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NOV-2022
CA INTERMEDIATE
PAPER - 03
Cost and Management Accounting

Roll No. ........................ Total No. of Printed Pages – 08

Total No. of Questions – 06 Maximum Marks – 100
Time: - 3 Hrs.
GENERAL INSTRUCTIONS TO CANDIDATES
1. The question paper comprises DESCRIPTIVE QUESTIONS.
2. In case of Verification of your ans sheets by the experts please Scan your Ans sheet in One PDF Form
and Send the same on [email protected] (verification is chargeable)
3. The size of the scanned PDF file should be less than 25 MB.
4. Details to be compulsorily mentioned on your answer sheet:
Name: e.g. Aneesh
Course: CA Intermediate
Subject: Cost and Management Accounting
Syllabus: New/Old
Test No: (See on Page no. 2 )
5. If any of the details are missing there would be delay in checking your answer sheets.
6. Ans. Sheet will be evaluated within 7 days.
7. Answer sheet submitted after 6pm will be considered in next day Cycle.
8. Answer all the questions in English.

PART – 2
1. Question paper Comprises 6 questions.
2. Question no. 1 is compulsory. Answer any 4 questions from the remaining 5 questions.
3. Working notes should form part of the answer.
4. Answers to the questions are to be given only in English except in the case of candidates who have
opted for Hindi Medium. If a candidate has not opted for Hindi Medium, his/her answers in Hindi
will not be evaluated.

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PORTIONWISE TEST ROUND – 3

CA INTERMEDIATE

PAPER 3: COST AND MANAGEMENT

ACCOUNTING

Question 1. A) (5 Marks)
During a particular period, ABC Ltd has furnished the following data:

Sales ₹10,00,000
Contribution to sales ratio 37% and
Margin of safety is 25% of sales.
A decrease in selling price and decrease in the fixed cost could change the "contribution
to sales ratio" to 30% and "margin of safety" to 40% of the revised sales. Calculate:
(i) Revised Fixed Cost.
(ii) Revised Sales and
(iii) New Break-Even Point.

Question 1. B) (5 Marks)
Following information is given of a newly setup organization for the year ended on 31st
March, 2021.
Number of workers replaced during the period 50
Number of workers left and discharged during the period 25
Average number of workers on the roll during the period 500
You are required to:
(i) Compute the Employee Turnover Rates using Separation Method and Flux
Method.
(ii) Equivalent Employee Turnover Rates for (i) above, given that the organization
was setup on 31st January, 2021.

Question 1. C) (5 Marks)

BTL LLP. Manufactures glass bottles for HDL Ltd., a pharmaceutical company, which is
in ayurvedic medicines business.

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BTL can produce 2,00,000 bottles in a month. Set-up cost of each production run is ₹
5,200 and the cost of holding one bottle for a year is ₹ 1.50.
As per an estimate HDL Ltd. can order as much as 19,00,000 bottles in a year spreading
evenly throughout the year.
At present the BTL manufactures 1,60,000 bottles in a batch.
Required:
(i) Compute the Economic Batch Quantity for bottle production.
(ii) Compute the annual cost saving to BTL by adopting the EBQ of a production.

Question 1. D) (5 Marks)

The Accountant of KPMR Ltd. has prepared the following budget for the coming year
2022 for its two products ‘AYE’ and ‘ZYE’:

Particulars Product ‘AYE’ Product ‘ZYE’

Production and Sales (in Units) 4,000 3,000
Amount (in ₹) Amount (in ₹)
Selling Price per unit 200 180
Direct Material per unit 80 70
Direct Labour per unit 40 35
Variable Overhead per unit 20 25
Fixed Overhead per unit 10 10
After reviewing the above budget, the management has called the marketing team for
suggesting some measures for increasing the sales. The marketing team has suggested
that by promoting the products on social media, the sales quantity of both the products
can be increased by 5%. Also, the selling price per unit will go up by 10%. But this will
result in increase in expenditure on variable overhead and fixed overhead by 20% and 5%
respectively for both the products.
You are required to prepare flexible budget for both the products:
(i) Before promotion on social media,
(ii) After promotion on social media.

Question 2. A) (10 Marks)

Following are the details given:

Budgeted Days 25
Budgeted Fixed Overheads 1,00,000

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Budgeted Production 800 units per day

Actual Production 21,000 units
Fixed Overheads are absorbed @ ₹ 10 per hour.
Fixed overheads efficiency variance 10,000A
Fixed overheads calendar variance 8,000F
Fixed overheads cost variance 15,000A
You are required to CALCULATE:
(a) Actual Fixed Overheads
(b) Actual Days
(c) Actual Hours
(d) Fixed overheads Expenditure variance
(e) Fixed overheads volume variance
(f) Fixed overheads capacity variance

Question 2. B) (10 Marks)

PM Ltd. has three Production Departments P1, P2, P3 and two Service Departments S1
and S2 details pertaining to which are as under:

P1 P2 P3 S1 S2
Direct wages (₹) 60,000 40,000 60,000 30,000 3,900
Working hours 3,070 4,475 2,419 - -
Value of machines (₹) 12,00,000 16,00,000 20,00,000 1,00,000 1,00,000
H.P. of machines 60 30 50 10 -
Light points 10 15 20 10 5
Floor space (sq. ft.) 2,000 2,500 3,000 2,000 500

The following figures extracted from the accounting records are relevant:

(₹ )
Rent and Rates 1,00,000
General Lighting 12,000
Indirect Wages 38,780
Power 30,000

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Depreciation on Machines 2,00,000

Sundries 1,93,900
The expenses of the service departments are allocated as under:

P1 P2 P3 S1 S2
S1 20% 30% 40% - 10%
S2 40% 20% 30% 10% -

DETERMINE the total cost of product X which is processed for manufacture in

Departments P 1, P2 and P3 for 4, 5 and 3 hours respectively, given that its Direct
Material Cost is ₹ 1,000 and Direct Labour Cost is ₹ 600.

