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Test Series: March 2018

MOCK TEST PAPER
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(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.
PREPARE process accounts and CALCULATE total profit, assuming that there was no opening
or closing work-in-progress.
(b) Two workers ‘A’ and ‘B’ produce the same product using the same material. Their normal wage
rate is also the same. ‘A’ is paid bonus according to Rowan scheme while ‘B’ is paid bonus
according to Halsey scheme. The time allowed to make the product is 120 hours. ‘A’ takes 90
hours while ‘B’ takes 100 hours to complete the product. The factory overhead rate is ` 50 per
hour actually worked. The factory cost of product manufactured by ‘A’ is ` 80,200 and for
product manufactured by ‘B’ is ` 79,400.
Required:
(i) COMPUTE the normal rate of wages.
(ii) CALCULATE the material cost.
(iii) PREPARE a statement comparing the factory cost of the product as made by two workers.
(c) Maximum Production capacity of KM (P) Ltd. is 28,000 units per month. Output at different levels
along with cost data is furnished below:
Activity Level
Particulars of Costs 16,000 units 18,000 units 20,000 units
Direct Material ` 12,80,000 ` 14,40,000 ` 16,00,000
Direct labour ` 17,60,000 ` 19,80,000 ` 22,00,000
Total factory overheads ` 22,00,000 ` 23,70,000 ` 25,40,000
You are required to CALCULATE the selling price per unit at an activity level of 24,000 units by
considering profit at the rate of 25% on sales.
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(d) Bank of Surat operated for years under the assumption that profitability can be increased by
increasing Rupee volume. But that has not been the case. Cost analysis has revealed the
following:
Activity Activity Cost Activity Driver Activity Capacity
(`)
Providing ATM Service 1,00,000 No. of Transactions 2,00,000
Computer Processing 10,00,000 No. of Transactions 25,00,000
Issuing Statements 8,00,000 No. of Statements 5,00,000
Customer Inquiries 3,60,000 Telephone Minutes 6,00,000
The following annual information on three products was also made available:
Activity Driver Checking Personal Loans Gold Visa
Accounts
Units of Product 30,000 5,000 10,000
ATM Transactions 1,80,000 0 20,000
Computer Transactions 20,00,000 2,00,000 3,00,000
Number of Statements 3,00,000 50,000 1,50,000
Telephone Minutes 3,50,000 90,000 1,60,000

Required
(i) CALCULATE rates for each activity.
(ii) Using the rates computed in requirement (i), CALCULATE the cost of each product.
(4 × 5 = 20 Marks)
2. (a) A store keeper has prepared the below list of items kept in the store of the factory.
Item Units Unit cost (`)
A 12,000 30.00
B 18,000 3.00
C 6,000 35.00
D 750 220.00
E 3,800 75.00
F 400 105.00
G 600 300.00
H 300 350.00
I 3,000 250.00
J 20,000 7.50
K 11,500 27.50
L 2,100 75.00
The store keeper requires your help to classify the items for prioritization. You are required to
APPLY ABC analysis to classify the store items as follows:
Store items which constitutes approx 70%, 20% and 10% of total value as A, B and C
respectively. (10 Marks)

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(b) SK Ltd. engaged in the manufacture of tyres. Analysis of income statement indicated a profit of
`150 lakhs on a sales volume of 50,000 units. The fixed cost is ` 850 lakhs which appears to be
high. Existing selling price is ` 3,400 per unit. The company is considering to revise the profit
target to ` 350 lakhs. You are required to COMPUTE –
(i) Break-even point at existing levels in units and in rupees.
(ii) The number of units required to be sold to earn the target profit.
(iii) Profit with 15% increase in selling price and drop in sales volume by 10%.
(iv) Volume to be achieved to earn target profit at the revised selling price as calculated in (ii)
above, if a reduction of 8% in the variable costs and ` 85 lakhs in the fixed cost is
envisaged. (10 Marks)
3 (a) R Limited is presently operating at 50% capacity and producing 60,000 units. The entire output is
sold at a price of ` 200 per unit. The cost structure at the 50% level of activity is as under:
`
Direct Material 75 per unit
Direct Wages 25 per unit
Variable Overheads 25 per unit
Direct Expenses 15 per unit
Factory Expenses (25% fixed) 20 per unit
Selling and Distribution Exp. (80% variable) 10 per unit
Office and Administrative Exp. (100% fixed) 5 per unit
The company anticipates that the variable costs will go up by 10% and fixed costs will go up by 15%.
You are required to PREPARE an Expense budget, on the basis of marginal cost for the
company at 50% and 60% level of activity and COMPUTE profits at respective levels. (10 Marks)
(b) A machine shop cost centre contains three machines of equal capacities.
To operate these three machines nine operators are required i.e. three operators on each
machine. Operators are paid ` 20 per hour. The factory works for fourty eight hours in a week
which includes 4 hours set up time. The work is jointly done by operators. The operators are
paid fully for the fourty eight hours. In additions they are paid a bonus of 10 per cent of
productive time. Costs are reported for this company on the basis of thirteen four-weekly period.
The company for the purpose of computing machine hour rate includes the direct wages of the
operator and also recoups the factory overheads allocated to the machines. The following details
of factory overheads applicable to the cost centre are available:
 Depreciation 10% per annum on original cost of the machine. Original cost of the each
machine is ` 52,000.
 Maintenance and repairs per week per machine is ` 60.
 Consumable stores per week per machine are ` 75.
 Power : 20 units per hour per machine at the rate of 80 paise per unit.
 Apportionment to the cost centre : Rent per annum ` 5,400, Heat and Light per annum
`9,720, foreman’s salary per annum `12,960 and other miscellaneous expenditure per
annum ` 18,000.
Required:
(i) CALCULATE the cost of running one machine for a four-week period.
(ii) CALCULATE machine hour rate. (10 Marks)

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4. (a) Following information have been extracted from the cost records of XYZ Pvt. Ltd.
Stores: (`)
Opening balance 1,08,000
Purchases 5,76,000
Transfer from WIP 2,88,000
Issue to WIP 5,76,000
Issue for repairs 72,000
Deficiency found in stock 21,600

Work-in-process: (`)
Opening balance 2,16,000
Direct wages applied 2,16,000
Overheads charged 8,64,000
Closing balance 1,44,000

Finished Production: (`)

Entire production is sold at a profit of 15% on cost of WIP
Wages paid 2,52,000
Overheads incurred 9,00,000
PREPARE Stores Ledger Control Account, Work-in-Process Control Account, Overheads Control
Account and Costing Profit and Loss Account. (10 Marks)
(b) SV chemicals Limited processes 9,00,000 kgs. of raw material in a month purchased at ` 95 per
kg in department X. The input output ratio of department X is 100 : 90. Processing of the
material results in two joint products being produced ‘P 1’ and ‘P2’ in the ratio of 60 : 40. Product
‘P1’ can be sold at split off stage or can be further processed in department Y and sold as a new
product ‘YP 1’. The input output ratio of department Y is 100 : 95. Department Y is utilized only
for further processing of product ‘P 1’ to product ‘YP 1’. Individual departmental expenses are as
follows:
Dept. X (` lakhs) Dept. Y (` lakhs)
Direct Materials 95.00 14.00
Direct Wages 80.00 27.00
Variable Overheads 100.00 35.00
Fixed Overheads 75.00 52.00
Total 350.00 128.00
Further, selling expenses to be incurred on three products are:
Particulars Amount (` in lakhs)
Product ‘P1’ 28.38
Product ‘P2’ 25.00
Product ‘YP1’ 19.00
Selling price of the products ‘P 1’ and ‘P2’ at split off point is ` 110 per kg and ` 325 per kg
respectively. Selling price of new product ‘YP 1’ is ` 150 per kg.

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You are required to:

(i) PREPARE a statement showing apportionment of joint costs, in the ratio of value of sales,
net of selling expenses.
(ii) PREPARE a Statement showing profitability at split off point.
(iii) PREPARE a Statement of profitability of ‘YP 1’.
(iv) DETERMINE that would you recommend further processing of P1? (10 Marks)
5. (a) The standard labour component and the actual labour component engaged in a week for a job
are as follows:
Skilled Semi-skilled Un-Skilled
Workers Workers workers
Standard number of workers in the gang 32 12 6
Standard wage rate per hour (`) 30 20 10
Actual number of workers employed in the gang 28 18 4
during the week
Actual wages rate per hour (`) 34 23 12
During the 40 hours working week the gang produced 1,800 standard labour hours of work.
CALCULATE:
(i) Total labour cost variance;
(ii) Labour yield variance;
(iii) Labour mix variance; and
(iv) Labour wage rate variance. (10 Marks)
(b) ‘RP’ Resorts (P) Ltd. offers three types of rooms to its guests, viz deluxe room, super deluxe
room and luxury suite. You are required to COMPUTE the tariff to be charged to the customers
for different types of rooms on the basis of following information:
Types of Room Number of Rooms Occupancy
Deluxe Room 100 90%
Super Deluxe Room 60 75%
Luxury Suite 40 60%
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and that of ‘luxury suite’ is 3
times of ‘deluxe room’. Annual expenses are as follows:
Particulars Amount (` lakhs)
Staff salaries 680.00
Lighting, Heating and Power 300.00
Repairs, Maintenance and Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior decoration 75.00
Sundries 30.28

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An attendant for each room was provided when the room was occupied and he was paid ` 500
per day towards wages. Further, depreciation is to be provided on building @ 5% on ` 900
lakhs, furniture and fixtures @ 10% on ` 90 lakhs and air conditioners @ 10% on ` 75 lakhs.
Profit is to be provided @ 25% on total taking and assume 360 days in a year. (10 Marks)
6. (a) DISCUSS cost classification based on variability.
(b) EXPLAIN Single and Multiple Overhead Rates.
(c) DISCUSS the four different methods of costing alongwith their applicability to concerned
industry?
(d) STATE how Economic Batch Quantity is determined? (4 × 5 = 20 Marks)

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Test Series: March, 2018

MOCK TEST PAPER
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/ HINTS

1. (a) Process A Account

Dr. Cr.
` `
To Materials 40,000 By Process B A/c 1,20,000
(Transfer to Process B)
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 Process A A/c 1,20,000 By Finished Stock A/c
(Transferred from Process A) (Transfer to finished stock) 2,88,000
To Labour 56,000
To Overhead 40,000
2,16,000
To Profit (25% of transfer price i.e., 72,000
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
(b) Let x be the cost of material and y be the normal rate of wage/hour
Worker A (`) Worker B (`)
Material cost x x
Labour wages 90 y 100 y
Bonus Rowan system Halsey system
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Time saved Hours saved  50%  rate

 hour worked  rate
Time allowed
30 1
 90  y = 22.5y 20   y = 10y
120 2
Overheads 90` 50 = 4,500 100` 50 = 5,000
Factory cost x + 112.5y + 4,500 = 80,200 x + 110y + 5,000 = 79,400
 x + 112.5y = 75,700……... (1)  x + 110y = 74,400…. (2)
Solving (1) and (2) we get x = `17,200 and y = ` 520
(i) Normal rate of wages is ` 520 per hour.
(ii) Cost of materials = ` 17,200.
(iii) Comparative Statement of factory cost
Worker A (` ) Worker B (` )
Material cost 17,200 17,200
Wages 46,800 52,000
(90  ` 520) (100  ` 520)
Bonus 11,700 5,200
30 1
(  90  520 ) ( 20   520 )
120 2
Overheads 4,500 5,000
(90  ` 50) (100  ` 50)
Factory cost 80,200 79,400
(c) Computation of Overheads
Change in Factory Overheads
Variable Overhead per unit =
Change in activity level
23,70,000  22,00,000 25,40,000  23,70,000
= or
18,000  16,000 20,000  18,000
1,70,000
= = ` 85 per unit
2000
Fixed Overhead
Activity level = 16,000 units
Particulars Amount (`)
Total factory overheads 22,00,000
Less: Variable overheads 16,000 units @ ` 85 per unit (13,60,000)
Fixed Overhead 8,40,000
Computation of Costs at Activity Level 24,000 units
Per Unit (`) Amount (`)
Direct Material (12,80,000/16,000) 80.00 19,20,000
Direct Labour (17,60,000/16,000) 110.00 26,40,000

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Variable Overhead (As calculated above) 85.00 20,40,000

Fixed Overhead 8,40,000
Total Cost 74,40,000
Computation of Selling Price at activity level 24,000 units
Profit required is 25% on selling price, hence cost will be 75%.
25  74,40,000
Therefore desired profit = = ` 24,80,000
75
Cost of 24,000 units 74,40,000
Desired Profit 24,80,000
Total Sales 99,20,000
Alternatively
Total Cost 74,40,000
Total Sales =  100 =  100 = ` 99,20,000
75 75
Total Sales 99,20,000
Selling Price per unit = = = ` 413.33
No of Units 24,000
(d) (i) Statement Showing “Activity Rate”
Activity Activity Activity Driver No. of Units Activity
Cost [a] of Activity Rate
(`) Driver [b] [a] / [b]
(`)
Providing ATM Service 1,00,000 No. of ATM Transactions 2,00,000 0.50
Computer Processing 10,00,000 No. of Computer 25,00,000 0.40
Transactions
Issuing Statements 8,00,000 No. of Statements 5,00,000 1.60
Customer Inquiries 3,60,000 Telephone Minutes 6,00,000 0.60

(ii) Statement Showing “Cost of Product”

Activity Checking Accounts (`) Personal Loans (`) Gold Visa (`)
Providing ATM 90,000 --- 10,000
Service (1,80,000 tr.× ` 0.50) (20,000 tr. × ` 0.50)
Computer 8,00,000 80,000 1,20,000
Processing (20,00,000 tr. × ` 0.40) (2,00,000 tr. × ` 0.40) (3,00,000 tr. × ` 0.40)
Issuing 4,80,000 80,000 2,40,000
Statements (3,00,000 st. × ` 1.60) (50,000 st. × `1.60) (1,50,000 st. × ` 1.60)
Customer Inquiries 2,10,000 54,000 96,000
(3,50,000 min. × ` 0.60) (90,000 min. × ` 0.60) (1,60,000 min. × ` 0.60)
Total Cost [a] ` 15,80,000 ` 2,14,000 ` 4,66,000
Units of Product 30,000 5,000 10,000
[b]

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Cost of each 52.67 42.80 46.60

Product [a] / [b]

2. (a) Statement of Total Cost and Ranking

Item Units % of Total Unit cost (`) Total cost (`) % of Total cost Ranking
units
A 12,000 15.30% 30.00 3,60,000 12.97% 2
B 18,000 22.94% 3.00 54,000 1.95% 11
C 6,000 7.65% 35.00 2,10,000 7.57% 5
D 750 0.96% 220.00 1,65,000 5.95% 7
E 3,800 4.84% 75.00 2,85,000 10.27% 4
F 400 0.51% 105.00 42,000 1.51% 12
G 600 0.76% 300.00 1,80,000 6.49% 6
H 300 0.38% 350.00 1,05,000 3.78% 10
I 3,000 3.82% 250.00 7,50,000 27.03% 1
J 20,000 25.49% 7.50 1,50,000 5.41% 9
K 11,500 14.66% 27.50 3,16,250 11.40% 3
L 2,100 2.68% 75.00 1,57,500 5.68% 8
78,450 100.00% 27,74,750 100.00%
Statement of classification of Inventory
Rankin Item % of Total units Cost (`) % of Total Cost Category
g
1 I 3.82% 7,50,000 27.03%
2 A 15.30% 3,60,000 12.97%
3 K 14.66% 3,16,250 11.40%
4 E 4.84% 2,85,000 10.27%
5 C 7.65% 2,10,000 7.57%
Total 46.27% 19,21,250 69.24% A
6 G 0.76% 1,80,000 6.49%
7 D 0.96% 1,65,000 5.95%
8 L 2.68% 1,57,500 5.68%
9 J 25.49% 1,50,000 5.41%
Total 29.89% 6,52,500 23.53% B
10 H 0.38% 1,05,000 3.78%
11 B 22.94% 54,000 1.95%
12 F 0.51% 42,000 1.51%
Total 23.84% 2,01,000 7.24 C
12 100% 27,74,750 100%

(b) Sales Volume 50,000 Units

Computation of existing contribution
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Particulars Per unit (`) Total (` in lakhs)

Sales 3,400 1,700
Fixed Cost 1,700 850
Profit 300 150
Contribution 2,000 1,000
Variable Cost 1,400 700
Fixed Cost 8,50,00,000
(i) Break even sales in units = = = 42,500 units
Contribution per unit 2,000
Break even sales in rupees = 42,500 units x ` 3,400 = ` 1,445 lakhs
OR
2,000
P/V Ratio =  100 = 58.82%
3,400
FixedCost 8,50,00,000
B.E.P (in rupees) = = = ` 1,445 lakhs (approx.)
P / VRatio 58.82%
(ii) Number of units sold to achieve a target profit of ` 350 lakhs:
Desired Contribution = Fixed Cost + Target Profit
= 850 lakhs + 350 lakhs
= 1,200 lakhs
Desired Contribution 12,00,00,000
Number of units to be sold = = =60,000 units
Contribution per unit 2,000
(iii) Profit if selling price is increased by 15% and sales volume drops by 10%
Existing Selling Price per unit = ` 3,400
Revised selling price per unit = ` 3,400 × 115% = ` 3,910
Existing Sales Volume = 50,000 units
Revised sales volume = 50,000 units – 10% of 50,000 = 45,000 units.
Statement of profit at sales volume of 45,000 units @ ` 3,910 per unit
Particulars Per unit (`) Total (` in lakhs)
Sales 3,910.00 1,759.50
Less: Variable Costs (1,400.00) (630.00)
Contribution 2,510.00 1,129.50
Less: Fixed Cost (850.00)
Profit 279.50

(iv) Volume to be achieved to earn target profit of ` 350 lakhs with revised selling price and
reduction of 8% in variable costs and ` 85 lakhs in fixed cost.
Revised selling price per unit = ` 3,910
Variable costs per unit existing = ` 1,400

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Revised Variable Costs

Reduction of 8% in variable costs = ` 1,400 – 8% of 1,400
= ` 1,400 – ` 112
= ` 1,288
Total Fixed Cost (existing) = ` 850 lakhs
Reduction in fixed cost = ` 85 lakhs
Revised fixed cost = ` 850 lakhs – ` 85 lakhs = ` 765 lakhs
Revised Contribution (unit) = Revised selling price per unit – Revised
Variable Costs per units
Revised Contribution per unit = ` 3,910 – ` 1,288 = ` 2,622
Desired Contribution = Revised Fixed Cost + Target Profit
= ` 765 lakhs + `350 lakhs= `1,115 lakhs
Desired Contribution ` 1,115 lakh
No. of units to be sold = = = 42,525 units
Contribution per unit ` 2,622
3. (a) Expense Budget of R Ltd. for the period……
50% Capacity 60% Capacity
60,000 units 72,000 units
Per unit (`)
Amount (`) Amount (`)
Sales (A) 200.00 1,20,00,000 1,44,00,000
Less: Variable Costs:
- Direct Material 82.50 49,50,000 59,40,000
- Direct Wages 27.50 16,50,000 19,80,000
- Variable Overheads 27.50 16,50,000 19,80,000
- Direct Expenses 16.50 9,90,000 11,88,000
- Variable factory expenses 16.50 9,90,000 11,88,000
(75% of ` 20 p.u.)
- Variable Selling & Dist. exp. 8.80 5,28,000 6,33,600
(80% of ` 10 p.u.)
Total Variable Cost (B) 179.30 1,07,58,000 1,29,09,600
Contribution (C) = (A – B) 20.70 12,42,000 14,90,400
Less: Fixed Costs:
- Office and Admin. exp. (100%) -- 3,45,000 3,45,000
- Fixed factory exp. (25%) -- 3,45,000 3,45,000
- Fixed Selling & Dist. exp. (20%) -- 1,38,000 1,38,000
Total Fixed Costs (D) -- 8,28,000 8,28,000
Profit (C – D) -- 4,14,000 6,62,400
(b) Effective Machine hour for four-week period
= Total working hours – unproductive set-up time
= {(48 hours × 4 weeks) – {(4 hours × 4 weeks)}
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= (192 – 16) hours) = 176 hours.

(i) Computation of cost of running one machine for a four week period
(`) (`)
(A) Standing charges (per annum)
Rent 5,400.00
Heat and light 9,720.00
Forman’s salary 12,960.00
Other miscellaneous expenditure 18,000.00
Standing charges (per annum) 46,080.00
Total expenses for one machine for four week period 1,181.54
 ` 46,080 
 
 3machines  13 four  week period 
Wages (48 hours × 4 weeks × ` 20 × 3 operators) 11,520.00
Bonus {(176 hours × ` 20 × 3 operators) 10%} 1,056.00
Total standing charges 13,757.54
(B) Machine Expenses
 1  400.00
Depreciation =  ` 52,000 × 10% × 
 13 four - week period 

Repairs and maintenance (` 60  4 weeks) 240.00

Consumable stores (` 75  4 weeks) 300.00
Power (176 hours  20 units  ` 0 .80) 2,816.00
Total machine expenses 3,756.00
(C) Total expenses (A) + (B) 17,513.54

` 17,513.54
(ii) Machine hour rate =  ` 99.51
176hours
4. (a) Stores Ledger Control A/c
Particulars (`) Particulars (`)
To Balance b/d 1,08,000 By Work in Process A/c 5,76,000
To General Ledger 5,76,000 By Overhead Control A/c 72,000
Adjustment A/c
To Work in Process A/c 2,88,000 By Overhead Control A/c 21,600*
(Deficiency)

By Balance c/d 3,02,400

9,72,000 9,72,000
*Deficiency assumed as normal (alternatively can be treated as abnormal loss)

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Work in Process Control A/c

Particulars (`) Particulars (`)
To Balance b/d 2,16,000 By Stores Ledger Control a/c 2,88,000
To Stores Ledger Control A/c 5,76,000 By Costing P/L A/c 14,40,000
(Balancing figures being Cost of
finished goods)
To Wages Control A/c 2,16,000 By Balance c/d 1,44,000
To Overheads Control A/c 8,64,000
By
18,72,000 18,72,000

Overheads Control A/c

Particulars (`) Particulars (`)
To Stores Ledger Control A/c 72,000 By Work in Process A/c 8,64,000
To Stores Ledger Control A/c 21,600 By Balance c/d 1,65,600
(Under absorption)
To Wages Control A/c 36,000
(` 2,52,000- ` 2,16,000)
To Gen. Ledger Adjust. A/c 9,00,000
10,29,600 10,29,600

Costing Profit & Loss A/c

Particulars (`) Particulars (`)
To Work in process 14,40,000 By Gen. ledger Adjust. A/c 16,56,000
(Sales) (` 14,40,000 × 115%)
To Gen. Ledger Adjust. 2,16,000
A/c (Profit)
16,56,000 16,56,000
(b) Working Notes:
Input output ratio of material processed in Department X = 100:90
Particulars Quantity (Kg)
Material input 9,00,000
Less: Loss of material in process @ 10% of 9,00,000 kgs (90,000)
Output 8,10,000

Output of department X is product ‘P 1’ and ‘P2’ in the ratio of 60 : 40.

60  8,10,000
Output ‘P1’ = = 4,86,000 kgs.
100
40  8,10,000
Output ‘P2’ = = 3,24,000 kgs.
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Statement showing ratio of net sales

Product P1 P2 Total
Quantity (kgs) 4,86,000 3,24,000 8,10,000
Selling price per kg (`) 110.00 325.00
Sales Value (` in lakhs) 534.60 1,053.00 1587.60
Less: Selling Expenses (` in lakhs) (28.38) (25.00) (53.38)
Net Sales (` in lakhs) 506.22 1,028.00 1,534.22
Ratio 33% 67% 100.00
Computation of Joint Costs
Particulars Amount (` Lakhs)
Raw Material input 9,00,000 kgs @ ` 95 per kg 855.00
Direct Materials 95.00
Direct Wages 80.00
Variable Overheads 100.00
Fixed Overheads 75.00
Total 1,205.00
(i) Statement showing apportionment of joint costs in the ratio of net sales
Particulars Amount (` in lakhs)
Joint cost of P 1 – 33% of ` 1,205 lakhs 397.65
Joint cost of P 2 – 67% of ` 1,205 lakhs 807.35
Total 1,205.00
(ii) Statement showing profitability at split off point
Product P1 P2 Total
Net Sales Value (` in lakhs) – [A] 506.22 1,028.00 1,534.22
Less: Joint costs (` in lakhs) (397.65) (807.35) (1,205.00)
Profit (` in lakhs) [A] – [B] 108.57 220.65 329.22
Alternative Presentation
Product P1 P2 Total
Sales Value (` in lakhs) – [A] 534.60 1,053.00 1,587.60
Less: Joint costs (` in lakhs) 397.65 807.35 1,205.00
Selling Expenses 28.38 25.00 53.38
Total Cost [B] 426.03 832.35 1,258.38
Profit (` in lakhs) [A] – [B] 108.57 220.65 329.22
(iii) Statement of profitability of product ‘YP 1’
Particulars YP1
Sales Value (` in lakhs) (Refer working note) [A] 629.55
Less: Cost of P 1 397.65
Cost of Department Y 128.00
Selling Expenses of Product ‘YP 1’ 19.00
Total Costs [B] 544.65
Profit (` in lakhs) [A] – [B] 84.90
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Working Note:
Computation of product ‘YP1’
Quantity of product P 1 input used = 4,86,000 kgs
Input output ratio of material processed in Department Y = 100 : 95
Particulars Quantity (Kg)
Material input 4,86,000
Less: Loss of material in process @ 5% of 4,86,000 (24,300)
Output 4,61,700
Sales Value of YP 1 = 4,61,700 kgs @ ` 150 per kg = ` 692.55 lakhs
(iv) Determination of profitability after further processing of product P1 into product YP1:
Particulars (` in lakhs)
Profit of Product ‘P1’ {refer (ii) above} 108.57
Profit of Product ‘YP1’{refer (iii) above} 84.90
Decrease in profit after further processing 23.67
Based on the above profitability statement, further processing of product P 1 into YP1 should
not be recommended.
5. (a) Work produced by the gang 1,800 standard labour hours, i.e.,
1,800
or 36 gang hours
32 + 12 + 6
Standard hours of Skilled Labour (36  32) 1,152 hours
Standard hours of Semi-skilled Labour (36  12) 432 hours
Standard hours of Un-skilled Labour (36  6) 216 hours
Total 1,800 hours
Actual hours of Skilled Labour (40  28) 1,120 hours
Actual hours of Semi-skilled Labour (40  18) 720 hours
Actual hours of Un-skilled Labour (40  4) 160 hours
Total 2,000 hours
Revised Standard hours (actual hours worked expressed in standard ratio)
1,152
× 2,000
Skilled Labour 1,800 1,280 hours

432
× 2,000
Semi-skilled Labour 1,800 480 hours

216
× 2,000
Unskilled Labour 1,800 240 hours
2,000 hours

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Standard Cost for Actual Output: `

Skilled Labour 1,152 hours @ ` 30 34,560
Semi-skilled Labour 432 hours @ ` 20 8,640
Unskilled Labour 216 hours @ ` 10 2,160
1,800 hours 45,360
Actual Cost:
Skilled Labour 1,120 hours @ ` 34 38,080
Semi-skilled Labour 720 hours @ ` 23 16,560
Unskilled Labour 160 hours @ ` 12 1,920
2,000 hours 56,560
(i) Total Labour Cost Variance
Standard Cost- Actual Cost `
` 45,360 - ` 56,560 11,200 (A)
(ii) Labour Yield Variance:
(Standard hours for Actual Output - Revised Standard hours)  Standard Rate
Skilled (1,152 - 1,280)  ` 30 3,840 (A)
Semi -skilled (432 - 480)  ` 20 960 (A)
Un-skilled (216 - 240)  ` 10 240 (A)
5,040 (A) 5,040 (A)
(iii) Labour Mix Variance:
(Revised Standard Hours - Actual Hours)  Standard Rate
Skilled (1,280 - 1,120)  ` 30 4,800 (F)
Semi-skilled (480-720)  ` 20 4,800(A)
Un-skilled (240-160)  ` 10 800 (F)
800(F) 800 (F)
(iv) Labour Wage Rate Variance:
(Standard Rate - Actual Rate)  Actual Hours
Skilled (` 30 - ` 34)  1,120 4,480 (A)
Semi-skilled (` 20 - ` 23)  720 2,160 (A)
Un-skilled (` 10 - ` 12)  160 320 (A)
6,960 (A) 6,960 (A)
Check : Total Labour Cost Variance = Yield + Mix + Rate 11,200 (A)
(b) Operating cost statement of ‘RP’ Resort (P) Limited
Particulars Cost per annum
(` in lakhs)
Staff Salaries 680.00
Room Attendant’s Wages (refer W.N-3) 286.20
Lighting, Heating & Power 300.00

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Repairs, Maintenance & Renovation 180.00

Linen 30.00
Laundry charges 24.00
Interior Decoration 75.00
Sundries 30.28
Depreciation (refer W.N- 4):
- Building 45.00
- Furniture & Fixture 9.00
- Air Conditioners 7.50
Total cost for the year 1,666.98
Computation of profit:
Let ` x be the rent for deluxe from.
Equivalent deluxe room days are 90,720 (refer W.N- 2)
Total takings = ` 90,720x
Profit is 25% of total takings.
Profit = 25% of ` 90,720x = ` 22,680x
Total takings = Total Cost + Profit
` 90,720x = ` 16,66,98,000 + ` 22,680x
` 90,720x - ` 22,680x = ` 16,66,98,000
` 68,040x = ` 16,66,98,000
` 116,66,98,000
X= ` 2,450
` 68,040

Rent to be charged for Deluxe room ` 2,450

Rent to be charged for Super deluxe room = ` 4,900
Rent of deluxe room × 2 = ` 2,450 × 2
Rent to be charged for Luxury suite = ` 7,350
Rent of Super Deluxe room × 1.5 = ` 4,900 × 1.5

Working Notes:
1. Computation of Room Occupancy
Type of Room No. of rooms x no. of days x occupancy % Room days
Deluxe Room 100 rooms x 360 days x 90% occupancy 32,400
Super Deluxe Room 60 rooms x 360 days x 75% occupancy 16,200
Luxury Suite 40 x 360 days x 60% occupancy 8,640
Total 57,240

2. Computation of equivalent deluxe room days:

Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and luxury suite’ is 3
times of ‘deluxe room’. Therefore equivalent room days would be:

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Type of Room Room days Equivalent deluxe room days

Deluxe Room 32,400 x 1 32,400
Super Deluxe Room 16,200 x 2 32,400
Luxury Suite 8,640 x 3 25,920
Total 90,720
3. Computation of room attendant’s wages:
Room occupancy days × ` 500 per day
= 57,240 days × ` 500 = ` 286.20 lakhs
4. Computation of Depreciation per annum:
Particulars Cost (`) Rate of Depreciation (`)
Depreciation
Building 900,00,000 5% 45,00,000
Furniture & Fixtures 90,00,000 10% 9,00,000
Air Conditioners 75,00,000 10% 7,50,000

6. (a) Cost classification based on variability

(i) Fixed Costs – These are the costs which are incurred for a period, and which, within certain
output and turnover limits, tend to be unaffected by fluctuations in the levels of activity
(output or turnover). They do not tend to increase or decrease with the changes in output.
For example, rent, insurance of factory building etc., remain the same for different levels of
production.
(ii) Variable Costs – These costs tend to vary with the volume of activity. Any increase in the
activity results in an increase in the variable cost and vice-versa. For example, cost of
direct labour, etc.
(iii) Semi-variable Costs – These costs contain both fixed and variable components and are
thus partly affected by fluctuations in the level of activity. Examples of semi variable costs
are telephone bills, gas and electricity etc.
(b) Single and Multiple Overhead Rates:
Single overhead rate: It is one single overhead absorption rate for the whole factory.
It may be computed as follows:
Overhead costs for the entire factory
Single overhead rate =
Total quantity of the base selected
The base can be total output, total labour hours, total machine hours, etc.
The single overhead rate may be applied in factories which produces only one major product on a
continuous basis. It may also be used in factories where the work performed in each department
is fairly uniform and standardized.
Multiple overhead rate: It involves computation of separate rates for each production department,
service department, cost center and each product for both fixed and variable overheads. It may
be computed as follows:
Overhead allocated / appportioned to each department/ cost centre or product
Multiple overhead rate =
Corresponding base

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Under multiple overheads rate, jobs or products are charged with varying amount of factory
overheads depending on the type and number of departments through which they pass.
However, the number of overheads rate which a firm may compute would depend upon two
opposing factors viz. the degree of accuracy desired and the clerical cost involved.
(c) Four different methods of costing along with their applicability to concerned industry have been
discussed as below:
(i) Job Costing: The objective under this method of costing is to ascertain the cost of each job
order. A job card is prepared for each job to accumulate costs. The cost of the job is
determined by adding all costs against the job it has incurred. This method of costing is
used in printing press, foundries and general engineering workshops, advertising etc.
(ii) Batch Costing: This system of costing is used where small components/ parts of the same
kind are required to be manufactured in large quantities. Here batch of sim ilar products is
treated as a job and cost of such a job is ascertained as discussed under (1), above. If in a
cycle manufacturing unit, rims are produced in batches of 2,500 units each, then the cost
will be determined in relation to a batch of 2,500 units.
(iii) Contract Costing: If a job is very big and takes a long time for its completion, then method
used for costing is known as Contract Costing. Here the cost of each contract is ascertained
separately. It is suitable for firms engaged in the construction of bridges, roads, buildings
etc.
(iv) Operating Costing: The method of Costing used in service rendering undertakings is
known as operating costing. This method of costing is used in undertakings like transport,
supply of water, telephone services, hospitals, nursing homes etc.
(d) 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 the 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 a table, graph or mathematical
formula. The mathematical formula usually used for its determination is as follows:
2DC
EBQ=
C
Where,
D = Annual demand for the product
S = Setting up cost per batch
C = Carrying cost per unit of production per annum

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Test Series: August 2018

MOCK TEST PAPER –1
INTERMEDIATE (NEW) : GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) CALCULATE from the following figures:
(i) Efficiency ratio
(ii) Activity ratio and
(iii) Capacity ratio.
Budgeted Production 880 units
Standard Hours per unit 10 hours
Actual Production 750 units
Actual Working Hours 6,000 hours
(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 Rs. 4,00,000
(iii) Part of above cost met by loan, annual interest of which is Rs. 10,000 p.a.
(iv) Other annual charges: Insurance Rs. 15,000, Garage rent Rs. 9,000, Road tax Rs. 3,000 ,
Repairs & maintenance Rs. 15,000, Administrative charges Rs. 5,000.
(v) Running Expenses: Driver & Conductor Rs. 5,000 p.m., Repairs/Replacement of tyre-tube
Rs. 3,600 p.a., Diesel and oil cost per km Rs. 5.
(vi) Effective life of vehicle is estimated at 5 years at the end of which it will have a scrap value
of Rs. 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.
(c) The M-Tech Manufacturing Company is presently evaluating two possible processes for the
manufacture of a toy. The following information is available:
Particulars Process A (Rs.) Process B (Rs.)
Variable cost per unit 12 14
Sales price per unit 20 20
Total fixed costs per year 30,00,000 21,00,000
Capacity (in units) 4,30,000 5,00,000
Anticipated sales (Next year, in units) 4,00,000 4,00,000
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SUGGEST:
1. Which process should be chosen?
2. Would you change your answer as given above, if you were informed that the capacities of
the two processes are as follows:
A - 6,00,000 units; B - 5,00,000 units? STATE the reason?
(d) Arnav Confectioners (AC) owns a bakery which is used to make bakery items like pastries, cakes
and muffins. AC use to bake atleast 50 units of any item at a time. A customer has given an order
for 600 cakes. To process a batch of 50 cakes, the following cost would be incurred:
Direct materials - Rs. 5,000
Direct wages - Rs. 500
Oven set-up cost Rs. 750
AC absorbs production overheads at a rate of 20% of direct wages cost. 10% is added to the total
production cost of each batch to allow for selling, distribution and administration overheads.
AC requires a profit margin of 25% of sales value.
Required:
(i) DETERMINE the price to be charged for 600 cakes.
(ii) CALCULATE cost and selling price per cake.
(iii) DETERMINE what would be selling price per unit If the order is for 605 cakes.
(5 × 4 = 20 Marks)
2. (a) The annual demand for an item of raw material is 4,000 units and the purchase price is expected
to be Rs. 90 per unit. The incremental cost of processing an order is Rs. 135 and the annual cost
of storage is estimated to be Rs. 12 per unit. COMPUTE the optimal order quantity and total
relevant cost of this order quantity?
Suppose that Rs. 135 as estimated to be the incremental cost of processing an order is incorrect
and should have been Rs. 80. All other estimates are correct. ESTIMATE the difference in cost on
account of this error?
Assume at the commencement of the period that a supplier offers 4,000 units at a price of Rs. 86.
The materials will be delivered immediately and placed in the stores. Assume that the incremental
cost of placing the order is zero and original estimate of Rs. 135 for placing an order for the
economic batch is correct. ANALYSE, should the order be accepted? (10 Marks)
(b) The Trading and Profit and Loss Account of a company for the year ended 31-03-20X8 is as under:
Trading and Profit and Loss Account
Particulars Rs. Particulars Rs.
To Materials 26,80,000 By Sales (50,000 units) 62,00,000
To Wages 17,80,000 By Closing Stock (2,000 units) 1,50,000
To Factory Expenses 9,50,000 By Dividend received 20,000
To Administrative Expenses 4,80,200
To Selling Expenses 2,50,000
To Preliminary Expenses 50,000
written off
To Net Profit 1,79,800
63,70,000 63,70,000
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In the Cost Accounts:

(i) Factory expenses have been allocated to production at 20% of Prime Cost.
(ii) Administrative expenses (production related) absorbed at 10% of factory cost.
(iii) Selling expenses charged at Rs. 10 per unit sold.
PREPARE the Costing Profit and Loss Account of the company and reconcile the Profit/Loss with
the profit as shown in the Financial Accounts. (10 Marks)
3. (a) 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 Rs. 5 for X; Rs. 4 for Y; and Rs. 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 Rs. 13.75 Rs. 8.75 and Rs. 7.50 and Re. 1.00 respectively – all per unit quantity sold.
During a period, the joint input cost including the material cost was Rs. 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. (10 Marks)
(b) In a factory, a machine is considered to work for 208 hours in a month. It includes maintenance
time of 8 hours and set up time of 20 hours.
The expense data relating to the machine are as under:
Cost of the machine is Rs. 5,00,000. Life 10 years. Estimated scrap value at the end of life is
Rs. 20,000.
(Rs.)
– Repairs and maintenance per annum 60,480
– Consumable stores per annum 47,520
– Rent of building per annum (The machine under reference occupies 1/6 of the area) 72,000
– Supervisor's salary per month (Common to three machines) 6,000
– Wages of operator per month per machine 2,500
– General lighting charges per month allocated to the machine 1,000
– Power 25 units per hour at Rs. 2 per unit
Power is required for productive purposes only. Set up time, though productive, does not require
power.
The Supervisor and Operator are permanent. Repairs and maintenance and consumable stores
vary with the running of the machine.
Required
COMPUTE a two-tier machine hour rate for (a) set up time, and (b) running time. (10 Marks)

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4. (a)
Fixed Cost Rs. 1,20,000
Variable costs Rs. 3 per unit
Selling price Rs. 7 per unit
Output Rs. 50,000 units
CALCULATE the profit for each of the following situation with the above data:
(i) with the data above
(ii) with a 10% increase in output & sales.
(iii) with a 10% increase in fixed costs.
(iv) with a 10% increase in variable costs.
(v) with a 10% increase in selling price.
(vi) taking all the above situations. (10 Marks)
(b) Corrs Consultancy Ltd. is engaged in BPO industry. One of its trainee executives in the Personnel
department has calculated labour turnover rate 24.92% for the last year using Flux method .
Following is the some data provided by the Personnel department for the last year:
Employees At the beginning Joined Left At the end
Data Processors 540 1,080 60 1,560
Payroll Processors ? 20 60 40
Supervisors ? 60 --- ?
Voice Agents ? 20 20 ?
Assistant Managers ? 20 --- 30
Senior Voice Agents 4 --- --- 12
Senior Data Processors 8 --- --- 34
Team Leaders ? --- --- ?
Employees transferred from the Subsidiary Company
Senior Voice Agents --- 8 --- ---
Senior Data Processors --- 26 --- ---
Employees transferred to the Subsidiary Company
Team Leaders --- --- 60 ---
Assistant Managers --- --- 10 ---
At the beginning of the year there were total 772 employees on the payroll of the company. The
opening strength of the Supervisors, Voice Agents and Assistant Managers were in the ratio of
3 : 3 : 2.
The company has decided to abandon the post of Team Leaders and consequently all the Team
Leaders were transferred to the subsidiary company.
The company and its subsidiary are maintaining separate set of books of account and separate
Personnel Department.
You are required to CALCULATE:
(a) Labour Turnover rate using Replacement method and Separation method.

