CMA Inter Management Accounting Importent Questions
CMA Inter Management Accounting Importent Questions
1. ABC Company manufactures three products: A, B, and C. Data for the period just ended is
as follows:
A B C
2. Kalyani Manufacturing Company has three salaried accounts payable clerks responsible for
processing purchase invoices. Each clerk is paid a salary of `30,000 and is capable of
processing 5,000 invoices per year (working efficiently). In addition to the salaries, Kalyani
spends`9,000 per year for forms, postage, checks, a nd so on (assuming 15,000 invoices are
processed). During the year, 12,500 invoices were processed
Required
• Calculate the activity rate for the purchase order activity. Break the activity into fixed
and variable components.
• Compute the total activity avail ability, and break this into activity usage and unused
activity.
• Calculate the total cost of resources supplied, and break this into activity usage and
unused activity
3. “The basic idea justifying the use of Activity -Based Costing (ABC) and Activity -Based
Budget- ing (ABB) are well publicized, and the number of applications has increased.
However, there are apparently still significant problems in changing from existing systems” –
in reference to the context, provide explanation as to
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1. Which characteristics of an organization, such as its structure, product range, or
environment, may make the use of activity based techniques particularly useful.
2. The problems that may cause an organization to decide not to use, or to abandon the
use of, activity based techniq ues
4. A Drug Store of MONSL Ltd. is presently selling three types of drugs namely ‘Drug S’, ‘
Drug T’ and “Drug Z’. It has provided the following data for year 2022 -23 for each product
line:
Drugs Type
S T Z
You are required to calculate the operating income and operating income as a percentage (%)
of revenue for each product line if:
1. All the support costs (other than cost of goods sold) are allocated in the ratio of cost of
goods sold.
2. All the support costs (other than cost of goods sold) are allocated using Activity Based
Costing System
5. ABC Ltd. uses activity based costing and accumulates overhead costs in the following cost
pools:
i. Human Resources
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ii. Parts management
iii. Purchasing
iv. Quality Control
v. Equipment set-up
vi. Training employees
vii. Assembly department
viii. Receiving department
You are to find out for each cost pool whether the cost pool would be unit -level, batch-level,
product-level or facility level
6. Your Cost Controller is not happy about the existing system of charging overheads to its
Prod- ucts, A and B. You have been newly appointed as a Management Accountant of the
company and you are asked to implement th e ABC Costing for allocation of overheads to the
Products. You have identified the following activities, budgeted costs, and activity
consumption cost drivers as follows:
Activity Budgeted Cost Activity Consumption Cost Driver
Engineering ` 1,25,000 Engineering hours
Setups 3,00,000 Number of setups
Machine operation 15,00,000 Machine-hours
Packing 75,000 Number of packing orders
Total ` 20,00,000
You have also gathered the following operating data pertaining to each of its products:
Particulars Product A Product B Total
Engineering hour 5,000 7,500 12,500
Number of setups 200 100 300
Machine hours 50,000 1,00,000 1,50,000
Number of packing orders 5,000 10,000 15,000
You are now required to provide with necessary calculations and relevant information, in the
form of a report to the Cost Controller about the allocation of overheads costs to the products
7. A manufacturing company has three accounts clerks responsible for processing purchase
invoices of suppliers. Each clerk is paid a salary of ₹1,50,000 per annum and is capable of
processing 5,000 purchase invoices per year. In addition to the salary, the company spends
₹45,000 per year for printing of forms, postage etc
(assuming that 15,000 purchase invoices are processed).
During the year, 12,500 purchase invoices were processed. You are required to:
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1. Calculate the activity rate for the purchase order activity. Break the activity rate into
fixed and variable components.
2. Calculate the total activity availability an d break this into activity usage and unused
activity.
3. Calculate the total cost of resources supplied and break this into activity usage and
unused activity
Calculate the total cost and operating income (Past paper DEC 23 SYLL 22)
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MARGINAL COSTING
1.The following data has been extracted from the cost records of CYTOGEN Inc. For a
particular period, the Sales revenue is ` 2,00,000 and the profit is ` 20,000. If it is known that
the variable Cost ratio is 60% you are required to calculate:
(i) the Contribution to Sales Ratio
(ii) the Fixed Cost and
(iii) the Sales volume to earn a profit of ` 50,000
3.A) Z plc currently sells products Aye, Bee and Cee in equal quantities and at the same
selling price per unit. The contribution to sales ratio for product Aye is 40 per cent; for
product Bee it is 50 per cent and the total is 48 per cent. If fixed costs are unaffected by mix
and are currently 20 per cent of sales. If the product mix is changed to: Aye 40% Bee 25% Cee
35%
Calculate the new total contribution/total sales ratio.
4.RONBANI Ltd., a manufacturing company, has prepared its budget to produce 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:
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(i) Present break-even sales (in quantity).
(ii) Revised break-even sales (in quantity), if it reduces its selling price by 10%.
5. M/s Ankita Plastics Limited provides you the da ta of the following products for the year
2022-23.
Particulars 1" PVC Pipe 1/2" PVC Pipe
Profit (`) 3,00,000 60,000
Unit Selling price (`) 200 150
P/V Ratio 40% 50%
Sales Mix = 2:1
Joint Fixed Cost = ` 8,15,000
M/s Ankita Plastics Limited expects that number of units to be sold in 2023 -24 would be same
as in 2022-23. However, due to upgradation in manufacturing process, the joint fixed cost
would be reduced by 10% and the variable cost would increase by 8%.
