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 PAPER – 8 : COST ACCOUNTING
SUGGESTED ANSWERS
SECTION – A

1.
(i) (B)
(ii) (B)
(iii) (D)
(iv) (C)
(v) (B)
(vi) (D)
(vii) (C)
(viii) (B)
(ix) (D)
(x) (B)
(xi) (D)
(xii) (C)
(xiii) (B)
(xiv) (D)
(xv) (B)

SECTION – B
2. (a)
Statement of Profit Showing Quotation Price
D D
Direct Materials 62,000
Direct labour 39,800
Prime Cost 1,01,800
Production Overheads 40,720
Factory Cost 1,42,520
Selling &Distribution Overhead 28,504
Cost of Sales 1,71,024
Profit 42,756
Quotation Price 2,13,780

2. (b)
Workers
Particulars
R S T
(i) Bonus Hours 30 12 16
Amount of Bonus (₹) 450 288 288
(ii) Overtime Premium (₹) 408.33 1133.33 160
Basic Wages (₹) 2,200 3,520 2,640
Total Wages (₹) 3,058.33 4,941.33 3,088
(iii) Direct Wages Cost per 100 Saleable units (₹) 63.72 126.05 48.25

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3. (a)
(i) Total Overheads of Production Departments:
A = D 3,19,895
B = D 3,06,608
C = D 4,11,497

(ii) Overhead Rate Per Hour of Production Departments:

A = ₹ 25.69
B = ₹ 38.06
C = ₹ 50.60

3. (b)
Journal
Dr. Cr.
Particulars D D
Work in Progress Control A/c Dr 5,00,000
Factory Overheads Control A/c Dr 2,50,000
To Material Control A/c 7,50,000
Work in Progress Control A/c Dr 3,00,000
Factory Overheads Control A/c Dr 50,000
To Wages Control A/c 3,50,000
Work in Progress Control A/c Dr 2,80,000
Finished Goods Control A/c Dr 1,00,000
Cost of Sales A/c Dr 50,000
To Factory Overheads Control A/c 2,80,000
To Administration Overheads Control A/c 1,00,000
To Selling Overheads Control A/c 50,000
Costing Profit and Loss A/c Dr 15,000
To Administration Overheads Control A/c 15,000
Factory Overheads Control A/c Dr 30,000
To Costing Profit and Loss A/c 30,000

4. (a)
Room Rent to be Charged:
Rent per day per Single Room = ₹ 504.46 or ₹ 504
Rent per day per Double Room = ₹ 630
Rent per day per Triple Room = ₹ 756

Alternative:
Rent per day per Single Room = ₹ 573.25 or ₹ 573
Rent per day per Double Room = ₹ 716
Rent per day per Triple Room = ₹ 860

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4. (b)
Contract Account
(For the year ended 31st March, 2023)
Dr. Cr.
Particulars ₹ Particulars ₹
To Materials Cost 2,51,000 By Materials at site 35,400
To Labour Cost 5,65,600 By Balance c/d (Total Cost) 10,49,000
To Foreman's Salary 81,300
To Supervisor's Salary 36,000
To Depreciation on Machine 14,000
To Other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress 12,62,250
To Notional Profit c/d 2,13,250 (Certified and Uncertified)
12,62,250 12,62,250
To Profit & Loss a/c 1,06,625 By Notional Profit b/d 2,13,250
To Work-in-Progress a/c (Reserve) 1,06,625
2,13,250 2,13,250

5. (a)
Statement showing monthly profitability with and without further processing
Without Further Processing Further Processing P into S
Products P Q Total S Q Total
Sales Volume (kg) 47,500 95,000 1,42,500 47,500 95,000 1,42,500
Sales Value (₹) 5,70,000 19,00,000 24,70,000 7,12,500 19,00,000 26,12,500
Less: Joint Cost (₹) 5,10,000 17,00,000 22,10,000 6,95,000 17,00,000 23,95,000
Profit (₹) 60,000 2,00,000 2,60,000 17,500 2,00,000 2,17,500

Recommendation:
Total profit without further processing is ₹ 2,60,000 and with further processing is ₹ 2,17,500 only.
Therefore, further processing of P into S is not recommended.

5. (b)
(i) Labour Cost Variance = ₹ 3,360 (A)
(ii) Labour Rate Variance = ₹ 1,540 (A)
(iii) Labour Efficiency Variance = ₹1,820 (A)
(iv) Labour Revised Efficiency Variance = ₹ 3,088.50 (A)
(v) Labour Mix Variance = ₹ 1,268.50 (F)

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6.
Statement of Profitability
D D
Contribution:
Local sales -A 1,62,000
-B 72,000
Export sales -B 48,000
Total Contribution 2,82,000
Fixed Cost 1,44,000
Net Profit 1,38,000

Advise: The company should accept offer received from UK and export 3,000 units resulting net profit of ₹
1,38,000.

7. (a)
Cash Budget
(For October to December, 2023)
Particulars Oct. (₹) Nov. (₹) Dec. (₹)
Cash Balance 2,70,000 2,54,000 3,24,000
Receipts :
Cash sales 1,60,000 1,64,000 1,78,000
Collection from debtors 12,60,000 13,50,000 14,40,000
Total Receipts 16,90,000 17,68,000 19,42,000
Payments :
Cash purchases 96,000 80,000 1,00,000
Payment to Creditors 8,10,000 8,64,000 7,20,000
Wages 3,30,000 3,60,000 3,80,000
Expenses 1,20,000 1,40,000 1,60,000
Advance income tax — — 2,00,000
Plant 80,000 — —
Total Payments 14,36,000 14,44,000 15,60,000
Cash Balance 2,54,000 3,24,000 3,82,000

7. (b)
(i) Advantages of adopting Cost Accounting Standards:
(a) Providing a structural approach to measurement of cost in manufacturing process or service industry.
(b) Integrating, harmonizing and standardizing cost accounting principles and practices.
(c) Providing guidance to users to achieve uniformity and consistency in classification, measurement,
assignment, and allocation of costs to products and services.
(d) Arriving at the basis of computing the cost of product, activity, or service where required by legal or
regulatory bodies.
(e) Enabling practicing members to make use of Cost Accounting Standards in the attestation of General
Purpose Cost Statements.
(f) Assisting in clear and uniform understanding of all related issues by various user organizations,
government bodies, regulators, research agencies, and academic institutions.

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 (ii) Functions of the CASB:
(a) To issue the framework for the Cost Accounting Standards.
(b) To equip the Cost and Management Accounting professionals with better guidelines on Cost Accounting
Principles.
(c) To assist the members in preparation of uniform cost statements under various statutes.
(d) To provide from time-to-time interpretations on Cost Accounting Standards.
(e) To issue application guidance relating to particular standard.
(f) To propagate the Cost Accounting Standards and to persuade the users to adopt them in the preparation
and presentation of general purpose cost statement.
(g) To persuade the Government and appropriate authorities to enforce Cost Accounting Standards, to
facilitate the adoption thereof, by industry and corporate entities in order to achieve the desired
objectives of standardization of Cost Accounting Practices.
(h) To educate the users about the utility and need for compliance of Cost Accounting Standards.

8. (a)

Essentials of a Good Cost Accounting System:

(i) Cost accounting system should be tailor made, practical, simple and capable of meeting the requirement
of a business concern.

(ii) The data to be used by the cost accounting system should be accurate, otherwise it may distort the output
of the system.

(iii) Necessary co-operation and participation of executives from various departments of the concern is
essential for developing a good system of cost accounting.

(iv) The cost of installing and operating the system should not be too high and ultimately pass the cost-
benefit analysis test.

(v) The system of costing should not sacrifice the utility by introducing meticulous and unnecessary details.

(vi) A carefully phased programme should be prepared by using network analysis for the introduction of the
system.

(vii) Management should have a faith in the costing system and should also provide a helping hand for its
development and success.

8. (b)
Advantages of ABC Analysis:
The advantages of ABC analysis are as follows:

(i) Closer and stricter control of those items which represent a major portion of total stock value is
maintained.
(ii) Investment in inventory can be regulated and funds can be utilized in the best possible manner. ‘A’ class
items are ordered as and when need arises, so that the working capital can be utilized in a best possible
way.
(iii) With greater control over the inventories, savings in material cost can be realised.
(iv) It helps in maintaining enough safety stock for ‘C’ category items.
(v) Scientific and selective control helps in the maintenance of high stock turnover ratio.

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8 (c)
Idle Time as Per CAS–7:
Idle Time cost represents the wages paid for the time lost during which the worker does not work, i.e., time for
which wages are paid but no work is done. As per CAS-7, idle time is defined as “the difference between the
time for which the employees are paid/payable and the employees time booked against the cost object”. Idle
time happens because due to various causes, for which he is not responsible, the worker remains idle but full
wages is paid to him. Even for workers who are paid on the basis of output, idle time payment may be required
to be made.

Treatment of Idle Time in Cost Accounts:

As per CAS-7, Idle time cost shall be assigned directly to the cost object or treated as overheads depending on
the economic feasibility and specific circumstances causing such idle time. Treatment of different categories of
idle time is as follows:

(i) Unavoidable idle time –This is allowed to remain merged in the production order or standing order
number on which the worker was otherwise employed.

(ii) Normal idle time – It is booked to factory or works overhead. For the purpose of effective control, each
type of idle time, i.e., idle time classified according to the causes is allocated to a separate standing order
number.

(iii) Abnormal idle time – It would usually be heavy in amount, involves longer periods and would mostly be
beyond the control of the management. Payment for such idle time is not included in cost and is adjusted
through costing profit and loss account or included in profit and loss account, when the accounts are
integrated.

____________________________

6
 PAPER – 8 : COST ACCOUNTING
SUGGESTED ANSWERS
SECTION - A

1.

(i) (D)
(ii) (D)
(iii) (D)
(iv) (B)
(v) (B)
(vi) (C)
(vii) (C)
(viii) (B)
(ix) (B)
(x) (A)
(xi) (D)
(xii) (C)
(xiii) (C)
(xiv) (A)
(xv) (C)

SECTION – B

2. (a)

Estimated Cost Sheet for the Year 2023

Cost per Unit
Particulars Total Cost
₹
Direct Material 22,50,000 7,500
Direct Labour 29,70,000 9,900
Prime Cost 52,20,000 17,400
Factory Overhead 13,05,000 4,350
Factory Cost 65,25,000 21,750
Office Overhead 13,50,000 4,500
Cost of Production 78,75,000 26,250
Selling & Distribution Overhead 6,75,000 2,250
Total Cost 85,50,000 28,500
Profit 21,37,500 7,125
Selling Price 1,06,87,500 35,625

2. (b)
Total Profit Forgone as a result of Labour Turnover D 3,79,500

1
3. (a)
(i) Different Capacities
 Maximum Capacity: = 2,920 hours
 Practical Capacity: = 2,092 hours
 Normal Capacity = 2,000 hours
 Actual capacity = 1,825 hours

(ii) & (iii) Computation of Hourly Rate for Recovery of Overhead Rates for Each of Capacities
Particulars Base capacity Capacity Idle capacity Fixed Fixed
of capacity hours utilized hours overhead (₹) overhead
(hours) rate per hours
(₹)
Maximum 2,920 1,825 1,095 5,84,000 200.00
Practical 2,092 1,825 267 5,84,000 279.16
Normal 2,000 1,825 175 5,84,000 292.00
Actual 1,825 1,825 - 5,84,000 320.00

3. (b)

Journal Entries

Dr Cr.
Particulars Amount (₹) Amount (₹)
Material Control A/C Dr. 8,00,000
To Creditors A/C 8,00,000
Work in Progress Cont. A/C Dr. 6,00,000
To Material Control A/C 6,00,000
Wages Control A/C Dr. 4,80,000
To Cash A/C 4,80,000
Factory Overhead Control A/C Dr. 1,44,000
To Wages Control A/C 1,44,000
Work in Progress Control A/C Dr. 3,36,000
To Wages Control A/C 3,36,000
Factory Overhead Control A/C Dr. 3,80,000
To Cash A/C 3,80,000
Work in Progress Control A/C Dr. 3,60,000
To Factory Overhead Control A/C 3,60,000
S & D O.H. Control A/C Dr. 80,000
To Cash A/C 80,000
Cost of Sales A/C Dr. 80,000
To S & D O.H. Control A/C 80,000
Finished goods Control A/C Dr. 8,00,000
To WIP Control A/C 8,00,000
Debtors A/C Dr. 11,60,000
To Profit & Loss A/C 11,60,000
Cash A/C Dr. 2,76,000
To Debtors A/C 2,76,000

2
4. (a)
(i) Profit for the year = ₹ 40,52,000
(ii) Contribution Per Patient Day: = ₹ 1,010.48
(iii) Break Even Point (BEP): = 7,440 Patient Days

4. (b)
Contract Account
(For the year ended 31st March, 2023)
Particulars ₹ Particulars ₹
To Materials Cost 3,85,000 By Materials at site 35,400
To Labour Cost 4,45,600 By Balance c/d 10,49,000
To Foreman's Salary 67,300
To Supervisor's Salary 36,000
To Depreciation on Machine 14,000
To Other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress: 12,62,250
To Notional Profit c/d 2,13,250

12,62,250 12,62,250
To Profit & Loss a/c 1,06,625 By Notional Profit b/d 2,13,250
To Work-in-Progress a/c 1,06,625
2,13,250 2,13,250

5. (a)
Process X Account
Dr. Cr.
Particulars Units ₹ Particulars Units ₹
To Input of raw materials 1,000 30,000 By Normal wastage 50 1,000
To Other Materials 26,000 By Process Y A/c 950 95,000
To Direct Wages 20,000
To Overheads 20,000
1,000 96,000 1,000 96,000

Process Y Account
Dr. Cr.
Particulars Units ₹ Particulars Units ₹
To Process X A/c 950 95,000 By Normal Wastage 95 3,800
To Other materials 19,800 By Abnormal Wastage 15 3,000
To Direct wages 30,000 By Process Z A/c 840 1,68,000
To Overheads 30,000
950 1,74,800 950 1,74,800

3
 Process Z Account
Dr. Cr.
Particulars Units ₹ Particulars Units ₹
To Process Y A/c 840 1,68,000 By Normal Wastage 126 6,300
To Other materials 29,620 By Finished stock A/c 750 2,85,000
To Direct wages 40,000
To Overheads 40,000
To Abnormal gain 36 13,680
876 2,91,300 876 2,91,300

5. (b)
(i) Material Cost Variance = ₹ 3,985 (A)
(ii) Material Price Variance = D 2,235 (A)
(iii) Material Quantity Variance = D 1,750 (A)
(iv) Material Mix Variance = D 525(A)
(v) Material Yield Variance = ₹ 1,225(A)

6.
Situation (a):
Net Profit = D 4,70,000

Situation (b):
Net Profit = D 4,08,000

7. (a)
(i) Quarterly Production Budget:
First Second Third Fourth
42,400 51,600 63,600 66,400

(ii) Break Even Point (BEP) = 88,000 units

Break Even Point will be achieved in Second quarter.

7. (b)
(i) Objectives and Functions of CASB:
The objectives of the CASB are to develop high quality Cost Accounting Standards to enable the
management to take informed decisions and to enable regulators to function more effectively by
integrating harmonizing and standardizing Cost Accounting Principles and Practices.

The following are the functions of the CASB:

(a) To issue the framework for the Cost Accounting Standards.
(b) To equip the Cost and Management Accounting professionals with better guidelines on Cost
Accounting Principles.
(c) To assist the members in preparation of uniform cost statements under various statutes.
(d) To provide from time-to-time interpretations on Cost Accounting Standards.
(e) To issue application guidance relating to particular standard.

4
 (f) To propagate the Cost Accounting Standards and to persuade the users to adopt them in the preparation
and presentation of general purpose cost statements.
(g) To persuade the Government and appropriate authorities to enforce Cost Accounting Standards, to
facilitate the adoption thereof, by industry and corporate entities in order to achieve the desired
objectives of standardization of Cost Accounting Practices.
(h) To educate the users about the utility and need for compliance of Cost Accounting Standards.

(ii) Scope of CAS – 4:

This statement on Cost of Production for Captive Consumption should be applied to cost statements
which require classification, measurement, assignment, presentation and disclosure of related cost for
determination of the following under the relevant provisions of GST Act/Rules:
 Determination of cost of production of goods,
 Determination of cost of acquisition of goods,
 Determination of cost of supply of goods,
 Determination of cost of provision/supply of services, and
 Determination of value of supply of goods or services as per open market value or as per goods or
services of like kind and quality.

8. (a)
Responsibility Centre:
CIMA official terminology defines responsibility centre as departmental or organisational function whose
performance is the direct responsibility of a specific manager. Responsibility centre refers to a particular
segment or unit of an organisation for which a particular manager, employee, or department is held responsible
and accountable for its business goals and objectives. It refers to the part of company where a manager has
authority and responsibility. A responsibility centre is a functional entity within a business that tends to have its
own goals and objectives, policies and procedures, thereby giving managers specific responsibility for
revenues, expenses incurred, funds invested, etc.

Types of Responsibility Centres:

(i) Cost Centre – Under this center, the manager is held responsible only for the costs, including a
production department, maintenance department, human resource department, etc.
(ii) Profit Centre – Under this center, the manager is responsible for all costs and revenues. Here, the
manager would have all the responsibility to make decisions that would affect both the revenue and costs.
(iii) Revenue Centre–This segment is primarily responsible for attaining sales revenue. The performance of
this center is evaluated by comparing the actual revenue attained with the budgeted revenue.
(iv) Investment Centre – Apart from looking into the profits, this center looks into returns on the funds
invested in the group’s operations. Thus, investment center is also a profit center with additional
responsibilities for capital investment and possibly for financing, and whose performance is measured by
its return on investment.

8. (b)
Bill of Material:
Bill of Material is a complete schedule of parts and materials required for a particular order prepared by the
drawing office and issued together with necessary blue prints of drawings. For standard products, printed copies
of material bill are kept with blank spaces for any special details of modification to be filled in for a particular
job/order. The schedule details everything, even to bolts and nuts, sizes and weights.

5
Purpose of Bill of Material:
(i) It provides a quantitative estimate of budget of material required for a given job,
process or operation which might be used for control purposes.
(ii) It substitutes material requirements and expedite issue of materials.
(iii) The store keeper can draw up a program of material purchases and issue for a given period.
(iv) It provides the basis for charging material cost to the respective job/process.

8. (c)
Overtime Wages / Overtime Premium:
As per CAS -7, the overtime and overtime premium is defined as, “Overtime is the time spent beyond the
normal working hours which is usually paid at a higher rate than the normal time rate. The extra amount
payable beyond the normal wages and salaries for beyond the normal working hours is called Overtime
Premium”. Hence, payment of overtime consists of two elements, viz., the normal (i.e., usual) amount and the
extra payment, i.e., the premium.

Treatment of Overtime in Cost Records:

As per CAS-7, overtime premium shall be assigned directly to the cost object or treated as overheads depending
on the economic feasibility and specific circumstances requiring such overtime.
 When overtime is worked due to exigencies or urgencies of the work, the basic/normal payment is
treated as Direct Labour Cost and charged to production or cost unit on which the worker is employed.
Whereas the amount of premium (extra amount) is treated as overhead.
 When overtime is spent at the request of the customer, the entire amount (including overtime
premium) is treated as direct wages and is charged to the job.
 When overtime is worked due to lack of capacity as general policy of the company, then the total
amount paid is treated as direct wages which is computed at the estimated rate based on the figures of
the previous years.
 Overtime worked on account of the abnormal conditions such as flood, earthquake, etc., should not be
charged to cost, but to Costing Profit and Loss Account if integrated accounts are maintained.

______________________

6
 Suggested Answer_Syllabus 2016_Jun2017_Paper 8

INTERMEDIATE EXAMINATION
GROUP -II
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE- 2017
Paper- 8 : COST ACCOUNTING
Time Allowed : 3 Hours Full Marks : 100
The figures on the right margin indicate full marks.
All Sections are compulsory. Each section contains instructions
regarding the number of questions to be answered within the section.
All working notes must form part of the answer.
Wherever necessary, candidates may make appropriate
assumptions and clearly state them.
No present value factor table or other statistical table will be
provided in addition to this question paper.

Section - A
Section A contains Question Number 1. All parts of this question are compulsory.

1. Answer the following questions:

(a) Choose the correct answer from the given alternatives (You may write only the
Romannumeral and the alphabet chosen for your answer): 1×10=10

(i) In process, conversion cost means

(A) Cost of direct materials, direct labour, direct expenses
(B) Direct labour, direct expenses, indirect material, indirect
labour,indirectexpenses
(C) Prime cost plus factory overheads
(D) All costs up to the product reaching the consumer, less direct material costs
(ii) At the economic ordering quantity level, the following is true:
(A) The ordering cost is minimum
(B) The carrying cost is minimum
(C) The ordering cost is equal to the carrying cost
(D) The purchase price is minimum
(iii) When a direct worker is paid on a monthly fixed salary basis, the following is true:
(A) There is no idle time lost.
(B) There is no idle time cost.
(C) Idle time cost is separated and treated as overhead.
(D) The salary is fully treated as factory overhead cost.
(iv) The following is an example of direct expenses as per CAS-10:
(A) Special raw material which is a substantial part of the prime cost.
(B) Travelling expenses to site.
(C) Overtime charges paid to direct worker to complete work before time.
(D) Catalogue of prices of finished products.
(v) The following is not treated as a manufacturing overhead:
(A) Lubricants
(B) Cotton waste
(C) Apportioned administration overheads
(D) Night shift allowance paid to a factory worker due to general work pressure.

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
(vi) When you attempt a reconciliation of profits as per Financial Accounts and Cost
Accounts, the following is done:
(A) Add the under absorption of overheads in Cost Accounts if you start from the
profits as per Financial Accounts.
(B) Add the under absorption of overheads in Cost Accounts if you start from the
profits as per Cost Accounts.
(C) Add the over absorption of overheads in Cost Accounts if you start from the
profits as per Financial Accounts.
(D) Add the over absorption of overheads in Cost Accounts if you start from the
profits as per Cost Accounts.
(vii)Batch Costing is applied effectively in the following situation:
(A) paper manufacturing
(B) drug manufacturing
(C) designer clothes manufacturing
(D) oil refining
(viii)In the context of Contract a/c, work completed and not yet certified will beshown
(A) at cost plus + 2/3rd of the notional profit under 'Completed Work'.
(B) at cost plus notional profit less retention money under 'Completed Work'.
(C) at cost under 'Completed Work'.
(D) at cost under WIP a/c.
(ix) A certain process needed standard labour of 24 skilled labour hours and 30
unskilled labour hours at ` 60 and 40 respectively as the standard labour rates.
Actually, 20 and 25 labour hours were used at ` 50 and 50 respectively. Then, the
labour mix variance will be
(A) Adverse
(B) Favourable
(C) Zero
(D) Favourable for skilled and unfavourable for unskilled
(x) If an organization has all the resources it needs for production, then the principal
budget factor is most likely to be
(A) non-existing
(B) sales demand
(C) raw materials
(D) labour supply

(b) Match the following (You may opt write only the Roman numeral and the matched
alphabet instead of copying contents into the answer books): 1×5=5
Column I Column II
xi High inventory turnover ratio A Works Overhead
xii Job evaluation B Opportunity Cost
xiii Salary of product designers C Co-product
xiv By product value D Sales and Production Budget
xv Master Budget E Administrative Overhead
F P & L Budget
G Rationality in wage structure
H Efficient use of stock
I Purchase cost/average inventory
J Evaluation of employee performance

(c) State whether the following are 'True' or 'False' (You may write only the Roman
numeral and whether 'True' or 'False' without copying the statements into the answer
books): 1×5=5
(xvi) Uniform Costing is a unique method of costing to determine costs accurately.
(xvii) When overtime wages are incurred due to the general policy of the company
arising due to lack of capacity, normal wages are treated as direct labour cost
and the premium on overtime wages is treated as factory overheads.

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2
 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
(xviii) In marginal and absorption costing, variable factory overhead is treated as
direct cost.
(xix) Operation Costing and Operating Costing are interchangeably used for the
same technique of costing.
(xx) Standard Costs are costs that are estimated costs that are likely in the future
production period.

(d) Fill in the blanks (You may write only the Roman numeral and the content filling the
blank): 1×5=5
(xxi) Profit volume ratio ________________ with increase in fixed cost (indicate the
nature ofchange).
(xxii) In the graph showing the angle of incidence, when the quantity is zero, the total
costline cuts the costs axis (y axis) at ___________. (indicate the value)
(xxiii) A process account is credited with value for ________________ loss when scrap
value is zero(indicate the type of loss).
(xxiv) When special material is purchased for direct use in a job, ____________________
account isdebited in the Integral Accounts System.
(xxv) VED analysis is primarily used for control of __________(indicate type of material).

Answer:

1. (a) (i) (B)

(ii) (C)
(iii) (B)
(iv) (B)
(v) (D)
(vi) (A)
(vii) (B)
(viii) (D)
(ix) (C)
(x) (B)

(b) (xi) (H)

(xii) (G)
(xiii) (A)
(xiv) (B)
(xv) (F)

(c) (xvi) False

(xvii) False
(xviii) False
(xix) False
(xx) False

(d) (xxi) is constant

(xxii) Fixed Cost value
(xxiii) abnormal
(xxiv) WIP Control A/c
(xxv) Components or spare parts

Section - B
Answer any five questions from question numbers 2 to 8.
Each question carries fifteen marks.

2. (a) The following summarized information is available from the records of Oil Ltd. for the
month of March, 2017:

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Sales for the month: ` 19,25,000
Opening stock as on 1 March, 2017 : 1,25,000 litres @ ` 6.50 per litre
Purchases (including freight and insurance):
March 5 1,50,000 litres @ ` 7.10 per litre
March 27 1,00,000 litres @ ` 7.00 per litre
Closing stock as on 31st March, 2017 1,30,000 litres

Expenses for the month is ` 45,000. Pricing of material issues is being done at the end
of the month after all receipts during the month.
On the basis of above information, calculate the following using FIFO and LIFO
methods of pricing:
(i) Value of closing stock as on 31 March, 2017.
(ii) Cost of goods sold during March, 2017.
(iii) Profit or loss for March, 2017.
(A detailed stores ledger account is not required. Only relevant figures need to be
calculated). 8

(b) A factory has 3 production departments (P1,P2, P3) and 2 service departments (S1&S2).
The following overheads and other information are extracted from the books for the
month of May 2017:
Expenses Amount (`)
Rent 7,200
Plant Repair 3,600
Depreciation 2,700
Lighting 600
Supervision 9,000
Fire Insurance for stock 3,000
Cost of Idle Time 900
Power 5,400

Particulars P1 P2 P3 S1 S2
Area sq ft 400 300 270 150 80
No. of workers 54 48 36 24 18
Wages Rs. 18,000 15,000 12,000 9,000 6,000
Value of plant Rs. 72,000 54,000 48,000 6,000
Stock value Rs. 45,000 27,000 18,000
Horse power of plant 600 400 300 150 50
(i) Allocate the overheads among the various departments on the most appropriate
basis (primary distribution only).
(ii) If S1and S2use 10% of each other's facilities, find the total cost ofS1by the
simultaneous equation method. 7

Answer:

2. (a) (i) Valuation of closing stock as on 31-03-2017:

(a) FIFO Method: (the closing stock will comprise the items purchased in the end)
`
1,00,000 litres purchased on 27-03-2017 @ ` 7.00 7,00,000
30,000 litres from purchases made on 05-03-2017 @ ` 7.10 2,13,000
1,30,000 value of closing stock under FIFO method 9,13,000

(b) LIFO Method: (the closing stock will comprise the items lying in opening stock
and purchased in the beginning)
`
1,25,000 litres from opening stock @ ` 6.50 8,12,500
5,000 litres from purchases made on 05-03-2017 @ ` 7.10 35,500

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
1,30,000 value of closing stock under LIFO method 8,48,000

(ii) Cost of Goods Sold:

FIFO Method (`) LIFO Method (`)
Opening stock as on 01.03.2017 8,12,500 8,12,500
Purchases made on 05.03.2017 10,65,000 10,65,000
Purchases made on 27.03.2017 7,00,000 7,00,000
Total 25,77,500 25,77,500
Less: Closing stock as per (i) 9,13,000 8,48,000
Cost of material consumed 16,64,500 17,29,500
Add: Expenses 45,000 45,000
Cost of goods sold 17,09,500 17,74,500

(iii) Profit for March, 2017:

FIFO Method (`) LIFO Method (`)
Sales 19,25,000 19,25,000
Cost of goods sold 17,09,500 17,74,500
Profit 2,15,500 1,50,500

(b) The primary distribution of overheads is as follows:

Expenses Total ` Basis P1 P2 P3 S1 S2
` ` ` ` `
Rent 7,200 Area sq. ft. 2,400 1,800 1,620 900 480
Plant Repair 3,600 Plant value 1,440 1,080 960 120 --
Depreciation 2,700 Plant Value 1,080 810 720 90 --
Lighting 600 Area sq. ft. 200 150 135 75 40
Supervision 9,000 No. of Workers 2,700 2,400 1,800 1,200 900
Fire Insurance for stock 3,000 Stock Value 1,500 900 600 -- --
Cost of Idle Time 900 Wages 270 225 180 135 90
Power 5,400 Horse Power 2,160 1,440 1,080 540 180
Total 32,400 11,750 8,805 7,095 3,060 1,690

S1 = 3,060 + 0.1 S2
S2 = 1,690 + 0.1 S1
S2 = 1,690 + 0.1(3,060 + 0.1 S2 ) = 1,690 + 306 + 0.01 S2 = 0.99 S2 = 1,996
∴ S2 = 1,996 /0.99 = 2,016.16
∴ S1 = 3,060 + 201.62 = 3,261.62
O𝑟
S1 = 3,060 + 0.1 S2
S2 = 1,690 + 0.1 S1
S1 = 3,060 + 0.1 (1690 + 0.1 S1 ) = 3,060 + 169 + 0.01 S1
∴ 0.99 S1 = 3,229 ∴ S1 = 3,229 / 0.99 = 3,261.62
∴ S2 = 1,690 + 326.16 = 2,016.16

3. (a) From the following particulars calculate the profit as per cost records and also
prepare a reconciliation statement, if the profit as per financial accounts for the year
ending 31st March, 2017 was `1,35,525:
Particulars ` `
Opening stock of raw materials 50,000
Opening stock of finished goods 1,50,000
Purchase of raw materials 3,50,000
Direct wages 1,50,000
Factory lighting 3,000
Factory rent 24,000
Power and fuel 30,000

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Indirect wages 2,500
Depreciation on plant & machinery 50,000
Oil waste etc. 2,000
Work manager's salary 23,000
Miscellaneous factory expenses 1,250 1,35,750
Office rent 18,000
Office lighting 600
Depreciation on office appliances 2,000
Office staff salaries 20,000 40,600
Closing stock of finished goods 50,000
Closing stock of raw materials 75,000
Donations 10,000
Factory overhead is charged at 20% on prime cost and office and administrative
expenses at50% of factory overhead. The selling price is fixed by adding 25% on the
total cost ofmanufactured and finished articles sold. Assume no WIP. 9

(b) Fill up the following table in accordance with the principles of Cost Accounting
Standards applicable:
SI. Items of expenses Employee Cost as Disclosure Element
No. per CAS of Cost
Included/Excluded/ Yes/No/
Not applicable (NA) NA
I II III IV V
i Basic Wages to Direct Worker
ii Normal Idle time Cost of Direct Worker
iii Perquisite paid by company to
administration staff
iv Late payment fee to PF authorities for
delayed remittance of Employer's
contribution to Provident Fund
(You may write only columns I, II, IV and V in your answer books). 6

Answer:

3. (a)
Statement of Cost and Profit
Particulars `
Opening Stock of Raw Material 50,000
Add: Purchases of Raw Material 3,50,000
Less: Closing Stock of Raw Material 75,000
Raw Material consumed 3,25,000
Direct Wages 1,50,000
Prime Cost 4,75,000
Factory overheads (20% of Prime Cost) 95,000
Works Cost 5,70,000
Office and Administrative Overheads (50% of Factory Overhead) 47,500
Cost of Production 6,17,500
Add: Opening Stock of Finished Goods 1,50,000
Less: Closing Stock of Finished Goods 50,000
Cost of Goods Sold/ Total Cost 7,17,500
Profit (25% of Total Cost) 1,79,375
Sales 8,96,875

Reconciliation Statement
Particulars `

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
Profit as per Financial Accounts 1,35,525
Add: Factory Overheads under recovered in Cost Accounts (` 1,35,750 –
` 95,000) 40,750
Donation not charged in Cost Accounts 10,000
1,86,275
Less: Office Overhead over recovered in Cost Accounts (` 47,500 – ` 6,900
40,600)
Profit as per Cost Accounts 1,79,375

(b) Fill up the following table in accordance with the principles of Cost Accounting
Standards applicable.
SI.N Items of expenses Employee Cost Disclosure Element of
o. as per CAS Required Cost
under CAS 7
Included/Exclu Yes/No/NA
ded/ Not
applicable(NA)
(i) Basic Wages to Direct Worker Included Yes Direct Labour
(ii) Normal Idle time Cost of Direct Excluded No Factory
Worker Overhead
(iii) Perquisite paid by company to Included Yes Administration
administration staff Overhead
(iv) Late payment fee to PF authorities for Excluded NA Not an
delayed remittance of Employer's element of
contribution to Provident Fund Cost

4. (a) A factory has to produce and supply 48000 units of a component annually to a
customer. The carrying cost per unit is ` 2 per component per month. The production
run set up cost is ` 3,600 per production run.
(i) Find out the economic batch size that must be produced to minimize total cost
based on the above information.
(ii) If it is found that the dye and hydraulic mechanism get heated up and
consequently the dye has to be replaced by a new one at a cost of ` 1,200 for
each run that has a batch quantity exceeding 1000 units, what batch size would
you recommend to minimize overall costs? Substantiate your recommendations
with appropriate calculations.
(iii) Between the quantities suggested in (i) and (ii) above, how much would be the
amount of savings or incremental expenses in (ii) over (i) with cost of dye
replacement? 8

(b) A company produces a product 'M' by three distinct processes before it is ready for
sale. From the information given below, work out the selling price of the product if the
Management decides to earn a profit of 20% over its works cost. Present the process
a/c for each process.
Particulars Processes
A B C
1 Input of raw materials @ ` 40 per kg. (kg) 10,000 - -
2 Normal loss of input 5% 5% 5%
3 Delivered to next process (kg) 9,000 8,000 -
4 Total direct labour cost (`) 15,000 15,750 13,000
5 Variable overhead (%of direct labour) 150% 120% 100%
6 Fixed overhead (% of direct labour) 250% 180% 200%
7 Finished stock held back (kg) 400 400 -
7

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Answer:

4. (a) (i)

√2 𝑋 48,000 𝑋 3600
Economic Batch Quantity = = 3,795 units approximately /
2 𝑋 12
batch
(ii)
Hence, number of Set- ups = 48,000 ÷ 3,795 = 12.65 say 13 (Set up can not
be in Fraction). However, lenient view to be taken and marks to be
awarded accordingly)
Then, batch size = 48,000/13 = 3693 units per batch
Carrying cost = 2 X (3693 /2) X 12 = 44,316
Set up cost = 13 X 3600 = 46,800
Total relevant cost = 91,116
Overall Cost as per (ii) of Question
Carrying cost = 1,200/2 X 12 X 2 = 14,400
Set up cost = 4,800* X 13 = 62,400
Total relevant cost = 76,800
Saving in (ii) over (i) = 14,316

 3,600 + 1,200 =4,800 Set up Cost as batch size is more than 1000 Units per batch.
(Candidates do not have to show the following, however, they may consider this
approach, but the analysis should lead to the above result)
If the dye cost is built in to the setup cost, revised setup = 4800 per run

√2 𝑋 48,000 𝑋 4800
EBQ = = √1,92,00,000 = 4,382 units / batch in this case,
2 𝑋 12
No. of set ups = 48,000/ 4,382 = 10.95 say 11
Set up cost = 11 X 4800 = 52,800
Carrying cost = 2 X 12 X 4,382 / 2 = 52,584
Total relevant cost = 1,05,384

(b)
Process A Account
Particulars Kg. ` Particulars Kg. `
To Input of Raw 10,000 4,00,000 By Normal loss 500 ---
Material
To Direct Labour 15,000 By Abnormal loss 100 5,000
To Variable 22,500 By Transfer to Process B 9,000 4,50,000
Overheads
To Fixed Overheads 37,500 By Closing Stock 400 20,000
10,000 4,75,000 10,000 4,75,000
Cost per kg = `4,75,000/9,500kg = `50

Process B Account
Particulars Kg. ` Particulars Kg. `
To Transfer From 9,000 4,50,000 By Normal loss 450 ---
Process A
To Direct Labour 15,750 By Abnormal loss 150 9,000
To Variable Overheads 18,900 By Transfer To Process C 8,000 4,80,000
To Fixed Overheads 28,350 By Closing Stock 400 24,000
9,000 5,13,000 9,000 5,13,000
Cost per kg = `5,13,000/8,550 kg = `60

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Process C Account
Particulars Kg. ` Particulars Kg. `
To Transfer From 8,000 4,80,000 By Normal loss 400 ---
Process B
To Direct Labour 13,000 By Transfer to Finished 7,600 5,32,000
Stock A/c
To Variable Overheads 13,000
To Fixed Overheads 26,000
8,000 5,32,000 8,000 5,32,000
Cost per kg. = ` 5,32,000/7,600 kg = `70
Selling Price = ` 70 × 120/100 = ` 84 per kg. (20% above Works Cost)

5. (a) The following information relating to two vehicles is given. Prepare the Operating Cost
Statement and determine the cost per running kilometre for each vehicle.

