INDEX

2. Material Cost 2.1 - 2.25

3. Employee Cost and Direct Expenses 3.1 - 3.27

4. Overheads Absorption Costing Method 4.1 - 4.36

5. Activity Based Costing 5.1 - 5.39

6. Cost Sheet 6.1 - 6.41

7. Cost Accounting Systems 7.1 - 7.24

8. Unit & Batch Costing 8.1 - 8.11

9. Job Costing 9.1 - 9.20

10. Process & Operation Costing 10.1 - 10.31

11. Joint Products and By Products 11.1- 11.20

12. Service Costing 12.1 - 12.38

13. Standard Costing 13.1 - 13.36

14. Marginal Costing 14.1 - 14.35

15. Budgets and Budgetary Control 15.1 - 15.29

 TRP Sir
CA Rahul Panchal

02 MATERIAL COST

QUESTION 1. (ILLUSTRATION 1) 
An invoice in respect of a consignment of chemicals A and B provides the following information:
(`)
Chemical A: 10,000 kgs. at ` 10 per kg. 1,00,000
Chemical B: 8,000 kgs. at ` 13 per kg. 1,04,000
Basic custom duty @ 10% (Credit is not allowed) 20,400
Railway freight 3,840
Total cost 2,28,240

l
A shortage of 500 kgs. in chemical A and 320 kgs. in chemical B is noticed due to normal

a
breakages. You are required to COMPUTE the rate per kg. of each chemical, assuming a provision

h
of 2% for further deterioration.

QUESTION 2. (ILLUSTRATION 2) 

n c
a
At WHAT price per unit would Part No. A 32 be entered in the Stores Ledger, if the following

P
invoice was received from a supplier:

l
Invoice (`)

u
200 units Part No. A 32 @ ` 5 1,000.00

h
Less: 20% discount (200.00)

a
800.00

R
Add: GST @ 12% 96.00
896.00

A
Add: Packing charges (5 non-returnable boxes) 50.00

C
946.00
(i) A 2 per cent cash discount will be given if payment is made in 30 days.
(ii) Documents substantiating payment of GST are enclosed for claiming Input credit.

QUESTION 3. (ILLUSTRATION 3) 
CALCULATE the Economic Order Quantity from the following information. Also state the number
of orders to be placed in a year.
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

QUESTION 4. (ILLUSTRATION 4) 
(i) COMPUTE E.O.Q. and the total variable cost for the following:
Annual Demand = 5,000 units
Unit price = ` 20.00
Order cost = ` 16.00
Storage rate = 2% per annum
Interest rate = 12% per annum

2.1
MATERIAL COST
 TRP Sir
CA Rahul Panchal

Obsolescence rate = 6% per annum

(ii) DETERMINE the total cost that would result for the items if a new price of ` 12.80 is used.

QUESTION 5. (ILLUSTRATION 5) 
Two components, A and B are used as follows:
Normal usage 50 per week each
Maximum usage 75 per week each
Minimum usage 25 per week each
Re-order quantity A: 300; B: 500
Re-order period A: 4 to 6 weeks
B: 2 to 4 weeks
CALCULATE for each component (a) Re-ordering level, (b) Minimum level, (c) Maximum level, (d)

l
Average stock level.

QUESTION 6. (ILLUSTRATION 6) 

h a
c
From the details given below, CALCULATE:

n
(i) Re-ordering level

a
(ii) Maximum level

P
(iii) Minimum level

l
(iv) Danger level.

h u
Re-ordering quantity is to be calculated on the basis of following information: Cost of placing a

a
purchase order is ` 20 Number of units to be purchased during the year is 5,000 Purchase price

R
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- 5 days.

A
For emergency purchases- 4 days.

C
Rate of consumption : Average: 15 units per day,
Maximum: 20 units per day.

QUESTION 7. (ILLUSTRATION 7) 
M/s Tyrotubes trades in four-wheeler tyres and tubes. It stocks sufficient quantity of tyres of
almost every vehicle. In year end 2022-23, the report of sales manager revealed that M/s
Tyrotubes experienced stock-out of tyres.
The stock-out data is as follows:
Stock-out of Tyres No. of times of Stock Out
100 2
80 5
50 10
20 20
10 30
0 33
M/s Tyrotubes loses ` 150 per unit due to stock-out and spends ` 50 per unit on carrying of
inventory.
DETERMINE optimum safest stock level.

2.2
MATERIAL COST
 TRP Sir
CA Rahul Panchal

QUESTION 8. (ILLUSTRATION 8) 
From the following details, DRAW a plan of ABC selective control:
Item Units Unit cost (`)
1 7,000 5.00
2 24,000 3.00
3 1,500 10.00
4 600 22.00
5 38,000 1.50
6 40,000 0.50
7 60,000 0.20
8 3,000 3.50
9 300 8.00
10 29,000 0.40

l
11 11,500 7.10

a
12 4,100 6.20

QUESTION 9. (ILLUSTRATION 9) 

c h
n
A factory uses 4,000 varieties of inventory. In terms of inventory holding and inventory usage, the

a
following information is compiled:

P
No. of varieties of % % value of inventory % of inventory

l
inventory holding (average) usage (in

u
end-product)

h
3,875 96.875 20 5

a
110 2.750 30 10

R
15 0.375 50 85
4,000 100.00 100 100

A
CLASSIFY the items of inventory as per ABC analysis with reasons.

C
QUESTION 10. (ILLUSTRATION 10) 
The following data are available in respect of material X for the year ended 31st March, 2023.
(`)
Opening stock  90,000
Purchases during the year  2,70,000
Closing stock  1,10,000
CALCULATE:
(i) Inventory turnover ratio, and
(ii) The number of days for which the average inventory is held.

QUESTION 11. (ILLUSTRATION 11) 

From the following data for the year ended 31st March, 2023, CALCULATE the inventory turnover
ratio of the two items and put forward your comments on them.
Material A (`) Material B (`)
Opening stock 1.04.2022 10,000 9,000
Purchase during the year 52,000 27,000
Closing stock 31.03.2023 6,000 11,000

2.3
MATERIAL COST
 TRP Sir
CA Rahul Panchal

QUESTION 12. (ILLUSTRATION 12) 

The following transactions in respect of material Y occurred during the six months ended 30th
September, 2022:
Month Purchase (units) Price per unit (`) Issued Units
April 200 25 Nil
May 300 24 250
June 425 26 300
July 475 23 550
August 500 25 800
September 600 20 400

Required:
(a) The Chief Accountant argues that the value of closing stock remains the same no matter

l
which method of pricing of material issues is used. Do you agree? Why or why not? EXPLAIN.

a
Detailed stores ledgers are not required.

h
(b) STATE when and why would you recommend the LIFO method of pricing material issues?

QUESTION 13. (ILLUSTRATION 13) 

n c
a
The following information is provided by Sunrise Industries for the fortnight of April, 2023:

P
Material Exe:

l
Stock on 1-4-2023 100 units at ` 5 per unit.

u
Purchases

h
5-4-2023, 300 units at ` 6

a
8-4-2023, 500 units at ` 7

R
12-4-2023, 600 units at ` 8

A
Issues

C
6-4-2023, 250 units
10-4-2023, 400 units
14-4-2023, 500 units

Required:
(A) CALCULATE using FIFO and LIFO methods of pricing issues:
(a) the value of materials consumed during the period
(b) the value of stock of materials on 15-4-2023.
(B) EXPLAIN why the figures in (a) and (b) in part A of this question are different under the two
methods of pricing of material issues used. You need not draw up the Stores Ledgers.

QUESTION 14. (ILLUSTRATION 14) 

Imbrios India Ltd. is recently incorporated start-up company back in the year 2019. It is engaged
in creating Embedded products and Internet of Things (IoT) solutions for the Industrial market.
It is focused on innovation, design, research and development of products and services. One of
its embedded products is LogMax, a system on module (SoM) Carrier board for industrial use.
It is a small, flexible and embedded computer designed as per industry specifications. In the
beginning of the month of September 2022, company entered into a job agreement of providing
4800 LogMax to NIT, Mandi. Following details w.r.t. issues, receipts, returns of Store Department

2.4
MATERIAL COST
 TRP Sir
CA Rahul Panchal

handling Micro-controller, a component used in the designated assembling process have been
extracted for the month of September, 2022:
Sep. 1 Opening stock of 6,000 units @ ` 285 per unit
Sep. 8 Issued 4875 units to mechanical division vide material requisition no. Mech 009/22
Sep. 9 Received 17,500 units @ ` 276 per unit vide purchase order no. 159/22
Sep. 10 Issued 12,000 units to technical division vide material requisition no. Tech 012/22
Sep. 12 Returned to stores 2375 units by technical division against material requisition no.
Tech 012/22.
Sep. 15 Received 9,000 units @ ` 288 per units vide purchase order no. 160/ 2222
Sep. 17 Returned to supplier 700 units out of quantity received vide purchase order no.
160/22.
Sep. 20 Issued 9,500 units to technical division vide material requisition no. Tech 165/22
On 25th September, 2022, the stock manager of the company expressed his need to leave for

l
his hometown due to certain contingency and immediately left the job same day. Later, he also

a
switched his phone off.

h
As the company has the tendency of stock-taking every end of the month to check and report

c
for the loss due to rusting of the components, the new stock manager, on 30th September, 2022,

n
found that 900 units of Micro-controllers were missing which was apparently misappropriated

a
by the former stock manager. He, further, reported loss of 300 units due to rusting of the

P
components.

l
From the above information you are required to prepare the Stock Ledger account using ‘Weighted

u
Average’ method of valuing the issues.

QUESTION 16. (PP1) 

a h
R
Anil & Company buys its annual requirement of 36,000 units in 6 instalments. Each unit costs
` 1 and the ordering cost is `25. The inventory carrying cost is estimated at 20% of unit value.

A
FIND the total annual cost of the existing inventory policy. CALCULATE, how much money can

C
be saved by Economic Order Quantity?

QUESTION 17. (PP2) 

A Company manufactures a special product which requires a component ‘Alpha’. The following
particulars are collected for the year 2022-23:
(i) Annual demand of Alpha 8,000 units
(ii) Cost of placing an order ` 200 per order
(iii) Cost per unit of Alpha ` 400
(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) STATE whether the quantity discount offer can be accepted.

2.5
MATERIAL COST
 TRP Sir
CA Rahul Panchal

QUESTION 18. (PP3) 

The complete Gardener is deciding on the economic order quantity for two brands of lawn
fertilizer - Super Grow and Nature’s Own. The following information is collected:
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 annual
relevant carrying costs for Super Grow and Nature’s own?

l
(iii) For the EOQ, COMPUTE the number of deliveries per year for Super Grow and Nature’s own.

a
ch
QUESTION 19. (PP4) 
Raw Usage Re-order Price Delivery period (in weeks) Re- Minimum

n
Material per quantity per Kg. order level

a
unit of (Kgs.) level (Kgs.)

P
Product (Kgs)

l
(Kgs.)

u
Minimum Average Maximum

h
A 10 10,000 10 1 2 3 8,000 ?

a
B 4 5,000 30 3 4 5 4,750 ?

R
C 6 10,000 15 2 3 4 ? 2,000
Weekly production varies from 175 to 225 units, averaging 200 units of the said product.

A
COMPUTE the following quantities:

C
(i) Minimum stock of A,
(ii) Maximum stock of B,
(iii) Re-order level of C,
(iv) Average stock level of A.

QUESTION 19. (PP5) 

(a) EXE Limited has received an offer of quantity discounts on its order of materials as under:
Price per ton (`) Ton (Nos.)
1,200 Less than 500
1,180 500 and less than 1,000
1,160 1,000 and less than 2,000
1,140 2,000 and less than 3,000
1,120 3,000 and above.
The annual requirement for the material is 5,000 tons. The ordering cost per order is `
1,200 and the stock holding cost is estimated at 20% of material cost per annum. You are
required to COMPUTE the most economical purchase level.
(b) WHAT will be your answer to the above question if there are no discounts offered and the
price per ton is ` 1,500?

2.6
MATERIAL COST
 TRP Sir
CA Rahul Panchal

QUESTION 20. (PP6) 

From the details given below, CALCULATE:
(i) Re-ordering level
(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 ` 4,000
Number of units to be purchased during the year is 5,00,000
Purchase price per unit, inclusive of transportation cost is ` 50
Annual cost of storage per unit is ` 10.
Details of lead time : Average - 10 days, Maximum - 15 days Minimum- 5 days,

l
for emergency purchases- 4 days.

a
Rate of consumption: Average: 1,500 units per day,

h
Maximum: 2,000 units per day.

QUESTION 21. (PP7) 

n c
a
G. Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a

P
component X which is purchased at ` 20. For every finished product, one unit of component is

l
required. The ordering cost is ` 120 per order and the holding cost is 10% p.a.

u
You are required to CALCULATE:

h
(i) Economic order quantity.

a
(ii) If the minimum lot size to be supplied is 4,000 units, what is the extra cost, the company

R
has to incur?
(iii) What is the minimum carrying cost, the company has to incur?

QUESTION 22. (PP8) 

C A
‘AT’ Ltd. furnishes the following store transactions for September, 2022:
1-9-22 Opening balance 25 units value ` 162.50
4-9- 22 Issues Req. No. 85 8 units
6-9- 22 Receipts from B & Co. GRN No. 26 50 units @ ` 5.75 per unit
7-9- 22 Issues Req. No. 97 12 units
10-9- 22 Return to B & Co. 10 units
12-9- 22 Issues Req. No. 108 15 units
13-9- 22 Issues Req. No. 110 20 units
15-9- 22 Receipts from M & Co. GRN. No. 33 25 units @ ` 6.10 per unit
17-9- 22 Issues Req. No. 121 10 units
19-9- 22 Received replacement from B & Co.
GRN No. 38 10 units
20-9- 22 Returned from department, material
of M & Co. MRR No. 4 5 units
22-9- 22 Transfer from Job 182 to Job 187 in
the dept. MTR 6 5 units
26-9- 22 Issues Req. No. 146 10 units
29-9- 22 Transfer from Dept. “A” to

2.7
MATERIAL COST
 TRP Sir
CA Rahul Panchal

Dept. “B” MTR 10 5 units

30-9- 22 Shortage in stock taking 2 units

PREPARE the priced stores ledger on FIFO method and STATE how would you treat the shortage
in stock taking.

QUESTION 23. (PP9) 

The following information is extracted from the Stores Ledger:
Material X
Opening Stock Nil
Purchases:
Jan. 1 100 @ ` 1 per unit
Jan. 20 100 @ ` 2 per unit

l
Issues:

a
Jan. 22 60 for Job W 16

h
Jan. 23 60 for Job W 17

c
Complete the receipts and issues valuation by adopting the First-In-First-Out, Last-In-First-Out

n
and the Weighted Average Method. TABULATE the values allocated to Job W 16, Job W 17 and

a
the closing stock under the methods aforesaid and discuss from different points of view which

P
method you would prefer.

u l
a h
R
C A

2.8
MATERIAL COST
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
Aditya Brothers 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.
For the month of April 2018, it has been anticipated that a demand for 60,000 packs of surgical
gloves will arise. Aditya Brothers 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:

l
(i) CALCULATE the Economic Order Quantity (EOQ)

a
(ii) CALCULATE the number of orders needed every year

h
(iii) CALCULATE the total cost of ordering and storage of the surgical gloves.

c
(iv) DETERMINE when should the next order to be placed. (Assuming that the company does

n
maintain a safety stock and that the present inventory level is 10,033 packs with a year of

a
360 working days).

RTP NOV 18

l P
u
Rounak Ltd. is the manufacturer of monitors for PCs. A monitor requires 4 units of Part-M. The

h
following are the details of its operation during 20X8:

a
Average monthly market demand 2,000 Monitors

R
Ordering cost ` 1,000 per order
Inventory carrying cost 20% per annum

A
Cost of Part ` 350 per part

C
Normal usage 425 parts per week
Minimum usage 140 parts per week
Maximum usage 710 parts per week
Lead time to supply 3-5 weeks
COMPUTE from the above:
(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.

RTP MAY 19

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, it will able to sale 10,000
units of Exe in the coming year. The following is the 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.

2.9
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(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]

RTP NOV 19

HBL Limited produces product 'M' which has a quarterly demand of 20,000 units. Each product

l
requires 3 kg. and 4 kg. of material X and Y respectively. Material X is supplied by a local supplier

a
and can be procured at factory stores at any time, hence, no need to keep inventory for material

h
X. The material Y is not locally available, it requires to be purchased from other states in a

c
specially designed truck container with a capacity of 10 tons.

a n
The cost and other information related with the materials are as follows:

P
Particulars Material –X Material-Y

l
Purchase price per kg. (excluding GST) `140 `640

u
Rate of GST 18% 18%

h
Freight per trip (fixed, irrespective of quantity) - `28,000

a
Loss of materials in transit* - 2%

R
Loss in process* 4% 5%
*On purchased quantity

A
Other information:

C
- The company has to pay 15% p.a. to bank for cash credit facility.
- 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.

RTP MAY 20

Arnav Electronics manufactures electronic home appliances. It follows weighted average Cost
method for inventory valuation. Following are the data of component X:
Date Particulars Units Rate per unit
(`)
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- 008) 10,000 -
05-01-20 MRN**-003 (against the Purchase Order- 008) 500 -
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 -

2.10
MATERIAL COST
 TRP Sir
CA Rahul Panchal

12-01-20 GRN-009 (against the Purchase Order- 009) 10,000 -

12-01-20 MRN-004 (against the Purchase Order- 009) 400 -
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- 010) 10,000 -
28-01-20 Material Requisition-015 4,000 -
31-01-20 Material Requisition-016 3,200 -
*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 of stock as on

l
31-01-2020.

a
(v) Value of components used during the month of January, 2020.

h
(vi) Inventory turnover ratio.

RTP NOV 20

n c
a
A company uses four raw materials A, B, C and D for a particular product for which the following

P
data apply :–

l
Raw Usage Re-order Price Re- Minimum

u
Material per unit Quantity per Kg. Delivery period order level

h
of (Kg.) (`) (in weeks) level (Kg.)

a
product (Kg.)
Minimum Average Maximum

R
(Kg.)
A 12 12,000 12 2 3 4 60,000 ?

A
B 8 8,000 22 5 6 7 70,000 ?

C
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?
(vi) Minimum Stock level of D?

RTP MAY 21

A Ltd. produces a product ‘X’ using a raw material ‘D’. To produce one unit of X, 4 kg of D is
required. As per the sales forecast conducted by the company, it will be able to sale 20,000 units
of X in the coming year.
The following are the information related to the raw material D:
(i) The Re-order quantity is 400 kg. less than the Economic Order Quantity (EOQ).
(ii) Maximum consumption per day is 40 kg. more than the average consumption per day.

2.11
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(iii) There is an opening stock of 2,000 kg.

(iv) Time required to get the raw materials from the suppliers is 4 to 8 days.
(v) The purchase price is ` 250 per kg.
There is an opening stock of 1,800 units of the finished product X. The carrying cost of inventory
is 14% p.a.
To place an order company has to incur ` 1,340 on paper and documentation work. From the
above information FIND OUT the followings in relation to raw material D:
(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
300 days for a year]

l
RTP NOV 21

a
The following data are available in respect of material X for the year ended 31st March, 2021:

h
(`)

c
Opening stock  9,00,000

n
Purchases during the year  1,70,00,000

a
Closing stock 11,00,000

P
(i) CALCULATE:

l
(a) Inventory turnover ratio, and

u
(b) The number of days for which the average inventory is held.

h
(ii) INTERPRET the ratio calculated as above if the industry inventory turnover rate is 10.

RTP MAY 22

R a
Sky & Co., an unregistered supplier under GST, purchased material from Vye Ltd. which is

A
registered under GST. The following information is available for one lot of 5,000 units of material

C
purchased:
Listed price of one lot ` 2,50,000
Trade discount @ 10% on listed price
CGST and SGST (Credit Not available) 12% (6% CGST + 6% SGST)
Cash discount @ 10%
(Will be given only if payment is made within 30 days.)
Toll Tax paid ` 5,000
Freight and Insurance ` 17,000
Demurrage paid to transporter ` 5,000
Commission and brokerage on purchases ` 10,000
Amount deposited for returnable containers ` 30,000
Amount of refund on returning the container ` 20,000
Other Expenses @ 2% of total cost
20% of material shortage is due to normal reasons.
The payment to the supplier was made within 21 days of the purchases.
You are required to CALCULATE cost per unit of material purchased by Sky & Co.

2.12
MATERIAL COST
 TRP Sir
CA Rahul Panchal

RTP NOV 22

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 week. 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

l
(d) Minimum Stock Level

a
(e) Average Stock Level

h
(f) Number of Orders to be placed per year

c
(g) Total Inventory Cost

n
(h) If the supplier is willing to offer 1% discount on purchase of total annual quantity in two

a
orders, whether offer is acceptable?

P
(i) If the answer is no, what should be the counteroffer w.r.t. percentage of discount?

RTP MAY 23

u l
h
Reliable India Pvt Ltd is a startup company engaged in manufacturing of Agro Tech product from

a
a raw material, which is purchased at `190 per kg. The company incurs a handling cost of `1,470

R
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

A
of raw material is `20 per kg per annum. The annual production of the product is 1,50,000 units

C
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?

RTP NOV 23

Following details are related to a manufacturing concern:
Re-order Level 1,60,000 units
Economic Order Quality 90,000
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

2.13
MATERIAL COST
 TRP Sir
CA Rahul Panchal

RTP MAY 24

The purchase committee of A Ltd. has been entrusted to review the material procurement policy
of the company. The chief marketing manager has appraised the committee that the company
at present produces a single product X by using two raw materials A and B in the ratio of 3:2.
Material A is perishable in nature and has to be used within 10 days from Goods received note
(GRN) date otherwise material becomes obsolete. Material B is durable in nature and can be
used even after one year. Material A is purchased from the local market within 1 to 2 days of
placing order. Material B, on the other hand, is purchased from neighbouring state and it takes
2 to 4 days to receive the material in the store.
The purchase price of per kilogram of raw material A and B is `30 and `44 respectively exclusive
of taxes. To place an order, the company has to incur an administrative cost of `1,200. Carrying
cost for Material A and B is 15% and 5% respectively. At present material A is purchased in a
lot of 15,000 kg. to avail 10% discount on market price. GST applicable for both the materials is

l
18% and the input tax credit is availed.

a
The sales department has provided an estimate that the company could sell 30,000 kg. in

h
January 2024 and also projected the same trend for the entire year.

c
The ratio of input and output is 5:3. Company works for 25 days in a month and production is

n
carried out evenly.

a
The following queries/ calculations to be kept ready for purchase

P
committees’ reference:

(i)

u l
For the month of January 2024, what would be the quantity of the materials to be

h
requisitioned for both material A and B:

a
(a) 9,000 kg & 6,000 kg respectively

R
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively

A
(d) 30,000 kg & 20,000 kg respectively.

(ii) The
(a)
(b)
C
economic order quantity (EOQ) for both the material A & B:
13,856 kg & 16,181 kg respectively
16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively

(iii) What would the maximum stock level for material A: (a) 18,200 kg.
(b) 12,000 kg.
(c) 16,000 kg.
(d) 16,200 kg.
(iv) Calculate saving/ loss in purchase of Material A if the purchase order quantity is
equal to EOQ.
(a) Profit of Rs. 3,21,201. (b) Loss of Rs. 3,21,201.
(c) Profit of Rs. 2,52,500. (d) Loss of Rs. 2,52,500.

(v) What would the minimum stock level for material A:

(a) 1,800 kg. (b) 1,200 kg.
(c) 600 kg. (d) 2,400 kg.

2.14
MATERIAL COST
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (10 MARKS) Q. 5B
M/s. X Private Limited is manufacturing a special product which requires a component "SKY BLUE".
The following particulars are available for the year ended 31st March, 2018:
Annual demand of "SKY BLUE" 12000 Units
Cost of placing an order ` 1,800
Cost per unit of "SKY BLUE ` 640
Carrying cost per annum 18.75%
The company has been offered a quantity discount of 5 on the purchases of "SKY BLUE" provided

l
the order size is 3000 components at a time.

a
You are required to:

h
(i) Compute the Economic Order Quantity.

c
(ii) Advise whether the quantity discount offer can be accepted.

ANSWER :

a n
P
(a)

l
(i) Calculation of Economic Order Quantity

h u
(ii)
R a
Evaluation of Profitability of Different Options of Order Quantity

A
When EOQ is ordered

C
(`)
Purchase Cost (12,000 units  ` 640) 76,80,000
36,000

36,000

Total Cost 77,52,000

PYQ MAY 18 (5 MARKS) Q. 5A(i)

(i) The following details are provided by M/s. SKU Enterprises for the year ended 31st March,
2018:
Particulars Material-M (`) Material-N (`)
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).

2.15
MATERIAL COST
 TRP Sir
CA Rahul Panchal

ANSWER :
(i)
Material M Material N
Turnover ratio Turnover ratio

Average number of days for which the average =2.45

inventory is held Average number of days for which the
average inventory is held

a l
h
= 146.94 days

c
(ii) Advice

n
Comparatively Material M is slower than Material N since Inventory holding period of ‘M’

a
is 172.25 days in Comparison to ‘N’ i.e. 146.94 days. Infact, both materials have slow

P
inventory turnover. Though, different business has their own expected rates for inventory

l
turnover like food shops have fast inventory turnover, shop selling furniture etc. will have

u
slower inventory turnover while manufacturers of large items of plant will have very long

h
inventory turnover.

a
If it is not as per the Industry Standard, then a slow turnover may indicate that excessive

R
inventory is held and risk of obsolete or spoiled inventory will increase. Large quantity of
slow moving material means that capital is locked up in business and not earning revenue.

A
It is advisable to make proper investigations into slow moving materials and take steps

C
to minimize the loss arises therefrom as it may impact overall financial health of the
organisation.

PYQ NOV 18 (5 MARKS) Q. 1A

M/s. SJ Private Limited manufactures 20000 units of a product per month. The cost of placing
an order is ` 1,500. The purchase price of the raw material is ` 100 per kg. The re-order period
is 5 to 7 weeks. The consumption of raw materials varies from 200 kg to 300 kg per week, the
average consumption being 250 kg. The carrying cost of inventory is 9.75% 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

2.16
MATERIAL COST
 TRP Sir
CA Rahul Panchal

ANSWER :
Annual consumption 250 kg × 52 weeks = 13,000 kg.
(i)

A = Annual Consumption = 13,000 kg

O = Ordering Cost = `. 1,500
C = Cost per kg = `. 100
i = carrying cost rate = 9.75%
Carrying cost per kg per annum (c× i) = 100 × 9.75% = `. 9.75

(ii) Re-order level = Max. re-order period × Max, Consumption

a l
h
= 7 weeks × 300 kg = 2,100 kg

(iii)

n c
Maximum level = Re-order level + Re-order Qty – (Min re-order Period × Min. Consumption)

a
= 2100 kg + 2000 kg – (5 × 200) kg = 3100 kg.

(iv)

l P
Minimum level = Re-order level – (Avg. re-order period × Avg. Consumption)

u
= 2,100 kg – (6 × 250) kg = 600 kg.

(v)

a h

R
A

C
OR

PYQ MAY 19 (10 MARKS) Q. 4B

The following are the details of receipt and issue of material 'CXE' in a manufacturing Co. during
the month of April 2019:
Date Particulars Quantity Rate per kg
(kg)
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 made on April 15 300
April 26 Issue 1,000
April 28 Purchase 500 ` 17

2.17
MATERIAL COST
 TRP Sir
CA Rahul Panchal

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

ANSWER :
(i) (a) Stores Ledger Account for the month of April, 2019 (Weighted Average Method)
Receipt Issue Balance

l
Date Qty Rate Amount Qty Rate Amount Qty Rate Amount

a
Units (`) (`) Units (`) (`) Units (`) (`)

h
1-4-19 _ _ _ _ _ _ 1,000 15.00 15,000

c
4-4-19 3,000 16.00 48,000 _ _ _ 4,000 15.75 63,000

n
8-4-19 _ _ _ 1,000 15.75 15,750 3,000 15.75 47,250

a
15-4-19 1,500 18.00 27,000 _ _ _ 4,500 16.50 74,250

P
20-4-19 _ _ _ 1,200 16.50 19,800 3,300 16.50 54,450

l
25-4-19 _ _ _ 300 18.00 5,400 3,000 16.35 49,050

u
26-4-19 _ _ _ 1,000 16.35 16,350 2,000 16.35 32,700

h
28-4-19 500 17.00 8,500 _ _ _ 2,500 16.48 41,200

a
30-4-19 _ _ _ 50 16.48 824 2,450 16.48 40,376

(b)
R
Stores Ledger Account for the month of April, 2019 (LIFO)

A
Receipt Issue Balance

C
Date Qty Rate Amount Qty Rate Amount Qty Rate Amount
Units (`) (`) Units (`) (`) Units (`) (`)
1-4-19 _ _ _ _ _ _ 1,000 15 15,000
4-4-19 3,000 16 48,000 _ _ _ 1,000 15 15,000
3,000 16 48,000
8-4-19 _ _ _ 1,000 16 16,000 1,000 15 15,000
2,000 16 32,000
15-4-19 1,500 18 27,000 _ _ _ 1,000 15 15,000
2,000 16 32,000
1,500 18 27,000
20-4-19 _ _ _ 1,200 18 21,600 1,000 15 15,000
2,000 16 32,000
300 18 5,400
25-4-19 _ _ _ 300 18 5,400 1,000 15 15,000
2,000 16 32,000
26-4-19 _ _ _ 1,000 16 16,000 1,000 15 15,000
1,000 16 16,000

2.18
MATERIAL COST
 TRP Sir
CA Rahul Panchal

28-4-19 500 17 8,500 _ _ _ 1,000 15 15,000

1,000 16 16,000
500 17 8,500
30-4-19 _ _ _ 50 17 850 1,000 15 15,000
1,000 16 16,000
450 17 7,650

ii) Value of Material Consumed and Closing Stock

Particulars Weighted Average LIFO method (`)
method (`)
Opening stock as on 01-04-2019 15,000 15,000
Add: Purchases 83,500 83,500
98,500 98,500

l
Less: Return to supplier 5,400 5,400

a
Less: Abnormal loss 824 850

h
Less: Closing Stock as on 30-04-2019 40,376 38,650

c
Value of Material Consumed 51,900 53,600

PYQ NOV 19 (5 MARKS)

a n Q. 1A

P
Surekha Limited produces 4,000 Litres of paints on a quarterly basis. Each Litre requires 2 kg of

l
raw material. The cost of placing one order for raw material is ` 40 and the purchasing price

u
of raw material is ` 50 per kg. The storage cost and interest cost is 2% and 6% per annum

h
respectively. The lead time for procurement of raw material is 15 days.

a
Calculate Economic Order Quantity and Total Annual Inventory Cost in respect of the above raw

R
material.

A
ANSWER :

C
Working:
Calculation of Annual demand of raw material
= 4,000 Litres (per quarter) x 4 (No. of Quarter in a year) x 2 kg. (raw material required for each
Litre of paint)
= 32,000 kg.
Calculation of Carrying cost
Storage rate = 2%
Interest Rate = 6%
Total = 8% per annum
Carrying cost per unit per annum = 8% of ` 50 = ` 4 per unit per annum

(i)

2.19
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(ii)
Total Annual Inventory Cost
Purchasing cost of 32,000 kg @ ` 50 per kg = ` 16,00,000
= ` 1,600

= ` 1,600

= ` 16,03,200

PYQ NOV 20 (10 MARKS) Q. 3B

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 12.5%. Each spare part costs
` 50.

l
At present, the order size is 3,000 spare parts.

a
(Assume that number of days in a year = 360 days)

h
Find out:

c
(i) How much the company's cost would be saved by opting EOQ model?

n
(ii) The Re-order point under EOQ model if lead time is 12 days.

a
(iii) How frequently should orders for procurement be placed under EOQ model?

ANSWER :

l P
u
Working Notes:

h
Annual requirement (A) = 27,000 units

a
Cost per order (O) = ` 240

R
Inventory carrying cost (i) = 12.5%
Cost per unit of spare (c) = ` 50

A
Carrying cost per unit (i × c) = ` 50 × 12.5% = ` 6.25

C
Economic Order Quantity (EOQ) =

(i) Calculation of saving by opting EOQ:

Existing Order policy EOQ Model
No. of orders 9 18.75 or 19

A. Ordering Cost (`) 2,160 4,500

(` 240 × 9)

B. Carrying cost (`) 9,375 4,500

2.20
MATERIAL COST
 TRP Sir
CA Rahul Panchal

Total cost (A+B) (`) 11,535 9,000

Savings of Cost by opting EOQ Model = ` 11,535 – ` 9,000 = ` 2,535

(ii) Re-order point under EOQ:

Re-order point/ Re-order level = Maximum consumption × Maximum lead time

Re-order point/ Re-order level = 75 units × 12 days = 900 units

(iii) Frequency of Orders (in days):

l
PYQ JULY 21 (5 MARKS) Q. 1A

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

h
Item Code Number Units Unit Cost (`)

c
101 25 50

n
102 300 01

a
103 50 80

P
104 75 08

l
105 225 02

u
106 75 12

h
MM Ltd. has adopted the policy of classifying the items constituting 15% or above of Total

a
Inventory Cost as 'A' category, items constituting 6% or less of Total Inventory Cost as 'C' category

R
and the remaining items as 'B' category.
You are required to:

A
(i) Rank the items on the basis of % of Total Inventory Cost.

C
(ii) Classify the items into A, B and C categories as per ABC Analysis of Inventory Control
adopted by MM Ltd.

ANSWER :
(i) Statement of Total Inventory Cost and Ranking of items
Item code Units % of Total Unit cost Total % of Total Ranking
no. units (`) Inventory Inventory
cost (`) cost
101 25 3.33 50 1,250 16.67 2
102 300 40.00 1 300 4.00 6
103 50 6.67 80 4,000 53.33 1
104 75 10.00 8 600 8.00 4
105 225 30.00 2 450 6.00 5
106 75 10.00 12 900 12.00 3
750 100 153 7,500 100

2.21
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(ii) Classifying items as per ABC Analysis of Inventory Control

Basis for ABC Classification as % of Total Inventory Cost
15% & above -- ‘A’ items
7% to 14% -- ‘B’ items
6% & Less -- ‘C’ items
Ranking Item code % of Total Total Inventory % of Total Category
No. units cost (`) Inventory Cost
1 103 6.67 4,000 53.33
2 101 3.33 1,250 16.67
Total 2 10.00 5,250 70.00 A
3 106 10.00 900 12.00
4 104 10.00 600 8.00
Total 2 20.00 1,500 20.00 B

l
5 105 30.00 450 6.00

a
6 102 40.00 300 4.00

h
Total 2 70.00 750 10.00 C

c
Grand Total 6 100 7,500 100

PYQ DECEMBER 21 (5 MARKS)

a n Q. 1A

P
XYZ Ltd. uses two types of raw materials – ‘Material A’ and ‘Material B’ in the production process

l
and has provided the following data for the year ended on 31 st March, 2021:

u
Particulars Material A Material B

h
(`) (`)

a
Opening stock as on 01.04.2020 30,000 32,000

R
Purchase during the year 90,000 51,000
Closing stock as on 31.03.2021 20,000 14,000

(i)

C A
You are required to calculate:
(a) The inventory turnover ratio of ‘Material A’ and ‘Material B’.
(b) The number of days for which the average inventory is held for both materials
‘A’ and ‘B’.
(ii) Based on above calculations, give your comments.
(Assume 360 days in a year.)

ANSWER :
(i) Calculation of Inventory Turnover ratios and number of days:
Material A (`) Material B (`)
Opening stock 30,000 32,000
Add: Purchases 90,000 51,000
1,20,000 83,000
Less: Closing stock 20,000 14,000
Materials consumed 1,00,000 69,000
Average inventory: (Opening Stock + Closing 25,000 23,000
Stock) ÷ 2
(a) Inventory Turnover ratio: (Consumption 4 times 3 times
÷ Average inventory)

2.22
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(b) Number of days for which the average 90 days 120 days
inventory held (Number of Days in a year/
IT ratio)

(ii) Comments: Material A is moving faster than Material B. Or Material A has a less holding
period.

PYQ MAY 22 (5 MARKS) Q. 1A

A Limited a toy company purchases its requirement of raw material from S Limited at ` 120 per
kg. The company incurs a handling cost of ` 400 plus freight of ` 350 per order. The incremental
carrying cost of inventory of raw material is ` 0.25 per kg per month. In addition the cost of
working capital finance on the investment in inventory of raw material is ` 15 per kg per annum.
The annual production of the toys is 60,000 units and 5 units of toys are obtained from one kg.

l
of raw material.

a
Required:

h
(i) Calculate the Economic Order Quantity (EOQ) of raw materials.

c
(ii) Advise, how frequently company should order to minimize its procurement cost. Assume

n
360 days in a year.

a
(iii) Calculate the total ordering cost and total inventory carrying cost per annum as per EOQ.

ANSWER :

l P
u
Annual requirement of raw material in kg. (A)

a
Ordering Cost (Handling & freight cost) (O)
h = ` 400 + ` 350 = ` 750

R
Carrying cost per unit per annum i.e. inventory carrying cost + working capital cost (c × i)
= (` 0.25 × 12 months) + `15

A
= ` 18 per kg.

(i)
C
(ii) Frequency of orders for procurement:
Annual consumption (A) = 12,000 kg.
Quantity per order (EOQ) = 1,000 kg.

2.23
MATERIAL COST
 TRP Sir
CA Rahul Panchal

(iii) Calculation of total ordering cost and total inventory carrying cost as per EOQ:
Amount/Quantity
Size of the order 1,000 kg.
No. of orders 12
Cost of placing orders ` 9,000
(12 orders × ` 750)
Inventory carrying cost ` 9,000
(1,000 kg. × ½ × ` 18)
Total Cost `18,000

PYQ NOV 22 (5 MARKS) Q. 1C

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 annual basis. The cost to

l
place an order and getting the delivery is ` 15. It takes a period of 1.5 months to receive a

a
delivery from the date of placing an order and a safety stock of 3200 valves is desired.

h
You are required to determine:

c
(i) The Economic Order Quantity (EOQ) and the frequency of orders.

n
(ii) The re-order point.

a
(iii) The Economic Order Quantity (EOQ) if the valve cost ` 4.50 each instead of 1.50 each.

P
(Assume a year consists of 360 days)

ANSWER :

u l
h
(i) Calculation of Economic Order Quantity

a
Annual requirement (A) = 7500×12= 90,000 Valves

R
Cost per order (O) = ` 15
Inventory carrying cost (i) = 20%

A
Cost per unit of spare (c) = ` 1.5

C
Carrying cost per unit (i × c) = ` 1.5 × 20% = ` 0.30

Economic Order Quantity (EOQ) =

Frequency of order or Number of Orders = 90,000/3,000 = 30 orders.

So Order can be placed in every 12 (360days/30) days

(ii) Re-order Quantity = {Maximum Consumption X Maximum lead time} + safety Stock
= {7500X1.5} + 3200 = 14,450 Valves
(iii) Calculation of Economic Order Quantity if valve costs ` 4.50
Carrying cost is 20% of ` 4.50 = ` 0.90

Economic Order Quantity (EOQ) =

2.24
MATERIAL COST
 TRP Sir
CA Rahul Panchal

=

= 1732.0508 units or 1733 Valves

PYQ NOV 23 (5 MARKS) Q. 1A

ABC Limited manufactures a product ‘AM25’ using material ‘CEE’.
The following information is available regarding material ‘CEE’ :
Purchase price per unit ` 300
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,

l
Minimum 4 days

a
Maximum consumption of material ‘CEE’ per day is 200 kg more than the average

h
consumption per day.

c
Required:

n
Calculate the following in relation to material ‘CEE’:

a
(i) Economic Order Quantity.

P
(ii) Reorder Level

l
(iii) Maximum Stock Level. (Assume 360 days in a year)

ANSWER :

h u
a
(i) Economic Order Quantity (EOQ) =

R
Where, A= Annual demand for the material CEE = 1,94,400 Kgs

A
O = Ordering cost = ` 150

C
C = Carrying cost per unit per annum = 6% of ` 300 = 18

(ii) Re-order level (ROL) = Maximum consumption# × Maximum lead time

ROL = 740 × 8 = 5,920 Kg.
# Maximum Consumption = Average consumption +200 kg

Maximum lead time = 8 days

(iii) Maximum Stock level = Re-order quantity + Re-order level – (Min. consumption*
× Min. lead time)
= 1,800 + 5,920 – (340×4)
= 7,720 – 1,360 = 6,360 Kg
*Minimum consumption = 2 × Average consumption – Maximum Consumption
= 2 × 540 – 740
= 1080 – 740 = 340 kg.

2.25
MATERIAL COST
 TRP Sir
CA Rahul Panchal

03 EMPLOYEE COST AND

DIRECT EXPENSES
QUESTION 1. (ILLUSTRATION 1) 
‘X’ an employee of ABC Co. gets the following emoluments and benefits:
(a) Basic pay ` 10,000 p.m.
(b) Dearness allowance ` 2,000 p.m.
(c) Bonus 20% of salary and D.A.
(d) Other allowances ` 2,500 p.m.
(e) Employer’s contribution to P.F. 10% of salary and D.A.
‘X’ works for 2,400 hours per annum, out of which 400 hours are non-productive and treated as

l
normal idle time. You are required to COMPUTE the effective hourly cost of employee ‘X’.

QUESTION 2. (ILLUSTRATION 2) 

h a
c
In a factory working six days in a week and eight hours each day, a worker is paid at the rate of

n
` 100 per day basic plus D.A. @ 120% of basic. He is allowed to take 30 minutes off during his

a
hours shift for meals-break and a 10 minutes recess for rest. During a week, his card showed

P
that his time was chargeable to :

l
Job X 15 hrs.

u
Job Y 12 hrs.

h
Job Z 13 hrs.

a
The time not booked was wasted while waiting for a job. In Cost Accounting, STATE how would

R
you allocate the wages of the workers for the week?

A
QUESTION 3. (ILLUSTRATION 3) 

C
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:
A B
(i) Basic Wages (`) 10,000 16,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to provident Fund (on basic wages) 8% 8%
(iv) Contribution to Employee’s State Insurance (on basic wages) 2% 2%
(v) 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:
Jobs X Y Z
Worker A 40% 30% 30%
Worker B 50% 20% 30%
Overtime was done on job Y.

3.1
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

QUESTION 4. (ILLUSTRATION 4) 
It is seen from the job card for repair of the customer’s equipment that a total of 154 labour
hours have been put in as detailed below:
Worker ‘A’ paid Worker ‘B’ paid Worker ‘C’ paid
at ` 200 per day at ` 100 per day at ` 300 per day
of 8 hours of 8 hours of 8 hours
Monday (hours) 10.5 8.0 10.5
Tuesday (hours) 8.0 8.0 8.0
Wednesday (hours) 10.5 8.0 10.5
Thursday (hours) 9.5 8.0 9.5
Friday (hours) 10.5 8.0 10.5
Saturday (hours) -- 8.0 8.0
Total (hours) 49.0 48.0 57.0

l
In terms of an award in employee conciliation, the workers are to be paid dearness allowance on

a
the basis of cost of living index figures relating to each month which works out @ ` 968 for the

h
relevant month. The dearness allowance is payable to all workers irrespective of wages rate if

c
they are present or are on leave with wages on all working days.

n
Each worker has to work for 8 hours on weekdays. Saturday and Sunday will be weekly holiday,

a
however workers may work on Saturdays due to exigency of work for 4 hours, though full payment

P
of 8 hours will be made with no other payments.

l
Overtime is paid twice of ordinary wage rate if a worker works for more than nine hours in a

u
day. Excluding holidays, the total number of hours works out to 176 in the relevant month. The

h
company’s contribution to Provident Fund and Employees State Insurance Premium are absorbed

a
into overheads.

R
CALCULATE the wages payable to each worker.

A
QUESTION 5. (ILLUSTRATION 5) 

C
In a factory, the basic wage rate is `100 per hour and overtime rates are as follows:
Before and after normal working hours 175% of basic wage rate
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
Overtime on Sundays and holidays 5,000 hours
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.

3.2
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

QUESTION 6. (ILLUSTRATION 6) 
CALCULATE the earnings of a worker under Halsey System. The relevant data is as below:
Time Rate (per hour) ` 60
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours

QUESTION 7. (ILLUSTRATION 7) 
CALCULATE the earnings of a worker under Rowan System. The relevant data is given as below:
Time rate (per Hour) ` 60
Time allowed 8 hours.
Time taken 6 hours.
Time saved 2 hours.

QUESTION 8. (ILLUSTRATION 8) 

a l
h
Two workmen, ‘A’ and ‘B’, produce the same product using the same material. Their normal wage

c
rate is also the same. ‘A’ is paid bonus according to the Rowan system, while ‘B’ is paid bonus

n
according to the Halsey system. The time allowed to make the product is 50 hours. ‘A’ takes 30

a
hours while ‘B’ takes 40 hours to complete the product. The factory overhead rate is ` 5 per man-

P
hour actually worked. The factory cost for the product for ‘A’ is ` 3,490 and for ‘B’ it is ` 3,600.

l
Required:

u
(a) COMPUTE the normal rate of wages;

h
(b) COMPUTE the cost of materials cost;

a
(c) PREPARE a statement comparing the factory cost of the products as made by the two
workmen.

R
A
QUESTION 9. (ILLUSTRATION 9) 

C
(a) Bonus paid under the Halsey Plan with bonus at 50% for the time saved equals the bonus
paid under the Rowan System. When will this statement hold good? (Your answer should
contain the proof).
(b) The time allowed for a job is 8 hours. The hourly rate is ` 8. PREPARE a statement showing:
(i) The bonus earned
(ii) The total earnings of employee and
(iii) Hourly earnings.
Under the Halsey System with 50% bonus for time saved and Rowan System for each hour
saved progressively.

QUESTION 10. (ILLUSTRATION 10) 

A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of ` 30 per hour. The standard time
per unit for a particular product is 4 hours. Mr. P, a machine man, has been paid wages under the
Rowan Incentive Plan and he had earned an effective hourly rate of ` 37.50 on the manufacture
of that particular product.
STATE what could have been his total earnings and effective hourly rate, had he been put on
Halsey Incentive Scheme (50%)?

3.3
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

QUESTION 11. (ILLUSTRATION 11) 

A factory having the latest sophisticated machines wants to introduce an incentive scheme for its
workers, keeping in view the following:
(i) The entire gains of improved production should not go to the workers.
(ii) In the name of speed, quality should not suffer.
(iii) The rate setting department being newly established are liable to commit mistakes.
You are required to PREPARE a suitable incentive scheme and DEMONSTRATE by an illustrative
numerical example how your scheme answers to all the requirements of the management.

QUESTION 12. (ILLUSTRATION 12) 

A worker is paid `10,000 per month and a dearness allowance of `2,000 p.m. Worker contribution
to provident fund is @ 10% and employer also contributes the same amount as the employee.
The Employees State Insurance Corporation premium is 6.5% of wages of which 1.75% is paid by

l
the employees. It is the firm’s practice to pay 2 months’ wages as bonus each year.

a
The number of working days in a year are 300 of 8 hours each. Out of these the worker is entitled

h
to 15 days leave on full pay. CALCULATE the wage rate per hour for costing purposes.

QUESTION 13. (ILLUSTRATION 13) 

n c
a
CALCULATE the Employee hour rate of a worker X from the following data:

P
Basic pay ` 10,000 p.m.

l
D.A. ` 3,000 p.m.

u
Fringe benefits ` 1,000 p.m.

h
Number of working days in a year 300. 20 days are availed off as holidays on full pay in a year.

a
Assume a day of 8 hours.

QUESTION 14. (ILLUSTRATION 14) 

R
A
The Accountant of Y Ltd. has computed employee turnover rates for the quarter ended 31st

C
March, 2023 as 10%, 5% and 3% respectively under ‘Flux method’, ‘Replacement method’ and
‘Separation method’ respectively. If the number of workers replaced during that quarter is 30,
FIND OUT the number of workers for the quarter
(i) recruited and joined and (ii) left and discharged and (iii) Equivalent employee turnover rates
for the year.

QUESTION 15. (ILLUSTRATION 15) 

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 to have an idea of the profit
foregone as a result of employee turnover in the last 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. The actual direct employee
hours included 30,000 hours attributable to training new recruits, out of which half of the hours
were unproductive. As a result of the delays by the Personnel Department in filling vacancies due
to employee turnover, 1,00,000 potentially productive hours (excluding unproductive training
hours) were lost.
The costs incurred consequent on employee turnover revealed, on analysis, the following:
Settlement cost due to leaving ` 43,820
Recruitment costs ` 26,740

3.4
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

Selection costs ` 12,750

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.

QUESTION 16. (ILLUSTRATION 16) 

Aditya Ltd. is an engineering manufacturing company producing job order on the basis of
specification given by the customers. During the last the month it has completed three job works
namely A, B and C. The following are the items of expenditures which are incurred apart from
direct materials and direct employee cost:
(i) Office and administration cost- ` 3,00,000.
(ii) Product blueprint cost for job A – ` 1,40,000
(iii) Hire charges paid for machinery used for job work B- ` 40,000

l
(iv) Salary to office attendants- ` 50,000

a
(v) One time license fee paid for software used to make computerised graphics for job C- `

h
50,000.

c
(vi) Salary paid to marketing manager- ` 1,20,000. Required:

n
CALCULATE direct expenses attributable to each job.

QUESTION 17. (PP1) 

P a
l
Mr. A. is working by employing 10 skilled workers. He is considering the introduction of some

u
incentive scheme - either Halsey Scheme (with 50% bonus) or Rowan Scheme - of wage payment

h
for increasing the Employee productivity to cope with the increased demand for the product by

a
25%. He feels that if the proposed incentive scheme could bring about an average 20% increase

R
over the present earnings of the workers, it could act as sufficient incentive for them to produce
more and he has accordingly given this assurance to the workers.

A
As a result of the assurance, the increase in productivity has been observed as revealed by the

C
following figures for the current month:
Hourly rate of wages (guaranteed) `40
Average time for producing 1 piece by one worker at the previous performance 2 hours
(This may be taken as time allowed)
No. of working days in the month 25
No. of working hours per day for each worker 8
Actual production during the month 1,250 units
Required:
(i) CALCULATE effective rate of earnings per hour under Halsey Scheme and Rowan Scheme.
(ii) CALCULATE the savings to Mr. A in terms of direct labour cost per piece under the schemes.

3.5
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

QUESTION 18. (PP2) 

Wage negotiations are going on with the recognised employees’ union, and the management
wants you as an executive of the company to formulate an incentive scheme with a view to
increase productivity.
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 ` 75 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.

l
QUESTION 19. (PP3) 

a
The following expenditures were incurred in Aditya Ltd. For the month of March 2023:

h
(`)

c
(i) Paid for power & fuel 4,80,200

n
(ii) Wages paid to factory workers 8,44,000

a
(iii) Bill paid to job workers 9,66,000

P
(iv) Royalty paid for production 8,400

l
(v) Fee paid to technician hired for the job 96,000

u
(vi) Administrative overheads 76,000

h
(vii) Commission paid to sales staffs 1,26,000

a
You are required to CALCULATE direct expenses for the month.

R
C A

3.6
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
Jyoti Ltd. wants to ascertain the profit lost during the year 2017-18 due to increased labour
turnover. For this purpose, it has given you the following information:
(1) Training period of the new recruits is 50,000 hours. During this period their productivity is
60% of the experienced workers. Time required by an experienced worker is 10 hours per
unit.
(2) 20% of the output during training period was defective. Cost of rectification of a defective
unit was ` 25.

l
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.

a
(4) Selling price per unit is ` 180 and P/V ratio is 20%.

h
(5) Settlement cost of the workers leaving the organization was ` 1,83,480.

c
(6) Recruitment cost was ` 1,56,340

n
(7) Training cost was ` 1,13,180

a
Required:

P
CALCULATE the profit lost by the company due to increased labour turnover during the year

l
2017-18.

RTP NOV 18

h u
a
A job can be executed either through workman A or B. A takes 32 hours to complete the job while

R
B finishes it in 30 hours. The standard time to finish the job is 40 hours.
The hourly wage rate is same for both the workers. In addition workman A is entitled to receive

A
bonus according to Halsey plan (50%) sharing while B is paid bonus as per Rowan plan. The

C
works overheads are absorbed on the job at ` 7.50 per labour hour worked. The factory cost of
the job comes to ` 2,600 irrespective of the workman engaged.
INTERPRET the hourly wage rate and cost of raw materials input. Also show cost against each
element of cost included in factory cost.

RTP MAY 19

A Company is undecided as to what kind of wage scheme should be introduced. The following
particulars have been compiled in respect of three workers. Which are under consideration of the
management.
I II III
Actual hours worked 380 100 540
Hourly rate of wages (in `) 40 50 60
Productions in units:
- Product A 210 - 600
- Product B 360 - 1350
- Product C 460 250 -
Standard time allowed per unit of each product is:
A B C
Minutes 15 20 30

3.7
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

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 75% of basic pay (Guaranteed 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.

RTP NOV 19

ADV Pvt. Ltd. manufactures a product which requires skill and precision in work to get quality
products. The company has been experiencing high labour cost due to slow speed of work. The
management of the company wants to reduce the labour cost but without compromising with
the quality of work. It wants to introduce a bonus scheme but is indifferent between the Halsey
and Rowan scheme of bonus.

l
For the month of November 2019, the company budgeted for 24,960 hours of work. The workers

a
are paid `80 per hour.

Required:

c h
n
(i) CALCULATE and suggest the bonus scheme where the time taken (in %) to time allowed to

a
complete the works is (a) 100% (b) 75% (c) 50% & (d) 25% of budgeted hours.

RTP MAY 20

l P
u
From the following information, CALCULATE employee turnover rate using – (i) Separation

h
Method, (ii) Replacement Method, (iii) New Recruitment Method, and (iv) Flux Method:

a
No. of workers as on 01.01.2019 = 3,600 No. of workers as on 31.12.2019 = 3,790

R
During the year, 40 workers left while 120 workers were discharged. 350 workers were recruited
during the year, of these 150 workers were recruited because of exits and the rest were recruited

A
in accordance with expansion plans.

RTP NOV 20

C
GZ Ld. pays the following to a skilled worker engaged in production works. The following are the
employee benefits paid to the employee:
(a) Basic salary per day `1,000
(b) Dearness allowance (DA) 20% of basic salary
(c) House rent allowance 16% 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 otherwise no overtime allowance.
If works for more than 9 hours a day then overtime is
considered after 8th hours.
(f) Work of holiday and Double of per day basic rate provided works atleast 4
Sunday hours. The holiday and Sunday basic is eligible for all
allowances and statutory deductions.
(h) Earned leave & Casual These are paid leave.
leave
(h) Employer’s contribution to 12% of basic and DA
Provident fund

3.8
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

(i) Employer’s contribution to 7% 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.Z works for 23 days including 15 th August and a Sunday
and applied for 3 days of casual leave. On 15th August and Sunday he worked for 5 and 6 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. Z.

l
(iii) Wages to be charged to Job no.HT200.

RTP MAY 21

h a
c
JBL Sisters operates a boutique which works for various fashion houses and retail stores. It has

n
employed 26 workers and pays them on time rate basis. On an average an employee is allowed

a
8 hours for boutique work on a piece of garment. In the month of December 2020, two workers

P
M and J were given 15 pieces and 21 pieces of garments respectively for boutique work. The

l
following are the details of their work:

u
M J

h
Work assigned 15 pcs. 21 pcs.

a
Time taken 100 hours 140 hours

R
Workers are paid bonus as per Halsey System. The existing rate of wages is ` 60 per hour. As per
the new wages agreement the workers will be paid ` 72 per hour w.e.f. 1stJanuary 2021. At the

A
end of the month December 2020, the accountant of the company has wrongly calculated wages

C
to these two workers taking ` 72 per hour.
Required:
(i) CALCULATE the loss incurred due to incorrect rate selection.
(ii) CALCULATE the loss incurred due to incorrect rate selection, had Rowan scheme of bonus
payment followed.
(iii) CALCULATE the loss/ savings if Rowan scheme of bonus payment had followed.
(iv) DISCUSS the suitability of Rowan scheme of bonus payment for JBL Sisters?

RTP NOV 21

Textile Ltd. pays following overtime premium for its labour beside normal wages of ` 100 per
hour:
Before and after normal working hours 80% of basic wage rate
Sundays and holidays 150% of basic wage rate

During the previous year 2019-20, the following hours were worked:
Normal time 3,00,000 hours
Overtime before and after normal working hours 60,000 hours
Overtime on Sundays and holidays 15,000 hours
Total 3,75,000 hours

3.9
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

During the current year 2020-21, the following hours have been worked on job ‘Spinning’:
Normal 4,000 hours
Overtime before and after normal working hours 400 hours
Overtime on Sundays and holidays 100 hours
Total 4,500 hours

You are required to CALCULATE the labour cost chargeable to job ‘Spinning’ 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.

l
RTP MAY 22

a
A total of 108 labour hours have been put in a particular job card for repair work engaging a

h
semi-skilled and skilled labour (Mr. Deep and Mr. Sam respectively).

c
The hours devoted by both the workers individually on daily basis for this particular job are given

n
below:

a
Monday Tuesday Wednesday Thursday Friday

P
10.5 8.0 10.5 9.5 10.5

l
The skilled labour also worked on Saturday for 10 hours.

u
Sunday is a weekly holiday and each worker has to work for 8 hours on all week days and 5

h
hours on Saturdays; the workers are however paid full wages for Saturday (8 hours for 5 hours

a
worked).

R
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%.

A
Extra hours worked over and above 8 hours are also paid at ordinary wage rate however, overtime

C
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).

RTP NOV 22

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 using Flux method.
Following is the 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
Human Resource Manager ? 30 90 60
Legal Secretary ? 90 --- ?
Staff Attorney ? 30 30 ?
Associate Attorney ? 30 --- 45
Senior Staff Attorney 6 --- --- 18
Senior Records clerk 12 --- --- 51
Litigation attorney ? --- --- ?

3.10
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

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 l
h
(a) CALCULATE Labour Turnover rate using Replacement method and Separation method.

c
(b) VERIFY the Labour turnover rate calculated under Flux method by Mr. H

RTP MAY 23

a n
P
Following information are available from the cost records of BMR Limited, CALCULATE Labour

l
turnover rate and Labour flux rate:

u
No. of Employees as on 01.04.2021 = 9,400 No. of Employees as on 31.03.2022 = 10,600

h
During the year, 160 Employees left while 640 Employees were discharged and 1,500 Employees

a
were recruited during the year; of these, 400 Employees were recruited because of exits and the

R
rest were recruited in accordance with expansion plans.

A
RTP NOV 23

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

RTP MAY 24

The board of the J Ltd. has been appraised by the General Manager (HR) that the employee
attrition rate in the company has increased. The following facts has been presented by the
GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this period their productivity is
60% of the experienced workers. Time required by an experienced worker is 10 hours per
unit.
(2) 20% of the output during training period was defective. Cost of rectification of a defective
unit was ` 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is ` 180 and P/V ratio is 20%.

3.11
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

(5) Settlement cost of the workers leaving the organization was ` 1,83,480.
(6) Recruitment cost was ` 1,56,340
(7) Training cost was ` 1,13,180

You being an associate finance to GM(HR), has been asked the following questions:
(i) How much quantity of output is lost due to labour turnover?
(a) 10,000 units
(b) 8,000 units
(c) 12,000 units
(d) 12,600 units

(ii) How much loss in the form of contribution, the company incurred due to labour turnover?
(a) ` 4,32,000

l
(b) ` 4,20,000

a
(c) ` 4,36,000

h
(d) ` 4,28,000

(iii) What is the cost repairing of defective units? (a)

n
` 75,000
c
a
(b) ` 15,000

P
(c) ` 50,000

l
d) ` 25,000

(iv)

h u
Calculate the profit lost by the company due to increased labour turnover.

a
(a) ` 7,50,000

R
(b) ` 15,00,000
(c) ` 5,00,000

A
(d) ` 9,00,000

(v) How
(a)
(b)
1,000 units
2,600 units
C
much quantity of output is lost due to inexperience of the new worker?

(c) 2,000 units

(d) 12,600 units

3.12
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (5 MARKS) Q. 1B
A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours.
His wage rate is ` 5 per hour. Following additional information are also available:
Material cost of work ` 50
Factory overheads 100% of wages
Calculate the factory cost of work under the following methods of wage payments:
(i) Rowan Plan
(ii) Halsey Plan

ANSWER :

a l
ch
(b) When Quantity Discount is accepted
(`)

n
Purchase Cost (12,000 units  ` 608) 72,96,000

a
A (12,000 units/3,000 units) ` 1,800] 7,200
Ordering Cost [ × O

P
Q

l
Q
Carrying Cost [ × C× i (3,000 units ` 608 ½ 18.75/100)] 1,71,000

u
2

h
Total Cost 74,74,200

R
Advise – The total cost of inventory is higher if EOQ is adopted. If M/s. X Private Limited gets
a discount of 5% on the purchases of “SKY BLUE” (if order size is 3,000 components at a

A
time), there will be financial benefit of ` 2,77,800 (77,52,000 - 74,74,200). However, order

C
size of big quantity will increase volume of average inventory to 5 times. There may be risk
of shrinkage, pilferage and obsolescence etc., of inventory due to increase in the average
volume of inventory holding. This aspect also has to be taken into consideration before
opting the discount offer and taking final decision.
`
(b)
(i) Rowan Plan : Normal time wage = 15 hours @ ` 5= 75
Bonus = Time saved /Time allowed × (Time taken × Time rate)
5
= ×1 5× 5 =
20 18.75
93.75

Halsey Plan: Normal time wage = 15 hours @ ` 5 =

(ii) 75
Bonus = 50% of (Time saved x Time rate) = 50% of (5x5) = 12.5
87.5

3.13
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

Statement of Comparative Factory cost of work

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

PYQ MAY 18 (10 MARKS) Q. 3A

The information regarding number of employees on roll in a shopping mall for the month
of December 2017 are given below:

Number of employees as on 01-12-2017 900

a l
h
Number of employees as on 31-12-2017 1100

n c
During December, 2017, 40 employees resigned and 60 employees were discharged.

a
300 employees were recruited during the month. Out of these 300 employees, 225

P
employees were recruited for an expansion project of the mall and rest were recruited

l
due to exit of employees.

h u
Assuming 365 days in a year, calculate Employee Turnover Rate and Equivalent Annual'

a
Employee Turnover Rate by applying the following:

R
(i) Replacement Method
(ii) Separation Method

A
(iii) Flux Method

ANSWER :
Labour turnover rate: C
It comprises of computation of labour turnover by using following methods:
(i) Replacement Method:
No.o f workersr eplaced
Labour turnover rate = x100
Average numbero fw orkers
75
= 100 = 7.5%
1,000

(ii) Separation Method:

3.14
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

OR
(iii) Flux Method:

OR

(iii) Flux Method:

a l
c h

a n
P

u l
a h
R
PYQ NOV 18 (5 MARKS) Q. 5B(i)
Following data have been extracted from the books of M/s. ABC Private Limited:

A
(i) Salary (each employee, per month) ` 30,000

C
(ii) Bonus 25% of salary
(iii) Employer's contribution to PF, ESI etc. 15% of salary
(iv) Total cost at employees' welfare activities ` 6,61,500 per annum
(v) Total leave permitted during the year 30 days
(v) No. of employees 175
(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

ANSWER :
1.
Annual cost of each employee `.
1. Salary (30,000×12) 3,60,000
2. Bonus (25% of Salary) 90,000

3.15
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

3. Employees Contribution to PF (15% of Salary) 54,000

4. Employers welfare (661500/175) 3,780
Total Annual Cost 5,07,780

2.
Effective Working hours (310 days × 8 hours) 2480 hours
Less: Leave days (30 days × 8 hours) 240 hours*
Available Working hours 2240 hours
Less: Normal Loss @ 70 hours
2170 hours
Employee Cost per hour 507780 = `. 234
2170
*It is assumed 310 working days are without taking leave permitted into consideration

3. Cost of abnormal idle time per employee = ` 234× 50 hours= ` 11700

a l
Alternative solution for Part (2) and (3)

c h
n
(2) Calculation of Employee cost per hour:

a
Working hours per annum 2,480 * Less: Normal Idle time hours  70

P
Effective hours 2,410

l
Employee cost  5,07,780

u
Employee cost per hour  210.70

h
*It is assumed 310 working days are after adjusting leave permitted during the year.

(3)

R a
Cost of Abnormal idle time per employee:
Abnormal Idle time hours  50

A
Employee cost per hour  210.70

C
Cost of Abnormal idle time (210.70 ×50)  10,534.85

PYQ MAY 19 (5 MARKS) Q. 1B

M/s Zeba Private Limited allotted a standard time of 40 hours for a job and the rate per hour is
` 75. The actual time taken by a worker is 30 hours.
You are required to calculate the total earnings under the following plans:
(i) Halsey Premium Plan (Rate 50%)
(ii) Rowan Plan
(iii) Time Wage System
(iv) Piece Rate System
(v) Emerson Plan

ANSWER :
(i) Halsey Premium plan:

= ` 2,250 + ` 562.5 = ` 2,812.5 or ` 2,813

3.16
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

(ii) Rowan Premium plan:

= ` 2,250 + ` 562.5 = ` 2,812.5 or ` 2,813

(iii) Time wage system:

= Time taken × Rate per hour
= 30 × ` 75 = ` 2,250

(iv) Piece Rate System:

= Std. Time × Rate per hour

l
= 40 × ` 75 = ` 3,000

(v) Emerson plan:

h a
c
Efficiency level = 40/30 = 133.33%

n
Time taken × (120% + 33.33%) of Rate

a
= 30 hours × 153.33% of ` 75

P
= ` 3,450

PYQ NOV 19 (10 MARKS)

u l Q. 4A

h
Zico Ltd. has its factory at two locations viz Nasik and Satara. Rowan plan is used at Nasik

a
factory and Halsey plan at Satara factory.

R
Standard time and basic rate of wages are same for a job which is similar and is carried out on
similar machinery. Normal working hours is 8 hours per day in a 5 day week.

A
Job at Nasik factory is completed in 32 hours while at Satara factory it has taken 30 hours.

C
Conversion costs at Nasik and Satara are ` 5,408 and ` 4,950 respectively. Overheads account
for ` 25 per hour.
Required:
(i) To find out the normal wage; and
(ii) To compare the respective conversion costs.

ANSWER :
Particulars Nasik Satara
Hours worked 32 hr. 30 hr.
Conversion Costs `5,408 `4,950
Less: Overheads `800 `750
(`25×32 hr.) (`25×30 hr.)
Labour Cost `4,608 `4,200
(i) Finding of Normal wage rate:
Let Wage rate be `R per hour, this is same for both the Nasik and Satara factory.
Normal wage rate can be found out taking total cost of either factory.
Nasik: Rowan Plan

3.17
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

Total Labour Cost = Wages for hours worked + Bonus as per Rowan plan

Or, ` 4,608 = 32R + 6.4R

R = ` 120
Normal wage = 32 hrs × ` 120 = ` 3,840
OR
Satara: Halsey Plan
Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan

l
` 4,200 = Hours worked × Rate per hour + (50%×Hours saved×Rate per hour )

a
` 4,200 = 30 hr. × R + 50% × (40 hr. – 30 hr.) × R

h
` 4,200 = 35 R

c
Or R = ` 120

n
Normal Wage = 30 hrs × ` 120 = ` 3,600

(ii) Comparison of conversion costs:

P a
l
Particulars Nasik (`) Satara (`)

u
Normal Wages (32 x 120) 3,840

h
(30x120) 3,600

a
Bonus (6.4 x 120) 768

R
(5 x 120) 600
Overhead 800 750

A
5,408 4,950

C
PYQ NOV 20 (6 MARKS)
Following are the particulars of two workers 'R' and 'S' for a month:
Particulars R
Q. 4B

S
(i) Basic Wages (`) 15,000 30,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to EPF (on basic wages) 7% 7.5%
(iv) Contribution to ESI (on basic wages) 2% 2%
(v) Overtime (hours) 20 -
The normal working hours for the month are 200 hrs. 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.

Both workers were employed on jobs A, B and C in the following proportions :

Jobs A B C
R 75% 10% 15%
S 40% 20% 40%

3.18
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

Overtime was done on job 'A.'

You are required to :
(i) Calculate ordinary wage rate per hour of 'R' and ‘S’.
(ii) Allocate the worker's cost to each job 'A,' 'B' and 'C'.

ANSWER :
(i) Calculation of Net Wages paid to Worker ‘R’ and ‘S’
Particulars R (`) S (`)
Basic Wages 15,000.00 30,000.00
Dearness Allowance (DA) (50% of Basic Wages) 7,500.00 15,000.00
Overtime Wages (Refer to Working Note 1) 4,500.00 ----
Gross Wages earned 27,000.00 45,000.00
Less: Provident Fund (7% × ` 15,000); (7.5% × ` 30,000) (1,050.00) (2,250.00)

l
Less: ESI (2% × ` 15,000); (2% × ` 30,000) (300.00) (600.00)

a
Net Wages paid 25,650.00 42,150.00

Calculation of ordinary wage rate per hour of Worker ‘R’ and ‘S’

c h
n
Particulars R (`) S (`)

a
Gross Wages (Basic Wages + DA) 22,500.00 45,000.00

P
(excluding overtime)

l
Employer’s contribution to P.F. and E.S.I. 1,350.00 2,850.00

u
23,850.00 47,850.00

h
Ordinary wages Labour Rate per hour 119.25 239.25

a
(` 23,850 ÷ 200 hours); (` 47,850 ÷ 200 hours)

(ii)
R
Statement Showing Allocation of workers cost to each Job

Worker R C A Total
Wages A
Jobs
B C

Ordinary Wages (15:2:3) 23,850.00 17,887.50 2,385.00 3577.50

Overtime 4500.00 4500.00 - --
Worker S
Ordinary Wages (2:1:2) 47,850.00 19,140.00 9,570.00 19,140.00
76,200.00 41,527.50 11,955.00 22,717.50

Working Note:
Normal Wages are considered as basic wages.

Over time

= ` 4,500

3.19
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PYQ NOV 20 (4 MARKS) Q. 4C

Discuss any four objectives of 'Time keeping' in relation to attendance and payroll procedures.

ANSWER :
The objectives of time-keeping in relation to attendance and payroll procedures are as follows:
(i) For the preparation of payrolls.
(ii) For calculating overtime.
(iii) For ascertaining and controlling employee cost.
(iv) For ascertaining idle time.
(v) For disciplinary purposes.
(vi) For overhead distribution

PYQ JAN 21 (10 MARKS) Q. 2A

l
Z Ltd is working by employing 50 skilled workers. It is considering the introduction of an incentive

a
scheme - either Halsey Scheme (with 50% Bonus) or Rowan Scheme - of wage payment for

h
increasing the labour productivity to adjust with the increasing demand for its products by 40%.

c
The company feels that if the proposed incentive scheme could bring about an average 20%

n
increase over the present earnings of the workers, it could act as sufficient incentive for them to

a
produce more and the company has accordingly given assurance to the workers.

l P
Because of this assurance, an increase in productivity has been observed as revealed by the

u
figures for the month of April, 2020:

h
Hourly rate of wages (guaranteed) ` 50

a
Average time for producing one unit by one worker at the previous performance 1.975 hours

R
(this may be taken as time allowed)
Number of working days in a month 24

A
Number of working hours per day of each worker 8

C
Actual production during the month 6,120 units
Required:
(i) Calculate the effective increase in earnings of workers in percentage terms under Halsey
and Rowan scheme.
(ii) Calculate the savings to Z Ltd in terms of direct labour cost per unit under both the schemes.
(iii) Advise Z Ltd about the selection of the scheme that would fulfil its assurance of incentivising
workers and also to adjust with the increase in demand.

ANSWER :
Working Notes:
1. Total time wages of 50 workers per month:
= No. of working days in the month × No. of working hours per day of each worker
× Hourly rate of wages × No. of workers
= 24 days × 8 hrs. × ` 50 × 50 workers = ` 4,80,000
2. Time saved per month:
Time allowed per unit to a worker  1.975 hours
No. of units produced during the month by 50 workers  6,120 units
Total time allowed to produce 6,120 units (6,120 × 1.975 hrs)  12,087 hours
Actual time taken to produce 6,120 units (24 days × 8 hrs. × 50 workers)  9,600 hours

3.20
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

Time saved (12,087 hours – 9,600 hours)  2,487 hours

3. Bonus under Halsey scheme to be paid to 50 workers:
Bonus = (50% of time saved) × hourly rate of wages
= 50/100 × 2,487 hours × ` 50 = ` 62,175
Total wages to be paid to 50 workers are (` 4,80,000 + ` 62,175) ` 5,42,175, if Z Ltd.
considers the introduction of Halsey Incentive Scheme to increase the worker productivity.
4. Bonus under Rowan Scheme to be paid to 50 workers:

Bonus = Time taken × Time saved × hourly rate

Time allowed
= 9,600 hours × 2,487 hours × ` 50 = ` 98,764
12,087 hours

l
Total wages to be paid to 50 workers are (` 4,80,000 + ` 98,764) ` 5,78,764, if Z Ltd.

a
considers the introduction of Rowan Incentive Scheme to increase the worker productivity.

c h
n
(i) (a) Effective hourly rate of earnings under Halsey scheme:

a
(Refer to Working Notes 1, 2 and 3)

P
= Total time wages of 50 workers + Total bonus under Halsey scheme

l
Total hours worked

u
= ` 4,80,000 + ` 62,175 = ` 56.48

h
9,600 hours

a
Effective increase in earnings of worker (in %) = ` 56.48 - ` 50 x 100 = 2.96%

R
` 50

A
(b) Effective hourly rate of earnings under Rowan scheme:

C
(Refer to Working Notes 1, 2 and 4)
= Total time wages of 50 workers +  Total bonus under Rowan scheme
Total hours worked
= ` 4,80,000 + ` 96,875 = ` 60.29
9,600 hours
Effective increase in earnings of worker (in %)= ` 60.29 - ` 50 x 100 = 20.58%
` 50

(ii) (a) Saving in terms of direct labour cost per unit under Halsey scheme:
(Refer to Working Note 3)
Labour cost per unit (under time wage scheme)
= 1.975 hours × ` 50 = ` 98.75
Labour cost per unit (under Halsey scheme)
= Total wages paid under the scheme = ` 5, 42,175 = ` 88.60
Total number of units produced 6,120
Saving per unit = ` 98.75 – ` 88.60 = ` 10.15

3.21
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

(b) Saving in terms of direct worker cost per unit under Rowan Scheme:
(Refer to Working Note 4)
Labour cost per unit under Rowan scheme = ` 5,78,764/6,120 units= ` 94.57
Saving per unit = ` 98.75 – ` 94.57 = ` 4.18

(iii) Calculation of Productivity:

Normal Production Hours worked/Unit per Hour (9,600/1.975) 4,861
Actual Production Units 6,120
Increase in labour productivity 1,259
% Productivity i.e. increase in production/Normal production 25.9%

Advice: Rowan plan fulfils the company’s assurance of 20% increase over the present
earnings of workers. This would increase productivity by 25.9% only. It will not adjust with

l
the increase in demand by 40%.

PYQ JULY 21 (5 MARKS)

h a Q. 2C

c
Following information is given of a newly setup organization for the year ended on 31st March,

n
2021.

a
Number of workers replaced during the period 50

P
Number of workers left and discharged during the period 25

l
Average number of workers on the roll during the period 500

u
You are required to:

h
(i) Compute the Employee Turnover Rates using Separation Method and Flux Method.

a
(ii) Equivalent Employee Turnover Rates for (i) above, given that the organization was setup on

R
31st January, 2021.

A
ANSWER :

C
(c) (i) Employee Turnover rate
Using Separation method:

Using Flux method:

(ii) Equivalent Employee Turnover rate:

3.22
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

l
PYQ DEC 21 (5 MARKS) Q. 1C

a
A skilled worker is paid a guaranteed wage rate of ` 150 per hour. The standard time allowed

h
for a job is 10 hours. He took 8 hours to complete the job. He has been paid the wages under

c
Rowan Incentive Plan.

n
You are required to:

a
(i) Calculate an effective hourly rate of earnings under Rowan Incentive Plan.

P
(ii) Calculate the time in which he should complete the job, if the worker is placed under

l
Halsey Incentive Scheme (50%) and he wants to maintain the same effective hourly rate of

u
earnings.

ANSWER :

a h
R
(i) Calculation of Effective hourly rate of earnings under Rowan Incentive Plan:
Standard time allowed = 10 hours

A
Time taken = 8 hours; Time saved = 2 hours

C
Particulars Amount
(`)
A Basic guaranteed wages (`150×8 hours) 1,200
B Add: Bonus for time saved 240

C Total earnings (A+B) 1,440

D Hours worked 8 hours
E Effective hourly rate (C÷D) 180

(ii) Let the time taken to complete the job is “T” and the time saved is 10-T

150T + 750 -75T = 180T

180T-75T = 750

3.23
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PYQ MAY 22 (5 MARKS) Q. 1B

PQR Limited has replaced 72 workers during the quarter ended 31st March 2022. The labour
rates for the quarter are as follows:
Flux method 16%
Replacement method 8%
Separation method 5%
You are required to ascertain:
(i) Average number of workers on roll (for the quarter),
(ii) Number of workers left and discharged during the quarter,
(iii) Number of workers recruited and joined during the quarter,
(iv) Equivalent employee turnover rates for the year.

ANSWER :

l
Working Note:

a
(i) Average number of workers on roll (for the quarter):

h
Employee Turnover rate using Replacement method

P a
u l
(ii)

a h
Number of workers left and discharged:

R
Employee turnover rate (Separation method)

(iii) C A
Hence, number of workers left and discharged comes to 45

Number of workers recruited and joined:

Employee turnover rate (Flux method)

No. of workers recruited and joined 99

(iv) Calculation of Equivalent employee turnover rates:

3.24
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PYQ NOV 22 (6 MARKS) Q. 2B

A skilled worker, in PK Ltd., is paid a guaranteed wage rate of ` 15.00 per hour in a 48- hour
week. The standard time to produce a unit is 18 minutes. During a week, a skilled 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 i.e. Halsey Premium Plan or Rowan Premium Plan, the company
should follow.

ANSWER :

a l
h
(i) Calculation of wages of Mr. ‘A’ under different wage schemes:

c
A. Time rate

n
Wages = Time Worked × Rate for the time

a
= 48 hours x ` 15

P
= ` 720

l
B. Piece rate with a guaranteed weekly wage

u
Wages = Number of units produced × Rate per unit

h
= 200 units x ` 4.50*

a
= ` 900

R
*(` 15 / 60 minutes) x 18 minutes = ` 4.50

A
C.Halsey Premium Plan

C
Wages = Time taken × Time rate + 50% of time saved × Time rate
Wages = Time taken × Time rate + 50% (Standard time – Actual time) × Time rate
= (48 hours x ` 15) + 50% of (60 hours# – 48 hours) x ` 15
= ` 720 + ` 90
= ` 810
#(200 units x 18 minutes) / 60 minutes = 60 hours

D. Rowan Premium Plan

= ` 720 + ` 144
= ` 864

(ii) The company may follow Halsey Premium Plan over Rowan Premium Bonus
Plan as the total wages paid is lower than that of Rowan Premium Bonus Plan.

3.25
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PYQ MAY 23 (5 MARKS) Q. 1B

SMC Company Limited is producing a particular design of toys under the following existing
incentive system:
Normal working hours in the week 48 hours
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 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 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

l
usual).

a
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required

h
to calculate the weekly earnings for one operator under-

c
(i) The existing Time Rate,

n
(ii) Rowan Premium Plan and,

a
(iii) Halsey Premium Plan (50%).

ANSWER :

l P
u
Working Notes:

h
(1) Effective rate per hour:

a
Incentive for 60 hours = (` 150 × 48 hours + ` 300 × 12 hours)

R
= 7,200 + 3,600 = ` 10,800
= ` 10,800 ÷ 60 hours = ` 180 per hour

(2)

C A
Time taken/ Allowed to produce 100 toys:
= (60 hours ÷ 80 toys) × 100 toys = 75 hours

(3) Time saved = Time Allowed – Time Taken

= 75 hours – 48 hours = 27 hours
(i) Calculation of weekly earnings for one operator under the existing time rate:
= (48 hours x ` 150) + (12 hours x ` 300) = ` 10,800
Alternative solution
= Effective rate per hour (WN-1) × Time required for 100 toys (WN-2)
= ` 180 × 75 hours = ` 13,500
(ii) Calculation of weekly earnings for one operator under Rowan Premium plan:
(Time taken × Rate per hour) + (Time Saved/ Time Allowed × Time taken × Rate per
hour)
= (48 hours × ` 150) + [(27 ÷ 75) × 48 × ` 150]
= 7,200 + 2,592 = ` 9,792
(iii) Calculation of weekly earnings for one operator under Halsey Premium plan:
(Time taken × Rate per hour) + (50% of Time Saved × Rate per hour)
= (48 hours × ` 150) + (50% of 27 hours × ` 150)
= ` 7,200 + ` 2,025 = ` 9,225

3.26
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

PYQ NOV 23 (5 MARKS) Q. 1B

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 Premium Plan. Factory overhead
is recovered on the job at ` 60 per man hour 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 job 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.