You are required to calculate the following:
A. Number of units of product 1” PVC Pipe and 1/2” PVC Pipe sold in 2022-23.
B. Total expected profit of the company from the two products in 2023-24.
6. A company is at present working at 90 per cent of its capacity and producing 13,500 units
per annum. It operates a flexible budgetary control system. The following figures are obtained
from its budget.
Particulars 90% 100%
Sales (₹) 15,00,000 16,00,000
Fixed expenses (₹) 3,00,500 3,00,600
Semi-fixed expenses (₹) 97,500 1,00,500
Variable expenses (₹) 1,45,000 1,49,500
Units made 13,500 15,000
Labour and material costs per unit are constant under present conditions. Profit
margin is 10 per cent
A. You are required to determine the differential cost of producing 1,500 units by
increasing capacity to 100%
B. What would you recommend for an export price for these 1,500 units taking into
account that overseas prices are much lower than indigenous prices?
7. ABC Limited has production capacity of 5,00,000 units per annum at its full capacity.
Company’s Cost structure is as under
Variable production cost per unit ₹ 32.00
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Variable selling expenses per unit ₹ 9.60
Fixed production cost per annum ₹ 30,00,000
Fixed selling expenses per annum ₹ 20,00,000
During the year ended 31st March, 2023, the company worked at 80 percent of its capacity. The
operating data for the year are as follows:
Production 4,00,000 Units
Sales ₹ 64 per Unit; 3,87,500
Units Opening stock of finished goods 50,000 Units
Fixed production expenses are absorbed on the basis of capacity and fixed selling expenses are
recovered on the basis of period
You are required to prepare statements of Cost and Profit for the year ending 31st March, 2023:
A. On the basis of marginal costing
B. On the basis of absorption costing
8. From the cost records of a company for a specific period, for product X, the information given in
the first column can be ignored since it is only one of the several projections of an assistant
accountant, but it may be useful to you
Particular This Period Actual (`) One of The Future Projections (`)
Sales (Units) 10,000 20,000
Profit (Loss) (10,000) 10,000
Fixed Costs 30,000 30,000
Variable Cost Per Unit 8 8
9. A Co. currently operating at 80% capacity has the following; profit ability
particulars:
An export order has been received that would utilise half the capacity of the factory. The order has
either to be taken in full and executed at 10% below the normal domestic prices, or rejected totally.
The alternatives available to the management are given below:
i) Reject order and Continue with the domestic sales only, as at present;
ii) Accept; order, split capacity equally between overseas and domestic sales and
turn away excess domestic demand;
iii) Increase capacity so as to accept the export order and maintain the present domestic sales by:
(A) buying an equipment that will increase capacity by 10% and fixed cost by ₹40,000 and
(B) Work overtime at one and a half the normal rate to meet balance of required
capacity.
Prepare comparative statements of profitability and suggest the best.
10. S Ltd. furnishes you the following information relating to the half year ended 30th
June, 2022
Fixed expenses ` 45,000
Sales value ` 1,50,000
Profit ` 30,000
During the second half the year the company has projected a loss of 710,000.
Calculate:
1. The B.E.P and M/S for six months ending 30th June, 2022.
2. Expected sales volume for the second half of the year assuming that the P/V
Ratio and Fixed expenses remain constant in the second half year also.
The B.E.P and M/S for the whole year for 2022
11. Reaxon Ltd. a manufacturing company provides you the following details for the
year 2023:
Sales (16,000 units) `16,00,000
Less Expenses (including ` 8,00,000 Fixed Expenses) `17,60,000
Net loss ` 1,60,000
The manager belie ves that an increase of `4,00,000 in advertising outlays will
increase sales substantially. His plan was approved by the chairman of the board.
Required:
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(i) Calculate P/V Ratio and Break Even Sales.
(ii) Calculate what additional sales will be required to offset that increase in
advertisement outlays.
Determine what should be selling price per unit if the breakeven point is brought down to
20,000 units? (MTP JUNE 24)
12.a) The cost volume -profit relationship of A ltd is described by the equatio n Y =Rs
240000+0.6 x , in which x represents sales revenue and Y is the total cost (FC+VC) at
the sales revenue / Volume represented by X
Required :-
i. Identify this P/V ratio
ii. What sales volume must be obtained to break even for the company?
iii. Analyse sales volume to be required to produce an income of Rs 100000
b) FOVA LTD a manufacturing company sells 24000 flower vases every year .The
details of cost for the year ended 31 s t march 2022 is given below : -
Selling price per flower vase Rs 800
Variable cost per flower vase Rs 600
Fixed cost : - staff salaries Rs 2400000
General office cost Rs 800000
Advertising cost Rs 800000
Required :-
i. Assess the break even point and margin of safety in no.of units of sales
ii. The company has gained reputation and in the year 2023 no advertising cost
will have to be incurred if the company so decid es .The selling price will
remain unaltered.The variable cost will have to increase by 10% to make the
flower vases more attractive.Consider the new BEP AND MARGIN OF
SAFETY
Justify your answer (PAST PAPER DEC 23 SYLL 2016)
13. AGT Ltd. manufactures a product, currently utilising 50% capacity with a
turnover of 18,00,000 at 100 per unit and its P/V Ratio is 40%. The cost data is as
under:
Particulars RS
Direct Material per unit 30
Direct Wages per unit 20
Variable Overheads per unit 8
Semi-Variable Overheads (which will increase by 22,800 for every 18% increase in
capacity or any part thereof) 96000
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Fixed Overheads 240000
Required :-
(i) Calculate the To tal Fixed Cost at 50% capacity level
(ii) Calculate the Number of units to be sold to earn a profit of 28 per unit
(iii) Calculate the Selling Price per unit to earn a profit of 25% on capital employed
at the 80% activity level. The fixed portion of capita l employed is 53,85,600 and the
Working Capital portion is 20% of Sales. (DEC 2022 PAST PAPER 2016)
14. Calculate Break-Even-Point for a train journey between Delhi and Jaipur where
the cost of an Engine is 80,000 and of a Bogie is 16,000 . The capacity of a bogie is 70
passengers and each ticket is priced at 600. The variable cost per ticket is 100
(DEC 2022 PAST PAPER 2016)
15.GYC LTD provides you with the followi ng information :-
Year 1 Year 2
Loss Rs 40000 Cost 1140000
Cost 108% of sales Profit 24% of sales
During the next year III, the Selling Price and Variable Cost are expected to be
reduced by 20% and 33 -1/3% respectively and Fixed Costs are expected to increase by
25%.
