INTERMEDIATE EXAMINATION SET - 1

MODEL ANSWERS TERM – JUNE 2025

PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)
1. Choose the correct option: [15 x 2 = 30]

(i) If fixed manufacturing costs are ₹ 50,000 and the number of units produced is 5,000,
what is the fixed cost per unit?
a. ₹10
b. ₹5
c. ₹50
d. ₹0.1

(ii) _______ is a method of dealing with overheads which involves spreading common costs
over cost centers on the basis of benefit received.
a. overhead absorption
b. overhead apportionment
c. overhead allocation
d. overhead analysis

(iii) Standard price of material per kg ₹ 20, standards consumption per unit of production is 5
kg. Standard material cost for producing 100 units is
a. ₹ 20,000
b. ₹ 12,000
c. ₹ 8,000
d. ₹ 10,000

(iv) In a period, 11280 kilograms of material were used at a total standard cost of ₹ 46,248.
The material usage variance was ₹ 492 adverse. What was the standard allowed weight
of material for the period?
a. 11600 kg
b. 11160 kg
c. 12190 kg
d. 10590 kg

(v) What defines an integrated accounting system?

a. Separation of cost and financial records
b. Streamlining reconciliation
c. Sole reliance on financial principles
d. Consolidation of cost and financial information

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING

(vi) A company has set up a laboratory for testing of products for compliance with standards.
Salary of this laboratory stuffs are part of:
a. Direct expenses
b. Quality control cost
c. Works overheads
d. Research and development cost

(vii) CAS 9 specifically deals with:

a. Employee Cost
b. Packing Material Cost
c. Direct Expenses
d. Repairs and Maintenance Cost

(viii) In which of the following methods of pricing, costs lag behind the current economic
values?
a. Replacement price method
b. Last in first out price method
c. First in first out price method
d. Weighted average price method

(ix) Which of the following is deducted from the total cost to calculate the net profit?
a. Selling Expenses
b. Opening Stock
c. Direct Materials
d. Indirect Labour

(x) What type of cost is incurred to support multiple cost objects but cannot be directly
traced to any specific one?
a. Direct Cost
b. Indirect Cost
c. Variable Cost
d. Fixed Cost

(xi) A company operates a job costing system. Job number 6789 will require ₹ 345 of direct
materials and ₹ 210 of direct labour, which is paid ₹ 14 per hour. Production overheads
are absorbed at the rate of ₹ 30 per direct labour hour and non-production overheads are
absorbed at the rate of 40% of prime cost. Required What is the total expected cost of the
job?
a. ₹ 7,221
b. ₹ 1,272
c. ₹ 2,127
d. ₹ 1,227

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING

(xii) The budget that is prepared first of all is _________.

a. Master budget
b. Sales budget assuming that it is the key factor
c. Cash Budget
d. Capital expenditure budget

(xiii) A company employs three drivers to deliver goods to its customers. The salaries paid to
these drivers are:
a. a part of prime cost
b. a direct production expense
c. a production overhead
d. a selling and distribution overhead

(xiv) Which section of the Companies Act, 2013, deals with the adoption and adherence to
Cost Accounting Standards (CAS)?
a. Section 135
b. Section 148
c. Section 170
d. Section 184

(xv) When a company wants to prepare a factory overhead budget in which the estimated
costs are directly derived from the estimates of activity levels, which of the following
budget should be prepared by the company?
a. Flexible budget
b. Fixed budget
c. Master budget
d. R & D budget

Answer:
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
a b d b d b b c a b d b d b a

SECTION-B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5x14=70]
2. (a) PR Ltd manufactures and sells a typical brand of Tiffin Boxes under its on brand name.
The installed capacity of the plant is 1,20,000 units per year distributable evenly over each
month of calendar year. The Cost Accountant of the company has informed the following
cost structure of the product, which is as follows:
Raw Material ₹ 20 per unit.

