CA INTER- COST ACCOUNTING

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 CA INTER NEW COURSE

COST ACCOUNTING

TOP 50 QUESTIONS
Q-1

a) DISTINGUISH clearly between Bin cards and Stores Ledger.

b) Some of the items of PR Company, a manufacturer of corporate office furniture, are
provided below. As the company is in the process of developing a formal cost accounting
system, you are required to CLASSIFY the items into three categories namely: (i) Cost tracing
(ii) Cost allocation (iii) Non-manufacturing item.
c) Carpenter wages, Depreciation - office building, Glue for assembly, Lathe department
supervisor, Metal brackets for drawers, Factory washroom supplies, Lumber, Samples for
trade shows, Lathe depreciation, Lathe operator wages.
d) In Batch Costing, STATE how is Economic Batch Quantity determined?
e) EXPLAIN what are the essential pre-requisites of Integrated accounting system?
f) WHAT is inter-process profit? STATE its advantages and disadvantages.

Q-2 The complete Gardener is deciding on the economic order quantity for two brands of lawn
fertilizer - Super Grow and Nature’s Own. The following information is collected:
FERTILIZER
Super Grow Nature’s Own
Annual demand 2,000 bags 1,280 bags
Relevant ordering cost per purchase order Rs 1,200 Rs 1,400
Annual relevant carrying cost per bag Rs 480 Rs 560

Required:
(i) COMPUTE EOQ for Super Grow and Nature’s own.

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(ii) For the EOQ, WHAT is the sum of the total annual relevant ordering costs and total
annual relevant carrying costs for Super Grow and Nature’s own?
(iii) For the EOQ, COMPUTE the number of deliveries per year for Super Grow and Nature’s
own.

Q-3 The following information is extracted from the Stores Ledger:

Material X
Opening Stock Nil
Purchases:
Jan. 1 100 @ Rs 1 per unit
Jan. 20 100 @ Rs 2 per unit
Issues:
Jan. 22 60 for Job W 16
Jan. 23 60 for Job W 17
Complete the receipts and issues valuation by adopting the First-In-First-Out, Last-In-First-Out
and the Weighted Average Method. TABULATE the values allocated to Job W 16, Job W17 and
the closing stock under the methods aforesaid and discuss from different points of view which
method you would prefer.

Q-4 M/s Tanishka Materials Private Limited produces a product which names “ESS”. The
consumption of raw material for the production of “ESS” is 210 Kgs to 350 Kgs per week. Other
information is as follows:
Procurement Time: 5 to 9 Days
Purchase price of Raw Materials: Rs 100 per kg
Ordering Cost per Order: Rs 200
Storage Cost: 1% per month plus Rs 2 per unit per annum
Consider 365 days a year.

You are required to CALCULATE:

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(a) Economic Order Quantity
(b) Re-Order Level (ROL)
(c) Maximum Stock Level
(d) Minimum Stock Level
(e) Average Stock Level
(f) Number of Orders to be placed per year
(g) Total Inventory Cost
(h) If the supplier is willing to offer 1% discount on purchase of total annual quantity in two
orders, whether offer is acceptable?
(i) If the answer is no, what should be the counteroffer w.r.t. percentage of discount?

Q-5 Wage negotiations are going on with the recognized employees’ union, and the
management wants you as an executive of the company to formulate an incentive scheme with
a view to increase productivity.
The case of three typical workers A, B and C who produce respectively 180, 120 and 100 units of
the company’s product in a normal day of 8 hours is taken up for study.
Assuming that day wages would be guaranteed at Rs 75 per hour and the piece rate would be
based on a standard hourly output of 10 units, CALCULATE the earnings of each of the three
workers and the employee cost per 100 pieces under (i) Day wages, (ii) Piece rate, (iii) Halsey
scheme, and (iv) The Rowan scheme.
Also CALCULTE under the above schemes the average cost of labour for the company to
produce 100 pieces.

Q-6 A total of 108 labour hours have been put in a particular job card for repair work engaging a
semi-skilled and skilled labour (Mr. Deep and Mr. Sam respectively).

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The hours devoted by both the workers individually on daily basis for this particular job are
given below:
Monday Tuesday Wednesday Thursday Friday
10.5 8.0 10.5 9.5 10.5

The skilled labour also worked on Saturday for 10 hours.

Sunday is a weekly holiday and each worker has to work for 8 hours on all week days and 5
hours on Saturdays; the workers are however paid full wages for Saturday (8 hours for 5 hours
worked).
Semi-skilled and skilled worker is paid ordinary wage @ Rs 400 and Rs 600 respectively per day
of 8 hours labour. Further, the workers are also paid dearness allowance @ 20%.
Extra hours worked over and above 8 hours are also paid at ordinary wage rate however,
overtime premium of 100% of ordinary wage rate is paid if a worker works for more than 9
hours in a day AND 48 hours in a week.
You are required to COMPUTE the wages payable to Mr. Deep (Semi-skilled) and Mr. Sam
(Skilled).

Q-7 HR Ltd. is progressing in its legal industry. One of its trainee executives, Mr. H, in the
Personnel department has calculated labour turnover rate 24.92% for the last year using Flux
method.
Following is the data provided by the Personnel department for the last year:
Employees At the Joined Left At the end
beginning
Records clerk 810 1,620 90 2,340
Human Resource Manager ? 30 90 60
Legal Secretary ? 90 -- ?
Staff Attorney ? 30 30 ?

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Associate Attorney ? 30 -- 45
Senior Staff Attorney 6 -- -- 18
Senior Records clerk 12 -- -- 51
Litigation attorney ? -- -- ?
Employees transferred from the Subsidiary Company
Senior Staff Attorney -- 12 -- --
Senior Records clerk -- 39 -- --
Employees transferred to the Subsidiary Company
Litigation attorney -- -- 90 --
Associate Attorney -- -- 15 --

At the beginning of the year there were total 1,158 employees on the payroll of the company.
The opening strength of the Legal Secretary, Staff Attorney and Associate Attorney were in the
ratio of 3: 3: 2.
The company has decided to abandon the post of Litigation attorney and consequently all the
Litigation attorneys were transferred to the subsidiary company.
The company and its subsidiary are maintaining separate set of books of account and separate
Personnel Department.
You are required to:
(a) CALCULATE Labour Turnover rate using Replacement method and Separation method.
(b) VERIFY the Labour turnover rate calculated under Flux method by Mr. H

Q-8 Deccan Manufacturing Ltd., have three departments which are regarded as production
departments. Service departments’ costs are distributed to these production departments
using the “Step Ladder Method” of distribution. Estimates of factory overhead costs to be
incurred by each department in the forthcoming year are as follows. Data required for
distribution is also shown against each department:

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 Department Factory Direct Labour No. of Area in Sq.m.
overheads (Rs) hours employees
Production:
X 1,93,000 4,000 100 3,000
Y 64,000 3,000 125 1,500
Z 83,000 4,000 85 1,500
Service:
P 45,000 1,000 10 500
Q 75,000 5,000 50 1,500
R 1,05,000 6,000 40 1,000
S 30,000 3,000 50 1,000

The overhead costs of the four service departments are distributed in the same order, viz., P, Q,
R and S respectively on the following basis.
Department Basis
P Number of employees
Q Direct labour hours
R Area in square meters
S Direct labour hours
You are required to:
(a) PREPARE a schedule showing the distribution of overhead costs of the four service
departments to the three production departments; and
(b) CALCULATE the overhead recovery rate per direct labour hour for each of the three
production departments.

Q-9 Gemini Enterprises undertakes three different jobs A, B and C. All of them require the use
of a special machine and also the use of a computer. The computer is hired and the hire charges
work out to Rs 4,20,000 per annum. The expenses regarding the machine are estimated as
follows:

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 (Rs)
Rent for a quarter 17,500
Depreciation per annum 2,00,000
Indirect charges per annum 1,50,000
During the first month of operation the following details were taken from the job register:
Job
A B C
Number of hours the machine was used:
(a) Without the use of the computer 600 900 —
(b) With the use of the computer 400 600 1,000
You are required to COMPUTE the machine hour rate:
(a) For the firm as a whole for the month when the computer was used and when the computer
was not used.
(b) For the individual jobs A, B and C.

Q-10 A factory has three production departments. The policy of the factory is to recover the
production overheads of the entire factory by adopting a single blanket rate based on the
percentage of total factory overheads to total factory wages. The relevant data for a month are
given below:
Department Direct Direct Factory Direct Labour Machine
Materials Wages Overheads hours hours
(Rs) (Rs) (Rs)
Budget:
Machining 6,50,000 80,000 3,60,000 20,000 80,000
Assembly 1,70,000 3,50,000 1,40,000 1,00,000 10,000
Packing 1,00,000 70,000 1,25,000 50,000 --
Actual:

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 Machining 7,80,000 96,000 3,90,000 24,000 96,000
Assembly 1,36,000 2,70,000 84,000 90,000 11,000
Packing 1,20,000 90,000 1,35,000 60,000 --

The details of one of the representative jobs produced during the month are as under:

Job No. CW 7083:

Department Direct Direct Direct Labour Machine
Materials Wages hours hours
Machining 1,200 240 60 180
Assembly 600 360 120 30
Packing 300 60 40 --
The factory adds 30% on the factory cost to cover administration and selling overheads and
profit.
Required:
(i) COMPUTE the overhead absorption rate as per the current policy of the company and
determine the selling price of the Job No. CW 7083.
(ii) Suggest any suitable alternative method(s) of absorption of the factory overheads and
CALCULATE the overhead recovery rates based on the method(s) so recommended by you.
(iii) DETERMINE the selling price of Job CW 7083 based on the overhead application rates
calculated in (ii) above.
(iv) CALCULATE the department-wise and total under or over recovery of overheads based on
the company’s current policy and the method(s) recommended by you.

Q-11 Pretz Ltd. is a manufacturing company having two production departments, ‘A’ & ‘B’ and
two service departments ‘X’ & ‘Y’. The following is the budget for March, 2022:
Total A B C Y
Direct Material 2,00,000 4,00,000 4,00,000 2,00,000

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Direct wages 10,00,000 4,00,000 2,00,000 4,00,000
Factory rent 9,00,000
Power (Machine) 5,10,000
Depreciation 2,00,000
General Lighting 3,00,000
Perquisites 4,00,000
Additional information:

Area (Sq. ft.) 500 250 250 500

Capital value of assets (Rs lakhs) 40 80 20 20
Light Points 10 20 10 10
Machine hours 1,000 2,000 1,000 1,000
Horse power of machines 50 40 15 25

A technical assessment of the apportionment of expenses of service departments is as under:

A B X Y
Services Dept. ‘X’ (%) 55 25 -- 20
Service Dept. ‘Y’ (%) 60 35 5 --

You are required to:

(a) PREPARE a statement showing distribution of overheads to various departments.
(b) PREPARE a statement showing re-distribution of service departments expenses to
production departments using-
(i) Simultaneous equation method
(ii) Trial and error method
(iii) Repeated Distribution Method.

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Q-12 Alpha Limited has decided to analyze the profitability of its five new customers. It buys
bottled water at Rs 90 per case and sells to retail customers at a list price of Rs 108 per case.
The data pertaining to five customers are:
Customers
A B C D E
Cases sold 4,680 19,688 1,36,800 71,550 8,775
Listed Selling Price Rs 108 Rs 108 Rs 108 Rs 108 Rs 108
Actual Selling Price Rs 108 Rs 106.20 Rs 99 Rs 104.40 Rs 97.20
Number of Purchase orders 15 25 30 25 30
Number of Customer visits 2 3 6 2 3
Number of deliveries 10 30 60 40 20
Kilometers travelled per delivery 20 6 5 10 30
Number of expedited deliveries 0 0 0 0 0

Its five activities and their cost drivers are:

Activity Cost Driver Rate
Order taking Rs 750 per purchase order
Customer visits Rs 600 per customer visit
Deliveries Rs 5.75 per delivery Km travelled
Product handling Rs 3.75 per case sold
Expedited deliveries Rs 2,250 per expedited delivery

Required:
(i) COMPUTE the customer-level operating income of each of five retail customers now being
examined (A, B, C, D and E). Comment on the results.
(ii) STATE what insights are gained by reporting both the list selling price and the actual selling
price for each customer?

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Q-13 MG Ltd. manufactures three types of products namely A, B and C. The data relating to a
period are as under:
Particulars A B C
Machine hours per unit 10 18 14
Direct Labour hours per unit 4 12 8
Direct Material per unit (Rs) 1,350 1,200 1,800
Production (units) 3,000 5,000 20,000

Currently the company uses traditional costing method and absorbs all production overheads
on the basis of machine hours. The machine hour rate of overheads is Rs 90 per hour. Direct
labour hour rate is Rs 300 per hour.
The company proposes to use activity based costing system and the activity analysis is as under:

Particulars A B C
Batch size (units) 150 500 1,000
Number of purchase orders per batch 3 10 8
Number of inspections per batch 5 4 3

The Total production overheads are analyzed as under:

Machine set up costs 20%
Machine operation costs 30%
Inspection costs 40%
Material procurement related costs 10%
Required:
(i) CALCULATE the cost per unit of each product using traditional method of absorbing all
production overheads on the basis of machine hours.
(ii) CALCULATE the cost per unit of each product using activity based costing principles.

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Q-14
The profit margin of BABY Hairclips Company was over 20% of sales producing BROWN and
BLACK hairclips.
During the last year, GREEN hairclips had been introduced at 10% premium in selling price after
the introduction of YELLOW hairclips earlier five years back at 10/3% premium. However, the
manager of the company is disheartened with the sales figure for the current financial year as
follows:
Traditional Income Statement
(in Rs)
Brown Black Yellow Green Total
Sales 1,50,00,000 1,20,00,000 27,90,000 3,30,000 3,01,20,000
Material Costs 50,00,000 40,00,000 9,36,000 1,10,000 1,00,46,000
Direct Labour 20,00,000 16,00,000 3,60,000 40,000 40,00,000
Overheads (3 times of 60,00,000 48,00,000 10,80,000 1,20,000 1,20,00,000
direct labour)
Total Operating 20,00,000 16,00,000 4,14,000 60,000 40,74,000
Income
Return on Sales (in %) 13.3% 13.3% 14.8% 18.2% 13.5%

It is a known fact that customers are ready to pay premium amount for YELLOW and GREEN
hairclips for their attractiveness; and the percentage returns are also high on new products.

At present, all of the Plant’s indirect expenses are allocated to the products at 3 times of the
direct labour expenses. However, the manager is interested in allocating indirect expenses on
the basis of activity cost to reveal real earner.

He provides support expenses category-wise as follows:

Support Expenses Rs
Indirect Labour 40,00,000
Labour Incentives 32,00,000

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 Computer Systems 20,00,000
Machinery depreciation 16,00,000
Machine maintenance 8,00,000
Energy for machinery 4,00,000
Total 1,20,00,000

He provides following additional information for accomplishment of his interest:

Incentives to be allocated @ 40% of labour expenses (both direct and indirect)

Indirect labours are involved mainly in three activities. About half of indirect labour is involved
in handling production runs. Another 40% is required just for the physical changeover from one
color hairclip to another because YELLOW hairclips require substantial labour for preparing the
machine as compared to other colour hairclips. Remaining 10% of the time is spending for
maintaining records of the products in four parts.

Another amount spent on computer system of Rs 20,00,000 is for maintenance of documents

relating to production runs and record keeping of the four products. In aggregate, approx...
80% of the amount expend is involved in the production run activity and approx... 20% is used
to keep records of the products in four parts.

Other overhead expenses i.e. machinery depreciation, machine maintenance and energy for
machinery is incurred to supply machine capacity to produce all the hairclips (practical
capability of 20,000 hours).
Activity Cost Drivers:
Particulars Brown Black Yellow Green Total
Sales Volume (units) 1,00,000 80,000 18,000 2,000 2,00,000
Selling Price (Rs) 150 150 155 165
Material cost (Rs) 50 50 52 55
Machine hours per unit 0.10 0.10 0.10 0.10 20,000
(Hrs)

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 Production runs 100 100 76 24 300
Setup time per run (Hrs) 4 1 6 4

You are required to –

(i) CALCULATE operating income and operating income as per percentage of sales using
activity-based costing system.
(ii) STATE the reasons for different operating income under traditional income system and
activity-based costing system.

Q-15 From the following particulars, you are required to PREPARE monthly cost sheet of Aditya
industries:
Amount (Rs)
Opening Inventories:
- Raw materials 12,00,000
- Work- in-process 18,00,000
- Finished goods (10,000 units) 9,60,000
Closing Inventories:
- Raw materials 14,00,000
- Work- in-process 16,04,000
- Finished goods ?
Raw materials purchased 1,44,00,000
GST paid on raw materials purchased (ITC available) 7,20,000
Wages paid to production workers 36,64,000
Expenses paid for utilities 1,45,600
Office and administration expenses paid 26,52,000
Travelling allowance paid to office staffs 1,21,000
Selling expenses 6,46,000

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Machine hours worked- 21,600 hours
Machine hour rate - Rs 8.00 per hour
Units sold- 1,60,000
Units produced- 1,94,000
Desired profit- 15% on sales

Q-16 The following data relates to manufacturing of a standard product during the month of
February, 2022:
Stock of Raw material as on 01-02-2022 1,20,000
Work in Progress as on 01-02-2022 75,000
Purchase of Raw Material 3,00,000
Carriage Inwards 30,000
Direct Wages 1,80,000
Cost of special drawing 45,000
Hire charges paid for Plant (Direct) 36,000
Return of Raw Material 60,000
Carriage on return 9,000
Expenses for participation in Industrial exhibition 12,000
Maintenance of office building 3,000
Salary to office staff 37,500
Legal charges 3,750
Depreciation on Delivery van 9,000
Warehousing charges 2,250
Stock of Raw material as on 28-02-2022 45,000
Stock of Work in Progress as on 28-02-2022 36,000

• Store overheads on materials are 10% of material consumed.

