❖ Variance

❖ Contribution Margin

❖ Break Even Point

❖ Margin of Safety
❖ Cost Volume Profit Analysis

❖ Profit to Date
A company has set a standard cost of 500
per unit for direct materials. If the actual
cost incurred was 505 for 100 units, what
is the total direct materials variance?

A. Rs 50
B. Rs 250
C. Rs 500
D. Rs 550
If the standard direct labor cost per
unit is 20 and the actual direct labor
cost is 18 for 200 units produced, what
is the total direct labour variance?
A. Rs 220
B. Rs 250
C. Rs 400
D. Rs 500
A product sells for 100 per unit with
variable costs of 70 per unit. What is
the contribution margin per unit?

A. Rs 20
B. Rs 30
C. Rs 40
D. Rs 50
A company has fixed costs of 10,000,
variable costs of 5 per unit, and sells its
product for 15 per unit. What is the
breakeven point in units?
A. 100 Units
B. 500 Units
C. 1000 Units
D. 1000 Units
ABC manufacturer furniture has received order for supplying
500 wooden cupboards. The company estimates requirements
of materials at Rs 50000,labour at Rs 25000, and manufacturing
overheads at Rs 5000. As per company’s policy, the fixed/non-
manufacturing overheads are allocated at 25%of material cost.
What will be the cost of one cupboard?(Using batch costing
system)

A. Rs 350
B. Rs 225
C. Rs 150
D. Rs 185
Total variable cost of of the batch of 500 cupboards is

50000+25000+5000=Rs 80000.

Fixed overheads=25% of 50000=Rs 12500

Therefore total cost of batch is Rs 92500

Cost of one cupboard=92500/500= Rs 185

A company has fixed costs of Rs. 100,000 and variable costs of

Rs. 5 per unit. The company sells its product for Rs. 10 per unit.

What is the company's break-even point in units?

(a) 20,000

(b) 10,000

(c) 12,000

(d) 2000
The estimated sales of Company XYZ during 2022-2023
are 90 Lakhs and its break-even sales level is 40 lakhs.
The margin of safety will be?

A. 47.25 %
B. 50%
C. 55.55%
D. 57.55%
The difference between the estimated/budgeted level of
operations and the break even level represents the cushion
available to the business to sustain operations in times of
difficulty. This is known as the Margin of Safety.

Margin of safety =[(Estimated sales-Break even

sales)/Estimated sales]*100
=[(90-40)/90]*100
=(50/90)*100
=55.55%
Q. A manufacturing company produces a single
product, Product X, using a single production
process. The following information is available
for the company's production and cost data:

Total fixed costs: Rs. 50,000

Variable costs per unit: Rs. 10
Total units produced: 2,000 units

If the selling price per unit of Product X is Rs. 40,

what is the total profit earned from producing
and selling 2,000 units?

(1) 5000 (2) 10,000

(3) 12,000 (4) 15,000
Total Cost = 50,000 + 2000 × 10 = 50,000 + 20,000 = 70,000

Total Revenue from sales = 2000 × 40 = 80,000

Total Profit = 80,000 – 70,000 = 10,000

Q. A company selling pens produce the following information:

Fixed costs = Rs. 1,00,000

Sales price per unit of pen = Rs. 20
Cost of direct inputs = Rs. 10
Calculate break-even level units of pens.

A. 10,000
B. 12,000
C. 15,000
D. 5000
Break Even Analysis
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝒐𝒇 𝒐𝒏𝒆 𝒑𝒆𝒏 = 𝟐𝟎 − 𝟏𝟎 = 𝟏𝟎
𝑬𝒂𝒄𝒉 𝒑𝒆𝒏 𝒄𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒆𝒔 𝑹𝒔. 𝟏𝟎 𝒕𝒐𝒘𝒂𝒓𝒅𝒔 𝒎𝒆𝒆𝒕𝒊𝒏𝒈 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕𝒔.

𝑻𝒐 𝒎𝒆𝒆𝒕 𝒕𝒉𝒆 𝒕𝒐𝒕𝒂𝒍 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕 𝒐𝒇 𝑹𝒔. 𝟏, 𝟎𝟎, 𝟎𝟎𝟎,

𝟏, 𝟎𝟎, 𝟎𝟎𝟎
𝒘𝒆 𝒘𝒊𝒍𝒍 𝒉𝒂𝒗𝒆 𝒕𝒐 𝒔𝒆𝒍𝒍 𝟏𝟎, 𝟎𝟎𝟎 𝒑𝒆𝒏𝒔 ( )
𝟏𝟎
Q. A construction project has an estimated contract cost of
Rs. 5,00,000 and an estimated contract profit of Rs.
50,000. The cost of work completed on the project so far is
Rs. 3,00,000. Calculate the profit to date.

(A) 30,000
(B) 83,333
(C) 35,000
(D) 50,000
Q. If a company sells 1,000 units at a selling price
of 50, incurs variable costs of 30, and fixed costs
of 10,000, what is the profit?
(A) 10,000
(B) 20,000
(C) 30,000
(D) 40,000
Q. A company produces batches of 1000 units of a product. The total
production cost for each batch is Rs. 5,0000, which includes direct
materials, direct labor, and overhead costs.
The company produced 10 batches during the month. The total units
produced and sold during the month were 900. What is the batch cost
per unit?
A. Rs. 50
B. Rs. 60
C. Rs. 70
D. Rs. 80
Answer: Option (a)

Solution:
Batch cost per unit = Total production cost per batch
Units per batch

Batch cost per unit = 50000

1000

Batch cost per unit=Rs. 50

Q. A company estimated its sales for the year to be Rs.
20,00,000. The break-even sales for the company are Rs.
15,00,000. However, due to unforeseen circumstances, the
actual sales for the year turned out to be Rs. 18,00,000.