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Directorate of Studies, The Institute of Cost Accountants of India
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MODEL ANSWERS TERM – JUNE 2025
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COST ACCOUNTING
Direct Labour ₹ 12 per unit.
Direct Expenses ₹ 2 per unit
Variable Overheads ₹ 16 per unit
Fixed Overheads ₹ 3,00,000.
Semi-variable Overheads are as follows:
₹7,500 per month upto 50% capacity and additional ₹2,500 per month for every
additional 25% capacity utilization or part thereof.
The plant was operating at 50% capacity during the first seven months of the calendar
year 2025, at 100% capacity in the remaining months of the year.
The selling price for the period from 1st January, 2025 to 31st July, 2025 was fixed at ₹ 69
per unit. The firm has been monitoring the profitability and revising the selling price to
meet its annual profit target of ₹ 8,00,000. Identify the selling price per unit for the period
from 1st August, 2025 to 31st December, 2025.
Illustrate the cost sheet clearly showing the total and per unit cost, as well as the profit for
the period.
1. From 1st January to 31st July, 2025.
2. From 1st August to 31st December, 2025. [7]

Answer:
Cost Sheet
Capacity Utilisation Period 50% Capacity 100% Capacity
1st January – 31st July 1st August– 31st December
Units 1,20,000 /12 × 7 × 50% = 1,20,000 /12 × 5 × 100% =
35,000 50,000
Raw Material 20 × 35,000 =7,00,000 20 × 50,000 = 10,00,000
Direct Labour 12 × 35,000 = 4,20,000 12 × 50,000 = 6,00,000
Direct Expenses 2 × 35,000 = 70,000 2 × 50,000 = 1,00,000
Variable Overheads 16 × 35,000 = 5,60,000 16 × 50,000 = 8,00,000
Fixed Overheads 3,00,000/12 × 7= 1,75,000 3,00,000/12 × 5= 1,25,000
Semi-Variable Overhead 7,500 × 7= 52,500 12,500 × 5 = 62,500
Total Cost 19,77,500 26,87,500
Profit (WN 1) 4,37,500 3,62,500
Sales (WN 2) 69 × 35,000 = 24,15,000 30,50,000
Selling Price per unit (WN 2) 69 30,50,000/ 50,000 = 61
Cost per unit 19,77,500/35,000 = 56.50 26,87,500 /50,000 = 53.75

Working Notes:
1. Selling Price for 1st January – 31st July = ₹69
∴ Sales = 69 × 35,000 = ₹24,15,000

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Profit for 1st January – 31st July = 24,15,000 – 19,77,500 = ₹4,37,500
2. Expected total profit for the year ₹8,00,000
∴ Profit to earn from 1st August – 31st December = 8,00,000 – 4,37,500 = ₹3,62,500
∴ Expected Sale from 1st August – 31st December = ₹30,50,000
Expected Selling price per unit from 1st August – 31st December = (₹ 30,50,000)/50,000 = ₹ 61

(b) ZION LTD uses three types of materials A, B and C for production of Product-P for which
the following data apply:
Raw Usage per Reorder Price Delivery period Reorder Minimu
Material unit quantity per (in weeks) level m level
of Product (kgs) Kg (kgs) (kgs)
(kgs) (₹) Minimum Average Maximum
A 10 10000 0.10 1 2 3 8000 ?
B 4 5000 0.30 3 4 5 4750 1550
C 6 10000 0.15 2 3 4 ? 2000

Weekly production varies from 175 to 225 units, averaging 200 units of the said product.
Calculate 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. [7]

Answer:

(a)
(i) Minimum stock of A
Re-order level - (Average rate of consumption x Average time required to obtain fresh delivery)
= 8,000kgs. - (200 x 10 x 2) kgs = 4,000 kgs.

(ii) Maximum stock of B

Re-order level - (Minimum consumption x Minimum delivery period) + Re-order quantity
= 4,750kgs. - (175 x 4 x 3)kgs. + 5,000kgs.
= 9,750 - 2,100 = 7,650 kgs.

(iii) Re-order level of C

Maximum delivery period x Maximum usage
= 4 x 225 x 6 = 5,400 kgs.
OR
Re-order level of C

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Directorate of Studies, The Institute of Cost Accountants of India
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MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
= Minimum stock of C + [Average rate of consumption x Average time required to obtain fresh
delivery]
= 2,000kgs. + [(200 x 6) x 3] kgs. = 5,600 kgs.

