STANDARD : INTERMEDIATE Time : 1.

5 Hours

SUBJECT : COST & MANAGEMENT ACCOUNTING Marks : 100

General Instructions:

1. The question paper comprises of two parts, Part I and Part II.
2. Part I comprises of Multiple-Choice Questions (MCQs).
3. Part II comprises questions which require descriptive type answers.
4. You will be allowed to leave the examination hall only after the conclusion of exam. If you have
completed the paper before time, remain in your seat till the conclusion of the exam.
5. Candidate found copying or receiving or giving any help or defying instructions of the invigilator
will be expelled from the examination and will also be liable for further punitive action.

Part-II
1. Working notes should form part of the answer.
2. Answers to the questions are to be given only in English.

Case Scenario

1. The purchase committee of A Ltd. has been entrusted to review the material procurement policy
of the company. The chief marketing manager has appraised the committee that the company at
present produces a single product X by using two raw materials A and B in the ratio of 3:2. Material
A is perishable in nature and has to be used within 10 days from Goods received note (GRN) date
otherwise material becomes obsolete. Material B is durable in nature and can be used even after
one year. Material A is purchased from the local market within 1 to 2 days of placing order.
Material B, on the other hand, is purchased from neighbouring state and it takes 2 to 4 days to
receive the material in the store.
The purchase price of per kilogram of raw material A and B is ₹30 and ₹44 respectively
exclusive of taxes. To place an order, the company has to incur an administrative cost of ₹1,200.
Carrying cost for Material A and B is 15% and 5% respectively. At present material A is
purchased ina lot of 15,000 kg. to avail 10% discount on market price. GST applicable for both the
materials is 18% and the input tax credit is availed.
The sales department has provided an estimate that the company could sell 30,000 kg. in January
2024 and also projected the same trend for the entire year.
The ratio of input and output is 5:3. Company works for 25 days in amonth and production
is carried out evenly.
The following queries/ calculations to be kept ready for purchase committees’ reference:
(6 Marks)
1. For the month of January 2024, what would be the quantity of thematerials to be requisitioned
for both material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.
Ans: (d)

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 Monthly Production of X = 30,000 kgs.
30,000
Raw Material Required = 3 × 5 = 50,000 kgs.
50,000
Material A = 5
× 3 = 30,000 kg.
50,000
Material B = 5
× 2 = 20,000 kg.

2. The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively
Ans: (a)
Calculation of Economic Order Quantity (EOQ):
2×Annual consumption× Ordercost
Material A = √
Carrying cost per unit p.a.
2×(30,000×12)×1,200
=√ 15% of 30
= 13.856 kg
2×(20,000×12)×1,200
Material B = √ 5% 𝑜𝑓 44
= 16,181 kg.

3. Calculate saving/ loss in purchase of Material A if the purchase order quantity is equal to EOQ.
(a) Profit of Rs. 3,21,201.
(b) Loss of Rs. 3,21,201.
(c) Profit of Rs. 2,52,500.
(d) Loss of Rs. 2,52,500.
Ans: (b)
Calculation of Savings/ loss in Material A if purchase quantity equals to EOQ.
Purchase Quantity Purchase Quantity
=15,000 kg. =EOQ i.e. 13,856 kg.
Annual consumption 3,60,000 kg. 3,60,000 kg.
(30,000 × 12 months) (30,000 × 12 months)
No. of orders 30 30
[Note- (i)] (3,60,000 ÷ 12,000) (3,60,000 ÷ 12,000) )
Ordering Cost (a) ₹36,000 ₹36,000
(₹1200 × 30) (₹1200 × 30)
Carrying Cost (b) ₹30,375 ₹31,176
[Note- (ii)] (15% of ₹27 × 7,500) (15% of ₹30 × 6,928)
Purchase Cost (c) ₹97,20,000 ₹1,08,00,000
(for good portion) (₹27 × 3,60,000) (₹30 × 3,60,000)
Loss due to obsolescence (d) ₹24,30,000 ₹16,70,400
[Note- (iii)] [₹27 × (30 × 3,000)] [₹30 × (30 × 1,856)]
Total Cost [(a) + (b) + (c) + (d)] ₹ 1,22,16,375 ₹ 1,25,37,576
Purchasing of material -A at present policy of 15,000 kg. saves ₹ 3,21,201.

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 Notes:
(i) Since, material gets obsolete after 10 days, the quantity in excess of 10 days consumption i.e.
12,000 kg. are wasted. Hence, after 12,000 kg. a fresh order needs to be given.
(ii) Carrying cost is incurred on average stock of Materials purchased.
(iii) the excess quantity of material becomes obsolete and loss has to be incurred.

