3)

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PART-I

Case Scenario-I :

Sagzr Limited, an oil refinery uses Process Costing for determining the cost ot
each process. Management of Sagar Limited is confused about method of
valuation of WIP. They have FIFO and Weighted Average Cost methods under
consideration.
Finance manager Mr. Sahil has put forward that Weighted Average Cost method
is suitable when there are significant fluctuations in price and quantity. In this
method, calculation has to be done at every purchase and it is a complex and
time-consuming method.
He also stated that price and quantity of input and output material of Sagar
Limited is almost same for whole vear: hence FIFO method would be more
suitable for the company. He also revealed that in oil refinery industry; FIF0
method is preferred over Weighted Average Cost method and switching to FIFO
method will save time and money.
He further stated that by using FIFO method closing WIP is valued at current cost

and provided the following information :

Opening WIP: 12,000 Units, Total cost ? 1,66,200.
Degree of Completion : Material - 100%

Labour and Overhead 80%

Material introduced : (74,500 Units) ?4,76,465

Direct Labour 73,70,395

Direct Overhead 72.96,316

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Units Scrapped : 1900 units Degree of Completion : Material 100%

Labour and Overhead 70%

Closing WIP: 2,600 units Degree of Completion : Material 100%

Labour and Overhead 60%

Rest of the units were transterred to next process.
Normal Loss is 2% of total input units including opening
work-in-process.
Realizable value of normal loss is R 2 per unit deducted from cost of
material
introduced.

You are required to calculate the following using FIFO method

(MCQs 1 to 5) :

1. Value of units transferred to next process 2

(A) T12,75,600
(B) 11,10,660
(C) 12,51,200
(D) ? 12,72,800

2, Value of closing WIP 2

(A) 31,044
(B) 31,096
(C) ? 30,940
(D) ? 28,340

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3 Equivalent units of Material and Material cost per unit 2

(A) 74,500 units and 6.39 per

unit
(B) 86,500 units and 5.50 per unit
(C) 72,770 units and 6.50 per unit
(D) 72,600 units and 6.56 per unit

4 Equivalent units of labour and overheads and total cost per unit 2

(A) 74,079 units and 9.00 per unit

(B) 82,490 units and 8.08 per unit

(C) 75,290 units and 8.85 per unit

(D) 79,790 units and 8.35 per unit

5 Value of abnormal loss to be shown in process account 2

(A) 2,182.00

(B) 2,1 76.00

(C) ?2,168.35

(D) 1,896.52
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Case Scenario-II:

footwear and covers a considerable

FW Limited manufactures various types of
stylish and durable. The
market share. The footwear made by company are
to their notice that
management calls for an urgent meeting because it has come
two of their old permanent customers have moved on to its competitors.
Marketing Manager has stated that there are circumstances when company cannot
fulfill the demand of their customers due to shortage of supply and this is the
main reason for move on.

Production Manager has stated that production team is working efficiently but
workers have to wait long enough for raw material which leads to idle time and
low production.
data for
The cost accounts department of FW Limited has furnished the following
the component B:

Purchase Price 74,800 per unit

Trade Discount 2% of purchase price

Total duties (No Credit availed) 8% of purchase price
Insurance Charges 62,000 per year

Units purchased during the year 60,000 units

Opening Stock 5,000 units @5,150 per unit

Closing Stock 4,500 units

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Usages per week Delivery period
Minimum 1.050 units 5 weeks
Minimum
Maximum 1,200 units Maximum 9 weeks

Average 1,125 units Average 7 weeks

Lead time for emergency purchases is 2 weeks.

Additional Information :

Normal wastage during the storage is 80 units (no realizable value) and

abnormal wastage is 40 units.

Factory works for 365 days in a year.

You are required to calculate the followings (MCQs 6 to 10):

6. Calculate average number of days (round of) for which average inventory
level to be held. 2

(A) 29 days

(B) 27 days

(C) 26 days

(D) 30 days

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7. Calculate amount of Abnormal Loss during storage to be transferred to

Costing Profit & Loss Account (based on average price) 2

(A) 2,04,760

(B) 2,04,000

(C) 2,03,760
(D) 2,05,320

8 Calculate per unit cost of material by using Average Price Method. 2

(A) ?5,119

(B) ?5,100

(C) R5,094

(D) 5,133

9. Calculate minimum stock level. 2

(A) 7,825 units

(B) 10,800 units

(C) 5,250 units

(D) 2,925 units

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10 What will be danger level of stock ? 2

(A) 7,875 units

(B) 2,400 units

(C) 2,250 units

(D) 2,240 units

11. On 01-04-2023 number of workers employed in a factory was 150. During

the year 30 workers resigned and 5 workers were discharged. Due to
resignation and discharge, 15 workers were replaced. For the year 2023-24,
labour turnover rate by separation method will be:
(A) 18%
(B) 21.43%
(C) 25%
(D) 30%

12. A Chemical is passed through three processes and the output of Process 1
Account is transferred to Process 2 Account. The input units in Process 1
are 58,500 units and the output units are 55,200 units, normal loss is 2%
and rest is abnormal loss.