What is the Margin of Safety for the company?

A. 10%
B. 20%
C. 30%
D. None of the above
Answer: Option (d)

Solution:

Margin of safety = [𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑

𝑆𝑎𝑙𝑒𝑠 − 𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑠𝑎𝑙𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
×100]

Margin of safety= [20,00,000 − 15,00,000

20,00,000
×100]

5,00,000
Margin of safety= × 100
20,00,000

Margin of safety=25%
ABC Manufacturing Company produces a single product. The following
information is available for a particular month:

➢ Direct Materials: Rs. 10,000

➢ Direct Labor: Rs. 5,000
➢ Variable Manufacturing Overhead: Rs. 3,000
➢ Fixed Manufacturing Overhead: Rs. 2,000
➢ Selling and Administrative Expenses: Rs. 1,500
➢ Units Produced: 1,000 units
➢ Units Sold: 800 units

Using absorption costing, calculate the cost per unit of the product.
(a) Rs. 21.5 (b) Rs. 18.5
(c) Rs. 22.5 (d) Rs. 20
Q. Consider the following case study and answer the question:
The bakery produced 600 bread units during a particular
accounting period. The cost per unit for the first batch (300
units) was Rs. 20, and for the second batch (300 units), it was
Rs. 25. The bakery sold 200 units of bread. What will be the
difference in the cost of goods sold (COGS) calculated using the
FIFO and LIFO methods?

A. 1500
B. 1000
C. 500
D. 2000
Answer: Option (b)
Since the FIFO method assumes that the first units added to
inventory are the first ones sold, the cost of goods sold will be
based on the cost of the earliest batch.
The LIFO method assumes that the last units added to inventory
are the first ones sold, so the cost of goods sold will be based on
the cost of the most recent batch.
COGS using FIFO=20020=4000
COGS using LIFO=20025=5000
Difference in COGS=5000-4000=1000
The Cost Accounting Standards Board(CASB) has
issued how many cost accounting standards as of
now?

A. 9

B. 24

C. 32

D. 104
In developing Cost Accounting Standards (CAS), the IcoAI
benchmarked Indian practices against worldwide practices and
chose the finest practices from a wide range of practices
accessible globally. As a result, the CASs boost cost accounting
practises and knowledge in India. To achieve uniformity and
consistency in the classification, measurement, and assignment
of cost to products and services, the ICoAI established the Cost
Accounting Standards Board (CASB) with the goal of developing
cost accounting standards. Till date, the Institute/Board has
released 24 Cost Accounting Standards.
Which of the following items are not recorded in
cost sheet:

A)Taxes and Interest

B)Direct Expenses
C)Profit/Loss on sale of assets

A. A & B
B. A & C
C. Only B
D. A, B & C
The cost sheet is a periodic statement that is kept under the
single-output/unit cost. The frequency with which this
statement is prepared is determined by the nature of the
organisation and the costing objectives. It includes details on
material, labour, and direct expenses spent.

Taxes/interest/dividends paid, provisions and write offs, cash

discounts, profit or loss on asset sale, and other factors are
not reflected on the cost sheet.
What are the benefits of cost accounting?

A. Creates strategies during a recession or a period of

high competition.

B. evaluating actual costs against cost benchmarks or

projections

C. determining the cost of goods and services

D. All of the above

Cost accounting offers managers with decision-making
information in a variety of domains.

These are:
1)Creates strategies during a recession or a period of high
competition.
2)evaluating actual costs against cost benchmarks or projections
3)Determining the cost of goods and services
4)Management of the inventory
5)Reducing wastages of materials and other resources
6)Cost accounting helps to eliminate or reduce production of
certain products while increasing production of others.
The cost that is directly proportional to the volume of
production or the degree of activity is referred to as

A. Fixed Cost

B. Marginal Cost

C. Variable Cost

D. Historical Cost
The cost that is directly proportional to the volume
of production or the degree of activity is referred to
as variable cost.

For example: Cost of goods sold, wages, raw

materials and inputs to production.
Mr Ram Kumar is an accountant in a manufacturing
unit. How will you classify the salary of office staff-
Ram Kumar?

A. Factory Overhead

B. Production Overhead

C. Distribution Overhead

D. Office & administrative Overhead

Salary of office staff is not directly related to

production. It will not be classified neither in factory

overhead nor in production overheads. It will be

classified as office and administrative overhead.

If the total cost of a contract is 750 Lakhs and the
estimated profit from the contract is 150 Lakhs, the profit
on completion of work ,where cost already incurred is
250 lakhs will be?

