CA INTERMEDIATE: FEBRUARY 2022 BATCH

SUBJECT – COST AND MANAGEMENT ACCOUNTING

CHAPTERWISE PRACTICE PAPER (CPP) – 04: Answer Key

Chapter – Employee Cost

1. Direct vs Indirect Labour Cost

Direct Labour Indirect Labour

Cost of Wages of workers who are Wages of Employees which are

1. Meaning readily identified or linked with a Cost not directly allocable to a
Centre or Cost Object. particular Cost Centre.

This can be directly linked, identified This has to be apportioned to

2. Linkage and allocated to the Cost Unit. various Cost Units using
suitable basis.

It tends to vary with volume of It may not vary with the level of
3. Relation to
production, and has a positive output/ production.
Output
relationship with level of output.

2. Time-Keeping - Meaning and Objectives

1. Meaning: Time-Keeping means keeping a record of the total time spent by a worker
inside a factory. For example, if a worker enters the factory at 9.00 AM and leaves by 6.00
PM, the total time spent by him for 9 hours inside the factory, is ascertained from Time-
Keeping Records.
2. Objectives of Time Keeping;
(a) Payroll: Employee payrolls are prepared based on of time-keeping records e.g.
attendance registers.
(b) Ascertainment & Control of Labour Cost: From payrolls, total labour cost can be
ascertained. It is further classified into Direct and Indirect, in order to facilitate control.
(c) Calculation of Overtime: Overtime entitlement of workers is calculated on the basis
of total time spent, and the excess time over and above regular working hours.
(d) Calculation of Idle Time: Difference between total time spent (as per Time-Keeping
Records) and total productive time (as per Time-Booking Records) constitutes Idle
Time.
(e) Disciplinary purposes: Time Keeping constitutes part of organisational procedures.
This is to reflect the order and discipline prevalent in the Firm.
(f) Statutory Compliance: Registers and Records relating to time keeping are required
to be maintained under Labour Laws like Factories Act, etc. This will ensure compliance
with statutory provisions.

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 (g) Overhead Distribution: Production OH is absorbed over jobs or products using
Labour Hour Rate as the basis.

3. Idle Time - Meaning, Causes

1. Idle Time: Idle Time = Unproductive Time, i.e. time during which the worker is not
engaged in production, but paid for. So, Idle Time = Total Time (as per Time Keeping
Records) Less Productive Time (as per Time Booking Records).
2. Causes of Idle Time:

Normal Causes Abnormal Causes

(a) Time taken by workers to reach the Production (a) Machine break-downs, power
Department from the Factory Main Gate. failure, equipment non-availability,
etc.

(b) Time lost between the finish of one job and starting (b) Non-availability of raw materials
of next job. and tools.

(c) Time spent to overcome fatigue and tiredness. (c) Waiting time for jobs due to
defective planning.
(d) Time spent on workers' personal needs like taking
lunch, tea, etc.

(e) Time required to set up machinery, receipt of (d) Strikes, Lock-outs, poor
materials, initial processing of materials, etc. supervision, fire, floods, accidents,
etc.

4. Treatment of Idle Time in Cost Accounts

Classification and Analysis: For Cost Accounting and analysis purposes, Idle Time is
classified into -

Particulars Normal Idle Time Abnormal Idle Time

It refers to the idle time inherent in every It refers to the idle time over and
1. Meaning work situation. It is estimated in advance. above normal idle time. Abnormal =
Actual Less Normal.

It is unavoidable and cannot be eliminated It is avoidable. It is further sub-

2. Nature totally. classified into - (i) Controllable, and
(ii) Non-Controllable.

Cost of Normal Idle Time is treated as a Cost of Abnormal Idle Time

regular part of cost of production. It is constitutes a Loss, which should be
treated - debited to Costing Profit and Loss
3. A/c. If it is controllable, the
(a) either as Direct Wages by inflating the
Treatment responsibility should be fixed on the
Wage Rate (for Direct Workers) or
person in default.
(b) as Production OH (for Indirect
Workers).

