VIDYA SAGAR

CAREER INSTITUTE LIMITED

WHERE ALL INDIA 1ST RANK IS A TRADITION

CA FOUNDATION

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 VIDYA SAGAR
CAREER INSTITUTE LIMITED

Answer Key

ANSWER KEY (COST & MANAGEMENT ACCOUTING)

Batch :……………. Date : 18.04.2022

1(a)
Master Budget for the year ending __
Sales: (`)
Toughened Glass 6,00,000
Bent Glass 2,00,000
Total Sales 8,00,000
Less: Cost of production:
Direct materials (60% of `8,00,000) 4,80,000
Direct wages (20 workers × `150 × 12months) 36,000
Prime Cost 5,16,000
Fixed Factory Overhead:
Works manager’s salary (500 × 12) 6,000
Foreman’s salary (400 × 12) 4,800
Depreciation 12,600
Light and power (assumed fixed) 3,000 26,400
Variable Factory Overhead:
Stores and spares 20,000
Repairs and maintenance 8,000
Sundry expenses 3,600 31,600
Works Cost 5,74,000
Gross Profit (Sales – Works cost) 2,26,000
Less: Adm., selling and distribution expenses 36,000
Net Profit 1,90,000
.
(b) `
(i) Rowan Plan :
Normal time wage = 15 hours @ ` 5= 75
Bonus = Time saved /Time allowed × (Time taken × Time rate)
5 18.75
= 20 × (15 × 5) = = 93.75

(ii) Halsey Plan:

Normal time wage = 15 hours @ `5 = 75
12.5
Bonus = 50% of (Time saved × Time rate = 50% of (5×5)=
87.5

Page 1 of 12
 Statement of Comparative Factory cost of work

Rowan Plan Halsey Plan

` `
Materials 50 50
Direct Wages 93.75 87.5
Prime Cost 143.75 137.5
Factory Overhead (100% of Direct wages) 93.75 87.5
Factory Cost 237.5 225
.

(c) (i) Statement Showing Joint Cost Allocation to ‘Cromex’

Particulars Cromex (`)

Sales (` 40 × 2,000 units) 80,000
Less: Post Split Off Costs (28,000)
(4,000+18,000+6,000)
Less: Estimated Profit (` 5 × 2,000 units) (10,000)
Joint cost allocable 42,000

(ii) Statement Showing Product Wise and Overall Profitability

Particulars Bomex (`) Cromex (`) Total (`)

Sales 2,00,000 80,000 2,80,000
Less: Share in Joint Expenses (1,38,000)* (42,000) (1,80,000)
Less: Post Split Off Costs (36,000) (28,000) (64,000)
Profit 26,000 10,000 36,000

(*) 1,80,000 – 42,000

.

(d) Memorandum Reconciliation Accounts

Amount(` ) Amount (` )
To Net Loss as per Costing 3,47,000 By Administration overheads 60,000
Books over recovered in cost
accounts
To Factory overheads under 40,000 By Internal on investment not 96,000
absorbed in Cost Accounts included in cost Accounts
To Depreciation under charged 50,000 By Transfer fees in Financial 24,000
in cost Ac ounts Books
To Income-tax not provided in 54,000 By Stores adjustment 14,000
cost Accounts (Credit in financial books)
To Interest on Loan Funds in 2,45,000 By Dividend Received in 32,000
Financial Accounts financial books
By Net loss as per Financial 5,10,000
Books
7,36,000 7,36,000

Page 2 of 12
 .
2(a) (i) Computation of the value of materials purchased
To find out the value of materials purchased, reverse calculations from the given data can be
presented as below:

Particulars (`)
Cost of goods sold 56,000
Add: Closing stock of finished goods 19,000
Less: Opening stock of finished goods (17,600)
Cost of production 57,400
Add: Closing stock of work-in-progress 14,500
Less: Opening stock of work-in-progress (10,500)
Works cost 61,400
17,500 (10,000)
Less: Factory overheads: [` 𝑥100]
175

