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Question Paper

COST AND MANAGEMENT Duration: 180

ACCOUNTING

Details: Full Test-1 Marks: 100

Instructions:

 All the questions are compulsory

 Properly mention test number and page number on your answer sheet, Try to upload sheets
in arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
 Do not copy any solution from any material. Attempt as much as you know to fairly judge
your performance.

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Notes: 1. Question Paper comprises two part, Part I and Part II

2. Part I is having multiple choice Questions which is compulsory

3. Part II Comprise descriptive Questions and in which Question No. 1 is Compulsory and
answer any 4 out of remaining 5 questions

4. Answer new Question on new page

Case study 1

Concorde Ltd. manufactures two products using two types of materials and one grade of
labour. Shown below is an extract from the company’s working papers for the next month’s
budget:

Product A Product B

Budgeted sales (in units) 2,400 3,600

Budgeted material consumption per unit (in kg):

Material-X 5 3

Material-Y 4 6

Standard labour hours allowed per unit of product 3 5

Material-X and Material-Y cost Rs. 4 and Rs. 6 per kg and labours are paid Rs. 25 per hour.
Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week.
There are 180 direct workers.

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The target productivity ratio (or efficiency ratio) for the productive hours worked by the
direct workers in actually manufacturing the products is 80%. In addition the non-productive
down-time is budgeted at 20% of the productive hours worked.

There are four 5-days weeks in the budgeted period and it is anticipated that sales and
production will occur evenly throughout the whole period.

It is anticipated that stock at the beginning of the period will be:

Product-A 400 units

Product-B 200 units

Material-X 1,000 kg.

Material-Y 500 kg.

The anticipated closing stocks for budget period are as below:

Product-A 4 days sales

Product-B 5 days sales

Material-X 10 days consumption

Material-Y 6 days consumption

Concord Manufacturing Ltd. is committed to optimizing operational efficiency while

ensuring adequate inventory levels to meet customer demand. By carefully managing
material consumption, labor utilization, and production scheduling, the company aims to
achieve its sales targets and maintain profitability.

Questions:

1.1 What is the total material required for Product-A in terms of Material-X and Material-Y?
a) 21,600 kg
b) 22,320 kg
c) 28,800 kg

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d) 32,400 kg

1.2 What is the total cost of the Material Purchase Budget for both Material-X and Material-
Y?
a) Rs. 2,75,616
b) Rs. 4,16,416
c) Rs.2,55,200
d) Rs.4,23,416

1.3 What is the total wages to be paid to direct workers?

a) Rs. 12,67,875
b) Rs. 16,27,875
c) Rs.10,85,250
d) Rs.14,45,250

1.4 What is the total hours to be paid to direct workers?

a) 43,410 hours
b) 32,250 hours
c) 36,175 hours
d) 27,600 hours

1.5 What is the total material required for Product-B in terms of Material-X and Material-Y?
a) 21,600 kg
b) 24,000 kg
c) 38,700 kg
d) 32,400 kg
(2*5=10 marks)

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Case Study 2

MNP Ltd, a prominent manufacturing company, operates in the consumer goods industry.
They produce a range of products and employ various strategies to optimize their
operations and maximize profitability. Let's delve into some key aspects of their business
operations:

Transportation Logistics:

MNP Ltd operates a fleet of lorries to transport goods between its various stations.
Recently, they conducted a logistics analysis to improve efficiency. One of their lorries
embarked on a journey from Station ‘A’ with a load of 20 MT of goods. After unloading 8 MT
in Station ‘B’, it proceeded to Station ‘C’ with the remaining goods. On the return trip, the
lorry reached Station ‘A’ with a load of 16 MT, loaded at Station ‘C’. The distance between A
to B, B to C and C to A are 80 Kms, 120 Kms and 160 Kms, respectively

Financial Performance:

MNP Ltd recently released its financial report for the fiscal year. They disclosed sales figures,
variable costs, fixed costs, and other pertinent financial details. The company sold 2,75,000
units of its product at 37.50 per unit. Variable costs, including manufacturing and selling
costs, amounted to 17.50 per unit (manufacturing costs of Rs. 14 and selling cost Rs. 3.50
per unit). Fixed costs, which are incurred uniformly throughout the year, totaled 35,00,000,
inclusive of a depreciation expense of 15,00,000. There is no beginning or ending
inventories

Product Performance:

MNP Ltd produces various products, each with its own set of standards and actual
performance metrics. Material cost variances are evaluated based on the standard and
actual figures of product 'Z'. The standard quantity for material is 50 units, priced at ₹1.00
per unit. However, the actual quantity is 45 units, priced at ₹0.80 per unit.

