Grand Mock 1 (Overall Test 6) SAUD TARIQ

CAF 8 Cost and Management Accounting

ST Academy
Certificate in Accounting and Finance Stage Examination
1st February 2021
2 hours 20 mins – 80 marks
Additional reading time – 10 minutes

Cost and Management Accounting

Q1) Sohaib Ltd produces four products A, B, C and D. The present machine capacity is
240 hours per month. An existing machine with the capacity of 70 hours is unsuitable for
the production of A and D but is suitable for the production of B and C. On the other
machines any of the four products may be produced. There is an adequate supply of labour
for all the four products.
Marketing policy requires that each month there should be produced:
(i) All four types of products; and
(ii) Not less than 5,000 kg of any one product.
Details relating to production, market price and direct and fixed costs are given below:
A B C D
Machine hours at present devoted to each line 105 50 60 25
Production in kgs. per machine hour 700 200 150 300
Rs. Rs. Rs. Rs.
Market price per kg 3.86 3.86 4.56 5.68
Material cost per machine hour 189.00 74.00 63.00 108.00
Labour cost per machine hour 224.00 152.00 93.00 132.00
Other variable costs per kg 0.80 0.72 1.00 1.20
Transport per kg 1.30 1.30 1.00 2.40
Fixed overhead incurred each month including general administration etc. are Rs.112,000.
Required:
Advise distribution of machine hours to each product to produce the maximum profit and
work out the amount of maximum profit for Rizwan Ltd. (Marks 13)

Q2) Raqib Limited (RL) imports and sells Bats. RL is faced with a situation where lead
time is mostly predictable i.e. 1 month but lead time usage varies quite significantly. Data
collected for past three years shows that probability for lead time usage is as follows:
No. of units demanded during lead time Probability of demand during lead time (%)
7,000 50
4,620 20
3,150 30
Other relevant information is as follows:
 Annual demand is 60,480 units.
 Contribution margin is Rs. 50 per unit.
 Purchase orders are raised on the basis of economic order quantity model. Annual
holding cost is Rs. 100 per unit whereas average cost of placing an order is Rs. 47,250.

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 Grand Mock 1 (Overall Test 6) SAUD TARIQ
CAF 8 Cost and Management Accounting
ST Academy
Required:
Determine at which of the following re-order levels, RL’s profit would be maximized:
 7,000 units
 3,150 units
 Expected demand during lead time (12 marks)

Q3) Safwan Limited operates a fast food chain and has 15 outlets all over Pakistan.
The company’s turnover for the year ending December 31, 2020 is estimated at
Rs. 181 million and the annual fixed costs are estimated at Rs. 30 million. The
analysis of sale has revealed the following:
Quantity wise Contribution margin
Product Selling price (Rs.)
sales ratio as % of sale price
Burger 150 6 40
Fries 50 7 45
Cold drink 40 8 50
Ice-cream 80 3 60
The company has witnessed very little growth in turnover and profitability during
the past two years. In order to increase the profitability, the management is
considering the following options:
Option 1:
To introduce the following deals:
 Deal 1 offering burger, fries and cold drink for Rs. 210
 Deal 2 offering burger, fries, cold drink and ice-cream for Rs. 280
As a result, the total turnover is expected to increase by 25%. The ratio between
sale of Deal 1 and Deal 2 would be 60% and 40% respectively. 70% of the revenues
would be generated from the sale of deals and 30% from the sale of individual items
in the existing ratio.
Option 2:
Under this option the price of all the products would be reduced by 20% to
make the prices competitive in the market. In addition, home delivery would be
allowed for orders of Rs. 250 and above. Home delivery would require additional
fixed costs of Rs. 850,000 per annum and variable cost of Rs. 20 per delivery.
It is estimated that the above measures would increase the total sales revenue by
35% inclusive of sales through home delivery service which is estimated at Rs. 30
million. The average revenue per delivery is estimated at Rs. 600. All sales would
increase in existing ratio except that ice-cream would not be sold through deliveries.
Required:
Evaluate each of the above options and give your recommendations. (15 marks)