ANSWER :

l
Particulars (`)

a
Factory Cost 37,280

h
Less: Factory Overheads 60 x ` 60 3,600

c
Prime Cost 33,680

n
Direct material 28,400

a
Direct wages (Balancing Figure) 5,280

(i)

l P
Wages under Halsey Plan (Rate × Actual hours worked) + Rate × x Time taken

h
` 5,280 = 60 x ` 80 + (S* – 60)/2 x ` 80
u
a
` 5,280 = ` 4,800 + 40S – 2,400

R
S = ` 2,880/40 = 72 hours
*Standard time

A
Effective rate of earnings per hour = 5,280/60 = ` 88

(ii)

= 60 x 80 +
C
Wages under Rowan Plan: (Rate × Actual hours worked) + Rate ×

x 60 x 80 = ` 5,600
x Time taken

Effective rate of earnings per hour = 5,600/60 = ` 93.33

3.27
EMPLOYEE COST AND DIRECT EXPENSES
 TRP Sir
CA Rahul Panchal

OVERHEADS-
04 ABSORPTION
COSTING METHOD
QUESTION 1. (ILLUSTRATION 1) 
XL Ltd., has three production departments and four service departments. The expenses for these
departments as per Primary Distribution Summary are as follows:
Production Departments: (`) (`)
Dept.-A 30,00,000
Dept.-B 26,00,000
Dept.-C 24,00,000 80,00,000
Service Departments: (`) (`)

l
Stores 4,00,000

a
Time-keeping and Accounts 3,00,000

ch
Power 1,60,000
Canteen 1,00,000 9,60,000

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

P
Dept. A Dept. B Dept. C

l
Horse power of Machine 300 300 200

u
Number of workers 20 15 15

h
Value of stores requisition in (`) 2,50,000 1,50,000 1,00,000

a
PREPARE a statement apportioning the costs of service departments over the production

R
departments using direct re-distribution method.

A
QUESTION 2. (ILLUSTRATION 2) 

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

PREPARE a statement apportioning the costs of service departments over the production
departments using step method.

QUESTION 3. (ILLUSTRATION 3) 
Service departments’ expenses
(`)
Boiler house 3,00,000
Pump room 60,000
Total 3,60,000

4.1
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

The allocation basis is:

Production Department Service Department
A B Boiler House Pump Room
Boiler House 60% 35% - 5%
Pump Room 10% 40% 50% -

QUESTION 4. (ILLUSTRATION 4) 
Sanz Ltd., is a manufacturing company having three production departments, ‘A’, ‘B’ and ‘C’ and
two service departments ‘X’ and ‘Y’. The following is the budget for December 2022:
Total (`) A (`) B (`) C (`) X (`) Y (`)
Direct material 1,00,000 2,00,000 4,00,000 2,00,000 1,00,000
Direct wages 5,00,000 2,00,000 8,00,000 1,00,000 2,00,000
Factory rent 4,00,000

l
Power 2,50,000

a
Depreciation 1,00,000

h
Other overheads 9,00,000

Additional information:

n c
a
Area (Sq. ft.) 500 250 500 250 500

P
Capital value of assets (` lakhs) 20 40 20 10 10

l
Machine hours 1,000 2,000 4,000 1,000 1,000

u
Horse power of machines 50 40 20 15 25

a h
A technical assessment of the apportionment of expenses of service departments is as under:

R
A B C X Y
Service Dept. ‘X’ (%) 45 15 30 – 10

A
Service Dept. ‘Y’ (%) 60 35 – 5 –

Required:
(i) C
PREPARE a statement showing distribution of overheads to various departments.
(ii) PREPARE a statement showing re-distribution of service departments expenses to production
departments using Trial and error method.

QUESTION 5. (ILLUSTRATION 5) 
Taking all the information from Illustration 4 above, PREPARE a statement showing re- distribution
of service departments’ expenses to production departments using repeated distribution method.
Also CALCULATE machine hour rates of the production departments ‘A’, ‘B’ and ‘C’.

QUESTION 6. (ILLUSTRATION 6) 
A machine costing ` 1,00,00,000 is expected to run for 10 years. At the end of this period its scrap
value is likely to be ` 9,00,000. Repairs during the whole life of the machine are expected to be `
18,00,000 and the machine is expected to run 4,380 hours per year on the average. Its electricity
consumption is 15 units per hour, the rate per unit being ` 5. The machine occupies one-fourth
of the area of the department and has two points out of a total of ten for lighting. The foreman
has to devote about one sixth of his time to the machine. The monthly rent of the department is
` 30,000 and the lighting charges amount to ` 8,000 per month. The foreman is paid a monthly

4.2
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

salary of ` 19,200. FIND OUT the machine hour rate, assuming insurance is @ 1% p.a. and the
expenses on oil, etc., are ` 900 per month.

QUESTION 7. (ILLUSTRATION 7) 
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 machine. Operators are paid
` 20 per hour. The factory works for fourty eight hours in a week which includes 4 hours set up
time. The work is jointly done by operators. The operators are paid fully for the fourty 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:

l
• Depreciation 10% per annum on original cost of the machine. Original cost of the each

a
machine is `52,000.

h
• Maintenance and repairs per week per machine is `60.

c
• Consumable stores per week per machine are `75.

n
• Power: 20 units per hour per machine at the rate of 80 paise per unit. No power is used

a
during the set-up hours.

P
•  Apportionment to the cost centre: Rent per annum `5,400, Heat and Light per annum

l
`9,720, foreman’s salary per annum `12,960 and other miscellaneous expenditure per

u
annum `18,000.

h
Required:

a
CALCULATE the cost of running one machine for a four week period.

QUESTION 8. (ILLUSTRATION 8) 
R
A
The total overhead expenses of a factory is ` 4,46,380. Taking into account the normal working

C
of the factory, overhead was recovered in production at ` 1.25 per hour. The actual hours worked
were 2,93,104. STATE how would you proceed to close the books of accounts, assuming that
besides 7,800 units produced of which 7,000 were sold, there were 200 equivalent units in work-
in-progress?
On investigation, it was found that 50% of the unabsorbed overhead was on account of increase
in the cost of indirect materials and indirect labour and the remaining 50% was due to factory
inefficiency.

QUESTION 9. (ILLUSTRATION 9) 
In an engineering company, the factory overheads are recovered on a fixed percentage basis
on direct wages and the administrative overheads are absorbed on a fixed percentage basis on
factory cost.
The company has furnished the following data relating to two jobs undertaken by it in a period:
Job 101 Job 102
(`) (`)
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%

4.3
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Required:
(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 jobs.
(iii) Using the above recovery rates DETERMINE the selling price of job 103. The additional data
being:
Direct materials ` 24,000
Direct wages ` 20,000
Profit percentage on selling price 12-½%

QUESTION 10. (ILLUSTRATION 10) 

A company which sells four products, some of these are unprofitable. Company proposes to

l
discontinue to sale one of these products. The following information is available regarding

a
income, costs and activity for the year ended 31st March.

ch
Departments Products
A B C D

n
Sales (`) 30,00,000 50,00,000 25,00,000 45,00,000

a
Cost of goods sold (`) 20,00,000 45,00,000 21,00,000 22,50,000

P
Area of storage (Sq.ft.) 50,000 40,000 80,000 30,000

l
Number of parcels sent 1,00,000 1,50,000 75,000 1,75,000

u
Number of invoices sent 80,000 1,40,000 60,000 1,20,000

a h
Selling and Distribution overheads and the basis of allocation are:

R
Amount (`) Basis of allocation
to products

A
Fixed Costs

C
Rent & Insurance 3,00,000 Area of storage
(Sq.ft.)
Depreciation 1,00,000 No. of Parcels sent
Salesmen’s salaries & expenses 6,00,000 Sales Volume
Administrative wages and salaries 5,00,000 No. of invoices sent
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.

4.4
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

QUESTION 11. (PP1) 

The ABC Company has the following account balances and distribution of direct charges on 31st
March.
Total Production Depts. Service Depts.
Machine Packing Gen. Store &
shop Plant Maintenance
(`) (`) (`) (`) (`)
Allocated Overheads:
Indirect labour 14,650 4,000 3,000 2,000 5,650
Maintenance material 5,020 1,800 700 1,020 1,500
Misc. supplies 1,750 400 1,000 150 200
Superintendent’s salary 4,000 – – 4,000 –
Cost & payroll salary 10,000 – – 10,000 –

Overheads to be apportioned:

a l
h
Power 8,000

c
Rent 12,000

n
Fuel and heat 6,000

a
Insurance 1,000

P
Trade License fees 2,000

l
Depreciation 1,00,000

u
1,64,420 6,200 4,700 17,170 7,350

a h
The following data were compiled by means of the factory survey made in the previous year:

R
Floor Space Radiator No. of Investment H.P
(Sqft) Sections Employees (`) hours

A
Machine Shop 2,000 45 20 6,40,000 3,500

C
Packing 800 90 10 2,00,000 500
General Plant 400 30 3 10,000 -
Store & 1,600 60 5 1,50,000 1,000
Maintenance
4,800 225 38 10,00,000 5,000
Expenses charged to the stores and maintenance departments are to be distributed to the other
departments by the following percentages:
Machine shop 50%; Packing 20%; General Plant 30%; General Plant overheads is distributed on
the basis of number of employees:
PREPARE
(a) An overhead distribution statement.
(b) Distribution of the service departments’ expense to production departments.

QUESTION 12. (PP2) 

Modern Manufactures Ltd. has three Production Departments P1, P2, P3 and two Service
Departments S1 and S2 details pertaining to which are as under:
P1 P2 P3 S1 S2
Direct wages (`) 3,000 2,000 3,000 1,500 195
Working hours 3,070 4,475 2,419 - -

4.5
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Value of machines (`) 60,000 80,000 1,00,000 5,000 5,000

H.P. of machines 60 30 50 10 -
Light points 10 15 20 10 5
Floor space (sq. ft.) 2,000 2,500 3,000 2,000 500

The following figures extracted from the Accounting records are relevant:
(`)
Rent and Rates 5,000
General Lighting 600
Indirect Wages 1,939
Power 1,500
Depreciation on Machines 10,000
Sundries 9,695

l
The expenses of the service departments are allocated as under:

a
P1 P2 P3 S1 S2

h
S1 20% 30% 40% - 10%

c
S2 40% 20% 30% 10% -

n
DETERMINE the total cost of product X which is processed for manufacture in Departments P1,

a
P2 and P3 for 4, 5 and 3 hours respectively, given that its Direct Material Cost is ` 50 and Direct

P
Labour Cost is ` 30.

QUESTION 13. (PP3) 

u l
h
Deccan Manufacturing Ltd., have three departments which are regarded as production

a
departments. Service departments’ costs are distributed to these production departments using

R
the “Step Ladder Method” of distribution. Estimates of factory overhead costs to be incurred by
each department in the forthcoming year are as follows. Data required for distribution is also

A
shown against each department:

C
Department Factory overhead (`) Direct labour No. of Area in
hours employees sq.m.
Production:
X 1,93,000 4,000 100 3,000
Y 64,000 3,000 125 1,500
Z 83,000 4,000 85 1,500
Service:
P 45,000 1,000 10 500
Q 75,000 5,000 50 1,500
R 1,05,000 6,000 40 1,000
S 30,000 3,000 50 1,000
The overhead costs of the four service departments are distributed in the same order, viz. P, Q, R
and S respectively on the following basis.
Department Basis
P Number of employees
Q Direct labour hours
R Area in square metres
S Direct labour hours

4.6
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

You are required to:

(a) PREPARE a schedule showing the distribution of overhead costs of the four service
departments to the three production departments; and
(b) CALCULATE the overhead recovery rate per direct labour hour for each of the three production
departments.

QUESTION 14. (PP4) 

Gemini Enterprises undertakes three different jobs A, B and C. All of them require the use of a
special machine and also the use of a computer. The computer is hired and the hire charges work
out to ` 4,20,000 per annum. The expenses regarding the machine are estimated as follows:
(`)
Rent for a quarter 17,500
Depreciation per annum 2,00,000

l
Indirect charges per annum 1,50,000

a
During the first month of operation the following details were taken from the job register:

ch
Departments Job
B C D

n
Number of hours the machine was used:

a
(a) Without the use of the computer 600 900 —

P
(b) With the use of the computer 400 600 1,000

l
You are required to COMPUTE the machine hour rate:

u
(a) For the firm as a whole for the month when the computer was used and when the computer

h
was not used.

a
(b) For the individual jobs A, B and C.

QUESTION 15. (PP5) 

R
A
A machine shop has 8 identical Drilling machines manned by 6 operators. The machine cannot be

C
worked without an operator wholly engaged on it. The original cost of all these machines works
out to ` 8 lakhs. These particulars are furnished for a 6 months period:

Normal available hours per month  208

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

Normal idle time unavoidable-hours  10

Average rate of wages per worker for 8 hours a day.  `800
Production bonus estimated  15% on wages
Value of power consumed  `80,500
Supervision and indirect labour  `33,000
Lighting and electricity  `12,000
These particulars are for a year
Repairs and maintenance including consumables- 3% of value of machines. Insurance- ` 40,000
Depreciation- 10% of original cost.
Other sundry works expenses- ` 12,000
General management expenses allocated- ` 54,530.
You are required to COMPUTE a comprehensive machine hour rate for the machine shop.

4.7
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

QUESTION 16. (PP6) 

Job No. 198 was commenced on October 10, 2022 and completed on November 1, 2022. Materials
used were ` 6,000 and labour charged directly to the job was ` 4,000. Other information is as
follows:
Machine No. 215 used for 40 hours, the machine hour rate being ` 35.
Machine No. 160 used for 30 hours, the machine hour rate being ` 40. Six welders worked on the
job for five days of 8 hours each: the Direct labour hour per welder is ` 20.
General expenses related to production not included for calculating either the machine hour
or direct labour hour rate totaled `20,000, total direct wages for the period being `2,00,000.
COMPUTE the works costs for job No. 198.

QUESTION 17. (PP7) 

In a factory, overheads of a particular department are recovered on the basis of ` 5 per machine

l
hour. The total expenses incurred and the actual machine hours for the department for the month

a
of August were ` 80,000 and 10,000 hours respectively. Of the amount of ` 80,000, ` 15,000

h
became payable due to an award of the Labour Court and ` 5,000 was in respect of expenses of

c
the previous year booked in the current month (August). Actual production was 40,000 units, of

n
which 30,000 units were sold. On analysing the reasons, it was found that 60% of the under-

a
absorbed overhead was due to defective planning and the rest was attributed to normal cost

P
increase. SHOW the treatment of over/under-absorbed overhead in the cost accounts?

QUESTION 18. (PP8) 

u l
h
In a manufacturing unit, factory overhead was recovered at a pre-determined rate of ` 25 per

a
man-day. The total factory overhead expenses incurred and the man-days actually worked were

R
` 41.50 lakhs and 1.5 lakh man-days respectively. Out of the 40,000 units produced during a
period, 30,000 were sold.

A
On analysing the reasons, it was found that 60% of the unabsorbed overheads were due to

C
defective planning and the rest were attributable to increase in overhead costs.
EXPLAIN how would unabsorbed overheads be treated in Cost Accounts?

QUESTION 19. (PP9) 

A factory has three production departments. The policy of the factory is to recover the production
overheads of the entire factory by adopting a single blanket rate based on the percentage of
total factory overheads to total factory wages. The relevant data for a month are given below:
Department Direct Direct Factory Direct Machine
Materials Wages Overheads Labour hours
(`) (`) (`) hours
Budget:
Machining 6,50,000 80,000 3,60,000 20,000 80,000
Assembly 1,70,000 3,50,000 1,40,000 1,00,000 10,000
Packing 1,00,000 70,000 1,25,000 50,000 -
Actual:
Machining 7,80,000 96,000 3,90,000 24,000 96,000
Assembly 1,36,000 2,70,000 84,000 90,000 11,000
Packing 1,20,000 90,000 1,35,000 60,000 

4.8
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

The details of one of the representative jobs produced during the month are as under:

Job No. CW 7083 :

Department Direct Direct Direct Labour Machine
Materials Wages (`) hours hours
Machining 1,200 240 60 180
Assembly 600 360 120 30
Packing 300 60 40 -
The factory adds 30% on the factory cost to cover administration and selling overheads and
profit.
Required:
(i) COMPUTE the overhead absorption rate as per the current policy of the company and
determine the selling price of the Job No. CW 7083.

l
(ii) Suggest any suitable alternative method(s) of absorption of the factory overheads and

a
CALCULATE the overhead recovery rates based on the method(s) so recommended by you.

h
(iii) DETERMINE the selling price of Job CW 7083 based on the overhead application rates

c
calculated in (ii) above.

n
(iv) CALCULATE the department-wise and total under or over recovery of overheads based on

a
the company’s current policy and the method(s) recommended by you.

QUESTION 20. (PP10) 

l P
u
A light engineering factory fabricates machine parts for customers. The factory commenced

h
fabrication of 12 nos. machine parts as per customers’ specifications, the expenditure incurred

a
on the job for the week ending 21st August is as tabulated below:

R
(`) (`)
Direct materials (all items) 780.00

A
Direct labour (manual) 20 hours @` 15 per hour 300.00

C
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 3,000 man hours per week; similarly, the machine
hour rates are based on the normal working of Machine Nos. I and II for 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, the total labour 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.

4.9
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

QUESTION 21. (PP11) 

ABC Ltd. manufactures a single product and absorbs the production overheads at a pre-
determined rate of ` 10 per machine hour.
At the end of current financial year, it has been found that actual production overheads incurred
were ` 6,00,000. It included ` 45,000 on account of ‘written off’ obsolete stores and ` 30,000
being the wages paid for the strike period under an award.
The production and sales data for the current year is as under:
Production :
Finished goods 20,000 units
Work-in-progress 8,000 units
(50% complete in all respects)
Sales :
Finished goods 18,000 units

a l
The actual machine hours worked during the period were 48,000. It has been found that one-

h
third of the under-absorption of production overheads was due to lack of production planning

c
and the rest was attributable to normal increase in costs.

n
(i) CALCULATE the amount of under-absorption of production overheads during the current

a
year; and

P
(ii) SHOW the accounting treatment of under-absorption of production overheads.

QUESTION 22. (PP12) 

u l
h
A Ltd., manufactures two products A and B. The manufacturing division consists of two production

a
departments P1 and P2 and two service departments S1 and S2. Budgeted overhead rates are

R
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 based on

A
direct labour hours. In applying overheads, the pre-determined rates are multiplied by actual

C
hours.
For allocating the service department costs to production departments, the basis adopted is as
follows:
(i) Cost of Department S1 to Department P1 and P2 equally, and
(ii) Cost of Department S2 to Department P1 and P2 in the ratio of 2 : 1 respectively.
The following budgeted and actual data are available:
Annual profit plan data:
Factory overheads budgeted for the year:
Production Departments Service Departments
P1 P2 S1 S2
` 25,50,000 ` 21,75,000 ` 6,00,000 ` 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

4.10
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Department P2 : Product A : 2 Direct labour hours

Product B : 2.5 Direct labour hours
Average wage rates budgeted in Department P2 are:
Product A - ` 72 per hour and Product B – ` 75 per hour.
All materials are used in Department P1 only.

Actual data: (for the month of July, 2022)

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

a l
h
Raw materials ` 4,89,000 ` 4,56,000

c
Wages ` 5,91,900 ` 5,52,000

n
Overheads: Department P1 ` 2,31,000 S1 ` 60,000

a
P2 ` 2,04,000 S2 ` 48,000

P
You are required to:

l
(i) COMPUTE the pre-determined overhead rate for each production department.

u
(ii) PREPARE a performance report for July, 2022 that will reflect the budgeted costs and

h
actual costs.

R a
C A

4.11
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
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 single blanket rate
based on machine hours. The annual budgeted production overheads for the year 2017-18 are
` 44,00,000 and budgeted annual machine hours are 2,20,000.
For a period of first six months of the financial year 2017-18, following information were
extracted from the books:
Actual production overheads  ` 24,88,200

l
Amount included in the production overheads:

a
Paid as per court’s order  ` 1,28,000

h
Expenses of previous year booked in current year  ` 1,200

c
Paid to workers for strike period under an award  ` 44,000

n
Obsolete stores written off  ` 6,700

P a
Production and sales data of the concern for the first six months are as under:

l
Production:

u
Finished goods  24,000 units

h
Works-in-progress

a
(50% complete in every respect)  18,000 units

R
Sale:
Finished goods  21,600 units

C A
The actual machine hours worked during the period were 1,16,000 hours. It is revealed from the
analysis of information that ¼ of the under/ over absorption was due to defective production
policies and the balance was attributable to increase/decrease in costs.

Required:
(i) DETERMINE the amount of under/over absorption of production overheads for the six-
month period of 2017-18.
(ii) EXAMINE the accounting treatment of under/ over absorption of production overheads, and
(iii) CALCULATE the apportionment of the under/ over absorbed overheads over the items.

RTP NOV 18

Sree Ajeet Ltd. having fifteen different types of automatic machines furnishes information as
under for 20X8-20X9
(i) Overhead expenses: Factory rent ` 1,80,000 (Floor area 1,00,000 sq. ft.), Heat and 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 operation.

4.12
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

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 B. 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

RTP MAY 19

a l
h
The Union Ltd. has the following account balances and distribution of direct charges on 31st

c
March, 2019.

n
Total Production Depts. Service Depts.

a
Machine Packing General Stores

P
Shop Plant

l
Allocated Overheads: (`) (`) (`) (`) (`)

u
Indirect labour 29,000 8,000 6,000 4,000 11,000

h
Maintenance Material 9,900 3,400 1,600 2,100 2,800

a
Misc. supplies 5,900 1,500 2,900 900 600

R
Supervisor’s salary 16,000 -- -- 16,000 --
Cost & payroll salary 80,000 -- -- 80,000 --

A
Overheads to be apportioned:

C
Power  78,000
Rent  72,000
Fuel and Heat  60,000
Insurance  12,000
Taxes  8,400
Depreciation  1,20,000
The following data were compiled by means of the factory survey made in the previous year:
Floor Space Radiator No. of Investment H.P.
Section employees hours
Machine Shop 2,000 Sq. ft. 45 20 8,00,000 3,500
Packing 800 Sq. ft. 90 12 2,40,000 500
General Plant 400 Sq. ft. 30 4 80,000 -
Stores & maintenance 1,600 Sq. ft. 60 8 1,60,000 1,000
Expenses charged to the stores departments are to be distributed to the other departments by
the following percentages:
Machine shop 50%; Packing 20%; General Plant 30%;
General Plant overheads is distributed on the basis of number of employees.
(a) PREPARE an overhead distribution statement with supporting schedules to show
computations and basis of distribution.

4.13
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(b) DETERMINE the service department distribution by simultaneous equation method.

RTP NOV 19

PLR Ltd. manufacturers a single product and recovers the overheads by adopting a single blanket
rate based on machine hours. The budgeted production overheads of the factory for the FY
2019-20 are `50,40,000 and budgeted machine hours are 6,000.

For a period of first six months of the financial year 201920, following information were extracted
from the books:
Actual production overheads  `34,08,000
Amount included in the production overheads:
Paid as per court’s order  `4,50,000
Expenses of previous year booked in current year  `1,00,000

l
Paid to workers for strike period under an award  `4,20,000

a
Obsolete stores written off `36,000

h
Production and sales data of the concern for the first six months are as under: Production:

c
Finished goods  1,10,000 units

n
Works-in-progress

a
(50% complete in every respect)  80,000 units

P
Sale:

l
Finished goods  90,000 units

u
The actual machine hours worked during the period were 3,000 hours. It is revealed from the

h
analysis of information that 40% of the over/under-absorption was due to defective production

a
policies and the balance was attributable to increase in costs.

R
You are required:
(i) to determine the amount of over/ under absorption of production overheads for the period,

A
(ii) to show the accounting treatment of over/ under-absorption of production overheads, and

C
(iii) to apportion the over/ under-absorbed overheads over the items.

RTP MAY 20

ABC Ltd. has three production departments P1, P2 and P3 and two service departments S1
and S2. The following data are extracted from the records of the company for the month
of January, 2020:
(`)
Rent and rates  6,25,000
General lighting  7,50,000
Indirect wages  1,87,500
Power  25,00,000
Depreciation on machinery  5,00,000
Insurance of machinery  2,00,000
Other Information:
P1 P2 P3 S1 S2
Direct wages (`) 3,75,000 2,50,000 3,75,000 1,87,500 62,500
Horse Power of Machines 60 30 50 10 
used

4.14
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Cost of machinery (`) 30,00,000 40,00,000 50,00,000 2,50,000 2,50,000

Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of light points 10 15 20 10 5
Production hours worked 6,225 4,050 4,100 - -

Expenses of the service departments S1 and S2 are reapportioned as below:

P1 P2 P3 S1 S2
S1 20% 30% 40% - 10%
S2 40% 20% 30% 10% -
Required:
(i) COMPUTE overhead absorption rate per production hour for each production department.
(ii) DETERMINE the total cost of product X which is processed for manufacture in department
P1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its direct material cost

l
is `6,250 and direct labour cost is `3,750.

RTP NOV 20

h a
c
You are given the following information of the three machines of a manufacturing department

n
of X Ltd.:

a
Preliminary estimates of expenses (per annum)

P
Total (`) Machines

l
A (`) B (`) C (`)

u
Depreciation 2,00,000 75,000 75,000 50,000

h
Spare parts 1,00,000 40,000 40,000 20,000

a
Power 4,00,000

R
Consumable stores 80,000 30,000 25,000 25,000
Insurance of machinery 80,000

A
Indirect labour 2,00,000

C
Building maintenance expenses 2,00,000
Annual interest on capital outlay 1,00,000 40,000 40,000 20,000
Monthly charge for rent and rates 20,000
Salary of foreman (per month) 42,000
Salary of Attendant (per month) 12,000
(The foreman and the attendant control all the three machines and spend equal time on them.)
The following additional information is also available:
Machines
A B C
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 12 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 90% 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:

4.15
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

• An increase of 15% in the price of spare parts.

• An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only.
• 20% general increase in wages rates.

RTP MAY 21

A manufacturing unit has purchased and installed a new machine at a cost of ` 24,90,000 to its
fleet of 5 existing machines. The new machine has an estimated life of 12 years and is expected
to realise ` 90,000 as scrap value at the end of its working life.
Other relevant data are as follows:
(i) Budgeted working hours are 2,496 based on 8 hours per day for 312 days. Plant maintenance
work is carried out on weekends when production is totally halted. The estimated
maintenance hours are 416. During the production hours machine set -up and change over
works are carried out. During the set-up hours no production is done. A total 312 hours are

l
required for machine set-ups and change overs.

a
(ii) An estimated cost of maintenance of the machine is ` 2,40,000 p.a.

h
(iii) The machine requires a component to be replaced every week at a cost of ` 2,400.

c
(iv) There are three operators to control the operations of all the 6 machines. Each operator is

n
paid ` 30,000 per month plus 20% fringe benefits.

a
(v) Electricity: During the production hours including set-up hours, the machine consumes 60

P
units per hour. During the maintenance the machine consumes only 10 units per hour. Rate

l
of electricity per unit of consumption is ` 6.

u
(vi) Departmental and general works overhead allocated to the operation during last year was

h
` 5,00,000. During the current year it is estimated to increase by 10%.

a
Required:

R
COMPUTE the machine hour rate.

A
RTP NOV 21

C
PL Ltd. has three production departments P1, P2 and P3 and two service departments S1 and
S2. The following data are extracted from the records of the company for the month of October,
2020:
 (`)
Rent and rates  12,50,000
General lighting  1,50,000
Indirect Wages  3,75,000
Power  5,00,000
Depreciation on machinery  10,00,000
Insurance of machinery  4,00,000
Other Information:
P1 P2 P3 S1 S2
Direct wages (`) 7,50,000 5,00,000 7,50,000 3,75,000 1,25,000
Horse Power of Machines 60 30 50 10 -
used
Cost of machinery (`) 60,00,000 80,00,000 1,00,00,000 5,00,000 5,00,000
Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of light points 10 15 20 10 5
Production hours worked 6,225 4,050 4,100 - -

4.16
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Expenses of the service departments S1 and S2 are reapportioned as below:

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

Required:
(i) COMPUTE overhead absorption rate per production hour of each production department.
(ii) DETERMINE the total cost of product X which is processed for manufacture in department
P1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its direct material
cost is ` 12,500 and direct labour cost is ` 7,500.

RTP MAY 22

Pretz Ltd. is a manufacturing company having two production departments, ‘A’ & ‘B’ and two

l
service departments ‘X’ & ‘Y’. The following is the budget for March, 2022:

a
Total (`) A (`) B (`) X (`) Y (`)

h
Direct material 2,00,000 4,00,000 4,00,000 2,00,000

c
Direct wages 10,00,000 4,00,000 2,00,000 4,00,000

n
Factory rent 9,00,000

a
Power (Machine) 5,10,000

P
Depreciation 2,00,000

l
General Lighting 3,00,000

u
Perquisites 4,00,000

h
Additional information:

a
Area (Sq. ft.) 500 250 250 500

R
Capital value of assets (` lakhs) 40 80 20 20
Light Points 10 20 10 10

A
Machine hours 1,000 2,000 1,000 1,000

C
Horse power of machines 50 40 15 25

A technical assessment of the apportionment of expenses of service departments is as under:

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.

RTP NOV 22

SE Limited manufactures two products- A and B. The company had budgeted factory overheads
amounting to ` 36,72,000 and budgeted direct labour hour of 1,80,000 hours. The company uses
pre-determined overhead recovery rate for product costing purposes.

4.17
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

The department-wise break-up of the overheads and direct labour hours were as follows:
Particulars 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:

l
(i) DETERMINE the production and sales quantities of both products 'A' and 'B' for the above

a
year.

h
(ii) ASCERTAIN the effect of using a pre-determined overhead rate instead of department-wise

c
overhead rates on the company's income due to its effect on stock value.

n
(iii) CALCULATE the difference in the selling price due to the use of pre-determined overhead rate

a
instead of using department-wise overhead rates. Assume that the direct costs (material

P
and labour costs) per unit of products A and B were ` 25 and ` 40 respectively and the

l
selling price is fixed by adding 40% over and above these costs to cover profit and selling

u
and administration overhead.

RTP MAY 23

a h
R
SANDY Ltd. is a manufacturing company having three production departments, ‘A’, ‘B’ and ‘C’ and
two service departments ‘X’ and ‘Y’. The following is the budget for December 2022:

A
Total (`) A (`) B (`) C (`) X (`) Y (`)

C
Direct material 1,60,000 3,20,000 6,40,000 3,20,000 1,60,000
Direct wages 8,00,000 3,20,000 12,80,000 1,60,000 3,20,000
Factory rent 6,40,000
Power 4,00,000
Depreciation 1,60,000
Other overheads 14,40,000
Additional
information:
Area (Sq. ft.) 800 400 800 400 800
Capital value of 32 64 32 16 16
assets (`) lakhs)
Machine hours 1,600 3,200 6,400 1,600 1,600
Horsepower of 80 64 32 24 40
machines

Apportionment of expenses of service departments is as under:

A B C X Y
Service Dept. ‘X’ 72 24 48 – 16
Service Dept. ‘Y’ 96 56 – 8 –

4.18
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Required:
(i) PREPARE a statement showing distribution of overheads to various departments.
(ii) PREPARE a statement showing re-distribution of service departments expenses to production
departments using Repeated Distribution method. Also CALCULATE machine hour rate of
the production departments 'A,' 'B', 'C'.

RTP NOV 23

The following particulars refer to process used in the treatment of material subsequently
incorporated in a component forming part of an electrical appliance:
(i) The original cost of the machine used (Purchased in June 2018) was ` 10,00,000. Its
estimated life is 10 years, the estimated scrap value at the end of its life is ` 10,000, and
the estimated working time per year (50 weeks of 44 hours) is 2,200 hours. Out of which
machine maintenance etc., is estimated to take up 200 hours.

l
No other loss of working time expected, setting up time, estimated at 100 hours, is regarded

a
as productive time. (Holiday to be ignored).

h
(ii) Electricity used by the machine during production is 16 units per hour at cost of a ` 7 per

c
unit. No power is consumed during maintenance or setting up.

n
(iii) The machine required a chemical solution which is replaced at the end of week at a cost of

a
` 2,000 each time.

P
(iv) The estimated cost of maintenance per year is ` 1,20,000.

l
(v) Two attendants control the operation of machine together with five other identical machines.

u
Their combined weekly wages, insurance and the employer's contribution to holiday pay

h
amount is ` 9,000.

a
(vi) Departmental and general works overhead allocated to this machine for the current year

R
amount to ` 20,000.
You are required to calculate the machine hour rate of operating the machine.

RTP MAY 24

C A
During half year ending inter departmental review meeting of P Ltd., cost variance report was
discussed and the performance of the departments were assessed. The following figures were
presented.

For a period of first six months of the financial year, following information were extracted from
the books:
Actual production overheads  ` 34,08,000
The above amount is inclusive of the following payments made:
Paid as per court’s order  ` 4,50,000
Expenses of previous year booked in current year  ` 1,00,000
Paid to workers for strike period under an award  ` 4,20,000
Obsolete stores written off ` 36,000

Production and sales data for the six months are as under:
Production:
Finished goods  1,10,000 units
Works-in-progress
(50% complete in every respect)  80,000 units

4.19
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Sale:
Finished goods  90,000 units
Machine worked during the period was 3,000 hours.
At the of preparation of revenue budget, it was estimated that a total of ` 50,40,000 would be
required for budgeted machine hours of 6,000 as production overheads for the entire year.
During the meeting, a data analytic report revealed that 40% of the over/under-absorption was
due to defective production policies and the balance was attributable to increase in costs.
You were also present at the meeting; the chairperson of the meeting has asked you to be ready
with the followings for the performance appraisal of the departmental heads:
(i) How much was the budgeted machine hour rate used to recover overhead?
(a) ` 760
(b) ` 820
(c) ` 780

l
(d) ` 840

(ii)

h a
How much amount of production overhead has been recovered (absorbed) upto the end of

c
half year end?

n
(a) ` 25,20,000

a
(b) ` 34,08,000

P
(c) ` 24,00,000

l
(d) ` 24,60,000

(iii)

h u
What is the amount of overhead under/ over absorbed?

a
(a) 1,18,000 over-absorbed

R
(b) 1,18,000 under- absorbed
(c) 18,000 over-absorbed

A
(d) 18,000 under-absorbed

(iv)
C
What is the supplementary rate for apportionment of over/under absorbed overheads over
WIP, Finished goods and Cost of sales?
(a) ` 0.315 per unit
(b) ` 0.472 per unit
(c) ` 0.787 per unit
(d) ` 1 per unit

(v) What is the amount of over/under absorbed overhead apportioned to Work in Progress?
(a) ` 9,440
(b) ` 42,480
(c) ` 18,880
(d) ` 70,800

4.20
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ NOV 18 (5 MARKS) Q. 5B(ii)
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)
Needed capacity production 20,000 25,000 15,000 10,000
Used during the quarter ended 16,000 20,000 12,000 8,000

l
September 2018

a
During the quarter ended September 2018, costs for generating power amounted to ` 12.60

h
lakhs out of which ` 4.20 lakhs was considered as fixed cost.

c
Service department X renders services to departments A, B, and Y in the ratio of 6:4:2 whereas

n
department Y renders services to department A and B in the ratio of 4: 1.

a
The direct labour hours of department A and B are 67500 hours and 48750 hours respectively.

P
Required:

l
1. Prepare overheads distribution sheet.

u
2. Calculate factory overhead per labour hour for the dept. A and dept. B.

ANSWER :

a h
R
(1) Overheads distribution Sheet
Item Basis Total Production Service

A
Amount Departments Departments

C
(`) A (`) B (`) X (`) Y (`)
Variable overheads Horse Power 8,40,000 2,40,000 3,00,000 1,80,000 1,20,000
(` 12.60 lakhs - hours used
` 4.20 lakhs)
Fixed Overheads Horse power 4,20,000 1,20,000 1,50,000 90,000 60,000
for Capacity
production
Total Overheads 12,60,000 3,60,000 4,50,000 2,70,000 1,80,000
Service dept X As per the (2,70,000) 1,35,000 90,000 45,000
allocated to A, B & Y ratio given
6:4:2
Service dept Y As per the (1,80,000+4 1,80,000 45,000
allocated to A & B ratio of 4:1 5000 =
2,25,000)
Total Overheads of 6,75,000 5,85,000
Production
departments

4.21
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(2) Calculation of Factory overhead per labour hour

Item Production Departments
A (`) B (`)
Total overheads 6,75,000 5, 85,000
Direct labour hours 67,500 48,750
Factory overheads per hour 10 12

PYQ MAY 19 (5 MARKS) Q. 5B

M/s Zaina Private Limited has purchased a machine costing ` 29,14,800 and it is
expected to have a salvage value of ` 1,50,000 at the end of its effective life of 15 years.
Ordinarily the machine is expected to run for 4,500 hours per annum but it is estimated
that 300 hours per annum will be lost for normal repair & maintenance. The other details
in respect of the machine are as follows :

l
(i) Repair & Maintenance during the whole life of the machine are expected to be ` 5,40,000.

a
(ii) Insurance premium (per annum) 2% of the cost of the machine.

h
(iii) Oil and Lubricants required for operating the machine (per annum) ` 87,384.

c
(iv) Power consumptions: 10 units per hour @ ` 7 per unit. No power consumption during repair

n
and maintenance. ·

a
(v) Salary to operator per month ` 24,000. The operator devotes one third of his time to the

P
machine.

l
You are required to calculate comprehensive machine hour rate.

ANSWER :

h u
a
Effective machine hour = 4,500 – 300 = 4,200 hours

R
Calculation of Comprehensive machine hour rate
Elements of Cost and Revenue Amount (`) Per

A
Annum

C
Repair and Maintenance 36,000
(`5,40,000 ÷15 years)
Power (4,200 hours × 10 units × `7) 2,94,000
1,84,320

Insurance (`29,14,800 × 2%) 58,296

Oil and Lubricant 87,384
Salary to Operator {(`24,000×12)/3} 96,000
Total Cost 7,56,000
Effective machine hour 4,200
Total Machine Rate Per Hour 180

PYQ NOV 19 (10 MARKS) Q. 5B

ABS Enterprises produces a product and adopts the policy to recover factory overheads applying
blanket rate based on machine hours. The cost records of the concern reveal the following
information:
Budgeted production overheads ` 10,35,000
Budgeted machine hours `90,000
Actual machine hours worked `45,000

4.22
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Actual production overheads `8,80,000

Production overheads (actual) include-
Paid to worker as per court's award `50,000
Wages paid for strike period `38,000
Stores written off `22,000
Expenses of previous year booked in current year `18,500
Production -
Finished goods 30,000 units
Sale of finished goods 27,000 units
The analysis of cost information reveals that 1/3 of the under absorption of overheads was due
to defective production planning and the balance was attributable to increase in costs.
You are required:
(i) To find out the amount of under absorbed production overheads.

l
(ii) To give the ways of treating it in Cost Accounts.

a
(iii) To apportion the under absorbed overheads over the items.

ANSWER :

c h
n
(i) Amount of under absorption of production overheads:

a
Particular Amount (`) Amount (`)

P
Total production overheads actually incurred 8,80,000

l
Less: Amount paid to worker as per court order 50,000

u
Wages paid for the strike period under an award 38,000

h
Stores written off 22,000

a
Expenses of previous year booked in the current 18,500 1,28,500

R
year
7,51,500

A
Less: Production overheads absorbed as per machine

C
hour rate (45,000 hours × `11.50*) 5,17,500
Amount of under- absorbed production overheads 2,34,000

(ii) Accounting treatment of under absorbed production overheads:

(a) As 1/3rd of the under absorbed overheads were due to defective production planning,
this being abnormal, hence should be debited to Costing Profit and Loss Account.
Amount to be debited to Costing Profit and Loss Account
= ` 2,34,000 × 1/3 = ` 78,000.

(b) Balance of under absorbed production overheads should be distributed over Finished
goods and Cost of sales by applying supplementary rate*.
Amount to be distributed = ` 2,34,000 × 2/3 = `1,56,000

4.23
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(iii) Apportionment of under absorbed production overheads over Finished goods and Cost of
sales:
Particular Units Amount (`)
Finished goods (3,000 units × `5.20) 3,000 15,600
Cost of sales (27,000 units × `5.20) 27,000 1,40,400
Total 30,000 1,56,000

PYQ NOV 20 (10 MARKS) Q.2B

TEE Ltd. is a manufacturing company having three production departments 'P', 'Q' and 'R' and two
service departments 'X' and 'Y' details pertaining to which are as under :

P Q R X Y
Direct wages (`) 5,000 1,500 4,500 2,000 800

l
Working hours 13,191 7,598 14,995 - -

a
Value of machine (`) 1,00,000 80,000 1,00,000 20,000 50,000

h
H.P. of machines 100 80 100 20 50

c
Light points (Nos.) 20 10 15 5 10

n
Floor space (sq. ft.) 2,000 2,500 3,500 1,000 1,000

The expenses are as follows:

P a
l
(`)

u
Rent and Rates 10,000

h
General Lighting 600

a
Indirect Wages 3,450

R
Power 3,500
Depreciation on Machines 70,000

A
Sundries (apportionment on the basis of direct wages) 13,800

X
C
The expenses of Service Departments are allocated as under :
P
45%
Q
15%
R
30%
X
-
Y
10%
Y 35% 25% 30% 10% -
Product 'A' is processed for manufacture in Departments P, Q and R for 6, 5 and 2 hours respectively.
Direct Costs of Product A are :
Direct material cost is ` 65 per unit and Direct labour cost is ` 40 per unit. You are Required to:
(i) Prepare a statement showing distribution of overheads among the production and service
departments.
(ii) Calculate recovery rate per hour of each production department after redistributing the
service departments costs.
(iii) Find out the Total Cost of a 'Product A'.

4.24
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Statement showing distribution of Overheads
Primary Distribution Summary
Item of cost Basis of Total P Q R X Y
apportionment (`) (`) (`) (`) (`) (`)
Direct wages Actual 2,800 -- -- -- 2,000 800
Rent and Floor area 10,000 2,000 2,500 3,500 1,000 1,000
Rates (4:5:7:2:2)
General Light points 600 200 100 150 50 100
lighting (4:2:3:1:2)
Indirect Direct wages 3,450 1,250 375 1,125 500 200
wages (50:15:45:20:8)
Power Horse Power of 3,500 1,000 800 1,000 200 500

l
machines used

a
(10:8:10:2:5)

h
Depreciation Value of 70,000 20,000 16,000 20,000 4,000 10,000

c
of machinery machinery

n
(10:8:10:2:5)

a
Sundries Direct wages 13,800 5,000 1,500 4,500 2,000 800

P
(50:15:45:20:8)

l
Total 1,04,150 29,450 21,275 30,275 9,750 13,400

h u
Secondary Distribution using simultaneous equation method:

a
Overheads of service cost centres

R
Let, X be the overhead of service cost centre X
Y be the overhead of service cost centre Y

A
X = 9,750 + 0.10 Y

C
Y = 13,400 + 0.10 X
Substituting the value of Y in X we get X = 9,750 + 0.10 (13,400 + 0.10 X)
X = 9,750 + 1,340 + 0.01 X
0.99 X = 11,090
∴X = ` 11,202
∴
 Y = 13,400 + 0.10  11,202
= ` 14,520.20

Secondary Distribution Summary

Particulars Total (`) P (`) Q (`) R (`)
Allocated and Apportioned over- 29,450.00 21,275.00 30,275.00
heads as per primary distribution
X 11,202.00 5,040.90 1,680.30 3,360.60
Y 14,520.20 5,082.07 3,630.05 4,356.06
Total 39,572.97 26,585.35 37,991.66

4.25
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(ii) Calculation of Overhead recovery rate per hour

P (`) Q (`) R (`)
Total overheads cost 39,572.97 26,585.35 37,991.66
Working hours 13,191 7,598 14,995
Rate per hour (`) 3 3.50 2.53

(iii) Cost of Product A

(`)
Direct material 65.00
Direct labour 40.00
Prime cost 105.00
Production on overheads
P 6 hours  ` 3 = ` 18

l
Q 5 hours  ` 3.50 = ` 17.50

a
R 2 hours  ` 2.53 = ` 5.06 40.56

h
Total cost 145.56

c
Note: Secondary Distribution can also be done using repeated distribution Method

PYQ JAN 21 (5 MARKS)

a n Q. 1B

P
A machine shop has 8 identical machines manned by 6 operators. The machine cannot work

l
without an operator wholly engaged on it. The original cost of all the 8 machines works out to

u
` 32,00,000. The following particulars are furnished for a six months period:

a h
Normal available hours per month per operator 208

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

A
Normal unavoidable idle time-hours per operator 10

C
Average rate of wages per day of 8 hours per operator ` 100
Production bonus estimated 10% on wages
Power consumed ` 40,250
Supervision and Indirect Labour ` 16,500
Lighting and Electricity ` 6,000
The following particulars are given for a year:
Insurance ` 3,60,000
Sundry work Expenses ` 50,000
Management Expenses allocated ` 5,00,000
Depreciation 10% on the original cost

Repairs and Maintenance (including consumables): 5% of the value of all the machines.
Prepare a statement showing the comprehensive machine hour rate for the machine shop.

4.26
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

ANSWER :
Workings:
Particulars Six months 6
operators (Hours)
Normal available hours per month (208 x 6 months x 6 operators) 7,488
Less: Absenteeism hours (18 x 6 operators) (108)
Paid hours (A) 7,380
Less: Leave hours (20 x 6 operators) (120)
Less: Normal idle time (10 x 6 operators) (60)
Effective working hours 7,200

Computation of Comprehensive Machine Hour Rate

Particulars Amount for six

l
months (`)

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

h
Production bonus (10% on wages) 9,225

c
Power consumed 40,250

n
Supervision and indirect labour 16,500

a
Lighting and Electricity 6,000

P
Repair and maintenance {(5% × ` 32,00,000)/2} 80,000

l
Insurance (` 3,60,000/2) 1,80,000

u
Depreciation {(` 32,00,000 × 10%)/2} 1,60,000

h
Sundry Work expenses (` 50,000/2) 25,000

a
Management expenses (` 5,00,000/2) 2,50,000

R
Total Overheads for 6 months 8,59,225
Comprehensive Machine Hour Rate = ` 8,59,225/7,200 hours ` 119.33

A
(Note: Machine hour rate may be calculated alternatively. Further, presentation of figures may

C
also be done on monthly or annual basis.)

PYQ JULY 21 (5 MARKS) Q. 1B

SNS Trading Company has three Main Departments and two Service Departments. The data for
each department is given below:

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 Overhead Distribution.

4.27
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(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.

ANSWER :
(i) Schedule Showing the Distribution of Expenses of Service Departments using
Step ladder method.
Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
(`) (`) (`) (`) (`)
Expenses 5,00,000 8,00,000 3,50,000 6,40,000 3,20,000
Distribution of

l
Maintenance

a
Department

h
(12:15:7:-:6) 1,92,000 2,40,000 1,12,000 (6,40,000) 96,000

c
Distribution

n
of Personnel

a
Department 1,04,000 2,21,000 91,000 - (4,16,000)

P
(800:1700:700:-:-)

l
Total 7,96,000 12,61,000 5,53,000 - -

(ii)

h u
Calculation of Expenses rate per hour of Main Department

a
Purchase Packing Distribution

R
Total apportioned expenses (`) 7,96,000 12,61,000 5,53,000
Total Hours worked 4,380 8,760 2,920

A
(12 x 365) (24 x 365) (8 x 365)

C
Expenses rate per hour (`) 181.74 143.95 189.38

PYQ DEC 21 (10 MARKS) Q. 5B

XYZ Ltd. manufactures a single product. It recovers factory overheads at a pre - determined rate
of ` 20 per man-day.
During the year 2020-21, the total factory overheads incurred and the man-days actually
worked were ` 35.50 lakhs and 1.50 lakh days respectively. Out of the amount of ` 35.50 lakhs,
` 2.00 lakhs were in respect of wages for stick period and ` 1.00 lakh was in respect of expenses
of previous year booked in this current year. During the period, 50,000 units were sold. At the
end of the period, 12,000 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 20,000 uncompleted units which may be treated as 65%
complete in all respects.
On investigation, it was found that 40% of the unabsorbed overheads were due to factory
inefficiency and the rest were attributable to increase in the cost of indirect materials and indirect
labour. You are required to:
(i) Calculate the amount of unabsorbed overheads during the year 2020 -21.
(ii) Show the accounting treatment of unabsorbed overheads in cost accounts and pass journal
entry.

4.28
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Amount of under-absorption of overheads during the year 2020-21
(`)
Total production overheads actually incurred during the year 2020-21 35,50,000
Less: Wages paid during strike period `2,00,000
Wages of previous year booked in current year ` 1,00,000 3,00,000
Net production overheads actually incurred: (A) 32,50,000
Production overheads absorbed by 1.50 lakh man-days @ ` 20 30,00,000
per man-day: (B)
Amount of under-absorption of production overheads: [(A)–(B)] 2,50,000

(ii) Accounting treatment of under absorption of production overheads: It is given in the

statement of the question that 62,000 units (50,000 sold + 12,000 closing stock – 0

l
opening stock) were completely finished and 20,000 units were 65% complete, 40% of the

a
under-absorbed overheads were due to factory inefficiency and the rest were attributable

ch
to increase in cost of indirect materials and indirect labour.
(`)

n
1. (40% of `2,50,000) i.e. ` 1,00,000 of under – absorbed overheads 1,00,000

a
were due to factory inefficiency. This being abnormal, should be

P
debited to the Costing Profit and Loss A/c

l
2. Balance (60% of ` 2,50,000) i.e. ` 1,50,000 of under – absorbed 1,50,000

u
overheads should be distributed over work-in-progress, finished

h
goods and cost of sales by using supplementary rate

a
Total under-absorbed overheads 2,50,000

R
Apportionment of unabsorbed overheads of `1,50,000 over work-in-progress, finished
goods and cost of sales.

A
Equivalent Completed (`)

C
units
Work-in-progress (13,000 units × ` 2) 20000 * 65% = 13,000 26,000
(Refer to Working Note)
Finished goods (12,000 units × ` 2) 12,000 24,000
Cost of sales (50,000 units × ` 2) 50,000 1,00,000
75,000 1,50,000

Journal entry:
Work-in-progress control A/c Dr. ` 26,000
Finished goods control A/c Dr. ` 24,000
Cost of Sales A/c Dr. ` 1,00,000
Costing Profit & Loss A/c Dr. ` 1,00,000
To Overhead control A/c ` 2,50,000

Working Note:

4.29
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

PYQ MAY 22 (10 MARKS) Q. 2A

In a manufacturing company, the overhead is recovered as follows: Factory Overheads: a fixed
percentage basis on direct wages and Administrative overheads: a fixed percentage basis on
factory cost.
The company has furnished the following data relating to two jobs undertaken by it in a period.
Job 1 (`) Job 2 (`)
Direct materials 1,08,000 75,000
Direct wages 84,000 60,000
Selling price 3,33,312 2,52,000
Profit percentage on total cost 12% 20%

You are required to:

(i) Compute the percentage recovery rates of factory overheads and administrative overheads.

l
(ii) Calculate the amount of factory overheads, administrative overheads and profit for each of

a
the two jobs.

h
(iii) Using the above recovery rates, determine the selling price to be quoted for job 3. Additional

c
data pertaining to Job 3 is as follows:

Direct materials

a n ` 68,750

P
Direct wages ` 22,500

l
Profit percentage on selling price 15%

ANSWER :

h u
a
(i) Computation of percentage recovery rates of factory overheads and administrative

R
overheads.
Let the factory overhead recovery rate as percentage of direct wages be F and administrative

A
overheads recovery rate as percentage of factory cost be A.

C
Factory Cost of Jobs:
Direct materials + Direct wages + Factory overhead
For Job 1 = ` 1,08,000 +` 84,000 + ` 84,000F
For Job 2 = ` 75,000 +` 60,000 + ` 60,000F

Total Cost of Jobs:

Factory cost + Administrative overhead
For Job 1 = (` 1,92,000 + ` 84,000F) + (` 1,92,000 + ` 84,000F) A = ` 2,97,600*
For Job-2 = (` 1,35,000 + ` 60,000F) + (`1,35,000+ ` 60,000F) A = ` 2,10,000**

The value of F & A can be found using following equations

1,92,000 + 84,000F + 1,92,000A + 84,000AF = ` 2,97,600 eqn (i)
1,35,000 + 60,000F + 1,35,000A + 60,000AF = ` 2,10,000 eqn (ii)

Multiply equation (i) by 5 and equation (ii) by 7

9,60,000 + 4,20,000F + 9,60,000A + 4,20,000AF = `14,88,000 eqn (iii)
9,45,000 + 4,20,000F + 9,45,000A + 4,20,000AF = ` 14,70,000 eqn (iv)
- - - - -

4.30
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

15,000 + 15,000A = `18,000

15,000 A = 18,000 – 15,000

A = 0.20
Now putting the value of A in equation (i) to find the value of F
1,92,000 + 84,000F + (1,92,000 × 0.20) + (84,000 F × 0.20)= ` 2,97,600
Or
1,92,000 + 84,000F+38,400+16,800 F = `2,97,600
1,00,800 F = 67,200
F = 0.667

On solving the above relations: F = 0.667 and A = 0.20

Hence, percentage recovery rates of:

l
Factory overheads = 66.7% or 2/3rd of wages and

a
Administrative overheads = 20% of factory cost.

h
Working note:

n c
P a
u l
a h
R
A
(ii) Statement of jobs, showing amount of factory overheads, administrative overheads and

C
profit:
Job 1 Job 2
(`) (`)
Direct materials 1,08,000 75,000
Direct wages 84,000 60,000
Prime cost 1,92,000 1,35,000
Factory overheads
2/3rd of direct wages 56,000 40,000
Factory cost 2,48,000 1,75,000
Administrative overheads
20% of factory cost 49,600 35,000
Total cost 2,97,600 2,10,000
Profit (12% & 20% respectively) 35,712 42,000
Selling price 3,33,312 2,52,000

(iii) Selling price of Job 3

(`)
Direct materials 68,750
Direct wages 22,500

4.31
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Prime cost 91,250

Factory overheads (2/3rd of Direct Wages) 15,000
Factory cost 1,06,250
Administrative overheads (20% of factory cost) 21,250
Total cost 1,27,500
Profit margin (balancing figure) 22,500

1,50,000

PYQ NOV 22 (10 MARKS) Q. 2A

USP Ltd. is the manufacturer of ‘double grip motorcycle tyres’. In the manufacturing process,
it undertakes three different jobs namely, Vulcanising, Brushing and Striping. All of these jobs

l
require the use of a special machine and also the aid of a robot when necessary. The robot is

a
hired from outside and the hire charges paid for every six months is` 2,70,000. An estimate of

h
overhead expenses relating to the special machine is given below:

c
• Rent for a quarter is ` 18,000.

n
• The cost of the special machine is ` 19,20,000 and depreciation is charged @10% per

a
annum on straight line basis.

P
• Other indirect expenses are recovered at 20% of direct wages.

l
The factory manager has informed that in the coming year, the total direct wages will be

u
` 12,00,000 which will be incurred evenly throughout the year.

h
During the first month of operation, the following details are available from the job book:

Jobs a
Number of hours the special machine was used

R
Without the aid of the robot With the of the robot

A
Vulcanising 500 400

C
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.

ANSWER :
Working notes:
(I) Total machine hours use 3,500
(500 + 1,000 + 400 + 400 + 1,200)

(II) Total machine hours without the use of robot 1,500

(500 + 1,000)

(III) Total machine hours with the use of robot 2,000

(400 + 400 + 1,200)

4.32
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(IV) Total overheads of the machine per month

Rent (` 18,000 ÷ 3 months) 6,000
Depreciation [(` 19,20,000 x 10%) ÷ 12 months] 16,000
Indirect expenses [(` 12,00,000 x 20%) ÷ 12 months] 20,000
Total 42,000

(V) Robot hire charges for a month ` 45,000

(` 2,70,000 ÷ 6 months)

(VI) Overheads for using machines without robot

` 18,000

l
` 69,000

(i)

h
Computation of Machine hour rate for the firm as a whole for a month.
a
(a) :
n c
P a
(b)

u l
(ii)

a h
Computation of Machine hour rate for the individual job

R
Rate per Job
hour Vulcanising Brushing Striping

A
(`) Hrs. (`) Hrs. (`) Hrs. (`)

C
Overheads
Without robot 12.00 500 6,000 1,000 12,000 - -
With robot 34.50 400 13,800 400 13,800 1,200 41,400
Total 900 19,800 1,400 25,800 1,200 41,400
Machine hour rate

PYQ NOV 23 (10 MARKS) Q. 3A

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 of October 2023 is
furnished below:
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 machinery 37,500
Power 96,000

4.33
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Security Expenses for Factory 24,000

Premises
Insurance- machinery 12,000
Supervisor Expenses 48,000
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

l
order viz. R and S respectively on the following basis:

a
Department R Number of employees

h
Department S Machine hours

c
Required:

n
(i) Prepare a statement showing distribution of overheads to various departments, clearly

a
showing the basis of distribution.

P
(ii) Calculate the total budgeted overheads for both production departments after the service

l
departments have been re-apportioned to them.

u
(iii) Calculate the most appropriate overhead absorption rate for each of the production

h
department.

ANSWER :
(i)
R a
Overhead Distribution Statement

A
Particular Basis Total Production Service

C
Amount Departments Departments
(`) P (`) Q (`) R (`) S (`)
Indirect material Direct 1,77,500 94,750 49,750 18,270 14,730
Indirect labour Direct 1,55,000 35,000 75,000 15,000 30,000
Factory rent Floor Area 75,000 37,500 22,500 6,000 9,000
(125:75:20:30)
Depreciation of Book alue 37,500 26,250 6,250 1,250 3,750
machinery (21:5:1:3) of machinery
Power H.P. of 96,000 64,000 16,000 6,400 9,600
(80:20:8:12) machines
Security expenses Floor Area 24,000 12,000 7,200 1,920 2,880
for factory premises
(125:75:20:30)
Insurance- machinery Book alue 12,000 8,400 2,000 400 1,200
(21:5:1:3) of machinery

Supervisor expenses Number of 48,000 9,600 28,800 5,760 3,840

(10:30:6:4) employees
Total 6,25,000 2,87,500 2,07,500 55,000 75,000

4.34
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

(ii) Redistribution of Service Department’s Expenses

Particular Production Service
Departments Departments
P (`) Q (`) R (`) S (`)
Overhead as per primary distribution 2,87,500 2,07,500 55,000 75,000
Expenses of service department R is 12,500 37,500 (55,000) 5,000
apportioned among other departments P,
Q & S in the ratio of number of employees
(10:30:4)
Expenses of service department S is 64,000 16,000 - (80,000)
apportioned among other departments P &
Q in the ratio of Machine hours (40:10)
Total Budgeted overheads 3,64,000 2,61,000 - -

(iii) Calculation of overhead rates for each of the production department

a l
ch
Particular Production Departments
P (`) Q (`)

n
Total Budgeted overheads 3,64,000 2,61,000

a
Actual machine hours 4000 hours -

P
Actual labour hours - 6000 hours

l
Actual machine/labour hour rate 91 43.5

h u
Note: Department P is assumed to be machine oriented and Department Q is assumed to

a
be labour oriented as per information available in the question

R
The solution 3(a) can also be presented in following way for Distribution of Power expenses:

A
Overhead Distribution Statement

C
Particular Basis Total Production Service
Amount Departments Departments
(`) P (`) Q (`) R (`) S (`)
Indirect material Direct 1,77,500 94,750 49,750 18,270 14,730
Indirect labour Direct 1,55,000 35,000 75,000 15,000 30,000
Factory rent Floor Area 75,000 37,500 22,500 6,000 9,000
(125:75:20:30)
Depreciation Book value 37,500 26,250 6,250 1,250 3,750
of machinery of machinery
(21:5:1:3)
Power H.P. x machine 96,000 86,682 5,418 1,300 2,600
(3200:200:48:96) hours
Security Floor Area 24,000 12,000 7,200 1,920 2,880
expenses for
factory premises
(125:75:20:30)
Insurance- Book value of 12,000 8,400 2,000 400 1,200
machinery machinery
(21:5:1:3)

4.35
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

Supervisor Number of 48,000 9,600 28,800 5,760 3,840

expenses employees
(10:30:6:4)
Total 6,25,000 3,10,182 1,96,918 49,900 68,000

Power can be distributed on the basis of HP of machines x machine hours

800 x 4000 = 32,00,000, 200 x 1000 = 2,00,000, 80 x 600 = 48,000, 120 x 800
= 96,000
Ratio is 3200:200:48:96

(ii) Redistribution of Service Department’s Expenses

Particular Production Service
Departments Departments

l
P (`) Q (`) R (`) S (`)

a
Overhead as per primary distribution 3,10,182 1,96,918 49,900 68,000

h
Expenses of service department 11,340.90 34,022.73 (49,900) 4,536.37

c
R is apportioned among other

n
departments P, Q & S in the ratio of

a
number of employees (10:30:4)

P
Expenses of service department 58,029.10 14,507.27 - (72,536.37)

l
S is apportioned among other

u
departments P

h
& Q in the ratio of Machine hours

a
(40:10)

R
Total Budgeted overheads 3,79,552 2,45,448 - -

A
(iii) Calculation of overhead rates for each of the production department

C
Particular Production Departments
P (`) Q (`)
Total Budgeted overheads 3,79,552 2,45,448
Actual machine hours 4000 hours -
Actual labour hours - 6000 hours
Actual machine/labour hour rate 94.89 40.91

Note: Department P is assumed to be machine oriented and Department Q is assumed to

be labour oriented as per information available in the question

4.36
OVERHEADS- ABSORPTION COSTING METHOD
 TRP Sir
CA Rahul Panchal

ACTIVITY BASED
05 COSTING

QUESTION 1. (ILLUSTRATION 1) 
ABC Ltd. is a multiproduct company, manufacturing three products A, B and C. The budgeted
costs and production for the year ending 31st March are as follows:
A B C
Production quantity (Units) 4,000 3,000 1,600
Resources per Unit:
- Direct Materials (Kg.) 4 6 3
- Direct Labour (Minutes) 30 45 60

l
The budgeted direct labour rate was ` 10 per hour, and the budgeted material cost was ` 2 per

a
kg. Production overheads were budgeted at ` 99,450 and were absorbed to products using the

h
direct labour hour rate. ABC Ltd. followed the Absorption Costing System.

c
ABC Ltd. is now considering to adopt an Activity Based Costing system. The following additional

n
information is made available for this purpose.

1. Budgeted overheads were analysed into the following:

P a
l
(`)

u
Material handling 29,100

h
Storage costs 31,200

a
Electricity 39,150

2.
R
The cost drivers identified were as follows:

A
Material handling Weight of material handled

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

3. Data on Cost Drivers was as follows:

A B C
For complete production:
Batches of material 10 5 15
Per unit of production:
Number of Machine operations 6 3 2
You are requested to:
1. PREPARE a statement for management showing the unit costs and total costs of each
product using the absorption costing method.
2. PREPARE a statement for management showing the product costs of each product
using the ABC approach.
3. STATE what are the reasons for the different product costs under the two approaches?

5.1
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 2. (ILLUSTRATION 2) 
MST Limited has collected the following data for its two activities. It calculates activity cost rates
based on cost driver capacity.
Activity Cost Driver Capacity Cost
Power Kilowatt hours 50,000 kilowatt hours ` 2,00,000
Quality Inspections Number of Inspections 10,000 Inspections ` 3,00,000

The company makes three products M, S and T. For the year ended March 31st, the following
consumption of cost drivers was reported:
Product Kilowatt hours Quality Inspections
M 10,000 3,500
S 20,000 2,500
T 15,000 3,000

l
Required:

a
(i) COMPUTE the costs allocated to each product from each activity.

h
(ii) CALCULATE the cost of unused capacity for each activity.

c
(iii) DISCUSS the factors the management considers in choosing a capacity level to compute the

n
budgeted fixed overhead cost rate.

QUESTION 3. (ILLUSTRATION 3) 

P a
l
ABC Ltd. Manufactures two types of machinery equipment Y and Z and applies/absorbs overheads

u
on the basis of direct-labour hours. The budgeted overheads and direct-labour hours for

h
the month of December are ` 12,42,500 and 20,000 hours respectively. The information about

a
Company’s products is as follows:

R
Equipment Equipment
Y Z

A
Budgeted Production volume 2,500 units 3,125 units

C
Direct material cost ` 300 per unit ` 450 per unit
Direct labour cost
Y : 3 hours @ ` 150 per hour
Z : 4 hours @ ` 150 per hour ` 450 ` 600
ABC Ltd.’s overheads of ` 12,42,500 can be identified with three major activities:

Order Processing (` 2,10,000), machine processing (` 8,75,000), and product inspection (`

1,57,500). These activities are driven by number of orders processed, machine hours worked, and
inspection hours, respectively. The data relevant to these activities is as follows:
Orders processed Machine hours worked Inspection hours
Y 350 23,000 4,000
Z 250 27,000 11,000
Total 600 50,000 15,000
Required:
(i) Assuming use of direct-labour hours to absorb/apply overheads to production, COMPUTE
the unit manufacturing cost of the equipment Y and Z, if the budgeted manufacturing
volume is attained.
(ii) Assuming use of activity-based costing, COMPUTE the unit manufacturing costs of the
equipment Y and Z, if the budgeted manufacturing volume is achieved.

5.2
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(iii) ABC Ltd.’s selling prices are based heavily on cost. By using direct-labour hours as an
application base, CALCULATE the amount of cost distortion (under-costed or over-costed)
for each equipment.

QUESTION 4. (ILLUSTRATION 4) 
‘Humara - Apna’ bank offers three products, viz., deposits, Loans and Credit Cards. The bank has
selected 4 activities for a detailed budgeting exercise, following activity based costing methods.
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 Cost Estimation for the budget period
(`)
ATM Services:

l
(a) Machine Maintenance 4,00,000 All fixed, no change.

a
(b) Rents 2,00,000 Fully fixed, no change.

h
(c) Currency Replenishment 1,00,000 Expected to double during

c
Cost budget period.

n
7,00,000 (This activity is driven by no. of ATM

a
transactions)

P
Computer Processing 5,00,000 Half this amount is fixed and no

l
change is expected.

u
The variable portion is expected to

h
increase to three times the current

a
level.

R
(This activity is driven by the number
of computer transactions)

A
Issuing Statements 18,00,000 Presently, 3 lakh statements are

C
made. In the budget period, 5 lakh
statements are expected.
For every increase of one lakh
statement, one lakh rupees is the
budgeted increase.
(This activity is driven by the number
of statements)
Computer Inquiries 2,00,000 Estimated to increase by 80% during
the budget period.
(This activity is driven by telephone
minutes)

The activity drivers and their budgeted quantifies are given below:
Activity Drivers Deposits Loans Credit Cards
No. of ATM Transactions 1,50,000 --- 50,000
No of Computer Processing Transactions 15,00,000 2,00,000 3,00,000
No. of Statements to be issued 3,50,000 50,000 1,00,000
Telephone Minutes 3,60,000 1,80,000 1,80,000

5.3
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

The bank budgets a volume of 58,600 deposit accounts, 13,000 loan accounts, and 14,000
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 (ii) above.

QUESTION 5. (PP1) 
Woolmark Ltd. manufactures three types of products namely P, Q and R. The data relating to a
period are as under:
Particulars P Q R
Machine hours per unit 10 18 14
Direct Labour hours per unit 4 12 8

l
Direct Material per unit (`) 90 80 120

a
Production (units) 3,000 5,000 20,000

c h
Currently the company uses traditional costing method and absorbs all production overheads

n
on the basis of machine hours. The machine hour rate of overheads is ` 6 per hour. Direct labour

a
hour rate is ` 20 per hour.

P
The company proposes to use activity based costing system and the activity analysis is as under:

l
Particulars P Q R

u
Batch size (units) 150 500 1,000

h
Number of purchase orders per batch 3 10 8

a
Number of inspections per batch 5 4 3

R
The total production overheads are analysed as under:

A
Machine set up costs…… 20%

C
Machine operation costs……. 30%
Inspection costs…… 40%
Material procurement related costs…….. 10%
Required
(i) CALCULATE the cost per unit of each product using traditional method of absorbing all
production overheads on the basis of machine hours.
(ii) CALCULATE the cost per unit of each product using activity based costing principles.

QUESTION 6. (PP2) 
RST Limited specializes in the distribution of pharmaceutical products. It buys from the
pharmaceutical companies and resells to each of the three different markets.
(i) General Supermarket Chains
(ii) Drugstore Chains
(iii) Chemist Shops
The following data for the month of April in respect of RST Limited has been reported:

5.4
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Particulars General Drugstore Chemist

Supermarket Chains Shops
Chains
(`) (`) (`)
Average revenue per delivery 84,975 28,875 5,445
Average cost of goods sold per delivery 82,500 27,500 4,950
Number of deliveries 330 825 2,750
In the past, RST Limited has used gross margin percentage to evaluate the relative profitability
of its distribution channels.

The company plans to use activity–based costing for analysing the profitability of its distribution
channels.
The Activity analysis of RST Limited is as under:

l
Activity Area Cost Driver

a
Customer purchase order processing Purchase orders by customers

h
Line-item ordering Line-items per purchase order

c
Store delivery Store deliveries

n
Cartons dispatched to stores Cartons dispatched to a store per delivery

a
Shelf-stocking at customer store Hours of shelf-stocking

l P
The April month’s operating costs (other than cost of goods sold) of RST Limited are ` 8,27,970.

u
These operating costs are assigned to five activity areas. The cost in each area and the quantity

h
of the cost allocation basis used in that area for the month of April are as follows:

a
Activity Area Total costs (`) Total Units of Cost Allocation Base

R
Customer purchase order processing 2,20,000 5,500 orders
Line-item ordering 1,75,560 58,520 line items

A
Store delivery 1,95,250 3,905 store deliveries

C
Cartons dispatched to store 2,09,000 2,09,000 cartons
Shelf-stocking at customer store 28,160 1,760 hours

Other data for the month of April include the following:

General Drugstore Chemist
Supermarket Chains Shops
Chains
Total number of orders 385 990 4,125
Average number of line items per order 14 12 10
Total number of store deliveries 330 825 2,750
Average number of cartons shipped per store 300 80 16
delivery
Average number of hours of shelf-stocking per 3 0.6 0.1
store delivery

Required:
(i) COMPUTE gross-margin percentage for each of its three distribution
channels and compute RST Limited’s operating income.
(ii) COMPUTE the rate per unit of the cost-allocation base for each of the five activity areas.

5.5
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(iii) COMPUTE the operating income of each distribution channel using the activity-based
costing information. Comment on the results. What new insights are available with the
activity-based cost information?
(iv) DESCRIBE four challenges one would face in assigning the total operating costs of ` 8,27,970
to five activity areas.

QUESTION 7. (PP3) 
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 current year
for each product line:
Soft drinks Fresh produce Packaged
food
Revenues ` 39,67,500 ` 1,05,03,000 ` 60,49,500

l
Cost of goods sold ` 30,00,000 ` 75,00,000 ` 45,00,000

a
Cost of bottles returned ` 60,000 `0 `0

h
Number of purchase orders placed 360 840 360

c
Number of deliveries received 300 2,190 660

n
Hours of shelf-stocking time 540 5,400 2,700

a
Items sold 1,26,000 11,04,000 3,06,000

l P
Family store also provides the following information for the current year:

u
Activity Description of activity Total Cost Cost-allocation base

h
Bottles Returning of empty bottles ` 60,000 Direct tracing to soft drink

a
returns line

R
Ordering Placing of orders for purchases ` 7,80,000 1,560 purchase orders
Delivery Physical delivery and receipt of ` 12,60,000 3,150 deliveries

A
goods

C
Shelf stocking Stocking of goods on store ` 8,64,000 8,640 hours of shelf-
shelves and on- going restocking stocking time
Customer Assistance provided to customers ` 15,36,000 15,36,000 items sold
Support including check-out
Required:
(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.

QUESTION 8. (PP4) 
Alpha Limited has decided to analyse 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. The data
pertaining to five customers are:
Customers
A B C D E
Cases sold 4,680 19,688 1,36,800 71,550 8,775

5.6
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Listed Selling Price ` 108 ` 108 ` 108 ` 108 ` 108

Actual Selling Price ` 108 ` 106.20 ` 99 ` 104.40 ` 97.20
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
Kilometers travelled per delivery 20 6 5 10 30
Number of expedited deliveries 0 0 0 0 1

Its five activities and their cost drivers are:

Activity Cost Driver Rate
Order taking ` 750 per purchase order
Customer visits ` 600 per customer visit
Deliveries ` 5.75 per delivery Km travelled

l
Product handling ` 3.75 per case sold

a
Expedited deliveries ` 2,250 per expedited delivery

h
Required:

c
(i) COMPUTE the customer-level operating income of each of five retail customers now being

n
examined (A, B, C, D and E). Comment on the results.

a
(ii) STATE what insights are gained by reporting both the list selling price and the actual selling

P
price for each customer.

QUESTION 9. (PP5) 

u l
h
BABYSOFT is a global brand created by Bio-organic Ltd. The company manufactures three ranges

a
of beauty soaps i.e. BABYSOFT- Gold, BABYSOFT- Pearl, and BABYSOFT- Diamond. The budgeted

R
costs and production for the month of December are as follows:
BABYSOFT- Gold BABYSOFT- Pearl BABYSOFT- Diamond

A
Production of 4,000 3,000 2,000

C
soaps (Units)
Resources per Qty Rate Qty Rate Qty Rate
Unit:
Essential Oils 60 ml ` 200 / 100 55 ml ` 300 / 100 ml 65 ml ` 300 / 100 ml
ml
Cocoa Butter 20 g ` 200 / 100 g 20 g ` 200 / 100 g 20 g ` 200 / 100 g
Filtered Water 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml 30 ml ` 15 / 100 ml
Chemicals 10 g ` 30 / 100 g 12 g ` 50 / 100 g 15 g ` 60 / 100 g
Direct Labour 30 ` 10 / hour 40 ` 10 / hour 60 ` 10 / hour
minutes minutes minutes
Bio-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, Bio-organic Ltd. is considering adopting an Activity Based 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 operations per unit of production are 5, 5, and 6 for BABYSOFT- Gold,

5.7
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

BABYSOFT- Pearl, and BABYSOFT- Diamond respectively.

(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 ABC approach.
(iii) STATE what are the reasons for the different product costs under the two approaches.

a l
c h
a n
l P
h u
R a
C A

5.8
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
G-2020 Ltd. is a manufacturer of a range of goods. The cost structure of its different products is
as follows:
Particulars Product Product Product
A B C
Direct Materials 50 40 40 `/u
Direct Labour @ ` 10/ hour 30 40 50 `/u
Production Overheads 30 40 50 `/u

l
Total Cost 110 120 140 `/u

a
Quantity Produced 10,000 20,000 30,000 Units

c h
G-2020 Ltd. was absorbing overheads on the basis of direct labour hours. A newly appointed

n
management accountant has suggested that the company should introduce ABC system and has

a
identified cost drivers and cost pools as follows:

P
Activity Cost Pool Cost Driver Associated Cost (`)

l
Stores Receiving Purchase Requisitions 2,96,000

u
Inspection Number of Production Runs 8,94,000

h
Dispatch Orders Executed 2,10,000

a
Machine Setup Number of Setups 12,00,000

R
The following information is also supplied:

A
Details Product A Product B Product C

C
No. of Setups 360 390 450
No. of Orders Executed 180 270 300
No. of Production Runs 750 1,050 1,200
No. of Purchase Requisitions 300 450 500
Required
CALCULATE activity based production cost of all the three products.

RTP NOV 18

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 20X7-X8
for each product line:
Soft drinks Fresh produce Packaged food
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 placed 360 840 360
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000

5.9
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Family store also provides the following information for the year 20X7-X8:
Activity Description of activity Total Cost Cost-allocation base
Bottles returns Returning of empty ` 60,000 Direct tracing to soft
bottles drink line
Ordering Placing of orders for ` 7,80,000 1,560 purchase orders
purchases
Delivery Physical delivery and ` 12,60,000 3,150 deliveries
receipt of goods
Shelf stocking Stocking of goods on ` 8,64,000 8,640 hours of shelf-
store shelves and on- stocking time
going restocking
Customer Support Assistance provided to ` 15,36,000 15,36,000 items sold
customers including

l
check-out

a
Required:

h
(i) Family store currently allocates support cost (all cost other than cost of goods sold)

c
to product lines on the basis of cost of goods sold of each product line. CALCULATE the

n
operating income and operating income as a % of revenues for each product line.

a
(ii) If Family Store allocates support costs (all costs other than cost of goods sold) to product

P
lines using and activity based costing system, CALCULATE the operating income and

l
operating income as a % of revenues for each product line.

RTP MAY 19

h u
a
MST Limited has collected the following data for its two activities. It calculates activity cost rates

R
based on cost driver capacity.
Activity Cost Driver Capacity Cost (`)

A
Power Kilowatt hours 50,000 kilowatt hours 40,00,000

C
Quality Number of 10,000 Inspections 60,00,000
Inspections Inspections

The company makes three products M, S and T. For the year ended March 31, 20X 9, the following
consumption of cost drivers was reported:
Product Kilowatt hours Quality Inspections
M 10,000 3,500
S 20,000 2,500
T 15,000 3,000
Required:
(i) PREPARE a statement showing cost allocation to each product from each activity.
(ii) CALCULATE the cost of unused capacity for each activity.
(iii) STATE the factors the management considers in choosing a capacity level to compute the
budgeted fixed overhead cost rate.

5.10
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 19

SMP Pvt. Ltd. manufactures three products using three different machines. At present the
overheads are charged to products using labour hours. The following statement for the month
of September 2019, using the absorption costing method has been prepared:
Particulars Product X Product Y Product Z (using
(using machine A) (using machine B) machine C)
Production units 45,000 52,500 30,000
Material cost per unit (`) 350 460 410
Wages per unit @ `80 per hour 240 400 560
Overhead cost per unit (`) 240 400 560
Total cost per unit (`) 830 1,260 1,530
Selling price (`) 1,037.50 1,575 1,912.50
The following additional information is available relating to overhead cost drivers.

l
Cost driver Product X Product Y Product Z Total

a
No. of machine set-ups 40 160 400 600

h
No. of purchase orders 400 800 1,200 2,400

c
No. of customers 1,000 2,200 4,800 8,000

a n
Actual production and budgeted production for the month is same. Workers are paid at standard

P
rate. Out of total overhead costs, 30% related to machine set-ups, 30% related to customer

l
order processing and customer complaint management, while the balance proportion related to

u
material ordering.

h
Required:

a
(i) COMPUTE overhead cost per unit using activity based costing method.

R
(ii) DETERMINE the selling price of each product based on activity-based costing with the same
profit mark-up on cost.

RTP MAY 20

C A
Following are the data of three product lines of a departmental store for the year 2019 -20:
Soft drinks Fresh produce Packaged
food
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 placed 360 840 360
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000

Additional information related with the store are as follows:

Activity Description of activity Total Cost Cost-allocation base
Bottles Returning of empty bottles ` 60,000 Direct tracing to soft
returns drink line
Ordering Placing of orders for purchases ` 7,80,000 1,560 purchase
orders
Delivery Physical delivery and receipt of goods ` 12,60,000 3,150 deliveries

5.11
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Shelf Stocking of goods on store shelves and ` 8,64,000 8,640 hours of shelf-
stocking on-going restocking stocking time
Customer Assistance provided to customers ` 15,36,000 15,36,000 items sold
Support including check-out

Required:
CALCULATE the total cost and operating income using Activity Based Costing method.

RTP NOV 20

KD Ltd. is following Activity based costing. Budgeted overheads, cost drivers and volume are as
follows:
Cost pool Budgeted Cost driver Budgeted volume
overheads (`)

l
Material procurement 18,42,000 No. or orders 1,200

a
Material handling 8,50,000 No. of movement 1,240

h
Maintenance 24,56,000 Maintenance hours 17,550

c
Set-up 9,12,000 No. of set-ups 1,450

n
Quality control 4,42,000 No. of inspection 1,820

a
The company has produced a batch of 7,600 units, its material cost was `24,62,000 and wages

P
`4,68,500. Usage activities of the said batch are as follows:

Material orders 

u l 56

h
Material movements  84

a
Maintenance hours  1,420 hours

R
Set-ups  60
No. of inspections 18

A
Required: 

C
(i) CALCULATE cost driver rates.
(ii) CALCULATE the total and unit cost for the batch.

