- Audit Short Tricks!!

- Lets Revise IDT !!

CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

CA FINAL SCMPE – Paper 5:

Mini Question Bank

57 Important question of Old syllabus (AMA) Relevant
for New Syllabus SCMPE
BRIEF ABOUT AUTHOR:

Hello everyone, Myself CA Hemant Somani, I have secured AIR-46 in CA Final

July 21 Examination, I have also secured EXEMPTION in CA FINAL JULY 21
AUDIT PAPER, It was the Toughest paper in History of ICAI. I have completed
My articleship from PwC|Mumbai in Statutory Audit field

Key Feature:
✓ This question bank only contains those Important question of Old syllabus
(AMA) Relevant for New Syllabus SCMPE:
• Old Course Practice manual questions
• Old course Past examination questions
✓ It Contains Total 57 questions
Whether it is advisable to do Old Syllabus questions:
✓ In new syllabus ICAI has increased weightage of theory so we have to remember the
theory of SCMPE like Audit,
✓ So It is advisable to cover
• NEW SYLLABUS ICAI STUDY MAT.
• Past papers/RTP/MTP of new syllabus
• ICAI Case study digest
✓ Above content is already very much voluminous, so if you want to skip old syllabus
questions, then yes …you can skip them ..its Fine.
✓ But you want to remain in safe side or only 2nd group is pending, then you can do
these 57 questions
✓ By doing this questions you will be able to solve hard questions/new questions in
exam easily……….but its not mandatory to do them, you can score good marks even
by doing only new syllabus questions.

1|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

CLICK HERE : Subscribe me on YOUTUBE:

CA HEMANT SOMANI (AIR-46)
For Free Revision of Audit, Audit Ratta-fication
trick series ,IDT Revisions, Strategy for each
subjects & LDR Tips

CLICK HERE : Connect me on TELEGRAM:

http://t.me/cahemantsomani
CA HEMANT SOMANI (AIR-46)
For free notes & guidance

On My Youtube & Telegram channel you will find:

➢ Audit ratta-fication / Remembering & Mnemonics Trick and Revision

➢ ICAI Marking pattern – How ICAI Model solutions works………

➢ Free Question Bank & Notes

➢ All time & Numerical limits

➢ ECL (Paper 6) – Significant case laws explanation

➢ Strategies …& many other relevant Stuffs

2|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

BRIEF ABOUT AUTHOR:

Hello everyone, Myself CA Hemant Somani, I have
secured AIR-46 in CA Final July 21 Examination, I have
also secured EXEMPTION in CA FINAL JULY 21
AUDIT PAPER, It was the Toughest paper in
History of ICAI. I have completed My articleship from
PwC|Mumbai in Statutory Audit field
CA Hemant Somani (AIR 46)

A Motivation CUM Story

I always needed a single digit rank in CA Final, But Luck factor was not in my favor, Just
before 15 days of exam me & my family got infected by COVID, and last 15 days are
equivalent to 3 months, But I didn’t loosed hope and gave exam at that time also, During
exams also I was suffering from many post COVID symptoms ………
And Finally I Secured AIR 46 (Not single digit),
I just want to convey that while doing your preparation, “Always Aim for the BEST &
Prepare for the Worst scenario”

CLICK HERE : Subscribe me on YOUTUBE:

CA HEMANT SOMANI (AIR-46)
For Free Revision of Audit, Audit Ratta-fication
trick series ,IDT Revisions, Strategy for each
subjects & LDR Tips
CLICK HERE : Connect me on TELEGRAM:
http://t.me/cahemantsomani
CA HEMANT SOMANI (AIR-46)
For free notes & guidance

3|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER - 2
Modern Business Environment
Q.1
UK Ltd. prepared a draft budget for the next year as follows:
Quantity – 10,000 units