Joint Product Costing:

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MNP Ltd engages in the production of joint products, A, B, and C. These products undergo a
joint production process, incurring pre-separation joint costs of Rs. 60,000. The production
data provides insight into the quantities produced for each joint product. For products A, B,
and C, the units produced are 500, 200, and 300, respectively.

Multiple Choice Questions (MCQs):

2.1 What is the Absolute MT-Kilometer for MNP Ltd's transportation logistics?

a) 1,600 MT-Kms
b) 1,440 MT-Kms
c) 2,560 MT-Kms
d) 5,600 MT-Kms

2.2 What is the breakeven sales level quantity for MNP Ltd?

a) 1,50,000 units
b) 1,75,000 units
c) 1,00,000 units
d) 1,25,000 units

2.3 What is the material cost variance for product 'Z'?

a) Rs. 14 Favorable
b) Rs. 41 Unfavorable
c) Rs. 45 Favorable
d) Rs. 50 Unfavorable

2.4 How much is the cost of joint product A using the average unit cost method?

a) Rs. 30 per unit

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b) Rs. 40 per unit
c) Rs. 60 per unit
d) Rs. 50 per unit

2.5 What is the Commercial MT – Kilometer for MNP Ltd's transportation logistics?

a) 5,760 MT-Kms
b) 3,840 MT-Kms
c) 4,320 MT-Kms
d) 2,414 MT-Kms
(2*5=10 marks)

General mcqs

1. A manufacturing company produces multiple products and wants to determine the most
profitable product mix. The management is evaluating different costing techniques for
decision-making. Which costing technique will help the company in calculating the
contribution of each product towards fixed costs and profit?

(a) Marginal costing

(b) Absorption costing

(c) Standard costing

(d) Activity-based costing (ABC)

2. If the annual requirement for a material is 10,000 units, the cost per order is Rs50, and
the carrying cost per unit per annum is Rs5, what will be the EOQ?

(a) 100 units

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(b) 200 units

(c) 500 units

(d) 1,000 units

3. A worker is eligible for a compulsory bonus of 8.33% of wages earned in the relevant year
or Rs. 100, whichever is greater, as per the Payment of Bonus Act. The bonus may be up to
20% of wages depending upon the quantum of profits calculated as per the Act. If a worker
earned Rs. 10,000 as wages during the relevant year and the company's profit, as per the
Act, is Rs. 50,000, what will be the total bonus amount received by the worker?

(a) Rs. 833

(b) Rs. 1,000

(c) Rs. 2,000

(d) Rs. 10,000

4. If the estimated total expenses directly connected with the operation of machines during
a period are Rs 10,000, and the estimated number of operational hours is 500, what is the
Direct Machine hour rate?

(a) Rs20 per machine hour

(b) Rs5 per machine hour

(c) Rs2 per machine hour

(d) Rs50 per machine hour

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5. Ramesh is the manager of Zenith Manufacturing, a company that produces both standard
and custom-made bicycles. She's considering switching from Traditional Absorption Costing
to Activity-Based Costing (ABC) for cost allocation. Which of the following statements best
describes a key difference between ABC and Traditional Absorption Costing?

(a) In ABC, costs are related to departments, while in Traditional Absorption Costing, costs
are related to activities.

(b) In ABC, time (hours) is assumed to be the only cost driver, while in Traditional
Absorption Costing, activity-wise cost drivers are determined.

(c) In ABC, overheads are grouped into activity cost pools, while in Traditional Absorption
Costing, overheads are assigned to cost objects.

(d) In ABC, a single overhead recovery rate is determined, while in Traditional Absorption
Costing, multiple overhead recovery rates are used.

6. A company had a Cost of Goods Sold of Rs 50,000, opening stock of finished goods worth
RS10,000, and closing stock of finished goods worth Rs 8,000. What is the cost of
production?

(a) Rs 42,000

(b) Rs 48,000

(c) Rs 52,000

(d) Rs 60,000

7. John is reviewing the financial records of his company and notices some unusual entries.
The profit as per cost records is reported as 5,65,160. However, there are additional entries
for excess material consumption 6,00,000, factory overhead 1,20,000, administrative

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overhead 20,000, dividend received 1,00,000, and interest received 20,000. What is the
calculated total profit after considering these entries?

