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

Roll No. ........................ Total No. of Printed Pages – 11

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 – 4

CA INTERMEDIATE

PAPER 3: COST AND MANAGEMENT

ACCOUNTING

Question 1. A) (5 Marks)
A Limited a toy company purchases its requirement of raw material from S Limited at ₹
120 per kg. The company incurs a handling cost of ₹ 400 plus freight of ₹ 350 per order.
The incremental carrying cost of inventory of raw material is ₹ 0.25 per kg per month. In
addition the cost of working capital finance on the investment in inventory of raw
material is ₹ 15 per kg per annum. The annual production of the toys is 60,000 units and
5 units of toys are obtained from one kg. of raw material.
Required:
(i) Calculate the Economic Order Quantity (EOQ) of raw materials.
(ii) Advise, how frequently company should order to minimize its procurement cost.
Assume 360 days in a year.
(iii) Calculate the total ordering cost and total inventory carrying cost per annum as per
EOQ.

Question 1. B) (5 Marks)
A skilled worker is paid a guaranteed wage rate of ₹ 120 per hour. The standard time
allowed for a job is 6 hour. He took 5 hours to complete the job. He is paid wages under
Rowan Incentive Plan.
(i) Calculate his effective hourly rate of earnings under Rowan Incentive Plan.
(ii) If the worker is placed under Halsey Incentive Scheme (50%) and he wants to
maintain the same effective hourly rate of earnings, calculate the time in which he
should complete the job.

Question 1. C) (5 Marks)
A machine shop has 8 identical machines manned by 6 operators. The machine cannot
work without an operator wholly engaged on it. The original cost of all the 8 machines
works out to ₹32,00,000. The following particulars are furnished for a six months period:

Normal available hours per month per operator 208

Absenteeism (without pay) hours per operator 18
Leave (with pay) hours per operator 20

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Normal unavoidable idle time-hours per operator 10

Average rate of wages per day of 8 hours per operator ₹ 100
Production bonus estimated 10% on wages
Power consumed ₹ 40,250
Supervision and Indirect Labour ₹ 16,500
Lighting and Electricity ₹ 6,000
The following particulars are given for a year:
Insurance ₹ 3,60,000
Sundry work Expenses ₹ 50,000
Management Expenses allocated ₹ 5,00,000
Depreciation 10% on the original cost
Repairs and Maintenance (including consumables): 5% of the value of all the machines.
Prepare a statement showing the comprehensive machine hour rate for the machine
shop.

Question 1. D) (5 Marks)

M/s Abid Private Limited disclosed a net profit of ₹ 48,408 as per cost books for the year
ending 31st March 2021. However, financial accounts disclosed net loss of ₹ 15,000 for
the same period. On scrutinizing both the set of books of account, the following
information was revealed:
₹
Works overheads under-recovered in Cost Books 48,600
Office overheads over-recovered in cost Books 11,500
Dividend received on Shares 17,475
Interest on Fixed Deposits 21,650
Provision for doubtful debts 17,800
Obsolescence loss not charged in cost accounts 17,200
Stores adjustments (debited in Financial Accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciations recovered in Cost Books 35,000
Prepare a Memorandum Reconciliation Account.

Question 2. A) (10 Marks)

The Profit and Loss account of ABC Ltd. for the year ended 31st March, 2021 is given
below:

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Profit and Loss account

(for the year ended 31st March, 2021)

To Direct Material 6,50,000 By Sales 15,00,000

(15000 units)
To Direct Wages 3,50,000 By Dividend received 9,000
To Factory overheads 2,60,000
To Administrative overheads 1,05,000
To Selling overheads 85,000
To Loss on sale of investments 2,000
To Net Profit 57,000
15,09,000 15,09,000

 Factory overheads are 50% fixed and 50% variable.

 Administrative overheads are 100% fixed.
 Selling overheads are completely variable.
 Normal production capacity of ABC Ltd. is 20,000 units.
 Indirect Expenses are absorbed in the cost accounts on the basis of normal
production capacity.
 Notional rent of own premises charged in Cost Accounts is amounting to ₹ 12,000.
You are required to:
(i) Prepare a Cost Sheet and ascertain the Profit as per Cost Records for the year
ended 31st March, 2021.
(ii) Reconcile the Profit as per Financial Records with Profit as per Cost Records.

Question 2. B) (5 Marks)
A product is manufactured in two sequential processes, namely Process – 1 and Process –
2.
The following information relates to Process-1.
At the beginning of June 2021, there were 1,000 WIP goods (60% completed in terms of
conversion cost) in the inventory, which are valued at ₹2,86,020 (Material cost: ₹
2,55,000 and Conversion cost: ₹ 31,020). Other information relating to process-1 for the
month of June 2021is as follows:

Cost of materials introduced – 40,000 units (₹) 96,80,000

Conversion cost added (₹) 18,42,000
Transferred to Process – 2 (Units) 35,000
Closing WIP (Units) (60% completed in terms of conversion cost) 1,500

100% of materials are introduced to Process – 1 at the beginning.

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Normal loss is estimated at 10% of input materials (excluding opening WIP).

Required:
(i) Prepare a statement of equivalent units using the weighted average cost method
and thereby calculate the following:
(ii) Calculate the value of output transferred to Process-2 and losing WIP.

Question 2. C) (5 Marks)
A company manufactures one main product (M1) and two by-products B1 and B2. For the
month of January 2021, following details are available: Total Cost up to separation Point
₹2,12,400.

M1 B1 B2
Cost after separation - ₹ 35,000 ₹ 24,000
No. of units produced 4,000 1,800 3,000
Selling price per unit ₹ 100 ₹ 40 ₹ 30
Estimated net profit as percentage to sales value - 20% 30%
Estimated selling expenses as percentage to sales value 20% 15% 15%
There are no beginning or closing inventories.
Prepare statement showing:
(i) Allocation of joint cost; and
(ii) Product-wise and overall profitability of the company for January 2021.