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 Grand Mock 1 (Overall Test 6) SAUD TARIQ
CAF 8 Cost and Management Accounting
ST Academy
Q4) Assume that you have been appointed as finance director of Hashir Ltd. The
company is considering investing in the production of an electronic security device, with
an expected market life of five years.
The previous finance director has undertaken an analysis of the proposed project, the
main features of his analysis are shown below. He has recommended that the project
should not be undertaken because the estimated annual profit is only 12%.
Proposed electronic security device project
(Rs. 000) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment in
depreciable Fixed assets 4,500
Cumulative investment
in working capital 300 400 500 600 700
Sales 3,500 4,900 5,320 5,740 5,320
Materials 535 750 900 1,050 900
Labour 1,070 1,500 1,800 2,100 1,800
Overhead 50 100 100 100 100
Interest 576 576 576 576 576
Depreciation 900 900 900 900 900
(3,131) (3,826) (4,276) (4,726) (4,276)
Taxable Profit 369 1,074 1,044 1,014 1,044
Profit after Tax 240 698 679 659 679

Total initiative investment is Rs 4,800,000. Average annual tax profit Rs. 591,000
All the above cashflow and profit estimates have been prepared in terms of present-day
costs and prices, since the previous finance director assumed that the sales price could be
increased to compensate for any increase in costs.
You have available the following additional information:
a) Selling prices, working capital requirements and overhead expenses are expected to
increase by 5% per year.
b) Material costs and Labour costs are expected to increase by 10%, per year.
c) Tax depreciation are allowable for taxation purposes against profit at 25% per year on
a reducing balance basis.
d) Taxation on profits is at a rate of 35% payable one year in arrears.
e) The fixed assets have no expected salvage value at the end of five years.
f) The company’s after tax weighted cost of capital is 15% per year.

Required:
Estimate the NPV of the proposed project. (15 marks)

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 Grand Mock 1 (Overall Test 6) SAUD TARIQ
CAF 8 Cost and Management Accounting
ST Academy
Q5) Osama Ltd uses a cutting & stitching process for its garments.
 The direct labour costs are incurred uniformly throughout the process while materials
are added at specific times during the process.
 Inspection of the garment for spoilage can take place only at the end of the process
when it can be determined whether or not there has been any spoilage.
 Expected losses will be 10% of good output.
 Some spoiled garment can be reworked and it is saved up until a batch of 3,500
garments can be reprocessed.
 At the beginning of the month of January 2020 the work in progress were 7,000
garments which were valued at Rs. 840,000 direct materials and Rs. 323,400 direct
labour.
 The work in progress has full direct material, but was only 60% complete as to direct
labour.
 During the month 39,550 garments were started from new, and 3,500 garments were
reworked. The garments being reworked require 50% of direct labour and 60% of
direct materials to bring them up saleable.
 By the end of the month 3,850 garments had been found to be rejected.
 The work in progress at the end of the month amounted to 5,600 garments of which
40% were completed for direct labour and 80% were completed for direct materials.
 All other garments were completed satisfactorily & transferred to stores for further
processing.
 The costs for January 2020 were direct materials Rs. 5,045,950, direct labour Rs.
820,260.
 The departmental overhead recovered was Rs. 3.5 for every Rs. 1 direct labour, whilst
actual overhead expenditure amount to Rs. 2,387,700 for the month (excluding the
reworking costs).
Required: Prepare cost of production report using FIFO basis [12 Marks]

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 Grand Mock 1 (Overall Test 6) SAUD TARIQ
CAF 8 Cost and Management Accounting
ST Academy
Q6) The following information has been extracted from the projected financial
statements of Bilal Limited for the year ending 31st December 2020:

Rs. in million
Sales (100% credit sales) 9,000
Raw material consumption 2,700
Raw material inventory (including imports of Rs. 294 million) 474
Conversion cost: Variable 1,710
Fixed (including depreciation of Rs. 48 million) 120
Operating cost: Variable 2,190
Fixed (including depreciation of Rs. 81 million) 360
Trade creditors (local purchases) 285
Advance to suppliers for import of raw material 90

(i) Sale volume is projected to increase by 30%. In order to finance the

additional working capital, the management has decided to adopt the following measures:
 Introduce cash sales at a discount of 2%. It is estimated that 20% of the customers
would avail the discount.
 The present average collection period is 45 days. Merit Limited has decided to
improve follow-ups which would ensure collection within 40 days.
 40% of the raw material consumed is imported which is paid in advance on
placement of purchase order. The delivery is made within 30 days after the
placement of order. Merit Limited has negotiated with the foreign suppliers and
agreed that from the next year, payments would be made on receipt of the goods.
 Local purchases would be paid in 50 days.

(ii) As a result of increased production, economies of scale would reduce

variable conversion cost per unit by 5%.
(iii) Due to price increases, cost of raw material and all other costs (excluding
depreciation) would increase by 10% and 8% respectively.
(iv) Average days for payment of other costs would remain the same i.e. 25 days.
(v) There is no opening and closing finished goods inventory.
(vi) Quantity of closing local and imported raw material as a percentage of raw
material consumption would remain the same.
(vii) Bilal Limited uses FIFO method of valuation of inventory.
Required:
Prepare cash budget for 31st December 2021. (Assume that all transactions occur evenly
throughout the year (360 days) unless otherwise specified) [13 Marks]

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 SOLUTION Grand Mock 1 (Overall Test 6)
CAF 8 Cost and Management Accounting
Sir SAUD TARIQ
Grand Mock 1 (Overall Test 6) Solution with Marks Allocation
Q1) Sohaib Limited Present Capacity = 240 hours/ month

70 hours (1 Mark) 170 hours (1 Mark)

Only suitable for B & C suitable for all products i.e. A B C & D
A B C D
S.P 3.86 3.86 4.56 5.68
Less Variable Costs / Unit
Material (W1) - (1 Mark) 0.27 0.37 0.42 0.36
Labour Cost (W2) - (1 Mark) 0.32 0.76 0.62 0.44
Other Variable Costs 0.80 0.72 1.00 1.20
Transport Cost 1.30 1.30 1.0 2.40
CM per kg (1 Mark) 1.17 0.71 1.52 1.28
Machine hour/ kg (1 Mark) (1/700) (1/200) (1/150) (1/300)
CM / Machine hour 819 142 228 384
Ranking for 70 hour (1 Mark) N/A 2 1 N/A
Ranking for 170 hour (1 Mark) 1 4 3 2

A B C D
Material W1 189/700 74/200 63/150 108/300
- 0.37 0.42 0.36
Labour Cost/ Unit W2 224/700 152/200 93/150 132/300
0.32 0.76 0.62 0.44
70 Machine Hours Machine Hour
Hours Available 70
Less Hours used in Commitment
B (5,000/ 700) (0.5 Mark) 25
C (5,000/ 150) (0.5 Mark) 33.33 58.33
Remaining Hours 11.67
Production of C
1,750/ 150 (1 Mark) 11.67
170 Machine Hours Machine Hour
Hours Available 170
Less Hours used in Commitment
A (5,000/700) (0.5 Mark) 7.143
D (5,000/ 300) (0.5 Mark) 16.667 (23.81)
Remaining Hours 146.19
Production of A (Balancing Kgs= 102,333/700) (0.5 Mark) 146.19

Product Kgs CM/kg Total CM

A 107,333 1.17 125,580 (0.5 Mark)
B 5,000 0.71 3,550
C 6,750 1.52 10,260 (0.5 Mark)
D 5,000 1.28 6,400
145,790
Less: Fixed Cost (112,000)
Net Profit 33,790 (0.5 Mark)

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 SOLUTION Grand Mock 1 (Overall Test 6)
CAF 8 Cost and Management Accounting
Sir SAUD TARIQ
Q2) Raqib Limited

