Cost & Management Lecture No.

- 1
Accounting

Marginal Costing

By- Sunil Keswani

to be covered
1 Concept & Questions

4
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JJJ
Cost & Management Lecture No.- 2
Accounting

Marginal Costing

By- Sunil Keswani

to be covered
1 Concept & Questions

4
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JJJ
Cost & Management Lecture No.- 3
Accounting

Marginal Costing

By- Sunil Keswani

to be covered
1 Concept & Questions

4
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JJJ
Cost & Management Lecture No.- 6
Accounting

Margnial Costing

By- Sunil Keswani

to be covered
1 Concept & Questions

4
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JJJ
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Cost & Management

Accounting - PYQs
S. No. Chapter Page No.
1 Cost Sheet 3 – 18
2 Material 19 – 26
3 Employee Cost & Direct Expenses 27 – 36
4 Overheads 37 – 45
5 Activity Based Costing 46 – 61
6 Batch Costing 62 – 65
7 Job Costing 66 – 69
8 Cost Accounting System 70 – 77
9 Service Costing 78 – 92
10 Process Costing 93 – 108
11 Joint & By-Product 109 – 116
12 Marginal Costing 117 – 129
13 Standard Costing 130 – 143
14 Budget & Budgetary Control 144 – 155

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Birds Eye View

Particulars May-18 Nov-18 May-19 Nov-19 Nov-20 Jan-21 Jul-21 Dec-21 May-22 Nov-22 May-23 Nov-23

Introduction to Cost Th 5+2.5 5 5 5 5+5 5+5 5 5+5 5+5 5 5 5

& Mgt Accounting Pr

Th 5
Cost Sheet
Pr 10 10 10 10 10 10 10 10 10 10 10 10+6

Th 5+2.5 5 5 5 5 5 5 5 5
Material
Pr 5+5 5 10 5 10 5 5 5 5 5

Th 4 5 5 5 5 5
Labour
Pr 5+10 5 5 10 6 10 5 5 5 6 5 5

Th 5 5 5+5
Overheads
Pr 5 5 10 10 5 5 10 10 10

Activity Based Th 5 4 5 5 5
Costing Pr 10 10 10 10 6 10 10 10 10 4 5 10

Job & Batch Th 5

Costing Pr 10 5 5 5 10 5 5

Reconciliation Th 5
Statement Pr 5 5 10 5 5 5

Cost Accounting Th 5 5
System Pr 10 5 5 4

Th 5 5
Process Costing
Pr 10 5 10 10 10 5 10 5 10 10 5

Th 5 5
Joint & By-Product
Pr 5 5 5 10 5 5 5 10 5

Th 5 5
Service Costing
Pr 10 10 10 10 10 10 5 10 5 5 5 10

Th 5
Standard Costing
Pr 5 5 10 10 10 10 10 10 5 10 10 10

Th 5 5 5
Marginal Costing
Pr 5+10 10 5 5 5 5+10 5 10 5+5 5+10 5+5 5

Budget & Budgetary Th 5 5 5 5 5 5 5

Control Pr 10 5 10 5 10 10 5 10 10+10 10

Th – Stands for Theory

Pr – Stands for Practical

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Cost Sheet
MAY – 2023 – 10 Marks
The following information is available from SN Manufacturing Limited’s for the month of April
2023.
April 1 April 30
Opening and closing inventories data:
Stock of finished goods 2,500 units ?
Stock of raw materials `42,500 `38,600
Work-in-progress `42,500 `42,800
Other data are:
Raw material purchased `6,95,000
Carriage inward `36,200
Direct wages paid `3,22,800
Royalty paid for production `35,800
Purchases of special designs, molds and patterns `1,53,600
(estimated life 12 production cycles)
Power, fuel and haulage (factory) `70,600
Research and development costs for improving the `31,680
production process (amortized)
Primary packing cost (necessary to maintain quality) `6,920
Administrative overhead `46,765
Salary and wages for supervisor foremen `28,000
Other information:
• Opening stock of finished goods is to be valued at `8.05 per unit.
• During the month of April, 1,52,000 units were produced and 1,52,600 units were sold. The
closing stock of finished goods is to be valued at the relevant month’s cost of production.
The company follows the FIFO method.
• Selling and distribution expenses are to be charged at 20 paise per unit.
• Assume that one production cycle is completed in one month.
Required:
(i) Prepare a cost sheet for the month ended on April 30, 2023, showing the various elements of
cost (Raw material consumed, prime cost, factory cost, cost of production, cost of goods
sold, and cost of sales).
(ii) Calculate the selling price per unit fi profit is charged at 20 percent on sales.

Solution
Cost Sheet for the month of April 2023
Particulars Amount (`)
Raw material purchased 6,95,000
Add: carriage inward 36,200
Add: value of opening stock of raw materials 42,500
Less: value of closing stock of raw materials (38,600)
Raw material consumed 7,35,100
Add: Direct wages paid 3,22,800
Add: Direct expenses
Royalty paid for production 35,800
Amortized cost of special design, molds

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and patterns (1,53,600 ÷ 12) 12,800

Power, fuel and haulage 70,600 1,19,200
Prime cost 11,77,100
Add: Salary and wages of supervisor and foremen 28,000
Gross works cost 12,05,100
Add: Opening stock of WIP 42,500
Less: Closing stock of WIP (42,800)
Factory or works cost 12,04,800
Add: Research and development cost 31,680
Add: Primary packing cost 6,920
Cost of Production 12,43,400
Add: Opening stock of finished goods (`8.05 ´ 2,500 units) 20,125
!",$%,$&& (15,542)
Less: Closing stock of finished goods ! !,'",&&&
× (2,500 +
1,52,000 − 1,52,600)-
Cost of goods sold 12,47,983
Add: Administrative overheads 46,765
Add: Selling and distribution expenses (`0.20 ´ 1,52,600) 30,520
Cost of sales 13,25,268
Add: Profit (20% on sales or 25% on cost of sales) 3,31,317
Sales value 16,56,585
Selling price per unit (16,56,585 ´ 1,52,600 units) 10,86

NOV – 2022 – 10 Marks

PNME Ltd. manufactures two types of masks – ‘disposal Masks’ and ‘Cloth Masks’. The cost data
for the year ended 31st March, 2022 is as follows:
`
Direct materials 12,50,000
Direct wages 7,00,000
Production Overhead 4,00,000
Total 23,50,000
It is further ascertained that:
- Direct material cost per unit of cloth Mask was twice as much of direct material cost per unit
od disposal Mask
- Direct wages per unit for Disposal Mask were 60% of those for Cloth Mask
- Production overhead per unit was at same rate for both the types of the masks
- Administration overhead was 50% of Production overhead for each type of mask
- Selling cost was `2 per cloth mask
- Selling price was `35 per unit of cloth mask
- No. of units of cloth masks sold – 45,000
- No. of units of Production of
o Cloth Masks : 50,000
o Disposal Masks : 1,50,000
You are required to prepare a cost sheet for cloth masks showing:
(i) Cost per unit and total cost
(ii) Profit per unit and total cost

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Solution
Preparation of Cost Sheet for Cloth Masks
No. of units produced = 50,000 units
No. of units sold = 45,000 units
Particulars Per unit (₹) Total (₹)
Direct materials (Working note (ii)) 10.00 5,00,000
Direct wages (Working note (ii)) 5.00 2,50,000
Prime cost 15.00 7,50,000
Production overhead (Working note (iii)) 2.00 1,00,000
Factory Cost 17.00 8,50,000
Administration Overhead* (50% of Production 1.00 50,000
Overhead)
Cost of production 18.00 9,00,000
Less: Closing stock (50,000 units – 45,000 units) – (90,000)
Cost of goods solid i.e. 45,000 units 18.00 8,10,00
Selling cost 2.00 90,000
Cost of sales/Total cost 20.00 9,00,000
Profit 15.00 6,75,000
Sales value (₹ 35 × 45,000 units) 35.00 15,75,000
Working Notes:
(i) Direct material cost per unit of disposable mask = M
Direct material cost per unit of cloth mask = 2M
Total direct material cost = (2M ´ 50,000) + (M ´ 1,50,000)
12,50,000 = 1,00,000M + 1,50,000M
12,50,000 = 2,50,000M
!",'&,&&&
M= ",'&,&&&
= `5

Direct material cost per unit of cloth mask = 2 ´ 5 = `10

(ii) Direct wages per unit for cloth mask = W

Direct wages per unit for disposal mask = 0.6W
So, (W × 50,000) + (0.6W × 1,50,000) = ₹ 7,00,000
W = ₹ 5 per unit
Therefore, Direct material Cost per unit of Cloth Mask = ₹ 5
Rs.4,00,000
(iii) Production overhead per unit = = Rs.5
( 50,000 + 1,50,000)
Production overhead for Cloth Mask = ₹ 2 × 50,000 units = ₹ 1,00,000

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*Administration overhead is related to production overhead in the question and hence to be

considered in cost of production only.

MAY – 2022 – 10 Marks

The following data are available from the books and records of A Ltd. for the month of April 2022:
Particulars Amount (`)
st
Stock of raw materials on 1 April 2022 10,000
Raw material purchased 2,80,000
Manufacturing wages 70,000
Depreciation on plant 15,000
Expenses paid for quality control check activities 4,000
Lease rent of production assets 10,000
Administrative overheads (Production) 15,000
Expenses paid for pollution control and engineering & maintenance 1,000
Stock of raw materials on 30th April 2022 40,000
Primary packing cost 8,000
Research & development cost (Process related) 5,000
Packing cost for redistribution of finished goods 1,500
Advertisement expenses 1,300
st
Stock of finished goods as on 1 April 2022 was 200 units having a total cost of `28,000. The
entire opening stock of finished goods has been sold during the month. Production during the
month of April, 2022 was 3,000 units. Closing stock of finished goods as on 30th April, 2022 was
400 units.

You are required to:

(I) Prepare a cost sheet for the above period showing the:
(i) Cost of raw material consumed
(ii) Prime cost
(iii) Factory cost
(iv) Cost of production
(v) Cost of goods sold
(vi) Cost of sales
(II) Calculate selling price per unit, if sale is made at profit of 20% on sales.

Solution
(I) Cost Sheet
Particulars Amount (`)
Opening stock of raw material 10,000
Add: Raw material purchased 2,80,000
Less: Closing stock of raw material (40,000)
Raw material consumed 2,50,000
Add: Manufacturing wages 70,000
Prime cost 3,20,000
Add: Factory overheads
Depreciation on plant 15,000

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Lease rent of production assets 10,000

Expenses for pollution control 1,000 26,000
Gross Factory Cost/ Net Factory cost 3,46,000
Add: Expenses paid for quality control check activities 4,000
Add: Administrative overheads (Production) 15,000
Add: Primary packing cost 8,000
Add: Research & development cost (Process related) 5,000
Cost of production 3,78,000
Add: Opening stock of finished goods 28,000
%,!(,'&& (50,400)
Less: Closing stock of finished goods ! %,&&&
´ 400-
Cost of goods sold 3,55,600
Add: Packing cost for redistribution of finished goods 1,500
Add: Advertisement expenses 1,300
Cost of sales 3,58,400

(II) Statement of calculation of selling price

Particulars Amount (`)
Cost of sales 3,58,400
Units sold (200 + 3,000 – 400) 2,800
Cost per unit 128
Add: Profit per unit [128 ´ (20/80)] 32
Selling price per unit 160

DEC – 2021 – 10 Marks

G Ltd. manufactures leather bags for office and school purposes. The following information is
related with the production for leather bags for the month of September 2021.
(1) Leather sheets and cotton clothes are the main inputs and the estimated requirement per bag is
two metres of leather sheets and one metre of cotton cloth. 2,000 metre of leather sheets and
1,000 metre of cotton cloths are purchased at `3,20,000 and `15,000 respectively. Freight
paid on purchases is `8,500.
(2) Stitching and finishing need 2,000 man-hours at `80 per hour.
(3) Other direct costs of `10 per labour hour is incurred.
(4) G Ltd. have 4 machines at a total cost of `22,00,000. Machines have a life of 10 years with a
scrap value of 10% of the original cost. Depreciation is charged on a straight-line method.
(5) The monthly cost of administration and sales office staffs are `45,000 and `72,000
respectively. G Ltd pays `1,20,000 per month as rent for a 2,400 sq. feet premises. The
administrative and sales office occupies 240 sq. feet and 200 sq. feet respectively of factory
space.
(6) Freight paid on delivery of finished bags is `18,000.
(7) During the month, 35 kg of scrap (cuttings of leather and cotton) are sold at `150 per kg.
(8) There are no opening and closing stocks of input materials. There is a finished stock of 100
bags in stock at the end of the month.
You are required to prepare a cost sheet in respect of above for the month of September 2021
showing:

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(i) Cost of raw material consumed

(ii) Prime cost
(iii) Works/Factory cost
(iv) Cost of production
(v) Cost of goods sold
(vi) Cost of sales

Solution
Number of bags manufactured = 2,000 ÷ 2 = 1,000 bags
Cost Sheet
Particulars Amount (`)
Leather sheets 3,20,000
Add: Cotton cloths 15,000
Add: Freight paid on purchase 8,500
Direct material consumed 3,43,500
Add: Direct wages (80 × 2,000) 1,60,000
Add: Direct expenses (10 × 2,000) 20,000
Prime Cost 5,23,500
Add: Factory overheads:
- Depreciation on machine [(22,00,000 × 90%) ÷ 120] 16,500
- Factory rent [1,20,000 × (1,960 ÷ 2,400)] 98,000 1,14,500
GFC/NFC 6,38,000
Less: Realizable value of cuttings (150 × 35) (5,250)
Cost of Production 6,32,750
Add: Opening stock of bags -
),%",*'& (63,275)
Less: Closing stock of bags H !,&&&
× 100I
Cost of Goods Sold 5,69,475
Add: Administrative Overheads
- Staff salary 45,000
- Rent [1,20,000 × (240 ÷ 2,400)] 12,000 57,000
Add: Selling and Distribution Overheads
- Staff salary 72,000
- Rent [1,20,000 × (200 ÷ 2,400)] 10,000
- Freight paid on delivery of bags 18,000 1,00,000
Cost of Sales 7,26,475

JULY – 2021 – 10 Marks

The following data relates to manufacturing of a standard product during the month of the March,
2021:
Particulars Amount (in `)
Stock of Raw material as on 01-03-2021 80,000

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Work in progress as on 01-03-2021 50,000

Purchase of raw material 2,00,000
Carriage inwards 20,000
Direct wages 1,20,000
Cost of special drawing 30,000
Hire charges paid for Plant 24,000
Return of Raw Material 40,000
Carriage on return 6,000
Expenses for participation in Industrial exhibition 8,000
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000
Depreciation on Delivery Van 6,000
Warehousing charges 1,500
Stock of Raw material as on 31-03-2021 30,000
Stock of Work in Progress as on 31-03-2021 24,000
• Store overheads on material are 10% of material consumed.
• Factory overheads are 20% of the prime cost
• 10% of the output was rejected and a sum of `5,000 was realized on sale of scrap.
• 10% of the finished product was found to be defective and the defective products were rectified
at an additional expenditure which is equivalent to 20% of proportionate direct wages.
• The total output was 8,000 units during the month.
You are required to prepare a cost sheet for the above period showing the:
(i) Cost of raw material consumed
(ii) Prime cost
(iii)Work cost
(iv) Cost of production
(v) Cost of sales

Solution
Cost Sheet
Particulars Amount
Opening stock of raw material 80,000
Add: Raw material purchases 2,00,000
Add: Carriage inward 20,000
Less:Return of raw material (40,000)
Less:Closing stock of raw material (30,000)
Raw Material consumed 2,30,000
Direct wages 1,20,000
Direct Expenses: Cost of special drawing 30,000
Hire charges paid for plant 24,000 54,000

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Prime Cost 4,04,000

Stores Overheads (10% × 2,30,000) 23,000
Carriage on return 6,000
Factory overheads (20% × 4,04,000) 80,800
Rectification cost of defectives (1,20,000 × 90% × 10% × 20%) 2,160
Gross Factory Cost 5,15,960
Add: Opening WIP 50,000
Less: Closing WIP (24,000)
Net Factory Cost 5,41,960
Less:Scrap sale (5,000)
Cost of Production/COGS 5,36,960
Administration Overheads:
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000 29,500
Selling & Distribution Overheads:
Expenses for participation in industrial exhibition8,000
Warehousing charges 1,500
Depreciation on Delivery Van 6,000 15,500
Cost of Sales 5,81,960

JAN – 2021 – 10 Marks

The following data are available from the books and records of Q Ltd. for the month of April,
2020:
Direct Labour Cost = `1,20,000 (120% of Factory Overheads)
Cost of Sales = `4,00,000
Sales = `5,00,000
Accounts show the following figures:
1st April, 2020 (`) 30th April, 2020 (`)
Inventory:
Raw material 20,000 25,000
Work-in-progress 20,000 30,000
Finished goods 50,000 60,000
Other details:
Selling expenses 22,000
General & Admin. Expenses 18,000
You are required to prepare a cost sheet for the month of April 2020 showing:
(i) Prime Cost
(ii) Works Cost
(iii) Cost of Production
(iv) Cost of Goods Sold

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(v) Cost of Sales and profit earned

Solution
Cost Sheet for the month of April 2020
Particulars Amount
Raw material purchased (Bal. fig.) 1,65,000
Add: Opening value of raw material 20,000
Less: Closing value of raw material (25,000)
Direct Material Consumed (i) (Bal. fig.) 1,60,000
Add: Direct Wages 1,20,000
Add: Direct Expenses -
Prime Cost (ii) (Bal. fig.) 2,80,000
Add: Factory Overheads (1,20,000 ÷ 120%) 1,00,000
GFC (Bal. fig.) 3,80,000
Add: Opening stock of WIP 20,000
Less: Closing stock of WIP (30,000)
NFC/COP (iii) (Bal. fig.) 3,70,000
Add: Opening stock of FG 50,000
Less: Closing stock of FG (60,000)
Cost of goods sold (iv) 3,60,000
Add: Administration overheads 18,000
Add: Selling & Distribution overheads 22,000
Cost of Sales 4,00,000
Add: Profit (Bal. fig.) (v) 1,00,000
Sales 5,00,000

NOV – 2020 – 10 Marks

X Ltd. manufactures two types of pens ‘Super Pen’ and ‘Normal Pen’. The cost data for the year
ended 30th September, 2019 is as follows:
(`)
Direct Materials 8,00,000
Direct Wages 4,48,000
Production Overhead 1,92,000
Total 14,40,000
It is further ascertained that:
(1) Direct materials cost in Super Pen was twice as much of direct material in Normal Pen.
(2) Direct wages for Normal Pen were 60% of those for super Pen.
(3) Production overhead per unit was at same rate for both the types.
(4) Administration overhead was 200% of direct labour for each.
(5) Selling cost was `1 per Super pen.
(6) Production and sales during the year were as follows:

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Production Sales
No. of units No. of units
Super Pen 40,000 Super Pen 36,000
Normal Pen 1,20,000
(7) Selling price was `30 per unit for Super Pen.
Prepare a Cost Sheet for ‘Super Pen’ showing
(i) Cost per unit and Total Cost
(ii) Profit per unit and Total Profit

Solution
Cost Sheet
Super Pen
Particulars
Total Per Unit
($&,&&&×")×.,&&,&&&
Direct Material !($&,&&&×")/(!,"&,&&&×!)- 3,20,000 8.00
($&,&&&×!)×$,$.,&&&
Direct Wages !($&,&&&×!)/(!,"&,&&&×&.)&)- 1,60,000 4.00
Prime Cost 4,80,000 12.00
$&,&&&×!,(",&&&
Production Overheads !$&,&&&/!,"&,&&&- 48,000 1.20
Factory Cost 5,28,000 13.20
Add: Opening Stock - -
Less: Closing Stock [(40,000 – 36,000) × 13.20] 52,800 13.20
Cost of goods sold 4,75,200 13.20
Administration Overheads (200% × 1,60,000) 3,20,000 8.89
Add: Selling & Distribution (36,000 × 1) 36,000 1.00
Cost of Sales 8,31,200 23.09
Profit 2,48,800 6.91
Sales 10,80,000 30.00

NOV – 2019 – 10 Marks

XYZ a manufacturing firm, has revealed following information for September, 2019:
1st September 30th September
` `
Raw Materials 2,42,000 2,92,000
Works-in-progress 2,00,000 5,00,000
The firm incurred following expenses for a targeted production of 1,00,000 units during the month:

`
Consumable Stores and spares of factory 3,50,000
Research and development cost for process improvements 2,50,000
Quality control cost 2,00,000

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Packing cost (secondary) per unit of goods sold 2

Lease rent of production asset 2,00,000
Administrative Expenses (General) 2,24,000
Selling and distribution Expenses 4,13,000
Finished goods (opening) Nil
Finished goods (closing) 5,000 units
Defective output which is 4% of targeted production, realizes `61 per unit. Closing stock is valued
at cost of production (excluding administrative expenses). Cost of goods sold, excluding
administrative expenses amounts to `78,26,000. Direct employees’ cost is ½ of cost of material
consumed. Selling price of the output is `110 per unit.
You are required to:
(i) Calculate the value of material purchased
(ii) Prepare cost sheet showing the profit earned by the firm

Solution
Statement of cost and profit
Particulars Amount
Opening stock of material 2,42,000
Add: Purchases (w.n. - 2) 52,50,000
Less: Closing stock of material (2,92,000)
Direct material consumed 52,00,000
Add: Direct Labour (w.n. - 2) 26,00,000
Add: Direct Expenses -
Prime Cost (bal. fig.) 78,00,000
Add: Factory Overheads
Consumable stores and spares of factory 3,50,000
Lease rent of production asset 2,00,000
Gross Factory Cost (bal. fig.) 83,50,000
Add: Opening WIP 2,00,000
Less: Closing WIP (5,00,000)
Net Factory Cost (bal. fig.) 80,50,000
Add: Quality Control Cost 2,00,000
Add: Research and development Cost 2,50,000
Less: Sale of defective goods (1,00,000 × 4% × 61) (2,44,000)
Cost of Production (bal. fig.) 82,56,000
Add: Opening stock of FG -
Less: Closing stock of FG (w.n. – 1) (4,30,000)
Cost of goods sold 78,26,000
Add: Administration overheads 2,24,000
Add: Packaging cost (Secondary) (2 × 91,000) 1,82,000
Add: Selling & Distribution overheads 4,13,000

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Cost of Sales 86,45,000

Add: Profit (bal. fig.) 13,65,000
[(1,00,000 – 4,000 – 5,000) × 110] Sales 1,00,10,000
Working Notes:
(1) Since there is no opening stock, so the entire cost of goods sold is out of cost of production
only.
*.,"),&&&
Thus, cost per unit of goods produced = !,&&,&&&1',&&&1$,&&& = `86
Therefore, closing stock of finished goods = 86 × 5,000 = `4,30,000

(2) Let raw material purchase = y

Thus, raw material consumed = 2,42,000 + y – 2,92,000 = y – 50,000
Direct wages = ½ × (y – 50,000) = 0.5y – 25,000
Prime cost = y – 50,000 + 0.5y – 25,000
78,00,000 = 1.5y – 75,000
1.5y = 78,75,000
y = 52,50,000
Raw material purchased = y = `52,50,000

MAY – 2019 – 10 Marks

M/s Areeba Private Limited has a normal production capacity of 36,000 units of toys per annum.
The estimated costs of production are as under:
(i) Direct Material `40 per unit
(ii) Direct Labour `30 per unit (subject to a minimum of `48,000 p.m.)
(iii) Factory Overheads:
(a) Fixed `3,60,000 per annum
(b) Variable `10 per unit
(c) Semi-variable `1,08,000 per annum up to 50% capacity and additional
`46,800 for every 20% increase in capacity or any part
thereof
(iv) Administrative Overheads `5,18,400 per annum (fixed)
(v) Selling overheads are incurred at `8 per unit
(vi) Each unit of raw material yields scrap which is sold at the rate of `5 per unit
(vii) In year 2019, the factory worked at 50% capacity for the first three months but it was
expected that if would work at 80% capacity for the remaining nine months.
(viii) During the first three months, the selling price per unit was `145
You are required to:
(i) Prepare a cost sheet showing Prime Cost, Works Cost, Cost of Production and Cost of sales
(ii) Calculate the selling price per unit for remaining nine months to achieve the total annual
profit of `8,76,600.

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Solution
(i) Statement of Cost
Particulars First 3 months Bal. 9 months
Level of operation 50% 80%
Units '& % .& (
36,000 × !&& × !" = 36,000 × !&& × !" =
4,500 21,600
Direct material @ `40 p.u. 1,80,000 8,64,000
Less: Scrap @ `5 p.u. (22,500) (1,08,000)
Direct wages 4,500 × 30 21,600 × 30
K LM O 1,44,000 K LM O 6,48,000
48,000 × 3 48,000 × 9
Prime Cost 3,01,500 14,04,000
Factory Overheads:
Fixed expenses % (
3,60,000 × !" = 90,000 3,60,000 × !" = 2,70,000
Variable expenses @ `10 p.u. 45,000 2,16,000
%
Semi-variable expenses 1,08,000 × !" = 27,000 (1,08,000 + 46,800 +
(
46,800) × !" = 1,51,200
Work Cost/ COP/ COGS 4,63,500 20,41,200
Add: Administrative overheads % (
5,18,400 × !" = 1,29,600 5,18,400 × !" = 3,88,800
Add: Selling Overheads @ `8 p.u. 36,000 1,72,800
Cost of Sales 6,29,100 26,02,800
*Assuming administration overheads are not related to production

(ii) Calculation of selling price for nine months period

Particulars Amount (`)
Sales in first 3 months (4,500 × 145) 6,52,500
Less: cost of sales in first 3 months 6,29,100
Profit generated in first 3 months 23,400
Targeted profit p.a. 8,76,600
Profit to be earned in remaining 9 months 8,53,200
Add: Cost of sales for remaining 9 months 26,02,800
Targeted sales for remaining 9 months 34,56,000
Units for remaining 9 months 21,600
Selling price per unit 160

NOV – 2018 – 10 Marks

Following details are provided by M/s ZIA Private Limited for the quarter ending 30 September,
2018:
Direct expenses `1,80,000

Sunil Keswani PYQs of Cost & Management Accounting

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Direct wages being 175% of factory overheads `2,57,250

Cost of goods sold `18,75,000
Selling & distribution overheads `60,000
Sales `22,10,000
Administration overheads are 10% of factory overheads
Stock details as per Stock Register:
Particulars 30.06.2018 (`) 30.09.2018 (`)
Raw material 2,45,600 2,08,000
Work-in-progress 1,70,800 1,90,000
Finished goods 3,10,000 2,75,000
You are required to prepare a cost sheet showing:
(i) Raw material consumed
(ii) Prime cost
(iii) Factory cost
(iv) Cost of goods sold
(v) Cost of sales and profit

Solution
Cost Sheet for the year quarter ending 30th September 2018
Particulars Amount
Raw material purchased (Bal. fig.) 12,37,300
Add: Opening value of raw material 2,45,650
Less: Closing value of raw material (2,08,000)
Direct Material Consumed (i) (Bal. fig.) 12,74,950
Add: Direct Wages 2,57,250
Add: Direct Expenses 1,80,000
Prime Cost (ii) (Bal. fig.) 17,12,200
Add: Factory Overheads (2,57,250 ÷ 175%) 1,47,000
GFC (Bal. fig.) 18,59,200
Add: Opening stock of WIP 1,70,800
Less: Closing stock of WIP (1,90,000)
NFC/COP (iii) (Bal. fig.) 18,40,000
Add: Opening stock of FG 3,10,000
Less: Closing stock of FG (2,75,000)
Cost of goods sold (iv) 18,75,000
Add: Administration overheads (1,47,000 × 10%) 14,700
Add: Selling & Distribution overheads 60,000
Cost of Sales 19,49,700
Add: Profit (Bal. fig.) (v) 2,60,300
Sales 22,10,000

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MAY – 2018 – 10 Marks

Following information relate to a manufacturing concern for the year ended 31st March, 2018:
`
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 42,25,000
Freight Inwards 1,00,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses `16 per unit
Finished Stock (opening) – 1217 Units 6,08,500
Sale of scrap of material 8,000
The firm produced 14,000 units of output during the year. The stock of finished goods at the end
of the year is valued at cost of production. The firm sold 14,153 units at a price of `618 per unit
during the year. Prepare cost sheet of the firm.

Solution
Cost Sheet for the year ended 31st March 2018
Particulars Amount
Raw material purchased 42,25,000
Add: Freight inwards 1,00,000
Add: Opening value of raw material 2,28,000
Less: Closing value of raw material (3,05,000)
Less: Sale of scrap of material (8,000)
Direct Material Consumed 42,40,000
Add: Direct Wages (12,56,000 + 1,50,000) 14,06,000
Add: Direct Expenses -
Prime Cost 56,46,000
Add: Factory Overheads (56,46,000 × 20%) 11,29,200
GFC 67,75,200
Add: Opening stock of WIP 1,92,500
Less: Closing stock of WIP (1,40,700)
NFC 68,27,000
Add: Administrative Overheads (related to production) 1,73,000
COP 70,00,000
Add: Opening stock of FG 6,08,500

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*&,&&,&&&
Less: Closing stock of FG H !$,&&&
× 1,064I (5,32,000)
Cost of goods sold 70,76,500
Add: Distribution expenses (16 × 14,153) 2,26,448
Cost of Sales 73,02,948
Add: Profit (Bal. fig.) 14,43,606
Sales (618 × 14,153) 87,46,554

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Material Cost
NOV – 2022 – 5 Marks
MM Ltd. uses 7500 valves per month which is purchased at a price of `1.50 per unit. The carrying
cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place
an order and getting the delivery is `15. It takes a period of 1.5 months to receive a delivery from
the date of placing an order and a safety stock of 3200 valves is desired.

You are required to determine:

(i) The Economic Order Quantity (EOQ) and the frequency of orders.
(ii) The re-order point
(iii) The Economic Order Quantity (EOQ) if the valve cost `4.50 each instead of 1.50 each.
(Assume a year consist of 360 days)

Solution
(i) Annual requirement (A) = 7500 ´ 12 = 90,000 valves
Cost per order (O) = `15
Carrying cost per unit (C) = 20% ´ 1.50 = `0.30
"×2×3 "×(&,&&&×!'
Economic Order Quantity = Q 4
=Q &.%&
= 3,000 valves
Number of orders = 90,000 ÷ 3,000 = 30 orders
%)& 6789
Frequency of order = %& = 12 days

(ii) Re-order quantity = Safety stock + (Average consumption ´ Average lead time)
= 3,200 + (7,500 ´ 1.5) = 14,450 valves

"×2×3 "×(&,&&&×!'
(iii) Economic Order Quantity = Q 4
=Q "&%×$.'&
= 1,732.058 valves or 1,733 valves

MAY – 2022 – 5 Marks

A Ltd. a toy company purchases its requirement of raw material from S Limited at `120 per kg.
The company incurs a handling cost of `400 plus freight of `350 per order. The incremental
carrying cost of inventory of raw material is `0.25 per kg per month. In addition, the cost of
working capital finance on the investment in inventory of raw material is `15 per kg per annum.
The annual production of the toys is 60,000 units and 5 units of toys are obtained from one kg of
raw material.

Required:
(i) Calculate the Economic Order Quantity (EOQ) of raw materials.
(ii) Advise, how frequently company should order to minimize its procurement cost.
Assume 360 days in a year.
(iii) Calculate the total ordering cost and total inventory carrying cost per annum as per
EOQ.

Sunil Keswani PYQs of Cost & Management Accounting

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Solution
(a) A = 60,000 ÷ 5 = 12,000 kg
O = 400 + 350 = `750
C = 15 + (0.25 × 12) = `18

EOQ = 2 ´ A ´ O =Q"×!",&&&×*'& = 1,000 kg

C !.

(b) Number of orders to be placed = Annual requriement of material = !,&&& = 12 orders

!",&&&
Order size (EOQ)
%)& %)&
Frequency of order = ;<. <= <>6?>9
= !"
= 30 days

(c) Total ordering cost = No. of order ´ cost per order = 12 ´ 750 = `9,000
3>6?> @AB? !,&&&
Total carrying cost = "
´ carrying cost per unit p.a. = "
´ 18 = `9,000
Total cost = `18,000

DEC – 2021 – 5 Marks

XYZ Ltd uses two types of raw materials – ‘Material A’ and ‘Material B’ in the production process
and has provided the following data for the year ended on 31st March, 2021:
Particulars Material A (`) Material B (`)
Opening stock as on 1.04.2020 30,000 32,000
Purchases during the year 90,000 51,000
Closing stock as on 31.02.2021 20,000 14,000
(i) You are required to calculate:
a) The inventory turnover ratio of ‘Material A’ and ‘ Material B’
b) The number of days for which the average inventory is held for both materials ‘A’
and ‘B’.
(ii) Based on above calculations, give your comments.
(Assume 360 days in a year)

Solution
(i) Calculation of Inventory Turnover Ratio
Particulars Material A Material B
Opening stock 30,000 32,000
Add: Purchases 90,000 51,000
Less: Closing Stock 20,000 14,000
Raw Material Consumed (A) 1,00,000 69,000
Average Stock %&,&&&/"&,&&& %",&&&/!$,&&&
= 25,000
" "
= 23,000
3C?DADE/4F<9ADE
H "
I (B)
Inventory Turnover Ratio (ITR) !,&&,&&& )(,&&&
"',&&&
= 4 times "%,&&&
= 3 times
%)& %)&
Number of days (360 ÷ ITR) = 90 days = 120 days
$ %

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JULY – 2021 – 5 Marks

MM Ltd. has provided the following information about the items in its inventory.
Item Code Number Units Unit Cost (`)
101 25 50
102 300 01
103 50 80
104 75 08
105 225 02
106 75 12
MM ltd. has adopted the policy of classifying the items constituting 15% or above to Total
Inventory Cost as “A” category, items constituting 6% or less of Total Inventory Cost as “C”
category and the remaining items as “B” category.
You are required to:
(i) Rank the items on the basis of % of Total Inventory Cost.
(ii) Classify the items into A, B and C categories as per ABC analysis of Inventory Control adopted
by MM Ltd.

Solution
Statement of Cost
Item Code Units Unit Total % of Rank Category
Number Cost Cost Total Cost
(` )
101 25 50 1,250 16.67% II A
102 300 01 300 4% VI C
103 50 80 4,000 53.33% I A
104 75 08 600 8% IV B
105 225 02 450 6% V C
106 75 12 900 12% III B
Total 7,500 100%

NOV – 2020 – 5 Marks

An automobile company purchases 27,000 spare parts for its annual requirements. The cost per
order is `240 and the annual carrying cost of average inventory is 12.5%. Each spare part costs
`50.

At present, the order size is 3,000 spare parts.

(Assume that number of days in a year = 360 days)
Find out:
(i) How much the company’s cost would be saved by opting EOQ model?
(ii) The Re-order point under EOQ model if lead time is 12 days.
(iii) How frequently should orders for procurement be placed under EOQ model?

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 22

Solution
(i) Annual requirement (A) = 27,000
Cost per order (O) = `240
Carrying cost per unit p.a. (C) = 50 × 12.5% = `6.25
"×2×3 "×"*,&&&×"$&
EOQ = Q 4
=Q )."'
= 1,440 units

Statement of Cost
Particulars Order size = 3,000 Order size = 1,440
Purchase cost 27,000 × 50 = 13,50,000 27,000 × 50 = 13,50,000
Ordering cost "*,&&& "*,&&&
%,&&&
× 240 = 2,160 !,$$&
LM18.75 LM 19 × 240 = 4,560
Carrying cost %,&&& !,$$&
× 6.25 = 9,375 × 6.25 = 4,500
" "
Total cost 13,61,535 13,59,060
Saving due to EOQ = `13,61,535 - `13,59,060 = `2,475

"*,&&&
(ii) Re-order point = Maximum consumption × Maximum time = %)&
× 12 = 900 units
"*,&&&
(iii) Number of orders under EOQ Model = !,$$&
= 18.75 or 19
%)&
Frequency of order = !(
= 18.94 days

NOV – 2019 – 5 Marks

Surekha Limited Produces 4,000 litres of paints on a quarterly basis. Each litre requires 2 kg of
raw material. The cost of placing one order for raw material is `40 and the purchasing price of
raw material is `50 per kg. The storage cost and interest cost is 2% and 6% per annum respectively.
The lead time for procurement of raw material is 15 days.
Calculate Economic Order Quantity and Total Annual Inventory Cost in respect of the above raw
material.

Solution
A = 4,000 × 2 × 4 = 32,000 kg
O = `40
C = 50 × (2% + 6%) = `4
"×2×3 "×%",&&&×$&
EOQ = Q 4
=Q $
= 800 kg

Total inventory cost = Purchase cost + Ordering cost + Carrying cost

%",&&& .&&
= (32,000 × 50) + H .&&
× 40I + H "
× 4I = `16,03,200

MAY – 2019 – 10 Marks

The following are the details of receipt and issue of material ‘CXE’ in a manufacturing Co. during
the month of April 2019:

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 23

Date Particulars Quantity Rate per kg

(kg)
April 4 Purchases 3,000 `16
April 8 Issue 1,000
April 15 Purchases 1,500 `18
April 20 Issue 1,200
April 25 Return to supplier out of purchase made on April 15 300
April 26 Issue 1,000
April 28 Purchase 500 `17
Opening stock as on 01-04-2019 is 1,000 kg @ `15 per kg.
On 30th April, 2019 it was found that 50 kg of material ‘CXE’ was fraudulently misappropriated
by the store assistant and never recovered by the company. Required:
(i) Prepare a store ledger account under each of the following method of pricing the issue:
a) Weighted Average Method
b) LIFO
(ii) What would be the value of material consumed and value of closing stock as on 30-04-2019
as per these two methods?

Solution
(a) Stores Ledger (Weighted Average Basis)
Receipts Issues Balance
Date Qty. Rate Amou Qty. Rate Amou Qty. Rate Amou
(kg) (`) nt (kg) (`) nt (kg) (`) nt
1-4-19 - - - - - - 1,000 15 15,000
4-4-19 3,000 16 48,000 - - - 4,000 15.75 63,000
8-4-19 - - - 1,000 15.75 15,750 3,000 15.75 47,250
15-4-
1,500 18 27,000 - - - 4,500 16.50 74,250
19
20-4-
- - - 1,200 16.50 19,800 3,300 16.50 54,450
19
25-4-
- - - 300 18 5,400 3,000 16.35 49,050
19
26-4-
- - - 1,000 16.35 16,350 2,000 16.35 32,700
19
28-4-
500 17 8,500 - - - 2,500 16.48 41,200
19
30-4-
- - - 50 16.48 824 2,450 16.48 40,376
19

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 24

(b) Stores Ledger (LIFO)

Receipts Issues Balance
Date Qty. Rate Amou Qty. Rate Amou Qty. Rate Amou
(kg) (`) nt (kg) (`) nt (kg) (`) nt
1-4-19 - - - - - - 1,000 15 15,000
1,000 15 15,000
4-4-19 3,000 16 48,000 - - -
3,000 16 48,000
1,000 15 15,000
8-4-19 - - - 1,000 16 16,000
2,000 16 32,000
1,000 15 15,000
15-4-
1,500 18 27,000 - - - 2,000 16 32,000
19
1,500 18 27,000
1,000 15 15,000
20-4-
- - - 1,200 18 21,600 2,000 16 32,000
19
300 18 5,400
25-4- 1,000 15 15,000
- - - 300 18 5,400
19 2,000 16 32,000
26-4- 1,000 15 15,000
- - - 1,000 16 16,000
19 1,000 16 16,000
1,000 15 15,000
28-4-
500 17 8,500 - - - 1,000 16 16,000
19
500 17 8,500
1,000 15 15,000
30-4-
- - - 50 17 850 1,000 16 16,000
19
450 17 7,650

(ii) Value of Material Consumed and Closing Stock

Weighted Average LIFO Method
Method (`) (` )
Opening stock as on 01-04-2019 15,000 15,000
Add: Purchases 83,500 83,500
Less: Return to supplier (5,400) (5,400)
Less: Abnormal loss (824) (850)
Less: Closing stock as on 30-04-2019 (40,376) (38,650)
Value of material consumed 51,900 53,600

NOV – 2018 – 5 Marks

M/s SJ Private Limited manufactures 20,000 units of a product per month. The cost of placing an
order is `1,500. The purchase price of the raw material is `100 per kg. The re-order period is 5 to
7 weeks. The consumption of raw materials varies from 200 kg to 300 kg per week, the average
consumption being 250 kg. The carrying cost of inventory is 9.75% per annum.

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 25

You are required to calculate:

(i) Re-order quantity
(ii) Re-order level
(iii) Maximum level
(iv) Minimum level
(v) Average stock level

Solution
"×2×3
(i) EQO = Q 4

A = 250 kg × 52 weeks = 13,000 kg

O = `1,500
C = `100 per kg × 9.75% = `9.75 per kg
"×!%,&&&×!,'&&
EOQ = Q (.*'
= 2,000 kg

(ii) Re-order level = Maximum Consumption × Maximum lead Time

= 300 × 7 = 2,100 kg
(iii)Maximum level = Reorder level + Reorder Qty – (Min consumption × min lead time)
= 2,100 + 2,000 – (200 × 5) = 3,100 kg
(iv) Minimum level = Reorder Level – (Average Consumption × Average Reorder Period)
= 2,100 – (250 × 6) = 600 kg
(v) Average Stock Level = (Minimum level + maximum level)/2
= (3,100 + 600)/2 = 1,850 kg

MAY – 2018 – 5 Marks

M/s X Private Limited is manufacturing a special product which requires a component “SKY
BLUE”. The following particulars are collected for the year ended 31st March, 2018:
Annual demand of “SKY BLUE” 12,000 units
Cost of placing an order `1,800
Cost per unit of “SKY BLUE” `640
Carrying cost per annum 18.75%
The company has been offered a quantity discount of 5% on the purchase of “SKY BLUE”,
provided the order size is 3,000 components at a time.
Required:
(a) Compute the economic order quantity
(b) Advise whether the quantity discount offer can be accepted

Solution
"×2×3
(i) EQO = Q 4

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 26

A = 12,000 units
O = `1,800
C = `640 per unit × 18.75% = `120 per unit
"×!",&&&×!,.&&
EOQ = Q !"&
= 600 units

(ii) Statement showing evaluation of proposal

Particulars Order 600 units Order 3,000 units
Annual purchase cost (`640/608 p.u) 76,80,000 72,96,000
Annual Ordering cost (`1,800 per order) 36,000 7,200
Annual carrying cost (`120/114 per unit) 36,000 1,71,000
Total Cost `77,52,000 `74,74,200
Since the total cost is lower by `2,77,800 in case when the company gets the discount offer of 5%,
thus, it is recommended to accept the discount offer with order size of 3,000 units.

MAY – 2018 – 5 Marks

The following details are provided by M/s SKU Enterprises for the year ended 31st March, 2018:
Particulars Material – M (`) Material-N (`)
Stock as on 01-04-2017 6,00,000 10,00,000
Stock as on 31-03-2018 4,50,000 7,25,000
Purchases during the year 9,50,000 18,40,000
You are required to:
(i) Calculate Turnover Ratio of both the materials
(ii) Advise which of the two materials is fast moving. (Assume 360 days in a year)

Solution
(i) Calculation of turnover ratio
Particulars Material M Material N
Turnover Ratio ),&&,&&&/(,'&,&&&1$,'&,&&& !&,&&,&&&/!.,$&,&&&1*,"',&&&
(),&&,&&&/$,'&,&&&)/"
=2.0 (!&,&&,&&&/*,"',&&&)/"
=2.4
4<9G <= 9G<HI <= J7G?A>7F H<D9KJ?6
H 2L?>7E? 9G<HI <= J7G?>A7F
I 9 5
Average number of days for %)& %)&
".&(
= 172.25 days ".$'
= 146.94 days
which the average inventory is
held
%)&
HNDL?DG<>8 OK>D<L?> P7GA<I
(ii) Advise
On comparing the two, it can be said that Material M is slow moving as compared to Material N
because of having higher inventory holding period of 172.25 days. Since the inventory holding
period is high in both case then the exact decision should be taken by comparing the same with the
industry standards.

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 27

Employee Cost
MAY – 2023 – 5 Marks
SMC Company Limited is producing a particular design of toys under the following existing
incentive system:
Normal working hours in the week 48 hours
Late shift hours in the week 12 hours
Rate of payment Normal working: `150 per hour
Late shift: `300 per hour
Average output per operator for 60 hours per week (including late shift hours): 80 toys.
The company’s management has now decided to implement a system of labour cost payment with
either the Rowan Premium Plan or the Halsey Premium Plan in order to increase output, eliminate
late shift overtime, and reduce the labour cost.

The following information is obtained:

The standard time allotted for ten toys is seven and half hours.
Time rate: `150 per hour (as usual)
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required
to calculate the weekly earnings for one operator under-w
(i) The existing Time Rate
(ii) Rowan Premium Plan and
(iii) Halsey Premium Plan (50%)

Solution
)& Q<K>9
Time allowed to produce 100 toys = .& G<89 × 100 SLTU = 75 hours
Time saved = 75 hours – 48 hours = 27 hours

(i) Weekly earning of one operator under existing time rate

= (48 hours ´ 150) + (12 hours ´ 300) = `10,800

(ii) Weekly earning of one operator under Rowan Premium Plan

= (Time taken ´ Rate per hour) + [(Time saved ÷ Time allowed)´Time taken´ Rate per hour]
= (48 hours ´ 150) + [(27 ÷ 75) ´ 48 ´ 150] = `9,792

(iii) Weekly earning of one operator under Halsey Premium Plan

= (Time taken ´ Rate per hour) + (50% of time saved ´ Rate per hour)
= (48 ´ 150) + (50% ´ 27 ´ 150) = `9,225

NOV – 2022 – 6 Marks

A skilled worker in PK Ltd. is paid a guaranteed wage rate of `15.00 per hour in a 48-hour week.
The standard time to produce a unit is 18 minutes. During a week, a skilled worker – Mr. ‘A’ has
produced 200 units of the product. The company has taken a drive for cost reduction and wants to
reduce its labour cost.
You are required to:
(i) Calculate wages of Mr. ‘A’ under each of the following methods:
(a) Time rate
(b) Piece rate with a guaranteed weekly wage
(c) Halsey Premium plan

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 28

(d) Rowan Premium Plan

(ii) Suggest which bonus plan i.e. Halsey Premium plan or Rowan Premium Plan the company
should follow.
Solution
(i) (a) Wages = Time worked ´ Rate for the time = 48 hours ´ `15 = `720
(b) Wages = Number of units produced ´ rate per unit = 200 units ´ `4.50 = `900
!'
Rate per unit = )& JADKG?9 × 18 VWXYSZU = `4.50
(c) Halsey Premium Plan
Wages = (Time taken ´ Time rate) + 50%(Time saved)(Time rate)
"&& KDAG9
= (48 hours ´ `15) + (50%)!H!. JADKG?9 × 60 VWXYSZUI − 48 ℎLYMU-(`15)
= `720 + `90 = `810
(d) Rowan Premium plan
OAJ? @7L?6
Wages = (Time taken ´ Time rate) + HOAJ? 2FF<R?6 I(Time taken)(Time rate)
)& Q<K>91$. Q<K>9
= (48 hours ´ `15) + H )& Q<K>9
I(48 hours)(`15)
= `720 + `144 = `864
(ii) The company may follow Halsey premium Plan over Rowan Premium Bonus Plan as the
total wages paid is lower than that of Rowan Premium Bonus Plan.

MAY – 2022 – 5 Marks

PQR Limited has replaced 72 workers during the quarter ended 31st March, 2022. The labour rates
for the quarter are as follows:
Flux Method 16%
Replacement Method 8%
Separation Method 5%
You are required to ascertain:
(i) Average number of workers on roll (for the quarter),
(ii) Number of workers left and discharged during the quarter,
(iii) Number of workers recruited and joined during the quarter,
(iv) Equivalent employee turnover rates for the year.

Solution
;<.<= >?CF7H?J?DG9
(i) Replacement Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
*"
8 = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
Average number of workers = 900
;<.<= 9?C?7>7GA<D9
(ii) Separation Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
;<.<= 9?C?7>7GA<D9
5 = (&&
´ 100
Number of separations (left and discharged) = 45
;<.<= 9?C7>7GA<D9 / ;<.<= >?H>KAGJ?DG9 & U<AD??
(iii) Flux Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9
´ 100
$' / ;<.<= >?H>KAGJ?DG9 & U<AD??
16 = (&&
´ 100

Sunil Keswani PYQs of Cost & Management Accounting

 29

Number of workers recruited & joined = 99

(iv) Equivalent Employee turnover rate

!)
Flux Method – Labour turnover rate = %
´ 12 = 64%
.
Replacement Method – Labour turnover rate = % ´ 12 = 32%
'
Separation Method – Labour turnover rate = % ´ 12 = 20%

DEC – 2021 – 5 Marks

A skilled worker is paid a guaranteed wage rate of `150 per hour. The standard time allowed for
a job is 10 hours. He took 8 hours to complete the job. He has been paid the wages under Rowan
Incentive Plan.

You are required to:

(i) Calculate an effective hourly rate of earnings under Rowan Incentive Plan.
(ii) Calculate the time in which he should complete the job, if the worker is placed under Halsey
Incentive Scheme (50%) and he wants to maintain the same effective hourly rate of earnings.
Solution
V .
(i) Total earnings = (H ´ R) + [(S- H) ´ R ´ @ ] = (8 ´ 150) + !(10 − 8)´150´ !&- = `1,440
!,$$&
Effective hourly rate of earning = .
= `180

(ii) Let actual time = y

Total Earnings = (H ´ R) + [(S – H) ´ R ´ 50%]
(y)(180) = (y ´ 150) + [(10 – y) ´ 150 ´ 50%]
180y = 150y + 750 – 75y
105y = 750
y = 7.14 hours
\ Required actual hours = 7.14

JULY – 2021 – 5 Marks

Following information is given of a newly setup organization for the year ended on 31st March,
2021:
Number of workers replaced during the period 50
Number of workers left and discharged during the period 25
Average number of workers on the roll during the period 500
You are required to:
(i) Compute the employee turnover ratios using Separation Method and Flux Method.
(ii) Equivalent employee Turnover Rates for (i) above, given that for the organization was setup
on 31st January, 2021.

Solution
;<. <= 9?C?>7GA<D9
(i) Employee turnover ratio by separation method = 2L?>7E? D<. <= R<>I?>9
× 100

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"'
= '&& × 100 = 5%
;<. <= 9?C?>7GA<D9 & >?CF7H?J?DG
Employee turnover ratio by flux method = 2L?>7E? D<. <= R<>I?>9
× 100
("'/'&)
= × 100 = 15%
'&&
'
(ii) Equivalent employee turnover ratio under separation method = " × 12 = 30%
!'
Equivalent employee turnover ratio under flux method = "
× 12 = 90%

JAN – 2021 – 10 Marks

Z Ltd. is working by employing 50 skilled workers. It is considering the introduction of an
incentive scheme – either Halsey scheme (with 50% bonus) or Rowan Scheme – of wage payment
for increasing labour productivity to adjust with the increasing demand for its products by 40%.
The company feels that the if the proposed incentive scheme could bring labour an average 20%
increase over the present earnings of the workers, it could act as sufficient incentive for them to
produce more and the company has accordingly given assurance to the workers.

Because of this assurance, an increase in productivity has been observed as revealed by the figures
for the month of April, 2020:
Hourly rate of wages (guaranteed) `50
Average time for producing one unit by one worker at the previous 1.975 hours
performance (this may be taken as time allowed)
Number of working days in a month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units
Required:
(iii) Calculate the effective increase in earnings of workers in percentage terms under Halsey and
Rowan scheme.
(iv) Calculate the savings to Z Ltd. in terms of direct labour cost per unit under both the schemes.
(v) Advise Z Ltd. about the selection of the scheme to adjust with the increase in demand.

Solution
Working notes:
1. Computation of time saved (in hours) per month:
= Standard production time of 6,120 units – Actual time taken by the workers
= (6,120 units ´ 1.975 hours) – (24 days ´ 8 hrs per day ´ 50 skilled workers)
= 12,087 hours – 9,600 hours = 2,487 hours
2. Computation of bonus for time saved hours under Halsey and Rowan schemes:
Time saved hours = 2,487 hours
Wage rate per hour = `50
Bonus under Halsey scheme = 50% ´ 2,487 hours ´ `50 = `62,175
(with 50% bonus)

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",$.* Q<K>9
Bonus under Rowan Scheme = !",&.* Q<K>9
´ 9,600 hours ´ `50 = `98,764

(i) Computation of effective rate of earnings under the Halsey and Rowan schemes:
Total earnings (under Halsey scheme) =Time wages + Bonus
= (24days´8hours´50skilled workers ´ `50) + `62,175
=`4,80,000 + `62,175 = `5,42,175
Total earnings (under Rowan Scheme) =Time wages + Bonus
=`4,80,000 + `98,764 = `5,78,764
)",!*'
Increase in earning under Halsey Scheme = $,.&,&&& × 100= 12.95%
(.,*)$
Increase in earning under Rowan Scheme = $,.&,&&& × 100= 20.57%

(ii) Savings to the Z Ltd. In terms of direct labour cost per piece: `
Direct labour cost (per unit) under time wages system 98.75
(1.975 times per unit ´ `50)
Direct labour cost (per unit) under Halsey Plan 88.59
(`5,42,175 ÷ 6,120 units)
Direct labour cost (per units) under Rowan Plan 94.57
(`5,78,764 ÷ 6,120 units)
Savings of direct labour cost under:
- Halsey plan (`98.75 – 88.59) `10.16
- Rowan plan (`98.75 – 94.57) `4.16

(iii)Advise to Z Ltd: (about the selection of the scheme to fulfill assurance)

It is better for Z Ltd. to adopt Halsey Scheme but since he has assured workers of an average 20%
increase over the present earnings, he will have to select Rowan Scheme as is evident from the
above calculations.

NOV – 2020 – 6 Marks

Following are the particulars of two workers ‘R’ and ‘S’ for a month:
Particulars R S
(i) Basic wages (`) 15,000 30,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to EPF (on basic wages) 7% 7%
(iv) Contribution to ESI (on basic wage) 2% 2%
(v) Overtime (hours) 20 -
The normal working hours for the month are 200 hrs. Overtime is paid at double the total of normal
wages and dearness allowance. Employer’s contribution to State Insurance and Provident Fund at
equal rates with employees’ contributions.

Both workers were employed on jobs A, B and C in the following proportions:

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Jobs A B C
R 75% 10% 15%
S 40% 20% 40%
Overtime was done on job ‘A’.
You are required to:
(i) Calculate ordinary wage rate per hour of ‘R’ and ‘S’
(ii) Allocate the worker’s cost to each job ‘A’, ‘B’ and ‘C’.

Solution
Statement of wages
Particulars Worker R Worker S
Basic Wages 15,000 30,000
Dearness Allowance (50% of basic wages) 7,500 15,000
Employer contribution to PF (7% of basic wages) 1,050 2,100
Employer contribution to ESI (2% of basic wages) 300 600
(!',&&&/*,'&&)×"×"& 4,500 -
Overtime ! "&&
-
Total 28,350 47,700

Statement of cost of Jobs

Particulars A B C
Overtime 4,500 - -
Bal. of Worker R’s wages 17,888 2,385 3,777
(23,850 in 75:10:15)
Worker S’s Wages 19,080 9,540 19,080
(47,700 in 40:20:40)
Total 41,465 11,925 22,857

NOV – 2019 – 10 Marks

Zico Ltd. has its factory at two locations viz Nasik and Satara. Rowan plan is used at Nasik factory
and Halsey plan at Satara factory. Standard time and basic rate of wages are same for a job which
is similar and is carried out on similar machinery. Normal working hours is 8 hours per day in a 5
day week.