The board of directors are not satisfied with this draft budget and suggested the following changes for the
better profit:
(i) The budgeted profit is Rs. 50,000,
(ii) The company should spend Rs.57,000 on advertisement and the target sales price up to 64 per unit.
(iii) It is expected that the sales volume will also rise, inspite of the price rise, to 12,000 units.
In order to achieve the extra production capacity, however, the work force must be able to reduce the time
taken to make each unit of the product. It is proposed to offer a pay and productivity deal in which the
wages rate per hour is increased to Rs.8. The hourly rate for variable overheads will be unaffected.
Required
Calculate the target labour time require to achieve the target profit.
Answer

4|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.2:
Hindustan Bikes Ltd. (HBL) formerly known as HELCO is an Indian multinational company. It’s
headquarter is located in Bengaluru, India. It has been founded in the year 1990 as a manufacturer of
locomotives. The company is presently listed locally as well as in international stock market. HBL’s parent
company is Hindustan Group. The management of HBL recognizes the need to establish a culture at the
company so that “Do the right things, right the first time, every time”. Management has provide you
following actual information for the most recent month of the current year:

Additional information HBL carried out a quality review of its existing suppliers to enhance quality levels
during the month at a cost of ` 1,25,000. Due to the quality issues in the month, the bike production line
experienced unproductive 'down time' which cost ` 7,70,000. Required Prepare a statement showing ‘Total
Quality Cost’.
Answer:

5|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.3
NZ Ltd. implemented a quality improvement programme and had the following results:

Required
(i) Classify the quality costs as prevention, appraisal, internal failure and external failure and express each
class as a percentage of sales.
(ii) Compute the amount of increase in profits due to quality improvement.
Answer:

6|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.4
NEC Ltd. manufactures two parts ‘P’ and ‘Q’ for Computer Industry.
P : Annual production and sales of 1,00,000 units at a selling price of Rs.100.05 per unit.
Q : Annual production and sales of 50,000 units at a selling price of Rs.150 per unit.
Direct and Indirect costs incurred on these two parts are as follows:

Note: Direct machining costs represents the cost of machine capacity dedicated to the production of each
product. These costs are fixed and are not expected to vary over the long run horizon.
Additional information is as follows:

A foreign competitor has introduced product very similar to ‘P’. To maintain the company’s share and profit,
NEC Ltd. has to reduce the price to ` 86.25. The company calls for a meeting and comes up with a proposal
to change design of product ‘P’. The expected effect of new design is as follows:
7|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
— Direct Material cost is expected to decrease by Rs.5 per unit.
— Labour cost is expected to decrease by Rs.2 per unit.
— Machine time is expected to decrease by 15 minutes, previously it took 3 hours to produce 1 unit of ‘P’.
The machine will be dedicated to the production of new design.
— Set up time will be 28 hours for each set up.
— Time required for testing each unit will be reduced by 1 hour.
— Engineering cost and batch size will be unchanged.

Required
(i)Company management identifies that cost driver for Machine set-up costs is ‘Set up hours used in batch
setting’ and for testing costs is ‘testing time’. Engineering costs are assigned to products by special study.
Calculate the full cost per unit for ‘P’ and ‘Q’ using Activity-Based Costing.
(ii) What is the Mark-up on full cost per unit of P?
(iii) What is the Target Cost per unit for new design to maintain the same markup percentage on full cost
per unit as it had earlier? Assume cost per unit of cost drives for the new design remains unchanged.
(iv) Will the new design achieve the cost reduction target?
(v) List four possible management actions that the NEC Ltd. should take regarding new design.

Answer:

8|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

9|Page
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.5
7 Star Sports Co. (7SSC) is engaged in the manufacture of cricket bats. Following table shows the budgeted
figures for the coming year:

Components like willow, rubber grip and handle bar in a set, are bought in and an assembling process
carried out to transform them into a single bat. Market is intensely competitive where 7SSC currently holds
30% market share. Annual demand of these bats is 1,00,000 units.
On reviewing previous performance it is revealed that 3% of the bats supplied to customers were returned
for free replacement because of faults. Defective components, which are initially bought in to assembling
process, are held responsible for this. These returned bats cannot be repaired and have no scrap value.
Supply of faulty bats to customers could be eliminated by implementing an inspection process immediately
before the goods are delivered. This would improve customer perception thus resulting in an increase of 5%
in current market share (making in all a total share of 35%).
Required
(i) Calculate the quality non-conformance cost for the coming year, based on the budgeted figures and sales
returns rate.
(ii) Calculate the impact on profitability due to implementation of inspection process for the bats.
Answer