(iv) Average stock level of A

= Minimum stock level of A + ½ Re-order quantity of A
= 4,000kgs.+ ½ x 10,000kgs. = 4,000kgs. + 5,000kgs. = 9,000 kgs.
OR
Average Stock Level of A
(Minimum Stock level of A + Maximum Stock Level of A) / 2 = (Refer to working note)
(4,000 + 16,250)/2 = 10,125 Kgs.

Working note:
Maximum stock level of A= ROL+ ROQ - (Minimum consumption x Minimum re-order period)
= 8,000kgs. + 10,000kgs.- [(175 x 10) x 1] kgs.
= 16,250 kgs.

3. (a) DOZIN Ltd. manufactures a single product. It recovers factory overheads at a pre-
determined rate of ₹ 20 per man day.
During the year 2024-25, 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 strike period and ₹ 1.00 lakh was in respect of
expenses of previous year booked in this current year. During the period, 50000 units were sold.
At the end of the period, 12000 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 20000 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.
Required:
(i) Calculate the amount of unabsorbed overheads during the year 2024-25.
(ii) Analyze the accounting treatment of unabsorbed overheads in cost Accounts. [7]

Answer:
(a)
(i) Amount of under - absorption of overheads during the year 2024– 25
₹ ₹
Total production overheads actually incurred during the year 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

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Net production overheads actually incurred: 32,50,000
Production overheads absorbed by 1.50 lakh man-days @ D 20 per man 30,00,000
-
day :
Amount of under-absorption of production overheads: 2,50,000

(ii) Accounting treatment of under absorption of production overheads :

It is given in the statement of the question that 62000 units (50000 sold + 12000 closing stock – 0
opening stock) were completely finished and 20000 units were 65% complete, 40% of the under-
absorbed overheads were due to factory inefficiency and the rest were attributable to increase in
cost of indirect materials and indirect labour.
₹
This being abnormal, should be debited to the Costing Profit and Loss A/c. 1,00,000
Balance D 150000 of under– absorbed overheads should be distributed over 1,50,000
work -in- progress, finished goods and cost of sales by using supplementary rate.
Total under-absorbed overheads 2,50,000

Apportionment of unabsorbed overheads of ₹ 150000 over work-in-progress, finished goods

and cost of sales
Equivalent Completed Units (₹)
Work-in-progress 13,000 26,000
Finished goods 12,000 24,000
Cost of Sales 50,000 1,00,000
75,000 1,50,000

Supplementary Overhead Absorption Rate: 1,50,000/75,000 = ₹ 2

(b)The following information is available from the Financial Books of SONT Ltd. newly
established company for the year ended 31st March 2025,
(Amount in ₹)
Direct Material Consumption 50,00,000
Direct Wages 30,00,000
Factory Overhead 16,00,000
Administrative Overhead 7,00,000
Selling and Distribution Overhead 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

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Sales (120000 units) 120,00,000
Closing Stock:
Finished Goods (4000 units) 3,20,000
Work-in-progress 2,40,000
Profit (Net) for the year 2024-25 12,90,000

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 production. Selling and distribution
overheads are recovered at ₹8 per unit sold
Required:
(i) Prepare the Profit and Loss Accounts both as per financial records and as per cost
records.
(ii) Reconcile the profits as per the two records. [7]

Answer: (b)
Profit and Loss Account (As per financial records)
Particulars (₹) Particulars (₹)
To Direct Material 50,00,000 By Sales (120000 units) 120,00,000
To Direct Wages 30,00,000 By Closing Stock
To Factory Overheads 16,00,000 WIP 2,40,000
To Gross Profit 29,60,000 Finished Goods (4000 units) 3,20,000
125,60,000 125,60,000
To Administration Overheads 7,00,000 By Gross Profit b/d 29,60,000
To Selling and Distribution 9,60,000 By Dividend 1,00,000
To Bad Debts 80,000 By Interest 20,000
To Preliminary Expenses Written off 40,000
To Legal Charge 10,000
To Net Profit 12,90,000
30,80,000 30,80,000

