Downloaded From www.castudynotes.

com

Test Series: March 2023

MOCK TEST PAPER – 1
INTERMEDIATE: GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS/HINTS

2AO
1. (a) (i) Calculation of Economic Order Quantity (EOQ) =
C
2 x14,400 units x `212
= = 233 units
`450 x 25%
(ii) Evaluation of Profitability of Different Options of Order Quantity
(A) When EOQ is ordered (`)
Purchase Cost (14,400 units x Rs. 450) 64,80,000
Ordering Cost [(14,400 units/233 units) x Rs. 212] 13,102
Carrying Cost (233 units x 1/2 x 450 x 25%) 13,106
Total Cost 65,06,208
(B) When Quantity Discount of 8% is accepted
(`)
Purchase Cost (14,400 units x Rs. 414) 59,61,600
Ordering Cost [(14,400 units/5,000 units) x Rs212] 611
Carrying Cost (5,000 units x 1/2 x Rs.414 x 25%) 2,58,750
Total Cost 62,20,961
Advise – The total cost of inventory is lower if quantity discount is accepted.
The company would save Rs. 2,85,247 (Rs. 65,06,208 - Rs. 62,20,961).
Note: Figures may change slightly because of approximation and decimals)
Stardard hour (for actual production)
(b) (i) Efficiency Ratio = x 100
Actual hour works
1,20,000 units x12 hrs
= x 100 = 120%
12,00,000 hrs
Stardard Hour (for actual production)
(ii) Activity Ratio = x 100
Budgeted Hours
14,40,000
= x 100 = = 83.34%
1,44,000 units x12 hours
Actual Hours (worked)
(iii) Capacity Ratio = x100
Budgeted Hours
12,00,000 hrs
= x 100 = 69.45%
1,44,000 units x12 hours

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
(c) Statement of cost per batch and per order
No. of batch = 800 units ÷ 40 units = 20 batches
Particulars Cost per batch (`) Total Cost (`)
Direct Material Cost 600 12,000
Direct Wages 55 1100
Oven set-up cost 175 3500
Add: Production Overheads (25% of Direct 13.75 275
wages)
Total Production cost 843.75 16875
Add: S&D and Administration overheads 126.56 2531.25
Total Cost 970.31 19406.25
Add: Profit (25% of total cost) 242.58 4851.56
Selling price 1,212.89 24,257.81
Selling Price per unit = 1,212.89÷40[0r 30.32 30.32
24,257.81÷800]
(d) (i) Calculation of total cost for ‘Professionals Protection Plus’ policy
Particulars Amount (`) Amount (`)
1 Marketing and Sales support:
- Policy development cost 18,56,250
- Cost of marketing 74,58,000
- Sales support expenses 18,89,250 1,12,03,500
2 Operations:
- Policy issuance cost 16,59,735
- Policy servicing cost 58,09,155
- Claims management cost 2,07,240 76,76,130
3 IT Cost 1,22,62,800
4 Support functions
- Postage and logistics 16,91,250
- Facilities cost 25,14,600
- Employees cost 9,24,000
- Office administration cost 26,73,660 78,03,510
Total Cost 3,89,45,940
Total cost 3,89,45,940
(ii) Calculation of cost per policy =
Number of policies 844
= ` 46,144.48
Total cost 3,89,45,940
(iii) Cost per rupee of insured value =
Total insured value 1,640 crore
= ` 0.0024

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
2. (a) (i) Computation of the value of materials purchased
To find out the value of materials purchased, reverse calculations from the given data can be
presented as below:
Particulars (`)
Cost of goods sold 75,000
Add: Closing stock of finished goods 27,550
Less: Opening stock of finished goods (25,520)
Cost of production 77,030
Add: Closing stock of work-in-progress 21,025
Less: Opening stock of work-in-progress (15,225)
Works cost 82,830
Less: Factory overheads: (16,667)
[`25,000×100/150]
Prime cost 66,163
Less: Direct labour (25,000)
Raw material consumed 41,163
Add: Closing stock of raw materials 15,370
Raw materials available 56,533
Less: Opening stock of raw materials (11,600)
Value of materials purchased 44,933
(ii) Cost statement
(`)
Raw material consumed [Refer to statement (i) above] 41,163
Add: Direct labour cost 25,000
Prime cost 66,163
Add: Factory overheads 16,667
Works cost 82,830
Add: Opening work-in-progress 15,225
Less: Closing work-in-progress (21,025)
Cost of production 77,030
Add: Opening stock of finished goods 25,520
Less: Closing stock of finished goods (27,550)
Cost of goods sold 75,000
Add: General and administration expenses 4,375
Add: Selling expenses 6,125
Cost of sales 85,500
Profit (sales i.e `1,05,250 – Cost of sales i.e ` 85,500) 19,750
Sales 1,05,250