Question 3. A) (10 Marks)

A Drug Store is presently selling three types of drugs namely ‘Drug A’, ‘Drug B’ and
‘Drug C’. Due to some constraints, it has decided to go for only one product line of
drugs. It has provided the following data for year 2020-21 for each product line:

Drugs Types
A B C
Revenues (in ₹) 74,50,000 1,11,75,000 1,86,25,000
Cost of goods sold (in ₹) 41,44,500 68,16,750 1,20,63,750
Number of purchase orders placed (in nos.) 560 810 630
Number of deliveries received 950 1,000 850
Hours of shelf-stocking time 900 1,250 2,350
Units sold (in Nos.) 1,75,200 1,50,300 1,44,500

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Following additional information is also provided:

Activity Description of Total Cost-allocation base

activity Cost
(₹)
Drug Drug Licence fee 5,00,000 To be distributed in ratio
Licence fee 2:3:5 between A, B and C

Ordering Placing of orders for 8,30,000 2,000 purchase orders

purchases
Delivery Physical delivery and 18,20,000 2,800 deliveries
receipt of foods
Shelf Stocking of goods 32,40,000 4,500 hours of shelf-
stocking stocking time
Customer Assistance provided to 28,20,000 4,70,000 units sold
Support customers
You are required to:
(i) Calculate the operating income and operating income as a percentage (%) of
revenue of each product line if:
(a) All the support costs (Other than cost of goods sold) are allocated in the
ratio of cost of goods sold.
(b) All the support costs (Other than cost of goods sold) are allocated using
activity-based costing system.
(ii) Give your opinion about choosing the product line on the basis of operating
income as a percentage (%) of revenue of each product line under both the
situations as above.

Question 3. B) (10 Marks)

A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional
rates during six off-season months in a year.
During this period, half of the full room rent is charged. The management’s profit margin
is targeted at 20% of the room rent. The following are the cost estimates and other details
for the year ending 31st March, 2021:
(i) Occupancy during the season is 80% while in the off-season it is 40%.
(ii) Total investment in the hotel is ₹ 300 lakhs of which 80% relates to Buildings and
the balance to Furniture and other Equipment.
(iii) Room attendants are paid ₹ 15 per room per day on the basis of occupancy of
rooms in a month.
(iv) Expenses:
 Staff salary (excluding that of room attendants) ₹ 8,00,000
 Repairs to Buildings ₹ 3,00,000

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 Laundry Charges ₹ 1,40,000

 Interior Charges ₹ 2,50,000
 Miscellaneous Expenses ₹ 2,00,200
(v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture
other Equipments on straight line method.
(vi) Monthly lighting charges are ₹ 110, except in four months in winter when it is ₹
30 per room and this cost is on the basis of full occupancy for a month.
You are required to work out the room rent chargeable per day both during the season
and the off-season months using the foregoing information (Assume a month to be of 30
days and winter season to be considered as part of off-season).

Question 4. A) (10 Marks)

Ahaan Limited operates a system of standard costing in respect of one of its products
'AH1' which is manufactured within a single cost centre. Details of standard per unit are
as follows:
 The standard material input is 20 kilograms at a standard price of ₹24 per kilogram.
 The standard wage rate is ₹ 72 per hour and 5 hours are allowed to produce one unit.
 Fixed production overhead is absorbed at the rate of 100% of wages cost.
During the month of April 2022, the following was incurred:
 Actual price paid for material purchased @ ₹ 22 per kilogram.
 Total direct wages cost was ₹ 43,92,000
 Fixed production overhead cost incurred was ₹ 45,00,000
Analysis of variances was as follows:

Variances Favorable Adverse

Direct material price ₹ 4,80,000 -
Direct material usage ₹ 48,000
Direct labour rate - ₹ 69,120
Direct labour efficiency ₹ 33,120 -
Fixed production overhead expenditure ₹ 1,80,000
You are required to CALCULATE the following for the month of April, 2022
(i) Material cost variance
(ii) Budgeted output (in units)
(iii) Quantity of raw materials purchased (in kilograms)
(iv) Actual output (in units)
(v) Actual hours worked

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(vi) Actual wage rate per labour hour

(vii) Labour cost variance
(viii) Production overhead cost variance

Question 4. B) (5 Marks)
A contractor prepares his accounts for the year ending 31st March each year. He
commenced a contract on 1st July, 2021.
The following information relates to the contract as on 31st March, 2022:
(₹)
Material issued 7,53,000
Wages 16,96,800
Salary to Foreman 2,43,900
A machine costing ₹7,80,000 has been on the site for 146 days, its working life is
estimated at 7 years and its final scrap value at ₹45,000.
A supervisor, who is paid ₹ 24,000 p.m. has devoted one-half of his time to this contract.
All other expenses and administration charges amount to ₹4,09,500.

Material in hand at site costs ₹1,06,200 on 31st March, 2022.

The contract price is ₹60,00,000. On 31st March, 2022 two-third of the contract was
completed. The architect issued certificates covering 50% of the contract price, and the
contractor had been paid ₹22,50,000 on account.
PREPARE Contract A/c and show the notional profit or loss as on 31st March, 2022.

Question 4. C) (5 Marks)
In a factory following the Job Costing Method, an abstract from the work- in-progress as
on 30th September was prepared as under.

Job No. Materials Direct hrs. Labour (₹) Factory Overheads

(₹) applied (₹)

115 1325 400 hrs. 800 640

118 810 250 hrs. 500 400
120 765 300 hrs. 475 380
2,900 1,775 1,420

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Materials used in October were as follows:

Materials Requisition No. Job No. Cost (₹)

54 118 300
55 118 425
56 118 515
57 120 665
58 121 910
59 124 720
3,535
A summary for labour hours deployed during October is as under:

Number of Hours
Job No.
Shop A Shop B
115 25 25
118 90 30
120 75 10
121 65 --
124 25 10
275 75
Indirect Labour: Waiting of material 20 10
Machine breakdown 10 5
Idle time 5 6
Overtime premium 6 5
316 101

A shop credit slip was issued in October, that material issued under Requisition No. 54
was returned back to stores as being not suitable. A material transfer note issued in
October indicated that material issued under Requisition No. 55 for Job 118 was directed
to Job 124.
The hourly rate in shop A per labour hour is ₹3 per hour while at shop B, it is ₹2 per
hour. The factory overhead is applied at the same rate as in September. Job 115, 118 and
120 were completed in October.
You are asked to COMPUTE the factory cost of the completed jobs. It is the practice of
the management to put a 10% on the factory cost to cover administration and selling
overheads and invoice the job to the customer on a total cost plus 20% basis.
DETERMINE the invoice price of these three jobs?