Prime cost 51,400

Less: Direct labour (17,500)
Raw material consumed 33,900
Add: Closing stock of raw materials 10,600
Raw materials available 44,500
Less: Opening stock of raw materials ( 8,000)
Value of materials purchased 36,500

(ii) Cost statement

(`)
Raw material consumed [Refer to statement (i) above] 33,900
Add: Direct labour cost 17,500
Prime cost 51,400
Add: Factory overheads 10,000
Works cost 61,400
Add: Opening work-in-progress 10,500
Less: Closing work-in-progress (14,500)
Cost of production 57,400
Add: Opening stock of finished goods 17,600
Less: Closing stock of finished goods (19,000)
Cost of goods sold 56,000
Add: General and administration expenses 2,500
Add: Selling expenses 3,500
Cost of sales 62,000
Profit (Balance figure ` 75,000 – ` 62,000) 13,000
Sales 75,000
.

Page 3 of 12
(b)
Statement of Equivalent Production
Process III
Equivalent Production
Input Output Material-A Material-B Labour &
Units Units
Details Particulars Overhead
% Units % Units % Units
Opening 1,600 Work on Op. WIP 1,600 - - 20 320 40 640
WIP
Process-II 55,400 Introduced & 50,600 100 50,600 100 50,600 100 50,600
Transfer completed during
the month
Normal loss (5% 2,640 - - - - - -
of 52,800 units)
Closing WIP 4,200 100 4,200 70 2,940 50 2,100
Abnormal Gain (2,040) 100 (2,040) 100 (2,040) 100 (2,040)
57,000 57,000 52,760 51,820 51,300

Working note:
Production units = Opening units + Units transferred from Process-II – Closing Units
= 1,600 units + 55,400 units – 4,200 units
= 52,800 units
Statement of Cost
Cost (`) Equivalent Cost per
units equivalent
units (`)
Material A (Transferred from previous process) 6,23,250
Less: Scrap value of normal loss (2,640 units × ` 5) (13,200)

6,10,050 52,760 11.5627

Material B 2,12,400 51,820 4.0988
Labour 96,420 51,300 1.8795
Overheads 56,400 51,300 1.0994
9,75,270 18.6404
Statement of apportionment of Process Cost
Amount Amount
(`) (`)
Opening WIP Material A 24,000
Completed opening Material B (320 units × ` 4.0988) 1311.62
WIP units-1600
Wages (640 units × ` 1.8795) 1202.88
Overheads (640 units × ` 1.0994) 703.62 3,218.12
Introduced & 50,600 units × `18.6404 9,43,204.24
Completed- 50,600
units
Total cost of 52,200 9,70,422.36
finished goods units

Page 4 of 12
 Closing WIP units- Material A (4,200 units × 48,563.34
4,200 ` 11.5627)
Material B (2,940 units × ` 4.0988) 12,050.47
Wages (2,100 units × ` 1.8795) 3,946.95
Overheads (2,100 units × 2,308.74
` 1.0994)
66,869.50
Abnormal gain units - (2,040 units × `18.6404) 38026.42
2,040
Process III A/c
Particulars Units Amount (`) Particulars Units Amount (`)
To Balance b/d 1,600 24,000 By Normal loss 2,640 13,200
To Process II A/c 55,400 6,23,250 By Finished 52,200 9,70,422.36
goods
To Direct material 2,12,400 By Closing WIP 4,200 66,874.06*
To Direct wages 96,420
To Production 56,400
overheads
To Abnormal gain 2,040 38,026.42
59,040 10,50,496.42 59,040 10,50,496.42

* Difference in figure due to rounding off has been adjusted with closing WIP

3(a) Material Variances:

Material SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
(WN-1) (`) (`) (WN-2) (`) (`) (`) (`)
A 940 kg. 45.00 42,300 886 kg. 39,870 900 kg. 40,500 43.00 38,700
B 705 kg. 30.00 21,150 664 kg. 19,920 650 kg. 19,500 32.50 21,125
1645 kg 63,450 1550 kg 59,790 1550 kg 60,000 59,825

WN-1: Standard Quantity (SQ):

800kg
Material A - (0.9×1,400kg × 1,480kg. ) = 939.68 or 940 kg.

