Cost and Management Accounting Page 1 of 5

Certificate in Accounting and Finance Stage Examination

ARTT Business School 04 February 2025

Fellow RAET of the ICAP 3 hours – 100 marks
Prepared by Ahmed Raza Mir, FCA Additional reading time – 15 minutes

Cost and Management Accounting

Instructions to examinees:
(i) Answer all Nine questions.
(ii) Answer in black pen only.

Q1. IKEA Limited manufactures and sells a single product, Product N, which relies exclusively on a single
raw material, Material X. Below are the details regarding the product and its raw material:
1. Annual demand is 5,000 units of Product N.
2. Each unit of Product N requires 4.56 kilograms of Material X.
3. Material losses include 4% during transportation from Peshawar to Karachi and 5% during
production.
4. The purchase price of Material X is Rs. 142.5 per kilogram, which includes a 5% bulk purchase
discount.
5. The company places two orders annually to fulfill its material requirements: one in January and
another in July.
6. Cost parameters are as follows:
o Holding cost is Rs. 60 per kilogram per year for raw material.
o Ordering cost is Rs. 5,000 per order.
o Holding cost for finished goods is Rs. 300 per unit of Product N per year.
The management is considering the adoption of the Economic Order Quantity (EOQ) model to
optimize raw material procurement and reduce overall material management costs.

Required:
Analyze the potential cost savings, if any, from adopting the Economic Order Quantity (EOQ) model
for the procurement of Material X. (08)
Q2. Seljan Limited (SL) has completed and sold two jobs during 2024. Following information is available
from SL’s records for the year ended 31 December 2024:

Job A Job B
----------Rupees-----------
Selling Price 71,520 75,875
Direct Material 16,000 24,800
Direct Labour 24,000 18,000
Profit 20% Markup 20% Margin
1. Production overheads charged to the jobs are a percentage of direct labour.
2. Selling and admin costs are allocated to the jobs as a percentage of prime cost

Required
Compute the amount of production and selling & administrative overheads using simultaneous
equations. (07)
Q3. AML Ltd. is engaged in the production of three types of ice-cream products: Coco, Strawberry, and
Vanilla. The company presently sells:
 50,000 units of Coco @ Rs. 25 per unit.
 20,000 units of Strawberry @ Rs. 20 per unit.
 60,000 units of Vanilla @ Rs. 15 per unit.
 Cost and Management Accounting Page 2 of 5
The demand is sensitive to the selling price, and it has been observed that every Rs. 1 reduction in selling
price increases the demand for each product by 10%. The company’s production capacity is:
 Coco: 60,500 units.
 Strawberry: 24,200 units.
 Vanilla: 72,600 units.
The company marks up 25% on the cost of the product.

The company management has decided to apply Activity-Based Costing (ABC). For this purpose, it has
identified the following activities and cost rates:

Activity Cost Rate

Ordering Rs. 800 per purchase order
Delivery Rs. 700 per delivery
Shelf Stocking Rs. 199 per hour
Customer Support & Assistance Rs. 1.10 per unit sold

Other Relevant Information for the Products

Details Coco Strawberry Vanilla
Direct Material per unit (Rs.) 8 6 5
Direct Labour per unit (Rs.) 5 4 3
No. of Purchase Orders 35 30 15
No. of Deliveries 112 66 48
Shelf Stocking Hours 130 150 160

Additional Information
Under the traditional costing system, store support costs are charged at 30% of prime cost. However,
under ABC, these costs are categorized as customer support and assistance.

Required:
1. Calculate the target cost for each product after a reduction in selling price required to achieve sales
equal to the production capacity.
2. Calculate the total cost and unit cost of each product at the maximum level using the traditional
costing system.
3. Calculate the total cost and unit cost of each product at the maximum level using Activity-Based
Costing (ABC). (12)

Q4. Krunal Hotels is a chain of hotels. The Chief Financial Officer needs your help in deciding the price per
room day to be charged in the upcoming year. Details of the costs are as under:

Cost Head Rupees Frequency

Fixed Operating Cost 41,630,400 Per Annum
Food and beverages per person 980 Per Day
Use of sundry assets 700 Per Day

There are 60 rooms of standard size and facilities in the hotel. Average occupancy remained:

Period Occupancy
Jan – April 80%
May to Aug 75%
Sept to Dec 90%

 Room is on average occupied by 4 people.

 The company charges a markup of 25% on cost to price a room per day.
 Assume that every month is of 30 days and the year has 360 days.

Required:
Calculate the price per room day the company should charge. (07)
 Cost and Management Accounting Page 3 of 5
Q5. Following data pertains to Kojack Limited for the year ended 31 December 2024:
Job A Job B
Units in Jobs 4,500 2,500
Opening WIP (Rs) 125,000 Started in 2024
Material Used (Kg) 3,500 2,800
Labour Hours 1,200 980

1. Movement in stock of raw material:

Kgs Cost (Rs)
Opening Stock 1,000 120,000
Purchases 8,800 1,249,600
Used as indirect 1,200 ?
Closing Stock 1,600 ?

