CA INTERMEDIATE

COST AND MANAGEMENT ACCOUNTING

IMPORTANT QUESTIONS LIST

CHAPTER NUMBER CHAPTER NAME QUESTION NUMBER

1 INTRODUCTION
2 MATERIAL COST 6, 9, 10, 13, 18, 19, 27, 28, 30, 37, 42, 45
3 LABOUR 10, 11, 17, 19, 20, 26, 34, 36, 37, 40
4 OVERHEADS 4, 14, 16, 17, 18, 20, 21, 25, 27, 29, 37, 41, 43
5 ACTIVITY BASED COSTING 4, 7, 8, 9, 11, 12, 15,19, 20
6 COST SHEET 5, 6, 7, 9, 12, 13, 16, 18, 19, 21, 23
7 COST ACCOUNTING 2, 4, 9, 13, 17, 19, 28
SYSTEM
8 UNIT COSTING
9 JOB & BATCH COSTING
10 PROCESS COSTING 5, 6, 8, 13, 14, 17, 23, 26, 29, 31, 33
11 JOINT PRODUCT & BY 4, 6, 10, 11, 16, 17
PRODUCT
12 SERVICE COSTING 8, 9, 12, 13, 16, 20, 22, 28, 29, 32, 34, 37, 40,
41, 42
13 STANDARD COSTING 4, 6, 10, 11, 16, 17, 18, 20, 24, 25, 27, 29, 32,
34, 38, 39, 40, 41, 44, 46, 48
14 MARGINAL COSTING 7, 8, 13, 15, 20, 22, 29, 30, 32, 35, 41, 48, 51,
54, 55, 56, 57, 59, 61, 63, 64, 68, 69, 71, 73,
74
15 BUDGET & BUDGETARY 4, 7, 9, 10, 14, 16, 19, 21, 22, 23, 24, 25, 29,
CONTROL 30, 32, 34, 35, 37
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INDEX

01 INTRODUCTION TO COST &

MANAGEMENT ACCOUNTING
1

02 MATERIALS COST 1

03 EMPLOYEE COSTS &

DIRECT EXPENSES
27

04 OVERHEADS 49

05 ACTIVITY BASED COSTING 83

06 COSTSHEET 107

07 COST ACCOUNTING SYSTEMS 131

08 UNIT COSTING 159

09 JOB COSTING 171

10 PROCESS AND OPERATION

COSTING
179

11 JOINT PRODUCTS &

BY PRODUCTS
203

12 SERVICE COSTING 219

13 STANDARD COSTING 253

14 MARGINAL COSTING 281

15 BUDGETS AND
BUDGETARY CONTROL
309
2 MATERIALS
COST
 EOQ Without Discount
MATERIALS COST

Q.1. Calculate the Economic Order Quantity from the following information. Also state
NB the number of orders to be placed in ayear.
PN Consumption of materials per annum 10,000 kg.
Order placing cost per order: `50
Cost per kg. of raw materials: `2
Storage costs: 8% on average inventory

Q.2. Compute E.O.Q. and the total variable cost for the following:

NB Annual Demand = 5,000 units

PN Unit price = `20.00
Order cost = `16.00
Storage rate = 2% per annum
Interest rate = 12% per annum
Obsolescence rate = 6% per annum
(ii) Determine the total variable cost that would result for the items if an incorrect
price of `12.80 is used.

Q.3. The annual carrying cost of material ‘X’ is `3.6 per unit and its total carrying cost is
NB `9,000 per annum. What would be the Economic order quantity for material ‘X’?
PN

Q.4. The complete Gardener is deciding on the economic order quantity for two brands
NB of lawn fertilizer. Super Grow and Nature’s Own. The following information is
PN collected:

Particulars Fertilizer
Super Grow Nature’s own
Annual Demand 2,000 bags 1,280 bags
Relevant ordering cost per purchase order `1,200 `1,400
Annual relevant carrying cost per bag `480/- `560/-

Required:
(i) Compute EOQ for Super Grow and Nature’s own.
(ii) For the EOQ, what is the sum of the total annual relevant ordering costs and total

CA/CS Nimeet Piti 2

 annual relevant carrying costs for Super Grow and Nature’s own?
(iii) For the EOQ, compute the number of deliveries per year for Super Grow and

MATERIALS COST
Nature’s own.

Q.5. Anil & Company buys its annual requirement of 36,000 units in 6 installments. Each
NB unit costs `1 and the ordering cost is `25. The inventory carrying cost is estimated
PN at 20% of unit value. Find the total annual cost of the existing inventory policy. How
much money can be saved by Economic Order Quantity?

EOQ with discount

Q.6. RST Limited has received an offer of quantity discount on its order of materials as
under:

NB
Price per tonne Tones number
PN `9,600 Less than 50
`9,360 50 and less than 100
`9,120 100 and less than 200
`8,880 200 and less than 300
`8,640 300 and above
The annual requirement for the material is 500 tonnes. The ordering cost per order
is `12,500 and the stock holding cost is estimated at 25% of the material cost per
annum.
Required:
(i) Compute the most economical purchase level.
(ii) Compute EOQ if there are no quantity discounts and the price per tonne is
`10,500.

Q.7. JP Limited, manufacturers of a special product, follows the policy of EOQ (Economic
NB
Order Quantity) for one of its components. The component’s details are as follows:
PN (`)
Purchase Price Per Component 200
Cost of an Order 100
Annual Cost of Carrying one Unit in Inventory 10% of Purchase Price
Total Cost of Inventory and Ordering Per
Annum 4,000
3 MATERIALS COST
 The company has been offered a discount of 2% on the price of the component
provided the lot size is 2,000 components at a time.
MATERIALS COST

You are required to:

(a) Compute the EOQ
(b) Advise whether the quantity discount offer can be accepted.
(c) Would your advice differ if the company is offered 5% discount on a single
order?

Q.8. A Company manufactures a special product which requires a component ‘Alpha’. The
following particulars are collected for the year 2013:
NB
PN (i) Annual demand of Alpha: 8,000 unit
(ii) Cost of placing an order: `200 per order
(iii) Cost per unit of Alpha: `40
(iv) Carrying cost % p.a.: 20%

The company has been offered a quantity discount of 4% on the purchase of ‘Alpha’,
provided the order size is 4,000 components at a time.
Required:
(i) Compute the economic order quantity.
(ii) Advise whether the quantity discount offer can be accepted.

Q.9. DSM Ltd manufactures speed boats which require propeller TP-M4. The following
particulars are collected for the year 2023-24:
NB
PN (i) Annual demand of TP-M4 12,000 units
(ii) Cost of placing an order 1,200 per order
(iii) Cost per unit of TP-M4 is 1,740/-
(iv) Carrying cost p.a. 12%
The company has been offered a quantity discount of 5 % on the purchase of TP-M4,
provided the order size is 6,000 units at a time.
Required to:
(i) COMPUTE the economic order quantity (EOQ)
(ii) ADVISE whether the quantity discount offer can be accepted.

CA/CS Nimeet Piti 4

Q.10. Reliable India Pvt Ltd is a startup company engaged in manufacturing of Agro Tech
NB product from a raw material, which is purchased at `190 per kg. The company incurs

MATERIALS COST
PN a handling cost of `1,470 plus, freight of `770 per order. The incremental carrying
cost of inventory of raw material is `3 per kg per month. In addition, the cost of
working capital finance on the investment in inventory of raw material is `20 per kg
per annum. The annual production of the product is 1,50,000 units and 3 units are
obtained from one kg. of raw material. Assume 360 days in a year.
Required:
(i) Calculate the economic order quantity of raw materials.
(ii) Determine, how frequently company should order for procurement be placed.
(iii) If the company proposes to rationalize placement of orders on quarterly basis,
determine the percentage of discount in the price of raw materials should be
negotiated?

Stock Levels
Q.11. PQR Ltd., manufactures a special product, which requires ‘ZED’. The following
NB particulars were collected for the year
PN
2005-06:
(i) Monthly demand of Zed: 7,500 units
(ii) Cost of placing an order: `500
(iii) Re-order period: 5 to 8 weeks
(iv) Cost per unit: `60
(v) Carrying cost % p.a.: 10%
(vi) Normal usage: 500 units per week
(vii) Minimum usage: 250 units per week
(viii) Maximum usage: 750 units per week

Required:
(i) Re-order quantity.
(ii) Re-order level.
(iii) Minimum stock level.
(iv) Maximum stock level.
(v) Average stock level.

5 MATERIALS COST
 Q.12. From the details given below, calculate:
NB (i) Re-ordering level
MATERIALS COST

PN
(ii) Maximum level
(iii) Minimum level
(iv) Danger level.
Re-ordering quantity is to be calculated on the basis of following information:
Cost of placing a purchase order is `20
Number of units to be purchased during the year is 5,000
Purchase price per unit inclusive of transportation cost is `50
Annual cost of storage per units is `5.
Details of lead time :
Average 10 days, Maximum 15 days, Minimum 6 days.
For emergency purchases 4 days.
Rate of consumption : Average: 15 units per day,
Maximum: 20 units per day.

Q.13. A company manufactures 10,000 units of a product per month. The cost of placing
NB an order is Rs. 200. The purchase price of the raw material is Rs. 20 per kg. The
PN re-order period is 4 to 8 weeks. The consumption of raw materials varies from 200
kg to 900 kg per week, the average consumption being 550 kg. The carrying cost of
inventory is 20% per annum.
You are required to CALCULATE:
(i) Re-order quantity
(ii) Re-order level
(iii) Maximum level
(iv) Minimum level
(v) Average stock level

Q.14. Re-order quantity of material ‘X’ is 5,000 kg.; Maximum level 8,000 kg.; Minimum
usage 50 kg. per hour; minimum re-order period 4 days; daily working hours in the
NB
factory is 8 hours You are required to calculate the re-order level of material ‘X’.
PN

CA/CS Nimeet Piti 6

Q.15. Following details are related to a manufacturing concern:
NB Re-order Level 1,60,000 units

MATERIALS COST
PN
Economic Order Quantity 90,000 units
Minimum Stock Level 1,00,000 units
Maximum Stock Level 1,90,000 units
Average Lead Time 6 days
Difference between minimum lead time and Maximum lead time 4 days
Calculate:
(i) Maximum consumption per day
(ii) Minimum consumption per day

Q.16. SK Enterprise manufactures a special product “ZE”. The following particulars were
collected for the year 2004:

NB Annual consumption 12,000 units (360 days)

PN Cost per unit `1
Ordering cost `12 per order
Inventory carrying cost 24%
Normal lead time 15 days
Safety stock 30 days consumption
Required:
(i) Re-order quantity
(ii) Re-order level
(iii) What should be the inventory level (ideally) immediately before the material
order is received?

Q.17. Primex Limited produces product ‘P’. It uses annually 60,000 units of a material ‘Rex’
costing `10 per unit. Other relevant information are:

NB Cost of placing an order : `800 per order

PN Carrying cost : 15% per annum of average inventory
Re-order period : 10 days
Safety stock : 600 units
The company operates 300 days in a year.
You are required to calculated:

7 MATERIALS COST
 (i) Economic Order Quantity for material ‘Rex’.
(ii) Re-order Level
MATERIALS COST

(iii) Maximum Stock Level

(iv) Average Stock Level

Q.18. ZED Company supplies plastic crockery to fast food restaurants in metropolitan city.
One of its products is a special bowl, disposable after initial use, for serving soups
NB
to its customers Bowls are sold in pack 10 pieces at a price of `50 per pack. The
PN
demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs
every year. The company purchases the bowl direct from manufacturer at `40 per
pack within a three days’ lead time. The ordering and related cost is `8/-per order.
The storage cost is 10% per cent per annum of average inventory investment.
Required:
(i) Calculate Economic Order Quantity.
(ii) Calculate number of orders needed every year.
(iii) Calculate the total cost of ordering and storage bowls for the year.
(iv) Determine when should the next order to be placed. (Assuming that

Q.19. A company uses four raw materials A, B, C and D for a particular product for which
the following data apply :–
NB Raw Usage Re-order Price Delivery period Reorder Mini-
PN Material per unit Quantity per Kg. (in weeks) level mum
of (Kg.) (`) Minimum Average Maxi- (Kg.) level
product mum
(Kg.)
A 12 12,000 12 2 3 4 60,000 ?
B 12 8,000 22 5 6 7 70,000 ?
C 6 10,000 18 3 5 7 ? 25,500
D 5 9,000 20 1 2 3 ? ?

Weekly production varies from 550 to 1,250 units, averaging 900 units of the said
product. What would be the following quantities:–
(i) Minimum Stock of A?
(ii) Maximum Stock of B?
(iii) Re-order level of C?
(iv) Average stock level of A?
(v) Re-order level of D?

CA/CS Nimeet Piti 8

 (vi) Minimum Stock level of D?

MATERIALS COST
Q.20. Ananya Ltd. produces a product ‘Exe’ using a raw material Dee. To produce one unit
of Exe, 2 kg of Dee is required. As per the sales forecast conducted by the company,
NB it will able to sale 10,000 units of Exe in the coming year. The following is the
PN information regarding the raw material Dee:
(i) The Re-order quantity is 200 kg. less than the Economic Order Quantity (EOQ).
(ii) Maximum consumption per day is 20 kg. more than the average consumption per
day.
(iii) There is an opening stock of 1,000 kg.
(iv) Time required to get the raw materials from the suppliers is 4 to 8 days.
(v) The purchase price is `125 per kg.
There is an opening stock of 900 units of the finished product Exe.
The rate of interest charged by bank on Cash Credit facility is 13.76%.
To place an order company has to incur ` 720 on paper and documentation work.
From the above information FIND OUT the followings in relation to raw material Dee:
(a) Re-order Quantity
(b) Maximum Stock level
(c) Minimum Stock level
(d) CALCULATE the impact on the profitability of the company by not ordering the
EOQ. [Take 364 days for a year]

Misc. Category
Q.21. Rounak Ltd. is the manufacturer of monitors for PCs. A monitor requires 4 units of
Part-M. The following are the details of its operation during 20X8:

NB Average monthly market demand 2,000 Monitors

PN Ordering cost `1,000 per order
Inventory carrying cost 20% per annum
Cost of Part `350 per part
Normal usage 425 parts per week
Minimum usage 140 parts per week
Maximum usage 710 parts per week

9 MATERIALS COST
 Lead time to supply 3-5 weeks
COMPUTE from the above:
MATERIALS COST

(i) Economic Order Quantity (EOQ). If the supplier is willing to supply quarterly
30,000 units of Part-M at a discount of 5%, is it worth accepting?
(ii) Reorder level
(iii) Maximum level of stock
(iv) Minimum level of stock.

Q.22. The following data are available in respect of material X for the year ended 31 st
March, 2021:
NB (`)
PN
Opening stock 9,00,000
Purchases during the year 1,70,00,000
Closing stock 11,00,000
(i) Calculate:
(a) Inventory turnover ratio, and
(b) The number of days for which the average inventory is held.
(ii) Interpret the ratio calculated as above if the industry inventory turnover
rate is 10.

Q.23. The following details are provided by M/s. SKU Enterprises for the year ended
31st March, 2018:
NB Particulars Material-M (`) Material-N (`)
PN
Stock as on 01-04-2017 6,00,000 10,00,000
Stock as on 31-03-2018 4,50,000 7,25,000
Purchases during the year 9,50,000 18,40,000

You are required to:

(i) Calculate Turnover Ratio of both the materials.
(ii) Advise which of the two materials is fast moving. (Assume 360 days in a year).

Q.24. A company has the option to procure a particular material from two sources: Source
NB I assures that defectives will not be more than 2% of supplied quantity.
PN Source II does not give any assurance, but on the basis of past experience of

CA/CS Nimeet Piti 10

 supplies received from it, it is observed that defective percentage is 2.8%. The
material is supplied in lots of 1,000 units. Source II supplies the lot at a price, which

MATERIALS COST
is lower by `100 as compared to Source I. The defective units of material can be
rectified for use at a cost of`5 per unit.
You are required to find out which of the two sources is more economical.

Q.25. A re-roller produced 400 metric tons of M.S. bars spending `36,00,000 towards
NB materials and `6,20,000 towards rolling charges. Ten percent of the output was
PN found to be defective, which had to be sold at 10% less than the price for good
production. If the sales realization should give the firm an Overall profit of 12.5% on
cost, find the selling price per metric ton of both the categories of bars The scrap
arising during the rolling process fetched a realization of `60,000.

Q.26. Raw materials ‘AXE’ costing `150 per kg. and ‘BXE’ costing `90 per kg. are mixed in
NB
equal proportions for making product ‘A’. The loss of material in processing works
PN
out to 25% of the product. The production expenses are allocated at 40% of direct
material cost. The end product is priced with a margin of 20% over the total cost.
Material ‘BXE’ is not easily available and substitute raw material ‘CXE’ has been found
for ‘BXE’ costing `75 per kg. It is required to keep the proportion of this substitute
material in the mixture as low as possible and at the same time maintain the selling
price of the end product at existing level and ensure the same quantum of profit as
at present.
You are required to compute the ratio of the mix of the raw materials ‘AXE’ and ‘CXE’.

Q.27. HBL Limited produces product ‘M’ which has a quarterly demand of 20,000 units.
NB Each product requires 3 kg. and 4 kg. of material X and Y respectively. Material X is
PN supplied by a local supplier and can be procured at factory stores at any time, hence,
no need to keep inventory for material X. The material Y is not locally available, it
requires to be purchased from other states in a specially designed truck container
with a capacity of 10 tons.
The cost and other information related with the materials are as follows:
Particulars Material-X Material-Y
Purchase price per kg. (excluding GST) `140 `640
Rate of GST 18% 18%
Freight per trip (fixed, irrespective of quantity) - `28,000
Loss of materials in transit* - 2%
Loss in process* 4% 5%

*On purchased quantity

11 MATERIALS COST
 Other information:
- The company has to pay 15% p.a. to bank for cash credit facility.
MATERIALS COST

- Input credit is available on GST paid on materials.

Required:
(i) CALCULATE cost per kg. of material X and Y
(ii) CALCULATE the Economic Order quantity for both the materials.

Q.28. A Ltd. manufactures a product X which requires two raw materials A and B in a
NB ratio of 1:4. The sales department has estimated a demand of 5,00,000 units for the
PN product for the year.
To produce one unit of finished product, 4 units of material A is required.
Stock position at the beginning of the year is as below:
Product- X 12,000 units
Material A 24,000 units
Material B 52,000 units
To place an order the company has to spend Rs.15,000. The company is financing its
working
capital using a bank cash credit @13% p.a.
Product X is sold at Rs.1,040 per unit. Material A and B are purchased at Rs.150 and
Rs.200 respectively.
Required:
COMPUTE economic order quantity (EOQ):
(i) If purchase order for the both materials is placed separately.
(ii) If purchase order for the both materials is not placed separately.

Q.29. MM Ltd. has provided the following information about the items in its inventory.

NB Item Code Number Units Unit Cost (`)

PN
101 25 50
102 300 01
103 50 80
104 75 08
105 225 02
106 75 12

CA/CS Nimeet Piti 12

 MM Ltd. has adopted the policy of classifying the items constituting 15% or above of
Total Inventory Cost as ‘A’ category, items constituting 6% or less of Total Inventory

MATERIALS COST
Cost as ‘C’ category and the remaining items as ‘B’ category.
You are required to:
(i) Rank the items on the basis of % of Total Inventory Cost.
(ii) Classify the items into A, B and C categories as per ABC Analysis of Inventory
Control adopted by MM Ltd.

Q.30. IPL Limited uses a small casting in one of its finished products. The castings are
NB purchased from a foundry. IPL Limited purchases 54,000 castings per year at a
PN cost of `800 per casting. The castings are used evenly throughout the year in the
production process on a 360-day-peryear basis. The company estimates that it
costs `9,000 to place a single purchase order and about `300 to carry one casting
in inventory for a year. The high carrying costs result from the need to keep the
castings in carefully controlled temperature and humidity conditions, and from the
high cost of insurance.
Delivery from the foundry generally takes 6 days, but it can take as much as 10
days. The days of delivery time and percentage of their occurrence are shown in the
following tabulation:
Delivery time (days) 6 7 8 9 10
Percentage of occurrence 75 10 5 5 5

Required:
(i) Compute the economic order quantity (EOQ).
(ii) Assume the company is willing to assume a 15% risk of being out of stock. What
would be the safety stock? The re-order point?
(iii) Assume the company is willing to assume a 5% risk of being out of stock. What
would be the safety stock? The re-order point?
(iv) Assume 5% stock-out risk. What would be the total cost of ordering and carrying
inventory for one year?
(v) Refer to the original data. Assume that using process re-engineering the company
reduces its cost of placing a purchase order to only `600. In addition, company
estimates that when the waste and inefficiency caused by inventories are
considered, the true cost of carrying a unit in stock is `720 per year.
(a) Compute the new EOQ.
(b) How frequently would the company be placing an order, as compared to the old
purchasing policy?

13 MATERIALS COST
 Stock ledgers
MATERIALS COST

Q.31. The following information is extracted from the Stores Ledger:

NB
Material X
PN Opening Stock Nil

Purchases:
Jan. 1 100 @ `1 per unit
Jan. 20 100 @ `2 per unit

Issues:
Jan. 22 60 for Job W 16
Jan. 23 60 for Job W 17

Complete the receipts and issues valuation by adopting the First-In-First-Out, Last-
In-First-Out and the Weighted Average Method. Tabulate the values allocated to Job
W 16, Job W 17 and the closing stock under the methods aforesaid and discuss from
different points of view which method you would prefer.

Q.32. The following are the details of receipt and issue of material ‘CXE’ in a manufacturing
Co. during the month of April 2019:
NB Date Particulars Quantity (kg) Rate per kg
PN
April 4 Purchase 3,000 `16
April8 Issue 1,000
April15 Purchase 1,500 `18
April 20 Issue 1,200
April 25 Return to supplier out of purchase 300
made on April 15
April 26 Issue 1,000
April 28 Purchase 500 `17

Opening stock as on 01-04-2019 is 1,000 kg @ `15 per kg.

On 30th April, 2019 it was found that 50 kg of material ‘CXE’ was fraudulently
misappropriated by the store assistant and never recovered by the Company.

CA/CS Nimeet Piti 14

 Required:
(i) Prepare a store ledger account under each of the following method of pricing the

MATERIALS COST
issue:
(a) Weighted Average Method
(b) LIFO
(ii) What would be the value of material consumed and value of closing stock as on
30-04-2019 as per these two methods?

Q.33. ‘AT’ Ltd. furnishes the following store transactions for September, 2011:
NB 1-9-11 Opening balance 25 units value `162.50
PN
4-9-11 Issues Req. No. 85 8 units
6-9-11 Receipts from B & Co. GRN No. 26 50 units @ `5.75 per unit
7-9-11 Issues Req. No. 97 12 units
10-9-11 Return to B & Co. 10 units
12-9-11 Issues Req. No. 108 15 units
13-9-11 Issues Req. No. 110 20 units
15-9-11 Receipts from M & Co. GRN. No. 33 25 units @ `6.10 per unit
17-9-11 Issues Req. No. 121 10 units
19-9-11 Received replacement from B & Co. GRN No. 38, 10 units
20-9-11 Returned from department, material of M & Co. MRR No. 4, 5 units
22-9-11 Transfer from Job 182 to Job 187 in the dept. MTR 6, 5 units
26-9-11 Issues Req. No. 146 10 units
29-9-11 Transfer from Dept. “A” to Dept. “B” MTR 10 5 units
30-9-11 Shortage in stock taking 2 units
Write up the priced stores ledger on FIFO method and discuss how would you treat
the shortage in stock taking.

15 MATERIALS COST
 Q.34. The following are the details of receipts and issues of a material of stores in a
manufacturing company for the period of three months ending 30th June, 2014:
MATERIALS COST

NB Receipts:
PN Date Quantity (kg) Rate per kg
April 10 1,600 5.00
April 12 2,400 4.90
April 5 1,000 5.10
April 17 1,100 5.20
April 25 800 5.25
April 11 900 5.40
April 24 1,400 5.50

There was 1,500 kg. in stock at April 1, 2014 which was valued at `4.80 per kg.
Date Quantity (kg)
April 4 1,100
April 24 1,600
April 10 1,500
April 26 1,700
April 15 1,500
April 21 1,200

Issues are to be priced on the basis of weighted average method. The stock verifier
of the company reported a shortage of 80 kgs. on 31st May, 2014 and 60 kgs. on
30th June, 2014. The shortage is treated as inflating the price of remaining material
on account of shortage.
You are required to prepare a Stores Ledger Account.

Q.35. The following transactions in respect of material Y occurred during the six months
ended 30th June, 2014:
Month Purchase (units) Price per unit (`) Issued Units
NB January 200 25 Nil
PN February 300 24 250
March 425 26 300
April 475 23 550
May 500 25 800
June 600 20 400

CA/CS Nimeet Piti 16

 Required
The chief accountant argues that the value of closing stock remains the same no

MATERIALS COST
matter which method of pricing of material issues is used. Do you agree? Why or
why not? Detailed stores ledgers are not required.
Q.36. Arnav Electronics manufactures electronic home appliances. It follows weighted
average Cost method for inventory valuation. Following are the data of component X:
NB
Date Particulars Units
PN
15-12-19 Purchase Order- 008 10,000 9,930
30-12-19 Purchase Order- 009 10,000 9,780
01-01-20 Opening stock 3,500 9,810
05-01-20 GRN*-008 (against the Purchase Order- 10,000 -
008)
05-01-20 MRN**-003 (against the Purchase Or- 500 -
der- 008)
06-01-20 Material Requisition-011 3,000 -
07-01-20 Purchase Order- 010 10,000 9,750
10-01-20 Material Requisition-012 4,500 -
12-01-20 GRN-009 (against the Purchase Order- 10,000 -
009)
12-01-20 MRN-004 (against the Purchase Order- 400 -
009)
15-01-20 Material Requisition-013 2,200 -
24-01-20 Material Requisition-014 1,500 -
25-01-20 GRN-010 (against the Purchase Order- 10,000 -
010)
28-01-20 Material Requisition-015 4,000 -
31-01-20 Material Requisition-016 3,000 -

*GRN- Goods Received Note; **MRN- Material Returned Note

Based on the above data, you are required to CALCULATE:
(i) Re-order level
(ii) Maximum stock level
(iii) Minimum stock level
(iv) PREPARE Store Ledger for the period January 2020 and DETERMINE the value o
stock as on 31-01-2020.
(v) Value of components used during the month of January, 2020.
(vi) Inventory turnover ratio.

17 MATERIALS COST
 Additional Questions
MATERIALS COST

Q.37. SKY Company Ltd., not registered under GST, purchased material ‘RPP’ from a
company, registered under GST. The following information is available for one lot of
5,000 units of material purchased:
NB
Listed price of one lot ` 7,50,000
PN
Trade discount @ 10% on Listed price.
CGST and SGST (Credit Not available) 12% (6% CGST + 6% SGST)
Road Tax paid ` 15,000
Freight and Insurance ` 51,000
Detention Charges ` 15,000
Commission and brokerage on purchases ` 30,000
Amount deposited for returnable containers ` 90,000
Amount of refund on returning the container ` 60,000
Other Expenses @ 2% of total cost

20% of material shortage is due to normal reasons.

You are required to CALCULATE cost per unit of material purchased to
SKY Company Ltd.

Q.38 The annual demand for an item of raw material is 48,000 units and the purchase
price is ` 80 per unit. The cost of processing an order is ` 1,350 and the annual cost
NB
of storage is ` 15 per unit.
PN
(i) DETERMINE is the optimal order quantity and total relevant cost for the order?
(ii) If the cost of processing an order is ` 800 and all other data remain same, then
DETERMINE the differential cost?
(iii) If the supplier offers bulk purchase of 48,000 units at a price of ` 72 and cost of
placing the is Nil, SHOULD the order be accepted?

Q.39 The yearly production of a company’s product which has a steady market is 40,000
units. Each unit of a product requires 1 kg. of raw material. The cost of placing one
NB order for raw material is ` 1,000 and the inventory carrying cost is ` 20 per annum.
PN The lead time for procurement of raw material is 36 days and a safety stock of
1,000 kg. of raw materials is maintained by the company. The company has been
able to negotiate the following discount structure with the raw material supplier:

CA/CS Nimeet Piti 18

 Order quantity (kg.) Discount (`)
NB Upto 6,000 NIL

MATERIALS COST
PN
6,001 – 8,000 4,000
8,001 – 16,000 20,000
16,001 – 30,000 32,000
30,001 – 45,000 4,0000
You are REQUIRED to:
(i) Calculate the re-order point considering 30 days in a month.
(ii) Prepare a statement showing the total cost of procurement and storage of raw
material after considering the discount of the company elects to place one, two,
four or five orders in the year.
(iii) State the number of orders which the company should place to minimize the
costs after taking EOQ also into consideration.

Q.40 A company produces a product ‘AB’ by using two raw materials - ‘Material Ae’ and
‘Material Be’ in the ratio of 5:3.
A sales volume of 50,000 kgs is estimated for the month of December by the
managers expecting the trend will continue for entire year. The ratio of input and
output is 8:5.
Other Information about Raw Material Ae is as follows:
NB Purchase Price ` 150 per kg
PN
Re-order period 2 to 3 days
Carrying Cost 12%
Note: Material Ae is perishable in nature and if not used within 3.5 days of purchase
it becomes obsolete.
To place an order for material ‘Ae’, the company has to incur an administrative cost
of ` 375 per order. At present, material ‘Ae’ is purchased in a lot of 7,500 kgs. to avail
the discount on purchase. Company works for 25 days in a month and production is
carried out evenly.
You are required to CALCULATE:
(i) Economic Order Quantity (EOQ) for Material Ae;
(ii) Maximum stock level for Material Ae.

19 MATERIALS COST
 Q.41 The annual demand for an item of raw material is 4,000 units and the purchase price
is expected to be Rs. 90 per unit. The incremental cost of processing an order is Rs.
MATERIALS COST

135 and the annual cost of storage is estimated to be Rs. 12 per unit. What is the opt
imal order quantity and total relevant cost of this order quantity?
Suppose that Rs. 135 as estimated to be the incremental cost of processing an order
is incorrect and should have been Rs. 80. All other estimates are correct. What is the
difference in cos t on account of this error?
Assume at the commencement of the period that a supplier offers 4,000 units at a
price of Rs. 86. The materials will be delivered immediately and placed in the stores.
Assume that the incremental cost of placing the order is zero and original estimate
of Rs. 135 for placing an order for the economic batch is correct. Should the order be
accepted?

Q.42 Banerjee Brothers (BB) supplies surgical gloves to nursing homes and polyclinics in
the city. These surgical gloves are sold in pack of 10 pairs at price of ` 250 per pack.
NB
For the month of April 2018, it has been anticipated that a demand for 60,000 packs
PN
of surgical gloves will arise. BB purchases these gloves from the manufacturer at
` 228 per pack within a 4 to 6 days’ lead time. The ordering and related cost is ` 240
per order. The storage cost is 10% p.a. of average inventory investment.
Required:
(i) Calculate the Economic Order Quantity (EOQ)
(ii) Calculate the number of orders needed every year
(iii) Calculate the total cost of ordering and storage of the surgical gloves.
(iv) Determine when should the next order to be placed. (Assuming that the
company does maintain a safety stock and that the present inventory level is
10,033 packs with a year of 360 working days).

Q.43 MM Ltd. uses 7500 valves per month which is purchased at a price of ` 1.50 per unit.
The carrying cost is estimated to be 20% of average inventory investment on an
NB annual basis.
PN
The cost to place an order and getting the delivery is ` 15. It takes a period of 1.5
months to receive a delivery from the date of placing an order and a safety stock of
3200 valves is desired.
You are required to determine:
(i) The Economic Order Quantity (EOQ) and the frequency of orders.
(ii) The re-order point.
(iii) The Economic Order Quantity (EOQ) if the valve cost ` 4.50 each instead of 1.50
each.
(Assume a year consists of 360 days)

CA/CS Nimeet Piti 20

Q.44 ACE Ltd. produces a product EMM using a material ‘REX’. To produce one unit
of EMM 0.80 kg of ‘REX’ is required. As per the sales forecast conducted by the
NB

MATERIALS COST
company it will be able to sell 45,600 units of product EMM in the coming year. There
PN
is an opening stock of 3,150 units of product EMM and company desires to maintain
closing stock equal to one month’s forecasted sale. Following is the information
regarding material ‘REX’:
(i) Purchase price per kg ` 25
(ii) Cost of placing order ` 240 per order
(iii) Storage cost 2% per annum
(iv) Interest rate 10% per annum
(v) Average lead time 8 days
(vi) Difference between minimum and maximum lead time 6 days
(vii) Maximum usage 150 kg
(viii) Minimum usage 90 kg

Opening stock of material ‘REX’ is 2,100 kg and closing stock will be 10% more than
opening stock.
Required:
(i) Compute the EOQ and total cost as per EOQ.
(ii) Compute the reorder level and maximum level.
(iii) If the company places an order of 7,500 kg of REX at a time, it gets 2% discount,
should the offer be accepted?

Q.45 ARS Limited produces the component from a single raw material in economic lots
(EOQ) of 2,800 units at a cost of ` 8.00 per unit. Average annual demand of the
component is 28,000 units. The annual holding and carrying cost is ` 0.25 per unit
NB
and minimum stock level is set at 450 units.
PN
You are required to calculate:
(i) Ordering cost per order.
(ii) Average stock level.
(iii) Number of orders.
(iv) If the company plans to reduce the number of orders calculated in (iii) above
by 2, by this change, to what extent will the economic order quantity and the
ordering cost per order be increased?

21 MATERIALS COST
 Q.46 M/s Tanishka Materials Private Limited produces a product which names “ESS”. The
consumption of raw material for the production of “ESS” is 210 Kgs to 350 Kgs per
NB
MATERIALS COST

week.
PN
Other information is as follows:
Procurement Time: 5 to 9 Days
Purchase price of Raw Materials: ` 100 per kg
Ordering Cost per Order: ` 200
Storage Cost: 1% per month plus ` 2 per unit per annum
Consider 365 days a year.
You are required to CALCULATE:
(a) Economic Order Quantity
(b) Re-Order Level (ROL)
(c) Maximum Stock Level
(d) Minimum Stock Level
(e) Average Stock Level
(f) Number of Orders to be placed per year
(g) Total Inventory Cost
(h) If the supplier is willing to offer 1% discount on purchase of total annual quantity
in two orders, whether offer is acceptable?
(i) If the answer is no, what should be the counteroffer w.r.t. percentage of discount?

Q.47 Tesco cycles Ltd. used about 3,60,000 cycle locks per annum and the usageis fairly
NB constant at 30,000 per month. The cycle lock costs ` 240 each at wholesale rate and
PN carrying cost is estimated to be 10% of the annual average inventory value. The
cost to place an order is ` 1200. It takes 45 days to receive delivery from the date of
order. In order to avoid any kind of disruption in assembly line, safety stock of 6,500
cycle locks is always maintained by Tesco Cycles Ltd.
(Assume 360 days in a year).
Compute:
(i) E.O.Q.
(ii) The re-order level.
(iii) The company has been offered a quantity discount of 2% on the purchase of
cycle locks provided the order size is 30,000 units at a time. Advise whether
quantity discount offer can be accepted?

CA/CS Nimeet Piti 22

Q.48 ABC Limited manufactures a product ‘AM25’ using material ‘CEE’.
The following information is available regarding material ‘CEE’ :

MATERIALS COST
NB Purchase price per unit ` 300
PN Cost of placing an order ` 150
Carrying cost per unit per annum 6% of purchase price
Consumption of material ‘CEE’ per annum 1,94,400 units
Lead time Average 6 days, Maximum 8 days,
Minimum 4 days
Maximum consumption of material ‘CEE’ per day is 200 kg more than the average
consumption per day.
Required:
Calculate the following in relation to material ‘CEE’:
(i) Economic Order Quantity.
(ii) Reorder Level
(iii) Maximum Stock Level. (Assume 360 days in a vyear)

Q.49 The following information is furnished by ABC Ltd.:

NB Re-order quantity 6,750 units

PN Minimum stock level to allow for emergencies 5 weeks
Average Delivery time from suppliers 4 weeks
Maximum stock level allowed by Management 20 weeks
Average rate of consumption per week 625 units
Minimum consumption in 4 weeks 1,250 units
Calculate:
(a) Re-order Level
(b) Maximum Stock Level
(c) Minimum Stock Level

23 MATERIALS COST
 Q.50 An automobile company purchases 27,000 spare parts for its annual requirements.
The cost per order is ` 240 and the annual carrying cost of average inventory is
MATERIALS COST

NB 12.5%. Each spare part costs ` 50.

PN
At present, the order size is 3,000 spare parts.
(Assume that number of days in a year = 360 days)
Find out:
(i) How much the company’s cost would be saved by opting EOQ model?
(ii) The Re-order point under EOQ model if lead time is 12 days.
(iii) How frequently should orders for procurement be placed under EOQ model?

CA/CS Nimeet Piti 24

 Progress Sheet

MATERIALS COST
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 26

Question 2 Question 27

Question 3 Question 28

Question 4 Question 29

Question 5 Question 30

Question 6 Question 31

Question 7 Question 32

Question 8 Question 33

Question 9 Question 34

Question 10 Question 35

Question 11 Question 36

Question 12 Question 37

Question 13 Question 38

Question 14 Question 39

Question 15 Question 40

Question 16 Question 41

Question 17 Question 42

Question 18 Question 43

Question 19 Question 44

Question 20 Question 45

Question 21 Question 46

Question 22 Question 47

Question 23 Question 48

Question 24 Question 49

Question 25 Question 50

25 MATERIALS COST
3 EMPLOYEE
COSTS &
DIRECT
EXPENSES
 Incentive Schemes
Q.1. Calculate the earnings of a worker under Halsey System. The relevant data is as
NB below: Time Rate (per hour) `60
PN Time allowed 8 hours
Time taken 6 hours
EMPLOYEE COSTS & DIRECT

Time saved 2 hours

EXPENSES

Q.2. Calculate the earnings of a worker under Rowan System. The relevant data is as
NB below: Time Rate (per hour) `60
PN Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours

Q.3. You are given the following information of a worker:

NB (i) Name of worker : Mr. Roger
PN (ii) Ticket No. : 002
(iii) Work started : 1-4-14 at 8 a.m.
(iv) Work finished 5-4-14 at 12 noon
(v) Work allotted : Production of 2,160 units
(vi) Work done and approved : 2,000 units
(vii) Time and units allowed : 40 units per hour
(viii) Wage rate : `25 per hour
(ix) Mr. Roger worked 9 hours a day.
You are required to calculate the remuneration of Mr. Roger on the following basis:
(i) Halsey plan and
(ii) Rowan plan

Q.4. Mr. Michael executes a piece of work in 120 hours as against 150 hours allowed
NB to him. His hourly rate is `10 and he gets a dearness allowance @ `30 per day of
PN 8 hours worked in addition to his wages. You are required to calculate total wages
received by Mr. Michael under the following incentive schemes:
(i) Rowan Premium Plan, and
(ii) Emerson’s Efficiency Plan

CA/CS Nimeet Piti 28

Q.5. Two workmen, Andrew and Baker, produce the same product using the same
NB material. Andrew is paid bonus according to Halsey plan, while Baker is paid bonus
PN according to Rowan plan. The time allowed to manufacture the product is 100 hours.
Andrew has taken 60 hours and Baker has taken 80 hours to complete the product.
The normal hourly rate of wages of workman Andrew is `24 per hour. The total
earnings of both the workers are same. Calculate normal hourly rate of wages of
workman Baker.

EMPLOYEE COSTS & DIRECT

Q.6. Two workmen, ‘A’ and ‘B’, produce the same product using the same material. Their
normal wage rate is also the same. ‘A’ is paid bonus according to the Rowan system,

EXPENSES
NB
while ‘B’ is paid bonus according to the Halsey system. The time allowed to make
PN
the product is 50 hours. ‘A’ takes 30 hours while ‘ ’ takes 40 hours to complete the
product. The factory overhead rate is `5 per man-hour actually worked. The factory
cost for the product for ‘A’ is `3,490 and for ‘B’ it is `3,600.
Required:
(i) Compute the normal rate of wages;
(ii) Compute the cost of materials cost;
(iii) Prepare a statement comparing the factory cost of the products as made by the
two workmen.

Q.7. The management of a company wants to formulate an incentive plan for the
NB workers with a view to increase productivity. The following particulars have been
PN extracted from the books of company
Piece Wage rate `10
Weekly working hours 40
Hourly wages rate `40 (guaranteed)
Standard normal time per unit 15 minutes.
Actual output for a week:
Worker A: 176 pieces
Worker B: 140 pieces
Differential piece rate 80% of piece rate when output below normal and 120% of
piece rate when output above normal.
Under alsey scheme, worker gets a bonus equal to 50% of Wages of time saved.
Calculate:
(i) Earning of workers under Halsey’s and Rowan’s premium scheme.
(ii) Earning of workers under Taylor’s differential piece rate system and Emerson’s
efficiency plan.

29 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.8. A skilled worker is paid a guaranteed wage rate of `120 per hour. The standard time
NB allowed for a ob is hours. e took 5 hours to complete the ob. e is paid wages
PN under Rowan Incentive Plan.
(i) Calculate his effective hourly rate of earnings under Rowan Incentive Plan.
(ii) If the worker is placed under alsey Incentive Scheme (50%) and he wants to
maintain the same effective hourly rate of earnings, calculate the time in which
he should complete the job.
EMPLOYEE COSTS & DIRECT

Q.9. Standard Time for a job is 90 hours. The hourly rate of guaranteed wages is `50.
EXPENSES

NB ecause of the saving in time a worker A gets an effective hourly rate of wages of
PN `60 under Rowan premium bonus system. For the same saving in time, calculate
the hourly rate of wages a worker B will get under Halsey premium bonus system
assuring 40% to worker.

Q.10. A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of `30 per hour. The
NB standard time per unit for a particular product is 4 hours. Mr. P, a machine man, has
PN been paid wages under the Rowan Incentive Plan and he had earned an effective
hourly rate of `3 .50 on the manufacture of that particular product.
What could have been his total earnings and effective hourly rate, had he been put
on alsey Incentive Scheme (50%)?

Q.11. Mr. X had been allotted a work which had to be completed within 80 hours. He
took 4 hours to complete the work. The company pays incentive bonus of 10% an
NB
the hourly rate if standard time is achieved and a further incentive bonus of 2% an
PN
hourly rate for each 1% in excess of 100% efficiency is payable. The normal wage
rate is 30 per hour. Calculate the effective wage rate per hour worked and total
wages to be paid to ME X.

Q.12. Jigyasa Boutiques LLP. (JBL) takes contract on job works basis. It works for various
fashion houses and retail stores. It has employed 26 workers and pays them on time
rate basis. On an average an employee is allowed 2 hours for boutique work on a
NB piece of garment. In the month of March 2014, two workers Margaret and Jennifer
PN were given 30 pieces and 42 pieces of garments respectively for boutique work. The
following are the details of their work:

Margaret Jennifer
Work assigned 30 pcs. 42 pcs.
Time taken 28 hours 40 hours

CA/CS Nimeet Piti 30

 are paid bonus as per Halsey System. The existing rate of wages is `50 per hour.
As per the new wages agreement the workers will be paid `55 per hour w.e.f. 1st
April 2014. At the end of the month March 2014, the accountant of the company has
calculated wages to these two workers taking `55 per hour.
(i) From the above information calculate the amount of loss that the company has
incurred due to incorrect rate selection.
(ii) What would be the loss incurred by the JBL due to incorrect rate selection if it
had followed Rowan scheme of bonus payment.

EMPLOYEE COSTS & DIRECT

(iii) Amount that could have been saved if Rowan scheme of bonus payment was

EXPENSES
followed.
(iv) Do you think Rowan scheme of bonus payment is suitable for J L?

Q.13. The existing Incentive system of Alpha Limited is as under:

NB
Normal working week 5 days of 8 hours each plus 3 late shifts
PN
of 3 hours each
Rate of Payment Day work: `160 per hour Late
shift: `225 per hour
Average output per operator for 120 articles
49-hours week i.e. including 3 late shifts

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) : `160 per hour

asic time allowed for 15 articles 5 hours
Piece-work rate : Add 20% to basic piece-rate
Premium Bonus : Add 50% to time.
Required:
(i) Prepare a Statement showing hours worked, weekly earnings, number of articles
produced and labour cost per article for one operator under the following
systems:
(a) Existing time-rate
(b) Straight piece-work
(c) Rowan system
(d) Halsey premium system
Assume that 135 articles are produced in a 40-hour week under straight piece work,
Rowan Premium System, and Halsey Premium System above and worker earns half
the time saved under Halsey Premium System.

31 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.14. The time allowed fora job is 8 hours. The hourly rate is `8. Prepare a statement
showing:
NB
i. The bonus earned
PN
ii. The total earnings of employee and
iii. Hourly earnings.
Under the alsey System with 50% bonus for time saved and Rowan System for
each hour saved progressively.
EMPLOYEE COSTS & DIRECT

Q.15. ADV Pvt. Ltd. manufactures a product which requires skill and precision in work to
EXPENSES

get quality products. The company has been experiencing high labour cost due to
NB slow speed of work. The management of the company wants to reduce the labour
PN cost but without compromising with the quality of work. It wants to introduce a
bonus scheme but is indifferent between the alsey and Rowan scheme of bonus.
For the month of November 2019, the company budgeted for 24,960 hours of work.
The workers are paid `80 per hour.
Required:
(i) CALCULATE and suggest the bonus scheme where the time taken (in %) to time
allowed to complete the works is (a) 100% (b) 5% (c) 50% (d) 25% of budgeted
hours.

Q.16. Wage negotiations are going on with the recognized employees’ union, and the
management wants you as the as an executive of the company to formulate an
NB incentive scheme with a view to increase productivity.
PN
The case of three typical workers A, B and C who produce respectively 180, 120 and
100 units of the company’s product in a normal day of 8 hours is taken up for study.
Assuming that day wages would be guaranteed at ` 5 per hour and the piece rate
would be based on a standard hourly output of 10 units, calculate the earnings
of each of the three workers and the employee cost per 100 pieces under (i) Day
wages, (ii) Piece rate, (iii) Halsey scheme, and (iv) The Rowan scheme.
Also calculate under the above schemes the average cost of labour for the company
to produce 100 pieces.

CA/CS Nimeet Piti 32

Q.17. The following particulars have been compiled in respect of three workers, which are
under consideration of the management.
NB I II III
PN
Actual hours worked 380 100 540
Hourly rate of wages (in `) 40 50 60
Production in units
- Product - X 210 -- 60

EMPLOYEE COSTS & DIRECT

- Product - Y 360 - 1350
- Product - Z 460 250 -

EXPENSES
Standard time allowed per unit of X Y Z
each product is:
Minutes 15 20 30

For the purpose of piece rate, each minute is valued at ` 1/-

You are required to calculate the wages of each worker under:
(i) Guaranteed hourly rate basis
(ii) Piece work earning basis, but guaranteed at 5% of basic pay
( uaranteed hourly rate if his earnings are less than 50% of basic pay.)
(iii) Premium bonus basis where the worker received bonus based on Rowan
scheme.

Q.18. The standard time allowed for a certain piece of work is 300 hours. Normal wages is
` 60 per hour.
The bonus system applicable to the work is as follows:
NB
Percentage of time saved to time allowed Bonus
PN
(slab rate)
(i) Up to the first 20% of time allowed 25% of the corresponding
saving in time.
(ii) For and within the next 30% of time allowed 40% of the corresponding
saving in time.
(iii) For and within the next 30% of time allowed 30% of the corresponding
saving in time.
iv) For and within the next 20% of time allowed 10% of the corresponding
saving in time.
Calculate the total earnings of a worker over the piece of work and his earnings per
hour when he takes.
(a) 320 hours,
(b) 150 hours, and
(c) 30 hours respectively.

33 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.19. ED Limited is working by employing 50 skilled workers, it is considering the
introduction of incentive scheme-either alsey scheme (with 50% bonus) or Rowan
NB scheme of wage payment for increasing the labour productivity to cope up the
PN increasing demand for the product by40%. It is believed that proposed incentive
scheme could bring about an average 20% increase over the present earnings of the
workers it could act as sufficient incentive for them to produce more.
Because of assurance, the increase in productivity has been observed as revealed by
the figures for the month of April, 2014.
EMPLOYEE COSTS & DIRECT

Hourly rate of wages (guaranteed) `30

EXPENSES

Average time for producing one unit by one worker at the previous
performance (This may be taken as time allowed) 1.9 5 hours
Number of working days in the month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units
Required:
(i) Calculate the effective rate of earnings under the alsey scheme and the Rowan
scheme.
(ii) Calculate the savings to the ZED Limited in terms of direct labour cost per piece.
(iii) Advise ED Limited about the selection of the scheme to fulfill their assurance.

Q.20. The finishing shop of a company employs 0 direct workers. Each worker is paid
`400 as wages per week of 40 hours. When necessary, overtime is worked up to a
NB maximum of 15 hours per week per worker at time rate plus one-half as premium.
PN The current output on an average is 6 units per man hour which may be regarded
as standard output. If bonus scheme is introduced, it is expected that the output will
increase to 8 units per man hour. The workers will, if necessary, continue to work
overtime up to the specified limit although no premium on incentives will be paid.
The company is considering introduction of either Halsey Scheme or Rowan
Scheme of wages incentive system. The budgeted weekly output is 19,200 units. The
selling price is `11 per unit and the direct material cost is `8 per unit. The variable
overheads amount to `0.50 per direct labour hour and the fixed overhead is `9,000
per week.
Prepare a statement to show the effect on the company’s weekly profit of the
proposal to introduce (a) Halsey Scheme, and (b) Rowan Scheme

CA/CS Nimeet Piti 34

 Group Bonus Schemes & Rate of pay
Q.21. Calculate the Employee hour rate of a worker X from the following data: Basic pay
`10,000 p.m. D.A. `3,000 p.m. Fringe benefits `1,000 p.m.
NB
PN Number of working days in a year 300. 20 days are availed off as holidays on full pay
in a year. Assume a day of 8 hours.

EMPLOYEE COSTS & DIRECT

EXPENSES
Q.22. A worker is paid `10,000 per month and a dearness allowance of `2,000 p.m. Worker
NB contribution to provident fund is 10% and employer also contributes the same
PN amount as the employee. The Employees State Insurance Corporation premium is
.5% of wages of which 1. 5% is paid by the employees. It is the firm’s practice to
pay 2 months’ wages as bonus each year.
The number of working days in a year are 300 of 8 hours each. Out of these the
worker is entitled to 15 days leave on full pay. Calculate the wage rate per hour for
costing purposes.

Q.23. Following data have been extracted from the books of M/s. ABC Private Limited:
NB (i) Salary (each employee, per month) ` 30,000
PN (ii) Bonus 25% of salary
(iii) Employer’s contribution to PF, ESI etc. 15% of salary
(iv) Total cost at employees’ welfare activities ` , 1,500 per annum
(v) Total leave permitted during the year 30 days
(vi) No. of employees 1 5
(vii) Normal idle time 70 hours per annum
(viii) Abnormal idle time (due to failure of power supply) 50 hours
(ix) Working days per annum 310 days of 8 hours

You are required to calculate:

1. Annual cost of each employee
2. Employee cost per hour
3. Cost of abnormal idle time, per employee

35 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.24. GZ Ld. pays the following to a skilled worker engaged in production works. The
following are the employee benefits paid to the employee
NB
(a) Basic salary per day ` 1,000
PN
(b) Dearness allowance (DA) 20% of basic salary
(c) House rent allowance 1 % of basic salary
(d) Transport allowance ` 50 per day of actual work
(e) Overtime Twice the hourly rate (considers basic and
DA), only if works more than 9 hours a day
EMPLOYEE COSTS & DIRECT

otherwise no overtime allowance. If works

for more than 9 hours a day then overtime is
EXPENSES

considered after 8th hours.

(f) Work of holiday and Double of per day basic rate provided works
Sunday atleast 4 hours. The holiday and Sunday basic
is eligible for all allowances and statutory
deductions.
(g) Earned leave Casual These are paid leave.
leave
(h) Employer’s contribution to 12% of basic and DA
Provident fund
(i) Employer’s contribution to % of basic and DA
Pension fund
The company normally works 8-hour a day and 26-day in a month. The company
provides 30 minutes lunch break in between.
During the month of August 2020, Mr. works for 23 days including 15th August
and a Sunday and applied for 3 days of casual leave. On 15th August and Sunday he
worked for 5 and hours respectively without lunch break.
On 5th and 13th August he worked for 10 and 9 hours respectively.
During the month Mr. Z worked for 100 hours on Job no.HT200.
You are required to CALCULATE:
(i) Earnings per day
(ii) Effective wages rate per hour of Mr. .
(iii) Wages to be charged to Job no.HT200.

Q.25. A, B and C were engaged on a group task for which a payment of ` 2,500 was to be
NB made. A’s time basis wages are `800 per day, B’s `600 per day and C’s `500 per day.
PN A worked for 25 days worked for 30 days and C for 40 days. Calculate the share of
bonus to be distributed among the workers and total earnings thereof.

CA/CS Nimeet Piti 36

Q.26. Both direct and indirect employees of a department in a factory are entitled to
production bonus in accordance with a group incentive scheme, the outline of which
is as follows:
NB (a) For any production in excess of the standard rate fixed at 1 ,800 tons per month
PN (of 28 days) a general incentive of `1,500 per ton is paid in aggregate. The total
amount payable to each separate group is determined on the basis of an assumed
percentage of such excess production being contributed by it, namely 5% by
direct employee, 15% by inspection staff, 12% by maintenance staff and 8%

EMPLOYEE COSTS & DIRECT

by supervisory staff.
(b) Moreover, if the excess production is more than 20% above the standard, direct

EXPENSES
employees also get a special bonus @ `500 per ton for all production in excess of
120% of standard.
(c) Inspection staff are penalized `2,000 per ton for rejection by customer in
excess of 2% of production.
(d) Maintenance staff are also penalized `2,000 per hour for breakdown.
From the following particulars for a month, compute production bonus earned by
each group:
(a) Actual working days 25
(b) Production : 21,000 tons
(c) Re ection by customer 500 tons
(d) Machine breakdown : 40 hours

Idle time/Overtime & it’s treatment

Q.27. In a factory working six days in a week and eight hours each day, a worker is paid
at the rate of `100 per day basic plus D.A. 120% of basic. e is allowed to take 30
NB minutes off during his hours shift for meals-break and a 10 minutesrecess for rest.
PN During a week, his card showed that his time was chargeable to:
Job 15 hrs.
Job Y 12 hrs.
Job Z 13 hrs.
The time not booked was wasted while waiting for a job. In Cost Accounting, how
would you allocate the wages of the workers for the week?

37 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.28. In a factory, the basic wage rate is `100 per hour and overtime rates are as follows:

NB Before and after normal working hours 1 5% of basic wage rate

PN Sundays and holidays 225% of basic wage rate
During the previous year, the following hours were
worked
- Normal time 1,00,000 hours
- Overtime before and after working hours 20,000 hours
EMPLOYEE COSTS & DIRECT

Overtime on Sundays and holidays 5,000 hours

EXPENSES

Total 1,25,000 hours

The following hours have been worked on job ‘Z’

Normal 1,000 hours
Overtime before and after working hrs. 100 hours.
Sundays and holidays 25 hours.
Total 1,125 hours
You are required to calculate the labour cost chargeable to job ‘Z’ and overhead in
each of the following instances:
a) Where overtime is worked regularly throughout the year as a policy due to the
workers’ shortage.
b) Where overtime is worked irregularly to meet the requirements of production.
c) Where overtime is worked at the request of the customer to expedite the job.