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
(b)
(i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
Or `5,500 = (SQ × SP) – `98,000
Or (SQ × SP) = `1,03,500
Or (SQA × SPA) + (SQB × SPB) = ` 1,03,500
Or (1,503.8 kg × SPA) + (1,127.8 kg ×`50) = ` 1,03,500
Or (1,503.8 kg × SPA) + `56,390 = `1,03,500
Or (1,503.8 kg × SPA) = ` 47,110
Or SPA 47,110
=
1503.80 kg
= `31.33
(ii) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)}
Or `300 = (AQ × SP) – ` 98,000
Or (AQ × SP) = ` 98,300
Or (AQA × SPA) + (AQB × SPB) = `98,300
Or (1,500 kg × `31.33 (from (i) above)) + AQB x `50 = `98,300
Or ` 46,995 + (AQB × ` 50) = ` 98,300
Or (AQB × ` 50) = ` 51,305
Or AQB = 1,026kg
Actual Quantity of Material B = 1,026 kg.
(iii) (AQ × AP) = `98,000
Or (AQA × APA) + (AQB × APB) = ` 98,000
Or (1,500 kg × APA) + (1,026 kg (from (ii) above) × `53) = ` 98,000
Or (1,500 kg × APA) + ` 54,378 = ` 98,000
Or (1,500 kg APA) = ` 43,622
43,622
Or APA = = ` 29.10
1,500
Actual Price of Material A = ` 29.10
(iv) Total Actual Quantity of Material-A and Material-B = AQA + AQB
Or 1,500 kg + 1,026 kg (from (ii) above) = 2,526 kg
1320 kg
Revised SQA = x 2,526 kg = 1,443 kg
(1,320 + 990)
990 kg
Revised SQB = x 2,526 kg = 1,083 kg
(1,320 + 990)
(v) Material Mix Variance (A + B) ={(RSQ × SP) – (AQ × SP)}
= {(RSQA × SPA) + (RSQB × SPB) – `98,300} = (1,443 kg (from (iv) above) × ` 31.33 (from
(i) above)) + (1,083 kg (from (iv) above) × `50) - `98,300
= (`45,209 + `54,150) – `98,300 = ` 1059 (F)

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
3. (a) Expense Budget of SoyaB Ltd. for the period
50,000 units 75,000 units 1,00,000 units
Per unit
(`) Amount (`) Amount (`) Amount (`)

Sales (A) 180 90,00,000 1,35,00,000 1,80,00,000

Less: Variable Costs:
- Direct Material 72 36,00,000 54,00,000 72,00,000
- Direct Wages 24 12,00,000 18,00,000 24,00,000
- Variable Overheads 24 12,00,000 18,00,000 24,00,000
- Direct Expenses 14.4 7,20,000 10,80,000 14,40,000
- Variable factory expenses
13.44 6,72,000 10,08,000 13,44,000
(70% of Rs 16 p.u.)x 120%
- Variable Selling & Dist. exp.
10.2 5,10,000 7,65,000 10,20,000
(85% of Rs 10 p.u.)x120%
Total Variable Cost (B) 158.04 79,02,000 1,18,53,000 1,58,04,000
Contribution (C) = (A – B) 21.96 10,98,000 16,47,000 21,96,000
Less: Fixed Costs:
- Office and Admin. exp.
-- 3,30,000 3,30,000 3,30,000
(100%)
- Fixed factory exp. (30%) -- 2,64,000 2,64,000 2,64,000
- Fixed Selling & Dist. exp.
-- 82,500 82,500 82,500
(15%)
Total Fixed Costs (D) -- 6,76,500 6,76,500 6,76,500
Profit (C – D) -- 4,21,500 9,70,500 15,19,500
(b) Income Statement
LNP Ltd. (`) MNT Ltd. (`)
Sales (Rs.) 13,60,000 17,00,000
Less: Variable Cost 10,88,000 10,20,000
Contribution 2,72,000 6,80,000
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛
P.V. Ratio ( 𝑆𝑎𝑙𝑒𝑠 × 100)
20% 40%