Job in Nasik factory is completed in 32 hours while at Satara factory it has taken 30 hours.
Conversion costs at Nasik and Satara are `5,408 and `4,950. Overheads account for `25 per hour.
Required:
(i) To find out the normal wage; and
(ii) To compare the respective conversion costs

Solution
(i) Wages cost at Nasik = Conversion cost – Overheads = 5,408 – (25×32) = `4,608

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Wages cost at Satara = Conversion cost – Overheads = 4,950 – (25×30) = `4,200

Let normal wage rate be ‘y’ at Nasik and ‘z’ at Satara
Wages cost at Nasik
@G7D67>6 GAJ? 1 2HGK7F GAJ?
Wages = (Actual time × wages rate) + H @G7D67>6 GAJ?
I × Actual time × wages rate
$&1%"
4,608 = (32 × y) + H $&
× 32 × TI
4,608 = 32y + 6.4y
y = `120
Wages cost at Satara
Wages = = (Actual time × wages rate) + [50% × (Standard Time – Actual time) × wages rate]
4,200 = (30 × z) + [50% × (40 – 30) × z]
4,200 = 30z + 5z
z = `120

(ii) Statement of Cost

Particulars Nasik Satara
` `
Wage Cost 4,608 4,200
Overheads (25 × 32) (25 × 30) 800 750
Conversion cost 5,408 4,950

MAY – 2019 – 5 Marks

M/s Zeba Private Limited allotted a standard time of 40 hours for a job and the rate per hour is
`75. The actual time taken by a worker is 30 hours. You are required to calculate the total earnings
under the following plans:
(i) Halsey Premium Plan (Rate 50%)
(ii) Rowan Plan
(iii) Time wage system
(iv) Piece Rate System
(v) Emerson Plan

Solution
(i) Halsey Premium Plan wages
= (Time taken × Rate per hour) + (50% × Time saved × Rate per hour)
= (30 × 75) + (50% × 10 × 75) = `2,625
(ii) Rowan Premium Plan wages
OAJ? 97L?6
= (Time taken × Rate per hour) + HOAJ? 7FF<R?6 × ]WVZ S^_ZX × `^SZ aZM ℎLYMI
!&
= (30 × 75) + H$& × 30 × 75I = `2,813
(iii) Time wage system:
= Time taken × Rate per hour = 30 × 75 = `2,250
(iv) Piece Rate system:

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= Standard time × Rate per hour = 40 × 75 = `3,000

(v) Emerson Plan:
Efficiency level = 40 ÷ 30 = 133.33%
Wages = Time taken × (120% + 33.33%) of rate
= 30 × 153.33% × 75 = `3,450

NOV – 2018 – 5 Marks

Following data have been extracted from the books of M/s ABC Private Limited:
Salary (each employee, per month) `30,000
Bonus 25% of salary
Employer’s contribution to PF, ESI etc. 15% of salary
Total cost at employees’ welfare activities `6,61,500 per annum
Total leave permitted during the year 30 days
Number of employees 175
Normal idle time 70 hours per annum
Abnormal idle time (due to failure of power supply) 50 hours
Working days per annum 310 days of 8 hours
You are required to calculate:
1) Annual cost of each employee
2) Employee cost per hour
3) Cost of abnormal idle time, per employee

Solution
Calculation of effective hours
Total working hours (310 × 8) 2,480
Less: Leave days (30 × 8) __240
Available working hours 2,240
Less: Normal loss ___70
Effective working hours 2,170

Statement of employee cost per hour

Particulars Amount (`)
Salary (30,000 × 12) 3,60,000
Bonus (25% × 3,60,000) 90,000
Employees contribution to PF (15% × 3,60,000) 54,000
Employee welfare (6,61,500 ÷ 175) 3,780
Total Annual Cost (A) 5,07,780
Effective working hours (B) 2,170
Employee cost per hour (A ÷ B) 234
Cost of abnormal idle time per employee = `234 × 50 hours = `11,700

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MAY – 2018 – 5 Marks

A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours His wage
rate is `5 per hour. Following additional information are also available:
Material cost of work `50
Factory overheads 100% of wages
Calculate the factory cost of work under the following methods of wage payments:
(i) Rowan Plan
(ii) Halsey Plan

Solution
Wages in Rowan plan
@G6.GAJ? 1 2HGK7F GAJ?
= (Actual time × wage rate) + H @G6. GAJ?
I× Actual time ×wage rate
'
= (15 × 5) + H"&I×15×5 = `93.75

Wages in Halsey plan = (Actual time× wages rate) + [50%×(Std. Time - Actual time)×wage rate]
'&
= (15 × 5) + !&&× (20 – 15) × 5 = `87.5

Statement showing computation of factory cost

Particulars Rowan Plan Halsey Plan
Direct Materials 50 50
Direct Wages 93.75 87.5
Prime Cost 143.75 137.5
Overheads @ 100% of wages 93.75 87.5
Factory Cost 237.5 225

MAY – 2018 – 10 Marks

The information regarding number of employees on roll in a shopping mall for the month of
December 2017 are given below:
Number of employees as on 01-12-2017 900
Number of employees as on 31-12-2017 1100

During December, 2017, 40 employees resigned and 60 employees were discharged. 300
employees were recruited during the month. Out of these 300 employees, 225 employees were
recruited for an expansion project for the mall and rest were recruited due to exit of employees.

Assuming 365 days in a year, calculate Employee Turnover Rate and Equivalent Annual Employee
Turnover Rate by applying the following:
(i) Replacement Method
(ii) Separation Method
(iii) Flux Method

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Solution
(&&/!!&&
Average number of workers = "
= 1000
(i) Replacement Method –
;<.<= >?CF7H?J?DG9 *'
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 × 100= !&&& × 100= 7.5%
*.'×%)'
Equivalent Annual Labour turnover rate = %!
= 88.31%

(ii) Separation Method -

;<.<= 9?C7>7GA<D9 $&/)&
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 × 100= !&&&
× 100= 10%
!&×%)'
Equivalent Annual Labour turnover rate = %!
= 117.74%

(iii) Flux Method -

;<.<= 9?C7>7GA<D9/;<.<= R<>I?>9 >?H>KAG?6 !&&/%&&
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9
× 100= !&&&
× 100= 40%
$&×%)'
Equivalent Annual Labour turnover rate = %!
= 470.97%

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Overheads
Nov – 2022 – 4 Marks
USP Ltd. is the manufacturer of ‘double grip motorcycle tyres’. In the manufacturing process, it
undertakes three different jobs namely, Vulcanizing, Brushing and Striping. All of these jobs
require the use of a special machine and also the aid of a robot when necessary. The robot is hired
from outside and the hire charges paid for every six months is `2,70,000. An estimate of overhead
expenses relating to the special machine is given below:
• Rent for a quarter is `18,000
• The cost of the special machine is `19,20,000 and depreciation is charged @10% per annum
on straight line basis.
• Other indirect expenses are recovered at 20% of direct wages.
The factory manager has informed that in the coming year, the total direct wages will be
`12,00,000 which will be incurred evenly throughout the year.

During the first month of operation, the following details are available from the job book:
Jobs Without the aid of the robot With the aid of the robot
Vulcanizing 500 400
Brushing 1000 400
Striping - 1200
You are required to:
(i) Compute the Machine Hour Rate for the company as a whole for a month (A) when the robot
is used and (B) when the robot is not used.
(ii) Compute the Machine Hour Rate for the individual jobs i.e. Vulcanizing, Brushing and
Striping.

Solution
(i) Total machine hours = 500 + 1,000 + 400 + 400 + 1,200 = 3,500
Total machine hours with the use of robot = 400 + 400 + 1,200 = 2,000
Statement of Machine Hour Rate
Particulars Amount (`)
Rent (18,000 ÷ 3) 6,000
Depreciation [(19,20,000 ´ 10%) ÷ 12] 16,000
Indirect expenses [(12,00,000 ´ 20%) ÷ 12] 20,000
Total expenses 42,000
Total Machine Hours 3,500
Machine hours rate (42,000 ÷ 3500) 12
Add: Robot charges per machine hour [(2,70,000 ÷ 6) ÷ 2,000] 22.50
Machine hour rate with robot charges 34.50

(ii) Computation of Machine Hour Rate for the individual jobs

Particulars Vulcanizing Brushing Striping
OHs without robot 500 ´ 12 = 6,000 1,000 ´ 12 = 12,000 -
OHs with robot 400 ´ 34.50 = 13,800 400 ´ 34.50 = 13,800 1,200 ´ 34.50 = 41,400
Total 19,800 25,800 41,400

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Machine hours 900 1,400 1,200

Machine hour rate 22 18.43 34.50

DEC – 2021 – 10 Marks

XYZ Ltd. manufactures a single product. It recovers factory overheads at a pre-determined rate of
`20 per man-day.

During the year 2020-21, the total factory overheads incurred and the man-days actually worked
were `35.50 lakhs and 1.50 lakh days respectively. Out of the amount of `35.50 lakhs, `2.00
lakhs were in respect of wages for strike period and `1.00 lakh was in respect of expenses of
previous year booked in the current year. During the period, 50,000 units were sold. At the end of
the period, 12,000 completed units were held in stock but there was no opening stock of finished
goods. Similarly, there was no stock of uncompleted units at the beginning of the period but at the
end of the period there were 20,000 uncompleted units which may be treated as 65% complete in
all respects.

On investigation, it was found that 40% of the unabsorbed overheads were due to factory
inefficiency and the rest were attributable to increase in the cost of indirect materials and indirect
labour. You are required to:
(i) Calculate the amount of unabsorbed overheads during the year 2020-21.
(ii) Show the accounting treatment of unabsorbed overheads in cost accounts and pass journal
entry.

Solution
(i) Amount (`)
Total production overheads actually incurred during the period 35,50,000
Less: Wages for strike period 2,00,000
Less: Expenses of previous year booked in current year 1,00,000
Net production overheads actually incurred 32,50,000
Less: Production overheads absorbed (1,50,000 × `20) 30,00,000
Under recovered overheads 2,50,000
(ii) As 40% of the under absorbed overheads i.e. `1,00,000 (`2,50,000 × 40%) were due to factor
inefficiency, this being abnormal, hence should be debited to profit and loss account.

Amount of balance under absorbed overheads = `2,50,000 – 1,00,000 = `1,50,000

Equivalent units = 50,000 + 12,000 + (20,000 ´ 65%) = 75,000
!,'&,&&&
Supplementary rate = *',&&& KDAG9= `2 per equivalent unit
Equivalent Units Amount (`)
Work-in-progress (20,000 units × 65% × 2) 13,000 26,000
Finished stock (12,000 units × 2) 12,000 24,000
Cost of sales (50,000 units × 2) 50,000 1,00,000
Total 75,000 1,50,000

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Journal Entry
Cost of Sales A/c Dr. 1,00,000
Finished goods ledger control A/c Dr. 24,000
Work-in-progress ledger control A/c Dr. 26,000
To Overheads control A/c 1,50,000
Costing P&L A/c Dr. 1,00,000
To Overheads Control A/c 1,00,000

JULY – 2021 – 5 Marks

SNS Trading Company has three Main Departments and two Service Departments. The data for
each department is given below:
Departments Expenses Area (in Sq. Number of
(` ) Mtr.) employees
Main Department:
Purchase Department 5,00,000 12 800
Packing Department 8,00,000 15 1700
Distribution Department 3,50,000 7 700
Service Department:
Maintenance Department 6,40,000 4 200
Personnel Department 3,20,000 6 250
The cost of Maintenance Department and Personnel Department is distributed on the basis of ‘Area
in Square Meters’ and ‘Number of Employees’ respectively:
You are required to:
(i) Prepare a statement showing the distribution of expenses of service departments to the main
departments using the “Step Ladder Method” of overhead distribution.
(ii) Compute the rate per hour of each Main Department, given that, the Purchase Department,
Packing Department and Distribution Department works for 12 hours a day, 24 hours a day
and 8 hours a day respectively. Assume that there are 365 days in a year and there are no
holidays.
(iii)
Solution
(i) & (ii) Overheads Distribution Sheet
Particulars Basis Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
Expenses Allocation 5,00,000 8,00,000 3,50,000 6,40,000 3,20,000
Maintenance Area 1,92,000 2,40,000 1,12,000 (6,40,000) 96,000
Department (12:15:7:6)
Expenses
Personnel No. of Ees 1,04,000 2,21,000 91,000 - (4,16,000)
Department (8:17:7)
Expenses
Total 7,96,000 12,61,000 5,53,000 - -

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Total Hours 12 × 365 24 × 365 8 × 365 = - -

= 4,380 = 8,760 2,920
Rate per
hour 181.74 143.95 189.38 - -
Working Note - 1
Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
Area (in sq. mtr.) 12 15 7 - 6
% of service rendered by
Maintenance Department 30% 37.50% 17.50% - 15%
Number of Employees 800 1700 700 200 -
% of service rendered by
Personnel department 23.53% 50% 20.59% 5.88%
The usual method used for ranking the support departments for Step Down Allocation Method is
% of Service rendered by one Service Department to another. Based on this, Maintenance
Department provides 15% (highest %) of service to Personnel Department. Thus, first maintenance
department expenses should be distributed first.

JAN – 2021 – 5 Marks

A machine shop has 8 identical machines manned by 6 operators. The machine cannot work
without an operator wholly engaged on it. The original cost of all the 8 machines works out to
`32,00,000. The following particulars are furnished for a six months period:
Normal available hours per month per operator 208
Absenteeism (without pay) hours per operator 18
Leave (with pay) hours per operator 20
Normal unavoidable idle time – hours per operator 10
Average rate of wages per day of 8 hours per operator `100
Production bonus estimated 10% on wages
Power consumed `40,250
Supervision and Indirect Labour `16,500
Lighting and Electricity `6,000
The following particulars are given for a year:
Insurance `3,60,000
Sundry work Expenses `50,000
Management Expenses allocated `5,00,000
Depreciation 10% on the original cost
Repairs and Maintenance (including consumables) 5% of the value of all the machines
Prepare a statement showing the comprehensive machine hour rate for the machine shop.

Solution
Effective machine hour = (208 × 6 × 6) – [(18 – 20 – 10) × 6] = 7,200

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Statement of Machine Hour Rate

Particulars Amount (`)
Fixed Expenses
Wages [{(208 × 6 × 6) – (18 × 6)} × (100/8)] 92,250
Bonus (92,250 × 10%) 9,225
Supervision 16,500
Lighting and electricity 6,000
Insurance [3,60,000 × (6/12)] 1,80,000
Depreciation [32,00,000 × 10% × (6/12)] 1,60,000
Sundry work expenses [50,000 × (6/12)] 25,000
Management expenses allocated [5,00,000 × (6/12)] 2,50,000
Fixed expenses 7,38,975
Effective machine hours 7,200
Fixed expenses per machine hour 102.64
Variable Expenses per machine hour
) ! 11.11
Repair & Maintenance H32,00,000 × 5% × !" × *"&&I
$&,"'& 5.59
Power H *,"&& I
Machine hour rate 119.34

NOV – 2020 – 10 Marks

TEE Ltd. is a manufacturing company having three production departments ‘P’, ‘Q’ and ‘R’ and
two service departments ‘X’ and ‘Y’ details pertaining to which are as under:
P Q R X Y
Direct wages (`) 5,000 1,500 4,500 2,000 800
Working hours 13,191 7,598 14,995 - -
Value of machine (`) 1,00,000 80,000 1,00,000 20,000 50,000
H.P. of machines 100 80 100 20 50
Light points (Nos.) 20 10 15 5 10
Floor space (sq. ft.) 2,000 2,500 3,500 1,000 1,000
The expenses are as follows:
(`)
Rent and Rates 10,000
General Lighting 600
Indirect Wages 3,450
Power 3,500
Depreciation on Machines 70,000
Sundries (apportionment on the basis of direct 13,800
wages)
The expenses of Service Departments are allocated as under:

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P Q R X Y
X 45% 15% 30% - 10%
Y 35% 25% 30% 10% -
Product ‘A’ is processed for manufacture in Department P, Q and R for 6, 5 and 2 hours
respectively.
Direct costs of Product A are:
Direct material cost is `65 per unit and direct labour cost is `40 per unit.
You are required to:
(vi) Prepare a statement showing distribution of overheads among the production and service
departments.
(vii) Calculate recovery rate per hour of each production department after redistributing the
service department costs.
(viii) Find out the Total Cost of a ‘Product A’.

Solution
(i) & (ii) Statement of Cost
Item of Cost Basis of Apportionment P (` ) Q (` ) R (`) X (`) Y (`)
Direct Wages Allocation — — — 2,000 800
Rent and Rates Floor Space (2:2.5:3.5:1:1) 2,000 2,500 3,500 1,000 1,000
General Lighting Light Point (20:10:15:5:10) 200 100 150 50 100
Indirect Wages Direct Wages 1,250 375 1,125 500 200
Power (5:1.5:4.5:2:0.8) 1,000 800 1,000 200 500
Dep. of Machine H.P. of Machines 20,000 16,000 20,000 4,000 10,000
Sundries (10:8:10:2:5) 5,000 1,500 4,500 2,000 800
Value-Machine 29,450 21,275 30,275 9,750 13,400
Cost of Dept. X (10:8:10:2:5)
5,041 1,680 3,361 (11,202) 1,120
Cost of Dept. Y Direct Wages
5,082 3,630 4,356 1,452 (14,520)
(5:1.5:4.5:2:0.8)
Total 39,573 26,585 37,992 - -
Overheads 13,191 7,598 14,995 - -
Prod. Hrs 45:15:30:10
3 3.4989 2.53 - -
Worked 35:25:30:10
Rate per Hour
(` )
Let X be the overhead of service cost centre X and Y be the overheads of service cost centre
Y.
X = 9,750 + 0.10 Y
Y = 13,400 + 0.10 X
Substituting the value of X in Y we get
Y = 13,400 + 0.10 (9,750 + 0.10 Y)
Y = 13,400 + 975 + 0.01 Y
0.99 Y = 14,375

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\ Y = `14,520
\ X= 9,750 + (0.10 ´ 14,520) = `11,202
(iii)) Cost of Product A (` )
Direct Material 65.00
Direct Labour 40.00
Prime Cost 105.00
Production on Overheads
P 6 hours ´ `3.00 = 18.00
Q 5 hours ´ `3.4989 = 17.49
R 2 hours ´ `2.53 = _5.06 _40.55
Factory Cost 145.55

NOV – 2019 – 10 Marks

ABS Enterprises produces a product and adopts the policy to recover factory overheads applying
blanket rate based on machine hours. The cost records of the concern reveal following information:
Budgeted production overheads `10,35,000
Budgeted machine hours 90,000
Actual machine hours worked 45,000
Actual production overheads `8,80,000
Production overheads (actual) include –
Paid to worker as per court’s award `50,000
Wages paid for strike period `38,000
Stores written off `22,000
Expenses of previous year booked in current year `18,500
Production –
Finished goods 30,000 units
Sale of finished goods 27,000 units
The analysis of cost information reveals that 1/3 of the under absorption of overheads was due to
defective production planning and the balance was attributable to increase in costs.
You are required:
(i) To find out the amount of under absorbed production overheads.
(ii) To give the ways of treating it in Cost Accounts
(iii) To apportion the under absorbed overheads over the items.

Solution
(i) Amount (`)
Total production overheads actually incurred during the period 8,80,000
Less: Amount paid to worker as per court order 50,000
Less: Expenses of previous year booked in current year 18,500
Less: Wages paid for the strike period under reward 38,000
Less: Obsolete material written off 22,000 (1,28,500)

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7,51,500
Less: Production overheads absorbed (45,000 x `11.5) 5,17,500
Under recovered overheads 2,34,000
!&,%',&&&
Budgeted machine hour rate = (&,&&& Q<K>9= `11.50 per hour

(ii) As one third of the under absorbed overheads i.e. `78,000 (`2,34,000 × 1/3) were due to
defective production policies, this being abnormal, hence should be debited to profit and loss
account.

(iii) Amount of balance under absorbed overheads = `2,34,000 – 78,000 = `1,56,000

!,'),&&&
Supplementary rate = %&,&&& KDAG9= `5.20 per equivalent unit
Amount (`)
Finished stock (27,000 units × 5.20) 1,40,400
Cost of sales (3,000 units × 5.20) _15,600
Total 1,56,000

MAY – 2019 – 5 Marks

M/s Zaina Private Limited has purchased a machine costing `29,14,800 and its is expected to have
a salvage value of `1,50,000 at the end of its effective life of 15 years. Ordinarily the machine is
expected to run for 4,500 hours per annum but it is estimated that 300 hours per annum will be lost
for normal repair & maintenance. The other details in respect of the machine are as follows:
(i) Repair & Maintenance during the whole life of the machine are expected to be `5,40,000.
(ii) Insurance premium (per annum) 2% of the cost of the machine
(iii) Oil and Lubricants required for operating the machine (per annum) `87,384
(iv) Power consumptions: 10 units per hour @ `7 per unit. No power consumption during repair
and maintenance.
(v) Salary to operator per month `24,000. The operator devotes one third of his time to the
machine.
You are required to calculate comprehensive machine hour rate.
Solution
Effective machine hours = 4,500 – 300 = 4,200
Statement of Machine hour Rate
Particulars Amount (`)
Fixed Expenses:
Repair & Maintenance (5,40,000 ÷ 15) 36,000
"(,!$,.&&1!,'&,&&&
Depreciation H !'
I 1,84,320
Insurance (29,14,800 × 2%) 58,296
Oil and Lubricant 87,384
Salary to operator (24,000 × 12 × 1/3) 96,000
Total Fixed Expenses 4,62,000

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Effective Machine hours 4,200

Fixed cost per machine hour 110
Machine Expenses:
Power (10 × 7) 70
Machine Hour Rate 180

NOV – 2018 – 5 Marks

M/s NOP Limited has its own power plant and generates its own power. Information regarding
power requirements and power used are as follows:
Production Dept. Service Dept.
A B X Y
(Horse power hours)
Needed capacity production 20,000 25,000 15,000 10,000
Used during the month of May 16,000 20,000 12,000 8,000
During the quarter ended September 2018, costs for generating power amounted to `12.60 lakhs
out of which `4.20 lakhs was considered as fixed cost.

Service Dept. X renders service to A, B and Y in the ratio of 6:4:2 whereas department Y renders
service to A and B in the ratio 4:1. The direct labour hours of Department A and B are 67,500
hours and 48,750 hours respectively. Required:
1) Prepare overheads distribution sheet
2) Calculate factory overhead per labour hour for the department A and B

Solution Overheads Distribution Sheet

Production
Total Service Department
Particulars Basis Department
Amount
A B X Y
Fixed 4,20,000 1,20,000 1,50,000 90,000 60,000
Overheads Needed cap.
(20:25:15:10)
Variable Used capacity 8,40,000 2,40,000 3,00,000 1,80,000 1,20,000
Overheads (16:20:12:8)
Total 12,60,000 3,60,000 4,50,000 2,70,000 1,80,000
-
Cost of Dept. X 6 : 4 : 2 1,35,000 90,000 (2,70,000) 45,000
Cost of Dept. Y 4: 1 1,80,000 45,000 - (2,25,000)
Total 6,75,000 5,85,000 - -
Labour hours 67,500 48,750
Fact. OH per
hr. `10 `12

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Activity Based Costing

MAY – 2023 – 5 Marks
Beta Limited produces 50,000 units, 45,000 units and 62,000 units of product ‘A’, ‘B’ and ‘C’
respectively. At present the company follows absorption costing method and absorbs overhead on
the basis of direct labour hours. Now, the company wants to adopt Activity Based Costing.

The information provided by Beta Limited is follows:

Product A Product B Product C
Floor space occupied 5,000 Sq. Ft. 4,500 Sq. Ft. 6,200 Sq. Ft.
Direct Labour Hours 7,500 Hours 7,200 Hours 7,800 Hours
Direct Machine Hours 6,000 Hours 4,500 Hours 4,560 Hours
Power consumption 32% 28% 40%
Overhead for the year are as follows:
`
Rent & Taxes 8,63,500
Electricity Expenses 10,66,475
Indirect labour 13,16,475
Repair & Maintenance 1,28,775
33,75,000
Required:
(i) Calculate the overhead rate per labour hour under Absorption Costing
(ii) Prepare a cost statement showing overhead cost per unit for each product – ‘A’, ‘B’ and ‘C’
as per Activity Based Costing

Solution
O<G7F <L?>Q?769 %%,*',&&&
(i) Overhead rate per hour = O<G7F Q<K>9 = "",'&& = `150 per hour

(ii) Statement showing overhead cost per unit as per Activity Based Costing
Overheads Cost driver Total (`) Product A Product B Product C
(` ) (`) (` )
Rates & Floor space 8,63,500 75,000 2,47,500 3,41,000
Taxes (50:45:62)
Electricity Power 10,66,475 3,41,272 2,98,613 4,26,590
consumption
(32:28:40)
Indirect Labour hours 13,16,250 4,38,750 4,21,200 4,56,300
labour (75:72:78)
Repair & Machine 1,28,775 51,000 38,250 39,525
Maintenance hours
(600:450:465)
Total cost 33,75,000 11,06,022 10,05,563 12,63,415
Units 50,000 45,000 62,000
Cost per unit 22.12 22.35 20.38

NOV – 2022 – 10 Marks

XYZ Ltd. is engaged in manufacturing two products – Express Coffee and Instant coffee. It
furnishes the following data for a year:

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Product Actual output Total Machine Total Number of Total number

(units) hours purchase orders of set ups
Express Coffee 5,000 20,000 160 20
Instant Coffee 60,000 1,20,000 384 44
The annual overheads are as under:
Particulars `
Machine Processing costs 7,00,000
Set up related costs 7,68,000
Purchase related costs 6,80,000
You are required to:
(i) Compute the costs allocated to each product – Express Coffee and Instant Coffee from each
activity on the basis of Activity Based costing (ABC) method.
(ii) Find out the Overhead cost per unit of each product – Express coffee and Instant coffee based
on (i) above.

Solution
Estimation of Cost-Driver Rate
Activity Overhead Cost (`) Cost-Driver level Cost Driver Rate
(`)
Machine Processing 7,00,000 1,40,000 machine 5
hours
Set-up Costs 7,68,000 64 Set-ups 12,000
Purchase related costs 6,80,000 544 purchase order 1,250

(i) & (ii) Cost Allocation under Activity Based Costing

Particulars Express Coffee (`) Instant Coffee (`)
Machine processing cost 5 ´ 20,000 = 1,00,000 5 ´ 1,20,000 = 6,00,000
Set-up cost 12,000 ´ 20 = 2,40,000 12,000 ´ 44 = 5,28,000
Purchase related cost 1,250 ´ 160 = 2,00,000 1,250 ´ 384 = 4,80,000
Total overhead cost 5,40,000 16,08,000
Number of units 5,000 60,000
Overhead cost per unit 108 26.80

MAY – 2022 – 10 Marks

Start Limited manufacture three products using the same production methods. A conventional
product costing system is being used currently. Details of three products for a typical period are:
Product Labour Hrs. Machine Hrs. Materials Volume
per unit per unit per unit (in units)
AX 1.00 2.00 35 7,500
BX 0.90 1.50 25 12,500
CX 1.50 2.50 45 25,000
Direct Labour costs `20 per hour and production overheads are absorbed on a machine hour basis.
The overhead absorption rate for the period is `30 per machine hour.

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Management is considering using Activity Based Costing system to ascertain the cost of the
products. Further analysis shows that the total production overheads can be divided as follows:
Particulars %
Cost relating to set-ups 40
Cost relating to machinery 10
Cost relating to material handling 30
Cost relating to inspection 20
Total production overhead 100
The following activity volumes are associated with the product line for the period as a whole. Total
activities for the period:
Product No. of set-ups No. of movements No. of inspections
of Materials
AX 350 200 200
BX 450 280 400
CX 740 675 900
Total 1,540 1,155 1,500
Required:
(i) Calculate the cost per unit for each product using the conventional method.
(ii) Calculate the cost per unit for each product using activity based costing method.

Solution
Working Note:
Total Machine hours = (2 ´ 7,500) + (1.50 ´ 12,500) + (2.50 ´ 25,000) = 96,250
O<G7F 3L?>Q?769
Overhead absorption rate = O<G7F W7HQAD? V<K>9
O<G7F 3L?>Q?769
30 = (),"'&
Total overheads = `28,87,500

(i) Statement of Cost

Particulars Product AX (`) Product BX (`) Product CX (`)
Material cost per unit 35 25 45
Labour cost per unit 1.00 ´ 20 = 20 0.90 ´ 20 = 18 1.50 ´ 20 = 30
Overheads per unit 2.00 ´ 30 = 60 1.50 ´ 30 = 45 2.50 ´ 30 = 75
Total cost per unit 115 88 150

(ii) Calculation of Activity Cost Driver Rates

Activity Amount (`) Cost Driver Cost Driver Rate
Quantity (` )
Set-up Cost 28,87,500 ´ 40% = 1,540 set up `750 per set up
11,55,000
Machinery Cost 28,87,500 ´ 10% = 96,250 machine `3 per machine hour
2,88,750 hours
Material Handling 28,87,500 ´ 30% = 1,155 material `750 per material
cost 8,66,250 movement movement

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Inspection cost 28,87,500 ´ 20% = 1,500 inspections `385 per inspection

5,77,500

Statement of Cost
Particulars Product AX (`) Product BX (`) Product CX (`)
Set-up cost 750 ´ 350 = 750 ´ 450 = 750 ´ 740 =
2,62,500 3,37,500 5,55,000
Machinery cost 3 ´ 2 ´ 7,500 = 3 ´ 1.50 ´ 12,500 = 3 ´ 2.50 ´ 25,000 =
45,000 56,250 1,87,500
Material Handling 750 ´ 200 = 750 ´ 280 = 750 ´ 675 =
cost 1,50,000 2,10,000 5,06,250
Inspection cost 385 ´ 200 = 77,000 385 ´ 400 = 385 ´ 900 =
1,54,000 3,46,500
Total Overheads cost 5,34,500 7,57,750 15,95,250
No. of units 7,500 12,500 25,000
Overheads per unit 71.27 60.62 63.81
Material cost per unit 35 25 45
Labour cost per unit 1.00 ´ 20 = 20 0.90 ´ 20 = 18 1.50 ´ 20 = 30
Total cost per unit 126.27 103.62 138.81

DEC – 2021 – 10 Marks

A drug store is presently selling three types of drugs namely ‘Drug A’, ‘Drug B’ and ‘Drug C’.
due to some constraints, it has decided to go for only one product line of drugs. It has provided the
following data for the year 2020-21 for each product line:
Drug Types
A B C
Revenue (in `) 74,50,000 1,11,75,000 1,86,25,000
Cost of goods sold (in `) 41,44,500 68,16,750 1,20,63,750
Number of purchase orders placed (in 560 810 630
nos)
Number of deliveries received 950 1,000 850
Hours of shelf-stocking time 900 1,250 2,350
Units sold (in nos) 1,75,200 1,50,300 1,44,500
Following additional information is also provided:
Activity Description of Activity Total Cost (`) Cost-allocation base
Drug License fee Drug License fee 5,00,000 To be distributed in ratio
2:3:5 between A, B and
C
Ordering Placing of orders for 8,30,000 2,000 purchase orders
purchases
Delivery Physical delivery and 18,20,000 2,800 deliveries
receipt of goods
Shelf stocking Stocking of goods 32,40,000 4,500 hours of shelf-
stocking time

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Customer Support Assistance provided to 28,20,000 4,70,000 units sold

customers
You are required to:
(i) Calculate the operating income and operating income as a percentage (%) of revenue of each
product line if:
a) All the support costs (other than cost of goods sold) are allocated in the ratio of cost of
goods sold
b) All the support costs (Other than cost of goods sold) are allocated using activity-based
costing system.
(ii) Give your opinion about choosing the product line on the basis of operating income as a
percentage (%) of revenue of each product line under both the situation as above.

Solution
(i) (a) Statement of operating income
Particulars Drug A Drug B Drug C Total
Revenue (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
COGS 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Gross Margin 33,05,500 43,58,250 65,61,250 1,42,25,000
(-) Operating cost (in 16,57,800 27,26,700 48,25,500 92,10,000
COGS Ratio)
Operating Income (B) 16,47,700 16,31,550 17,35,750 50,15,000
Operating income % (B 22.12% 14.60% 9.32% 13.46%
÷ A)

(i) (b) Statement of Cost

Particulars Cost (`) (A) Cost Driver (B) Cost per cost driver
(A÷B)
Ordering 8,30,000 2,000 purchase order `415 per purchase order
Delivery 18,20,000 2,800 deliveries `650 per delivery
Shelf stocking 32,40,000 4,500 hours of shelf `720 per hour of shelf
stocking time stocking time
Customer support 28,20,000 4,70,000 units sold `6 per unit sold

Statement of operating income

Particulars Drug A Drug B Drug C
Revenue (A) 74,50,000 1,11,75,000 1,86,25,000
COGS 41,44,500 68,16,750 1,20,63,750
Gross Margin (B) 33,05,500 43,58,250 65,61,250
Drug License Fee (in 1,00,000 1,50,000 2,50,000
2:3:5)
Ordering cost 415 ´ 560 = 2,32,400 415 ´ 810 = 3,36,150 415 ´ 630 =2,61,450
Delivery cost 650 ´ 950 = 6,17,500 650 ´1000 = 6,50,000 650 ´ 850 = 5,52,500

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Shelf Stocking cost 720 ´ 900 = 6,48,000 720 ´1250 = 9,00,000 720 ´2350 =
16,92,000
Customer support 6 ´ 175200 = 6 ´ 150300 = 6 ´ 144500 =
10,51,200 9,01,800 8,67,000
Operating cost (C) 26,49,100 29,37,950 36,22,950
Operating income (B– 6,56,400 14,20,300 29,38,300
C=D)
Operating income % 8.81% 12.71% 15.78%
(D÷A)

(ii) When the operating costs are distributed on the basis of cost of goods sold, Drug A has the
highest level of operating income percentage because lesser operating cost share is distributed
to it.

Activity based costing shows that Drug C uses the large amount of operating cost resources
than the other two drugs and simultaneously generates the highest level of revenue and thus
operating income percentage is maximum in case of Drug C.

JULY – 2021 – 10 Marks

PQR Ltd. is engaged in the production of three products P, Q and R. The company calculates
Activity Cost Rates on the basis of Cost Driver capacity which is provided as below:
Activity Cost Driver Cost Driver Cost (`)
Capacity
Direct Labour Hours Labour Hours 30,000 Labour Hours 3,00,000
Production runs No. of Production 600 Production runs 1,80,000
runs
Quality Inspections No. of Inspections 8000 Inspections 2,40,000
The consumption of activities during the period is as under:
Activity/ Products P Q R
Direct Labour hours 10,000 8,000 6,000
Production runs 200 180 160
Quality Inspection 3,000 2,500 1,500
You are required to:
(iv) Compute the cost allocated to each Product from each Activity.
(v) Calculate the cost of unused capacity for each activity
(vi) A potential customer has approached the company for supply of 12,000 units of net product
‘S’ to be delivered in lots of 1,500 units per quarter. This will involve an initial design cost
of `30,000 and per quarter production will involve the following:
Direct Material `18,000
Direct Labour hours 1,500 hours
No. of Production runs 15
No. of Quality Inspection 250

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Prepare cost sheet segregating direct and indirect cost and compute the sales value per quarter
of product ‘S’ using ABC system considering a markup of 20% on cost.

Solution
(i) Statement of Cost Driver Rate
Activity Amount Cost driver (B) Cost Driver Rate (A÷B)
(A)
Direct Labour 3,00,000 30,000 Labour Hours `10 per labour hour
Hours
Production runs 1,80,000 600 Production runs `300 per production run
Quality 2,40,000 8000 Inspections `30 per inspection
Inspections

Statement of Cost
Particulars P Q R Total
Direct labour 10 × 10,000 10 × 8,000 10 × 6,000
hour = 1,00,000 = 80,000 = 60,000 2,40,000
Production run 300 × 200 300 × 180 300 × 160
= 60,000 = 54,000 = 48,000 1,62,000
Quality 30 × 3,000 30 × 2,500 30 × 1,500
inspection = 90,000 = 75,000 = 45,000 2,10,000
Total Cost 2,50,000 2,09,000 1,53,000 6,12,000

(ii) Statement of Cost of Unused Capacity

Activity Total Cost Cost Charged to Products Unused Cost
Direct Labour 3,00,000 2,40,000 60,000
Hours
Production runs 1,80,000 1,62,000 18,000
Quality 2,40,000 2,10,000 30,000
Inspections

(iii) Statement of Cost

Particulars Amount (`)
Direct material 18,000
%&,&&& 3,750
Direct expenses (design cost) H!",&&& × 1,500I
Prime Cost 21,750
Add: Overheads
Direct labour hours (1,500 × 10) 15,000
Production run (15 × 300) 4,500
Quality inspection (250 × 30) 7,500

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COS 48,750
Add: Profit (48,750 × 20%) 9,750
Sales 58,500

JAN – 2021 – 10 Marks

ABC Ltd. manufactures three products X, Y and Z using the same plant and resources. It has given
the following information for the year ended on 31st March, 2020:
X Y Z
Production Quantity (units) 1200 1440 1968
Cost per unit:
Direct Material (`) 90 84 176
Direct Labour (`) 18 20 30
Budgeted direct labour rate was `4 per hour and the production overheads, shown in table below,
were absorbed to products using direct labour hour rate. Company followed Absorption Costing
Method. However, the company is now considering adopting Activity Based Costing Method.
Budgeted Cost Driver Remarks
Overheads (`)
Material 50,000 No. of orders No. of orders was 25 units
Procurement for each product
Set-up 40,000 No. of Production All the three products are
Runs produced in production runs
of 48 units.
Quality Control 28,240 No. of Inspections Done for each production
run.
Maintenance 1,28,000 Maintenance Total maintenance hours
Hours were 6,400 and was
allocated in the ratio of 1:1:2
between X, Y and Z.
Required:
(iii) Calculate the total cost per unit of each product using the Absorption Costing Method.
(iv) Calculate the total cost per unit of each product using the Activity Based Costing.

Solution
Working Note:
(1) Total labour hours and recovery rate
Particulars Product X Product Y Product Z Total
Production units 1,200 1,440 1,968 1,27,500
Labour hours per unit 18÷4 = 4.50 20÷4 = 5 30÷4 = 7.50
Total labour hours 5,400 7,200 14,760 27,360
Total Overheads - - - 2,46,240
OHs recovery rate - - - `9

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(2) Cost per activity and driver

Activity Total cost Cost allocation base Cost driver rate
(1) ` (3) (4)=[(2)÷(3)]
(2)
Material 50,000 25 × 3 = 75 orders `666.67 per order
Procurement
Set-up 40,000 !"&& !$$& !().
+ + = 96 `416.67 per run
$. $. $.
run
Quality Control 28,240 !"&& !$$& !().
+ + = 96 `294.17 per run
$. $. $.
run
Maintenance 1,28,000 6,400 hours `20 per hour

(i) Statement of Cost per unit

Particulars X Y Z
Direct material 90 84 176
Direct labour 18 20 30
Overheads 9×4.50 = 40.50 9×5 = 45 9×7.50 = 67.50
148.50 149 273.50

(ii) Statement of Cost per unit

Particulars X Y Z
Direct material 90 84 176
Direct labour 18 20 30
Material "'×))).)* "'×))).)* "'×))).)*
= 13.89 = 11.57 = 8.47
!,"&& !,$$& !,().
procurement
Set-up cost !,"&&×$!).)* !,$$&×$!).)* !,().×$!).)*
$.×!,"&&
= 8.68 $.×!,$$&
= 8.68 $.×!,().
= 8.68
Quality control cost !,"&&×"($.!* !,$$&×"($.!* !,().×"($.!*
$.×!,"&&
= 6.13 $.×!,$$&
= 6.13 $.×!,().
= 6.13
! ! #
Maintenance "&×)$&&×( )
"
"&×)$&&×X Y
"
"&×)$&&×( )
"
!,"&&
= 26.67 = 22.22 !,().
= 32.52
!,$$&

Total Cost per unit 163.37 152.60 261.80

NOV – 2020 – 6 Marks

ABC Ltd. is engaged in production of three types of Fruit Juices: Apple, Orange and Mixed Fruit.
The following cost data for the month of March 2020 are as under:
Particulars Apple Orange Mixed Fruit
Units produced and sold 10,000 15,000 20,000
Material per unit 8 6 5
Direct Labour per unit (`) 5 4 3
No. of purchase orders 34 32 14

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No. of Deliveries 110 64 52

Shelf Stocking Hours 110 160 170
Overheads incurred by the company during the month are as under:
(`)
Ordering costs 64,000
Delivery costs 1,58,200
Shelf Stocking costs 87,560
Required:
(i) Calculate cost driver’s rate
(ii) Calculate total cost of each product using Activity Based Costing.
Solution
(i) Statement of Cost Driver Rate
Activity Amount Cost driver (B) Cost Driver Rate (A÷B)
(A)
Ordering costs 64,000 34 + 32 + 14 = 80 orders `800 per order
Delivery costs 1,58,200 110 + 64 + 52 = 226 `700 per delivery
deliveries
Shelf Stocking 87,560 110 + 160 + 170 = 440 shelf `199 per shelf stocking
costs stocking hours hour

(ii) Statement of Cost

Particulars Apple Orange Mixed Fruit
Material 8 × 10,000 = 80,000 6 × 15,000 = 90,000 5 × 20,000 =
1,00,000
Direct labour 5 × 10,000 = 50,000 4 × 15,000 = 60,000 3 × 20,000 = 60,000
Overheads:
Ordering cost 800 × 34 = 27,200 800 × 32 = 25,600 800 × 14 = 11,200
Delivery cost 700 × 110 = 77,000 700 × 64 = 44,800 700 × 52 = 36,400
Shelf stocking cost 199 × 110 = 21,890 199 × 160 = 31,840 199 × 170 = 33,830
Total Cost 2,56,090 2,52,240 2,41,430

NOV – 2019 – 10 Marks

PQR Ltd. has decided to analyze the profitability of its five new customers. It buys soft drink
bottles in cases at `45 per case and sells them to retail customers at a list price of `54 per case.
The data pertaining to five customers are given below:
Particulars Customers
A B C D E
Number of cases sold 9360 14200 62000 38000 9800
List selling price ` 54 54 54 54 54
Actual selling price 54 53.40 49 50.20 48.60
Number of purchase orders 30 50 60 50 60

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Number of customers visits 4 6 12 4 6

Number of deliveries 20 60 120 80 40
Kilometers travelled per delivery 40 12 10 20 60
Number of expediate deliveries 0 0 0 0 2
It’s five activities and their cost drivers are:
Activity Cost Driver
Order taking `200 per purchase order
Customer visits `300 per each visit
Deliveries `4.00 per delivery km travelled
Product Handling `2.0 per case sold
Expedited deliveries `100 per each such delivery

You are required to:

(i) Compute the customer level operating income of each of five retail customers by sing the
cost driver rates.
(ii) Examine the results to give your comments on Customer ‘D’ in comparison with Customer
‘C’ and on Customer ‘E’ in comparison with Customer ‘A’.

Solution
(i) Statement of operating income
Particulars Customer Customer Customer Customer Customer
A B C D E
Units 9,360 14,200 62,000 38,000 9,800
Revenue 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
[54 × No. of units]
(-) Discount - 8,520 3,10,000 1,44,400 52,920
[(List price – Actual
price) × No. of units]
Net revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(-) Order taking 6,000 10,000 12,000 10,000 12,000
[200×No. of purch. order]
(-) Customer visit 1,200 1,800 3,600 1,200 1,800
[300×No. of visit]
(-) Deliveries 3,200 2,880 4,800 6,400 9,600
[4 × km travel × No. of
deliveries]
(-) Production handling 18,720 28,400 1,24,000 76,000 19,600
[2 × No. of units]
(-) Expedited deliveries - - - - 200
[100×No. of delivery]
(-) COGS 4,21,200 6,39,000 27,90,000 17,10,000 4,41,000

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[45 × No. of units]

Operating Income 55,120 76,200 1,03,600 1,04,000 (7,920)
(ii) Separate disclosure of revenue helps us to identify the relationship between discount and sales
quantity.
Customer Quantity Discount Discount %
A 9,360 - 0%
C 62,000 5 5÷54 = 9.25%
D 38,000 3.80 3.80÷54 = 7.03%
E 8,775 5.40 5.40÷54 = 10%
Customer D gets lower discount as compared to Customer C. It may be due to lower quantity
purchased by customer D as compared to Customer C.
Customer E gets higher discount as compared to Customer A. Customer E discount is higher
in-spite of ordering comparative lower quantity and its reason should be further explored.

MAY – 2019 – 10 Marks

MNO Ltd. manufactures two types of equipment A and B and absorbs overheads on the basis of
direct labour hours. The budgeted overheads and direct labour hours for the month of March 2019
are `15,00,000 and 25,000 hours respectively. The information about the company’s products is
as follows:
Equipment
A B
Budgeted Production Volume 3,200 units 3,850 units
Direct Material Cost `350 per unit `400 per unit
Direct Labour Cost
A: 3 hours @ `120 per hour `360
B: 4 hours @ `120 per hour `480
Overheads of `15,00,000 can be identified with the following three major activities:
Order Processing `3,00,000
Machine Processing `10,00,000
Product Inspection `2,00,000
These activities are driven by the number of orders processed, machine hours worked and
inspection hours respectively. The data relevant to these activities is as follows:
Orders Processed Machine hours Inspection hours
worked
A 400 22,500 5,000
B 200 27,500 15,000
Total 600 50,000 20,000
Required:
(i) Prepare a statement showing the manufacturing cost per unit of each product using the
absorption costing method assuming the budgeted manufacturing volume is attained.

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(ii) Determine cost driver rates and prepare a statement showing the manufacturing cost per unit
of each product using activity based costing, assuming the budgeted manufacturing volume
is attained.
(iii) MNO Ltd.’s selling prices are based heavily on cost. By using direct labour hours as an
application base, calculate the amount of cost distortion (under costed or over costed) for
each equipment.

Solution
(i) Overhead application base: Direct Labour Hours

Equipment A (`) Equipment B (`)

Direct material cost 350 400
Direct labour cost 360 480
Overheads (60×3)(60×4) 180 240
890 1,120
ZK6E?G?6 3L?>Q?769 !',&&,&&&
Pre-determined overhead rate = ZK6E?G?6 6A>?HG F7S<K> Q<K>9= "',&&&
= `60

(ii) Estimation of cost-driver rate

Activity Overhead Cost (`) Cost-driver level Cost driver rate (`)
Order processing 3,00,000 600 order processed 500
Machine processing 10,00,000 50,000 machine hrs. 20
Inspection 2,00,000 15,000 inspection hrs. 10

Calculation of Overhead Costs

Activity Equipment A (`) Equipment B (`)
Order Processing (400×500) (200×500) 2,00,000 1,00,000
Machine processing (22,500×20) (27,500×20) 4,50,000 5,50,000
Inspection (5000×10) (10,000×10) 50,000 1,50,000
Total overhead cost 7,00,000 8,00,000
Total units 3,200 3,850
Overhead per unit 218.75 207.79

Calculation of cost per unit

Equipment A (`) Equipment B (`)
Direct material cost 300 400
Direct labour cost 360 480
Overheads 218.75 207.79
928.75 1,087.79

(c) Statement of cost

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Equipment A (`) Equipment B (`)

Unit manufacturing cost-using direct 890 1,120
labour hours as an application base
Unit manufacturing cost-using activity 928.75 1,087.79
based costing
Cost distortion (-) 38.75 + 32.21

NOV – 2018 – 10 Marks

M/s HMB Limited is producing a product in 10 batches each of 15,000 units in a year and incurring
following overheads thereon:
Amount (`)
Material procurement 22,50,000
Maintenance 17,30,000
Set-up 6,84,500
Quality control 5,14,800
The prime cost for the year amounted to `3,01,39,000.
The company is using currently the method of absorbing overheads on the basis of prime cost.
Now it wants to shift to activity-based costing. Information relevant to activity drivers for a year
are as under:
Activity Driver Activity Volume
No. of purchase orders 1,500
Maintenance hours 9,080
No. of set-ups 2,250
No. of inspections 2,710
The company has produced a batch of 15,000 units and has incurred `26,38,700 and `3,75,200
om materials and wages respectively.
The usage of activities of the said batch are as follows:
Material orders 48 orders
Maintenance hours 810 hours
No. of set-ups 40
No. of inspections 25
You are required to:
(i) Find out cost of product per unit on absorption costing basis for the said batch.
(ii) Determine cost driver rate, total cost and cost per unit of output of the said batch on the
basis of activity based costing.

Solution
(i) Calculation of cost under Absorption Costing:
O<G7F <L?>Q?769 '!,*(,%&&
Overheads absorption rate = O<G7F [>AJ? 49<G × 100 = %,&!,%(,&&& × 100 = 17.18%
Particulars Amount (`)
Material 26,38,700

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Wages 3,75,200
Prime cost 30,13,900
Overheads (30,13,900 × 17.18%) 5,17,930
Total cost 35,31,830
Units 15,000
Cost per unit 235.46

(ii) Statement showing Activity Based Costing

Activity Total Activity Cost Driver
Amount Volume Rate
Material Procurement 22,50,000 1,500 1,500
Maintenance 17,30,000 9,080 190.53
Setup 6,84,500 2,250 304.22
Quality Control 5,14,800 2,710 189.96

Calculation of total cost and cost per unit:

Particulars Amount (`)
Material 26,38,700
Wages 3,75,200
Prime cost 30,13,900
Material purchase (1,500 × 48) 72,000
Maintenance (190.53 × 810) 1,54,328
Set-up (304.22 × 40) 12,169
Quality Control (189.96 × 25) 4,749
Total Cost 32,57,146
Unit 15,000
Cost per unit 217.14

MAY – 2018 – 10 Marks

PQR Pens Ltd. manufactures two products – ‘Gel Pen’ and ‘Ball Pen’. If furnishes the following
data for the year 2017:
Product Annual Output Total Machine Total number Total number
(Units) Hours of Purchase of set-ups
orders
Gel Pen 5,500 24,000 240 30
Ball Pen 24,000 54,000 448 56
The annual overheads are as under:
Particulars `
Volume related activity costs 4,75,020
Set up related costs 5,79,988
Purchase related costs 5,04,992

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Calculate the overhead cost per unit of each Product – Gel Pen and Ball Pen on the basis of:
(i) Traditional method of charging overheads
(ii) Activity based costing method and
(iii) Find out the difference in cost per unit between both the methods.

Solution
(i) Calculation of cost under Traditional Approach:
O<G7F <L?>Q?769 !',)&,&&&
Overheads rate per Machine hour = O<G7F J7HQAD? Q<K>9= "$,&&&/'$,&&& = `20 per machine hour

Statement of Cost
Particulars Gel Pen Ball Pen
Overheads absorbed (A) 20 × 24,000 = 4,80,000 20 × 54,000 = 10,80,000
Units (B) 5,500 24,000
Overheads per unit (A ÷ B) 87.27 45
(ii) Statement showing Activity Based Cost
Activity Cost Pool Cost Driver Ratio Total Gel Pen Ball Pen
Amount (`) (`)
(`)
Volume Related Machine Hour 24:54 4,75,020 1,46,160 3,28,860
Activity Costs
Set-up Related No. of Set-ups 30:56 5,79,988 2,02,321 3,77,667
Costs
Purchase Related No. of Purchase 240:448 5,04,992 1,76,160 3,28,832
Costs Orders
Total Costs 5,24,641 10,35,359
Output (Units) 5,500 24,000
Cost per unit 95.39 43.13

(iii) Statement of Difference in Cost

Particulars Gel Pen Ball Pen
Overheads cost per unit (`) – Traditional Approach 87.27 45
Overheads Cost per unit (`) – ABC 95.39 43.13
Difference per unit -8.12 +1.87

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Batch Costing
May – 2023 – 5 Marks
TSK Limited manufactures a variety of products. The annual demand for one of its products –
Product ‘X’ is estimated as `1,35,000 units. Product ‘X’ is to be manufactured done in batches.
Set up cost of each batch is `3,375 and inventory holding cost is `5 per unit. It is expected that
demand of Product ‘X’ would be uniform throughout the year.
Required:
(i) Calculate the Economic Batch (EBQ) for Product ‘X’.
(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product ‘X’ per
batch, calculate the additional cost incurred as compared to the cost incurred as per Economic
Batch Quantity (EBQ) as computed in (i) above.

Solution
(i) Annual demand for the product = A = 1,35,000
Set-up cost per batch = S = `3,375
Carrying cost per unit per annum = C = `5
"×2×@ "×!,%',&&&×%,%*'
Economic batch quantity (EBQ) = Q 4
=Q '
= 13,500 units

(ii) Statement of cost

Particulars Batch size = 13,500 units Batch size = 7,500 units
Total Set-up cost !,%',&&& !,%',&&&
!%,'&&
× 3,375 = 33,750 *,'&&
× 3,375 = 60,750
Total Carrying cost !%,'&& *,'&&
× 5 = 33,750
" "
× 5 = 18,750
Total cost 67,500 79,500
`12,000 is the excess cost borne by the company due to batch size not being economic batch
quantity.

NOV – 2022 – 5 Marks

A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey Pox,
Covid-19 and Chickenpox. A distributor had given an order for 1,600 Monkey Pox Vaccines. The
company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox vaccines, the
following costs would be incurred:
Direct Materials `4,250
Direct wages `500
Lab set-up cost `1,400
The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total
production cost is charged in each batch for Selling, distribution and administration Overheads.
The company is willing to earn profit of 25% on sales value.
You are required to determine:
(i) Total Sales value for 1,600 Monkey Pox Vaccines
(ii) Selling price per unit of the Vaccine
Solution
(i) & (ii) Calculation of Sales value and Selling Price per unit of Monkey Pox Vaccine
Particulars Amount per batch Amount for 1,600 Amount per unit (`)
(` ) units or 20 batches
(` )
Direct materials 4,250 85,000 53.125

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Direct wages 500 10,000 6.250

Lab set-up cost 1,400 28,000 17.500
Production overheads 100 2,000 1.250
(20% of direct wages)
Production cost 6,250 1,25,000 78.125
Selling, distribution 1,250 25,000 15.625
and administration
cost (20% of
production cost)
Total Cost 7,500 1,50,000 93.75
Add: Profit (1/3rd of 2,500 50,000 31.25
Total cost or 25% of
Sales value)
Sales Value 10,000 2,00,000 125.00

JULY – 2021 – 5 Marks

AUX ltd. has an annual demand from a single customer for 60,000 Covid-19 Vaccines. The
customer prefers to order in the lot of 15,000 vaccines per order. The production cost of vaccine is
`5,000 per vaccine. The set-up cost per production run of Covid-19 vaccines is `4,800. The
carrying cost is `12 per vaccine per month.
You are required to:
(i) Find the most Economical Production Run
(ii) Calculate the extra cost that company incurs due to production of 15,000 vaccines in a batch.

Solution
(i) Annual demand = A = 60,000 vaccines
Set-up cost per run = S = `4,800
Carrying cost per unit per annum = C = `12 × 12 = `144
"×2×@ "×)&,&&&×$,.&&
Economic Batch Quantity = Q 4
=Q !$$
= 2,000 vaccines

(ii) Statement of Cost

Particulars Batch size = 2,000 vaccines Batch size = 15,000
vaccines
Set-up cost )&,&&& )&,&&&
",&&&
× 4,800 = 1,44,000 !',&&&
× 4,800 = 19,200
Carrying cost ",&&& !',&&&
"
× 144 = 1,44,000 × 144 = 10,80,000
"
Total Cost 2,88,000 10,99,200
Extra cost = `10,99,200 – `2,88,000 = `8,11,200

JAN – 2021 – 5 Marks

GHI Ltd. manufactures ‘Stent’ that is used by hospitals in heart surgery. As per the estimates
provided by Pharmaceutical Industry Bureau, there will be a demand of 40 Million ‘Stents’ in the
coming year. GHI Ltd. is expected to have a market share of 2.5% of the total market demand of

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the Stents in the coming year. It is estimated that is costs `1.50 as inventory holding cost per stent
per month and that the set-up cost per run of stent manufacture is `225.
Required:
(i) What would be optimum run size for Stent manufacture?
(ii) What is minimum inventory holding cost?
(iii) Assuming that the company has a policy of manufacturing 4,000 stents per run, how much
extra costs the company would be incurring as compared to the optimum run suggested in (i)
above?

Solution
(i) Annual demand = A = 2.5% × 4,00,00,000 = 10,00,000 stents
Set-up cost per run = S = `225
Carrying cost per unit per annum = C = `1.50 × 12 = `18
"×2×@ "×!&,&&,&&&×""'
Economic Batch Quantity = Q 4
=Q !.
= 5,000 stents

',&&&
(ii) Minimum inventory holding cost = "
× 18 = `45,000

(iii) Statement of Cost

Particulars Batch size = 4,000 stent Batch size = 5,000 stent
Set-up cost !&,&&,&&& !&,&&,&&&
$,&&&
× 225 = 56,250 ',&&&
× 225 = 45,000
Carrying cost $,&&& ',&&&
"
× 18 = 36,000 × 18 = 45,000
"
Total Cost 92,250 90,000
Extra cost = `92,250 – `90,000 = `2,250

NOV – 2018 – 10 Marks

XYZ Ltd. has obtained an order to supply 48,000 bearings per year from a concern. On a steady
basis, it is estimated that it costs `0.20 as inventory holding cost per bearing per month and the
set-up cost per run of bearing manufacture is `384.

You are required to:

(i) Compute the optimum run size and number of runs for bearing manufacture.
(ii) Compute the interval between two consecutive runs
(iii) Find out the extra costs to be incurred, if company adopts a policy to manufacture 8,000
bearings per run as compared to optimum run size
(iv) Give your opinion regarding run size of bearing manufacture.
Assume 365 days in a year.

Solution
"×2×@ "×$.,&&&×%.$
(i) Economic batch quantity = Q 4
=Q &."&×!"
= 3,919.18 or 3,920 units

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Number of optimum runs = 48,000 ÷ 3,920 = 12.245 or 13 run

(ii) Interval between 2 runs (in days) = 365 ÷ 13 = 2 days

Or 365 ÷ 12.24 = 29.82 days

(iii) Total cost at economic batch quantity level = Set-up cost + Carrying cost
$.,&&& %,("&
= !H %,("& I × 384- + !H "
I × 0.20 × 12-= `9,406

Total cost at level of 8,000 bearings per run = Set-up cost + Carrying cost
$.,&&& .,&&&
= !H .,&&& I × 384- + !H "
I × 0.20 × 12-= `11,904
Extra cost to be incurred by the company = `11,904 – `9,406 = `2,498

(iv) Since total cost is lower when the company adopts economic batch quantity as compared to
suggested level of 8,000 units by `2,498, thus it is recommended to have economic batch
quantity i.e. 3,920 as run size of manufacturing.