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(b) Verify the Labour turnover rate calculated under Flux method by the trainee execu tive of the
Corrs Consultancy Ltd. (10 Marks)
5. (a) Z. Ltd. uses standard costing system in manufacturing of its single product ‘M’. The standard cost
per unit of M is as follows:
Rs.
Direct Material – 2 metres @ Rs. 6 per metre 12.00
Direct labour- 1 hour @ Rs. 4.40 per hour 4.40
Variable overhead- 1 hour @ Rs. 3 per hour 3.00
During July, 2016, 6,000 units of M were produced and the related data are as under:
Direct material acquired- 19,000 metres @ Rs.5.70 per metre.
Material consumed – 12,670 metres.
Direct labour – ? hours @ Rs. ? per hour Rs. 27,950
Variable overheads incurred Rs. 20,475
The variable overhead efficiency variance is Rs. 1,500 adverse. Variable overheads are based on
direct labour hours. There was no stock of the material in the beginning
You are required to DETERMINE the missing figures and work out all the relevant variances.
(10 Marks)
(b) A factory uses job costing. The following data are obtained from its books for the year ended
31st March, 20X8:
Amount (Rs.)
Direct materials 9,00,000
Direct wages 7,50,000
Selling and distribution overheads 5,25,000
Administration overheads 4,20,000
Factory overheads 4,50,000
Profit 6,09,000
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of sales and
the Sales value.
(ii) In 2018-19, the factory received an order for a job. It is estimated that direct materials required
will be Rs.2,40,000 and direct labour will cost Rs.1,50,000. 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 recovers overheads as
a percentage of Cost of Production, based on cost rates prevailing in the previous year.
(10 Marks)
6. (a) EXPLAIN the difference between cost control and cost reduction.
(b) DISCUSS the prerequisite of installing cost accounting system.
(c) EXPLAIN the difference between fixed budget and flexible budget
(d) DESCRIBE net realizable value method of apportioning joint costs to by-products
(5 × 4 = 20 Marks)

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Test Series: August 2018
MOCK TEST PAPER – 1
INTERMEDIATE (NEW) : GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
Actual Prodcution in terms of standard hours
1. (a) (i) Efficiency Ratio = 100
Actual hours worked
750 units × 10 hours
= × 100 = 125%
6,000
Actual Production in terms of standard hours
(ii) Activity ratio = 100
Budgeted production in terms of standard hours

7,500
= × 100 = 85.23%
880 × 10
Actual hours worked
(iii) Capacity Ratio = × 100
Maximum hours in a budget period

6,000
= × 100 = 68.19%
8,800
Activity ratio = Efficiency Ratio × Capacity Ratio
Or, 85.23% = 125%× 68.19%
(b) Working Notes:
Purchase price - Scrap value
1. Depreciation per annum:=
Estimated life
Rs. 4,00,000 - Rs. 10,000
= = Rs. 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
Rs. Rs.
Fixed expenses:
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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 × Rs. 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 25% of total cost 15,387.50
Total revenue 76,937.50
Rate per passenger-km Rs. 76,937.50/1,80,000 passenger km = 0.42743 i.e.,
= 0.43 i.e., 43 paise
(c) (1) Comparative Profitability Statements
Particulars Process- A (Rs.) Process- B (Rs.)
Selling Price per unit 20.00 20.00
Less: Variable Cost per unit 12.00 14.00
Contribution per unit 8.00 6.00
Total Contribution 32,00,000 24,00,000
(Rs. 8 × 4,00,000) (Rs. 6 × 4,00,000)
Less: Total fixed costs 30,00,000 21,00,000
Profit 2,00,000 3,00,000
*Capacity (units) 4,30,000 5,00,000
Total Contribution at full capacity 34,40,000 30,00,000
(Rs. 8 × 4,30,000) (Rs. 6 × 5,00,000)
Fixed Cost 30,00,000 21,00,000
Profit 4,40,000 9,00,000
Process- B should be chosen as it gives more profit as compared to Process-A.
(2)
Particulars Process- A (Rs.) Process- B (Rs.)
*Capacity (units) 6,00,000 5,00,000
Total contribution 48,00,000 30,00,000
(Rs. 8 × 6,00,000) (Rs. 6 × 5,00,000)
Fixed Cost 30,00,000 21,00,000
Profit 18,00,000 9,00,000

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If the capacity of the Process A and B is 6,00,000 units and 5,00,000 units respectively then
Process-A is giving double profit than Process C. Thus Process A be chosen.
*Note: It is assumed that capacity produced equals sales
(d) Statement of cost per batch and per order
No. of batch = 600 units ÷ 50 units = 12 batches
Particulars Cost per batch Total Cost
(Rs.) (Rs.)
Direct Material Cost 5,000.00 60,000
Direct Wages 500.00 6,000
Oven set-up cost 750.00 9,000
Add: Production Overheads (20% of Direct wages) 100.00 1,200
Total Production cost 6,350.00 76,200
Add: S&D and Administration overheads 635.00 7,620
(10% of Total production cost)
Total Cost 6,985.00 83,820
Add: Profit (1/3rd of total cost) 2,328.33 27,940
(i) Sales price 9,313.33 1,11,760
No. of units in batch 50 units
(ii) Cost per unit (Rs.6,985 ÷ 50 units) 139.70
Selling price per unit (9,313.33 ÷ 50 units) 186.27
(iii) If the order is for 605 cakes, then selling price per cake would be as below:
Particulars Total Cost (Rs.)
Direct Material Cost 60,500
Direct Wages 6,050
Oven set-up cost 9,750
Add: Production Overheads (20% of Direct wages) 1,210
Total Production cost 77,510
Add: S&D and Administration overheads 7,751
(10% of Total production cost)
Total Cost 85,261
Add: Profit (1/3 rd of total cost) 28,420
Sales price 1,13,681
No. of units 605 units
Selling price per unit (Rs.1,13,681 ÷ 605 units) 187.90
2. (a) (i) Optimal order quantity i.e. E.O.Q.

2 × 4,000 × 135
= = 90,000 = 300 units
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Relevant Cost of this order quantity Rs.

4,000
Ordering cost = 13.33 say 14 orders at Rs. 135 1,890
300
1
Carrying Cost = × 300 × 12 1,800
2
Relevant cost 3,690
2 × 4,000 × 80
(ii) Revised EOQ = = 231 units
12

4,000
Ordering cost = = 17.32 say 18 orders at Rs. 80 1,440
231
1
Carrying cost = × 231 × 12 1,386
2
2,826
Different in cost on account of this error = 3,690 – 2,826 = Rs. 864
(iii) In case of discount in purchase price, the total cost of Purchase cost, ordering cost and
carrying cost should be compared.
Original offer at Rs. 90 per unit Supplier offered at Rs. 86 per unit
Rs. Rs.
Purchase Cost 3,60,000 Purchase cost 4,000 × 86 3,44,000
Ordering cost 1,890 Ordering cost Nil
Carrying cost 1,800 1 24,000
Carrying cost × 4,000 × 12
2
Total cost 3,63,690 3,68,000
This special offer at Rs. 86 per unit should not be accepted as its total cost is higher by
Rs. 4,310 (3,68,000 – 3,63,690).as compared to original offer.
(b) Workings:
Preparation of Cost Sheet/ Cost Statement
Particulars Amount (Rs.)
Materials 26,80,000
Wages 17,80,000
Prime Cost 44,60,000
Add: Factory expenses (20% of Rs. 44,60,000) 8,92,000
Factory Cost 53,52,000
Add: Administrative expenses (10% of Rs. 53,52,000) 5,35,200
Cost of Production 58,87,200

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 Rs. 58,87,200 
Less: Closing Stock  ×2,000units  (2,26,431)
 52,000units 
Cost of Goods Sold 56,60,769
Add: Selling expenses (Rs.10 × 50,000 units) 5,00,000
Cost of Sales 61,60,769
Profit (Balancing figure) 39,231
Sales Value 62,00,000

Costing Profit and Loss Account

Particulars Amount (Rs.) Particulars Amount (Rs.)
To Materials 26,80,000 By Sales 62,00,000
To Wages 17,80,000 By Closing stock 2,26,431
To Factory expenses 8,92,000
To Administrative expenses 5,35,200
To Selling expenses 5,00,000
To Profit (Balancing figure) 39,231
64,26,431 64,26,431
Reconciliation of profit as per Cost Accounts and as per Financial Accounts
Particulars Amount (Rs.)
Profit as per Cost Accounts 39,231
Additions:
Administrative expenses (Over-absorbed) (Rs. 5,35,200 – Rs.4,80,200) 55,000
Selling expenses (Overcharged) (Rs. 5,00,000 – Rs. 2,50,000) 2,50,000
Dividend received 20,000
3,64,231
Deductions:
Factory expenses (Under -absorbed) (Rs. 9,50,000 – 8,92,000) 58,000
Closing stock (Over-valued) (Rs.2,26,431 – Rs. 1,50,000) 76,431
Preliminary expenses written off 50,000
1,84,431
Profit as per Financial Accounts 1,79,800
(Reconciliation statement may also be prepared by taking financial profit as base.)
3. (a) Working Notes:
(i) Computation of Allocation Ratio for Joint Costs
Products
X Y Z.
Rs. Rs. Rs.
Selling Price 13.75 8.75 7.50
Less: Anticipated margin@ 25% on cost or 20% on sales 2.75 1.75 1.50
Cost of sales 11.00 7.00 6.00
Less: Post split off cost 5.00 4.00 2.50
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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
(ii) Computation of net allocable joint costs
Rs. Rs.
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 allocation Output(units) Joint cost per unit
Rs. Rs. Rs.
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 Cost Post spilt Total Selling Margin Margin % on
off cost Cost Price cost
Rs. Rs. Rs. Rs. Rs. Rs.
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
7
× 90,000
Z= 40 = 15,750
90,000
(b) Working Notes:
1. (i) Effective hours for standing charges (208 hours – 8 hours) = 200 hours
(ii) Effective hours for variable costs (208 hours – 28 hours) = 180 hours

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2. Standing Charges per hour

Cost per month Cost per hour (Rs.)
(Rs.) (Cost per month ÷ 200 hours)
 Rs. 6,000  2,000 10.00
Supervisor’s salary  
 3machines 
 1 Rs.72,000  1,000 5.00
Rent of building   
 6 12months 
General lighting 1,000 5.00
Total Standing Charges 4,000 20.00
3. Machine running expenses per hour
Cost per month (Rs.) Cost per hour (Rs.)
Depreciation 4,000 20.00
 Rs.(5,00,000- 20,000) 1   Rs.4,000 
    
 10 years 12months   200hours 
Wages 2,500 12.50
 Rs.2,500 
 
 200hours 
Repairs & Maintenance 5,040 28.00
 Rs.60,480   Rs.5,040 
   
 12months   180hours 
Consumable stores 3,960 22.00
 Rs.47,520   Rs.3,960 
   
 12months   180hours 
Power (25 units × Rs.2 × 180 hours) 9,000 50.00
Total Machine Expenses 24,500 132.50
Computation of Two – tier machine hour rate
Set up time rate per Running time rate per
machine hour machine hour
(Rs.) (Rs.)
Standing Charges 20.00 20.00
Machine expenses :
Depreciation 20.00 20.00
Repair and maintenance – 28.00
Consumable stores – 22.00
Power – 50.00
Machine hour rate of overheads 40.00 140.00
Wages 12.50 12.50
Comprehensive machine hour rate 52.50 152.50
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4. (a) (i)
Rs.
Sales 50,000 units at Rs. 7 3,50,000
Variable cost 50,000 × 3 1,50,000
Contribution 50,000 × 4 2,00,000
Fixed costs 1,20,000
Profit 80,000
S-V 7- 3 4
P/V ratio = ×100 = ×100 = ×100 = 57.14%
S 7 7
F 1,20,000
BEP (units) = = =30,000 Units
contribution per unit 4
BEP (Value) = 30,000 Units × 7 = Rs. 2,10,000
Profit Rs. 80,000 (as calculated above)
(ii) with a 10% increase in output & sales
i.e., 50,000+ 5,000 = 55,000 units
Contribution 55,000 × Rs. 4 per unit Rs. 2,20,000
Fixed costs Rs. 1,20,000
Profit Rs. 1,00,000
(iii) with a 10% increase in Fixed Cost
Contribution (50,000 ×Rs. 4 per unit) Rs. 2,00,000
Fixed cost (1,20,000+ 12,000 ) Rs. 1,32,000
Profit Rs. 68,000
(iv) with a 10% increase in variable costs
Selling price per unit 7.00
Less: variable cost (3+0.30) 3.30
Contribution per unit 3.70
Total contribution 50,000 × 3.70 1,85,000
Fixed costs 1,20,000
Profit 65,000
(v) with a 10% increase in selling price
Selling price per unit (7.00+0.70) 7.70
Variable cost per unit 3.00
Contribution per unit 4.70
Total contribution 50,000 × Rs. 4.70 2,35,000
Fixed costs 1,20,000
Profit 1,15,000

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(vi) Effect of all the four above:-

Sales 55,000 × Rs. 7.70 per unit Rs. 4,23,500

Variable cost 55,000 × 3.30 Rs. 1,81,500

Contribution 55,000 × 4.40 Rs. 2,42,000
Fixed cost 1,20,000+ 12,000 Rs. 1,32,000
Profit Rs. 1,10,000
Note: It is assumed that the increased output of 55,000 units has been sold.
(b) Working Notes:
(i) Calculation of no. of employees at the beginning and end of the year
At the Beginning At the end
of the year of the year
Data Processors 540 1,560
Payroll Processors [Left- 60 + Closing- 40 – Joined- 20] 80 40
Supervisors* 30 90
Voice Agents* 30 30
Assistant Managers* 20 30
Senior Voice Agents 4 12
Senior Data Processors 8 34
Team Leaders 60 0
Total 772 1,796
(*) At the beginning of the year:
Strength of Supervisors, Voice Agents and Asst. Managers =
[772 – {540 + 80 + 4 + 8 + 60} employees] or [772 – 692 = 80 employees]
3 3 2
[{Supervisors- 80  = 30, Voice Agents- 80  = 30 & Asst. Managers- 80  = 20} employees]
8 8 8
At the end of the year:
[Supervisor-(Opening- 30 + 60 Joining) = 90; Voice Agents- (Opening- 30 + 20 Joined – 20 Left) = 30]
(ii) No. of Employees Separated, Replaced and newly recruited during the year
Particulars Separations New Recruitment Replacement Total Joining
Data Processors 60 1,020 60 1,080
Payroll Processors 60 -- 20 20
Supervisors -- 60 -- 60
Voice Agents 20 -- 20 20
Assistant Managers 10 10 10 20
Sr. Voice Agents -- 8 -- 8
Sr. Data Processors -- 26 -- 26
Team Leaders 60 -- -- --
Total 210 1,124 110 1,234

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(Since, Corrs Consultancy Ltd. and its subsidiary are maintaining separate Personnel
Department, so transfer-in and transfer-out are treated as recruitment and separation
respectively.)
(a) Calculation of Labour Turnover:
No.of employeesreplacedduringthe year
Replacement Method = 100
Averageno.of employeesonroll
110 110
= 100 = 100 = 8.57%
(772  1,796) / 2 1,284

No.of employees separatedduringthe year

Separation Method = 100
Averageno.of employeesonroll
210
= 100 = 16.36%
1,284
(b) Labour Turnover under Flux Method
No.of employees(Joined  Separated)duringthe year
= 10
Averageno.of employeesonroll
No.of employees(Replaced  Newrecruited  Separated)duringthe year
= 100
Averageno.of employeesonroll
1,234  210
=  10 = 112.46%
1,284
Labour Turnover calculated by the executive trainee of the Personnel department is
incorrect as it has not taken the No. of new recruitment while calculating the labour
turnover under Flux method.
5. (a) Working Notes
Standard Costs
Rs.
Direct materials (6,000 × Rs. 12) 72,000
Direct labour (6,000 × Rs. 4.40) 26,400
Variable overheads (6,000 × Rs. 3) 18,000
Total 1,16,400
Actual Cost
Direct Materials (12,670 × 5.70) 72,219
Direct wages 27,950
Variable overhead incurred 20,475
Total 1,20,644
Total Variance = SC- AC = 1,16,400 –1,20,644 = Rs. 4,244 (A)
Missing Figures
1. Actual Direct Labour Hours (DLH)
We can find out this through Variable overhead efficiency variance of Rs. 1,500 adverse
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VOH Efficiency Variance= SR (SH – AH)

1,500 A = 3(6,000 – AH)
-1,500 = 18,000 – 3 AH
3AH = 18,000 + 1,500 = 19,500
AH = 19,500/3 = 6,500 Actual Hours i.e. Actual DLH.
Rs. 27,950
2. Actual Labour Rate per hour = = Rs. 4.30
6,500 DLH
Relevant Variances:
1 Material Variances:
(a) MCV = SC – AC = 72,000 – 72,219 = Rs. 219 (A)
(b) MPV = AQ (SR – AR) = 12,670 (6 – 5.70) = Rs. 3,801 (F)
or = 19,000 (6 – 5.70) = Rs. 5,700(F)
(c) MUV = SR (SQ – AQ) = 6 (6,000 × 2 – 12,670)
= 6 (12,000 – 12,670) = Rs. 4,020 (A)
2. Labour Variances:
(a) LCV = SC – AC = 26,400 – 27,950 = Rs. 1,550 (A)
(b) LRV = AHP (SR – AR) = 6,500 (4.40 – 4.30) = Rs. 650 (F)
(c) LEV = SR (SH – AHP) = 4.40 (6,000 – 6,500) = Rs. 2,200 (A)
3. Variable Overhead Variances : (Output Basis)
(a) VOH Variance = SVO – AVO= 18,000 – 20,475 Rs. 2,475 (A)
(b) Efficiency Variance = SR (SQ – AQ) (Note 1)
= 3 (6,500 – 6,000) = Rs. 1,500 (A)
(c) Expenditure Variance = (SVOSP – AVO) (Note 2)
= (19,500 – 20,475) = Rs. 975 (A)
Note :
1. One unit of production in one hour. For 6,500 DLH, 6,500 units should have been produced
(SQ). But AQ = 6,000 units. i.e. less than SQ. Hence, it is adverse variance of Rs. 1,500.
2. Standard Variable Overhead on Standard Production = 6,500 × 3 = Rs. 19,500
(b) (i) Production Statement
For the year ended 31 st March, 20X8
Amount (Rs.)
Direct materials 9,00,000
Direct wages 7,50,000
Prime Cost 16,50,000
Factory overheads 4,50,000
Cost of Production 21,00,000
Administration overheads 4,20,000
Selling and distribution overheads 5,25,000
Cost of Sales 30,45,000
Profit 6,09,000
Sales value 36,54,000

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Calculation of Rates:
Rs.4,50,000
1. Percentage of factory overheads to direct wages = ×100 = 60%
Rs.7,50,000
Rs.4,20,000
2. Percentage of administration overheads to Cost of production =  100 = 20%
Rs.21,00,000
3. Selling and distribution overheads = Rs.5,25,000 × 115% = Rs.6,03,750
Selling and distribution overhead % to Cost of production
Rs.6,03,750
=  100 = 28.75%
Rs.21,00,000
Rs.6,09,000
4. Percentage of profit to sales =  100 = 16.67%
Rs.36,54,000
(ii) Calculation of price for the job received in 20X8-X9
Amount (Rs.)
Direct materials 2,40,000
Direct wages 1,50,000
Prime Cost 3,90,000
Factory overheads (60% of Rs.1,50,000) 90,000
Cost of Production 4,80,000
Administration overheads (20% of Rs.4,80,000) 96,000
Selling and distribution overheads (28.75% of Rs.4,80,000) 1,38,000
Cost of Sales 7,14,000
Profit (20% of Rs.7,14,000) 1,42,800
Sales value 8,56,800
6. (a) Difference between cost control and cost reduction are tabulated as below:
Cost Control Cost Reduction
1. Cost control aims at maintaining 1. Cost reduction is concerned with reducing costs.
the costs in accordance with the It challenges all standards and endeavours to
established standards. better them continuously
2. Cost control seeks to attain lowest 2. Cost reduction recognises no condition as
possible cost under existing permanent, since a change will result in lower cost.
conditions.
3. In case of Cost Control, emphasis 3. In case of cost reduction it is on present and
is on past and present future.
4. Cost Control is a preventive 4. Cost reduction is a corrective function. It operates
function even when an efficient cost control system exists.
5. Cost control ends when targets are 5. Cost reduction has no visible end.
achieved
(b) Before setting up a system of cost accounting the under mentioned factors should be studied:
(i) Objective: The objective of costing system, for example whether it is being introduced for
fixing prices or for insisting a system of cost control.

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(ii) Nature of Business or Industry: The Industry in which business is operating. Every business
industry has its own peculiarity and objectives. According to its cost information requirement
cost accounting methods are followed. For example, an oil refinery maintains process wise
cost accounts to find out cost incurred on a particular process say in crude refinement process
etc.
(iii) Organisational Hierarchy: Costing system should fulfil the information requirements of
different levels 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.
(iv) 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.
(v) 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.
(vi) Information synchronisation: Establishment of a department or a system requires
substantial amount of organisational resources. While drafting a costing s ystem, 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 of filing returns to tax authorities etc.
(vii) 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 how the results of separate
sets of accounts i.e. cost and financial, could be reconciled by means of control accounts.
(viii) Statutory compliances and audit: Records are to be maintained to comply with statutory
requirements and applicable cost accounting standards to be followed.
(ix) Information Attributes: Information generated from the Costing system should possess all
the attributes of information i.e. complete, accurate, timeliness, relevant etc. to have an
effective management information system (MIS).
(c) Difference between Fixed and Flexible Budgets:
Sl. Fixed Budget Flexible Budget
No.
1. It does not change with actual volume of It can be re-casted on the basis of activity
activity achieved. Thus it is known as level to be achieved. Thus it is not rigid.
rigid or inflexible budget
2. It operates on one level of activity and It consists of various budgets for different
under one set of conditions. It assumes levels of activity
that there will be no change in the
prevailing conditions, which is
unrealistic.
3. Here as all costs like - fixed, variable and Here analysis of variance provides useful
semi-variable are related to only one information as each cost is analysed
level of activity so variance analysis according to its behaviour.
does not give useful information.

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4. If the budgeted and actual activity levels Flexible budgeting at different levels of
differ significantly, then the aspects like activity facilitates the ascertainment of cost,
cost ascertainment and price fixation do fixation of selling price and tendering of
not give a correct picture. quotations.
5. Comparison of actual performance with It provides a meaningful basis of comparison
budgeted targets will be meaningless of the actual performance with the budgeted
specially when there is a difference targets.
between the two activity levels.
(d) 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
(ii) selling, distribution and administration expenses attributable to the by -product.

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Test Series: October, 2018

MOCK TEST PAPER – 2
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. Answer the following:
(a) Arnav Ltd. is producing a single product, has the profit-volume ratio of 40%. The company wishes
to increase the selling price by 10% which will increase the variable cost by 5%. The fixed
overheads will increase from its present level of Rs.20,00,000 to Rs.30,00,000.
Required:
(i) COMPUTE the company’s original break-even point sales and the break-even point sales
after the increase.
(ii) ESTIMATE the sales value for the firm to make a profit of Rs. 4,50,000 after the increase.
(b) A company manufactures a product from a raw material, which is purchased at Rs. 54 per kg. The
company incurs a handling cost of Rs.1,500 plus freight of Rs.4,000 per order. The incremental
carrying cost of inventory of raw material is Rs.1.50 per kg per month. In addition, the cost of
working capital finance on the investment in inventory of raw material is Rs.8 per kg per annum.
The annual production of the product is 96,000 units and 4 units are obtained from one kg of raw
material.
Required:
(i) CALCULATE the economic order quantity of raw materials.
(ii) ADVISE, how frequently orders should be placed for procurement.
(iii) If the company proposes to rationalize placement of orders on quarterly basis, DETERMINE
what percentage of discount in the price of raw materials should be negotiated?
(c) RST Company Ltd. has computed labour turnover rates for the quarter ended 31 st March, 2017 as
20%, 10% and 5% under flux method, replacement method and separation method respectively. If
the number of workers replaced during that quarter is 50,
CALCULATE
(i) Workers recruited and joined
(ii) Workers left and discharged and
(iii) Average number of workers on roll.
(d) M/s. KBC Bearings Ltd. is committed to supply 48,000 bearings per annum to M/s. KMR F ans on
a steady daily basis. It is estimated that it costs Rs. 1 as inventory holding cost per bearing per
month and that the set up cost per run of bearing manufacture is Rs. 3,200
(i) DETERMINE what would be the optimum run size of bearing manufacture?
(ii) DETERMINE What would be the interval between two consecutive optimum runs?
(iii) CALCULATE the minimum inventory cost? (5 × 4 = 20 Marks)

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2. (a) Arnav Ltd. manufactures a product Q, the standard cost of which is as follows:
Standard Cost per unit
(Rs.)
Direct Material 600
Direct labour:
- Skilled @ Rs.80 per hour 120
- Unskilled @ Rs.60 per hour 90
Variable overheads 75
Fixed overheads 30
915
During the month just ended 4,000 units of Q were produced. The actual labour cost was as follows.
Rate per hour (Rs.) Cost (Rs.)
Skilled 87.50 5,77,500
Unskilled 55.00 2,97,000
10% of the labour time was lost due to idle time. The standard idle time was 7.5% of labour time.
Arnav Ltd. has budgeted to produce 4,200 units of Q. Arnav Ltd. absorbs its overheads on direct
labour hour (effective hours) basis. Actual fixed and variable overheads incurred were Rs.1,55,000
and Rs.2,85,000 respectively.
CALCULATE:
(i) Labour rate variance;
(ii) Labour efficiency variance;
(iii) Labour mix variance;
(iv) Labour yield variance;
(v) Labour idle time variance;
(vi) Variable overhead expenditure variance and
(vii) Variable overhead efficiency variance. (10 Marks)
(b) The following information have been extracted from the cost records of JKL Manufacturing
Company Ltd:
Rs.
Stores:
Opening Balance 90,000
Purchases 4,80,000
Transfer from WIP 2,40,000
Issue to WIP 4,80,000
Issue for repairs 60,000
Deficiency found in stock 18,000
Work-in-Process:
Opening Balance 1,80,000
Direct wages applied 1,80,000
Overhead charged 7,20,000
Closing Balance 1,20,000

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Finished Production:
Entire production is sold at a profit of 10% on cost from work-in-progress -
Wages Paid 2,10,000
Overhead Incurred 7,50,000
PREPARE Stores Ledger Control A/c., Work-in-Process Control A/c., Overheads Control A/c. and
Costing Profit & Loss A/c. (10 Marks)
3. (a) DKG Airlines owns single passenger aircraft and operates between Melbourne and Delhi only.
Flight leaves Melbourne on Monday and Thursday and departs from Delhi on Wednesday and
Saturday. DKG Airlines cannot afford any more flight between Melbourne and Delhi. Only
economical class seats are available on its flight and all tickets are booked by travel agents. The
following information are collected.
Seating capacity per plane 360
Average passengers per flight 250
Flights per week 4
Flights per year 208
Average one-way fare Rs.50,000
Variable fuel cost Rs.28,00,000 per flight
Food service to passengers (not charged to Passengers) Rs.2,600 per passenger
Commission to travel agents 15% of fare
Fixed annual lease cost allocated to each flight Rs. 15,30,000 per flight
Fixed ground services (maintenance, check in, Baggage Rs.1,70,000 per flight
handling cost) allocated to each flight
Fixed salaries of flight crew allocated to each flight Rs.6,50,000 per flight
For the sake of simplicity assume that fuel cost is unaffected by the actual number of passengers
on a flight.
Required:
(i) CALCULATE the operating income that DKG Airlines makes on each way flight between
Melbourne and Delhi?
(ii) The market research department of DKG Airlines indicates that lowering the average one -way
fare to Rs. 48,000 and increase in agents’ commission to 17.5% will increase the average
number of passenger per flight to 275. DECIDE whether DKG Airlines should lower its fare or
not? (10 Marks)
(b) You are given the following information of the three machines of a manufacturing department of X
Ltd.:
Preliminary estimates of expenses (per annum)
Machines
Total (Rs.)
A (Rs.) B (Rs.) C (Rs.)
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 8,000 3,000 2,500 2,500
Insurance of machinery 8,000
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Indirect employee cost 20,000

Building maintenance expenses 20,000
Annual interest on capital outlay 50,000 20,000 20,000 10,000
Monthly charge for rent and rates 10,000
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
(The foreman and attendant control all the three machines and spend equal time on each of them.)
The following additional information is also available:
Machines
A B C
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 12 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 90% 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 ‘B’ & ‘C’ only.
• 20% general increase in wages rates. (10 Marks)
4. (a) The following information relate to Process A:
(i) Opening Work-in-Process 8,000 units at Rs.15,00,000
Degree of Completion: Material 100%
Labour and Overhead 60%
(ii) Input 1,82,000 units at Rs.1,47,50,000
(iii) Wages paid Rs.68,12,000
(iv) Overheads paid Rs.34,06,000
(v) Units scrapped 14,000
Degree of Completion: Material 100%
Wages and Overheads 80%
(vi) Closing Work - in- Process 18,000 units
Degree of Completion: Material 100%
Wages and Overheads 70%
(vii) Units completed and transferred to next process 1,58,000 units
(viii) Normal loss 10% of total input including opening WIP
(ix) Scrap value is Rs.15 per unit to be adjusted out of direct material cost

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You are required to COMPUTE on the basis of FIFO

(i) Equivalent Production
(ii) Cost per unit
(iii) Value of units transferred to next process. (10 Marks)
(b) Arnav Motors Ltd. manufactures pistons used in car engines. As per the study conducted by the
Auto Parts Manufacturers Association, there will be a demand of 80 million pistons in the coming
year. Arnav Motors Ltd. is expected to have a market share of 1.15% of the total market demand
of the pistons in the coming year. It is estimated that it costs Rs.1.50 as inventory holding cost per
piston per month and that the set-up cost per run of piston manufacture is Rs. 3,500.
(i) DETERMINE the optimum run size for piston manufacturing?
(ii) Assuming that the company has a policy of manufacturing 40,000 pistons per run,
CALCULATE the extra costs company would be incurring as compared to the optimum run
suggested in (i) above?
(iii) IDENTIFY variability of cost with respect to unit and batch level from the following cost:
(a) Inventory carrying cost; (b) Designing cost for a job; (c) Machine set-up cost to run
production and (d) Depreciation of factory building. (10 Marks)
5. (a) 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 of product 3 5

Material-X and Material-Y cost Rs. 4 and Rs. 6 per kg and labours are paid Rs. 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 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 kg.
Material-Y 500 kg.

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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. (10 Marks)
(b) Woolmark Ltd. manufactures three types of products namely P, Q and R. The data relating to a
period are as under:
Particulars P Q R
Machine hours per unit 10 18 14
Direct Labour hours per unit @ Rs. 20 4 12 8
Direct Material per unit (Rs.) 90 80 120
Production (units) 3,000 5,000 20,000
Currently the company uses traditional costing method and absorbs all production overheads on
the basis of machine hours. The machine hour rate of overheads is Rs. 6 per hour.
The company proposes to use activity based costing system and the activity analy sis is as under:
Particulars P Q R
Batch size (units) 150 500 1,000
Number of purchase orders per batch 3 10 8
Number of inspections per batch 5 4 3
The total production overheads are analysed as under:
Machine set up costs 20%
Machine operation costs 30%
Inspection costs 40%
Material procurement related costs 10%
Required:
(i) CALCULATE the cost per unit of each product using traditional method of absorbing all
production overheads on the basis of machine hours.
(ii) CALCULATE the cost per unit of each product using activity based costing principles.
(10 Marks)
6. (a) STATE the limitations of cost and management accounting.
(b) DISCUSS with example the level of activity method of segregating semi -variable costs into fixed
and variable costs.
(c) STATE the advantages of Cost-Sheets
(d) EXPLAIN the difference between Allocation and Apportionment of expenses. (4 × 5 =20 Marks)

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Test Series: October, 2018

MOCK TEST PAPER – 2
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) Workings:
Let us assume that the selling price before increment is Rs.100, the other relevant details are as
follows:
Particulars Before increase After increase
Selling Price 100 110
Variable Cost 60 63
Contribution 40 47
P/V Ratio 40% 42.73%
(i) Computation of Break-even point sales:
FixedOverheads
Break-even point sales =
P / V ratio
Rs. 20,00,000
- Before increase = = Rs. 50,00,000
40%
Rs.30,00,000
- After increase = = Rs. 70,20,828 (approx.)
42.73%
(ii) Sales value to make a profit of Rs.4,50,000:
FixedOverheads  Desiredprofit Rs.30,00,000  Rs.4,50,000
= = = Rs.80,73,953
P / Vratio 42.73%

2AO
(b) (i) EOQ =
C
96,000units 1kg.
A = Annual consumption = = 24,000kgs.
4units
O = Cost of placing order = Handling cost + Freight = Rs. 1,500 +Rs.4,000 = Rs.5,500
C = Carrying cost per kg. per annum
Carrying cost (Rs.1.50 × 12) = Rs.18
Finance charges on investment in inventory = Rs.8
Rs.26
2  24,000kgs. Rs.5,500
EOQ = = 3,186.5 kgs.
Rs.26
(ii) Number of orders = 24,000 kgs./ 3,186.5 kgs. = 7.53 or 8 orders
Frequency in placing orders = 365 days / 8 orders = 45.63 or 46 days
(iii) If company places orders on quarterly basis, percentage of discount in price of raw material
to be negotiated:
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Cost under EOQ:
Ordering cost 8 orders × Rs. 5,500 44,000.00
Carrying cost 3,186.5kgs. × ½ × Rs.26 41,424.50
Total 85,424.50
Cost under Ordering on Quarterly Basis:
Ordering cost 4 orders × Rs.5,500 22,000.00
Carrying cost (24,000 kgs./ 4 orders) × ½ × Rs.26 78,000.00 Inc
Total 1,00,000.00
Incremental cost if orders are placed on quarterly basis
= Rs.1,00,000– Rs. 85,424.50 = Rs. 14,575.50
Reduction in purchase price to be negotiated
= Rs.14,575.50 ÷ 24,000 kgs. = Rs.0.61 per kg.
Percentage of discount to be negotiated 0.61 ÷ 54 × 100 = 1.13%
No. of workers replaced
(c) Labour Turnover Rate (Replacement method) = 100
Average no. of workers
10 50
Or, =
100 Averageno.of wor ker s
Thus, Average No. of workers = 500
No. of workers separated
Labour Turnover Rate (Separation method) = 100
Average No. of workers
5 Number of wor ker s separated
Or, =
100 500
Thus, No. of workers separated = 25
Labour Turnover Rate (Flux Method)
No. of Separations + No. of Accession (Joinings)
= 100
Average no. of workers
20 25 No. of accessions (Joinings)
Or, =
100 500
Or, 100 (25 + No. of Accessions) = 10,000
Or, 25 + No. of Accessions =100
Thus, No. of Accessions = 100 - 25 =75
Accordingly,
(i) Workers recruited and Joined = 75
(ii) Workers left and discharged = 25
(iii) Average number of workers on roll = 500

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(d) (i) Optimum batch size or Economic Batch Quantity (EBQ):

2DS 2  48,000 3,200
EBQ = = = 5,060 units.
C 12
(ii) Number of Optimum runs = 48,000 ÷ 5,060 = 9.49 or 10 runs
Interval between 2 runs (in days) = 365 days ÷ 10 = 36.5 days
(iii) Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per annum
Average Inventory = 5,060 units ÷ 2 = 2,530 units
Carrying Cost per unit per annum = Rs.1 × 12 months = Rs.12
Minimum Inventory Holding Costs = 2,530 units × Rs. 12 = Rs.30,360
2. (a) Workings:
Skilled Unskilled
Standard Rate per hour 80 60
Standard time for producing 1.5 hours 1.5 hours
one unit (Rs.120 ÷ Rs.80) (Rs.90 ÷ Rs.60)
Actual hours paid (AH Paid) 6,600 hours 5,400 hours
Standard hours required to 6,000 hours 6,000 hours
produce 4,000 units (SH) (1.5 hours× 4,000 units) (1.5 hours× 4,000 units)
Actual hours worked 6,600 5,400
(AHWorked)  97.5  97.5
100 100
= 6,435 hours = 5,265 hours
Revised Std. Hours (RSH)  6,600  5,400   6,600  5,400 
  97.5   0.5   97.5   0.5
 100   100 
= 5,850 hours = 5,850 hours
Idle timeAbnormal 6,600 - 6,435 = 165 hours 5,400 – 5,265 = 135 hours

(i) Labour Rate Variance = AHPaid(Std. Rate – Actual Rate)

- Skilled = 6,600 hours (Rs.80 – Rs.87.50) = Rs.49,500 (A)
- Unskilled = 5,400 hours (Rs.60 – Rs.55) = Rs.27,000 (F)
= Rs.22,500 (A)
(ii) Labour Efficiency Variance = Std. Rate (SH – AHWorked)
- Skilled = Rs.80 (6,000 hours – 6,435 hours) = Rs.34,800 (A)
- Unskilled = Rs.60 (6,000 hours – 5,265 hours) = Rs.44,100 (F)
= Rs.9,300 (F)
(iii) Labour Mix Variance = Std. Rate (RSH – AHWorked)
- Skilled = Rs.80 (5,850 hours – 6,435 hours) = Rs.46,800 (A)
- Unskilled = Rs.60 (5,850 hours – 5,265 hours) = Rs.35,100 (F)
= Rs.11,700 (A)

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(iv) Labour Yield Variance = Std. Rate (SH – RSH)

- Skilled = Rs.80 (6,000 hours – 5,850 hours) = Rs.12,000 (F)
- Unskilled = Rs.60 (6,000 hours – 5,850 hours) = Rs.9,000 (F)
= Rs.21,000 (F)
(v) Labour Idle time Variance = Std. Rate × Idle time Abnormal
- Skilled = Rs.80 × 165 hours = Rs.13,200 (A)
- Unskilled = Rs.60 × 135 hours = Rs.8,100 (A)
= Rs.21,300 (A)
(vi) Variable Overhead Expenditure Variance
= AHWorked (SR - AR)
 Rs.75 Rs.2,85,000 
= 11,700 hours   
 2  1.5hours 11,700hours 
= 11,700 hours (Rs.25 – Rs.24.36) = Rs.7,488 (F)
(vii) Variable Overhead Efficiency Variance
= Std. Rate (SH – AHWorked)
= Rs.25 (12,000 – 11,700) = Rs.7,500 (F)
(b) Stores Ledger Control A/c
Particulars (Rs.) Particulars (Rs.)
To Balance b/d 90,000 By Work in Process Control A/c 4,80,000
To General Ledger Adjustment A/c 4,80,000 By Overhead Control A/c 60,000
To Work in Process Control A/c 2,40,000 By Overhead Control A/c 18,000*
(Deficiency)
By Balance c/d 2,52,000
8,10,000 8,10,000

*Deficiency assumed as normal (alternatively can be treated as abnormal loss)

Work in Process Control A/c
Particulars (Rs.) Particulars (Rs.)
To Balance b/d 1,80,000 By Stores Ledger Control A/c 2,40,000
To Stores Ledger Control A/c 4,80,000 By Costing P/L A/c
(Balancing figures being Cost of 12,00,000
finished goods)
To Wages Control A/c 1,80,000 By Balance c/d 1,20,000
To Overheads Control A/c 7,20,000
15,60,000 15,60,000