(a) 5,65,160

(b) 14,25,160

(c) 21,25,160

(d) 6,85,160

8. "BDL Ltd. is currently preparing its cash budget for the year to 31 March 2024. An extract
from its sales budget for the same year shows the following sales values.

Rs
March 60,000
April 70,000
May 55,000
June 65,000

40% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in
month after sale and take a 2% discount. 27% are expected to pay in the second month
after the sale, and the remaining 3% are expected to be bad debts. The value of sales
budget to be shown in the cash budget for May 2024 is"

(a) Rs 60,532 (b) Rs 61,120

(c) Rs 66,532 (d) Rs 86,620

9. Ram, a manager at Omega Electronics, is reviewing the principles for identifying costs and
benefits for measurement in decision-making. He understands that only costs and benefits
that are both controllable and relevant should be considered for measurement. To further

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clarify his understanding, he considers a scenario where Omega Electronics is deciding
whether to upgrade its manufacturing equipment or continue using the existing equipment.
In this context, which of the following costs would be considered irrelevant for decision-
making?

(a) Maintenance costs of the existing equipment.

(b) Training costs for employees to use the new equipment.

(c) Costs of raw materials that would be the same for both options.

(d) Costs of dismantling the old equipment.

10. When the sales increase from Rs. 40,000 to Rs. 60,000 and profit increases by Rs. 5,000,
the P/V ratio is —

(a) 20%

(b) 30%

(c) 25%

(d) 40%.

(1*10=10 marks)

Descriptive Questions

1. (a) During the FY 2019-20, P Limited has produced 60,000 units operating at 50% capacity
level. The cost structure at the 50% level of activity is as under:

Direct Material 300 per unit

Direct Wages 100 per unit

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Variable Overheads 100 per unit

Direct Expenses 60 per unit

Factory Expenses (25% fixed) 80 per unit

Selling and Distribution Exp. (80% variable) 40 per unit

Office and Administrative Exp. (100% fixed) 20 per unit

The company anticipates that in FY 2020-21, the variable costs will go up by 20% and fixed
costs will go up by 15%.

The selling price per unit will increase by 10% to Rs.880

Required:

(i) CALCULATE the budgeted profit/ loss for the FY 2019-20.

(ii) PREPARE an Expense budget on marginal cost basis for the FY 2020-21 for the company
at 50% and 60% level of activity and FIND OUT the profits at respective levels.

(7 Marks)

(b) The particulars obtained from the records of M/s. Jeevan Industries for the year 2015 are
given below:

Particulars Rs.

Opening stock:

- Raw materials 1,40,000

- Finished goods(1,000 units) 20,000

Purchases 2,10,000

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Factory wages 3,80,000

Factory overheads 70,000

Office overheads 40,000

Selling overheads 9,600

Sales (3,200 units) 9,28,000

Closing stock:

- Raw materials 19,600

- Finished goods (900 units) 1,64,080

Prepare cost sheet showing prime cost, factory cost, cost of production, total cost and sales
per unit.

During 2016 the industry expects to receive an order for 5,000 units. It is estimated that:

(i) The prices of raw materials and factory wages will rise by 15% and 10% respectively.

(ii) There will be no change in the total factory overheads and office overheads.

(iii) Selling overheads per unit will remain the same.

Prepare an estimated cost sheet. The factory intends to earn the same rate of profit on cost.

(7 Marks)

2. (a) ABC Ltd. operates a simple chemical process to convert a single material into three
separate items, referred to here as X, Y and Z. All three end products are separated
simultaneously at a single split-off point.

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Product X and Y are ready for sale immediately upon split off without further processing or
any other additional costs. Product Z, however, is processed further before being sold.
There is no available market price for Z at the split-off point.

The selling prices quoted here are expected to remain the same in the coming year. During
2019-20, the selling prices of the items and the total amounts sold were:

X – 186 tons sold for Rs.3,000 per ton

Y – 527 tons sold for Rs.2,250 per ton

Z – 736 tons sold for Rs.1,500 per ton

The total joint manufacturing costs for the year were Rs.12,50,000. An additional Rs.
6,20,000 was spent to finish product Z.

There were no opening inventories of X, Y or Z at the end of the year. The following
inventories of complete units were on hand:

X 180 tons

Y 60 Tons

Z 25 tons

There was no opening or closing work-in-progress. Required:

COMPUTE the cost of inventories of X, Y and Z and cost of goods sold for year ended March
31, 2020, using Net realizable value (NRV) method of joint cost allocation.