Case Scenario

2. K Ltd. is a manufacturer of a single product A. 8,000 units of the product A has been produced in
the month of March 2024. At the beginning of the year a total 1,20,000 units of the product-A has
been planned for production. The cost department has provided the following estimates of
overheads:
Fixed ₹ 12,00,000 Variable ₹ 6,00,000
Semi-Variable ₹ 1,80,000
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40 per
cent of variable character.
The records of the production department shows that the company could have operated for 20
days but there was a festival holiday during the month.
The actual cost data for the month of March 2024 are as follows:
Fixed ₹ 1,19,000 Variable ₹ 48,000
Semi-Variable ₹ 19,200
The cost department of the company is now preparing a cost variance report for managerial
information and action. You being an accounts officer of the company are asked to calculate the
following information for preparation of the variance report:
(6 Marks)

1. What is the amount of variable overhead cost variance for the month of March 2024:
(A) ₹ 10,200 (A)
(B) ₹ 10,400 (A)
(C) ₹ 10,800 (A)
(D) ₹ 10,880 (A)
Ans: (D)
Variable Overhead Cost = Standard Variable Overheads for Production – Actual
Variance Variable Overheads
= ₹ 44,800 – ₹ 55,680 = ₹ 10,880 (A)

2. What is the amount of fixed overhead expenditure variance for the month of March 2024:
(A) ₹ 21,520 (A)
(B) ₹ 21,500 (A)
(C) ₹ 21,400 (A)
(D) ₹ 21,480 (A)
Ans: (A)
Fixed Overhead Expenditure = Budgeted Fixed Overheads – Actual Fixed Overheads
Variance = ₹ 10.9 × 10,000 units – ₹ 1,30,520 = ₹ 21,520 (A)

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3. What is the amount of fixed overhead cost variance for the month of March 2024:
(A) ₹ 43,320 (A)
(B) ₹ 43,300 (A)
(C) ₹ 43,200 (A)
(D) ₹ 43,380 (A)
Ans: (A)
Fixed Overhead Cost Variance = Absorbed Fixed Overheads - Actual Fixed Overheads
= ₹ 87,200 – ₹ 1,30,520 = ₹ 43,320 (A)

Case Scenario

3. M Ltd. is producing a single product and may expand into product diversification in next one to two
years. M Ltd. is amongst a labour-intensive company where majority of processes are done
manually. Employee cost is a major cost element in the total cost of the company. The company
conventionally uses performance parameters Earnings per manshift (EMS) to measure cost paid to
an employee for a shift of 8 hours, and Output per manshift (OMS) to measure an employee’s output
in a shift of 8 hours.
The Chief Manager (Finance) of the company has emailed you few information related to the last
month. The email contains the following data related to the last month:
During the last month, the company has produced 2,34,000 tonnes of output. Expenditures for the
last months are:
(i) Raw materials consumed ₹ 50,00,000
(ii) Power consumed 13,000 Kwh @ ₹ 8 per Kwh to run the machines for production.
(iii) Diesels consumed 2,000 litres @ ₹ 93 per litre to run power generator used as alternative
or backup for power cuts.
(iv) Wages & salary paid – ₹ 6,40,00,000
(v) Gratuity & leave encashment paid – ₹ 64,20,000
(vi) Hiring charges paid for HEMM- ₹ 30,00,000. HEMM are directly used in production.
(vii) Hiring charges paid for cars used for official purpose – ₹ 66,000
(viii) Reimbursement of diesel cost for the cars – ₹ 22,000
(ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the time
of dispatch) – ₹ 12,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the
time of dispatch) and factory premises is ₹ 8,000 and ₹ 18,000 per month respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ₹ 36,000
(xiii) The company has 1,800 employees works for 26 days in a month.
You are asked to calculate the followings:
(6 Marks)
1. What is the amount of prime cost incurred during the last month:
(a) ₹ 7,54,20,000
(b) ₹ 7,57,10,000
(c) ₹ 7,56,06,000
(d) ₹ 7,87,10,000
Ans: (d)

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 2. What is the value of administrative cost incurred during the last month:
(a) ₹ 92,400
(b) ₹ 88,000
(c) ₹ 1,48,400
(d) ₹ 1,44,000
Ans: (a)
Car hire charges including GST @5%, please refer the cost sheet