Required: Estimate the Sales so as to earn a return of 30% on Capital Employed.
Working Capital is 25% of Sales and 20% of Capital Employed (June 23
pp 2016)
16. Kaloo Ltd. manufactures three products X, Y and Z. The u nit selling price of these
products are Z 50, Z 30 and Z 20 respectively. The corresponding Variable Cost to
Sales Ratio is 20%, 30% and 50%. The total fixed costs are Z 59,83,000.
Required: (i) Calculate the Overall PN Ratio if the proportion (Quantity w ise) in
which these products are manufactured and sold are 20%, 30% and 50% respectively.
(ii) Calculate Overall Contribution per unit if the proportion (value -wise) in which
these products are manufactured and sold are 20%, 30% and 50% respectively.
(June 23 pp 2016)
17. The following data relates to a manufacturing company:
Plant Capacity = 4,00,000 units per annum. Present Utilization = 40% Actual for the
year 2014 were:
Selling price = 50 per unit, Material cost = 20 per unit,
Variable Manufacturing costs = 15 per unit and Fixed cost = 27,00,000.
\ In order to improve capacity utilization, the following proposal is considered:
Reduce Selling price b y 10% and spend additionally 3,00,000 in Sales Promotion.
How many units should be produced and sold in order to increase profit by 8,00,000
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per year? (DEC 2023 PP 2016)
18. M/s BLl3 Industries provided you the following 31 -03-2023; information for the
year ended
Particulars Amount (In `)
Sales 40,000
Raw Material Cot 20,000
Direct Wages 6,000
Fixed & Variable Overhead 10,000
Profit 4,000
Units Sold 200 units
In the next financial year M/s BLB Industries expects the following:
(1) Wage rate will increase by 50%.
(ii) Fixed Cost will decrease by 1,000.
(iii) No, of units to be sold in the next year is 300 units.
(iv) Total Fixed & Variab le overhead in the next financial year will be 12,000.
How many units are required to be sold in the next year so that same amount of profit
per unit as in 2023 can be achieved? (DEC 23 PP 22)
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Applications of Marginal Costing in Short Term Decision Making
1. As a Management Accountant of Bush Radio Company you find that while it costs
` 12.50 to make a component X, the same is available in the market at ` 11.50 with an
1. Analyse the above situation and submit the needful cost related information to
enable the management to take a make or buy decision
2. Examine the possibility of accepting an offer of ` 9.70 each per unit received
from the supplier
2. M/s Visual Infotech Pvt. Limited is a multiple product manufacturer. One product
line consists of CCT V Camera and the company manufactures three different models.
M/s Visual Infotech Pvt. Limited is currently considering a proposal from a supplier
who want to supply lenses of the CCTV Camera to M/s Visual Infotech Pvt. Limited.
M/s Visual Infotech Pvt. Limited currently produces all the lenses it requires. In order
to meet customers’ needs , M/s Visual Infotech Pvt. Limited produces three different
types of lenses for each CCTV Camera model (i.e. nine different lenses).
The supplier would charge ¥ 2,500 per lens, regardless of type of lens. For the next
year, M/s Visual Infotech Pvt. Limited has projected the cost of its own production of
lenses as follows (based on projected volume of 10,000 units):
Particulars Amount (`)
Direct Material 75,00,000
Direct Labour 65,00,000
Variable Overhead 55,00,000
Fixed Overhead:
Factory Supervisors’ Cost 35,00,000
Other Fixed Cost 65,00,000
Total Production Cost 2,95,00,000
Additional information:
1. The equipment utilized to produce the lenses has no alternative use and no
market value.
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2. The space occupied by the lens production unit will remain idle if the company
purchases the lenses from outside market rather than produce in -house
3. Factory supervision cost is for salary of a Quality Manager & Production
Supervisor who would be dismissed from the company if the company closes its
lens production unit
Required:
(i) Determine the net profit or loss of purchasing (rather than manufacturing) the
lenses required for CCTV Camera.
(ii) Determine the level of production where the company would be indifferent between
buying and producing the lenses. If the future volume level is predicted to decrease,
would that influence your decision?
(iii) What would be your decision if the space presently occupied by lens production
unit could be leased to another company at a lease rent of % 25,00,000 per annum?
3. A company is engaged in three distinct lines of production. Their production cost per
unit and selling prices are as under
X Y Z
Production (Units) 3,000 2,000 5,000
` ` `
Material Cost 18 26 30
Wages 7 9 10
Variable overheads 2 3 3
Fixed Overheads 5 8 9
32 46 52
Selling price 40 60 61
Profit 8 14 9
.
The management wants to discontinue one line and gives you the assurance that production in two
other lines shall be raised by 50%.