Expected Demand = (7,000 x 50%) + (4,620 x 20%) + (3,150 x 30%) = 5,369 units (1 Mark)
Annual Demand = 60,480 units
Stock out cost: CM loss = 50/unit
Holding Cost = Rs 100/unit
Ordering cost = Rs 47,250/order

, ,
EOQ = = 7,560 units (1 Mark)

No of Orders = 60,480 /7,560 = 8 orders (1 Mark)

Re- Demand Safety Stock Annual Total Avg. Total Total Pro% Total
Order stock out stock Stock Inventory Holding Rs Rs
Level /order out out Cost Cost(Rs) (000) (000)
Units (Rs)
A B C=A-B D=B-A E=D*8 F= E*50 G=(EOQ/2 H= I=F+H J K=I*J
Orders +C) G*100
7,000 7000 - - - - 3780 378,000 378 50% 189
4620 2380 - - - 6160 616,000 616 20% 123
3150 3850 - - - 7630 763,000 763 30% 229
541
(0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5
Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark)

3,150 7000 - 3850 30800 1540000 3780 378000 1918 50% 959
4620 - 1470 11760 588000 3780 378000 966 20% 193
3150 - - - - 3780 378000 378 30% 113
1265
(0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5
Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark)

5,369 7000 - 1631 13048 652400 3780 378000 1030.4 50% 515
4620 749 - - - 4529 452900 452.9 20% 91
3150 2219 - - - 5999 599900 599.9 30% 180
786
(0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5 (0.5
Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark) Mark)

At Re-Order Level of 7,000 units Kl’s profit would be maximized.

3 Marks each for every Reorder Level

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 SOLUTION Grand Mock 1 (Overall Test 6)
CAF 8 Cost and Management Accounting
Sir SAUD TARIQ
Q3) Safwan Limited
Weighted Average CM Ratio = Weighted Average CM x 100
Weighted Average S.P
Weighted Average CM ≠ Weight x CM Ratio

Wrong Approach ≠ Weight x CM weight not

Sales applied on Sales
 Sales = 181 million
 FC = 30 million

Product S.P CM/ Unit Variable Cost / *Weights Weighted Average

Unit (See Note)
A B C=A–B D CM S.P
Burger 150 (x 0.4) 60 90 6 360 900
Fries 50 (x 0.45) 22.5 27.5 (0.5 Mark) 7 157.5 350
Cold drink 40 (x 0.5) 20 20 8 160 320
Ice- cream 80 (x 0.6) 48 32 (0.5 Mark) 3 144 240
821.5 (0.5 1,810 (0.5
Mark) Mark)

*Note: Can also apply Weight as 6/24, 7/24, 8/24 and 3/24.

Weighted Average CM Ratio = 821.5 = 45.39% (1 Mark) (Total = 3 Marks)

1,810
Option 1
Revised Turnover = 181m x 1.25 = 226,250,000

Deals (70%) Individual Sales (30%)

158,375,000 (0.5 Mark) 67,875,000 (0.5 Mark)

Deal 1 Deal 2
60% 40%
95,025,000 63,350,000
(0.5 Mark) (0.5 Mark)

Profit = CM – FC
= (Sales x CM Ratio %) – FC

(Total 2 Marks for Breakup of Sales)

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 SOLUTION Grand Mock 1 (Overall Test 6)
CAF 8 Cost and Management Accounting
Sir SAUD TARIQ
Computation of CM Ratio
Deal 1 Rs.
S.P (A) 210
Less Variable Cost per deal (90 + 27.5 + 20) 137.5 (1 Mark)
CM / Deal (B) 72.5
CM Ratio (B/A) 34.5% (0.5 Mark)
Deal 2 Rs.
S.P (A) 280
Less Variable Cost (90 + 27.5 + 20 + 32) (169.5) (1 Mark)
CM / Deal 2 (B) 110.5
CM Ratio (B/A) 39.46% (0.5 Mark)
(*1.5 Marks for each Correct CM%... Full marks if not shown Variable Cost per unit separately)
Sales CM Ratio Total CM
Deal 1 95,025,000 x 0.345 = 32,783,625 (0.5 Mark)
Deal 2 63,350,000 x 0.3946 = 24,997,910 (0.5 Mark)
Individual Products 67,875,000 x 0.4539 = 30,808,463 (0.5 Mark)
Total CM 88,589,998
Less Fixed Costs (30,000,000)
Net Profit (Total 10 Marks for Option 1) 58,589,998 (0.5 Mark)