A. 20 Lakhs
B. 50 Lakhs
C. 70 Lakhs
D. 90 Lakhs
Profit to date=(Cost of work completed/Total estimated
contract cost)*Estimated contract profit.
(250/750)*150=50 Lakhs

Note: The profit of Rs 50 Lakhs is cumulative profit to

date and not the profit for that accounting period.
Therefore, if the profit booked on this contract in the
earlier accounting period is 30 Lakhs, profit for only 20
Lakhs should be taken during the current accounting
period.
Q. A company produces and sells a product for Rs 100
per unit. The variable cost per unit is Rs 60, and the
fixed costs amount to Rs 50,000. If the company sells
1,000 units, what is the contribution margin?

(A) Rs 10,000 (B) Rs 40,000

(C) Rs 50,000 (D) Rs 90,000
Sol. (B)
The contribution margin is calculated by subtracting the
variable costs from the selling price per unit. In this
case, the selling price per unit is Rs 100, and the variable
cost per unit is Rs 60.
Therefore, the contribution margin per unit is Rs 100 -
Rs 60 = Rs 40.

To find the total contribution margin, we multiply the

contribution margin per unit by the number of units
sold. In this case, the company sells 1,000 units, so the
total contribution margin would be Rs 40 x 1,000 = Rs
40,000.
A pharmaceutical company can use which type of
costing?

A. Process Costing

B. Unit Costing

C. Job Costing

D. Batch Costing
A pharmaceutical company should use batch costing
which is a kind of job costing. In this identical
products are taken as cost unit. Batch cost is
accumulated and ascertained for each batch.

Cost per unit= Total cost of batch/ total units in

batch
Q. Rahul’s annual salary income is Rs. 9,50,000.

Calculate the total tax that Rahul needs to pay as per new
tax regime.

(A) 52,500
(B) 63,800
(C) 73,500
(D) None of the above
Q. The deduction is covered under 80QQB of the Income Tax
Act,1961 included in Royalty Income is_______.

A. Any Income earned by an author for practicing his profession

B. Any Income earned as a lump sum payment for assignment of
any of his interests in the copyright of any book based on
literary, artistic or scientific in nature or of royalty or copyright
fees for author’s book
C. Any Income received as advance payment of royalties/
copyright fees
D. All the above

ANS : D
Amounts Included in Royalty Income

➢ Any Income earned by an author for practicing his profession

➢ Any Income earned as a lump sum payment for assignment
(or grant) of any of his interests in the copyright of any book
based on literary, artistic or scientific in nature or of royalty or
copyright fees for author’s book
➢ Any Income received as advance payment of royalties/
copyright fees (amount which is non- refundable)
Under section 194A, the rate of TDS on premature deduction
(amount of withdrawal is more than 50,000) from Employees
Provident Fund is ______.

A. 5%
B. 10%
C. 15%
D. 20%

ANS : B
TDS needs to be deducted @ 10% in case of premature
withdrawal from EPF before the expiry of 5 years of
service (except termination case, ill health) or where he
fails to apply for transfer of account to new employer.
What is the threshold limit to deduct TDS @10% U/s 194A
(interest earned on fixed deposits) for individuals other
than senior citizens?

A. 10000
B. 20000
C. 30000
D. 40000

ANS : D
The threshold limit is 40,000. Means if an individual earns
MORE THAN 40,000 from interest on FD, then TDS @10%
will be deducted.

50,000 is the limit for senior citizens.

Q. What are the maximum exemptions limit under
section 80QQB of the Income Tax Act,1961?

A. Rs 50,000
B. Rs 1,00,000
C. Rs 3,00,000
D. Rs 5,00,000

ANS : C
Amounts Included in Royalty Income

Deduction available will be lower of the following;

➢ Rs 3 lakhs or

➢ The amount of royalty income received

Q. A manufacturing company produces a single
product, Product X, using a single production
process. The following information is available for
the company's production and cost data:

Total fixed costs: Rs. 50,000

Variable costs per unit: Rs. 10
Total units produced: 2,000 units

If the selling price per unit of Product X is Rs. 40,

what is the total profit earned from producing
and selling 2,000 units?

(1) 5000 (2) 10,000

(3) 12,000 (4) 15,000
Total Cost = 50,000 + 2000 × 10 = 50,000 + 20,000 = 70,000

Total Revenue from sales = 2000 × 40 = 80,000

Total Profit = 80,000 – 70,000 = 10,000

Q. Match the following terms with their correct definition:
Term Definition
A. Cost Centre 1. Difference between standard cost and actual
cost
B. Idle Capacity 2. Unutilised production capacity
C. Variance 3. A location, person, equipment, or department
for which costs may be ascertained and used for
purposes of control.
D. Cost Sheet 4. A statement showing different elements of
cost relating to a particular product or a job for a
particular period.
(A) A – (2); B – (1); C – (3); D – (4)
(B) A – (1); B – (2); C – (3); D – (4)
(C) A – (3); B – (2); C – (1); D – (4)
(D) A – (3); B – (2); C – (4); D – (1)
Sol. (C)
The correctly matched table is:
Term Definition
A. Cost Centre 3. A location, person, equipment, or department
for which costs may be ascertained and used for
purposes of control.

B. Idle Capacity 2. Unutilised production capacity

C. Variance 1. Difference between standard cost and actual
cost
D. Cost Sheet 4. A statement showing different elements of
cost relating to a particular product or a job for a
particular period.
Q. Process costing is a method of cost accounting used to
determine the cost of producing a product or service in
industries where production occurs in a continuous
flow or through a series of sequential processes.