3. What is the value of selling and distribution cost and total cost of sales:
(a) ₹ 36,000 & ₹ 7,88,76,400 respectively
(b) ₹ 56,000 & ₹ 7,88,76,400 respectively
(c) ₹ 36,000 & ₹ 7,88,72,000 respectively
(d) ₹ 56,000 & ₹ 7,88,72,000 respectively
Ans: (b)
Selling and distribution cost includes the following:
Maintenance cost for weighing bridge 12,000
AMC cost of CCTV installed at weigh bridge 8,000
TA/ DA & hotel bill of sales manager 36,000
56,000
For Cost of Sale please refer the cost sheet

Part - I
Multiple Choice Questions
1. What would be Prime cost from below information? (Chapter 6: Cost Sheet)
Direct materials Purchased : ₹ 75,000
Direct labour : ₹ 45,000
Direct expenses : ₹ 15,000
Manufacturing overheads : ₹ 22,500
Direct materials consumed : ₹ 67,500
(A) ₹ 1,35,000
(B) ₹ 1,27,500
(C) ₹ 1,57,500
(D) ₹ 1,50,000
Ans: (B)
Direct labour : ₹ 45,000
Direct expenses : ₹ 15,000
Direct materials consumed : ₹ 67,500
Prime Cost : ₹ 1,27,500

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 2. From the following information, calculate the Total cost of Product A and B using the ABC analysis:
Product A Product B
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering Cost ₹ 4,00,000
Delivery Cost ₹ 1,35,000
(A) A = ₹ 47,500; B = ₹ 1,27,500
(B) A = ₹ 2,67,500; B = ₹ 2,67,500
(C) A = ₹ 1,60,00; B = ₹ 3,75,000
(D) A = ₹ 1,47,500; B = ₹ 1,47,500
Ans: (C)
Ordering Cost = 4,00,000/320 = 1,250
Delivery Cost = 1,35,000/270 = 500
A = 1,250 x 100 + 500 x 70 = 1,60,000
B = 1,250 x 220 + 500 x 200 = 3,75,000

3. Which method of absorption of Factory Overheads do you suggest in a concern which produces only
one uniform type of product?
(a) Percentage of Direct Wages Basis
(b) Direct Labour Rate
(c) Machine Hour Rate
(d) Rate per unit of output
Ans: (d)

4. "K Labs" develops a product using a four-step process that moves progressively through four
departments. The Company specializes in overnight service and has the largest drug store chain as
its Primary Customer. Currently, Direct Labour, Direct Materials, and Overhead are accumulated by
departments. The cost accumulation system that best describes the system in the Company is –
(a) Operation Costing
(b) Activity-Based Costing
(c) Job-Order Costing
(d) Process Costing
Ans: (d)

5. In the Net realisable value method, for apportioning joint costs over the joint products, the basis of
apportionment would be:
(a) Selling price per unit of each of the joint products
(b) Selling price multiplied by units sold of each of the joint products
(c) Sales value of each joint product less further processing costs of individual products
(d) Both (b) and (c)
Ans: (d)

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 6. XY ltd. runs a hospital which consists of 25 beds and 5 more extra beds can be accommodated. Unit
was open for all the 365 days. In 2015 onlyu for 120 days, the unit had the full capacity of 25 patients
per day and for another 80 days, it had on the average 20 beds only occupied per day. Extra beds
were hired at a charge pf Rs. 5 per bed per day. The total hire charges for the whole year amounted
to Rs. 2,000. Total patient day for the year =?
(a) 4,600 patient day
(b) 5,000 patient day
(c) 4,800 patient day
(d) 5,160 patient day
Ans: (b)
(6 x 2 = 12 Marks)

1. Question paper comprises 6 Question. Answer Question No. 1 which is compulsory and any
4 out of the remaining 5 Question
2. Working note should from part of the answer.

Part - II
Descriptive Questions

1.(a) PREPARE cost statement of Panipat Thermal Power Station showing the cost of electricity
generated per kwh, from the following data.
Total units generated 16,50,000 kWh
(₹)
Operating labour 21,75,000
Repairs & maintenance 7,25,000
Lubricants, spares and stores 5,80,000
Plant supervision 4,35,000
Administration overheads 29,00,000
Insurance Charges 15,00,000
Fuel Charges 8,00,000
7 kWh. of electricity generated per kg. of coal consumed @ ₹4.75 per kg. Depreciation charges @
5% on capital cost of ₹3,10,00,000. (5 Marks)
Answer
Total units generated 16,50,000 kWh.
Cost Statement of Panipat Thermal Power Station
Per annum (₹) Per kWh. (₹)
Fixed costs:
Plant supervision 4,35,000
Administration overheads 29,00,000
Insurance Charges 15,00,000
Depreciation (5% of ₹ 3,10,00,000 p.a.) 15,50,000
Total fixed cost: (A) 63,85,000 3.87
Variable costs:

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 Operating labour 21,75,000
Fuel Charges 8,00,000
Lubricants, spares and stores 5,80,000
Repairs & maintenance 7,25,000
Coal cost (Refer to working note) 11,19,643
Total variable cost: (B) 53,99,643 3.27
Total cost [(A) + (B)] 1,17,84,643 7.14
Working Note:
Coal cost (16,50,000 kWh. ÷ 7 kWh) × ₹4.75 per kg. = ₹11,19,643

1.(b) A manufacturing process yields the following products out of the raw materials introduced in the
process:
Main Product X 60% of Raw Materials
By-Product Y 15% of Raw Materials
By Product Z 20% of Raw Materials
Wastage 5% of Raw Materials
Other information is as follows:
a. Total Cost: Raw Materials 1,000 units of ₹ 9,200; Labour ₹ 8,200; Overheads ₹ 12,000
b. One unit of product z requires ½ the raw materials required for one unit of product Y, one unit
of product X requires1½ times the raw materials required for product Y.
c. Product X required double the time needed for production of one unit of Y and one unit of Z.
d. Product Z requires ½ the time required for the production of one unit of product Y.
e. Overheads are to be apportioned in the ratio of 6:1:1.
You are required to CALCULATE the total and per unit of cost of each of the products.
(5 Marks)
Answer
Statement of Distribution of Costs
Cost Elements Basis Total Main Product X By-Product Y By-Product Z
Cost (600 Units) (150 Units) (200 Units)
Total Per Total Per Total Per
Unit Unit Unit
Raw Materials 18:3:2 9,200 7,200 12 1,200 8 800 4
Labour 36:3:2 8,200 7,200 12 600 4 400 2
Overheads 6:1:1 12,000 9,000 15 1,500 10 1,500 7.50
Total 29,400 23,400 39 3,300 22 2,700 13.50
Working Notes:
1. Calculation of Units produced:
Main Product X 60% of Raw Materials 600 Units
By-Product Y 15% of Raw Materials 150 Units
By Product Z 20% of Raw Materials 200 Units
Wastage 5% of Raw Materials 50 Units
1000 Units

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 2. Cost Allocation Raw Materials
Let Product Z requires 1 unit of raw materials then, Product Y will require 2 units of raw materials and
Product X will require 3 units of raw materials.
Product X Y Z
Individual Unit ratio (a) 3 : 2 : 1
Units (b) 600 150 200
Ratio for Cost Allocation (a*b) 1800 : 300 : 200
Ratio 18 : 3 : 2

Labour:
Let Product Z requires 1 hour of Labour then, Product Y will require 2 hours of Labour and Product X
will require 6 hours of Labour.
Product X Y Z
Individual Unit ratio (a) 6 : 2 : 1
Units (b) 600 150 200
Ratio for Cost Allocation (a*b) 3600 : 300 : 200
Ratio 36 : 3 : 2

1.(c) DESCRIBE Unit Costing. WHAT kind of industries follow this method of costing? (4 Marks)
Answer
Unit costing: It is that method of costing where the output produced is identical and each unit of
output requires identical cost. Unit costing is synonymously known as single or output costing, but
these are sub-division of unit costing method.
This method of costing is followed by industries which produce single output or few variants of a
single output, therefore, this method of costing, finds its application in industries like paper, cement,
steel works, mining, breweries etc. These types of industries produce identical products and
therefore have identical costs

2.(a) Following information relate to a manufacturing concern for the year ended 31st March, 2023:
(₹)
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 43,50,000
Freight Inwards 1,20,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory Overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses ₹ 16 per unit
Finished Stock (opening)- 1,320 Units 6,08,500
Sale of scrap of material 7,000