Option 2 Revised Sales => 181m x 1.35 => 244.35m (0.5 Mark)

Sales through Home Delivery Other Products

30m 214.35m

Sales = 600/ Delivery

No of Deliveries = 30m /600 = 50,000 Deliveries (0.5 Mark)

850,000 + 20 (50,000) = 1850,000 (0.5 Mark)

Product S.P Variable Cost CM/ Unit (1 Mark) Weight CM S.P
B 120 90 30 6 180 720
F 40 27.5 12.5 7 87.5 280
C 32 20 12 8 96 256
I 64 32 32 3 96 192
459.5 1,448
Weighted Average CM Ratio = 459.5 x 100 = 31.73% (0.5 Mark)
1,448
CM Ratio for Deliveries = 180 + 87.5 + 96 x 100 = 28.9% (0.5 Mark)
720 +280 +256
Sales CM Ratio Total CM
Individual Sales 214,350,000 x 0.3173 = 68,013,255 (0.5 Mark)
Deliveries 30,000,000 x 0.289 = 8,670,000 (0.5 Mark)
Total CM excluding Delivery Cost 76,683,255
Less Delivery Cost (1,850,000)
Less Fixed Costs (30,000,000)
Net Profit 44,833,255 (0.5 Mark)

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 SOLUTION Grand Mock 1 (Overall Test 6)
CAF 8 Cost and Management Accounting
Sir SAUD TARIQ
Q4) Hashir Limited
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Marks
Sales inflates at 5% (W-1) 3,675 5,402 6,159 6,977 6,790 (1)
Outflows
Materials-inflate at 10% 588 907 1,198 1,537 1,449 (1)
Labour inflates at 10% 1,177 1,815 2,396 3,075 2,899 (1)
Overheads inflate at 5% 52 110 116 122 128 (1)
Fixed assets 4,500 (1)
Working capital 300 120 131 144 156 (851) (3)
Taxation(W-1) 256 604 636 619 312 (4)
(4,800) (1,937) (3,219) (4,458) (5,526) (4,244) (312)
Net cash flows (4,800) 1,738 2,183 1,701 1,451 2,546 (312) (1)
Discount Factors at 15% 1.000 0.870 0.756 0.658 0.572 0.497 0.432 (1)
Present value (4,800) 1,512 1,650 1,119 830 1,265 (135) (1)

Net present value in Rs. 1,441,000 and therefore it is recommended that the project should be undertaken.

(W-1) – 4 Marks
Year 1 2 3 4 5 Marks
Sales at 5% inflation 3,675 5,402 6,159 6,977 6,790
Materials at 10% inflation (588) (907) (1,198) (1,537) (1,449)
Labour at 10% inflation (1,177) (1,815) (2,396) (3,075) (2,899)
Overheads at 5% inflation (52) (110) (116) (122) (128)
Tax Depreciation (1,125) (844) (633) (475) (356) (2)
Tax Loss on Disposal (W1)
Taxable profits 733 1,726 1,816 1,768 891
Taxation at 35% 256 604 636 619 312
The interest payments are not included because they are taken into account when the cash flows are
discounted.

Computation of Loss on Disposal:

Rs 000
Cost 4,500
Less: Accumulated Depreciation (3,433)
Net Book Value 1,067 (1 Mark)
Sales Proceeds Nil
Loss on Disposal 1,067 (1 Mark)
*Total 2 Marks for showing Loss

Note: Depreciation is only relevant for Tax purpose. Depreciation can be shown in the main format. It can be
deducted first and then after calculation of profit, should be added back. However, here we have directly
calculated Tax separately so ignored depreciation in the main Cashflow.