• Factory overheads are 20% of the Prime cost.
• 10% of the output was rejected and a sum of Rs 7,500 was realized on sale of scrap.

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 • 10% of the finished product was found to be defective and the defective products were
rectified at an additional expenditure which is equivalent to 20% of proportionate direct
wages.
• The total output was 8,000 units during the month.
You are required to PREPARE a Cost Sheet for the above period showing the:
(i) Cost of Raw Material consumed.
(ii) Prime Cost
(iii) Work Cost
(iv) Cost of Production
(v) Cost of Sales

Q-17 CT Limited is engaged in production medical equipment. It has furnished following details
related to its products produced during a month:
Units Amount (Rs)
Raw materials
Opening stock 1,000 90,00,000
Purchases 49,000 44,10,00,000
Closing stock 1,750 1,57,50,000
Work-in-progress
Opening 2,000 1,75,50,000
Closing 1,000 94,50,000
Direct employees’ wages, allowances etc. 6,88,50,000
Primary packaging cost (per unit) 1,440
R &D expenses & Quality control expenses 2,10,60,000
Consumable stores depreciation on plant 3,42,00,000
Administrative overheads related to production 3,15,00,000
Selling expenses 4,84,30,800
Royalty paid for production 3,64,50,000

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Cost of web-site (for online sale) maintenance 60,75,000
Secondary packaging cost (per unit) 225
There was a normal scrap of 250 units of direct material which realized Rs 5,400 per unit. The
entire finished product was sold at a profit margin of 20% on sales.
You are required to PREPARE a cost sheet showing:
(i) Prime Cost
(ii) Gross works cost
(iii) Factory costs
(iv) Cost of production
(v) Profit
(vi) Sales

Q-18 The following incomplete accounts are furnished to you for the month ended 31st
October, 2021.
Stores Ledger Control Account
1.10.2021 To Balance Rs 54,000
Work in Process Control Account
1.10. 2021 To Balance Rs 6,000
Finished Goods Control Account
1.10. 2021 To Balance Rs 75,000
Factory Overheads Control Account
Total debits for October, 2020 Rs 45,000
Factory Overheads Applied Account

Cost of Goods Sold Account

Creditors for Purchases Account

1.10. 2021 By Balance Rs 30,000
Additional information:

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 (i) The factory overheads are applied by using a budgeted rate based on direct labour
hours. The budget for overheads for 2021 is Rs 6,75,000 and the budget of direct labour
hours is 4,50,000.
(ii) The balance in the account of creditors for purchases on 31.10.2021 is Rs 15,000 and the
payments made to creditors in October, 2021 amount to Rs 1,05,000.
(iii) The finished goods inventory as on 31st October, 2021 is Rs 66,000.
(iv) The cost of goods sold during the month was Rs 1,95,000.
(v) On 31st October, 2021 there was only one unfinished job in the factory. The cost
records show that Rs 3,000 (1,200 direct labour hours) of direct labour cost and Rs 6,000
of direct material cost had been charged.
(vi) A total of 28,200 direct labour hours were worked in October, 2021. All factory workers
earn same rate of pay.
(vii) All actual factory overheads incurred in October, 2021 have been posted.
You are required to FIND:
a) Materials purchased during October, 2021.
b) Cost of goods completed in October, 2021.
c) Overheads applied to production in October, 2021.
d) Balance of Work-in-process Control A/c on 31st October, 2021.
e) Direct materials consumed during October, 2021.
f) Balance of Stores Ledger Control Account on 31st October, 2021.
g) Over absorbed or under absorbed overheads for October, 2021.

Q-19
Dutta Enterprises operates an Integral system of accounting. You are required to PASS the
Journal Entries for the following transactions that took place for the year ended 31st March.
(Narrations are not required.)
Rs
Raw materials purchased (50% on Credit) 6,00,000
Materials issued to production 4,00,000

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Wages paid (50% Direct) 2,00,000
Wages charged to production 1,00,000
Factory overheads incurred 80,000
Factory overheads charged to production 1,00,000
Selling and distribution overheads incurred 40,000
Finished goods at cost 5,00,000
Sales (50% Credit) 7,50,000
Closing stock Nil
Receipts from debtors 2,00,000
Payments to creditors 2,00,000

Q-20 The financial books of a company reveal the following data for the financial year ending
on 31st March, 2022:

Rs
Opening Stock:
Finished goods 875 units 1,48,750
Work-in-process 64,000
01.04.2021 to 31.3.2022
Raw materials consumed 15,60,000
Direct Labour 9,00,000
Factory overheads 6,00,000
Goodwill written off 2,00,000
Administration overheads 5,90,000
Dividend paid 1,70,000
Bad Debts 24,000
Selling and Distribution Overheads 1,22,000
Interest received 90,000

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 Rent received 36,000
Sales 14,500 units 41,60,000
Closing Stock: Finished goods 375 units 82,500
Work-in-process 77,334
The cost records provide as under:
 Factory overheads are absorbed at 60% of direct wages.
 Administration overheads are recovered at 20% of factory cost.
 Selling and distribution overheads are charged at ₹8 per unit sold.
 Opening Stock of finished goods is valued at ₹208 per unit.
 The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(i) PREPARE statements for the year ended 31st March, 2022 showing –
 The profit as per financial records
 The profit as per costing records.
(ii) PRESENT a statement reconciling the profit as per costing records with the profit as per
Financial Records.

Q-21 ‘Healthy Sweets’ is engaged in the manufacturing of jaggery. Its process involve sugarcane
crushing for juice extraction, then filtration and boiling of juice along with some chemicals and
then letting it cool to cut solidified jaggery blocks.
The main process of juice extraction (Process – I) is done in conventional crusher, which is then
filtered and boiled (Process – II) in iron pots. The solidified jaggery blocks are then cut, packed
and dispatched. For manufacturing 10 kg of jaggery, 100 kg of sugarcane is required, which
extracts only 45 litre of juice.
Following information regarding Process – I has been obtained from the manufacturing
department of Healthy Sweets for the month of January:
(Rs)
Opening work-in process (4,500 litre)

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 Sugarcane 50,000
Labour 15,000
Overheads 45,000
Sugarcane introduced for juice extraction (1,00,000 kg) 5,00,000
Direct Labour 2,00,000
Overheads 6,00,000
Abnormal Loss: 1,000 kg
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Closing work-in process: 9,000 litre
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Extracted juice transferred for filtering and boiling: 39,500 litre
(Consider mass of 1 litre of juice equivalent to 1 kg)
You are required to PREPARE using average method:
(i) Statement of equivalent production,
(ii) Statement of cost,
(iii) Statement of distribution cost, and
(iv) Process-I Account.

Q-22 Chill Ltd. uses process costing to manufacture water density sensor for hydro sector. The
following information pertains to operations for the month of February:
Particulars Units
Beginning WIP, February 1 22,400
Started in production during February 1,40,000
Completed production during February 1,28,000
Ending work in progress, February 28 33,600

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The beginning work in progress was 50% complete for material and 30% complete for
conversion costs. The ending inventory was 80% complete for material and 30% complete for
conversion costs.
Costs pertaining to the month of February are as follows:
Beginning inventory costs are material Rs 1,38,350, direct labour Rs 1,50,600 and factory
overhead Rs 63,600
Cost incurred during February are material Rs 23,95,000, direct labour Rs 9,14,400, factory
overheads Rs 19,55,800.
CALCULATE:
(i) Using the FIFO method, the equivalent units of production for material.
(ii) Cost per equivalent unit for conversion cost.

Q-23 SM Pvt. Ltd. manufactures their products in three consecutive processes. The details are
as below:
Process A Process B Process C
Transferred to next Process 60% 50%
Transferred to warehouse for sale 40% 50% 100%

In each process, there is a weight loss of 2% and scrap of 8% of input of each process. The
realizable value of scrap of each process is as below:
Process A @ Rs 2 per ton
Process B @ Rs 4 per ton
Process C @ Rs 6 per ton.
The following particulars relate to April, 2022:
Process A Process B Process C
Materials used (in Tons) 1,000 260 140
Rate per ton Rs 20 Rs 15 Rs 10
Direct Wages Rs 4,000 Rs 3,000 Rs 2,000
Direct Expenses Rs 3,160 Rs 2,356 Rs 1,340

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PREPARE Process Accounts – A, B and C & Calculate cost per ton at each process.

Q-24 ‘Buttery Butter’ is engaged in the production of Buttermilk, Butter and Ghee. It purchases
processed cream and let it through the process of churning until it separates into buttermilk
and butter. For the month of January, ‘Buttery Butter’ purchased 50 Kilolitre processed cream
@ Rs 100 per 1000 ml. Conversion cost of ₹ 1,00,000 were incurred up-to the split off point,
where two saleable products were produced i.e. buttermilk and butter. Butter can be further
processed into Ghee.
The January production and sales information is as follows:
Products Production (in Sales quantity (in Selling Price per
Kilolitre/ tonne) Kilolitre/tonne) Litre/Kg (Rs)
Buttermilk 28 28 30
Butter 20 -- --
Ghee 16 16 480
All 20 tonne of butter were further processed at an incremental cost of Rs 1,20,000 to yield 16
Kilolitre of Ghee. There was no opening or closing inventories of buttermilk, butter or ghee in
January, 2020.
Required:
(i) SHOW how joint cost would be apportioned between Buttermilk and Butter under
Estimated Net Realisable Value method.
(ii) ‘Healthy Bones’ offers to purchase 20 tonne of butter in February at Rs 360 per kg. In
case
(iii) ‘Buttery Butter’ accepts this offer, no Ghee would be produced in February. SUGGEST
whether ‘Buttery Butter’ shall accept the offer affecting its operating income or further
process butter to make Ghee itself?

Q-25 Mili Ltd., a manufacturing company, produces two main products and a by-product out of
a joint process. The ratio of output quantities to input quantities of direct material used in the
joint process remains consistent on yearly basis.

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Company has employed the physical volume method to allocate joint production costs to the
main products. The net realizable value of the by-product is used to reduce the joint production
costs before the joint costs are allocated to the main products.
During a month, company incurred joint production costs of Rs 15,00,000. The main products
are not marketable at the split off point and thus have to be processed further. Details of
company’s operation are given in the table below.
Particulars Product-Q Product-R By Product
Monthly output in Kg. 90,000 1,80,000 75,000
Selling price per kg. Rs 50 Rs 30 Rs 5
Process costs Rs 3,00,000 Rs 4,50,000

FIND OUT the amount of joint product cost that Mili Ltd. would allocated to product-R by using
the physical volume method to allocate joint production costs?

Q-26 JP Ltd. uses joint production process that produces three products at the split-off point.
Joint production costs during the month of July, 2022 were Rs 33,60,000. Product information
for the month of July is as follows:
Particulars Process A Process B Process C
Units produced 3,000 6,000 9,000
Sales Prices:
At the split-off Rs 200
After further processing Rs 300 Rs 350 Rs 100
Costs to process after split-off Rs 6,00,000 Rs 6,00,000 Rs 6,00,000
Other information is as follows:
Product C is a by-product and the company accounts for the by-product at net realizable value
as a reduction of joint cost. Further, Product B & C must be processed further before they can
be sold. FIND OUT the joint cost allocated to Product A in the month of July if joint cost
allocation is based on Net Realizable Value.

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Q-27 Mr. X owns a bus which runs according to the following schedule:
(i) Delhi to Chandigarh and back, the same day.
Distance covered: 250 km. one way.
Numbers of days run each month: 8
Seating capacity occupied 90%.
(ii) Delhi to Agra and back, the same day.
Distance covered: 210 km. one way
Number of days run each month: 10
Seating capacity occupied 85%
(iii) Delhi to Jaipur and back, the same day.
Distance covered: 270 km. one way
Number of days run each month: 6
Seating capacity occupied 100%
(iv) Following are the other details:
Cost of the bus Rs 12,00,000
Salary of the Driver Rs 24,000 p.m.
Salary of the Conductor Rs 21,000 p.m.
Salary of the part-time Accountant Rs 5,000 p.m.
Insurance of the bus Rs 4,800 p.a.
Diesel consumption 4 km. per litre at Rs 56 per litre
Road tax Rs 15,915 p.a.
Lubricant oil Rs 10 per 100 km
Permit fee Rs 315 p.m.
Repairs and maintenance Rs 1,000 p.m.
Depreciation of the bus @ 20% p.a.
Seating capacity of the bus 50 persons
Passenger tax is 20% of the total takings. CALCULATE the bus fare to be charged from each
passenger to earn a profit of 30% on total takings. The fares are to be indicated per passenger
for the journeys:

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(i) Delhi to Chandigarh (ii) Delhi to Agra and (iii) Delhi to Jaipur.

Q-28 A company is considering three alternative proposals for conveyance facilities for its sales
personnel who has to do considerable traveling, approximately 20,000 kilometres every year.
The proposals are as follows:
(i) Purchase and maintain its own fleet of cars. The average cost of a car is Rs 6,00,000.
(ii) Allow the Executive use his own car and reimburse expenses at the rate of Rs 10 per
kilometer and also bear insurance costs.
(iii) Hire cars from an agency at Rs 1,80,000 per year per car. The company will have to bear
costs of petrol, taxes and tyres.
The following further details are available:
Petrol Rs 6 per km. Repairs and maintenance Rs 0.20 per km.
Tyre Rs 0.12 per km. Insurance Rs 1,200 per car per annum
Taxes Rs 800 per car per annum Life of the car: 5 years with annual mileage of
20,000 km.
Resale value: Rs 80,000 at the end of the fifth year.
WORK OUT the relative costs of three proposals and rank them.

Q-29 YSPP Transport Company is running local city buses. It has a fleet of 20 Buses. Each bus
can carry average 40 passengers per day and cover distance of 112.50 kms per day. Due to
Covid - 19 pandemic, the company is running 90% buses on average.
Below are the operations expenses worked out for the month of November, 2021:
Original cost per bus Rs 48,00,000
Insurance for 20 buses Rs 63,36,000 per annum
Diesel & Oil Rs 10 per km.
Salary of drivers per bus Rs 25,000
Salary of cleaners per bus Rs 15,000
Tyres and tubes Rs 12,58,040
Lubricants Rs 10,70,000

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Repairs Rs 24,70,000
Road tax per bus Rs 1,50,000
Administrative overhead Rs 50,88,000 per annum
Depreciation on buses is computed @ 20% using Straight Line Method.
Passenger tax is 15% on total taking.
Based on above mentioned information, you are required to COMPUTE the fare to be charged
from each passenger per kilometer assuming 25% margin on total taking (Total receipts from
passengers.)

Q-30 A customer has been ordering 90,000 special design metal columns at the rate of 18,000
columns per order during the past years. The production cost per unit comprises Rs 2,120 for
material, Rs 60 for labour and Rs 20 for fixed overheads. It costs Rs 1,500 to set up for one run
of 18,000 columns and inventory carrying cost is 5%.
(i) FIND the most economic production run.
(ii) CALCULATE the extra cost that company incur due to processing of 18,000 columns in a
batch.

Q-31 KJ Motors Ltd. is a manufacturer of auto components. Following are the details of
expenses for the year 2020-21:
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000
(iv) Direct Labour 90,50,000
(v) Factory Overhead 30,80,000
(vi) Administrative Overhead 20,50,400
During the FY 2021-22, the company has received an order from a car manufacturer where it
estimates that the cost of material and labour will be Rs 80,00,000 and Rs 40,50,000
respectively.

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The company charges factory overhead as a percentage of direct labour and administrative
overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at Rs 9, 50,000.
You are required to:
(i) CALCULATE the overhead recovery rates based on actual costs for 2020-21.
(ii) PREPARE a job cost sheet for the order received and the price to be quoted if the desired
profit is 25% on sales.

Q-32 PS Ltd. manufactures articles in predetermined lots simultaneously. The following costs
have been incurred for Batch No. ‘PS143’ in the month of March, 2022:
Units produced 1,000 units
Direct materials cost Rs 2, 00,000
Direct Labour -
Department A 800 labour hours @ Rs 100 per hour
Department B 1,400 labour hours @ Rs 120 per hour
Factory overheads are absorbed on labour hour basis and the rates are:
Department A @ Rs 140 per hour
Department B @ Rs 80 per hour
Administrative overheads are absorbed at 10% of selling price.
The firm expects 25% gross profit (sales value minus factory cost) for determining the selling
price.
You are required to CALCULATE the selling price per unit of Batch No. 'PS143'.

Q-33 In a factory following the job Costing Method, an abstract from the work-in-progress as
on 30th September was prepared as under.
Job No. Materials Rs Direct hrs. Labour Rs Factory Overheads applied Rs
115 1325 400 hrs. 800 640
118 810 250 hrs. 500 400
120 765 300 hrs. 475 380

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 2,900 1,775 1,420

Materials used in October were as follows:

Materials Requisition No. Job No. Cost
54 118 300
55 118 425
56 118 515
57 120 665
58 121 910
59 124 720
3,535

A summary for labour hours deployed during October is as under:

Job No. Number of Hours
Shop A Shop B
115 25 25
118 90 30
120 75 10
121 65 --
124 25 10
275 75
Indirect Labour: Waiting of material 20 10
Machine breakdown 10 5
Idle time 5 6
Overtime premium 6 5
316 101
A shop credit slip was issued in October, that material issued under Requisition No. 54 was
returned back to stores as being not suitable. A material transfer note issued in October
indicated that material issued under Requisition No. 55 for Job 118 was directed to Job 124.

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The hourly rate in shop A per labour hour is Rs 3 per hour while at shop B, it is Rs 2 per hour.
The factory overhead is applied at the same rate as in September. Job 115, 118 and 120 were
completed in October.

You are asked to COMPUTE the factory cost of the completed jobs. It is the practice of the
management to put a 10% on the factory cost to cover administration and selling overheads
and invoice the job to the customer on a total cost plus 20% basis. DETERMINE the invoice price
of these three jobs?