10 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.6
Transnet Ltd. is engaged in the production of four products: A, B, C and D. The price charged for the four
products are Rs.180, Rs.175, Rs.130 and Rs.180 respectively, Market research has indicated that if Transnet
Ltd can reduce the selling prices of its products by Rs.5, it will be successful in getting bulk orders and gain a
significant share of market of those products. The company’s profit markup is 25 per cent on cost of the
product. The relevant information of products are as follows:

11 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer:

12 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

13 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.7
Thomson Ltd. makes and sells a single product; the unit specifications are as follows:

Thomson Ltd. requires to fulfil orders for 5,000 product units per period. There are no stock of product
units at the beginning or end of the period under review. The stock level of material X remains unchanged
throughout the period. Thomson Ltd.
is planning to implement a Quality Management Programme (QPM). The
following additional information regarding costs and revenues are given as of now and after implementation
of Quality Management Programme.
Thomson Ltd. requires to fulfil orders for 5,000 product units per period. There are no stock of product
units at the beginning or end of the period under review. The stock level of material X remains unchanged
throughout the period. Thomson Ltd.
is planning to implement a Quality Management Programme (QPM). The
following additional information regarding costs and revenues are given as of now and after implementation
of Quality Management Programme.

14 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

The Total Quality Management Programme will have a reduction in Machine Run Time required per
product unit to 0.5 hr.
Required
(a) Prepare summaries showing the calculation of (i) Total production units (pre inspection), (ii) Purchase
of Materials X (square metres), (iii) Gross Machine Hours.
(b) In each case, the figures are required for the situation both before and after the implementation of the
Quality Management Programme so that orders for 5,000 product units can be fulfilled.
Prepare Profit and Loss Account for Thomson Ltd. for the period showing the profit earned both before and
after the implementation of the Total Quality Programme.
Answer:

15 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.8
‘Humara - Apna’ bank offers three products, viz., deposits, Loans and Credit Cards. The bank has selected 4
activities for a detailed budgeting exercise, following activity based costing methods.
The bank wants to know the product wise total cost per unit for the selected activities, so that prices may be
fixed accordingly. The following information is made available to formulate the budget:

16 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Required
(i) Calculate the budgeted rate for each activity.
(ii) Prepare the budgeted cost statement activity wise.
(iii) Find the budgeted product cost per account for each product using (i) and (ii) above.
Answer

17 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

18 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.9
BTS Ltd. produces three products A, B and C. The following information is available for a period:

Answer

Q.10
United Video International Company (UVIC) sells package of blank video tapes to Its customer. It purchases
video tapes from Indian Tape Company (ITC) @ ` 140 a package. ITC pays all freight to UVIC. No incoming
inspection is necessary because ITC has a superb reputation for delivery of quality merchandise. Annual
demand of UVIC is 13,000 packages. UVIC requires 15% annual return on investment. The purchase order
lead time is two weeks. The purchase order is passed through Internet and it costs ` 2 per order. The
relevant insurance, material handling etc ` 3.10 per package per year. UVIC has to decide whether or not to
shift to JIT purchasing. ITC agrees to deliver 100 packages of video tapes 130 times per year (5 times every

19 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
two weeks) instead of existing delivery system of 1,000 packages 13 times a year with additional amount of `
0.02 per package. UVIC incurs no stock out under its current purchasing policy. It is estimated UVIC incurs
stock out cost on 50 video tape packages under a JIT purchasing policy. In the event of a stock out, UVIC
has to rush order tape packages which costs ` 4 per package.
Comment whether UVIC should implement JIT purchasing system.
Hindustan Tape Company (HTC) also supplies video tapes. It agrees to supply @ ` 136 per package under
JIT delivery system. If video tape purchased from HTC, relevant carrying cost would be ` 3 per package
against ` 3.10 in case of purchasing from ITC. However HTC. doesn’t enjoy so sterling a reputation for
quality. UVIC anticipates following negative aspects of purchasing tapes from HTC.