They intend to discontinue the line which produces Article X as it is less profitable
4. A Company is manufacturing a product marks an average net profit of ₹ 2.50 per piece on a
selling price of ₹ 14.30 by producing and selling 6,000 pieces or 60% of the capacity. His cost
of sales is as under
Particulars `
Direct material 3.50
Direct wages 1.25
Works overheads (50% fixed) 6.25
Sales overheads (25% variable) 0.80
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During the current year, he intends to produce the same number but anticipates that
fixed charges will go up by 10%, with direct labour rate and material will increase by
8% and 6% respectively but he has no option of increasing the selling price. Under this
situation, he obtains an offer for further 20% of the capacity
What minimum price you will recommend for acceptance to ensure the manufacturer an
overall profit of ₹ 16,730
5. A review, made by the top management of Sweet and Struggle Ltd. which makes only
one product, of the result of two first quarters of the year revealed the following
The finance Manager who feels perturbed suggests that the company should at least
breakeven in the second quarter with a drive for increased sales. Towards this the
company should introduce a better packing which will increase the cost by ` 0.50 per
unit.
The Sales Manager has an alternate proposal. For the second quarter additional sales
promotion expenses can be increased to the extent of ` 5,000 and a profit; of ` 5,000
can be aimed at for the period with increased sales.
The production manager feels otherwise. To improve the demand the selling price per
unit has to be reduced by 3%. As a result the sales volume can be increased to attain a
profit level of ` 4,000 for the quarter.
The Managing Director asks for as a cost Ac countant to evaluate these three proposals
and calculate the additional units required to reach their respective targets help him to
make a decision.
6. XYZ Co. purchases 40,000 glass cases per annum from an outside supplier at ` 5
each. The production ma nager feels that these should be manufactured and not
purchased. A machine costing ` 1,00,000 (no salvage value) will be required to
manufacture the item within the factory. The machine has an annual capacity of 60,000
units and life of 5 years. The costs required for manufacture of each glass case is as
follows: (MTP JUNE 24)
Direct Materials ` 2.00 Direct Labour ` 1.00
Variable overheads 100% of Labour Cost
You are required to solve and decide:
1. should the company continue to purchase the glass cases from outside supplier
or should it make them in the factory?
2. should the company accept an order to supply 10000 glass cases to the market at
a selling price of ` 4.50 per unit?
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7. Susma Products Co. Ltd. manufactured and sold in a year 15,000 units of a particular
product fetching a sales value of ₹15 lakhs. After charging direct material @ 30% on
sales value, direct labour 20% on sales value, variable overheads ₹10 per unit, the
company earned profit of ₹ 16⅔ per unit during the year. The existing equipment can
produce a maximum of 20,000 units per annum. In case, the demand exceeds the
maximum output, new equipment will be required which will cost ₹10 lakhs and it will
have a life span of 10 years, with no residual value.
A prospective customer is willing to place an order on the company for 10,000 units
per year regularly at 90% of the present selling price, which will be, if accepted, over
and above the existing market for 15,000 units .
Irrespective of the fact whether or not the new order materializes, the cost increases
with immediate effect are:
1. 10% in the Direct Materials.
2. 25% in the Direct Labour.
3. ₹50,000 in Fixed Overheads per year.
If the order of additional 10,000 units is accepted, the fixed overhead will increase by
another ₹50,000 by way of increased administration expenses.
You are required to determine whether the company should accept the new business at
the stipulated price or decline the new offer and make a conc erted sales drive to sell
the present unused capacity at the present selling price. The sales drive will cost ₹
60,000 per year.
Ignore the financial charges on the cost of the equipment and assume there is no opening
and closing inventories. Variable cost s will increase in direct proportion to the output.
8. A review, made by the top management of Sweet and Struggle Ltd. which makes only
one product, of the result of two first quarters of the year revealed the following:
Sales in units 10,000
Loss ₹ 10,000
Fixed cost (for the year 120000) 30000 Quarter
Variable cost per unit 8
The finance Manager who feels perturbed suggests that the company should at least
break- even in the second quarter with a drive for increased sales. Towards th is the
company should introduce a better packing which will increase the cost by ₹ 0.50 per
unit.
The Sales Manager has an alternate proposal. For the second quarter additional sales
promotion expenses can be increased to the extent of ₹ 5,000 and a profit ; of ₹ 5,000
can be aimed at for the period with increased sales.
The production manager feels otherwise. To improve the demand the selling price per
unit has to be reduced by 3%. As a result the sales volume can be increased to attain a
profit level of ₹ 4,000 for the quarter.
The Managing Director asks for as a cost Accountant to evaluate these three proposals
and calculate the additional units required to reach their respective targets hel p him to
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make a decision. (MTP DEC 2023 SYLLABUS 2022)
9. Company XYZ produces two components (M, and N) and is planning the allocation
of its available resources for the next period, 750 units of component M and 600 waits
of component N are required fo be produced' but machine hour capacity is restricted to
a total of 3,000 hours. Any deficit of components , produced in-house can be made up
by the purchase of any quantity of either component from an outside supplier. The
objective of the company is to satisfy the requirement for components at minimum total
cost.
The following information is available concerning each component.. The information is
for cost per
PARTICULARS M N
Direct material 62 87
Direct labour 51 75
Variable production overhead 12 13
Fixed production overhead 48 64
Total 173 239
Machine hours 2 3
Price from outside supplier 185 259
Calculate the variable costs of producing each component in — house, extra costs of
buying-in each component and determine which component should have production
priority. (DEC 23 PP SYL 2022)
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TRANSFER PRICING
You, as a cost accountant, are required to advise on the transfer price to be fixed for
Division X’s component under the following circumstances:
1. Division X can sell the component in a competitive market for`10 per unit.
Division Y can also purchase the component from the open market at that price.