Question 3. A) (10 Marks)

A Manufacturing unit manufactures a product 'XYZ' which passes through three distinct
Processes - X, Y and Z. The following data is given:

Process X Process Y Process Z

Material consumed (in ₹) 2,600 2,250 2,000
Direct wages (in ₹) 4,000 3,500 3,000
 The total Production Overhead of ₹15,750 was recovered @150% of Direct wages.
 15,000 units at ₹2 each were introduced to Process 'X'.
 The output of each process passes to the next process and finally, 12,000 units
were transferred to Finished Stock Account from Process 'Z'.
 No stock of materials or work in progress was left at the end.
The following additional information is given:
Process % of wastage to normal input Value of Scrap per unit (₹)
X 6% 1.10
Y ? 2.00
Z 5% 1.00
You are required to:
(i) Find out the percentage of wastage in process 'Y', given that the output of Process
'Y' is transferred to Process 'Z' at ₹ 4 per unit.
(ii) Prepare Process accounts for all the three processes X, Y and Z.

Question 3. B) (10 Marks)

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PQR Ltd. has decided to analyse the profitability of its five new customers. It buys soft
drink bottles in cases at 45 per case and sells them to retail customers at a list price of 54
per case. The data pertaining to five customers are given below:

Customers
A B C D E
Number of Cases Sold 9,360 14,200 62,000 38,000 9,800
List Selling Price 54 54 54 54 54
Actual Selling Price 54 53.40 49 50.20 48.60
Number of Purchase Orders 30 50 60 50 60
Number of Customers visits 4 6 12 4 6
Number of Deliveries 20 60 120 80 40
Kilometers travelled per delivery 40 12 10 20 60
Number of expedited Deliveries 0 0 0 0 2

Its five activities and their cost drivers are:

Activity Cost Driver

Order taking 200 per purchase order
Customer visits 300 per each visit
Deliveries 4.00 per delivery km travelled
Product Handling 2.00 per case sold
Expedited deliveries 100 per each such delivery

You are required to:

(i) Compute the customer level operating Income of each of five retail customers by
using the Cost Driver rates.
(ii) Examine the results to give your comments on Customer ‘D’ in comparison with
Customer ‘C’ and on Customer ‘E’ in comparison with Customer ‘A’

Question 4. A) (10 Marks)

A construction company has obtained a contract of ₹30 lakhs contract price.
The following details are available in respect of this contract for the year ended March
31, 2021:
Particulars (₹ )
Materials purchased 2,00,000
Materials issued from stores 8,00,000
Wages paid 1,50,000
Plant Supervisor Salary 2,40,000
Drawing and maps 50,000
Sundry expenses 30,000

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Electricity charges 40,000

Plant hire expenses paid 75,000
Sub-contract cost 40,000
Materials returned to stores 35,000
Materials returned to suppliers 50,000
The following balances related to the contract for the year ended on March 31, 2020 and
March 31, 2021 are available:

As on As on
31st March, 2020 31st March, 2021
(₹ ) (₹ )
Work certified 2,50,000 70% of Contract Price
Work uncertified 10,000 ?
Materials at site 35,000 25,000
Wages outstanding 15,000 22,000
Plant hire charges outstanding 20,000 15,000
Further informations are as under:
1. An additional plant was used for 270 days costing ₹5,00,000 with a residual value
of ₹20,000 having life of 4 years.
2. During the year, material costing ₹ 40,000 was sold for ₹ 20,000.
3. Plant supervisor has devoted 1/3rd of his time to this contract.
4. As on 31.03-2021, 80% of the contract was completed.

You are required to prepare Contract Account and show the notional profit or loss as on
31st March, 2021 (Assume 360 days in a year).

Question 4. B) (5 Marks)
Following information is available for A Ltd.:
Sales-
P: 200 kg @ ₹ 120 per kg.
Q: 240 kg @ ₹ 60 per kg.

Joint costs-
Marginal cost ₹ 17,600
Fixed cost ₹ 15,600
You are required to FIND OUT the cost of joint products P and Q using contribution

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margin method.

Question 4. C) (5 Marks)
The following data are available in respect of material X for the year ended 31st March,
2021:
(₹)

Opening stock 9,00,000

Purchases during the year 1,70,00,000
Closing stock 11,00,000
(i) CALCULATE:
(a) Inventory turnover ratio, and
(b) The number of days for which the average inventory is held.
(ii) INTERPRET the ratio calculated as above if the industry inventory turnover rate is
10.

Question 5. A) (10 Marks)

The following data are available from the books and records of Q Ltd. for the month of
April 2020:
Direct Labour Cost = ₹1,20,000 (120% of Factory Overheads)
Cost of Sales = ₹4,00,000
Sales = ₹5,00,000
Accounts show the following figures:
1st April, 2020 30th April, 2020
(₹) (₹ )
Inventory:
Raw material 20,000 25,000
Work-in-progress 20,000 30,000
Finished goods 50,000 60,000
Other details:
Selling expenses 22,000
General & Admin. Expenses 18,000
You are required to prepare a cost sheet for the month of April 2020 showing:
(i) Prime Cost

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(ii) Works Cost

(iii) Cost of Production
(iv) Cost of Goods sold
(v) Cost of Sales and Profit earned.

