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CA Final | CA Inter | CA IPCC | CA Foundation Online Test Series

SUGGESTED ANSWERS

COST AND MANAGEMENT Duration: 180

ACCOUNTING

Details: Full Test-1 Marks: 100

Instructions:

 All the questions are compulsory

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in arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
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Case study 1 Answer

1.1 b) 22,320 kg

1.2 d) Rs.4,23,416

1.3 a) Rs. 12,67,875

1.4 a) 43,410 hours

1.5 c) 38,700 kg

Reason:

Number of days in budget period = 4 weeks × 5 days = 20 days

Number of units to be produced

Product-A Product-B
(units) (units)

Budgeted Sales 2,400 3,600

Add: Closing stock

2,400 units 3,600 units

( × 4 days) ( × 5 days) 480 900
20 days 20 days

Less: Opening stock 400 200

2,480 4,300

(i) Material Purchase Budget

CATESTSERIES.ORG
 Material-X Material-Y
(Kg.) (Kg.)

12,400 (2,480 9,920 (2,480

Material required:
units × 5 kg.) units × 4 kg.)

12,900 (4,300 25,800 (4,300

Product-A
units × 3 kg.) units × 6 kg.)

Product-B 25,300 35,720

Add: Closing stock

25,300 35,720
(20days × 10days ) (20days × 6days ) 12,650 10,716

Less: Opening stock 1,000 500

Quantity to be purchased 36,950 45,936

Rate per kg. of Material Rs. 4 Rs. 6

Total Cost Rs. 1,47,800 Rs. 2,75,616

(ii) Wages Budget

Product-A (Hours) Product-B (Hours)

Units to be produced 2,480 units 4,300 units

CATESTSERIES.ORG
Standard hours allowed per
3 5
unit

Total Standard Hours allowed 7,440 21,500

Productive hours required for 7,440hours 21,500hours

= 9,300 = 26,875
production 80% 80%

1,860 hours.(20% of 9,300 5,375 hours.(20% of 26,875

Add: Non-Productive down time
hours) hours)

Hours to be paid 11,160 32,250

Total Hours to be paid = 43,410 hours (11,160 + 32,250)

Hours to be paid at normal rate= 4 weeks × 40 hours × 180 workers = 28,800 hours

Hours to be paid at premium rate = 43,410 hours – 28,800 hours = 14,610 hours

Total wages to be paid = 28,800 hours × Rs. 25 + 14,610 hours × Rs. 37.5 = Rs. 7,20,000 + Rs.
5,47,875= Rs. 12,67,875

(2*5=10 marks)

Case study 2 Answer

2.1 d) 5,600 MT-Kms

Reason:

Weighted Average or Absolute basis – MT – Kilometer:

CATESTSERIES.ORG
=(20 MT × 80 Kms) + (12 MT × 120 Kms) + (16 MT × 160 Kms)
=1,600 + 1,440 + 2,560 = 5,600 MT – Kilometer

2.2 b) 1,75,000 units

Reason:

Fixed cost 𝑅𝑠.35,00,000

Break even Sales Quantity = =
Contribution margin per unit 𝑅𝑠.20

= 1,75,000 units

2.3 a) Rs.14 Favorable

Reason:

The variances may be calculated as under:

(a) Standard cost = Std. Qty × Std. price = 50 units ×Rs.1.00 = Rs.50

(b) Actual cost = Actual qty. × Actual price = 45 units ×Rs.0.80 = Rs. 36

Material cost variance = Standard cost – Actual cost

(Total variance) = Rs. 50 – Rs. 36 = Rs. 14 (F)

2.4 c) Rs. 60 per unit

Reason:

Total joint costs Rs.60,000

Average cost per unit = =1,000 units= Rs. 60
Units produced

CATESTSERIES.ORG
2.5 a) 5,760 MT-Kms

Reason:

Simple Average or Commercial basis – MT – Kilometer:

=[{(20+12+16) / 3} MT × {(80+120+160) Kms]

=16 MT × 360 Kms = 5,760 MT – Kilometer

(2*5=10 marks)

General mcqs

1. (a) Marginal costing

Explanation:
The costing technique that will help the company in calculating the contribution of each
product towards fixed costs and profit is:

(a) Marginal costing

Explanation:
Marginal costing, also known as variable costing, is a costing technique that focuses on
separating costs into fixed costs and variable costs. It helps in understanding the impact of
changes in production or sales volume on the company's profitability.

In marginal costing, only variable manufacturing costs (direct materials, direct labor, and
variable overheads) are considered as product costs, while fixed manufacturing costs are
treated as period costs and are not assigned to products. This approach allows management
to determine the contribution of each product towards covering the fixed costs and
generating a profit.

By calculating the contribution margin per unit for each product, management can prioritize
and make informed decisions about the product mix. Products with higher contribution
margins will contribute more towards covering the fixed costs and generating profit, making
them more profitable for the company.

Option (b) Absorption costing includes both variable and fixed manufacturing costs in the
product cost, which may not be as useful for analyzing the profitability of individual

CATESTSERIES.ORG
products.