Vehicle A (`) Vehicle B (`)

Cost of vehicle 25,000 15,000
Road licence fee per year 750 750
Supervision yearly Salary 1,800 1,200
Driver's wages per hour 4.00 4.00
Cost of fuel per litre 1.50 1.50
Repairs and maintenance per km 1.50 2.00
Tyre cost per km 1.00 0.80
Garage rent per year 1,600 550
Insurance yearly 850 500
Kilometres run per litre 6 5
Kilometres run during the year 15,000 6,000
Estimated life of vehicle (km) 1,00,000 75,000
Charge interest at 10% on the cost of vehicle. Each vehicle runs 20 km. per hour on
an average. 8

(b) A company undertook a contract for construction of a large building complex.

The construction work commenced on 1st April 2016 and the following data are
available for the year ended 31st March 2017:

Particulars (` ‘000)
Contract price 35,000
Work certified 20,000
Progress payments received 15,000
Materials issued to site 7,500
Planning and estimating costs 1,000
Direct wages paid 4,000
Materials returned from site 250
Equipment hire charges 1,750
Wage related costs 500
Site office costs 678
Head office expenses apportioned 375
Direct expenses incurred 902
Work not certified 149

The contractor owns a plant which originally cost ` 20 lakhs and has been
continuously in use only in this contract throughout the year. The residual value of the
plant after 5 years of life is expected to be ` 5 lakhs. Straight line method of

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depreciation is in use. As on 31st March 2017, the direct wages due and payable
amounted to ` 2,70,000 and the materials at site were estimated at ` 2,00,000
(i) Prepare the contract account for the year ended 31st March 2017. Present figures
in(` '000)
(ii) Compute the amount of profit/loss to be taken to the profit and loss account of
the year ending 31-3-2017. 7
Answer:

5. (a)
Operating Cost Statement
Vehicle Vehicle
A (`) B (`)
Operating and maintenance cost per km. 3.20 3.50
Fixed charges per km. 0.50 0.75
Operating cost per km. 3.70 4.25
Workings:
Calculation of Operating and maintenance cost per km.
Driver’s wages 4/20 0.20 0.20
Cost of fuel (1.50/6) (1.50/5) 0.25 0.30
Repairs and maintenance per km 1.50 2.00
Tyre cost per km 1.00 0.80
Depreciation 0.25 0.20
Operating and maintenance cost per km. 3.20 3.50
Calculation of fixed charges per km.
Fixed changes per annum:
Road licence 750 750
Supervisor’s salary 1,800 1,200
Garage rent 1,600 550
Insurance 850 500
Interest 2,500 1,500
7,500 4,500
Km. run during the year 15,000 6,000
Fixed charges per km. A-(7,500/15,000) B-(4,500/6,000) 0.50 0.75

(b)
Contract Account for the year ended 31st March 2016
Particulars ` ‘000 Particulars ` ‘000
To Materials issued 7,500 By Materials returned to stores 250
To Direct wages paid and accrued 4,270 By Material at site 200
To Wages related costs 500 By Working-in-progress:
To Direct Expenses 902 Work certified 20,000
To Equipment hire changes 1,750 Work uncertified 149
To Planning & Estimation cost 1,000
To Site office costs 678
To H.O. expenses (apportioned) 375
To Plant depreciation (2000 – 300
500)/5 years
To National Profit c/d 3,324
20,599 20,599
To Profit & Loss A/c (Transfer) 1,662* By National Profit b/d 3,324
To WIP A/c (Reserve) 1,662
3,324 3,324

* % 0f Work completed:

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(20,000 / 35,000) × 100 = 57.14%
∴ 2/3rd Profit (Notional)
3,324 × (2/3) × (15,000 Cash received)/ 20,000 Work certified)
= 3,324/2 = ` 1,662

6. (a) ABC Ltd. has furnished the following data for the two years:

Particulars 2015-16 2016-17

Sales (`) 10,00,000 ?
Profit/Volume Ratio 50% 37.5%
Margin of safety sales as a % of total sales 40% 21.875%
There has been substantial savings in the fixed cost in the year 2016-17 due to the
restructuring process. The company could maintain its sales quantity level of 2015-16
in 2016-2017 by reducing the selling price.
You are required to calculate the following values (in `):
(i) Sales for 2016-17
(ii) Break-even sales for 2016-17
(iii) Fixed cost for 2016-17 8

(b) A firm can produce three different products from the same raw material using the
same production facilities. The requisite labour is available in plenty at ` 8 per hour for
all products. The supply of raw material, which is imported at `8 per Kg is limited to
10,400 kg. for the budget period. The variable overheads are ` 5.60 per hour. The fixed
overheads are ` 50,000. The selling commission is 10% on sales.
From the following information, you are required to suggest the sales mix which will
maximize the firm's profits. Also determine the profit that will be earned at the level:

Product Market Demand Selling Price Per Labour (Hours Raw Material (Kg
(units) unit (`) Required per unit) Required per unit)
X 8,000 30 1 0.7
Y 6,000 40 2 0.4
Z 5,000 50 1.5 1.5
7
Answer:

6. (a) In 2015, P/V ratio = 50%

Variable cost ratio = 100%-50% = 50%
Variable cost in 2015 – 2016 = ` 10,00,000 ×50% = ` 5,00,000
In 2016 - 2017, sales quantity has not changed. Thus Variable Cost in 2016 – 2017
is ` 5,00,000.
In 2016 - 2017, P/V ratio = 37.50%
Thus, Variable Cost ratio = 100%-37.5% = 62.5%
(i) Thus sales in 2016 - 2017 = 5,00,000/62.5% = ` 8,00,000
At break-even point, Fixed Cost is equal to contribution.
In 2016 - 2017 Break-even Sales = 100%-21.875% = 78.125%
(ii) Break-even sales = 8,00,000 ×78.125% = `6,25,000
(iii) Fixed Cost of 2016 - 2017= B.E. sales × P/V ratio
= 6,25,000 ×37.50% = `2,34,375
(b)
Marginal Profitability Statement
Particulars Production
X(`) Y(`) Z(`)
Direct Materials 5.60 3.20 12.00
Direct Labour 8.00 16.00 12.00
Variable Production Overheads 5.60 11.20 8.40

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Variable Selling Overheads 3.00 4.00 5.00
(A) Total Variable Cost 22.20 34.40 37.40
(B) Selling Price 30.00 40.00 50.00
(C) Contribution per unit (B-A) 7.80 5.60 12.60
(D) Contribution per kg of raw material (Rs.) 11.14 14.00 8.40
(E) Ranking II I III

Product Demand Suggested Raw Materials Balance of Raw Contribution (`)

Max. Units Production Max. Consumed (Kgs.) Materials (Kgs.)
Units
Y 6,000 6,000 (6,000 × 0.4) = 8,000 (6,000 × 5.60) =
2,400 33,600
X 8,000 8,000 (8,000 × 0.7) = 2,400 (8,000 × 7.80) =
5,600 62,400
Z 5,000 2,400/1.50 = 2,400 NIL (1,600 × 12.60) =
1,600 20,160
Total Contribution 1,16,160
Less: Fixed Cost 50,000
Profit 60,160
7. (a) The standard material inputs required for 1,000 kgs. of a finished product are given
below:
Material Quantity (in kgs.) Standard rate per kg (in `)
A 450 20
B 400 40
C 250 60
1,100
Less: Standard loss 100
Standard output 1,000

Actual production in a period was 40,000 kgs. of the finished product for which the
actual quantities of material used and the prices paid thereof are as under:
Material Quantity (in Kg) Purchase price per kg. (in `)
A 20,000 19
B 17,000 42
C 9,000 65
Compute the following variances giving materialwise break up and indicate whether
Favourable(F) or Adverse (A):
(i) Material cost variance (ii) Material price variance
(iii) Material usages variance (iv) Material Mix variance
(v) Material yield variance 8

(b) A glass manufacturing company requires you to calculate and present the Master
Budget for the year 2017-18 from the following information:

Annual Sales : Toughened glasses A ` 30,00,000

Toughened glasses B ` 50,00,000
Direct material cost 60% of sales
Direct wages 20 workers @ ` 1,500 p.m.
Factory overheads & indirect labour:
Works manager ` 5,000 p.m.
Foreman ` 4,000 p.m.
Stores and spares 2.50% of sales
Depreciation on machinery ` 1,26,000
Light and power ` 50,000
Repairs and maintenance ` 80,000

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
Other sundries 10% of direct wages
Administration, selling &distribution expenses ` 1,40,000 p.a. 7
(Present the fixed and variable overheads separately showing itemwise breakup)

Answer: 7. (a):

Material cost variance = (16,00,000 – 16,79,000) = ` 79,000 (A)

Material price variance = (16,20,000 – 16,79,000) = ` 59,000 (A)
Material usage variance = (16,00,000 – 16,20,000) = ` 20,000 (A)
Material mix variance = (16,72,727 – 16,20,000) = ` 52,727 (F)
Material yield variance = (16,00,000 – 16,72,727) = ` 72,727 (A)
Workings:
(1) Actual Cost of Materials used =(AQ X AR)
A 20,000 X 19 = `3,80,000
B 17,000 X 42 = `7,14,000
C 9,000 X 65 = `5,85,000
= `16,79,000
(2) Standard Cost of Material used :
A 20,000 X 20 = ` 4,00,000
B 17,000 X 40 = ` 6,80,000
C 9,000 X 60 = ` 5,40,000
= Rs.16,20,000
(3) Standard Cost of Material if it had been used in standard proportion
A 450/ 1,100 X 46,000 X 20 = `3,76,363
B 400/ 1,100 X 46,000 X 40 = `6,69,091
C 250/ 1,100 X 46,000 X 60 = `6,27,273
= `16,72,727* OR
(4) standard Cost of output
A 450X 40 X 20 = ` 3,60,000
B 400 X 40 X 40 = ` 6,40,000
C 250 X 40 X 60 = ` 6,00,000
= `16,00,00** OR

*
Std. data
Q P V
A 18818.18 20 376363.6
B 16727.27 40 669090.8
C 10454.55 60 627273.0
46000 1672727
Less: Loss 4181.82 -
41818.18 1672727

**
1
SQSP
A 18000 x 20
B 16000 x 40
C 10000 x 60
A 360000
B 640000
C 600000

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
1600000

18818 .18
SQ for A = x 40000=18000
41818 .18
16727 .27
SQ for B = x 40000=16000
41818 .18
10454 .55
SQ for C = x 40000=10000
4181 8.18

(b)

Master Budget for the year 2017-2018

Particulars ` ` `
Sales:
Toughened glasses 30,00,000
Bent Toughened glasses 50,00,000
Total Sales (A) 80,00,000
Less: Cost of Sales:
Direct Material (60% of Sales) 48,00,000
Direct Wages (20 * ` 1,500 * 12) 3,60,000
Prime Cost 51,60,000
Factory Overheads (Variable)
Store and Spares (2.5% on Sales) 2,00,000
Light and Power 50,000
Repairs and Maintenance 80,000 3,30,000
Fixed: Works Manager’s salary 60,000
Fore men’s Salary 48,000
Depreciation of Machinery 1,26,000
Sundries 36,000 2,70,000
Work Cost (B) 57,60,000
Gross Profit (A-B) 22,40,000
Less: Administration, Selling and Distribution 1,40,000
Overheads
Net Profit 21,00,000

8. Answer any three out of the following four questions: 5×3=15

(a) List three items included and two items excluded under the Cost Accounting
Standards for Direct Expenses.
(b) State why and under what conditions will profits under absorption costing be
(i) higher than
(ii) equal to and
(iii) lower than the profits under marginal costing.
(c) Differentiate between Financial Accounting and Management Accounting.
(d) How would you classify costs based on behaviour? Give an example to explain each
class.
Answer:
8. (a) Items included under CAS 10:
Any expense directly related to a cost centre or cost object, not being material or
labour.
Cost of patents, royalty payments
Hire charges of special machinery or plant
Cost of special patterns, designs or tools.
Experimental costs and expenditure in connection with models and pilot schemes
Architects, surveyors and other consultants' fees
Travelling expenses to sites
Inward charges and freight charges on special material.

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Exclusions:
A direct expense which cannot be economically traced to the cost object or cost
unit.
Portion unamortised out of a lumpsum, to be amortised later over its utility period.
Finance cost incurredin connection with any self generated or procured resources
shall not form part ofthe direct expenses
Any subsidy, grant or incentive or any amount received or receivable with respect to
any direct expense shall be reduced
Penalties/damages paid to statutory authorities shall not form part of the direct
expenses.

(b) Profits as per absorption costing will be:

(i) higher than in marginal costing when closing stock is more than opening stock,
since some overheads will be included in the inventory value under absorption
costing while MarginalCosting considers the full overheads as cost of production,
(ii) equal when the opening and closing stocks are equal,
(iii) lower when opening stock is more than closing stock.
Since under Marginal Costing, only the current period's overheads are charged to
production, while underabsorption costing, a portion of the earlier period's
overheads will be included in the opening stockvalue.

(c) Differences between Financial Accounting and Management Accounting:

SI. Financial Accounting Management Accounting

No.
(i) Provides general business information Specific information relating to specific
like P&L account, Balance Sheet problems and decision making.
(ii) Information for owners and outside Information is for management for
parties optimizing decisions.
(iii) Importance is on recording rather than Emphasis is on control like using details
control of materials, labour, etc for standard
costing, budgetary control.
(iv) All commercial transactions between Concerned with Internal transaction not
the business and external parties are involving payment or receipt
recorded.
(v) Only those transactions that can be Other parameters like cost units,
measured in monetary terms are apportioning bases are also recorded.
recorded.
(vi) Efficiency of resource utilization - Available for corrective action.
men/materials or machine is not
available
(vii) Stocks are valued at cost or market Always valued at cost.
value, whichever is lower.
(viii) Records are maintained as per Records are maintained as per
Companies Act and as per Income Tax Companies Act only in certain cases,
Act that too as per Cost Accounting
requirements, but mainly to suit the
management for efficiency and control

(d) Classification of costs based on behaviour:

Fixed Costs:
Costs that do not vary with the change in the volume of activity in the short run.
They are not affected by temporary fluctuation in activity of an enterprise.
Example: rent, depreciation, etc.

Variable Costs:

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 15
 Suggested Answer_Syllabus 2016_Jun2017_Paper 8
These costs vary directly with the volume of activity,
Variable costs may be direct (like Direct Material, Direct Labour and Direct Expenses),
when they are part of prime costor they could be indirect, like selling expenses,
variable factory overheads, etc. when they are calledvariable overheads.

Semi-Variable costs:
These contain both fixed and variable elements. The variable elements behave like
the Variable Cost andthe fixed element behaves like the Fixed Cost. The sum total
therefore varies with change in activity, butnot in the same proportion as variable
costs.
Example: Factory supervision, maintenance, etc

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 16
 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

INTERMEDIATE EXAMINATION
GROUP -I
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS
DECEMBER- 2017
Pa p er-8: C OST A C C OUNTIN G
Tim e Allowe d : 3 Hours Full M arks : 100
The figures on the right m argin indic ate full m arks.
All Se ctions are c ompulsory. Ea ch se ction c ontains instructions
re g arding the numb er of questions to b e answered within the se ction.
All working notes must form p art of the answer.
Wherever ne c essary, c andid ates m a y m a ke a ppropriate
assumptions and cle arly state the m.
No present value fa ctor ta ble or other statistic al ta ble will b e
provid e d in a ddition to this question p a p er.

Se ction - A
Se ction A c ontains Q u estion Num b er 1. All p arts of this question are c om pulsory.

1. Answer the following questions:

(a) Choose the c orre ct answer from the given alternatives (You m a y write only the
Rom a n num eral and the alpha b et chosen for your answer): 1 10=10

(i) C ost of idle tim e arising due to non- a vaila bility of raw m aterial is
(A) re c overe d by inflating the raw m aterial rate.
(B) re c overe d by inflating the wa g e rate.
(C) charg e d to fa ctory overhe a ds.
(D) charg e d to c osting profit and loss a c c ount.

(ii) Selling and distribution overhe a ds are a bsorb e d on the b asis of

(A) rate p er unit.
(B) p erc enta g e on works c ost.
(C) p erc enta g e on selling pric e of e a ch unit.
(D) Any of the a bove

(iii) What entry will b e p asse d und er inte grate d syste m for purchase of stores on
cre dit?
(A) Dr. Stores
Cr. Cre ditors
(B) Dr. Purchases
Cr. Cre ditors
(C) Dr. Stores Le d g er C ontrol A / c
Cr. Cre ditors
(D) Dr. Stores Le d g er C ontrol A / c
Cr. G eneral Le d g er A djustm ent A / c

(iv) In a pro c ess 800 units are introduc e d during 2016-17. 5% of input is norm al loss.
Closing work-in-progress 60% c omplete is 100 units. 660 c omplete d units are
transferre d to next pro c ess. Equivalent production for the p eriod is
(A) 760 units
(B) 744 units
(C) 540 units
(D) 720 units

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 1

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

(v) _________ d e als with the principles and m ethods of d etermining the production or
op eration overhe a ds.
(A) C AS-3
(B) C AS-5
(C) C AS-9
(D) C AS-16

(vi) There is a loss as p er financial a c c ounts Rs.10,600, donations not shown in c ost
a c c ounts Rs. 6,000. What would b e the profit or loss as p er c ost a c c ounts?
(A) Loss Rs. 16,600
(B) Profit Rs. 16,600
(C) Loss Rs. 4,600
(D) Profit Rs. 4,600

(vii)A hotel ha ving 100 rooms of which 80% are norm ally o c cupie d in summ er and
25% in winter. Period of summ er and winter b e ta ken as 6 months e a ch and
norm al d a ys in a month b e assum e d to b e 30. The total o c cupie d room d a ys will
be
(A) 1525 Room d a ys
(B) 18900 Room d a ys
(C) 36000 Room d a ys
(D) None of the a b ove

(viii)A firm has fixe d exp enses Rs. 90,000, sales Rs. 3,00,000 and profit Rs. 60,000. The
P/ V ratio of the firm is
(A) 10%
(B) 20%
(C) 30%
(D) 50%

(ix) M arginal c osting te chnique follows the following b asis of classific ation:
(A) Ele m ent-wise
(B) Function-wise
(C) Beha viour-wise
(D) Id entifia bility-wise

(x) Which of the following is not a potential b enefits of using a bud g et?
(A) More motivate d m ana g ers
(B) Enhanc e d c o-ordination of firm a ctivities
(C) Improve d inter-d e p artm ental c ommunic ation
(D) More a c curate external financial state m ents

(b) M atch the state m ent in C olumn I with the most a p propriate state m ent in C olumn II:
(You m a y opt to write only the Rom an num eral and the m atche d the alpha b et
inste a d of c opying c ontents into the answer Books) 1x5=5

C olumn I C olumn II
(i) C omponent of C ost She et (A) High initial c osts
(ii) O bje ctive of C ost A c c ounting (B) Classific ation of c ost
(iii) C AS1 (C) In terms of c omplete d units
(iv) Equivalent Production (D) Referenc e to the job
(v) De -m erit of a c entralize d purchase (E) To d etermine the value of closing
org anization inventory

(c) State whether the following state m ents are 'True' or 'False':(You m a y write only the
Rom an num eral and whether True or False without c opying the state m ents into the
answer Books) 1x5=5

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 2

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

(i) By-products m a y und erg o further pro c essing b efore sale.

(ii) M aterials which c an b e id entifie d with the given product unit of c ost c entre is
c alle d as indire ct m aterials.
(iii) Incre asing La bour Turnover incre ases the pro ductivity of la bour resulting in low
c osts.
(iv) In c ase of m aterials that suffers loss in weight due to e va poration etc. the issue
pric e of the m aterials is inflate d to c over up the losses
(v) Penalties and fines are includ e d in c ost a c c ounts to d etermine the c ost of
production.

(d) Fill in the blanks suita bly: (You m a y write only the Rom an num eral and c ontent filling
the blanks) 1x5=5

(i) In stand ard c osts, __________ norm is a p plied as a sc ale of referenc e for assessing
a ctual c ost to serve as a b asis of c ost c ontrol.
(ii) M aterial Transfer Note is a __________ for transferring the m aterials from one job to
other job.
(iii) O ne of the disa dvanta g es of overtim e working is incurring _________ la bour c ost.
(iv) C AS-2 d e als with C ost A c c ounting Stand ard on ___________ d etermination.
(v) Where the c ost and fina ncial a c c ounts are m aintaine d ind e p end ently of e a ch
other, it is indisp ensa ble to ______ the m, as there are differenc es in the profits of
two sets of b ooks.

Answer:

1. ( a ) (i) (D)
(ii) (D)
(iii) (C)
(iv) (D)
(v) ( A)
(vi) (C)
(vii) (B)
(viii) (D)
(ix) (C)
(x) (D)

(b)
C olu m n I C olu m n II
(i) C o m p o n e nt of C ost Sh e e t (D) Re f e r e n c e t o th e jo b
(ii) O b j e c tiv e of C ost A c c o u ntin g (E) To d e t e rmin e th e v a lu e o f c losin g in v e nt ory
(iii) C AS1 (B) C l a ssifi c a tio n of c ost
(iv) E q uiv a l e nt Pro d u c tio n (C) In t e rms of c o m p l e t e d u nits
(v) D e -m e rit of a c e ntr a liz e d ( A) Hi g h initi a l c osts
p ur c h a s e org a niz a tio n

( c ) (i) Tru e
(ii) F a ls e
(iii) F a lse
(iv) Tru e
(v) F a ls e

( d ) (i) pr e d e t e rmin e d
(ii) d o c u m e nt
(iii) e x c e ss (or a d d itio n a l or m or e or hi g h e r)
(iv) c a p a c ity
(v) r e c o n c il e

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 3

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

Se ction - B
Answer a ny five questions from question num b ers 2 to 8.
Ea ch question c arries 15 m arks. 15 x 5=75

2. (a) From the following p articulars with resp e ct to a p articular ite m of m aterials of a
m anufa cturing c omp any, c alculate the b est quantity to ord er:
Ord ering quantities (tonne) Pric e p er ton (Rs.)
Less than 250 6.00
250 but less than 800 5.90
800 but less than 2,000 5.80
2,000 but less than 4,000 5.70
4,000 and a bove 5.60

The annual d e m a nd for the m aterial is 4,000 tonnes. Sto ck holding c osts are 25% of
m aterial c ost p.a. The d elivery c ost p er ord er is Rs. 6.00. 8

(b) The summ ary as p er prim ary distribution is as follows:

Production d e p artm ents A- Rs. 2,500; B- Rs. 2,300 & C - Rs. 1,700
Servic e d e p artm ents X–Rs. 700; Y–Rs. 900
Exp enses of servic e d e p artm ents are distribute d in the ratios of:
X d e p artm ent: A- 20%, B- 40%, C - 30% and Y- 10%
Y d e p artm ent: A- 40%, B- 20%, C - 20% and X- 20%
Show the distribution of servic e c osts a mong A, B and C und er re p e ate d distribution
m ethod. 7
Answer:
2. (a)
St a t e m e nt sh o w in g c o m p ut a tio n of t o t a l in v e nt ory c ost a t d iff e r e nt ord e r siz e
O rd e rin g Q u a ntiti e s
P a rti c ul a rs 200 250 800 2,000 4,000
(i) Pur c h a sin g c ost 24,000 23,600 23,200 22,800 22,400
(ii) N o . of ord e rs 20 16 5 2 1
(iii) O rd e rin g C ost 120 96 30 12 6
(iv) A v e r a g e siz e of or d e rs 100 125 400 1,000 2,000
(v) In v e nt ory c a rryin g c ost p e r u nit 1.5 1.475 1.45 1.425 1.4
(6x25%) (5.9x25%) (5.8x25%) (5.7x25%) (5.6x25%)
(vi) In v e nt ory c a rryin g c ost (iv)x (v) 150 184.375 580 1,425 2,800
(vii) To t a l in v e nt ory c ost (i)+(iii)+(vi) 24,270 23,880 23,810 24,237 25,206
F or th e a b o v e c o m p ut a tio ns th e b e st q u a ntity t o ord e r is 800 u nits.
N o t e : Minim u m ord e rin g q u a ntity a ssu m e d t o b e 200 t o ns; it m a y b e a n y q u a ntity
b e lo w 250 t o ns, b ut th e d e c isio n w ill r e m a in s a m e .
(b)
P a rti c ul a rs Pro d u c tio n d e p a rt m e nts Se rvi c e d e p a rt m e nts
A B C X Y
Rs. Rs. Rs. Rs. Rs.
1 As p e r prim a ry d istri b utio n 2,500 2,300 1,700 700 900
2 Se rvi c e D e p t. X 140 280 210 (700) 70
3 Se rvi c e D e p t. Y 388 194 194 194 (970)
4 Se rvi c e D e p t. X 38.8 77.6 58.2 (194) 19.4
5 Se rvi c e D e p t. Y 7.76 3.88 3.88 3.88 (19.4)
6 Se rvi c e D e p t. X 0.776 1.552 1.164 (3.88) 0.388
7 To t a l 3,075.336 2,857.032 2,167.244 0 0.388
It c a n b e n o ti c e d th a t th e u n d istri b ut e d b a l a n c e in se rvi c e d e p a rt m e nt is v e ry
n e gli gi b l e a n d th us c a n b e i g n or e d f or furth e r d istri b utio n.

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 4

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

3. (a) How would you tre at overtim e in c ost re c ords as p er C AS-7? 5

(b) The following is the Tra ding & Profit and Loss A c c ount of Ra m & C o.:

Particulars Rs. Particulars Rs.

To M aterials c onsum e d 23,01,000 By Sales (30000 units) 48,75,000
To Dire ct wa g es 12,05,750 By Sto ck of Finishe d goo ds 1,30,000
(1000 units)
To Production overhe a ds 6,92,250 By W.I.P: `
M aterial 55,250
Wa g es 26,000
Prod. O . H. 16,250 97,500
To A d ministration O verhe a ds 3,10,375 By Interest on Bank d e posit 65,000
To Selling & Distribution O verhe a ds 3,68,875 By Divid ends 3,90,000
To Preliminary exp enses written off 22,790
To G oodwill written off 45,000
To Fines 3,250
To Interest of mortg a g e 13,000
To Loss on sale of m a chine 16,250
To Taxation 1,95,000
To Net Profit 3,83,960
55,57,500 55,57,500

Ra m & C o. m anufa ctures a stand ard unit. The c ost a c c ounting re c ords of the firm
shows the following inform ation:
(i) Production overhe a ds ha ve b e en charg e d at 20% on prim e c ost.
(ii) A d ministration overhe a ds ha ve b e en re c overe d at Rs. 9.75 p er finishe d unit.
(iii) Selling and distribution overhe a ds ha ve b e en re c overe d at Rs. 13 p er unit sold.
Re quire d:
(i) Pre p are a state m ent showing c ost and profit as p er c ost re c ords.
(ii) Pre p are a state m ent re c onciling the profit disclose d by c ost a c c ounts with that
shown in financial a c c ounts. 10

Answer:

3. ( a ) Tre atm ent of overtim e in C ost Re c ords : As p e r C AS-7, O v e rtim e Pr e miu m sh a ll b e

a ssi g n e d d ir e c tly t o th e c ost o b j e c t or tr e a t e d a s o v e rh e a ds d e p e n d in g o n th e
e c o n o mi c f e a si b ility a n d sp e c ifi c c ir c u mst a n c e s r e q uirin g su c h o v e rtim e .

W h e n o v e rtim e is w ork e d d u e t o e xi g e n c i e s or urg e n c i e s of th e w ork, th e

b a si c / n orm a l p a y m e nt is tr e a t e d a s Dir e c t L a b o ur C ost a n d c h a rg e d t o Pro d u c tio n or
c ost u nit o n w hi c h th e w ork e r is e m p lo y e d . W h e r e a s th e a m o u nt of pr e miu m ( e xtr a
a m o u nt) is tr e a t e d a s o v e rh e a d .

If o v e rtim e is sp e nt a t th e r e q u e st of th e c ust o m e r, th e n th e e ntir e a m o u nt (in c lu d in g

o v e r tim e pr e miu m ) is tr e a t e d a s d ir e c t w a g e s a n d sh o ul d b e c h a rg e d t o th e jo b .

W h e n th e o v e rtim e is w ork e d d u e t o l a c k o f c a p a c ity a s g e n e r a l p oli c y of th e

c o m p a n y th e nth e t o t a l a m o u nt p a i d is tr e a t e d a s d ir e c t w a g e s w hi c h is c o m p ut e d a t
th e e stim a t e d r a t e b a se d o n th e fi g ur e s of th e pr e vio us y e a rs.

O v e rtim e w ork e d o n a c c o u nt of th e a b n orm a l c o n d itio ns su c h a s flo o d , e a rth q u a k e ,

e t c ., sh o ul d n o t b e c h a rg e d t o c ost, b ut t o C ostin g Profit a n d Loss A c c o u nt if
int e gr a t e d a c c o u nts a r e m a int a in e d .
It w ill th us b e se e n th a t o v e rtim e in v olv e s p a y m e nt of in c r e a se d w a g e s a n d sh o ul d b e
r e sort e d t o o nly w h e n e xtr e m e ly e sse nti a l.

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 5

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

( b ) (i) St a t e m e nt Sh o w in g C ost a n d Profit in C ost Re c ord s

Pro d u c tio n 31,000 u nits
P a rti c ul a rs A m o u nt (Rs.)
To t a l W.I.P. Pro d u c tio n
M a t e ri a l C o nsu m e d 23,01,000 55,250 22,45,750
W a g es 12,05,750 26,000 11,79,750
Prim e C ost 35,06,750 81,250 34,25,500
A d d : Pro d u c tio n O v e rh e a d (20% o n prim e c ost) 7,01,350 16,250 6,85,100
Works C ost 42,08,100 97,500 41,10,600
A d d : A d ministr a tio n O v e rh e a d @ Rs. 9.75 p e r u nit 3,02,250
C ost of Production 44,12,850
44,12, 850 1, 000 1,42,350

Le ss: C l osin g St o c k = 31, 000

Production C ost of G oods Sold 42,70,500
A d d : S e llin g a n d Distri b utio n O v erh e a d (30,000 13) 3,90,000
C ost of Sales 46,60,500
Profit 2,14,500
Sales 48,75,000

(ii) Re c o n c ili a tio n St a t e m e nt

P a rti c ul a rs Rs. Rs.
N e t Profit a s p e r C ost A c c o u nts 2,14,500
A d d :(i) Ex c e ss Pro d u c tio n O v e rh e a d in C ost Re c ords 9,100
[6,85,100 - (6,92,250 - 16,250 WIP)]
(ii) Ex c e ss s e llin g o v e rh e a d in C ost Re c ords 21,125
[3,90,000-3,68,875]
(iii) Int e r e st o n b a nk d e p osits n o t in c lu d e d in C ost Bo o ks 65,000
(iv) Divi d e n d n o t sh o w n in C ost Bo o ks 3,90,000 4,85,225
6,99,725
Le ss:(i) A d ministr a tio n O v e rh e a d u n d e r-r e c o v e r e d in 8,125
C ostBo o ks (3,10,375 - 3,02,250)
(ii) C losin g st o c k o v e rv a lu e d in Fin a n c i a l 12,350
Bo o ks(1,42,350-1,30,000)
(iii) Pr e lim in a ry e x p e ns es writt e n o ff in Fin a n c i a l Bo o ks o nly 22,790
(iv) G o o d w ill writt e n off in Fin a n c i a l Bo o ks o nly 45,000
(v) Fin e s sh o w n in Fin a n c i a l Bo o ks o nly 3,250
(vi) Int e r e st c h a rg e d in Fin a n c i a l Bo o ks o nly 13,000
(vii)Loss o n s a l e o f m a c hin e sh o w n in Fin a n c i a l Bo o ks o nly 16,250
(viii)In c o m e t a x pro vi d e d in fin a n c i a l b o o ks o nly; 1,95,000 3,15,765
Profit a s p e r Fin a n c i a l Bo o ks 3,83,960

4. (a) C omponent 'Citiprid e' is m a d e entirely in c ost c entre 200. M aterial c ost is 6 p aise p er
c omponent and e a ch c omponent ta kes 10 minutes to produc e. The m a chine
op erator is p aid 72 p aise p er hour, and m a chine hour rate is Rs. 1.50. The setting up of
the m a chine to produc e the c omponent 'Citiprid e' ta kes 2 hours 30 minutes. O n the
b asis of this inform ation, pre p are a c ost she et showing the production and setting up
c ost, both in total and p er c omponent, assuming that a b atch of:
(i) 10 c omponents,
(ii) 100 c omp onents, and
(iii) 1000 c omponents is produc e d. 9

(b) SG Ltd. m anufa ctures product A which yields two by-products B and C. The a ctual
joint exp enses of m anufa cturing for a p eriod were Rs. 9,000.
The profits on e a ch pro duct as a p erc enta g e of sales are 33-1/3%, 25% and 15%
resp e ctively.