600kg
Material B - (0.9×1,400kg × 1,480kg. ) = 704.76 or 705 kg.
WN-2: Revised Standard Quantity (RSQ):

800kg
Material A - (1,400kg × 1,550kg. ) = 885.71 or 886 kg.

600kg
Material B - ( × 1,550kg. ) = 664.28 or 664 kg.
1,400kg
(i) Material Cost Variance (A + B) = {(SQ ×SP)- (AQ ×AP)}
= {63,450 – 59,825} = 3,625 (F)
(ii) Material Price Variance (A+B) = {(AQ × SP) – (AQ ×AP)}
= {60,000 – 59,825} = 175 (F)
(iii) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
= {59,790 – 60,000} = 210 (A)
(iv) Material Yield Variance (A + B) = {(SQ × SP) – (RSQ × SP)}
= {(63,450 – 59,790)} = 3,660 (F)

Page 5 of 12
 Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN- (` ) (` ) (WN-4) (` ) (` ) (` ) (` )
Skilled 1,116 hrs 37.50 41,850 1144 42,900 1,200 45,000 35.50 42,600
Unskilled 893 hrs 22.00 19,646 916 20,152 860 18,920 23.00 19,780
2,009 hrs 61,496 2,060 63,052 2,060 63,920 62,380

WN. 3: Standard Hours (SH):

0.95×1,000 hr.
Skilled labour - ( 0.90×1,400kg. × 1,480kg. ) = 1,115.87 or 1,116 hrs.
0.95×8,00 hr.
Unskilled labour - (0.90×1,400kg. × 1,480kg. ) = 892.69 or 893 hrs.
WN. 4: Revised Standard Hours (RSH):
1,000 hr.
Skilled labour - ( 1,800hr. × 2,060hr. ) = 1,144.44 or 1,144 hrs.
8,00 hr.
Unskilled labour - (1,800hr. × 2,060hr. ) = 915.56 or 916 hrs.
(v) Labour Cost Variance (Skilled + Unskilled) = {(SH ×SR)- (AH ×AR)}
= {61,496 – 62,380} = 884 (a)
(vi) Labour Efficiency Variance (Skilled + Unskilled)) = {(SH × SR) – (AH ×SR)}
= {61,496 – 63,920} = 2,424 (A)
(vii) Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH × SR)}
= {61,496 – 63,052} = 1,556 (A)

(b) (i) Statement of cost allocation to each product from each activity
Product
M (`) S (`) T (`) Total (`)
Power 8,00,000 16,00,000 12,00,000 36,00,000
(Refer to (10,000 kWh × (20,000 kWh × `80) (15,000 kWh ×
working note) `80) `80)
Quality 21,00,000 15,00,000 18,00,000 54,00,000
Inspections (3,500 (2,500 inspections × (3,000
(Refer to inspections × `600) inspections ×
working note) `600) `600)

Working Note:
Rate per unit of cost driver:
Power : (`40,00,000 ÷ 50,000 kWh) = `80/kWh
Quality Inspection : (`60,00,000 ÷ 10,000 inspections) = `600 per inspection

(ii) Calculation of cost of unused capacity for each activity:

(` )
Power 4,00,000
(`40,00,000 – `36,00,000)
Quality Inspections 6,00,000
(`60,00,000 – `54,00,000)
Total cost of unused capacity 10,00,000

Page 6 of 12
 (iii) Factors management consider in choosing a capacity level to compute the budgeted fixed
overhead cost rate:
- Effect on product costing & capacity management
- Effect on pricing decisions.
- Effect on performance evaluation
- Effect on financial statements
- Regulatory requirements.
- Difficulties in forecasting for any capacity level.