2. Further to the situation mentioned in (i) above, assume that Division Y
currently buys the component from an external supplier at the market price of
`10 and there is reciprocal agreement between the external supplier and another
Division Z, within the same group. Under this agreement, the external supplier
agrees to buy one product unit from Division Z at a profit of `4 per unit to that
division, for ever y component which Division Y buys from the supplier
Product S can be transferred to Division B but the maximum quantity that might be
required for transfer is 2,000 units of S.
The maximum sales in the external market are
P 3,000 units
Q 3,500 units
R 2,800 units
S 1,800 units
Division B can purchase the same product at a slightly cheaper price of ` 225 per unit
instead of receiving transfers of products S from Division A
Suggest the transfer price for each unit for 2,000 units of S, if the total labour hours
available in Division A are?
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(i) 24,000 hours?
(ii) 32,000 hours?
3. XYZ Ltd which has a system of assessment of Divisional Performance on the basis
of residual income has two Divisions, X and Y. X has annual capacity to manufacture
15,00,000 numbers of a special component that it sells to outside customers, but has
idle capacity. The budgeted residual income of Y is ` 1,20,00,000 while that of X is `
1,00,00,000. Other relevant details extracted from the budget of X for the current year
were as follows
Y has just received a special order for which it requires components similar to the ones
made by X. Fully aware of the idle capacity of X, Y has asked X to quote for
manufacture and supply of 3,00,000 numbers of the components with a slight
modification during final processing. X and Y agree that this will involve an extra
variable cost of ` 5 per unit
Suggest the transfer price which X should quote to Y to achieve its budgeted residual
income
4. Zen Limited produces four products — A, B, C & D in Division-X. Products are sold
in the external market and the cost data for the month of July, 2022 is as under
Product-D can be transferred to Division -Y. However, maximum quantity that might be
required by Division-Y is 1500 units of Product -D. The maximum sales of the products
in the external market are:
Product-A - 3,000 Units
Product-B - 4,000 Units
Product-C - 3,500 Units
Product-D - 2,000 Unit
What should be the transfer price for each unit of Product -D if the total labour hours
available in Division-X are:
(i) 70,000 Hours
(ii) 80,000 Hours
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STANDADRD COSTING AND VARIANCE ANALYSIS
Budgeted fixed overhead rate is ` 1.00 per hour. In March 2023, the actual hours
worked were 31500.
Calculate:
(i) Fixed overhead Efficiency Variance
(ii) Fixed overhead Capacity Variance
(iii) Fixed overhead Calendar Variance
(iv) Fixed overhead Volume Va riance
(v) Fixed overhead Expenditure Variance
2. SK Limited makes and sells a single product ‘Jay’ for which the standard cost per
unit is as follows;
` per unit
The variable production overhead varies with the hours worked. Overhead is absorbed
into production on the basis of standard hours of production and the normal volume of
production for the period just ended was 20 000 units (100 000 standard hours of
production).
For the period under consideration, the actual results were;
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You are required
(i) to analyse and show, by element of cost, standard cost for the output for the
period;
(ii) to scrutinize and list relevant variances in a way which reconciles standard cost
with actual cost
(Note: Fixed production overhead sub -variances of capacity and volume efficienc y
(productivity) are not required)
3. Pradeep LLP of Delhi follows a standard cost system. For a particular month the
following is extracted from their cost records
Budgeted Actual
Product Quantity Quantity
Price (`) Value (`) Price (`) Value (`)
(Units) (Units)
X 600 3 1800 800 4 3200
Y 800 4 3200 600 3 1800
4. ACE LLP follows a standard costing system and produces a product called the
‘PRO GEAR’. You are recently appointed as the cost accountant of the Company. The
established standards for materials and labour follow:
Material A: 3 Kg @ ` 6 ` 18
Labour: 4 hr @ ` 7.50 per hr ` 30
The operating data for the month of January 2023 are as under:
Work in process, January 1: 200 units, all materials, and 20% complete a s to labour.
Work in process, January 31: 600 units, all materials, and 80% complete as to labour.
During the month of January 2023, 6400 units of the product was completed. All
materials are added at the beginning of processing in the department.
20,900 Kgs of materials were used in production during the month, at a total cost of `
1, 23,310.
Direct labour amounted to ` 2, 08,670, which was at a rate of ` 7.70 per hour.
You are required to critically analyse the necessary variances and comment
5. DASON Ltd., using standard costing system has the following information for the
month of September 2022.
Budgeted Fixed overheads for the month: ` 5,00,000. Overheads are recovered on the
basis of standard machine hours. The company had budgeted for 1,00,000 mac hine
hours for the month. During the month, the company used 1,10,000 machine hours
while it should have used 95,000 machine hours for actual output. Actual Fixed
Overheads for the month: `4,70,000
Required:
Analyse the following Fixed Overhead Variances:
(i) Fixed Overhead Volume Variance
P a g e 20 | 37
(ii) Fixed Overhead Efficiency Variance
(iii) Fixed Overhead Cost Variance.
Required:
(i) Analyse and calculate the variances which occurred during the month.
(ii) Reconcile the actual profit with budgeted profit
7. The following data is obtained from the cost record of ABC Limited:
8. ABC Ltd. adopts a Standard Costing System. The standard output for a period is
P a g e 21 | 37
20,000 units and the standard cost and profit per unit is as under
Particulars (` )
Direct Material (3 units @ ` 1.50) 4.50
Direct Labour (3 hrs. @ ` 1.00) 3.00
Direct expenses 0.50
Factory overheads : Variable 0.25
Fixed 0.30
Administration overheads 0.30
Total Cost 8.85
Profit 1.15
Selling Price (Fixed by government) 10.00
The actual production and sales for a period was 14,400 units. There has been no price revision by the
government during the period.