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 The firm produced 14,350 units of output during the year. The stock of finished goods at the end
of the year is valued at cost of production. The firm sold 14,903 units at a price of ₹579 per unit
during the year.
PREPARE cost sheet of the firm. (8 Marks)
Answer
Cost sheet for the year ended 31st March, 2023.
Units produced - 14,000 units
Units sold - 14,153 units
Particulars Amount (₹)
Raw materials purchased 43,50,000
Add: Freight Inward 1,20,000
Add: Opening value of raw materials 2,28,000
Less: Closing value of raw materials (3,05,000)
43,93,000
Less: Sale of scrap of material (7,000)
Materials consumed 43,86,000
Direct Wages (12,56,000 + 1,50,000) 14,06,000
Prime Cost 57,92,000
Factory overheads (20% of Prime Cost) 11,58,400
Add: Opening value of W-I-P 1,92,500
Less: Closing value of W-I-P (1,40,700)
Factory Cost 70,02,200
Add: Administrative overheads 1,73,000
Cost of Production 71,75,200
Add: Value of opening finished stock 6,08,500
Less: Value of closing finished stock
[₹ 500(71,75,200/14,350) × 767] (3,83,500)
(1,320 + 14,350 – 14,903 = 767 units)
Cost of Goods Sold 74,00,200
Distribution expenses (₹16 × 14,903 units) 2,38,448
Cost of Sales 76,38,648
Profit (Balancing figure) 9,90,189
Sales (₹ 579 × 14,903 units) 86,28,837

2.(b) The annual demand for an item of raw material is 48,000 units and the purchase price is ₹ 80
per unit. The cost of processing an order is ₹ 1,350 and the annual cost of storage is ₹ 15 per
unit.
(i) DETERMINE is the optimal order quantity and total relevant cost for the order?
(ii) If the cost of processing an order is ₹ 800 and all other data remain same, then DETERMINE the
differential cost?
(iii) If the supplier offers bulk purchase of 48,000 units at a price of ₹ 72 and cost of placing the is Nil,
SHOULD the order be accepted? (6 Marks)

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 Answer
(i) Optimal order quantity i.e. E.O.Q.
2×48,000×1,350
=√ 15
= √86,40,000 = 2, 939 units
Relevant Cost of this order quantity ₹
Ordering cost = 48,000 / 2,939 =16.33, say 17 orders at ₹ 1,350 22,950.00
Carrying Cost = ½ × 2, 939 × 15 22,042.50
Relevant cost 44,992.50
2×48,000×800
(ii) Revised EOQ = √ = 2,263 units
15
Relevant Cost of this order quantity ₹
Ordering cost = 48,000 / 2,2,63 21.21, say 22 orders at ₹ 800 17,600.00
Carrying cost = ½ × 2,263 × 15 16,972.50
Relevant cost 34,572.50
Differential cost = 44,992.50 – 34,572.50 = ₹ 10,420
(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 ₹ 80 per unit Supplier offered at ₹ 72 per unit
₹ ₹
Purchase Cost (48,000 × 80) 38,40,000.00 Purchase cost 34,56,000.00
(48,000 × 72)
Ordering cost 22,950.00 Ordering cost 0.00
Carrying cost 22,042.50 Carrying cost 3,60,000.00
½ × 48, 000 × 15
Total cost 38,84,992.50 38,16,000.00
This special offer at ₹ 72 per unit should be accepted as it saves ₹ 68,992.50 as compared to
original offer.

3.(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 ₹ 12,00,000; Variable ₹ 6,00,000;
Semi-Variable ₹ 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 ₹ 1,10,000; Variable ₹ 48,000;
Semi-Variable ₹ 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
Calendar Variance. (8 Marks)

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Answer
COMPUTATION OF VARIANCES
(i) Overhead Cost Variance = Absorbed Overheads – Actual Overheads
= (₹87,200 + ₹44,800) – (₹1,21,520 + ₹55,680)
= ₹ 45,200 (A)
(ii) Fixed Overhead Cost Variance = Absorbed Fixed Overheads – Actual Fixed Overheads
= ₹ 87,200 – ₹1,21,520
= ₹ 34,320 (A)
(iii) Variable Overhead Cost Variance = Standard Variable Overheads for Production – Actual
Variable Overheads
= Standard Variable Overheads for Production –Actual
Variable Overheads
= ₹ 44,800 – ₹ 55,680
= ₹ 10,880 (A)