Option (c) Standard costing involves comparing actual costs with predetermined standard
costs, which is useful for cost control and variance analysis but may not directly help in
determining the contribution of each product.

Option (d) Activity-based costing (ABC) focuses on identifying the cost drivers and allocating
costs to activities. While it provides valuable insights into cost allocation, it may not directly
calculate the contribution of each product towards fixed costs and profit.

The correct answer is:

(a) Marginal costing.

2. (c)

Explanation: c) 500 units (EOQ = √((2 * 10,000 * 50) / 5) = √(1,000,000 / 5) = √200,000 ≈

500)

3. (c) Rs. 2,000

Explanation: To calculate the total bonus amount received by the worker, we need to
consider both the compulsory bonus and the bonus based on profits.
Given information:
Wages earned by the worker = Rs. 10,000
Company's profit, as per the Act = Rs. 50,000
First, let's calculate the compulsory bonus:
Compulsory bonus = 8.33% of wages or Rs. 100 (whichever is greater)
Compulsory bonus = max(8.33% of 10,000, Rs. 100)
Compulsory bonus = max(833, 100)
Compulsory bonus = Rs. 833
Next, let's calculate the bonus based on profits:
Bonus based on profits = 20% of wages
Bonus based on profits = 20% of 10,000
Bonus based on profits = 0.20 * 10,000
Bonus based on profits = Rs. 2,000
Now, to find the total bonus amount, we need to take the higher value between the
compulsory bonus and the bonus based on profits.
Total bonus amount = max(Compulsory bonus, Bonus based on profits)
Total bonus amount = max(833, 2,000)

CATESTSERIES.ORG
Total bonus amount = Rs. 2,000
Therefore, the total bonus amount received by the worker is Rs. 2,000.

4. (a) Rs20 per machine hour

Explanation: To calculate the Direct Machine Hour Rate, we use the formula:
Direct Machine Hour Rate = Estimated Total Expenses / Estimated Number of Operational
Hours
Given:
Estimated Total Expenses = Rs 10,000
Estimated Number of Operational Hours = 500
Direct Machine Hour Rate = Rs 10,000 / 500 = Rs 20 per machine hour
Therefore, the correct answer is:
(a) Rs 20 per machine hour

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

Explanation: In Activity-Based Costing (ABC), overhead costs are related to activities and are
grouped into activity cost pools. These pools are then assigned to cost objects (such as
customers, products, or services) based on the activities they consume. On the other hand,
in Traditional Absorption Costing, overheads are assigned directly to cost objects without
considering the specific activities that drive those costs. This difference highlights the more
detailed and realistic approach of ABC in linking costs to activities before assigning them to
cost objects.

6. (b) Rs 48,000

Explanation: The correct answer is: B) Rs48,000

The cost of production can be calculated as follows:

CATESTSERIES.ORG
Cost of Production = Cost of Goods Sold + Closing Stock - Opening Stock
Cost of Production = Rs50,000 + Rs8,000 - Rs10,000 = Rs48,000

7. (b) 14,25,160

Explanation: The calculated total profit after considering the additional entries is the sum of
the profit as per cost records and the various entries provided:
Profit as per Cost Records: 5,65,160
Excess Material Consumption: 6,00,000
Factory Overhead: 1,20,000
Administrative Overhead: 20,000
Dividend Received: 1,00,000
Interest Received: 20,000
Total = 5,65,160 + 6,00,000 + 1,20,000 + 20,000 + 1,00,000 + 20,000 = 14,25,160
Therefore, the calculated total profit after considering these entries is 14,25,160.

8. (a) Rs 60,532

Explanation: 40% of May sales for cash (40% x Rs. 55,000) = Rs.22,000 70% of April credit
sales less 2% discount (70% x 60% x Rs. 70,000 x 98%) = Rs. 28,812 27% of March credit sales
(27% x 60% x Rs. 60,000) = Rs. 9,720 Total Sales = Rs. 22000 + Rs. 28812 + Rs. 9720 = Rs.
60,532.

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

Explanation: The principle of relevance states that a cost is relevant for decision-making if it
is a future cost and it differs under the two options being considered. In this scenario, costs
that are the same under both options (upgrading or continuing to use existing equipment)
are considered irrelevant for decision-making. The costs of raw materials fall under this
category as they would remain the same regardless of the equipment choice. Therefore,
option C is the correct answer.

CATESTSERIES.ORG
10. (c) 25%

Explanation To calculate the P/V (Profit-Volume) ratio, you can use the following formula:

P/V Ratio = (Change in Profit / Change in Sales) × 100

Given that the sales increase from Rs. 40,000 to Rs. 60,000 and the profit increases by Rs.
5,000, let's calculate the P/V ratio:
Change in Profit = Rs. 5,000
Change in Sales = Rs. 60,000 - Rs. 40,000 = Rs. 20,000
P/V Ratio = (Change in Profit / Change in Sales) × 100
P/V Ratio = (Rs. 5,000 / Rs. 20,000) × 100
P/V Ratio = 0.25 × 100
P/V Ratio = 25%
Therefore, the correct answer is (c) 25%.

