Certificate in Accounting and Finance Stage Examination

ARTT Business School 06 August 2025

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

Cost and Management Accounting

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

Q1. The following data pertains to Waleed Limited:

Particulars Value
Re-order Level (as per Maximum use) 1,60,000 units
Economic Order Quantity (EOQ) 90,000 units
Minimum Stock Level 1,00,000 units
Maximum Stock Level 1,90,000 units
Average Lead Time 6 days
Difference between Min. & Max. Lead Time 4 days

Required
1. Maximum Consumption per day,
(06)
2. Minimum Consumption per day.

Q2. Nozak Limited currently operates with the following weekly performance metrics:
1. Average Weekly Output: 48,000 units produced by 160 employees
2. Total Sales Revenue: Rs. 600,000
3. Total Weekly Contribution Margin: Rs. 240,000

The company is considering the acquisition of a new machine at a capital cost of Rs. 160,000. The
introduction of the machine is expected to:
 Reduce the workforce from 160 to 120 employees, and
 Increase the average output per employee by 60%.

To incentivize the workforce to achieve the enhanced productivity, the company proposes to increase
the per-unit labour rate (currently Rs. 1 per unit) by 1% for every 2% increase in average individual
output.

Additionally, to sell the increased output, a reduction of 4% in the selling price per unit will be
necessary.

Required
1. Calculate incremental extra weekly contribution resulting from the introduction of machine
proposal.
2. Determine the number of weeks required to recover the machine cost from the additional (07)
contribution margin.

Q3. Dashing Limited manufactures a finished product X, utilizing 8 units of raw material A to produce one
unit of product X. The cost of raw material A is Rs 10,000 per unit. The annual demand for product X
is 371,200 units, and the company operates for 320 days in a year, with uniform daily demand. All
units of product X are sold to a single customer, with daily deliveries. Failure to deliver product X on
any day incurs a penalty of Rs 70,000 as per the agreement with the customer. The contribution margin
per unit of product X is Rs 6,000.
 The company employs the Economic Order Quantity (EOQ) model to determine the optimal order
size for raw material A, with an ordering cost of Rs 1,160,000 per order. The optimal order size is
determined to be 18,560 units of raw material A. The company maintains a safety stock equivalent to
one day’s consumption of raw material A.

It is estimated that 10% of orders will be delayed by one day from the expected lead time, and 5% of
orders will be delayed by two days. All other orders are delivered on time.

Required:
Advise the management of Dashing Limited on whether to eliminate the safety stock.
(08)

Q4. Czek Limited manufactures two types of herbal products, A and B. Its budget shows overall profit
figures after apportioning the fixed joint cost of Rs. 15 Lakhs in the ratio of the number of units sold.
The budget indicates:

Particulars Product A Product B

Profits / (Losses) Rs. 210,000 (Rs. 30,000)
Selling Price per unit Rs. 200 Rs. 120
P/V Ratio 40% 50%
Required:
Advise on the best option among the following, if the company expects that the number of units sold
would be equal:

1. Due to a change in manufacturing process, the joint fixed cost would be reduced by 15% and the
variable cost increased by 7.5%.
2. Price of A could be increased by 20%, as it is expected that the price elasticity of demand would be
unity over the range of price.
3. Simultaneous introduction of both Option 1 and Option 2 above. (09)

Q5. Poker Limited uses Job Order Costing system for costing and accounting for different jobs. Details for
the month of June 2023 are as under:

1. Opening Balance of Work in Progress:

Particulars Job A Job B

Cost incurred to date Rs 640,000 Rs 750,000
Units in Job 8,000 units 5,000 units

2. Details of Material and Labour Cost Incurred During the Period:

Particulars Job A Job B Job C

Material Issue Rs 210,000 Rs 312,000 Rs 461,000
Labour Cost (Rs 40/Hour) Rs 280,000 Rs 380,000 Rs 260,000

3. Variable overheads per hour is Rs 28 and Fixed overheads applied to jobs: Rs 18.5 per labour hour
4. Underapplied fixed production overheads amounted to Rs 40,500.
5. 15% of wages are deducted as taxes to be paid to exchequer in next month. Wages are paid on 28
June 2023.
6. Selling and Admin costs incurred during the year was Rs 450,900.
7. 10% units of Job A, 8% units of Job B were damaged and are considered as normal loss
8. 400 units of Job A and 100 units of Job B were mishandled and now can only yield Rs 105 per unit
and Rs 240 per unit respectively
9. All units of Job A and B can be sold at Rs 250 and Rs 600 per unit. Both the jobs were completed
but could not be delivered till the month end. Job C could not completed during the month.