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 SAUD TARIQ
Pre-Mock – January 2020
CAF 8 Cost and Management Accounting
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Page 6 of 10
Pre-Mock – January 2020
CAF 8 Cost and Management Accounting SAUD TARIQ
Q5) Osama Ltd
 Inspection at end
 N.L= 10% of Good Output
 Rework = until a batch of 3,500 rolls can be processed
 FIFO Method
 Opening WIP = 7000 rolls Direct Material = 840,000 Direct Labour = 323,400
(100% Material, 60% C.C)
 Input = 39,550 Rolls
 Actual Reworked = 3,500 rolls (60% Material, 50% of direct labour)
 Actual Loss = 550 Rolls
 Closing WIP = 5,600 rolls (80% Material, 40% Labour)
 All other Rolls transferred
Quantity Schedule Units /Rolls
Opening WIP 7,000
Further introduced (Input) 39,550
46,550
Transferred out 37,100
Closing WIP 5,600
Actual loss / Total Loss 3,850
46,550

(1)

37,100
Inspection

0% 40% 100%
OWIP = 7000 CWIP = 5,600
Input = 39,550 Uninspected

 Whether Normal Loss to be included in EPU???

Yes = As Need to charge only to FG
 What is Normal Loss?
10% of Good Output
Good Output = 37,100
Normal Loss = 37,100 *10% = 3,710 (1)
 Whether Rework to be included in EPU??
Yes... As cost of Rework is not given separately and it is given rework incurs 60% Material + 50%
Labour.
Total Loss 3,850 Units
Normal Loss 3,710 Units
Abnormal Loss 140 Units
(1)

Page 7 of 10
 SAUD TARIQ
Pre-Mock – January 2020
CAF 8 Cost and Management Accounting
EPU Material Labour
Transferred out 37,100 37,100
Less opening WIP (7,000) (7,000)
Started & finished 30,100 30,100 (0.5)
Work on OWIP - 2,800 (0.5)
Normal Loss 3,710 3,710 (1)
Abnormal Loss 140 140 (0.5)
CWIP 4,480 2,240 (0.5)
Rework 2,100 1,750 (1)
EPU 40,530 40,740
{4}
Cost EPU Cost / Unit
Direct Material 5,045,950 40,530 124.50 (0.5)
Direct Labour 820,260 40,740 20.13 (0.5)
Applied overheads 2,870,910 40,740 70.47 (1)
(3.5 *820,260) 8,737,120 215.10
Opening WIP (840+323.4+323.4*3.5) 2,295,300 (1)
11,032,420
{3}

Cost charged to department

Rs.
Cost charged to Next Dept
Started & finished (215.1 * 30,100) 6,474,510 (0.5)
Opening WIP (calculated above) 2,295,300
Normal Loss (3,710 * 215.1) 798,021 (0.5)
Work on opening WIP
Material (Nil)
Labour (2,800 * 20.13)
Overhead (2,800 * 70.7) 253,689 (0.5)
Reworks Cost
Material 2100 * 124.5
Labour 1,750 * 20.13
OH 1,750*70.7 420,000 (0.5)
Total Cost of Output 10,241,520
Abnormal Loss (140 * 215.1) 30,114 (0.5)
Closing WIP
Material (4,480 * 124.5)
Labour (2,240 * 20.134)
OH (2,240 * 70.469) 760,707 (0.5)
11,032,341

{3}

Page 8 of 10
 Pre-Mock – January 2020
CAF 8 Cost and Management Accounting SAUD TARIQ
Q6) Bilal Limited Cash budget
For the year ending 31 December 2020
Rs. 000
Receipts (W1) 11,738 (3)
Less: Payments
Local raw material (W6) (2,331) (3)
Imported raw material (W7) (1,542) (3)
Variable conversion cost (W2) (2,241) (2)
Fixed conversion cost (W3) (77) (1)
Variable operating cost (W4) (3,013) (2)
Fixed operating cost (W5) (300) (1)
Net cash flow 2,227