Fixed Cost (`) 1,72,000 5,80,000

Profit (`) 1,00,000 1,00,000
Fixed Cost
(i) Break-Even Point =
P. V. Ratio
` 1,72,000
LNP Ltd. = = = ` 8,60,000
20%
` 5,80,000
MNT Ltd. = = = ` 14,50,000
40%

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
(ii) Sales value to earn a profit of ` 5,00,000
Fixed Cost + Desired Profit
Sales =
P. V. Ratio
1,72,000 + 5,00,000
LNP Ltd. = = ` 33,60,000
40%
5,80,000 + 5,00,000
MNT Ltd. = = ` 27,00,000
40%
(iii) Sales value at which both companies will earn same profit
Let S = Sales value and P = Profit
Sales – Variable cost = Fixed cost + Profit
or, Contribution = Fixed cost + Profit
LNP Ltd.:
20% S = `1,72,000 + P
or, 0.20S = ` 1,72,000 + P …………………………………….(i)
MNT Ltd.
40% S = `5,80,000 + P
or, 0.40S = ` 5,80,000 + P …………………………………(ii)
By solving these equations, we will get the value of ‘S’ and ‘P’
0.20S = 1,72,000 + P
0.40S = 5,80,000 + P
- - -
- 0.20S = -4,08,000
or, S = ` 20,40,000
Putting the value of ‘S’ in equation no. (i) we will get the value of ‘P’
0.20 × 20,40,000 = 1,72,000 + P
or, P = `2,36,000
Therefore, at Sale value of `20,40,000 both the companies will earn same profit of ` 2,36,000
4. (a) Process X Account
Particulars Tones Amount Particulars Tones Amount
(`) (`)
To Materials 1,500 32,250 By Weight Loss 30 ---
To Wages 5,000 By Scrap 60 180
To Direct Expenses 3,820 By Process Y 846 24,534
By Warehouse 564 16,356
Total 1,500 41,070 Total 1,500 41,070
Cost per Ton = (41,070 - 180)/(1,500-30-60) = ` 29 per ton

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
Process Y account
Amount Amount
Particulars Tones Particulars Tones
(`) (`)
To Process X 846 24,534 By Weight Loss 26 ---
To Materials 454 6,356 By Scrap 52 260
To Wages 3,260 By Process Z 611 18,332.5
To Direct Expenses 2,775 By Warehouse 611 18,332.5
Total 1300 36,925 Total 1300 36,925
Cost per Ton = (36,925-260)/(1,300-26-52)= `30 per ton

Process Z Accounts
Amount
Particulars Tones Particulars Tones Amount (`)
(`)
To Process Y 611 18332.5 By Weight Loss 16 ---
To Materials 189 2,268 By Scrap 32 224
To Wages 2,540 By Warehouse 752 24,817
To Direct Expenses 1,900
Total 800 25,041 Total 800 25041
Cost per Ton = (25,041-224)/(800-16-32) = ` 33 per ton

(b) Contract Account

Particulars Amount Amount Particulars Amount Amount
(`) (`) (`) (`)
To Materials 27,78,600 By material at site 40,000
To Direct wages 14,60,800 By Work in progress:
Add: outstanding 2,21,200 16,82,000 - Work certified 80,00,000
To Site expenses 10,56,000 - Work uncertified 9,60,000 89,60,000
To Office expenses 6,88,600
To Postage and 32,560
Stationery
To Rates and taxes 28,160
Less: Advance (1,540) 26,620
To Fuel and power 9,30,600
To Depreciation* 10,06,600
To Notional profit c/d 7,98,420
90,00,000 90,00,000
* Depreciation
(i) On Machinery = {10% on (`39,60,000 × 0.85)} = ` 3,36,600
(ii) On Vehicles = 15% on `40,00,000 = ` 6,00,000
7