Required:
Prepare Journal Entries under Job Costing System. (10)
Q6. Gabrielle Limited manufactures four products, namely A, B, C, and D, using the same plant and
process. The following information relates to the most recent production period:
Particulars A B C D
Output (units) 720 600 480 504

Cost per unit:

- Material (Rs) 42 45 40 48
- Labour (Rs) 10 9 7 8
- Machine hours per unit 4 3 2 1

The four products are similar in nature and are generally produced in production runs of 24 units,
and sold in batches of 12 units. Currently, the company absorbs production overheads using a
machine hour rate. The total overheads incurred during the period were:

1. Machine operation and maintenance cost – Rs 63,000

2. Set-up costs – Rs 20,000
3. Stores receiving – Rs 15,000
4. Inspection – Rs 10,000
5. Material handling and dispatch – Rs 2,592

The company has identified the following cost drivers for allocating overheads more accurately:

Overhead Type Cost Driver

Set-up costs Number of production runs
Stores receiving Number of requisitions raised
Inspection Number of production runs
Material handling Number of orders executed

Additional details:
 The machine operation and maintenance cost is to be apportioned among setup, stores
receiving, and inspection in the ratio 4 : 3 : 2.
 The number of requisitions raised is 50 per product.
 The number of orders executed is 192, with each order representing a batch of 12 units of
product A.

Required:
1. Calculate the total cost per unit for each product using the current method, i.e., where all
overheads are absorbed using a machine hour rate.
2. Recalculate the total cost per unit for each product using the Activity-Based Costing (ABC) (12)
approach.

Q7. Uhtred Limited provides the following actual and budgeted information for the year ended 31
December 2024:

Particulars Budget (Rs) Actual (Rs)

Sales Revenue 12,000,000 12,672,000
Raw Material Consumed 2,850,000 2,660,000
Direct Labour Cost 3,750,000 3,693,600
Variable Overheads 1,800,000 1,710,000
Contribution Margin 3,600,000 4,608,400

Additional Information:
1. Budgeted sales were 2,500 units per month, amounting to 30,000 units annually.
2. The company charged 10% higher selling prices than the budgeted selling prices.
3. Each unit requires 5 kilograms of Raw Material A and 3 kilograms of Raw Material B.
 4. The standard cost per kilogram of Raw Material A is Rs. 10.
5. The total actual quantity of raw material consumed during the year was 240,000 kilograms. Out of
this, 2/3rd (i.e., 160,000 kg) was Material A and 1/3rd (i.e., 80,000 kg) was Material B.
6. The company received a 5% discount on both raw materials due to bulk purchases, relative to their
respective standard costs.
7. Standard labour time per unit was 5 hours, while the actual hourly wage rate paid was Rs. 27.

Required:
1. Calculate the material price variance, usage variance, mix variance, and yield variance.
2. Calculate all variances related to direct labour and variable overheads.
(15)

Q8. Bahria Limited (BL) has been producing and selling Mobile Chargers since last year. BL uses
absorption costing system for reporting. Data pertaining to Sales, Production, and Stocks for the last
two years is as under:

2022 2021
Mobile Chargers
Production units 9,800 9,000
Sales units 8,000 8,000
Selling Price per unit 400 380

Work-in-Progress
Stage of Completion
Material 80% 100%
Conversion Cost 50% 60%

1,200 units were lost during the year and were considered as normal loss. Details of Cost Incurred
during the Current Year and Inflation during the Year (2022):

Cost Elements Cost (Rs) Increase from Last Year

Direct Material 266,112.00 10%
Variable Conversion Cost 175,564.80 8%
Fixed Conversion Cost 130,454.40 7%
Variable Selling Cost 87,200.00 9%
Fixed Selling and Admin Cost 53,000.00 6%

Required:
1. Calculate Cost per unit assuming the company is using FIFO basis (Absorption basis)
2. Prepare Profit and Loss Statements using Marginal and Absorption Costing
3. Reconcile profits as per Marginal and Absorption Costing (17)

Q9. Household Equipment Ltd. produces a specific kitchen equipment from five components, three of
which are made using general-purpose machines and two by manual labour.
The data for the manufacture of the equipment is as follows:

Components A B C D E Total
Machine hours reqd. per unit 10 14 12 - - 36
Labour hours reqd. per unit - - - 2 1 3
Variable cost per unit (in Rs) 32 54 58 12 4 160
Fixed cost per unit (apportioned) Rs 48 102 116 24 26 316
Total component cost Rs 80 156 174 36 30 476
Assembly cost/unit (all variable) - - - - - 40
Selling price/unit - - - - - 600

The marketing department of the company anticipates 50% increase in demand during the next period.
General purpose machinery used to manufacture A, B and C is already working to the maximum
capacity of 4,752 hours, and there is no possibility of increasing this capacity during the next period.
But labour is available for making components D and E and also for assembly according to demand.

The management is considering purchase one of the components A, B or C from the market to meet
the increase in demand. These components are available in the market at the following prices:

 Component A: Rs. 80
 Component B: Rs. 160
 Component C: Rs. 125

Required:
1. Profit made by the company from current operations. (05)
2. If the company buys any one of the components A, B or C, what is the extent of additional capacity
that can be created? (05)
3. Assuming 50% increase in demand during the next period, which component should the company
buy from the market? (04)
4. The increase in profit, if any, if the component suggested in (c) is purchased from the market. (02)