Q-34 AKP Builders Ltd. commenced a contract on April 1, 2020. The total contract was for Rs
5,00,000. Actual expenditure for the period April 1, 2020 to March 31, 2021 and estimated
expenditure for April 1, 2021 to December 31, 2021 are given below:
Particulars 2020-21 2021-22
(actual) (9 months) (estimated)
Materials issued 90,000 85,750
Wages: Paid 75,000 87,325
Outstanding at the end 6,250 8,300
Plant 25,000 -
Sundry expenses: Paid 7,250 6,875
Prepared at the end 625 -
Establishment charges 14,625 -

A part of the material was unsuitable and was sold for Rs 18,125 (cost being Rs 15,000) and a
part of plant was scrapped and disposed- off for Rs 2,875. The value of plant at site on 31
March, 2021 was Rs 7,750 and the value of material at site was Rs 4,250. Cash received on
account to date was Rs 1,75,000, representing 80% of the work certified. The cost of work
uncertified was valued at Rs 27,375.
The contractor estimated further expenditure that would be incurred in completion of the
contract:
 The contract would be completed by 31st December, 2020.

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  A further sum of Rs 31,250 would have to be spent on the plant and the residual value
of the plant on the completion of the contract would be Rs 3,750.
 Establishment charges would cost the same amount per month as in the previous year.
 Rs 10,800 would be sufficient to provide for contingencies.
Required:
PREPARE a Contract Account for the year ended 31st March, 2021, and CALCULATE estimated
total profit on this contract.

Q-35 A contractor prepares his accounts for the year ending 31st March each year. He
commenced a contract on 1st July, 2021.
The following information relates to the contract as on 31st March, 2022:
(Rs)
Material issued 12,55,000
Wages 28,28,000
Salary to Foreman 4,06,500
A machine costing Rs 13,00,000 has been on the site for 4.8 months, its working life is
estimated at 7 years and its final scrap value at Rs 75,000.
A supervisor, who is paid Rs 40,000 p.m., has devoted one-half of his time to this contract.
All other expenses and administration charges amount to Rs 6,82,500.
Material in hand at site costs Rs 1,77,000 on 31st March, 2022.
The contract price is Rs 1,00,00,000. On 31st March, 2022 2/3rd of the contract was completed.
The architect issued certificates covering 50% of the contract price, and the contractor had
been paid Rs 37,50,000 on account.
PREPARE Contract A/c and show the notional profit or loss as on 31st March, 2022.

Q-36
TQM Ltd. has furnished the following information for the month ending 30th June:
Master Budget Actual Variance
Units produced and sold 80,000 72,000

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Sales (Rs) 3,20,000 2,80,000 40,000(A)
Direct material (Rs) 80,000 73,600 6,400(F)
Direct wages (Rs) 1,20,000 1,04,800 15,200(F)
Variable overheads (Rs) 40,000 37,600 2,400(F)
Fixed overhead (Rs) 40,000 39,200 800(F)
Total Cost 2,80,000 2,55,200

The Standard costs of the products are as follows:

Per unit Rs
Direct materials (1 kg. at the rate of Rs1 per kg.) 1.00
Direct wages (1 hour at the rate of Rs 1.50) 1.50
Variable overheads (1 hour at the rate of Rs 0.50) 0.50
Actual results for the month showed that 78,400 kg. of material were used and 70,400 labour
hours were recorded.
Required:
(i) PREPARE Flexible budget for the month and compare with actual results.
(ii) CALCULATE Material, Labour, Sales Price, Variable Overhead and Fixed Overhead
Expenditure variances and Sales Volume (Profit) variance.

Q-37 The following data relates to the manufacturing project received for the budgeted output
of 19,600 units. You are required to CALCULATE the selling price per unit covering a profit of
25% on the selling price.
Direct materials: 40 sq. m. per unit @ Rs 10.60 per sq. m.
Direct wages: Bonding department 48 hours per unit @ Rs 25 per hour
Finishing department 30 hours per unit @ Rs 19 per hour
Budgeted costs and hours per annum-
Variable overhead:
Rs Total hours
Bonding department 15,00,000 10,00,000

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Finishing department 6,00,000 6,00,000
Fixed overhead –
Rs
Production 15,68,000
Selling and distribution 7,84,000
Administration (General) 3,92,000

Q-38
Following information is available for DK and Co.:
Standard working hours 9 hours per day of 5 days per week
Maximum capacity 50 employees
Actual working 40 employees
Actual hours expected to be worked per four week 7,200 hours
Std. hours expected to be earned per four weeks 9,000 hours
Actual hours worked in the four- week period 6,750 hours
Standard hours earned in the four- week period 7,875 hours.
The related period is of 4 weeks. In this period there was a one special day holiday due to
national event.
You are required to CALCULATE the following ratios:
i) Efficiency Ratio
ii) Activity Ratio
iii) Calendar Ratio
iv) Standard Capacity Usage Ratio
v) Actual Capacity Usage Ratio
vi) Actual Usage of Budgeted Capacity Ratio

Q-39 The following information is available from the cost records of Novell & Co. for the month
of March 2021:

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Materials purchased 20,000 units @ Rs 88,000
Materials consumed 19,000 units
Actual wages paid for 4,950 hrs. Rs 24,750
Units produced 1,800 units
Standard rates and pieces are:
Direct material Rs 4 per unit
Standard output 10 number for one unit
Direct labour rate Rs 4.00 per hour
Standard requirement 2.5 hours per unit
You are required to CALCULATE relevant material and labour variance for the month.

Q-40 A company has a normal capacity of 120 machines, working 8 hours per day for 25 days in
a month. The fixed overheads are budgeted at Rs 1,44,000 per month. The standard time
required to manufacture one unit of product is 4 hours.
In the month of April, the company worked 24 days of 840 machine hours per day and
produced 5,305 units of output. The actual fixed overheads were Rs 1,42,000.
CALCULATE:
(i) Expense variance
(ii) Volume variance
(iii) Total fixed overheads variance.

Q-41 Paras Synthetics uses Standard costing system in manufacturing of its product ‘Star 95
Mask’. The details are as follows;
Direct Material 0.50 Meter @ Rs 60 per meter Rs 30
Direct Labour 1 hour @ Rs 20 per hour Rs 20
Variable overhead 1 hour @ Rs 10 per hour Rs 10
Total Rs 60
During the month of August, 10,000 units of ‘Star 95 Mask’ were manufactured.
Details are as follows:

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Direct material consumed 5700 meters @ Rs 58 per meter
Direct labour Hours ? @ ? Rs 2,24,400
Variable overhead incurred Rs 1,12,200
Variable overhead efficiency variance is Rs 2,000 A. Variable overheads are based on Direct
Labour Hours.
You are required to calculate the missing data and all the relevant Variances.

Q-42 The standard output of a Product 'D' is 50 units per hour in manufacturing department of
a Company employing 100 workers. In a 40 hours week, the department produced 1,920 units
of product 'D' despite 5% of the time paid was lost due to an abnormal reason. The hourly wage
rates actually paid were Rs 12.40, Rs 12.00 and Rs 11.40 respectively to Group 'A' consisting 10
workers, Group 'B' consisting 30 workers and Group 'C' consisting 60 workers. The standard
wage rate per labour is same for all the workers. Labour Efficiency Variance is given Rs 480 (F).
You are required to COMPUTE:
(j) Total Labour Cost Variance.
(iii) Total Labour Rate Variance.
(iv) Total Labour Gang Variance.
(v) Total Labour Yield Variance, and
(vi) Total Labour Idle Time Variance.
Q-43 A company has three factories situated in north, east and south with its Head office in
Mumbai. The management has received the following summary report on the operations of
each factory for a period:
(Rs in ‘000)
Sales Profit
Actual Over/ (Under) Actual Over/ (Under)
Budget Budget
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)

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CALCULATE for each factory and for the company as a while for the period:
(i) The fixed costs. (ii) Break-even sales.

Q-44 XYZ Ltd. has a production capacity of 2,00,000 units per year. Normal capacity utilisation is
reckoned as 90%. Standard variable production costs are ₹ 11 per unit. The fixed costs are Rs
3,60,000 per year. Variable selling costs are Rs 3 per unit and fixed selling costs are Rs 2,70,000
per year. The unit selling price is Rs 20.
In the year just ended on 31st March, the production was 1,60,000 units and sales were
1,50,000 units. The closing inventory on 31st March was 20,000 units. The actual variable
production costs for the year were Rs 35,000 higher than the standard.
(i) CALCULATE the profit for the year
(a) by absorption costing method and
(b) by marginal costing method.
(ii) EXPLAIN the difference in the profits..

Q-45 XY Ltd. makes two products X and Y, whose respective fixed costs are F1 and F2. You are
given that the unit contribution of Y is one fifth less than the unit contribution of X, that the
total of F1 and F2 is Rs 1,50,000, that the BEP of X is 1,800 units (for BEP of X, F2 is not
considered) and that
3,000 units is the indifference point between X and Y.(i.e. X and Y make equal profits at 3,000
unit volume, considering their respective fixed costs). There is no inventory buildup as
whatever is produced is sold.
Required
FIND OUT the values F1 and F2 and units contributions of X and Y.

Q-46 A Limited manufactures three different products and the following information has been
collected from the books of accounts:
Products
S T U

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Sales Mix 20% 35% 40%
Selling Price Rs 600 Rs 800 Rs 400
Variable Cost Rs 300 Rs 400 Rs 240
Total Fixed Costs Rs 36,00,000
Total Sales 1,20,00,000

The company has currently under discussion, a proposal to discontinue the manufacture of
Product U and replace it with Product M, when the following results are anticipated:
Products
S T U
Sales Mix 40% 35% 25%
Selling Price Rs 600 Rs 800 Rs 600
Variable Cost Rs 300 Rs 400 Rs 300
Total Fixed Costs Rs 36,00,000
Total Sales 1,28,00,000
Required:
(i) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the existing
product mix.
(ii) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the proposed
product mix

Q-47 The lab corner of Newlife Hospital Trust operates two types of specialist MRI scanning
machine – MR10 and MR59. Following details are estimated for the next period:
Machine MR 10 MR 59
Running hours 1,100 2,000
Rs Rs
Variable running costs excluding special technology 68,750 1,60,000
Fixed Costs 50,000 2,43,750

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A brain scan is normally carried out on machine type MR10. This task uses special technology
costing Rs 100 each and takes four hours of machine time. Because of the nature of the
process, around 10% of the scans produce blurred and therefore useless results.
Required:
(i) CALCULATE the total cost of a satisfactory brain scan on machine type MR10.
(ii) Brain scans can also be done on machine type MR59 and would take only 1.8 hours per
scan with a reduced reject rate of 6%. However, the cost of the special technology
would be Rs 137.50 per scan. ADVISE which type should be used, assuming sufficient
capacity is available on both types of machines. Consider fixed costs will remain
unchanged.

Q-48 (a) Health Wealth Hospital is interested in estimating the cost for each patient stay. The
hospital offers general health care facility i.e. only basic services.
You are required to:
(i) CLASSIFY each of the following costs as either direct or indirect with respect to each
patient.
(ii) CLASSIFY each of the following costs as either fixed or variable with respect to hospital
costs per day.
Direct Indirect Fixed Variable
Electronic monitoring ______ ______ ______ ______
Meals for patients ______ ______ ______ ______
Nurses' salaries ______ ______ ______ ______
Parking maintenance ______ ______ ______ ______
Security ______ ______ ______ ______
(b) Differentiate between Cost Control and Cost Reduction.
(c) Though Cost Accounting and Management Accounting is used synonymously but there are a
few differences. Elaborate those differences.
(d) What are cost units? Write the cost unit basis against each of the following
Industry/Product-Automobile, Steel, Cement, Chemicals, Power and Transport.

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Q-49 SKY Company Ltd., not registered under GST, purchased material ‘RPP’ from a company,
registered under GST. The following information is available for one lot of 5,000 units of
material purchased:
Listed price of one lot Rs 7,50,000
Trade discount @ 10% on Listed price.
CGST and SGST (Credit Not available) 12% (6% CGST + 6% SGST)
Road Tax paid Rs 15,000
Freight and Insurance Rs 51,000
Detention charges Rs 15,000
Commission and brokerage on purchases Rs 30,000
Amount deposited for returnable containers Rs 90,000
Amount of refund on returning the container Rs 60,000
Other Expenses @ 2% of total cost
20% of material shortage is due to normal reasons.
You are required to CALCULATE cost per unit of material purchased to SKY Company Ltd.

Q-50 A machine shop has 8 identical Drilling machines manned by 6 operators. The machine
cannot be worked without an operator wholly engaged on it. The original cost of all these
machines works out to Rs 8 lakhs. These particulars are furnished for a 6 months period:
Normal available hours per month 208
Absenteeism (without pay) hours 18
Leave (with pay) hours 20
Normal idle time unavoidable-hours 10
Average rate of wages per worker for 8 hours a day Rs 800
Production bonus estimated 15% on wages
Value of power consumed Rs 80,500
Supervision and indirect labour Rs 33,000
Lighting and electricity Rs 12,000

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These particulars are for a year
Repairs and maintenance including consumables - 3% of value of machines
Insurance - Rs 40,000
Depreciation – 10% of original cost.
Other sundry work expenses - Rs 12,000
General management expenses allocated - Rs 54,530.
You are required to COMPUTE a comprehensive machine hour rate for the machine shop.

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 SUGGESTED ANSWERS
A-1

(a)

Bin Card Stores Ledger

It is maintained by the storekeeper in the It is maintained in cost accounting
store. department.
It contains only quantitative details of material It contains information both in quantity and
received, issued and returned to stores. value.
Entries are made when transaction takes It is always posted after the transaction
place.
Each transaction is individually posted. Transactions may be summarized and then
posted.
Inter-department transfers do not appear in Material transfers from one job to another job
Bin Card. are recorded for costing purposes.

(b)

Item Cost Tracing Cost Allocation Non-

manufacturing
Carpenter wages 
Depreciation – office building 
Glue for assembly 
Lathe department supervisor 
Metal brackets for drawers 
Factory washroom supplies 
Lumber 
Samples for trade shows 

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Lathe depreciation 
Lathe operator wages 

(c) The economic batch size or Economic Batch Quantity may be determined by calculating the
total cost for a series of possible batch sizes and checking which batch size gives the minimum
cost.
The objective here being to determine the production lot (Batch size) that optimizes on both
set up and inventory holding cots formula. The mathematical formula usually used for its
determination is as follows:
2𝐷𝑆
EBQ = 𝐶

Where,
D = Annual demand for the product
S = Setting up cost per batch
C = Carrying cost per unit of production

(d) Essential pre-requisites for Integrated Accounts: The essential pre-requisites for integrated
accounts include the following steps-
1. The management’s decision about the extent of integration of the two sets of books.
Some concerns find it useful to integrate up to the stage of prime cost or factory cost
while other prefers full integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve the accounting purposes
of financial and cost accounts.
3. An agreed routine, with regard to the treatment of provision for accruals, prepaid
expenses, other adjustment necessary for preparation of interim accounts.
4. Perfect coordination should exist between the staff responsible for the financial and
cost aspects of the accounts and an efficient processing of accounting documents
should be ensured.

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(e) Inter-Process Profit: To control cost and to measure performance, different processes
within an organization are designated as separate profit centres. In this type of organizational
structure, the output of one process is transferred to the next process not at cost but at market
value or cost plus a percentage of profit. The difference between cost and the transfer price is
known as inter - process profits.
The advantages and disadvantages of using inter-process profit, in the case of process type
industries are as follows:
Advantages:
2. Comparison between the cost of output and its market price at the stage of completion
is facilitated.
3. Each process is made to stand by itself as to the profitability.
Disadvantages:
1. The use of inter-process profits involves complication.
The system shows profits which are not realised because of stock not sold out.

A-2
2AO
EOQ = ₹
C

Where,
A = Annual Demand
O = Ordering cost per order
C = Inventory carrying cost per unit per annum
(i) Calculation of EOQ
Super Grow Nature’s Own
2 × 2,000 × 1,200 2 × 1,280 × 1,400
EOQ = EOQ =
480 560

= √10,000 or 100 bags = √6,400 or 80 bags

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(ii) Total annual relevant cost = Total annual relevant ordering costs + Total annual relevant
carrying cost
Super Grow Nature’s Own
Number of Orders = = 2,000/ 100 = 1,280/80
Annual Requirement ÷ EOQ = 20 orders = 16 orders
Ordering Cost 20 × 1200 = Rs 24,000 16 × 14,00 = Rs 22,400
Carrying Cost ½ × 100 × 480 = Rs 24,000 ½ × 80 × 560 = Rs 22,400
Total of Ordering and Carrying = Rs 24,000 + Rs 24,000 Rs 22,4000 + Rs 22,400
Cost = 48,000 = Rs 44,800

(iii) Number of deliveries for Super Grow and Nature’s own fertilizer per year =
Annual Demand for fertilizer bags
EOQ

Super Grow Nature’s Own

2,000 bags 2,000 bags
= = 20 order = = 16 orders
100 bags 100 bags

A-3 From the point of view of cost of material charged to each job, it is minimum under FIFO
and maximum under LIFO (Refer to Tables). During the period of rising prices, the use of FIFO
give rise to high profits and that of LIFO low profits. In the case of weighted average, there is no
significant adverse or favourable effect on the cost of material as well as on profits.

From the point of view of valuation of closing stock, it is apparent from the above statement,
that it is maximum under FIFO, moderate under weighted average and minimum under LIFO.

It is clear from the tables that the use of weighted average evens out the fluctuations in the
prices. Under this method, the cost of materials issued to the jobs and the cost of material in
hands reflects greater uniformity than under FIFO and LIFO. Thus, from different points of view,
weighted average method is preferred over LIFO and FIFO.