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Overheads Control A/c

Particulars (Rs.) Particulars (Rs.)
To Stores Ledger Control A/c 60,000 By Work in Process Control A/c 7,20,000
To Stores Ledger Control A/c 18,000 By Balance c/d* (Under absorption) 1,38,000
To Wages Control A/c 30,000
(Rs. 2,10,000- Rs.1,80,000)
To Gen. Ledger Adjust. A/c 7,50,000
8,58,000 8,58,000
*Alternatively may be transferred to Costing P& L A/c
Costing Profit & Loss A/c
Particulars (Rs.) Particulars (Rs.)
To Work in Process Control A/c 12,00,000 By Gen. Ledger Adjust. A/c 13,20,000
(Sales) (12,00,000+1,20,000)
To Gen. Ledger Adjust. A/c (Profit) 1,20,000
13,20,000 13,20,000
General Ledger Adjustment A/c may also be written as Cost Ledger Control A/c
3. (a) (i) Statement of operating income of DKG Airlines for Melbourne-Delhi flight (one way)
Particulars Amount Amount
(Rs.) (Rs.)
Fare received (per flight): 250 passengers × Rs. 50,000 1,25,00,000
Variable costs (per flight):
- Fuel cost 28,00,000
- Food (250 × Rs. 2,600) 6,50,000
- Commission to Travel Agents (15% of Rs. 1,25,00,000) 18,75,000 (53,25,000)
Contribution per flight 71,75,000
Fixed cost (per flight):
Annual lease cost 15,30,000
Fixed ground service costs 1,70,000
Salaries of flight crew 6,50,000 (23,50,000)
Operating income per flight 48,25,000
(ii) Operating income of DKG Airlines per Melbourne-Delhi flight (one way) after reduction
in fare
Fare received (per flight): 275 passengers × Rs. 48,000 1,32,00,000
Variable costs (per flight):
Fuel cost 28,00,000
Food (275 × Rs.2,600) 7,15,000
Commission to Travel Agents (17.5% of Rs.1,32,00,000) 23,10,000 (58,25,000)
Contribution per flight 73,75,000
Excess contribution due to lowering of fare (Rs.73,75,000 – Rs.71,75,000) = Rs.2,00,000. DKG
Airlines should lower its fare as it would increase its contribution by Rs. 2,00,000.
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(b) Computation of Machine Hour Rate

Basis of Total Machines
apportionment (Rs) A (Rs.) B (Rs.) C (Rs.)
(A) Standing Charges
Insurance Depreciation Basis 8,000 3,000 3,000 2,000
(3:3:2)
Indirect employee cost Direct Labour hours 24,000 6,000 9,000 9,000
(2:3:3)
Building maintenance Floor Space 20,000 8,000 8,000 4,000
expenses (2:2:1)
Rent and Rates Floor Space (2:2:1) 1,20,000 48,000 48,000 24,000
Salary of foreman Equal 2,40,000 80,000 80,000 80,000
Salary of attendant Equal 60,000 20,000 20,000 20,000
Total standing charges 4,72,000 1,65,000 1,68,000 1,39,000
Hourly rate for standing charges 84.70 86.24 71.36
(B) Machine Expenses:
Depreciation Direct 20,000 7,500 7,500 5,000
Spare parts Final estimates 13,225 4,600 5,750 2,875
Power K.W. rating (3:2:3) 40,000 15,000 10,000 15,000
Consumable Stores Direct 8,000 3,000 2,500 2,500
Total Machine expenses 81,225 30,100 25,750 25,375
Hourly Rate for Machine expenses 15.45 13.22 13.03
Total (A + B) 553,225 1,95,100 1,93,750 1,64,375
Machine Hour rate 100.15 99.46 84.38

Working Notes:
(i) Calculation of effective working hours:
No. of full off-days = No. of Sunday + No. of holidays
= 52 + 12 = 64 days
No. of half working days = 52 days – 2 holidays = 50 days
No. of full working days = 365 days – 64 days – 50 days = 251 days
Total working Hours = {(251 days × 8 hours) + (50 days × 4 hours)}
= 2,008 hours + 200 = 2,208 hours.
Total effective hours = Total working hours × 90% - 2% for break-down
= 2,208 hours × 90% - 2% (2,208 hours × 90%)
= 1,987.2 hours – 39.74 hours
= 1947.46 or Rounded up to 1948 hours.
(ii) Amount of spare parts is calculated as under:
A (Rs.) B (Rs.) C (Rs.)
Preliminary estimates 4,000 4,000 2,000
Add: Increase in price @ 15% 600 600 300

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4,600 4,600 2,300

Add: Increase in consumption @ 25%  1,150 575
Estimated cost 4,600 5,750 2,875
(iii) Amount of Indirect employee cost is calculated as under:
(Rs.)
Preliminary estimates 20,000
Add: Increase in wages @ 20% 4,000
24,000
(iv) Interest on capital outlay is a finance cost, therefore it has been excluded from the
cost accounts.
4. (a) (i) Statement of Equivalent Production
(FIFO Method)
Input Output Equivalent Production
Particulars Units Particulars Units Material Labour & Overheads
(%) Units (%) Units
Opening WIP 8,000 Transfer to next
Process:
Introduced 1,82,000 Opening WIP 8,000 -- -- 40 3,200
completed
Introduced & 1,50,000 100 1,50,000 100 1,50,000
completed
Normal loss 19,000 -- -- -- --
10% (8,000 +
182,000)
Abnormal gain (5,000) 100 (5,000) 100 (5,000)
Closing WIP 18,000 100 18,000 70 12,600
1,90,000 1,90,000 1,63,000 1,60,800
(ii) Computation of Cost per unit
Particulars Materials Labour Overhead
(Rs.) (Rs.) (Rs.)
Input of Materials 1,47,50,000 -- --
Expenses -- 68,12,000 34,06,000
Total 1,47,50,000 68,12,000 34,06,000
Less: Sale of Scrap (19,000 units × Rs.15) (2,85,000) -- --
Net cost 1,44,65,000 68,12,000 34,06,000
Equivalent Units 1,63,000 1,60,800 1,60,800
Cost Per Unit 88.7423 42.3632 21.1816
Total cost per unit = Rs. (88.7423+42.3632+21.1816) = Rs.152.2871

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(iii) Value of units transferred to next process:

Amount Amount
(Rs.) (Rs.)
Opening W-I-P 15,00,000.00
Add: Labour (3,200 units × Rs. 42.3632) 1,35,562.24
Overhead (3,200 units × Rs. 21.1816) 67,781.12 17,03,343.36
New introduced (1,50,000 units × Rs. 152.2871) 2,28,43,065.00
2,45,46,408.36
2D S
(b) (i) Optimum run size or Economic Batch Quantity (EBQ) =
C
Where, D = Annual demand i.e. 1.15% of 8,00,00,000 = 9,20,000 units
S = Set-up cost per run = Rs. 3,500
C = Inventory holding cost per unit per annum
= Rs.1.5 × 12 months = Rs. 18
2×9,20,000units×Rs.3,500
EBQ = = 18,915 units
Rs. 18
(ii) Calculation of Total Cost of set-up and inventory holding
Batch size No. of set-ups Set-up Cost (Rs.) Inventory holding Total Cost
cost (Rs.) (Rs.)
23 80,500 3,60,000
A 40,000 units  9,20,000  (23 × Rs. 3,500)  40,000×Rs.18  4,40,500
 40,000   
   2 
49 1,71,500 1,70,235
B 18,915 units  9,20,000  (49 × Rs.3,500)  18,915  Rs.18  3,41,735
 18,915   
   2 
Extra Cost (A – B) 98,765
(iii)
Costs Unit level Batch level
(a) Inventory carrying cost Variable cost Variable cost
(b) Designing cost for a job Fixed cost Variable cost, provided the entire job
work is processed in a single batch.
(c) Machine set-up cost to run Fixed cost Variable cost
production
(d) Depreciation of factory Fixed cost Fixed cost
building
5. (a) 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

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 2,400 units   3,600units 

 × 4 days   20days × 5days 
 20 days   

Less: Opening stock (400) (200)

2,480 4,300
(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. 
 20days × 10days   20days × 6days 
   

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

Quantity to be purchased 36,950 45,936
Rate per kg. of Material Rs. 4 Rs. 6
Total Cost Rs. 1,47,800 Rs. 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 unit 3 5
Total Standard Hours allowed 7,440 21,500
Productive hours required for production 7,440hours 21,500hours
= 9,300 = 26,875
80% 80%
Add: Non-Productive down time 1,860 hours. 5,375 hours.
(20% of 9,300 hours) (20% of 26,875 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 rate = 4 weeks × 40 hours × 180 workers = 28,800
hours
Hours to be paid at premium rate = 43,410 hours – 28,800 hours = 14,610 hours
Total wages to be paid = 28,800 hours × Rs. 25 + 14,610 hours × Rs. 37.5
= Rs. 7,20,000 + Rs. 5,47,875
= Rs. 12,67,875

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(b) (i) Statement Showing “Cost per unit - Traditional Method”

Particulars of Costs P Q R
(Rs.) (Rs.) (Rs.)
Direct Materials 90 80 120
Direct Labour [(4, 12, 8 hours)  Rs.20] 80 240 160
Production Overheads [(10, 18, 14 hours)  Rs.6] 60 108 84
Cost per unit 230 428 364
(ii) Statement Showing “Cost per unit - Activity Based Costing”
Products P Q R
Production (units) 3,000 5,000 20,000
(Rs.) (Rs.) (Rs.)
Direct Materials (90, 80, 120) 2,70,000 4,00,000 24,00,000
Direct Labour (80, 240, 160) 2,40,000 12,00,000 32,00,000
Machine Related Costs @ Rs.1.80 per hour
(30,000, 90,000, 2,80,000) 54,000 1,62,000 5,04,000
Setup Costs @ Rs.9,600 per setup (20, 10, 20) 1,92,000 96,000 1,92,000
Inspection Costs @ Rs.4,800 per inspection
(100, 40, 60) 4,80,000 1,92,000 2,88,000
Purchase Related Costs @ Rs.750 per purchase
(60, 100, 160) 45,000 75,000 1,20,000
Total Costs 12,81,000 21,25,000 67,04,000
Cost per unit(Total Cost  Units) 427.00 425.00 335.20
Workings
Number of Batches, Purchase Orders, and Inspections-

Particulars P Q R Total

A. Production (units) 3,000 5,000 20,000

B. Batch Size (units) 150 500 1,000
C. Number of Batches [A  B] 20 10 20 50
D. Number of Purchase Order per batch 3 10 8
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

Total Machine Hours-

Particulars P Q R

A. Machine Hours per unit 10 18 14

B. Production (units) 3,000 5,000 20,000
C. Total Machine Hours [A  B] 30,000 90,000 2,80,000

Total Machine Hours = 4,00,000

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Total Production Overheads-

= 4,00,000 hrs.  Rs. 6 = Rs. 24,00,000
Cost Driver Rates-
Cost Pool % Overheads Cost Driver Cost Driver Rate
(Rs.) (Units) (Rs.)
Setup 20% 4,80,000 50 9,600 per Setup
Inspection 40% 9,60,000 200 4,800 per Inspection
Purchases 10% 2,40,000 320 750 per Purchase
Machine Hours 30% 7,20,000 4,00,000 1.80 per Machine Hour
6. (a) Like other branches of accounting, cost and management accounting is also having certain
limitations. The limitations of cost and management accounting are as follows:
1. Expensive: It is expensive because analysis, allocation and absorption of overheads require
considerable amount of additional work, and hence additional money.
2. Requirement of Reconciliation: The results shown by cost accounts differ from those shown
by financial accounts. Thus Preparation of reconciliation statements is necessary to verify
their accuracy.
3. Duplication of Work: It involves duplication of work as organization has to maintain two sets
of accounts i.e. Financial Account and Cost Account.
4. Inefficiency: Costing system itself does not control costs but its usage does.
(b) Level of activity method: Under this method, the variable overhead may be determined by
comparing two levels of output with the amount of expenses at those levels. Since the fixed element
does not change, the variable element may be ascertained with the help of the following formula.
Change in the amount of expense
Change in the quantity of output
Suppose the following information is available:
Production Units Semi-variable expenses (Rs.)
January 100 260
February 140 300
Difference 40 40
The variable cost :
Change in Semi  variable expenses Rs. 40
= = Re. 1/ unit
Change in production volume 40 units
Thus, in January, the variable cost will be 100 × Re. 1 = Rs. 100 and the fixed cost element will be
(Rs. 260 – Rs. 100) or Rs. 160. In February, the variable cost will be 140 × Re. 1 = Rs. 140 whereas
the fixed cost element will remain the same, i.e., Rs. 160.
(c) Advantages of Cost sheet or Cost Statements
The main advantages of a Cost Sheet are as follows:
(i) It provides the total cost figure as well as cost per unit of production.
(ii) It helps in cost comparison.
(iii) It facilitates the preparation of cost estimates required for submitting tenders.

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(iv) It provides sufficient help in arriving at the figure of selling price.

(v) It facilitates cost control by disclosing operational efficiency.
(d) The difference between the allocation and apportionment is important to understand because the
purpose of these two methods is the identification of the items of cost to cost un its or centers.
However, the main difference between the above methods is given below.
(1) Allocation deals with the whole items of cost, which are identifiable with any one department.
For example, indirect wages of three departments are separately obta ined and hence each
department will be charged by the respective amount of wages individually.
On the other hand, apportionment deals with the proportions of an item of cost for example;
the cost of the benefit of a service department will be divided between those departments
which has availed those benefits.
(2) Allocation is a direct process of charging expenses to different cost centres whereas
apportionment is an indirect process because there is a need for the identification of the
appropriate portion of an expense to be borne by the different departments benefited.
(3) The allocation or apportionment of an expense is not dependent on its nature, but the
relationship between the expense and the cost centre decides that whether it is to be allocated
or apportioned.
(4) Allocation is a much wider term than apportionment.

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Test Series: March 2019

MOCK TEST PAPER – I
INTERMEDIATE: GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.

Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) M Ltd. has an annual fixed cost of Rs. 98,50,000. In the year 20X8-X9, sales amounted to
Rs.7,80,60,000 as compared to Rs.5,93,10,000 in the preceding year 20X7-X8. Profit in the year
20X8-X9 is Rs.37,50,000 more than that in 20X7-X8.
Required:
(i) CALCULATE Break-even sales of the company;
(ii) DETERMINE profit/ loss on a forecasted sales volume of Rs.8,20,00,000.
(iii) If there is a reduction in selling price by 10% in the financial year 20X8-X9 and company
desires to earn the same amount of profit as in 20X7-X8, COMPUTE the required sales
amount?
(b) Arnav Motors Ltd. manufactures pistons used in car engines. As per the study conducted by the
Auto Parts Manufacturers Association, there will be a demand of 80 million pistons in the c oming
year. Arnav Motors Ltd. is expected to have a market share of 1.15% of the total market demand
of the pistons in the coming year. It is estimated that it costs Rs.1.50 as inventory holding cost
per piston per month and that the set-up cost per run of piston manufacture is Rs. 3,500.
(i) DETERMINE the optimum run size for piston manufacturing?
(ii) Assuming that the company has a policy of manufacturing 40,000 pistons per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above?
(c) From the following figures, CALCULATE cost of production and profit for the month of
March 20X9.
Amount (Rs.) Amount (Rs.)
Stock on 1 st March, Purchase of raw materials 28,57,000
20X9
- Raw materials 6,06,000 Sale of finished goods 1,34,00,000
- Finished goods 3,59,000 Direct wages 37,50,000
Stock on 31 March,
st Factory expenses 21,25,000
20X9
- Raw materials 7,50,000 Office and administration 10,34,000
expenses

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- Finished goods 3,09,000 Selling and distribution 7,50,000

expenses
Work-in-process: Sale of scrap 26,000
- On 1 March, 20X9
st 12,56,000
- On 31 March, 20X9
st 14,22,000
(d) A manufacturing company disclosed a net loss of Rs.3,47,000 as per their cost accounts for the
year ended March 31,20X8. The financial accounts however disclosed a net loss of Rs. 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.
(Rs.)
(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. [4 × 5 Marks = 20 Marks]
2. (a) Aditya Agro Ltd. mixes powdered ingredients in two different processes to produce one product.
The output of Process- I becomes the input of Process-II and the output of Process-II is
transferred to the Packing department.
From the information given below, you are required to PREPARE accounts for Process-I,
Process-II and Abnormal loss/ gain A/c to record the transactions for the month of February
20X9.
Process-I
Input:
Material A 6,000 kilograms at Rs. 50 per kilogram
Material B 4,000 kilograms at Rs. 100 per kilogram
Labour 430 hours at Rs. 50 per hour
Normal loss 5% of inputs. Scrap are disposed off at Rs.16 per kilogram
Output 9,200 kilograms.
There is no work- in- process at the beginning or end of the month.
Process-II
Input:
Material C 6,600 kilograms at Rs. 125 per kilogram
Material D 4,200 kilograms at Rs. 75 per kilogram
Flavouring Essence Rs. 3,300
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Labour 370 hours at Rs.50 per hour

Normal loss 5% of inputs with no disposal value
Output 18,000 kilograms.
There is no work-in-process at the beginning of the month but 1,000 kilograms in process at the
end of the month and estimated to be only 50% complete so far as labour and overhead were
concerned.
Overhead of Rs. 92,000 incurred to be absorbed on the basis of labour hours. [10 Marks]
(b) A, B and C are three industrial workers working in Sports industry and are experts in making
cricket pads. A, B and C are working in Mahi Sports, Virat Sports and Sikhar Sports companies
respectively. Workers are paid under different incentive schemes. Company wise incentive
schemes are as follows:
Company Incentive scheme
Mahi Sports Emerson’s efficiency system
Virat Sports Merrick differential piece rate system
Sikhar Sports Taylor’s differential piece work system
The relevant information for the industry is as under:
Standard working hours 8 hours a day
Standard output per hour (in units) 2
Daily wages rate Rs. 360
No. of working days in a week 6 days
Actual outputs for the week are as follows:
A B C
132 units 108 units 96 units
You are required to CALCULATE effective wages rate and weekly earnings of all the three
workers. [10 Marks]
3. (a) The following standards have been set to manufacture a product:
Direct Materials: (Rs.)
2 units of X at Rs.40 per unit 80.00
3 units of Y at Rs. 30 per unit 90.00
15 units of Z at Rs.10 per unit 150.00
320.00
Direct labour 3 hours @ Rs. 55 per hour 165.00
Total standard prime cost 485.00
The company manufactured and sold 6,000 units of the product during the year 20X8.
Direct material costs were as follows:
12,500 units of X at Rs. 44 per unit.
18,000 units of Y at Rs. 28 per unit.
88,500 units of Z at Rs.12 per unit.

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The company worked 17,500 direct labour hours during the year 20X8. For 2,500 of these hours
the company paid at Rs. 58 per hour while for the remaining hours the wages were paid at the
standard rate.
Required:
COMPUTE the following variances:
Material Price, Material Usage, Material Mix, Material Yield, Labour Rate and Labour Efficiency.
[10 Marks]
(b) Linex Limited manufactures three products P, Q and R which are similar in nature and are usually
produced in production runs of 100 units. Product P and R require both machine hours and
assembly hours, whereas product Q requires only machine hours. The overheads incurred by the
company during the first quarter are as under:
`
Machine Department expenses…………………........................ 18,48,000
Assembly Department expenses…………………………………. 6,72,000
Setup costs…………………………………………………………. 90,000
Stores receiving cost………………………………………………. 1,20,000
Order processing and dispatch…………………………………… 1,80,000
Inspect and Quality control cost………………………………… 36,000
The date related to the three products during the period are as under:
P Q R
Units produced and sold 15,000 12,000 18,000
Machine hours worked 30,000 hrs. 48,000 hrs. 54,000 hrs.
Assembly hours worked (direct labour hours) 15,000 hrs. - 27,000 hrs.
Customers’ orders executed (in numbers) 1,250 1,000 1,500
Number of requisitions raised on the stores 40 30 50
Required
PREPARE a statement showing details of overhead costs allocated to each product type using activity
based costing. [10 Marks]
4. (a) 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) Rs. 6,48,000
Normal working hours for the month 200 hours
(The machine works for only 75% of normal capacity)
Wages to Machine-man Rs. 400 per day (of 8 hours)
Wages to Helper (machine attendant) Rs. 275 per day (of 8 hours)
Power cost for the month for the time worked Rs. 65,000
Supervision charges apportioned for the machine centre for the
month Rs. 18,000
Electricity & Lighting for the month Rs. 9,500

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Repairs & maintenance (machine) including Consumable Rs. 17,500

stores per month
Insurance of Plant & Building (apportioned) for the year Rs. 18,250
Other general expense per annum Rs. 17,500
The workers are paid a fixed Dearness allowance of Rs. 4,575 per month. Production bonus
payable to workers in terms of an award is equal to 33.33% 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. [10 Marks]
(b) M/s. Bansals Construction Company Ltd. took a contract for Rs. 60,00,000 expected to be
completed in three years. The following particulars relating to the contract are available:
20X7 (Rs.) 20X8 (Rs.) 20X9 (Rs.)
Materials 6,75,000 10,50,000 9,00,000
Wages 6,20,000 9,00,000 7,50,000
Transportation cost 30,000 90,000 75,000
Other expenses 30,000 75,000 24,000
Cumulative work certified 13,50,000 45,00,000 60,00,000
Cumulative work uncertified 15,000 75,000 —
Plant costing Rs. 3,00,000 was bought at the commencement of the contract. Depreciation was
to be charged at 25% per annum, on the written down value method. The contractee pays 75% of
the value of work certified as and when certified, and makes the final payment on completion of
the contract.
You are required to PREPARE a contract account for three years. [10 Marks]
5. (a) A transport company has a fleet of three trucks of 10 tonnes capacity each plying in different
directions for transport of customer's goods. The trucks run loaded with goods and return empty.
The distance travelled, number of trips made and the load carried per day by each truck are as
under:
Truck No. One way No. of trips Load carried
Distance Km per day per trip / day tonnes
1 16 4 6
2 40 2 9
3 30 3 12
The analysis of maintenance cost and the total distance travelled during the last two years is as
under
Year Total distance travelled Maintenance Cost (Rs.)
1 1,60,200 46,050
2 1,56,700 45,175
The following are the details of expenses for the year under review:
Diesel Rs. 65 per litre. Each litre gives 4 km per litre of diesel
on an average.
Driver's salary Rs. 24,000 per month
Licence and taxes Rs. 25,000 per annum per truck

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Insurance Rs. 45,000 per annum for all the three vehicles
Purchase Price per Rs. 30,00,000, Life 10 years. Scrap value at the end
truck of life is Rs. 1,00,000.
Oil and sundries Rs. 250 per 100 km run.
General Overhead Rs. 1,15,600 per annum
The vehicles operate 24 days per month on an average.
On the basis of commercial tone-km, you are required to:
(i) PREPARE an Annual Cost Statement covering the fleet of three vehicles.
(ii) CALCULATE the cost per km. run.
(iii) DETERMINE the freight rate per tonne km. to yield a profit of 10% on freight. [10 Marks]
(b) S Ltd. has prepared budget for the coming year for its two products A and B.
Product A (Rs.) Product B (Rs.)
Production & Sales unit 6,000 units 9,000 units
Raw material cost per unit 60.00 42.00
Direct labour cost per unit 30.00 18.00
Variable overhead per unit 12.00 6.00
Fixed overhead per unit 8.00 4.00
Selling price per unit 120.00 78.00
After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500
units and 500 units respectively but for this purpose the variable overhead and fixed overhead
will be increased by 10% and 5% respectively for the both products.
You are required to PREPARE flexible budget for both the products:
(a) Before marketing efforts
(b) After marketing efforts. [10 Marks]
6. (a) EXPLAIN the difference between controllable & uncontrollable costs?
(b) DEFINE cost plus contract? STATE its advantages.
(c) “Is reconciliation of cost accounts and financial accounts necessary in case of integrated
accounting system?” EXPLAIN.
(d) DISCUSS the impact of Information Technology in Cost Accounting. [4 × 5 =20 Marks]

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Test Series: March, 2019

MOCK TEST PAPER – 1
INTERMEDIATE (IPC): GROUP – I
PAPER – 3: COST MANAGEMENT ACCOUNTING
Suggested Answers/ Hints

FixedCost
1. (a) (i) Break-even sales =
P / VRatio
ChangeinPr ofit Rs. 37,50,000
P/V Ratio = 100 or, 100
ChangeinSales Rs. 7,80,60,000  Rs. 5,93,10,000
Rs.37,50,000
Or,  100 or, 20%
Rs.1,87,50,000
Rs.98,50,000
Break-even sales = = Rs.4,92,50,000
20%
(ii) Profit/ loss = Contribution – Fixed Cost
= Rs.8,20,00,000 × 20% - Rs.98,50,000
= Rs.1,64,00,000 – Rs.98,50,000 = Rs.65,50,000
(iii) To earn same amount of profit in 20X8-X9 as was in 20X7-X8, it has to earn the same
amount of contribution as in 20X7-X8.
Sales – Variable cost = Contribution equal to 20X7-X8 contribution
Contribution in 20X7-X8 = Sales in 20X7-X8 × P/V Ratio in 20X7-X8
= Rs.5,93,10,000 × 20% = Rs.1,18,62,000
Let the number of units to be sold in 20X8-X9 = X
Sales in 20X8-X9 – Variable cost in 20X8-X9 = Desired Contribution
90 X – 80 X = Rs.1,18,62,000
Or, 10 X = 1,18,62,000
Or, X = 11,86,200 units
Therefore, Sales amount required to earn a profit equals to 20X7-X8 profit
= Rs. 90 × 11,86,200 units = Rs. 10,67,58,000
2D S
(b) (i) Optimum run size or Economic Batch Quantity (EBQ) =
C
Where, D = Annual demand i.e. 1.15% of 8,00,00,000 = 9,20,000 units
S = Set-up cost per run = Rs. 3,500
C = Inventory holding cost per unit per annum
= Rs. 1.5 × 12 months = Rs. 18
2  9,20,000units Rs.3,500
EBQ = = 18,915 units
Rs.18

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(ii) Calculation of Total Cost of set-up and inventory holding

Batch size No. of set- Set-up Inventory holding Total Cost
ups Cost (Rs.) cost (Rs.) (Rs.)
23 80,500 3,60,000
40,000 units  9,20,000  (23 × Rs.  40,000  Rs.18  4,40,500
 40,000  3,500)  
   2 
B 49 1,71,500 1,70,235 3,41,735
 9,20,000  (49 × Rs.  18,915  Rs.18 
18,915 units  18,915  3,500)  
   2 

Extra Cost (A – B) 98,765

(c) Calculation of Cost of Production and Profit for the month ended March, 20X9:
Particulars Amount (Rs.) Amount (Rs.)
Materials consumed:
- Opening stock 6,06,000
- Add: Purchases 28,57,000
34,63,000
- Less: Closing stock (7,50,000) 27,13,000
Direct wages 37,50,000
Prime cost 64,63,000
Factory expenses 21,25,000
85,88,000
Add: Opening W-I-P 12,56,000
Less: Closing W-I-P (14,22,000)
Factory cost 84,22,000
Less: Sale of scrap (26,000)
Cost of Production 83,96,000
Add: Opening stock of finished goods 3,59,000
Less: Closing stock of finished goods (3,09,000)
Cost of Goods Sold 84,46,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Cost of Sales 1,02,30,000
Profit (balancing figure) 31,70,000
Sales 1,34,00,000
(d) Memorandum Reconciliation Accounts
Dr. Cr.
(Rs.) (Rs.)
To Net Loss as per Costing 3,47,000 By Administration overheads over 60,000
books recovered in cost accounts

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To Factory overheads under 40,000 By Interest on investment not included in 96,000

absorbed in Cost Accounts Cost Accounts
To Depreciation under charged in 50,000 By Transfer fees in Financial books 24,000
Cost Accounts
To Income-Tax not provided in 54,000 By Stores adjustment 14,000
Cost Accounts (Credit in financial books)
To Interest on Loan Funds in 2,45,000 By Dividend received in financial 32,000
Financial Accounts books
By Net loss as per Financial books 5,10,00
0
7,36,000 7,36,00
0

2. (a) Process-I A/c

Particulars Qty. Amount ) Particulars Qty. Amount
(kgs) (kgs) (Rs.)

To Material A 6,000 3,00,000 By Normal loss 500 8,000

To Material B 4,000 4,00,000 By Process-II A/c 9,200 7,38,857
To Labour -- 21,500 By Abnormal loss A/c 300 24,093
To Overhead -- 49,450
 Rs.92,000  430hrs 
 
 800hrs 

10,000 7,70,950 10,000 7,70,950

{(`3,00,000  `4,00,000  `21,500  `49,450)  `8,000} `7,70,950  `8,000
* = = Rs.80.3105
(10,000  500)units 9,500units

Process-II A/c
Particulars Qty. Amount Particulars Qty. (kgs) Amount
(kgs) (Rs.) (Rs.)
To Process-I A/c 9,200 7,38,857 By Normal loss 1,000 --
To Material C 6,600 8,25,000 By Packing 18,000 18,42,496
Dept. A/c
(See the working
notes)
To Material D 4,200 3,15,000 By WIP A/c 1,000 1,00,711
(See the working
notes)
To Flavouring essence -- 3,300
To Labour -- 18,500
To Overheads -- 42,550
 Rs.92,000  370hrs 
 
 800hrs 
20,000 19,43,207 20,000 19,43,207
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Abnormal loss A/c

Particulars Qty. Amount Particulars Qty. Amount
(kgs) (Rs.) (kgs) (Rs.)

To Process-I A/c 300 24,093 By Bank 300 4,800

By Costing -- 19,293
Profit & Loss A/c
300 24,093 300 24,093
Working Notes:
Calculation of Equivalent Production units
Input Units Output Units Process-I Mat-C & D Labour & OH
(%) Units (%) Units (%) Units

9,200 Transferred to 18,000 100 18,000 100 18,000 100 18,000

Packing.

Mat-C 6,600 Closing WIP 1,000 100 1,000 100 1,000 50 500
Mat-D 4,200 Normal loss 1,000 -- -- -- -- -- --
20,000 20,000 19,000 19,000 18,500

Calculation of Unit cost

Cost component Amount (Rs.) Equivalent units Cost per unit
(Rs.)
Transferred-in 7,38,857 19,000 38.8872
Material-C 8,25,000 19,000 43.4211
Material-D 3,15,000 19,000 16.5789
Flavouring essence 3,300 19,000 0.1737
Total Material Cost 18,82,157 19,000 99.0609
Labour 18,500 18,500 1.0000
Overheads 42,550 18,500 2.3000
Total Cost 19,43,207 102.3609

Value of Materials transferred to Packing Department

= 18,000 unit × Rs.102.3609 = 18,42,496
Value of WIP : For Materials- 1,000 units × Rs.99.0609 = Rs.99,061
For Labour & Overheads 500 units × Rs.3.30 = Rs.1,650
Rs.1,00,711
(b) Calculation of effective wages rate and weekly earnings of the workers A, B and C
Workers A B C
Standard Output 96 units 96 units 96 units
(8 hrs. × 2 units × 6 days) (8 hrs. × 2 units × 6 days) (8 hrs. × 2 units × 6 days)
Actual Output 132 units 108 units 96 units

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Efficiency (%) 132units 108units 96units

×100= 137.5 ×100= 112.5 ×100= 100
96units 96units 96units
Daily wages
Rs. 360 Rs. 360 Rs. 360
Rate
Incentive system Emerson’s Efficiency Merrick differential Taylor’s differential piece
System piece rate system work system
Rate of Bonus 57.5% of time rate 20% of ordinary piece
25% of ordinary piece rate
(20% + 37.5% ) rate
Effective Wage Rs. 70.875 per hour Rs. 27 per piece Rs. 28.125 per piece
Rate  Rs. 360   Rs.360   Rs.360 
 8hours ×157.5%   16units ×120%   16units ×125% 
     

Total weekly Rs. 3,402 Rs. 2,916 Rs. 2,700

earnings (8 hours × 6 days × Rs. (108 units × Rs. 27) (96 units × Rs. 28.125)
70.875)

3. (a) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
X = 12,500 units (Rs.40 – Rs.44) = 50,000 (A)
Y = 18,000 units (Rs.30 – Rs.28) = 36,000 (F)
Z = 88,500 units (Rs.10 – Rs.12) = 1,77,000 (A) 1,91,000 (A)
Material Usage Variance = Std. Price (Std. Qty – Actual Qty.)
X = Rs.40 (6,000 × 2 – 12,500) = 20,000 (A)
Y = Rs.30 (6,000 × 3 – 18,000) = Nil
Z = Rs.10 (6,000 × 15 – 88,500) = 15,000 (F) 5,000 (A)
Material Mix Variance = Std. Price (Revised Std. Qty. – Actual Qty.)
1,19,000  2
X = Rs.40 ( – 12,500) = 24,000 (A)
20
1,19,000  3
Y = Rs.30 ( – 18,000) = 4,500 (A)
20
1,19,000 15
Z = Rs.10 ( – 88,500) = 7,500 (F) 21,000 (A)
20
Material Yield Variance = Std. Price (Std. Qty. – Revised Std. Qty.)
1,19,000  2
X = Rs.40 (6,000 × 2 - ) = 4,000 (F)
20
1,19,000  3
Y = Rs.30 (6,000 × 3 - ) = 4,500 (F)
20
1,19,000 15
Z = Rs.10 (6,000 × 15 - ) = 7,500 (F) 16,000 (F)
20
Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 2,500 hours (Rs.55 – Rs.58) = 7,500 (A)
Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
= Rs.55 (6,000 × 3 – 17,500) = 27,500 (F)
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(b) Calculation of “Activity Rate”

Cost Pool Cost (Rs.) Cost Driver Cost Driver Rate
(Rs.)
[A] [B] [C] = [A]÷[B]
Machine Department 18,48,000 Machine Hours 14.00
Expenses (1,32,000 hrs.)
Assembly Department 6,72,000 Assembly Hours 16.00
Expenses (42,000 hrs.)
Setup Cost 90,000 No. of Production Runs (450*) 200.00
Stores Receiving Cost 1,20,000 No. of Requisitions Raised on 1,000.00
the Stores (120)

Order Processing and 1,80,000 No. of Customers Orders 48.00

Dispatch Executed (3,750)
Inspection and Quality 36,000 No. of Production Runs (450*) 80.00
Control Cost
Total (Rs.) 29,46,000
*Number of Production Run is 450 (150 + 120 + 180)
Statement Showing “Overheads Allocation”
Particulars of Cost P Q R Total
Cost Driver
Machine Machine Hours 4,20,000 6,72,000 7,56,000 18,48,000
Department (30,000 × Rs.14) (48,000 × Rs.14) (54,000 × Rs.14)
Expenses
Assembly Assembly Hours 2,40,000 --- 4,32,000 6,72,000
Department (15,000 × Rs.16) (27,000 × Rs.16)
Expenses
Setup Cost No. of 30,000 24,000 36,000 90,000
Production Runs (150 × Rs.200) (120 × Rs.200) (180 × Rs.200)
Stores No. of 40,000 30,000 50,000 1,20,000
Receiving Requisitions (40 × Rs.1,000) (30 × Rs.1,000) (50 × Rs.1,000)
Cost Raised on the
Stores
Order No. of 60,000 48,000 72,000 1,80,000
Processing Customers (1,250 × Rs.48) (1,000 × Rs.48) (1,500 × Rs.48)
and Dispatch Orders Executed
Inspection No. of 12,000 9,600 14,400 36,000
and Quality Production Runs (150 × Rs.80) (120 × Rs.80) (180 × Rs.80)
Control Cost
Overhead 8,02,000 7,83,600 13,60,400 29,46,000
(Rs.)

4. (a) Effective machine hours = 200 hours × 75% = 150 hours

Computation of Comprehensive Machine Hour Rate
Per month Per hour
(Rs.) (Rs.)
Fixed cost
Supervision charges 18,000.00
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Electricity and lighting 9,500.00

Insurance of Plant and building (Rs.18,250 ÷12) 1,520.83
Other General Expenses (Rs.17,500÷12) 1,458.33
Depreciation (Rs.64,800÷12) 5,400.00
35,879.16 239.19
Direct Cost
Repairs and maintenance 17,500.00 116.67
Power 65,000.00 433.33
Wages of machine man 139.27
Wages of Helper 109.41
Machine Hour rate (Comprehensive) 1,037.87

Wages per machine hour

Machine man Helper
Wages for 200 hours
Machine-man (Rs.400 × 25) Rs.10,000.00 ---
Helper (Rs.275 × 25) --- Rs.6,875.00
Dearness Allowance (DA) Rs.4,575.00 Rs.4,575.00
Rs.14,575.00 Rs.11,450.00
Production bonus (1/3 of Basic and DA) 4,858.33 3,816.67
Leave wages (10% of Basic and DA) 1,457.50 1,145.00
20,890.83 16,411.67
Effective wage rate per machine hour Rs.139.27 Rs.109.41
(b) Contract Account (For the year ended 20X7)
Particulars (Rs.) Particulars (Rs.)
To Materials 6,75,000 By Plant at site c/d 2,25,000
(75% of Rs.3,00,000)
” Wages 6,20,000 ” Work-in-progress c/d:
” Transportation cost 30,000 - Work certified 13,50,000
” Other expenses 30,000 - Work uncertified 15,000 13,65,000
” Plant 3,00,000 ” Costing P&L A/c 65,000
(Loss for the year)
16,55,000 16,55,000
Contract Account (For the year ended 20X8)
Particulars (Rs.) Particulars (Rs.)
To Plant at site b/d 2,25,000 By Plant at site c/d 1,68,750
(75% of Rs.2,25,000)
” Work-in-progress b/d: ” Work-in-progress c/d:
- Work certified 13,50,000 - Work certified 45,00,000
-Work uncertified 15,000 13,65,000 - Work uncertified 75,000 45,75,000

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” Materials 10,50,000
” Wages 9,00,000
” Transportation cost 90,000
” Other expenses 75,000
” Costing P&L A/c 10,38,750
(Notional Profit for the year)
47,43,750 47,43,750
Contract Account (For the year ended 20X9)
Particulars (Rs.) Particulars (Rs.)
To Plant at site b/d 1,68,750 By Plant at site c/d 1,26,563
(75% of Rs.1,68,750)
” Work-in-progress b/d: ” Contractee A/c 60,00,000
- Work certified 45,00,000 ” Costing P&L A/c 3,66,187
(Notional Loss for the year)
-Work uncertified 75,000 45,75,000
” Materials 9,00,000
” Wages 7,50,000
” Transportation cost 75,000
” Other expenses 24,000
64,92,750 64,92,750
5. (a) (i) Annual Cost Statement of three vehicles
(Rs.)
Diesel {(1,34,784 km. ÷ 4 km) × Rs. 65) (Refer to Working Note 21,90,240
1)

Oil & sundries {(1,34,784 km. ÷ 100 km.) × Rs. 250} 3,36,960
Maintenance {(1,34,784 km. × Rs. 0.25) + Rs. 6,000} 39,696
(Refer to Working Note 2)

Drivers' salary {(Rs.24,000 × 12 months) × 3 trucks} 8,64,000

Licence and taxes (Rs. 25,000 × 3 trucks) 75,000
Insurance 45,000
Depreciation {(Rs. 29,00,000 ÷ 10 years) × 3 trucks} 8,70,000
General overhead 1,15,600
Total annual cost 45,36,496
(ii) Cost per km. run
Totalannual cos t of vehicles
Cost per kilometer run = (Refer to Working Note 1)
Totalkilometre travelled annually

Rs.45,36,496
= =Rs. 33.66
1,34,784 Kms

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(iii) Freight rate per tonne km (to yield a profit of 10% on freight)
Total annual cos t of three vehicles
Cost per tonne km.= (Refer to Working Note 1)
Total effective tonnes kms. per annum

RsRs. 45,36,496
=  Rs.7.48
6,06,528 kms

 Rs. 7.48 
Freight rate per tonne km.    1 = Rs. 8.31
 0.9 
Working Notes:
1. Total kilometer travelled and Commercial tonnes kilometer (load carried) by three
trucks in one year
Truck One way No. of Total Total Load Total
distance in kms trips distance distance carried effective
covered in covered in per trip / tonnes km
km per day km per day day in
(with load) (up & down) tonnes
a b c =a×b d=c×2 e f = 27/3 ×
c
1 16 4 64 128 6 576
2 40 2 80 160 9 720
3 30 3 90 180 12 810
Total 234 468 27 2,106
Total kilometre travelled by three trucks in one year
(468 km. × 24 days × 12 months) = 1,34,784
Total effective tonnes kilometre of load carried by three trucks during one year
(2,106 tonnes km. × 24 days × 12 months) = 6,06,528 tonne-km
2. Fixed and variable component of maintenance cost:
Difference in maintenanc e cost
Variable maintenance cost per km. =
Difference in distance travelled
Rs. 46,050 –Rs. 45,175
= = Rs. 0.25
1,60,200 kms – 1,56,700 kms
Fixed maintenance cost =Total maintenance cost–Variable maintenance cost
= Rs. 46,050 – 1,60,200 kms × Rs. 0.25= Rs. 6,000
(b) (a) Flexible Budget before marketing efforts:
Product A (Rs.) Product B (Rs.)
6,000 units 9,000 units
Per unit Total Per unit Total
Sales 120.00 7,20,000 78.00 7,02,000
Raw material cost 60.00 3,60,000 42.00 3,78,000
Direct labour cost per unit 30.00 1,80,000 18.00 1,62,000

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Variable overhead per unit 12.00 72,000 6.00 54,000

Fixed overhead per unit 8.00 48,000 4.00 36,000
Total cost 110.00 6,60,000 70.00 6,30,000
Profit 10.00 60,000 8.00 72,000
(b) Flexible Budget after marketing efforts:
Product A (Rs.) Product B (Rs.)
7,500 units 9,500 units
Per unit Total Per unit Total
Sales 120.00 9,00,000 78.00 7,41,000
Raw material cost 60.00 4,50,000 42.00 3,99,000
Direct labour cost per unit 30.00 2,25,000 18.00 1,71,000
Variable overhead per unit 13.20 99,000 6.60 62,700
Fixed overhead per unit 6.72 50,400 3.98 37,800
Total cost 109.92 8,24,400 70.58 6,70,500
Profit 10.08 75,600 7.42 70,500
6. (a) 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.
(b) Cost plus contract: Under cost plus contract, the contract price is ascertained by adding a
percentage of profit to the total cost of the work. Such types of contracts are entered into when it
is not possible to estimate the contract cost with reasonable accuracy due to unstable condition
of material, labour services etc.
Following are the advantages of cost plus contract:
(i) The contractor is assured of a fixed percentage of profit. There is no risk of incurring any
loss on the contract.
(ii) It is useful specially when the work to be done is not definitely fixed at the time of making
the estimate.
(iii) Contractee can ensure himself about the ‘cost of contract’ as he is empowered to examine
the books and documents of the contractor to ascertain the veracity of the cost of contract.
(c) 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 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.