4. Focus In the long run, normal idle time may be Controllable Idle time should be

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 reduced through improved technologies, eliminated through proper
methods & procedures. managerial action.

5. Treatment of Overtime Premium in Cost Accounting

Overtime Premium is generally treated on the basis of the situation demanding Overtime
Work -

Situation Accounting Treatment of Overtime

Premium

1. Due to genuine labour shortage. Treated as Regular Cost of Production, as

Direct Labour, by inflating normal wage rate.

2. At Customer's desire, e.g. immediate Charged to the Job directly. Such amount will
delivery, etc. be suitably recovered from the customer by
charging at a higher rate.

Situation Accounting Treatment of Overtime

Premium

3. Irregular overtime to meet production Charged to Job - treated as Factory

requirements due to unexpected Overheads.
developments.

4. Due to fault of a particular department, e.g. Charged to the department in default, in order
non-availability of materials during normal to fix responsibility and prevent recurrence.
time.

5. Due to abnormal conditions, e.g. strike, etc. Charged to Costing Profit and Loss Account as
Loss.

6.

Basic Calculations Lab. T/O Method Formula & Answer

8000 + 9600
1. Average Labour Force= L = = Separation S 600
2 = L = 8800 = 6.82%
8,800 workers.

2. Number of Separations = S = Left + Replacement

Discharged R 700
= L = 8800 = 7.95%
= 500 + 100 = 600 workers.

3. No. of Accessions = A = Replacements Flux

+ New Recruitments S+A 600 + 2200
= L
= 8800
= 31.82%
= 700 + 1,500 = 2,200 workers.

Note: Alternatively, Accessions can be calculated as -

= No. of Workers at end + No. of Separations - No. of Workers at beginning = 9,600 +
600 - 8,000 = 2,200 workers.

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7.
S 40 40
1. Separation Method Rate = L . = L
- = 5% (given). So, L = 5% = 800.
R 𝑅
2. Replacement Method Rate = = = 8%. So, R = 800 × 8% = 64.
L 800
S+ R + N 40+ 64 + N
3. Flux Method Rate = = = 13%. On solving, N = 0.
L 800

Let the Number of Workers at the beginning be X and at the end be Y. So, Average
X+Y
Labour Force (L) = = 800.
2

Thus, Y + X = 1600 ------------------------------------------- Equation (1)

Also, Accessions = No. of Workers at the end + No. of Separations (-) No. of Workers at
the beginning.
So, Accessions = Replacements + New Recruitments = R + N = 64. So, we have, 64 = Y
+ 40 - X
Y + 40 - X = 64. Y - X = 24---------------------------------- Equation (2)
On solving the above equations, we get X = 788, Y = 812.
Answer:
(i) Average Number of Workers on Roll = 800 (iii) Number of New Accessions, i.e. New
Recruitment = 0
(ii) Number of Workers replaced during the year = 64 (iv) Number of Workers at the
beginning of the year = 788.

8.
1. Computation of Time Saved

Particulars (in hrs) Ram Shyam

Time allowed 30 Pieces × 2 hrs = 60 42 Pieces × 2 hrs = 84

Less: Time Taken 28 40

Time Saved 32 44

2. Loss due to incorrect rate selection i.e. Excess of Rs.55 - 50 = Rs. 5 per hour

Ram Shyam Total

(a) Basic Wages (28 Hrs. × 5) = (40 Hrs. × 5) = 340.00

140.00 200.00

(b) Bonus" (Halsey Scheme) (50% × Time (50% × 32 Hrs. × (50 % × 44 Hrs. × 190.00
saved × 5) 5) =

Excess Rate) = 80.00 110.00

(c) Excess Wages paid = Loss (Halsey (a + b) = 220.00 (a + b) = 530.00

Scheme) 310.00

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 TimeTaken 28 40
(d) Bonus (Rowan Scheme) ( × 60
(×32×5) = 84
(× 44 × 5) =
Time Allowed
Time Saved × Excess Rate) 74.67 104.76 179.43