(1*10=10 marks)

Descriptive Questions

1. Answer. (a)

(i) Calculation of Budgeted profit for the FY 2019-20

60,000 units

Per unit (Rs.) Amount (Rs.)

Sales (A) 800 4,80,00,000

Variable Costs:

- Direct Material 300 1,80,00,000

CATESTSERIES.ORG
 - Direct Wages 100 60,00,000

- Variable Overheads 100 60,00,000

- Direct expenses 60 36,00,000

- Variable factory expenses (75% of Rs.80 60 36,00,000

p.u.)

- Variable Selling & Dist. Exp. (80% of Rs.40 32 19,20,000

p.u.)

Total Variable cost (B) 652 3,91,20,000

Contribution (C) = (A- B) 148 88,80,000

Fixed Costs:

- Office and Admin. Exp. (100%) -- 12,00,000

- Fixed factory exp. (25%) -- 12,00,000

- Fixed Selling & Dist. Exp. (20%) -- 4,80,000

Total Fixed Costs (D) -- 28,80,000

Profit (C – D) -- 60,00,000

(ii) Expense Budget of P Ltd. for the FY 2020-21 at 50% & 60% level

60,000 units 72,000 units

Per unit (Rs.) Amount (Rs.) Per unit (Rs.) Amount (Rs.)

Sales (A) 880 5,28,00,000 880 6,33,60,000

Variable Costs:

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 - Direct Material 360 2,16,00,000 360 2,59,20,000

- Direct Wages 120 72,00,000 120 86,40,000

- Variable 120 72,00,000 120 86,40,000

Overheads

- Direct expenses 72 43,20,000 72 51,84,000

- Variable factory 72 43,20,000 72 51,84,000

expenses

- Variable Selling & 38.40 23,04,000 38.40 27,64,800

Dist. Exp.

Total Variable cost (B) 782.40 4,69,44,000 782.40 5,63,32,800

Contribution C = (A – B) 97.60 58,56,000 97.60 70,27,200

Fixed Costs:

- Office and 13,80,000 13,80,000

Admin. Exp.
(100%)

- Fixed factory exp. 13,80,000 13,80,000

(25%)

- Fixed Selling & 5,52,000 5,52,000

Dist. Exp. (20%)

Total Fixed Costs (D) 33,12,000 33,12,000

Profit (C – D) 25,44,000 37,15,200

(7 Marks)

CATESTSERIES.ORG
Answer. (b)

COST SHEET for the year 2015

Particulars Per unit (Rs.) Total (Rs.)

Direct material

Opening stock 1,40,000

Add: Purchases 2,10,000

3,50,000

Less: Closing stock 19,600 106.58 3,30,400

Direct/ Factory wages 122.58 3,80,000

Prime cost 229.16 7,10,400

Add: Factory Overheads 22.58 70,000

Factory cost 251.74 7,80,400

Add: Office overheads 12.91 40,000

Office cost/ Cost of (3,100 units) 264.65 8,20,400

Production

Add: opening stock of 200.00 20,000

finished goods (1,000 units)

464.65 8,40,400

Less: Closing Stock of 182.31 1,64,080

Finished Goods ( 900 units)

Cost of Production of Goods 282.34 6,76,320

sold (3,100 units)

CATESTSERIES.ORG
 STATEMENT OF PROFIT

Rs.

Cost of goods sold 6,76,320

Add: selling overheads 9,600

Cost of sales 6,85,920

Add: Profit 2,42,080

Sales 9,28,000

9,28,000
Sales per unit = = Rs. 290
3,200

2,42,080
Profit as 9% of cost of sales = × 100 = 35.293%
6,85,920

ESTIMATED COST SHEET FOR 2016

Output sales 5000 units

3,30,400 115 6,12,839

Direct material = × 5,000 ×
3,100 100

3,80,000 110 6,74,194

Direct material = × 5,000 ×
3,100 100

Prime cost 12,87,033

Add: factory overheads 70,000

Works/factory cost 13,57,033

Add: office overheads 40,000

Cost of production 13,97,033

Add: selling overheads 15,000

CATESTSERIES.ORG
Cost of sales 14,12,033

Add: profit(35.29% of cost of sales) 4,98,307

Sales 19,10,340

19,10,340
Sales per unit = = Rs. 382
5,000

(7 Marks)

2. Answer. (a) Statement of Joint Cost allocation of inventories of X, Y and Z (By using Net
Realisable Value Method)

Products Total

X Y Z

Final sales value of 10,98,000 13,20,750 11,41,500 35,60,250

total
(366 × (587 × (761 ×
production
(Working Note 1) Rs.3,000) Rs.2,250) Rs.1,500)

Less: Additional - - (6,20,000) (6,20,000)

cost

Net realisable 10,98,000 13,20,750 5,21,500 29,40,250

value (at split-off
point)

Joint cost allocated 4,66,797 5,61,496 2,21,707 12,50,000

(Working Note 2)

Cost of goods sold as on March 31, 2020 (By using Net Realisable Value Method)