Question 5. B) (10 Marks)

KJ Motors Ltd. is a manufacturer of auto components. Following are the details of
expenses for the year 2020-21:
(₹ )
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000
(iv) Direct Labour 90,50,000
(v) Factory Overhead 30,80,000
(vi) Administrative Overhead 20,50,400
During the FY 2021-22, the company has received an order from a car manufacturer
where it estimates that the cost of material and labour will be ₹80,00,000 and ₹40,50,000
respectively. The company charges factory overhead as a percentage of direct labour and
administrative overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ₹9,50,000.
You are required to:
(i) CALCULATE the overhead recovery rates based on actual costs for 2020-21.
(ii) PREPARE a Job cost sheet for the order received and the price to be quoted if the
desired profit is 25% on sales.

Question 6: Attempt any 4 questions:

Question 6. A) (5 Marks)

What is ‘Budgetary Control System’ and discuss the components of the same.

Question 6. B) (5 Marks)

Explain integrated accounting system and state its advantages.

Question 6. C) (5 Marks)

Describe Composite Cost unit as used in Service Costing and discuss the ways of

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computing it.

Question 6. D) (5 Marks)

Differentiate between Cost Control and Cost Reduction.

Question 6. E) (5 Marks)

HOW apportionment of joint costs upto the point of separation amongst the joint
products using market value at the point of separation and net realizable value method is
done? DISCUSS.

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NOV-2022

CA INTER NEW SYLLABUS

PORTIONWISE TEST ROUND – 3
COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS

Question 1. A) (5 Marks)
Solution:-
Contribution to sales ratio (P/V ratio) = 37%
Variable cost ratio = 100% - 37% = 63%
Variable cost = ₹ 10,00,000 x 63% = ₹ 6,30,000
After decrease in selling price and fixed cost, sales quantity has not changed. Thus,
variable cost is ₹ 6,30,000.
Revised Contribution to sales = 30%
Thus, Variable cost ratio = 100% - 30% = 70%
₹ 6,30,000
Thus, Revised sales = = ₹9,00,000
70%
Revised, Break-even sales ratio = 100% - 40% (revised Margin of safety) = 60%
(i) Revised fixed cost = revised breakeven sales x revised contribution to
sales ratio
= ₹ 5,40,000 (₹ 9,00,000 x 60%) x 30%
= ₹ 1,62,000
(ii) Revised sales = ₹ 9,00,000 (as calculated above)
(iii) Revised Break-even point = Revised sales x Revised break-even sales ratio
= ₹ 9,00,000 x 60%
= ₹ 5,40,000

Question 1. B) (5 Marks)
Solution:-
(i) Employee Turnover rate

Using Separation method:

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐒𝐞𝐚𝐫𝐚𝐭𝐞𝐝 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝
= × 𝟏𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐧 𝐫𝐨𝐥𝐥

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𝟐𝟓
= × 𝟏𝟎𝟎 = 𝟓%
𝟓𝟎𝟎

Using Flux method:

Number of employees Separated +
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐫𝐞𝐩𝐥𝐚𝐜𝐞𝐝 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝
= × 𝟏𝟎𝟎
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐧 𝐫𝐨𝐥𝐥
50+25
= × 100 = 15%
500
(ii) Equivalent Employee Turnover rate:
Equivalent Turnover rate for the period
= × 365
Number of days in the period
5
Using Separation method = × 365 = 30.42%
60
5
Or, × 360 = 30%
60
5
Or, = × 12 = 30%
2
15
Using Flux method = × 365 = 91.25%
60
15
Or, × 360 = 90%
60
15
Or, = × 12 = 90%
2

Question 1. C) (5 Marks)
Solution:-
𝟐×𝐃×𝐒
Economic Batch Quantity (EBQ) = √
𝐂
Where, D = Annual demand for the product
S = Setting up cost per batch
C = Carrying cost per unit of production
(i) Computation of EBQ:
𝟐×₹ 𝟏𝟗,𝟎𝟎,𝟎𝟎𝟎×𝟓,𝟐𝟎𝟎
=√
₹𝟏.𝟓
= 1,14,775 bottles
(ii) Computation of savings in cost by adopting EBQ:

Batch Size No. of Batch Set-up cost Carrying cost Total Cost
1,60,000 bottles 12 62,400 (₹5,200 1,20,000 (₹1.5× 1,82,400
×12) ½ ×1,60,000)
1,14,775 bottles 17 88,400 (₹5,200 86,081.25 1,74,481.25
×17) (₹1.5× ½

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×1,14,775)
Saving 7,918.75

Question 1. D) (5 Marks)
Solution:-
(i) Flexible Budget (before promotion)

Particulars Product Product Total

‘AYE’ ‘ZYE’
Production & Sales 4,000 3,000
(units)
Amount (₹) Amount (₹) Amount (₹)
A. Sales Value 8,00,000 5,40,000 13,40,000
(₹ 200×4,000) (₹ 180×3,000)
B. Direct Materials 3,20,000 2,10,000 5,30,000
(₹ 80 × 4,000) (₹70 × 3,000)
C. Direct labour 1,60,000 1,05,000 2,65,000
(₹ 40 × 4,000) (₹ 35 × 3,000)
D. Variable Overheads 80,000 75,000 1,55,000
(₹ 20 × 4,000) (₹ 25 × 3,000)
E. Total Variable Cost 5,60,000 3,90,000 9,50,000
(B+C+D)
F. Contribution (A-E) 2,40,000 1,50,000 3,90,000
G. Fixed Overhead 40,000 30,000 70,000
(₹10 × 4,000) (₹10 × 3,000)
H. Profit (F-G) 2,00,000 1,20,000 3,20,000
Profit per unit 50 40
(ii) Flexible Budget (after promotion)