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Job Costing
MAY – 2022 – 10 Marks
In a manufacturing company, the overhead is recovered as follows:
Factory overheads: a fixed percentage basis on direct wages and
Administrative overheads: a fixed percentage basis on factory cost.

The company has furnished the following data relating to two jobs undertaken by it in a period.
Job 1 (`) Job 2 (`)
Direct materials 1,08,000 75,000
Direct wages 84,000 60,000
Selling price 3,33,312 2,52,000
Profit percentage on total cost 12% 20%
You are required to:
(i) Compute the percentage recovery rates of factory overheads and administrative
overheads.
(ii) Calculate the amount of factory overheads, administrative overheads and profit for each
of the two jobs.
(iii) Using the above recovery rates, determine the selling price to be quoted for Job 3.
Additional data pertaining to Job 3 is as follows:
Direct materials `68,750
Direct wages `22,500
Profit percentage on selling price 15%

Solution
(i) Let factory overheads recovery rate be X % of direct labour and administrative overheads
recovery rate be Y % of work cost.
Job 1 Job 2
Selling Price 3,33,312 2,52,000
Less: Profit [3,33,312 × 12/112] [2,52,000 × 20/120] _35,712 _42,000
Total Cost 2,97,600 2,10,000
Particulars Job 1 Job 2
Material Cost 1,08,000 75,000
Direct Wages 84,000 60,000
Prime Cost 1,92,000 1,35,000
Overheads 840X 600X
Work Cost 1,92,000 + 840X 1,35,000 + 600X
Administration
OHs 1,920Y + 8.4XY 1,350Y + 6XY
Cost of 1,92,000 + 840X + 1,920Y +
Production 8.4XY 1,35,000 + 600X + 1,350Y + 6XY

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\ 1,92,000 + 840X + 1,920Y + 8.4XY = 2,97,600 Þ 840X + 1,920Y + 8.4XY = 1,05,600…….(1)

& 1,35,000 + 600X + 1,350Y + 6XY = 2,10,000 Þ 600X + 1,350Y + 6XY = 75,000…….(2)
Solving the two equations,
X = 66.6667 and Y = 20
Thus factory overheads = X % = 66.6667% on direct wages
Administration overheads = Y% = 20% on factory cost

(b) Statement of Cost

Particulars Job 101 Job 102
Material Cost 1,08,000 75,000
Direct Wages 84,000 60,000
Prime Cost 1,92,000 1,35,000
Overheads (66.6667% of wages) 56,000 40,000
Work Cost 2,48,000 1,75,000
Administration overheads (20% of work cost) 49,600 35,000
Cost of Production 2,97,600 2,10,000
Profit 35,712 42,000
Selling Price 3,33,312 2,52,000
(c) Statement of computation of selling price of Job 3
Particulars Job 3
Material Cost 68,750
Direct Wages 22,500
Prime Cost 91,250
Overheads (66.6667% of wages) 15,000
Work Cost 1,06,250
Administration overheads (20% of work cost) 21,250
Cost of Production 1,27,500
Profit [1,27,500 × 15/85] 22,500
Selling Price 1,50,000

NOV – 2019 – 5 Marks

The following data presented by the supervisor of a factory for a Job.
`per unit
Direct material 120
Direct wages @ `4 per hour 60
(Department A-4 hrs., B-7hrs, C-2hrs & D-2hrs)
Chargeable Expenses 20
Total 200

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Analysis of the Profit and Loss Account for the year ended 31st March 2019
` `
Material used 2,00,000 Sales 4,30,000
Direct Wages:
Dept. A 12,000
Dept. B 8,000
Dept. C 10,000
Dept. D 20,000 50,000
Special Stores Items 6,000
Overheads:
Dept. A 12,000
Dept. B 6,000
Dept. C 9,000
Dept. D 17,000 44,000
Gross Profit c/d 1,30,000 ________
4,30,000 4,30,000
Selling Expenses 90,000 Gross Profit b/d 1,30,000
Net Profit _40,000 _______
1,30,000 1,30,000
It is also to be noted that average hourly rates for all the four departments are similar. Required:
(i) Prepare a Job Cost Sheet
(ii) Calculate the entire revised cost using the above figures as the base.
(iii) Add 20% profit on selling price to determine the selling price.

Solution
Working Notes:
Overhead recovery rate on overall basis:
$$,&&&
Overhead recovery rate = $%,%%% = `3.52
X Y
"

Statement of calculation of recovery rates

Particulars Working Recovery Rate
Dept. A 12,000 `4 per direct labour hour
12,000
H 4 I
Dept. B 6,000 `3 per direct labour hour
8,000
H 4 I
Dept. C 9,000 `3.60 per direct labour
10,000 hour
H 4 I
Dept. D 17,000 `3.40 per direct labour
20,000 hour
H 4 I

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Selling exp. As % 90,000 30% of NFC

of NFC 2,00,000 + 50,000 + 6,000 + 44,000
× 100

(i) Statement of calculation of cost of Job

Particulars Working Amount (`)
Material 120
Wages 60
Chargeable expenses 20
Prime Cost 200
(+) Overheads (4+7+2+2)×3.52 52.80
GFC\NFC 252.80
(+) Selling expenses 30% × 252.80 75.84
Total Cost 328.64

(ii) Statement of calculation of cost of Job

Particulars Working Amount (`)
Material 120
Wages 60
Chargeable expenses 20
Prime Cost 200
(+) Overheads Dept. A = 4 × 4.00 = 16
Dept. B = 7 × 3.00 = 21
Dept. C = 2 × 3.60 =
7.20
Dept. D = 2 × 3.40 =
6.80 51
GFC\NFC 251
(+) Selling expenses 30% × 251 75.30
Total Cost 326.30

(iii) Statement of calculation of selling price of job

Total cost of job `326.30
Add: Profit (326.30 × ¼) `81.58_
Sales `407.88

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Cost Accounting System

MAY – 2023 – 5 Marks
The following information has been obtained from financial accounting and cost accounting
records.
Financial Accounting (`) Cost Accounting (`)
(i) Factory overhead 94,750 90,000
(ii) Administrative overhead 60,000 57,000
(iii) Selling overhead 55,000 61,000
(iv) Opening stock 17,500 22,500
(v) Closing stock 12,500 15,000
Required:
Indicate under-recovery and over-recovery and their effects on cost accounting profit.
[Note: You are not required to prepare reconciliation statement]

Solution
Financial Cost Differenc Under/Ove Effect on Net effect
Accountin Accountin e (` ) r recovery cost on cost
g (` ) g (` ) accountin accountin
g profit g profit*
Factory 94,750 90,000 4,750 Under- Increased To be
overheads recovery reduced or
deducted
Administrativ 60,000 57,000 3,000 Under- Increased To be
e overheads recovery reduced or
deducted
Selling 55,000 61,500 -6,500 Over- Decreased To be
overheads recovery added
Opening 17,500 22,500 -5,000 Over Decreased To be
stock valuation added
Closing stock 12,500 15,000 -2,500 Over Increased To be
valuation reduced or
deducted
*Taking cost accounting profit as base

NOV – 2022 – 5 Marks

‘X’ Ltd. follows Non-Integrated Accounting system. Financial Accounts of the company show a
Net Profit of `5,50,000 for the year ended 31st March, 2022. The chief accountant of the company
has provided following information from the financial accounts and cost accounts:
Sr. No. Particulars (`)
(i) Legal charges provided in financial accounts 15,250
(ii) Interim dividend received credited in financial accounts 4,50,000
(iii) Preliminary expenses written off in financial accounts 25,750
(iv) Over recovery of selling overheads in cost accounts 11,380
(v) Profit on sale of capital asset credited in financial accounts 30,000
(vi) Under valuation of closing stock in cost accounts 25,000
(vii) Over recovery of production overheads in cost accounts 10,200

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(viii) Interest paid on debenture shown in financial accounts 50,000

Required:
Find out the Profit (Loss) as per Cost Accounts by preparing a reconciliation statement.

Solution
Reconciliation Statement
Particulars (` ) Total (`)
Profit as per Financial Accounts 5,50,000
Add: Legal charges 15,250
Preliminary expenses written off 25,750
Interest paid 50,000 91,000
6,41,000
Less: Under-valuation of closing stock in cost books 25,000
Interim dividend received 4,50,000
Over recovery of selling overheads in cost accounts 11,380
Over recovery of production overhead in cost accounts 10,200
Profit on sale of assets 30,000 5,26,580
Profit as per Cost Accounts 1,14,420

MAY – 2022 – 5 Marks

Journalize the following transactions assuming the cost and financial accounts are integrated:
Particulars Amount (`)
Direct Materials issued to production `5,58,000
Allocation of Wages (Indirect) `7,50,000
Factory Overheads (Over absorbed) `2,25,000
Administrative Overheads (Under absorbed) `1,55,000
Deficiency found in stock of Raw material (Normal) `2,00,000

Solution
Journal Entries
Particular Dr. (`) Cr. (`)
(i) WIP Ledger Control A/c Dr. 5,88,000
To Stores Ledger Control A/c 5,88,000
(ii) Factory Overhead Control A/c Dr. 7,50,000
To Wages Control A/c 7,50,000
(iii) Factory Overheads Control A/c Dr. 2,25,000
To Costing P&L A/c 2,25,000
(iv) Costing P&L A/c Dr. 1,55,000
To Administrative Overheads Control A/c 1,55,000
(v) Factory Overheads Control A/c Dr. 2,00,000
To Stores Ledger Control A/c 2,00,000

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DEC – 2021 – 5 Marks

R Ltd. showed a Net profit of `3,60,740 as per their cost accounts for the year ended 31st March,
2021. The following information was revealed as a result of scrutiny of the figures from the both
sets of accounts.
Sr. No. Particulars (` )
i. Over recovery of selling overheads in cost accounts 10,250
ii. Over valuation of closing stock in cost accounts 7,300
iii. Rent received credited in financial accounts 5,450
iv. Bad debts provided in financial accounts 3,250
v. Income tax provided in financial accounts 15,900
vi. Loss on sale of capital asset debited in financial accounts 5,800
vii. Under recovery of administration overheads in cost accounts 3,600
Required to prepare a reconciliation statement showing the profit as per financial records.

Solution
Reconciliation Statement
Particulars + (` ) - (` )
Profit as per cost accounts 3,60,740 -
Add: Over recovered selling OHs 10,250 -
Less: Over valued closing stock in cost accounts - 7,300
Add: Rent received credited in financial accounts 5,450 -
Less: Bad Debts provided in financial accounts - 3,250
Less: Income tax provided in financial accounts - 15,900
Less: Loss on sale of capital assets in financial accounts - 5,800
Less: Under recovered administration overheads in cost - 3,600
3,76,440 35,850
Loss as per financial account - 3,40,590

JULY – 2021 – 10 Marks

The profit and loss account of ABC Ltd. for the year ended 31st March, 2021 is given below:
Profit and Loss Account
(for the year ended 31st March, 2021)
To Direct Material 6,50,000 By Sales 15,00,000
To Direct Wages 3,50,000 (15,000 units)
To Factory overheads 2,60,000 By Dividend 9,000
received
To Administrative overheads 1,05,000
To Selling overheads 85,000
To loss on sale of 2,000
investments
To Net Profit 57,000
15,09,000 15,09,000

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• Factory overheads are 50% fixed and 50% variable

• Administrative overheads are 100% fixed
• Selling overheads are completely variable
• Normal production capacity of ABC Ltd. is 20,000 units
• Indirect expenses are absorbed in the cost accounts on the basis of normal production
capacity.
• Notional rent of own premises charged in cost accounts is amounting to `12,000.
You are required to:
(i) Prepare a cost sheet and ascertain the Profit as per cost Records for the year ended 31st
March, 2021.
(ii) Reconcile the profit as per Financial records with Profit as per Cost Records.

Solution
(i) Cost Sheet
Particulars Amount
Raw material consumed 6,50,000
Direct wages 3,50,000
Prime Cost 10,00,000
",)&,&&&×'&%
Add: Fixed factory overheads H "&,&&&
× 15,000I 97,500
Add: Variable factory overheads (2,60,000 × 50%) 1,30,000 2,27,500
Add: Notional rent of own premises 12,000
GFC/NFC/COP/COGS 12,39,500
!,&',&&& 78,750
Add: Administrative overheads H "&,&&& × 15,000I
Add: selling & Distribution overheads 85,000
Cost of Sales 14,03,250
Add: Profit (Balancing figure) 96,750
Sales 15,00,000

(ii) Reconciliation Statement

Particulars + (` ) - (` )
Profit as per P&L Account 57,000 -
Add: Under recovered factory overheads (2,60,000 – 32,500 -
2,27,500)
Less: Notional rent of own premises - 12,000
Add: Under recovered administrative overheads (1,05,000 – 26,250 -
78,750)
Add: Loss on sale of investment 2,000 -
Less: Dividend received - 9,000
Total 1,17,750 21,000
Profit as per Cost Account 96,750 -

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NOV – 2019 – 5 Marks

Journalize the following transactions in cost books under Non-Integrated system of accounting.
(i) Credit Purchase of Material `27,000
(ii) Manufacturing overhead charged to Production `6,000
(iii) Selling and Distribution overheads recovered from sales `4,000
(iv) Indirect wages incurred `8,000
(v) Material returned from production to stores `9,000

Solution
Journal Entries
Particular Dr. (`) Cr. (`)
(i) Stores Ledger Control A/c Dr. 27,000
To General Ledger Adjustment A/c 27,000
(ii) Work-in-progress Ledger Control A/c Dr. 6,000
To Factory Overheads Control A/c 6,000
(iii) Cost of Sales A/c Dr. 4,000
To Selling & Distribution OHs Control A/c 4,000
(iv) Wages Control A/c Dr. 8,000
To General Ledger Adjustment A/c 8,000
(v) Stores Ledger Control A/c Dr. 9,000
To Work-in-progress Ledger Control A/c 9,000

MAY – 2019 – 5 Marks

M/s Abid Private Limited disclosed a net profit of `48,408 as per cost books for the year ending
31st March 2019. However, financial accounts disclosed net loss of `15,000 for the same period.
On scrutinizing both the set of books of accounts, the following information was revealed:
Works overheads under recovered in cost books 48,600
Office overheads over-recovered in cost books 11,500
Dividend received on shares 17,475
Interest on fixed deposits 21,650
Provision for doubtful debts 17,800
Obsolescence loss not charged in cost accounts 17,200
Stores adjustments (debited in financial accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciation recovered in cos books 35,000
Prepare a Memorandum Reconciliation Account.

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Solution
Memorandum Reconciliation Account
Particulars ` Particulars `
To Work overheads under 48,600 To Net Profit as per cost books 48,408
recovered By Office overheads over
To Provision for doubtful debts 17,800 recovered 11,500
To Obsolescence loss 17,200 By Dividend received on shares 17,475
To Store adjustment (Debit) 35,433 By Interest on fixed deposits 21,650
By Depreciation over charged 5,000
By Net loss as per financial 15,000
1,19,033 accounts 1,19,033

NOV – 2018 – 10 Marks

The following balances were extracted from a Company’s ledger as on 30th June, 2018
Debit (`) Credit (`)
Raw material control A/c 2,82,450
Work-in-progress control A/c 2,38,300
Finished stock control A/c 3,92,500
General ledger adjustment A/c 9,13,250
9,13,250 9,13,250

The following transactions took place during the quarter ended 30th September, 2018:
`
Factory overheads – allocated to work-in-progress 1,36,350
Goods finished – at cost 13,76,200
Raw material purchased 12,43,810
Direct wages – allocated to work-in-progress 2,56,800
Cost of goods sold 14,56,500
Raw materials – issued to production 13,60,430
Raw materials – credited by suppliers 27,200
Raw materials losses – inventory audit 6,000
Work-in-progress rejected (with no scrap value) 12,300
Customer’s returns (at cost) of finished goods 45,900

You are required to prepare:

(i) Raw material control a/c
(ii) Work-in-progress control a/c
(iii) Finished stock control a/c
(iv) General ledger adjustment a/c

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Solution
Raw Material Control A/c
To Balance B/d 2,82,450 By General Ledger Adj. A/c 27,200
To General Ledger Adj. A/c 12,43,810 By Work in Progress Control A/c 13,60,430
By Costing P&L A/c (Loss) 6,000
By Balance c/d (Balance figure) 1,32,630
15,26,260 15,26,260

Work in Progress Control A/c

To Balance b/d 2,38,300 By Finished goods Control A/c 13,76,200
To Raw material control A/c 13,60,430 By Costing P&L A/c 12,300
To Wages control A/c 2,56,800 By Balance c/d (Balancing 6,03,380
To Factory OH control A/c 1,36,350 Figure)
19,91,880 19,91,880

Finished Stock Ledger Control A/c

To Balance b/d 3,92,500 By Cost of Sales A/c 14,56,500
To Work in Progress Control A/c 13,76,200 By Balance c/d (Bal. Fig.) 3,58,100
To General Ledger Adjustment A/c 45,900
18,14,600 18,14,600

General Ledger Adjustment A/c

To Costing P&L (Sales) (Bal. fig.) 25,68,910 By Balance B/d 9,13,250
To Raw material control A/c 27,200 By Raw material control a/c 12,43,810
By Wages control A/c 2,56,800
By Factory OH control A/c 1,36,350
By Finished Goods Control A/c 45,900
9,55,000 25,96,110

MAY – 2018 – 5 Marks

GK Ltd. showed net loss of `2,43,300 as per their financial accounts for the year ended 31st March,
2018. However, cost accounts disclosed net loss of `2,48,300 for the same period. On scrutinizing
both the set of books
of accounts, the following information were revealed:
`
(i) Works overheads over recovered 30,400
(ii) Selling overheads under recovered 20,300
(iii) Administrative overheads under recovered 27,700
(iv) Depreciation over charged in cost accounts 35,100
(v) Bad debts w/off in financial accounts 15,000

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(vi) Preliminary expenses w/off in financial accounts 5,000

(vii) Interest credited during the year in financial accounts 7,500
Prepare a reconciliation statement reconciling losses shown by financial and cost accounts by
taking costing net loss as base.

Solution
Reconciliation Statement
Particulars + (` ) - (` )
Loss as per cost accounts - 2,48,300
Add: Over recovered Works OHs 30,400 -
Less: Under recovered Selling OHs - 20,300
Less: Under recovered administrative OHs - 27,700
Add: Depreciation over charged in cost accounts 35,100 -
Less: Bad Debts w/off in financial accounts - 15,000
Less: Preliminary expenses w/off in financial accounts - 5,000
Add: Interest credited during the year in financial accounts 7,500 -
73,000 3,16,300
Loss as per financial account - 2,43,300

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Service Costing
MAY – 2023 – 5 Marks
RST Toll Plaza Limited built an 80-kilometer-long highway between two cities and operates a toll
plaza to collect tolls from passing vehicles using the highway. The company has estimated that
50,000 light weight, 12,000 medium weight and 10,000 heavy weight vehicles will be using the
highway in one month in outward journey and the same number for return journey.

As per government notification, vehicles used for medical emergencies, Members of Parliament,
and essential services are exempt from toll charges. It is estimated that 10% of light weight vehicles
will pass the highway for such use.

It is the policy of the company that if vehicles return within 24 hours of their outward journey, the
toll fare will be reduced by 25 percent automatically. It is estimated that 30% of chargeable light
weight vehicles return within the specified time frame.

The toll charges for medium weight vehicles is to be fixed as 2.5 times of the light weight vehicles
and that of heavy weight vehicles as 2 times of the medium weight vehicles.

The toll and maintenance cost for a month is `59,09,090. The company requires a profit of 10%
over the total cost to cover interest and other costs.
Required:
(i) Calculate the toll rate for each type of vehicle if concession facilities are not available on the
return journey.
(ii) Calculate the toll rate that will be charged from light weight vehicles if a return journey
concession facility is available, assuming that the revenue earned from light weight vehicles
calculated in option (i) remains the same.
Solution
Working Notes:
(1) Calculation of equivalent number of light vehicles
Type of vehicles Monthly traffic Return traffic Ratio (C) Equivalent light
(A) (B) weight
[(A+B)´C]
Light weight 45,000* 45,000 1 90,000
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,50,000
*50,000 light vehicles less 10% exempted vehicles.
(2) Calculation of equivalent number of light weight vehicles
Type of vehicles Monthly Return traffic (B) Ratio (C) Equivalent light
traffic (A) weight
[(A+B)´C]
Light weight 45,000* 41,625 1 86,625
(45,000 – [45,000
´ 30% ´ 25%)]
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,46,625

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O<G7F H<9G G< H<L?> ('(,&(,&(&/!&%) )',&&,&&&

(i) Toll rate per vehicle = \]KAL7F?DG G8C? <= L?QAHF?9 = ",'&,&&&
= ",'&,&&&
= `26
Toll rate for light weight vehicle = `26
Toll rate for medium weight vehicle = `26 ´ 2.5 = `65
Toll rate for heavy weight vehicle = `26 ´ 5 = `130

(ii) Revenue from light weight vehicle in (i) above = 90,000 vehicles ´ `26 = `23,40,000
"%,$&,&&&
New toll rate to maintain the same revenue from Light weight vehicle = .),)"' = `27.01
Rate to be charged from 13,500 light weight vehicles = 27.01 ´ 0.75 = `20.26

Toll to be charged from light weight vehicles if concession applicable

Revenue share in light vehicles = 90,000 ´ 26 = `23,40,000
Suppose rate is x,
then outward journey 45,000 x;
return journey (45,000 – 30% of 45,000) + 13,500(x – 0.25)
45,000x + 31,500x + 13,500(0.75x) = 23,40,000
Toll rate to be charged from light weight vehicles: 86,625x = 23,40,000
X = `27.01
Rate to be charged from 76,500 light weight vehicles @ `27.01; revenue will be `20,66,494
Rate to be charged from 13,500 light weight vehicles = 27.01 ´ 0.75 = 20.26
Revenue will be `2,73,506

NOV – 2022 – 5 Marks

ABC Bank is having a branch which is engaged in processing of ‘Vehicle Loan’ and ‘Education
Loan’ applications in addition to other services to customers. 30% of the overhead costs for the
branch are estimated to be applicable to the processing of ‘Vehicle Loan’ applications and
‘Education Loan’ applications each.

Branch is having four employees at a monthly salary of `50,000 each, exclusively for processing
of Vehicle Loan applications and two employees at a monthly salary of `70,000 each, exclusively
for processing of Education Loan applications.
In addition to above, following expenses are incurred by the Branch:
• Branch Manager who supervises all the activities of branch, is paid at `90,000 per month.
• Legal charges, Printing & stationery and advertising expenses are incurred at `30,000,
`12,000 and `18,000 respectively for a month.
• Other expenses are `10,000 per month.
You are required to:
(a) Compute the cost of processing a Vehicle Loan application on the assumption that 496 Vehicle
Loan applications are processed each month.
(b) Find out the number of Education Loan applications if the total processing cost per Education
Loan Application is sale as in the Vehicle loan Application as computed in (i) above.

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Solution
Particulars Vehicle Loan Education Loan Total (`)
Applications (`) Applications (`)
Employee Cost 50,000 ´ 4 = 70,000 ´ 2 = 1,40,000 3,40,000
2,00,000
Apportionment of branch 27,000 27,000 54,000
manager’s salary
Legal charges, printing & 18,000 18,000 36,000
stationary and advertising
Other expenses 3,000 3,000 6,000
Total cost 2,48,000 1,88,000 4,36,000
O<G7F H<9G ",$.,&&&
(a) Cost of processing vehicle loan application = ;<.<= 7CCFAH7GA<D9 = $()
= `500
O<G7F H<9G
(b) Cost of processing education loan application = ;<.<= 7CCFAH7GA<D9
!,..,&&&
500 = ;<.<= 7CCFAH7GA<D9
!,..,&&&
No. of applications = '&&
= 376

MAY – 2022 – 5 Marks

Coal is transported from two mines X & Y and unloaded at plots in a railway station. X is at
distance of 15 kms and Y is at a distance of 20 kms from the rail head plots. A fleet of lorries
having carrying capacity of 4 tonnes is used to transport coal from the mines. Records reveal that
average speed of the lorries is 40 kms per hour when running and regularly take 15 minutes to
unload at the rail hear.

At Mine X average loading time is 30 minutes per load, while at mine Y average loading time is
25 minutes per load.

Additional information:
Drivers’ wages, depreciation, insurance and taxes, etc. `12 per hour
Operated Fuel, oil tyres, repairs and maintenance, etc. `1.60 per km

You are required to prepare a statement showing the cost per tonne kilometer of carrying coal from
each mine ‘X and ‘Y’.

Solution
Calculation of Ton Kms
No. × Kms × Ton = Ton Kms
Plot to X 1 × 15 × 0 = 0
X to plot 1 × 15 × 4 = 60
Total = 60
Kms travel = (1 ×1 5) + (1 × 15) = 30

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Calculation of Ton Kms

No. × Kms × Ton = Ton Kms
Plot to Y 1 × 20 × 0 = 0
Y to Plot 1 × 20 × 4 = 80
Total = 80
Kms travel = (1 × 20) + (1 × 20) = 40

Statement to time (in minutes)

Particulars X Y
Travel time 30×(60/40) = 45 40×(60/40) = 60
Loading time 30 25
Unloading time 15 15
Total time 90 100

Statement of operating cost

Particulars X Y
Fixed cost 90×(12/60) = 18 100×(12/60) = 20
Variable cost 1.60×30 = 48 1.60×40 = 64
Total Cost 66 84
Ton-Kms 60 80
Total cost per ton-km 1.10 1.05

DEC – 2021 – 10 Marks

Paras Travels provides mini bus to an IT company for carrying its employees from home to office
and dropping back after office hours. It runs a fleet of 8 mini buses for this purpose. The buses are
parked in a garage adjoining the company’s premises. Company is operating in two shifts (one
shift in the morning and one shift in the afternoon). The distance travelled by each mini bus one
way is 30 kms. The company works for 20 days in a month.

The seating capacity of each mini bus is 30 persons. The seating capacity is normally 80% occupied
during the year. The details of expenses incurred for a year are as under:
Particulars
Driver’s salary `20,000 per driver per month
Lady attendant’s salary (mandatorily required for each `10,000 per attendant per month
mini bus)
Cleaner’s salary (One cleaner for 2 mini buses) `15,000 per cleaner per month
Diesel (Avg. 8kms per litre) `80 per litre
Insurance charges (per annum) 2% of Purchase Price
License fees and taxes `5,080 per mini bus per month
Garage rent paid `24,000 per month
Repair & maintenance including engine oil and lubricants `2,856 per mini bus
(for every 5,760 kms)

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Purchase price of mini bus `15,00,000 each

Residual life of mini bus 8 years
Scrap value per mini bus at the end of residual life `3,00,000
Paras Travels charges two types of fare from the employees. Employees coming from a distance
of beyond 15 kms away from the office are charged double the fare which is charged from
employees coming from a distance of up-to 15 kms away from the office. 50% of employees
travelling in each trip are coming from a distance beyond 15 kms from office. The charges are to
be based on average cost. You are required to:
(i) Prepare a statement showing expenses of operating a single mini bus for a year,
(ii) Calculate the average cost per employee per month in respect of:
a) Employees coming from a distance upto 15 kms from the office
b) Employees coming from a distance beyond 15 kms from the office

Solution
(i) Statement of Cost
Particulars Amount
Fixed charges:
Driver’s Salary 2,40,000
Lady attendant’s salary 1,20,000
Cleaner’s salary [(15,000 ´ 12) ÷ 2] 90,000
Depreciation [(15,00,000 – 3,00,000) ÷ 8] 1,50,000
Insurance charges (15,00,000 ´ 2%) 30,000
Licenses fee and taxes 60,960
Garage rent [(24,000 ´ 12) ÷ 8] 36,000
Total Fixed charges (A) 7,26,960
Variable Charges:
Diesel [(80 ÷ 8) ´ 57,600] 5,76,000
Repair & Maintenance [(2,856 ÷ 5,760) ´ 5,76,000] 28,560
Total Variable charges (B) 6,04,560
Total Cost (A + B) 13,31,520
No. of kms travel per annum = 8 ´ 30 ´ 20 ´ 12 = 57,600 kms

(ii) Total number of passengers = 30 ´ 2 ´ 80% = 48

Passengers upto 15 km travel = 48 ´ 50% = 24
Passengers beyond 15 km travel = 48 ´ 50% = 24
Equivalent passenger upto 15 km travel = 24 + (24 ´ 2) = 72
!%,%!,'"&
Cost per month = !"
= `1,10,960
!,!&,()&
Cost per month per passenger upto 15km travel = *"
= `1,541
Cost per month per passenger beyond 15km travel = `1,541 ´ 2 = `3,082

JULY – 2021 – 5 Marks

MRSL Healthcare Ltd. has incurred the following expenditure during the last year for its newly
launched ‘COVID-19’ Insurance policy:

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`
Office administration cost 48,00,000
Claim management cost 3,80,000
Employees’ cost 16,20,000
Postage and logistics 32,40,000
Policy issuance cost 29,50,000
Facilities cost 46,75,000
Cost of marketing of the policy 1,38,90,000
Policy development cost 35,00,000
Policy servicing cost 96,45,000
Sales support expenses 32,00,000
IT cost ?
Number of Policy sold: 2,800
Total insured value of policies - `3,500 crores
Cost per rupee of insured value - `0.002
You are required to:
(v) Calculate the total cost for “COVID-19” Insurance policy segregating the costs into four main
activities namely (a) Marketing and Sales support (b) operations (c) IT Cost and (d) Support
functions.
(vi) Calculate cost per policy

Solution
(i) Total Cost = Total insured value × Cost per rupee of insured value
Total Cost = `3,500 crore × 0.002
Total Cost = `7,00,00,000
Other Cost + IT Cost = 7,00,00,000
4,79,00,000 + IT Cost = 7,00,00,000
IT Cost = `2,21,00,000
Statement of Cost
Particulars Amount
Marketing and Sales Support:
Cost of marketing the policy 1,38,90,000
Policy development cost 35,00,000
Sales support expenses 32,00,000
Total (A) 2,05,90,000
Operations Cost:
Claim management cost 3,80,000
Policy issuance cost 29,50,000
Policy servicing cost 96,45,000
Total (B) 1,29,75,000

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IT Cost:
IT Cost 2,21,00,000
Total (C) 2,21,00,000
Support Function:
Office administration cost 48,00,000
Employees’ cost 16,20,000
Postage and logistics 32,40,000
Facilities cost 46,75,000
Total (D) 1,43,35,000
Total Cost (A + B + C + D) 7,00,00,000
Number of Policies 2,800
Cost per policy 25,00

JAN – 2021 – 10 Marks

ABC Health care runs an Intensive Medical Care Unit. For this purpose, it has hired a building at
a rent of `50,000 per month with the agreement to bear the repairs and maintenance charges also.

The unit consists of 100 beds and 5 more beds can comfortably be accommodated when the
situation demands. Though the unit is open for patients all the 365 days in a year, scrutiny of
accounts for the year 2020 reveals that only for 120 days in the year, the unit had the full capacity
of 100 patients per day and for another 80 days, it had, on an average only 40 beds occupied per
day. But, there were occasions when the beds were full, extra beds were hired at charge of `50 per
bed per day. This did not come to more than 5 beds above the normal capacity on any one day. The
total hire charges for the extra beds incurred for the whole year amounted to `20,000.

The unit engaged expert doctors from outside to attend on the patients and the fees were paid on
the basis of the number of patients and the fees were paid on the basis of the number of patients
attended and time spent by them which on an average worked out to `30,000 per month in the
year 2020.

The permanent staff expenses and other expenses of the unit were as follows:
`
2 supervisors each at a per month salary of 5,000
4 Nurses each at a per month salary of 3,000
2 Ward boys each at a per month salary of 1,500
Other Expenses for the year were as under:
Repairs and Maintenance 28,000
Food supplied to patients 4,40,000
Caretaker and Other services for patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines supplied 2,80,000

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Cost of oxygen etc. other than directly borne for treatment of 75,000
patients
General Administration Charges allocated to the unit 71,000
Required:
(i) What is the profit per patient day made by the unit in the year 2020, if the unit recovered an
overall amount of `200 per day on an average from each patient.
(ii) The unit wants to work on a budget for the year 2021, but the number of patients requiring
medical care is a very uncertain factor. Assuming that same revenue and expenses prevail in
the year 2021 in the first instance, work out the number of patient-days required by the unit
to break-even.

Solution
(i) Effective bed days = (120 × 100) + (80 × 40) + (20,000 ÷ 50) = 15,600
Statement of Profit
Particulars Amount (`)
Variable Cost:
Doctor cost (30,000 × 12) 3,60,000
Food to patients 4,40,000
Caretaker and other services to patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines 2,80,000
Bed Charges 20,000
Total Variable Cost (A) 13,65,000
Fixed Cost:
Rent (50,000 × 12) 6,00,000
Supervisor (5,000 × 12 × 2) 1,20,000
Nurse (3,000 × 12 × 4) 1,44,000
Ward boys (1,500 × 12 × 2) 36,000
Repairs 28,000
Cost of oxygen etc. other than directly borne for treatment of patients 75,000
General Administration Charges allocated to the unit 71,000
Total Fixed Cost (B) 10,74,000
Total Cost (A + B) 24,39,000
Revenue (15,600 × 200) 31,20,000
Profit 6,81,000
Number of patient days 15,600
Profit per patient day 43.65
(b) Contribution = Revenue – Variable cost = `31,20,000 – `13,65,000 = `17,55,000
!*,'',&&&
Contribution per patient day = !',)&&
= `112.50

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^A_?6 H<9G !&,*$,&&&

Break-even point = 4<DG>ASKGA<D C?> C7GA?DG 678 = !!".'&
= 9,547 patient days

NOV – 2020 – 10 Marks

SEZ Ltd. built a 120 km long highway and now operates a toll road to collect tolls. The company
has invested `900 crore to build the road and has estimated that a total of 120 crore vehicles will
be using the highway during the 10 years toll collection tenure. The other costs for the month of
‘June 2020’ are as follows:
(i) Salary”
• Collection personnel (3 shifts and 5 persons per shift) - `200 per day per person.
• Supervisor (3shifts and 2 persons per shift) - `350 per day per person
• Security personnel (2shifts and 2 persons per shift) - `200 per day per person
• Toll Booth Manager (3 shifts and 1 person per shift) - `500 per day per person
(ii) Electricity - `1,50,000
(iii) Telephone - `1,00,000
(iv) Maintenance cost - `50 lakhs
(v) The company needs 30% profit over total cost.
Required:
(1) Calculate cost per kilometer
(2) Calculate the toll rate per vehicle

Solution
(1) Statement of Cost
Particulars Amount (`)
Capital Cost:
(&& H><>? ! 7,50,00,000
Capital cost share ! !&
× !"-
Total Capital Cost (A) 7,50,00,000
Operating Cost:
Salary – Collection Personnel (3 × 5 × 30 × 200) 90,000
- Supervisor (3 × 2 × 30 × 350) 63,000
- Security Personnel (2 × 2 × 30 × 200) 24,000
- Toll booth manager (3 × 1 × 30 × 500) 45,000
Electricity 1,50,000
Telephone 1,00,000
Total Operating Cost (B) 4,72,000
Maintenance Cost:
Maintenance 50,00,000
Total Maintenance Cost (C) 50,00,000
Total Cost (A + B + C) 8,04,72,000
Kms 120
Total cost per km 6,70,600

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!"&,&&,&&,&&& !
(2) Vehicles per month = !&
× !" = 1,00,00,000
Total cost per month = 8,04,72,000
Add: Profit (30%×8,04,72,000) = 2,41,41,600
Total Revenue =10,46,13,600
Vehicles = 1,00,00,000
Toll per vehicle = 10.46

NOV – 2019 – 10 Marks

A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional rates
during six off-season months in a year. During this period, half of the full room rent is charged.
The management’s profit margin is targeted at 20% of the room rent. The following are the cost
estimates and other details for the year ending 31st March, 2019:
(i) Occupancy during the season is 80% while in the off-season it is 40%.
(ii) Total investment in the hotel is `300 lakhs of which 80% relates to Buildings and the balance
to Furniture and other Equipment.
(iii) Room attendants are paid `15 per room per day on the basis of occupancy of rooms in a
month.
(iv) Expenses:
• Staff salary (excluding that of room attendants) `8,00,000
• Repairs to Buildings `3,00,000
• Laundry Charges `1,40,000
• Interior Charges `2,50,000
• Miscellaneous Expenses `2,00,200
(v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture and other
Equipments on straight line method.
(vi) Monthly lighting charges are `110, except in four months in winter when it is `30 per room
and this cost is on the basis of full occupancy for a month.
You are required to workout the room rent chargeable per day both during the season and the off-
season months using the foregoing information.
(Assume a month to be of 30 days and winter season to be considered as part of off-season).

Solution
Computation of Effective room days
Season = (200 rooms ´ 80%) ´ (6 ´ 30) days = 28,800
Off-season = (200 rooms ´ 40%) ´ (6 ´ 30) days = 14,400
43,200
Computation of Total Cost `
(1) Staff Salary 8,00,000
(2) Repairs to buildings 3,00,000
(3) Laundry charges 1,40,000
(4) Interior charges 2,50,000

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(5) Miscellaneous Expenses 2,00,200

(6) Depreciation
-Building (5% × 300,00,000 × 80%) 12,00,000
-Furniture & equipment (15% × 300,00,000 × 20%) 9,00,000 21,00,000
(7) Attendant’s Salary (43,200 ´ 15) 6,48,000
(8) Lighting Charges
- Season (28,800 days ´ `3.67) [`110 p.m. means `110÷30 = `3.67 per day]1,05,696
- Off-Season
Winter (14,400 ´ 4/6 ´ `1) [`30 p.m. means `30÷30 = `1 per day] (4 months)9,600
Balance (14,400 ´ 2/6 ´ `3.67) (2 months) __17,616
Total Cost 45,71,112
Computation of Total Revenue `
Total Cost 45,71,112
(+) Profit (20% of revenue) (45,71,112 ´ 20/80) 11,42,778
Total Revenue 57,13,890
Assume Rent per room per day during Season is `Y & during off season is `Y/2
Hence, total annual revenue = 28,800Y + 14,400(Y/2) = 26,000Y
Now, 36,000Y = `57,13,890
Y = 158.72 Hence, Rent per room per day
During Season = Y = `158.72
During off-season = [Y/2] = `[158.72 ÷ 2] = `79.36

MAY – 2019 – 10 Marks

X Ltd. distributes’ its goods to a regional dealer using single lorry. The dealer premises are 40 kms
away by road. The capacity of the lorry is 10 tonnes. The lorry makes the journey twice a day fully
loaded on the outward journey and empty on return journey. The following information is
available:
Diesel Consumption 8 km per litre
Diesel Cost `60 per litre
Engine Oil `200 per week
Driver’s Wages (fixed) `2,500 per week
Repairs `600 per week
Garage Rent `800 per week
Cost of Lorry (excluding cost of tyres) `9,50,000
Life of Lorry 1,60,000 kms
Insurance `18,200 per annum
Cost of Tyres `52,500
Life of Tyres 25,000 kms
Estimated sale value of the lorry at end of its life is `1,50,000
Vehicle License Cost `7,800 per annum

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Other Overhead Cost `41,600 per annum

The lorry operates on a 5 day week.
Required:
(i) A statement to show the total cost of operating the vehicle for the four week period analyzed
into Running cost and Fixed cost.
(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in a year).

Solution
Calculation of Ton Kms
No. × Kms × Ton = Ton Kms
1 × 40 × 2 × 5 × 4 × 10 = 16,000
1 × 40 × 2 × 5 × 4 × 0 = 0
Total = 16,000
Total kms traveled = 3,200 kms
(i) Statement of Operating Cost
Particulars Amount (`)
Fixed Cost:
Driver salary (2,500 × 4) 10,000
Garage rent (800 × 4) 3,200
Insurance [(18,200 ÷ 52) × 4] 1,400
Vehicle license [(7,800 ÷ 52) × 4] 600
Other overheads cost [(41,600 ÷ 52) × 4] 3,200
Total Fixed Cost (A) 18,400
Variable Cost:
Cost of diesel [(3,200 ÷ 8) × 60] 24,000
Engine Oil (200 × 4) 800
Repairs (600 × 4) 2,400
(,'&,&&&1!,'&,&&& 16,000
Depreciation on vehicle H !,)&,&&&
× 3,200I
'",'&& 6,720
Depreciation on tyres H!,)&,&&& × 3,200I
Total Variable Cost (B) 49,920
Total Cost (A + B) 68,320

(ii) Calculation of vehicle operating cost

Operating cost per km = 68,320 ÷ 3,200 = `21.35
Operating cost per ton-km = 68,320 ÷ 16,000 = `4.27

NOV – 2018 – 10 Marks

M/s XY Travels has been given a 25 km long route to run an air-conditioned Mini Bus. The cost
of bus is `20,00,000. It has been insured @3% premium per annum while annual road tax amounts
to `36,000. Annual repairs will be `50,000 and the bus is likely to last for 5 years. The driver’s

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salary will be `2,40,000 per annum, and the conductor’s salary will be `1,80,000 per annum in
addition to 10% of the takings as commission (to be shared by the driver and the conductor
equally). Office and administration overheads will be `18,000 per annum. Diesel and oil will be
`1,500 per 100 km. The bus will make 4 round trips carrying on an average 40 passengers on each
trip.

Assuming 25% profit on takings and considering that the bus will run on an average 25 days in a
month, you are required to:
(i) Prepare operating cost sheet (for the month)
(ii) Calculate fare to be charged per passenger km

Solution
Calculation of Passenger Kms
No. × Kms × Passenger = Passenger Kms
1 × 25 × 4 × 2 × 25 × 40 = 2,00,000
Kms travel = 1 × 25 × 4 × 2 × 25 = 5,000 kms

Statement of Operating Cost

Particulars Amount (`)
Fixed Cost:
"&,&&,&&&1& ! 33,333.33
Depreciation !H '
I × !"-
Insurance (20,00,000 × 3% × 1/12) 5,000.00
Road tax (36,000 ÷ 12) 3,000.00
Total Fixed Cost (A) 41,333.33
Variable Cost:
Driver Salary (2,40,000 ÷ 12) 20,000
Conductor Salary (1,80,000 ÷ 12) 15,000
!'&& 75,000
Diesel and oil H !&& × 5,000I
Total Variable Cost (B) 1,10,000
Maintenance Cost:
Annual Repairs (50,000 ÷ 12) 4,166.67
Office and administration overheads (18,000 ÷ 12) 1,500.00
Total Maintenance Cost (C) 5,666.67
Total Cost (A + B + C) 1,57,000
(+) Commission (2,41,538 × 10%) 25,154
(+) Profit (2,41,538 × 25%) 62,884
Total Takings (1,63,500 ÷ 65%) 2,41,538
Effective Passenger km 2,00,000
Takings per effective passenger km 1.20769

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MAY – 2018 – 10 Marks

A group of ‘Health Care Services’ has decided to establish a Critical Care Unit in a metro city with
an investment of `85 lakhs in hospital equipments. The unit’s capacity shall be of 50 beds and 10
more beds, if required, can be added.
Other information for a year are as under:
`
Building Rent 2,25,000 per month
Manager Salary (Number of Manager – 03) 50,000 per month to each one
Nurses Salary (Number of Nurses – 24) 18,000 per month to each Nurse
Ward Boy’s Salary (Number of Ward Boys – 24) 9,000 per month per person
Doctor’s payment (Paid on the basis of number of 5,50,000 per month
patients attended and time spent by them)
Food and laundry services (variable) 39,53,000
Medicines to patients (variable) 22,75,000 per year
Administrative Overheads 28,00,000 per year
Depreciation on equipments 15% per annum on original cost
It was reported that for 200 days in a year 50 beds were occupied, for 105 days 30 beds were
occupied and for 60 days 20 beds were occupied.

The hospital hired 250 beds at a charge of `950 per bed to accommodate the flow of patients.
However, this never exceeded the normal capacity of 50 beds on any day. Find out:
(i) Profit per patient day, if hospital charges on an average `2,500 per day from each patient
(ii) Break-even point per patient day (Make calculation on annual basis)

Solution
Number of patient days = (200 × 50) + (105 × 30) + (60 × 20) + 250 = 14,600 patient days
Statement showing Profit
Particulars Amount (`)
Variable Cost:
Food and Laundry Service 39,53,000
Medicines to Patients 22,75,000
Doctor’s Payment 66,00,000
Hire charges of Bed (250 × `950) 2,37,500
Total Variable Cost (A) 1,30,65,500
Fixed Cost:
Building Rent 27,00,000
Manager’s Salary (`5,000 × 3 × 12) 18,00,000
Nurse’s Salary (`18,000 × 12 × 24) 51,84,000
Ward boy’s Salary (`9,000 × 12 × 24) 25,92,000
Administrative Overheads 28,00,000

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Depreciation on Equipment’s 12,75,000

Total Fixed Cost (B) 1,63,51,000
Total Cost (A + B) 2,94,16,500
Revenue (14,600 × `2,500) 3,65,00,000
Profit (C) 70,83,000
Patient days (D) 14,600
Profit per patient day (C ÷ D) 485.17
%,)',&&,&&&1!,%&,)','&&
Contribution per patient day = !$,)&&
= `1,605.10
!,)%,'!,&&&
Break-even point = !,)&'.!&
= 10,186.90 or say 10,187 patient day

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Process Costing
NOV – 2022 – 10 Marks
N Ltd. produces a product which passes through two processes Process-I and Process-II. The
company has provided following information related to the Financial Year 2021-22:
Process I Process II
Raw material @`65 per unit 6,500 units -
Direct wages `1,40,000 `1,30,000
Direct Expenses 30% of direct wages 35% of direct wages
Manufacturing Overheads `21,500 `24,500
Realizable value of scrap per `4.00 `16.00
unit
Normal loss 250 units 500 units
Units transferred to Process 6,000 units 5,500 units
II/ finished stock
Sales - 5,000 units
There was no opening or closing stock of work-in-progress.
You are required to prepare:
(i) Process-I account
(ii) Process-II account
(iii) Finished Stock Account

Solution
Process I A/c
Particulars Units (` ) Particulars Units (` )
To Raw Material used 6,500 4,22,500 By Normal Loss 250 1,000
(250 units ´ `4)
To Direct Wages - 1,40,000 By Process-II A/c 6,000 6,00,000
(`100 ´ 6,000)
To Direct expenses - 42,000 By Abnormal loss 250 25,000
(30% ´ 1,40,000) (`100 ´ 250)
To Manufacturing - 21,500
overheads
6,500 6,26,000 6,500 6,26,000
),"),&&&1!,&&& ),"',&&&
Cost per unit = ),'&&1"'&
= ),"'&
= `100

Process II A/c
Particulars Units (` ) Particulars Units (` )
To Process-I A/c 6,000 6,00,000 By Normal Loss 500 8,000
(500 units ´ `16)
To Direct Wages - 1,30,000 By Finished Stock A/c 5,500 7,92,000
(`144 ´ 5,500)

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To Direct expenses - 45,500

(35% ´ 1,30,000)
To Manufacturing - 24,500
overheads
6,000 8,00,000 6,000 8,00,000
.,&&,&&&1.,&&& *,(",&&&
Cost per unit = ),&&&1'&&
= ','&&
= `144

Finished Stock A/c

Particulars Units (` ) Particulars Units (` )
To Process-II A/c 5,500 7,92,000 By Cost of Sales 5,000 7,20,000
(5,000 units ´ `144)
By Balance c/d 500 72,000
5,500 7,92,000 5,500 7,92,000

MAY – 2022 – 10 Marks

STG Limited is a manufacturer of chemical ‘GK’, which is required for industrial use. The
complete production operation requires two processes. The raw material first passes through
Process I, where chemical ‘G’ is produced. Following data is furnished for the month of April,
2022:
Particulars (in kgs)
Opening work-in-progress quantity 9,500
(Material 100% and conversion 50% complete)
Material input quantity 1,05,000
Work completed quantity 83,000
Closing work-in-progress quantity 16,500
(Material 100% and conversion 60% complete)
You are further provided that:
Particulars (in `)
Opening work-in-progress cost
Material cost 29,500
Processing cost 14,750
Material input cost 3,34,500
Processing cost 2,53,100
Normal process loss may be estimated at be 10% of material input. It has no realizable value. Any
loss over and above normal loss is considered to be 100% complete in material and processing.

The company transfers 60,000 kgs of output (Chemical G) from Process I to Process II for
producing Chemical ‘GK’. Further materials are added in Process II which yield 1.20 kg. of
chemical ‘GK’ for every kg of chemical ‘G’ introduced. The chemicals transferred to Process II
for further processing are then sold as chemical ‘GK’ for `10 per kg. Any quantity of output
completed in Process I, are sold as chemical ‘G’ @ `9 per kg.

The monthly costs incurred in Process II (other than the cost of chemical ‘G’) are:
Input 60,000 kg of chemical ‘G’

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Material Cost `85,000

Processing costs `50,000

You are required:

(i) Prepare statement of Equivalent production and determine the cost per kg of chemical ‘G’ in
Process I using the weighted average cost method.
(ii) Prepare a statement showing cost of Chemical ‘G’ transferred to Process II, cost of abnormal
loss and cost of closing work-in-progress.
(iii) STG is considering the option to sell 60,000 kg of chemical ‘G’ of Process I without
processing it further in Process-II. Will it be beneficial for the company over the current
pattern of processing 60,000 kg in process-II?
(Note: You are not required to prepare Process Account)

Solution
(i) Statement of Equivalent Production
Material Conversion Cost
Input Output
% Units % Units
Op. WIP 9,500 Op. WIP 9,500 100 9,500 100 9,500
Input 1,05,000 Introd. & Complete 73,500 100 73,500 100 73,500
Transferred 83,000 83,000 83,000
Normal Loss 10,500 - - - -
(1,05,000×10%)
Abnormal Loss 4,500 100 4,500 100 4,500
(Bal. fig)
Closing WIP 16,500 100 16,500 60 9,900
1,14,500 1,14,500 1,04,000 97,400

Statement of Cost per Equivalent Unit

Conversion
Particulars Material Cost
Current Cost 3,34,500 2,53,100
Add: Cost of Opening WIP 29,500 14,750
Total 3,64,000 2,67,850
Equivalent Units 1,04,000 97,400
Cost per equivalent unit 3.50 2.75
Thus, cost per kg of Chemical G = 3.50 + 2.75 = `6.25

(ii) Statement of cost

Particulars Element of Cost Equivalent units Cost per unit Cost Total Cost
Cost of Chemical G Material 83,000 3.50 2,90,500
transferred Conversion cost 83,000 2.75 2,28,250 5,18,750
Abnormal Loss Material 4,500 3.50 15,750

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Conversion cost 4,500 2.75 12,375 28,125

Closing WIP Material 16,500 3.50 57,750
Conversion cost 9,900 2.75 27,225 84,975

(iii) Statement of Evaluation of Offer

Particulars Amount (`)
Sale as chemical GK (60,000 ´ 1.20 ´ 10) 7,20,000
Less: Sale as chemical G (60,000 ´ 9) 5,40,000
Incremental sales revenue 1,80,000
Less: further processing cost (85,000 + 50,000) 1,35,000
Incremental Benefit 45,000
Since, there is incremental benefit in further processing, thus, it is recommended to continue
Chemical ‘G’ in process II and sell as chemical ‘GK’.

DEC – 2021 – 5 Marks

A product passes through Process-I and Process-II.
Particulars pertaining to the Process-I are:
Materials issued to Process-I amounted to `80,000, Wages `60,000 and manufacturing overheads
were `52,500. Normal loss anticipated was 5% of input. 9,650 units of output were produced and
transferred out from Process-I to Process II. Input raw materials issued to Process I was 10,000
units.

There were no opening stocks. Scrap has realizable value of `5 per unit. You are required to
prepare:
(i) Process-I Account
(ii) Abnormal Gain/Loss Account

Solution
(i) Process I Account
Particulars Units Amount Particulars Units Amount
To Material 10,000 80,000 By Normal loss A/c 500 2,500
To Labour - 60,000 By Process -II A/c (bal. 9,650 1,93,000
fig)
To Overheads - 52,500
To Abnormal Gain 150 3,000
10,150 1,95,500 10,150 1,95,500
!,(",'&&1",'&& !,(&,&&&
Normal cost per unit = !&,&&&1'&&
= (,'&&
= `20

(ii) Abnormal Gain Account

Particulars Units Amount Particulars Units Amount
To Normal Loss 150 750 By Process-I A/c 150 3,000
Account
To P&L Account - 2,250
150 3,000 150 3,000

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JULY – 2021 – 10 Marks

A Manufacturing unit manufactures a product ‘XYZ’ which passes through three distinct Processes
– X, Y and Z. The following data is given:
Process X Process Y Process Z
Material consumed (in `) 2,600 2,250 2,000
Direct wages (in `) 4,000 3,500 3,000
• The total production overhead of `15,750 was recovered @ 150% of direct wages.
• 15,000 units at `2 each were introduced to process ‘X’.
• The output of each process passes to the next process and finally, 12,000 units were transferred
to Finished Stock Account from Process ‘Z’.
• No stock of materials or work in progress was left at the end.
The following additional information is given:
Process % of wastage to normal Value of Scrap per unit
output (` )
X 6% 1.10
Y ? 2.00
Z 5% 1.00
You are required to:
(i) Find out the percentage of wastage in process ‘Y’, given that the output of process ‘Y’ is
transferred to Process ‘Z’ at `4 per unit.
(ii) Prepare Process accounts for the three processes X, Y and Z.