Products Total

X Y Z

Allocated joint cost 4,66,797 5,61,496 2,21,707 1250000

Additional costs - - 6,20,000 6,20,000

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Cost of goods 4,66,797 5,61,496 8,41,707 1870000
available for sale

(CGAS)

Less: Cost of ending 2,29,571 57,385 27,692 314648

inventory
(CGAS×49.18 (CGAS × (CGAS ×
(Working Note 1)
%) 10.22%) 3.29%)

Cost of goods sold 2,37,226 5,04,111 8,14,015 1555352

Working Notes

1. Total production of three products for the year 2019-2020

Products Products Quantity Quantity of Total Ending

sold in tones ending production inventory
inventory in percentage (%)
tons

(1) (2) (3) (4)=[(2)+(3)] (5)=(3)/(4)

X 186 180 366 49.18

Y 527 60 587 10.22

Z 736 25 761 3.29

2. Joint Cost apportioned to each product

Total Joint Cost

=Total × Net Realisable Value of each product
Net realisable Value

Rs.12,50,000
Total Cost of Product ×Rs.29,40,250 × 10,98,0000 = Rs. 4,66,797

Rs.12,50,000
Total Cost of Product ×Rs.29,40,250 × 13,20,750 = Rs. 5,61,496

Rs.12,50,000
Total Cost of Product ×Rs.29,40,250 × 5,21,500 = Rs. 2,21,707

(7 Marks)

CATESTSERIES.ORG
Answer. (b)

Process A Account

Particulars Units Amount Particulars Units Amount

To Raw Material 3,000 15,000 By Normal Loss 300 600

(10% of input)

To Additional 1,000 By Transfer to 2,800 33,600

Process B
Components
(@ Rs. 12 per unit)

To Direct wages 4,000

To Direct Expenses 10,000

To Production 3,000

Overheads (75% of

Direct Wages)

To Abnormal Gain 100 1,200

(WN 1)

3,100 34,200 3,100 34,200

Process B Account

Particulars Units Amount Particulars Units Amount

To Transfer from 2,800 33,600 By Normal Loss (5% 140 700

of input)
Process A

CATESTSERIES.ORG
To Additional 780 By Abnormal Loss 60 1,227

Components

To Direct wages 3,000 By finished Goods 2,600 53,203

(stock A/c @ Rs.
20.463 per unit)

To Direct Expenses 14,000

To Production 3,750

Overheads (125% of

Direct Wages)

2,800 55,130 2,800 55,130

Finished Goods Stock Account

Particulars Amount Particulars Amount

To Opening Stock 20,000 By Cost of Finished goods 50,203

sold

To Transfer From Process B 53,203 By Closing stock 23,000

73,203 73,203

Normal Loss Account

Particulars Units Amount Particulars Units Amount

To Process A 300 600 By Sale Proceeds 200 400

By Abnormal Gain 100 200

A/c

CATESTSERIES.ORG
 300 600 300 600

Abnormal Loss Account

Particulars Units Amount Particulars Units Amount

To Process B 60 1,227 By Sales Proceeds 60 300

By Costing P& L A/c 927

60 1,227 60 1,227

Abnormal Gain Account

Particulars Units Amount Particulars Units Amount

To Normal Loss A/c 100 200 By Process A 100 1,200

To Costing P& L A/c 1,000

100 1,200 100 1,200

Working Notes:

Normal Cost
1. Normal Cost of Abnormal Gain = × Abnormal Gain
Normal Output

32,400
= × 100 = Rs. 1,200
2,700

54,430
1. Normal Cost of Abnormal Loss = × 60 = Rs. 1,227
2,660

(7 Marks)

3. Answer. (a)

(i) Traditional Absorption Costing

BABYSOFT- BABYSOFT- BABYSOFT Total

CATESTSERIES.ORG
 Pearl
Gold Diamond

(a) Production of soaps 4,000 3,000 2,000 9,000

(Units)

(b) Direct labour (minutes) 30 40 60 -

(c) Direct labour hours (a × 2,000 2,000 2,000 6,000

b)/60 minutes

Overhead rate per direct labour hour:

= Budgeted overheads ÷ Budgeted labour hours

= Rs. 1,98,000 ÷ 6,000 hours

= Rs. 33 per direct labour hour

Unit Costs:

BABYSOFT- BABYSOFT- BABYSOFT

Pearl
Gold Diamond

Direct Costs:

- Direct Labour 5.00 6.67 10.00

10 × 30 10 × 40 10 × 60
( ) ( ) ( )
60 60 60

- Direct Material (Refer working 167.50 215.50 248.50

note 1)

Production Overheads: 16.50 22.00 33.00

33 × 30 33 × 40 33 × 60
( ) ( ) ( )
60 60 60

Total unit costs 189.00 244.17 291.50

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Number 4,000 3,000 2,000

Total costs 7,56,000 7,32,510 5,83,000

(ii) Activity Based Costing

BABYSOFT- BABYSOFT- BABYSOFT Total

Pearl
Gold Diamond

Quantity (units) 4,000 3,000 2,000 -

Weight per unit 108 106 117

(grams)
{(60×0.8)+20+30+10} {(55×0.8)+20+30 {(65×0.8)+20+3 -

+12} 0+15}

Total weight 4,32,000 3,18,000 2,34,000 9,84,000

(grams)