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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.
(d) 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
ascertainment process. The cost information can be customised as per the requirement. For
example, when an entity manufacture 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.

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Test Series: April 2019

MOCK TEST PAPER –II
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. Answer the following:
(a) Yamuna Ltd. manufactures a product, currently utilising 80% capacity with a turnover of
Rs.8,00,000 at Rs.25 per unit. The cost data are as under:
Material cost Rs.7.50 per unit, Labour cost Rs.6.25 per unit
Semi-variable cost (Including variable cost of Rs.3.75) per unit Rs.1,80,000.
Fixed cost Rs. 90,000 upto 80% level of output, beyond this an additional
Rs. 20,000 will be incurred.
CALCULATE:
(i) Activity level at Break-Even-Point
(ii) Number of units to be sold to earn a net income of 8% of sales
(iii) Activity level needed to earn a profit of Rs. 95,000.
(b) Madhu Ltd. has calculated a predetermined overhead rate of Rs.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
Rs.3,38,875 14,500
Rs.3,47,625 15,500
Rs.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 Rs.3,22,000.
(v) ANALYSE the arguments for and against using departmental absorption rates as
opposed to a single or blanket factory wide rate.
(c) Anirban Ltd. wants to ascertain the profit lost during the year 20X8-X9 due to increased labour
turnover. For this purpose, they have given you the following information:

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(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 Rs. 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is Rs.180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was Rs.1,83,480.
(6) Recruitment cost was Rs.1,56,340
(7) Training cost was Rs.1,13,180.
You are required to CALCULATE the profit lost by the company due to increased labour
turnover during the year 20X8-X9.
(d) Nirmal Motors Ltd. manufactures pistons used in car engines. As per the study conducted by
the Auto Parts Manufacturers Association, there will be a demand of 80 million pistons in the
coming year. Arnav Motors Ltd. is expected to have a market share of 1.15% of the total
market demand of the pistons in the coming year. It is estimated that it costs Rs.150 as
inventory holding cost per piston per month and that the set-up cost per run of piston
manufacture is Rs. 3,50,000.
(i) DETERMINE the optimum run size for piston manufacturing?
(ii) Assuming that the company has a policy of manufacturing 40,000 pistons per run,
CALCULATE how much extra costs the company would be incurring as compared to
the optimum run suggested in (i) above? (4 × 5 = 20 Marks)
2. (a) BBC Ltd. manufactures Ordinary Portland Cement (OPC). The standard data for the raw
materials that are used to manufacture OPC are as follows:
Raw Material Composition (%) Rate per Metric Ton (Rs.)
Limestone 65 565
Silica 20 4,800
Alumina 5 32,100
Iron ore 5 1,800
Others 5 2,400
During the month of February 20X8, A Ltd. produced 500 MT OPC. Actual data related with
the consumption and costs are as follows:
Raw Material Quantity (MT) Total Cost (Rs.)
Limestone 340 1,90,400
Silica 105 5,09,250
Alumina 25 8,12,500
Iron ore 30 53,400
Others 23 51,750
You are required to COMPUTE the following variances related with the production of OPC for
the month of February 20X8:
(i) Material Price Variance
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(ii) Material Mix Variance

(iii) Material Yield Variance
(iv) Material Cost Variance. (10 Marks)
(b) Cimech Constructions Limited has entered into a big contract at an agreed price of
Rs. 1,50,00,000 subject to an escalation clause for material and labour as spent out on the
contract and corresponding actual are as follows:

Standard Actual
Material: Quantity Rate per Ton Quantity Rate per Ton
(Tons) (Rs.) (Tons) (Rs.)
A 3,000 1,000 3,400 1,100
B 2,400 800 2,300 700
C 500 4,000 600 3,900
D 100 30,000 90 31,500
Hours Hourly Rate Hours Hourly Rate
Labour:
(Rs.) (Rs.)
L1 60,000 15 56,000 18
L2 40,000 30 38,000 35
You are required to:
(i) ANALYSE admissible escalation claim and DETERMINE the final contract price payable.
(ii) PREPARE the contract account, if the all expenses other than material and labour related
to the contract are Rs. 13,45,000. (10 Marks)
3. (a) The following data are available in respect of Process-I for January 20X9:
(1) Opening stock of work in process: 600 units at a total cost of Rs. 4,20,000.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of Rs.55,20,000 for 9,200 units.
(4) Direct wages incurred Rs.18,60,000
(5) Production overhead Rs.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%

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(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 Rs.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. (10 Marks)
(b) ‘Humara - Apna’ bank offers three products, viz., deposits, Loans and Credit Cards. The bank
has selected 4 activities for a detailed budgeting exercise, following activity based costing
methods.
The bank wants to know the product wise total cost per unit for the selected activities, so that
prices may be fixed accordingly.
The following information is made available to formulate the budget:
Activity Present Cost Estimation for the budget period
(Rs.)
ATM Services:
(a) Machine Maintenance 4,00,000 All fixed, no change.
(b) Rents 2,00,000 Fully fixed, no change.
(c) Currency 1,00,000 Expected to double during budget period.
Replenishment Cost
7,00,000 (This activity is driven by no. of ATM
transactions)
Computer Processing 5,00,000 Half this amount is fixed and no change
is expected.
The variable portion is expected to
increase to three times the current level.
(This activity is driven by the number of
computer transactions)
Issuing Statements 18,00,000 Presently, 3 lakh statements are made. In
the budget period, 5 lakh statements are
expected.
For every increase of one lakh statement,
one lakh rupees is the budgeted
increase.
(This activity is driven by the number of
statements)
Computer Inquiries 2,00,000 Estimated to increase by 80% during the
budget period.
(This activity is driven by telephone
minutes)

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The activity drivers and their budgeted quantifies are given below:
Activity Drivers Deposits Loans Credit
Cards

No. of ATM Transactions 1,50,000 --- 50,000

No. of Computer Processing 15,00,000 2,00,000 3,00,000
Transactions
No. of Statements to be issued 3,50,000 50,000 1,00,000
Telephone Minutes 3,60,000 1,80,000 1,80,000
The bank budgets a volume of 58,600 deposit accounts, 13,000 loan accounts, and 14,000
Credit Card Accounts.
Required
(i) CALCULATE the budgeted rate for each activity.
(ii) PREPARE the budgeted cost statement activity wise.
(iii) COMPUTE the budgeted product cost per acc ount for each product using (i) and (ii)
above. (10 Marks)
4. (a) Nakata Ltd a Vehicle manufacturer has prepared sales budget for the next few months, and
the following draft figures are available:
Month No. of vehicles
October 40,000
November 35,000
December 45,000
January 60,000
February 65,000
To manufacture a vehicle a standard cost of Rs.5,71,400 is incurred and sold through dealers
at a uniform selling price of Rs.8,57,100 to customers. Dealers are paid 15% commission on
selling price on sale of a vehicle.
Apart from other materials four units of Part - X are required to manufacture a vehicle. It is a
policy of the company to hold stocks of Part-X at the end of each month to cover 40% of next
month’s production. 48,000 units of Part-X are in stock as on 1st October.
There are 9,500 nos. of completed vehicles are in stock as on 1 st October and it is policy to have
stocks at the end of each month to cover 20% of the next month’s sales.
You are required to
(i) PREPARE Production budget (in nos.) for the month of October, November, December
and January.
(ii) PREPARE a Purchase budget for Part-X (in units) for the months of October, November
and December.
(iii) CALCULATE the budgeted gross profit for the quarter October to December.(10 Marks)
(b) R Limited showed a net loss of Rs.35,400 as per their cost accounts for the year ended 31st
March, 20X8. However, the financial accounts disclosed a net profit of Rs.67,800 for the same
period. The following information were revealed as a result of scrutiny of the figures of cost
accounts and financial accounts:
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(Rs.) (Rs.)
(i) Administrative overhead under recovered 25,500
(ii) Factory overhead over recovered 1,35,000
(iii) Depreciation under charged in Cost Accounts 26,000
(iv) Dividend received 20,000
(v) Loss due to obsolescence charged in Financial Accounts 16,800
(vi) Income tax provided 43,600
(vii) Bank interest credited in Financial Accounts 13,600
(viii) Value of opening stock:
- In Cost Accounts 1,65,000
- In Financial Accounts 1,45,000
(ix) Value of closing stock:
- In Cost Accounts 1,25,500
- In Financial Accounts 1,32,000
(x) Goodwill written-off in Financial Accounts 25,000
(xi) Notional rent of own premises charged in Cost Accounts 60,000
(xii) Provision for doubtful debts in Financial Accounts 15,000

PREPARE a reconciliation statement by taking costing net loss as base. (10 Marks)
5. (a) XYZ LLP, contractors and civil engineers, are building a new wing to a school. The quoted
fixed price for the contract is Rs.30,00,000. Work commenced on 1 st January 20X8 and is
expected to be completed on schedule by 30 June 20X9.
Data relating to the contract at the year ended 31 st March 20X9 is as follows.
Amount (Rs.)
Plant sent to site at commencement of contract 2,40,000
Hire of plant and equipment 77,000
Materials sent to site 6,62,000
Materials returned from site 47,000
Direct wages paid 9,60,000
Wage related costs 1,32,000
Direct expenses incurred 34,000
Supervisory staff salaries - Direct 90,000
- Indirect 20,000
Regional office expenses apportioned to contract 50,000
Head office expenses apportioned to contract 30,000
Surveyor’s fees 27,000
Progress payments received from school 18,00,000
Additional information:
1. Plant is to be depreciated at the rate of 25 % per annum following straight line method,
with no residual value.
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2. Unused materials on site at 31st March are estimated at Rs. 50,000.

3. Wages owed to direct workers total Rs. 40,000
4. No profit in respect of this contract was included in the year ended 31 st March 2016.
5. Budgeted profit on the contract is Rs. 8,00,000
6. Value of work certified by the surveyor is Rs. 24,00,000.
7. The surveyor has not certified the work costing Rs. 1,80,000
You are required to PREPARE the account for the school contract for the fifteen months ended
31st March 20X9, and CALCULAT E the notional profit to date. (10 Marks)
(b) A Ltd. produces a product ‘Exe’ using a raw material Dee. To produce one unit of Exe, 2 kg of
Dee is required. As per the sales forecast conducted by the company, it will able to sale 20,000
units of Exe in the coming year. The following is the information regarding the raw material
Dee:
(i) The Re-order quantity is 200 kg. less than the Economic Order Quantity (EOQ).
(ii) Maximum consumption per day is 20 kg. more than the average consumption per day.
(iii) There is an opening stock of 2,000 kg.
(iv) Time required to get the raw materials from the suppliers is 4 to 8 days.
(v) The purchase price is Rs.125 per kg.
There is an opening stock of 1,800 units of the finished product Exe.
The rate of interest charged by bank on Cash Credit facility is 13.76%.
To place an order company has to incur Rs. 720 on paper and documentation work.
From the above information COMPUTE the followings in relation to raw material Dee:
(a) Re-order Quantity
(b) Maximum Stock level
(c) Minimum Stock level
(d) Impact on the profitability of the company by not ordering the EOQ.
[Take 364 days for a year] (10 Marks)
6. (a) DISCUSS the accounting treatment of Idle time and overtime wages.
(b) EXPLAIN the difference between Cost Control and Cost Reduction
(c) STATE Direct Expenses with examples.
(d) EXPLAIN the difference between product cost and period cost. (4 × 5 =20 Marks)

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Test Series: April, 2019

MOCK TEST PAPER – 2
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) Working notes:
1. (i) Number of units sold at 80% capacity
Turnover Rs. 8,00,000
= = = 32,000 units.
Selling price p.u. Rs. 25
(ii) Number of units sold at 100% capacity
Rs. 32,000 units
× 100 = 40,000 units
80
2. Component of fixed cost included in semi-variable cost of 32,000 units.
Fixed cost = {Total semi-variable cost – Total variable cost }
= Rs.1,80,000 – 32,000 units × Rs.3.75
= Rs.1,80,000 – Rs.1,20,000
= Rs.60,000
3. (i) Total fixed cost at 80% capacity
= Fixed cost + Component of fixed cost included in semi—variable cost
(Refer to working note 2)
= Rs.90,000 + Rs.60,000 = Rs.1,50,000
(ii) Total fixed cost beyond 80% capacity
= Total fixed cost at 80% capacity + Additional fixed cost to be incurred
= Rs.1,50,000 + Rs.20,000 = Rs.1,70,000
4. Variable cost and contribution per unit
Variable cost per unit = Material cost + Labour cost + Variable cost component in
semi variable cost = Rs.7.50 + Rs.6.25 + Rs.3.75 = Rs.17.50
Contribution per unit = Selling price per unit – Variable cost per unit
= Rs.25 – Rs.17.50 = Rs.7.50
5. Profit at 80% capacity level
= Sales revenue – Variable cost – Fixed cost
= Rs.8,00,000 – Rs.5,60,000 (32,000 units × Rs.17.50) – Rs.1,50,000
= Rs.90,000
(i) Activity level at Break–Even Point
Fixed cost Rs. 1, 50, 000
Break-even point (units) = = = 20,000 units
Contribution per unit Rs. 7.50

(Refer to working notes 3 & 4)

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Break - Even point (units)
Activity level at BEP = × 100
No. of units at 100% capacity level
(Refer to working note 1(ii))
20,000 units
= × 100 = 50%
40,000 units
(ii) Number of units to be sold to earn a net income of 8% of sales
Let S be the number of units sold to earn a net income of 8% of sales.
Mathematically it means that : (Sales revenue of S units)
= Variable cost of S units + Fixed cost + Net income
8
Or, Rs.25S = Rs.17.5S + Rs.1,50,000 + × (Rs.25S)
100
Or, Rs.25S = Rs.17.5S + Rs.1,50,000 + Rs.2S
Or, S = (Rs.1,50,000/Rs.5.5) units
Or, S = 27,273 units.
(iii) Activity level needed to earn a profit of Rs. 95,000
The profit at 80% capacity level, is Rs. 90,000 which is less than the desired profit
of Rs. 95,000, therefore the needed activity level would be more than 80%. Thus
the fixed cost to be taken to determine the activity level needed should be
Rs.1,70,000 (Refer to Working Note 3 (ii))
Units to be sold to earn a profit of Rs.95,000
Fixed cost + Desired profit
=
Contribution per unit
Rs. 1,70,000 + Rs. 95,000
=
Rs. 7.5
= 35,333.33 units
Activity level needed to earn a profit of Rs.95,000
35,333.33 units
= × 100 = 88.33%
40,000 units
Difference inTotalOverheads
(b) (i) Variable overhead absorption rat 
Difference in levels in terms of machine hours
Rs.3,47,625 - Rs.3,38,875
= = Rs.8.75 per machine hour.
15,500hours -14,500hours
(ii) Calculation of Total fixed overheads:
(Rs.)
Total overheads at 14,500 hours 3,38,875
Less: Variable overheads (Rs. 8.75 × 14,500) (1,26,875)
Total fixed overheads 2,12,000

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

Let budgeted level of acti vity = X
(Rs. 8.75 X + Rs.2,12,000)
T hen, = Rs. 22
X
8.75X + Rs.2,12,000 = 22X
13.25X = 2,12,000
X =16,000
T hus, budgeted level of activity = 16,000 machine hours.
(iv) Calculation of Under / Over absorption of overheads:
(Rs.)
Actual overheads 3,22,000
Absorbed overheads (14,970 hours × Rs. 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 make 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.
50,000
(c) Output by experienced workers in 50,000 hours = = 5,000 units
10
 Output by new recruits = 60% of 5,000 = 3,000 units
Less of output = 5,000 – 3,000 = 2,000 units
Total loss of output = 10,000 + 2,000 = 12,000 units
Contribution per unit = 20% of 180 = Rs. 36
Total contribution cost = 36 × 12,000 = Rs. 4,32,000
Cost of repairing defective units = 3,000 × 0.2 × 25 = Rs. 15,000
Profit forgone due to labour turnover
(Rs.)
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 20X8-X9 9,00,000
2D S
(d) (i) Optimum run size or Economic Batch Quantity (EBQ) =
C
Where, D = Annual demand i.e. 1.15% of 8,00,00,000 = 9,20,000 units
S = Set-up cost per run = Rs. 3,50,000

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C = Inventory holding cost per unit per annum

= Rs.150 × 12 months = Rs. 1,800
2×9,20,000units×Rs.3,50,000
EBQ = = 18,915 units
Rs. 1,800
(ii) Calculation of Total Cost of set-up and inventory holding
Batch size No. of set- Set-up Cost Inventory holding Total Cost
ups (Rs.) cost (Rs.) (Rs.)
3,60,00,000
23
80,50,000  40,000×Rs.1,800 
A 40,000 units  9,20,000    4,40,50,000
 40,000  (23×Rs.3,50, 000)  2 
 

49 1,71,50,000 1,70,23,500
B 18,915 units  9,20,000  (49×Rs.3,50, 000)  18,915  Rs.1,800  3,41,73,500
 18,915   
   2 
Extra Cost (A – B) 98,76,500
2. (a) (i) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
 Rs.1,90,400 
Limestone = 340  Rs.565  
 340 
= 340 (Rs. 565 - Rs. 560) = 1,700 (F)
 Rs.5,09,250 
Silica = 105  Rs.4,800  
 105 
= 105 (Rs. 4,800 - Rs. 4,850) = 5,250 (A)
 Rs.8,12,500 
Alumina = 25  Rs.32,100  
 25 
= 25 (Rs. 32,100 - Rs. 32,500) = 10,000 (A)
 Rs.53,400 
Iron ore = 30  Rs.1,800  
 30 
= 30 (Rs. 1,800 - Rs. 1,780) = 600 (F)
 Rs.51,750 
Others = 23  Rs.2,400  
 23 
= 23 (Rs. 2,400 - Rs. 2,250) = 3,450 (F)
9,500 (A)
(ii) Material Mix Variance = Std. Price (Revised Std. Quantity – Actual Quantity)
Limestone = Rs. 565 (523 × 65% - 340)
= Rs. 565 (339.95 - 340) = 28.25 (A)
Silica = Rs. 4,800 (523 × 20% - 105)
= Rs. 4,800 (104.6 - 105) = 1,920 (A)
Alumina = Rs. 32,100 (523 × 5% - 25)
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= Rs. 32,100 (26.15 - 25) = 36,915 (F)

Iron ore = Rs. 1,800 (523 × 5% - 30)
= Rs. 1,800 (26.15 - 30) = 6,930 (A)
Others = Rs. 2,400 (523 × 5% - 23)
= Rs. 2,400 (26.15 - 23) = 7,560 (F)
35,596.75 (F)
(iii) Material Yield Variance = Std. Price (Standard Quantity – Revised Std. Quantity)
Limestone = Rs. 565 (500 × 65% - 523 × 65%)
= Rs. 565 (325 - 339.95) = 8,446.75 (A)
Silica = Rs. 4,800 (500 × 20% - 523 × 20%)
= Rs. 4,800 (100 - 104.6) = 22,080 (A)
Alumina = Rs. 32,100 (500 × 5% - 523 × 5%)
= Rs. 32,100 (25 - 26.15) = 36,915 (A)
Iron ore = Rs. 1,800 (500 × 5% - 523 × 5%)
= Rs. 1,800 (25 - 26.15) = 2,070 (A)
Others = Rs. 2,400 (500 × 5% - 523 × 5%)
= Rs. 2,400 (25 - 26.15) = 2,760 (A)
72,271.75 (A)
(iv) Material Cost Variance = (Std. Quantity × Std. Price) – (Actual Quantity × Actual Price)
Limestone = Rs. 565 × (500 × 65%) - Rs. 1,90,400
= Rs. 1,83,625 - Rs. 1,90,400 = 6,775 (A)
Silica = Rs. 4,800 × (500 × 20%) - Rs. 5,09,250
= Rs. 4,80,000 – Rs. 5,09,250 = 29,250 (A)
Alumina = Rs. 32,100 (500 × 5%) – Rs. 8,12,500
= Rs. 8,02,500 – Rs. 8,12,500 = 10,000 (A)
Iron ore = Rs. 1,800 (500 × 5%) – Rs. 53,400
= Rs. 45,000 – Rs. 53,400 = 8,400 (A)
Others = Rs. 2,400 (500 × 5%) – Rs. 51,750
= Rs. 60,000 – Rs. 51,750 = 8,250 (F)
46,175 (A)
(b) In case of escalation clause in a contract, a contractor is paid for the any increase in price of
materials and rate of labours which are beyond the control of the contractor. Any increase in
the cost due to inefficiencies in usage of the materials and labours are not admissible. Thus
any increase in cost due to usage in excess of standard quantity or hours are not paid.
(i) Statement showing Additional claim due to Escalation clause.
Standard Std. Rate Actual Variation in Escalation claim
Qty / (Rs.) Rate (Rs.) Rate (Rs.) (Rs.)
Hours
(a) (b) (c) (d) = (c-b) (e) = (a × d)
Material:

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A 3,000 1,000 1,100 +100 +3,00,000

B 2,400 800 700 -100 -2,40,000
C 500 4,000 3,900 -100 -50,000
D 100 30,000 31,500 +1,500 +1,50,000
Material escalation claim 1,60,000
Labour:
L1 60,000 15 18 +3 +1,80,000
L2 40,000 30 35 +5 +2,00,000
Labour escalation claim 3,80,000
Statement showing Final Contract Price
(Rs.) (Rs.)
Agreed contract price 1,50,00,000
Add: Agreed escalation claim:
Material Cost 1,60,000
Labour Cost 3,80,000 5,40,000
Final Contract Price 1,55,40,000
(ii) Contract Account
Dr Cr.
.
Particulars (Rs.) Particulars (Rs.)
To Material: By Contractee’s A/c 1,55,40,000
A – (3,400 × Rs. 1,100) 37,40,000
B – (2,300 × Rs. 700) 16,10,000
C – (600 × Rs. 3,900) 23,40,000
D – (90 × Rs. 31,500) 28,35,000 1,05,25,000
To Labour:
L1 – (56,000 × Rs.18) 10,08,000
L2 – (38,000 × Rs.35) 13,30,000 23,38,000
To Other expenses 13,45,000
To Estimated Profit 13,32,000
1,55,40,000 1,55,40,000

3. (a) (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
- 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 - - - - - -

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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 units Cost per
(EU) EU
(Rs.) (Rs.) (Rs.)
Material Cost 55,20,000
Less: Scrap realisation 392 (2,3520) 54,96,480 8,808 624.03
units @ Rs. 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
(Rs.) (Rs.)

Material cost of 192 units @ Rs. 624.03 p.u.

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

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 @ Rs. 210.45 p.u. 50,508.00
Production OH cost 240 equivalent units @ Rs 97.65 p.u. 23,436.00
4,93,944.00
(iii) Cost of 8,300 completed units
8,300 units @ Rs. 932.13 p.u. 77,36,679.00
Total cost [(i) + (ii) + (iii))] 86,50,623.00

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(b) Statement Showing “Budgeted Cost per unit of the Product”

Activity Activity Activity No. of Activity Deposits Loans Credit
Cost Driver Units of Rate Cards
(Budgete Activity (Rs.)
d) (Rs.) Driver
(Budget)
ATM 8,00,000 No. of ATM 2,00,000 4.00 6,00,000 --- 2,00,000
Services Transaction
Computer 10,00,000 No. of 20,00,000 0.50 7,50,000 1,00,000 1,50,000
Processing Computer
Transaction
Issuing 20,00,000 No. of 5,00,000 4.00 14,00,000 2,00,000 4,00,000
Statements Statements
Customer 3,60,000 Telephone 7,20,000 0.50 1,80,000 90,000 90,000
Inquiries Minutes
Budgeted 41,60,000 29,30,000 3,90,000 8,40,000
Cost
Units of Product (as estimated in the budget period) 58,600 13,000 14,000
Budgeted Cost per unit of the product 50 30 60
Working Note
Activity Budgeted Cost (Rs.) Remark
ATM Services:
(a) Machine Maintenance 4,00,000 − All fixed, no change.
(b) Rents 2,00,000 − Fully fixed, no change.
(c) Currency
Replenishment Cost 2,00,000 − Doubled during budget period.
Total 8,00,000
Computer Processing 2,50,000 − Rs.2,50,000 (half of
Rs.5,00,000) is fixed and no
7,50,000 change is expected.
− Rs.2,50,000 (variable portion)
Total 10,00,000 is expected to increase to
three times the current level.
Issuing Statements 18,00,000 − Existing.
2,00,000 − 2 lakh statements are
expected to be increased in
budgeted period. For every
increase of one lakh
Total statement, one lakh rupees is
20,00,000
the budgeted increase.
Computer Inquiries 3,60,000 − Estimated to increase by 80%
during the budget period.
(Rs.2,00,000 x 180% )
Total 3,60,000

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4. (a) (i) Preparation of Production Budget (in units)

October November December January
Demand for the month (Nos.) 40,000 35,000 45,000 60,000
Add: 20% of next month’s demand 7,000 9,000 12,000 13,000
Less: Opening Stock (9,500) (7,000) (9,000) (12,000)
Vehicles to be produced 37,500 37,000 48,000 61,000
(ii) Preparation of Purchase budget for Part-X
October November December
Production for the month (Nos.) 37,500 37,000 48,000
Add: 40% of next month’s 14,800 19,200 24,400
production (40% of 37,000) (40% of 48,000) (40% of 61,000)
52,300 56,200 72,400
No. of units required for 2,09,200 2,24,800 2,89,600
production (52300 × 4 units) (56200 × 4 units) (72,400 × 4 units)
Less: Opening Stock (48,000) (59,200) (76,800)
(14800 × 4 units) (19200 × 4 units)
No. of units to be purchased 1,61,200 1,65,600 2,12,800
(iii) Budgeted Gross Profit for the Quarter October to December
October November December Total
Sales in nos. 40,000 35,000 45,000 1,20,000
Net Selling Price per unit* 7,28,535 7,28,535 7,28,535
Sales Revenue (Rs. in lakh) 2,91,414 2,54,987.25 3,27,840.75 8,74,242
Less: Cost of Sales (Rs. in lakh) 2,28,560 1,99,990.00 2,57,130.00 6,85,680
(Sales unit × Cost per unit)
Gross Profit (Rs. in lakh) 62,854 54,997.25 70,710.75 1,88,562
* Net Selling price unit = Rs. 8,57,100 – 15% commission on Rs. 8,57,100
= Rs.7,28,535.
(b) Statement of Reconciliation
Sl. Particulars Amount (Rs.) Amount (Rs.)
No.
Net loss as per Cost Accounts (35,400)
Additions
1. Factory O/H over recovered 1,35,000
2. Dividend Received 20,000
3. Bank Interest received 13,600
4. Difference in Value of Opening Stock 20,000
(1,65,000 – 1,45,000)
5. Difference in Value of Closing Stock 6,500

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(1,32,000 – 1,25,500)
6. Notional Rent of own Premises 60,000 2,55,100
Deductions
1. Administration O/H under recovered 25,500
2. Depreciation under charged 26,000
3. Loss due to obsolescence 16,800
4. Income tax Provided 43,600
5. Goodwill written-off 25,000
6. Provision for doubtful debts 15,000 (1,51,900)
Net Profit as per Financial A/c. 67,800
5. (a) School Contract Account
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Plant 2,40,000 By Material returned 47,000
To Hire of plant 77,000 By Plant c/d 1,65,000
To Materials 6,62,000 By Materials c/d 50,000
To Direct wages 9,60,000 By WIP c/d:
Add: Accrued 40,000 10,00,000 Value of work certified 24,00,000
To Wages related costs 1,32,000 Cost of work not certified 1,80,000
To Direct expenses 34,000
To Supervisory staff:
Direct 90,000
Indirect 20,000 1,10,000
To Regional office expenses 50,000
To Head office expenses 30,000
To Surveyors’ fees 27,000
To Notional profit c/d 4,80,000
28,42,000 28,42,000
(b) Working Notes:
(i) Computation of Annual consumption & Annual Demand for raw material ‘Dee’:
Sales forecast of the product ‘Exe’ 20,000 units
Less: Opening stock of ‘Exe’ 1,800 units
Fresh units of ‘Exe’ to be produced 18,200 units
Raw material required to produce 18,200 units of ‘Exe’ 36,400 kg.
(18,200 units × 2 kg.)
Less: Opening Stock of ‘Dee’ 2,000 kg.
Annual demand for raw material ‘Dee’ 34,400 kg.

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(ii) Computation of Economic Order Quantity (EOQ):

2  Annualdemandof 'Dee '  Orderingcos t
EOQ =
Carryingcos t per unit per annum

2×34,400kg.× Rs.720 2×34,400kg.× Rs.720

= = = 1,697 kg.
Rs.125×13.76% Rs.17.2
(iii) Re- Order level:
= (Maximum consumption per day × Maximum lead time)
 AnnualConsumptionof 'Dee '  
=   20kg.   8 days 
 364 days  

 36,400kg.  
=   20kg.   8 days  = 960 kg.
 364 days  
(iv) Minimum consumption per day of raw material ‘Dee’:
Average Consumption per day = 100 kg.
Hence, Maximum Consumption per day = 100 kg. + 20 kg. = 120 kg.
So, Minimum consumption per day will be
Min.consumption  Max.consumption
Average Consumption =
2
Min.consumption  120kg.
Or, 100 kg. =
2
Or, Min. consumption = 200 kg – 120 kg. = 80 kg.
(a) Re-order Quantity:
EOQ – 200 kg. = 1,697 kg. – 200 kg. = 1,497 kg.
(b) Maximum Stock level:
= Re-order level + Re-order Quantity – (Min. consumption per day × Min. lead time)
= 960 kg. + 1,497 kg. – (80 kg. × 4 days)
= 2,457 kg. – 320 kg. = 2,137 kg.
(c) Minimum Stock level:
= Re-order level – (Average consumption per day × Average lead time)
= 960 kg. – (100 kg. × 6 days) = 360 kg.
(d) Impact on the profitability of the company by not ordering the EOQ.
When purchasing the ROQ When purchasing the
EOQ

I Order quantity 1,497 kg. 1,697 kg.

II No. of orders a 34,400kg. 34,400kg.
 22.9or 23orders  20.27or 21orders
year 1,497kg. 1,697kg.

III Ordering Cost 23 orders × Rs. 720 = Rs.16,560 21 orders × Rs. 720 =
Rs.15,120
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IV Average 1,497kg. 1,697kg.

 748.5kg.  848.5kg.
Inventory 2 2
V Carrying Cost 748.5 kg. × Rs. 17.2 = 848.5 kg. × Rs. 17.2 =
Rs.12,874.2 Rs.14,594.2
VI Total Cost Rs. 29,434.20 Rs. 29,714.20
Cost saved by not ordering EOQ = Rs. 29,714.20 - Rs. 29,434.20 = Rs.280.
6. (a) Accounting treatment of idle time wages & overtime wages in cost accounts: Normal idle
time is treated as a part of the cost of production. Thus, in the case of direct workers, an
allowance for normal idle time is built into the labour cost rates. In the case of indirect workers,
normal idle time is spread over all the products or jobs through the process of absorption of
factory overheads.
Under Cost Accounting, the overtime premium is treated as follows:
If overtime is resorted to at the desire of the customer, then the overtime premium may be
charged to the job directly.
If overtime is required to cope with general production program or for meeting urgent orders,
the overtime premium should be treated as overhead cost of particular department or cost
center which works overtime.
Overtime worked on account of abnormal conditions should be charged to costing Profit &
Loss Account.
If overtime is worked in a department due to the fault of another department the overtime
premium should be charged to the latter department.
(b)
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 better
them continuously
2. Cost control seeks to attain lowest 2. Cost reduction recognises no condition as
possible cost under existing permanent, since a change will result in
conditions. lower cost.
3. In case of cost control, emphasis 3. In case of cost reduction, it is on present
is on past and present and future.
4. Cost control is a preventive 4. Cost reduction is a corrective function.
function It operates even when an efficient cost
control system exists.
5. Cost control ends when targets 5. Cost reduction has no visible end.
are achieved.
(c) Expenses other than direct material cost and direct employee cost, which are incurred to
manufacture a product or for provision of service and can be directly traced in an economically
feasible manner to a cost object. The following costs are examples for direct expenses:
(a) Royalty paid/ payable for production or provision of service;
(b) Hire charges paid for hiring specific equipment;
(c) Cost for product/ service specific design or drawing;
(d) Cost of product/ service specific software;

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(e) Other expenses which are directly related with the production of goods or provision of
service.
(d) Product costs are those costs that are identified with the goods purchased or produced for
resale. In a manufacturing organisation they are attached to the product and that are included
in the inventory valuation for finished goods, or for incomplete goods. Product cost is also
known as inventoriable cost. Under absorption costing method it includes direct material , direct
labour, direct expenses, directly attributable costs (variable and non-variable) and other
production (manufacturing) overheads. Under marginal costing method Product Costs
includes all variable production costs and the all fixed costs are deducted from the contribution.
Periods costs are the costs, which are not assigned to the products but are charged as
expense against revenue of the period in which they are incurred. General Administration,
marketing, sales and distributor overheads are recognized as period costs.

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Test Series: October 2019

MOCK TEST PAPER 1
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) C.T . Ltd. manufactures and sells a single product X whose selling price is Rs. 100 per unit and
the variable cost is Rs. 60 per unit.
(i) If the Fixed Costs for this year are Rs. 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 Rs. 150 per unit and the variable cost Rs. 100 per unit. The total fixed costs are
estimated at Rs. 28,00,000. The sales mix of X : Y would be 5 : 3. COMPUTE the break-
even sales in units for both the products.
(b) CALCULATE from the following figures:
(i) Efficiency ratio,
(ii) Activity, Ratio and
(iii) Capacity Ratio:
Budgeted Production 88,000 units
Standard Hours per unit 10
Actual Production 75,000 units
Actual Working Hours 6,00,000
(c) A Ltd. manufactures a product X which requires two raw materials A and B in a ratio of 1:4.
The sales department has estimated a demand of 5,00,000 units for the product for the year.
To produce one unit of finished product, 4 units of material A is required.
Stock position at the beginning of the year is as below:
Product- X 12,000 units
Material A 24,000 units
Material B 52,000 units
To place an order the company has to spend Rs.15,000. The company is financing its working
capital using a bank cash credit @13% p.a.
Product X is sold at Rs.1,040 per unit. Material A and B are purchased at Rs.150 and Rs.200
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Required:
COMPUTE economic order quantity (EOQ):
(i) If purchase order for the both materials is placed separately.
(ii) If purchase order for the both materials is not placed separately.
(d) A manufacturing company has disclosed a net loss of Rs 2,25,000 as per their cost accounting
records for the year ended March 31, 2019. However, their financial accounting records
disclosed a net loss of Rs 2,70,000 for the same period. A scrutiny of data of both the sets of
books of accounts revealed the following information:
(Rs)
(i) Factory overheads under-absorbed 5,000
(ii) Administration overheads over-absorbed 3,000
(iii) Depreciation charged in financial accounts 70,000
(iv) Depreciation charged in cost accounts 80,000
(v) Interest on investments not included in cost accounts 20,000
(vi) Income-tax provided in financial accounts 65,000
(vii) Transfer fees (credit in financial accounts) 2,000
(viii) Preliminary expenses written off 3,000
(ix) Over-valuation of closing stock of finished goods in cost accounts 7,000
Required:
PREPARE a Memorandum Reconciliation Account. [4 × 5 Marks = 20 Marks]
2. (a) Asian Mfg. Co. has decided to increase the size of the store. It wants the information about
the probability of the individual product lines : Lemon, Grapes and Papaya. It provides the
following data for the 2018 for each product line:
Particulars Lemon Grapes Papaya
Revenues (Rs.) 79,350 2,10,060 1,20,990
Cost of goods sold (Rs.) 60,000 1,50,000 90,000
Cost of bottles returned (Rs.) 1,200 0 0
Number of purchase orders placed 36 84 36
Number of deliveries received 30 219 66
Hours of shelf stocking time 54 540 270
Items sold 12,600 1,10,400 30,600
Asian Mfg. Co. also provides the following information for the year 2018:
Activity Description of Activity Total Costs Cost Allocation Basis
(Rs.)
Bottle returns Returning of empty bottles to 1,200 Direct tracing to
the store product line
Ordering Placing of orders of purchases 15,600 156 purchase orders
Delivery Physical delivery and the 25,200 315 deliveries
receipts of merchandise
Self- stocking Stocking of merchandise on 17,280 864 hours of time
store shelves and ongoing
restocking
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Customer Assistance provided to 30,720 1,53,600 items sold

support customers including bagging
and checkout
Required
(i) Asian Mfg. Co. currently allocates store support costs (all costs other than the cost of
goods sold) to the product line on the basis of the cost of goods sold of each product
line. CALCULATE the operating income and operating income as the percentage of
revenue of each product line.
(ii) If Asian Mfg. Co. allocates store support costs (all costs other than the cost of goods
sold) to the product lines on the basis of ABC system, CALCULATE the operating income
and operating income as the percentage of revenue of each product line.
(iii) SHOW a comparison statement. [10 Marks]
(b) APFL Ltd. deals in plumbing materials and also provides plumbing services to its customers.
On 12th August, 2019, APFL received a job order for a students’ hostel to supply and fitting
of plumbing materials. The work is to be done on the basis of specification provided by the
hostel owner. Hostel will be inaugurated on 5th September, 2019 and the work is to be
completed by 3rd September, 2019. Following are the details related with the job work:
Direct Materials
APFL uses a weighted average method for the pricing of materials issues.
Opening stock of materials as on 12th August 2019:
- 15mm GI Pipe, 12 units of 15 feet size @ Rs.600 each
- 20mm GI Pipe, 10 units of 15 feet size @ Rs.660 each
- Other fitting materials, 60 units @ Rs. 26 each
- Stainless Steel Faucet, 6 units @ Rs. 204 each
- Valve, 8 units @ Rs. 404 each
Purchases:
On 16th August 2019:
- 20mm GI Pipe, 30 units of 15 feet size @ Rs. 610 each
- 10 units of Valve @ Rs. 402 each
On 18th August 2019:
- Other fitting materials, 150 units @ Rs. 28 each
- Stainless Steel Faucet, 15 units @ Rs. 209 each
On 27th August 2019:
- 15mm GI Pipe, 35 units of 15 feet size @ Rs.628 each
- 20mm GI Pipe, 20 units of 15 feet size @ Rs.660 each
- Valve, 14 units @ Rs. 424 each
Issues for the hostel job:
On 12th August 2019:
- 20mm GI Pipe, 2 units of 15 feet size
- Other fitting materials, 18 units

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On 17th August 2019:

- 15mm GI Pipe, 8 units of 15 feet size
- Other fitting materials, 30 units
On 28th August 2019:
- 20mm GI Pipe, 2 units of 15 feet size
- 15mm GI Pipe, 10 units of 15 feet size
- Other fitting materials, 34 units
- Valve, 6 units
On 30th August:
- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ Rs. 50 per hour (includes 12 hours overtime)
Helper: 192 hours @ Rs.35 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ Rs. 13 per labour hour.
Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on sales
price.
You are required to
(a) CALCULATE the total cost of the job.
(b) CALCULATE the price to be charged from the customer. [10 Marks]
3. (a) V Ltd. produces and markets a very popular product called ‘X’. The company is interested in
presenting its budget for the second quarter of 2019.
The following information are made available for this purpose:
(i) It expects to sell 50,000 bags of ‘X’ during the second quarter of 2019 at the selling price
of Rs. 900 per bag.
(ii) Each bag of ‘X’ requires 2.5 kgs. of a raw – material called ‘Y’ and 7.5 kgs. of raw –
material called ‘Z’.
(iii) Stock levels are planned as follows:
Particulars Beginning of End of Quarter
Quarter
Finished Bags of ‘X’ (Nos.) 15,000 11,000
Raw – Material ‘Y’ (Kgs.) 32,000 26,000
Raw – Material ‘Z’ (Kgs.) 57,000 47,000
Empty Bag (Nos.) 37,000 28,000
(iv) ‘Y’ cost Rs.120 per Kg., ‘Z’ costs Rs.20 per Kg. and ‘Empty Bag’ costs Rs.80 each.
(v) It requires 9 minutes of direct labour to produce and fill one bag of ‘X’. Labour cost is

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Rs.50 per hour.