Statement of Cost and Profit (As per Cost records)

Total (₹)
Direct Material 56,00,000
Direct Wages 30,00,000
Prime Cost 86,00,000
Factory Overhead 17,20,000

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MODEL ANSWERS TERM – JUNE 2025
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COST ACCOUNTING
103,20,000
Less : Closing Stock (WIP) (2,40,000)
Works Cost (124000 units) 100,80,000
Administration overhead 7,44,000
Cost of production of (124000 units) 108,24,000
Less : Finished Goods (3,49,160)
Cost of goods sold (120000 units) 104,74,840
Selling and Distribution Overhead 9,60,000
Cost of Sales 114,34,840
Net profit 5,65,160
Sales Revenue 120,00,000

Statement of Reconciliation of Profit as obtained under Cost and Financial Accounts

(₹) (₹)
Profit as per Cost Records 5,65,160
Add : Excess of Material Consumption 6,00,000
To Factory Overhead 1,20,000
To Administration Overhead 44,000
Dividend Received 1,00,000
Interest Received 20,000 8,84,000
14,49,160
Less : Bad debts 80,000
Preliminary expenses written off 40,000
Legal Charges 10,000
Over-valuation of stock in cost book 29,160 (1,59,160)
Profit as per Financial Records 12,90,000

4. (a) HOTEL IREVNA INN, has a capacity of 200 single rooms and 40 double rooms. The
average occupancy of both single and double rooms is expected to be 80% throughout the year
of 365 days. The rent for double room has been fixed at 125% of the rent of a single room. The
costs are as under:
Variable Costs : Single Rooms ₹ 110 each per day
Double Rooms ₹ 175 each per day
Fixed Costs: Single Rooms ₹ 60 each per day
Double Rooms ₹ 125 each per day

Required:
Calculate the rent chargeable for each single room and double room per day in such a way that
the hotel earns a margin of safety of 20% on rent of rooms. [7]

Answer: (a)

Occupancy (Number of room days in a year):

Nature of Room Occupancy
Single Rooms 200 × 365 × 80% = 58,400 Room days

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MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Double Rooms 40 × 365 × 80% = 11,680 Room days

Computation of Total Cost:

Variable Costs: Amount (₹) Amount (₹)
Single Rooms (58,400 Room days × ₹ 110) 64,24,000
Double Rooms (11,680 Room days × ₹ 175) 20,44,000 84,68,000
Fixed Costs:
Single Rooms (58,400 Room days × ₹ 60) 35,04,000
Double Rooms (11,680 Room days × ₹ 125) 14,60,000 49,64,000
Total Costs 1,34,32,000

Computation of Total Revenue:

Margin of safety 20%, Break Even Point 80%
Sales at BEP = Total Cost = ₹ 1,34,32,000
Total Revenue = ₹ 1,34,32,000 / 0.80 = ₹ 1,67,90,000

Computation of Notional Single Rooms Day:

Single Rooms (58,400 × 1) = 58,400
Double Rooms (11,680 × 1.25) = 14,600
Total: 73,000

Computation of Room Rent:

Rent per day per Single Room = ₹ 1,67,90,000 / 73,000 = ₹ 230
Rent per day per Double Room = ₹ 230 × 1.25 = ₹ 287.50

(b) OMEGA LTD undertook a contract for the construction of a building at a contract price of
₹ 45,00,000. During the first year, the following amounts were spent against which a sum of
₹ 16,87,500 (representing 90% of the work certified) was received by the contractor:
₹
Materials used 7,87,500
Wages paid to the workers 4,50,000
Overhead expenses 1,12,500

During the second year, the contractor spent the following amounts:
₹
Materials used 11,25,000
Wages paid to the workers 9,00,000
Overhead expenses 2,25,000

In the second year, the contract was completed and a sum of Rs.26,25,000 was received by the
contractor.
Prepare the Contract Account and the Contractee Account for both the years and calculate the
profits.
[7]