You are required to calculate the per unit cost of output units in Process 1
Account, if the total expenses incurred in Process 1are 6,87,960. 2
(A) 12.00
(B) 11.76
(C) 12.20

(D) 712.46
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13. PS Limited is facing downfall in its demand. Marketing team has suggested
to reduce the selling price by 5% to compete in the market. Variable cost is
76% of the current selling price.

You are required to find out the P/N Ratio after reducing the price by 5%,
(A) 24%

(B) 20%

(C) 25.26%

(D) 19%

14. In the automotive manufacturing sector, a component is manufactured. The

Economic Order Quantity (EO0) for this component ís 1,500 uníts. The cost
of placing an order is 100, and the carrying cost per annum ís 10%. The
cost per unit of component is 20.

Calculate the annual demand for this specific automotive component. 2

(A) 75,000 units

(B) 45,500 units

(C) 36,000 units

(D) 22,500 units

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15. In a mutual project, both Raj and Bhuvan are contributing their efforts,
using identical materials. Raj receives a bonus based on the Rowan plan,
while the Halsey plan determines Bhuvan's bonus. The standard time
allocated for the project is 150 hours. Raj completes the project in 90 hours,
while Bhuvan finishes it in 120 hours. The normal hourly wage rate for Raj
is 30. The total earnings for both workers are equal. 2

Calculate the normal hourly wages rate to be paid to Bhuvan.

(A) 24.00
(B) 26.50

(C) 22.50

(D) 28.00

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PART -II

1. (a) Language Achievers, a renowned institute specializing in TOEFL 5

preparation, has secured a spacious hall for 20,000 on weekly basis

with a seating capacity of 250 students. The instructor, highly qualified
and experienced, is compensated generously with an honorarium of
? 1,500 per lecture. Additionally, he receives reimbursement for travel
expenses of ?200 per day along with refreshments costing 1,500 per
week to ensure his comfort and focus during teaching sessions.
Administrative and miscellaneous expenses, covering essential utilities
and materials are 500 per week. Language Achievers has
meticulously planned its curriculum, scheduling batches of 2 1ectures
per day, 5 days a week for 30 weeks, ensuring comprehensive
coverage of the TOEFL syllabus.

Required:
(i) Calculate the total cost per batch.

(ii) Determine the minimum fee per student in a batch to cover costs,
if the batch is fully occupied.

(iii) Calculate the fee to be charged from each student if batch is 80%
filled and institute aims to achieve a profit margin of 25% on the

fee.

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(b) XYZ Ltd. declared a net profit of 2,25,000 based on their financial 5
accounts for the year ending 31S March, 2024. The profit disclosed in
cost books are not matched with financial accounts. The following
information were revealed during the scrutiny of the figures of both the
2 sets of books :
Sr. No. Particulars
|Preliminary expenses written off in financial accounts 35,000
2 |Factory Overheads Over charged in cost accounts 20,000
3 Expenses on issue of shares in financial accounts 30,000
4 Undervaluation of closing stock in cost accounts 65,000
Interest on Bank Deposits in financial accounts 60,000
6 Under recovery of administration overheads in cost 25,000
accounts
7 Notional Rent of own premises charged in cost accounts 30,000
|Under recovery of selling overheads in cost accounts 35,000
9 Bad debts recovered in financial accounts 50,000
Required:
Prepare Reconciliation Statement to arrive at net profit/loss as per Cost
Accounts.
(c) JC Ltd. has a production capacity of 80,000 units per year. Presently a 4
company produces 60,000 units. Its cost structure is as under:
Material Cost 76 per unit
Labour Cost 74 per unit
Variable overheads 2 per unit
Total fixed cost 3,00,000 per annum. Present selling price 20 per
a
unit. In the month of January, 2024 company received an offer from
Japanese client to supply 20,000 units at a price of? 14 per unit with
the additional shipping cost of? 8,000.
Required:
(i) On the basis of changes in the profit, advice to the company,
whether the offer should be accepted or not
(ii) Will your advice be different, if the customer is local one ?
(iii) If Japanese client offer for supply of 30,000 units to a price of
14 (part supply of order not accepted) and shippingof cost treated
if
as variable cost, analyze the impact on the profit JC Ltd.,
order accepted.
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MNP Limited have the capacity to produce 84.000 units of a product
8
2. (a)
every month. Its prime cost per unit at various levels of production is
as follows :

Level Prime Cost per unit ()