Answer

20 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.11
Phi Ltd. produces 4 products P, Q, R and S by using three different machines X, Y and Z. Each machine
capacity is limited to 6,000 hours per month. The details given below are for July, 2013:

21 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

22 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

23 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.12
JPR Limited manufactures three products by using a single machine which has 2,40,000 bottleneck hours
per month. The details with regard to the three products are as under:

24 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Answer

Q.13

Century Electrical Company manufactures fans. As a first step to focus on quality improvements, the
company has compiled the following operating data for the year ending 31.03.2018:

25 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Required
Classify the costs into cost of quality categories and determine the total amount being spent on each
category
Answer

Q.14
A division of XY Company produces two types of products, whose selling price and cost data are as follows:

26 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

(iii) Based on the concept of throughput accounting, compute the product mix to yield maximum profit.
Show calculations up to two decimal points.
Answer

27 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

28 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER – 3 & 4
Lean System & Innovation and Cost Mngt Techniques
Q.15

A company produces and sells four types of dolls for children. It also produces and sells a set of dress kit for the dolls.
The company has worked out the following estimates for the next year:

Answer

29 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.16

A and B are two customers of XYZ Electronics Ltd., a manufacturer of audio players. Selling price per unit is `5,400. Its
cost of production per unit is Rs.4,420.

Additional costs are:

Order Processing Cost……………………………..Rs. 2,000 per order

Delivery Costs……………………………………….Rs. 3,500 per delivery

30 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

31 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.17

Oxford Medical Care Co. (OMCC) is a pharmaceutical firm, operating its entire business through its four customers
Ox1, Ox2, Ox3, and Ox4. Ox1 and Ox2 are small pharmaceutical stores while Ox3 and Ox4 are large discount stores
with attached pharmacies. OMCC uses discount pricing strategy and prices its products at variable cost plus 25%.

Answer

32 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Large Pharmaceuticals

OMCC makes substantial profit from the large pharmaceuticals. Ox4 alone contributing around 55% of total customer’s
profit and its order is for larger quantities. Therefore, Ox4 is most favorable customer and may be given little extra
attention. For Ox3, OMCC may have no options but to treat it as less profitable customer as Ox3 accounts more than
60% of sales.

Q.18

Aditya Decors Ltd. (ADL) is a leading manufacturer of luxury sanitary products and has divided its whole business into
different product segments. At the Last year the management of ADL has decided to make some changes in its one of
product-line ‘AADee’, the improved version was made available for sale from 1st of April 2014.

At the end of the financial year 2014-15, the finance and accounts department has extracted some relevant data for the
product line ‘AADee’ to analyse the decision taken last year. The data related with AADee for the financial year 2013-14
and 2014-15 are as follows:

Answer

33 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

34 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

35 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.19

Classify the following under category of cost control or cost reduction:

(i) Cost exceeding budgets or standards is investigated.

(ii) Preventive Function
(iii) Corrective Function
(iv) Measures to standardize for increasing productivity.
(v) Provision for proper storage facilities for materials.
(vi) Continuous comparison of actual with the standard set.
(vii) Challenges the standard.
(viii) Value analysis

Answer

(i) Cost Control (ii) Cost Control (iii) Cost Reduction (iv) Cost Reduction (v) Cost Control (vi) Cost Control (vii) Cost
Reduction (viii) Cost Reduction

36 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER - 5
Decision Making
Q. 20

A company had nearly completed a job relating to construction of a specialised equipment, when it discovered that
the customer had gone out of business. At this stage, the position of the job was as under:

37 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Answer

38 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.21
A company has to decide whether to accept a special order or not for a certain product M in respect of which
the following information is given:

Answer

39 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.22
S Limited is engaged in manufacturing activities. It has received a request from one of its
important customers to supply a product which will require conversion of material ‘M’, which is a non-
moving item.