Which of the following is NOT a type of process costing?

(1) LIFO costs

(2) FIFO costs
(3) Weighted Average Costs
(4) Standard Costs
There are three types of process costing:
(1) Weighted Average Costs – It is the simplest method as
it involves adding together all costs and assigning them
to the product.
(2) Standard Costs – Instead of assigning actual costs,
standard costs are assigned to the goods and services.
(3) FIFO costs – In the FIFO method, the costs incurred
during the current period are treated separately from
the costs carried over from the previous period. It is
much more complex in calculation than other methods.
Q. Which of the following is correct with respect to
absorption and marginal costing?

a. Cost-Volume-Profit relationship is used in both

absorption costing and marginal costing.
b. While costs are classified as fixed and variable in
absorption costing, there is no such classification in
marginal costing.
c. Fixed overhead costs are allocated to a product in the
case of absorption costing, while the same is not
allocated in marginal costing.
d. All of the above are correct.
Answer: Option (c)
Solution:
• Cost-Volume-Profit relationship is used only in marginal
costing, not absorption costing.
• While costs are classified as fixed and variable in
marginal costing, there is no such classification in
absorption costing.
• Fixed overhead costs are allocated to a product in the
case of absorption costing, while the same is not
allocated in marginal costing.
• The valuation of finished goods differs in each method,
with the valuation higher in absorption costing than in
marginal costing.
Q. Company X produces and sells widgets. During a specific
period, the company incurred the following costs:

Direct materials: Rs. 50,000

Direct labour: Rs. 30,000
Variable manufacturing overhead: Rs. 20,000
Fixed manufacturing overhead: Rs. 15,000
Units produced: 1,000 widgets
Units sold: 800 widgets

Using absorption costing, what is the cost per unit for the
widgets produced?
(1) Rs. 115 (2) Rs. 105
(3) Rs. 125 (4) Rs. 135
Under absorption costing, all the costs (fixed and
variable) are allocated to the goods.
Total Manufacturing Costs = 50,000 + 30,000 +
20,000 + 15,000 = 1,15,000
Cost per unit is decided after dividing the total
manufacturing costs by the total units produced.
𝟏,𝟏𝟓,𝟎𝟎𝟎
Cost per unit = = 𝟏𝟏𝟓
𝟏𝟎𝟎𝟎
Which of the following statements about direct and
indirect taxes is correct?

A. Direct taxes can be shifted from one individual to

another, while indirect taxes are paid directly by the
taxpayer.
B. Indirect taxes are imposed only on goods and services,
while direct taxes are imposed on income, profit, or
revenue.
C. Direct taxes can be assigned to another person for
payment, while indirect taxes cannot.
D. With the implementation of goods and services tax
(GST), direct taxes have replaced all forms of indirect
taxes.
ANS : B
➢ Direct taxes are taxes imposed directly on a taxpayer and are
required to be paid to the government. These taxes are not
transferable, meaning an individual cannot pass or assign
another person to pay the taxes on their behalf. Examples of
direct taxes include income tax, corporate tax, and property tax.

➢ Indirect taxes, on the other hand, are taxes levied on goods and
services rendered by the taxpayer. Unlike direct taxes, indirect
taxes can be shifted from one individual to another. The burden
of these taxes can be passed on to the consumer or another
party involved in the supply chain. Examples of indirect taxes
prior to the implementation of goods and services tax (GST)
included service tax, sales tax, value-added tax (VAT), central
excise duty, and customs duty.
Q. Section 80U offers tax benefits if an individual suffers a
disability, while Section ________ offers tax benefits if an
individual taxpayer’s dependent family member(s) suffers
from a disability.

A. Section 80 UA
B. Section 80 UD
C. Section 80 DD
D. Section 80 DU

ANS : C
Section 80U & 80DD

➢ Section 80U offers tax benefits if an individual suffers a

disability, while Section 80DD offers tax benefits if an
individual taxpayer’s dependent family member(s) suffers
from a disability.

➢ A deduction of Rs. 75,000 is allowed for people with

disabilities, and Rs. 1,25,000 deduction for people with
severe disability.
Q. Royalties received against a Patent comes under which
section of the Income Tax Act 1961?

A. Sec 80 QQB
B. Sec 80 U
C. Sec 80 RRB
D. Sec 80 TTA

ANS : C
Deductions under Sec 80RRB

✓ One can claim a deduction of up to Rs. 3.00 Lakhs against

royalty payments.
✓ Only original patent holders can claim the deduction under
Section 80RRB.
✓ This deduction is only available for resident individuals i.e.
HUF or Non-residents cannot claim this
Under which head of income do we show income from
lotteries?

A. Income from house property

B. Income from capital gain
C. Income from salaries
D. Income from other sources

ANS : D
Income from lotteries ,winning from horse race and

crossword puzzles are shown in 5th head of income ie-”

income from other sources”.

When the supply of goods happens between two states,
what kind of sales will it be called and what kind of GST
would be applicable upon it?

A. Inter-state sales, IGST

B. Intra-state sales, CGST & SGST
C. Inter-state sales, CGST & SGST
D. Intra-state sales, IGST

ANS : A
When the supply of goods or services is between 2 states,

it is called Inter state sales transaction. IGST is collected in

case of inter-state sales.