The following are the variances worked out at the end of the period
Direct Material
Price 4,250
Usage 1,050
Direct labour
Rate 4,000
Efficiency 3,200
Factory overheads
Variable – expenditure 400
Fixed – expenditure 400
Fixed – Volume 1,680
Administration overheads
Expenditure 400
Volume 1,680
9. The cost accountant of a Co. was given the following information regarding the
OHs for Feb, 2022:
a. Overhead cost variance ` 1,400 (A)
b. Overheads volume variance ` 1,000 (A)
c. Budgeted hours for Feb, 2022: 1,200 Hours
d. Budgeted OH for Feb, 2022: ` 6,000
e. Actual rate of recovery of OH ` 8 per hour
You are required to assist him in computing the following for Feb, 2022
P a g e 22 | 37
i. OH expenditure variance
ii. Actual OH incurred
iii. Actual hours for actual production
iv. OH capacity variance
v. OH efficiency variance
vi. Standard hours for actual production
11. The following information is extracted from the records of Aljhon Ltd. a manufacturing
company using standard costing system for the month ending October, 2023
Budget Actual
Fixed Overhead 10,000 12,000
Production(units) 2,000 2,100
Standard Time per Unit (hours) 10 —
Actual Hours Worked — 21,000
12. Average of the Actual Fixe d Overhead Rate per hour and Standard Fixed Overhead Rate per
hour is 3.05. The difference between the Actual Fixed Overhead Rate per hour and Standard
Actual Fixed Overhead Rate per hour is 0.10. Average of Standard Hours and Actual Hours is
28,350 hours.
P a g e 23 | 37
Fixed Overhead Cost Variance is 11,070 (Adv), Standard Overhead Absorption Rate per hour
4. Standard Overhead Absorption Rate per Unit 8, Variable Overhead Cost Variance is 270
(Fav) Budgeted Production 15,000 Units, Actual Output per man -hour (in Units): .1/12
Actual Variable Overhead Rate per Unit 1.98. Calculate all the Overhead Variances.
(dec 2022 PP 2016)
13. BTC Ltd. manufactures two products X and Y. Product X requires 5 hours to produce while
5 units of product Y can be produced in.one hour. In July 3,000 units of X and 15,000 units of
Y were produced. Activity Ratio is 93.75% of the Capacity Ratio and the Capacity Ratio is
102.4% of the Efficiency Ratio, Calculate the Idle Capacity Ratio. (DEC 2022 PP 2016)
14. ZNB Ltd., operates a system of standard costing throughout its division. The company
produces an alloy by mixing and processing two materials A and B. For making 10 kgs. of
Alloy, the standard requirement are :
During the month of September 2023 1000 Kgs of Finished Alloy were produced. The
actual Consumption of Materials is as under :
15. TEXO Ltd., a manufacturing unit using the standard costing and budgetary Control
system has furnished the following information for the month of November 2023,
Particulars Budget Actual
Output (units) 30000 32500
Hours 30000 33000
Fixed overhead 45000 50000
Working days 25 26
Required: -
Analyse the following fixed Overhead Variances :
(i) Fixed Overhead Cost Variance
(ii) Fixed Overhead Expenditure Variance
P a g e 24 | 37
(iii) Fixed Overhead Volume Variance
(iv) Fixed Overhead Efficiency Variance
(v) Fixed Overhead Capacity Variance
(vi) Fixed Overhead Calendar Variance (DEC 23 PP 2016)
Standard loss is 10% of input .There is no scrap value .Actual production for month
was LB 7240 of M5 from 80 mixes. Purchase and consumption is as follows:
Calculate variance.
17.M/s Grass ltd provided you the following data : - (DEC 2023 PP 2022)
Required :-
1. Efficiency variance
2. Capacity variance
3. Idle time variance
4. Volume variance
5. Budget/expenditure variance
6. Fixed overhead cost variance
The standard output of the gang was 12 units per hour of product M. The ga ng, was
engaged for 200 hours during the month of March 2022 out of which 20 hours were
lost due to machine breakdown and 2,295 units of product M were produced. The
actual number of skilled workers was 2 times the semi -skilled workers. Total labour
mix variance was 10,800 (A). You are required to calculate actual number of workers
in each c ategory. (PP JUNE 23 OLD)
BUDGETED ACTUAL
No. of Working days 25 26
Working hours per day 8 9
No. of Workers 150 132
Output per man-hour (in units) ½ 1/2.2
Fixed Overheads 75000 78570
Variable Overheads 18000 15930
Semi variable overhead 27000 24300
P a g e 26 | 37
Budget control
1. Zee Co. Ltd. wishes to arrange overdraft facilities with its bankers from the period
August to October 2022 when it will be manufacturing mostly for stock. Prepare a
cash budget for the above period from the following data given below:
Manufacturin
Mon Sales Purchase Wages Office Exp. Selling
g Exp.
th s Exp.
June 1,80,000 1,24,800 12,000 3,000 2,000 2,000
July 1,92,000 1,44,000 14,000 4,000 1,000 4,000
August 1,08,000 2,43,000 11,000 3,000 1,500 2,000
Septe 1,74,000 2,46,000 12,000 4,500 2,000 5,000
mber
Octob 1,26,000 2,68,000 15,000 5,000 2,500 4,000
er
Novem 1,40,000 2,80,000 17,000 5,500 3,000 4,500
ber
Decem 1,60,000 3,00,000 18,000 6,000 3,000 5,000
ber
Additional Information:
1. Cash on hand 1 -08-2022 ` 25,000.
2. 50% of credit sales are realized in the month following the sale and the
remaining 50% in the second month following. Creditors are paid in the month
following the month of purchase.