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MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING

Answer:

(b) Contract Account

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

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

Contract Account
(On completion of Contract in the 2nd Year)
Particulars ₹ Particulars ₹
To Work-in-Progress By Contractee Account 45,00,000
(Rs. 18,75,000 - Rs 15,07,500
3,67,500)
To Materials Used 11,25,000
To Wages Paid 9,00,000
To Overhead Expenses 2,25,000
To Profit & Loss A/c (Transfer) 7,42,500 -
45,00,000 45,00,000

Contractee Account
Particulars ₹ Particulars ₹
To Contract A/c 45,00,000 By Balance b/d 16,87,500
By Bank A/c 26,25,000
By Balance c/d 1,87,500
45,00,000 45,00,000

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COST ACCOUNTING

5. (a) "Super Bite" is a leading product in the confectionery market which is obtained after it
has gone through three distinct processes - X, Y and Z. The following information is obtained
from cost records of Super (India) Ltd. for the month of July, 2024:
Particulars Process X Process Y Process Z

Input of raw materials @₹30 per unit (units) 1,000 - -

Other materials (₹) 26,000 19,800 29,620
Direct wages (₹) 20,000 30,000 40,000
Normal loss of input 5% 10% 15%
Output (units) 950 840 750
Sale of scrap per unit (2) 20 40 50

Total overheads are ₹90,000 which are recovered at 100% of wages.

Required:
Prepare different Process Accounts of the firm for July 2024. [7]

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

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

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

(b) ANKRITI LTD. manufactures product X and product Y during the year ending on 31st March,
2025. It is expected to sell 7500 kg of product X and 37500 kg of product Y @ Rs. 60 and Rs. 32
per kg respectively.
The direct materials A, B and C are mixed in the proportion of 4:4:2 in the manufacture of
Product X and in the proportion of 3:5:2 in the manufacture of product Y. The actual and budget
inventories for the year are as follows:
Particulars Opening Stock (kg) Expected Closing Stock Anticipated Cost per
(kg) kg (₹)
Material A 3000 2400 10
Material B 2500 5800 8
Material C 16000 17300 6
Product X 1500 2000 —
Product Y 3000 3500 —
Required:
Prepare the Production Budget and Materials Budget showing the purchase cost of materials for
the year ending 31st March, 2025. [7]

Answer:
(b)
Production Budget for the Year ending 31st March 2025
Particulars Product – X Product – Y
(kgs.) (kgs.)
Sales 7,500 37,500
Add: Closing Stock 2,000 3,500
Sub-total 9,500 41,000
Less: Opening tock 1,500 3,000
Production 8,000 38,000

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COST ACCOUNTING

Materials Purchase Budget

(for the year ending 31st March 2025)

Particulars A B C Total

Materials required for product-X in the ratio of 3,200 3,200 1,600 8,000
4:4:2
Materials required for product-Y in the ratio of 11,400 19,000 7,600 38,000
3:5:2
Total requirement 14,600 22,200 9,200
Add: Closing Stock 2,400 5,800 17,300

17,000 28,000 26,500

Less: Opening Stock 3,000 2,500 16,000
Purchases (Kgs) 14,000 25,500 10,500
Cost per Kg (₹) 10 8 6
Total Purchase Cost (₹) 1,40,000 2,04,000 63,000 4,07,000

6. The standard material inputs required for 1,000 kgs. of a finished product are given below:
Material Quantity (in kg) Standard rate per kg. (in ₹)
P 450 20
Q 400 40
R 250 60
1,100
Standard loss 100
Standard output 1,000
Actual production in a period was 20,000 kgs. of the finished product for which the actual
quantities of material used and the prices paid thereof, are as under:

Material Quantity (in kgs) Standard rate per kg. (in ₹)

PQ 10,000 19
R 8,500 42
4,500 65

Calculate:
(i) Material Cost Variances;
(ii) Material Price Variance;
(iii) Material Usage Variance;

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COST ACCOUNTING
(iv) Material Mix Variance;
(v) Material Yield Variance.
Prepare a reconciliation among the variances. [14]