4(a) Working Notes:

(i) Total Room days in a year
Season Occupancy (Room-days) Equivalent Full Roomcharge
days
Season – 80% 100 Rooms × 80% × 6 months 14,400 Room Days ×
Occupancy × 30 days in a month = 14,400Room 100% = 14,400
Days

Off-season – 40% 100 Rooms × 40% × 6 months 7,200 Room Days ×

Occupancy × 30 days in a month = 7,200Room 50% = 3,600
Days
Total Room Days 14,400 + 7,200 = 21,600 Room Days 18,000 Full Room days

(ii) Lighting Charges:

It is given in the question that lighting charges for 8 months is `120 per month and during winter
season of 4 months it is `30 per month. Further it is also given that peak season is 6 months and off
season is 6 months.
It should be noted that – being Hill station, winter season is to be considered as part of Off season.
Hence, the non-winter season of 8 months include – Peak season of 6 months and Off season of 2
months.
Accordingly, the lighting charges are calculated as follows:
Statement of total cost:
Season Occupancy (Room-days)
Season & Non-winter – 80%Occupancy 100 Rooms × 80% × 6 months × `120 permonth = `
57,600

Off- season & Non-winter –40% 100 Rooms × 40% × 2 months × `120 permonth = `
Occupancy (8 – 6 months) 9,600

Off- season & -winter – 40%Occupancy 100 Rooms × 40% × 4 months × ` 30 permonth = `
months) 4,800

Total Lighting charges ` 57,600+ 9,600 + 4,800 = ` 72,000

Statement of total cost:

(` )
Staff salary 5,50,000
Repairs to building 2,61,000
Laundry & Linen 80,000
Interior 1,75,000
Sundries Expenses 1,90,800

Page 7 of 12
 Depreciation on Building (`200 Lakhs × 80% × 5%) 8,00,000
Depreciation on Furniture & Equipment (` 200 Lakhs × 20% × 15%) 6,00,000
Room attendant’s wages (` 10 per Room Day for 21,600 Room Days) 2,16,000
Lighting charges 72,000
Total cost 29,44,800
Add: Profit Margin (20% on Room rent or 25% on Cost) 7,36,200
Total Rent to be charged 36,81,000

Calculation of Room Rent per day:

Total Cost / Equivalent Full Room days = ` 36,81,000/ 18,000 = `204.50
Room Rent during Season – `204.50
Room Rent during Off season =`204.50 × 50% = ` 102.25

(b) Store Ledger Account

Name — Max. Stock Level— Bin No.
Code No.— Min. Stock Level— Location Code—
Description— Re-order level Re-order Quantity
Date Receipts Issues Balance
Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
Units (` ) ( `) Units (` ) (` ) units (` ) (` )
April 1 200 10 2,000
April 5 250 8 2,000 200 10
250 8 4,000
April 8 150 8.50 1,275 200 10
250 8 5,275
150 8.50
April 10 100 8.50 850 200 10
250 8 4,425
50 8.50
April 15 50 10 500 200 10
250 8
50 8.50
50 10 4,925
April 20 10 10 100 190 10
(shortage)
250 8 4,825
50 8.50
50 10
April 21 60 9 540 190 10
250 8
50 8.50 5,365
50 10
60 9
April 22 190 10 3580 40 8 1,785
210 8 50 8.50 (Closing
50 10 Stock)
60 9
.
5(a) (i) Contribution = `375 - `175 = `200 per unit.
Fixed Cost `65,00,000
Break even Sales Quantity = Contribution margin per unit = = 32,500 units
`200