Q.29. Calculate the earnings of A and B from the following particulars for a month and
allocate the employee cost to each job X, Y and Z:

NB
A B
PN
Basic Wages (`) 10,000 16,000
Dearness Allowance 50% 50%
Contribution to provident Fund (on basic wages) 8% 8%
Contribution to Employee’s State Insurance (on basic 2% 2%
wages)
Overtime (Hours) 10 -
The normal working hours for the month are 200. Overtime is paid at double the
total of normal wages and dearness allowance. Employer’s contribution to state
Insurance and Provident Fund are at equal rates with employees’ contributions. The
two workers were employed on jobs X, Y and Z in the following proportions:

CA/CS Nimeet Piti 38

 Jobs X Y Z
Worker A 40% 30% 30%
Worker B 50% 20% 30%

Overtime was done on job Y.

Q.30. Jigyasa Ltd. pays a basic wage of `125 per hour to its production workers. The
company works 6 days a week in a single shift of 8:00 AM. to 4:30 PM. The company

EMPLOYEE COSTS & DIRECT

NB also pays overtime to its workers apart from basic wages for work beyond its normal
working hours. The overtime rule is as under:

EXPENSES
PN
(i) No over-time is paid for any work upto 5 30 PM.
(ii) ` 2.50 per hour for any work done after 5 30 PM.
(iii) The Maximum over-time payment is restricted to `3 5 for a day, owever,
workers are paid `80 as diet allowance for work done beyond 8:30 PM.
(iv) On Sunday or any holiday, workers are paid `3 5 provided they work atleast for
4 hours.
The extract of attendance for three workers is as follows:
Worker- A Worker- B Worker- C
Monday 8:00 AM – 6:30 PM 8:00 AM – 7:30 PM 8:00 AM – 9:30 PM
Tuesday (Holiday) 8 00 AM 5 30 PM 8:00 AM – 12:30 PM Absent
Wednesday 8:00 AM – 10:30 PM 8 00 AM 5 30 PM 8:00 AM – 11:30 PM
Thursday 8:00 AM – 4:30 PM 8:00 AM – 9:30 PM 8:00 AM – 8:30 PM
Friday 8:00 AM – 11:00 PM 8:00 AM – 4:30 PM 8:00 AM – 4:30 PM
Saturday Absent 8 00 AM 5 30 PM 8:00 AM – 7:30 PM
Sunday Absent 8:00 AM – 1:30 PM 8:00 AM – 4:30 PM

Required:
(i) Calculate the amount of overtime and diet allowance payable to each worker.
(ii) Calculate the amount and accounting treatment of overtime and diet allowance
in each case:
(a) Worker A and C were involved in a specific ob work assigned to them.
(b) Overtime was due to under-estimation of sales demand provided by the sales
department.
(c) Overtime was due to make up a shortfall in production due to sudden
demand.

39 EMPLOYEE COSTS & DIRECT EXPENSES

 Labour Turnover & Loss of profit
Q.31. Following information are available from the cost records of BMR Limited,
NB CALCULATE Labour turnover rate and Labour flux rate
PN No. of Employees as on 01.04.2021 = 9,400
No. of Employees as on 31.03.2022 = 10,600
EMPLOYEE COSTS & DIRECT

During the year, 1 0 Employees left while 40 Employees were discharged and 1,500
Employees were recruited during the year; of these, 400 Employees were recruited
EXPENSES

because of exits and the rest were recruited in accordance with expansion plans.

Q.32. Accountant of your company had computed labour turnover rates for the quarter
NB ended 30th September, 2013 as 14%, 8% and % under Flux method, Replacement
PN method and Separation method respectively. If the number of workers replaced
during 2nd quarter of the financial year 2013-14 is 3 ,
Find the following:
(a) The number of workers recruited and joined; and
(b) The number of workers left and discharged.

Q.33. R Ltd. has computed labour turnover rates for the quarter ended 31st March, 2022
as 20%, 10% and 5% under flux method, replacement method and separation
NB
method respectively. If the number of workers replaced during that quarter is 50,
PN
FIND OUT (i) Workers recruited and joined
(ii) Workers left and discharged and
(iii) Average number of workers on roll.

Q.34. Human Resources Department of A Ltd. computed labour turnover by replacement

NB
method at 3% for the quarter ended June 2015. During the quarter, fresh
PN
recruitment of 40 workers was made. The number of workers at the beginning and
end of the quarter was 990 and 1,010 respectively.
You are required to calculate the labour turnover rate by Separation Method and
Flux Method.

CA/CS Nimeet Piti 40

Q.35. HR Ltd. is progressing in its legal industry. One of its trainee executives, Mr. H, in the
Personnel department has calculated labour turnover rate 24.92% for the last year
NB using Flux method.
PN
Following is the data provided by the Personnel department for the last year:
Following is some data provided by the Personnel department for the last year:
Employees At the beginning Joined Left At the end
Records clerk 810 1,620 90 2,340

EMPLOYEE COSTS & DIRECT

Human Resource Manager ? 30 90 60
Legal Secretary ? 90 --- ?

EXPENSES
Staff Attorney ? 30 30 ? 30 30 ?
Associate Attorney ? 30 --- 45
Senior Staff Attorney 6 --- --- 18
Senior Records clerk 12 --- --- 51
Litigation attorney ? --- --- ?
Employees transferred from the Subsidiary Company
Senior Staff Attorney --- 12 --- ---
Senior Records clerk --- 39 --- ---
Employees transferred to the Subsidiary Company
Litigation attorney --- --- 90 ---
Associate Attorney --- --- 15 ---
At the beginning of the year there were total 1,158 employees on the payroll of the
company. The opening strength of the Legal Secretary, Staff Attorney and Associate
Attorney were in the ratio of 3 : 3 : 2.
The company has decided to abandon the post of Litigation attorney and
consequently all the Litigation attorneys were transferred to the subsidiary
company.
The company and its subsidiary are maintaining separate set of books of account
and separate Personnel Department.
You are required to:
(a) CALCULATE Labour Turnover rate using Replacement method and Separation
method.
(b) VERIFY the Labour turnover rate calculated under Flux method by Mr. H

41 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.36. The management of B.R Ltd. is worried about their increasing employee turnover
in the factory and before analyzing the causes and taking remedial steps, it wants
NB to have an idea of the profit foregone as a result of employee turnover in the last
PN year. Last year sales amounted to `83,03,300 and P/V ratio was 20 per cent. The
total number of actual hours worked by the direct employee force was 4.45 lakhs.
As a result of the delays by the Personnel Department in filling vacancies due to
employee turnover, 1,00,000 potentially productive hours were lost. The actual
direct employee hours included 30,000 hours attributable to training new recruits,
EMPLOYEE COSTS & DIRECT

out of which half of the hours were unproductive.

The costs incurred consequent on employee turnover revealed, on analysis, the
EXPENSES

following: Settlement cost due to leaving `43,820 Recruitment costs `26,740

Selection costs `12, 50 Training costs `30,490
Assuming that the potential production lost as a consequence of employee turnover
could have been sold at prevailing prices, find the profit foregone last year on
account of employee turnover.

Q.37. Super Ltd, a manufacturing company is facing the problem of high labour
turnover in the factory. Before analysing the causes and taking remedial steps, the
NB management of the company wants to ascertain the profit lost for the year 2022-
PN 23 on account of labour turnover. For this purpose, it has given you the following
information:
(i) Sales for the last year 2022-23 was `2,1 ,80,000 and P V ratio was 15%.
(ii) The total number of actual hours worked by the direct labour force was 5,00,000
hours. The actual direct labour hours included 60,000 hours attributable to
training new recruits, out of which 40% of the hours were unproductive.
(iii) Due to delays by the Personnel Department in filling vacancies on account of
labour turnover, 95,000 potential productive hours (excluding unproductive
training hours) were lost.
(iv) 1,500 units of the output produced during training period were defective. Cost of
rectification of defective units was `40 per unit.
(v) Settlement cost of the workers leaving the organization was `2,37,880.
(vi) Recruitment and Selection cost was `1,40,000.
(vii) Cost of Training and Induction was `1, 1,950.
Assuming that the potential production lost as a consequence of labour turnover
could have been sold at prevailing prices, find the profit lost for the year 2022-23 on
account of labour turnover.

CA/CS Nimeet Piti 42

 Additional Questions
Q.38. A job can be executed either through workman A or B. A takes 32 hours to complete
the ob while finishes it in 30 hours. The standard time to finish the ob is 40 hours.
The hourly wage rate is same for both the workers. In addition workman A is
entitled to receive bonus according to alsey plan (50%) sharing while is paid
bonus as per Rowan plan. The works overheads are absorbed on the job at ` .50

EMPLOYEE COSTS & DIRECT

per labour hour worked. The factory cost of the job comes to ` 2,200 irrespective
of the workman engaged.

EXPENSES
FIND out the hourly wage rate and cost of raw materials input. Also SHOW cost
against each element of cost included in factory cost.

Q.39. Using the details given below, you are required to calculate the earnings of workers
Rio and Rayan and subsequently allocate these earnings to the three Jobs A, B and C.
NB
Rio Rayan
PN
(a) Basic Wages Rs. 100 Rs. 100
(b) Dearness Allowance 50% 50%
(c) Provident Fund (on basic wages) 8% 8%
(d) Employee’s State Insurance (on basic wages) 2% 2%
(e) Overtime 10 hrs. -
(f) Idle time and leave - 16 hrs.

For your calculations, you may assume the following:

(i) Normal working hours for a month are 200 hours.
(ii) Overtime is paid at double the normal wages plus dearness allowance.
(iii) Employer’s contributions to State Insurance and Provident Fund are at equal rate
with the employee’s contributions.
(iv)The month contains 25 working days and one paid holiday.
The two workers were employed on jobs A, B and C in the following proportions:
Job A B C
Worker A 80 60 60
Worker B 100 40 40
Overtime was done on job Y.

43 EMPLOYEE COSTS & DIRECT EXPENSES

 Q.40. Calculate total monthly remuneration of three workers Ram, Shyam and Mohan
from the following data:
NB
PN (a) Standard production per month per worker 2,000 units. Actual production during
the month Ram 1 00 units, Shyam 1500 units and Mohan 1,900 units.
(b) Piece-work rate is Rs. 2 per unit (actual production).
(c) Additional production bonus is Rs. 100 for each percentage of actual production
exceeding 80 per cent actual production over standard (example: 79 per cent nil,
80 per cent nil, 81 per cent Rs. 100, 82 per cent Rs. 200, and so on).
EMPLOYEE COSTS & DIRECT

(d) Dearness allowance fixed at Rs. 300 per month.

EXPENSES

Q.41. A worker took 60 hours to complete a job in a factory. The normal rate of wages
is `80 per hour. The worker is entitled to receive bonus according to the Halsey
NB
Premium Plan. Factory overhead is recovered on the job at `60 per man hour
PN
actually worked. The factory cost of the job is `37,280 and material cost of the job is
`28,400.
Required:
(i) Calculate the standard time for completing the ob and effective hourly rate
under the Halsey Premium plan.
(ii) Calculate the effective rate of earnings per hour if wages would have been paid
under the Rowan Plan.

Q.42. A skilled worker, in PK Ltd., is paid a guaranteed wage rate of `15.00 per hour in a
NB 48- hour week. The standard time to produce a unit is 18 minutes. During a week, a s
PN killed worker -Mr. ‘A’ has produced 200 units of the product. The Company has taken
a drive for cost reduction and wants to reduce its labour cost.
You are required to:
(i) Calculate wages of Mr. ‘A’ under each of the following methods:
(A) Time rate,
(B) Piece -rete with a guaranteed weekly wage,
(C) Halsey Premium Plan
(D) Rowan Premium Plan
(ii) Suggest which bonus plan

CA/CS Nimeet Piti 44

Q.43. SMC Company Limited is producing a particular design of toys under the following
existing incentive system:
NB
Normal working hours in the week 48 hours
PN
Late shift hours in the week 12 hours
Rate of payment Normal working: ` 150 per hour
Late shift: ` 300 per hour
Average output per operator for 60 hours per week (including late shift hours): 80

EMPLOYEE COSTS & DIRECT

toys. The company’s management has now decided to implement a system of labour
cost payment with either the Rowan Premium Plan or the Halsey Premium Plan in

EXPENSES
order to increase output, eliminate late shift overtime, and reduce the labour cost.
The following information is obtained:
The standard time allotted for ten toys is seven and half hours.
Time rate: `150 per hour (as usual).
Assuming that the operator works for 48-hours in a week and produces 100 toys,
you are required to calculate the weekly earnings for one operator under -
(i) The existing Time Rate,
(ii) Rowan Premium Plan and,
(iii) alsey Premium Plan (50%).

Q.44. A total of 108 labour hours have been put in a particular job card for repair work
engaging a semi-skilled and skilled labour (Mr. Deep and Mr. Sam respectively).
NB The hours devoted by both the workers individually on daily basis for this particular
PN job are given below:
Monday Tuesday Wednesday Thursday Friday
10.5 8.0 10.5 9.5 10.5

The skilled labour also worked on Saturday for 10 hours.

Sunday is a weekly holiday and each worker has to work for 8 hours on all week days
and 5 hours on Saturdays the workers are however paid full wages for Saturday (8
hours for 5 hours worked).
Semi-skilled and skilled worker is paid ordinary wage @ ` 400 and ` 600 respectively
per day of 8 hours labour. Further, the workers are also paid dearness allowance @
20%.
Extra hours worked over and above 8 hours are also paid at ordinary wage rate
however, overtime premium of 100% of ordinary wage rate is paid if a worker works
for more than 9 hours in a day AND 48 hours in a week.
You are required to COMPUTE the wages payable to Mr. Deep (Semi-skilled) and
Mr. Sam (Skilled).
45 EMPLOYEE COSTS & DIRECT EXPENSES
 EMPLOYEE COSTS & DIRECT
EXPENSES

CA/CS Nimeet Piti

46
 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 23

Question 2 Question 24

Question 3 uestion 25

Question 4 Question 26

EMPLOYEE COSTS & DIRECT

uestion 5 Question 27

Question 6 Question 28

EXPENSES
Question 7 Question 29

Question 8 Question 30

Question 9 Question 31

Question 10 Question 32

Question 11 Question 33

Question 12 Question 34

Question 13 uestion 35

Question 14 Question 36

uestion 15 Question 37

Question 16 Question 38

Question 17 Question 39

Question 18 Question 40

Question 19 Question 41

Question 20 Question 42

Question 21 Question 43

Question 22 Question 44

47 EMPLOYEE COSTS & DIRECT EXPENSES

 EMPLOYEE COSTS & DIRECT
EXPENSES

CA/CS Nimeet Piti

48
4 OVERHEADS
 Distribution Summary
Q.1. XL Ltd., has three production departments and four service departments. The
NB expenses for these departments as per Primary Distribution Summary are as
PN follows:
Production Departments: (`) (`)
A 30,00,000
B 26,00,000
C 24,00,000 80,00,000
Service Departments: (`) (`)
Stores 4,00,000
Time-keeping and Accounts 3,00,000
Power 1,60,000
Canteen 1,00,000 9,60,000
Overheads

The following information is also available in respect of production departments:

Particulars Dept. A Dept. B Dept. C
Horse power of Machine 300 300 200
Number of workers 20 15 15
Value of stores requisition in (`) 2,50,000 1,50,000 1,00,000

Apportion the costs of service departments over the production departments.

Q.2. Suppose the expenses of two production departments A and B and two service
NB departments X and Y are as under:
PN
Particulars Amount Apportionment Basis
(`) Y A B
X 2,00,000 25% 40% 35%
Y 1,50,000 - 40% 60%
A 3,00,000
B 3,20,000

CA/CS Nimeet Piti 50

Q.3. SNS Trading Company has three Main Departments and two Service Departments.
NB The data for each department is given below:
PN Departments Expenses Area in Number of
Main Department: (in `) (Sq. Mtr) Employees

Purchase Department 5,00,000 12 800

Packing Department 8,00,000 15 1700
Distribution Department 3,50,000 7 700
Service Departments:
Maintenance Department 6,40,000 4 200
Personnel Department 3,20,000 6 250

The cost of Maintenance Department and Personnel Department is distributed on

the basis of ‘Area in Square Metres’ and ‘Number of Employees’ respectively.
You are required to:
(i) Prepare a Statement showing the distribution of expenses of Service
Departments to the Main Departments using the “Step Ladder method” of

Overheads
Overhead Distribution.
(ii) Compute the Rate per hour of each Main Department, given that, the Purchase
Department, Packing Department and Distribution Department works for 12
hours a day, 24 hours a day and 8 hours a day respectively. Assume that there
are 365 days in a year and there are no holidays.

Q.4. Pretz Ltd. is a manufacturing company having two production departments, ‘A’ & ‘B’
and two service departments ‘X’ & ‘Y’. The following is the budget for March, 2022:
NB
PN Particulars Total (`) A (`) B (`) X (`) Y (`)
Direct material 2,00,000 4,00,000 4,00,000 2,00,000
Direct wages 10,00,000 4,00,000 2,00,000 4,00,000
Factory rent 9,00,000
Power (Machine) 5,10,000
Depreciation 2,00,000
General Lighting 3,00,000
Perquisites 4,00,000

Additional information:
Area (Sq. ft.) 500 250 250 500
Capital value of assets (` lakhs) 40 80 20 20
Light Points 10 20 10 10
Machine hours 1,000 2,000 1,000 1,000
Horse power of machines 50 40 15 25

51 OVERHEADS
 A technical assessment of the apportionment of expenses of service departments is
NB as under:
PN Particulars A B X Y
Service Dept. ‘X’ (%) 55 25 - 20
Service Dept. ‘Y’ (%) 60 35 5 -

You are required to:

(a) PREPARE a statement showing distribution of overheads to various departments.
(b) PREPARE a statement showing re-distribution of service departments expenses
to production departments using-
(i) Simultaneous equation method
(ii) Trial and error method
(iii) Repeated Distribution Method.

Q.5. The following account balances and distribution of indirect charges are taken from
the accounts of a manufacturing concern for the year ending on 31st March, 2014:
Overheads

NB Item Total Production Service

PN Amount Departments Departments
X Y X A B
Indirect Material 1,25,000 20,000 30,000 45,000 25,000 5,000
Indirect Labour 2,60,000 45,000 50,000 70,000 60,000 35,000
Superintendent's 96,000 - - 96,000 - -
Salary
Fuel & Heat 15,000
Power 1,80,000
Rent & Rates 1,50,000
Insurance 18,000
Meal Charges 60,000
Depreciation 2,70,000

The following departmental data are also available:

Item Production Service
Departments Departments
X Y X A B
Area (Sq. ft.) 4,400 4,000 3,000 2,400 1,200
Capital Value of
Assets (`) 4,00,000 6,00,000 5,00,000 1,00,000 2,00,000
Kilowatt Hours 3,500 4,000 3,000 1,500 -
Radiator Sections 20 40 60 50 30
No. of Employees 60 70 120 30 20

CA/CS Nimeet Piti 52

 Expenses charged to the service departments are to be distributed to other
departments by the following percentages:
Particulars A B C X Y
Department A (%) 30 30 20 - 20
Department B (%) 25 40 25 10 -

Prepare an overhead distribution statement to show the total overheads of

production departments after re-apportioning service departments’ overhead by
using simultaneous equation method. Show all the calculations to the nearest rupee.

Q.6. M/s. NOP Limited has its own power plant and generates its own power. Information
regarding power requirements and power used are as follows:
Production Dept. Service Dept.
A B X Y
(Horse power hours)

Overheads
Needed capacity production 20,000 25,000 15,000 10,000
Used during the quarter 16,000 20,000 12,000 8,000
ended September 2018
During the quarter ended September 2018, costs for generating power amounted to
` 12.60 lakhs out of which ` 4.20 lakhs was considered as fixed cost.
Service department X renders services to departments A, B, and Y in the ratio of
6:4:2 whereas department Y renders services to department A and B in the ratio
of 4: 1. The direct labour hours of department A and B are 67500 hours and 48750
hours respectively.
Required:
1 Prepare overheads distribution sheet.
2 Calculate factory overhead per labour hour for the dept. A and dept. B.

Q.7. PM Ltd. has three Production Departments P1, P2, P3 and two Service Departments
S1 and S2 details pertaining to which are as under:
NB Particulars P1 P2 P3 S1 S2
PN
Direct wages (`) 60,000 40,000 60,000 30,000 3,900
Working hours 3,070 4,475 2,419 - -
Value of machines (`) 12,00,000 16,00,000 20,00,000 1,00,000 1,00,000
H.P. of machines 60 30 50 10 -
Light points 10 15 20 10 5
Floor space (sq. ft.) 2,000 2,500 3,000 2,000 500

53 OVERHEADS
 The following figures extracted from the accounting records are relevant
Particulars (`)
Rent and Rates 1,00,000
General Lighting 12,000
Indirect Wages 38,780
Power 30,000
Depreciation on Machines 2,00,000
Sundries 1,93,900

The expenses of the service departments are allocated as under:

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

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

Departments P1, P2 and P3 for 4, 5 and 3 hours respectively, given that its Direct
Overheads

Material Cost is ` 1,000 and Direct Labour Cost is ` 600.

Q.8. The following account balances and distribution of indirect charges are taken from
the accounts of a manufacturing concern for the year ending on 31st March 2021:
NB Item Total Production Service
PN Amount Departments Departments
(Rs.) X (Rs.) Y (Rs.) X (Rs.) A (Rs.) B (Rs.)
Indirect Material 2,50,000 40,000 60,000 90,000 50,000 10,000
Indirect Labour 5,20,000 90,000 1,00,000 1,40,000 1,20,000 70,000
Supervisor's Salary 1,92,000 - - 1,92,000 - -
Fuel & Heat 30,000
Power 3,60,000
Rent & Rates 3,00,000
Insurance 36,000
Canteen Charges 1,20,000
Depreciation 5,40,000

CA/CS Nimeet Piti 54

 The following departmental data are also available:
Production Service
Departments Departments
X Y X A B
Area (Sq. ft.) 4,400 4,000 3,000 2,400 1,200
Capital Value of Assets 40,00,000 60,00,000 50,00,000 10,00,000 20,00,000
(Rs.)
Kilowatt Hours 3,500 4,000 3,000 1,500 -
Radiator Sections 20 40 60 50 30
No. of Employees 60 70 120 30 20

Expenses charged to the service departments are to be distributed to other

departments by the following percentages:
X Y Z A B
Department A (%) 30 30 20 - 20
Department B (%) 25 40 25 10 -

Overheads
PREPARE an overhead distribution statement to show the total overheads of
production departments after re-apportioning service departments' overhead by
using simultaneous equation method. Show all the calculations to the nearest
rupee.

Q.9. Arnav Ltd. has three production departments M, N and O and two service
departments P and Q. The following particulars are available for the month of
September, 2013:
NB Particulars (`)
PN
Lease rental 35,000
Power & Fuel 4,20,000
Wages to factory supervisor 6,400
Electricity 5,600
Depreciation on machinery 16,100
Depreciation on building 18,000
Payroll expenses 21,000
Canteen expenses 28,000
ESI and Provident Fund Contribution 58,000

55 OVERHEADS
 Followings are the further details available:
Particular M N O P Q
Floor space (square meter) 1,200 1,000 1,600 400 800
Light points (nos.) 42 52 32 18 16
Cost of machines (`) 12,00,000 10,00,000 14,00,000 4,00,000 6,00,000
No. of employees (nos.) 48 52 45 15 25
Direct Wages (`) 1,72,800 1,66,400 1,53,000 36,000 53,000
HP of Machines 150 180 120 - -
Working hours (hours) 1,240 1,600 1,200 1,440 1,440

The expenses of service department are to be allocated in the following manner:

Particular M N O P Q
P 30% 35% 25% - 10%
Q 40% 25% 20% 15% -

You are required to calculate the overhead absorption rate per hour in respect of
Overheads

the three production departments.

Q.10. A company has three production departments (M1, M2 and A1) and three service
department, one of which Engineering service department, servicing the M1 and M2
only. The relevant information are as follows:
NB Particulars Product X Product X
PN
M1 10 Machine hours 4 Machine hours
M2 14 Direct Labour hours 6 Machine hours
A1 14 Machine hours 18 Direct Labour hours

The annual budgeted overhead cost for the year are:

Particulars Indirect Wages (`) Consumable
Supplies (`)
M1 46,520 12,600
M2 41,340 18,200
A1 16,220 4,200
Stores 8,200 2,800
Engineering Service 5,340 4,200
General Service 7,520 3,200

• Depreciation on Machinery 39,600

• Insurance of Machinery 7,200
• Insurance of Building 3,240 (Total building insurance cost for M1 is one
third of annual premium)

CA/CS Nimeet Piti 56

 • Power 6,480
• Light 5,400
• Rent 12,675 (The general service dept. is located in
a building owned by the company. It is
valued at 6,000 and is charged into cost at
notional value of 8% per annum. This cost
is additional to the rent shown above)

The value of issues of materials to the production departments are in the same
proportion as shown above for the Consumable supplies.
The following data are also available:
Department Book Area e - Production Capacity
value Ma- (Sq. ft.) tive H.P. Direct Machine
chinery (`) hours % Labour hour hour
M1 1,20,000 5,000 50 2,00,000 40,000
M2 90,000 6,000 35 1,50,000 50,000

Overheads
A1 30,000 8,000 05 3,00,000
Stores 12,000 2,000
Engg. Service 36,000 2,500 10
General Service 12,000 1,500

Required:
(i) Prepare a overhead analysis sheet, showing the bases of apportionment of
overheadto departments.
(ii) Allocate service department overheads to production department ignoring
theapportionment of service department costs among service departments.
(iii) Calculate suitable overhead absorption rate for the production departments.
(iv) Calculate the overheads to be absorbed by two products, X and Y.

Q.11. E-books is an online book retailer. The Company has four departments. The two
sales departments areCorporate Sales and Consumer Sales. The two support –
NB departments are Administrative (Human ResourcesAccounting) and Information
PN Systems each of the sales departments conducts merchandising andmarketing
operations independently.

57 OVERHEADS
 The following data are available for October, 2013:
Departments Revenues Number of Processing time
Employees used
(in minutes)
Corporate Sales ` 16,67,750 42 2,400
Consumer Sales ` 8,33,875 28 2,000
Administrative -- 14 400
Information system -- 21 1,400

Cost incurred in each of four departments for October, 2013 are as follow:
Corporate Sales 12,97,751
Consumer Sales 6,36,818
Administrative 94,510
Information Systems 3,04,720

The company uses number of employees on a basis to allocate Administrative costs

and processing time as a basis to allocate Information System Costs.
Overheads

Required:
(i) Allocate the support department costs to the sales departments using the direct
method.
(ii) Rank the support departments based on percentage of their services rendered
to othersupport departments. Use this ranking to allocate support costs based
on the step-downallocation method.
(iii) ow could you have ranked the support departments differently?
Allocate the support department costs to two sales departments using the reciprocal
allocation method.

Q.12. V Ltd. manufactures luggage trolleys for airports. The factory, in which the company
undertakes all of its production, has two production departments- ‘Fabrication’ and
NB
‘Assembly’ , and two service departments- ‘Stores’ and ‘Maintenance’.
PN
The following information have been extracted from the company’s budget for the
financial year ended 31st March, 2019
Particulars Rs.
Allocated Overhead Costs
Fabrication Department 15,52,000
Assembly Department 7,44,000
Stores Department 2,36,000
Maintenance Department 1,96,000
Other Overheads
Factory rent 15,28,000

CA/CS Nimeet Piti 58

 Factory building insurance 1,72,000
Plant & machinery insurance 1,96,000
Plant & Machinery Depreciation 2,65,000
Subsidy for staffs’ canteen 4,48,000

Direct Costs Rs. Rs.

Fabrication Department:
Material 63,26,000
Labour 8,62,000 71,88,000
Assembly Department:
Material 1,42,000
Labour 13,06,000 14,48,000
The following additional information is also provided:
Fabrication Assembly Stores Maintenance
Department Department Department Department

Overheads
Floor area (square 24,000 10,000 2,500 3,500
meters)
Value of plant & 16,50,000 7,50,000 75,000 1,75,000
machinery (Rs.)
No. of stores 3,600 1,400 - -
requisitions
Maintenance hours 2,800 2,300 400 -
required
No. of employees 120 80 38 12
Machine hours 30,00,000 60,000
Labour hours 70,000 26,00,000
Required:
(i) PREPARE a table showing the distribution of overhead costs of the two service
departments to the two production departments using step method; and
(ii) CALCULATE the most appropriate overhead recovery rate for each department.
(iii) Using the rates calculated in part (ii) above, CALCULATE the full production costs
of the following job order:
Job number IGI2019
Direct Materials Rs. 2,30,400
Direct Labour:
Fabrication Department 240 hours @ Rs. 50 per hour
Assembly Department 180 hours @ Rs. 50 per hour
Machine hours required:
Fabrication Department 210 hours
Assembly Department 180 hours
59 OVERHEADS
 Machine hour rate
Q.13. A machine costing ` 10 lakhs, was purchased on 1-4-2014. The expected life of the
machine is 10 years. At the end of this period its scrap value is likely to be ` 10,000.
The total cost of all the machines including new one was ` 90 lakhs. The other
information is given as follows:
(i) Working hours of the machine for the year was 4,200 including 200 non-
productive hours.
(ii) Repairs and maintenance for the new machine during the year was ` 5,000.
(iii) Insurance Premium was paid for all the machine ` 9,000.
(iv) New machine consumes 8 units of electricity per hour, the rate per unit being
`3.75
(v) The new machine occupies 1/10th area of the department. Rent of the
department is `2,400 per month.
Depreciation is charged on straight line basis. Compute machine hour rate for the
new machine.
Overheads

Q.14. The following particulars refer to process used in the treatment of material
subsequently, incorporated in a component forming part of an electrical appliance:
NB (i) The original cost of the machine used (Purchased in June 2023) was ` 10,000. Its
PN estimated life is 10 years, the estimated scrap value at the end of its life is
` 1,000, and the estimated working time per year (50 weeks of 44 hours) is 2,200
hours of which machine maintenance etc., is estimated to take up 200 hours.
No other loss of working time expected. Setting up time, estimated at 100 hours,
is regarded as productive time. (Holiday to be ignored).
(ii) Electricity used by the machine during production is 16 units per hour at cost of a
9 paisa per unit. No current is taken during maintenance or setting up.
(iii) The machine required a chemical solution which is replaced at the end of week
at a cost of ` 20 each time.
(iv) The estimated cost of maintenance per year is ` 1,800.
(v) Two attendants control the operation of machine together with five other
identical machines. Their combined weekly wages, insurance and the employer's
contribution to holiday pay amount ` 120.
(vi) Departmental and general works overhead allocated to this machine for the
current year amount to ` 3,000.
You are required to CALCULATE the machine hour rate of operating the machine.

CA/CS Nimeet Piti 60

Q.15. From the details furnished below you are required to compute a comprehensive
machine-hour rate:
NB
Original purchase price of the machine (subject to `12,96,000
PN depreciation at 10% per annum on original cost)
Normal working hours for the month (The machine 200 hours
works for only 75% of normal capacity)
Wages to Machine-man ` 800 per day (of 8 hours)
Wages to Helper (machine attendant) ` 500 per day
(of 8 hours)
Power cost for the month for the time worked ` 1,30,000
Supervision charges apportioned for the machine ` 18,000
centre for the month
Electricity Lighting (fixed in nature) for the month ` 9,500
Repairs & maintenance (machine) including consuma- ` 17,500
ble stores per month
Insurance of Plant & Building (apportioned) for the ` 18,000
year

Overheads
Other general expense per annum ` 18,000
The workers are paid a fixed dearness allowance of ` 4,500 per month. Production
bonus payable to workers in terms of an award is equal to 10% of basic wages and
dearness allowance. Add 10% of the basic wage and dearness allowance against
leave wages and holidays with pay to arrive at a comprehensive labour-wage for
debit to production.

Q.16. A machine shop cost centre contains three machines of equal capacities. To operate
these three machines nine operators are required i.e. three operators on each
NB
machine. Operators are paid `20 per hour. The factory works for fourtyeight hours
PN
in a week which includes 4 hours set up time. The work is jointly done by operators.
The operators are paid fully for the forty eight hours. In additions they are paid a
bonus of 10 per cent of productive time. Costs are reported for this company on the
basis of thirteen four-weekly period. The company for the purpose of computing
machine hour rate includes the direct wages of the operator and also recoups
the factory overheads allocated to the machines. The following details of factory
overheads applicable to the cost centre are available:
• Depreciation 10% per annum on original cost of the machine. Original cost of the
eachmachine is `52,000.
• Maintenance and repairs per week per machine is `60.
• Consumable stores per week per machine are `75.
• Power : 20 units per hour per machine at the rate of 80 paise per unit.
• Apportionment to the cost centre : Rent per annum `5,400, Heat and Light per
annum `9,720, foreman’s salary per annum `12,960 and other miscellaneous
expenditure perannum `18,000.

61 OVERHEADS
 Required:
(i) Calculate the cost of running one machine for a fourweek period.
(ii) Calculate machine hour rate.

Q.17. A work-shop has 8 identical machines operated by 6 operators. The machine

cannot work without an operator wholly engaged on it. The original cost of all the 8
NB
machines works out to ` 64,00,000.
PN
The following particulars are furnished for a six months’ period:
Normal available hours per operator 1,248
Absenteeism (without pay) hours per operator 18
Leave (with pay) hours per operator 20
Normal unavoidable idle time-hours per operator 10
Production bonus estimated 10% on wages
Power consumed ` 80,500
Supervision and Indirect Labour ` 33,000
Overheads

Lighting and Electricity ` 12,000

Average rate of wages per day of 8 hours per operator ` 200
The following particulars are given for a year:
Insurance ` 7,20,000
Sundry work Expenses ` 1,00,000
Management Expenses allocated ` 10,00,000
Depreciation 10% on the original cost
Repairs and Maintenance (including consumables): 5% of the value of all the
machines.
Prepare a statement showing the comprehensive machine hour rate for the machine
shop.

Q.18. In a factory, a machine is considered to work for 208 hours in a month. It includes
maintenance time of 8 hours and set up time of 20 hours.
The expense data relating to the machine are as under: Cost of the machine is
`5,00,000. Life 10 years. Estimated scrap value at the end of life is `20,000.
NB
Particulars (`)
PN
Repairs and Maintenance per annum 60,480
Consumables per annum 47,250
Rent of building per annum (machine of reference occupies 1/6th area) 72,000
Supervisor’s salary per month (common to 3 machines) 6,000
Wages of operator per month per machine 2,500

CA/CS Nimeet Piti 62

 General lighting charges per month allocated to the machine 1,000
Power 25 units per hour at 25 per unit

Power is required for productive purposes only. Set up time, though productive,
does not require power. The Supervisor and Operator are permanent. Repairs and
maintenance and consumable stores vary with the running of the machine.
Required:
Calculate a two-tier machine hour rate for (a) set up time, and (b) running time

Q.19. Sree A eet Ltd. having fifteen different types of automatic machines furnishes
information as under for 20X8-20X9
NB (i) Overhead expenses: Factory rent `1,80,000 (Floor area 1,00,000 sq. ft.), Heat and
PN gas `60,000 and supervision `1,50,000.
(ii) Wages of the operator are `200 per day of 8 hours. Operator attends to one
machine when it is under set up and two machines while they are under

Overheads
operation.
In respect of machine B (one of the above machines) the following particulars are
furnished:
(i) Cost of machine `1,80,000, Life of machine- 10 years and scrap value at the end
of its life `10,000
(ii) Annual expenses on special equipment attached to the machine are estimated
as `12,000
(iii) Estimated operation time of the machine is 3,600 hours while set up time is 400
hours per annum
(iv) The machine occupies 5,000 sq. ft. of floor area.
(v) Power costs `5 per hour while machine is in operation.
ESTIMATE the comprehensive machine hour rate of machine . Also find out
machine costs to be absorbed in respect of use of machine B on the following two
work orders
Work order- 1 Work order-2
Machine set up time (Hours) 15 30
Machine operation time (Hours) 100 190

63 OVERHEADS
 Q.20. You are given the following information of the three machines of a manufacturing
department of X Ltd.:

NB
Partciulars Preliminary estimates of expenses
PN
(per annum)
Total Machines
P Q R
` ` `
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 10,000 4,000 3,000 3,000
Insurance of machinery 8,000
Indirect labour 20,000
Building maintenance 20,000
Overheads

expenses
Annual interest on 60,000 25,000 25,000 10,000
capital outlay
Monthly charge for rent 10,000
and rates
Salary of foreman 20,000
(per month)
Salary of Attendant 5,000
(per month)
(The foreman and the attendant control all the three machines and spend equal
time on them.)
The following additional information is also available:
Partciulars Machines
P Q R
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 14 holidays besides Sundays in the year, of which two were on Saturdays.
The manufacturing department works 8 hours in a day but Saturdays are half days.
All machines work at 85% capacity throughout the year and 2% is reasonable for
breakdown.
You are required to :
CALCULATE predetermined machine hour rates for the above machines after taking
into consideration the following factors:
• An increase of 15% in the price of spare parts.

CA/CS Nimeet Piti 64

 • An increase of 25% in the consumption of spare parts for machine ‘Q’ & ‘R’ only.
• 20% general increase in wages rates.
• An 10% decrease in the consumption of consumable stores.

Q.21 USP Ltd. is the manufacturer of ‘double grip motorcycle tyres’. In the manufacturing
process, it undertakes three different obs namely, Vulcanising, rushing and
Striping. All of these jobs require the use of a special machine and also the aid of a
NB
robot when necessary. The robot is hired from outside and the hire charges paid
PN
for every six months is ` 2,70,000. An estimate of overhead expenses relating to the
special machine is given below:
• Rent for a quarter is ` 18,000.
• The cost of the special machine is ` 19,20,000 and depreciation is charged @10%
per annum on straight line basis.
• Other indirect expenses are recovered at 20% of direct wages.
The factory manager has informed that in the coming year, the total direct wages

Overheads
will be ` 12,00,000 which will be incurred evenly throughout the year.
During the first month of operation, the following details are available from the ob
book:
Number of hours the special machine was used

Jobs Without the aid of the robot With the of the robot
Vulcanising 500 400
Brushing 1000 400
Striping - 1200

You are required to :

(i) Compute the Machine Hour Rate for the company as a whole for a month (A)
when the robot is used and (B) when the robot is not used.
(ii) Compute the Machine Hour Rate for the individual jobs i.e. Vulcanising, Brushing
and Striping.

65 OVERHEADS
 Accounting treatment of under/
over absorbed overheads
Q.22. X Ltd. recovers overheads at a. pre-determined rate of `50 per man-day. The total
factory overheads incurred and the man-days actually worked were `79 lakhs and
NB 1.5 lakhs days respectively. During the period 30,000 units were sold. At the end
PN of the period 5,000 completed units were held in stock but there was no opening
stock of finished goods. Similarly, there was no stock of uncompleted units at the
beginning of the period but at the end of the period there were 10,000 uncompleted
units which may be treated as 50% complete.
On analyzing the reasons, it was found that 60% of the unabsorbed overheads were due
to defective planning and the balance were attributable to increase in overhead cost.
ow would unabsorbed overheads be treated in cost accounts?

Q.23. The cost variance report was being discussed at a review meeting where in Cost
Overheads

Accountant of the company reported under-absorption of production overheads.

NB The following information was available from the cost records of the company at the
PN end of financial year 2023-24
• Actual production overheads incurred were ` 4,50,000 which included ` 42,000
on account of written off obsolete stores.
• 18,000 units were produced during the year out of which 10,000 units were sold
and 8,000 units of finished goods were in stock.
• There were also 5,000 units in progress which may be reckoned as 40%
complete.
• The actual machine hours worked during the period were 43,000.
ABC Ltd. absorbs the production overheads at a predetermined rate of ` 8 per
machine hour.
On investigation, it has been found that 20% of the under-absorption of production
overheads was due to defective planning and the rest was attributable to normal
increase in costs of indirect materials and indirect labour.
You are required to:
(i) Calculate the amount of under-absorption of production overheads during the
year 2023-24; and
(ii) Show the treatment of under-absorption of production overheads in cost
accounts.

CA/CS Nimeet Piti 66

Q.24. PQR manufacturers – a small scale enterprise produces a single product and has
adopted a policy to recover the production overheads of the factory by adopting a
NB single blanket rate based on machine hours. The budgeted production overheads of
PN the factory are `10,08,000 and budgeted machine hours are 96,000.
For a period of first six months of the financial year 20132014, following information
were extracted from the books:
Actual Production Overheads : 6,79,000
Amount included in the production overheads:
Paid as per court’s order : 45,000
Expenses of previous year booked in the current year : 10,000
Paid to workers for strike period under an award : 42,000
Obsolete stores written off 18,000
Production and sales data of the concern for the first six months are as under
Production:
Finished goods : 22,000 units

Overheads
Work-in-progress (50% complete in every respect) : 16,000 units
Sale:
Finished goods : 18,000 units
The actual machine hours worked during the period were 48,000 hours. It is
revealed from the analysis of information that ¼ of the under-absorption was due to
defective production policies and the balance was attributable to increase in costs.
You are required:
(i) to determine the amount of under absorption of production overheads for the
period,
(ii) to show the accounting treatment of under-absorption of production overheads,
and
(iii) to apportion the unabsorbed overheads over the items.

Q.25. Your company uses a historical cost system and applies overheads on the basis of
pre- determined rates. The following are the figure from the Trial alance as at
NB 30th September, 2013: -
PN Manufacturing overheads `4,26,544 Dr.
Manufacturing overheads applied `3,65,904 Cr.
Work-in-progress `1,41,480 Dr.
Finished goods stocks `2,30,732 Dr.
Cost of goods sold `8,40,588 Dr.
ive two methods for the disposal of the unabsorbed overheads and show the profit
implications of each method.

67 OVERHEADS
 Q.26. A light engineering factory fabricates machine parts to customers. The factory
commenced fabrication of 12 Nos. machine parts to customers’ specifications and
NB the expenditure incurred on the job for the week ending 21st August, 20X1 is given
PN below:
Particulars (`) (`)
Direct materials (all items) 780.00
Direct labour (manual) 20 hours @ `15 per hour 300.00

Machine facilities : Machine No. I : 4 hours @ `45 180.00

Machine No. II : 6 hours @ `65 390.00 570.00
Total 1,650.00
Overheads @ `8 per hour on 20 manual hours 160.00
Total cost 1,810.00
The overhead rate of `8 per hour is based on 3,000man hours per week; similarly,
the machine hour rates are based on the normal working of Machine Nos. I and II for
Overheads

40 hours out of 45 hours per week.

After the close of each week, the factory levies a supplementary rate for the recovery
of full overhead expenses on the basis of actual hours worked during the week.
During the week ending 21st August, 20X1, the total labor hours worked was 2,400
and Machine Nos. I and II had worked for 30 hours and 32.5 hours respectively.
Prepare a Cost Sheet for the job for the fabrication of 12 Nos. machine parts duly
levying the supplementary rates.

Q.27. A Ltd has calculated a predetermined overhead rate of Rs.22 per machine hour for
its Quality Check (QC) department. This rate has been calculated for the budgeted
NB level of activity and is considered as appropriate for absorbing overheads. The
PN following overhead expenditures at various activity levels had been estimated.

Total overheads Number of machine hours

Rs.3,38,875 14,500
Rs.3,47,625 15,500
Rs.3,56,375 16,500
You are required to:
(i) CALCULATE the variable overhead absorption rate per machine hour.
(ii) CALCULATE the estimated total fixed overheads.
(iii) CALCULATE the budgeted level of activity in machine hours.
(iv) CALCULATE the amount of under/over absorption of overheads if the actual
machine hours were 14,970 and actual overheads were Rs.3,22,000.

CA/CS Nimeet Piti 68

 (v) ANALYSE the arguments for and against using departmental absorption rates as
opposed to a single or blanket factory wide rate.

Q.28. A machine was purchased from a manufacturer who claimed that his machine
could produce 36.5 tonnes in a year consisting of 365 days. Holidays, break-down,
NB etc., were normally allowed in the factory for 65 days. Sales were expected to be 25
PN tonnes during the year and the plant actually produced 25.2 tonnes during the year.
You are required to state the following figures
(a) Rated Capacity.
(b) Practical Capacity.
(c) Normal Capacity.
(d) Actual Capacity.

Q.29. n the current quarter, a company has undertaken two obs. The data relatin to
these jobs are as under:

Overheads
NB Particulars Job 1102 Job 1108
PN Selling price `1,07,325 `1,57,920
Profit as percentage on cost 8% 12%
Direct Materials `37,500 `54,000
Direct Wages `30,000 `42,000

t is the policy of the company to char e Factory overheads as percenta e on direct

wa es and Sellin and Administration overheads as percenta e on Factory cost.
The company has received a new order for manufacturin of a similar ob. The
estimate of direct materials and direct wa es relatin to the new order are `64,000
and `50,000 respectively. A profit of 20% on sales is required.
You are required to compute
(i) The rates of Factory overheads and Sellin and Administration overheads to be
char ed.
(ii) The Sellin price of the new order.

69 OVERHEADS
 Q.30. n a manufacturin company factory overheads are char ed as fixed percenta e
basis on direct labour and office overheads are char ed on the basis of percenta e
of factory cost. The followin information are available related to the year endin
NB
31st March, 2014 :
PN
Particulars Product A Product B
Direct Materials `19,000 `15,000
Direct Labour `15,000 `25,000
Sales `60,000 `80,000
Profit 25% on cost 25% on sales price

You are required to find out

(i) The percenta e of factory overheads on direct labour.
(ii) The percenta e of office overheads on factory cost.

Q.31. In an engineering company, the factory overheads are recovered on a fixed

percentage basis on direct wages and the administrative overheads are absorbed on
Overheads

NB a fixed percentage basis on factory cost.

PN
The company has furnished the following data relating to two jobs undertaken by it
in a period:
Particulars Job 101 (`) Job 101 (`)
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Selling price 1,66,650 1,28,250
Profit percentage on Total Cost 10% 20%

Require:
(i) Computation of percentage recovery rates of factory overheads and
administrative overheads.
(ii) Calculation of the amount of factory overheads, administrative overheads and
profit for each of the two obs.
Using the above recovery rates fix the selling price of ob 103. The additional data
bein:
Direct materials `24,000
Direct wages `20,000
Profit percentage on selling price 12- %

CA/CS Nimeet Piti 70

Q.32. Mix Soap Pvt. Ltd., manufactures three brands of soap – Luxury, Herbal and Beauty.
The followin information has been obtained for the period from June 1 to June 30,
2021 relatin to three brands
NB
Luxury Herbal Beauty
PN
Actual Production (units) 6,750 14,000 77,500
Wages paid (Rs.) 7,500 18,750 1,15,000
Raw materials consumed (Rs.) 20,000 47,000 2,40,000
Selling price per unit (Rs.) 25 15 8

Other data are:

Factory overheads Rs. 80,000
General & administration overheads (equal for Rs. 48,000
all) Selling overheads 20% of Works cost
f the company limits the manufacture to ust one brand of soap adoptin a sin le
brand production, then monthly production will be:

Overheads
Units
Luxury 5,000
Herbal 15,000
Beauty 30,000

Further, factory overheads are to be allocated to each brand on the basis of the
units which could have been produced when sin le brand production was in
operation.
You are required to:
(i) F ND out the Factory overhead rate for all the brands.
(ii) PREPARE a cost statement for the month of June showin the various elements
of cost and also the profit earned. (10 Marks)

Q.33. Department. When the plans were prepared for the power plant, top mana ement
decided that its practical capacity should be 1,50,000 machine hours. Annual
NB
bud eted practical capacity fixed costs are `9,00,000 and bud eted variable costs
PN
are `4 per machine-hour. The followin data are available
Particulars Cutting Weilding Total
Department Department
Actual Usage in 2012-13 (Ma- 60,000 40,000 1,00,000
chine hours)
Practical capacity for each de- 90,000 60,000 1,50,000
partment (Machine hours)

71 OVERHEADS
 Required:
(i) Allocate the power plant s cost to the cuttin and the weldin department usin
a sin lerate method in which the bud eted rate is calculated usin practical
capacity andcosts are allocated based on actual usa e.
(ii) Allocate the power plant s cost to the cuttin and weldin departments, usin
the dual-rate method in which fixed costs are allocated based on practical
capacity andvariable costs are allocated based on actual usa e.
(iii) Allocate the power plant s cost to the cuttin and weldin departments usin
thedual- rate method in which the fixed-cost rate is calculated usin practical
capacity,but fixed costs are allocated to the cuttin and weldin department
based on actualusa e. Variable costs are allocated based on actual usa e.
(iv) Comment on your results in requirements (i), (ii) and (iii).

Q.34. M.L. Auto Ltd. is a manufacturer of auto components and the details of its expenses
for the year2014 are iven below (`)
NB
(i) Opening Stock of Material 1,50,000
Overheads

PN
(ii) Closing Stock of Material 2,00,000
(iii) Purchase of Material 18,50,000
(iv) Direct Labour 9,50,000
(v) Factory Overhead 3,80,000
(vi) Administrative Overhead 2,50,400

Durin 2015, the company has received an order from a car manufacturer where
it estimates that the cost of material and labour will be `8,00,000 and `4,50,000
respectively. M.L. Auto Ltd. char es factory overhead as a percenta e of direct
labour and administrative overhead as a percenta e of factory cost based on
previous year's cost. Cost of delivery of the components at customer's premises is
estimated at `45,000.
You are required to:
(i) Calculate the overhead recovery rates based on actual costs for 2014.
(ii) Prepare a detailed cost statement for the order received in 2015 and the price to
be quotedif the company wants to earn a profit of 10% on sales.

CA/CS Nimeet Piti 72

Q.35. A company which sells four products, some of them unprofitable, proposes
discontinuin the sale of one of them. The followin information is available
re ardin income, costs and activity for the year ended 31st March, 20 2
NB Partciulars Products
PN
A B C D
Sales (`) 30,00,000 50,00,000 25,00,000 45,00,000
Cost of sales (`) 20,00,000 45,00,000 21,00,000 22,50,000
Area of storage (Sq.ft.) 50,000 40,000 80,000 30,000
Number of parcels sent 1,00,000 1,50,000 75,000 1,75,000
Number of invoices sent 80,000 1,40,000 60,000 1,20,000

Selling and Distribution overheads and the basis of allocation are:

Partciulars (`) Basis of allocation
to products
Fixed Costs
Rent & Insurance 3,00,000 Square feet

Overheads
Depreciation 1,00,000 Parcel
Salesmen’s salaries & expenses 6,00,000 Sales Volume
Administrative wages and salaries 5,00,000 No. of invoices
Variable Costs :
Packing wages & materials ` 2 per parcel
Commission 4% of sales
Stationery ` 1 per invoice

You are required to prepare Costing Profit Loss Statement, showing the
percentage of profit or loss to sales for each product.

Q.36. A Ltd., manufactures two products A and . The manufacturin division consists of
two production departments P1 and P2 and two service departments S1 and S2.
ud eted overhead rates are used in the production departments to absorb factory
overheads to the products. The rate of Department P1 is based on direct machine
hours, while the rate of Department P2 is basedon direct labour hours. n applyin
overheads, the pre-determined rates are multiplied by actual hours.
For allocatin the service department costs to production departments, the basis
adopted is as follows:
Cost of Department S1 to Department P1 and P2 equally, and
Cost of Department S2 to Department P1 and P2 in the ratio of 2 : 1 respectively.
The followin bud eted and actual data are available

73 OVERHEADS
 Annual profit plan data
Factory overheads bud eted for the year

Departments P1 25,50,000 S1 6,00,000

P2 21,75,000 S2 4,50,000

Budgeted output in units: Product A 50,000; B 30,000.

Budgeted raw-material cost per unit : Product A `120; Product B `150.

Budgeted time required for production per unit:

Department P1 : Product A : 1.5 machine hours
Product B : 1.0 machine hour
Department P2 : Product A : 2 Direct labour hours
Product B : 2.5 Direct labour hours
Overheads

Average wage rates budgeted in Department P2 are: Product A - `72 per hour and
Product B – `75 perhour. All materials are used in Department P1 only.
Actual data: (for the month of July, 20X1)
Units actually produced : Product A : 4,000 units
Product B : 3,000 units Actual direct machine hours worked in Department P1: On
product A 6,100 hours,Product B 4,150 hours.
Actual direct labour hours worked in Department P2: on product A 8,200 hours,
Product B 7,400 hours.
Costs actually incurred: Product A Product B
Raw materials 4,89,000 4,56,000
Wages 5,91,900 5,52,000

Overheads:
Department P1 2,31,000 S1 60,000
P2 2,04,000 S2 48,000

You are required to:

(I) Compute the pre-determined overhead rate for each production department.
(iii) Prepare a performance report for July, 20 1 that will reflect the budgeted costs
and actual costs.

CA/CS Nimeet Piti 74

 Additional Questions
Q.37. A cost centre in a factory furnishes the followin workin conditions

NB
Normal workin week 40 hours
PN Number of machines 15
Normal weekly loss of hours on maintenance, etc. 4 hours per machine
Estimated annual overhead Rs. 1,55,520
Estimated direct wa e rate Rs. 3 per hour
Number of weeks worked per year 48
Actual results in respect of a 4-week period are:
Overhead incurred Rs. 15,000
Wa es incurred Rs. ,000
Machine-hours produced 2,200

Overheads
You are required to:
(i) Calculate the overhead rate per machine-hour, and
(ii) Calculate the amount of under or over-absorption of both wa es and overhead.

Q.38. Allur y Ltd. is into metallic tools manufacturin . t has four production departments.
NB
The work performed in every department is fairly uniform, thus the mana er of
PN
the company created a policy to recover the production overheads of the entire
company by adoptin a sin le blanket rate. The relevant data for a month are iven
below:
Departments Direct Direct Factory Direct Machine
Materials Wages Overheads Labour Hours
(`) (`) (`) Hours
Budget:
Operating 64,35,000 7,92,000 35,64,000 1,98,000 7,92,000
Assembly 11,73,000 24,15,000 9,66,000 6,90,000 69,000
Quality Control 5,10,000 10,50,000 4,20,000 3,00,000 30,000
Packing 9,90,000 6,93,000 12,37,500 4,95,000 -
Actual:
Operating 77,22,000 9,50,400 38,61,000 2,37,600 9,50,400
Assembly 9,38,400 18,63,000 5,79,600 6,21,000 75,900
Quality Control 4,08,000 8,10,000 2,52,000 2,70,000 33,000
Packing 11,88,000 8,91,000 13,36,500 5,94,000 -

75 OVERHEADS
 Additional details relating to one of the jobs during the month are also provided
below:
Job No. 157
Departments Direct Direct Direct Machine
Materials Wages Labour Hours
(`) (`) Hours
Operating 11,880 2,376 594 1,782
Assembly 4,140 2,484 828 207
Quality Control 1,800 1,080 360 90
Packing 2,970 594 396 -

During Quality Control phase of this particular Job, the company incurred certain
additional expenditure of ` 495 on direct wages as there were certain production
that was not as perfect as the saleable product. The defective units were normal
in nature and after rectification have been brought to the required degree of
perfection.
Overheads

The company adds 25% on the factory cost to cover administration overheads and
profit.
You are required to figure out the following
(a) COMPUTE the overhead absorption rate as per the blanket rate based on the
percentage of total factory overheads to total factory wages and determine the
selling price of the Job No. 157.
(b) The new manager thinks that the machinery is used to a varying degree in the
different departments. Thus, it is not appropriate to follow one blanket rate for
the whole company. Therefore, suggest an alternative method of absorption of
the factory overheads and CALCULATE the overhead rates based on the method
so suggested.
(c) DETERMINE the selling price of Job 157 based on the overhead rates calculated in
(b) above.
(d) CALCULATE the department-wise under or over recovery of overheads based on
the company’s current policy and the method suggested in (b) above.