Statement of receipts and issues by adopting First-in-First-Out Method

GMTESTSERIES.COM®
 Date Particulars RECEIPTS ISSUE BALANCE
Units Rate Value Units Rate Value Units Rate Value
No. No. No.
Jan. 1 Purchase 100 1 100 -- -- -- 100 1 100
Jan. 20 Purchase 100 2 200 -- -- -- 100 1 100
100 2 200
Jan. 22 Issue to Job -- -- -- 60 1 60 40 1 40
W 16 100 2 200
Jan. 23 Issue to Job -- -- -- 40 1 40 80 2 160
W 17 20 2 40

Statement of receipts and issues by adopting Last-in-First-Out Method

Date Particulars RECEIPTS ISSUE BALANCE

Units Rate Value Units Rate Value Units Rate Value
No. No. No.
Jan. 1 Purchase 100 1 100 -- -- -- 100 1 100
Jan. 20 Purchase 100 2 200 -- -- -- 100 1 100
100 2 200
Jan. 22 Issue to -- -- -- 60 2 120 100 1 100
Job W 16 40 2 80
Jan. 23 Issue to -- -- -- 40 2 80 80 1 80
Job W 17 20 1 20

Statement of Receipt and issues by adopting Weighted Average Method

Date Particulars RECEIPTS ISSUE BALANCE

Units Rate Value Units Rate Value Units Rate Value
No. No. No.

GMTESTSERIES.COM®
Jan. 1 Purchase 100 1 100 -- -- -- 100 1 100
Jan. 20 Purchase 100 2 200 -- -- -- 200 1.50 300
Jan. 22 Issue to Job -- -- -- 60 1.50 90 140 1.50 210
W 16
Jan. 23 Issue to Job -- -- -- 60 1.50 90 80 1.50 120
W 17

Statement of Material Values allocated to Job W 16, Job 17 and Closing Stock, under
aforesaid methods
FIFO LIFO Weighted Average
Material for Job W 16 60 120 90
Material for Job W 17 80 100 90
Closing Stock 160 80 120
300 300 300

A-4 As procurement time is given in days, consumption should also be calculated in days:
Maximum Consumption per Day: 350/7 = 50 Kgs.
Minimum Consumption per Day: 210/ 7 = 30 Kgs.
Average consumption per Day: (50+30)/ 2 = 40 Kgs.

(a) Calculation of Economic Order Quantity (EOQ)

Annual consumption of Raw Materials (A): 40 Kgs x 365 days = 14,600 Kgs
Storage or Carrying Cost per unit per annum (C): (Rs 100 x 1% x 12 months) + Rs 2 = Rs 14
Ordering Cost (O): Rs 200 per Order
2AO 2 × 14,600 × 200
EOQ = = = 646 units
₹
C 14

(b) Re-Order Level (ROL) = (Maximum consumption Rate x Maximum Procurement Time)

GMTESTSERIES.COM®
 = 50 kgs per day x 9 days
= 450 kgs

(c) Maximum Stock Level = Recorder Level + Recorder Quantity – (Minimum Consumption
Rate x Minimum Procurement Time)
= 450 kgs + 646 kgs - (30 kgs X 5 days)
= 946 kgs.

(d) Minimum Stock Level = Recorder Level – (Average consumption Rate × Average
Procurement Time)
= 450 kgs – (40 kgs X 7 days)
= 170 kgs
(e) Average Stock Level = Maximum Stock Level + Minimum Stock Level/2
946 kgs + 170 kgs
= 2

= 558 kgs

(f) Number of Orders to be placed per year

= Annual Consumption of Raw Materials/EOQ
= 14600 kgs/646 kgs
= 22.60 Orders or 23 Orders

(g) Total Inventory Cost

Cost of Materials (A x Purchase Price) (14600 kgs x Rs 100) = Rs 14,60,000
Total Ordering Cost (No. of Orders x O) (23 Orders x 200) = Rs 4,600
Total Carrying Cost (EOQ / 2 x C) (646 kgs / 2 x Rs 14) = Rs 4,522
Total Inventory Cost Rs 14,69,122

(h) If the supplier is willing to offer 1% discount on purchase of total annual quantity in two
orders:

GMTESTSERIES.COM®
Offer Price = Rs 100 x 99% = Rs 99
Revised Carrying Cost = (Rs 99 x 1% x 12 months) + Rs 2 = Rs 13.88
Revised Order Quantity = 14600 kgs / 2 Orders = 7300 kgs
Total Inventory Cost at Offer Price
Cost of Materials (A x Purchase Price) (14600 kgs x Rs 99) = Rs 14,45,400
Total Ordering Cost (No. of Orders x O) (2 Orders x 200) = Rs 400
Total Carrying Cost (EOQ / 2 x C) (7300 kgs / 2 x Rs 13.88) = Rs 50,662
Total Inventory Cost Rs 14,96,462
Advice: As total inventory cost at offer price is Rs 27,340 (14,96,462 – 14,69,122) higher, offer
should not be accepted.

(i) Counter-offer:
Let Discount Rate = z%
Counter-offer Price = Rs 100 – z% = Rs 100 – Z
Revised Carrying Cost = [(Rs 100 – z) x 1% x 12 months] + Rs 2 = Rs 12 – 0.12z + Rs 2
= Rs 14 – 0.12z
Total Inventory Cost at Counter-Offer Price
Cost of Materials (A x Purchase Price) [14600 kgs x (Rs 100 – z)] = Rs 14,60,000 – 14,600z
Total Ordering Cost (No. of Orders x O) (2 Orders x 200) = Rs 400
Total Carrying Cost (EOQ / 2 x C) [7300 kgs / 2 x (Rs 14 – 0.12z)] = Rs 51,100 – 438z
Total Inventory Cost Rs 15,11,500 – 15038z
Rs 14,69,122 = Rs 15,11,500 – 15038z
Or 15038z = 42,378
Or z = 2.82
Therefore, discount should be at least 2.82% in offer price.

A-5 Calculation of earnings under different wages schemes:

(i) Day wages
Worker Day wages (Rs) Actual Output (Units) Labour Cost per 100 pieces (Rs)

GMTESTSERIES.COM®
A 600 180 333.33
B 600 120 500.00
C 600 100 600.00
Total 1,800 400

Average labour cost to produce 100 pieces:

= Total wages paid/Total output x 100
= Rs 1,800/400 units x 100 = Rs 450

(ii) Piece rate

Worker Actual Output Piece rate Wages earned Labour cost per
(Units) (Rs) (Rs) 100 pieces (Rs)
A 180 7.50 1,350 750.00
B 120 7.50 900 750.00
C 100 7.50 750 750.00
Total 400 3,000

Average cost of labour for the company to produce 100 pieces:

= Rs 3,000/ 400 units x 100 = Rs 750

(iii) Halsey Scheme

Worker Actual Std. Actual Time Bonus Rate per Total Labour
Output time time saved hours hour (Rs) wages cost per
(Units) (Hrs.) (Hrs.) (Hrs.) (50% of (Rs) 100
time pieces
saved) (Rs)
A B C D=B–C E F G= H=
F x (C + E) G/A*100
A 180 18 8 10 5 75 975 541.67
B 120 12 8 4 2 75 750 625.00

GMTESTSERIES.COM®
 C 100 10 8 2 1 75 675 675.00
Total 400 2,400
Average cost of labour for the company to produce 100 pieces = Rs 2,400/400 units x 100 = 600

(iv) Rowan Scheme:

Worker Actual Std. Actual Time Bonus Rate per Total Labour
Output time time saved hours* hour wages cost per
(Units) (Hrs.) (Hrs.) (Hrs.) (Rs) including 100
bonus (Rs) pieces
(Rs)
A B C D=B–C E F G= H=
F x (C + E) G/A*100
A 180 18 8 10 4.44 75 933 518.33
B 120 12 8 4 2.67 75 800 666.67
C 100 10 8 2 1.60 75 720 720.00
Total 400 2,453

*Bonus hours = Time Saved/Std. Time x Actual time

Average cost of labour for the company to produce 100 pieces = Rs 2,453/400 units x 100 = Rs
613.25

A-6
Calculation of total normal hours to be paid for Mr. Deep (Semi-skilled):
Day Normal Extra Overtime Equivalent Total normal
hours hours hours normal hours
hours for
overtime
worked

GMTESTSERIES.COM®
 A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 -- -- -- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 ½ 1 10
Friday 8 1 1½ 3 12
Saturday -- -- -- -- --
Total 40 4 5 10 54

Calculation of total normal hours to be paid for Mr. Sam (Skilled):

Day Normal Extra Overtime Equivalent Total normal
hours hours hours normal hours
hours for
overtime
worked
A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 -- -- -- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 ½ 1 10
Friday 8 1 1½ 3 12
Saturday -- 3* + 1 1** 2 11
Total 40 8 6 12 65

*Mr. Sam will be paid for equivalent 8 normal working hours at ordinary wage rate, though 5
hours of working is required on Saturday. Further, extra 9th hour worked will also be paid at
ordinary wage rate.
** Overtime of 1 hour worked over and above 9 hours will be paid at overtime rate.
Wages payable:

GMTESTSERIES.COM®
 Mr. Deep Mr. Sam
Basic Wages per hour (Rs 400/8, Rs 600/8) (Rs) 50 75
Dearness allowance per hour (@ 20%) (Rs) 10 15
Hourly rate (Rs) 60 90
Total equivalent normal hours 54 65
Total Wages payable (Rs) 3,240 5,850

A-7
Working Notes:
(i) Calculation of no. of employees at the beginning and end of the year
At the Beginning At the end of the
of the Year year
Records clerk 810 2,340
Human Resource Manager [Left – 90 + Closing – 60 120 60
– Joined- 30]
Legal Secretary* 45 135
Staff Attorney* 45 45
Associate Attorney* 30 45
Senior Staff Attorney 6 18
Senior Records clerk 12 51
Litigation attorney 90 0
Total 1,158 2,694
(*) At the beginning of the year:
Strength of Legal Secretary, Staff Attorney and Associate Attorney =
[1158 – {810 + 120 + 6 + 12 + 90} employees] or [1158 – 1038 = 120 employees]
[{Legal Secretary – 120 x 3/8 = 45, Staff Attorney – 120 x 3/8 = 45 & Associate Attorney – 120 x
2/8 = 30} employees]
At the end of the year:

GMTESTSERIES.COM®
[Legal Secretary -(Opening 45 + 90 Joining) = 135; Staff Attorney - (Opening 45 + 30 Joined –
30 Left) = 45]

(ii) No. of Employees Separated, Replaced and newly recruited during the year
Particulars Separations New Recruitment Replacement Total Joining
Records clerk 90 1,530 90 1,620
Human Resource 90 -- 30 30
Manager
Legal Secretary -- 90 -- 90
Staff Attorney 30 -- 30 30
Associate 15 15 15 30
Attorney
Senior Staff -- 12 -- 12
Attorney
Senior Records -- 39 -- 39
clerk
Litigation 90 -- -- --
attorney
Total 315 1,686 165 1,851

(Since, HR Ltd. and its subsidiary are maintaining separate Personnel Department, so transfer-in
and transfer-out are treated as recruitment and separation respectively.)

(a) Calculation of Labour Turnover rate:

No .of employees replaced during the year
Replacement Method = x 100
Average no .of employees on roll
165
= x 100 = 165/1,926 x 100 = 8.57%
(1,158 + 2,694)/2

No .of employees Separated during the year

Separation Method = x 100
Average no .of employees on roll

= 315/1,926 x 100 =16.36%

(b) Labour Turnover rate under Flux Method:

GMTESTSERIES.COM®
 No .of employees (Joined + Separated ) during the year
= x 10
Average no .of employees on roll
No .of employees (replaced + New recruited + Separated ) during the year
=
Average no .of employees on roll

1,851+ 315
= x 100 = 112.46%
1,926
Labour Turnover rate calculated by Mr. H is incorrect as it seems he has not taken the no. of
new recruitment while calculating the labour turnover rate under Flux method.

A-8
(a) Deccan Manufacturing Limited
Schedule Showing the Distribution of Overhead Costs among Departments
Production Service
X Y Z P Q R S
Overhead cost 1,93,000 64,000 83,000 45,000 75,000 1,05,000 30,000

Distribution of Dept. P 10,000 12,500 8,500 -45,000 5,000 4,000 5,000

(100:125:85:50:40:50)
Distribution of Dept. Q 16,000 12,000 16,000 - -80,000 -24,000 12,000

(4:3:4:-:-:6:3)
Distribution of Dept. R 57,000 28,500 28,500 - - -1,33,000 19,000

(6:3:3:-:-:-:-:2)
Distribution of Depts. 24,000 18,000 24,000 - - - 66,000

S (4:3:4:-:-:-:-)
Total 3,00,000 1,35,000 1,60,000

(b) Calculation of overhead recovery rate

Dept.- X Dept. – Y Dept. – Z
Total apportioned overheads Rs 3,00,000 Rs 1,35,000 Rs 1,60,000
Direct labour hours 4,000 3,000 4,000
Overhead recovery rate per labour hour Rs 75 Rs 45 Rs 40

GMTESTSERIES.COM®
A-9
Working notes:
(i) Total machine hours used 3,500
(600 + 900 + 400 + 600 + 1,000)

(ii) Total machine hours without the use of computers 1,500

(600 + 900)

(iii) Total machine hours with the use of computer 2,000

(400 + 600 + 1,000)

(iv)Total overheads of the machine per month

Rent (Rs17,500 ÷ 3 months) 5,833.33
Depreciation (Rs 2,00,000 ÷ 12 months) 16,666.67
Indirect Charges (Rs 1,50,000 ÷ 12 months) 12,500.00
Total 35,000.00

(v) Computer hire charges for a month = Rs 35,000

(Rs 4,20,000 ÷ 12 months)

(vi) Overheads for using machines without computer

= Rs 35,000/3,500 hrs. × 1,500 hrs. = Rs 15,000

(vii) Overheads for using machines with computer

= Rs 35,000/3,500 hrs × 2,000 hrs. + Rs 35,000 = Rs 55,000

a. Computation of machine hour rate for the firm as a whole for a month.
(i) When the Computer was used: Rs 55,000/2,000 hours = Rs 27.50 per hour
(ii) When the computer was not used: Rs 15,000/1,500 hrs = Rs 10 per hour

b. Computation of Machine hour rate for the individual job

Rate per Job

GMTESTSERIES.COM®
 hour A B C
Rs Hrs. Rs Hrs. Rs Hrs. Rs
Overheads
Without Computer 10.0 600 6,000 900 9,000 - -
With Computer 27.5 400 11,000 600 16,500 1,000 27,500
Total 1,000 17,000 1,500 25,500 1,000 27,500
Machine hour rate 17 17 27.5

A-10 (i) Computation of overhead absorption rate (as per the current policy of the company)

Department Budgeted factory overheads Budgeted direct wages

Rs Rs
Machining 3,60,000 80,000
Assembly 1,40,000 3,50,000
Packing 1,25,000 70,000
Total 6,25,000 5,00,000
Overheads absorption rate = Budgeted factory overheads/Budgeted direct wages x 100
= Rs 6,25,000/ Rs 5,00,000 × 100 = 125% of Direct wages

Selling Price of the Job No CW-7083

(Rs)
Direct materials (Rs 1,200 + Rs 600 + Rs 300) 2,100.00
Direct wages (Rs 240 + Rs 360 + Rs 60) 660.00
Overheads (125% × Rs 660) 825.00
Total factory cost 3,585.00
Add: Mark-up (30% × Rs 3,585) 1,075.50
Selling price 4,660.50

GMTESTSERIES.COM®
(ii) Methods available for absorbing factory overheads and their overhead recovery rates in
different departments

(1) Machining Department

In the machining department, the use of machine time is the predominant factor of production.
Hence machine hour rate should be used to recover overheads in this department. The
overhead recovery rate based on machine hours has been calculated as under:

Machine hour rate = Budgeted factory overheads/Budgeted machine hours

= Rs 3,60,000/80,000 hours
= Rs 4.50 per hour

(2) Assembly Department

In this department direct labour hours is the main factor of production. Hence direct labour
hour rate method should be used to recover overheads in this department. The overheads
recovery rate in this case is:
Direct labour hour rate = Budgeted factory overheads/ Budgeted direct labour hours
= Rs 1,40,000/1,00,000 hours
= Rs 1.40 per hour

(3) Packing Department

Labour is the most important factor of production in this department. Hence direct labour hour
rate method should be used to recover overheads in this department.
The overhead recovery rate in this case comes to:
Budgeted factory overhead
Direct labour hour rate = Budgeted factory overheads/Direct labour hours
= Rs 1,25,000/50,000 hours
= Rs 2.50 per hour

(iii) Selling Price of Job CW – 7083 [based on the overhead application rates calculated in (ii)
above]

GMTESTSERIES.COM®
 (Rs)
Direct materials 2,100.00
Direct wages 660.00
Overheads (Refer to Working note) 1,078.00
Factory cost 3,838.00
Add: Mark up (30% of Rs 3,838) 1,151.40
Selling price 4,989.40
Working note:
Overhead Summary Statement
Dept. Basis Hours Rate Overheads
Machining Machine hour 180 4.50 810
Assembly Direct labour hour 120 1.40 168
Packing Direct labour hour 40 2.50 100
Total 1,078

(iv) Department-wise statement of total under or over recovery of overheads

(a) Under current policy
Departments
Machining Assembly Packing Total
Direct wages (Actual) 96,000 2,70,000 90,000
overhead recovered @ 125% of direct 1,20,000 3,37,500 1,12,500 5,70,000
wages : (A)
Actual overhead: (B) 3,90,000 84,000 1,35,000 6,09,000
(under)/ over recovery of overheads: (2,70,000) 2,53,500 (22,500) (39,000)
(A- B)

(b) As per methods suggested

Basis of overhead recovery
Machine Direct Labour Direct Total
Hours Hours Labour Hours (Rs)

GMTESTSERIES.COM®
Hours worked 96,000 90,000 60,000
Rate/hour (Rs) 4.50 1.40 2.50
Overhead recovered (Rs): (A) 4,32,000 1,26,000 1,50,000 7,08,000
Actual overheads (Rs): (B) 3,90,000 84,000 1,35,000 6,09,000
(Under)/Over recovery: (A – B) 42,000 42,000 15,000 99,000