(vi) Variable manufacturing costs are Rs.45 per bag. Fixed manufacturing costs
Rs.30,00,000 per quarter.
(vii) Variable selling and administration expenses are 5% of sales and fixed administration
and selling expenses are Rs.20,50,000 per quarter.
Required
(i) PREPARE a production budget for the said quarter.
(ii) PREPARE a raw – material purchase budget for ‘Y’, ‘Z’ and ‘Empty Bags’ for the said
quarter in quantity as well as in rupees.
(iii) COMPUTE the budgeted variable cost to produce one bag of ‘X’.
(iv) PREPARE a statement of budgeted net income for the said quarter and show both per
unit and total cost data. [10 Marks]
(b) V Ltd. manufactures luggage trolleys for airports. The factory, in which the company
undertakes all of its production, has two production departments- ‘Fabrication’ and ‘Assembly’,
and two service departments- ‘Stores’ and ‘Maintenance’.
The following information have been extracted from the company’s budget for the financial
year ended 31st March, 2019:
Particulars Rs.
Allocated Overhead Costs
Fabrication Department 15,52,000
Assembly Department 7,44,000
Stores Department 2,36,000
Maintenance Department 1,96,000
Other Overheads
Factory rent 15,28,000
Factory building insurance 1,72,000
Plant & machinery insurance 1,96,000
Plant & Machinery Depreciation 2,65,000
Subsidy for staffs’ canteen 4,48,000

Direct Costs Rs. Rs.

Fabrication Department:
Material 63,26,000
Labour 8,62,000 71,88,000
Assembly Department:
Material 1,42,000
Labour 13,06,000 14,48,000
The following additional information is also provided:
Fabrication Assembly Stores Maintenance
Department Department Department Department
Floor area (square meters) 24,000 10,000 2,500 3,500

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Value of plant & machinery (Rs.) 16,50,000 7,50,000 75,000 1,75,000

No. of stores requisitions 3,600 1,400 --- ---
Maintenance hours required 2,800 2,300 400 ---
No. of employees 120 80 38 12
Machine hours 30,00,000 60,000
Labour hours 70,000 26,00,000
Required:
(i) PREPARE a table showing the distribution of overhead costs of the two service
departments to the two production departments using step method; and
(ii) CALCULATE the most appropriate overhead recovery rate for each department.
(iii) Using the rates calculated in part (ii) above, CALCULATE the full production costs of the
following job order:
Job number IGI2019
Direct Materials Rs. 2,30,400
Direct Labour:
Fabrication Department 240 hours @ Rs. 50 per hour
Assembly Department 180 hours @ Rs. 50 per hour
Machine hours required:
Fabrication Department 210 hours
Assembly Department 180 hours
[10 Marks]
4. (a) In a manufacturing company the standard units of production of the year were fixed at 1,20,000
units and overhead expenditures were estimated to be:
Fixed Rs. 12,00,000; Variable Rs. 6,00,000;
Semi-Variable Rs. 1,80,000
Actual production during the April, 2019 of the year was 8,000 units. Each month has 20
working days.
During the month there was one public holiday. The actual overheads amounted to:
Fixed Rs. 1,10,000; Variable Rs. 48,000
Semi-variable Rs. 19,200
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40
per cent of variable character.
CALCULATE the followings:
(i) Overhead Cost Variance
(ii) Fixed Overhead Cost Variance
(iii) Variable Overhead Cost Variance
(iv) Fixed Overhead Volume Variance
(v) Fixed Overhead Expenditure Variance
(vi) Calendar Variance. [10 Marks]

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(b) From the following data of A Ltd., CALCULATE (i) Material Consumed; (ii) Prime Cost and (iii)
Cost of production.
Amount (Rs.)
(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
(x) Quality control cost for the products in manufacturing process 86,000
(xi) Research & development cost for improvement in production 92,600
process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the 9,200
manufacturing process
(xiv) Packing cost necessary to preserve the goods for further 10,200
processing
(xv) Salary paid to Director (Technical) 8,90,000
[10 Marks]
5. (a) SLS Infrastructure builts and operates a 110 k.m. long highway on the basis of Built-Operate-
Transfer (BOT) model for a period of 25 years. 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

The following is the estimated cost of the project:

Sl. Activities Amount
no. (Rs. 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, footbridge, etc . 29,055.60

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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 1,14,495.25

An average cost of Rs.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) CACULATE 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] [10 Marks]
(b) In an Oil Mill, four products emerge from a refining process. The total cost of input during the
quarter ending March 2019 is Rs.22,20,000. The output, sales and additional processing costs
are as under:
Products Output in Litres Additional processing Sales value (Rs.)
cost after split off (Rs.)
A 8,000 6,45,000 25,87,500
B 4,000 1,35,000 2,25,000
C 2,000  90,000
D 4,000 22,500 6,75,000
In case these products were disposed-off at the split off point that is before further processing,
the selling price per litre would have been:
A (Rs.) B (Rs.) C (Rs.) D (Rs.)
225.00 90.00 45.00 112.50
PREPARE a statement of profitability based on:
(i) If the products are sold after further processing is carried out in the mill.
(ii) If they are sold at the split off point. [10 Marks]
6. (a) DISCUSS the essential features of a good cost accounting system.
(b) DISTINGUISH between Bill of Materials and Material Requisition Note.
(c) DISCUSS the remedial steps to be taken to minimize the labour turnover.
(d) DISTINGUISH between Job and Batch costing. [4 × 5 = 20 Marks]
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Test Series: October 2019

MOCK TEST PAPER 1
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
Suggested Answers/ Hints

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

= Rs.100 – Rs.60
= Rs.40
Rs.24,00,000
Break-even Point =
Rs.40
= 60,000 units
Actual Sales – Break - even Sales
Percentage Margin of Safety =
Actual Sales
Actual Sales – 60,000 units
Or, 60% =
Actual Sales
 Actual Sales = 1,50,000 units
(Rs.)
Sales Value (1,50,000 units × Rs.100) 1,50,00,000
Less: Variable Cost (1,50,000 units ×Rs.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
 Rs.21,60,000 
Rate of Net Return on Sales = 14.40%  ×100 
 Rs.1,50,00,000 
(ii) Products
X (Rs.) Y (Rs.)
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 = Rs.43.75
 Rs.28,00,000 
Break-even Sale = 64,000 units  
 Rs.43.75 

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Break-even Sales Mix:

X (64,000 units × 5/8) = 40,000 units
Y (64,000 units × 3/8) = 24,000 units
Standard Hours (for actual production)
(b) (i) Efficiency Ratio = ×100
Actual Hours (worked)
75,000 units × 10 hrs.
= × 100
6,00,000 hrs.

= 125%
Standard Hours (for actual production)
(ii) Activity Ratio = ×100
Budgeted Hours
75,000 units × 10 hrs.
= × 100
88,000 units × 10 hrs.

= 85.23%
Actual Hours (worked)
(iii) Capacity Ratio = ×100
Budgeted Hours
6,00,000 hrs.
= × 100
88,000 units × 10 hrs.
= 68.18%
(c) Workings:
Annual production of Product X = Annual demand – Opening stock
= 5,00,000 – 12,000 = 4,88,000 units
Annual requirement for raw materials = Annual production × Material per unit – Opening stock of material
Material A = 4,88,000 × 4 units – 24,000 units = 19,28,000 units
Material B = 4,88,000 × 16 units – 52,000 units = 77,56,000 units
(i) Computation of EOQ when purchase order for the both materials is placed separately
2× Annual Requirement for material × Ordering cost
EOQ =
Carrying cost per unit per annum

2  19,28,000units  Rs.15,000 38,56,000×Rs.15,000

Material A = =
13%of Rs.150 Rs.19.5

= 54,462 units
2  77,56,000units  Rs.15,000 1,55,12,000 Rs.15,000
Material B = =
13%of Rs.200 Rs.26

= 94,600 units
(ii) Computation of EOQ when purchase order for the both materials is not placed
separately
2  (19,28,000  77,56,000)units  Rs.15,000
Material A & B =
13% of Rs.190 *
2

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Downloaded1,93,68,000  Rs.15,000
= = 1,08,452 units
Rs.24.7
1,08,452  19,28,000
Material A = = 21,592 units
96,84,000
1,08,452  77,56,000
Material A = = 86,860 units
96,84,000
(Rs.150 19,28,000)  (Rs.200  77,56,000)
* = Rs.190
(19,28,000  77,56,000)
(d) Memorandum Reconciliation Account
Particulars (Rs.) Particulars (Rs.)
To Net loss as per Costing 2,25,000 By Administrative overhead over 3,000
books absorbed in costs
To Factory overheads 5,000 By Depreciation over charged in 10,000
under absorbed Cost books
(Rs. 80,000 – Rs.70,000)
To Income tax not provided 65,000 By Interest on investments not 20,000
in Cost books included in Cost books
To Preliminary expenses 3,000 By Transfer fees not considered 2,000
written off in Financial in Cost books
books
To Over-valuation of 7,000 By Net loss as per Financial 2,70,000
Closing Stock of books
finished goods in Cost
books
3,05,000 3,05,000
2. (a) (i) Absorption Costing System
Operating Income-
Particulars Lemon Grapes Papaya Total
Revenue 79,350 2,10,060 1,20,990 4,10,400
Less: Cost of Goods Sold 60,000 1,50,000 90,000 3,00,000
Less: Store Support Cost 18,000 45,000 27,000 90,000
Operating Income 1,350 15,060 3,990 20,400
Operating Income (%) 1.70 7.17 3.30 4.97
(ii) ABC System
Overhead Allocation Rate-
Activity Total Costs Quantity of Cost Overhead
(Rs.) Allocation Base Allocation Rate
(Rs.)
Ordering 15,600 156 Purchase Orders 100.00
Delivery 25,200 315 Delivering Orders 80.00
Shelf Stocking 17,280 864 Self Stocking Hours 20.00
Customer Support 30,720 1,53,600 Items Sold 0.20

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Store Support Cost-

Particulars Cost Driver Lemon Grapes Papaya Total
Bottle Returns Direct 1,200 0 0 1,200
Ordering Purchase Orders 3,600 8,400 3,600 15,600
Delivery Deliveries 2,400 17,520 5,280 25,200
Self -Stocking Hours of time 1,080 10,800 5,400 17,280
Customer Support Items Sold 2,520 22,080 6,120 30,720
Grand Total 10,800 58,800 20,400 90,000
Operating Income-

Particulars Lemon Grapes Papaya Total

Revenue 79,350 2,10,060 1,20,990 410,400
Less: Cost of Goods Sold 60,000 1,50,000 90,000 300,000
Less: Store Support Cost 10,800 58,800 20,400 90,000
Operating Income 8,550 1,260 10,590 20,400
Operating Income (%) 10.78 0.60 8.75 4.97
(iii) Comparison
Particulars Lemon Grapes Papaya Total
Under Traditional Costing System 1.70% 7.17% 3.30% 4.97%
Under ABC System 10.78% 0.60% 8.75% 4.97%
(b) (a) Calculation of Total Cost for the Hostel Job
Particulars Amount (Rs.) Amount (Rs.)
Direct Material Cost:
- 15mm GI Pipe (Working Note- 1) 11,051.28
- 20mm GI Pipe (Working Note- 2) 2,588.28
- Other fitting materials (Working Note- 3) 3,866.07
- Stainless steel faucet
 6  ` 204  15  ` 209 
15 units ×  
 21units  3,113.57
- Valve
 8  ` 404  10  ` 402  14  ` 424 
6 units ×  
 32units  2,472.75 23,091.95
Direct Labour:
- Plumber [(180 hours × Rs. 50) + (12 hours × Rs. 25)] 9,300.00
- Helper [(192 hours × Rs. 35) + (24 hours × Rs. 17.5)] 7,140.00 16,440.00
- Overheads [Rs. 13 × (180 + 192) hours] 4,836.00
Total Cost 44,367.95

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(b) Price to be charged for the job work:

Amount (Rs.)
Total Cost incurred on the job 44,367.95
 44,367.95  14,789.32
Add: 25% Profit on Job Price   25% 
 75% 
59,157.27
Working Note:
1. Cost of 15mm GI Pipe
Date Amount (Rs.)
17-08-2019 8 units × Rs. 600 4,800.00
28-08-2019  4  Rs. 600  35  Rs. 628  6,251.28
10 units ×  
 39units 
11,051.28
2. Cost of 20mm GI Pipe
Date Amount (Rs.)
12-08-2019 2 units × Rs. 660 1,320.00
28-08-2019  8  Rs. 660  30  Rs. 610  20  Rs. 660 
2 units ×   1,268.28
 58units 
2,588.28
3. Cost of Other fitting materials
Date Amount (Rs.)
12-08-2019 18 units × Rs. 26 468.00
17-08-2019 30 units × Rs. 26 780.00
28-08-2019  12  Rs. 26  150  Rs. 28  946.96
34 units ×  
 162units 
30-08-2019  12  Rs. 26  150  Rs. 28 
60 units ×   1,671.11
 162units 
3,866.07
3. (a) (i) Production Budget of ‘X’ for the Second Quarter
Particulars Bags (Nos.)
Budgeted Sales 50,000
Add: Desired Closing stock 11,000
Total Requirements 61,000
Less: Opening stock 15,000
Required Production 46,000
(ii) Raw–Materials Purchase Budget in Quantity as well as in Rs. for 46,000 Bags of ‘X’
Particulars ‘Y’ ‘Z’ Empty Bags
Kgs. Kgs. Nos.
Production Requirements 2.5 7.5 1.0
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Per bag of ‘X’

Requirement for Production 1,15,000 3,45,000 46,000
(46,000 × 2.5) (46,000 × 7.5) (46,000 × 1)
Add: Desired Closing Stock 26,000 47,000 28,000
Total Requirements 1,41,000 3,92,000 74,000
Less: Opening Stock 32,000 57,000 37,000
Quantity to be purchased 1,09,000 3,35,000 37,000
Cost per Kg./Bag Rs.120 Rs.20 Rs.80
Cost of Purchase (Rs.) 1,30,80,000 67,00,000 29,60,000
(iii) Computation of Budgeted Variable Cost of Production of 1 Bag of ‘X’
Particulars (Rs.)
Raw – Material
Y 2.5 Kg @120 300.00
Z 7.5 Kg. @20 150.00
Empty Bag 80.00
Direct Labour(Rs.50× 9 minutes / 60 minutes) 7.50
Variable Manufacturing Overheads 45.00
Variable Cost of Production per bag 582.50
(iv) Budgeted Net Income for the Second Quarter
Particulars Per Bag Total
(Rs.) (Rs.)
Sales Value (50,000 Bags) 900.00 4,50,00,000
Less: Variable Cost:
Production Cost 582.50 2,91,25,000
Admn. & Selling Expenses (5% of Sales Price) 45.00 22,50,000
Budgeted Contribution 272.50 1,36,25,000
Less: Fixed Expenses:
Manufacturing 30,00,000
Admn. & Selling 20,50,000
Budgeted Net Income 85,75,000
(b) (i) Table of Primary Distribution of Overheads
Particulars Basis of Total Production Service
Apportionment Amount Department Departments
Fabrication Assembly Stores Maintenance
Overheads
Allocation 27,28,000 15,52,000 7,44,000 2,36,000 1,96,000
Allocated
Direct Costs Actual 86,36,000 71,88,000 14,48,000 --- ---

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Other
Overheads:
Factory rent Floor Area 15,28,000 9,16,800 3,82,000 95,500 1,33,700
(48:20:5:7)
Factory building Floor Area 1,72,000 1,03,200 43,000 10,750 15,050
insurance (48:20:5:7)
Plant & Value of Plant & 1,96,000 1,22,038 55,472 5,547 12,943
Machinery Machinery
insurance (66:30:3:7)
Plant & Value of Plant & 2,65,000 1,65,000 75,000 7,500 17,500
Machinery Machinery
Depreciation (66:30:3:7)
Canteen Subsidy No. of 4,48,000 2,15,040 1,43,360 68,096 21,504
employees
(60:40:19:6)
1,39,73,000 1,02,62,078 28,90,832 4,23,393 3,96,697

Re-distribution of Service Departments’ Expenses:

Particulars Basis of Production Service
Apportionment Department Departments
Fabrication Assembly Stores Maintenance
Overheads as per Primary As per Primary 1,02,62,078 28,90,832 4,23,393 3,96,697
distribution distribution
Maintenance Department Maintenance Hours 2,01,955 1,65,891 28,851 (3,96,697)
Cost (28:23:4:-)
1,04,64,033 30,56,723 4,52,244 ---
Stores Department No. of Stores Requisition 3,25,616 1,26,628 (4,52,244)
(18:7:-:-)
1,07,89,649 31,83,351 --- ---

(ii) Overhead Recovery Rate

Department Apportioned Basis of Overhead Overhead Recovery Rate (Rs.)
Overhead (Rs.) Recovery Rate
(I) (II) [(I) ÷ (II)]
Fabrication 1,07,89,649 30,00,000 Machine Hours 3.60 per Machine Hour
Assembly 31,83,351 26,00,000 Labour Hours 1.22 per Labour Hour

(iii) Calculation of full production costs of Job no. IGI2019.

Particulars Amount (Rs.)
Direct Materials 2,30,400
Direct Labour:
Fabrication Deptt. (240 hours × Rs.50) 12,000
Assembly Deptt. (180 hours × Rs.50) 9,000
Production Overheads:
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Fabrication Deptt. (210 hours × Rs. 3.60) 756

Assembly Deptt. (180 hours × Rs. 1.22) 220
Total Production Cost 2,52,376

4. (a) COMPUTATION OF VARIANCES

(i) Overhead Cost Variance = Absorbed Overheads – Actual Overheads
= (Rs.87,200 + Rs.44,800) – (Rs.1,21,520 + Rs.55,680)
= Rs. 45,200 (A)
(ii) Fixed Overhead Cost = Absorbed Fixed Overheads – Actual Fixed Overheads
Variance = Rs. 87,200 – Rs.1,21,520
= Rs.34,320 (A)
(iii) Variable Overhead Cost = Standard Variable Overheads for Production – Actual
Variance Variable Overheads
= Rs. 44,800 – Rs. 55,680
= Rs. 10,880 (A)
(iv) Fixed Overhead Volume = Absorbed Fixed Overheads – Budgeted Fixed
Variance Overheads
= Rs. 87,200 – Rs.1,09,000
= Rs. 21,800 (A)
(v) Fixed Overhead Expenditure = Budgeted Fixed Overheads – Actual Fixed Overheads
Variance
= Rs.10.90 × 10,000 units – Rs.1,21,520
= Rs.12,520 (A)
(vi) Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads
= Rs.1,03,550 – Rs.1,09,000
= Rs. 5,450 (A)
WORKING NOTE
Budgeted Fixed Overheads Rs.12,00,000 Rs. 10
Fixed Overheads per Unit = =
Budgeted Output 1,20,000units

Fixed Overheads element in Semi-Variable Overheads i.e. 60% of Rs. 1,08,000

Rs.1,80,000
Budgeted Fixed Overheads Rs.1,08,000 Rs. 0.90
Fixed Overheads per Unit = =
Budgeted Output 1,20,000units

Standard Rate of Absorption of Fixed Overheads per unit (Rs.10 + Rs.0.90) Rs.10.90
Fixed Overheads Absorbed on 8,000 units @ Rs10.90 Rs. 87,200
Budgeted Variable Overheads Rs. 6,00,000
Add : Variable element in Semi-Variable Overheads 40% of Rs. 1,80,000 Rs. 72,000

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Total Budgeted Variable Overheads Rs. 6,72,000

Budgeted Variable Overheads Rs.6,72,000 Rs.5.60
Standard Variable Cost per unit = =
Budgeted Output 1,20,000units

Standard Variable Overheads for 8,000 units @ Rs.5.60 Rs. 44,800

Budgeted Annual Fixed Overheads (Rs. 12,00,000 + 60% of Rs. 1,80,000) Rs.13,08,000
BudgetedFixedOverheads Rs.1,03,550
Possible Fixed Overheads =  ActualDays
BudgetedDays
 Rs.1,09,000 
=  19Days 
 20Days 
Actual Fixed Overheads (Rs.1,10,000 + 60% of Rs. 19,200) Rs.1,21,520
Actual Variable Overheads (Rs.48,000 + 40% of Rs.19,200) Rs. 55,680
(b) Calculation of Cost of Production of A Ltd. for the period…..
Particulars Amount (Rs.)
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 production 9,00,000
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
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.
5. (a) (i) Calculation of total project cost per day of concession period:
Activities Amount (Rs. in lakh)
Site clearance 170.70
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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 1,14,495.25
Administration and toll plaza operation cost 1,120.00
Total Cost 1,15,615.25
Concession period in days (25 years × 365 days) 9,125
Cost per day of concession period (Rs. 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
= Rs.12,67,000 + Rs.1,90,050 = Rs.14,57,050
`14,57,050
Cost per equivalent vehicle =
76,444units(Re fer workingnote)
= Rs.19.06 per equivalent vehicle
Vehicle type-wise toll fee:
Sl. No. Type of vehicle Equivalent cost Weight Toll fee per
[A] [B] vehicle
[A×B]
1. Two wheelers Rs.19.06 1 19.06
2. Car and SUVs Rs.19.06 4 76.24
3. Bus and LCV Rs.19.06 6 114.36
4. Heavy commercial Rs.19.06 9 171.54
vehicles
Working Note:
The cost per day has to be recovered from the daily traffic. The each type of vehicle is to be
converted into equivalent unit. Let’s convert all vehicle types equivalent to Two-wheelers.
Sl. No. Type of vehicle Daily traffic Weight Ratio Equivalent Two-
volume [A] [B] wheeler [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

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(b) (i) Statement of profitability of an Oil Mill (after carrying out further processing) for the
quarter ending 31st March 2019.
Products Sales Value after Share of Joint Additional Total cost Profit (loss)
further cost processing after
processing cost processing
A 25,87,500 14,80,000 6,45,000 21,25,000 4,62,500
B 2,25,000 2,96,000 1,35,000 4,31,000 (2,06,000)
C 90,000 74,000  74,000 16,000
D 6,75,000 3,70,000 22,500 3,92,500 2,82,500
35,77,500 22,20,000 8,02,500 30,22,500 5,55,000
(ii) Statement of profitability at the split off point
Products Selling Output in Sales value at Share of joint Profit at split
price of units split off point cost off point
split off
A 225.00 8,000 18,00,000 14,80,000 3,20,000
B 90.00 4,000 3,60,000 2,96,000 64,000
C 45.00 2,000 90,000 74,000 16,000
D 112.50 4,000 4,50,000 3,70,000 80,000
27,00,000 22,20,000 4,80,000
Note: Share of Joint Cost has been arrived at by considering the sales value at split off point.
6. (a) The essential features, which a good cost and management accounting system should possess,
are as follows:
(i) Informative and simple: Cost and management accounting system should be tailor-made,
practical, simple and capable of meeting the requirements of a business concern. T he system
of costing should not sacrifice the utility by introducing meticulous and unnecessary details.
(ii) 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.
(iii) 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.
(iv) 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.
(v) Flexible and adaptive: The cost and management accounting system should be flexible
enough to make necessary amendments and modification in the system to incorporate
changes in technological, reporting, regulatory and other requirements.
(vi) Trust on the system: Management should have trust on the system and its output. For this,
an active role of management is required for the development of such a system that refl ects
a strong conviction in using information for decision making.

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(b)
Bills of Material Material Requisition Note
1.It is document or list of materials prepared by the 1.It is prepared by the foreman of the
engineering/ drawing department. consuming department.
2.It is a complete schedule of component parts and 2.It is a document authorizing Store-
raw materials required for a particular job or work Keeper to issue material to the
order. consuming department.
3.It often serves the purpose of a Store Requisition 3.It cannot replace a bill of material.
as it shows the complete schedule of materials
required for a particular job i.e. it can replace stores
requisition.
4.It can be used for the purpose of quotation. 4.It is useful in arriving historical cost
only.
5.It helps in keeping a quantitative control on 5.It shows the material actually drawn
materials drawn through Stores Requisition. from stores.
(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.
(d)
Sr. No Job Costing Batch Costing
1 Method of costing used for non- standard and Homogeneous products produced in a
non- repetitive products produced as per continuous production flow in lots.
customer specifications and against specific
orders.
2 Cost determined for each Job. Cost determined in aggregate for the
entire Batch and then arrived at on per
unit basis.
3 Jobs are different from each other and Products produced in a batch are
independent of each other. Each Job is unique. homogeneous and lack of individuality.

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Test Series: May, 2020

MOCK TEST PAPER –1
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100
1. Answer the following:
(a) A company gives the following information:
Margin of Safety Rs.7,50,000
Total Cost Rs.7,75,000
Margin of Safety (Qty.) 15,000 units
Break Even Sales in Units 5,000 units
You are required to CALCULATE:

(i) Selling price per unit

(ii) Profit
(iii) Profit/ Volume Ratio
(iv) Break Even Sales (in Rupees)
(v) Fixed Cost
(b) ZX Ltd. has furnished the following information:
Budgeted Actual March 2020
Number of working days 25 27
Production (in units) 20,000 22,000
Fixed Overheads Rs. 3,00,000 Rs. 3,10,000

Budgeted fixed overhead rate is Rs. 10.00 per hour. In March 2020, the actual hours worked
were 31,500. In relation to fixed overheads, CALCULATE:
(i) Efficiency Variance
(ii) Capacity Variance
(iii) Calendar Variance
(iv) Volume Variance
(v) Expenditure Variance
(c) A company is undecided as to what kind of wage scheme should be introduced. The following
particulars have been compiled in respect of three workers, which are under consideration of the
management.

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I II III
Actual hours worked 380 100 540
Hourly rate of wages (in Rs.) 40 50 60
Productions in units:
- Product A 210 - 600
- Product B 360 - 1350
- Product C 460 250 -
Standard time allowed per unit of each product is:
A B C
Minutes 15 20 30
For the purpose of piece rate, each minute is valued at Rs. 1/-
You are required to COMPUTE 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.
(d) A Ltd has calculated a predetermined overhead rate of Rs.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
Rs.3,38,875 14,500
Rs.3,47,625 15,500
Rs.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 Rs.3,22,000.
(v) ANALYSE the arguments for and against using departmental absorption rates as opposed
to a single or blanket factory wide rate. (4 × 5 Marks = 20 Marks)
2. (a) ZA 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 100 80 80 Rs./u
Direct Labour @Rs.10/ hour 30 40 50 Rs./u
Production Overheads 30 40 50 Rs./u
Total Cost 160 160 180 Rs./u
Quantity Produced 20,000 40,000 60,000 Units
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ZA 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 (Rs.)
Stores Receiving Purchase Requisitions 5,92,000
Inspection Number of Production Runs 17,88,000
Dispatch Orders Executed 4,20,000
Machine Setup Number of Setups 24,00,000
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. (10 Marks)
(b) Following figures has been extracted from the books of M/s A&R Brothers:
Amount (Rs.)
Stock on 1st March, 2020
- Raw materials 6,06,000
- Finished goods 3,59,000
Stock on 31st March, 2020
- Raw materials 7,50,000
- Finished goods 3,09,000
Work-in-process:
- On 1st March, 2020 12,56,000
- On 31st March, 2020 14,22,000
Purchase of raw materials 28,57,000
Sale of finished goods 1,34,00,000
Direct wages 37,50,000
Factory expenses 21,25,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Sale of scrap 26,000
You are required to COMPUTE:
(i) Value of material consumed
(ii) Prime cost
(iii) Cost of production
(iv) Cost of goods sold

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(v) Cost of sales

(vi) Profit/ loss (10 Marks)
3. (a) A company manufactures a product from a raw material, which is purchased at Rs.180 per kg.
The company incurs a handling cost of Rs.1,460 plus freight of Rs.940 per order. The
incremental carrying cost of inventory of raw material is Rs.2.5 per kg per month. In addition, the
cost of working capital finance on the investment in inventory of raw material is Rs.18per kg per
annum. The annual production of the product is 1,00,000 units and 2.5 units are obtained from
one kg. of raw material.
Required:
(i) CALCULATE the economic order quantity of raw materials.
(ii) DETERMINE, how frequently company should order for procurement be placed.
(iii) If the company proposes to rationalize placement of orders on quarterly basis, DETERMINE
the percentage of discount in the price of raw materials should be negotiated?
Assume 360 days in a year. (10 Marks)
(b) G K Ltd. produces a product "XYZ" which passes through two processes, viz. Process-A and
Process-B. The details for the year ending 31st March, 2020 are as follows:
Process A Process - B
40,000 units introduced at a cost of Rs. 3,60,000 -
Material consumed Rs. 2,42,000 2,25,000
Direct wages Rs. 2,58,000 1,90,000
Manufacturing expenses Rs. 1,96,000 1,23,720
Output in units 37,000 27,000
Normal wastage of inputs 5% 10%
Scrap value (per unit) Rs. 15 20
Selling price (per unit) Rs. 37 61
Additional Information:
(a) 80% of the output of Process-A, was passed on to the next process and the balance was
sold. The entire output of Process- B was sold.
(b) Indirect expenses for the year was Rs. 4,48,080.
(c) It is assumed that Process-A and Process-B are not responsibility centre.
Required:
(i) PREPARE Process-A and Process-B Account.
(ii) PREPARE Costing Profit & Loss Account showing the net profit/ net loss for the year.
(10 Marks)
4. (a) The Trading and Profit and Loss Account of a company for the year ended 31-03-2020 is as
under:
Trading and Profit and Loss Account
Particulars Rs. Particulars Rs.
To Materials 26,80,000 By Sales (50,000 units) 62,00,000
To Wages 17,80,000 By Closing stock (2,000 units) 1,50,000
To Factory expenses 9,50,000 By Dividend received 80,000
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To General administrative expenses 4,80,200

To Selling Expenses 2,50,000
To Preliminary expenses written off 70,000
To Net profit 2,19,800
64,30,000 64,30,000
In the Cost Accounts:
(i) Factory expenses have been allocated to production at 20% of Prime Cost.
(ii) General administrative expenses absorbed at 10% of factory cost.
(iii) Selling expenses charged at Rs.10 per unit sold.
Required:
PREPARE the Costing Profit and Loss Account of the company and RECONCILE the Profit/Loss
with the profit as shown in the Financial Accounts. (10 Marks)
(b) During the FY 2019-20, GP Limited has produced 30,000 units operating at 50% capacity level.
The cost structure at the 50% level of activity is as under:
Particulars Rs.
Direct Material 150 per unit
Direct Wages 50 per unit
Variable Overheads 50 per unit
Direct Expenses 30 per unit
Factory Expenses (25% fixed) 40 per unit
Selling and Distribution Exp. (80% variable) 20 per unit
Office and Administrative Exp. (100% fixed) 10 per unit
The company anticipates that in FY 2020-21, the variable costs will go up by 10% and fixed costs
will go up by 15%.
The selling price per unit will remain unchanged at Rs.400.
Required:
(i) CALCULATE the budgeted profit/ loss for the FY 2019-20.
(ii) PREPARE an Expense budget on marginal cost basis for the FY 2020-21 for the company
at 50% and 60% level of activity and FIND OUT the profits at respective levels. (10 Marks)
5. (a) KR Resorts (P) Ltd. offers three types of rooms to its guests, viz deluxe room, super deluxe room
and luxury suite. You are required to DETERMINE the tariff to be charged to the customers for
different types of rooms on the basis of following information:
Types of Room Number of Rooms Occupancy
Deluxe Room 100 90%
Super Deluxe Room 60 75%
Luxury Suite 40 60%
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and that of ‘luxury suite’ is 3
times of ‘deluxe room’. Annual expenses are as follows:

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Particulars Amount (Rs. lakhs)

Staff salaries 780.00
Lighting, Heating and Power 350.00
Repairs, Maintenance and Renovation 220.00
Linen 60.00
Laundry charges 34.00
Interior decoration 85.00
Sundries 36.28
An attendant for each room was provided when the room was occupied and he was paid Rs. 500
per day towards wages. Further, depreciation is to be provided on building @ 5% on Rs. 900
lakhs, furniture and fixtures @ 10% on Rs. 90 lakhs and air conditioners @ 10% on Rs. 75 lakhs.
Profit is to be provided @ 25% on total taking and assume 360 days in a year. (10 Marks)
(b) (i) SHOW Journal entries for the following transactions assuming cost and financial accounts
are integrated:
(1) Materials issued:
Direct Rs. 6,50,000
Indirect (to factory) Rs. 2,30,000
(2) Allocation of wages (25% indirect) Rs. 9,00,000
(3) Under/Over absorbed overheads:
Factory (Over) Rs. 60,000
Administration (Under) Rs. 50,000
(4) Payment to Creditors (Trade payables) Rs. 9,00,000
(5) Collection from Debtors (Trade receivables) Rs. 8,00,000
(ii) A company can make any one of the 3 products X, Y or Z in a year. It can exercise its option
only at the beginning of each year.
Relevant information about the products for the next year is given below.
X Y Z
Selling Price (Rs. / unit) 100 120 120
Variable Costs (Rs. / unit) 60 90 70
Market Demand (unit) 3,000 2,000 1,000
Production Capacity (unit) 2,000 3,000 900
Fixed Costs (Rs.) 3,00,000
Required
COMPUTE the opportunity costs for each of the products. (2 × 5 = 10 Marks)
6. (a) DISCUSS the accounting treatment of Idle time and overtime wages.
(b) EXPLAIN the stages in Zero-based budgeting.
(c) STATE the differences between Job costing and Batch costing.
(d) EXPLAIN the treatment of by-product cost in cost accounting. (4 × 5 =20 Marks)

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Test Series: May, 2020

MOCK TEST PAPER – 1
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
Marginof Safety inRupee value
1. (a) (i) Selling Price per unit =
Marginof Safety inQuantity
Rs.7,50,000
= = Rs.50
15,000units
(ii) Profit = Sales Value – Total Cost
= Selling price per unit × (BEP units + MoS units) – Total Cost
= Rs.50 × (5,000 + 15,000) units – Rs.7,75,000
= Rs.10,00,000 – Rs.7,75,000 = Rs.2,25,000
Pr ofit
(iii) Profit/ Volume (P/V) Ratio = × 100
Marginof Safety inRupee value
Rs.2,25,000
= × 100 = 30%
Rs.7,50,000
(iv) Break Even Sales (in Rupees) = BEP units × Selling Price per unit
= 5,000 units × Rs.50 = Rs.2,50,000
(v) Fixed Cost = Contribution – Profit
= Sales Value × P/V Ratio – Profit
= (Rs.10,00,000 × 30%) – Rs.2,25,000
= Rs.3,00,000 – Rs.2,25,000 = Rs.75,000
(b) Workings:
Rs.3,00,000
(1) Budgeted Hours = = 30,000 hours
Rs.10 per hour
(2) Standard Fixed Overhead rate per hour (Standard Rate):
Budgeted fixed overheads Rs.3,00,000
= = = Rs.10.00
Budgeted Hours 30,000hours
30,000hours
(3) Standard hour per unit of output = = 1.5 hours
20,000units
(4) Standard hours for Actual Output = 22,000 units × 1.5 hours = 33,000 Hours
Rs.3,00,000
(5) Budgeted Overhead per day for budgeted days= = Rs.12, 000
25 days
(6) Budgeted Overhead for actual days worked = Rs.12,000 × 27 days = Rs.3,24,000
30,000hours
(7) Budgeted Hours for Actual days worked = 27days = 32,400 hours
25days

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Computation of Variances in relation to Fixed Overheads:

(i) Efficiency Variance
= Standard Rate × (Standard hours for actual output – Actual hours worked)
= Rs.10 (33,000 hours – 31,500 hours) = Rs.15,000 (Favourable)
(ii) Capacity Variance
= Standard Rate × (Actual Hours – Budgeted Hours for actual days worked)
= Rs.10 (31,500 hours – 32,400 hours) = Rs.9,000 (Adverse)
(iii) Calendar Variance
= Standard/Budgeted Fixed Overhead Rate per day × (Actual Working days – Budgeted
working days)
= Rs.12,000 (27 days – 25 days) = Rs.24,000 (Favourable)
(iv) Volume Variance
= Standard Rate × (Standard hours – Budgeted hours)
= Rs.10 (33,000 hours – 30,000 hours) = Rs.30,000 (Favourable)
(v) Expenditure Variance
= Budgeted Overheads – Actual Overheads
= Rs.3,00,000 – Rs.3,10,000 = Rs.10,000 (Adverse)
Note: Overhead Variances may also be calculated based on output.
(c) (i) Computation of wages of each worker under guaranteed hourly rate basis
Worker Actual hours Hourly wage rate Wages (Rs.)
worked (Hours) (Rs.)
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 rate Worker-I Worker-II Worker-III
per unit
(Rs.) Units Wages Units Wages Units Wages
(Rs.) (Rs.) (Rs.)
A 15 210 3,150 - - 600 9,000
B 20 360 7,200 - - 1,350 27,000
C 30 460 13,800 250 7,500 - -
Total 24,150 7,500 36,000
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. Rs. 24,150, Rs. 7,500 and Rs. 36,000 respectively.
Working Note:
1. Piece rate per unit
Product Standard time per Piece rate each Piece rate per unit
unit in minute minute (Rs.) (Rs.)
A 15 1 15

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B 20 1 20
C 30 1 30
(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 per (Rs.) (Rs.)* Earning
(Hr.) (Hr.) (Hr.) hour (Rs.) (Rs.)
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
Working Note:
1. Time allowed to each worker
Worker Product-A Product-B Product-C Total Time (Hours)
I 210 units × 15 360 units × 20 460 units × 30 24,150/60
= 3,150 = 7,200 = 13,800 = 402.50
II - - 250 units × 30 7,500/60
= 7,500 = 125
III 600 units × 15 1, 350 units × 20 - 36,000/60
= 9,000 = 27,000 = 600

Time Taken
*  TimeSaved  WageRate
Time Allowed
380
Worker-I =  22.5  40  850
402.5
100
Worker-II =  25  50  1,000
125
540
Worker-III =  60  60  3,240
600
Difference in TotalOverheads
(d) (i) Variable overhead absorption rate 
Difference in levels in terms of machine hours
Rs.3,47,625 - Rs.3,38,875
= = Rs.8.75 per machine hour.
15,500 hours -14,500 hours
(ii) Calculation of Total fixed overheads:
(Rs.)
Total overheads at 14,500 hours 3,38,875
Less: Variable overheads (Rs. 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

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(Rs. 8.75 X + Rs.2,12,000)

Then, = Rs.22
X
8.75X + Rs.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:
(Rs.)
Actual overheads 3,22,000
Absorbed overheads (14,970 hours × Rs. 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.
2. (a) The total production overheads are Rs.52,00,000:
Product A: 20,000 × Rs.30 = Rs.6,00,000
Product B: 40,000 × Rs.40 = Rs.16,00,000
Product C: 60,000 × Rs.50 = Rs.30,00,000
On the basis of ABC analysis this amount will be apportioned as follows:
Statement Showing “Activity Based Production Cost”
Activity Cost Pool Cost Driver Ratio Total Amount A B C
(Rs.) (Rs.) (Rs.) (Rs.)
Stores Receiving Purchase 6:9:10 5,92,000 1,42,080 2,13,120 2,36,800
Requisition
Inspection Production 5:7:8 17,88,000 4,47,000 6,25,800 7,15,200
Runs
Dispatch Orders 6:9:10 4,20,000 1,00,800 1,51,200 1,68,000
Executed
Machine Setups Setups 12:13:15 24,00,000 7,20,000 7,80,000 9,00,000
Total Activity Cost 14,09,880 17,70,120 20,20,000
Quantity Produces 20,000 40,000 60,000
Unit Cost (Overheads) 70.49 44.25 33.67
Add: Conversion Cost (Material + Labour) 130 120 130
Total 200.49 164.25 163.67
(b) Cost Sheet of M/s A&R Brothers for the month ended March 2020:
Particulars Amount (Rs.) Amount (Rs.)
(i) Materials consumed:
- Opening stock 6,06,000
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- Add: Purchases 28,57,000

34,63,000
- Less: Closing stock (7,50,000) 27,13,000
Direct wages 37,50,000
(ii) Prime cost 64,63,000
Factory expenses 21,25,000
85,88,000
Add: Opening W-I-P 12,56,000
Less: Closing W-I-P (14,22,000)
Factory cost 84,22,000
Less: Sale of scrap (26,000)
(iii) Cost of Production 83,96,000
Add: Opening stock of finished goods 3,59,000
Less: Closing stock of finished goods (3,09,000)
(iv) Cost of Goods Sold 84,46,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
(v) Cost of Sales 1,02,30,000
(vi) Profit (balancing figure) 31,70,000
Sales 1,34,00,000
3. (a) (i) Calculation of Economic Order Quantity (E.O.Q)
1,00,000units
Annual requirement (usage) of raw material in kg. (A) = = 40,000kg.
2.5unitsper kg.
Ordering Cost (Handling & freight cost) (O) = Rs.1,460 + Rs.940 = Rs.2,400
Carrying cost per unit per annum (C) i.e. inventory carrying cost + working capital cost
= (Rs.2.5 × 12 months) + Rs.18 = Rs.48 per kg.
2AO 2× 40,000kg. × Rs.2,400
E.O.Q. = = = 2,000 kg.
C Rs.48
(ii) Frequency of placing orders for procurement:
Annual consumption (A) = 40,000 kg.
Quantity per order (E.O.Q) = 2,000 kg.
A 40,000kg.
No. of orders per annum ( ) = = 20 orders
E.O.Q 2,000kg.
360days
Frequency of placing orders (in days) = = 18 days
20orders
(iii) Percentage of discount in the price of raw materials to be negotiated:
Particulars On Quarterly Basis On E.O.Q Basis
1. Annual Usage (in Kg.) 40,000 kg. 40,000 kg.
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2. Size of the order 10,000 kg. 2,000 kg.