Q.39. SE Limited manufactures two products- A and . The company had bud eted factory
overheads amountin to ` 3 , 2,000 and bud eted direct labour hour of 1,80,000
NB
hours. The company uses pre-determined overhead recovery rate for product
PN
costin purposes.
The department-wise break-up of the overheads and direct labour hours were as
follows:

CA/CS Nimeet Piti 76

 Departments Budgeted Budgeted direct Rate per direct
overheads labour hours labour hour

Department Pie ` 25,92,000 90,000 hours ` 28.80

Department Qui ` 10,80,000 90,000 hours ` 12.00
Total ` 36,72,000 1,80,000 hours

Additional Information:
Each unit of product A requires 4 hours in department Pie and 1 hour in department
Qui. Also, each unit of product B requires 1 hour in department Pie and 4 hours in
department Qui.
This was the first year of the company s operation. There was no WIP at the end of
the year. However, 1,800 and 5,400 units of Products A and B were on hand at the
end of the year.
The budgeted activity has been attained by the company. You are required to:
(i) DETERMINE the production and sales quantities of both products 'A' and 'B' for

Overheads
the above year.
(ii) ASCERTAIN the effect of using a pre-determined overhead rate instead of
department-wise overhead rates on the company s income due to its effect on
stock value.
(iii) CALCULATE the difference in the selling price due to the use of pre-determined
overhead rate instead of using department-wise overhead rates. Assume that
the direct costs (material and labour costs) per unit of products A and B were
` 25 and ` 40 respectively and the selling price is fixed by adding 40% over and
above these costs to cover profit and selling and administration overhead.

Q.40. Calculate Machine Hour Rate from the following particulars :

Cost of Machine — ` 25,00,000
NB
PN Salvage Value — ` 1,25,000
Estimated life of the machine — 25,000 Hours
Working Hours (per annum) — 3,000 Hours
Hours required for maintenance — 400 Hours
Setting-up time required — 8% of actual working hours
Additional Information:
(i) Power 25 units @ ` 5 per unit per hour.
(ii) Cost of repairs and maintenance `26,000 per annum.
(iii) Chemicals required for operating the machine ` 2,600 per month.
(iv) Overheads chargeable to the machine ` 18,000 per month.

77 OVERHEADS
 (v) Insurance Premium (per annum) 2% of the cost of machine
(vi) No. of operators — 02 (looking after three other machines also)
(vii) Salary per operator per month `18,500

Q.41. A manufacturing company having strength of 50 workers planned for 300 working
days of 8 hours each. Based on earlier year's trend, it is estimated that average
NB absenteeism per worker would be 10 days in addition to eligibility of 20 days annual
PN leave. The budgeted overheads amounted to ` 15,12,000.
During the year, factory worked for 2 extra days to meet the production targets.
The actual average absenteeism per worker was 8 days. Out of 50 workers, 20 took
the annual leave of 20 days and the remaining took 15 days leave. 450 hours were
lost due to machine breakdown. Overtime worked on production during the year
amounted to 650 hours. Actual overheads amounted to ` 15,92,600.
You are required to:
(i) Calculate overhead absorption rate based on direct labour hours.
Overheads

(ii) Determine the under or over absorption of overheads during the year.

Q.42. From the following information, calculate the Total cost of Product A and B using the
ABC analysis:
NB Product A Product B
PN
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering Cost ` 4,00,000
Delivery Cost ` 1,35,000

A. A = ` 47,500; B = ` 1,27,500
B. A = ` 2,67,500; B = ` 2,67,500
C. A = ` 1,60,00; B = ` 3,75,000
D. A = ` 1,47,500; B = ` 1,47,500

CA/CS Nimeet Piti 78

Q.43. HCP Ltd. is a manufacturing company having two production departments, P and Q
and two service departments, R and S. The budgeted cost information for the month
NB
of October 2023 is furnished below:
PN Production Service
Departments Departments
(`) P (`) Q (`) R (`) S (`)

Indirect material 1,77,500 94,750 49,750 18,270 14,730

Indirect Labour 1,55,000 35,000 75,000
Factory Rent 75,000
Depreciation on 37,500
machinery
Power 96,000
Security Expenses for 24,000
Factory Premises
Insurance- machinery 12,000
Supervisor Expenses 48,000

Overheads
Additional information
Floor Area (Sq. meters) 1250 750 200 300
Net book value of machinery (`) 21,00,000 5,00,000 1,00,000 3,00,000

H.P. of machines 800 200 80 120

Machine hours 4,000 1,000 600 800
Number of employees 10 30 6 4
Labour hours 2,000 6,000 1,200 600

The overhead costs of the two service department are distributed using step method
in the same order viz. R and S respectively on the following basis:
Department R Number of employees
Department S Machine hours
Required:
(i) Prepare a statement showing distribution of overheads to various departments,
clearly showing the basis of distribution.
(ii) Calculate the total budgeted overheads for both production departments after
the service departments have been re-apportioned to them.
(iii) Calculate the most appropriate overhead absorption rate for each of the
production department.

79 OVERHEADS
Overheads

CA/CS Nimeet Piti 80

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 23

Question 2 Question 24

Question 3 Question 25

Question 4 Question 26

Question 5 Question 27

Question 6 Question 28

Question 7 Question 29

Question 8 Question 30

Question 9 Question 31

Question 10 Question 32

Question 11 Question 33

Question 12 Question 34

Question 13 Question 35

Question 14 Question 36

Overheads
Question 15 Question 37

Question 16 Question 38

Question 17 Question 39

Question 18 Question 40

Question 19 Question 41

Question 20 Question 42

Question 21 Question 43

Question 22

81 OVERHEADS
Overheads

CA/CS Nimeet Piti 82

5 ACTIVITY
BASED
COSTING
 Q.1. Alpha Limited has decided to analyze the profitability of its five new customers. It
buys bottled water at ` 90 per case and sells to retail customers at a list price of `108
per case.
NB Particulars Customers
PN A B C D E
Cases sold 4,680 19,688 1,36,800 71,550 8,775
List Selling Price `108 `108 `108 `108 `108
Actual Selling Price `108 `10 .20 `99 `104.40 `9 .20
Number of Purchase orders 15 25 30 25 30
Number of Customer visits 2 3 6 2 3
Number of deliveries 10 30 60 40 20
ilometers travelled per 20 6 5 10 30
delivery
Number of expedited 0 0 0 0 1
deliveries
Its five activities and their cost drivers are
Activity Cost Driver Rate
Order Taking 50 per purchase order
Customer Visits 00 per customer visit
Deliveries 5. 5 per delivery m travelled
Activity Based Costing

Product handling 3. 5 per case sold

Expected deliveries 2,250 per expected delivery

Required
1. Compute the customer-level operating income of each of five retail customers
now beingexamined (A, , C, D and E). Comment on the results.
2. What insights are gained by reporting both the list selling price and the actual
selling price for eachcustomer?

Q.2. D Ltd. is following Activity based costing. udgeted overheads, cost drivers and
volume are as follows
NB Cost pool Budgeted Cost driver Budgeted
PN overheads volume
(`)
Material procure- 18,42,000 No. or orders 1,200
ment
Material handling 8,50,000 No. of movement 1,240
Maintenance 24,5 ,000 Maintenance hours 17,550
Set-up 9,12,000 No. of set-ups 1,450
uality control 4,42,000 No. of inspection 1,820

CA/CS Nimeet Piti 84

 The company has produced a batch of , 00 units, its material cost was `24, 2,000
and wages `4, 8,500. Usage activities of the said batch are as follows
Material orders 56
Material movements 84
Maintenance hours 1,420 hours
Set-ups 0
No. of inspections 18
Required
(i) CALCULATE cost driver rates.
(ii) CALCULATE the total and unit cost for the batch

Q.3. P R Ltd. is engaged in the production of three products P, and R. The company
calculates Activity Cost Rates on the basis of Cost Driver capacity which is provided
as below
NB Activity Cost Driver Cost Driver Capacity Cost (`)
PN
Direct Labour hours Labour hours 30,000 Labour hours 3,00,000
Production runs No. of Production 00 Production runs 1,80,000
runs
uality Inspections No. of Inspection 8000 Inspections 2,40,000

Activity Based Costing

The consumption of activities during the period is as under
Activity / Products P Q R
Direct Labour hours 10,000 8,000 6,000
Production runs 200 180 160
uality Inspection 3,000 2,500 1,500

You are required to

(i) Compute the costs allocated to each Product from each Activity.
(ii) Calculate the cost of unused capacity for each Activity.
(iii) A potential customer has approached the company for supply of 12,000 units
of a new product. S to be delivered in lots of 1500 units per quarter. This will
involve an initial design cost of `30,000 and per quarter production will involve
the following
Direct Material ` 18,000
Direct Labour hours 1,500 hours
No. of Production runs 15
No. of uality Inspection 250

85 ACTIVITY BASED COSTING

 Prepare cost sheet segregating Direct and Indirect costs and compute the Sales
value per quarter of product S using A C system considering a markup of 20% on
cost.

Q.4. A C Ltd. is engaged in production of three types of Fruit Juices Apple, Orange and
Mixed Fruit.
NB The following cost data for the month of March 2020 are as under
PN
Particulars Apple Orange Mixed Fruit
Units produced and sold 10,000 15,000 20,000
Material per unit (`) 8 6 5
Direct Labour per unit (`) 5 4 3
No. of Purchase Orders 34 32 14
No. of Deliveries 110 64 52
Shelf Stocking ours 110 160 170

Overheads incurred by the company during the month are as under

(`)
Ordering costs 64,000
Delivery costs 1,58,200
Shelf Stocking costs 87,560
Activity Based Costing

Required
(i) Calculate cost driver s rate.
(ii) Calculate total cost of each product using Activity ased Costing.

Q.5. -2020 Ltd. is a manufacturer of a range of goods.

The cost structure of its different products is as follows
NB
Particulars Product
PN
A B C
Direct Materials 50 40 40
Direct Labour `10 hour 30 40 50
Production Overheads 30 40 50
Total Cost 110 120 140
uantity Produced 10,000 20,000 30,000

The company was absorbing overheads on the basis of direct labour hours. A
newly appointed management accountant has suggested that the company should
introduce A C system and has identified cost drivers and cost pools as follows

CA/CS Nimeet Piti 86

 Activity Cost Pool Cost Driver Associated Cost (`)
Stores Receiving Purchase Requisitions 2,9 ,000
Inspection Number of production runs 8,94,000
Dispatch Orders executed 2,10,000
Machine setup Number of setups 12,00,000

The following information is also supplied

Details Product A Product B Product C
No. of setups 360 390 450
No. of Orders Executed 180 2 0 300
No. of Production Runs 750 1,050 1,200
No. of Purchase Requisitions 300 450 500

Required
Calculate the activity-based production cost of all three products.

Q.6. SMP Pvt. Ltd. manufactures three products using three different machines. At
present the overheads are charged to products using labour hours. The following
NB statement for the month of September 2019, using the absorption costing method
PN has been prepared

Activity Based Costing

Particulars Product X Product Y Product Z
(using machine A) (using machine B) (using machine C)
Production units 45,000 52,500 30,000
Material cost per unit (`) 350 460 410
Wages per unit `80 per 240 400 560
hour
Overhead cost per unit (`) 240 400 560
Total cost per unit (`) 830 1,2 0 1,530
Selling price (`) 1,03 .50 1,575 1,912.50

The following additional information is available relating to overhead cost drivers.

Cost driver Product X Product Y Product Z Total
No. of machine set-ups 40 160 400 600
No. of purchase orders 400 800 1,200 2,400
No. of customers 1,000 2,200 4,800 8,000

Actual production and budgeted production for the month is same. Workers are
paid at standard rate. Out of total overhead costs, 30% related to machine set-ups,
30% related to customer order processing and customer complaint management,
while the balance proportion related to material ordering.

87 ACTIVITY BASED COSTING

 Required
(i) COMPUTE overhead cost per unit using activity based costing method.
(ii) DETERMINE the selling price of each product based on activity-based costing with
the same profit mark-up on cost.

Q.7. J Plastics Limited manufactures three products S, M and L. To date, simple

traditional absorption costing system has been used to allocate overheads to
NB products. Total production overheads are allocated on the basis of machine hours.
PN The machine hour rate for allocating production overheads is ` 240 per machine
hour under the traditional absorption costing system. Selling prices are calculated by
adding mark up of 40% of the product cost. Information related to products for the
most recent year is as under
Products
S M L
Units produced and sold 7,500 12,500 9,000
Direct material cost per unit (`) 158 179 250
Direct labour cost per unit (`) 40 45 60
Machine hours per unit 0.30 0.45 0.50
Number of Machine setups 120 120 160
Number of purchase orders 90 135 125
Activity Based Costing

Number of inspections 100 160 140

The management wishes to introduce activity-based method (A C) system of

attributing production overheads to products and has identified ma or cost pools for
production overheads and their associated cost drivers as follows
Cost pool Amount Cost driver
Purchasing Department Cost ` 7,00,000 Number of Purchase orders
Machine setup Cost ` 9,00,000 Number of Machine setups
uality Control Cost ` 6,56,000 Number of inspections
Machining Cost ` 5,64,000 Machine hours

Required
(i) Calculate the total cost per unit and selling price per unit for each of the three
products using
(a) The traditional costing approach currently used by J Plastics Limited
(b) Activity based costing (A C) approach.
(ii) Calculate the difference in selling price per unit as per (a) and (b) above and show
which product is under-priced or over-priced.as an application base,calculate the
amount of cost distortion (under-costed or over- costed) for each equipment.

CA/CS Nimeet Piti 88

Q.8. Family Store wants information about the profitability of individual product lines
Soft drinks, Fresh produce and Packaged food. Family store provides the following
data for the year 20 - 8 for each product line
NB
Soft drinks Fresh produce Packaged food
PN
Revenues `39,67,500 `1,05,03,000 `60,49,500
Cost of goods sold `30,00,000 `75,00,000 `45,00,000
Cost of bottles returned `60,000 `0 `0
Number of purchase orders 360 840 360
placed
Number of deliveries received 300 2,190 660
ours of shelf-stocking time 540 5,400 2, 00
Items sold 1,2 ,000 11,04,000 3,06,000

Family store also provides the following information for the year 20 - 8
Activity Description of Total Cost Cost-allocation
activity base
ottles returns Returning of empty `60,000 Direct tracing to
bottles soft drink line
Ordering Placing of orders for `7,80,000 1,5 0 purchase
purchases orders
Delivery Physical delivery `12, 0,000 3,150 deliveries
and receipt of

Activity Based Costing

goods
Shelf stocking Stocking of goods `8,64,000 8, 40 hours of
on store shelves shelfstocking
and ongoing time
restocking
Customer Assistance provided `15,36,000 15,36,000 items
Support to customers in- sold
cluding
check-out
Reqvuired
(i) Family store currently allocates support cost (all cost other than cost of goods
sold) to product lines on the basis of cost of goods sold of each product line.
CALCULATE the operating income and operating income as a % of revenues for
each product line.
(ii) If Family Store allocates support costs (all costs other than cost of goods sold) to
product lines using and activity based costing system, CALCULATE the operating
income and operating income as a % of revenues for each product line.

89 ACTIVITY BASED COSTING

 Q.9. PCP Limited belongs to the apparel industry. It specializes in the distribution
of fashionable garments. It buys from the industry and resells the same to the
following two different supermarkets
(i) Supermarket A dealing in Adults’ garments (Age group 15 - 30)
(ii) Supermarket dealing in ids’ garments (Age group 5 - 10)
The following data for the month of April in respect of PCP Limited has been
reported
NB Particular Supermarket A (`) Supermarket B (`)
PN Average revenue per delivery 1,69,950 57,750
Average cost of goods sold per delivery 1,65,000 55,000
Number of deliveries 660 1,650

In the past, PCP Limited has used gross margin percentage to evaluate the relative
profitability of its supermarket segments.
The company plans to use activity based costing for analysing the profitability of its
supermarket segments.
The April month’s operating costs (other than cost of goods sold) of PCP Limited
are ` 1 ,55,995. These operating costs are assigned to five activity areas. The cost
in each area and Activity analysis including cost driver for the month of April are as
follows
Activity Based Costing

Activity Area Total costs (`) Cost Driver

Store delivery 3,90,500 Store deliveries
Cartons dispatched to store 4,15,250 Cartons dispatched to a store
per delivery
Shelf-stocking at customer store 64,845 ours of shelf-stocking
Line-item ordering 3,45,400 Line-items per purchase order
Customer purchase order pro- 4,40,000 Purchase orders by customers
cessing
Other data for the month of April include the following
Particular Supermarket A Supermarket B
Total number of store deliveries 1,100 2,805
Average number of cartons shipped per store 250 50
delivery
Average number of hours of shelf-stocking per 6 1.5
store delivery
Average number of line items per order 14 12
Total number of orders 770 1,980

CA/CS Nimeet Piti 90

 Required
(i) COMPUTE gross-margin percentage for each of its supermarket segments and
compute PCP Limited’s operating income.
(ii) COMPUTE the operating income of each supermarket segments using the
activitybased costing information..

Q.10. A C Ltd. is a multiproduct company, manufacturing three products A, and C. The

budgeted costs and production for the year ending 31st March, 20 8 are as follows
NB Particulars A B C
PN Production quantity (Units) 4,000 3,000 1,600
Resources per Unit
-Direct Materials ( g.) 4 6 3
-Direct Labour (Minutes) 30 45 60

The budgeted direct labour rate was `10 per hour, and the budgeted material cost
was `2 per kg. Production overheads were budgeted at `99,450 and were absorbed
to products using the direct labour hour rate. A C Ltd. followed an Absorption
Costing System. A C Ltd. is now considering to adopt an Activity ased Costing
system.
The following additional information is made available for this purpose. udgeted
overheads were analyzed into the following

Activity Based Costing

Particulars (`)
Material handling 29,100
Storage costs 31,200
Electricity 39,150

The cost drivers identified were as follows

Material handling Weight of material handled

Storage costs Number of batches of material
Electricity Number of Machine operations

Data on Cost Drivers was as follows

Particulars A B C
For complete production
atches of material 10 5 15
Per unit of production
Number of Machine operators 6 3 2

91 ACTIVITY BASED COSTING

 You are requested to
1. Prepare a statement for management showing the unit costs and total costs of
each product using theabsorption costing method.
2. Prepare a statement for management showing the product costs of each product
using the A Capproach.
3. What are the reasons for the different product costs under the two approaches?

Q.11. A YSOFT is a global brand created by io-organic Ltd. The company manufactures
three range of beauty soaps i.e. A YSOFT- old, A YSOFT- Pearl, and A YSOFT-
Diamond. The budgeted costs and production for the month of December, 2019 are
as follows
NB BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT-
PN Diamond
Production of 4,000 3,000 2,000
soaps (Units)
Resources per Qty Rate Qty Rate Qty Rate
Unit:
- Essential Oils 60 ml ` 200 55 ml ` 300 / 100 65 ml ` 300 /
100 ml ml 100 ml
- Cocoa utter 20 g ` 200 20 g ` 200 100 20 g ` 200
100 g g 100 g
- Filtered Water 30 ml ` 15 / 100 30 ml ` 15 / 100 30 ml ` 15 / 100
Activity Based Costing

ml ml ml
- Chemicals 10 g ` 30 / 100 12 g ` 50 / 100 15 g ` 60 / 100
g g g
- Direct Labour 30 ` 10 / 40 ` 10 hour 40 ` 10 /
minutes hour min- minutes hour
utes
io-organic Ltd. followed an Absorption Costing System and absorbed its production
overheads, to its products using direct labour hour rate, which were budgeted at
` 1,98,000.
Now, io-organic Ltd. is considering adopting an Activity ased Costing system. For
this, additional information regarding budgeted overheads and their cost drivers is
provided below
Particulars (`) Cost drivers
Forklifting cost 58,000 Weight of material lifted
Supervising cost 60,000 Direct labour hours
Utilities 80,000 Number of Machine operations

The number of machine operators per unit of production are 5, 5, and for
A YSOFT- old, A YSOFT- Pearl, and A YSOFT- Diamond respectively.

CA/CS Nimeet Piti 92

 (Consider (i) Mass of 1 litre of Essential Oils and Filtered Water equivalent to 0.8 kg
and 1 kg respectively (ii) Mass of output produced is equivalent to the mass of input
materials taken together.)
You are requested to
(i) PREPARE a statement showing the unit costs and total costs of each product
using the absorption costing method.
(ii) PREPARE a statement showing the product costs of each product using the A C
approach.
(iii) STATE what are the reasons for the different product costs under the two
approaches?

Q.12. A Y Ltd. manufactures four products, namely A, , C and D using the same plant and
process. The following information relates to production period December, 2020
NB Particulars A B C G
PN
Output in units 1,440 1,200 960 1,008
Cost per unit
Direct Materials Rs. 84 Rs. 90 Rs. 80 Rs. 9
Direct Labour Rs. 20 Rs. 18 Rs. 14 Rs. 1
Machine hours per unit 4 3 2 1

The four products are similar and are usually produced in production runs of

Activity Based Costing

48 units per batch and are sold in batches of 24 units. Currently, the production
overheads are absorbed using machine hour rate. The production overheads
incurred by the company for the period December, 2020 are as follows
(Rs.)
Machine department costs
Rent, deprecation and supervision 2,52,000
Set-up Costs 80,000
Store receiving costs 60,000
Inspection 40,000
Material handling and dispatch 10,368

During the period December, 2020, the following cost drivers are to be used for
allocation of overheads cost

93 ACTIVITY BASED COSTING

 Cost Cost driver
Set-up Costs Number of production runs (batches)
Stores receiving Requisition raised
Inspection Number of production runs (batches)
Material handling and dispatch Orders executed

It is also determined that

(i) Machine department costs should be apportioned among set-up, stores
receiving and inspection activities in proportion of 4 3 2.
(ii) The number of requisitions raised on stores is 50 for each product. The total
number of material handling and dispatch orders executed during the period are
192 and each order being for a batch size of 24 units of product.
Required
(i) CALCULATE the total cost of each product, if all overhead costs are absorbed on
machine- hour rate basis.
(ii) CALCULATE the total cost of each product using activity-based costing.
Activity Based Costing

CA/CS Nimeet Piti 94

 Additional Questions
Q.13. Tricon Co. furnishes the following information for the month of September, 2020.
NB Particulars Budget Details Static Budget Actual
PN Units produced Sold 4,000 3,200
(Rs.) (Rs.)
Direct Material 3 kg p.u. Rs. 30 per kg. 3,60,000 3,10,000
Direct Labour 1 hr. p.u. Rs. 2 per hr. 2,88,000 2,25, 00
Variable Overhead 1 hr. p.u. Rs. 44 per hr. 1,76,000 1,4 ,200
Fixed Overhead 1,80,000 1,68,000
Total Cost 10,04,000 8,50,800
Sales 12,00,000 8,96,000
Profit 1,96,000 45,200

During the month 10,000 kg. of materials and 3,100 direct labour hours were
utilized.
Required
(i) Prepare a flexible budget for the month.
(ii) Determine the material usage variance and the direct labour rate variance for

Activity Based Costing

the actual vs the flexible budget.

Q.14 . The following budgeted information relates to Pinku Ltd. for the year 2024
NB Products
PN
A B C
Production and Sales (units) 1,00,000 80,000 60,000
(`) (`) (`)
Selling price per unit 90 180 140
Direct cost per unit 50 90 95
Hours Hours Hours
Machine department 3 4 5
(machine hours per unit)
Assembly department 6 4 3
(direct labour hours per unit)
The estimated overhead expenses for the year 2024 will be as below
Machine Department ` 73,60,000
Assembly Department ` 55,00,000

95 ACTIVITY BASED COSTING

 Overhead expenses are apportioned to the products on the following basis
Machine Department On the basis of machine hours
Assembly Department On the basis of labour hours
After a detailed study of the activities the following cost pools and their respective
cost drivers are found
Cost Pool Amount (`) Cost Driver Quantity
Machining services 64,40,000 Machine hours 9,20,000 hours
Assembly services 44,00,000 Direct labour hours 11,00,000 hours
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups
Order processing ,20,000 Customer orders ,200 orders
Purchasing 4,00,000 Purchase orders 800 orders

As per an estimate the activities will be used by the three products

Products
A B C
Machine set-ups 4,500 3,000 1,500
Customer orders 2,200 2,400 2, 00
Purchase orders 300 350 150
Prepare a product-wise profit statement using Activity-based method.
Activity Based Costing

Q.15. Equate bank offers 3 products, viz., deposits, Loans and Credit Cards. The bank has
selected 4 activities for a detailed budgeting exercise, following activity-based costing
NB methods.
PN
The bank wants to know the product wise total cost per unit for the selected
activities, so that prices may be fixed accordingly.
The following information is made available to formulate the budget
Activity Present Estimation for the budget period
Cost (`)
ATM Services
(a) Machine Maintenance 5,20,000 All fixed, no change.
(b) Rents 2, 0,000 Fully fixed, no change.
(c) Currency Replenishment Cost 1,30,000 Expected to double during budget
period.
9,10,000
Computer Processing 6,50,000 alf this amount is fixed, and no
change is expected.
The variable portion is expected to
increase to three times the current
level.

CA/CS Nimeet Piti 96

 Issuing Statements 23,40,000 Presently, 3.90 lakh statements are
made. In the budget period, .5
lakh statements are expected.
For every single increase of
statement, one rupee is the budg-
eted increase.
Computer Inquiries 2, 0,000 Estimated to increase by 80% dur-
ing the budget period.
The activity drivers and their budgeted quantifies are given below
Activity Drivers Deposits Loans Credit Cards
No. of ATM Transactions 1,95,000 --- 65,000
No. of Computer Processing Transactions 19,50,000 2, 0,000 3,90,000
No. of Statements to be issued 4,55,000 65,000 1,30,000
Telephone Minutes 4,68,000 2,34,000 2,34,000

The bank budgets a volume of ,180 deposit accounts, 1 ,900 loan accounts, and
18,200 Credit Card Accounts.
Required
(i) CALCULATE the budgeted rate for each activity.
(ii) PREPARE the budgeted cost statement activity wise.
(iii) COMPUTE the budgeted product cost per account for each product using (i) and

Activity Based Costing

(ii) above.

Q.16. Icecold a FMC Company manufactures and sells three flavors of ice cream

NB Dark chocolate, Chocolate, and utterscotch. The batch size for the ice cream is
PN limited to 1,000 ice cream based on the size of the fridge and ice cream molds
owned by the company. ased on budgetary pro ections, the information listed
below is available
Dark chocolate Chocolate Butterscotch
Pro ected sales in units 500,000 800,000 600,000
PER UNIT data
Selling price ` 80 ` 75 ` 60
Direct materials ` 20 ` 15 ` 14
Direct labor `4 `2 `2
ours per 1000-unit batch
Direct labor hours 20 10 10
Fridge hours 1 1 1
Packaging hours 0.5 0.5 0.5

97 ACTIVITY BASED COSTING

 Total overhead costs and activity levels for the year are estimated as follows
Activity Overhead costs Activity levels
Direct labor 2,400 hours
Fridge ` 2,10,00,000 1,900 fridge hours
Packaging ` 1,50,00,000 950 packaging hours
` 3,60,00,000
Required
a. With the help of A C system, for the Chocolate ice cream
1. Compute the activity-cost-driver rate
2. Compute the estimated overhead costs per thousand ice cream.
3. Compute the estimated operating profit per thousand ice cream.
b. With the help of traditional system (with direct labor hours as the overhead
allocation base), for the Chocolate ice cream, compute the estimated operating
profit per thousand ice cream.

Q.17. SMD Limited manufactures four products namely A, , C and D using the same
production and process facilities. The company has been following conventional
NB method of costing and wishes to shift to activity-based costing system.
PN The data pertaining to four products are
Product Units Material per unit Labour hours Machine hours
Activity Based Costing

produced (`) per unit per unit

A 1,500 140 1 3
2,500 90 3 2
C 10,000 180 2 6
D 6,000 150 1.5 4

The following activity volumes are associated to the production process for the
relevant period -
Number of Number of Material Number of set-ups
Inspections Movements
A 200 15 100
250 20 125
C 900 100 600
D 650 85 400
RThe cost data also states that
Direct Labour cost ` 0 per hour
Machine hour rate ` 280 per hour
Production overheads are absorbed on machine hour basis.

CA/CS Nimeet Piti 98

 For activity-based costing, a thorough, analysis of the production process
revealed that
Costs relating to set-ups and inspection bears the equal percentage while costs
relating to machinery accounts for 20% of the production overhead.
Costs relating to material handling stands at 50% of costs relating to machinery.
You are required to
(i) Prepare a statement showing the unit costs and total costs of each product using
the absorption costing method.
(ii) Prepare a statement showing the unit costs and total costs of each product using
activity - based costing system.

Q.18. L Limited manufactures three products P, and R which are similar in nature and
areusually produced in production runs of 100 units. Product P and R require both
NB machine hours and assembly hours, whereas product requires only machine
PN hours. The overheads incurred by the company during the first quarter are as under
`
Machine Department expenses 18,48,000
Assembly Department expenses , 2,000
Setup costs 90,000
Stores receiving cost 1,20,000

Activity Based Costing

Order processing and dispatch 1,80,000
Inspect and uality control cost 36,000

The data related to the three products during the period are as under
P Q R
Units produced and sold 15,000 12,000 18,000
Machine hours worked 30,000 hrs. 48,000 hrs. 54,000 hrs.
Assembly hours worked 15,000 hrs. - 2 ,000 hrs.
(direct labour hours)
Customers’ orders executed 1,250 1,000 1,500
(in numbers)
Number of requisitions raised on 40 30 50
the stores
Prepare a statement showing details of overhead costs allocated to each product
type using activity-based costing.

99 ACTIVITY BASED COSTING

 Q.19. Star Limited manufacture three products using the same production methods. A
conventional product costing system is being used currently. Details of the three
products for a typical period are
NB Product Labour Hrs. Machine Hrs. per Materials per Volume in
PN per unit unit Unit1 Units
A 1.00 2.00 35 7,500
0.90 1.50 25 12,500
C 1.50 2.50 45 25,000

Direct Labour costs ` 20 per hour and production overheads are absorbed on
a machine hour basis. The overhead absorption rate for the period is ` 30 per
machine hour.
Management is considering using Activity ased Costing system to ascertain the cost
ofthe products. Further analysis shows that the total production overheads can be
divided as follows
Particulars %
Cost relating to set-ups 40
Cost relating to machinery 10
Cost relating to material handling 30
Costs relating to inspection 20
Total production overhead 100
Activity Based Costing

The following activity volumes are associated with the product line for the period as
a whole. Total activities for the period
Product No. of set-ups No. of movements No. of inspections
of Materials
A 350 200 200
450 280 400
C 740 675 900
Total 1,540 1,155 1,500

Required
(i) Calculate the cost per unit for each product using the conventional method.
(ii) Calculate the cost per unit for each product using activity based costing method.

1
Material cost per unit

CA/CS Nimeet Piti 100

Q.20. The profit margin of A Y airclips Company were over 20% of sales producing
ROWN and LAC hairclips.

NB During the last year, REEN hairclips had been introduced at 10% premium in selling
PN price after the introduction of YELLOW hairclips earlier five years back at 10 3%
premium. owever, the manager of the company is disheartened with the sales
figure for the current financial year as follows
Traditional Income Statement (in `)
Brown Black Yellow Green Total
Sales 1,50,00,000 1,20,00,000 2 ,90,000 3,30,000 3,01,20,000
Material Costs 50,00,000 40,00,000 9,36,000 1,10,000 1,00,46,000

Direct Labour 20,00,000 16,00,000 3,60,000 40,000 40,00,000

Overhead (3 times of direct 60,00,000 48,00,000 10,80,000 1,20,000 1,20,00,000
labour)
Total Operating Income 20,00,000 16,00,000 4,14,000 60,000 40,74,000
Return on Sales (in%) 13.3% 13.3% 14.8% 18.2% 13.5%

It is a known fact that customers are ready to pay premium amount for YELLOW and
REEN hairclips for their attractiveness and the percentage returns are also high on
new products.
At present, all of the Plant’s indirect expenses are allocated to the products at 3
times of the direct labour expenses. owever, the manager is interested in allocating

Activity Based Costing

indirect expenses on the basis of activity cost to reveal real earner.
e provides support expenses category-wise as follows
Support Expenses (`)
Indirect Labour 40,00,000
Labour Incentives 32,00,000
Computer Systems 20,00,000
Machinery depreciation 16,00,000
Machine maintenance 8,00,000
Energy for machinery 4,00,000
Total 1,20,00,000
e provides following additional information for accomplishment of his interest
Incentives to be allocated 40% of labour expenses (both direct and indirect).
Indirect labours are involved mainly in three activities. About half of indirect labour
is involved in handling production runs. Another 40% is required ust for the physical
changeover from one color hairclip to another because YELLOW hairclips require
substantial labour for preparing the machine as compared to other colour hairclips.
Remaining 10% of the time is spend for maintaining records of the products in four
parts.

101 ACTIVITY BASED COSTING

 Another amount spent on computer system of ` 20,00,000 is for maintenance of
documents relating to production runs and record keeping of the four products. In
aggregate, approx.. 80% of the amount expend is involved in the production run
activityand approx.. 20% is used to keep records of the products in four parts.
Other overhead expenses i.e. machinery depreciation, machine maintenance and
energy for machinery are incurred to supply machine capacity to produce all the
hairclips (practical capability of 20,000 hours).
Activity Cost Drivers:
Particulars Brown Black Yellow Green Total
Sales Volume (units) 1,00,000 80,000 18,000 2,000 2,00,000
Selling Price (`) 150 150 155 165

Material cost (`) 50 50 52 55

Machine hours per unit ( rs) 0.10 0.10 0.10 0.10 20,000
Production runs 100 100 76 24 300
Setup time per run ( rs) 4 1 6 4

You are required to

(i) CALCULATE operating income and operating income as per percentage of sales
using activity-based costing system.
(ii) STATE the reasons for different operating income under traditional income
system and activity-based costing system.
Activity Based Costing

Q.21. Luxury Designer Pvt. Ltd. is a manufacturing company, which manufactures

readymade designer shirts. It has four customers two wholesale category customers
NB and two retail category customers. It has developed the following Activity- ased
PN Costing system
Activity Cost Driver Rate (`)
Order Processing 1,2 0 per purchase order
Customer Visits 1,500 per customer visit
Regular Delivery 30 per delivery m. travelled
Expedited Delivery 4,490 per expedited delivery
List selling price per shirt is ` 1,000 and average cost per shirt is ` 00. CEO of Luxury
Designer Pvt. Ltd. wants to evaluate the profitability of each of the four customers
for the year 2023, to explore opportunities for increasing profitability of his
Company in the next year 2024. The following data in context of four customers are
available for 2023

CA/CS Nimeet Piti 102

 Wholesale Retail
Customers Customers
WC-1 WC-2 RC-1 RC-2
Number of Purchase orders 50 65 224 245
Number of Customer visits 10 13 25 22
Regular Deliveries 46 52 175 198
ilometers travelled per delivery 20 15 10 25

Expedited Deliveries 5 16 50 2
Average Number of Shirts per Shirt 215 110 18 15
Average Selling Price per Shirt ` 700 ` 800 ` 900 ` 950

You are required to

Calculate the customer-level operating income and operating income as a % of
revenues in 2023 and rank them on the basis of relative profitability.

Activity Based Costing

103 ACTIVITY BASED COSTING

 Activity Based Costing

CA/CS Nimeet Piti

104
 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 1 uestion 12

uestion 2 uestion 13

uestion 3 uestion 14

uestion 4 uestion 15

uestion 5 uestion 1

uestion uestion 1

uestion uestion 18

uestion 8 uestion 19

uestion 9 uestion 20

uestion 10 uestion 21

uestion 11

Activity Based Costing

105 ACTIVITY BASED COSTING

 Activity Based Costing

CA/CS Nimeet Piti

106
6 COST SHEET
 Q.1. The following extracts of costing information relate to commodity A for the year
31.3.2004.
NB
PN Particulars Amt. (Rs.)
Purchase of Raw Material 48,000
Direct Wages 40,000
Stock on 1-4-2003 8,000
of Raw Material
of Finished Goods 1,600 quintals 6,400
Stock on 31-3-2004
of Raw Material 6,800
of Finished Goods 3,200 quintals ?
Work on cost (factory overhead) 16,800
Work-in-Progress :
1st April 2003 1,920
31st March 2004 6,400
Office and Administrative Overheads 3,200
Sales (Finished Product) 1,20,000

Advertising, discount allowed and selling cost is Re. 0.40 per quintal. During the year
25,600 quintals of commodity were produced. Prepare Cost Sheet.

Q.2. X Ltd furnishes the following information to enable you to prepare the cost sheet.
Production Overheads - Rs. 80,000
NB
Material Purchased – Rs. 5,00,000
PN
Administrative Overheads – Rs. 1,00,000
Inventory Details:
Particulars Opening (Rs.) Closing (Rs.)
Cost Sheet

Materials 1,50,000 1,20,000

Work in Progress 80,000 95,000
Finished Goods 2,04,000 ?

The firm had a stock of 12000 units in the opening inventory. It sold 4,000 units at
Rs. 28.50 per unit. It has 8000 units in its closing inventory. Labour Costs incurred
amounted to Rs. 3,85,000. The cost of sales amounted to Rs. 14,01,000. Sale of
Waste amounted to Rs. 2000.

CA/CS Nimeet Piti 108

Q.3. The following information is available from the books of a company manufacturing
luxuryceiling fans. Production and sales during the year ending 31st March, 2002
NB was 1000 Units.
PN
Particulars Rs.
Direct Materials 2,00,000
Direct Wages 1,50,000
Factory Expenses 1,37,500
Administration Expenses 60,000
Selling Expenses 7,30,000

The following estimates have been made for 2002/2003:

1. Production and sales will be 1,500 units.
2. Materials prices per unit will increase by 25% but due to economy in
consumption thecost per unit will reduce by 12%.
3. The wage rate per unit will increase by 20%
4. Factory expenses of Rs. 50,000 are fixed. The remaining factory expenses will be
in thesame proportion to materials consumed and wages as in the previous year.
5. The total administration expenses will increase by 66-2/3%
6. Selling expenses will be Rs.90,000
. The profit desired is 20% on sales.
Prepare a cost statement showing maximum possible break-up of cost per unit and
total cost for 2001-02 and 2002 2003, Profit per unit and total Profit for 2001-02 and
2002/2003.

Q.4. A factory can produce 60,000 units per annum at its optimum (100%) capacity. The
estimated cost of production is as under:
NB
PN Direct Labour hours Rs.3 per unit
Direct Labour Rs.2 per unit. Cost Sheet

Indirect Expenses:
Fixed Rs.1,50,000 per annum
Variable Rs.5 per unit
Semi-variable Rs. 50,000 per annum upto 50% capacity and an extra
expense of Rs. 10,000 for every 25% increase in capacity or
part thereof.
The factory produces only against orders and not for own stock.
If the production programme of the factory is as indicated below, and the
management desires to ensure a profit of Rs. 1,00,000 for the year, work out the
average selling price at which each unit should be quoted.

109 COST SHEET

 First 3 months of the year - 50% of capacity.
Remaining 9 months - 80% of capacity.
Ignore selling, distribution and administration overheads.

Q.5. M/s Areeba Private Limited has a normal production capacity of 36,000 units of toys
perannum. The estimated costs of production are as under:
NB
i. Direct Material Rs. 40 per unit
PN
ii. Direct Labour Rs. 30 per unit (subject to a minimum of Rs. 48,000 p.m.)
iii. Factory Overheads:
(a) Fixed Rs. 3,60,000 per annum
(b) Variable Rs. 10 per unit
(c) Semi-variable Rs. 1,08,000 per annum up to 50% capacity and additional
Rs. 46,800 for every 20% increase in capacity or any part
thereof.
iv. Administrative Overheads Rs. 5, 18,400 per annum (fixed)
v. Selling overheads are incurred at Rs. 8 per unit.
vi. Each unit of raw material yields scrap which is sold at the rate of Rs. 5 per unit.
vii. In year 2019, the factory worked at 50% capacity for the first three months but it
wasexpected that it would work at 80% capacity for the remaining nine months.
viii.During the first three months, the selling price per unit was Rs. 145.
You are required to:
i. Prepare a cost sheet showing Prime Cost, Works Cost, Cost of Production and
Cost ofSales.
ii. Calculate the selling price per unit for remaining nine months to achieve the total
annualprofit of Rs. 8, , 00.
Cost Sheet

Q.6. PJ Ltd manufactures hockey sticks. It sells the products at ` 500 each and makes
a profit of ` 125 on each stick. The Company is producing 5,000 sticks annually by
NB using 50% of its machinery capacity.
PN
The cost of each stick is as under:
Direct Material `150
Direct Wages `50
Works Overhead `125 (50% fixed)
Selling Expenses `50 (25% variable)
The anticipation for the next year is that cost will go up as under:

CA/CS Nimeet Piti 110

 Fixed Charges 10%
Direct Wages 20%
Direct Material 5%
There will not be any change in selling price.
There is an additional order for 2,000 sticks in the next year.
Calculate the lowest price that can be quoted so that the Company can earn the
same profit as it has earned in the current year?

Q.7. Aloe Ltd. has the capacity to produce 2,00,000 units of a product every month. Its
works cost at varying levels of production is as under:
NB Level Works cost per unit (`)
PN
10% 400
20% 390
30% 380
40% 370
50% 360
60% 350
70% 340
80% 330
90% 320
100% 310

Its fixed administration expenses amount to ` 3, 0,000 and fixed marketing

expenses amount to `4,80,000 per month respectively. The variable distribution cost
amounts to `30 per unit.
It can sell 100% of its output at ` 500 per unit provided it incurs the following further
expenditure:
(i) It gives gift items costing `30 per unit of sale; Cost Sheet

(ii) It has lucky draws every month giving the first prize of ` 0,000 2nd prize of
`50,000, 3rd prize of `40,000 and ten consolation prizes of `5,000 each to
customers buying the product.
(iii) It spends `2,00,000 on refreshments served every month to its customers;
(iv) It sponsors a television programme every week at a cost of ` 20,00,000 per
month.
It can market 50% of its output at `560 by incurring expenses referred `from (ii)
to (iv) above and 30% of its output at `600 per unit without incurring any of the
expenses referred from (i) to (iv) above.
PREPARE a cost sheet for the month showing total cost and profit at 30%, 50% and
100% capacity level COMPARE its profit.
111 COST SHEET
 Q.8. The Cost structure of an article, the selling price of which is Rs. 45,000 is as follows:
Direct Materials 50%
NB
Direct Labour 20%
PN
Overheads 30%

An increase of 15% in the cost of materials and of 25% in the cost of labour is
anticipated. These increased costs in relation to the present selling price would
cause a 25% decrease in the amount of present profit per article.
You are required:
a. To prepare a statement of profit per article at present, and
b. The revised selling price to produce the same percentage of Profit to Sales as
before

Q.9. Xim Ltd. manufactures two types of boxes 'Super' and 'Normal'. The cost data for the
year ended 31st March, 2021 is as follows:
NB
PN `
Direct Materials 12,00,000
Direct Wages 6,72,000
Production Overhead 2,88,000
Total 21,60,000

There was no work-in-progress at the beginning or at the end of year. It is further

ascertained that:
1. Direct materials cost per unit in ‘Super’ was twice as much of direct material in
‘Normal’.
2. 2% cash discount was received for payment made within 30 days to the creditors
of Direct materials.
3. Direct wages per unit for ‘Normal’ were 60% of those of ‘Super’.
Cost Sheet

4. Production overhead per unit was at same rate for both the types of boxes.
5. Administration overhead was 200% of direct labour for each type.
6. Selling cost was ` 1 per ‘Super’ type.
7. Production and sales during the year were as follows:
Production Sales
Type No. of units Type No. of units
Super 60,000 Super 54,000
Normal 1,80,000

CA/CS Nimeet Piti 112

 8. Selling price was ` 30 per unit for ‘Super’.
9. Company was also involved in a copyright infringement case related to the
manufacturing process of ‘Super’ production. As per the verdict, it had to pay
penalty of ` 50,000.

PREPARE Cost Sheet of Xim Ltd. for ‘Super’ showing:

(i) Cost per unit and Total Cost
(ii) Profit per unit and Total Profit

Cost Sheet

113 COST SHEET

 New Cost Sheet format
Q.10. From the following data of Appu Ltd., CALCULATE (i) Material Consumed; (ii) Prime
Cost and (iii) Cost of production.
NB Particulars Rs.
PN
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100
(x) Quality control cost for the products in manufacturing process 86,000
(xi) Research & development cost for improvement in production 92,600
process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the 9,200
manufacturing process
(xiv) Packing cost necessary to preserve the goods for further 10,200
processing
(xv) Salary paid to Director (Technical) 8,90,000
Cost Sheet

Q.11. DF Ltd. manufactures leather bags for office and school purpose. The following
NB
information is related with the production of leather bags for the month of
PN
September 2019.
(i) Leather sheets and cotton cloths are the main inputs, and the estimated
requirement per bag is two meters of leather sheets and one meter of cotton
cloth. 2,000 meter ofleather sheets and 1,000 meter of cotton cloths are
purchased at `3,20,000 and `15,000 respectively. Freight paid on purchases is
`8,500.
(ii) Stitching and finishing need 2,000 man hours at `80 per hour.
(iii) Other direct cost of `10 per labour hour is incurred.

CA/CS Nimeet Piti 114

 (iv) DFG has 4 machines at a total cost of `22,00,000. Machine has a life of 10 years
with a scrape value of 10% of the original cost. Depreciation is charged on
straight line method.
(v) The monthly cost of administrative and sales office staffs are `45,000 and
`72,000 respectively. DFG pays `1,20,000 per month as rent for a 2400 sq.feet
factory premises. The administrative and sales office occupies 240 sq. feet and
200 sq. feet respectively of factory space.
(vi) Freight paid on delivery of finished bags is `18,000.
(vii) During the month 35 kg. of leather and cotton cuttings are sold at `150 per kg.
(viii) There is no opening and closing stocks for input materials. There is 100 bags in
stock at the end of the month.
Required:
PREPARE a cost sheet following functional classification for the month of September
2019.

Q. 12 The following data relates to manufacturing of a standard product during the month
of March, 2021:
NB Particulars Amount (`)
PN Stock of Raw material as on 01-03-2021 80,000
Work in Progress as on 01-03-2021 50,000
Purchase of Raw material 2,00,000
Carriage Inwards 20,000
Direct Wages 1,20,000
Cost of special drawing 30,000
Hire charges paid for Plant 24,000
Return of Raw Material 40,000
Carriage on return 6,000
Cost Sheet
Expenses for participation in Industrial exhibition 8,000
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000
Depreciation on Delivery van 6,000
Warehousing charges 1,500
Stock of Raw material as on 31-03-2021 30,000
Stock of Work in Progress as on 31-03-2021 24,000
• Store overheads on materials am 10% of material consumed
• Factory overheads are 20% of the Prime cost.

115 COST SHEET

 • 10% of the output was rejected and a sum of ` 5,000 was realized on sale of
scrap.
10% of the finished product was found to be defective and the defective
products were rectified at an additional expenditure which is equivalent to 20%
of proportionate direct wages.
• The total output was 8000 units during the month.
You are required to prepare a Cost Sheet for the above period showing the:
(i) Cost of Raw Material consumed.
(ii) Prime Cost
(iii) Work Cost
(iv) Cost of Production
(v) Cost of Sales

Q.13. Y a manufacturing firm, has revealed following information for September, 2019
NB 1st September 30th September
PN (`) (`)
Raw Materials 2,42,000 2,92,000
Works-in-progress 2,00,000 5,00,000

The firm incurred following expenses for a targeted production of 1,00,000 units
during the month :
`
Consumable Stores and spares of factory 3,50,000
Research and development cost for process improvements 2,50,000
Quality control cost 2,00,000
Packing cost (secondary) per unit of goods sold 2
Lease rent of production asset 2,00,000
Administrative Expenses (General) 2,24,000
Cost Sheet

Selling and distribution Expenses 4,13,000

Finished goods (opening) Nil
Finished goods (closing) 5000 units
Defective output which is 4% of targeted production, realizes ` 61 per unit.
Closing stock is valued at cost of production (excluding administrative expenses)
Cost of goods sold, excluding administrative expenses amounts to ` 78,26,000.
Direct employees cost is 1/2 of the cost of material consumed.
Selling price of the output is ` 110 per unit.
You are required to :
(i) Calculate the Value of material purchased
(ii) Prepare cost sheet showing the profit earned by the firm.

CA/CS Nimeet Piti 116

Q.14. The following details are available from the books of R Ltd. for the year ending 31st
March 2020:
NB Particulars Amount (`)
PN
Purchase of raw materials 84,00,000
Consumable materials 4,80,000
Direct wages 60,00,000
Carriage inward 1,72,600
Wages to foreman and store keeper 8,40,000
Other indirect wages to factory staffs 1,35,000
Expenditure on research and development on new production 9,60,000
technology
Salary to accountants 7,20,000
Employer’s contribution to EPF & ESI 7,20,000
Cost of power & fuel 28,00,000
Production planning office expenses 12,60,000
Salary to delivery staffs 14,30,000
Income tax for the assessment year 2019-20 2,80,000
Fees to statutory auditor 1,80,000
Fees to cost auditor 80,000
Fees to independent directors 9,40,000
Donation to PM-national relief fund 1,10,000
Value of sales 2,82,60,000
Position of inventories as on 01-04-2019:
- Raw Material 6,20,000
- W-I-P 7,84,000
- Finished goods 14,40,000
Position of inventories as on 31-03-2020:
Cost Sheet
- Raw Material 4,60,000
- W-I-P 6,64,000
- Finished goods 9,80,000

From the above information PREPARE a cost sheet for the year ended 31st March
2020.

117 COST SHEET

 Q.15. RTA Ltd. has the following expenditures for the year ended 31 st December, 2020:
Sl. Amount (`) Amount (`)
No.
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 40,000
- Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
(xi) Expenses paid for quality control check activi- 18,000
ties
(xii) Research & development cost paid for im- 20,000
provement in production process
(xiii) Expenses paid for pollution control and engi- 36,000
neering & maintenance
(xiv) Salary paid to Sales & Marketing mangers 5,60,000
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
- Primary packing necessary to maintain 46,000
quality
- For re-distribution of finished goods 80,000 1,26,000
Cost Sheet

(xvii) Fee paid to independent directors 1,20,000

(xviii) Performance bonus paid to sales staffs 1,20,000
(xix) Value of stock as on 1st January, 2020:
- Raw materials 10,00,000
- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31stDecember, 2020:
- Raw materials 8,40,000
- Work-in-process 6,60,000
- Finished goods 10,50,000 25,50,000

CA/CS Nimeet Piti 118

 Amount realized by selling of scrap and waste generated during manufacturing
process – ` 48,000/-
From the above data you are requested to PREPARE Statement of Cost for RTA Ltd.
for the year ended 31st December, 2020, showing (i) Prime cost, (ii) Factory cost, (iii)
Cost of Production, (iv) Cost of goods sold and (v) Cost of sales.

Q.16. Impact Ltd. provides you the following details of its expenditures for the year
ended 31st March, 2021:
NB S. No. Particulars Amount (`) Amount
PN (`)
(i) Raw materials purchased 5,00,00,000
(ii) GST paid under Composition scheme 10,00,000
(iii) Freight inwards 5,20,600
(iv) Trade discounts received 10,00,000

(v) Wages paid to factory workers 15,20,000

(vi) Contribution made towards employees’ PF & 1,90,000
ESIS
(vii) Production bonus paid to factory workers 1,50,000
(viii) Fee for technical assistance 1,12,000
(ix) Amount paid for power & fuel 2,62,000
(x) Job charges paid to job workers 4,50,000
(xi) Stores and spares consumed 1,10,000
(xii) Depreciation on:
Factory building 64,000
Office building 46,000
Plant & Machinery 86,000 1,96,000
(xiii) Salary paid to supervisors 1,20,000
Cost Sheet
(xiv) Repairs & Maintenance paid for:
Plant & Machinery 58,000
Sales office building 50,000
Vehicles used by directors 20,600 1,28,600
(xv) Insurance premium paid for:
Plant & Machinery 31,200
Factory building 28,100 59,300
(xvi) Expenses paid for quality control check 25,000
activities
(xvii) Research & development cost paid for im- 48,200
provement in production process

119 COST SHEET

 (xviii) Expenses paid for administration of factory 1,38,000
work
(xix) Salary paid to functional mangers:
Production control 4,80,000
Finance & Accounts 9,60,000
Sales & Marketing 12,00,000 26,40,000
(xx) Salary paid to General Manager 13,20,000
(xxi) Packing cost paid for:
Primary packing necessary to maintain qual- 1,06,000
ity
For re-distribution of finished goods 1,12,000 2,18,000
(xxii) Interest and finance charges paid (for usage
of non- equity fund)
3,50,000
(xxiii) Fee paid to auditors 1,80,000
(xxiv) Fee paid to legal advisors 1,20,000
(xxv) Fee paid to independent directors 2,40,000
(xxvi) Payment for maintenance of website for 1,80,000
online sales
(xxvii) Performance bonus paid to sales staffs 2,40,000
(xxviii) Value of stock as on 1st April, 2020:
Raw materials 9,00,000
Work-in-process 4,00,000
Finished goods 7,00,000 20,00,000
(xxix) Value of stock as on 31st March, 2021:
Raw materials 5,60,000
Work-in-process 2,50,000
Finished goods 11,90,000 20,00,000
Cost Sheet

Amount realized by selling of waste generated during manufacturing process

` 66,000/-
From the above data, you are required to PREPARE Statement of cost of Impact Ltd.
for the year ended 31st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost
of Production, (iv) Cost of goods sold and (v) Cost of sales.

CA/CS Nimeet Piti 120

 Additional Questions
Q.17. Following information relate to a manufacturing concern for the year ended
31st March, 2023:
`
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 43,50,000
Freight Inwards 1,20,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory Overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses ` 16 per unit
Finished Stock (opening) - 1,320 Units 6,08,500
Sale of scrap of material 7,000

The firm produced 14,350 units of output during the year. The stock of finished
goods at the end of the year is valued at cost of production. The firm sold 14,903
units at a price of `579 per unit during the year.
PREPARE cost sheet of the firm.

Q.18. ABC Ltd is engaged in producing electronic equipments. It has furnished following
details related to its products produced during a month:
NB
PN Units Amount (`) Cost Sheet
Opening stock 10,000 5,00,00,000
Purchases 4,90,000 25,20,00,000
Closing stock 17,500 85,00,000
Works-in-progress
Opening 20,000 1,20,00,000
Closing 10,000 60,50,000
Direct employees' wages, allowances etc. 5,50,50,000
Primary packaging cost (per unit) 140
R&D expenses & Quality control expenses 1,90,00,000

121 COST SHEET

 Guards’ salaries 20,00,000
Directors’ salaries 60,00,000
Consumable stores, depreciation on 3,42,00,000
plant related to factory overhead
Product inspection (before primary packaging) 22,00,000
Rearrangement design of factory machine 75,00,000
Administrative overheads related to production 3,45,00,000
Selling expenses 3,94,50,000
Royalty paid for production 3,10,50,000
Cost of web-site (for online sale) maintenance 60,75,000
Gifts & Snacks 30,50,000
GST (credit allowed) 5,50,00,000
AMC cost of CCTV 10,00,000
Hiring of cars for the transportation of 25,00,000
employees and guests
Audit and Legal Fees 29,00,000
Secondary packaging cost (per unit) 20

Distribution of the following costs:

uard’s salaries to Factory, Office and Distribution in the ratio 2 1.
Hiring of cars is only for selling and distribution
AMC of CCTV to Factory, Office and Selling in the ratio 2 2.

The company paid EPF of 12% over above basic pay. However, Guards will not
receive any incentive or EPF.
It has lucky draws every month giving the first prize of ` 1,00,000 2nd prize of
` 50,000, 3rd prize of ` 20,000 and three consolation prizes of ` 10,000 each to
customers buying the product.
It also sponsors a television programme every week at a cost of ` 20,00,000 per
Cost Sheet

month.
The hiring of cars attracts GST under RCM @5% without credit.
There was a normal scrap of 2,000 units of direct material which realized ` 350 per
unit. The entire finished product was sold at a profit margin of 25% on sales.
You are required to PREPARE a cost sheet

CA/CS Nimeet Piti 122

Q.19. Following information obtained from the records of a Manufacturing Company for
the month of March:
NB
PN Direct labour cost ` 25,000 being 150% of works overheads.
Cost of goods sold excluding administrative expenses ` 75,000.
Inventory accounts showed the following opening and closing balances:

March 1 (`) March 31 (`)

Raw materials 11,600 15,370
Work-in-progress 15,225 21,025
Finished goods 25,520 27,550

Other information is as follows:

`
Selling expenses 6,125
General and administration expenses 4,375
Sales for the month 1,05,250

Required to:
(i) FIND out the value of materials purchased.
(ii) PREPARE a cost statement showing the various elements of cost and also the
profit earned.