Particulars Product ‘AYE’ Product ‘ZYE’ Total

Production & Sales (units) 4,200 3,150
(4,000×105%) (3,000×105%)

Amount (₹) Amount (₹) Amount

(₹ )
A. Sales Value 9,24,000 6,23,700 15,47,700
(₹ 220 × 4,200) (₹ 198 × 3,150)

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B. Direct Materials 3,36,000 2,20,500 5,56,500

(₹ 80 × 4,200) (₹ 70 × 3,150)
C. Direct labour 1,68,000 1,10,250 2,78,250
(₹ 40 × 4,200) (₹ 35 × 3,150)
D. Variable Overheads 1,00,800 94,500 1,95,300
(₹ 24 × 4,200) (₹ 30 ×3,150)
E. Total Variable Cost 6,04,800 4,25,250 10,30,050
(B+C+D)
F. Contribution (A-E) 3,19,200 1,98,450 5,17,650
G. Fixed Overhead 42,000 31,500 73,500
(₹ 40,000 × 105%) (₹ 30,000 × 105%)

H. Profit (F-G) 2,77,200 1,66,950 4,44,150

Profit per unit 66 53

Question 2. A) (10 Marks)

Solution:-
(i) Fixed Overhead Cost Variance = (Std Fixed Overheads – Actual Fixed Overheads)
1,00,000
=(  21,000 units – Actual Fixed Overheads) = 15,000A
20,000
= (1,05,000 - Actual Fixed Overheads) = 15,000A
=> Actual Fixed Overheads = 1,20,000
(ii) Fixed Overhead Calendar Variance=(Actual Days – Budgeted Days) x Budgeted
rate per day
1,00,000
= (Actual Days – 25)x = 8,000F
25
= (Actual Days - 25) = 2
=> Actual Days = 27
(iii) Fixed Overhead Efficiency Variance =(Standard Hours for Actual Production –
Actual Hours) x Budgeted rate per hour
10,000
=( × 21,000 − Actual Hours) × 10
20,000
=10,000A
(10,500 – Actual Hours) = -1,000
=> Actual Hours = 11,500
(iv) Fixed overheads Expenditure variance = (Budgeted Fixed Overheads – Actual
Fixed Overheads)

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= (1,00,000 – 1,20,000) = 20,000A

(v) Fixed overheads volume variance = (Budgeted units – Actual Units) x Budgeted
Rate per unit
1,00,000
= 20,000  21,000 = 5,000F
20,000
(vi) Fixed overheads capacity variance = (Budgeted Hours for Actual Days – Actual
Hours) x Budgeted Rate per Hour
10,000×27−11,500
=( )*10 = 7,000F
25

Question 2. B) (10 Marks)

Solution:-
Statement Showing Distribution of Overheads of PM Ltd.

Particulars Basis Total Production Service

Departments Departments
P1 P2 P3 S1 S2
(₹ ) (₹ ) (₹ ) (₹ ) (₹ ) (₹ )
Direct wages Actual 33,900 - - - 30,000 3,900
Rent & rates Area 1,00,000 20,000 25,000 30,000 20,000 5,000
General Light points 12,000 2,000 3,000 4,000 2,000 1,000
lighting
Indirect wages Direct 38,780 12,000 8,000 12,000 6,000 780
wages
Power H.P. 30,000 12,000 6,000 10,000 2,000 -
Depreciation of Value of 2,00,000 48,000 64,000 80,000 4,000 4,000
machines machines
Sundries Direct 1,93,900 60,000 40,000 60,000 30,000 3,900
wages
6,08,580 1,54,000 1,46,000 1,96,000 94,000 18,580

Redistribution of Service Department’s Expenses over Production Departments

P1 P2 P3 S1 S2
(₹ ) (₹ ) (₹ ) (₹ ) (₹ )
Total overhead distributed as above 1,54,000 1,46,000 1,96,000 94,000 18,580

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Dept. S1 Overheads apportioned 18,800 28,200 37,600 (94,000) 9,400

(20:30:40:—:10)
Dept. S2 overheads apportioned 11,192 5,596 8,394 2,798 (27,980)
(40:20:30:10:—)
Dept. S1 Overheads apportioned 560 839 1,119 (2,798) 280
(20:30:40:—:10)
Dept. S2 overheads apportioned 124 63 93 - (280)
(40:20:30:10:—)
1,84,676 1,80,698 2,43,206 - -
Working hours 3,070 4,475 2,419
Rate per hour 60.16 40.38 100.54

Determination of total cost of Product X

₹
Direct material cost 1,000
Direct labour cost 600
Overhead cost (see WN) 744.14
2344.14

Working Notes:
Overhead cost
= (₹ 60.16 × 4 hrs.) + (₹ 40.38 × 5 hrs.) + (₹ 100.54 × 3 hrs.)
= ₹ 240.62 + ₹ 201.90 + ₹ 301.62 = ₹ 744.14

Question 3. A) (10 Marks)

Solution:-
Dr. Process-X Account Cr.
Particulars Units (₹ ) Particulars Units (₹ )
To Material introduced 15,000 30,000 By Normal Loss A/c [(6% of 900 990
15,000 units) x ₹ 1.1]
” Additional material -- 2,600 ” Process-Y A/c 14,100 41,610
(₹ 2.951* × 14,100 units)

” Direct wages -- 4,000

” Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭−𝐑𝐞𝐚𝐥𝐢𝐬𝐚𝐛𝐥𝐞 𝐯𝐚𝐥𝐮𝐞 𝐟𝐫𝐨𝐦 𝐧𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 ₹ 𝟒𝟐,𝟔𝟎𝟎−₹𝟗𝟗𝟎
− = = 𝟐. 𝟗𝟓𝟏
𝐈𝐧𝐩𝐮𝐭𝐬 𝐮𝐧𝐢𝐭𝐬−𝐍𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 𝐮𝐧𝐢𝐭𝐬 𝟏𝟓,𝟎𝟎𝟎 𝐔𝐧𝐢𝐭𝐬−𝟗𝟎𝟎 𝐮𝐧𝐢𝐭𝐬

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Dr. Process-Y Account Cr.