A-11 (a) Primary Distribution of Overheads

Basis Total A B X Y
Direct materials Direct 6,00,000 -- -- 4,00,000 2,00,000
Direct wages Direct 6,00,000 -- -- 2,00,000 4,00,000
Factory rent Area 9,00,000 3,00,000 1,50,000 1,50,000 3,00,000
*(2:1:1:2)
Power (Machine) H.P. x 5,10,000 1,50,000 2,40,000 45,000 75,000
(10:16:3:5*) Machine
Hrs.
Depreciation Capital 2,00,000 50,000 1,00,000 25,000 25,000
(2:4:1:1) value
General Lighting Light 3,00,000 60,000 1,20,000 60,000 60,000
(1:2:1:1) Points
Perquisites Direct 4,00,000 2,00,000 80,000 40,000 80,000
(5:2:1:2) Wages
35,10,000 7,60,000 6,90,000 9,20,000 11,40,000

*{(1000 × 50) : (2000 × 40) : (1000 × 15) : (1000 × 25)}

(50000 : 80000 : 15000 : 25000)
(10 : 16 : 3 : 5)
(b) (i) Redistribution of Service Department’s expenses using ‘Simultaneous equation
method’

GMTESTSERIES.COM®
X = 9,20,000 + 0.05 Y
Y = 11,40,000 + 0.20 X
Substituting the value of X,
Y = 11,40,000 + 0.20 (9,20,000 + 0.05 Y)
= 13,24,000 + 0.01 Y
Y - 0.01Y = 13,24,000
Y = 13,24,000/0.99
Y = Rs 13,37,374
The total expense of Y is Rs 13,37,374 and that of X is Rs 9,86,869 i.e., Rs 9,20,000 + (0.05 × Rs
13,37,374).
Distribution of Service departments’ overheads to Production departments
Production Departments
A B
Overhead as per primary distribution 7,60,000 6,90,000
Dept – X (55% and 25% of Rs 9,86,869) 5,42,778 2,46,717
Dept – Y (60% and 35% of Rs 13,37,374) 8,02,424 4,68,081
21,05,202 14,04,798

(ii) Redistribution of Service Department’s expenses using ‘Trial and Error Method’:
Services Departments
X Y
Overheads as per primary distribution 9,20,000 11,40,000
(i) Apportionment of Dept.-X expenses to Dept.- Y --- 1,84,000
(20% of Rs 9,20,000)
--- 13,24,000
(ii) Apportionment of Dept-Y expenses to Dept- X (5% 66,200 ---
of Rs 13,24,000)
(i) Apportionment of Dept- X expenses to Dept- Y (20% --- 13,240
of Rs 66,200)

GMTESTSERIES.COM®
(ii) Apportionment of Dept-Y expense to Dept-X (5% of 662 ---
Rs 13,240)
(i) Apportionment of Dept- X expenses to Dept- Y (20% 132
of Rs 662)
(ii) Apportionment of Dept-Y expense to Dept-X (5% of 7
Rs 132)
Total 9,86,869 13,37,372

Distribution of Service departments’ overheads to Production departments

Production Departments
A B
Overhead as per primary distribution 7,60,000 6,90,000
Dept – X (55% and 25% of Rs 9,86,869) 5,42,778 2,46,717
Dept – Y (60% and 35% of Rs 13,37,372) 8,02,423 4,68,080
21,05,201 14,04,797

(iii) Redistribution of Service Department’s expenses using repeated distribution method.

A B X Y

Overhead as per primary distribution 7,60,000 6,90,000 9,20,000 11,40,000

Dept. X overhead apportioned in the 5,06,000 2,30,000 (9,20,000) 1,84,000
ratio (55:25:--:20)
Dept. Y overhead apportioned in the 7,94,400 4,63,400 66,200 (13,24,000)
ratio (60:35:5:---)
Dept. X overhead apportioned in the 36,410 16,550 (66,200) 13,240
ratio (55:25:---:20)
Dept. Y overhead apportioned in the 7,944 4,634 662 (13,240)
ratio (60:35:5:---)
Dept. X overhead apportioned in the 364 166 (662) 132

GMTESTSERIES.COM®
ratio (55:25:---:20)
Dept. Y overhead apportioned in the 79 46 7 (132)
ratio (60:35:5: —)
Dept. X overhead apportioned in the 4 3 (7) --
ratio (55:25:—:20)
21,05,201 14,04,799 -- --

A-12
Working note:
Computation of revenues (at listed price), discount, cost of goods sold and customer level
operating activities costs:
Customers
A B C D E
Cases sold: (a) 4,680 19,688 1,36,800 71,550 8,775
Revenues (at listed price) 5,05,440 21,26,304 1,47,74,400 77,27,400 9,47,700
(Rs): (b)
{(a) × Rs 108)}
Discount (Rs): (c) {(a) × - 35,438 12,31,200 2,57,580 94,770
Discount per case} (19,688 cases (1,36,800 (71,550 (8,775 cases
× Rs 1.80) cases × Rs 9) cases × Rs 10.80)
× Rs 3.60)
Cost of goods sold (Rs): (d) 4,21,200 17,71,920 1,23,12,000 64,39,500 7,89,750
{(a) × Rs 90}

Customer level operating activities costs

Order taking costs (Rs): 11,250 18,750 22,500 18,750 22,500
(No. of purchase x Rs 750)
Customer visits costs (Rs) 1,200 1,800 3,600 1,200 1,800
(No. of customer visits x Rs 600)
Delivery vehicles travel costs (Rs) 1,150 1,035 1,725 2,300 3,450
(Rs 5.75 per km) (5.75 x 10 (5.75 x 30 x (5.75 x 60 x (5.75 x 40 x (5.75 x 20 x

GMTESTSERIES.COM®
(Kms travelled by delivery vehicles x 20) 6) 5) 10) 30)
x Rs 5.75 per km.)
Product handling costs (Rs) 17,550 73,830 5,13,000 2,68,313 32,906
{(a) x Rs 3.75}
Cost of expediting deliveries(Rs) - - - - 2,250
{No. of expedited deliveries x Rs
2,250)
Total cost of customer level 31,150 95,415 5,40,,825 2,90,563 62,906
operating activities (Rs)

(i) Computation of Customer level operating income

Customers
A B C D E
Revenues (At list price) 5,05,440 21,26,304 1,47,74,400 77,27,400 9,47,700
(Refer to working note)
Less: Discount - 35,438 12,31,200 2,57,580 94,770
(Refer to working note)
Revenue 5,05,440 20,90,866 1,35,43,200 74,69,820 8,52,930
(At actual price)
Less: Cost of goods sold 4,21,200 17,71,920 1,23,12,000 64,39,500 7,89,750
(Refer to working note)
Gross margin 84,240 3,18,946 12,31,200 10,30,320 63,180
Less: Customer level 31,150 95,415 5,40,825 2,90,563 62,906
operating activities
costs
(Refer to working note)
Customer level 53,090 2,23,531 6,90,375 7,39,757 274
operating income

Comment on the results:

Customer D is the most profitable customer. D’s profits are even higher than C (whose revenue
is the highest) despite having only 52.30% of the unit volume of customer C. The main reason is

GMTESTSERIES.COM®
that C receives a discount of Rs 9 per case while customer D receives only a Rs 3.60 discount
per case.
Customer E is the least profitable. The profits of E is even less than A (whose revenue is least)
Customer E received a discount of Rs 10.80 per case, makes more frequent orders, requires
more customer visits and requires more delivery kms in comparison with customer A.

(ii) Insight gained by reporting both the list selling price and the actual selling price for each
customer:
Separate reporting of both-the listed and actual selling prices enables Alpha Ltd. to examine
which customer has received what discount per case, whether the discount received has any
relationship with the sales volume. The data given below provides us with the following
information;
Sales volume Discount per case (Rs)
C (1,36,800 cases) 9.00
D (71,550 cases) 3.60
B (19,688 cases) 1.80
E (8,775 cases) 10.80
A (4,680 cases) 0
The above data clearly shows that the discount given to customers per case has a direct
relationship with sales volume, except in the case of customer E. The reasons for Rs 10.80
discount per case for customer E should be explored.

A-13
(i) Statement Showing “Cost per unit – Traditional Method”
Particulars of Costs A B C
Direct Materials 1,350 1,200 1,800
Direct Labour [(4, 12, 8 hours) x Rs 300] 1,200 3,600 2,400
Production Overheads [(10, 18, 14 hours) x Rs 90] 900 1,620 1,260

GMTESTSERIES.COM®
Cost per unit 3,450 6,420 5,460

(ii) Statement Showing “Cost per unit – Activity Based Costing”

Products A B C
Production (units) 3,000 5,000 20,000
Rs Rs Rs
Direct Materials (1350, 1200, 1800) 40,50,000 60,00,000 3,60,00,000
Direct Labour (1200, 3600, 2400) 36,00,000 1,80,00,000 4,80,00,000
Machine Related Costs @ Rs 27 per hour 8,10,000 24,30,000 75,60,000
(30,000, 90,000, 2,80,000)
Setup Costs @ Rs 1,44,000 per setup (20, 10, 28,80,000 14,40,000 28,80,000
20)
Inspection Costs @ Rs 72,000 per inspection 72,00,000 28,80,000 43,20,000
(100, 40, 60)
Purchase Related Costs @ Rs 11,250 per 6,75,000 11,25,000 18,00,000
purchase
(60, 100, 160)
Total Costs 1,92,15,000 3,18,75,000 10,05,60,000
Cost per unit (Total Cost ÷ Units) 6,405 6,375 5,028

Working Notes:
1. Number of Batches, Purchase Orders, and Inspections –

Particulars A B C Total
A Production (units) 3,000 5,000 20,000
B Batch Size (units) 150 500 1,000
C Number of Batches [A. ÷ B.] 20 10 20 50
D Number of Purchases Order per batch 3 10 8
E Total Purchase Orders [C. x D.] 60 100 160 320

GMTESTSERIES.COM®
F Number of Inspections per batch 5 4 3
G Total Inspections [C. x F.] 100 40 60 200

2. Total Machine Hours –

Particulars A B C
A Machine Hours per unit 10 18 14
B Production (units) 3,000 5,000 20,000
C Total Machine Hours [A. x B.] 30,000 90,000 2,80,000
Total Machine Hours = 4,00,000
Total Production Overheads-
= 4,00,000 hrs. x Rs 90 = Rs 3,60,00,000

3. Cost Driver Rates –

Cost % Overheads Cost Driver Basis Cost Cost Driver Rate
Pool (Rs) Driver (Rs)
(units)
Setup 20% 72,00,000 Number of 50 1,44,000 per Setup
batches
Inspection 40% 1,44,00,000 Number of 200 72,000 per Inspection
inspections
Purchases 10% 36,00,000 Number of 320 11,250 per Purchase
purchases
Machine 30% 1,08,00,000 Machine Hours 4,00,000 27 per Machine Hour
Operation

A- 14

(i) Calculation of operating income using Activity Based Costing

GMTESTSERIES.COM®
 Calculation of Cost -Driver Rate

Activity Overhead Allocation Overheads Cost-driver Cost driver

cost Cost level rate
Rs Rs Rs
Indirect Labour 56,00,000 50% 28,00,000 300 9,333.33
+ 40% for Production runs
incentives 40% 22,40,000 1052* 2,129.28
Setup hours
10% 5,60,000 4 1,40,000
Number of
parts
Computer 20,00,000 80% 16,00,000 300 5,333.33
Systems Production runs
20% 4,00,000 4 Number of 1,00,000
parts
Machinery 16,00,000 100% 16,00,000 20,000 80
depreciation Machine hours
Machine 8,00,000 100% 8,00,000 20,000 40
Maintenance Machine hours
Energy for 4,00,000 100% 4,00,000 20,000 20
Machinery Machine hours
* (100 x 4) + (100 x 1) + (76 x 6) + (24 x 4)
= (400 + 100 + 456 + 96)
= 1052 setup hours

Activity Based Costing

Brown Black Red Green Total
Quantity (units) 1,00,000 80,000 18,000 2,000 2,00,000
Rs Rs Rs Rs Rs

GMTESTSERIES.COM®
Sales 1,50,00,000 1,20,00,000 27,90,000 3,30,000 3,01,20,000
Less: Material Costs 50,00,000 40,00,000 9,36,000 1,10,000 1,00,46,000
Less: Direct labour 20,00,000 16,00,000 3,60,000 40,000 40,00,000
Less: 40% incentives 8,00,000 6,40,000 1,44,000 16,000 16,00,000
on direct labour
(A) 72,00,000 57,60,000 13,50,000 1,64,000 1,44,74,000
Overheads
Indirect labour +
incentives
- 50% based on 9,33,333 9,33,333 7,09,334 2,24,000 28,00,000
Production runs (9,333.33 x (9,333.33 x (9,333.33 x (9,333.33 x
100) 100) 76) 24)
- 40% based on 8,51,711 2,12,928 9,70,951 2,04,410 22,40,000
Setup hours (2,129.28 x (2,129.28 x (2,129.28 x (2,129.28 x
400) 100) 456) 96)
- 10% based on 1,40,000 1,40,000 1,40,000 1,40,000 5,60,000
number of parts (1,40,000 x1)
Computer Systems
- 80% based on 5,33,333 5,33,333 4,05,334 1,28,000 16,00,000
Production runs (5,333.33 x (5,333.33 x (5,333.33 x (5,333.33 x
100) 100) 76) 24)
- 20% based on 1,00,000 1,00,000 1,00,000 1,00,000 4,00,000
number of parts (1,00,000 x1)
Machinery 8,00,000 6,40,000 1,44,000 16,000 16,00,000
depreciation (80 x 0.1 x (80 x 0.1 x (80 x 0.1 x (80 x 0.1 x
1,00,000) 80,000) 18,000) 2,000)
Machine 4,00,000 3,20,000 72,000 8,000 8,00,000
Maintenance (40 x 0.1 x (40 x 0.1 x (40 x 0.1 x (40 x 0.1 x
1,00,000) 80,000) 18,000) 2,000)

GMTESTSERIES.COM®
Energy for 2,00,000 1,60,000 36,000 4,000 4,00,000
Machinery (20 x 0.1 x (20 x 0.1 x (20 x 0.1 x (20 x 0.1 x
1,00,000) 80,000) 18,000) 2,000)
Total Overheads 39,58,377 30,39,594 25,77,619 8,24,410 1,04,00,000
(B)
Operating Income 32,41,623 27,20,406 (12,27,619) (6,60,410) 40,74,000
(A-B)
Return on Sales 21.61 22.67 (44.00) (200.12) 13.53
(%)

(ii) The difference in the operating income under the two systems is due to the differences in
the overheads borne by each of the products. The Activity Based Costs appear to be more
accurate.

A-15
Cost sheet of Aditya Industries for month of……..
Units produced – 1,94,000
Units sold – 1,60,000
Particulars Amount (Rs) Cost per unit (Rs)
Raw materials purchased 1,44,00,000
Add: Opening value of raw materials 12,00,000
Less: Closing value of raw materials (14,00,000)
Materials consumed 1,42,00,000 73.19
Wages paid to production workers 36,64,000 18.89
Expenses paid for utilities 1,45,600 0.75
Prime Cost 1,80,09,600 92.83
Factory overheads (Rs 8 × 21,600 hours) 1,72,800
Add: Opening value of W-I-P 18,00,000

GMTESTSERIES.COM®
Less: Closing value of W-I-P (16,04,000)
Cost of Production 1,83,78,400 94.73
Add: Value of opening finished stock 9,60,000
Less: Value of closing finished stock (Rs 94.73 × 44,000) (41,68,120)
Cost of Goods Sold 1,51,70,280 94.81
Office and administration expenses paid 26,52,000 16.58
Travelling allowance paid to office staffs 1,21,000 0.75
Selling expenses 6,46,000 4.04
Cost of Sales 1,85,89,280 116.18
Add: Profit 32,80,461 20.50
2,18,69,741 136.68

A-16
Statement of Cost for the month of February, 2022
Particulars Amount (Rs) Amount (Rs)
(i) Cost of material Consumed:
Raw materials purchased (Rs 3,00,000 - Rs 60,000) 2,40,000
Carriage inwards 30,000
Add: Opening stock of raw materials 1,20,000
Less: Closing stock of raw materials (45,000) 3,45,000
Direct Wages 1,80,000
Direct expenses:
Cost of special drawing 45,000
Hire charges paid for Plant (Direct) 36,000 81,000
(ii) Prime Cost 6,06,000
Carriage on return 9,000
Store overheads (10% of material consumed) 34,500

GMTESTSERIES.COM®
Factory overheads (20% of Prime cost) 1,21,200
Additional expenditure for rectification of defective 3,240 1,67,940
products (refer working note)
Gross Factory cost 7,73,940
Add: Opening value of W-I-P 75,000
Less: Closing value of W-I-P (36,000)
(iii) Works/ Factory Cost 8,12,940
Less: Realisable value on sale of scrap (7,500)
(iv) Cost of Production 8,05,440
Add: Opening stock of finished goods --
Less: Closing stock of finished goods --
Cost of Goods Sold 8,05,440
Administrative overheads:
Maintenance of office building 3,000
Salary paid to Office staff 37,500
Legal Charges 3,750 44,250
Selling overheads:
Expenses for participation in Industrial exhibition 12,000 12,000
Distribution overheads:
Depreciation on delivery van 9,000
Warehousing charges 2,250 11,250
(v) Cost of Sales 8,72,940
Working Notes:
1. Number of Rectified units
Total Output 8,000 units
Less: Rejected 10% 800 units
Finished product 7,200 units
Rectified units (10% of finished product) 720 units
2. Proportionate additional expenditure on 720 units

GMTESTSERIES.COM®
= 20% of proportionate direct wages
= 0.20 x (Rs 1,80,000/8,000) x 720
= Rs 3,240