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Question 5. A) (10 Marks)

Arnav Ltd. operates in beverages industry where it manufactures soft -drink in three sizes
of Large (3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are
processed in batches. The 5,000 litres capacity processing plant consumes electricity of
90 Kilowatts per hour and a batch takes 1 hour 45 minutes to complete. Only symmetric
size of products can be processed at a time. The machine set-up takes 15 minutes to get
ready for next batch processing. During the set-up, power consumption is only 20%.
(I) The current price of Large, Medium and Small are ₹ 150, ₹ 90 and ₹ 50
respectively.
(II) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-
C are required which costs ₹ 0.50 and ₹1,000 per litre respectively.
(III) 20 direct workers are required. The workers are paid ₹ 880 for 8 hours shift of
work.
(IV) The average packing cost per bottle is ₹3
(V) Power cost is ₹ 7 per Kilowatt -hour (Kwh)
(VI) Other variable cost is ₹ 30,000 per batch.
(VII) Fixed cost (Administration and marketing) is ₹4,90,00,000.
(VIII) The holding cost is ₹ 1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of products:

Large Medium Small

3,00,000 7,50,000 20,00,000
Required:
CALCULATE net profit/ loss of the organisation and also COMPUTE Economic Batch
Quantity

Question 5. B) (10 Marks)

The lab corner of New life Hospital Trust operates two types of specialist MRI scanning
machine- MR10 and MR59. Following details are estimated for the next period:

Machine MR10 MR59

Running hours 1,100 2,000
(₹) (₹)
Variable running costs excluding special technology 68,750 1,60,000
Fixed Costs 50,000 2,43,750

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A brain scan is normally carried out on machine type MR10. This task uses special
technology costing ₹ 100 each and takes four hours of machine time. Because of the
nature of the process, around 10% of the scans produce blurred and therefore useless
results.
Required:
(i) CALCULATE the total cost of a satisfactory brain scan on machine type MR10.
(ii) Brain scans can also be done on machine type MR59 and would take only 1.8
hours per scan with a reduced reject rate of 6%. However, the cost of the special
technology would be ₹ 137.50 per scan. ADVISE which type should be used,
assuming sufficient capacity is available on both types of machines. Consider
fixed costs will remain unchanged.

Question 6. A) (5 Marks)
State how the following items are treated in arriving at the value of cost of material
purchased:
(i) Detention Charges/Fines
(ii) Demurrage
(iii) Cost of Returnable containers
(iv) Central Goods and Service Tax (CGST)
(v) Shortage due to abnormal reasons.

Question 6. B) (5 Marks)
Briefly explain the ‘techniques of costing’.

Question 6. C) (5 Marks)
WHAT is inter-process profit? STATE its advantages and disadvantages.

Question 6. D) (5 Marks)
Though Cost Accounting and Management Accounting is used synonymously but there
are a few differences. Elaborate those differences.

Question 6. E) (5 Marks)
DISCUSS the impact of Information Technology in Cost Accounting.

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NOV-2022

CA INTER NEW SYLLABUS

PORTIONWISE TEST ROUND – 4

COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS

Question 1. A) (5 Marks)
Solution:-
60,000 Units
Annual requirement of raw material in kg. (A) = = 12,000 kg.
5 units per kg.

Ordering Cost (Handling & freight cost) (O) = ₹ 400 + ₹ 350 = ₹ 750
Carrying cost per unit per annum i.e. inventory carrying cost + working capital cost (c
× i) = (₹ 0.25 × 12 months) + ₹15 = ₹ 18 per kg.
2×12,000 kgs.×₹ 750
(i) E.O.Q. = √ = 1,000 kg.
₹ 18

(ii) Frequency of orders for procurement:

Annual consumption (A) = 12,000 kg.

Quantity per order (EOQ) = 1,000 kg.
A 12,000kg.
No. of orders per annum ( )= = 12
EOQ 1,000kg.
12 months
Frequency of placing orders (in months) = = 1 months
12orders
360 days
Or, (in days) = = 30 days
12 orders

(iii) Calculation of total ordering cost and total inventory carrying cost as per EOQ:

Amount/Quantity
Size of the order 1,000 kg.
No. of orders 12
Cost of placing orders ₹ 9,000
(12 orders × ₹ 750)
Inventory carrying cost ₹ 9,000
(1,000 kg. × ½ × ₹ 18)
Total Cost ₹18,000

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Question 1. B) (5 Marks)
Solution:-
(i) Effective hourly rate of earnings under Rowan Incentive Plan
Earnings under Rowan Incentive plan
𝐓𝐢𝐦𝐞 𝐒𝐚𝐯𝐞𝐝
= Actual Time Taken × Wage rate + × Time Taken × Wage Rate
𝐓𝐢𝐦𝐞 𝐀𝐥𝐥𝐨𝐰𝐞𝐝
𝟏 𝐡𝐨𝐮𝐫
= (5 hours × ₹ 120) + × 5 hours × ₹ 120
𝟔 𝐡𝐨𝐮𝐫𝐬
= ₹ 600 + ₹ 100 = ₹ 700
Effective Hourly Rate = ₹ 700/5 hours = ₹ 140/hour
(ii) Let time taken = T
𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐮𝐧𝐝𝐞𝐫 𝐇𝐚𝐥𝐬𝐞𝐲 𝐒𝐜𝐡𝐞𝐦𝐞
Effective hourly rate =
𝐓𝐢𝐦𝐞 𝐓𝐚𝐤𝐞𝐧
Or, Effective hourly rate under Rowan Incentive plan
(𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧 ×𝐑𝐚𝐭𝐞)+ 𝟓𝟎% 𝐫𝐚𝐭𝐞 ×( 𝐓𝐢𝐦𝐞 𝐀𝐥𝐥𝐨𝐰𝐞𝐝−𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧)
=
𝐓𝐢𝐦𝐞 𝐓𝐚𝐤𝐞𝐧
(𝐓×₹ 𝟏𝟐𝟎)+𝟓𝟎% 𝐨𝐟 ₹ 𝟏𝟐𝟎 ×(𝟔−𝐓)
Or, 140 =
𝐓
Or, 140T = 120T + 360 – 60T
Or, 80T = 360
𝟑𝟔𝟎
Or, T = = 4.5 hours
𝟖𝟎
Therefore, to earn effective hourly rate of ₹140 under Halsey Incentive Scheme
worker has to complete the work in 4.5 hours.