Particulars Units (₹ ) Particulars Units (₹ )
To Process-X A/c 14,100 41,610 By Normal Loss A/c 1,895 3,790
[(#13.44% of
14,100 units) x₹ 2]
” Additional material -- 2,250 ” Process-Z A/c (₹4 × 12,205 48,820
12,205units)
” Direct wages -- 3,500
” Production OH -- 5,250
14,100 52,610 14,100 52,610
#Calculation for % of wastage in process ‘Y’:
Let’s consider number of units lost under process ‘Y’ = A
Now, Total Cost - Realisable value from normal loss =4
Inputs units - Normal loss units
₹ 52,610 - ₹ 2A
=`4
14,100 units - A

₹ 52,610 - ₹ 2A = ₹ 56,400 - ₹ 4A
2A = ₹ 3,790 => A = 1,895 units
1,895 units
% of wastage = 14,100 units = 13.44%

Dr. Process-Z Account Cr.

Particulars Units (₹ ) Particulars Units (₹ )
To Process-Y A/c 12,205 48,820 By Normal Loss A/c [(5% of 610 610
12,205 units) x ₹ 1]

” Additional material -- 2,000 ” Finished Stock A/c 12,000 59,726

(₹4.9771$ × 12,000 units)

” Direct wages -- 3,000

” Production OH -- 4,500
” Abnormal gain 405 2,016
(` 4.9771$ × 405units)

12,610 60,336 12,610 60,336

$
Cost per Unit of completed Units
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭−𝐑𝐞𝐚𝐥𝐢𝐬𝐚𝐛𝐥𝐞 𝐯𝐚𝐥𝐮𝐞 𝐟𝐫𝐨𝐦 𝐧𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 ₹ 𝟓𝟖,𝟑𝟐𝟎−₹𝟔𝟏𝟎
− = = 𝟒. 𝟗𝟕𝟕𝟏
𝐈𝐧𝐩𝐮𝐭𝐬 𝐮𝐧𝐢𝐭𝐬−𝐍𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 𝐮𝐧𝐢𝐭𝐬 𝟏𝟐,𝟐𝟎𝟓 𝐮𝐧𝐢𝐭𝐬−𝟔𝟏𝟎 𝐮𝐧𝐢𝐭𝐬

Alternative Solution
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Dr. Process-X Account Cr.

Particulars Units (₹ ) Particulars Units (₹ )
To Material 15,000 30,000 By Normal Loss A/c 900 990
introduced [(6% of 15,000 units) x
₹ 1.1]
” Additional -- 2,600 ” Process-Y A/c 14,100 41,610
material (₹ 2.951* × 14,100
units)
” Direct wages -- 4,000
” Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭−𝐑𝐞𝐚𝐥𝐢𝐬𝐚𝐛𝐥𝐞 𝐯𝐚𝐥𝐮𝐞 𝐟𝐫𝐨𝐦 𝐧𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 ₹𝟒𝟐,𝟔𝟎𝟎− ₹𝟗𝟎𝟎
− = = 𝟐. 𝟗𝟓𝟏
𝐈𝐧𝐩𝐮𝐭𝐬 𝐮𝐧𝐢𝐭𝐬−𝐍𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 𝐮𝐧𝐢𝐭𝐬 𝟏𝟓,𝟎𝟎𝟎 𝐮𝐧𝐢𝐭𝐬−𝟗𝟎𝟎 𝐮𝐧𝐢𝐭𝐬

Dr. Process-Y Account Cr.

Particulars Units (₹) Particulars Units (₹ )
To Process-X A/c 14,100 41,610 By Normal Loss A/c 1,895 3,790
[(#13.44% of 14,100
units) x ₹ 2]
” Additional -- 2,250 ” Process-Z A/c 12,631 50,524
material (₹ 4 × 12,631@ units)
” Direct wages -- 3,500
” Production OH -- 5,250
” Abnormal gain 426 1,704
(` 4 × 426 units)
14,526 54,314 14,526 54,314
Working Notes:
1. Units Transferred from Process Z Account to Finished Stock = 12,000 Units i.e
95% of Inputs.
So, Input of Z or Output of Y is 12,000 x 100/95 = 12,631 Units and Normal Loss
(5%) is 631 units.
2. Let’s consider number of units lost under process ‘Y’ as:
For Normal loss =A
For Abnormal loss =B
Now, A + B = 1,469 [i.e. 14,100 – 12,631] …(I)
(A x ₹ 2 per unit) + (B x ₹ 4 per unit) = [ 52,610 – 50,524]
2A + 4B = 2,086 …(II)

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Now, putting the values of (I) in (II), we get,

2(1,469 – B) + 4B = 2,086
2938 – 2B + 4B = 2,086
2B = - 852 => B = - 426 units
Since, the figure of B is in negative, it is an abnormal gain of 426 units.
Further, A (i.e. normal loss) = 1,469 + 426 = 1,895 units
1,895 units
#3. % of wastage in Process Y Account = 14,100 units = 13.44%

Dr. Process-Z Account Cr.