Answer:
For Material Cost Variances:
M1-Acutal cost of material used (AQ x AR)
Actual Qty. (AQ) (kg.) Actual Rate (AR) (₹) Amount (₹)
P 10,000 19 1,90,000
Q 8,500 42 3,57,000
R 4,500 65 2,92,500
8,39,500

M2- Standard cost of material used (AQ x SR)

Actual Qty. (AQ) (kg.) Standard Rate (SR) (₹) Amount (₹)
P 10,000 20 2,00,000
Q 8,500 40 3,40,000
R 4,500 65 2,70,000
8,10,000

M3- Standard cost of material if it had been used in standard proportion

Standard Proportion Standard Rate Amount
P 23,000 x 450/1,100 X 20 1,88,182
Q 23,000 x 400/1,100 X 40 3,34,545
R 23,000 x 250/1,100 X 60 3,13,636
8,36,363

M4- Standard cost of output (SQ X SR)

Standard Qty. 20,000kg Standard Rate Amount
for
P 450 x 20 = 9000 X 20 1,80,000
Q 400 x 20 = 8,000 X 40 3,20,000
R 250 x 20 = 5,000 X 60 3,00,000
8,00,000

Calculation of Variance:
Material Price Variance = M1-M2 =₹ 8,39,500 - ₹ 8,10,000 = ₹ 29,500 (A)
Material Mix Variance = M2-M3 = ₹ 8,10,000 – ₹ 8,36,363 = ₹ 26,363 (F)
Material Yield Variance = M3-M4 =₹ 8,36,363 – ₹ 8,00,000 = ₹ 36,363 (A)
Material Usage Variance = M2-M4 = ₹ 8,10,000 - ₹ 8,00,000 = ₹ 10,000 (A)
Material Cost Variance = M1-M4 =₹ 8,39,500 - ₹ 8,00,000 = ₹ 39,500 (A)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING

Reconciliation
Material Usage Variance = Material Mix Variance + Material Yield
Variance
= ₹ 26,363(F) + 36,363 (A)
= ₹ 10,000 (A)
Material Cost Variance = Material Price Variance + Material usage
= Variance
₹ 39,500 (A)

7. (a) Prepare the following information to show to management:

(i) The marginal product cost and the contribution per unit
(ii) The total contribution and profits resulting from each of the following sales mix results:
Particulars Product Per unit
Direct Materials A 10
Direct Materials B 9
Direct Wages A 3
Direct Wages B 2
Fixed Expenses - ₹ 800
Variable expenses are allotted to products at 100% of Direct Wages
Sales Price A ₹ 20
Sales Price B ₹ 15
Sales Mixtures:
(a) 100 units of Product A and 200 units of Product B
(b) 150 units of Product A and 150 units of Product B
(c) 200 units of Product A and 100 units of Product B [7]

Answer:
Statement showing Marginal Product Cost and Contribution per unit
Sl. No. Particulars Product A (₹) Product B (₹)
i. Selling Price per unit 20.00 15.00
ii. Variable Cost
Direct Material cost per unit 10.00 9.00
Direct Wages cost per unit 3.00 2.00
Variable Expenses (100% of Direct 3.00 2.00
Wages)
Marginal Product Cost 16.00 13.00
iii. Contribution per unit (i. – ii.) 4.00 2.00

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING

Computation of Profit under Sales Mix (a)

Sl. No. Particulars Product A (₹) Product B (₹) Total (₹)

i. No. of units 100 200
ii. Contribution per unit 4.00 2.00
iii. Total Contribution (i. × ii.) 400 400 800
iv. Fixed Cost 800
v. Profit (iii. – iv.) Nil

Computation of Profit under Sales Mix (b)

Sl. No. Particulars Product A (₹) Product B (₹) Total (₹)
i. No. of units 150 150
ii. Contribution per unit 4.00 2.00
iii. Total Contribution (i. × ii.) 600 300 900
iv. Fixed Cost 800
v. Profit (iii. – iv.) 100

Computation of Profit under Sales Mix (c)