Direct labour 30 40 60 -
(minutes)

Direct labour 2,000 2,000 2,000 6,000

hours
(4,000×30 /60 ) (3,000×40 /60 ) (2,000×60 / 60)

Machine 5 5 6 -
operations per
unit

Total operations 20,000 15,000 12,000 47,000

Forklifting rate per gram = Rs. 58,000 ÷ 9,84,000 grams = Rs. 0.06 per gram

Supervising rate per direct = Rs. 60,000 ÷ 6,000 hours labour hour = Rs. 10 per labour hour

Utilities rate per machine = Rs. 80,000 ÷ 47,000 machine operations operations

CATESTSERIES.ORG
= Rs. 1.70 per machine operations

Unit Costs under ABC:

BABYSOFT- BABYSOFT- BABYSOFT

Pearl
Gold Diamond

Direct Costs:

- Direct Labour 5.00 6.67 10.00

- Direct Material 167.50 215.50 248.50

Production Overheads:

Forklifting cost 6.48 6.36 7.02

(0.06 × 108) (0.06 × 106) (0.06 × 117)

Supervising cost 5.00 6.67 10.00

(10×30/60) (10×40 /60 ) (10×60/60)

Utilities 8.50 8.50 10.20

(1.70 × 5) (1.70 × 5) (1.70 × 6)

Total unit costs 192.48 243.70 285.72

Number of units 4,000 3,000 2,000

Total costs 7,69,920 7,31,100 5,71,440

(iii) Comments: The difference in the total costs 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.

Working note-1

CATESTSERIES.ORG
Calculation of Direct material cost

BABYSOFT- BABYSOFT- BABYSOFT

Pearl
Gold Diamond

Essential oils 120.00 165.00 195.00

200 × 60 300 × 55 300 × 65

( ) ( ) ( )
100 100 100

Cocoa Butter 40.00 40.00 40.00

200 × 20 200 × 20 200 × 20

( ) ( ) ( )
100 100 100

Filtered water 4.50 4.50 4.50

15 × 30 15 × 30 15 × 30
( ) ( ) ( )
100 100 100

Chemicals 3.00 6.00 9.00

30 × 10 50 × 12 60 × 15
( ) ( ) ( )
100 100 100

Total costs 167.50 215.50 248.50

(7 Marks)

Answer. (b)

Computation of Material Variance: (Refer to working Note 1)

a) Direct Material cost variance = Standard cost for actual output – Actual cost
= Rs.1,75,000 – Rs.1,89,000 = Rs.14,000 (A)
b) Material Price variance = Actual Quantity (Standard Price – Actual Price
= 3,600 (Rs.50 – Rs.52.50) = Rs.9,000 (A)
c) Material usage variance = Standard price (Standard Quantity – Actual Quantity)
= Rs.50 (3,500 units – 3,600 units) = Rs.5,000 (A)

CATESTSERIES.ORG
Computation of Labour Variances: (Refer to working Note 2)

d) Direct Labour cost variance = Standard cost – Actual cost

= Rs.21,000 – Rs.22,100 = Rs.1,100 (A)
e) Wage Rate variance = Actual hours paid (Standard Rate – Actual Rate)

= 6,800 (Rs.3 – Rs.3.25) = Rs.1,700 (A)

f) Labour Efficiency variance = Standard Rate per hr. (Standard hours – Actual hours
worked)= Rs.3 (7,000 hours – 6,400 hours) = 1,800 (F)
g) Idle Time variance = Total cost variance (Labour Hours worked – Labour hours paid)
= Rs.3 (6,400 hours – 6,800 hours) = 1,200 (A)

Computation of Overhead Variances: (Refer to Working Note 3)

h) Variable Expenses variance = (Standard variable Expenses – Actual variable

Expenses) = Rs.70,000 – Rs.62,000 = Rs.8,000 (F)
i) Fixed Expenses Expenditure variance = (Budgeted fixed expenses – Actual variable
Expenses)= (Rs.1,92,000 – Rs.1,88,000) = Rs.4,000 (F)
j) Fixed Expenses Volume variance = (Standard Hours for actual Output – Budgeted
Hours) × Standard Rate = (7,000 – 9,600) × Rs.20 = Rs.52,000 (A)
k) Fixed Expenses capacity variance = Standard Fixed Expenses Rate per hour × (Actual
hours – Budgeted hours)= Rs.20 (6,800 hours – 9,600 hours) = Rs.56,000 (A)
l) Fixed Expenses Efficiency variance = Standard Fixed expenses rate per hour ×
(Standard hour for actual output – Actual hours)= Rs.20 (7,000 hours – 6,800 hours)
= Rs.4,000 (F)
m) Total cost variance = Total Standard cost – Total actual cost
= (3,500 × Rs.116) - Rs.4,61,100 = Rs.55,100 (A)
or, = Direct Material cost variance + Direct Labour cost variance + Variance Expenses
variance + Fixed overhead Expenditure variance + Fixed Expenses Volume variance
= Rs.14,000 (A) + Rs.1,100 (A) + Rs.8,000 (F) + Rs.4,000 (F) + Rs.52,000 (A)
= Rs.55,100 (A)

Working Notes:

CATESTSERIES.ORG
1. Standard and Actual costs of material for actual output i.e., 3,500 units of finished
products.