(e) Excess Wages paid = Loss (Rowan (a + d) = (a + d) = 519.43

Scheme) 214.67 304.76

(0 Amount that could have been saved if 5.33 5.24 10.57

Rowan Scheme is followed (c - e)

Conclusion: Rowan Scheme of Incentive Payment is suitable due to its benefits

9. Note: Assumed that Office / Factory Hours starts at 8 AM

2,000 units
Standard Time for 2,000 units = 40 units p.h. = 50 hours

Less: Actual time taken

Time Saved = (9 hrs×4 days i.e. 1st to 4th April) + (4 hrs×l day i.e. 5th April)
= 40 hours
10 hours

System Computation of Total Wages

Halsey = (Hours worked × Rate p.h) + (50% × Time Saved × Rate p.h.) = Rs. 1,100
= (40 hrs × Rs. 25) + (40% × 10 hrs × Rs. 25) = Rs. 1,000 + Rs.
100
Actual Hours
= (Hours worked × Rate p.h) + ( × Time Saved ×
Standard Hours
Rate p.h.)

Rowan = (40 hrs × Rs. 25) + ( 40 hrs

50 hrs
× 10 hrs × Rs. 25) = Rs. 1,000 + Rs. 200
= Rs. 1,200

Note:
• Alternatively, the actual time can be taken as 5 day’s × 9 hours = 45 hours assuming
the worker is paid for the whole day although the work is finished at 12 Noon.
• In this question, Halsey Bonus is taken at 40% as per the question, and not 50% as
per the general formula.

10. Since Standard Time = 20 Hours and Time Taken = 13 hours, Time saved = 7 hours.

Particulars Halsey Rowan

1. Basic = Hours Worked × Rate per hour 13 × 50 = 650.00 13 × 50 = 650.00

2. Bonus: Rowan: ( Actual Hours × Time 50% × Time Saved × 13/20 × 7 × 50 =

Standard Hours Rate p.h = 50%× 7 × 50 227.50
Saved × R ph)
= 175.00

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 3. Total Wages = (1 + 2) 825.00 877.50

4. Actual Hours worked 13 hours 13 hours

5. Effective Rate of Earnings per hour = (3 63.46 67.50

÷ 4)

6. Standard Time Wages = (20 Hours × Rs. 1,000.00 1,000.00

50)

7. Labour Cost Saved = Std Wages - Actual 175.00 122.50

Wages = (6 - 3)

8. OH Cost Saved = Standard OH - Actual 280.00 280.00

OH
= (20 × 50 × 80%) less (13 × 50 × 80%)

9. Total Cost Savings to 455.00 402.50

Employer=Labour + OH = (7+8)

11. Solution: 1. Effect of increase in efficiency on Overtime work

(a) Present Standard Hours required to produce 19,200 units (19,200 units - 3,200 hours
r 6 units per hour)

(b) Normal Available Hours per week (60 employees × 40 hours) 2,400 hours

(c) Present Overtime work (paid at normal + 50% rate) [a - b] 800 hours

(d) Standard Hours required after introduction of Bonus Scheme (19,200 2,400 hours
units ÷ 8 units per hour)

(e) Overtime work required after introduction of Bonus Scheme [d - b] Nil

(0 Hence, Time saved after introduction of Bonus Scheme 800 hours

2. Computation of Labour Cost under Halsey 8t Rowan Schemes

System Basic Bonus Total

Hours worked × Rate 50% × Time Saved × Rate p.h = 50% × 800 × 10 Rs.
Halsey p.h. = 2,400 × 10 = Rs. = Rs. 4,000 28,000
24,000

Hours worked × Rate Actual Hours ×Time Saved×Rate p.h.= Rs.