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 6

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

Subse quent exp enses are as follows:

Products (Rs.)
Particulars 'A' 'B' 'C’
M aterial 100 75 25
Dire ct 200 125 50
O verhe a ds 150 125 75
Total 450 325 150
Sales 6,300 4,800 2,500
A p portion the joint exp enses. 6

Answer:

4. (a)
C ost Sh e e t C o m p o n e nt ' C iti pri d e '
P a rti c ul a rs B a t c h Siz e
10 c o m p o n e nts 100 c o m p o n e nts 1000 c o m p o n e nts
To t a l Per To t a l Per To t a l Per
Rs. c o m p o n e nt Rs. c o m p o n e nt Rs. c o m p o n e nt
Rs. Rs. Rs.
A . Se ttin g u p C ost:
M a c hin e O p e r a t ors w a g e s 1.80 0.180 1.80 0.0180 1.80 0.00180
(2.5 h o urs @ Re. 0.72 p .h)
O v e rh e a ds 2.5 h o urs @ 3.75 0.375 3.75 0.0375 3.75 0.00375
Rs. 1.50 p .h)
To t a l of ( A) 5.55 0.555 5.55 0.0555 5.55 0.00555
B. Pro d u c tio n C ost:
M a t e ri a l C ost @ Re . 0.06 0.60 0.060 6.00 0.0600 60.00 0.06000
p e r c o m p o n e nt
M a c hin e O p e r a t ors W a g e s 1.20 0.120 12.00 0.1200 120.00 0.12000
[(R e f e r t o W orkin g N o t e (1)]
O v e rh e a ds
[(R e f e r t o W orkin g N o t e (2)] 2.50 0.250 25.00 0.2500 250.00 0.25000
To t a l of (B) 4.30 0.430 43.00 0.4300 430.00 0.43000
C . To t a l C ost: ( A +B) 9.85 0.985 48.55 0.4855 435.55 0.43555

W orkin g N o t e s:
10 C o m p o n e nts 100 C o m p o n e nts 1000 C o m p o n e nts
(1) O p e r a t ors W a g e s 1.20 12.00 120.00
Tim e t a k e n in min ut e s b y [(100 / 60)x0.72] [(1000 / 60)x0.72] [(10000 / 60)x0.72]
m a c hin e o p e r a t ors
@10 min ut e s p e r c o m p o n e nt
O p e r a t ors W a g e s @ Re. 0.72
p e r h o ur (Rs.)
(2) O v e rh e a d e x p e nse s 2.50 25.00 250.00
To t a l o v e rh e a d e x p e ns e s @ [(100 / 60)xRs.1.50][(1000 / 60)xRs.1.50] [(10000 / 60)xRs. 1.50]
Rs.1.50 p e r M a c hin e h o ur
(Rs.)

( b ) St a t e m e nt Sh o w in g A p p ortio n m e nt of Joint Ex p e nse s

P a rti c ul a rs A B C To t a l
Sales 6,300 4,800 2,500 13,600
(-) Profit 2,100 1,200 375 3,675
To t a l C ost (Joint & Se p a r a t e C ost) 4,200 3,600 2,125 9,925
Se p a r a t e Ex p e nse s 450 325 150 925
Sh a r e of Joint Ex p e nse s 3,750 3,275 1,975 9,000

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 7

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

5. (a) Shri Rajesh A g arwal has starte d transport business with a fle et of 10 taxies. The various
exp enses incurre d by him are given b elow:
(i) C ost of e a ch ta xi Rs. 3,00,000.
(ii) Salary of Offic e Staff Rs. 5,000 p.m.
(iii) Salary of G ara g e's Sup ervisor Rs. 10,000 p.m.
(iv) Rent of G ara g e Rs. 5,000 p.m.
(v) Drivers Salary (p er ta xi) Rs. 10,000 p.m.
(vi) Ro a d Ta x and Re p airs p er taxi Rs. 6,000 p.a.
(vii)Insuranc e pre mium @ 6% of c ost p.a.
The life of a ta xi is 300000 Km. and at the end of which it is estim ate d to b e sold at Rs.
25,000. A taxi runs on a n a vera g e 6000 Km. p er month of which 10% it runs e mpty,
p etrol c onsumption 11 Km. p er litre of p etrol c osting Rs. 72 p er litre. Oil and other
sundry exp enses a mount to Rs. 50 p er 100 Km.
C alculate the effe ctive c ost of running a ta xi p er kilom etre. If the hire charg e is Rs. 13
p er kilom etre on a vera g e, find out the profit that Shri A g arwal m a y exp e ct to m a ke in
the firsty e ar of op eration. 8

(b) A c ontra ctor has und erta ken a c onstruction work at a pric e of Rs. 5,00,000 and b e gun
the exe cution of work on 1st January, 2016. The following are the p articulars of the
c ontra ct up to 31st De c e mb er, 2016.
Particulars Amount (Rs.) Particulars Amount (Rs.)
M a chinery 30,000 O verhe a ds 8,252
M aterials 1,70,698 M aterials returne d 3,098
Wa g es 1,48,750 Work c ertifie d 3,90,000
Dire ct exp enses 6,334 C ash re c eive d 3,60,000
Unc ertifie d work 9,000 M aterials on 31.12.2016 3,766
Wa g es outstanding 5,380
V alue of plant on 31.12.2016 23,000
It was d e cid e d that the profit m a d e on the c ontra ct in the y e ar should b e arrive d at
by d e ducting the c ost of work c ertifie d from the total value of the archite ct's
c ertific ate, that1/ 3 of the profit so arrive d at should b e re g ard e d as a provision
a g ainst c onting encies a nd that such provision should b e incre ase d b y ta king to the
cre dit of Profit and Loss A c c ount only such portion of the 2/3rd profit, as the c ash
re c eive d to the work c ertifie d. Pre p are the C ontra ct A c c ount showing the profit on the
C ontra ct. 7
Answer:
5. ( a ) St a t e m e nt sh o w in g c o m p ut a tio n of e ff e c tiv e c ost a n d profit f or th e y e a r:
P a rti c ul a rs A m o u nt A m o u nt
(Rs.) (Rs.)
Fix e d e x p e nse s:
S a l a ry o f st a ff 5,000
S a l a ry o f g a r a g e su p e rvisor 10,000
Re nt of g a r a g e 5,000
Driv e r S a l a ry (10 x 10,000) 1,00,000
Ro a d t a x a n d r e p a irs (6,000 x 10 / 12) 5,000
Insur a n c e pr e miu m (3,00,000 x 6% x 10 / 12) 15,000 1,40,000
Fix e d c ost of 10 t a xis p e r m o nth
C ost p e r t a xi = Rs. 1,40,000 / 10 = Rs. 14,000
C ost p e r k m = 14,000 / 6,000 = 2.33 2.33
( Alt e rn a tiv e ly, Fix e d C ost p e r T a xi m a y b e w ork e d o ut d ir e c tly)
Ru n nin g C osts:
D e pr e c i a tio n [(3,00,000-25,000) / 3,00,000] 0.92
P e trol (72 / 11) 6.55
O il & su n dry e x p e nse s (50 / 100) 0.50
C ost 10.30
Eff e c tiv e c ost p e r Km = 10.30 x (100 / 90) 11.44
Profit f or y e a r = (13.00 - 1 1.44) x 10 x 5,400 x 12 = Rs.10,10,880
A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 8
 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

(b)
C o ntr a c t A c c o u nt
Dr. C r.
P a rti c ul a rs A m o u nt P a rti c ul a rs A m o u nt
(Rs.) (Rs.)
To , M a c hin e ry A / c 30,000 By, Pl a nt & M a c hin e ry A / c 23,000
To , M a t e ri a ls A / c 1,70,698 By, M a t e ri a ls r e turn e d A / c 3,098
To ,W a g e s in c l.o utst a n d in g A / c 1,54,130 By, M a t e ri a ls o n h a n d A / c 3,766
To , Dir e c t Ex p e ns e s A / c 6,334 By, W .I.P A / c 3,99,000
To , O v e rh e a ds A / c 8,252 W ork c e rtifi e d 3,90,000
To , P&L A / c 36,585* W ork u n c e rtifi e d 9,000
To , Re se rv e c / d 22,865*
4,28,864 4,28,864

* To t a l C ost = Ex p e nse s b e f or e Profit a n d Re s e rv e = Rs. 3,69,414 – Rs. 29,864 c r e d its

To t a l Ex p e nse s= Rs. 3,39,550 .
H e n c e , To t a l C ost = Rs. 3,99,000 WIP – Rs. 3,39,550 =Rs. 59,450
or
Alt e rn a tiv e ly, To t a l in c lu d in g WIP = Rs. 4,28,864 – Rs. 3,69,414 = Rs. 59,450

Cash Received 3,60,000

= = 0.92308
Work Certified 3,90,000
2 rd
Rs. 59,450 × 0.92308 = Rs. 54,877 of Rs. 54,877 = Rs.36,585 Profit
3
H e n c e , B a l a n c e (Rs. 59,450 – Rs. 36,585)= Rs. 22,865 is Re s e rv e

6. (a) Following p articulars relate to a m anufa cturing fa ctory for the month of M arch, 2017
V aria ble c ost p er unit Rs. 14
Fixe d fa ctory overhe a d Rs. 5,40,000
Fixe d selling overhe a d Rs. 2,52,000
Sales pric e p er unit Rs. 20
(i) What is the bre a k- even p oint expresse d in rup e e sales?
(ii) How m any units b e sold to e arn a targ et net inc om e of Rs. 60,000 p er month?
(iii) How m any units must b e sold to e arn a net inc om e of 25% on c ost?
(iv) What should b e the selling pric e p er unit if bre a k-even point is to b e brought down
to 120000 units? 8
(b) There are thre e similar plants und er one C orporate M ana g e m ent who wa nts the m to
b e m erg e d for b etter op eration. The following are the d etails relating to these plants.
Plant A Plant B Plant C
C a p a city in O p eration 100% 70% 50%
(Rs. in la khs)
Turnover 300 280 150
V aria ble C ost 200 210 75
Fixe d C ost 70 50 62
You are re quire d to c alculate:
(i) C a p a city of m erg e d pla nt to b e op erate d to bre a k- even;
(ii) Profita bility of working at 75% c a p a city;
(iii) The turnover from the m erg e d plant to give a profit of Rs. 28 la khs. 7

Answer:

6. ( a ) (i) C a l c ul a tio n of BEP in ru p e e s a l e s:

S- V 20 - 14
P/ V R a tio = = 100 = 30%
S 20
F 5, 40, 000 + 2, 52, 000
BEP = = = Rs. 26,40,000
P / V R a ti o 30%

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 9

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

(ii) S a l e s t o e a rn a t a rg e t n e t in c o m e of Rs. 60,000 p e r m o nth:

C o ntri b utio n p e r u nit = Rs. 20 – Rs. 14 = Rs. 6.
F + D e sire d Pro fit 7, 92, 000 + 60, 000
S a l e s in u nits = = = 1,42,000 u nits.
C o ntri b uti o n p e r u nit 6
(S a l e s in Ru p e e s = 1,42,000 Rs. 20 = Rs. 28,40,000. This is o p tio n a l

(iii) N o . of u nits t o b e sol d t o e a rn a n e t in c o m e of 25% o n c ost:

Profit @ 25% o n c ost m e a ns a profit @ 20% o n S a l e s. Le t s a l e s b e a ssu m e d a s Rs. x;
th e d e sir e d profit w ill b e 20% of x or .20x.
F + D e sir e d Pro fit
Now, x =
P / V R a ti o
7, 92, 000 + 0.20x 100
O r x=
1 30
or 30x = 7,92,00,000 + 20x
or 10x = Rs. 7,92,00,000
or x = Rs. 79,20,000
79, 20, 000
N o . of u nits t o b e sol d = = 3,96,000 u nits
20 (S.P. p e r u nit)

(iv) Se llin g Pri c e p e r u nit if BEP is bro u g ht d o w n t o 1,20,000 u nits :

Fix e d C ost 7, 92, 000
C o ntri b utio n p e r u nit = = = 6.60 p e r u nit.
BEP in u nits 1, 20, 000
N o w , S.P. p e r u nit = V + C = Rs.14 + Rs. 6.60 = Rs. 20.60.

( b ) C o m p ut a tio n of S a l e s a n d V a ri a b l e C osts f or Pl a nts B a n d C a t 100 p e r c e n t c a p a c ity

of w orkin g . (Rs. in l a khs)
C a p a c ity Pl a nt A Pl a nt B Pl a nt C M e rg e d Pl a nt
100% 100% 100% 100%
Sales 300 400 300 1,000
Le ss: V a ri a b l e C ost a t 100% C a p a c ity 200 300 150 650
C o ntri b utio n 100 100 150 350
Le ss: Fix e d C ost 70 50 62 182
Profit 30 50 88 168

C o ntri b uti o n 350

(i) P/ V R a tio = 100 = 100 = 35%
Sales 1, 000
Fix e d C ost 182
BEP (in Rs.) = = = Rs. 520 l a kh
P / V r a ti o 35%
520
C a p a c ity of Rs. 520 l a khs t o t o t a l s a l e s Rs. 1,000 l a khs = 100 = 52%.
1, 000

(ii) S a l e s a t 75% c a p a c ity = Rs. 750 l a khs

P = (S a l e s P / V r a tio) – Fix e d C ost
35
= 750 - 182 or 262.5 – 182 = Rs. 80.5 l a khs.
100

(iii) S a l e s t o e a rn a profit of Rs. 28 l a khs.

Fix e d C ost + D e sir e d Pro fit 182 + 28 210
Sales = = = = 600 l a khs.
P / V R a ti o 35% 35%

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 10

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

7. (a) The d etails re g arding the c omposition and the we e kly wa g e rates of la bour forc e
eng a g e d on a job sche dule d to b e c omplete d in 30 we eks are as follows:
C ate gory of Stand ard A ctual
Workers No. of We ekly Wa g e Rate No. of We ekly Wa g e Rate
Workers p er work er Workers p er work er
Skille d 75 60 70 70
Se mi-skille d 45 40 30 50
Unskille d 60 30 80 20
The work is a ctually c om plete d in 32 we e ks.

C alculate the following La bour V arianc es:

(i) La bour C ost V arianc e;
(ii) La bour Rate varianc e;
(iv) La bour Efficiency V arianc e;
(v) La bour Revise d Efficienc y V arianc e;
(v) La bour Mix V arianc e. 8

(b) Thre e Articles X, Y and Z are produc e d in a fa ctory. They p ass through two c ost
c enters A and B. From the d ata furnishe d, c ompile a state m ent for bud g ete d m a chine
utilization in b oth the c enters.
(i) Sales bud g et for the y e ar:
Product Annual Bud g ete d O p ening sto ck of Closing sto ck
Sales (units) finishe d products (units)
X 4800 600 Equivalent to 2 months sales
Y 2400 300 - Do --
Z 2400 800 - Do --
(ii) M a chine hours p er unit of product:
Product C ost c enters
A B
X 30 70
Y 200 100
Z 30 20
(iii) Total numb er of m a chines:
C ost C entre: A 338
B 305
Total 643
(iv) Total working hours during the y e ar: Estim ate d 2100 hours p er m a chine 7

Answer:

7. ( a ) C o m p ut a tio n of St a n d a rd a n d A c tu a l Tim e
C a t e g ory St a n d a rd Tim e (ST) A c tu a l Tim e ( AT)
Skill e d 75x30 = 2,250 70 x 32 = 2,240
Se miskill e d 45 x30= 1,350 30x32 = 960
Unskill e d 60x30 = 1,800 80x32 = 2,560

C o m p ut a tio n of St a n d a rd C ost a n d A c tu a l C ost

C a t e g ory St a n d a rd A c tu a l Re vis e d
of W ork e r Tim e Ra te C ost Tim e Ra te C ost Tim e
ST SR (Rs.) S C (Rs.) AT AR(Rs.) A C (Rs.) RST

Skill e d 2,250 60 1,35,000 2,240 70 1,56,800 2,400

Se miskill e d 1,350 40 54,000 960 50 48,000 1,440
Unskill e d 1800 30 54,000 2,560 20 51,200 1,920
To t a l 5,400 - 2,43,000 5,760 - 2,56,000 5,760

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 11

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

C omputation of Re vise d Stand ard Tim e (RST)

2, 250
Skill e d w ork e r : 5,760 = 2,400 H o urs
5, 400
1, 350
Se mi-skill e d w ork e r : 5,760 = 1,440 H o urs
5, 400
1, 800
Unskill e d w ork e r : 5,760 = 1,920 H o urs
5, 400

C o m p ut a tio n of V a ri a n c e s

(i) L C V (L a b o ur C ost V a ri a n c e ) = TS C - T A C = 2,43,000 - 2,56,000 = Rs. 13,000 ( A)

(ii) LRV (L a b o ur R a t e V a ri a n c e )= AT(SR- AR)

Skill e d W ork e r : 2,240 (60 – 70) = Rs. 22,400 ( A)
Se miskill e d W ork e r :960 (40 – 50) = Rs. 9,600 ( A)
Unskill e d W ork e r : 2,560 (30 – 20) = Rs. 25,600 (F) = Rs. 6,400 ( A)

(iii) LEV (L a b o ur Effi c i e n c y V a ri a n c e ) = SR(ST- AT)

Skill e d W ork e r : 60 (2,250 – 2,240) = Rs.600 (F)
Se miskill e d W ork e r : 40(1,350 – 960) = Rs. 15,600 (F)
Unskill e d W ork e r : 30(1,800 – 2,560) = Rs. 22,800 ( A) = Rs. 6,600 ( A )

(iv) LREV (L a b o ur R e vis e d Effi c i e n c y V a ri a n c e ) = SR (ST – RST)

Skill e d W ork e r : 60(2,250 – 2,400) = Rs. 9,000 ( A)
Se miskill e d W ork e r : 40(1,350 – 1,440) = Rs. 3,600 ( A)
Unskill e d W ork e r : 30(1,800 – 1,920) = Rs. 3,600 ( A) = Rs. 16,200 ( A)

(v) LM V (L a b o ur Mix V a ri a n c e )= SR (RST – AT)

Skill e d W ork e r : 60(2,400 – 2,240) = Rs. 9,600 (F)
Se miskill e d W ork e r : 40(1,440 – 960) = Rs. 19,200 (F)
Unskill e d W ork e r : 30(1,920 – 2,560) = Rs. 19,200 ( A) = Rs. 9,600 (F)

( b ) C a l c ul a tio n of Units of Pro d u c tio n of Diff e r e nt Pro d u c ts

P a rti c ul a rs Pro d u c t X Pro d u c t Y Pro d u c t Z
Sales 4800 2400 2400
A d d : C losin g St o c k 800 400 400
5600 2800 2800
Le ss: O p e nin g St o c k 600 300 800
Pro d u c tio n 5000 2500 2000

M a c hin e Utilis a tio n Bu d g e t

C ost C e ntr e s A B
Pro d u c t X Y Z T O T AL X Y Z T O T AL
P a rti c ul a rs
(i) Pro d u c tio n 5000 2500 2000 5000 2500 2000
(u nits)
(ii) H o urs p e r u nit 30 200 30 70 100 20

(iii) To t a l M a c hin e 1,50,000 5,00,000 60,000 7,10,000 3,50,000 2,50,000 40000 6,40,000
H o urs
(iv) Utilis a tio n of 71 238 29 338 167 119 19 305
N u m b e r of
M a c hin e s

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 12

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

8. Answer a ny thre e out of the following four questions: 5 3=15

(a) "C ost A c c ounting and M ana g e m ent A c c ounting are inter-d e p end ent." Do you a gre e,
discuss.
(b) Differentiate b etwe en O p eration C ost and O p erating C ost.
(c) Enum erate the ne e d for pre d etermine d overhe a d rate.
(d) What is Responsibility A c c ounting? Also state the Principles of Responsibility
A c c ounting.

Answer:
8. ( a ) C ost A c c ounting: In c ost a c c o u ntin g , prim a ry e m p h a sis is o n c ost a n d it d e a ls w ith its
c oll e c tio n, a n a lysis, r e l e v a n c e , int e rpr e t a tio n a n d pr e se nt a tio n f or v a rio us pro b l e ms o f
m a n a g e m e nt.
M ana g e m ent A c c ounting: It utiliz e s th e prin c i p l e s a n d pr a c ti c e s of fin a n c i a l
a c c o u ntin g a n d c ost a c c o u ntin g in a d d itio n t o o th e r m a n a g e m e nt t e c h ni q u e s f or
e ffi c i e nt o p e r a tio ns of a c o n c e rn. It w i d e ly use s d iff e r e nt t e c h ni q u e s fro m v a rio us
br a n c h e s of kn o w l e d g e lik e St a tisti c s, M a th e m a ti c s, E c o n o mi c s, L a w a n d Psy c h olo g y
t o a ssist th e m a n a g e m e nt in its t a sk of m a ximizin g profits or minimizin g loss e s. Th e m a in
thrust in m a n a g e m e nt a c c o u ntin g is t o w a rds d e t e rminin g p oli c y a n d f orm ul a tin g
p l a ns t o a c hi e v e d e sir e d o b j e c tiv e s of m a n a g e m e nt.
Fro m th e a b o v e d isc ussio n it m a y b e c o n c lu d e d th a t c ost a c c o u ntin g a n d
m a n a g e m e nt a c c o u ntin g a r e int e r-d e p e n d e nt, g r e a tly r e l a t e d a n d inse p a r a b l e .
( b ) O p eration C ost:
O p e r a tio n c ost is th e c ost of a sp e c ifi c o p e r a tio n in v olv e d in a pro d u c tio n pro c e ss or
b usin e ss a c tivity. Th e c ost u nit in this m e th o d is th e o p e r a tio n, inst e a d of pro c e ss.
W h e n th e m a n uf a c turin g m e th o d o f a c o n c e rn c o nsists of a n u m b e r of d istin c t
o p e r a tio ns, o p e r a tin g c ostin g is suit a b l e .
O p erating C ost:
O p e r a tin g c ost is th e c ost in c urr e d in c o n d u c tin g a b usin e ss a c tivity. It re f e rs t o th e
c ost of c o n c e rns w hi c h d o n o t m a n uf a c tur e a n y pro d u c t b ut w hi c h pro vid e se rvi c e s.
In d ustri e s a n d e st a b lish m e nts lik e p o w e r h o us e , tr a nsp ort a n d tr a v e l a g e n c i e s,
h osp it a ls, sc h o ols e t c . w hi c h u n d e rt a k e se rvi c e s r a th e r th a n th e m a n uf a c tur e of
pro d u c ts, a sc e rt a in o p e r a tin g c osts. Th e c ost u nits use d a r e Kilo W a tt H o ur (KW H),
P a ss e n g e r Kilo m e tr e a n d B e d in th e H osp it a l e t c .
O p e r a tio n c ostin g m e th o d c o nstitut e s a d istin c t ty p e of c ostin g b ut it m a y a lso b e
c l a sse d a s a v a ri a nt of pro c e ss c ost sin c e c osts in this m e th o d a r e usu a lly c o m p il e d
f or a sp e c ifi e d p e rio d .

(c) Ne e d for pre d etermine d O verhe a d Rate:

Pr e d e t e rmin e d O v e rh e a d R a t e is n e e d e d f or th e f ollo w in g r e a so ns:
i) a c tu a l R a t e c a n b e d e t ermin e d o nly a ft e r th e o v e rh e a ds h a v e b e e n
in c urr e d
ii) t o a v oi d d e l a y in c o m p utin g c ost
iii) t o pr e p a r e Q u o t a tio ns in tim e a n d q ui c kly
iv) a c tu a l O v e rh e a d R a t e m a y flu c tu a t e fro m p e rio d t o p e rio d . But in c a s e of
pr e d e t e rmin e d r a t e , it is n o t so .
v) t o e nsur e c ost c o ntrol.

OR
As p er study m aterial as und er:
A d v a nt a g e s of Pr e d e t e rmin e d O v e rh e a d R a t e :
i) En a b l e s pro m p t pr e p a r a tio n of c ost e stim a t e s, q u o t a tio ns a n d fix a tio n of
se llin g pri c e s.

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 13

 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-8

ii) C ost d a t a is a v a il a bl e t o m a n a g e m e nt a lo n g w ith fin a n c i a l d a t a .

iii) In c a se of C ost-p lus c o ntr a c ts pro m p t b illin g is p ossi b l e thro u g h pr e -
d e t e rmin e d r e c o v e ry r a t e /s.
iv) In c o n c e rns h a vin g b u d g e t a ry c o ntrol syst e m , n o e xtr a c l e ri c a l e ff orts a r e
r e q uir e d in c o m p utin g th e pr e -d e t e rmin e d o v e rh e a d r a t e .

(d) Responsibility A c c ounting:

It is a syst e m of a c c o u ntin g th a t r e c o g niz e s v a rio us r e sp o nsi b ility c e ntr e s thro u g h o ut
th e org a nis a tio n a n d r e fl e c ts th e p l a ns a n d a c tio ns of e a c h of th e se c e ntr e s b y
a ssi g nin g p a rti c ul a r r e v e n u e s a n d c osts of th e o n e h a vin g th e p e rtin e nt r e sp o nsi b ility.

It is a syst e m in w hi c h th e p e rso n h ol d in g th e su p e rvisory p osts a s pr e si d e nt, fu n c tio n

h e a d , f or e m a n, e t c . a r e giv e n a r e p ort sh o w in g th e p e rf orm a n c e of th e c o m p a n y or
d e p a rt m e nt or se c tio n a s th e c a se m a y b e . Th e r e p ort w ill sh o w th e d a t a r e l a tin g t o
o p e r a tio n a l r e sults o f th e a r e a a n d th e it e ms of w hi c h h e is r e sp o nsi b l e f or c o ntrol.
Re sp o nsi b ility a c c o u ntin g f ollo ws th e b a si c prin c i p l e s of a n y syst e m of c ost c o ntrol
a n d st a n d a rd c ostin g . It d iff e rs o nly in th e se nse th a t it l a ys e m p h a sis o n h u m a n
b e in gs a n d fix e s r e sp o nsi b iliti e s f or in d ivi d u a ls. It is b a se d o n th e b e li e f th a t c o ntrol c a n
b e e x e r c ise d b y h u m a n b e in gs, so r e sp o nsi b iliti e s sh o ul d b e fix e d f or in d ivi d u a ls.

Prin c i p l e s of Re sp o nsi b ility A c c o u ntin g :

(i) A t a rg e t is fix e d f or e a c h d e p a rt m e nt or r e sp o nsi b ility c e ntr e .
(ii) A c tu a l p e rf orm a n c e is c o m p a r e d w ith th e t a rg e t.
(iii) Th e v a ri a n c e s fro m p l a n a r e a n a lyse d so a s t o fix th e r e sp o nsi b ility.
(iv) C orr e c tiv e a c tio n is t a k e n b y hi g h e r m a n a g e m e nt a n d is c o m m u ni c a t e d .

A c a d e mi cs D e p a rtm e nt, Th e Institut e o f C ost A c c o u nt a nts o f In di a (St a tutory Bo d y un d e r a n A c t o f P a rli a m e nt) P a g e 14

 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

INTERMEDIATE EXAMINATION
GROUP -II
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE- 2018
Paper-8 : COST ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
All Sections are compulsory. Each section contains instructions
regarding the number of questions to be answered within the section.
All working notes must form part of the answer.
Wherever necessary, candidates may make appropriate
assumptions and clearly state them.
No present value factor table or other statistical table will be
provided in addition to this question paper.

Section - A

Section A contains Question Number 1. All parts of this question are compulsory.

1. Answer the following questions:

(a) Choose the correct answer from the given alternatives (You may write only the
Romannumeral and the alphabet chosen for your answer): 1×10=10

(i) Batch costing is suitable for

(a) Oil Industry
(b) Sugar Industry
(c) Chemical Industry
(d) Pharmaceutical Industry

(ii) Idle time is

(a) Time spent by workers in office
(b) Time spent by workers in factory
(c) Time spent by workers off their work
(d) Time spent by workers on their job

(iii) Warehouse expense is an example of

(a) Production overhead
(b) Administration overhead
(c) Selling overhead
(d) Distribution overhead

(iv) Standard deals with the principles and methods of determining depreciation
and amortization cost is
(a) CAS-8
(b) CAS -11
(c) CAS-16
(d) CAS-20

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

(v) In Reconciliation Statement expenses shown only in cost accounts are

(a) Added to financial profit
(b) Deducted from financial profit
(c) Ignored
(d) Deducted from costing profit

(vi) In a job cost system, costs are accumulated

(a) On a monthly basis
(b) By specific job
(c) By department or process
(d) By kind of material used

(vii) In a process 6,000 units are introduced during a period. 5% of input is normal loss.
Closing work-in-process 60% complete is 800 units. 4,900 completed units are
transferred to next process. Equivalent production for the period is
(a) 6,800 units
(b) 5,700 units
(c) 5,680 units
(d) 5,380 units

(viii) Which of the following best describes a fixed cost?

(a) It may change in total where such change is unrelated to changes in
production.
(b) It may change in total where such change is related to changes in production.
(c) It is constant per unit of change in production.
(d) It may change in total where such change depends on production within
the relevant range.

(ix) Z Ltd. is planning to sell 1,00,000 units of product A for Rs. 12.00 per unit. The
fixed costs are Rs.2,80,000. In order to realize a profit of Rs. 2,00,000, what would
the variable costs be?
(a) Rs. 4,80,000
(b) Rs. 7,20,000
(c) Rs. 9,00,000
(d) Rs. 9,20,000

(x) Sales budget is an example of

(a) Expenditure budget
(b) Functional budget
(c) Capital budget
(d) Master budget

(b) Match the statement in Column I with the most appropriate statement in Column II:
(You may opt to write only the Roman numeral and the matched alphabet instead of
copying contents into the answer Books) 1x5=5
Column I Column II
(i) Imputed costs A Cost control technique
(ii) FSN analysis B Treated as part of factory expenses
(iii) Captive power plant expenses C Costing profit and loss account
(iv) Abnormal loss is transferred to D Process of classifying material
(v) Variance analysis E Direct allocation
F Not involving cash outlay
G Management by exception
H Decision package

(c) State whether the following statements are 'True' or 'False':(You may write only the
Roman numeral and whether 'True' or 'False' without copying the statements into the

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

answer books): 1x5=5

(i) Factory overhead cost applied to a job is usually based on a pre-determined rate.
(ii) CAS-19 deals with the principles and methods of determining the manufacturing
cost of excisable goods.
(iii) Cost ledger control account makes the cost ledger self-balancing.
(iv) FIFO method is followed for evaluation of equivalent production when prices are
fluctuating.
(v) Standard costs and budgeted costs are inter-related and inter-dependent.

(d) Fill in the blanks: (You may write only the Roman numeral and the content filling the
blanks) 1x5=5

(i) ____________is the process of regulating the action so as to keep the element of
costwithin the set parameters.
(ii) In absorption costing ___________________ is added to inventory.
(iii) CAS _____________ stands for cost of service cost Centre.
(iv) At _______________ contribution available is equal to total fixed cost.
(v) The document which describes the budgeting organisation, budgeting procedure
etc.isknown as ___________.

Answer:

1. (a) (i) (d)

(ii) (c)
(iii) (d)
(iv) (c)
(v) (b)
(vi) (b)
(vii) (d)
(viii) (a)
(ix) (b)
(x) (b)

(b)
Column I Column II
(i) Imputed costs F Not involving cash outlay
(ii) FSN analysis D Process of classifying material
(iii) Captive power plant expenses B Treated as part of factory expenses
(iv) Abnormal loss is transferred to C Costing profit and loss account
(v) Variance analysis G Management by exception

(c) (i) True

(ii) False
(iii) True
(iv) False
(v) False

(d) (i) Cost Control

(ii) Fixed Cost
(iii) CAS - 13
(iv) Break even point
(v) Budget Manual

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Section - B
Answer any five questions from question numbers 2 to 8.
Each question carries 15 marks.
15 × 5 = 75
2. (a) The existing Incentive system of SHRISTI LTD is as under:
Normal working week : 5 days of 8 hours each plus 3 late shifts of 3 hours each
Rate of Payment : Day work :Rs.160 per hour
Late shift:Rs. 225 per hour

Average output per operatorfor 49-hours week i.e. including

3 late shifts : 120 articles.

In order to increase output and eliminate overtime, it was decided to switch on to a

system of payment by results. The following information is obtained:
Time-rate (as usual) :Rs. 160 per hour
Basic time allowed for 15 articles : 5 hours
Piece-work rate : Add 20% to basic piece-rate
Premium Bonus : Add 50% to time.

Required:
Prepare a Statement showing hours worked, weekly earnings, number of articles
produced and labour cost per article for one operator under the following systems:
(i) Existing time-rate
(ii) Straight piece-work
(iii) Rowan system
(iv) Halsey premium system

Assume that 135 articles are produced in a 40-hour week under straight piece work,
Rowan Premium System, the Halsey Premium System above and worker earns half the
time saved under Halsey Premium System. 9

(b) The following figures are taken from the accounts of BALEN LTD a manufacturing concern
for the month of October, 2017:
Indirect Materials : Production Departments : X Rs. 19,000; Y Rs. 24,000; Z Rs. 4,000;
Service Departments : Maintenance Rs. 30,000; Stores Rs. 8,000.
Indirect Wages : Production Departments : X Rs. 18,000; YRs. 22,000; Z Rs. 6,000;
Service Departments : Maintenance Rs. 20,000; Stores Rs.13,000.

Other Expenses: Power and Light: Rs. 1,20,000; Rent and Rates Rs. 56,000; Insurance of
Assets Rs. 20,000; Meal Charges Rs. 60,000; Depreciation @ 6% p.a. on capital value of
assets.
Departmental Data
Items Production Departments Service Department
X Y Z Maintenance Stores
Area (Sq. Ft.) 4,000 4,000 3,000 2,000 1,000
Capital Value of Assets (Rs.) 20,00,000 24,00,000 16,00,000 12,00,000 8,00,000
Kilowatt Hours 2,000 2,200 800 750 250
Number of Employees 180 240 60 80 40

Service rendered by Maintenance Department to Production Departments:

X 50%; Y 30%; Z 20%.
Service rendered by Stores Department to Production Departments:
X 40%; Y 40%; Z 20%.

From the above data, prepare a Departmental Distribution Summary showing apportion
of costs ofService Departments to the Production Departments and the Total Overheads
of the ProductionDepartments. 6

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Answer:

2. (a)
Table Showing Labour Cost Per Article
Method of Payment Hourswor Weeklyearnings Number Labour costper
ked produced (Rs.) ofarticles article (Rs.)
Existing time rate 49 8,425.00 120 70.21
Straight piece rate system 40 8,640.00 135 64.00
Rowan Premium System 40 9,007.41 135 66.72
Halsey Premium System 40 8,600.00 135 63.70

Working Notes:

(i) Existing Time Rate

Weekly wages 40 hours @ Rs.160 per hr. = Rs. 6,400
9 hours @ Rs.225 per hr. = Rs. 2,025
Rs. 8,425
(ii) Piece Rate System
Basic Time 5 hours for 15 articles
Cost of 15 articles at hourly rate of Rs.160/hr = Rs. 800
Add: 20% = Rs. 160
= Rs. 960
 Rate per article = Rs. 960 ÷ 15 = Rs. 64.
Earning for the week = 135 articles × Rs. 64 = Rs. 8,640.