RTP MAY 21

The following budgeted information relates to N Ltd. for the year 2021:
Products
X Y Z
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 2021 will be as below:
Machine Department ` 73,60,000
Assembly Department ` 55,00,000

5.12
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

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 7,20,000 Customer orders 7,200 orders
Purchasing 4,00,000 Purchase orders 800 orders

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

l
Products

a
X Y Z

h
Machine set-ups 4,500 3,000 1,500

c
Customer orders 2,200 2,400 2,600

n
Purchase orders 300 350 150

a
You are required to PREPARE a product-wise profit statement using:

P
(i) Absorption costing method;

l
(ii) Activity-based method.

RTP NOV 21

h u
a
Family Store wants information about the profitability of individual product lines: Soft drinks,

R
Fresh produce and Packaged food. Family store provides the following data for the year 2020-21
for each product line:

A
Soft drinks Fresh produce Packaged

C
food
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 placed 360 840 360
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000

Family store also provides the following information for the year 2020-21:
Activity Description of activity Total Cost (`) Cost-allocation base
Bottles returns Returning of empty bottles 60,000 Direct tracing to soft
drink line
Ordering Placing of orders for 7,80,000 1,560 purchase orders
purchases
Delivery Physical delivery and receipt 12,60,000 3,150 deliveries
of goods

5.13
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Shelf stocking Stocking of goods on store 8,64,000 8,640 hours of shelf-

shelves and on- going stocking time
restocking
Customer Support Assistance provided to 15,36,000 15,36,000 items sold
customers including check-
out

Required:
(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

l
operating income as a % of revenues for each product line.

RTP MAY 22

h a
c
PCP Limited belongs to the apparel industry. It specializes in the distribution of fashionable

n
garments. It buys from the industry and resells the same to the following two different

a
supermarkets:

P
(i) Supermarket A dealing in Adults’ garments (Age group 15 - 30)

l
(ii) Supermarket B dealing in Kids’ garments (Age group 5 - 10)

u
The following data for the month of April in respect of PCP Limited has been reported:

h
Supermarket A (`) Supermarket B (`)

a
Average revenue per delivery 1,69,950 57,750

R
Average cost of goods sold per delivery 1,65,000 55,000
Number of deliveries 660 1,650

A
In the past, PCP Limited has used gross margin percentage to evaluate the relative profitability

C
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 ` 16,55,995.
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 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 Hours of shelf-stocking
Line-item ordering 3,45,400 Line-items per purchase order
Customer purchase order processing 4,40,000 Purchase orders by customers

Other data for the month of April include the following:

Supermarket A Supermarket B
Total number of store deliveries 1,100 2,805
Average number of cartons shipped per store 250 50
delivery

5.14
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Average number of hours of shelf-stocking 6 1.5

per store delivery
Average number of line items per order 14 12
Total number of orders 770 1,980

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 activity- based
costing information.

RTP NOV 22

The profit margin of BABY Hairclips Company were over 20% of sales producing BROWN and

l
BLACK hairclips.

a
During the last year, GREEN hairclips had been introduced at 10% premium in selling price after

h
the introduction of YELLOW hairclips earlier five years back at 10/3% premium. However, the

c
manager of the company is disheartened with the sales figure for the current financial year as

n
follows:

Traditional Income Statement

P a (in `)

l
Brown Black Yellow Green Total

u
Sales 1,50,00,000 1,20,00,000 27,90,000 3,30,000 3,01,20,000

h
Material Costs 50,00,000 40,00,000 9,36,000 1,10,000 1,00,46,000

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

R
Overhead (3 times 60,00,000 48,00,000 10,80,000 1,20,000 1,20,00,000
of direct labour)

A
Total Operating 20,00,000 16,00,000 4,14,000 60,000 40,74,000

C
Income
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 GREEN
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. However, the manager is interested in allocating indirect expenses on the
basis of activity cost to reveal real earner.
He 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
He provides following additional information for accomplishment of his interest: Incentives to be
allocated @ 40% of labour expenses (both direct and indirect).

5.15
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Indirect labours are involved mainly in three activities. About half of indirect labour is involved
in handling production runs. Another 40% is required just 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.
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 activity and 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).

l
Activity Cost Drivers:

a
Particulars Brown Black Yellow Green Total

h
Sales Volume (units) 1,00,000 80,000 18,000 2,000 2,00,000

c
Selling Price (`) 150 150 155 165

n
Material cost (`) 50 50 52 55

a
Machine hours per unit (Hrs) 0.10 0.10 0.10 0.10 20,000

P
Production runs 100 100 76 24 300

l
Setup time per run (Hrs) 4 1 6 4

u
You are required to –

h
(i) CALCULATE operating income and operating income as per percentage of sales using

a
activity-based costing system.

R
(ii) STATE the reasons for different operating income under traditional income system and
activity-based costing system.

RTP MAY 23

C A
Hygiene Care Ltd. is a manufacturer of a range of goods. The cost structure of its different
products is as follows:
Particulars Hand Wash Detergent Powder Dishwasher
Direct Materials (` / Pu) 150 120 120
Direct Labour @`10/ hour (` / Pu) 45 60 75
Production Overheads (` / Pu) 40 50 40
Total Cost (` / Pu) 235 230 235
Quantity Produced (Units) 30,000 60,000 90,000

Hygiene Care Ltd. was absorbing overheads on the basis of direct labour hours. Management
accountant has suggested that the company should introduce ABC system and has identified
cost drivers and cost pools as follows:
Activity Cost Pool Cost Driver Associated Cost
(`)
Goods Receiving Number of Dispatch Order 8,88,000
Inspecting and Testing costs Number of Production Runs 26,82,000
Dispatching Number of dispatch order 6,30,000
Storage Cost Number of Batches of material 36,00,000

5.16
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

The following information is also supplied:

Details Hand Wash Detergent Powder Dishwasher
Batches of material 720 780 900
Number of dispatch order 360 540 600
No. of Production Runs 1,500 2,100 2,400
Number of Dispatch Orders 600 900 1,000
Required:
CALCULATE activity-based production cost of all the three products.

RTP NOV 23

L Limited manufactures three products P, Q and R which are similar in nature and are usually
produced in production runs of 100 units. Product P and R require both machine hours and
assembly hours, whereas product Q requires only machine hours. The overheads incurred by the

l
company during the first quarter are as under:

a
`

h
Machine Department expenses 18,48,000

c
Assembly Department expenses 6,72,000

n
Setup costs 90,000

a
Stores receiving cost 1,20,000

P
Order processing and dispatch 1,80,000

l
Inspect and Quality control cost 36,000

h u
The data related to the three products during the period are as under:

a
P Q R

R
Units produced and sold 15,000 12,000 18,000
Machine hours worked 30,000 hrs. 48,000 hrs. 54,000 hrs.

A
Assembly hours worked (direct 15,000 hrs. - 27,000 hrs.

C
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.

RTP MAY 24

The sales department of A Limited is analysing the customer profitability for its Product Z. It
has decided to analyse the profitability of its five new customers using activity-based costing
method. It buys Product Z at ` 5,400 per unit and sells to retail customers at a listed price of `
6,480 per unit. The data pertaining to five customers are:
Customers
A B C D E
Units sold 4,500 6,000 9,500 7,500 12,750
Listed Selling Price `6,480 `6,480 `6,480 `6,480 `6,480
Actual Selling Price `6,480 `6,372 `5,940 `6,264 `5,832
Number of Purchase orders 15 25 30 25 30

5.17
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Number of Customer visits 2 3 6 2 3

Number of deliveries 10 30 60 40 20
Kilometers travelled per delivery 20 6 5 10 30
Number of expedited deliveries 0 0 0 0 1

After a detailed analysis and computation, the following activities has been identified and
respective cost has been calculated:
Activity Cost Driver Rate
Order taking `4,500 per purchase order
Customer visits ` 3,600 per customer visit
Deliveries ` 7.50 per delivery Km travelled
Product handling ` 22.50 per case sold
Expedited deliveries ` 13,500 per expedited delivery

l
You are required to COMPUTE the customer-level operating income of each of five retail customers.

h a
n c
P a
u l
a h
R
C A

5.18
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (10 MARKS) Q. 4A

PQR Pens Ltd. manufactures two products - 'Gel Pen' and 'Ball Pen'. It furnishes the following
data for the year 2017:

Product Annual Output Total Machine Total number of Total number of

(Units) Hours Purchase orders set-ups
Gel Pen 5,500 24,000 240 30

l
Ball Pen 24,000 54,000 448 56

a
The annual overheads are as under:

ch
Particulars `

n
Volume related activity costs 4,75,020

a
Set up related costs 5,79,988

P
Purchase related costs 5,04,992

u l
Calculate the overhead cost per unit of each Product - Gel Pen and Ball Pen on the basis of:

h
(i) Traditional method of charging overheads

a
(ii) Activity based costing method and

R
(iii) Find out the difference in cost per unit between both the methods.

A
ANSWER :

C
Statement Showing Overhead Cost per unit “Traditional Method”
Gel Pen Ball Pen
(`) (`)
Units 5,500 24,000
Overheads (`) (Refer to W.N.) 4,80,000 10,80,000
(20 x 24,000 hrs.) (20 x 54,000 hrs.)
Overhead Rate per unit (`) 87.27 45
(` 4,80,000 / 5,500 units) (` 10,80,000 /24,000 units)
Working Notes:
Overhead Rate per Machine Hour

= ` 20 per machine hour

5.19
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(ii) Statement Showing “Activity Based Overhead Cost”

Activity Cost Cost Driver Ratio Total Amount Gel Pen (`) Ball Pen (`)
Pool (`)
Volume Related Machine hours 24:54 4,75,020 1,46,160 3,28,860
Activity Costs
Setup Related No. of Setups 30:56 5,79,988 2,02,321 3,77,667
Costs
Purchase Related No. of Purchase 240:448 5,04,992 1,76,160 3,28,832
Costs Orders
Total Cost 5,24,641 10,35,359
Output (units) 5,500 24,000
Unit Cost (Overheads) 95.39 43.13

l
(iii)

a
Gel Pen (`) Ball Pen (`)

h
Overheads Cost per unit (`) (Traditional Method) 87.27 45

c
Overheads Cost per unit (`) (ABC) 95.39 43.13

n
Difference per unit -8.12 +1.87

P a
(Volume related activity cost, set up related costs and purchase related cost can also be

l
calculated under Activity Base Costing using Cost driver rate. However, there will be no changes

u
in the final answer.)

PYQ NOV 18 (10 MARKS)

a h Q. 3B

R
M/s. HMB Limited is producing a product in 10 batches each of 15000 units in a year and incurring
following overheads their on:

A
Amount (`)

C
Material procurement 22,50,000
Maintenance 17,30,000
Set-up 6,84,500
Quality control 5,14,800
The prime costs for the year amounted to ` 3,01,39,000.
The company is using currently the method of absorbing overheads on the basis of prime cost.
Now it wants to shift to activity-based costing. Information relevant to Activity drivers for a year
are as under:
Activity Driver Activity Volume
No. of purchase orders 1500
Maintenance hours 9080
No. of set-ups 2250
No. of inspections 2710
The company has produced a batch of 15000 units and has incurred ` 26,38,700 and
` 3,75,200 on materials and wages respectively.
The usage of activities of the said batch are as follows:

5.20
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Materials orders 48 orders

Maintenance hours 810 hours
No. of set-ups 40
No. of inspections 25
You are required to:
(i) find out cost of product per unit on absorption costing basis for the said batch.
(ii) determine cost driver rate, total cost and cost per unit of output of the said batch on the
basis of activity based costing.

ANSWER :
Working Note:

l
(i) Cost of Product Under Absorption Costing

a
Item of Cost Amount (`)

h
Material 26,38,700

c
Wages 3,75,200

n
Prime Cost 30,13,900

a
5,17,930

Total Cost

l P 35,31,830

u
Units 15,000

h
Cost per unit 235.46

a
(ii) Cost driver rate, total cost and cost per unit on the basis of activity-based costing method

R
Absorption Costing
Calculation of Cost Driver rate:

A
Activity `. Activity Volume Cost Driver

C
Volume Rate
Material 22,50,000 1500 1500
Procurement
Maintenance 17,30,000 9080 190.53
Setup 6,84,500 2250 304.22
Quality Control 5,14,800 2710 189.96
Calculation of total Cost and cost per unit:
Item of Cost Amount (`)
Material 26,38,700
Wages 3,75,200
Prime Cost 30,13,900
72,000

1,54,328

12,169

5.21
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

4,749

Total Cost 32,57,146

Unit 15,000
Cost per unit 217.14

PYQ MAY 19 (10 MARKS) Q. 3B

MNO Ltd. manufactures two types of equipment A and B and absorbs overheads on the basis
of direct labour hours. The budgeted overheads and direct labour hours for the month of March
2019 are ` 15,00,000 and 25,000 hours respectively. The information about the company's
products is as follows:
Equipment
A B

l
Budgeted Production Volume 3,200 units 3,850 units

a
Direct Material Cost ` 350 per unit ` 400 per unit

h
Direct Labour Cost

c
A: 3 hours @ ` 120 per hour ` 360

n
B: 4 hours @ ` 120 per hour ` 480

a
Overheads of ` 15,00,000 can be identified with the following three major activities:

P
Order Processing: ` 3,00,000

l
Machine Processing: ` 10,00,000

u
Product Inspection: ` 2,00,000

h
These activities are driven by the number of orders processed, machine hours worked and

a
inspection hours respectively. The data relevant to these activities is as follows:

R
Orders processed Machine hours worked Inspection hours
A 400 22,500 5000

A
B 200 27,500 15,000

C
Total 600 50,000 20,000

Required:
(i) Prepare a statement showing the manufacturing cost per unit of each product using the
absorption costing method assuming the budgeted manufacturing volume is attained.
(ii) Determine cost driver rates and prepare a statement showing the manufacturing cost per
unit of each product using activity based costing, assuming the budgeted manufacturing
volume is attained.
(iii) MNO Ltd.'s selling prices are based heavily on cost. By using direct labour hours as an
application base, calculate the amount of cost distortion (under costed or over costed) for
each equipment.

5.22
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Overheads application base: Direct labour hours
Equipment Equipment
A (`) B (`)
Direct material cost 350 400
Direct labour cost 360 480
Overheads* 180 240
890 1120

(ii) Estimation of Cost-Driver rate

Activity Overhead cost Cost-driver level Cost driver rate

l
(`) (`)

a
Order processing 600

h
3,00,000 Orders processed 500

c
Machine processing 50,000

n
10,00,000 Machine hours 20

a
Inspection 15,000

P
2,00,000 Inspection hours 10

l
Equipment Equipment

u
A (`) B (`)

h
Direct material cost 350 400

a
Direct labour cost 360 480

R
Prime Cost(A) 710 880
Overhead Cost

A
Order processing 400: 200 2,00,000 1,00,000

C
Machine processing 22,500: 27,500 4,50,000 5,50,000
Inspection 5,000: 15,000 50,000 1,50,000
Total overhead cost 7,00,000 8,00,000
(Overheads cost per unit for each overhead can also be calculated)
Per unit cost A (`) B (`)
7,00,000 /3,200 (B)-A 218.75
8,00,000/ 3,850 (B)-B 207.79
Unit manufacturing cost (A+B) 928.75 1,087.79

(iii) Calculation of Cost Distortion

Equipment Equipment
A (`) B (`)
Unit manufacturing cost–using direct labour hours as an
application base 890.00 1,120.00
Unit manufacturing cost-using activity based costing 928.75 1,087.79
Cost distortion -38.75 32.21

5.23
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

PYQ NOV 19 (10 MARKS) Q. 2A

PQR Ltd has decided to analyse the profitability of its five new customers. It buys soft drink
bottles in cases at ` 45 per case and sells them to retail customers at a list price of
` 54 per case. The data pertaining to five customers are given below:
Particulars A B C D E
Number of Cases Sold 9,360 14,200 62,000 38,000 9,800
List Selling Price (`) 54 54 54 54 54
Actual Selling Price (`) 54 53.40 49 50.20 48.60
Number of Purchase Orders 30 50 60 50 60
Number of Customers visits 4 6 12 4 6
Number of Deliveries 20 60 120 80 40
Kilometers travelled per delivery 40 12 10 20 60
Number of expediate Deliveries 0 0 0 0 2

l
Its five activities and their cost drivers are:

a
Activity Cost Driver

h
Order taking ` 200 per purchase order

c
Customer visits ` 300 per each visit

n
Deliveries ` 4.00 per delivery km travelled

a
Product Handling ` 2.00 per case sold

P
Expedited deliveries ` 100 per such delivery

l
You are required to :

u
(i) Compute the customer level operating income of each of five retail customers by using the

h
Cost Driver rates.

a
(ii) Examine the results to give your comments on Customer 'D' in comparison with Customer 'C'

R
and on Customer 'E' in comparison with Customer 'A.'

A
ANSWER :

C
Working note:
Computation of revenues (at listed price), discount, cost of goods sold and customer level
operating activities costs:
Particulars Customers
A B C D E
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at listed price) (`): 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
(b) {(a) × ` 54)}
Discount (`): (c) {(a) × - 8,520 3,10,000 1,44,400 52,920
Discount per case} (14,200 (62,000 (38,000 (9,800
cases × cases × cases × cases ×
` 0.6) ` 5) ` 3.80) ` 5.40)
Cost of goods sold (`): (d) 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
{(a) × ` 45}
Customer level operating activities costs
Order taking costs (`): (No. of 6,000 10,000 12,000 10,000 12,000
purchase × ` 200)

5.24
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Customer visits costs 1,200 1,800 3,600 1,200 1,800

(`) (No. of customer visits
× ` 300)
Delivery vehicles travel costs 3,200 2,880 4,800 6,400 9,600
(`) (Kms travelled by delivery
vehicles × ` 4 per km.)
Product handling costs (`) 18,720 28,400 1,24,000 76,000 19,600
{(a) ×` 2}
Cost of expediting deliveries - - - - 200
(`)
{No. of expedited deliveries
× ` 100}

l
Total cost of customer level 29,120 43,080 1,44,400 93,600 43,200

a
operating activities (`)

h
(i) Computation of Customer level operating income

c
Particulars Customers

n
A B C D E

a
(`) (`) (`) (`) (`)

P
Revenues 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200

l
(At list price)

u
(Refer to working note)

h
Less: Discount - 8,520 3,10,000 1,44,400 52,920

a
(Refer to working note)

R
Revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(At actual price)

A
Less: Cost of goods 4,21,200 6,39,000 27,90,000 17,10,000 4,41000

C
sold
(Refer to working note)
Gross margin 84,240 1,19280 2,48,000 1,97,600 35,280
Less: Customer level 29,120 43,080 1,44,400 93,600 43,200
operating activities
costs
(Refer to working note)
Customer level operating 55,120 76,200 1,03,600 1,04,000 (7,920)
income
(ii) Comments
Customer D in comparison with Customer C: Operating income of Customer D is more
than of Customer C, despite having only 61.29% (38,000 units) of the units volume sold in
comparison to Customer C (62,000 units). Customer C receives a higher percent of discount
i.e. 9.26% (` 5) while Customer D receive a discount of 7.04% (` 3.80). Though the gross
margin of customer C (` 2,48,000) is more than Customer D (` 1,97,600) but total cost
of customer level operating activities of C (` 1,44,400) is more in comparison to
Customer D (` 93,600). As a result, operating income is more in case of Customer D.
Customer E in comparison with Customer A: Customer E is not profitable while Customer
A is profitable. Customer E receives a discount of 10% ( ` 5.4) while Customer A doesn’t

5.25
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

receive any discount. Sales Volume of Customer A and E is almost same. However, total
cost of customer level operating activities of E is far more ( ` 43,200) in comparison to
Customer A (` 29,120). This has resulted in occurrence of loss in case of Customer E.

PYQ NOV 20 (6 MARKS) Q. 5B

ABC Ltd. is engaged in production of three types of Fruit Juices:
Apple, Orange and Mixed Fruit.
The following cost data for the month of March 2020 are as under:
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

l
No. of Deliveries 110 64 52

a
Shelf Stocking Hours 110 160 170

ch
Overheads incurred by the company during the month are as under :
Particulars (`)

n
Ordering costs 64,000

a
Delivery costs 1,58,200

P
Shelf Stocking costs 87,560

l
Required:

u
(i) Calculate cost driver's rate.

h
(ii) Calculate total cost of each product using Activity Based Costing.

ANSWER :
(i)
R a
A
Activity Overhead cost Cost-driver level Cost driver rate

C
(`) (`)
(A) (B) (C) = (A)/(B)
Ordering 64,000 34 + 32 + 14 800
= 80 no. of purchase orders
Delivery 1,58,200 110 + 64 + 52 700
= 226 no. of deliveries
Shelf stocking 87,560 110 + 160 + 170 199
= 440 shelf stocking hours

(ii) Calculation of total cost of products using Activity Based Costing

Particulars Fruit Juices
Apple (`) Orange (`) Mixed Fruit (`)
Material cost 80,000 90,000 1,00,000
Direct labour cost (10,000 x ` 8) (15,000 x ` 6) (20,000 x ` 5)
50,000 60,000 60,000
(10,000 x ` 5) (15,000 x ` 4) (20,000 x ` 3)
Prime Cost (A 1,30,000 1,50,000 1,60,000
Ordering cost 27,200 25,600 11,200
(800 x 34) (800 x 32) (800 x 14)

5.26
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

77,000 44,800 36,400

Shelf stocking cost (700 x 110) (700 x 64) (700 x 52)
21,890 31,840 33,830
(199 x 110) (199 x 160) (199 x 170)
Overhead Cost (B) 1,26,090 1,02,240 81,430
Total Cost (A + B) 2,56,090 2,52,240 2,41,430

PYQ JAN 21 (10 MARKS) Q. 4B

ABC Ltd. manufactures three products X, Y and Z using the same plant and resources. It has
given the following information for the year ended on 31st March, 2020:
X Y Z
Production Quantity (units) Cost per unit: 1200 1440 1968
Direct Material (`) 90 84 176

l
Direct Labour (`) 18 20 30

a
Budgeted direct labour rate was ` 4 per hour and the production overheads, shown in table below,

h
were absorbed to products using direct labour hour rate. Company followed Absorption Costing

c
Method. However, the company is now considering adopting Activity Based Costing Method.

n
Budgeted Overheads Cost Driver Remarks

a
(`)

P
Material Procurement 50,000 No. of orders No. of orders was 25

l
units for each product.

u
Set-up 40,000 No. of production All the three products are

h
Runs produced in production

a
runs of 48 units.

R
Quality Control 28,240 No. of Inspections Done for each
production run.

A
Maintenance 1,28,000 Maintenance Total maintenance hours

C
hours were 6,400 and was
allocated in the ratio of
1:1:2 between X, Y & Z.
Required:
1. Calculate the total cost per unit of each product using the Absorption Costing Method.
2. Calculate the total cost per unit of each product using the Activity Based Costing Method.

ANSWER :
1. Traditional Absorption Costing
X Y Z Total
(a) Quantity (units) 1,200 1,440 1,968 4608
(b) Direct labour per unit (`) 18 20 30 -
(c) Direct labour hours (a × b)/` 4 5,400 7,200 14,760 27,360

Overhead rate per direct labour hour:

= Budgeted overheads Budgeted labour hours
= (` 50,000 + ` 40,000 + ` 28,240 + ` 1,28,000)  27,360 hours
= ` 2,46,240  27,360 hours
= ` 9 per direct labour hour

5.27
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Unit Costs:
X Y Z
Direct Costs:
- Direct Labour (`) 18.00 20.00 30.00
- Direct Material (`) 90.00 84.00 176.00
Production Overhead: (`) 40.50 45.00 67.50

( 9 x 18
4 ( ( 9 x 20
4 ( ( 9 x 30
4 (
Total cost per unit (`) 148.50 149.00 273.50

2. Calculation of Cost-Driver level under Activity Based Costing

X Y Z Total
Quantity (units) 1,200 1,440 1,968 -

l
No. of orders (to be rounded 48 58 79 185

a
off for fraction) (1200 / 25) (1440 / 25) (1968 / 25)

h
No. of production runs 25 30 41 96

c
(1200 / 48) (1440 / 48) (1968 / 48)

n
No.of Inspections (done for 25 30 41 96

a
each production run)

P
Maintenance hours 1,600 1,600 3,200 6400

Calculation of Cost-Driver rate

u l
h
Activity Budgeted Cost Cost-driver level Cost Driver rate (`)

a
(`) (a) (b) (c) = (a) / (b)

R
Material procurement 50,000 185 270.27
Set-up 40,000 96 416.67

A
Quality control 28,240 96 294.17

C
Maintenance 1,28,000 6,400 20.00

Calculation of total cost of products using Activity Based Costing

Particulars Product
X (`) Y (`) Z (`)
Direct Labour 18.00 20.00 30.00
Direct Material 90.00 84.00 176.00
Prime Cost per 108.00 104.00 206.00
unit (A)
Material 10.81 10.89 10.85
procurement [(48 x 270.27)/1200] [(58 x 270.27)/1440] [(79 x 270.27)/1968]
Set-up 8.68 8.68 8.68
[(25 x 416.67)/1200] [(30 x 416.67)/ 1440] [(41 x 416.67)/ 1968]
Quality control 6.13 6.13 6.13
[(25 x 294.17)/1200] [(30 x 294.17)/ 1440] [(41 x 294.17)/ 1968]
Maintenance 26.67 22.22 32.52
[(1,600 x 20)/1200] [(1,600 x 20)/ 1440] [(3,200 x 20)/ 1968]
Overhead Cost 52.29 47.92 58.18
per unit (B)

5.28
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Total Cost per 160.29 151.92 264.18

unit (A + B)
Note: Question may also be solved assuming no. of orders for material procurement to be
25 for each product

PYQ JULY 21 (10 MARKS) Q. 3B

PQR Ltd. is engaged in the production of three products P, Q and R. The company calculates
Activity Cost Rates on the basis of Cost Driver capacity which is provided as below:
Activity Cost Driver Cost Driver Capacity Cost (`)
Direct Labour hours Labour hours 30,000 Labour hours 3,00,000
Production runs No. of Production runs 600 Production runs 1,80,000
Quality Inspections No. of Inspection 8000 Inspections 2,40,000
The consumption of activities during the period is as under:

l
Activity / Products P Q R

a
Direct Labour hours 10,000 8,000 6,000

h
Production runs 200 180 160

c
Quality Inspection 3,000 2,500 1,500

n
You are required to:

a
(i) Compute the costs allocated to each Product from each Activity.

P
(ii) Calculate the cost of unused capacity for each Activity.

l
(iii) A potential customer has approached the company for supply of 12,000 units of a new

u
product. 'S' to be delivered in lots of 1500 units per quarter. This will involve an initial

h
design cost of ` 30,000 and per quarter production will involve the following:

a
Direct Material ` 18,000

R
Direct Labour hours 1,500 hours
No. of Production runs 15

A
No. of Quality Inspection 250

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

ANSWER :
(i) Statement of cost allocation to each product from each activity
Product
P (`) Q (`) R (`) Total (`)
Direct Labour 1,00,000 80,000 60,000 2,40,000
hours (Refer to (10,000 Labour (8,000 Labour (6,000 Labour
working note) hours × `10) hours × `10) hours × `10)
Production 60,000 54,000 48,000 1,62,000
runs (Refer to (200 Production (180 Production (160 Production
working note) runs × ` 300) runs × ` runs × `
300) 300)
Quality 90,000 75,000 45,000 2,10,000
Inspections (3,000 (2,500 (1,500
(Refer to Inspections × Inspections × Inspections ×
working note) `30) ` 30) ` 30)

5.29
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Working note:
Rate per unit of cost driver
Direct Labour hours (`3,00,000/30,000 Labour ` 10 per Labour hour
hours)
Production runs (`1,80,000/600 Production ` 300 per Production run
runs)
Quality Inspection (` 2,40,000/8,000 ` 30 per Inspection
Inspections)

(ii) Computation of cost of unused capacity for each activity

Particulars (`)
Direct Labour hours [(` 3,00,000 – ` 2,40,000) or (6,000 x ` 10)] 60,000
Production runs [(` 1,80,000 – ` 1,62,000) or (60 x ` 300)] 18,000

l
Quality Inspection [(` 2,40,000 – ` 2,10,000) or (1,000 x ` 30)] 30,000

a
Total cost of unused capacity 1,08,000

(iii)

c h
Cost sheet and Computation of Sales value per quarter of product ‘S’ using ABC

n
system

a
Particulars (`)

P
1500 units of product ‘S’ to be delivered per quarter

l
Initial design cost per quarter (` 30,000 / 8 quarters) 3,750

u
Direct Material Cost 18,000

h
Direct Labour Cost (1,500 Labour hours x ` 10) 15,000

a
Direct Costs (A) 36,750

R
Set up Cost (15 Production runs × ` 300) 4,500
Inspection Cost (250 Inspections × ` 30) 7,500

A
Indirect Costs (B) 12,000

C
Total Cost (A + B) 48,750
Add: Mark-up (20% on cost) 9,750
Sale Value 58,500
Selling Price per unit ‘S’ (` 58,500/1500 units) 39

PYQ DEC 21 (10 MARKS) Q. 3B

A Drug Store is presently selling three types of drugs namely ‘Drug A’, ‘Drug B’ and ‘Drug C’. Due
to some constraints, it has decided to go for only one product line of drugs. It has provided the
following data for year 2020-21 for each product line:
Drugs Types
A B C
Revenues (in `) 74,50,000 1,11,75,000 1,86,25,000
Cost of goods sold (in `) 41,44,500 68,16,750 1,20,63,750
Number of purchase orders placed (in nos.) 560 810 630
Number of deliveries received 950 1,000 850
Hours of shelf-stocking time 900 1,250 2,350
Units sold (in Nos.) 1,75,200 1,50,300 1,44,500

5.30
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Following additional information is also provided:

Activity Description of activity Total Cost Cost-allocation base
(`)
Drug Licence fee Drug Licence fee 5,00,000 To be distributed in
ratio 2:3:5 between A,
B and C
Ordering Placing of orders for 8,30,000 2,000 purchase orders
purchases
Delivery Physical delivery and 18,20,000 2,800 deliveries
receipt of foods
Shelf stocking Stocking of goods 32,40,000 4,500 hours of shelf-
stocking time
Customer Support Assistance provided to 28,20,000 4,70,000 units sold

l
customers

You are required to:

h a
c
(i) Calculate the operating income and operating income as a percentage (%) of revenue of

n
each product line if:

a
(a) All the support costs (Other than cost of goods sold) are allocated in the ratio of cost

P
of goods sold.

l
(b) All the support costs (Other than cost of goods sold) are allocated using activity-

u
based costing system.

h
(ii) Give your opinion about choosing the product line on the basis of operating income as a

a
percentage (%) of revenue of each product line under both the situations as above.

ANSWER :
R
A
(i) (a) Statement of Operating income and Operating income as a percentage of revenues for

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

5.31
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Working notes:
1. Total support cost:
(`)
Drug Licence Fee 5,00,000
Ordering 8,30,000
Delivery 18,20,000
Shelf stocking 32,40,000
Customer support 28,20,000
Total support cost 92,10,000

2. Percentage of support cost to cost of goods sold (COGS):

a l
3. Cost for each activity cost driver:

c h
n
Activity Total cost (`) Cost allocation base Cost driver rate

a
(1) (2) (3) (4) = [(2) ÷ (3)]

P
Ordering 8,30,000 2,000 purchase orders ` 415 per purchase order

l
Delivery 18,20,000 2,800 deliveries ` 650 per delivery

u
Shelf-stocking 32,40,000 4,500 hours ` 720 per stocking hour

h
Customer support 28,20,000 4,70,000 units sold ` 6 per unit sold

a
(b) Statement of Operating income and Operating income as a percentage of revenues for each

R
product line
(When support costs are allocated to product lines using an activity-based costing system)

A
Drug A (`) Drug B (`) Drug C (`) Total (`)

C
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost & Goods sold 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Drug Licence Fee 1,00,000 1,50,000 2,50,000 5,00,000
Ordering cost* 2,32,400 3,36,150 2,61,450 8,30,000
(560:810:630)
Delivery cost* 6,17,500 6,50,000 5,52,500 18,20,000
(950:1000:850)
Shelf stocking cost* 6,48,000 9,00,000 16,92,000 32,40,000
(900:1250:2350)
Customer Support cost* 10,51,200 9,01,800 8,67,000 28,20,000
(175200:150300:144500)
Total cost: (B) 67,93,600 97,54,700 1,56,86,700 3,22,35,000
Operating income C: {(A) 6,56,400 14,20,300 29,38,300 50,15,000
- (B)}
Operating income as a % 8.81% 12.71% 15.78% 13.46%
of revenues

5.32
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(ii) Comparison on the basis of operating income as per the percentage (%) of revenue:
(a) When support costs are allocated to product lines on the basis of cost of goods sold
of each product
Drug A (`) Drug B (`) Drug C (`) Total (`)
Operating income as a 22.12% 14.60% 9.32% 13.46%
% of revenues
On comparing the operating income as a % of revenue of each product, Drug A is the most
profitable product line, though its revenue is least but with highest units sold.

(b) When support costs are allocated to product lines using an activity -based costing
system
Drug A (`) Drug B (`) Drug C (`) Total (`)
Operating income as a 8.81% 12.71% 15.78% 13.46%

l
% of revenues

a
On comparing the operating income as a % of revenue of each product, Drug C is the most

h
profitable product line, though its unit sold is least but with highest revenue.

PYQ MAY 22 (10 MARKS)

n c Q. 5A

a
Star Limited manufacture three products using the same production methods. A conventional

P
product costing system is being used currently. Details of the three products for a typical period

l
are:

u
Product Labour Hrs. per Machine Hrs. per Materials per Volume in Units

h
unit unit Unit 1

a
AX 1.00 2.00 35 7,500

R
BX 0.90 1.50 25 12,500
CX 1.50 2.50 45 25,000

A
Direct Labour costs ` 20 per hour and production overheads are absorbed on a machine hour

C
basis. The overhead absorption rate for the period is ` 30 per machine hour.
Management is considering using Activity Based Costing system to ascertain the cost of the
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
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 of No. of inspections
Materials
AX 350 200 200
BX 450 280 400
CX 740 675 900
Total 1,540 1,155 1,500
Required:
(i) Calculate the cost per unit for each product using the conventional method.

5.33
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

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

ANSWER :
(i) Statement showing “Cost per unit” using “conventional method”
Particulars of Costs AX BX CX
(`) (`) (`)
Direct Materials 35 25 45
Direct Labour 20 18 30
Production Overheads 60 45 75
Cost per unit 115 88 150
(ii) Statement Showing “Cost per unit using “Activity Based Costing”
Products AX BX CX
Production (units) 7,500 12,500 25,000

l
(`) (`) (`)

a
Direct Materials 2,62,500 3,12,500 11,25,000

h
Direct Labour 1,50,000 2,25,000 7,50,000

c
Machine Related Costs 45,000 56,250 1,87,500

Products AX

a nBX CX

P
Setup Costs 2,62,500 3,37,500 5,55,000

l
Material handling Cost 1,50,000 2,10,000 5,06,250

u
Inspection Costs 77,000 1,54,000 3,46,500

h
Total Costs 9,47,000 12,95,250 34,70,250

a
Cost per unit (Total Cost  Units) 126.267 103.62 138.81

R
Working Notes:
Calculation of Total Machine hours

A
Products AX BX CX

C
(A) Machine hours per unit 2 1.5 2.5
(B) Production (units) 7,500 12,500 25,000
(C) Total Machine hours (A× B) 15,000 18,750 62,500
Total Machine hours = 96,250
Total Production overheads = 96,250 × 30 = ` 28,87,500
Calculation of Cost Driver Rate
Cost Pool % Overheads (`) Cost Driver Cost Driver Cost Driver Rate
(Basis) (Units) (`)
Set up 40 11,55,000 No of set ups 1,540 750 per set up
Machine 10 2,88,750 Machine hours 96,250 3 per machine
Operation hour
Material 30 8,66,250 No of material 1,155 750 per material
Handling movement movement
Inspection 20 5,77,500 No of 1,500 385 per
inspection inspection

5.34
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

PYQ NOV 22 (4 MARKS) Q. 2C

XYZ Ltd. is engaged in manufacturing two products- Express Coffee and Instant Coffee. It furnishes
the following data for a year:
Product Actual Output Total Machine Total Number of Total Number of
(units) hours Purchase set ups
orders
Express Coffee 5,000 20,000 160 20
Instant Coffee 60,000 1,20,000 384 44
The annual overheads are as under:
Particulars `
Machine Processing costs 7,00,000
Set up related costs 7,68,000
Purchase related costs 6,80,000

l
You are required to:

a
(i) Compute the costs allocated to each product – Express Coffee and Instant Coffee from each

h
activity on the basis of Activity- Based Costing (ABC) method.

c
(ii) Find out the overhead cost per unit of each product – Express coffee and Instant coffee

n
based on (i) above.

ANSWER :

P a
l
(i) Estimation of Cost-Driver rate

u
Activity Overhead cost Cost-driver level Cost driver rate

h
(`) (`)

a
Machine processing 7,00,000 1,40,000 5

R
Machine hours
Set up Costs 7,68,000 64 12,000

A
Number of set

C
up
Purchase related Costs 6,80,000 544 1250
Number of
purchase order
Cost Allocation under Activity based Costing
Activity Express Coffee Instant Coffee
(`) (`)
Overhead Cost
Machine processing (Cost Driver 5 × 20,000 =1,00,000 5 × 1,20,000 = 6,00,000
rate - ` 5) (or 20,000:1,20,000)
Set up Costs (Cost Driver rate 12,000 × 20 = 2,40,000 12,000 × 44 = 5,28,000
- ` 12,000)) (or 20:44)
Purchase related Costs (Cost Driver 1,250 × 160 = 2,00,000 1,250 × 384 = 4,80,000
rate - ` 1250) (or 160:384)
Total overhead cost 5,40,000 16,08,000

5.35
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(ii) Overhead Cost per unit

Per unit Overhead cost (`) (`)
5,40,000 /5,000 108
16,08,000/60,000 26.80

PYQ MAY 23 (5 MARKS) Q. 4B

Beta Limited produces 50,000 Units, 45,000 Units and 62,000 Units of product 'A,' 'B' and 'C'
respectively. At present the company follows absorption costing method and absorbs overhead
on the basis of direct labour hours. Now, the company wants to adopt Activity Based Costing
The information provided by Beta Limited is follows:
Product A Product B Product C
Floor Space Occupied 5,000 Sq.Ft. 4,500 Sq.Ft. 6,200 Sq.Ft.
Direct Labour Hours 7,500 Hours 7,200 Hours 7,800 Hours

l
Direct Machine Hours 6,000 Hours 4,500 Hours 4,650 Hours

a
Power consumption 32% 28% 40%

h
Overhead for year are as follows:

c
`

n
Rent & Taxes 8,63,500

a
Electricity Expenses 10,66,475

P
Indirect labour 13,16,250

l
Repair & Maintenance 1,28,775

u
33,75,000

h
Required:

a
(i) Calculate the overhead rate per labour hour under Absorption Costing.

R
(ii) Prepare a cost statement showing overhead cost per unit for each product - 'A,' 'B' and 'C' as
per Activity based Costing.

ANSWER :
(i)
C A
Calculation of Overhead rate per hour

(ii) Statement showing overhead cost per unit as per Activity Based Costing
Product
Overheads Cost Driver Total A B C
` ` ` `
Rent & Taxes Floor space 8,63,500 2,75,000 2,47,500 3,41,000
(50:45:62)
Electricity Power Consumption 10,66,475 3,41,272 2,98,613 4,26,590
(32:28:40)
Indirect Labour hours 13,16,250 4,38,750 4,21,200 4,56,300
labour (75:72:78)
Repair & Machine hours 1,28,775 51,000 38,250 39,525
Maintenance (600:450:465)

5.36
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Total Cost 33,75,000 11,06,022 10,05,563 12,63,415

Units 50,000 45,000 62,000
Cost per Unit 22.12 22.35 20.38

PYQ NOV 23 (10 MARKS) Q. 4A

JH Plastics Limited manufactures three products S, M and L. To date, simple traditional absorption
costing system has been used to allocate overheads to products. Total production overheads
are allocated on the basis of machine hours. 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:
Total Cost Products
S M L

l
Units produced and sold 7,500 12,500 9,000

a
Direct material cost per unit (`) 158 179 250

h
Direct labour cost per unit (`) 40 45 60

c
Machine hours per unit 0.30 0.45 0.50

n
Number of Machine setups 120 120 160

a
Number of purchase orders 90 135 125

P
Number of inspections 100 160 140

l
The management wishes to introduce activity-based method (ABC) system of attributing

u
production overheads to products and has identified major cost pools for production overheads

h
and their associated cost drivers as follows:

a
Cost pool Amount Cost driver

R
Purchasing Department Cost ` 7,00,000 Number of Purchase orders
Machine setup Cost ` 9,00,000 Number of Machine setups

A
Quality Control Cost ` 6,56,000 Number of inspections

C
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 JH Plastics Limited;
(b) Activity based costing (ABC) 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

ANSWER :
(i) (a) Statement showing ‘Cost per unit & Selling price per unit – Traditional
Method’.
Particular Products
S (`) M (`) L (`)
Direct material cost per unit 158 179 250
Direct labour cost per unit 40 45 60
Production overhead @ ` 240 per 72 96 120
machine hour (` 240 x 0.3) (` 240 x 0.4) (` 240 x 0.5)
Cost per unit 270 320 430

5.37
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

Add: Profit @ 40% 108 128 172

Selling price per unit 378 448 602

(b) Statement showing ‘Cost per unit & Selling price per unit – Activity Based Costing’.
Particular Activity Total Products
Drivers Amount (`) S M L

Production - - 7500 12500 9000

(units)
Machine hours - - 2250 5000 4500
(7500 x 0.3) (12500 x (9000 x 0.5)
0.4)
(`) (`) (`)

l
Direct material 158 179 250

a
cost per unit (i)

h
Direct labour 40 45 60

c
cost per unit (ii)

n
Overheads

a
Purchasing Number of 7,00,000 1,80,000 2,70,000 2,50,000

P
department purchase

l
cost orders

u
(90:135:125)

h
Machine Number of 9,00,000 2,70,000 2,70,000 3,60,000

a
setup cost machine

R
(120:120:160) setups
Quality Number of 6,56,000 1,64,000 2,62,400 2,29,600

A
control cost inspections

C
(100:160:140)
Machining cost Machine 5,64,000 1,08,000 2,40,000 2,16,000
(225:500:450) hours
Total Overhead 7,22,000 10,42,400 10,55,600
Overhead Cost 96.27 83.39 117.29
per unit (iii)
Total Cost 294.27 307.39 427.29
per unit (i+ii+iii)
Add: Profit @ 117.71 122.96 170.92
40%
Selling price 411.98 430.35 598.21
per unit
Note: The question may also be solved by calculating cost driver rate & allocating various
cost based on cost driver rate. However, there will be no change in any of the answer.

5.38
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

(ii)
Particular Products
S (`) M (`) L (`)
Selling price per unit as per Traditional Costing 378 448 602
Selling price per unit as per Activity Based Costing 411.98 430.35 598.21
Difference (33.98) 17.65 3.79
Cost per unit 270 320 430
Product S is underpriced while product M and L is overpriced using Traditional costing
approach.

a l
c h
a n
l P
h u
R a
C A

5.39
ACTIVITY BASED COSTING
 TRP Sir
CA Rahul Panchal

06 COST SHEET

QUESTION 1. (ILLUSTRATION 1) 
The following data relates to the manufacture of a standard product during the month of April:
Particulars (`)
Raw materials ` 1,80,000
Direct wages ` 90,000
Machine hours worked (hours) 10,000
Machine hour rate (per hour) `8
Administration overheads (general) ` 35,000

l
Selling overheads (per unit) `5

a
Units produced 4,000

h
Units sold 3,600

c
Selling price per unit ` 125

n
You are required to PREPARE a cost sheet in respect of the above showing:

a
(i) Cost per unit

P
(ii) Profit for the month

QUESTION 2. (ILLUSTRATION 2) 

u l
h
The following information has been obtained from the records of ABC Corporation for the period

a
from June 1 to June 30.

R
Particulars On June 1 On June 30
(`) (`)

A
Cost of raw materials 60,000 50,000

C
Cost of work-in-process 12,000 15,000
Cost of stock of finished goods 90,000 1,10,000
Purchase of raw materials during June 2020 4,80,000
Wages paid 2,40,000
Factory overheads 1,00,000
Administration overheads (related to production) 50,000
Selling & distribution overheads 25,000
Sales 10,00,000

PREPARE a statement giving the following information:

(a) Raw materials consumed;
(b) Prime cost;
(c) Factory cost;
(d) Cost of goods sold; and
(e) Net profit.

6.1
COST SHEET
 TRP Sir
CA Rahul Panchal

QUESTION 3. (ILLUSTRATION 3) 
Arnav Inspat Udyog Ltd. has the following expenditures for the year ended 31st March 2023:
Sl. (`) (`)
No.
(i) Raw materials purchased 10,00,00,000
(ii) GST paid on the above purchases @18% (eligible for 1,80,00,000
input tax credit)
(iii) Freight inwards 11,20,600
(iv) Wages paid to factory workers 29,20,000
(v) Contribution made towards employees’
PF & ESIS 3,60,000
(vi) Production bonus paid to factory workers 2,90,000
(vii) Royalty paid for production 1,72,600

l
(viii) Amount paid for power & fuel 4,62,000

a
(ix) Amount paid for purchase of moulds and patterns

h
(life is equivalent to two years production) 8,96,000

c
(x) Job charges paid to job workers 8,12,000

n
(xi) Stores and spares consumed 1,12,000

a
(xii) Depreciation on:

P
Factory building 84,000

l
Office building 56,000

u
Plant & Machinery 1,26,000

h
Delivery vehicles 86,000 3,52,000

a
(xiii) Salary paid to supervisors 1,26,000

R
(xiv) Repairs & Maintenance paid for: Plant & Machinery 48,000
Sales office building 18,000

A
Vehicles used by directors 19,600 85,600

C
(xv) Insurance premium paid for:
Plant & Machinery 31,200
Factory building 18,100
Stock of raw materials & WIP 36,000 85,300
(xvi) Expenses paid for quality control check activities 19,600
(xvii) Salary paid to quality control staffs 96,200
(xviii) Research & development cost paid for improvement
in production process 18,200
(xix) Expenses paid for pollution control and engineering
& maintenance 26,600
(xx) Expenses paid for administration of factory work 1,18,600
(xxi) Salary paid to functional mangers:
Production control 9,60,000
Finance & Accounts 9,18,000
Sales & Marketing 10,12,000 28,90,000
(xxii) Salary paid to General Manager 12,56,000
(xxiii) Packing cost paid for:
Primary packing necessary to maintain quality 96,000
For re-distribution of finished goods 1,12,000 2,08,000

6.2
COST SHEET
 TRP Sir
CA Rahul Panchal

(xxiv) Interest and finance charges paid (for usage of non-

equity fund) 7,20,000
(xxv) Fee paid to auditors 1,80,000
(xxvi) Fee paid to legal advisors 1,20,000
(xxvii) Fee paid to independent directors 2,20,000
(xxviii) Performance bonus paid to sales staffs 1,80,000
(xxix) Value of stock as on 1st April, 2022:
Raw materials 18,00,000
Work-in-process 9,20,000
Finished goods 11,00,000 38,20,000
(xxx) Value of stock as on 31st March, 2023:
Raw materials 9,60,000
Work-in-process 8,70,000

l
Finished goods 18,00,000 36,30,000

a
Amount realized by selling of scrap and waste generated during manufacturing process – `

h
86,000/-

c
From the above data you are required to PREPARE Statement of cost for Arnav Ispat Udyog

n
Ltd. for the year ended 31st March, 2023, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of

a
Production, (iv) Cost of goods sold and (v) Cost of sales .

QUESTION 4. (PP1) 

l P
u
The books of Adarsh Manufacturing Company present the following data for the month of April:

h
Direct labour cost ` 17,500 being 175% of works overheads. Cost of goods sold excluding

a
administrative expenses ` 56,000.

R
Inventory accounts showed the following opening and closing balances:
April 1 (`) April 30 (`)

A
Raw materials 8,000 10,600

C
Work-in-progress 10,500 14,500
Finished goods 17,600 19,000

Other data are:

(`)
Selling expenses 3,500
General and administration expenses 2,500
Sales for the month 75,000
You are 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.

QUESTION 5. (PP2) 
From the following particulars, you are required to PREPARE monthly cost sheet of Aditya
Industries:
(`)
Opening Inventories:
- Raw materials 12,00,000

6.3
COST SHEET
 TRP Sir
CA Rahul Panchal

- Work-in-process 18,00,000
- Finished goods (10,000 units) 9,60,000
Closing Inventories:
- Raw materials 14,00,000
- Work-in-process 16,04,000
- Finished goods ?
Raw materials purchased 1,44,00,000
GST paid on raw materials purchased (ITC available) 7,20,000
Wages paid to production workers 36,64,000
Expenses paid for utilities 1,45,600
Office and administration expenses paid 26,52,000
Travelling allowance paid to office staffs 1,21,000
Selling expenses 6,46,000

l
Machine hours worked- 21,600 hours

a
Machine hour rate- ` 8.00 per hour

h
Units sold- 1,60,000

c
Units produced- 1,94,000

n
Desired profit- 15% on sales

QUESTION 6. (PP3) 

P a
l
A Ltd. Co. has capacity to produce 1,00,000 units of a product every month. Its works cost at

u
varying levels of production is as under:

h
Level Works cost per unit (`)

a
10% 400

R
20% 390
30% 380

A
40% 370

C
50% 360
60% 350
70% 340
80% 330
90% 320
100% 310
Its fixed administration expenses amount to `1,50,000 and fixed marketing expenses amount to
`2,50,000 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:
(a) it gives gift items costing ` 30 per unit of sale;
(b) it has lucky draws every month giving the first prize of ` 50,000; 2nd prize of ` 25,000,
3rd prize of ` 10,000 and three consolation prizes of ` 5,000 each to customers buying the
product.
(c) it spends `1,00,000 on refreshments served every month to its customers;
(d) it sponsors a television programme every week at a cost of ` 20,00,000 per month.
It can market 30% of its output at `550 per unit without incurring any of the expenses referred
to in (a) to (d) above.
PREPARE a cost sheet for the month showing total cost and profit at 30% and 100% capacity
level.

6.4
COST SHEET
 TRP Sir
CA Rahul Panchal

QUESTION 7. (PP4) 
The following figures are extracted from the Trial Balance of G.K Co. on 31st March:
Dr. Cr.
(`) (`)
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
Building 2,00,000
Sales 7,68,000
Sales Return and Rebates 14,000

l
Materials Purchased 3,20,000

a
Freight incurred on Materials 16,000

h
Purchase Returns 4,800

c
Direct employee cost 1,60,000

n
Indirect employee cost 18,000

a
Factory Supervision 10,000

P
Repairs and factory up-keeping expenses 14,000

l
Heat, Light and Power 65,000

u
Rates and Taxes 6,300

h
Miscellaneous Factory Expenses 18,700

a
Sales Commission 33,600

R
Sales Travelling 11,000
Sales Promotion 22,500

A
Distribution Deptt.—Salaries and Expenses 18,000

C
Office Salaries and Expenses 8,600
Interest on Borrowed Funds 2,000

Further details are available as follows:

(i) Closing Inventories:
Finished Goods 1,15,000
Raw Materials 1,80,000
Work-in-Process 1,92,000
(ii) Outstanding expenses on:
Direct employee cost 8,000
Indirect employee cost 1,200
Interest on Borrowed Funds 2,000
(iii) Depreciation to be provided on:
Office Appliances 5%
Plant and Machinery 10%
Buildings 4%
(iv) Distribution of the following costs:
Heat, Light and Power to Factory, Office and Distribution in the ratio
8 : 1 : 1.

6.5
COST SHEET
 TRP Sir
CA Rahul Panchal

Rates and Taxes two-thirds to Factory and one-third to Office.

Depreciation on Buildings 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 Profit and Loss
Statement of G.K Co. for the year ended 31st March along with supporting schedules of:
(i) Cost of Sales.
(ii) Selling and Distribution Expenses.
(iii) Administration Expenses

a l
c h
a n
l P
h u
R a
C A

6.6
COST SHEET
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
From the following figures, CALCULATE cost of production and profit for the month of March
2018.
Amount (`) Amount (`)
Stock on 1st March, 2018 Purchase of raw materials 28,57,000
- Raw materials 6,06,000 Sale of finished goods 1,34,00,000
- Finished goods 3,59,000 Direct wages 37,50,000
Stock on 31st March, 2018 Factory expenses 21,25,000

l
- Raw materials 7,50,000 Office and administration 10,34,000

a
expenses

h
- Finished goods 3,09,000 Selling and distribution 7,50,000

c
expenses

n
Work-in-process: Sale of scrap 26,000

a
- On 1st March, 2018 12,56,000

P
- On 31st March, 2018 14,22,000

RTP NOV 18

u l
h
From the following data of Arnav Metallic Ltd., CALCULATE Cost of production:

a
Amount (`)

R
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for inventories 26,000

A
(iii) Insurance premium paid for plant & machinery 96,000

C
(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 process 92,600
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the manufacturing 9,200
process
(xiv) Packing cost necessary to preserve the goods for further processing 10,200
(xv) Salary paid to Director (Technical) 8,90,000

6.7
COST SHEET
 TRP Sir
CA Rahul Panchal

RTP MAY 19

Following information relate to a manufacturing concern for the year ended 31 st March, 2019:
(`)
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 42,25,000
Freight Inwards 1,00,000
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

l
Distribution Expenses `16 per unit

a
Finished Stock (opening)- 1,217 Units 6,08,500

h
Sale of scrap of material 8,000

c
The firm produced 14,000 units of output during the year. The stock of finished goods at the end

n
of the year is valued at cost of production. The firm sold 14,153 units at a price of `618 per unit

a
during the year.

P
PREPARE cost sheet of the firm.

RTP NOV 19

u l
h
DFG Ltd. manufactures leather bags for office and school purpose. The following information is

a
related with the production of leather bags for the month of September 2019.

R
(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 of

A
leather sheets and 1,000 meter of cotton cloths are purchased at `3,20,000 and `15,000

C
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.
(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.

6.8
COST SHEET
 TRP Sir
CA Rahul Panchal

RTP MAY 20

From the following data of Arnav Metallic Ltd., CALCULATE Cost of production:
Amount (`)
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for plant & machinery 96,000
(iii) Raw materials purchased 64,00,000
(iv) Opening stock of raw materials 2,88,000
(v) Closing stock of raw materials 4,46,000
(vi) Wages paid 23,20,000
(vii) Value of opening Work-in-process 4,06,000
(viii) Value of closing Work-in-process 6,02,100
(ix) Quality control cost for the products in manufacturing process 86,000
(x) Research & development cost for improvement in production process 92,600

l
(xi) Administrative cost for:

a
- Factory & production 9,00,000

h
- Others 11,60,000

c
(xii) Amount realised by selling scrap generated during the manufacturing 9,200

n
process

a
(xiii) Packing cost necessary to preserve the goods for further processing 10,200

P
(xiv) Salary paid to Director (Technical) 8,90,000

RTP NOV 20

u l
h
The following details are available from the books of R Ltd. for the year ending 31st March 2020:

a
Particulars Amount (`)

R
Purchase of raw materials 84,00,000
Consumable materials 4,80,000

A
Direct wages 60,00,000

C
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

6.9
COST SHEET
 TRP Sir
CA Rahul Panchal

- Finished goods 14,40,000

Position of inventories as on 31-03-2020:
- 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 31 st March 2020.

RTP MAY 21

RTA Ltd. has the following expenditures for the year ended 31 st December, 2020:
Sl. Particulars Amount (`) Amount (`)
No.
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600

l
(iii) Wages paid to factory workers 25,20,000

a
(iv) Royalty paid for production 1,80,000

h
(v) Amount paid for power & fuel 3,50,000

c
(vi) Job charges paid to job workers 3,10,000

n
(vii) Stores and spares consumed 1,10,000

a
(viii) Depreciation on office building 50,000

P
(ix) Repairs & Maintenance paid for:

l
- Plant & Machinery 40,000

u
- Sales office building 20,000 60,000

h
(x) Insurance premium paid for:

a
- Plant & Machinery 28,200

R
- Factory building 18,800 47,000
(xi) Expenses paid for quality control check activities 18,000

A
(xii) Research & development cost paid for improvement in 20,000

C
production process
(xiii) Expenses paid for pollution control and engineering & 36,000
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 quality 46,000
- For re-distribution of finished goods 80,000 1,26,000
(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 1stJanuary, 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

6.10
COST SHEET
 TRP Sir
CA Rahul Panchal

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.

RTP NOV 21

Impact Ltd. provides you the following details of its expenditures for the year ended 31st March,
2021:
Sl. Particulars Amount (`) Amount (`)
No.
(i) Raw materials purchased 5,00,00,000
(ii) GST paid under Composition scheme 10,00,000

l
(iii) Freight inwards 5,20,600

a
(iv) Trade discounts received 10,00,000

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

c
(vi) Contribution made towards employees’ PF & ESIS 1,90,000

n
(vii) Production bonus paid to factory workers 1,50,000

a
(viii) Fee for technical assistance 1,12,000

P
(ix) Amount paid for power & fuel 2,62,000

l
(x) Job charges paid to job workers 4,50,000

u
(xi) Stores and spares consumed 1,10,000

h
(xii) Depreciation on:

a
Factory building 64,000

R
Office building 46,000
Plant & Machinery 86,000 1,96,000

A
(xiii) Salary paid to supervisors 1,20,000

C
(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 activities 25,000
(xvii) Research & development cost paid for improvement in
production process 48,200
(xviii) Expenses paid for administration of factory work 1,38,000
(xix) Salary paid to functional mangers:
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 quality 1,06,000
For re-distribution of finished goods 1,12,000 2,18,000

6.11
COST SHEET
 TRP Sir
CA Rahul Panchal

(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 online sales 1,80,000
(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

l
Work-in-process 2,50,000

a
Finished goods 11,90,000 20,00,000

h
Amount realized by selling of waste generated during manufacturing process – ` 66,000/-

c
From the above data, you are required to PREPARE Statement of cost of Impact Ltd. for the year

n
ended 31st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost

a
of goods sold and (v) Cost of sales.

RTP MAY 22

l P
u
A Ltd. produces a single product X. During the month of December 2021, the company has

h
produced 14,560 tonnes of X. The details for the month of December 2021 are as follows:

a
(i) Materials consumed ` 15,00,000

R
(ii) Power consumed 13,000 Kwh @ ` 7 per Kwh
(iii) Diesels consumed 1,000 litres @ ` 93 per litre

A
(iv) Wages & salary paid – ` 64,00,000

C
(v) Gratuity & leave encashment paid – ` 44,20,000
(vi) Hiring charges paid for HEMM- ` 13,00,000
(vii) Hiring charges paid for cars used for official purpose – ` 80,000
(viii) Reimbursement of diesel cost for the cars – ` 20,000
(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.

6.12
COST SHEET
 TRP Sir
CA Rahul Panchal

RTP NOV 22

CT Limited is engaged in producing medical equipment. It has furnished following details related
to its products produced during a month:
Units Amount (`)
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

l
R&D expenses & Quality control expenses 2,10,60,000

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

h
Administrative overheads related to production 3,15,00,000

c
Selling expenses 4,84,30,800

n
Royalty paid for production 3,64,50,000

a
Cost of web-site (for online sale) maintenance 60,75,000

P
Secondary packaging cost (per unit) 225

l
There was a normal scrap of 250 units of direct material which realized ` 5,400 per unit. The

u
entire finished product was sold at a profit margin of 20% on sales.

h
You are required to PREPARE a cost sheet showing:

a
(i) Prime cost

R
(ii) Gross works cost
(iii) Factory costs

A
(iv) Cost of production

C
(v) Profit
(vi) Sales

RTP MAY 23

From the following data of Motilal Ltd., CALCULATE Cost of production:
Particulars Amount (`)
(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 process 92,600
(xii) Administrative cost for:
- Factory & production 9,00,000

6.13
COST SHEET
 TRP Sir
CA Rahul Panchal

- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the manufacturing 9,200
process
(xiv) Packing cost necessary to preserve the goods for further processing 10,200
(xv) Salary paid to Director (Technical) 8,90,000

RTP NOV 23

A Ltd. produces a single product X. During the month of July 2023, the company has produced
14,560 tonnes of X. The details for the month of July 2023 are as follows:
(i) Materials consumed ` 15,00,000
(ii) Power consumed in operating production machinery 13,000 Kwh @ ` 7 per Kwh
(iii) Diesels consumed in operating production machinery 1,000 litres @ ` 93 per litre
(iv) Wages & salary paid – ` 64,00,000

l
(v) Gratuity & leave encashment paid – ` 44,20,000

a
(vi) Hiring charges paid for Heavy Earth Moving machines (HEMM) engaged in production - `

h
13,00,000. Hiring charges is paid on the basis of production.

c
(vii) Hiring charges paid for cars used for official purpose – ` 80,000

n
(viii) Reimbursement of diesel cost for the cars – ` 20,000

a
(ix) The hiring of cars attracts GST under RCM @5% without credit.

P
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the time of

l
despatch) – ` 7,000

u
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the time

h
of despatch) and factory premises is ` 6,000 and ` 18,000 per month respectively.

a
(xii) TA/ DA and hotel bill paid for sales manager- ` 16,000

R
(xiii) The company has 180 employees works for 26 days in a month. Required:
PREPARE a Cost sheet for the month of July 2023.

RTP MAY 24

C A
P Ltd. has gathered cost information from ledgers and other sources for the year ended 31st
December 2023. The information are tabulated below:
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

6.14
COST SHEET
 TRP Sir
CA Rahul Panchal

(xi) Expenses paid for quality control check activities 18,000

(xii) Research & development cost paid for improvement in 20,000
production process
(xiii) Expenses paid for pollution control and engineering & 36,000
maintenance
(xiv) Salary paid to Sales & Marketing managers 5,60,000
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
- Primary packing necessary to maintain quality 46,000
- For re-distribution of finished goods 80,000 1,26,000
(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 1stJanuary, 2023:

l
- Raw materials 10,00,000

a
- Work-in-process 8,60,000

h
- Finished goods 12,00,000 30,60,000

c
(xx) Value of stock as on 31stDecember, 2023:

n
- Raw materials 8,40,000

a
- Work-in-process 6,60,000

P
- Finished goods 10,50,000 25,50,000

u l
Amount realized by selling of scrap and waste generated during manufacturing process – `

h
48,000/-

a
The board meeting is scheduled to be held in next week and you being an associate to the chief

R
cost controller of the company, has been asked to PREPARE a cost sheet.

C A

6.15
COST SHEET
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (10 MARKS) Q. 2A
Following information relate to a manufacturing concern for the year ended 31 st March, 2018:
`
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 42,25,000
Freight Inwards 1,00,000
Direct wages paid 12,56,000

l
Direct wages-outstanding at the end of the year 1,50,000

a
Factory Overheads 20% of prime cost

h
Work-in-progress (opening) 1,92,500

c
Wo9rk-in-progres (closing) 1,40,700

n
Administrative Overheads (related to production) 1,73,000

a
Distribution Expenses ` 16 per unit

P
Finished Stock (opening)-1217 Units 6,08,500

l
Sale of scrap of material 8,000

u
The firm produced 14000 units of output during the year. The stock of finished goods at the end

h
of the year is valued at cost of production. The firm sold 14153 units at a price of ` 618 per unit

a
during the year.

R
Prepare cost sheet of the firm.

A
ANSWER :

C
Cost sheet for the year ended 31st March, 2018.
Units produced - 14,000 units
Units sold - 14,153 units
Particulars Amount (`)
Raw materials purchased 42,25,000
Add: Freight Inward 1,00,000
Add: Opening value of raw materials 2,28,000
Less: Closing value of raw materials (3,05,000)
42,48,000
Less: Sale of scrap of material 8,000
Materials consumed 42,40,000
Direct Wages (12,56,000 + 1,50,000) 14,06,000
Prime Cost 56,46,000
Factory overheads (20% of ` Prime Cost) 11,29,200
Add: Opening value of W-I-P 1,92,500
Less: Closing value of W-I-P (1,40,700)
Factory Cost 68,27,000

6.16
COST SHEET
 TRP Sir
CA Rahul Panchal

Add: Administrative overheads 1,73,000

Cost of Production 70,00,000
Add: Value of opening finished stock 6,08,500
Less: Value of closing finished stock
[` 500(70,00,000/14,000) × 1,064) (1,217+ 14,000 – 14,153 = 1,064 units) (5,32,000)
Cost of Goods Sold 70,76,500
Distribution expenses (` 16 × 14,153 units) 2,26,448
Cost of Sales 73,02,948
Profit (Balancing figure) 14,43,606
Sales (` 618 × 14,153 units) 87,46,554

PYQ NOV 18 (10 MARKS) Q. 2A

Following details are provided by M/s ZIA Private Limited for the quarter ending 30 September,

l
2018:

a
(i) Direct expenses ` 1,80,000

h
(ii) Direct wages being 175% of factory overheads ` 2,57,250

c
(iii) Cost of goods sold ` 18,75,000

n
(iv) Selling & distribution overheads ` 60,000

a
(v) Sales ` 22,10,000

P
(vi) Administration overheads are 10% of factory overheads

l
Stock details as per Stock Register:

u
Particulars 30.06.2018 30.09.2018

h
` `

a
Raw material 2,45,600 2,08,000

R
Work-in-progress 1,70,800 1,90,000
Finished goods 3,10,000 2,75,000

A
You are required to prepare a cost sheet showing:

C
(i) Raw material consumed
(ii) Prime cost
(iii) Factory cost
(iv) Cost of goods sold
(v) Cost of sales and profit

ANSWER :
Cost Sheet
for the quarter ending 30 September 2018)
Amount (`)
(i) Raw materials consumed
Opening stock of raw materials 2,45,600
Add: Purchase of materials 12,22,650*
Less: Closing stock of raw materials (2,08,000)
Raw materials consumed 12,60,250
Add: Direct wages (1,47,000×175%) 2,57,250
Direct Expenses 1,80,000
(ii) Prime cost 16,97,500
Add: Factory overheads (2,57,250/175%) 1,47,000

6.17
COST SHEET
 TRP Sir
CA Rahul Panchal

Gross Factory cost 18,44,500

Add: Opening work-in-process 1,70,800
Less: Closing work-in-process (1,90,000)
(iii) Factory cost 18,25,300
Add: Administration overheads (10% of factory overheads) 14,700
Add: Opening stock of finished goods 3,10,000
Less: Closing stock of finished goods (2,75,000)
(iv) Cost of goods sold 18,75,000
Add: Selling & distribution overheads 60,000
Cost of sales 19,35,000
(v) Net Profit 2,75,000
Sales 22,10,000
*(18,75,000 + 2,75,000 – 3,10,000 – (1,47,000 × 10%) + 1,90,000 –1,70,800 – (2,57,250

l
× 100/175%) - 1,80,000 – 2,57,250 + 2,08,000 – 2,45,600) = 12,22,650

a
Working notes

h
Purchase of raw materials = Raw material consumed + Closing stock - opening stock of raw

c
material

n
Raw material consumed = Prime cost - Direct wages - Direct expenses

a
Factory Overheads = 2,57,250*100/175

P
Prime cost = Factory cost + Closing WIP – Opening WIP – Factory overheads

l
Factory Cost = Cost of Production goods sold + Closing stock of Finished goods – Opening

u
stock of finished goods – Administrative overheads

h
Net Profit = Sales - Cost of sales

Alternative solution

R a Cost Sheet

A
(for the quarter ending 30 September 2018)

C
Amount (`)
(i) Raw materials consumed
Opening stock of raw materials 2,45,600
Add: Purchase of materials 12,37,350*
Less: Closing stock of raw materials (2,08,000)
Raw Material consumed 12,74,950
Add: Direct wages (1,47,000×175% 2,57,250
Direct Expenses 1,80,000
(ii) Prime cost 17,12,,200
Add: Factory overheads (2,57,250/175%) 1,47,000
Gross Factory cost 18,59,200
Add: Opening work-in-process 1,70,800
Less: Closing work-in-process (1,90,000)
(iii) Factory cost/works cost/cost of production 18,40,000
Add: Opening stock of finished goods 3,10,000
Less: Closing stock of finished goods (2,75,000)
(iv) Cost of goods sold 18,75,000
Add: Administration overheads (10% of factory overheads) 14,700

6.18
COST SHEET
 TRP Sir
CA Rahul Panchal

Add: Selling & distribution overheads 60,000

Cost of sales 19,49,700
(v) Net Profit 2,60,300
Sales 22,10,000
*(18,75,000 + 2,75,000 – 3,10,000 + 1,90,000 –1,70,800 – 1,47,500 - 1,80,000 –
2,57,250 + 2,08,000 – 2,45,600) = 12,37,350
Working notes
Purchase of raw materials = Raw material consumed + Closing stock - opening stock of raw
material
Raw material consumed = Prime cost - Direct wages - Direct expenses Factory Overheads
= 257250*100/175
Prime cost = Factory cost + Closing WIP – Opening WIP – Factory overheads
Factory Cost = Cost of Production goods sold + Closing stock of Finished goods – Opening

l
stock of finished goods

a
Net Profit = Sales - Cost of sales

PYQ MAY 19 (10 MARKS)

c h Q. 2A

n
M/s Areeba Private Limited has a normal production capacity of 36,000 units of toys per annum.

a
The estimated costs of production are as under:

P
(i) Direct Material ` 40 per unit

l
(ii) Direct Labour ` 30 per unit (subject to a minimum of ` 48,000 p.m.)

u
(iii) Factory Overheads

h
(a) Fixed ` 3,60,000 per annum

a
(b) Variable ` 10 per unit

R
(c) Semi-variable ` 1,08,000 per annum up to 50% capacity and additional
` 46,800 for every 20% increase in capacity or any part thereof.

A
(iv) Administrative Overheads ` 5, 18,400 per annum (fixed)

C
(v) Selling overheads are incurred at ` 8 per unit.
(vi) Each unit of raw material yields scrap which is sold at the rate of ` 5 per unit.
(vii) In year 2019, the factory worked at 50% capacity for the first three months but it was
expected that it would work at 80% capacity for the remaining nine months.
(viii) During the first three months, the selling price per unit was ` 145.
You are required to:
(i) Prepare a cost sheet showing Prime Cost, Works Cost, Cost of Production and Cost
of Sales.
(ii) Calculate the selling price per unit for remaining nine months to achieve the total annual
profit of ` 8,76,600.

6.19
COST SHEET
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Cost Sheet of M/s Areeba Pvt. Ltd. for the year 2019. Normal Capacity: 36,000 units p.a.
3 Months 9 Months
Particulars 4,500 Units 21,600 units
Amount Cost per Amount Cost per
(`) unit (`) (`) unit (`)
Direct material 1,80,000 8,64,000
Less: Scrap (22,500) (1,08,000)
Materials consumed 1,57,500 35 7,56,000 35
Direct Wages 1,44,000 32 6,48,000 30
Prime Cost 3,01,500 67 14,04,000 65
Factory overheads :
- Fixed 90,000 2,70,000

l
- Variable 45,000 2,16,000

a
- Semi variable 27,000 36 1,51,200 29.50

h
Works Cost 4,63,500 103 20,41,200 94.50

c
Add: Administrative overheads 1,29,600 28.80 3,88,800 18

n
Cost of Production 5,93,100 131.80 24,30,000 112.5

a
Selling Overheads 36,000 8 1,72,800 8

P
Cost of Sales 6,29,100 139.80 26,02,800 120.5

l
Working Notes:

u
1. Calculation of Costs

h
Particulars 4,500 units 21,600 units

a
AMOUNT (`) AMOUNT (`)

R
Material 1,80,000 (` 40 × 4,500 units) 8,64,000 (`40 × 21,600 units)
Wages 1,44,000 (Max. of ` 30 × 4,500 6,48,000 (21600 Units×30)

A
units = `1,35,000 and ` 48,000

C
× 3 months = `1,44,000)
Variable Cost 45,000 (`10 × 4,500 units) 2,16,000 (`10 × 21,600 units)
Semi-variable Cost

+46,800(for 20 % increase)
+23,400(for 10% increase)
Selling Overhead 36,000 (`8 × 4,500 units) 1,72,800(` 8 × 21,600 units)
Notes:
1. Alternatively scrap of raw material can also be reduced from Work cost.
2. Administrative overhead may be treated alternatively as a part of general overhead.
In that case, Works Cost as well as Cost of Production will be same i.e. ` 4,63,500 and
Cost of Sales will remain same as ` 6,29,100.
(ii) Calculation of Selling price for nine months period
Particulars Amount (`)
Total Cost of sales ` (6,29,100+26,02,800) 32,31,900
Add: Desired profit 8,76,600
Total sales value 41,08,500
Less: Sales value realised in first three months (`145 × 4,500 units) (6,52,500)
Sales Value to be realised in next nine months 34,56,000

6.20
COST SHEET
 TRP Sir
CA Rahul Panchal

No. of units to be sold in next nine months 21,600

Selling price per unit (` 34,56,000 ÷ 21,600 units) 160

PYQ NOV 19 (10 MARKS) Q. 3B

XYZ a manufacturing firm, has revealed following information for September ,2019:
1st September 30th September
(`) (`)
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 :
INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019
(`)

l
Consumable Stores and spares of factory 3,50,000

a
Research and development cost for process improvements 2,50,000

h
Quality control cost 2,00,000

c
Packing cost (secondary) per unit of goods sold 2

n
Lease rent of production asset 2,00,000

a
Administrative Expenses (General) 2,24,000

P
Selling and distribution Expenses 4,13,000

l
Finished goods (opening) Nil

u
Finished goods (closing) 5000 units

h
Defective output which is 4% of targeted production, realizes ` 61 per unit.

a
Closing stock is valued at cost of production (excluding administrative expenses)

R
Cost of goods sold, excluding administrative expenses amounts to ` 78,26,000.
Direct employees cost is 1/2 of the cost of material consumed.

A
Selling price of the output is ` 110 per unit. You are required to :

C
(i) Calculate the Value of material purchased
(ii) Prepare cost sheet showing the profit earned by the firm.

ANSWER :
Workings:
1. Calculation of Sales Quantity:
Particular Units
Production units 1,00,000
Less: Defectives (4%×1,00,000 units) 4,000
Less: Closing stock of finished goods 5,000
No. of units sold 91,000
2. Calculation of Cost of Production
Particular Amount (`)
Cost of Goods sold (given) 78,26,000
Add: Value of Closing finished goods 4,30,000

Cost of Production 82,56,000

6.21
COST SHEET
 TRP Sir
CA Rahul Panchal

3. Calculation of Factory Cost

Particular Amount (`)
Cost of Production 82,56,000
Less: Quality Control Cost (2,00,000)
Less: Research and Development Cost (2,50,000)
Add: Credit for Recoveries/Scrap/By-Products/ misc. income 2,44,000
(1,00,000 units × 4% × ` 61)
Factory Cost 80,50,000
4. Calculation of Gross Factory Cost
Particular Amount (`)
Cost of Factory Cost 80,50,000
Less: Opening Work in Process (2,00,000)
Add: Closing Work in Process 5,00,000

l
Cost of Gross Factory Cost 83,50,000

a
5. Calculation of Prime Cost

h
Particular Amount (`)

c
Cost of Gross Factory Cost 83,50,000

n
Less: Consumable stores & spares (3,50,000)

a
Less: Lease rental of production assets (2,00,000)

P
Prime Cost 78,00,000

l
6. Calculation of Cost of Materials Consumed & Labour cost

u
Let Cost of Material Consumed = M and Labour cost = 0.5M Prime Cost = Cost of Material

h
Consumed + Labour Cost 78,00,000 = M + 0.5M

a
M = 52,00,000

R
Therefore, Cost of Material Consumed = ` 52,00,000 and Labour Cost = ` 26,00,000
(i) Calculation of Value of Materials Purchased

A
Particular Amount (`)

C
Cost of Material Consumed 52,00,000
Add: Value of Closing stock 2,92,000
Less: Value of Opening stock (2,42,000)
Value of Materials Purchased 52,50,000

Cost Sheet
Sl. Particulars Total Cost
(`)
1. Direct materials consumed:
Opening Stock of Raw Material 2,42,000
Add: Additions/ Purchases [balancing figure as per 52,50,000
requirement (i)]
Less: Closing stock of Raw Material (2,92,000)
Material Consumed 52,00,000
2. Direct employee (labour) cost 26,00,000
3. Prime Cost (1+2) 78,00,000
4. Add: Works/ Factory Overheads
Consumable stores and spares 3,50,000
Lease rent of production asset 2,00,000

6.22
COST SHEET
 TRP Sir
CA Rahul Panchal

5. Gross Works Cost (3+4) 83,50,000

6. Add: Opening Work in Process 2,00,000
7. Less: Closing Work in Process (5,00,000)
8. Works/ Factory Cost (5+6-7) 80,50,000
9. Add: Quality Control Cost 2,00,000
10. Add: Research and Development Cost 2,50,000
11. Less: Credit for Recoveries/Scrap/By-Products/misc. (2,44,000)
income
12. Cost of Production (8+9+10-11) 82,56,000
13. Add: Opening stock of finished goods -
14. Less: Closing stock of finished goods (5000 Units) (4,30,000)
15. Cost of Goods Sold (12+13-14) 78,26,000
16. Add: Administrative Overheads (General) 2,24,000

l
17. Add: Secondary packing 1,82,000

a
18. Add: Selling Overheads& Distribution Overheads 4,13,000

h
19. Cost of Sales (15+16+17+18) 86,45,000

c
20. Profit 13,65,000

n
21. Sales 91,000 units@ ` 110 per unit 1,00,10,000

PYQ NOV 19 (10 MARKS)

P a Q. 5A

l
PJ Ltd manufactures hockey sticks. It sells the products at ` 500 each and makes a profit of `

u
125 on each stick. The Company is producing 5,000 sticks annually by using 50% of its machinery

h
capacity.

a
The cost of each stick is as under:

R
Direct Material ` 150
Direct Wages ` 50

A
Works Overhead ` 125 (50% fixed)

C
Selling Expenses ` 50 (25% variable)
The anticipation for the next year is that cost will go up as under:
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?

ANSWER :
Selling Price = ` 500
Profit = ` 125
No of Sticks = 5,000
Particular Current Year Next Year
(`) (`)
Direct Material 150 157.50
(150 + 5%)

6.23
COST SHEET
 TRP Sir
CA Rahul Panchal

Direct Wages 50 60
(50+20%)
Works Overheads 62.50 62.5
(125 × 50%)
Selling Expenses 12.50 12.5
(50 × 25%)
Total Variable Cost 275 292.50
Fixed Cost (62.5 × 5,000) = 3,12,500; (37.5 × 5,000) = 5,00,000 5,50,000
1,87,500
Let: Lowest Price Quoted = K
Now, Sales = Target Profit (5,000 units × ` 125) + Variable Cost + Fixed Cost
Or, = (5,000 × 500) + (2,000 × K) = 6,25,000 + 20,47,500 + 5,50,000
Or, K = ` 361.25

l
So, Lowest Price that can be quoted to earn the profit of ` 6,25,000 (same as current year) is `

a
361.25

PYQ NOV 20 (10 MARKS)

c h Q. 2A

n
X Ltd. manufactures two types of pens 'Super Pen' and 'Normal Pen'. The cost data for the year

a
ended 30th September, 2019 is as follows:

P
(`)

l
Direct Materials 8,00,000

u
Direct Wages 4,48,000

h
Production Overhead 1,92,000

a
Total 14,40,000

R
It is further ascertained that :
(1) Direct materials cost in Super Pen was twice as much of direct material in Normal Pen.

A
(2) Direct wages for Normal Pen were 60% of those for Super Pen.

C
(3) Production overhead per unit was at same rate for both the types.
(4) Administration overhead was 200% of direct labour for each.
(5) Selling cost was ` 1 per Super pen.
(6) Production and sales during the year were as follow :
Production Sales
No. of units No. of units
Super Pen 40,000 Super Pen 36,000
Normal Pen 1,20,000
(7) Selling price was ` 30 per unit for Super Pen.