Workings
1. Receipts Rs. 000
Total sales (9,000 x 1.3) = 11,700 (1 Mark)

Cash sales Credit sales = 9,360 (0.5 Mark)

2340 x = 2,293 Opening balance = 1,125 (0.5 Mark)
(0.5 Mark) (9,000 x )

Closing balance = (1,040) (0.5 Mark)

(9,360 x )

Receipts = 9,445

Total receipts (2,293 + 9,445) = 11,738

2. Variable conversion cost

Rs. 000
Expense (1,710 x 1.13 x 0.95 x 1.08) (1 Mark) 2,280.798
Less: Closing balance (2,280.798 x 𝟑𝟔𝟎)
𝟐𝟓
(0.5 Mark) (158.387)

Add: Opening balance (1,710 x

𝟐𝟓
) (0.5 Mark) 118.75
𝟑𝟔𝟎
Payment for variable conversion cost 2,241.161

3. Fixed conversion cost

Rs. 000
Expense (120 – 48) x 1.08 (0.5 Mark) 77.76
𝟐𝟓
Less: Closing balance (77.76 x 𝟑𝟔𝟎 ) (5.4)

Add: Opening balance (72 x

𝟐𝟓
) 5
𝟑𝟔𝟎
Payment for fixed conversion cost (0.5 Mark) 77.36
4. Variable operating cost
Rs. 000
Expense (2,190 x 1.13 x 1.08) (1 Mark) 3,074.76
𝟐𝟓
Less: Closing balance (3,074.76 x 𝟑𝟔𝟎) (0.5 Mark) (213.525)

Add: Opening balance (2,190 x

𝟐𝟓
) (0.5 Mark) 152.083
𝟑𝟔𝟎
Payment for variable operating cost 3,013.318
Page 9 of 10
Pre-Mock – January 2020
CAF 8 Cost and Management Accounting SAUD TARIQ
5. Fixed operating cost
Rs. 000
Expense (360 – 81) x 1.08 (0.5 Mark) 301.32
𝟐𝟓
Less: Closing balance (301.32 x 𝟑𝟔𝟎) (20.925)

Add: Opening balance (279 x

𝟐𝟓
) 19.375
𝟑𝟔𝟎
Payment for fixed operating cost (0.5 Mark) 299.77
6. Local raw material
Consumption Purchase Payment
Raw material (before price change) = 2,700 x 1.3 x 0.6 = 2,106 (1 Mark)

From opening stock (474 - 294) = 180 From purchases (2,106 – 180) = 1,926

At old prices At inflated prices

Raw material (after price change) = 180 (0.5 Mark) + (1,926 x 1.1) (0.5 Mark) = 2,298.6

Raw material purchases = consumption + closing stock – opening stock

Rs. 000
Raw material consumption = 2,298.6
Add: Closing stock = 257.4 (0.5 Mark)
(180 x 1.1 x 1.3)
Less: Opening stock = (180)
Raw material purchases = 2,376
Trade creditors (op.) = (330)
Trade creditors (cl.) = 285 (0.5 Mark)
Payments = 2,331

7. Imported raw material

Raw material (before price change) = 2,700 x 1.3 x 0.4 = 1,404 (1 Mark)
Advance

From opening stock = 294 From purchases 1,404 – 294 – 90 = 1,020 (1 Mark)

At old prices At inflated prices

Raw material (after price change) = 294 + 90 + (1,020 x 1.1) = 1,506 (0.5 Mark)

Rs. 000
Raw material consumption = 1,506
Add: Closing stock = 420.42 (0.5 Mark)
(294 x 1.1 x 1.3)
Less: Opening stock = (294)
Raw material consumed = 1,632.42
Advance to suppliers = (90)
Payments for imports = 2,331

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