Std Hours
Rowan p.h. = 2,400 × 10 = Rs. 2,400 30,000
24,000 ×800×10= Rs. 6,000
3,200

Note: Wage Rate per hour = Rs. 400 for 40 hours per week = Rs. 10 per hour.
Present Total Wages = (2,400 hours × Rs. 10 ph) + (Overtime 800 hours × Rs. 15 ph) =
Rs. 36,000
3. Computation of Profit under present and proposed Halsey & Rowan Schemes

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 Particulars Present Halsey Rowan

(a) Sales Revenue (19,200 2,11,200 2,11,200 2,11,200

units × Rs. 11)

(b) Direct Material Cost (19,200 1,53,600 1,53,600 1,53,600

units × Rs. 8)

(c) Direct Wages Cost (WN 2) 36,000 28,000 30,000

(d) Variable OH (Actual Hrs × 3,200 × 0.5 = 2,400 × 0.5 = 2,400 × 0.5 =
Rs. 0.50 ph) 1,600 1,200 1,200

(e) Fixed Overheads 9,000 9,000 9,000

(f) Total Cost: (b + c + d + e) 2,00,200 1,91,800 1,93,800

(g) Profit (a – f) 11,000 19,400 17,400

12. Let hourly rate of Workman B be Rs. R per hour.

Particulars Workman A (Halsey) Workman) B (Rowan)

1. Time Saved = Standard hours - Actual 100 - 60 = 40 hours 100 - 80 = 20 hours

hours

2. Basic Wages = Hours worked × Rate 60 hrs × Rs. 24 = Rs. 80hrs × R =

p.h. 1,440 80R

3. Bonus = 50% × Time Saved × Rate 50% × 40 × Rs. 24=Rs. -

p.h. 480
Actual Hours 80
( Std Hours
× Time Saved × Rate p.h.) (100 × 20 × R) = 16R

4. Total Wages = Basic + Bonus (2 + 3) Rs. 1,920 96R

5. Since Total Wages is the same for both workers, 96R = Rs. 1,920. Hence, R = Rs. 20
per hour.

13. 1. let the Wage Rates be Rs. R per hour for both workers. The wages can be determined
as under -

Worker Plan Std hrs Actual hrs Time Basic Bonus Wages
Saved

A Rowan 50 hours 30 hours 20 hours 30 R 30/50 × 20 × R = 12 R 42 R

B Halsey 50 hours 40 hours 10 hours 40 R 50% × 10 × R = 5 R 45 R

2. Cost Sheet (before computation of 3. Cost Sheet (after computation)

Materials & Wage Rates)

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 Particulars A B Particulars A B

Materials M M Materials 2,500 2,500

Wages 42 R 45 R Wages 42×20 = 45×20 =

840 900

Prime Cost M + 42 R M + 45 R Prime Cost 3,340 3,400

Add: POH at 5×30 = 150 5×40 = 200 Add: POH at Rs. 5 150 200
Rs. 5 ph

(given) 3,490 3,600 Factory Cost 3,490 3,600

Factory Cost

From the above, we have 2 equations Alternative Method: It is given that Materials Cost
as under - is the same. Hence, difference in Prime Cost is due
to difference in wages only. So, difference in Prime
Equation 1 M + 42 R = 3,340 Cost (Factory Cost less Factory OH) = Rs. 3,400 -
Rs. 3,340 = Rs. 60 is due to difference in wages of
Equation 2 M + 45 R = 3.400 45R - 42R = 3R. Solving the equation 3R = 60, we
get, R = 20 per hour)
On subtraction, we αet - 3 R = - 60

Hence, R = Rs. 20 per hour, So, M =

Rs. 2,500.

14.
1. Computation of Time Saved under Rowan Scheme

Worker A B C

(21 units × 12 min) + (36 units × (25 units × 30 min) = (60 units × 12 min) +
(a) 18 min) + (46 units × 30 min) = 750 min = 12.5 (135 units × 18 min) =
Standard 2,280 min hours 3,150 min = 52.50
Time hours
= 38 hours

(b) Actuai 38 hours 40 hours 34.00 hours

Time

(c) Time Nil Nil 18.50 hours

Saved

2. Computation of Wages under different Schemes

System Computation A B C

1. Time Rate = Hours worked × Rate 38×60= Rs. 40x50= Rs. 34x72= Rs.
Wages p.h. 2,280 2,000 2,448

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 2. Piece Rate
Wages

(i) P at Rs. 12 = Actual Output × Rate 21× 12 = 252 - 60 × 12 = 720

pu p.u.

