for a particular consuming department.
job or work order.
3. It often serves the purpose of a 3. It cannot replace a bill of
material requisition as it shows materials.
the complete schedule of
materials required for a particular
job i.e. it can replace material
requisition.
4. It can be used for the purpose of 4. It is useful in arriving historical
quotations. cost only.
5. It helps in keeping a quantitative 5. It shows the material actually
control on materials drawn drawn from stores.
through material requisition.

(c) Idle Time - The time during which no production is carried-out because the
worker remains idle but are paid. In other words, it is the difference between
the time paid and the time booked. Idle time can be normal or abnormal. The time
for which employees are paid includes holidays, paid leaves, allowable rest or off
time etc.
Causes Treatment
1. The time lost between It is treated as a part of cost of production.
factory gate and the Thus, in the case of direct workers an
place of work, allowance for normal idle time is considered
2. The interval between setting of standard hours or standard rate.
one job and another, In case of indirect workers, normal idle time
is considered for the computation of
overhead rate

19
 3. Idle time may also arise Abnormal idle time cost is not included as a
due to abnormal factors part of production cost and is shown as a
like lack of coordination separate item in the Costing Profit and Loss
4. Power failure, Break- Account.
down of machines

OR
(c) Objectives of Budgetary Control System
1. Portraying with precision the overall aims of the business and determining
targets of performance for each section or department of the business.
2. Laying down the responsibilities of each of the executives and other
personnel so that everyone knows what is expected of him and how he will
be judged. Budgetary control is one of the few ways in which an objective
assessment of executives or department is possible.
3. Providing a basis for the comparison of actual performance with the
predetermined targets and investigation of deviation, if any, of actual
performance and expenses from the budgeted figures. This naturally helps
in adopting corrective measures.
4. Ensuring optimum use of available resources to maximise profit or
production, subject to the limiting factors. Since budgets cannot be properly
drawn up without considering all aspects, usually there is good co-
ordination when a system of budgetary control operates.
5. Co-ordinating various activities of the business, and centralising control
and yet enabling management to decentralise responsibility and delegate
authority in the overall interest of the business.
6. Engendering a spirit of careful forethought, assessment of what is possible
and an attempt at it. It leads to dynamism without being reckless. Of course,
much depends on the objectives of the firm and the dynamism r of its
management.
7. Providing a basis for revision of current and future policies.
8. Drawing up long range plans with a fair measure of accuracy.
9. Providing a yardstick against which actual results can be compared.

20