Which tax is NOT clubbed in GST?

A. Central Excise duty

B. Central Sales tax
C. VAT
D. Corporation Tax

ANS : D
GST is the single tax applied on the product life cycle of
the goods and services, which are classified on the basis
of HSN codes. GST is an Indirect tax. Central Sales tax, VAT,
and Central excise duty are all included in GST.

Corporate tax is a direct tax, and hence not included in

GST.
Q. What is the tax rate of GST applicable on
services offered by banking companies?

(1) 15%
(2) 12%
(3) 18%
(4) 5%
● Prior to the introduction of the GST, banking services were
subject to a 15% Service Tax. In contrast, under the GST, the
rate is now 18%. Due to the increased tax burdens, the
ultimate customers of these banking institutions must pay
the additional fees associated with banking services,
including:
● Transaction Costs: When one withdraws cash from an ATM,
we incur transaction fees that one must pay to the bank. It
was raised from 15% to 18%.
● Loans: Under GST, loans are subject to an 18% tax.
● Various services: The GST tax rate for banking services such
as locker facilities, tax payment, billing, and purchasing, etc.
is 18%.
For the business (of Sale of Goods) operating in
normal category states, the threshold limit for GST
registration is Rs. ______.

A. 5 Lakhs
B. 10 Lakhs
C. 20 Lakhs
D. 40 Lakhs

ANS : D
If the turnover of business (of sale of goods) exceeds Rs 40

lakhs then it would be mandatory to apply for GST

registration within 30 days.

Q. Rajesh operates a small manufacturing business in
Uttarakhand. His business has been steadily growing, and
he recently calculated his annual turnover to be ₹8 lakh. He
is aware of the Goods and Services Tax (GST) and its
threshold limit for registration.

Based on the scenario described, does Rajesh need to pay

taxes under the GST system?

(A) No, because the GST system does not apply to

businesses in Uttarakhand.
(B) Yes, because his turnover is exactly at the threshold
limit for GST registration.
(C) No, because his turnover is below the threshold limit
for GST registration.
(D) Yes, because his turnover is above the threshold limit
for GST registration.
(C)Solution:
The GST threshold limit for registration in Uttarakhand
is ₹20 lakh for a manufacturing business. Since
Rajesh's annual turnover is ₹8 lakh, he is not required
to register under the GST system.
However, it is important to note that even if Rajesh's
turnover is below the threshold limit, he may still be
required to pay GST if he is making taxable supplies to
unregistered persons or if he is importing goods.
A service provider who is serving within the same
state is required to apply for a GST number if his
turnover exceeds _______.

A. 5 Lakhs
B. 10 Lakhs
C. 20 Lakhs
D. 40 Lakhs

ANS : C
Every serviceman who is serving within the same state is

required to apply for a mandatory GST registration

number if his turnover exceeds Rs 20 lakhs (in normal

category states) and Rs 10 lakh (for special category

states).
Q. Ramesh, a trader in Uttarakhand, supplies goods worth
₹10,000 to Suresh, a customer in Delhi. Ramesh issues an
invoice to Suresh on 1st January 2023, but Suresh makes the
payment only on 15th January 2023. The goods are delivered
to Suresh on 10th January 2023.

When does Ramesh become liable to pay GST on the supply of

goods to Suresh?

(A) On 1st January 2023, when the invoice is issued.

(B) On 10th January 2023, when the goods are delivered.
(C) On 15th January 2023, when the payment is received.
(D) It cannot be determined from the given information.
(A) Solution:
The liability to pay GST arises at the earliest of three
events: receiving payment, issuance of invoice, or
completion of supply. In this case, Ramesh issued an
invoice to Suresh on 1st January 2023, which is the earliest
event among the three. Therefore, Ramesh becomes liable
to pay GST on the supply of goods to Suresh on 1st January
2023, when the invoice is issued.
Q. A taxpayer is eligible for a deduction under section 80E for
the interest paid on loans taken for higher education. This
deduction applies to loans taken for the taxpayer, their spouse,
children, or a student for whom the taxpayer is a legal
guardian. The deduction is available only for____________years
starting from the year one starts repaying the loan or until the
interest is fully repaid, whichever is earlier.

(A) 4 (B) 5
(C) 6 (D) 8
Sol. (D)
• The deduction under section 80E for education loans is a tax
benefit provided to individuals who take loans for higher
education. This deduction applies specifically to the interest
paid on the loan and not the principal amount.

• It can be claimed for a maximum of eight years, beginning

from the year in which the interest repayment commences.
The loan must be taken for the higher education of the
taxpayer, their spouse, children, or a student for whom the
taxpayer is a legal guardian.
What will be the contribution margin if sales

price of one unit of product is 500 and the

variable cost is 350?

A. 850
B. 500
C. 350
D. 150

ANS : D
Contribution is quite significant in marginal costing. The
contribution margin can be expressed in either gross or
per-unit terms. After deducting the variable element of
the firm's costs, it indicates the extra money gained for
each product/unit. The contribution margin is computed
as the selling price per unit, minus the variable cost per
unit.
Therefore, contribution margin will be 500-350 = 150
Break-even analysis helps

A)The management to get a clear idea of the minimum level of

activity below which it cannot afford to operate.
B)To compare the relative profitability of different products.
C)The management to decide if a particular product or
component is to be outsourced.