Material Standard Cost Actual Cost

Quantity units Rate p.u. Amount (Rs.) Quantity Rate p.u. Amount
(Rs.) units (Rs.) (Rs.)

3,500 50 1,75,000 3,6000 52.50 1,89,000

2. Standard and actual labour costs for actual output of 3,500 units.

Standard Cost Actual Cost

Labour Rate p. Amount Labour Labour Idle Rate p. Amount

Hours hr. (Rs.) Hours Hours Time hr. (Rs.)
worked paid for Hours

7,000 3.00 21,000 6,400 6,800 400 3.25 22,100

3.

Budgeted/ Standard Actual Cost

data

Total Variance Expenses (Rs.) (3,500 × Rs.20) 70,000 62,000

Fixed Expenses (Rs.) 1,92,000 1,88,000

Output (units) 4,800 3,500

Hours 9,600 6,800

Standard Fixed Rate (p.u.) (1,92,000 ÷ 4,800) 40

Standard Fixed Expenses Rate (p.h.) 20

(1,92,000÷ 9,600)

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 (7 Marks)

4. Answer. (a)

(i) OVERHEADS PRIMARY DISTRIBUTION SUMMARY

Items Basis of Total Production Deptts. Service

Charge Deptts.

A B C D E

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Direct Wages Allocation 2,000 - - - 1,500 500

Rent and Rates Rs.0.50 per sq. 5,000 1,000 1,250 1,500 1,000 250
ft.

General Rs.0.10 per 600 100 150 200 100 50

Lighting point

Indirect Wages 15% of Direct 1,500 450 300 450 225 75

Wages

Power (Rs.)10 per H.P. 1,500 600 300 500 100 -

Depreciation of 4% of the 10,000 2,400 3,200 4,000 200 200

Machinery of
value of
Machinery

Sundries 100% of Direct 10,000 3,000 2,000 3,000 1,500 500

Wages

Total Departmental Overheads 30,600 7,550 7,200 9,650 4,625 1,575

(ii)OVERHEADS SECONDARY DISTRIBUTION SUMMARY (REPEATED DISTRIBUTION

METHOD

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 Items Production Deptts. Service Deptts.

A B C D E

Total overheads as per (i) 7,550 7,200 9,650 4,625 1,575

Dept. D overheads apportioned 925 1,387 1,850 (4,625) 463

Dept. E overheads apportioned 815 408 611 204 (2,038)

(1,575 + 463)

Dept. D overheads apportioned 41 61 82 (204) 20

Dept. E overheads apportioned 8 4 6 2 (20)

Dept. D overheads apportioned - 1 1 (2) -

Total 9,339 9,061 12,200

Working Hours 6,226 4,028 4,066

Rate per hour 1.50 2.25 3.00

STATEMENT SHOWING THE TOTAL COST OF THE ARTICLE

Direct Material Rs. 50.00

Direct Labour Rs.30.00

Prime Cost 80.00

Overheads

Department A : 4 hours @ Rs. 1.50 per hour 6.00

Department B : 5 hours @ Rs.2.25 per hour 11.25

Department C : 3 hours @ Rs. 3.00 per hour 9.00

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 106.25

(8 Marks)

Answer-(b)

Reorder Level = Maximum Consumption x Maximum Reorder period.

Component X: 900 units x 6 weeks = 5400 units.

Component Y: 900 units x 4 weeks = 3600 units.

Minimum Stock Level = Reorder Level - [Normal Consumption x Normal Reorder Period]

X = 5400 units - (600 units x 5 weeks) = 5400 - 3000 units=2400 units

Y= 3600 units - (600 units x 3 weeks) = 3600 - 1800= 1800 units

Maximum Stock Level: Reorder level + Reorder Quantity - (Minimum consumption x

Minimum Reorder period)

X=5400 units + 4800 Units - [300 units x 4 weeks] = 10200 units -1200 = 9000 units

Y = 3600 units + 7200 units - (300 units x 2 weeks) = 10800 units - 600 units =10200 units.

Average Stock Level: Minimum Stock Level + 1/2 Reorder quantity

X= 2400 units + l/2 x 4800 units = 2400 + 2400 =4800 Units. (OR)

= Minimum level + Maximum Level / 2

= 2400 + 9000 / 2 = 11400 units / 2 = 5700 units.