(iii) Rowan Premium System

Basic Time 5 hours for 15 articles
50% to time
7.5 hours for 15 articles or 30 minutes per article
Time allowed for 135 articles = 67.50 hours
Actual time taken for 135 articles = 40 hours
TA −HW
Earnings = (HW × RH) +( × HW × RH)
TA
67.50−40
= (40 hours × Rs.160) +( × 40 × Rs.160) = Rs. 9,007.41
67.50
(i) Halsey Premium System:
50
Earnings = (HW × RH) +{ (TA – HW ) × RH}
100
1
= (40 × Rs.160) + { (67.50 -40) × Rs.160} = Rs. 8,600
2

(b) Departmental Distribution Summary

Items Basis of Total Production Departments Service Departments

Apportionment
X Y Z Maintenance Stores
Rs. Rs. Rs. Rs. Rs.
Indirect Allocation
Materials 85,000 19,000 24,000 4,000 30,000 8,000
Indirect Allocation
Wages 79,000 18,000 22,000 6,000 20,000 13,000
Power &Light Kilowatt Hours
(200:220:80:75:25) 1,20,000 40,000 44,000 16,000 15,000 5,000
Depreciation Value of Assets
(1 Month) (5:6:4:3:2) 40,000 10,000 12,000 8,000 6,000 4,000
Insurance Value of Assets 20,000 5,000 6,000 4,000 3,000 2,000
Rent & Rates Area
56,000 16,000 16,000 12,000 8,000 4,000
Meal No. of Employees
Charges 60,000 18,000 24,000 6,000 8,000 4,000
4,60,000 1,26,000 1,48,000 56,000 90,000 40,000

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Maintenance
Department - 45,000 27,000 18,000 Nil
Stores
Department - 16,000 16,000 8,000 Nil
Total
Overheads 4,60,000 1,87,000 1,91,000 82,000

3. (a) What are the Direct Expenses as defined in CAS-10 (Limited Revision 2017)? Also
discuss the general principles of its measurement as per CAS-10. (any five only) 6

(b) The net profit of X Ltd., appeared at Rs. 41,800 as per financial records for the year
ending 31st March, 2018. A scrutiny of the figures from both the sets of accounts
revealed thefollowing facts:
Rs.
Works overhead under-recovered in costs 1,500
Administrative overheads over-recovered in costs 850
Depreciation charged in financial accounts 5,600
Depreciation recovered in costs 6,250
Interest on investments not included in costs 3,000
Loss due to obsolescence charged in financial accounts 2,850
Income tax reserve made in financial accounts 20,150
Bank interest and transfer fee credited in financial books 370
Stores adjustment (credit) in financial books 230
Value of opening stock in : Cost accounts 24,800
: Financial accounts 26,300
Value of closing stock in : Cost accounts 25,000
: Financial accounts 23,000
Interest charged in cost accounts 2,000
Imputed rent charged in cost accounts 1,000
Goodwill written off 5,000
Loss on sale of furniture 600
Selling and distribution expenses not charged in cost accounts 10,000
Donations to Prime Minister's Relief Fund 5,100
Transfer to Debenture Redemption Fund 9,000
Transfer to Dividend Equalisation Fund 20,500

Required:
Prepare a statement showing the reconciliation statement and find out the profit as
per costAccounts. 9

Answer:

3. (a) Direct Expenses : As per CAS - 10 ( Limited Revision 2017), Direct Expenses are the
“Expenses relating tomanufacture of a product or rendering a service, which can be
identified or linked with the cost object other thandirect material cost and direct
employee cost.”

General Principles of Measurement: (Any five points)

(i) Identification of direct expense shall be based on traceability in an economically
feasible manner.
(ii) Direct expenses incurred for bought out resources shall be determined at invoice
price including all taxes and duties and any other expenditure directly attributable
thereto net of trade discounts, taxes and duties refundable or to be credited.
(iii) Direct expenses paid/incurred in lump-sum or which are in the nature of onetime
payment shall beamortized on the basis of estimated output or benefit to be
derived from such expenses.
(iv) Finance cost incurred in connection with selfgenerated or procured resources shall
not form part of thedirect expenses.

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

(v) Any subsidy/grant/incentive or any amount received or receivable with respect

to any direct expensesshall be reduced for ascertainment of the cost of the cost
object.
(vi) Penalties/damages paid to statutory authorities or other third parties shall not form
part of the directexpenses.
(vii) Any change in the cost accounting principles applied for measurement of the
direct expenses should bemade only if it is required by law or for compliance with
the requirements of a CAS or a change wouldresult in a more
appropriatepreparation or presentation of cost statement of the organization.
(viii)Credit/recoveries relating to direct expenses if material and quantifiable shall be
deducted to arrive at thenet direct expenses.
(ix) Any abnormal portion of direct expenses which is material and quantifiable shall
not form part of thedirect expenses.

(b)
Reconciliation Statement

Particulars Rs. Rs.

Profit as per Financial Accounts 41,800
Add:
Works Overhead under-recovered in Cost Accounts 1,500
Expenses and losses debited in Financial Accounts but excluded from Cost
Accounts:
Income Tax Reserve 20,150
Loss on sale of Furniture 600
Loss due to obsolescence 2,850
Goodwill written off 5,000
Selling and Distribution expenses not charged in Cost Accounts 10,000
Donation to Prime Minister’s Relief Fund 5,100
Transfer to Debenture Redemption Fund 9,000
Transfer to Dividend Equalisation Fund 20,500
Under valuation of Opening Stock in Cost Accounts 1,500
Over valuation of Closing Stock in Cost Accounts 2,000 78,200
1,20,000
Less:
Administrative Overheads over-recovered in Cost Accounts 850
Depreciation over-charged in Cost Accounts 650
Incomes and gains credited in Financial books but not shown in Cost
Accounts:
Interest on Investments 3,000
Bank interest and transfer fees 370
Stores adjustments 230
Imputed rent charged in Cost Accounts 1,000
Interest charged in Cost Accounts 2,000 8,100
Profit as per Cost Accounts 1,11,900

4. (a) The following data are available from the books and records of VEEMYES Ltd. for the
month of November 2017.
Direct Labour cost : Rs. 20,000 (125 % of factory overheads)

Inventory accounts show the following figures:

November 1 November 30
Rs. Rs.
Raw materials 10,000 20,000
Work in progress 8,000 4,000
Finished goods 10,000 5,000
Selling expenses 15,000
Office expenses 10,000

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Sales 1,25,000
The company maintains a profit of 25% on cost.
You are required to prepare a cost sheet for the month of November 2017 with all
elements. 8

(b) CBA Ltd., manufactures certain grades of products known as M, B1 and B2. In course of
manufacture of product M (main product), by-products- B1 and B2 emerge. The joint
expenses of manufacture amount to Rs. 2,37,600.

All the three products are processed further after separation and sold as per details
given below:
Product – M
(By Products)
Product – B1 Product – B2
Sales (Rs.) 2,00,000 1,20,000 80,000
Cost incurred after separation (Rs.) 20,000 15,000 10,000
Profit as percentage on sales 25 20 15

Total fixed selling expenses are 10% of total cost of sales which are apportioned to
the three products in the ratio of 20:40:40.

Required:
(i) Prepare a statement showing the apportionment of joint costs to the products (M,
B1 and B2)
(ii) If the product B1 (by product) is not subject to further processing and is sold at the
point of separation, for which there is a market at Rs.1,00,440 without incurring
any selling expenses, would you advise its disposal at this stage? Show the workings.
7

Answer:

4. (a)
Statement of Cost and Profit

Particulars Amount in Rs.

Opening Stock of Raw Materials 10,000
Purchase of Raw Materials 40,000
50,000
Less: Closing Stock of Raw Materials 20,000
Cost of Materials consumed 30,000
Add: Direct Labour Cost 20,000
Prime Cost 50,000
Add: Factory Overheads 16,000
66,000
Add: Opening Stock of Work-in –Progress 8,000
74,000
Less: Closing Stock of Work-in-Progress 4,000
Factory Cost 70,000
Add: Office Expenses 10,000
Cost of Production 80,000
Add: Opening Stock of Finished Goods 10,000
90,000
Less: Closing Stock of Finished Goods 5,000
Cost of Goods sold 85,000
Add: Selling Expenses 15,000
Total Cost 1,00,000
Add: Profit 25,000
Sales 1,25,000

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Workings: Calculation of purchase of raw materials

Details Amount in Rs.
Sales 1,25,000
Less: Profit 25,000
Total Cost 1,00,000
Less: Selling Expenses 15,000
Cost of Goods Sold 85,000
Add: Closing Stock of Finished Goods 5,000
90,000
Less: Opening Stock of Finished Goods 10,000
Cost of Production 80,000
Less: Office Expenses 10,000
Factory Cost 70,000
Add: Closing Stock of Work-in-Progress 4,000
74,000
Less: Opening Stock of Wok-in-Progress 8,000
66,000
Less: Factory Overheads 16,000
Prime Cost 50,000
Less: Direct Labour Cost 20,000
Cost of Raw Materials consumed 30,000
Less: Opening Stock of Raw Materials 10,000
20,000
Add: Closing Stock of Raw Materials 20,000
Purchase of Raw Materials 40,000

(b) (i) Statement of Apportionment of Joint Cost

Particulars Total Product By-Products

M B1 B2
Rs. Rs. Rs. Rs.
Sales 4,00,000 2,00,000 1,20,000 80,000
Less: Profit 86,000 50,000 24,000 12,000
Cost of Sales 3,14,000 1,50,000 96,000 68,000
Less: Selling & Distribution Expenses
(10% of Rs. 3,14,000 in the Ratio 20:40:40) 31,400 6,280 12,560 12,560
Cost of Production 2,82,600 1,43,720 83,440 55,440
Less: After separation Cost 45,000 20,000 15,000 10,000
Joint Cost 2,37,600 1,23,720 68,440 45,440

(ii) By product B1 earns Rs. 24,000 as profit after separation

Profit before separation = Rs.1,00,440–Rs. 68,440 = Rs. 32,000
If By product B1 is sold before further processing, then the profit of the by product
may be increased by Rs. (32,000 - 24,000) = Rs. 8,000.
Hence it is advisable to sell the product B1 at the point of separation.

5. (a) JANATA TRANSPORT LTD. a Transport Company is running 4 buses between two towns
which are 50 kms. away. Seating capacity of each bus is 40 passengers. The following
information is obtained from its books for November, 2017:
Particulars Rs.
Wages of drivers, conductors and cleaners 24,000
Salaries of office and supervisory staff 10,000
Diesel, oil and other lubricants 40,000
Repairs and maintenance 8,000
Taxes, insurance etc. 16,000
Depreciation of buses 26,000

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Interest and other charges 20,000

Actual passengers carried were 75% of the seating capacity. All the 4 buses ran on all
the days of the month. Each bus made one to and fro round trip per day.
Prepare the Operating Cost Statement and determine the cost per passenger km. for
each bus. 8

(b) A contractor, who prepares his accounts on 31st March each year, commenced a
Contract No. 220 on 1st July, 2016. The following information is revealed from his costing
records on 31st March, 2017:
Particulars (Rs.)
Materials sent to site 2,51,000
Labour 5,65,600
Foreman's salary 81,300

A machine costing Rs.2,60,000 remained in use on site for 146 days. Its working life is
estimated at 7 years and final scrap value at Rs. 15,000. A supervisor is paid Rs. 8,000
per monthand has devoted one half of his time on the contract. All other expenses
amount to Rs. 1,36,500. Materials at site on 31st March, 2017 cost Rs. 35,400. The
contract price is Rs. 20,00,000. On 31st March, 2017 two-third of the contract was
completed, however, the architect gave certificate only for 50% of the contract price
and Rs. 7,50,000 had so far been paid on account.

Prepare Contract Account and state how much profit or loss should be included on
31stMarch, 2017 in financial accounts. 7

Answer:

5. (a) Operating Cost Statement

Particulars Amount in Rs.

(A) Fixed Costs or Fixed Charges:
Wages of Drivers, Conductors and Cleaners 24,000
Salary of Office and Supervisory Staff 10,000
Taxes, Insurance etc. 16,000
Interest and other charges 20,000
Depreciation of buses 26,000
Total Fixed Costs 96,000
(B) Variable Costs or Running Charges:
Diesel, Oil and other Lubricants 40,000
Repairs and Maintenance 8,000
Total Variable Costs or Running Charges 48,000
(C) Total Operating Charges or Cost (A + B) 1,44,000
(D) Effective Passenger kms. 3,60,000
(E) Cost per Passenger km. (C/D) 0.40
Note: Depreciation can also be shown as Variable Cost or Running Charges as per study
module.
Working Note:
Calculation of Effective Passenger kms.:
kms. in one round trip = 50 x 2 = 100 kms
Passenger kms.= Buses x Trip kms. x Trips x Days x Passengers x Capacity
= 4 x 100 x 1 x30 x 40 x75%
= 3,60,000 Passenger kms.
(b)
Working Notes:
(i) Calculation of Depreciation on Machine:
Cost of Machine Rs. 2,60,000
Less: Scrap Value Rs. 15,000
Cost of Machine to be written off Rs. 2,45,000

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Depreciation of 1 Year = Rs. 2,45,000/7 = Rs. 35,000

Depreciation for 146 days = Rs. 35,000 (146/365) = Rs.14,000
(ii) Calculation of Cost of Work Uncertified:
rd
Cost of 2/3 completed work = Rs. 10,49,000
Total Cost of completed Contract = Rs. 10,49,000× 3/2 = Rs. 15,73,500
Part of uncertified work = 2/3 – ½ = 1/6
Therefore, Cost of uncertified work = Rs. 15,73,500× 1/6 = Rs. 2,62,250
(iii) Profit Transferred to Profit and Loss Account:
7,50,000
Notional Profit × 2/3 × = Rs. 1,06,625
10,00,000

Contract Account
st
Dr. (for the year ended 31 March, 2017) Cr.
Particulars Rs. Particulars Rs.
To Materials 2,51,000 By Materials at site 35,400
To Labour 5,65,600 By Balance c/d (Total Cost) 10,49,000
To Foreman’s Salary 81,300
To Supervisor’s Salary
1
(Rs. 8,000 × × 9) 36,000
2
To Depreciation on Machine 14,000
To other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress:
To Notional Profit c/d 2,13,250 Certified Rs.
10,00,000
Uncertified Rs. 12,62,250
2,62,250
12,62,250 12,62,250
To profit & Loss Account 1,06,625 By Notional Profit b/d 2,13,250
To Work-in-Progress A/c
(Reserve) 1,06,625
2,13,250 2,13,250

6. (a) ANKIT LTD. a manufacturing Company which produces three products furnishes the
following information for the year 2016-17:
Particulars Products
A B C
Selling Price (per unit) Rs. 200 Rs. 150 Rs. 100
Profit Volume Ratio 10% 20% 40%
Raw Material content as a % of Variable Cost 50% 50% 50%
Maximum Sales Potential (units) 40,000 25,000 10,000

Fixed costs are estimated at Rs. 12 lakhs. The firm uses same raw material in all the
three products. Raw material is in 'Short Supply'. The firm has a quota for the supply of
raw materials of the value of Rs. 36 lakhs for the year 2016-17 for the production of
three products to meet sales demand.

Required:
Determine the optimal product mix and ascertain the maximum profit therefrom. 8

(b) The following figures are obtained from the records of P. Ltd.:
2015-16 (Rs.) 2016-17
(Rs.)

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Sales 80,000 1,00,000

Net Profit 10,000 16,000

Required:
Calculate the following:
(i) Profit Volume Ratio
(ii) Break Even Point
(iii) Profit or loss at sales of Rs. 40,000
(iv) Sales required to earn a profit of Rs. 22,000
(v) Margin of Safety if sales isRs. 55,000 7

Answer:

6. (a) Marginal Cost Statement

Particulars Product
A (Rs.) B (Rs.) C (Rs.)
Selling Price (SP) 200 150 100
Less: Variable Cost (VC) = SP -(SP × P/V Ratio) 180 120 60
Contribution per Unit (SP –VC) 20 30 40
Contribution per Key-Factor {C/KF(50% of VC)} 0.22 0.50 1.33
Ranking III II I
Units Produced 20,000 25,000 10,000
(18,00,000/90) (Maximum) (Maximum)
Raw Material used (Rs.) 18,00,000 15,00,000 3,00,000
(Rs.36,00,000 – (25,000 × (10,000 ×
Rs.18,00,000) Rs.60) Rs.30)

Optimal Product Mix:

Product A 20,000 units (From remaining raw material)
Product B 25,000 units (Maximum)
Product C 10,000 units (Maximum)

Calculation of Profit
Particulars (Rs.)
Product A 20,000 units x Rs. 20 (C per unit) 4,00,000
Product B 25,000 units x Rs. 30 7,50,000
Product C 10,000 units xRs. 40 4,00,000
Total Contribution 15,50,000
Less : Fixed Cost 12,00,000
Maximum Profit 3,50,000

(b) (i) Profit Volume Ratio:

P/V Ratio = (Change in Profit / Change in Sales) x 100
= (Rs. 6,000 / 20,000)* x 100 = 30%
Sales (Rs.) Profit (Rs.)
* 2016-17 1,00,000 16,000
2015 -16 80,000 10,000
20,000 6,000

(i) Break Even Point (BEP):

BEP = Sales× P/V Ratio (Contribution) = Fixed Cost (FC) + Profit or,
Rs. 80,000 × 30% = Fixed Cost + Rs. 10,000 or,
Rs. 24,000 = Fixed Cost + Rs. 10,000 Or Fixed Cost =Rs. 14,000
Or
Rs. 1,00,000× 30% =FC + Rs. 16,000 or,
Rs. 30,000 =FC + Rs.16,000 Or FC = Rs.14,000
Now, BEP = Sales × P/V Ratio = FC or, Sales× 30% = Rs. 14,000 or BEP = Rs. 46,667

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Or, BEP Sales = Fixed Cost/ (P/V Ratio) = Rs.14,000/0.30 =Rs.46,667

(ii) Profit or Loss at Sales of Rs. 40,000:
We know that : Sales × P/V Ratio = Fixed Cost + Profit
∴ Rs. 40,000 × 30% = Rs. 14,000 + Profit or,
Rs. 12,000 = Rs. 14,000 + Profit or Profit = ( - ) Rs. 2,000
When Sales are Rs. 40,000, loss is Rs. 2,000.
(iii) Sales required to earn a Profit of Rs. 22,000:
We know that: Sales × P/V Ratio = Fixed Cost + Profit or,
Sales × 30% =Rs.14,000 + Rs. 22,000 or Sales = Rs. 1,20,000
(iv) Margin of Safety if Sales is Rs.55,000:
Margin of Safety (MS) = Sales at Activity Level – Break Even Sales
= Rs. 55,000 – Rs. 46,667 orRs. = Rs.8,333

7. (a) The standard cost card of A & Co. shows the following costs:
Material cost - 2 kg @ Rs. 2.50 each Rs. 5.00 per unit
Wages - 2 hours @ 50 paise each Re.1.00 per unit

The actual data from business operations are as follows:

Production 8,000 units

Actual total cost of production:

Material cost - 16,500 kg @ Rs. 2.40 each Rs. 39,600
Wages -18,000 hours @ 40 paise each Rs. 7,200

Calculate the following variances:

(i) Material Cost Variance (MCV);
(ii) Material Price Variance (MPV);
(iii) Material Usage Variance (MUV);
(iv) Labour Cost Variance (LCV);
(v) Labour Rate Variance (LRV);
(vi) Labour Efficiency Variance (LEV). 8

(b) Summarised below are the revenue and expenditure figures of AB Ltd. for the month
of March to August,2017:
Month Sales (Rs.) Purchases (Rs.) Wages (Rs.) Expenses (Rs.)
March 6,50,000 4,00,000 1,20,000 50,000
April 7,00,000 4,80,000 1,50,000 50,000
May 7,50,000 4,50,000 1,50,000 60,000
June 8,00,000 4,80,000 1,80,000 60,000
July 8,20,000 4,00,000 1,80,000 80,000
August 8,90,000 5,00,000 2,00,000 80,000

The following further information is available:

(i) 10% Purchases and sales are on cash basis.
(ii) Advance payment of income tax in August, 2017 Rs. 50,000.
(iii) Plant purchased and price to be paid in June, 2017 Rs. 1,00,000.
(iv) Time lag-
Credit sales 2 months
Credit purchases 1 month
Wages ½month
Expenses ½month

Required:
Prepare a Cash Budget for 3 months starting on 1st June, 2017 when cash balance is
Rs. 2,00,000. 7

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Answer:

7. (a)
Working Notes:
Standard Quantity for actual output = 8,000 Units × 2 kg. = 16,000 kg.
Standard Hours for actual output = 8,000 Units × 2 hours = 16,000 hours
Standard Cost of Material = SQ × SP = 16,000 kg.× Rs.2.50 = Rs. 40,000
Actual Cost of Material AQ × AP = 16,500 kg. × Rs.2.40 = Rs. 39,600
Standard Cost of Wages = SH × SR = 16,000 hours × Re.0.50 = Rs. 8,000
Actual Cost of Wages = AH × AR = 18,000 hours × Re. 0.40 = Rs. 7,200
Material Variances:
(i) MCV = TSC – TAC = Rs. 40,000 – Rs.39,600 = Rs. 400(F)
(ii) MPV = AQ(SP – AP) =16,500 kg. (Rs.2.50 – Rs.2.40) = Rs. 1,650 (F)
(iii) MUV = SP(SQ – AQ) = Rs. 2.50(16,000kg. – 16,500 kg.) = Rs. 1,250(A)
Labour Variances:
(iv) LCV = SC – AC = Rs. 8,000 – Rs.7,200 = Rs. 800(F)
(v) LRV = AH (SR –AR)= 18,000hours ( Re.0.50 – Re. 0.40) = Rs. 1,800(F)
(vi) LEV = SR(SH –AH) = Re.0.50 (16,000 hours – 18,000 hours)= Rs. 1,000 (A)

(b)
Working Notes:
(i) Collection from Debtors:
June (Rs.) July (Rs.) August (Rs.)
Sales for April, May and June respectively 7,00,000 7,50,000 8,00,000
Less: 10% for Cash Sales 70,000 75,000 80,000
Credit Sales (Collection from Debtors) 6,30,000 6,75,000 7,20,000

(ii) Payment to Creditors:

June (Rs.) July (Rs.) August (Rs.)
Purchases for the preceding month 4,50,000 4,80,000 4,00,000
Less: 10% for Cash Purchases 45,000 48,000 40,000
Credit Purchases (Payment to Creditors) 4,05,000 4,32,000 3,60,000

Cash Budget
(for June to August, 2017)
Particulars June (Rs.) July (Rs.) August (Rs.)
Cash Balance 2,00,000 1,32,000 1,67,000
Receipts:
Cash Sales 80,000 82,000 89,000
Collection from Debtors 6,30,000 6,75,000 7,20,000
Total Receipts (A) 9,10,000 8,89,000 9,76,000
Payments:
Cash Purchases 48,000 40,000 50,000
Payment to Creditors 4,05,000 4,32,000 3,60,000
Wages 1,65,000 1,80,000 1,90,000
Expenses 60,000 70,000 80,000
Plant 1,00,000
Advance Income Tax 50,000
Total Payments (B) 7,78,000 7,22,000 7,30,000
Cash Balance (A – B) 1,32,000 1,67,000 2,46,000

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

Answer:

8. (a) Cost Control vs.Cost Reduction : Both cost control and cost reduction are efficient tools
for management buttheir concepts and procedure are widely different. The main
differences are as follows:
Cost Control Cost Reduction
(i) Cost control Costreduction represents the achievement
representseffortsmadetowards in reduction of cost.
achieving target or goal.
(ii) The Process of cost control is to Cost reduction is not concerned with
setup a target, ascertain the maintenance of performance according to
actual performance and standards.
compare it with the target,
investigate the variances, and take
remedial measures.
(iii) Cost control assumes the existence Cost reduction assumes the existence of
of standards or norms which are concealed potential savings in standards or
not challenged. norms which are therefore subjected to a
constant challenge with a view to
improvement by bringing out savings.
(iv) Cost control is a preventive Cost reduction is a corrective function. It
function. Costs are optimized operates even when an efficient cost
before they are incurred. control system exists. There is room for
reduction in the achieved costs under
controlled conditions.
(v) Cost control lacks dynamic Cost reduction is a continuous process of
approach. analysis by various methods of all the
factors affecting costs, efforts and functions
in an organization. The main stress is upon
the why of a thing and the aim is to have
continual economy in costs.

(b) The main factors attributable for emerging cost accounting as a specialized discipline
are as under:(Any Five Factors)
(i) Limitations placed on financial accounting.
(ii) Improved cost consciousness.
(iii) Rapid industrial development after industrial revolution and World wars.
(iv) Growing competition among the manufacturers.
(v) To control galloping price rise, the cost of computing the precise cost of product /
service.
(vi) To control cost, several legislations passed throughout the World and in India too,
such as EssentialCommodities Act, Industrial Development and Regulation Act
(IDRA), etc.

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 SUGGESTED ANSWERS TO QUESTIONS_SYL2016_JUNE2018_PAPER-8

(c) Economic Order Quantity (EOQ): EOQ is the size of the order for which both ordering
and carrying costsare minimum.

Assumptions underlying EOQ:

(i) Ordering cost per order and carrying cost per unit per annum are known and they
are fixed.
(ii) Anticipated usage of material in units in known.
(iii) Cost per unit of the material is constant and is known as well.
(iv) The quantity of material ordered is received immediately i.e. lead time is zero.

(d) Principal Budget Factor:

Budgets cover all the functional areas of the organisation. For the
effectiveimplementation of the budgetarysystem, all the functional areas are to be
considered which are interlinked. Because of these interlinks, certainfactors have the
ability to affect all other budgets. Such factor is known as principal budget factor.

Principal budget factor is the factor the extent of influence of which must first be
assessed in order to ensurethat the functional budgets are reasonably capable of
fulfillment. A principal budget factor may be lack ofdemand, scarcity of raw material,
non-availability of skilled labour, inadequate working capital etc. Forexample, an
organisation has the capacity to produce 2,500 units per annum. But the production
department isable to produce only 1,800 units due to non-availability of raw materials.
In this case, non-availability of rawmaterials is the principal budget factor (limiting
factor). If the sales manager estimates that he can sell only1,500 units due to lack of
demand, then lack of demand is the principal budget factor. This concept is also
known as key factor, or governing factor. This factor highlights the constraints
withinwhich the organization functions.

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 Suggested Answer_Syl16_Dec2018_Paper 8

INTERMEDIATE EXAMINATION
GROUP I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER 2018

Paper-8: COST ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
All sections are compulsory. Each section contains instructions regarding
the number of questions to be answered within the section.
All working notes must form part of the answers.
Wherever necessary, candidates may make appropriate assumptions and clearly state them.
No present value factor table or other statistical table will be provided in
addition to this question paper.

Section A
Section A contains Question Number 1. All parts of this question are compulsory.

1. Answer the following questions:

(a) Choose the correct answer from the given alternatives (you may write only the Roman
numeral and the alphabet chosen for your answer): 1×10=10
(i) Joint Cost is suitable for
(a) Oil Industry
(b) Fertilizer Industry
(c) Ornament Industry
(d) Infrastructure Industry
(ii) Cost of idle time arising due to non-availability of raw materials is
(a) recovered by inflating the raw materials cost.
(b) recovered by inflating the wage rate.
(c) charged to factory overheads.
(d) charged to costing profit and loss account.
(iii) Charging to a cost center those overheads that result solely for the existence of that
cost center is known as
(a) Allotment

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 Suggested Answer_Syl16_Dec2018_Paper 8
(b) Allocation
(c) Absorption
(d) Apportionment
(iv) Standard deals with the cost of service cost center is
(a) CAS-9
(b) CAS-13
(c) CAS-16
(d) CAS-22
(v) In Reconciliation Statement income shown only in financial accounts is
(a) added to financial profit.
(b) deducted from financial profit.
(c) ignored.
(d) deducted from costing profit.
(vi) The most suitable cost system where the products differ in type of material and work
performed is
(a) Process Costing
(b) Batch Costing
(c) Job Costing
(d) Operating Costing
(vii) In a process 10000 units are introduced during a period. 10% of input is normal loss.
Closing work-in-process 70% complete is 1500 units. 7500 completed units are
transferred to next process. Equivalent production for the period is
(a) 9550 units
(b) 9000 units
(c) 8550 units
(d) 8500 units
(viii) The sales and profit of a firm for the year 2016 are Rs.1,50,000 and Rs.20,000 and
for the year 2017 are Rs.1,70,000 and Rs.25,000 respectively. The P/V Ratio of the
firm is
(a) 15%
(b) 20%
(c) 25%
(d) 30%
(ix) Standard quantity of material for one unit output is 10 kg @ Rs.8 per kg. Actual
output during a given period is 600 units. The standard quantity of material for
actual output is
(a) 1200 kg
(b) 6000 kg
(c) 4800 kg
(d) 48000 kg
(x) Which of the following is a long-term Budget?

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 Suggested Answer_Syl16_Dec2018_Paper 8
(a) Master Budget
(b) Production Budget
(c) Flexible Budget
(d) Capital Budget

(b) Match the statement in Column I with the most appropriate statement in Column II
(You may opt to write only the Roman numeral and the matched alphabet instead of
copying contents into the Answer Books): 1×5=5
Column I Column II
(i) Cash discount allowed (A) Joint Cost
(ii) Escalation Clause (B) Imputed Cost
(iii) CAS-19 (C) Direct Expenses
(iv) Notional Cost (D) Not shown is cost sheet but debited to
profit and loss account
(v) Zero base budgeting (E) Sunk Cost
(F) Contract Costing
(G) Decision Package
(H) Variable Cost

(c) State whether the following statements are ‘True’ or ‘False’ (You may write only the
Roman numeral and whether ‘True’or ‘False’ without copying the statements into the
Answer Book): 1×5=5
(i) Multiple costing is suitable for banking industry.
(ii) Slow moving materials have a high turnover ratio.
(iii) Cost ledger control account makes the cost ledger self-balancing.
(iv) There is inverse relationship between batch size and carrying costs.
(v) Marginal costing follows the identifiability wise classification of costs.

(d) Fill in the blanks (you may write only the Roman numeral and the content filling the blanks):
1×5=5
(i) ________ is discount allowed to the bulk purchaser.
(ii) CAS _______ stands for cost of utilities.
(iii) Under integrated accounting system, the accounting entry for payment of wages is
to debit ________ and to credit cash account.
(iv) If the actual loss in a process is less than the normal loss, the difference is known as
_________
(v) The principal budget factor for consumer goods manufacturer is normally
__________.
Answer: 1 (a)
(i) (a)
(ii) (d)
(iii) (b)
(iv) (b)

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 Suggested Answer_Syl16_Dec2018_Paper 8
(v) (b)
(vi) (c)
(vii) (c)
(viii) (c)
(ix) (b)
(x) (d)
Answer: 1 (b)
Column I Column II
(i) Cash discount allowed (D) Not shown in cost sheet but debited to
profit and loss account
(ii) Escalation Clause (F) Contract Costing
(iii) CAS-19 (A) Joint Cost
(iv) Notional Cost (B) Imputed Cost

(v) Zero base budgeting (G) Decision Package

Answer: 1 (c)
(i) False
(ii) False
(iii) True
(iv) False
(v) False
Answer: 1 (d)
(i) Quantity Discount/ Trade Discount/ Cash Discount
(ii) CAS – 8
(iii) Wages Control Account
(iv) Abnormal gain/Abnormal Profit
(v) Sales Demand/Market Demand / Lack of Demand

Section - B
Answer any five questions from question numbers 2 to 8.
Each question carries 15 marks. 15×5=75
2. (a) ZEDYAAH TUBES LTD. manufactures a special product, which requires ZEDY. The
following particulars were collected for the year 2017-18:
(i) Monthly demand of Zedy : 7500 units
(ii) Cost of placing an order : Rs.500
(iii) Re-order period : 5 to 8 weeks
(iv) Cost per unit : Rs.60
(v) Carrying cost % p.a. : 10%
(vi) Normal usage : 500 units per week

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 Suggested Answer_Syl16_Dec2018_Paper 8
(vii) Minimum usage : 250 units per week
(viii) Maximum usage : 750 units per week

Required:
Calculate the following:
(i) Re-order quantity
(ii) Re-order level
(iii) Minimum stock level
(iv) Maximum stock level
(v) Average stock level 7

(b) SONAX LTD. has three Production Departments and two Service Departments. The
overhead distribution sheet showed the following totals:
`
Production Departments:
A 25,000
B 31,000
C 28,000
Service Departments:
S 8,000
T 13,900
Required:
Using the following bases of apportionment, distribute the cost of service departments
under Simultaneous Equation Method:
A B C S T
Department S 30% 20% 40% - 10%
Department T 40% 15%, 25% 20% -
8
Answer: 2 (a)
(i) Re-order Quantity 2AO 2 × 7,500 ×12 × 500
= = = 3,873 units.
C 60 ×10%
(ii) Re-order Level = Maximum Re-order Period x Maximum Usage
= 8 weeks × 750 unite per week = 6,000 units
(iii) Minimum Stock Level = Re-order Level - {Normal Usage × Normal Re-
order Period}
= 6,000 - (500 × 6.5) = 2,750 units
(iv) Maximum Stock Level = Re-order Level + Re-order Quantity -
(Minimum Usage × Minimum Re-order Period)
= 6,000 + 3,873 - (250 × 5) = 8,623 units.
(v) Average Stock Level 1
= (Minimum Stock Level + Maximum Stock
2
Level)
= 1
(2,750 + 8,623) = 5,687 units.
2
OR
1
Minimum Level + Re-order Quantity =
2
2,750 +1,937 = 4,687 units

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 Suggested Answer_Syl16_Dec2018_Paper 8

Answer: 2 (b)
Let x be the expense of Department S
and y be the expense of Department T
1
Then x = Rs. 8,000 + th of y (20% of y)
5

1
Y = Rs.3,900 + th of x
10
Putting the value of x, we get:
1 1
y = Rs.13,900 + of (8,000 + of y)
10 5

1
Or, y = Rs.13,900 + Rs.800 + y
50

1
Or, y = Rs.14,700 + y , or 50 y = 7,35,000 + y
50

7,35,000
Or, 50y - y = Rs. 7,35,000 or, y =Rs. = Rs.15,000
49
Putting the value of y we get
1 1
x = Rs 8,000 + th of y, or, x = Rs. 8,000 + of Rs.15,000
5 5
or, x = Rs.8,000 + Rs.3,000, or x = Rs.11,000
Total expenses of Dept. S = Rs.11,000
Total expenses of Dept. T = Rs.15,000
Overhead Distribution Summary
Particulars A B C S T
Rs. Rs. Rs. Rs. Rs.
Total as per
Primary Distribution 25,000 31,000 28,000 8,000 13,900
Distribution of Expenses of Dept. S in the
ratio 3:2:4:1 3,300 2,200 4,400 -11,000 1,100
Distribution of Expenses of
Dept. T in the ratio 8:3:5:4 6,000 2,250 3,750 3,000 -15,000
34,300 35,450 36,150 - -

3. (a) What are the various types of materials included in the Material Cost as dealt with by
CAS-6 relating to Cost Accounting Standard on Material Cost?
State the objective and scope of the Standard. 6