D) All of the above

ANS : D
Hyundai India manufacturing cars has fixed costs of
Rs 2 Lakhs and variable cost of Rs 40,000 per car.
Sales price of the car is Rs 80,000. During the year,
it sold 30 cars. What is the profit of the company
during the year?

A. 3000000
B. 2000000
C. 1000000
D. 500000

ANS : C
Using Cost-volume-profit (CVP) analysis, profit will be
determined.
Profit=(S*N)-[F+(V*N)]
Where,
P=Profit
S=Sales value per unit
N=Number of units sold
F=Fixed costs
V=Variable cost per unit

P=(80000*30)-[2,00,000+(40000*30)]
=24,00,000-[2,00,000+12,00,000]
=24,00,000-14,00,000
=10,00,000
Q. Company X is a construction company specializing in commercial
building projects. They recently secured a contract to construct a
large office complex for a client. The contract is expected to span two
years and has a total estimated revenue of Rs. 10 crores.
The estimated total project cost is Rs. 8 crores. During the first year of
the project, Company X incurred costs of Rs. 4 crores, completing
significant portions of the construction work. At the end of the first
year, the company wants to determine the profit recognized on the
incomplete contract using the percentage of completion method.

(1) Rs. 2 crores (2) Rs. 4 crores

(3) Rs. 8 crores (4) Rs. 5 crores
Solution (4)

𝐂𝐨𝐬𝐭 𝐨𝐟 𝐰𝐨𝐫𝐤 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐝

Profit till date= × Estimated contract profit
𝐓𝐨𝐭𝐚𝐥 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐜𝐨𝐬𝐭

𝐑𝐬.𝟒 𝐜𝐫𝐨𝐫𝐞𝐬
Profit till date= × 10 crores = 5 crores
𝐑𝐬.𝟖 𝐜𝐫𝐨𝐫𝐞𝐬
Q. According to the system of costing known as
Activity Based Costing (ABC), what is the main principle behind
allocating costs to various products and services in a company?

(A) Allocating costs based on the number of units produced.

(B)Allocating costs based on the fixed and variable cost
classification.
(C)Allocating costs evenly across all products and services.
(D) Allocating costs based on the quantity of each cost-driving
activity required for completion.
(D) Solution:

Activity Based Costing (ABC) is a technique used for

assigning costs to products and services based on the
activities that drive those costs. This method recognizes
that various activities within a company contribute to the
overall costs incurred. These activities are not uniformly
spread across all products and services. Instead, some
products or services may require more time and resources
from certain activities than others.
.
Q. "The change in total production cost that comes from
making or producing one additional unit."

It describes which of the following costing methods?

a) Job costing
b) Process costing
c) Marginal costing
d) Standard costing
Answer: Option (C)
Solution:
The given statement describes the concept of marginal
costing. Marginal costing focuses on analysing the change
in total production cost associated with producing one
additional unit.
Q. A company set the standard material cost per unit for a
product at Rs. 20. During a production run of 2,000 units, the
company used 40,000 units of material. The actual material
cost per unit was Rs. 19.50. Calculate the material cost
variance assuming that the total units of inputs were the
same as estimated.
(1) Rs. 10,000 (Profit)
(2) Rs. 10,000 (Loss)
(3) Rs. 20,000 (Profit)
(4) Rs. 20,000 (Loss)
Solution (3)
The standard cost estimate = 40,000 × Rs. 20 =
8,00,000
The actual cost = Rs. 19.50 × 40,000 = 7,80,000
Variance = 8,00,000 – 7,80,000 = 20,000
The variance is favourable as the actual cost is less
than the standard cost estimate.
Q. ABC Corporation reports the following
information on its balance sheet as of December 31,
2022:

Total Assets: Rs. 500,000

Total Liabilities: Rs. 200,000

What is the owner’s equity?

(1) Rs. 100,000

(2) Rs. 200,000
(3) Rs. 300,000
(4) Rs. 400,000
The Balance Sheet Equation is given by:
Assets = Liabilities + Owner's Equity
5,00,000=2,00,000+Owner's equity
Owner’s equity = 3,00,000
Q. The ________ is a buffer amount below
which a business will no longer remain
profitable.

(1) margin of safety

(2) profit margin
(3) gross profit
(4) variable cost
● The margin of safety refers to the cushion or buffer
amount below which a business's profitability is at risk.
● It signifies the level of sales or revenues above the break-
even point, ensuring that the business remains profitable.
● This financial measure is crucial for management as it helps
assess the potential risks associated with fluctuations in
sales.
● By monitoring the margin of safety, management can
proactively adjust marketing and promotional strategies to
boost sales and maintain a comfortable margin above the
break-even point.
What are the primary distinctions between cost and
management accounting?

A. Cost accounting focuses on short-term planning, whereas

management accounting focuses on both short-term and long-term
planning.
B. Cost accounting uses historical data while management
accounting uses futuristic data.
C. Scope of Cost accounting is narrow while scope of management
accounting is wider.
D. All are incorrect
Difference between cost and management accounting

1.Cost accounting is concerned with short term planning while

management accounting is concerned with both short term and
long term planning

2.Cost accounting uses historical data while management

accounting uses futuristic data
3.Scope of Cost accounting is narrow while scope of
management accounting is wider.
What are the benefits of cost accounting?