Particulars Units (₹ ) Particulars Units (₹ )
To Process-Y A/c 12,631 50,524 By Normal Loss A/c [(5% 631 631
of 12,631 units) x ₹ 1]

” Additional -- 2,000
material
” Direct wages -- 3,000
” Production OH -- 4,500 ” Finished Stock A/c (₹ 12,000 59,393
4.9494$ × 12,000 units)

12,631 60,024 12,631 60,024

$
Cost per Unit of completed units
𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭−𝐑𝐞𝐚𝐥𝐢𝐬𝐚𝐛𝐥𝐞 𝐯𝐚𝐥𝐮𝐞 𝐟𝐫𝐨𝐦 𝐧𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 ₹𝟔𝟎,𝟎𝟐𝟒−₹𝟔𝟑𝟏
− = = 𝟒, 𝟗𝟒𝟗𝟒
𝐈𝐧𝐩𝐮𝐭𝐬 𝐮𝐧𝐢𝐭𝐬−𝐍𝐨𝐫𝐦𝐚𝐥 𝐥𝐨𝐬𝐬 𝐮𝐧𝐢𝐭𝐬 𝟏𝟐,𝟔𝟑𝟏 𝐔𝐧𝐢𝐭𝐬−𝟔𝟑𝟏 𝐔𝐧𝐢𝐭𝐬

Question 3. B) (10 Marks)

Solution:-
Computation of revenues (at listed price), discount, cost of goods sold and Customer
level operating activities costs:
Customers
A B C D E
Cases Sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
listed price) (₹):
(b) = [(a)]×54]
Discount (₹): (c) 8,520 3,10,000 1,44,400 52,920
[(a)× Discount per (14,200× 0.6) (62,000×5) (38,000×3.80) (9,800×5.40)
case)]

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Cast of goods Sold: 4,21,200 6,39,000 27,90,000 17,10,000 4,41,000

(d) = [(a)×45]
Customer level operating activities costs
Order taking 6,000 10,000 12,000 10,000 12,000
costs (₹) (No. of
purchase orders
×₹200)
Customer visits 1,200 1,800 3,600 1,200 1,800
costs (₹) (No. of
Customer visits
×₹300)
Delivery Vehicles 3,200 2,880 4,800 6,400 9,600
travel costs (₹)
(kms travelled by
delivery vehicles
× ₹ 4 per km)
Product handling 18,720 28,400 1,24,000 76,000 19,600
costs (₹) [(a)× ₹2]
Cost of expedited - - - - 200
deliveries (₹)
(No. of expedited
deliveries × ₹100)
Total cost of 29,120 43,080 1,44,400 93,600 43,200
customer level
operating
activities (₹)

(i) Computation of Customer level operating Income

A B C D E
Revenues (At list Price) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
Less: Discount - 8,520 3,10,000 1,44,400 52,920
Revenue (At actual price) 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
Less: Cost of goods Sold 4,21,200 6,39,000 27,90,000 17,10,000 4,41,000
Gross Margin 84,240 1,19,280 2,48,000 1,97,600 35,280
Less: Customer level operating 29,120 43,080 1,44,400 93,600 43,200
activity costs
Customer level operating income 55,120 76,200 1,03,600 1,04,000 (7,920)

(ii) Comments:
 Customer D in comparison with Customer C: Operating income of
Customer D is more than of Customer C, despite having only 61.29%

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(38,000 Units) of the units volume sold in comparison to Customer C

(62,000 units). Customer C receives a higher per cent of discount i.e. 9.26%
(₹5) while Customer D receives a discount of 7.04% (₹3.80). Though the
gross margin of customer C (₹2,48,000) is more than Customer D
(₹1,97,600) but total cost of customer level operating activities of C
(₹1,44,400) is more in comparison to Customer D (₹93,600). As a result,
operating income is more in case of Customer D.
 Customer E in comparison with Customer A: Customer E is not
profitable while Customer A is profitable. Customer E receives a discount
of 10% (₹5.4) while Customer A doesn’t receive any discount. Sales
Volume of Customers A and E is almost same. However, total cost of
Customer level operating activities of E is far more (₹43,200) in
comparison to Customer A (₹29,120). This has resulted in occurrence of
loss in case of Customer E.

Question 4. A) (10 Marks)

Solution:-
Contract A/c
Dr. Cr.
Particulars Amount Particulars Amount
(₹ ) (₹ )
To Opening Work in By Material 35,000
progress returned to store
- Work certified 2,50,000 By Material returned 50,000
to suppliers
- Work uncertified 10,000 2,60,000 By Costing P&L 20,000
(Loss on sale of
material)
To Material at site 35,000 By Material Sold 20,000
To Material purchased 2,00,000 By Material at site 25,000
To Stores 8,00,000 By Works cost (Bal. 17,02,000
fig.)
To Wages 1,50,000
Add: Closing O/s wages 22,000
Less: Opening O/s wages (15,000) 1,57,000
To Plant supervisor 80,000
salary (2,40,000 × 1/3)
To Drawing and maps 50,000
To Sundry expenses 30,000
To Electricity charges 40,000
To Plant hire expenses 75,000

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Add: O/s at end 15,000

Less: O/s at beginning (20,000) 70,000
To Sub-contract 40,000
To Depreciation 90,000
5,00,000−20,000 270
[ × ]
4 360