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 Suggested Answer_Syl16_Dec2018_Paper 8
(b) The following information is available from the financial books of PQR Ltd. having a
normal production capacity of 60000 units for the year ended 31st March, 2018:
(i) Sales Rs.10,00,000 (50000 units)
(ii) There was no opening and closing stock of finished units.
(iii) Direct material and direct wages costs were Rs.5,00,000 and Rs.2,50,000
respectively.
(iv) Actual factory expenses were Rs.1,50,000 of which 60% are fixed.
(v) Actual administrative expenses were `Rs.45,000 which are completely fixed.
(vi) Actual selling and distribution expenses were Rs.30,000 of which 40% are fixed.
(vii) Interest and dividends received Rs.15,000
You are required to
(A) find out profit as per financial books for the year ended 31st March, 2018.
(B) prepare the cost sheet and ascertain the profit as per cost accounts for the year
ended 31st March, 2018 assuming that the indirect expenses are absorbed on the
basis of normal production capacity.
(C) prepare a statement reconciling profits shown by financial and cost books. 9

Answer: 3 (a)
CAS-6: Cost Accounting Standard on Material Cost [Limited Revision 2017]
This standard deals with principles and methods of determining the Material Cost. Material for
the purpose of this standard includes Raw Materials, Process Materials, Additives,
manufactured / bought out Components, Sub-assemblies, Accessories, Semi-finished Goods,
Consumable Stores, Spares and other indirect Materials.
This standard deals with the principles and methods of classification, measurement and
assignment of Material Cost, for determination of the Cost of Product or Service, and the
presentation and disclosure in Cost Statements.
Objective
The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Material Cost with reasonable accuracy.
Scope
This standard should be applied to Cost Statements which require classification,
measurement, assignment, presentation and disclosure of Material Costs including those
requiring attestation.
Answer: 3 (b)
(a) Profit and Loss Account for the year ended 31st March, 2018
Particulars Rs. Particulars Rs.
To Direct Materials 5,00,000 By Sales (50,000 units) 10,00,000
To Direct Wages 2,50,000 By Interest and Dividends 15,000
To Factory Expenses 1,50,000
To Administration Expenses 45,000
To Selling & Distribution Expenses 30,000
To Profit 40,000
10,15,000 10,15,000

(b) Cost Sheet for the year ended 31st March, 2018

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Rs. Rs.
Direct Material 5,00,000
Direct Wages 2,50,000
Prime Cost 7,50,000
Factory Expenses:
Variable 60,000
Fixed (Rs.90,000 × 5/6) 75,000 1,35,000
Works Cost 8,85,000
Administration Expenses (Rs.45,000 × 5/6) 37,500
Cost of Production 9,22,500
Selling & Distribution Expenses:
Variable 18,000
Fixed (Rs.12,000 × 5/6) 10,000 28,000
Cost of Sales 9,50,500
Profit 49,500
Sales 10,00,000

(c) Reconciliation Statement

Rs. Rs.
Profit as per Cost Accounts 49,500
Add : Interest and Dividends received only credited in Financial 15,000
Accounts
64,500
Less :
Factory expenses under-charged in Cost Accounts
(Rs.1,50,000 – Rs.1,35,000) 15,000
Administrative expenses under-charged in Cost
Accounts (Rs.45,000 – Rs.37,500) 7,500
Selling and Distribution Expenses under-charged in Cost
Accounts (Rs. 30,000 – Rs. 28,000) 2,000 24,500

Profit as per Financial Accounts 40,000

4. (a) Z Ltd., manufactured and sold 200 typewriters in the year 2017. Its summarised Trading
and Profit & Loss Account for the year 2017 is as follows:
Total Output (in units) 200
Particulars Rs. Particulars Rs.
To Cost of Material consumed 1,20,000 By Sales 6,00,000
To Direct Wages 1,80,000
To Manufacturing Charges 75,000
To Gross Profit c/d 2,25,000
6,00,000 6,00,000
To Management Expenses 90,000 By Gross Profit b/d 2,25,000
To General Expenses 30,000

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To Rent, Rates & Taxes 15,000
To Selling Expenses 45,000
To Net Profit 45,000
2,25,000 2,25,000

For the year 2018, it is estimated that

(i) The output and sales will be 300 typewriters.
(ii) Price of material will rise by 25% compared to previous year level.
(iii) Wages per unit will rise by 10%.
(iv) Manufacturing charges will increase in proportion to the combined cost of
material and wages
(v) Selling expenses per unit will remain unchanged.
Other expenses will remain unaffected by the rise in output.
Required:
Prepare a Cost Sheet showing the cost at which typewriters will be manufactured in
2018 and give price at which it should by marketed so as to show profit of 10% on
selling price. 8

(b) The following details are extracted from the costing records of EVINIE LTD., an oil mill for
the year ended 31st March, 2018. Purchased 2000 tons of copra for Rs.1,00,000 and
other expenses were as under:
Crushing( Rs.) Refining (Rs.) Finishing (Rs.)
Cost of Labour 10,000 6,000 4,000
Sundry Material 4,000 3,000 2,000
Electric Power 3,000 2,000 1,600
Steam 2,000 2,000 1,500
Repair of Machine 2,000 1,000 500
Cost of Casks — — 7,500

Factory Expenses were Rs.10,000 to be apportioned on the basis of wages. 1700 tons of
crude oil was produced; 1540 tons of oil was refined and finally 1500 tons of oil was
finished for delivery. Realised Rs.2,000 from sale of sacks; Rs.5,000 by sale of 250 tons of
copra residue and Rs.5,100 by sale of 120 tons of by-products in refining process.
Prepare Process Accounts for the year ending on 31st March, 2018. 7
Answer: 4 (a)
Cost Sheet of Z Ltd. For the year 2017
Particulars Total Cost Rs. Cost per unit Rs.
Direct Material 1,20,000 600
Direct Labour 1,80,000 900
Prime Cost 3,00,000 1,500
Add : Factory Overhead (Manufacturing exp.) 75,000 375
Factory Cost 3,75,000 1,875
Add : Office Overhead :
Management Expenses 90,000
General Expenses 30,000
Rent, Rates & Taxes 15,000 1,35,000 675

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Cost of Production 5,10,000 2,550
Add: Selling & Distribution Expenses 45,000 225
Total Cost 5,55,000 2,775
Profit 45,000 225
Selling Price 6,00,000 3,000

Estimate for the year 2018 : Rs.

1. Material Cost per Unit: 600
Add : Expected increase in Price of Material in 2018
(It is 25% compared to year 2017) 150
Expected price of material per unit 750
2. Wages per unit 900
Add : Expected increase @ 10% 90
Expected Wages per Unit 990
3. Manufacturing charges are Rs.375 per Unit and total of Material and
Labour cost is Rs.1,500 per Unit so percentage of manufacturing
expenses to combined Cost of Material and Wages is as follows :
Manufacturing Expenses
= ×100
Material Cost + Labour Cost
375
= ×100 = 25%
1, 500
Manufacturing expenses are 25% of combined Cost of Material and Wages:
25% of Rs.1,740 435

To ascertain the Selling Price to be quoted in the year 2018 the estimated cost sheet for
the year 2018 will be prepared as follows:
Estimated Cost Sheet
for the year 2018
Production = 300 Units
Particulars Total Cost Cost per unit
Rs. Rs.
Direct Material 2,25,000 750.00
Direct Labour 2,97,000 990.00
Prime Cost 5,22,000 1,740.00
Factory Overhead
(25% of Cost of Material & Wages) 1,30,500 435.00
Factory Cost 6,52,000 2,175.00
Office Overhead 1,35,000 450.00
Cost of Production 7,87,500 2,625.00
Selling & Distribution Overhead (300 × Rs.225) 67,500 225.00
Total Cost 8,55,000 2,850.00
Profit (10% of Selling Price or 1/9 of Total Cost) 95,000 316.67
Selling Price 9,50,000 3,166.67

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ALETRNATIVE
An alternative answer with volume multiplier can simplify the solution as follows

PARTICULARS Amount in Rs. Cost Per Unit Rs.

Direct materials (1,20,000*1.5*1.25) 2,25,000 750
Direct Labour (1,80,000*1.5*1.1) 2,97,000 990
Prime Cost 5,22,000 1,740
Manufacturing Charges (75,000/3,00,000)*5,22,000 1,30,500 435
Factory Cost 6,52,500 2,175
Office Overheads:
Management Expenses 90,000
General Expenses 30,000
Rent , Rates & Taxes 15,000 1,35,000 450
Cost of Production 7,87,500 2,625
Selling Expenses (45,000*1.5) 67,500 225
Total Cost 8,55,000 2,850
Profit (1/9 of 8,55,000) 95,000 317
Sales 9,50,000 3,167
Selling price per typewriter (9,50,000/300) 3,166.67 r/o 3,167
Note: Volume multiple is 300/200 =1.5 times

Answer: 4 (b)
Crushing Process Account
Particulars Tons Amount Particulars Tons Amount
Rs. Rs.
To Copra 2,000 1,00,000 By Copra Sacks - 2,000
To Labour 10,000 By Copra Residue 250 5,000
4,000 By Loss in Crushing 50 -
To Sundry Materials
(Balancing Figure)
By Transfer to Refining @ 1,700 1,19,000
To Electric Power
3,000 Rs.70 per ton
To Steam 2,000
To Repairs of Machines 2,000
To Factory Expenses* 5,000
2,000 1,26,000 2,000 1,26,000

Refining Process Account

Particulars Tons Amount Particulars Tons Amount
` Rs.
To Crushing Process a/c 1,700 1,19,000 By Sale of By Products 120 5,100

To Labour 6,000 By Loss in Refining Process 40 -

Balancing Figure)

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To Sundry Materials 3,000 -
To Electric Power 2,000 By Transfer to Finishing
Process @ Rs. 85 per ton 1,540 1,30,900
To Steam 2,000
To Repairs of Machines 1,000

To Factory Expenses* 3,000

1,700 1,36,000 1,700 1,36,000

Finishing Process Account

Particulars Tons Amount Particulars Tons Amount
Rs. Rs.
1,540 1,30,900 By Loss in Finishing 40 -
To Refining Process a/c
Balancing Figure)
To Labour 4,000 By Cost of Production
Transferred to Finished Oil
a/c @ Rs.95 per ton 1,500 1,42,500
To Sundry Materials 2,000
To Electric Power 1,600
To Steam 1,500
To Repairs of Machines 500
To Factory Expenses 2,000
1,540 1,42,500 1,540 1,42,500
To Cost of Production of 1,500 1,42,500 By Total Cost @ Rs. 100 1,500 1,50,000
Finished Oil per Ton
To Cost of Casks 7,500
1,500 1,50,000 1,500 1,50,000

Working Note:
*Factory overhead of Rs. 10,000 is apportioned in the ratio of labour cost, i.e. 5:3:2.

5. (a) GOLDEN TRANSPORT CO. has been given a route 20km. long for running buses. The
company has a fleet of 10 buses each costing Rs.60,000 and having a life of 5 years
without any scrap value.
The following are estimated expenditure and other details:
(i) Insurance charges 3% p. a.
(ii) Annual tax for each bus Rs.3,000
(iii) Total garage charges Rs.4,000 p.m.
(iv) Driver’s salary for each bus Rs.10,000 p. m.
(v) Conductor’s salary for each bus Rs.7,000 p. m.
(vi) Annual repairs to each bus Rs.6,000
(vii) Commission to be shared by the driver and conductor
equally: 10% of the takings
(viii) Cost of stationary Rs.1,500 p. m.
(ix) Manager’s salary Rs.12,000p.m
(x) Accountant’s salary Rs.9,000 p.m.
(xi) Petrol and oil Rs.400 per 100 km

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Each bus will make 3 round trips carrying on an average 40 passengers on each trip.
The bus will run on an average for 25 days in a month.
Assuming 15% profit on takings, Calculate the bus fare to be charged from each
passenger. 8

(b) OMEGA LTD. undertook a contract for Rs.5,00,000 on 1st January, 2017. The company
furnishes the following details for the year ended 31st December, 2017:
Rs.
Materials consumed 1,65,000
Direct Expenses 5,000
Wages 30,000
Materials returned to stores 5,000
Materials stolen from site 10,000
Insurance claim admitted 6,000
Works expenses @ 20% on wages
Office expenses @ 10% on works cost
Materials in hand on 31.12.2017 15,000
Cash received to the extent of 90% of works certified 2,70,000
Cost of work uncertified 11,000
Plant sent to site costing Rs.60,000 with a scrap value of Rs.10,000 and its useful life is 5
years. The plant was used on the contract for 146 days.
Required:
Prepare Contract Account showing therein the cost of materials issued to site and the
amount of profit or loss to be transferred to the Profit & Loss Account. 7
Answer: 5 (a)
Particulars Amount
Rs.
1. Insurance (Rs.60,000 × 3% × 10/12) 1,500
2. Tax (Rs.3,000 × 10/12) 2,500
3. Total Garage charges 4,000
4. Drivers’ salary (Rs.10,000 × 10) 1,00,000
5. Conductors’ salary (Rs.7,000 × 10) 70,000
6. Repairs (Rs.6,000 × 10/12) 5,000
7. Cost of stationary 1,500
8. Manager’s salary 12,000
9. Accountant’s salary 9,000
10. Depreciation (Rs.60,000 × 10/5 × 1/12) 10,000
11. Petrol * (30,000/100) × 400 1,20,000
12. Commission of conductor & driver 4,47,333 × (10/100) 44,733
13. Total Cost 3,80,233
14. (+) Profit @ 15% on takings (4,47,333 × 15/100) 67.100
15. Takings ** 4,47,333

* 1 0 × 2 0 × 3 × 2 × 2 5 = 30,000
**Let ‘X’ be the takings
X = Rs.3,35,500 + (10/100 X) + (15/100 X)

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100 X = Rs. 3,35,50,000 + 25X
X = Rs. 4,47,333
Fare per passenger Km = Rs.4,47,333 / (30,000 × 40) = Re. 0.3727 say Re.0.37

Answer: 5 (b)
Calculation of Cost of Materials issued to site
Rs.
Materials consumed 1,65,000
Add: Materials stolen 10,000
Materials returned to stores 5,000
Materials in hand (31.12.2017) 15,000
1,95,000

Contract Account
for the year ended 31st Dec. 2017
Dr. Cr.
Rs. Rs.
To Materials issued to site 1,95,000 By Materials returned to 5,000
stores
To Direct Expenses 5,000 By Insurance claim A/c 6,000
(Loss of Stock )
To Wages 30,000 By Profit and Loss A/c 4,000
(Stolen Rs. 10,000 – Rs.6,000)
To Works Expenses 20% of wages 6,000 By Materials in hand 15,000
To Office Expenses 10% of Works Cost 21,000 By Cost of Contract 2,31,000
(Note 1) Balancing Figure)
To Depreciation on Plant (Note 2) 4,000
2,61, 000 2,61,000
To Cost of Contract b/d 2,31,000 By Work in Progress :
To Notional Profit 80,000 Work certified 3,00,000
Work uncertified 11,000
3,11,000 3,11,000
To Profit & Loss A/c (Note 3) 48,000 By Notional Profit 80,000
To Profit Reserve 32,000
80,000 80,000

Working Notes:
1. Calculation of works cost
Rs.
Materials consumed 1,65,000
Add: Direct Wages 30,000
Direct Expenses 5,000
Prime Cost 2,00,000
Add: Works expenses 6,000
Deprecation 4,000
2,10,000

2. Calculation of Depreciation on Plant

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60,000 - 10,000 146
Rs. = × = Rs.4,000
5 365

3. Profit to be credited to profit & Loss A/c

2 Cash received
×National Profit ×
3 Work certified
2 2,70, 000
= × 80, 000 × = Rs.48,000
3 3, 00, 000
6. (a) A company budgets for a production of 5 lakh units at a variable cost of Rs.20 each.
The fixed costs are Rs.20 lakh. The selling price is fixed to yield a profit of 25% on cost.
You are required to calculate
(i) P/V Ratio and Break- even point.
(ii) If the selling price is reduced by 20%,
Ascertain:
(A) The effect of price reduction on the P/V Ratio and BEP.
(B) The number of units required to be sold at the reduced selling price to obtain an
increase of 20% over the budgeted profit. 8
(b) AVONA LTD., a toy factory presents the following information for the year ended 31st
March, 2018:
Rs.
Material cost 1,20,000
Labour cost 2,40,000
Fixed overheads 1,20,000
Variable overheads 60,000
Units produced 12,000
Selling Price per Unit 50

The available capacity is a production of 20000 units per year. The firm has an offer for
the purchase of 5000 additional units at a price of Rs.40 per unit. It is expected that by
accepting this offer there will be a saving of rupee one per unit in material cost on all
units manufactured, the fixed overhead will increase by Rs.35,000 and the overall
efficiency will drop by 2% on all production.
State whether offer is acceptable or not. 7

Answer: 6 (a)
Workings:
Statement Showing Unit Sales Price
Particulars Rs.
Budgeted Variable Cost per Unit 20.00
Budgeted Fixed Cost per Unit (Rs.20,00,000 / 5,00,000) 4.00
Total Budgeted Cost per Unit 24.00
Add : Profit (25% on Total Cost) 6.00
Per unit selling price 30.00

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Statement of Budgeted Profit
Particulars Rs.
Budgeted Sales (5,00,000 × Rs.30) 1,50,00,000
Less : Variable Cost (5,00,000 × Rs.20) 1,00,00,000
Contribution 50,00,000
Less : Budgeted Fixed Cost 20,00,000
Budgeted Profit 30,00,000

OR

Budgeted Profit = Contribution (C)per Unit X Total Production Units – Fixed Cost
= {(Rs. 30 – Rs. 20) X 5,00,000} – Rs. 20,00,000 = Rs. 30,00,000
I P/V Ratio = (Contribution/ Sales) X 100 = (50,00,000/1,50,00,000) X 100 =(100/3)%

10 1
Or , P/V ratio = ×100= 33 % (Or 100/3%)
30 3
F 20,00,000
BEP (in units) = = = 2,00,000 units
C per unit 10

F ` 20,00,000
Or , BEP (in Rs.) = = = ` 60,00,000
P/V Ratio 1
33 %
3

NewC ` 24- 20 2
II (a) New P/V ratio = ×100 = ×100 =16 % (or 50/3%)
New SP ` 30 - 6 3

Fixed cost ` 20,00,000

New BEP (in Units) = = = 5,00,000 units
New SP - VC ` 24 - 20

Or , New BEP (in Rs.) = (F/ New P/V ratio) = (20,00,000/50/3%)= 1,20,00,000

(b) Sales units needed to attain 20% more than Budgeted Profit at reduced Selling
Price.
Desired profit = Budgeted Profit + 20% of Budgeted Profit
= 30,00,000 + 6,00,000 = Rs.36,00,000

Fixed costs + Desired profit

Sales (units) required =
Contribution per unit

20,00,000 + 36,00,000
= =14,00,000 units
` 4 per unit

Answer: 6 (b)
Profitability Statement for the year ended31st March, 2018
Particulars Total Rs. Per unit Rs.
Sales (A) 6,00,000 50

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Variable Cost:
Materials 1,20,000 10
Labour 2,40,000 20
Variable overhead 60,000 5
Total (B) 4,20,000 35
Contribution (A) – (B) 1,80,000 15
Less: Fixed overheads 1,20,000 10
Profit 60,000 5

Profitability Statement (17000 units at 85% capacity) → (including 5,000 units special offer)
Rs. Mark/s
Sales
Existing: (12000x Rs.50) 6,00,000
Additional: (5000x Rs.40) 2,00,000
17,000 Units Total (A) 8,00,000 0.5 +0.5
Variable Cost :
Material (17,000 (Rs. 10 – Re. 1) or (17000 x Rs.9) 1,53,000 0.5
Labour (17,000 (Rs. 20 – 2% Drop) or (17000 x 20.40) 3,46,800 0.5
Variable Overhead (17000 xRs. 5) 85,000
Total (B) 5,84,800 0.5
Contribution (A) – (B) 2,15,200 0.5
Less: Fixed Costs (Rs. 1,20,000 + Rs.35,000 increase) 1,55,000 0.5
Profit 60,200 0.5
Analysis: With the acceptance of special offer of 5,000 Units, the Profit is increased by Rs. 200 (i.e.
Rs. 60,200 – Rs. 60,000). Hence, the firm can accept the special offer.

[ Working Notes as under may be shown separately or as shown in above table “Profitability
Statement”]
Rs.
1. Material cost per unit 10
Less : 10% decrease 1
Total 9
2. Labour Cost per unit 20.00
Add : 2% drop in efficiency 0.40
Total 20.40
3. Present Production units 12,000
Add : Addl. Production units 5,000
Total 17,000
4. Present Fixed Cost 1,20,000
Add: Increase 35,000
Total 1,55,000

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Alternative
Labour Cost if taken at Rs.20.41 in the working. An alternative answer with an incremental
approach lead to the same analysis.

PARTICULARS Amount in
Rs.
Sales (5000*40) 2,00,000
Less: Variable Cost:
Direct Materials (DM)(5000*9) 45,000
Direct Labour (DL)(5000*20)/0.98 1,02,041
Variable Overheads (VO/Hs)(5000*5) 25,000
Contribution 27,959
Add :Savings in Materials (12000*1) 12,000
Less: Additional Labour Cost (ADLC) (12000*0.41) 4,920
Less: Increase in Fixed cost 35,000
Net Surplus 39
Decision : It is better to Accept the offer

7. (a) The details regarding the composition and the weekly wage rates of labour force of PB
LTD engaged on a job scheduled to be completed in 30 weeks are as follows:

Category of Workers Standard Actual

No. of Weekly Wage Rate per No. of Weekly Wage
Workers worker (Rs.) Workers Rate per worker
(Rs.)
Skilled 75 60 70 70
Semi-Skilled 45 40 30 50
Unskilled 60 30 80 20

The work is actually completed in 32 weeks.

Calculate the following Labour Variances: 8

(i) Labour Cost Variance (LCV)

(ii) Labour Rate Variance (LRV)
(iii) Labour Efficiency Variance (LEV)
(iv) Labour Revised Efficiency Variance (LREV)
(v) Labour Mix Variance (LMV)

(b) NP LTD produces a standard product. The estimated costs are given below:
Rs.
Raw Materials 10
Direct Wages 8
Direct Expenses 2
Variable Overheads 3

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23

Semi-variable overheads at 100% capacity level (10,000 units) are expected to be

Rs.40,000 and these overheads vary in steps of Rs.2,000 for each change in output of 1,000
units. Fixed overheads are estimated at Rs.50,000. Selling price per unit is expected to be
Rs.40.

Required:
Prepare a Flexible Budget at 50%, 70% and 90% level of activity on marginal cost basis. 7
Answer: 7 (a)
In the question no information is given regarding standard time and actual time, so it is
computed as follows :
(In Weeks)
Category Standard time (ST) Actual Time (AT)
Skilled 75 × 30 = 2,250 70 × 32 = 2,240
Semiskilled 45 × 30=1,350 30 × 32 = 960
Unskilled 60 × 30=1,800 80 × 32 = 2,560
Now all information can be arranged as follows :
Category Standard Actual Revised
Time Rate Cost Time Rate Cost Time
ST SR (Rs.) SC(Rs.) AT AR(Rs.) AC(Rs.) RST
Skilled 2,250 60 1,35,000 2,240 70 1,56,800 2,400
Semiskilled 1,350 40 54,000 960 50 48,000 1,440
Unskilled 1,800 30 54,000 2,560 20 51,200 1,920
Total 5,400 - 2,43,000 5,760 - 2,56,000 5,760

Revised standard time is computed as follows:

2,250
Skilled worker : × 5,760 = 2,400 hrs .
5,400

1, 350
Semiskilled worker : × 5,760 = 1, 440 hrs.
5, 400

1, 800
Unskilled worker : × 5,760 = 1,920 hrs.
5, 400

Variances are computed as follows:

LCV = TSC – TAC = 2,43,000-2,56,000 = Rs. 13,000 (A)
(i) LRV = AT (SR – AR)
Skilled : 2,240 (60 – 70) = Rs. 22,400 (A)
Semiskilled : 960 (40 – 50) = Rs. 9,600 (A)
Unskilled : 2,560 (30 – 20) = Rs. 25,600 (F) Rs. 6,400 (A)

(ii) LEV = SR (ST-AT)

Skilled : 60 (2,250 – 2,240) = Rs. 600 (F)

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Semiskilled : 40 (1,350 – 960) = Rs. 15,600 (F)
Unskilled : 30 (1,800 – 2,560) = Rs. 22,800 (A) Rs. 6,600 (A)
(iii) LREV = SR (ST – RST)
Skilled : 60 (2,250 – 2,400) = Rs. 9,000 (A)
Semiskilled : 40 (1,350 – 1,440) = Rs. 3,600 (A)
Unskilled : 30 (1,800 – 1,920) = Rs. 3,600 (A) Rs. 16,200 (A)

(iv) LMV = SR (RST – AT)

Skilled : 60 (2,400 – 2,240) S = Rs. 9,600 (F)
Semiskilled : 40 (1,440 – 960) = Rs. 19,200 (F)
Unskilled : 30 (1,920 – 2,560) = Rs. 19,200 (A) Rs. 9,600 (F)

Answer to Question No. 7 (b):

Flexible Budget

Particulars Capacity Levels

50% 70% 90%
Output in Units 5,000 7,000 9,000
Prime Cost: Rs. Rs. Rs.
Materials 50,000 70,000 90,000
Direct Wages 40,000 56,000 72,000
Direct Expenses 10,000 14,000 18,000
1,00,000 1,40,000 1,80,000
Variable Overheads 25,000 35,000 45,000
Marginal Cost (1 + 2) 1,25,000 1,75,000 2,25,000
Sales 2,00,000 2,80,000 3,60,000
Contribution ( 4 – 3) 75,000 1,05,000 1,35,000
Fixed Costs 70,000 70,000 70,000
Profit ( 5 – 6) 5,000 35,000 65,000
Working Note:
Semi – variable Expenses have been classified into Fixed and Variable elements as under :
Per Unit Variable Cost = Rs.2000 1,000 = Rs. 2

Fixed Costs = Rs.40,000 – Rs.(10,000 x 2) = Rs. 20,000

Total Variable Overheads per Unit = Rs 3+ Rs. 2 = Rs. 5

Total Fixed Overhead = Rs.50,000 + Rs. 20,000 = Rs. 70,000

8. Answer any three out of the following four questions: 5×3= 15

(a) State the advantages of cost control (any five).
(b) Describe briefly the main scope of cost accountancy.
(c) What is just-in-time (JIT) system? List out its main benefits.
(d) Write a brief note on Performance Budgeting describing its main concepts.

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Answer to Question No. 8 (a):

Advantages of Cost Control

The advantages of cost control are mainly as follows:

(i) Achieving the expected return on capital employed by maximising or optimizing profit.
(ii) Increase in productivity of the available resources.
(iii) Reasonable price of the customers.
(iv) Continued employment and job opportunity for the workers.
(v) Economic use of limited resources of production.
(vi) Increased credit worthiness.
(vii) Prosperity and economic stability of the industry.

Answer to Question No. 8 (b):

Scope of Cost Accountancy

The scope of cost accountancy is very wide and includes the following:

(a) Cost Ascertainment: The main objective of cost accounting is to find out the cost of
product/service rendered with reasonable degree of accuracy.
(b) Cost Accounting: It is the process of accounting for cost which begins with recording of
expenditure and ends with preparation of statistical data.
(c) Cost Control: It is the process of regulating the action so as to keep the element of cost within
the set parameters.
(d) Cost Reports: This is the ultimate function of Cost Accounting. These reports are primarily
prepared for use by the management at different levels. Cost Reports help in planning and
control, performance appraisal and managerial decision making.
(e) Cost Audit: Cost Audit is the verification of correctness of Cost Accounts and check on the
adherence to the Cost Accounting Plan, its purpose is not only to ensure the arithmetic accuracy
of cost records but also to see the principles and rules have been applied correctly.
Answer to Question No. 8 (c):

Just –in –Time (JIT)

Just in Time is a production strategy that strives to improve a business return on investment by reducing
in-process inventory and associated carrying costs. Inventory is seen as incurring costs, or waste, instead
of adding and storing value, contrary to traditional accounting. In short, the just-in-time inventory
system focuses on “the right material, at the right time, at the right place, and in the exact amount”
without the safety net of inventory.

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The benefits of Just-in-Time system are as follows:

(a) Increased emphasis on supplier relationships. A company without inventory does not want a
supply system problem that creates a part shortage. This makes supplier relationships extremely
important.
(b) Supplies come in at regular intervals throughout the production day. Supply is synchronized with
production demand and the optimal amount of inventory is on hand at any time. When parts
move directly from the truck to the point of assembly, the need for storage facilities is reduced.
(c) Reduces the working capital requirements, as very little inventory is maintained.
(d) Minimizes storage space.
(e) Reduces the chance of inventory obsolescence or damage.

Answer to Question No. 8 (d):

Performance Budgeting

Performance Budgeting is synonymous with Responsibility Accounting which means the responsibility
of various levels of Management is predetermined in terms of output or result keeping
in view the authority vested with them.
The main concepts of such a system are enumerated below:
(a) It is based on a classification of managerial level for the purpose of establishing a budget for
each level. The individual in-charge of that level should be made responsible and held
accountable for its performance over a given period of time.
(b) The starting point of the performance budgeting system rests with the organisation chart in
which the spheres of jurisdiction have been determined. Authority leads to the responsibility
for certain costs and expenses which are forecasted or present in the budget with the
knowledge of the manager concerned.
(c) The cost in each individual`s or department`s budget should be limited to the cost controllable
by him.
(d) The person concerned should have the authority to bear the responsibility.

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 Suggested Answer_Syl16_June2019_Paper 8
GROUP - I
(SYLLABUS 2016)!
!
SUGGESTED ANSWERS TO QUESTIONS
JUNE - 2019!
!
Paper - 8 : COST ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
All Sections are compulsory. Each section contains instructions
regarding the number of questions to be answered within the section.
All working notes must form part of the answer.
Wherever necessary, candidates may make appropriate
assumptions and clearly state them.
No present value factor table or other statistical table will be
provided in addition to this question paper.

Section - A

Section A contains Question Number 1. All parts of this question are compulsory.

1. Answer the following questions:

(a) Choose the correct answer from the given alternatives (You may write only the
Roman numeral and the alphabet chosen for your answer): 1×10=10

(i) The main purpose of Cost Accounting is

(A) to maximise profit.
(B) to help in inventory valuation.
(C) to help in the fixation of selling price.
(D) to provide information to management for decision making.

(ii) Which of the following is considered to be a normal loss of material?

(A) Loss due to accident
(B) Pilferage
(C) Loss due to breaking the bulk
(D) Loss due to careless handling of material

(iii) In Reconciliation Statement expenses shown only in financial accounts are

(A) added to financial profit.
(B) added to costing profit.
(C) ignored.
(D) deducted from financial profit.

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 Suggested Answer_Syl16_June2019_Paper 8
(iv) Which of the following is a service department?
(A) Refining department
(B) Machining department
(C) Receiving department
(D) Finishing department

(v) Which of the following items is not included in preparation of cost sheet?
(A) Purchase returns
(B) Carriage inwards
(C) Sales commission
(D) Interest paid

(vi) In job costing to record the issue of direct materials to a job which of the following
document is used?
(A) Purchase order
(B) Goods receipt note
(C) Material requisition
(D) Purchase requisition

(vii) In a process 4000 units are introduced during a period. 5% of input is normal loss.
Closing work-in-progress 60% complete is 500 units. 3300 completed units are
transferred to next process. Equivalent production for the period is
(A) 3550 units
(B) 3600 units
(C) 3800 units
(D) 3950 units

(viii)Product A generates a contribution to sales ratio of 40%. Fixed cost directly

attributable to A amount Rs. 60,000. The sales revenue required to achieve a profit
of Rs.15,000 is
(A) Rs 2,00,000
(B) Rs 1,85,000
(C) Rs 1,87,500
(D) Rs 2,10,000

(ix) During a period 13600 labour hours were worked at a standard rate of Rs. 8 per
hour. The direct labour efficiency variance was Rs. 8,800 (Adv). How many
standard hours were produced?
(A) 12000 hours
(B) 12500 hours
(C) 13000 hours
(D) 13500 hours

(x) Cash Budget of ABC Ltd. forewarns of a short-term surplus. Which of the following
would be appropriate action to be taken in such a situation?
(A) Purchase new fixed assets
(B) Repay long-term loans
(C) Write off preliminary expenses

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(D) Pay creditors early to obtain a cash discount
(b) Match the statement in Column I with the most appropriate statement in Column II
(You may opt to write only the Roman numeral and the matched alphabet instead of
copying contents into the answer books): 1x5=5

Column I Column II
(i) Pharma Industry A Opportunity Cost
(ii) Management by exception B Direct Allocation
(iii) Assessment of employee with respect to a job C Joint Cost
(iv) Royalties D Batch Costing
(v) CAS-19 E Merit Rating
F Variance Analysis
G Job Evaluation
H Notional Cost

(c) State whether the following statements are 'True' or 'False': (You may write only the
Roman numeral and whether 'True' or 'False' without copying the statements into the
answer books): 1x5=5

(i) Bin card is maintained by the costing department.

(ii) CAS-8 deal with the principles and methods of determining the direct expenses.
(iii) FIFO method is followed for evaluation of equivalent production when prices are
fluctuating.
(iv) Profit Volume ratio remains constant at all levels of activity.
(v) The principal factor is the starting point for the preparation of various budgets.

(d) Fill in the blanks: (You may write only the Roman numeral and the content filling the
blanks) 1x5=5

(i) Differential cost is the change in the cost due to change in _________________ from
one level to another.
(ii) CAS _______________________ stands for cost of service cost centre.
(iii) In contract costing, the cost unit is ________________.
(iv) Marginal cost is the ___________ of sales over contribution.
(v) When actual cost is less than the standard cost, it is known as __________ variance.

Answer:

1. (a) (i) (D)

(ii) (B)
(iii) (A)
(iv) (C)
(v) (D)
(vi) (C)
(vii) (B)
(viii) (C)
(ix) (B)
(x) (D)

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 Suggested Answer_Syl16_June2019_Paper 8
(b)
Column I Column II
(i) Pharma Industry D Batch Costing
(ii) Management by exception F Variance Analysis
(iii) Assessment of employee with respect to a job E Merit Rating
(iv) Royalties B Direct Allocation
(v) CAS-19 C Joint Cost

(c) (i) False

(ii) False
(iii) False
(iv) True
(v) True

(d) (i) Activity

(ii) CAS - 13
(iii) Per Contract
(iv) Excess
(v) Favourable

Section - B
Answer any five questions from question numbers 2 to 8.
Each question carries 15 marks.
15 × 5 = 75

2. (a) ZINTES LTD. a manufacturing company has its factories at two locations.
Rowan plan is in use at location A and Halsey plan at location B. Standard time
and basic rate of wages are same for a job which is similar and is carried out on
similar machinery. Time allowed is 60 hours.

Job at location A is completed in 36 hours while at B, it has taken 48 hours.

Conversion costs at respective places are Rs.1224 and Rs.1500. Overheads amount
to Rs.20 per hour.

Required:
(i) Find out the normal wage rate, and
(ii) Compare conversion costs. 7

(b) ALPHA LTD. has three Production Departments and two Service Departments.
The overhead distribution sheet of the company showed the following totals:

Production Department: Amount (Rs.)