Solution
(i) Let normal loss units in process Y = y
O<G7F 4<9G1@H>7C L7FK? <= D<>J7F F<99
Normal cost per unit of Process Y = O<G7F KDAG91;<>J7F F<99 KDAG
'",)!&1"8
4= !$,!&&18

56,400 – 4y = 52,610 – 2y
2y = 3,790
y = 1,895
!,.('
Thus, Normal loss % of process Y = !$,!&& × 100 = 13.44%

(ii) Process X Account

Particulars Units Amount Particulars Units Amount
To Units Introduced 15,000 30,000 By Normal loss A/c 900 990
To Material - 2,600 (15,000 × 6% × 1.10)
consumed
To Labour - 4,000 By Process Y A/c 14,100 41,610
To Overheads - 6,000
(4,000 × 150%) 15,000 42,600 15,000 42,600

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$",)&&1((& $!,)!&
Normal cost per unit = !',&&&1(&& = !$,!&& = `2.95106
Process Y Account
Particulars Units Amount Particulars Units Amount
To Process X A/c 14,100 41,610 By Normal loss A/c 1,895 3,790
To Material - 2,250 (Part (i))
consumed
To Labour - 3,500 By Process Z A/c 12,205 48,820
To Overheads - 5,250
(3,500 × 150%) 14,100 52,610 14,100 52,610

Process Z Account
Particulars Units Amount Particulars Units Amount
To Process Y A/c 12,205 48,820 By Normal loss A/c 610 610
To Material - 2,000 (12,205 × 5% × 1)
consumed
To Labour - 3,000 By Finished Stock A/c 12,000 59,725
To Overheads - 4,500 (12,000 × 4.97715
(3,000 × 150%)
To Abnormal Gain 405 2,015
A/c
(405 × 4.97715) 12,610 60,335 12,610 60,335
'.,%"&1)!& '*,*!&
Normal cost per unit = !","&'1)!& = !!,'(' = `4.97715

JAN – 2021 – 5 Marks

MNO Ltd. has provided following details:
• Opening work in progress is 10,000 units at `50,000 (Material 100%, Labour and overheads
70% complete).
• Input of materials is 55,000 units at `2,20,000. Amount spent on Labour and Overheads is
`26,500 and `61,500 respectively.
• 9,500 units were scrapped; degree of completion for material 100% and for labour &
overheads 60%.
• Closing work in progress is 12,000 units; degree of completion for material 100% and for
labour and overheads 90%.
• Finished units transferred to next process are 43,500 units. Normal loss is 5% of total input
including opening work in progress. Scrapped units would fetch `8.50 per unit.
You are required to prepare using FIFO method:
(iii) Statement of Equivalent production
(iv) Abnormal loss account

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Solution
(i) Statement of Equivalent Production
Material Conversion cost
Input Output
% Units % Units
Op.
WIP 10,000 Op. WIP 10,000 - - 30 3,000
Introduced &
Input 55,000 Complete 33,500 100 33,500 100 33,500
Transferred 43,500
Normal Loss 3,250 - - - -
(5%×65,000)
Abnormal Loss 6,250 100 6,250 60 3,750
Closing WIP 12,000 100 12,000 90 10,800
65,000 65,000 51,750 51,050

(ii) Calculation of cost of each element

Particulars Material Conversion Cost
Cost incurred during the month 2,20,000 88,000
Less: Scrap value of normal loss (27,625) -
(3,250×8.50)
Total Cost (A) 1,92,375 88,000
Equivalent Units (B) 51,750 51,050
Cost per equivalent unit (A ÷ B) 3.71739 1.7238
Cost of abnormal loss units = (3.71739 × 6,250) + (1.7238 × 3,750) = `29,698

Abnormal Loss Account

Particulars Amount Particulars Amount
To Process 29,698 By Bank A/c (6,250 × 8.50) 53,125
Account
To Costing P&L 23,427
A/c
53,125 53,125

NOV – 2020 – 10 Marks

Following details are related to the work done in Process-I by ABC Ltd. during the month of May
2019:
(`)
Opening work-in-process (3,000 units)
Materials 1,80,500
Labour 32,400
Overheads 90,000

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Material introduced in Process-I (42,000 36,04,000

units)
Labour 4,50,000
Overheads 15,18,000
Units scrapped : 4,800 units
Degree of completion:
Materials : 100%
Labour & Overheads : 70%
Closing work-in-progress : 4,200 units
Degree of completion:
Materials : 100%
Labour & Overheads : 50%
Units finished and transferred to Process-II: 36,000 units
Normal loss:
4% of total input including opening work-in-process
Scrapped units fetch `62.50 per piece
Prepare:
(i) Statement of equivalent production
(ii) Statement of cost per equivalent unit
(iii) Process-I A/c
(iv) Normal loss account and
(v) Abnormal loss account

Solution
(i) Statement of Equivalent Production
Material Labour Overheads
Input Output
% Units % Units % Units
Op. WIP 3,000 Op. WIP 3,000 100 3,000 100 3,000 100 3,000
Introduced &
Input 42,000 Complete 33,000 100 33,000 100 33,000 100 33,000
Transferred 36,000
Normal Loss 1,800 - - - - - -
(45,000×4%)
Abnormal
Loss 3,000 100 3,000 70 2,100 70 2,100
(4,800 -
1,800)
Closing WIP 4,200 100 4,200 50 2,100 50 2,100
45,000 45,000 43,200 40,200 40,200

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(ii) Statement of Cost per Equivalent Unit

Particulars Material Labour Overheads
Current Cost 36,04,000 4,50,000 15,18,000
Add: Cost of Opening WIP 1,80,500 32,400 90,000
Less: Normal Scrap (1,800 × 62.50) (1,12,500) - -
Total 36,72,000 4,82,400 16,08,000
Equivalent Units 43,200 40,200 40,200
Cost per equivalent unit 85 12 40

Statement of apportionment of cost

Element of Equivalent Cost per
Particulars Cost units unit Cost Total Cost
Opening WIP Material 3,000 85 2,55,000
Labour 3,000 12 36,000
Overheads 3,000 40 1,20,000 4,11,000
Introduced & 28,05,00
Comp. Material 33,000 85 0
Labour 33,000 12 3,96,000
13,20,00
Overheads 33,000 40 0 45,21,000
Abnormal Loss Material 3,000 85 2,55,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 3,64,200
Closing WIP Material 4,200 85 3,57,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 4,66,200

(iii) Process I Account

Particulars Units Amount Particulars Units Amount
To Opening WIP 3,000 3,02,900 By Normal loss A/c 1,800 1,12,500
To Material 42,000 36,04,000 By Abnormal loss A/c 3,000 3,64,200
To Labour - 4,50,000 By Process -II A/c (bal. 36,000 49,32,000
fig)
To Overheads - 15,18,000 By Closing WIP 4,200 4,66,200
45,000 58,74,900 45,000 58,74,900

(iv) Normal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-I A/c 1,800 1,12,500 By Bank A/c 1,800 1,12,500
1,800 1,12,500 1,800 1,12,500

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(v) Abnormal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-I A/c 3,000 3,64,200 By Bank A/c 3,000 1,87,500
(3,000 × 62.50)
By Costing P&L A/c - 1,76,700
(Bal. fig.)
3,000 3,64,200 3,000 3,64,200

NOV – 2019 – 10 Marks

A product passes through two distinct processes before completion. Following information are
available in this respect:
Process-1 Process-2
Raw materials used 10,000 units -
Raw material cost (per unit) `75 -
Transfer to next process/Finished goods 9,000 units 8,200 units
Normal loss (on inputs) 5% 10%
Direct wages `3,00,000 `5,60,000
Direct expenses 50% of direct wages 65% of direct wages
Manufacturing overheads 25% of direct wages 15% of direct wages
Realizable value of scrap (per unit) `13.50 `145
8,000 units of finished goods were sold at a profit of 15% on cost. There was no opening and
closing stock of work-in-progress.
Prepare:
(i) Process-1 and Process-2 Account
(ii) Finished goods Account
(iii) Normal Loss Account
(iv) Abnormal Loss Account
(v) Abnormal Gain Account

Solution
(i) Process 1 Account
Particulars Units Amount Particulars Units Amount
To Material 10,000 7,50,000 By Normal Loss A/c 500 6,750
To Direct wages - 3,00,000 (500 × 13.50)
To Direct Expenses - 1,50,000 By Abnormal loss A/c 500 66,750
(50% × 3,00,000) (500 × 133.50)
To Manufacturing - 75,000 By Process-2 A/c 9,000 12,01,500
Overheads
(25% × 3,00,000) (9,000 × 133.50)
10,000 12,75,000 10,000 12,75,000
!",*',&&&1),*'& !",).,"'&
Normal cost per unit = !&,&&&1'&&
= (,'&&
= `133.50

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Process 2 Account
Particulars Units Amount Particulars Units Amount
To Process -1 A/c 9,000 12,01,500 By Normal Loss A/c 900 1,30,500
To Direct wages - 5,60,000 (900 × 145)
To Direct expenses - 3,64,000 By Finished Goods A/c 8,200 21,04,667
(65% × 5,60,000) (8,200 × 3)
To Manufacturing - 84,000
Overheads
(15% × 5,60,000)
To Abnormal gain A/c 100 25,667
(100 × 3)
9,100 22,35,167 9,100 22,35,167
"",&(,'&&1!,%&,'&& "&,*(,&&&
Normal cost per unit = (,&&&1(&&
= .,!&&
= `256.6666

(ii) Finished Goods Account

Particulars Units Amount Particulars Units Amount
To Process-2 A/c 8,200 21,04,667 By Sales 8,000 23,61,334
To Costing P&L A/c - 3,08,000 !!",$%,&&'
(!,$$
× 8,000 × 115%)

By Closing St. 200 51,333

8,200 24,12,667 8,200 24,12,667

(iii) Normal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-1 A/c 500 6,750 By Cash A/c 500 6,750
To Process -2 A/c 900 1,30,500 By Cash A/c 800 1,16,000
By Abnormal Gain A/c 100 14,500
1,400 1,37,250 1,400 1,37,250

(iv) Abnormal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-1 A/c 500 66,750 By Cash A/c 500 6,750
By Costing P&L A/c(bal. - 60,000
fig)
500 66,750 500 66,750

(v) Abnormal Gain Account

Particulars Units Amount Particulars Units Amount
To Normal Loss A/c 100 14,500 By Process-2 A/c 100 25,667
To Costing P&L A/c - 11,167
100 25,667 100 25,667

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MAY – 2019 – 10 Marks

KT Ltd. produces a product EMM which passes through two processes before it is completed and
transferred to finished stock. The following data relate to May 2019.
Particulars Process A Process B Finished Stock
Opening stock `5,000 `5,500 `10,000
Direct materials 9,000 9,500
Direct wages 5,000 6,000
Factory overheads 4,600 2,030
Closing stock 2,000 2,490 5,000
Inter process profit included in opening stock -- 1,000 4,00
Output of Process A is transferred to Process B at 25% profit on the transfer price and output of
Process B is transferred to finished stock at 20% profit on the transfer price. Stock in process is
valued at prime cost. Finished stock is valued at the price at which it is received from Process B.
Sales during the period are `75,000.
Prepare the process cost accounts and Finished stock account showing the profit element at each
stage.

Solution
Process A Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 5,000 - 5,000 By Process B A/c 28,800 7,200 21,600
stock
To Direct 9,000 - 9,000
material
To Direct wages 5,000 - 5,000
19,000 - 19,000
(-) Closing stock (2,000) - (2,000)
17,000 - 17,000
To Factory OHs 4,600 - 4,600
21,600 - 21,600
To Profit - 7,200 7,200
21,600 7,200 28,800 21,600 7,200 28,800

Process B Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 4,500 1,000 5,500 By F. Stock 41,550 20,125 61,675
stock A/c
To Process A 21,600 7,200 28,800
A/c
To Direct 9,500 - 9,500
material

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To Direct wages 6,000 - 6,000

41,600 8,200 49,800
(-) Closing stock (2,080) (410) (2,490)
39,520 7,790 47,310
To Factory OHs 2,030 - 2,030
41,550 7,790 49,340
To Profit - 12,335 12,335
41,550 20,125 61,675 41,550 20,125 61,675
.,"&&
Profit element in closing stock = $(,.&&×2,490 = `410

Finished Stock Account

Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 6,000 4,000 10,000 By Costing P&L 44,233 30,767 75,000
stock A/c
To Process B 41,550 20,125 61,675
A/c
47,550 24,125 71,675
(-) Closing (3,317) (1,683) (5,000)
stock
44,233 22,442 66,675
To Profit (Bal. - 8,325 8,325
fig)
44,233 30,767 75,000 44,233 30,767 75,000
"$,!"'
Profit element in closing stock = *!,)*'×5,000 = `1,683

NOV – 2018 – 5 Marks

Following details have been provided by M/s AR Enterprises:
(i) Opening works-in-progress - 3,000 units (70% complete)
(ii) Units introduced during the year - 17,000 units
(iii) Cost of the process (for the period) - `33,12,720
(iv) Transferred to next process - 15,000 units
(v) Closing works-in-progress - 2,200 units (80% complete)
(vi) Normal loss is estimated at 12% of total input (including units in process in the beginning).
Scraps realize `50 per unit. Scraps are 100% complete.
Using FIFO method, compute:
(i) Equivalent production
(ii) Cost per equivalent unit

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Solution
Statement of Equivalent Production
Material
Input Output
% Units
Op. WIP 3,000 Op. WIP 3,000 30 900
Introduced &
Input 17,000 Complete 12,000 100 12,000
Transferred 15,000
Normal Loss 2,400 - -
(20,000×12%)
Abnormal
Loss 400 100 400
(Bal. fig.)
Closing WIP 2,200 80 1,760
20,000 20,000 15,060

Statement of cost per equivalent production unit:

Cost of the Process `33,12,720
Less: Scrap value of normal loss (`50 × 2,400)(`1,20,000)
Total Process Cost `31,92,720
Total equivalent units ___15,060
Cost per equivalent production unit _____`212

MAY – 2018 – 10 Marks

Alpha Ltd. is engaged in the production of a product A which passes through 3 different process –
Process P, Process Q and Process R. The following data related to cost and output is obtained from
the books of accounts for the month of April 2017:
Particulars Process P Process Q Process R
Direct Material 38,000 42,500 42,880
Direct Labour 30,000 40,000 50,000
Production overheads of `90,000 were recovered as percentage of direct labour.

10,000 kg of raw material @ `5 per kg was issued to Process P. There was not stock of materials
or work in process. The entire output of each process passes directly to the next process and finally
to warehouse. There is normal wastage, in processing of 10%. The scrap value of wastage is `1
per kg. The output of each process transferred to next process and finally to warehouse are as
under:
Process P = 9,000 kg
Process Q = 8,200 kg
Process R = 7,300 kg

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The company fixes selling price of the end product in such a was so as to yield a profit of 25% on
selling price. Prepare Process P. Q and R Accounts. Also calculate selling price per unit of end
product.

Solution
Process P Account
Particulars Units Amount Particulars Units Amount
To Input 10,000 50,000 By Normal Loss A/c 1,000 1,000
To Direct Material - 38,000 (1,000 × 1)
To Direct Labour - 30,000 By Process Q A/c 9,000 1,39,500
To Production OHs - 22,500 (9,000 × 15.50)
(90,000 × 3/12)
10,000 1,40,500 10,000 1,40,500
!,$&,'&&1!,&&& !,%(,'&&
Normal cost per unit = !&,&&&1!,&&&
= (,&&&
= `15.50

Process Q Account
Particulars Units Amount Particulars Units Amount
To Process P A/c 9,000 1,39,500 By Normal Loss A/c 900 900
To Direct Material - 42,500 (900 × 1)
To Direct Labour - 40,000 By Process R A/c 8,200 2,54,200
To Production OHs - 30,000 (8,200 × 31)
(90,000 × 4/12)
To Abnormal gain A/c 100 3,100
(100 × 31)
9,100 2,55,100 9,100 2,55,100
",'",&&&1(&& ",'!,!&&
Normal cost per unit = (,&&&1(&&
= .,!&&
= `31

Process R Account
Particulars Units Amount Particulars Units Amount
To Process Q A/c 8,200 2,54,200 By Normal Loss A/c 820 820
To Direct Material - 42,880 (820 × 1)
To Direct Labour - 50,000 By Abnormal loss A/c 80 4,160
To Production OHs - 37,500 (80 × 52)
(90,000 × 5/12) By Finished Goods A/c 7,300 3,79,600
(7,300 × 52)
8,200 3,84,580 8,200 3,84,580
%,.$,'.&1."& %,.%,*)&
Normal cost per unit = .,"&&1."&
= *,%.&
= `52

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Calculation of selling price per unit of end product

Cost per unit `52.00
Add: Profit per unit – 25% on selling price i.e. 1/3 of cost `17.33
Selling price per unit `69.33

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Joint & By-Product

MAY – 2023 – 10 Marks
ABC Company produces a Product ‘X’ that passes through three processes: R, S and T. Three
types of raw materials, viz., J, K and L are used in the ratio of 40:40:20 in process R. The output
of each process is transferred to next process. Process loss is 10% of total input in each process.
At the stage of output in process T, a by-product ‘Z’ is emerging and the ratio of the main product
‘X’ to the by-product ‘Z’ is 80:20. The selling price of product ‘X’ is `60 per kg.

The company produced 14,580 kgs of product ‘X’.

Material price: Material K @ `15 per kg; Material K @ `9per kg.
Material L @ `7 per kg. Process costs are as follows:
Process Variable cost per kg (`) Fixed cost of input (`)
R 5.00 42,000
S 4.50 5,000
T 3.40 4,800
The by-product ‘Z’ cannot be processed further and can be sold at `30 per kg at the split-off stage.
There is no realizable value of process losses at any stage.

Required:
Present a statement showing the apportionment of joint costs on the basis of the sales value of
product ‘X’ and by-product ‘Z’ at the split-off point and the profitability of product ‘Z’ and by-
product ‘Z’.

Solution
Working Note:
(1) Let total raw material in Process R of raw material R be 100
Process Input Loss Output
R 100 100 ´ 10% = 10 90
S 90 90 ´ 10% = 9 81
T 81 81 ´ 10% = 8.10 72.90
Thus, for input of 100 units in process R, output of 72.90 units is obtained from process T.
Actual output of X = 14,580 units
80% of output of Process T = 14,580 units
Output of process T = 14,580 ÷ 80% = 18,225
!.,""'
Input of process R = *".( × 100 = 25,000 kgs

(2) Calculation of Joint cost

Process Inputs Variable costs Fixed cost Total cost

R 25,000 25,000 ´ 5 = 1,25,000 42,000 1,67,000

S 22,500 22,500 ´ 4.5 = 1,01,250 5,000 1,06,250
T 20,250 20,250 ´ 3.4 = 68,850 4,800 73,650
3,46,900
Raw material J = 10,000 ´ 15 = `1,50,000
Raw material K = 10,000 ´ 9 = `90,000
Raw material L = 5,000 ´ 7 = `35,000
`2,75,000

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Add: Processing cost (as above) `3,46,900

Total joint cost `6,21,900

(i) Statement showing apportionment of joint cost

Particulars Product X By-Product Z Total
Units 14,580 3,465
Selling price (`) 60 30
Sales value (`) 8,74,800 1,09,350 9,84,150
Share of joint cost 5,52,800 69,100 6,21,900
(`6,21,900 in ratio of
sales value)

(ii) Statement of profitability

Particulars Product X By-Product Z Total
Sales value (`) 8,74,800 1,09,350 9,84,150
(-) Share of joint cost (5,52,800) (69,100) (6,21,900)
Profit 3,22,000 40,250 3,62,250

NOV – 2022 – 5 Marks

ASR Limited produces Product ‘L’ and gets a by-Product ‘M’ out of a joint process. The net
realizable value of the by-product is used to reduce the joint production costs before the joint costs
are allocated to the main product. During the month of October 2022, company incurred joint
production costs of `4,00,000. The main product ‘L’ is not marketable at the split off point. Thus,
it has to be processed further. Details of company’s operation are as under:
Particulars Product L By-Product M
Production (units) 10,000 200
Selling price per kg `45 `5
Further processing cost `1,01,000 -
You are required to find out:
(i) Profit earned from Product ‘L’
(ii) Selling price per kg of product ‘L’, if the company wishes to earn a profit of `1,00,000 from
the above production.

Solution
(i) Calculation of profit on product ‘L’
Particulars `
Sales value 4,50,000
Less: Further processing cost (1,01,000)
3,49,000
Less: Joint production cost [4,00,000 – (200 ´ 5)] (3,99,000)
Loss (50,000)
!"#$% '"(#)*+(,-+. /-"0,# 3,55,666)7,67,666)7,66,666
(ii) Desired selling price = 12,#(
= 76,666
= `60 per kg

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MAY – 2022 – 5 Marks

RST Limited produces three joint products X, Y and Z. The products are processed further. Pre-
separation costs are apportioned on the basis of weight of output of each joint product. The
following data are provided for the month of April, 2022.

Cost incurred up to separation point: `10,000

Product X Product Y Product Z
Output (in Litre) 100 70 80
` ` `
Cost incurred after separation point 2,000 1,200 800
Selling price per litre:
After further processing 50 80 60
At pre-separation point (estimated) 25 70 45
You are required to:
(i) Prepare a statement showing profit or loss made by each product after further processing
using the presently adopted method of apportionment of pre-separation cost.
(ii) Advise the management whether, on purely financial consideration, the three products are to
be processed further or not.

Solution
(i) Statement of profit/(loss)
Particulars Product X Product Y Product Z
Sale value (A) 100 ´ 50 = 5,000 70 ´ 80 = 5,600 80 ´ 60 = 4,800
Share of joint cost 4,000 2,800 3,200
(10,000 in 100:70:80)
Further processing cost 2,000 1,200 800
Total cost (B) 6,000 4,000 4,000
Profit/(loss) (A – B) (1,000) 1,600 800

(ii) Statement of Evaluation of Decision

Particulars Product X Product Y Product Z
Sale value after FPC 100 ´ 50 = 5,000 70 ´ 80 = 5,600 80 ´ 60 = 4,800
(-) Sale value at split off 100 ´ 25 = 2,500 70 ´ 70 = 4,900 80 ´ 45 = 3,600
Incremental sales 2,500 700 1,200
(-) Further processing cost 2,000 1,200 800
Incremental Profit/(loss) 500 (500) 400
There is incremental loss in product Y and incremental profit in case of Product X and Z. Thus, it
is recommended to further process product X and Z whereas Product Y should be sold without
further processing i.e. at split off point.

JULY – 2021 – 5 Marks

OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process results
in four products at the split-off point – S, P, N and A. Product ‘A’ is fully processed at the split-
off point. Product S, P and N can be individually further refined into SK, PM, and NL respectively.

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The joint cost of purchasing the crude vegetable oil and processing it were `40,000. Other details
are as follows:
Product Further Processing Sales at split-off Sales after further
costs (`) point (`) processing (`)
S 80,000 20,000 1,20,000
P 32,000 12,000 40,000
N 36,000 28,000 48,000
A - 20,000 -
You are required to identify the products which can be further processed for maximizing profits
and make suitable suggestions.

Solution
Statement of Incremental Profit/(Loss)
Particulars Product S Product P Product N
Sale after further processing 1,20,000 40,000 48,000
Less: Sale at split-off point 20,000 12,000 28,000
Incremental sale 1,00,000 28,000 20,000
Less: further processing cost 80,000 32,000 36,000
Incremental profit/(loss) 20,000 (4,000) (16,000)
Thus, it is recommended to further process Product S and Product P, N and A should be sold at
split off point.

JAN – 2021 – 10 Marks

Mayura Chemicals Ltd. buys a particular raw material at `8 per litre. At the end of the processing
in Department-1, this raw material splits-off into products X, Y and Z. Product X is sold at the
split-off point, with no further processing. Products Y and Z require further processing before they
can be sold. Product Y is processed in Department-2, and Product Z is processed in Department-
3. Following is a summary of the costs and other related data for the year 2019-20:
Particulars Department
1 2 3
Cost of Raw Material `4,80,000 - -
Direct Labour `70,000 `4,50,000 `6,50,000
Manufacturing Overhead `48,000 `2,10,000 `4,50,000
Products
X Y Z
Sales (litres) 10,000 15,000 22,500
Closing inventory (litres) 5,000 - 7,500
Sale price per litre (`) 30 64 50
There were no opening and closing inventories of basic raw materials at the beginning as well as
at the end of the year. All finished goods inventory in litres was complete as to processing. The
company uses the Net-realizable value method of allocating join costs.

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You are required to prepare:

(iii) Schedule showing the allocation of joint costs
(iv) Calculate the cost of goods sold of each product and the cost of each item in Inventory
(v) A comparative statement of Gross Profit

Solution
(i) Statement of allocation of joint cost
Particulars Product X Product Product Total
Y Z
Units sold 10,000 15,000 22,500
Add: Closing stock (A) 5,000 - 7,500
Units Produced (B) 15,000 15,000 30,000
Selling price per unit (C) 30 64 50
Sale value of Prod. (B × C) 4,50,000 9,60,000 15,00,000 29,10,000
Less: Additional cost - 6,60,000 11,00,000 17,60,000
Net realizable value 4,50,000 3,00,000 4,00,000 11,50,000
Share of joint cost (D) 2,34,000 1,56,000 2,08,000 5,98,000
(5,98,000 in NRV ratio)

(ii) Statement of calculation of cost of goods sold and inventory

Particulars Product X Product Y Product Z Total
Share of joint cost 2,34,000 1,56,000 2,08,000 5,98,000
Add: Additional costs - 6,60,000 11,00,000 17,60,000
Less: Cost of ",%$,&&&×',&&& - !%,&.,&&&×*,'&& (4,05,000)
!',&&&
= %&,&&&
inventories
(78,000) = (3,27,000)
Cost of goods sold 1,56,000 8,16,000 9,81,000 19,53,000

(iii) Statement of calculation of gross profit

Particulars Product X Product Y Product Z Total
Units sold 10,000 15,000 22,500
Selling price per unit 30 64 50
Sales 3,00,000 9,60,000 11,25,000 23,85,000
Less: Cost of goods 1,56,000 8,16,000 9,81,000 19,53,000
sold
Profit / (loss) 1,44,000 1,44,000 1,44,000 4,32,000

NOV – 2020 – 5 Marks

A company’s plant processes 6,750 units of a raw material in a month to produce two products ‘M’
and ‘N’. The process yield is as under:
Product M 80%
Product N 12%

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Process loss 8%
The cost of raw material is `80 per unit.
Processing cost is `2,25,000 of which labour cost is accounted for 66%. Labour is chargeable to
products ‘M’ and ‘N’ in the ratio of 100:80.

Prepare a comprehensive cost statement for each product showing:

(v) Apportionment of joint cost among products ‘M’ and ‘N’ and
(vi) Total cost of the products ‘M’ and ‘N’.

Solution
Total joint cost = Raw material cost + Processing cost = (6,750 × 80) + 2,25,000 = `7,65,000
Total labour cost = 2,25,000 × 66% = `1,48,500
Joint cost other than labour cost = 7,65,000 – 1,48,500 = `6,16,500
Statement of Joint Cost Apportionment
Particulars Product M Product N
Labour Cost 82,500 66,000
(1,48,500 in 100:80)
Cost other than labour cost 5,36,087 80,413
(6,16,500 in 80:12)
Share of Joint Cost 6,18,587 1,46,413
Statement of Total Cost
Particulars Product M Product N
Raw material cost 4,69,565 70,435
(5,40,000 in 80:12)
Labour Cost 82,500 66,000
(1,48,500 in 100:80)
Other Processing Cost 66,522 9,978
(76,500 in 80:12)
Share of Joint Cost 6,18,587 1,46,413

NOV – 2019 – 5 Marks

A Factory produces two products, ‘A’ and ‘B’ from a single process. The joint processing costs
during a particular month are:
Direct material `30,000
Direct labour `9,600
Variable Overheads `12,000
Fixed Overheads `32,000
Sales: A – 100 units @ `600 per unit; B – 120 units @ `200 per unit.
Apportion joint costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and

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(iii) Determine Profit or Loss under both the methods.

Solution
(i) Statement showing Joint Cost Apportionment (Physical Quantity Basis)
Particulars A (`) B (` )
Direct Material (30,000 in 100:120) 13,636 16,364
Direct Labour (9,600 in 100:120) 4,364 5,236
Variable Overheads (12,000 in 100:120) 5,455 6,545
Fixed Overheads (32,000 in 100:120) 14,545 17,455
Joint Cost Allocable 38,000 45,600

(ii) Statement showing Contribution

Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Direct Material (30,000 in 100:120) 13,636 16,364
Less: Direct Labour (9,600 in 100:120) 4,364 5,236
Less: Variable Overheads (12,000 in 100:120) 5,455 6,545
Contribution 36,545 (4,145)

Statement showing Joint Cost Apportionment (Contribution Margin Method)

Particulars A (`) B (` )
Direct Material (30,000 in 100:120) 13,636 16,364
Direct Labour (9,600 in 100:120) 4,364 5,236
Variable Overheads (12,000 in 100:120) 5,455 6,545
Fixed Overheads 32,000 -
Joint Cost Allocable 55,455 28,145
(iii) Statement showing Profit or Loss (Under Physical Quantity Basis)
Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Joint Cost Allocable 38,000 45,600
Profit or (Loss) 22,000 (21,600)

Statement showing Profit or Loss (Under Contribution Margin Method)

Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Joint Cost Allocable 55,455 28,145
Profit or (Loss) 4,545 (4,145)

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MAY – 2019 – 5 Marks

A Factory is engaged in the production of chemical Bomex and in the course of its manufacture a
by-product Cromex is produced which after further processing has a commercial value. For the
month of April 2019 the following are the summarized cost data:
Joint Expenses Separate Expenses
` Bomex (`) Cromex (`)
Materials 1,00,000 6,000 4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling price per unit 100 40
Estimated profit per unit 5
Units Units
No. of units produced 2,000 2,000
The factory uses net realizable value method for apportionment of joint cost to by-products. You
are required to prepare statements showing:
(i) the joint cost allocable to Cromex
(ii) the product-wise and overall profitability of the factory for April 2019.

Solution
(i) Statement showing Joint Cost Allocation to ‘Cromex’
Particulars Cromex (`)
Sales (`40 × 2,000 units) 80,000
Less: Post split off costs (4,000 + 18,000 + 6,000) (28,000)
Less: Estimated profit (`5 × 2,000) (10,000)
Joint Cost Allocable 42,000

(ii) Statement showing product wise and Overall Profitability

Particulars Bomex (`) Cromex (`) Total (`)
Sales 2,00,000 80,000 2,80,000
Less: Share in Joint Expenses (1,38,000)* (42,000) (1,80,000)
Less: Post split off costs (36,000) (28,000) (64,000)
Profit 26,000 10,000 36,000
*This is a balancing figure i.e. 1,80,000 – 42,000 = 1,38,000

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Marginal Costing
MAY – 2023 – 5 Marks
MNP Company Limited produces two products ‘A’ and ‘B’. The relevant cost and sales data per
unit for output is as follows:
Particulars Product A (`) Product B (`)
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
Selling price 180 175
The availability of machine hours is limited to 55,000 hours for the month. The monthly demand
for product ‘A’ and product ‘B’ is 5,000 units and 6,000 units, respectively. The fixed expenses of
the company are `1,40,000 per month. Variable factory overheads are `4 per machine hours. The
company can produce both products according to the market demand.
Required:
Calculate the product mix that generates maximum profit for the company in the situation and also
calculate profit of the company.

Solution
Particulars Product A (`) Product B (`)
Selling price 180 175
Variable cost:
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
130 125
Contribution 50 50
Machine hour per unit 10 5
Contribution per machine hour 5 10
Rank II I

Statement of Product Mix and Profit

Product Units Hours per unit Material consumed Contribution
B 6,000 5 30,000 6,000×50 = 3,00,000
A 25,000÷10 = 10 (Bal. fig.) 25,000 2,500×50 = 1,25,000
2,500
37,600 55,000 4,25,000
Less: Fixed cost 1,40,000
Profit 2,85,000

MAY – 2023 – 5 Marks

The following information pertains to ZB Limited for the year:
Profit volume ratio 30%
Margin of Safety (as % of total sales) 25%
Fixed costs `12,60,000
You are required to calculate:

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(i) Break even sales value (`)

(ii) Total sales value (`) at present
(iii) Proposed sales value (`) if company wants to earn the present profit after reduction of 10%
in fixed cost,
(iv) Sales in value (`) to be made to earn a profit of 20% on sales assuming fixed cost remains
unchanged,
(v) New Margin of Safety if the sales value at present as computed in (ii) decreased by 12.5%

Solution
^A_?6 H<9G !",)&,&&&
(i) Break even sales value = [` P7GA< = %&% = `42,00,000

(ii) Sales = Breakeven sales + Margin of safety

Sales = 42,00,000 + (0.25 ´ Sales)
Sales = 42,00,000 ÷ 0.75 = `56,00,000

(iii) Present profit = Contribution – Fixed cost = (56,00,000 ´ 30%) – 12,60,000 = `4,20,000
^A_?6 H<9G / P?]KA>?6 C><=AG (!",)&,&&&×(&%) / $,"&,&&&
Proposed sales = [` P7GA<
= %&%
= `51,80,000

^A_?6 H<9G / P?]KA>?6 C><=AG

(iv) Sales = [` P7GA<
!",)&,&&& /(&."&)(@7F?9)
Sales = &.%&
Sales = 12,60,000 ÷ 0.10 = `1,26,00,000

(v) New Margin of Safety = Sales – BES = (56,00,000 ´ 87.5%) – 42,00,000 = `7,00,000

NOV – 2022 – 5 Marks

ABC Ltd. sells its product ‘Y’ at a price of `300 per unit and its variable cost is `180 per unit.
The fixed costs are `16,80,000 per year uniformly incurred throughout the year. The profit for the
year is `7,20,000. You are required to calculate:
(i) BEP in value (`) and units,
(ii) Margin of Safety
(iii) Profits made when sales are 24,000 units
(iv) Sales in value (`) to be made to earn a net profit of `10,00,000 for the year.

Solution
4<DG>ASKGA<D (%&&1!.&)
(i) PV Ratio = @7F?9
× 100 = %&&
× 100 = 40%
^A_?6 H<9G !),.&,&&&
Break-even Point in value (`) = [` P7GA<
= $&%
= `42,00,000
^A_?6 H<9G !),.&,&&&
Break-even Point in Units = 4<DG>ASKGA<D C?> KDAG = !"&
= 14,000 units

[><=AG *,"&,&&&
(ii) Margin of safety (in `) = [` P7GA< = $&%
= `18,00,000
[><=AG *,"&,&&&
Margin of safety (in units) = 4<DG>ASKGA<D C?> KDAG = !"&
= 6,000 units

NOV – 2022 – 5 Marks

An agriculture based company having 210 hectares of land is engaged in growing three different
cereals namely, wheat, rice and maize annually. The yield of the different crops and their selling
prices are given below:

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Wheat Rice Maize

Yield (in kgs per hectare) 2,000 500 100
Selling price (` per kg) 20 40 250
The variable cost data of different crops are given below:
(All figures in ` per kg)
Crop Labour Charges Packing Materials Other Variable Expenses
Wheat 8 2 4
Rice 10 2 1
Maize 120 10 20
The company has a policy to produce and sell all the three kinds of crops. The maximum and
minimum area to be cultivated for each crop is as follows:
Crop Maximum area (in hectares) Minimum area (in hectares)
Wheat 160 100
Rice 50 40
Maize 60 10
You are required to:
(i) Rank the crops on the basis of contribution per hectare.
(ii) Determine the optimum product mix considering that all the three cereals are to be produced.
(iii) Calculate the maximum profit which can be achieved if the total fixed cost per annum is
`21,45,000.
(Assume that there are no other constraints applicable to this company).

Solution
(i) Statement showing Ranking of Crops on the basis of Contribution per hectare
Particulars Wheat Rice Maize
Selling price per kg (`) 20 40 250
(-) Labour charges per kg (`) 8 10 120
(-) Packaging material per kg (`) 2 2 10
(-) Other variable expenses per kg (`) 4 1 20
Contribution per kg (`) 6 27 100
Yield (in kgs per hectare) 2,000 500 100
Contribution per hectare 12,000 13,500 10,000
Ranking II I III

(ii) & (iii) Statement showing optimum product mix and profit
Particulars Wheat Rice Maize Total
Minimum area (in hectare) 100 40 10 150
Remaining area (in hectare 60
Distribution of remaining area based 50 10 - 60
on raking considering maximum
area
Optimum mix (in hectare) 150 50 10 210
Contribution per hectare (`) 12,000 13,500 10,000
Total contribution (`) 18,00,000 6,75,000 1,00,000 25,75,000
(-) Fixed Cost - - - 21,45,000
Profit - - - 4,30,000

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MAY – 2022 – 5 Marks

UV Limited started a manufacturing unit from 1st October 2021. It produces designer lamps and
sells its lamps at `450 per unit.

During the quarter ending on 31st December, 2021, it produced awnd sold 12,000 units and suffered
a loss of `35 per unit.

During the quarter ending on 31st March, 2022, it produced and sold 30,000 units and earned a
profit of `40 per unit.

You are required to calculate:

(i) Total fixed cost incurred by UV Ltd. per quarter
(ii) Break Even sales value (in rupees)
(iii) Calculate Profit, if the sale volume reaches 50,000 units in the next quarter (i.e. quarter
ending on 30th June, 2022).

Solution
Quarter Units sold Profit/(loss) Total Total Sales
per unit Profit/(loss)
Ending 31st Dec 12,000 (35) (4,20,000) 54,00,000
Ending 31st March 30,000 40 12,00,000 1,35,00,000
Change 16,20,000 81,00,000
4Q7DE? AD C><=AG !),"&,&&&
(i) PV ratio = 4Q7DE? AD 97F?9
´ 100 = .!,&&,&&& ´ 100 = 20%
Fixed cost = Contribution – Profit = (1,35,00,000 ´ 20%) – 12,00,000 = `15,00,000

=A_?6 H<9G !',&&,&&&

(ii) Break-even sales (in `) = [` >7GA<
= "&%
= `75,00,000

(iii) Profit = Contribution – Fixed cost = (50,000 ´ 450 ´ 20%) – 15,00,000 = `30,00,000

MAY – 2022 – 5 Marks

Top-tech manufacturing company is presently evaluating two possible machines for the
manufacture of superior pen-drives. The following information is available:

Particulars Machine A Machine B

Selling price per unit `400.00 `400.00
Variable cost per unit `240.00 `260.00
Total fixed costs per year `350 lakhs `200 lakhs
Capacity (in units) 8,00,000 10,00,000
Required:
(i) Recommend which machine should be chosen?
(ii) Would you change your answer, if you were informed that in near future demand will be
unlimited and the capacities of the two machines are as follows?
Machine A – 12,00,000 units
Machine B – 12,00,000 units
Why?

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Solution
(i) Statement of Profit
Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 8 lakhs 10 lakhs
Total contribution (`) 1,280 lakhs 1,400 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 930 lakhs 1,200 lakhs
Machine B should be chosen as it gives more profit than Machine A.

(ii) Statement of Profit

Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 12 lakhs 12 lakhs
Total contribution (`) 1,920 lakhs 1,680 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 1,570 lakhs 1,480 lakhs
Machine A should be chosen as it gives more profit than Machine B.

DEC – 2021 – 10 Marks

AZ company has prepared its budget for the production of 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:

(i) Present break-even sales (in Rs. and in quantity)
(ii) Present profit-volume ratio
(iii) Revised break-even sales in Rs and the revised profit-volume ratio, if it reduces its selling
price by 10%.
(iv) What would be revised sales in quantity and the amount, if a company desires a profit
increase of 20% more than the budgeted profit and selling price is reduced by 10% as above
in point (iii).

Solution
(i) Present Fixed cost = 4 ´ 2,00,000 = `8,00,000
Present Profit = Total cost ´ 20% = (16 + 4) ´ 20% = `4
Present Selling price = Cost + Profit = (16 + 4) + 4 = `24
Contribution = Selling price – Variable cost = 24 – 16 = `8
^A_?6 H<9G .,&&,&&&
Present Break-even sales units = 4<DG>ASKGA<D C?> KDAG = .
= 1,00,000 units
Present Break-even sales value = 1,00,000 ´ 24 = `24,00,000

4<DG>ASKGA<D .
(ii) Present profit-volume ratio = @?FFADE C>AH?
´100 = "$ ´100 = 33.33%

(iii) New Selling price per unit = 24 – 10% = `21.60

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New contribution per unit = 21.60 – 16 = `5.60

'.)&
Revised PV ratio =
"!.)&
´100 = 25.93%
.,&&,&&&
Revised break-even sales = "'.(%%
= `30,85,229

(iv) Required profit = Existing profit ´ 120% = (4 ´ 2,00,000) ´ 120% = `9,60,000

P?]KA>?6 C><=AG/^A_?6 H<9G (,)&,&&&/.,&&,&&&
Required sales quantity = 4<DG>ASKGA<D C?> KDAG
= '.)&
= 3,14,286 units
Required sales value = 3,14,286 ´ 21.60 = ` 67,88,578

JULY – 2021 – 5 Marks

LR Ltd. is considering two alternative methods to manufacture product it intends to market. The
two methods have a maximum output of 50,000 units each and produce identical items with a
selling price of `25 each. The costs are:
Method – I Method – II
Semi-Automatic (`) Fully automatic (`)
Variable cost per unit 15 10
Fixed costs 1,00,000 3,00,000
You are required to calculate:
(iv) Cost Indifference Point in units. Interpret your results.
(v) The Break-even point of each method in terms of units

Solution
(i) Let cost indifference units = y
Thus, Total cost of Method – I = Total cost of Method – II
1,00,000 + 15y = 3,00,000 + 10y
5y = 2,00,000
y = 40,000
At y = 40,000 units, cost of the two methods will be equal.
If quantity produced is more than 40,000 units than option where variable cost per unit is low
i.e. Method - II will have greater benefits in term of cost. If quantity produced is less than
40,000 units than option with lowest fixed cost i.e. Method – I will have greater benefits in
terms of total cost.

(ii) Statement of Break-even point

Particulars Method – I Method - II
Contribution per unit (A) 25 – 15 = 10 25 – 10 = 15
Fixed cost (B) 1,00,000 3,00,000
Break-even point (in units) (B÷A) 10,000 20,000

JAN – 2021 – 5 Marks

During a particular period, ABC Ltd. has furnished the following data:
Sales `10,00,000

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Contribution to sales ratio 37% and

Margin of safety is 25% of sales
A decrease in selling price and decrease in the fixed cost could change the “contribution to sales
ratio” to 30% and “margin of safety” to 40% of the revised sales. Calculate:
(i) Revised Fixed Cost
(ii) Revised Sales and
(iii) New Break-Even Point

Solution
Existing variable cost ratio = 100 – Contribution to sales ratio = 100 – 37% = 63%
Existing variable cost = 10,00,000 × 63% = `6,30,000
New variable cost = Existing variable cost = `6,30,000
New variable cost ratio = 100 – 30% = 70%
),%&,&&&
New sales = *&%
= `9,00,000
New Margin of safety = 9,00,000 × 40% = `3,60,000
New Break-even point = 9,00,000 – 3,60,000 = `5,40,000
New Fixed cost = New Break-even point × PV Ratio = 5,40,000 × 30% = `1,62,000

JAN – 2021 – 10 Marks

Two manufacturing companies A and B are planning to merge. The details are as follows:
A B
Capacity utilization (%) 90 60
Sales (`) 63,00,000 48,00,000
Variable Cost (`) 39,60,000 22,50,000
Fixed Cost (`) 13,00,000 15,00,000
Assuming that the proposal is implemented, calculate:
(i) Break-Even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales Turnover of the merged plant to earn a profit of `60,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of `60,00,000, what
percentage of increase in selling price is required to sustain an increase of 5% in fixed
overheads.
Solution
(i) Statement of Profit (`in lakhs)
Particulars Plant A Plant B Total
Sales 63÷90% = 70 48÷60% = 80 150
(-) Variable Cost 39.6÷90% = 44 22.5÷60% = 37.50 81.50
Contribution 26 42.50 68.50
(-) Fixed Cost 13 15 28
Profit 13 27.50 40.50

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4<DG>ASKGA<D ).,'&,&&&
Overall P\V Ratio = @7F?9
× 100 = !,'&,&&,&&& × 100 = 45.67%
^A_?6 4<9G ".,&&,&&&
Overall Break-even point (in `) = 3L?>7FF [\` P7GA< = $'.)*%
= `61,30,939
Z>?7I1?L?D 97F?9 )!,%&,(%(
Break-even point capacity = O<G7F @7F?9 7G !&&% F?L?F × 100 = !,'&,&&,&&& × 100 = 40.87%
(ii) Sales at 80% level = 1,50,00,000 × 80% = `1,20,00,000
Profit = Contribution – Fixed Cost = (1,20,00,000 × 45.67%) – 28,00,000 = `26,80,400
^A_?6 4<9G/b?9A>?6 [><=AG ".,&&,&&&/)&,&&,&&&
(iii) Desired Sales = 3L?>7FF [\` P7GA<
= $'.)*%
= `1,92,68,867
(iv) Increase in fixed cost = 28,00,000 × 5% = `1,40,000
!,$&,&&&
\ Percentage increase in selling price = !,(",).,.)* × 100 = 0.726%

NOV – 2020 – 5 Marks

Moon Ltd. produces products ‘X’, ‘Y’ and ‘Z’ and has decided to analyse it’s production mix in
respect of these three products – ‘X’, ‘Y’ and ‘Z’.
You have the following information:
X Y Z
Direct materials (`) per unit 160 120 80
Variable overheads (`) per unit 8 20 12
Direct labour:
Departments: Rate per hour (`) Hours per unit Hours per unit Hours per unit
X Y Z
Department-A 4 6 10 5
Department-B 8 6 15 11
From the current budget, further details are as below:
X Y Z
Annual production at present (in units) 10,000 12,000 20,000
Estimated selling price per unit (`) 312 400 240
Sales department estimate of possible sales 12,000 16,000 24,000
in the coming year (in units)
There is a constraint on supply of labour in Department-A and its manpower cannot be increase
beyond its present level.
Required:
(i) Identify the best possible product mix of Moon Ltd.
(ii) Calculate the total contribution from the best possible product

Solution
Present supply of labour hours in Department-A
= (10,000 × 6) + (12,000 × 10) + (20,000 × 5) = 2,80,000 labour hours

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Statement of Contribution
Particulars X Y Z
Selling price per unit 312 400 240
(-) Direct material per unit 160 120 80
(-) Labour cost per unit
Department A 4×6 = 24 4×10 = 40 4×5 = 20
Department B 8×6 = 48 8×15 = 120 8×11 = 88
(-) Variable overheads per unit 8 20 12
Contribution per unit 72 100 40
Labour hours per unit 6 10 5
Contribution per labour hour 12 10 8
Rank I II III

Statement of Product Mix and Contribution

Product Units Labour hours Labour Hours Contribution
per unit consumed
X 12,000 6 72,000 72,000×12 = 8,64,000
Y 16,000 10 1,60,000 1,60,000×10 =
16,00,000
Z 48,000÷5 = 5 (Bal. fig.) 48,000 48,000×8 = 3,84,000
9,600
37,600 2,80,000 28,48,000

NOV – 2019 – 5 Marks

When volume is 4,000 units, average cost is `3.75 per unit. When volume is 5,000 units, average
cost is `3.50 per unit. The Break-even point is 6,000 units.
Calculate:- (i) Variable cost per unit; (ii) Fixed Cost and (iii) Profit Volume Ratio

Solution
Total cost when volume is 4,000 units = 4,000 × 3.75 = `15,000
Total cost when volume is 5,000 units = 5,000 × 3.50 = `17,500
bA==?>?DH? AD O<G7F 4<9G !*,'&&1!',&&&
Variable cost per unit = bA==?>?DH? AD cDAG9
= ',&&&1$,&&&
= `2.50
Fixed cost = Total cost – Variable cost = 15,000 – (4,000 × 2.50) = `5,000
^A_?6 H<9G
Break-even point (in units) = 4<DG>ASKGA<D C? >KDAG
^A_?6 H<9G ',&&&
Contribution per unit = Z>?7I1?L?D C<ADG = ),&&& = `0.83
Selling price pre unit = Variable cost per unit + Contribution per unit = 2.50 + 0.83 = `3.33
4<DG>ASKGA<D C?> KDAG &..%
P\V Ratio = @??FADE C>AH? C?> KDAG × 100 = %.%% × 100 = 24.92%

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MAY – 2019 – 5 Marks

M/s Gaurav Private Limited is manufacturing and selling two products:
‘BLACK’ and ‘WHITE’ at selling price of `20 and `30 respectively.
The following sales strategy has been outlined for the financial year 2019-20:
(i) Sales planned for the year will be `81,00,000 in the case of ‘BLACK’ and `54,00,000 in
the case of ‘WHITE’.
(ii) The selling price of ‘BLACK’ will be reduced by 10% and that of ‘WHITE’ by 20%.
(iii) Break-even is planned at 70% of the total sales of each product.
(iv) Profit for the year to be maintained at `8,26,200 in the case of ‘BLACK’ and `745,200 in
the case of ‘WHITE’. This would be possible by reducing the present annual fixed cost of
`42,00,000 allocated as `22,00,000 to ‘BLACK’ and `20,00,000 to ‘WHITE’.
You are required to calculate:
(1) Number of units to be sold of ‘BLACK’ and ‘WHITE’ to Break even during the financial
year 2019-20.
(2) Amount of reduction in fixed cost product-wise to achieve desired profit mentioned at (iv)
above.

Solution
(i) Statement showing Break Even Sales
Particulars BLACK WHITE
Sales Planned (in `) 81,00,000 54,00,000
Break-even sales % 70% 70%
Break-even sales (in `) (A) 56,70,000 37,80,000
Selling price per unit (in `) (B) 18 24
Break-even sales (in units) (A ÷ B) 3,15,000 2,25,000

(ii) Statement Showing Fixed Cost Reduction

Particulars BLACK WHITE
Profit to be maintained (`) (A) 8,26,200 7,45,200
Margin of Safety (30% × Sales) (B) 24,30,000 16,20,000
P/V Ratio (A ÷ B) 34% 46%
Desired Contribution (Sales × P/V Ratio) 27,54,000 24,84,000
Less: Desired Profit 8,26,200 7,45,200
Target Fixed Cost 19,27,800 17,38,800
Present Fixed Cost 22,00,000 20,00,000
Required reduction in fixed cost 2,72,200 2,61,200

NOV – 2018 – 10 Marks

A manufacturing company is producing a product ‘A’ which is sold in the market at `45 per unit.
The company has the capacity to product 40,000 units per year. The budget for the year 2018-19
projects a sale of 30,000 units. The costs of each unit are expected as under:
Material `12

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Wages `9
Overheads `6
Margin of safety is `4,12,500
You are required to:
(i) Calculate fixed cost and break-even point
(ii) Calculate the volume of sales to earn profit of 20% on sales
(iii) If management is willing to invest `10,00,000 with an expected return of 20%, calculate
units to be sold to earn this profit.
(iv) Management expects additional sales if the selling price is reduced to `44. Calculate units
to be sold to achieve the same profit as desired in above (iii).

Solution
$'1!"1(1)
P/V Ratio = $'
× 100 = 40%
[><=AG
Margin of safety = [/` P7GA<
[><=AG
4,12,500 = &.$&
Profit = 1,65,000
(i) Profit = Contribution – Fixed Cost
4,12,500 = (30,000 × 45 × 40%) – Fixed Cost
Fixed Cost = 5,40,000 – 1,65,000 = `3,75,000

Break-even point = Total sales – Margin of Safety = (30,000 × 45) – 4,12,500 = `9,37,500

(ii) Let required sales units = y

Total required sales value = 45y
^A_?6 H<9G/b?9A>?6 C><=AG
Desired sales = [/` P7GA<
%,*',&&&/($'8×"&%)
45y = &.$&
18y = 3,75,000 + 9y
9y = 3,75,000
y = 41,666.67 units

(iii) Let required sales units = y

^A_?6 H<9G/b?9A>?6 [><=AG
Desired sales units = 4<DG>ASKGA<D C?> KDAG
%,*',&&&/",&&,&&&
y= $'1!"1(1)
= 31,945 units (approx.)

(iv) Let required sales units = y

^A_?6 H<9G/b?9A>?6 [><=AG
Desired sales units = 4<DG>ASKGA<D C?> KDAG
%,*',&&&/",&&,&&&
y= $$1!"1(1)
= 33,824 units (approx.)

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MAY – 2018 – 5 Marks

Following figures have been extracted from the books of M/s RST Private Limited:
Financial Year Sales (`) Profit\Loss(`)
2016-17 4,00,000 15,000 (loss)
2017-18 5,00,000 15,000 (Profit)
You are required to calculate:
(i) Profit Volume Ratio
(ii) Fixed Costs
(iii) Break Even Point
(iv) Sales required to earn a profit of `45,000
(v) Margin of Safety in Financial Year 2017-18

Solution
bA==?>?DH? AD [><=AG %&,&&&
(i) Profit Volume Ratio = bA==?>?DH? AD @7F?9
× 100 = !,&&,&&& × 100 = 30%
(ii) Profit in 2017-18 = Contribution – Fixed Cost
15,000 = (5,00,000 × 30%) – Fixed Cost
Fixed Cost = 1,35,000
^A_?6 49<G !,%',&&&
(iii) Break-even point = [/` P7GA<
= %&%
= `4,50,000
^A_?6 H<9G/b?9A>?6 [><=AG !,%',&&&/$',&&&
(iv) Sales to earn a profit of `45,000 = [/` P7GA<
= %&%
= `6,00,00
(v) Margin of Safety = Actual sales – Break-even sales = 5,00,000 – 4,50,000 = `50,000

MAY – 2018 – 10 Marks

PH Gems Ltd. is manufacturing readymade suits. It has annual production capacity of 2,000 pieces.
The Cost Accountant has presented following information for the year to the management:
Particulars Amount (`) Amount (`)
Sales 1,500 pieces @ `1,800 per piece 27,00,000
Direct Material 5,94,200
Direct Labour 4,42,600
Overheads (40% Fixed) 11,97,000 22,33,800
Net Profit 4,66,300
Evaluate following options:
(i) If selling price is increased by `200, the sales will come down to 60% of the total annual
capacity. Should the company increase its selling price?
(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN with ready-
made suit. The cost of each TIEPIN is `18. Calculate the sales to earn a profit of 20% on
sales.

Solution
(i) Evaluation of option (i)

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New Selling price = 1,800 + 200 = `2,000

New Sales Quantity = 2,000 × 60% = 1,200 Pieces
Particulars Amount (`)
Sales (1,200 × `2,000) 24,00,000
',($,"&& 4,75,360
Less: Direct Material H !,'&&
× 1,200I
$,$",)&& 3,54,080
Less: Direct Labour H !,'&&
× 1,200I
!!,(*,&&&×)&% 5,74,560
Less: Variable Overheads H !,'&&
× 1,200I
Contribution 9,96,000
Less: Fixed Costs (11,97,000 × 40%) 4,78,000
Profit 5,17,200
If the price is increased by `200 than quantity is reducing by 20% (300 on 1,500). Through this
step, the profit of the firm will rise by `50,900 from the existing level. Since there is increase in
profit, thus it may be recommended to accept this policy.

(ii) Evaluation of option (ii)

Calculation of P/V Ratio
Selling price per unit 1,800.00
',($,"&&
Less: Direct material per unit H !,'&&
I 396.13
Less: cost of Tie pin 18.00
$,$",)&&
Less: Direct labour per unit H !,'&&
I 295.07
!!,(*,&&&×)&%
Less: Variable Overheads H !,'&&
I 478.80
Contribution 612.00
)!"
P/V Ratio = !,.&& × 100 = 34%
Let sales required to earn profit of 20% = y
^A_?6 4<9G/b?9A>?6 [><=AG
Desired sales = [/` P7GA<
$,*.,.&&/&."&8
y= %$%
0.34y = 4,78,800 + 0.2y
y = `34,20,000
Thus, sales required to earn a profit of 20% on sales = R.s 34,20,000
%$,"&,&&&
Sales units required to earn a profit of 20% of sales = !,.&&
= 1,900 units

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Standard Costing
MAY – 2023 – 10 Marks
NC Limited uses a standard costing system for the manufacturing of its product ‘X’. the following
information is available for the last week of the month:
• 25,000 kg of raw material were actually purchased for `3,12,500. The expected output is 8
units of product ‘X’ from each one kg of raw material. There is no opening and closing
inventories. The material price variance and material cost variance, as per cost records, are
`12,500 (F) and `1,800 (A) respectively.
• The standard time to produce a batch of 10 units of product ‘X’ is 15 minutes. The standard
wage rate per labour hour is 50. The company employs 125 workers in two categories, skilled
and semi-skilled, in a ratio of 60:40. The hourly wages actually paid were `50 per hour for
skilled workers and `40 per hour for semi-skilled workers. The weekly working hours are 40
hours per worker. Standard wage rate is the same for skilled and semi-skilled workers.
• The monthly fixed overheads are budgeted at `76,480. Overheads are evenly distributed
throughout the month and assume 4 weeks in a month. In the last week of the month, the actual
fixed overhead expenses were `19,500.
Required:
(a) Calculate the standard price per kg and the standard quantity of raw material
(b) Calculate the material usage variance, labour cost variance and labour efficiency variance.
(c) Calculate the fixed overhead cost variance, the fixed overhead expenditure variance and the
fixed overhead volume variance.

Solution
(a) Material price variance = (SP – AP) ´ AQ
12,500 (F) = (SP ´ AQ) – (AP ´ AQ)
12,500 (F) = (SP ´ 25,000) – 3,12,500
SP = `13

Material cost variance = Standard cost – Actual cost

1,800 (A) = (SQ ´ 13) – 3,12,500
SQ = 23,900 kg

(b) Material usage variance = (SQ – AQ) ´ SP

= (23,900 – 25,000) ´ 13 = 14,300 (A)

Labour cost variance = Standard cost – Actual cost

= 2,39,000 – 2,30,000 = `9,000 (F)

Labour efficiency variance = (SH – AH) ´ SR

= (4,780 – 5,000) ´ 50 = `11,000 (A)

(c) Fixed overhead cost variance = Recovered overheads – Actual overheads

!(,!"&
= !",&&,&&& × 1,91,200- – 19,500 = `1,221 (A)

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Fixed overhead expenditure variance = Budgeted overheads – Actual overheads

= 19,120 – 19,500 = `380 (A)
Fixed overhead volume variance = Recovered overheads – Budgeted overheads
!(,!"&
= !",&&,&&& × 1,91,200- – 19,120 = `841 (A)

Working notes:
(1) Budgeted time per unit = 15 minutes ÷ 10 units = 1.5 minutes
Budgeted units per hour = 60 ÷ 1.5 = 40 units
Budgeted output = 5,000 hours ´ 40 = 2,00,000 units
Actual output = 23,900 ´ 8 units = 1,91,200 units

(2) Calculation for labour variance

Standard for 1,91,200 units Actual for 1,91,200 units
Particulars
Hours Rate Amount Hours Rate Amount
!,(!,"&&
= 5,000 ´ 60% =
Labour $& 50 2,39,000 50 1,50,000
4,780 3,000
5,000 ´ 40% =
40 80,000
2,000
Total 4,780 50 2,39,000 5,000 2,30,000

*),$.&
(3) Budgeted fixed overheads per week = $
= `19,120

NOV – 2022 – 10 Marks

Y Lid manufactures “Product M” which requires three types of raw materials – “A”, “B” & “C”.
following information related to 1st quarter of the FY 2022-23 has been collected from its books
of accounts. The standard material input required for 1,000 kg of finished product ‘M’ are as under:
Material Quantity (Kg.) Std. Rate per Kg. (`)
A 500 25
B 3350 45
C 250 55
1100
Standard loss 100
Standard output 1000
During the period, the company produced 20,000 kg of product “M” for which the actual quantity
of materials consumed and purchase prices are as under:
Material Quantity (Kg.) Purchase price per kg. (`)
A 11,000 23
B 7,500 48
C 4,500 60
You are required to calculate:
(i) Material cost variance
(ii) Material price variance for each raw material and Product ‘M’
(iii) Material usage variance for each raw material and Product ‘M’
(iv) Material Yield variance
Note: indicate the nature of variance i.e. Favourable or Adverse

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Solution
Basic Calculation
Revised
Particulars Standard (20,000 Kg) Actual (20,000 Kg) Standard
Quantity Rate Amount Quantity Rate Amount Quantity
76,666
´23000
A 10,000 25 2,50,000 11,000 23 2,53,000 88,666
= 10454.54
9,666
88,666
´23000
B 7,000 45 3,15,000 7,500 48 3,60,000
= 7318.18
:,666
88,666
´23000
C 5,000 55 2,75,000 4,500 60 2,70,000
= 5227.27
Total 22,000 8,40,000 23,000 8,83,000 23,000

Calculation of Variances
(i) Material Cost Variance = Standard Cost – Actual cost
A = 2,50,000 – 2,53,000 =` 3,000 (A)
B = 3,15,000 – 3,60,000 =` 45,000 (A)
C = 2,75,000 – 2,70,000 =` 5,000 (F)
MCV = ` 43,000 (A)
(ii) Material Price Variance = (SP – AP) ´ AQ
A = (25 – 23) ´ 11,000 =` 22,000 (F)
B = (45 – 48) ´ 7,500 =` 22,500 (A)
C = (55 – 60) ´ 4,500 =` 22,500 (A)
MPV = ` 23,000 (A)
(iii) Material Usage Variance = (SQ – AQ) ´ SP
A = (10,000 – 11,000) ´ 25 =` 25,000 (A)
B = (7,000 – 7,500) ´ 45 =` 22,500 (A)
C = (5,000 – 4,500) ´ 55 =` 27,500 (A)
MUV = ` 20,000 (A)
(iv) Material Yield Variance = (SQ – RSQ) ´ SP
A = (10,000 – 10,454.54) ´ 25 =` 11,363.5 (A)
B = (7,000 – 7,318.18) ´ 45 =` 14,318.1 (A)
C = (5,000 – 5,227.27) ´ 55 =` 12,500 (A)
MYV = ` 38,181.6 (A)
Or Material Yield Variance = (Actual yield – Standard yield) ´ Standard rate per unit of output
86,666 ;,<6,666
= !20,000 − '88,666 × 23,000*+ ' 86,666 * = `38,178 (A)

MAY – 2022 – 5 Marks

A manufacturing department of a company has employed 120 workers. The standard output of
product “NPX” is 20 units per hour and the standard wage rate is `25 per labour hour.

