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Question Paper

Cost Management Accounting Duration: 90

Details: Test-1 (CH- 1,2,3,4,5,6,7,8) Marks: 70

Instructions:

 All the questions are compulsory

 Properly mention test number and page number on your answer sheet, Try to
upload sheets in arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
 Do not copy any solution from any material. Attempt as much as you know to fairly
judge your performance.
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Q-1

Discuss the key objectives of a material control system in a production environment.

(5 Marks)

Q-2

Explain the differences between Cost Accounting and Management Accounting.

(6 Marks)

Q-3

Ahmedabad based Rajesh Engineering Ltd received an order from Surat based Mehta
Electronics Ltd to supply 2,000 units of a component per month for 3 months - January,
February and March. A separate batch order is opened each month against which materials
and Labour costs are booked at actuals. Overheads are levied at a rate per Labour hour. The
selling price is contracted at Rs 20 per unit.

From the following data, calculate the profit per unit of each batch order and the overall
position of the order for the 6,000 units:

Month Batch Output (No’s) Material Cost (Rs) Labour Cost (Rs)

January 2,500 12,500 5,000

February 3,000 15,000 6,000

March 2,000 10,000 4,000

Labour is paid at Rs 10 per hour. Other details are:

Month Overheads (Rs) Total Labour Hours

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 January 25,000 2,500

February 30,000 3,000

March 20,000 2,000

(6 Marks)

Q-4

Calculate Machine Hour Rate from the following:

Particulars Rs.

a) Cost of Machine 20,000

b) Estimated scrap value 1000

c) Repairs & Maintenance charges per month 225

d) Standing charges allocated to machine per month 150

e) Effective working life of machine 1000 hours

f) Running time per month 150 hours

g) Powers used by machines; 10 units per hour 50 paise per unit.

(4 Marks)

Q-5

The management of H.K Ltd. is concerned about the rising employee turnover in their
factory. Before investigating the causes and implementing solutions, they want to estimate
the profit lost due to turnover over the past year. Last year, the company achieved sales of

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Rs.83, 03,300, with a P/V ratio of 20%. The direct employee force worked a total of 4.45 lakh
hours, which included 30,000 hours for training new recruits—half of which were
unproductive. Additionally, delays in filling vacancies due to employee turnover resulted in a
loss of 1, 00,000 potentially productive hours (excluding unproductive training hours).

The costs associated with employee turnover include:

Particulars Rs.

Settlement costs 43,820

Recruitment costs 26,740

Selection costs 12,750

Training costs 30,490

Given that the potential production lost could have been sold at the prevailing prices,
calculate the profit foregone last year due to employee turnover.

(6 Marks)

Q-6

ABC India Ltd, a manufacturing company located in Mumbai, showed a net loss of Rs.
5,00,000 as per their financial accounts for the year ended 31 st March 2023. However, the
cost accounts disclosed a net loss of Rs. 4,00,000 for the same period. The following
information was revealed from both sets of books:

(i) Factory overhead under-recovered: Rs. 10,000

(ii) Administration overheads over-recovered: Rs. 5,000

(iii) Depreciation charged in financial accounts: Rs. 1,50,000

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(iv) Depreciation recovered in cost accounts: Rs. 1,60,000

(v) Interest on investment not included in costs Rs. 25,000

(vi) Income tax provided: Rs. 1,50,000

(vii) Transfer fees (credit in financial books) Rs. 15,000

(viii) Stores adjustment (credit in financial books) Rs. 5,000

Required:

Prepare a Memorandum Reconciliation Account to reconcile the net loss as per cost
accounts and as per financial accounts.

(6 Marks)

Q-7

A Ltd. Co. has capacity to produce 1, 00,000 units of a product every month. Its works cost
at varying levels of production is as under:

Level Works cost per unit (Rs.)

10% 300

20% 290

30% 280

40% 270

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 50% 260

60% 250

70% 240

80% 230

90% 220

100% 210

It’s fixed administration expenses amount to Rs. 2, 10,000 and fixed marketing expenses
amount to Rs. 3, 00,000 per month respectively. The variable distribution cost amounts to
Rs. 30 per unit.

It can sell 100% of its output at Rs.400 per unit provided it incurs the following further
expenditure:

- Gift hampers at Rs. 50 per unit

- it has lucky draws every month giving the first prize of Rs. 50,000; 2nd prize of Rs. 25,000,
3rd prize of Rs. 10,000 and three consolation prizes of Rs. 5,000 each to customers buying
the product

- Advertisement expense of Rs. 2, 00,000

It can market 30% of its output at Rs.450 per unit without incurring any of the expenses
referred to in (a) to (d) above.

PREPARE a cost sheet for the month showing total cost and profit at 30% and 100% capacity
level.