A. Creates strategies during a recession or a period of

high competition.

B. evaluating actual costs against cost benchmarks or

projections

C. determining the cost of goods and services

D. All of the above

Cost accounting offers managers with decision-making
information in a variety of domains.

These are:
1)Creates strategies during a recession or a period of high
competition.
2)evaluating actual costs against cost benchmarks or projections
3)Determining the cost of goods and services
4)Management of the inventory
5)Reducing wastages of materials and other resources
6)Cost accounting helps to eliminate or reduce production of
certain products while increasing production of others.
The cost that is directly proportional to the volume of
production or the degree of activity is referred to as

A. Fixed Cost

B. Marginal Cost

C. Variable Cost

D. Historical Cost
The cost that is directly proportional to the volume
of production or the degree of activity is referred to
as variable cost.

For example: Cost of goods sold, wages, raw

materials and inputs to production.
A furniture manufacturer has received order for supplying 500
wooden cupboards. The company estimates requirements of
materials at Rs 50000,labour at Rs 25000, and manufacturing
overheads at Rs 5000. As per company’s policy, the fixed/non-
manufacturing overheads are allocated at 25%of material cost.
What will be the cost of one cupboard?(Using batch costing
system)

A. Rs 350
B. Rs 225
C. Rs 150
D. Rs 185
Total variable cost of of the batch of 500 cupboards is

50000+25000+5000=Rs 80000.

Fixed overheads=25% of 50000=Rs 12500

Therefore total cost of batch is Rs 92500

Cost of one cupboard=92500/500= Rs 185

_________ is a type of job costing that is used for

relatively large jobs that take a long time to

complete.

A. Contract Costing

B. Service Costing

C. Process Costing

D. Batch Costing
Contract costing is a type of job costing that is
used for relatively large jobs that take a long
time to complete(Usually 1 year or more).

Contract costing is the major responsibility of the

accounting department in some sectors and
government contracting. Proper contract costing
is critical to earning appropriate profits, hence
this department is normally staffed by expert
accountants.
Which of the following are the features of service
costing:
A) Relates to costing of services and not goods
B) Used for performing services both internally and
externally
C) A cost unit is used to measure services provided, such
as cost per unit or cost per km.

A. Both A & B
B. Only B
C. Both B & C
D. All A, B & C
Features of service costing:
1)Relates to costing of services and not goods
2)Used for performing services both internally and
externally
3)A cost unit is used to measure services provided, such
as cost per unit or cost per km.
4)The cost of per unit of service is calculated by dividing
the total cost of a period by the number of units of
service supplied during that period.
When we calculate the cost after it has been
incurred, the method is popularly known as:

A. Fixed Cost
B. Standard Cost
C. Historical Cost
D. Marginal Cost
 Q. Match the following terms with their correct definition:
(A) A – (2); B – (3); C – (4); D
– (1) Term Definition
(B) A – (2); B – (4); C – (3); D 1. Different sections of an undertaking or
– (1) A. Budget Committee an organization where budgetary control
(C) A – (1); B – (3); C – (4); D measures are to be applied and for the
– (2) purpose. separate budgets are to be
prepared.
(D) A – (1); B – (4); C – (3);
D – (2) B. Flexible Budget 2. A group of representatives of various
functions in an organization.
C. Master Budget 3. A budget designed in a manner so as to
give the budgeted cost at any level of
activity.
D. Budget Centres 4. A budget incorporating all functional
budgets, which are finally approved,
adopted, and employed.
Sol. (A)
The correctly matched table is:
Term Definition
2. A group of representatives of various
A. Budget Committee functions in an organization.
B. Flexible Budget 3. A budget designed in a manner so as to give
the budgeted cost at any level of activity.
C. Master Budget 4. A budget incorporating all functional
budgets, which are finally approved, adopted,
and employed.
D. Budget Centres 1. Different sections of an undertaking or an
organization where budgetary control
measures are to be applied and for the purpose.
separate budgets are to be prepared.
Q. Which of the following statements is correct in the
context of the GST regime in India?

A. GST is levied only on goods and not on services.

B. GST is applicable only to businesses with an annual
turnover of more than Rs. 5 lakhs.
C. Input Tax Credit (ITC) can be claimed on all purchases
made by a registered taxpayer.
D. GST is a single tax system that replaces all other indirect
taxes in India.
Answer: Option (d)
Solution:
• GST is a single tax system that replaces various indirect
taxes such as VAT, Service Tax, and Excise Duty, and
streamlines the taxation system in India.
• Input Tax Credit (ITC) can be claimed on eligible
purchases made for business purposes. However, there
are certain conditions and restrictions on claiming ITC,
and not all purchases may be eligible for ITC.
• GST is applicable to both goods and services. It is a
comprehensive tax system that encompasses the supply
of goods and services.
• GST is applicable to businesses with an annual turnover
of more than Rs. 40 lakhs (Rs. 20 lakhs for Special
Category States).
Q. A company prepares its financial statements using the accrual
basis of accounting. It recognizes income and expenses in its
financial statements as per accounting standards. However, for tax
purposes, certain income and expenses are recognized at different
times. This creates temporary differences between accounting
profit and taxable profit. How are these temporary differences
related to deferred tax?
I. Temporary differences give rise to deferred tax assets.
II. Temporary differences give rise to deferred tax liabilities.
III. Temporary differences do not have any impact on deferred
tax.

