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Test Series: March 2018

MOCK TEST PAPER
INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who have opted for Hindi medium. If a
candidate has not opted for Hindi medium his/ her answer in Hindi will not be valued.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) The following are the details in respect of Process A and Process B of a processing factory:
Process A (`) Process B (`)
Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000
The output of Process A is transferred to Process B at a price calculated to give a profit of 20%
on the transfer price and the output of Process B is charged to finished stock at a profit of 25%
on the transfer price. The finished stock department realized ` 4,00,000 for the finished goods
received from Process B.
PREPARE process accounts and CALCULATE total profit, assuming that there was no opening
or closing work-in-progress.
(b) Two workers ‘A’ and ‘B’ produce the same product using the same material. Their normal wage
rate is also the same. ‘A’ is paid bonus according to Rowan scheme while ‘B’ is paid bonus
according to Halsey scheme. The time allowed to make the product is 120 hours. ‘A’ takes 90
hours while ‘B’ takes 100 hours to complete the product. The factory overhead rate is ` 50 per
hour actually worked. The factory cost of product manufactured by ‘A’ is ` 80,200 and for
product manufactured by ‘B’ is ` 79,400.
Required:
(i) COMPUTE the normal rate of wages.
(ii) CALCULATE the material cost.
(iii) PREPARE a statement comparing the factory cost of the product as made by two workers.
(c) Maximum Production capacity of KM (P) Ltd. is 28,000 units per month. Output at different levels
along with cost data is furnished below:
Activity Level
Particulars of Costs 16,000 units 18,000 units 20,000 units
Direct Material ` 12,80,000 ` 14,40,000 ` 16,00,000
Direct labour ` 17,60,000 ` 19,80,000 ` 22,00,000
Total factory overheads ` 22,00,000 ` 23,70,000 ` 25,40,000
You are required to CALCULATE the selling price per unit at an activity level of 24,000 units by
considering profit at the rate of 25% on sales.
1

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(d) Bank of Surat operated for years under the assumption that profitability can be increased by
increasing Rupee volume. But that has not been the case. Cost analysis has revealed the
following:
Activity Activity Cost Activity Driver Activity Capacity
(`)
Providing ATM Service 1,00,000 No. of Transactions 2,00,000
Computer Processing 10,00,000 No. of Transactions 25,00,000
Issuing Statements 8,00,000 No. of Statements 5,00,000
Customer Inquiries 3,60,000 Telephone Minutes 6,00,000
The following annual information on three products was also made available:
Activity Driver Checking Personal Loans Gold Visa
Accounts
Units of Product 30,000 5,000 10,000
ATM Transactions 1,80,000 0 20,000
Computer Transactions 20,00,000 2,00,000 3,00,000
Number of Statements 3,00,000 50,000 1,50,000
Telephone Minutes 3,50,000 90,000 1,60,000

Required
(i) CALCULATE rates for each activity.
(ii) Using the rates computed in requirement (i), CALCULATE the cost of each product.
(4 × 5 = 20 Marks)
2. (a) A store keeper has prepared the below list of items kept in the store of the factory.
Item Units Unit cost (`)
A 12,000 30.00
B 18,000 3.00
C 6,000 35.00
D 750 220.00
E 3,800 75.00
F 400 105.00
G 600 300.00
H 300 350.00
I 3,000 250.00
J 20,000 7.50
K 11,500 27.50
L 2,100 75.00
The store keeper requires your help to classify the items for prioritization. You are required to
APPLY ABC analysis to classify the store items as follows:
Store items which constitutes approx 70%, 20% and 10% of total value as A, B and C
respectively. (10 Marks)

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(b) SK Ltd. engaged in the manufacture of tyres. Analysis of income statement indicated a profit of
`150 lakhs on a sales volume of 50,000 units. The fixed cost is ` 850 lakhs which appears to be
high. Existing selling price is ` 3,400 per unit. The company is considering to revise the profit
target to ` 350 lakhs. You are required to COMPUTE –
(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 15% 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 8% in the variable costs and ` 85 lakhs in the fixed cost is
envisaged. (10 Marks)
3 (a) R Limited is presently operating at 50% capacity and producing 60,000 units. The entire output is
sold at a price of ` 200 per unit. The cost structure at the 50% level of activity is as under:
`
Direct Material 75 per unit
Direct Wages 25 per unit
Variable Overheads 25 per unit
Direct Expenses 15 per unit
Factory Expenses (25% fixed) 20 per unit
Selling and Distribution Exp. (80% variable) 10 per unit
Office and Administrative Exp. (100% fixed) 5 per unit
The company anticipates that the variable costs will go up by 10% and fixed costs will go up by 15%.
You are required to PREPARE an Expense budget, on the basis of marginal cost for the
company at 50% and 60% level of activity and COMPUTE profits at respective levels. (10 Marks)
(b) 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:
 Depreciation 10% per annum on original cost of the machine. Original cost of the each
machine is ` 52,000.
 Maintenance and repairs per week per machine is ` 60.
 Consumable stores per week per machine are ` 75.
 Power : 20 units per hour per machine at the rate of 80 paise per unit.
 Apportionment to the cost centre : Rent per annum ` 5,400, Heat and Light per annum
`9,720, foreman’s salary per annum `12,960 and other miscellaneous expenditure per
annum ` 18,000.
Required:
(i) CALCULATE the cost of running one machine for a four-week period.
(ii) CALCULATE machine hour rate. (10 Marks)