Answer

Q.23
A company processes different products from a certain raw material. The raw material is
processed in process I (where normal loss is 10% of input) to give products A and B in the ratio 3 : 2. B is
sold directly. A is processed further in process II (where normal loss is 12.5% of output) to give products C
and D in the ratio 5:3. At this point C and D have sale values ` 55 and ` 40 per kg respectively. C can be
processed further in process III with processing cost ` 3,95,600 and normal wastage 5% of input and then
be sold at ` 66 per kg. D can be processed further in process IV with processing cost ` 3,82,500 and normal
wastage 12.5% of output and then be sold at ` 55 per kg. The normal wastage of each process has no
realizable value. During the production period, 2,00,000 kgs of raw material is to be introduced into Process
I.

40 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Required
Using incremental cost-revenue approach, advise whether sale processing is better for each of the products
C and D.
Answer

41 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.24
A firm needs a component in an assembly operation. If it wants to do the manufacturing itself, it would need
to buy a machine for ` 4 lakhs which would last for 4 years with no salvage value. Manufacturing costs in
each of the four years would be ` 6 lakhs, ` 7 lakhs, ` 8 lakhs and ` 10 lakhs respectively. If the firm had to
buy the component from a supplier the component would cost ` 9 lakhs, ` 10 lakhs, ` 11 lakhs and ` 14 lakhs
respectively in each of the four years. However, the machine would occupy floor space which could have
been used for another machine. This latter machine could be hired at no cost to manufacture an item, the
sale of which would produce net cash flows in each of the four years of ` 2 lakhs; it is impossible to find
room for both the machines and there are no other external effects. The cost of capital is 10% and P/V factor
for each of the 4 years is 0.909, 8.826, 0.751 and 0.683 respectively. Should the firm make the component
or buy from outside?
Answer

Q.25
X is a multiple product manufacturer. One product line consists of motors and the company
produces three different models. X is currently considering a proposal from a supplier who wants to sell the
company blades for the motors line.
The company currently produces all the blades it requires. In order to meet customer's needs, X currently
produces three different blades for each motor model (nine different blades). The supplier would charge `

42 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
25 per blade, regardless of blade type. For the next year X has projected the costs of its own blade
production as follows (based on projected volume of 10,000 units):

Answer

43 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
As volume of production decreases, the average per unit cost of in house production increases. If the volume
falls below 6,364 motors, then ‘X’ would prefer to buy the blades from the supplier.

Q.26
Agro caps Ltd., engaged in manufacturing agricultural machinery, is preparing its annual
budget for the coming year. The company has a metal pressing capacity of 20,000 hours, which will be
insufficient for manufacture of all requirements of components A, B, C and D.
The company has the following choices-

44 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Required
(i) Which component, and in what quantities should be manufactured in the 20,000 hours of press time
available?
(ii) Whether it would be profitable to make any of the balance of components required on a second shift
basis instead of buying them from outside suppliers.
Answer

45 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.27
A company manufacture four products. The annual demand for products, selling prices and variable
production costs are as follows:

46 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

47 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.28
Tuscan Reel Ltd. manufacturers a range of films extensively used in the Cinema industry. The films, once
manufactured, are packed in circular containers and stored in specially constructed crates lined with
"Protecto”. These crates are manufactured and maintained by a special department within the company and
the departmental costs last year are as under:

48 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
The following data are relevant:
(i) The machine used in the department cost ` 2,40,000 four years ago and will last for four more years. It
could be currently sold for ` 50,000.
(ii) The stock of "Protecto" was acquired last year for ` 2,00,000 and one-fifth was used last year and
included in the material cost. Its originally cost was ` 1,000 per ton, but the replacement cost is ` 1,200 per
ton; and it could be currently sold for ` 800 per ton.