3. Lag in payment of manufacturing expenses half month.
4. Lag in payment of other expenses one month
2. When the financial controller of Better Company set the budget for the year ahead,
it was expected that monthly output of cake packages would be 12,000 units. In March
the output was increased to 14,000 per month following negotiation with a chain of
corner shops. The follo wing table contains the original budget and the actual outcome
for the month of March.
Particulars Original Budget Actual for March
Cake packages output 12,000 14,000
Direct materials 48,000 53,000
Direct labour 24,000 29,000
Variable overhead 6,000 7,200
Fixed overhead 4,000 4,500
Total production costs 82,000 93,700
The Financial Controller wants you to analyse the variances in order to prepare a
P a g e 27 | 37
report
3.
Plant Capacity At 80% capacity (`)
Variable Overheads:
Indirect labour 12,000
Stores including spares 4,000
Semi Variable:
Power (30% - Fixed; 70% -Variable) 20,000
Repairs (60%- Fixed; 40% -Variable) 2,000
Fixed Overheads:
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Total overheads 62,000
Estimated Direct Labour Hours 1,24,000
Draw up a flexible budget For overhead expenses on the basis of the above data and
determine the overhead rates at 70%, 80% and 90%.
4. Prepare a Cash Budget for the three months ending 30th June, 2023 from the
information given below
Month Sales (`) Materials (`) Wages (`) Overhead (`)
February 14,000 9,600 3,000 1,700
March 15,000 9,000 3,000 1,900
April 16,000 9,200 3,200 2,000
May 17,000 10,000 3,600 2,200
June 18,000 10,400 4,000 2,300
P a g e 28 | 37
• Dividend @ 5% on preference share capital of ` 2, 00,000 will be paid on 1st
June.
• Advance to be received for sale of vehicles ` 9,000 in June.
• Dividends from investments amounting to ` 1,000 are expected to be
received in June.
There will be no opening and closing work -in-progress at the end of any month.
Finished product (in units), equal to half of the budgeted sales of the next month,
should be in stock at the end of each month (including previous year ended March)
You are required to prepare:
(i) Production (in quantity) Budget for April to July; and
(ii) Summarized Production Cost Budget for the period.
6. ANTU GLASS Com pany provides the following details relating to Master Budget
for the year ended March 31, 2024,
Sales:
Toughened Glass ` 60,00,000
Bent Glass ` 20,00,000
Direct material cost 60% of sales
Diner wages 20 workers @ ` 1,500 per
month
Factory overheads:
Indirect labour-
Works manager ` 5,000 per month
Foreman ` 4,000 per month
Stores and spares 2.5% on sales
Depreciation on machinery ` 1,26,000
P a g e 29 | 37
Light and power ` 30,000
Repairs and maintenance ` 80,000
Others sundries 10% on direct wages
Administration, selling and distribution expenses ` 3,60,000 per year
Required:
Prepare the Master Budget for the year ended March 31, 2024.
7. With the following data for a 60% activity, prepare a budget for production at 80%
and 100 % capacity Production at 60% capacity 300 units.
Materials: ` 100 per unit
Labour: ` 40 per unit
Expenses: ` 10 per unit
Factory expenses: ` 40,000 (40% fixed)
Administrative expenses: ` 30,000 (60% fixed). (MTP J 24)
Required: Prepare Sales Budget, Production Budget, Direct Material Usage &
Purchase Budget, Man Power Budget, Direct Labour Cost Budget.
9.B ltd is manufacturers of electronic switches .Each switch requires 3 minor cir cuit
that cost RS 2 each .The company has prepared a production budget for the electronic
switches by quarters for year 2 and the 1 s t quarter of the year 3 as follows : -
Year 2 Year 3
Budgeted production 1st 2 3 4 First
60000 90000 150000 100000 80000
The inventory of the circuit at the end of a quarter must be equal to 20% of the
following quarters production needs. There will be 36000 minor circuits on hand to
start the first quarter of year
Required :-
Prepare direct material budget for the minor circuits for each quarter for year .
(DEC 2023 PP 2016)
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Divisional Performance Measurement
1. The following data are given for the Rajasthan division for 2022:
Compute the division’s operating assets. (use the DuPont analysis of ROI)
Compute the division’s residual income (RI).
Required:
(i) Analyse which division is more successful in terms of ROI.
(ii) Using 15 percent as the minimum required rate of return, calculate the Residual
Income for each division.
(iil) Identify the division which is more successful under the measure in (ii).
P a g e 32 | 37
Economic Value Added Definition, EVA Centre, EVA Drivers
1. LOTUS Inc has reported annual operating profits for the year of ` 89.2 million after
charging ` 9.6 million for the full development costs of a new product that is expected
to last for the current year and two further years. The cost of capital is 13 per cent per
annum. The balance sheet for the company shows fixed assets with a historical cost of
` 120 million. A note to the balance sheet estimates that the replacement cost of these
fixed assets at the beginning of the year is ` 168 million. The assets have been
depreciated at 20 per cent per year. The company has a working capital of ` 27.2
million. Ign ore the effects of taxation.
You as a cost accountant is asked to calculate the EVA
2. MI Ltd. has earned a net profit of ` 15 lakhs after Tax at 30%. Interest cost charged
by the financial institutions was ` 10 lakhs. The Invested capital is ` 95 Lakhs of
which 55% is debt. The company maintains a weighted average cost of capital of 13%.
• Compute the operating Income.