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4. (a) Following information have been extracted from the cost records of XYZ Pvt. Ltd.
Stores: (`)
Opening balance 1,08,000
Purchases 5,76,000
Transfer from WIP 2,88,000
Issue to WIP 5,76,000
Issue for repairs 72,000
Deficiency found in stock 21,600

Work-in-process: (`)
Opening balance 2,16,000
Direct wages applied 2,16,000
Overheads charged 8,64,000
Closing balance 1,44,000

Finished Production: (`)

Entire production is sold at a profit of 15% on cost of WIP
Wages paid 2,52,000
Overheads incurred 9,00,000
PREPARE Stores Ledger Control Account, Work-in-Process Control Account, Overheads Control
Account and Costing Profit and Loss Account. (10 Marks)
(b) SV chemicals Limited processes 9,00,000 kgs. of raw material in a month purchased at ` 95 per
kg in department X. The input output ratio of department X is 100 : 90. Processing of the
material results in two joint products being produced ‘P 1’ and ‘P2’ in the ratio of 60 : 40. Product
‘P1’ can be sold at split off stage or can be further processed in department Y and sold as a new
product ‘YP 1’. The input output ratio of department Y is 100 : 95. Department Y is utilized only
for further processing of product ‘P 1’ to product ‘YP 1’. Individual departmental expenses are as
follows:
Dept. X (` lakhs) Dept. Y (` lakhs)
Direct Materials 95.00 14.00
Direct Wages 80.00 27.00
Variable Overheads 100.00 35.00
Fixed Overheads 75.00 52.00
Total 350.00 128.00
Further, selling expenses to be incurred on three products are:
Particulars Amount (` in lakhs)
Product ‘P1’ 28.38
Product ‘P2’ 25.00
Product ‘YP1’ 19.00
Selling price of the products ‘P 1’ and ‘P2’ at split off point is ` 110 per kg and ` 325 per kg
respectively. Selling price of new product ‘YP 1’ is ` 150 per kg.

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You are required to:

(i) PREPARE a statement showing apportionment of joint costs, in the ratio of value of sales,
net of selling expenses.
(ii) PREPARE a Statement showing profitability at split off point.
(iii) PREPARE a Statement of profitability of ‘YP 1’.
(iv) DETERMINE that would you recommend further processing of P1? (10 Marks)
5. (a) The standard labour component and the actual labour component engaged in a week for a job
are as follows:
Skilled Semi-skilled Un-Skilled
Workers Workers workers
Standard number of workers in the gang 32 12 6
Standard wage rate per hour (`) 30 20 10
Actual number of workers employed in the gang 28 18 4
during the week
Actual wages rate per hour (`) 34 23 12
During the 40 hours working week the gang produced 1,800 standard labour hours of work.
CALCULATE:
(i) Total labour cost variance;
(ii) Labour yield variance;
(iii) Labour mix variance; and
(iv) Labour wage rate variance. (10 Marks)
(b) ‘RP’ Resorts (P) Ltd. offers three types of rooms to its guests, viz deluxe room, super deluxe
room and luxury suite. You are required to COMPUTE 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
Lighting, Heating and Power 300.00
Repairs, Maintenance and Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior decoration 75.00
Sundries 30.28

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An attendant for each room was provided when the room was occupied and he was paid ` 500
per day towards wages. Further, depreciation is to be provided on building @ 5% on ` 900
lakhs, furniture and fixtures @ 10% on ` 90 lakhs and air conditioners @ 10% on ` 75 lakhs.
Profit is to be provided @ 25% on total taking and assume 360 days in a year. (10 Marks)
6. (a) DISCUSS cost classification based on variability.
(b) EXPLAIN Single and Multiple Overhead Rates.
(c) DISCUSS the four different methods of costing alongwith their applicability to concerned
industry?
(d) STATE how Economic Batch Quantity is determined? (4 × 5 = 20 Marks)

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