(6 Marks)

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Q-8

Data relating to Sunder Ltd is presented as follows:

Products

A B C Total

Production and sales 75,000 52,000 17,000

(units)

Raw material usage in units 15 13 20

Raw material costs (Rs) 55 38 19 25,75000

Machine hours 2.5 2 4 3,98,000

Direct labour hours 2.5 4.5 2.5 4,00,000

Direct labour costs(Rs) 15 21 13

No. of production runs 7 12 42 61

No. of production orders 29 22 52 103

No. of deliveries 19 7 39 65

No. of receipts 65 140 770 975

Overheads: Rs.

Setup 72,000

Engineering 6,96,000

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 Machines 17,10,000

Receiving 9,20,000

Packing 5,20,000

Compute the product cost based on the direct Labour-hour recovery rate of overheads and
the product cost using activity based costing.

(7 Marks)

Q-9

ABC Ltd. Has three production departments P1, P2, and P3 and two service departments S1
and S2. The following data are extracted from the records of the company for the month of
October, 2007:

Particulars Rs

Rent and Rates 62,500

General Lighting 7,500

Indirect Wages 18,750

Power 25,000

Depreciation on Machinery 50,000

Insurance of Machinery 20,000

Other Information:

P1 P2 P3 S1 S2

Direct wages (Rs.) 37,500 25,000 37,500 18,750 6,250

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Horse Power of machinery used 60 30 50 10 --

Cost of Machinery (Rs.) 3,00,000 4,00,000 5,00,000 25,000 25,000

Floor space (sq. Ft) 2,000 2,500 3,000 2,000 500

Number of Light Points 10 15 20 10 5

Production Hours worked 6,225 4,050 4.100 -- --

Expenses of the service departments, S1 and S2 are reapportioned as below:

P1 P2 P3 S1 S2

S1 20% 30% 40% -- 10%

S2 40% 20% 30% 10% --

Required:

(i) Compute overhead absorption rate per production hour of each production department.

(ii) Determine the total cost of product X which is processed for manufacture in department
P1, P2, and P3 for 5 hours, 3 hours and 4 hours respectively, given that its direct material cost
is Rs.625 and direct Labour cost is Rs.375.

(8 Marks)

Q-10

The following data relates to the manufacture of a standard product during the month of
April:

Particulars Amount (Rs.)

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Raw materials 1,80,000

Direct wages 90,000

Machine hours worked (hours) 10,000

Machine hour rate (per hour) 8

Administration overheads (general) 35,000

Selling overheads (per unit) 5

Units produced 4,000

Units sold 3,600

Selling price per unit 125

You are required to PREPARE a cost sheet in respect of the above showing:

(i) Cost per unit

(ii) Profit for the month

(6 Marks)

Q-11 MCQ’s

1. If the standard time for a job is 60 hours and the guaranteed time rate is Rs0.30 per hour,
what would be the wages under the Rowan plan if the job is completed in 48 hours?

(a) Rs16.20

(b) Rs17.28

(c) Rs18.00

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(d) Rs14.40

2. Integrated systems of accounts are maintained in which of the following ways?

a) In separate books of accounts for costing and financial accounting purposes

b) In the same books of accounts

c) Both (a) and (b)

d) None of the above

3. Which method uses a pre-determined rate to price the issuance of materials?

(a) Inflated price method

(b) Standard price method

(c) Replacement price method

(d) Market price method

4. Which of the following is an example of functional classification of cost:

(a) Direct Material Cost

(b) Fixed Cost

(c) Administrative Overheads

(d) Indirect Overheads.

5. In the FSN (Fast, Slow, Non-moving) system of inventory control, how is inventory
classified?

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(a) Volume of material consumption

(b) Frequency of usage of items in inventory

(c) Criticality of the item for production

(d) Value of items in inventory

6. What are the key distinctions between job costing and contract costing?

(a) The length of time required to complete the project.

(b) The nature of the jobs, particularly larger projects.

(c) Activities that need to be performed outside the factory premises.

(d) All of the above.

7. A Ltd. received a special order and purchased a unique frame specifically for
manufacturing the order. Under which of the following classifications does the cost of this
frame fall?

a) Direct Materials

b) Direct Expenses

c) Factory Overheads

d) Administration Overheads

8. Global Manufacturing Co. is encountering difficulties in overhead allocation because of

reciprocal services among its service departments. Mr. Anderson, the Chief Accountant, is
looking into various methods to resolve this issue.

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Which option incorrectly describes a method for handling reciprocal services in overhead
allocation?

a) Simultaneous equation method

b) Repeated distribution method

c) Trial and error method

d) Recursive reconciliation method

9. In a situation where employees consistently work overtime due to a shortage of workers,

how is the overtime premium generally classified in terms of employee costs?

A) The overtime premium is deducted from the total hours worked.

B) The overtime premium is included in the total hours worked at the normal wage rate.

C) The overtime premium is considered part of employee costs, and the job is charged at a
higher wage rate.

D) The overtime premium is ignored when calculating employee costs.

10. A taxi provider charges minimum 80 thereafter 12 per kilometer of distance travelled,
the behavior of conveyance cost is:

(a) Fixed Cost

(b) Semi-variable Cost

(c) Variable Cost

(d) Administrative cost.

(1×10=10 Marks)

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