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
(iii) On Furniture = 10% on `7,00,000 = ` 70,000
Total = ` 9,86,800
5. (a) (i) Traditional Absorption Costing
Zm Rm Pm Total
(a) Quantity (units) 6,000 7,200 9,840 23,040
(b) Direct labour per unit (`) 80 150 200 -
(c) Direct labour hours (a × b)/` 40 12,000 27,000 49,200 88,200
Overhead rate per direct labour hour = Budgeted overheads / Budgeted labour hours
= (`2,50,000 + `1,50,000 + ` 1,00,000 + `3,00,000) / 88,200 hours
= `8,00,000 / 88,200 hours
= `9 per direct labour hour(approx.)
Calculation of Cost per Unit
Zm Rm Pm
Direct Costs:
Direct Material 450 420 880
Direct Labour (`) 80 150 200
Production Overhead: (`) 18 33.75 45
(80× 9/40) (150× 9/40) (200× 9/40)
Total cost per unit (`) 548 603.75 1125
(ii) Calculation of Cost-Driver level under Activity Based Costing
Zm Rm Pm Total
Quantity (units) 6,000 7,200 9,840 -
No. of orders (to be 200 240 328
768
rounded off for fraction) (6,000 / 30) (7,200 / 30) (9,840 / 30)
120 144 197
No. of production runs 461
(6,000 / 50) (7,200 / 50) (9,840 / 50)
No. of Inspections (done
120 144 197 461
for each production run)
Maintenance hours 4,000 2,000 4,000 10,000
Calculation of Cost-Driver rate
Budgeted Cost (`) Cost-driver level Cost Driver rate (`)
Activity
(a) (b) (c) = (a) / (b)
Material procurement 2,50,000 768 325.5
Set-up 1,50,000 461 325.5
Quality control 1,00,000 461 217.0
Maintenance 3,00,000 10,000 30.0

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com
Calculation of total cost of products using Activity Based Costing
Particulars Product
Zm (`) Rm (`) Pm (`)
Direct Material 450 420 880
Direct Labour 80 150 200
Prime Cost per unit (A) 530 570 1080
Material procurement 10.85 10.85 10.85
(325.5×200/6000) (325.5×240/7200) (325.5×328/9840)
Set-up 6.51 6.51 6.51
(325.5×120/6000) (325.5×144/7200) (325.5×196.8/9840)
Quality control 4.34 4.34 4.34
(217×120/6000) (217×144/7200) (217×196.8/9840)
Maintenance 20.0 8.3 12.2
(4000×30/6000) (2000×30/7200) (4000×30/9840)
Overhead Cost per unit (B) 41.7 30.0 33.9
Total Cost per unit (A + B) 571.7 600.0 1113.9
(b) (i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z
(By using Net Realisable Value Method)
Products Total
T U V
(`) (`) (`) (`)
Final sales value of 1,14,00,000 1,40,00,000 2,03,12,500 4,57,12,500
total production (1,900 × ` 6,000) (2,800 × `5,000) (3,125 × `6,500)
(Working Note 1)
Less: Additional cost -- -- (9,00,000) (9,00,000)
Net realisable value 1,14,00,000 1,40,00,000 1,94,12,500 4,48,12,500
(at split-off point)
Joint cost allocated 15,89,958 19,52,580 27,07,462 62,50,000
(Working Note 2)
Cost of goods sold as on March 31, 2022
(By using Net Realisable Value Method)
Products Total
T U V
(`) (`) (`) (`)
Allocated joint cost 15,89,958 19,52,580 27,07,462 62,50,000
Additional costs -- -- 9,00,000 9,00,000
Cost of goods 15,89,958 19,52,580 36,07,462 71,50,000
available for sale
(CGAS)
Less: Cost of ending 7,53,138 2,09,205 1,44,298 11,06,642
inventory
9

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com

(Working Note 1) (CGAS×47.37%) (CGAS × 10.71%) (CGAS × 4%)