Answer
Alternative I - Dept. is closed and Max Associates undertake to manufacture and maintain the Crates.
Alternative II - Tuscan Reel Ltd. continue to maintain the Crates, but leave their manufacture to Max
Associates
Alternative III - Tuscan Reel Ltd. continue to manufacture the Crates but leave their maintenance to Max
Associates.
49 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

50 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.29
If Moonlite Limited operates its plant at normal capacity it produces 2,00,000 units from the plant
'Meghdoot'. The unit cost of manufacturing at normal capacity is as under:

Direct labour cost represents the compensation to highly-skilled workers, who are permanent employees of
the company. The company cannot afford to lose them. One labour hour is required to complete one unit of
the product.
The company sells its product for ` 200 per unit with variable selling expenses of ` 16 per unit. The
company estimates that due to economic down turn, it will not be able to operate the plant at the normal
capacity, at least during the next year. It is evaluating the feasibility of shutting down the plant temporarily
for one year. If it shuts down the plant, the fixed manufacturing overhead will be reduced to` 1,25,000. The
overhead costs are incurred at a uniform rate throughout the year. It is also estimated that the additional
cost of shutting down will be ` 50,000 and the cost of re-opening will be ` 1,00,000.
Required
Calculate the minimum level of production at which it will be economically beneficial to continue to operate
the plant next year if 50% of the labour hours can be utilized in another activity, which is expected to
contribute at the rate of ` 40 per labour hour. The additional activity will relate to a job which will be off-
loaded by a sister company only if the company decides to shut down the plant.
(Assume that the cost structure will remain unchanged next year. Ignore income tax and time value of
money)
Answer

51 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.30
Paints Ltd. manufactures 2,00,000 tins of paint at normal capacity. It incurs the following manufacturing
costs per unit:

Answer

52 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.31
Rabi Ltd. is considering the discontinuance of Division C. The following information is given:

Answer
As given in the problem Rabi Ltd. is considering to discontinue the Division C perhaps by seeing the Division C‘s
income as it is a loss of `1,72,500. Discontinuance of Division C might be saving `4,14,000 on specific fixed costs to the
company but due to this decision company will not only be losing `2,41,500 contribution from the Division C but also
an additional burden of variable cost of `2,30,000 to Divisions A & B and Rabi Ltd. as a whole

53 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.32
G Ltd. produces and sells 95,000 units of ‘X’ in a year at its 80% production capacity. The selling price of product is ` 8
per unit. The variable cost is 75% of sales price per unit. The fixed cost is ` 3,50,000. The company is continuously
incurring losses and management plans to shut-down the plant. The fixed cost is expected to be reduced to ` 1,30,000.
Additional costs of plant shut-down are expected at ` 15,000. Should the plant be shut-down? What is the capacity
level of production of shut-down point?

Answer

Q.33

A company is producing three products X, Y & Z. Relevant information is given below:

54 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Answer

55 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.34

56 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

57 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

58 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

59 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER - 6
Pricing Decision
Q.35

R.T. Ltd, want to fix proper selling prices for their products ‘A’ and ‘B’ which they are newly introducing in the market.
Both these products will be manufactured in Department D which is considered as a Profit Centre.

The proportion of Overheads other than interest, chargeable to the two products are as under:

Factory Overheads (50% Fixed) 100% of Direct Wages, Administration Overheads (100% Fixed) 10% of Factory Cost,
Selling and Distribution Overheads (50% Variable) ` 3 and ` 4 respectively per unit of products A and B.

The fixed capital investment in the Department is ` 50 Lakhs. The working capital requirement is equivalent to 6
months stocks of cost of sales of both the products. For this project a term loan amounting to ` 40 lakhs has been
obtained from Financial Institutions at an interest rate of 14% per annum. 50% of the working capital needs are met by
Bank Borrowing carrying interest at 18% per annum. The Department is expected to give a return of 20% on its capital
employed.

Required

(a) Fix the selling prices of products A and B such that the contribution per direct labour hour is the same for both the
products;

(b) Prepare a statement showing in detail the over-all profit that would be made by the Department.