Question 1. C) (5 Marks)
Solution:-
Workings:
Particulars Six months 6
operators (Hours)
Normal available hours per month (208 x 6 months x 6 operators) 7,488

Less: Absenteeism hours (18 x 6 operators) (108)

Paid hours (A) 7,380
Less: Leave hours (20 x 6 operators) (120)
Less: Normal idle time (10 x 6 operators) (60)
Effective working hours 7,200

Computation of Comprehensive Machine Hour Rate

Particulars Amount for six

months (₹)

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Operators' wages (7,380/8 x100) 92,250

Production bonus (10% on wages) 9,225
Power consumed 40,250
Supervision and indirect labour 16,500
Lighting and Electricity 6,000
Repair and maintenance {(5% × ₹ 32,00,000)/2} 80,000
Insurance (₹ 3,60,000/2) 1,80,000
Depreciation {(₹ 32,00,000 × 10%)/2} 1,60,000
Sundry Work expenses (₹ 50,000/2) 25,000
Management expenses (₹ 5,00,000/2) 2,50,000
Total Overheads for 6 months 8,59,225
Comprehensive Machine Hour Rate = ₹ ₹ 119.33
8,59,225/7,200 hours
(Note: Machine hour rate may be calculated alternatively. Further, presentation of figures
may also be done on monthly or annual basis.)

Question 1. D) (5 Marks)
Solution:-
Memorandum Reconciliation Account
₹ ₹
To Works overheads under 48,600 By Net profit as per Costing 48,408
recovered in cost accounts books
To Provision for doubtful debts 17,800 By Office overheads over 11,500
recovered in cost accounts
To Obsolescence loss 17,200 By Dividend received on 17,475
To Store adjustment (Debit) 35,433 shares
By Interest on fixed deposit 21,650
By Depreciation over-charged 5,000
in cost Accounts
By Net loss as per financial 15,000
accounts
1,19,033 1,19,033

Question 2. A) (10 Marks)

Solution:-
(i) Cost Sheet
(for the year ended 31st March, 2021)

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(₹) (₹)
Direct material 6,50,000
Direct wages 3,50,000
Prime cost 10,00,000
Factory Overheads:
Variable (50% of ₹ 2,60,000) 1,30,000
Fixed (₹ 1,30,000 × 15,000/20,000) 97,500 2,27,500
Works cost 12,27,500
Administrative Overheads (₹ 1,05,000 × 78,750
15,000/20,000)
Notional Rent 12,000
Cost of production 13,18,250
Selling Overheads 85,000
Cost of Sales 14,03,250
Profit (Balancing figure) 96,750
Sales revenue 15,00,000
(ii) Statement of Reconciliation
(Reconciling profit shown by Financial and Cost Accounts)
(₹) (₹)
Profit as per Cost Account 96,750
Add: Dividend received 9,000
Add: Notional Rent 12,000 21,000
Less: Factory Overheads under-charged in Cost Accounts (₹ 2,60,000 32,500
– ₹ 2,27,500)
Less: Administrative expenses under-charged in Cost Accounts (₹ 26,250
1,05,000 – ₹ 78,750)
Less: Loss on sale of Investments 2,000 (60,750)
Profit as per Financial Accounts 57,000
(Note: Solution can be done considering base profit as per Financial Accounts)

Question 2. B) (5 Marks)
Solution:-
(i) Statement of Equivalent Production

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Input Output Equivalent Production

Units Units Material Conversion
cost
% Units % Units
Opening 1,000 Completed and
transferred to
WIP Process-2 35,000 100 35,000 100 35,000
Units 40,000 Normal Loss (10% 4,000 -
introduced of 40,000)
Abnormal loss
(Balancing figure) 500 100 500 60 300
Closing WIP 1,500 100 1,500 60 900
41,000 41,000 37,000 36,200

(ii) Calculation of value of output transferred to Process-2 & Closing WIP

₹ ₹
Value of units completed and transferred
(35,000 units × ₹ 320.25) (Refer W.N) 1,12,08,750
Value of Closing W-I-P:
Materials (1,500 units × ₹ 268.51) 4,02,765
Conversion cost (900 units × ₹ 51.74) 46,566 4,49,331

Workings:
Cost for each element
Materials (₹) Conversion (₹) Total (₹)
Cost of opening work-in-process 2,55,000 31,020 2,86,020
Cost incurred during the month 96,80,000 18,42,000 1,15,22,000
Total cost: (A) 99,35,000 18,73,020 1,18,08,020
Equivalent units: (B) 37,000 36,200
Cost per equivalent unit: (C) = (A ÷ B) 268.51 51.74 320.25

Question 2. C) (5 Marks)
Solution:-
Statement showing allocation of Joint Cost
B1 B2
No. of units Produced 1,800 3,000
Selling Price Per unit (₹) 40 30
Sales Value (₹) 72,000 90,000
Less: Estimated Profit (B1-20% & B2 – 30%) (14,400) (27,000)
Cost of Sales 57,600 63,000
Less: Estimated Selling Expenses (B1-15% & B2-15%) (10,800) (13,500)

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Cost of Production 46,800 49,500

Less: Cost after separation (35,000) (24,000)
Joint Cost allocated 11,800 25,500

Statement of Profitability
M1(₹) B1(₹) B2(₹)
Sales Value 4,00,000 72,000 90,000
(4,000×₹100)
Less:- Joint Cost 1,75,100* 11,800 25,500
- Cost after separation - 35,000 24,000
- Selling Expenses (M1-20%, B1-15% & B2 – 80,000 10,800 13,500
15%)
2,55,100 57,600 63,000
Profit 1,44,900 14,400 27,000
* ₹ 2,12,400 - ₹ 11,800 - ₹ 25,500 = ₹ 1,75,100.