18,52,000 18,52,000
To works cost 17,02,000 By work in progress:
To Costing P& L 6,10,750 Work certified
(Notional profit) 21,00,000
Work uncertified 23,12,750
2,12,750
23,12,750 23,12,750
Working Note:
Calculation of Value of work uncertified

Cost incurred till date 17,02,000

17,02,000
Estimate total cost [ ] 21,27,500
80%

Cost of work certified till date (21,27,500 × 70%) 14,89,250

Cost of uncertified work (17,02,000 – 14,89,250) 2,12,750

Question 4. B) (5 Marks)
Solution:-
The marginal cost (variable cost) of ₹ 17,600 is apportioned over the joint products P and
Q in the ratio of their physical quantity i.e. 200: 240
200
Marginal cost for Product P: ₹ 17,600 × = ₹ 8,000
440

240
Marginal cost for Product Q: ₹ 17,600 × = ₹ 9,600
440
The fixed cost of ₹15,600 is apportioned over the joint products P and Q in the ratio of
their contribution margin i.e. 160: 48 (Refer to working note)
Product P: ₹ 15,600 × 160/208 = ₹12,000

Product Q: ₹ 15,600 × 48/208 = ₹ 3,600

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Working Note:
Computation of contribution margin ratio

Products Sales revenue Marginal cost Contribution

(₹ ) (₹ ) (₹ )
P 24,000 8,000 16,000
Q 14,400 9,600 4,800
(Refer to above)
Contribution ratio is 160: 48

Question 4. C) (5 Marks)
Solution:-
(i) (a) Inventory turnover ratio (Refer to working note)
= Cost of stock of raw material consumed
Average stock of raw material

= ₹ 1,68,00,000 = 16.8
₹ 10,00,000
(b) Average number of days for which the average inventory is held
365 365 days
= = = 21.73 days
Inventory turnover ratio 16.8
Working Note:
Particulars (₹ )
Opening stock of raw material 9,00,000
Add: Material purchases during the year 1,70,00,000
Less: Closing stock of raw material 11,00,000
1,68,00,000
(ii) The Inventory turnover ratio for material X is 16.8 which mean an inventory item
takes only 21.73 or 22 days to issue from stores for production process. The rate is
better than the industry rate which is 10 time or 36.5 days. This inventory turnover
ratio indicates better inventory management system and good demand for the final
product in market.

Question 5. A) (10 Marks)

Solution:-
Cost Sheet for the Month of April 2020

Particulars (₹ )

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Opening stock of Raw Material 20,000

Add: Purchases [Refer Working Note-2] 1,65,000
Less: Closing stock of Raw Material (25,000)
Raw material consumed 1,60,000
Add: Direct labour cost 1,20,000
Prime cost 2,80,000
Add: Factory overheads 1,00,000
Gross Works cost 3,80,000
Add: Opening work-in-progress 20,000
Less: Closing work-in-progress (30,000)
Works Cost 3,70,000
Cost of Production 3,70,000
Add: Opening stock of finished goods 50,000
Less: Closing stock of finished goods (60,000)
Cost of goods sold 3,60,000
Add: General and administration expenses* 18,000
Add: Selling expenses 22,000
Cost of sales 4,00,000
Profit {Balancing figure (₹ 5,00,000 – ₹ 4,00,000)} 1,00,000
Sales 5,00,000
*General and administration expenses have been assumed as not relating to the
production activity.
Working Note:
1. Computation of the raw material consumed

Particulars (₹ )
Cost of Sales 4,00,000
Less: General and administration expenses (18,000)
Less: Selling expenses (22,000)
Cost Of Goods Sold 3,60,000
Add: Closing stock of finished goods 60,000
Less: Opening stock of finished goods (50,000)
Cost of production/Gross works cost 3,70,000
Add: Closing stock of work-in-progress 30,000
Less: Opening stock of work-in-progress (20,000)
Works cost
3,80,000

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1,20,000 (1,00,000)
Less: Factory overheads ( × 100)
120

2,80,000
Prime cost
(1,20,000)
Less: Direct labour
Raw material consumed 1,60,000

2. Computation of the raw material purchased

Particulars (₹ )
Closing stock of Raw Material 25,000
Add: Raw Material consumed 1,60,000
Less: Opening stock of Raw Material (20,000)
Raw Material purchased 1,65,000

Question 5. B) (10 Marks)

Solution:-

(i) Calculation of Overhead Recovery Rate:

Factory Overhead in 2020−21
Factory Overhead Recovery Rate = × 100
Direct labour cost in 2020−21
₹ 𝟑𝟎,𝟖𝟎,𝟎𝟎𝟎
= × 𝟏𝟎𝟎 = 𝟑𝟒% of Direct labour
₹ 𝟗𝟎,𝟓𝟎,𝟎𝟎𝟎
𝐀𝐝𝐦𝐢𝐧𝐢𝐬𝐭𝐫𝐚𝐭𝐢𝐯𝐞 𝐎𝐯𝐞𝐫𝐡𝐞𝐚𝐝 𝐢𝐧 𝟐𝟎𝟐𝟎−𝟐𝟏
Administrative Overhead Recovery Rate = × 𝟏𝟎𝟎
𝐅𝐚𝐜𝐭𝐨𝐫𝐲 𝐜𝐨𝐬𝐭 𝐢𝐧 𝟐𝟎𝟐𝟎−𝟐𝟏 (𝐖.𝐍)
₹ 𝟐𝟎,𝟓𝟎,𝟒𝟎𝟎
= × 𝟏𝟎𝟎 = 𝟔. 𝟗𝟏% of Factory Cost
₹ 𝟐,𝟗𝟔,𝟖𝟎,𝟎𝟎𝟎