Prepare a Cost Sheet for 'Super Pen' showing:

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

6.24
COST SHEET
 TRP Sir
CA Rahul Panchal

ANSWER :
Preparation of Cost Sheet for Super Pen
No. of units produced = 40,000
units No. of units sold = 36,000 units
Particulars Per unit (`) Total (`)
Direct materials (Working note- (i)) 8.00 3,20,000
Direct wages (Working note- (ii)) 4.00 1,60,000
Prime cost 12.00 4,80,000
Production overhead (Working note- (iii)) 1.20 48,000
Factory Cost 13.20 5,28,000
Administration Overhead* (200% of direct wages) 8.00 3,20,000
Cost of production 21.20 8,48,000
Less: Closing stock (40,000 units – 36,000 units) - (84,800)

l
Cost of goods sold i.e. 36,000 units 21.20 7,63,200

a
Selling cost 1.00 36,000

h
Cost of sales/ Total cost 22.20 7,99,200

c
Profit 7.80 2,80,800

n
Sales value (` 30 × 36,000 units) 30.00 10,80,000

a
Working Notes:

P
(i) Direct material cost per unit of Normal pen = M

l
Direct material cost per unit of Super pen = 2M

u
Total Direct Material cost = 2M × 40,000 units + M × 1,20,000 units

h
Or, ` 8,00,000 = 80,000 M + 1,20,000 M

a
Or, M

R

Therefore, Direct material Cost per unit of Super pen = 2 × ` 4 = ` 8

A
(ii) Direct wages per unit for Super pen =W

C
Direct wages per unit for Normal Pen = 0.6W
So, (W x 40,000) + (0.6W x 1,20,000) = ` 4,48,000
W = ` 4 per unit

Production overhead for Super pen = ` 1.20 × 40,000 units = ` 48,000

* Administration overhead is specific to the product as it is directly related to direct labour as
mentioned in the question and hence to be considered in cost of production only.
Assumption: It is assumed that in point (1) and (2) of the Question, direct materials cost and
direct wages respectively is related to per unit only.
Note: Direct Material and Direct wages can be calculated in alternative ways.

PYQ JAN 21 (10 MARKS) Q. 2B

The following data are available from the books and records of Q Ltd. for the month of April
2020
Direct Labour Cost = ` 1,20,000 (120% of Factory Overheads)
Cost of Sales = ` 4,00,000
Sales = ` 5,00,000

6.25
COST SHEET
 TRP Sir
CA Rahul Panchal

Accounts show the following figures:

1st April, 2020 30th April, 2020
(`) (`)
Inventory:
Raw material 20,000 25,000
Work-in-progress 20,000 30,000
Finished goods 50,000 60,000
Other details:
Selling expenses 22,000
General & Admin. expenses 18,000
You are required to prepare a cost sheet for the month of April 2020 showing:
(i) Prime Cost
(ii) Works Cost

l
(iii) Cost of Production

a
(iv) Cost of Goods sold

h
(v) Cost of Sales and Profit earned.

ANSWER :

n c
a
Cost Sheet for the Month of April 2020

P
Particulars (`)

l
Opening stock of Raw Material 20,000

u
Add: Purchases [Refer Working Note-2] 1,65,000

h
Less: Closing stock of Raw Material (25,000)

a
Raw material consumed 1,60,000

R
Add: Direct labour cost 1,20,000
Prime cost 2,80,000

A
Add: Factory overheads 1,00,000

C
Gross Works cost 3,80,000
Add: Opening work-in-progress 20,000
Less: Closing work-in-progress (30,000)
Works Cost 3,70,000
Cost of Production 3,70,000
Add: Opening stock of finished goods 50,000
Less: Closing stock of finished goods (60,000)
Cost of goods sold 3,60,000
Add: General and administration expenses* 18,000
Add: Selling expenses 22,000
Cost of sales 4,00,000
Profit {Balancing figure (` 5,00,000 – ` 4,00,000)} 1,00,000
Sales 5,00,000
*General and administration expenses have been assumed as not relating to the production
activity

6.26
COST SHEET
 TRP Sir
CA Rahul Panchal

Working Note:
1. Computation of the raw material consumed
Particulars (`)
Cost of Sales 4,00,000
Less: General and administration expenses (18,000)
Less: Selling expenses (22,000)
Cost of goods sold 3,60,000
Add: Closing stock of finished goods 60,000
Less: Opening stock of finished goods (50,000)
Cost of production/Gross works cost 3,70,000
Add: Closing stock of work-in-progress 30,000
Less: Opening stock of work-in-progress (20,000)
Works cost 3,80,000

Less: Factory overheads

a l (1,00,000)

h
Prime cost 2,80,000

c
Less: Direct labour (1,20,000)

n
Raw material consumed 1,60,000

2. Computation of the raw material purchased

P a
Particulars

u l (`)

h
Closing stock of Raw Material 25,000

a
Add: Raw Material consumed 1,60,000

R
Less: Opening stock of Raw Material (20,000)
Raw Material purchased 1,65,000

C A
PYQ JAN 21 (10 MARKS) Q. 3B
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:
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.

6.27
COST SHEET
 TRP Sir
CA Rahul Panchal

(2) Given the above scenario, advise whether company should accept an offer to sell each Toy
at:
(a) ` 130 per Toy
(b) ` 129 per Toy

ANSWER :
(1) Statement of Cost
For first 6 For further 3 For remaining Total
months months 3 months
6,00,000 x 6,00,000 x 6,00,000 x
6/12 x 50% 3/12 x 75% 3/12
= 1,50,000 = 1,12,500 = 1,50,000 4,12,500
units units units units

l
Direct Material 90,00,000 67,50,000 90,00,000 2,47,50,000

a
Direct labour 45,00,000 33,75,000 45,00,000 1,23,75,000

h
Indirect – Variable 22,50,000 16,87,500 22,50,000 61,87,500

c
Expenses

n
Indirect – Fixed Expenses 32,75,000 16,37,500 16,37,500 65,50,000

a
Indirect Semi-

P
variable expenses

l
- For first six months @ 2,50,000

u
5,00,000 per annum

h
- For further three 1,62,500

a
months @ 6,50,000*

R
per annum
- For further three 2,12,500 6,25,000

A
months @ 8,50,000**

C
per annum
Total Cost 1,92,75,000 1,36,12,500 1,76,00,000 5,04,87,500
Desired Profit 25,00,000
Sales value 5,29,87,500
Average Sales price per Toy 128.45
* ` 5,00,000+ [3 times (from 60% to 75%) x 50,000] = ` 6,50,000
** ` 6,50,000+ [1 time (from 75% to 80%) x 50,000] + [2 times (from 80% to 100%)
× 75,000] = ` 8,50,000
(2) (a) Company Should accept the offer as it is above its targeted sales price of
` 128.45 per toy.
(b) Company Should accept the offer as it is above its targeted sales price of
` 128.45 per toy.

6.28
COST SHEET
 TRP Sir
CA Rahul Panchal

PYQ JULY 21 (10 MARKS) Q. 2A

The following data relates to manufacturing of a standard product during the month of March,
2021:
Particulars Amount (in `)
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

l
Expenses for participation in Industrial exhibition 8,000

a
Legal charges 2,500

h
Salary to office staff 25,000

c
Maintenance of office building 2,000

n
Depreciation on Delivery van 6,000

a
Warehousing charges 1,500

P
Stock of Raw material as on 31-03-2021 30,000

l
Stock of Work in Progress as on 31-03-2021 24,000

u
• Store overheads on materials are 10% of material consumed.

h
• Factory overheads are 20% of the Prime cost.

a
• 10% of the output was rejected and a sum of ` 5,000 was realized on sale of scrap.

R
• 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

A
wages.

C
• 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

ANSWER :
Particulars Amount Amount
(`) (`)
(i) Cost of Material Consumed:
Raw materials purchased (` 2,00,000 – ` 40,000) 1,60,000
Carriage inwards 20,000
Add: Opening stock of raw materials 80,000
Less: Closing stock of raw materials (30,000) 2,30,000
Direct Wages 1,20,000
Direct expenses:
Cost of special drawing 30,000

6.29
COST SHEET
 TRP Sir
CA Rahul Panchal

Hire charges paid for Plant 24,000 54,000

(ii) Prime Cost 4,04,000
Carriage on return 6,000
Store overheads (10% of material consumed) 23,000
Factory overheads (20% of Prime cost) 80,800
Additional expenditure for rectification of
defective products (refer working note) 2,160 1,11,960
Gross factory cost 5,15,960
Add: Opening value of W-I-P 50,000
Less: Closing value of W-I-P (24,000)
(iii) Works/ Factory Cost 5,41,960
Less: Realisable value on sale of scrap (5,000)
(iv) Cost of Production 5,36,960

l
Add: Opening stock of finished goods -

a
Less: Closing stock of finished goods -

h
Cost of Goods Sold 5,36,960

c
Administrative overheads:

n
Maintenance of office building 2,000

a
Salary paid to Office staff 25,000

P
Legal Charges 2,500 29,500

l
Selling overheads:

u
Expenses for participation in Industrial exhibition 8,000 8,000

h
Distribution overheads:

a
Depreciation on delivery van 6,000

R
Warehousing charges 1,500 7,500
(v) Cost of Sales 5,81,960

C A Alternative Solution
(considering Hire charges paid for Plant as indirect expenses)
Statement of Cost for the month of March, 2021
Particulars Amount Amount
(`) (`)
Cost of Material Consumed:
Raw materials purchased (` 2,00,000 – ` 40,000) 1,60,000
Carriage inwards 20,000
Add: Opening stock of raw materials 80,000
Less: Closing stock of raw materials (30,000) 2,30,000
Direct Wages 1,20,000
Direct expenses:
Cost of special drawing 30,000 30,000
Prime Cost 3,80,000
Hire charges paid for Plant 24,000
Carriage on return 6,000
Store overheads (10% of material consumed) 23,000
Factory overheads (20% of Prime cost) 76,000

6.30
COST SHEET
 TRP Sir
CA Rahul Panchal

Additional expenditure for rectification of defective

products
(refer working note) 2,160 1,31,160
Gross factory cost 5,11,160
Add: Opening value of W-I-P 50,000
Less: Closing value of W-I-P (24,000)
Works/ Factory Cost 5,37,160
Less: Realisable value on sale of scrap (5,000)
Cost of Production 5,32,160
Add: Opening stock of finished goods -
Less: Closing stock of finished goods -
Cost of Goods Sold 5,32,160
Administrative overheads:

l
Maintenance of office building 2,000

a
Salary paid to Office staff 25,000

h
Legal Charges 2,500 29,500

c
Selling overheads:

n
Expenses for participation in Industrial exhibition 8,000 8,000

a
Distribution overheads:

P
Depreciation on delivery van 6,000

l
Warehousing charges 1,500 7,500

u
Cost of Sales 5,77,160

h
Working Notes:

a
1. Number of Rectified units

R
Total Output 8,000 units
Less: Rejected 10% 800 units

A
Finished product 7,200 units

C
Rectified units (10% of finished product) 720 units
2. Proportionate additional expenditure on 720 units
= 20% of proportionate direct wages
= 0.20 x (` 1,20,000/8,000) x 720
= ` 2,160

PYQ DEC 21 (10 MARKS) Q. 2A

G Ltd. manufactures leather bags for office and school purposes.
The following information is related with the production of leather bags for the month of
September, 2021.
(1) Leather sheets and cotton clothes are the main inputs and the estimated requirement per
bag is two metres of leather sheets and one metre of cott on cloth. 2,000 metre of leather
sheets and 1,000 metre of cotton cloths are purchased at
` 3,20,000 and ` 15,000 respectively. Freight paid on purchases is ` 8,500.
(2) Stitching and finishing need 2,000 man hours at ` 80 per hour
(3) Other direct costs of ` 10 per labour hour is incurred.
(4) G Ltd. have 4 machines at a total cost of ` 22,00,000. Machines have a life of 10 years
with a scrap value of 10% of the original cost. Depreciation is charged on a straight-line
method.

6.31
COST SHEET
 TRP Sir
CA Rahul Panchal

(5) The monthly cost of administration and sales office staffs are ` 45,000 and ` 72,000
respectively. G Ltd. pays ` 1,20,000 per month as rent for a 2,400 sq. feet factory premises.
The administrative and sales office occupies 240 sq. feet and 200 sq. feet respectively of
factory space.
(6) Freight paid on delivery of finished bags is ` 18,000.
(7) During the month, 35 kgs of scrap (cuttings of leather and cotton) are sold at ` 150 per kg.
(8) There are no opening and closing stocks of input materials. There is a finished stock of 100
bags in stock at the end of the month.
You are required to prepare a cost sheet in respect of above for the month of September 2021
showing:
(i) Cost of Raw Material Consumed
(ii) Prime Cost
(iii) Works/Factory Cost

l
(iv) Cost of Production

a
(v) Cost of Goods Sold

h
(vi) Cost of Sales

ANSWER :

n c
a
No. of bags manufactured = 1,000 units

P
Cost sheet for the month of September 2021

l
Particulars Total Cost Cost per unit

u
(`) (`)

h
1. Direct materials consumed:

a
- Leather sheets 3,20,000 320.00

R
- Cotton cloths 15,000 15.00
Add: Freight paid on purchase 8,500 8.50

A
(i) Cost of material consumed 3,43,500 343.50

C
2. Direct wages (`80 × 2,000 hours) 1,60,000 160.00
3. Direct expenses (`10 × 2,000 hours) 20,000 20.00
4. (ii) Prime Cost 5,23,500 523.50
5. Factory Overheads: Depreciation on machines 16,500 16.50
{(` 22,00,000 × 90%) ÷ 120 months}
Apportioned cost of factory rent 98,000 98.00
6. (iii) Works/ Factory Cost 6,38,000 638.00
7. Less: Realisable value of cuttings (`150×35 kg.) (5,250) (5.25)
8. (iv) Cost of Production 6,32,750 632.75
9. Add: Opening stock of bags 0
10. Less: Closing stock of bags (100 bags × (63,275)
`632.75)
11. (v) Cost of Goods Sold 5,69,475 632.75
12. Add: Administrative Overheads:
- Staff salary 45,000 50.00
- Apportioned rent for administrative office 12,000 13.33
13. Add: Selling and Distribution Overheads
- Staff salary 72,000 80.00
- Apportioned rent for sales office 10,000 11.11

6.32
COST SHEET
 TRP Sir
CA Rahul Panchal

- Freight paid on delivery of bags 18,000 20.00

14. (vi) Cost of Sales 7,26,475 807.19
Apportionment of Factory rent:
To factory building {(` 1,20,000 ÷ 2400 sq. feet) × 1,960 sq. feet} = ` 98,000
To administrative office {(` 1,20,000 ÷ 2400 sq. feet) × 240 sq. feet} = ` 12,000
To sale office {(` 1,20,000 ÷ 2400 sq. feet) × 200 sq. feet} = ` 10,000

PYQ MAY 22 (10 MARKS) Q. 3B

The following data are available from the books and records of A Ltd. for the month of April
2022:
Particulars Amount (`)
Stock of raw materials on 1st April 2022 10,000
Raw materials purchased 2,80,000

l
Manufacturing wages 70,000

a
Depreciation on plant 15,000

h
Expenses paid for quality control check activities 4,000

c
Lease Rent of Production Assets 10,000

n
Administrative Overheads (Production) 15,000

a
Expenses paid for pollution control and engineering & maintenance 1,000

P
Stock of raw materials on 30th April 2022 40,000

l
Primary packing cost 8,000

u
Research & development cost (Process related) 5,000

h
Packing cost for redistribution of finished goods 1,500

a
Advertisement expenses 1,300

R
Stock of finished goods as on 1st April 2022 was 200 units having a total cost of ` 28,000. The
entire opening stock of finished goods has been sold during the month.

A
Production during the month of April, 2022 was 3,000 units. Closing stock of finished goods as

C
on 30th April, 2022 was 400 units.
You are required to:
I. Prepare a Cost Sheet for the above period showing the:
(i) Cost of Raw Material consumed
(ii) Prime Cost
(iii) Factory Cost
(iv) Cost of Production
(v) Cost of goods sold
(vi) Cost of Sales
II. Calculate selling price per unit, if sale is made at a profit of 20% on sales.

ANSWER :
I. Statement of Cost (for the month of April, 2022)
S. No. Particulars Amount (`) Amount (`)
Opening stock of Raw material 10,000
Add: Purchase of Raw material 2,80,000
Less: Closing stock of raw materials (40,000)
(i) Raw material consumed 2,50,000
Manufacturing wages 70,000

6.33
COST SHEET
 TRP Sir
CA Rahul Panchal

(ii) Prime Cost 3,20,000

Factory/work overheads:
Depreciation on plant 15,000
Lease rent of production Asset 10,000
Expenses paid for pollution control and
engineering & Maintenance 1,000 26,000
(iii) Factory/Work Cost 3,46,000
Expenses paid for quality control check
activity 4,000
Research and Development Cost 5,000
Administration Overheads (Production) 15,000
Primary Packing Cost 8,000
(iv) Cost of Production 3,78,000

l
Add: Opening stock of finished goods 28,000

a
Less: Closing stock of finished goods (50,400)

h
(v) Cost of Goods Sold 3,55,600

c
Advertisement expenses 1,300

n
Packing cost for re-distribution of

a
finished goods sold 1,500

P
(vi) Cost of Sales 3,58,400

l
Note: Valuation of Closing stock of finished goods

h u
a
= `50,400

R
II. Cost per unit sold

A


C
Selling Price

PYQ NOV 22 (5 MARKS) Q. 1A

A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey Pox,
Covid-19 and Chickenpox. A distributor had given an order for 1,600 Monkey Pox Vaccines. The
company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox vaccines, the
following costs would be incurred:
Direct Materials 4,250
Direct wages 500
Lab set-up cost 1,400
The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total
production cost is charged in each batch for Selling, distribution and administration Overheads.
The company is willing to earn profit of 25% on sales value.
You are required to determine:
(i) Total Sales value for 1,600 Monkey Pox Vaccines
(ii) Selling price per unit of the Vaccine.

6.34
COST SHEET
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) & (ii) Calculation of Sales value and Selling price per unit of Monkey Pox vaccine
Particulars Amount (`) Amount (`) for 1600 Amount (`)
per Batch units or 20 batches per unit
Direct materials 4,250 85,000 53.125
Direct wages 500 10,000 6.250
Lab set-up cost 1,400 28,000 17.500
Production overheads (20% of 100 2,000 1.250
direct wages)
Production Cost 6,250 1,25,000 78.125
Selling, distribution and 1,250 25,000 15.625
administration cost (20%
of Production cost)

l
Total Cost 7,500 1,50,000 93.75

a
Add: Profit (1/3rd of Total cost 2,500 50,000 31.25

h
or 25% of Sales

c
value)

n
Sales value 10,000 2,00,000 125.00

PYQ NOV 22 (10 MARKS)

P a Q. 4B

l
PNME Ltd. manufactures two types of masks- 'Disposable Masks' and ‘Cloth Masks'. The

u
cost data for the year ended 31stMarch, 2022 is as follows:

h
`

a
Direct Materials 12,50,000

R
Direct Wages 7,00,000
Production Overhead 4,00,000

A
Total 23,50,000

C
It is further ascertained that:
• Direct material cost per unit of Cloth Mask was twice as much of Direct material cost per
unit of Disposable Mask.
• Direct wages per unit for Disposable Mask were 60% of those for Cloth Mask.
• Production overhead per unit was at same rate for both the types of the masks.
• Administration overhead was 50% of Production overhead for each type of mask.
• Selling cost was ` 2 per Cloth Mask.
• Selling Price was ` 35 per unit of Cloth Mask.
• No. of units of Cloth Masks sold- 45,000
• No. of units of Production of
Cloth Masks: 50,000
Disposable Masks: 1,50,000
You are required to prepare a cost sheet for Cloth Masks showing:
(i) Cost per unit and Total Cost.
(ii) Profit per unit and Total Profit.

6.35
COST SHEET
 TRP Sir
CA Rahul Panchal

ANSWER :
Preparation of Cost Sheet for Cloth Masks
No. of units produced = 50,000
units No. of units sold = 45,000 units
Particulars Per unit (`) Total (`)
Direct materials (Working note- (i)) 10.00 5,00,000
Direct wages (Working note- (ii)) 5.00 2,50,000
Prime cost 15.00 7,50,000
Production overhead (Working note- (iii)) 2.00 1,00,000
Factory Cost 17.00 8,50,000
Administration Overhead* (50% of Production Overhead) 1.00 50,000
Cost of production 18.00 9,00,000
Less: Closing stock (50,000 units – 45,000 units) - (90,000)

l
Cost of goods sold i.e. 45,000 units 18.00 8,10,000

a
Selling cost 2.00 90,000

h
Cost of sales/ Total cost 20.00 9,00,000

c
Profit 15.00 6,75,000

n
Sales value (` 35 × 45,000 units) 35.00 15,75,000

a
Working Notes:

P
(i) Direct material cost per unit of Disposable Mask = M

l
Direct material cost per unit of Cloth Mask = 2M

u
Total Direct Material cost = 2M × 50,000 units + M × 1,50,000 units

h
Or, ` 12,50,000 = 1,00,000 M + 1,50,000 M

R a
Therefore, Direct material Cost per unit of Cloth Mask = 2 × ` 5 = ` 10

A
(ii) Direct wages per unit for Cloth Mask =W

C
Direct wages per unit for Disposable Mask = 0.6W
So, (W x 50,000) + (0.6W x 1,50,000) = ` 7,00,000
W = `5 per unit
Therefore, Direct material Cost per unit of Cloth Mask = ` 5

(iii) Production overhead per unit = =2

Production overhead for Cloth Mask = ` 2 × 50,000 units = ` 1,00,000

* Administration overhead is related to production overhead in the question and hence to
be considered in cost of production only.

PYQ MAY 23 (10 MARKS) Q. 3B

The following information is available from SN Manufacturing Limited's for the month of April
2023.
April 1 April 30
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

6.36
COST SHEET
 TRP Sir
CA Rahul Panchal

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 (necessary to maintain quality) ` 6920
Administrative Overhead ` 46,765
Salary and wages for supervisor and foremen ` 28,000

l
Other information:

a
• Opening stock of finished goods is to be valued at ` 8.05 per unit.

h
• During the month of April, 1,52,000 units were produced and 1,52,600 units were sold. The

c
closing stock of finished goods is to be valued at the relevant month's cost of production.

n
The company follows the FIFO method.

a
• Selling and distribution expenses are to be charged at 20 paisa per unit.

P
• Assume that one production cycle is completed in one month.

l
Required:

u
(i) Prepare a cost sheet for the month ended on April 30, 2023 , showing the various elements

h
of cost (raw material consumed, prime cost, factory cost, cost of production, cost of goods

a
sold, and cost of sales).

R
(ii) Calculate the selling price per unit if profit is charged at 20 percent on sales.

A
ANSWER :

C
Cost Sheet for the month of April 2023
Particulars Amount Amount
(`) (`)
Raw materials consumed:
Raw materials purchased 6,95,000
Add: Carriage inward 36,200
Add: Value of opening stock of raw materials 42,500
Less: Value of closing stock of raw materials (38,600) 7,35,100
Direct wages paid 3,22,800
Royalty paid for production 35,800
Amortised cost of special designs, moulds and patterns
(`153,600 ÷ 12) 12,800
Power, fuel and haulage (factory)* 70,600
Prime Cost* 11,77,100
Salary and wages of supervisor and foremen 28,000
Gross Works Cost 12,05,100
Add: Opening stock of WIP 42,500
Less: Closing stock of WIP (42,800)
Factory/ Works Cost 12,04,800

6.37
COST SHEET
 TRP Sir
CA Rahul Panchal

Research and development cost 31,680

Primary packing cost 6,920 38,600
Cost of Production 12,43,400
Add: Opening stock of finished goods (` 8.05 × 2,500 20,125
units)
Less: Value of closing stock [(2,500+152,000 -1,52,600) (15,542)
× (12,43,400÷152000)
Cost of Goods Sold 12,47,983
Add: Administrative overheads 46,765
Add: Selling and distribution expenses (` 0.20 × 30,520
1,52,600)
Cost of Sales 13,25,268
Add: Profit (20% on Sales or 25% on cost of sales) 3,31,317

l
Sales value 16,56,585

a
Selling price per unit (` 16,56,585 ÷ 1,52,600 units) 10.86

h
*May be taken as part of Factory / Works cost, however Total Factory Cost will remain the

c
same. If taken as part of factory cost then prime cost will be ` 11,06,500.

n
Alternative Solution (Based on work-in-progress figure of ` 45,500 as on 1st April 2023 as

a
per Hindi part of Question paper)

Particulars

l P Amount Amount

u
(`) (`)

h
Raw materials consumed:

a
Raw materials purchased 6,95,000

R
Add: Carriage inward 36,200
Add: Value of opening stock of raw materials 42,500

A
Less: Value of closing stock of raw materials (38,600) 7,35,100

C
Direct wages paid 3,22,800
Royalty paid for production 35,800
Amortised cost of special designs, moulds and patterns 12,800
(` 153,600 ÷ 12)
Power, fuel and haulage (factory)* 70,600
Prime Cost 11,77,100
Salary and wages of supervisor and foremen 28,000
Gross Works Cost 12,05,100
Add: Opening stock of WIP 45,500
Less: Closing stock of WIP (42,800)
Factory/ Works Cost 12,07,800
Research and development cost 31,680
Primary packing cost 6,920 38,600
Cost of Production 12,46,400
Add: Opening stock of finished goods (` 8.05 × 2,500 20,125
units)
Less: Value of closing stock [(2,500+1,52,000 (15,580)
-1,52,600) × (12,46,400÷1,52,000)
Cost of Goods Sold 12,50,945

6.38
COST SHEET
 TRP Sir
CA Rahul Panchal

Add: Administrative overheads 46,765

Add: Selling and distribution expenses (` 0.20 × 30,520
1,52,600)
Cost of Sales 13,28,230
Add: Profit (20% on Sales or 25% on cost of sales) 3,32,058
Sales value 16,60,288
Selling price per unit (` 16,60,288 ÷ 1,52,600 units) 10.88
May be taken as part of Factory / Works cost, however Total Factory Cost will remain the
same. If taken as part of factory cost then prime cost will be ` 11,06,500.

PYQ NOV 23 (10 MARKS) Q. 2A

The following data relates to the manufacture of product BXE for the year ended 31st March,2023:
Amount (`)

l
Value of stock as on 1st April,2022

a
Raw materials 27,00,000

h
Work in progress 10,60,000

c
Finished Goods 25,00,000

n
Material purchased 2,48,00,000

a
Freight inward 7,50,000

P
Direct wages 42,00,000

l
Power & Fuel 18,75,000

u
Cost of special drawings 3,60,000

h
Trade Discount 4,50,000

a
Insurance on material procured 15,000

R
Rent of Factory Building (1/5th used for office purpose) 7,00,000
Depreciation on machinery 6,25,000

A
Depreciation on Delivery Vans 1,20,000

C
Consumable stores and indirect wages 15,20,000
Quality Control cost 9,00,000
Primary packing cost 12,90,000
General Administrative overheads (excluding rent of building) 17,50,000
Salary paid to Marketing Staff 9,60,000
Packing cost for transportation 1,84,000
Value of stock as on 31st March, 2023
Raw materials 32,60,000
Work in progress 11,80,000
Finished Goods 28,38,000
Additional Information:
• Further, some of the finished product was found defective and the defective products were
rectified by incurring expenditure of additional factory overheads to the extent of ` 33,600.
The cost of rectification is not included in details mentioned above.
• An amount of ` 1,20,600 was realised by selling scrap and waste generated during the
year.
Prepare Cost sheet for the year ended 31stMarch, 2023 showing:
(i) Prime cost, (ii) Factory cost,
(iii) Cost of production. (iv) Cost of goods sold, and

6.39
COST SHEET
 TRP Sir
CA Rahul Panchal

(v) Cost of sales.

ANSWER :
Cost Sheet for the product BXE
Sl. Particulars (`) (`)
No.
(i) Material Consumed:
Raw materials purchased 2,48,00,000
Freight inwards 7,50,000
Insurance on material procured 15,000
Less: Trade discount (4,50,000)
Add: Opening stock of raw materials 27,00,000
Less: Closing stock of raw materials (32,60,000) 2,45,55,000

l
(ii) Direct wages 42,00,000

a
(iii) Direct expenses:

h
Power & fuel 18,75,000

c
Cost of special drawings 3,60,000 22,35,000

n
Prime Cost 3,09,90,000

a
(iv) Works/ Factory overheads:

P
Rent of factory building (4/5th of 7,00,000) 5,60,000

l
Depreciation on machinery 6,25,000

u
Defective rectification cost 33,600

h
Consumable stores & indirect wages 15,20,000 27,38,600

a
Gross works cost 3,37,28,600

R
Add: Opening work in process 10,60,000
Less: Closing work in process (11,80,000)

A
Factory cost 3,36,08,600

C
(v) Quality control cost 9,00,000
(vi) Primary packing cost 12,90,000
(vii) Less: Amount realised from scrap sale (1,20,600)
Cost of production 3,56,78,000
Add: Opening stock of finished goods 25,00,000
Less: Closing stock of finished goods (28,38,000)
Cost of Goods Sold 3,53,40,000
Administrative overheads:
(viii) Rent of factory building (1/5th of 7,00,000) 1,40,000
General administrative overheads 17,50,000
Selling and Distribution overheads:
(x) Salary paid to marketing staff 9,60,000
(xi) Packing cost for transportation 1,84,000
(xii) Depreciation on delivery vans 1,20,000
Cost of Sales 3,84,94,000
Alternatively, Power and fuel expenses of ` 18,75,000 can be taken as a part of factory overhead.
Accordingly, prime cost will be 2,91,15,000. However, there will be no change in factory cost,
cost of production, cost of goods sold and cost of sales.

6.40
COST SHEET
 TRP Sir
CA Rahul Panchal

PYQ NOV 23 (6 MARKS) Q. 5B

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
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.

ANSWER :

a l
h
Since 10% units are scrapped.

c
Units produced (total) is 14,000 (12,600/90%)

n
Calculation of cost of sales and profit

a
Particulars `

P
Raw Material (28,000 × ` 72) 20,16,000

l
Wages 8,82,000

u
Prime Cost 28,98,000

h
Factory overheads 7,05,600

a
Factory Cost 36,03,600

R
Sale of Scrap (1,400 × ` 45) (63,000)
Cost of Production 35,40,600

A
Less: Closing Stock of finished goods 2,24,800

Cost of goods sold C

Add: Administration overheads
33,15,800
4,72,000
Add: Selling & Distribution overheads (` 54 x 11,800) 6,37,200
Cost of Sales 44,25,000
Sales (11,800 × ` 416) 49,08,800
Profit 4,83,800

6.41
COST SHEET
 TRP Sir
CA Rahul Panchal

COST ACCOUNTING
07 SYSTEMS

QUESTION 1. (ILLUSTRATION 1) 
ABC Ltd. is a multiproduct company, manufacturing three products A, B and C. The budgeted
costs and production for the year ending 31st March are as follows:
Dr. Cr.
(`) (`)
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

l
Manufacturing Overhead Control A/c 10,525

a
Cost Ledger Control A/c 6,65,220

h
6,75,745 6,75,745

During the next three months the following items arose:

n c
a
(`)

P
Finished product (at cost) 2,10,835

l
Manufacturing Overhead incurred 91,510

u
Raw Materials purchased 1,23,000

h
Factory Wages 50,530

a
Indirect Labour 21,665

R
Cost of Sales 1,85,890
Material issued to production 1,27,315

A
Sales returned at Cost 5,380

C
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.

QUESTION 2. (ILLUSTRATION 2) 
Acme Manufacturing Co. Ltd. opens the costing records, with the balances as on 1st July as
follows:
Particulars (`) (`)
Material Control A/c 1,24,000
Work-in-Process Control A/c 62,500
Finished Goods Control A/c 1,24,000
Production Overhead Control A/c 8,400
Administrative Overhead Control A/c 12,000
Selling & Distribution Overhead Control A/c 6,250
Cost Ledger Control A/c 3,13,150
3,25,150 3,25,150

7.1
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

The following are the transactions for the quarter ended 30th September:
(`)
Materials purchased 4,80,100
Materials issued to jobs 4,77,400
Materials to works maintenance 41,200
Materials to administrative office 3,400
Materials to sales department 7,200
Wages Direct 1,49,300
Wages Indirect 65,000
Transportation for Indirect Materials 8,400
Production Overheads incurred 2,42,250
Absorbed Production Overheads 3,59,100
Administrative Overheads incurred 74,000

l
Administrative Overheads allocated to production 52,900

a
Administrative Overheads allocated to sales department 14,800

h
Selling & Distribution overheads incurred 64,200

c
Selling & Distribution overheads absorbed 82,000

n
Finished goods produced 9,58,400

a
Finished goods sold 9,77,300

P
Sales 14,43,000

l
Make up the various accounts as you envisage in the Cost Ledger and PREPARE a Trial Balance

u
as at 30th September.

QUESTION 3. (ILLUSTRATION 3) 

a h
R
JOURNALISE the following transactions assuming that cost and financial transactions are
integrated:

A
(`)

C
Raw materials purchased 2,00,000
Direct materials issued to production 1,50,000
Wages paid (30% indirect) 1,20,000
Wages charged to production 84,000
Manufacturing expenses incurred 84,000
Manufacturing overhead charged to production 92,000
Selling and Distribution costs 20,000
Finished products (at cost) 2,00,000
Sales 2,90,000
Closing stock Nil
Receipts from debtors 69,000
Payments to creditors 1,10,000

QUESTION 4. (ILLUSTRATION 4) 
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:
(`) (`)
Balances at the beginning of the month:

7.2
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Stores Ledger Control Account 25,000

Work-in-Process Control Account 20,000
Finished Goods Control Account 35,000
Prepaid Production Overheads brought forward from previous 3,000
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

l
To indirect workers 5,000 30,000

a
Direct wages charged to batches 20,000

h
Recorded non-productive time of direct workers 5,000

c
Selling and Distribution Overheads Incurred 6,000

n
Other Production Overheads Incurred 12,000

a
Sales 1,00,000

P
Cost of Finished Goods Sold 80,000

l
Cost of Goods completed and transferred into finished goods 65,000

u
during the month

h
Physical value of work-in-Process at the end of the month 40,000

R a
The production overhead absorption rate is 150% of direct wages charged to work- in-Process.
Required:

A
PREPARE the following accounts for the month:

C
(a) Stores Ledger Control Account.
(b) Work-in-Process Control Account.
(c) Finished Goods Control Account.
(d) Production Overhead Control Account.
(e) Costing Profit and Loss Account.

QUESTION 5. (ILLUSTRATION 5) 
A fire destroyed some accounting records of a company. You have been able to collect the
following from the spoilt papers/records and as a result of consultation with accounting staff for
the month of January:
(i) Incomplete Ledger Entries:
Materials Control A/c
(`) (`)
To Balance b/d 35,000

7.3
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Work-in-Process Control A/c

(`) (`)
To Balance b/d 9,200 By Finished Goods Control A/c 1,51,000

Payables (Creditors) A/c

(`) (`)
To Balance c/d 19,200 By Balance b/d 16,400

Manufacturing Overheads Control A/c

(`) (`)
To Bank A/c (Amount spent) 29,600

a l
ch
Finished Goods Control A/c
(`) (`)

n
To Balance b/d 24,000 By Balance c/d 30,000

P a
l
(ii) Additional Information:

u
(1) The bank-book showed that ` 89,200 have been paid to creditors for raw-material.

h
(2) Ending inventory of work-in-process included materials of ` 5,000 on which 300

a
direct labour hours have been booked against wages and overheads.

R
(3) The job card showed that workers have worked for 7,000 hours. The wage rate is ` 10
per labour hour.

A
(4) Overhead recovery rate was ` 4 per direct labour hour.

C
You are required to COMPLETE the above accounts in the cost ledger of the company.

QUESTION 6. (ILLUSTRATION 6) 
The following figures are available from the financial records of ABC Manufacturing Co. Ltd. for
the year ended 31st March.
(`)
Sales (20,000 units) 25,00,000
Materials 10,00,000
Wages 5,00,000
Factory Overheads 4,50,000
Administrative Overhead (production related) 2,60,000
Selling and Distribution Overheads 1,80,000
Finished goods (1,230 units) 1,50,000

(`) (`)
Work-in-Process:
Materials 30,000
Labour 20,000
Factory overheads 20,000 70,000

7.4
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Goodwill written off 2,00,000

Interest on loan taken 20,000

In the Costing records, factory overhead is charged at 100% of wages, administrative 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.

QUESTION 7. (ILLUSTRATION 7) 
Following are the figures extracted from the Cost Ledger of a manufacturing unit.
(`)
Stores:
Opening balance 15,000

l
Purchases 80,000

a
Transfer from WIP 40,000

h
Issue to WIP 80,000

c
Issue to repairs and maintenance 10,000

n
Sold as a special case at cost 5,000

a
Shortage in the year 3,000

P
Work-in-Process:

l
Opening inventory 30,000

u
Direct labour cost charged 30,000

h
Overhead cost charged 1,20,000

a
Closing Balance 20,000

R
Finished Products:
Entire output is sold at 10% profit on actual cost from Work-in- Process.

A
Others:

C
Wages for the period 35,000
Overhead Expenses 1,25,000
ASCERTAIN the profit or loss as per financial account and cost accounts and reconcile them.

QUESTION 8. (ILLUSTRATION 8) 
The following figures have been extracted from the Financial Accounts of a manufacturing firm
for the first year of its operation:
(`)
Direct Material Consumption 50,00,000
Direct Wages 30,00,000
Factory Overheads 16,00,000
General Administrative Overheads 7,00,000
Selling and Distribution Overheads 9,60,000
Bad 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

7.5
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

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 `
56,00,000. Factory overhead is recovered at 20% on prime cost. Administration overhead is
recovered at ` 6 per unit of goods sold. Selling and Distribution overheads are recovered at ` 8
per unit sold.
PREPARE the Profit and Loss Accounts both as per financial records and as per cost records.
RECONCILE the profits as per the two records.

QUESTION 9. (PP1) 
The following incomplete accounts are furnished to you for the month ended 31st October,
2022.

l
Stores Ledger Control Account

a
1.10.2022 To Balance ` 54,000

h
Work in Process Control Account

c
1.10. 2022 To Balance ` 6,000

n
Finished Goods Control Account

a
1.10. 2022 To Balance ` 75,000

P
Factory Overheads Control Account

l
Total debits for October, 2022 ` 45,000

u
Factory Overheads Applied Account

h
Cost of Goods Sold Account

a
Creditors for Purchases Account

R
1.10. 2022 By Balance ` 30,000

A
Additional information:

C
(i) The factory overheads are applied by using a budgeted rate based on direct labour hours.
The budget for overheads for 2022 is ` 6,75,000 and the budget of direct labour hours is
4,50,000.
(ii) The balance in the account of creditors for purchases on 31.10. 2022 is ` 15,000 and the
payments made to creditors in October, 2022 amount to ` 1,05,000.
(iii) The finished goods inventory as on 31st October, 2022 is ` 66,000.
(iv) The cost of goods sold during the month was ` 1,95,000.
(v) On 31st October, 2022 there was only one unfinished job in the factory. The cost records
show that ` 3,000 (1,200 direct labour hours) of direct labour cost and ` 6,000 of direct
material cost had been charged.
(vi) A total of 28,200 direct labour hours were worked in October, 2022. All factory workers
earn same rate of pay.
(vii) All actual factory overheads incurred in October, 2022 have been posted.
You are required to FIND:
(a) Materials purchased during October, 2022.
(b) Cost of goods completed in October, 2022.
(c) Overheads applied to production in October, 2022.
(d) Balance of Work-in-Process Control A/c on 31st October, 2022.
(e) Direct Materials consumed during October, 2022.

7.6
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

(f) Balance of Stores Ledger Control Account on 31st October, 2022.

(g) Over absorbed or under absorbed overheads for October, 2022.

QUESTION 10. (PP2) 

A company operates on historic job cost accounting system, which is not integrated with the
financial accounts. At the beginning of a month, the opening balances in cost ledger were:
(` in lakhs)
Stores Ledger Control Account 80
Work-in-Process Control Account 20
Finished Goods Control Account 430
Building Construction Account 10
Cost Ledger Control Account 540

l
During the month, the following transactions took place:

a
(` in lakh)

h
Materials Purchased 40

c
Issued to production 50

n
Issued to factory maintenance 6

a
Issued to building construction 4

P
Wages Gross wages paid 150

l
Indirect wages 40

u
For building construction 10

h
Works Overheads Actual amount incurred 160

a
(excluding items shown above)

R
Absorbed in building construction 20
Under absorbed 8

A
Royalty paid (related to production) 5

C
Selling, Distribution and Administration overheads 25
Sales 450
At the end of the month, the stock of raw material and work-in-Process was
` 55 lakhs and ` 25 lakhs respectively. The loss arising in the raw material accounts is treated
as factory overheads. The building under construction was completed during the month.
Company’s gross profit margin is 20% on sales.
PREPARE the relevant control accounts to record the above transactions in the cost ledger of
the company.

QUESTION 11. (PP3) 

Dutta Enterprises operates an Integral system of accounting. You are required to PASS the
Journal Entries for the following transactions that took place for the year ended 31st March.
(Narrations are not required.)
(`)
Raw Materials purchased (50% on Credit) 6,00,000
Materials issued to production 4,00,000
Wages paid (50% Direct) 2,00,000
Wages charged to production 1,00,000
Factory Overheads incurred 80,000

7.7
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Factory Overheads charged to production 1,00,000

Selling and Distribution Overheads incurred 40,000
Finished Goods at cost 5,00,000
Sales (50% Credit) 7,50,000
Closing stock Nil
Receipts from debtors 2,00,000
Payments to creditors 2,00,000

QUESTION 12. (PP4) 

The following information is available from the financial books of a company having a normal
production capacity of 60,000 units for the year ended 31st March:
(i) Sales ` 10,00,000 (50,000 units).
(ii) There was no opening and closing stock of finished units.

l
(iii) Direct Material and Direct Wages cost were ` 5,00,000 and ` 2,50,000 respectively.

a
(iv) Actual factory expenses were ` 1,50,000 of which 60% are fixed.

h
(v) Actual Administrative expenses were ` 45,000 which are completely fixed.

c
(vi) Actual Selling and Distribution expenses were ` 30,000 of which 40% are fixed.

n
(vii) Interest and dividends received ` 15,000. You are required to:

a
(a) FIND OUT profit as per financial books for the year ended 31st March;

P
(b) PREPARE the cost sheet and ascertain the profit as per cost accounts for the year

l
ended 31st March assuming that the indirect expenses are absorbed on the basis of

u
normal production capacity; and

h
(c) PREPARE a statement reconciling profits shown by financial and cost books.

QUESTION 12. (PP5) 

R a
M/s. H.K. Piano Company showed a net loss of ` 4,16,000 as per their financial accounts for the

A
year ended 31st March. The cost accounts, however, disclosed a net loss of ` 3,28,000 for the

C
same period. The following information were revealed as a result of scrutiny of the figures of
both the sets of books:
(`)
(i) Factory Overheads under-recovered 6,000
(ii) Administration Overheads over-recovered 4,000
(iii) Depreciation charged in financial accounts 1,20,000
(iv) Depreciation recovered in costs 1,30,000
(v) Interest on investment not included in costs 20,000
(vi) Income-tax provided 1,20,000
(vii) Transfer fees (credit in financial books) 2,000
(viii) Stores adjustment (credit in financial books) 2,000
PREPARE a Memorandum reconciliation account.

7.8
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
As of 31st March, 2018, the following balances existed in a firm’s cost ledger, which is
maintained separately on a double entry basis:
Debit (`) Credit (`)
Stores Ledger Control A/c 3,20,000 
Work-in-process Control A/c 1,52,000 
Finished Goods Control A/c 2,56,000 
Manufacturing Overhead Control A/c  28,000

l
Cost Ledger Control A/c  7,00,000

a
7,28,000 7,28,000

During the next quarter, the following items arose:

c h
n
(`)

a
Finished Product (at cost) 2,35,500

P
Manufacturing overhead incurred 91,000

l
Raw material purchased 1,36,000

u
Factory wages 48,000

h
Indirect labour 20,600

a
Cost of sales 1,68,000

R
Materials issued to production 1,26,000
Sales returned (at cost) 8,000

A
Materials returned to suppliers 11,000

C
Manufacturing overhead charged to production 86,000
Required:
PREPARE the Cost Ledger Control A/c, Stores Ledger Control A/c, Work-in-process 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 Balance at the end of the quarter as per costing records.

RTP NOV 18

The financial books of a company reveal the following data for the year ended 31 st March,
20X8:
Opening Stock: (`)
Finished goods 625 units 53,125
Work-in-process 46,000
01.04.20X7 to 31.03.20X8
Raw materials consumed 8,40,000
Direct Labour 6,10,000
Factory overheads 4,22,000
Administration overheads (Production related) 1,98,000
Dividend paid 1,22,000
Bad Debts 18,000

7.9
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Selling and Distribution Overheads 72,000

Interest received 38,000
Rent received 46,000
Sales 12,615 units 22,80,000
Closing Stock: Finished goods 415 units 45,650
Work-in-process 41,200
The cost records provide as under:
  Factory overheads are absorbed at 70% of direct wages.
  Administration overheads are recovered at 15% of factory cost.
  Selling and distribution overheads are charged at ` 3 per unit sold.
  Opening Stock of finished goods is valued at ` 120 per unit.
  The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.

Required:

a l
h
(i) PREPARE a statements for the year ended 31st March, 20X8. Show

c
 the profit as per financial records

n
 the profit as per costing records.

a
(ii) PREPARE a statement reconciling the profit as per costing records with the profit as per

P
Financial Records.

RTP MAY 19

u l
h
The following is the summarised Trading and Profit and Loss Account of XYZ Ltd. for the year

a
ended 31st March 2019:

R
Particulars Amount (`) Particulars Amount (`)
Direct Material 14,16,000 Sales (30,000 units) 30,00,000

A
Direct wages 7,42,000 Finished stock (2,000 units) 1,67,500

C
Works overheads 4,26,000 Work-in-progress:
Administration overheads 1,50,000 - Materials 34,000
Selling and distribution 1,65,000 - Wages 16,000
overheads
Net profit for the year 3,22,500 - Works overhead 4,000 54,000
32,21,500 32,21,500
The company’s cost records show that in course of manufacturing a standard unit (i) works
overheads have been charged @ 20% on prime cost, (ii) administration overheads are related with
production activities and are recovered at `5 per finished unit, and (iii) selling and distribution
overheads are recovered at `6 per unit sold.
You are required to PREPARE:
(i) Costing Profit and Loss Account indicating the net profits,
(ii) A Statement showing reconciliation between profit as disclosed by the Cost Accounts and
Financial Accounts.

7.10
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

RTP NOV 19

As of 30th September, 2019, the following balances existed in a firm’s cost ledger, which
is maintained separately on a double entry basis:
Debit(`) Credit(`)
Stores Ledger Control A/c 15,00,000 -
Work-in-progress Control A/c 7,50,000 -
Finished Goods Control A/c 12,50,000 -
Manufacturing Overhead Control A/c - 75,000
Cost Ledger Control A/c - 34,25,000
35,00,000 35,00,000

During the next quarter, the following items arose:

(`)

l
Finished Product (at cost) 11,25,000

a
Manufacturing overhead incurred 4,25,000

h
Raw material purchased 6,25,000

c
Factory wages 2,00,000

n
Indirect labour 1,00,000

a
Cost of sales 8,75,000

P
Materials issued to production 6,75,000

l
Sales returned (at cost) 45,000

u
Materials returned to suppliers 65,000

h
Manufacturing overhead charged to production 4,25,000

a
Required:

R
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

A
of Sales A/c and the Trial Balance at the end of the quarter.

RTP MAY 20

C
The following are the balances existed in the books of JPG Ltd. for the year ended, 31st March,
2019:
Particulars Dr. Cr.
(`) (`)
Stores Ledger Control A/c 30,00,000
WIP Control A/c 15,00,000
Finished Goods Control A/c 25,00,000
Manufacturing Overheads Control A/c 1,50,000
Cost Ledger Control A/c 68,50,000

During the year 2019-20, the following transactions took place:

Particulars Amount (`)
Finished product (at cost) 22,50,000
Manufacturing Overhead incurred 8,50,000
Raw material purchased 12,50,000
Factory wages 4,00,000
Indirect labour 2,00,000

7.11
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Cost of sales 17,50,000

Materials issued to production 13,50,000
Sales returned (at cost) 90,000
Material returned to suppliers 1,30,000
Manufacturing overhead charged to production 8,50,000
Required:
PREPARE the following control accounts and Trial balance at the end of the year:
Cost Ledger, Stores Ledger, Work-in-process, Finished Stock, Manufacturing Overhead, Wages
and Cost of Sales.

RTP NOV 20

A manufacturing company disclosed a net loss of `6,94,000 as per their cost accounts for the
year ended March 31,2020. The financial accounts however disclosed a net loss of `10,20,000

l
for the same period. The following information was revealed as a result of scrutiny of the figures

a
of both the sets of accounts.

ch
(`)

n
(i) Factory Overheads under-absorbed 80,000

a
(ii) Administration Overheads over-absorbed 1,20,000

P
(iii) Depreciation charged in Financial Accounts 6,50,000

l
(iv) Depreciation charged in Cost Accounts 5,50,000

u
(v) Interest on investments not included in Cost Accounts 1,92,000

h
(vi) Income-tax provided 1,08,000

a
(vii) Interest on loan funds in Financial Accounts 4,90,000

R
(viii) Transfer fees (credit in financial books) 48,000
(ix) Stores adjustment (credit in financial books) 28,000

A
(x) Dividend received 64,000

C
PREPARE a memorandum Reconciliation Account.

RTP MAY 21

The financial books of a company reveal the following data for the year ended 31 st March,
2020:
(`)
Opening Stock:
Finished goods 625 units 1,06,250
Work-in-process 92,000
01.04.2019 to 31.03.2020
Raw materials consumed 16,80,000
Direct Labour 12,20,000
Factory overheads 8,44,000
Administration overheads (production related) 3,96,000
Dividend paid 2,44,000
Bad Debts 36,000
Selling and Distribution Overheads 1,44,000
Interest received 76,000
Rent received 92,000

7.12
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Sales 12,615 units 45,60,000

Closing Stock: Finished goods 415 units 91,300
Work-in-process 82,400
The cost records provide as under:
• Factory overheads are absorbed at 70% of direct wages.
• Administration overheads are recovered at 15% of factory cost.
• Selling and distribution overheads are charged at ` 6 per unit sold.
• Opening Stock of finished goods is valued at ` 240 per unit.
• The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.

Required:
(i) PREPARE statements for the year ended 31st March, 2020 showing:

l
 the profit as per financial records

a
 the profit as per costing records.

h
(ii) PREPARE a statement reconciling the profit as per costing records with the profit as per

c
financial records.

RTP NOV 21

a n
P
XYZ Ltd. maintains a non-integrated accounting system for the purpose of management

l
information. The following are the data related with year 2020-21:

u
Particulars (` in ‘000)

h
Opening balances:

a
- Stores ledger control A/c 24,000

R
- Work-in-process control A/c 6,000
- Finished goods control A/c 1,29,000

A
- Building construction A/c 3,000

C
- 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:
- Gross wages paid 45,000
- Indirect wages paid 12,000
- For building construction 3,000
Factory overheads:
- Actual amount incurred (excluding items shown above) 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

7.13
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

At the end of the year, the stock of raw material and work-in-process was ` 1,65,00,000 and
` 75,00,000 respectively. The loss arising in the raw material account is treated as factory
overheads. The building under construction was completed during the year. Gross profit margin
is 20% on sales.

Required:
PREPARE the relevant control accounts to record the above transactions in the cost ledger of the
company.

RTP MAY 22

X Ltd. maintains a non-integrated accounting system for the purpose of management information.
The following are the data related with year 2021 -22:
Particulars Amount (‘000)

l
Opening balances:

a
- Stores ledger control A/c 48,000

h
- Work-in-process control A/c 12,000

c
- Finished goods control A/c 2,58,000

n
- Building construction A/c 6,000

a
- Cost ledger control A/c 3,24,000

P
During the year following transactions took place:

l
Materials:

u
- Purchased 24,000

h
- Issued to production 30,000

a
- Issued to general maintenance 3,600

R
- Issued to building construction 2,400
Wages:

A
- Gross wages paid 90,000

C
- Indirect wages paid 24,000
- For building construction 6,000
Factory overheads:
- Actual amount incurred (excluding items shown above) 96,000
- Absorbed in building construction 12,000
- Under-absorbed 4,800
Royalty paid 3,000
Selling distribution and administration overheads 15,000
Sales 2,70,000
At the end of the year, the stock of raw material and work-in-process was `3,30,00,000 and
`15,00,000 respectively. The loss arising in the raw material account is treated as factory
overheads. The building under construction was completed during the year. Gross profit margin
is 20% on sales.
Required:
PREPARE the relevant control accounts to record the above transactions in the cost ledger of the
company.

7.14
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

RTP NOV 22

The financial books of a company reveal the following data for the financial year ending on 31st
March, 2022:
(`)
Opening Stock:
Finished goods 875 units 1,48,750
Work-in-process 64,000
01.04.2021 to 31.3.2022
Raw materials consumed
15,60,000
Direct Labour 9,00,000
Factory overheads 6,00,000
Goodwill written off 2,00,000

l
Administration overheads 5,90,000

a
Dividend paid 1,70,000

h
Bad Debts 24,000

c
Selling and Distribution Overheads 1,22,000

n
Interest received 90,000

a
Rent received 36,000

P
Sales 14,500 units 41,60,000

l
Closing Stock: Finished goods 375 units 82,500

u
Work-in-process 77,334

h
The cost records provide as under:

a
• Factory overheads are absorbed at 60% of direct wages.

R
• Administration overheads are recovered at 20% of factory cost.
• Selling and distribution overheads are charged at ` 8 per unit sold.

A
• Opening Stock of finished goods is valued at ` 208 per unit.

C
• The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(i) PREPARE statements for the year ended 31st March, 2022 showing-
• the profit as per financial records
• the profit as per costing records.
(ii) PRESENT a statement reconciling the profit as per costing records with the profit as per
Financial Records.

RTP MAY 23

The financial records of Riva Private Limited showed a net profit of `1,69,500 for the year ended
31st March, 2022. The cost accounts, however, disclosed a net loss of ` 88,500 for the same
period. The following information were revealed as a result of scrutiny of the figures of cost
accounts and financial accounts:
(`)
(i) (Administrative overhead under recovered 63,750.0
(ii) Factory overhead over recovered 3,37,500.0
(iii) Depreciation under charged in Cost Accounts 65,000.0
(iv) Dividend received 50,000.0

7.15
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

(v) Loss due to obsolescence charged in Financial Accounts 42,000.0

(vi) Income tax provided 1,09,000.0
(vii) Bank interest credited in Financial Accounts 34,000.0
(viii) Value of opening stock:
In Cost Accounts 4,12,500.0
In Financial Accounts 3,62,500.0
(ix) Value of closing stock:
In Cost Accounts 3,13,750.0
In Financial Accounts 3,30,000.0
(x) Goodwill written-off in Financial Accounts 62,500.0
(xi) Notional rent of own premises charged in Cost Accounts 1,50,000.0
(xii) Provision for doubtful debts in Financial Accounts 37,500.0
Prepare a reconciliation statement by taking costing net loss as base.

RTP NOV 23

a l
ch
The financial books of a company reveal the following data for the year ended 31st March, 2023:
(`)

n
Opening Stock:

a
Finished goods 625 units 1,06,250

P
Work-in-process 92,000

l
01.04.2022 to 31.03.2023

u
Raw materials consumed 16,80,000

h
Direct Labour 12,20,000

a
Factory overheads 8,44,000

R
Administration overheads (production related) 3,96,000
Dividend paid 2,44,000

A
Bad Debts 36,000

C
Selling and Distribution Overheads 1,44,000
Interest received 76,000
Rent received 92,000
Sales 12,615 units 45,60,000
Closing Stock: Finished goods 415 units 91,300
Work-in-process 82,400
The cost records provide as under:
•  Factory overheads are absorbed at 70% of direct wages.
•  Administration overheads are recovered at 15% of factory cost.
•  Selling and distribution overheads are charged at ` 6 per unit sold.
•  Opening Stock of finished goods is valued at ` 240 per unit.
•  The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(i) Prepare statements for the year ended 31st March, 2023 showing:
 the profit as per financial records
 the profit as per costing records.
(ii) Prepare a statement reconciling the profit as per costing records with the profit as per
financial records.

7.16
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

RTP MAY 24

The financial books of a company reveal the following data for the year ended 31st March, 2023:
(`)
Opening Stock:
Finished goods 875 units 76,525
Work-in-process 33,000
01.04.2022 to 31.03.2023
Raw materials consumed 7,84,000
Direct labour 4,65,000
Factory overheads 2,65,000
Goodwill written off 95,000
Administration overheads 3,15,000
Income tax paid 72,000

l
Bad debts 21,000

a
Selling and distribution overheads 65,000

h
Interest received 18,500

c
Rent received 72,000

n
Sales 14,500 units 20,80,000

a
Closing Stock: Finished goods 375 units 43,250

P
Work-in-process 48,200

l
The management of the company, for preparing cost sheet and variance analysis uses the

u
following cost recovery basis which has been elaborated by the cost controller of the company:

h
Factory overheads are absorbed at 60% of direct wages.

a
Administration overheads (production related) are recovered at 20% of factory cost.

R
Selling and distribution overheads are charged at ` 5 per unit sold. Opening Stock of finished
goods is valued at `105 per unit.

A
The company values work-in-process at factory cost for both financial and cost accounting

C
purpose.
You being an associate to the cost controller of the company has been asked to:
(i) PREPARE a statement of profit as per costing records and financial records.
(ii) CALCULATE cost of production per unit.
(iii) PREPARE a statement reconciling the profit as per costing records with the profit as per
financial records.

7.17
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (5 MARKS) Q. 1D

GK Ltd. showed net loss of ` 2,43,300 as per their financial accounts for the year ended 31st
March, 2018. However, cost accounts disclosed net loss of ` 2,48,300 for the same period. On
scrutinizing both the set of books of accounts, the following information were revealed:

`
(i) Works overheads over recovered 30,400 30,000

l
(ii) Selling overheads under recovered 20,300

a
(iii) Administrative overheads under recovered 27,700

h
(iv) Depreciation over charged in cost accounts 35,100

c
(v) Bad debts w/off in financial accounts 15,000

n
(vi) Preliminary Exp. w/off in financial accounts 5,000

a
(vii) Interest credited during the year in financial accounts 7,500

P
Prepare a reconciliation statement reconciling losses shown by financial and cost accounts by

l
taking costing net loss as base.

ANSWER :

h u
a
Reconciliation Statement

R
Particulars ` `
Loss as per Cost Accounts (2,48,300)

A
Add: Works overheads over recovered 30,400

C
Depreciation over charged in cost accounts 35,100
Interest credited during the year in financial accounts 7,500 73,000
Less: Selling overheads under recovered 20,300
Administrative overheads under recovered 27,700
Bad debts w/off in financial accounts 15,000
Preliminary Exp. w/off in financial accounts 5,000 (68,000)
Loss as per Financial Accounts (2,43,300)

PYQ NOV 18 (10 MARKS) Q. 4A

The following balances were extracted from a Company's ledger as on 30th June, 2018:
Particulars Debit (`) Credit (`)
Raw material control a/c 2,82,450
Work-in-progress control a/c 2,38,300
Finished stock control a/c 3,92,500
General ledger adjustment a/c 9,13,250
Total 9,13,250 9,13,250

7.18
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

The following transactions took place during the quarter ended 30th September, 2018:
`
(i) Factory overheads - allocated to work-in-progress 1,36,350
(ii) Goods furnished - at cost 13,76,200
(iii) Raw materials purchased 12,43,810
(iv) Direct wages - allocated to work-in-progress 2,56,800
(v) Cost of goods sold 14,56,500
(vi) Raw materials - issued to production 13,60,430
(vii) Raw materials - credited by suppliers 27,200
(viii) Raw materials losses - inventory audit 6,000
(ix) Work-in-progress rejected (with no scrap value) 12,300
(x) Customer's returns (at cost) of finished goods 45,900
You are required to prepare:

l
(i) Raw material control a/c

a
(ii) Work-in-progress control a/c

h
(iii) Finished stock control a/c

c
(iv) General ledger adjustment a/c

ANSWER :

a n
P
(i) Raw Material Control A/c

l
(`) (`)

u
To Balance b/d 2,82,450 By General Ledger Adjustment 27,200

h
A/c

a
” General Ledger 12,43,810 ” Work-in-progress Control A/c 13,60,430

R
Adjustment A/c ” Costing P&L A/c 6,000
(Loss) (OR GLA)

A
” Balance c/d 1,32,630

C
15,26,260 15,26,260

(ii) Work-in-Progress Control A/c

(`) (`)
To Balance b/d 2,38,300
” Raw Material Control 13,60,430 ” Finished Goods Control A/c 13,76,200
A/c
” Wages Control A/c 2,56,800 Costing P&L A/c (OR GLA) 12,300
” Factory OH Control 1,36,350 ” Balance c/d 6,03,380
A/c
19,91,880 19,91,880

(iii) Finished Goods Control A/c

(`) (`)
To Balance b/d 3,92,500 By Cost of goods sold A/c (OR 14,56,500
GLA)
General Ledger 45,900
Adjustment A/c

7.19
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

” Work-in-process 13,76,200 ” Balance c/d 3,58,100

Control A/c
18,14,600 18,14,600

(iv) General Ledger Adjustment A/c

(`) (`)
To Costing P&L A/c (sales) 25,68,910 By Balance b/d 9,13,250
(Balancing figure)
” Raw Material Control 27,200 ” Raw Material Control A/c 12,43,810
A/c
” Wages Control A/c 2,56,800
” Factory OH Control A/c 1,36,350
” Finished Goods Control A/c 45,900

l
25,96,110 25,96,110

OR

h a
c
General ledger adjustment account

n
(`) (`)

a
To Raw Material Control 27,200 By Balance b/d 9,13,250

P
A/c

l
” Raw Material control 6,000 ” Raw Material Control A/c 12,43,810

u
account(loss)

h
‘’ WIP control Account 12,300 ” Wages Control A/c 2,56,800

a
(rejection)

R
“ Finished stock Control 14,56,500 ” Factory OH Control A/c 1,36,350
Account

A
“” Balance c/d 10,94,110 ” Finished Goods Control A/c 45,900

C
25,96,110 25,96,110

Working:
Factory Overhead Control A/c
(`) (`)
To General Ledger Adjustment 1,36,350 By Work-in-progress A/c 1,36,350
A/c
1,36,350 1,36,350

PYQ MAY 19 (5 MARKS) Q. 1D

M/s Abid Private Limited disclosed a net profit of ` 48,408 as per cost books for the year ending
31st March 2019. However, financial accounts disclosed net loss of ` 15,000 for the same period.
On scrutinizing both the set of books of accounts, the following information was revealed:
Works Overheads under-recovered in Cost Books 48,600
Office Overheads over-recovered in Cost Books 11,500
Dividend received on Shares 17,475
Interest on Fixed Deposits 21,650
Provision for doubtful debts 17,800

7.20
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Obsolescence loss not charged in Cost Accounts 17,200

Stores adjustments (debited in Financial Accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciation recovered in Cost Books 35,000
Prepare a Memorandum Reconciliation Account.

ANSWER :
Memorandum Reconciliation Account
Dr. Cr.
Particulars (`) Particulars (`)
To Works overheads under 48,600 By Net profit as per Costing 48,408
recovered in Cost Accounts books
To Provision for doubtful debts 17,800 By Office overheads over 11,500

l
recovered in cost accounts

a
To Obsolescence loss 17,200 By Dividend received on shares 17,475

h
To Store adjustment (Debit) 35,433 By Interest on fixed deposit 21,650

c
By Depreciation over- charged 5,000

n
By Net loss as per financial 15,000

a
accounts

P
1,19,033 1,19,033

l
[Note: This question may also be solved by taking net loss as per financial accounts as

u
basis.]

PYQ DEC 21 (5 MARKS)

a h Q. 4B

R
R Ltd. showed a Net Profit of ` 3,60,740 as per their cost accounts for the year ended 31st March,
2021.

A
The following information was revealed as a result of scrutiny of the figures from the both sets

C
of accounts:
Sr. No. Particulars (`)
i. Over recovery of selling overheads in cost accounts 10,250
ii. Over valuation of closing stock in cost accounts 7,300
iii. Rent received credited in financial accounts 5,450
iv. Bad 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
Required:
Prepare a reconciliation statement showing the profit as per financial records.

ANSWER :
Statement of Reconciliation
(Reconciling the profit as per costing records with the profit as per financial records)
Particulars (`) (`)
Net Profit as per Cost Accounts 3,60,740
Add:
Over recovery of selling overheads in cost accounts 10,250

7.21
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

Rent received credited in financial accounts 5,450 15,700

376,440
Less:
Over valuation of closing stock in cost accounts 7,300
Bad debts provided in financial accounts 3,250
Income tax provided in financial accounts 15,900
Loss on sale of capital asset debited in financial accounts 5,800
Under recovery of administration overheads in cost accounts 3,600 35,850
Profit as per Financial Accounts 3,40,590

PYQ MAY 22 (5 MARKS) Q. 4C

Journalize the following transactions assuming the cost and financial accounts are integrated:
Particulars Amount (`)

l
Direct Materials issued to production ` 5,88,000

a
Allocation of Wages (Indirect) ` 7,50,000

h
Factory Overheads (Over absorbed) ` 2,25,000

c
Administrative Overheads (Under absorbed) ` 1,55,000

n
Deficiency found in stock of Raw material (Normal) ` 2,00,000

ANSWER :

P a
l
Particulars (`) (`)

u
(i) Work-in-Progress Ledger Control A/c Dr. 5,88,000

h
To Stores Ledger Control A/c 5,88,000

a
(Being issue of direct materials to production)

R
(ii) Factory Overhead control A/c Dr. 7,50,000
To Wages Control A/c 7,50,000

A
(Being allocation of Indirect wages)

C
(iii) Factory Overhead Control A/c Dr. 2,25,000
To Costing Profit & Loss A/c 2,25,000
(Being transfer of over absorption of Factory overhead)
(iv) Costing Profit & Loss A/c Dr. 1,55,000
To Administration Overhead Control A/c 1,55,000
(Being transfer of under absorption of Administration overhead)
(v) Factory Overhead Control A/c Dr. 2,00,000
To Stores Ledger Control A/c 2,00,000
(Being transfer of deficiency in stock of raw material)
(Note: Costing P/&/L = P/&/L and SLC = MLC)

PYQ NOV 22 (5 MARKS) Q. 5B

X 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

7.22
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

(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.

ANSWER :
Reconciliation Statement
(Reconciliation the profit as per financial records with the profit as per costing
records)
Particulars (`) Total (`)

l
Profit as per Financial Accounts 5,50,000

a
Add: Legal Charges 15,250

ch
Preliminary expenses written off 25,750
Interest paid 50,000 91,000

an
6,41,000
Less: Under-valuation of closing stock in cost book 25,000

P
Interim Dividend Received 4,50,000

l
Over recovery of selling overheads in cost accounts 11,380

u
Over recovery of production overhead in cost 10,200 5,26,580

h
accounts

a
Profit on sale of Assets 30,000
Profit as per Cost Accounts 1,14,420

R
C A
PYQ MAY 23 (5 MARKS) Q. 5B
The following information has been obtained from financial accounting and cost accounting
records.
Financial Cost
Accounting Accounting
` `
(i) Factory Overhead 94,750 90,000
(ii) Administrative Overhead 60,000 57,000
(iii) Selling Overhead 55,000 61,000
(iv) Opening Stock 17,500 22,500
(v) Closing Stock 12,500 15,000
Required:
Indicate under-recovery and over-recovery and their effects on cost accounting profit.
[Note: You are not required to prepare reconciliation statement.]

7.23
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

ANSWER :
Financial Cost Difference Under/ Effect Net Effect* on
Accounting Accounting Over- on Cost Cost Accounting
` recovery Accounting Profit
Profit
(i) Factory 94,750 90,000 4,750 Under- Increased To be reduced/
Overhead recovery deducted
(ii) 60,000 57,000 3,000 Under- Increased To be reduced/
Administrative recovery deducted
Overhead
(iii) Selling 55,000 61,500 -6,500 Over- Decreased To be added
Overhead recovery

l
(iv) Opening 17,500 22,500 -5,000 Over Decreased To be added

a
Stock valuation

h
(v) Closing 12,500 15,000 -2,500 Over Increased To be reduced/

c
Stock valuation deducted

*Taking Cost Accounting Profit as base

a n
P
(Under recovery and over recovery with effect are answered by the candidate, or if under recovery

l
and over recovery with treatment (net effect) are answered, due credit shall be given in both

u
cases)

PYQ NOV 23 (4 MARKS)

a h Q. 5C

R
Construct journal entries in the following situations assuming that cost and financial transactions
are integrated:

A
(i) Purchase of raw material ` 4,40,000

C
(ii) Direct Material issued to production ` 3,60,000
(iii) Wages charged to production `80,000
(iv) Manufacturing overheads charged to production ` 1,32,000

ANSWER :
Journal entries are as follows
DR. (`) Cr. (`)
Stores Ledger Control A/c Dr. 4,40,000
To Payables (Creditors)/ Bank A/c 4,40,000
(Materials purchased)
Work-in-Process Control A/c Dr. 3,60,000
To Stores Ledger Control A/c 3,60,000
(Materials issued to production)
Work-in-Process Control A/c Dr. 80,000
To Wages Control A/c 80,000
(Direct wages charged to production)
Work-in-Process Control A/c Dr. 1,32,000
To Factory Overhead Control A/c 1,32,000
(Manufacturing overhead charged to production)

7.24
COST ACCOUNTING SYSTEMS
 TRP Sir
CA Rahul Panchal

UNIT & BATCH

8 COSTING

QUESTION 1. (ILLUSTRATION 1) 
The following data relate to the manufacture of a standard product during the 4- week ended
28th February:
Raw Materials Consumed ` 4,00,000
Direct Wages ` 2,40,000
Machine Hours Worked 3,200 hours
Machine Hour Rate ` 40
Office Overheads 10% of works cost

l
Selling Overheads ` 20 per unit

a
Units produced and sold 10,000 at ` 120 each

h
You are required to FIND OUT the cost per unit and profit for the 4-week ended 28th February.

QUESTION 2. (ILLUSTRATION 2) 

n c
a
Atharva Pharmacare Limited produced a uniform type of product and has a manufacturing

P
capacity of 3,000 units per week of 48 hours. From the records of the company, the following

l
data are available relating to output and cost of 3 consecutive weeks

u
Week Number Units Direct Direct Factory

h
Manufactured Material (`) Wages (`) Overheads (`)

a
1 1,200 9,000 3,600 31,000

R
2 1,600 12,000 4,800 33,000
3 1,800 13,500 5,400 34,000

A
Assuming that the company charges a profit of 20% on selling price, FIND OUT the selling price

C
per unit when the weekly output is 2,000 units

QUESTION 3. (ILLUSTRATION 3) 
Arnav Confectioners (AC) owns a bakery which is used to make bakery items like pastries, cakes
and muffins. AC use to bake at most 50 units of any item at a time. A customer has given an
order for 600 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 600 muffins.

8.1
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 4. (ILLUSTRATION 4) 
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 materials and labour hours are
booked at actual. Overheads are levied at a rate equal to per labour hour. The selling price
contracted for is ` 8 per piece. From the following data CALCULATE the cost and profit per piece
of each batch order and overall position of the order for 1,200 pieces.
Month Batch Output Material cost Direct wages Direct labour
(`) (`) hours
January 210 650 120 240
February 200 640 140 280
March 220 680 150 280
April 180 630 140 270
May 200 700 150 300

l
June 220 720 160 320

a
ch
The other details are:
Month Overheads Direct labour

n
(`) hours

a
January 12,000 4,800

P
February 10,560 4,400

l
March 12,000 5,000

u
April 10,580 4,600

h
May 13,000 5,000

a
June 12,000 4,800

QUESTION 5. (ILLUSTRATION 5) 
R
A
Monthly demand for a product 500 units

C
Setting-up cost per batch ` 60
Cost of manufacturing per unit ` 20
Rate of interest 10% p.a.
DETERMINE economic batch quantity.

QUESTION 6. (ILLUSTRATION 6) 
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 set up cost per run of bearing manufacture is ` 3,200
(i) DETERMINE the optimum run size of bearing manufacture.
(ii) STATE what would be the interval between two consecutive optimum runs.
(iii) FIND OUT the minimum inventory holding cost.

QUESTION 7. (ILLUSTRATION 7) 
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 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 colour will be stored and then delivered to the customer as single load
immediately before production of the next colour commences.

8.2
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

The Set up 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 square meter can hold 250 Litres suitably stacked.
You are required to:
(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 which will minimise total
cost.

QUESTION 8. (PP1) 
Wonder Ltd. has a capacity of 120,000 units per annum as its optimum capacity. The production
costs are as under:

l
Direct Material – ` 90 per unit

a
Direct Labour- ` 60 per unit

h
Overheads:

c
Fixed: ` 30,00,000 per annum

n
Variable: ` 100 per unit

a
Semi Variable: ` 20,00,000 per annum up to 50% capacity and an extra amount of ` 4,00,000

P
for every 25% increase in capacity or part thereof

l
The production is made to order and not for stocks.

u
If the production programme of the factory is as indicated below and the management desires a

h
profit of `20,00,000 for the year DETERMINE the average selling price at which each unit should

a
be quoted.

R
First 3 months: 50% capacity
Remaining 9 months: 80% capacity

A
Ignore Administration, Selling and Distribution overheads.

QUESTION 9. (PP2) 
C
Rio Limited undertakes to supply 1000 units of a component per month for the months of January,
February and March. Every month a batch order is opened against which materials and labour
cost are booked at actual. Overheads are levied at a rate per labour hour. The selling price is
contracted at ` 15 per unit.
From the following data, CALCULATE the profit per unit of each batch order and the overall
position of the order for the 3,000 units.
Month Batch Output Material Cost Labour Cost
(Numbers) (`) (`)
January 1,250 6,250 2,500
February 1,500 9,000 3,000
March 1,000 5,000 2,000

Labour is paid at the rate of ` 2 per hour. The other details are:
Month Overheads (`) Total Labour Hours
January 12,000 4,000
February 9,000 4,500
March 15,000 5,000

8.3
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 10. (PP3) 

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 month and that the set-up cost
per run of bearing manufacture is ` 324.
(a) COMPUTE what would be the optimum run size for bearing manufacture?
(b) Assuming that the company has a policy of manufacturing 6,000 bearings per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (a) above?
(c) CALCULATE the holding cost at optimum inventory level?

QUESTION 11. (PP4) 

A customer has been ordering 90,000 special design metal columns at the rate of 18,000 columns
per order during the past years. The production cost per unit comprises ` 2,120 for material, ` 60

l
for labour and ` 20 for fixed overheads. It costs ` 1,500 to set up for one run of 18,000 column

a
and inventory carrying cost is 5%.

h
(i) FIND the most economic production run.

c
(ii) CALCULATE the extra cost that company incur due to processing of 18,000 columns in a

n
batch.

QUESTION 12. (PP5) 

P a
l
XYZ Ltd. has obtained an order to supply 48000 bearings per year from a concern. On a steady

u
basis, it is estimated that it costs ` 0.20 as inventory holding cost per bearing per month and the

h
set-up cost per run of bearing manufacture is ` 384.

a
You are required to:

R
(i) compute the optimum run size and number of runs for bearing manufacture.
(ii) compute the interval between two consecutive runs.

A
(iii) find out the extra costs to be incurred, if company adopts a policy to manufacture 8000

C
bearings per run as compared to optimum run Size.
(iv) give your opinion regarding run size of bearing manufacture. Assume 365 days in a year.

8.4
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
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 600 cakes. To process a batch, the following cost would be incurred:
Direct materials - ` 5,000
Direct wages - ` 500 (irrespective of units) Oven set- up cost - `750 (irrespective of units)
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.

l
AC requires a profit margin of 25% of sales value.

a
Required:

h
(i) DETERMINE the price to be charged for 600 cakes.

c
(ii) CALCULATE cost and selling price per cake.

n
(iii) DETERMINE what would be selling price per unit If the order is for 605 cakes.

RTP NOV 19

P a
l
BTL LLP. manufactures glass bottles for HDL Ltd., a pharmaceutical company, which is in ayurvedic

u
medicines business..

h
BTL can produce 2,00,000 bottles in a month. Set-up cost of each production run is ` 5,200 and

a
the cost of holding one bottle for a year is ` 1.50.

R
As per an estimate HDL Ltd. can order as much as 19,00,000 bottles in a year spreading evenly
throughout the year.

A
At present the BTL manufactures 1,60,000 bottles in a batch.

C
Required:
(i) COMPUTE the Economic Batch Quantity for bottle production.
(ii) COMPUTE the annual cost saving to BTL by adopting the EBQ of a production.

RTP NOV 20

A Ltd. manufactures mother boards used in smart phones. A smart phone requires one mother
board. As per the study conducted by the Indian Cellular Association, there will be a demand of
180 million smart phones in the coming year. A Ltd. is expected to have a market share of 5.5%
of the total market demand of the mother boards in the coming year. It is estimated that it costs
`6.25 as inventory holding cost per board per month and that the set-up cost per run of board
manufacture is `33,500.
(i) COMPUTE the optimum run size for board manufacturing?
(ii) Assuming that the company has a policy of manufacturing 80,000 boards per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (i) above?

8.5
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 21

Rollon Ltd. is committed to supply 96,800 bearings per annum to Racing Ltd. on steady basis. It
is estimated that it costs 25 paise as inventory carrying cost per bearing per month and the set-
up cost per run of bearing manufacture is ` 588.
(a) COMPUTE what would be the optimum run size for bearing manufacture?
(b) Assuming that the company has a policy of manufacturing 8,800 bearings per run,
CALCULATE how much extra costs the company would be incurring as compared to the
optimum run suggested in (a) above?

RTP MAY 22

Brostom Ltd. manufactures 'Stent' that is used by hospitals in angioplasty, a procedure used to
open blocked coronary arteries without open-heart surgery. As per the estimates provided by
Pharmaceutical Industry Bureau, there will be a demand of 1 crore 'Stents' in the coming year.

l
Brostom Ltd. is having a market share of 10% of the total market demand of the Stents. It is

a
estimated that it costs ` 3.00 as inventory holding cost per stent per month and that the set-up

h
cost per run of stent manufacture is ` 450.

c
Required:

n
(i) WHAT would be the optimum run size for Stent manufacture?

a
(ii) WHAT is the minimum inventory holding cost?

RTP NOV 22

l P
u
PS Ltd. manufactures articles in predetermined lots simultaneously. The following costs

h
have been incurred for Batch No. ‘PS143’ in the month of March, 2022:

a
Units produced 1,000 units

R
Direct materials cost ` 2,00,000
Direct Labour -

A
Department A 800 labour hours @ ` 100 per hour.

C
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 Batch No. 'PS143'.

RTP MAY 24

Arnav Ltd. operates in beverages industry where it manufactures soft- drink in three sizes of Large
(3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are processed in batches.
The 5,000 litres capacity processing plant consumes electricity of 90 Kilowatts per hour and a
batch takes 1 hour 45 minutes to complete. Only symmetric size of products can be processed at
a time. The machine set-up takes 15 minutes to get ready for next batch processing. During the
set-up power consumption is only 20%.
(i) The current price of Large, Medium and Small are ` 150, ` 90 and ` 50 respectively.
(ii) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-C are
required which costs ` 0.50 and ` 1,000 per litre respectively.