(7 Marks)

(b) The product of a manufacturing concern passes through two processes A and B. The
normal losses and abnormal losses are defective units having a scrap value of Rs. 2 and 5 per
unit in processes A and B respectively. The following information relates to the month
ending 31- 3-2016:

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 Process A Process B

Raw material issued @ Rs. 5 3000 units -

Normal Loss 10% of input 5% of input

Output 2,800 units 2,600 units

Additional components Rs. 1,000 Rs. 780

Direct wages Rs. 4,000 Rs. 3,000

Direct Expenses Rs. 10,000 Rs. 14,000

Production Overhead (as a percentage of 75% 125%

direct wages)

There was no opening or closing work in progress but opening and closing stocks of finished
goods were Rs. 20,000 and Rs. 23,000 respectively.

Prepare Process Account, Finished Stock A/c, Normal Loss A/c, Abnormal Loss A/c and
Abnormal Gain A/c.

(7 Marks)

3. (a) BABYSOFT is a global brand created by Bio-organic Ltd. The company manufactures
three ranges of beauty soaps i.e. BABYSOFT- Gold, BABYSOFT- Pearl, and BABYSOFT-
Diamond. The budg-eted costs and production for the month of December, 2020 are as
follows:

BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond

Production of 4000 3000 2000

soaps (Units)

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Resources per Qty Rate Qty Rate Qty Rate
Unit:

- Essential Oils 60 ml Rs. 200 / 55 ml Rs. 300 65 ml Rs. 300 /

100 ml 100 ml
/ 100 ml

- Cocoa Butter 20 g Rs. 200 / 20 g Rs. 200 20 g Rs. 200 /

100 g 100 g
/ 100 g

- Filtered Water 30 ml Rs. 15 / 30 ml Rs. 15 / 30 ml Rs. 15 /

100 ml 100
100 ml
ml

- Chemicals 10 g Rs. 30 / 12 g Rs. 50 / 15 g Rs. 60 /

100 g 100 g
100 g

- Direct Labour 30 Rs. 10 / 40 Rs. 10 / 60 Rs. 10 /

hour hour
minutes minutes hour minutes

Bio-organic Ltd. followed an Absorption Costing System and absorbed its production
overheads, to its products using direct labour hour rate, which were budgeted at Rs.
1,98,000.

Now, Bio-organic Ltd. is considering adopting an Activity Based Costing system. For this,
additional information regarding budgeted overheads and their cost drivers is provided
below:

Particulars (Rs.) Cost drivers

Forklifting cost 58,000 Weight of material lifted

Supervising cost 60,000 Direct labour hours

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Utilities 80,000 Number of Machine

operations

The number of machine operators per unit of production are 5, 5, and 6 for BABYSOFTGold,
BABYSOFT- Pearl, and BABYSOFT- Diamond respectively.

(Consider (i) Mass of 1 litre of Essential Oils and Filtered Water equivalent to 0.8 kg and 1 kg
respectively (ii) Mass of output produced is equivalent to the mass of input materials taken
together.)

You are requested to:

(i) PREPARE a statement showing the unit costs and total costs of each product using the
absorption costing method.

(ii) PREPARE a statement showing the product costs of each product using the ABC
approach.

(iii) STATE what are the reasons for the different product costs under the two approaches?

(7 Marks)

(b) A Ltd. operates a system of standard costs. Following information is available:

Rs.

Actuals:

Materials Consumed (3,600 units at Rs.52.50 per unit) 1,89,000

Direct Wages 22,100

Fixed Expenses 1,88,000

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Variable Expenses 62,000

Output during the period was 3,500 units of finished product.

For the above period, the standard production capacity was 4,800 units and the break-up of
standard cost per unit was as under:

Rs.

Materials (one unit @ Rs.50 per unit) 50

Direct Wages 6

Fixed Expenses 40

Variable Expenses 20

Total Standard Cost per unit 116

The standard wages per unit is based on 9,600 hours for the above period at a rate of
Rs.3.00 per hour. 6,400 hours were actually worked during the above period, and in
addition, wages for 400 hours were paid to compensate for idle time due to breakdown of a
machine, and overall wage rate was Rs.3.25 per hour. You are required to compute the
following variances with appropriate workings:

a) Direct Material cost variance

b) Material Price variance
c)Material usage variance
d) Direct Labour cost variance
e) Wage Rate variance
f) Labour Efficiency variance
g) Idle Time variance
h) Variable Expenses variance
i) Fixed Expenses Expenditure variance
j) Fixed Expenses Volume variance

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k) Fixed Expenses capacity variance
l) Fixed Expenses Efficiency variance
m)Total cost variance

(7 Marks)

4. (a) The New Enterprises Ltd. has Production Depts. A, B and C and two Service Depts. D
and E. The following figures are extracted from the records of the company.