2. The company uses weighted average method for the valuation of raw material. During the year some
raw material was returned to supplier from the current stock acquired. The company follows
periodic method for the valuation of stock.
3. The total labour cost paid to employees during the year amounted to Rs 1,545,480. In addition to the
two main jobs, 1,000 labour hours were utilized as indirect labour. Employee payments were made
after deducting 15% sales tax and 4% in other statutory deductions.
4. Other factory overheads amounted to Rs 840,000 paid during the year.
5. Overheads are charged to jobs at Rs 700 per labour hour
6. Job B remained incomplete. However, Job A was full completed and sold during the year at a
markup of 25% on full cost
Required
Journal Entries for the year ended 31 December 2024
(12)
Q6. Opal Limited uses two raw materials (Raw material D and E) to produce its only product (Product Z).
Details pertaining to the year just concluded are as under:

D E
Opening Balance (units) 2,400 3,000
Rate / Unit 50.00 40.00
Purchases during the year (Units) 54,000 60,000
Rate / Unit 52.00 42.50
Closing Stock (Units) 3,600 4,500
Other Information
1. Opening Stock of Product Z was 800 units held at a cost of Rs 1,900 / unit.
2. Stock returned to suppliers of D and E:
a. Material D: 800 units from recent purchases.
b. Material E: 500 units from opening stock.
3. 800 units of Material D and 1,020 units of Material E were found damaged and were treated as
normal loss
4. 200 Units of Material D and 150 units of Material E were mishandled and treated as abnormal
loss.
5. Closing Stock of D and E includes:
a. Material D: 700 units with an NRV of Rs 30.
b. Material E: 800 units with an NRV of Rs 24.
6. Conversion costs incurred during the year: Rs 3,000,000.
7. Production of Finished Goods during the year: 4,000 units. Closing Stock of Finished Goods:
1,050 units.
8. The company uses Weighted Average (periodic) method for the valuation of raw materials and
finished goods.
Required
1. Calculate the value of Raw Materials used for the production during the year.
2. Calculate the value of Cost of Goods Sold during the year. (11)
 Cost and Management Accounting Page 4 of 5

Q7. Bonanza Limited manufactures a single product, "Cangle," using three different raw materials. The
company follows a standard costing system and values raw material stock at standard rates. Below are
the details regarding the closing stock of raw materials, including their actual and standard costs:

Material Qty (Kgs) Actual Cost Standard Closing Stock as a %

(Rupees) Cost (Rupees) of consumption
A 8,000 528,000 480,000 20%
B 4,800 211,200 192,000 16%
C 1,750 38,500 35,000 10%
Each unit of Cangle consists of 30 Kgs of raw materials, mixed in the following proportions:
 Material A → 15 Kgs
 Material B → 13 Kgs
 Material C → 7 Kgs

The actual production output was 2,400 units of Cangle.

Required:
Based on the above information, you are required to calculate the following variances for all three
materials:
1. Material Price Variance
2. Material Usage Variance
3. Material Mix Variance
4. Material Yield Variance (14)
Q8. Zeeshan Limited is in the process of preparing its budgeted profit and loss statement for the year 2025.
Extracts from the statement of comprehensive income for the last two years are as under:

Particulars 2023 2024

Sales 8,000,0/00 9,000,000
Material (2,800,000) (3,456,000)
Labour (1,761,720) (1,726,604)
VOH (880,860) (888,447)

1. Selling price per unit in 2023 was Rs 160. The company was operating at 62.5% of the total capacity
in 2023. Selling price was reduced by Rs 10 to increase the sales up to 75% of the total capacity in
2024. In 2025 the company will be operating at 98% capacity by charging a selling price of Rs 148
per unit.
2. 2.8 Kgs of material was used per unit in 2023. Due to unavailability of material, the company
replaced the material in 2024. Usage per unit in 2020 was 3.2 Kgs per unit. However, the price of
such raw material was 10% less than the material used in 2023. This new raw material will be used
in 2025 also but due to the change in supplier, the material quality will be such that a loss of 5% in
input quantity will be observed. This material will cost 6% less than the current price. Inflation rate
will be 7% as compared to 2024.
3. Units are produced in batches of 10,000 units. The labour is observing a learning rate of 90%. The
learning will stop at the 14th batch. Labour hours for the first batch were 15,000. Inflation rate in
2024 was 3% and in 2021 it was 8%.
4. Variable Overheads depend on labour hours. Inflation rate for variable overheads is 6% throughout
2025 and 2025.
5. Fixed overheads per annum is 1.2 million in 2023 if the company operates at 100% capacity. If the
company operates at a point below 80% capacity, it can save 10% fixed cost, and if it operates at less
than 65% capacity, savings in fixed cost will be 15%. Inflation rate in 2024 and 2025 is 6%.

Required
1. Prepare a Profit and Loss Account for 2025.
2. Calculate the Break-even Point and Margin of Safety in Rupees for 2025 (14)
 Cost and Management Accounting Page 5 of 5
Q9. Jahanzaib Limited produces two joint products from a single input. The products are capable of being
sold at the split‐off point. Details of the budgeted activity for next year are as under:

Primary Process

Rupees
Materials (Rs 50 per Kg) 3,300,000
Variable Conversion Cost 2,100,000
Fixed Cost per annum 1,560,000
6,660,000

Output of the process is:

 Product J: 40,000 Kgs
 Product K: 15,000 Kgs
Product K takes double the labour and machine time as compared to Product J.

Selling prices and variable selling cost (Commission to sales agents) per unit are:

Selling Price Variable Selling Cost

Product J Rs 105 10% of selling price
Product K Rs 175 8% of selling price

A customer has approached the company to purchase 25,000 units of J and 12,000 units of K after they
are further processed. He has quoted a price of Rs 160 for Product J and Rs 205 for Product K. Further
processing would involve the following costs:

Per unit cost (Rs)

Product J Product K
Materials 15.00 20.00
Labour Cost 10.00 22.00
Variable Overheads 5.00 18.00
Applied FOH 4.00 6.00

20% units of J and 16% units of K would be lost in further processing. Scrap units of J can be sold for Rs
36 per unit, whereas no scrap value exists for Product K.
The customer will pick up the units himself. If Products J and K are further processed, the remaining
units (those not sold to the customer) can be sold at a price 10% more than the current price.

Required
Advise the management which product(s) should be processed further.

(15)