Q.20. The following data relate to the manufacture of a product 'VD-100* during the
month of October 2023:
Good units produced 12,600
Units Sold 11,800
Direct wages ` 8,82,000 Cost Sheet

Administrative Overheads ` 4,72,000

Selling price per unit ` 416
Each unit produced requires 2 kg. of material 'Z'. Cost of material 'Z' is ` 72 per kg.
10% of the production has been scrapped as bad and fetches ` 45 per unit. Factory
overheads are 80% of wages. Selling and distribution overheads are ` 54 per unit
sold. There is no opening or closing stock of material and work in progress.
You are required to find out total cost of sales and profit for the month of October
2023.

123 COST SHEET

 Q.21. The following information is available from SN Manufacturing Limited's for the
month of April 2023.
NB April 1 April 30
PN Opening and closing inventories data:
Stock of finished goods 2,500 units ?
Stock of raw materials ` 42,500 ` 38,600
Work-in progress ` 42,500 ` 42,800
Other data are:
Raw materials Purchased ` 6,95,000
Carriage inward ` 36,200
Direct wages paid ` 3,22,800
Royalty paid for production ` 35,800
Purchases of special designs, moulds and patterns ` 1,53,600
(estimated life 12 Production cycles)
Power, fuel and haulage (factory) ` 70,600
Research and development costs for improving the ` 31,680
production process (amortized)
Primary packing cost ` 6920
(necessary to maintain quality)
Administrative Overhead ` 46,765
Salary and wages for supervisor and foremen ` 28,000

Other information:
Opening stock of finished goods is to be valued at ` 8.05 per unit.
• During the month of April, 1,52,000 units were produced and 1,52,600 units were
sold. The closing stock of finished goods is to be valued at the relevant month s
cost of production. The company follows the FIFO method.
• Selling and distribution expenses are to be charged at 20 paisa per unit.
• Assume that one production cycle is completed in one month.
Cost Sheet

Required:
(i) Prepare a cost sheet for the month ended on April 30, 2023, showing the various
elements of cost (raw material consumed, prime cost, factory cost, cost of
production, cost of goods sold, and cost of sales).
(ii) Calculate the selling price per unit if profit is charged at 20 percent on sales.

CA/CS Nimeet Piti 124

Q.22. XYZ Ltd. is engaged in the manufacturing of toys. It can produce 4,20,000 toys at its
70% capacity on per annum basis. Company is in the process of determining sales
price for the financial year 2020-21. It has provided the following information
NB
PN Direct Material ` 60 per unit
Direct Labour ` 30 per unit
Indirect Overheads:
Fixed ` 65,50,000 per annum
Variable ` 15 per unit
Semi-variable ` 5,00,000 per annum up to 60% capacity and ` 50,000 for
every 5% increase in capacity or part thereof up to 80%
capacity and thereafter ` 75,000 for every 10% increase in
capacity or part thereof.
Company desires to earn a profit of ` 25,00,000 for the year. Company has planned
that the factory will operate at 50% of capacity for first six months of the year and at
75% of capacity for further three months and for the balance three months, factory
will operate at full capacity.
You are required to :
(1) Determine the average selling price at which each of the toy should be sold to
earn the desired profit.
(2) iven the above scenario, advise whether company should accept an offer to sell
each Toy at:
(a) ` 130 per Toy
(b) ` 129 per Toy

Q.23. A Ltd. produces a single product X. During the month of December 2021, the
company hasproduced 14,560 tonnes of X. The details for the month of December
NB 2021 are as follows: Cost Sheet
PN
(i) Materials consumed ` 15,00,000
(ii) Power consumed 13,000 Kwh @ ` 7 per Kwh
(iii) Diesels consumed 1,000 litres @ ` 93 per litre
(iv) Wages & salary paid – ` 64,00,000
(v) Gratuity & leave encashment paid – ` 44,20,000
(vi) Hiring charges paid for HEMM - ` 13,00,000
(vii) iring charges paid for cars used for official purpose ` 80,000
(viii) Reimbursement of diesel cost for the cars – ` 20,000

125 COST SHEET

 (ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at
the time of despatch) – ` 7,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final
goods at the time of despatch) and factory premises is ` 6,000 and ` 18,000
per month respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ` 16,000
(xiii) The company has 180 employees works for 26 days in a month.
Required:
(a) PREPARE a Cost sheet for the month of December 2021.
(b) COMPUTE Earnings per manshift (EMS) and Output per manshift (OMS) for the
month of December 2021.

Q.24. CT Limited is engaged in producing medical equipment. It has furnished following

details related to its products produced during a month:
NB Units Amount (`)
PN
Raw materials
Opening stock 1,000 90,00,000
Purchases 49,000 44,10,00,000
Closing stock 1,750 1,57,50,000
Works-in-progress
Opening 2,000 1,75,50,000
Closing 1,000 94,50,000
Direct employees' wages, allowances etc. 6,88,50,000
Primary packaging cost (per unit) 1,440
R&D expenses & Quality control expenses 2,10,60,000
Cost Sheet

Consumable stores, depreciation on plant 3,42,00,000

Administrative overheads related to production 3,15,00,000
Selling expenses 4,84,30,800
Royalty paid for production 3,64,50,000
Cost of web-site (for online sale) maintenance 60,75,000
Secondary packaging cost (per unit) 225

There was a normal scrap of 250 units of direct material which realized ` 5,400 per
unit. The entire finished product was sold at a profit margin of 20% on sales.

CA/CS Nimeet Piti 126

 You are required to PREPARE a cost sheet showing:
(i) Prime cost
(ii) Gross works cost
(iii) Factory costs
(iv) Cost of production
(v) Profit
(vi) Sales

Cost Sheet

127 COST SHEET

Cost Sheet

CA/CS Nimeet Piti 128

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 13

Question 2 Question 14

Question 3 Question 15

Question 4 Question 16

Question 5 Question 17

Question 6 Question 18

Question 7 Question 19

Question 8 Question 20

Question 9 Question 21

Question 10 Question 22

Question 11 Question 23

Question 12 Question 24

Cost Sheet

129 COST SHEET

Cost Sheet

CA/CS Nimeet Piti 130

7
131
COST
ACCOUNTING
SYSTEMS
 Non Integrated Accounting
Q.1. As on 31st March, 20 3, the following balances existed in a firm’s Cost Ledger
NB Dr. (`) Cr. (`)
PN Stores Ledger Control A c 3,01,435
Work-in-Process Control A c 1,22,365
Finished Stock Ledger Control A c 2,51,945
Manufacturing Overhead Control A c 10,525
Cost Ledger Control A c 6,65,220
6,75,745 6,75,745

During the next three months following items arose

(`)
Finished Product (at cost) 2,10,835
Manufacturing Overhead incurred 91,510
Raw Materials Purchased 1,23,000
Factory Wages 50,530
Indirect Labour 21,665
Cost of Sales 1,85,890
Material issued to production 1,27,315
Sales returned at cost 5,380
Material returned to suppliers 2,900
Manufacturing overhead charged to production 77,200

You are required to pass the Journal Entries; write up the accounts and schedule the
balances, stating what each balance represents.

Q.2. As of 31st March, 2014, the following balances existed in a firm’s cost ledger, which is
maintained separately on a double entry basis
NB Debit (`) Credit (`)
PN Stores Ledger Control A c 3,00,000 -
Work-in-Progress Control A c 1,50,000 -
Finished oods Control A c 2,50,000 -
Cost Accounting

Manufacturing Overhead Control A c - 15,000

Systems

Cost Ledger Control A c - 6,85,000

7,00,000 7,00,000

CA/CS Nimeet Piti 132

 During the next quarter, the following items arose
(`)
Finished Product (at cost) 2,25,000
Manufacturing Overhead Incurred 85,000
Raw Material Purchased 1,25,000
Factory Wages 40,000
Indirect Labour 20,000
Cost of Sales 1,75,000
Materials issued to production 1,35,000
Sales returned (at cost) 9,000
Materials returned to suppliers 13,000
Manufacturing overhead charged to production 85,000

You are required to prepare the Cost Ledger Control A c, Stores Ledger Control A c,
Work-in-Progress Control A c, Finished Stock Ledger Control A c, Manufacturing
Overhead Control A c, Wages Control A c, Cost of Sales A c and the Trial alance at
the end of the quarter.

Q.3. On 31st March, 20 3 the following balances were extracted from the books of the
Supreme Manufacturing Company
NB Cost Accounting Systems
PN
Dr. (`) Cr. (`)
Stores Ledger Control A c 35,000
Work-in-Process Control A c 38,000
Finished oods Control A c 25,000
Cost Ledger Control A c 98,000
98,000 98,000

The following transactions took place in April 20 3

(`)
Raw Materials
-Purchased 95,000
-Returned to suppliers 3,000
-Issued to production 98,000
Cost Accounting
Systems

-Returned to stores 3,000

Productive Wages 40,000
Indirect Wages 25,000
Factory overhead expenses incurred 50,000

133 COST ACCOUNTING SYSTEMS

 Selling Administration Expenses 40,000
Cost of finished goods transferred to warehouse 2,13,000
Cost of oods sold 2,10,000
Sales 3,00,000

Factory overheads are applied to production at 150% of direct wages, any under
over absorbed overhead being carried forward for ad ustment in the subsequent
months. All administrative and selling expenses are treated as period costs and
charged off to the Profit and Loss Account of the month in which they are incurred.
Show the following accounts
(a) Cost Ledger Control A c
(b) Stores Ledger Control A c
(c) Work-in-Process Control A c
(d) Finished oods Stock Control A c
(e) Factory Overhead Control A c
(f) Costing Profit and Loss A c
(g) Trial alance as at 30th April. 20 3.

Q.4. Acme Manufacturing Co. Ltd. opens the costing records, with the balances as on 1st
July, 20 2 as follows
NB (`) (`)
PN Material Control A c 1,24,000
Work-in-Process Control A c 62,500
Finished oods Control A c 1,24,000
Production Overhead Control A c 8,400
Administrative Overhead Control A c 12,000
Selling and Distribution Overhead Control A c 6,250
Cost Ledger Control A c 3,13,150
3,13,150 3,13,150

The following are the transactions for the quarter ended 30th September 20 2
(`)
Cost Accounting

Materials purchased 4,80,100

Systems

Materials issued to jobs 4,77,400

Materials to works maintenance 41,200
Materials to administration office 3,400
Materials to selling department 7,200

CA/CS Nimeet Piti 134

 Wages direct 1,49,300
Wages indirect 65,000
Transportation for indirect materials 8,400
Production overheads 2,42,250
Absorbed production overheads 3,59,100
Administration overheads 74,000
Administration allocation to production 52,900
Administration allocation to sales 14,800
Sales overheads 64,200
Sales overheads absorbed 82,000
Finished goods produced 9,58,400
Finished goods sold 9,77,300
Sales realization 14,43,000

Make up the various accounts as you envisage in the Cost Ledger and prepare a Trial
alance as at 30th September, 20 2.

Q.5. Y Ltd. maintains a non-integrated accounting system for the purpose of

management information. The following are the data related with year 2020-21
NB Particulars (` in ‘000)
PN Opening balances
- Stores ledger control A c 24,000
- Work-in-process control A c 6,000
- Finished goods control A c 1,29,000
- uilding construction A c 3,000
- Cost ledger control A c 1,62,000
During the year following transactions took place
Materials
- Purchased 12,000
- Issued to production 15,000
- Issued to general maintenance 1,800
- Issued to building construction 1,200
Wages
Cost Accounting

- Gross wages paid 45,000

Systems

- Indirect wages paid 12,000

- For building construction 3,000
Factory overheads

135 COST ACCOUNTING SYSTEMS

 - Actual amount incurred (excluding items shownabove) 48,000
- Absorbed in building construction 6,000
- Under-absorbed 2,400
Royalty paid 1,500
Selling, distribution and administration overheads 7,500
Sales 1,35,000

At the end of the year, the stock of raw material and work-in-process was
` 1,65,00,000 and ` 5,00,000 respectively. The loss arising in the raw material
account is treated as factory overheads. The building under construction was
completed during the year. ross profit margin is 20% on sales.
Required
PREPARE the relevant control accounts to record the above transactions in the cost
ledger of the company.

Q.6. From the following details show the necessary accounts in cost ledger The cost of
each stick is as under
NB Material (`) Work in Pro- Finished
PN cess (`) Stock (`)
Opening alance 8,000 5,000 10,000
Closing alance 11,000 9,000 12,000

(`)
Materials Purchased
25,000 Wages Paid (including `2,000 indirect) 10,000
Overheads Incurred 8,000
Overheads absorbed 9,000
Sales 50,000

Q.7. A Company operates separate cost accounting and financial accounting systems.
The following is the list of opening balances as on 1.04.2013 in the Cost Ledger.
NB Debit (`) Credit (`)
PN
Stores Ledger Control Account 53,375 --
Cost Accounting

WIP Control Account 1,04,595 --

Systems

Finished oods Control Account 30,780 --

eneral Ledger Ad ustment Account -- 1,88,750

Transactions for the quarter ended 30.0 .2013 are as under

CA/CS Nimeet Piti 136

 (`)
Materials purchased 26,700
Materials issued to production 40,000
Materials issued to factory for repairs 900
Factory wages paid (including indirect wages `23,000) 77,500
Production overheads incurred 95,200
Production overheads under-absorbed and written-off 3,200
Sales 2,56,000

The Company’s gross profit is 25% on Cost of Sales. At the end of the quarter, WIP
stocks increased by `7,500.
Prepare the relevant Control Accounts, Costing Profit Loss Account and eneral
Ledger Ad ustment Account to record the above transactions for the quarter ended
30.06.2013.

Q.8. a) A fire destroyed some accounting records of a company. You have been
able to collect the following fromthe spoilt papers records and as a result of
NB consultation with accounting staff in respect of January, 20 3
PN (i) Incomplete Ledger Entries
Materials Control A c
(`) (`)
To alance b d 32,000

Work-in-Process Control A c
(`) (`)
To alance b d 9,200 Finished oods Control A c 1,51,000

Payables (Creditors) A c
(`) (`)
To alance b d 19,200 alance b d 16,400
Cost Accounting

Manufacturing Overheads Control A c

Systems

(`) (`)
To Cost Ledger Control A c 29,600
(Amount spent)

137 COST ACCOUNTING SYSTEMS

 Finished oods Control A c
(`) (`)
To alance b d 24,000 y alance b d 30,000

(ii) Additional Information

(1) The cash-book showed that `89,200 have been paid to creditors for raw-
material.
(2) Ending inventory of work-in-process included material `5,000 on which 300
direct labour hours have beenbooked against wages and overheads.
(3) The ob card showed that workers have worked for ,000 hours. The wage
rate is `10 per labour hour.
(4) Overhead recovery rate was `4 per direct labour hour.
You are required to complete the above accounts in the cost ledger of the company.

Q.9. The following incomplete accounts are furnished to you for the month ended 31st
October, 20X2.
NB
Stores Ledger Control Account
PN
01.10.20 2 To alance `54,000

Work in Process Control Account

01.10.20 2 To alance `6,000

Finished oods Control Account

01.10.20 2 To alance `75,000

Factory Overheads Control Account

Total Debits for October, 20 2 `45,000

Creditors for Purchases Account

01.10.20 2 y alance `30,000
Cost Accounting

Additional information
Systems

1) The factory overheads are applied by using a budgeted rate based on direct
labour hours. The budget for overheads for 20 2 is `6,75,000 and the budget of
direct labour hours is 4,50,000.

CA/CS Nimeet Piti 138

 2) The balance in the account of creditors for purchases on 31.03.20 2 is `15,000
and the payments made to creditors in October, 20 2 amount to `1,05,000.
3) The finished goods inventory as on 31st October, 20 2 is `66,000.
4) The Cost of oods sold during the month was `1,95,000.
5) On 31st October, 20 2 there was only one unfinished ob in the factory. The cost
records show that `3,000 (1,200 direct labour hours) of direct labour cost and
` ,000 of direct material cost had been charged.
6) A total of 28,200 direct labour hours were worked in October, 20X2. All factory
workers earn same rate of pay.
7) All actual factory overheads incurred in October, 20X2 have been posted.
You are required to find
(a) Materials purchased during October, 20X2
(b) Cost of goods completed in October, 20 2
(c) Overheads applied to production in October, 20X2
(d) alance of Work-in-Process Control A c on 31st October, 20 2
(e) Direct Materials consumed during October, 20 2
(f) alance of Stores Ledger Control Account on 31st October, 20 2
(g) Over absorbed or under absorbed overheads for October, 20X2

Q.10. The following figures are extracted from the Trial alance of o-getter Co. on 30th
September, 20 2
NB Debit (`) Credit (`)
PN Inventories:
Finished Stock 80,000
Raw Materials 1,40,000
Work-in-Process 2,00,000
Office Appliances 17,400
Plant & Machinery 4,60,500
uilding 2,00,000
Sales 7,68,000
Sales Return and Rebates 14,000
Material Purchased 3,20,000
Freight incurred on Materials 16,000
Cost Accounting

Purchase Returns 4,800

Systems

Direct Employee Cost 1,60,000

Indirect Employee Cost 18,000
Factory Supervision 10,000

139 COST ACCOUNTING SYSTEMS

 Repairs and Upkeep Factory 14,000
eat, Light and Power 65,000
Rates and Taxes 6,300
Miscellaneous Factory Expenses 18,700
Sales Commission 33,600
Sales Travelling 11,000
Sales Promotion 22,500
Distribution Department- Salaries and Expenses 18,000
Office Salaries and Expenses 8,600
Interest on orrowed Funds 2,000

Further details are available as follows

1) Closing Inventories
Finished Goods 1,15,000
Raw Materials 1,80,000
Work-in-Process 1,92,000

2) Accrued Expenses on
Direct Employee Cost 8,000
Indirect Employee Cost 1,200
Interest on orrowed Funds 2,000

3) Depreciation to be provided on
Office Appliances 5%
Plant and Machinery 10%
uildings 4%

4) Distribution of the following costs

eat, Light and Power to Factory, Office and Distribution in the ratio 8 1 1
Rates and Taxes two-thirds to Factory and one-third to Office
Depreciation on uildings to Factory, Office and Selling in the ratio 8 1 1

With the help of the above information, you are required to prepare a condensed
Cost Accounting

Profit and Loss statement of o-getter Co. for the year ended 30th September, 20 2
Systems

along with supporting schedules of

a) Cost of Sales
b) Selling and Distribution Expenses
c) Administration Expenses

CA/CS Nimeet Piti 140

 Reconciliation of Cost Books and
Financial Books of Accounts
Type I
Q.11. A manufacturing company disclosed a net loss of `3,47,000 as per their cost
accounts for the year ended March 31,2014. The financial accounts however
NB
disclosed a net loss of `5,10,000 for the same period. The following information was
PN
revealed as a result of scrutiny of the figures of both the sets of accounts.
(`)
Factory Overheads under-absorbed 40,000
Administration Overheads over-absorbed 60,000
Depreciation charged in Financial Accounts 3,25,000
Depreciation charged in Cost Accounts 2,75,000
Interest on investments not included in Cost Accounts 96,000
Income-tax provided 54,000
Interest on loan funds in Financial Accounts 2,45,000
Transfer fees (credit in financial books) 24,000
Stores ad ustment (credit in financial books) 14,000
Dividend received 32,000

Q.12. A manufacturing company has disclosed a net loss of `2,13,000 as per their cost
accounting records for the year ended March 31, 2014. owever, their financial
NB accounting records disclosed a net loss of `2,58,000 for the same period. A scrutiny
PN of data of both the sets of books of accounts revealed the following information
(`)
(i) Factory overheads under-absorbed 5,000
(ii) Administration overheads over-absorbed 3,000
(iii) Depreciation charged in financial accounts 70,000
(iv) Depreciation charged in cost accounts 80,000
(v) Interest on investments not included in cost accounts 20,000
(vi) Income-tax provided in financial accounts 65,000
Cost Accounting

(vii) Transfer fees (credit in financial accounts) 2,000

Systems

(viii) Preliminary expenses written off 3,000

(ix) Over-valuation of closing stock of finished goods in cost ac- 7,000
counts
Prepare a Memorandum Reconciliation Account.

141 COST ACCOUNTING SYSTEMS

 Q.13. R Limited showed a net loss of `35,400 as per their cost accounts for the year ended
31st March, 2014. owever, the financial accounts disclosed a net profit of `67,800
NB
for the same period. The following information were revealed as a result of scrutiny
PN
of the figures of cost accounts and financial accounts
(`)
(i) Administrative overhead under recovered 25,500
(ii) Factory overhead over recovered 1,35,000
(iii) Depreciation under charged in Cost Accounts 26,000
(iv) Dividend received 20,000
(v) Loss due to obsolescence charged in Financial Accounts 16,800
(vi) Income tax provided 43,600
(vii) ank interest credited in Financial Accounts 13,600
(viii) Value of opening stock
In Cost Accounts 1,65,000
In Financial Accounts 1,45,000
(ix) Value of closing stock
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
(x) oodwill written-off in Financial Accounts 25,000
Notional rent of own premises charged in Cost Accounts `60,000
Provision for doubtful debts in Financial Accounts `15,000

Prepare a reconciliation statement by taking costing net loss as base.

Q.14. A manufacturing company has disclosed net loss of `48,700 as per their cost
accounting records for the year ended 31st March, 2014. owever, their financial
NB accounting records disclosed net profit of `35,400 for the same period. A scrutiny of
PN data of both the sets of books of accounts revealed the following information
(`)
Factory overheads under absorbed 30,500
Administrative overheads over absorbed 65,000
Depreciation charged in financial accounts 2,25,000
Depreciation charged in cost accounts 2,70,000
Cost Accounting

Income-tax provision 52,400

Systems

Transfer fee (credited in financial accounts) 10,200

Obsolescence loss charged in financial accounts 20,700
Notional rent of own premises charged in cost accounts 54,000

CA/CS Nimeet Piti 142

 Value of opening stock
in cost accounts 1,38,000
in financial accounts 1,15,000
Value of closing stock
in cost accounts 1,22,000
in financial accounts 1,12,500

Prepare a Memorandum Reconciliation Account by taking costing loss as base

Q.15. M s . . Piano Company showed a net loss of `4,1 ,000 as per their financial
accounts for the year ended 31st March, 20 3. The cost accounts, however,
NB disclosed a net loss of `3,28,000 for the same period. The following information was
PN revealed as a result of scrutiny of the figures of both the sets of books
Particulars (`)
Factory overheads under-recovered 6,000
Administration overheads over-recovered 4,000
Depreciation charged in financial accounts 1,20,000
Depreciation recovered in costs 1,30,000
Interest on investment not included in costs 20,000
Income-tax provided 1,20,000
Transfer fees (credit in financial books) 2,000
Stores ad ustment (credit in financial books) 2,000
Prepare a Memorandum reconciliation account.

Type II
Q.16. The following figures are available from the financial records of A C Manufacturing
Co. Ltd. for the year ended 31-3-20 3.
NB (`)
PN
Sales (20,000 units) 25,00,000
Materials 10,00,000
Cost Accounting

Wages 5,00,000
Systems

Factory Overheads 4,50,000

Office and administrative Overhead (production related) 2,60,000
Selling and distribution Overheads 1,80,000
Finished goods (1,230 units) 1,50,000

143 COST ACCOUNTING SYSTEMS

 (`) (`)
Work-in-Process
Materials 30,000
Labour 20,000
Factory overheads 20,000 70,000
oodwill written off 2,00,000
Interest on capital 20,000
In the Costing records, factory overhead is charged at 100% of wages, administration
overhead 10% of factory cost and selling and distribution overhead at the rate of `10
per unit sold.
Prepare a statement reconciling the profit as per cost records with the profit as per
financial records.

Q.17. The following figures have been extracted from the Financial Accounts of a
manufacturing firm for the first year of its operation
NB (`)
PN
Direct Material Consumption 50,00,000
Direct Wages 30,00,000
Factory Overhead 16,00,000
Administration Overheads (production related) 7,00,000
Selling and Distribution Overheads 9,60,000
ad Debts 80,000
Preliminary Expenses written off 40,000
Legal Charges 10,000
Dividends Received 1,00,000
Interest Received on Deposits 20,000
Sales (1,20,000 units) 1,20,00,000
Closing Stock
Finished Goods (4,000 units) 3,20,000
Work-in-Process 2,40,000
The cost accounts for the same period reveal that the direct material consumption
was `5 ,00,000. Factory overhead is recovered at 20% on prime cost. Administration
overhead is recovered at `6 per unit of production. Selling and distribution
Cost Accounting

overheads are recovered at `8 per unit sold.

Systems

Prepare the Profit and Loss Accounts both as per financial records and as per cost
records. Reconcile the profits as per the two records.

CA/CS Nimeet Piti 144

Q.18. The financial books of a company reveal the following data for the year ended 31st
March, 2014
NB (`)
PN
Opening Stock
Finished goods 875 units 74,375
Work-in-process 32,000

01.04.2013 to 31.3.2014
Raw materials consumed 7,80,000
Direct Labour 4,50,000
Factory overheads 3,00,000
oodwill written off 1,00,000
Administration overheads 2,95,000
Dividend paid 85,000
ad Debts 12,000
Selling and Distribution Overheads 61,000
Interest received 45,000
Rent received 18,000
Sales 14,500 units 20,80,000
Closing Stock Finished goods 3 5 units 41,250
Work-in-process 38,667
The cost records provide as under
- Factory overheads are absorbed at 60% of direct wages.
- Administration overheads are recovered at 20% of factory cost. - Selling and
distribution overheads are charged at `4 per unit sold. - Opening Stock of
finished goods is valued at `104 per unit.
- The company values work-in-process at factory cost for both Financial and Cost
Profit Reporting.
Required
1) Prepare statements for the year ended 31st March, 2014 show
- the profit as per financial records
- the profit as per costing records.
Cost Accounting

2) Present a statement reconciling the profit as per costing records with the profit
Systems

as per Financial Records.

145 COST ACCOUNTING SYSTEMS

 Q.19. The following is the Trading and Profit Loss Account of Omega Limited

NB
Particulars (`) Particulars (`)
PN To Materials consumed 23,01,000 y Sales (30,000 units) 48,75,000
To Direct wag es 12,05,750 y Finished goods Stock 1,30,000
(1,000 units)
To Production Overheads 6,92,250 y Work-in-progress
To Administration Over- 3,10,375 Materials 55,250
heads
To Selling and Distribution 3,68,875 Wages 26,000
Overheads
To Preliminary Expenses 22,750 Production Overheads 97,500
written off 16,250
To oodwill written off 45,500
To Fines 3,250 y Dividends received 3,90,000
To Interest on Mortgage 13,000 y Interest on bank 65,000
deposits
To Loss on Sale of machine 16,250

To Taxation 1,95,000

To Net Profit for the year 3,83,500

55,57,500 55,57,500

Omega Limited manufactures a standard unit.

The Cost Accounting records of Omega Ltd. show the following
(1) Production overheads have been charged to work-in-progress at 20% on Prime
cost. (2) Administration Overheads have been recovered at `9. 5 per finished
Unit. (3) Selling & distribution Overheads have been recovered at `13 per Unit
sold.
(4) The Under- or Over-absorption of Overheads has not been transferred to costing
P L A c.
Required
(a) Prepare a proforma Costing Profit Loss account, indicating net profit.
(b) Prepare Control accounts for Production overheads, Administration Overheads
and Selling & Distribution Overheads.
Cost Accounting

(c) Prepare a statement reconciling the profit disclosed by the Cost records with that
Systems

shown in Financial accounts.

CA/CS Nimeet Piti 146

Q.20. A C Ltd. has furnished the following information from the financial books for the
year ended 31st March, 2014
NB
PN
Particulars (`) Particulars (`)
To Opening stock (500 units 70,000 y Sales (10,250 units) 28,70,000
at 140 each)

To Material consumed 10,40,000 y Closing stock (250 units 50,000

at ` 200 each)

To Wages 6,00,000

To ross profit c d 12,10,000

29,20,000 29,20,000

To Factory overheads 3,79,000 y ross profit b d 12,10,000

To Administration over- 4,24,000 y Interest 1,000

heads

To Selling expenses 2,20,000 y Rent received 40,000

To ad debts 16,000

To Preliminary expenses 20,000

To Net profit 1,92,000

12,51,000 12,51,000
The cost sheet shows the cost of materials at `104 per unit and the labour cost
at ` 0 per unit. The factory overheads are absorbed at 0% of labour cost and
administration overheads at 20% of factory cost. Selling expenses are charged at `24
per unit. The opening stock of finished goods is valued at `180 per unit.
You are required to prepare
Cost Accounting

(1) A statement showing profit as per Cost accounts for the year ended 31st March,
Systems

2014; and
(2) A statement showing the reconciliation of profit as disclosed in Cost accounts
with the profit shown in Financial accounts.

147 COST ACCOUNTING SYSTEMS

 Type III
Q.21. The following figures have been extracted from the cost records of a manufacturing
company
NB (`)
PN Stores:
Opening alance 63,000
Purchases 3,36,000
Transfer from Work-in-Progress 1,68,000
Issues to Work-in-Progress 3,36,000
Issues to Repairs and Maintenance 42,000
Deficiencies found in Stock taking 12,600
Work-in-Progress
Opening alance 1,26,000
Direct Wages applied 1,26,000
Overheads Applied 5,04,000
Closing alance 84,000
Finished Products
Entire output is sold at a profit of 10% on actual cost from work-in-progress. Others
Wages incurred `1,47,000; Overhead incurred `5,25,000. Income from investment
`21,000 Loss on sale of fixed assets `42,000.
Draw the stores control account, work-in-progress control account, costing profit
and loss account, profit and loss account and reconciliation statement.

Q.22. Following information have been extracted from the cost records of Y Pvt. Ltd.
Stores
NB (`)
PN
Stores:
Opening alance 54,000
Purchases 2,88,000
Transfer from Work-in-Progress 1,44,000
Issues to Work-in-Progress 2,88,000
Cost Accounting

Issues for Repairs 36,000

Systems

Deficiencies found in Stock taking 10,800

Work-in-Progress
Opening alance 1,08,000

CA/CS Nimeet Piti 148

 Direct Wages applied 1,08,000
Overheads Applied 4,32,000
Closing alance 72,000
Entire production is sold at a profit of 15% on cost of WIP
Wages Paid 1,26,000
Overheads incurred 4,50,000

Draw the Stores Ledger Control Account, Work-in-Progress Control Account,

Overheads Control Account and Costing Profit and Loss Account.

Q.23. Following are the figures extracted from the Cost Ledger of a manufacturing unit.
NB (`)
PN Stores:
Opening balance 15,000
Purchases 80,000
Transfer from WIP 40,000
Issue to WIP 80,000
Issue to repairs and maintenance 10,000
Sold as a special case at cost 5,000
Shortage in the year 3,000

Work-in-Process:
Opening inventory 30,000
Direct labour cost charged 30,000
Overhead cost charged 1,20,000
Closing alance 20,000

Finished Products:
Entire output is sold at 10% profit on actual cost from work-in-
process.

Others:
Wages for the period 35,000
Cost Accounting

Overhead Expenses 1,25,000

Systems

Ascertain the profit or loss as per financial account and cost accounts and reconcile
them.

149 COST ACCOUNTING SYSTEMS

 Q.24. You are given the following information of the cost department of a manufacturing
company
NB (`)
PN Stores:
Opening alance 12,60,000
Purchases 67,20,000
Transfer from work-in-progress 33,60,000
Issue to work-in-progress 67,20,000
Issue to repairs and maintenance 8,40,000
Shortage found in stock taking 2,52,000

Work-in-progress:
Opening alance 25,20,000
Direct wages applied 25,20,000
Overhead applied 90,08,000
Closing alance 15,20,000

Finished products:
Entire output is sold at a profit of 12% on actual cost from work-
in-progress.

(`)
Wages Incurred 29,40,000
Overhead Incurred 95,50,000
Income from Investment 4,00,000
Loss on sale of fixed assets 8,40,000

Shortage in stock taking is treated as normal loss.

You are required to prepare
1) Stores control account;
2) Work-in-progress control account;
3) Costing Profit and Loss account
Cost Accounting

4) Profit and Loss account and

Systems

5) Reconciliation statement

CA/CS Nimeet Piti 150

 Integrated Accounting
Q.25. In the absence of the Chief Accountant, you have been asked to prepare a month’s
cost accounts for a company which operates a batch costing system fully integrated
with the financial accounts. The following relevant information is provided to you
NB (`) (`)
PN
alances at the beginning of the month
Stores Ledger Control Account 25,000
Work-in-Process Control Account 20,000
Finished oods Control Account 35,000
Prepaid Production Overheads brought forward 3,000
from previous month
Transactions during the month
Materials Purchased 75,000
Materials Issued
To production 30,000
To factory maintenance 4,000 34,000
Materials transferred between batches 5,000

Total wages paid

To direct workers 25,000
To indirect workers 5,000 30,000
Direct wages charged to batches 20,000
Recorded non-productive time of direct workers 5,000
Selling and Distribution Overheads Incurred 6,000
Other Production Overheads Incurred 12,000
Sales 1,00,000
Cost of Finished oods Sold 80,000
Cost of oods completed and transferred into 65,000
finished goods during the month
Physical value of work-in-Process at the end of 40,000
the month
The production overhead absorption rate is 150% of direct wages charged to work-
Cost Accounting

in- Process.
Systems

Required
Prepare the following accounts for the month
(a) Stores Ledger Control Account.
(b) Work-in-Process Control Account.
151 COST ACCOUNTING SYSTEMS
 (c) Finished oods Control Account.
(d) Production Overhead Control Account.
(e) Costing Profit and Loss Account.

Q.26. angalore Petrochemicals Co. keeps books on integrated accounting system. The
following balances appear in the books as on 1st January, 20X2.
NB DR. (`) CR. (`)
PN Stores Ledger control A c 18,000
Work-in-Process Control A c 17,000
Finished oods Control A c 13,000
ank A c 10,000
Creditors A c 8,000
Fixed assets A c 55,000
Debtors A c 12,000
Share capital A c 80,000
Provision for depreciation A c 5,000
Profit and loss A c 32,000
1,25,000 1,25,000
Transaction for the year ended 31st Dec., 20 2 were as given below
DR. (`) CR. (`)
Wages-direct 87,000
Wages-indirect 5,000 92,000
Purchase of materials (on credit) 1,00,000
Materials issued to production 1,10,000
Materials for repairs 2,000
oods finished during the year (at cost) 2,15,000
Sales (credit) 3,00,000
Cost of goods sold 2,20,000
Production overhead absorbed 48,000
Production overhead incurred 40,000
Administration overhead incurred (production) 12,000
Selling overhead incurred 14,000
Payments of creditors 1,01,000
Cost Accounting

Payments of debtors 2,90,000

Systems

Depreciation on machinery 1,300

Prepaid rent (included in factory overheads) 300

Write up accounts in the integrated ledger.

CA/CS Nimeet Piti 152

Q.27. PR Limited keeps books on integrated accounting system. The following balances
appear in the books as on April 1, 2013.
NB DR. (`) CR. (`)
PN
Stores Control A c 40,950 –
Work-in-progress A c 38,675 –
Finished oods A c 52,325 –
ank A c – 22,750
Trade Payables A c – 18,200
Non-Current Assets A c 1,47,875 –
Trade Receivables A c 27,300 –
Share Capital A c – 1,82,000
Provision for Depreciation A c – 11,375
Provision for Doubtful Debts A c – 3,725
Factory Overheads Outstanding A c – 6,250
Pre-Paid Administration Overheads A c 9,975 –
Profit Loss A c – 72,800
( Reserve Surplus)

3,17,100 3,17,100

The transactions for the year ended March 31, 2014, were as given below
DR. (`) CR. (`)
Direct Wages 1,97,925 –
Indirect Wages 11,375 2,09,300
Purchase of materials (on credit) 2,27,500
Materials issued to production 2,50,250
Material issued for repairs 4,550
oods finished during the year (at cost) 4,89,125

Credit Sales 6,82,500

Cost of oods sold 5,00,500
Production overheads absorbed 1,09,200
Production overheads paid during the year 91,000
Cost Accounting

Production overheads outstanding at the end of 7,775

Systems

year
Administration overheads paid during the year 27,300
Selling overheads incurred 31,850
Payment to Trade Payables 2,29,775

153 COST ACCOUNTING SYSTEMS

 Payment received from Trade Receivables 6,59,750
Depreciation of Machinery 14,789
Administration overheads outstanding at the 2,225
end of year
Provision for doubtful debts at the end of the 4,590
year
Required
Write up accounts in the integrated ledger of PR Limited and prepare a Trial
balance.
Cost Accounting
Systems

CA/CS Nimeet Piti 154

 Additional Questions
Q.28. Ltd. follows Non-Integrated Accounting System. Financial Accounts of the company
show a Net Profit of ` 5,50,000 for the year ended 31st March, 2022. The chief
accountant of the company has provided following information from the Financial
Accounts and Cost Accounts
Sr. No Particulars (`)
(i) Legal Chargers Provided in Financial accounts 15,250
(ii) Interim Dividend received credited in financial accounts 4,50,000
(iii) Preliminary Expenses written off in financial accounts 25,750
(iv) Over recovery of selling overheads in cost accounts 11,380
(v) Profit on sale of capital asset credited in financial accounts 30,000
(vi) Under valuation of closing stock in cost accounts 25,000
(vii) Over recovery of production overheads in cost accounts 10,200
(viii) Interest paid on Debentures shown in financial accounts 50,000

Required
Find out the Profit (Loss) as per Cost Accounts by preparing a Reconciliation
Statement.

Q.29. R Ltd. showed a Net Profit of ` 3,60,740 as per their cost accounts for the year ended
31st March, 2021.
The following information was revealed as a result of scrutiny of the figures from the
both sets of accounts
Sr. No Particulars (`)
(i) Over recovery of selling overheads in cost accounts 10,250
(ii) iOver valuation of closing stock in cost accounts 7,300
(iii) Rent received credited in financial accounts 5,450
(iv) ad debts provided in financial accounts 3,250
(v) Income tax provided in financial accounts 15,900
(vi) Loss on sale of capital asset debited in financial accounts 5,800
(vii) Under recovery of administration overheads in cost accounts 3,600
Cost Accounting

Required
Systems

Prepare a reconciliation statement showing the profit as per financial records.

155 COST ACCOUNTING SYSTEMS

 Cost Accounting
Systems

CA/CS Nimeet Piti

156
 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 16

Question 2 Question 17

Question 3 Question 18

Question 4 Question 19

Question 5 Question 20

Question 6 Question 21

Question 7 Question 22

Question 8 Question 23

Question 9 Question 24

Question 10 Question 25

Question 11 Question 26

Question 12 Question 27

Question 13 Question 28

Question 14 Question 29

Question 15

Cost Accounting
Systems

157 COST ACCOUNTING SYSTEMS

 Cost Accounting
Systems

CA/CS Nimeet Piti

158
8 UNIT AND
BATCH
COSTING
 Q.1 The following data relate to the manufacture of a standard product during the
Unit and Batch Costing

4- week ended 28th February 2016:

NB Raw Materials Consumed ` 4,00,000

Direct Wages ` 2,40,000
PN
Machine Hours Worked 3,200 hours
Machine Hour Rate ` 40
Office Overheads
(related to production activities) 10% of works cost
Selling Overheads ` 20 per unit
Units produced and sold 10,000 at `120 each

You are required to find out the cost per unit and profit for the 4- week ended 28th
February 2016.

Q.2 Arnav Confectioners (AC) owns a bakery which is used to make bakery items like
pastries, cakes and muffins. AC use to bake at least 50 units of any item
at a time.
A customer has given an order for 00 muffins. To process a batch of 50 muffins, the
following cost would be incurred:
Direct materials- ` 500
Direct wages- ` 50
Oven set-up cost ` 150

AC absorbs production overheads at a rate of 20% of direct wages cost. 10% is

added to the total production cost of each batch to allow for selling, distribution and
administration overheads.
AC requires a profit margin of 25% of sales value. Determine the selling price for 00
muffins.

Q.3 Wonder Ltd. Has a capacity of 120,000 Units per annum as its optimum capacity.
The production costs are as under:

NB Direct Material ` 90 per unit

Direct Labour ` 60 per unit
PN
Overheads
Fixed: ` 30,00,000 per annum
Variable: ` 100 per unit
Semi Variable: ` 20,00,000 per annum up to 50% capacity and an
extra amount of ` 4,00,000 for every 25% increase in
capacity or part thereof.

CA/CS Nimeet Piti 160

 The production is made to order and not for stocks.

Unit and Batch Costing

If the production program of the factory is as indicated below and the management
desires a profit of ` 20,00,000 for the year work out the average selling price at
which each unit should be quoted.
First 3 months 50% capacity
Remaining 9 months 80% capacity.
Ignore administration, selling and distribution overheads

Q.4 A factory incurred the following expenditure during the year 2013.

NB (`) (`)
Direct material consumed 12,00,000
PN
Manufacturing Wages 7,00,000
Manufacturing overhead
Fixed 3,60,000
Variable 2,50,000 ,10,000
25,10,000

In the year 2014, following changes are expected in production and cost of
production.
Production will increase due to recruitment of 0% more workers in the factory.
Overall efficiency will decline by 10% on account of recruitment of new workers.
There will be an increase of 20% in Fixed overhead and 0% in Variable overhead.
The cost of direct material will be decreased by %.
The company desire to earn a profit of 10% on selling price. Ascertain the cost of
production and selling price.

Q.5 Atharva Pharmacare Limited produced a uniform type of product and has a
manufacturing capacity of 3,000 units per week of 48 hours. From the records of
the company, the following data are available relating to output and cost of
3 consecutive weeks

NB Week Units Direct Material Direct Wages Factory

Number Manufactured (`) (`) Overheads (`)
PN
1 1,200 9,000 3,600 31,000
2 1,600 12,000 4,800 33,000
3 1,800 13,500 5,400 34,000

Assuming that the company charges a profit of 20% on selling price, find out the
selling price per unit when the weekly output is 2,000 units

161 UNIT AND BATCH COSTING

 Q.6 A Factory manufactures a uniform type of article and has a capacity of 4,000
Unit and Batch Costing

units per week.The following information shows the different elements of cost
for three consecutive weekswhen the output has changed every week.

NB Units Direct Direct Labour Factory overheads (Partly

Produced Materials (`) (`) var ab e & part fi e
PN
2,000 12,000 ,000 12,500
2,800 1 ,800 8,400 1 ,500
3,700 22,200 11,100 21,000

The factory has received an order for 5,000 units and it desires a profit of
1 -2 3% on selling price. Find out the price at which each unit should be sold.

Q.7 Rio Ltd. undertakes to supply 1000 units of a component per month for the
months of January, February and March 2018. Every month a batch order is
opened against which material and labour cost are booked at actual.
NB From the following present the profit per unit of each batch order and the overall
position of the order for 3000 units.
PN
Month Batch Output Material Cost (` Labour ost `
u bers
January 2018 1,250 ,250 2,500
February 2018 1,500 9,000 3,000
March 2018 1,000 5,000 2,000

Labour is paid at the rate of ` 2 per hour.

Month Overheads (` Tota Labour ours

January 2018 12,000 4,000
February 2018 9,000 4,500
March 2018 15,000 5,000

Q.8 A jobbing factory has undertaken to supply 200 pieces of a component per month
for the ensuing six months. Every month a batch order is opened against which
NB materials and labour hours are booked at actual. Overheads are levied at a rate per
labour hour. The selling price contracted for is ` 8 per piece. From the following
PN data present the cost and profit per piece of each batch order and overall position
of the order for 1,200 pieces.

CA/CS Nimeet Piti 162

 Unit and Batch Costing
Month Batch Output Material cost Direct wages Direct labour
(` ` ours
January 210 50 120 240
February 200 640 140 280
March 220 80 150 280
April 180 630 140 270
May 200 00 150 300
June 220 720 160 320

The other details are:

T e ot er eta s are T e ot er eta s are T e ot er eta s are

January 12,000 4,800
February 10,5 0 4,400
March 12,000 5,000
April 10,580 4, 00
May 13,000 5,000
June 12,000 4,800

Q.9 An article passes through three successive operations from raw materials stage to
the finished product stage. The following data are available from the production
records for the month of March, 2021:

NB Operation No. of pieces No. of pieces No. of pieces

nput e e te utput
PN
1 1,80,000 60,000 1,20,000
2 1,98,000 18,000 1,80,000
3 1,44,000 24,000 1,20,000

(i) DETERMINE the input required to be introduced in the first operation in no. of
pieces in order to obtain finished output of 500 pieces after the last operation.
(ii) CALCULATE the cost of raw material required to produce one piece of finished
product, if the weight of the finished piece is 0.5 kg. and the price of raw
material is Rs. 80 per kg.

163 UNIT AND BATCH COSTING

 Q.10 A company wants to outsource the operation of its canteen to a contractor. The
Unit and Batch Costing

company will provide space for cooking, free electricity and furniture in the
canteen. The contractor will have to provide lunch to 300 workers of which 180
NB are vegetarian (Veg) and the rest are non-vegetarian (Non-Veg). In the case of
non-veg meals, there will be a non-veg item in addition the veg items. A
PN
contractor who is interested in the contract has analysed the costs likely to be
incurred. is analysis is given below

• Cereals : ` 8 per plate

• Veg items : ` 5 per plate
Non-veg items ` 15 per plate
• Spices : ` 1 per plate
• Cooking oil : ` 4 per plate
• One cook : Salary ` 13,000 per month
• Three helpers : Salary ` 7,000 per month per head
• Fuel : Two commercial cylinders per month,
price ` 1,000 each.
On an average the canteen will remain open for 25 days in a month. The
contractor wants to charge the non-veg meals at 1.50 times of the veg meals.
You are required to calculate:
(i) The price per meal (veg and non-veg separately) that contractor should quote
if he wants a profit of 20% on his takings.
(ii) The price per meal (separately for veg and non-veg) that a worker will be
required
to pay if the company provides 0% subsidy for meals out of welfare fund

Q.11 Monthly demand for a product 500 units

NB Setting-up cost per batch ` 60

Cost of manufacturing per unit ` 20
PN Rate of interest 10% p.a.
Determine economic batch quantity.

Q.12 M/s. KBC Bearings Ltd. is committed to supply 48,000 bearings per annum to
M/s. KMR Fans on a steady daily basis. It is estimated that it costs ` 1 as inventory
holding cost per bearing per month and that the setup cost per run of bearing
NB
manufacture is ` 3,200. What would be the optimum run size of bearing
manufacture?
PN
What would be the interval between two consecutive optimum runs? Find out
the minimum inventory cost?

CA/CS Nimeet Piti 164

Q.13 A customer has been ordering 90,000 special design metal columns at the rate of

Unit and Batch Costing

18,000 columns per order during the past years. The production cost com- prices
NB ` 2,120 for material,` 60 for labour and ` 20 for fixed overheads. It costs ` 1,500 to
set up for one run of 18,000 columns and inventory carrying cost is 5%.
PN Required:
i) Find the most economic production run.
ii) Calculate the extra cost that company incur due to processing of 18,000 columns
in a batch.

Q.14 X Ltd. is committed to supply 24,000 bearings per annum to Y Ltd. on steady basis.
It is estimated that it costs 10 paise as inventory holding cost per bearing per
NB month and that the set-up cost per run of bearing manufacture is ` 324.
Required:
PN
i) What would be the optimum run size for bearing manufacture?
ii) Assuming that the company has a policy of manufacturing ,000 bearings per
run, how much extra costs the company would be incurring as com- pared to
the optimum run suggested in (i) above?
iii) What is the minimum inventory holding cost?

Q.15 Arnav Motors Ltd. manufactures pistons used in car engines. As per the study
conducted by the Auto Parts Manufacturers Association, there will be a demand of
NB 80 million pistons in the coming year. Arnav Motors Ltd. is expected to have a
market share of 1.15% of the total market demand of the pistons in the coming
PN year. It is estimated that it costs ` 1.50 as inventory holding cost per piston per
month and that the set-up cost per run of piston manufacture is ` 3,500.
Required:
i) What would be the optimum run size for piston manufacturing?
ii) Assuming that the company has a policy of manufacturing 40,000 pistons per
run, how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above?

Q.16 TL LLP. Manufactures glass bottles for DL Ltd., a pharmaceutical company which
is in ayurvedic medicines business.

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

165 UNIT AND BATCH COSTING

Unit and Batch Costing

Q.17 A Company has an annual demand from a single customer for 50,000 litres of a
paint product. The total demand can be made up of a range of colour to be
NB produced in a continuous production run after which a set-up of the machinery
will be required to accommodate the colour change. The total output of each
PN colour will be stored and then delivered to the customer as single load
immediately before production of the next colour commences. The setup costs
are ` 100 per set up. The service is supplied by an outside company as required.
The holding costs are incurred on rented storage space which costs ` 50 per sq.
meter per annum. Each sq. meter can hold 250 litres suitably stacked.
Required:
i) Calculate the total cost per year where batches may range from 4,000 to
10,000 litres in multiples of 1,000 litres and hence, choose the production
batch size which will minimize the cost.
ii) Use the economic batch size formula to calculate the batch size that will
minimize the batch cost.

Q.18 M s. aurav Private Limited is manufacturing and selling two products

‘BLACK’ and ‘WHITE’ at selling price of ` 20 and ` 30 respectively.
The following sales strategy has been outlined for the financial year 2019-20
NB (i) Sales planned for the year will be ` 81,00,000 in the case of ‘BLACK’ and
` 54,00,000 in the case of ‘W ITE’.
PN
(ii) The selling price of ‘ LAC ’ will be reduced by 10% and that of ‘W ITE’ by
20%.
(iii) reak-even is planned at 0% of the total sales of each product.
(iv) Profit for the year to be maintained at ` 8,26,200 in the case of ‘BLACK’ and
` ,45,200 in the case of ‘W ITE’. This would be possible by reducing the
present annual fixed cost of 42,00,000 allocated as ` 2,00,000 to ‘BLACK’ and
` 20,00,000 to ‘WHITE’.
You are required to calculate:
(1) Number of units to be sold of ‘ LAC ’ and ‘W ITE’ to reak even during the
financial year 2019-20.
(2) Amount of reduction in fixed cost product-wise to achieve desired profit
mentioned at (iv) above

CA/CS Nimeet Piti 166

 Additional Questions

Unit and Batch Costing

Q.19 Arnav Ltd. operates in beverages industry where it manufactures soft -drink in
three sizes of Large (3 litres), Medium (1.5 litres) and Small ( 00 ml) bottles. The
NB products are processed in batches. The 5,000 litres capacity processing plant
consumes electricity of 90 ilowatts per hour and a batch takes 1 hour 45
PN minutes to complete. Only symmetric size of products can be processed at a
time. The machine set-up takes 15 minutes to get ready for next batch
processing. During the set -up, power consumption is only 20%.
(I) The current price of Large, Medium and Small are ` 150, ` 90 and ` 50
respectively.
(II) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of
Material-C are required hich costs ` 0.50 and ` 1,000 per litre respectively.
(III) 20 direct workers are required. The workers are paid ` 880 for 8 hours shift
of work.
(IV) The average packing cost per bottle is ` 3
(V) Power cost is ` per ilowatt -hour ( wh)
(VI) Other variable cost is ` 30,000 per batch.
(VII) Fixed cost (Administration and marketing) is ` 4,90,00,000.
(VIII) The holding cost is ` 1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of products

Large Medium Small

3,00,000 ,50,000 20,00,000

Required:
CALCULATE net profit loss of the organisation and also COMPUTE Economic
atch uantity (E ).

167 UNIT AND BATCH COSTING

Unit and Batch Costing

Q.20 PS Ltd. manufactures articles in predetermined lots simultaneously. The

following costs have been incurred for atch No. ‘PS143’ in the month of March,
NB 2022:
Units produced 1,000 units
PN Direct materials cost ` 2,00,000
Direct Labour -
Department A 800 labour hours @ ` 100 per hour.
Department B 1,400 labour hours @ ` 120 per hour.
Factory overheads are absorbed on labour hour basis and the rates are
Department A @ ` 140 per hour.
Department B @ ` 80 per hour.
Administrative overheads are absorbed at 10% of selling price.
The firm expects 25% gross profit (sales value minus factory cost) for
determining the selling price.
You are required to CALCULATE the selling price per unit of atch No. PS143 .

CA/CS Nimeet Piti 168

 Progress Sheet

Unit and Batch Costing

Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 1 uestion 11

uestion 2 uestion 12

uestion 3 uestion 13

uestion 4 uestion 14

uestion 5 uestion 15

uestion uestion 1

uestion uestion 1

uestion 8 uestion 18

uestion 9 uestion 19

uestion 10 uestion 20

169 UNIT AND BATCH COSTING

 Unit and Batch Costing

CA/CS Nimeet Piti

170
9 JOB
COSTING
 Q.1 A factory uses job costing. The following data are obtained from its books for the year
ended 31st March, 2018:

NB Amount (`)
Direct materials 9,00,000
PN
Direct wages 7,50,000
Selling and distribution overheads 5,25,000
Job Costing

Administration overheads 4,20,000

Factory overheads 4,50,000
Profit ,09,00

Required:
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of
sales and the Sales value.
(ii) In 2018-19, the factory received an order for a job. It is estimated that direct
materials required will be ` 2,40,000 and direct labour will cost ` 1,50,000.
DETERMINE what should be the price for the job if factory intends to earn the
same rate of profit on sales assuming that the selling and distribution overheads
have gone up by 15%. The factory overheads is recovered as percentage of
wages paid, whereas, other overheads as a percentage of cost of production,
based on cost rates prevailing in the previous year.

Q.2 A company has been asked to quote for a ob. The company aims to make a net profit
of 30% on sales. The estimated cost for the job is as follows:
NB Direct materials 10 kg @` 10 per kg
Direct labour 20 hours @ ` 5 per hour
PN
Variable production overheads are recovered at the rate of ` 2 per labour hour.
Fixed production overheads for the company are budgeted to be ` 1,00,000 each year
and are recovered on the basis of labour hours.
There are 10,000 budgeted labour hours each year. Other costs in relation to selling,
distribution and administration are recovered at the rate of `50 per job. DETERMINE
quote for the job by the Company.

Q.3 Ispat Engineers Limited (IEL) undertook a plant manufacturing work for a client. It will
charge a profit mark up of 20% on the full cost of the obs. The following are the
NB information related to the job:
Direct materials utilised – ` 1,87,00,000
PN Direct labour utilised – 2,400 hours at `80 per hour
Budgeted praoduction overheads are Rs. 48,00,000 for the period and are recovered
on the basis of 24,000 labour hours.

CA/CS Nimeet Piti 172

 Budgeted production overheads are Rs. 48,00,000 for the period and are recovered
on the basis of 24,000 labour hours.
Budgeted selling and administration overheads are ` 18,00,000 for the period and
recovered on the basis of total budgeted total production cost of ` 3 ,00,00,000.
Required:
CALCULATE the price to be charged for the job.

Job Costing
Q.4 A shop floor supervisor of a small factory presented the following cost for Job No. 303,
to determine the selling price.

NB Per unit (`)

Materials 70
PN
Direct wages 18 hours @ ` 2.50
(Dept. 8 hours Dept. Y hours Dept. 4 hours) 45
Chargeable expenses 5
120
Add: 33-1/3 % for expenses cost 40
1 0

Analysis of the Profit Loss Account for the year 20 2

(`) (`)
Material used 1,50,000 Sales less returns 2,50,000
Direct wages:
Dept. X 10,000
Dept. Y 12,000
Dept. 8,000 30,000
Special stores item 4,000
Overheads:
Dept. X 5,000
Dept. Y 9,000
Dept. 2,000 1 ,000
Works cost 2,00,000
ross profit c d 50,000

Selling expenses 20,000 ross profit b d 50,000

Net profit 30,000

It is also noted that average hourly rates for the three Departments , Y and are
similar.