Cash Fixed Cost `50,00,000

Cash Break even Sales Qty = Contribution margin per unit = = 25,000 units
`200

Contribution/ unit `200

(ii) P/V ratio = × 100 = `375 × 100 = 53.33%
Selling Price /unit

(iii) No. of units that must be sold to earn an Incom (EBIT) of `5,00,000

Page 8 of 12
 Fixed Cost+Desired EBIT level `65,00,000+5,00,000
= = 35,000 units
Contribution margin per unit `200

(iv) After income (PAT) = `5,00,000

Tax rate = 40%
`5,00,000
Desired level of Profit before tax = × 100 = `8,33,333
`60
Fixed Cost+Desired Profit
Estimate Sales Level = P /Vratio

Fixed Cost+Desired Profit

OR ( 𝑥 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡)
Contribution per unit

`65,00,000 + `8,33,333
= = `𝟏, 𝟑𝟕, 𝟓𝟎, 𝟖𝟓𝟗
53.33%

(b) Statement of Profit or Loss on Various Products during the year ended March 31, 2020.

Total (`) Products

A (`) B (`) C (`) D (`)
Sales 1,50,00,000 30,00,000 50,00,000 25,00,000 45,00,000
Variable costs:
Cost of goods sold 1,08,50,000 20,00,000 45,00,000 21,00,000 22,50,000
Commissions 4% of sales 6,00,000 1,20,000 2,00,000 1,00,000 1,80,000
Packing wages & 10,00,000 2,00,000 3,00,000 1,50,000 3,50,000
materials @ ` 2 per parcel
Stationery @ ` 1 per 4,00,000 80,000 1,40,000 60,000 1,20,000
invoice
Total variable costs 1,28,50,000 24,00,000 51,40,000 24,10,000 29,00,000
Contribution 21,50,000 6,00,000 (1,40,000) 90,000 16,00,000
(Sales – variable cost)
Fixed Costs:
Rent & Insurance (5:4:8:3) 3,00,000 75,000 60,000 1,20,000 45,000
Depreciation (4:6:3:7) 1,00,000 20,000 30,000 15,000 35,000
Salesmen’s salaries & 6,00,000 1,20,000 2,00,000 1,00,000 1,80,000
expenses (6:10:5:9)
Administrative wages & 5,00,000 1,00,000 1,75,000 75,000 1,50,000
salaries (4:7:3:6)
Total Fixed costs 15,00,000 3,15,000 4,65,000 3,10,000 4,10,000
Profit or Loss 6,50,000 2,85,000 (6,05,000) (2,20,000) 11,90,000
(Contribution – fixed
Costs)
Percentage of profit 4.33 9.50 (12.10) (8.80) 26.4
or Loss on sales (%)
.

Page 9 of 12
(c) Arnav Construction Ltd.
Contract A/c
(November 1, 2012 to Oct. 31, 2013)
Particulars Amount Amount Particulars Amount Amount

(`) (`) (`) (`)

To Materials issued 6,75,000 By Plant returned to store

on 31/03/13 at cost 75,000

To Labour paid 4,50,000 Less: Depreciation for 5

(10,417) 64,583
months @ 33.33%
Less: Prepaid wages (25,000) 4,25,000
By W-I-P:

To Plant purchased & 20,00,000

Work certified
3,75,000 75,000 20,75,000
issued Work un-certified

To Expenses paid 2,00,000 By Plant at site

(3,75,000 –75,000) 3,00,000

Add: Outstanding exp. Less: Depreciation @ 33.33% 1,00,000 2,00,000

50,000 2,50,000
By Material at site 75,000

To National profit [B.F.] 6,89,583

24,14,583 24,14,583

(November 1, 2012 to March 31, 2014) (For computing estimated profit)

Particulars Amount (`) Dr. Particulars Amount(`)
Cr.
To Material Issued 19,12,500 By Material at site 37,500
( 6,75,000 + 12,37,500)
To Labour (Paid & 10,15,000 By Plant returned to stores on
Outstanding) 31/03/13 64,583
To Plant Purchased 3,75,000 By Plant returned to stores on
31/03/14
To Expenses (2,50,000 + 5,75,000 WDV on 31/10/2013
3,25,000) 2,00,000
To Estimated Profit 3,34,305 Less: Depreciation for 5 months
@ 33.33% (27,778) 1,72,222
By Contractee A/c 39, 37,500
42,11,805 42,11,805
.