Answer

60 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

61 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.36

The Board of Directors XY Company Limited are considering a new type of handy sewing machine which their R & D
Department has developed. The expenditure so far on research has been Rs. 95,000 and a consultant's report has Rs.
22,500. The report provides the following information:

Cost of production per unit:

62 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

63 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

64 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.37

A manufacturing company has an installed capacity of 1,20,000 units per annum. The cost structure of the product
manufactured is as under:

Answer

65 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.38

66 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.39

A company produces a single product ‘lmpex’

67 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.40

Excel Ltd. specialises in the manufacture of Printers. They have recently developed a technology to design a new
Printer. They are quite confident of selling all of the 4,000 units that they would be making in a year. The capital
equipment that would be required will cost ` 12.5 lakhs. It will have an economic life of 4 years and no significant
terminal salvage value

Answer

68 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.41

Hind Metals Manufactures an alloy product ‘Incop’ by using Iron and Copper. The metals pass through two plants, X
and Y. The company gives you the following details for the manufacture of one unit of Incop:

(ii) After the alloy is well established in the market. What should be the minimum selling price? Why?

Answer

69 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.42

Computer Tec a manufacturing firm, has entered into an agreement of strategic alliance with Comp Inc. of United
States of America for the manufacture of Super Computers in India. Broadly, the terms of agreement are:

70 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

71 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

72 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.43

RST Ltd. is specialists in the manufacture of sports goods. They manufacture croquet mallets but purchase the wooden
balls, iron arches and stakes required to complete a croquet set.

Mallets consist of a head and handle. Handles use 2.5 board feet per handle at ` 50 per board foot. Spoilage loss is
negligible for the manufacture of handles. Heads frequently split and create considerable scrap.

A head requires 0.40 board feet of high quality lumber costing ` 60 per board foot. Spoilage normally works out to 20%
of the completed heads. 4% of the spoiled heads can be salvaged and sold as scrap at ` 10 per spoiled head.

In the department machining and assembling the mallets, 6 men work 8 hours per day for 25 days in a month. Each
worker can machine and assemble 12 mallets per uninterrupted 40 minutes time frame. In each 8 hours working day,
15 minutes are allowed for coffee-break, 8 minutes on an average for training and 9 minutes for supervisory
instructions. Besides 10% of each day is booked as idle time to cover checking in and checking out changing operations,
getting materials and other miscellaneous matters. Workers are paid at a comprehensive rate of ` 6 per hour.

The department is geared to produce 20,000 mallets per month and the monthly expenses of the department are as
under:

Answer

73 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.44

LMV Limited manufactures product Z in departments A and B which also manufacture other products using same
plant and machinery. The information of product Z is as follows:

(ii) Set the minimum selling price of the product if (1) the product is well established in the market; (2) the product is
first time launched in the market.

74 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Answer

75 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.45
A Japanese soft drink company is planning to establish a subsidiary company in India to produce mineral water. Based
on the estimated annual sales of 40,000 bottles of the mineral water, cost studies produced the following estimates for
the Indian subsidiary:

Required

(i) Compute the sale price per bottle to enable the management to realise an estimated 10% profit on sale proceeds in
India.

(ii) Calculate the break-even point in Rupee sales and also in number of bottles for the Indian subsidiary on the
assumption that the sale price is Rs.14 per bottle.

Answer

76 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

77 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER - 6
Divisional Transfer Pricing
Q.46

Division Z is a profit center which produces four products A, B, C and D. Each product is sold in the external market also. Data for
the period is:

Answer

Ranking of Products When Availability of Time is the Key Factor

78 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.47

X Division and Y Division are two divisions in the XY group of companies. X Division manufactures one type of component which it
sells to external customers and also to Y Division.

79 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
(2) Calculate the financial impact on the Group if Y Division ignored the transfer pricing policy and purchased all of the 20,000
components that it needs from an external supplier for Rs.255 each. Your answer must consider the impact at each of the three
levels of demand (15,000, 19,000 and 35,000 components) from external customers for the component manufactured by X
Division.