10% 50

20% 48

30% 46

40% 44

50% 42

60% 40

70% 38

80% 36

90% 34

100% 32

Its prime cost consists of raw material consumed, direct wages and
direct expenses in the ratio of 3:2:1. In the month of January 2024,
the company worked at 40% capacity and raw material purchased
amounting to 8,40,000. In the month of February 2024, the company
worked at 100% capacity and raw material purchased for 16.46,400.
It is the policy of the company to maintain opening stock of raw
material equal to 1/3 of closing stock of raw material. Factory
overheads are recovered at 60% of direct wages cost. Fixed
administration expenses (as part of production cost) and fixed selling
and distribution expenses are 2,01,600 and 1,68,000 per month
respectively. During the month of January 2024 company sold 33,600
units @R68.8 per unit. The variable distribution cost
amounts to 1.5
per unit sold.

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month of
The management of the company chalks out a plan for the
by incurring
3 February 2024 to sell its whole output @ 61 per unit
following further expenditure :
on every Sunday at a
(1) Company sponsors a television programme Sundays in February
cost of 26,250 per week. There are 4
2024.
potential customers at a
(1) Hi-tea programme every month for its
cost of 1,05,000.
dozen units.
(11) Special gift item costing 105 on sale of a
every month by giving the
(iv) Lucky draws scheme is introduced 80,000; third prize of
first prize of 1,00,000; second prize of ?
R40,000 and four consolation prizes of R8,000 each.
significant saving
Note: (In the mnonth of February 2024, there is a
suppliers in the
in material cost per unit due to entry of new
Direct
market and saving in per unit cost of Direct wages and
the
expenses due to introduction of new policy by
management.)
February 2024
Prepare a cost sheet for the month of January 2024 and
showing prime cost (with different elements of prime cost), factory
cost, cost of production, total cost and profit earned.
(b) In a factory there are 50 workers, working 8 hours per day including 6
30 minutes for lunch break, worked for 160 days during a period of six
months ended on 31st December, 2023. During this period total
employee's cost was recorded ? 3,90,000. The management of the
factory decided the overtime premium rates for the month of January
2024 as under:
Sundays and holidays 180% of basic wages rate
Before and after normal working hours 160% of basic wages rate
During the last six months (ended on 31 December, 2023), the
following hours were worked:
Normal time 56,250
Sundays and holidays 750
Before and after normal working hours 3,000
Total hours 60,000
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During the month of January 2024, the factory worked on a job BX in
the following manner.
2,400 men hours
Normal working
200 men hours
Overtime on Sundays and holidays
400 men hours
Overtime before and after normal working
Total hours 3,000
You are required to calculate the labour cost chargeable to job BX and
overheads in each of the following situations :
(i1) Where overtime is worked regularly in whole year as a policy on
account of shortage of workers.
(ii) Where overtime is worked irregularly to meet the requirement of
production.
(iii) Where overtime is worked at the request of the customer to
complete the job in time.
(iv) Where overtime is worked on account of flood in the area.

3. (a) GST Limited is a multi-product company. The production and cost 8

details of its two products P and Q are given as follows :
Product
Particulars

Quantity produced (No.) 9,000 7,200

Direct material cost () 72,000 50,000
Direct labour hours 800 600

Purchase requisition (No.) 180 144

Production runs (No.) 144 108

Quality inspections (No.) 27 18

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Direct wages rate is 1450 per hour. Presently the commpay sesa
single overhead recovery rzte based om direct labour hours Ovehead
incured by the company during the year 2023-24 are as follows
Technical staff salary T45.00

Machine operation expenses

Machine maintenance expeses 727,000
Wages and salary of stores staff 736,000

During this period direct labour hours worked 72.000

Now the Company wants to adopt Activiy Based Costing For this
purpose, following activities are identified :
Quality control
Setup of machine for production runs
Store receiving
It is also decided that salary of technical staff should be distributed
among machine maintenance, setup 2and quality control in the ratio of
1:2:2. Machíne maintenance expenses and machine operation
expenses should be distributed in the ratio of 2:3in between stores
and production setup activities.
During thís period cost drivers for these activities are identified as
under :
Requisition raised 5,760
Production setup 7,200
No. of quality test 720

You are requíred to compute :

(i) The cost of products P and Q based on traditional absorption
costing system.
() The cost of products P andQ based on ABC Costing system.
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(b) Savi Limited is currently working at 80% of its capacity level and! 6
furnished the following information for current period:
Production / Sales 96,000 units
Direct Variable Cost R 20 per unit
Factory Overheads ? 8,40,000
Administrative Overheads (Fixed) ? 20,60,000
Sales Commission 2% of Sales Value

Transportation Expenses 4,000 per truck

(Loading Capacity 4,000 units)
The selling price of the product is 120 per unit and Factory
Overheads are 80% variable in nature.
The management of Savi Limited has come to know that there will be
high fluctuations in the demand of the product in upcoming year and it
would not be an easy task to predict the demand. Selling price per unit
will not be affected by demand fluctuations. t a
Savi Limited has decided to prepare a flexible budget for the product
at 60%, 80% and 100% capacity level.
You are required to prepare the Flexible Budget showing total cost of
the product at each level.