8.6
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

(iii) 20 direct workers are required. The workers are paid ` 880 for 8 hours shift of work.
(iv) The average packing cost per bottle is ` 3
(v) Power cost is ` 7 per Kilowatt -hour (Kwh)
(vi) Other variable cost is ` 30,000 per batch.
(vii) Fixed cost (Administration and marketing) is ` 4,90,00,000.
(viii) The holding cost is ` 1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of the product:
Large Medium Small
3,00,000 7,50,000 20,00,000
You are required to CALCULATE profit/ loss per batch and also COMPUTE Economic Batch Quantity
(EBQ).

a l
c h
a n
l P
h u
R a
C A

8.7
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ NOV 18 (10 MARKS) Q. 3A
(XYZ Ltd. has obtained an order to supply 48000 bearings per year from a concern. On a steady
basis, it is estimated that it costs ` 0.20 as inventory holding cost per bearing per month and the
set-up cost per run of bearing manufacture is ` 384
You are required to:
(i) compute the optimum run size and number of runs for bearing manufacture.
(ii) compute the interval between two consecutive runs.
(iii) find out the extra costs to be incurred, if company adopts a policy to manufacture 8000

l
bearings per run as compared to optimum run Size.

a
(iv) give your opinion regarding run size of bearing manufacture

ANSWER :

c h
n
Optimum batch size or Economic Batch Quantity (EBQ):

P a
l
Number of Optimum runs = 48,000 ÷ 3,920 = 12.245 or 13 run

u
(ii) Interval between 2 runs (in days) = 365 days ÷ 13 = 28 days Or 365÷12.24=29.82 days

h
(iii) If 8,000 bearings are manufactures in a run: Total cost = Set-up cost + Inventory holding

a
cost

R
= `.384×(48,000÷8,000) + (8,000÷2)×`.2.4
= 2304+9,600 = 11,904

A
Extra cost = `(11,904 – 9,406*) =` 2,498/-

C
OR
Extra cost = ` (11,904 – 9,696*) = ` 2,208/-
* Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per annum
Average Inventory = 3,920 units ÷ 2 = 1,960 units
Carrying Cost per unit per annum = `0.2 × 12 months = `2.4
Minimum Inventory Holding Costs = 1,960 units × `2.4 = `4,704
Total cost = Set-up cost + Inventory holding cost = (12.245×384) + 4704 = ` 9,406 (approx.)
OR
Total cost = Set-up cost + Inventory holding cost = (13×384) + 4704 = ` 9,696 (approx.)
(iv) To save cost the company should run at optimum batch size i.e. 3,920 Units. It saves
` 2,498 or 2208. Run size should match with the Economic production run of bearing
manufacture. When managers of a manufacturing operation make decisions about the
number of units to produce for each production run, they must consider the costs related
to setting up the production process and the costs of holding inventory
Alternative presentation to part 3(a) (iii)
Statement showing Total Cost at Production Run size of 3,600 and 8,000 bearings

8.8
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

A. Annual requirement 48,000 48,000

B. Run Size 3,920 8,000
C. No. of runs (A/B) 12.245 6
D. Set up cost per run ` 384 ` 384
E. Total set up cost (CxD) ` 4,702 ` 2,304
F. Average inventory (B/2) 1,960 4,000
G. Carrying cost per unit p.a. 2.40 2.40
H. Total Carrying cost (FxG) 4,704 9,600
I. Total cost (E+H) 9,406 11,904
Extra cost incurred, if run size is of 8,000= `11,904-9,406= ` 2,498

PYQ JAN 21 (5 MARKS) Q. 1D

GHI Ltd. manufactures 'Stent' that is used by hospitals in heart surgery. As per the estimates

l
provided by Pharmaceutical Industry Bureau, there will be a demand of 40 Million 'Stents' in the

a
coming year. GHI Ltd. is expected to have a market share of 2.5% of the total market demand of

h
the Stents in the coming year. It is estimated that it costs

c
` 1.50 as inventory holding cost per stent per month and that the set-up cost per run of stent

n
manufacture is ` 225.

a
Required:

P
(i) What would be the optimum run size for Stent manufacture?

l
(ii) What is the minimum inventory holding cost?

u
(iii) Assuming that the company has a policy of manufacturing 4,000 stents per run, how much

h
extra costs the company would be incurring as compared to the optimum run suggested in

a
(i) above?

ANSWER :
R
A
(i) Computation of Optimum Run size of ‘Stents’ or Economic Batch Quantity (EBQ)

Where, D
C
Economic Batch Quantity (EBQ

= Annual demand for the Stents

= 4,00,00,000 × 2.5% = 10,00,000 units
S = Set- up cost per run
= ` 225
C = Carrying cost per unit per annum
= ` 1.50 × 12 = ` 18

= 5,000 units of Stents
(ii) Minimum inventory holding cost
Minimum Inventory Cost = Average Inventory × Inventory Carrying Cost per unit per
annum
= (5,000 ÷ 2) × ` 18
= ` 45,000

8.9
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

(iii) Calculation of the extra cost due to manufacturing policy

When run size is 4,000 units When run size is 5,000 units
i.e. at EBQ
Total set up cost

= ` 56,250 = ` 45,000
Total Carrying cost ½ × 4,000 × ` 18 ½ × 5,000 × ` 18
= ` 36,000 = ` 45,000
Total Cost ` 92,250 ` 90,000
Extra cost = ` 92,250 - ` 90,000 = ` 2,250

PYQ JULY 21 (5 MARKS) Q. 1C

AUX Ltd. has an Annual demand from a single customer for 60,000 Covid-19 vaccines. The

l
customer prefers to order in the lot of 15,000 vaccines per order. The production cost of vaccine

a
is ` 5,000 per vaccine. The set-up cost per production run of Covid-19 vaccines is ` 4,800. The

h
carrying cost is ` 12 per vaccine per month.

c
You are required to:

n
(i) Find the most Economical Production Run.

a
(ii) Calculate the extra cost that company incurs due to production of 15,000 vaccines in a

P
batch.

ANSWER :

u l
h
(i) Calculation of most Economical Production Run

(ii)
R a
Calculation of Extra Cost due to processing of 15,000 vaccines in a batch

A
When run size is 2,000 When run size is 15,000

C
vaccines vaccines
Total set up cost

Total Carrying cost

Total Cost ` 2,88,000 ` 10,99,200

Thus, extra cost = ` 10,99,200 – ` 2,88,000 = ` 8,11,200

PYQ MAY 23 (5 MARKS) Q. 1A

TSK Limited manufactures a variety of products. The annual demand for one of its products-
Product 'X' is estimated as `1,35,000 units. Product 'X' is to be manufactured done in batches.
Set up cost of each batch is ` 3,375 and inventory holding cost is ` 5 per unit. It is expected that
demand of Product 'X' would be uniform throughout the year.
Required:
(i) Calculate the Economic Batch (EBQ) for Product 'X'.
(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product 'X' per
batch, calculate the additional cost incurred as compared to the cost incurred as per
Economic Batch Quantity (EBQ) as computed in (i) above.

8.10
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Economic Batch Quantity (EBQ) =
where,
D = Annual demand for the product
S = Set-up cost per batch
C = Carrying cost per unit per annum.

(ii) Total Cost (of maintaining the inventories) when batch size (Q) are 13,500 and 7,500 units
respectively
Total cost = Total set-up cost + Total carrying cost
When batch size is When batch size is

l
13,500 units 7,500 units

a
Total set up cost

c h
n
= ` 60,750

P a
l
Total Carrying cost 1/2 × 13,500 × 5 1/2 × 7,500 × 5

u
= ` 33,750 = ` 18,750

h
Total Cost ` 67,500 ` 79,500

a
` 12,000 is the excess cost borne by the company due to batch size not being economic

R
batch quantity.
EOQ 13,500 Batch size Extra cost Saving

A
7500

C
No of setup 10 18 8 x 3375 = 27,000
Carrying cost 13,500 – 7500 = 6000/ 2 @ 5 15,000
Net extra cost = (27,000- 15,000) = ` 12,000

8.11
UNIT & BATCH COSTING
 TRP Sir
CA Rahul Panchal

9 JOB COSTING

QUESTION 1. (ILLUSTRATION 1) 
The manufacturing cost of a work order is ` 1,00,000; 8% of the production against that order
spoiled and the rejection is estimated to have a realisable value of ` 2,000 only. The normal rate
of spoilage is 2%. RECORD this in the costing journal.

QUESTION 2. (ILLUSTRATION 2) 
A shop floor supervisor of a small factory presented the following cost for Job No. 303, to
determine the selling price.

l
Per unit (`)

a
Materials 70

h
Direct wages 18 hours @ ` 2.50 45

c
(Deptt. X 8 hours; Deptt. Y 6 hours; Deptt. Z 4 hours)

n
Chargeable expenses 5

a
120

P
Add : 33-1/3 % for expenses cost 40

l
160

h u
Analysis of the Profit/Loss Account

a
(for the current financial year)

R
(`) (`)
Materials used 1,50,000 Sales less returns 2,50,000

A
Direct wages:

C
Deptt. X 10,000
Deptt. Y 12,000
Deptt. Z 8,000 30,000
Special stores items 4,000
Overheads:
Deptt. X 5,000
Deptt. Y 9,000
Deptt. Z 2,000 16,000
Works cost 2,00,000
Gross profit c/d 50,000 _______
2,50,000 2,50,000
Selling expenses 20,000 Gross profit b/d 50,000
Net profit 30,000 ______
50,000 50,000
It is also noted that average hourly rates for the three Departments X, Y and Z are similar. You
are required to:
(i) PREPARE a job cost sheet.
(ii) CALCULATE the entire revised cost using current financial year actual figures as basis.
(iii) Add 20% to total cost to DETERMINE selling price.

9.1
JOB COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 3. (PP1) 
In a factory following the Job Costing Method, an abstract from the work-in- progress as on
30th September was prepared as under.
Job No. Materials Direct hrs. Labour (`) Factory Overheads
(`) applied (`)
115 1325 400 hrs. 800 640
118 810 250 hrs. 500 400
120 765 300 hrs. 475 380
2,900 1,775 1,420

Materials used in October were as follows:

Materials Requisition No. Job No. Cost (`)
54 118 300

l
55 118 425

a
56 118 515

h
57 120 665

c
58 121 910

n
59 124 720

a
3,535

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

u
Job No. Number of Hours

h
54 Shop A Shop B

a
115 25 25

R
118 90 30
120 75 10

A
121 65 --

C
124 25 10
275 75
Indirect Labour: Waiting of material 20 10
Machine breakdown 10 5
Idle time 5 6
Overtime premium 6 5
316 101

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

9.2
JOB COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 4. (PP2) 
Ares Plumbing and Fitting Ltd. (APFL) deals in plumbing materials and also provides plumbing
services to its customers. On 12th August, 2022, APFL received a job order 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. Hostel will be inaugurated on 5th September, 2022 and the work
is to be completed by 3rd September, 2022. Following are the details related with the job work:
Direct Materials
APFL uses a weighted average method for the pricing of materials issues.
Opening stock of materials as on 12th August 2022:
- 15mm GI Pipe, 12 units of (15 feet size) @ ` 600 each
- 20mm GI Pipe, 10 units of (15 feet size) @ ` 660 each
- Other fitting materials, 60 units @ ` 26 each
- Stainless Steel Faucet, 6 units @ ` 204 each

l
- Valve, 8 units @ ` 404 each

a
Purchases:

h
On 16th August 2022:

c
- 20mm GI Pipe, 30 units of (15 feet size) @ ` 610 each

n
- 10 units of Valve @ ` 402 each

a
On 18th August 2022:

P
- Other fitting materials, 150 units @ ` 28 each

l
- Stainless Steel Faucet, 15 units @ ` 209 each

u
On 27th August 2022:

h
- 15mm GI Pipe, 35 units of (15 feet size) @ ` 628 each

a
- 20mm GI Pipe, 20 units of (15 feet size) @ ` 660 each

R
- Valve, 14 units @ ` 424 each
Issues for the hostel job:

A
On 12th August 2022:

C
- 20mm GI Pipe, 2 units of (15 feet size)
- Other fitting materials, 18 units
On 17th August 2022:
- 15mm GI Pipe, 8 units of (15 feet size)
- Other fitting materials, 30 units
On 28th August 2022:
- 20mm GI Pipe, 2 units of (15 feet size)
- 15mm GI Pipe, 10 units of (15 feet size)
- Other fitting materials, 34 units
- Valve, 6 units
On 30th August 2022:
- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ ` 50 per hour (includes 12 hours overtime)
Helper: 192 hours @ `35 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.

9.3
JOB COSTING
 TRP Sir
CA Rahul Panchal

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
(a) Calculate the total cost of the job.
(b) Calculate the price to be charged from the customer

a l
c h
a n
l P
h u
R a
C A

9.4
JOB COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
A factory uses job costing. The following data are obtained from its books for the year ended
31st March, 2018:
Amount (`)
Direct materials 9,00,000
Direct wages 7,50,000
Selling and distribution overheads 5,25,000
Administration overheads 4,20,000

l
Factory overheads 4,50,000

a
Profit 6,09,000

h
Required:

c
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of sales and

n
the Sales value.

a
(ii) In 2018-19, the factory received an order for a job. It is estimated that direct materials

P
required will be ` 2,40,000 and direct labour will cost ` 1,50,000. DETERMINE what should

l
be the price for the job if factory intends to earn the same rate of profit on sales assuming

u
that the selling and distribution overheads have gone up by 15%. The factory overheads is

h
recovered as percentage of wages paid, whereas, other overheads as a percentage of cost

a
of production, based on cost rates prevailing in the previous year.

RTP NOV 18

R
A
A company has been asked to quote for a job. The company aims to make a net profit of 30% on

C
sales. The estimated cost for the job is as follows:
Direct materials 10 kg @`10 per kg Direct labour 20 hours @ `5 per hour
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.

RTP NOV 19

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 jobs. The following are the information related to
the job:
Direct materials utilised – `1,87,00,000
Direct labour utilised – 2,400 hours at `80 per hour
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 `36,00,00,000.

9.5
JOB COSTING
 TRP Sir
CA Rahul Panchal

Required:
CALCULATE the price to be charged for the job.

RTP MAY 20

A factory uses job costing system. The following data are obtained from its books for the year
ended 31st March, 2020:
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000
Selling and distribution overheads 10,50,000
Administration overheads 8,40,000
Factory overheads 9,00,000
Profit 12,18,000

l
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of sales and

a
the Sales value.

h
(ii) In 2019-20, the factory received an order for a job. It is estimated that direct materials

c
required will be `4,80,000 and direct labour will cost `3,00,000. DETERMINE what should

n
be the price for the job if factory intends to earn the same rate of profit on sales assuming

a
that the selling and distribution overheads have gone up by 15%. The factory overheads is

P
recovered as percentage of wages paid, whereas, other overheads as a percentage of cost

l
of production, based on cost rates prevailing in the previous year.

RTP NOV 20

h u
a
AP Ltd. received a job order for supply and fitting of plumbing materials. Following are the

R
details related with the job work:
Direct Materials

A
AP Ltd. uses a weighted average method for the pricing of materials issues. Opening stock of

C
materials as on 12th August 2020:
- 15mm GI Pipe, 12 units of (15 feet size) @ `600 each
- 20mm GI Pipe, 10 units of (15 feet size) @ ` 660 each
- Other fitting materials, 60 units @ ` 26 each
- Stainless Steel Faucet, 6 units @ ` 204 each
- Valve, 8 units @ ` 404 each Purchases:
On 16th August 2020:
- 20mm GI Pipe, 30 units of (15 feet size) @ ` 610 each
- 10 units of Valve @ ` 402 each On 18th August 2020:
- Other fitting materials, 150 units @ ` 28 each
- Stainless Steel Faucet, 15 units @ ` 209 each On 27th August 2020:
- 15mm GI Pipe, 35 units of (15 feet size) @ ` 628 each
- 20mm GI Pipe, 20 units of (15 feet size) @ ` 660 each
- Valve, 14 units @ ` 424 each

Issues for the hostel job:

On 12th August 2020:
- 20mm GI Pipe, 2 units of (15 feet size)
- Other fitting materials, 18 units On 17th August 2020:

9.6
JOB COSTING
 TRP Sir
CA Rahul Panchal

- 15mm GI Pipe, 8 units of (15 feet size)

- Other fitting materials, 30 units On 28th August 2020:
- 20mm GI Pipe, 2 units of (15 feet size)
- 15mm GI Pipe, 10 units of (15 feet size)
- Other fitting materials, 34 units
- Valve, 6 units On 30th August 2020:
- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ `100 per hour (includes 12 hours overtime) Helper: 192 hours @ `70 per
hour (includes 24 hours overtime) Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ `26 per labour hour.

l
Pricing policy:

a
It is company’s policy to price all orders based on achieving a profit margin of 25% on sales price.

h
You are required to

c
(a) CALCULATE the total cost of the job.

n
(b) CALCULATE the price to be charged from the customer.

RTP MAY 21

P a
l
SM Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for

u
the year 2019-20:

h
 (`)

a
(i) Opening Stock of Material  15,00,000

R
(ii) Closing Stock of Material  20,00,000
(iii) Purchase of Material  1,80,50,000

A
(iv) Direct Labour  90,50,000

C
(v) Factory Overhead  30,80,000
(vi) Administrative Overhead  20,50,400
During the FY 2020-21, the company has received an order from a car manufacturer where it
estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000 respectively.
The company charges factory overhead as a percentage of direct labour and administrative
overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000. You are
required to:
(i) CALCULATE the overhead recovery rates based on actual costs for 2019-20.
(ii) PREPARE a Job cost sheet for the order received and the price to be quoted if the desired
profit is 25% on sales.

RTP MAY 22

KJ Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for
the year 2020-21:
(`)
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000

9.7
JOB COSTING
 TRP Sir
CA Rahul Panchal

(iv) Direct Labour 90,50,000

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

l
RTP NOV 23

a
SM Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for

h
the year 2022-23:

c
(`)

n
(i) Opening Stock of Material  15,00,000

a
(ii) Closing Stock of Material  20,00,000

P
(iii) Purchase of Material  1,80,50,000

l
(iv) Direct Labour  90,50,000

u
(v) Factory Overhead  30,80,000

h
(vi) Administrative Overhead  20,50,400

R a
During the FY 2023-24, the company has received an order from a car manufacturer where it
estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000 respectively.

A
The company charges factory overhead as a percentage of direct labour and administrative

C
overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000. You are
required to:
(i) Calculate the overhead recovery rates based on actual costs for 2022-23.
(ii) Prepare a Job cost sheet for the order received and the price to be quoted if the desired
profit is 25% on sales.

9.8
JOB COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ NOV 19 (5 MARKS) Q. 1B

The following data is presented by the supervisor of a factory for a Job:
` per unit
Direct Material 120
Direct Wages @ ` 4 per hour
(Departments A-4 hrs, B-7 hrs, C-2 hrs & D-2 hrs) 60
Chargeable Expenses 20

l
Total 200

a
Analysis of the Profit and Loss Account for the year ended

ch
31st March, 2019
Material 2,00,000 Sales 4,30,000

n
Direct Wages

a
Dept. A 12,000

P
Dept. B 8,000

l
Dept. C 10,000

u
Dept. D 20,000 50,000

h
Special Store items 6,000

a
Overheads

R
Dept. A 12,000
Dept. B 6,000

A
Dept. C 9,000

C
Dept. D 17,000 44,000
Gross Profit c/d 1,30,000
4,30,000 4,30,000
Selling Expenses 90,000 Gross Profit b/d 1,30,000
Net Profit 40,000
1,30,000 1,30,000
It is also to be noted that average hourly rates for all the four departments are similar. Required:
(i) Prepare a Job Cost Sheet.
(ii) Calculate the entire revised cost using the above figures as the base.
(iii) Add 20% profit on selling price to determine the selling price.

9.1
JOB COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Customer Details ——— Job No._________________
Date of commencement —— Date of completion _________
Particulars Amount (`)
Direct materials 120
Direct wages:
Deptt. A ` 4.00 × 4 hrs. ` 16.00
Deptt. B ` 4.00 × 7 hrs. ` 28.00
Deptt. C ` 4.00 × 2 hrs. ` 8.00
Deptt. D ` 4.00 × 2 hrs. ` 8.00 60
Chargeable expenses 20
Prime cost 200
Overheads

l
` 16

h a ` 21

n c ` 7.20

P a
l

u
` 6.80 51.00

Works cost

a h 251.00

R
75.30

A
Total cost 326.30

C
Profit (20% profit on selling price i.e 25% of total cost) 81.58
Selling price 407.88

9.2
JOB COSTING
 TRP Sir
CA Rahul Panchal

PROCESS &
10 OPERATION COSTING

QUESTION 1. (ILLUSTRATION 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.
Process I - (`) Process - II (`) Process - III (`)
Materials 1,50,000 50,000 20,000
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. There was

l
no opening or closing stock.

QUESTION 2. (ILLUSTRATION 2) 

h a
c
A product passes through three processes. The output of each process is treated as the raw

n
material of the next process to which it is transferred and output of the third process is transferred

a
to finished stock.

P
Process I - (`) Process - II (`) Process - III (`)

l
Materials issued 40,000 20,000 10,000

u
Labour 6,000 4,000 1,000

h
Manufacturing overhead 10,000 10,000 15,000

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

A
Process Output Normal Loss

C
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.

QUESTION 3. (ILLUSTRATION 3) 
RST Limited processes Product Z through two distinct processes – Process- I and Process-
II. On completion, it is transferred to finished stock. From the following information for the
current year, PREPARE Process- I, Process- II and Finished Stock A/c:
Particulars Process- I Process- II
Raw materials used 7,500 units --
Raw materials cost per unit ` 60 --
Transfer to next process/finished stock 7,050 units 6,525 units
Normal loss (on inputs) 5% 10%
Direct wages ` 1,35,750 ` 1,29,250
Direct Expenses 60% of Direct wages 65% of Direct wages
Manufacturing overheads 20% of Direct wages 15% of Direct wages
Realisable value of scrap per unit ` 12.50 ` 37.50

10.1
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

6,000 units of finished goods were sold at a profit of 15% on cost. Assume that there was no
opening or closing stock of work-in-process.

QUESTION 4. (ILLUSTRATION 4) 
Opening work-in-process 1,000 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). Normal loss is estimated at 10% of total
input including units in process at the beginning. Scraps realise ` 10 per unit. Scraps are 100%
complete.
Using FIFO method, COMPUTE equivalent production and cost per equivalent unit. Also evaluate
the output.

QUESTION 5. (ILLUSTRATION 5) 

l
Refer to information provided in Illustration 4 above and solve this by Weighted Average Method:

QUESTION 6. (ILLUSTRATION 6) 

h a
c
A Ltd. produces product ‘AXE’ which passes through two processes before it is completed and

n
transferred to finished stock. The following data relate for the month of October:

a
Particulars Process- I Process- II Finished Stock

P
(`) (`) (`)

l
Opening stock 7,500 9,000 22,500

u
Direct materials 15,000 15,750 --

h
Direct wages 11,200 11,250 --

a
Factory overheads 10,500 4,500 --

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

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

C
Output of Process- II is transferred to finished stock at 20% profit on the transfer price. Stock in
processes 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.

QUESTION 7. (PP1) 
An English willow company who manufactures cricket bat buys wood as its direct material. The
Forming department processes the cricket bats and the cricket bats are then transferred to the
Finishing department where stickers are applied. The Forming department began manufacturing
10,000 initial bats during the month of December for the first time and their cost is as follows:
Direct material: ` 33,000
Conversion costs: ` 17,000
Total ` 50,000
A total of 8,000 cricket bats were completed and transferred to the Finishing department, the rest
2,000 were still in the Forming process at the end of the month. All of the forming departments
direct material were placed, but, on average, only 25% of the conversion costs was applied to
the ending work in progress inventory.

10.2
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

CALCULATE:
(i) Equivalent units of production for each cost.
(ii) The Conversion cost per Equivalent units.
(iii) Cost of closing work in process (WIP) and finished products.

QUESTION 8. (PP2) 
Hill manufacturing Ltd uses process costing to manufacture Water density sensors for hydro
sector. The following information pertains to operations for the month of May.
Particulars Units
Beginning WIP, May 1 16,000
Started in production during May 1,00,000
Completed production during May 92,000
Ending work in progress, May 31 24,000

l
The beginning work in progress was 60% complete for materials and 20% complete for conversion

a
costs. The ending inventory was 90% complete for material and 40% complete for conversion

h
costs.

c
Costs pertaining to the month of May are as follows:

n
Beginning inventory costs are material `27,670, direct labour `30,120 and factory overhead `

a
12,720.

P
Cost incurred during May are material used, ` 4,79,000, direct labour `1,82,880, factory

l
overheads ` 3,91,160.

u
CALCULATE:

h
(i) Using the FIFO method, the equivalent units of production for material.

a
(ii) Cost per equivalent unit for conversion cost.

QUESTION 9. (PP3) 
R
A
Production Record:

C
Units in process as on 1st February 4,000
(All materials used, 25% complete for labour and overhead)
New units introduced 16,000
Units completed 14,000
Units in process as on 28th February 6,000
(All materials used, 33-1/3% complete for labour and overhead)
Cost Records:
Work-in-process as on 1st February (`)
Materials 6,000
Labour 1,000
Overhead 1,000
8,000
Cost during the month:
Materials 25,600
Labour 15,000
Overhead 15,000
55,600
Presuming that average method of inventory is used, PREPARE:

10.3
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

(i) Statement of equivalent production.

(ii) Statement showing cost for each element.
(iii) Statement of apportionment of cost.
(iv) Process cost account for Process-I.

QUESTION 10. (PP4) 

Following details are related to the work done in Process-I by XYZ Company during the month
of March:
Production Record: (`)
Opening work-in process (2,000 units) 4,000
Materials 80,000
Labour 15,000
Overheads 45,000

l
Materials introduced in Process-I (38,000 units) 14,80,000

a
Direct Labour 3,59,000

h
Overheads 10,77,000

c
Units scrapped: 3,000 units

n
Degree of completion:

a
Materials  100%

P
Labour and overheads 80%

l
Closing work-in process: 2,000 units

u
Degree of completion:

h
Materials  100%

a
Labour and overheads  80%

R
Units finished and transferred to Process-II: 35,000 units
Normal Loss:

A
5% of total input including opening work-in-process. Scrapped units fetch ` 20 per piece.

C
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, Normal Loss Account and Abnormal Loss Account.

QUESTION 11. (PP5) 

A company produces a component, which passes through two processes. During the month of
April, materials for 40,000 components were put into Process I of which 30,000 were completed
and transferred to Process II. Those not transferred to Process II were 100% complete as to
materials cost and 50% complete as to labour and overheads cost. The Process I costs incurred
were as follows:
Direct material `15,000
Direct wages `18,000
Factory overheads `12,000
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.

10.4
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

No further process material costs occur after introduction at the first process until the end of the
second process, when protective packing is applied to the completed components. The process
and packing costs incurred at the end of the Process II were:
Packing materials `4,000
Direct wages `3,500
Factory overheads `4,500

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.

QUESTION 12. (PP6) 

‘Healthy Sweets’ is engaged in the manufacturing of jaggery. Its process involve sugarcane

l
crushing for juice extraction, then filtration and boiling of juice along with some chemicals and

a
then letting it cool to cut solidified jaggery blocks.

h
The main process of juice extraction (Process – I) is done in conventional crusher, which is then

c
filtered and boiled (Process – II) in iron pots. The solidified jaggery blocks are then cut, packed

n
and dispatched. For manufacturing 10 kg of jaggery, 100 kg of sugarcane is required, which

a
extracts only 45 litre of juice.

P
Following information regarding Process – I has been obtained from the manufacturing

l
department of Healthy Sweets for the month of January:

u
(`)

h
Opening work-in process (4,500 litre)

a
Sugarcane 50,000

R
Labour 15,000
Overheads 45,000

A
Sugarcane introduced for juice extraction (1,00,000 kg) 5,00,000

C
Direct Labour 2,00,000
Overheads 6,00,000
Abnormal Loss: 1,000 kg
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Closing work-in process: 9,000 litre
Degree of completion:
Sugarcane 100%
Labour and overheads 80%
Extracted juice transferred for filtering and boiling: 39,500 litre (Consider mass of 1 litre of juice
equivalent to 1 kg)
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.

10.5
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
Star 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 the last month, a fire occurred in the factory and
destroyed some of paper containing records of the process operations for the month.
Star 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

l
was salvaged:

a
• Opening work-in-process at the beginning of the month was 800 litres, 70% complete

h
for labour and 60% complete for overheads. Opening work-in-process was valued at `

c
26,640.

n
• Closing work-in-process at the end of the month was 160 litres, 30% complete for labour

a
and 20% complete for overheads.

P
• Normal loss is 10% of input and total losses during the month were 1,800 litres partly due

l
to the fire damage.

u
• Output sent to finished goods warehouse was 4,200 litres.

h
• Losses have a scrap value of `15 per litre.

a
• All raw materials are added at the commencement of the process.

R
• The cost per equivalent unit (litre) is `39 for the month made up as follows:
(`)

A
Raw Material 23

C
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.

RTP NOV 18

From the following information for the month of January, 20X9, PREPARE Process-III cost
accounts.
Opening WIP in Process-III 1,600 units at ` 24,000
Transfer from Process-II 55,400 units at ` 6,23,250
Transferred to warehouse 52,200 units
Closing WIP of Process-III 4,200 units
Units Scrapped 600 units

10.6
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Direct material added in Process-III ` 2,12,400

Direct wages ` 96,420
Production overheads ` 56,400

Degree of completion:
Opening Stock Closing Stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of the production and scrap was sold @ ` 5 per unit.
(Students may treat material transferred from Process – II as Material – A and fresh material
used in Process – III as Material B)

l
RTP NOV 19

a
A product is manufactured in two sequential processes, namely Process-1 and Process-2. The

h
following information relates to Process-1. At the beginning of June 2019, there were 1,000

c
WIP goods (60% completed in terms of conversion cost) in the inventory, which are valued at

n
`2,86,020 (Material cost: `2,55,000 and Conversion cost: `31,020). Other information relating to

a
Process-1 for the month of June 2019 is as follows;

Cost of materials introduced- 40,000 units (`)

l P 96,80,000

u
Conversion cost added (`) 18,42,000

h
Transferred to Process-2 (Units) 35,000

a
Closing WIP (Units) (60% completed in terms of conversion cost) 1,500

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

A
10% of input materials (excluding opening WIP).

C
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.

RTP MAY 20

Star 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 the last month, a fire occurred in the factory and
destroyed some of papers containing records of the process operations for the month.
Star 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:
• Opening work-in-process at the beginning of the month was 1,600 litres, 70% complete
for labour and 60% complete for overheads. Opening work-in-process was valued at `
1,06,560.
• Closing work-in-process at the end of the month was 320 litres, 30% complete for labour
and 20% complete for overheads.

10.7
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

• Normal loss is 10% of input and total losses during the month were 1,200 litres partly due
to the fire damage.
• Output sent to finished goods warehouse was 8,400 litres.
• Losses have a scrap value of `15 per litre.
• All raw materials are added at the commencement of the process.
• The cost per equivalent unit (litre) is `78 for the month made up as follows:
(`)
Raw Material 46
Labour 14
Overheads 18
78
Required:
(i) CALCULATE the quantity (in litres) of raw material inputs during the month.

l
(ii) CALCULATE the quantity (in litres) of normal loss expected from the process and the quantity

a
(in litres) of abnormal loss / gain experienced in the month.

h
(iii) CALCULATE the values of raw material, labour and overheads added to the process during

c
the month.

n
(iv) PREPARE the process account for the month.

RTP NOV 20

P a
l
M Ltd. produces a product-X, which passes through three processes, I, II and III. In Process-III a

u
by-product arises, which after further processing at a cost of `85 per unit, product Z is produced.

h
The information related for the month of August 2020 is as follows:

a
Process-I Process-II Process-III

R
Normal loss 5% 10% 5%
Materials introduced (7,000 units) 1,40,000 - -

A
Other materials added 62,000 1,36,000 84,200

C
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000
Production overhead for the month is `2,88,000, which is absorbed as a percentage of direct
wages.
The scrapes are sold at `10 per unit
Product-Z can be sold at `135 per unit with a selling cost of `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 not 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 process.

RTP MAY 21

A company produces a component, which passes through two processes. During the month of
November, 2020, materials for 40,000 components were put into Process- I of which 30,000
were completed and transferred to Process- II. Those not transferred to Process- II were 100%
complete as to materials cost and 50% complete as to labour and overheads cost. The Process- I
costs incurred were as follows:

10.8
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Direct Materials  ` 3,00,000

Direct Wages  ` 3,50,000
Factory Overheads  ` 2,45,000
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  ` 80,000
Direct Wages ` 71,125
Factory Overheads  ` 85,350
Packing material cost is incurred at the end of the second process as protective packing to the
completed units of production.

l
Required:

a
(i) PREPARE Statement of Equivalent Production, Cost per unit and Process I A/c.

h
(ii) PREPARE statement of Equivalent Production, Cost per unit and Process II A/c.

RTP NOV 21

n c
a
Following information is available regarding Process-I of a manufacturing company for the

P
month of February:

l
Production Record:

u
Units in process as on 1st February

h
(All materials used, 1/4th complete for labour and overhead)  8,000

a
New units introduced  32,000

R
Units completed  28,000
Units in process as on 28th February

A
(All materials used, 1/3rd complete for labour and overhead)  12,000

C
Cost Records:  (`)
Work-in-process as on 1st February
Materials  1,20,000
Labour  20,000
Overhead  20,000
 1,60,000
Cost during the month:
Materials  5,12,000
Labour  3,00,000
Overhead  3,00,000
 11,12,000
Presuming that average method of inventory is used, PREPARE the following:
(i) Statement of equivalent production.
(ii) Statement showing cost for each element.
(iii) Statement of apportionment of cost.
(iv) Process cost account for Process-I.

10.9
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

RTP MAY 22

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 to Process- II were 100%
complete as to materials cost and 50% complete as to labour 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:

a l
h
Packing Materials  ` 1,60,000

c
Direct Wages  ` 1,42,250

n
Factory Overheads  ` 1,70,700

a
Packing material cost is incurred at the end of the second process as protective packing to the

P
completed units of production.

l
Required:

u
(i) PREPARE Statement of Equivalent Production, Cost per unit and Process I A/c.

h
(ii) PREPARE statement of Equivalent Production, Cost per unit and Process II A/c.

RTP NOV 22

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

A
Process A Process B Process C

C
Transferred to next Process 60% 50%
Transferred to warehouse for sale 40% 50% 100%
In each process, there is a weight loss of 2% and scrap of 8% of input of each process. The
realizable value of scrap of each process is as below:
Process A @ ` 2 per ton
Process B @ ` 4 per ton
Process C @ ` 6 per ton.
The following particulars relate to April, 2022:
Process A Process B Process C
Materials used (in Tons) 1,000 260 140
Rate per ton ` 20 ` 15 ` 10
Direct Wages ` 4,000 ` 3,000 ` 2,000
Direct Expenses ` 3,160 ` 2,356 ` 1,340
PREPARE Process Accounts- A, B and C & calculate cost per ton at each process.

10.10
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

RTP MAY 23

‘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 10 litre of flavour milk, 100
litre of Raw milk is required, which extracts only 45 litres of 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:
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

l
Direct Labour 6,00,000

a
Overheads 18,00,000

h
Abnormal Loss: 3,000 litres

c
Degree of completion:

n
Milk 100%

a
Labour and overheads 80%

P
Closing work-in process: 27,000 litres

l
Degree of completion:

u
Milk 100%

h
Labour and overheads 80%

a
Milk transferred for Packing: 1,18,500 litres

R
You are required to PREPARE using average method:
(i) Statement of equivalent production,

A
(ii) Statement of cost,

C
(iii) Statement of distribution cost, and
(iv) Process-I Account.

RTP NOV 23

The following information is furnished by ABC Company for Process - II of its manufacturing
activity for the month of April 2023:
(i) Opening Work-in-Progress – Nil
(ii) Units transferred from Process I – 55,000 units at ` 3,27,800
(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%
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

10.11
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

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

RTP MAY 24

The following data are available in respect of Process-I for January 2024:
(1) Opening stock of work in process: 600 units at a total cost of ` 4,200.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of ` 55,200 for 9,200 units.

l
(4) Direct wages incurred ` 18,600

a
(5) Overheads ` 8,630.

h
(6) Units scrapped 200 units. The stage of completion of these units was:

c
Materials 100%

n
Labour 80%

a
Overheads 80%

P
(7) Closing work in process; 700 units. The stage of completion of these units was:

l
Material 100%

u
Labour 70%

h
Overheads 70%

a
(8) 8,900 units were completed and transferred to the next process.

R
(9) Normal loss is 4% of the total input (opening stock plus units put in)
(10) Scrap value is ` 6 per unit.

A
You are required to:

C
(i) PREPARE using FIFO method, Statement of equivalent production,
(ii) PREPARE Statement of cost,
(iii) CALCULATE cost of closing WIP,
(iv) CALCULATE the cost of the units to be transferred to the next process.

10.12
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (10 MARKS) Q. 3B
Alpha Ltd. is engaged in the production of a product A which passes through 3 different process
- Process P, Process Q and Process R. The following data relating to cost and output is obtained
from the books of accounts for the month of April 2017:

Particulars Process P Process Q Process R

Direct Material 38,000 42,500 42,880
Direct Labour 30,000 40,000 50,000

l
Production overheads of ` 90,000 were recovered as percentage of direct labour.

a
10,000 kg of raw material @ ` 5 per kg. was issued to Process P. There was no stock of materials

h
or work in process. The entire output of each process passes directly to the next process and

c
finally to warehouse. There is normal wastage, in processing, of 10 %. The scrap value of wastage

n
is ` 1 per kg. The output of each process transferred to next process and finally to warehouse

a
are as under:

P
Process P = 9,000 kg

l
Process Q = 8,200 kg

u
Process R = 7,300 kg

h
The company fixes selling price of the end product in such a way so as to yield a profit of 25%

a
selling price.

R
Prepare Process P, Q and R accounts. Also calculate selling price per unit of end product.

A
ANSWER :

C
Process- P Account
Particulars Kg. Amount (`) Particulars Kg. Amount (`)
To Input 10,000 50,000 By Normal wastage 1,000 1,000
(1,000 kg. × ` 1)
To Direct Material --- 38,000 By Process- Q 9,000 1,39,500
(9,000 kg. × ` 15.50)
To Direct Labour --- 30,000
To Production OH --- 22,500
(` 90,000 × 3/12)
10,000 1,40,500 10,000 1,40,500

Process- Q Account
Particulars Kg. Amount (`) Particulars Kg. Amount (`)
To Process-P A/c 9,000 1,39,500 By Normal wastage 900 900
(900 kg. × ` 1)
To Direct Material --- 42,500 By Process- Q 8,200 2,54,200
(8,200 kg. × ` 31)

10.13
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

To Direct Labour --- 40,000

To Production OH --- 30,000
(` 90,000 × 4/12)
To Abnormal Gain 100 3,100
(100 kg. × ` 31)
9,100 2,55,100 9,100 2,55,100

` 2,52,000- ` 900
Cost per unit = = ` 31
9,000kg.- 900kg.
Process- R Account
Particulars Kg. Amount (`) Particulars Kg. Amount (`)
To Process-Q A/c 8,200 2,54,200 By Normal wastage 820 820
(820 kg. × Re.1)

l
To Direct Material --- 42,880 By Abnormal loss 80 4,160

a
(80 kg. × ` 52)

h
To Direct Labour --- 50,000 By Finished Goods 7,300 3,79,600

c
(7,300 kg. × `52)

n
To Production OH --- 37,500

a
(` 90,000 × 5/12)

P
8,200 3,84,580 8,200 3,84,580

u l
a h
R
Calculation of Selling price per unit of end product:
Cost per unit ` 52.00

A
Add: Profit 25% on selling price i.e. 1/3rd of cost ` 17.33

C
Selling price per unit ` 69.33

PYQ NOV 18 (5 MARKS) Q. 1C

(c) Following details have been provided by M/s AR Enterprises:
(i) Opening works-in-progress - 3000 units (70% complete
(ii) Units introduced during the year - 17000 units
(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 realise ` 50 per unit. Scraps are 100% complete.
Using FIFO method, compute:
(i) Equivalent production
(ii) Cost per equivalent unit

10.14
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Statement of Equivalent Production Units (Under FIFO Method)
Particulars Input Particulars Output Equivalent
units units Production
(%) Equivalent
units
Opening W-I-P 3,000 From opening W-I-P 3,000 30 900
Units introduced 17,000 From fresh inputs 12,000 100 12,000
Units completed 15,000
(Transferred to next
process)
Normal Loss 2,400 -- --
{12% (3,000 + 17,000

l
units)}

Closing W-I-P 2,200

h a
80 1760

c
Abnormal loss 400 100 400

n
(Balancing figure)

a
20,000 11,000 15,060

l
Computation of cost per equivalent production unit :
P
u
Cost of the Process (for the period) ` 33,12,720

h
Less: Scrap value of normal loss (` 50 × 2,400 units) (` 1,20,000)

a
Total process cost ` 31,92,720

PYQ MAY 19 (10 MARKS)

R Q.3B

A
KT Ltd. produces a product EMM which passes through two processes before it is completed and

C
transferred to finished stock. The following data relate to May 2019:
Particulars Process Finished stock
A B
(`) (`) (`)
Opening Stock 5,000 5,500 10,000
Direct Materials 9,000 9,500
Direct Wages 5,000 6,000
Factory Overheads 4,600 2,030
Closing Stock 2,000 2,490 5,000
Inter-process profit included in opening stock 1,000 4,000
Output of Process A is transferred to Process B at 25% profit on the transfer price and output of
Process B 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 B.
Sales during the period are ` 75,000.
Prepare the Process cost accounts and Finished stock account showing the profit element at each
stage

10.15
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Process-A A/c
Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
Opening stock 5,000 5,000 - Process B 28,800 21,600 7,200
A/c
Direct materials 9,000 9,000 -
Direct wages 5,000 5,000 -
19,000 19,000 -
Less: Closing (2,000) (2,000) -
stock
Prime Cost 17,000 17,000 -
Overheads 4,600 4,600 -

l
Process Cost 21,600 21,600 -

a
Profit (33.33% 7,200 - 7,200

h
of total

c
cost)

n
28,800 21,600 7,200 28,800 21,600 7,200

Process-B A/c

P a
l
Particulars Total Cost Profit Particulars Total Cost Profit

u
(`) (`) (`) (`) (`) (`)

h
Opening stock 5,500 4,500 1,000 Finished 61,675 41,550 20,125

a
stock

R
A/c
Process A A/c 28,800 21,600 7,200

A
Direct materials 9,500 9,500 _

C
Direct wages 6,000 6,000 _
49,800 41,600 8,200
Less: Closing (2,490) (2,080) (410)
stock
Prime Cost 47,310 39,520 7,790
Overheads 2,030 2,030 _
Process Cost 49,340 41,550 7,790
Profit (25% of 12,335 - 12,335
total cost)
61,675 41,550 20,125 61,675 41,550 20,125

10.16
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Finished Stock A/c

Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
Opening stock 10,000 6,000 4,000 Costing P&L 75,000 44,181 30,819
A/c
Process B A/c 61,675 41,550 20,125
71,675 47,550 24,125
Less: Closing (5,000) (3,369) (1,631)
stock
COGS 66,675 44,181 22,494
Profit 8,325 - 8,325
75,000 44,181 30,819 75,000 44,181 30,819

l
PYQ NOV 19 (10 MARKS) Q.4B

a
A product passes through two distinct processes before completion. Following information are

h
available in this respect :

c
Process-1 Process-

n
Raw materials used 10,000 units -

a
Raw material cost (per unit) ` 75 -

P
Transfer to next process/Finished good 9,000 units 8,200 units

l
Normal loss (on inputs) 5% 10%

u
Direct wages ` 3,00,000 ` 5,60,000

h
Direct expenses 50% of direct wages 65% of direct wages

a
Manufacturing overheads 25% of direct wages 15% of direct wages

R
Realisable value of scrap (per unit) ` 13.50 ` 145
8,000 units of finished goods were sold at a profit of 15% on cost. There was no opening and

A
closing stock of work-in-progress.

C
Prepare:
(i) Process-1 and Process-2 Account
(ii) Finished goods Account
(iii) Normal Loss Account
(iv) Abnormal Loss Account
(v) Abnormal Gain Account.

ANSWER :
Process-1 Account
Particulars Units Total (`) Particulars Units Total (`)
To Raw Material 10,000 7,50,000 By Normal Loss A/c 500 6,750
Consumed @ 13.5
” Direct Wages -- 3,00,000 ” Process 2 @ 133.5 9,000 12,01,500
” Direct -- 1,50,000 ” By Abnormal 500 66,750
Expenses Expenses Loss @ 133.5
“ Manufacturing 75,000
Overheads
10,000 12,75,000 10,000 12,75,000

10.17
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Cost per unit of completed units and abnormal loss:

(ii)
Dr. Process-2 Account Cr.
Particulars Units Total (`) Particulars Units Total (`)
To Process-I A/c 9,000 12,01500 By Normal Loss A/c 900 1,30,500
@ 145
” To Direct -- 5,60,000 ” By Finished Stock 8,200 21,04,667
Wages A/c [bal fig]
” Direct Expenses -- 3,64,000
” Manufacturing -- 84,000

l
Overheads

a
” To Abnormal 100 25,667

h
gain

c
(` 256.67 ×

n
100

a
units)

P
9,100 22,35,167 9,100 22,35,167

l
Cost per unit of completed units and abnormal gain

h u
Dr. Finished Goods A/c
Particulars Units
R a
Total (`) Particulars Units Total (`)
Cr.

A
To Process II A/c 8,200 21,04,667 By By Cost of Sales 8,000 20,53,333

C
” By Balance c/d 200 51,334
8,200 21,04,667 8,200 21,04,667

(iii)
Dr. Cr.
Particulars Units Total (`) Particulars Units Total (`)
To Process I 500 6,750 By By abnormal Gain II 100 14,500
Process II 900 1,30,500 By Cash 500 6,750
By Cash 800 1,16,000
1400 1,37,250 1400 1,37,250

(iv)
Dr. Cr.
Particulars Units Total (`) Particulars Units Total (`)
To Process I 500 66,750 By By Cost Ledger 500 6,750
Control A/c
By Costing P& L A/C 60,000
(Abnormal Loss)
66,750 66,750

10.18
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

(v) Abnormal Gain A/c

Dr. Cr.
Particulars Units Total (`) Particulars Units Total (`)
To Normal Loss 100 14,500 By Process II 100 25,667
A/c @ 145
To Costing P & L 11,167
A/C
100 25,667 100 25,667

PYQ NOV 20 (10 MARKS) Q.4A

Following details are related to the work done in Process-I by ABC Ltd. during the month of May
2019 :
(`)

l
Opening work in process (3,000 units)

a
Materials 1,80,500

h
Labour 32,400

c
Overheads 90,000

n
Materials introduced in Process-I (42,000 units) 36,04,000

a
Labour 4,50,000

P
Overheads 15,18,000

Units Scrapped : 4,800 units

u l
h
Degree of completion :

a
Materials : 100%

R
Labour & overhead : 70%
Closing Work-in-process : 4,200 units

A
Degree of completion :

C
Materials : 100%
Labour & overhead : 5%
Units finished and transferred to Process-II : 36,000
units Normal loss:
4% of total input including opening work-in-process
Scrapped units fetch ` 62.50 per piece
Prepare:
(i) Statement of equivalent production.
(ii) Statement of cost per equivalent unit.
(iii) Process-I A/c
(iv) Normal Loss Account and
(v) Abnormal Loss Account

10.19
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Statement of Equivalent Production (Weighted Average method)
Particulars Input Particulars Output Equivalent Production
Units Units Material Labour & O.H.
% Units % Units
Opening WIP 3,000 Completed and 36,000 100 36,000 100 36,000
transferred to
Process-II

Units 42,000 Normal Loss 1,800 -- -- -- --

introduced (4% of 45,000
units)
Abnormal loss 3,000 100 3,000 70 2,100

l
(Balancing figure

a
Closing WIP 4,200 100 4,200 50 2,100

h
45,000 45,000 43,200 40,200

(ii) Statement showing cost for each element

n c
a
Particulars Materials (`) Labour (`) Overhead (`) Total (`)

P
Cost of opening work- 1,80,500 32,400 90,000 3,02,900

l
in-process

u
Cost incurred during the 36,04,000 4,50,000 15,18,000 55,72,000

h
month

a
Less: Realisable Value of (1,12,500) -- -- (1,12,500)

R
normal scrap (` 62.50 ×
1,800 units)

A
Total cost: (A) 36,72,000 4,82,400 16,08,000 57,62,400

C
Equivalent units: (B) 43,200 40,200 40,200
Cost per equivalent unit: 85.00 12.00 40.00 137.00
(C) = (A ÷ B)

Statement of Distribution of cost

Particulars Amount (`) Amount
(`)
1. Value of units completed and transferred: 49,32,000
(36,000 units × ` 137)
2. Value of Abnormal Loss:
- Materials (3,000 units × ` 85) 2,55,000
- Labour (2,100 units × ` 12) 25,200
- Overheads (2,100 units × ` 40) 84,000 3,64,200
3. Value of Closing W-I-P:
- Materials (4,200 units × ` 85) 3,57,000
- Labour (2,100 units × ` 12) 25,200
- Overheads (2,100 units × ` 40) 84,000 4,66,200

10.20
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

(iii) Process-I A/c

Particulars Units (`) Particulars Units (`)
To Opening W.I.P:
 -Materials 3,000 1,80,500 By Normal Loss 1,800 1,12,500
 -Labour -- 32,400 (` 62.5 × 1,800
 -Overheads -- 90,000 units)

To Materials 42,000 36,04,000 By Abnormal loss 3,000 3,64,200

introduced
To Labour 4,50,000 By Process-I A/c 36,000 49,32,000
To Overheads 15,18,000 By Closing WIP 4,200 4,66,200
45,000 58,74,900 45,000 58,74,900

l
(iv) Abnormal Loss A/c

a
Particulars Units (`) Particulars Units (`)

h
To Process-I A/c 1,800 1,12,500 By Cost Ledger 1,800 1,12,500

c
Control A/c

n
1,800 1,12,500 1,800 1,12,500

(v)

P a
Abnormal Loss A/c

l
Particulars Units (`) Particulars Units (`)

u
To Process-I A/c 3,000 3,64,200 By Cost Ledger 3,000 1,87,500

h
Control A/c (` 62.5

a
× 3,000

R
units)
By Costing Profit & 1,76,700

A
Loss A/c (Bal.

C
Figure)
3,000 3,64,200 3,000 3,64,200

PYQ JAN 21 (5 MARKS) Q.1C

MNO Ltd has provided following details:
• Opening work in progress is 10,000 units at ` 50,000 (Material 100%, Labour and overheads
70% complete).
• Input of materials is 55,000 units at ` 2,20,000. Amount spent on Labour and Overheads
is ` 26,500 and ` 61,500 respectively.
• 9,500 units were scrapped; degree of completion for material 100% and for labour &
overheads 60%.
• Closing work in progress is 12,000 units; degree of completion for material 100% and for
labour & overheads 90%.
• Finished units transferred to next process are 43,500 units.
Normal loss is 5% of total input including opening work in progress. Scrapped units would
fetch ` 8.50 per unit.
You are required to prepare using FIFO method:
(i) Statement of Equivalent production
(ii) Abnormal Loss Account

10.21
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Statement of Equivalent Production (Using FIFO method)
Particulars Input Particulars Output Equivalent Production
Unit Units Material Labour & O.H.
% Units % Units
Opening WIP 10,000 Completed and
transferred to
Process-II
Units 55,000 -From opening WIP 10,000 - 30 3,000
introduced
-From fresh inputs 33,500 100 33,500 100 33,500
43,500 33,500 36,500
Normal Loss 3,250 - -

l
{5% (10,000 +

a
55,000 units)}

h
Abnormal loss 6,250 100 6,250 60 3,750

c
(9,500 – 3,250)

n
Closing WIP 12,000 100 12,000 90 10,800

a
65,000 65,000 51,750 51,050

P
(ii) Abnormal Loss A/c

l
Particulars Units (`) Particulars Units (`)

u
To Process-I A/c 6,250 29,698 By Cost Ledger 6,250 53,125

h
(Refer Working Control A/c (6,250

a
Note-2) units × ` 8.5)

R
To Costing Profit & - 23,427
Loss A/c

A
6,250 53,125 6,250 53,125

Working Notes:
1.
Particulars
C Computation of Cost per unit
Materials Labour Overhead
(`) (`) (`)
Input costs 2,20,000 26,500 61,500
Less: Realisable value of normal (27,625) -- --
scrap (3,250 units x ` 8.5)
Net cost 1,92,375 26,500 61,500
Equivalent Units 51,750 51,050 51,050
Cost Per Unit 3.7174 0.5191 1.2047
Total cost per unit = ` (3.7174 + 0.5191 + 1.2047) = ` 5.4412

2. Valuation of Abnormal Loss

(`)
Materials (6,250 units × ` 3.7174) 23,233.75
Labour (3,750 units × ` 0.5191) 1,946.63
Overheads (3,750 units × ` 1.2047) 4,517.62
29,698

10.22
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

PYQ JULY 21 (10 MARKS) Q.4A

A Manufacturing unit manufactures a product 'XYZ' which passes through three distinct Processes
- X, Y and Z. The following data is given:
Process X Process Y Process Z
Material consumed (in `) 2,600 2,250 2,000
Direct wages (in `) 4,000 3,500 3,000
• The total Production Overhead of ` 15,750 was recovered @ 150% of Direct wages.
• 15,000 units at ` 2 each were introduced to Process 'X'.
• The output of each process passes to the next process and finally, 12,000 units were
transferred to Finished Stock Account from Process 'Z'.
• No stock of materials or work in progress was left at the end.
The following additional information is given:
Process % of wastage to normal input Value of Scrap per unit (`)

l
X 6% 1.10

a
Y ? 2.00

h
Z 5% 1.00

c
You are required to:

n
(i) Find out the percentage of wastage in process 'Y', given that the output of Process 'Y' is

a
transferred to Process 'Z' at ` 4 per unit.

P
(ii) Prepare Process accounts for all the three processes X, Y and Z.

ANSWER :

u l
h
Dr. Process-X Account Cr

a
Particulars Units (`) Particulars Units (`)

R
To Material 15,000 30,000 By Normal Loss A/c 900 990
introduced [(6% of 15,000 units) x

A
` 1.1]

C
” Additional -- 2,600 ” Process-Y A/c 14,100 41,610
material (` 2.951* × 14,100
units)
” Direct wages -- 4,000
” Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units

Dr. Process-Y Account Cr

Particulars Units (`) Particulars Units (`)
To Process-X A/c 14,100 41,610 By Normal Loss A/c 1,895 3,790
[(#13.44% of
14,100 units) x ` 2]
”Additional -- 2,250 ” Process-Z A/c (` 4 × 12,205 48,820
material 12,205 units)
” Direct wages -- 3,500
” Production OH -- 5,250
14,100 52,610 14,100 52,610

10.23
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

# Calculation for % of wastage in process ‘Y’

Let’s consider number of units lost under process ‘Y’ = A

` 52,610 - ` 2A = ` 56,400 - ` 4A
2A = ` 3,790 => A = 1,895 units

Dr. Process-Z Account Cr

Particulars Units (`) Particulars Units (`)
To Process-X A/c 12,205 48,820 By Normal Loss A/c 610 610

l
[(5% of 12,205

a
units) x ` 1]

h
”Additional -- 2,000 ” Finished Stock 12,000 59,726

c
material A/c (` 4.9771$ ×

n
12,000 units)

a
” Direct wages -- 3,000

P
” Production OH -- 4,500

l
” Abnormal gain 405 2,016 14,100 52,610

u
(` 4.9771$ × 405

h
units)

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

R
$Cost per unit of completed units

C A
Alternative Solution
Dr. Process-X Account Cr
Particulars Units (`) Particulars Units (`)
To Material 15,000 30,000 By Normal Loss A/c [(6% 900 990
introduced of 15,000 units) x ` 1.1]

” Additional -- 2,600 ” Process-Y A/c 14,100 41,610

material (` 2.951* × 14,100 units)

” Direct wages -- 4,000

” Production OH -- 6,000
15,000 42,600 15,000 42,600
*Cost per unit of completed units

10.24
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Dr. Process-Y Account Cr

Particulars Units (`) Particulars Units (`)
To Process-X A/c 14,100 41,610 By Normal Loss A/c 1,895 3,790
[(#13.44% of 14,100
units) x ` 2]
”Additional -- 2,250 ” Process-Z A/c (` 4 × 12,631 50,524
material 12,631@ units)
” Direct wages -- 3,500
” Production OH -- 5,250
” Abnormal gain(` 426 1,704
4 × 426 units)
14,526 54,314 14,526 54,314
Working Notes:

l
@
1. Units Transferred from Process Z Account to Finished Stock = 12,000 Units i.e 95% of Inputs.

a
So, Input of Z or Output of Y is 12,000 x 100/95 = 12,631 Units and Normal Loss (5%) is 631

h
units.

c
2. Let’s consider number of units lost under process ‘Y’ as:

n
For Normal loss =A

a
For Abnormal loss =B

P
Now, A + B = 1,469 [i.e. 14,100 – 12,631] …(I)

l
(A x ` 2 per unit) + (B x ` 4 per unit) = [ 52,610 – 50,524]

u
2A + 4B = 2,086 …(II)

h
Now, putting the values of (I) in (II), we get, 2(1,469 – B) + 4B = 2,086

a
2938 – 2B + 4B = 2,086

R
2B = - 852 => B = - 426 units
Since, the figure of B is in negative, it is an abnormal gain of 426 units.

A
Further, A (i.e. normal loss) = 1,469 + 426 = 1,895 units

C
Dr. Process-Z Account Cr
Particulars Units (`) Particulars Units (`)
To Process-X A/c 12,631 50,524 By Normal Loss A/c [(5% 631 631
of 12,631 units)
x ` 1]
” Additional -- 2,000 ” Finished Stock A/c (` 12,000 59,393
material 4.9771$ ×
12,000 units)
” Direct wages -- 3,000
” Production OH -- 4,500
12,631 60,024 12,631 60,024
$Cost per unit of completed units

10.25
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

PYQ DEC 21 (5 MARKS) Q.1D

A product passes through Process-I and Process-II. Particulars pertaining to the Process-I are:
Materials issued to Process-I amounted to ` 80,000, Wages ` 60,000 and manufacturing
overheads were ` 52,500. Normal Loss anticipated was 5% of input, 9,650 units of output
were produced and transferred out from Process-I to Process-II. Input raw materials issued to
Process-I were 10,000 units.
There were no opening stocks.
Scrap has realizable value of ` 5 per unit. You are required to prepare:
(i) Process-I Account
(ii) Abnormal Gain/Loss Account

ANSWER :
(i) Process - I Account

l
Particulars Units (`) Particulars Units (`)

a
To Materials 10,000 80,000 By Normal loss (5%of 500 2,500

ch
10,000)
To Wages - 60,000 By Process-II A/c 9,650 1,93,000

n
(`20*×9,650units )

a
To Manufacturing OH 52,500

P
To Abnormal Gain A/c 150 3,000

l
(`20*×150units)

u
10,150 1,95,500 10,150 1,95,500

a h
(ii) Abnormal Gain - Account
R
A
Particulars Units (`) Particulars Units (`)

C
To Normal loss A/c 150 750 By Process-I A/c 150 3,000
To Costing P&L A/c - 2,250
150 3,000 150 3,000

PYQ MAY 22 (10 MARKS) Q.4A

STG Limited is a manufacturer of Chemical 'GK', which is required for industrial use. The complete
production operation requires two processes. The raw material first passes through Process I,
where Chemical 'G' is produced. Following data is furnished for the month April 2022:

INTERMEDIATE EXAMINATION: MAY, 2022

Particulars (in kgs.)
Opening work-in-progress quantity 9,500
(Material 100% and conversion 50% complete)
Material input quantity 1,05,000
Work Completed quantity 83,000
Closing work-in-progress quantity 16,500
(Material 100% and conversion 60% complete)

10.26
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

You are further provided that:

Particulars (in `)
Opening work-in-progress cost
Material cost 29,500
Processing cost 14,750
Material input cost 3,34,500
Processing cost 2,53,100
Normal process loss may be estimated to be 10% of material input. It has no realizable value. Any
loss over and above normal loss is considered to be 100% complete in material and processing.
The Company transfers 60,000 kgs. of output (Chemical G) from Process I to Process II for producing
Chemical 'GK'. Further materials are added in Process II which yield 1.20 kg. of Chemical 'GK' for
every kg. of Chemical 'G' introduced. The chemicals transferred to Process II for further processing
are then sold as Chemical 'GK' for ` 10 per kg. Any quantity of output completed in Process I, are

l
sold as Chemical 'G' @ ` 9 per kg.

a
The monthly costs incurred in Process II (other than the cost of Chemical 'G') are: Input 60,000 kg.

h
of Chemical 'G'

c
Materials Cost ` 85,000

n
Processing Costs ` 50,000

a
You are required:

P
(i) Prepare Statement of Equivalent production and determine the cost per kg. of

l
Chemical ‘G' in Process I using the weighted average cost method.

u
(ii) Prepare a statement showing cost of Chemical 'G’ transferred to Process II, cost of abnormal

h
loss and cost of closing work-in progress.

a
(iii) STG is considering the option to sell 60,000 kg. of Chemical 'G' of Process I without processing

R
it further in Process-II. Will it be beneficial for the company over the current pattern of
processing 60,000 kg in process-II?

A
(Note: You are not required to prepare Process Accounts)

ANSWER :
(i) C
Statement of Equivalent Production
Particulars Input Particulars Total Material Processing
quantity Cost
% Units % Units
Opening WIP 9,500 Units 83,000 100% 83,000 100% 83,000
completed
Material Input 1,05,000 Normal loss 10,500 - - - -
(10% of
1,05,000)

Abnormal 4,500 100% 4,500 100% 4,500

loss (Bal. fig.)
Closing WIP 16,500 100% 16,500 60% 9,900
1,14,500 1,14,500 1,04,000 97,400

10.27
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Statement of Cost for each element

Particulars Material Processing Total cost
(`) (`) (`)
Cost of opening WIP 29,500 14,750 44,250
Cost incurred during the month 3,34,500 2,53,100 5,87,600
Total cost (A) 3,64,000 2,67,850 6,31,850
Equivalent production (B) 1,04,000 97,400
Cost per kg of Chemical ‘G’ (A/B) 3.5 2.75 6.25

Alternative Presentation
Statement showing cost per kg of each statement
(`) (`)
Material 29,500 + 3,34,500 3.5

l
1,04,000

a
Processing cost 14,750 + 2,53,100 2.75

ch
97,400
Total Cost per kg 6.25

(ii)

a n
Statement showing cost of Chemical ‘G’ transferred to Process II, cost of abnormal loss and

P
cost of closing work-in- progress

l
(`)

u
Units transferred (60,000 × 6.25) 3,75,000

h
Abnormal loss (4,500 × 6.25) 28,125

a
Closing work in progress:

R
Material (16,500 × 3.5) 57,750
Processing cost (9,900 × 2.75) 27,225

A
84,975

(iii)
C
Calculation of Incremental Profit / Loss after further processing
Particulars
Sales if further processed (A) (60,000 x 1.20 x `
(`)
7,20,000
(`)

10)
Calculation of cost in Process II
Chemical transferred from Process I 3,75,000
Add: Material cost 85,000
Add: Process cost 50,000
Total cost of finished stock (B) 5,10,000
Profit, if further processed (C = A – B) 2,10,000
If sold without further processing then,
Sales (60,000 x ` 9) 5,40,000
Less: Cost of input without further processing 3,75,000
Profit without further processing (D) 1,65,000
Incremental Profit after further processing (C – D) 45,000
Additional net profit on further processing in Process II is 45,000.
Therefore, it is advisable to process further chemical ‘G’.

10.28
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Alternative Presentation
Calculation of Incremental Profit / Loss after further processing
(`)
If 60,000 units are sold @ ` 9 5,40,000
If 60,000 units are processed in process II (60,000 × 1.2 × ` 10) 7,20,000
Incremental Revenue (A) 1,80,000
Incremental Cost: (B)
Material Cost 85,000
Processing Cost 50,000
1,35,000
Incremental Profit (A-B) 45,000
Additional net profit on further processing in Process II is 45,000. Therefore, it
is advisable to process further chemical ‘G’.

PYQ NOV 22 (10 MARKS)

a l Q.3B

h
N Ltd. produces a product which passes through two processes – Process – I and Process-II. The

c
company has provided following information related to the Financial Year 2021-22

n
Process-I Process -II

a
Raw Material @` 65 per unit 6,500 units -

P
Direct Wages ` 1,40,000 ` 1,30,000

l
Direct Expenses 30% of Direct 35% of Direct

u
Wages Wages

h
Manufacturing Overheads ` 21,500 ` 24,500

a
Realisable value of scrap per unit ` 4.00 ` 16.00

R
Normal Loss 250 units 500 units
Units transferred to Process-II / finished stock 6,000 units 5,500 units

A
Sales - 5,000 units

C
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

ANSWER :
Process-I A/c
Particulars Units (`) Particulars Units (`)
To Raw material used 6,500 4,22,500 By Normal loss (250 250 1,000
(` 65 × 6,500 units) units × ` 4)
To Direct wages -- 1,40,000 By Process- II A/c 6,000 6,00,000
(` 100 × 6,000 units)
To Direct expenses -- 42,000 By Abnormal loss (` 250 25,000
(30% of ` 1,40,000) 100 × 250 units)
To Manufacturing 21,500
overhead
6,500 6,26,000 6,500 6,26,000

10.29
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

Process- II A/c
Particulars Units (`) Particulars Units (`)
To Process - I A/c 6,000 6,00,000 By Normal loss (500 500 8,000
units × `16)
To Direct wages -- 1,30,000 By Finished Stock A/c 5,500 7,92,000
(`144 × 5,500 units)
To Direct expenses -- 45,500
(35% of ` 1,30,000)

l
To Manufacturing -- 24,500

a
overhead

h
6,000 8,00,000 6,000 8,00,000

c
Cost per unit of completed units and abnormal loss:

a n
l P
h u
Finished Goods Stock A/c

a
Particulars Units (`) Particulars Units (`)

R
To Process II A/c 5,500 7,92,000 By Cost of Sales 5,000 7,20,000
(`144 × 5,000 units)

A
By Balance c/d 500 72,000

C
5,500 7,92,000 5,500 7,92,000

PYQ NOV 23 (5 MARKS) Q.4C

A product passes through two processes; Process A and Process B. The output of Process A is
treated as input of Process B.
The following information has been furnished:
Process A Process B
Input Material ` 3,90,000 -
78,000 Kg.@ ` 5
Indirect Material - `34,320
Wages ` 2,85,000 ` 3,30,000
Overhead ` 1,67,400 ` 1,11,600
Output transferred to Process B 68,640 kgs
Transfer to Finished Stock - 69,000 kgs
Normal loss of input material (weight in kgs.) 7,800 kgs 240 kgs
There is no realisable value for normal loss. No stock of raw materials on work-in-process was
left at the end.
You are required to prepare the Process account for each Process.

10.30
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Process A Account
Particulars Units ` Particulars Units `
To Material 78,000 3,90,000 By Normal Loss 7,800 -
To Wages 2,85,000 By Abnormal Loss 1,560 18,720
To Overheads 1,67,400 By Process B A/c 68,640 8,23,680
Total 78,000 8,42,400 Total 78,000 8,42,400

Process B Account
Particulars Units ` Particulars Units `
To Process A A/c 68,640 8,23,680 By Normal loss 240 -

l
To Indirect Material 34,320 By Finished stock 69,000 13,11,000

a
To Wages 3,30,000

h
To Overheads 1,11,600

c
To Abnormal gain 600 11,400

n
Total 69,240 13,11,000 Total 69,240 13,11,000

a
Cost per unit of completed units and abnormal gains:

l P
h u
R a
C A

10.31
PROCESS & OPERATION COSTING
 TRP Sir
CA Rahul Panchal

JOINT PRODUCTS
11 AND BY PRODUCTS

QUESTION 1. (ILLUSTRATION 1) 
A coke manufacturing company produces the following products by using 5,000 tonnes of coal
@ `1,100 per tonne into a common process.
Coke 3,500 tonnes
Tar 1,200 tonnes
Sulphate of ammonia 52 tonnes
Benzol 48 tonnes
PREPARE a statement apportioning the joint cost amongst the products on the basis of the

l
physical unit method.

QUESTION 2. (ILLUSTRATION 2) 

h a
c
FIND OUT the cost of joint products A, B and C using average unit cost method from the following

n
data:

a
(a) Pre-separation Joint Cost ` 60,000

P
(b) Production data:

l
Products Units produced

u
A 500

h
B 200

a
C 300

QUESTION 3. (ILLUSTRATION 3) 
R
A
FIND OUT the cost of joint products A and B using contribution margin method from the following

C
data :
Sales
A : 100 kg @ ` 60 per kg.
B : 120 kg @ ` 30 per kg.
Joint costs
Marginal cost ` 4,400
Fixed cost ` 3,900

QUESTION 4. (ILLUSTRATION 4) 
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 purchased Salt for ` 40,000.
Conversion cost of ` 60,000 were incurred upto the split off point, at which time two sealable
products were produced. Chlorine can be further processed into PVC.
The July production and sales information is as follows:
Production Sales Quantity Selling price per
(in tonne) (in tonne) tonne (`)
Caustic Soda 1,200 1,200 50
Chlorine 800 — —
PVC 500 500 200

11.1
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

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) SHOW 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 point ;
(b) physical unit 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.

l
EXPLAIN how the acceptance of this offer for the month of August would affect operating

a
income?

QUESTION 5. (PP1) 

c h
n
Smile company produces two main products and a by-product out of a joint process. The ratio

a
of output quantities to input quantities of direct material used in the joint process remains

P
consistent on yearly basis. Company has employed the physical volume method to allocate

l
joint production costs to the main products. The net realizable value of the by-product is used

u
to reduce the joint production costs before the joint costs are allocated to the main products.

h
Details of company’s operation are given in the table below. During the month, company incurred

a
joint production costs of ` 10,00,000/- The main products are not marketable at the split off

R
point and thus have to be processed further.
Particulars Product-A Product-B By product

A
Monthly output in kg. 60,000 1,20,000 50,000

C
Selling price per kg. ` 50 ` 30 `5
Process costs ` 2,00,000 ` 3,00,000
FIND OUT the amount of joint product cost that Smile company would allocate to the product-B
by using the physical volume method to allocate joint production costs?

QUESTION 6. (PP2) 
Sun-moon Ltd. produces and sells the following products:
Products Units Selling price at split-off point Selling price after further
(`) processing (`)
A 2,00,000 17 25
B 30,000 13 17
C 25,000 8 12
D 20,000 10 -
E 75,000 14 20
Raw material costs `35,90,000 and other manufacturing expenses cost ` 5,47,000 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 ` 12,50,000; ` 1,50,000; ` 50,000 and `
1,50,000 respectively. Fixed costs are ` 4,73,000.
You are required to PREPARE the following in respect of the coming year:

11.2
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

(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.
Can you suggest any other production plan whereby the company can maximise its profits? If
yes, then submit a statement showing income forecast arising out of adoption of that plan.

QUESTION 7. (PP3) 
‘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 separates into buttermilk and
butter. For the month of January, ‘Buttery Butter’ purchased 50 Kilolitre processed cream @ `
100 per 1000 ml. Conversion cost of ` 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

l
into Ghee.

a
The January production and sales information is as follows:

h
Products Production (in Sales Quantity (in Selling price per Litre/Kg

c
Kilolitre/tonne) Kilolitre/tonne) (`)

n
Buttermilk 28 28 30

a
Butter 20 — —

P
Ghee 16 16 480

l
All 20 tonne of butter were further processed at an incremental cost of ` 1,20,000 to yield 16

u
Kilolitre of Ghee. There was no opening or closing inventories of buttermilk, butter or ghee in the

h
month of January.

a
Required:

R
(i) SHOW how joint cost would be apportioned between Buttermilk and Butter under Estimated
Net Realisable Value method.

A
(ii) ‘Healthy Bones’ offers to purchase 20 tonne of butter in February at ` 360 per kg. In case

C
‘Buttery Butter’ accepts this offer, no Ghee would be produced in February. SUGGEST
whether ‘Buttery Butter’ shall accept the offer affecting its operating income or further
process butter to make Ghee itself?

QUESTION 8. (PP4) 
NN Manufacturing company uses joint production process that produces three products at the
split off point. Joint productions costs during September were ` 8,40,000. Product information
for September was as follows:
Particulars Product A Product B Product C
Units produced 1,500 3,000 4,500
Units sold 2,000 6,000 7,500
Sales prices:
At the split-off ` 100
After further processing ` 150 ` 175 ` 50
Costs to process after split-off ` 1,50,000 ` 1,50,000 ` 1,50,000
Assume that product C is treated as a by-product and the company accounts for the by-product
at net realizable value as a reduction of joint cost. Assume also that Product B&C must be
processed further before they can be sold. FIND OUT the total cost of Product A in September if
joint cost allocation is based on net realizable values?

11.3
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

QUESTION 9. (PP5) 
RST Limited produces three joint products X, Y and Z. The products are processed further. Pre-
separation costs are apportioned on the basis of weight of output of each joint product. The
following data are provided for a particular month:
Cost incurred up to separation point: ` 10,000
Output (in Litre) Product X 100 Product Y 70 Product Z 80
` ` `
Cost incurred after separation point 2,000 1,200 800
Selling Price per Litre:
After further processing 50 80 60
At pre-separation point (estimated) 25 70 45
You are required to:
(i) Prepare a statement showing profit or loss made by each product after further processing

l
using the presently adopted method of apportionment of pre-separation cost.

a
(ii) Advise the management whether, on purely financial consideration, the three products are

h
to be processed further or not.

QUESTION 10. (PP6) 

n c
a
OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process results

P
in four products at the spilt-off point - S, P, N and A. Product 'A’ is fully processed at the split-

l
off point. Product S, P and N can be individually further refined into SK, PM, and NL respectively.

u
The joint cost of purchasing the crude vegetable oil and processing it were ` 40,000 which is

h
apportioned on the basis of Sales Value at split-off point. Other details are as follows:

a
Product Further processing Sales at split- off point (`) Sales after further

R
costs (`) processing (`)
S 80,000 20,000 1,20,000

A
P 32,000 12,000 40,000

C
N 36,000 28,000 48,000
A - 20,000 -
You are required to identify the products which can be further processed for maximizing profits
and make suitable suggestions.

11.4
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
A company processes a raw material in its Department 1 to produce three products, viz. A, B and
X at the same split-off stage. During a period 1,80,000 kgs of raw materials 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 were further processed in Department 2 at
a cost of ` 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:

l
A B X

a
Quantity Sold (kgs.) 17,000 5,000 44,000

h
Sales Value (`) 12,24,000 2,50,000 7,92,000

c
There were no opening stocks. If these products were sold at split-off stage, the selling prices of

n
A, B and X would have been ` 50, ` 40 and ` 10 per kg respectively.

Required:

P a
l
(i) PREPARE a statement showing the apportionment of joint costs to A, B and X.

u
(ii) PREPARE a statement showing the cost per kg of each product indicating joint cost and

h
further processing cost and total cost separately.

a
(iii) PREPARE a statement showing the product wise and total profit for the period.

R
(iv) DECIDE with supporting calculations as to whether any or all the products should be further
processed or not

RTP NOV 18

C A
In an Oil Mill four products emerge from a refining process. The total cost of input during the
quarter ending March 20X8 is `1,48,000. The output, sales and additional processing costs are
as under:
Products Output in Litres Additional processing cost after Sales value (`)
split off (`)
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

PRODUCE a statement of profitability based on:

(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.

RTP MAY 19

A company processes a raw material in its Department 1 to produce three products, viz. A, B and
X at the same split-off stage. During a period 1,80,000 kgs of raw materials 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

11.5
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

kgs, 10,000 kgs and 54,000 kgs respectively. A and B were further processed in Department 2 at
a cost of `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.

l
(ii) PRESENT a statement showing the cost per kg of each product indicating joint cost and

a
further processing cost and total cost separately.

h
(iii) PREPARE a statement showing the product wise and total profit for the period.

c
(iv) STATE with supporting calculations as to whether any or all the products should be further

n
processed or not

RTP NOV 20

P a
l
ABC Ltd. operates a simple chemical process to convert a single material into three separate

u
items, referred to here as X, Y and Z. All three end products are separated simultaneously at a

h
single split-off point.

a
Product X and Y are ready for sale immediately upon split off without further processing or any

R
other additional costs. Product Z, however, is processed further before being sold. There is no
available market price for Z at the split-off point.

A
The selling prices quoted here are expected to remain the same in the coming year. During 2019-

C
20, the selling prices of the items and the total amounts sold were:
X – 186 tons sold for `3,000 per ton
Y – 527 tons sold for `2,250 per ton
Z – 736 tons sold for `1,500 per ton
The total joint manufacturing costs for the year were `12,50,000. An additional ` 6,20,000 was
spent to finish product Z.
There were no opening inventories of X, Y or Z at the end of the year. The following inventories
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:
COMPUTE the cost of inventories of X, Y and Z and cost of goods sold for year ended March 31,
2020, using Net realizable value (NRV) method of joint cost allocation.

11.6
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

RTP NOV 21

A company produces two joint products A and B from the same basic materials. The processing
is completed in three departments.
Materials are mixed in Department I. At the end of this process, A and B get separated. After
separation, A is completed in the Department II and B in Department III. During a period, 4,00,000
kg of raw material was processed in Department I at a total cost of
` 17,50,000, and the resultant 50% becomes A and 40% becomes B and 10% normally lost in
processing.
In Department II, 1/5th of the quantity received from Department I is lost in processing. A is
further processed in Department II at a cost of ` 2,60,000.
In Department III, further new material is added to the material received from Department I and
weight mixture is doubled, there is no quantity loss in the department III. Further processing cost
(with material cost) in Department III is ` 3,00,000.

l
The details of sales during the said period are:

a
Product A Product B

h
Quantity sold (kg) 1,50,000 3,00,000

c
Sales price per kg (`) 10 4

a n
There were no opening stocks. If these products sold at split-off-point, the selling price of A and

P
B would be ` 8 and ` 4 per kg respectively.

l
Required:

u
(i) PREPARE a statement showing the apportionment of joint cost to A and B in proportion of

h
sales value at split off point.

a
(ii) PREPARE a statement showing the cost per kg of each product indicating joint cost,

R
processing cost and total cost separately.
(iii) PREPARE a statement showing the product wise profit for the year.

A
(iv) On the basis of profits before and after further processing of product A and B, give your

C
COMMENT that products should be further processed or not.

RTP NOV 22

JP Ltd. uses joint production process that produces three products at the split -off point. Joint
production costs during the month of July, 2022 were ` 33,60,000.
Product information for the month of July is as follows:
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.

11.7
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

RTP MAY 23

Key Pee Limited produces and sells the following products:
Products Units Selling price at split-off point (`) Selling price after further
processing (`)
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 ex•penses 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.

l
You are required to PREPARE the following in respect of the coming year:

a
(a) Statement showing income forecast of the company assuming that none of its products are

h
to be further processed.

c
(b) Statement showing income forecast of the company assuming that products A, B, C and E

n
are to be processed further.

RTP NOV 23

P a
l
A factory producing article A also produces a by-product B which is further processed into

u
finished product. The joint cost of manufacture is given below:

h
Material ` 5,000

a
Labour ` 3,000

R
Overhead ` 2,000
` 10,000

A
Subsequent cost in ` are given below:

C
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
Estimated profit on selling prices is 25% for A and 20% for B.
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.

11.8
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 19 (5 MARKS) Q.1C
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:

Joint Expenses Separate Expenses

(`) (`)
Bomex Cromex

l
Materials 1,00,000 6,000 4,000

a
Labour 50,000 20,000 18,000

h
Overheads 30,000 10,000 6,000

c
Selling Price per unit 100 40

n
Estimated profit per unit on sale of Cromex 5

a
Number of units produced 2,000 2,000

P
units units

l
The factory uses net realisable value method for apportionment of joint cost to by-products.

u
You are required to prepare statements showing :

h
(i) Joint cost allocable to Cromex

a
(ii) Product wise and overall profitability of the factory for April 2019.

ANSWER :
R
A
(i) Statement Showing Joint Cost Allocation to ‘Cromex’

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

(ii) Statement Showing Product Wise and Overall Profitability

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

11.9
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

PYQ NOV 19 (5 MARKS) Q.1C

A Factory produces two products, 'A' and 'B' from a single process. The joint processing costs
during a particular month are :
Direct Material `30,000
Direct Labour ` 9,600
Variable Overheads ` 12,000
Fixed Overheads ` 32,000
Sales: A- 100 units@ ` 600 per unit; B – 120 units @ ` 200 per unit.
I. Apportion joints costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and
II. Determine Profit or Loss under both the methods.

l
ANSWER :

a
Total Joint Cost

h
Amount (`)

c
Direct Material 30,000

n
Direct Labour 9,600

a
Variable Overheads 12,000

P
Total Variable Cost 51,600

l
Fixed Overheads 32,000

u
Total joint cost 83,600

Apportionment of Joint Costs:

a h
R
Product-A Product-B
I. (i) Apportionment of Joint

A
Cost on the basis of

C
‘Physical Quantity’
(ii) Apportionment of Joint
Cost on the basis of
‘Contribution Margin
Method’:
- Variable Costs (on
basis of physical
units)
Contribution Margin 36,545 -4,145
(`600×100 – (`200×120 – 28,145)
23,455)
Fixed Costs* ` 32,000
Total apportioned cost ` 55,455 ` 28,145
II. (iii) Profit or Loss:
When Joint cost apportioned on basis of physical units
A. Sales Value ` 60,000 ` 24,000
B. Apportioned joint cost ` 38,000 ` 45,600
on basis of ‘Physical
Quantity’:

11.10
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

A-B Profit or (Loss) 22,000 (21,600)

When Joint cost apportioned on basis of ‘Contribution Margin Method’
C Apportioned joint cost ` 55,455 ` 28,145
on basis of ‘Contribution
Margin Method’
A-C Profit or (Loss) ` 4,545 ` (4,145)
* The fixed cost of ` 32,000 is to be apportioned over the joint products A and B in the ratio
of their contribution margin but contribution margin of Product B is Negative so fixed cost
will be charged to Product A only.