Question 3. A) (10 Marks)

Solution:-
(i) (a) Statement of Operating income and Operating income as a percentage of
revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods
sold of each product)
Drug A (₹) Drug B (₹) Drug C (₹) Total (₹)
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost of Goods sold (COGS): 41,44,500 68,16,750 1,20,63,750 2,30,25,000
(B)
Support cost (40% of 16,57,800 27,26,700 48,25,500 92,10,000
COGS): (C)
(Refer working notes)
Total cost: (D) = {(B) + (C)} 58,02,300 95,43,450 1,68,89,250 3,22,35,000
Operating income: E ={(A)- 16,47,700 16,31,550 17,35,750 50,15,000
(D)}
Operating income as a 22.12% 14.60% 9.32% 13.46%
% of revenues: (E/A) × 100)

Working notes:
1. Total support cost:

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(₹)
Drug Licence Fee 5,00,000
Ordering 8,30,000
Delivery 18,20,000
Shelf stocking 32,40,000
Customer support 28,20,000
Total support cost 92,10,000
2. Percentage of support cost to cost of goods sold (COGS):
Total support cost
= × 100
Total cost of goods sold
₹ 92,10,000
= × 100 = 40%
₹ 2,30,25,000
3. Cost for each activity cost driver:
Activity Total cost Cost allocation base Cost driver rate
(1) (₹) (3) (4) = [(2) ÷ (3)]
(2)
Ordering 8,30,000 2,000 purchase orders ₹ 415 per purchase order
Delivery 18,20,000 2,800 deliveries ₹ 650 per delivery
Shelf-stocking 32,40,000 4,500 hours ₹ 720 per stocking hour
Customer 28,20,000 4,70,000 units sold ₹ 6 per unit sold
support
(b) Statement of Operating income and Operating income as a percentage of
revenues for each product line
(When support costs are allocated to product lines using an activity-based costing
system)
Drug A (₹) Drug B (₹) Drug C (₹) Total (₹)
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost & Goods sold 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Drug Licence Fee 1,00,000 1,50,000 2,50,000 5,00,000
Ordering cost* (560:810:630) 2,32,400 3,36,150 2,61,450 8,30,000

Delivery cost* (950:1000:850) 6,17,500 6,50,000 5,52,500 18,20,000

Shelf stocking cost* 6,48,000 9,00,000 16,92,000 32,40,000

(900:1250:2350)
Customer Support cost* 10,51,200 9,01,800 8,67,000 28,20,000
(175200:150300:144500)
Total cost: (B) 67,93,600 97,54,700 1,56,86,700 3,22,35,000
Operating income C: {(A) - (B)} 6,56,400 14,20,300 29,38,300 50,15,000

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Operating income as a % of 8.81% 12.71% 15.78% 13.46%

revenues
* Refer to working note 3
(ii) Comparison on the basis of operating income as per the percentage (%) of
revenue:
(a) When support costs are allocated to product lines on the basis of cost of
goods sold of each product

Drug A (₹) Drug B (₹) Drug C (₹) Total (₹)

Operating income as a % of revenues 22.12% 14.60% 9.32% 13.46%

On comparing the operating income as a % of revenue of each product,

Drug A is the most profitable product line, though its revenue is least but
with highest units sold.
(b) When support costs are allocated to product lines using an activity -based
costing system
Drug A (₹) Drug B (₹) Drug C (₹) Total (₹)
Operating income as a % of 8.81% 12.71% 15.78% 13.46%
revenues
On comparing the operating income as a % of revenue of each product,
Drug C is the most profitable product line, though its unit sold is least but
with highest revenue.

Question 3. B) (10 Marks)

Solution:-
Statement of Total cost
₹
Staff salary 8,00,000
Repairs to building 3,00,000
Laundry 1,40,000
Interior 2,50,000
Miscellaneous Expenses 2,00,200
Depreciation on Building (₹ 300 Lakhs × 80% × 5%) 12,00,000
Depreciation on Furniture & Equipment (₹300 Lakhs × 20% × 15%) 9,00,000
Room attendant’s wages (₹ 15 per Room Day × 43,200 Room Days) 6,48,000
Lighting charges 1,32,800
Total cost 45,71,000
Add: Profit Margin (20% on Room rent or 25% on cost) 11,42,750
Total Rent to be charged 57,13,750
Calculation of Room Rent per day:

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Total Rent/Equivalent Full Room days = ₹ 57,13,750 / 36,000 = ₹ 158.72

Room Rent during Season - ₹ 158.72
Room Rent during Off season = ₹ 158.72 × 50% = ₹ 79.36

Working Notes:

(i) Total Room days in a year

Season Occupancy (Room-days) Equivalent Full Room
charge days
Season – 80% 200 Rooms × 80% × 30 days × 6 28,800 Rooms Days ×
Occupancy months = 28,800 Room Days 100% = 28,800
Off-season – 40% 200 Rooms × 40% × 30 days × 6 14,400 Rooms Days ×
Occupancy months = 14,400 Room Days 50% = 7,200
Total Rooms Days 28,800 + 14,400 = 43,200 Room Days 36,000 Full Rooms Days
(ii) Lighting Charges:
It is given that lighting charges is ₹ 110 per month. However, during winter season
of four months, it is ₹ 30 per month.
It is also given that peak season is 6 months and off season is 6 months.
Since, a hotel being in a Hill station, winter season will be considered as off
season. Hence, the non-winter season of 8 months includes Peak season of 6
months and Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% Occupancy 200 Rooms × 80% × 6 months ×₹ 110 per
month = ₹ 1,05,600
Off-season & Non-winter – 40% 200 Rooms × 40% × 2 months × ₹ 110 per
Occupancy (8 – 6 months) month = ₹ 17,600
Off-season & winter – 40% Occupancy 200 Rooms × 40% × 4 months × ₹ 30 per
months) month = ₹ 9,600
Total Lighting charges ₹ 1,05,600 + ₹ 17,600 + ₹ 9,600 = ₹ 1,32,800

Question 4. A) (10 Marks)