A-17
Cost Sheet
Particulars Units Amount
Material
Opening stock 1,000 90,00,000
Add: Purchases 49,000 44,10,00,000
less: Closing stock (1,750) (1,57,50,000)
48,250 43,42,50,000
Less: Normal wastage of material realized @ Rs 5,400 per unit (250) (13,50,000)
Material consumed 43,29,00,000
Direct employee’s wages and allowances 6,88,50,000
Direct expenses – Royalty paid for production 3,64,50,000
Prime cost 48,000 53,82,00,000
Factory overheads – Consumable stores, depreciation etc. 3,42,00,000
Gross Works Cost 48,000 57,24,00,000
Add: Opening WIP 2,000 1,75,50,000
Less: Closing WIP (1,000) (94,50,000)
Factory/Works Cost 49,000 58,05,00,000
Administration Overheads related to production 3,15,00,000
R&D expenses and Quality control cost 2,10,60,000
Add: Primary packaging cost @ Rs 1,440 per unit 7,05,60,000
Cost of production 49,000 70,36,20,000
Selling expenses 4,84,30,800

GMTESTSERIES.COM®
Cost of maintaining website for online sale 60,75,000
Secondary packaging cost @ Rs 225 per unit 49,000 1,10,25,000
Cost of sales 76,91,50,800
Add: Profit @ 20% on sales of 25% of cost 19,22,87,700
Sales value 96,14,38,500

A-18
Working Notes:
(i) Overhead recovery rate per direct labour hour:
Budgeted factory overheads : Rs 6,75,000
Budgeted direct labour hours : 4,50,000
Overhead recovery rate : = Budgeted factory overheads/Budgeted direct labour
hours
: = Rs 6,75,000/4,50,000 hours
= Rs 1.50 per direct labour

(ii) Direct wage rate per hour :

Direct labour cost of WIP : Rs 3,000
(on 31st October 2021)
Direct labour hours of WIP : 1,200 hours
Direct wage rate per hour : = Direct labour cost on WIP/Direct labour hours on WIP
= Rs 3,000/1,200 hours
= Rs 2.50

(iii) Total direct wages charged to production:

Total direct labour hours spent on production × Direct wage rate per hour
= 28,200 hours × Rs 2.50 = Rs 70,500

GMTESTSERIES.COM®
(a) Material purchased during October, 2021
Rs
Payment made to creditors 1,05,000
Add: Closing balance in the account of creditors for purchase 15,000
Less: Opening balance (30,000)
Material Purchased 90,000

(b) Cost of finished goods in October, 2021

Rs
Cost of goods sold during the month 1,95,000
Add: Closing finished goods inventory 66,000
Less: Opening finished goods inventory (75,000)
Cost of goods completed during the month 1,86,000

(c) Overhead applied to production in October, 2021

= 28,200 hours × Rs 1.50 = Rs 42,300

(d) Balance of Work-in-Process on 31st October, 2021

Rs
Direct material cost 6,000
Direct labour cost 3,000
Overheads (Rs 1.50 × 1,200 hours) 1,800
10,800

(e) Direct material consumed during October, 2021 = Rs 78,000

(Refer to following Accounts)

GMTESTSERIES.COM®
 Work in Process Control A/c
Rs Rs
To Balance b/d 6,000 By Finished goods control A/c 1,86,000
[Refer (b) above]
To Wages Control A/c 70,500 By Balance c/d 10,800
[Refer working note (iii)] [Refer (d) above]
To Factory OH Control A/c 42,300
[Refer (c) above]
To Material consumed 78,000
(Balancing fig.)
1,96,800 1,96,800

(f) Balance of Stores Control Account on 31st October, 2021 = Rs 66,000

(Refer to following Accounts)
Stores Ledger Control Account
Rs Rs
To Balance b/d 54,000 By Work-in-process control A/c 78,000
[Refer (e) above]
To Payables (Creditors) A/c 90,000 By Balance c/d 66,000
[Refer (a) above] (Balancing fig.)
1,44,000 1,44,000

(g) Over-absorbed or under-absorbed overheads for October, 2021: Balance in Factory

Overhead Account below showing that Rs 2,700 is under-absorbed

Factory Overhead Account

Rs Rs
To Bank A/c 45,000 By Work-in-process Control 42,300
A/c (Factory OH applied)

GMTESTSERIES.COM®
 By Costing P/L A/c (Under absorbed) 2,700
45,000 45,000

A-19 Journal Entries are as follows:

Dr. Cr.
Stores Ledger Control A/c Dr. 6,00,000
To Payables (Creditors) A/c 3,00,000
To Cash or Bank 3,00,000
Work-in-Process Control A/c Dr. 4,00,000
To Stores Ledger Control A/c 4,00,000
Wages Control A/c Dr. 2,00,000
To Bank A/c 2,00,000
Factory Overhead Control A/c Dr. 1,00,000
To Wages Control A/c 1,00,000
Work-in-Process Control A/c Dr. 1,00,000
To Wages Control A/c 1,00,000
Factory Overhead Control A/c Dr. 80,000
To Bank A/c 80,000
Work-in-Process Control A/c Dr. 1,00,000
To Factory Overhead Control A/c 1,00,000
Selling and Dist. Overhead Control A/c Dr. 40,000
To Bank A/c 40,000
Finished Goods Control A/c Dr. 5,00,000
To Work-in-Process Control A/c 5,00,000
Cost of Sales A/c Dr. 5,40,000
To Finished Goods Control A/c 5,00,000
To Selling and Distribution Control A/c 40,000
Receivables (Debtors) A/c Dr. 3,75,000

GMTESTSERIES.COM®
Bank or Cash A/c 3,75,000
To Sales A/c 7,50,000
Bank A/c Dr. 2,00,000
To Receivables (Debtors) A/c 2,00,000
Payables (Creditors) A/c Dr. 2,00,000
To Bank A/c 2,00,000

A-20 (i)
Statement of Profit as per financial records
(for the year ended March 31, 2022)
Rs Rs
To Opening Stock: By Sales 41,60,000
Finished Goods 1,48,750 By Closing stock:
Work-in-process 64,000 Finished Goods 82,500
To Raw materials consumed 15,60,000 Work-in-Process 77,334
To Direct labour 9,00,000 By Rent received 36,000
To Factory overheads 6,00,000 By Interest received 90,000
To Goodwill written off 2,00,000
To Administration overheads 5,90,000
To Selling & Distribution 1,22,000
overheads
To Dividend paid 1,70,000
To Bad debts 24,000
To Profit 67,084
44,45,834 44,45,834

GMTESTSERIES.COM®
 Statement of Profit as per costing records
(for the year ended March 31, 2022)
Rs Rs
Sales revenue (14,500 units) (A) 41,60,000
Cost of Sales:
Opening stock (875 units x Rs 208) 1,82,000
Add: Cost of production of 14,000 units (Refer to working Note 35,84,000
1 & 2)
Less: Closing stock (96,000)
(Rs 35,84,000 × 375 units)/14,000 units
Production cost of goods sold (14,500 units) 36,70,000
Selling & Distribution overheads (14,500 units x Rs 8) 1,16,000
Cost of Sales: (B) 37,86,000
Profit: {(A) – (B))} 3,74,000

(ii)
Statement of Reconciliation
(Reconciling the profit as per costing records with the profit as per financial records)
Rs Rs
Profit as per Cost Accounts 3,74,000
Add: Admin. Overheads over absorbed 7,333
(Rs 5,97,333 – Rs 5,90,000)
Opening stock overvalued (Rs 1,82,000 - Rs 1,48,750) 33,250
Interest received 90,000
Rent received 36,000 1,66,583
5,40,583
Less: Factory overheads under recovery 60,000
(Rs 6,00,000 - Rs 5,40,000)
Selling & Distribution overheads under recovery 6,000

GMTESTSERIES.COM®
 (Rs 1,22,000 - Rs 1,16,000)
Closing stock overvalued (Rs 96,000 - Rs 82,500) 13,500
Goodwill written off 2,00,000
Dividend 1,70,000
Bad debts 24,000 4,73,500
Profit as per financial accounts 67,083

Working Notes:
1. Number of units produced Units
Sales 14,500
Add: Closing stock 375
Total 14,875
Less: Opening stock 875
Number of units produced 14,000
2. Cost Sheet
Rs Rs
Raw Materials consumed 15,60,000
Direct labour 9,00,000
Prime cost 24,60,000
Factory overheads (60% of direct wages) 5,40,000
Factory cost 30,00,000
Add: Opening work-in-process 64,000
Less: Closing work-in-process 77,334
Factory cost of goods produced 29,86,666
Administration overheads (20% of factory cost) 5,97,333
Cost of production of 14,000 units 35,83,999
Cost of production per unit: = Total Cost of Production/No. of units produced
= Rs 35,83,999/14,000 units
= Rs 256

GMTESTSERIES.COM®
A-21
(i)
Statement of equivalent production
Particulars Input Particulars Output Equivalent Production
Units Units Sugarcane Labour & O.H.
% Units % Units
Opening WIP 4,500 Completed and 39,500 100 39,500 100 39,500
transferred to
Process - II
Units 1,00,000 Normal Loss 55,000 -- -- -- --
introduced (55%* of
1,00,000)
Abnormal loss 1,000 100 1,000 80 800
Closing WIP 9,000 100 9,000 80 7200
1,04,500 1,04,500 47,500 47,500

* 100 kg of sugarcane extracts only 45 litre of juice.

Thus, normal loss = 100 – 45 = 55%

(ii) Statement showing cost for each element

Particulars Sugarcane Labour Overhead Total
Rs Rs Rs Rs
Cost of opening work-in-process 50,000 15,000 45,000 1,10,000
Cost incurred during the month 5,00,000 2,00,000 6,00,000 13,00,000
Total cost: (A) 5,50,000 2,15,000 6,45,000 14,10,000
Equivalent units: (B) 49,500 47,500 47,500
Cost per equivalent unit: (C) = (A ÷ B) 11.111 4.526 13.579 29.216

(iii) Statement of Distribution of cost

GMTESTSERIES.COM®
 Amount (Rs) Amount (Rs)
1. Value of units completed and transferred 11,54,032
(39,500 units × Rs 29.216)
2. Value of Abnormal Loss:
- Sugarcane (1,000 units × Rs 11.111) 11,111
- Labour (800 units × Rs 4.526) 3,621
- Overheads (800 units × Rs 13.579) 10,863 25,595
3. Value of Closing W-I-P:
- Sugarcane (9,000 units × Rs 11.111) 99,999
- Labour (7,200 units × Rs 4.526) 32,587
- Overheads (7,200 units × Rs 13.579) 97,769 2,30,355

(iv) Process-I A/c

Particulars Units Rs Particulars Units Rs
To Opening W.I.P: By Normal Loss 55,000 --
- Sugarcane 4,500 50,000 By Abnormal loss [Rs 25,595 1,000 25,613
+ Rs 18 (difference due
to approximation)]
- Labour -- 15,000 By Process-II A/c 39,500 11,54,032
- Overheads -- 45,000 By Closing WIP 9,000 2,30,355
To Sugarcane 1,00,000 5,00,000
introduced
To Direct Labour 2,00,000
To Overheads 6,00,000
104,500 14,10,000 104,500 14,10,000

A-22
(i) Calculation of equivalent units of production:

GMTESTSERIES.COM®
 Input Details Units Output Units Material Conversion
Particulars cost
% Units % Units
Beginning WIP 22,400 From 22,400 50 11,200 70 15,680
beginning WIP
Unit Introduced 1,40,000 Completed output 1,06,400 100 1,06,400 100 1,06,400
Closing W-I-P 33,600 80 26,880 30 10,080
Total 1,62,400 Total 1,62,400 1,44,480 1,32,160

(ii) Calculation of cost per equivalent unit for conversion costs

Particular
Direct labour Rs 9,14,400
factory overhead Rs 19,55,800
Total Rs 28,70,200
Equivalent units 1,32,160 units
Cost per equivalent unit Rs 21.72

A-23
Process A Account
Particulars Tones Amount Particulars Tones Amount
To Materials 1,000 20,000 By Weight Loss 20 --
To Wages 4,000 By Scrap 80 160
To Direct Expenses 3,160 By Process B 540 16,200
By Warehouse 360 10,800
Total 1,000 27,160 Total 1,000 27,160

GMTESTSERIES.COM®
 27,160 – 160
Cost per Tonne =
1,000−20−80

= 27,000/900
= Rs 30 per ton
Process B Account
Particulars Tones Amount Particulars Tones Amount
To Process A 540 16,200 By Weight Loss 16 --
To Materials 260 3,900 By Scrap 64 256
To Wages 3,000 By Process C 360 12,600
To Direct Expenses 2,356 By Warehouse 360 12,600
Total 800 25,456 Total 800 25,456

25,456−256
Cost per Tonne =
800−16−64
= 25,200/720
= Rs 35 per ton
Process C Account
Particulars Tones Amount Particulars Tones Amount
To Process B 360 12,600 By Weight Loss 10 --
To Materials 140 1,400 By Scrap 40 240
To Wages 2,000 By Warehouse 450 17,100
To Direct Expenses 1,340
Total 17,340 Total 500 17,340

17,340−240
Cost per Tonne = 500−10−40

= 17,100/450
= Rs 38 per ton

GMTESTSERIES.COM®
A-24
(i) Estimated Net Realisable Value Method:
Buttermilk Amount (Rs) Butter Amount (Rs)
Sales Value 8,40,000 76,80,000
(Rs 30 × 28 × 1000) (480 × 16 × 1000)
Less: Post split-off cost (Further - (1,20,000)
processing cost)
Net Realisable value 8,40,000 75,60,000
Apportionment of Joint Cost of Rs 5,10,000 45,90,000
51,00,000* in ratio of 1:9
* [(Rs 100 × 50 × 1000) + Rs 1,00,000] = Rs 51,00,000
(ii) Incremental revenue from further processing of Butter into Ghee
(Rs 480 × 16 × 1000 - Rs 360 × 20 × 1000) Rs 4,80,000
Less: Incremental cost of further processing of Butter into Ghee Rs 1,20,000
Incremental operating income from further processing Rs 3,60,000
The operating income of ‘Buttery Butter’ will be reduced by Rs 3,60,000 in February if it sells 20
tonne of Butter to ‘Healthy Bones’, instead of further processing of Butter into Ghee for sale.
Thus, ‘Buttery Butter’ is advised not to accept the offer and further process butter to make
Ghee itself.

A-25
Calculation of Net joint costs to be allocated:
Particulars Amount
Joint Costs 15,00,000
Less: Net Realizable value of by-product (75,000 x 5) 3,75,000
Net Joint costs to be allocated 11,25,000

Therefore, amount of joint product cost that Mili Ltd. would allocated to the product – R by
suing the physical volume method to allocated joint production costs:
= Physical quantity of Product-R / Total Quantity x Net joint costs to be allocated

GMTESTSERIES.COM®
= 1,80,000 units/2,70,000 units x 11,25,000 = Rs 7,50,000

A-26
Product A
As the question says that "Products B and C must be processed further before they can be
sold", it means Product A can be sold at the split-off point.
Cost to process Product A after the split-off point = Rs 6,00,000
Additional revenue to be earned by processing further = Rs 3,00,000
(Rs 100 increase in selling price per
unit x 3,000 units)
Therefore, Product A will not be processed further, and the sales value at split-off for A will be
used for allocating the joint costs.
Sales value at the split-off for A = Rs 6,00,000
(Rs 200 × 3,000 units)
Product B
Since Product B must be processed further, we use its net realizable value for the joint cost
allocation.
Net realizable value of Product B = Rs 15,00,000
[(Rs 350 × 6,000 units) – Rs 6,00,000
further processing costs]
Product C
Product C, the by-product, must also be processed further to be sold.
Net realizable value of Product C = Rs 3,00,000
[(Rs 100 × 9,000 units) – Rs 6,00,000
in further processing costs]
Joint Cost Allocation
Joint production cost = Rs 33,60,000
Since, by -product C is accounted for as reduction to the joint costs, the joint costs to be
allocated

GMTESTSERIES.COM®
 = Rs 30,60,000
(Rs 33,60,000 - Rs 3,00,000 NRV of Product C)
Allocation of joint costs between Product A and B will be on the basis of
Rs 6,00,000: Rs 15,00,000
Joint Cost allocated to Product A = Rs 30,60,000 x Rs 6,00,000/ Rs 21,00,000 = Rs 8,74,286

A-27
Working Notes:
Total Distance (in km.) covered per month
Bus route Km. per trip Trips per day Days per month Km. per month
Delhi to Chandigarh 250 2 8 4,000
Delhi to Agra 210 2 10 4,200
Delhi to Jaipur 270 2 6 3,240
11,440

Passenger-km. per month

Total seats available Capacity utilised Km. Passenger-km
per month (at 100% (%) Seats per per month
capacity) trip
Delhi to Chandigarh & 800 90 720 250 1,80,000
Back (50 seats × 2 trips (720 seats × 250
× 8 days) km.)
Delhi to Agra & Back 1,000 85 850 210 1,78,500
(50 seats × 2 trips (850 seats × 210
× 10 days) km.)
Delhi to Jaipur & Back 600 100 600 270 1,62,000
(50 seats × 2 trips (600 seats × 270
× 6 days) km.)
Total 5,20,500

GMTESTSERIES.COM®
Monthly Operating Cost Statement
Rs Rs
(i) Running Costs
Diesel {(11,440 km ÷ 4 km) × Rs 56} 1,60,160
Lubricant oil {(11,440 km ÷ 100) × Rs 10} 1,144 1,61,304
(ii) Maintenance Costs
Repairs & Maintenance 1,000
(iii) Standing charges
Salary to driver 24,000
Salary to conductor 21,000
Salary of part-time accountant 5,000
Insurance (Rs 4,800 ÷12) 400
Road tax (Rs 15,915 ÷12) 1,326.25
Permit fee 315
Depreciation {( Rs 12,00,000 × 20%) ÷ 12} 20,000 72,041.25
Total costs per month before Passenger Tax (i) + (ii) + (iii) 2,34,345.25
Passenger Tax* 93,738.10
Total Cost 3,28,083.35
Add: Profit* 1,40,607.15
Total takings per month 4,68,690.50

*Let, total takings be X then

X = Total costs per month before passenger tax + 0.2 X (passenger tax) + 0.3 X (profit)
X = Rs 2,34,345.25 + 0.2 X + 0.3 X
0.5 X = Rs 2,34,345.25 or, X = Rs 4,68,690.50
Passenger Tax = 20% of Rs 4,68,690.50 = Rs 93,738.10
Profit = 30% of Rs 4,68,690.50 = Rs 1,40,607.15

Calculation of Rate per passenger km. and fares to be charged for different routes
Rate per Passenger-Km = Total takings per month/Total passenger−Km. per month

GMTESTSERIES.COM®
 = Rs 4,68,690.50/ 5,20,500 passenger − km.
= Rs 0.90
Bus fare to be charged per passenger
Delhi to Chandigarh = Rs 0.90 × 250 km = Rs 225.00
Delhi to Agra = Rs 0.90 × 210 km = Rs 189.00
Delhi to Jaipur = Rs 0.90 × 270 km = Rs 243.00

A-28
Calculation of relative costs of three proposals and their ranking
I II III
Use of Use of own Use of
company’s car car hired car
per annum per km. per km. per km.
Rs Rs Rs Rs
Reimbursement -- 10.00 9.00*
Fixed cost:
Insurance 1,200 0.06 0.06 --
Taxes 800 0.04 -- 0.04
Depreciation 1,04,000 5.20 -- --
(Rs 6,00,000 – Rs 80,000) ÷ 5 year
Running and Maintenance Cost:
Petrol -- 6.00 -- 6.00
Repairs and Maintenance -- 0.20 -- --
Tyre -- 0.12 -- 0.12
Total cost per km. -- 11.62 10.06 15.16
Cost for 20,000 km. 2,32,400 2,01,200 3,03,200
Ranking of proposals II I III

GMTESTSERIES.COM®
* (Rs 1,80,000 ÷ 20,000 km.)
The Second alternative i.e., use of own car by the executive and reimbursement of expenses by
the company is the best alternative from company’s point of view.