PYQ NOV 20 (5 MARKS) Q.1C

A company's plant processes 6,750 units of a raw material in a month to produce two products
'M' and 'N'.

l
The process yield is as under:

a
Product M 80%

h
Product N 12%

c
Process Loss 8%

n
The cost of raw material is ` 80 per unit.

a
Processing cost is ` 2,25,000 of which labour cost is accounted for 66%. Labour is chargeable

P
to products 'M' and 'N' in the ratio of 100:80.

l
Prepare a Comprehensive Cost Statement for each product showing:

u
(i) Apportionment of joint cost among products 'M' and 'N' and

h
(ii) Total cost of the products 'M' and 'N'

ANSWER :
Comprehensive Cost Statement
R a
A
Particulars Total Cost Product-M Product-N

C
(`) (`) (`)
No. of units produced * 5,400 units 810 units
Cost of raw material (` 80 × 6,750 units) 5,40,000
Processing cost
- Labour cost (` 2,25,000 × 66%) 1,48,500
- Other costs (` 2,25,000 - 1,48,500 76,500
Total joint cost 7,65,000
(i) Apportionment of joint costs between
the joint products
Labour cost in the ratio of 100:80 1,48,500 82,500 66,000

Other joint costs (including material) in the 6,16,500 5,36,087 80,413

ratio of output
(5,400:810)
(ii) Total product cost 7,65,000 6,18,587 1,46,413
* No. of units produced of Product M = 6750 units x 80% = 5400 units
No. of units produced of Product N = 6750 units x 12% = 810 units

11.11
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

PYQ JAN 21 (10 MARKS) Q.4A

Mayura Chemicals Ltd buys a particular raw material at ` 8 per litre. At the end of the
processing in Department- I, this raw material splits-off into products X, Y and Z. Product
X is sold at the split-off point, with no further processing. Products Y and Z require further
processing before they can be sold. Product Y is processed in Department-2, and Product Z is
processed in Department-3. Following is a summary of the costs and other related data for
the year 2019-20:
Particulars Department
1 2 3
Cost of Raw Material ` 4,80,000 - -
Direct Labour ` 70,000 ` 4,50,000 ` 6,50,000
Manufacturing Overhead ` 48,000 ` 2,10,000 ` 4,50,000
Products

l
X Y Z

a
Sales (litres) 10,000 15,000 22,500

h
Closing inventory (litres) 5,000 - 7,500

c
Sale price per litre (`) 30 64 50

n
There were no opening and closing inventories of basic raw materials at the beginning as well

a
as at the end of the year. All finished goods inventory in litres was complete as to processing.

P
The company uses the Net-realisable value method of allocating joint costs.

l
You are required to prepare:

u
(i) Schedule showing the allocation of joint costs.

h
(ii) Calculate the Cost of goods sold of each product and the cost of each item in Inventory.

a
(iii) A comparative statement of Gross profit.

ANSWER :
R
A
(i) Statement of Joint Cost allocation of inventories of X, Y and Z

C
Products Total
X (`) Y (`) Z (`) (`)
Final sales value of total 4,50,000 9,60,000 15,00,000 29,10,000
production (Working Note 1) (15,000 x ` (15,000 x ` (30,000 x
30) 64) ` 50)

Less: Additional cost -- 6,60,000 11,00,000 17,60,000

Net realisable value (at split-off 4,50,000 3,00,000 4,00,000 11,50,000
point)
Joint cost allocated (Working Note 2,34,000 1,56,000 2,08,000 5,98,000
2)

(ii) Calculation of Cost of goods sold and Closing inventory

Products Total
X (`) Y (`) Z (`) (`)
Allocated joint cost 2,34,000 1,56,000 2,08,000 5,98,000
Add: Additional costs -- 6,60,000 11,00,000 17,60,000
Cost of goods sold (COGS) 2,34,000 8,16,000 13,08,000 23,58,000

11.12
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Less: Cost of closing inventory 78,000 (COGS × -- 3,27,000 4,05,000

(Working Note 1) 100/3%) (COGS ×
25%)
Cost of goods sold 1,56,000 8,16,000 9,81,000 19,53,000

(iii) Comparative Statement of Gross Profit

Products Total
X (`) Y (`) Z (`) (`)
Sales revenue 3,00,000 9,60,000 11,25,000 23,85,000
(10,000 x ` (15,000 x ` 64) (22,500 x `
30) 50)
Less: Cost of goods 1,56,000 8,16,000 9,81,000 19,53,000
sold

l
Gross Profit 1,44,000 1,44,000 1,44,000 4,32,000

a
Working Notes:

ch
1. Total production of three products for the year 2019-2020
Products Quantity sold in Quantity Total production Closing

n
litres of closing inventory

a
inventory in percentage

P
litres (%)

l
(1) (2) (3) (4) = [(2) + (3)} (5) = (3)/ (4)

u
X 10,000 5,000 15,000 100/3

h
Y 15,000 -- 15,000 --

a
Z 22,500 7,500 30,000 25

R
2. Joint cost apportioned to each product

C A
PYQ JULY 21 (10 MARKS) Q.2B
OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process
results in four products at the spilt-off point - S, P, N and A. Product 'A’ is fully processed at
the split-off point. Product S, P and N can be individually further refined into SK, PM, and
NL respectively. The joint cost of purchasing the crude vegetable oi l and processing it were `
40,000. Other details are as follows:
Product Further processing costs Sales at split-off point Sales after further
(`) (`) processing (`)

S 80,000 20,000 1,20,000

P 32,000 12,000 40,000
N 36,000 28,000 48,000
A - 20,000 -

11.13
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

You are required to identify the products which can be further processed for maximizing profits
and make suitable suggestions.
ANSWER :
Statement of Comparison of Profits before and after further processing
S (`) P (`) N (`) A (`) Total (`)
A. Sales at split off point 20,000 12,000 28,000 20,000 80,000
B. Apportioned Joint Costs 10,000 6,000 14,000 10,000 40,000
(Refer Working Note)
C. Profit at split-off point 10,000 6,000 14,000 10,000 40,000
D. Sales after further 1,20,000 40,000 48,000 - 2,08,000
processing
E. Further processing cost 80,000 32,000 36,000 - 1,48,000
F. Apportioned Joint Costs 10,000 6,000 14,000 - -

l
(Refer Working Note)

a
G. Profit if further processing 30000 2,000 (-) 2,000 - -

h
(D – E + F)

c
H. Increase/ decrease in profit 20,000 - 4000 - 16,000 - -

n
after further processing (G- C)

a
Suggested Product to be further processed for maximising profits:

P
On comparing the figures of "Profit if no further processing" and "Profits if further processing",

l
one observes that OPR Ltd. is earning more after further processing of Product S only i.e.

u
` 20,000. Hence, for maximizing profits, only Product S should be further processed and

h
Product P, N and A should be sold at split-off point.

a
Working Note:

R
Apportionment of joint costs on the basis of Sales Value at split -off point

Where

C A
Total Joint cost = ` 40,000
Total sales at split off point (S, P, N and A) = 20,000 + 12,000 + 28,000 + 20,000 = ` 80,000

Alternative Solution
Decision for further processing of Product S, P and N
Products S (`) P (`) N (`)
Sales revenue after further processing 1,20,000 40,000 48,000
Less: sales value at split-off point 20,000 12,000 28,000
Incremental Sales Revenue 1,00,000 28,000 20,000
Less: Further Processing cost 80,000 32,000 36,000
Profit/ loss arising due to further processing 20,000 (-)4,000 (-)16,000

11.14
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Suggested Product to be further processed for maximising profits:

On comparing the figures of "Profit if no further processing" and "Profits if further processing",
one observes that OPR Ltd. is earning more after further processing of Product S only i.e.
` 20,000. Hence, for maximizing profits, only Product S should be further processed and
Product P, N and A should be sold at split-off point

PYQ MAY 22 (5 MARKS) Q.5C

RST Limited produces three joint products X, Y and Z. The products are processed further. Pre-
separation costs are apportioned on the basis of weight of output of each joint product. The
following data are provided for the month of April, 2022.
Cost incurred up to separation point: ` 10,000
Product X Product Y Product Z
Output (in Litre) 100 70 80

l
` ` `

a
Cost incurred after separation point 2,000 1,200 800

h
Selling Price per Litre:

c
After further processing 50 80 60

n
At pre-separation point (estimated) 25 70 45

a
You are required to:

P
(i) Prepare a statement showing profit or loss made by each product after further processing

l
using the presently adopted method of apportionment of pre-separation cost.

u
(ii) Advise the management whether, on purely financial consideration, the three products are

h
to be processed further or not.

ANSWER :
(i)
R a
Statement showing profit/loss by each product after further processing products

A
Product X Product Y Product Z

C
(in `) (in `) (in `)
Sales value after further processing 5,000 5,600 4,800
Less: Further processing cost 2,000 1,200 800
Less: Joint Cost* (as apportioned) 4,000 2,800 3,200
Profit/(loss) (1,000) 1,600 800
* Statement showing apportionment of joint cost on the basis of physical units

Product X Product Y Product Z Total

(in `) (in `) (in `) (`)
Output (in litre) 100 70 80 250
Weight 0.4 (100/250) 0.28 (70/250) 0.32 (80/250)
Joint cost apportioned 4,000 2,800 3,200
(ii) Decision whether to process further or not
Product X Product Y Product Z
(in `) (in `) (in `)
Incremental Revenue 2,500 700 1,200
[(50-25) ×100] [(80-70) × 70] [(60-45) × 80]
Less: Further processing cost 2,000 1,200 800
Incremental profit /(loss) 500 (500) 400

11.15
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Product X Product Y Product Z Total

(in `) (in `) (in `) (`)
Sales 2500 4900 3600 11000
Pre separation costs 4000 2800 3200 10000
Profit/(Loss) (1500) 2100 400 1000
It is advisable to further process only product X and Z and to sale product Y at the point of
separation.

PYQ NOV 22 (5 MARKS) Q.5C

ASR Ltd mainly produces Product 'L' and gets a by-Product 'M' out of a joint process. The net
realizable value of the by-product is used to reduce the joint production costs before the joint
costs are allocated to the main product. During the month of October 2022, company incurred
joint production costs of ` 4,00,000. The main Product 'L' is not marketable at the split off

l
point. Thus, it has to be processed further. Details of company's operation are as under:

a
Particulars Product L By- Product M

h
Production (units) 10,000 200

c
Selling price per kg ` 45 `5

n
Further processing cost ` 1,01,000 -

a
You are required to find out:

P
(i) Profit earned from Product 'L'.

l
(ii) Selling price per kg of product 'L', if the company wishes to earn a profit of ` 1,00,000 from

u
the above production.

ANSWER :

a h
R
(i) Calculation of profit on product ‘L’
Particular `

A
Sales 4,50,000

C
Less: Further processing cost (1,01,000)
3,49,000
Less: Joint Production Cost* (3,99,000)
loss (50,000)
*Joint Production Cost = [4,00,000 – (200 × 5)] = 3,99,000
(ii) Calculation of desired selling price of product ‘L’

PYQ MAY 23 (10 MARKS) Q.4A
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 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' 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:

11.16
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Process Variable cost per kg (`) Fixed cost of Input (`)

R 5.00 42,000
S 4.50 5,000
T 3.40 4,800
The by-product 'Z' cannot be processed further and can be sold at ` 30 per kg at the split- off
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 'X' and by-product 'Z' at the split- off point and the profitability of product 'X' and by-
product 'Z.

ANSWER :
(a) Working Notes:

l
1. Calculation of Input of Raw Material

a
Let assume total raw material in Process R be

h
100%

c
 Output of Process T will be equal to:

n
Input R 100%

a
- 10% Normal Loss ` 10

P
Input S ` 90%

l
- 10% Normal loss `9

u
Input T 81%

h
- 10% Normal loss ` 8.1

a
Output of T 72.9

R
Actual output of X 14,580 units
Which is 80% of the total output

A
⁖⁖ Output of Process T

C
Alternative presentation for Calculation of Input in Process R, S and T Working notes:
Process T (Kg.)
To Input (Transfer from process S) 20,250 By Normal loss 2,025
By Output Product X 14,580
By output of by-product Z 3,645
20,250 20,250

Process S (Kg.)
To Input (Transfer from process S) 22,500 By Normal loss (10%) By 2,250
Transfer to process T 20,250
22,500 22,500

11.17
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Process R (Kg.)
To Input 25,000 By Normal loss (10%) By 2,500
Transfer to process S 22,500
25,000 22,500

2. Calculation of Joint Cost

Process Inputs Variable cost Variable cost Fixed Cost Total Cost
per kg
` ` ` `
R 25,000 5 1,25,000 42,000 1,67,000
S 22,500 4.5 1,01,250 5,000 1,06,250
T 20,250 3.4 68,850 4,800 73,650
3,46,900

l
Raw material J 10000 x 15 ` 1,50,000

a
K 10000 x 9 ` 90,000

h
L 5000 x 7 ` 35,000

c
2,75,000

n
Add: Processing cost (as above) ` 3,46,900

a
Total Joint Cost 6,21,900

(i) Statement showing apportionment of Joint Cost

l P
u
Particulars Product X By-Product Z Total

h
Units 14,580 3,645

a
Selling price (`) 60 30

R
Sales Value (`) 8,74,800 1,09,350 9,84,150
(` 6,21,900 to apportioned in ratio of 5,52,800 69,100 6,21,900

A
sales value at split off point)

(ii)

Sales Value
C
Statement of Profitability
Particulars Product X
8,74,800
By-Product Z
1,09,350
Total
9,84,150
Joint Cost (5,52,800) (69,100) (6,21,900)
(As apportioned above) ______ ______ ______
Profit 3,22,000 40,250 3,62,250

PYQ NOV 23 (5 MARKS) Q.1C

XYZ Limited manufactures three joint products A, B and C from a joint process. Product B is
sold at split off point whereas product A and C are sold after further 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:
Particulars 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 ` 9.50 - ` 12
processing
Further processing costs ` 8,60,000 - `10,40,000

11.18
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

The joint production cost upto the split off point at which A, B and C become separable
products is ` 57,26,000.
Required:
(i) Prepare a statement showing apportionment of joint cost to the products using Net
realizable value method.
(ii) Assume XYZ 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?

ANSWER :
(i) Statement showing apportionment of joint cost to the products using NRV method
Particulars Product A (`) Product B (`) Product C (`)

l
Sales value 34,20,000 12,60,000 54,00,000

a
(3,60,000 x ` 9.5) (2,10,000 x ` 6) (4,50,000 x ` 12)

h
Less: Further processing cost 8,60,000 - 10,40,000

c
Net Realisable Value 25,60,000 12,60,000 43,60,000

n
Apportionment of Joint 17,92,000 8,82,000 30,52,000

a
cost of ` 57,26,000 in the ratio

P
of 256:126:436

(ii) Decision whether to Process further or not

u l
h
Particulars Product A (`) Product C (`)

a
Incremental Revenue 9,00,000 13,50,000

R
(` 9.5-` 7) x 3,60,000 (` 12- ` 9) x 4,50,000
Less: Further processing cost 8,60,000 10,40,000

A
Less: wastage if further 2,80,000 -

C
processed ` 7 x (3,60,000*10%/90%)
Incremental profit/(loss) (2,40,000) 3,10,000
On comparing incremental sales revenue with further processing cost, there is net loss of `
2,40,000 in case of product A and profit of ` 3,10,000 in case of product C. Hence offer of
D Ltd should be accepted and Product A should be sold at split off point Whereas product
C should be sold after further processing
The solution can also be presented in following way:
Profit from further processing
Particulars Product A (`) Product C (`)
Sales Revenue 34,20,000 54,00,000
(3,60,000 x 9.5) (4,50,000 x 12)
Less: Joint cost 17,92,000 30,52,000
Less: Further processing cost 8,60,0000 10,40,000
(i) Profit/(loss) 7,68,000 13,08,000
Profit from Accepting offer (Sale at separation point)

11.19
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

Particulars Product A (`) D Limited Product C (`) PQR Limited

offer accepted offer accepted
Sales Revenue 28,00,000 40,50,000
(3,60,000/0.90) x 7 (4,50,000 x 9)
Less: Joint cost 17,92,000 30,52,000
(ii) Profit/(loss) 10,08,000 9,98,000
Incremental profit (loss) (i)-(ii) (2,40,000) 3,10,000
On comparing profit at separation point with further processing profit, there is net loss of
` 2,40,000 in case of product A and profit of ` 3,10,000 in case of product C. Hence offer of
D Ltd should be accepted and Product A should be sold at split off point Whereas product
C should be sold after further processing

a l
c h
a n
l P
h u
R a
C A

11.20
JOINT PRODUCTS AND BY PRODUCTS
 TRP Sir
CA Rahul Panchal

12 SERVICE COSTING

QUESTION 1. (ILLUSTRATION 1) 
A lorry starts with a load of 20 MT of goods from Station ‘A’. It unloads 8 MT in Station ‘B’ and
balance goods in Station ‘C’. On return trip, it reaches Station ‘A’ with a load of 16 MT, loaded at
Station ‘C’. The distance between A to B, B to C and C to A are 80 Kms,
120 Kms and 160 Kms, respectively. COMPUTE “Absolute MT-Kilometer” and “Commercial MT –
Kilometer”.
(MT = Metric Ton or Ton).

l
QUESTION 2. (ILLUSTRATION 2) 

a
AXA Passenger Transport Company is running 5 buses between two towns, which are 40 kms

h
apart. Seating capacity of each bus is 40 passengers. Following details are available from their

c
books, for the month of April:

n
Particulars Amount (`)

a
Salary of Drivers, Cleaners and Conductors 24,000

P
Salary to Supervisor 10,000

l
Diesel and other Oil 40,000

u
Repairs and Maintenance 8,000

h
Tax and Insurance 16,000

a
Depreciation 26,000

R
Interest 20,000
1,44,000

A
Actual passengers carried were 75% of the seating capacity. All the five buses run on all days for

C
the month. Each bus made one round trip per day. CALCULATE cost per passenger – Kilometer.

QUESTION 3. (ILLUSTRATION 3) 
ABC Transport Company has given a route 40 kilometers long to run bus.
(a) The bus costs the company a sum of ` 10,00,000
(b) It has been insured at 3% p.a. and
(c) The annual tax will amount to ` 20,000
(d) Garage rent is ` 20,000 per month.
(e) Annual repairs will be ` 2,04,000
(f) The bus is likely to last for 2.5 years
(g) The driver’s salary will be ` 30,000 per month and the conductor’s salary will be ` 25,000
per month in addition to 10% of takings as commission [To be shared by the driver and
conductor equally].
(h) Cost of stationery will be ` 1,000 per month.
(i) Manager-cum-accountant’s salary is ` 17,000 per month.
(j) Petrol and oil will be ` 500 per 100 kilometers.
(k) The bus will make 3 up and down trips carrying on an average 40 passengers on each trip.
(l) The bus will run on an average 25 days in a month.
Assuming 15% profit on takings, CALCULATE the bus fare to be charged per passenger-kilometer.

12.1
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 4. (ILLUSTRATION 4) 
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. 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 trip plying an hour later picks up the junior students. Similarly,
in the afternoon the first trip takes the junior 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. Bus fee, however, is payable by the
students for all 12 months in a year.
The details of expenses for a year are as under:
Driver’s salary ` 4,500 per month per driver

l
Cleaner’s salary ` 3,500 per month

a
(Salary payable for all 12 months)

h
(One cleaner employed for all the five buses)

c
License fee, taxes, etc. ` 8,600 per bus per annum

n
Insurance ` 10,000 per bus per annum

a
Repairs & maintenance ` 35,000 per bus per annum

P
Purchase price of the bus ` 15,00,000 each

l
Life of each bus 12 years

u
Scrap value of buses at the end of life ` 3,00,000

h
Diesel cost ` 45.00 per litre

a
Each bus gives an average mileage of 4 km. per litre of diesel.

R
Seating capacity of each bus is 50 students.
The seating capacity is fully occupied during the whole year.

A
Students picked up and dropped within a range up to 4 km. of distance from the school are

C
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
(B) students coming from a distance beyond 4 km. from the school.

QUESTION 5. (ILLUSTRATION 5) 
GTC has a lorry of 6-tonne carrying capacity. It operates lorry service from city A to city B for a
particular vendor. It charges ` 2,400 per tonne from city ‘A’ to city ‘B’ and ` 2,200 per tonne for
the return journey from city ‘B’ to city ‘A’. Goods are also delivered to an intermediate city ‘C’ but
no extra changes are billed for unloading goods in-between destination city and no concession
in rates is given for reduced load after unloading at intermediate city. Distance between the city
‘A’ to ‘B’ is 300 km and distance from city ‘A’ to ‘C’ is 140 km.
In the month of January, the truck made 12 journeys between city ‘A’ and city ‘B’. The details of
journeys are as follows:
Outward journey No. of journeys Load (in tonne)
‘A’ to ‘B’ 10 6

12.2
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

‘A’ to ‘C’ 2 6
‘C’ to ‘B’ 2 4
Return journey No. of journeys Load (in tonne)
‘B’ to ‘A’ 5 8
‘B’ to ‘A’ 6 6
‘B’ to ‘C’ 1 6
‘C’ to ‘A’ 1 0

Annual fixed costs and maintenance charges are ` 6,00,000 and ` 1,20,000 respectively. Running
charges spent during the month of January are ` 2,94,400 (includes ` 12,400 paid as penalty for
overloading).
You are required to:
(i) CALCULATE the cost as per (a) Commercial tonne-kilometer. (b) Absolute tonne- kilometer.

l
(ii) CALCULATE Net Profit/ loss for the month of January.

QUESTION 6. (ILLUSTRATION 6) 

h a
c
A company runs a holiday home. For this purpose, it has hired a building at a rent of ` 10,000

n
per month along with 5% of total taking. It has three types of suites for its customers, viz., single

a
room, double rooms and triple rooms.

P
Following information is given:

l
Type of suite Number Occupancy percentage

u
Single room 100 100%

h
Double rooms 50 80%

a
Triple rooms 30 60%

R
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 room’s suite.

A
The other expenses for the year 2022-23 are as follows:

C
(`)
Staff salaries 14,25,000
Room attendants’ wages 4,50,000
Lighting, heating and power 2,15,000
Repairs and renovation 1,23,500
Laundry charges 80,500
Interior decoration 74,000
Sundries 1,53,000
Provide profit @ 20% on total taking and assume 360 days in a year.
You are required to CALCULATE the rent to be charged for each type of suite.

QUESTION 7. (ILLUSTRATION 7) 
A lodging home is being run in a small hill station with 100 single rooms. The home offers
concessional rates during six off- season months in a year when numbers of visitor are limited.
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 on 31st March. [Assume a month to be of 30 days].
(i) Occupancy during the season is 80% while in the off- season it is 40% only.

12.3
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(ii) Total investment in the home is ` 200 lakhs of which 80% relate to buildings and balance
for furniture and equipment.
(iii) Expenses:
• Staff salary [Excluding room attendants] : ` 5,50,000
• Repairs to building : ` 2,61,000
• Laundry charges : ` 80, 000
• Interior : ` 1,75,000
• Miscellaneous expenses : ` 1,90,800
(iv) Annual depreciation is to be provided for buildings @ 5% and on furniture and equipment
@ 15% on straight-line basis.
(v) Room attendants are paid ` 10 per room day on the basis of occupancy of the rooms in a
month.
(vi) Monthly lighting charges are ` 120 per room, except in four months in winter when it is `

l
30 per room.

a
You are required to WORK OUT the room rent chargeable per day both during the season and the

h
off-season months on the basis of the foregoing information.

QUESTION 8. (ILLUSTRATION 8) 

n c
a
ABC Hospital runs a Critical Care Unit (CCU) in a hired building. CCU consists of 35 beds and 5

P
more beds can be added, if required.

l
Rent per month - ` 75,000

u
Supervisors – 2 persons – ` 25,000 Per month – each

h
Nurses – 4 persons – ` 20,000 per month – each

a
Ward Boys – 4 persons – ` 5,000 per month – each

R
Doctors paid ` 2,50,000 per month – paid on the basis of number of patients attended and the
time spent by them

C A
Other expenses for the year are as follows:
Repairs (Fixed) – ` 81,000
Food to Patients (Variable) – ` 8,80,000
Other services to patients (Variable) – ` 3,00,000
Laundry charges (Variable) – ` 6,00,000
Medicines (Variable) – ` 7,50,000
Other fixed expenses – ` 10,80,000
Administration expenses allocated – ` 10,00,000
It was estimated that for 150 days in a year 35 beds are occupied and for 80 days only 25 beds
are occupied.
The hospital hired 750 beds at a charge of ` 100 per bed per day, to accommodate the flow
of patients. However, this does not exceed more than 5 extra beds over and above the normal
capacity of 35 beds on any day.
You are required to –
(a) CALCULATE profit per Patient day, if the hospital recovers on an average ` 2,000 per day
from each patient
(b) FIND OUT Breakeven point for the hospital.

12.4
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 9. (ILLUSTRATION 9) 
Following are the data pertaining to Infotech Pvt. Ltd, for the year 2022-23:
Amount (`)
Salary to Software Engineers (5 persons) 15,00,000
Salary to Project Leaders (2 persons) 9,00,000
Salary to Project Manager 6,00,000
Repairs & maintenance 3,00,000
Administration overheads 12,00,000

The company executes a Project XYZ, the details of the same as are as follows:
Project duration – 6 months
One Project Leader and three Software Engineers were involved for the entire duration of the
project, whereas Project Manager spends 2 months’ efforts, during the execution of the project.

l
Travel expenses incurred for the project – ` 1,87,500

a
Two Laptops were purchased at a cost of ` 50,000 each, for use in the project and the life of the

h
same is estimated to be 2 years

c
PREPARE Project cost sheet.

QUESTION 10. (ILLUSTRATION 10) 

a n
P
BHG Toll Plaza Ltd built a 60 km. long highway and now operates a toll plaza to collect tolls

l
from passing vehicles using the highway. The company has estimated that a total of 12 crore

u
vehicles (only single type of vehicle) will be using the highway during the 10 years toll collection

h
tenure.

a
Toll Operating and Maintenance cost for the month of April are as follows:

R
(i) Salary to –
• Collection Personnel (3 Shifts and 4 persons per shift) - ` 550 per day per person

A
• Supervisor (2 Shifts and 1 person per shift) - ` 750 per day per person

C
• Security Personnel (3 Shifts and 6 persons per shift) - ` 450 per day per person
• Toll Booth Manager (2 Shifts and 1 person per shift) - ` 900 per day per person
(ii) Electricity – ` 8,00,000
(iii) Telephone – ` 1,40,000
(iv) Maintenance cost – ` 30 Lakh
Monthly depreciation and amortisation expenses will be ` 1.50 crore. Further, the company
needs 25% profit over total cost to cover interest and other costs.
Required:
(i) CALCULATE cost per kilometer per month.
(ii) CALCULATE the toll rate per vehicle.

QUESTION 11. (ILLUSTRATION 11) 

AD Higher Secondary School (AHSS) offers courses for 11th & 12th standard in three streams
i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along with primary
and secondary classes, but for accounting purpose it treats higher secondary as a separate
responsibility centre. The Managing committee of the school wants to revise its fee structure for
higher secondary students. The accountant of the school has provided the following details for
a year:

12.5
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Amount (`)
Teachers’ salary (25 teachers × ` 35,000 × 12 months) 1,05,00,000
Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants × ` 15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × ` 10,000 × 12 months) 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

l
Other information:

a
(i)

h
Standard 11 & 12 Primary &

c
Arts Commerce Science Secondary

n
No. of students 120 360 180 840

a
Lab classes in a year 0 0 144 156

P
No. of examinations in a 2 2 2 2

l
year

u
Time spent at library by 180 hours 120 hours 240 hours 60 hours

h
students per year

a
Time spent by 208 hours 312 hours 480 hours 1,400 hours

R
principal for administration
Teachers for 11 & 12 4 5 6 10

A
standard

(ii)
C
One teacher who teaches economics for Arts stream students also teaches commerce
stream students. The teacher 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 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their 15%
time for higher secondary section.
(v) All school students irrespective of section and age participates in annual functions and
sports activities.

Required:
(a) CALCULATE cost per student per annum for all three streams.
(b) If the management decides to take uniform fee of ` 1,000 per month from all higher
secondary students, CALCULATE stream wise profitability.
(c) If management decides to take 10% profit on cost, COMPUTE fee to be charged from the
students of all three streams respectively.

12.6
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 12. (ILLUSTRATION 12) 

Sanziet Lifecare Ltd. operates in life insurance business. Last year it 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:
`
Policy development cost 11,25,000
Cost of marketing of the policy 45,20,000
Sales support expenses 11,45,000
Policy issuance cost 10,05,900
Policy servicing cost 35,20,700
Claims management cost 1,25,600
IT cost 74,32,000
Postage and logistics 10,25,000

l
Facilities cost 15,24,000

a
Employees cost 5,60,000

h
Office administration cost 16,20,400

c
Number of policies sold- 528

n
Total insured value of policies- ` 1,320 crore

Required:

P a
l
(i) CALCULATE total cost for Professionals Protection Plus policy segregating the costs into

u
four main activities namely (a) Marketing and Sales support, (b) Operations, (c) IT and (d)

h
Support functions.

a
(ii) CALCULATE cost per policy.

R
(iii) CALCULATE cost per rupee of insured value.

A
QUESTION 13. (ILLUSTRATION 13) 

C
The loan department of a bank performs several functions in addition to home loan application
processing task. It is estimated that 25% of the overhead costs of loan department are applicable
to the processing of home-loan application. The following information is given concerning the
processing of a loan application:

Direct professional labor:

(`)
Loan processor monthly salary: 2,40,000
(4 employees @ ` 60,000 each)
Loan department overhead costs (monthly)
Chief loan officer’s salary 75,000
Telephone expenses 7,500
Depreciation Building 28,000
Legal advice 24,000
Advertising 40,000
Miscellaneous 6,500
Total overhead costs 1,81,000
You are required to COMPUTE the cost of processing home loan application on the assumption
that five hundred home loan applications are processed each month.

12.7
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 14. (ILLUSTRATION 14) 

PREPARE the cost statement of Ignus Thermal Power Station showing the cost of electricity
generated per kWh, from the data provided below pertaining to the year 2022-23.
Total units generated 20,00,000 kWh
Amount (`)
Operating labour 30,00,000
Repairs & maintenance 10,00,000
Lubricants, spares and stores 8,00,000
Plant supervision 6,00,000
Administration overheads 40,00,000
5 kWh. of electricity generated per kg of coal consumed @ ` 4.25 per kg. Depreciation charges
@ 5% on capital cost of ` 5,00,00,000.

l
QUESTION 15. (ILLUSTRATION 15) 

a
Solar Power Ltd. has a power generation capacity of 1000 Megawatt per day. On an average it

ch
operates at 85% of its installed capacity. The cost structure of the plant is as under:
Cost particulars Amount (` in Lakh)

n
1. Employee cost per year 2500

a
2. Solar panel maintenance cost per year 250

P
3. Site maintenance cost per year 150

l
4. Depreciation per year 5940

u
CALCULATE cost of generating 1kW of power.

h
[ 1 Megawatt = 1,000 kW]

QUESTION 16. (PP1) 

R a
SLS Infrastructure built and operates 110 k.m. highway on the basis of Built- Operate-Transfer

A
(BOT) for a period of 25 years. A traffic assessment carried out to estimate the traffic flow per

C
day shows the following figures:
Sl. No. Type of vehicle Daily traffic volume
1. Two wheelers 44,500
2. Car and SUVs 3,450
3. Bus and LCV 1,800
4. Heavy commercial vehicles 816

The following is the estimated cost of the project:

Sl. Activities Amount
No. (` in lakh)
1 Site clearance 170.70
2 Land development and filling work 9,080.35
3 Sub base and base courses 10,260.70
4 Bituminous work 35,070.80
5 Bridge, flyovers, underpasses, Pedestrian subway, footbridge, etc 29,055.60
6 Drainage and protection work 9,040.50
7 Traffic sign, marking and road appurtenance 8,405.00
8 Maintenance, repairing and rehabilitation 12,429.60
9 Environmental management 982.00

12.8
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Total Project cost 114,495.25

An estimated 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. Bus and LCV 30%
4. Heavy commercial vehicles 45%

Required:
(i) CACULATE the total project cost per day of concession period.

l
(ii) COMPUTE toll fee to be charged for per vehicle of each type, if the company wants to earn

a
a profit of 15% on total cost.

h
[Note: Concession period is a period for which an infrastructure is allowed to operate and recovers

c
its investment]

QUESTION 17. (PP2) 

a n
P
Mr. X owns a bus which runs according to the following schedule:

l
(i) Delhi to Chandigarh and back, the same day.

u
Distance covered: 250 km. one way.

h
Number of days run each month: 8

a
Seating capacity occupied 90%.

R
(ii) Delhi to Agra and back, the same day.
Distance covered: 210 km. one way

A
Number of days run each month: 10

C
Seating capacity occupied 85%
(iii) Delhi to Jaipur and back, the same day.
Distance covered: 270 km. one way
Number of days run each month: 6
Seating capacity occupied 100%
(iv) Following are the other details:
Cost of the bus ` 12,00,000
Salary of the Driver ` 24,000 p.m.
Salary of the Conductor ` 21,000 p.m.
Salary of the part-time Accountant ` 5,000 p.m.
Insurance of the bus ` 4,800 p.a.
Diesel consumption 4 km. per litre at ` 56 per litre
Road tax ` 15,915 p.a.
Lubricant oil ` 10 per 100 km.
Permit fee ` 315 p.m.
Repairs and maintenance ` 1,000 p.m.
Depreciation of the bus @ 20% p.a.
Seating capacity of the bus 50 persons.

12.9
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

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.

QUESTION 18. (PP3) 

A company is considering three alternative proposals for conveyance facilities for its sales
personnel who has to do considerable traveling, approximately 20,000 kilometers every year.
The proposals are as follows:
(i) Purchase and maintain its own fleet of cars. The average cost of a car is ` 6,00,000.
(ii) Allow the Executive use his own car and reimburse expenses at the rate of ` 10 per kilometre
and also bear insurance costs.
(iii) Hire cars from an agency at ` 1,80,000 per year per car. The company will have to bear

l
costs of petrol, taxes and tyres.

The following further details are available:

h a
c
Petrol ` 6 per km. Repairs and maintenance ` 0.20 per km.

n
Tyre ` 0.12 per km. Insurance ` 1,200 per car per annum

a
Taxes` 800 per car per annum Life of the car: 5 years with annual mileage of

P
20,000 km.

l
Resale value: ` 80,000 at the end of the fifth year.

u
WORK OUT the relative costs of three proposals and rank them.

QUESTION 19. (PP4) 

a h
R
From the following data pertaining to the year 2022-23 PREPARE a cost statement showing the
cost of electricity generated per kwh by Chambal Thermal Power Station.

A
Total units generated  10,00,000 kWh (`)

C
Operating labour  15,00,000
Repairs & maintenance  5,00,000
Lubricants, spares and stores  4,00,000
Plant supervision  3,00,000
Administration overheads  20,00,000
5 kWh. of electricity generated per kg. of coal consumed @ ` 4.25 per kg. Depreciation charges
@ 5% on capital cost of ` 2,00,00,000.

12.10
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
AD Higher Secondary School (AHSS) offers courses for 11th & 12th standard in three streams
i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along with primary
and secondary classes but for accounting purpose it treats higher secondary as a separate
responsibility centre. The Managing committee of the school wants to revise its fee structure for
higher secondary students. The accountant of the school has provided the following details for
a year:
Amount (`)

l
Teachers’ salary (15 teachers × `35,000 × 12 months) 63,00,000

a
Principal’s salary 14,40,000

h
Lab attendants’ salary (2 attendants × `15,000 × 12 months) 3,60,000

c
Salary to library staff 1,44,000

n
Salary to peons (4 peons × `10,000 × 12 months) 4,80,000

a
Salary to other staffs 4,80,000

P
Examinations expenditure 10,80,000

l
Office & Administration cost 15,20,000

u
Annual day expenses 4,50,000

h
Sports expenses 1,20,000

a
Other information:

R
(i)
Standard 11 & 12 Primary &

A
Arts Commerce Science Secondary

C
No. of students 120 360 180 840
Lab classes in a year 0 0 144 156
No. of examinations in a year 2 2 2 2
Time spent at library per student per 180 hours 120 hours 240 hours 60 hours
year
Time spent by principal for administration 208 hours 312 hours 480 hours 1,400 hours
Teachers for 11 & 12 standard 4 5 6 -
(ii) One teacher who teaches economics for Arts stream students also teaches commerce
stream students. The teacher 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 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their 15%
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.

12.11
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(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.

RTP NOV 18

Sanziet Lifecare Ltd. operates in life insurance business. Last 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:

Policy development cost  `11,25,000

Cost of marketing of the policy  `45,20,000
Sales support expenses  `11,45,000

l
Policy issuance cost  `10,05,900

a
Policy servicing cost  `35,20,700

h
Claims management cost  `1,25,600

c
IT cost  `74,32,000

n
Postage and logistics  `10,25,000

a
Facilities cost  `15,24,000

P
Employees cost  ` 5,60,000

l
Office administration cost  `16,20,400

u
Number of policy sold- 528

h
Total insured value of policies- `1,320 crore

a
Required:

R
(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 and (d)

A
Support functions.

C
(ii) CALCULATE cost per policy.
(iii) CACULATE cost per rupee of insured value.

RTP MAY 19

A company runs a holiday home. For this purpose, it has hired a building at a rent of
`10,00,000 per month alongwith 5% of total taking. It has three types of suites for its customers,
viz., single room, double rooms and triple rooms.
Following information is given:
Type of suite Number Occupancy percentage
Single room 100 100%
Double rooms 50 80%
Triple rooms 30 60%
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 20X9 are as follows:
(`)
Staff salaries 14,25,00,000
Room attendants’ wages 4,50,00,000
Lighting, heating and power 2,15,00,000

12.12
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Repairs and renovation 1,23,50,000

Laundry charges 80,50,000
Interior decoration 74,00,000
Sundries 1,53,00,000
Provide profit @ 20% on total taking and assume 360 days in a year.
You are required to CALCULATE the rent to be charged for each type of suite.

RTP NOV 19

A transport company has a fleet of four trucks of 10 tonne capacity each plying in different
directions for transport of customer's goods. The trucks run loaded with goods and return empty.
The distance travelled, number of trips made and the load carried per day by each truck are as
under:
Truck No. One way Distance Km No. of trips per day Load carried

l
per trip / day tonnes

a
1 48 4 6

h
2 120 1 9

c
3 90 2 8

n
4 60 4 8

a
The analysis of maintenance cost and the total distance travelled during the last two years is as

P
under

l
Year Total distance travelled Maintenance Cost `

u
1 1,60,200 1,38,150

h
2 1,56,700 1,35,525

R a
The following are the details of expenses for the year under review:
Diesel ` 60 per litre. Each litre gives 4 km per litre of diesel on an average.

A
Driver's salary ` 22,000 per truck per month

C
Licence and taxes ` 15,000 per annum per truck
Insurance ` 80,000 per annum for all the four trucks
Purchase Price per truck `30,00,000, Life 10 years. Scrap value at the end of life is `1,00,000.
Oil and sundries ` 525 per 100 km run.
General Overhead ` 1,10,840 per annum
The trucks operate 24 days per month on an average.
Required
(i) PREPARE an Annual Cost Statement covering the fleet of four trucks.
(ii) CALCULATE the cost per km. run.
(iii) DETERMINE the freight rate per tonne km. to yield a profit of 30% on freight.

RTP MAY 20

AD Higher Secondary School (AHSS) offers courses for 11th & 12th standard in three streams i.e.
Arts, Commerce and Science. AHSS runs higher secondary classes alongwith primary and secondary
classes but for accounting purpose it treats higher secondary as a separate responsibility centre.
The Managing committee of the school 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 (15 teachers × `35,000 × 12 months) 63,00,000

12.13
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Principal’s salary 14,40,000

Lab attendants’ salary (2 attendants × `15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × `10,000 × 12 months) 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

l
Arts Commerce Science & Secondary

a
No. of students 120 360 180 840

h
Lab classes in a year 0 0 144 156

c
No. of examinations in a year 2 2 2 2

n
Time spent at library per 180 hours 120 hours 240 hours 60 hours

a
student per year

P
Time spent by principal for 208 hours 312 hours 480 hours 1,400 hours

l
administration

u
Teachers for 11 & 12 standard 4 5 6 -

h
(ii) One teacher who teaches economics for Arts stream students also teaches commerce

a
stream students. The teacher takes 1,040 classes in a year, it includes 208 classes for

R
commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students also teaches

A
business mathematics to commerce stream students. She takes 1,100 classes a year, it

C
includes 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their 15%
time for higher secondary section.
(v) All school students irrespective of section and age participate in annual functions and
sports activities.
Requirement:
(a) CALCULATE cost per student per annum for all three streams.
(b) If the management decides to take uniform fee of ` 1,000 per month from all higher
secondary students, CALCULATE stream wise profitability.
(c) If management decides to take 10% profit on cost, COMPUTE fee to be charged from the
students of all three streams respectively.

RTP NOV 20

A transport company has 20 vehicles, the capacities are as follows:
No. of Vehicles Capacity per vehicle
5 9 MT
6 12 MT
7 15 MT
2 20 MT

12.14
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

The company provides the goods transport service between stations ‘A’ to station ‘B’. Distance
between these stations is 100 kilometers. Each vehicle makes one round trip per day on an
average. Vehicles are loaded with an average of 90 per cent of capacity at the time of departure
from station ‘A’ to station ‘B’ and at the time of return back loaded with 70 per cent of capacity.
10 per cent of vehicles are laid up for repairs every day. The following information is related to
the month of August, 2020:
Salary of Transport Manager ` 60,000
Salary of 30 drivers ` 20,000 each driver
Wages of 25 Helpers ` 12,000 each helper
Loading and unloading charges ` 850 each trip
Consumable stores (depends on running of vehicles) ` 1,35,000
Insurance (Annual) ` 8,40,000
Road Licence (Annual) ` 6,00,000

l
Cost of Diesel per litre ` 78

a
Kilometres run per litre each vehicle 5 Km.

h
Lubricant, Oil etc. ` 1,15,000

c
Cost of replacement of Tyres, Tubes, other parts etc. (on running ` 4,25,000

n
basis)

a
Garage rent (Annual) ` 9,00,000

P
Routine mechanical services ` 3,00,000

l
Electricity charges (for office, garage and washing station) ` 55,000

u
Depreciation of vehicles (on time basis) ` 6,00,000

a h
There is a workshop attached to transport department which repairs these vehicles and other

R
vehicles also. 40 per cent of transport manager’s salary is debited to the workshop. The transport
department has been apportioned `88,000 by the workshop during the month. During the month

A
operation was for 25 days.

C
You are required:
(i) CALCULATE per ton-km operating cost.
(ii) DETERMINE the freight to be charged per ton-km, if the company earned a profit of 25 per
cent on freight.

RTP MAY 21

VPS is a public school having 25 buses each plying in different directions for the transport of its
school students. In view of large number of students availing of the bus service, the buses work
two shifts daily both in the morning and in the afternoon. The buses are garaged in the school.
The workload of the students has been so arranged that in the morning, the first trip picks up
senior students and the second trip plying an hour later picks up junior students. Similarly, in
the afternoon, the first trip takes the junior 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 22 days in a month and
remains closed for vacation in May and June. The bus fee, however, is payable by the students
for all the 12 months in a year.

12.15
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

The details of expenses for a year are as under:

Driver's salary – payable for all the 12 in months ` 12,000 per month per driver
Cleaner's salary payable for all the 12 months  ` 8,000 per month per cleaner
License fees, taxes etc.  ` 8,400 per bus per annum
Insurance Premium  ` 15,600 per bus per annum
Repairs and Maintenance  ` 20,500 per bus per annum
Purchase price of the bus  ` 20,00,000 each
Life of the bus  16 years
Scrap value  ` 1,60,000
Diesel Cost  ` 78.50 per litre
Each bus gives an average of 5 km. per litre of diesel. The seating capacity of each bus is 40
students.
The school follows differential transportation fees based on distance travelled as under:

l
Students picked up and dropped within the Transportation fee Percentage of students

a
range of distance from the school availing this facility

h
2 km. 25% of Full 15%

c
4 km. 50% of Full 30%

n
8 km. Full 55%

a
Due to a pandemic, lockdown imposed on schools and the school remained closed from April

P
2020 to December 2020. Drivers and cleaners were paid 75% of their salary during the lockdown

l
period. Repairing cost reduced to 75% for the year 2020.

u
Ignore the interest cost. Required:

h
(i) PREPARE a statement showing the expenses of operating a single bus and the fleet of 25

a
buses for a year.

R
(ii) FIND OUT transportation fee per student per month in respect of:
(a) Students coming from a distance of upto 2 km. from the school.

A
(b) Students coming from a distance of upto 4 km. from the school; and

C
(c) Students coming from a distance of upto 8 km. from the school.
(iii) CALCULATE the minimum bus fare that has to be recovered from the students for the year
2020.

RTP NOV 21

Mr. PS owns a bus which runs according to the following schedule:
(i) Delhi to Hisar and back, the same day
Distance covered: 160 km. one way
Number of days run each month: 9
Seating capacity occupied 90%.
(ii) Delhi to Aligarh and back, the same day
Distance covered: 160 km. one way
Number of days run each month: 12
Seating capacity occupied 95%
(iii) Delhi to Alwar and back, the same day
Distance covered: 170 km. one way
Number of days run each month: 6
Seating capacity occupied 100%
(iv) Following are the other details:

12.16
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Cost of the bus ` 15,00,000

Salary of the Driver ` 30,000 p.m.
Salary of the Conductor ` 26,000 p.m.
Salary of the part-time Accountant ` 7,000 p.m.
Insurance of the bus ` 6,000 p.a.
Diesel consumption 5 km. per litre at ` 90 per litre
Road tax ` 21,912 p.a.
Lubricant oil ` 30 per 100 km.
Permit fee ` 500 p.m.
Repairs and maintenance ` 5,000 p.m.
Depreciation of the bus @ 30% p.a.
Seating capacity of the bus 50 persons
Passenger tax is 20% of the total takings.

l
CALCULATE the bus fare to be charged from each passenger to earn a profit of 30% on total

a
takings.

h
The fares are to be indicated per passenger for the journeys: (i) Delhi to Hisar (ii) Delhi to Aligarh

c
and (iii) Delhi to Alwar.

RTP MAY 22

a n
P
Navya LMV Pvt. Ltd, operates cab/ car rental service in Delhi/NCR. It provides its service to the

l
offices of Noida, Gurugram and Faridabad. At present it operates CNG fuelled cars but it is also

u
considering to upgrade these into Electric vehicle (EV). The details related with the owning of CNG

h
& EV propelled cars are as tabulated below:

a
Particulars CNG Car EV Car

R
Car purchase price (`) 9,20,000 15,20,000
Govt. subsidy on purchase of car (`) -- 1,50,000

A
Life of the car 15 years 10 years

C
Residual value (`) 95,000 1,70,000
Mileage 20 km/kg 240 km per
charge
Electricity consumption per full charge -- 30 Kwh
CNG cost per Kg (`) 60 --
Power cost per Kwh (`) -- 7.60
Annual Maintenance cost (`) 8,000 5,200
Annual insurance cost (`) 7,600 14,600
Tyre replacement cost in every 5 -year (`) 16,000 16,000
Battery 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
Garage rent per car (`) 4,500 p.m
Share of Office & Administration cost per car (`) 1,500 p.m
Required:
CALCULATE the operating cost of vehicle per month per car for both CNG & EV options.

12.17
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 22

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:
(`)
Cost of each Bus  24,00,000
Garage Rent  1,00,000
Insurance  25,000
Road tax  20,000
Manager’s Salary  60,000
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

l
Office Staff’s Salary  1,00,000

a
Consumables  1,20,000

h
Repairs & Maintenance  90,000

c
Other Fixed Expenses  72,000

n
Diesel (10 Kms per Litre)  80 per litre

a
Oils & Lubricants  1,45,000

P
Tyres and tubes  35,000

l
Depreciation 10% p.a. on Cost Other details are as below:

u
Capacity

h
12 Buses 60 Passengers

a
13 Buses 50 Passengers

R
Each bus makes 4 round trips a day covering a distance of 10 Kilometers in each trip (One Way)
on an average. During the trips 80% of the seats are occupied. The annual records show that 5

A
buses are generally required to be kept away from roods each day for repairs.

C
You are required to CALCULATE cost per passenger-km. Cost sheet to be prepared on the basis
of 25 buses.

RTP MAY 23

PREPARE cost statement of Panipat Thermal Power Station showing the cost of electricity
generated per kwh, from the following data.
Total units generated 16,50,000 kWh
(`)
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
7 kWh. of electricity generated per kg. of coal consumed @ `4.75 per kg. Depreciation charges
@ 5% on capital cost of `3,10,00,000.

12.18
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 23

P Holiday 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:
Types of Room Number of Rooms Occupancy
Deluxe Room 100 90%
Super Deluxe Room 60 75%
Luxury Suite 40 60%

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 (` lakhs)
Staff salaries 680.00

l
Lighting, Heating and Power 300.00

a
Repairs, Maintenance and Renovation 180.00

h
Linen 30.00

c
Laundry charges 24.00

n
Interior decoration 75.00

a
Sundries 30.28

P
An attendant for each room was provided when the room was occupied and he was paid

l
` 500 per day towards wages. Further, depreciation is to be provided on building @ 5% on ` 900

u
lakhs, furniture and fixtures @ 10% on ` 90 lakhs and air conditioners @ 10% on ` 75 lakhs.

h
Profit is to be provided @ 25% on total taking and assume 360 days in a year.

RTP MAY 24

R a
A LMV Pvt. Ltd, operates cab/ car rental service in Delhi/NCR. It provides its service to the offices of

A
Noida, Gurugram and Faridabad. At present it operates CNG fuelled cars but it is also considering

C
to upgrade these into Electric vehicle (EV). The following details related with the owning of CNG
& EV propelled cars are as tabulated below:
Particulars CNG Car EV Car
Car purchase price (`) 9,20,000 15,20,000
Govt. 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 Kwh
CNG cost per Kg (`) 60 --
Power cost per Kwh (`) -- 7.60
Annual Maintenance cost (`) 8,000 5,200
Annual insurance cost (`) 7,600 14,600
Tyre replacement cost in every 5 - year (`) 16,000 16,000
Battery replacement cost in every 8- year (`) 12,000 5,40,000

12.19
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

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
Garage rent per car (`) 4,500 p.m
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 CNG & EV options.

a l
c h
a n
l P
h u
R a
C A

12.20
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (10 MARKS) Q. 4B
A group of 'Health 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.
Other information for a year are as under:
(`)
Building Rent 2,25,000 per month
Manager Salary (Number of Manager-03) 50,000 per month to each one

l
Nurses Salary (Number of Nurses-24) 18,000 per month to each Nurse

a
Ward boy’s Salary (Number of ward boys’ -24) 9,000 per month per person

h
Doctor’s payment (Paid on the basis of number 5,50,000 per month

c
of patients attended and time spent by them)

n
Food and laundry services (variable) 39,53,000

a
Medicines to patients (variable) 22,75,000 per year

P
Administrative Overheads 28,00,000 per year

l
Depreciation on equipments 15% per annum on original cost

h u
It was reported that for 200 days in a year 50 beds were occupied, for 105 days 30 beds were

a
occupied and for 60 days 20 beds were occupied.

R
The hospital hired 250 beds at a charge of ` 950 per bed to accommodate the flow of patients.
However, this never exceeded the normal capacity of 50 beds on any day.

A
Find out:

C
(i) Profit per patient day, if hospital charges on an average ` 2,500 per day from each patient.

(ii) Break even point per patient day (Make calculation on annual basis)

ANSWER :
Number of Patient Days = (200x50) + (105x30) + (60x20)

=14,350 patient days + 250 = 14,600

Elements of Cost and Revenue Total (`)
A. Revenue (14,600 x ` 2,500) 3,65,00,000
B. Variable Costs
Food and Laundry Service 39,53,000
Medicines to Patients 22,75,000
Doctor’s Payment 66,00,000
Hire Charges of Bed (250 x ` 950) 2,37,500
Total Variable Cost 1,30,65,500
C. Fixed Costs
Building Rent 27,00,000
Manager’s Salary (` 50,000 x 3 x 12) 18,00,000

12.21
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Nurse’s Salary (` 18,000 x 12 x 24) 51,84,000

Ward boy’s Salary (` 9,000 x 12 x 24) 25,92,000
Administrative Overheads 28,00,000
Depreciation on Equipment’s 12,75,000
1,63,51,000
D. Total Cost (B+C) 2,94,16,500
E. Profit (A-D) 70,83,500
Profit per patient day = ` 70,83,500/14,600 = ` 485.17
(i) Contribution (per patient day) = (` 3,65,00,000 – ` 1,30,65,500)/ 14,600
= ` 1,605.10
BEP = 1,63,51,000/1,605.10 = 10,186.90 or say 10,187 patient days

Notes:

l
1. Higher Charges for extra beds are a semi variable cost; still, for the sake of convenience it

a
has been considered a variable cost.

h
2. Assumed, the hospital hired 250 beds at a charge of ` 950 per bed to accommodate the

c
flow of patients. However, this never exceeded the 10 beds above the normal capacity of

n
50 beds on any day.

a
3. The fees were paid based on the number of patients attended to and the time spent by

P
them, which on an average worked out to ` 5,50,000 p.m.

PYQ NOV 18 (10 MARKS)

u l Q. 4B

h
M/s XY Travels has been given a 25 km. long route to run an air- conditioned Mini Bus. The

a
cost of bus is ` 20,00,000. It has been insured @3% premium per annum while annual road tax

R
amounts to ` 36,000. Annual repairs will be ` 50,000 and the bus is likely to last for 5 years.
The driver's salary will be `2,40,000 per annum and the conductor's salary will be ` 1,80,000

A
per annum in addition to 10% of the takings as commission (to be shared by the driver and the

C
conductor equally). Office and administration overheads will be
` 18,000 per annum. Diesel and oil will be ` 1,500 per 100 km. The bus will make 4 round trips
carrying on an average 40 passengers on each trip.
Assuming 25% profit on takings and considering that the bus will run on an average 25 days in
a month, you are required to:
(i) prepare operating cost sheet (for the month).
(ii) calculate fare to be charged per passenger km.

ANSWER :
(i) Statement showing the Operating Cost per Passenger-km.
Yearly (`.) Monthly (`.)
(A) Standing Charges:
Insurance Charge `. 20,00,000 × 3% 60,000 5,000
Road Tax 36,000 3,000
Depreciation (20,00,000/5) 4,00,000 33,333.33
Total 4,96,000 41,333.33
(B) Maintenance Charges:
Annual Repairs 50,000 4166.67
Office and administration overheads 3,18,000 26,500

12.22
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Total 3,68,000 30666.67

(C) Running Cost/Charges:
Driver’s Salary 2,40,000 20,000
Conductor’s Salary 1,80,000 15,000
Diesel & Oil 9,00,000 75,000

Total 13,20,000 41,333.33
Total (A+B+C) Cost before commission and profit 21,84,000 1,82,000
Commission (33,60,000 × 10%) (working note 2) 3,36,000 28,000
Profit (33,60,000 × 25% ) (working note 2) 8,40,000 70,000
Takings (working note 1) 33,60,000 2,80,000

(ii) Fare per Passenger-km. =

a l
OR

c h
n
Fare per Passenger-km. (monthly) =

P a
l
Working note:

u
1. Cost before commission (10%) and profit (25%) is 21,84,000 which is 65% of total

h
takings. So total takings is (21,84000÷65) ×100=` 33,60,000

a
2. Commission is 10% of ` 33,60,000=` 3,36,000 and Profit is 25% of ` 33,60,000=`

R
8,40,000
3. Total Km is (4 Round Trips × Days in a month × Month = (4×2×25 ×25×12 ) = 60,000

A
km Passenger km is 60,000 km×40 passenger= 24,00,000

C
PYQ MAY 19 (10 MARKS) Q. 4A
X Ltd. distributes' its goods to a regional dealer using single lorry. The dealer premises are 40
kms away by road. The capacity of the lorry is 10 tonnes. The lorry makes the journey twice a
day fully loaded on the outward journey and empty on return journey. The following information
is available:
Diesel Consumption 8 km per litre
Diesel Cost ` 60 per litre
Engine Oil ` 200 per week
Driver's Wages (fixed) ` 2,500 per week
Repairs ` 600 per week
Garage Rent ` 800 per week
Cost of Lorry (excluding cost of tyres) ` 9,50,000
Life of Lorry 1,60,000 kms
Insurance ` 18,200 per annum
Cost of Tyres ` 52,500
Life of Tyres 25,000 kms
Estimated sale value of the lorry at end of its life is ` 1,50,000

12.23
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Vehicle License Cost ` 7,800 per annum

Other Overhead Cost ` 41,600 per annum
The lorry operates on a 5 day week.
Required:
(i) A statement to show the total cost of operating the vehicle for the four week period analysed
into Running cost and Fixed cost.
(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in a year)

ANSWER :
Working Notes:
Particulars For 4 weeks For 1 week (by
dividing by 4)
Total distance travelled (40 k.m × 2 3,200 km 800 km

l
× 2 trips × 5 days × 4 weeks)

a
Total tonne km (40 k.m × 10 tonnes × 2 16,000 tonne km 4,000 tonne km

h
× 5 days × 4 weeks)

(i) Statement showing Operating Cost

n c
a
Particulars For 4 weeks For 1 week

P
(by dividing

l
by 4)

u
A. Fixed Charges:

h
Drivers’ wages (`2,500  4 weeks) 10,000 2,500

a
Garage rent (`800 × 4 weeks) 3,200 800

R
Insurance {(`18,200 ÷ 52 weeks) × 4 weeks} 1,400 350
Vehicle license {(`7,800 ÷ 52 weeks) × 4 weeks} 600 150

A
Other overheads cost {(`41,600 ÷ 52 weeks) × 4 3,200 800

C
weeks}
Total (A) 18,400 4,600
B. Running Cost:
Cost of diesel {(3,200 ÷ 8 kms) × `60} 24,000 6,000
Engine Oil (`200 × 4 weeks)* 800 200
Repairs (`600 × 4 weeks)* 2,400 600
Depreciation on vehicle 16,000 4,000

Depreciation on tyres 6,720 1,680

Total (B) 49,920 12,480
C. Total Cost (A + B) 68,320 17,080
*Cost of engine oil & repairs may also be treated as fixed cost, as the question relates these
with time i.e. in weeks instead of running of vehicle.

12.24
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(ii) Calculation of vehicle operating cost:

PYQ NOV 19 (10 MARKS) Q. 3A

A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional rates
during six off-season months in a year.
During this period, half of the full room rent is charged. The management's profit margin is
targeted at 20% of the room rent. The following are the cost estimates and other details for th

l
e year ending 31st March ,2019:

a
(i) Occupancy during the season is 80% while in the off-season it is 40%.

h
(ii) Total investment in the hotel is ` 300 lakhs of which 80% relates to Buildings and the

c
balance to Furniture and other Equipment.

n
(iii) Room attendants are paid ` 15 per room per day on the basis of occupancy of rooms in a

a
month.

P
(iv) Expenses:

l
• Staff salary (excluding that of room attendants) ` 8,00,000

u
• Repairs to Buildings ` 3,00,000

h
• Laundry Charges ` 1,40,000

a
• Interior Charges ` 2,50,000

R
• Miscellaneous Expenses ` 2,00,200
(v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture and other

A
Equipments on straight line method.

C
(vi) Monthly lighting charges are ` 110, except in four months in winter when it is ` 30 per room
and this cost is on the basis of full occupancy for a month.
You are required to 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).

ANSWER :
Working Notes:
(i) Total Room days in a year
Season Occupancy (Room-days) Equivalent Full Room charge
days
Season – 80% Occupancy 200 Rooms × 80% × 6 28,800 Room Days × 100%
months × 30 days in a month = 28,800
= 28,800 Room Days
Off-season – 40% Occupancy 200 Rooms × 40% × 6 14,400 Room Days × 50%
months × 30 days in a month = 7,200
= 14,400 Room Days
Total Room Days 28,800 + 14,400 = 43,200 36,000 Full Room days
Room Days

12.25
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(ii) Lighting Charges:

It is given in the question that lighting charges for 8 months is `110 per month and during
winter season of 4 months it is `30 per month. Further it is also given that peak season is
6 months and off season is 6 months.
It should be noted that – being Hill station, winter season is to be considered as part of Off
season. Hence, the non-winter season of 8 months include – Peak season of 6 months and
Off season of 2 months.
Accordingly, the lighting charges are calculated as follows:
Season Occupancy (Room-days)
Season & Non-winter – 80% Occupancy 200 Rooms × 80% × 6 months × ` 110 per
month = ` 1,05,600
Off- season & Non-winter – 200 Rooms × 40% × 2 months × `110 per
40% Occupancy (8 – 6 months) month = ` 17,600

l
Off- season & -winter – 40% Occupancy 200 Rooms × 40% × 4 months × ` 30 per

a
months) month = ` 9,600

h
Total Lighting charges ` 1,05,600+ ` 17,600 + ` 9,600 = ` 132,800

Statement of total cost:

n c
a
(`)

P
Staff salary 8,00,000

l
Repairs to building 3,00,000

u
Laundry 1,40,000

h
Interior 2,50,000

a
Miscellaneous Expenses 2,00,200

R
Depreciation on Building (` 300 Lakhs × 80% × 5%) 12,00,000
Depreciation on Furniture & Equipment (` 300 Lakhs × 20% × 15%) 9,00,000

A
Room attendant’s wages (` 15 per Room Day for 43,200 Room Days) 6,48,000

C
Lighting charges 1,32,800
Total cost 45,71,000
Add: Profit Margin (20% on Room rent or 25% on Cost) 11,42,750
Total Rent to be charged 57,13,750

Calculation of Room Rent per day:

Total Rent / Equivalent Full Room days = ` 57,13,750/ 36,000 = ` 158.72
Room Rent during Season – ` 158.72
Room Rent during Off season = ` 158.72 × 50% = ` 79.36

PYQ NOV 20 (10 MARKS) Q. 5A

SEZ 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 tenure. The other costs for the
month of “June 2020” are as follows:
(i) Salary:
• 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.

12.26
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

• Toll Booth 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.

ANSWER :
Statement of Cost
Particulars (`)
A. Apportionment of capital 7,50,00,000

l
cost

a
B. Other Costs

h
Salary to Collection Personnel (3 Shifts × 5 persons per shift × 30 days 90,000

c
× ` 200 per day)

n
Salary to Supervisor (3 Shifts × 2 persons per shift × 30 days 63,000

a
× ` 350 per day)

P
Salary to Security Personnel (2 Shifts × 2 persons per shift × 30 days 24,000

l
× ` 200 per day)

u
Salary to Toll Booth Manager (3 Shifts × 1 person per shift × 30 days 45,000

h
× ` 500 per day)

a
Electricity 1,50,000

R
Telephone 1,00,000
4,72,000

A
C. Maintenance cost 50,00,000

C
Total (A + B + C) 8,04,72,000

(1) Calculation of cost per kilometre:

(2) Calculation of toll rate per vehicle:

Working:

12.27
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

PYQ JAN 21 (10 MARKS) Q. 5A

ABC Health 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 maintenance charges
also.
The unit consists of 100 beds and 5 more beds can comfortably be accommodated when the
situation demands. Though the unit is open for patients all the 365 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. But, 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

l
on the basis of the number of patients attended and time spent by them which on an average

a
worked out to ` 30,000 per month in the year 2020.

h
The permanent staff expenses and other expenses of the unit were as follows:

c
`

n
2 Supervisors each at a per month salary of 5,000

a
4 Nurses each at a per month salary of 3,000

P
2 Ward boys each at a per month salary of 1,500

l
Other Expenses for the year were as under:

u
Repairs and Maintenance 28,000

h
Food supplied to patients 4,40,000

a
Caretaker and Other services for patients 1,25,000

R
Laundry charges for bed linen 1,40,000
Medicines supplied 2,80,000

A
Cost of Oxygen etc. other than directly borne for treatment of patients 75,000

C
General Administration Charges allocated to the unit 71,000
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.

ANSWER :
Workings:
Calculation of number of Patient days
100 Beds × 120 days = 12000
40 Beds × 80 days = 3,200
Extra beds = 400
Total = 15,600

12.28
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(i) Statement of Profitability

Particulars Amount (`) Amount (`)
Income for the year (` 200 per patient per day × 15,600 31,20,000
patient days)
Variable Costs:
Doctor Fees (` 30,000 per month × 12) 3,60,000
Food to Patients (Variable) 4,40,000
Caretaker Other services to patients (Variable) 1,25,000
Laundry charges (Variable) 1,40,000
Medicines (Variable) 2,80,000
Bed Hire Charges (` 50 × 400 Beds) 20,000
Total Variable costs (13,65,000)
Contribution 17,55,000

l
Fixed Costs:

a
Rent (` 50,000 per month × 12) 6,00,000

h
Supervisor (2 persons × ` 5,000 × 12) 1,20,000

c
Nurses (4 persons × ` 3,000 × 12) 1,44,000

n
Ward Boys (2 persons x ` 1500 x12) 36,000

a
Repairs (Fixed) 28,000

P
Cost of Oxygen 75,000

l
Administration expenses allocated 71,000

u
Total Fixed Costs (10,74,000)

h
Profit 6,81,000

R a
Calculation of Contribution and profit per Patient day
Total Contribution = ` 17,55,000

A
Total Patient days = 15,600 days

C
Contribution per Patient day = ` 17,55,000 / 15,600 days = ` 112.50
Total Profit = ` 6,81,000
Total Patient days = 15,600 days
Profit per Patient day = ` 6,81,000 / 15,600 days = ` 43.65

(ii) Breakeven Point = Fixed Cost / Contribution per Patient day

= ` 10,74,000 / ` 112.50
= 9,547 patient days

PYQ JULY 21 (5 MARKS) Q. 4B

MRSL Healthcare Ltd. has incurred the following expenditure during the last year for its newly
launched 'COVID-19' Insurance policy:
Office administration cost 48,00,000
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 46,75,000
Cost of marketing of the policy 1,38,90,000

12.29
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Policy development cost 35,00,000

Policy servicing cost 96,45,000
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.

ANSWER :

a l
ch
(i) Calculation of total cost for ‘COVID-19’ Insurance policy
Particulars Amount (`) Amount (`)

an
a. Marketing and Sales support:
- Policy development cost 35,00,000

P
- Cost of marketing 1,38,90,000

l
- Sales support expenses 32,00,000 2,05,90,000

u
b. Operations:

h
- Policy issuance cost 29,50,000

a
- Policy servicing cost 96,45,000

R
- Claim management cost 3,80,000 1,29,75,000
c. IT Cost* 2,21,00,000

A
d. Support functions

C
- Postage and logistics 32,40,000
- Facilities cost 46,75,000
- Employees cost 16,20,000
- Office administration cost 48,00,000 1,43,35,000
Total Cost 7,00,00,000
*IT cost
= (` 3,500 crores x 0.002) – ` 4,79,00,000 = ` 2,21,00,000

(ii) Calculation of cost per policy =

PYQ DEC 21 (10 MARKS) Q. 3A

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 adjoining the company’s premises. 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 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:

12.30
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Particulars
Driver’s salary ` 20,000 per driver per month
Lady attendant’s salary (mandatorily required for ` 10,000 per attendant per month
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
Garage 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

l
Scrap value per mini bus at the end of residual life ` 3,00,000

a
Paras Travels charges two types of fare from the employees. Employees coming from a distance

h
of beyond 15 kms away from the office are charged double the fare which is charged from

c
employees coming from a distance of up-to 15 kms. away from the office. 50% of employees

n
travelling in each trip are coming from a distance beyond 15 kms. from the office. The charges

a
are to be based on average cost.

P
You are required to:

l
(i) Prepare a statement showing expenses of operating a single mini bus for a year,

u
(ii) Calculate the average cost per employee per month in respect of:

h
(a) Employees coming from a distance upto 15 kms. from the office.

a
(b) Employees coming from a distance beyond 15 kms. from the office.

ANSWER :
R
A
(i) Statement of Expenses of operating a mini bus in a year

C
Particulars Rate (`) Per Bus per
annum (`)
(A) Standing Charges:
Driver’s salary 20,000 p.m 2,40,000
Lady attendant’s salary 10,000 p.m 1,20,000
Average Cleaner’s salary (50%) 15,000 p.m 90,000
Insurance charge 30,000 p.a. 30,000
License fee, taxes etc. 5,080 p.m. 60,960
Average Garage Rent 24,000 p.m 36,000
Depreciation {(15,00,000 – 3,00,000) ÷ 8} 1,50,000 p.a. 1,50,000
(B) Maintenance Charges:
Repairs & maintenance including engine oil and 28,560 p.a.
lubricants (Working Note 1)
(C) Operating Charges:
Diesel (Working Note 2) 5,76,000
Total Cost (A + B + C) 13,31,520
Cost per month 1,10,960

12.31
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

(ii) Average cost per employee per month:

A. Employee coming from distance of upto 15 km

B. Employee coming from a distance beyond 15 km

= 1541.11 × 2 = ` 3,082.22
* Considering half fare employees as a base
Full fare employees (12 × 2)  24 employees
Add: Half fare employees (Working Note 3)  12 employees
Total Equivalent number of employees per month  36 employees
Total Equivalent number of employees per month (morning 72 employees
+ afternoon shift of company)

Working Notes:

a l
h
1. Calculation of Repairs and maintenance cost of a bus :

c
Distance travelled in a year:

n
(4 trip × 2 shifts × 30 km. × 20 days × 12 months)

a
Distance travelled p.a.: 57,600 km.

P
Repairs and maintenance cost per Bus per annum:

u l
h
= ` 28,560 per annum

2.

R a
Calculation of diesel cost per bus per annum:
Distance travelled in a year = 57,600 km

A
Diesel cost per Bus per annum:

= 5,76,000 C
3. Calculation of equivalent number of employees per bus:
Seating capacity of a bus  30 employees
Occupancy (80% of capacity)  24 employees
Half fare employees (50% of 24 employees)  12 employees
Full fare employees (50% of 24 employees)  12 employee

[Note: Total Equivalent number of employees per month (morning + afternoon shift of
company can also be calculated considering full fare employees as a base. In that case the
number will be 36. Then fare for employees coming from distance beyond 15km will be
= ` 3,082.22 and employees coming from distance upto 15 km will be 3,082.22 / 2

= ` 1,541.11]

12.32
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

PYQ MAY 22 (5 MARKS) Q. 1D

Coal is transported from two mines X & Y and unloaded at plots in a railway station. X is at
distance of 15 kms and Y is at a distance of 20 kms from the rail head plots. A fleet of lorries
having carrying capacity of 4 tonnes is used to transport coal from the mines. Records reveal
that average speed of the lorries is 40 kms per hour when running and regularly take 15 minutes
to unload at the rail head.
At Mine X average loading time is 30 minutes per load, while at mine Y average loading time is
25 minutes per load.
Additional Information:
Drivers' wages, depreciation, insurance and taxes, etc. ` 12 per hour Operated Fuel, oil tyres,
repairs and maintenance, etc. ` 1.60 per km
You are required to prepare a statement showing the cost per tonne kilometre of carrying coal
from each mine 'X' and 'Y'.

ANSWER :

a l
ch
Statement showing the cost per tonne-kilometre of carrying mineral from each mine
Mine X (`) Mine Y (`)

n
Fixed cost per trip: (Refer to working note 1)

a
(Driver's wages, depreciation, insurance and taxes)

P
X: 1 hour 30 minutes @ ` 12 per hour 18.00

l
Y: 1 hour 40 minutes @ ` 12 per hour 20.00

u
Running and maintenance cost:

h
(Fuel, oil, tyres, repairs and maintenance)

a
X: 30 km. ` 1.60 per km. 48.00

R
Y: 40 km. ` 1.60 per km. 64.00
Total cost per trip (`) 66.00 84.00

A
Cost per tonne – km (Refer to working note 2) 1.1 1.05

Working notes:
C
Mine- X Mine- Y
(1) Total operated time taken per trip
Running time to & fro 45 minutes 60 minutes

Un-loading time 15 minutes 15 minutes

Loading time 30 minutes 25 minutes
Total operated time 90 minutes or 100 minutes or
1 hour 30 minutes 1 hour 40 minutes
(2) Effective tones – km. 60 80
(4 tonnes × 15 km.) (4 tonnes × 20 km.)

12.33
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

PYQ NOV 22 (5 MARKS) Q. 1B

ABC Bank 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 ‘Vehicle Loan’ applications and
‘Education Loan’ applications each.
Branch 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 ` 70,000 each, exclusively
for processing of Education Loan applications.
In addition to above, following expense are incurred by the Branch:
• Branch 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.

l
You are required to:

a
(i) Compute the cost of processing a Vehicle Loan application on the assumption that 496

h
Vehicle Loan applications are processed each month.

c
(ii) Find out the number of Education Loan Applications processed, if the total processing cost

n
per Education Loan Application is same as in the Vehicle Loan Application as computed in

a
(i) above.

ANSWER :

l P
Particulars

h uVehicle loan Education loan Total

a
Applications Application

R
(`) (`) (`)
Employee Cost 2,00,000 1,40,000 3,40,000

A
(` 50,000 × 4) (` 70,000 × 2)

C
Apportionment of Branch manager’s salary 27,000 27,000 54,000
Legal charges, Printing & stationery 18,000 18,000 36,000
and Advertising expenses
Other expenses 3,000 3,000 6,000
Total cost 2,48,000 1,88,000 4,36,000
(i) Computation of cost of processing a vehicle loan application:
Total Cost ÷ No. of applications
` 2,48,000 ÷ 496 = ` 500
(ii) Computation of no. of Education loan Processed
Total Cost = No. of applications × Processing cost per application
1,88,000 = No. of applications × ` 500
No. of education loan applications = `1,88,000 ÷ `500 = 376 applications

PYQ MAY 23 (5 MARKS) Q. 1D

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 heavy weight vehicles will be using
the highway in one month in outward journey and the same number for return journey.
As per government notification, vehicles used for medical emergencies, Members of Parliament,

12.34
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

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 journey,
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 journey.

l
(ii) Calculate the toll rate that will be charged from light weight vehicles if a return journey

a
concession facility is available, assuming that the revenue earned from light weight vehicles

h
calculated in option (i) remains the same.

ANSWER :

n c
a
Working Notes:

P
(1) Calculation of equivalent numbers of Light weight vehicles (when no concession is provided

l
on return journey)

u
Type of vehicle Monthly Return traffic (B) Ratio Equivalent light

h
traffic (A) (C) weight [(A + B) × C]

a
Light weight 45,000* 45,000 1 90,000

R
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000

A
2,50,000

C
*50,000 light vehicles less 10% exempted vehicles

(2) Calculation of equivalent numbers of Light weight vehicles (when concession is provided on
return journey)
Type of vehicle Monthly Return traffic Ratio Equivalent light
traffic (C) weight [(A + B) × C]
(A) (B)
Light weight 45,000* 41,625 1 86,625
[45,000- (45,000 ×
30% × 25%)]
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,46,625
(i) Calculation of toll rate for each type of vehicle:
Total cost to cover ÷ Equivalent type of vehicles
(` 59,09,090 + 10% of ` 59,09,090) ÷ 2,50,000 equivalent vehicles (Refer
working note 1)
= 65,00,000 ÷ 2,50,000 = ` 26

12.35
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Toll rate for:

Light weight vehicle = ` 26
Medium weight vehicle = ` 26 × 2.5 = ` 65
Heavy weight vehicle = ` 26 × 5 = ` 130

(ii) Calculation of toll rate for each type of vehicle:

Revenue earned from Light weight vehicle in (i) above
= 90,000 vehicles × ` 26 = ` 23,40,000
New toll rate to maintain the same revenue from Light weight vehicle
= ` 23,40,000 ÷ 86,625 (Refer working note-2) = ` 27.01
Light weight vehicle = ` 27.01
Rate to be charged from 13,500 light weight vehicles = 27.01 × 0.75 = 20.26
Alternative presentation

(ii)

a l
Toll rate to be charged from light weight vehicles if concession applicable

h
Revenue share in light vehicles = 90,000 × 26 = ` 23,40,000

c
Suppose rate is x, then outward journey 45,000 x; return journey (45,000 - 30% of 45,000)

n
+ 13,500 (x - 0.25)

a
45,000x + 31,500x + 13500 (0.75x) = ` 23,40,000

P
Toll rate to be charged from light weight vehicles : 86,625x = ` 23,40,000 = ` 27.01

l
Rate to be charged from 76,500 light weight vehicles @ 27.01; revenue will be ` 20,66,494

u
Rate to be charged from 13,500 light weight vehicles = 27.01 × 0.75 = 20.26 revenue will

h
be ` 2,73,506

PYQ NOV 23 (10 MARKS)

R a Q. 3B
Royal Hotel offers three types of rooms to its guests - Deluxe Room, Executive Room and Suite

A
Room. Other information is as follows:-

C
Deluxe Room Executive Room Suite
Room
Room Tariff per day ` 1,500 ` 2,400 ` 3,800
No. of rooms 20 10 4
Average occupancy during the year 80% 60% 75%
Housekeeping expenses per day `280 `320 `425
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
Hotel.
Besides 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
360 days in a year and double occupancy in each category of room.

12.36
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(b) Calculation of room days:
Nature of Room Occupancy (Room-days)
Deluxe room 5760
(20 x 80% x 360)
Executive room 2160
(10 x 60% x 360)
Suite room 1080
(4 x 75% x 360)

Statement showing Total Profit for each room type

Elements Deluxe Executive Suite room Total

l
room room (`)

a
(`) (`) (`)

h
Room Days 5760 2160 1080

c
Revenue 86,40,000 51,84,000 41,04,000 1,79,28,000

n
Cost

a
Housekeeping @ ` 280 per room 16,12,800 6,91,200 4,59,000 27,63,000

P
day

l
Breakfast @ ` 150 per person - 6,48,000 3,24,000 9,72,000

u
Swimming pool @ ` 200 per - - 4,32,000 4,32,000

h
person

a
Salaries to staff (25:35:40) 14,40,000 20,16,000 23,04,000 57,60,000

R
Electricity expenses (occupancy) 15,36,000 5,76,000 2,88,000 24,00,000
Total cost 45,88,800 39,31,200 38,07,000 1,23,27,000

A
Profit 40,51,200 12,52,800 2,97,000 56,01,000

C
The solution can also be presented in following way:

Particulars
Calculation of room days
Occupancy during the year
Deluxe Room Executive Room Suite Room
(i) No. of Rooms 20 10 4
(ii) Occupancy in % 80% 60% 75%
No. of rooms occupied per day 16 6 3
No. of rooms occupied per year 5,760 2,160 1,080

Statement showing Total Profit for each room type

Annual Room Rent Deluxe Room Executive Room Suite Room
Room Rent per day per room ` 1,500 ` 2,400 ` 3,800
Annual Room Rent (A) ` 86,40,000 ` 51,84,000 ` 41,04,000
Annual Fixed Expenses
Staff Salary (25:35:40) ` 14,40,000 ` 20,16,000 ` 23,04,000
Electricity Expenses (Occupancy) ` 15,36,000 ` 5,76,000 ` 2,88,000
Total (B) ` 29,76,000 ` 25,92,000 ` 25,92,000

12.37
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

Housekeeping Expenses ` 16,12,800 ` 6,91,200 ` 4,59,000

Breakfast Charges ` 6,48,000 ` 3,24,000
(2,160 x 2 x 150) (1,080 x 2 x 150)
Swimming Pool Charges ` 4,32,000
(1,080 x 2 x 200)
Total (C) ` 16,12,800 ` 13,39,200 `12,15,000
Total Cost (B+C) ` 45,88,800 ` 39,31,200 ` 38,07,000
Profit ` 40,51,200 ` 12,52,800 ` 2,97,000

a l
c h
a n
l P
h u
Ra
C A

12.38
SERVICE COSTING
 TRP Sir
CA Rahul Panchal

13 STANDARD COSTING

QUESTION 1. (ILLUSTRATION 1) 
The standard and actual figures of product ‘Z’ are as under:
Standard Actual
Material quantity 50 units 45 units
Material price per unit ` 1.00 ` 0.80
CALCULATE material cost variances.

QUESTION 2. (ILLUSTRATION 2) 

l
NXE Manufacturing Concern furnishes the following information:

Standard: Material for 70 kg finished products

h a 100 kg

c
Price of material  ` 1 per kg

n
Actual: Output  2,10,000 kg

a
Material used  2,80,000 kg

P
Cost of Materials  ` 2,52,000

l
CALCULATE: (a) Material usage variance, (b) Material price variance, (c) Material cost variance.