(iv) Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed
Overheads
= ₹ 87,200 – ₹1,09,000
= ₹ 21,800 (A)
(v) Fixed Overhead Expenditure = Budgeted Fixed Overheads – Actual Fixed Overheads
Variance
= ₹10.90 × 10,000 units – ₹1,21,520
= ₹ 12,520 (A)
(vi) Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads
= ₹1,03,550 – ₹1,09,000
= ₹ 5,450 (A)
WORKING NOTE
Budgeted Fixed Overheads Rs.12,00,000 ₹ 10
Fixed Overheads per Unit = Budgeted Output
= 1,20,000 units
Fixed Overheads element in Semi-Variable Overheads i.e. 60% of ₹ 1,08,000
₹1,80,000
Budgeted Fixed Overheads Rs.1,08,000 ₹ 0.90
Fixed Overheads per Unit = Budgeted Output
= 1,20,000 units
Standard Rate of Absorption of Fixed Overheads per unit (₹10 + ₹0.90) ₹10.90
Fixed Overheads Absorbed on 8,000 units @ Rs10.90 ₹ 87,200
Budgeted Variable Overheads ₹ 6,00,000
Add : Variable element in Semi-Variable Overheads 40% of ₹ 1,80,000 ₹ 72,000
Total Budgeted Variable Over heads ₹ 6,72,000
Budgeted Fixed Overheads Rs.6,72,000 ₹5.60
Standard Variable Cost per unit = Budgeted Output
= 1,20,000units
Standard Variable Overheads for 8,000 units @ ₹5.60 ₹ 44,800
Budgeted Annual Fixed Overheads (₹ 12,00,000 + 60% of ₹ 1,80,000) ₹13,08,000
Budgeted Fixed Overheads ₹ 1,03,550
Possible Fixed Overheads = Budgeted Output
× Actual Days
Rs.1,09,000
⌊ 20 Days × 19 Days⌋
Actual Fixed Overheads (₹1,10,000 + 60% of ₹ 19,200) ₹1,21,520
Actual Variable Overheads (₹48,000 + 40% of ₹19,200) ₹ 55,680

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3.(b) In a factory, the basic wage rate is Rs. 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
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.
(6 Marks)
Answer
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: Rs. 300 × 230% = 690 per hour
Computation of average inflated wage rate (including overtime premium):
Particulars Amount (Rs.)
Annual wages for the previous year for normal time (1,00,000 hrs. × Rs. 300) 3,00,00,000
Wages for overtime before and after working hours (20,000 hrs. × Rs. 540) 1,08,00,000
Wages for overtime on Sundays and holidays (5,000 hrs. × Rs. 690) 34,50,000
Total wages for 1,25,000 hrs. 4,42,50,000
𝑅𝑠.4,42,50,000
Average inflated wage rate = 1,25,000 ℎ𝑜𝑢𝑟𝑠 = 354
(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. × Rs. 354 = Rs. 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 @ Rs.300 per hour = Rs.3,37,500
Factory overhead: {100 hrs. × Rs. (540 – 300)} + {25 hrs. × Rs. (690 – 300)}
= {Rs. 24,000 + Rs. 9,750} = Rs. 33,750

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 (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. @ Rs. 300 = 3,37,500
Overtime premium 100 hrs. @ Rs. (540 – 300) = 24,000
25 hrs. @ Rs. (690 – 300) = 9,750
Total 3,71,250

4.(a) A company manufactures scooters and sells it at ₹ 3,000 each. An increase of 17% in cost of
materials and of 20% of labour cost is anticipated. The increased cost in relation to the present sales
price would cause at 25% decrease in the amount of the present gross profit per unit.
At present, material cost is 50%, wages 20% and overhead is 30% of cost of sales.
You are required to:
(a) Prepare a statement of profit and loss per unit at present
(b) Compute the new selling price to produce the same percentage of profit to cost of sales as
before. (8 Marks)
Answer
Let the total cost per unit at present be ₹ X and Profit per unit be ₹ Y
Particulars Present Percentage Anticipated
Cost Structure (₹) increase/decrease Cost Structure (₹)
Material 0.50X 17% increase = 0.50X × 0.585X
117%
Labour 0.20X 20% increase = 0.20X × 0.24X
120%
Overhead 0.30X 0.30X
Total (Cost of Sales) X 1.125X
Profit Y 25% decrease = Y × 75% 0.75Y
Sales 3,000 3,000
So, two equations are X + Y = 3,000....................... (i)
and 1.125X + 0.75Y = 3,000....................... (ii)
Multiplying equation (i) by 1.125 and subtracting equation (ii) from (i)

1.125X + 1.125Y = 3,375

(–) 1.125X + 0.75Y = 3,000
0.375Y = 375
or, Y = 1,000 or, Profit = ₹ 1,000
by putting the value of Y = 1,000 in equation (i)
or, X + 1,000 = 3,000
or, X = 2,000
or Total Cost = ₹ 2,000

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 (a) Statement showing Profit or Loss per unit at present
Particulars Workings (₹)
Material 0.50 × 2,000 1,000
Labour 0.20 × 2,000 400
Overheads 0.30 × 2,000 600
Total Cost 2,000
Profit 1,000
Selling Price per unit 3,000
Profit 1,000 1 1
Percentage of Profit on Sales = Sales
× 100 = 3,000
× 100 = 33 3% = 3 rd of Sales