a. Only I
b. Only II
c. Only III
d. Both I & II
Answer: Option (d)
Solution:
• Deferred tax liabilities are created when temporary
differences result in taxable amounts in future periods.
This means that the company will have to pay additional
taxes in the future due to these temporary differences.
• On the other hand, temporary differences that result in
deductible amounts in future periods give rise to
deferred tax assets. Deferred tax assets represent future
tax benefits that the company can utilise to offset future
taxable income.
The estimated sales of Company XYZ during 2022-
2023 are 90 Lakhs and its break-even sales level is
40 lakhs. The margin of safety will be?

A. 47.25 %
B. 50%
C. 55.55%
D. 57.55%

ANS : C
The difference between the estimated/budgeted level of
operations and the break even level represents the cushion
available to the business to sustain operations in times of
difficulty. This is known as the Margin of Safety.

Margin of safety =[(Estimated sales-Break even

sales)/Estimated sales]*100
=[(90-40)/90]*100
=(50/90)*100
=55.55%
Q. Company X is a construction company specializing in commercial
building projects. They recently secured a contract to construct a
large office complex for a client. The contract is expected to span two
years and has a total estimated revenue of Rs. 10 crores.
The estimated total project cost is Rs. 8 crores. During the first year of
the project, Company X incurred costs of Rs. 4 crores, completing
significant portions of the construction work. At the end of the first
year, the company wants to determine the profit recognized on the
incomplete contract using the percentage of completion method.

(1) Rs. 2 crores (2) Rs. 4 crores

(3) Rs. 8 crores (4) Rs. 5 crores
Solution (4)

𝐂𝐨𝐬𝐭 𝐨𝐟 𝐰𝐨𝐫𝐤 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐝

Profit till date= × Estimated contract profit
𝐓𝐨𝐭𝐚𝐥 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐜𝐨𝐬𝐭

𝐑𝐬.𝟒 𝐜𝐫𝐨𝐫𝐞𝐬
Profit till date= × 10 crores = 5 crores
𝐑𝐬.𝟖 𝐜𝐫𝐨𝐫𝐞𝐬
Q. A manufacturing company produces a single
product, Product X, using a single production
process. The following information is available
for the company's production and cost data:

Total fixed costs: Rs. 50,000

Variable costs per unit: Rs. 10
Total units produced: 2,000 units

If the selling price per unit of Product X is Rs. 40,

what is the total profit earned from producing
and selling 2,000 units?

(1) 5000 (2) 10,000

(3) 12,000 (4) 15,000
Total Cost = 50,000 + 2000 × 10 = 50,000 + 20,000 = 70,000

Total Revenue from sales = 2000 × 40 = 80,000

Total Profit = 80,000 – 70,000 = 10,000

Q. Company X produces and sells widgets. During a specific
period, the company incurred the following costs:

Direct materials: Rs. 50,000

Direct labour: Rs. 30,000
Variable manufacturing overhead: Rs. 20,000
Fixed manufacturing overhead: Rs. 15,000
Units produced: 1,000 widgets
Units sold: 800 widgets

Using absorption costing, what is the cost per unit for the
widgets produced?
(1) Rs. 115 (2) Rs. 105
(3) Rs. 125 (4) Rs. 135
Under absorption costing, all the costs (fixed and
variable) are allocated to the goods.
Total Manufacturing Costs = 50,000 + 30,000 +
20,000 + 15,000 = 1,15,000
Cost per unit is decided after dividing the total
manufacturing costs by the total units produced.
𝟏,𝟏𝟓,𝟎𝟎𝟎
Cost per unit = = 𝟏𝟏𝟓
𝟏𝟎𝟎𝟎
If the total cost of a contract is 750 Lakhs and the
estimated profit from the contract is 150 Lakhs, the profit
on completion of work ,where cost already incurred is
250 lakhs will be?

A. 20 Lakhs
B. 50 Lakhs
C. 70 Lakhs
D. 90 Lakhs
Profit to date=(Cost of work completed/Total estimated
contract cost)*Estimated contract profit.
(250/750)*150=50 Lakhs

Note: The profit of Rs 50 Lakhs is cumulative profit to

date and not the profit for that accounting period.
Therefore, if the profit booked on this contract in the
earlier accounting period is 30 Lakhs, profit for only 20
Lakhs should be taken during the current accounting
period.
Hyundai India manufacturing cars has fixed costs of
Rs 2 Lakhs and variable cost of Rs 40,000 per car.
Sales price of the car is Rs 80,000. During the year,
it sold 30 cars. What is the profit of the company
during the year?

A. 3000000
B. 2000000
C. 1000000
D. 500000

ANS : C
Using Cost-volume-profit (CVP) analysis, profit will be
determined.
Profit=(S*N)-[F+(V*N)]
Where,
P=Profit
S=Sales value per unit
N=Number of units sold
F=Fixed costs
V=Variable cost per unit

P=(80000*30)-[2,00,000+(40000*30)]
=24,00,000-[2,00,000+12,00,000]
=24,00,000-14,00,000
=10,00,000