P 75,500
Q 72,000
R 96,500

Service Department:
X 46,250
Y 15,750

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Other information is as follows:
(a) Working hours of production departments are P-6226 hours, Q-4028 hours and R-
4066 hours.
(b) Services rendered by service departments are as under:
P Q R X Y
Department X 20% 30% 40% — 10%
Department Y 40% 20% 30% 10% —

Required:
(i) Calculate the total overhead of production departments distributing the cost
of service departments by Simultaneous Equation Method.
(ii) Calculate the overhead rate per hour of production departments. 8

Answer:
2(a):

Let Rs. X per hour be the normal wage rate. Wage rate at location A will

be Rs. 36x and at location B - it will be Rs. 48x, on the basis of actual time

taken, as against 60 hours permitted. For time saved, bonus will be payable

as under:
1
Location A:

!"#$ &'($)
Bonus under Rowan system = !"#$ '**+,$) ! Hrs. worked ! Rate per hour

-.
= ! Rs. 36 ! x = Rs. 14.4x
/0

Total wages =Rs. 36x + Rs.14.4x = 50.4x

Overheads @Rs. 20 per hour worked = 36 hrs. ! Rs. 20 = Rs. 720

Therefore, total conversion cost is (50.4x+ Rs. 720) = Rs. 1,224 or 50.4x =Rs. 504

Or x = Rs.504/50.4 = Rs. 10

So, Bonus = 14.4x =14.4 ! Rs. 10 = Rs. 144

Location B:

Bonus under Halsey plan = 50% of time saved ! rate per hour

= 50% of Rs. 12x = Rs.6x

Total wages = Rs. 48x + Rs. 6x = Rs. 54x

Overheads @ Rs. 20 per hour = 48 hrs. ! Rs. 20 = Rs. 960

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Total conversion cost is (54x + Rs. 960) = Rs.1,500 or 54x = Rs. 540

Hence, x= Rs. 540/54 = Rs. 10

Bonus= 6x = 6 ! Rs.10 =Rs. 60

(i) Comparative conversion cost:

Location→ A (Rowan) B (Halsey)
Amount→ Rs. Rs.
Wages @ Rs.10 per hour worked 360 480
Bonus 144 60
Overheads 720 960
Total 1,224 1,500

(b):

(i) Simultaneous Equation Method:

Let Total Cost of Service Department X be Rs. “x” and

Let Total Cost of Service Department Y be Rs “y”

X = Rs. 46,250 + 10% Y

Y = Rs. 15,750 + 10%x

By multiplying both Equations by 100, we get

100x = Rs. 46,25,000 + 10y or 100x- 10y = Rs. 46,25,000 (1)

100y = Rs. 15,75,000 + 10x or -10x +100y =Rs. 15,75,000 (2)

By Multiplying Equation (2) by 10, we get

Equation (1) 100x – 10y = Rs. 46,25,000

Equation (2) -100x +1,000y = Rs. 1,57,50,000

By adding we get 990y =Rs. 2,03,75,000 " y = Rs. 20,581

Substituting the value of “y” in Equation (1), we get

100x – (10 ! Rs. 20,581) = Rs. 46,25,000 or

100x = Rs. 46,25,000 + Rs.2,05,810 or 100x = Rs. 48,30,810

" x= Rs. 48,308

Calculation of Total Overheads of Production Departments:

Particulars P Q R X Y
Overheads (Rs.) 75,500 72,000 96,500 46,250 15,750
Costs of X (Rs. 48,308) 9,662 14,492 19,323 (48,308) 4,831
[2:3:4:1]
Costs of Y (Rs. 20,581)[4:2:3:1] 8,233 4,116 6,174 2,058 (20,581)
Total 93,395 90,608 1,21,997 - -

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(ii) Calculation of Overhead Rate per Hour:

P Q R
(aa) Total Overheads (Rs.) 93,395 90,608 1,21,997
(bb) Working Hours 6,226 4,028 4,066
(cc) Overhead Rate per Hour [(aa)/(bb)] (in 15.00 22.49 30.00
Rs.)

3. (a) What is the Employee Cost as defined in CAS-7 (Limited Revision 2017)? Also discuss
the general principles of its measurement as per CAS-7. (any five only) 6

(b) The following information has been extracted from the financial books of ABC Ltd. for
the year ended 31st March, 2019:
Particulars Amount (Rs.)
Direct materials consumption 10,00,000
Direct wages 6,00,000
Factory Overhead 3,20,000
Administrative Overhead 1,40,000
Selling and Distribution Overhead 1,92,000
Bad debts 16,000
Preliminary expenses written-off 8,000
Legal expenses 2,000
Dividend received 20,000
Interest on deposits received 4,000
Sales(24000 units) 24,00,000
Closing stock of finished goods (800 units) 64,000
Closing stock of work-in-progress 48,000

The cost accounts for the same period reveal that the direct materials consumption
was Rs. 11,20,000. Factory overheads recovered at 20% of prime cost; Administration
overheads recovered @ Rs. 6 per unit of production; and selling and distribution
overheads recovered at Rs. 8 per unit sold.

Required:
(i) Find out the profit as per financial books.
(ii) Prepare the cost sheet and ascertain the profit per cost accounts.
(iii) Prepare a statement reconciling profit shown by financial and cost accounts. 9

Answer:

3. (a) Employee Cost - CAS-7 [Limited Revision 2017):

As per CAS-7 [Limited Revision 2017] Employee Cost is the benefits paid or payable in
all forms of consideration given for the service rendered by employee (including
temporary, part time and contract employee/s) of an entity.

General Principles of Measurement:

The guidelines for ascertaining the Labour Cost/Employee Cost are as follows:

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 Suggested Answer_Syl16_June2019_Paper 8
(i) Employee Cost shall be ascertained taking into account the gross pay including
all allowances payable along with the cost to the employer of all the benefits.
(ii) Bonus whether payable as a statutory minimum or on a sharing of surplus shall
be treated as part of Employee Cost. Ex-gratia payable in lieu of or in addition
to bonus shall also be treated as part of the Employee Cost.
(iii) Remuneration payable to managerial personnel including executive directors
on board and other officers of a corporate body under a statute will be
considered as part of the Employee Cost of the year under reference, whether
the whole or part of the remuneration is considered as a percentage of profits.
(iv) Separation costs related to voluntary retirement, retrenchment, termination etc.
shall be amortized over the period of benefitting from such costs.
(v) Employee Cost shall not be included any imputed costs.
(vi) Any subsidy, grant, incentive or any such amount received or receivable with
respect to any Employee Cost shall be reduced from ascertainment of cost of
the project to which such amounts are related.
(vii) Any abnormal cost where it is material and quantifiable shall not form part of
the Employee Cost.
(viii) Penalties, damages paid to statutory authorities or other third parties shall not
form part of the Employee Cost.
(ix) The cost of free housing, free conveyance and any other similar benefits
provided to an employee shall be determined at the total cost of all resources
consumed in providing such benefits.
(x) Any recovery from employees towards the facilities provided shall be reduced
from the Employee Cost.
(xi) Cost of idle time is ascertained by the idle hours multiplied by the hourly rate
applicable to idle employee or a group of employees.
(xii) Where Employee Cost is accounted at standard cost, variances due to normal
reasons related to employee cost shall be treated as part of Employee Cost.
Variances due to abnormal reasons shall be treated as part of abnormal cost.
(xiii) Any change in the cost accounting principles applied for the determination of
the Employee Cost should be made only if it is required by law or for
compliance with Cost Accounting Standard or change would result in a more
appropriate way of presentation of Cost Statement.

(b) (i)
Financial trading and Profit & Loss Account
for the Year ended 31st Mach, 2019
Dr. Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Direct Materials 10,00,000 By Sales 24,00,000
To Direct Wages 6,00,000 By Dividend received 20,000
To Factory Overheads 3,20,000 By Interest received 4,000
To Administration Overheads 1,40,000 By Closing Stock:
To Selling & Distribution 1,92,000 Finished Goods 64,000
Overheads

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 Suggested Answer_Syl16_June2019_Paper 8
To Bad Debts 16,000
To Preliminary Expenses 8,000 Work-in-process 48,000
To Legal Expenses 2,000
To Net Profit 2,58,000
25,36,000 25,36,000

(ii)
Cost Sheet

Particulars Amount (Rs.)

Direct Materials 11,20,000
Direct Wages 6,00,000
Prime Cost 17,20,000
Factory Overheads (20% of Prime Cost) 3,44,000
20,64,000
Less: Closing Stock of WIP 48,000
Factory Cost 20,16,000
Administration Overheads (24,800 !Rs. 6) 1,48,800
Cost of Production 21,64,800
Less: Closing stock of Finished Goods {(21,64,800 ! 800)/24800} 69,832
Cost of Goods Sold 20,94,968
Selling & Distribution Overheads (24,000 !Rs. 8) 1,92,000
Cost of Sales (Total Cost) 22,86,968
Sales 24,00,000
Profit (Sales – Total Cost) 1,13,032

(iii)
Reconciliation Statement

Particulars Amount Amount

(Rs.) (Rs.)
Profit as per Cost Accounts 1,13,032
Add:
Over recovery of Direct Materials 1,20,000
Over recovery of Factory Overheads 24,000
Over recovery of Administration Overheads 8,800
Financial incomes not considered in Cost Accounts :
Dividend received 20,000
Interest on deposits received 4,000 24,000
2,89,832
Less:
Over valuation of Closing Stock of Finished Goods in 5,832
Cost Accounts
Pure Financial Expenses not considered in Cost
Accounts :
Bad debts 16,000
Preliminary Expenses 8,000
Legal Expenses 2,000 26,000
Profit as per Financial Accounts 2,58,000

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 Suggested Answer_Syl16_June2019_Paper 8
4. (a) VIPUL LTD. submits the following information on 31st March, 2019:
Particulars Amount (Rs.)
Sales for the year 55,00,000
Purchases of material for the year 22,00,000
Direct labour 13,00,000
Inventories at the beginning of the year—
Finished goods 1,40,000
Work-in-progress 80,000
Materials inventory—
At the beginning of the year 60,000
At the end of the year 80,000
Inventories at the end of the year—
Work-in-progress 1,20,000
Finished goods 1,60,000

Factory overheads were 60% of the direct labour cost.

Administration expenses were 5% of sales.
Selling & distribution expenses were 10% of sales.
You are required to prepare a Cost Sheet with all elements 8

(b) WEST LAND LTD. in the course of refining crude oil obtains four joint products P, Q, R
and S. The total cost till the split-off point was Rs. 9,76,640. The output and sales in the
year 2018 were as follows:
Product Output Sales Separate Costs
(Gallon) Amount (Rs.) Amount (Rs.)
P 50,000 12,50,000 2,60,000
Q 10,000 30,000 20,000
R 5,000 50,000 —
S 8,000 80,000 10,000

Required:
(i) Calculate the net income for each of the products if the joint costs are apportioned
on the basis of Net realisable values (NRV) of the different products.

(ii) Calculate the net income of each of the products if the company decides
to sell the products at the split-off point itself as – P @ Rs. 18, Q @ Rs. 1.50,
R @ Rs. 10 and S @ Rs. 7.80 per gallon. 7

Answer:

4. (a)
Cost Sheet on 31st March, 2019
Particulars Amount
(Rs.)
Materials consumed:
Opening Stock + Purchase – Closing Stock
Rs.( 60,000 + 22,00,000 – 80,000) 21,80,000
Direct Labour 13,00,000
Prime Cost 34,80,000
Factory Overheads (60% of Direct Labour Cost) 7,80,000

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 Suggested Answer_Syl16_June2019_Paper 8
42,60,000
Add: Opening Work-in-progress 80,000
Less: Closing Work-in-progress 1,20,000
Factory Cost 42,20,000
Administration Expenses (5% of Sales) 2,75,000
Cost of Production 44,95,000
Add: Opening Stock of Finished Goods 1,40,000
Less: Closing Stock of Finished Goods 1,60,000
Cost of Goods Sold 44,75,000
Selling & Distribution Expenses (10% of Sales) 5,50,000
Cost of Sales 50,25,000
Sales 55,00,000
Profit (Sales-Cost of Sales) 4,75,000

(b) (i) Statement showing Profit after Further Processing:

Amount (Rs.)
Particulars P Q R S Total
(a)Sales after further processing 12,50,000 30,000 50,000 80,000 14,10,000
(b)Separate Costs 2,60,000 20,000 --- 10,000 2,90,000
(c)Sales after split off (a-b) 9,90,000 10,000 50,000 70,000 11,20,000
(d)Joint Costs (on the basis of 8,63,280 8,720 43,600 61,040 9,76,640
NRV)
(e)Profit (c-d) 1,26,720 1,280 6,400 8,960 1,43,360

(ii) Statement showing Profit at Split off Point:

Amount (Rs.)
Particulars P Q R S Total
(a) Sales at Split off in Units 50,000 10,000 5,000 8,000
(b) Sale Price in Rs. 18 1.50 10 7.80
(c) Sales at Split off in Rs. 9,00,000 15,000 50,000 62,400 10,27,400
(d) Joint costs 8,63,280 8,720 43,600 61,040 9,76,640
(e) Profit (c - d) 36,720 6,280 6,400 1,360 50,760

5. (a) CARLHAMS LTD. runs a lodging home in a hill station. For this purpose, it has hired a
building at a rent of Rs. 1,20,000 per month along with 5% of total takings. The lodging
home has three types of suites for its customers, viz., single room, double rooms and
triple rooms.
Following information is given:
Type of Suite Number Occupancy%
Single Room 100 80%
Double Rooms 40 60%
Triple Rooms 20 50%

The rent of double rooms suite is to be fixed at 1.5 times of the single room suite and
that of triple rooms suite as twice of the double rooms suite.
The expenses for the year 2018 are as follows:

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 Suggested Answer_Syl16_June2019_Paper 8
Particulars Amount (Rs.)
Staff salaries 32,50,000
Room attendants' wages 12,00,000
Lighting, heating and power 9,75,000
Repairs & renovation 4,80,000
Laundry charges 1,65,000
Interior decoration 1,80,000
Sundry expenses 1,94,000

Provide profit @ 20% on total takings and assume 360 days in a year.
You are required to work out the room rent chargeable per day for each type of suite.
8
(b) NIRVANA LTD. undertook a contract for Rs. 50,00,000 on 1st April, 2018. On 31st March,
2019 when the accounts of the company were closed, the following details about the
contract were gathered:
Particulars Amount (Rs.)
Materials purchased 10,00,000
Wages paid 4,50,000
General expenses 1,00,000
Plant purchased 5,00,000
Materials on hand on 31.03.2019 2,50,000
Wages accrued on 31.03.2019 50,000
Work certified 20,00,000
Cash received 15,00,000
Work uncertified 1,50,000
Depreciation of plant 50,000

The above contract contained an escalation clause which read as follows:

"In the event of prices of materials and rates of wages increase by more than 5%, the
contract price would be increased accordingly by 25% of the rise in the cost of
materials and wages beyond 5% in each case."

It was found that since the date of signing the agreement, the price of materials and
wage rates increased by 25%. The value of work certified does not take into account
the effect of the above clause.
Required:
Prepare Contract Account of the company as on 31st March, 2019. 7
Answer:

5.(a) Computation of Total Equivalent Single Room Suites

Nature of Occupancy Total Equivalent Single Room Suites
Suites Calculation Occupancy
Occupancy Equivalent
Rate Number
A B C B!C=D
Single Rooms 100 ! 360 ! 80% 28,800 1 28,800
Double 40 ! 360 ! 60% 8,640 1.5 12,960
Rooms
Triple Rooms 20 ! 360 ! 50% 3,600 3 10,800
Total 52,560

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 Suggested Answer_Syl16_June2019_Paper 8

Statement of Total Cost

Particulars Amount (Rs.)

Staff salaries 32,50,000
Room attendants’ wages 12,00,000
Lighting, Heating and Power 9,75,000
Repairs and Renovation 4,80,000
Laundry charges 1,65,000
Interior decoration 1,80,000
Sundry Expenses 1,94,000
Sub-total 64,44,000
Add: Building rent (1,20,000 !12 Months !5% of 14,40,000 + 5% of total takings
total takings)
Total Cost 78,84,000 + 5% of total takings

Profit is 20% of total takings.

Therefore, Total takings = Rs. 78,84,000 + 25% of Total Takings

Now, let 'x' be the rent for single room suite,

Then, 52,560x = Rs. 78,84,000 + 25% of 52,560x

52,560x = Rs. 78,84,000 + 13,140x or 39,420x = Rs. 78,84,000
" x = Rs. 78,84,000/39,420 = Rs. 200

Therefore,
Rent chargeable for Single Room Suite = Rs. 200! 1 = Rs. 200
Rent chargeable for Double Room Suite = Rs. 200 ! 1.5 = Rs. 300
Rent chargeable for Triple Room Suite = Rs. 200 ! 3 = Rs. 600

(b)
Contract Account of Nirvana Ltd
(for the Year ending on 31st March, 2019)
Dr Cr
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Materials 10,00,000 By Materials on
hand 2,50,000
To Wages paid 4,50,000 By Work-in-progress
Add: Accrued 50,000 5,00,000 Work certified 20,00,000
Work uncertified 1,50,000 21,50,000
To General expenses 1,00,000 By Contract
escalation (W. N. 1) 50,000
To Depreciation on 50,000
Plant
To Notional Profit c/d 8,00,000
24,50,000 24,50,000
To P & L A/c [W. N. 2] 1,95,122 By Notional Profit 8,00,000
b/d
To Reserve A/c 6,04,878 -
8,00,000 8,00,000

Working Notes:

(i) Calculation of Escalation Amount:

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 Suggested Answer_Syl16_June2019_Paper 8
Cost of Materials and Wages incurred = Rs. 10,00,000 + 4,50,000 + 50,000 – 2,50,000
= Rs. 12,50,000
Cost of Materials and Wages before increase in prices = (Rs. 12,50,000! 100)/125
= Rs.10,00,000
Therefore, increase in Contract Price = (25/100 )[`Rs.12,50,000 – {(10,00,000 !
105)/100}]
= Rs. 50,000

(ii) Profit to be credited to P&L A/c:

Profit = Notional Profit !{(1/3) !(cash received/work certified)}
The contract escalation is added to work certified:
Profit = Rs. 8,00,000 !{(1/3) !(15,00,000/20,50,000)} = Rs. 1,95,122

6. (a) MODERN LTD. has three departments X, Y and Z, each of which makes a different
product. The budgeted data for the coming year are as follows:

Amount (Rs.)
Particulars X Y z
Sales 22,40,000 11,20,000 16,80,000
Direct materials 2,80,000 1,40,000 2,80,000
Direct labour 1,12,000 1,40,000 4,48,000
Direct expenses 2,80,000 1,40,000 5,60,000
Fixed cost 5,60,000 2,80,000 5,60,000

The management of the company is considering to close down department 'Z'. There
is a possibility of reducing fixed cost by Rs. 1,50,000 if department 'Z' is closed down.

Advise the management whether or not department 'Z' should be closed down. 8

(b) SRIJAN LTD. had incurred fixed expenses of Rs. 9,00,000 with sales of Rs. 20,00,000 and
earned a profit of Rs. 3,00,000 during the first half-year. In the second-half, it suffered
a loss of Rs. 1,50,000.

Required:
Calculate the following:
(i) The P/V Ratio, Break Even Point and Margin of Safety for the first half-year.
(ii) The expected sales amount for the second half-year assuming that the selling
price and fixed expenses remained unchanged during the second half-year.
(iii) The Break Even point and Margin of Safety for the whole year. 7

Answer:

6. (a)
Statement of Profit before closing Department ‘Z’
Amount (Rs.)
Particulars X Y Z Total
(i) Sales 22,40,000 11,20,000 16,80,000 50,40,000

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 Suggested Answer_Syl16_June2019_Paper 8
(ii) Variable Cost:
Direct Materials 2,80,000 1,40,000 2,80,000 7,00,000
Direct Labour 1,12,000 1,40,000 4,48,000 7,00,000
Direct Expenses 2,80,000 1,40,000 5,60,000 9,80,000
(iii) Total Variable Cost 6,72,000 4,20,000 12,88,000 23,80,000
(iv) Contribution (i-iii) 15,68,000 7,00,000 3,92,000 26,60,000
(v) Fixed Cost (As given in Question) 5,60,000 2,80,000 5,60,000 14,00,000
(vi) Profit (iv-v) 10,08,000 4,20,000 (1,68,000) 12,60,000

Statement of profit after closing Department 'Z’

Amount (Rs.)
Particulars X Y Total
(i) Sales 22,40,000 11,20,000 33,60,000
(ii)Variable cost:
Direct Materials 2,80,000 1,40,000 4,20,000
Direct Labour 1,12,000 1,40,000 2,52,000
Direct Expenses 2,80,000 1,40,000 4,20,000
(iii) Total Variable Cost 6,72,000 4,20,000 10,92,000
(iv) Contribution (i-iii) 15,68,000 7,00,000 22,68,000
(v) Fixed cost 12,50,000
(vi) Profit (iv-v) 10,18,000

Advice: From the comparative profitability statements stated supra, it is clear that
profit is decreased by Rs. 2,42,000 that is (Rs. 12,60,000 –Rs.10,18,000) by closing
down Department 'Z'. Therefore, it should not be closed down.

(i) (b) P/V Ratio = (Contribution/ Sales) ! 100

Where, Contribution = Fixed Cost + Profit = Rs. 9,00,000 + Rs. 3,00,000 = Rs.
12,00,000
P/V Ratio = (Rs. 12,00,000 / 20,00,000) ! 100 = 60%
Break Even Point = (Fixed Cost)/ (P/V Rtio)
= Rs. 9,00,000/ 60% = Rs. 15,00,000
Margin of Safety = Sales- Break Even Point
= Rs. 20,00,000 – Rs. 15,00,000 = Rs.5,00,000
Or Margin of Safety = (Profit)/ (P/V Ratio) = Rs. 3,00,000/60% = Rs.5,00,000

(ii) Contribution during the second half-year = Fixed Cost + Profit

= Rs. 9,00,000 + (- Rs. 1,50,000) = Rs. 7,50,000
Expected Sales = (Contribution) / (P/V Ratio)
= Rs. 7,50,000/60% = Rs.12,50,000

(iii) Break Even Point for the whole year = Fixed Cost for the whole year/(P/V Ratio)
= Rs. 18,00,000/60% = Rs. 30,00,000
Margin of Safety = Sales- Break Even Point
= Rs. 32,50,000 – Rs. 30,00,000 = Rs.2,50,000
Or Margin of Safety = (Profit)/ (P/V Ratio) = Rs. 1,50,000/60% = Rs.2,50,000

7. (a) BENCO LTD. a manufacturing concern which has adopted standard costing furnishes
the following information for the month ending March 31, 2019:

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 Suggested Answer_Syl16_June2019_Paper 8

The standard mix to produce one unit of product Z is as under—

Material A 30kg @ Rs. 30 per kg
Material B 40kg @ Rs. 50 per kg
Material C 50kg @ Rs. 40 per kg

During the month of December 2018, 10 units of product Z were actually produced
and consumption was as under—
Material A 320kg @ Rs. 35 per kg
Material B 475kg @ Rs. 55 per kg
Material C 435kg @ Rs. 36 per kg

Required:
Calculate the following Material Variances:
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Usage Variance
(iv) Material Mix Variance
(v) Material Yield Variance 8

(b) ANKRITI LTD. manufactures product X and product Y during the year ending on 31st
March, 2019. It is expected to sell 7500 kg of product X and 37500 kg of product Y @
Rs. 60 and Rs. 32 per kg respectively.

The direct materials A, B and C are mixed in the proportion of 4:4:2 in the manufacture
of Product X and in the proportion of 3:5:2 in the manufacture of product Y. The actual
and budget inventories for the year are as follows:
Particulars Opening Stock (kg) Expected Closing Stock Anticipated Cost per
(kg) kg (Rs.)
Material A 3000 2400 10
Material B 2500 5800 8
Material C 16000 17300 6
Product X 1500 2000 —
Product Y 3000 3500 —

Required:
Prepare the Production Budget and Materials Budget showing the purchase cost
of materials for the year ending 31st March, 2019. 7

Answer:
7. (a) Statement showing Standard and Actual Material Cost
Standard for 10 Units Actual for 10 Units
Material Quantity Rate Amount Quantity Rate Amount
(Units) (Rs.) (Rs.) (Units) (Rs.) (Rs.)
A 300 30 9,000 320 35 11,200
B 400 50 20,000 475 55 26,125
C 500 40 20,000 435 36 15,660
Total 1,200 49,000 1,230 52,985

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 Suggested Answer_Syl16_June2019_Paper 8

(i) Material Cost Variance = Standard Cost – Actual Cost

= Rs.49,000 – Rs.52,985 = Rs.3,985 (A)

(ii) Material Price Variance = Actual Quantity (Standard Price – Actual Price)
Material A = 320 (Rs. 30 – 35) = Rs. 1,600 (A)
Material B = 475 (Rs. 50 – 55)=Rs. 2,375 (A)
Material C= 435 (Rs. 40 – 36) = Rs. 1,740 (F)
= Rs.2,235 (A)

(iii) Material Usage Variance = Standard Price ( Standard Quantity – Actual Quantity)
Material A = 30 (Rs. 300 – 320) = Rs. 600 (A)
Material B = 50 (Rs. 400 – 475)=Rs. 3,750 (A)
Material C= 40 (Rs. 500 – 435) = Rs. 2,600 (F)
= Rs.1,750 (A)

(iv) Material Mix Variance = Standard Price (Revised Std. Quantity – Actual Quantity)
Material A = 30 (Rs. 307.50 – 320) = Rs. 375 (A)
Material B = 50 (Rs. 410 – 475) = Rs. 3,250 (A)
Material C= 40 (Rs. 512.50 – 435) = Rs. 3,100 (F)
= Rs.525 (A)

Note: Revised Standard Quantity (RSQ) is calculated as under:

1!-20
Material A =1!-00 ! (300) = 307.50kg
1!-20
Material B =1!-00 ! (400) = 410 kg
1!-20
Material C =1!-00 ! (500) = 512.50kg
(v) Material Yield Variance = Standard Cost per Unit ( Actual Yield – Standard Yield)
Rs. 4,900 (10 – 10.25) = Rs. 1,225 (A)
Note:
(a) Standard Material Cost per Unit of output = Rs. 49,000/10 = Rs. 4,900
(b) Standard Yield = Actual usage of material/ Standard usage per Unit of output
= 1,230/120 = 10.25 Units

(b)
Production Budget for the Year ending 31st March 2019
Particulars Product – X ((kgs.) Product – Y
(kgs.)
Sales 7,500 37,500
Add: Closing Stock 2,000 3,500
Sub-total 9,500 41,000
Less: Opening tock 1,500 3,000
Production 8,000 38,000

(c)
Materials Purchase Budget
(for the year ending 31st March 2019)

Particulars A B C Total
Materials required for product-X in the ratio 3,200 3,200 1,600 8,000
of 4:4:2
Materials required for product-Y in the ratio 11,400 19,000 7,600 38,000
of 3:5:2

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 Suggested Answer_Syl16_June2019_Paper 8
Total requirement 14,600 22,200 9,200
Add: Closing Stock 2,400 5,800 17,300
17,000 28,000 26,500
Less: Opening Stock 3,000 2,500 16,000
Purchases (Kgs) 14,000 25,500 10,500
Cost per Kg (Rs.) 10 8 6
Total Purchase Cost (Rs.) 1,40,000 2,04,000 63,000 Rs. 4,07,000

8. Answer any three out of the following four questions: 5×3=15

(a) Distinguish between Cost Allocation and Cost Apportionment.

(b) State the main objectives of Cost Accounting,
(c) List out the various measures to reduce the Labour Turnover (any five).
(d) Write a brief note on Master Budget.

Answer:

8. (a) Difference between Cost Allocation and Cost Apportionment:

Cost Allocation: When items of cost are identifiable directly with some products or
departments such costs are charged to such cost centres. This process is known as
cost allocation. Wages paid to workers of service department can be allocated to
the particular department. Indirect materials used by a particular department can
also be allocated to that department. Cost allocation calls for two basic factors - (i)
Concerned department/product should have caused the cost to be incurred, and
(ii) exact amount of cost should be computable.

Cost Apportionment: When items of cost cannot directly be charged to or be

accurately identifiable with any cost centres, they are prorated or distributed
amongst the cost centres on some pre-determined basis. This method is known as
cost apportionment. Thus, items of indirect costs residual to the process of cost
allocation are covered by cost apportionment. The pre-determination of suitable
basis of apportionment is very important and usually following principles are adopted
- (i) Service or use, (ii) Survey method, or (iii) Ability to bear. The basis ultimately
adopted should ensure an equitable share of common expenses for the cost centres
and the basis once adopted should be reviewed at periodic intervals to improve
upon the accuracy of apportionment.

OR ( Alternative)

Cost Allocation: CIMA defines Cost Allocation as, “ the charging of discrete, identifiable
items of cost to cost centres or cost units.” In simple words complete distribution of an item of
overhead to the departments or products on logical or equitable basis is called allocation.
Where a cost can clearly be identified with a Cost Centre or Cost unit, then it can be
allocated to that particular Cost Centre or

Cost Unit. In other words, allocation is the process by which cost items are charged directly

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 Suggested Answer_Syl16_June2019_Paper 8
to a Cost Unit or Cost Centre. For example, electricity charges can be allocated to various
departments if separate meters are installed, depreciation of machinery can be allocated
to various departments as the machines can be identified, salary of stores clerk can be
allocated to stores department, cost of coal used in boiler can directly be allocated to boiler
house division. Thus allocation is a direct process of identifying overheads to cost units or cost
centres. So the term allocation means allotment of whole item of cost to a particular cost
centre or cost object without any division.

Cost Apportionment:

Cost Apportionment is the allotment of proportions of items to Cost Centres. Wherever

possible, the overheads are to be allocated. However, if it is not possible to charge the
overheads to a particular Cost Centre or Cost Unit, they are to be apportioned to various
departments on some suitable basis.

This process is called “Apportionment” of overheads. The basis for apportionment is normally
predetermined and is decided after a careful study of relationship between the base and
the other variables within the organisation. The Cost Accountant must ensure that the
selected basis is the most logical. A lot of quantitative information has to be collected and
constantly updated for the purpose of apportionment. The basis selected should be applied
consistently to avoid vitiation.

However, there should be a periodical review of the same to revise the basis if needed.In
simple words, distribution of various items of overheads in portions to the departments or
products on logical or equitable basis is called apportionment.A general example of various
bases that may be used for the purpose of apportionment is shown below:

Overhead item Basis

Rent and Building Floor space occupied by each department
General Lighting No. of light points in each department
Telephones No. of extensions in a department
Depreciation of factory building Floor space
Material handling No. of material requisitions or Value of material
used

The above list is not exhaustive and depending upon peculiarities of the organisation, it
could be extended. This allocation and/or apportionment is called primary distribution of
overheads.

OR (Alternative)

Note: The question asks: Distinguish between Cost Allocation and Cost Apportionment.

Distinction between Cost Allocation and Cost Apportionment:

Although the purpose of both allocation and apportionment is identical, that is to identify or
allot the costs to the Cost Centres or Cost Units, both are not the same.

Allocation deals with the whole items of cost and apportionment deals with proportion of
items of cost.

Allocation is direct process of departmentalisation of overheads, whereas apportionment

needs a suitable basis for sub-division of the cost.

Whether a particular item of expense can be allocated or apportioned does not depend on

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 Suggested Answer_Syl16_June2019_Paper 8
the nature of expense, but depends on the relation with the Cost Centre or Cost Unit to
which it is to be charged.

(b) Main Objectives of Cost Accounting:

The main objectives of cost accounting are as under:

(i) To ascertain the costs under different situations using different techniques and
systems of costing.
(ii) To determine the selling prices under different circumstances.
(iii) To determine and control efficiency by setting standards for Materials, Labour and
Overheads.
(iv) To determine the value of closing inventory for preparing financial statements of
the concern.
(v) To provide a basis for operating policies of the concern

(c) Measures to Reduce Labour Turnover:

Labour Turnover may be reduced by removing its avoidable causes and taking
preventive remedial measures.

The various measures may be as under:

(i) Efficient, sympathetic and impartial personnel administration.
(ii) Effective communication system to keep the workers informed on matters that
affect them.
(iii) Improving working conditions and placing the right man on the right job.
(iv) Job enrichment to reduce boredom and monotony and to provide job
satisfaction.
(v) Introducing fair rates of pay and allowance/s and incentives, pension, gratuity
etc.
(vi) Strengthening welfare measures.
(vii) Augmenting recreational activities and schemes.

(d) Master Budget:

Master Budget is the budget prepared to cover all the functions of the business organization.
It can be taken as the integrated budget of business concern, that means, it shows the profit
or loss and financial position of the business concern such as Budgeted Profit and Loss
Account, Budgeted Balance Sheet etc. Master budget, also known as summary budget or
finalized profit plan, combines all the budgets for a period into one harmonious unit and thus,
it shows the overall budget plan.

The master budget incorporates all the subsidiary functional budgets and the Budgeted
Profit and Loss Account and Budgeted Balance Sheet. Before the budget plan is put
into operation, the master budget is considered by the management and revised if the
position of profit disclosed therein is not found to be satisfactory. After suitable revision made,
the Master Budget is finally approved and put into action.

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 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-8

INTERMEDIATE EXAMINATION
GROUP -II
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER- 2019
Pa p er-8 : C OST A C C OUNTIN G

Tim e Allowe d : 3 Hours Full M arks : 100

The figures in the m argin on the right sid e indic ate full m arks.
All Se ctions are c ompulsory. Ea ch se ction c ontains instructions
re g arding the numb er of questions to b e answered within the se ction.
All working notes must form p art of the answer.
Wherever ne c essary, c andid ates m a y m a ke a ppropriate
assumptions and cle arly state the m.
No present value fa ctor ta ble or other statistic al ta ble will b e
provid e d in a ddition to this question p a p er.

Se ction - A

Se ction A c ontains Q uestion Numb er 1. All p arts of this question are c ompulsory.

1. Answer the following questions:

(a) Choose the c orre ct answer from the given alternatives (You m a y write only the
Rom annumeral and the alpha b et chosen for your answer): 1 10=10

(i) C osts which are asc ertaine d after they ha ve b e en incurre d are known as
(A) Sunk C osts
(B) Impute d C osts
(C) Historic al C osts
(D) O p portunity C osts

(ii) Prim e c ost plus varia ble overhe a ds is known as

(A) Fa ctory C ost
(B) M arginal C ost
(C) C ost of Production
(D) Total C ost

(iii) In which of thefollowing m ethods, issue of m aterials are pric e d atpre - d etermine d
rate?
(A) Sp e cific pric e m ethod
(B) Stand ard pric e m ethod
(C) Inflate d pric e m ethod
(D) Re pla c e m ent pric e m ethod

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 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-8

(iv) For re ducing the la bour c ost p er unit, which of the following fa ctors is the most
important?
(A) Low wa g e rates
(B) Long er hours of work
(C) Higher input-output ratio
(D) Strict c ontrol and sup ervision

(v) M aximum possible productive c a p a city of a pla nt when no op erating tim e is lost
is its
(A) Norm al c a p a city
(B) Pra ctic al c a p a city
(C) The oretic al c a p a city
(D) C a p a city b ase d on sales exp e ctanc y

(vi) In job c osting, which of the following do cum ents is use d to re c ord the issue of
dire ct m aterials to a job?
(A) G oods Re c eipt Note
(B) Purchase Ord er
(C) Purchase Re quisition Note
(D) M aterial Re quisition Note

(vii) The m ain purpose of a c c ounting of joint products and by-products is to

(A) d etermine the profit /loss on e a ch product line.
(B) d etermine the selling pric e.
(C) c omply with the statutory re quire m ents.
(D) id entify the c ost and lo a d it on the m ain product.

