TEST PAPER - 2

CA INTER

COST AND MANAGEMENT ACCOUNTING

TOTAL NO. OF QUESTIONS: 13

ATTEMPT: ANY 10 QUESTIONS (10 MARKS EACH)

DURATION: 3 HOURS

Q.No.1
KL Limited produces product ‘M’ which has a quarterly demand of 8,000 units. The
product requires 3 kg quantity of material ‘X’ for every finished unit of product. The
other information is as follows:
Cost of material ‘X’ ₹ 20 per kg
Cost of placing an order ₹ 1,000 per order
Carrying cost 15% per annum of average inventory

(a) Calculate the Economic Order Quantity for material ‘X’.

Q.No.2
Zico Limited has its factories at two locations viz. Nasik and Satara. Rowan plan is in
use at Nasik factory and Halsey plan at Satara factory. Standard time and basic rate of
wages are same for a job which is similar and is carried out on similar machinery.
Normal working hours is 8 hours per day in a 5 day week.
Job in Nasik factory is completed in 32 hours while at Satara factory, it has taken 30
hours. Conversion cost at respective places is ₹ 5,408, and ₹ 4,950. Overhead account
for ₹ 25 per hour. Required:
(a) To find out the normal wage rate and
(b) To show the respective conversion cost.
Q.No.3
ABS Enterprises produces a product and adopts a policy to recover the production
overhead of the factory by adopting a single blanket rate based on machine hours. The
cost records of the concern reveal following information:
Budgeted production overheads ₹ 10,35,000
Budgeted machine hours 90,000
Actual machine hours worked 45,000
Actual production overhead ₹ 8,80,000
Amount included in the production overheads:
Paid as per court order ₹ 50,000
Expenses of previous year booked in current year ₹ 18,500
Paid to workers for strike period under an award ₹ 38,000
Obsolete stores written off ₹ 22,000
Production: Finished goods 30,000 units
Sales of finished goods 27,000 units
It is revealed from the analysis of information that 1/3rd of the under absorption was
due to defective production policies and the balance was attributable to increase in
costs.
You are required:
(a) to determine the amount of under absorption of production overheads for the
period.
(b) to show the accounting treatment of under absorption of production overhead
(c) to apportion the under absorbed overheads over the items.

Q.No.4

ABC Limited is engaged in production of three types of Fruit juices: Apple, Orange, and
Mixed fruit. The following cost data for the month of March 2020 are as under:
Apple Orange Mixed fruit
Unit produced and sold 10,000 15,000 20,000
Material per unit (₹) 8 6 5
Direct labour per unit (₹) 5 4 3
No. of purchase order 34 32 14
No. of deliveries 110 64 52
Shelf stocking hours 110 160 170

Overheads incurred by the company during the month are as under:

Q.No.5
XP Ltd. provides the following information relation to Process II:
(1) Opening work-in-progress Nil
(2) Unit introduced: 42,000 units @ ₹ 12 per unit
(3) Expenses incurred during the month:
Materials ₹ 61,530
Labour ₹ 88,820
Overheads ₹ 1,76,400
(4) Closing work-in-process 1,200 units
(Degree of Completion: Materials 100%, Labour 50%, overhead 40%)
(5) Units scrapped: Degree of completion: Materials 100%, Labour 80%, Overhead
60%
(6) Normal loss: 2% of input
(7) Unit scrapped as normal loss was sold at ₹ 4.50 per unit.
(8) All the units of abnormal loss were sold at ₹ 9 per unit.
(9) Completed units 39,500 units.
You are required to prepare:
(a) Equivalent production statement
(b) Statement showing the cost of finished goods, Abnormal loss and closing WIP.
(c) Process II Account and Abnormal loss account.

Q.No.6
A Limited manufactures one main product ‘M’ and two by products ‘P’ and ‘Q’ in the
course of processing. Following information are available for the month of October,
2017:
Total cost up to separation point ₹ 2,50,000
M P Q
Costs after separation (₹) Nil 60,000 30,000
No. of units produced 4 500 2,500 1,500
Selling price per unit (₹) 170 80 50
Estimated net profit as % of sales value -- 30% 25%
Selling expenses amounted to ₹ 85,000 are to be apportioned to the three products in
the ratio of sales units.
There is no beginning or closing inventories.
Prepare statement showing:
(a) Allocation of joint cost.
(b) Product wise and overall profitability.
(c) Advise the company regarding results if the by-product ‘P’ is not further
processed and is sold at the point of separation at ₹ 60 per unit without
incurring selling expenses.