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y = 1800 units+1/2 of 7200 units. = 1800 + 3600 = 5400 units

(OR) 1800 + 10200 / 2 = =12000 / 2 = 6000 units

(3 Marks)

(c)

Sales Profit

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

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

Difference Rs. 20,000 5,000

Difference in profit 5,000

(i)P/V = × 100 = 20,000 × 100 = 25%
Differenece in sales

Contribution in 2019 (1,20,000 × 25%) 30,000

Less Profit 8,000

Fixed Cost 22,000

Contribution =Fixed Cost + Profit

Fixed Cost = Contribution – Profit

𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 22,000

(ii)Break –even point = = = 𝑅𝑠. 88,000
𝑃/𝑉 25%

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

Contribution (Rs.1,80,000 × 25%) 45,000

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Less: Fixed cost 22,000

Profit 23,000

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

Fixed cost+Desired profit 22,000+12,000

= P = = Rs. 1,36,000
ratio 25%
v

(v) Margin of safety in 2020-

Margin of safety =Actual sales – Break even sales

= 14,00,000 - 88,000=Rs.52,000

(3 Marks)

5. Answer. (a)
Journal Entries

Particulars Dr. Cr.

(Amount in Rs.) (Amount in Rs.)

Stores Ledger Control a/c Dr. 2,46,000 2,46,000

To General Ledger Adjustment a/c

(Being materials purchased)

General ledger Adjustment a/c Dr. 5,800

To Stores Ledger Control a/c 5,800

(Entry for materials returned to suppliers)

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Work-in-progress Ledger Control a/c Dr. 2,54,630

To Stores Ledger Control a/c 2,54,630

(Entry for issue of materials to production)

Wages Control a/c Dr. 1,01,060

To General Ledger Adjustment a/c 1,01,060

(Entry for direct wages incurred)

Work-in-progress Ledger Control a/c Dr. 1,01,060

To Wages Control a/c 1,01,060

(Entry for direct wages charged to production)

Works Overhead Control a/c Dr. 1,83,020

To General Ledger Adjustment a/c 1,83,020

(Entry for works overhead incurred)

Works overhead control a/c Dr. 43,330

To General Ledger Adjustment a/c 43,330

(Entry for indirect wages incurred)

Work-in-progress Ledger Control a/c Dr. 1,54,400

To Works Overhead Control a/c 1,54,400

(Entry for overhead charged to production)

General Ledger Adjustment a/c Dr. 3,71,780

To Finished Stock Ledger Control a/c 3,71,780

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(Entry for cost of sales)

Finished Stock Ledger Control a/c Dr. 10,760

To General Ledger Adjustment a/c 10,760

(Entry for sales return)

Finished Stock Ledger Control a/c Dr. 4,21,670

To Work-in-progress Ledger Control a/c 4,21,670

(Entry for finished goods transferred)

GENERAL LEDGER ADJUSTMENT ACCOUNT

Particulars Amount Particulars Amount

To Stores Ledger Control 5,800 By balance b/d 13,30,440

a/c

To Finished Stock Ledger 3,71,780 By Stores Ledger Control a/c 2,46,000

Control a/c

To balance c/d 15,37,030 By Wages Control a/c 1,01,060

By Works Overhead Control a/c 1,83,020

By Works Overhead Control a/c 43,330

By Finished Stock Ledger 10,760

Control a/c

19,14,610 19,14,610

STORES LEDGER CONTROL ACCOUNT

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Particulars Amount Particulars Amount

To balance b/d 6,02,870 By WIP Ledger Control 2,54,630

A/c

To General Ledger 2,46,000 BY Cost Ledger Control 5,800

Adjustment A/c

a/c

By balance c/d 5,88,440

8,48,870 8,48,870

WORKS (MANUFACTURING) OVERHEAD CONTROL ACCOUNT

Particulars Amount Particulars Amount

To General Ledger Control a/c 1,83,020 By balance b/d 21,050

To General Ledger Control a/c 43,330 By Work-in-progress Ledger 1,54,400

Control a/c

By balance c/d 50,900

2,26,350 2,26,350

WORK-IN-PROGRESS LEDGER CONTROL ACCOUNT

Particulars Amount Particulars Amount

To balance b/d 2,44,730 By Finished Stock 4,21,670

Ledger Control a/c

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To Stores Ledger Control a/c 2,54,630 By balance c/d 3,33,150

To Wages Control a/c 1,01,060

To Works Overhead Control 1,54,400

a/c

7,54,820 7,54,820

FINISHED STOCK LEDGER CONTROL ACCOUNT

Particulars Amount Particulars Amount

To balance b/d 5,03,890 By Cost Ledger Control a/c 3,71,780

To Work-in-progress Ledger 4,21,670 By balance c/d 5,64,540

Control a/c

To General Ledger 10,760

Adjustment a/c

9,36,320 9,36,320

TRIAL BALANCE

Particulars Dr. Cr.