173 JOB COSTING

 You are required to:
i) Draw up a job cost sheet.
ii) Calculate the entire revised cost using 2012 actual figures as basis.
iii) Add 20% to total cost to determine selling price.

Q.5 In a factory following the Job Costing Method, an abstract from the work-in-progress
Job Costing

as on 30th September was prepared as under.

NB Job No. Materials (`) Direct hrs. Labour (`) Factory Overheads
applied (`)
PN
115 1325 400 hrs. 800 40
118 810 250 hrs. 500 400
120 5 300 hrs. 4 5 380
2,900 1,775 1,420

Materials used in October were as follows:

Materials Requisition No. Job No. Cost (`)

54 118 300
55 118 425
5 118 515
5 120 5
58 121 910
59 124 720
3,535

A summary for labour hours deployed during October is as under:

Job no. Number of hours

Shop A Shop B
115 25 25
118 90 30
120 75 10
121 5 -
124 25 10

CA/CS Nimeet Piti 174

 Indirect labour: Waiting of material 20 10
Machine breakdown 10 5
Idle time 5
Overtime premium 5

A shop credit slip was issued in October, that material issued under Requisition No.
54 was returned back to stores as being not suitable. A material transfer note issued

Job Costing
in October indicated that material issued under Requisition No. 55 for Job 118 was
directed to Job 124.
The hourly rate in shop A per labour hour is ` 3 per hour while at shop B, it is ` 2 per
hour. The factory overhead is applied at the same rate as in September. Job 115, 118
and 120 were completed in October.
You are asked to compute the factory cost of the completed jobs. It is thepractice of
the management to put a 10%on the factory cost to cover administration and selling
overheads and invoice the job to the customer on a total cost plus 20% basis. What
would be the invoice price of these three jobs?

Q.6 Ares Plumbing and Fitting Ltd. (APFL) deals in plumbing materials and also provides
plumbing services to its customers. On 12th August, 2014, APFL received a job order
NB for a students’ hostel to supply and fitting of plumbing materials. The work is to be
done on the basis of specification provided by the hostel owner. ostel will be
PN inaugurated on 5th September, 2014 and the work is to be completed by 3rd
September, 2014.
Following are the details related with the job work:
Direct Materials
APFL uses weighted average method for the pricing of materials issues.

Opening stock of materials as on 12th August 2014:

-15mm GI Pipe, 12 units of (15 feet size) @ ` 00 each
-20mm GI Pipe, 10 units of (15 feet size) @ ` 0 each
-Other fitting materials, 0 units ` 2 each
-Stainless Steel Faucet, units ` 204 each
-Valve, 8 units @ ` 404 each

Purchases:
On 16th August 2014:
-20mm GI Pipe, 30 units of (15 feet size) @ ` 10 each
-10 units of Valve @ ` 402 each

175 JOB COSTING

 On 18th August 2014:
-Other fitting materials, 150 units ` 28 each
-Stainless Steel Faucet, 15 units @ ` 209 each
On 27th August 2014:
-15mm GI Pipe, 35 units of (15 feet size) @ ` 28 each
-20mm GI Pipe, 20 units of (15 feet size) @ ` 0 each
Job Costing

-Valve, 14 units @ ` 424 each

NB Issues for the hostel job:

On 12th August 2014:
PN
-20mm GI Pipe, 2 units of (15 feet size)
-Other fitting materials, 18 units
On 17th August 2014:
-15mm GI Pipe, 8 units of (15 feet size)
-Other fitting materials, 30 units
On 28th August 2014:
-20mm GI Pipe, 2 units of (15 feet size)
-15mm GI Pipe, 10 units of (15 feet size)
-Other fitting materials, 34 units
-Valve, units
On 30th August:
-Other fitting materials, 0 units
-Stainless Steel Faucet, 15 units

Direct Labour:
Plumber: 180 hours @ ` 50 per hour (includes 12 hours overtime)
elper 192 hours ` 35 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ ` 13 per labour hour. Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on
sales price.

You are required to:

i) Calculate the total cost of the job.
ii) Calculate the price to be charged from the customer

CA/CS Nimeet Piti 176

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 4

Question 2 Question 5

Job Costing
Question 3 uestion

177 JOB COSTING

Job Costing

CA/CS Nimeet Piti 178

10
PROCESS
AND
OPERATION
COSTING
 Basic Process Accounts
Q.1 From the following data, prepare process accounts indicating the cost of each process
and the total cost. The total units that pass through each process were 240 for the
period.

NB Process I (`) Process II (`) Process III (`)

Materials 1,50,000 50,000 20,000
PN
Labour 80,000 2,00,000 60,000
Other expenses 26,000 72,000 25,000

Indirect expenses amounting to ` 85,000 may be apportioned on the basis of wages.

Process And Operation Costing

There was no opening or closing stock.

Q.2 A product passes through three processes. The output of each process is treated as
the raw material of the next process to which it is transferred and output of the third
process is transferred to finished stock.

NB Process I (`) Process II (`) Process III (`)

Materials issued 40,000 20,000 10,000
PN
Labour 6,000 4,000 1,000
Manufacturing overhead 10,000 10,000 15,000

10,000 units have been issued to the Process-I and after processing, the output of
each process is as under:

Process Output Normal Loss

Process-I 9,750 units 2%
Process-II 9,400 units 5%
Process-III 8,000 units 10%

No stock of materials or of work-in-process was left at the end. Calculate the cost of
the finished articles.

Q.3 A product passes from Process I and Process II. Materials issued to Process I
amounted to ` 40,000, Labour ` 30,000 and manufacturing overheads were
NB ` 27,000. Normal loss was 3% of input as estimated. But 500 more units of output of
Process I were lost due to the carelessness of workers. Only 4,350 units of output
PN were transferred to Process II. There were no opening stocks. Input raw material
issued to Process I was 5,000 units. You are required to show Process I account.

P. D. LEARNING CURVE 180

Q.4 N Ltd. produces a product which passes through two processes – Process – I and
Process-II. The company has provided following information related to the Financial
Year 2021-22:
NB
Particulars Process- I Process- II
PN Raw Material @` 65 per unit 6,500 units --
Direct Wages ` 1,40,000 ` 1,30,000
Direct Expenses 30% of Direct Wages 35% of Direct Wages
Manufacturing Overheads ` 21,500 ` 24,500
Realisable value of scrap per unit ` 4.00 ` 16.00
Normal Loss 250 units 500 units

Process And Operation Costing

Units transferred to Process-II /
finished stock ,000 units 5,500 units
Sales - 5,000 units
There was no opening or closing stock of work-in progress.
You are required to prepare:
(i) Process-I Account
(ii) Process -II Account
(iii) Finished Stock Account

Q.5 JK Ltd. produces a product “AZE”, which passes through two processes, viz., process I
and process II. The output of each process is treated as the raw material of the next
process to which it is transferred and output of the second process is transferred to
NB
finished stock. The following data related to
December, 2013:
PN
Process- I Process- II
25,000 units introduced at a cost of ` 2,00,000 ?
Material consumed ` 1,92,000 ` 96,020
Direct labour ` 2,24,000 ` 1,28,000
Manufacturing expenses ` 1,40,000 ` 60,000
Normal wastage of input 10% 10%
Scrap value of normal wastage
(per unit) ` 9.90 ` 8.60
Output in Units 22,000 20,000

Required:
i) Prepare Process I and Process II account.
ii) Prepare Abnormal Gain/ Loss account as the case may be for each process.

181 PROCESS AND OPERATION COSTING

 Q.6 Meta Company Ltd. is engaged in the production of product ‘Trio' which passes
through two different processes Process P and Process . Other information obtained
from books of account for the year is as follows:

Particulars Process P Process Q

Raw material used 10,000 ---
Raw material cost per unit ` 80 ---
Direct wages ` 52,000 ` 78,000
Direct Expenses ` 8,600 ` 11,100
Selling price per unit of output ` 130 ` 190

Production overheads of ` 3,00,000 are recovered as percentage of direct wages.

Process And Operation Costing

Actual output of the two processes was:

P-9,200 units and - ,400 units. 3 4thof the output of Process P was passed on to the
Process and the balance was sold. The entire output of process was sold.
Management & Selling expenses during the year were ` 1,70,000.
These are not allocable to the processes.
The normal loss of the two processes, calculated on the input of every process was:
Process P- % and Process -10%
The Loss of Process P was sold at ` 5 per unit and that of at ` 8 per unit.
Assume that Process P and Process are not the responsibility centres.
You are required to prepare:
(i) Process P Account
(ii) Process Account
(iii) Abnormal Loss and Abnormal Gain Account

Q.7 M J Pvt. Ltd. produces a product "SKY" which passes through two processes, viz.
Process-A and Process-B. The details for the year ending 31.3.2014 are as follows:

NB Process A Process B
40,000 Units introduced at a cost of ` 3,60,000 -
PN
Material Consumed ` 2,42,000 ` 2,25,000
Direct Wages ` 2,58,000 ` 1,90,000
Manufacturing Expenses ` 1,96,000 ` 1,23,720
Output in Units 37,000 27,000
Normal Wastage of Input 5% 10%
Scrap Value (per unit) ` 15 `20
Selling Price (per unit) ` 37 `61

Additional Information:
80% of the output of Process-A, was passed on to the next process and the balance
was sold. The entire output of Process- B was sold.
CA/CS Nimeet Piti 182
 Indirect expenses for the year was ` 4,48,080.
It is assumed that Process-A and Process-B are not responsibility center.
Required:
i) Prepare Process-A and Process-B Account.
ii) Prepare Profit Loss Account showing the net profit I net loss for the year.

Q.8 MP Ltd. produces a Product-X, which passes through three processes, I, II and III. In
Process-III a by-product arises, which after further processing at a cost of Rs. 85 per
unit, product Z is produced. The information related for the month of September
2020 is as follows:

NB Process-I Process-II Process-III

Process And Operation Costing

Normal loss 5% 10% 5%
PN
Materials introduced (7,000 units) 1,40,000 - -
Materials added 62,000 1,36,000 84,200
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000

Production overhead for the month is Rs. 2,88,000, which is absorbed as a percentage
of direct wages.
The scraps are sold at Rs. 10 per unit
Product-Z can be sold at Rs. 135 per unit with a selling cost of Rs. 15 per unit No. of
units produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600 There is no
stock at the beginning and end of the month.
You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product-Z

Q.9 A Manufacturing unit manufactures a product 'XYZ' which passes through three
distinct Processes - X, Y and Z. The following data is given:

NB Process X Process Y Process Z

Material consumed (in `) 2,600 2,250 2,000
PN
Direct wages (in `) 4,000 3,500 3,000

• The total Production Overhead of ` 15,750 was recovered @ 150% of Direct wages.
• 15,000 units at ` 2 each were introduced to Process 'X'.
The output of each process passes to the next process and finally, 12,000 units
were transferred to Finished Stock Account from Process 'Z'.
• No stock of materials or work in progress was left at the end. The following
additional information is given:

183 PROCESS AND OPERATION COSTING

 Process % of wastage Value of Scrap
to normal input per unit (`)
X 6% 1.10
Y ? 2.00
Z 5% 1.00

You are required to:

(i) Find out the percentage of wastage in process 'Y', given that the output of Process
'Y' is transferred to Process 'Z' at ` 4 per unit.
(ii) Prepare Process accounts for all the three processes X, Y and Z.
Process And Operation Costing

NB

PN
Equivalent Production
Weighted Average Method

Q.10 ABC Ltd. produces an item which is completed in three processes – X, Y and Z.
The following information is furnished for process X for the month of
March, 2018:
Opening work-in-progress (5,000 units)
Materials ` 35,000
Labour ` 13,000
Overheads ` 25,000
Units introduced into process X (55,000 units):
Materials ` 20,20,000
Labour ` 8,00,000
Overheads ` 13,30,000
Units scrapped : 5,000 units
Degree of completion:
Materials 100%
Labour and Overheads 60%
Closing work-in-progress (5,000 units):
Degree of completion :
Material 100%
Labour and Overheads 60%

Units finished and transferred to Process Y 50,000 units

Normal loss : 5% of total input (including opening works-in-progress)
Scrapped units fetch ` 20 per unit.

CA/CS Nimeet Piti 184

 Presuming that average method of inventory is uses, prepare
(i) Statement of Equivalent production
(ii) Statement of Cost for each element
(iii) Statement of distribution of cost
(iv) Abnormal loss account

Q.11 Openingwork-in-process1,000 units(60% complete);Cost ` 1,10,000. Units introduced

during the period 10,000 units; Cost ` 19,30,000. Transferred to next process - 9,000 units.
Closing work-in-process - 800 units (75% complete).
NB
Normal loss is estimated at 10% of total input including units in process at the
PN beginning.

Process And Operation Costing

Scraps realise ` 10 per unit. Scraps are 100% complete.
Using WEIGHTED AVERAGE METHOD, compute equivalent production and cost per
equivalent unit. Also evaluate the output.

Q.12 Following information is given regarding Process-I for the month of

February 2015,

NB Production record:
Units in process as on 1.2.20X5 4,000
PN
(All materials used, 25% complete for labour and overheads)
New units introduced 16,000
Units completed 14,000
Units in process as on 28.2.20X5
(All materials used, 33.33% complete for labour and overheads) 6,000
Cost records:
Work-in-progressason1.2.20X5
Materials 6,000
Labour 1,000
Overheads 1,000
8,000
Cost during the month: Materials (`) 25,600
Labour 15,000
Overheads 55,600
Presuming that average method of inventory is used, prepare:
i) Statement of equivalent production.
ii) Statement showing cost for each element.
iii) Statement of apportionment of cost.
Process cost account for Process-I.
185 PROCESS AND OPERATION COSTING
 Q.13 ABC Limited manufactures a product ‘ZX’ by using the process namely RT.
For the month of May, 2014, the following data are available:

NB Process RT
Material introduced (units) 16,000
PN
Transfer to next process (units) 14,400
Work-in-progress:
At the beginning of the month (units) (80% complete) 4,000
At the end of the month (units) (66.66%) 3,000
Cost records:
WIP at the beginning of the month
Material ` 30,000
Process And Operation Costing

Conversion cost ` 29,200

Cost during the month:
Materials ` 1,20,000
Conversion cost ` 1,60,800

Normal spoiled units are 10% of good finished output transferred to next process.
Defects in these units are identified in their finished state. Material for the product is
put in the process at the beginning of the cycle of operation, whereas labour and
other indirect cost flow evenly over the year. It has no realizable value for spoiled
units.
Required:
i) Statement of equivalent production (Average cost method)
ii) Statement of cost and distribution of cost
iii) Process accounts.

Q.14 Following data are available for a product for the month of July, 2016:

NB Particulars Process- I (`) Process- II (`)

Opening work-in- progress Nil Nil
PN
Costs incurred during the month:
- Direct materials 6,00,000
- Labour 1,20,000 1,60,000
- Factory overheads 2,40,000 2,00,000
Units of production:
Received in process 40,000 36,000
Completed and transferred 36,000 32,000
Closing work-in-progress 2,000 ?
Normal loss in process 2,000 1,500

CA/CS Nimeet Piti 186

 Production remaining in process has to be valued as follows

Materials 100%
Labour 50%
Overheads 50%

There has been no abnormal loss in Process- II.

The company follows weighted average method for valuing inventory.
Prepare Process Accounts after working out the missing figures and with detailed
workings.

Q.15 The following details are available of Process X for August 2013:

Process And Operation Costing

NB (1) Opening work-in-progress 8,000 units
Degree of completion and cost:
PN
Material (100%) ` 63,900
Labour (60%) ` 10,800
Overheads (60%) ` 5,400
(2) Input 1,82,000 units at ` 7,56,900
(3) Labour paid ` 3,28,000
(4) Over heads incurred ` 1,64,000
(5) Units scrapped 14,000
Degree of completion:
Material 100%
Labour and overhead 80%
(6) Closing work-in-process 18000 units
Degree of completion:
Material 100%
Labour and overhead 70%
(7) 1,58,000 units were completed and transferred to next
process.
(8) Normal loss is 8% of total input including
opening work-in-process
(9) Scrap value is ` 8 per unit to be adjusted in direct
material cost

You are required to compute, assuming that average method of inventory is used:
Equivalent production, and
Cost per unit.

187 PROCESS AND OPERATION COSTING

 Q.16 A product is manufactured in two sequential processes, namely Process – 1 and
Process -2. The following information relates to Process – 1. At the beginning of June
2019, there were 1,000WIP goods (60% completed in terms of conversion cost) in the
NB inventory, which are valued at ` 2,86,020 (Material cost ` 2,55,000 and conversion
` 31,020). Other information relating to process – 1 for the month of June 2019 is as
PN follows;

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

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

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

estimated at 10% of input materials (excluding opening WIP).
Required:
(i) PREPARE a statement of equivalent units using the weighted average cost method
and thereby calculate the following:
(ii) CALCULATE the value of output transferred to Process – 2 and closing WIP.

Q.17 A company produces a component, which passes through two processes. During the
month of December, 2021, materials for 40,000 components were put into Process -I
of which 30,000 were completed and transferred to Process-II. Those not transferred
NB
to Process- II were 100% complete as to materials cost and 50% complete as to labour
PN and overheads cost. The Process- I costs incurred were as follows:
Direct Materials ` 6,00,000
Direct Wages ` 7,00,000
Factory Overheads ` 4,90,000

Of those transferred to Process II, 28,000 units were completed and transferred to
finished goods stores. There was a normal loss with no salvage value of 200 units in
Process II. There were 1,800 units, remained unfinished in the process with 100%
complete as to materials and 25% complete as regard to wages and overheads.
Costs incurred in Process-II are as follows:
Packing Materials ` 1,60,000
Direct Wages ` 1,42,250
Factory Overheads ` 1,70,700

Packing material cost is incurred at the end of the second process as protective
packing to the completed units of production.
Required:
(i) PREPARE Statement of Equivalent Production, Cost per unit and Process I A/c.
(ii) PREPARE statement of Equivalent Production, Cost per unit and Process II A/c.

CA/CS Nimeet Piti 188

 FIFO Method

Q.18 Following information is available regarding Process A for the month of

October 2013:

NB Production Record:
(i) Opening work-in progress 40,000 Units
PN
(Material: 100% complete, 25% complete for labour
(ii) & overheads) Units Introduced 1,80,000 Units
(iii) Units Completed 1,50,000 Units
(iv) Units in-process on 31.10.2013 70,000 Units

Process And Operation Costing

(Material: 100% complete, 50% complete for labour & overheads)

Cost Record:
Opening Work-in-progress: (`)
Material 1,00,000
Labour 25,000
Overheads 45,000
Cost incurred during the month:
Material 6,60,000
Labour 5,55,000
Overheads 9,25,000
Assure that FIFO method is used for W.I.P. inventory valuation.

Required:
i) Statement of Equivalent Production
ii) Statement showing Cost for each element
iii) Statement of apportionment of Cost
iv) Process- A Account

Q.19 The following data are available in respect of Process-I for October 2014:
i) Opening stock of work in process: 600 units at a total cost of ` 4,200.
NB
ii) Degree of completion of opening work in process:
PN Material 100%
Labour 60%
Overheads 60%

189 PROCESS AND OPERATION COSTING

 iii) Input of materials at a total cost of ` 55,200 for 9,200 units.
iv) Direct wages incurred ` 18,600
v) Overheads ` 8,630
vi) Units scrapped are 200 units.
The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
vii) Closing work in process; 700 units.
The stage of completion of these units was:
Material 100%
Process And Operation Costing

Labour 70%
Overheads 70%
viii) 8,900 units were completed and transferred to the next process.
ix) Normal loss is 4% of the total input (opening stock plus units put in)
x) Scrap value is ` 6 per unit.

You are required to:

i) Compute equivalent production,
ii) Calculate the cost per equivalent unit for each element.
iii) Calculate the cost of abnormal loss (or gain), closing work in process and the units
transferred to the next process using the FIFO method.

Q.20 The following data are available in respect of Process-I for July 2017:

NB i) Opening stock of work in process: 600 units at a total cost of ` 84,000.

ii) Degree of completion of opening work in process:
PN
Material 100%
Labour 60%
Overheads 60%
iii) Input of materials at a total cost of ` 11,04,000 for 9,200 units.
iv) Direct wages incurred ` 3,72,000 Overheads ` 1,72,600.
v) Units scrapped 200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
vi) Closing work in process; 700 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
CA/CS Nimeet Piti 190
 vii) 8,900 units were completed and transferred to the next process.
viii) Normal loss is 4% of the total input (opening stock plus units put in)
ix) Scrap value is ` 120 per unit.

You are required to:

i) Compute equivalent production,
ii) Calculate the cost per equivalent unit for each element.
iii) Calculate the cost of abnormal loss (or gain), closing work in process and the units
transferred to the next process using the FIFO method.

Q.21 Chill Ltd. uses process costing to manufacture water density sensor for hydro sector.

Process And Operation Costing

The following information pertains to operations for the month of February:

NB Particulars Units
Beginning WIP, February 1 22,400
PN
Started in production during February 1,40,000
Completed production during February 1,28,800
Ending work in progress, February 28 33,600

The beginning work in progress was 50% complete for materials and 30% complete
for conversion costs. The ending inventory was 80% complete for material and 30%
complete for conversion costs.
Costs pertaining to the month of February are as follows:
Beginning inventory costs are material ` 1,38,350, direct labour ` 1,50,600 and factory
overhead ` 63,600
Cost incurred during February are material ` 23,95,000, direct labour ` 9,14,400,
factory overheads ` 19,55,800.
CALCULATE:
(i) Using the FIFO method, the equivalent units of production for material.
(ii) Cost per equivalent unit for conversion cost.

Q.22 Following details have been provided by M/s AR Enterprises:

NB i) Opening works-in progress – 3000 units (70% complete)

ii) Units introduced during the year – 1700 units
PN
iii) Cost of the process (for the period) - ` 33,12,720
iv) Transferred to next process – 15000 units
v) Closing works -in-progress – 2200 units (80% complete)
vi) Normal loss is estimated at 12% of total input (including units in process in the
beginning) Scraps realize ` 50 per unit. Scraps are 100% complete.

191 PROCESS AND OPERATION COSTING

 Using FIFO method, compute:
i) Equivalent production
ii) Cost per equivalent unit.

Q.23 Akash Ltd. manufactures chemical solutions for the food processing industry.
The manufacturing takes place in a number of processes and the company
uses FIFO method to value work-in-process and finished goods. At the end of
NB the last month, a fire occurred in the factory and destroyed some of paper
containing records of the process operations for the month.
PN
Akash Ltd. needs your help to prepare the process accounts for the month
during which the fire occurred. You have been able to gather some
information about the month’s operating activities but some of the
information could not be retrieved due to the damage.
The following information was salvaged:
Process And Operation Costing

i) Opening work-in-process at the beginning of the month was 800 litres,

70% complete for labour and 60% complete for overheads. Opening
work-in-process was valued at ` 26,640.
ii) Closing work-in-process at the end of the month was 160 litres, 30%
complete for labour and 20%complete for overheads.
iii) Normal loss is 10% of input and total losses during the month were 1,800
litres partly due to the fire damage.
iv) Output sent to finished goods warehouse was 4,200 litres.
v) Losses have a scrap value of ` 15 per litre.
vi) All raw materials are added at the commencement of the process.
vii) The cost per equivalent unit (litre) is ` 39 for the month made up as
follows:

(`)
Raw Material 23
Labour 7
Overheads 9
39

Required:
i) Calculate the quantity (in litres) of raw material inputs during the month.
ii) Calculate the quantity (in litres) of normal loss expected from the process
and the quantity (in litres) of abnormal loss / gain experienced in the
month.
iii) Calculate the values of raw material, labour and overheads added to the
process during the month.
iv) Prepare the process account for the month.

CA/CS Nimeet Piti 192

 te P e P t
Q.24 A Ltd. produces product ‘AXE’ which passes through two processes before it is
completed and transferred to finished stock. The following data relate to October
2014:

Process- I (`) Process- II (`) Finished Stock (`)

NB
Opening stock 7,500 9,000 22,500
PN Direct materials 15,000 15,750 --
Direct wages 11,200 11,250 --
Factory overheads 10,500 4,500 --

Process And Operation Costing

Closing stock 3,700 4,500 11,250
Inter-process profit included -- 1,500 8,250
in opening stock

Output of Process- I is transferred to Process- II at 25% profit on the transfer price.

Output of Process- II is transferred to finished stock at 20% profit on the transfer
price. Stock in process is valued at prime cost. Finished stock is valued at the price at
which it is received from process II. Sales during the period are ` 1,40,000.
Prepare Process cost accounts and finished goods account showing the profit
element at each stage.

Q.25 The product of a manufacturing concern passes through two processes A and B and
then to finished stock. The details of expenses incurred on the two processes during
NB the year were as under:

PN Process A (`) Process B (`)

Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000

On completion, the output of Process A is transferred to Process B at a price

calculated to give a profit of 20% on the transfer price and the output of Process is
charged to finished stock at a profit of 25% on the transfer price. The finished stock
department realized ` 4,00,000 for the finished goods received from Process .
You are asked to S OW process accounts and total profit, assuming that there was no
opening or closing work-in-progress.

193 PROCESS AND OPERATION COSTING

 Miscellaneous
Q.26 A Chemical Company carries on production operation in two processes.
The material first pass through Process I, where Product ‘A’ is produced.
NB
Following data are given for the month just ended:
PN
Material input quantity 2,00,000 kg.
Opening work-in-progress quantity
(Material 100% and conversion 50% complete) 40,000 kg.
Work completed quantity 1,60,000 kg.
Closing work-in-progress quantity
Process And Operation Costing

(Material 100% and conversion two-third complete) 30,000 kg.

Material input cost ` 75,000
Processing cost ` 1,02,000
Opening work-in-progress cost
Material cost ` 20,000
Processing cost ` 12,000

Normal process loss in quantity may be assumed to be 20% of material input. It has
no realizable value.
Any quantity of Product ‘A’ can be sold for `1.60 per kg.
Alternatively, it can be transferred to Process II for further processing and then sold
as Product ‘AX’ for `2 per kg. Further materials are added in Process II, which yield two
kg. of product ‘AX’ for every kg. of Product ‘A’ of

Process II.
Of the 1,60,000 kg. per month of work completed in Process I, 40,000 kg. are sold as
Product ‘A’ and 1,20,000 kg. are passed through Process II for sale as Product ‘AX’.
Process II has facilities to handle up to 1,60,000 kg. of Product ‘A’ per month, if
required.
The monthly costs incurred in Process II (other than the cost of Product ‘A’) are:

1,20,000 kg. of Product ‘A’ input 1,60,000 kg. of Product ‘A’ input
(`) (`)
Materials Cost 1,32,000 1,76,000
Processing Costs 1,20,000 1,40,000

Required:
(i) Determine, using the weighted average cost method, the cost per kg. of Product ‘A’
in Process I and value of both work completed and closing work-in-progress for the
month just ended.

CA/CS Nimeet Piti 194

 (ii) Is it worthwhile processing 1,20,000 kg of Product ‘A’ further?
(iii) Calculate the minimum acceptable selling price per kg., if a potential buyer could
be found for additional output of Product ‘AX’ that could be produced with the
remaining Product ‘A’ quantity.

Q.27 MTK Ltd. purchased 10,000 kgs, of a basic material @ ` 12 per kg and issued it for
further processing in purifying department. In purifying department wages paid
NB amounted to ` 4,200 and overhead was applied @ 150% of the labour cost.
Indirect materials costing ` 1,500 were introduced insto the process. The normal yield
PN from the process is 90%. 9,100 kgs of output was obtained from this purifying
process. Any difference in weight between the input of basic material and output of
purified material can is sold ` 1,50 per kg.

Process And Operation Costing

The process is operated under a licence for which royalty @ ` 0.20 per kg. of purified
material produced is paid.

You are required to prepare:

(i) Purifying process Account
(ii) Normal loss Account
(iii) Abnormal loss / gain Account
(iv) Royally Payable Account.

Q.28 From the following Information for the month ending October, 2013, prepare Process
Cost accounts for Process III. Use First-in-fist-out (FIFO) method to value equivalent
production.

NB Direct material added in process III

(Opening WIP) 2,000 units at ` 25,750
PN
Transfer from Process II 53,000 units at ` 4,11,500
Transfer to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III ` 1,97,600
Direct wages ` 97,600
Production overheads ` 48,800

Degree of completion:
Opening Stock Closing Stock Scrap
Materials 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of production and scrap was sold at
` 3 per unit.
195 PROCESS AND OPERATION COSTING
 Additional Questions
Q.29 P R Company Ltd. provides the following information relating to Process-P
(i) Opening Work-in-progress - NIL
(ii) Units Introduced - 45,000 units @ ` 10 per unit
(iii) Expenses debited to the process:
Direct material ` 65,500
Labour ` 90,800
Overhead ` 1,80,700

(iv) Normal loss in the process - 2% of Input

Process And Operation Costing

(v) Work-in progress - 1800 units

Degree of completion
Materials - 100%
Labour - 50%
Overhead - 40%

(vi) Finished output - 42,000 units

(vii) Degree of completion of abnormal loss:

Materials - 100%
Labour - 80%
Overhead - 60%

(viii) Units scrapped as normal loss were sold at ` 5 per unit.

(ix) All the units of abnormal loss were sold at ` 2 per unit.

You are required to PREPARE:

• Statement of equivalent production.
• Statement showing the cost of finished goods, abnormal loss and closing balance
f work-in-progress.
• Process-P account and abnormal loss account.

Q.30 SM Pvt. Ltd. manufactures their products in three consecutive processes. The details
are as below:

Process X Process Y Process Z

Transferred to next Process 60% 50%
Transferred to warehouse for sale 40% 50% 100%

CA/CS Nimeet Piti 196

 In each process, there is a weight loss of 2% and scrap of 4% of input of each process.
The realizable value of scrap of each process is as below:
Process X @ ` 3 per ton
Process Y @ ` 5 per ton
Process Z @ ` 7 per ton.
The following particulars relate to January 2023:

Process X Process Y Process Z

Materials used (in Tons) 1,500 454 189
Rate per ton ` 21.5 ` 14 ` 12
Direct Wages ` 5,000 ` 3,260 ` 2,540

Process And Operation Costing

Direct Expenses ` 3,820 ` 2,775 ` 1,900

PREPARE Process Accounts- X, Y and Z & calculate cost per ton at each process.

Q.31 A Ltd. mixes powdered ingredients in two different processes to produce one
product. The output of Process- I becomes the input of Process-II and the output of
Process-II is transferred to the Packing department.
From the information given below, you are required to PREPARE accounts for
Process-I, Process- II and Abnormal loss/ gain A/c to record the transactions for the
month of August 2023.
Process-I

Input
Material A 6,000 kilograms at ` 50 per kilogram
Material B 4,000 kilograms at ` 100 per kilogram
Labour 430 hours at ` 50 per hour
Normal loss 5% of inputs. Scrap is disposed off at `16 per kilogram
Output 9,200 kilograms.

There is no work-in-process at the beginning or end of the month.

Process-II

Input
Material C 6,600 kilograms at ` 125 per kilogram
Material D 4,200 kilograms at ` 75 per kilogram
Flavouring Essence ` 3,300
Labour 370 hours at ` 50 per hour
Normal loss 5% of inputs with no disposal value
Output 18,000 kilograms.

197 PROCESS AND OPERATION COSTING

 There is no work-in-process at the beginning of the month but 1,000 kilograms in
process at the end of the month and estimated to be only 50% complete so far as
labour and overhead were concerned.
Overhead of ` 92,000 incurred to be absorbed on the basis of labour hours.

Q.32 ‘Dairy Wala Private limited’ is engaged in the production of flavoured milk. Its process
involve filtration and boiling of milk after that some sugar, flavour, colour is added
and then letting it cool to fill the product into clean and sterile bottles. For Producing
NB
10 litre of flavour milk, 100 litre of Raw milk is required, which extracts only 45 litres of
PN standardized milk.
Following information regarding Process – I has been obtained from the
manufacturing department of Dairy Wala Private limited for the month of December
2022:
Process And Operation Costing

Items (`)
Opening work-in process (13,500 litre)
Milk 1,50,000
Labour 45,000
Overheads 1,35,000
Milk introduced for filtration and boiling (3,00,000 litre) 15,00,000
Direct Labour 6,00,000
Overheads 18,00,000
Abnormal Loss: 3,000 litres
Degree of completion:
Mailk 100%
Labour and overheads 80%
Closing work-in process: 27,000 litres
Degree of completion:
Milk 100%
Labour and overheads 80%
Milk transferred for Packing: 1,18,500 litres

You are required to PREPARE using average method:

(i) Statement of equivalent production,
(ii) Statement of cost,
(iii) Statement of distribution cost, and
(iv) Process-I Account.

CA/CS Nimeet Piti 198

Q.33 The following information is furnished by ABC Company for Process - II of its
manufacturing activity for the month of April 2023:

NB (i) Opening Work-in-Progress – Nil

(ii) Units transferred from Process I – 55,000 units at ` 3,27,800
PN (iii) Expenditure debited to Process – II:
Consumables ` 1,57,200
Labour ` 1,04,000
Overhead ` 52,000

(iv) Units transferred to Process III – 51,000 units

(v) Closing WIP – 2,000 units (Degree of completion):
Consumables 80%

Process And Operation Costing

Labour 60%
Overhead 60%

(vi) Units scrapped - 2,000 units, scrapped units were sold at ` 5 per unit
(vii) Normal loss – 4% of units introduced

You are required to:

(i) Prepare a Statement of Equivalent Production.
(ii) Determine the cost per unit
(iii) Determine the value of Work-in-Process and units transferred to Process – III

199 PROCESS AND OPERATION COSTING

 Process And Operation Costing

CA/CS Nimeet Piti

200
 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 1 uestion 18

uestion 2 uestion 19

uestion 3 uestion 20

uestion 4 uestion 21

uestion 5 uestion 22

uestion uestion 23

Process And Operation Costing

uestion uestion 24

uestion 8 uestion 25

uestion 9 uestion 2

uestion 10 uestion 27

uestion 11 uestion 28

uestion 12 uestion 29

uestion 13 uestion 30

uestion 14 uestion 31

uestion 15 uestion 32

uestion 16 uestion 33

uestion 17

201 PROCESS AND OPERATION COSTING

 Process And Operation Costing

CA/CS Nimeet Piti

202
11
JOINT
PRODUCTS
& BY
PRODUCTS
 Joint Products
Q.1 A company produces two products, A and B, through a joint production process. The
total joint production cost incurred is as under:

NB Material ` 20,000
Labour ` 10,000
PN
Variable overheads ` 6,000
Fixed Overheads ` 24,000

Product A and B can be sold for ` 20 per unit and ` 15 per unit respectively at split off
point. The produced quantities are Product A-2,000 units and Product B – 4,000 units.
(i) You are required to calculate the joint production cost allocation for each
product using the:
(a) Physical unit method.
(b) Contribution margin method.
(ii) Product B can be further processed by incurring expenditure of ` 12,000. Loss in
further processing is 2%. It can be sold @ ` 18 per unit. Explain the impact on
profitability if Product is further processed.
Joint Products & By Products

Q.2 A company's plant processes 6,750 units of a raw material in a month to produce two
products 'M' and 'N'.
The process yield is as under:
Product M 80%
NB
Product N 12%
PN Process Loss 8%
The cost of raw material is ` 80 per unit.
Processing cost is ` 2,25,000 of which labour cost is accounted for 66%. Labour is
chargeable to products 'M' and 'N' in the ratio of 100:80.
Prepare a Comprehensive Cost Statement for each product showing:
(i) Apportionment of joint cost among products 'M' and 'N' and
(ii) Total cost of the products 'M' and 'N'.

Q.3 Inorganic Chemicals purchases salt and processes it into more refined products such
as Caustic Soda, Chlorine and PVC. In the month of July, Inorganic Chemicals
NB purchased Salt for ` 40,000. Conversion of ` 0,000 were incurred up to the split off
point, at which time two seal able products were produced. Chlorine can be further
PN processed into PVC.
The July production and sales information are as follows:
Production Sales quantity Selling price
(tonne) (tonne) (per tonne)
Caustic Soda 1,200 1,200 ` 50
Chlorine 800 — —
PVC 500 500 ` 200
CA/CS Nimeet Piti 204
 All 800 tonnes of Chlorine were further processed, at an incremental cost of ` 20,000
to yield 500 tonnes of PVC. There was no beginning or ending inventories of Caustic
Soda, Chlorine or PVC in July.
There is active market for Chlorine. Inorganic Chemicals could have sold all its July
production of Chlorine at ` 75 per tonne.
Required:
1) To calculate how joint cost of ` 1,00,000 would be apportioned between Caustic
Soda and Chlorine under each of following methods:
a) Sales value at split off,
b) Physical measure (method), and
c) Estimated net realisable value.
2) Lifetime Swimming Pool Products offers to purchase 800 tonnes of Chlorine in
August at ` 75 per tonne. This sale of Chlorine would mean that no PVC would be
produced in August. ow the acceptance of this offer for the month of August
would affect operating income?

Q.4 ‘Buttery Butter’ is engaged in the production of Buttermilk, Butter and Ghee. It
purchases processed cream and let it through the process of churning until it

Joint Products & By Products

NB separates into buttermilk and butter. For the month of January, 2020, ‘Buttery Butter’
purchased 50 Kilolitre processed cream @ ` 100 per 1000 ml. Conversion cost of
PN ` 1,00,000 were incurred up-to the split off point, where two saleable products were
produced i.e. buttermilk and butter. Butter can be further processed into Ghee.
The January, 2020 production and sales information is as follows:

Products Production (in Sales Quantity (in Selling price per

Kilolitre/tonne) Kilolitre/tonne) Litre/Kg (`)
Buttermilk 28 28 30
Butter 20 — —
Ghee 16 16 480

All 20 tonne of butter were further processed at an incremental cost of ` 1,20,000 to

yield 16 Kilolitre
Loremof ipsum
Ghee. There was no opening or closing inventories of buttermilk,
butter or ghee in January, 2020.
Required:
(i) SHOW how joint cost would be apportioned between Buttermilk and Butter
under Estimated Net Realisable Value method.
(ii) ‘ ealthy ones’ offers to purchase 20 tonne of butter in February at ` 360 per kg.
In case ‘ uttery utter’ accepts this offer, no hee would be produced in
February. SU EST whether ‘ uttery utter’ shall accept the offer affecting its
operating income or further process butter to make Ghee itself?

205 JOINT PRODUCTS & BY PRODUCTS

 Q.5 In an Oil Mill four products emerge from a refining process. The total cost of input
duri ng the quarter ending March 20X8 is `1,48,000. The output, sales and additional
processing costs are as under:
NB
Products Output in Litres Additional Sales value
PN
processing cost (`)
after sp t o `)
ACH 8,000 43,000 1,72,500
BCH 4,000 9,000 15,000
CSH 2,000 - 6,000
DSH 4,000 1,500 45,000

In case these products were disposed-off at the split off point that is before further
processing, the selling price per litre would have been:

ACH (`) BCH (`) CSH (`) DSH (`)

15.00 6.00 3.00 7.50

PRODUCE a statement of profitability based on

Joint Products & By Products

(i) If the products are sold after further processing is carried out in the mill.
(ii) If they are sold at the split off point.

Q.6 Key Pee Limited produces and sells the following products:

NB ro u ts n ts e n pr e at sp t o e n pr e after
point (`) further processing (`)
PN
A 500000 42.5 62.5
B 75000 32.5 42.5
C 62500 20 30
D 50000 25 -
E 187500 35 50

Cost of raw material ` 89,75,000 and other manufacturing expenses cost `13,67,500
in the manufacturing process which are absorbed on the products on the basis of
their ‘Net realisable value’. The further processing costs of A, B, C and E are
`31,25,000; ` 3,75,000; `1,25,000 and `3,75,000 respectively. Fixed costs are
`11,82,500.
You are required to PREPARE the following in respect of the coming year:
(a) Statement showing income forecast of the company assuming that none of its
products are to be further processed.
(b) Statement showing income forecast of the company assuming that products
A, B, C and E are to be processed further.

CA/CS Nimeet Piti 206

Q.7 A company’s plant processes 1,50,000 kg. of raw material in a month to produce two
products, viz, ‘P’ and ‘Q’. The cost of raw material is ` 12 per kg. The processing costs
NB per month are:

PN (`)
Direct Materials 90,000
Direct Wages 1,20,000
Variable Overheads 1,00,000
Fixed Overheads 1,00,000

The loss in process is 5% of input and the output ratio of P and Q which emerge
simultaneously is 1 2. The selling prices of the two products at the point of split off
are: P ` 12 per kg. and Q ` 20 per kg. A proposal is available to process P further by
mixing it with other purchased materials. The entire current output of the plant can
be so processed further to obtain a new product ‘S’. The price per kg. of S is` 15 and
each kg of output of S will require one kilogram of input P. The cost of processing of P
into S (including other materials) is ` 1,85,000 per month.
You are required to prepare a statement showing the monthly profitability based
both on the existing manufacturing operations and on further processing.
Will you recommend further processing?

Joint Products & By Products

Q.8 A Company produces two joint products P and Q in 70 : 30 ratio from basic raw
materials in department A. The input output ratio of department A is 100 : 85. Product
P can be sold at the split of stage or can be processed further at department B and
sold as product AR. The input output ratio is 100 : 90 of department B. The
NB
department B is created to process product A only and to make it product AR.
PN The selling prices per kg. are as under: Product P ` 85 Product Q ` 290 Product AR
` 115
The production will be taken up in the next month. Raw materials 8,00,000 Kgs.
Purchase price ` 80 per Kg.

Dept. A ` Lacs Dept. B ` Lacs

Direct Materials 35.00 5.00
Direct Labour 30.00 9.00
Variable overheads 45.00 18.00
Fixed overheads 40.00 32.00
Total 150.00 64.00
Selling Expenses:
Product P 24.60
Product Q 21.60
Product AR 16.80
Required:
i) Prepare a statement showing the apportionment of joint costs.
ii) State whether it is advisable to produce product AR or not.
207 JOINT PRODUCTS & BY PRODUCTS
 Q.9 A company processes a raw material in its Department 1 to produce three products,
viz. A, and at the same split-off stage. During a period 1,80,000 kgs of raw materials
NB were processed in Department 1 at a total cost of ` 12,88,000 and the resultant
output of A, B and X were 18,000 kgs, 10,000 kgs and 54,000 kgs respectively. A and B
PN were further processed in Department 2 at a cost ` 1,80,000 and ` 1,50,000
respectively.
X was further processed in Department 3 at a cost of ` 1,08,000. There is no waste in
further processing. The details of sales affected during the period were as under

A B X
Quantity Sold (kgs.) 17,000 5,000 44,000
Sales Value (`) 12,24,000 2,50,000 7,92,000

There were no opening stocks. If these products were sold at split-off stage, the
selling prices of A, B and X would have been ` 50, ` 40 and ` 10 per kg respectively.

Required:
(i) PREPARE a statement showing the apportionment of joint costs to A,B
and X.
(ii) PRESENT a statement showing the cost per kg of each product indicating
Joint Products & By Products

joint cost and further processing cost and total cost separately.
(iii) PREPARE a statement showing the product wise and total profit for the
period.
(vi) STATE with supporting calculations as to whether any or all the products
should be further processed or not.

Q.10 A company produces two joint product X and Y, from the same basic materials. The
processing is completed in three departments Materials are mixed in department I. At
the end of this process X and Y get separated. After separation X is completed in the
department II and Y is finished in department III. During a period 2,00,000 kgs of raw
NB material were processed in department I, at a total cost of ` 8,75,000, and the
resultant 60% becomes X and 30% becomes Y and 10% normally lost in processing.
PN
In department II 1/6 of the quantity received from department I is lost in processing. X
is further processed in department II at a cost of ` 1,80,000.
In department III further, new material added to the material received from
department I and weight mixture is doubled, there is no quantity loss in the
department and further processing cost (with material cost) is `1,50,000.
The details of sales during the year:

Product X Product Y
Quantity sold (kgs) 90,000 1,15,000
Sales price per kg (`) 10 4

CA/CS Nimeet Piti 208

 There were no opening stocks. If these products sold at split-off-point, the selling
price of X and Y would be ` 8 and ` 4 per kg respectively.
Required:
i) Prepare a statement showing the apportionment of joint cost to X and Y in
proportion of sales value at split off point.
ii) Prepare a statement showing the cost per kg of each product indicating joint
cost, processing cost and total cost separately.
iii) Prepare a statement showing the product wise profit for the year.
iv) On the basis of profits before and after further processing of product and Y,
give your comment that products should be further processed or not.

Q.11 Pokemon Chocolates manufactures and distributes chocolate products. It purchases

Cocoa beans and processes them into two intermediate products:

NB Chocolate powder liquor base Milk-chocolate liquor base. These two intermediate
products become separately identifiable at a single split off point. Every 500 pounds
PN of cocoa beans yields 20 gallons of chocolate - powder liquor base and 30 gallons of
milk-chocolate liquor base.
The chocolate powder liquor base is further processed into chocolate powder. Every
20 gallons of chocolate- powder liquor base yields 200 pounds of chocolate powder.

Joint Products & By Products

The milk- chocolate liquor base is further processed into milk-chocolate. Every 30
gallons of milk- chocolate liquor base yields 340 pounds of milk chocolate. Production
and sales data for October, 2004 are:
Cocoa beans processed 7,500 pounds
Costs of processing Cocoa beans to split off point
(including purchase of beans) ` 7,12,500

Production Sales Selling price

Chocolate powder 3,000 pounds 3,000 pounds ` 190 per pound
Milk chocolate 5,100 5,100 ` 237.50 per pound

The October, 2004 separable costs of processing chocolate-powder liquor into

chocolate powder are`3,02,812.50. The October 2004 separable costs of processing
milk-chocolate liquor base into milk-chocolate are ` 6,23,437.50.
Pokemon fully processes both of its intermediate products into chocolate powder or
milk- chocolate. There is an active market for these intermediate products. In
October, 2004, Pokemon could have sold the chocolate powder liquor base for
` 997.50 a gallon and the milk-chocolate liquor base for ` 1,235 a gallon.

209 JOINT PRODUCTS & BY PRODUCTS

 Required:
i) Calculate how the joint cost of ` 7,12,500 would be allocated between the
chocolate powder and milk- chocolate liquor bases under the following
methods:
a) Sales value at split off point
b) Physical measure (gallons)
c) Estimated net realisable value, (NRV) and
d) Constant gross-margin percentage NRV.
ii) What is the gross-margin percentage of the chocolate powder and
milk-chocolate liquor bases under each of the methods in requirements (i)?
iii) Could Pokemon have increased its operating income by a change in its
decision to fully process both of its intermediate products? Show your
computations.

Q.12 ABC Ltd. operates a simple chemical process to convert a single material into three
separate items, referred to here as X, Y and Z. All three end products are separated
NB
simultaneously at a single split-off point.
PN Products and Y are ready for sale immediately upon splitoff without further
processing or any other additional costs. Product Z, however, is processed further
Joint Products & By Products

before being sold. There is no available market price for at the split-off point.
The selling prices quoted here are expected to remain the same in the coming year.
During 2002-03, the selling prices of the items and the total amounts sold were :
X – 186 tons sold for Rs. 1,500 per ton
Y – 527 tons sold for Rs. 1,125 per ton
Z – 736 tons sold for Rs. 750 per ton

The total joints manufacturing costs for the year were Rs. 6,25,000. An additional Rs.
3,10,000 was spent to finish product .

There were no opening inventories of X, Y or Z. At the end of the year, the following of
complete units were on hand :
X 180 tons
Y 60 tons
Z 25 tons
There was no opening or closing work-in-progress.

Required
(i) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and
cost of goods sold for income statement purpose as March 31, 2003, using :
(a) Net realizable value (NRV) method of joint cost allocation.
(b) Constant gross-margin percentage NRV method of joint-cost allocation.
(ii) Compare the gross-margin percentages for X, Y and Z using two methods given
in requirement (i).

CA/CS Nimeet Piti 210

Q.13 Three joint products are produced by passing chemicals through two consecutive
processes. Output from process 1 is transferred to process 2 from which the three
joint products are produced and immediately sold. The data regarding the processes
for April, 2014 is given below:
NB
Process 1 Process 2
PN Direct material 2,500 kg. @ ` 4 per kg. ` 10,000 –
Direct labour ` 6,250 ` 6,900
Overheads ` 4,500 ` 6,900
Normal Loss 10% of input –
Scrap value of loss ` 2 per kg. –
Output 2,300 kg. Joint products
A – 900 kg.
B – 800 kg.
C – 600 kg.

There were no opening or closing stocks in either process, and the selling prices of
the output from process 2 were:

Joint Products & By Products

Joint product A ` 24 per kg.
Joint product B ` 18 per kg.
Joint product C ` 12 per kg.

Required:
a) Prepare an account for process 1 together with any Loss or Gain Accounts
you consider necessary to record the month’s activities.
b) Calculate the profit attributable to each of the oint products by
apportioning the total costs from process 2
i) According to weight of output;
ii) By the market value of production.

211 JOINT PRODUCTS & BY PRODUCTS

 By Products
Q.14 A Company manufactures one main product (M1) and two by-products B1 and B2. For
the month of January 2013, following details are available:
Total Cost up to separation Point ` 2,12,400

NB M1 B1 B2
Cost after separation - ` 35,000 ` 24,000
PN
No. of units produced 4,000 1,800 3,000
Selling price per unit ` 100 ` 40 ` 30
Estimated net profit as percentage to sales - 20% 30%
Value
Estimated selling expenses as percentage 20% 15% 15%
to sales value

There are no beginning or closing inventories. Prepare statement showing:

Joint Products & By Products

i) Allocation of joint cost; and

ii) Product-wise and overall profitability of the company for January 2013.

Q.15 A Factory is engaged in the production of chemical Bomex and in the course of its
manufacture a by-product Cromex is produced which after further processing has a
commercial value. For the month of April 2019 the following are the summarised cost
data:

NB Joint Separate Expenses (`)

Expenses (`) Bomex Cromex
PN
Materials 1,00,000 6,000 4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling Price per unit 100 40
Estimated profit per unit on
sale of Cromex 5
Number of units produced 2,000 2,000
units units
The factory uses net realisable value method for apportionment of joint cost to
by-products.
You are required to prepare statements showing :
(i) Joint cost allocable to Cromex
(ii) Product wise and overall profitability of the factory for April 2019.

CA/CS Nimeet Piti 212

 Additional Questions
Q.16 ABC Company produces a Product 'X' that passes through three processes: R, S and T.
Three types of raw materials, viz., J, K, and L are used in the ratio of 40:40:20 in
NB process R. The output of each process is transferred to next process. Process loss is
10% of total input in each process. At the stage of output in process T, a by-product 'Z'
PN is emerging and the ratio of the main product 'X' to the by-product 'Z' is 80:20. The
selling price of product 'X' is `60 per kg.
The company produced 14,580 kgs of product ‘X’
Material price : Material J @ ` 15 per kg; Material K @ ` 9 per kg.
Material L@ ` 7 per kg Process costs are as follows:
Process Variable cost per kg (`) Fixed cost of Input (`)
R 5.00 42,000
S 4.50 5,000
T 3.40 4,800

Joint Products & By Products

The by-product 'Z' cannot be processed further and can be sold at ` 30 per kg at the
splitoff stage. There is no realizable value of process losses at any stage.
Required:
Present a statement showing the apportionment of joint costs on the basis of the
sales
value of product and by-product at the split- off point and the profitability of
product X' and by-product 'Z.

Q.17 A factory producing article A also produces a by-product B which is further processed
into finished product. The oint cost of manufacture is given below
NB Material ` 5,000
PN Labour ` 3,000
Overhead ` 2,000
` 10,000

A B
Material 3,000 1,500
Labour 1,400 1,000
Overhead 600 500
5,000 3,000

Selling prices are A ` 16,000

B ` 8,000

213 JOINT PRODUCTS & BY PRODUCTS

 Estimated profit on selling prices is 25% for A and 20% for .
Assume that selling and distribution expenses are in proportion of sales prices. Show
how you would apportion joint costs of manufacture and prepare a statement
showing cost of production of A and B.

Q.18 XYZ Limited manufactures three joint products A, B and C from a joint process.
Product is sold at split off point whereas product A and C are sold after further
NB processing. 10% of the quantity of product A is lost in further processing. Data
regarding these products for the year ending 31st March,2023 are as follows:
PN
A B C
Number of units produced and sold 3,60,000 2,10,000 4,50,000
Selling price per unit at split off point - `6 -
Selling price per unit after further processing ` 9.50 - ` 12
Further processing costs `8,60,000 - `10,40,000

The oint production cost upto the split off point at which A, and C become
separable products is ` 57,26,000.
Joint Products & By Products

Required:
(i) Prepare a statement showing apportionment of joint cost to the products using
Net realizable value method.
(ii) Assume Y Limited has received an offer from D Limited to purchase product
A at the split off point at ` 7 per unit and another company PQR Limited has
offered to purchase product C at split off point at 9 per unit.
Advise whether these offers should be accepted or not?

Q.19 JP Ltd. uses oint production process that produces three products at the split -off
point. Joint production costs during the month of July, 2022 were ` 33,60,000.
NB Product information for the month of July is as follows:

PN Particulars Product A Product B Product C

Units produced 3,000 6,000 9,000
Sales prices:
At the split-off ` 200
After further processing ` 300 ` 350 ` 100
Costs to process after split-off ` 6,00,000 ` 6,00,000 ` 6,00,000

Other information is as follows:

Product C is a by-product and the company accounts for the by-product at net
realizable value as a reduction of joint cost. Further, Product B & C must be processed
further before they can be sold. FIND OUT the joint cost allocated to Product A in the
month of July if joint cost allocation is based on Net Realizable Value.

CA/CS Nimeet Piti 214

Q.20 Three products X, Y and Z alongwith a byproduct B are obtained again in a crude state
which require further processing at a cost of ` 5 for X; ` 4 for Y; and ` 2.50 for Z per
NB unit before sale. The byproduct is however saleable as such to a nearby factory. The
selling prices for the three main products and byproduct, assuming they should yield
PN a net margin of 25 percent of cost, are fixed at ` 13.75 ` 8.75 and ` 7.50 and ` 1.00
respectively – all per unit quantity sold.
During a period, the joint input cost including the material cost was ` 90,800 and the
respective outputs were:

X 8,000 units
Y 6,000 units
Z 4,000 units
B 1,000 units

By product should be credited to the joint cost and only the net joint costs are to be
allocated to the main products.
CALCULATE the joint cost per unit of each product and the margin available as a
percentage on cost.

Joint Products & By Products

215 JOINT PRODUCTS & BY PRODUCTS

 Joint Products & By Products

CA/CS Nimeet Piti

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 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 11

Question 2 Question 12

Question 3 Question 13

Question 4 Question 14

Question 5 Question 15

Question 6 Question 16

Question 7 Question 17

Question 8 Question 18

Question 9 Question 19

Question 10 Question 20

Joint Products & By Products

217 JOINT PRODUCTS & BY PRODUCTS

 Joint Products & By Products

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12
SERVICE
COSTING
 Basic Questions
Q.1 A company has the following three alternative proposals for conveyance facilities for
its sales personnel who has to do substantial traveling, approximately 20,000
kilometers yearly:
(i) Purchasing and maintaining its own fleet of cars. The average cost of a car is
NB ` 7,20,000

PN (ii) Allow the Executive to use their own car and reimburse the expenses
@ ` 12 per kilometer and also bear insurance costs.
(iii) Hire cars from an agency at ` 2,1 ,000 per year per car. The company will have
to bear costs of petrol, taxes and tyres.
The following further details are available
Petrol ` .20 per km.
Tyre ` 0.144 per km.
Taxes ` 960 per car per annum
Repairs and maintenance ` 0.24 per km.
Insurance ` 1,440 per car per annum
Life of the car 5 years with annual mileage of 20,000 km.
Resale value ` 9 ,000 at the end of the fifth year.
WOR OUT the relative costs of three proposals and rank them.