Answer

80 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.48

Division A is a profit centre, which produces four products P, Q, R and S. Each product is sold in the external market also. Data for
the period is as follows:

81 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Required

What should be transfer price for each unit for 2,000 units of S, if the total labour hours available in Division A are:

(i) 24,000 hours?

(ii) 32,000 hours?

Answer

82 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.49

Celestial Electronics and Consumer Durables Corporation (CECDC), is a Taiwan (a state, Republic of China) based consumer
electronics manufacturer. To expand its market share in South Asia it has formed CECDC India Pvt. Ltd. (CIPL) in India. For the
purpose of performance evaluation, the Indian part is treated as responsibility centre. CIPL imports components from the CECDC
and assembles these components into a LED TV to make it saleable in the Indian market. To manufacture an LED TV two units of
component ‘LX’ are required. The following cost is incurred by the CECDC to manufacture a unit of component Lx

83 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

84 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

85 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.50
The two manufacturing divisions of a company are organized on profit centre basis. Division X is the only source of a component
required by Division Y for their product ‘P’. Each unit of P requires one unit of the said component. As the demand of the product
is not steady, orders for increased quantities can be obtained by manipulating prices.

The manager of Division Y has given the following forecast:

86 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

87 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.51

PEX is a manufacturing company of which Division PQR manufactures a single standardized product. Some of the output is sold
externally whilst the remainder is transferred to Division RPQ where it is a sub-assembly in the manufacture of that division's
product. PQR has the capacity (annual) to produce 30,000 units of the product. The unit costs of Division PQR's products is as
under:

88 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

89 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Required

(i) Calculate the effect of the transfer price of Rs. 290 per unit on company's operating profit. Calculate the optimal product mix.

(ii) Advise the company on whether the transfer price should be revised to Rs. 120 per unit.

The maximum capacity of the Division PQR is given as 30,000 units. Hence there is no question of internal transfer if the entire
30,000 units are sold by Division PQR in the external market. However, from the above computations it is clear that Division PQR
would sell 20,000 units in external market to optimize its profit and therefore the maximum transfer to Division RPQ is 10,000
units only. The question of transferring 14,400 units would arise as an alternative to analyze the overall profitability only when
Division PQR sells 10,000 units in the external market. Based on the demand projection of Division RPQ, the demand level of
5,600 units is not relevant. It can be further noted from the problem that Division RPQ will purchase the entire quantity only
from Division PQR and not externally. Hence the various options would be as follows-

90 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

91 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
CHAPTER - 11
Standard Costing
Q.52

In a manufacturing co. the standard units of production of the year were fixed at 1,20,000 units and overhead expenditures were
estimated to be:

Answer

92 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.53

The Standard Cost Sheet per unit for the product produced by Style Manufacturers is worked out on this basis:—

- Direct Materials 1.3 tons @ Rs. 4.00 per ton

- Direct Labour 2.9 hours @ Rs. 2.30 per hour
- Factory Overhead 2.9 hours @ Rs.2.00 per hour
- Normal Capacity is 2,00,000 direct labour hours per month

93 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

94 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

95 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.54

KYC Ltd. uses a standard absorption costing system. The following details have been extracted from its budget for year 2013-14.

Answer

Q.55

S. Ltd. operates a system of standard costing in respect of one of its products which is manufactured within a single cost centre,
the following information is available:

96 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

97 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………
Q.56

The following are the information regarding overheads of a company:

Answer

98 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Q.57

A company is engaged in manufacturing of several products. The following data have been obtained from the record of
a machine shop for an average month

99 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

Answer

100 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

101 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

102 | P a g e
 - Audit Short Tricks!!
- Lets Revise IDT !!
CA Hemant Somani (AIR-46)
Telegram: t.me/cahemantsomani - Tips & Tricks to Secure Rank !!
Youtube: CA Hemant Somani (AIR-46) - Strategies !!
Learn with Rankers!! - CA Final, Inter, Foundation
…………………………………………………………………………………………………………………………………………………………………………………

103 | P a g e