3. No. of orders (1 ÷ 2) 4 20
4. Cost of placing orders or Rs.9,600 Rs.48,000
Ordering cost (4 order × Rs2,400) (20 orders × Rs2,400)
(No. of orders × Cost per order)
5. Inventory carrying cost Rs.2,40,000 Rs.48,000
(Average inventory × Carrying cost per (10,000 kg. × ½ × Rs.48) (2,000 kg. × ½ × Rs.48)
unit)
6. Total Cost (4 + 5) Rs.2,49,600 Rs.96,000
When order is placed on quarterly basis the ordering cost and carrying cost increased by
Rs.1,53,600 (Rs.2,49,600 - Rs.96,000).
So, discount required = Rs.1,53,600
Total annual purchase = 40,000 kg. × Rs.180 = Rs.72,00,000
Rs.1,53,600
So, Percentage of discount to be negotiated = ×100 = 2.13%
Rs.72,00,000
(b) (i) Process- A Account
Particulars Units Amount Particulars Units Amount
(Rs.) (Rs.)
To Inputs 40,000 3,60,000 By Normal wastage 2,000 30,000
(2,000 units × Rs.15)
To Material --- 2,42,000 By Abnormal loss A/c 1,000 27,000
(1,000 units × Rs.27)
To Direct wages --- 2,58,000 By Process- B 29,600 7,99,200
(29,600 units × Rs.27)
To Manufacturing Exp. --- 1,96,000 By Profit & Loss A/c 7,400 1,99,800
(7,400 units × Rs.27)
40,000 10,56,000 40,000 10,56,000
Rs.10,56,000 - Rs.30,000
Cost per unit = = Rs. 27 per unit
40,000units - 2,000units
Normal wastage = 40,000 units × 5% = 2,000 units
Abnormal loss = 40,000 units – (37,000 units + 2,000 units) = 1,000 units
Transfer to Process- B = 37,000 units × 80% = 29,600 units
Sale = 37,000 units × 20% = 7,400 units
Process- B Account
Particulars Units Amount Particulars Units Amount
(Rs.) (Rs.)
To Process- A A/c 29,600 7,99,200 By Normal wastage 2,960 59,200
(2,960 units × Rs. 20)
To Material --- 2,25,000 By Profit & Loss A/c 27,000 12,96,000
(27,000 units × Rs. 48)
To Direct Wages --- 1,90,000
To Manufacturing Exp. --- 1,23,720

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To Abnormal Gain A/c 360 17,280

(360 units × Rs. 48)
29,960 13,55,200 29,960 13,55,200
Rs.13,37,920 -Rs.59,200
Cost per unit = = Rs. 48 per unit
29,600units - 2,960units
Normal wastage = 29,600 units × 10% = 2,960 units
Abnormal gain = (27,000 units + 2,960 units) – 29,600 units = 360 units
(ii) Costing Profit & Loss Account
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Process- A A/c 1,99,800 By Sales:
To Process- B A/c 12,96,000 - Process-A 2,73,800
(7,400 units × Rs. 37)
To Abnormal loss A/c 12,000 - Process- B 16,47,000
(27,000 units × Rs. 61)
To Indirect Expenses 4,48,080 By Abnormal gain 10,080
By Net loss 25,000
19,55,880 19,55,880
Working Notes:
Normal wastage (Loss) Account
Particulars Units Amount (Rs.) Particulars Units Amount (Rs.)
To Process- 2,000 30,000 By Abnormal Gain A/c 360 7,200
A A/c (360 units × Rs. 20)
To Process- 2,960 59,200 By Bank (Sales) 4,600 82,000
B A/c
4,960 89,200 4,960 89,200
Abnormal Loss Account
Particulars Units Amount Particulars Units Amount
(Rs.) (Rs.)
To Process- 1,000 27,000 By Bank A/c 1,000 15,000
A A/c (1,000 units × Rs. 15)
By Profit & Loss A/c --- 12,000
1,000 27,000 1,000 27,000
Abnormal Gain Account
Particulars Units Amount Particulars Units Amount
(Rs.) (Rs.)
To Normal loss A/c 360 7,200 By Process- B A/c 360 17,280
(360 units × Rs. 20)
To Profit & Loss A/c 10,080
360 17,280 360 17,280

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4. (a) Workings:
Preparation of Cost Sheet/ Cost Statement
Particulars Amount (Rs.)
Materials 26,80,000
Wages 17,80,000
Prime Cost 44,60,000
Add: Factory expenses (20% of Rs. 44,60,000) 8,92,000
Factory cost/ Cost of Production 53,52,000
 Rs.53,52,000 
Less: Closing Stock  ×2,000units  (2,05,846)
 52,000units 
Cost of Goods Sold 51,46,154
Add: General administrative expenses (10% of Rs.53,52,000) 5,35,200
Add: Selling expenses (Rs.10 × 50,000 units) 5,00,000
Cost of Sales 61,81,354
Profit (Balancing figure) 18,646
Sales Value 62,00,000

Costing Profit and Loss Account

Particulars Amount (Rs.) Particulars Amount (Rs.)
To Materials 26,80,000 By Sales 62,00,000
To Wages 17,80,000 By Closing stock 2,05,846
To Factory expenses 8,92,000
To General administrative expenses 5,35,200
To Selling expenses 5,00,000
To Profit (Balancing figure) 18,646
64,05,846 64,05,846
Reconciliation of profit as per Cost Accounts and as per Financial Accounts
Particulars Amount (Rs.)
Profit as per Cost Accounts 18,646
Additions:
General administrative expenses (Over-absorbed) (Rs. 5,35,200 – Rs.4,80,200) 55,000
Selling expenses (Overcharged) (Rs. 5,00,000 – Rs. 2,50,000) 2,50,000
Dividend received 80,000
4,03,646
Deductions:
Factory expenses (Under -absorbed) (Rs.9,50,000 – 8,92,000) 58,000
Closing stock (Over-valued) (Rs.2,05,846 – Rs. 1,50,000) 55,846
Preliminary expenses written off 70,000
1,83,846
Profit as per Financial Accounts 2,19,800
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(b) (i) Calculation of Budgeted profit for the FY 2019-20

30,000 units
Per unit (Rs.) Amount (Rs.)
Sales (A) 400.00 1,20,00,000
Less: Variable Costs:
- Direct Material 150.00 45,00,000
- Direct Wages 50.00 15,00,000
- Variable Overheads 50.00 15,00,000
- Direct Expenses 30.00 9,00,000
- Variable factory expenses 30.00 9,00,000
(75% of Rs.40p.u.)
- Variable Selling & Dist. exp. 16.00 4,80,000
(80% of Rs.20p.u.)
Total Variable Cost (B) 326.00 97,80,000
Contribution (C) = (A – B) 74.00 22,20,000
Less: Fixed Costs:
- Office and Admin. exp. (100%) -- 3,00,000
- Fixed factory exp. (25%) -- 3,00,000
- Fixed Selling & Dist. exp. (20%) -- 1,20,000
Total Fixed Costs (D) -- 7,20,000
Profit (C – D) -- 15,00,000
(ii) Expense Budget of GP Ltd. for the FY 2020-21 at 50% & 60% level
30,000 units 36,000 units
Per unit Amount Per unit Amount (Rs.)
(Rs.) (Rs.) (Rs.)
Sales (A) 400.00 1,20,00,000 400.00 1,44,00,000
Less: Variable Costs:
- Direct Material 165.00 49,50,000 165.00 59,40,000
- Direct Wages 55.00 16,50,000 55.00 19,80,000
- Variable Overheads 55.00 16,50,000 55.00 19,80,000
- Direct Expenses 33.00 9,90,000 33.00 11,88,000
- Variable factory expenses 33.00 9,90,000 33.00 11,88,000
- Variable Selling & Dist. exp. 17.60 5,28,000 17.60 6,33,600
Total Variable Cost (B) 358.60 1,07,58,000 358.60 1,29,09,600
Contribution (C) = (A – B) 41.40 12,42,000 41.40 14,90,400
Less: Fixed Costs:
- Office and Admin. exp. -- 3,45,000 -- 3,45,000
(100%)
- Fixed factory exp. (25%) -- 3,45,000 -- 3,45,000
- Fixed Selling & Dist. exp. -- 1,38,000 -- 1,38,000
(20%)
Total Fixed Costs (D) -- 8,28,000 -- 8,28,000
Profit (C – D) -- 4,14,000 -- 6,62,400

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5. (a) Total cost statement of KR Resort (P) Limited

Particulars Cost per annum
(Rs. in lakhs)
Staff Salaries 780.00
Room Attendant’s Wages (Refer working note 3) 286.20
Lighting, Heating & Power 350.00
Repairs, Maintenance & Renovation 220.00
Linen 60.00
Laundry charges 34.00
Interior Decoration 85.00
Sundries 36.28
Depreciation: (Refer working note 4)
- Building 45.00
- Furniture & Fixture 9.00
- Air Conditioners 7.50
Total cost for the year 1912.98

Computation of profit:
Let Rs. x be the rent for deluxe from.
Equivalent deluxe room days are 90,720 (Refer working note 2)
Total takings = Rs. 90,720x
Profit is 25% of total takings.
Profit = 25% of Rs. 90,720x = Rs. 22,680x
Total takings = Total Cost + Profit
Rs. 90,720x = Rs. 19,12,98,000 + Rs. 22,680x
Rs. 90,720x -Rs. 22,680x = Rs. 19,12,98,000
Rs. 68,040x = Rs. 19,12,98,000
Rs.19,12,98,000
X=  Rs. 2,811.55
Rs.68,040

Rent to be charged for deluxe room Rs. 2,811.55

Rent to be charged for super deluxe room = Rs. 5,623.10
Rent of deluxe room x 2 = Rs. 2,811.55 x 2
Rent to be charged for luxury suite = Rs. 8,434.65
Rent of Super Deluxe room x 1.5 = Rs. 5,623.10 x 1.5
Working Notes:
(1) Computation of Room Occupancy
Type of Room No. of rooms x no. of days x occupancy % Room days
Deluxe Room 100 rooms x 360 days x 90% occupancy 32,400
Super Deluxe Room 60 rooms x 360 days x 75% occupancy 16,200
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Luxury Suite 40 rooms x 360 days x 60% occupancy 8,640

Total 57,240
(2) Computation of equivalent deluxe room days
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and luxury suite’ is 3
times of ‘deluxe room’. Therefore, equivalent room days would be:
Type of Room Room days Equivalent deluxe room days
Deluxe Room 32,400 x 1 32,400
Super Deluxe Room 16,200 x 2 32,400
Luxury Suite 8,640 x 3 25,920
Total 90,720
(3) Computation of room attendant’s wages
Room occupancy days @ Rs. 500 per day = 286.2 lakhs (i.e. 57,240 days ×Rs. 500)
(4) Computation of Depreciation per annum
Particulars Cost (Rs.) Rate of Depreciation Depreciation (Rs.)
Building 9,00,00,000 5% 45,00,000
Furniture & Fixtures 90,00,000 10% 9,00,000
Air Conditioners 75,00,000 10% 7,50,000
(b) (i) Journal Entries under Integrated system of accounting
Particulars Rs. Rs.
(i) Work-in-Progress Control A/c Dr. 6,50,000
Factory Overhead Control A/c Dr. 2,30,000
To Stores Ledger Control A/c 8,80,000
(Being issue of Direct and Indirect materials)
(ii) Work-in Progress Ledger Control A/c Dr. 6,75,000
Factory Overhead control A/c Dr. 2,25,000
To Wages Control A/c 9,00,000
(Being allocation of Direct and Indirect wages)
(iii) Factory Overhead Control A/c Dr. 60,000
To Costing Profit & Loss A/c 60,000
(Being transfer of over absorption of Factory
overhead)
Costing Profit & Loss A/c Dr. 50,000
To Administration Overhead Control A/c 50,000
(Being transfer of under absorption of
Administration overhead)
(iv) Trade Payables A/c Dr. 9,00,000
To Cash/ Bank A/c 9,00,000
(Being payment made to creditors)

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(v) Cash/ Bank A/c Dr. 8,00,000

To Trade receivables A/c 8,00,000
(Being payment received from debtors)
(ii)
X Y Z
I. Contribution per unit (Rs.) 40 30 50
II. Units (Lower of Production / Market Demand) 2,000 2,000 900
III. Possible Contribution (Rs.) [ I × II ] 80,000 60,000 45,000
IV. Opportunity Cost* (Rs.) 60,000 80,000 80,000
(*) Opportunity cost is the maximum possible contribution forgone by not producing
alternative product i.e. if Product X is produced then opportunity cost will be maximum of
(Rs. 60,000 from Y, Rs. 45,000 from Z).
6. (a) Accounting treatment of idle time wages & overtime wages in cost accounts: Normal idle
time is treated as a part of the cost of production. Thus, in the case of direct workers, an
allowance for normal idle time is built into the labour cost rates. In the case of indirect workers,
normal idle time is spread over all the products or jobs through the process of absorption of
factory overheads.
Under Cost Accounting, the overtime premium is treated as follows:
If overtime is resorted to at the desire of the customer, then the overtime premium may be
charged to the job directly.
If overtime is required to cope with general production program or for meeting urgent orders, the
overtime premium should be treated as overhead cost of particular department or cost center
which works overtime.
Overtime worked on account of abnormal conditions should be charged to costing Profit & Loss
Account.
If overtime is worked in a department due to the fault of another department, the overtime
premium should be charged to the latter department.
(b) Zero-based budgeting (ZBB) involves the following stages:
(i) Identification and description of Decision packages
(ii) Evaluation of Decision packages
(iii) Ranking (Prioritisation) of the Decision packages
(iv) Allocation of resources
(i) Identification and description of Decision packages: Decision packages are the
programmes or activities for which decision is required to be taken. The programmes or
activities are described for technical specifications, financial impact in the form of cost
benefit analysis and other issues like environmental, regulatory, social etc.
(ii) Evaluation of Decision packages: Once Decision packages are identified and described, it
is evaluated against factors like synchronisation with organisational objectives, availability of
funds, regulatory requirement etc.
(iii) Ranking (Prioritisation) of the Decision packages: After evaluation of the decision
packages, it is ranked on the basis priority of the activities. Because of this prioritization
feature ZBB is also known as Priority-based Budgeting.
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(iv) Allocation of resources: After ranking of the decision packages, resources are allocated
for decision packages. Budgets are prepared like it is done first time without taking
reference to previous budgets.
(c) Differences between Job costing and Batch costing:
Sr. Job Costing Batch Costing
No
1 Method of costing used for non- standard Homogeneous products produced in a
and non- repetitive products produced as continuous production flow in lots.
per customer specifications and against
specific orders.
2 Cost determined for each Job. Cost determined in aggregate for the
entire Batch and then arrived at on per
unit basis.
3 Jobs are different from each other and Products produced in a batch are
independent of each other. Each Job is homogeneous and lack of individuality.
unique.
(d) By-product cost can be dealt in cost accounting in the following ways:
(i) When they are of small total value: 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.
(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. In this
case, the joint costs may be divided over joint products and by-products by using relative
market values; physical output method (at the point of split off) or ultimate selling prices (if
sold).
(iii) Where 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 the realisable value of by-products.
If total sales value of by-products at split-off point is small, it may be treated as per the
provisions discussed above under (i).
In the contrary case, the amount realised from the sale of by-products will be considerable
and thus it may be treated as discussed under (ii).

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Test Series: October, 2020

MOCK TEST PAPER
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) 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
(b) A company deals in trading of a toy car ‘Terminato’. The annual demand for the toy car is 9,680
units. The company incurs fixed order placement and transportation cost of ` 200 each time an
order is placed. Each toy costs ` 400 and the trader has a carrying cost of 20 percent p.a.
The company has been offered a quantity discount of 5% on the purchase of ‘Terminato’ provided
the order size is 4,840 units at a time.

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Required:
(i) COMPUTE the economic order quantity
(ii) STATE whether the quantity discount offer can be accepted.
(c) ‘Mirror Look’, a high gloss wooden manufacturing company, requires you to PREPARE the
Master budget for the next year from the following information:
Sales:
Acrylic finish wooden sheets ` 70,00,000
Lacquer finish wooden sheets ` 30,00,000
Direct material cost 65% of sales
Direct wages 25 workers @ ` 1,500 per month
Factory overheads:
Indirect labour –
Works manager ` 5,500 per month
Foreman ` 4,500 per month
Stores and spares 2.5% on sales
Depreciation on machinery ` 1,26,000
Light and power (fixed) ` 30,000
Repairs and maintenance ` 80,000
Others sundries 10% on direct wages
Administration, selling and distribution expenses ` 3,99,000 p.a.
(d) ‘Buttery Butter’ is engaged in the production of Buttermilk, Butter and Ghee. It purchases processed
cream and let it through the process of churning until it separates into buttermilk and butter. For the
month of January, 2020, ‘Buttery Butter’ purchased 50 Kilolitre processed cream @ ` 100 per 1000
ml. Conversion cost of ` 1,00,000 were incurred up-to the split off point, where two saleable products
were produced i.e. buttermilk and butter. Butter can be further processed into Ghee.
The January, 2020 production and sales information is as follows:
Products Production (in Sales Quantity (in Selling price per
Kilolitre/tonne) Kilolitre/tonne) Litre/Kg (`)
Buttermilk 28 28 30
Butter 20 — —
Ghee 16 16 480
All 20 tonne of butter were further processed at an incremental cost of ` 1,20,000 to yield 16
Kilolitre of Ghee. There was no opening or closing inventories of buttermilk, butter or ghee in
January, 2020.
Required:
(i) SHOW how joint cost would be apportioned between Buttermilk and Butter under Estimated
Net Realisable Value method.
(ii) ‘Healthy Bones’ offers to purchase 20 tonne of butter in February at ` 360 per kg. In case
‘Buttery Butter’ accepts this offer, no Ghee would be produced in February. SUGGEST
whether ‘Buttery Butter’ shall accept the offer affecting its operating income or further
process butter to make Ghee itself? [4 × 5 Marks = 20 Marks]

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2. (a) Following data is extracted from the books of XYZ Ltd. for the month of January, 2020:
(i) Estimation-
Particulars Quantity (kg.) Price (`) Amount (`)
Material-A 800 ? --
Material-B 600 30.00 18,000
--
Normal loss was expected to be 10% of total input materials.
(ii) Actuals-
1480 kg of output produced.
Particulars Quantity (kg.) Price (`) Amount (`)
Material-A 900 ? --
Material-B ? 32.50 --
59,825

(iii) Other Information-

Material Cost Variance = ` 3,625 (F)
Material Price Variance = ` 175 (F)
You are required to CALCULATE:
(i) Standard Price of Material-A;
(ii) Actual Quantity of Material-B;
(iii) Actual Price of Material-A;
(iv) Revised standard quantity of Material-A and Material-B; and
(v) Material Mix Variance; [10 Marks]
(b) CanCola, a zero sugar cold drink manufacturing Indian company, is planning to establish a
subsidiary company in Nepal to produce coconut flavoured juice. Based on the estimated annual
sales of 60,000 bottles of the juice, cost studies produced the following estimates for the
Nepalese subsidiary:
Total Annual Costs Percent of Total Annual Cost
(`) which is variable
Material 2,70,000 100%
Labour 1,97,000 80%
Factory Overheads 1,20,000 60%
Administration Expenses 52,000 35%
The Nepalese production will be sold by manufacturer’s representatives who will receive a
commission of 9% of the sale price. No portion of the Indian office expenses is to be allocated to
the Nepalese subsidiary. You are required to-
(i) COMPUTE the sale price per bottle to enable the management to realize an estimated 20%
profit on sale proceeds in Nepal.
(ii) CALCULATE the break-even point in rupees value sales and also in number of bottles for

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the Nepalese subsidiary on the assumption that the sale price is ` 14 per bottle.
[10 Marks]
3. (a) ‘Healthy Sweets’ is engaged in the manufacturing of jaggery. Its process involve sugarcane
crushing for juice extraction, then filtration and boiling of juice along with some chemicals and
then letting it cool to cut solidified jaggery blocks.
The main process of juice extraction (Process – I) is done in conventional crusher, which is then
filtered and boiled (Process – II) in iron pots. The solidified jaggery blocks are then cut, packed
and dispatched. For manufacturing 10 kg of jaggery, 100 kg of sugarcane is required, which
extracts only 45 litre of juice.
Following information regarding Process – I has been obtained from the manufacturing
department of Healthy Sweets for the month of January, 2020:
(`)
Opening work-in process (4,500 litre)
Sugarcane 50,000
Labour 15,000
Overheads 45,000
Sugarcane introduced for juice extraction (1,00,000 kg) 5,00,000
Direct Labour 2,00,000
Overheads 6,00,000
Abnormal Loss: 1,000 kg
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Closing work-in process: 9,000 litre
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Extracted juice transferred for filtering and boiling: 39,500 litre
(Consider mass of 1 litre of juice equivalent to 1 kg)
You are required to PREPARE using average method:
(i) Statement of equivalent production,
(ii) Statement of cost,
(iii) Statement of distribution cost, and
(iv) Process-I Account. [10 Marks]
(b) In a factory, the basic wage rate is ` 300 per hour and overtime rates are as follows:
Before and after normal working hours 180% of basic wage rate
Sundays and holidays 230% of basic wage rate
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During the previous year, the following hours were worked

- Normal time 1,00,000 hours
- Overtime before and after working hours 20,000 hours
Overtime on Sundays and holidays 5,000 hours
Total 1,25,000 hours
The following hours have been worked on job ‘A’
Normal 1,000 hours
Overtime before and after working hrs. 100 hours.
Sundays and holidays 25 hours.
Total 1,125 hours
You are required to CALCULATE the labour cost chargeable to job ‘A’ and overhead in each of
the following instances:
(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.
(iii) Where overtime is worked at the request of the customer to expedite the job. [10 Marks]
4. (a) Aloe Ltd. has the capacity to produce 2,00,000 units of a product every month. Its works cost at
varying levels of production is as under:

Level Works cost per unit (`)

10% 400
20% 390
30% 380
40% 370
50% 360
60% 350
70% 340
80% 330
90% 320
100% 310

Its fixed administration expenses amount to ` 3,60,000 and fixed marketing expenses amount to
` 4,80,000 per month respectively. The variable distribution cost amounts to ` 30 per unit.
It can sell 100% of its output at ` 500 per unit provided it incurs the following further expenditure:
(i) It gives gift items costing ` 30 per unit of sale;
(ii) It has lucky draws every month giving the first prize of ` 60,000; 2 nd prize of ` 50,000,
3rd prize of ` 40,000 and ten consolation prizes of ` 5,000 each to customers buying the
product.
(iii) It spends ` 2,00,000 on refreshments served every month to its customers;
(iv) It sponsors a television programme every week at a cost of ` 20,00,000 per month.
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It can market 50% of its output at ` 560 by incurring expenses referred from (ii) to (iv) above and
30% of its output at ` 600 per unit without incurring any of the expenses referred from ( i) to (iv)
above.
PREPARE a cost sheet for the month showing total cost and profit at 30%, 50% and 100%
capacity level & COMPARE its profit. [10 Marks]
(b) A contractor has entered into a long term contract at an agreed price of `18,70,000 subject to an
escalation clause for materials and wages as spelt out in the contract and corresponding actuals
are as follows:
Standard Actual
Materials Qty (tons) Rate (`) Qty (tons) Rate (`)
A 6,000 50.00 6,050 48.00
B 3,000 80.00 2,950 79.00
C 2,500 60.00 2,600 66.00
Wages Hours Hourly Rate (`) Hours Hourly Rate (`)
X 3,000 70.00 3,100 72.00
Y 2,500 75.00 2,450 75.00
Z 3,000 65.00 3,100 66.00
Reckoning the full actual consumption of material and wages, the company has claimed a final
price of ` 18,94,100. Give your ANALYSIS of admissible escalation claim and indicate the final
price payable. [10 Marks]
5. (a) A Ltd. manufactures two products- A and B. The manufacturing division consists of two
production departments P 1 and P2 and two service departments S 1 and S2.
Budgeted overhead rates are used in the production departments to absorb factory overheads to
the products. The rate of Department P 1 is based on direct machine hours, while the rate of
Department P 2 is based on direct labour hours. In applying overheads, the pre-determined rates
are multiplied by actual hours.
For allocating the service department costs to production departments, the basis adopted is as
follows:
(i) Cost of Department S 1 to Department P 1 and P2 equally, and
(ii) Cost of Department S 2 to Department P 1 and P2 in the ratio of 2 : 1 respectively.
The following budgeted and actual data are available:
Annual profit plan data:
Factory overheads budgeted for the year:
Departments P1 27,51,000 S1 8,00,000
P2 24,50,000 S2 6,00,000
Budgeted output in units:
Product A 50,000; B 30,000.
Budgeted raw-material cost per unit:
Product A ` 120; Product B ` 150.

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Budgeted time required for production per unit:

Department P 1 : Product A : 1.5 machine hours
Product B : 1.0 machine hour
Department P 2 : Product A : 2 Direct labour hours
Product B : 2.5 Direct labour hours
Average wage rates budgeted in Department P 2 are:
Product A - ` 72 per hour and Product B – ` 75 per hour.
All materials are used in Department P 1 only.
Actual data (for the month of Jan, 2020):
Units actually produced: Product A : 4,000 units
Product B : 3,000 units
Actual direct machine hours worked in Department P 1:
On Product A 6,100 hours, Product B 4,150 hours.
Actual direct labour hours worked in Department P 2:
On Product A 8,200 hours, Product B 7,400 hours.
Costs actually incurred: Product A Product B
` `
Raw materials 4,89,000 4,56,000
Wages 5,91,900 5,52,000
Overheads: Department P1 2,50,000 S1 80,000
P2 2,25,000 S2 60,000
You are required to:
(i) COMPUTE the pre-determined overhead rate for each production department.
(ii) PREPARE a performance report for Jan, 2020 that will reflect the budgeted costs and actual
costs. [10 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, 2019 are as follows:
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond
Production of 4,000 3,000 2,000
soaps (Units)
Resources per Qty Rate Qty Rate Qty Rate
Unit:
- Essential Oils 60 ml ` 200 / 100 ml 55 ml ` 300 / 100 ml 65 ml ` 300 / 100 ml
- Cocoa Butter 20 g ` 200 / 100 g 20 g ` 200 / 100 g 20 g ` 200 / 100 g
- Filtered Water 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml
- Chemicals 10 g ` 30 / 100 g 12 g ` 50 / 100 g 15 g ` 60 / 100 g
- Direct Labour 30 ` 10 / hour 40 ` 10 / hour 60 ` 10 / hour
minutes minutes minutes

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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 adopting 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
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 0.8 kg and 1 kg
respectively (ii) Mass of output produced 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.
(iii) STATE what are the reasons for the different product costs under the two approaches?
[10 Marks]
6. Answer any four of the following:
(a) DISCUSS the steps to be followed to exercise control over cost.
(b) DISTINGUISH between Bill of Materials and Material Requisition Note.
(c) LIST five financial expenses that causes differences in Financial and Cost Accounts.
(d) EXPLAIN standing charges and running charges in the case of transport organisations. LIST
three examples of both.
(e) DESCRIBE objectives of Budgetary Control System. [4 × 5 = 20 Marks]

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Test Series: October, 2020

MOCK TEST PAPER
INTERMEDIATE: GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/ HINTS

1. (a) Statement of Cost and Profit per batch

Particulars Jan. Feb. March April May June Total
Batch output (in units) 310 300 320 280 300 320 1,830
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 expenses* (`) 600 672 672 621 780 800 4,145
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 unit (`) 6.03 6.51 6.26 6.75 7.10 6.81 6.57
Profit per unit (`) 1.97 1.49 1.74 1.25 0.90 1.19 1.43
Overall position of the order for 1,200 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
(b) (i) Calculation of Economic Order Quantity

EOQ = 2AO = 2  9,680units  Rs.200 = 220 units

C Rs.400  20%
(ii) Evaluation of Profitability of Different Options of Order Quantity
(A) When EOQ is ordered
(`)
Purchase Cost (9,680 units  ` 400) 38,72,000
Ordering Cost [(9,680 units/220 units)  ` 200] 8,800
Carrying Cost (220 units  ½  ` 400  20%) 8,800
Total Cost 38,89,600
(B) When Quantity Discount is accepted
(`)
Purchase Cost (9,680 units  ` 380) 36,78,400
Ordering Cost [(9,680 units/4,840 units)  ` 200] 400
Carrying Cost (4,840 units  ½  ` 380  20%) 1,83,920
Total Cost 38,62,720

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Advise – The total cost of inventory is lower if quantity discount is accepted. The company
would save ` 26,880 (` 38,89,600 - ` 38,62,720).
(c) Master Budget for the year ending ______
Particulars (`) (`) (`)
Sales:
Acrylic finish wooden sheets 70,00,000
Lacquer finish wooden sheets 30,00,000
Total Sales 1,00,00,000
Less: Cost of production:
Direct materials (65% of ` 1,00,00,000) 65,00,000
Direct wages (25 workers × ` 1,500 × 12 4,50,000
months)
Prime Cost 69,50,000
Fixed Factory Overhead:
Works manager’s salary (5,500 × 12 months) 66,000
Foreman’s salary (4,500 × 12 months) 54,000
Depreciation 1,26,000
Light and power 30,000 2,76,000
Variable Factory Overhead:
Stores and spares (2.5% of ` 1,00,00,000) 2,50,000
Repairs and maintenance 80,000
Sundry expenses 45,000 3,75,000
Works Cost 76,01,000
Gross Profit (Sales – Works cost) 23,99,000
Less: Adm., selling and distribution expenses 3,99,000
Net Profit 20,00,000
(d) (i) Estimated Net Realisable Value Method:
Buttermilk Butter
Amount (`) Amount (`)
Sales Value 8,40,000 76,80,000
(` 30 × 28 × 1000) (` 480 × 16 × 1000)
Less: Post split-off cost (Further
processing cost) - (1,20,000)
Net Realisable Value 8,40,000 75,60,000
Apportionment of Joint Cost of 5,10,000 45,90,000
` 51,00,000* in ratio of 1:9
* [(` 100 × 50 × 1000) + ` 1,00,000] = ` 51,00,000
(ii) Incremental revenue from further processing of Butter into Ghee
(` 480 × 16 × 1000 - ` 360 × 20 × 1000) ` 4,80,000
Less: Incremental cost of further processing
of Butter into Ghee ` 1,20,000
Incremental operating income from further processing ` 3,60,000

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The operating income of ‘Buttery Butter’ will be reduced by ` 3,60,000 in February if it sells
20 tonne of Butter to ‘Healthy Bones’, instead of further processing of Butter into Ghee for
sale. Thus, ‘Buttery Butter’ is advised not to accept the offer and further process butter to
make Ghee itself.
2. (a) (i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
` 3,625 = (SQ × SP) – ` 59,825
(SQ × SP) = ` 63,450
(SQA × SPA) + (SQB × SPB) = ` 63,450
(940 kg × SPA) + (705 kg × ` 30) = ` 63,450
(940 kg × SPA) + ` 21,150 = ` 63,450
(940 kg × SPA) = ` 42,300
Rs.42,300
SPA =
940kg
Standard Price of Material-A = ` 45
Working Note:
SQ i.e. quantity of inputs to be used to produce actual output
1,480kg
= = 1,645 kg
90%
800kg
SQA =  1,645kg. = 940 kg
(800  600)

600kg
SQB =  1,645kg. = 705 kg
(800  600)
(ii) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)}
` 175 = (AQ × SP) – ` 59,825
(AQ × SP) = ` 60,000
(AQA × SPA) + (AQB × SPB) = ` 60,000
(900 kg × ` 45 (from (i) above)) + (AQ B × `30) = ` 60,000
` 40,500 + (AQB × ` 30) = ` 60,000
(AQB × ` 30) = ` 19,500
19,500
AQB = = 650 kg
30
Actual Quantity of Material B = 650 kg.
(iii) (AQ × AP) = ` 59,825
(AQA × APA) + (AQB × APB) = ` 59,825
(900 kg × APA) + (650 kg (from (ii) above) × ` 32.5) = ` 59,825
(900 kg × APA) + ` 21,125 = ` 59,825
(900 kg × APA) = ` 38,700

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38,700
APA = = 43
900
Actual Price of Material-A = ` 43
(iv) Total Actual Quantity of Material-A and Material-B
= AQA + AQB
= 900 kg + 650 kg (from (ii) above)
= 1,550 kg
Now,
800kg
Revised SQA =  1,550kg. = 886 kg
(800  600)

600kg
Revised SQB =  1,550kg. = 664 kg
(800  600)
(v) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
= {(RSQA × SPA) + (RSQB × SPB) – 60,000}
= (886 kg (from (iv) above) × ` 45 (from (i) above))
+ (664 kg (from (iv) above) × ` 30) - `60,000
= (39,870 + 19,920) – 60,000 = ` 210 (A)

(b) (i) Computation of Sale Price Per Bottle

Output: 60,000 Bottles
(`)
Variable Cost:
Material 2,70,000
Labour (` 1,97,000 × 80%) 1,57,600
Factory Overheads (`1,20,000 × 60%) 72,000
Administrative Overheads (` 52,000 × 35%) 18,200
Commission (9% on `9,00,000 (Working Note -1)) 81,000
Fixed Cost:
Labour (` 1,97,000 × 20%) 39,400
Factory Overheads (` 1,20,000 × 40%) 48,000
Administrative Overheads (` 52,000 × 65%) 33,800
Total Cost 7,20,000
Profit (20% of ` 9,00,000) 1,80,000
Sales Proceeds 9,00,000
 Rs.9,00,000  15
Sales Price per bottle  
 60,000 

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(ii) Calculation of Break-even Point

Sales Price per Bottle = ` 14
Rs.5,93,400(workingnote  2)
Variable Cost per Bottle = = ` 9.89
60,000bottles

Contribution per Bottle = ` 14 − ` 9.89 = ` 4.11

Fixedcos t
Break -even Point (in number of Bottles) =
Contributionper bottle

Rs.1,21,200
= = 29,489
Rs.4.11
Break- even Point (in Sales Value) = 29,489 Bottles × `14
= ` 4,12,846
Working Note
(1) Let the Sales Price be ‘X’
9X
Commission =
100
20X
Profit =
100
X = ` 2,70,000 + `1,57,600 + ` 72,000 + ` 18,200 + ` 39,400 + ` 48,000 +
9X 20X
` 33,800 + 
100 100
9X 20X
X = ` 6,39,000 + 
100 100
100X – 9X – 20X = 6,39,00,000
71X = 6,39,00,000
6,39,00,000
X = = ` 9,00,000
71
(2)
Total Variable Cost (`)
Material 2,70,000
Labour 1,57,600
Factory Overheads 72,000
Administrative Overheads 18,200
Commission [(60,000 Bottles × ` 14) × 9%] 75,600
5,93,400

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3. (a) (i) Statement of Equivalent Production

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

Closing WIP 9,000 100 9,000 80 7,200

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

* 100 kg of sugarcane extracts only 45 litre of juice. Thus, normal loss = 100 – 45 = 55%
(ii) Statement showing cost for each element
Particulars Sugarcane Labour Overhead Total
(`) (`) (`) (`)
Cost of opening work-in-process 50,000 15,000 45,000 1,10,000
Cost incurred during the month 5,00,000 2,00,000 6,00,000 13,00,000
Total cost: (A) 5,50,000 2,15,000 6,45,000 14,10,000
Equivalent units: (B) 49,500 47,500 47,500
Cost per equivalent unit: (C) = (A ÷ B) 11.111 4.526 13.579 29.216
(iii) Statement of Distribution of cost
Amount Amount
(`) (`)
1. Value of units completed and transferred 11,54,032
(39,500 units × ` 29.216)
2. Value of Abnormal Loss:
- Sugarcane (1,000 units × ` 11.111) 11,111
- Labour (800 units × ` 4.526) 3,621
- Overheads (800 units × ` 13.579) 10,863 25,595
3. Value of Closing W-I-P:
- Sugarcane (9,000 units × ` 11.111) 99,999
- Labour (7,200 units × ` 4.526) 32,587
- Overheads (7,200 units × ` 13.579) 97,769 2,30,355
(iv) Process-I A/c
Particulars Units (`) Particulars Units (`)
To Opening W.I.P: By Normal Loss 55,000 --
- Sugarcane 4,500 50,000 By Abnormal 1,000 25,613
loss (`25,595 + `18
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(difference due to
approximation))
- Labour -- 15,000 By Process-II A/c 39,500 11,54,032
- Overheads -- 45,000 By Closing WIP 9,000 2,30,355
To Sugarcane introduced 100,000 5,00,000
To Direct Labour 2,00,000
To Overheads 6,00,000
104,500 14,10,000 104,500 14,10,000
(b) Workings
Basic wage rate : ` 300 per hour
Overtime wage rate before and after working hours : ` 300 × 180% = ` 540 per hour
Overtime wage rate for Sundays and holidays : ` 300 × 230% = ` 690 per hour
Computation of average inflated wage rate (including overtime premium):
Particulars Amount (`)
Annual wages for the previous year for normal time (1,00,000 hrs. × ` 300) 3,00,00,000
Wages for overtime before and after working hours (20,000 hrs. × ` 540) 1,08,00,000
Wages for overtime on Sundays and holidays (5,000 hrs. × ` 690) 34,50,000
Total wages for 1,25,000 hrs. 4,42,50,000
Rs.4,42,50,000
Average inflated wage rate = = `354
1,25,000hours
(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 ‘A’
= Total hours × Inflated wage rate = 1,125 hrs. × ` 354 = ` 3,98,250
(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 ‘A’: 1,125 hours @ `300 per hour = `3,37,500
Factory overhead: {100 hrs. × ` (540 – 300)} + {25 hrs. × ` (690 – 300)}
= {` 24,000 + ` 9,750} = ` 33,750
(iii) Where overtime is worked at the request of the customer, overtime premium is also
charged to the job as under:
(`)
Job ‘A’ Employee cost 1,125 hrs. @ ` 300 = 3,37,500
Overtime premium 100 hrs. @ ` (540 – 300) = 24,000
25 hrs. @ ` (690 – 300) = 9,750
Total 3,71,250

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4. (a) Cost Sheet (For the month)

Level of Capacity 30% 50% 100%
60,000 units 1,00,000 units 2,00,000 units
Per unit Total (`) Per unit Total (`) Per unit Total
(`) (`) (`) (`)
Works Cost 380.00 2,28,00,000 360.00 3,60,00,000 310.00 6,20,00,000
Add: Fixed administration 6.00 3,60,000 3.60 3,60,000 1.80 3,60,000
expenses
Add: Fixed marketing 8.00 4,80,000 4.80 4,80,000 2.40 4,80,000
expenses
Add: Variable distribution 30.00 18,00,000 30.00 30,00,000 30.00 60,00,000
cost
Add: Special Costs:
- Gift items costs - - - - 30.00 60,00,000
- Customers’ prizes* - - 2.00 2,00,000 1.00 2,00,000
- Refreshments - - 2.00 2,00,000 1.00 2,00,000
- Television
programme - - 20.00 20,00,000 10.00 20,00,000
sponsorship cost
Cost of sales 424.00 2,54,40,000 422.40 4,22,40,000 386.20 7,72,40,000
Profit (Bal. fig.) 176.00 1,05,60,000 137.60 1,37,60,000 113.80 2,27,60,000
Sales revenue 600.00 3,60,00,000 560.00 5,60,00,000 500.00 10,00,00,000
* Customers’ prize cost:
Particulars Amount (`)
1st Prize 60,000
2nd Prize 50,000
3rd Prize 40,000
Consolation Prizes (10 × ` 5,000) 50,000
Total 2,00,000
Comparison of Profit
30% capacity 50% capacity 100% capacity
Rs.176 Rs.137.6 Rs.113.8
 100  100  100
Rs.600 Rs.560 Rs.500

29.33 % 24.57% 22.76%

Profit (in value as well as in percentage) is higher at 30% level of capacity than that at 50% and
100% level of capacity.