Q.2 PREPARE cost statement of Panipat Thermal Power Station showing the cost of
electricity generated per kwh, from the following data.
Service Costing

NB Total units generated 1 ,50,000 kWh

(`)
PN
Operating labour 21,75,000
Repairs & maintenance 7,25,000
Lubricants, spares and stores 5,80,000
Plant supervision 4,35,000
Administration overheads 29,00,000
Insurance Charges 15,00,000
Fuel Charges 8,00,000

kWh. of electricity generated per kg. of coal consumed `4. 5 per kg. Depreciation
charges @ 5% on capital cost of ` 3,10,00,000.

CA/CS Nimeet Piti 220

Q.3 Star Airlines operates a single aircraft of 180 seats capacity between city ND and A .
The average normal occupancy is estimated at 0% per flight. The average one-way
NB fare is 12,500 from city ND to A . The costs of operation of the flight as collected
by an expert analyst are:
PN
Fuel cost (Variable) per flight from ‘ND’ to ‘ A’ ` 2,28,000 per flight
Food served on flight from ‘ND’ to ‘ A’ ` 270 per passenger
(no charge to passenger)
Commission paid to Travel Agents .5% of fare
(All ticket booking through agents)
Fixed costs:
Lease landing charges per flight ‘ND’ to ‘ A’ ` 9,12,000
Salaries of flight crew per flight ‘ND’ to ‘ A’ ` 90,000
Note Assume that fuel costs are unaffected by the actual number of passengers on a
flight.
You are required to:
(i) Calculate the net operating income that Star Airlines makes per flight from ND
to A .
(ii) Star Airlines expects that its occupancy will increase to 144 passengers per flight
if the fare is reduced to ` 11, 0. Advise whether this proposal should be
implemented or not.

Road Travel/Transport Service

Q.4 You have been given a permit to run a bus on a route of 20 km. long. The bus costs

Service Costing
you ` 9,00,000. It has to be insured 3% p.a. and the annual tax will be ` 10,000.
arage rent is ` 10,000 p.m. Annual repairs will be ` 10,000 and the bus is likely to last
for 5 years and at the end of which the scrap value is likely to be ` 0,000.
NB
The driver’s salary will be ` 1,500 p.m. and the conductor’s ` 1,000 together with 10%
PN of the takings as commission (to be shared equally by both). Stationery will cost ` 500
p.m. The manager- cum- accountant’s salary will be ` 3,500 p.m.
Diesel and oil be ` 450 per hundred kilometres. The bus will make 3 round trips for
carrying on the average 40 passengers on each trip. Assuming 15% profit on takings,
calculate the bus fare to be charged from each passenger. The bus will work on the
average 25 days in a month.

221 SERVICE COSTING

 Q.5 A transport company has been given a 40 kilometre long route to run 5 buses. The
cost of each bus is ` ,50,000. The buses will make 3 round trips per day carrying on
an average 80 percent passengers of their seating capacity. The seating capacity of
NB
each bus is 40 passengers. The buses will run on an average 25 days in a month. The
other information for the year 2010-11 are given below
PN
arage rent ` 4,000 p.m
Annual repairs and maintenance ` 22,500 each bus p.m.
Salaries of 5 drivers ` 3,000 each p.m
Wages of 5 conductors ` 1,200 each p.m.
Manager’s salary ` ,500 each p.m.
Road tax., permit fee, etc. ` 5,000 for quarter
Office expenses ` 2,000 p.m
Cost of diesel per litre ` 33
Kilometre run per litre for each bus 6 kilometres
Annual depreciation 15% of cost
Annual Insurance 3% of cost

You are required to calculate the bus fare to be charged from each passenger per
kilometer company wants to earn a profit of 33.333% percent on takings.

Q.6 The following information relates to a bus operator

NB Amount (`)
Cost of the bus 18,00,000
PN
Insurance Charges 3% p. a
Service Costing

Manager-cum-accountant’s salary 8,000p.m.

Annual Tax 50,000
arage Rent 2,500p.m.
Annual repair & maintenance 1,50,000
Expected life of the bus 15 years
Scrap value at the end of 15years 1,20,000
Driver’s salary 15,000p.m.
Conductor’s salary 12,000p.m.
Stationery 500p.m.
Engine oil, lubricants (for 1200km.) 2,500
Diesel and oil (for 10km.) 52
Commission to driver and conductor (shared equally) 10% of collections
Route distance 20 km long

CA/CS Nimeet Piti 222

 The bus will make 3 round trips for carrying on the average 40 passengers in each
trip. Assume 15% profit on collections. The bus will work on the average 25 days in a
month. Calculate fare for passenger-km

Q.7 A mini-bus, having a capacity of 32 passengers, operates between two places - A and
. The distance between the place A and place is 30 km. The bus makes 10 round
NB trips in a day for 25 days in a month. On an average, the occupancy ratio is 0% and is
expected throughout the year.
PN The details of other expenses are as under

Amount (`)
Insurance 15,600 Per annum
arage Rent 2,400 Per quarter
Road Tax 5,000 Per annum
Repairs 4,800 Per quarter
Salary of operating staff ,200 Per month
Tyres and Tubes 3, 00 Per quarter.
Diesel (one litre is consumed for every 5km) 13 Per litre
Oil and Sundries 22 Per 100 km run
Depreciation 8,000 Per annum

Passenger tax 22% on total taking is to be levied and bus operator requires a profit
of 25% on total taking.
Prepare operating cost statement on the annual basis and find out the cost per
passenger kilometer and one way fare per passenger.

Service Costing

223 SERVICE COSTING

 Q.8 Mr. owns a bus which runs according to the following schedule

NB i) Delhi to Chandigarh and back, the same day.

Distance covered 250 km. One Way
PN
Number of days run each month 8
Seating capacity occupied 90%.
ii) Delhi to Agra and back, the same day.
Distance covered 210 km. One Way
Number of days run each month 10
Seating capacity occupied 85%
iii) Delhi to Jaipur and back, the same day
Distance covered 2 0 km. One Way
Number of days run each month
Seating capacity occupied 100%
iv) Following are the other details:
Cost of the bus ` 12,00,000
Salary of the Driver ` 24,000p.m.
Salary of the Conductor ` 21,000p.m.
Salary of the part-time Accountant ` 5,000p.m.
Insurance of the bus ` 4,800p.a.
Diesel consumption 4 km. per litre at ` 56 per litre
Road tax ` 15,915p.a.
Lubricant oil ` 10 per 100km
Service Costing

Permit fee ` 315p.m

Repairs and maintenance ` 1,000p.m
Depreciation of the bus 20%p.a.
Seating capacity of the bus 50 persons.

Passenger tax is 20% of the total takings. Calculate the bus fare to be charged from
each passenger to earn a profit of 30% on total takings. The fares are to be indicated
per passenger for the journeys:
(i) Delhi to Chandigarh
(ii) Delhi to Agra and
(iii) Delhi to Jaipur.

CA/CS Nimeet Piti 224

Q.9 A transport company has a fleet of three trucks of 10 tonnes capacity each plying in
different directions for transport of customer s goods. The trucks run loaded with
NB goods and return empty. The distance travelled, number of trips made and the load
carried per day by each truck are as under:
PN
Truck No. One way Distance Km No. of trips Load carried Per trip/
Per day day tonnes
1 1 4
2 40 2 9
3 30 3 8

The analysis of maintenance cost and the total distance travelled during the last two
years is as under:

Year Total distance travelled Maintenance Cost*

1 1, 0,200 4 ,050
2 1,5 , 00 45,1 5

The following are the details of expenses for the year under review

Diesel ` 10 per litre. Each litre gives 4 km per litre of diesel on

an average
Driver’s salary ` 2,000 per month
License and taxes ` 5,000 per annum per truck
Insurance ` 5,000 per annum for all the three vehicles
Purchase Price per truck ` 3,00,000, Life 10 years. Scrap value at the end of life
is ` 10,000

Service Costing
Oil and Sundries ` 25 per 100 km run
eneral Overhead ` 11,084 per annum

225 SERVICE COSTING

 The vehicles operate 24 days per month on an average.
Required
i) Prepare an Annual Cost Statement covering the fleet of three vehicles.
ii) Calculate the cost per km. run.
iii) Determine the freight rate per tonne km. to yield a profit of 10% on freight.

Q.10 A transport company has 20 vehicles, which capacities are as follows:

NB No. of Vehicles Capacity per vehicle

5 9 tonne
PN
6 12 tonne
7 15 tonne
2 20 tonne

The company provides the goods transport service between stations ‘A’ to station ‘ ’.
Distance between these stations is 200 kilometres. Each vehicle makes one round trip
per day an average. Vehicles are loaded with an average of 90 percent of capacity at
the time of departure from station ‘A’ to station‘ ’ and at the time of return back
loaded with 0 percent of capacity.10 percent of vehicles are laid up for repairs every
day. The following information are related to the month of October, 2013

Salary of Transport Manager ` 30,000

Salary of 30 drivers ` 4,000 each driver
Wages of 25 Helpers ` 2,000 each helper
Wages of 20 Labourers ` 1,500 each labourer
Service Costing

Consumable stores ` 45,000

Insurance (Annual) ` 24,000
Road Licence (Annual) ` 60,000
Cost of Diesel per litre ` 35
ilometres run per litre each vehicle 5 km.
Lubricant, Oil etc. ` 23,500
Cost of replacement of Tyres, Tubes, other parts etc. ` 1,25,000
arage rent (Annual) ` 90,000
Transport Technical Service Charges ` 10,000
Electricity and as charges ` 5,000
Depreciation of vehicles ` 2,00,000

CA/CS Nimeet Piti 226

 There is a workshop attached to transport department which repairs these vehicles
and other vehicles also.40 percent of transport manager’s salary is debited to the
workshop. The transport department is charged ` 28,000 for the service rendered by
the workshop during October, 2013. During the month of October, 2013 operation
was 25 days.
You are required:
i) Calculate per ton-km operating cost.
ii) Find out the freight to be charged per ton-km, if the company earned a profit of
25 per cent on freight.

Q.11 A Mineral is transported from two mines A and and unloaded at plots in a
Railway Station. Mine A is at a distance of 10km.,and is at a distance of 15km.from
NB rail head plots. A fleet of lorries of 5 tonne carrying capacity is used for the transport
of mineral from the mines. Records reveal that the lorries average a speed of 30 km.
PN per hour, when running and regularly take 10 minutes to unload at the rail head. At
mine A loading time averages 30 minutes per load while at mine loading time
averages 20 minutes per load.
Drivers wages, depreciation, insurance and taxes are found to cost ` 9 per hour
operated. Fuel, oil, tyres, repairs and maintenance cost ` 1.20 per km.
Draw up a statement, showing the cost per tonne-kilometer of carrying mineral from
each mine.

Q.12 Voyager Cabs Pvt. Ltd. is a New Delhi based cab renting company, provides cab facility
on rent for cities Delhi, Agra and Jaipur to the tourists. To attract more tourists it has
launched a new three days tour package for Delhi-Jaipur-Agra-Delhi. Following are the
relevant information regarding the package:

NB Distance between Delhi to Jaipur ( m.) 2 4

Service Costing
Distance between Delhi to Agra ( m.) 242
PN
Distance between Agra to Jaipur ( m.) 238
Price of Diesel in Delhi ` 54 per litre
Price of Diesel in Jaipur ` 56 per litre
Price of Diesel in Agra ` 58 per litre
Mileage of cab per litre of diesel( m.) 1
Chauffeur’s salary ` 12,000 per month
Cost of the cab ` 12,00,000
Expected life of the cab 24,00,000kms.
Servicing cost ` 30,000 after every 50,000 kms. run
Chauffeur’s meal allowance ` 50 for every 200 kilometres of
completed journey
Other set up and office cost ` 24,000 per month

227 SERVICE COSTING

 Voyager Cabs has made tie-up with fuel service centres at Agra, Jaipur and Delhi to fill
diesel to its cabs on production of fuel pass book to the fuel centre. Company has a
policy to get fuel filled up sufficient to reach next destination only.
You are required to calculate the price inclusive of ST 18% to be quoted for the
package if company wants to earn profit of 25% on its net takings i.e. excluding ST.

Q.13 opal Milk Co-Operative Society ( MCS) collects raw milk from the farmers of
Ramgarh, Pratapgarh and Devgarh panchayats and processes these milk to make
NB various dairy products. MCS has its own vehicles (tankers) to collect and bring the
milk to the processing plant. Vehicles are parked in the MCS’s garage situated within
PN the plant compound. Following are the some information related with the vehicles

Ramgarh Pratapgarh Devgarh

No. of vehicles assigned 4 3 5
No. of trips a day 3 2 2
One way distance from the processing plant 24km. 34km. 1 km.
Toll tax paid p.m.( ) 2,850 3,020 -

All the 5 vehicles assigned to Devgarh panchayat, were purchased five years back at a
cost of ` 9,25,000 each .The 4 vehicles assigned to Ramgarh panchayat, were
purchased two years back at a cost of ` 11,02,000 each and the remaining vehicles
assigned to Pratapgarh were purchased last year at a cost of ` 13,12,000 each. With
the purchase of each vehicles two years free servicing warranty is provided. A vehicle
gives 10 kmpl mileage in the first two year of purchase, 8 kmpl in next two years and
kmpl afterwards. The vehicles are sub ect to depreciation of 10% p.a. on straight line
basis irrespective of usage. A vehicle has the capacity to carry 25,000 litres of milk but
on an average only 0% of the total capacity is utilized.
Service Costing

The following expenditure is related with the vehicles

Salary of Driver (a driver for each vehicle) ` 18,000p.m.

Salary to Cleaner (a cleaner for each vehicle) ` 11,000p.m.
Allocated garage parking fee ` 1,350 per vehicle per month
Servicing cost ` 3,000 for every complete
5,000 k.m. run.
Price of diesel per litre ` 58.00

From the above information you are required to calculate

i) Total operating cost per month for each vehicle. (Take 30 days for the month)
ii) Vehicle operating cost per litre of milk.

CA/CS Nimeet Piti 228

Q.14 SMC is a public school having five buses each plying in different directions for the
transport of its school students. In view of a larger number of students availing of the
bus service the buses work two shifts daily both in the morning and in the afternoon.
NB The buses are garaged in the school. The work- load of the students has been so
arranged that in the morning the first trip picks up senior students and the second
PN trip plying an hour later picks up the unior students. Similarly in the afternoon the
first trip takes the unior students and an hour later the second trip takes the senior
students home.
The distance travelled by each bus one way is 8 km. The school works 25 days in a
month and remains closed for vacation in May, June and December. us fee, however,
is payable by the students for all 12 months in a year.

The details of expenses for a year are as under

Amount (`)
Driver’s salary 4,500 per month per driver
Cleaner’s salary 3,500 per month
(one cleaner employed for all the five buses)
(Salary payable for all 12months)
Licence fee, taxes, etc. 8, 00 per bus per annum
Insurance 10,000 per bus per annum
Repairs maintenance 35,000 per bus per annum
Purchase price of the bus 15,00,000 each
Life of each bus 12 years
Scrap value of buses at the end of life 3,00,000
Diesel cost 45.00 per litre

Service Costing
Each bus gives an average mileage of 4km. per litre of diesel. Seating capacity of each
bus is 50 students. The seating capacity is fully occupied during the whole year.
Students picked up and dropped within arrange upto 4km.of distance from the school
are charged half fare and fifty per cent of the students travelling in each trip are in
this category.

Ignore interest. Since the charges are to be based on average cost you are required to
i) Prepare a statement showing the expenses of operating a single bus and the
fleet of five buses for a year.
ii) Work out the average cost per student per month in respect of–
A) students coming from a distance of upto 4 km. from the school and
) students coming from a distance beyond 4 km. from the school.

229 SERVICE COSTING

 Q.15 Paras Travels provides mini buses to an IT company for carrying its employees from
home to office and dropping back after office hours. It runs a fleet of 8 mini buses for
this purpose. The buses are parked in a garage ad oining the company’s premises.
NB
Company is operating in two shifts (one shift in the morning and one shift in the
afternoon). The distance travelled by each mini bus one way is 30 kms. The company
PN
works for 20 days in a month.
The seating capacity of each mini bus is 30 persons. The seating capacity is normally
80% occupied during the year. The details of expenses incurred for a year are as
under:

Particulars Amount (`)

Driver’s salary ` 20,000 per driver per month
Lady attendant’s salary (mandatorily required ` 10,000 per attendant per month
for each mini bus)
Cleaner’s salary (One cleaner for 2 mini buses) ` 15,000 per cleaner per month
Diesel (Avg. 8 kms per litre) ` 80 per litre
Insurance charges (per annum) 2% of Purchase Price
License fees and taxes ` 5,080 per mini bus per month
arage rent paid ` 24,000 per month
Repair & maintenance including engine oil and ` 2,856 per mini bus
lubricants (for every 5,760 kms)
Purchase Price of mini bus ` 15,00,000 each
Residual life of mini bus 8 Years
Scrap value per mini bus at the end of ` 3,00,000
residual life
Service Costing

Paras Travels charges two types of fare from the employees. Employees coming from
a distance of beyond 15 kms away from the office are charged double the fare which
is charged from employees coming from a distance of up-to 15 kms. away from the
office. 50% of employees travelling in each trip are coming from a distance beyond 15
kms. from the office. The charges are to be based on average cost.
You are required to:
(i) Prepare a statement showing expenses of operating a single mini bus for a year,
(ii) Calculate the average cost per employee per month in respect of:
(a) Employees coming from a distance upto 15 kms. from the office.
(b) Employees coming from a distance beyond 15 kms. from the office.

CA/CS Nimeet Piti 230

Q.16 lobal Transport Ltd. charges ` 90 per ton for its - tonnes truck lorry load from city
‘A’ to city‘ ’. The charges for the return ourney are ` 84 per ton. No concession or
reduction in these rates is made for any delivery of goods at intermediate station ‘C’.
NB In January 2012, the truck made12 outward ourneys for city ‘ ’ with full load out of
which 2 tons were unloaded twice in the way at city ‘C’. The truck carried a load of 8
PN
tonnes in its return journey for 5 times but was once caught by police and ` 1,200 was
paid as fine. For the remaining trips the truck carried full load out of which all the
goods on load were unloaded once at city ‘C’, but it returned without any load once
only from ‘C’ station to ‘A’ station. The distance from city ‘A’ to city ‘C’ and city‘ ’are
140 km. and 300 km. respectively. Annual fixed costs and maintenance charges are
` 60,000 and ` 12,000 respectively. Running charges spent during January 2012 are
` 2,944.
You are required to find out the cost per absolute tonne- kilometre and the profit for
January, 2012.

Q.17 Chiku Transport Service is a Delhi based national goods transport service provider,
owning four trucks for this purpose. The cost of running and maintaining these trucks
are as follows:

NB Particulars Amount
Diesel cost ` 19.20 per km.
PN
Engine oil ` 4,200 for every 13,000 km.
Repair and maintenance ` 3 ,000 for every 10,000 km.
Driver’s salary ` 24,000 per truck per month
Cleaner’s salary ` 15,000 per truck per month
Supervision and other general expenses ` 14,000 per month
Cost of loading of goods ` 180 per Metric Ton (MT)

Service Costing
All four trucks were purchased for ` 30 lakhs with an estimated life of ,20,000 km each.
During the next month, it is expecting bookings, the details are as follows

St. No. Journey Distance in km Weight–up Weight-Down

(in MT) (in MT)
1. Delhi to ochi 2, 00 14
2. Delhi to uwahati 1,890 12 0
3. Delhi to Vi ayawada 1,840 15 0
4. Delhi to Varanasi 815 10 0
5. Delhi to Asansol 1,280 12 4
. Delhi to Chennai 2,185 10 8
Total 10, 10 3 18
Required
(i) Calculate the total absolute Ton-km for the vehicles.
(ii) Calculate the cost per ton-km.
231 SERVICE COSTING
 Q.18 A lorry starts with a load of 24 tonnes of goods from station A. It unloads 10 tonnes at
station and rest of goods at station C. It reaches back directly to station A after
NB getting reloaded with 18 tonnes of good sat station C. The distance between A to ,
to C and then from C to A are 2 0 kms, 150 kms and 325kms respectively. Compute
PN ‘Absolute tonnes kms’ and ‘Commercial tonnes- kms’.

Hotel Services
Q.19 A company runs a holiday home. For this purpose, it has hired a building at a rent of
` 10,000 per month along with 5% of total taking. It has three types of suites for its
NB customers, viz., single room, double rooms and triple rooms.
Following information is given:
PN
Type of suite Number Occupancy percentage
Single room 100 100%
Double rooms 50 80%
Triple rooms 30 0%

The rent of double rooms suite is to be fixed at 2.5 times of the single room suite and
that of triple rooms suite as twice of the double rooms suite.
The other expenses for the year 2013 are as follows

(`)
Staff salaries 14,25,000
Room attendants’ wages 4,50,000
Service Costing

Lighting, heating and power 2,15,000

Repairs and renovation 1,23,500
Laundry charges 80,500
Interior decoration 4,000
Sundries 1,53,000

Provide profit 20% on total taking and assume 3 0 days in a year.

You are required to calculate the rent to be charged for each type of suite.

CA/CS Nimeet Piti 232

Q.20 P oliday Resorts offers three types of rooms to its guests, viz deluxe room, super
deluxe room and luxury suite. You are required to ascertain the tariff to be charged to
the customers for different types of rooms on the basis of following information

NB Type of Room Number of Rooms Occupancy

Deluxe Room 100 90%
PN
Super Deluxe Room 0 5%
Luxury Suite 40 0%

Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and that of ‘luxury
suite’ is 3 times of ‘deluxe room’. Annual expenses are as follows

Particulars Amount (` in lakhs)

Staff salaries 80.00
Lighting, eating and Power 300.00
Repairs, Maintenance and Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior decoration 5.00
Sundries 30.28

An attendant for each room was provided when the room was occupied and he was
paid ` 500 per day towards wages. Further, depreciation is to be provided on building
@ 5% on ` 900 lakhs, furniture and fixtures 10% on ` 90 lakhs and air conditioners
@ 10% on ` 5 lakhs.
Profit is to be provided 25% on total taking and assume 3 0 days in a year.

Service Costing
Q.21 A hotel is being run in a ill station with 200 single rooms. The hotel offers
concessional rates during six off-season (winter) months in a year.
During this period, half of the full room rent is charged. The management s profit
margin is targeted at 20% of the room rent. The following are the cost estimates and
other details for the year ending 31st March, 2021
(i) Occupancy during the season is 80% while in the off-season it is 40%.
(ii) Total investment in the hotel is ` 300 lakhs of which 80% relates to uildings and
the balance to Furniture and other Equipment.
(iii) Room attendants are paid ` 15 per room per day on the basis of occupancy of
rooms in a month.
(iv) Expenses :
Staff salary (excluding that of room attendants) ` 8,00,000
Repairs to uildings ` 3,00,000
• Laundry Charges ` 1,40,000

233 SERVICE COSTING

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

Q.22 Following are the information given by owner of M s. Moonlight Co. running a hotel at
Manali. You are requested to advise him regarding the rent to be charged from his
customer per day so that he is able to earn 20% profit on cost other than interest.

NB (i) Staff salaries ` 4,00,000.

(ii) The Room Attendant’s salary is ` 10 per day. The salary is paid on daily basis and
PN the services of room attendant are needed only when the room is occupied.
There is one room attendant for one room.
(iii) Lighting, Heating and Power:
(a) The normal lighting expenses for a room if it is occupied for the whole
month is ` 250.
(b) Power is used only in winter and normal charge per month if occupied for a
room is ` 100.
(iv) Repairs to uilding ` 50,000 per annum.
(v) Linen ect. ` 24,000 per annum.
Service Costing

(vi) Sundries ` 0, 0 per annum.

(vii) Interior decoration and furnishing ` 50,000 per annum.
(viii) Cost of uilding ` 20,00,000, rate of depreciation5%.
(ix) Other Equipments ` 5,00,000, rate of depreciation10%.
(x) Interest @ 5% may be charged on its investment of ` 25,00,000 in the building
and equipment.
(xi) There are 200 rooms in the hotel and 90% of the rooms are normally occupied in
summer and 40% of the rooms are occupied in winter. You may assume that
period of summer and winter is six months each. Normal days in a month may
be assumed to be 30.

CA/CS Nimeet Piti 234

 Other Services
Q.23 Following are the data pertaining to Infotech Pvt. Ltd, for the year 2022-23

Amount (`)
NB
Salary to Software Engineers (5 persons) 15,00,000
PN Salary to Pro ect Leaders (2 persons) 9,00,000
Salary to Pro ect Manager ,00,000
Repairs maintenance 3,00,000
Administration overheads 12,00,000

The company executes a Pro ect Y , the details of the same as are as follows
Project duration – 6 months

One Pro ect Leader and three Software Engineers were involved for the entire
duration of the pro ect, whereas Pro ect Manager spends 2 months’ efforts, during the
execution of the pro ect.

Travel expenses incurred for the pro ect ` 1,87,500

Two Laptops were purchased at a cost of ` 50,000 each, for use in the project and the
life of the same is estimated to be 2 years

PREPARE Pro ect cost sheet.

Service Costing
Q.24 Sanziet Life care Ltd. Operates in life insurance business. Las year it has launched a
new term Insurance policy for practicing professionals ‘Professionals Protection Plus’.
The company has Incurred the following expenditures during the last year for the
policy:

NB Policy development cost ` 11,25,000

Cost of marketing of the policy ` 45,20,000
PN
Sales support expenses ` 11,45,000
Policy issuance cost ` 10,05,900
Policy serving cost ` 35,20, 00
Claims management cost ` 1,25,600
IT cost ` 4,32,000
Postage and logistics ` 10,25,000

235 SERVICE COSTING

 Facilities cost ` 15,24,000
Employees cost ` 5,60,000
Office administration cost ` 1 ,20,400

Number of policy sold-528

Total insured value of policies- ` 1,320 crore
Required:
(i) CALCULATE total cost for Professionals Protection Plus’ policy segregating the
costs Into Four main activities namely
(a) Marketing and Sales support, (b) Operations,
(c) IT (d) Support functions.
(ii) CALCULATE cost per policy.
(iii) CALCULATE cost per rupee of insured value.

Q.25 MRSL ealthcare Ltd. has incurred the following expenditure during the last year for
its newly launched COVID-19 Insurance policy
NB
Office administration cost 48,00,000
PN Claim management cost 3,80,000
Employees cost 16,20,000
Postage and logistics 32,40,000
Policy issuance cost 29,50,000
Facilities cost 4 , 5,000
Service Costing

Cost of marketing of the policy 1,38,90,000

Policy development cost 35,00,000
Policy servicing cost 9 ,45,000
Sales support expenses 32,00,000
I.T. Cost ?

Number of Policy sold 2,800

Total insured value of policies - ` 3,500 Crores Cost per rupee of insured value - `0.002
You are required to:
(i) Calculate Total Cost for COVID-19 Insurance policy segregating the costs into
four main activities namely (a) Marketing and Sales support (b) Operations (c) I.T.
Cost and (d) Support functions.
(ii) Calculate Cost Per Policy.

CA/CS Nimeet Piti 236

Q.26 SE Ltd. built a 120 km. long highway and now operates a toll road to collect tolls. The
company has invested ` 900 crore to build the road and has estimated that a total
of 120 crore vehicles will be using the highway during the 10 years toll collection
NB tenure. The other costs for the month of June 2020 are as follows
(i) Salary
PN
Collection personnel (3 shifts and 5 persons per shift) - ` 200 per day per
person.
Supervisor (3 shifts and 2 persons per shift) - ` 350 per day per person.
Security personnel (2 shifts and 2 persons per shift) - ` 200 per day per
person.
Toll ooth Manager (3 shifts and 1 person per shift) - ` 500 per day per
person.
(ii) Electricity - ` 1,50,000
(iii) Telephone - ` 1,00,000
(iv) Maintenance cost - ` 50 lakhs
(v) The company needs 30% profit over total cost. Required
(1) Calculate cost per kilometre.
(2) Calculate the toll rate per vehicle.

Q.27 Infra Ltd. built and operates a 110 k.m. long highway on the basis of
uilt-Operate-Transfer ( OT) model for a period of 25 year. A traffic assessment has
been carried out to estimate the traffic flow per day. The details are as below

NB o T pe of ve e a tra vo u e
1. Two wheelers 44,500
PN
2. Car and SUVs 3,450

Service Costing
3. us and LCV 1,800
4. eavy commercial vehicles 81

The following is the estimated cost of the pro ect

Sl. No. Activities Amount

(Rs. in lakh)
1 Site clearance 1 0. 0
2 Land development and filling work 9,080.35
3 Sub base and base courses 10,2 0. 0
4 ituminous work 35,0 0.80
5 ridge, flyovers, underpasses, Pedestrian subway, 29,055. 0
footbridge, etc.

237 SERVICE COSTING

 Drainage and protection work 9,040.50
Traffic sign, marking and road appurtenance 8,405.00
8 Maintenance, repairing and rehabilitation 12,429. 0
9 Environmental management 982.00
Total Pro ect cost 114,495.25

An average cost of ` 1,120 lakh has to be incurred on administration and toll plaza
operation.
On the basis of the vehicle specifications (i.e. weight, size, time saving etc.), the
following weights has been assigned to the passing vehicles:

Sl. No. Type of vehicle

1. Two wheelers 5%
2. Car and SUVs 20%
3. us and LCV 30%
4. eavy commercial vehicles 45%

Required:
(i) CALCULATE the total pro ect cost per day of concession period.
(ii) COMPUTE toll fee to be charged for per vehicle of each type, if the company
wants to earn a profit of 15% on total cost.
Note Concession period is a period for which an infrastructure is allowed to
operate and recovers its investment]

Q.28 A C ealth care runs an Intensive Medical Care Unit. For this purpose, it has hired a
building at a rent of ` 50,000 per month with the agreement to bear the repairs and
Service Costing

maintenance charges also.

NB
The unit consists of 100 beds and 5 more beds can comfortably be accommodated
PN when the situation demands. Though the unit is open for patients all the 3 5 days in a
year, scrutiny of accounts for the year 2020 reveals that only for 120 days in the year,
the unit had the full capacity of 100 patients per day and for another 80 days, it had,
on an average only 40 beds occupied per day. ut, there were occasions when the
beds were full, extra beds were hired at a charge of ` 50 per bed per day. This did not
come to more than 5 beds above the normal capacity on any one day. The total hire
charges for the extra beds incurred for the whole year amounted to ` 20,000.
The unit engaged expert doctors from outside to attend on the patients and the fees
were paid on the basis of the number of patients attended and time spent by them
which on an average worked out to ` 30,000 per month in the year 2020. The
permanent staff expenses and other expenses of the unit were as follows

CA/CS Nimeet Piti 238

 `
2 Supervisors each at a per month salary of 5,000
4 Nurses each at a per month salary of 3,000
2 Ward boys each at a per month salary of 1,500
Other Expenses for the year were as under:
Repairs and Maintenance 28,000
Food supplied to patients 4,40,000
Caretaker and Other services for patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines supplied 2,80,000
Cost of Oxygen etc. other than directly borne for treatment of patients 5,000
eneral Administration Charges allocated to the unit 1,000

Required:
(i) What is the profit per patient day made by the unit in the year 2020, if the unit
recovered an overall amount of ` 200 per day on an average from each
patient.
(ii) The unit wants to work on a budget for the year 2021, but the number of
patients requiring medical care is a very uncertain factor. Assuming that same
revenue and expenses prevail in the year 2021 in the first instance, work out
the number of patient days required by the unit to break even.

Q.29 A C ank is having a branch which is engaged in processing of ‘Vehicle Loan’ and
‘Education Loan’ applications in addition to other services to customers. 30% of the
overhead costs for the branch are estimated to be applicable to the processing of
NB

Service Costing
‘Vehicle Loan’ applications and ‘Education Loan’ applications each.
PN ranch is having four employees at a monthly salary of ` 50,000 each, exclusively for
processing of Vehicle Loan applications and two employees at a monthly salary of
` 0,000 each, exclusively for processing of Education Loan applications.
In addition to above, following expense are incurred by the ranch
ranch Manager who supervises all the activities of branch, is paid at ` 90,000 per
month.
• Legal charges, Printing & stationery and Advertising Expenses are incurred at
` 30,000, ` 12,000 and ` 18,000 respectively for a month.
• Other expenses are ` 10,000 per month.
You are required to:
(i) Compute the cost of processing a Vehicle Loan application on the assumption that
49 Vehicle Loan applications are processed each month.
(ii) Find out the number of Education Loan Applications processed, if the total
processing cost per Education Loan Application is same as in the Vehicle Loan
Application as computed in (i) above.

239 SERVICE COSTING

 Q.30 AD igher Secondary School (A SS) offers courses for 11th 12th standard in three
streams i.e. Arts, Commerce and Science. A SS runs higher secondary classes along
NB with primary and secondary classes but for accounting purpose it treats higher
secondary as a separate responsibility centre. The Managing committee of the school
PN wants to revise its fee structure for higher secondary students. The accountant of the
school has provided the following details for a year:

Amount (`)
Teachers’ salary (15teachers ` 35,000 12months) 3,00,000
Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants ` 15,000 2months) 3, 0,000
Salary to library staff 1,44,000
Salary to peons (4 peons ` 10,000 12months) 4,80,000
Salary to other staffs 4,80,000
Examinations expenditure 10,80,000
Office Administration cost 15,20,000
Annual day expenses 4,50,000
Sports expenses 1,20,000

Other information:
(i)

Standard 11 &12 Primary&

Secondary
Arts Commerce Science
Service Costing

No. of students 120 3 0 180 840

Lab classes in a year 0 0 144 15
No. of examinations in a year 2 2 2 2
Time spent at library 180 120 240 0
per student per year hours hours hours hours

Time spent by principal 208 312 480 1,400

for administration hours hours hours hours
Teachers for 11 12 standard 4 5 -

(ii) One teacher who teaches economics for Arts stream students also teaches
commerce streams students. The teachers takes 1,040 classes in a year, it
includes 208 classes for commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students
also teaches business mathematics to commerce stream students. She takes
1,100 classes a year, it includes 1 0 classes for commerce students.

CA/CS Nimeet Piti 240

(iv) One peon if fully dedicated for higher secondary section. Other peons dedicate
their15% time for higher secondary section.
(v) All school students irrespective of section and age participates in annual
functions and sports activities.
Required:
(i) CALCULATE cost per student per annum for all three streams.
(ii) If the management decides to take uniform fee of ` 1,000 per month from
all higher secondary students, CALCULATE stream wise profitability.
(iii) If management decides to take 10% profit on cost, COMPUTE fee to be
charged from the students of all three streams respectively.

Service Costing

241 SERVICE COSTING

 Additional Questions

Q.31 A hotel having 20 single rooms is having 80% occupancy in normal season (8 months)
and 50% in off- season (4 months) in a year (take 30 days month).
NB nnua fi e e penses Amount in `
Salary of the staff (excluding room attendant) 15,00,000
PN
Repair & maintenance 12,60,000
Depreciation on building furniture 12,40,000
Other fixed expenses like dusting, sweeping etc. 13,25,000
53,25,000
Variable expenses (per guest per day)
Linen, laundry security support 80.00
Electricity other facilities 120.00
Misc. expenses like attendant etc. 300.00
500.00

Management wishes to make a margin of 25% of total cost.

Required
(a) CALCULATE the Tariff per room per day.
(b) CALCULATE the break-even occupancy in normal season (in percentage also)
assuming there is 50% occupancy in off-season.
Service Costing

Q.32 SpeedEx Logistics, established in 2010 and headquartered in Mumbai, India, operates
within the transportation and logistics industry as a thirdparty logistics (3PL) provider.
The company’s fleet consists of 10 trucks, 15 vans, and 5 trailer, each serving distinct
NB purposes. The records of Truck R-40 reveal the following information for July 2024.
PN Days Maintained 30
Days Operated 25
Total ours Operated 300
Total ilometres Covered 2,500
Total Tonnage Carried
(4 tonne-load per trip, return ourney empty 2 round trips per day)

The following further information is made available

A. Operating Costs for the month Petrol ₹ 400, oil ₹1 0, rease ₹ 90, Wages to driver
₹ 550, Wages to Worker ₹ 350.

CA/CS Nimeet Piti 242

 . Maintenance Costs for the month Repair ₹ 170, Overhaul ₹ 0, Tyres ₹ 150,
arage charges ₹ 100.
C. Fixed Costs for the month based on the estimates for the year Insurance ₹ 50,
Licence, tax etc. ₹ 80, Interest ₹ 40, Other Overheads ₹ 190
D. Capital costs Cost of acquisition ₹ 54,000 Residual Value at the end of 5 years life
₹ 3 ,000.
You are required to CALCULATE
(i) cost per days maintained
(ii) cost per days operated
(iii) cost per hours operated
(iv) cost per kilometres covered
(v) cost per commercial tonne km

Q.33 S Travels has been promised a contract to run a tourist car on a 20 km. long route for
a multinational firm. e buys a car costing ₹ 4,50,000. The annual cost of insurance
and taxes are ₹ 7,500 and ₹ 1800 respectively. e has to pay ₹ 2500 per month for a
NB garage where he keeps the car when it is not in use. The annual repair costs are
estimated at ₹ 12,000. The car is estimated to have a life of 10 years at the end of
PN
which the scrap value is likely to be ₹ 50,000.
He hires a driver who is to be paid ₹ 3,000 per month plus 10% of the takings as
commission. Other incidental expenses are estimated at ₹ 2,000 per month.
Petrol and oil will cost ₹ 220 per 100 kms. The car will make 4 round trips each day.
Assuming that a profit of 15% on takings is desired and that the car will be on the
road for 25 days on an average per month, what should he charge per round-trip?

Service Costing
Q.34 The data given relates to ‘Entertainment Paradise’ a mini theatre for the year ending
2007:
NB
No. of Salaries: Electricity and oil 11,655
Employee
PN
1 Manager Rs. 800 p.m. Carbon ,235
10 ate-keepers 200 p.m. each Misc. expenditure 5,425
2 Operators 400 p.m. each Advertisement 34, 10
4 Clerks 250 p.m. each Admn. Expenses 18,000
ire of print 1,40, 00

The premises are valued at Rs. ,00,000 and the estimated life is 15 years.
Pro ectorand other equipments cost Rs. 3,20,000 on which 10% depreciation is to be
charged.

243 SERVICE COSTING

 Daily 3 shows are run throughout the year. The total capacity is 25 seats which is
divided into three classes as follows:
Emerald Circle 250 seats
Diamond 250 seats
Coral 125 seats
Ascertain cost per man-show assuming that
(a) 20% of the seats remain vacant, and
(b) Weightage to be given to the three classes in the ratio 1 2 3.
Determine the rates for each class if the management expects 30% return on gross
proceeds. Ignore entertainment taxes.

Q.35 An Executive manager spends ₹ 10.00 per kilometer on taxi fares for his office work.
e is considering two other alternatives, the purchase of a new Nano car or a second
hand Innova car. The estimated cost figures are as follows

NB Items New Nano Car Old Innova Car

Purchase Price ₹1,35,000 ₹1,60,000
PN
Sale price, after 5 years ₹25,000 ₹40,000
Repairs and servicing per annum ₹12,000 ₹18,000
Taxes and insurance per annum ₹3,200 ₹2,400
Petrol consumption per liter 20 km 15 km
Petrol Diesel price, per liter 8.00 ₹42.00

e estimates that he has to travel 10,800 km annually. Which of the three alternatives
will be economical? If his official visit increases and he has to do 18,000 km per annum
Service Costing

what should be his decision?

At how many km per annum will the cost of the two cars break-even and why? Ignore
interest and income-tax.

Q.36 Royal otel offers three types of rooms to its guests - Deluxe Room, Executive Room
and Suite Room. Other information is as follows -
NB e u e oo e ut ve oo u te oo
Room Tariff per day ₹ 1,500 ₹ 2,400 ₹ 3,800
PN
No. of rooms 20 10 4
Average occupancy during 80% 60% 75%
the year
Housekeeping expenses ₹280 ₹ 320 ₹425
per day

CA/CS Nimeet Piti 244

 The hotel provides complimentary breakfast facility to its executive room and suite
room guests while swimming pool facility is provided free of cost only to suite room
guests.
The restaurant and swimming pool is run by a contractor. The contractor recovers
charges of ₹ 150 per person for breakfast and ₹ 200 per person for using swimming
pool facility from Royal otel.
esides the above-mentioned charges, annual fixed expenses are as follows
Salaries to staff ₹ 57,60,000
Electricity Expenses ₹ 24,00,000
Salaries to staff are apportioned to Deluxe Room. Executive Room and Suite Room in
the ratio of 25 35 40 and electricity expenses are to be apportioned in proportion to
occupancy.
You are required to calculate the total profit of each room type on annual basis.
Note Assume 3 0 days in a year and double occupancy in each category of room.

Q.37 A company is considering four alternative proposals for a new toy manufacturing
Machine launched in the market. New machine is expected to produce approximately
25,000 toys every year. The proposals are as follows
NB
(i) Purchase and maintain the new toy manufacturing Machine and bear all related
PN costs. These machines will run on fuel. The average cost of a Machine is
₹ 10,00,000. Life of the machine is 4 years with annual production of 25,000 toys
and the Resale value is ₹ 2,00,000 at the end of the fourth year.
(ii) ire from Agency-A It can hire the machine from the Agency-A and pay hire
charges at the rate of ₹ 20 per toy and bear no other cost.
(iii) ire from Agency- It can hire the machine from the Agency- and pay hire
charges at the rate of ₹ 12 per toy and also bear insurance costs. All other costs

Service Costing
will be borne by Agency- .
(iv) ire from Agency-C ire machine from Agency-C at ₹ 2,50,000 per year. These
machines are more advanced and run on electricity and therefore, the running
cost is considerably low. The company will have to bear costs of electricity,
licensing fees and spare parts. owever, Repairs and maintenance and
Insurance cost are borne by Agency-C.
The following further details are available
The cost of Fuel is ₹ 8 per toy, the cost of spare parts is ₹ 0.20 per toy and the cost of
electricity is ₹ 2 per toy. Further, the cost of Repairs and maintenance is ₹ 0.25 per toy,
the amount of licensing fees to be paid is ₹ 5,000 per machine per annum and the
cost of Insurance to be paid is ₹ 25,000 per machine per annum. Consider no taxes.
You are required to:
(i) Calculate the relative costs of four proposals on cost per toy basis.
(ii) Rank the proposals on the basis of total cost for 25,000 toys per year.
(iii) Recommend the best proposal to company in view of (ii) above.

245 SERVICE COSTING

 Q.38 RST Toll Plaza Limited built an 80-kilometre-long highway between two cities and
operates a toll plaza to collect tolls from passing vehicles using the highway. The
company has estimated that 50,000 light weight, 12,000 medium weight and 10,000
NB
heavy weight vehicles will be using the highway in one month in outward journey and
the same number for return ourney.
PN
As per government notification, vehicles used for medical emergencies, Members of
Parliament, and essential services are exempt from toll charges. It is estimated that
10% of light weight vehicles will pass the highway for such use.
It is the policy of the company that if vehicles return within 24 hours of their outward
ourney, the toll fare will be reduced by 25 percent automatically. It is estimated that
30% of chargeable light weight vehicles return within the specified time frame.
The toll charges for medium weight vehicles is to be fixed as 2.5 times of the light
weight vehicles and that of heavy weight vehicles as 2 times of the medium weight
vehicles.
The toll and maintenance cost for a month is ` 59,09,090, The company requires a
profit of 10% over the total cost to cover interest and other costs.
Required:
(i) Calculate the toll rate for each type of vehicle if concession facilities are not
available on the return ourney.
(ii) Calculate the toll rate that will be charged from light weight vehicles if a return
journeyconcession facility is available, assuming that the revenue earned from
light weight vehicles calculated in option (i) remains the same.

Q.39 A group of ealth Care Services has decided to establish a Critical Care Unit in a
metro city with an investment of ` 85 lakhs in hospital equipments. The unit s capacity
shall be of 50 beds and 10 more beds, if required, can be added.
NB
Other information for a year are as under:
Service Costing

PN
(`)
uilding Rent 2,25,000 per month
Manager Salary (Number of Manager-03) 50,000 per month to each one
Nurses Salary (Number of Nurses-24) 18,000 per month to each Nurse
Ward boy’s Salary (Number of ward boys’ -24) 9,000 per month per person
Doctor’s payment (Paid on the basis of number 5,50,000 per month
of patients attended and time spent by them)
Food and laundry services (variable) 39,53,000
Medicines to patients (variable) 22,75,000 per year
Administrative Overheads 28,00,000 per year
Depreciation on equipments 15% per annum on original cost

CA/CS Nimeet Piti 246

 It was reported that for 200 days in a year 50 beds were occupied, for 105 days 30
beds were occupied and for 0 days 20 beds were occupied.
The hospital hired 250 beds at a charge of ` 950 per bed to accommodate the flow of
patients. owever, this never exceeded the normal capacity of 50 beds on any day.
Find out:
(i) Profit per patient day, if hospital charges on an average ` 2,500 per day from
each patient.
(ii) reak even point per patient day (Make calculation on annual basis)

Q.40 M s. PS Private Limited is engaged in producing milk powder. The management of

the company is considering for transportation of 29,952 Kilolitre (KL) of milk per
month to its storage tanks that are situated 30 km away from its collection centres.
Two types of milk tankers are available in the market, namely 8- L and - L of
capacity.
The details of operating costs for the milk tankers are as follows

NB Particulars 8-KL Tanker 6-KL Tanker

Purchase Price per tanker ` 18,04,000 ` 12,00,000
PN
Estimated life 6 years 6 years
Residual value per tanker ` 4,00,000 ` 3,00,000
Other fixed costs per month, per tanker ` 55,980 ` 4 ,540
m. per litre of diesel 4 km. 5 km.
Additional Information:
(i) Cost of diesel per litre is ` 80.
(ii) Each vehicle can run 6 trips (up and down) each day and can run on an average

Service Costing
of 2 days each month.
(iii) Drivers will have to be recruited according to the number of milk tankers to be
used. In addition, one extra driver for every eight milk tankers will be required
for the entire fleet. Each driver will cost ` 15,000 per month.
(iv) Yet another possibility is to hire enough milk tankers (8- L capacity only) from a
transport company at the rate of ` 3,000 per month per milk tanker. The
transport company will bear other fixed costs. owever, PS Private Limited has
to bear the cost of drivers and other operational costs.
You are required to prepare:
(a) Statement of operating cost for each alternative for a month.
(b) Compute the cost per kilolitre of milk transported.
(c) Advise the company on an appropriate choice among the above three
alternatives.
(Note Ignore finance cost.)

247 SERVICE COSTING

 Q. 41 A LMV Pvt. Ltd, operates cab car rental service in Delhi NCR. It provides its service to
the offices of Noida, urugram and Faridabad. At present it operates CN fuelled cars
but it is also considering to upgrade theseinto Electric vehicle (EV). The following
NB
details related with the owning of CN EV propelled cars are as tabulated below
PN Particulars CNG Car EV Car
Car purchase price (`) 9,20,000 15,20,000
ovt. subsidy on purchase of car (`) -- 1,50,000
Life of the car 15 years 10 years
Residual value (`) 95,000 1,70,000
Mileage 20 km kg 240 km per charge
Electricity consumption per full charge -- 30 wh
CN cost per g (`) 0 --
Power cost per Kwh (`) -- . 0
Annual Maintenance cost (`) 8,000 5,200
Annual insurance cost (`) , 00 14, 00
Tyre replacement cost in every 5 - year (`) 16,000 16,000
attery replacement cost in every 8- year (`) 12,000 5,40,000

Apart from the above, the following are the additional information:

Particulars
Average distance covered by a car in a month 1,500 km
Driver’s salary (`) 20,000 p.m
arage rent per car (`) 4,500 p.m
Service Costing

Share of Office Administration cost per car (`) 1,500 p.m

You have been approached by the management of A LMV Pvt. Ltd. for consultation on
the two options of operating the cab service.
CALCULATE the operating cost of vehicle per month per car for both CN EV options.

CA/CS Nimeet Piti 248

Q. 42 Royal Transport Services runs fleet of buses within the limits of Jaipur city. The
following are the details which were incurred by the company during October, 2021:

NB (`)
Cost of each us 24,00,000
PN
arage Rent 1,00,000
Insurance 25,000
Road tax 20,000
Manager’s Salary 0,000
Assistant’s Salary (Two) 32,000 each
Supervisor’s Salary (Three) 24,000 each
Driver’s Salary (Twenty-Five) 20,000 each
Cleaner’s Salary (Twenty) 5,000 each
Office Staff’s Salary 1,00,000
Consumables 1,20,000
Repairs & Maintenance 90,000
Other Fixed Expenses 72,000
Diesel (10 ms per Litre) 80 per litre
Oils Lubricants 1,45,000
Tyres and tubes 35,000
Depreciation 10% p.a. on Cost

Other details are as below:

Capacity

Service Costing
12 uses 0 Passengers
13 uses 50 Passengers

Each bus makes 4 round trips a day covering a distance of 10 ilometers in each trip
(One Way) on an average. During the trips 80% of the seats are occupied. The annual
records show that 5 buses are generally required to be kept away from roods each day
for repairs.
You are required to CALCULATE cost per passenger-km.
Cost sheet to be prepared on the basis of 25 buses.

249 SERVICE COSTING

Service Costing

CA/CS Nimeet Piti 250

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 uestion 23

Question 2 uestion 24

uestion 3 Question 25

uestion 4 Question 26

Question 5 Question 27

Question 6 Question 28

Question 7 Question 29

Question 8 uestion 30

Question 9 uestion 31

Question 10 uestion 32

Question 11 uestion 33

Question 12 uestion 34

uestion 13 uestion 35

uestion 14 uestion 3

Question 15 uestion 3

Question 16 uestion 38

Question 17 uestion 39

Question 18 uestion 40

Service Costing
Question 19 uestion 41

Question 20 uestion 42

Question 21 uestion 43

Question 22 uestion 44

251 SERVICE COSTING

Service Costing

CA/CS Nimeet Piti 252

13
STANDARD
COSTING
 Material Variances
Q.1 NXE Manufacturing Concern furnishes the following information:

NB Standard Material for 0 kg finished products 100 kg.

Price of material ` 1 per kg.
PN
Actual Output 2,10,000 kg.
Material used 2,80,000 kg.
Cost of Materials ` 2,52,000

Calculate:
(a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance

Q.2 For making 10 kg. of CEMCO, the standard material requirements are

NB Material Quantity (Kg.) Rate per kg. (`)

A 8 .00
PN
4 4.00

During April, 1,000 kg of CEMCO were produced. The actual consumption of materials
is as under:

Material Quantity (Kg.) Rate per kg. (`)

A 50 .00
500 5.00

Calculate:
(a) Material Cost Variance (b) Material Price Variance (c) Material usage Variance.

Q.3 The standard mix to produce one unit of product is as follows

NB Material 0 units ` 15 per unit 900

Material Y 80 units ` 20 per unit 1, 00
PN
Material 100 units ` 25 per unit 2,500
Standard Costing

240 units 5,000

During the month of April, 10 units were actually produced and consumption was as
follows:
Material 40 units ` 1 .50 per unit 11,200
Material Y 950 units ` 18.00 per unit 1 ,100
Material 8 0 units ` 2 .50 per unit 23,925
2,4 0 units 52,225
Calculate all material variances.

CA/CS Nimeet Piti 254

Q.4 Jigyasa Pharmaceuticals Ltd. is engaged in producing dietary supplement ‘Funkids’ for
growing children. It produces ‘Funkids’ in a batch of 10 kgs. Standard material inputs
required for 10 kgs. of ‘Funkids’ are as below

NB Material Quantity (in kgs.) Rate per kg. (in `)

Vita- 5 110
PN
Proto-D 3 320
Mine-L 3 4 0

During the month of March, 2014, actual production was 5,000 kgs. of ‘ Funkids’ for
which the actual quantities of material used for a batch and the prices paid thereof
are as under:

Material Quantity (in kgs.) Rate per kg. (in `)

Vita- 115
Proto-D 2.5 330
Mine-L 2 405

You are required to calculate the following variances based on the above given
information for the month of March, 2014 for Jigyasa Pharmaceuticals Ltd.
i) Material Cost Variance; ii) Material Price Variance;
iii) Material Usage Variance; iv) Material Mix Variance;
v) Material Yield Variance.

Q.5 Y Limited produces an article and uses a mixture of material and Y. The standard
quantity and price of materials for one unit of output is as under

NB Material Quantity Price ( `)

2000 kg 1.00 per kg
PN
Y 800 kg 1.50 per kg

During a period, 1500 units were produced. The actual consumption of materials and
prices are given below
Standard Costing

Material Quantity Price ( `)

31,00,000 kg 1.10 per kg
Y 12,50,000 kg 1. 0 per kg

Calculate :
(i) Standard cost for actual output. (ii) Material cost variance
(iii) Material Price variance (iv) Material usage variance

255 STANDARD COSTING

 Q.6 The standard cost of a chemical mixture is as follows:
40% material A at ` 20 per kg.
NB 0% material at ` 30 per kg.
A standard loss of 10% of input is expected in production. The cost records for a
PN period showed the following usage

90 kg material A at a cost of ` 18 per kg.

110 kg material at a cost of ` 34 per kg.
The quantity produced was 182 kg. of good product.

Calculate all material variances.

Q.7 UV Ltd. presents the following information for November, 2013

udgeted production of product P 200 units.
NB
Standard consumption of Raw materials 2 kg. per unit of P.
PN Standard price of material A ` per kg.

Actually, 250 units of P were produced and material A was purchased at ` 8 per kg
and consumed at 1.8 kg per unit of P.

Calculate the material cost variances.

Q.8 Answer the following:

Following are the details of the product Phomex for the month of April 2013

NB Standard quantity of material required per unit 5 kg

Actual output 1000 units
PN
Actual cost of materials used ` ,14,000
Material price variance ` 51,000 (Fav)

Actual price per kg of material is found to be less than standard price per kg of
material by ` 10.
You are required to calculate
Standard Costing

i) Actual quantity and Actual price of materials used.

ii) Material Usage Variance
iii) Material Cost Variance

Q.9 Following details relating to product during the month of April, 2009 are available
Standard cost per unit of
NB
Materials 50kg `40/kg
PN Actual production 100 units
Actual material cost: ` 42 kg

CA/CS Nimeet Piti 256

 Material price variance ` 9,800 (Adverse)
Material usage variance:` 4,000 (Favorable)

Calculate the actual quantity of material used during the month April, 2009.

Q.10 J. . Ltd. manufactures N E by mixing three raw materials. For every batch of 100 kg.
of N E, 125 kg. of raw materials are used. In April, 2012, 0 batches were prepared to
produce an output of 5, 00 kg. of N E. The standard and actual particulars for April,
2012, are as follows

NB Raw Standard Price per kg. Actual Mix Price per kg

Materials Mix (%) (`) (%) (`)
PN
A 50 20 0 21
30 10 20 8
C 20 5 20

Calculate all variances.