Solution:-
(i) Direct Material Cost Variance = Direct Material Price Variance + Direct
Material Usage Variance
= ₹4,80,000 F + ₹ 48,000 F = ₹ 5,28,000 F
(ii) Budgeted Output (units)
Fixed Production Overhead Expenditure Variance
= Budgeted Fixed Overhead - Actual Fixed Overheads

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= Budgeted Output x Standard Overhead Rate - Actual Fixed Overheads

₹1,80,000 A = Budgeted Output x ₹ 360 (5 hrs @₹ 72) - ₹ 45,00,000
₹ 45,00,000−₹1,80,000
Budgeted Output = = 12,000 units
360
(ii) Quantity of Materials purchased (in kilograms)
Material Price Variance = Actual Usage (Standard Price per kg - Actual price per
kg)
₹ 4,80,000 F = Actual Usage (₹ 24 -₹ 22)
₹𝟒,𝟖𝟎,𝟎𝟎𝟎−₹𝟏,𝟖𝟎,𝟎𝟎𝟎
Actual usage in kgs = = 𝟐, 𝟒𝟎, 𝟎𝟎𝟎 kgs
𝟐
(iv) Actual Output (units)
Actual Direct Wages ₹ 43,92,000
Direct labour rate variance ₹ 69,120 A
Direct labour efficiency variance ₹ 33,120 F
Standard labour cost for actual output ₹ 43,56,000
Standard labour cost for actual output
Actual Output =
Standard wage rate per unit
₹ 43,56,000
= = 12,100 units
₹ 360(72×5)

Alternatively, let X be the actual quantity of output

Then, Standard Quantity of input for actual output 'X'
20X = SQ
Material cost variance = (SQ x SP) - (AQ x AP)
₹ 5,28,000 = (20 X x ₹ 24) - (2,40,000 kgs x ₹ 22)
480X = ₹ 52,80,000 + ₹ 5,28,000
480X = ₹ 58,08,000
𝟓𝟖,𝟎𝟖,𝟎𝟎𝟎
X = = 𝟏𝟐, 𝟏𝟎𝟎 Units
𝟒𝟖𝟎
(v) Actual hours worked
Labour Efficiency Variance = Standard Labour Rate (Standard time for
actual output - Actual time)
₹ 33,120 F = ₹ 72 (5 hours x 12100 units - Actual time)

460 hours = 60,500 hours - Actual time

Actual time = 60,500 - 460 = 60,040 hours
(vi) Actual wage rate per hour
Actual Wages paid = ₹ 43,92,000
Actual hours worked = 60,040 hours

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₹𝟒𝟑,𝟗𝟐,𝟎𝟎𝟎
Actual Wage rate per hour = = ₹𝟕𝟑. 𝟏𝟓 per hour
𝟔𝟎,𝟎𝟒𝟎 𝐡𝐨𝐮𝐫𝐬
(vii) Labour cost variance
= Labour rate variance + Labour efficiency variance
=₹ 69,120 A + ₹ 33,120 F
= ₹ 36,000 A
(ii) Production Overhead Cost Variance
= Actual Output x Standard overhead rate - Actual Overheads Incurred
= 12,100 units x₹ 360 - ₹ 45,00,000
= ₹ 43,56,000 - ₹ 45,00,000
= ₹ 1,44,000 A

Question 4. B) (5 Marks)
Solution:-
Contract Account
Particulars (₹) Particulars (₹)
To Material issued 7,53,000 By Machine (Working note 1) 7,38,000

” Wages 16,96,800 ” Material (in hand) 1,06,200

” Foreman’s salary 2,43,900 ” Works cost (balancing 31,47,000
figure)
” Machine 7,80,000
” Supervisor’s salary 1,08,000
(₹ 24,000 × 9)/2
” Administrative charges 4,09,500

39,91,200 39,91,200
” Works cost 31,47,000 ” Value of work 30,00,000
certified
” Costing P&L A/c (Notional 6,39,750 ” Cost of work 7,86,750
profit) uncertified
(Working Note 2)
37,86,750 37,86,750
Working notes:
1. Written down value of Machine:
₹𝟕,𝟖𝟎,𝟎𝟎𝟎−₹𝟒𝟓,𝟎𝟎𝟎 𝟏𝟒𝟔 𝐝𝐚𝐲𝐬
= × = ₹ 𝟒𝟐, 𝟎𝟎𝟎
𝟕𝐲𝐞𝐚𝐫𝐬 𝟑𝟔𝟓 𝐝𝐚𝐲𝐬

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Hence, the value of machine after the period of 146 days = ₹ 7,80,000 – ₹ 42,000
= ₹ 7,38,000
2. The cost of 2/3rd of the contract is ₹ 31,47,000
₹ 31,47,000
 Cost of 100% " " " " ×3 = ₹ 47,20,500
2
Cost of 50% of the contract which has been certified by the architect is
₹23,60,250. Also, the cost of the contract, which has been completed but not
certified by the architect is ₹7,86,750.

Question 4. C) (5 Marks)
Solution:-
Factory Cost Statement of Completed Job.
Month Job Materials Direct Factory Factory
No. labour overheads (80% of cost
direct labour cost)
(₹) (₹) (₹) (₹) (₹)
September 115 1,325 800 640 2765
October 115 -- 125 100 225
Total 1,325 925 740 2,990
September 118 810 500 400 1,710
October 118 515 330 264 1,109
Total 1,325 830 664 2,819
September 120 765 475 380 1,620
October 120 665 245 196 1,106
Total 1,430 720 576 2,726
Invoice Price of Complete Job
Job No. 115 (₹) 118 (₹) 120 (₹)

Factory cost 2,990.00 2,819.00 2,726.00

Administration and selling
overheads @ 10% of factory cost 299.00 281.90 272.60

Total cost 3,289.00 3,100.90 2,998.60

Profit (20% of total cost) 657.80 620.18 599.72
Invoice Price 3,946.80 3,721.08 3,598.32
Assumption: - Indirect labour costs have been included in the factory overhead which has

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been recovered as 80% of the labour cost.