(b) Computation of New Selling Price to get same percentage of profit on sales
Particulars Workings (₹)
Material 0.585 × 2,000 1,170
Labour 0.24 × 2,000 480
Overheads 0.30 × 2,000 600
Total Cost 2,250
Profit 1 1,125
Bal. fig. on Sales × 3
Selling Price (Working Note) 3,375
per unit
Working Note
Cost + Profit = Sales
1
or, 2,250 + × Sales = Sales
3
1
or, 3 × Sales = 2,250
or Sales = 3,375

4.(b) SANDY Ltd. is a manufacturing company having three production departments, ‘A’, ‘B’ and ‘C’ and
two service departments ‘X’ and ‘Y’. The following is the budget for December 2022:
Total (₹) A (₹) B (₹) C (₹) X (₹) Y (₹)
Direct material 1,60,000 3,20,000 6,40,000 3,20,000 1,60,000
Direct wages 8,00,000 3,20,000 12,80,000 1,60,000 3,20,000
Factory rent 6,40,000
Power 4,00,000
Depreciation 1,60,000
Other overheads 14,40,000
Additional
information:
Area (Sq. ft.) 800 400 800 400 800
Capital value of 32 64 32 16 16
assets (₹) lakhs)
Machine hours 1,600 3,200 6,400 1,600 1,600
Horsepower of 80 64 32 24 40
machines

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 Apportionment of expenses of service departments is as under:
A B C X Y
Service Dept. ‘X’ 72 24 48 – 16
Service Dept. ‘Y’ 96 56 – 8 –
Required:
(i) PREPARE a statement showing distribution of overheads to various departments.
PREPARE a statement showing re-distribution of service departments expenses to production
departments using Repeated Distribution method. Also CALCULATE machine hour rate of the
production departments 'A', 'B', 'C'. (6 Marks)
Answer
(i) Overhead Distribution Summary
Basis Total (₹) A (₹) B (₹) C (₹) X (₹) Y (₹)
Direct materials Direct – – – – 3,20,000 1,60,000
Direct wages Direct – – – – 1,60,000 3,20,000
Factory rent Area 6,40,000 1,60,000 80,000 1,60,000 80,000 1,60,000
(2:1:2:1:2)
Power H.P. × 4,00,000 80,000 1,28,000 1,28,000 24,000 40,000
(10:16:16:3:5)* Machine
Hrs.
Depreciation Capital 1,60,000 32,000 64,000 32,000 16,000 16,000
(2:4:2:1:1) value of
assets
Other overheads Machine 14,40,000 1,60,000 3,20,000 6,40,000 1,60,000 1,60,000
(1:2:4:1:1) hrs.
Total 26,40,000 4,32,000 5,92,000 9,60,000 7,60,000 8,56,000
*{(1600×80) : (3200×64) : (6400×32) : (1600×24) : (1600×40)}
(1,28,000 : 2,04,800 : 2,04,800 : 38,400 : 64,000)
(10:16:16:3:5)
(ii) Redistribution of service department’s expense using repeated distribution Method:
A (₹) B (₹) C (₹) X (₹) Y (₹)
Total overheads 4,32,000 5,92,000 9,60,000 7,60,000 8,56,000
Dept. X overhead 3,42,000 1,14,000 2,28,000 -7,60,000 76,000
apportioned in the ratio
(72:24:48: —:16)
Dept. Y overhead 5,59,200 3,26,200 - 46,600 -9,32,000
apportioned in the ratio
(96:56: —:8: —)
Dept. X overhead 20,970 6,990 13,980 -46,600 4,660
apportioned in the ratio
(72:24:48: —:16)
Dept. Y overhead 2,796 1,631 - 233 -4,660
apportioned in the ratio
(96:56: —:8: —)
Dept. X overhead 105 35 70 -233 23
apportioned in the ratio
(72:24:48: —:16)

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 Dept. Y overhead 15 8 - - -23
apportioned in the ratio
(96:56: —:8: —)
13,57,086 10,40,864 12,02,050 - -
Calculation of machine hour rate
A B C
A Total overheads (₹) 13,57,086 10,40,864 12,02,050
B Machine hours 1,600 3,200 6,400
C Machine hour rate (₹) [A ÷ B] 848.18 325.27 187.82

5.(a) DESCRIBE the steps necessary for establishing a good budgetary control system. (7 Marks)
Answer
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.