Q.11 Y Ltd. produces two products M and N by using two inputs Material A and . The
standard price per unit of Material A is ` 20 and of Material is ` 10. The standard
quantities of materials for each product are as follows

NB Products Materials
A (units) B (Units)
PN
M 2 3
N 1 4

The company actually produced 11,000 units of M and 9,000 units of N and used
32,500 units of Material A at a cost of ` ,59, 50 and ,000 units of Material at a
cost of ` ,83,400.
Calculate:
(i) Material Price Variance;
(ii) Material Usage Variance;
Standard Costing

(iii) Material Cost Variance;

Q.12 Y Ltd. produces a product by using two raw materials A and . TheFollowing
standards have been set for the production

NB Material Standard Mix Standard Price (`)

A 40% 40 per kg
PN
0% 30 per kg
The standard loss in processing is 15%.
During July,201 the company produced 2,000 kg of finished output.
257 STANDARD COSTING
 The positions of stock and purchases for the month of July,201 are as under

Material Stock on Stock on Purchases during July 2016

1st July 2016 31st July 2016 Quantity Amount (`)
A 40 kg. 10 kg. 900 kg. 42.50
50 kg. 0 kg. 1,400 kg. 25.00

Calculate the following variances:

(i) Material Price Variance: (ii) Material Usage Variance:
(iii) Material Mix Variance: (iv) Material Yield Variance:
(v) Total Material Cost Variance:
The company follows FIFO method of stock valuation.

Material + Labour Variances

Q.13 The following information is available from the cost records of Vatika Co. For the
month of August, 2013

NB Material purchased 24,000 kg ` 1,05, 00

Material consumed 22,800 kg
PN Actual wages paid for 5,940 hours `29, 00
Unit produced 2,1 0 units.
Standard rates and prices are
Direct material rate is ` 4.00 per unit
Direct labour rate is ` 4.00 per hour
Standard input is 10 kg. for one unit
Standard labour requirement is 2.5 hours per unit.
Calculate all material and labour variances for the month of August, 2013.

Q.14 The following standards have been set to manufacture a product

NB Direct Material:
Standard Costing

Particular (`)
PN
2 units of A ` 4 per unit 8.00
3 units of ` 3 per unit 9.00
15 units of C ` 1 per unit 15.00
32.00
Direct Labour 3 hrs ` 8 per hour 24.00
Total standard prime cost 5 .00
The company manufactured and sold ,000 units of the product during the year.
Direct material costs were as follows:

CA/CS Nimeet Piti 258

 12,500 units of A at ` 4.40 per unit
18,000 units of at ` 2.80 per unit
88,500 units of Cat ` 1.20 per unit
The company worked 1 ,500 direct labour hours during the year. For 2,500 of these
hours, the company paid at ` 12 per hour while for the remaining, the wages were
paid at standard rate.
Calculate materials price variance and usage variance and labour rate and efficiency
variances.

Q.15 JV Ltd. produces a product and operates a standard costing system and value
material and finished goods inventories at standard cost. The information related
with the product is as follows
NB
Particular Cost per unit (`)
PN
Direct materials (30 kg at `350 per kg) 10,500
Direct labour (5 hours at `80 per hour) 400

The actual information for the month just ended is as follows:

(a) The budgeted and actual production for the month of September 2019 is 1,000
units.
(b) Direct materials 5,000 kg at the beginning of the month. The closing balance of
direct materials for the month was 10,000 kg. Purchases during the month were
made at ` 3 5 per kg. The actual utilization of direct materials was ,200 kg more
than the budgeted quantity.
(c) Direct labour 5,300 hours were utilised at a cost of ` 4,34, 00.
Required
CALCULATE (i) Direct material price and usage variances (ii) Direct labour rate and
efficiency variances.

Labour Variances Standard Costing

Q.16 The standard labour employment and the actual labour engaged in a week for a ob
are as under

NB Skilled workers Semi-skilled Unskilled

Standard no. of workers in the gang 32 12
PN
Actual no. of workers employed 28 18 4
Standard wage rate per hour 3 2 1
Actual wage rate per hour 4 3 2

259 STANDARD COSTING

 During the 40 hours working week, the gang produced 1,800 standard labour hours of
work. Calculate
a) Labour Cost Variance
b) Labour Rate Variance
c) Labour Efficiency Variance
d) Labour Mix Variance
e) Labour Yield Variance

Q.17 A manufacturing department of a company has employed 120 workers. The standard
output of product NP is 20 units per hour and the standard wage rate is ` 25 per
labour hour.
NB
In a 48 hours week, the department produced 1,000 units of NP despite 5% of the
time paid being lost due to an abnormal reason. The hourly wages actually paid were
PN
` 25. 0 per hour.
Calculate:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Idle time Variance

Q.18 The standard labour employment and the actual labour engaged in a 40 hours week
for a job are as under:

NB Standard Actual
Category of No. of Wage Rate No. of Wage Rate
PN
workers workers per hour (`) workers per hour (`)
Skilled 5 45 50 50
Semi-skilled 20 30 30 35
Unskilled 15 15 20 10
Standard output 2000 units
Actual output 1800 units
Standard Costing

Abnormal Idle time 2 hours in the week

Calculate:
i) Labour Cost Variance
ii) Labour Efficiency Variance
iii) Labour Idle Time Variance

CA/CS Nimeet Piti 260

Q.19 The following information has been provided by a company

NB Number of units produced and sold ,000

Standard labour rate per hour `8
PN
Standard hours required for ,000 units -
Actual hours required 1 ,094 hours
Labour efficiency 105.3%
Labour rate variance ` 8,3 (A)

You are required to calculate

i) Actual labour rate per hour ii) Standard hours required for ,000 units
iii) Labour Efficiency Variance iv) Standard labour cost per unit
v) Actual labour cost per unit

Q.20 The standard output of a Product D is 50 units per hour in manufacturing

department of a Company employing 100 workers. In a 40 hours week, the
NB department produced 1,920 units of product D despite 5% of the time paid was lost
due to an abnormal reason. The hourly wage rates actually paid were ` 12.40, ` 12.00
PN and ` 11.40 respectively to roup A consisting 10 workers, roup consisting 30
workers and roup C consisting 0 workers. The standard wage rate per labour is
same for all the workers. Labour Efficiency Variance is given ` 480 (F).
You are required to COMPUTE
(i) Total Labour Cost Variance.
(ii) Total Labour Rate Variance.
(iii) Total Labour ang Variance.
(iv) Total Labour Yield Variance, and
(v) Total Labour Idle Time Variance.

Overhead Variances Standard Costing

Q.21 Y Ltd. has furnished you the following information for the month of August, 2012

NB Budget Actual
Output (units) 30,000 32,500
PN
ours 30,000 33,000
Fixed overhead 45,000 50,000
Variable overhead 0,000 8,000
Working days 25 2

Calculate overhead variances.

261 STANDARD COSTING

 Q.22 Following information is available from the records of a factory

NB Budget Actual
Fixed overhead for June, 2012 ` 10,000 ` 12,000
PN
Production in June, 2012 (units) 2,000 2,100
Standard time per unit (hours) 10
Actual hours worked in June 21,000

Compute
(i) Fixed overhead cost variance
(ii) Expenditure variance
(iii) Volume variance

Q.23 Ltd. has furnished the following data

NB Budget Actual
No. of working days 25 2
PN
Production in units 20,000 22,000
Fixed overheads ` 30,000 ` 31,000

udgeted fixed overhead rate is ` 1.00 per hour. In July, 2012, the actual hours
worked were 31,500.
Calculate the following variances:
i) Volume variance
ii) Expenditure variance
iii) Total overhead variance

Q.24 A company has a normal capacity of 120 machines, working 8 hours per day of 25
days in a month. The fixed overheads are budgeted at ` 1,44,000 per month. The
standard time required to manufacture one unit of product is 4 hours.
NB In April, 2012, the company worked 24 days of 840 machine hours per day and
produced 5,305 units of output. The actual fixed overheads were ` 1,42,000.
Standard Costing

PN Compute
i) Expense variance
ii) Volume variance
iii) Total fixed overheads variance.

CA/CS Nimeet Piti 262

Q.25 The following data has been collected from the cost records of a unit for computing
the various fixed overhead variances for a period

Number of budgeted working days 25

udgeted man-hours per day ,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted ` 1,50,000

Actual number of working days 2

Actual man-hours per day ,300
Actual output per man-hour (in-units) 0.9
Actual fixed overhead incurred ` 1,5 ,000

Calculate fixed overhead variances

a) Expenditure Variance
b) Volume Variance,
c) Fixed Cost Variance.

Q.26 The following information was obtained from the records of a manufacturing unit
using standard costing system.

NB Standard Actual
Production 4,000 units 3,800 units
PN
Working days 20 21
Fixed Overhead ` 40,000 ` 39,000
Variable Overhead 12,000 12,000

You are required to calculate the following overhead variance

a) Variable overhead cost variance
b) Fixed overhead variances
i) Expenditure variances
ii) Volume variance
Standard Costing

Q.27 In a manufacturing company the standard units of production of the year were fixed
at 1,20,000 units and overhead expenditures were estimated to be
Fixed Rs. 12,00,000 Variable Rs. ,00,000
NB
Semi-Variable Rs. 1,80,000
PN

263 STANDARD COSTING

 Q.27 In a manufacturing company the standard units of production of the year were fixed
at 1,20,000 units and overhead expenditures were estimated to be
Fixed Rs. 12,00,000 Variable Rs. ,00,000
Semi-Variable Rs. 1,80,000
Actual production during the April, 2019 of the year was 8,000 units. Each month has
20 working days.
During the month there was one public holiday. The actual overheads amounted to
Fixed Rs. 1,10,000 Variable Rs. 48,000
Semi-variable Rs. 19,200
Semi-variable charges are considered to include 0 per cent expenses of fixed nature
and 40 per cent of variable character.
CALCULATE the followings
(i) Overhead Cost Variance
(ii) Fixed Overhead Cost Variance
(iii) Variable Overhead Cost Variance
(iv) Fixed Overhead Volume Variance
(v) Fixed Overhead Expenditure Variance
(vi) Calendar Variance.

Q.28 Premier Industries has a small factory where 52 workers are employed on an average
for 25 days a month and they work 8 hours per day. The normal down time is 15%.
The firm has introduced standard costing for cost control. Its monthly budget for
NB November, 2020 shows that the budgeted variable and fixed overhead are ` 1,0 ,080
and ` 2,21,000 respectively.
PN
The firm reports the following details of actual performance for November, 2020,
after the end of the month:

Actual hours worked 8,100 hrs.

Actual production expressed in standard hours 8,800 hrs.
Actual Variable Overheads ` 1,02,000
Actual Fixed Overheads ` 2,00,000
Standard Costing

You are required to calculate

(i) Variable Overhead Variances: (iii) Control Ratios
(a) Variable overhead expenditure variance. (a) Capacity ratio.
(b) Variable overhead efficiency variance. (b) Efficiency ratio.
(ii) Fixed Overhead Variances: (c) Activity ratio.
(a) Fixed overhead budget variance.
(b) Fixed overhead capacity variance.
(c) Fixed overhead efficiency variance.

CA/CS Nimeet Piti 264

Q.29 SJ Ltd. has furnished the following information

Standard overhead absorption rate per unit ` 20

NB
Standard rate per hour `4
PN udgeted production 15,000 units
Actual production 15,5 0 units

Actual overheads were ` 2,95,000 out of which ` 2,500 fixed.

Actual hours 4,000
Overheads are based on the following flexible budget.
Production (units) 8,000 10,000 14,000
Total Overheads (`) 1,80,000 2,10,000 2, 0,000

You are required to calculate the following overhead variances (on hour’s basis) with
appropriate workings
(i) Variable overhead efficiency and expenditure variance.
(ii) Fixed overhead efficiency and capacity variance.

Q.30 The overhead expense budget for a factory producing to a capacity of 200 units per
month is as follows:

NB Description of overhead Fixed cost Variable cost Total cost

per unit in ` per unit in ` per unit in `
PN
Power and fuel 1,000 500 1,500
Repair and maintenance 500 250 50
Printing and stationary 500 250 50
Other overheads 1,000 500 1,500
3,000 1,500 4,500

The factory has actually produced only 100 units in a particular month. Details of
overheads actually incurred have been provided by the accounts department and are
as follows:
Standard Costing

Description of overhead Actual cost

Power and fuel ` 4,00,000
Repair and maintenance ` 2,00,000
Printing and stationary ` 1, 5,000
Other overheads ` 3, 5,000

You are required to compute the production volume variance and the overhead
expenses variance.

265 STANDARD COSTING

 Q.31 Y Company has established the following standards for factory overheads.

NB Variable overhead per unit ` 10 -

Fixed overheads per month ` 1,00,000
PN
Capacity of the plant 20,000 units per month.

The actual data for the month are as follows:

Actual overheads incurred ` 3,00,000
Actual output (units) 15,000 units

Required
Calculate overhead variances viz
• Production Volume Variance
Overhead Expense Variance

All Variances
Q.32 SARA Ltd. has furnished the following standard cost data per unit of production
Material 15 kg ` 15 per kg.
NB
Labour hours ` 5 per hour
PN Variable overhead hours ` 12 per hour.
Fixed overhead ` 4,50,000 per month ( ased on a normal volume of
30,000 labour hours.)
The actual cost data for the month of August 2023 are as follows
Material used 5,000 kg at a cost of ` 9,85,000.
Labour paid ` 1,40,000 for 31,500 hours worked.
Variable overheads ` 3, 0,200
Fixed overheads ` 4, 0,000
Actual production 4,800 units.
Standard Costing

CALCULATE
(i) Material Cost Variance.
(ii) Labour Cost Variance.
(iii) Fixed Overhead Cost Variance.
(iv) Variable Overhead Cost Variance.

CA/CS Nimeet Piti 266

Q.33 SP Limited produces a product Tempex which is sold in a 10 g. packet. The
standard cost card per packet of Tempex are as follows

NB (`)
Direct materials 10 kg ` 45 per kg 450
PN
Direct labour 8 hours ` 50 per hour 400
Variable Overhead 8 hours ` 10 per hour 80
Fixed Overhead 200
1,130

udgeted output for the third quarter of a year was 10,000 g. Actual output is 9,000
g. Actual cost for this quarter are as follows

(`)
Direct Materials 8,900 g ` 4 per g. 4,09,400
Direct Labour ,000 hours ` 52 per hour 3, 4,000
Variable Overhead incurred 2,500
Fixed Overhead incurred 1,92,000

You are required to calculate

i) Material Usage Variance ii) Material Price Variance’
iii) Material Cost Variance iv) Labour Efficiency Variance
v) Labour Rate Variance vi) Labour Cost Variance
vii) Variable Overhead Cost Variance viii) Fixed Overhead Cost Variance

Q.34 Aaradhya Ltd.manufactures a commercial product for which the standard cost per
unit is as follows:
NB (`)
PN Material:
5 kg. ` 4 per kg. 20.00
Standard Costing

Labour
3 hours `10 per hour 30.00
Overhead
Variable 3 hours `1 3.00
Fixed 3 hours `0.50 1.50
Total 54.50

267 STANDARD COSTING

 During Jan. 20 8, 00 units of the product were manufactured at the cost shown
below:

(`)
Materials purchased
5,000 kg. `4.10 per kg. 20,500
Materials used:
3,500 kg.
Direct Labour
1, 00 hours `9 15,300
Variable overhead 1,900
Fixed overhead 900
Total 38, 00

The flexible budget required 1,800 direct labour hours for operation at the monthly
activity level used to set the fixed overhead rate.
COMPUTE:
(a) Material price variance, (b) Material Usage variance
(c) Labour rate variance (d) Labour efficiency variance
(e) Variable overhead expenditure variance
(f) Variable overhead efficiency variance
(g) Fixed overhead expenditure variance
(h) Fixed overhead volume variance;
(i) Fixed overhead capacity variance and
( ) Fixed overhead efficiency variance.
Also RECONCILE the standard and actual cost of production.

Q.35 A company has three factories situated in North, East and South with its ead Office
in Mumbai. The Management has received the following summary report on the
operations of each factory for a period
NB
a tor a es rofit
Standard Costing

PN
Actual Over / (Under) Actual Over / (Under)
Budget Budget
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)

CALCULATE the following for each factory and for the company as a whole for the
period
(i) Fixed Cost
(ii) Break-even Sales
CA/CS Nimeet Piti 268
 Miscellaneous
Q.36 Compute the sales variances (total, price and volume) from the following figures

NB Product Budgeted Budgeted Price Actual Actual Price

Quantity per Unit (`) Quantity per Unit (`)
PN
P 4000 25 4800 30
3000 50 2800 45
R 2000 5 2400 0
S 1000 100 800 105

Q.37 S Constructions Limited has entered into a big contract at an agreed price of
` 1,50,00,000 sub ect to an escalation clause for material and labour as spent out on
the contract and corresponding actual are as follows

NB Standard Actual
Material: Quantity Rate per Quantity Rate per
PN
(Tonnes) Tonne (`) (Tonnes) Tonne (`)
A 3,000 1,000 3,400 1,100
2,400 800 2,300 00
C 500 4,000 00 3,900
D 100 30,000 90 31,500
Labour: Hours Hourly Hours Hourly
Rate (`) Rate (`)
L1 0,000 15 5 ,000 18
L2 40,000 30 38,000 35

You are required to

Calculate the following variances and verify them
Standard Costing

a) Material cost variance

b) Material price variance
c) Material usage variance
d) Labour cost variance
e) Labour rate variance
f) Labour efficiency variance.

269 STANDARD COSTING

 Q.38 Compute the missing data indicated by the question marks from the following

NB Particulars A B
Standard Price/unit ` 12 ` 15
PN
Actual Price /unit ` 15 ` 20
Standard Input (kgs.) 50 ?
Actual Input (kgs.) ? 0
Material Price Variance ? ?
Material Usage Variance ? ` 300 Adverse
Material Cost Variance ? ?

Material mix variance for both products together was ` 45 Adverse

Q.39 Following data is extracted from the books of RAM Y Ltd. for the month of March
(i) Estimation-

NB Particulars Quantity (kg.) Price (`) Amount (`)

Material-A 1320 ? --
PN
Material- 990 50 49,500
--

Normal loss was expected to be 5% of total input materials.

(ii) Actuals-
2,500 kg of output produced.

Particulars Quantity (kg.) Price (`) Amount (`)

Material-A 1500 ? --
Material- ? 53 --
98,000

(iii) Other Information-

Standard Costing

Material Cost Variance ` 5,500 (F)

Material Price Variance ` 300 (F)
You are required to CALCULATE
(i) Standard Price of Material-A;
(ii) Actual uantity of Material-
(iii) Actual Price of Material-A;
(iv) Revised standard quantity of Material-A and Material- and
(v) Material Mix Variance.

CA/CS Nimeet Piti 270

 Additional Questions
Q.40 Ahaan Limited operates a system of standard costing in respect of one of its products
A 1 which is manufactured within a single cost centre. Details of standard per unit
NB are as follows:
The standard material input is 20 kilograms at a standard price of
PN ` 24 per kilogram.
• The standard wage rate is ` 2 per hour and 5 hours are allowed to
produce one unit.
Fixed production overhead is absorbed at the rate of 100% of wages cost.

During the month of April 2022, the following was incurred

Actual price paid for material purchased ` 22 per kilogram.
• Total direct wages cost was ` 43,92,000
Fixed production overhead cost incurred was ` 45,00,000

Analysis of variances was as follows

Variances Favourable Adverse

Direct material price ` 4,80,000 -
Direct material usage ` 48,000
Direct labour rate - ` 9,120
Direct labour efficiency ` 33,120 -
Fixed production overhead expenditure `1,80,000

You are required to CALCULATE the following for the month of April, 2022
(i) Material cost variance
(ii) udgeted output (in units)
(iii) uantity of raw materials purchased (in kilograms)
(iv) Actual output (in units)
(v) Actual hours worked
Standard Costing

(vi) Actual wage rate per labour hour

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

271 STANDARD COSTING

 Q.41 . Ltd. uses standard costing system in manufacturing of its single product ‘M’. The
standard cost per unit of M is as follow

Rs.
Direct Material 2 metres Rs. per metre 12.00
Direct labour- 1 hour Rs. 4.40 per hour 4.40
Variable overhead- 1 hour Rs. 3 per hour 3.00

During July, 201 , ,000 units of M were produced and the related data are as under
Direct material acquired- 19,000 metres Rs.5. 0 per metre.
Material consumed 12, 0 metres.
Direct labour ? hours Rs. ? per hour Rs. 2 ,950
Variable overheads incurred Rs. 20,4 5
The variable overhead efficiency variance is Rs. 1,500 adverse. Variable overheads are
based on direct labour hours. There was no stock of the material in the beginning
You are required to compute the missing figures and work out all the relevant
variances.

Q.42 A manufacturing firm produces a specific product and adopts standard costing
system. The product is produced within a single cost centre.
NB Following information related to the product are available from the standard cost
sheet of the product
PN Unit Cost (`)
Direct material 5 kg ` 15 per kg 5.00
Direct wages 4 hours ` 20 per hour 80.00
During the month of October 2019, the firm purchased 3,50,000 kg of material at the
rate of 14 per kg. Production records for the month exhibits the following actual
results:
Material used 3,20,000 kg
Direct wages - 2,20,000 hours ` 4 ,20,000
The production schedule requires completion of 0,000 units in a month. owever,
Standard Costing

the firm produced 2,000 units in the month of October, 2019. There are no opening
and closing work-in-progress.
You are required to
(i) Calculate material cost, price and usage variance.
(ii) Calculate labour cost, Rate and efficiency variance and
(iii) Calculate the amount of bonus, as an incentive scheme is in operation in the
company whereby employees are paid a bonus of 50% of direct labour hour
saved at standard direct labour hour rate.

CA/CS Nimeet Piti 272

Q.43 Calculation of Earnings per share for three alternatives to finance the pro ect

NB Particulars Alternatives
I II III
PN
To raise debt To raise debt of To raise debt
of Rs.2,50,000 Rs. 10,00,000 of Rs. 15,00,000
and equity of andequity of and equity of
Rs. 22,50,000 Rs. 15,00,000 Rs. 10,00,000
Rs. Rs. Rs.
Earnings before interest 5,00,000 5,00,000 5,00,000
and tax
Less Interest on debt at the 25,000 1,3 ,500 2,3 ,500
rate of (10% on (10% on (10% on
Rs. 2,50,000) Rs. 2,50,000) Rs. 2,50,000)
(15% on (15% on
Rs. ,50,000) Rs. ,50,000)
(20% on
Rs. 5,00,000)
Earnings before tax 4, 5,000 3, 2,500 2, 2,500
Less Tax ( 50%) 2,3 ,500 1,81,250 1,31,250
Earnings after tax (A) 2,3 ,500 1,81,250 1,31,250
Number of shares ( ) 15,000 10,000 8,000
(Refer to working note)
Earnings per share (A) ( ) 15.833 18.125 1 .40

So, the earning per share (EPS) is higher in alternative II i.e. if the company finance the
pro ect by raising debt of Rs. 10,00,000 and issue equity shares of Rs. 15,00,000.
Therefore the company should choose this alternative to finance the pro ect.
Working Note:

Alternatives
I II III
Equity financing (A) Rs. 22,50,000 Rs. 15,00,000 Rs. 10,00,000
Standard Costing

Market price per share ( ) Rs. 150 Rs. 150 Rs. 125
Number of equity share (A) ( ) 15,000 10,000 8,000

273 STANDARD COSTING

 Q.44 NC Limited uses a standard costing system for the manufacturing of its product ‘ ’.
The following information is available for the last week of the month:
NB
25,000 kg of raw material were actually purchased for ` 3,12,500. The expected
output is 8 units of product from each one kg of raw material. There is no
PN
opening and closing inventories. The material price variance and material cost
variance, as per cost records, are ` 12,500 (F) and ` 1800 (A), respectively.
The standard time to produce a batch of 10 units of product is 15 minutes.
The standard wage rate per labour hour is 50. The company employs 125
workers in two categories, skilled and semi-skilled, in a ratio of 0 40. The hourly
wages actually paid were ` 50 per hour for skilled workers and ` 40 per hour for
semiskilled workers. The weekly working hours are 40 hours per worker.
Standard wage rate is the same for skilled and semi- skilled workers.
The monthly fixed overheads are budgeted at ` ,480 Overheads are evenly
distributed throughout the month and assume 4 weeks in a month. In the last
week of the month, the actual fixed overhead expenses were ` 19,500.
Required
(i) Calculate the standard price per kg and the standard quantity of raw material.
(ii) Calculate the material usage variance, labour cost variance, and labour efficiency
variance.
(iii) Calculate the fixed overhead cost variance, the fixed overhead expenditure
variance and the fixed overhead volume variance.
Note Indicate the nature of variance i.e Favourable or Adverse.

.45 P R Alloys Ltd. uses a standard costing system.

udgeted information for the year

NB udgeted output 84,000 units

Variable Factory Overhead per unit `1
PN Standard time for one unit of output 0.80 machine hour
Fixed factory overheads ` , 2,000

Actual results for the year

Actual output 8 , 00 units
Standard Costing

Variable Overhead efficiency variance ` ,200 (A)

Actual Fixed factory overheads ` ,05,000
Actual variable factory overheads ` 14,3 ,000

Required
Calculate the following variances clearly indicating Adverse(A) or Favourable (F)
(i) Variable factory overhead expenditure variance.
(ii) Fixed factory overhead expenditure variance.
(iii) Fixed factory overhead efficiency variance.
(iv) Fixed factory overhead capacity variance.

CA/CS Nimeet Piti 274

Q.46 Y Lid manufactures Product M which requires three types of raw materials - A ,
C . Following information related to 1st quarter of the F.Y. 2022-23 has been
collected from its books of accounts. The standard material input required for 1,000
kg of finished product M are as under

Material Quantity (Kg.) Std. Rate per Kg. (`)

A 500 25
350 45
C 250 55
1100
Standard Loss 100
Standard Output 1000

During the period, the company produced 20,000 kg of product M for which the
actual quantity of materials consumed and purchase prices are as under

Material Quantity (Kg.) Purchase price per Kg. (`)

A 11,000 23
,500 48
C 4,500 0

You are required to calculate

(i) Material Cost Variance
(ii) Material Price Variance for each raw material and Product M
(iii) Material Usage Variance for each raw material and Product M
(iv) Material Yield Variance
Note Indicate the nature of variance i.e. Favourable or Adverse.

Q.47 The standard cost of a chemical mixture is as follows:

0% of Material A ` 50 per kg
NB
40% Material ` 0 per kg
PN A standard loss of 25% on output is expected in production. The cost records for a
Standard Costing

period has shown the following usage.

540 kg of Material A ` 0 per kg
2 0 kg of Material ` 50 per kg
The quantity processed was 80 kilograms of good product.
From the above given information
Calculate:
(i) Material Cost Variance (ii) Material Price Variance
(iii) Material Usage Variance (iv) Material Mix Variance
(v) Material Yield Variance.

275 STANDARD COSTING

 Q.48 Following are the details given:
udgeted Days 25
NB
udgeted Fixed Overheads 1,00,000
PN udgeted Production 800 units per day
Actual Production 21,000 units
Fixed Overheads are absorbed ` 10 per hour.
Fixed overheads efficiency variance 10,000A
Fixed overheads calendar variance 8,000F
Fixed overheads cost variance 15,000A
You are required to CALCULATE
(a) Actual Fixed Overheads
(b) Actual Days
(c) Actual Hours
(d) Fixed overheads Expenditure variance
(e) Fixed overheads volume variance
(f) Fixed overheads capacity variance

Q.49 royhill Furnitures makes curio cabinets for various museums and art galleries. It
makes curio cabinets per hour by employing 5 skilled, 10 semiskilled and 20
unskilled workers. The standard wage rate is ` 24 per labour hour. During the last
week workers worked for 5 hours and made 400 curio cabinets. 2% of the time paid
was lost due to the abnormal reasons. The actual hourly rate paid to skilled,
semiskilled and unskilled workers were `30, `24 and `18 respectively.
You are required to calculate
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance and
(iv) Idle Time Variance.
Standard Costing

Q.50 A company is considering four alternative proposals for a new toy manufacturing
Machine launched in the market. New machine is expected to produce approximately
NB 25,000 toys every year. The proposals are as follows
(i) Purchase and maintain the new toy manufacturing Machine and bear all related
PN costs. These machines will run on fuel. The average cost of a Machine is
10,00,000. Life of the machine is 4 years with annual production of 25,000 toys
and the Resale value is ` 2,00,000 at the end of the fourth year.
(ii) ire from Agency-A It can hire the machine from the Agency-A and pay hire
charges at the rate of ` 20 per toy and bear no other cost.

CA/CS Nimeet Piti 276

 (iii) ire from Agency- It can hire the machine from the Agency- and pay hire
charges at the rate of ` 12 per toy and also bear insurance costs. All other costs
will be borne by Agency- .
(iv) ire from Agency-C ire machine from Agency-C at ` 2,50,000 per year. These
machines are more advanced and run on electricity and therefore, the running
cost is considerably low. The company will have to bear costs of electricity,
licensing fees and spare parts. owever, Repairs and maintenance and
Insurance cost are borne by Agency-C.
The following further details are available:
The cost of Fuel is ` 8 per toy, the cost of spare parts is ` 0.20 per toy and the cost of
electricity is ` 2 per toy. Further, the cost of Repairs and maintenance is ` 0.25 per toy,
the amount of licensing fees to be paid is ` 5,000 per machine per annum and the
cost of Insurance to be paid is ` 25,000 per machine per annum. Consider no taxes.
You are required to
(i) Calculate the relative costs of four proposals on cost per toy basis.
(ii) Rank the proposals on the basis of total cost for 25,000 toys per year.
(iii) Recommend the best proposal to company in view of (ii) above.

Q.51 Following information relates to labour of AY PEE Ltd.

NB Skilled Semi-skilled Unskilled Total

Number of workers in standard gang 12 8 5 25
PN
Standard rate per hour (`) 5 50 40 -
Number of workers in actual gang 25
Actual rate per hour (`) 80 48 42

The standard output of gang was 12 units per hour of the product M. The gang was
engaged for 200 hours during the month of March 2019 out of which 20 hours were
lost due to machine breakdown and 2,295 units of product M were produced. The
actual number of skilled workers was 2 times the semi-skilled workers. Total labour
mix variance was ` 10,800 (A).
You are required to calculate the following
Standard Costing

(i) Actual number of workers in each category.

(ii) Labour rate variance.
(iii) Labour yield variance.
(iv) Labour efficiency variance

277 STANDARD COSTING

 Q.52 In a manufacturing unit, a gang of employees usually consists of 20 skilled employees
and 15 unskilled employees, paid at standard hourly rates of ` 5 and ` 55,
NB respectively. In a normal working week of 50 hours, the gang is expected to produce
5000 units of output.
PN
In a certain week, the gang consisted of 25 skilled employees and 20
unskilledemployees. Actual hourly rates paid were ` 70 and ` 50 respectively. Five
hours were lost due to abnormal idle time and 5500 units of outputs were produced.
You are required to calculate the following variances showing adverse (A) or
favourable
(F):
(a) Labour Cost Variance
(b) Labour Rate Variance
(c) Labour Efficiency Variance
(d) Labour Idle Time Variance
Standard Costing

CA/CS Nimeet Piti 278

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 1 uestion 2

uestion 2 uestion 28

uestion 3 uestion 29

Question 4 uestion 30

uestion 5 uestion 31

uestion uestion 32

Question 7 uestion 33

uestion 8 uestion 34

uestion 9 uestion 35

uestion 10 uestion 3

uestion 11 uestion 3

uestion 12 uestion 38

uestion 13 uestion 39

uestion 14 Question 40

uestion 15 uestion 41

uestion 1 uestion 42

uestion 1 uestion 43

uestion 18 Question 44

uestion 19 uestion 45

uestion 20 uestion 4

uestion 21 Question 47

uestion 22 uestion 48

uestion 23 uestion 49
Standard Costing

uestion 24 uestion 50

uestion 25 uestion 51

uestion 2 uestion 52

279 STANDARD COSTING

Standard Costing

CA/CS Nimeet Piti 280

14
MARGINAL
COSTING
 Q.1 A company earned a profit of ` 30,000 during the year 2011. If the marginal cost and
selling price of the product are ` 8 and ` 10 per unit respectively, find out the amount
of margin of safety.

Q.2 Product has a profit-volume ratio of 28%. Fixed operating costs directly attributable
to product during the quarter II of the financial year 2009-10 will be ₹ 2,80,000.
Calculate the sales revenue required to achieve a quarterly profit of ₹ 0,000.

Q.3 If P V ratio is 0% and the Marginal cost of the product is ` 20. What will be the selling
price?

Q.4 A company has fixed cost of ₹ 90,000, Sales ₹ 3,00,000 and Profit of ₹ 0,000.
NB Required
i) Sales volume if in the next period, the company suffered a loss of ₹ 30,000.
PN i) What is the margin of safety for a profit of ₹ 90,000?

Q.5 A company had incurred fixed expenses of ₹ 4,50,000, with sales of ₹ 15,00,000 and
earned a profit of ₹ 3,00,000 during the first half year. In the second half, it suffered a
loss of ₹ 1,50,000.
NB
Calculate
PN i) The profit-volume ratio, break-even point and margin of safety for the first half
year.
ii) Expected sales volume for the second half year assuming that 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.

Q.6 MNP Ltd sold ` 2, 5,000 units of its product at ` 3 .50 per unit. Variable costs are
` 1 .50 per unit (manufacturing costs of ` 14 and selling cost ` 3.50 per unit). Fixed
costs are incurred uniformly throughout the year and amount to ` 35,00,000
NB (including depreciation of ` 15,00,000). There is no beginning or ending inventories.
Required
PN
i) Estimate break even sales level quantity and cash break even sales level
quantity.
ii) Estimate the P V ratio.
iii) Estimate the number of units that must be sold to earn an income (E IT) of
` 2,50,000.
iv) Estimate the sales level achieve an after-tax income (PAT) of ` 2,50,000. Assume
40% corporate income tax rate.

Q.7 A C aggage Ltd. sells different styles of laptop bags with identical purchase costs
Marginal Costing

and selling prices. The company is trying to find out the profitability of opening
another store which will have the following expenses and revenues

CA/CS Nimeet Piti 282

 NB Amount per piece (`)
Selling Price 00
PN
Variable costs
Material cost 410
Salesmens’s commission 0
Total variable cost 4 0
Annual fixed expenses are (`)
- Rent ,00,000
- Office and administrative expenses 20,00,000
- Advertising 8,00,000
- others fixed expenses 2,00,000

For the each following independent situation you are required to

(i) Calculate the annual break-even point in units and in value. Also Determine the
profit or loss if 35,000 units of bags are sold.
(ii) The sales commissions are proposed to be discontinued, but instead a fixed
amount of ` 9,00,000 is to be incurred in fixed salaries. A reduction in selling
price of 5% is also proposed. What will be the break-even point in units?
(iii) It is proposed to pay the store manager ` 5 per piece as further commission.
The selling price is also proposed to be increased by 5%. What would be the
break-even point in units?

Q.8 A laboratory carrying out various tests on products produced by various drug
companies to ascertain whether drugs are fit for medical use or not. At present, the
laboratory carries out10,000 tests each year and a survey carried out by the
NB laboratory shows a rise in number of tests to 15,000 tests a year, to carrying out all
these tests would require an additional shift to be worked.
PN The current cost of carrying out a full test is

` per test
Materials 1,500
Technicians’ fees 130
Variable expenses 25
Fixed cost 100
Working the additional shift would
i) require a shift premium of 50 per cent to be paid to the technicians on the
additional shift
ii) enable a quantity discount of 10 per cent to be obtained for all materials if an
Marginal Costing

order was placed to cover 15,000 tests

iii) increase fixed costs by ` 5,00,000 per year.
The current fee per test is ` 2,000.

283 MARGINAL COSTING

 Q.9 (`)
NB (i) Ascertain profit, when sales 2,00,000
Fixed Cost 40,000
PN
EP 1, 0,000
(ii) Ascertain sales, when fixed cost 20,000
Profit 10,000
EP 40,000

Q.10 S A Limited provides the following trading results

NB ear ae rofit
2012-13 ₹ 25,00,000 10% of Sale
PN
2013-14 ₹ 20,00,000 8% of Sale

You are required to calculate

Fixed Cost
reak Even Point
Amount of profit, if sale is ₹ 30,00,000
Sale, when desired profit is ₹ 4,75,000
Margin of Safety at a profit of ₹ 2,70,000

Q.11 You are given the following data

NB a es rofit
Year 2010 ₹ 1,20,000 8,000
PN
Year 2011 ₹ 1,40,000 13,000

Find out
i) P V ratio,
ii) .E. Point,
iii) Profit when sales are ₹ 1,80,000,
iv) Sales required earn a profit of ₹ 12,000,
v) Margin of safety in year 2011.

Q.12 Answer the following

Following information are available for the year 2008 and 2009 of PI Limited

NB Year 2008 2009

Sales ₹ 32,00,000 ₹ 57,00,000
Marginal Costing

PN
Profit (Loss) ₹ 3,00,000) ₹ 7,00,000

CA/CS Nimeet Piti 284

 Calculate (a) P V ratio, (b) Total fixed cost, and (c) Sales required to earn a Profit
of ₹ 12,00,000.

Q.13 MFN Limited started its operation in 2011 with the total production capacity of
2,00,000 units. The following data for two years is made available to you

NB 2011 2012
Sales units 80,000 1,20,000
PN
Total cost (₹) 34,40,000 45, 0,000

There has been no change in the cost structure and selling price and it is expected to
continue in 2013 as well. Selling price is ₹ 40 per unit.
You are required to calculate
reak-Even Point (in units)
Profit at 5% of the total capacity in 2013

Q.14 A company sells its product at ` 15 per unit. In a period, if it produces and sells ` 8,000
units, it incurs a loss of ` 5 per unit. If the volume is raised to 20,000 units, it earns a
profit of ` 4 per unit.
Calculate break-even point both in terms of rupees as well as in units.

Q.15 When volume is 4,000 units average cost is ` 3. 5 per unit. When volume is 5,000
units, average cost is ` 3.50 per unit. The reak-Even point is ,000 units.
Calculate (i) Variable Cost per unit (ii) Fixed Cost and (iii) Profit Volume Ratio.

Q.16 A company has three factories situated in north, east and south with its ead Office in
Mumbai. The management has received the following summary report on the
operations of each factory for a period (₹ in ‘000)

NB a es rofit
Actual Over/(Under) Actual Over/(Under)
PN
Budget Budget
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)

Calculate for each factory and for the company as a whole for the period
(i) the fixed cost (ii) break-even sales
Marginal Costing

285 MARGINAL COSTING

 Q.17 ed Limited sells its product at ₹ 30 per unit. During the quarter ending on 31st
March, 2014, it produced and sold 1 ,000 units and suffered a loss of ₹ 10 per unit. If
the volume of sales is raised to 40,000 units, it can earn a profit of ₹ 8 per unit.
NB
You are required to calculate
PN reak Even Point in Rupees.
Profit if the sale volume is 50,000 units.
Minimum level of production where the company needs not to close the production if
unavoidable fixed cost is ₹ 1,50,000.

Q.18 Mr. has ₹ 2,00,000 investments in his business firm. e wants a 15 per cent return
on his money. From an analysis of recent cost figures, he finds that his variable cost of
operating is 0 per cent of sales, his fixed costs are ₹ 80,000 per year. Show
NB computations to answer the following questions
i) What sales volume must be obtained to break even?
PN
ii) What sales volume must be obtained to get 15 per cent return on investment?
iii Mr. estimates that even if he closed the doors of his business, he would incur
₹ 25,000 as expenses per year. At what sales would he be better off by locking
his business up?

Q.19 If margin of safety is ₹ 2,40,000 (40% of sales) and P V ratio is 30% of A Ltd, calculate its
NB (1) reak even sales, and (2) Amount of profit on sales of ₹ 9,00,000.
Ltd. has earned a contribution of ₹ 2,00,000 and net profit of ₹ 1,50,000 of sales
PN of ₹ 8,00,000. Calculate Profit, P V ratio, Nos.

Q.20 The ratio at variable cost to sales is 0%. The break-even point occurs at 80% of the
capacity sales.

NB (i) Find the capacity sales when fixed costs are ` 1, 0,000
(ii) Compute profit at 80% of the capacity sales.
PN (iii) Find profit if sales is ` 5, 0,000 and fixed cost remain same as above.
(iv) Find sales, if desired profit ` 44,000 and fixed cost is `1,42,000

Q.21 A Ltd. Maintains margin of safety of 3 .5% with an overall contribution to sales ratio of
40%. Its fixed costs amount to ` 5 lakhs.
NB Calculate the following
reak-even sales
PN
Total sales
Total variable cost
Current profit
Marginal Costing

New ‘margin of safety’ if the sales volume is increased by %.

CA/CS Nimeet Piti 286

 Q.22 A company produces single product which sells for ₹ 20 per unit. Variable cost is ₹ 15
per unit and Fixed overhead for the year is ₹ ,30,000.
NB Required
i) Calculate sales value needed to earn a profit of 10% on sales.
PN ii) Calculate sales price per unit to bring EP down to 1,20,000 units.
iii) Calculate margin of safety sales if profit is ₹ 0,000.

Q.23 The P V Ratio of Delta Ltd. is 50% and margin of safety is 40%. The company sold 500
units for ₹ 5,00,000.
NB You are required to calculate
i) reak- even point, and
PN ii) Sales in units to earn a profit of 10% on sales

Q.24 A company has introduced a new product and marketed 20,000 units. Variable cost of
the product is ` 20 per unit and fixed overheads are ` 3,20,000.
NB You are required to
(i) Calculate selling price per unit to earn a profit of 10% on sales value, EP and
PN Margin of Safety.
(ii) If the selling price is reduced by the company by 10%, demand is expected to
increase by 5000 units, then what will be its impact on Profit, EP and Margin of
Safety?
(iii) Calculate Margin of Safety if profit is ` 4,000.

Q.25 The following figures are related to LM Limited for the year ending 31st March, 2012
Sales - 24,000 units ₹ 200 per unit P V Ratio 25% and reak-even Point 50% of sales.
NB You are required to calculate
i) Fixed cost for the year
PN ii) Profit earned for the year
iii) Units to be sold to earn a target net profit of ₹ 11,00,000 for a year.
iv) Number of units to be sold to earn a net income of 25% on cost.
v) Selling price per unit if reak-even Point is to be brought down by 4,000 units.

Q.26 A Chinese soft drink company is planning to establish a subsidiary company in India
to produce mineral water. ased on the estimated annual sales of 40,000 bottles of
the mineral water, cost studies produced the following estimates for the Indian
subsidiary
NB Total annual costs Percent of Total Annual
Cost which is variable
PN
Material 2,10,000 100%
Marginal Costing

Labour 1,50,000 80%

Factory Overheads 92,000 0%
Administration Expenses 40,000 MARGINAL
35% COSTING
m 287 MARGINAL COSTING
 The Indian production will be sold by manufacturer’s representatives who will receive
commission of 8% of the sale price. No portion of the Chinese office expenses is to be
allocated to the Indian subsidiary.
You are required to
i) Compute the sale price per bottle to enable the management to realize an
estimated 10% profit on sale proceeds in India.
ii) Calculate the break-even point in Rupee sales as also in number of bottles for
the Indian subsidiary on the assumption that the sale price is ₹ 14 per bottle.

Q.27 The following information was obtained from the records of a manufacturing unit

NB ` `
Sales 80,000 units ` 25 20,00,000
PN
Material consumed 8,00,000
Variable Overheads 2,00,000
Labour Charges 4,00,000
Fixed Overheads 3, 0,000 1 , 0,000
Net Profit 2,40,000

Calculate
(i) The number of units by selling which the company will neither lose or nor gain
anything.
(ii) The sales needed to earn a profit of 20% on sales.
(iii) The extra units which should be sold to obtain the present profit if it is proposed
to reduce the selling price by 20% and 25% .
(iv) The selling price to be fixed to bring down its reak even Point to 10,000 units
under present conditions.

Q.28 Maxim Ltd manufactures a product N- oy . In the month of August 2014, 14,000 units
of Product N- oy were sold, the details are as under

NB (`)
Sale Revenue 2,52,000
PN
Direct Material 1,12,000
Direct Labour 49,000
Variable Overheads 35,000
Fixed Overheads 28,000
Marginal Costing

CA/CS Nimeet Piti 288

 A forecast for the month of September 2014 has been carried out by the eneral
manger Of Maxim Ltd. As per the forecast, price of direct material and variable
overhead will be Increased by 10% and 5% respectively.
Required to calculate
(i) Number of units to be sold to maintain the same quantum of profit tha made in
August 2014.
(ii) Margin of safety in the month of August 2014 and September 2014.

Q.29 J Ltd. manufactures a Product-Y. Analysis of income statement indicated a profit of

` 250 lakhs on a sales volume of 5,00,000 units. Fixed costs are ` 1,000 lakhs which
NB appears to be high. Existing selling price is ` 80 per unit. The company is considering
revising the profit target to ` 00 lakhs. You are required to COMPUTE
PN (i) reak- even point at existing levels in units and in rupees.
(ii) The number of units required to be sold to earn the target profit.
(iii) Profit with 10% increase in selling price and drop in sales volume by 10%.
(iv) Volume to be achieved to earn target profit at the revised selling price as
calculated in (ii) above, if a reduction of 10% in the variable costs and ` 1 0 lakhs
in the fixed cost is envisaged.

Q.30 P R Ltd. has furnished the following data for the two years

NB 2011 2012
Sales ₹ 8,00,000 ?
PN
Profit Volume Ratio (P V ratio) 50% 3 .5%
Margin of Safety sales as a % of total sales 40% 21.8 5%

There has been substantial savings in the fixed cost in the year 2012 due to the
restructuring process. The company could maintain its sales quantity level of 2011 in
2012 by reducing selling price.
You are required to calculate the following
i) Sales for 2012 in ₹
ii) Fixed cost for 2012
ii) reak-even sales for 2012 in Rupees.

Q.31 During a particular period A C Ltd has furnished the following data
Sales ₹10,00,000
NB Contribution to sales ratio 3 % and
Margin of safety is 25% of sales.
PN A decrease in selling price and decrease in the fixed cost could change the
contribution to sales ratio to 30% and margin of safety to 40% of the revised sales.
Calculate
Marginal Costing

(i) Revised Fixed Cost.

(ii) Revised Sales and
(iii) New reak-Even Point.
289 MARGINAL COSTING
 Q.32 The following information is given by Star Ltd.
Margin of Safety ` 1,87,500
Total Cost ` 1,93, 50
NB
Margin of Safety 3, 50 units
PN reak-even Sales 1,250 units Required
Calculate Profit, P V Ratio, EP Sales (in `) and Fixed Cost.

Q.33 P Ltd. reports the following cost structure at two capacity levels

NB (100% capacity) ( 5% capacity)

2,000 units 1,500 units
PN
Production overhead I ₹ 3 per unit ₹ 4 per unit
Production overhead II ₹ 2 per unit ₹ 2 per unit

If the selling price, reduced by direct material and labour is ₹ 8 per unit, what would
be its break-even point?

Q.34 A company has a P V ratio of 40%. y what percentage must sales be increased to
offset 20% reduction in selling price?

Q.35 A dairy product company manufacturing baby food with a shelf life of one year
furnishes the following information
NB (i) On 1st January, 201 , the company has an opening stock of 20,000 packets
whose variable cost is ` 180 per packet.
PN (ii) In 2015, production was 1,20,000 packets and the expected production in 201 is
1,50,000 packets. Expected sales for 201 is 1, 0,000 packets.
(iii) In 2015, fixed cost per unit was ` 0 and it is expected to increase by 10% in
201 . The variable cost is expected to increase by 25%. Selling price for 201 has
been fixed at ` 300 per packet.
You are required to calculate the reak-even volume in units for 201 .

Q.36 A single product company sells its product at ₹ 0 per unit. In 2010, the company
operated at a margin of safety of 40%. The fixed costs amounted to ₹ 3, 0,000 and the
variable cost ratio to sales was 80%.
NB
In 2011, it is estimated that the variable cost will go up by 10% and the fixed cost will
PN increase by 5%. Find the selling price required to be fixed in 2011 to earn the same
P V ratio as in 2010.
Assuming the same selling price of ₹ 0 per unit in 2011, find the number of units
required to be produced and sold to earn the same profit as in 2010.
Marginal Costing

CA/CS Nimeet Piti 290

Q.37 y noting P V will increase or P V will decrease or P V will not change , as the case
may be, state how the following independent situations will affect the P V ratio
NB i) An increase in the physical sales volume
ii) An increase in the fixed cost
PN
iii) A decrease in the variable cost per unit
iv) A decrease in the contribution margin
v) An increase in selling price per unit
vi) A decrease in the fixed cost
vii) A 10% increase in both selling price and variable cost per unit
viii) A 10% increase in the selling price per unit and 10% decrease in the physical
sales volume
ix) A 50% increase in the variable cost per unit and 50% decrease in the fixed cost.
An increase in the angle of incidence.

Q.38 A Company sells two products, J and . The sales mix is 4 units of J and 3 units of .
The contribution margins per unit are ₹ 40 for J and ₹ 20 for . Fixed costs are
₹ ,1 ,000 per month.
Compute the break-even point.
Q.39 Marlboro Ltd. as factories for producing cigarettes of identical quality. The figures of
F Y 2011 12 are as follows

NB Factory - A Factory – B
Selling price per packet (`) 75 75
PN
Variable cost per packet (`) 0 5
Fixed cost (`) 3,10,000 2,15,000
Sales (units) 35,000 40,000
Production capacity (units) 40,000 45,000

Fixed cost includes depreciation on plant and machinery in factory A and factory
` 40,000 and ` 38,000 respectively. You are required to calculate
(i) reak even Point in sales and units for each factory separately.
(ii) Cash EP in units for each factory separately.
(iii) EP in units for company as a whole. Current product mix of factory A and
factory is 1 2.

Q.40 The product mix of a ama Ltd. is as under

NB Products
M N
PN
Marginal Costing

Units 54,000 18,000

Selling price ` .50 ` 15.00
Variable cost ` .00 ` 4.50
291 MARGINAL COSTING
 Find the break-even points in units, if the company discontinues product ‘M’ and
replace with product ‘O’. The quantity of product ‘O’ is 9,000 units and its selling price
and variable costs respectively are ` 18 and ` 9. Fixed Cost is ` 15,000.

Q.41 A company, with 90% Capacity utilization, is manufacturing a product and makes a
sale of ` 9, 45, 000 at ` 30 per unit. The cost data is as under

NB Materials ` 9.00 per unit

Labour ` .00 per unit
PN
Semi variable cost
(including variable cost of ` 4.25 per unit) ` 2,10,000

Fixed cost is ` 94,500 upto 90 % level of output (capacity). eyond this, an additional
amount of ` 15,000 will be incurred.
You are required to calculate
(i) Level of output at break even point
(ii) Number of units to be sold to earn a ne income of 10% of sales
(iii) Level of output needed to earn a profit of ` 1,41,375

Q.42 Omega Ltd manufactures a product, currently utilising 5% capacity with a turnover of
` 99,00,000 at ` 2 5 per unit. The cost data is as under.

NB Amount (`)
Direct Material per unit 9
PN
Direct wages per unit 42
Variable overhead per unit 18
Semi - variable overheads ,32,000
P V ratio 40%

Fixed overhead cost is ` 28,81,000 upto 80% level of activity, beyond this level, an
additional ` 2,38,500 will be incurred.
Required
(i) reak - even point in units and activity level at reak - even point.
(ii) Number of units to be sold to earn profit of ` 25 per unit

Q.43 Maryanne Petrochemicals Ltd. is operating at 80% capacity and presents the following
information

NB reak-even Sales ` 400 crores

P V Ratio 30%
PN
Marginal Costing

Margin of Safety ` 120 crores

CA/CS Nimeet Piti 292

 Maryanne’s management has decided to increase production to 95% capacity level
with the following modification
a) The selling price will be reduced by 10%
b) The variable cost will be increased by 2% on sales
c) The fixed costs will increased by ` 50 crores, including depreciation on additions,
but excluding interest on additional capital
Required
i) Indicate the sales figure, with the working, that will be needed to earn ` 20 crores
over and abovethe present profit and also met 15% interest on the additional
capital
ii) What will be the revised
a) reak-even Sales b) PV Ratio c) Margin of Safety

Q.44 You are given the following data for the year 2015 of Rio Co. Ltd.

NB Variable cost 0,000 0%

Fixed cost 30,000 30%
PN
Net profit 10,000 10%
Sales 1,00,000 100%

Find out (a) reak-even point. (b) P V ratio, and (c) Margin of safety. Also draw a
break-even chart showing contribution and profit.

Q.45 Arnav Ltd. Manufacture and sales its product R-9. The following figures have been
collected from cost records of last year for the product R-9.

NB Elements of Cost Variable Cost prortion Fixed Cost

Direct Material 30% of Cost of oods Sold -
PN
Direct Labour 15% of Cost of oods Sold -
Factory Overhead 10% of Cost of oods Sold ` 2,30,000
eneral Administration Overhead 2% of Cost of oods old ` 71,000
Selling Distribtion Overhead 4% of Cost of Sales ` 8,000

Last Year 5,000 units were sold at ` 185 per unit. From the given data find the
following
(a) reak-even Sales (in rupees) (b) Profit earned during last year
(c) Margin of safely (in %)
(d) Profit if the sales were 10% less then the actual sales.
Marginal Costing

293 MARGINAL COSTING

 Decision Making
Q.46 Aditya Limited manufactures three different products and the following information
has been collected from the books of accounts

Products
NB S T U

PN Sales Mix 35% 35% 30%

Selling Price ` 300 ` 400 ` 200
Variable Cost ` 150 ` 200 ` 120
Total Fixed Costs ` 18,00,000
Total Sales ` 0,00,000

The company has currently under discussion, a proposal to discontinue the

manufacture of Product U and replace it with Product M, when the following results
are anticipated

Products
S T U
Sales Mix 50% 25% 25%
Selling Price ` 300 ` 400 ` 300
Variable Cost ` 150 ` 200 ` 150
Total Fixed Costs ` 18,00,000
Total Sales ` 4,00,000

Required
(i) COMPUTE the PV ratio, total contribution, profit and reak-even sales for the
existing product mix.
(ii) COMPUTE the PV ratio, total contribution, profit and reak-even sales for the
proposed product mix.

Q.47 A company can make any one of the 3 products , Y or in a year. It can exercise its
option only at the beginning of each year. Relevant information about the products
for the next year is given below.

NB X Y Z

PN Selling Price (Rs. unit) 100 120 120

Variable Costs (Rs. unit) 0 90 0
Market Demand (unit) 3,000 2,000 1,000
Marginal Costing

Production Capacity (unit) 2,000 3,000 900

Fixed Costs (Rs.) 3,00,000

CA/CS Nimeet Piti 294

 Required
COMPUTE the opportunity costs for each of the products.

Q.48 M. . Ltd. manufactures and sells a single product whose selling price is ` 40 per unit
and the variable cost is ` 1 per unit.
NB (i) If the Fixed Costs for this year are ` 4,80,000 and the annual sales are at 0%
margin of safety, calculate the rate of net return on sales, assuming an income
PN tax level of 40%
(ii) For the next year, it is proposed to add another product line Y whose selling
price would be ` 50 per unit and the variable cost ` 10 per unit. The total fixed
costs are estimated at ` , , 00. The sales mix of Y would be 3. At what
level of sales next year, would M. . Ltd. break even? ive separately for both
and Y the break- even sales in rupee and quantities.

Q.49 P ems Ltd. is manufacturing readymade suits. It has annual production capacity of
2,000 pieces. The Cost Accountant has presented following information for the year to
the management

NB Particulars Amount (`) Amount (`)

Sales 1,500 pieces ` 1,800 per piece 27,00,000
PN
Direct Material 5,94,200
Direct Labour 4,42, 00
Overheads (40% Fixed) 11,9 ,000 22,33,800
Net Profit 4, ,300
Evaluate following options
(i) If selling price is increased by ` 200, the sales will come down to 0% of the total
annual capacity. Should the company increase its selling price?
(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN
with ready-made suit. The cost of each TIEPIN is ` 18. Calculate the sales to earn
a profit of 20% on sales.