Question 5. A) (10 Marks)

Solution:-
Workings:
1. Maximum number of bottles that can be processed in a batch:
= 5,000 ltrs
Bottle volume

Large Medium Small

Qty (ltr) Max bottles Qty (ltr) Max bottles Qty (ml) Max bottles
3 1,666 1.5 3,333 600 8,333
For simplicity of calculation small fractions has been ignored.
2. Number of batches to be run:
Large Medium Small Total
A Demand 3,00,000 7,50,000 20,00,000
B Bottles per batch (Refer WN-1) 1,666 3,333 8,333
C No. of batches [A÷B] 180 225 240 645
For simplicity of calculation small fractions has been ignored.
3. Quantity of Material-W and Material C required to meet demand:
Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000
B Qty per bottle (Litre) 3 1.5 0.6
C Output (Litre) [A×B] 9,00,000 11,25,000 12,00,000 32,25,000
D Material-W per litre of 14 14 14
output (Litre)
E Material-W required 1,26,00,000 1,57,50,00 1,68,00,000 4,51,50,000
(Litre) [C×D] 0
F Material-C required per 25 25 25
litre of output (ml)
G Material-C required 22,500 28,125 30,000 80,625
(Litre) [(C×F)÷1000]
4. No. of Man-shift required:

Large Medium Small Total

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A No. of batches 180 225 240 645

B Hours required per batch (Hours) 2 2 2
C Total hours required (Hours) [A×B] 360 450 480 1,290
D No. of shifts required [C÷8] 45 57 60 162
E Total manshift [D×20 workers] 900 1,140 1,200 3,240
For simplicity of calculation small fractions has been ignored.
5. Power consumption in Kwh
Large Medium Small Total
For processing
A No. of batches 180 225 240 645
B Hours required per batch (Hours) 1.75 1.75 1.75 1.75

C Total hours required (Hours) [A×B] 315 393.75 420 1,128.75

D Power consumption per hour (Kwh) 90 90 90 90

E Total Power consumption (Kwh) 28,350 35,437.5 37,800 1,01,587

[C×D]
F Per batch 157.5 157.5 157.5 157.5
consumption* (Kwh) [E÷A]
For set-up
G Hours required per batch (Hours) 0.25 0.25 0.25 0.25

H Total hours required (Hours) [A×G] 45 56.25 60 161.25

I Power consumption per hour (Kwh) 18 18 18 18

[20%×90]
J Total Power consumption (Kwh) 810 1,012.5 1,080 2,902.5
[H×I]
K Per batch consumption* (Kwh) 4.5 4.5 4.5 4.5
[J÷A]
* Per batch consumption can be directly calculated as [Hours required per batch x
Power consumption per hour]
Calculation of Profit/ loss per batch:

Particulars Large Medium Small Total

A Demand (bottle) 3,00,000 7,50,000 20,00,000 30,50,000

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B Price per bottle (₹) 150 90 50

C Sales value (₹) 4,50,00,000 6,75,00,000 10,00,00,000 21,25,00,000
[A×B]
Direct Material
cost:
E Material-W (₹) 63,00,000 78,75,000 84,00,000 2,25,75,000
[Qty in WN-3 ×
₹0.50]
F Material-C (₹) 2,25,00,000 2,81,25,000 3,00,00,000 8,06,25,000
[Qty in WN-3 ×
₹1,000]
G [E+F] 2,88,00,000 3,60,00,000 3,84,00,000 10,32,00,000
H Direct Wages (₹) 7,92,000 10,03,200 10,56,000 28,51,200
[Man- shift in
WN-4 × × ₹880]
I Packing cost 9,00,000 22,50,000 60,00,000 91,50,000
(₹)
[A×₹3]
Power cost (₹)
J For processing 1,98,450 2,48,062.5 2,64,600 7,11,112.5
(₹) [WN-5 ×
₹7]
K For set-up time (₹) 5,670 7,087.5 7,560 20,317.5
[WN-5 × ₹7]
L [J+K] 2,04,120 2,55,150 2,72,160 7,31,430
M Other variable 54,00,000 67,50,000 72,00,000 1,93,50,000
cost (₹) [No. of
batch in WN-2 ×
₹30,000]
N Total Variable cost 3,60,96,120 4,62,58,350 5,29,28,160 13,52,82,630
per batch
[G+H+I+L+M]
O Profit/ loss 89,03,880 2,12,41,650 4,70,71,840 7,72,17,370
before
fixed cost [C-N]
P Fixed Cost 4,90,00,000
Q Net Profit [O-P] 2,82,17,370

Computation of Economic Batch Quantity (EBQ):

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𝟐×𝐃×𝐒
EBQ = √
𝐂

D = Annual Demand for the Product = Refer A below

S = Set-up cost per batch = Refer D below
C = Carrying cost per unit per annum =Refer E below

Particulars Large Medium Small

A Annual Demand (bottle) 3,00,000 7,50,000 20,00,000
B Power cost for set-up time (₹) 31.50 31.50 31.50
[Consumption per batch in WN-5 × ₹7]
C Other variable cost (₹) 30,000 30,000 30,000
D Total Set-up cost [B+C] 30,031.50 30,031.50 30,031.50
E Holding cost: 1.00 1.00 1.00
F EBQ (Bottle) 1,34,234 2,12,243 3,46,592

Question 5. B) (10 Marks)

Solution:-
(i)

Particulars (₹)
Variable cost per running hour of Machine MR10 (₹ 68,750/1100 hours) 62.50
Fixed cost (₹ 50,000/1100 hours) 45.46
Cost of brain scan on Machine MR10: (₹)
Variable machine cost (4 hours × ₹ 62.50) 250.00
Special technology 100.00
Total variable cost 350.00
Fixed machine cost (4 hours × ₹ 45.46) 181.84
Total cost of a scan 531.84
Total cost of a satisfactory scan (₹ 531.84/0.9) 590.93
(ii) It is given that fixed cost will remain unchanged and thus they are not relevant for
the decision. The relevant costs would be the incremental costs of an additional
scan:
Machine MR10: (₹)
Variable cost per scan 350.00
Variable cost per satisfactory scan (₹ 350/0.9) 388.89
Machine MR59: (₹)

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Variable machine cost per scan (₹ 1,60,000 / 2000 hours × 144.00

1.8 hours)
Special technology 137.50
Variable cost per scan 281.50
Variable cost per satisfactory scan (₹ 281.50/0.94) 299.47
The relevant costs per satisfactory scan are cheaper on Machine MR59 and
therefore brain scans should be undertaken on said machine.