(viii) During a p eriod 2560 la b our hours were worke d at a stand ard rate of Rs. 7.50 p er
hour. The dire ct la bour efficienc y varianc e was Rs. 825 (A). How m any stand ard
hours were produc e d?
(A) 2400
(B) 2450
(C) 2500
(D) 2550

(ix) PQR Ltd. m anufa ctures a single product which it sells forRs.40p er unit. Fixe d c ost
is Rs. 60,000 p er y e ar. The c ontribution to sales ratio is 40%. PQR Ltd.’s Bre a k Even
Point in units is
(A) 3500
(B) 3700
(C) 3750
(D) 4000

(x) The fixe d-varia ble c ost classific ation has a sp e cial signific anc e in the
pre p aration of
(A) C ash bud g et
(B) M aster bud g et
(C) Flexible bud g et
(D) C a pital bud g et

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 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-8

(b) M atch the state m ent in C olumn I with the most a p propriate state m ent in C olumn II(You
m a y opt to write only the Rom an num eral and the m atche d alpha b et inste a d of
c opying c ontents into the answer b ooks): 1x5=5
C olumn I C olumn II
(i) Notional c ost A Re pla c e m ent m ethod
(ii) La bour turnover B C ost of utilities
(iii) C AS-10 C Production strate gy
(iv) C ontra ct c osting D Dire ct exp enses
(v) JIT E C osting d ep artm ent
F Impute d c ost
G Esc alation clause
H De cision p a ck a g e

(c) State whether the following are 'True' or 'False':(You m a y write only theRom an num eral
and whether 'True' or 'False' without c opying the state m ents into the answer books):
1x5=5
(i) Profit is the result of two v arying fa ctors sales and varia ble c ost.
(ii) Bin c ard is a re c ord of both quantities and value.
(iii) O vertim e pre mium is dire ctly assigne d to c ost obje ct.
(iv) In Re c onciliation state m ents, exp enses shown only in financial a c c ounts are a d d e d
to financial profit.
(v) P/ V ratio re m ains c onsta nt at all le vels of a ctivity.

(d) Fill in the blanks: (You m a y write only the Rom an num eral and the c ontent filling the
blanks) 1x5=5
(i) __________ c osts are historic al c osts which are incurre d in the p ast.
(ii) In A bsorption c osting, _____________ c ost is a d d e d to inventory.
(iii) C AS-2 d e als with C ost A c c ounting Stand ard on __________ d etermination.
(iv) __________is the summ ary of all functional bud g ets.
(v) Stand ard c osting is one of the _________________ te chniques.

Answer:

1. ( a ) (i) (C)
(ii) (B)
(iii) (B)
(iv) (C)
(v) (C)
(vi) (D)
(vii) ( A)
(viii) (B)
(ix) (C)
(x) (C)

(b)
C olumn I C olumn II
(i) N o tio n a l c ost F Im p ut e d c ost
(ii) L a b o ur turn o v e r A Re p l a c e m e nt m e th o d
(iii) C AS-10 D Dir e c t e x p e nse s
(iv) C o ntr a c t c ostin g G Esc a l a tio n c l a use
(v) JIT C Pro d u c tio n str a t e g y

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 SUG GESTED ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-8

( c ) (i) F a lse
(ii) F a lse
(iii) Tru e
(iv) Tru e
(v) Tru e

( d ) (i) Su nk
(ii) Fix e d
(iii) C a p a c ity
(iv) M a st e r b u d g e t
(v) C ost C o ntrol

Se ction - B

Answer any five questions from question numb ers 2 to 8.

Ea ch question c arries 15 m arks.
15 5 = 75

2. (a) ZIO N LTD uses thre e typ es of m aterials A, B and C for production of Product-P for which
the following d ata a p ply:
Raw Usa g e p er Re ord er Pric e Delivery p eriod Re ord er Minimum
Material unit quantity p er (in we e ks) level level
of Product (kgs) Kg (kgs) (kgs)
(kgs) (Re.) Minimum Avera g e M aximum
A 10 10000 0.10 1 2 3 8000 ?
B 4 5000 0.30 3 4 5 4750 1550
C 6 10000 0.15 2 3 4 ? 2000

We ekly production varies from 175 to 225 units, a vera ging 200 units of the said
product.

What would b e the following quantities? 9

(i) Minimum sto c k of A,
(ii) M aximum sto ck of B,
(iii) Re -ord er le vel of C,
(iv) Avera g e sto c k le vel of A.

(b) In a m anufa cturing unit of EXOTIC A LTD overhe a d was re c ov ere d at a pre d etermine d
rate of Rs. 30 p er m an- d a y. The total fa ctory overhe a d incurre d and the m an-d a ys
a ctually worke d were Rs. 5,20,000 and 12,500 resp e ctively.

O ut of the 40000 units produc e d during a p eriod, 30000 units were sold. There were
also 30000 unc omplete d units which m a y b e re c kone d at 60% c omplete.

O n analysing the re asons, it was found that 50% of the una bsorb e d overhe a ds were
due to d efe ctive planning and the rest were attributa ble to incre ase d overhe a d c osts.
How would una bsorb e d overhe a d b e tre ate d in C ost A c c ounts? 6

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Answer:

2. ( a ) (i) Minim u m st o c k of A
Re -ord e r l e v e l - ( A v e r a g e r a t e of c o nsu m p tio n x A v e r a g e tim e r e q uir e d t o o b t a in
fr e sh d e liv e ry)
= 8,000k g s. - (200 x 10 x 2) k gs = 4,000 k gs.

(ii) M a xim u m st o c k of B
Re -ord e r l e v e l - (Minim u m c o nsu m p tio n x Minim u m d e liv e ry p e rio d ) + Re -ord e r
q u a ntity
= 4,750k g s. - (175 x 4 x 3)k gs. + 5,000k gs.
= 9,750 - 2,100 = 7,650 k gs.

(iii) Re -ord e r l e v e l of C
M a xim u m d e liv e ry p e rio d x M a xim u m us a g e
= 4 x 225 x 6 = 5,400 k g s.
OR
Re -ord e r l e v e l of C
= Minim u m st o c k of C + [A v e r a g e r a t e o f c o nsu m p tio n x A v e r a g e tim e r e q uir e d t o
o b t a in fr e sh d e liv e ry]
= 2,000k g s. + [(200 x 6) x 3] k gs. = 5,600 k g s.

(iv) A v e r a g e st o c k l e v e l of A
= Minim u m st o c k l e v e l of A + Re -ord e r q u a ntity of A
= 4,000k g s.+ x 10,000k g s. = 4,000k gs. + 5,000k gs. = 9,000 k g s.
OR
A v e r a g e St o c k Le v e l of A
Mini m u m Sto c k l e v e l o f A + M a xi m u m Sto c k L e v e l o f A
2 = (Re f e r t o w orkin g n o t e )
4, 000 + 16, 250
2 = 10,125 K gs.

W orkin g n o t e :
M a xim u m st o c k l e v e l of A = R O L+ R O Q - (Minim u m c o nsu m p tio n x Minim u m
r e -ord e r p e rio d )
= 8,000k gs. + 10,000k gs.- [(175 x 10) x 1] k gs.
= 16,250 k gs.

(b)
A m o u nt (Rs.)
O v e rh e a ds in c urr e d 5,20,000
Le ss: O v e rh e a d s a bsorb e d (12,500 m a n-d a ys * Rs.30) 3,75,000
Un d e r a bsorp tio n 1,45,000

Th e u n d e r a b sorp tio n of Rs. 1,45,000 b e in g c o nsi d e r a b l e w h e th e r d u e t o

d e f e c tiv e p l a n nin g or d u e t o in c r e a se in pri c e s, w o ul d b e d isp ose d off b y
a p p lyin gSu p p l e m e nt a ry O v e rh e a d R a t e in th e f ollo w in g m a n n e r:

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Su p p l e m e nt a ry O v e rh e a d R a t e = Rs. 1,45,000 /[{30,000+ 10,000+(30,000*60%)}Units]

= Rs. 1,45,000 / 58,000 u nits = Rs. 2.50 p e r Unit
To b e a bsorb e d o n c ost of g o o ds sol d = 30,000 Units×Rs. 2.50 = Rs.75,000
To b e a bsorb e d o n c losin g st o c k = 10,000 Units ×Rs. 2.50 = Rs. 25,000
To b e a bsorb e d o n w ork-in-pro gr e ss = 30,000Units ×Rs.2.50×60% =Rs. 45,000

ALTERNATIVE ANSWER 2(b):

Amount (Rs.)
Overheads incurred 5,20,000
Less: Overheads absorbed (12,500 man days × Rs.30) 3,75,000
Under absorption 1,45,000
Students may treat 50% of under-absorption (Rs. 72,500) due to defective Planning
as Abnormal Loss to be debited to Costing Profit & Loss Account and balance
Rs. 72,500 to be disposed off by applying Supplementary Overhead Rate in the following manner:
72,500
Supplementary Overhead Rate = Rs. [30,000
+10,000+(30,000 ×60%)]units
= Rs. 72,500 /58,000 units = Rs. 1.25 per unit.
To be absorbed on Cost of Goods Sold = 30,000 units × Rs.1.25 = Rs.37,500
To be absorbed on Closing Stock = 10,000 units × Rs. 1.25 = Rs 12,500
To be absorbed on Work-in-progress = 30,000 units × Rs.1.25× 60% = Rs. 22,500

3. (a) What are the obje ctives and scop e of C ost Ac counting Stand ard (C AS-4) (Revised 2018)
on "C ost of Production/ Acquisition /Supply of G oods/Provision of Servic es"? 6

(b) Pass the Journal entries for the following transa ctions in a double entry c ost a c counting
system: 9

Particulars Amount (Rs.)

(i) Issue of m aterial:
Dire ct 6,50,000
Indire ct 2,50,000
(ii) Allo c ation of wa g es a nd salaries:
Dire ct 2,60,000
Indire ct 40,000
(iii) O verhe a ds a bsorb e d in jobs:
Fa ctory 1,50,000
Administration 30,000
Selling 50,000
(iv) Und er/ over a bsorb e d overhe a ds:
Fa ctory (over) 25,000
Administration (und er) 12,500
(Narration is not re quire d)

Answer:

3. ( a ) C AS-4 (REVISED 2018) o n " C ost of Pro d u c tio n / A c q uisitio n /Su p p ly of G o o ds/ Pro visio n o f
Se rvi c e s"
O bje ctives: Th e o b j e c tiv e of this St a n d a rd is t o brin g u nif ormity a n d c o nsist e n c y in th e
prin c i p l e s a n d m e th o ds of d e t e rminin g th e c ost of pro d u c tio n or a c q uisitio n or su p p ly
of G o o ds or pro visio n of s e rvi c e s a s r e q uir e d u n d e r th e pro visio ns of G ST A c t /Rul e s.
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Th e c ost st a t e m e nts pr e p a r e d b a se d o n this St a n d a rd w ill b e use d f or d e t e rmin a tio n of

v a lu e of su p p ly of G o o ds or se rvi c e s or b o th. This St a n d a rd and its
d isc losur e r e q uir e m e nt will pro vi d e tr a nsp a r e n c y in th e v a lu a tio n of G o o ds a n d
se rvi c e s.

This St a n d a rd sh a ll furth e r e nsur e a d e q u a t e a c c ur a c y in c o m p utin g Tr a ns a c tio n V a lu e

of su p p ly f or G o o ds ors e rvi c e s or b o th, w h e r e th e o p e n m a rk e t v a lu e of su p p ly of
G o o ds a n d se rvi c e s or v a lu e of su p p ly of G o o d s orse rvi c e s of lik e kin d a n d q u a lity a r e
n o t a v a il a b l e or s a m e is n o t v e rifi a b l e .

Sc op e: This St a n d a rd sh o ul d b e a p p li e d t o c ost st a t e m e nts w hi c h r e q uir e c l a ssifi c a tio n,

m e a sur e m e nt, a ssi g n m e nt, pr e se nt a tio n, and d isc losur e of rela t e d c osts f or
d e t e rmin a tio n of th e f ollo w in g u n d e r th e r e l e v a nt pro visio ns of G ST A c t /Rul e s:
(i) D e t e rmin a tio n of c ost of pro d u c tio n of G o o d s;
(ii) D e t e rmin a tio n of c ost of a c q uisitio n of G o o d s;
(iii) D e t e rmin a tio n of c ost of su p p ly of G o o ds;
(iv) D e t e rmin a tio n of c ost of pro visio n /su p p ly of se rvi c e s; a n d
(v) D e t e rmin a tio n of v a lu e of su p p ly of g o o ds or se rvi c e s a s p e r o p e n m a rk e t v a lu e
or a s p e r G o o ds ors e rvi c e s of lik e kin d a n d q u a lity.

(b)
Jo urn a lDr. C r.
S.N o . P a rti c ul a rs A m o u nt (Rs.) A m o u nt (Rs.)

1 W ork in Pro gr e ss C o ntrol A / C Dr. 6,50,000

F a c t ory O v e rh e a ds C o ntrol A / C Dr. 2,50,000
To M a t e ri a l C o ntrol A / C 9,00,000
2 W ork in Pro gr e ss C o ntrol A / C Dr. 2,60,000
F a c t ory O v e rh e a ds C o ntrol A / C Dr. 40,000
To W a g e s C o ntrol A / C 3,00,000
3 W ork in Pro gr e ss C o ntrol A / C Dr. 1,50,000
Finish e d G o o ds C o ntrol A / C Dr. 30,000
C ost of S a l e s A / C Dr. 50,000
To F a c t ory O v e rh e a ds C o ntrol A / C 1,50,000
To A d ministr a tiv e O v e rh e a d C o ntrol A / C 30,000
To Se llin g O v e rh e a d C o n trol A / C 50,000
4 F a c t ory O v e rh e a ds C o ntrol A / C Dr. 25,000
To C ostin g Profit & Loss A / C 25,000
5 C ostin g Profit & Loss A / C Dr. 12,500
To A d ministr a tiv e O v e rh e a ds C o ntrol A / C 12,500

4. (a) SARATHI & C O is m anufa cturing building bricks and fire bricks. Both the products
re quire two pro c esses: Brick forming and He at tre atm ent. The re quire m ents for the two
bricks are:
Building Bricks Fire Bricks
Forming p er 100 bric ks 6 hours 4 hours
He at tre atm ent p er 100 bricks 4 hours 10 hours

Total c osts of the two d e p artm ents in one month were:

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Forming Rs. 42,400

He at tre atment Rs. 97,600
Production during the month was:
Building Bricks 130000 numb ers
Fire Bricks 70000 numb ers

Required:
Pre p are state ment of m anufa cturing c ost for the two varieties of bricks. 7

(b) REA C O N LTD is eng a g e d in pro c ess Engine ering Industry. During a month 4000 units of
input were introduc e d in Pro c ess B at a c ost of Rs. 20,000. The norm al loss was
estim ate d at 10% of input. The pro c ess c osts were dire ct m aterials Rs. 10,425, dire ct
wa g es Rs. 20,400 and fa ctory overhe a d 50% of dire ct wa g es. At the end of the month
3200 units were produc e d and transferre d to Pro c ess C, 500 units were scra p p e d and
re alise d @ Rs. 5 p er unit. Scra p p e d units were 50% pro c esse d. 300 units
wereinc omplete and the sta g e of c ompletion was m aterial 75%, wa g es and overhe a d
50%.

Required:
(i) Find out e quivalent production, c ost p er c omplete d unit, value of work-
in-progress and
(ii) Pre p are Pro c ess B a c c ount. 8

Answer:

4. (a)
Statement showing number of hours
Particulars Building Bricks Fire Bricks Total
Forming:
1,30,000
( × 6) 7,800
100
70,000 2,800
( × 4) 10,600
100

Heat Treatment
1,30,000 5,200
( × 4)
100
70,000 7,000
( × 10) 12,200
100

Total 13,000 9,800 22,800

Rs .42,400
Cost of Forming per hour = = Rs.4
10,600
Rs .97,600
Cost of Heat Treatment per hour = = Rs.8
12,200

Statement showing manufacturing cost of two varieties of bricks:

Particulars Building Bricks Fire Bricks Total
Rs. Rs. Rs.
Forming:
(7,800 Hrs. × Rs. 4) 31,200
(2,800 Hrs. × Rs. 4) 11,200
42,400
Heat Treatment
(5,200 Hrs. × Rs. 8) 41,600
(7,000 Hrs. × Rs. 8) 56,000

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97,600

Total 72,800 67,200 1,40,000

ALTERNATIVE PRESENTATION OF SECOND PART AS UNDER:

Where students consider Cost of Production per 100 Bricks:

Statement showing manufacturing cost of two varieties of bricks:

Particulars Building Bricks Fire Bricks Total
Rs. Rs. Rs.
Forming:
(6 Hrs. × Rs. 4) 24
(4 Hrs. × Rs. 4) 16
40
Heat Treatment
(4 Hrs. × Rs. 8) 32
(10 Hrs. × Rs. 8) 80
112

Total 56 96 152

( b ) (i) St a t e m e nt of E q uiv a l e nt Pro d u c tio n:

In p ut P a rti c ul a rs of o ut p ut Units E q uiv a l e nt Pro d u c tio n
M a t e ri a l I M a t e ri a l II L a b o ur&
(In p ut) (A d d e d) O v e rh e a d
% Units % Units % Units
4,000 Fully c o m p l e t e d a n d 3,200 100 3,200 100 3,200 100 3,200
tr a nsf e rr e d t o pro c e ss C
N orm a l W a st a g e 400 --- --- --- --- --- ---
A b n orm a l W a st a g e 100 100 100 50 50 50 50
_____ WIP a t e n d 300 100 300 75 225 50 150
4,000 To t a l 4,000 3,600 3,475 3,400

St a t e m e nt of C ost
El e m e nts of C ost A m o u nt E q uiv a l e nt Unit C ost
(Rs.) Pro d u c tio n (N os.) (Rs.)
M a t e ri a l I (In p ut)(Rs. 20,000–Rs. 2,000) 18,000 3,600 5.00
M a t e ri a l II ( A d d e d ) 10,425 3,475 3.00
W a g es 20,400 3,400 6.00
O v e rh e a ds 10,200 3,400 3.00
To t a l 59,025 - 17.00

St a t e m e nt of Ev a lu a tio n
El e m e nts of Unit C ost W ork in Pro gr e ss A b n orm a l Loss
C ost (`) E.P. C ost (Rs.) E.P. C ost (Rs.)
M a t e ri a l I 5.00 300 1,500 100 500
M a t e ri a l II 3.00 225 675 50 150
W a g es 6.00 150 900 50 300
O v e rh e a ds 3.00 150 450 50 150
To t a l 17.00 3,525 1,100

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(ii)
Dr. Pro c e ss B A c c o u nt C r.
P a rti c ul a rs Units ` P a rti c ul a rs Units Rs.
To In p ut 4,000 20,000 By N orm a l W a st a g e 400 2,000
To M a t e ri a ls A d d e d 10,425 By A b n orm a l W a st a g e 100 1,100
To W a g e s 20,400 By W ork-in-Pro gr e ss 300 3,525
To O v e rh e a ds _____ 10,200 By Pro c e ss C (3,200×Rs. 17) 3,200 54,400
4,000 61,025 4,000 61,025

5. (a) HOTEL IREVNA INN, has a c a p a city of 200 single rooms and 40 double rooms. The
a vera g e o c cup ancy of both single and double rooms is exp e cte d to b e 80%
throughout the y e ar of 365 d a ys. The rent for double room has b e en fixe d at 125% of
the rent of a single room. The c osts are as und er:
V aria ble C osts : Single Rooms Rs. 110 e a ch p er d a y
Double Rooms Rs. 175 e a ch p er d a y
Fixed C osts: Single Rooms Rs. 60 e a ch p er d a y
Double Rooms Rs. 125 e a ch p er d a y

Required:
C alculate the rent charg e a ble for e a ch single room and double room p er d a y in such
a wa y that the hotel e arns a m argin of safety of 20% on rent of rooms. 7

(b) O MEG A LTD und ertook a c ontra ct for the c onstruction of a building at a c ontra ct pric e
of Rs. 45,00,000. During the first y e ar, the following a mounts were sp ent a g ainst which
a sum of Rs. 16,87,500 (re presenting 90% of the work c ertifie d) was re c eive d by the
c ontra ctor:
Rs.
Materials used 7,87,500
Wa g es p aid to the workers 4,50,000
Overhe a d exp enses 1,12,500

During the se c ond y e ar, the c ontra ctor sp ent the following a mounts:
Rs.
Materials used 11,25,000
Wa g es p aid to the workers 9,00,000
Overhe a d exp enses 2,25,000

In the se c ond y e ar, the c ontra ct was c omplete d and a sum of Rs.26,25,000 was
re c eive d by the c ontra ctor.
You are re quire d to pre p are the C ontra ct A c c ount and the C ontra cte e A c c ount for
both the ye ars and d etermine the profits. 8
Answer:

5. ( a )
Occupancy (Number of room days in a year):
Nature of Room Occupancy
Single Rooms 200 × 365 × 80% = 58,400 Room days
Double Rooms 40 × 365 × 80% = 11,680 Room days
Computation of Total Cost:
Variable Costs: Amount (Rs.) Amount (Rs.)
Single Rooms (58,400 Room days × Rs. 110) 64,24,000

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Double Rooms (11,680 Room days × Rs. 175) 20,44,000 84,68,000

Fixed Costs:
Single Rooms (58,400 Room days × Rs. 60) 35,04,000
Double Rooms (11,680 Room days × Rs. 125) 14,60,000 49,64,000
Total Costs 1,34,32,000
Computation of Total Revenue:
Margin of safety 20%, Break Even Point 80%
Sales at BEP = Total Cost = Rs. 1,34,32,000
Total Revenue = Rs. 1,34,32,000 / 0.80 = Rs. 1,67,90,000

Computation of Notional Single Rooms Day:

Single Rooms (58,400 × 1) 58,400
Double Rooms (11,680 × 1.25) 14,600
Total: 73,000
Computation of Room Rent:
Rent per day per Single Room = Rs. 1,67,90,000 / 73,000 =Rs. 230
Rent per day per Double Room = Rs. 230 × 1.25 = Rs.287.50

(b): Contract Account

st
(At the end of 1 Year)
Particulars Rs. Particulars Rs.
To Materials Used 7,87,500 By Work-in-Progress
(16,87,500 / 0.90) 18,75,000
To Wages Paid 4,50,000
To Overhead Expenses 1,12,500
To Notional Profit c/d 5,25,000 -
18,75,000 18,75,000
To Profit & Loss A/c By Notional Profit b/d 5,25,000
1
(Rs. 5,25,000× × 90%) 1,57,500
3
To Work-in- Progress (Reserve) 3,67,500
5,25,000 5,25,000

Contractee Account
Particulars Rs. Particulars Rs.
To Balance c/d 16,87,500 By Bank A/c 16,87,500
16,87,500 16,87,500

Contract Account
nd
(On completion of Contract in the 2 Year)

Particulars Rs. Particulars Rs.

To Work-in-Progress By Contractee Account 45,00,000
(Rs. 18,75,000 – Rs. 15,07,500
3,67,500)
To Materials Used 11,25,000
To Wages Paid 9,00,000
To Overhead Expenses 2,25,000
To Profit & Loss A/c (Transfer) 7,42,500 -
45,00,000 45,00,000
Contractee Account
Particulars Rs. Particulars Rs.
To Contract A/c 45,00,000 By Balance b/d 16,87,500
By Bank A/c 26,25,000
By Balance c/d 1,87,500
45,00,000 45,00,000

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6. (a) PANCHAL LTD, a toy m anufa cturer e arns an a vera g e net profit of Rs. 1.80 p er pie c e on
a selling pric e of Rs. 16.50 by producing and selling 12000 pie c es or 60% of the
c a p a city. His c ost of sales p er toy is as und er:
Amount (Rs.)
Dire ct m aterial 4.25
Dire ct wa g es 1.60
Works O verhe a ds (40% fixed) 7.15
Sales O verhe a ds (30% fixed) 0.90

During the current y e ar, he intends to produc e the sa m e numb er of toys but
anticip ates that fixe d c ost will go up by 10%. Dire ct wa g es and m aterial will incre ase
by 6% and 4% resp e ctively but he has no option of incre asing the selling pric e. Und er
this situation, he obtains an offer for further sale of 20% of the c a p a city.

Required:
What minimum pric e you will re c om m end for a c c e ptanc e of the offer to ensure the
m anufa cturer an overall profit of Rs. 30,100? 8
(Show your c alculations upto 3 d e cim al points.)

(b) The following d ata p ertaining to sales and profit are extra cte d from the re c ords of
READYA AH LTD. for two y e ars:
Sales Profit
Ye ar 2017 Rs. 12,00,000 Rs. 80,000
Ye ar 2018 Rs.14,00,000 Rs. 1,30,000

Required:
C alculate the following:
(i) P/ V Ratio
(ii) Bre a k Even Point
(iii) Profit when sales are Rs. 18,00,000
(iv) Sales re quire d to e arn a profit of Rs. 1,20,000
(v) M argin of safety in the y e ar 2018. 7

Answer:

6. (a)
Computation of Profit at present after increase in Cost
Particulars Amount (Rs.) Amount
(Rs.)
I. Selling Price 16.500
II Variable Cost:
Direct Material (4.25 × 104) / 100 4.420
Direct Wages (1.60 × 106) / 100 1.696
Works Overheads (60% of Rs. 7.15) 4.290
Sales Overheads (70% of Re. 0.90) 0.630
Other Variable Cost:
(S.P Rs. 16.50) – (Profit Rs. 1.80) - Cost of Sales
Rs.(DM 4.25 + DW 1.60 + WO 7.15 + SO 0.90) 0.800 11.836
III Contribution per Unit/ Piece (I – II) 4.664
IV Total Contribution (12,000 Units/Pieces × Rs. 4.664) 55,968
V Fixed Cost:
Works Overheads 2.860

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Sales Overheads 0.270

3.130
(Rs. 3.13 × 12,000 Units = Rs. 37,560 × 110) / 100 41,316
VI Profit (IV – V) 14,652

Computation of Selling Price of the Offer:

Particulars Amount (Rs.)
Variable Cost of order (4,000 Units/Pieces × Rs. 11.836 47,344
Add: Required Profit (Rs. 30,100 – Rs. 14,652) 15,448
Sales required (in Rs.) 62,792
Selling Price per Unit/Piece of the order = Rs. 62,792 / 4,000 Units/ Pieces 15.698 say
Rs. 15.70

ALTERNATIVE ANSWER :6 (a)

Computation of Profit at present after increase in Cost
Particulars Amount (Rs.)
I Net Profit per Piece 1.80
II Total Pieces 12,000
III Total Net Profit (I × II) 21,600
IV Increased Direct Material Cost ( Rs.4.25 × 4%) × 12,000 2,040
V Increased Direct Wages Cost ( Rs.1.60 × 6%) × 12,000 1,152
VI Increased Works Overhead [{ ( Rs.7.15 × 40%) × 12,000} × 10%] 3,432
VII Increased Sales Overhead [{( Rs.0.90 × 30%) × 12,000} × 10%] 324
VIII Net Profit after increase in Cost {III – (IV +V v + VI + VII)} 14,652
IX Expected Net Profit 30,100
X Net Profit required to be earned (IX – VIII) 15,448

Computation of Selling Price of the Offer:

Particulars Amount (Rs.) Amount (Rs.)
I Variable Cost:
Material (4.25 × 104) / 100 4.420
Wages (1.60 × 106) / 100 1.696
Works Overheads (60% of Rs. 7.15) 4.290
Sales Overheads (70% of Re. 0.90) 0.630
Other Variable Cost 0.800 11.836
II Profit Per Piece (Rs. 15,448 / 4,000 Pieces) 3.862
III Selling Price per Piece of the order ( I + II) 15.698
Say Rs. 15.70

(b):

Sales (Rs.) Profit (Rs.)

Year 2017 12,00,000 80,000
Year 2018 14,00,000 1,30,000
Difference 2,00,000 50,000

(i) P/V Ratio = (Difference in Profit / Difference in Sales) × 100

P/V Ratio = (Rs. 50,000/ 2,00,000)× 100 = 25%

Contribution in 2017 (Rs. 12,00,000× 25% Rs. 3,00,000

Less: Profit Rs. 80,000
= Fixed Cost Rs. 2,20,000

ALTERNATIVELY
Contributioin in 2018 (Rs. 14,00,000× 25%) Rs. 3,50,000
Less: Profit Rs. 1,30,000
= Fixed Cost Rs. 2,20,000
s

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(ii) Break Even Point = Fixed Cost / PV Ratio = Rs. 2,20,000 /25% = Rs. 8,80,000

(iii) Profit when sales are Rs. 18,00,000

Contribution (Rs. 18,00,000× 25% Rs. 4,50,000
Less: Fixed Cost Rs. 2,20,000
Profit Rs. 2,30,000

(iv) Sales to earn a profit of Rs. 1,20,000

= (Fixed Cost + desired Profit) / PV Ratio
= (Rs. 2,20,000 + Rs. 1,20,000) / 25% Rs. 13,60,000

(v) Margin of Safety in 2018

=Actual Sales – Break Even Point
= Rs. 14,00,000 – Rs. 8,80,000 Rs. 5,20,000

7. (a) SUNRISE LTD, a m anufa cturing C omp any using Stand ard c osting furnishes thefollowing
inform ation:
The stand ard mix to produc e one unit of product A is as und er:
M aterial P 2 kg @ Rs. 20 p er kg
M aterial Q 3 kg @ Rs. 25 p er kg
M aterial R 4 kg @ Rs.15 p er kg

During the month of M arch 2019, 20 units of pro duct A were a ctually produc e d and
c onsumption of m aterial was as und er:
M aterial P 35 kg @ Rs.22 p er kg
M aterial Q 60 kg @ Rs. 24 p er kg
M aterial R 90 kg @ Rs.16 p er kg

Required:
C alculate the following Material V arianc es: 8
(i) Material Cost Variance

(ii) Material Price Variance

(iii) Material Quantity Variance

(iv) Material Mix Variance

(v) Material Yield Variance

(Calculate upto 2 decimal points.)

(b) The monthly (Se pte mb er 2019) bud g ets for Production overhe a d C osts of TANISHA LTD
for two le vels of A ctivity were as follows:
Particulars C a p a city Le vel
60% 100%
Bud g ete d Production (Units) 15000 25000
Rs. Rs.
Wa g es 60,000 1,00,000
C onsum a ble Stores 45,000 75,000

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M aintenanc e 55,000 75,000

Power and Fuel 80,000 1,00,000
De pre ciation 2,00,000 2,00,000
Insuranc e 50,000 50,000
4,90,000 6,00,000
Required:
(i) Pre p are Production overhe a d C osts Bud g et of 80% and 90% C a p a city level for
Se pte mb er, 2019 and
(ii) C ompute the total C ost, both fixe d and varia ble overhe a ds p er unit of output at
80% and 90% C a p a city level. 7

Answer:
7 ( a ):
Statement showing Standard and Actual Material Cost:

Standard for 20 Units Actual for 20 Units

Material Qty. (Units) Rate (Rs.) Amount (Rs.) Qty. (Units) Rate (Rs.) Amount (Rs.)
P 40 20 800 35 22 770
Q 60 25 1,500 60 24 1,440
R 80 15 1,200 90 16 1,440
Total 180 3,500 185 3,650

(i) Material Cost Variance

= Standard Cost (SC) – Actual Cost (AC)
= Rs. 3,500 – Rs. 3,650 = Rs. 150 (A)

(ii) Material Price Variance

= Actual Quantity [Standard Price (SP) – Actual Price (AP)]
Material P = 35 (Rs.20 – Rs. 22) = Rs. 70 (A)
Material Q = 60 (Rs. 25 – Rs.24) = Rs. 60 (F)
Material R = 90 ( Rs.15 – Rs.16) =Rs. 90 (A)
= Rs. 100 (A)
(iii) Material Quantity (Usage) Variance
= SP (SQ – AQ) where Q = Quantity
Material P = 20 (Rs.40 – Rs. 35) = Rs. 100 (F)
Material Q = 25 (Rs. 60 – Rs.60) = Nil
Material R = 15 ( Rs.80 – Rs.90) =Rs. 150 (A)
= Rs. 50 (A) 1
(iv) Material Mix Variance
= SP (Revised SQ- AQ)
Material P = 20 (kgs.41.11 – Rs. 35) = Rs. 122.20 (F)
Material Q = 25 (kgs. 61.67 – Rs.60) = Rs. 41.75 (F)
Material R = 15 (kgs.82.22 – Rs.90) =Rs. 116.70 (A)
= Rs. 47.25 (F) 1

Note: Revised Standard Quantity (RSQ) is calculated as follows:

Material P = (185/180) ×40 = 41.11 kgs.
Material Q = (185/180) ×60 = 61.67 kgs.
Material R = (185/180) × 80 = 82.22 kgs.

(v) Material Yield Variance

= Standard Cost (Yield Price)per Unit (Actual Yield – Standard Yield)
= Rs. 175 (20 Units– 20.56 Units) = Rs.98 (A)
Note:
(a) Standard Material Cost (Yield Price) per Unit of output
= Rs. 3,500 /20 = Rs. 175
(b) Standard Yield = Actual Usage of Material / Standard Usage per Unit of output

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= 185 /9 = 20.56 Units

(b):

Production Overhead Costs Budget:

(For September 2019)
Capacity level
Particulars 80% 90%
Production (Units) ’ 20,000 22,500
Rs. Per Unit Rs. Rs. Per Unit Rs.
Variable Overhead Costs: [A]
Wages @ Rs. 4 80,000 90,000
Consumable Stores @ Rs. 3 60,000 67,500
Maintenance @ Rs. 2 40,000 45,000
Power and Fuel @ Rs. 2 40,000 45,000
Total [A] 2,20,000 11.00 2,47,500 11.00
Fixed Overhead Costs: [B]
Maintenance 25,000 25,000
Power and Fuel 50,000 50,000
Depreciation 2,00,000 2,00,000
Insurance 50,000 50,000
Total [B] 3,25,000 16.25 3,25,000 14.44
Grand Total [A + B] 5,45,000 27.25 5,72,500 25.44

Working Notes:
(i) Maintenance Costs:
Variable = (Rs. 75,000 – Rs. 55,000) / (25,000 Units – 15,000 Units) = Rs. 2
Fixed = (Rs. 55,000) – ( 15,000 Units × Rs. 2) = Rs.25,000
(ii) Power and Fuel:
Variable = (Rs. 1,00,000 – Rs. 80,000) / (25,000 Units – 15,000 Units) = Rs.2
Fixed = (Rs. 80,000) – (15,000 Units × Rs. 2) = Rs. 50,000

8. Answer any thre e out of the following four questions: 5 3=15

(a) Explain the c onc e pt of O p portunity C ost and Impute d C ost with suita ble exa mples.
(b) State the limitations of C ost A c c ounting Syste m.
(c) Describ e the m ain obje ctives of M aterial C ontrol Syste m.
(d) Write a brief note on Princip al Bud g et Fa ctor.