Q.50 Following data is available from the costing department of Aarya Ltd. which
manufactures and markets a single product

NB Material Rs. 32 per unit Fixed Cost (Rs.) Rs. 10,00,000

Conversion Cost (Variable) Rs. 24 per unit Present Sales 90,000
PN
(units)
Dealer’s Margin (10% of Sales) Rs. 8 per unit Capacity 0%
Utilization
Marginal Costing

Selling Price Rs. 80 per unit

295 MARGINAL COSTING

 There is acute competition in the market, thus extra efforts are necessary to enhance
the sales. For this, following suggestions have been proposed
(i) Reducing selling price by 5 per cent.
(ii) Increasing dealer s margin by 20 per cent over the existing rate.
Which of these two suggestions would you RECOMMEND, if the company desires to
maintain the present profit? IVE REASONS.

Q.51 The profit for the year of R.J. Ltd. works out to 12.5% of the capital employed and the
relevant figures are as under
NB Sales ` 5,00,000
Direct Materials ` 2,50,000
PN Direct Labour ` 1,00,000
Variable Overheads ` 40,000
Capital Employed ` 4,00,000

The new Sales Manager who has oined the company recently estimates for next year
a profit of about 23% on capital employed, provided the volume of sales is increased
by 10% and simultaneously there is an increase in Selling Price of 4% and an overall
cost reduction in all the elements of cost by 2%.
Required
Find out by computing in detail the cost and profit for next year, whether the proposal
of Sales Manager can be adopted.

Q.52 LR Ltd. is considering two alternative methods to manufacture a new product it

intends to market. The two methods have a maximum output of 50,000 units each
and produce identical items with a selling price of ` 25 each. The costs are

NB Method-1 Method-2
Semi-Automatic Fully-Automatic
PN (`) (`)
Variable cost per unit 15 10
Fixed costs 1,00,000 3,00,000
You are required to calculate
(1) Cost Indifference Point in units. Interpret your results.
(2) The reak-even Point of each method in terms of units.
Marginal Costing

CA/CS Nimeet Piti 296

Q.53 The following are cost data for three alternative ways of processing the clerical work
for cases brought before the LC Court System

NB A Manual Semi- C Fully-

(`) Automatic (`) Automatic (`)
PN
Monthly fixed costs
Occupancy 15,000 15,000 15,000
Maintenance contract --- 5,000 10,000
Equipment lease --- 25,000 1,00,000
Unit variable costs (per report)
Supplies 40 80 20
Labour `200 (5 hrs ` 0 (1 hr `20 (0.25 hr
`40) ` 0) `80)

Required
(i) Calculate cost indifference points. Interpret your results.
(ii) If the present case load is 00 cases and it is expected to go up to 850 cases
inear future, which method is most appropriate on cost considerations?

Q.54 Y Ltd. makes two products and Y, whose respective fixed costs are F1 and F2. You
are given that the unit contribution of Y is one fifth less than the unit contribution of
NB , that the total of F1 and F2 is ` 1,50,000, that the EP of is 1,800 units (for EP of
F2 is not considered) and that 3,000 units is the in difference point between and Y.
PN (i.e. and Y make equal profits at 3,000 unit volume, considering their respective fixed
costs). There is no inventory build up as whatever is produced is sold.
Required
Find out the values F1 and F2 and units contributions of and Y.

Q.55 Ltd. supplies spare parts to an air craft company Y Ltd. The production capacity of
Ltd. facilitates production of any one spare part for a particular period of time. The
following are the cost and other information for the production of the two different
NB spare parts A and
Per unit Part A Part
PN
Alloy usage 1. kgs. 1. kgs.
Machine Time Machine A 0. hrs. 0.25 hrs.
Machine Time Machine 0.5 hrs. 0.55 hrs.
Target Price (`) 145 115
Total hours available Machine A 4,000 hours
Machine 4,500 hours
Marginal Costing

Alloy available is 13,000 kgs. ` 12.50 per kg.

Variable overheads per machine hours Machine A ` 80
Machine ` 100

297 MARGINAL COSTING

 Required
(i) Identify the spare part which will optimize contribution at the offered price.
(ii) If Y Ltd. reduces target price by 10% and offers ` 0 per hour of unutilized
machinehour, what will be the total contribution from the spare part identified
above?

Q.56 Moon Ltd. produces products , Y and and has decided to analyse it s production
mix in respect of these three products - , Y and .
You have the following information
Y
NB Direct Materials ` (per unit) 1 0 120 80
Variable Overheads ` (per unit) 8 20 12
PN Direct labour

Departments: Rate per Hour (`) Hours per unit Hours per unit Hours per unit
Y
Department-A 4 10 5
Department- 8 15 11

From the current budget, further details are as below

X Y Z
Annual Production at present (in units) 10,000 12,000 20,000
Estimated Selling Price per unit (`) 312 400 240
Sales departments estimate of possible 12,000 1 ,000 24,000
sales in the coming year (in units)

There is a constraint on supply of labour in Department-A and its manpower cannot

be increased beyond its present level.
Required
(i) Identify the best possible product mix of Moon Ltd.
(ii) Calculate the total contribution from the best possible product mix.
Marginal Costing

CA/CS Nimeet Piti 298

 Additional Questions
Q.57 A company manufactures and sells a product, the price of which is controlled by the
overnment. Raw material required for this product is also made available at a fixed
controlled price. The following figures have been called for the previous two
NB accounting years of the company

PN Year- I Year- II
uantity Sold (tones) 1,2 ,000 1,44,000
Price per tone ` 185 ` 185
(` In thousands)
Sales Value 23,310 2 , 40
Raw Materials 11,340 12,9 0
Direct Labour 1,512 1,8 2
Factory, Administration and Selling Expenses 9, 02 11,232
Profit 5 5

During the year II direct labour rates increased by 8 1 3%. Increases in factory,
administration and selling expenses during the year were ` 8,10,000 on account of
factors other than the increased quantities produced and sold. The managing director
desires to know, what quantity if they had produced and sold would have given the
company the same net profit per tonne in Year II as it earned during the Year I
Advise him.

Q.58 At budget activity of 80% of total capacity, a company earns a P V ratio of 30% and a
profit of 15% of total sales. Due to covid pandemic resulting in poor demand, the
company has to reduce its selling price by 10%. The company was able to achieve a
NB
production and sales volume for the year equivalent to 50% of total capacity. The
sales value at this level was ` 2 ,00,000 at a reduced price of ` 18 per unit. Due to
PN
reduction in production, the actual variable cost went up by 5% of the budget.
You are required to
(i) PREPARE statement of profitability at budget and actual activity.
(ii) FIND P V ratio and ES (in ` and unit of the actual sales activity).
Marginal Costing

145
299 MARGINAL COSTING
 Q.59 A company makes 1,500 units of a product for which the profitability statement is
given below

NB (`)
Sales 1,20,000
PN
Direct Materials 30,000
Direct Labour 35,000
Variable Overheads 15,000
Fixed Cost 1 ,800
Profit 22,200

After the first 500 units of production, the company has to pay a premium of ` 5 per
unit towards overtime labour. The premium so paid has been included in the direct
labour cost of ` 35,000 given above.

Q.60 R Ltd. produces and sells 0,000 units of product AN , at its Noida Plant. The selling
price of the product is ` 15 per unit. The variable cost is 80% of selling price per unit.
Fixed cost during this period is ` 4,20,000. The company is continuously suffering
NB losses, and management plans to shut down the Noida Plant.

PN The fixed cost is expected to be reduced by ` 2,50,000.

Additional costs of plant shut down are expected at ` 25,000.
You are required to comment on
(i) Whether the Noida plant be shut down?
(ii) Find the shut-down point in units.

Q.61 An agriculture based company having 210 hectares of land is engaged in growing
three different cereals namely, wheat, rice and maize annually. The yield of the
different crops and their selling prices are given below
NB
Wheat Rice Maize
PN
Yield (in kgs per hectare) 2,000 500 100
Selling Price (` per kg) 20 40 250

The variable cost data of different crops are given below

fi ures n ` per kg)

Crop Labour charges Packing Materials Other variable expenses

Wheat 8 2 4
Rice 10 2 1
Marginal Costing

Maize 120 10 20

CA/CS Nimeet Piti 300

 Crop Maximum Area (in hectares) Minimum Area (in hectares)
Wheat 1 0 100
Rice 50 40
Maize 0 10

You are required to

(i) Rank the crops on the basis of contribution per hectare.
(ii) Determine the optimum product mix considering that all the three cereals are to
be produced.
(iii) Calculate the maximum profit which can be achieved if the total fixed cost per
annum is ` 21,45,000.
(Assume that there are no other constraints applicable to this company)

Q.62 A dairy product company manufacturing baby food with a shelf life of one year
furnishes the following information
NB (i) On 1st April, 2023, the company has an opening stock of 20,000 packets whose
variable cost is ` 180 per packet.
PN (ii) In 2022-23, production was 1,20,000 packets and the expected production in
2023-24 is 1,50,000 packets. Expected sales for 2023-24 is 1, 0,000 packets.
(iii) In 2022-23, fixed cost per unit was ` 0 and it is expected to increase by 10% in
2023-24. The variable cost is expected to increase by 25%. Selling price for
2023-24 has been fixed at ` 300 per packet.
You are required to calculate the reak-even volume in units for 2023-24.

Q.63 RPP Manufacturers is approached by an international customer for one-time special

order similar to one offered to its domestic customers. Per unit data for sales to
regular customers is provided below
NB
Direct material ` 93
PN Direct labour ` 315
Variable manufacturing support ` 504
Fixed manufacturing support ` 1092
Total manufacturing costs ` 2 04
Markup (50%) ` 1302
Targeted selling price ` 390

It is provided that RPP Manufacturers has excess capacity.

Marginal Costing

301 MARGINAL COSTING

 It is provided that RPP Manufacturers has excess capacity.
Required
(i) W AT is the full cost of the product per unit?
(ii) W AT is the contribution margin per unit?
(iii) W IC costs are relevant for making the decision regarding this one-time special
order? W Y?
(iv) For RPP Manufacturers, W AT is the minimum acceptable price of this
onetime-special order only
(v) For this one-time-only special order, S OULD RPP Manufacturers consider a
price of ` 2100 per unit? W Y or why not?

Q.64 The lab corner of Newlife ospital Trust operates two types of specialist MRI scanning
machine- MR10 and MR59. Following details are estimated for the next period

NB Machine MR10 MR59

Running hours 1,100 2,000
PN
(`) (`)
Variable running costs excluding special technology 8, 50 1, 0,000
Fixed Costs 50,000 2,43, 50

A brain scan is normally carried out on machine type MR10. This task uses special
technology costing ` 100 each and takes four hours of machine time. ecause of the
nature of the process, around 10% of the scans produce blurred and therefore seless
results.
Required
(i) CALCULATE the total cost of a satisfactory brain scan on machine type MR10.
(ii) rain scans can also be done on machine type MR59 and would take only 1.8
hours per scan with a reduced re ect rate of %. owever, the cost of the special
technology would be ` 13 .50 per scan. ADVISE which type should be used,
assuming sufficient capacity is available on both types of machines. Consider
fixed costs will remain unchanged.

Q.65 N Ltd. has an annual fixed cost of ` 98,50,000. In the year 2022-23, sales amounted
to ` ,80, 0,000 as compared to ` 5,93,10,000 in the preceding year 2021-22. Profit in
the year 2022-23 is ` 3 ,50,000 more than that in 2021-22.
NB
Required
PN (i) CALCULATE reak-even sales of the company.
(ii) DETERMINE profit loss on a forecasted sales volume of ` 8,20,00,000.
(iii) If there is a reduction in selling price by 10% in the financial year 2022-23 and
company desires to earn the same amount of profit as in 2021-22, COMPUTE the
required sales amount?
Marginal Costing

CA/CS Nimeet Piti 302

Q.66 A manufacturing concern was operating at margin of safety of 40% in the year 2018
and was selling its product at ` 5 per unit. Variable cost ratio to sales was 80% and
fixed costs amounted to ` 5,40,000.
NB In the year 2019, the concern anticipates an increase in the variable costs and fixed
costs by 15% and 5% respectively.
PN You are required to
Find out the selling price to be fixed in the year 2019 keeping in view that concern is
willing to maintain the same P V ratio as it was in the year 2018.

Q.67 MNP Company Limited produces two products A and . The relevant cost and sales
data per unit of output is as follows.

NB Particulars Product A Product B

(`) (`)
PN
Direct material 55 0
Direct labour 35 45
Variable factory overheads 40 20
Selling Price 180 1 5

The availability of machine hours is limited to 55,000 hours for the month. The
monthly demand for product ‘A’ and product is 5,000 units and ,000 units,
respectively. The fixed expenses of the company are ` 1,40,000 per month. Variable
factory overheads are ` 4 per machine hour. The company can produce both
products according to the market demand.
Required
Calculate the product mix that generates maximum profit for the company in the
situation and also calculate profit of the company.

Q.68 Top-tech a manufacturing company is presently evaluating two possible machines for
the manufacture of superior Pen-drives. The following information is available

NB Particulars Machine A Machine B

Selling price per unit ` 400.00 ` 400.00
PN
Variable cost per unit ` 240.00 ` 2 0.00
Total fixed costs per year ` 350 lakhs ` 200 lakhs
Capacity (in units) 8,00,000 10,00,000

Required
(i) Recommend which machine should be chosen?
(ii) Would you change your answer, if you were informed that in near future
Marginal Costing

demand will be unlimited and the capacities of the two machines are as follows?
Machine A - 12,00,000 units
Machine - 12,00,000 units
Why?
303 MARGINAL COSTING
 Q.69 Two manufacturing companies A and are planning to merge. The details are as
follows
NB A B
Capacity utilisation (%) 90 0
PN
Sales (`) 3,00,000 48,00,000
Variable Cost (`) 39, 0,000 22,50,000
Fixed Cost (`) 13,00,000 15,00,000
Assuming that the proposal is implemented, calculate
(i) reak-Even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales Turnover of the merged plant to earn a profit of ` 0,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of ` 0,00,000,
what percentage of increase in selling price is required to sustain an increase of
5% in fixed overheads.

Q.70 A company has prepared its budget for the production of 2,00,000 units. The
variable cost per unit is ` 1 and fixed cost is ` 4 per unit. The company fixes its selling
price to fetch a profit of 20% on total cost.
You are required to calculate
NB
(i) Present break-even sales (in ` and in quantity).
PN (ii) Present profit-volume ratio.
(iii) Revised break-even sales in ` and the revised profit-volume ratio, if it reduces its
selling price by 10%.
(iv) What would be revised sales- in quantity and the amount, if a company desires a
profit increase of 20% more than the budgeted profit and selling price is reduced
by 10% as above in point (iii).

Q.71 A company which manufactures and sells three products furnishes the following
details for a month

NB Products A B C

PN Number of units sold 50,000 19,000 23,000

Selling Price per unit (`) 25 40 30
Variable cost per unit (`) 1 2 12

The fixed costs of the company amount to ` ,15,000 per month.

Required
(i) Calculate the current monthly Profit volume ratio and reak-even sales (in `)
Marginal Costing

of the company.

CA/CS Nimeet Piti 304

 (ii) Company plans to reduce selling price of product C to increase the sales
volume. y implementing the plan, it is expected that the profit volume ratio
of the product C will be reduced to 50%. Determine the sales price per unit
and sales units of product C required to maintain the existing amount of the
contribution of the company. Also compute the effect on the company s profit
volume ratio and EP (in `).
(iii) It has been proposed to undertake an intensive advertisement campaign
involving an expenditure of ` 0,000 per month and to reduce selling price of
product C to ` 24. Calculate the additional sales units required per month of
product C to ustify the expenditure on advertisement while maintaining
existing contribution.

Q.72 LNP Ltd. and MNT Ltd. are engaged in manufacturing of identical products. Existing
revenue and cost data is as follows

NB LNP Ltd. (`) MNT Ltd. (`)

Sales 13, 0,000 1 ,00,000
PN
Variable Cost 10,88,000 10,20,000
Fixed Cost 1, 2,000 5,80,000

You are required to calculate

(i) reak-even point (in Value) for each company
Sales at which each company will earn a profit of ` 5,00,000.
Sales at which both companies will have same profits.

Q.73 Arnav Ltd. is producing a single product, has the profit-volume ratio of 40%. The
company wishes to increase the selling price by 10% which will increase the variable
cost by 5%. The fixed overheads will increase from its present level of Rs.20,00,000 to
Rs.30,00,000.
NB Required
(i) Compute the company’s original break-even point sales and the break-even
PN
point sales after the increase.
(ii) You are also required to ascertain the sales value for the firm to make a profit of
Rs.4,50,000 after the increase.
Marginal Costing

305 MARGINAL COSTING

 Q.74 The M-Tech Manufacturing Company is presently evaluating two possible processes
for the manufacture of a toy. The following information is available

NB Particulars Process A (`) Process B (`)

Variable cost per unit 12 14
PN
Sales price per unit 20 20
Total fixed costs per year 30,00,000 21,00,000
Capacity (in units) 4,30,000 5,00,000
Anticipated sales (Next year, in units) 4,00,000 4,00,000

Suggest
1. Identify the process which gives more profit.
2. Would you change your answer as given above, if you were informed that the
capacities of the two processes are as follows
A - ,00,000 units - 5,00,000 units?
Marginal Costing

CA/CS Nimeet Piti 306

 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 1 uestion 29

uestion 2 uestion 30

uestion 3 uestion 31

uestion 4 uestion 32

uestion 5 uestion 33

uestion uestion 34

uestion uestion 35

uestion 8 uestion 3

uestion 9 uestion 3

uestion 10 uestion 38

uestion 11 uestion 39

uestion 12 uestion 40

uestion 13 uestion 41

uestion 14 uestion 42

uestion 15 uestion 43

uestion 1 uestion 44

uestion 1 uestion 45

uestion 18 uestion 4

uestion 19 uestion 4

uestion 20 uestion 48

uestion 21 uestion 49

uestion 22 uestion 50

uestion 23 uestion 51

uestion 24 uestion 52

uestion 25 uestion 53

uestion 2 uestion 54

uestion 2 uestion 55

uestion 28 uestion 5
Marginal Costing

145
307 MARGINAL COSTING
 Progress Sheet
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
uestion 5 uestion

uestion 58 uestion

uestion 59 uestion 8

uestion 0 uestion 9

uestion 1 uestion 0

uestion 2 uestion 1

uestion 3 uestion 2

uestion 4 uestion 3

uestion 5 uestion 4
Marginal Costing

145
308 MARGINAL COSTING
15
BUDGETS
AND
BUDGETARY
CONTROL
 Flexible Budgets
Budgets

Q.1 A factory which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes
details of expenses as under:
NB Variable expenses ` 1,260
Semi-variable expenses ` 1,200
PN
Fixed expenses ` 1,800

The semi-variable expenses go up by 10% between 85% and 95% activity and by 20%
above 95% activity. Construct a flexible budget for 80, 90 and 100 per cent activities.

Q.2 A department of Company X attains sale of ` 6,00,000 at 80 per cent of its normal
capacity and its expenses are given below:

NB Administration costs: (`)

Office salaries 90,000
PN
General expenses 2 per cent of sales
Depreciation 7,500
Rates and taxes 8,750
Selling costs:
Salaries 8 percent of sales
Travelling expenses 2 percent of sales
Sales office expenses 1 percent of sales
General expenses 1 per cent of sales
Distribution costs:
Wages 15,000
Rent 1 percent of sales
Other expenses 4 percent of sales

Draw up flexible administration, selling and distribution costs budget, operating at 90

per cent, 100 per cent and 110 per cent of normal capacity.

CA/CS Nimeet Piti 310

Q.3 M/s NNSG Ltd, specialized in manufacturing of piston rings for motor vehicle. It has
prepared budget for 8,000 units per annum at budgeted cost of ` 21,64,400 as
detailed below:

Budgets
NB (`) (`)
Fixed cost (Manufacturing) 2,28,000
PN
Variable costs:
Power
Repairs, etc. 18,000
Other variable cost 16,000
Direct material 6,400
Direct labour 6,16,000
12,80,000
19,36,400
21,64,400

Considering the possible impact on sales turnover by market trends, the

company decides to prepare flexible budget with a production target of 4,000 and
,000 units. On behalf of the company you are required to prepare a flexible budget
for production levels at 50% and 75%.
Assuming the selling price per unit is maintained at ` 400 as at present, indicate the
effect on net profit. Administration, selling and distribution overheads continue at
` 72,000.

Q.4 Pentax Limited has prepared its expense budget for 20,000 units in its factory for the
year 2013 as detailed below:

NB (` per unit)

PN Direct Materials 50
Direct Labour 20
Variable Overhead 15
Direct Expenses 6
Selling Expenses (20% fixed) 15
Factory Expenses (100% fixed)
Administration expenses (100% fixed) 4
Distribution expenses (85% variable) 12
Total 129

Prepare an expense budget for the production of 15,000 units and 18,000 units.

311 BUDGETS AND BUDGETARY CONTROL

 Q.5 RST, Limited is presently operating at 50% capacity and producing 30000 units. The
entire output is sold at a price of ` 200 per unit. The cost structure at the 50% level of
activity is as under
Budgets

NB (`)
Direct Material 25 per unit
PN
Direct Wages 25 per unit
Variable Overheads 15 per unit
Direct Expenses 20 per unit
Factory Expenses (25% fixed) 10 per unit
Selling and Distribution Exp. (80% variable) 5 per unit
Office and Administrative Exp. (100% fixed) 5 per unit

The company anticipates that the variable costs will go up by 10% and fixed costs will
go up by 15%.
You are required to prepare an Expense budget, on the basis of marginal cost for the
company at 50% and 0% level of activity and find out the profits at respective levels.

Q.6 S Ltd. has prepared budget for the coming year for its two products A and .

NB Product A (`) Product B (`)

Production Sales unit ,000 units 9,000 units
PN
Raw material cost per unit 60.00 42.00
Direct labour cost per unit 30.00 18.00
Variable overhead per unit 12.00 6.00
Fixed overhead per unit 8.00 4.00
Selling price per unit 120.00 78.00

After some marketing efforts, the sales quantity of the Product A can be increased
by 1,500 units and 500 units respectively but for this purpose the variable overhead
and fixed overhead will be increased by 10% and 5% respectively for the both
products.
You are required to prepare flexible budget for both the products
i) efore marketing efforts
ii) After marketing efforts.

CA/CS Nimeet Piti 312

 Budgetary Control
Q.7 A C Ltd. is currently operating at 5% of its capacity. In the past two years, the levels
of operations were 55% and 65% respectively. Presently, the production is 75,000
units. The company is planning for 85% capacity level during 20X3-20X4. The cost

Budgets
details are as follows:

Budgets and
NB 55% (`) 65% (`) 75% (`)
Direct Materials 11,00,000 13,00,000 15,00,000
PN
Direct Labour 5,50,000 6,50,000 7,50,000
Factory Overheads 3,10,000 3,30,000 3,50,000
Selling Overheads 3,20,000 3,60,000 4,00,000
Administrative Overheads 1,60,000 1,60,000 1,60,000
24,40,000 28,00,000 31,60,000

Profit is estimated 20% on sale

The following increases in costs are expected during the year
Profit is estimated 20% on sale
The following increases in costs are expected during the year
Direct material 8%
Direct labour 5%
Variable factory overheads 5%
Variable selling overheads 8%
Fixed factory overheads 10%
Fixed selling overheads 15%
Prepare flexible budget for the period 20 3-20 4 at 85% level of capacity. Also
ascertain profit and contribution.

Q.8 The accountant of manufacturing company provides you the following details for
year 2012

NB (`) (`)
Direct material 1,75,000 Other variable costs 80,000
PN
Direct wages 1,00,000 Other fixed costs 80,000
Fixed factory overheads 1,00,000 Profit 1,15,000
Variable factory overheads 1,00,000 Sales 7,50,000

During the year, the company manufactured two products A and and the output
and costs were:

313 BUDGETS AND BUDGETARY CONTROL

 A B
Output (units) 2,00,000 1,00,000
Budgets

Sell price per unit 2 3.5

Direct materials per unit 0.5 0.75
Direct wages per unit 0.25 0.5

Variable factory overhead is absorbed as a percentage of direct wages. Other variable

costs have been computed as: Product A ` 0.25 per unit and ` 0.30 per unit.
During 2013, it is expected that the demand for product A will fall by 25 % and for
by 50%.
It is decided to manufacture a further product C, the cost for which are estimated as
follows:

Product C
Output (units) 2,00,000
Selling price per unit 1.75
Direct materials per unit 0.4
Direct wages per unit 0.25

It is anticipated that the other variable costs per unit will be the same as for product A.
Prepare a budget to present to the management, showing the current position and the
position for 2013. Comment on the comparative results.

Q.9 The information of Z Ltd. for the year ended 31st March 2020 is as below:

NB Amount (`)
Direct materials 17,50,000
PN
Direct wages 12,50,000
Variable factory overhead 9,50,000
Fixed factory overhead 12,00,000
Other variable costs 6,00,000
Other fixed costs 4,00,000
Profit 8,50,000
Sales 70,00,000

During the year, the company manufactured two products, X and Y, and the output and
cost were:

CA/CS Nimeet Piti 314

 X Y
Output (units) 8,000 4,000

Budgets
Selling price per unit (`) 600 550
Direct material per unit (`) 140 157.50
Direct wages per unit (`) 90 132.50

Variable factory overheads are absorbed as a percentage of direct wages and other
variable costs are computed as:
Product X – `40 per unit and Product Y- `70 per unit.
For the FY 2020-21, due to a pandemic, it is expected that demand for product X and Y
will fall by 20% 10% respectively. It is also expected that direct wages cost will raise
by 20% and other fixed costs by 10%. Products will be required to be sold at a
discount of 20%.
You are required to:
(i) PREPARE product- wise profitability statement on marginal costing method for
the FY 2019-20 and
(ii) PREPARE a budget for the FY 2020-21.

Q.10 Action Plan Manufacturers normally produce 8,000 units of their product in a month,
in their Machine Shop. For the month of January, they had planned for a production of
10,000 units. Owing to a sudden cancellation of a contract in the middle of January,
NB
they could only produce 6,000 units in January.
PN Indirect manufacturing costs are carefully planned and monitored in the Machine
Shop and the Foreman of the shop is paid a 10% of the savings as bonus when in any
month the indirect manufacturing cost incurred is less than the budgeted provision.
The Foreman has put in a claim that he should be paid a bonus of ` 88.50 for the
month of January. The Works Manager wonders how anyone can claim a bonus when
the Company has lost a sizeable contract. The relevant figures are as under

Indirect manufacturing Expenses for Planned Actual in

a month (`) for January (`) January (`)
Salary of foreman 1,000 1,000 1,000
Indirect labour 720 900 600
Indirect material 800 1,000 700
Repairs and maintenance 600 650 600
Power 800 875 740
Tools consumed 320 400 300
Rates and taxes 150 150 150
Depreciation 800 800 800
Insurance 100 100 100
5,290 5,875 4,990

315 BUDGETS AND BUDGETARY CONTROL

 Do you agree with the Works Manager? Is the Foreman entitled to any bonus for the
performance in January? Substantiate your answer with facts and figures.
Budgets

Q.11 Tricon Co. furnishes the following information for the month of September, 2020.

NB Particulars Budget Details Static Budget Actual

Units produced Sold 4,000 3,200
PN
(Rs.) (Rs.)
Direct Material 3 kg p.u. Rs. 30 per kg. 3, 0,000 3,10,000
Direct Labour 1 hr. p.u. Rs. 2 per hr. 2,88,000 2,25, 00
Variable Overhead 1 hr. p.u. Rs. 44 per hr. 1, ,000 1,4 ,200
Fixed Overhead 1,80,000 1,68,000
Total Cost 10,04,000 8,50,800
Sales 12,00,000 8,96,000
Profit 1,9 ,000 45,200

During the month 10,000 kg. of materials and 3,100 direct labour hours were utilized.
Required:
(i) PREPARE a flexible budget for the month.
(ii) DETERMINE the material usage variance and the direct labour rate variance for
the actual vs the flexible budget.

Q.12 Float glass Manufacturing Company requires you to present the Master budget for
the next year from the following information:

NB Sales:
Toughened Glass ` 6,00,000
PN
ent lass ` 2,00,000
Direct material cost 60% of sales
Direct wages 20 workers ` 150 per month

Factory overheads:
Indirect labour –
Works manager ` 500 per month
Foreman ` 400 per month
Stores and spares 2.5% on sales
Depreciation on machinery ` 12,600
Light and power ` 3,000
Repairs and maintenance ` 8,000
Others sundries 10% on direct wages
Administration, selling and distribution expenses ` 36,000 per year
CA/CS Nimeet Piti 316
 Functional Budgets

Budgets
Q.13 Quarters I II III IV
NB No. of units to be sold 18,000 22,000 25,000 27,000

PN The year is expected to open with an inventory of ,000 units of finished products and
close with inventory of 8,000 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 ` 40. The standard cost details for one unit of
the product are as follows:
Variable Cost ` 34.50 per unit
Fixed Overheads 2 hours 30 minutes ` 2 per hour based on a budgeted production
volume of 1,10,000 direct labour hours for the year. Fixed overheads are evenly
distributed through- out the year.

You are required to:

i) Prepare uarterly Production udget for the year.
ii) In which quarter of the year, company expected to achieve break-even point.

Q.14 A single product company estimated its sales for the next year quarter-wise as under:

NB Quarter
I Sales (Units)
PN
30,000
II 37,500
III 41,250
IV 45,000

The opening stock of finished goods is 10,000 units and the company expect to
maintain the closing stock of finished goods at 1 ,250 units at the end of the year. The
production pattern in each quarter is based on 80% of the sales of the current quarter
and 20% of the sales of the next quarter.
The opening stock of raw materials in the beginning of the year is 10,000 kg.and the
closing stock at the end of the year is required to be maintained at 5,000 kg. Each unit
of finished output requires 2 kg. of raw materials.
The company proposes to purchase the entire annual requirement of raw materials in
the first three quarters in the proportion and at the prices given below

317 BUDGETS AND BUDGETARY CONTROL

 Quarter Purchase of raw material % to total annual Price per kg.
requirement in quantity
Budgets

I 30% 2
II 50% 3
III 20% 4

The value of the opening stock of raw materials in the beginning of the year is
` 20,000.
You are required to present the following for the next year, quarter wise:
i) Production budget (in units).
ii) Raw material consumption budget (in quantity).
iii) Raw material purchase budget (in quantity and value).
iv) Priced stores ledger card of the raw material using First in First out method

Q.15 Jigyasa Ltd. is drawing a production plan for its two products Minimax (MM) and
Heavy high (HH) for the year 2013-14. The company’s policy is to hold closing stock of
finished goods at 25% of the anticipated volume of sales of the succeeding month.
NB
The following are the estimated data for two products:
PN
Minimax (MM) Heavy high (HH)
udgeted Production units 1,80,000 1,20,000
Direct material cost per unit ` 220 ` 280
Direct labour cost per unit ` 130 ` 120
Manufacturing overhead ` 4,00,000 ` 5,00,000

The estimated units to be sold in the first four months of the year 2013-14 are as under

April May June July

Minimax 8,000 10,000 12,000 16,000
Heavy high 6,000 8,000 9,000 14,000

Prepare production budget for the first quarter in month wise.

Q.16 XYZ Limited is drawing a production plan for its two products – Product ‘xml’ and
‘Product ‘yml’ for the year 2015 – 16. The company’s policy is to maintain closing stock
of finished goods at 25% of the anticipated volume of sales of the succeeding month.
NB

PN

CA/CS Nimeet Piti 318

 The following are the estimated data for the two products:
xml yml

Budgets
udgeted Production (in units) 2,00,000 1,50,000
Direct Material (per unit) ` 220 ` 280
Direct Labour (per unit) ` 130 ` 120
Direct Manvufacturing Expenses ` 4,00,000 ` 5,00,000

The estimated units to be sold in the first four months of the year 2015 1
are as under:

April May June July

xml 8,000 10,000 12,000 16,000
yml 6,000 8,000 9,000 14,000

Prepare:
(i) Production udget (Month wise)
(ii) Production cost udget (for first quarter of the year)

Q.17 A Light Motor Vehicle manufacturer has prepared sales budget for the next few
months, and the following draft figures are available

NB Month No. of vehicles

October 4,000
PN
November 3,500
December 4,500
January 6,000
February 6,500

To manufacture a vehicle a standard cost of ` 2,85,700 is incurred and sold through

dealers at a uniform selling price of ` 3,95,600 to customers. Dealers are paid 12.5%
commission on selling price on sale of a vehicle.
Apart from other materials four units of Part-X are required to manufacture a vehicle.
It is a policy of the company to hold stocks of Part-X at the end of each month to cover
40% of next month’s production. 4,800 units of Part- X are in stock as on 1st October.
There are 950 nos. of completed vehicles are in stock as on 1st October and it is policy
to have stocks at the end of each month to cover 20% of the next month’s sales.
You are required to:
a) Prepare Production budget (in nos.) for the month of October, November,
December and January.
b) Prepare a Purchase budget for Part-X (in units) for the months of October,
November and December.
c) Calculate the budgeted gross profit for the quarter October to December.
319 BUDGETS AND BUDGETARY CONTROL
 Q.18 XY Co. Ltd manufactures two products viz., X and Y and sells them through two
divisions, East and West. For the purpose of Sales udget to the udget Committee,
following information has been made available for the year 2014-15:
Budgets

NB Product Budgeted Sales Actual Sales

East Division West Division East Division West Division
PN
X 400 units at `9 600 units at `9 500 units at `9 700 units at `9
Y 300 units at `21 500 units at `21 200 units at `21 400 units at `21

Adequate market studies reveal that product X is popular but under-priced. It is

expected that if the price of X is increased by ` 1, it will, find a ready market. On the
other hand, Y is overpriced and if the price of Y is reduced by ` 1 it will have more
demand in the market. The company management has agreed for the aforesaid price
changes. On the basis of these price changes and the reports of salesmen, following
estimates have been prepared by the Divisional Managers:
Percentage increase in sales over budgeted sales

Product East Division West Division

X + 10% + 5%
Y + 20% + 10%

With the help of intensive advertisement campaign, following additional sales (over
and above mentioned estimated sales by Divisional Mangers) are possible:

Product East Division West Division

X 60 units 70 units
Y 40 units 50 units

You are required to prepare Sales udget for 2015-1 after incorporating above
estimates and also show the udgeted Sales and Actual Sales of 2014-15.

Q.19 PSV Ltd. manufactures and sells a single product and estimated the following related
information for the period November, 2020 to March, 2021.

NB Particulars November, December, January, February, March,

2020 2020 2021 2021 2021
PN Opening Stock of 7,500 3,000 9,000 8,000 6,000
Finished Goods
(in Units)
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per 10 12 15 15 20
unit (in `)

CA/CS Nimeet Piti 320

 Additional Information:
Closing stock of finished goods at the end of March, 2021 is 10,000 units.

Budgets
Each unit of finished output requires 2 kg of Raw Material A and 3 kg of Raw
Material .
You are required to prepare the following budgets for the period November, 2020 to
March, 2021 on monthly basis:
(i) Sales udget (in `)
(ii) Production budget (in units) and
(iii) Raw material udget for Raw material A and separately (in units)

Q.20 Aditya Ltd. manufactures two products K and H. The sales director has anticipated to
sale 8,000 units of Product K and 4,200 units of Product H. The Standard cost data for
the products for next year are as follows:

NB Product - K Per unit Product- H Per unit

Direct materials:
PN
-Material ` 15 per kg. 12 kg. 15 kg.
-Material Y ` 16 per kg. 15 kg. 6 kg.
-Material ` 5 per ltr. 8 ltr. 14 ltr.
Direct wages:
-Unskilled ` 40 per hour 12 hours 10 hours
-Skilled ` 75 per hour 8 hours 5 hours

udgeted stocks for next year are as follows

Product- K (Units) Product- H (Units)

1st April, 2016 800 1,600
31st March, 2017 1,000 2,100
Material-X (kg) Material-Y (kg) Material-Z (ltr)
1st April, 2016 25,000 30,000 14,000
31st March, 2017 30,000 18,000 7,500

321 BUDGETS AND BUDGETARY CONTROL

 Q.21 V Ltd. produces and markets a very popular product called ‘X’. T he company is
interested in presenting its budget for the second quarter of 2019.
Budgets

The following information are made available for this purpose:

NB
(i) It expects to sell 50,000 bags of ‘X’ during the second quarter of 2019 at the
PN selling price of Rs. 900 per bag.
(ii) Each bag of ‘X’ requires 2.5 kgs. of a raw – material called ‘Y’ and 7.5 kgs. of raw –
material called ‘Z’.
(iii) Stock levels are planned as follows:

Particulars Beginning of End of Quarter

Quarter
Finished ags of ‘ ’ (Nos.) 15,000 11,000
Raw – Material ‘Y’ (Kgs.) 32,000 26,000
Raw – Material ‘Z’ (Kgs.) 57,000 47,000
Empty ag (Nos.) 3 ,000 28,000

(iv) ‘Y’ cost Rs.120 per g., ‘ ’ costs Rs.20 per g. and ‘Empty ag’ costs Rs.80 each.
(v) It requires 9 minutes of direct labour to produce and fill one bag of ‘ ’. Labour
cost is Rs.50 per hour.
(vi) Variable manufacturing costs are Rs.45 per bag. Fixed manufacturing costs
Rs.30,00,000 per quarter.
(vii) Variable selling and administration expenses are 5% of sales and fixed
administration and selling expenses are Rs.20,50,000 per quarter.
Required
(i) PREPARE a production budget for the said quarter.
(ii) PREPARE a raw material purchase budget for ‘Y’, ‘ ’ and ‘Empty ags’ for the
said quarter in quantity as well as in rupees.
(iii) COMPUT E the budgeted variable cost to produce one bag of ‘X’.
(iv) PREPARE a statement of budgeted net income for the said quarter and show
both per unit and total cost data.

Q.22 Ltd. manufactures two products called ‘M’ and ‘N’. oth products use a common raw
material . The raw material is purchased ` 36 per kg from the market. The
company has decided to review inventory management policies for the forthcoming
year.
NB
The following forecast information has been extracted from departmental estimates
PN for the year ended 31st March 2016 (the budget period):

CA/CS Nimeet Piti 322

 Product M Product N
Sales (units) 28,000 13,000

Budgets
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg
Material Z wastage (%) 10 5

Additional information:
Usage of raw material Z is expected to be at a constant rate over the period.
Annual cost of holding one unit of raw material in stock is 11% of the material cost.
The cost of placing an order is ` 320 per order.
The management of G Ltd. has decided that there should not be more than 40 orders
in a year for the raw material Z.
Required:
i) Prepare functional budgets for the year ended 31st March 2016 under the
following headings:
• Production budget for Products M and N (in units).
• Purchases budget for Material Z (in kgs and value).
ii) Calculate the Economic Order Quantity for Material Z (in kgs).
iii) If there is a sole supplier for the raw material Z in the market and the supplier do
not sale more than 4,000 kg. of material Z at a time. Keeping the management
purchase policy and production quantity mix into consideration, calculate the
maximum number of units of Product M and N that could be produced.

Q.23 Concorde Ltd. manufactures two products using two types of materials and one grade
of labour, shown below is an extract from the company’s working papers of the next
month’s budget:

NB Product-A Product-B
udgeted sales (in units) 2,400 3, 00
PN
udgeted material consumption per unit (in kg)
Material-x 5 3
Material-y 4 6
Standard labour hours allowed per unit of product 3 5

Material-X and Material-Y cost ` 4 and `6 per kg and labour are paid ` 25 per hour.
Overtime premium is 50% and is payable, if a worker works for more than 40 hours a
week. There are 180 direct workers.

323 BUDGETS AND BUDGETARY CONTROL

 The target productivity ratio (or efficiency ratio) for the productive hours worked by
the direct workers in actually manufacturing the products is 80%. In addition the
non-productive down-time is budgeted at 20% of the productive hours worked.
Budgets

There are four 5-days weeks in the budgeted period and it is anticipated that sales
and production will occur evenly throughout the whole period.
It is anticipated that stock at het beginning of the period will be:
Product-A 4000 units
Product- 200 units
Material-X 1,000 kgs.
Material-Y 500 kgs.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product - 5 days sales
Material-X 10 days consumption
Material- days consumption
Required:
Calculate the Material Purchas udget and the Wages udget for the direct workers,
showing the quantities and values, for the next month.

Q.24 Dee Cee Limited manufactures and sells two products Super and Deluxe .
Dee Cee Limited s budget department gathered the following data to prepare the
NB budgets for 2021-22

PN Super Deluxe
Expected sales (in units) 48,000 72,000
Selling price p.u. ` 750 ` 950
Expected inventory as at 01-04-2021 (units) 3,900 7,600
Target inventory as at 31-03-2022 (units) 10% of production 8% of production

Company uses materials A and in the manufacture of products Super and Deluxe .
Projected data for 2021-22 with respect to direct materials are as follows

Material Cost per kg Normal Material required per Expected inventory

( `) Wastage unit of output as at 01.04.2021
Super DeZluxe
A 60 4% 2 kg 4 kg 32,500 kg
80 4% 3 kg 2.4 kg 28,800 kg

Cost of opening stock of materials A and is ` 57 per kg and ` 75 per kg respectively.

Target inventory as on 31-03-2022 for material A and will be 10% more than the
opening inventory. Company accounts for direct materials using FIFO method.

CA/CS Nimeet Piti 324

 You are required to prepare the following budgets for the year 2021-22:
(i) Production budget (in units).

Budgets
(ii) Direct material usage budget (in quantities and rupees both).
(iii) Direct material purchase budget (in units).

Q.25 A company is engaged in the manufacture of specialized sub-assemblies required for

certain electronic equipment. The company envisages that in the forthcoming month,
December, 2012,the sales will take a pattern in the ratio of 3:4:2 respectively of
sub-assemblies, AC , MC and DP.
The following is the schedule of components required for manufacture:

NB Sub assembly Selling price ase board Component Requirement

IC08 IC12 IC26
PN
AC 520 1 8 4 2
MC 500 1 2 10
DP 350 1 2 4 8
Purchase Price - 60 20 12

The direct labour time and variable overheads required for each of the sub-assemblies
are:

Labour hours per sub-assembly

rade A rade Variable overheads per
sub-assembly (`)
AC 8 1 3
MC 12 24
DP 4 8 24
Direct wage rate per hour (`) 5 4 -

The labourers work 8 hours a day for 25 days a month. The opening stocks of
sub-assemblies and Components for December, 2012 areas under:

Sub-assemblies Components
AC 800 ase oard 1, 00
MC 1,200 IC08 1,200
DP 2,800 IC12 6,000
IC26 4,000

325 BUDGETS AND BUDGETARY CONTROL

 Fixed overheads amount to ` ,5 ,200 for the month and a monthly profit target of
` 12 lacs have been set.
The company is eager for a reduction of closing inventories for December, 2012 of
Budgets

sub-assemblies and components by 10% of quantity as compared to the opening

stock.
Prepare the following budgets for December 2012:
i) Sales budget in quantity and value.
ii) Production budget in quantity
iii) Component usage budget in quantity.
iv) Component purchase budget in quantity and value.
v) Manpower budget showing the number of workers and the amount of
wages payable.

CA/CS Nimeet Piti 326

 Budget Ratios

Budgets
Q.26 Calculate efficiency and activity ratio from the following given data
Capacity ratio = 75%
NB udgeted output 000 units
Actual output = 5000 units
PN
Standard time per unit = 4 hours.

Q.27 lueberry Ltd. Is producing two products namely I Phone and Tablet PC. Each unit of
I –phone and Tablet PC takes 12 hours and 14 hours respectively for production.
NB During the F Y 2011 12 lueberry produced 15,000 units of I Phone and 10,000
units of Tablet PC. udgeted machine hours were 3,10,000 hours. Actual hours were
PN 3,00,000. You are required to compute various control ratios.

Q.28 Following data is available for DKG and Co.:

NB Standard working hours 8 hours per day of

5 days per week
PN
Maximum capacity 50 employees
Actual capacity 40 employees
Actual hours expected to be worked per four weeks 6,400 hours
Std. hours expected to be worked per four weeks 8,000 hours
Actual hours worked in the four-week period 6,000 hours
Std. hours earned in the four-week period 7,000 hours.

The related period is of 4 weeks. In this period there was a one special day holiday
due to national event. CALCULATE the following ratios:
(1) Efficiency Ratio,
(2) Activity Ratio,
(3) Calendar Ratio,
(4) Standard Capacity Usage Ratio,
(5) Actual Capacity Usage Ratio.
( ) Actual Usage of udgeted Capacity Ratio

327 BUDGETS AND BUDGETARY CONTROL

 Additional Questions
Budgets

Q.29 Aman International School has a total of 180 students consisting of 6 sections with 30
students per section. The school plans for a picnic around the city during the
week-end to places such as Prayag zoo, the Capi Park, Azad planetarium etc. A private
NB transport operator has come forward to lease out the buses for taking the students.
Each bus will have a maximum capacity of 50 (excluding 2 seats reserved for the
PN teachers accompanying the students). The school will employ two teachers for each
bus, paying them an allowance of ` 500 per teacher. It will also lease out the required
number of buses. The following are the other cost estimates:

Cost per student (`)

reakfast 50
Lunch 100
Tea 10
Entrance fee at zoo 20

Rent ` 6500 per bus.

Special permit fee ` 500 per bus.
lock entrance fee at the planetarium ` 2500.
Prizes to students for games ` 500.
No cost are incurred in respect of the accompanying teachers (except the allowance
of ` 500 per teacher).
You are required to PREPARE:
(a) A flexible budget estimating the total cost for the levels of 0, 90,120,150 and
180 students. Each item of cost is to be indicated separately.
(b) COMPARE the average cost per student at these levels.
(c) WHAT will be your conclusions regarding the break-been level of student if the
school proposes to collect ` 400 per student?

CA/CS Nimeet Piti 328

Q.30 PS Limited is a manufacturing company and is operating at 75% capacity utilization.
The PV ratio at this level of activity is 40%.

Budgets
NB The flexible budget drafted by the company for two levels of activity is given below
Capacity utilization (75 %) Capacity utilization (100 %)
PN
Amount in ` (Lakhs) Amount in ` (Lakhs)
Direct materials 180 240
Direct wages 120 160
Power and fuel 12 16
Repairs and maintenance 18 21
Consumables 21 28
Supervision 20 20
Indirect labour 36 42
Administrative expenses 21 21
Selling expenses 18 18
Depreciation 54 54

You are required to:

i. CALCULATE the profit earned by PS Limited at 5% level of activity.
ii. CALCULATE the break-even level of activity.

Q.31 HL Limited produces and sells four varieties of beverage. The past data shows
different demand patterns for various quarters during the year. The sales quantity
NB and selling price for the month of September 2023 is as follows:

PN Sales Quantity Selling Price per unit

ot Coffee 1,40,000 Units ` 20/-
Cold Coffee 3,40,000 Units ` 40/-
Fruit Juice 4,20,000 Units ` 20/-
Carbonated Soft Drink 2,70,000 units ` 20/-

For the quarter October to December 2023, it is estimated that due to climate
changes the demand for ot Coffee would increase every month by 50% of the
previous month and the demand for Cold Coffee would decrease every month by 30%
of the previous month. The demand for Fruit Juice would decrease by 20% in the
month of October 2023 and thereafter it will remain constant. HL Limited would be
able to sell only 60,000 units, 50,000 units and 30,000 units of Carbonated Soft Drink
respectively during the months of October, November and December 2023. There
would be no change in the selling price of all the products during the next quarter.

329 BUDGETS AND BUDGETARY CONTROL

 Standard Quantity of closing stock for the period September 2023 to December 2023
is as follows:
Budgets

ot o ee o o ee ru t u e arbonate oft
Drink
September 2023 12,000 13,000 11,000 7,500
October 2023 15,000 14,000 12,000 5,500
November 2023 13,000 15,000 10,000 6,000
December 2023 11,000 16,000 13,000 7,000
You are required to prepare a Production udget (in units) and Sales udget (in units
and sales value) for the months of October, November and December 2023.

Q.32 PQR Limited manufactures three products - Product X, Product Y and Product Z. The
output for the current year is 2,50,000 units of Product X, 2,80,000 units of Product Y
NB and 3,20,000 units of Product Z respectively.
Selling price of Product X is 1.25 times of Product Z whereas Product Y can be sold at
PN double the price at which product can be sold. Product can be sold at a profit of
20% on its marginal cost.
Other information are as follows:

Product X Product Y Product Z

Direct Material Cost (Per unit) ` 20 ` 20 ` 20
Direct Wages Cost (per unit) ` 16 ` 24 ` 16

Raw material used for manufacturing all the three products is the same. Direct Wages
are paid ` 4 per labour hour, Total overhead cost of the company is ` 52,80,000 for
the year, out of which ` 1 per labour hour is variable and the rest is fixed.
In the next year it is expected that sales of product X and product Z will increase by
12% and 15% respectively and sale of product Y will decline by 5%. The total overhead
cost of the company for the next year is estimated at ` 55,08,000. The variable cost of
` 1 per labour hour remains unchanged.
It is anticipated that all other costs will remain same for the next year and there is
opening and closing stock. Selling Price per unit of each product will remain
unchanged in the next year.

Required:
Prepare a budget showing the current position and the position for the next year
clearly indicating the total product-wise contribution and profit for the company as a
whole.

CA/CS Nimeet Piti 330

Q.33 SR Ltd. is a manufacturer of arments. For the first three months of financial year
2022-23 commencing on 1st April 2022, production will be constrained by direct
labour. It is estimated that only 12,000 hours of direct labour hours will be available

Budgets
NB in each month.
PN For market reasons, production of either of the two garments must be at least 25%
of the production of the other. Estimated cost and revenue per garment are as
follows:

Shirt (`) Short (`)

Sales price 60 44
Raw Materials
Fabric 12 per metre 24 12
Dyes and cotton 6 4
Direct labour 8 per hour 8 4
Fixed Overhead 4 per hour 4 2
Profit 18 22

From the month of July 2022 direct labour will no longer be a constraint. The
companyexpects to be able to sell 15,000 shirts and 20,000 shorts in July, 2022.
There will be no opening stock at the beginning of July 2022.
Sales volumes are expected to grow at 10% per month cumulatively thereafter
throughout the year. Following additional information is available:
The company intends to carry stock of finished garments sufficient to meet 40%
of the next month s sale from July 2022 onwards.
• The estimated selling price will be same as above.
Required:
I. Calculate the number of shirts and shorts to be produced per month in the first
quarter of financial year 2022-2023 to maximize company s profit.
II. Prepare the following budgets on a monthly basis for July, August and
September 2022:
(i) Sales budget showing sales units and sales revenue for each product.
(ii) Production budget (in units) for each product.

Q.34 Maharatna Ltd., a public sector undertaking (PSU), produces product A. The
company is in process of preparing its revenue budget for the year 2022. The
company has the following information which can be useful in preparing the
NB budget:
PN (i) It has anticipated 12% growth in sales volume from the year 2021 of 4,20,000
tonnes.
(ii) The sales price of `23,000 per tonne will be increased by 10% provided
Wholesale Price Index (WPI) increases by 5%.
(iii) To produce one tonne of product A, 2.3 tonnes of raw material are required.
The raw material cost is `4,500 per tonne. The price of raw material will also
increase by 10% if WPI increase by 5%.
331 BUDGETS AND BUDGETARY CONTROL
 (iv) The projected increase in WPI for 2022 is 4%
(v) A total of 6,000 employees works for the company. The company works 26 days
in a month.
Budgets

(vi) 85% of employees of the company are permanent and getting salary as per
5- year wage agreement. The earnings per manshift (means an employee cost
for a shift of 8 hours) is ` 3,000 (excluding terminal benefits). The new wage
agreement will be implemented from 1st July 2022 and it is expected that a 15%
increase in pay will be given.
(vii) The casual employees are getting a daily wage of ` 850. The wages in linked to
Consumer Price Index (CPI). The present CPI is 165.17 points and it is expected to
be 173.59 points in year 2022.
(viii) Power cost for the year 2021 is ` 42,00,000 for 7,00,000 units (1 unit = 1 Kwh).
60% of power is used for production purpose (directly related to production
volume) andremaining are for employee quarters and administrative offices.
(ix) During the year 2021, the company has paid ` 60,00,000 for safety and
maintenance works. The amount will increase in proportion to the volume of
production.
(x) During the year 2021, the company has paid ` 1,20,000 for the purchase of diesel
to be used in car hired for administrative purposes. The cost of diesel will
increase by 15% in year 2022.
(xi) During the year 2021, the company has paid ` 6,00,000 for car hire charges
(excluding fuel cost). In year 2022, the company has decided to reimburse the
diesel cost to the car rental company. Doing this will attract 5% GST on Reverse
Charge Mechanism (RCM) basis on which the company will not get GST input
credit.
(xii) Depreciation on fixed assets for the year 2021 is ` 80,40,00,000 and it will be 15%
lower in 2022.
Required:
From the above information PREPARE Revenue (Flexible) budget for the year 2022 and
also show the budgeted profit loss for the year.

Q.35 Raja Ltd manufactures and sells a single product and has estimated sales revenue of
` 302.4 lakh during the year based on 20% profit on selling price. Each unit of product
NB requires kg of material A and 3 kg of material and processing time of 4 hours in
machine shop and 2 hours in assembly shop. Factory overheads are absorbed at a
PN blanket rate of 20% of direct labour. Variable selling distribution overheads are ` 60
per unit sold and fixed selling distribution overheads are estimated to be
` 69,12,000.
The other relevant details are as under:
Purchase Price: Material A ` 160 per kg
Materials ` 100 per kg

Labour Rate: Machine Shop ` 140 per hour

Assembly Shop ` 70 per hour

CA/CS Nimeet Piti 332

 Finished Stock Material A Material B
Opening Stock 2,500 units 7,500 kg 4,000 kg

Budgets
Closing Stock 3,000 units 8,000 kg 5,500 kg

Required
(i) CALCULATE number of units of product proposed to be sold and selling price
per unit,
(ii) PREPARE Production udget in units and
(iii) PREPARE Material Purchase udget in units.

Q.36 Following data is available for XYZ Ltd. for the month of February 2024:

NB tandard working hours 8 hours per day of 6 days per week

No. of weeks in the month 4
PN
Maximum capacity 150 employees
Actual working 125 employees
Actual usage of udgeted Capacity Ratio 8 %
Efficiency Ratio 110%

You are required to calculate the following:

(i) Actual Hours worked.
(ii) Standard Hours for actual output.
(iii) Activity Ratio.
(iv) Standard Capacity Usage Ratio.

Q.37 A factory is currently working at 60% capacity and produces 12,000 units of a product.
Management is thinking to increase the working capacity either to 70% or 90% level. It
NB is estimated that at both the levels, it will be able to sell all the produced units. The
other details are as under:
PN • At 70% capacity, the cost of raw materials increases by 4% and theselling price
falls by 3%.
• At 90% capacity, the cost of raw materials increases by 5% and selling price falls
by 4%.
• At 60% capacity, the product cost is ` 360 per unit and it is sold at ` 400 per unit.
• The unit cost of 360 consists of the following:

Material ` 200
Labour ` 60
Factory overhead ` 0 (50 % fixed)
Administrative Selling overhead ` 40 ( 0 % fixed)

333 BUDGETS AND BUDGETARY CONTROL

 • Additional advertising cost of ` 20,000 is to be incurred for selling the product
above 80% capacity.
You are required to:
Budgets

(i) Calculate the profits of the company when the factory works at 0%, 0% and
90% capacity level.
(ii) Offer your comments regarding increase in the capacity based on profit
calculated.

CA/CS Nimeet Piti 334

 Progress Sheet

Budgets
Class Work 1st Practice 2nd Practice Class Work 1st Practice 2nd Practice
Question 1 Question 20

Question 2 Question 21

Question 3 Question 22

Question 4 Question 23

Question 5 Question 24

Question 6 Question 25

Question 7 Question 26

Question 8 Question 27

Question 9 Question 28

Question 10 Question 29

Question 11 Question 30

Question 12 Question 31

Question 13 Question 32

Question 14 Question 33

Question 15 Question 34

Question 16 Question 35

Question 17 Question 36

Question 18 Question 37

Question 19

335 BUDGETS AND BUDGETARY CONTROL

Budgets

CA/CS Nimeet Piti 336

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