Working Note: Calculation of Factory Cost in 2020-21

Particulars Amount (₹)

Opening Stock of Material 15,00,000
Add: Purchase of Material 1,80,50,000
Less: Closing Stock of Material (20,00,000)
Material Consumed 1,75,50,000
Direct Labour 90,50,000
Prime Cost 2,66,00,000
Factory Overhead 30,80,000
Factory Cost 2,96,80,000
(ii) Job Cost Sheet for the order received in 2021-22

Particulars Amount (₹)

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Material 80,00,000
Labour 40,50,000
Factory Overhead (34% of ₹ 40,50,000) 13,77,000
Factory Cost 1,34,27,000
Administrative Overhead (6.91% of ₹ 1,34,27,000) 9,27,806
Cost of delivery 9,50,000
Total Cost 1,53,04,806
Add: Profit @ 25% of Sales or 33.33% of cost 51,01,602
Sales value (Price to be quoted for the order) 2,04,06,408
Hence the price to be quoted is ₹ 2,04,06,408.

Question 6. A) (5 Marks)
Solution:-
Budgetary Control System: It is the system of management control and accounting in
which all the operations are forecasted and planned in advance to the extent possible and
the actual results compared with the forecasted and planned results.
Components of Budgetary Control System: The policy of a business for a defined
period is represented by the master budget, the detailed components of which are given in
a number of individual budgets called functional budgets. These functional budgets are
broadly grouped under the following heads:
1. Physical budgets: Those budgets which contain information in quantitative terms
such as the physical units of sales, production etc. This may include quantity of
sales, quantity of production, inventories, and manpower budgets are physical
budgets.
2. Cost budgets: Budgets which provides cost information in respect of
manufacturing, administration, selling and distribution, etc. for example,
manufacturing costs, selling costs, administration cost, and research and
development cost budgets are cost budgets.
3. Profit budgets: A budget which enables the ascertainment of profit. For example,
sales budget, profit and loss budget, etc.
4. Financial budgets: A budget which facilitates in ascertaining the financial
position of a concern, for example, cash budgets, capital expenditure budget,
budgeted balance sheet etc.

Question 6. B) (5 Marks)

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Solution:-
Integrated Accounting System:
Integrated Accounting System is a system of accounting, where the cost and financial
accounts are kept in the same set of books. Integrated accounts provide or meet out fully
the information requirement for Costing as well as for Financial Accounts. For Costing
purposes, it provides information useful for ascertaining the cost of each product, job, and
process, operation of any other identifiable activity and for carrying necessary analysis.
Integrated accounts provide relevant information which is necessary for preparing profit
and loss account and the balance sheets as per the requirement of law and also helps in
exercising effective control over the liabilities and assets of its business.
The main advantage of integrated Accounting System are as follows:
1. No need for Reconciliation: The question of reconciling costing profit and
financial profit does not arise, as there is only one figure of profit.
2. Less efforts: Due to use of one set of books, there is a significant saving in efforts
made.
3. Less Time consuming: No delay is caused in obtained information as it is
provided from books of original entry.
4. Economical process: It is economical also as it is based on the concept of
‘Centralisation of Accounting function’.

Question 6. C) (5 Marks)
Solution:-
Composite Cost Unit:
When two measurement units are combined together to know the cost of service or
operation, it is called composite cost units. For example, a public transportation
undertaking would measure the operating cost per passenger per kilometer.
Examples of Composite units are Ton-km., Quintal-km, passenger-km patient-day etc.
Composite unit may be computed in two ways:
(i) Absolute (weighted average) basis: It is the summation of the products of
qualitative and quantitative factors. For example, to calculate absolute ton-km for
a goods transport is calculated as follows:
Σ(Weight carried x distance)1 + (weight carried x distance)2 + ……. + (weight
carried x distance)n
(ii) Commercial (Simple Average) basis: It is the product of average qualitative and
total quantitative factors. For example, in case of goods transport, commercial ton-
km is arrived at by multiplying total distance km., by average load quantity.
Σ(Distance1 + Distance2 + ….. + Distancen) x (W1 + W2 + …. + Wn/n)
In both bases of computation of service cost unit, weightage is also given to
qualitative factors rather quantitative (which are directly related with variable cost
elements) factors alone.

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Question 6. D) (5 Marks)
Solution:-
Cost Control Cost Reduction
1. Cost control aims at maintaining 1. Cost reduction is concerned with
the costs in accordance with the reducing costs. It challenges all
established standards. standards and endeavours to
improvise them continuously
2. Cost control seeks to attain lowest 2. Cost reduction recognises no
possible cost under existing condition as permanent, since a
conditions. change will result in lower cost.
3. In case of cost control, emphasis 3. In case of cost reduction, it is on
is on past and present present and future.
4. Cost control is a preventive 4. Cost reduction is a corrective
function function. It operates even when an
efficient cost control system exists.
5. Cost control ends when targets 5. Cost reduction has no visible end
are achieved. and is a continuous process.

Question 6. E) (5 Marks)
Solution:-
Apportionment of Joint Cost amongst Joint Products using:
Market value at the point of separation: This method is used for apportionment of joint
costs to joint products upto the split off point. It is difficult to apply if the market value of
the product at the point of separation is not available. It is useful method where further
processing costs are incurred disproportionately.
Net realizable value Method: From the sales value of joint products (at finished stage)
the followings are deducted:
 Estimated profit margins
 Selling & distribution expenses, if any
 Post split off costs.
The resultant figure so obtained is known as net realizable value of joint products. Joint
costs are apportioned in the ratio of net realizable value.

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