(ii) Q at Rs. = Actual Output × Rate 36× 18 = 648 - 135 18 = 2,430

18 pu p.u.

(iii) R at Rs. = Actual Output × Rate 46× 30 = 1,380 25× 30 = 750 -

30 pu p.u.

(a) Total Total of (i) to (iii) above Rs. 2,280 Rs. 750 Rs. 3,150
Piece Wages

(b) 50% of = 50% of Time basis Rs. 1,140 Rs. 1,000 Rs. 1,224
Basic (1) Wages

(c) 75% of = 75% of Time basis Rs. 1,710 Rs. 1,500 Rs. 1,836
Basic (1) Wages

(d) Payment Either (a), or (c) if a < b Rs. 2,280 Rs. 1,500 Rs. 3,150

3. Rowan
System

(i) Basic = Hours worked × Rate p.h. 38x60= Rs. 40x50= Rs. 34x72= Rs.
Wages 2,280 2,000 2,448

(ii) Bonus Actual,hrs 34

= Std.hrs
× Hrs Saved ×R ph Nil Nil
52.5
×18.5×72

= Rs. 863 (WN

1)

(a) Total = Basic + Bonus Rs. 2,280 Rs. 2,000 Rs. 3,311
Wages

15.
1. Computation of Wage Rate per hour
Daily Wages 120
(a) Payment Rate per hour = Total Hours per day = 8
= Rs. 15.00 per hour.
Daily Wages 120
(b) Costing Rate per hour = Effective Hours per day = 7
= Rs. 17.14 per hour.

Note: Effective Working Hours per day = 8 hours less 1 hour (Normal Idle Time) = 7 hours.
2. Treatment of Wages Cost and Normal Idle Time
(a) Wages paid to Ram

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 Alternative 1: Treated as Direct Alternative 2: Treated as POH
Wages

Total Daily Wages = Rs. 15 × 8 Total Daily Wages = Rs. 15 × 8 hours = Rs.
hours = Rs. 120 120

Productive Time = 7 Idle Time Productive Time = 7 Idle Time (Normal)

hours (given) (Normal) 1 hour hours (given)
1 hour (given)
(given) Cost is
Cost = 7 hours × Rs. Cost = 7 hours × Rs.
absorbed as Cost = 1 hour × Rs.
17.14 = Rs. 120.00 15.00 = Rs. 105.00
Wages, by 15.00 = Rs. 15.00
Treated as Direct inflating the wage Treated as Direct Treated as POH
Labour Cost rate. Labour Cost

(b) Wages paid to Raju: Since Raju is not directly engaged in production, Cost of
Indirect Labour is treated as Production OH. It is not generally classified into Normal Idle
Time and Abnormal Idle Time, since these performance standards cannot be laid down
for Indirect Workers.
(c) Wages paid to Dev:

Alternative 1: Treated as Direct Wages Alternative 2: Treated as POH

Total Daily Wages = Rs. 15 × 8 Total Daily Wages = Rs. 15 × 8 hours = Rs.
hours = Rs. 120 120

Productive Time Idle Time 2 hours (b/f) Productive Time = 6 Idle Time 2 hours (b/f)
= 6 hours (given) hours (given) Cost =
Cost = 6 hours × 6 hours × Rs. 15 =
Rs. 17.14 = Rs. Rs.90
102.84
Treated as Direct
Treated as Direct Norma Abnormal 1 Labour Cost Normal 1 f Abnormal 1
Labour Cost hr×Rs. 17.14 hr×Rs. 15 hr×Rs. 15
Nil
Taken to P&L Treated as Taken to
A/c POH P&L A/c
Note: Cost of Abnormal Idle Time is charged to Costing P & L Account.

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