Rent and Rates 5,000

General Lighting 600

Indirect Wages 1,500

Power 1,500

Depreciation of Machinery 10,000

Sundries 10,000

The following further details are available:

Total A B C D E

Floor Space (Sq. ft.) 10,000 2,000 2,500 3,000 2,000 500

Light Points 60 10 15 20 10 5

Direct Wages (Rs.) 10,000 3,000 2,000 3,000 1,500 500

H.P. of Machines 150 60 30 50 10 -

Value Machinery(Rs.) 2,50,000 60,000 80,000 1,00,000 5,000 5,00

Working Hours - 6,226 4,028 4,066 -

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The expenses of D and E are allocated as following:

A B C D E

D 20% 30% 40% - 10%

E 40% 20% 30% 10% -

(8 Marks)

(b) Two Components X and Y are used as follows

Normal Usage - 600 Units per week each.

Maximum usage - 900 Units per week each.

Minimum Usage - 300 Units per week each.

Reorder Quantity - X4800 units, Y 7200 units.

Reorder period: - X=4to6Weeks

Y = 2 to 4 weeks.

Calculate for each Component:

A) Reorder Level B) Minimum Level C) Maximum Level D) Average Stock Level

(3 Marks)

(c) You are given the following data:

Sales Profit

Year 2019 Rs.1,20,000 8,000

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Year 2020 Rs.1,40,000 13,000

FIND OUT –

(i) P/V ratio,

(ii) B.E. Point,

(iii) Profit when sales are Rs. 1,80,000,

(iv) Sales required earn a profit of Rs. 12,000,

(v) Margin of safety in year 2020

(3 Marks)

5. (a) As at 31st March 2014, the following balances existed in a company’s cost ledger

Dr. Cr.

Stores Ledger Control a/c 6,02,870

Work-in-progress Ledger Control a/c 2,44,730

Finished Stock Ledger Control a/c 5,03,890

Manufacturing Overhead Control a/c 21,050

Cost Ledger Control a/c 13,30,440

13,51,490 13,51,490

During the next three months the following items arose:

In Rs.

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(1) Raw materials purchased 2,46,000

(2) Materials returned to suppliers 5,800

(3) Materials issued to production 2,54,630

(4) Factory wages 1,01,060

(5) Manufacturing overhead incurred 1,83,020

(6) Indirect labour 43,330

(7) Manufacturing overhead charged to production 1,54,400

(8) Cost of sales 3,71,780

(9) Sales returns at cost 10,760

(10) Finished product at cost 4,21,670

Pass the necessary entries, open ledger accounts and prepare trial balance.

(8 Marks)

(b) A worker produced 200 units in a week’s time .The guaranteed weekly wage payment for
45 hours is Rs.81 .The expected time to produce one unit is 15 minutes is raised further by
20% under the incentive scheme. What will be the earning per hour of that worker under
Halsey (50% sharing )and Rowan bonus schemes?

(3 Marks)

(c) Rajesh Power Ltd., a thermal power station located in the state of Madhya Pradesh,
operates the Chambal Thermal Power Station. For the fiscal year 2022-23, they provided the
following data:

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Total units generated: 10,00,000 kWh

Operating labour: ₹15,00,000

Repairs & maintenance: ₹5,00,000

Lubricants, spares and stores: ₹5,00,000

Plant supervision: ₹4,00,000

Administration overheads: ₹20,00,000

5 kWh of electricity generated per kg of coal consumed at ₹4.25 per kg

Depreciation charges at 5% on the capital cost of ₹2,00,00,000

Calculate the cost statement showing the cost of electricity generated per kWh by Chambal
Thermal Power Station for the mentioned fiscal year.

(3 Marks)

6. (a) In Batch Costing, STATE how is Economic Batch Quantity determined?

(3 Marks)

(b) STATE the features of service costing?

(3 Marks)

(c) “Operation costing is defined as refinement of Process costing.” EXPLAIN it.

(3 Marks)

(d)EXPLAIN the Essentials of budget?

(3 Marks)

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(e) DESCRIBE how costs are classified on the basis of function?

(2 Marks)

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