Page 10 of 12
6 (a) Difference between Cost Accounting and Management Accounting 5

Basis Cost Accounting Management Accounting

(i) Nature It records the quantitative It records both qualitative and
aspect only. quantitative aspect.
(ii) Objective It records the cost of It Provides information to
producing a product and management for planning and
providing a service. co-ordination.
(iii) Area It only deals with cost It is wider in scope as it includes
Ascertainment. financial accounting, budgeting,
taxation, planning etc.
(iv) Recording ofdata It uses both past and It is focused with the projection
present figures. of figures for future.
(v) Development Its development is related It develops in accordance to the
to industrial revolution. need of modern business world.
(vi) Rules and It follows certain principles It does not follow any specific
Regulation and procedures for rules and regulations.
recording costs of different
products.
.
(b) Flexible budgeting may be resorted to under following situations: 5
(i) In the case of new business venture due to its typical nature it may be difficult to
forecast the demand of a product accurately.
(ii) Where the business is dependent upon the mercy of nature e.g., a person dealing in
wool trade may have enough market if temperature goes below the freezing point.
(iii) In the case of labour-intensive industry where the production of the concern is
dependent upon the availability of labour.
Suitability for flexible budget:
1. Seasonal fluctuations in sales and/or production, for example in soft drinks
industry;
2. a company which keeps on introducing new products or makes changes in the
design of its products frequently;
3. industries engaged in make-to-order business like ship building;
4. an industry which is influenced by changes in fashion; and
5. General changes in sales.

5
(c) Journal entries are as follows:
Dr. Cr.
(`) (`)
(i) Stores Ledger Control A/c…………………… Dr. 27,000
To Cost Ledger Control A/c 27,000
(ii) Work-in-Process Control A/c........................... Dr. 6,000
To Manufacturing Overhead Control A/c 6,000
(iii) Cost of Sales A/c……………………………… Dr. 4,000
To Selling & Dist. Overhead Control A/c 4,000

Page 11 of 12
 (iv) (1) Wage Control A/c…………………… Dr. 8,000
To Cost Ledger Control A/c 8,000
(2) Manufacturing Overhead Control A/c……… Dr. 8,000
To Wages Control A/c 8,000
OR
Manufacturing Overhead Control A/c……………. Dr. 8,000
To Cost Ledger Control A/c 8,000
(v) Stores Ledger Control A/c ……………………… Dr. 9,000
To Work-in-Process Control A/c 9,000
*Cost Ledger Control A/c is also known as General Ledger Control A/c

(d) The main advantages of a Cost Sheet are as follows: 5

(i) It provides the total cost figure as well as cost per unit of production.
(ii) It helps in cost comparison.
(iii) It facilitates the preparation of cost estimates required for submitting
tenders.
(iv) It provides sufficient help in arriving at the figure of selling price.
(v) It facilitates cost control by disclosing operational efficiency.

(e) Margin of Safety: 5

 The margin of safety can be defined as the difference between the expected
level of sale and the breakeven sales.
 The larger the margin of safety, the higher is the chances of making profits.
 The Margin of Safety can be calculated by identifying the difference between the
projected sales and breakeven sales in units multiplied by the contribution per
unit. This is possible because, at the breakeven point all the fixed costs are
recovered and any further contribution goes into the making of profits.
 Margin of Safety = (Projected sales – Breakeven sales) in units x contribution
per unit
 It also can be calculated as:
Profit
Margin of Safety = P/V Ratio

Page 12 of 12
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