• Compute the Economic Value Added
• The company has 6 lakhs equity shares outstanding. How much dividend can the
company pay before the value of the entity starts declining?
3. From the following information obtained from the books of M/s AYC Limited,
calculate Economic Value Added (EVA).
It is the prevailing practice for the companies in the industry to which AYC Limited
belongs to pay at least a dividend of 14% p.a. to its Equity Shareholders
4. An investment centre has net assets of ₹8,00,000, and made profits before interest
of ₹1,60,000. The notional cost of capital is 12%. This is the company’s target return.
An opportunity has arisen to invest in a new project costing ₹1,00,000.
The project would have a four -year life, and would make profits of ₹15,000 each year.
Required to compute:
1. What would be the ROI with and without the investment? (Base your
calculations on opening book values). Determine would the investment
centre manager wish to undertake the investment if performance is judged
on ROI
2. What would be the average annual RI with and without the investment?
(Base your calculations on opening book values). Determine would the
investment centre manager wish to undertake the investment if
performance is judged on RI?
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INTRODUC TION TO LEARNING C URVE
1. Carson, Inc., uses a learning curve of 80 percent for all new products it develops. A
trial run of 500 units of a new product shows total labour-related costs (direct,
indirect labour, and fringe benefits) of ` 1,20,000. Management plans to produce 1,500
units of the new product during the next year
Compute the expected labour -related costs for the year to produce the 1,500 units .
Find the unit cost of production for next year
You are required to calculate the estimated product cost for the initial order
based on the cost data given
3. A firm received an order to make and supply eight units of standard product which
involves intricate labour operations. The first unit was made in 10 hours. It is
understood that this type of operations is sub ject to 80% learning rate. The workers are
getting a wage rate of ` 12 per hour
(i) What is the total time and labour cost required to execute the above order?
(ii) If a repeat order of 24 units is also received from the same customer,
what is the labour cost necessary for the second order?
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DECISION TREE
1. Farmer Visal can plant either corn or soybeans. The probabilities that the next
harvest prices will go up, stay the same, or go down are 0.25, 0.30, and 0.45,
respectively. If the prices go up, the corn crop will net ` 30,000 and the soybeans will
net ` 10,000. If the prices remain unchanged, McCoy will (barely) break even. But if the
prices go down, the corn and soybeans crops will sustain losses of ` 35,000 and ` 5000,
respectively.
1. Represent McCoy’s problem as a decision tree.
2. Suggest Visal on the crop that he should plant
2. TIKLIBUKLI School is situated in the outskirts of a town and the school is preparing a
summer camp in the jungles of Sonargaon, to train the students in wilderness survival.
The school estimates that attendance can fall into one of four c ategories: 200, 250,
300, and 350 persons. The cost of the camp will be the smallest when its size meets
the demand exactly. Deviations above or below the ideal demand levels incur additional
costs resulting from constructing more capacity than needed or l osing income
opportunities when the demand is not met. Letting a1 to a4 represent the sizes of the
camp (200, 250, 300, and 350 persons) and s1 to s4 the level of attendance, the
following table summarizes the cost matrix (in thousands of Rupees) for the s ituation:
S1 S2 S3 S4
A1 5 10 18 25
A2 8 7 12 23
A3 21 18 12 21
A4 30 22 19 15
The authorities request your consultancy to apply the following decision criterion and
deter- mine the appropriate course of action;
(i) The Minimax Criterion
(ii) The Laplace Criterion
(iii) The Savage Criterion
(iv) The Hurwicz Criterion
3. A company wishes to go ahead with one of two mutually exclusive projects, but the
profit outcome from each project will depend on the strength of sales demand, as
follows
Strong Demand Moderate Demand Profit Weak Demand Profit/(Loss)
Profit (`) (`)
(`)
Project 1 80,000 50,000 (5,000)
Project 2 60,000 25,000 10,000
Probability of 0.2 0.4 0.4
demand
P a g e 35 | 37
The company could purchase market research information at a cost of ` 4,500. This
would predict demand conditions with perfect accuracy.
What value the company obtain from this perfect market research information
Pay-offs (in `)
State of Nature
Strategies
N1 N2 N3
S1 7,00,000 3,00,000 1,50,000
S2 5,00,000 4,50,000 0
S3 3,00,000 3,00,000 2,00,000
Required:
Develop a course of action for SIDSORY Ltd., based on—
(i) Maximin Criterion
(ii) Maximax Criterion
(iii) Laplace Criterion
(iv) Hurwicz Criterion [Alpha (a) = 0.4]
5. B Ltd. has a new wonder product, the V, of which it expects great things. At
the moment the company has two courses of action open to it, to test market the
product or abandon it
If the company test markets it, the cost will be ₹ 1,00,000 and the market response
could be positive or negative with probabilities of 0.60 and 0.40.
If the response is positive the company could either abandon the product or market
it full scale.
If it markets the V in full scale, the outcome might be low, medium or high
demand, and the respective net gains/ (losses) would be (200), 200 or 1,000 in
units of ₹1,000 (the result could range from a net loss of ₹ 2,00,000 to a gain of
P a g e 36 | 37
₹10,00,000). These outcomes have probabilities of 0.20, 0.50 and 0.30
respectively.
If the result of the test marketing is negative and the company goes ahead and
markets the product, estimated losses would be ₹ 6,00,000.
If, at any point, the company abandons the product, there would be a net gain of
₹ 50,000 from the sale of scrap. All the financial values have been discounted to
the present.
Required:
Prepare and draw a decision tree and also include figures for cost, loss or profit
on the appropriate branches of the tree. (MTP JUNE 24)
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