5.(b) 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

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

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 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.
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. (7 Marks)
Answer
Computation showing Rates for each Activity
Activity Activity Activity driver Activity Activity
Cost (Rs.) Capacity Rate
(A) (B) (A/B)
Marketing Expenses 2,25,000 Number of Customer Contacts 7,50,000 0.30
Website Maintenance Expenses 1,50,000 Number of Customer Online 6,00,000 0.25
orders
Credit Card Processing Fees 1,35,000 Number of Credit card 2,70,000 0.50
transactions
Cleaning Equipment Cost 3,15,000 Number of Square Feet 10,500 30.00
Inspecting and Testing Cost 2,62,500 Number of Tests 52,500 5.00
Setting up machine's cost 4,50,000 Number of set-ups 900 500.00

Activity based Cost for each Department

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

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 (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) (B3) 4,31,250 6,46,875 3,22,500 1,36,875
Operating Cost (B) (B1+ B2 + B3) 10,51,050 15,93,750 7,25,400 5,88,000
Operating Income/(Loss) (C = A – B) 1,03,950 2,81,250 2,04,600 (63,000)
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%).

6.(a) Briefly explain the ‘techniques of costing’. (5 Marks)

Answer
Techniques Description
Uniform When a number of firms in an industry agree among themselves to follow the same
Costing system of costing in detail, adopting common terminology for various items and
processes they are said to follow a system of uniform costing.
Advantages of such a system are:
i. A comparison of the performance of each of the firms can be made with that of
another, or with the average performance in the industry.
ii. Under such a system, it is also possible to determine the cost of production of
goods which is true for the industry as a whole. It is found useful when tax-relief
or protection is sought from the Government.
Marginal It is defined as the ascertainment of marginal cost by differentiating between fixed
Costing and variable costs. It is used to ascertain effect of changes in volume or type of
output on profit.
Standard It is the name given to the technique whereby standard costs are pre-determined
Costing and and subsequently compared with the recorded actual costs. It is thus a technique of
Variance cost ascertainment and cost control. This technique may be used in conjunction with
Analysis any method of costing. However, it is especially suitable where the manufacturing
method involves production of standardized goods of repetitive nature.
Historical It is the ascertainment of costs after they have been incurred. This type of costing has
Costing limited utility.
• Post Costing: It means ascertainment of cost after production is completed.
• Continuous costing: Cost is ascertained as soon as the job is completed or even
when the job is in progress.
Absorption It is the practice of charging all costs, both variable and fixed to operations, processes
Costing or products. This differs from marginal costing where fixed costs are excluded.
Direct costing Direct costing is a specialized form of cost analysis that only uses variable costs to
make decisions. It does not consider fixed costs, which are assumed to be associated
with the time periods in which they are incurred.

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 OR

6.(a) Identify the methods of costing from the following statements:

(i) Costs are directly charged to a group of products.
(ii) Nature of the product is complex and method cannot be ascertained.
(iii) Costs ascertained for a single product.
(iv) All costs are directly charged to a specific job.
(v) Costs are charged to operations and averaged over units produced. (5 Marks)
Answer
Method of costing followed:
Situation Method of costing
(i) Costs are directly charged to a group of products. Batch costing
(ii) Nature of the product is complex and method cannot be ascertained. Multiple costing
(iii) Cost is ascertained for a single product. Unit/ Single/Output costing
(iv) All costs are directly charged to a specific job. Job costing
(v) Costs are charged to operations and averaged over units produced. Process costing

6.(b) “Is reconciliation of cost accounts and financial accounts necessary in case of integrated accounting
system?” EXPLAIN. (5 Marks)
Answer
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.
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.

6.(c) Distinguish between Job costing and Process Costing. (Any five points of differences)
(4 Marks)
Answer
The main point which distinguish job costing and process costing are as below:
Job Costing Process Costing
(i) A Job is carried out or a product The process of producing the product has a continuous
is produced by specific orders. flow and the product
produced is homogeneous.
(ii) Costs are determined for each Costs are compiled on time basis i.e., for production of a
job. given accounting period for each process or department.
(iii) Each job is separate and Products lose their individual identity as they are
independent of other jobs. manufactured in a continuous flow.

20
(iv) Each job or order has a number The unit cost of process is an average cost for the period.
and costs are collected against
the same job number.
(v) Costs are computed when a job Costs are calculated at the end of the cost period. The unit
is completed. The cost of a job cost of a process may be computed by dividing the total
may be determined by adding all cost for the period by the output of the process during
costs against the job. that period.
(vi) As production is not continuous Process of production is usually standardized and is
and each job may be different, therefore, quite stable. Hence control here is
so more managerial attention is comparatively easier.
required for effective control.

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