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In a 48 hour week, the department produced 1,000 units of ‘NPX’ despite 5% of the time paid
being lost due to an abnormal reason. The hourly wages actually paid were `25.70 per hour.

Calculate:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Idle Time Variance

Solution
Actual hours paid = 48 ´ 120 = 5,760
Actual wage rate paid = `25.70
Total wages paid = 5,760 ´ `25.70 = `1,48,032
Idle time = 5,760 ´ 5% = 288 hours
Actual hours worked = 5,760 – 288 = 5,472 hours
!"&´!
Standard hours (for 1,000 units of NPX) = "&
´ 1,000 = 6,000 hours
Standard rate = `25
Standard wages = 6,000 ´ `25 = `1,50,000

(i) Labour cost variance = Standard wages – Actual wages

= `1,50,000 - `1,48,032 = `1,968 (F)
(ii) Labour rate variance = (Std. rate – Actual rate) ´ Actual hours paid
= (25 – 25.70) ´ 5,760 = `4,032 (A)
(iii) Labour efficiency variance = (Std. hours – Actual hours worked) ´ Std. rate
= (6,000 – 5,472) ´ 25 = `13,200 (F)
(iv) Labour idle time variance = Idle hours ´ Std. rate
= 288 ´ 25 = `7,200 (A)

DEC – 2021 – 10 Marks

In a manufacturing company the standard units of production for the year were fixed at 1,20,000
units and overhead expenditures were estimated to be as follows:
Particulars Amount (`)
Fixed 12,00,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable 1,80,000
nature)
Variable 6,00,000
Actual production during the month of April, 2021 was 8,000 units. Each month has 20 working
days. During the month there was one public holiday. The actual overheads were as follows:
Particulars Amount (`)
Fixed 1,10,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable 19,200
nature)
Variable 48,000
You are required to calculate the following variances for the month of April 2021:

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(i) Overhead cost variance

(ii) Fixed overhead cost variance
(iii) Variable overhead cost variance
(iv) Fixed overhead volume variance
(v) Fixed overhead expenditure variance
(vi) Calendar variance

Solution
Basic Calculations:
(1) Fixed overheads out of semi-variable overheads = 1,80,000 × 60% = `1,08,000
⸫Total Fixed overheads p.a. = 12,00,000 + 1,08,000 = `13,08,000
Total Fixed overheads per month = 13,08,000 ÷ 12 = `1,09,000
!,&(,&&&
Fixed overheads per unit = !,"&,&&&÷!" = `10.90

(2) Variable overheads out of semi-variable overheads = 1,80,000 × 40% = `72,000

⸫Total variable overheads p.a. = 6,00,000 + 72,000 = `6,72,000
Total variable overheads per month = 6,72,000 ÷ 12 = `56,000
'),&&&
Variable overheads per unit = !,"&,&&&÷!" = `5.60

(3) Variable overheads recovered = 8,000 × 5.60 = `44,800

(4) Total actual fixed overheads = 1,10,000 + (19,200 × 60%) = `1,21,520

Total actual variable overheads = 48,000 + (19,200 × 40%) = `55,680

(5) For Fixed Overheads

Budgeted Units Recovery Rate Budgeted OHs
10,000 10.90 1,09,000
Revised Bud. Units Actual Units Actual OHs
!&,&&& 8,000 1,21,520
"&
× 19 = 9,500
Standard Units Recovery Rate Recovered OHs
8,000 10.90 87,200
Calculation of Variances
(i) Overhead Cost Variance = Recovered Overheads – Actual Overheads
= (87,200 + 44,800) – (1,21,520 + 55,680) = `45,200 (A)
(ii) Fixed OHs Cost Variance = Recovered Fixed OHs – Actual Fixed OHs
= 87,200 – 1,21,520 = `34,320 (A)
(iii) Variable OHs Cost Variance = Recovered Variable OHs – Actual Variable OHs
= 44,800 – 55,680 = `10,880 (A)
(iv) Fixed OHs Volume Variance = Recovered Fixed OHs – Budgeted Fixed OHs
= 87,200 – 1,09,000 = `21,800 (A)

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(v) Fixed OHs Expenditure Variance = Budgeted overhead – Actual overhead

= 1,09,000 – 1,21,520 = `12,520 (A)
(vi) Calendar Variance = (Revised Bud. units – Budget units) × Recovery rate
= (9,500 – 10,000) × 10.90 = `5,450 (A)

JULY – 2021 – 10 Marks

The standard output of product ‘DJ’ is 25 units per hour in manufacturing department of a company
employing 100 workers. In a 40 hours week, the department produced 960 units of product ‘DJ’
despite 5% of the time paid was lost due to an abnormal reason. The hourly wage rates actually
paid were `6.20, `6.00 and `5.70 respectively to group ‘A’ consisting 10 workers, Group ‘B’
consisting 30 workers and Group ‘C’ consisting 60 workers. The standard wage rate per labour is
same for all the workers. Labour Efficiency Variance is given `240 (F).
You are required to calculate:
(iii) Total Labour Cost Variance
(iv) Total Labour rate Variance
(v) Total Labour Gang Variance
(vi) Total Labour Yield Variance, and
(vii) Total Labour Idle Time Variance

Solution
Labour Efficiency Variance = (SH – AH worked) × SR
!&&
240 (F) = !H960 × "'
I − {(10 + 30 + 60) × (40 − 5%)}- × e`
240 = (3,840 – 3,800) × SR
SR = `6
Particulars Standard (960 units)
Quantity Rate Amount
Labour !&& 6 23,040
960 × "'
= 3,840

Actual data (960 units)

No. of Hours paid Wage rate Wages Idle hours Hours worked
workers
10 10×40 = 400 6.20 2,480 400×5% = 20 400 – 20 = 380
30 30×40 = 1,200 6 7,200 1,200×5% = 60 1,200 – 60 = 1,140
60 60×40 = 2,400 5.70 13,480 2,400×5% = 2,400 – 120 = 2,280
120
Total 4,000 23,360 200 3,800

Calculation of Variances
(i) Labour Cost Variance = Standard Cost – Actual cost
= 23,040 – 23,360 = `320 (A)

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(ii) Labour Rate Variance = (SR – AR) ´ AH paid

= [(6 – 6.20) × 400] + [(6 – 6)×1,200] + [(6 - 5.70)×2,400] = `640 (F)
(iii) Labour Gang Variance = (RSH – AH worked) ´ SR
= (3,800 – 3,800) × 6 = Nil
(iv) Labour Yield Variance = (Actual yield – St. yield) ´ St. cost per unit of output
()& "%,&$&
= !960 − H%,.$& × 3,800I- ´ H ()&
I= `240 (F)
(v) Idle Time Variance = Idle Hours ´ SR
= 200 × 6 = `1,200 (A)

JAN – 2021 – 10 Marks

Premier Industries has a small factory where 52 workers are employed on an average for 25 days
a month and they work 8 hours per day. The normal down time is 15%. The firm has introduced
standard costing for cost control. Its monthly budget for November, 2020 shows that the budgeted
variable and fixed overhead are `1,06,080 and `2,21,000 respectively.

The firm reports the following details of actual performance for November, 2020 after the end of
the month:
Actual hours worked 8,100 hrs.
Actual production expressed in standard hours 8,800 hrs.
Actual Variable Overheads `1,02,000
Actual Fixed Overheads `2,00,000
You are required to calculate:
(i) Variable Overhead Variances:
(a) Variable overhead expenditure variance
(b) Variable overhead efficiency variance
(ii) Fixed Overhead Variances:
(a) Fixed overhead budget variance
(b) Fixed overhead capacity variance
(c) Fixed overhead efficiency variance
(iii) Control Ratios:
(a) Capacity ratio
(b) Efficiency ratio
(c) Activity ratio
Solution
Basic Calculations
Standard Actual
Particulars Hrs. Rate Amount Hrs. Rate Amount
` ` ` `
!,&),&.& !,&",&&&
Variable = =
8,800 .,.$& 1,05,600 8,100 .,!&& 1,02,000
Expenses 12 12.5926

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Budgeted Hours Recovery Rate Budgeted Overheads

8,840 25 2,21,000
Actual Hours Actual Overheads
8,100 2,00,000
Standard Hours Recovery Rate Recovered Overheads
8,800 25 2,20,000

(i) (a) Variable overhead expenditure variance = (SR – AR) × Actual Hrs.
= (12 – 12.5926) × 8,100 = `4,800 (A)
(b) Variable overhead efficiency variance = (SH – AH) × Std. Rate
= (8,800 – 8,100) × 12 = `8,400 (F)
(ii) (a) Fixed overhead budget variance = Budgeted OH – Actual OH
= 2,21,000 – 2,00,000 = `21,000 (F)
(b) Fixed overhead capacity variance = (AH – BH) × Recovery rate
= (8,100 – 8,840) × 25 = `18,500 (A)
(c) Fixed overhead efficiency variance = (SH – AH) × Recovery rate
= (8,800 – 8,100) × 25 = `17,500 (F)
2HGK7F V<K>9 .,!&&
(iii) (a) Capacity ratio = ZK6E?G?6 V<K>9 × 100 = .,.$& × 100 = 91.63%
@G7D67>6 V<K>9 .,.&&
(b) Efficiency ratio = 2HGK7F V<K>9
× 100 = .,!&& × 100 = 108.64%
@G7D67>6 V<K>9 .,.&&
(c) Activity ratio = ZK6E?G?6 V<K>9 × 100 = .,.$& × 100 = 99.54%

NOV – 2020 – 10 Marks

ABC Ltd. has furnished the following information regarding the overheads for the month of June
2020:
(i) Fixed overhead cost variance `2,800 (Adverse)
(ii) Fixed overhead volume variance `2,000 (Adverse)
(iii) Budgeted Hours for June, 2020 2,400 hours
(iv) Budgeted Overheads for June, 2020 `12,000
(v) Actual rate of recovery of overheads `8 per hour
From the above given information calculate:
(v) Fixed overhead expenditure variance
(vi) Actual overheads incurred
(vii) Actual hours for actual production
(viii) Fixed overhead capacity variance
(ix) Standard hours for actual production
(x) Fixed overhead efficiency variance

Solution
Computation of required variances for February 2019:
1. Overheads expenditure variance = Overhead Cost Variance – Overheads Volume variance

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= `2,800(A) - `2,000(A) = - `2,800 – (- `2,000) = - `800 = `800 (A)

2. Actual Overheads incurred = Budgeted Overhead - Overhead Expenditure Variance
= `12,000 - `800(A) = `12,000 – (- `800) = `12,000 + `800 = `12,800
2HGK7F 3L?>Q?769 NDHK>>?6
3. Actual hours for actual production = 2HGK7F P7G? <= P?H<L?>8 3L?>Q?76 [?> V<K>
!",.&&
= .
= 1,600 hours
4. Overheads Capacity Variance = Std rate of OH rate (Actual hrs for actual production –
Budgeted hours)
= `5 ´ (1,600 – 2,400) = `5 ´ (- 800) = `4,000 Adverse
ZK6E?G7>8 3L?>Q?769 !",&&&
* Standard rate of Overhead recovery = ZK6E?G?6 Q<K>9
= ",$&& Q<K>9 = `5 per hour
5. Volume Variance = Std. rate of OHs recovery (Standard hours for actual production –
Budgeted hours)
or, `2,000(A) = `5 [Std. hrs. – 2,400 hours]
",&&&
or, Std. hrs. – 2,400 hours = - '
or, Std. hrs. – 2,400 hours = - 400 hours
or, Std. hrs. = 2,400 hours - 400 hours
Standard hours for actual production = 2,000 hours
6. Fixed overhead efficiency variance = (Std. hours for AO – Actual Hrs.) × SR
= (2,000 – 1,600) × 5 = 2,000 (F)
Or
Fixed overhead efficiency variance = Volume variance – Capacity Variance
= `2,000(A) - `4,000(A) = - `2,000 – (- `4,000) = - `2,000 + `4,000 = `2,000 (F)

NOV – 2019 – 10 Marks

The standard cost of a chemical mixture is as follows:
60% of Material A @ `50 per kg
40% of Material B @ `60 per kg
A standard loss of 25% on output is expected in production. The cost records for a period has
shown the following usage.
540 kg of Material A @ `60 per kg
260 kg of Material B @ `50 per kg
The quantity processed was 680 kilograms of good product.
From the above given information, calculate:
(i) Material cost variance
(ii) Material price variance
(iii) Material usage variance
(iv) Material mix variance
(v) Material yield variance

Solution
Basic Calculation

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Standard Actual Revised

Particulars Std.
Quantity Rate Amount Quantity Rate Amount Quantity
850 × 60% 800 × 60%
Material A 50 25,500 540 60 32,400
= 510 = 480
850 × 40% 800 × 40%
Material B 60 20,400 260 50 13,000
= 340 = 320
Input 850 45,900 800 45,400 800
680 × 25%
(-) Loss 120
= 170
Output 680 680
Calculation of Variances
(i) Material Cost Variance = Standard Cost – Actual cost
A = 25,500 – 32,400 =` 6,900 (A)
B = 20,400 – 13,000 =` 7,400 (F)
MCV = ` 500 (F)
1. Material Price Variance = (SP – AP) ´ AQ
A = (50 – 60) ´ 540 =` 5,400 (A)
B = (60 – 50) ´ 260 =` 2,600 (F)
MPV = ` 2,800 (A)
2. Material Usage (or Quantity) Variance = (SQ – AQ) ´ SP
A = (510 – 540) ´ 50 =` 1,500 (A)
B = (340 – 260) ´ 60 =` 4,800 (F)
MUV = ` 3,300 (F)
3. Material Mix Variance = (RSQ - AQ) ´ SP
A = (480 – 540) ´ 50 =` 3,000 (A)
B = (320 – 260) ´ 60 =` 3,600 (F)
MMV = ` 600 (F)
4. Material Yield Variance = (SQ - RSQ) ´ SP
A = (510 – 480) ´ 50 =` 1,500 (F)
B = (340 – 320) ´ 60 =` 1,200 (F)
MYV = ` 2,700 (F)
OR Material Yield Variance (MYV)
= (Actual yield – St. yield) ´ St. cost per unit of output
).& $',(&&
= !680 − H.'& × 800I- ´ H ).&
I= `2,700 (F)

MAY – 2019 – 10 Marks

A gang of workers normally consists of 30 skilled workers, 15 semi-skilled workers and 10
unskilled workers. They are paid at standard rate per hour as under:
Skilled `70

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Semi-skilled `65
Unskilled `50
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of output.
During the week ended 31st March, 2019, the gang consisted of 40 skilled, 10 semi-skilled and 5
unskilled workers. The acutal wages paid were at the rate of `75, `60 and `52 per hour
respectively. Four hours were lost due to machine breakdown and 1,600 units were produced.

Calculate the following variances showing clearly adverse (A) or favorable (F)
(i) Labour Cost Variance (ii) Labour Rate Variance
(iii) Labour Efficiency Variance (iv) Labour Mix Variance
(v) Labour Idle Time variance

Solution
Basic Calculation
Standard (1,600 units) Actual (1,600 units) Revised
Particulars
Quantity Rate Amount Quantity Rate Amount Std. Qty.
$&×%& ()&
",&&&
×1600 = 40×40 = !,*)&
×1980
Skilled 70 67,200 75 1,20,000
960 1,600 = 1,080
$&×!' $.&
×1600 = 40×10 = !,*)&
×1980
Semi-skilled ",&&& 65 31,200 60 24,000
480 400 = 540
$&×!& %"&
",&&&
×1600 = 40×5 = !,*)&
×1980
Unskilled 50 16,000 52 10,400
320 200 = 360
Total 1,760 1,14,400 2,200 1,54,400 1,980

Particulars Hours Paid Idle Hours Hours Worked

Skilled 40 × 40 =1,600 40 × 4 = 160 1,600 – 160 = 1,440
Semi-skilled 40× 10 = 400 10 × 4 = 40 400 – 40 = 360
Unskilled 40× 5 = 200 5 × 4 = 20 200 – 20 = 180
Total 22,00 220 1,980
Calculation of Variances
(i) Labour Cost Variance = Standard Cost – Actual cost
Skilled = 67,200 – 1,20,000 =` 52,800 (A)
Semi-skilled = 31,200 – 24,000 =` 7,200 (F)
Unskilled = 16,000 – 10,400 =` 5,600 (F)
LCV = ` 40,000 (A)
(ii) Labour Rate Variance = (SR – AR) ´ AH paid
Skilled = (70 – 75) × 1,600 =` 8,000 (A)
Semi-Skilled = (65 – 60) × 400 =` 2,000 (F)
Unskilled = (50 – 52) × 200 =` 400 (A)
LRV = ` 6,400 (A)

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(iii) Labour Efficiency Variance = (SH – AH worked) ´ SR

Skilled = (960 – 1,440) × 70 =` 33,600 (A)
Semi-Skilled = (480 – 360) × 65 =` 7,800 (F)
Unskilled = (320 – 180) × 50 =` 7,000 (F)
LEV = ` 18,800 (A)
(iv) Labour Mix Variance = (RSH – AH worked) ´ SR
Skilled = (1,080 – 1,440) × 70 =` 25,200 (A)
Semi-Skilled = (540 –360) × 65 =` 11,700 (F)
Unskilled = (360 – 180) × 50 =` 9,000 (F)
LMV = ` 4,500 (A)
(v) Idle Time Variance = Idle Hours ´ SR
Skilled = 160 × 70 =` 11,200 (A)
Semi-Skilled = 40 × 65 =` 2,600 (A)
Unskilled = 20 × 50 =` 1,000 (A)
Idle time variance = ` 14,800 (A)

MAY – 2019 – 5 Marks

Following data is available for ABC Ltd.:
Standard working hours 8 hours per day of 5 days per week
Maximum capacity 60 employees
Actual working 50 employees
Actual hours expected to be worked per four week 8,000 hours
Standard hours expected to be earned per four week 9,600 hours
Actual hours worked in the four week period 7,500 hours
Standard hours earned in the four week period 8,800 hours
The related period is of four weeks. Calculate the following Ratios:
(i) Efficiency ratio
(ii) Activity ratio
(iii) Standard capacity usage ratio
(iv) Actual capacity usage ratio
(v) Actual usage of Budgeted capacity ratio

Solution
Working Notes:
(1) Max. capacity in a budget period = 60 employees × 8 hrs. × 5 days × 4 weeks = 9,600 hrs.
(2) Budgeted hours = 50 employees × 8 hrs. × 5 days × 4 weeks = 8,000 hrs.
(3) Actual hours = 7,500 hrs. (given)
(4) Standard hours for actual output = 8,800 hours
Calculation of ratios:
@G7D67>6 V<K>9 .,.&&
(i) Efficiency ratio = 2HGK7F V<K>9
× 100 = *,'&& × 100 = 117.33%

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@G7D67>6 V<K>9 .,.&&

(ii) Activity ratio = × 100 = × 100 = 110%
ZK6E?G?6 V<K>9 .,&&&
ZK6E?G?6 V<K>9 .,&&&
(iii) Standard Capacity Usage ratio = W7_. C<99ASF? Q<K>9 AD SK6E?G C?>A<6
× 100 = (,)&&
× 100 =
83.33%
2HGK7F V<K>9 *,'&&
(iv) Actual capacity usage ratio = W7_. C<99ASF? R<>IADE Q<K>9 AD C?>A<6
× 100 = (,)&&
× 100 =
78.125%
2HGK7F Q<K>9 *,'&&
(v) Actual usage of budgeted capacity ratio = ZK6E?G?6 b789× 100 = .,&&& × 100 = 93.75%

NOV – 2018 – 5 Marks

A manufacturing concern has provided following information related to fixed overheads:
Standard Actual
Output in a month 5,000 units 4,800 units
Working days in a month 25 days 23 days
Fixed overheads `5,00,000 `4,90,000
Compute:
(i) Fixed overhead variance
(ii) Fixed overhead expenditure variance
(iii) Fixed overhead volume variance
(iv) Fixed overhead efficiency variance

Solution
Basic Calculations:
Budgeted Days Recovery Rate Budgeted Overheads
25 5,00,000 ÷ 25 = 20,000 5,00,000
Actual Days Actual Overheads
23 4,90,000
Standard Days Recovery Rate Recovered Overheads
"' 20,000 4,80,000
',&&&
× 4,800 = 24
Calculation of Variances
(a) F. O. Cost Variance = Recovered overhead – Actual overhead
= 4,80,000 – 4,90,000 = `10,00 (A)
(b) Expenditure Variance = Budgeted overhead – Actual overhead
= 5,00,000 – 4,90,000 = `10,000 (F)
(c) Volume Variance = Recovered overhead – Budgeted overhead
= 4,80,000 – 5,00,000 = `20,000 (A)
(d) Efficiency Variance = (Std. days – Actual days) × Recovery Rate
= (24 – 23) × 20,000 = `20,000 (F)

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MAY – 2018 – 5 Marks

Beta Ltd. is manufacturing Product N. This is manufactured by mixing two materials namely
Material P and Material Q. The Standard Cost of Mixture is as under:
Material P 150 ltrs @ `40 per ltr.
Material Q 100 ltrs @ `60 per ltr.
Standard loss @ 20% of total input is expected during production
The cost records for the period exhibit the following consumption:
Material P 140 ltrs. @ `42 per ltr.
Material Q 110 ltrs. @ `56 per ltr.
Quantity produced was 195 ltrs.
Calculate:
(i) Material Cost Variance
(ii) Material Usage Variance
(iii) Material Price Variance

Solution
Basic Calculation
Standard Actual
Particulars
Quantity Rate Amount Quantity Rate Amount
243.75 × 150/250
Material A 40 5,850 140 42 5,880
= 146.25
243.75 × 100/250
Material B 60 5,850 110 56 6,160
= 97.50
192 ÷ 80%
Input 11,520 250 12,040
= 243.75
(-) Loss 48.75 55
Output 195 195
Calculation of Variances
1. Material Cost Variance = Standard Cost – Actual cost
P = 5,850 – 5,880 =` 30 (A)
Q = 5,850 – 6,160 =` 310 (A)
MCV = ` 340 (A)
2. Material Price Variance = (SP – AP) ´ AQ
P = (40 – 42) ´ 140 =` 280 (A)
Q = (60 – 56) ´ 110 =` 440 (F)
MPV = ` 160 (F)
3. Material Usage (or Quantity) Variance = (SQ – AQ) ´ SP
P = (146.25 – 140) ´ 40 =` 250 (F)
Q = (97.50 – 110) ´ 60 =` 750 (A)
MUV = ` 500 (A)

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Budget & Budgetary Control

MAY – 2023 – 10 Marks
PQR Limited manufactures three products – Product X, Product Y and Product Z. The output for
the current year is 2,50,000 units of Product X, 2,80,000 units of Product Y and 3,20,000 units of
Product Z respectively.

Selling price of Product X is 1.25 times of Product Z whereas Product Y can be sold at double the
price at which product Z can be sold. Product Z can be sold at a profit of 20% on its marginal cost.

Other information are as follows:

Product X Product Y Product Z
Direct material cost (per unit) `20 `20 `20
Direct wages cost (per unit) `16 `24 `16
Raw material used for manufacturing all the three products is the same. Direct wages are paid @`4
per labour hour.

Total overhead cost of the company is `52,80,000 for the year, out of which `1 per labour hour
is variable and the rest is fixed.

In the next year it is expected that sales of product X and product Z will increase by 12% and 15%
respectively and sale of product Y will decline by 5%. The total overhead cost of the company for
the next year is estimated at `55,08,000. The variable cost of `1 per labour our remains
unchanged.

It is anticipated that all other costs will remain same for the next year and there is opening and
closing stock. Selling price per unit of each product will remain unchanged in the next year.

Required:
Prepare a budget showing the current position and the position for the next year clearly indicating
the total product-wise contribution and profit for the company as a whole.

Solution
(i) Budget showing current position of total product wise contribution and profitability
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Direct material cost 20 20 20
(per unit)
B Direct wages cost (per 16 24 16
unit)
C Variable overhead per 4 6 4
unit (WN – 1)
D Total variable cost per 40 50 40
unit (A+B+C)
E Add: Profit (20%´D) - - 8
F Selling price per unit - - 48
(D+E)
G Price weight 1.25 2 1
H Selling price per unit 60 96 48
(G´SP of Z)

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I Contribution per unit 20 46 8

(H-D)
J Quantity to be sold 2,50,000 2,80,000 3,20,000
K Contribution (J ´ I) 50,00,000 1,28,80,000 25,60,000 2,04,40,000
L Fixed Overheads (WN 13,20,000
– 2)
M Profit 1,91,20,000

(i) Budget showing next year’s position of total product wise contribution and profitability
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Selling price per unit 60 96 48
B Contribution per unit 20 46 8
C Quantity to be sold 2,80,000 2,66,000 3,68,000
(112%´250000) (95%´280000) (115%´320000)
D Total contribution 56,00,000 1,22,36,000 29,44,000 2,07,80,000
(B´C)
E Fixed overheads 13,20,000
(WN-2)
F Profit 1,94,60,000

Working Note:
(1) Segregation of overheads into variable and fixed in current year
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Total Overhead cost - - - 52,80,000
B Labour hour per unit 4 6 4
(Direct wages ÷ `1)
C Quantity produced 2,50,000 2,80,000 3,20,000
D Total variable 10,00,000 16,80,000 12,80,000 39,60,000
overhead cost (B ´ C)
E Fixed overhead cost 13,20,000
(A-D)
(2) Segregation of overheads into variable and fixed in next year
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Total Overhead cost - - - 55,08,000
B Labour hour per unit 4 6 4
(Direct wages ÷ `1)
C Quantity produced 2,80,000 2,66,000 3,68,000
D Total variable 11,20,000 15,96,000 14,72,000 41,88,000
overhead cost (B ´ C)
E Fixed overhead cost 13,20,000
(A-D)

MAY – 2023 – 10 Marks

A Limited has furnished the following information for the months from 1st January to 30th April,
2023:
January February March April
Number of working days 25 24 26 25
Production (in units) per working day 50 55 60 52
Raw material purchases (% by weights 21% 26% 30% 23%
to total of 4 months)
Purchase price of raw material (per kg) `10 `12 `13 `11

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Quantity of raw material per unit of product: 4 kg

Opening stock of raw material on 1st January: 6,020 kg. (Cost `63,210)
Closing stock of raw material on 30th April: 5,100 kg.
All the purchases of material are made at the start of each month.
Required:
(i) Calculate the consumption of raw material (in kgs) month-by-month and in total
(ii) Calculate the month-wise quantity and value of raw materials purchased
(iii) Prepare the priced stores ledger for each month using the FIFO method.

Solution
(i) Calculation of consumption for Raw Material (in kgs) month by month and total
Particulars Jan Feb March April Total
No. of working cays 25 24 26 25 -
Production (per day) 50 55 60 52 -
Production 1,250 1,320 1,560 1,300 5,430
Raw material consumed (in kgs) 5,000 5,280 6,240 5,200 21,720

Calculation of Raw Material Purchased

Purchased Kg
Closing stock on 30th April 5,100
Add: Raw material consumed 21,720
Less: Opening stock on 1st January (6,020)
Raw material purchased 20,800

(ii) Calculation of month wise quantity and value of raw materials purchased
Month Purchase quantity (Kgs) Price (`) Value (`)
January 20,800 ´ 21% = 4,368 10 43,680
February 20,800 ´ 26% = 5,408 12 64,896
March 20,800 ´ 30% = 6,240 13 81,120
April 20,800 ´ 23% = 4,784 11 52,624
Total 20,800 2,42,320

(iii) Stores Price Ledger by using FIFO Method

Receipts Issues Balance
Month
Qty. (kg) Rate (`) Amount Qty. (kg) Rate (`) Amount Qty. (kg) Rate (`) Amount
Jan - - - - - - 6,020 10.5 63,210
6,020 10.5 63,210
Jan 4,368 10 43,680 - - -
4,368 10 43,680
1,020 10.5 10,710
Jan - - - 5,000 10.5 52,500
4,368 10 43,680
1,020 10.5 10,710
Feb 5,408 12 64,896 - - - 4,368 10 43,680
5,408 12 64,896
1,020 10.5 10,710 108 10 1,080
Feb - - -
4,260 10 42,600 5,408 12 64,896
108 10 1,080
March 6,240 13 81,120 - - - 5,408 12 64,896
6,240 13 81,120

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108 10 1,080
March - - - 5,408 12 64,896 5,516 13 71,708
724 13 9,412
5,516 13 52,624
April 4,784 11 52,624 - - -
4,784 11 71,708
316 13 4,108
April - - - 5,200 13 67,600
4,784 11 52,624

MAY – 2022 – 10 Marks

SR Ltd. is a manufacturer of Garments. For the first three months of financial year 2022-23
commencing on 1st April, 2022, production will be constrained by direct labour. It is estimated that
only 12,000 hours of direct labour hours will be available in each month.

For market reasons, production of either of the two garments must be at least 25% of the production
of the other. Estimated cost and revenue per garment are as follows:
Shirt (`) Short (`)
Sales price 60 44
Raw materials
Fabric @12 per metre 24 12
Dyes and cotton 6 4
Direct labour @8 per hour 8 4
Fixed Overhead @4 per hour 4 2
Profit 18 22
From the month of July 2022 direct labour will no longer be a constraint. The company expects to
be able to sell 15,000 shirts and 20,000 shorts in July 2022. There will be no opening stock at the
beginning of July 2022.

Sales volumes are expected to grow at 10% per month cumulatively thereafter throughout the year.
Following additional information is available:
• The company intends to carry stock of finished garments sufficient to meet 40% of the next
month’s sale from July 2022 onwards.
• The estimated selling price will be same as above.

Required:
(i) Calculate the number of shirts and shorts to be produced per month in the first quarter
of financial year 2022-23 to maximize company’s profit.
(ii) Prepare the following budgets on a monthly basis for July, August and September 2022:
(a) Sales budget showing sales units and sales revenue for each product.
(b) Production budget (in units) for each product.

Solution
(i) Statement of contribution per unit
Particulars Shirt (`) Short (`)
Selling price per unit (A) 60 44
Fabric cost per unit 24 12

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Dyes & Cotton per unit 6 4

Direct labour per unit 8 4
Variable cost per unit (B) 38 20
Contribution per unit (A – B = C) 22 24
Labour hours per unit . $
.
=1 .
= 0.5
Contribution per labour hour "" "$
!
= 22 &.'
= 48
Since contribution per labour hour is higher in case of short, thus it is advisable to produce it first.

Let number of shorts to be produced = y

Labour hours required used to produce shorts = 0.5y
Labour hours available for shirts = 12,000 – (0.5y)
!",&&&1&.'8
Number of shirts that can be produced = !
= 12,000 – 0.5y
As per condition of 25% given in question,
Production of shirt = 25% of production of short
12,000 – 0.5y = 25% ´ y
12,000 – 0.5y = 0.25y
12,000 = 0.75y
y = 16,000
Thus, number of shorts to be produced = y = 16,000
and, number of shirts to be produced = 12,000 – 0.5(16,000) = 4,000

(ii) (a) Sales budget

Shirt Short
Particulars
July August September July August September
Sale units 15,000 16,500 18,150 20,000 22,000 24,200
S.P. per unit 60 60 60 44 44 44
Total Sales 9,00,000 9,90,000 10,89,000 8,80,000 9,68,000 10,64,800

(ii) (b) Production Budget

Shirt Short
Particulars
July August September July August September
Sale units 15,000 16,500 18,150 20,000 22,000 24,200
(+) Closing Stock 6,600 7,260 7,986* 8,800 9,680 10,468*
(40% of next
month sale)
(-) Opening stock - (6,600) (7,260) - (8,800) (9,680)
Total Production 21,600 17,160 18,876 28,800 22,880 24,988
*Closing stock for September
Closing stock of shirts = Sales of October ´ 10% = (18,150 ´ 110%) ´ 40% = 7,986
Closing stock of shorts = Sales of October ´ 10% = (24,200 ´ 110%) ´ 40% = 10,468

DEC – 2021 – 5 Marks

The Accountant of KPMR Ltd. has prepared the following budget for the coming year 2022 for its
two products ‘AYE’ and ‘ZYE’:

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Particulars Product ‘AYE’ Product ‘ZYE’

Production and Sales (in Units) 4,000 3,000
Amount (in `) Amount (in `)
Selling price per unit 200 180
Direct material per unit 80 70
Direct labour per unit 40 35
Variable overhead per unit 20 25
Fixed overhead per unit 10 10
After reviewing the above budget, the management has called the marketing team for suggesting
some measures for increasing the sales. The marketing team has suggested that by promoting the
products on social media, the sales quantity of both the products can be increased by 5%. Also, the
selling price per unit will go up by 10%. But this will result in increase in expenditure on variable
overhead and fixed overhead by 20% and 5% respectively for both the products.

You are required to prepare flexible budget for both the products:
(i) Before promotion on social media
(ii) After promotion on social media

Solution
(i) Flexible Budget (Before promotion)
Particulars Product AYE Product ZYE Total
Sales 4,000 ´ 200 = 8,00,000 3,000 ´ 180 = 5,40,000 13,40,000
Less: Direct 4,000 ´ 80 = 2,40,000 3,000 ´ 70 = 2,10,000 4,50,000
Material
Less: Direct labour 4,000 ´ 40 = 1,60,000 3,000 ´ 35 = 1,05,000 2,65,000
Less: Variable OHs 4,000 ´ 20 = 80,000 3,000 ´ 25 = 75,000 1,55,000
Less: Fixed OHs 4,000 ´ 10 = 40,000 3,000 ´ 10 = 30,000 70,000
Profit 2,80,000 1,20,000 4,00,000

(ii) Flexible Budget (After promotion)

Particulars Product AYE Product ZYE Total
Sales 4,200 ´ 220 = 9,24,000 3,150 ´ 198 = 6,23,700 15,47,700
Less: Direct 4,200 ´ 80 = 3,36,000 3,150 ´ 70 = 2,20,500 5,56,500
Material
Less: Direct labour 4,200 ´ 40 = 1,68,000 3,150 ´ 35 = 1,05,000 2,73,000
Less: Variable OHs 4,200 ´ 24 = 1,00,800 3,150 ´ 25 = 1,10,250 2,11,050
Less: Fixed OHs 40,000 + 5% = 42,000 30,000 + 5% = 31,500 73,500
Profit 2,77,200 1,56,450 4,33,650

JULY – 2021 – 10 Marks

PSV Ltd. manufactures and sells a single product and estimated the following related information
for the period November, 2020 to March, 2021.

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Particulars November, December, January, February, March,

2020 2020 2021 2021 2021
Opening Stock of Finished 7,500 3,000 9,000 8,000 6,000
goods (in Units)
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per unit (in 10 12 15 15 20
`)
Additional information:
• Closing stock of finished goods at the end of march, 2021 is 10,000 units
• Each unit of finished output requires 2kg of Raw Material ‘A’ and 3kg of Raw Material ‘B’.
You are required to prepare the following budgets for the period November, 2020 to March 2021
on monthly basis:
(i) Sales budget (in `)
(ii) Production Budget (in units) and
(iii) Raw material budget for raw material ‘A’ and ‘B’ separately (in units)

Solution
(i) Sales Budget
Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per unit (in 10 12 15 15 20
`)
Sales Value 3,00,000 4,20,000 5,70,000 3,75,000 8,00,000

(ii) Production Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Sales Units 30,000 35,000 38,000 25,000 40,000
Add: Closing Stock Units 3,000 9,000 8,000 6,000 10,000
Less: Opening Stock Units (7,500) (3,000) (9,000) (8,000) (6,000)
Production Units 25,500 41,000 37,000 23,000 44,000

(iii) Raw Material ‘A’ Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Production Units 25,500 41,000 37,000 23,000 44,000
Raw material consumption 2 2 2 2 2
per unit
Raw Material 51,000 82,000 74,000 46,000 88,000
Consumption

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Raw Material ‘B’ Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Production Units 25,500 41,000 37,000 23,000 44,000
Raw material 3 3 3 3 3
consumption per unit
Raw Material 76,500 1,23,000 1,11,000 69,000 1,32,000
Consumption

JAN – 2021 – 10 Marks

XYZ Ltd. is engaged in the manufacturing of toys. It can produce 4,20,000 toys at its 70% capacity
on per annum basis. Company is in the process of determining sales price for the financial year
2020-21. It has provided the following information:
Direct Material `60 per unit
Direct Labour `30 per unit
Indirect Overheads:
Fixed `65,50,000 per annum
Variable `15 per unit
Semi-variable `5,00,000 per annum upto 60% capacity and `50,000 for every 5%
increase in capacity or part thereof upto 80% capacity and thereafter
`75,000 for every 10% increase in capacity or part thereof.
Company desires to earn a profit of `25,00,000 for the year. Company has planned that the factory
will operate at 50% of capacity for the first six months of the year and at 75% of capacity for
further three months and for the balance three months, factory will operate at full capacity.
You are required to:
(vii) Determine the average selling price at which each of the toy should be sold to earn the desired
profit.
(viii) Given the above scenario, advise whether company should accept an offer to sell each Toy
at:
(a) `130 per Toy
(b) `129 per Toy

Solution
(i) Statement of Cost
Particulars Amount
Direct material (4,12,500 × 60) 2,47,50,000
Direct wages (4,12,500 × 30) 1,23,75,000
Prime Cost 3,71,25,000
Factory Overheads:
Fixed expenses 65,50,000
Variable expenses (4,12,500 × 15) 61,87,500
Semi-variable expenses (w.n.-1) 6,25,000

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Work Cost/ COP/ COGS/COS 5,04,87,500

Add: Required profit 25,00,000
Total Sales 5,29,87,500
Total Units 4,12,500
Selling price per unit 128.45
Working note – 1
)
For First 6 months = 5,00,000 × !" = 2,50,000
%
For next 3 months = (5,00,000 + 50,000 + 50,000 + 50,000) × !" = 1,62,500
For balance 3 months = (5,00,000 + 50,000 + 50,000 + 50,000 + 50,000 + 75,000 + 75,000)(3/12)
= 2,12,500
Total Semi Variable expenses = 2,50,000 + 1,62,500 + 2,12,500 = `6,25,000

Working Note – 2
Maximum capacity p.a. = 4,20,000 ÷ 70% = 6,00,000 units
Units in first 6 months = 6,00,000 × 50% × (6/12) = 1,50,000 units
Units in next 3 months = 6,00,000 × 75% × (3/12) = 1,12,500 units
Units in balance 3 months = 6,00,000 × 100% × (3/12) = 1,50,000 units
Total units produced = 1,50,000 + 1,12,500 + 1,50,000 = 4,12,500 units

(ii) (a) (b)

Selling price per unit 130 129
Less: Variable cost per unit 105 105
Contribution per unit 25 24_
Unutilized plant capacity without changing cost = 4,20,000 – 4,12,500 = 7,500 units

Thus, if the company has order upto 7,500 units than it can accept the offer for goods either at 130
or 129 at both levels as contribution will increase which in turn increase the profit.
For order beyond 7,500 units, the acceptability of the offer will depend on other cost and the benefit
involved beyond that level.

NOV – 2020 – 5 Marks

G Ltd. manufactures a single product for which market demand exists for additional quantity.
Present sales of `6,00,000 utilizes only 60% capacity of the plant. The following data are
available:
(1) Selling price : `100 per unit
(2) Variable cost : `30 per unit
(3) Semi-variable expenses : `60,000 fixed + `5 per unit
(4) Fixed expenses : `1,00,000 at present level, estimated to
increase by 25% at and above 80% capacity.

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You are required to prepare a flexible budget so as to arrive at the operating profit at 60%, 80%
and 100% levels.

Solution
Flexible Budget
Amount Amount Amount
Particulars
at 60% at 80% at 100%
No. of units 6,000 8,000 10,000
Selling price per unit 100 100 100
Sales 6,00,000 8,00,000 10,00,000
Less: Variable cost @ `30 1,80,000 2,40,000 3,00,000
Less: Semi variable cost - variable portion @ `5 30,000 40,000 50,000
Less: Semi variable cost - fixed portion 60,000 60,000 60,000
Less: Fixed cost 1,00,000 1,25,000 1,25,000
Operating Profit 2,30,000 3,35,000 4,65,000

NOV – 2019 – 10 Marks

PJ Ltd. manufactures hockey sticks. It sells the products at `500 each and makes a profit of `125
on each stick. The Company is producing 5,000 stocks annually by using 50% of its machinery
capacity. The cost of each stick is as under:
Direct material `150
Direct wages `50
Work Overheads `125 (50% fixed)
Selling Expenses `50 (25% variable)
The anticipation for the next year is that cost will go up as under:
Fixed charges 10%
Direct wages 20%
Direct material 5%
There will not be any change in selling price There is an additional order for 2,000 sticks in the
next year. Calculate the lowest price that can be quoted so that the Company can earn the same
profit as it earned in the current year?

Solution
Statement of calculation of selling price
Particulars Amount (`)
Direct Material [(150 + 5%) × 7,000] 11,02,500
Direct Wages [(50 + 20%) × 7,000] 4,20,000
Variable Works Overhead [125 × 50% × 7,000] 4,37,500
Fixed Works Overhead [125 × 50% × 5,000 × 110%] 3,43,750
Variable Selling Expenses [50 × 25% × 7,000] 87,500
Fixed Selling Expenses [50 × 75% × 5,000 × 110%] 2,06,250

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Total Cost 25,97,500

Add: Desired Profit (125 × 7,000) 8,75,000
Total Sales Value 34,72,500
Less: Existing Sales from 5,000 units [5,000 × 500] 25,00,000
Sales value to be obtained from remaining 2,000 units (A) 9,72,500
Sale units (B) 2,000
Selling price per unit (A ÷ B) 486.25

NOV – 2018 – 10 Marks

An electronic gadget manufacturer has prepared sales budget for the next few months. In this
respect, following figures are available:
Month Electronic gadgets’ sales
January 5,000 units
February 5,000 units
March 7,000 units
April 7,500 units
May 8,000 units

To manufacture an electronic gadget, a standard cost of `1,500 is incurred and it is sold through
dealers at an uniform price of `2,000 per gadget to customers. Dealers are given a discount of 15%
on selling price.

Apart from other materials, two units of batteries are required to manufacture a gadget. The
company wants to hold stock of batteries at the end of each month to cover 30% of next month’s
production and to hold stock of manufactured gadgets to cover 25% of the next month’s sale. 3,250
units of batteries and 1,200 units of manufactured gadgets were in stock on 1st January.

Required:
(i) Prepare production budget (in units) for the month of January, February, March and April
(ii) Prepare purchase budget for batteries (in units) for the month of January, February and March
and calculate profit for the quarter ending on March.

Solution
(i) Production Budget
Particulars January February March April
Budgeted Sales 5,000 6,000 7,000 7,500
Add: Closing Stock 1,500 1,750 1,875 2,000
Less: Opening Stock (1,200) (1,500) (1,750) (1,875)
Production 5,300 6,250 7,125 7,625

Working Notes:
(1) Closing stock of January = 25% × 6,000 = 1,500

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Closing stock of February = 25% × 7,000 = 1,750

Closing stock of March = 25% ×7,500 = 1,875
Closing stock of April = 25% × 8,000 = 2,000
(2) Opening stock of February, March and April are taken as equal to closing stock of respective
previous month.

(ii) Material Purchase Budget

Material A
Particulars
January February March
Raw material consumption @`2 per gadget 10,600 12,500 14,250
Add: Closing Stock 3,750 4,275 4,575
Less: Opening Stock (3,250) (3,750) (4,275)
Raw Material Purchase 53,500 53,000 44,000

Working Notes:
(1) Closing stock of material of January = 30% × 12,500 = 3,750
Closing stock of material of February = 30% × 14,250 = 4,275
(2) Raw Material consumption of Material for Month of April = 7,625 × 2 = 15,250
Closing stock of material of March of Material = 30% × 15,250 = 4,575
(3) Opening stock for material for month of February and March are taken as equal to closing
stock of respective previous month.

Statement Showing Profit

Particulars January February March Total
Sales (A) 5,000 6,000 7,000 18,000
Selling price per unit `2,000 `2,000 `2,000 `2,000
Less: Discount @15% of selling `300 `300 `300 `300
price
Less: Standard cost of `1,500 `1,500 `1,500 `1,500
manufacturing
Profit (B) `200 `200 `200 `200
Total Profit (A × B) `10,00,000 `12,00,000 `14,00,000 `36,00,000

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Cost & Management

Accounting - PYQs
S. No. Chapter Page No.
1 Cost Sheet 3 – 18
2 Material 19 – 26
3 Employee Cost & Direct Expenses 27 – 36
4 Overheads 37 – 45
5 Activity Based Costing 46 – 61
6 Batch Costing 62 – 65
7 Job Costing 66 – 69
8 Cost Accounting System 70 – 77
9 Service Costing 78 – 92
10 Process Costing 93 – 108
11 Joint & By-Product 109 – 116
12 Marginal Costing 117 – 129
13 Standard Costing 130 – 143
14 Budget & Budgetary Control 144 – 155

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Birds Eye View

Particulars May-18 Nov-18 May-19 Nov-19 Nov-20 Jan-21 Jul-21 Dec-21 May-22 Nov-22 May-23 Nov-23

Introduction to Cost Th 5+2.5 5 5 5 5+5 5+5 5 5+5 5+5 5 5 5

& Mgt Accounting Pr

Th 5
Cost Sheet
Pr 10 10 10 10 10 10 10 10 10 10 10 10+6

Th 5+2.5 5 5 5 5 5 5 5 5
Material
Pr 5+5 5 10 5 10 5 5 5 5 5

Th 4 5 5 5 5 5
Labour
Pr 5+10 5 5 10 6 10 5 5 5 6 5 5

Th 5 5 5+5
Overheads
Pr 5 5 10 10 5 5 10 10 10

Activity Based Th 5 4 5 5 5
Costing Pr 10 10 10 10 6 10 10 10 10 4 5 10

Job & Batch Th 5

Costing Pr 10 5 5 5 10 5 5

Reconciliation Th 5
Statement Pr 5 5 10 5 5 5

Cost Accounting Th 5 5
System Pr 10 5 5 4

Th 5 5
Process Costing
Pr 10 5 10 10 10 5 10 5 10 10 5

Th 5 5
Joint & By-Product
Pr 5 5 5 10 5 5 5 10 5

Th 5 5
Service Costing
Pr 10 10 10 10 10 10 5 10 5 5 5 10

Th 5
Standard Costing
Pr 5 5 10 10 10 10 10 10 5 10 10 10

Th 5 5 5
Marginal Costing
Pr 5+10 10 5 5 5 5+10 5 10 5+5 5+10 5+5 5

Budget & Budgetary Th 5 5 5 5 5 5 5

Control Pr 10 5 10 5 10 10 5 10 10+10 10

Th – Stands for Theory

Pr – Stands for Practical

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Cost Sheet
MAY – 2023 – 10 Marks
The following information is available from SN Manufacturing Limited’s for the month of April
2023.
April 1 April 30
Opening and closing inventories data:
Stock of finished goods 2,500 units ?
Stock of raw materials `42,500 `38,600
Work-in-progress `42,500 `42,800
Other data are:
Raw material purchased `6,95,000
Carriage inward `36,200
Direct wages paid `3,22,800
Royalty paid for production `35,800
Purchases of special designs, molds and patterns `1,53,600
(estimated life 12 production cycles)
Power, fuel and haulage (factory) `70,600
Research and development costs for improving the `31,680
production process (amortized)
Primary packing cost (necessary to maintain quality) `6,920
Administrative overhead `46,765
Salary and wages for supervisor foremen `28,000
Other information:
• Opening stock of finished goods is to be valued at `8.05 per unit.
• During the month of April, 1,52,000 units were produced and 1,52,600 units were sold. The
closing stock of finished goods is to be valued at the relevant month’s cost of production.
The company follows the FIFO method.
• Selling and distribution expenses are to be charged at 20 paise per unit.
• Assume that one production cycle is completed in one month.
Required:
(i) Prepare a cost sheet for the month ended on April 30, 2023, showing the various elements of
cost (Raw material consumed, prime cost, factory cost, cost of production, cost of goods
sold, and cost of sales).
(ii) Calculate the selling price per unit fi profit is charged at 20 percent on sales.

Solution
Cost Sheet for the month of April 2023
Particulars Amount (`)
Raw material purchased 6,95,000
Add: carriage inward 36,200
Add: value of opening stock of raw materials 42,500
Less: value of closing stock of raw materials (38,600)
Raw material consumed 7,35,100
Add: Direct wages paid 3,22,800
Add: Direct expenses
Royalty paid for production 35,800
Amortized cost of special design, molds

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and patterns (1,53,600 ÷ 12) 12,800

Power, fuel and haulage 70,600 1,19,200
Prime cost 11,77,100
Add: Salary and wages of supervisor and foremen 28,000
Gross works cost 12,05,100
Add: Opening stock of WIP 42,500
Less: Closing stock of WIP (42,800)
Factory or works cost 12,04,800
Add: Research and development cost 31,680
Add: Primary packing cost 6,920
Cost of Production 12,43,400
Add: Opening stock of finished goods (`8.05 ´ 2,500 units) 20,125
!",$%,$&& (15,542)
Less: Closing stock of finished goods ! !,'",&&&
× (2,500 +
1,52,000 − 1,52,600)-
Cost of goods sold 12,47,983
Add: Administrative overheads 46,765
Add: Selling and distribution expenses (`0.20 ´ 1,52,600) 30,520
Cost of sales 13,25,268
Add: Profit (20% on sales or 25% on cost of sales) 3,31,317
Sales value 16,56,585
Selling price per unit (16,56,585 ´ 1,52,600 units) 10,86

NOV – 2022 – 10 Marks

PNME Ltd. manufactures two types of masks – ‘disposal Masks’ and ‘Cloth Masks’. The cost data
for the year ended 31st March, 2022 is as follows:
`
Direct materials 12,50,000
Direct wages 7,00,000
Production Overhead 4,00,000
Total 23,50,000
It is further ascertained that:
- Direct material cost per unit of cloth Mask was twice as much of direct material cost per unit
od disposal Mask
- Direct wages per unit for Disposal Mask were 60% of those for Cloth Mask
- Production overhead per unit was at same rate for both the types of the masks
- Administration overhead was 50% of Production overhead for each type of mask
- Selling cost was `2 per cloth mask
- Selling price was `35 per unit of cloth mask
- No. of units of cloth masks sold – 45,000
- No. of units of Production of
o Cloth Masks : 50,000
o Disposal Masks : 1,50,000
You are required to prepare a cost sheet for cloth masks showing:
(i) Cost per unit and total cost
(ii) Profit per unit and total cost

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Solution
Preparation of Cost Sheet for Cloth Masks
No. of units produced = 50,000 units
No. of units sold = 45,000 units
Particulars Per unit (₹) Total (₹)
Direct materials (Working note (ii)) 10.00 5,00,000
Direct wages (Working note (ii)) 5.00 2,50,000
Prime cost 15.00 7,50,000
Production overhead (Working note (iii)) 2.00 1,00,000
Factory Cost 17.00 8,50,000
Administration Overhead* (50% of Production 1.00 50,000
Overhead)
Cost of production 18.00 9,00,000
Less: Closing stock (50,000 units – 45,000 units) – (90,000)
Cost of goods solid i.e. 45,000 units 18.00 8,10,00
Selling cost 2.00 90,000
Cost of sales/Total cost 20.00 9,00,000
Profit 15.00 6,75,000
Sales value (₹ 35 × 45,000 units) 35.00 15,75,000
Working Notes:
(i) Direct material cost per unit of disposable mask = M
Direct material cost per unit of cloth mask = 2M
Total direct material cost = (2M ´ 50,000) + (M ´ 1,50,000)
12,50,000 = 1,00,000M + 1,50,000M
12,50,000 = 2,50,000M
!",'&,&&&
M= ",'&,&&&
= `5

Direct material cost per unit of cloth mask = 2 ´ 5 = `10

(ii) Direct wages per unit for cloth mask = W

Direct wages per unit for disposal mask = 0.6W
So, (W × 50,000) + (0.6W × 1,50,000) = ₹ 7,00,000
W = ₹ 5 per unit
Therefore, Direct material Cost per unit of Cloth Mask = ₹ 5
Rs.4,00,000
(iii) Production overhead per unit = = Rs.5
( 50,000 + 1,50,000)
Production overhead for Cloth Mask = ₹ 2 × 50,000 units = ₹ 1,00,000

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*Administration overhead is related to production overhead in the question and hence to be

considered in cost of production only.

MAY – 2022 – 10 Marks

The following data are available from the books and records of A Ltd. for the month of April 2022:
Particulars Amount (`)
st
Stock of raw materials on 1 April 2022 10,000
Raw material purchased 2,80,000
Manufacturing wages 70,000
Depreciation on plant 15,000
Expenses paid for quality control check activities 4,000
Lease rent of production assets 10,000
Administrative overheads (Production) 15,000
Expenses paid for pollution control and engineering & maintenance 1,000
Stock of raw materials on 30th April 2022 40,000
Primary packing cost 8,000
Research & development cost (Process related) 5,000
Packing cost for redistribution of finished goods 1,500
Advertisement expenses 1,300
st
Stock of finished goods as on 1 April 2022 was 200 units having a total cost of `28,000. The
entire opening stock of finished goods has been sold during the month. Production during the
month of April, 2022 was 3,000 units. Closing stock of finished goods as on 30th April, 2022 was
400 units.

You are required to:

(I) Prepare a cost sheet for the above period showing the:
(i) Cost of raw material consumed
(ii) Prime cost
(iii) Factory cost
(iv) Cost of production
(v) Cost of goods sold
(vi) Cost of sales
(II) Calculate selling price per unit, if sale is made at profit of 20% on sales.