4.
(a) BG company produces a standard product and sold in a packet of
10 kg. The standard cost card per pack is as follows :
Direct Material

A-4 kg@ 50 per kg

B- 8 kg @40 per kg
Direct Labour:
6 hours @ 20 per hour

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The company manufactured and sold 1,600 packets during the month. Actual
data for material and labour recorded as under.
Direct Material :
A-7,000 kg @ 40
B-12,500 kg @45
Labour hours paid for two different categories of workers:
Skilled 6,000 hours @25
Semi-skilled 4,000 hours @ 20
5% of the time paid was lost due to an abnormal reason.
or
Calculate the following variances indicating their nature (Favourable
Adverse)
(i) Material cost variances
(ii) Material price variances
(iüi) Material usage variances
(iv) Material mix variances
(v) Material yield variances
(vi) Labour cost variance s
(vii) Labour rate variances
(viii) Labour efficiency variances
(ix) Labour Idle time variances
and classify the
(b) Explain Build-Operate-Transfer (BOT) approach Maintenance
2+3
following expenses in Capital Cost or Operating and Cost =5
for Toll Roads :
i) Land acquisition
term loans
(ii) Interest expenses incurred for servicing
(ii) Material and Labour
(iv) Toll Collection Expenses
(v) Contingency Allowance
(vi) Periodic painting cost of railings etc.
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5. (a) This data pertains to the three machines operating in the manufacturing 7
division of PQR Corp for the financial year 2023-2024 :
Estimated Expenses
Particulars Machines
TOTAL
() X) Y)
Direct Labour Expenses
2,50,000
(per quarter)
Oil Expenses (per quarter) 1,03,125 37,500 37,500 28,125
Machine Insurance
60,000
Expenses (per quarter)
Depreciation (per annum) 6,00,000 1,00,000 2,00,000 3,00,000
Building Maintenance
1,00,000
Expenses (per quarter)
Wages of Operator
2,25,000
(per quarter)

Electricity Expenses
3,00,000
(per quarter)
Rent and Rates (per month) 80,000

Salary of Technician
62,500
|(per month)
(The Technician works only on machines X and Y and the Operator
controls all three machines and both spend equal time on each of the
machines worked upon by them.)

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There are 14 holidays besides Sundays in the year, of which six are on
Saturdays. There was a Strike of workers for 5 working days
(including one Saturday). The manufacturing department operates for
8 hours per day on regular week days, while on Saturdays, the
operating hours are reduced by 2 hours per day. All machines operate
at 80% capacity throughout the year. Assume 366 days in a year.
The following additional information is also available :
() A 20% hike in the price of oil.
(ii) A 10% rise in Oil consumption for machines X' andY only.
(iii) Machines
Particulars
X
No. of Workers 5 3 2

Ratio of K.W. Rating 3 3 4

Ratio of Floor space utilized 2

Required:
Prepare a Statement detailing the allocation of expenses to each
machine on an annual basis and thereafter, compute the comprehensive
machine hour rate for each of the specified machine.
(b) ABC Ltd. is a well-known company for producing baby care products. 7
The company produces and sells two variants of organic shampoo for
children: "Baby Rose" and "Baby Lily". The sales and cost data for
both products are provided below:
Particulars Baby Rose Baby Lily
Current demand and Sales 4,000 3,000
(Number of bottles)
Production Capacity (Number of bottles) 7,500 6,000

Selling Price per bottle () 600 750

Variable Costs per bottle

Direct Materials (7 20 Per litre) 160 200
Other Variable Costs 270 350

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The fixed costs amount to? 5.00.000 and 4,50,000 for Baby Rose
and Baby Lily respectively. The Production Manager has informed
that 1,00,000 litres of material is available for production. A dealer has
approached the company and proposed to purchase both products at
the existing selling prices, which are to be produced by utilizing the
remaining unused material. However. he has insisted that all the
bottles must be packed with eco-friendly packaging, which will result
in an additional cost of 10 per bottle for the company. Presently, the
company is not using eco-friendly material for packing of bottles.
Required :
Prepare a detailed statement showing the overall contribution and
profit of the company after acceptance of the dealer's proposal.

6 (a) Describe any five benefits of the Digital Costing System. 5

(b) Define the following terms:
5
(i) Controllable Variance
(i) Uncontrollable Variance
(ii) Budget Manual
(iv) Performance Budgeting
(V) Budget Period
(c) Discuss the treatment of
By-products in cost accounting. 4
OR
(c) Define Job costing and
explain differences between job and batch 4
Costing.

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