Cost of goods sold 8,36,820 17,43,375 34,63,163 60,43,358
Working Note:
1. Total production of three products for the year 2021-2022
Products Quantity Quantity of ending Total Ending inventory
sold in tones inventory in tons production percentage (%)
1 2 3 (4) = [(2) + (3)} (5) = (3)/ (4)
T 1000 900 1900 47.37
U 2500 300 2800 10.71
V 3000 125 3125 4.00
2. Joint cost apportioned to each product:
Total Joint cost
× Net Realisable Value of each product
Total Net RealisableValue
62,50,000
Total cost of Product T = ×1,14,00,000 = 15,89,958
4,48,12,500
62,50,000
Total cost of Product U = × 1,40,00,000 = 19,52,580
4,48,12,500
62,50,000
Total cost of Product V = × 1,94,12,500 = 27,07,462
4,48,12,500
6. (a) The advantages of zero-based budgeting are as follows:
• It provides a systematic approach for the evaluation of different activities and ranks them in
order of preference for the allocation of scarce resources.
• It ensures that the various functions undertaken by the organization are critical for the
achievement of its objectives and are being performed in the best possible way.
• It provides an opportunity to the management to allocate resources for various activities only
after having a thorough cost-benefit-analysis. The chances of arbitrary cuts and enhancement
are thus avoided.
• The areas of wasteful expenditure can be easily identified and eliminated.
• Departmental budgets are closely linked with corporation objectives.
• The technique can also be used for the introduction and implementation of the system of
‘management by objective.’ Thus, it cannot only be used for fulfillment of the objectives of
traditional budgeting but it can also be used for a variety of other purposes.
(b) Difference between Cost Accounting and Management Accounting
Basis Cost Accounting Management Accounting
(i) Nature It records the quantitative It records both qualitative and
aspect only. quantitative aspect.
(ii) Objective It records the cost of producing a It Provides information to
product and providing a service. management for planning and co-
ordination.
(iii) Area It only deals with cost It is wider in scope as it includes
Ascertainment. financial accounting, budgeting,
taxation, planning etc.
10

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India
 Downloaded From www.castudynotes.com

(iv) Recording of data It uses both past and present It is focused with the projection of
figures. figures for future.
(v) Development Its development is related to It develops in accordance to the
industrial revolution. need of modern business world.
(vi) Rules and It follows certain principles and It does not follow any specific
Regulation procedures for recording costs rules and regulations.
of different products.
(c) In integrated accounting system cost and financial accounts are kept in the same set of books.
Such a system will have to afford full information required for Costing as well as for Financial
Accounts. In other words, information and data should be recorded in such a way so as to enable
the firm to ascertain the cost (together with the necessary analysis) of each product, job, process,
operation or any other identifiable activity. It also ensures the ascertainment of marginal cost,
variances, abnormal losses and gains. In fact all information that management requires from a
system of Costing for doing its work properly is made available. The integrated accounts give full
information in such a manner so that the profit and loss account and the balance sheet c an be
prepared according to the requirements of law and the management maintains full control over the
liabilities and assets of its business.
Since, only one set of books are kept for both cost accounting and financial accounting purpose so
there is no necessity of reconciliation of cost and financial accounts.
(d) Cost units are usually the units of physical measurement like number, weight, area, volume, length,
time and value.
Industry or Product Cost Unit Basis
Automobile Number
Steel Ton
Cement Ton/ per bag etc.
Chemicals Litre, gallon, kilogram, ton etc.
Power Kilo-watt hour (kWh)
Transport Passenger- kilometer
(e)
Bin Card Stores Ledger
It is maintained by the storekeeper in the It is maintained in cost accounting
store. department.
It contains only quantitative details of It contains information both in quantity and
material received, issued and returned to value.
stores.
Entries are made when transaction takes It is always posted after the transaction.
place.
Each transaction is individually posted. Transactions may be summarized and then
posted.
Inter-department transfers do not appear Material transfers from one job to another
in Bin Card. job are recorded for costing purposes.

11

Join Us on Telegram http://t.me/canotes_ipcc

© The Institute of Chartered Accountants of India