Solution
(I) Cost Sheet
Particulars Amount (`)
Opening stock of raw material 10,000
Add: Raw material purchased 2,80,000
Less: Closing stock of raw material (40,000)
Raw material consumed 2,50,000
Add: Manufacturing wages 70,000
Prime cost 3,20,000
Add: Factory overheads
Depreciation on plant 15,000

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Lease rent of production assets 10,000

Expenses for pollution control 1,000 26,000
Gross Factory Cost/ Net Factory cost 3,46,000
Add: Expenses paid for quality control check activities 4,000
Add: Administrative overheads (Production) 15,000
Add: Primary packing cost 8,000
Add: Research & development cost (Process related) 5,000
Cost of production 3,78,000
Add: Opening stock of finished goods 28,000
%,!(,'&& (50,400)
Less: Closing stock of finished goods ! %,&&&
´ 400-
Cost of goods sold 3,55,600
Add: Packing cost for redistribution of finished goods 1,500
Add: Advertisement expenses 1,300
Cost of sales 3,58,400

(II) Statement of calculation of selling price

Particulars Amount (`)
Cost of sales 3,58,400
Units sold (200 + 3,000 – 400) 2,800
Cost per unit 128
Add: Profit per unit [128 ´ (20/80)] 32
Selling price per unit 160

DEC – 2021 – 10 Marks

G Ltd. manufactures leather bags for office and school purposes. The following information is
related with the production for leather bags for the month of September 2021.
(1) Leather sheets and cotton clothes are the main inputs and the estimated requirement per bag is
two metres of leather sheets and one metre of cotton cloth. 2,000 metre of leather sheets and
1,000 metre of cotton cloths are purchased at `3,20,000 and `15,000 respectively. Freight
paid on purchases is `8,500.
(2) Stitching and finishing need 2,000 man-hours at `80 per hour.
(3) Other direct costs of `10 per labour hour is incurred.
(4) G Ltd. have 4 machines at a total cost of `22,00,000. Machines have a life of 10 years with a
scrap value of 10% of the original cost. Depreciation is charged on a straight-line method.
(5) The monthly cost of administration and sales office staffs are `45,000 and `72,000
respectively. G Ltd pays `1,20,000 per month as rent for a 2,400 sq. feet premises. The
administrative and sales office occupies 240 sq. feet and 200 sq. feet respectively of factory
space.
(6) Freight paid on delivery of finished bags is `18,000.
(7) During the month, 35 kg of scrap (cuttings of leather and cotton) are sold at `150 per kg.
(8) There are no opening and closing stocks of input materials. There is a finished stock of 100
bags in stock at the end of the month.
You are required to prepare a cost sheet in respect of above for the month of September 2021
showing:

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(i) Cost of raw material consumed

(ii) Prime cost
(iii) Works/Factory cost
(iv) Cost of production
(v) Cost of goods sold
(vi) Cost of sales

Solution
Number of bags manufactured = 2,000 ÷ 2 = 1,000 bags
Cost Sheet
Particulars Amount (`)
Leather sheets 3,20,000
Add: Cotton cloths 15,000
Add: Freight paid on purchase 8,500
Direct material consumed 3,43,500
Add: Direct wages (80 × 2,000) 1,60,000
Add: Direct expenses (10 × 2,000) 20,000
Prime Cost 5,23,500
Add: Factory overheads:
- Depreciation on machine [(22,00,000 × 90%) ÷ 120] 16,500
- Factory rent [1,20,000 × (1,960 ÷ 2,400)] 98,000 1,14,500
GFC/NFC 6,38,000
Less: Realizable value of cuttings (150 × 35) (5,250)
Cost of Production 6,32,750
Add: Opening stock of bags -
),%",*'& (63,275)
Less: Closing stock of bags H !,&&&
× 100I
Cost of Goods Sold 5,69,475
Add: Administrative Overheads
- Staff salary 45,000
- Rent [1,20,000 × (240 ÷ 2,400)] 12,000 57,000
Add: Selling and Distribution Overheads
- Staff salary 72,000
- Rent [1,20,000 × (200 ÷ 2,400)] 10,000
- Freight paid on delivery of bags 18,000 1,00,000
Cost of Sales 7,26,475

JULY – 2021 – 10 Marks

The following data relates to manufacturing of a standard product during the month of the March,
2021:
Particulars Amount (in `)
Stock of Raw material as on 01-03-2021 80,000

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Work in progress as on 01-03-2021 50,000

Purchase of raw material 2,00,000
Carriage inwards 20,000
Direct wages 1,20,000
Cost of special drawing 30,000
Hire charges paid for Plant 24,000
Return of Raw Material 40,000
Carriage on return 6,000
Expenses for participation in Industrial exhibition 8,000
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000
Depreciation on Delivery Van 6,000
Warehousing charges 1,500
Stock of Raw material as on 31-03-2021 30,000
Stock of Work in Progress as on 31-03-2021 24,000
• Store overheads on material are 10% of material consumed.
• Factory overheads are 20% of the prime cost
• 10% of the output was rejected and a sum of `5,000 was realized on sale of scrap.
• 10% of the finished product was found to be defective and the defective products were rectified
at an additional expenditure which is equivalent to 20% of proportionate direct wages.
• The total output was 8,000 units during the month.
You are required to prepare a cost sheet for the above period showing the:
(i) Cost of raw material consumed
(ii) Prime cost
(iii)Work cost
(iv) Cost of production
(v) Cost of sales

Solution
Cost Sheet
Particulars Amount
Opening stock of raw material 80,000
Add: Raw material purchases 2,00,000
Add: Carriage inward 20,000
Less:Return of raw material (40,000)
Less:Closing stock of raw material (30,000)
Raw Material consumed 2,30,000
Direct wages 1,20,000
Direct Expenses: Cost of special drawing 30,000
Hire charges paid for plant 24,000 54,000

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Prime Cost 4,04,000

Stores Overheads (10% × 2,30,000) 23,000
Carriage on return 6,000
Factory overheads (20% × 4,04,000) 80,800
Rectification cost of defectives (1,20,000 × 90% × 10% × 20%) 2,160
Gross Factory Cost 5,15,960
Add: Opening WIP 50,000
Less: Closing WIP (24,000)
Net Factory Cost 5,41,960
Less:Scrap sale (5,000)
Cost of Production/COGS 5,36,960
Administration Overheads:
Legal charges 2,500
Salary to office staff 25,000
Maintenance of office building 2,000 29,500
Selling & Distribution Overheads:
Expenses for participation in industrial exhibition8,000
Warehousing charges 1,500
Depreciation on Delivery Van 6,000 15,500
Cost of Sales 5,81,960

JAN – 2021 – 10 Marks

The following data are available from the books and records of Q Ltd. for the month of April,
2020:
Direct Labour Cost = `1,20,000 (120% of Factory Overheads)
Cost of Sales = `4,00,000
Sales = `5,00,000
Accounts show the following figures:
1st April, 2020 (`) 30th April, 2020 (`)
Inventory:
Raw material 20,000 25,000
Work-in-progress 20,000 30,000
Finished goods 50,000 60,000
Other details:
Selling expenses 22,000
General & Admin. Expenses 18,000
You are required to prepare a cost sheet for the month of April 2020 showing:
(i) Prime Cost
(ii) Works Cost
(iii) Cost of Production
(iv) Cost of Goods Sold

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(v) Cost of Sales and profit earned

Solution
Cost Sheet for the month of April 2020
Particulars Amount
Raw material purchased (Bal. fig.) 1,65,000
Add: Opening value of raw material 20,000
Less: Closing value of raw material (25,000)
Direct Material Consumed (i) (Bal. fig.) 1,60,000
Add: Direct Wages 1,20,000
Add: Direct Expenses -
Prime Cost (ii) (Bal. fig.) 2,80,000
Add: Factory Overheads (1,20,000 ÷ 120%) 1,00,000
GFC (Bal. fig.) 3,80,000
Add: Opening stock of WIP 20,000
Less: Closing stock of WIP (30,000)
NFC/COP (iii) (Bal. fig.) 3,70,000
Add: Opening stock of FG 50,000
Less: Closing stock of FG (60,000)
Cost of goods sold (iv) 3,60,000
Add: Administration overheads 18,000
Add: Selling & Distribution overheads 22,000
Cost of Sales 4,00,000
Add: Profit (Bal. fig.) (v) 1,00,000
Sales 5,00,000

NOV – 2020 – 10 Marks

X Ltd. manufactures two types of pens ‘Super Pen’ and ‘Normal Pen’. The cost data for the year
ended 30th September, 2019 is as follows:
(`)
Direct Materials 8,00,000
Direct Wages 4,48,000
Production Overhead 1,92,000
Total 14,40,000
It is further ascertained that:
(1) Direct materials cost in Super Pen was twice as much of direct material in Normal Pen.
(2) Direct wages for Normal Pen were 60% of those for super Pen.
(3) Production overhead per unit was at same rate for both the types.
(4) Administration overhead was 200% of direct labour for each.
(5) Selling cost was `1 per Super pen.
(6) Production and sales during the year were as follows:

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Production Sales
No. of units No. of units
Super Pen 40,000 Super Pen 36,000
Normal Pen 1,20,000
(7) Selling price was `30 per unit for Super Pen.
Prepare a Cost Sheet for ‘Super Pen’ showing
(i) Cost per unit and Total Cost
(ii) Profit per unit and Total Profit

Solution
Cost Sheet
Super Pen
Particulars
Total Per Unit
($&,&&&×")×.,&&,&&&
Direct Material !($&,&&&×")/(!,"&,&&&×!)- 3,20,000 8.00
($&,&&&×!)×$,$.,&&&
Direct Wages !($&,&&&×!)/(!,"&,&&&×&.)&)- 1,60,000 4.00
Prime Cost 4,80,000 12.00
$&,&&&×!,(",&&&
Production Overheads !$&,&&&/!,"&,&&&- 48,000 1.20
Factory Cost 5,28,000 13.20
Add: Opening Stock - -
Less: Closing Stock [(40,000 – 36,000) × 13.20] 52,800 13.20
Cost of goods sold 4,75,200 13.20
Administration Overheads (200% × 1,60,000) 3,20,000 8.89
Add: Selling & Distribution (36,000 × 1) 36,000 1.00
Cost of Sales 8,31,200 23.09
Profit 2,48,800 6.91
Sales 10,80,000 30.00

NOV – 2019 – 10 Marks

XYZ a manufacturing firm, has revealed following information for September, 2019:
1st September 30th September
` `
Raw Materials 2,42,000 2,92,000
Works-in-progress 2,00,000 5,00,000
The firm incurred following expenses for a targeted production of 1,00,000 units during the month:

`
Consumable Stores and spares of factory 3,50,000
Research and development cost for process improvements 2,50,000
Quality control cost 2,00,000

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Packing cost (secondary) per unit of goods sold 2

Lease rent of production asset 2,00,000
Administrative Expenses (General) 2,24,000
Selling and distribution Expenses 4,13,000
Finished goods (opening) Nil
Finished goods (closing) 5,000 units
Defective output which is 4% of targeted production, realizes `61 per unit. Closing stock is valued
at cost of production (excluding administrative expenses). Cost of goods sold, excluding
administrative expenses amounts to `78,26,000. Direct employees’ cost is ½ of cost of material
consumed. Selling price of the output is `110 per unit.
You are required to:
(i) Calculate the value of material purchased
(ii) Prepare cost sheet showing the profit earned by the firm

Solution
Statement of cost and profit
Particulars Amount
Opening stock of material 2,42,000
Add: Purchases (w.n. - 2) 52,50,000
Less: Closing stock of material (2,92,000)
Direct material consumed 52,00,000
Add: Direct Labour (w.n. - 2) 26,00,000
Add: Direct Expenses -
Prime Cost (bal. fig.) 78,00,000
Add: Factory Overheads
Consumable stores and spares of factory 3,50,000
Lease rent of production asset 2,00,000
Gross Factory Cost (bal. fig.) 83,50,000
Add: Opening WIP 2,00,000
Less: Closing WIP (5,00,000)
Net Factory Cost (bal. fig.) 80,50,000
Add: Quality Control Cost 2,00,000
Add: Research and development Cost 2,50,000
Less: Sale of defective goods (1,00,000 × 4% × 61) (2,44,000)
Cost of Production (bal. fig.) 82,56,000
Add: Opening stock of FG -
Less: Closing stock of FG (w.n. – 1) (4,30,000)
Cost of goods sold 78,26,000
Add: Administration overheads 2,24,000
Add: Packaging cost (Secondary) (2 × 91,000) 1,82,000
Add: Selling & Distribution overheads 4,13,000

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Cost of Sales 86,45,000

Add: Profit (bal. fig.) 13,65,000
[(1,00,000 – 4,000 – 5,000) × 110] Sales 1,00,10,000
Working Notes:
(1) Since there is no opening stock, so the entire cost of goods sold is out of cost of production
only.
*.,"),&&&
Thus, cost per unit of goods produced = !,&&,&&&1',&&&1$,&&& = `86
Therefore, closing stock of finished goods = 86 × 5,000 = `4,30,000

(2) Let raw material purchase = y

Thus, raw material consumed = 2,42,000 + y – 2,92,000 = y – 50,000
Direct wages = ½ × (y – 50,000) = 0.5y – 25,000
Prime cost = y – 50,000 + 0.5y – 25,000
78,00,000 = 1.5y – 75,000
1.5y = 78,75,000
y = 52,50,000
Raw material purchased = y = `52,50,000

MAY – 2019 – 10 Marks

M/s Areeba Private Limited has a normal production capacity of 36,000 units of toys per annum.
The estimated costs of production are as under:
(i) Direct Material `40 per unit
(ii) Direct Labour `30 per unit (subject to a minimum of `48,000 p.m.)
(iii) Factory Overheads:
(a) Fixed `3,60,000 per annum
(b) Variable `10 per unit
(c) Semi-variable `1,08,000 per annum up to 50% capacity and additional
`46,800 for every 20% increase in capacity or any part
thereof
(iv) Administrative Overheads `5,18,400 per annum (fixed)
(v) Selling overheads are incurred at `8 per unit
(vi) Each unit of raw material yields scrap which is sold at the rate of `5 per unit
(vii) In year 2019, the factory worked at 50% capacity for the first three months but it was
expected that if would work at 80% capacity for the remaining nine months.
(viii) During the first three months, the selling price per unit was `145
You are required to:
(i) Prepare a cost sheet showing Prime Cost, Works Cost, Cost of Production and Cost of sales
(ii) Calculate the selling price per unit for remaining nine months to achieve the total annual
profit of `8,76,600.

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Solution
(i) Statement of Cost
Particulars First 3 months Bal. 9 months
Level of operation 50% 80%
Units '& % .& (
36,000 × !&& × !" = 36,000 × !&& × !" =
4,500 21,600
Direct material @ `40 p.u. 1,80,000 8,64,000
Less: Scrap @ `5 p.u. (22,500) (1,08,000)
Direct wages 4,500 × 30 21,600 × 30
K LM O 1,44,000 K LM O 6,48,000
48,000 × 3 48,000 × 9
Prime Cost 3,01,500 14,04,000
Factory Overheads:
Fixed expenses % (
3,60,000 × !" = 90,000 3,60,000 × !" = 2,70,000
Variable expenses @ `10 p.u. 45,000 2,16,000
%
Semi-variable expenses 1,08,000 × !" = 27,000 (1,08,000 + 46,800 +
(
46,800) × !" = 1,51,200
Work Cost/ COP/ COGS 4,63,500 20,41,200
Add: Administrative overheads % (
5,18,400 × !" = 1,29,600 5,18,400 × !" = 3,88,800
Add: Selling Overheads @ `8 p.u. 36,000 1,72,800
Cost of Sales 6,29,100 26,02,800
*Assuming administration overheads are not related to production

(ii) Calculation of selling price for nine months period

Particulars Amount (`)
Sales in first 3 months (4,500 × 145) 6,52,500
Less: cost of sales in first 3 months 6,29,100
Profit generated in first 3 months 23,400
Targeted profit p.a. 8,76,600
Profit to be earned in remaining 9 months 8,53,200
Add: Cost of sales for remaining 9 months 26,02,800
Targeted sales for remaining 9 months 34,56,000
Units for remaining 9 months 21,600
Selling price per unit 160

NOV – 2018 – 10 Marks

Following details are provided by M/s ZIA Private Limited for the quarter ending 30 September,
2018:
Direct expenses `1,80,000

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Direct wages being 175% of factory overheads `2,57,250

Cost of goods sold `18,75,000
Selling & distribution overheads `60,000
Sales `22,10,000
Administration overheads are 10% of factory overheads
Stock details as per Stock Register:
Particulars 30.06.2018 (`) 30.09.2018 (`)
Raw material 2,45,600 2,08,000
Work-in-progress 1,70,800 1,90,000
Finished goods 3,10,000 2,75,000
You are required to prepare a cost sheet showing:
(i) Raw material consumed
(ii) Prime cost
(iii) Factory cost
(iv) Cost of goods sold
(v) Cost of sales and profit

Solution
Cost Sheet for the year quarter ending 30th September 2018
Particulars Amount
Raw material purchased (Bal. fig.) 12,37,300
Add: Opening value of raw material 2,45,650
Less: Closing value of raw material (2,08,000)
Direct Material Consumed (i) (Bal. fig.) 12,74,950
Add: Direct Wages 2,57,250
Add: Direct Expenses 1,80,000
Prime Cost (ii) (Bal. fig.) 17,12,200
Add: Factory Overheads (2,57,250 ÷ 175%) 1,47,000
GFC (Bal. fig.) 18,59,200
Add: Opening stock of WIP 1,70,800
Less: Closing stock of WIP (1,90,000)
NFC/COP (iii) (Bal. fig.) 18,40,000
Add: Opening stock of FG 3,10,000
Less: Closing stock of FG (2,75,000)
Cost of goods sold (iv) 18,75,000
Add: Administration overheads (1,47,000 × 10%) 14,700
Add: Selling & Distribution overheads 60,000
Cost of Sales 19,49,700
Add: Profit (Bal. fig.) (v) 2,60,300
Sales 22,10,000

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MAY – 2018 – 10 Marks

Following information relate to a manufacturing concern for the year ended 31st March, 2018:
`
Raw Material (opening) 2,28,000
Raw Material (closing) 3,05,000
Purchases of Raw Material 42,25,000
Freight Inwards 1,00,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses `16 per unit
Finished Stock (opening) – 1217 Units 6,08,500
Sale of scrap of material 8,000
The firm produced 14,000 units of output during the year. The stock of finished goods at the end
of the year is valued at cost of production. The firm sold 14,153 units at a price of `618 per unit
during the year. Prepare cost sheet of the firm.

Solution
Cost Sheet for the year ended 31st March 2018
Particulars Amount
Raw material purchased 42,25,000
Add: Freight inwards 1,00,000
Add: Opening value of raw material 2,28,000
Less: Closing value of raw material (3,05,000)
Less: Sale of scrap of material (8,000)
Direct Material Consumed 42,40,000
Add: Direct Wages (12,56,000 + 1,50,000) 14,06,000
Add: Direct Expenses -
Prime Cost 56,46,000
Add: Factory Overheads (56,46,000 × 20%) 11,29,200
GFC 67,75,200
Add: Opening stock of WIP 1,92,500
Less: Closing stock of WIP (1,40,700)
NFC 68,27,000
Add: Administrative Overheads (related to production) 1,73,000
COP 70,00,000
Add: Opening stock of FG 6,08,500

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*&,&&,&&&
Less: Closing stock of FG H !$,&&&
× 1,064I (5,32,000)
Cost of goods sold 70,76,500
Add: Distribution expenses (16 × 14,153) 2,26,448
Cost of Sales 73,02,948
Add: Profit (Bal. fig.) 14,43,606
Sales (618 × 14,153) 87,46,554

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Material Cost
NOV – 2022 – 5 Marks
MM Ltd. uses 7500 valves per month which is purchased at a price of `1.50 per unit. The carrying
cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place
an order and getting the delivery is `15. It takes a period of 1.5 months to receive a delivery from
the date of placing an order and a safety stock of 3200 valves is desired.

You are required to determine:

(i) The Economic Order Quantity (EOQ) and the frequency of orders.
(ii) The re-order point
(iii) The Economic Order Quantity (EOQ) if the valve cost `4.50 each instead of 1.50 each.
(Assume a year consist of 360 days)

Solution
(i) Annual requirement (A) = 7500 ´ 12 = 90,000 valves
Cost per order (O) = `15
Carrying cost per unit (C) = 20% ´ 1.50 = `0.30
"×2×3 "×(&,&&&×!'
Economic Order Quantity = Q 4
=Q &.%&
= 3,000 valves
Number of orders = 90,000 ÷ 3,000 = 30 orders
%)& 6789
Frequency of order = %& = 12 days

(ii) Re-order quantity = Safety stock + (Average consumption ´ Average lead time)
= 3,200 + (7,500 ´ 1.5) = 14,450 valves

"×2×3 "×(&,&&&×!'
(iii) Economic Order Quantity = Q 4
=Q "&%×$.'&
= 1,732.058 valves or 1,733 valves

MAY – 2022 – 5 Marks

A Ltd. a toy company purchases its requirement of raw material from S Limited at `120 per kg.
The company incurs a handling cost of `400 plus freight of `350 per order. The incremental
carrying cost of inventory of raw material is `0.25 per kg per month. In addition, the cost of
working capital finance on the investment in inventory of raw material is `15 per kg per annum.
The annual production of the toys is 60,000 units and 5 units of toys are obtained from one kg of
raw material.

Required:
(i) Calculate the Economic Order Quantity (EOQ) of raw materials.
(ii) Advise, how frequently company should order to minimize its procurement cost.
Assume 360 days in a year.
(iii) Calculate the total ordering cost and total inventory carrying cost per annum as per
EOQ.

Sunil Keswani PYQs of Cost & Management Accounting

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Solution
(a) A = 60,000 ÷ 5 = 12,000 kg
O = 400 + 350 = `750
C = 15 + (0.25 × 12) = `18

EOQ = 2 ´ A ´ O =Q"×!",&&&×*'& = 1,000 kg

C !.

(b) Number of orders to be placed = Annual requriement of material = !,&&& = 12 orders

!",&&&
Order size (EOQ)
%)& %)&
Frequency of order = ;<. <= <>6?>9
= !"
= 30 days

(c) Total ordering cost = No. of order ´ cost per order = 12 ´ 750 = `9,000
3>6?> @AB? !,&&&
Total carrying cost = "
´ carrying cost per unit p.a. = "
´ 18 = `9,000
Total cost = `18,000

DEC – 2021 – 5 Marks

XYZ Ltd uses two types of raw materials – ‘Material A’ and ‘Material B’ in the production process
and has provided the following data for the year ended on 31st March, 2021:
Particulars Material A (`) Material B (`)
Opening stock as on 1.04.2020 30,000 32,000
Purchases during the year 90,000 51,000
Closing stock as on 31.02.2021 20,000 14,000
(i) You are required to calculate:
a) The inventory turnover ratio of ‘Material A’ and ‘ Material B’
b) The number of days for which the average inventory is held for both materials ‘A’
and ‘B’.
(ii) Based on above calculations, give your comments.
(Assume 360 days in a year)

Solution
(i) Calculation of Inventory Turnover Ratio
Particulars Material A Material B
Opening stock 30,000 32,000
Add: Purchases 90,000 51,000
Less: Closing Stock 20,000 14,000
Raw Material Consumed (A) 1,00,000 69,000
Average Stock %&,&&&/"&,&&& %",&&&/!$,&&&
= 25,000
" "
= 23,000
3C?DADE/4F<9ADE
H "
I (B)
Inventory Turnover Ratio (ITR) !,&&,&&& )(,&&&
"',&&&
= 4 times "%,&&&
= 3 times
%)& %)&
Number of days (360 ÷ ITR) = 90 days = 120 days
$ %

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JULY – 2021 – 5 Marks

MM Ltd. has provided the following information about the items in its inventory.
Item Code Number Units Unit Cost (`)
101 25 50
102 300 01
103 50 80
104 75 08
105 225 02
106 75 12
MM ltd. has adopted the policy of classifying the items constituting 15% or above to Total
Inventory Cost as “A” category, items constituting 6% or less of Total Inventory Cost as “C”
category and the remaining items as “B” category.
You are required to:
(i) Rank the items on the basis of % of Total Inventory Cost.
(ii) Classify the items into A, B and C categories as per ABC analysis of Inventory Control adopted
by MM Ltd.

Solution
Statement of Cost
Item Code Units Unit Total % of Rank Category
Number Cost Cost Total Cost
(` )
101 25 50 1,250 16.67% II A
102 300 01 300 4% VI C
103 50 80 4,000 53.33% I A
104 75 08 600 8% IV B
105 225 02 450 6% V C
106 75 12 900 12% III B
Total 7,500 100%

NOV – 2020 – 5 Marks

An automobile company purchases 27,000 spare parts for its annual requirements. The cost per
order is `240 and the annual carrying cost of average inventory is 12.5%. Each spare part costs
`50.

At present, the order size is 3,000 spare parts.

(Assume that number of days in a year = 360 days)
Find out:
(i) How much the company’s cost would be saved by opting EOQ model?
(ii) The Re-order point under EOQ model if lead time is 12 days.
(iii) How frequently should orders for procurement be placed under EOQ model?

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Solution
(i) Annual requirement (A) = 27,000
Cost per order (O) = `240
Carrying cost per unit p.a. (C) = 50 × 12.5% = `6.25
"×2×3 "×"*,&&&×"$&
EOQ = Q 4
=Q )."'
= 1,440 units

Statement of Cost
Particulars Order size = 3,000 Order size = 1,440
Purchase cost 27,000 × 50 = 13,50,000 27,000 × 50 = 13,50,000
Ordering cost "*,&&& "*,&&&
%,&&&
× 240 = 2,160 !,$$&
LM18.75 LM 19 × 240 = 4,560
Carrying cost %,&&& !,$$&
× 6.25 = 9,375 × 6.25 = 4,500
" "
Total cost 13,61,535 13,59,060
Saving due to EOQ = `13,61,535 - `13,59,060 = `2,475

"*,&&&
(ii) Re-order point = Maximum consumption × Maximum time = %)&
× 12 = 900 units
"*,&&&
(iii) Number of orders under EOQ Model = !,$$&
= 18.75 or 19
%)&
Frequency of order = !(
= 18.94 days

NOV – 2019 – 5 Marks

Surekha Limited Produces 4,000 litres of paints on a quarterly basis. Each litre requires 2 kg of
raw material. The cost of placing one order for raw material is `40 and the purchasing price of
raw material is `50 per kg. The storage cost and interest cost is 2% and 6% per annum respectively.
The lead time for procurement of raw material is 15 days.
Calculate Economic Order Quantity and Total Annual Inventory Cost in respect of the above raw
material.

Solution
A = 4,000 × 2 × 4 = 32,000 kg
O = `40
C = 50 × (2% + 6%) = `4
"×2×3 "×%",&&&×$&
EOQ = Q 4
=Q $
= 800 kg

Total inventory cost = Purchase cost + Ordering cost + Carrying cost

%",&&& .&&
= (32,000 × 50) + H .&&
× 40I + H "
× 4I = `16,03,200

MAY – 2019 – 10 Marks

The following are the details of receipt and issue of material ‘CXE’ in a manufacturing Co. during
the month of April 2019:

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 23

Date Particulars Quantity Rate per kg

(kg)
April 4 Purchases 3,000 `16
April 8 Issue 1,000
April 15 Purchases 1,500 `18
April 20 Issue 1,200
April 25 Return to supplier out of purchase made on April 15 300
April 26 Issue 1,000
April 28 Purchase 500 `17
Opening stock as on 01-04-2019 is 1,000 kg @ `15 per kg.
On 30th April, 2019 it was found that 50 kg of material ‘CXE’ was fraudulently misappropriated
by the store assistant and never recovered by the company. Required:
(i) Prepare a store ledger account under each of the following method of pricing the issue:
a) Weighted Average Method
b) LIFO
(ii) What would be the value of material consumed and value of closing stock as on 30-04-2019
as per these two methods?

Solution
(a) Stores Ledger (Weighted Average Basis)
Receipts Issues Balance
Date Qty. Rate Amou Qty. Rate Amou Qty. Rate Amou
(kg) (`) nt (kg) (`) nt (kg) (`) nt
1-4-19 - - - - - - 1,000 15 15,000
4-4-19 3,000 16 48,000 - - - 4,000 15.75 63,000
8-4-19 - - - 1,000 15.75 15,750 3,000 15.75 47,250
15-4-
1,500 18 27,000 - - - 4,500 16.50 74,250
19
20-4-
- - - 1,200 16.50 19,800 3,300 16.50 54,450
19
25-4-
- - - 300 18 5,400 3,000 16.35 49,050
19
26-4-
- - - 1,000 16.35 16,350 2,000 16.35 32,700
19
28-4-
500 17 8,500 - - - 2,500 16.48 41,200
19
30-4-
- - - 50 16.48 824 2,450 16.48 40,376
19

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 24

(b) Stores Ledger (LIFO)

Receipts Issues Balance
Date Qty. Rate Amou Qty. Rate Amou Qty. Rate Amou
(kg) (`) nt (kg) (`) nt (kg) (`) nt
1-4-19 - - - - - - 1,000 15 15,000
1,000 15 15,000
4-4-19 3,000 16 48,000 - - -
3,000 16 48,000
1,000 15 15,000
8-4-19 - - - 1,000 16 16,000
2,000 16 32,000
1,000 15 15,000
15-4-
1,500 18 27,000 - - - 2,000 16 32,000
19
1,500 18 27,000
1,000 15 15,000
20-4-
- - - 1,200 18 21,600 2,000 16 32,000
19
300 18 5,400
25-4- 1,000 15 15,000
- - - 300 18 5,400
19 2,000 16 32,000
26-4- 1,000 15 15,000
- - - 1,000 16 16,000
19 1,000 16 16,000
1,000 15 15,000
28-4-
500 17 8,500 - - - 1,000 16 16,000
19
500 17 8,500
1,000 15 15,000
30-4-
- - - 50 17 850 1,000 16 16,000
19
450 17 7,650

(ii) Value of Material Consumed and Closing Stock

Weighted Average LIFO Method
Method (`) (` )
Opening stock as on 01-04-2019 15,000 15,000
Add: Purchases 83,500 83,500
Less: Return to supplier (5,400) (5,400)
Less: Abnormal loss (824) (850)
Less: Closing stock as on 30-04-2019 (40,376) (38,650)
Value of material consumed 51,900 53,600

NOV – 2018 – 5 Marks

M/s SJ Private Limited manufactures 20,000 units of a product per month. The cost of placing an
order is `1,500. The purchase price of the raw material is `100 per kg. The re-order period is 5 to
7 weeks. The consumption of raw materials varies from 200 kg to 300 kg per week, the average
consumption being 250 kg. The carrying cost of inventory is 9.75% per annum.

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 25

You are required to calculate:

(i) Re-order quantity
(ii) Re-order level
(iii) Maximum level
(iv) Minimum level
(v) Average stock level

Solution
"×2×3
(i) EQO = Q 4

A = 250 kg × 52 weeks = 13,000 kg

O = `1,500
C = `100 per kg × 9.75% = `9.75 per kg
"×!%,&&&×!,'&&
EOQ = Q (.*'
= 2,000 kg

(ii) Re-order level = Maximum Consumption × Maximum lead Time

= 300 × 7 = 2,100 kg
(iii)Maximum level = Reorder level + Reorder Qty – (Min consumption × min lead time)
= 2,100 + 2,000 – (200 × 5) = 3,100 kg
(iv) Minimum level = Reorder Level – (Average Consumption × Average Reorder Period)
= 2,100 – (250 × 6) = 600 kg
(v) Average Stock Level = (Minimum level + maximum level)/2
= (3,100 + 600)/2 = 1,850 kg

MAY – 2018 – 5 Marks

M/s X Private Limited is manufacturing a special product which requires a component “SKY
BLUE”. The following particulars are collected for the year ended 31st March, 2018:
Annual demand of “SKY BLUE” 12,000 units
Cost of placing an order `1,800
Cost per unit of “SKY BLUE” `640
Carrying cost per annum 18.75%
The company has been offered a quantity discount of 5% on the purchase of “SKY BLUE”,
provided the order size is 3,000 components at a time.
Required:
(a) Compute the economic order quantity
(b) Advise whether the quantity discount offer can be accepted

Solution
"×2×3
(i) EQO = Q 4

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 26

A = 12,000 units
O = `1,800
C = `640 per unit × 18.75% = `120 per unit
"×!",&&&×!,.&&
EOQ = Q !"&
= 600 units

(ii) Statement showing evaluation of proposal

Particulars Order 600 units Order 3,000 units
Annual purchase cost (`640/608 p.u) 76,80,000 72,96,000
Annual Ordering cost (`1,800 per order) 36,000 7,200
Annual carrying cost (`120/114 per unit) 36,000 1,71,000
Total Cost `77,52,000 `74,74,200
Since the total cost is lower by `2,77,800 in case when the company gets the discount offer of 5%,
thus, it is recommended to accept the discount offer with order size of 3,000 units.

MAY – 2018 – 5 Marks

The following details are provided by M/s SKU Enterprises for the year ended 31st March, 2018:
Particulars Material – M (`) Material-N (`)
Stock as on 01-04-2017 6,00,000 10,00,000
Stock as on 31-03-2018 4,50,000 7,25,000
Purchases during the year 9,50,000 18,40,000
You are required to:
(i) Calculate Turnover Ratio of both the materials
(ii) Advise which of the two materials is fast moving. (Assume 360 days in a year)

Solution
(i) Calculation of turnover ratio
Particulars Material M Material N
Turnover Ratio ),&&,&&&/(,'&,&&&1$,'&,&&& !&,&&,&&&/!.,$&,&&&1*,"',&&&
(),&&,&&&/$,'&,&&&)/"
=2.0 (!&,&&,&&&/*,"',&&&)/"
=2.4
4<9G <= 9G<HI <= J7G?A>7F H<D9KJ?6
H 2L?>7E? 9G<HI <= J7G?>A7F
I 9 5
Average number of days for %)& %)&
".&(
= 172.25 days ".$'
= 146.94 days
which the average inventory is
held
%)&
HNDL?DG<>8 OK>D<L?> P7GA<I
(ii) Advise
On comparing the two, it can be said that Material M is slow moving as compared to Material N
because of having higher inventory holding period of 172.25 days. Since the inventory holding
period is high in both case then the exact decision should be taken by comparing the same with the
industry standards.

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 27

Employee Cost
MAY – 2023 – 5 Marks
SMC Company Limited is producing a particular design of toys under the following existing
incentive system:
Normal working hours in the week 48 hours
Late shift hours in the week 12 hours
Rate of payment Normal working: `150 per hour
Late shift: `300 per hour
Average output per operator for 60 hours per week (including late shift hours): 80 toys.
The company’s management has now decided to implement a system of labour cost payment with
either the Rowan Premium Plan or the Halsey Premium Plan in order to increase output, eliminate
late shift overtime, and reduce the labour cost.

The following information is obtained:

The standard time allotted for ten toys is seven and half hours.
Time rate: `150 per hour (as usual)
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required
to calculate the weekly earnings for one operator under-w
(i) The existing Time Rate
(ii) Rowan Premium Plan and
(iii) Halsey Premium Plan (50%)

Solution
)& Q<K>9
Time allowed to produce 100 toys = .& G<89 × 100 SLTU = 75 hours
Time saved = 75 hours – 48 hours = 27 hours

(i) Weekly earning of one operator under existing time rate

= (48 hours ´ 150) + (12 hours ´ 300) = `10,800

(ii) Weekly earning of one operator under Rowan Premium Plan

= (Time taken ´ Rate per hour) + [(Time saved ÷ Time allowed)´Time taken´ Rate per hour]
= (48 hours ´ 150) + [(27 ÷ 75) ´ 48 ´ 150] = `9,792

(iii) Weekly earning of one operator under Halsey Premium Plan

= (Time taken ´ Rate per hour) + (50% of time saved ´ Rate per hour)
= (48 ´ 150) + (50% ´ 27 ´ 150) = `9,225

NOV – 2022 – 6 Marks

A skilled worker in PK Ltd. is paid a guaranteed wage rate of `15.00 per hour in a 48-hour week.
The standard time to produce a unit is 18 minutes. During a week, a skilled worker – Mr. ‘A’ has
produced 200 units of the product. The company has taken a drive for cost reduction and wants to
reduce its labour cost.
You are required to:
(i) Calculate wages of Mr. ‘A’ under each of the following methods:
(a) Time rate
(b) Piece rate with a guaranteed weekly wage
(c) Halsey Premium plan

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 28

(d) Rowan Premium Plan

(ii) Suggest which bonus plan i.e. Halsey Premium plan or Rowan Premium Plan the company
should follow.
Solution
(i) (a) Wages = Time worked ´ Rate for the time = 48 hours ´ `15 = `720
(b) Wages = Number of units produced ´ rate per unit = 200 units ´ `4.50 = `900
!'
Rate per unit = )& JADKG?9 × 18 VWXYSZU = `4.50
(c) Halsey Premium Plan
Wages = (Time taken ´ Time rate) + 50%(Time saved)(Time rate)
"&& KDAG9
= (48 hours ´ `15) + (50%)!H!. JADKG?9 × 60 VWXYSZUI − 48 ℎLYMU-(`15)
= `720 + `90 = `810
(d) Rowan Premium plan
OAJ? @7L?6
Wages = (Time taken ´ Time rate) + HOAJ? 2FF<R?6 I(Time taken)(Time rate)
)& Q<K>91$. Q<K>9
= (48 hours ´ `15) + H )& Q<K>9
I(48 hours)(`15)
= `720 + `144 = `864
(ii) The company may follow Halsey premium Plan over Rowan Premium Bonus Plan as the
total wages paid is lower than that of Rowan Premium Bonus Plan.

MAY – 2022 – 5 Marks

PQR Limited has replaced 72 workers during the quarter ended 31st March, 2022. The labour rates
for the quarter are as follows:
Flux Method 16%
Replacement Method 8%
Separation Method 5%
You are required to ascertain:
(i) Average number of workers on roll (for the quarter),
(ii) Number of workers left and discharged during the quarter,
(iii) Number of workers recruited and joined during the quarter,
(iv) Equivalent employee turnover rates for the year.

Solution
;<.<= >?CF7H?J?DG9
(i) Replacement Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
*"
8 = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
Average number of workers = 900
;<.<= 9?C?7>7GA<D9
(ii) Separation Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 ´ 100
;<.<= 9?C?7>7GA<D9
5 = (&&
´ 100
Number of separations (left and discharged) = 45
;<.<= 9?C7>7GA<D9 / ;<.<= >?H>KAGJ?DG9 & U<AD??
(iii) Flux Method - Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9
´ 100
$' / ;<.<= >?H>KAGJ?DG9 & U<AD??
16 = (&&
´ 100

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 29

Number of workers recruited & joined = 99

(iv) Equivalent Employee turnover rate

!)
Flux Method – Labour turnover rate = %
´ 12 = 64%
.
Replacement Method – Labour turnover rate = % ´ 12 = 32%
'
Separation Method – Labour turnover rate = % ´ 12 = 20%

DEC – 2021 – 5 Marks

A skilled worker is paid a guaranteed wage rate of `150 per hour. The standard time allowed for
a job is 10 hours. He took 8 hours to complete the job. He has been paid the wages under Rowan
Incentive Plan.

You are required to:

(i) Calculate an effective hourly rate of earnings under Rowan Incentive Plan.
(ii) Calculate the time in which he should complete the job, if the worker is placed under Halsey
Incentive Scheme (50%) and he wants to maintain the same effective hourly rate of earnings.
Solution
V .
(i) Total earnings = (H ´ R) + [(S- H) ´ R ´ @ ] = (8 ´ 150) + !(10 − 8)´150´ !&- = `1,440
!,$$&
Effective hourly rate of earning = .
= `180

(ii) Let actual time = y

Total Earnings = (H ´ R) + [(S – H) ´ R ´ 50%]
(y)(180) = (y ´ 150) + [(10 – y) ´ 150 ´ 50%]
180y = 150y + 750 – 75y
105y = 750
y = 7.14 hours
\ Required actual hours = 7.14

JULY – 2021 – 5 Marks

Following information is given of a newly setup organization for the year ended on 31st March,
2021:
Number of workers replaced during the period 50
Number of workers left and discharged during the period 25
Average number of workers on the roll during the period 500
You are required to:
(i) Compute the employee turnover ratios using Separation Method and Flux Method.
(ii) Equivalent employee Turnover Rates for (i) above, given that for the organization was setup
on 31st January, 2021.

Solution
;<. <= 9?C?>7GA<D9
(i) Employee turnover ratio by separation method = 2L?>7E? D<. <= R<>I?>9
× 100

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 30

"'
= '&& × 100 = 5%
;<. <= 9?C?>7GA<D9 & >?CF7H?J?DG
Employee turnover ratio by flux method = 2L?>7E? D<. <= R<>I?>9
× 100
("'/'&)
= × 100 = 15%
'&&
'
(ii) Equivalent employee turnover ratio under separation method = " × 12 = 30%
!'
Equivalent employee turnover ratio under flux method = "
× 12 = 90%

JAN – 2021 – 10 Marks

Z Ltd. is working by employing 50 skilled workers. It is considering the introduction of an
incentive scheme – either Halsey scheme (with 50% bonus) or Rowan Scheme – of wage payment
for increasing labour productivity to adjust with the increasing demand for its products by 40%.
The company feels that the if the proposed incentive scheme could bring labour an average 20%
increase over the present earnings of the workers, it could act as sufficient incentive for them to
produce more and the company has accordingly given assurance to the workers.

Because of this assurance, an increase in productivity has been observed as revealed by the figures
for the month of April, 2020:
Hourly rate of wages (guaranteed) `50
Average time for producing one unit by one worker at the previous 1.975 hours
performance (this may be taken as time allowed)
Number of working days in a month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units
Required:
(iii) Calculate the effective increase in earnings of workers in percentage terms under Halsey and
Rowan scheme.
(iv) Calculate the savings to Z Ltd. in terms of direct labour cost per unit under both the schemes.
(v) Advise Z Ltd. about the selection of the scheme to adjust with the increase in demand.

Solution
Working notes:
1. Computation of time saved (in hours) per month:
= Standard production time of 6,120 units – Actual time taken by the workers
= (6,120 units ´ 1.975 hours) – (24 days ´ 8 hrs per day ´ 50 skilled workers)
= 12,087 hours – 9,600 hours = 2,487 hours
2. Computation of bonus for time saved hours under Halsey and Rowan schemes:
Time saved hours = 2,487 hours
Wage rate per hour = `50
Bonus under Halsey scheme = 50% ´ 2,487 hours ´ `50 = `62,175
(with 50% bonus)

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",$.* Q<K>9
Bonus under Rowan Scheme = !",&.* Q<K>9
´ 9,600 hours ´ `50 = `98,764

(i) Computation of effective rate of earnings under the Halsey and Rowan schemes:
Total earnings (under Halsey scheme) =Time wages + Bonus
= (24days´8hours´50skilled workers ´ `50) + `62,175
=`4,80,000 + `62,175 = `5,42,175
Total earnings (under Rowan Scheme) =Time wages + Bonus
=`4,80,000 + `98,764 = `5,78,764
)",!*'
Increase in earning under Halsey Scheme = $,.&,&&& × 100= 12.95%
(.,*)$
Increase in earning under Rowan Scheme = $,.&,&&& × 100= 20.57%

(ii) Savings to the Z Ltd. In terms of direct labour cost per piece: `
Direct labour cost (per unit) under time wages system 98.75
(1.975 times per unit ´ `50)
Direct labour cost (per unit) under Halsey Plan 88.59
(`5,42,175 ÷ 6,120 units)
Direct labour cost (per units) under Rowan Plan 94.57
(`5,78,764 ÷ 6,120 units)
Savings of direct labour cost under:
- Halsey plan (`98.75 – 88.59) `10.16
- Rowan plan (`98.75 – 94.57) `4.16

(iii)Advise to Z Ltd: (about the selection of the scheme to fulfill assurance)

It is better for Z Ltd. to adopt Halsey Scheme but since he has assured workers of an average 20%
increase over the present earnings, he will have to select Rowan Scheme as is evident from the
above calculations.

NOV – 2020 – 6 Marks

Following are the particulars of two workers ‘R’ and ‘S’ for a month:
Particulars R S
(i) Basic wages (`) 15,000 30,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to EPF (on basic wages) 7% 7%
(iv) Contribution to ESI (on basic wage) 2% 2%
(v) Overtime (hours) 20 -
The normal working hours for the month are 200 hrs. Overtime is paid at double the total of normal
wages and dearness allowance. Employer’s contribution to State Insurance and Provident Fund at
equal rates with employees’ contributions.

Both workers were employed on jobs A, B and C in the following proportions:

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Jobs A B C
R 75% 10% 15%
S 40% 20% 40%
Overtime was done on job ‘A’.
You are required to:
(i) Calculate ordinary wage rate per hour of ‘R’ and ‘S’
(ii) Allocate the worker’s cost to each job ‘A’, ‘B’ and ‘C’.

Solution
Statement of wages
Particulars Worker R Worker S
Basic Wages 15,000 30,000
Dearness Allowance (50% of basic wages) 7,500 15,000
Employer contribution to PF (7% of basic wages) 1,050 2,100
Employer contribution to ESI (2% of basic wages) 300 600
(!',&&&/*,'&&)×"×"& 4,500 -
Overtime ! "&&
-
Total 28,350 47,700

Statement of cost of Jobs

Particulars A B C
Overtime 4,500 - -
Bal. of Worker R’s wages 17,888 2,385 3,777
(23,850 in 75:10:15)
Worker S’s Wages 19,080 9,540 19,080
(47,700 in 40:20:40)
Total 41,465 11,925 22,857

NOV – 2019 – 10 Marks

Zico Ltd. has its factory at two locations viz Nasik and Satara. Rowan plan is used at Nasik factory
and Halsey plan at Satara factory. Standard time and basic rate of wages are same for a job which
is similar and is carried out on similar machinery. Normal working hours is 8 hours per day in a 5
day week.

Job in Nasik factory is completed in 32 hours while at Satara factory it has taken 30 hours.
Conversion costs at Nasik and Satara are `5,408 and `4,950. Overheads account for `25 per hour.
Required:
(i) To find out the normal wage; and
(ii) To compare the respective conversion costs

Solution
(i) Wages cost at Nasik = Conversion cost – Overheads = 5,408 – (25×32) = `4,608

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Wages cost at Satara = Conversion cost – Overheads = 4,950 – (25×30) = `4,200

Let normal wage rate be ‘y’ at Nasik and ‘z’ at Satara
Wages cost at Nasik
@G7D67>6 GAJ? 1 2HGK7F GAJ?
Wages = (Actual time × wages rate) + H @G7D67>6 GAJ?
I × Actual time × wages rate
$&1%"
4,608 = (32 × y) + H $&
× 32 × TI
4,608 = 32y + 6.4y
y = `120
Wages cost at Satara
Wages = = (Actual time × wages rate) + [50% × (Standard Time – Actual time) × wages rate]
4,200 = (30 × z) + [50% × (40 – 30) × z]
4,200 = 30z + 5z
z = `120

(ii) Statement of Cost

Particulars Nasik Satara
` `
Wage Cost 4,608 4,200
Overheads (25 × 32) (25 × 30) 800 750
Conversion cost 5,408 4,950

MAY – 2019 – 5 Marks

M/s Zeba Private Limited allotted a standard time of 40 hours for a job and the rate per hour is
`75. The actual time taken by a worker is 30 hours. You are required to calculate the total earnings
under the following plans:
(i) Halsey Premium Plan (Rate 50%)
(ii) Rowan Plan
(iii) Time wage system
(iv) Piece Rate System
(v) Emerson Plan

Solution
(i) Halsey Premium Plan wages
= (Time taken × Rate per hour) + (50% × Time saved × Rate per hour)
= (30 × 75) + (50% × 10 × 75) = `2,625
(ii) Rowan Premium Plan wages
OAJ? 97L?6
= (Time taken × Rate per hour) + HOAJ? 7FF<R?6 × ]WVZ S^_ZX × `^SZ aZM ℎLYMI
!&
= (30 × 75) + H$& × 30 × 75I = `2,813
(iii) Time wage system:
= Time taken × Rate per hour = 30 × 75 = `2,250
(iv) Piece Rate system:

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= Standard time × Rate per hour = 40 × 75 = `3,000

(v) Emerson Plan:
Efficiency level = 40 ÷ 30 = 133.33%
Wages = Time taken × (120% + 33.33%) of rate
= 30 × 153.33% × 75 = `3,450

NOV – 2018 – 5 Marks

Following data have been extracted from the books of M/s ABC Private Limited:
Salary (each employee, per month) `30,000
Bonus 25% of salary
Employer’s contribution to PF, ESI etc. 15% of salary
Total cost at employees’ welfare activities `6,61,500 per annum
Total leave permitted during the year 30 days
Number of employees 175
Normal idle time 70 hours per annum
Abnormal idle time (due to failure of power supply) 50 hours
Working days per annum 310 days of 8 hours
You are required to calculate:
1) Annual cost of each employee
2) Employee cost per hour
3) Cost of abnormal idle time, per employee

Solution
Calculation of effective hours
Total working hours (310 × 8) 2,480
Less: Leave days (30 × 8) __240
Available working hours 2,240
Less: Normal loss ___70
Effective working hours 2,170

Statement of employee cost per hour

Particulars Amount (`)
Salary (30,000 × 12) 3,60,000
Bonus (25% × 3,60,000) 90,000
Employees contribution to PF (15% × 3,60,000) 54,000
Employee welfare (6,61,500 ÷ 175) 3,780
Total Annual Cost (A) 5,07,780
Effective working hours (B) 2,170
Employee cost per hour (A ÷ B) 234
Cost of abnormal idle time per employee = `234 × 50 hours = `11,700

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MAY – 2018 – 5 Marks

A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours His wage
rate is `5 per hour. Following additional information are also available:
Material cost of work `50
Factory overheads 100% of wages
Calculate the factory cost of work under the following methods of wage payments:
(i) Rowan Plan
(ii) Halsey Plan

Solution
Wages in Rowan plan
@G6.GAJ? 1 2HGK7F GAJ?
= (Actual time × wage rate) + H @G6. GAJ?
I× Actual time ×wage rate
'
= (15 × 5) + H"&I×15×5 = `93.75

Wages in Halsey plan = (Actual time× wages rate) + [50%×(Std. Time - Actual time)×wage rate]
'&
= (15 × 5) + !&&× (20 – 15) × 5 = `87.5

Statement showing computation of factory cost

Particulars Rowan Plan Halsey Plan
Direct Materials 50 50
Direct Wages 93.75 87.5
Prime Cost 143.75 137.5
Overheads @ 100% of wages 93.75 87.5
Factory Cost 237.5 225

MAY – 2018 – 10 Marks

The information regarding number of employees on roll in a shopping mall for the month of
December 2017 are given below:
Number of employees as on 01-12-2017 900
Number of employees as on 31-12-2017 1100

During December, 2017, 40 employees resigned and 60 employees were discharged. 300
employees were recruited during the month. Out of these 300 employees, 225 employees were
recruited for an expansion project for the mall and rest were recruited due to exit of employees.

Assuming 365 days in a year, calculate Employee Turnover Rate and Equivalent Annual Employee
Turnover Rate by applying the following:
(i) Replacement Method
(ii) Separation Method
(iii) Flux Method

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Solution
(&&/!!&&
Average number of workers = "
= 1000
(i) Replacement Method –
;<.<= >?CF7H?J?DG9 *'
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 × 100= !&&& × 100= 7.5%
*.'×%)'
Equivalent Annual Labour turnover rate = %!
= 88.31%

(ii) Separation Method -

;<.<= 9?C7>7GA<D9 $&/)&
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9 × 100= !&&&
× 100= 10%
!&×%)'
Equivalent Annual Labour turnover rate = %!
= 117.74%

(iii) Flux Method -

;<.<= 9?C7>7GA<D9/;<.<= R<>I?>9 >?H>KAG?6 !&&/%&&
Labour turnover rate = 2L?>7E? DKJS?> <= R<>I?>9
× 100= !&&&
× 100= 40%
$&×%)'
Equivalent Annual Labour turnover rate = %!
= 470.97%

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Overheads
Nov – 2022 – 4 Marks
USP Ltd. is the manufacturer of ‘double grip motorcycle tyres’. In the manufacturing process, it
undertakes three different jobs namely, Vulcanizing, Brushing and Striping. All of these jobs
require the use of a special machine and also the aid of a robot when necessary. The robot is hired
from outside and the hire charges paid for every six months is `2,70,000. An estimate of overhead
expenses relating to the special machine is given below:
• Rent for a quarter is `18,000
• The cost of the special machine is `19,20,000 and depreciation is charged @10% per annum
on straight line basis.
• Other indirect expenses are recovered at 20% of direct wages.
The factory manager has informed that in the coming year, the total direct wages will be
`12,00,000 which will be incurred evenly throughout the year.

During the first month of operation, the following details are available from the job book:
Jobs Without the aid of the robot With the aid of the robot
Vulcanizing 500 400
Brushing 1000 400
Striping - 1200
You are required to:
(i) Compute the Machine Hour Rate for the company as a whole for a month (A) when the robot
is used and (B) when the robot is not used.
(ii) Compute the Machine Hour Rate for the individual jobs i.e. Vulcanizing, Brushing and
Striping.

Solution
(i) Total machine hours = 500 + 1,000 + 400 + 400 + 1,200 = 3,500
Total machine hours with the use of robot = 400 + 400 + 1,200 = 2,000
Statement of Machine Hour Rate
Particulars Amount (`)
Rent (18,000 ÷ 3) 6,000
Depreciation [(19,20,000 ´ 10%) ÷ 12] 16,000
Indirect expenses [(12,00,000 ´ 20%) ÷ 12] 20,000
Total expenses 42,000
Total Machine Hours 3,500
Machine hours rate (42,000 ÷ 3500) 12
Add: Robot charges per machine hour [(2,70,000 ÷ 6) ÷ 2,000] 22.50
Machine hour rate with robot charges 34.50

(ii) Computation of Machine Hour Rate for the individual jobs

Particulars Vulcanizing Brushing Striping
OHs without robot 500 ´ 12 = 6,000 1,000 ´ 12 = 12,000 -
OHs with robot 400 ´ 34.50 = 13,800 400 ´ 34.50 = 13,800 1,200 ´ 34.50 = 41,400
Total 19,800 25,800 41,400

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Machine hours 900 1,400 1,200

Machine hour rate 22 18.43 34.50

DEC – 2021 – 10 Marks

XYZ Ltd. manufactures a single product. It recovers factory overheads at a pre-determined rate of
`20 per man-day.

During the year 2020-21, the total factory overheads incurred and the man-days actually worked
were `35.50 lakhs and 1.50 lakh days respectively. Out of the amount of `35.50 lakhs, `2.00
lakhs were in respect of wages for strike period and `1.00 lakh was in respect of expenses of
previous year booked in the current year. During the period, 50,000 units were sold. At the end of
the period, 12,000 completed units were held in stock but there was no opening stock of finished
goods. Similarly, there was no stock of uncompleted units at the beginning of the period but at the
end of the period there were 20,000 uncompleted units which may be treated as 65% complete in
all respects.

On investigation, it was found that 40% of the unabsorbed overheads were due to factory
inefficiency and the rest were attributable to increase in the cost of indirect materials and indirect
labour. You are required to:
(i) Calculate the amount of unabsorbed overheads during the year 2020-21.
(ii) Show the accounting treatment of unabsorbed overheads in cost accounts and pass journal
entry.

Solution
(i) Amount (`)
Total production overheads actually incurred during the period 35,50,000
Less: Wages for strike period 2,00,000
Less: Expenses of previous year booked in current year 1,00,000
Net production overheads actually incurred 32,50,000
Less: Production overheads absorbed (1,50,000 × `20) 30,00,000
Under recovered overheads 2,50,000
(ii) As 40% of the under absorbed overheads i.e. `1,00,000 (`2,50,000 × 40%) were due to factor
inefficiency, this being abnormal, hence should be debited to profit and loss account.

Amount of balance under absorbed overheads = `2,50,000 – 1,00,000 = `1,50,000

Equivalent units = 50,000 + 12,000 + (20,000 ´ 65%) = 75,000
!,'&,&&&
Supplementary rate = *',&&& KDAG9= `2 per equivalent unit
Equivalent Units Amount (`)
Work-in-progress (20,000 units × 65% × 2) 13,000 26,000
Finished stock (12,000 units × 2) 12,000 24,000
Cost of sales (50,000 units × 2) 50,000 1,00,000
Total 75,000 1,50,000

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Journal Entry
Cost of Sales A/c Dr. 1,00,000
Finished goods ledger control A/c Dr. 24,000
Work-in-progress ledger control A/c Dr. 26,000
To Overheads control A/c 1,50,000
Costing P&L A/c Dr. 1,00,000
To Overheads Control A/c 1,00,000

JULY – 2021 – 5 Marks

SNS Trading Company has three Main Departments and two Service Departments. The data for
each department is given below:
Departments Expenses Area (in Sq. Number of
(` ) Mtr.) employees
Main Department:
Purchase Department 5,00,000 12 800
Packing Department 8,00,000 15 1700
Distribution Department 3,50,000 7 700
Service Department:
Maintenance Department 6,40,000 4 200
Personnel Department 3,20,000 6 250
The cost of Maintenance Department and Personnel Department is distributed on the basis of ‘Area
in Square Meters’ and ‘Number of Employees’ respectively:
You are required to:
(i) Prepare a statement showing the distribution of expenses of service departments to the main
departments using the “Step Ladder Method” of overhead distribution.
(ii) Compute the rate per hour of each Main Department, given that, the Purchase Department,
Packing Department and Distribution Department works for 12 hours a day, 24 hours a day
and 8 hours a day respectively. Assume that there are 365 days in a year and there are no
holidays.
(iii)
Solution
(i) & (ii) Overheads Distribution Sheet
Particulars Basis Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
Expenses Allocation 5,00,000 8,00,000 3,50,000 6,40,000 3,20,000
Maintenance Area 1,92,000 2,40,000 1,12,000 (6,40,000) 96,000
Department (12:15:7:6)
Expenses
Personnel No. of Ees 1,04,000 2,21,000 91,000 - (4,16,000)
Department (8:17:7)
Expenses
Total 7,96,000 12,61,000 5,53,000 - -

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Total Hours 12 × 365 24 × 365 8 × 365 = - -

= 4,380 = 8,760 2,920
Rate per
hour 181.74 143.95 189.38 - -
Working Note - 1
Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
Area (in sq. mtr.) 12 15 7 - 6
% of service rendered by
Maintenance Department 30% 37.50% 17.50% - 15%
Number of Employees 800 1700 700 200 -
% of service rendered by
Personnel department 23.53% 50% 20.59% 5.88%
The usual method used for ranking the support departments for Step Down Allocation Method is
% of Service rendered by one Service Department to another. Based on this, Maintenance
Department provides 15% (highest %) of service to Personnel Department. Thus, first maintenance
department expenses should be distributed first.