Stores Ledger Control a/c 5,88,440

Work-in-progress Ledger Control a/c 3,33,150

Finished Stock Ledger Control a/c 5,64,540

CATESTSERIES.ORG
Manufacturing Overhead Control a/c 50,900

Cost Ledger Control a/c 15,37,030

15,37,030 15,37,030

(8 Marks)

(b) Solution

𝑅𝑠.81
Wages Rate per hours =45 ℎ𝑜𝑢𝑟𝑠 =Rs.1.80 hour

Actual Production for week=200 units

Time Allowed per unit =18 min =18 i.e 0.30 Hours=60

Time allowed for 200 units =200 units ×0.30 Hours=60 Hours

Time taken=45 Hours

Time Saved =60-45 = 15 Hours

Wages under:

Halsey Scheme = (Time taken ×wages Rate) + (50% ×Time Saved ×Wage Rate)

= (45 hours×Rs.1.80) + (50%×15×1.80)

= Rs.81 +Rs.13.50=94.50

Total wages 94.50

Earning per Hour of workers=Actual Hours = =2.10 per hour
Worked 45

Time taken
Rowan scheme= (Time Taken ×Wage Rate ) + (Time Saved ×Time Allowed × Wage Rate

= (45×1.80) + (15×45/60×1.80)

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=81+20.25=Rs.101.25

Total Wages Rs.101.25

Earning of worker per hour = Actual Hours worked =45 hours =2.25 per hours

(3 Marks)

(c)

Cost Statement of Chambal Thermal Power Station

Total units generated 10,00,000 kWh.

Per annum (Rs.) Per kWh. (Rs.)

Fixed costs:

Plant supervision 4,00,000

Administration overheads 20,00,000

Depreciation (5% of Rs. 2,00,00,000 p.a.) 10,00,000

Total fixed cost: (A) 34,00,000 3.40

Variable costs:

Operating labour 15,00,000

Lubricants, spares and stores 5,00,000

Repairs & maintenance 5,00,000

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Coal cost (Refer to working note) 8,50,000

Total variable cost: (B) 33,50,000 3.35

Total cost [(A) + (B)] 67,50,000 6.75

Working Note:

Coal cost (10,00,000 kWh. ÷ 5 kWh) × Rs. 4.25 per kg. = Rs. 8,50,000

(3 Marks)

6 .Answer. (a)- 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. Alternatively, a formula can be derived which is similar to
determination of Economic Order Quantity (EOQ). 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 follow:

2DS
EBQ = √
C

Where, D = Annual demand for the product

S = Setting up cost per batch
C = Carrying cost per unit of production

(3 Marks)

(b) Internal: The service costing is required for in-house services provided by a service cost
centre to other responsibility centres as support services. Examples of support services are
Canteen and hospital for staff, Boiler house for supplying steam to production departments,
Captive Power generation unit, operation of fleet of vehicles for transport of raw material to

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factory or distribution of finished goods to the market outlets, IT department services used
by other departments, research & development, quality assurance, laboratory etc.

External: When services are offered to outside customers as a profit centre in consonance
with organisational objectives as an output like goods or passenger transport service
provided by a transporter, hospitality services provided by a hotel, provision of services by
financial institutions, insurance and IT companies etc.

In both the situation, all costs incurred are collected, accumulated for a certain period or
volume, recorded in the cost accounting system and then expressed in terms of a cost unit
of service.

(3 Marks)

(c) This product costing system is used when an entity produces more than one variant of
final product using different materials but with similar conversion activities. Which means
conversion activities are similar for all the product variants but materials differ significantly.
Operation Costing method is also known as Hybrid product costing system as materials costs
are accumulated by job order or batch wise but conversion costs i.e. labour and overheads
costs are accumulated by department, and process costing methods are used to assign
these costs to products. Moreover, under operation costing, conversion costs are applied to
products using a predetermined application rate. This predetermined rate is based on
budgeted conversion costs.

For example, a company is manufacturing two grades of products, Product- Deluxe and
Product- Regular. Both the products pass through a similar production process but require
different quality and quantities of raw materials. The cost of raw material is accumulated on
the basis of job or batches or units of two variants of products. But the costs for the
conversion activities need not to be identified with the product variants as both the
Products requires similar activities for conversion. Hence, conversion activity costs are
accumulated on the basis of departments or processes only. Example of industries are ready
made garments, Shoe making, jewelry etc.

(3 Marks)

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(d) The main characteristics of budget are as follows:

1. A budget is concerned for a definite future period.

2. A budget is a written document.

3. A budget is a detailed plan of all the economic activities of a business.

4. All the departments of a business unit should co-operate for the preparation of a business
budget.

5. Budget is a mean to achieve business objectives and it is not an end in itself.

6. Budget needs to be updated, corrected and controlled every time circumstances change.
Therefore, it is a continuous process.

7. Budget helps in planning, coordination and control.

8. Different types of budgets are prepared by industries according to business requirements.

9. A budget acts as a business barometer.

10. Budget is usually prepared in the light of past experiences.

11. Budget is a constant endeavour of the Management.

(3 Marks)

(e) The following are the classification of costs based on functions:

(i) Direct Material Cost

(ii) Direct Employee (labour) Cost

(iii) Direct Expenses

(iv) Production/ Manufacturing Overheads

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(v) Administration Overheads

(vi) Selling Overheads

(vii) Distribution Overheads

(viii) Research and Development costs etc.

(2 Marks)

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