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(b)
Standard Standard Actual Rate Variation in Rate Escalation
Qty/Hrs. Rate (`) (`) (`) Claim (`)
(a) (b) (c) (d) = (c)–(b) (e) =(a) × (d)
Materials
A 6,000 50.00 48.00 (–) 2.00 (–) 12,000
B 3,000 80.00 79.00 (–) 1.00 (–) 3,000
C 2,500 60.00 66.00 (+) 6.00 15,000
Materials escalation claim: (A) 0
Wages
X 3,000 70.00 72.00 (+) 2.00 6,000
Y 2,500 75.00 75.00  
Z 3,000 65.00 66.00 (+) 1.00 3,000
Wages escalation claim: (B) 9,000
Final claim: (A + B) 9,000
Statement showing final price payable
Agreed price ` 18,70,000
Agreed escalation:
Material cost --
Labour cost ` 9,000 ` 9,000
Final price payable ` 18,79,000
The claim of ` 18,94,100 is based on the total increase in cost. This can be verified as shown
below:
Statement showing total increase in cost
Standard Cost Increase/
Actual Cost
Qty/hrs Rate (`) Amount (`) Qty/hrs Rate (`) Amount (`) (Decrease)

(a) (b) (c) = (a)×(b) (d) (e) (f) =(d) × (e) g = (f) – (c)
I. Materials
A 6,000 50.00 3,00,000 6,050 48.00 2,90,400
B 3,000 80.00 2,40,000 2,950 79.00 2,33,050
C 2,500 60.00 1,50,000 2,600 66.00 1,71,600
6,90,000 6,95,050 5,050
II. Wages
X 3,000 70.00 2,10,000 3,100 72.00 2,23,200
Y 2,500 75.00 1,87,500 2,450 75.00 1,83,750
Z 3,000 65.00 1,95,000 3,100 66.00 2,04,600
5,92,500 6,11,550 19,050
24,100

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Contract price ` 18,70,000

Add: Increase in cost ` 24,100
The final price claimed by the company ` 18,94,100
This claim is not admissible because escalation clause covers only that part of increase in cost,
which has been caused by inflation.
Note: It is fundamental principle that the contractee would compensate the contractor for the
increase in costs which are caused by factors beyond the control of contractor and not for
increase in costs which are caused due to inefficiency or wrong estimation.
5. (a) (i) Computation of pre-determined overhead rate for each production department from
budgeted data
Production Service Department
Department
P1 P2 S1 S2
Budgeted factory overheads for the year 27,51,000 24,50,000 8,00,000 6,00,000
(`)
Allocation of service department S1’s 4,00,000 4,00,000 (8,00,000) --
costs to production departments P1 and
P2 equally (`)
Allocation of service department S2’s 4,00,000 2,00,000 – (6,00,000)
costs to production departments P1 and
P2 in the ratio of 2:1 (`)

Total 35,51,000 30,50,000 -- --

Budgeted machine hours in department 1,05,000 --
P1 (working note-1)
Budgeted labour hours in department P2 -- 1,75,000
(working note-1)
Budgeted machine/ labour hour rate (`) 33.82 17.43
(ii) Performance report for Jan, 2020
(When 4,000 and 3,000 units of Products A and B respectively were actually produced)
Budgeted Actual (`)
(`)
Raw materials used in Dept. P1:
A : 4,000 units × ` 120 4,80,000 4,89,000
B : 3,000 units × ` 150 4,50,000 4,56,000
Direct labour cost
(on the basis of labour hours worked in department P 2)
A : 4,000 units × 2 hrs. × ` 72 5,76,000 5,91,900
B : 3,000 units × 2.5 hrs. × ` 75 5,62,500 5,52,000

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Overhead absorbed on machine hour basis in Dept. P 1:

A : 4,000 units × 1.5 hrs. × ` 33.82 2,02,920 1,96,420*
B : 3,000 units × 1 hr. × ` 33.82 1,01,460 1,33,630*
Overhead absorbed on labour hour basis in Dept. P 2:
A : 4,000 units × 2 hrs. × ` 17.43 1,39,440 1,49,814**
B : 3,000 units × 2.5 hrs. × ` 17.43 1,30,725 1,35,198**
26,43,045 27,03,962
* (Refer to working note 4)
** (Refer to working note 5)
Working notes:
1.
Product A Product B Total
Budgeted output (units) 50,000 30,000
Budgeted machine hours in Dept. P1 75,000 30,000 1,05,000
(50,000×1.5 hrs.) (30,000×1 hr.)
Budgeted labour hours in Dept. P2 1,00,000 75,000 1,75,000
(50,000×2 hrs.) (30,000×2.5 hrs.)
2.
Product A Product B Total
Actual output (units) 4,000 3,000
Actual machine hours utilized in Dept. P1 6,100 4,150 10,250
Actual labour hours utilised in Dept. P2 8,200 7,400 15,600

3. Computation of actual overhead rates for each production department from actual
data
Production Service Department
Department
P1 P2 S1 S2
Actual factory overheads for the month of Jan, 2020 (`) 2,50,000 2,25,000 80,000 60,000
Allocation of service Dept. S1’s costs to production 40,000 40,000 (80,000) 
Dept. P1 and P2 equally (`)
Allocation of service Dept. S2’s costs to production 40,000 20,000  (60,000)
Dept. P1 and P2 in the ratio of 2:1 (`)
Total 3,30,000 2,85,000 -- --
Actual machine hours in Dept. P1 (working note 2) 10,250 --
Actual labour hours in Dept. P2 (working note 2) -- 15,600
Actual machine/ labour hour rate (`) 32.20 18.27

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4. Actual overheads absorbed (based on machine hours)

A : 6,100 hrs × ` 32.20 = ` 1,96,420
B : 4,150 hrs × ` 32.20 = ` 1,33,630
5. Actual overheads absorbed (based on labour hours)
A : 8,200 hrs × ` 18.27 = ` 1,49,814
B : 7,400 hrs × ` 18.27 = ` 1,35,198
(b) (i) Traditional Absorption Costing
BABYSOFT BABYSOFT- BABYSOFT- Total
- Gold Pearl Diamond
(a) Production of soaps 4,000 3,000 2,000 9,000
(Units)
(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- Pearl BABYSOFT- 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
note1)
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
BABYSOFT- Gold BABYSOFT- Pearl (`) BABYSOFT- Diamond
(`) (`)
120.00 165.00 195.00
Essential oils  200  60   300  55   300  65 
     
 100   100   100 
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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
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Total
Diamond
Quantity (units) 4,000 3,000 2,000 -
Weight per unit 108 106 117 -
(grams) {(60×0.8)+20+30+10} {(55×0.8)+20+30+12} {(65×0.8)+20+30+15}
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:
BABYSOFT- Gold BABYSOFT- BABYSOFT-
(`) Pearl (`) Diamond (`)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct material 167.50 215.50 248.50

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Production Overheads:
Forklifting cost 6.48 6.36 7.02
(0.06  108) (0.06  106) (0.06  117)
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.
6. (a) To exercise control over cost, following steps are followed:
(i) Determination of pre-determined standard or results: Standard cost or performance targets
for a cost object or a cost centre is set before initiation of production or service activity.
These are desired cost or result that need to be achieved.
(ii) Measurement of actual performance: Actual cost or result of the cost object or cost centre is
measured. Performance should be measured in the same manner in which the targets are
set i.e. if the targets are set up operation-wise, and then the actual costs should also be
collected and measured operation-wise to have a common basis for comparison.
(iii) Comparison of actual performance with set standard or target: The actual performance so
measured is compared against the set standard and desired target. Any deviation (variance)
between the two is noted and reported to the appropriate person or authority.
(iv) Analysis of variance and action: The variance in results so noted are further analysed to
know the reasons for variance and appropriate action is taken to ensure compliance in
future. If necessary, the standards are further amended to take developments into account.
(b)
Bill of Materials Material Requisition Note
1. It is the document prepared by the 1. It is prepared by the production or
engineering or planning department. other consuming department.
2. It is a complete schedule of component parts 2. It is a document authorizing Store-
and raw materials required for a particular keeper to issue materials to the
job or work order. consuming department.
3. It often serves the purpose of a material 3. It cannot replace a bill of materials.
requisition as it shows 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 quotations. 4. It is useful in arriving historical cost
only.
5. It helps in keeping a quantitative control on 5. It shows the material actually drawn
materials drawn through material requisition. from stores.

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(c) Financial expenses causing differences in Financial and Cost Accounts:

(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.
(iv) Losses on the sales of fixed assets and investments.
(v) Goodwill written off.
(vi) Preliminary expenses written off.
(vii) Income tax, donations, subscriptions.
(viii) Expenses of the company’s share transfer office, if any.
(d) Standing Charges: These are the fixed costs that remain constant irrespective of the distance
travelled. These costs include the following-
 Insurance
 License fees
 Salary to Driver, Conductor, Cleaners, etc. if paid on monthly basis
 Garage costs, including garage rent
 Depreciation (if related to efflux of time)
 Taxes
 Administration expenses, etc.
Running Charges: These costs are generally associated with the distance travelled. These costs
include the following-
 Petrol and Diesel
 Lubricant oils,
 Wages to Driver, Conductor, Cleaners, etc. if it is related to operations
 Depreciation (if related to activity)
 Any other variable costs identified.
(e) 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.

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4. Ensuring the best use of all 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 the 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 recklessness. Of course, much depends on the
objectives of the firm and the vigour 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.

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Test Series: April 2021

MOCK TEST PAPER –II
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.

Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:
(a) From the following information, CALCULATE employee turnover rate using – (i) Separation
Method, (ii) Replacement Method, (iii) New Recruitment Method, and (iv) Flux Method :
No. of workers as on 01.04.2020 = 3,800
No. of workers as on 31.03.2021 = 4,200
During the year, 40 workers left while 160 workers were discharged and 600 workers were
recruited during the year; of these, 150 workers were recruited because of exits and the rest were
recruited in accordance with expansion plans.
(b) A company uses three raw materials Pi, Qu and Ar for a particular product for which the following
data applies:
Raw Usage per Re-order Price per Delivery period Re-order Minimum
Material unit of Quantity Kg. (in weeks) level (Kg.) level (Kg.)
product (Kg.) (Rs.)
(Kg.)
Minimum Average Maximum
Pi 5 10,000 0.10 1 2 3 8,000 ?
Qu 2 5,000 0.30 3 4 5 4,750 ?
Ar 3 10,000 0.15 2 3 4 ? 2,000
Weekly production varies from 350 to 450 units, averaging 400 units of the said product.
WHAT would be the following quantities:
(i) Minimum Stock of Pi?
(ii) Maximum Stock of Qu?
(iii) Re-order level of Ar?
(iv) Average stock level of Pi?
(c) 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 2013) was Rs. 1,00,000. Its
estimated life is 10 years, the estimated scrap value at the end of its life is Rs.1 0,000, 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).
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(ii) Electricity used by the machine during production is 16 units per hour at cost of a 90 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
Rs. 200 each time.
(iv) The estimated cost of maintenance per year is Rs.12,000.
(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 Rs. 1,200.
(vi) Departmental and general works overhead allocated to this machine for the current year
amount to Rs. 20,000.
You are required to CALCULATE the machine hour rate of operating the machine.
(d) An article passes through three successive operations from raw materials stage to the finished
product stage. The following data are available from the production records for the month of
March, 2021:
Operation No. of pieces (Input) No. of pieces (Rejected) No. of pieces (Output)
1 1,80,000 60,000 1,20,000
2 1,98,000 18,000 1,80,000
3 1,44,000 24,000 1,20,000
(i) DETERMINE the input required to be introduced in the first operation in no. of pieces in
order to obtain finished output of 500 pieces after the last operation.
(ii) CALCULATE the cost of raw material required to produce one piece of finished product, if
the weight of the finished piece is 0.5 kg. and the price of raw material is Rs. 80 per kg.
(5 Marks × 4 = 20 Marks)
2. (a) RVP Cinema provides the following data for the year 2020-21:
Particulars Premium Recliner 7D Cafeteria
Hall Hall Hall
(Rs.) (Rs.) (Rs.) (Rs.)
Revenue 11,55,000 18,75,000 9,30,000 5,25,000
Cost of Goods sold - - - 4,51,125
Digital media cost 6,19,800 9,46,875 4,02,900 -
Number of Credit Card transactions 75,000 90,000 60,000 45,000
Number of Tests 12,000 18,000 15,000 7,500
Number of Setups 225 450 150 75
Area in Square feet 3,000 4,500 2,250 750
Number of Customer contacts 2,62,500 3,00,000 1,50,000 37,500
Number of Customer online orders 2,10,000 2,47,500 1,20,000 22,500

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Cost analysis has revealed the following:

Activity Activity Activity Driver Activity
Cost (Rs.) Capacity
Marketing Expenses 2,25,000 Number of Customer contacts 7,50,000
Website Maintenance 1,50,000 Number of Customer online 6,00,000
Expenses orders
Credit Card Processing Fees 1,35,000 Number of Credit Card 2,70,000
transactions
Cleaning Equipment Cost 3,15,000 Number of square feet 10,500
Inspecting and testing costs 2,62,500 Number of tests 52,500
Setting up machine's costs 4,50,000 Number of set-ups 900
Required:
(i) If RVP Cinema allocates all costs (other than Cost of Goods sold and Digital Media costs) to
the departments on the basis of Activity Based Costing system, CALCULATE the operating
income and percentage of operating income of each department.
(ii) RVP Cinema operated for years under the assumption that profitability can be increased by
increasing net revenue from Cafeteria. However, the Supervisor of RVP Cinema wants to
shut down Cafeteria. On the basis of (i) above, STATE whether the contention of the
Supervisor is valid or not. (10 Marks)
(b) Zed Limited obtained a contract No. 1551 for Rs. 150 lacs. The following details are available in
respect of this contract for the year ended March 31, 2021:
Rs.
Materials purchased 4,80,000
Materials issued from stores 15,00,000
Wages paid 21,00,000
Drawing and maps 1,80,000
Sundry expenses 45,000
Electricity charges 75,000
Plant hire expenses 1,80,000
Sub-contract cost 60,000
Materials returned to stores 90,000
Materials returned to suppliers 60,000
The following balances relating to the contract No. 1551 for the year ended on March 31, 2020
and March 31, 2021 are available:
as on 31st March, 2020 as on 31st March, 2021
Work certified 36,00,000 1,05,00,000
Work uncertified 60,000 1,20,000
Materials at site 45,000 90,000
Wages outstanding 30,000 60,000
The contractor receives 70% of work certified in cash.
PREPARE Contract Account and Contractee's Account. (10 Marks)
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3. (a) The following figures have been taken from the financial accounts of a manufacturing firm for the
year ended 31 st March, 2021:
(Rs.)
Direct material consumption 20,00,000
Direct wages 12,00,000
Factory overheads 6,40,000
Administrative overheads 2,80,000
Selling and distribution overheads 3,84,000
Bad debts 32,000
Preliminary expenses written off 16,000
Legal charges 4,000
Dividend received 40,000
Interest on fixed deposit 8,000
Sales - 48,000 units 48,00,000
Closing stock:
- Finished stock - 4,000 units 3,20,000
- Work-in-process 96,000
The cost accounts for the same period reveal that the Direct Material consumption was
Rs. 22,40,000; Factory overhead is recovered at 20% on prime cost; Administration overhead is
recovered @ Rs. 4.8 per unit of production; and Selling and Distribution overheads are recovered
at Rs. 6.40 per unit sold.
Required:
PREPARE Costing and Financial Profit & Loss Accounts and RECONCILE the difference in the
profit as arrived at in the two sets of accounts. (10 Marks)
(b) Mix Soap Pvt. Ltd., manufactures three brands of soap – Luxury, Herbal and Beauty. The
following information has been obtained for the period from June 1 to June 30, 202 1 relating to
three brands:
Luxury Herbal Beauty
Actual Production (units) 6,750 14,000 77,500
Wages paid (Rs.) 7,500 18,750 1,15,000
Raw materials consumed (Rs.) 20,000 47,000 2,40,000
Selling price per unit (Rs.) 25 15 8
Other data are:
Factory overheads Rs. 80,000
General & administration overheads (equal for all) Rs. 48,000
Selling overheads 20% of Works cost
If the company limits the manufacture to just one brand of soap adopting a single brand
production, then monthly production will be:
Units
Luxury 5,000
Herbal 15,000
Beauty 30,000
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Further, factory overheads are to be allocated to each brand on the basis of the units which could
have been produced when single brand production was in operation.
You are required to:
(i) FIND out the Factory overhead rate for all the brands.
(ii) PREPARE a cost statement for the month of June showing the various elements of cost and
also the profit earned. (10 Marks)
4. (a) Harry Transport Service is a Delhi based national goods transport service provider, owning f ive
trucks for this purpose. The cost of running and maintaining these trucks are as follows:
Particulars Amount
Diesel cost Rs.15 per km.
Engine oil Rs. 4,200 for every 14,000 km.
Repair and maintenance Rs.12,000 for every 10,000 km.
Driver’s salary Rs. 20,000 per truck per month
Cleaner’s salary Rs. 7,000 per truck per month
Supervision and other general expenses Rs.15,000 per month
Cost of loading of goods Rs. 200 per Metric Ton (MT)
Each truck was purchased for Rs. 20 lakhs with an estimated life of 7,20,000 km.
During the next month, it is expecting 6 bookings, the details of which are as follows:
Sl. Journey Distance Weight - Up Weight - Down
No. (in km) (in MT) (in MT)
1. Delhi to Kochi 2,700 15 7
2. Delhi to Guwahati 1,890 13 0
3. Delhi to Vijayawada 1,840 16 0
4. Delhi to Varanasi 815 11 0
5. Delhi to Asansol 1,280 13 5
6. Delhi to Chennai 2,185 11 9
Total 10,710 79 21
Required:
(i) CALCULATE the total absolute Ton-km for the next month.
(ii) CALCULATE the cost per ton-km. (10 Marks)
(b) The following information relates to Process Q:
(i) Opening Work-in-Progress 16,000 units at Rs.1,50,000
Degree of Completion:
Material 100%
Labour and Overhead 60%
(ii) Input - 3,64,000 units Rs. 14,75,000
(iii) Wages paid Rs. 6,81,200
(iv) Overheads paid Rs. 3,40,600
(v) Units scrapped 28,000
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Degree of Completion:
Material 100%
Labour and Overhead 80%
(vi) Closing Work - in- Progress 36,000 units
Degree of Completion:
Material 100%
Labour and Overhead 70%
(vii) Units completed and transferred to next process 3,16,000
(viii) Normal loss is 5% of total input including opening WIP
(ix) Scrap value is Rs. 5 per unit to be adjusted out of direct material cost

You are required to COMPUTE on the basis of FIFO:

(i) Equivalent production
(ii) Cost per unit
(iii) Value of units transferred to next process (10 Marks)
5. (a) Following data is available from the costing department of Aarya Ltd. which manufactures and
markets a single product:
Material Rs. 32 per unit Fixed Cost (Rs.) Rs. 10,00,000
Conversion Cost (Variable) Rs. 24 per unit Present Sales (units) 90,000
Dealer’s Margin (10% of Sales) Rs. 8 per unit Capacity Utilization 60 %
Selling Price Rs. 80 per unit

There is acute competition in the market, thus extra efforts are necessary to enhance the sales.
For this, following suggestions have been proposed:
(i) Reducing selling price by 5 per cent.
(ii) Increasing dealer's margin by 20 per cent over the existing rate.
Which of these two suggestions would you RECOMMEND, if the company desires to maintain the
present profit? GIVE REASONS. (10 Marks)
(b) Tricon Co. furnishes the following information for the month of September, 2020.
Particulars Budget Details Static Budget Actual
Units produced & Sold 4,000 3,200
(Rs.) (Rs.)
Direct Material 3 kg p.u. @ Rs. 30 per kg. 3,60,000 3,10,000
Direct Labour 1 hr. p.u. @ Rs. 72 per hr. 2,88,000 2,25,600
Variable Overhead 1 hr. p.u. @ Rs. 44 per hr. 1,76,000 1,47,200
Fixed Overhead 1,80,000 1,68,000
Total Cost 10,04,000 8,50,800
Sales 12,00,000 8,96,000
Profit 1,96,000 45,200
During the month 10,000 kg. of materials and 3,100 direct labour hours were utilized.

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Required:
(i) PREPARE a flexible budget for the month.
(ii) DETERMINE the material usage variance and the direct labour rate variance for the actual
vs the flexible budget. (10 Marks)
6. (a) DISTINGUISH between cost control and cost reduction.
(b) EXPLAIN the advantages that would accrue in using the LIFO method of pricing for the valuation
of raw material stock.
(c) DISCUSS basic assumptions of Cost Volume Profit analysis.
(d) DESCRIBE the steps necessary for establishing a good budgetary control system.
(4 × 5 = 20 Marks)

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Test Series: March 2021

MOCK TEST PAPER – 1
INTERMEDIATE (NEW) COURSE: GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
No. of wor ker s replaced
1. (a) Labour Turnover Rate (Replacement method) =
Average No. of wor ker s
8 36
Or, =
100 Average No. of wor ker s
Or, Average No. of workers = 450
No. of workers separated
Labour Turnover Rate (Separation method) =
AverageNo. 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 wor ker s

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
(ii) The No. of workers left and discharged = 27
(b) Statement of Reconciliation
Particulars Amount (Rs.) Amount (Rs.)
Net profit as per Cost accounts 10,20,000
Add:
Administration Overheads over-absorbed 1,20,000
Interest on investments 1,92,000
Transfer fees 48,000
Stores adjustment 28,000
Dividend received 64,000 4,52,000
Less:
Factory Overheads under-absorbed 80,000
Depreciation under charged 1,00,000
Income-tax provided 1,08,000
Interest on loan funds 4,90,000 (7,78,000)
Net profit as per Financial accounts 6,94,000
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(c) (i) Reorder Quantity(ROQ) = 1,691 kg. (Refer to working note)

(ii) Reorder level (ROL) = Maximum usage × Maximum re-order period
= 900 kg. × 8 weeks = 7,200 kg.
(iii) Maximum level = ROL + ROQ – (Min. usage × Min. re-order period)
= 7,200 kg. + 1,691 kg. – (200 kg.× 4 weeks)
= 8,091 kg.
(iv) Minimum level = ROL – (Normal usage × Normal re-order period)
= 7,200 kg. – (550 kg. × 6 weeks)
= 3,900 kg.
1
(v) Average stock level = (Maximum level + Minimum level)
2
1
= (8,091 kg. + 3,900 kg.) = 5,995.5 kg.
2
OR
1
= Minimum level + ROQ
2
1
= 3,900 kg. + × 1,691 kg. = 4,745.5 kg.
2
Working Note:
Annual consumption of raw material (A) = (550 kg. × 52 weeks) = 28,600 kg.
Cost of placing an order (O) = Rs. 200
Carrying cost per kg. per annum (C) = Rs. 20 × 20% = Rs. 4
2𝐴𝑂
Economic order quantity (EOQ) =√ 𝐶

2×28,600 kgs. × Rs.200

= = 1,691 Kg. (Approx)
Rs.4
(d) Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = Rs. 45,00,000 ÷ 5,000 units = Rs. 900 per unit Or
= Rs. 45,00,000 ÷ 30,000 hours = Rs. 150 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. × Actual Price)
= (4,800 units × 10 kg. × Rs.100) - Rs. 52,50,000
= Rs. 48,00,000 – Rs. 52,50,000
= Rs. 4,50,000 (A)
(ii) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours × Actual rate)
= (4,800 units × 6 hours × Rs. 55) – Rs. 15,50,000
= Rs. 15,84,000 – Rs. 15,50,000
= Rs. 34,000 (F)

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(iii) Fixed Overhead Cost Variance = (Budgeted Rate × Actual Qty) – Actual Overhead
= (Rs. 900 × 4,800 units) – Rs.47,00,000
= Rs. 3,80,000 (A)
OR
= (Budgeted Rate × Std. Hours) – Actual Overhead
= (Rs. 150 × 4,800 units × 6 hours) – Rs. 47,00,000
= Rs. 3,80,000 (A)
(iv) Variable Overhead Cost Variance = (Std. Rate × Std. Hours) – Actual Overhead
= (4,800 units × 6 hours × Rs. 100) - Rs. 29,30,000
= Rs. 28,80,000 - Rs. 29,30,000
= Rs. 50,000 (A)
2. (a) Total direct wages
= Rs. 42,000 + Rs. 54,000 + Rs. 48,000 = Rs. 1,44,000
Percentage absorption of production overhead on the basis of direct wages
2,88,000
= 1,44,000 x 100= 200%

(i) Process-I A/c

Particulars Units Amt. (Rs.) Particulars Units Amt. (Rs.)
To Materials 7,000 1,40,000 By Normal loss 350 3,500
(5% of 7,000 units)
To Other materials - 62,000 By Process-II* 6,600 3,35,955
To Direct wages - 42,000 By Abnormal loss* 50 2,545
To Direct expenses - 14,000
To Production OH - 84,000
(200% of Rs.42,000)
7,000 3,42,000 7,000 3,42,000
Rs.(3,42,000 - 3,500)
* Cost per unit = = Rs. 50.9022
(7,000 - 350)units
Process-II A/c
Particulars Units Amt.(Rs.) Particulars Units Amt.(Rs.)
To Process-I A/c 6,600 3,35,955 By Normal loss 660 6,600
(10% of 6,600 units)
To Other materials - 1,36,000 By Process-III** 5,200 5,63,206
To Direct wages - 54,000 By Abnormal loss** 740 80,149
To Direct expenses - 16,000
To Production OH - 1,08,000
(200% of Rs.54,000)
6,600 6,49,955 6,600 6,49,955

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Rs.(6,49,955 - 6,600)
** Cost per unit = = Rs. 108.3089
(6,600 - 660)units
Process-III A/c
Particulars Units Amt. Particulars Units Amt.
(Rs.) (Rs.)
To Process-I A/c 5,200 5,63,206 By Normal loss 260 2,600
(5% of 5,200 units)
To Other materials - 84,200 By Product-X*** 4,800 8,64,670
To Direct wages - 48,000
To Direct expenses - 14,000 By Product-Z# 600 21,000
(Rs.35 × 600 units)
To Production OH - 96,000
(200% of Rs.48,000)
To Abnormal gain*** 460 82,864
5,660 8,88,270 5,660 8,88,270
Rs.(8,05,406 - 2,600 - 21,000)
*** Cost per unit = = Rs. 180.1396
(5,200 - 260 - 600)units
# Realisable value = Rs. 135 – (85+15) = Rs. 35
(ii) By-Product Process A/c
Particulars Units Amt. Particulars Units Amt.
(Rs.) (Rs.)
To Process-III 600 21,000 By Product-Z 600 81,000
A/c
To Processing - 51,000
cost
To Selling - 9,000
expenses
600 81,000 600 81,000
(b) Primary Distribution of Overheads
Item Basis Total Production Departments Service
Amount Departments
(Rs.) X (Rs.) Y (Rs.) Z (Rs.) A (Rs.) B (Rs.)
Indirect Material Actual 2,50,000 40,000 60,000 90,000 50,000 10,000
Indirect Labour Actual 5,20,000 90,000 1,00,000 1,40,000 1,20,000 70,000
Supervisor’s Actual 1,92,000 - - 1,92,000 - -
Salary
Fuel & Heat Radiator 30,000 3,000 6,000 9,000 7,500 4,500
Sections
{2:4:6:5:3}
Power Kilowatt Hours 3,60,000 1,05,000 1,20,000 90,000 45,000 -
{7:8:6:3:-}

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Rent & Rates Area (Sq. ft.) 3,00,000 88,000 80,000 60,000 48,000 24,000
{22:20:15:12:6}
Insurance Capital Value of 36,000 8,000 12,000 10,000 2,000 4,000
Assets
{4:6:5:1:2}
Canteen Charges No. of 1,20,000 24,000 28,000 48,000 12,000 8,000
Employees
{6:7:12:3:2}
Depreciation Capital Value of 5,40,000 1,20,000 1,80,000 1,50,000 30,000 60,000
Assets
{4:6:5:1:2}
Total overheads 23,48,000 4,78,000 5,86,000 7,89,000 3,14,500 1,80,500

Re-distribution of Overheads of Service Department A and B

Total overheads of Service Departments may be distributed by simultaneous equation.
Let, the total overheads of A = a and the total overheads of B = b
a = 3,14,500 + 0.10 b (i)
or, 10a - b = 31,45,000 [(i) x10]
b = 1,80,500 + 0.20 a (ii)
or, -0.20a + b = 1,80,500
Solving equation (i) & (ii)
10a - b = 31,45,000
-0.20a + b = 1,80,500
9.8a = 33,25,500
a = Rs. 3,39,337
Putting the value of ‘a’ in equation (ii), we get
b = 1,80,500 + 0.20 × 3,39,337
b = Rs. 2,48,367
Secondary Distribution of Overheads
Production Departments
X (Rs.) Y (Rs.) Z (Rs.)
Total overhead as per primary distribution 4,78,000 5,86,000 7,89,000
Service Department A (80% of Rs.3,39,337) 1,01,801 1,01,801 67,867
Service Department B (90% of Rs.2,48,367) 62,092 99,347 62,092
Total 6,41,893 7,87,148 9,18,959
3. (a) (i) Product-wise Profitability Statement for the FY 2020-21:
Particulars Product-X (Rs.) Product-Y (Rs.) Total
(Rs.)
Output (units) 8,000 4,000
Selling price per unit 600 550
Sales value 48,00,000 22,00,000 70,00,000

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Direct material 11,20,000 6,30,000 17,50,000

(Rs.140 × 8,000 units) (Rs.157.50 × 4,000
units)
Direct wages 7,20,000 5,30,000 12,50,000
(Rs.90 × 8,000 units) (Rs.132.5 × 4,000 units)
Variable factory 5,47,200 4,02,800 9,50,000
overheads* (76% of Rs. 7,20,000) (76% of Rs. 5,30,000)
Other variable costs 3,20,000 2,80,000 6,00,000
(Rs.40 × 8,000 units) (Rs.70 × 4,000 units)
Contribution 20,92,800 3,57,200 24,50,000
Fixed factory - - 12,00,000
overheads
Other fixed costs - - 4,00,000
Profit 8,50,000

* Percentage absorption of variable factory overhead on the basis of direct wages

9,50,000
= 12,50,000 x 100 = 76%

(ii) Preparation of Budget for the FY 2021-22:

Particulars Product-X (Rs.) Product-Y (Rs.) Total (Rs.)
Output (units) 6,400 3,600
(8,000 units × 80%) (4,000 units × 90%)
Selling price per unit 480 440
(Rs.600 × 80%) (Rs.550 × 80%)
Sales value 30,72,000 15,84,000 46,56,000
Direct material 8,96,000 5,67,000 14,63,000
(Rs.140 × 6,400 units) (Rs.157.50 × 3,600 units)
Direct wages per unit 6,91,200 5,72,400 12,63,600
(Rs.108 × 6,400 units) (Rs.159 × 3,600 units)
Variable factory 5,25,312 4,35,024 9,60,336
overheads (76% of Rs.6,91,200) (76% of Rs.5,72,400)
Other variable costs 2,56,000 2,52,000 5,08,000
(Rs.40 × 6,400 units) (Rs.70 × 3,600 units)
Contribution 7,03,488 (2,42,424) 4,61,064
Fixed factory overheads - - 12,00,000
Other fixed costs (110% - - 4,40,000
of Rs.4,00,000)
Profit/ (Loss) (11,78,936)

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(b) (i) Calculation of Operating Cost per month for each vehicle
Ramgarh Pratapgarh Devgarh Total
(Rs.) (Rs.) (Rs.) (Rs.)
A. Running Costs:
- Cost of diesel (Working 1,68,480 95,472 2,49,600 5,13,552
Note- 2)
- Servicing cost (Working 45,000 - 45,000 90,000
Note- 3)
2,13,480 95,472 2,94,600 6,03,552
B. Fixed Costs:
- Salary to drivers 96,000 72,000 1,20,000 2,88,000
(4 drivers × (3 drivers × (5 drivers ×
Rs. 24,000) Rs. 24,000) Rs. 24,000)
- Salary to cleaners 48,000 36,000 60,000 1,44,000
(4 cleaners × (3 cleaners × (5 cleaners ×
Rs. 12,000) Rs. 12,000) Rs. 12,000)
- Allocated garage 16,800 12,600 21,000 50,400
parking fee
(4 vehicles × (3 vehicles × (5 vehicles ×
Rs.4,200) Rs.4,200) Rs.4,200)
- Depreciation (Working 36,733 32,800 38,542 1,08,075
Note- 4)
- Fess & taxes 5,600 6,400 --- 12,000
2,03,133 1,59,800 2,39,542 6,02,475
Total [A + B] 4,16,613 2,55,272 5,34,142 12,06,027
Operating Cost per vehicle 1,04,153 85,091 1,06,828 1,00,502
(Rs.4,16,613 ÷ (Rs.2,55,272 ÷ (Rs.5,34,142 ÷ (Rs.12,06,027 ÷
4 vehicles) 3 vehicles) 5 vehicles) 12 vehicles)

(ii) Vehicle operating cost per litre of milk

TotalOperatingCost per month = Rs.12,06,027 = Rs. 0.15
Totalmilk carriedamonth 79, 80,000 Litres (WorkingNote - 5)

Working Notes:
1. Distance covered by the vehicles in a month
Route Total Distance (in
K.M.)
Ramgarh (4 vehicles × 3 trips × 2 × 24 km. × 30 days) 17,280
Pratapgarh (3 vehicles × 2 trips × 2 × 34 km. × 30 days) 12,240
Devgarh (5 vehicles × 4 trips × 2 × 16 km. × 30 days) 19,200
2. Cost of diesel consumption
Ramgarh Pratapgarh Devgarh
Total distance travelled (K.M.) 17,280 12,240 19,200
Mileage per litre of diesel 8 kmpl 10 kmpl 6 kmpl
Diesel consumption (Litre) 2,160 1,224 3,200
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(17,280 ÷ 8) (12,240 ÷ 10) (19,200 ÷ 6)

Cost of diesel consumption @ 1,68,480 95,472 2,49,600
Rs. 78 per litre (Rs.)
3. Servicing Cost
Ramgarh Pratapgarh Devgarh
Total distance travelled 17,280 12,240 19,200
(K.M.)
Covered under free No Yes No
service warranty
No. of services 3 2 3
required (17,280 k.m. ÷ 5,000 k.m.) (12,240 k.m. ÷ (19,200 k.m. ÷ 5,000 k.m.)
5,000 k.m.)
Total Service Cost 45,000 --- 45,000
(Rs.) (Rs. 15,000 × 3) (Rs. 15,000 × 3)

4. Calculation of Depreciation
Ramgarh Pratapgarh Devgarh
No. of vehicles 4 3 5
Cost of a vehicle (Rs.) 11,02,000 13,12,000 9,25,000
Total Cost of vehicles 44,08,000 39,36,000 46,25,000
(Rs.)
Depreciation per 36,733 32,800 38,542
month (Rs.)  Rs. 44,08,000×10%   Rs.39,36,000 10%   Rs.46,25,000 10% 
    
 12months  12months   12months 
5. Total volume of Milk Carried
Route Milk Qty. (Litre)
Ramgarh (10,000 ltr. × 0.7 × 4 vehicles × 3 trips × 30 days) 25,20,000
Pratapgarh (10,000 ltr. × 0.7 × 3 vehicles × 2 trips × 30 days) 12,60,000
Devgarh (10,000 ltr. × 0.7 × 5 vehicles × 4 trips × 30 days) 42,00,000
79,80,000

4. (a) Statement of Cost of A Ltd. for the year ended 31 st March, 2021:
Sl. No. Particulars Amount (Rs.) Amount (Rs.)
(i) Material Consumed:
- Raw materials purchased 10,00,00,000
- Freight inward 11,20,600
Add: Opening stock of raw materials 18,00,000
Less: Closing stock of raw materials (9,60,000) 10,19,60,600
(ii) Direct employee (labour) cost:
- Wages paid to factory workers 29,20,000
(iii) Direct expenses:
- Royalty paid for production 1,72,600
- Amount paid for power & fuel 4,62,000
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- Job charges paid to job workers 8,12,000 14,46,600

Prime Cost 10,63,27,200
(iv) Works/ Factory overheads:
- Stores and spares consumed 1,12,000
- Repairs & Maintenance paid for plant & 48,000
machinery
- Insurance premium paid for plant & 31,200
machinery
- Insurance premium paid for factory 18,100
building
- Expenses paid for pollution control and
engineering & maintenance 26,600 2,35,900
Gross factory cost 10,65,63,100
Add: Opening value of W-I-P 9,20,000
Less: Closing value of W-I-P (8,70,000)
Factory Cost 10,66,13,100
(v) Quality control cost:
- Expenses paid for quality control check 19,600
activities
(vi) Research & development cost paid for improvement 18,200
in production process
(vii) Less: Realisable value on sale of scrap and waste (86,000)
(viii) Add: Primary packing cost 96,000
Cost of Production 10,66,60,900
Add: Opening stock of finished goods 11,00,000
Less: Closing stock of finished goods (18,20,000)
Cost of Goods Sold 10,59,40,900
(ix) Administrative overheads:
- Depreciation on office building 56,000
- Salary paid to General Manager 12,56,000
- Fee paid to independent directors 2,20,000 15,32,000
(x) Selling overheads:
- Repairs & Maintenance paid for sales 18,000
office building
- Salary paid to Manager- Sales & 10,12,000
Marketing
- Performance bonus paid to sales staffs 1,80,000 12,10,000
(xi) Distribution overheads:
- Packing cost paid for re-distribution of
finished goods 1,12,000
Cost of Sales 10,87,94,900

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(b) (i) Total Overhead = Rs. (2,52,000 + 80,000 + 60,000 + 40,000 + 10,368) = Rs. 4,42,368
Total machine hours = 1,440  4 + 1,200  3 + 960  2 + 1,008  1
= 5,760 + 3,600 + 1,920 + 1,008 = 12,288 M. Hrs.

Overhead recovery rate / M.H. = Rs. 4,42,368 = Rs. 36

12,288 M.Hrs.

Cost Statement when overheads are absorbed on machine hours rate basis
Product A B C D
Output in units 1,440 1,200 960 1,008
(Rs.) (Rs.) (Rs.) (Rs.)
Cost per unit:
Direct material 84 90 80 96
Direct labour 20 18 14 16
Overhead (@ Rs. 36) 144 108 72 36
(4  Rs.36) (3  Rs.36) (2  Rs.36) (1 Rs.36)
Total cost per unit 248 216 166 148
Total cost 3,57,120 2,59,200 1,59,360 1,49,184
(ii) (1) Machine department costs of Rs. 2,52,000 to be apportioned to set-up cost, store
receiving and inspection in 4 : 3 : 2 i.e. Rs. 1,12,000, Rs. 84,000 and Rs. 56,000
respectively.
(2) One production run = 48 units. Hence, the number of production runs of different products:
1,440 1,200 960 1,008
A= = 30 , B = = 25 , C = = 20 , D = = 21 or total 96 runs.
48 48 48 48
(3) One batch order is of 24 units. So the number of batches of different products:
1,440 1,200 960 1,008
A= = 60 , B = = 50 , C = = 40 , D = = 42 or total 192 batches.
24 24 24 24
(4) Computation of Cost driver rates
Activity Activity Cost (Rs.) Cost driver Quantity Cost driver rate
Set-up 80,000 + 1,12,000 No. of 96 Rs. 2,000 per
= 1,92,000 production run production run
Store- 60,000 + 84,000 Requisition 50  4 = 200 Rs. 720 per
receiving = 1,44,000 raised requisition
Inspection 40,000 + 56,000 No. of 96 Rs. 1,000 per
= 96,000 production run production run
Material 10,368 Orders 192 Rs. 54 per batch
handling executed (No.
of batches)
(5) Cost statement under Activity Based Costing:
Product A B C D
Output in units 1,440 1,200 960 1,008

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(Rs.) (Rs.) (Rs.) (Rs.)