JAN – 2021 – 5 Marks

A machine shop has 8 identical machines manned by 6 operators. The machine cannot work
without an operator wholly engaged on it. The original cost of all the 8 machines works out to
`32,00,000. The following particulars are furnished for a six months period:
Normal available hours per month per operator 208
Absenteeism (without pay) hours per operator 18
Leave (with pay) hours per operator 20
Normal unavoidable idle time – hours per operator 10
Average rate of wages per day of 8 hours per operator `100
Production bonus estimated 10% on wages
Power consumed `40,250
Supervision and Indirect Labour `16,500
Lighting and Electricity `6,000
The following particulars are given for a year:
Insurance `3,60,000
Sundry work Expenses `50,000
Management Expenses allocated `5,00,000
Depreciation 10% on the original cost
Repairs and Maintenance (including consumables) 5% of the value of all the machines
Prepare a statement showing the comprehensive machine hour rate for the machine shop.

Solution
Effective machine hour = (208 × 6 × 6) – [(18 – 20 – 10) × 6] = 7,200

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Statement of Machine Hour Rate

Particulars Amount (`)
Fixed Expenses
Wages [{(208 × 6 × 6) – (18 × 6)} × (100/8)] 92,250
Bonus (92,250 × 10%) 9,225
Supervision 16,500
Lighting and electricity 6,000
Insurance [3,60,000 × (6/12)] 1,80,000
Depreciation [32,00,000 × 10% × (6/12)] 1,60,000
Sundry work expenses [50,000 × (6/12)] 25,000
Management expenses allocated [5,00,000 × (6/12)] 2,50,000
Fixed expenses 7,38,975
Effective machine hours 7,200
Fixed expenses per machine hour 102.64
Variable Expenses per machine hour
) ! 11.11
Repair & Maintenance H32,00,000 × 5% × !" × *"&&I
$&,"'& 5.59
Power H *,"&& I
Machine hour rate 119.34

NOV – 2020 – 10 Marks

TEE Ltd. is a manufacturing company having three production departments ‘P’, ‘Q’ and ‘R’ and
two service departments ‘X’ and ‘Y’ details pertaining to which are as under:
P Q R X Y
Direct wages (`) 5,000 1,500 4,500 2,000 800
Working hours 13,191 7,598 14,995 - -
Value of machine (`) 1,00,000 80,000 1,00,000 20,000 50,000
H.P. of machines 100 80 100 20 50
Light points (Nos.) 20 10 15 5 10
Floor space (sq. ft.) 2,000 2,500 3,500 1,000 1,000
The expenses are as follows:
(`)
Rent and Rates 10,000
General Lighting 600
Indirect Wages 3,450
Power 3,500
Depreciation on Machines 70,000
Sundries (apportionment on the basis of direct 13,800
wages)
The expenses of Service Departments are allocated as under:

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P Q R X Y
X 45% 15% 30% - 10%
Y 35% 25% 30% 10% -
Product ‘A’ is processed for manufacture in Department P, Q and R for 6, 5 and 2 hours
respectively.
Direct costs of Product A are:
Direct material cost is `65 per unit and direct labour cost is `40 per unit.
You are required to:
(vi) Prepare a statement showing distribution of overheads among the production and service
departments.
(vii) Calculate recovery rate per hour of each production department after redistributing the
service department costs.
(viii) Find out the Total Cost of a ‘Product A’.

Solution
(i) & (ii) Statement of Cost
Item of Cost Basis of Apportionment P (` ) Q (` ) R (`) X (`) Y (`)
Direct Wages Allocation — — — 2,000 800
Rent and Rates Floor Space (2:2.5:3.5:1:1) 2,000 2,500 3,500 1,000 1,000
General Lighting Light Point (20:10:15:5:10) 200 100 150 50 100
Indirect Wages Direct Wages 1,250 375 1,125 500 200
Power (5:1.5:4.5:2:0.8) 1,000 800 1,000 200 500
Dep. of Machine H.P. of Machines 20,000 16,000 20,000 4,000 10,000
Sundries (10:8:10:2:5) 5,000 1,500 4,500 2,000 800
Value-Machine 29,450 21,275 30,275 9,750 13,400
Cost of Dept. X (10:8:10:2:5)
5,041 1,680 3,361 (11,202) 1,120
Cost of Dept. Y Direct Wages
5,082 3,630 4,356 1,452 (14,520)
(5:1.5:4.5:2:0.8)
Total 39,573 26,585 37,992 - -
Overheads 13,191 7,598 14,995 - -
Prod. Hrs 45:15:30:10
3 3.4989 2.53 - -
Worked 35:25:30:10
Rate per Hour
(` )
Let X be the overhead of service cost centre X and Y be the overheads of service cost centre
Y.
X = 9,750 + 0.10 Y
Y = 13,400 + 0.10 X
Substituting the value of X in Y we get
Y = 13,400 + 0.10 (9,750 + 0.10 Y)
Y = 13,400 + 975 + 0.01 Y
0.99 Y = 14,375

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\ Y = `14,520
\ X= 9,750 + (0.10 ´ 14,520) = `11,202
(iii)) Cost of Product A (` )
Direct Material 65.00
Direct Labour 40.00
Prime Cost 105.00
Production on Overheads
P 6 hours ´ `3.00 = 18.00
Q 5 hours ´ `3.4989 = 17.49
R 2 hours ´ `2.53 = _5.06 _40.55
Factory Cost 145.55

NOV – 2019 – 10 Marks

ABS Enterprises produces a product and adopts the policy to recover factory overheads applying
blanket rate based on machine hours. The cost records of the concern reveal following information:
Budgeted production overheads `10,35,000
Budgeted machine hours 90,000
Actual machine hours worked 45,000
Actual production overheads `8,80,000
Production overheads (actual) include –
Paid to worker as per court’s award `50,000
Wages paid for strike period `38,000
Stores written off `22,000
Expenses of previous year booked in current year `18,500
Production –
Finished goods 30,000 units
Sale of finished goods 27,000 units
The analysis of cost information reveals that 1/3 of the under absorption of overheads was due to
defective production planning and the balance was attributable to increase in costs.
You are required:
(i) To find out the amount of under absorbed production overheads.
(ii) To give the ways of treating it in Cost Accounts
(iii) To apportion the under absorbed overheads over the items.

Solution
(i) Amount (`)
Total production overheads actually incurred during the period 8,80,000
Less: Amount paid to worker as per court order 50,000
Less: Expenses of previous year booked in current year 18,500
Less: Wages paid for the strike period under reward 38,000
Less: Obsolete material written off 22,000 (1,28,500)

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7,51,500
Less: Production overheads absorbed (45,000 x `11.5) 5,17,500
Under recovered overheads 2,34,000
!&,%',&&&
Budgeted machine hour rate = (&,&&& Q<K>9= `11.50 per hour

(ii) As one third of the under absorbed overheads i.e. `78,000 (`2,34,000 × 1/3) were due to
defective production policies, this being abnormal, hence should be debited to profit and loss
account.

(iii) Amount of balance under absorbed overheads = `2,34,000 – 78,000 = `1,56,000

!,'),&&&
Supplementary rate = %&,&&& KDAG9= `5.20 per equivalent unit
Amount (`)
Finished stock (27,000 units × 5.20) 1,40,400
Cost of sales (3,000 units × 5.20) _15,600
Total 1,56,000

MAY – 2019 – 5 Marks

M/s Zaina Private Limited has purchased a machine costing `29,14,800 and its is expected to have
a salvage value of `1,50,000 at the end of its effective life of 15 years. Ordinarily the machine is
expected to run for 4,500 hours per annum but it is estimated that 300 hours per annum will be lost
for normal repair & maintenance. The other details in respect of the machine are as follows:
(i) Repair & Maintenance during the whole life of the machine are expected to be `5,40,000.
(ii) Insurance premium (per annum) 2% of the cost of the machine
(iii) Oil and Lubricants required for operating the machine (per annum) `87,384
(iv) Power consumptions: 10 units per hour @ `7 per unit. No power consumption during repair
and maintenance.
(v) Salary to operator per month `24,000. The operator devotes one third of his time to the
machine.
You are required to calculate comprehensive machine hour rate.
Solution
Effective machine hours = 4,500 – 300 = 4,200
Statement of Machine hour Rate
Particulars Amount (`)
Fixed Expenses:
Repair & Maintenance (5,40,000 ÷ 15) 36,000
"(,!$,.&&1!,'&,&&&
Depreciation H !'
I 1,84,320
Insurance (29,14,800 × 2%) 58,296
Oil and Lubricant 87,384
Salary to operator (24,000 × 12 × 1/3) 96,000
Total Fixed Expenses 4,62,000

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Effective Machine hours 4,200

Fixed cost per machine hour 110
Machine Expenses:
Power (10 × 7) 70
Machine Hour Rate 180

NOV – 2018 – 5 Marks

M/s NOP Limited has its own power plant and generates its own power. Information regarding
power requirements and power used are as follows:
Production Dept. Service Dept.
A B X Y
(Horse power hours)
Needed capacity production 20,000 25,000 15,000 10,000
Used during the month of May 16,000 20,000 12,000 8,000
During the quarter ended September 2018, costs for generating power amounted to `12.60 lakhs
out of which `4.20 lakhs was considered as fixed cost.

Service Dept. X renders service to A, B and Y in the ratio of 6:4:2 whereas department Y renders
service to A and B in the ratio 4:1. The direct labour hours of Department A and B are 67,500
hours and 48,750 hours respectively. Required:
1) Prepare overheads distribution sheet
2) Calculate factory overhead per labour hour for the department A and B

Solution Overheads Distribution Sheet

Production
Total Service Department
Particulars Basis Department
Amount
A B X Y
Fixed 4,20,000 1,20,000 1,50,000 90,000 60,000
Overheads Needed cap.
(20:25:15:10)
Variable Used capacity 8,40,000 2,40,000 3,00,000 1,80,000 1,20,000
Overheads (16:20:12:8)
Total 12,60,000 3,60,000 4,50,000 2,70,000 1,80,000
-
Cost of Dept. X 6 : 4 : 2 1,35,000 90,000 (2,70,000) 45,000
Cost of Dept. Y 4: 1 1,80,000 45,000 - (2,25,000)
Total 6,75,000 5,85,000 - -
Labour hours 67,500 48,750
Fact. OH per
hr. `10 `12

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Activity Based Costing

MAY – 2023 – 5 Marks
Beta Limited produces 50,000 units, 45,000 units and 62,000 units of product ‘A’, ‘B’ and ‘C’
respectively. At present the company follows absorption costing method and absorbs overhead on
the basis of direct labour hours. Now, the company wants to adopt Activity Based Costing.

The information provided by Beta Limited is follows:

Product A Product B Product C
Floor space occupied 5,000 Sq. Ft. 4,500 Sq. Ft. 6,200 Sq. Ft.
Direct Labour Hours 7,500 Hours 7,200 Hours 7,800 Hours
Direct Machine Hours 6,000 Hours 4,500 Hours 4,560 Hours
Power consumption 32% 28% 40%
Overhead for the year are as follows:
`
Rent & Taxes 8,63,500
Electricity Expenses 10,66,475
Indirect labour 13,16,475
Repair & Maintenance 1,28,775
33,75,000
Required:
(i) Calculate the overhead rate per labour hour under Absorption Costing
(ii) Prepare a cost statement showing overhead cost per unit for each product – ‘A’, ‘B’ and ‘C’
as per Activity Based Costing

Solution
O<G7F <L?>Q?769 %%,*',&&&
(i) Overhead rate per hour = O<G7F Q<K>9 = "",'&& = `150 per hour

(ii) Statement showing overhead cost per unit as per Activity Based Costing
Overheads Cost driver Total (`) Product A Product B Product C
(` ) (`) (` )
Rates & Floor space 8,63,500 75,000 2,47,500 3,41,000
Taxes (50:45:62)
Electricity Power 10,66,475 3,41,272 2,98,613 4,26,590
consumption
(32:28:40)
Indirect Labour hours 13,16,250 4,38,750 4,21,200 4,56,300
labour (75:72:78)
Repair & Machine 1,28,775 51,000 38,250 39,525
Maintenance hours
(600:450:465)
Total cost 33,75,000 11,06,022 10,05,563 12,63,415
Units 50,000 45,000 62,000
Cost per unit 22.12 22.35 20.38

NOV – 2022 – 10 Marks

XYZ Ltd. is engaged in manufacturing two products – Express Coffee and Instant coffee. It
furnishes the following data for a year:

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Product Actual output Total Machine Total Number of Total number

(units) hours purchase orders of set ups
Express Coffee 5,000 20,000 160 20
Instant Coffee 60,000 1,20,000 384 44
The annual overheads are as under:
Particulars `
Machine Processing costs 7,00,000
Set up related costs 7,68,000
Purchase related costs 6,80,000
You are required to:
(i) Compute the costs allocated to each product – Express Coffee and Instant Coffee from each
activity on the basis of Activity Based costing (ABC) method.
(ii) Find out the Overhead cost per unit of each product – Express coffee and Instant coffee based
on (i) above.

Solution
Estimation of Cost-Driver Rate
Activity Overhead Cost (`) Cost-Driver level Cost Driver Rate
(`)
Machine Processing 7,00,000 1,40,000 machine 5
hours
Set-up Costs 7,68,000 64 Set-ups 12,000
Purchase related costs 6,80,000 544 purchase order 1,250

(i) & (ii) Cost Allocation under Activity Based Costing

Particulars Express Coffee (`) Instant Coffee (`)
Machine processing cost 5 ´ 20,000 = 1,00,000 5 ´ 1,20,000 = 6,00,000
Set-up cost 12,000 ´ 20 = 2,40,000 12,000 ´ 44 = 5,28,000
Purchase related cost 1,250 ´ 160 = 2,00,000 1,250 ´ 384 = 4,80,000
Total overhead cost 5,40,000 16,08,000
Number of units 5,000 60,000
Overhead cost per unit 108 26.80

MAY – 2022 – 10 Marks

Start Limited manufacture three products using the same production methods. A conventional
product costing system is being used currently. Details of three products for a typical period are:
Product Labour Hrs. Machine Hrs. Materials Volume
per unit per unit per unit (in units)
AX 1.00 2.00 35 7,500
BX 0.90 1.50 25 12,500
CX 1.50 2.50 45 25,000
Direct Labour costs `20 per hour and production overheads are absorbed on a machine hour basis.
The overhead absorption rate for the period is `30 per machine hour.

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Management is considering using Activity Based Costing system to ascertain the cost of the
products. Further analysis shows that the total production overheads can be divided as follows:
Particulars %
Cost relating to set-ups 40
Cost relating to machinery 10
Cost relating to material handling 30
Cost relating to inspection 20
Total production overhead 100
The following activity volumes are associated with the product line for the period as a whole. Total
activities for the period:
Product No. of set-ups No. of movements No. of inspections
of Materials
AX 350 200 200
BX 450 280 400
CX 740 675 900
Total 1,540 1,155 1,500
Required:
(i) Calculate the cost per unit for each product using the conventional method.
(ii) Calculate the cost per unit for each product using activity based costing method.

Solution
Working Note:
Total Machine hours = (2 ´ 7,500) + (1.50 ´ 12,500) + (2.50 ´ 25,000) = 96,250
O<G7F 3L?>Q?769
Overhead absorption rate = O<G7F W7HQAD? V<K>9
O<G7F 3L?>Q?769
30 = (),"'&
Total overheads = `28,87,500

(i) Statement of Cost

Particulars Product AX (`) Product BX (`) Product CX (`)
Material cost per unit 35 25 45
Labour cost per unit 1.00 ´ 20 = 20 0.90 ´ 20 = 18 1.50 ´ 20 = 30
Overheads per unit 2.00 ´ 30 = 60 1.50 ´ 30 = 45 2.50 ´ 30 = 75
Total cost per unit 115 88 150

(ii) Calculation of Activity Cost Driver Rates

Activity Amount (`) Cost Driver Cost Driver Rate
Quantity (` )
Set-up Cost 28,87,500 ´ 40% = 1,540 set up `750 per set up
11,55,000
Machinery Cost 28,87,500 ´ 10% = 96,250 machine `3 per machine hour
2,88,750 hours
Material Handling 28,87,500 ´ 30% = 1,155 material `750 per material
cost 8,66,250 movement movement

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Inspection cost 28,87,500 ´ 20% = 1,500 inspections `385 per inspection

5,77,500

Statement of Cost
Particulars Product AX (`) Product BX (`) Product CX (`)
Set-up cost 750 ´ 350 = 750 ´ 450 = 750 ´ 740 =
2,62,500 3,37,500 5,55,000
Machinery cost 3 ´ 2 ´ 7,500 = 3 ´ 1.50 ´ 12,500 = 3 ´ 2.50 ´ 25,000 =
45,000 56,250 1,87,500
Material Handling 750 ´ 200 = 750 ´ 280 = 750 ´ 675 =
cost 1,50,000 2,10,000 5,06,250
Inspection cost 385 ´ 200 = 77,000 385 ´ 400 = 385 ´ 900 =
1,54,000 3,46,500
Total Overheads cost 5,34,500 7,57,750 15,95,250
No. of units 7,500 12,500 25,000
Overheads per unit 71.27 60.62 63.81
Material cost per unit 35 25 45
Labour cost per unit 1.00 ´ 20 = 20 0.90 ´ 20 = 18 1.50 ´ 20 = 30
Total cost per unit 126.27 103.62 138.81

DEC – 2021 – 10 Marks

A drug store is presently selling three types of drugs namely ‘Drug A’, ‘Drug B’ and ‘Drug C’.
due to some constraints, it has decided to go for only one product line of drugs. It has provided the
following data for the year 2020-21 for each product line:
Drug Types
A B C
Revenue (in `) 74,50,000 1,11,75,000 1,86,25,000
Cost of goods sold (in `) 41,44,500 68,16,750 1,20,63,750
Number of purchase orders placed (in 560 810 630
nos)
Number of deliveries received 950 1,000 850
Hours of shelf-stocking time 900 1,250 2,350
Units sold (in nos) 1,75,200 1,50,300 1,44,500
Following additional information is also provided:
Activity Description of Activity Total Cost (`) Cost-allocation base
Drug License fee Drug License fee 5,00,000 To be distributed in ratio
2:3:5 between A, B and
C
Ordering Placing of orders for 8,30,000 2,000 purchase orders
purchases
Delivery Physical delivery and 18,20,000 2,800 deliveries
receipt of goods
Shelf stocking Stocking of goods 32,40,000 4,500 hours of shelf-
stocking time

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Customer Support Assistance provided to 28,20,000 4,70,000 units sold

customers
You are required to:
(i) Calculate the operating income and operating income as a percentage (%) of revenue of each
product line if:
a) All the support costs (other than cost of goods sold) are allocated in the ratio of cost of
goods sold
b) All the support costs (Other than cost of goods sold) are allocated using activity-based
costing system.
(ii) Give your opinion about choosing the product line on the basis of operating income as a
percentage (%) of revenue of each product line under both the situation as above.

Solution
(i) (a) Statement of operating income
Particulars Drug A Drug B Drug C Total
Revenue (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
COGS 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Gross Margin 33,05,500 43,58,250 65,61,250 1,42,25,000
(-) Operating cost (in 16,57,800 27,26,700 48,25,500 92,10,000
COGS Ratio)
Operating Income (B) 16,47,700 16,31,550 17,35,750 50,15,000
Operating income % (B 22.12% 14.60% 9.32% 13.46%
÷ A)

(i) (b) Statement of Cost

Particulars Cost (`) (A) Cost Driver (B) Cost per cost driver
(A÷B)
Ordering 8,30,000 2,000 purchase order `415 per purchase order
Delivery 18,20,000 2,800 deliveries `650 per delivery
Shelf stocking 32,40,000 4,500 hours of shelf `720 per hour of shelf
stocking time stocking time
Customer support 28,20,000 4,70,000 units sold `6 per unit sold

Statement of operating income

Particulars Drug A Drug B Drug C
Revenue (A) 74,50,000 1,11,75,000 1,86,25,000
COGS 41,44,500 68,16,750 1,20,63,750
Gross Margin (B) 33,05,500 43,58,250 65,61,250
Drug License Fee (in 1,00,000 1,50,000 2,50,000
2:3:5)
Ordering cost 415 ´ 560 = 2,32,400 415 ´ 810 = 3,36,150 415 ´ 630 =2,61,450
Delivery cost 650 ´ 950 = 6,17,500 650 ´1000 = 6,50,000 650 ´ 850 = 5,52,500

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Shelf Stocking cost 720 ´ 900 = 6,48,000 720 ´1250 = 9,00,000 720 ´2350 =
16,92,000
Customer support 6 ´ 175200 = 6 ´ 150300 = 6 ´ 144500 =
10,51,200 9,01,800 8,67,000
Operating cost (C) 26,49,100 29,37,950 36,22,950
Operating income (B– 6,56,400 14,20,300 29,38,300
C=D)
Operating income % 8.81% 12.71% 15.78%
(D÷A)

(ii) When the operating costs are distributed on the basis of cost of goods sold, Drug A has the
highest level of operating income percentage because lesser operating cost share is distributed
to it.

Activity based costing shows that Drug C uses the large amount of operating cost resources
than the other two drugs and simultaneously generates the highest level of revenue and thus
operating income percentage is maximum in case of Drug C.

JULY – 2021 – 10 Marks

PQR Ltd. is engaged in the production of three products P, Q and R. The company calculates
Activity Cost Rates on the basis of Cost Driver capacity which is provided as below:
Activity Cost Driver Cost Driver Cost (`)
Capacity
Direct Labour Hours Labour Hours 30,000 Labour Hours 3,00,000
Production runs No. of Production 600 Production runs 1,80,000
runs
Quality Inspections No. of Inspections 8000 Inspections 2,40,000
The consumption of activities during the period is as under:
Activity/ Products P Q R
Direct Labour hours 10,000 8,000 6,000
Production runs 200 180 160
Quality Inspection 3,000 2,500 1,500
You are required to:
(iv) Compute the cost allocated to each Product from each Activity.
(v) Calculate the cost of unused capacity for each activity
(vi) A potential customer has approached the company for supply of 12,000 units of net product
‘S’ to be delivered in lots of 1,500 units per quarter. This will involve an initial design cost
of `30,000 and per quarter production will involve the following:
Direct Material `18,000
Direct Labour hours 1,500 hours
No. of Production runs 15
No. of Quality Inspection 250

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Prepare cost sheet segregating direct and indirect cost and compute the sales value per quarter
of product ‘S’ using ABC system considering a markup of 20% on cost.

Solution
(i) Statement of Cost Driver Rate
Activity Amount Cost driver (B) Cost Driver Rate (A÷B)
(A)
Direct Labour 3,00,000 30,000 Labour Hours `10 per labour hour
Hours
Production runs 1,80,000 600 Production runs `300 per production run
Quality 2,40,000 8000 Inspections `30 per inspection
Inspections

Statement of Cost
Particulars P Q R Total
Direct labour 10 × 10,000 10 × 8,000 10 × 6,000
hour = 1,00,000 = 80,000 = 60,000 2,40,000
Production run 300 × 200 300 × 180 300 × 160
= 60,000 = 54,000 = 48,000 1,62,000
Quality 30 × 3,000 30 × 2,500 30 × 1,500
inspection = 90,000 = 75,000 = 45,000 2,10,000
Total Cost 2,50,000 2,09,000 1,53,000 6,12,000

(ii) Statement of Cost of Unused Capacity

Activity Total Cost Cost Charged to Products Unused Cost
Direct Labour 3,00,000 2,40,000 60,000
Hours
Production runs 1,80,000 1,62,000 18,000
Quality 2,40,000 2,10,000 30,000
Inspections

(iii) Statement of Cost

Particulars Amount (`)
Direct material 18,000
%&,&&& 3,750
Direct expenses (design cost) H!",&&& × 1,500I
Prime Cost 21,750
Add: Overheads
Direct labour hours (1,500 × 10) 15,000
Production run (15 × 300) 4,500
Quality inspection (250 × 30) 7,500

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COS 48,750
Add: Profit (48,750 × 20%) 9,750
Sales 58,500

JAN – 2021 – 10 Marks

ABC Ltd. manufactures three products X, Y and Z using the same plant and resources. It has given
the following information for the year ended on 31st March, 2020:
X Y Z
Production Quantity (units) 1200 1440 1968
Cost per unit:
Direct Material (`) 90 84 176
Direct Labour (`) 18 20 30
Budgeted direct labour rate was `4 per hour and the production overheads, shown in table below,
were absorbed to products using direct labour hour rate. Company followed Absorption Costing
Method. However, the company is now considering adopting Activity Based Costing Method.
Budgeted Cost Driver Remarks
Overheads (`)
Material 50,000 No. of orders No. of orders was 25 units
Procurement for each product
Set-up 40,000 No. of Production All the three products are
Runs produced in production runs
of 48 units.
Quality Control 28,240 No. of Inspections Done for each production
run.
Maintenance 1,28,000 Maintenance Total maintenance hours
Hours were 6,400 and was
allocated in the ratio of 1:1:2
between X, Y and Z.
Required:
(iii) Calculate the total cost per unit of each product using the Absorption Costing Method.
(iv) Calculate the total cost per unit of each product using the Activity Based Costing.

Solution
Working Note:
(1) Total labour hours and recovery rate
Particulars Product X Product Y Product Z Total
Production units 1,200 1,440 1,968 1,27,500
Labour hours per unit 18÷4 = 4.50 20÷4 = 5 30÷4 = 7.50
Total labour hours 5,400 7,200 14,760 27,360
Total Overheads - - - 2,46,240
OHs recovery rate - - - `9

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(2) Cost per activity and driver

Activity Total cost Cost allocation base Cost driver rate
(1) ` (3) (4)=[(2)÷(3)]
(2)
Material 50,000 25 × 3 = 75 orders `666.67 per order
Procurement
Set-up 40,000 !"&& !$$& !().
+ + = 96 `416.67 per run
$. $. $.
run
Quality Control 28,240 !"&& !$$& !().
+ + = 96 `294.17 per run
$. $. $.
run
Maintenance 1,28,000 6,400 hours `20 per hour

(i) Statement of Cost per unit

Particulars X Y Z
Direct material 90 84 176
Direct labour 18 20 30
Overheads 9×4.50 = 40.50 9×5 = 45 9×7.50 = 67.50
148.50 149 273.50

(ii) Statement of Cost per unit

Particulars X Y Z
Direct material 90 84 176
Direct labour 18 20 30
Material "'×))).)* "'×))).)* "'×))).)*
= 13.89 = 11.57 = 8.47
!,"&& !,$$& !,().
procurement
Set-up cost !,"&&×$!).)* !,$$&×$!).)* !,().×$!).)*
$.×!,"&&
= 8.68 $.×!,$$&
= 8.68 $.×!,().
= 8.68
Quality control cost !,"&&×"($.!* !,$$&×"($.!* !,().×"($.!*
$.×!,"&&
= 6.13 $.×!,$$&
= 6.13 $.×!,().
= 6.13
! ! #
Maintenance "&×)$&&×( )
"
"&×)$&&×X Y
"
"&×)$&&×( )
"
!,"&&
= 26.67 = 22.22 !,().
= 32.52
!,$$&

Total Cost per unit 163.37 152.60 261.80

NOV – 2020 – 6 Marks

ABC Ltd. is engaged in production of three types of Fruit Juices: Apple, Orange and Mixed Fruit.
The following cost data for the month of March 2020 are as under:
Particulars Apple Orange Mixed Fruit
Units produced and sold 10,000 15,000 20,000
Material per unit 8 6 5
Direct Labour per unit (`) 5 4 3
No. of purchase orders 34 32 14

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No. of Deliveries 110 64 52

Shelf Stocking Hours 110 160 170
Overheads incurred by the company during the month are as under:
(`)
Ordering costs 64,000
Delivery costs 1,58,200
Shelf Stocking costs 87,560
Required:
(i) Calculate cost driver’s rate
(ii) Calculate total cost of each product using Activity Based Costing.
Solution
(i) Statement of Cost Driver Rate
Activity Amount Cost driver (B) Cost Driver Rate (A÷B)
(A)
Ordering costs 64,000 34 + 32 + 14 = 80 orders `800 per order
Delivery costs 1,58,200 110 + 64 + 52 = 226 `700 per delivery
deliveries
Shelf Stocking 87,560 110 + 160 + 170 = 440 shelf `199 per shelf stocking
costs stocking hours hour

(ii) Statement of Cost

Particulars Apple Orange Mixed Fruit
Material 8 × 10,000 = 80,000 6 × 15,000 = 90,000 5 × 20,000 =
1,00,000
Direct labour 5 × 10,000 = 50,000 4 × 15,000 = 60,000 3 × 20,000 = 60,000
Overheads:
Ordering cost 800 × 34 = 27,200 800 × 32 = 25,600 800 × 14 = 11,200
Delivery cost 700 × 110 = 77,000 700 × 64 = 44,800 700 × 52 = 36,400
Shelf stocking cost 199 × 110 = 21,890 199 × 160 = 31,840 199 × 170 = 33,830
Total Cost 2,56,090 2,52,240 2,41,430

NOV – 2019 – 10 Marks

PQR Ltd. has decided to analyze the profitability of its five new customers. It buys soft drink
bottles in cases at `45 per case and sells them to retail customers at a list price of `54 per case.
The data pertaining to five customers are given below:
Particulars Customers
A B C D E
Number of cases sold 9360 14200 62000 38000 9800
List selling price ` 54 54 54 54 54
Actual selling price 54 53.40 49 50.20 48.60
Number of purchase orders 30 50 60 50 60

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Number of customers visits 4 6 12 4 6

Number of deliveries 20 60 120 80 40
Kilometers travelled per delivery 40 12 10 20 60
Number of expediate deliveries 0 0 0 0 2
It’s five activities and their cost drivers are:
Activity Cost Driver
Order taking `200 per purchase order
Customer visits `300 per each visit
Deliveries `4.00 per delivery km travelled
Product Handling `2.0 per case sold
Expedited deliveries `100 per each such delivery

You are required to:

(i) Compute the customer level operating income of each of five retail customers by sing the
cost driver rates.
(ii) Examine the results to give your comments on Customer ‘D’ in comparison with Customer
‘C’ and on Customer ‘E’ in comparison with Customer ‘A’.

Solution
(i) Statement of operating income
Particulars Customer Customer Customer Customer Customer
A B C D E
Units 9,360 14,200 62,000 38,000 9,800
Revenue 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
[54 × No. of units]
(-) Discount - 8,520 3,10,000 1,44,400 52,920
[(List price – Actual
price) × No. of units]
Net revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(-) Order taking 6,000 10,000 12,000 10,000 12,000
[200×No. of purch. order]
(-) Customer visit 1,200 1,800 3,600 1,200 1,800
[300×No. of visit]
(-) Deliveries 3,200 2,880 4,800 6,400 9,600
[4 × km travel × No. of
deliveries]
(-) Production handling 18,720 28,400 1,24,000 76,000 19,600
[2 × No. of units]
(-) Expedited deliveries - - - - 200
[100×No. of delivery]
(-) COGS 4,21,200 6,39,000 27,90,000 17,10,000 4,41,000

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[45 × No. of units]

Operating Income 55,120 76,200 1,03,600 1,04,000 (7,920)
(ii) Separate disclosure of revenue helps us to identify the relationship between discount and sales
quantity.
Customer Quantity Discount Discount %
A 9,360 - 0%
C 62,000 5 5÷54 = 9.25%
D 38,000 3.80 3.80÷54 = 7.03%
E 8,775 5.40 5.40÷54 = 10%
Customer D gets lower discount as compared to Customer C. It may be due to lower quantity
purchased by customer D as compared to Customer C.
Customer E gets higher discount as compared to Customer A. Customer E discount is higher
in-spite of ordering comparative lower quantity and its reason should be further explored.

MAY – 2019 – 10 Marks

MNO Ltd. manufactures two types of equipment A and B and absorbs overheads on the basis of
direct labour hours. The budgeted overheads and direct labour hours for the month of March 2019
are `15,00,000 and 25,000 hours respectively. The information about the company’s products is
as follows:
Equipment
A B
Budgeted Production Volume 3,200 units 3,850 units
Direct Material Cost `350 per unit `400 per unit
Direct Labour Cost
A: 3 hours @ `120 per hour `360
B: 4 hours @ `120 per hour `480
Overheads of `15,00,000 can be identified with the following three major activities:
Order Processing `3,00,000
Machine Processing `10,00,000
Product Inspection `2,00,000
These activities are driven by the number of orders processed, machine hours worked and
inspection hours respectively. The data relevant to these activities is as follows:
Orders Processed Machine hours Inspection hours
worked
A 400 22,500 5,000
B 200 27,500 15,000
Total 600 50,000 20,000
Required:
(i) Prepare a statement showing the manufacturing cost per unit of each product using the
absorption costing method assuming the budgeted manufacturing volume is attained.

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(ii) Determine cost driver rates and prepare a statement showing the manufacturing cost per unit
of each product using activity based costing, assuming the budgeted manufacturing volume
is attained.
(iii) MNO Ltd.’s selling prices are based heavily on cost. By using direct labour hours as an
application base, calculate the amount of cost distortion (under costed or over costed) for
each equipment.

Solution
(i) Overhead application base: Direct Labour Hours

Equipment A (`) Equipment B (`)

Direct material cost 350 400
Direct labour cost 360 480
Overheads (60×3)(60×4) 180 240
890 1,120
ZK6E?G?6 3L?>Q?769 !',&&,&&&
Pre-determined overhead rate = ZK6E?G?6 6A>?HG F7S<K> Q<K>9= "',&&&
= `60

(ii) Estimation of cost-driver rate

Activity Overhead Cost (`) Cost-driver level Cost driver rate (`)
Order processing 3,00,000 600 order processed 500
Machine processing 10,00,000 50,000 machine hrs. 20
Inspection 2,00,000 15,000 inspection hrs. 10

Calculation of Overhead Costs

Activity Equipment A (`) Equipment B (`)
Order Processing (400×500) (200×500) 2,00,000 1,00,000
Machine processing (22,500×20) (27,500×20) 4,50,000 5,50,000
Inspection (5000×10) (10,000×10) 50,000 1,50,000
Total overhead cost 7,00,000 8,00,000
Total units 3,200 3,850
Overhead per unit 218.75 207.79

Calculation of cost per unit

Equipment A (`) Equipment B (`)
Direct material cost 300 400
Direct labour cost 360 480
Overheads 218.75 207.79
928.75 1,087.79

(c) Statement of cost

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Equipment A (`) Equipment B (`)

Unit manufacturing cost-using direct 890 1,120
labour hours as an application base
Unit manufacturing cost-using activity 928.75 1,087.79
based costing
Cost distortion (-) 38.75 + 32.21

NOV – 2018 – 10 Marks

M/s HMB Limited is producing a product in 10 batches each of 15,000 units in a year and incurring
following overheads thereon:
Amount (`)
Material procurement 22,50,000
Maintenance 17,30,000
Set-up 6,84,500
Quality control 5,14,800
The prime cost for the year amounted to `3,01,39,000.
The company is using currently the method of absorbing overheads on the basis of prime cost.
Now it wants to shift to activity-based costing. Information relevant to activity drivers for a year
are as under:
Activity Driver Activity Volume
No. of purchase orders 1,500
Maintenance hours 9,080
No. of set-ups 2,250
No. of inspections 2,710
The company has produced a batch of 15,000 units and has incurred `26,38,700 and `3,75,200
om materials and wages respectively.
The usage of activities of the said batch are as follows:
Material orders 48 orders
Maintenance hours 810 hours
No. of set-ups 40
No. of inspections 25
You are required to:
(i) Find out cost of product per unit on absorption costing basis for the said batch.
(ii) Determine cost driver rate, total cost and cost per unit of output of the said batch on the
basis of activity based costing.

Solution
(i) Calculation of cost under Absorption Costing:
O<G7F <L?>Q?769 '!,*(,%&&
Overheads absorption rate = O<G7F [>AJ? 49<G × 100 = %,&!,%(,&&& × 100 = 17.18%
Particulars Amount (`)
Material 26,38,700

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Wages 3,75,200
Prime cost 30,13,900
Overheads (30,13,900 × 17.18%) 5,17,930
Total cost 35,31,830
Units 15,000
Cost per unit 235.46

(ii) Statement showing Activity Based Costing

Activity Total Activity Cost Driver
Amount Volume Rate
Material Procurement 22,50,000 1,500 1,500
Maintenance 17,30,000 9,080 190.53
Setup 6,84,500 2,250 304.22
Quality Control 5,14,800 2,710 189.96

Calculation of total cost and cost per unit:

Particulars Amount (`)
Material 26,38,700
Wages 3,75,200
Prime cost 30,13,900
Material purchase (1,500 × 48) 72,000
Maintenance (190.53 × 810) 1,54,328
Set-up (304.22 × 40) 12,169
Quality Control (189.96 × 25) 4,749
Total Cost 32,57,146
Unit 15,000
Cost per unit 217.14

MAY – 2018 – 10 Marks

PQR Pens Ltd. manufactures two products – ‘Gel Pen’ and ‘Ball Pen’. If furnishes the following
data for the year 2017:
Product Annual Output Total Machine Total number Total number
(Units) Hours of Purchase of set-ups
orders
Gel Pen 5,500 24,000 240 30
Ball Pen 24,000 54,000 448 56
The annual overheads are as under:
Particulars `
Volume related activity costs 4,75,020
Set up related costs 5,79,988
Purchase related costs 5,04,992

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Calculate the overhead cost per unit of each Product – Gel Pen and Ball Pen on the basis of:
(i) Traditional method of charging overheads
(ii) Activity based costing method and
(iii) Find out the difference in cost per unit between both the methods.

Solution
(i) Calculation of cost under Traditional Approach:
O<G7F <L?>Q?769 !',)&,&&&
Overheads rate per Machine hour = O<G7F J7HQAD? Q<K>9= "$,&&&/'$,&&& = `20 per machine hour

Statement of Cost
Particulars Gel Pen Ball Pen
Overheads absorbed (A) 20 × 24,000 = 4,80,000 20 × 54,000 = 10,80,000
Units (B) 5,500 24,000
Overheads per unit (A ÷ B) 87.27 45
(ii) Statement showing Activity Based Cost
Activity Cost Pool Cost Driver Ratio Total Gel Pen Ball Pen
Amount (`) (`)
(`)
Volume Related Machine Hour 24:54 4,75,020 1,46,160 3,28,860
Activity Costs
Set-up Related No. of Set-ups 30:56 5,79,988 2,02,321 3,77,667
Costs
Purchase Related No. of Purchase 240:448 5,04,992 1,76,160 3,28,832
Costs Orders
Total Costs 5,24,641 10,35,359
Output (Units) 5,500 24,000
Cost per unit 95.39 43.13

(iii) Statement of Difference in Cost

Particulars Gel Pen Ball Pen
Overheads cost per unit (`) – Traditional Approach 87.27 45
Overheads Cost per unit (`) – ABC 95.39 43.13
Difference per unit -8.12 +1.87

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Batch Costing
May – 2023 – 5 Marks
TSK Limited manufactures a variety of products. The annual demand for one of its products –
Product ‘X’ is estimated as `1,35,000 units. Product ‘X’ is to be manufactured done in batches.
Set up cost of each batch is `3,375 and inventory holding cost is `5 per unit. It is expected that
demand of Product ‘X’ would be uniform throughout the year.
Required:
(i) Calculate the Economic Batch (EBQ) for Product ‘X’.
(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product ‘X’ per
batch, calculate the additional cost incurred as compared to the cost incurred as per Economic
Batch Quantity (EBQ) as computed in (i) above.

Solution
(i) Annual demand for the product = A = 1,35,000
Set-up cost per batch = S = `3,375
Carrying cost per unit per annum = C = `5
"×2×@ "×!,%',&&&×%,%*'
Economic batch quantity (EBQ) = Q 4
=Q '
= 13,500 units

(ii) Statement of cost

Particulars Batch size = 13,500 units Batch size = 7,500 units
Total Set-up cost !,%',&&& !,%',&&&
!%,'&&
× 3,375 = 33,750 *,'&&
× 3,375 = 60,750
Total Carrying cost !%,'&& *,'&&
× 5 = 33,750
" "
× 5 = 18,750
Total cost 67,500 79,500
`12,000 is the excess cost borne by the company due to batch size not being economic batch
quantity.

NOV – 2022 – 5 Marks

A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey Pox,
Covid-19 and Chickenpox. A distributor had given an order for 1,600 Monkey Pox Vaccines. The
company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox vaccines, the
following costs would be incurred:
Direct Materials `4,250
Direct wages `500
Lab set-up cost `1,400
The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total
production cost is charged in each batch for Selling, distribution and administration Overheads.
The company is willing to earn profit of 25% on sales value.
You are required to determine:
(i) Total Sales value for 1,600 Monkey Pox Vaccines
(ii) Selling price per unit of the Vaccine
Solution
(i) & (ii) Calculation of Sales value and Selling Price per unit of Monkey Pox Vaccine
Particulars Amount per batch Amount for 1,600 Amount per unit (`)
(` ) units or 20 batches
(` )
Direct materials 4,250 85,000 53.125

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Direct wages 500 10,000 6.250

Lab set-up cost 1,400 28,000 17.500
Production overheads 100 2,000 1.250
(20% of direct wages)
Production cost 6,250 1,25,000 78.125
Selling, distribution 1,250 25,000 15.625
and administration
cost (20% of
production cost)
Total Cost 7,500 1,50,000 93.75
Add: Profit (1/3rd of 2,500 50,000 31.25
Total cost or 25% of
Sales value)
Sales Value 10,000 2,00,000 125.00

JULY – 2021 – 5 Marks

AUX ltd. has an annual demand from a single customer for 60,000 Covid-19 Vaccines. The
customer prefers to order in the lot of 15,000 vaccines per order. The production cost of vaccine is
`5,000 per vaccine. The set-up cost per production run of Covid-19 vaccines is `4,800. The
carrying cost is `12 per vaccine per month.
You are required to:
(i) Find the most Economical Production Run
(ii) Calculate the extra cost that company incurs due to production of 15,000 vaccines in a batch.

Solution
(i) Annual demand = A = 60,000 vaccines
Set-up cost per run = S = `4,800
Carrying cost per unit per annum = C = `12 × 12 = `144
"×2×@ "×)&,&&&×$,.&&
Economic Batch Quantity = Q 4
=Q !$$
= 2,000 vaccines

(ii) Statement of Cost

Particulars Batch size = 2,000 vaccines Batch size = 15,000
vaccines
Set-up cost )&,&&& )&,&&&
",&&&
× 4,800 = 1,44,000 !',&&&
× 4,800 = 19,200
Carrying cost ",&&& !',&&&
"
× 144 = 1,44,000 × 144 = 10,80,000
"
Total Cost 2,88,000 10,99,200
Extra cost = `10,99,200 – `2,88,000 = `8,11,200

JAN – 2021 – 5 Marks

GHI Ltd. manufactures ‘Stent’ that is used by hospitals in heart surgery. As per the estimates
provided by Pharmaceutical Industry Bureau, there will be a demand of 40 Million ‘Stents’ in the
coming year. GHI Ltd. is expected to have a market share of 2.5% of the total market demand of

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the Stents in the coming year. It is estimated that is costs `1.50 as inventory holding cost per stent
per month and that the set-up cost per run of stent manufacture is `225.
Required:
(i) What would be optimum run size for Stent manufacture?
(ii) What is minimum inventory holding cost?
(iii) Assuming that the company has a policy of manufacturing 4,000 stents per run, how much
extra costs the company would be incurring as compared to the optimum run suggested in (i)
above?

Solution
(i) Annual demand = A = 2.5% × 4,00,00,000 = 10,00,000 stents
Set-up cost per run = S = `225
Carrying cost per unit per annum = C = `1.50 × 12 = `18
"×2×@ "×!&,&&,&&&×""'
Economic Batch Quantity = Q 4
=Q !.
= 5,000 stents

',&&&
(ii) Minimum inventory holding cost = "
× 18 = `45,000

(iii) Statement of Cost

Particulars Batch size = 4,000 stent Batch size = 5,000 stent
Set-up cost !&,&&,&&& !&,&&,&&&
$,&&&
× 225 = 56,250 ',&&&
× 225 = 45,000
Carrying cost $,&&& ',&&&
"
× 18 = 36,000 × 18 = 45,000
"
Total Cost 92,250 90,000
Extra cost = `92,250 – `90,000 = `2,250

NOV – 2018 – 10 Marks

XYZ Ltd. has obtained an order to supply 48,000 bearings per year from a concern. On a steady
basis, it is estimated that it costs `0.20 as inventory holding cost per bearing per month and the
set-up cost per run of bearing manufacture is `384.

You are required to:

(i) Compute the optimum run size and number of runs for bearing manufacture.
(ii) Compute the interval between two consecutive runs
(iii) Find out the extra costs to be incurred, if company adopts a policy to manufacture 8,000
bearings per run as compared to optimum run size
(iv) Give your opinion regarding run size of bearing manufacture.
Assume 365 days in a year.

Solution
"×2×@ "×$.,&&&×%.$
(i) Economic batch quantity = Q 4
=Q &."&×!"
= 3,919.18 or 3,920 units

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Number of optimum runs = 48,000 ÷ 3,920 = 12.245 or 13 run

(ii) Interval between 2 runs (in days) = 365 ÷ 13 = 2 days

Or 365 ÷ 12.24 = 29.82 days

(iii) Total cost at economic batch quantity level = Set-up cost + Carrying cost
$.,&&& %,("&
= !H %,("& I × 384- + !H "
I × 0.20 × 12-= `9,406

Total cost at level of 8,000 bearings per run = Set-up cost + Carrying cost
$.,&&& .,&&&
= !H .,&&& I × 384- + !H "
I × 0.20 × 12-= `11,904
Extra cost to be incurred by the company = `11,904 – `9,406 = `2,498

(iv) Since total cost is lower when the company adopts economic batch quantity as compared to
suggested level of 8,000 units by `2,498, thus it is recommended to have economic batch
quantity i.e. 3,920 as run size of manufacturing.

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Job Costing
MAY – 2022 – 10 Marks
In a manufacturing company, the overhead is recovered as follows:
Factory overheads: a fixed percentage basis on direct wages and
Administrative overheads: a fixed percentage basis on factory cost.

The company has furnished the following data relating to two jobs undertaken by it in a period.
Job 1 (`) Job 2 (`)
Direct materials 1,08,000 75,000
Direct wages 84,000 60,000
Selling price 3,33,312 2,52,000
Profit percentage on total cost 12% 20%
You are required to:
(i) Compute the percentage recovery rates of factory overheads and administrative
overheads.
(ii) Calculate the amount of factory overheads, administrative overheads and profit for each
of the two jobs.
(iii) Using the above recovery rates, determine the selling price to be quoted for Job 3.
Additional data pertaining to Job 3 is as follows:
Direct materials `68,750
Direct wages `22,500
Profit percentage on selling price 15%

Solution
(i) Let factory overheads recovery rate be X % of direct labour and administrative overheads
recovery rate be Y % of work cost.
Job 1 Job 2
Selling Price 3,33,312 2,52,000
Less: Profit [3,33,312 × 12/112] [2,52,000 × 20/120] _35,712 _42,000
Total Cost 2,97,600 2,10,000
Particulars Job 1 Job 2
Material Cost 1,08,000 75,000
Direct Wages 84,000 60,000
Prime Cost 1,92,000 1,35,000
Overheads 840X 600X
Work Cost 1,92,000 + 840X 1,35,000 + 600X
Administration
OHs 1,920Y + 8.4XY 1,350Y + 6XY
Cost of 1,92,000 + 840X + 1,920Y +
Production 8.4XY 1,35,000 + 600X + 1,350Y + 6XY

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\ 1,92,000 + 840X + 1,920Y + 8.4XY = 2,97,600 Þ 840X + 1,920Y + 8.4XY = 1,05,600…….(1)

& 1,35,000 + 600X + 1,350Y + 6XY = 2,10,000 Þ 600X + 1,350Y + 6XY = 75,000…….(2)
Solving the two equations,
X = 66.6667 and Y = 20
Thus factory overheads = X % = 66.6667% on direct wages
Administration overheads = Y% = 20% on factory cost

(b) Statement of Cost

Particulars Job 101 Job 102
Material Cost 1,08,000 75,000
Direct Wages 84,000 60,000
Prime Cost 1,92,000 1,35,000
Overheads (66.6667% of wages) 56,000 40,000
Work Cost 2,48,000 1,75,000
Administration overheads (20% of work cost) 49,600 35,000
Cost of Production 2,97,600 2,10,000
Profit 35,712 42,000
Selling Price 3,33,312 2,52,000
(c) Statement of computation of selling price of Job 3
Particulars Job 3
Material Cost 68,750
Direct Wages 22,500
Prime Cost 91,250
Overheads (66.6667% of wages) 15,000
Work Cost 1,06,250
Administration overheads (20% of work cost) 21,250
Cost of Production 1,27,500
Profit [1,27,500 × 15/85] 22,500
Selling Price 1,50,000

NOV – 2019 – 5 Marks

The following data presented by the supervisor of a factory for a Job.
`per unit
Direct material 120
Direct wages @ `4 per hour 60
(Department A-4 hrs., B-7hrs, C-2hrs & D-2hrs)
Chargeable Expenses 20
Total 200

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Analysis of the Profit and Loss Account for the year ended 31st March 2019
` `
Material used 2,00,000 Sales 4,30,000
Direct Wages:
Dept. A 12,000
Dept. B 8,000
Dept. C 10,000
Dept. D 20,000 50,000
Special Stores Items 6,000
Overheads:
Dept. A 12,000
Dept. B 6,000
Dept. C 9,000
Dept. D 17,000 44,000
Gross Profit c/d 1,30,000 ________
4,30,000 4,30,000
Selling Expenses 90,000 Gross Profit b/d 1,30,000
Net Profit _40,000 _______
1,30,000 1,30,000
It is also to be noted that average hourly rates for all the four departments are similar. Required:
(i) Prepare a Job Cost Sheet
(ii) Calculate the entire revised cost using the above figures as the base.
(iii) Add 20% profit on selling price to determine the selling price.

Solution
Working Notes:
Overhead recovery rate on overall basis:
$$,&&&
Overhead recovery rate = $%,%%% = `3.52
X Y
"

Statement of calculation of recovery rates

Particulars Working Recovery Rate
Dept. A 12,000 `4 per direct labour hour
12,000
H 4 I
Dept. B 6,000 `3 per direct labour hour
8,000
H 4 I
Dept. C 9,000 `3.60 per direct labour
10,000 hour
H 4 I
Dept. D 17,000 `3.40 per direct labour
20,000 hour
H 4 I

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Selling exp. As % 90,000 30% of NFC

of NFC 2,00,000 + 50,000 + 6,000 + 44,000
× 100

(i) Statement of calculation of cost of Job

Particulars Working Amount (`)
Material 120
Wages 60
Chargeable expenses 20
Prime Cost 200
(+) Overheads (4+7+2+2)×3.52 52.80
GFC\NFC 252.80
(+) Selling expenses 30% × 252.80 75.84
Total Cost 328.64

(ii) Statement of calculation of cost of Job

Particulars Working Amount (`)
Material 120
Wages 60
Chargeable expenses 20
Prime Cost 200
(+) Overheads Dept. A = 4 × 4.00 = 16
Dept. B = 7 × 3.00 = 21
Dept. C = 2 × 3.60 =
7.20
Dept. D = 2 × 3.40 =
6.80 51
GFC\NFC 251
(+) Selling expenses 30% × 251 75.30
Total Cost 326.30

(iii) Statement of calculation of selling price of job

Total cost of job `326.30
Add: Profit (326.30 × ¼) `81.58_
Sales `407.88

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Cost Accounting System

MAY – 2023 – 5 Marks
The following information has been obtained from financial accounting and cost accounting
records.
Financial Accounting (`) Cost Accounting (`)
(i) Factory overhead 94,750 90,000
(ii) Administrative overhead 60,000 57,000
(iii) Selling overhead 55,000 61,000
(iv) Opening stock 17,500 22,500
(v) Closing stock 12,500 15,000
Required:
Indicate under-recovery and over-recovery and their effects on cost accounting profit.
[Note: You are not required to prepare reconciliation statement]

Solution
Financial Cost Differenc Under/Ove Effect on Net effect
Accountin Accountin e (` ) r recovery cost on cost
g (` ) g (` ) accountin accountin
g profit g profit*
Factory 94,750 90,000 4,750 Under- Increased To be
overheads recovery reduced or
deducted
Administrativ 60,000 57,000 3,000 Under- Increased To be
e overheads recovery reduced or
deducted
Selling 55,000 61,500 -6,500 Over- Decreased To be
overheads recovery added
Opening 17,500 22,500 -5,000 Over Decreased To be
stock valuation added
Closing stock 12,500 15,000 -2,500 Over Increased To be
valuation reduced or
deducted
*Taking cost accounting profit as base

NOV – 2022 – 5 Marks

‘X’ Ltd. follows Non-Integrated Accounting system. Financial Accounts of the company show a
Net Profit of `5,50,000 for the year ended 31st March, 2022. The chief accountant of the company
has provided following information from the financial accounts and cost accounts:
Sr. No. Particulars (`)
(i) Legal charges provided in financial accounts 15,250
(ii) Interim dividend received credited in financial accounts 4,50,000
(iii) Preliminary expenses written off in financial accounts 25,750
(iv) Over recovery of selling overheads in cost accounts 11,380
(v) Profit on sale of capital asset credited in financial accounts 30,000
(vi) Under valuation of closing stock in cost accounts 25,000
(vii) Over recovery of production overheads in cost accounts 10,200

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(viii) Interest paid on debenture shown in financial accounts 50,000

Required:
Find out the Profit (Loss) as per Cost Accounts by preparing a reconciliation statement.

Solution
Reconciliation Statement
Particulars (` ) Total (`)
Profit as per Financial Accounts 5,50,000
Add: Legal charges 15,250
Preliminary expenses written off 25,750
Interest paid 50,000 91,000
6,41,000
Less: Under-valuation of closing stock in cost books 25,000
Interim dividend received 4,50,000
Over recovery of selling overheads in cost accounts 11,380
Over recovery of production overhead in cost accounts 10,200
Profit on sale of assets 30,000 5,26,580
Profit as per Cost Accounts 1,14,420

MAY – 2022 – 5 Marks

Journalize the following transactions assuming the cost and financial accounts are integrated:
Particulars Amount (`)
Direct Materials issued to production `5,58,000
Allocation of Wages (Indirect) `7,50,000
Factory Overheads (Over absorbed) `2,25,000
Administrative Overheads (Under absorbed) `1,55,000
Deficiency found in stock of Raw material (Normal) `2,00,000

Solution
Journal Entries
Particular Dr. (`) Cr. (`)
(i) WIP Ledger Control A/c Dr. 5,88,000
To Stores Ledger Control A/c 5,88,000
(ii) Factory Overhead Control A/c Dr. 7,50,000
To Wages Control A/c 7,50,000
(iii) Factory Overheads Control A/c Dr. 2,25,000
To Costing P&L A/c 2,25,000
(iv) Costing P&L A/c Dr. 1,55,000
To Administrative Overheads Control A/c 1,55,000
(v) Factory Overheads Control A/c Dr. 2,00,000
To Stores Ledger Control A/c 2,00,000

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DEC – 2021 – 5 Marks

R Ltd. showed a Net profit of `3,60,740 as per their cost accounts for the year ended 31st March,
2021. The following information was revealed as a result of scrutiny of the figures from the both
sets of accounts.
Sr. No. Particulars (` )
i. Over recovery of selling overheads in cost accounts 10,250
ii. Over valuation of closing stock in cost accounts 7,300
iii. Rent received credited in financial accounts 5,450
iv. Bad debts provided in financial accounts 3,250
v. Income tax provided in financial accounts 15,900
vi. Loss on sale of capital asset debited in financial accounts 5,800
vii. Under recovery of administration overheads in cost accounts 3,600
Required to prepare a reconciliation statement showing the profit as per financial records.

Solution
Reconciliation Statement
Particulars + (` ) - (` )
Profit as per cost accounts 3,60,740 -
Add: Over recovered selling OHs 10,250 -
Less: Over valued closing stock in cost accounts - 7,300
Add: Rent received credited in financial accounts 5,450 -
Less: Bad Debts provided in financial accounts - 3,250
Less: Income tax provided in financial accounts - 15,900
Less: Loss on sale of capital assets in financial accounts - 5,800
Less: Under recovered administration overheads in cost - 3,600
3,76,440 35,850
Loss as per financial account - 3,40,590

JULY – 2021 – 10 Marks

The profit and loss account of ABC Ltd. for the year ended 31st March, 2021 is given below:
Profit and Loss Account
(for the year ended 31st March, 2021)
To Direct Material 6,50,000 By Sales 15,00,000
To Direct Wages 3,50,000 (15,000 units)
To Factory overheads 2,60,000 By Dividend 9,000
received
To Administrative overheads 1,05,000
To Selling overheads 85,000
To loss on sale of 2,000
investments
To Net Profit 57,000
15,09,000 15,09,000

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• Factory overheads are 50% fixed and 50% variable

• Administrative overheads are 100% fixed
• Selling overheads are completely variable
• Normal production capacity of ABC Ltd. is 20,000 units
• Indirect expenses are absorbed in the cost accounts on the basis of normal production
capacity.
• Notional rent of own premises charged in cost accounts is amounting to `12,000.
You are required to:
(i) Prepare a cost sheet and ascertain the Profit as per cost Records for the year ended 31st
March, 2021.
(ii) Reconcile the profit as per Financial records with Profit as per Cost Records.