Sl. No. Particulars Product A (₹) Product B (₹) Total (₹)
i. No. of units 200 100
ii. Contribution per unit 4.00 2.00
iii. Total Contribution (i. × ii.) 800 200 1,000
iv. Fixed Cost 800
v. Profit (iii. – iv.) 200

(b) Describe the disclosures to be made as per CAS 3. [7]

Answer:
(b) Disclosures to be made as per CAS 3:
The cost statements shall disclose the following:
1. The basis of assignment of Production or Operation Overheads to the cost objects
2. Production or Operation Overheads incurred in foreign exchange
3. Production or Operation Overheads relating to resources received from or supplied to
related parties
4. Any Subsidy, Grant, Incentive or any amount of similar nature received or receivable
reduced from Production or Operation Overheads

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
5. Credits or recoveries relating to the Production or Operation Overheads
6. Any abnormal cost not forming part of the Production or Operation Overheads
7. Any unabsorbed Production or Operation Overheads
Disclosures shall be made only where material, significant and quantifiable.

8. (a) Explain the Responsibility centre? Classify the different types of Responsibility Centre?[4]
(b) Discuss the Bills of Materials? Examine the basic purposes of preparing a Bills of
Material? [5]
(c) Summarize the objectives and scope of Cost Accounting Standard (CAS) - 5 on
determination of Average (Equalized) Cost of Transportation. [5]

Answer:

(a) Responsibility Centre:

CIMA official terminology defines responsibility centre as departmental or organisational
function whose performance is the direct responsibility of a specific manager. Responsibility
centre refers to a particular segment or unit of an organisation for which a particular manager,
employee, or department is held responsible and accountable for its business goals and
objectives. It refers to the part of company where a manager has authority and responsibility. A
responsibility centre is a functional entity within a business that tends to have its own goals and
objectives, policies and procedures, thereby giving managers specific responsibility for
revenues, expenses incurred, funds invested, etc.
Types of Responsibility Centres:
(i) Cost Centre – Under this center, the manager is held responsible only for the costs, including
a production department, maintenance department, human resource department, etc.
(ii) Profit Centre – Under this center, the manager is responsible for all costs and revenues.
Here, the manager would have all the responsibility to make decisions that would affect both
the revenue and costs.
(iii) Revenue Centre–This segment is primarily responsible for attaining sales revenue. The
performance of this center is evaluated by comparing the actual revenue attained with the
budgeted revenue.
(iv) Investment Centre – Apart from looking into the profits, this center looks into returns on
the funds invested in the group’s operations. Thus, investment center is also a profit center with
additional responsibilities for capital investment and possibly for financing, and whose
performance is measured by its return on investment

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

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 8 SYLLABUS 2022
COST ACCOUNTING
Purpose of Bill of Material:
(i) It provides a quantitative estimate of budget of material required for a given job, process or
operation which might be used for control purposes.
(ii) It substitutes material requirements and expedite issue of materials.
(iii) The store keeper can draw up a program of material purchases and issue for a given period.
(iv) It provides the basis for charging material cost to the respective job/process.

(c) The Object and Scope of CAS – 5 are stated below:

Objective:
(a) To bring uniformity in the application of principles and methods used in the determination
of averaged /equalized Transportation Cost.
(b) To prescribe the system to be followed for maintenance of records for collection of cost of
transportation, its allocation/apportionment to cost centres, locations or products.
(c) To provide transparency in the determination of cost of transportation.
Scope :
This standard should be applied for calculation of cost of transportation required under any
statute or regulations or for any other purpose. For example, this standard can be used for:
(a) Determination of average transportation cost for claiming the deduction for arriving at the
assessable value of goods and services.
(b) Insurance claim valuation.
(c) Working out claim for freight subsidy under Fertilizer Industry Coordination Committee.
(d) Administered price mechanism of freight cost element.
(e) Determination of inward freight costs included or to be included in the cost of purchases
attributable to the acquisition.
(f) Computation of freight included in the value of inventory for accounting on inventory or
valuation of stock hypothecated with Banks / Financial Institution ...etc

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Directorate of Studies, The Institute of Cost Accountants of India