A-29
Operating Cost Statement
Particulars Total Cost per
Month (in Rs)
Fixed Charges:
Salary of Drivers (Rs 25,000 × 20 buses) 5,00,000
Salary of Cleaners (Rs 15,000 × 20 buses) 3,00,000
Road Tax (Rs 1,50,000 × 20 buses) 30,00,000
Insurance (Rs 63,36,000/12 months) 5,28,000
Depreciation (48,00,000 × 20% × 20 buses)/12 months 16,00,000
Administrative Overheads (Rs 50,88,000/12 months) 4,24,000
Total (A) 63,52,000
Variable Charges:
Diesel (60,750 km. × Rs 10) 6,07,500
Tyres and Tubes 12,58,040
Lubricants 10,70,000
Repairs 24,70,000
Total (B) 54,05,540
Total Operating Cost (A + B) 1,17,57,540
Add: Passenger tax (Refer to WN-1) 29,39,385
Add: Profit (Refer to WN-1) 48,98,975
Total takings (C) 1,95,95,900
No. of passengers kms. In a month (D) 24,30,000
Cost per passenger km. (C/D) 8.06

Working Notes:

GMTESTSERIES.COM®
1. Let total takings be X then Passenger tax and profit will be as follows:
X = Rs 1,17,57,540 + 0.15X + 0.25X
X – 0.40X = Rs 1,17,57,540
X =1,17,57,540/0.60
= Rs 1,95,95,900
Passenger tax = Rs 1,95,95,900 × 0.15 = Rs 29,39,385
Profit = Rs 1,95,95,900 × 0.25 = Rs 48,98,975

2. Total Kilometers to run during the month of November, 2021

= (112.50 km. × 30 days × 20 Buses) x 90% = 60,750 Kilometers

3. Total passenger Kilometers during the month of November, 2021

= 60,750 km. × 40 passengers = 24, 30,000 Passenger- km.

A-30
(i) Total Cost of production = Rs 2,120 + 60 + 20 = Rs 2,200
Calculation of Economic Batch Quantity (EBQ):
2 × 90,000 × Rs 1,500
EBQ = 5% of Rs 2,200

27,00,00,000
= = 1,567 columns.
Rs 110

(ii) Calculation of Extra Cost due to processing of 18,000 columns in a batch

When run size is 1,567 When run size is 18,000
columns columns
Total set up cost No. of setups = 90,000/18,000 × Rs 1,500
= 90,000/1567 = 57.43 (58 = Rs 7,500
setups)
= 90,000/1,567× Rs 1,500

GMTESTSERIES.COM®
 = Rs 87,000
Total Carrying cost ½ × 1,567 × Rs 110 ½ × 18,000 × Rs 110
= Rs 86,185 = Rs 9,90,000
Total Cost Rs 1,73,185 Rs 9,97,500
Thus, extra cost = Rs 9, 97,500 – Rs 1, 73,185 = Rs 8, 24,315

A-31
(i) Calculation of Overhead Recovery Rate:
Factory Overhead in 2020 −21
Factory Overhead Recovery Rate = Direct x 100
labour cost in 2020 −21

= Rs 30,80,000/ Rs 90,50,000 x 100

= 34% of Direct labour
Administrative Overhead in 2020 −21
Administrative overhead Recovery Rate = x 100
Factory cost in 2020 −21 (W .N.)

= Rs 20,50,400/Rs 2,96,80,000 x 100

= 6.91% of Factory Cost
Working Note: Calculation of Factory Cost in 2020-21
Particulars Amount
Opening Stock of Material 15,00,000
Add: Purchase of Material 1,80,50,000
Less: Closing Stock of Material (20,00,000))
Material Consumed 1,75,50,000
Direct Labour 90,50,000
Prime Cost 2,66,00,000
Factory Overhead 30,80,000
Factory Cost 2,96,80,000

(ii) Job Cost Sheet for the order received in 2021-22

Particulars Amount
Material 80,00,000

GMTESTSERIES.COM®
Labour 40,50,000
Factory Overhead (34% of Rs 40,50,000) 13,77,000
Factory Cost 1,34,27,000
Administrative Overhead (6.91% of Rs 1,34,27,000) 9,27,806
Cost of delivery 9,50,000
Total Cost 1,53,04,806
Add: Profit @ 25% of Sales or 33.33% of cost 51,01,602
Sales value (Price to be quoted for the order) 2,04,06,408
Hence the price to be quoted is Rs 2,04,06,408.

A-32 Statement showing selling price per unit of Batch number ‘PS143’
Particulars Amount Amount
Direct Materials 2,00,000
Direct Labour
Department A 800 labour hours @ Rs 100 per hour 80,000
Department B 1400 labour hours @ Rs 120 per hour 1,68,000 2,48,000
Factory overheads
Department A 800 labour hours @ Rs 140 per hour 1,12,000
Department B 1400 labour hours @ Rs 80 per hour 1,12,000 2,24,000
Factory Cost 6,72,000
Add: Administrative overheads (10% of selling price) 89,600
(6,72,000/75% x 10%)
Cost of production 7,61,600
Add: Profit (15% of selling price) (6,72,000/75% x 15%) 1,34,400
Selling price of batch no ‘PS 143’ 8,96,000
Selling price per unit (8,96,000/ 1000 units) 896
Alternatively, selling price calculation: - Selling price assume X
25% = (X – factory cost) / X

GMTESTSERIES.COM®
or 0.25 X = X- 6,72,000
or 0.75 X = 6,72,000
hence X = Rs 8,96,000

A-33
Factory Cost Statement of Completed Job.
Month Job No. Materials Direct Factory overheads Factory
Labour (80% of direct cost
labour cost)
Rs Rs Rs Rs Rs
September 115 1,325 800 640 2765
October 115 -- 125 100 225
Total 1,325 925 740 2,990
September 118 810 500 400 1,710
October 118 515 330 264 1,109
Total 1,325 830 664 2,819
September 120 765 475 380 1,620
October 120 665 245 196 1,106
Total 1,430 720 576 2,726

Invoice Price of Complete Job

Job No. 115 (Rs) 118 (Rs) 120 (Rs)
Factory cost 2,990 2,819.00 2,726.00
Administration and selling overheads @ 10% 299.00 281.90 272.60
of factory cost
Total cost 3,289.00 3,100.90 2,998.60
Profit (20% of total cost) 657.80 620.18 599.72
Invoice Price 3,946.80 3,721.08 3,598.32

GMTESTSERIES.COM®
Assumption: - Indirect labour costs have been included in the factory overhead which has been
recovered as 80% of the labour cost.

A-34
Contract Account (2020-21)
Particulars Rs Particulars Rs
To Material issued 90,000 By Material sold 18,125
To Wages Paid 75,000 By Plant sold 2,875
Add: Outstanding 6,250 81250 By Plant at site c/d 7,750
To Plant 25,000 By Material at site c/d 4,250
To Sundry Expenses 7,250 By Work-in-progress c/d
Less: Prepared 625 6,625 Work certified 2,18,750
(Rs 1,75,000 ÷ 80%)
To Establishment charges 14,625 Work uncertified 27,375 2,46,125
To Costing P & L A/c 3,125
(Rs 18,125 - Rs 15,000)
To Notional profit (Profit for the 58,500
year)
2,79,125 2,79,125

Calculation of Estimated Profit

Rs Rs
(1) Material consumed (90,000 + 3,125 –18,125) 75,000
Add: Further consumption 85,750 1,60,750
(2) Wages: 81,250
Add: Further cost (87,325 – 6,250) 81,075
Add: Outstanding 8,300 1,70,625
(3) Plant used (25,000 – 2,875) 22,125
Add: Further plant introduced 31,250

GMTESTSERIES.COM®
 Less: Closing balance of plant (3,750) 49,625
(4) Establishment charges 14,625
Add: Further charges for nine months (14,625 × 9/12) 10,969 25,594
(5) Sundry expenses 7,250
Add: Further expenses 6,875 14,125
(6) Reserve for contingencies 10,800
Estimated Profit (balancing figure) 68,481
Contract price 5,00,000

A-35
Contract Account
Particulars Rs Particulars Rs
To Material issued 12,55,000 By Machine (Working note 1) 12,30,000
To Wages 28,28,000 By Material (In hand) 1,77,000
To Foreman’s salary 4,06.500 By Works cost (balancing figure) 52,45,000
To Machine 13,00,000
To Supervisor’s Salary (Rs 40,000 1,80,000
x 9)/2
To Administrative charges 6,82,500
66,52,000 66,52,000
To Works cost 52,45,000 By Value of work certified 50,00,000
To Costing P&L A/c (Notional 10,66,250 By Cost of work uncertified 13,11,250
profit) (Working Note 2)
63,11,250 63,11,250

Working notes:
1. Written down value of Machine:

GMTESTSERIES.COM®
 Rs 13,00,000 − 75,000 4.8 months
Depreciation = x = Rs 70,000
7 years 12 𝑚𝑜𝑛𝑡 ℎ𝑠

Hence the value of machine after the period of 4.8 month = Rs 13,00,000 - Rs 70,000 = Rs
12,30,000

2. The cost of 2/3rd of the contract is Rs 52,45,000

∴ Cost of 100% of the contract is Rs 52,45,000/2 x 3 = Rs 78,67,500
∴ Cost of 50% of the contract which has been certified by the architect is Rs 39,33,750. Also, the
cost of 1/3rd of the contract, which has been completed but not certified by the architect is Rs
13,11,250.

A-36
(i) Statement showing Flexible Budget and its comparison with actual
Master Flexible Budget (at Actual for Variance
Budget standard cost) 72,000
80,000 units Per unit 72,000 units units
A Sales 3,20,000 4.00 2,88,000 2,80,000 8,000(A)
B Direct material 80,000 1.00 72,000 73,600 1,600(A)
C Direct wages 1,20,000 1.50 1,08,000 1,04,800 3,200(F)
D Variable overheads 40,000 0.50 36,000 37,600 1,600(A)
E Total variable cost 2,40,000 3.00 2,16,000 2,16,000 -
F Contribution 80,000 1.00 72,000 64,000 -
G Fixed overhead 40,000 0.50 40,000 39,200 800(F)
H Net profit 40,000 0.50 32,000 24,800 7,200(A)
(ii) Variances:
Sales Price Variance = Actual Quantity (Standard Rate – Actual Rate)
= 72,000 units (Rs 4.00 - Rs 3.89)
= Rs 8,000 (A)
Direct Material Cost Variance = Standard Cost for Actual output – Actual cost
= Rs 72,000 - Rs 73,600 = Rs 1,600 (A)

GMTESTSERIES.COM®
Direct Material Price Variance = Actual Quantity (Standard rate – Actual Rate)
= 78,400 units (Rs 1.00 − Rs 73,600/78,400 units)
= Rs 4,800 (F)
Direct Material Usage Variance = Standard Rate (Std. Qty. – Actual Quantity)
= Rs 1 (72,000 units – 78,400 units)
= Rs 6,400 (A)
Direct Labour Cost Variance = Standard Cost for actual output – Actual Cost
= Rs 1,08,000 - Rs 1,04,800 = Rs 3,200 (F)
Direct Labour Rate Variance = Actual Hour (Std Rate – Actual Rate)
= 70,400 hours (Rs 1.5 −Rs 1,04,800/70,400 hours)
= Rs 800 (F)
Direct Labour Efficiency = Standard Rate (Standard Hour – Actual Hour)
= Rs 1.5 (72,000 – 70,400) = Rs 2,400 (F)
Variable Overhead = Recovered variable overhead – Actual variable overhead
= (72,000 units × Rs 0.50) – Rs 37,600
= Rs 1,600(A)
Fixed Overhead Expenditure = Budgeted fixed overhead – Actual fixed overhead
= Rs 40,000 – Rs 39,200 = Rs 800 (F)
Sales Volume (Profit) Variance = Std. Profit (Budgeted Quantity – Actual Quantity)
= Rs 0.50 (80,000 – 72,000) = Rs 4,000(A)

A- 37
(a) Decision making Cost Sheet (per unit)
Particulars (Amount in Rs) (Amount in Rs)
Direct material 40 m2 at Rs 10.60 per m2 424
Direct wages:
Bonding department – 48 hours at Rs 25 per hour 1,200
Finishing department – 30 hours at Rs 19 per hour 570 1,770

GMTESTSERIES.COM®
Prime Cost 2,194
Variable overhead:*
Bonding department – 48 hours at Rs 1.50 per hour 72
Finishing department – 30 hours at Rs 1.00 per hour 30 102
Variable production cost 2,296
Fixed production overhead # 80
Total Production cost 2,376
Selling and distribution cost $ 40
Administration Cost $ 20 60
Total Cost 2,436
Selling price per unit = Rs 2,436 x 100/ 75 = Rs 3,248
Working Notes:
* Variable overhead rates—
Bonding: 15,00,000/ 10,00,000 hours = Rs 1.50
Finishing: 6,00,000/6,00,000 hours = Rs 1.00
# Fixed production overhead rate per unit of output = 15,68,000/ 19,600 units = Rs 80
$ Selling and production cost per unit of output = 7,84,000/ 19,600 units = Rs 40

A-38
Maximum Capacity in a budget period
= 50 Employees × 9 Hrs. × 5 Days × 4 Weeks = 9,000 Hrs.
Budgeted Hours
= 40 Employees × 9 Hrs. × 5 Days × 4 Weeks = 7,200 Hrs.
Actual Hrs
= 6,750 Hrs
Standard Hrs. for Actual Output
= 7,875 Hrs.
Budget No. of Days
= 20 Days (4 Weeks x 5 Days)

GMTESTSERIES.COM®
Actual No. of Days
= 20 – 1 = 19 Days
(i) Efficiency Ratio = Standard Hrs/ Actual Hrs x 100
= 7,875 hours/6,750 hours x 100 = 116.67%
(ii) Activity Ratio = Standard Hrs/Budgeted Hrs x 100
= 7,875 hours/7,200 hours x 100 = 109.375%
(iii) Calendar Ratio = Available working days/ Budgeted working days x 100
= 19 days/ 20 days x 100 = 95%
(iv) Standard Capacity Usage Ratio = Budgeted Hours/ Max. Possible hours in the budgeted
period x 100
= 7,200 hours/ 9,000 hours x 100 = 80%
(v) Actual Capacity Usage Ratio = Actual Hours worked/ Max. Possible working hours in a period
x 100
= 6,750 hours/ 9,000 hours x 100 = 75%
(vi) Actual Usage of Budgeted Capacity Raito = Actual working Hours/ Budgeted Hours x 100
= 6,750 hours/ 7,200 hours x 100 = 93.75%

A-39
Material variances
1. Material cost variance
= (Std. qty for actual output* × Std. price) – (Actual qty. × Actual price)
= (18,000 × 4) – (19,000 × 4.40)
= 72,000 – 83,600 = Rs 11,600 (A)
* Std. qty. for actual output = 1,800 × 10 = 18,000 units
2. Material price variance
= (Std. price – Actual price) × Actual qty.
= (4 - 4.40) × 19,000
= 0.40 × 19,000 = Rs 7,600 (A)

GMTESTSERIES.COM®
3. Material usage variance
= (Std. qty. – Actual qty.) × Std. price
= (18,000 – 19,000) × 4
= 1,000 × 4 = Rs 4,000 (A)
Labour variances
1. Labour cost variance
= (Std. hours for actual output* × Std. price) – Actual cost
= (4,500 × 4) – 24,750
= 18,000 – 24,750 = Rs 6,750 (A)
*Std. hours for actual output = 1,800 × 2.5 = 4,500 hrs.
2. Labour rate variance
= (Std. rate – Actual rate) × Actual hrs.
= (4 – 5) × 4,950 = Rs 4,950 (A)
3. Labour efficiency variance
= (Std. hrs. for actual output – Actual hrs.) × Std. rate
= (4,500 – 4,950) × 4 = Rs 1,800 (A)