Q.No.7
SEZ Ltd. built a 120 km long highway and now operates a toll plaza to collect tolls from
passing vehicles using the same. The company has invested ₹ 900 crore to build the
roads and has estimated that a total of 120 crore vehicles will be using the highway
during the 10 years toll collection tenure. Toll operating and maintenance cost for the
month of June 2020 are as follows:
(a) Salary to:
Collection personnel (3 shifts and 5 person per shift) – ₹ 200 per day per person
Supervisor (3 shift and 2 person per shift) – ₹ 350 per day per person
Security personnel (2 shifts and 2 persons per shift) – ₹ 200 per day per person
Toll booth manager (3 shifts and 1 person per shift) – ₹ 500 per day per person
(b) Electricity – ₹ 1,50,000
(c) Telephone – ₹ 1,00,000
(d) Maintenance cost – ₹ 50 lakhs
(e) The company needs 30% profit over total cost.
Required:
(1) Calculate cost per kilometer
(2) Calculate the toll rate per vehicle

Q.No.8

W Limited undertook a contract for ₹ 5,00,000 on 1st July 2019. On 30th June 2020,
when the accounts were closed, the following details about the contract were gathered:
₹
Materials Purchased 1,00,000
 Wages Paid 45,000
General Expenses 10,000
Materials on hand 30-06-2020 25,000
Wages Accrued 30-06-2020 5,000
Work Certified 2,00,000
Cash Received 1,50,000
Work Uncertified 15,000
The above contract contained an escalator clause which read as follows:
"In the event of prices of materials and rates of wages increase by more than 5%, the
contract price would be increased accordingly by 25% of the rise in the cost of
materials and wages beyond 5% in each case".
It was found that since the date of signing the agreement, the price of materials and
wage rates increased by 25%. The value of the work certified does not take into
account the effect of the above clause.
Calculate the value of work certified after taking the effect of escalation clause as on
30th June 2020.

Q.No.9

A customer has been ordering 90,000 special design metal columns at the rate of
18,000 columns per order during the past years. The production cost comprises ₹
2,120 for material, ₹ 60 for labour and ₹ 20 for fixed overheads. It costs ₹ 1,500 for
set up for one run of 18,000 column and inventory carrying cost is 5%.
(a) Find the most economic production run.
(b) Calculate the extra cost that company has to incur due to processing of
18,000 columns in a batch.

Q.No.10
A manufacturing company disclosed as net loss of ₹ 35,400 as per their cost accounts
for the year ended March 31, 2012. The financial accounts however disclosed a net
profit of ₹ 67,800 for the same period. The following information was revealed as a
result of scrutiny of the figures of both the sets of accounts:
₹
Administration Overheads under-absorbed 25,500
Factory Overheads over-absorbed 1,35,000
Depreciation under charged in Cost Accounts 26,000
Dividend received 20,000
Income tax provision 43,600
Obsolescence loss charged in financial accounts 16,800
Notional rent of own premises charged in cost accounts 60,000
Value of opening stock:
In cost accounts 1 ,65,000
In financial accounts 1,45,000
Value of closing stock
In cost accounts 1,25,500
In financial accounts 1,32,000
Bank interest credited in Financial accounts 13,600
Provision for doubtful debts in Financial accounts 15,000
Goodwill written off in financial accounts 25,000
Prepare a Reconciliation statement by taking costing loss as base

Q.No.11
An electronic gadget manufacturer has prepared sales budget for the next few months.
In this respect, following figures are available:
Months Electronics gadget’s sales
January 5,000 units
February 6,000 units
March 7,000 units
April 7,500 units
May 8,000 units
To manufacture an electronic gadget, a standard costs of ₹ 1,500 is incurred and it is
sold through dealers at an uniform price of ₹ 2,000 per gadget to customers. Dealers
are given a discount of 15% on selling price.
Apart from other materials, two units of batteries are required to manufacture a
gadget. The company wants to hold stock of batteries at the end of each month to
cover 30% of next month production and to hold stock of manufactures gadget to
cover 25% of the next month sales.
3,250 units of batteries and 1,200 units of manufactured gadgets were in stock on 1 st
January.
Required:
(1) Prepare production budget (in units) for the month of January, February, March
and April.
 (2) Prepare purchase budget for batteries (in units) for the month of January,
February, and March and calculate profit for the quarter ending on March.

Q.No.12
PQR Ltd. has furnished the following data for the two years:
2017 2018
Sales ₹ 8,00,000 ?
P/V Ratio 50% 37.50%
Margin of safety sales as a percentage of sales 40% 21.875%

There has been substantial saving in the fixed cost in the year 2018 due to the
restructuring process. The company could maintain its sales quantity level of 2017 in
2018 by reducing selling price. You are required to calculate the following:
(a) Sales for 2018 in value
(b) Fixed cost for 2018
(c) Break even sales for 2018 in value

Q.No.13
The following information is available from the cost records of a company for the
month of July, 2016:
Material purchased 22,000 pieces ₹ 90,000
Material consumed 21,000 pieces
Actual wages paid for 5,150 hours ₹ 25,750
Fixed factory overhead incurred ₹ 46,000
Fixed factory overhead Budgeted ₹ 42,000
Units produced 1900 units
Standard rates and prices are:
Direct material ₹ 4.50 per piece
Standard input 10 pieces per unit
Direct labour rate ₹ 6 per hour
Standard requirement 2.5 hour per unit
Overheads ₹ 8 per labour hour
You are required to calculate the following variances:
(1) Material price variance
(2) Material usage variance
(3) Labour rate variance
(4) Labour efficiency variance
(5) Fixed overhead expenditure variance
(6) Fixed overhead efficiency variance
(7) Fixed overhead capacity variance