Material 1,440  84 1,200  90 960  80 1,008  96
= 1,20,960 = 1,08,000 = 76,800 = 96,768
Labour 1,440  20 1,200  18 960  14 1,008  16
= 28,800 = 21,600 = 13,440 = 16,128
1,49,760 1,29,600 90,240 1,12,896
Overhead cost:
Set up 2,000  30 2,000  25 2,000  20 2,000  21
= 60,000 = 50,000 = 40,000 = 42,000
Store receiving 720  50 720  50 720  50 720  50
= 36,000 = 36,000 = 36,000 = 36,000
Inspection 1,000  30 1,000  25 1,000  20 1,000  21
= 30,000 = 25,000 = 20,000 = 21,000
Material handling 54  60 54  50 54  40 54  42
= 3,240 = 2,700 = 2,160 = 2,268
Total overhead cost 1,29,240 1,13,700 98,160 1,01,268
Total cost 2,79,000 2,43,300 1,88,400 2,14,164
Total cost per unit (Total 193.75 202.75 196.25 212.46
cost / Output)

5. (a) Workings:
(1) Contribution per unit = Selling price per unit – Variable cost per unit
= Rs. 50 – {Rs. (16,00,000 + 4,00,000 + 8,00,000) ÷ 80,000 units}
= Rs. 50 – Rs. 35 = Rs. 15
Rs.15
(2) Profit-Volume (P/V) Ratio = Contributionper unit 100 = ×100 = 30%
Selling price per unit Rs.50

Calculations:
(i) The number of units to be sold for neither loss nor gain i.e. Break-even units:
Rs.7,20,000
= Fixed Overheads = = 48,000 units
Contribution per unit Rs.15

(ii) The sales needed to earn a profit of 20% on sales:

As we know
S=V+F+P
(S = Sales; V = Variable Cost; F = Fixed Cost; P = Profit)
Suppose Sales units are x then
Rs. 50x = Rs. 35 x + Rs. 7,20,000 + Rs. 10x
Rs. 50x – Rs. 45x = Rs. 7,20,000
Rs.7,20,000
Or, x = = 1,44,000 units
Rs.5

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Therefore, Sales needed = 1,44,000 units  Rs. 50 = Rs. 72,00,000 to earn a profit of 20%
on sales.
(iii) Calculation of extra units to be sold to earn present profit of Rs.4,80,000 under the
following proposed selling price:
When selling price is reduced by
20% 25%
(Rs.) (Rs.)
Selling price per unit 40.00 37.50
(Rs. 50 × 80%) (Rs. 50 × 75%)
Less: Variable Cost per unit 35.00 35.00
Contribution per unit 5.00 2.50
Desired Contribution:
Fixed Overheads 7,20,000 7,20,000
Desired Profit 4,80,000 4,80,000
12,00,000 12,00,000

(a) Sales unit for desired contribution 2,40,000 units 4,80,000 units
 DesiredContribution 
   Rs. 12,00,000   Rs.12,00,000 
 Contributionper unit     
 Rs. 5   Rs. 2.5 
(b) Units presently sold 80,000 units 80,000 units
(c) Extra units to be sold {(a) – (b)} 1,60,000 units 4,00,000 units
(iv) Sales price to bring down BEP to 10,000 units:
FixedCost
B.E.P (Units) =
Contribution per unit

Or, Contribution per unit = Rs.7,20,000 = Rs. 72

10,000units

So, Sales Price (per unit) = Variable Cost + Contribution

= Rs. 35 + Rs. 72 = Rs. 107
(b) (i) Calculation of Direct expenses

Particulars Job A (Rs.) Job B (Rs.) Job C (Rs.)

Product blueprint cost 2,80,000 -- --
Hire charges paid for machinery -- 80,000 --
License fee paid for software -- -- 1,00,000
Total Direct expenses 2,80,000 80,000 1,00,000

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(ii)
Jan. Feb. March April May June Total
Particulars
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Batch output 210 200 220 180 200 220 1,230
(in pieces)
Sale value @ Rs.80 16,800 16,000 17,600 14,400 16,000 17,600 98,400
Material cost 6,500 6,400 6,800 6,300 7,000 7,200 40,200
Direct wages 1,200 1,400 1,500 1,400 1,500 1,600 8,600
Chargeable expenses* 6,000 6,720 6,720 6,210 7,800 8,000 41,450
Total cost 13,700 14,520 15,020 13,910 16,300 16,800 90,250
Profit per batch 3,100 1,480 2,580 490 (300) 800 8,150
Total cost per piece 65.2 72.6 68.3 77.3 81.5 76.4 73.4
Profit per piece 14.8 7.4 11.7 2.7 (1.5) 3.6 6.6
Overall position of the order for 1,200 pieces
Sales value of 1,200 pieces @ Rs. 80 per piece Rs. 96,000
Total cost of 1,200 pieces @ Rs. 73.4 per piece Rs. 88,080
Profit Rs. 7,920
Chargeable expenses
*  Direct labour hours for batch
Direct labour hour for the month
6. (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
(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.

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(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 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 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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Test Series: March 2021

MOCK TEST PAPER –1
INTERMEDIATE (NEW) COURSE: GROUP – I
PAPER – 3: 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.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) The labour turnover rates for the quarter ended 30th September, 2020 are computed as 14%, 8%
and 6% under Flux method, Replacement method and Separation method respectively. If the
number of workers replaced during 2 nd quarter of the financial year 2020-21 is 36, COMPUTE the
following:
(i) The number of workers recruited and joined; and
(ii) The number of workers left and discharged.
(b) A manufacturing company disclosed a net profit Rs. 10,20,000 as per their cost accounts for the
year ended 31 st March 2021. The financial accounts however disclosed a net profit of Rs. 6,94,000
for the same period. The following information was revealed as a result of scrutiny of the figures of
both the sets of accounts.
(Rs.)
(i) Factory Overheads under-absorbed 80,000
(ii) Administration Overheads over-absorbed 1,20,000
(iii) Depreciation charged in Financial Accounts 6,50,000
(iv) Depreciation charged in Cost Accounts 5,50,000
(v) Interest on investments not included in Cost Accounts 1,92,000
(vi) Income-tax provided 1,08,000
(vii) Interest on loan funds in Financial Accounts 4,90,000
(viii) Transfer fees (credit in financial books) 48,000
(ix) Stores adjustment (credit in financial books) 28,000
(x) Dividend received 64,000
PREPARE a Reconciliation statement.
(c) A company manufactures 10,000 units of a product per month. The cost of placing an order is Rs.
200. The purchase price of the raw material is Rs. 20 per kg. The re-order period is 4 to 8 weeks.
The consumption of raw materials varies from 200 kg to 900 kg per week, the average consumption
being 550 kg. The carrying cost of inventory is 20% per annum.
You are required to CALCULATE:
(i) Re-order quantity
(ii) Re-order level

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(iii) Maximum level

(iv) Minimum level
(v) Average stock level
(d) AK Ltd. has furnished the following standard cost data per unit of production:
Material 10 kg @ Rs. 100 per kg.
Labour 6 hours @ Rs. 55 per hour
Variable overhead 6 hours @ Rs. 100 per hour.
Fixed overhead Rs.45,00,000 per month (Based on a normal volume of 30,000 labour hrs)
The actual cost data for the month of September 2020 are as follows:
Material used 50,000 kg at a cost of Rs. 52,50,000.
Labour paid Rs. 15,50,000 for 31,000 hours
Variable overheads Rs. 29,30,000
Fixed overheads Rs. 47,00,000
Actual production 4,800 units.
CALCULATE:
(i) Material Cost Variance.
(ii) Labour Cost Variance.
(iii) Fixed Overhead Cost Variance.
(iv) Variable Overhead Cost Variance. (4 × 5 Marks = 20 Marks)
2. (a) MP Ltd. produces a Product-X, which passes through three processes, I, II and III. In Process-III a
by-product arises, which after further processing at a cost of Rs. 85 per unit, product Z is produced.
The information related for the month of September 2020 is as follows:
Process-I Process-II Process-III
Normal loss 5% 10% 5%
Materials introduced (7,000 units) 1,40,000 - -
Materials added 62,000 1,36,000 84,200
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000
Production overhead for the month is Rs. 2,88,000, which is absorbed as a percentage of direct
wages.
The scraps are sold at Rs. 10 per unit
Product-Z can be sold at Rs. 135 per unit with a selling cost of Rs. 15 per unit
No. of units produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600
There is no stock at the beginning and end of the month.
You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product-Z (10 Marks)

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(b) The following account balances and distribution of indirect charges are taken from the accounts of
a manufacturing concern for the year ending on 31st March 2021:
Total Amount Production Departments Service Departments
Item

(Rs.) X (Rs.) Y (Rs.) Z (Rs.) A (Rs.) B (Rs.)

Indirect Material 2,50,000 40,000 60,000 90,000 50,000 10,000
Indirect Labour 5,20,000 90,000 1,00,000 1,40,000 1,20,000 70,000
Supervisor's Salary 1,92,000 - - 1,92,000 - -
Fuel & Heat 30,000
Power 3,60,000
Rent & Rates 3,00,000
Insurance 36,000
Canteen Charges 1,20,000
Depreciation 5,40,000
The following departmental data are also available:
Production Departments Service Departments
X Y Z A B
Area (Sq. ft.) 4,400 4,000 3,000 2,400 1,200
Capital Value of Assets
40,00,000 60,00,000 50,00,000 10,00,000 20,00,000
(Rs.)
Kilowatt Hours 3,500 4,000 3,000 1,500 -
Radiator Sections 20 40 60 50 30
No. of Employees 60 70 120 30 20
Expenses charged to the service departments are to be distributed to other departments by the
following percentages:
X Y Z A B
Department A (%) 30 30 20 - 20
Department B (%) 25 40 25 10 -
PREPARE an overhead distribution statement to show the total overheads of production
departments after re-apportioning service departments' overhead by using simultaneous equation
method. Show all the calculations to the nearest rupee. (10 Marks)
3. (a) The information of Z Ltd. for the year ended 31 st March 2021 is as below:
Amount (Rs.)
Direct materials 17,50,000
Direct wages 12,50,000
Variable factory overhead 9,50,000
Fixed factory overhead 12,00,000
Other variable costs 6,00,000
Other fixed costs 4,00,000

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Profit 8,50,000
Sales 70,00,000
During the year, the company manufactured two products, X and Y, and the output and cost were:
X Y
Output (units) 8,000 4,000
Selling price per unit (Rs.) 600 550
Direct material per unit (Rs.) 140 157.50
Direct wages per unit (Rs.) 90 132.50
Variable factory overheads are absorbed as a percentage of direct wages and other variable costs
are computed as:
Product X – Rs. 40 per unit and Product Y- Rs. 70 per unit.
For the FY 2021-22, it is expected that demand for product X and Y will fall by 20% & 10%
respectively. It is also expected that direct wages cost will raise by 20% and other fixed costs by
10%. Products will be required to be sold at a discount of 20%.
You are required to:
(i) PREPARE profitability statement for the FY 2020-21 and
(ii) PREPARE a budget for the FY 2021-22. (10 Marks)
(b) GMCS Ltd. collects raw milk from the farmers of Ramgarh, Pratapgarh and Devgarh panchayats
and processes this milk to make various dairy products. GMCS Ltd. has its own vehicles (tankers)
to collect and bring the milk to the processing plant. Vehicles are parked in the GMCS Ltd.'s garage
situated within the plant compound. Following are the information related with the vehicles:
Ramgarh Pratapgarh Devgarh
No. of vehicles assigned 4 3 5
No. of trips a day 3 2 4
One way distance from the processing plant 24 k.m. 34 k.m. 16 k.m.
Fess & taxes per month (Rs.) 5,600 6,400 ---
All the 5 vehicles assigned to Devgarh panchayat, were purchased five years back at a cost of
Rs. 9,25,000 each. The 4 vehicles assigned to Ramgarh panchayat, were purchased two years
back at a cost of Rs. 11,02,000 each and the remaining vehicles assigned to Pratapgarh were
purchased last year at a cost of Rs. 13,12,000 each. With the purchase of each vehicle a two years
free servicing warranty is provided. A vehicle gives 10 kmpl mileage in the first two year of
purchase, 8 kmpl in next two years and 6 kmpl afterwards. The vehicles are subject to depreciation
of 10% p.a. on straight line basis irrespective of usage. A vehicle has the capacity to carry 10,000
litres of milk but on an average only 70% of the total capacity is utilized.
The following expenditures are related with the vehicles:
Salary of Driver (a driver for each vehicle) Rs. 24,000 p.m.
Salary to Cleaner (a cleaner for each vehicle) Rs. 12,000 p.m.
Allocated garage parking fee Rs. 4,200 per vehicle per month
Servicing cost Rs. 15,000 for every complete 5,000 k.m. run.
Price of diesel per litre Rs. 78.00

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From the above information you are required to CALCULATE

(i) Total operating cost per month for each vehicle. (Take 30 days for the month)
(ii) Vehicle operating cost per litre of milk. (10 Marks)
4. (a) A Ltd. has the following expenditures for the year ended 31 st March 2021:
Sl. Amount Amount (Rs.)
No. (Rs.)
(i) Raw materials purchased 10,00,00,000
(ii) Freight inward 11,20,600
(iii) Wages paid to factory workers 29,20,000
(iv) Royalty paid for production 1,72,600
(v) Amount paid for power & fuel 4,62,000
(vi) Job charges paid to job workers 8,12,000
(vii) Stores and spares consumed 1,12,000
(viii) Depreciation on office building 56,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 48,000
- Sales office building 18,000 66,000
(x) Insurance premium paid for:
- Plant & Machinery 31,200
- Factory building 18,100 49,300
(xi) Expenses paid for quality control check activities 19,600
(xii) Research & development cost paid for improvement in 18,200
production process
(xiii) Expenses paid for pollution control and engineering & 26,600
maintenance
(xiv) Salary paid to Sales & Marketing mangers: 10,12,000
(xv) Salary paid to General Manager 12,56,000
(xvi) Packing cost paid for:
- Primary packing necessary to maintain quality 96,000
- For re-distribution of finished goods 1,12,000 2,08,000
(xvii) Fee paid to independent directors 2,20,000
(xviii) Performance bonus paid to sales staffs 1,80,000
(xix) Value of stock as on 1st April, 2020:
- Raw materials 18,00,000
- Work-in-process 9,20,000
- Finished goods 11,00,000 38,20,000
(xx) Value of stock as on 31st March, 2021:
- Raw materials 9,60,000
- Work-in-process 8,70,000
- Finished goods 18,20,000 36,50,000

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Amount realized by selling of scrap and waste generated during manufacturing process –
Rs. 86,000/-
From the above data you are requested to PREPARE Statement of cost for A Ltd. for the year
ended 31 st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost
of goods sold and (v) Cost of sales. (10 Marks)
(b) ABY Ltd. manufactures four products, namely A, B, C and D using the same plant and proce ss.
The following information relates to production period December, 2020:
Product A B C D
Output in units 1,440 1,200 960 1,008
Cost per unit:
Direct Materials Rs. 84 Rs. 90 Rs. 80 Rs. 96
Direct Labour Rs. 20 Rs. 18 Rs. 14 Rs. 16
Machine hours per unit 4 3 2 1
The four products are similar and are usually produced in production runs of 48 units per batch and
are sold in batches of 24 units. Currently, the production overheads are absorbed using machine
hour rate. The production overheads incurred by the company for the period December, 2020 are
as follows:
(Rs.)
Machine department costs:
Rent, deprecation and supervision 2,52,000
Set-up Costs 80,000
Store receiving costs 60,000
Inspection 40,000
Material handling and dispatch 10,368
During the period December, 2020, the following cost drivers are to be used for allocation of
overheads cost:
Cost Cost driver
Set-up Costs Number of production runs (batches)
Stores receiving Requisition raised
Inspection Number of production runs (batches)
Material handling and dispatch Orders executed
It is also determined that:
(i) Machine department costs should be apportioned among set-up, stores receiving and
inspection activities in proportion of 4 : 3 : 2.
(ii) The number of requisitions raised on stores is 50 for each product. The total number of
material handling and dispatch orders executed during the period are 192 and each order
being for a batch size of 24 units of product.
Required:
(i) CALCULATE the total cost of each product, if all overhead costs are absorbed on machine -
hour rate basis.
(ii) CALCULATE the total cost of each product using activity-based costing. (10 Marks)
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5. (a) The following information has been obtained from the records of a manufacturing unit:
Rs. Rs.
Sales 80,000 units @ Rs. 50 40,00,000
Material consumed 16,00,000
Variable Overheads 4,00,000
Labour Charges 8,00,000
Fixed Overheads 7,20,000 35,20,000
Net Profit 4,80,000
CALCULATE:
(i) The number of units by selling which the company will neither lose nor gain anything.
(ii) The sales needed to earn a profit of 20% on sales.
(iii) The extra units which should be sold to obtain the present profit if it is proposed to reduce the
selling price by 20% and 25%.
(iv) The selling price to be fixed to bring down its Break-even Point to 10,000 units under present
conditions. (10 Marks)
(b) (i) A Ltd. is an engineering manufacturing company producing job orders on the basis of
specifications provided by the customers. During the last month it has completed three jobs
namely A, B and C. The following are the items of expenditures which are incurred in addition
to direct materials and direct employee cost:
(i) Office and administration cost - Rs. 6,00,000
(ii) Product blueprint cost for job A - Rs. 2,80,000
(iii) Hire charges paid for machinery used in job work B - Rs. 80,000
(iv) Salary to office attendants - Rs. 1,00,000
(v) One time license fee paid for software used to make computerised graphics for job C -
Rs. 1,00,000.
(vi) Salary paid to marketing manager - Rs. 2,40,000.
Required:
CALCULATE direct expenses attributable to each job.
(ii) A jobbing factory has undertaken to supply 200 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 Rs. 80 per piece. From the following data COMPUTE the cost and profit per
piece of each batch order and overall position of the order for 1,200 pieces.
Month Batch Output Material cost Direct wages Direct labour
(Pieces) (Rs.) (Rs.) (Hours)
January 210 6,500 1,200 240
February 200 6,400 1,400 280
March 220 6,800 1,500 280
April 180 6,300 1,400 270
May 200 7,000 1,500 300
June 220 7,200 1,600 320

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The other details are:

Month Chargeable expenses Direct labour
(Rs.) hours
January 1,20,000 4,800
February 1,05,600 4,400
March 1,20,000 5,000
April 1,05,800 4,600
May 1,30,000 5,000
June 1,20,000 4,800
(2 × 5 = 10 Marks)

6. (a) DISCUSS the Net Realisable Value (NRV) method of apportioning joint costs to by-products.
(b) DIFFERENCIATE between Service costing and Product costing.
(c) DISCUSS the Controllable and un-controllable variances.
(d) DISCUSS the Standard and Discretionary Cost Centres. (4 × 5 = 20 Marks)

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Test Series: April, 2021

MOCK TEST PAPER – II
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) Employee turnover rate using:
(i) Separation Method:
No. of workers left + No. of workers discharged
= × 100
Average number of workers
(40+160) 200
= ×100= 4,000 ×100= 5%
(3,800+4,200) ÷ 2

(ii) Replacement Method:

No. of workers replaced 150
= 100 = 4,000 ×100= 3.75%
Average number of workers
(iii) New Recruitment Method:
No. of workers newly recruited
 × 100
Average number of workers
No. of Recruitments-No. of Replacements
= ×100
Average number of workers
600-150 450
= × 100 = × 100 = 11.25%
4,000 4,000

(iv) Flux Method:

No. of separations + No. of accessions
  100
Average number of wor ker s
(200+600) 800
= (3,800+4,200) ÷ 2 × 100 = 4,000 × 100 = 20%
(b) (i) Minimum stock of Pi
Re-order level – (Average consumption × Average time required to obtain delivery)
= 8,000 kg. – (400 units × 5 kg. × 2 weeks) = 4,000 kg.
(ii) Maximum stock of Qu
Re-order level – (Min. Consumption × Min. delivery period) + Re-order quantity
= 4,750 kg. – (350 units × 2 kg. × 3 weeks) + 5,000 kg.
= 9,750 - 2,100 = 7,650 kg.
(iii) Re-order level of Ar
Maximum delivery period × Maximum Usage
= 4 weeks × (450 units × 3 kg.) = 5,400 kg.
OR
= Minimum stock of Ar + (Average consumption × Average delivery time)
= 2,000 kg. + [(400 units × 3 kg.) × 3 weeks] = 5,600 kg.

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(iv) Average stock level of Pi

= Minimum stock level of Pi + 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 Pi = ROL + ROQ – (Minimum consumption × Minimum delivery period)
= 8,000 kg. + 10,000 kg. – [(350 units × 5 kg.) × 1 week] = 16,250 kg.
(c) Working Notes:
(i) Total Productive hours = Estimated Working hours – Machine Maintenance hours
= 2,200 hours – 200 hours = 2,000 hours
Rs. 1,00,000- Rs. 10,000
(ii) Depreciation per annum = 10years
= Rs. 9000

(iii) Chemical solution cost per annum = Rs. 200 × 50 weeks = Rs.10,000
Rs. 1,200 × 50 weeks
(iv) Wages of attendants (per annum) = 6 machines
= Rs.10,000

Calculation of Machine hour rate

Particulars Amount (Rs.) Amount (Rs.)
(per annum) (per hour)
A. Standing Charge
(i) Wages of attendants 10,000
(ii) Departmental and general works overheads 20,000
Total Standing Charge 30,000
30,000 15.00
Standing Charges per hour ( 2,000 )
B. Machine Expense
(iii) Depreciation 9,000 4.50
Rs. 0.9×16units×1,900hours - 13.68
(iv) Electricity ( 2,000hours
)
(v) Chemical solution 10,000 5.00
(vi) Maintenance cost 12,000 6.00
Machine operating cost per hour (A + B) 44.18
(d) Statement of production
Operation Input Rejections Output
Total % of output
1 1,80,000 60,000 50 1,20,000
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2 1,98,000 18,000 10 1,80,000

3 1,44,000 24,000 20 1,20,000
(i) Determination of input required to obtain 500 pieces of finished output:
Particulars No. of pieces
Output required after operation 3 500
Add: Rejection in operation 3 (20%) 100
Output required after operation 2 600
Add: Rejection in operation 2 (10%) 60
Output required after operation 1 660
Add: Rejection in operation 1 (50%) 330
Input required in operation 1 990

(ii) Calculation of cost of raw material:

To produce 500 pieces of final output, 990 pieces of inputs are required at operation 1.
Thus, to get a finished piece of 0.5 kg. of output, the weight of input required is:
0.5
= × 990 = 0.99 kg.
500
The cost of raw material would be Rs. 80 × 0.99 kg. = Rs.79.20
2. (a) Computation showing Rates for each Activity

Activity Activity Activity driver Activity Activity

Cost Capacity Rate
(Rs.)
(B) (A/B)
(A)

Marketing Expenses 2,25,000 Number of Customer Contacts 7,50,000 0.30

Website Maintenance 1,50,000 Number of Customer Online 6,00,000 0.25

Expenses orders

Credit Card Processing 1,35,000 Number of Credit card 2,70,000 0.50

Fees transactions

Cleaning Equipment 3,15,000 Number of Square Feet 10,500 30.00

Cost

Inspecting and Testing 2,62,500 Number of Tests 52,500 5.00

Cost

Setting up machine's 4,50,000 Number of set-ups 900 500.00

cost

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Activity based Cost for each Department

Activity Premium Hall Recliner Hall 7D Cafeteria (Rs.)

Hall
(Rs.) (Rs.)
(Rs.)

Marketing Expenses 78,750 90,000 45,000 11,250

(2,62,500 x 0.3) (3,00,000 x 0.3) (1,50,000 x 0.3) (37,500 x 0.3)

Website 52,500 61,875 30,000 5,625

Maintenance
(2,10,000 x 0.25) (2,47,500 x 0.25) (1,20,000 x 0.25) (22,500 x 0.25)
Expenses

Credit Card 37,500 45,000 30,000 22,500

Processing Fees
(75,000 x 0.5) (90,000 x 0.5) (60,000 x 0.5) (45,000 x 0.5)

Cleaning Equipment 90,000 1,35,000 67,500 22,500

Cost
(3,000 x 30) (4,500 x 30) (2,250 x 30) (750 x 30)

Inspecting and 60,000 90,000 75,000 37,500

Testing Cost
(12,000 x 5) (18,000 x 5) (15,000 x 5) (7,500 x 5)

Setting up 1,12,500 2,25,000 75,000 37,500

machine's cost
(225 x 500) (450 x 500) (150 x 500) (75 x 500)

Total 4,31,250 6,46,875 3,22,500 1,36,875

(i) Statement of Operating Income and Operating Income percentage for each
Department
Particulars Premium Recliner 7D Cafeteria
Hall Hall Hall (Rs.)
(Rs.) (Rs.) (Rs.)

Revenues (Given) (A) 11,55,000 18,75,000 9,30,000 5,25,000

Cost of Goods Sold (given) (B1) - - - 4,51,125
Digital Media Cost (given) (B2) 6,19,800 9,46,875 4,02,900 -
Activity Based Cost (as per Workings) 4,31,250 6,46,875 3,22,500 1,36,875
(B3)
Operating Cost (B)
(B1+ B2 + B3) 10,51,050 15,93,750 7,25,400 5,88,000
Operating Income/(Loss) 1,03,950 2,81,250 2,04,600 (63,000)
(C = A – B)
Percentage of profit/(loss) on sales 9% 15% 22% (12%)
(ii) Contention of Supervisor is valid as operating income of Cafeteria is negative i.e. (Rs.
63,000) or percentage of profit/loss is (12%).
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(b) Contract No. 1551 Account for the year ended 31 st March, 2021
Dr. Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Work in progress b/d: By Material returned to 90,000
stores
- Work certified 36,00,000 By Material returned to 60,000
suppliers
- Work uncertified 60,000 By Stock (Materials) c/d 90,000
To Stock (Materials) b/d 45,000 By Work in progress c/d:
To Material purchased 4,80,000 - Work certified 1,05,00,000
To Material issued 15,00,000 - Work uncertified 1,20,000
To Wages paid 21,00,000
Less: Opening O/s (30,000)
Add: Closing O/s 60,000 21,30,000
To Drawing and maps 1,80,000
To Sundry expenses 45,000
To Electricity charges 75,000
To Plant hire expenses 1,80,000
To Sub-contract cost 60,000
To Notional profit c/d 25,05,000
(balancing figure)
1,08,60,000 1,08,60,000
Dr. Contractee’s Account Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Balance c/d 73,50,000 By Balance b/d 25,20,000
(Rs. 1,05,00,000 × 70%) (70% of Rs. 36,00,000)
By Bank A/c 48,30,000
73,50,000 73,50,000
3. (a) Costing Profit and Loss Account
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Direct Material consumed 22,40,000 By Sales 48,00,000
To Direct Wages 12,00,000 By Closing Work-in-process 96,000
Prime Cost 34,40,000 By Closing Finished stock 3,10,154
 Rs. 41,28,000  Rs. 96,000 
  4,000 
 52,000units 
To Factory overheads 6,88,000
(20% of prime cost)
41,28,000

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To Administrative overheads 2,49,600

(Rs. 4.80 × 52,000* units)
To Selling & distribution 3,07,200
overheads
(Rs.6.40 × 48,000 units)
To Net profit (balancing figure) 5,21,354
52,06,154 52,06,154
* Units produced = Units sold + Closing stock - Opening stock
= 48,000 + 4,000 - 0 = 52,000 units
Financial Profit and Loss Account
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Direct Material consumed 20,00,000 By Sales 48,00,000
To Direct Wages 12,00,000 By Dividend received 40,000
To Factory overheads 6,40,000 By Interest on fixed deposit 8,000
To Administrative overheads 2,80,000 By Closing Work-in-process 96,000
To Selling & distribution overheads 3,84,000 By Closing Finished stock 3,20,000
To Bad debts 32,000
To Preliminary expenses 16,000
To Legal charges 4,000
To Net profit (balancing figure) 7,08,000
52,64,000 52,64,000
Reconciliation Statement
Particulars Amount Amount
(Rs.) (Rs.)
Net profit as per Financial Profit & Loss A/c 7,08,000
Add: Administrative overheads (2,80,000 - 2,49,600) 30,400
Selling & Distribution overheads (3,84,000 - 3,07,200) 76,800
Bad debts 32,000
Preliminary expenses 16,000
Legal charges 4,000 1,59,200
8,67,200
Less: Difference in value of materials consumed (22,40,000 - 2,40,000
20,00,000)
Factory overheads (6,88,000 - 6,40,000) 48,000
Dividend received 40,000
Interest on fixed deposit 8,000
Closing stock (3,20,000 - 3,10,154) 9,846 (3,45,846)
Profit as per Costing Profit & Loss A/c 5,21,354

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(b) (i) Calculation of Factory overhead rate.

If the single brand production was in operation, then
1 unit of Luxury = 3 units of Herbal = 6 units of Beauty. Therefore, the factory overhead ratio
in the reverse order would be 5,000:15,000:30,000 or 1:3:6.
The overhead rate will be lowest in case of brand which will be produced in high number.
Therefore, in case of Beauty soap brand, the overhead rate will be:
80,000
=
6 x 6,750 + 3 x 14,000 + 1 x 77,500

80,000
=
40,500 + 42,000 + 77,500

80,000
= = 0.5
1,60,000
So, the overhead rate will be:
Luxury = 0.5 x 6 = Rs. 3
Herbal = 0.5 x 3 = Rs. 1.5
Beauty = 0.5 x 1 = Rs. 0.5
(ii) Statement of Cost of Mix Soap Pvt. Ltd. for the month of June 2021:
Luxury (Rs.) Herbal (Rs.) Beauty (Rs.) Total (Rs.)
Raw material consumed 20,000 47,000 2,40,000 3,07,000
Add: Wages paid 7,500 18,750 1,15,000 1,41,250
Prime cost 27,500 65,750 3,55,000 4,48,250
Add: Factory overheads 20,250 21,000 38,750 80,000
(Rs.3 x 6,750) (Rs.1.5 x 14,000) (Rs.0.5 x 77,500)
Works cost 47,750 86,750 3,93,750 5,28,250
Add: General & 16,000 16,000 16,000 48,000
administration
oveheads (1:1:1)
Add: Selling expenses 9,550 17,350 78,750 1,05,650
(Rs.47,750 x (Rs.86,750 x (Rs. 3,93,750 x
0.20) 0.20) 0.20)
Cost of sales 73,300 1,20,100 4,88,500 6,81,900
Profit (Balancing figure) 95,450 89,900 1,31,500 3,16,850
Sales 1,68,750 2,10,000 6,20,000 9,98,750
(Rs.25 x 6,750) (Rs.15 x 14,000) (Rs.8 x 77,500)

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

Journey Distance Weight- Ton-km Weight- Ton-km Total
(in km) Up Down
(in MT) (in MT)
(a) (b) (c) = (a)×(b) (d) (e) = (a)×(d) (f) = (c)+(e)

Delhi to Kochi 2,700 15 40,500 7 18,900 59,400

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Delhi to Guwahati 1,890 13 24,570 0 0 24,570

Delhi to Vijayawada 1,840 16 29,440 0 0 29,440

Delhi to Varanasi 815 11 8,965 0 0 8,965

Delhi to Asansol 1,280 13 16,640 5 6,400 23,040
Delhi to Chennai 2,185 11 24,035 9 19,665 43,700
Total 10,710 79 1,44,150 21 44,965 1,89,115
Total absolute Ton-Km = 1,89,115 ton-km
(ii) Calculation of cost per ton-km:
Particulars Amount (Rs.) Amount (Rs.)
A. Running cost:
- Diesel Cost {Rs.15 × (10,710 × 2)} 3,21,300
- Engine oil cost (
Rs. 4,200
× 21,420 km) 6,426
14,000 km
- Cost of loading of goods {Rs.200 × (79 + 21)} 20,000
 Rs.20,00,000  59,500 4,07,226
- Depreciation   21,420km 
 7,20,000km 
B. Repair & Maintenance Cost 25,704
 Rs.12,000 
  21,420km 
 10,000km 
C. Standing Charges
- Drivers’ salary (Rs.20,000 × 5 trucks) 1,00,000
- Cleaners’ salary (Rs.7,000 × 5 trucks) 35,000
- Supervision and other general expenses 15,000 1,50,000
Total Cost (A + B + C) 5,82,930
Total absolute ton-km 1,89,115
Cost per ton-km 3.08
(b) (i) Statement of Equivalent Production (FIFO Method)
Input Output Equivalent Production
Particulars Units Particulars Units Material Labour & Overhead
(%) Units (%) Units
Opening WIP 16,000 Transfer to next Process:
Introduced 3,64,000 Opening WIP completed 16,000 -- -- 40 6,400
Introduced & completed 3,00,000 100 3,00,000 100 3,00,000
Normal loss 19,000 -- -- -- --
5% (16,000 + 3,64,000)
Abnormal loss 9,000 100 9,000 80 7,200
Closing WIP 36,000 100 36,000 70 25,200
3,80,000 3,80,000 3,45,000 3,38,800
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(ii) Computation of Cost per unit

Particulars Material Labour Overhead
(Rs.) (Rs.) (Rs.)
Input of Materials 14,75,000 -- --
Expenses -- 6,81,200 3,40,600
Total 14,75,000 6,81,200 3,40,600
Less: Sale of Scrap (95,000) -- --
(19,000 units x Rs. 5)
Net cost (A) 13,80,000 6,81,200 3,40,600
Equivalent Units (B) 3,45,000 3,38,800 3,38,800
Cost Per Unit (A/B) 4.0000 2.0106 1.0053
Total cost per unit = Rs. (4.0000 + 2.0106 + 1.0053) = Rs. 7.0159
(iii) Value of units transferred to next process:
Amount (Rs.) Amount (Rs.)
Opening W-I-P 1,50,000
Add: Labour (6,400 units × Rs. 2.0106) 12,868
Overhead (6,400 units × Rs. 1.0053) 6,434 1,69,302
New introduced (3,00,000 units × Rs. 21,04,770
7.0159)
22,74,072
5. (a) Workings:
Statement Showing Profit on Sale of 90,000 units
(Rs.) (Rs.)
Selling Price per unit 80
Less: Variable Cost per unit
Material 32
Conversion Cost 24
Dealers’ Margin 8 64
Contribution per unit 16
Total Contribution (90,000 units × Rs. 16) 14,40,000
Less: Fixed Cost 10,00,000
Profit 4,40,000
In both the proposed suggestions, the fixed costs remain unchanged. Therefore, the present
profit of Rs. 4,40,000 can be maintained by maintaining the total contribution at the present level
i.e. Rs. 14,40,000.
(i) Reducing Selling Price by 5%
New Selling Price (Rs. 80 − 5% of Rs. 80) = Rs. 76
New Dealer's Margin (10% of Rs. 76) = Rs. 7.60
New Variable Cost (Rs. 32 + Rs. 24 + Rs. 7.60) = Rs. 63.60
New Contribution per unit (Rs. 76 − Rs. 63.60) = Rs. 12.40

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Total Contribution Required

Level of sales required for present level of Profits =
New Contribution per unit
Rs. 14,40,000
=
Rs. 12.40
= 1,16,129 units
(ii) Increasing Dealer’s Margin by 20%
New Dealer’s Margin after increasing it by 20% = Rs. 8 + (20% of Rs. 8)
= Rs. 9.60
New Variable Cost (Rs. 32 + Rs. 24 + Rs. 9.60) = Rs. 65.60
Contribution (Rs. 80 − Rs. 65.60) = Rs. 14.40
Total Contribution Required
Level of sales required for present level of Profits =
New Contribution per unit
Rs. 14,40,000
=
Rs. 14.40
= 1,00,000 units
Conclusion:
The second proposal, i.e., increasing the Dealer's Margin is recommended because:
1. The contribution per unit is higher which is Rs. 14.40 in comparison to Rs. 12.40 in the first
proposal; and
2. The sales (in units) required to earn the same level of profit are lower. They are at 1,00,000
units as against 1,16,129 units in the first proposal. This means a lower sales effort and
less finance would be required for implementing proposal (ii) as against proposal (i). Of
course, under proposal (ii) the company can earn higher profits than at present level if it
can increase its sales beyond 1,00,000 units.
(b) (i) Statement Showing “Flexible Budget for 3,200 units Activity Level”
Particulars Amount Amount
(Rs.) (Rs.)
Rs. 12,00,000 9,60,000
Sales ( 4,000 units
x 3,200 units)
Less: Variable Cost
Direct Material (3,200 units × 3 kg. p.u. × Rs. 30 per kg.) 2,88,000
Direct Labour (3,200 units × 1 hr. p.u. × Rs. 72 per hr.) 2,30,400
Variable Overhead (3,200 units × 1 hr. p.u. × Rs. 44 per hr.) 1,40,800 (6,59,200)
Contribution 3,00,800
Less: Fixed Overhead 1,80,000
Profit 1,20,800
(ii) Computation of Variances
Material Usage Variance = Standard Cost of Standard Quantity for Actual
Production – Standard Cost of Actual Quantity
= (SQ × SP) – (AQ × SP)
Or
= (SQ – AQ) × SP
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= [(3,200 units × 3 kg.) – 10,000 kg.] × Rs. 30.00

= Rs. 12,000 (A)
Labour Rate Variance = Standard Cost of Actual Time – Actual Cost
= (SR × AH) – (AR × AH)
Or
= (SR – AR) × AH
Rs. 2,25,600
= [(Rs. 72- ) x 3,100 hrs.]
3,100 hrs.

= Rs. 2,400 (A)

6. (a) Difference between Cost Control and Cost Reduction
Cost Control Cost Reduction
1. Cost control aims at maintaining the 1. Cost reduction is concerned with
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 lowest 2. Cost reduction recognises no condition
possible cost under existing as permanent, since a change will
conditions. result in lower cost.
3. In case of cost control, emphasis is on 3. In case of cost reduction, it is on
past and present present and future.
4. Cost control is a preventive function 4. Cost reduction is a corrective function.
It operates even when an efficient cost
control system exists.
5. Cost control ends when targets are 5. Cost reduction has no visible end and is
achieved. a continuous process.
(b) The advantages that would accrue in using the LIFO method of pricing for the valuation of
raw material stock are as follows:
 The cost of materials issued will be either nearer to and or will reflect the current market
price. Thus, the cost of goods produced will be related to the trend of the market price of
materials. Such a trend in price of materials enables the matching of cost of production with
current sales revenues.
 The use of the method during the period of rising prices does not reflect undue high profit in
the income statement as it was under the first-in-first-out or average method. In fact, the
profit shown here is relatively lower because the cost of production takes into account the
rising trend of material prices.
 In the case of falling prices profit tends to rise due to lower material cost, yet the finished
products appear to be more competitive and are at market price.
 Over a period, the use of LIFO helps to iron out the fluctuations in profits.
 In the period of inflation LIFO will tend to show the correct profit and thus avoid paying
undue taxes to some extent.
(c) Assumptions of Cost Volume Profit analysis:
1. Changes in the levels of revenues and costs arise only because of changes in the
number of product (or service) units produced and sold – for example, the number of
television sets produced and sold by Sony Corporation or the number of packages del ivered

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by Overnight Express. The number of output units is the only revenue driver and the only
cost driver. Just as a cost driver is any factor that affects costs, a revenue driver is a
variable, such as volume, that causally affects revenues.
2. Total costs can be separated into two components; a fixed component that does not
vary with output level and a variable component that changes with respect to output level.
Furthermore, variable costs include both direct variable costs and indirect variable cos ts of a
product. Similarly, fixed costs include both direct fixed costs and indirect fixed costs of a
product
3. When represented graphically, the behaviours of total revenues and total costs are
linear (meaning they can be represented as a straight line) in relation to output level within
a relevant range (and time period).
4. Selling price, variable cost per unit, and total fixed costs (within a relevant range and
time period) are known and constant.
5. The analysis either covers a single product or assumes that the proportion of different
products when multiple products are sold will remain constant as the level of total units
sold changes.
6. All revenues and costs can be added, subtracted, and compared without taking into
account the time value of money.
(d) 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.

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