A-40
Working Notes:
Budget Actual
1. Working hours per month 24,000 20,160
2. Production units per month 6,000 5,305
= (Budget 24,000 ÷ 4 hrs, Actual given)
3. Standard fixed overhead rate per unit
= Rs 1,44,000 ÷ 6,000 = Rs 24
4. Standard fixed overhead rate per hour
= Rs 1,44,000 ÷ 24,000 = Rs 6
5. Standard fixed overhead rate per day

GMTESTSERIES.COM®
 = Rs 1,44,000 ÷ 25 = Rs 5,760

Fixed Overhead Variances:

Actual Fixed overhead incurred = Rs 1,42,000 (given)
Budgeted fixed overhead for the period = Rs 1,44,000.
Standard fixed overhead for actual production
= (Standard output for actual time × Standard Fixed Overhead per unit)
= 5,305 × Rs 24 = Rs 1,27,320.
Variances:
(i) F.O. Expenditure Variance = (Budgeted fixed overhead – Actual fixed overhead)
= 1,44,000 – 1,42,000 = Rs 2,000 (F)
(ii) Total Volume Variance = (Standard fixed overhead – Budgeted fixed overhead)
= 1,27,320 – 1,44,000 = Rs 16,680 (A)
(iii) Fixed overhead variance = (Standard fixed overhead – Actual Fixed overhead)
= 1,27,320 – 1,42,000 = Rs 14,680 (A)
Alternatively:
Expenditure Variance + Volume Variance = 2,000 (F) + 16,680 (A) = Rs 14,680 (A)
Question - 9

A-41
(i) Material Variances
Budget Std. for actual Actual
Quantity Price Amount Quantity Price Amount Quantity Price Amount
Rs Rs Rs Rs Rs Rs
Material 0.5 60 30 5,000 60 3,00,000 5,700 58 3,30,600

Material Cost Variance = (SQ×SP – AQ ×AP)

3,00,000 – 3,30,600 = Rs 30,600(A)
Material Price Variance = (SP – AP) AQ
(60 -58) 5,700 = Rs 11,400 (F)

GMTESTSERIES.COM®
 Material Usage Variance = (SQ – AQ) SP
(5,000 – 5,700) 60 = Rs 42,000 (A)

(ii) Variable Overheads variances

Variable overhead cost Variance = (Standard variable overhead – Actual Variable Overhead)
Standard Variable Overheads: 10,000 units × 10 = 1,00,000
(1,00,000 – 1,12,200) = Rs 12,200(A)
Variable overhead Efficiency Variance = (Standard Hours – Actual Hours) × Standard Rate per
Hour
Let Actual Hours be ‘X’
(10,000 – X) × 10 = 2,000 (A)
1,00,000 – 10X = -2,000
X = 1,02,000 ÷ 10
Therefore, Actual Hours (X) = 10,200
Variable overhead Expenditure Variance = (Variable Overhead at Actual Hours – Actual
Variable Overheads)
10,200 × 10 – 1,12,200 = Rs 10,200 (A)

(iii) Labour variances

Budget Std. for actual Actual
Hours Rate Amount Hours Rate Amount Hours Rate Amount
Rs Rs Rs Rs Rs Rs
Labour 1 20 20 10,000 20 2,00,000 10,200 22 2,24,400

Actual Rate = Rs 2,24,400 ÷ 10,200 hours = Rs 22

Labour Cost Variance = (SH × SR) – (AH × AR)
10,000 × 20 – 10,200 × 22 = Rs 24,400 (A)
Labour Rate Variance = (SR – AR) × AH
(20 – 22) × 10,200 = Rs 20,400 (A)
Labour Efficiency Variance = (SH – AH) × SR
(10,000 – 10,200) × 20 = Rs 4,000 (A)

GMTESTSERIES.COM®
A-42
1. Calculation of Standard Man hours
When 100 workers work for 1 hour, the standard output is 50 units.
Standard man hours per unit = 100 hours/ 50 𝑢𝑛𝑖𝑡𝑠 = 2 hours per unit
2. Calculation of standard man hours for actual output:
= 1,920units x 2 hours = 3,840 hours.

3. Calculation of actual cost

Types of No of Actual Rate Amount Idle Hours (5% Actual hours
Workers Workers Hours Paid of hours paid) Worked
Group ‘A’ 10 400 12.40 4,960 20 380
Group ‘B’ 30 1,200 12 14,400 60 1,140
Group ‘C’ 60 2,400 11.40 27,360 120 2,280
100 4,000 46,720 200 3,800

4. Calculation of Standard wage Rate:

Labour Efficiency Variance = 480F
(Standard hours for Actual production – Actual Hours) x SR = 480F
(3,840 – 3,800) x SR = 480
Standard Rate (SR) = Rs 12 per hour

(i) Total Labour Cost Variance

= (Standard hours x Standard Rate) – (Actual Hours x Actual rate)
= (3,840 x 12) – 46,720 = 640A

(ii) Total Labour Rate Variance

= (Standard Rate – Actual Rate) x Actual Hours
Group ‘A’ = (12 - 12.40) 400 = 160A
Group ‘B’ = (12 - 12) 1,200 =0
Group ‘C’ = (12 – 11.40) 2,400 = 1,440F

GMTESTSERIES.COM®
 1,280F
(iii) Total Labour Gang Variance
= Total Actual Time Worked (hours) × {Average Standard Rate per hour of Standard Gang
-Average Standard Rate per hour of Actual Gang@}
@ on the basis of hours worked
= 3,800 × (12 – (3,840 × 12)/ 3,800)
=0
[Note: As the number of workers in standard and actual is the same, there is no difference in
mix ratio, so labour gang variance will be NIL]

(iv) Total Labour Yield Variance

= Average Standard Rate per hour of Standard Gang × {Total Standard Time (hours) - Total
Actual Time worked (hours)}
= 12 x (3,840 – 3,800)
= 480F

(v) Total Labour idle time variance

= Total Idle hours x standard rate per hour
= 200 hours x 12
= 2,400A

Q-43 Calculation of P/V Ratio

(Rs 000)
Sales Profit
North: Actual 1,100 135
Add: Under budgeted 400 180
Budgeted 1,500 315
P/V ratio =Difference in Profit/ Difference in Sales
= (315 – 135)/ (1,500−1,100) × 100 =

GMTESTSERIES.COM®
 = 180/ 400× 100 = 45%
(Rs 000)
Sales Profit
East: Actual 1,450 210
Add: over budgeted (150) (90)
Budgeted 1,300 120

(Rs 000)
Sales Profit
South: Actual 1,200 330
Add: Under budgeted 200 110
Budgeted 1,400 440

P/V ratio = 110/ 200 × 100 = 55%

(i) Calculation of fixed cost

Fixed Cost = (Actual sales × P/V ratio) – Profit
North = (1,100 × 45%) – 135 = 360
East = (1,450 × 60%) – 210 = 660
South = (1,200 × 55%) – 330 = 330
Total Fixed Cost 1,350

(ii) Calculation of break-even sales (in Rs’ 000)

B.E. Sales = Fixed Cost/ P/V ratio
North = 360/ 45% = 800
East = 660/ 60% = 1,100
South = 330/ 55% = 600
Total 2,500

A-44 Income Statement (Absorption Costing) for the year ending 30th March

GMTESTSERIES.COM®
 Rs Rs
Sales (1,50,000 units @ Rs 20) 30,00,000
Production Costs:
Variable (1,60,000 units @ Rs 11) 17,60,000
Add: Increase 35,000 17,95,000
Fixed (1,60,000 units @ Rs 2*) 3,20,000
Cost of Goods Produced 21,15,000
Add: Opening Stock (10,000 units @ Rs 13)* 1,30,000
22,45,000
Less: Closing stock 2,64,375
(Rs 21,15,000/1,60,000 units × 20,000 units)
Cost of Goods Sold 19,80,625
Add: Under absorbed fixed production overhead 40,000
(3,60,000 – 3,20,000)
20,20,625
Add: Non-Production costs:
Variable selling costs (1,50,000 units @ Rs 3) 4,50,000
Fixed selling costs 2,70,000
Total cost 27,40,625
Profit (Sales – Total Cost) 2,59,375
* Working Notes:
1. Fixed production overhead is absorbed at a pre-determined rate based on normal
capacity, i.e. Rs 3,60,000 ÷ 1,80,000 units = Rs 2.
2. Opening stock is 10,000 units, i.e., 1,50,000 units + 20,000 units – 1,60,000 units. It is
valued at Rs 13 per unit, i.e., Rs 11 + Rs 2 (Variable + fixed).

Income Statement (Marginal Costing) for the year ended 30th March
Rs Rs
Sales (1,50,000 units @ Rs 20) 30,00,000

GMTESTSERIES.COM®
Variable production cost (1,60,000 units @ Rs 11 + Rs 35,000) 17,95,000
Variable selling cost (1,50,000 units @ Rs 3) 4,50,000
22,45,000
Add: Opening Stock (10,000 units @ Rs 11) 1,10,000
23,55,000
Less: Closing Stock 2,24,375
( Rs 17,95,000/ 1,60,000 units × 20,000 units)
Variable cost of goods sold 21,30,625
Contribution (Sales – Variable cost of goods sold) 8,69,375
Less: Fixed cost – Production 3,60,000
- Selling 2,70,000 6,30,000
Profit 2,39,375

Reasons for Difference in Profit: Rs

Profit as per absorption costing 2,59,375
Add: Op. stock under –valued in marginal costing (Rs 1,30,000 – 1,10,000) 20,000
2,79,375
Less: Cl. Stock under –valued in marginal closing (Rs 2,64,375 – 2,24,375) 40,000
Profit as per marginal costing 2,39,375

A-45
Let Cx be the Contribution per unit of Product X.
Therefore, Contribution per unit of Product Y = Cy= 4/5Cx= 0.8Cx
Given F1 + F2 = 1,50,000,
F1= 1,800Cx (Break even Volume × Contribution per unit)
Therefore, F2 = 1,50,000 – 1,800Cx.
3,000Cx – F1 = 3,000 × 0.8Cx – F2 or 3,000Cx – F1 =2,400 Cx - F2 (Indifference Point)
i.e., 3,000Cx – 1,800Cx= 2,400Cx – 1,50,000 + 1,800Cx

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i.e., 3,000C x = 1,50,000, Therefore, Cx = Rs 50/- (1,50,000 / 3,000)
Therefore, Contribution per unit of X = Rs 50
Fixed Cost of X = F1 = Rs 90,000 (1,800 × 50)
Therefore, Contribution per unit of Y is Rs 50 × 0.8 = Rs 40 and
Fixed Cost of Y = F2 = Rs 60,000 (1,50,000 – 90,000)
The Value of F1 = Rs 90,000, F2 = Rs 60,000 and X = Rs 50 and Y = Rs 40

A-46
(i) Computation of PV ratio, contribution, profit and break-even sales for existing product mix
Products Total
S T M
Selling Price (Rs) 600 800 400
Less: Variable Cost (Rs) 300 400 240
Contribution per unit (Rs) 300 400 160
P/V Ratio (Contribution/ Selling 50% 50% 40%
price)
Sales Mix 25% 35% 40%
Contribution per rupee of sales 12.5% 17.5% 16% 46%
(P/V Ratio x Sales Mix)
Present Total Contribution (Rs 1,20,00,000 x 46%) Rs 55,20,000
Less: Fixed Costs Rs 36,00,000
Present Profit Rs 19,20,000
Present Break Even Sales (Rs 36,00,000/0.46) Rs 78,26,087

(ii) Computation of PV ratio, contribution, profit and break-even sales for proposed product
mix
Products Total
S T U
Selling Price (Rs) 600 800 600

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Less: Variable Cost (Rs) 300 400 300
Contribution per unit (Rs) 300 400 300
P/V Ratio (Contribution/ Selling 50% 50% 50%
price)
Sales Mix 40% 35% 25%
Contribution per rupee of sales 20% 17.5% 12.5% 50%
(P/V Ratio x Sales Mix)
Proposed Total Contribution (Rs 1,28,00,000 x 50%) Rs 64,00,000
Less: Fixed Costs Rs 36,00,000
Present Profit Rs 28,00,000
Proposed Break Even Sales (Rs 36,00,000/0.50) Rs 72,00,000

A- 47
(i)
Particulars Rs
Variable cost per running hour of Machine MR 10 (Rs 68,750/1100 hours) 62.50
Fixed cost (Rs 50,000/1100 hours) 45.46
Cost of brain scan on Machine MR 10: Rs
Variable machine cost (4 hours x Rs 62.50) 250.00
Special technology 100.00
Total variable cost 350.00
Fixed machine cost (4 hours x Rs 45.46) 181.84
Total cost of a scan 531.84
Total cost of a satisfactory scan (Rs 531.84/0.9) 590.93

(ii) It is given that fixed cost will remain unchanged and thus they are not relevant for the
decision. The relevant costs would be the incremental costs of an additional scan:
Machine MR10: Rs
Variable cost per scan 350.00

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Variable cost per satisfactory scan (Rs 350/0.9) 388.89
Machine MR59: Rs
Variable machine cost per scan (Rs 1,60,000 / 2000 hours x 1.8 hours) 144.00
Special technology 137.50
Variable cost per scan 281.50
Variable cost per satisfactory scan (Rs 281.50/0.94) 299.47
The relevant costs per satisfactory scan are cheaper on machine MR59 and therefore brain
scans should be undertaken on said machine.

Q-48 (a)
Item Direct Indirect Fixed Variable
Electronic monitoring YES YES
Meals for patients YES YES
Nurses’ salaries YES YES
Parking maintenance YES YES
Security YES YES

(b)
Cost Control Cost Reduction
1. Cost control aims at maintaining the costs in 1. Cost reduction is concerned with reducing
accordance with the established standards. costs. It challenges all standards and
endeavours to improvise them continuously
2. Cost control seeks to attain lowest possible 2. Cost reduction recognises no condition as
cost under existing conditions. permanent, since a change will result in lower
cost.
3. In case of cost control, emphasis is on past 3. In case of cost reduction, it is on present
and present and future.
4. Cost control is a preventive function 4. Cost reduction is a corrective function. It
operates even when an efficient cost control

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 system exists
5. Cost control ends when targets are 5. Cost reduction has no visible end and is a
achieved. continuous process.

(c)
Basis Cost Accounting Management Accounting
(i) Nature It records the quantitative It records both qualitative and
aspect only. quantitative aspect.
(ii) Objective It records the cost of It provides information to
producing a product and management for planning and co-
providing a service. ordination.
(iii) Area It only deals with cost It is wider in scope as it includes
Ascertainment financial accounting, budgeting,
taxation, planning etc.
(iv) Recording of It uses both past and present It is focused with the projection
data figures. of figures for future
(v) Development Its development is related to Its development is related to the need
industrial revolution. of modern business world.
(vi) Rules and It follows certain principles It does not follow any specific rules
Regulation and procedures for recording and regulations.
cots of different products.

(d) Cost units are usually the units of physical measurement like number, weight, area, volume,
length, time and value.

Industry or Product Cost Unit Basis

Automobile Number
Steel Ton
Cement Ton/per bag etc.
Chemicals Litre, gallon, Kilogram, ton etc.

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Power Kilo-watt hour (kWh)
Transport Passenger - kilometer

A-49 Computation of Total Cost of material purchased of SKY Manufacturing Company

Particulars Units (Amount in
Rs)
Listed Price of Materials 5,000 7,50,000
Less: Trade discount @ 10% on invoice price (75,000)
6,75,000
Add: CGST @ 6% of Rs 6,75,000 40,500
SGST @ 6% of Rs 6,75,000 40,500
7,56,000
Add: Road Tax paid 15,000
Freight and Insurance 51,000
Commission and Brokerage Paid 30,000
Add: Cost of returnable containers:
Amount deposited Rs 90,000
Less: Amount refunded Rs 60,000 30,000
8,82,000
Add: Other Expenses @ 2% of Total Cost 18,000
(8,82,000/ 98 × 2)
Total cost of material 9,00,000
Less: Shortage due to Normal Loss @ 20% 1,000 --
Total cost of material of good units 4,000 9,00,000
Cost per unit (Rs 9,00,000/4,000 units) 225
Notes:
1. GST is payable on net price i.e., listed price less discount.

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 2. Detention charges/ fines imposed for non-compliance of rule or law by any statutory
authority. It is an abnormal cost and not included with cost of purchase.
3. Shortage due to normal reasons should not be deducted from cost to ascertain total
cost of good units.

A-50 Computation of comprehensive machine hour rate of machine shop

Particulars Rs
Operators’ wage (Refer to working note 2) 7,38,000
Production bonus (15% on wages) 1,10,700
Power consumed 80,500
Supervision and indirect labour 33,000
Lighting and electricity 12,000
Repairs and maintenance (3% × Rs 8 lakh × ½) 12,000
Insurance (Rs 40,000 × ½) 20,000
Depreciation (10% × Rs 8 lakh × ½) 40,000
Sundry works expenses (Rs 12,000 × ½) 6,000
General management expenses (Rs 54,530 × ½) 27,265
10,79,465

Machine hour rate = Total overheads of machine shop/ Hours of machines operation
= Rs 10,79,365/7,200 hours (Refer to working note 1) = Rs149.93

Working notes
1. Computation of hours, for which 6 operators are available for 6 months.
For 6 months
and 6 operators
Normal available hours 7,488
(208 x 6 months x 6 operators)
Less: Absenteeism hours (18 x 6 operators) (108)

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Paid hours 7,380
Less: Leave hours (20 x 6 operators) (120)
Less: Idle time hours (10 x 6 operators) (60)
Effective working hours 7,200

As machines cannot be worked without an operator wholly engaged on them therefore, hours
for which 6 operators are available for 6 months are the hours for which machines can be used.
Hence 7,200 hours represent effective working hours.

2. Computation of operator’s wages

Average rate of wages: Rs 800/8 hours = Rs 100 per hour
Total wages paid to 6 operators for 6 months = 7,380 hours x Rs 100 = Rs 7,38,000

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