QUESTION 3. (ILLUSTRATION 3) 

h u
a
The standard cost of a chemical mixture is as follows:

R
40% material A at ` 20 per kg
60% material B at ` 30 per kg

A
A standard loss of 10% of input is expected in production. The cost records for a period showed

C
the following usage:
90 kg material A at a cost of ` 18 per kg
110 kg material B at a cost of ` 34 per kg
The quantity produced was 182 kg of good product.
CALCULATE (a) Material cost variance, (b) Material price variance, (c) Material usage variance.

QUESTION 4. (ILLUSTRATION 4) 
ABC Ltd. produces an article by lending two basic raw materials. It operates a standard costing
system and the following standards have been set for raw materials:
Material Standard mix Standard price (` per kg)
A 40% 4
B 60% 3
The standard loss in processing is 15%. During April, the company produced 1,700 kgs. of finished
output.

The position of stock and purchases for the month of April are as under:
Material Stock on Stock on Purchased during April 2021
01.04.2021 30.04.2021
(Kg.) (Kg.) (Kg.) (`)

13.1
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

A 35 5 800 3,400
B 40 50 1,200 3,000
Opening stock of material is valued at standard price. CALCULATE the following variances:
(i) Material price variance
(ii) Material usage variance
(iii) Material yield variance Material mix variance
Total Material cost variance

QUESTION 5. (ILLUSTRATION 5) 
The standard and actual figures of a firm are as under
Standard time for the job  1,000 hours
Standard rate per hour  ` 50
Actual time taken  900 hours

l
Actual wages paid  ` 36,000

a
CALCULATE variances.

QUESTION 6. (ILLUSTRATION 6) 

c h
n
The standard output of product ‘EXE’ is 25 units per hour in manufacturing department of a

a
company employing 100 workers. The standard wage rate per labour hour is ` 6.

P
In a 42 hours week, the department produced 1,040 units of ‘EXE’ despite 5% of the time paid

l
being lost due to an abnormal reason. The hourly wages actually paid were ` 6.20, ` 6 and `

u
5.70 respectively to 10, 30 and 60 of the workers. CALCULATE relevant labour variances.

QUESTION 7. (ILLUSTRATION 7) 

a h
R
NPX Ltd. uses standard costing system for manufacturing of its product X. Following is the budget
data given in relation to labour hours for manufacture of 1 unit of Product X :

A
Labour Hours Rate (`)

C
Skilled 2 6
Semi-Skilled 3 4
Un- Skilled 5 3
Total 10

In the month of January, total 10,000 units were produced following are the details:
Labour Hours Rate (`) Amount (`)
Skilled 18,000 7 1,26,000
Semi-Skilled 33,000 3.5 1,15,500
Un-Skilled 58,000 4 2,32,000
Total 1,09,000 4,73,500
Actual Idle hours (abnormal) during the month:
Skilled: 500
Semi- Skilled: 700
Unskilled: 800
Total 2,000

CALCULATE:
(a) Labour Variances.

13.2
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

(b) Also show the effect on Labour Rate Variance if 5,000 hours of Skilled Labour are paid @
` 5.5 per hour and balance were paid @ ` 7 per hour.

QUESTION 8. (ILLUSTRATION 8) 
The standard labour employment and the actual labour engaged in a week for a job are as
under:
Skilled Semi- Unskilled
workers skilled workers
workers
Standard no. of workers in the gang 32 12 6
Actual no. of workers employed 28 18 4
Standard wage rate per hour 3 2 1
Actual wage rate per hour 4 3 2

a l
During the 40 hours working week, the gang produced 1,800 standard labour hours of work.

h
CALCULATE:

c
(a) Labour Cost Variance (b) Labour Rate Variance

n
(c) Labour Efficiency Variance (d) Labour Mix Variance

a
(e) Labour Yield Variance

QUESTION 9. (ILLUSTRATION 9) 

l P
u
From the following information of G Ltd., calculate (i) Variable Overhead Cost Variance; (ii)

h
Variable Overhead Expenditure Variance and (iii) Variable Overhead Efficiency Variance:

a
Budgeted Production 6,000 units

R
Budgeted Variable Overhead ` 1,20,000
Standard time for one Unit of output 2 hours

A
Actual Production 5,900 units

C
Actual Overhead Incurred ` 1,22,000
Actual Hours Worked 11,600 hours

QUESTION 10. (ILLUSTRATION 10) 

The cost detail of J&G Ltd. for the month of September is as follows:
Budgeted Actual
Fixed overhead ` 15,00,000 ` 15,60,000
Units of production 7,500 7,800
Standard time for one unit 2 hours -
Actual hours worked - 16,000 hours

Required:
CALCULATE (i) Fixed Overhead Cost Variance (ii) Fixed Overhead Expenditure Variance (iii) Fixed
Overhead Volume Variance (iv) Fixed Overhead Efficiency Variance and (v) Fixed Overhead
Capacity Variance.

13.3
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 11. (ILLUSTRATION 11) 

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.
In April 2021, 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.
COMPUTE the following Fixed Overhead variance:
1. Efficiency variance
2. Capacity variance
3. Calendar variance
4. Expenditure variance
5. Volume variance
6. Total Fixed overhead variance

QUESTION 12. (ILLUSTRATION 12) 

a l
h
The overhead expense budget for a factory producing to a capacity of 200 units per month is as

c
follows:

n
Description of overhead Fixed cost per Variable cost Total cost

a
unit in ` per unit in ` per unit in `

P
Power and fuel 1,000 500 1,500

l
Repair and maintenance 500 250 750

u
Printing and stationary 500 250 750

h
Other overheads 1,000 500 1,500

a
` 3,000 ` 1,500 4,500

R
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:

A
Description of overhead Actual cost

C
Power and fuel ` 4,00,000
Repair and maintenance ` 2,00,000
Printing and stationary ` 1,75,000
Other overheads ` 3,75,000
You are required to CALCULATE the Overhead volume variance and the overhead expense
variances.

QUESTION 13. (ILLUSTRATION 13) 

The following information was obtained from the records of a manufacturing unit using standard
costing system.
Standard Actual
Production 4,000 units 3,800 units
Working days 20 21
Machine hours 8,000 hours 7,800 hours
Fixed Overhead ` 4,00,000 ` 3,90,000
Variable Overhead `1,20,000 `1,20,000
You are required to CALCULATE the following overhead variance:
(a) Variable overhead variances
(b) Fixed overhead variances

13.4
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 14. (PP1) 

For making 10 kg. of CEMCO, the standard material requirements is:
Material Quantity Rate per kg. (`)
A 8 kg 6.00
B 4 kg 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 750 7.00
B 500 5.00
CALCULATE (A) Material Cost Variance; (b) Material Price Variance; (c) Material usage Variance.

QUESTION 15. (PP2) 

l
The standard mix to produce one unit of a product is as follows:

a
Material X 60 units @ ` 15 per unit = 900

h
Material Y 80 units @ ` 20 per unit = 1,600

c
Material Z 100 units @ ` 25 per unit = 2,500

n
240 units 5,000

P a
During the month of April, 10 units were actually produced and consumption was as follows:

l
Material X 640 units @ ` 17.50 per unit = 11,200

u
Material Y 950 units @ ` 18.00 per unit = 17,100

Material Z 870 units @ ` 27.50 per unit

a
=
h23,925

R
2,460 units 52,225
CALCULATE all material variances.

QUESTION 16. (PP3)

C A
GAP Limited operates a system of standard costing in respect of one of its products which is
manufactured within a single cost centre. Following are the details.
Budgeted data:
Material Qty Price (`) Amount (`)
A 60 20 1200
B 40 30 1200

Inputs 100 2400

Normal loss 20
Output 80 2400

Actual data:
Actual output 80 units.
Material Qty Price (`) Amount (`)
A 70 ? ?
B ? 30 ?
Material Price Variance (A) ` 105A
Material cost variance ` 275A

13.5
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

You are required to CALCULATE:

(i) Actual Price of material A
(ii) Actual Quantity of material B
(iii) Material Price Variance
(iv) Material Usage Variance
(v) Material Mix Variance
(vi) Material Sub Usage Variance

QUESTION 17. (PP4)

One kilogram of product K requires two chemicals A and B. The following were the details of
product K for the month of June 2023:
(a) Standard mix for chemical A is 50% and chemical B is 50%.
(b) Standard price kilogram of chemical A is ` 12 and chemical B is ` 15.

l
(c) Actual input of chemical B is 70 kilograms.

a
(d) Actual price per kilogram of chemical A is ` 15

h
(c) Standard normal loss is 10% of total input

c
(d) Total Material cost variance is ` 650 adverse.

n
(e) Total Material yield variance is ` 135 adverse.

a
You are required to CALCULATE:

P
(i) Total Material mix variance

l
(ii) Total Material usage variance

u
(iii) Total Material price variance

h
(iv) Actual loss of actual input

a
(v) Actual input of chemical A

R
(vi) Actual price per kg. of chemical B

A
QUESTION 18. (PP5)

C
The following standards have been set to manufacture a product:
Direct Material: (`)
2 units of A @ ` 4 per unit 8.00
3 units of B @ ` 3 per unit 9.00
15 units of C @ ` 1 per unit 15.00
32.00
Direct Labour: 3 hours @ ` 8 per hour 24.00
Total standard prime cost 56.00
The company manufactured and sold 6,000 units of the product during the year. Direct material
costs were as follows:
12,500 units of A at ` 4.40 per unit 18,000 units of B at ` 2.80 per unit 88,500 units of C at `
1.20 per unit
The company worked 17,500 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
(i) Materials price variance & Usage variance
(ii) Labour rate &Efficiency variances.

13.6
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 19. (PP6)

The following information is available from the cost records of Novell & Co. for the month of
March 2021:
Materials purchased 20,000 units @ ` 88,000
Materials consumed 19,000 units
Actual wages paid for 4,950 hrs. ` 24,750
Units produced 1,800 units
Standard rates and pieces are:
Direct material ` 4 per unit
Standard output 10 number for one unit
Direct labour rate ` 4.00 per hour
Standard requirement 2.5 hours per unit
You are required to CALCULATE relevant material and labour variance for the month.

QUESTION 20. (PP7)

a l
h
XYZ Company has established the following standards for factory overheads.

c
Variable overhead per unit: ` 10/-

n
Fixed overheads per month ` 1,00,000

a
Capacity of the plant 20,000 units per month.

P
The actual data for the month are as follows:

l
Actual overheads incurred ` 3,00,000

u
Actual output (units) 15,000 units

h
Required:

a
CALCULATE overhead variances viz:

R
(i) Production volume variance
(ii) Overhead expense variance

QUESTION 21. (PP8)

C A
Following information is available from the records of a factory:
Budget Actual
Fixed overhead for the month of June ` 10,000 ` 12,000
Production in June (units) 2,000 2,100
Standard time per unit (hours) 10 –
Actual hours worked in June – 21,000
CALCULATE:
(i) Fixed overhead cost variance,
(ii) Expenditure variance,
(iii) Volume variance.

QUESTION 21. (PP9)

XYZ Ltd. has furnished you the following information for the month of August:
Budget Actual
Output (units) 30,000 32,500
Hours 30,000 33,000
Fixed overhead ` 45,000 50,000
Variable overhead ` 60,000 68,000

13.7
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Working days 25 26
CALCULATE overhead variances.

QUESTION 22. (PP10)

S.V. Ltd. has furnished the following data:
Budget Actual (for the month of July)
No. of working days 25 27
Production in units 20,000 22,000
Fixed overheads ` 30,000 ` 31,000
Budgeted fixed overhead rate is ` 1.00 per hour. In July, the actual hours worked were 31,500.
CALCULATE the following variances:
(i) Expenditure variance.
(ii) Volume variance.

l
(iii) Total overhead variance.

QUESTION 23. (PP11)

h a
c
The following data for Pijee Ltd. is given:

n
Budget Actual

a
Production (in units) 400 360

P
Man hours to produce above 8,000 7,000

l
Variable overheads (in `) 10,000 9,150

u
CALCULATE relevant Variable overhead variances.

QUESTION 24. (PP12)

a h
R
The following data has been collected from the cost records of a unit for computing the various
fixed overhead variances for a period:

A
Number of budgeted working days 25

C
Budgeted man-hours per day 6,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted ` 1,50,000
Actual number of working days 27
Actual man-hours per day 6,300
Actual output per man-hour (in-units) 0.9
Actual fixed overhead incurred ` 1,56,000
CALCULATE fixed overhead variances:
(i) Expenditure Variance
(ii) Volume Variance,
(iii) Fixed Cost Variance.

QUESTION 25. (PP13)

J.K. Ltd. manufactures NXE by mixing three raw materials. For every batch of 100 kg. of NXE, 125
kg. of raw materials are used. In the month of April, 60 batches were prepared to produce an
output of 5,600 kg. of NXE. The standard and actual particulars for the month of April, are as
follows:

13.8
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Raw Standard Actual Quantity of Raw

Materials Mix Price per kg. Mix Price per Kg. Materials Purchased
(%) (`) (%) (`) (Kg.)
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200
You are required to CALCULATE:
(i) Material Price variance
(ii) Material Usage Variance

QUESTION 26. (PP14)

Following data is extracted from the books of XYZ Ltd. for the month of January:
(i) Estimation-

l
Particulars Quantity (kg.) Price (`) Amount (`)

a
Material-A 800 ? --

h
Material-B 600 30.00 18,000

c
--

n
Normal loss was expected to be 10% of total input materials.

(ii) Actuals-

P a
l
1480 kg of output produced.

u
Particulars Quantity (kg.) Price (`) Amount (`)

h
Material-A 900 ? --

a
Material-B ? 32.50 --

R
59,825

A
(iii) Other Information-

C
Material Cost Variance = ` 3,625 (F)
Material Price Variance = ` 175 (F)

You are required to CALCULATE:

(i) Standard Price of Material-A;
(ii) Actual Quantity of Material-B;
(iii) Actual Price of Material-A;
(iv) Revised standard quantity of Material-A and Material-B; and
(v) Material Mix Variance.

QUESTION 27. (PP15)

Paras Synthetics uses Standard costing system in manufacturing of its product ‘Star 95 Mask’. The
details are as follows;
Direct Material 0.50 Meter @ ` 60 per meter ` 30
Direct Labour 1 hour @ ` 20 per hour ` 20
Variable overhead 1 hour @ ` 10 per hour ` 10
Total ` 60
During the month of August, 10,000 units of ‘Star 95 Mask’ were manufactured.

13.9
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Details are as follows:

Direct material consumed 5700 meters @ ` 58 per meter
Direct labour Hours ? @ ? ` 2,24,400
Variable overhead incurred ` 1,12,200
Variable overhead efficiency variance is ` 2,000 A. Variable overheads are based on Direct Labour
Hours.
You are required to calculate the missing data and all the relevant Variances.

a l
c h
a n
l P
h u
R a
C A

13.10
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
ABC Ltd. had prepared the following estimation for the month of April:
Quantity Rate (`) Amount (`)
Material-A 800 kg. 45.00 36,000
Material-B 600 kg. 30.00 18,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time of 5% of

l
expected labour hours was also estimated.

a
At the end of the month the following information has been collected from the cost accounting

h
department:

c
The company has produced 1,480 kg. finished product by using the followings:

n
Quantity Rate (`) Amount (`)

a
Material-A 900 kg. 43.00 38,700

P
Material-B 650 kg. 32.50 21,125

l
Skilled labour 1,200 hours 35.50 42,600

u
Unskilled labour 860 hours 23.00 19,780

h
Required:

a
CALCULATE:

R
(i) Material Cost Variance;
(ii) Material Price Variance;

A
(iii) Material Mix Variance;

C
(iv) Material Yield Variance;
(v) Labour Cost Variance;
(vi) Labour Efficiency Variance and
(vii) Labour Yield Variance.

RTP NOV 18

Aaradhya Ltd.manufactures a commercial product for which the standard cost per unit is as
follows:
(`)
Material:
5 kg. @ ` 4 per kg. 20.00
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

13.11
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

During Jan. 20X8, 600 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:
1,700 hours @ ` 9 15,300
Variable overhead 1,900
Fixed overhead 900
Total 38,600
The flexible budget required 1,800 direct labour hours for operation at the monthly activity level
used to set the fixed overhead rate.

l
COMPUTE:

a
(a) Material price variance, (b) Material Usage variance; (c) Labour rate variance; (d) Labour

h
efficiency variance; (e) Variable overhead expenditure variance; (f) Variable overhead efficiency

c
variance; (g) Fixed overhead expenditure variance; (h) Fixed overhead volume variance; (i) Fixed

n
overhead capacity variance; and (j) Fixed overhead efficiency variance.

a
Also RECONCILE the standard and actual cost of production.

RTP MAY 19

l P
u
ABC Ltd. had prepared the following estimation for the month of April:

h
Quantity Rate (`) Amount (`)

a
Material-A 800 kg. 45.00 36,000

R
Material-B 600 kg. 30.00 18,000
Skilled labour 1,000 hours 37.50 37,500

A
Unskilled labour 800 hours 22.00 17,600

C
Normal loss was expected to be 10% of total input materials and an idle labour time of 5% of
expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost accounting
department:
The company has produced 1,480 kg. finished product by using the followings:
Quantity Rate (`) Amount (`)
Material-A 900 kg. 43.00 38,700
Material-B 650 kg. 32.50 21,125
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780
You are required to CALCULATE:
(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance.

13.12
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 19

JVG 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:
Particulars Cost per unit (`)
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 ` 365
per kg. The actual utilization of direct materials was 7,200 kg more than the budgeted
quantity.

l
(c) Direct labour – 5,300 hours were utilised at a cost of ` 4,34,600.

a
Required:

h
CALCULATE (i) Direct material price and usage variances (ii) Direct labour rate and efficiency

c
variances.

RTP MAY 20

a n
P
ABC Ltd. had prepared the following estimation for the month of January:

l
Quantity Rate (`) Amount (`)

u
Material-A 800 kg. 90.00 72,000

h
Material-B 600 kg. 60.00 36,000

a
Skilled labour 1,000 hours 75.00 75,000

R
Unskilled labour 800 hours 44.00 35,200
Normal loss was expected to be 10% of total input materials and an idle labour time of 5% of

A
expected labour hours was also estimated.

C
At the end of the month the following information has been collected from the cost accounting
department:
The company has produced 1,480 kg. finished product by using the followings:
Quantity Rate (`) Amount (`)
Material-A 900 kg. 86.00 77,400
Material-B 650 kg. 65.00 42,250
Skilled labour 1,200 hours 71.00 85,200
Unskilled labour 860 hours 46.00 39,560
You are required to CALCULATE:
(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance.

13.13
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 20

Following are the standard cost for a product-X:
(`)
Direct materials 10 kg @ ` 90 per kg  900
Direct labour 8 hours @ `100 per hour  800
Variable Overhead 8 hours @ `15 per hour  120
Fixed Overhead  400
 2,220
Budgeted output for the year was 2,000 units. Actual output is 1,800 units. Actual cost for year
is as follows:
(`)
Direct Materials 17,800 Kg @ ` 92 per Kg.  16,37,600
Direct Labour 14,000 hours @ ` 104 per hour  14,56,000

l
Variable Overhead incurred  2,17,500

a
Fixed Overhead incurred  7,68,000

You are required to CALCULATE:

c h
n
(i) Material Usage Variance

a
(ii) Material Price Variance

P
(iii) Material Cost Variance

l
(iv) Labour Efficiency Variance

u
(v) Labour Rate Variance

h
(vi) Labour Cost Variance

a
(vii) Variable Overhead Cost Variance

R
(viii) Fixed Overhead Cost Variance.

A
RTP MAY 21

C
LM Limited produces a product 'SX4' which is sold in a 10 Kg. packet. The standard cost card per
packet of 'SX4' is as follows:
 (`)
Direct materials 10 kg @ ` 90 per kg  900
Direct labour 8 hours @ ` 80 per hour  640
Variable Overhead 8 hours @ ` 20 per hour  160
Fixed Overhead  250
 1,950
Budgeted output for a quarter of a year was 10,000 Kg. Actual output is 9,000 Kg. Actual costs
for this quarter are as follows:
(`)
Direct Materials 8,900 Kg @ ` 92 per Kg.  8,18,800
Direct Labour 7,000 hours @ ` 84 per hour  5,88,000
Variable Overhead incurred  1,40,000
Fixed Overhead incurred  2,60,000
You are required to CALCULATE:
(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance

13.14
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

(iv) Labour Efficiency Variance

(v) Labour Rate Variance
(vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance

RTP NOV 21

BabyMoon Ltd. uses standard costing system in manufacturing one of its product ‘Baby Cap’. The
details are as follows:
Direct Material 1 Meter @ ` 60 per meter  ` 60
Direct Labour 2 hour @ ` 20 per hour  ` 40
Variable overhead 2 hour @ ` 10 per hour  ` 20
Total  ` 120

l
During the month of August, 10,000 units of ‘Baby Cap’ were manufactured. Details are as

a
follows:

h
Direct material consumed 11,400 meters @ ` 58 per meter

c
Direct labour Hours ? @ ? ` 4,48,800

n
Variable overhead incurred ` 2,24,400

a
Variable overhead efficiency variance is ` 4,000 A. Variable overheads are based on Direct Labour

P
Hours.

l
You are required to CALCULATE the following Variances:

u
(a) Material Variances- Material Cost Variance, Material Price Variance and Material Usage

h
Variance.

a
(b) Variable Overheads variances- Variable overhead Cost Variance, Variable overhead

R
Efficiency Variance and Variable overhead Expenditure Variance.
(c) Labour variances- Labour Cost Variance, Labour Rate Variance and Labour Efficiency

A
Variance.

RTP MAY 22

C
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 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 and ` 11.40 respectively to Group 'A' consisting 10
workers, Group 'B' consisting 30 workers and Group 'C' consisting 60 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 Gang Variance.
(iv) Total Labour Yield Variance, and
(v) Total Labour Idle Time Variance.

13.15
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

RTP NOV 22

Ahaan Limited operates a system of standard costing in respect of one of its products 'AH1' which
is manufactured within a single cost centre. Details of standard per unit are as follows:
• The standard material input is 20 kilograms at a standard price of ` 24 per kilogram.
• The standard wage rate is ` 72 per hour and 5 hours are allowed to produce one unit.
• Fixed production overhead is absorbed at the rate of 100% of wages cost.

During the month of April 2022, the following was incurred:

• Actual price paid for material purchased @ ` 22 per kilogram.
• Total direct wages cost was ` 43,92,000
• Fixed production overhead cost incurred was ` 45,00,000

Analysis of variances was as follows:

l
Variances Favourable Adverse

a
Direct material price ` 4,80,000 -

ch
Direct material usage ` 48,000
Direct labour rate - ` 69,120

n
Direct labour efficiency ` 33,120 -

a
Fixed production overhead expenditure ` 1,80,000

l P
You are required to CALCULATE the following for the month of April, 2022

u
(i) Material cost variance

h
(ii) Budgeted output (in units)

a
(iii) Quantity of raw materials purchased (in kilograms)

R
(iv) Actual output (in units)
(v) Actual hours worked

A
(vi) Actual wage rate per labour hour

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

RTP MAY 23

XYZ Manufacturing Ltd. had prepared the following estimation for the month of January:
Quantity Rate (`) (`)
Raw Material-DF 1,600 kg. 50 80,000
Raw Material-CE 1,200 kg. 35 42,000
Skilled labour 2,000 hours 40 80,000
Semiskilled labour 1,600 hours 25 40,000
Standard loss in the process was expected to be 10% of total input materials and an idle labour
time of 5% of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost accounting
department:

The company has produced 2,960 kg. finished product by using the followings:
Quantity Rate (`) (`)
Raw Material-DF 1,800 kg. 40 72,000
Raw Material-CE 1,300 kg. 30 39,000

13.16
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Skilled labour 2,400 hours 35 84,000

Semiskilled labour 1,720 hours 20 34,400
You are required to CALCULATE:
(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance

RTP NOV 23

The following information has been provided by a company:

l
Number of units produced and sold 6,000

a
Standard labour rate per hour `8

h
Standard hours required for 6,000 units -

c
Actual hours required 17094 hours

n
Labour efficiency 105.3%

a
Labour rate variance

P
You are required to calculate: ` 68,376 (A)

l
(i) Actual labour rate per hour

u
(ii) Standard hours required for 6,000 units

h
(iii) Labour Efficiency variance

a
(iv) Standard labour cost per unit

R
(v) Actual labour cost per unit.

A
RTP MAY 24

C
EML operates in coal mining through open cast mining method. Explosives and detonators are
used for excavation of coal from the mines. The following are the details of standard quantity of
explosives materials used for mining:
Particulars Rate (`) Standard Qty. Standard Qty. for
for Iron ore Overburden (OB)
SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic- meter
Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic- meter
The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden soil to be removed to
get one tonne of coal).
During the month of December 2023, the company produces 20,000 tonnes of coal and 58,000
cubic- meter of OB. The quantity of explosive materials used and paid for the month is as below:
Material Quantity Amount (`)
SME 1,67,200 kg. 63,53,600
Detonators 1,18,400 pcs 24,27,200
Explosive suppliers are paid for the explosive materials on the basis of performance of the
explosives which is termed as powder factor. One of the suppliers has presented their bill for
explosive supplied for the month of December 2023. You being a bill passing officer of EML is
required to COMPUTE the material price variance, material quantity variance and material cost
variance.

13.17
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (5 MARKS) Q. 5A(ii)
Beta Ltd. is manufacturing Product N. This is manufactured by mixing two materials namely
Material P and Material Q. The Standard Cost of Mixture is as under:
Material P 150 ltrs. @ ` 40 per ltr.
Material Q 100 ltrs. @ ` 60 per ltr.
Standard loss @ 20 of total input is expected during production.
The cost records for the period exhibit following consumption:
Material P 140 ltrs. @ ` 42 per ltr,

l
Material Q 110 ltrs. @ ` 56 per ltr,

a
Quantity produced was 195 ltrs.

Calculate:

c h
n
(i) Material Cost Variance

a
(ii) Material Usage Variance.

P
(iii) Material Price Variance

ANSWER :

u l
Workings:

a h
R
Take the good output of 195 ltr. The standard quantity of material required for 195 ltr. of output
is

Material C A
Statement showing computation of Standard Cost/Actual Cost/ Revised Actual Quantity
Standard Cost Actual Cost
Quantity Rate Amount Quantity Rate Amount
[SQ] (Kg.) [SP] (`) [SQ × SP] (`) [AQ] (Kg.) [AP] (`) [AQ × AP] (`)
A (60% of 146.25 40 5,850.00 140 42 5,880
243.75 ltr.)
B (40% of. 97.50 60 5,850.00 110 56 6,160
243.75 Kg.)
243.75 11,700.00 200 12,040

Note:
SQ = Standard Quantity = Expected Consumption for Actual Output
AQ = Actual Quantity of Material Consumed
AP = Actual Price Per Unit

13.18
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Computation of Variances:
Material Cost Variance = SQ × SP – AQ × AP
A = ` 146.25 ltr. × ` 40– 140 ltr. × ` 42 = ` 30.00 (A)
B = ` 97.50 ltr. × ` 60 – 110 ltr. × ` 56 = ` 310.00 (A)
Total = ` 30.00 (A) + ` 310.00 (A)
= ` 340.00 (A)

Material Usage Variance = SP × (SQ – AQ)

A = ` 40 × (146.25 ltr. –140 ltr.) = ` 250.00 (F)
B = ` 60 × (97.50 ltr. – 110 ltr.) = ` 750.00 (A)
Total = ` 250.00 (F) + ` 750.00 (A)
= ` 500.00 (A)

l
Material Price Variance = AQ × (SP – AP)

a
A = 140 Kg. × (` 40 – ` 42) = ` 280 (A)

h
B = 110 Kg. × (` 60 – ` 56) = ` 440 (F)

c
Total = ` 280 (A) + ` 440 (F)

n
= ` 160 (F)

PYQ NOV 18 (5 MARKS)

P a Q. 1B

l
A manufacturing concern has provided following information related to fixed overheads:

u
Standard Actual

h
Output in a month 5000 units 4800 units

a
Working days in a month 25 days 23 days

R
Fixed overheads ` 5,00,000 ` 4,90,000
Compute:

A
(i) Fixed overhead variance

C
(ii) Fixed overhead expenditure variance
(iii) Fixed overhead volume variance
(iv) Fixed overhead efficiency variance

ANSWER :
Calculation of Variances:
(i) Fixed Overhead Variance: Standard fixed overhead – Actual fixed overhead
= ` [ (5,00,000÷5000) ×4800] – ` 4,90,000 = ` 10,000 (A)
(ii) Fixed Overhead Expenditure Variances:
Budgeted fixed overhead – Actual fixed overhead
= ` 5,00, 000 – ` 4,90, 000 = ` 10,000 (F)
(iii) Fixed Overhead Volume Variance: Standard fixed overhead – Budgeted fixed overhead
= ` 4,80, 000 – ` 5,00, 000 = ` 20,000 (A)
(iv) Fixed Overhead efficiency Variance: Standard fixed overhead – Budgeted fixed overhead
for Actual days
= ` 4,80, 000 – [(` 5,00, 000÷25) ×23] = ` 20,000 (F)

13.19
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

PYQ MAY 19 (10 MARKS) Q. 3A

A gang of workers normally consists of 30 skilled workers, 15 semi-skilled workers and 10
unskilled workers. They are paid at standard rate per hour as under:
Skilled ` 70
Semi-skilled ` 65
Unskilled ` 50
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of output.
During the week ended 31st March, 2019, the gang consisted of 40 skilled, 10 semi-skilled and
5 unskilled workers. The actual wages paid were at the rate of ` 75,
` 60 and ` 52 per hour respectively. Four hours were lost due to machine breakdown and 1,600
units were produced.
Calculate the following variances showing clearly adverse (A) or favourable (F)
(i) Labour Cost Variance (ii) Labour Rate Variance

l
(iii) Labour Efficiency Variance (iv) Labour Mix Variance

a
(v) Labour Idle Time Variance

ANSWER :

c h
n
(i) Labour Cost Variance = Standard Cost – Actual Cost

a
= `1,14,400 – `1,54,400

P
= 40,000 (A)

l
(1,600*75+400*60+200*52= `1,54,400)

u
Or

h
Types of workers Standard Cost – Actual Cost Amount (`)

a
Skilled Workers (30x40x70/2,000x1,600)- (40x40x75) 67,200-1,20,000 52,800 (A)

R
Semi- Skilled (15x40x65/2,000x1,600)- (10x40x60) 31,200-24,000 7,200 (F)
Un-Skilled Workers (10x40x50/2,000x1,600)- (5x40x52) 16,000-10,400 5,600 (F)

A
Total 1,14,400-1,54,400 40,000 (A)

(ii)

Skilled Workers
C
Labour Rate Variance
Types of workers Actual Hours × (Standard Rate - Actual Rate)
1,600 hours × (`70.00 – `75.00)
Amount (`)
8,000 (A)
Semi- Skilled 400 hours × (`65.00 – `60.00) 2,000 (F)
Un-Skilled Workers 200 hours × (`50.00 – `52.00) 400 (A)
Total `8,000 (A) + `2,000 (F) + `400 (A) 6,400 (A)

(iii) Labour Efficiency Variance

Types of workers Standard Rate × (Standard Hours – Actual Hours) Amount
(`)
Skilled Workers `70.00 × (960 hours – 1,440 hours) 33,600 (A)
Semi- Skilled `65.00 × (480 hours – 360 hours) 7,800 (F)
Un-Skilled Workers `50.00 × (320 hours – 180 hours) 7,000 (F)
Total 33,600 (A) + 7,800 (F) + 7,000 (F) 18,800 (A)

13.20
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Alternatively labour efficiency can be calculated on basis of labour hours paid

Types of workers Standard Rate × (Standard Hours – Actual Hours) Amount
(`)
Skilled Workers 70.00 × (960 hours – 1600 hours) 44,800 (A)
Semi- Skilled 65.00 × (480 hours – 400 hours) 5,200 (F)
Un-Skilled Workers 50.00 × (320 hours – 200 hours) 6,000 (F)
Total 33,600 (A) + 7,800 (F) + 7,000 (F) 33,600 (A)
(iv) Labour Mix Variance
= Total Actual Time Worked (hours) × {Average Standard
Rate per hour of Standard Gang Less Average Standard
Rate per hour of Actual Gang}
@
on the basis of hours worked

a
= ` 4,500 (A)

h
Or

c
Labour Mix Variance

n
Types of workers Std. Rate  (Revised Actual Hours Worked- Actual Amount (`)

a
Hours Worked)

P
Skilled Workers `70 × (1,080 hrs. – 1440 hrs.) 25,200 (A)

l
Semi- Skilled `65 × (540 hrs. – 360 hrs.) 11,700 (F)

u
Un Skilled Workers `50 × (360 hrs. – 180 hrs.) 9,000 (F)

h
Total `25,200 (A) + `11,700 (F) + `9,000 (F) 4,500 (A)

(v) Labour Idle Time Variance

Types of workers
R a
Standard Rate × (Hours Paid – Hours Worked) Amount (`)

A
Skilled Workers `70.00 × (1,600 hours – 1,440 hours) 11,200 (A)

C
Semi- Skilled `65.00 × (400 hours – 360 hours) 2,600 (A)
Un-Skilled Workers `50.00 × (200 hours – 180 hours) 1,000 (A)
Total 11,200 (A) + 2,600 (A) + 1,000 (A) 14,800 (A)
Verification:
Labour Cost Variance
= Labour Rate Variance + Labour Efficiency Variance + Labour Idle Time Variance
= 6,400 (A) + 18,800 (A) + 14,800 (A) = ` 40,000 (A)

Labour Cost Variance

= Labour Rate Variance + Labour Efficiency Variance
= 6400(A) + 33600(A)= `40000(A)
In this case, labour idle time variance is a part of labour efficiency variance.

13.21
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Working Notes:
Standard Cost Actual (1600 units) Revised
Hrs. Rate Amt. (`) Hrs. Rate Amt. (`) Actual
Hours
Skilled 960 70.00 67,200 1,440 1,08,000 1,080
(30Wx40x1,600/2, 000) (40Wx36) 75.00 (1,980x6/11)
Semi- 480 65.00 31,200 360 21,600 540
Skilled (15Wx40 x1,600/2,000) (10Wx36) 60.00 (1,980x3/11)
Unskilled 320 50.00 16,000 180 52.00 9,360 360
(10Wx40 x1,600/2,000) (5Wx36) (1,980x2/11)
Total 1,760 65 1,14,400 1,980 1,38,960 1,980

PYQ NOV 19 (10 MARKS) Q. 5B

l
The standard cost of a chemical mixture is as follows: 60% of Material A @ ` 50 per kg

a
40% Material B @ ` 60 per kg

h
A standard loss of 25% on output is expected in production. The cost records for a period has

c
shown the following usage.

n
540 kg of Material A @ ` 60 per kg 260 kg of Material B @ ` 50 per kg

a
The quantity processed was 680 kilograms of good product. From the above given information

P
Calculate:

l
(i) Material Cost Variance

u
(ii) Material Price Variance

h
(iii) Material Usage Variance

a
(iv) Material Mix Variance

R
(v) Material Yield Variance.

A
ANSWER :

C
Basic Calculation
Material Standard for 640 kg. output Actual for 680 kg. output
Qty. Kg. Rate Amount Qty Kg. Rate Amount
(`) (`) (`) (`)
A 480 50 24,000 540 60 32,400
B 320 60 19,200 260 50 13,000
Total 800 43,200 800 45,400
Less: Loss 160 -  - 120 -  -
640 43,200 680 45,400

Std. cost of actual output = ` 43,200 × 680/640 = ` 45,900

Calculation of Variances
(i) Material Cost Variance = (Std. cost of actual output – Actual cost)
= (45,900– 45,400)
= ` 500 (F)
(ii) Material Price Variance = (SP – AP) × AQ
Material A = (50 – 60) × 540 = ` 5400 (A)
Material B = (60 – 50)) × 260 = ` 2600 (F) MPV = ` 2800 (A)

13.22
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

(iii) Material Usage Variance (MUV) = (Std. Quantity for actual output – Actual
Quantity) × Std. Price

MUV = ` 3,300 (F)

(iv) Material Mix Variance = SP × (RAQ – AQ)

A = ` 50× (480 Kg – 540 Kg) = ` 3,000 (A)
B = ` 60 × (320 Kg. – 260 Kg.)= ` 3,600 (F)

l
Total = ` 3,000 (A) + ` 3,600 (F) = ` 600 (F)

(v) Material Yield Variance = SP × (SQ – RAQ)

h a
c
A = ` 50 × (510 Kg. – 480 Kg) = ` 1,500 (F)

n
B = ` 60 × (340 Kg. – 320 Kg.)= ` 1,200 (F)

a
Total = ` 1,500 (F) + ` 1,200 (F) = ` 2,700 (F)

l P
u
PYQ NOV 20 (10 MARKS) Q. 3A

h
ABC Ltd. has furnished the following information regarding the overheads for the month of June

a
2020 :

R
(i) Fixed Overhead Cost Variance ` 2,800 (Adverse)
(ii) Fixed Overhead Volume Variance ` 2,000 (Adverse)

A
(iii) Budgeted Hours for June, 2020 2,400 hours

C
(iv) Budgeted Overheads for June,2020 ` 12,000
(v) Actual rate of recovery of overheads ` 8 Per Hour
From the above given information Calculate:
(1) Fixed Overhead Expenditure Variance
(2) Actual Overheads Incurred
(3) Actual Hours for Actual Production
(4) Fixed Overhead Capacity Variance
(5) Standard hours for Actual Production
(6) Fixed Overhead Efficiency Variance

ANSWER :
(1) Fixed Overhead Expenditure Variance
= Budgeted Fixed Overheads – Actual Fixed Overheads
= ` 12,000 – ` 12,800 (as calculated below) = ` 800 (A)
(2) Fixed Overhead Cost Variance= Absorbed Fixed Overheads – Actual Fixed Overheads
2,800 (A) = ` 10,000 – Actual Overheads
Actual Overheads = ` 12,800
(3) Actual Hours for Actual Production = ` 12,800/ `8 = 1,600 hrs.

13.23
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

(4) Fixed Overhead capacity Variance

= Budgeted Fixed Overheads for Actual Hours– Budgeted Fixed Overheads
= ` 5 x 1600 hrs. – ` 12,000 = ` 4,000 (A)
(5) Standard Hours for Actual Production
= Absorbed Overheads/ Std. Rate
= ` 10,000/ ` 5 = 2,000 hrs.
(6) Fixed Overhead Efficiency Variance
= Absorbed Fixed Overheads – Budgeted Fixed Overheads for Actual Hours
= ` 10,000 – ` 5 x 1,600 hrs. = ` 2,000 (F)
Working Note:
(i) Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed Overheads
2,000 (A) = Absorbed Fixed Overheads – `12,000
Absorbed Fixed Overheads = ` 10,000

l
(ii) Standard Rate/ Hour = ` 5 (` 12,000/2,400 hrs.)

PYQ JAN 21 (10 MARKS)

h a Q. 5B

c
Premier Industries has a small factory where 52 workers are employed on an average for 25

n
days a month and they work 8 hours per day. The normal down time is 15%. The firm has

a
introduced standard costing for cost control. Its monthly budget for November, 2020 shows that

P
the budgeted variable and fixed overhead are ` 1,06,080 and ` 2,21,000 respectively.

l
The firm reports the following details of actual performance for November, 2020, after the end

u
of the month:

h
Actual hours worked 8,100 hrs.

a
Actual production expressed in standard hours 8,800 hrs.

R
Actual Variable Overheads ` 1,02,000
Actual Fixed Overheads ` 2,00,000

A
You are required to calculate:

C
(i) Variable Overhead Variances:
(a) Variable overhead expenditure variance.
(b) Variable overhead efficiency variance.
(ii) Fixed Overhead Variances:
(a) Fixed overhead budget variance.
(b) Fixed overhead capacity variance.
(c) Fixed overhead efficiency variance.
(iii) Control Ratios:
(a) Capacity ratio.
(b) Efficiency ratio.
(c) Activity ratio.

ANSWER :
Calculation of budgeted hours
Budgeted hours = (52 x 25 x 8) x 85% = 8,840 hours
(i) Variable overheads variance
(a) Variable overhead expenditure variance
= Std. overhead for Actual hours – Actual variable Overhead

13.24
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

`
`

= 4800 A
(b) Variable overhead efficiency variance
Std. rate per hour × (Std. hours for actual production – Actual hours)

= 8400 F

(ii) Fixed overhead variances

(a) Fixed overhead budget variance
= Budgeted overhead – Actual overhead

l
= ` 2,21,000 – ` 2,00,000

a
= 21,000 F

c h
n
(b) Fixed overhead capacity variance

a
= Std rate x (Actual hours – budgeted hours)

l P
u
= 18,500 A

(c) Fixed overhead efficiency variance

a h
R
= Std rate x (Std hours for actual production – Actual hours)

(iii)
= 17,500 F

Control Ratios C A
(a) Capacity Ratio

(b) Efficiency Ratio

(c) Activity Ratio

13.25
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

PYQ JULY 21 (10 MARKS) Q. 5A

The standard output of a Product 'DJ' is 25 units per hour in manufacturing department of a
Company employing 100 workers. In a 40 hours week, the department produced 960 units of
product 'DJ' despite 5% of the time paid was lost due to an abnormal reason. The hourly wage
rates actually paid were ` 6.20, ` 6.00 and ` 5.70 respectively to Group 'A' consisting 10 workers,
Group 'B' consisting 30 workers and Group 'C' consisting 60 workers. The standard wage rate per
labour is same for all the workers. Labour Efficiency Variance is given ` 240 (F).
You are required to compute:
(i) Total Labour Cost Variance.
(ii) Total Labour Rate Variance.
(iii) Total Labour Gang Variance.
(iv) Total Labour Yield Variance, and
(v) Total Labour Idle Time Variance.

ANSWER :

a l
h
Working Notes:

c
1. Calculation of Standard Man hours

n
When 100 workers work for 1 hour, the standard output is 25 units.

P a
2.

u l
Calculation of standard man hours for actual output:

h
= 960 units x 4 hours = 3,840 hours.

3. Calculation of actual cost

Type of Workers No of
R a
Actual Rate (`) Amount Idle Hours Actual

A
Workers Hours Paid (`) (5% of hours hours

C
paid) Worked
Group ‘A’ 10 400 6.2 2,480 20 380
Group ‘B’ 30 1,200 6 7,200 60 1,140
Group ‘C’ 60 2,400 5.7 13,680 120 2,280
100 4,000 23,360 200 3,800

4. Calculation of Standard wage Rate:

Labour Efficiency Variance = 240F
(Standard hours for Actual production – Actual Hours) x SR = 240F
(3,840 – 3,800) x SR = 240
Standard Rate (SR) = ` 6 per hour
(i) Total Labour Cost Variance
= (Standard hours x Standard Rate) – (Actual Hours x Actual rate)
= (3,840 x 6) – 23,360 = 320A

(ii) Total Labour Rate Variance

= (Standard Rate – Actual Rate) x Actual Hours
Group ‘A’ = (6- 6.2) 400 = 80A
Group ‘B’ = (6- 6) 1,200 = 0

13.26
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Group ‘C’ = (6 – 5.7) 2,400 = 720F

640F

(iii) Total Labour Gang Variance

= Total Actual Time Worked (hours) × {Average Standard Rate per hour of Standard Gang
-Average Standard Rate per hour of Actual Gang@}
@
on the basis of hours worked

=0

(iv) Total Labour Yield Variance

= Average Standard Rate per hour of Standard Gang × {Total Standard Time (hours) - Total

l
Actual Time worked (hours)}

a
= 6 x (3,840 – 3,800)

h
= 240F

(v) Total Labour idle time variance

n c
a
= Total Idle hours x standard rate per hour

P
= 200 hours x 6

l
= 1,200A

PYQ DEC 21 (5 MARKS)

h u Q. 1B

a
The Accountant of KPMR Ltd. has prepared the following budget for the coming year 2022 for its

R
two products ‘AYE’ and ‘ZYE’:
Particulars Product ‘AYE’ Product ‘ZYE’

A
Production and Sales (in Units) 4,000 3,000

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

13.27
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Flexible Budget (before promotion)
Particulars Product ‘AYE’ Product ‘ZYE’ Total
Production & Sales (units) 4,000 3,000
Amount (`) Amount (`) Amount (`)
A. Sales Value 8,00,000 5,40,000 13,40,000
(` 200×4,000) (` 180×3,000)
B. Direct Materials 3,20,000 2,10,000 5,30,000
(` 80 × 4,000) (`70 × 3,000)
C. Direct labour 1,60,000 1,05,000 2,65,00
(` 40 × 4,000) (` 35 × 3,000)
D. Variable Overheads 80,000 75,000 1,55,00
(` 20 × 4,000) (` 25 × 3,000)

l
E. Total VariableCost (B+C+D) 5,60,000 3,90,000 9,50,000

a
F. Contribution (A-E) 2,40,000 1,50,000 3,90,000

h
G. Fixed Overhead 40,000 30,000 70,000

c
(`10 × 4,000) (`10 × 3,000)

n
H. Profit (F-G) 2,00,000 1,20,000 3,20,000

a
Profit per unit 50 40

(ii) Flexible Budget (after promotion)

l P
u
Particulars Product ‘AYE’ Product ‘ZYE’ Total

h
Production & Sales (units) 4,200 3,150

a
(4,000×105%) (3,000×105%)

R
Amount (`) Amount (`) Amount (`)
A. Sales Value 9,24,000 6,23,700 15,47,700

A
(` 220 × (` 198 × 3,150)

C
4,200)
B. Direct Materials 3,36,000 2,20,500 5,56,500
(` 80 × 4,200) (` 70 × 3,150)
C. Direct labour 1,68,000 1,10,250 2,78,250
(` 40 × 4,200) (` 35 × 3,150)
D. Variable Overheads 1,00,800 94,500 1,95,300
(` 24 × 4,200) (` 30 × 3,150)
E. Total VariableCost (B+C+D) 6,04,800 4,25,250 10,30,050
F. Contribution (A-E) 3,19,200 1,98,450 5,17,650
G. Fixed Overhead 42,000 31,500 73,500
(` 40,000 × (` 30,000 ×
105%) 105%)
H. Profit (F-G) 2,77,200 1,66,950 4,44,150
Profit per unit 66 53

13.28
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

PYQ DEC 21 (10 MARKS) Q. 5A

In a manufacturing company the standard units of production for the year were fixed at 1,20,000
units and overhead expenditures were estimated to be as follows:
Particulars Amount (`)
Fixed 12,00,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable nature) 1,80,000
Variable 6,00,000
Actual production during the month of April, 2021 was 8,000 units. Each month has 20 working
days. During the month there was one public holiday. The actual overheads were as follows:
Particulars Amount (`)
Fixed 1,10,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable) 19,200
Variable 48,000

l
You are required to calculate the following variances for the month of April 2021:

a
i. Overhead Cost variance

h
ii. Fixed Overhead Cost variance

c
iii. Variable Overhead Cost variance

n
iv. Fixed Overhead Volume variance

a
v. Fixed Overhead Expenditure Variance

P
vi. Calendar Variance

ANSWER :

u l
h
Working Notes

a
` 10

R
Fixed Overheads element in Semi-Variable Overheads i.e. 60% of `1,80,000 ` 1,08,000

A
` 0.90

C
Standard Rate of Absorption of Fixed Overheads per unit (`10 + `0.90)
Fixed Overheads Absorbed on 8,000 units @ ` 10.90
Budgeted Variable Overheads
` 10.90
` 87,200
` 6,00,000
Add: Variable element in Semi-Variable Overheads 40% of ` 1,80,000 ` 72,000
Total Budgeted Variable Overheads ` 6,72,000
`5.60

Standard Variable Overheads for 8,000 units @ `5.60 ` 44,800

Budgeted Annual Fixed Overheads (` 12,00,000 + 60% of ` 1,80,000) ` 13,08,000
` 1,03,550

Actual Fixed Overheads (`1,10,000 + 60% of ` 19,200) ` 1,21,520
Actual Variable Overheads (`48,000 + 40% of `19,200) ` 55,680

13.29
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

COMPUTATION OF VARIANCES
i. Overhead Cost Variance = Absorbed Overheads – Actual Overheads
= (` 87,200 + ` 44,800) – (` 1,21,520 + ` 55,680)
= ` 45,200 (A)
ii. Fixed Overhead Cost Variance = Absorbed Fixed Overheads – Actual Fixed Overheads
= ` 87,200 – ` 1,21,520
= ` 34,320 (A)
iii. Variable Overhead Cost Variance = Standard Variable Overheads for Production–
Actual Variable Overheads
= ` 44,800 – ` 55,680
= ` 10,880 (A)
iv. Fixed Overhead Volume Variance = Absorbed Fixed Overheads- Budgeted Fixed Overheads
= ` 87,200 – `1,09,000

l
= ` 21,800 (A)

a
v. Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads – Actual

h
Fixed Overheads

c
= ` 10.90 × 10,000 units – ` 1,21,520

n
= ` 12,520 (A)

a
vi. Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads

P
= ` 1,03,550 – ` 1,09,000

l
= ` 5,450 (A)

u
OR

h
Calendar Variance = (Actual days – Budgeted days) x Standard fixed overhead rate per day

a
Standard fixed overhead rate per day = 1308000/20*12 = ` 5450

R
Fixed Overhead Calendar Variance = (19-20) x 5450 = 5450(A)

A
PYQ NOV 22 (10 MARKS) Q. 5A

C
Y Lid manufactures "Product M" which requires three types of raw materials - "A", "B" & "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
B 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
B 7,500 48
C 4,500 60

13.30
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

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.

ANSWER :
Basic Calculations:
Standard for 20,000 kg. Actual for 20,000 kg.
Qty. Rate Amount Qty. Rate Amount
Kg. (`) (`) Kg. (`) (`)
A 10,000 25 2,50,000 11,000 23 2,53,000

l
B 7,000 45 3,15,000 7,500 48 3,60,000

a
C 5,000 55 2,75,000 4,500 60 2,70,000

h
Total 22,000 8,40,000 23,000 8,83,000

Calculation of Variances:

n c
a
(i) Material Cost Variance = Std. Cost for actual output–Actual cost

P
MCV=8,40,000– 8,83,000 = ` 43,000(A)

l
(ii) Material Price Variance = (SP–AP) × AQ

u
A = (25 - 23) x 11,000 = 22,000 (F)

h
B = (45 – 48) x 7,500 = 22,500 (A)

a
C = (55 – 60) x 4,500 = 22,500 (A)

R
23000 (A)
(iii) Material Usages Variance = (SQ–AQ) × SP

A
A = (10,000 – 11,000) x 25 = 25,000 (A)

C
B = (7,000 – 7,500) x 45 = 22,500 (A)
C = (5,000 – 4,500) x 55 = 27,500 (F)
20,000 (A)

(iv)
Material Yield Variance = (SQ–RSQ*) × SP
A = (10,000 – 10,454.54) x 25 = 11,363.5(A)
B = (7,000 – 7,318.18) x 45 = 14,318.1(A)
C = (5,000 – 5,227.27) x 55 = 12,500(A)
38,181.6(A)
*Revised Standard Quantity (RSQ)

Material Yield Variance can also be Calculated as below

Material yield variance = Standard cost per unit (Actual yield – Standard yield)

13.31
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Material yield variance = ` 42 (20,000 – 20,909)

= ` 38,178 (A)

PYQ MAY 23 (10 MARKS) Q. 5A

NC Limited uses a standard costing system for the manufacturing of its product ‘X’. The following
information is available for the last week of the month:
• 25,000 kg of raw material were actually purchased for ` 3,12,500. The expected output
is 8 units of product 'X' from each one kg of raw material. There is no opening and closing

l
inventories. The material price variance and material cost variance, as per cost records, are

a
` 12,500 (F) and ` 1800 (A), respectively.

h
• The standard time to produce a batch of 10 units of product 'X' is 15 minutes. The standard

c
wage rate per labour hour is 50. The company employs 125 workers in two categories,

n
skilled and semi-skilled, in a ratio of 60:40. The hourly wages actually paid were ` 50 per

a
hour for skilled workers and ` 40 per hour for semi- skilled workers. The weekly working

P
hours are 40 hours per worker. Standard wage rate is the same for skilled and semi- skilled

l
workers.

u
• The monthly fixed overheads are budgeted at ` 76,480 Overheads are evenly distributed

h
throughout the month and assume 4 weeks in a month. In the last week of the month, the

a
actual fixed overhead expenses were ` 19,500.

R
Required:
(i) Calculate the standard price per kg and the standard quantity of raw material.

A
(ii) Calculate the material usage variance, labour cost variance, and labour efficiency variance.

C
(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.

ANSWER :
(i) Calculation of Standard price per kg and the standard quantity of raw material:
Standard Price
(a) Material Price Variance = Standard Cost of Actual Quantity – Actual Cost
12,500 (F) = (SP × AQ) – ` 3,12,500
12,500 (F) = (SP × 25,000) – ` 3,12,500
SP = ` 13
Standard Quantity
(b) Material Cost Variance = Standard Cost – Actual Cost
1,800 (A) = SQ × `13 – ` 3,12,500
SQ = 23,900 kg.

(ii) Calculation of Material Usage Variance, Labour Cost Variance and Labour Efficiency Variance
(a) Material Usage Variance = Standard Cost of Standard Quantity for Actual
Output – Standard Cost of Actual Quantity

13.32
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

= SQ × SP – AQ × SP
Or
= SP × (SQ – AQ)
= ` 13 × (23,900 kg. – 25,000 kg.)
= ` 14,300 (A)
(b) Labour Cost Variance = Standard Cost – Actual Cost
= (SH × SR) – (AH × AR)
= ` 2,39,000 – ` 2,30,000
= ` 9,000 (F)
(c) Labour Efficiency Variance = Standard Cost of Standard Time for Actual
Production – Standard Cost of Actual Time
= (SH × SR) – (AH × SR)
Or

l
= (SH – AH) × SR

a
= ` 50 × [4,780 hrs. – 5,000 hrs.]

h
= ` 11,000 (A)

c
(iii) Calculation of Fixed Overhead Cost Variance, Fixed Overhead Expenditure Variance and

n
Fixed Overhead Volume Variance:

a
(a) Fixed overhead cost variance = Standard Fixed Overheads – Actual Fixed

P
Overheads

l
= 18,279 – 19,500

u
= ` 1,221(A)

h
(b) Fixed Overhead Expenditure = Budgeted Fixed Overheads – Actual Fixed

a
Overheads

R
Variance = ` 19,120 – ` 19,500
= ` 380 (A)

(c)

C A
Fixed overhead volume variance
Budgeted rate per unit
=
= (Budgeted output – Actual Output) X

(2,00,000 – 1,91,200) 0.0956

= ` 8,800 x 0.0956
= ` 841 (A)

Alternative presentation to part (iii) (a) and (b)

(i) Fixed Overhead Cost Variance:
= Overhead absorbed for actual production – Actual overhead incurred

(iii) Fixed Overhead Volume Variance:

= Absorbed overhead – Budgeted overhead

Working Notes:
1. Standard time to produce 10 units of product X is 15 minutes. Therefore we can manufacture
40 units in an hour.

13.33
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Hours available in a week

125 Workers x 40 Hours = 5,000 hours
Therefore budgeted output = 5,000 x 40 units per hour = 2,00,000 units
Alternatively

Actual output = 23,900 x 8 units = 1,91,200 units

l
2.

a
Labour

h
Budget Revised standard Actual

c
Hours Rate ` Hours Rate ` Hours Rate `

n
5,000 50 2,50,000 4,780 50 2,39,000 Skilled 3000 50 1,50,000

a
Semi-

P
Skilled 2000 40 80,000

l
5000 2,30,000

3.

h u
a
Budget Actual

R
Units 2,00,000 1,91,200
Fixed Overheads 19,120 19,500

4.

C A
Standard Fixed overheads:

Budgeted rate per unit:

PYQ NOV 23 (10 MARKS) Q. 5A

PQR Alloys Ltd. uses a standard costing system.
Budgeted information for the year:
Budgeted output 84,000 units
Variable Factory Overhead per unit ` 16
Standard time for one unit of output 0.80 machine hour
Fixed factory overheads ` 6,72,000
Actual results for the year:
Actual output 87,600 units
Variable Overhead efficiency variance ` 67,200 (A)
Actual Fixed factory overheads ` 7,05,000

13.34
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

Actual variable factory overheads ` 14,37,000

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.

ANSWER :
Calculation of actual hours

l
Variable Overhead Efficiency Variance:

a
(Standard hours for actual production – Actual hours) × Standard rate per hour

h
Let actual hours be x

c
[(87,600 × 0.8) – x] ×20 = -67,200

n
(70,080 – x) × 20 = -67,200

a
x = 73,440

(i)

l
Variable Factory Overhead Expenditure Variance:
P
u
(Variable overhead at actual hours – Actual variable overheads)

a h
= 31,800 F
R
A
(ii) Fixed Factory Overhead Expenditure Variance:

C
Budgeted fixed overhead – Actual fixed overhead.
(6,72,000 – 7,05,000)
= 33,000 A
(iii) Fixed Factory Overhead Efficiency Variance:
(Standard hours for actual production – Actual hours) × Standard rate per hour
(70,080 – 73,440) × 10 = 33,600 A
(iv) Fixed Overhead Capacity Variance:
(Actual hours - Budgeted hours) × Standard rate per hour
(73,440 - 67,200) ×10 = 62,400 F
The solution can also be presented in following way based on Quantity (units) Calculation of
standard quantity for actual hours:
Variable standard rate per unit (SR) = ` 16
Variable Overhead Efficiency Variance:
(SR x AQ) – (SR x standard quantity for Actual hours worked)
-67,200 = (16 x 87,600) – 16 x
-67200 = 14,01,600- 16 x
x = 14,68,800 / 16 = 91,800 (SQ for actual hours worked)
(i) Variable Factory Overhead Expenditure Variance:
(SR x SQ for actual hour worked – Actual variable overheads)

13.35
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

16 x 91,800 – 14,37,000 or 14,68,800 – 14,37,000

= 31,800 F
(ii) Fixed Factory Overhead Expenditure Variance: Budgeted fixed overhead – Actual fixed
overhead. (6,72,000 – 7,05,000)
= 33,000 A
(iii) Fixed Factory Overhead Efficiency Variance:
Standard rate per unit (SR) = 6,72,000 / 84,000 = ` 8 per unit
(SR x AQ) – (SR x standard quantity for Actual hours)
(8 x 87,600) – (8 x 91,800)
(7,00,800 – 7,34,400) = 33,600 A
(iv) Fixed Overhead Capacity Variance:
(SR x standard quantity for Actual hours - Budgeted fixed overheads)
(8 x 91800) – (6,72,000)

l
(7,34,400 – 6,72,000) = 62,400 F

h a
n c
P a
u l
a h
R
C A

13.36
STANDARD COSTING
 TRP Sir
CA Rahul Panchal

14 MARGINAL COSTING

QUESTION 1. (ILLUSTRATION 1) 
MNP Ltd sold 2,75,000 units of its product at ` 37.50 per unit. Variable costs are ` 17.50 per unit
(manufacturing costs of ` 14 and selling cost ` 3.50 per unit). Fixed costs are incurred uniformly
throughout the year and amounting to ` 35,00,000 (including depreciation of ` 15,00,000). There
is no beginning or ending inventories.
Required:
COMPUTE breakeven sales level quantity and cash breakeven sales level quantity.

l
QUESTION 2. (ILLUSTRATION 2) 

a
You are given the following particulars

h
i. Fixed cost ` 1,50,000

c
ii. Variable cost ` 15 per unit

n
iii. Selling price is ` 30 per unit CALCULATE:

a
(a) Break-even point

P
(b) Sales to earn a profit of ` 20,000

QUESTION 3. (ILLUSTRATION 3) 

u l
h
A company has a P/V ratio of 40%. COMPUTE by what percentage must sales be increased to

a
offset: 20% reduction in selling price?

QUESTION 4. (ILLUSTRATION 4) 
R
A
PQR Ltd. has furnished the following data for the two years:

C
2021-22 2022-23
Sales ` 8,00,000 ?
Profit/Volume Ratio (P/V ratio) 50% 37.5%
Margin of Safety sales as a % of total sales 40% 21.875%
There has been substantial savings in the fixed cost in the year 2022-23 due to the restructuring
process. The company could maintain its sales quantity level of 2021- 22 in 2022-23 by reducing
selling price.
You are required to CALCULATE the following:
(i) Sales for 2022-23 in Value,
(ii) Fixed cost for 2022-23 in Value,
(iii) Break-even sales for 2022-23 in Value.

QUESTION 5. (ILLUSTRATION 5) 
You are given the following data for the current financial year of Rio Co. Ltd:
Variable cost 60,000 60%
Fixed cost 30,000 30%
Net profit 10,000 10%
Sales 1,00,000 100%

14.1
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

FIND OUT (a) Break-even point, (b) P/V ratio, and (c) Margin of safety. Also DRAW a break-even
chart showing contribution and profit.

QUESTION 6. (ILLUSTRATION 6) 
PREPARE a profit graph for products A, B and C and find break-even point from the following
data:
Products A B C Total
Sales (`) 7,500 7,500 3,750 18,750
Variable cost (`) 1,500 5,250 4,500 11,250
Fixed cost (`) --- --- --- 5,000

QUESTION 7. (ILLUSTRATION 7) 
A company earned a profit of ` 30,000 during the year. If the marginal cost and selling price of

l
the product are ` 8 and ` 10 per unit respectively, FIND OUT the amount of margin of safety.

QUESTION 8. (ILLUSTRATION 8) 

h a
c
A Ltd. Maintains margin of safety of 37.5% with an overall contribution to sales ratio of 40%. Its

n
fixed costs amount to ` 5 lakhs.

a
CALCULATE the following:

P
i. Break-even sales

l
ii. Total sales

u
iii. Total variable cost

h
iv. Current profit

a
v. New ‘margin of safety’ if the sales volume is increased by 7 ½ %.

QUESTION 9. (ILLUSTRATION 9) 
R
A
By noting “P/V will increase or P/V will decrease or P/V will not change”, as the case may be,

C
STATE how the following independent situations will affect the P/V ratio:
(i) An increase in the physical sales volume;
(ii) An increase in the fixed cost;
(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.
(x) An increase in the angle of incidence.

QUESTION 10. (ILLUSTRATION 10) 

A company can make any one of the 3 products X, Y or Z 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.
X Y Z
Selling Price (` / unit) 10 12 12
Variable Costs (` / unit) 6 9 7

14.2
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

Market Demand (unit) 3,000 2,000 1,000

Production Capacity (unit) 2,000 3,000 900
Fixed Costs (`) 30,000
Required
COMPUTE the opportunity costs for each of the products.

QUESTION 11. (ILLUSTRATION 11) 

M.K. Ltd. manufactures and sells a single product X whose selling price is ` 40 per unit and the
variable cost is ` 16 per unit.
(i) If the Fixed Costs for this year are ` 4,80,000 and the annual sales are at 60% margin of
safety, CALCULATE the rate of net return on sales, assuming an income 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

l
` 6,66,600. The sales mix values of X : Y would be 7 : 3. DETERMINE at what level of sales

a
next year, would M.K. Ltd. break even? Give separately for both X and Y the break-even

h
sales in rupee and quantities.

QUESTION 12. (ILLUSTRATION 12) 

n c
a
X Ltd. supplies spare parts to an air craft company Y Ltd. The production capacity of X Ltd.

P
facilitates production of any one spare part for a particular period of time. The following are the

l
cost and other information for the production of the two different spare parts A and B:

u
Part A Part B

h
Per unit

a
Alloy usage 1.6 kgs. 1.6 kgs.

R
Machine Time: Machine P 0.6 hrs 0.25 hrs.
Machine Time: Machine Q 0.5 hrs. 0.55 hrs.

A
Target Price (`) 145 115

C
Total hours available Machine P 4,000 hours
Machine Q 4,500 hours
Alloy available is 13,000 kgs. @ ` 12.50 per kg.
Variable overheads per machine hours Machine P: ` 80
Machine Q: ` 100

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 ` 60 per hour of unutilized machine hour,
CALCULATE the total contribution from the spare part identified above?

14.3
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 13. (ILLUSTRATION 13) 

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:
Sales  ` 5,00,000
Direct Materials  ` 2,50,000
Direct Labour…  ` 1,00,000
Variable Overheads…… ` 40,000 Capital Employed  ` 4,00,000
The new Sales Manager who has joined 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

l
Manager can be adopted.

QUESTION 14. (ILLUSTRATION 14) 

h a
c
Wonder Ltd. manufactures a single product, ZEST. The following figures relate to ZEST for a one-

n
year period:

a
Activity Level 50% 100%

P
Sales and production (units) 400 800

l
(`) (`)

u
Sales 8,00,000 16,00,000

h
Production costs:

a
- Variable 3,20,000 6,40,000

R
- Fixed 1,60,000 1,60,000
Selling and distribution costs:

A
- Variable 1,60,000 3,20,000

C
- Fixed 2,40,000 2,40,000
The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout
the year, and actual fixed costs are the same as budgeted. There were no stocks of ZEST at the
beginning of the year.
In the first quarter, 220 units were produced and 160 units were sold. Required:
(a) COMPUTE the fixed production costs absorbed by ZEST if absorption costing is used?
(b) CALCULATE the under/over-recovery of overheads during the period?
(c) CALCULATE the profit using absorption costing?
(d) CALCULATE the profit using marginal costing?

QUESTION 15. (PP1) 

If P/V ratio is 60% and the Marginal cost of the product is ` 20. CALCULATE the selling price?

QUESTION 16. (PP2) 

The ratio of variable cost to sales is 70%. The break-even point occurs at 60% of the capacity
sales. Find the capacity sales when fixed costs are ` 90,000. Also COMPUTE profit at 75% of the
capacity sales.

14.4
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 17. (PP3) 

You are required to-
(`)
(i) DETERMINE profit, when sales = 2,00,000
Fixed Cost = 40,000
BEP = 1,60,000
(ii) DETERMINE sales, when fixed cost = 20,000
Profit = 10,000
BEP = 40,000

QUESTION 18. (PP4) 

A company has made a profit of ` 50,000 during the year. If the selling price and marginal cost
of the product are ` 15 and ` 12 per unit respectively, FIND OUT the amount of margin of safety.

QUESTION 19. (PP5) 

a l
h
(a) If margin of safety is ` 2,40,000 (40% of sales) and P/V ratio is 30% of AB Ltd, CALCULATE

c
its (1) Break even sales, and (2) Amount of profit on sales of ` 9,00,000.

n
(b) X Ltd. has earned a contribution of ` 2,00,000 and net profit of `1,50,000 of sales of `

a
8,00,000. What is its margin of safety?

QUESTION 20. (PP6) 

l P
u
A company sells its product at ` 15 per unit. In a period, if it produces and sells 8,000 units, it

h
incurs a loss of ` 5 per unit. If the volume is raised to 20,000 units, it earns a profit of ` 4 per

a
unit. CALCULATE break-even point both in terms of Value as well as in units.

QUESTION 21. (PP7) 

R
A
You are given the following data:

C
Sales Profit
Year 2021-22 ` 1,20,000 8,000
Year 2022-23 ` 1,40,000 13,000
FIND OUT –
(i) P/V ratio, (ii) B.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 2022-23.

QUESTION 22. (PP8) 

The product mix of a Gama Ltd. is as under:
Products
M N
Units 54,000 18,000
Selling price ` 7.50 ` 15.00
Variable cost ` 6.00 ` 4.50
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.

14.5
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

QUESTION 23. (PP9) 

Mr. X has ` 2,00,000 investments in his business firm. He 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
60 per cent of sales, his fixed costs are ` 80,000 per year. Show COMPUTATIONS to answer the
following questions:
(i) What sales volume must be obtained to break even?
(ii) What sales volume must be obtained to get 15 per cent return on investment?
(iii) Mr. X 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?

QUESTION 24. (PP10) 

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.

l
CALCULATE:

a
(i) The profit-volume ratio, break-even point and margin of safety for the first half year.

h
(ii) Expected sales volume for the second half year assuming that selling price and fixed

c
expenses remained unchanged during the second half year.

n
(iii) The break-even point and margin of safety for the whole year.

QUESTION 25. (PP11) 

P a
l
The following information is given by Star Ltd.:

u
Margin of Safety ` 1,87,500

h
Total Cost ` 1,93,750

a
Margin of Safety 3,750 units

R
Break-even Sales 1,250 units
Required:

A
CALCULATE Profit, P/V Ratio, BEP Sales (in `) and Fixed Cost.

QUESTION 26. (PP12) 

C
A single product company sells its product at ` 60 per unit. In 2021-22, the company operated
at a margin of safety of 40%. The fixed costs amounted to
` 3,60,000 and the variable cost ratio to sales was 80%.
In 2022-23, it is estimated that the variable cost will go up by 10% and the fixed cost will
increase by 5%.
(i) FIND the selling price required to be fixed in 2022-23 to earn the same P/V ratio as in
2021-22.
(ii) Assuming the same selling price of ` 60 per unit in 2022-23, FIND the number of units
required to be produced and sold to earn the same profit as in 2021-22.

QUESTION 27. (PP13) 

(a) You are given the following data for the coming year for a factory.
Budgeted output 8,00,000 units
Fixed expenses ` 40,00,000
Variable expenses per unit ` 100
Selling price per unit ` 200
DRAW a break-even chart showing the break-even point.

14.6
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(b) If price is reduced to ` 180, what will be the new break-even point?

QUESTION 28. (PP14) 

A company has three factories situated in north, east and south with its Head Office in Mumbai.
The management has received the following summary report on the operations of each factory
for a period:
(` in ‘000)
Sales Profit
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)

l
CALCULATE for each factory and for the company as a whole for the period:

a
(i) the fixed costs. (ii) break-even sales.

QUESTION 29. (PP15) 

c h
n
An automobile manufacturing company produces different models of Cars. The budget in respect

a
of model 007 for the month of March is as under:

P
Budgeted Output 40,000 Units

l
` In lakhs ` In lakhs

u
Net Realisation 2,10,000

h
Variable Costs:

a
Materials 79,200

R
Labour 15,600
Direct expenses 37,200 1,32,000

A
Specific Fixed Costs 27,000

C
Allocated Fixed Costs 33,750 60,750
Total Costs 1,92,750
Profit 17,250
Sales 2,10,000
CALCULATE:
(i) Profit with 10 percent increase in selling price with a 10 percent reduction in sales volume.
(ii) Volume to be achieved to maintain the original profit after a 10 percent rise in material
costs, at the originally budgeted selling price per unit.

QUESTION 30. (PP16) 

An Indian soft drink company is planning to establish a subsidiary company in Bhutan to produce
mineral water. Based on the estimated annual sales of 40,000 bottles of the mineral water, cost
studies produced the following estimates for the Bhutanese subsidiary:
Total annual costs Percent of Total Annual Cost
which is variable
Material 2,10,000 100%
Labour 1,50,000 80%
Factory Overheads 92,000 60%
Administration Expenses 40,000 35%

14.7
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

The Bhutanese production will be sold by manufacturer’s representatives who will receive a
commission of 8% of the sale price. No portion of the Indian office expenses is to be allocated to
the Bhutanese 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 Bhutan.
(ii) CALCULATE the break-even point in rupees sales as also in number of bottles for the
Bhutanese subsidiary on the assumption that the sale price is ` 14 per bottle.

QUESTION 31. (PP17) 

XYZ Ltd. has a production capacity of 2,00,000 units per year. Normal capacity utilisation is
reckoned as 90%. Standard variable production costs are ` 11 per unit. The fixed costs are
`3,60,000 per year. Variable selling costs are ` 3 per unit and fixed selling costs are `2,70,000
per year. The unit selling price is ` 20.

l
In the year just ended on 31st March, the production was 1,60,000 units and sales were 1,50,000

a
units. The closing inventory on 31st March was 20,000 units. The actual variable production

h
costs for the year were ` 35,000 higher than the standard.

c
(i) CALCULATE the profit for the year

n
(a) by absorption costing method and

a
(b) by marginal costing method.

P
(ii) EXPLAIN the difference in the profits.

QUESTION 32. (PP18) 

u l
h
The following are cost data for three alternative ways of processing the clerical work for cases

a
brought before the LC Court System:

R
A B C
Manual Semi- Fully-

A
(`) Automatic Automatic

C
(`) (`)
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 `60 `20
(5 hrs × `40) (1 hr × `60) (0.25 hr × `80)
Required:
(i) CALCULATE cost indifference points. Interpret your results.
(ii) If the present case load is 600 cases and it is expected to go up to 850 cases in near future,
SELECT most appropriate on cost considerations?

QUESTION 33. (PP19) 

XY Ltd. makes two products X and Y, whose respective fixed costs are F1 and F2. You are given
that the unit contribution of Y is onefifth less than the unit contribution of X, that the total of F 1
and F2 is ` 1,50,000, that the BEP of X is 1,800 units (for BEP of X, F2 is not considered) and that
3,000 units is the indifference point between X and Y.(i.e. X and Y make equal profits at 3,000

14.8
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

unit volume, considering their respective fixed costs). There is no inventory buildup as whatever
is produced is sold.
Required
FIND OUT the values F1 and F2 and units contributions of X and Y.

QUESTION 34. (PP20) 

Prisha Limited manufactures three different products and the following information has been
collected from the books of accounts:
Products
A B C
Sales Mix 40% 35% 25%
Selling Price ` 300 ` 400 ` 200
Variable Cost ` 150 ` 200 ` 120

l
Total Fixed Costs ` 18,00,000

a
Total Sales ` 60,00,000

h
The company has currently under discussion, a proposal to discontinue the manufacture of

c
Product C and replace it with Product E, when the following results are anticipated:

n
Products

a
A B E

P
Sales Mix 45% 30% 25%

l
Selling Price ` 300 `400 ` 300

u
Variable Cost ` 150 `200 ` 150

h
Total Fixed Costs ` 18,00,000

a
Total Sales ` 64,00,000

R
Required:
(i) CALCULATE the total contribution to sales ratio and present break-even sales at existing

A
sales mix.

C
(ii) CALCULATE the total contribution to sales ratio and present break-even sales at proposed
sales mix.
(iii) STATE whether the proposed sales mix is accepted or not?

14.9
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
A company manufactures two types of herbal product, A and B. Its budget shows profit figures
after apportioning the fixed joint cost of `15 lacs in the proportion of the numbers of units sold.
The budget for 2018, indicates:
A B
Profit (`) 1,50,000 30,000
Selling Price / unit (`) 200 120
P/V Ratio (%) 40 50

l
Required:

a
COMPUTE the best option among the following, if the company expects that the number of units

h
to be sold would be equal.

c
(i) Due to exchange in a manufacturing process, the joint fixed cost would be reduced by 15%

n
and the variables would be increased by 7½ %.

a
(ii) Price of A could be increased by 20% as it is expected that the price elasticity of demand

P
would be unity over the range of price.

l
(iii) Simultaneous introduction of both the option, viz, (i) and (ii) above.

RTP NOV 18

h u
a
A company sells its product at ` 15 per unit. In a period, if it produces and sells 8,000 units, it

R
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.

RTP MAY 19

C A
MNP Ltd sold 2,75,000 units of its product at ` 375 per unit. Variable costs are ` 175 per unit
(manufacturing costs of `140 and selling cost `35 per unit). Fixed costs are incurred uniformly
throughout the year and amount to `3,50,00,000 (including depreciation of ` 1,50,00,000). there
are no beginning or ending inventories.
Required:
(i) COMPUTE breakeven sales level quantity and cash breakeven sales level quantity.
(ii) COMPUTE the P/V ratio.
(iii) COMPUTE the number of units that must be sold to earn an income (EBIT) of ` 25,00,000.
(iv) COMPUTE the sales level achieve an after-tax income (PAT) of ` 25,00,000. Assume 40%
corporate Income Tax rate.

RTP NOV 19

PVC Ltd sold 55,000 units of its product at `375 per unit. Variable costs are `175 per unit
(manufacturing costs of `140 and selling cost `35 per unit). Fixed costs are incurred uniformly
throughout the year and amount to `65,00,000 (including depreciation of `15,00,000). There is
no beginning or ending inventories.
Required:
(i) COMPUTE breakeven sales level quantity and cash breakeven sales level quantity.

14.10
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(ii) COMPUTE the P/V ratio.

(iii) COMPUTE the number of units that must be sold to earn an income (EBIT) of `5,00,000.
(iv) COMPUTE the sales level achieve an after-tax income (PAT) of `5,00,000, assume 40%
corporate tax rate..

RTP MAY 20

A 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:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of Cost of Goods Sold --
Direct Labour 15% of Cost of Goods Sold --
Factory Overhead 10% of Cost of Goods Sold ` 2,30,000
Administration Overhead 2% of Cost of Goods Sold ` 71,000

l
Selling & Distribution 4% of Cost of Sales ` 68,000

a
Overhead

h
Last Year 5,000 units were sold at `185 per unit. From the given DETERMINE the followings:

c
(i) Break-even Sales (in rupees)

n
(ii) Profit earned during last year

a
(iii) Margin of safety (in %)

P
(iv) Profit if the sales were 10% less than the actual sales.

l
(Assume that Administration Overhead is related with production activity)

RTP NOV 20

h u
a
J Ltd. manufactures a Product-Y. Analysis of income statement indicated a profit of ` 250 lakhs

R
on a sales volume of 5,00,000 units. Fixed costs are `1,000 lakhs which appears to be high.
Existing selling price is `680 per unit. The company is considering revising the profit target to `

A
700 lakhs. You are required to COMPUTE –

C
(i) Break- 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 ` 170 lakhs in the fixed cost is
envisaged.

RTP MAY 21

Aditya Limited manufactures three different products and the following information has been
collected from the books of accounts:
Products
S T U
Sales Mix 35% 35% 30%
Selling Price ` 300 ` 400 ` 200
Variable Cost ` 150 ` 200 ` 120
Total Fixed Costs ` 18,00,000
Total Sales ` 60,00,000

14.11
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

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 M
Sales Mix 50% 25% 25%
Selling Price ` 300 ` 400 ` 300
Variable Cost ` 150 ` 200 ` 150
Total Fixed Costs ` 18,00,000
Total Sales ` 64,00,000
Required
(i) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the existing
product mix.
(ii) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the proposed

l
product mix.

RTP NOV 21

h a
c
A company has three factories situated in North, East and South with its Head Office in Mumbai.

n
The Management has received the following summary report on the operations of each factory

a
for a period:

P
(` in ‘000)

l
Factory Sales Profit

u
Actual Over / (Under) Actual Over / (Under)

h
Budget Budget

a
North 1,100 (400) 135 (180)

R
East 1,450 150 210 90
South 1,200 (200) 330 (110)

A
CALCULATE the following for each factory and for the company as a whole for the period:

C
(i) Fixed Cost
(ii) Break-even Sales

RTP MAY 22
A Limited manufactures three different products and the following information has been collected
from the books of accounts:
Products
S T U
Sales Mix 25% 35% 40%
Selling Price ` 600 `800 `400
Variable Cost ` 300 `400 `240
Total Fixed Costs ` 36,00,000
Total Sales ` 1,20,00,000

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 M
Sales Mix 40% 35% 25%

14.12
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

Selling Price ` 600 ` 800 ` 600

Variable Cost ` 300 ` 400 ` 300
Total Fixed Costs ` 36,00,000
Total Sales ` 1,28,00,000
Required:
(i) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the existing
product mix.
(ii) COMPUTE the PV ratio, total contribution, profit and Break-even sales for the proposed
product mix

RTP NOV 22

(a) 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

l
is provided below:

a
Direct material@ ` 693

h
Direct labour ` 315

c
Variable manufacturing support ` 504

n
Fixed manufacturing support ` 1092

a
Total manufacturing costs ` 2604

P
Markup (50%) ` 1302

l
Targeted selling price ` 3906

u
It is provided that RPP Manufacturers has excess capacity.

Required:

a h
R
(i) WHAT is the full cost of the product per unit?
(ii) WHAT is the contribution margin per unit?

A
(iii) WHICH costs are relevant for making the decision regarding this one-time special

C
order? WHY?
(iv) For RPP Manufacturers, WHAT is the minimum acceptable price of this one- time-
special order only
(v) For this one-time-only special order, SHOULD RPP Manufacturers consider a price of
` 2100 per unit? WHY or why not?

