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

Purchase Price: Material A ` 160 per kg

Materials B ` 100 per kg

Labour Rate: Machine Shop ` 140 per hour

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

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

SUGGESTED ANSWERS/HINTS

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

Particulars Amount (`)

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

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(ii) (b)

Particulars Units (`)

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

Total cost of material 3,14,000

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

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

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

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

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Net AH = 28,000 hours

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

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

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

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

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

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

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

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

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

8 36
Or, =
100 Average No. of workers

Or, Average No. of workers = 450

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

6 No. of workers separated

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

14 27 + No. of accessions (Joinings)

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

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

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

Per month Per hour

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

Wages per machine hour

Machine man Helper

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

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

` 24,500.00 ` 17,000.00

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

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

10. (i) Traditional Absorption Costing

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

SOFTHUG- SOFTHUG- SOFTHUG-

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

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Production Overhead: 16.50 22.00 33.00

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

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

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

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

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

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

SOFTHUG SOFTHUG SOFTHUG

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

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Supervising cost 5.00 6.67 10.00

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

Total unit costs 192.48 243.70 285.72

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

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

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

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

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

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

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

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13. Statement of Cost and Profit per batch

Particulars Jan. Feb. March April May June Total

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

Overall position of the order for 1,800 units

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

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

Input Output Equivalent Production

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

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

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

(ii) Statement of Cost per equivalent units

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

(iii) Cost of Abnormal Gain – 192 Units

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

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Cost of 8,900 units transferred to next process `

(i) Cost of opening W-I-P Stock b/f – 600 units 4,20,000.00
(ii) Cost incurred on opening W-I-P stock
Material cost —
Labour cost 240 equivalent units @ ` 210.45 p.u. 50,508.00
Production OH cost 240 equivalent units @ ` 97.65 p.u.
23,436.00
4,93,944.00
(iii) Cost of 8,300 completed units
8,300 units @ ` 932.13 p.u. 77,36,679.00
Total cost [(i) + (ii) + (iii))] 86,50,623.00
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.

38 SEPTEMBER 2024 EXAMINATION