Question 6. A) (5 Marks)
Solution:-
Treatment of items in arriving at the value of cost of material Purchased
S. No. Items Treatment
(i) Detention Detention charges/ fines imposed for non- compliance of
charges/ rule or law by any statutory authority. It is an abnormal
Fine cost and not included with cost of purchase.
(ii) Demurrage Demurrage is a penalty imposed by the transporter for
delay in uploading or offloading of materials. It is an
abnormal cost and not included with cost of purchase.
(iii) Cost of Treatment of cost of returnable containers are as follows:
returnable Returnable Containers: If the containers are returned and
containers their costs are refunded, then cost of containers should not
be considered in the cost of purchase.
If the amount of refund on returning the container is less
than the amount paid, then, only the short fall is added with
the cost of purchase.

(iv) Central Central Goods and Service Tax (CGST) is paid on

Goods and manufacture and supply of goods and collected from the
Service Tax buyer. It is excluded from the cost of purchase if the input
(CGST) credit is available for the same. Unless mentioned
specifically CGST is not added with the cost of purchase.
(v) Shortage due Shortage arises due to abnormal reasons such as material
to abnormal mishandling, pilferage, or due to any avoidable reasons are
reasons not absorbed by the good units. Losses due to abnormal
reasons are debited to costing profit and loss account.

Question 6. B) (5 Marks)

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Solution:-

Techniques Description
Uniform When a number of firms in an industry agree among themselves to
Costing follow the same system of costing in detail, adopting common
terminology for various items and processes they are said to follow a
system of uniform costing.
Advantages of such a system are:
i. A comparison of the performance of each of the firms can be made
with that of another, or with the average performance in the
industry.
ii. Under such a system, it is also possible to determine the cost of
production of goods which is true for the industry as a whole. It is
found useful when tax-relief or protection is sought from the
Government.
Marginal It is defined as the ascertainment of marginal cost by differentiating
Costing between fixed and variable costs. It is used to ascertain effect of changes
in volume or type of output on profit.
Standard It is the name given to the technique whereby standard costs are pre-
Costing and determined and subsequently compared with the recorded actual costs. It
Variance is thus a technique of cost ascertainment and cost control. This
Analysis technique may be used in conjunction with any method of costing.
However, it is especially suitable where the manufacturing method
involves production of standardised goods of repetitive nature.
Historical It is the ascertainment of costs after they have been incurred. This type
Costing of costing has limited utility.
 Post Costing: It means ascertainment of cost after production is
completed.
 Continuous costing: Cost is ascertained as soon as the job is
completed or even when the job is in progress.
Absorption It is the practice of charging all costs, both variable and fixed to
Costing operations, processes or products. This differs from marginal costing
where fixed costs are excluded.
Direct Direct costing is a specialized form of cost analysis that only uses
costing variable costs to make decisions. It does not consider fixed costs, which
are assumed to be associated with the time periods in which they are
incurred.

Question 6. C) (5 Marks)
Solution:-

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Inter-Process Profit: To control cost and to measure performance, different processes

within an organization are designated as separate profit centres. In this type of
organizational structure, the output of one process is transferred to the next process not at
cost but at market value or cost plus a percentage of profit. The difference between cost
and the transfer price is known as inter - process profits.
The advantages and disadvantages of using inter-process profit, in the case of process
type industries are as follows:
Advantages:
1. Comparison between the cost of output and its market price at the stage of
completion is facilitated.
2. Each process is made to stand by itself as to the profitability.
Disadvantages:
1. The use of inter-process profits involves complication.
2. The system shows profits which are not realised because of stock not sold out.

Question 6. D) (5 Marks)
Solution:-

Basis Cost Accounting Management Accounting

(i) Nature It records the quantitative It records both qualitative
aspect only. and quantitative aspect.
(ii) Objective It records the cost of It provides information to
producing a product and management for planning
providing a service. and co-ordination.
(iii) Area It only deals with cost It is wider in scope as it
Ascertainment. includes financial
accounting, budgeting,
taxation, planning etc.
(iv) Recording of It uses both past and present It is focused with the
data figures. projection of figures for
future.
(v) Development Its development is related to Its development is related
industrial revolution. to the need of modern
business world.
(vi) Rules and It follows certain principles It does not follow any
Regulation and procedures for specific rules and
recording costs of different regulations.

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products.

Question 6. E) (5 Marks)
Solution:-
The impact of IT in cost accounting may include the following:
(i) After the introduction of ERPs, different functional activities get integrated and as
a consequence a single entry into the accounting system provides custom made
reports for every purpose and saves an organisation from preparing different sets
of documents. Reconciliation process of results of both cost and financial
accounting systems become simpler and less sophisticated.
(ii) A move towards paperless environment can be seen where documents like Bill of
Material, Material Requisition Note, Goods Received Note, labour utilisation
report etc. are no longer required to be prepared in multiple copies, the related
department can get e-copy from the system.
(iii) Information Technology with the help of internet (including intranet and extranet)
helps in resource procurement and mobilisation. For example, production
department can get materials from the stores without issuing material requisition
note physically. Similarly, purchase orders can be initiated to the suppliers with
the help of extranet. This enables an entity to shift towards Just-in-Time (JIT)
approach of inventory management and production.
(iv) Cost information for a cost centre or cost object is ascertained with accuracy in
timely manner. Each cost centre and cost object is codified and all related costs are
assigned to the cost object or cost centre. This process automates the cost
accumulation and ascertainment process. The cost information can be customised
as per the requirement. For example, when an entity manufactures or provide
services, it can know information job-wise, batch-wise, process-wise, cost centre
wise etc.
(v) Uniformity in preparation of report, budgets and standards can be achieved with
the help of IT. ERP software plays an important role in bringing uniformity
irrespective of location, currency, language and regulations.
(vi) Cost and revenue variance reports are generated in real time basis which enables
the management to take control measures immediately.
(vii) IT enables an entity to monitor and analyse each process of manufacturing or
service activity closely to eliminate non-value-added activities.
The above are examples of few areas where Cost Accounting is done with the help of IT.

VST4