(b) The lab corner of Newlife Hospital Trust operates two types of specialist MRI scanning
machine- MR10 and MR59. Following details are estimated for the next period:
Machine MR10 MR59
Running hours 1,100 2,000
(`) (`)
Variable running costs excluding special technology 68,750 1,60,000
Fixed Costs 50,000 2,43,750
A brain scan is normally carried out on machine type MR10. This task uses special technology
costing ` 100 each and takes four hours of machine time. Because of the nature of the
process, around 10% of the scans produce blurred and therefore useless results.
Required:
(i) CALCULATE the total cost of a satisfactory brain scan on machine type MR10.
(ii) Brain scans can also be done on machine type MR59 and would take only 1.8 hours

14.13
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

per scan with a reduced reject rate of 6%. However, the cost of the special technology
would be ` 137.50 per scan. ADVISE which type should be used, assuming sufficient
capacity is available on both types of machines. Consider fixed costs will remain
unchanged.

RTP MAY 23

The following data are available from the budget records of Finesign Women's Handbag Company
for the forthcoming budget period.
`
Selling Price per unit 1000
Variable cost per unit:
Cost of Material used 750.00
Sales commission 50.00

l
Total Variable Cost 800.00

a
Annual fixed expenses:

h
Rent 7,00,000

c
Salaries 11,00,000

n
Other fixed expenses 5,00,000

a
Total Fixed Cost 23,00,000

P
Although the firm manufactures Bags with different styles, they have identical purchase costs

l
and selling price.

u
Requirement:

h
(a) What is the annual break-even point both in terms of units and value?

a
(b) If the store manager is paid 1 per cent commission on sales, what would be the annual

R
break-even point both in terms of units and value?
(c) If the firm decides to pay a fixed salary of ` 9,00,000 in lieu of sales commission, what

A
would be the annual break-even point in terms of units and value.

C
Considering break-even point in requirement (a), If the stores manager is paid 2 per cent
commission on each bag sold in excess of the break-even point, what would be the profit
if 20000 bags were sold.

RTP NOV 23

(a) A dairy product company manufacturing baby food with a shelf life of one year furnishes
the following information:
(i) On 1st April, 2023, the company has an opening stock of 20,000 packets whose
variable cost is ` 180 per packet.
(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 1,60,000 packets.
(iii) In 2022-23, fixed cost per unit was ` 60 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 Break-even volume in units for 2023-24.

14.14
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(b) The M-Tech Manufacturing Company is presently evaluating two possible processes for the
manufacture of a toy. The following information is available:
Particulars Process A (`) Process B (`)
Variable cost per unit 12 14
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:

l
A - 6,00,000 units; B - 5,00,000 units?

RTP MAY 24

h a
c
The analysis of cost sheet of A Ltd. for the last financial year has revealed the following

n
information for it’s product R:

a
Elements of Cost Variable Cost portion Fixed Cost

P
Direct Material 30% of cost of goods sold --

l
Direct Labour 15% of cost of goods sold --

u
Factory Overhead 10% of cost of goods sold ` 2,30,000

h
General & Administration Overhead 2% of cost of goods sold ` 71,000

a
Selling & Distribution Overhead 4% of cost of sales ` 68,000

R
Last year 5,000 units were sold at `185 per unit.

A
You being an associate to cost controller of the A Ltd., CALCULATE :

C
(i) Break-even Sales (in rupees),
(ii) Profit earned during last year,
(iii) Margin of safety (in %) and
(iv) the profit if the sales were 10% less than the actual sales.

14.15
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ MAY 18 (5 MARKS) Q. 1C
Following figures have been extracted from the books of M/s. RST Private Limited:
Financial Year Sales (`) Profit/Loss (`)
2016-17 4,00,000 15,000(loss)
2017-18 5,00,000 15,000 (Profit)
You are required to calculate:
(i) Profit Volume Ratio
(ii) Fixed Costs

l
(iii) Break Even Point

a
(iv) Sales required to earn a profit of ` 45,000.

h
(v) Margin of Safety in Financial Year 2017-18.

ANSWER :

n c
P a Sales (`) Profit (`)

l
Year 2016 4,00,000 15,000 (loss)

u
Year 2017 5,00,000 15,000 (profit)

h
Difference 1,00,000 30,000

(i)

R a
A
(ii) (`)

C
Contribution in 2016 (4,00,000  30%) 1,20,000
Add: Loss 15,000
Fixed Cost* 1,35,000
*Contribution = Fixed cost + Profit
∴ Fixed cost = Contribution – Profit

(iii) Break-even point =

(iv) Sales to earn a profit of ` 45,000

(v)
Margin of safety in 2017 –18
Margin of safety = Actual sales – Break-even sales
= 5,00,000 – 4,50,000 = ` 50,000.

14.16
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PYQ MAY 18 (10 MARKS) Q. 5B

PH Gems 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:

Particulars Amount (`) Amount (`)

Sales 1,500 pieces @ ` 1,800 per piece 27,00,000
Direct Material 5,94,200
Direct Labour 4,42,600
Overheads (40% Fixed) 11,97,000 22,33,800
Net Profit 4,66,300

Evaluate following options:

(i) If selling price is increased by ` 200, the sales will come down to 60% of the total annual

l
capacity. Should the company increase its selling price?

a
(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN with ready-

h
made suit. The cost of each TIEPIN is ` 18. Calculate the sales to earn a profit of 20% on

c
sales.

ANSWER :

a n
P
(i) Evaluation of Option (i)

l
Selling Price = ` 1800 + ` 200 = ` 2,000

u
(`)

h
Sales (1,200 pieces @ ` 2,000) 24,00,000

a
4,75,360

R 3,54,080

Contribution C A 5,74,560

9,96,000
Less: Fixed cost ( Rs. 11,97,000x40% ) 4,78,800
Profit 5,17,200

If price has been increased by 11.11% (increases by 200 on 1,800) sales goes down by 20%
(decreased by 300 on 1,500). Change in demand is greater than change in price. Since the
variable costs are still same profit has been arose to ` 5,17,200 in-spite of high elasticity
of demand. PH gems would not be able to sustain this policy on account of change if any
in variable costs.

14.17
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(ii) Evaluation of Option (ii)

(`)
Sales 1,800.00
396.13

Cost of Tie PIN 18.00

295.07

478.80

Contribution 612.00
P/V Ratio (` 612/1800x100) 34.0%

l
Sales to required earn a profit of 20%

h a
n c
a
Sales = ` 34,20,000 or 1,900 units (` 34,20,000/1800)

P
To earn profit 20% on sales of readymade suit (along with TIE PIN) company has to sold

l
1,900 units i.e. 95% of the full capacity. This sales level of 1,900 units is justified only if

u
variable cost is constant. Any upside in variable cost would impact profitability, to achieve

h
the desired profitability. Production has to be increased but the scope is limited to 5% only.

PYQ NOV 18 (10 MARKS)

R a Q. 2B
A manufacturing company is producing a product 'A' which is sold in the market at `45 per unit.

A
The company has the capacity to produce 40000 units per year. The budget for the year 2018-19

C
projects a sale of 30000 units.
The costs of each unit are expected as under:
Particulars `
Materials 12
Wages 9
Overheads 6
Margin of safety is ` 4,12,500. You are required to:
(i) calculate fixed cost and break-even point.
(ii) calculate the volume of sales to earn profit of 20% on sales.
(iii) if management is willing to invest ` 10,00,000 with an expected return of 20%, calculate
units to be sold to earn this profit.
(iv) Management expects additional sales if the selling price is reduced to ` 44. Calculate units
to be sold to achieve the same profit as desired in above (iii).

14.18
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Margin of Safety =

Profit = 1,65,000 OR P/V = (18/45) x 100 =40%

(i) Fixed Cost

Profit = (Sales × P/V Ratio) – Fixed Cost

a l
Or Fixed Cost = 5,40,000 – 1,65,000

c h
n
= ` 3,75,000

a
OR

P
Profit = Contribution – Fixed Cost=` 5,40,000-` 3,75,000 =`.1,65,000

u l
h
Break-even Point = Total Sales – Margin of Safety

a
= ` (30,000 × 45) – 4,12,500

R
= 13,50,000 – 4,12,500 =` 9,37,500
Or

(ii) C A
Let’s assume, Sales Volume = S unit so total sales value is 45 S and
Contribution is 45 S - 27 S =18 S
Now, Contribution = Fixed Cost + Desired Profit
18 S = 3,75,000 + 9 S (20% of 45 S)
Or, 9S = 3,75,0000

So, ` 18,75,000 sales are required to earn profit on 20% of sales

(iii) Contribution = Fixed Cost + Desired Profit

18S = 3,75,000 + Return on Investment
18S = 3,75,000 + 2,00,000

So,31,945 Units to be sold to earn a return of ` 2,00,000.

14.19
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(iv) Revised Contribution = Fixed Cost + Desired Profit

17S = 3,75.000 + 2,00,000

S = 33,824 units (approx.)

 Additional Sales to be sold to achieve the same profit is 33,824 Units.

PYQ MAY 19 (5 MARKS) Q. 5A

M/s Gaurav 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:
(i) Sales planned for the year will be ` 81,00,000 in the case of 'BLACK' and
` 54,00,000 in the case of 'WHITE'.

l
(ii) The selling price of 'BLACK' will be reduced by 10% and that of 'WHITE' by 20%.

a
(iii) Break-even is planned at 70% of the total sales of each product.

h
(iv) Profit for the year to be maintained at ` 8,26,200 in the case of 'BLACK' and

c
` 7,45,200 in the case of 'WHITE'. This would be possible by reducing the present annual

n
fixed cost of ` 42,00,000 allocated as ` 22,00,000 to 'BLACK' and ` 20,00,000 to 'WHITE'.

a
You are required to calculate:

P
(1) Number of units to be sold of 'BLACK' and 'WHITE' to Break even during the financial year

l
2019-20.

u
(2) Amount of reduction in fixed cost product-wise to achieve desired profit mentioned at (iv)

h
above.

ANSWER :
(i)
R a
Statement showing Break Even Sales

A
Particulars Black White

C
Sales Planned 81,00,000 54,00,000
Selling Price (`) 18 24
Number of Units to be sold 4,50,000 2,25,000
Break Even sales (in Units),70% of total sales 3,15,000 1,57,500
Or
Break Even sales (in `),70% of total sales 56,70,000 37,80,000
(ii) Statement Showing Fixed Cost Reduction
Profit to be maintained (`) 8,26,200 7,45,200
Margin of Safety (70% of Sales) (`) 24,30,000 16,20,000
PVR (Profit/ Margin of Safety) x 100 34% 46%
Contribution (Sales x 34% or 46%) (`) 27,54,000 24,84,000
Less: Profit (`) 8,26,200 7,45,200
Revised Fixed Cost (`) 19,27,800 17,38,800
Present Fixed Cost (`) 22,00,000 20,00,000
Reduction in Fixed Cost 2,72,200 2,61,200

14.20
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PYQ NOV 19 (5 MARKS) Q. 1D

When volume is 4,000 units; average cost is ` 3.75 per unit. When volume is 5,000 units, average
cost is ` 3.50 per unit. The Break-Even point is 6,000 units.
Calculate: (i) Variable Cost per unit (ii) Fixed Cost and (iii) Profit Volume Ratio.

ANSWER :
Variable cost per unit

l
(ii) Fixed cost = Total Cost – Variable cost (at 5,000 units level)

a
= `17,500 – `2.5 × 5,000 = `5,000

c h
a n
l P
u
PYQ NOV 20 (5 MARKS) Q. 1B

h
Moon Ltd. produces products 'X', 'Y' and 'Z' and has decided to analyse it's production mix in

a
respect of these three products - 'X', 'Y' and 'Z'.

R
You have the following information :
X Y Z

A
Direct Materials ` (per unit) 160 120 80

C
Variable Overheads ` (per unit) 8 20 12
Direct labour :
Departments: Rate per Hour (`) Hours per unit Hours per unit Hours per unit
X Y Z
Department-A 4 6 10 5
Department-B 8 6 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 sales in the 12,000 16,000 24,000
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.

14.21
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
(i) Statement Showing “Calculation of Contribution/ unit”
Particulars X Y Z
(`) (`) (`)
Selling Price (A) 312 400 240
Variable Cost:
Direct Material 160 120 80
Direct Labour
Dept. A (Rate x Hours) 24 40 20
Dept. B (Rate x Hours) 48 120 88
Variable Overheads 8 20 12
Total Variable Cost (B) 240 300 200
Contribution per unit (A - B) 72 100 40

l
Hours in Dept. A 6 10 5

a
Contribution per hour 12 10 8

h
Rank I II III

c
Existing Hours = 10,000 x 6hrs. + 12,000 x 10 hrs. + 20,000 x 5 hrs. = 2,80,000 hrs. Best

n
possible product mix (Allocation of Hours on the basis of ranking)

a
Produce ‘X’ = 12,000 units

P
Hours Required = 72,000 hrs (12,000 units × 6 hrs.)

l
Balance Hours Available = 2,08,000 hrs (2,80,000 hrs. – 72,000 hrs.)

u
Produce ‘Y’ (the Next Best) = 16,000 units

h
Hours Required = 1,60,000 hrs (16,000 units × 10 hrs.)

a
Balance Hours Available = 48,000 hrs (2,08,000 hrs. – 1,60,000 hrs.)

R
Produce ‘Z’ (balance) = 9,600 units (48,000 hrs./ 5 hrs.)

A
ii) Statement Showing “Contribution”

C
Product Units Contribution/ Unit (`) Total Contribution (`)
X 12,000 72 8,64,000
Y 16,000 100 16,00,000
Z 9,600 40 3,84,000
Total 28,48,000

PYQ JAN 21 (5 MARKS) Q. 1A

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

14.22
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

ANSWER :
Contribution to sales ratio (P/V ratio) = 37%
Variable cost ratio = 100% - 37% = 63%
Variable cost = ` 10,00,000 x 63% = ` 6,30,000
After decrease in selling price and fixed cost, sales quantity has not changed. Thus, variable cost
is ` 6,30,000.
Revised Contribution to sales = 30%
Thus, Variable cost ratio = 100%  -30% = 70%

Thus, Revised sales

Revised, Break-even sales ratio = 100%  40% (revised Margin of safety) = 60%
(i) Revised fixed cost = revised breakeven sales x revised contribution

l
to sales ratio

a
= ` 5,40,000 (` 9,00,000 x 60%) x 30%

h
= ` 1,62,000

c
(ii) Revised sales = ` 9,00,000 (as calculated above)

n
(iii) Revised Break-even point = Revised sales x Revised break-even sales ratio

a
= ` 9,00,000 x 60%

P
= ` 5,40,000

PYQ JAN 21 (5 MARKS)

u l Q. 3A

h
Two manufacturing companies A and B are planning to merge. The details are as follows:

a
A B

R
Capacity utilisation (%) 90 60
Sales (`) 63,00,000 48,00,000

A
Variable Cost (`) 39,60,000 22,50,000

C
Fixed Cost (`) 13,00,000 15,00,000
Assuming that the proposal is implemented, calculate:
(i) Break-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 ` 60,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of ` 60,00,000, what
percentage of increase in selling price is required to sustain an increase of 5% in fixed
overheads.

ANSWER :
Workings:
1. Statement showing computation of Breakeven of merged plant and other required
information
S. Plan A Plant B Merged
No Particulars Before After Before After Plant
(90%) (100%) (60%) (100%) (100%)
(`) (`) (`) (`) (`)
(i) Sales 63,00,000 70,00,000 48,00,000 80,00,000 1,50,00,000
(ii) Variable cost 39,60,000 44,00,000 22,50,000 37,50,000 81,50,000

14.23
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(iii) Contribution (i - ii) 23,40,000 26,00,000 25,50,000 42,50,000 68,50,000

(iv) Fixed Cost 13,00,000 13,00,000 15,00,000 15,00,000 28,00,000
(v) Profit (iii - iv) 10,40,000 13,00,000 10,50,000 27,50,000 40,50,000

2. PV ratio of merged plant =

= `
`

(i) Break even sales of merged =

= `

l
= ` 61,30,939.34 (approx.)

a
Capacity utilisation = `

h
`

(ii)

n c
Profitability of the merged plant at 80% capacity utilisation

a
= (` 1,50,00,000 x 80%) x P/v ratio – fixed cost

P
= ` 1,20,00,000 x 45.67% – ` 28,00,000

l
= ` 26,80,400

Sales to earn a profit of ` 60,00,000

(iii)

hu
a
Desired sales =

= ` 1,92,68,666 (approx.)

(iv) C
Increase in fixed cost
A
= ` 28,00,000 x 5% = ` 1,40,000
Therefore, percentage increase in sales price

14.24
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PYQ JULY 21 (5 MARKS) Q. 1D

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:
Method-1 Semi- Method-2 Fully-
Automatic Automatic
(`) (`)
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 Break-even Point of each method in terms of units

l
ANSWER :

a
(i) Cost Indifference Point

h
Method-1 and Method-2

c
(`)

n
Differential Fixed Cost (I) ` 2,00,000

a
(` 3,00,000 – ` 1,00,000)

P
Differential Variable Costs (II) `5

l
(` 15 – ` 10)

u
Cost Indifference Point (I/II) 40,000

h
(Differential Fixed Cost / Differential Variable Costs

a
per unit)

R
Interpretation of Results
At activity level below the indifference points, the alternative with lower fixed costs

A
and higher variable costs should be used. At activity level above the indifference point,

C
alternative with higher fixed costs and lower variable costs should be used.
No. of Product Alternative to be Chosen
Product ≤ 40,000 units Method-1, Semi-Automatic
Product ≥ 40,000 units Method-2, Automatic
(ii) Break Even point (in units)
Method-1 Method-2
Fixed cost 1,00,000 3,00,000
BEP (in units) = = 10,000 = 20,000
Contribution per uni (25-15) (25-10)

PYQ DEC 21 (10 MARKS)  Q. 2B

AZ company has prepared its budget for the production of 2,00,000 units. The variable cost per
unit is ` 16 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:
(i) Present break-even sales (in ` and in quantity).
(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%.

14.25
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(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).

ANSWER :
Variable Cost per Unit=`16
Fixed Cost per Unit =` 4, Total Fixed Cost= 2,00,000 units x ` 4 = `8,00,000
Total Cost per Unit =`20
Selling Price per Unit=Total Cost+ Profit =` 20+` 4 =` 24
Contribution per Unit=` 24-`16=` 8

(i) Present Break-even Sales (Quantity) =

l
= 1,00,000 units

a
Present Break-even Sales (`) = 1,00,000 units  ` 24 = ` 24,00,000

(ii) Present P/V Ratio

=
8
100 = 33.33%
c h
n
24

a
(iii) Revised Selling Price per Unit = ` 24 – 10% of ` 24 = ` 21.60

P
Revised Contribution per Unit=` 21.60-` 16 = ` 5.60

Revised P/V Ratio = 5.60

100 = 25.926%

u l
h
21.60

Revised Break-even point (`)

R
=
a
Fixed cost 8,00,000
=
P/V ratio 25.926%
= ` 30,85,705

A
Or

C
Revised Break-even point (units) =

units
Revised Break-even point (`) = 1,42,857 units x ` 21.60 = ` 30,85,711

(iv) Present profit =` 8,00,000

Desired Profit = 120% of ` 8,00,000 =` 9,60,000
Sales to earn a profit of ` 9,60,000
Total contribution required = 8.00.000 + 9,60,000 = ` 17,60,000

Revised sales (in `) = 3,14,286 units x ` 21.60 = ` 67,88,578

14.26
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PYQ MAY 22 (5 MARKS)  Q. 1C

Top-tech a manufacturing company is presently evaluating two possible machines for the
manufacture of superior Pen-drives. The following information is available:
Particulars Machine A Machine B
Selling price per unit ` 400.00 ` 400.00
Variable cost per unit ` 240.00 ` 260.00
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 demand will be
unlimited and the capacities of the two machines are as follows?
Machine A - 12,00,000 units

l
Machine B - 12,00,000 units

a
Why?

ANSWER :

c h
a
Machine-A
n Machine-B Total

P
A
Selling price per unit (`) 400 400

l
B
Variable cost per cost (`) 240 260

u
C
Contribution per unit (`) [A-B] 160 140

h
D
Units 8,00,000 10,00,000

a
E
Total contribution (` [C×D] 12,80,00,000 14,00,00,000 26,80,00,000

R
F
Fixed Cost (`) 3,50,00,000 2,00,00,000 5,50,00,000
G
Profit [E-F] (`) 9,30,00,000 12,00,00,000 21,30,00,000

A
H
Profit per unit [G÷D] (`) 116.25 120.00

C
(i) Machine B has the higher profit of `2,70,00,000 than the Machine-A. Further, Machine-B’s
fixed cost is less than the fixed cost of Machine-A and higher capacity. Hence, Machine B be
recommended.
Note: This question can also be solved as below:
Indifferent point = Difference in fixed cost / difference in variable cost per unit
= 1,50,00,000 / 20 = 7,50,000 units
At the level of demand 7,50,000 units both machine options equally profitable. If demand
below 7,50,000 units, select machine B (with lower FC).
If demand above 7,50,000 units, select machine A (with lower VC).

(ii) When the capacities of both the machines are same and demand for the product is unlimited,
calculation of profit will be as follows:
Machine-A Machine-B Total
A Contribution per unit (`) 160 140
B Units 12,00,000 12,00,000
C Total contribution (`) [A×B] 19,20,00,000 16,80,00,000 36,00,00,000
D Fixed Cost (`) 3,50,00,000 2,00,00,000 5,50,00,000
E Profit [C-E] (`) 15,70,00,000 14,80,00,000 30,50,00,000
F Profit per unit [E÷B] (`) 130.83 123.33

14.27
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

Yes, the preference for the machine would change because now, Machine A is having higher
contribution and higher profit, hence recommended.

PYQ MAY 22 (5 MARKS)  Q. 4B

UV Limited started a manufacturing unit from 1st October 2021. It produces designer lamps and
sells its lamps at ` 450 per unit.
During the quarter ending on 31st December, 2021, it produced and sold 12,000 units and
suffered a loss of ` 35 per unit.
During the quarter ending on 31st March, 2022, it produced and sold 30,000 units and earned a
profit of ` 40 per unit.
You are required to calculate:
(i) Total fixed cost incurred by UV ltd. per quarter.
(ii) Break Even sales value (in rupees)

l
(iii) Calculate Profit, if the sale volume reaches 50,000 units in the next quarter (i.e., quarter

a
ending on 30th June, 2022).

ANSWER :

c h
Particulars

a n
Quarter ending Quarter ending 31st

P
31st December, March, 2022

l
2021 (`) (`)

u
Sales (No. of units sold x ` 450 per unit) 54,00,000 1,35,00,000

h
Profit (Loss) (4,20,000) 12,00,000

a
[12,000 × 35] [30,000 × 40]

R
C A
(i) Fixed Cost = Sales × P/V ratio – profit
= ` 1,35,00,000 × 20% – 12,00,000
= ` 15,00,000

Alternative Presentation for the calculation of Fixed cost

Particulars Quarter ending Quarter ending 31st
31st December, March, 2022
2021 (`) (`)

Sales (No. of units sold x ` 450 per unit) 54,00,000 1,35,00,000

Profit (Loss) (4,20,000) 12,00,000
[12,000 × 35] [30,000 × 40]
Total cost 58,20,000 1,23,00,000
VC per unit = (1,23,00,000 – 58,20,000) / (30,000 – 12,000)
= 64,80,000 / 18,000 =` 360 per unit
Fixed cost = TC – VC , 58,20,000 (360 x12,000 units) `15,00,000

14.28
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(ii) Break even sales value (in Rupees) =

(iii) Profit, if sales reach 50,000 units for the quarter ending 30th June, 2022
(`)
Sales (50,000 × ` 450) 2,25,00,000
Less: Variable cost 1,80,00,000
Contribution 45,00,000
Less: Fixed cost 15,00,000
Profit 30,00,000

PYQ NOV 22 (5 MARKS)

a l  Q. 1D

h
ABC Ltd sells its Product ‘Y’ at a price of ` 300 per unit and its variable cost is ` 180 per unit. The

c
fixed costs are ` 16,80,000 per year uniformly incurred throughout the year. The Profit for the

n
year is ` 7,20,000.

a
You are required to calculate:

P
(i) BEP in value (`) and units.

l
(ii) Margin of Safety

u
(iii) Profits made when sales are 24,000 units.

h
(iv) Sales in value (`) to be made to earn a net profit of ` 10,00,000 for the year.

ANSWER :
(i) Calculation of BEP in value
R a
C A

(ii) Margin of safety (In Amount) =

Margin of safety may also be calculated by deducting BEP sales from present sale. Present
sale is ` 60,00,000 i.e. (16,80,000 + 7,20,000)/40%.

14.29
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(ii) Profit when sales are 24,000 units

Particular (`)
Contribution (24,000  120) 28,80,000
Less: Fixed cost 16,80,000
Profit 12,00,000

(iv) Sales in value to earn a net profit of `10,00,000

PYQ NOV 22 (10 MARKS)  Q. 4A

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

l
prices are given below:

a
Wheat Rice Maize

h
Yield (in kgs per hectare) 2,000 500 100

c
Selling Price (` per kg) 20 40 250

The variable cost data of different crops are given below:

a n
P
(All figures in ` per kg)

l
Crop Labour charges Packing Materials Other variable expenses

u
Wheat 8 2 4

h
Rice 10 2 1

a
Maize 120 10 20

R
The company has a policy to produce and sell all the three kinds of crops. The maximum and

A
minimum area to be cultivated for each crop is as follows:

C
Crop Maximum Area (in hectares) Minimum Area (in hectares)
Wheat 160 100
Rice 50 40
Maize 60 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)

ANSWER :
(i) Statement showing Ranking of crops on the basis of Contribution per hectare
Sl. No Particulars Wheat Rice Maize
(I) Sales price per kg (`) 20 40 250
(II) Variable cost* per kg (`) 14 13 150
(III) Contribution per kg (`) 6 27 100
(IV) Yield (in kgs per hectare) 2,000 500 100

14.30
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

(V) Contribution per hectare (`) 12,000 13,500 10,000

(VI) Ranking II I III
*Variable cost = Labour Charges +Packing Material+ Other Variable Expenses
Therefore, to maximize profits, the order of priority of production would be Rice, Wheat and
Maize.

(ii) & (iii) Statement showing optimum product mix considering that all the three cereals are to
be produced and maximum profit thereof
Sl. No. Particulars Wheat Rice Maize Total
(i) Minimum Area (in hectare) 100 40 10 150
(ii) Remaining area (in hectare) 60
(iii) Distribution of remaining area 50 10 - 60
based on ranking considering

l
Maximum area

a
(iv) Optimum mix (in hectare) 150 50 10 210

h
(v) Contribution per hectare (`) 12,000 13,500 10,000

c
(vi) Total contribution (`) 18,00,000 6,75,000 1,00,000 25,75,000

n
(vii) Fixed cost (`) 21,45,000

a
(viii) Maximum Profit (`) 4,30,000

P
Optimum Product Mix and calculation of maximum profit earned by company can also be

l
presented as below

(ii) Optimum Product Mix:

h u
a
Particular Area Yield Total

R
(in hectares) (kg per Production (in
hectare) kgs)

A
(a) Maximum of Rice 50 500 25000

C
(b) Minimum of Maize 10 100 1000
(c) Balance of Wheat 150 2000 300000
210 326000

(iii) Calculation of maximum profit earned by the company:

Particular Production Contribution (` Total
(in kgs) per kg) contribution
(`)
(a) Rice 25,000 24 6,75,000
(b) Maize 1,000 100 1,00,000
(c) Wheat 3,00,000 6 18,00,000
Total contribution 25,75,000
Less: Total Fixed Cost per annum (21,45,000)
Maximum profits earned by the 4,30,000
company

14.31
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

PYQ MAY 23 (5 MARKS)  Q. 1C

The following information pertains to ZB Limited for the year:
Profit volume ratio 30%
Margin of Safety (as % of total sales 25%
Fixed cost ` 12,60,000
You are required to calculate:
(i) Break even sales value (`).
(ii) Total sales value (`) at present,
(iii) Proposed sales value (`) if company wants to earn the present profit after reduction of 10%
in fixed cost,
(iv) Sales in value (`) to be made to earn a profit of 20% on sales assuming fixed cost remains
unchanged,
(v) New Margin of Safety if the sales value at present as computed in (ii) decreased by 12.5%.

ANSWER :

a l
h
(i) Calculation of Break-even sales in value:

c
= Fixed Cost ÷ P/V Ratio

n
= ` 12,60,000 ÷ 30% = ` 42,00,000

(ii) Calculation of Total Sales value:

P a
l
Sales value (S) = Break-even Sales + Margin of Safety

u
Or, S = 42,00,000 + 0.25 S

h
Or, 0.75 S = 42,00,000

a
Or, S = 42,00,000 ÷ 0.75

R
Or, Sales = ` 56,00,000

A
(iii) Calculation of proposed sales value to earn present profit:

C
Present profit = Sales – Variable cost – Fixed Cost
= ` 56,00,000 – 70% of 56,00,000 – ` 12,60,000
= ` 56,00,000 – ` 39,20,000 – ` 12,60,000
= ` 4,20,000
Proposed Sales value (S) = 0.7S + (90% of ` 12,60,000) + 4,20,000
S = 0.7S + 11,34,000 + 4,20,000
S = 15,54,000 ÷ 0.3 = ` 51,80,000

(iv) Calculation of sales value to earn 20% on sales:

Sales Value (S) = 0.7 S + 12,60,000 + 0.2S
S = 12,60,0000 ÷ 0.10 = ` 1,26,00,000

(v)
New Margin of Safety:
= (Sales – BES) ÷ Sales
= (87.5% of 56,00,000 – 42,00,000) ÷ (87.5% of 56,00,000)
= (49,00,000 – 42,00,000) ÷ 49,00,000
= 7,00,000 ÷ 49,00,000 = 14.29%
Or

14.32
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

= (Sales – BES)
= (87.5% of 56,00,000 – 42,00,000)
= ` 7,00,000

PYQ MAY 23 (5 MARKS)  Q. 4C

MNP Company Limited produces two products 'A' and 'B'. The relevant cost and sales data per unit
of output is as follows.
Particulars Product A Product B
(`) (`)
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
Selling Price 180 175

l
The availability of machine hours is limited to 55,000 hours for the month. The monthly demand

a
for product ‘A’ and product 'B' is 5,000 units and 6,000 units, respectively. The fixed expenses of

h
the company are `1,40,000 per month. Variable factory overheads are

c
` 4 per machine hour. The company can produce both products according to the market demand.

Required:

a n
P
Calculate the product mix that generates maximum profit for the company in the situation and

l
also calculate profit of the company.

ANSWER :

h u
a
Particulars Product A Product B

R
` `
Selling Price 180 175

A
Variable cost:

C
Direct Material 55 60
Direct labour 35 45
Variable factory overheads 40 20
130 125
Contribution 50 50
Machine hour (p.u.) 10 5
Contribution per hour 5 10
Rank II I

Calculation of Product Mix

Hours available 55,000
Product B (6000 x 5) 30,000
Balance Hours 25,000
Product A (2500 x 10) 25,000
Balance Hours 0

14.33
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

Calculation of Profit
`
Contribution
A 2500 units x 50
B 6000 units x 50 4,25,000
Less: Fixed cost (1,40,000)
Profit 2,85,000

PYQ NOV 23 (5 MARKS)  Q. 4B

R Ltd. produces and sells 60,000 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 losses, and management plans to
shut down the Noida Plant.

l
The fixed cost is expected to be reduced by ` 2,50,000. Additional costs of plant shut down are

a
expected at ` 25,000. You are required to comment on:

h
(i) Whether the Noida plant be shut down?

c
(ii) Find the shut-down point in units.

ANSWER :

a n
P
Statement of profit

l
Particulars `

u
Selling Price 15 per unit

h
Less : Variable cost 12 per unit

a
Contribution 3 per unit

R
Capacity 60,000 units
Total contribution (60,000 units × ` 3) 1,80,000

A
Less: Fixed Cost 4,20,000

C
Loss (2,40,000)

Shut down cost

Particular `
Fixed cost 1,70,000
Additional cost 25,000
Shut down cost 1,95,000

(i) Since the loss of Noida plant exceeds shut down cost it is better to shut down the plant.

(ii) Shut down point:

14.34
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

The solution can also be presented in following way

Statement of profit
Particulars If plant is If plant is shut
continued down
` `
Selling Price 15 per unit -
Less : Variable cost 12 per unit -
Contribution 3 per unit -
Capacity 60,000 units -
Total contribution (60,000 units × ` 3) 1,80,000
Less : Fixed Cost 4,20,000 1,70,000
Additional Fixed Cost - 25,000
Loss 2,40,000 1,95,000

(i)

a l
Since the loss of Noida plant exceeds shut down cost it is better to shut down the plant.

(ii) Shut down point:

c h
a n
P

u l
a h
R
C A

14.35
MARGINAL COSTING
 TRP Sir
CA Rahul Panchal

BUDGETS &
15 BUDGETARY
CONTROL
QUESTION 1. (ILLUSTRATION 1) 
A factory which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes details of
expenses as under:
Variable expenses `1,260
Semi-variable expenses `1,200
Fixed expenses `1,800
The semi-variable expenses go up by 10% between 85% and 95% activity and by 20% above
95% activity. PREPARE a flexible budget for 80, 90 and 100 per cent activities.

QUESTION 2. (ILLUSTRATION 2) 

a l
h
A department of Company X attains sale of ` 6,00,000 at 80 per cent of its normal capacity and

c
its expenses are given below:

n
Administration costs: (`)

a
Office salaries 90,000

P
General expenses 2 per cent of sales

l
Depreciation 7,500

u
Rates and taxes 8,750

h
Selling costs:

a
Salaries 8 per cent of sales

R
Travelling expenses 2 per cent of sales
Sales office expenses 1 per cent of sales

A
General expenses 1 per cent of sales

Distribution costs:
Wages 15,000
C
Rent 1 per cent of sales
Other expenses 4 per cent of sales
PREPARE flexible administration, selling and distribution costs budget, operating at 90 per cent,
100 per cent and 110 per cent of normal capacity.

QUESTION 3. (ILLUSTRATION 3) 
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, they could only produce
6,000 units in January.
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

15.1
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

lost a sizeable contract. The relevant figures are as under:

Indirect manufacturing Expenses for a Planned for Actual in costs
normal month 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

l
5,290 5,875 4,990

a
Do you agree with the Works Manager? Is the Foreman entitled to any bonus for the performance

h
in January? Substantiate your answer with facts and figures. EXPLAIN.

QUESTION 4. (ILLUSTRATION 4) 

n c
a
A single product company estimated its quarter-wise sales for the next year as under:

P
Quarter Sales (Units)

l
I 30,000

u
II 37,500

h
III 41,250

a
IV 45,000

R
The opening stock of finished goods is 6,000 units and the company expects to maintain the
closing stock of finished goods at 12,250 units at the end of the year. The production pattern

A
in each quarter is based on 80% of the sales of the current quarter and 20% of the sales of the

C
next quarter. The company maintains this 20% of sales of next quarter as closing stock of current
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:
Quarter Purchase of raw materials % to total annual Price per kg. (`)
requirement in quantity
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 PREPARE 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.

15.2
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

QUESTION 5. (ILLUSTRATION 5) 
A company is engaged in the manufacture of specialised sub-assemblies required for certain
electronic equipment. The company envisages that in the forthcoming month, December, the
sales will be in the ratio of 3 : 4 : 2 respectively of sub-assemblies, ACB, MCB and DP.
The following is the schedule of components required for manufacture:
Component requirements
Sub-assembly Selling Price Base board IC08 IC12 IC26
ACB 520 1 8 4 2
MCB 500 1 2 10 6
DP 350 1 2 4 8
Purchase price (`) 60 20 12 8

The direct labour time and variable overheads required for each of the sub- assemblies are:

l
Labour hours Variable

a
Grade A Grade B overheads (`)

h
ACB 8 16 36

c
MCB 6 12 24

n
DP 4 8 24

a
Direct wage rate per hour (`) 5 4 —

P
The labourers work 8 hours a day for 25 days a month.

l
The opening stocks of sub-assemblies and components for December are as under:

u
Sub-assemblies Components

h
ACB 800 Base Board 1,600

a
MCB 1,200 IC08 1,200

R
DP 2,800 IC12 6,000
IC26 4,000

A
Fixed overheads amount to ` 7,57,200 for the month and a monthly profit target of ` 12 lacs

C
has been set.

The company is eager for a reduction of closing inventories for the month of December of sub-
assemblies and components by 10% of quantity as compared to the opening stock. PREPARE the
following budgets for the month of December:
(a) Sales budget in quantity and value.
(b) Production budget in quantity
(c) Component usage budget in quantity.
(d) Component purchase budget in quantity and value.
(e) Manpower budget showing the number of workers and the amount of wages payable.

QUESTION 6. (ILLUSTRATION 6) 
Float glass Manufacturing Company requires you to PREPARE the Master budget for the next year
from the following information:
Sales:
Toughened Glass  ` 6,00,000
Bent Glass  ` 2,00,000
Direct material cost  60% of sales
Direct wages  20 workers @ ` 150 per month

15.3
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

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

QUESTION 7. (ILLUSTRATION 7) 
Following data is available for DKG and Co:

l
Standard working hours 8 hours per day of 5 days per week

a
Maximum capacity 50 employees

h
Actual working 40 employees

c
Actual hours expected to be worked per four week 6,400 hours

n
Std. hours expected to be earned per four weeks 8,000 hours

a
Actual hours worked in the four- week period 6,000 hours

P
Standard hours earned in the four- week period 7,000 hours.

l
The related period is of 4 weeks. In this period there was a one special day holiday due to

u
national event. CALCULATE the following ratios:

h
(1) Efficiency Ratio, (2) Activity Ratio, (3) Calendar Ratio, (4) Standard Capacity Usage Ratio, (5)

a
Actual Capacity Usage Ratio. (6) Actual Usage of Budgeted Capacity Ratio.

QUESTION 8. (PP1) 
R
A
B Ltd manufactures two products viz., X and Y and sells them through two divisions, East and

C
West. For the purpose of Sales Budget to the Budget Committee, following information has been
made available for the year 2022-23:
Product Budgeted Sales Actual Sales
East Division West Division East Division West Division
X 800 units at 1,200 units at 1,000 units at 1,400 units at
`18 `18 `18 `18
Y 600 units at 1,000 units at 400 units at 800 units at
`42 `42 `42 `42

Adequate market studies reveal that product X is popular but underpriced. It is expected that if
the price of X is increased by ` 2, it will, find a ready market. On the other hand, Y is overpriced
and if the price of Y is reduced by ` 2 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 + 12.5% + 7.5%
Y + 22.5% + 12.5%

15.4
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

With the help of intensive advertisement campaign, following additional sales (over and above
the above-mentioned estimated sales by Divisional Mangers) are possible:
Product East Division West Division
X 120 units 140 units
Y 80 units 100 units
You are required to PREPARE Sales Budget for 2022-23 after incorporating above estimates and
also SHOW the Budgeted Sales and Actual Sales of 2021-22.

QUESTION 9. (PP2) 
During the FY 2021-22, P Limited has produced 60,000 units operating at 50% capacity level.
The cost structure at the 50% level of activity is as under:
(`)
Direct Material 300 per unit

l
Direct Wages 100 per unit

a
Variable Overheads 100 per unit

h
Direct Expenses 60 per unit

c
Factory Expenses (25% fixed) 80 per unit

n
Selling and Distribution Exp. (80% variable) 40 per unit

a
Office and Administrative Exp. (100% fixed) 20 per unit

l P
The company anticipates that in FY 2022-23, the variable costs will go up by 20% and fixed

u
costs will go up by 15%.

h
The selling price per unit will increase by 10% to ` 880

Required:
(i)
R a
CALCULATE the budgeted profit/ loss for the FY 2021-22.

A
(ii) PREPARE an Expense budget on marginal cost basis for the FY 2022-23 for the company at

C
50% and 60% level of activity and FIND OUT the profits at respective levels.

QUESTION 10. (PP3) 

K Ltd. produces and markets a very popular product called ‘X’. The company is interested in
presenting its budget for the second quarter of 2022-23.
The following information are made available for this purpose:
(i) It expects to sell 1,50,000 bags of ‘X’ during the second quarter of 2022- 23 at the selling
price of ` 1,200 per bag.
(ii) Each bag of ‘X’ requires 2.5 mtr. of raw – material ‘Y’ and 7.5 mtr. of raw – material ‘Z’.
(iii) Stock levels are planned as follows:
Particulars Beginning of End of Quarter
Quarter
Finished Bags of ‘X’ (Nos.) 45,000 33,000
Raw – Material ‘Y’ (mtr) 96,000 78,000
Raw – Material ‘Z’ (mtr) 1,71,000 1,41,000
Empty Bag (Nos.) 1,11,000 84,000
(iv) ‘Y’ cost `160 per mtr., ‘Z’ costs `30 per mtr. and ‘Empty Bag’ costs `110 each.
(v) It requires 9 minutes of direct labour to produce and fill one bag of ‘X’. Labour cost is ` 70
per hour.

15.5
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

(vi) Variable manufacturing costs are ` 60 per bag. Fixed manufacturing costs ` 40,00,000
per quarter.
(vii) Variable selling and administration expenses are 5% of sales and fixed administration and
selling expenses are ` 3,75,000 per quarter.
Required
(i) PREPARE a production budget for the said quarter in quantity.
(ii) PREPARE a raw – material purchase budget for ‘Y’, ‘Z’ and ‘Empty Bags’ for the said quarter
in quantity as well as in rupees.
(iii) COMPUTE the budgeted variable cost to produce one bag of ‘X’.

QUESTION 11. (PP4) 

ABC Ltd. is currently operating at 75% 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

l
planning for 85% capacity level during 2022- 23. The cost details are as follows:

a
Particulars 55% 65% 75%

h
(`) (`) (`)

c
Direct Materials 11,00,000 13,00,000 15,00,000

n
Direct Labour 5,50,000 6,50,000 7,50,000

a
Factory Overheads 3,10,000 3,30,000 3,50,000

P
Selling Overheads 3,20,000 3,60,000 4,00,000

l
Administrative Overheads 1,60,000 1,60,000 1,60,000

u
24,40,000 28,00,000 31,60,000

Profit is estimated @ 20% on sales.

a h
R
The following increases in costs are expected during the year:

A
 In percentage

C
Direct Materials  8
Direct Labour  5
Variable Factory Overheads  5
Variable Selling Overheads  8
Fixed Factory Overheads  10
Fixed Selling Overheads  15
Administrative Overheads  10
PREPARE flexible budget for the period 2022-23 at 85% level of capacity. Also ascertain profit
and contribution.

QUESTION 12. (PP5) 

The accountant of manufacturing company provides you the following details for year 2021-22:
(`) (`)
Direct materials 1,75,000 Other variable costs 80,000
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

15.6
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

During the year, the company manufactured two products A and B and the output and costs
were:
A B
Output (units) 2,00,000 1,00,000
Selling price per unit ` 2.00 ` 3.50
Direct materials per unit ` 0.50 ` 0.75
Direct wages per unit ` 0.25 ` 0.50
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 B ` 0.30 per unit.
During 2022-23, it is expected that the demand for product A will fall by 25 % and for B by 50%.
It is decided to manufacture a further product C, the cost for which is estimated as follows:
Product C
Output (units) 2,00,000

l
Selling price per unit ` 1.75

a
Direct materials per unit ` 0.40

h
Direct wages per unit ` 0.25

c
It is anticipated that the other variable costs per unit will be the same as for product A.

n
PREPARE a budget to present to the management, showing the current position and the position

a
for 2022-23. Comment on the comparative results.

QUESTION 13. (PP6) 

l P
u
TQM Ltd. has furnished the following information for the month ending 30th June:

h
Master Budget Actual Variance

a
Units produced and sold 80,000 72,000

R
Sales (`) 3,20,000 2,80,000 40,000 (A)
Direct material (`) 80,000 73,600 6,400 (F)

A
Direct wages (`) 1,20,000 1,04,800 15,200 (F)

C
Variable overheads (`) 40,000 37,600 2,400 (F)
Fixed overhead (`) 40,000 39,200 800 (F)
Total Cost 2,80,000 2,55,200

The Standard costs of the products are as follows:

Per unit (`)
Direct materials (1 kg. at the rate of `1 per kg.) 1.00
Direct wages (1 hour at the rate of ` 1.50) 1.50
Variable overheads (1 hour at the rate of ` 0.50) 0.50
Actual results for the month showed that 78,400 kg. of material were used and 70,400 labour
hours were recorded.
Required:
(i) PREPARE Flexible budget for the month and compare with actual results.
(ii) CALCULATE Material, Labour, Sales Price, Variable Overhead and Fixed Overhead Expenditure
variances and Sales Volume (Profit) variance.

QUESTION 14. (PP7) 

Jigyasa Ltd. is drawing a production plan for its two products Minimax (MM) and Heavyhigh (HH)
for the year 2022-23. The company’s policy is to hold closing stock of finished goods at 25% of

15.7
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

the anticipated volume of sales of the succeeding month. The following are the estimated data
for two products:
Minimax (MM) Heavyhigh (HH)
Budgeted 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 2022-23 are as under
April May June July
Minimax 8,000 10,000 12,000 16,000
Heavyhigh 6,000 8,000 9,000 14,000

l
PREPARE production budget for the first quarter in month-wise.

QUESTION 15. (PP8) 

h a
c
Concorde Ltd. manufactures two products using two types of materials and one grade of labour.

n
Shown below is an extract from the company’s working papers for the next month’s budget:

a
Product- A Product- B

P
Budgeted sales (in units) 2,400 3,600

l
Budgeted material consumption per unit (in kg):

u
Material-X 5 3

h
Material-Y 4 6

a
Standard labour hours allowed per unit of product 3 5

R
Material-X and Material-Y cost ` 4 and ` 6 per kg and labours 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

A
direct workers.

C
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.
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 the beginning of the period will be:
Product-A 400 units
Product-B 200 units
Material-X 1,000 kg.
Material-Y 500 kg.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers, showing
the quantities and values, for the next month.

15.8
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

REVISION TEST PAPER

RTP MAY 18
G Ltd. manufactures two products called ‘M’ and ‘N’. Both products use a common raw material
Z. The raw material Z is purchased @ ` 36 per kg from the market. The company has decided to
review inventory management policies for the forthcoming year.
The following information has been extracted from departmental estimates for the year ended
31st March 2018 (the budget period):
Product M Product N
Sales (units) 28,000 13,000

l
Finished goods stock increase by year-end 320 160

a
Post-production rejection rate (%) 4 6

h
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg

c
Material Z wastage (%) 10 5

Additional information:

a n
P
- Usage of raw material Z is expected to be at a constant rate over the period.

l
- Annual cost of holding one unit of raw material in stock is 11% of the material cost.

u
- The cost of placing an orders is ` 320 per order.

h
- The management of G Ltd. has decided that there should not be more than 40 orders in a

a
year for the raw material Z.

Required:
R
A
(i) PREPARE functional budgets for the year ended 31st March 2018 under the following

C
headings:
(a) Production budget for Products M and N (in units).
(b) 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 supplie 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.

RTP NOV 18

Gaurav Ltd. is drawing a production plan for its two products Minimax (MM) and Heavyhigh (HH)
for the year 20X8-X9. The company’s policy is to hold closing stock of finished goods at 25% of
the anticipated volume of sales of the succeeding month. The following are the estimated data
for two products:
Minimax (MM) Heavyhigh (HH)
Budgeted Production units 1,80,000 1,20,000
(`) (`)
Direct material cost per unit 220 280
Direct labour cost per unit 130 120

15.9
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Manufacturing overhead 4,00,000 5,00,000

The estimated units to be sold in the first four months of the year 20X8-X9 are as under
April May June July
Minimax 8,000 10,000 12,000 16,000
Heavyhigh 6,000 8,000 9,000 14,000
PREPARE production budget for the first quarter in month-wise

RTP MAY 19

S Ltd. has prepared budget for the coming year for its two products A and B.
Product A (`) Product B (`)
Production & Sales unit 6,000 units 9,000 units
Raw material cost per unit 60.00 42.00

l
Direct labour cost per unit 30.00 18.00

a
Variable overhead per unit 12.00 6.00

h
Fixed overhead per unit 8.00 4.00

c
Selling price per unit 120.00 78.00

n
After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500

a
units and 500 units respectively but for this purpose the variable overhead and fixed overhead

P
will be increased by 10% and 5% respectively for the both products.

l
You are required to PREPARE flexible budget for both the products:

u
(a) Before marketing efforts

h
(b) After marketing efforts.

RTP NOV 19

R a
KLM Limited has prepared its expense budget for 50,000 units in its factory for the year 2019-20

A
as detailed below:

C
(` per unit)
Direct Materials 125
Direct Labour 50
Variable Overhead 40
Direct Expenses 15
Selling Expenses (20% fixed) 25
Factory Expenses (100% fixed) 15
Administration expenses (100% fixed) 8
Distribution expenses (85% variable) 20
Total 298
PREPARE an expense budget for the production of 35,000 units and 70,000 units.

15.10
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

RTP MAY 20

A Vehicle manufacturer has prepared sales budget for the next few months, and the following
draft figures are available:
Month No. of vehicles
October 40,000
November 35,000
December 45,000
January 60,000
February 65,000
To manufacture a vehicle a standard cost of `11,42,800 is incurred and sold through dealers at
a uniform selling price of `17,14,200 to customers. Dealers are paid 15% 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

l
policy of the company to hold stocks of Part-X at the end of each month to cover 40% of next

a
month’s production. 48,000 units of Part-X are in stock as on 1st October.

h
There are 9,500 nos. of completed vehicles in stock as on 1st October and it is policy to

c
have stocks at the end of each month to cover 20% of the next month’s sales.

n
You are required to -

a
(i) PREPARE Production budget (in nos.) for the month of October, November, December and

P
January.

l
(ii) PREPARE a Purchase budget for Part-X (in units) for the months of October, November and

u
December.

h
(iii) CALCULATE the budgeted gross profit for the quarter October to December.

RTP NOV 20

R a
The information of Z Ltd. for the year ended 31st March 2020 is as below:

A
Amount (`)

C
Direct materials 17,50,000
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:
X Y
Output (units) 8,000 4,000
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.

15.11
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

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.

RTP MAY 21

RS 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 requires
6 kg of material A and 3 kg of material B and processing time of 4 hours in machine shop
and 2 hours in assembly shop. Factory overheads are absorbed at a blanket rate of 20% of

l
direct labour. Variable selling & distribution overheads are ` 60 per unit sold and fixed selling &

a
distribution overheads are estimated to be ` 69,12,000.

h
The other relevant details are as under:

c
Purchase Price: Material A ` 160 per kg

n
Materials B ` 100 per kg

a
Labour Rate: Machine Shop ` 140 per hour

P
Assembly Shop ` 70 per hour

l
Finished Stock Material A Material B

u
Opening Stock 2,500 units 7,500 kg 4,000 kg

h
Closing Stock 3,000 units 8,000 kg 5,500 kg

Required:
(i)
R a
CALCULATE number of units of product proposed to be sold and selling price per unit,

A
(ii) PREPARE Production Budget in units, and

C
(iii) PREPARE Material Purchase Budget in units.

RTP NOV 21

The accountant of manufacturing company provides you the following details for year 2019- 20:
Particulars (`)
Direct materials 28,00,000
Direct Wages 16,00,000
Fixed factory overheads 16,00,000
Variable factory overheads 16,00,000
Other variable costs 12,80,000
Other fixed costs 12,80,000
Profit 18,40,000
Sales 1,20,00,000

During the year, the company manufactured two products A and B and the output and costs
were:
Particulars A B
Output (units) 2,00,000 1,00,000
Selling price per unit ` 32.00 ` 56.00

15.12
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Direct materials per unit ` 8.00 ` 12.00

Direct wages per unit ` 4.00 ` 8.00
Variable factory overhead is absorbed as a percentage of direct wages. Other variable costs have
been computed as: Product A ` 4.00 per unit; and B ` 4.80 per unit.
During 2020-21, it is expected that the demand for product A will fall by 25% and for B by 50%.
It is decided to manufacture a new product C, the cost for which is estimated as follows:
Particulars Product C
Output (units) 2,00,000
Selling price per unit ` 28.00
Direct materials per unit ` 6.40
Direct wages per unit ` 4.00
It is anticipated that the other variable costs per unit of Product C will be same as for product A.
PREPARE a budget to present to the management, showing the current position and the position

l
for 2020-21. COMMENT on the comparative results.

RTP MAY 22

h a
c
Maharatna Ltd., a public sector undertaking (PSU), produces product A. The company is in process

n
of preparing its revenue budget for the year 2022. The company has the following information

a
which can be useful in preparing the budget:

P
(i) It has anticipated 12% growth in sales volume from the year 2021 of 4,20,000 tonnes.

l
(ii) The sales price of `23,000 per tonne will be increased by 10% provided Wholesale Price

u
Index (WPI) increases by 5%.

h
(iii) To produce one tonne of product A, 2.3 tonnes of raw material are required. The raw

a
material cost is `4,500 per tonne. The price of raw material will also increase by 10% if WPI

R
increase by 5%.
(iv) The projected increase in WPI for 2022 is 4%

A
(v) A total of 6,000 employees works for the company. The company works 26 days in a

C
month.
(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) and remaining
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

15.13
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

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.

RTP NOV 22

Following information is available for DK and Co.:
Standard working hours 9 hours per day of 5 days per week
Maximum capacity 50 employees
Actual working 40 employees
Actual hours expected to be worked per four week 7,200 hours

l
Std. hours expected to be earned per four weeks 9,000 hours

a
Actual hours worked in the four- week period 6,750 hours

h
Standard hours earned in the four- week period 7,875 hours.

c
The related period is of 4 weeks. In this period there was a one special day holiday due to

n
national event.

a
You are required to CALCULATE the following ratios:

P
(i) Efficiency Ratio

l
(ii) Activity Ratio

u
(iii) Calendar Ratio

h
(iv) Standard Capacity Usage Ratio

a
(v) Actual Capacity Usage Ratio

R
(vi) Actual Usage of Budgeted Capacity Ratio

A
RTP MAY 23

C
EDF Ltd. produces two products using Skilled labour and two types of materials. Shown below
the information for the next month’s budget:
Product- A Product-B
Budgeted sales (in units) 4,080 6,120
Budgeted material consumption per unit (in kg):
Material-X 8.5 5.1
Material-Y 6.8 10.2
Standard labour hours allowed per unit of product 5.1 8.5

Material-X and Material-Y cost `8 and `10 per kg and labours are paid `30 per hour. Overtime
premium is 75% and is payable, if a worker works for more than 45 hours a week. There are 400
direct workers.
The target efficiency ratio for the productive hours worked by the direct workers in actually
manufacturing the products is 85%. In addition the non-productive down-time is budgeted at
15% of the productive hours worked.
There are four 6-days weeks in the budgeted period and it is anticipated that sales and production
will occur evenly throughout the whole period.

15.14
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

It is anticipated that stock at the beginning of the period will be:

Product-A 550 units
Product-B 350 units
Material-X 1,200 kgs.
Material-Y 600 kgs.

The anticipated closing stocks for budget period are as below:

Product-A 5 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 5 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers, showing

l
the quantities and values, for the next month.

RTP NOV 23

h a
c
XY Co. Ltd manufactures two products viz., X and Y and sells them through two divisions, East

n
and West. For the purpose of Sales Budget to the Budget Committee, following information has

a
been made available for the year 2022-23:

P
Product Budgeted Sales Actual Sales

l
East Division West Division East Division West Division

u
X 400 units at ` 9 600 units at ` 9 500 units at ` 9 700 units at ` 9

h
Y 300 units at ` 21 500 units at ` 21 200 units at ` 21 400 units at ` 21

a
Adequate market studies reveal that product X is popular but underpriced. It is expected that if

R
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

A
management has agreed for the aforesaid price changes. On the basis of these price changes and

C
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
the 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 Budget for 2023-24 after incorporating above estimates and
also show the Budgeted Sales and Actual Sales of 2022-23.

15.15
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

RTP MAY 24

M Ltd. is a public sector undertaking (PSU), produces a product A. The company is in process
of preparing its revenue budget for the year 2024. The company has the following information
which can be useful in preparing the budget:
(i) It has anticipated 12% growth in sales volume from the year 2023 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%.
(iv) The projected increase in WPI for 2024 is 4%
(v) A total of 6,000 employees works for the company. The company works 26 days in a
month.

l
(vi) 85% of employees of the company are permanent and getting salary as per 5- year wage

a
agreement. The earnings per manshift (means an employee cost for a shift of 8 hours) is

h
` 3,000 (excluding terminal benefits). The new wage agreement will be implemented from

c
1st July 2024 and it is expected that a 15% increase in pay will be given.

n
(vii) The casual employees are getting a daily wage of ` 850. The wages in linked to Consumer

a
Price Index (CPI). The present CPI is 165.17 points and it is expected to be 173.59 points in

P
year 2024.

l
(viii) Power cost for the year 2023 is ` 42,00,000 for 7,00,000 units (1 unit = 1 Kwh). 60% of

u
power is used for production purpose (directly related to production volume) and remaining

h
are for employee quarters and administrative offices.

a
(ix) During the year 2023, the company has paid ` 60,00,000 for safety and maintenance

R
works. The amount will increase in proportion to the volume of production.
(x) During the year 2023, the company has paid ` 1,20,000 for the purchase of diesel to be

A
used in car hired for administrative purposes. The cost of diesel will increase by 15% in year

C
2024.
(xi) During the year 2023, the company has paid ` 6,00,000 for car hire charges (excluding fuel
cost). In year 2024, 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 2023 is ` 80,40,00,000 and it will be 15% lower in
2024.
You being an associate to the budget controller of the company, PREPARE Revenue (Flexible)
budget for the year 2024 and also show the budgeted profit/ loss for the year.

15.16
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

PAST YEAR QUESTIONS

PYQ NOV 18 (10 MARKS) Q. 5A
An electronic gadget manufacturer has prepared sales budget for the next few months. In this
respect, following figures are available:
Months Electronic gadgets' sales
January 5000 units
February 6000 units
March 7000 units
April 7500 units

l
May 8000 units

a
To manufacture an electronic gadget, a standard cost of ` 1,500 is incurred and it is sold through

h
dealers at an uniform price of ` 2,000 per gadget to customers. Dealers are given a discount of

c
15% on selling price.

n
Apart from other materials, two units of batteries are required to manufacture a gadget. The

a
company wants to hold stock of batteries at the end of each month to cover 30% of next month's

P
production and to hold stock of manufactured gadgets to cover 25% of the next month's sale.

l
3250 units of batteries and 1200 units of manufactured gadgets were in stock on 1st January.

u
Required:

h
(i) Prepare production budget (in units) for the month of January, February, March and April.

a
(ii) Prepare purchase budget for batteries (in units) for the month of January, February and

R
March and calculate profit for the quarter ending on March.

A
ANSWER :

C
(i) Preparation of Production Budget (in Units)
January February March April May
Sales 5,000 6,000 7,000 7,500 8,000
Add: Closing stock (25% of 1,500 1,750 1,875 2,000
next month’s sales)
Less: Opening Stock (1200) (1500) (1750) (1875)
Production of electronic 5,300 6,250 7,125 7,625
Gadgets

(ii) Preparation of Purchase budget

January February March April
Consumption/production of Batteries 10,600 12,500 14,250 15,250
(@ 2 per Gadget)
Add: Closing Stock (30% of next month’s 3750 4275 4575
production)
Less: Opening Stock 3,250 3,750 4275
Purchase of Batteries 11,100 13,025 14,550

15.17
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Statement Showing Profit

Jan. Feb. March Total
Sales (A) 5,000 6,000 7,000 18,000
Selling Price per unit* `. 2,000 `. 2,000 `. 2,000 `. 2,000
Less: Discount @15% of 300 300 300 300
selling price
Less: Standard cost 1500 1500 1500 1500
of Manufacturing per
gadget Cost
Profit (B) (selling Price- 200 200 200 200
discount- cost)
Total Profit (A × B) `.10,00,000 `.12,00,000 `.14,00,000 `.36,00,000

l
PYQ MAY 19 (5 MARKS) Q. 1A

a
Following data is available for ABC Ltd.:

h
Standard working hours 8 hours per day of 5 days per week

c
Maximum Capacity 60 employees

n
Actual working 50 employees

a
Actual hours expected to be worked per four week 8,000 hours

P
Standard hours expected to be earned per four week 9,600 hours

l
Actual hours worked in the four week period 7,500 hours

u
Standard hours earned in the four week period 8,800 hours

h
The related period is of four weeks. Calculate the following Ratios :

a
(i) Efficiency Ratio

R
(ii) Activity Ratio
(iii) Standard Capacity Usage Ratio

A
(iv) Actual Capacity Usage Ratio

C
(v) Actual Usage of Budgeted Capacity Ratio

ANSWER :
(i) Efficiency Ratio:

(ii) Activity Ratio:

(iii) Standard Capacity Usage Ratio:

15.18
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

(iv) Actual Capacity Usage Ratio:

(v) Actual Usage of Budgeted Capacity Ratio:

Working Notes:
1. Maximum Capacity in a budget period

l
= 60 Employees × 8 Hrs. × 5 Days × 4 Weeks = 9,600 Hrs.

a
2. Budgeted Hours (Hrs)

h
= 50 Employees × 8 Hrs. × 5 Days × 4 Weeks = 8,000 Hrs.

c
3. Actual Hrs. = 7,500 Hrs. (given)

n
4. Standard Hrs. for Actual Output = 8,800 Hrs.

PYQ NOV 20 (5 MARKS)

P a Q. 1A

l
G Ltd. manufactures a single product for which market demand exists for additional quantity.

u
Present sales of ` 6,00,000 utilises only 60% capacity of the plant. The following data are

h
available:

a
(1) Selling price : ` 100 per unit

R
(2) Variable cost : ` 30 per unit
(3) Semi-variable expenses : ` 60,000 fixed + ` 5 per unit

A
(4) Fixed expenses : ` 1,00,000 at present level, estimated to increase

C
by 25% at and above 80% capacity.
You are required to prepare a flexible budget so as to arrive at the operating profit at 60%, 80%
and 100% levels.

ANSWER :
Flexible Budget
Activity Level 60% 80% 100%
Production (units) 6,000 8,000 10,000
(`) (`) (`)
Sales @ ` 100 per unit 6,00,000 8,00,000 10,00,000
Variable Cost 2,10,000 2,80,000 3,50,000
(@ ` 35 (` 30 + ` 5) per unit)
Contribution (A) 3,90,000 5,20,000 6,50,000
Fixed Cost (part of semi-variable cost) 60,000 60,000 60,000
Other Fixed Cost 1,00,000 1,25,000 1,25,000
Total Fixed Cost (B) 1,60,000 1,85,000 1,85,000
Operating Profit (A – B) 2,30,000 3,35,000 4,65,000

15.19
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

PYQ JULY 21 (10 MARKS) Q. 5B

PSV Ltd. manufactures and sells a single product and estimated the following related information
for the period November, 2020 to March, 2021.
Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Opening Stock of Finished 7,500 3,000 9,000 8,000 6,000
Goods (in Units)
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per unit (in `) 10 12 15 15 20
Additional Information:
• Closing stock of finished goods at the end of March, 2021 is 10,000 units.
• Each unit of finished output requires 2 kg of Raw Material 'A' and 3 kg of Raw Material 'B'.

l
You are required to prepare the following budgets for the period November, 2020 to March, 2021

a
on monthly basis:

h
(i) Sales Budget (in `)

c
(ii) Production budget (in units) and

n
(iii) Raw material Budget for Raw material 'A' and 'B' separately (in units)

P a
l
ANSWER :

u
(i) Sales Budget  (in `)

h
Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total

a
Sales (in Units) 30,000 35,000 38,000 25,000 40,000 1,68,000

R
Selling Price per 10 12 15 15 20 -
unit (`)

A
Total Sales (`) 3,00,000 4,20,000 5,70,000 3,75,000 8,00,000 24,65,000

(ii)

Sales
C
Production Budget (in units)
Particulars Nov, 20
30,000
Dec, 20
35,000
Jan, 21
38,000
Feb, 21
25,000
Mar, 21 Total
40,000 1,68,000
Add: Closing stock of 3,000 9,000 8,000 6,000 10,000 36,000
finished goods
Total quantity required 33,000 44,000 46,000 31,000 50,000 2,04,000
Less: Opening stock of 7,500 3,000 9,000 8,000 6,000 33,500
finished goods
Units to be produced 25,500 41,000 37,000 23,000 44,000 1,70,500

(iii) Raw material budget (in units)

For Raw material ‘A’
Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total
Units to be 25,500 41,000 37,000 23,000 44,000 1,70,500
produced: (a)
Raw material 2 2 2 2 2 -
consumption
p.u. (kg.): (b)

15.20
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Total raw 51,000 82,000 74,000 46,000 88,000 3,41,000

material
consumption
(Kg.): (a × b)

For Raw material ‘B’

Particulars Nov, 20 Dec, 20 Jan, 21 Feb, 21 Mar, 21 Total
Units to be 25,500 41,000 37,000 23,000 44,000 1,70,500
produced: (a)
Raw material 3 3 3 3 3 -
consumption p.u.
(kg.): (b)
Total raw 76,500 1,23,000 1,11,000 69,000 1,32,000 5,11,500

l
material

a
consumption

h
(Kg.): (a × b)

PYQ DEC 21 (5 MARKS)

n c Q. 1B

a
The Accountant of KPMR Ltd. has prepared the following budget for the coming year 2022 for its

P
two products ‘AYE’ and ‘ZYE’:

l
Particulars Product ‘AYE’ Product ‘ZYE’

u
Production and Sales (in Units) 4,000 3,000

h
Amount (in `) Amount (in `)

a
Selling Price per unit 200 180

R
Direct Material per unit 80 70
Direct Labour per unit 40 35

A
Variable Overhead per unit 20 25

C
Fixed Overhead per unit 10 10
After reviewing the above budget, the management has called the marketing team for suggesting
some measures for increasing the sales. The marketing team has suggested that by promoting
the products on social media, the sales quantity of both the products can be increased by 5%.
Also, the selling price per unit will go up by 10%. But this will result in increase in expenditure on
variable overhead and fixed overhead by 20% and 5% respectively for both the products.
You are required to prepare flexible budget for both the products:
(i) Before promotion on social media,
(ii) After promotion on social media.

ANSWER :
(i) Flexible Budget (before promotion)
Particulars Product ‘AYE’ Product ‘ZYE’ Total
Production & Sales (units) 4,000 3,000
Amount (`) Amount (`) Amount (`)
A. Sales Value 8,00,000 5,40,000 13,40,000
(` 200×4,000) (` 180×3,000)
B. Direct Materials 3,20,000 2,10,000 5,30,000
(` 80 × 4,000) (`70 × 3,000)

15.21
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

C. Direct labour 1,60,000 1,05,000 2,65,000

(` 40 × 4,000) (` 35 × 3,000)
D. Variable Overheads 80,000 75,000 1,55,000
(` 20 × 4,000) (` 25 × 3,000)
E. Total Variable Cost (B+C+D) 5,60,000 3,90,000 9,50,000
F. Contribution (A-E) 2,40,000 1,50,000 3,90,000
G. Fixed Overhead 40,000 30,000 70,000
(`10 × 4,000) (`10 × 3,000)
H. Profit (F-G) 2,00,000 1,20,000 3,20,000
Profit per unit 50 40

(ii) Flexible Budget (after promotion)

Particulars Product ‘AYE’ Product ‘ZYE’ Total

l
Production & Sales (units) 4,200 3,150

a
(4,000×105%) (3,000×105%)

h
Amount (`) Amount (`) Amount (`)

c
A. Sales Value 9,24,000 6,23,700 15,47,700

n
(` 220 × 4,200) (` 198 × 3,150)

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

P
(` 80 × 4,200) (` 70 × 3,150)

l
C. Direct labour 1,68,000 1,10,250 2,78,250

u
(` 40 × 4,200) (` 35 × 3,150)

h
D. Variable Overheads 1,00,800 94,500 1,95,300

a
(` 24 × 4,200) (` 30 × 3,150)

R
E. Total Variable Cost (B+C+D) 6,04,800 4,25,250 10,30,050
F. Contribution (A-E) 3,19,200 1,98,450 5,17,650

A
G. Fixed Overhead 42,000 31,500 73,500

C
(` 40,000 × (` 30,000 ×
105%) 105%)
H. Profit (F-G) 2,77,200 1,66,950 4,44,150
Profit per unit 66 53

PYQ MAY 22 (10 MARKS) Q. 3A

SR Ltd. is a manufacturer of Garments. 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 in each month.
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

15.22
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

From the month of July 2022 direct labour will no longer be a constraint. The company expects
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.

l
(ii) Production budget (in units) for each product.

ANSWER :

h a
c
I. Calculation of number of shirts & shorts to be produced per month:

n
Contribution per labour hour:

a
Shirts (`) Shorts (`)

P
A Sales Price per unit 60 44

l
B Variable Cost:

u
- Raw materials 30 16

h
- Direct labour 8 4

a
38 20

R
C Contribution per unit [A-B] 22 24
D Labour hour per unit 1 hour 0.5 hour

A
E Contribution per labour hour [C÷D] 22 48

C
Production plan for the first three months:
Since, Shorts has the higher Contribution per labour hour, it will be made first. Shirts will
be 25% of Shorts. The quantity will be determined as below:
Let the Quantity of Shorts be X and Shirts will be 0.25 X, then
(Qty. of Shorts × labour hour per unit) + (Qty. of Shirts × labour hour per unit) = Total labour
hours available
Or, (X × 0.5 hour) + (0.25X × 1 hour) = 12,000 hours
Or, 0.5X + 0.25X = 12,000
Or, 0.75X = 12,000
Or, X = 12,000÷0.75
= 16,000 units of Shorts
Therefore, for Shirts = 25% of 16,000 units
= 4,000 units
Production per month for the first quarter will be:
Shorts- 16,000 units & Shirts- 4,000 units

15.23
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

II. (i) Sales Budget for the month of July, August & September 2022:
July 2022 August 2022 September 2022
Shirts Shorts Shirts Shorts Shirts Shorts
A Sales demand 15,000 20,000 16,500 22,000 18,150 24,200
B Selling price per 60 44 60 44 60 44
unit (`)
C Sales Revenue (`) 9,00,000 8,80,000 9,90,000 9,68,000 10,89,000 10,64,800

(ii) Production budget for the month of July, August & September 2022:
July 2022 August 2022 September 2022 October 2022
Shirts Shorts Shirts Shorts Shirts Shorts Shirts Shorts
A Opening stock 0 0 6,600 8,800 7,260 9,680
B Sales demand 15,000 20,000 16,500 22,000 18,150 24,200 19,965 26,620

l
C Closing stock 6,600 8,800 7,260 9,680 7,986 10,648

a
D Production 21,600 28,800 17,160 22,880 18,876 25,168

h
[B+C-A]

PYQ MAY 23 (10 MARKS)

n c Q. 2A

a
A Limited has furnished the following information for the months from 1 stJanuary to 30th April,

P
2023:

l
January February March April

u
Number of Working days 25 24 26 25

h
Production (in units) per working day 50 55 60 52

a
Raw Material Purchases (% by weights to total 21% 26% 30% 23%

R
of 4 months)
Purchase price of raw material (per kg) ` 10 ` 12 ` 13 ` 11

A
Quantity of raw material per unit of product: 4 kg.

C
Opening stock of raw material on 1stJanuary: 6,020 kg. (Cost ` 63, 210)
losing stock of raw material on 30thApril: 5,100 kg.
All the purchases of material are made at the start of each month.
Required:
(i) Calculate the consumption of raw materials (in kgs) month-by- month and in total.
(ii) Calculate the month-wise quantity and value of raw materials purchased.
(iii) Prepare the priced stores ledger for each month using the FIFO method.

ANSWER :
(i) Calculation of consumption of Raw Material (in kgs) month by month and total
Particulars Jan Feb March April Total
No. of working days 25 24 26 25 -
Production (Per day) 50 55 60 52 -
Production 1,250 1,320 1,560 1,300 5,430
Raw Material Consumed (in kgs) 5,000 5,280 6,240 5,200 21,720

15.24
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Calculation of Raw Material Purchased

Purchased (Kg)
Closing stock on 30th April 5,100
Add: Raw Material consumed 21,720
Less: Opening stock on 1st January (6,020)
Raw Material purchased 20,800

(ii) Calculation of month wise quantity and value of raw material purchased
% Purchased (Kg) Price (`) Value (`)
January 21 4,368 10 43,680
February 26 5,408 12 64,896
March 30 6,240 13 81,120
April 23 4,784 11 52,624

l
Total 20,800 2,42,320

a
ch
(iii) Store Price Ledger by using FIFO method.
Receipts Issue Balance

n
Months Particulars Qty Rate Amount Qty Rate Amount Qty Rate Amount

a
(`) (`) (`)

P
Jan Opening 6,020 10.5 63,210

l
Purchases 4,368 10 43,680 6,020 10.5 63,210

u
4,368 10 43,680

h
Consumption 5,000 10.5 52,500 1,020 10.5 10,710

a
4,368 10 43,680

R
Feb Purchases 5,408 12 64,896 1,020 10.5 10,710
4,368 10 43,680

A
5,408 12 64,896

C
Consumption 1,020 10.5 10,710 108 10 1,080
4,260 10 42,600 5,408 12 64,896
March Purchase 6,240 13 81,120 108 10 1,080
5,408 12 64,896
6,240 13 81,120
Consumption 108 10 1,080
5,408 12 64,896
724 13 9,412 5,516 13 71,708
April Purchases 4,784 11 52,624 5,516 13 71,708
4,784 11 52,624
Consumption 5,200 13 67,600 316 13 4,108
4,784 11 52,624
56,732

PYQ MAY 23 (10 MARKS) Q. 3A

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 and 3,20,000 units
of Product Z respectively.

15.25
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Selling price of Product X is 1.25 times of Product Z whereas Product Y can be sold at double the
price at which product Z can be sold. Product Z 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%

l
respectively and sale of product Y will decline by 5%. The total overhead cost of the company

a
for the next year is estimated at ` 55,08,000. The variable cost of ` 1 per labour hour remains

h
unchanged.

c
It is anticipated that all other costs will remain same for the next year and there is opening and

n
closing stock. Selling Price per unit of each product will remain unchanged in the next year.

a
Required:

P
Prepare a budget showing the current position and the position for the next year clearly indicating

l
the total product-wise contribution and profit for the company as a whole.

ANSWER :

h u
a
(i) Budget showing current position of total product wise contribution and profitability

R
Particulars Product Product Y Product Total
X (`) (`) Z (`) (`)

A
A Direct material cost (per unit) 20 20 20

C
B Direct wages cost (per unit) 16 24 16
C Variable overhead per unit 4 6 4
(Refer WN-1)
D Total variable cost/ Marginal 40 50 40
cost per unit [A+B+C]
E Add: Profit [20% of D] - - 8
F Selling price unit [D+E] - - 48
G Price weight 1.25 2 1
H Selling price per unit [Selling 60 96 48
price of Product Z × G]
I Contribution per unit [H-D] 20 46 8
J Quantity to be sold 2,50,000 2,80,000 3,20,000
K Total Contribution [J×I] 50,00,000 1,28,80,000 25,60,000 2,04,40,000
L Fixed Overheads [Refer WN- 13,20,000
1]
M Profit 1,91,20,000

15.26
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Working Notes:
1. Segregation of Overheads into variable and fixed in current year
Particulars Product Product Product Total
X (`) Y (`) Z (`) (`)
A Total overhead cost - - - 52,80,000
B Labour hour per unit [Direct 4 6 4
wages Cost ÷ Re.1]
C Quantity produced 2,50,000 2,80,000 3,20,000
D Total variable overhead cost 10,00,000 16,80,000 12,80,000 39,60,000
[B×C]
E Fixed overhead cost [A-D] 13,20,000

l
(ii) Budget showing next year’s position of total product wise contribution and profitability

a
Particulars Product Product Y Product Z Total

h
X (`) (`) (`) (`)

c
A Selling price per unit 60 96 48

n
B Contribution per unit 20 46 8

a
C Quantity to be sold 2,80,000 2,66,000 3,68,000

P
[112% of [95% of [115% of

l
2,50,000] 2,80,000] 3,20,000]

u
D Total Contribution [B×C] 56,00,000 1,22,36,000 29,44,000 2,07,80,000

h
Fixed Overheads [Refer WN- 13,20,000

a
2]

R
Profit 1,94,60,000

A
Working Notes:

C
2. Segregation of Overheads into variable and fixed in next year
Particulars Product X Product Y Product Z Total
(`) (`) (`) (`)
A Total overhead cost - - - 55,08,000
B Labour hour per unit [Direct 4 6 4
wages Cost ÷ Re.1]
C Quantity produced 2,80,000 2,66,000 3,68,000
D Total variable overhead cost 11,20,000 15,96,000 14,72,000 41,88,000
[B×C]
E Fixed overhead cost [A-D] 13,20,000

PYQ NOV 23 (10 MARKS) Q. 2B

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 and selling price for the month
of September 2023 is as follows:
Sales Quantity Selling Price
per unit
Hot Coffee 1,40,000 Units ` 20/-
Cold Coffee 3,40,000 Units ` 40/-

15.27
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

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 Hot 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.
Standard Quantity of closing stock for the period September 2023 to December 2023 is as follows:
(in units)
Hot Coffee Cold Coffee Fruit JuiceCarbonated Soft
Drink

l
September 2023 12,000 13,000 11,000 7,500

a
October 2023 15,000 14,000 12,000 5,500

h
November 2023 13,000 15,000 10,000 6,000

c
December 2023 11,000 16,000 13,000 7,000

n
You are required to prepare a Production Budget (in units) and Sales Budget (in units and sales

a
value) for the months of October, November and December 2023.

ANSWER :

l P
u
Production Budget (in units)

h
Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated

a
Soft Drink

R
October 2023
Sales* 2,10,000 2,38,000 3,36,000 60,000

A
Add: Closing stock 15,000 14,000 12,000 5,500

C
Total Quantity Required 2,25,000 2,52,000 3,48,000 65,500
Less: Opening stock 12,000 13,000 11,000 7,500
Production 2,13,000 2,39,000 3,37,000 58,000
November 2023
Sales* 3,15,000 1,66,600 3,36,000 50,000
Add: Closing stock 13,000 15,000 10,000 6,000
Total Quantity Required 3,28,000 1,81,600 3,46,000 56,000
Less: Opening stock 15,000 14,000 12,000 5,500
Production 3,13,000 1,67,600 3,34,000 50,500
December 2023
Sales* 4,72,500 1,16,620 3,36,000 30,000
Add: Closing stock 11,000 16,000 13,000 7,000
Total Quantity Required 4,83,500 1,32,620 3,49,000 37,000
Less: Opening stock 13,000 15,000 10,000 6,000
Production 4,70,500 1,17,620 3,39,000 31,000
*sales units are taken from sales budget

15.28
BUDGETS & BUDGETARY CONTROL
 TRP Sir
CA Rahul Panchal

Sales Budget (in Units and sales value)

Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated
Soft Drink
October 2023 2,10,000 2,38,000 3,36,000 60,000
(in units) [1,40,000 [3,40,000 [420000
+ (1,40,000 -(3,40,000 -(4,20,000x20%)]
x 50%)] x 30%)]
October 2023 42,00,000 95,20,000 67,20,000 12,00,000
(Sales Value in `) (2,10,000 (2,38,000 (3,36,000 x `20) (60,000
x ` 20) x ` 40) x ` 20)
November 2023 3,15,000 1,66,600 3,36,000 50,000
(in units) [2,10,000 [2,38,000
+(2,10,000 -(2,38,000

l
x 50%)] x 30%)]

a
November 2023 63,00,000 66,64,000 67,20,000 10,00,000

h
(Sales Value in `) (3,15,000 (1,66,600 (3,36,000 x ` 20) (50,000

c
x ` 20) x ` 40) x ` 20)

n
December 2023 4,72,500 1,16,620 3,36,000 30,000

a
(in units) [3,15,000 [1,66,600

P
+(3,15,000 -(1,66,600

l
x 50%)] x 30%)]

u
December 2023 94,50,000 46,64,800 67,20,000 6,00,000

h
(Sales Value in `) (4,72,500 (1,16,620 (3,36,000 x ` 20) (30,000

a
x ` 20) x ` 40) x ` 20)

R
Sales Budget can also be presented in following way:

A
Oct 2023 Nov 2023 Dec 2023

C
Quantity Amount Quantity Amount Quantity Amount
(units) (`) (units) (`) (units) (`)
Hot Coffee @ ` 20 2, 10,000 42,00,000 3,15,000 63,00,000 4,72,500 94,50,000
per unit
Cold Coffee @ ` 2,38,000 95,20,000 1,66,600 66,64,000 1,16,620 46,64,800
40 per unit
Fruit Juice @ ` 20 3,36,000 67,20,000 3,36,000 67,20,000 3,36,000 67,20,000
per unit
Carbonated Soft 60,000 12,00,000 50,000 10,00,000 30,000 6,00,000
Drink @ ` 20 per
unit
2,16,40,000 2,06,84,000 2,14,34,800

15.29
BUDGETS & BUDGETARY CONTROL