Answer:

8. ( a ) O p portunity C ost :
O p p ortu nity c ost is th e v a lu e of a lt e rn a tiv e s f or e g o n e b y a d o p tin g a p a rti c ul a rstr a t e g y
or e m p lo yin gr e so ur c e s in sp e c ifi c m a n n e r. It is th e r e turn e x p e c t e d fro m a n in v e st m e nt
o th e r th a n th e pr e se nt o n e . Th e se r e f e r t o c osts w hi c h r e sult fro m th e use or a p p li c a tio n
of m a t e ri a l, l a b o ur or o th e r f a c iliti e s in a p a rti c ul a r m a n n e r w hi c h h a sb e e n f or e g o n e
d u e t o n o t usin g th e f a c iliti e s in th e m a n n e r ori gin a lly p l a n n e d .R e so ur c e s ( or in p ut) lik e
m e n,m a t e ri a ls, p l a nt a n d m a c hin e ry, fin a n c e e t c ., w h e n utiliz e d in o n e p a rti c ul a r w a y,
yi e l d a p a rti c ul a r r e turn (or o ut p ut).If th e s a m e in p ut is utiliz e d in a n o th e r w a y, yi e l d in g
th e s a m e or a d iff e r e nt r e turn, th e ori gin a l r e turn o nth e f ors a k e n a lt e rn a tiv e th a t is n o
lo n g e r o b t a in a b l e is th e o p p ortu nity c ost. F or e x a m p l e , if fix e d d e p osits in th e b a nk a r e
pro p ose d t o b e w ith dr a w n f or fin a n c in g proj e c t, th e o p p ortu nity c ost w o ul d b e th e

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loss of int e r e st o n th e d e p osits. Simil a rly, w h e n a b uil d in g l e a se d o ut o n r e nt t o a p a rty is

g o t v a c a t e d f or o w n p urp ose or a v a c a nt sp a c e isn o t l e a se d o ut b ut use d int e rn a lly,
s a y, f or e x p a nsio n of th e pro d u c tio n pro gr a m m e , th e r e nt so f or e g o n e is
th e o p p ortu nity c ost.

Impute d C ost:
Im p ut e d c ost is h y p o th e ti c a l or n o tio n a l c ost, n o t in v olvin g c a sh o utl a y a n d
c o m p ut e d o nly f or th e p urp os e o f d e c isio n-m a kin g . In this r e sp e c t, im p ut e d c ost is
simil a r t o o p p ortu nity c ost. Int e r e st o n fu n ds g e n e r a t e d int e rn a lly, p a y m e nt f or w hi c h is
n o t a c tu a lly m a d e is a n e x a m p l e of im p ut e d c ost. W h e n a lt e rn a tiv e c a p it a l
in v e st m e nt proj e c ts a r e b e in g c o nsi d e r e d o ut of w hi c h o n e or m or e a r e t o b e
fin a n c e d fro m int e rn a l fu n ds, it is n e c e ss a ry t o t a k e int o a c c o u nt th e im p ut e d int e r e st
o n o w n fu n ds b e f or e a d e c isio n is a rriv e d a t.

( b ) Limit a tio ns of C ost A c c o u ntin g Syst e m :

(i) Lik e a n y o th e r syst e m o f a c c o untin g , C ost A c c o u nt a n c y is n o t a n e x a c t

sc i e n c e b ut a n a rt w hi c h h a s b e e n d e v e l o p e d thro u g h th e ori e s a n d
a c c o u ntin g pr a c ti c e s b a s e d o n re a so nin g a n d c o m m o ns e ns e . M a n y o f th e
th e ori e s c a n n o t b e pro v e d n or c a n th e y b e d ispro v e d . Th e y gro w n u p in
c o urs e of tim e to b e c o m e c o n v e ntio ns a n d a c c e p t e d prin c ipl e s o f C ost
A c c o u ntin g .
(ii) Th e s e prin c ipl e s a re b y n o m e a ns st a ti c , th e y a re c h a n gin g fro m d a y to d a y
a n d w h a t is c orre c t to d a y m a y n o t h ol d tru e in th e c irc u mst a n c e s to m orro w .
(iii) In c ost a c c o untin g , n o c ost c a n b e s a i d to b e e x a c t a s th e y in c orp or a t e a
l a rg e n u m b e r of c o n v e ntio ns, e stim a tio ns a n d fl e xi bl e f a c tors su c h a s :-
(iii a ) C l a ssifi c a tio n o f c osts into its e l e m e nts.
(iii b ) M a t e ri a ls issu e pri c in g b a se d o n a v e r a g e or st a n d a rd c osts.
(iii c ) A p p ortio n m e nt o f o v e rh e a d e x p e ns e s a n d th e ir a llo c a tio n to c ost u nits/ c e ntre s.
(iii d ) Arb itr a ry a llo c a tio n o f joint c osts.
(iii e )Divisio n o f o v e rh e a ds into fix e d a n d v a ri a bl e .
(iv) C ost A c c o untin g l a c ks th e u niform pro c e d ures a n d form a ts in pre p a rin g th e
c ost inform a tio n of a pro d u c t / s e rvi c e .
(v) K e e p in g in vi e w a b o v e limit a tio ns, a ll C ost A c c o u ntin g re sults c a n b e t a k e n a s
m e re e stim a t e s.
s
( c ) O b j e c tiv e s of M a t e ri a l C o ntrol Syst e m:
(i) To m a k e c o ntin u o us a v a il a b ility of m a t e ri a ls so th a t th e r e m a y b e u nint e rru p t e d
flo w of m a t e ri a ls f or pro d u c tio n. Pro d u c tio n m a y n o t b e h e l d u p f or w a nt of
m a t e ri a ls.
(ii) To p ur c h a se r e q uisit e q u a ntity of m a t e ri a ls t o a v oi d lo c kin g u p of w orkin g c a p it a l
a n d t o minimise risk of sur p lus a n d o bsol e t e st or e s.
(iii) To m a k e p ur c h a se c o m p e titiv e ly a n d w ise ly a t th e m ost e c o n o mi c a l pri c e s so th a t
th e r e m a y b e r e d u c tio n in c ost of m a t e ri a ls.
(iv) To p ur c h a se pro p e r q u a ntity of m a t e ri a ls t o h a v e minim u m p ossi b l e w a st a g e of
m a t e ri a ls.
(v) To se rv e a s a n inf orm a tio n c e ntr e o n th e kn o w l e d g e in r e sp e c t of m a t e ri a ls f or
pri c e s, so ur c e s of su p p ly, l e a d tim e , q u a lity a n d sp e c ifi c a tio n.

( d ) Prin c i p a l Bu d g e t F a c t or:

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Bu d g e ts c ov er a ll th e fu n c tio n a l are as of th e org a nis a tio n. F or th e

e ff e c tiv e im p l e m e nt a tio n of th e b u d g e t a ry syst e m , a ll th e fu n c tio n a l a r e a s a r e t o
b e c o nsi d e r e d w hi c h a r e int e rlink e d . B e c a use of th e se int e rlinks, c e rt a in f a c t ors h a v e
th e a b ility t o a ff e c t a ll o th e r b u d g e ts. Su c h f a c t or is kn o w n a s prin c i p a l b u d g e t f a c t or.

Prin c i p a l Bu d g e t F a c t or is th e f a c t or th e e xt e nt of influ e n c e of w hi c h m ust first b e

a sse ss e d in ord e r t o e nsur e th a t th e fu n c tio n a l b u d g e ts a r e r e a so n a b ly c a p a b l e of
fulfillm e nt. A prin c i p a l b u d g e t f a c t or m a y b e l a c k of d e m a n d , sc a r c ity of r a w m a t e ri a l,
n o n- a v a il a b ility of skill e d l a b o ur, in a d e q u a t e w orkin g c a p it a l e t c . If f or e x a m p l e , th e
org a nis a tio n h a s th e c a p a c ity t o pro d u c e 2,000 u nits p e r a n n u m ; b ut th e
pro d u c tio n d e p a rt m e nt is a b l e t o pro d u c e o nly 1,600 u nits d u e t o n o n- a v a il a b ility of
r a w m a t e ri a ls. In this c a se , n o n- a v a il a b ility of r a w m a t e ri a ls is th e prin c i p a l b u d g e t
f a c t or (limitin g f a c t or). If th e s a l e s m a n a g e r e stim a t e s th a t h e c a n se ll o nly1,400 u nits
d u e t o l a c k of d e m a n d , th e n l a c k of d e m a n d is th e prin c i p a l b u d g e t f a c t or. This
c o n c e p t is a lso kn o w n a s k e y f a c t or or g o v e rnin g f a c t or. This f a c t or hi g hli g hts th e
c o nstr a ints w ithin w hi c h th e org a niz a tio n fu n c tio ns.

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 SUGGESTED ANSWERS TO QUESTIONS
INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
DECEMBER- 2021
Paper- 8 : COST ACCOUNTING
Time Allowed : 3 Hours Full Marks : 100

Section : A MCQ 20X1 = 20 Marks

Q.1 Cost units used in power sector is called:
Ans 1. Number of hours
2. Kilo meter (K. M)
3. Number of electric points
4. Kilowatt-hour(KWH)

Q.2 Cost units of Automobile Industry is .

Which word(s) according to you appropriately fills in above blank?
Ans 1. Cubic meter
2. Number of vehicle
3. Bed Night
4. Number of call

Q.3 Which of the following most appropriately defines 'Idle time'?

Ans 1. Time spent by workers in factory
2. Time spent by workers in office
3. Time spent by workers off their work
4. Time spent by workers on their job

Q.4 The allotment of whole items of cost of centers or cost unit is called
Ans 1. Overhead absorption
2. Cost allocation
3. None of these
4. Cost apportionment

Q.5 If an organization has all the resources it needs for production, then the principalbudget factor is most likely to be
Ans 1. labour supply
2. sales demand
3. raw materials
4. non-existing

Q.6 Time and motion study is conducted by the

Ans 1. Time –keeping department
2. Payroll department
3. Personnel department
4. Engineering department

Q.7 Sales budget is an example of

Ans 1. Functional budget
2. Master budget
3. Expenditure budget
4. Capital budget
Q.8 Absolute Tonne-km. is an example of:
Ans 1. Composite unit in power sector
2. Composite unit for oil and natural gas
3. Composite unit for bus operation
4. Composite unit of transport sector

Q.9 Which of the following is not an element of master budget?

Ans 1. Capital Expenditure Budget
2. Production Schedule
3. Operating Expenses Budget
4. All of these

Q.10 Selling and distribution overheads are absorbed on the basis of

Ans 1. rate per unit
2. Any of these
3. percentage on selling price of each unit
4. percentage on works cost.

Q.11 Standards deals with the principles and methods of determining depreciation and amortization cost-
Ans 1. CAS 12
2. CAS 9
3. CAS 16
4. CAS 15

Q.12 Which of the following is a service department?

Ans 1. Machining department
2. Finishing department
3. Refining department
4. Receiving department

Q.13 Batch Costing is a type of .

Which word(s) according to you appropriately fills in the above blank?
Ans 1. Direct Costing
2. Process Costing
3. Job costing
4. Differential Costing

Q.14 Audit fees paid to cost auditors is part of:

Ans 1. Administration Cost
2. None of these
3. Selling & Distribution cost
4. Production cost

Q.15 Which of the following is not an element of works overhead?

Ans 1. Sales manager’s salary
2. Factory repairman’s wages
3. Product inspector’s salary
4. Plant manager’s salary

Q.16 In Reconciliation Statement expenses shown only in cost accounts are

Ans 1. Deducted from financial profit
2. Ignored
3. Added to financial profit
4. Deducted from costing profit
Q.17 From cost control point of view the standard most commonly used is:
Ans 1. Theoretical standard
2. Expected standard
3. Normal standard
4. Basic standard

Q.18 Which of the following is generally a long term budget?

Ans 1. Sales budget
2. Cash budget
3. Research and Development budget
4. Capital expenditure budget

Q.19 Which method of absorption of factory overheads do you suggest in a concern which Produces only one
uniform time of product?
Ans 1. Direct labour rate
2. Percentage of direct wages basis
3. Machine hour rate
4. A rate per units of output

Q.20 In the context of Contract a/c, work completed and not yet certified will be shown
Ans 1. at cost under 'Completed Work'
2. at cost under WIP a/c
3. at cost plus notional profit less retention money under 'Completed Work'
4. at cost plus + 2/3rd of the notional profit under 'Completed Work'
 Section : B SAQ 20X1 = 20 Marks

Q.1 If actual loss in a process is less than normal loss, the difference is known as
.Using the appropriate word(s) fill in the Blank.
Answer: Abnormal Gain

Q.2 Profit volume ratio with increase in fixed cost. Using the appropriate word(s) fill in the Blank.

Answer: is constant

Q.3 VED analysis is primarily used for control of .Using the appropriateword(s) fill in the Blank.

Answer: Components or spare parts

Q.4 What is the name the type of loss for which a Process Account is credited with value for such loss when scrap value
is zero?
Answer: Abnormal Loss

Q.5 When raw material is accounted at standard cost, variances due to normal reasonswill be treated as cost. Using
the appropriate word(s) fill in the Blank.

Answer: Direct Material

Q.6 CAS stands for cost of service cost centre. Using the appropriateword(s) fill in the Blank.

Answer: CAS 13

Q.7 Notional remuneration to owner is expense debited only in . Usingthe appropriate word(s) fill in the Blank.

Answer: Cost Accounts

Q.8 Historical costing uses post period costs while standards costing uses
costs. Using the appropriate word(s) fill in the Blank.
Answer: Predetermined

Q.9 leads to budgeting and budgeting leads to budgetary control. Using the appropriate word(s) fill in the
Blank.
Answer: Forecasting

Q.10 Fixed cost is Rs 30,000 and P/V ratio is 20%. Compute breakeven point.

Answer: Rs. 1,50,000

Q.11 The amount of sales of a product is Rs 1,00,000. Its variable cost is Rs 40,000 and fixed cost is Rs . 50,000. The
amount of BEP sales will be

Answer: Rs. 83,334

Q.12 A labour cost standard is based on estimates of the to produce a unit of product and the cost of labour per
unit. Using the appropriate word(s) fill in the Blank.

Answer: Labour hours required

Q.13 A factory has to produce and supply 24000 units of a component annually to acustomer. The carrying cost per unit is Rs 2
per component per month. The production run set up cost is Rs 1,800 per production run. Find out the economic batch size that
must be produced to minimize total costbased on the above information.

Answer: Economic Batch Quantity = 1897 units approx. / batch

Q.14 Standard Costing is one of the techniques. Using theappropriate word(s) fill in the Blank.

Answer: Cost Control

Q.15 Cost variance is the difference between .Using the appropriate word(s) fillin the Blank.

Answer: The standards cost and actual cost.

Q.16 A work measurement study was carried out in a firm for 10 hours. The information generated was: Units produced
600; Idle time 15%; Performance rating 120%; and Relaxation Allowance 10% of standard time. What is the standard
time for each unit produced?

Answer: Standard Time for each unit = 1.133 minutes

Q.17 Differential cost is the change in the cost due to change in from one level to another. Using the appropriate
word(s) fill in the Blank.

Answer: Activity

Q.18 In Absorption costing, cost is added to inventory. Using theappropriate word(s) fill in the Blank.

Answer: Fixed

Q.19 Match the items in Column I with the most appropriate items in Column II. State theitem no. only

Answer: (i) (B) Contract costing

(ii) (C) Imputed Cost

Q.20 Margin of safety is .Using the appropriate word(s) fill in the Blank.

Answer: Actual sales – sales at Breakeven point or Profit/ PV Ratio.

 Section : C
(4X12 = 48 Marks)
ONE LAQ

6 Marks
Q.1 Two workmen, Suresh and Umesh, produce the same product using the same material. Their normal wage rate is also
the same. Suresh is paid bonus according to the Rowan system, while Umesh is paid bonus according to the Halsey
system. The time allowed to make the product is 25 hours. Suresh takes 15 hours while Umesh takes 20 hours to
complete the product. The factory overhead rate is Rs 5 per man-hour actually worked. The factory cost for the product
for Suresh is Rs 1,745 and for Umesh it is Rs 1,800.
(i) What is the amount of normal rate of wages per hour? [2]
(ii) The cost of materials would be how much? [2]
(iii) What is the amount of wages payable to workmen Suresh ?[2]

Answer:

(i) Normal rate of wages = Rs. 20

(ii) Cost of materials = Rs. 1250

(iii) The wages payable to workman Suresh=Rs. 420

6 Marks
Q.2 Rajput Transport Service is a Delhi based national goods transport service provider, owning five trucks for this purpose.
The cost of running and maintaining these trucks are as follows:

Each truck was purchased for Rs. 30 lakh with an estimated life of 7,20,000 km. During the next month, it is expecting 6
bookings, the details of which are as follows:

(i) What is the total absolute Ton-km for the next month? [3]
(ii) The cost per ton-km would be how much ? [3]

Answer:

(i) Total absolute Ton-km = 1,89,115 ton-km

(ii) Cost per ton-km= Rs. 5.84
 TWO LAQ

8 Marks
Q.1 The following information is available from the financial books of BG Mfg. Co. having a normal production capacity of
120,000 units for the year ended 31st March, 2021:
*Sales Rs 20, 00,000 (100,000 units).
*There was no opening and closing stock of finished units.
*Direct material and direct wages cost were Rs 10, 00,000 and Rs 5, 00,000 respectively.
*Actual factory expenses were Rs 3, 00,000 of which 60% are fixed.
*Actual administrative expenses related with production activities wereRs 90,000 which are completely fixed.
*Actual selling and distribution expenses were Rs 60,000 of which 40% are fixed.
*Interest and dividends received Rs 30,000. Required:
(i) Find out profit as per financial books for the year ended 31st March, 2021; (3)
(ii) What is the amount of profit as per cost accounts for the year ended 31st March, 2021 assuming that the
indirect expenses are absorbed on the basis of normal production capacity; (4)
(iii) What is the amount of Factory expenses under charged in cost Accounts?(1)

Answer:
(i) Profit as per financial accounts = Rs. 80,000
(ii) Profit as per Cost accounts = Rs. 99,000
(iii) Factory expenses under-charged in cost accounts = Rs. 30,000

Q.2 List the objective and scope of CAS-24. 4 Marks

Answer:
CAS 24 Cost Accounting Standard on Treatment of Revenue in Cost Statements [Limited Revision 2017]
This standard deals with the principles and methods of classification, measurement, treatment and
assignment of revenue and its presentation and disclosure in cost statements.
Objective The objective of this standard is to bring uniformity and consistency in the principles and methods
for treatment of revenue in cost statements with reasonable accuracy.
Scope This standard shall be applied to cost statements which require classification, measurement,
treatment, assignment, presentation and disclosure of revenue including those requiring attestation.
 THREE LAQ

6 Marks
Q.1 SUN Ltd. undertook a contract for Rs 50,00,000 on 1st April, 2020. On 31st March, 2021 when the accounts of the company
were closed, the following details about the contract were gathered:

The above contract contained an escalation clause which read as follows:

"In the event of prices of materials and rates of wages increase by more than 5%, the contract price would be increased
accordingly by 25% of the rise in the cost of materials and wages beyond 5% in each case."
It was found that since the date of signing the agreement, the price of materials and wage rates increased by 25%. The
value of work certified does not take into account the effect of the above clause.
(i) The contract price will be increased by .(1)
(ii) What is the amount of Notional Profit for the year ended March 31, 2021 ?(4)
(iii) The value of work-in-progress (Reserved) shown in the balance sheet is . (1)

Answer:
(i) Contract price increased by = Rs. 50,000
(ii) Notional Profit = Rs. 8,00,000
(iii) Value of work-in-progress (Reserve) = Rs. 6,00,000

6 Marks
Q.2 ESPM Ltd sold 5,50,000 units of its product at Rs 75 per unit. Variable costs are Rs 35 per unit (manufacturing costs of Rs
28 and selling cost Rs 7 per unit). Fixed costs are incurred uniformly throughout the year and amount to Rs 70,00,000
(including depreciation of Rs 30,00,000). There is no opening or closing stock.
(i) Estimate the breakeven sales level quantity and cash breakeven sales level quantity.(2)
(ii) What is the P/V ratio ? (2)
(iii) The sales level to be achieved an after-tax income (PAT) of Rs 5,00,000 would be how much? (Assume 40%
corporate Income Tax rate). (2)

Answer:
(i) Break even Sales Quantity = 1,75,000 units
Cash Break even sales Quantity = 1,00,000 units
(ii) P/V ratio = 53.33% or 53.33333
(iii) Sales level to achieve an after‐tax income (PAT) of Rs.5,00,000 = Rs.1,46,87,500
 FOUR LAQ

6 Marks
Q.1 QBZ Limited produces and sells a single product. Sales budget for calendar year 2020 by a quarter is as under:

The year is expected to open with an inventory of 12,000 units of finished products and close with inventory of 16,000
units. Production is customarily scheduled to provide for 70% of the current quarter’s sales demand plus 30% of the
following quarter demand. The budgeted selling price per unit is Rs 80 . The standard cost details for one unit of the
product are as follows:
Variable Cost Rs 69.00 per unit
Fixed Overheads @ Rs 4 per hour based on a budgeted production volume of 2,20,000 direct labour hours for the year.
Fixed overheads are evenly distributed through-out the year.
(i) What is the Budgeted Total Production (in unit) for the year 2020? (4)
(ii) In which quarter of the year, company expected to achieve break-even point? (2)

Answer:

(i) Budgeted Total Production for the year 2020 = 1,88,000 units
(ii) The company will break even in the end of Second Quarter
The total sales by the end of Quarter 2 will be 80,000 units i.e. (36,000 + 44,000). Hence the
Company will break-even in the end of Second Quarter.

6 Marks
Q.2 The total overhead expenses of a factory of SWASTIK Ltd are Rs 535656. Taking into account the normal working of the
factory, overhead was recovered in production at Rs 1.60 per hour. The actual hours worked were 274785. The factory
produced 7800 units of which 7000 were sold. There were 200 equivalent units inwork-in-progress.
On investigation, it was found that 50% of the unabsorbed overhead was on account of increase in cost of indirect
materials and indirect labour and theremaining 50% was due to factory inefficiency.
Required:
(i) What is the amount of unabsorbed overheads?(2)
(ii) Ascertain the supplementary rate per unit.(1)
(iii) The amount of unabsorbed overheads to be distributed by using supplementary rate among cost of sales would
be how much? (2)
(iv) Which amount of unabsorbed overheads should be charged to Profit and loss Account? (1)

Answer:

(i) Unabsorbed overheads = Rs. 96,000

(ii) Supplementary rate per unit: Rs. 6 per unit
(iii) Cost of Sales = Rs. 42,000
(iv) Unabsorbed overhead charged to profit & Loss Account = Rs. 48,000
 FIVE LAQ

2+4+2+2+2 = 12 Marks
Q.1 SWASTY Ltd. furnishes the following information for the month of November, 2021.

During the month 10,000 kg. of materials and 3,100 direct labour hours wereutilized.
i) What is the amount of Direct Labour cost for flexible Budgeted Production and sold?
ii) What is the amount of flexible budgeted profit for the month of November 2021?
iii) Calculate the material usage variance for the actual vs the flexible budget
iv) The direct labour rate variance for the actual vs the flexible budget is___________
v) The material price variance for the actual vs the flexible budget would be how much?

Answer:

(i) Direct Labour cost for flexible Budgeted Production and sold is Rs. 2,30,400
(ii) Flexible budgeted profit = Rs. 1,20,800
(iii) Material Usage Variance for the Actual vs Flexible Budget = Rs. 12,000 (A)
(iv) The Direct Rate Variance for the Actual vs the Flexible Budget is Rs. 2,400 (A)
(v) Material Price Variance for the Actual vs Flexible Budget is Rs. 10,000 (A)
 SIX LAQ
(3x4 = 12 Marks)

Q.1 Write Short Notes on Differentiate between Operation Cost and Operating Cost 3 Marks

Answer: Operation Cost: Operation cost is the cost of a specific operation involved in a production process
or business activity. The cost unit in this method is the operation, instead of process. When the
manufacturing method of a concern consists of a number of distinct operations, operating costing is
suitable.
Operating Cost: Operating cost is the cost incurred in conducting a business activity. It refers to
the cost of concerns which do not manufacture any product but which provide services. Industries and
establishments like power house, transport and travel agencies, hospitals, schools etc. which undertake
services rather than the manufacture of products, ascertain operating costs. The cost units used are Kilo
Watt Hour (KWH), Passenger Kilometre and Bed in the Hospital etc. Operation costing method
constitutes a distinct type of costing but it may also be classed as a variant of process cost since costs
in this method are usually compiled for a specified period.

Q.2 Write Short Notes on Benefits of Integrated Accounting system

3 Marks

Answer: Integrated accounting system has the following benefits:‐

As only one set of accounting records is kept, the need for reconciliation between the profits shown by
the two records are eliminated.
The duplication is eliminated, thus the cost is reduced.
Simple to understand and easy to operate, unnecessary complications are eliminated.
Cost data can be available promptly and regularly.
There is cross - checking of various figures in cost as well as in financial accounts and this ensures
accuracy of cost and financial data.
Use of mechanized accounting methods can be made.

Q.3 Write Short Notes on Advantages of Budget Manual 3 Marks

Answer: The methods and procedures of budgetary control are standardized.

It is a formal record defining the functions and responsibilities of each executive.
There is synchronization of the efforts of all which result in maximization of the profits of the
organization.
Ambiguity is avoided.

Q.4 Write Short Notes on Perpetual Inventory System 3 Marks

Answer: Perpetual Inventory System means continuous stock taking. CIMA defines Perpetual Inventory System as
‘the recording as they occur of receipts, issues and resulting balances of individual items of stock in
either quantity or quantity and value’. Under this system a continuous record of receipt and issue of
materials is maintained by the stores department and the information about the stock of materials is
always available. Entries in the Bin card and stores ledger are made after every receipt and issue and the
balance is reconciled on regular basis with the physical stock. The main advantage of this system is that
it avoids disruptions in the production caused by periodic stock taking. It’s a very reliable check on the
stocks.

Q.5 Write Short Notes on Cost-plus Contract

3 Marks

Answer: In this type of contracts the contractor is usually entitled to a stipulated amount of profit in addition to
actual cost of the service. The amount of profit to be added to the actual cost of contract may be in the
form of fixed amount on a percentage on actual cost. This type of contract is generally entered into for
executing special type of work which is not usually undertaken by the contractor. Examples of this type
of contracts are construction work during war, production of newly designed ship, etc. This type of
contract is advantageous both to the contractor and the contractee. Contractor generally receives a
reasonable profit. He is protected from any loss or unusual risk. Contractee can ensure a fair price of the
contract because the contractee is entitled to verify the books of contractor.
 Section : D - Case Study Question

3+3+3+3 = 12 Marks
Q.1

i) What are the Equivalent Productions of materials and Labour & Overheads (in units).
ii) What are the cost of materials per unit and cost of labour & Overheads per unit?
iii) What is the value of closing W.I.P?
iv) What is the amount of transfer to Process -4 shown in the Process-3 Account?

Answer:

(i) Material = 288 units

Labour & Overheads = 279 units
(ii) Cost of material per unit = Rs. 120
Cost of Labour & Overheads per unit = Rs. 140
(iii) Value of Closing WIP = Rs. 2,640
(iv) Amount transferred to Process-4 Account = Rs. 70,980
 SUGGESTED ANSWERS TO QUESTIONS

SECTION – A
1X10 = 10 Marks
1. (a).
(i) (C)
(ii) (B)
(iii) (B)
(iv) (C)/ (D)
(v) (D)
(vi) (A)
(vii) (B)
(viii) (A)/ (D)
(ix) (B)
(x) (C)

1. (b). 1X5 = 5 Marks

(i) (G)
(ii) (C)
(iii) (E)
(iv) (A)
(v) (B)

1. (c). 1X5 = 5 Marks

(i) True
(ii) False
(iii) False
(iv) False
(v) True

1. (d). 1X5 = 5 Marks

(i) Sunk
(ii) VED (Vital, Essential, and Desirable)
(iii) Joint Cost
(iv) 6%
(v) Variable, Fixed

1
 SECTION – B
(Any FIVE from questions number 2 to 8)
15X5=75 Marks
2. (a). 8 Marks
(i) Re-Order Quantity (ROQ) = 2000 Kg.
(ii) Re-order Level (ROL) = 2100 Kg.
(iii) Maximum Level = 3100 Kg
(iv) Minimum Level = 600 Kg.
(v) Average Stock Level = 1850 Kg OR 1600 Kg.
(vi) Danger Level = 1000 Kgs.
2. (b). 7 Marks
(Amount in ₹)
Under-absorbed Overheads 60000
Treatment of under-absorbed overhead in the cost Accounts:
(i) 60% of under-absorbed overhead is due to defective planning. This 36000
being abnormal should be debited to the Costing Profit and Loss
account (60000 × 0.60)
(ii) Balance of 40% of under-absorbed overhead should be distributed 24000
over, closing stock of finished goods and cost of sales by
supplementary rate (40% of 60000)

3 (a): 7 Marks
The cost statements shall disclose the following:
(i) The basis of assignment of production or operation overheads to the cost objects.
(ii) Production or operation overheads incurred in foreign exchange.
(iii) Production or operation overheads relating to resources received from or supplied to related
parties (Related party as per the applicable legal requirements relating to the cost statement as on
the date of the statement).
(iv) Any subsidy, grant, incentive, or any amount of similar nature received or receivable reduced
from production or operation overheads.
(v) Credits or recoveries relating to the production or operation overheads.
(vi) Any abnormal cost not forming part of the production or operation overheads
(vii) Any unabsorbed production or operation overheads.

3. (b). 8 Marks

Particulars Amount (₹)

Net loss as per Cost Accounts (35400)
Total Additions 255100
Total Deduction (151900)
Net Profit as per Financial A/cs 67800

2
4. (a). 8 Marks
(i) Total work cost = ` 528000
(ii) Cost per unit and Total Cost = ` 23.09 and ` 831200
(iii) Profit per unit and Total profit = ` 6.91 and ` 248800

4. (b). 7 Marks
Statement showing the Apportionment of Joint Costs to the three Joint products and the Profitability
of each product.
Products
PARTICULARS CSD CH HY Total
(₹) (₹) (₹) (₹)
Realization from sale 450000 300000 72000 822000
Less: Expected profit (15%, 12%, and 10%) on 67500 36000 7200 110700
realization
Less: Selling exp. (5% on realization) 22500 15000 3600 41100
The estimated cost of production 360000 249000 61200 670200
Less: After separation costs 190000 90000 15000 295000
170000 159000 46200 375200
Estimated joint cost and their percentages
45.31% 42.38% 12.31% 100%
Actual joint cost apportioned in the ratio of 190302 177996 51702 420000
estimated joint costs (45.31: 42.38: 12.31)
Add: After separation cost 190000 90000 15000 295000
The actual cost of production 380302 267996 66702 715000
Add: Selling expenses 22500 15000 3600 41100
Profit realized (Balancing figure) 47198 17004 1698 65900
Realization from sale 450000 300000 72000 822000

5. (a). 8 Marks

Charges Per Passenger:

To Rest Village from New City = 250 x 1.026 = ₹ 257
To Kolanpur from New City = 200 x 1.026 = ₹ 205

5. (b). 5+2 = 7 Marks

Contract Account for the period ending 31.03.2022
(Amount in ₹)
To Material sent By Work Certified 2000000
To Site 1400000 1800000 x (100/90)
Less: Material at the 0000 1370000 By Work not certified 100000
site
” Wages 250000
Add: Outstanding 5000 255000
” Site Expenses 5000
” Postage and 4000
Telegram
” Power and Fuel 125000
” Office Expenses 8000
3
” Rates and Taxes 15000
” Depreciation 75000
(2500000 x 0.60 x 0.05)
” Notional Profit 243000
(Balance C/d)
2100000 2100000
” P & L A/c. 72900
1/3 x 90/100 x 243000
” WIP – A/c. 170100
(Reserve of unrealized profit
243000 243000
Working – in – Progress A/c.
Work Certified 2000000
Less: Cash Received 1800000
200000
Less: Reserve for unrealized profit 170100
29900
Add: Work done but no certified 100000
129900
(i)

6. (a). 2X4 = 8 Marks

i. Direct Labour Rate Variance = ₹ 750 (Adv.)

ii. Direct Labour Idle Time Variance = ₹ 187.50 (Adv.)
iii. Direct Labour efficiency variance = ₹ 12.50 (Fav.)
iv. Direct Labour total variance = ₹ 925 (Adv.)

6. (b). 7 Marks

Year 2022 – 23 Quarter

I II III IV Total
Units Units Units Units Units
(i) Production Budget (in units) 31500 38250 42000 48250 160000
(ii) Raw Material consumption budget (in quantity) 63000 76500 84000 96500 320000
(iii) Raw Material purchase budget (in quantity) for the year 2022 – 23. = 315000 Kg

7. (a). 8 Marks
Selling price required to be fixed in 2022 = ₹ 66
Number of Units to be produced and sold in 2022 = 85834 units

7. (b). 7 Marks
(i) P/V Ratio and Break Even Sales = 30% and ₹ 40 Lakhs
(ii) New Break-even sales = ` 50 Lakhs
(iii) Increase in Sales = ` 8 Lakhs
(iv) I- Increase in Sales Volume = 25%
II- Decrease in Sales Volume = 25%

4
8. Short Notes: (ANY THREE)
5X3=15 Marks
(a) Objective of Cost Accounting:

The following are the main objectives of Cost Accounting:

(i) To ascertain the Costs under different situations using different techniques and systems of
costing
(ii) To determine the selling prices under different circumstances
(iii) To determine and control efficiency by setting standards for Materials, Labour, and Overheads
(iv) To determine the value of closing inventory for preparing financial statements of the concern
(v) To provide a basis for operating policies which may be the determination of Cost Volume
relationship, whether to close or operate at a loss, whether to manufacture or buy from the
market, whether to continue the existing method of production or to replace it by a more
improved method of production .... etc.

(b) Just-in-Time (JIT):

Just in time (JIT) is a production strategy that strives to improve the business return on investment by
reducing in-process inventory and associated carrying costs. Inventory is seen as incurring costs, or
waste, instead of adding and storing value contrary to traditional accounting. In short, the Just-in-Time
inventory system focuses on "the right material, at the right time, at the right place, and in the exact
amount" without the safety net of inventory.

The advantages of Just - in - Time system are as follows: (Any Three)

(i) Increased emphasis on supplier relationships. A company without inventory does not want a supply
system problem that creates a part shortage. This makes supplier relationships extremely important.
(ii) Supplies come in at regular intervals throughout the production day.
(iii) Reduces the working capital requirements, as very little inventory is maintained.
(iv) Minimizes storage space.
(v) Reduces the chance of inventory obsolescence or damage.

(c) ZERO-BASED BUDGETING (ZBB):

Zero-Based Budgeting (ZBB) is a method of budgeting which requires each cost element to be
specifically justified, though the activities to which the budget relates are being undertaken for the first
time, without approval, the budget allowance is 'zero'. It is an activity-based budgeting system in which
a budget is prepared for each activity and the justification in the form of cost-benefits for the activity is
necessary to be given.

ZBB involves various stages:

(a) identification of decision packages and their description in detail,
(b) evaluation of decision packages,
(c) selection of decision packages according to priority, and
(d) allocation of resources after approval of the budget committee and the top management.

5
(d) Advantages of Cost Control
The advantages of cost control are mainly as follows
(i) Achieving the expected return on capital employed by maximizing or optimizing profit
(ii) Increase in productivity of the available resources
(iii) Reasonable price for the customers
(iv) Continued employment and job opportunities for the workers
(v) Economic use of limited resources of production
(vi) Increased credit worthiness
(vii) Prosperity and economic stability of the industry.

6
 9990399946

NAME

COURSE

STATE

Bury