Solution
(i) Cost Sheet
Particulars Amount
Raw material consumed 6,50,000
Direct wages 3,50,000
Prime Cost 10,00,000
",)&,&&&×'&%
Add: Fixed factory overheads H "&,&&&
× 15,000I 97,500
Add: Variable factory overheads (2,60,000 × 50%) 1,30,000 2,27,500
Add: Notional rent of own premises 12,000
GFC/NFC/COP/COGS 12,39,500
!,&',&&& 78,750
Add: Administrative overheads H "&,&&& × 15,000I
Add: selling & Distribution overheads 85,000
Cost of Sales 14,03,250
Add: Profit (Balancing figure) 96,750
Sales 15,00,000

(ii) Reconciliation Statement

Particulars + (` ) - (` )
Profit as per P&L Account 57,000 -
Add: Under recovered factory overheads (2,60,000 – 32,500 -
2,27,500)
Less: Notional rent of own premises - 12,000
Add: Under recovered administrative overheads (1,05,000 – 26,250 -
78,750)
Add: Loss on sale of investment 2,000 -
Less: Dividend received - 9,000
Total 1,17,750 21,000
Profit as per Cost Account 96,750 -

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NOV – 2019 – 5 Marks

Journalize the following transactions in cost books under Non-Integrated system of accounting.
(i) Credit Purchase of Material `27,000
(ii) Manufacturing overhead charged to Production `6,000
(iii) Selling and Distribution overheads recovered from sales `4,000
(iv) Indirect wages incurred `8,000
(v) Material returned from production to stores `9,000

Solution
Journal Entries
Particular Dr. (`) Cr. (`)
(i) Stores Ledger Control A/c Dr. 27,000
To General Ledger Adjustment A/c 27,000
(ii) Work-in-progress Ledger Control A/c Dr. 6,000
To Factory Overheads Control A/c 6,000
(iii) Cost of Sales A/c Dr. 4,000
To Selling & Distribution OHs Control A/c 4,000
(iv) Wages Control A/c Dr. 8,000
To General Ledger Adjustment A/c 8,000
(v) Stores Ledger Control A/c Dr. 9,000
To Work-in-progress Ledger Control A/c 9,000

MAY – 2019 – 5 Marks

M/s Abid Private Limited disclosed a net profit of `48,408 as per cost books for the year ending
31st March 2019. However, financial accounts disclosed net loss of `15,000 for the same period.
On scrutinizing both the set of books of accounts, the following information was revealed:
Works overheads under recovered in cost books 48,600
Office overheads over-recovered in cost books 11,500
Dividend received on shares 17,475
Interest on fixed deposits 21,650
Provision for doubtful debts 17,800
Obsolescence loss not charged in cost accounts 17,200
Stores adjustments (debited in financial accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciation recovered in cos books 35,000
Prepare a Memorandum Reconciliation Account.

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Solution
Memorandum Reconciliation Account
Particulars ` Particulars `
To Work overheads under 48,600 To Net Profit as per cost books 48,408
recovered By Office overheads over
To Provision for doubtful debts 17,800 recovered 11,500
To Obsolescence loss 17,200 By Dividend received on shares 17,475
To Store adjustment (Debit) 35,433 By Interest on fixed deposits 21,650
By Depreciation over charged 5,000
By Net loss as per financial 15,000
1,19,033 accounts 1,19,033

NOV – 2018 – 10 Marks

The following balances were extracted from a Company’s ledger as on 30th June, 2018
Debit (`) Credit (`)
Raw material control A/c 2,82,450
Work-in-progress control A/c 2,38,300
Finished stock control A/c 3,92,500
General ledger adjustment A/c 9,13,250
9,13,250 9,13,250

The following transactions took place during the quarter ended 30th September, 2018:
`
Factory overheads – allocated to work-in-progress 1,36,350
Goods finished – at cost 13,76,200
Raw material purchased 12,43,810
Direct wages – allocated to work-in-progress 2,56,800
Cost of goods sold 14,56,500
Raw materials – issued to production 13,60,430
Raw materials – credited by suppliers 27,200
Raw materials losses – inventory audit 6,000
Work-in-progress rejected (with no scrap value) 12,300
Customer’s returns (at cost) of finished goods 45,900

You are required to prepare:

(i) Raw material control a/c
(ii) Work-in-progress control a/c
(iii) Finished stock control a/c
(iv) General ledger adjustment a/c

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Solution
Raw Material Control A/c
To Balance B/d 2,82,450 By General Ledger Adj. A/c 27,200
To General Ledger Adj. A/c 12,43,810 By Work in Progress Control A/c 13,60,430
By Costing P&L A/c (Loss) 6,000
By Balance c/d (Balance figure) 1,32,630
15,26,260 15,26,260

Work in Progress Control A/c

To Balance b/d 2,38,300 By Finished goods Control A/c 13,76,200
To Raw material control A/c 13,60,430 By Costing P&L A/c 12,300
To Wages control A/c 2,56,800 By Balance c/d (Balancing 6,03,380
To Factory OH control A/c 1,36,350 Figure)
19,91,880 19,91,880

Finished Stock Ledger Control A/c

To Balance b/d 3,92,500 By Cost of Sales A/c 14,56,500
To Work in Progress Control A/c 13,76,200 By Balance c/d (Bal. Fig.) 3,58,100
To General Ledger Adjustment A/c 45,900
18,14,600 18,14,600

General Ledger Adjustment A/c

To Costing P&L (Sales) (Bal. fig.) 25,68,910 By Balance B/d 9,13,250
To Raw material control A/c 27,200 By Raw material control a/c 12,43,810
By Wages control A/c 2,56,800
By Factory OH control A/c 1,36,350
By Finished Goods Control A/c 45,900
9,55,000 25,96,110

MAY – 2018 – 5 Marks

GK Ltd. showed net loss of `2,43,300 as per their financial accounts for the year ended 31st March,
2018. However, cost accounts disclosed net loss of `2,48,300 for the same period. On scrutinizing
both the set of books
of accounts, the following information were revealed:
`
(i) Works overheads over recovered 30,400
(ii) Selling overheads under recovered 20,300
(iii) Administrative overheads under recovered 27,700
(iv) Depreciation over charged in cost accounts 35,100
(v) Bad debts w/off in financial accounts 15,000

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(vi) Preliminary expenses w/off in financial accounts 5,000

(vii) Interest credited during the year in financial accounts 7,500
Prepare a reconciliation statement reconciling losses shown by financial and cost accounts by
taking costing net loss as base.

Solution
Reconciliation Statement
Particulars + (` ) - (` )
Loss as per cost accounts - 2,48,300
Add: Over recovered Works OHs 30,400 -
Less: Under recovered Selling OHs - 20,300
Less: Under recovered administrative OHs - 27,700
Add: Depreciation over charged in cost accounts 35,100 -
Less: Bad Debts w/off in financial accounts - 15,000
Less: Preliminary expenses w/off in financial accounts - 5,000
Add: Interest credited during the year in financial accounts 7,500 -
73,000 3,16,300
Loss as per financial account - 2,43,300

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Service Costing
MAY – 2023 – 5 Marks
RST Toll Plaza Limited built an 80-kilometer-long highway between two cities and operates a toll
plaza to collect tolls from passing vehicles using the highway. The company has estimated that
50,000 light weight, 12,000 medium weight and 10,000 heavy weight vehicles will be using the
highway in one month in outward journey and the same number for return journey.

As per government notification, vehicles used for medical emergencies, Members of Parliament,
and essential services are exempt from toll charges. It is estimated that 10% of light weight vehicles
will pass the highway for such use.

It is the policy of the company that if vehicles return within 24 hours of their outward journey, the
toll fare will be reduced by 25 percent automatically. It is estimated that 30% of chargeable light
weight vehicles return within the specified time frame.

The toll charges for medium weight vehicles is to be fixed as 2.5 times of the light weight vehicles
and that of heavy weight vehicles as 2 times of the medium weight vehicles.

The toll and maintenance cost for a month is `59,09,090. The company requires a profit of 10%
over the total cost to cover interest and other costs.
Required:
(i) Calculate the toll rate for each type of vehicle if concession facilities are not available on the
return journey.
(ii) Calculate the toll rate that will be charged from light weight vehicles if a return journey
concession facility is available, assuming that the revenue earned from light weight vehicles
calculated in option (i) remains the same.
Solution
Working Notes:
(1) Calculation of equivalent number of light vehicles
Type of vehicles Monthly traffic Return traffic Ratio (C) Equivalent light
(A) (B) weight
[(A+B)´C]
Light weight 45,000* 45,000 1 90,000
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,50,000
*50,000 light vehicles less 10% exempted vehicles.
(2) Calculation of equivalent number of light weight vehicles
Type of vehicles Monthly Return traffic (B) Ratio (C) Equivalent light
traffic (A) weight
[(A+B)´C]
Light weight 45,000* 41,625 1 86,625
(45,000 – [45,000
´ 30% ´ 25%)]
Medium weight 12,000 12,000 2.5 60,000
Heavy weight 10,000 10,000 5 1,00,000
2,46,625

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O<G7F H<9G G< H<L?> ('(,&(,&(&/!&%) )',&&,&&&

(i) Toll rate per vehicle = \]KAL7F?DG G8C? <= L?QAHF?9 = ",'&,&&&
= ",'&,&&&
= `26
Toll rate for light weight vehicle = `26
Toll rate for medium weight vehicle = `26 ´ 2.5 = `65
Toll rate for heavy weight vehicle = `26 ´ 5 = `130

(ii) Revenue from light weight vehicle in (i) above = 90,000 vehicles ´ `26 = `23,40,000
"%,$&,&&&
New toll rate to maintain the same revenue from Light weight vehicle = .),)"' = `27.01
Rate to be charged from 13,500 light weight vehicles = 27.01 ´ 0.75 = `20.26

Toll to be charged from light weight vehicles if concession applicable

Revenue share in light vehicles = 90,000 ´ 26 = `23,40,000
Suppose rate is x,
then outward journey 45,000 x;
return journey (45,000 – 30% of 45,000) + 13,500(x – 0.25)
45,000x + 31,500x + 13,500(0.75x) = 23,40,000
Toll rate to be charged from light weight vehicles: 86,625x = 23,40,000
X = `27.01
Rate to be charged from 76,500 light weight vehicles @ `27.01; revenue will be `20,66,494
Rate to be charged from 13,500 light weight vehicles = 27.01 ´ 0.75 = 20.26
Revenue will be `2,73,506

NOV – 2022 – 5 Marks

ABC Bank is having a branch which is engaged in processing of ‘Vehicle Loan’ and ‘Education
Loan’ applications in addition to other services to customers. 30% of the overhead costs for the
branch are estimated to be applicable to the processing of ‘Vehicle Loan’ applications and
‘Education Loan’ applications each.

Branch is having four employees at a monthly salary of `50,000 each, exclusively for processing
of Vehicle Loan applications and two employees at a monthly salary of `70,000 each, exclusively
for processing of Education Loan applications.
In addition to above, following expenses are incurred by the Branch:
• Branch Manager who supervises all the activities of branch, is paid at `90,000 per month.
• Legal charges, Printing & stationery and advertising expenses are incurred at `30,000,
`12,000 and `18,000 respectively for a month.
• Other expenses are `10,000 per month.
You are required to:
(a) Compute the cost of processing a Vehicle Loan application on the assumption that 496 Vehicle
Loan applications are processed each month.
(b) Find out the number of Education Loan applications if the total processing cost per Education
Loan Application is sale as in the Vehicle loan Application as computed in (i) above.

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Solution
Particulars Vehicle Loan Education Loan Total (`)
Applications (`) Applications (`)
Employee Cost 50,000 ´ 4 = 70,000 ´ 2 = 1,40,000 3,40,000
2,00,000
Apportionment of branch 27,000 27,000 54,000
manager’s salary
Legal charges, printing & 18,000 18,000 36,000
stationary and advertising
Other expenses 3,000 3,000 6,000
Total cost 2,48,000 1,88,000 4,36,000
O<G7F H<9G ",$.,&&&
(a) Cost of processing vehicle loan application = ;<.<= 7CCFAH7GA<D9 = $()
= `500
O<G7F H<9G
(b) Cost of processing education loan application = ;<.<= 7CCFAH7GA<D9
!,..,&&&
500 = ;<.<= 7CCFAH7GA<D9
!,..,&&&
No. of applications = '&&
= 376

MAY – 2022 – 5 Marks

Coal is transported from two mines X & Y and unloaded at plots in a railway station. X is at
distance of 15 kms and Y is at a distance of 20 kms from the rail head plots. A fleet of lorries
having carrying capacity of 4 tonnes is used to transport coal from the mines. Records reveal that
average speed of the lorries is 40 kms per hour when running and regularly take 15 minutes to
unload at the rail hear.

At Mine X average loading time is 30 minutes per load, while at mine Y average loading time is
25 minutes per load.

Additional information:
Drivers’ wages, depreciation, insurance and taxes, etc. `12 per hour
Operated Fuel, oil tyres, repairs and maintenance, etc. `1.60 per km

You are required to prepare a statement showing the cost per tonne kilometer of carrying coal from
each mine ‘X and ‘Y’.

Solution
Calculation of Ton Kms
No. × Kms × Ton = Ton Kms
Plot to X 1 × 15 × 0 = 0
X to plot 1 × 15 × 4 = 60
Total = 60
Kms travel = (1 ×1 5) + (1 × 15) = 30

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Calculation of Ton Kms

No. × Kms × Ton = Ton Kms
Plot to Y 1 × 20 × 0 = 0
Y to Plot 1 × 20 × 4 = 80
Total = 80
Kms travel = (1 × 20) + (1 × 20) = 40

Statement to time (in minutes)

Particulars X Y
Travel time 30×(60/40) = 45 40×(60/40) = 60
Loading time 30 25
Unloading time 15 15
Total time 90 100

Statement of operating cost

Particulars X Y
Fixed cost 90×(12/60) = 18 100×(12/60) = 20
Variable cost 1.60×30 = 48 1.60×40 = 64
Total Cost 66 84
Ton-Kms 60 80
Total cost per ton-km 1.10 1.05

DEC – 2021 – 10 Marks

Paras Travels provides mini bus to an IT company for carrying its employees from home to office
and dropping back after office hours. It runs a fleet of 8 mini buses for this purpose. The buses are
parked in a garage adjoining the company’s premises. Company is operating in two shifts (one
shift in the morning and one shift in the afternoon). The distance travelled by each mini bus one
way is 30 kms. The company works for 20 days in a month.

The seating capacity of each mini bus is 30 persons. The seating capacity is normally 80% occupied
during the year. The details of expenses incurred for a year are as under:
Particulars
Driver’s salary `20,000 per driver per month
Lady attendant’s salary (mandatorily required for each `10,000 per attendant per month
mini bus)
Cleaner’s salary (One cleaner for 2 mini buses) `15,000 per cleaner per month
Diesel (Avg. 8kms per litre) `80 per litre
Insurance charges (per annum) 2% of Purchase Price
License fees and taxes `5,080 per mini bus per month
Garage rent paid `24,000 per month
Repair & maintenance including engine oil and lubricants `2,856 per mini bus
(for every 5,760 kms)

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Purchase price of mini bus `15,00,000 each

Residual life of mini bus 8 years
Scrap value per mini bus at the end of residual life `3,00,000
Paras Travels charges two types of fare from the employees. Employees coming from a distance
of beyond 15 kms away from the office are charged double the fare which is charged from
employees coming from a distance of up-to 15 kms away from the office. 50% of employees
travelling in each trip are coming from a distance beyond 15 kms from office. The charges are to
be based on average cost. You are required to:
(i) Prepare a statement showing expenses of operating a single mini bus for a year,
(ii) Calculate the average cost per employee per month in respect of:
a) Employees coming from a distance upto 15 kms from the office
b) Employees coming from a distance beyond 15 kms from the office

Solution
(i) Statement of Cost
Particulars Amount
Fixed charges:
Driver’s Salary 2,40,000
Lady attendant’s salary 1,20,000
Cleaner’s salary [(15,000 ´ 12) ÷ 2] 90,000
Depreciation [(15,00,000 – 3,00,000) ÷ 8] 1,50,000
Insurance charges (15,00,000 ´ 2%) 30,000
Licenses fee and taxes 60,960
Garage rent [(24,000 ´ 12) ÷ 8] 36,000
Total Fixed charges (A) 7,26,960
Variable Charges:
Diesel [(80 ÷ 8) ´ 57,600] 5,76,000
Repair & Maintenance [(2,856 ÷ 5,760) ´ 5,76,000] 28,560
Total Variable charges (B) 6,04,560
Total Cost (A + B) 13,31,520
No. of kms travel per annum = 8 ´ 30 ´ 20 ´ 12 = 57,600 kms

(ii) Total number of passengers = 30 ´ 2 ´ 80% = 48

Passengers upto 15 km travel = 48 ´ 50% = 24
Passengers beyond 15 km travel = 48 ´ 50% = 24
Equivalent passenger upto 15 km travel = 24 + (24 ´ 2) = 72
!%,%!,'"&
Cost per month = !"
= `1,10,960
!,!&,()&
Cost per month per passenger upto 15km travel = *"
= `1,541
Cost per month per passenger beyond 15km travel = `1,541 ´ 2 = `3,082

JULY – 2021 – 5 Marks

MRSL Healthcare Ltd. has incurred the following expenditure during the last year for its newly
launched ‘COVID-19’ Insurance policy:

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`
Office administration cost 48,00,000
Claim management cost 3,80,000
Employees’ cost 16,20,000
Postage and logistics 32,40,000
Policy issuance cost 29,50,000
Facilities cost 46,75,000
Cost of marketing of the policy 1,38,90,000
Policy development cost 35,00,000
Policy servicing cost 96,45,000
Sales support expenses 32,00,000
IT cost ?
Number of Policy sold: 2,800
Total insured value of policies - `3,500 crores
Cost per rupee of insured value - `0.002
You are required to:
(v) Calculate the total cost for “COVID-19” Insurance policy segregating the costs into four main
activities namely (a) Marketing and Sales support (b) operations (c) IT Cost and (d) Support
functions.
(vi) Calculate cost per policy

Solution
(i) Total Cost = Total insured value × Cost per rupee of insured value
Total Cost = `3,500 crore × 0.002
Total Cost = `7,00,00,000
Other Cost + IT Cost = 7,00,00,000
4,79,00,000 + IT Cost = 7,00,00,000
IT Cost = `2,21,00,000
Statement of Cost
Particulars Amount
Marketing and Sales Support:
Cost of marketing the policy 1,38,90,000
Policy development cost 35,00,000
Sales support expenses 32,00,000
Total (A) 2,05,90,000
Operations Cost:
Claim management cost 3,80,000
Policy issuance cost 29,50,000
Policy servicing cost 96,45,000
Total (B) 1,29,75,000

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IT Cost:
IT Cost 2,21,00,000
Total (C) 2,21,00,000
Support Function:
Office administration cost 48,00,000
Employees’ cost 16,20,000
Postage and logistics 32,40,000
Facilities cost 46,75,000
Total (D) 1,43,35,000
Total Cost (A + B + C + D) 7,00,00,000
Number of Policies 2,800
Cost per policy 25,00

JAN – 2021 – 10 Marks

ABC Health care runs an Intensive Medical Care Unit. For this purpose, it has hired a building at
a rent of `50,000 per month with the agreement to bear the repairs and maintenance charges also.

The unit consists of 100 beds and 5 more beds can comfortably be accommodated when the
situation demands. Though the unit is open for patients all the 365 days in a year, scrutiny of
accounts for the year 2020 reveals that only for 120 days in the year, the unit had the full capacity
of 100 patients per day and for another 80 days, it had, on an average only 40 beds occupied per
day. But, there were occasions when the beds were full, extra beds were hired at charge of `50 per
bed per day. This did not come to more than 5 beds above the normal capacity on any one day. The
total hire charges for the extra beds incurred for the whole year amounted to `20,000.

The unit engaged expert doctors from outside to attend on the patients and the fees were paid on
the basis of the number of patients and the fees were paid on the basis of the number of patients
attended and time spent by them which on an average worked out to `30,000 per month in the
year 2020.

The permanent staff expenses and other expenses of the unit were as follows:
`
2 supervisors each at a per month salary of 5,000
4 Nurses each at a per month salary of 3,000
2 Ward boys each at a per month salary of 1,500
Other Expenses for the year were as under:
Repairs and Maintenance 28,000
Food supplied to patients 4,40,000
Caretaker and Other services for patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines supplied 2,80,000

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Cost of oxygen etc. other than directly borne for treatment of 75,000
patients
General Administration Charges allocated to the unit 71,000
Required:
(i) What is the profit per patient day made by the unit in the year 2020, if the unit recovered an
overall amount of `200 per day on an average from each patient.
(ii) The unit wants to work on a budget for the year 2021, but the number of patients requiring
medical care is a very uncertain factor. Assuming that same revenue and expenses prevail in
the year 2021 in the first instance, work out the number of patient-days required by the unit
to break-even.

Solution
(i) Effective bed days = (120 × 100) + (80 × 40) + (20,000 ÷ 50) = 15,600
Statement of Profit
Particulars Amount (`)
Variable Cost:
Doctor cost (30,000 × 12) 3,60,000
Food to patients 4,40,000
Caretaker and other services to patients 1,25,000
Laundry charges for bed linen 1,40,000
Medicines 2,80,000
Bed Charges 20,000
Total Variable Cost (A) 13,65,000
Fixed Cost:
Rent (50,000 × 12) 6,00,000
Supervisor (5,000 × 12 × 2) 1,20,000
Nurse (3,000 × 12 × 4) 1,44,000
Ward boys (1,500 × 12 × 2) 36,000
Repairs 28,000
Cost of oxygen etc. other than directly borne for treatment of patients 75,000
General Administration Charges allocated to the unit 71,000
Total Fixed Cost (B) 10,74,000
Total Cost (A + B) 24,39,000
Revenue (15,600 × 200) 31,20,000
Profit 6,81,000
Number of patient days 15,600
Profit per patient day 43.65
(b) Contribution = Revenue – Variable cost = `31,20,000 – `13,65,000 = `17,55,000
!*,'',&&&
Contribution per patient day = !',)&&
= `112.50

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^A_?6 H<9G !&,*$,&&&

Break-even point = 4<DG>ASKGA<D C?> C7GA?DG 678 = !!".'&
= 9,547 patient days

NOV – 2020 – 10 Marks

SEZ Ltd. built a 120 km long highway and now operates a toll road to collect tolls. The company
has invested `900 crore to build the road and has estimated that a total of 120 crore vehicles will
be using the highway during the 10 years toll collection tenure. The other costs for the month of
‘June 2020’ are as follows:
(i) Salary”
• Collection personnel (3 shifts and 5 persons per shift) - `200 per day per person.
• Supervisor (3shifts and 2 persons per shift) - `350 per day per person
• Security personnel (2shifts and 2 persons per shift) - `200 per day per person
• Toll Booth Manager (3 shifts and 1 person per shift) - `500 per day per person
(ii) Electricity - `1,50,000
(iii) Telephone - `1,00,000
(iv) Maintenance cost - `50 lakhs
(v) The company needs 30% profit over total cost.
Required:
(1) Calculate cost per kilometer
(2) Calculate the toll rate per vehicle

Solution
(1) Statement of Cost
Particulars Amount (`)
Capital Cost:
(&& H><>? ! 7,50,00,000
Capital cost share ! !&
× !"-
Total Capital Cost (A) 7,50,00,000
Operating Cost:
Salary – Collection Personnel (3 × 5 × 30 × 200) 90,000
- Supervisor (3 × 2 × 30 × 350) 63,000
- Security Personnel (2 × 2 × 30 × 200) 24,000
- Toll booth manager (3 × 1 × 30 × 500) 45,000
Electricity 1,50,000
Telephone 1,00,000
Total Operating Cost (B) 4,72,000
Maintenance Cost:
Maintenance 50,00,000
Total Maintenance Cost (C) 50,00,000
Total Cost (A + B + C) 8,04,72,000
Kms 120
Total cost per km 6,70,600

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!"&,&&,&&,&&& !
(2) Vehicles per month = !&
× !" = 1,00,00,000
Total cost per month = 8,04,72,000
Add: Profit (30%×8,04,72,000) = 2,41,41,600
Total Revenue =10,46,13,600
Vehicles = 1,00,00,000
Toll per vehicle = 10.46

NOV – 2019 – 10 Marks

A hotel is being run in a Hill station with 200 single rooms. The hotel offers concessional rates
during six off-season months in a year. During this period, half of the full room rent is charged.
The management’s profit margin is targeted at 20% of the room rent. The following are the cost
estimates and other details for the year ending 31st March, 2019:
(i) Occupancy during the season is 80% while in the off-season it is 40%.
(ii) Total investment in the hotel is `300 lakhs of which 80% relates to Buildings and the balance
to Furniture and other Equipment.
(iii) Room attendants are paid `15 per room per day on the basis of occupancy of rooms in a
month.
(iv) Expenses:
• Staff salary (excluding that of room attendants) `8,00,000
• Repairs to Buildings `3,00,000
• Laundry Charges `1,40,000
• Interior Charges `2,50,000
• Miscellaneous Expenses `2,00,200
(v) Annual Depreciation is to be provided on Buildings @ 5% and 15% on Furniture and other
Equipments on straight line method.
(vi) Monthly lighting charges are `110, except in four months in winter when it is `30 per room
and this cost is on the basis of full occupancy for a month.
You are required to workout the room rent chargeable per day both during the season and the off-
season months using the foregoing information.
(Assume a month to be of 30 days and winter season to be considered as part of off-season).

Solution
Computation of Effective room days
Season = (200 rooms ´ 80%) ´ (6 ´ 30) days = 28,800
Off-season = (200 rooms ´ 40%) ´ (6 ´ 30) days = 14,400
43,200
Computation of Total Cost `
(1) Staff Salary 8,00,000
(2) Repairs to buildings 3,00,000
(3) Laundry charges 1,40,000
(4) Interior charges 2,50,000

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(5) Miscellaneous Expenses 2,00,200

(6) Depreciation
-Building (5% × 300,00,000 × 80%) 12,00,000
-Furniture & equipment (15% × 300,00,000 × 20%) 9,00,000 21,00,000
(7) Attendant’s Salary (43,200 ´ 15) 6,48,000
(8) Lighting Charges
- Season (28,800 days ´ `3.67) [`110 p.m. means `110÷30 = `3.67 per day]1,05,696
- Off-Season
Winter (14,400 ´ 4/6 ´ `1) [`30 p.m. means `30÷30 = `1 per day] (4 months)9,600
Balance (14,400 ´ 2/6 ´ `3.67) (2 months) __17,616
Total Cost 45,71,112
Computation of Total Revenue `
Total Cost 45,71,112
(+) Profit (20% of revenue) (45,71,112 ´ 20/80) 11,42,778
Total Revenue 57,13,890
Assume Rent per room per day during Season is `Y & during off season is `Y/2
Hence, total annual revenue = 28,800Y + 14,400(Y/2) = 26,000Y
Now, 36,000Y = `57,13,890
Y = 158.72 Hence, Rent per room per day
During Season = Y = `158.72
During off-season = [Y/2] = `[158.72 ÷ 2] = `79.36

MAY – 2019 – 10 Marks

X Ltd. distributes’ its goods to a regional dealer using single lorry. The dealer premises are 40 kms
away by road. The capacity of the lorry is 10 tonnes. The lorry makes the journey twice a day fully
loaded on the outward journey and empty on return journey. The following information is
available:
Diesel Consumption 8 km per litre
Diesel Cost `60 per litre
Engine Oil `200 per week
Driver’s Wages (fixed) `2,500 per week
Repairs `600 per week
Garage Rent `800 per week
Cost of Lorry (excluding cost of tyres) `9,50,000
Life of Lorry 1,60,000 kms
Insurance `18,200 per annum
Cost of Tyres `52,500
Life of Tyres 25,000 kms
Estimated sale value of the lorry at end of its life is `1,50,000
Vehicle License Cost `7,800 per annum

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Other Overhead Cost `41,600 per annum

The lorry operates on a 5 day week.
Required:
(i) A statement to show the total cost of operating the vehicle for the four week period analyzed
into Running cost and Fixed cost.
(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in a year).

Solution
Calculation of Ton Kms
No. × Kms × Ton = Ton Kms
1 × 40 × 2 × 5 × 4 × 10 = 16,000
1 × 40 × 2 × 5 × 4 × 0 = 0
Total = 16,000
Total kms traveled = 3,200 kms
(i) Statement of Operating Cost
Particulars Amount (`)
Fixed Cost:
Driver salary (2,500 × 4) 10,000
Garage rent (800 × 4) 3,200
Insurance [(18,200 ÷ 52) × 4] 1,400
Vehicle license [(7,800 ÷ 52) × 4] 600
Other overheads cost [(41,600 ÷ 52) × 4] 3,200
Total Fixed Cost (A) 18,400
Variable Cost:
Cost of diesel [(3,200 ÷ 8) × 60] 24,000
Engine Oil (200 × 4) 800
Repairs (600 × 4) 2,400
(,'&,&&&1!,'&,&&& 16,000
Depreciation on vehicle H !,)&,&&&
× 3,200I
'",'&& 6,720
Depreciation on tyres H!,)&,&&& × 3,200I
Total Variable Cost (B) 49,920
Total Cost (A + B) 68,320

(ii) Calculation of vehicle operating cost

Operating cost per km = 68,320 ÷ 3,200 = `21.35
Operating cost per ton-km = 68,320 ÷ 16,000 = `4.27

NOV – 2018 – 10 Marks

M/s XY Travels has been given a 25 km long route to run an air-conditioned Mini Bus. The cost
of bus is `20,00,000. It has been insured @3% premium per annum while annual road tax amounts
to `36,000. Annual repairs will be `50,000 and the bus is likely to last for 5 years. The driver’s

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salary will be `2,40,000 per annum, and the conductor’s salary will be `1,80,000 per annum in
addition to 10% of the takings as commission (to be shared by the driver and the conductor
equally). Office and administration overheads will be `18,000 per annum. Diesel and oil will be
`1,500 per 100 km. The bus will make 4 round trips carrying on an average 40 passengers on each
trip.

Assuming 25% profit on takings and considering that the bus will run on an average 25 days in a
month, you are required to:
(i) Prepare operating cost sheet (for the month)
(ii) Calculate fare to be charged per passenger km

Solution
Calculation of Passenger Kms
No. × Kms × Passenger = Passenger Kms
1 × 25 × 4 × 2 × 25 × 40 = 2,00,000
Kms travel = 1 × 25 × 4 × 2 × 25 = 5,000 kms

Statement of Operating Cost

Particulars Amount (`)
Fixed Cost:
"&,&&,&&&1& ! 33,333.33
Depreciation !H '
I × !"-
Insurance (20,00,000 × 3% × 1/12) 5,000.00
Road tax (36,000 ÷ 12) 3,000.00
Total Fixed Cost (A) 41,333.33
Variable Cost:
Driver Salary (2,40,000 ÷ 12) 20,000
Conductor Salary (1,80,000 ÷ 12) 15,000
!'&& 75,000
Diesel and oil H !&& × 5,000I
Total Variable Cost (B) 1,10,000
Maintenance Cost:
Annual Repairs (50,000 ÷ 12) 4,166.67
Office and administration overheads (18,000 ÷ 12) 1,500.00
Total Maintenance Cost (C) 5,666.67
Total Cost (A + B + C) 1,57,000
(+) Commission (2,41,538 × 10%) 25,154
(+) Profit (2,41,538 × 25%) 62,884
Total Takings (1,63,500 ÷ 65%) 2,41,538
Effective Passenger km 2,00,000
Takings per effective passenger km 1.20769

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MAY – 2018 – 10 Marks

A group of ‘Health Care Services’ has decided to establish a Critical Care Unit in a metro city with
an investment of `85 lakhs in hospital equipments. The unit’s capacity shall be of 50 beds and 10
more beds, if required, can be added.
Other information for a year are as under:
`
Building Rent 2,25,000 per month
Manager Salary (Number of Manager – 03) 50,000 per month to each one
Nurses Salary (Number of Nurses – 24) 18,000 per month to each Nurse
Ward Boy’s Salary (Number of Ward Boys – 24) 9,000 per month per person
Doctor’s payment (Paid on the basis of number of 5,50,000 per month
patients attended and time spent by them)
Food and laundry services (variable) 39,53,000
Medicines to patients (variable) 22,75,000 per year
Administrative Overheads 28,00,000 per year
Depreciation on equipments 15% per annum on original cost
It was reported that for 200 days in a year 50 beds were occupied, for 105 days 30 beds were
occupied and for 60 days 20 beds were occupied.

The hospital hired 250 beds at a charge of `950 per bed to accommodate the flow of patients.
However, this never exceeded the normal capacity of 50 beds on any day. Find out:
(i) Profit per patient day, if hospital charges on an average `2,500 per day from each patient
(ii) Break-even point per patient day (Make calculation on annual basis)

Solution
Number of patient days = (200 × 50) + (105 × 30) + (60 × 20) + 250 = 14,600 patient days
Statement showing Profit
Particulars Amount (`)
Variable Cost:
Food and Laundry Service 39,53,000
Medicines to Patients 22,75,000
Doctor’s Payment 66,00,000
Hire charges of Bed (250 × `950) 2,37,500
Total Variable Cost (A) 1,30,65,500
Fixed Cost:
Building Rent 27,00,000
Manager’s Salary (`5,000 × 3 × 12) 18,00,000
Nurse’s Salary (`18,000 × 12 × 24) 51,84,000
Ward boy’s Salary (`9,000 × 12 × 24) 25,92,000
Administrative Overheads 28,00,000

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Depreciation on Equipment’s 12,75,000

Total Fixed Cost (B) 1,63,51,000
Total Cost (A + B) 2,94,16,500
Revenue (14,600 × `2,500) 3,65,00,000
Profit (C) 70,83,000
Patient days (D) 14,600
Profit per patient day (C ÷ D) 485.17
%,)',&&,&&&1!,%&,)','&&
Contribution per patient day = !$,)&&
= `1,605.10
!,)%,'!,&&&
Break-even point = !,)&'.!&
= 10,186.90 or say 10,187 patient day

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Process Costing
NOV – 2022 – 10 Marks
N Ltd. produces a product which passes through two processes Process-I and Process-II. The
company has provided following information related to the Financial Year 2021-22:
Process I Process II
Raw material @`65 per unit 6,500 units -
Direct wages `1,40,000 `1,30,000
Direct Expenses 30% of direct wages 35% of direct wages
Manufacturing Overheads `21,500 `24,500
Realizable value of scrap per `4.00 `16.00
unit
Normal loss 250 units 500 units
Units transferred to Process 6,000 units 5,500 units
II/ finished stock
Sales - 5,000 units
There was no opening or closing stock of work-in-progress.
You are required to prepare:
(i) Process-I account
(ii) Process-II account
(iii) Finished Stock Account

Solution
Process I A/c
Particulars Units (` ) Particulars Units (` )
To Raw Material used 6,500 4,22,500 By Normal Loss 250 1,000
(250 units ´ `4)
To Direct Wages - 1,40,000 By Process-II A/c 6,000 6,00,000
(`100 ´ 6,000)
To Direct expenses - 42,000 By Abnormal loss 250 25,000
(30% ´ 1,40,000) (`100 ´ 250)
To Manufacturing - 21,500
overheads
6,500 6,26,000 6,500 6,26,000
),"),&&&1!,&&& ),"',&&&
Cost per unit = ),'&&1"'&
= ),"'&
= `100

Process II A/c
Particulars Units (` ) Particulars Units (` )
To Process-I A/c 6,000 6,00,000 By Normal Loss 500 8,000
(500 units ´ `16)
To Direct Wages - 1,30,000 By Finished Stock A/c 5,500 7,92,000
(`144 ´ 5,500)

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To Direct expenses - 45,500

(35% ´ 1,30,000)
To Manufacturing - 24,500
overheads
6,000 8,00,000 6,000 8,00,000
.,&&,&&&1.,&&& *,(",&&&
Cost per unit = ),&&&1'&&
= ','&&
= `144

Finished Stock A/c

Particulars Units (` ) Particulars Units (` )
To Process-II A/c 5,500 7,92,000 By Cost of Sales 5,000 7,20,000
(5,000 units ´ `144)
By Balance c/d 500 72,000
5,500 7,92,000 5,500 7,92,000

MAY – 2022 – 10 Marks

STG Limited is a manufacturer of chemical ‘GK’, which is required for industrial use. The
complete production operation requires two processes. The raw material first passes through
Process I, where chemical ‘G’ is produced. Following data is furnished for the month of April,
2022:
Particulars (in kgs)
Opening work-in-progress quantity 9,500
(Material 100% and conversion 50% complete)
Material input quantity 1,05,000
Work completed quantity 83,000
Closing work-in-progress quantity 16,500
(Material 100% and conversion 60% complete)
You are further provided that:
Particulars (in `)
Opening work-in-progress cost
Material cost 29,500
Processing cost 14,750
Material input cost 3,34,500
Processing cost 2,53,100
Normal process loss may be estimated at be 10% of material input. It has no realizable value. Any
loss over and above normal loss is considered to be 100% complete in material and processing.

The company transfers 60,000 kgs of output (Chemical G) from Process I to Process II for
producing Chemical ‘GK’. Further materials are added in Process II which yield 1.20 kg. of
chemical ‘GK’ for every kg of chemical ‘G’ introduced. The chemicals transferred to Process II
for further processing are then sold as chemical ‘GK’ for `10 per kg. Any quantity of output
completed in Process I, are sold as chemical ‘G’ @ `9 per kg.

The monthly costs incurred in Process II (other than the cost of chemical ‘G’) are:
Input 60,000 kg of chemical ‘G’

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Material Cost `85,000

Processing costs `50,000

You are required:

(i) Prepare statement of Equivalent production and determine the cost per kg of chemical ‘G’ in
Process I using the weighted average cost method.
(ii) Prepare a statement showing cost of Chemical ‘G’ transferred to Process II, cost of abnormal
loss and cost of closing work-in-progress.
(iii) STG is considering the option to sell 60,000 kg of chemical ‘G’ of Process I without
processing it further in Process-II. Will it be beneficial for the company over the current
pattern of processing 60,000 kg in process-II?
(Note: You are not required to prepare Process Account)

Solution
(i) Statement of Equivalent Production
Material Conversion Cost
Input Output
% Units % Units
Op. WIP 9,500 Op. WIP 9,500 100 9,500 100 9,500
Input 1,05,000 Introd. & Complete 73,500 100 73,500 100 73,500
Transferred 83,000 83,000 83,000
Normal Loss 10,500 - - - -
(1,05,000×10%)
Abnormal Loss 4,500 100 4,500 100 4,500
(Bal. fig)
Closing WIP 16,500 100 16,500 60 9,900
1,14,500 1,14,500 1,04,000 97,400

Statement of Cost per Equivalent Unit

Conversion
Particulars Material Cost
Current Cost 3,34,500 2,53,100
Add: Cost of Opening WIP 29,500 14,750
Total 3,64,000 2,67,850
Equivalent Units 1,04,000 97,400
Cost per equivalent unit 3.50 2.75
Thus, cost per kg of Chemical G = 3.50 + 2.75 = `6.25

(ii) Statement of cost

Particulars Element of Cost Equivalent units Cost per unit Cost Total Cost
Cost of Chemical G Material 83,000 3.50 2,90,500
transferred Conversion cost 83,000 2.75 2,28,250 5,18,750
Abnormal Loss Material 4,500 3.50 15,750

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Conversion cost 4,500 2.75 12,375 28,125

Closing WIP Material 16,500 3.50 57,750
Conversion cost 9,900 2.75 27,225 84,975

(iii) Statement of Evaluation of Offer

Particulars Amount (`)
Sale as chemical GK (60,000 ´ 1.20 ´ 10) 7,20,000
Less: Sale as chemical G (60,000 ´ 9) 5,40,000
Incremental sales revenue 1,80,000
Less: further processing cost (85,000 + 50,000) 1,35,000
Incremental Benefit 45,000
Since, there is incremental benefit in further processing, thus, it is recommended to continue
Chemical ‘G’ in process II and sell as chemical ‘GK’.

DEC – 2021 – 5 Marks

A product passes through Process-I and Process-II.
Particulars pertaining to the Process-I are:
Materials issued to Process-I amounted to `80,000, Wages `60,000 and manufacturing overheads
were `52,500. Normal loss anticipated was 5% of input. 9,650 units of output were produced and
transferred out from Process-I to Process II. Input raw materials issued to Process I was 10,000
units.

There were no opening stocks. Scrap has realizable value of `5 per unit. You are required to
prepare:
(i) Process-I Account
(ii) Abnormal Gain/Loss Account

Solution
(i) Process I Account
Particulars Units Amount Particulars Units Amount
To Material 10,000 80,000 By Normal loss A/c 500 2,500
To Labour - 60,000 By Process -II A/c (bal. 9,650 1,93,000
fig)
To Overheads - 52,500
To Abnormal Gain 150 3,000
10,150 1,95,500 10,150 1,95,500
!,(",'&&1",'&& !,(&,&&&
Normal cost per unit = !&,&&&1'&&
= (,'&&
= `20

(ii) Abnormal Gain Account

Particulars Units Amount Particulars Units Amount
To Normal Loss 150 750 By Process-I A/c 150 3,000
Account
To P&L Account - 2,250
150 3,000 150 3,000

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JULY – 2021 – 10 Marks

A Manufacturing unit manufactures a product ‘XYZ’ which passes through three distinct Processes
– X, Y and Z. The following data is given:
Process X Process Y Process Z
Material consumed (in `) 2,600 2,250 2,000
Direct wages (in `) 4,000 3,500 3,000
• The total production overhead of `15,750 was recovered @ 150% of direct wages.
• 15,000 units at `2 each were introduced to process ‘X’.
• The output of each process passes to the next process and finally, 12,000 units were transferred
to Finished Stock Account from Process ‘Z’.
• No stock of materials or work in progress was left at the end.
The following additional information is given:
Process % of wastage to normal Value of Scrap per unit
output (` )
X 6% 1.10
Y ? 2.00
Z 5% 1.00
You are required to:
(i) Find out the percentage of wastage in process ‘Y’, given that the output of process ‘Y’ is
transferred to Process ‘Z’ at `4 per unit.
(ii) Prepare Process accounts for the three processes X, Y and Z.

Solution
(i) Let normal loss units in process Y = y
O<G7F 4<9G1@H>7C L7FK? <= D<>J7F F<99
Normal cost per unit of Process Y = O<G7F KDAG91;<>J7F F<99 KDAG
'",)!&1"8
4= !$,!&&18

56,400 – 4y = 52,610 – 2y
2y = 3,790
y = 1,895
!,.('
Thus, Normal loss % of process Y = !$,!&& × 100 = 13.44%

(ii) Process X Account

Particulars Units Amount Particulars Units Amount
To Units Introduced 15,000 30,000 By Normal loss A/c 900 990
To Material - 2,600 (15,000 × 6% × 1.10)
consumed
To Labour - 4,000 By Process Y A/c 14,100 41,610
To Overheads - 6,000
(4,000 × 150%) 15,000 42,600 15,000 42,600

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$",)&&1((& $!,)!&
Normal cost per unit = !',&&&1(&& = !$,!&& = `2.95106
Process Y Account
Particulars Units Amount Particulars Units Amount
To Process X A/c 14,100 41,610 By Normal loss A/c 1,895 3,790
To Material - 2,250 (Part (i))
consumed
To Labour - 3,500 By Process Z A/c 12,205 48,820
To Overheads - 5,250
(3,500 × 150%) 14,100 52,610 14,100 52,610

Process Z Account
Particulars Units Amount Particulars Units Amount
To Process Y A/c 12,205 48,820 By Normal loss A/c 610 610
To Material - 2,000 (12,205 × 5% × 1)
consumed
To Labour - 3,000 By Finished Stock A/c 12,000 59,725
To Overheads - 4,500 (12,000 × 4.97715
(3,000 × 150%)
To Abnormal Gain 405 2,015
A/c
(405 × 4.97715) 12,610 60,335 12,610 60,335
'.,%"&1)!& '*,*!&
Normal cost per unit = !","&'1)!& = !!,'(' = `4.97715

JAN – 2021 – 5 Marks

MNO Ltd. has provided following details:
• Opening work in progress is 10,000 units at `50,000 (Material 100%, Labour and overheads
70% complete).
• Input of materials is 55,000 units at `2,20,000. Amount spent on Labour and Overheads is
`26,500 and `61,500 respectively.
• 9,500 units were scrapped; degree of completion for material 100% and for labour &
overheads 60%.
• Closing work in progress is 12,000 units; degree of completion for material 100% and for
labour and overheads 90%.
• Finished units transferred to next process are 43,500 units. Normal loss is 5% of total input
including opening work in progress. Scrapped units would fetch `8.50 per unit.
You are required to prepare using FIFO method:
(iii) Statement of Equivalent production
(iv) Abnormal loss account

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Solution
(i) Statement of Equivalent Production
Material Conversion cost
Input Output
% Units % Units
Op.
WIP 10,000 Op. WIP 10,000 - - 30 3,000
Introduced &
Input 55,000 Complete 33,500 100 33,500 100 33,500
Transferred 43,500
Normal Loss 3,250 - - - -
(5%×65,000)
Abnormal Loss 6,250 100 6,250 60 3,750
Closing WIP 12,000 100 12,000 90 10,800
65,000 65,000 51,750 51,050

(ii) Calculation of cost of each element

Particulars Material Conversion Cost
Cost incurred during the month 2,20,000 88,000
Less: Scrap value of normal loss (27,625) -
(3,250×8.50)
Total Cost (A) 1,92,375 88,000
Equivalent Units (B) 51,750 51,050
Cost per equivalent unit (A ÷ B) 3.71739 1.7238
Cost of abnormal loss units = (3.71739 × 6,250) + (1.7238 × 3,750) = `29,698

Abnormal Loss Account

Particulars Amount Particulars Amount
To Process 29,698 By Bank A/c (6,250 × 8.50) 53,125
Account
To Costing P&L 23,427
A/c
53,125 53,125

NOV – 2020 – 10 Marks

Following details are related to the work done in Process-I by ABC Ltd. during the month of May
2019:
(`)
Opening work-in-process (3,000 units)
Materials 1,80,500
Labour 32,400
Overheads 90,000

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Material introduced in Process-I (42,000 36,04,000

units)
Labour 4,50,000
Overheads 15,18,000
Units scrapped : 4,800 units
Degree of completion:
Materials : 100%
Labour & Overheads : 70%
Closing work-in-progress : 4,200 units
Degree of completion:
Materials : 100%
Labour & Overheads : 50%
Units finished and transferred to Process-II: 36,000 units
Normal loss:
4% of total input including opening work-in-process
Scrapped units fetch `62.50 per piece
Prepare:
(i) Statement of equivalent production
(ii) Statement of cost per equivalent unit
(iii) Process-I A/c
(iv) Normal loss account and
(v) Abnormal loss account

Solution
(i) Statement of Equivalent Production
Material Labour Overheads
Input Output
% Units % Units % Units
Op. WIP 3,000 Op. WIP 3,000 100 3,000 100 3,000 100 3,000
Introduced &
Input 42,000 Complete 33,000 100 33,000 100 33,000 100 33,000
Transferred 36,000
Normal Loss 1,800 - - - - - -
(45,000×4%)
Abnormal
Loss 3,000 100 3,000 70 2,100 70 2,100
(4,800 -
1,800)
Closing WIP 4,200 100 4,200 50 2,100 50 2,100
45,000 45,000 43,200 40,200 40,200

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(ii) Statement of Cost per Equivalent Unit

Particulars Material Labour Overheads
Current Cost 36,04,000 4,50,000 15,18,000
Add: Cost of Opening WIP 1,80,500 32,400 90,000
Less: Normal Scrap (1,800 × 62.50) (1,12,500) - -
Total 36,72,000 4,82,400 16,08,000
Equivalent Units 43,200 40,200 40,200
Cost per equivalent unit 85 12 40

Statement of apportionment of cost

Element of Equivalent Cost per
Particulars Cost units unit Cost Total Cost
Opening WIP Material 3,000 85 2,55,000
Labour 3,000 12 36,000
Overheads 3,000 40 1,20,000 4,11,000
Introduced & 28,05,00
Comp. Material 33,000 85 0
Labour 33,000 12 3,96,000
13,20,00
Overheads 33,000 40 0 45,21,000
Abnormal Loss Material 3,000 85 2,55,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 3,64,200
Closing WIP Material 4,200 85 3,57,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 4,66,200

(iii) Process I Account

Particulars Units Amount Particulars Units Amount
To Opening WIP 3,000 3,02,900 By Normal loss A/c 1,800 1,12,500
To Material 42,000 36,04,000 By Abnormal loss A/c 3,000 3,64,200
To Labour - 4,50,000 By Process -II A/c (bal. 36,000 49,32,000
fig)
To Overheads - 15,18,000 By Closing WIP 4,200 4,66,200
45,000 58,74,900 45,000 58,74,900

(iv) Normal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-I A/c 1,800 1,12,500 By Bank A/c 1,800 1,12,500
1,800 1,12,500 1,800 1,12,500

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(v) Abnormal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-I A/c 3,000 3,64,200 By Bank A/c 3,000 1,87,500
(3,000 × 62.50)
By Costing P&L A/c - 1,76,700
(Bal. fig.)
3,000 3,64,200 3,000 3,64,200

NOV – 2019 – 10 Marks

A product passes through two distinct processes before completion. Following information are
available in this respect:
Process-1 Process-2
Raw materials used 10,000 units -
Raw material cost (per unit) `75 -
Transfer to next process/Finished goods 9,000 units 8,200 units
Normal loss (on inputs) 5% 10%
Direct wages `3,00,000 `5,60,000
Direct expenses 50% of direct wages 65% of direct wages
Manufacturing overheads 25% of direct wages 15% of direct wages
Realizable value of scrap (per unit) `13.50 `145
8,000 units of finished goods were sold at a profit of 15% on cost. There was no opening and
closing stock of work-in-progress.
Prepare:
(i) Process-1 and Process-2 Account
(ii) Finished goods Account
(iii) Normal Loss Account
(iv) Abnormal Loss Account
(v) Abnormal Gain Account

Solution
(i) Process 1 Account
Particulars Units Amount Particulars Units Amount
To Material 10,000 7,50,000 By Normal Loss A/c 500 6,750
To Direct wages - 3,00,000 (500 × 13.50)
To Direct Expenses - 1,50,000 By Abnormal loss A/c 500 66,750
(50% × 3,00,000) (500 × 133.50)
To Manufacturing - 75,000 By Process-2 A/c 9,000 12,01,500
Overheads
(25% × 3,00,000) (9,000 × 133.50)
10,000 12,75,000 10,000 12,75,000
!",*',&&&1),*'& !",).,"'&
Normal cost per unit = !&,&&&1'&&
= (,'&&
= `133.50

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Process 2 Account
Particulars Units Amount Particulars Units Amount
To Process -1 A/c 9,000 12,01,500 By Normal Loss A/c 900 1,30,500
To Direct wages - 5,60,000 (900 × 145)
To Direct expenses - 3,64,000 By Finished Goods A/c 8,200 21,04,667
(65% × 5,60,000) (8,200 × 3)
To Manufacturing - 84,000
Overheads
(15% × 5,60,000)
To Abnormal gain A/c 100 25,667
(100 × 3)
9,100 22,35,167 9,100 22,35,167
"",&(,'&&1!,%&,'&& "&,*(,&&&
Normal cost per unit = (,&&&1(&&
= .,!&&
= `256.6666

(ii) Finished Goods Account

Particulars Units Amount Particulars Units Amount
To Process-2 A/c 8,200 21,04,667 By Sales 8,000 23,61,334
To Costing P&L A/c - 3,08,000 !!",$%,&&'
(!,$$
× 8,000 × 115%)

By Closing St. 200 51,333

8,200 24,12,667 8,200 24,12,667

(iii) Normal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-1 A/c 500 6,750 By Cash A/c 500 6,750
To Process -2 A/c 900 1,30,500 By Cash A/c 800 1,16,000
By Abnormal Gain A/c 100 14,500
1,400 1,37,250 1,400 1,37,250

(iv) Abnormal Loss Account

Particulars Units Amount Particulars Units Amount
To Process-1 A/c 500 66,750 By Cash A/c 500 6,750
By Costing P&L A/c(bal. - 60,000
fig)
500 66,750 500 66,750

(v) Abnormal Gain Account

Particulars Units Amount Particulars Units Amount
To Normal Loss A/c 100 14,500 By Process-2 A/c 100 25,667
To Costing P&L A/c - 11,167
100 25,667 100 25,667

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MAY – 2019 – 10 Marks

KT Ltd. produces a product EMM which passes through two processes before it is completed and
transferred to finished stock. The following data relate to May 2019.
Particulars Process A Process B Finished Stock
Opening stock `5,000 `5,500 `10,000
Direct materials 9,000 9,500
Direct wages 5,000 6,000
Factory overheads 4,600 2,030
Closing stock 2,000 2,490 5,000
Inter process profit included in opening stock -- 1,000 4,00
Output of Process A is transferred to Process B at 25% profit on the transfer price and output of
Process B is transferred to finished stock at 20% profit on the transfer price. Stock in process is
valued at prime cost. Finished stock is valued at the price at which it is received from Process B.
Sales during the period are `75,000.
Prepare the process cost accounts and Finished stock account showing the profit element at each
stage.

Solution
Process A Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 5,000 - 5,000 By Process B A/c 28,800 7,200 21,600
stock
To Direct 9,000 - 9,000
material
To Direct wages 5,000 - 5,000
19,000 - 19,000
(-) Closing stock (2,000) - (2,000)
17,000 - 17,000
To Factory OHs 4,600 - 4,600
21,600 - 21,600
To Profit - 7,200 7,200
21,600 7,200 28,800 21,600 7,200 28,800

Process B Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 4,500 1,000 5,500 By F. Stock 41,550 20,125 61,675
stock A/c
To Process A 21,600 7,200 28,800
A/c
To Direct 9,500 - 9,500
material

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To Direct wages 6,000 - 6,000

41,600 8,200 49,800
(-) Closing stock (2,080) (410) (2,490)
39,520 7,790 47,310
To Factory OHs 2,030 - 2,030
41,550 7,790 49,340
To Profit - 12,335 12,335
41,550 20,125 61,675 41,550 20,125 61,675
.,"&&
Profit element in closing stock = $(,.&&×2,490 = `410

Finished Stock Account

Particulars Cost Profit Total Particulars Cost Profit Total
To Opening 6,000 4,000 10,000 By Costing P&L 44,233 30,767 75,000
stock A/c
To Process B 41,550 20,125 61,675
A/c
47,550 24,125 71,675
(-) Closing (3,317) (1,683) (5,000)
stock
44,233 22,442 66,675
To Profit (Bal. - 8,325 8,325
fig)
44,233 30,767 75,000 44,233 30,767 75,000
"$,!"'
Profit element in closing stock = *!,)*'×5,000 = `1,683

NOV – 2018 – 5 Marks

Following details have been provided by M/s AR Enterprises:
(i) Opening works-in-progress - 3,000 units (70% complete)
(ii) Units introduced during the year - 17,000 units
(iii) Cost of the process (for the period) - `33,12,720
(iv) Transferred to next process - 15,000 units
(v) Closing works-in-progress - 2,200 units (80% complete)
(vi) Normal loss is estimated at 12% of total input (including units in process in the beginning).
Scraps realize `50 per unit. Scraps are 100% complete.
Using FIFO method, compute:
(i) Equivalent production
(ii) Cost per equivalent unit

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Solution
Statement of Equivalent Production
Material
Input Output
% Units
Op. WIP 3,000 Op. WIP 3,000 30 900
Introduced &
Input 17,000 Complete 12,000 100 12,000
Transferred 15,000
Normal Loss 2,400 - -
(20,000×12%)
Abnormal
Loss 400 100 400
(Bal. fig.)
Closing WIP 2,200 80 1,760
20,000 20,000 15,060

Statement of cost per equivalent production unit:

Cost of the Process `33,12,720
Less: Scrap value of normal loss (`50 × 2,400)(`1,20,000)
Total Process Cost `31,92,720
Total equivalent units ___15,060
Cost per equivalent production unit _____`212

MAY – 2018 – 10 Marks

Alpha Ltd. is engaged in the production of a product A which passes through 3 different process –
Process P, Process Q and Process R. The following data related to cost and output is obtained from
the books of accounts for the month of April 2017:
Particulars Process P Process Q Process R
Direct Material 38,000 42,500 42,880
Direct Labour 30,000 40,000 50,000
Production overheads of `90,000 were recovered as percentage of direct labour.

10,000 kg of raw material @ `5 per kg was issued to Process P. There was not stock of materials
or work in process. The entire output of each process passes directly to the next process and finally
to warehouse. There is normal wastage, in processing of 10%. The scrap value of wastage is `1
per kg. The output of each process transferred to next process and finally to warehouse are as
under:
Process P = 9,000 kg
Process Q = 8,200 kg
Process R = 7,300 kg

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The company fixes selling price of the end product in such a was so as to yield a profit of 25% on
selling price. Prepare Process P. Q and R Accounts. Also calculate selling price per unit of end
product.

Solution
Process P Account
Particulars Units Amount Particulars Units Amount
To Input 10,000 50,000 By Normal Loss A/c 1,000 1,000
To Direct Material - 38,000 (1,000 × 1)
To Direct Labour - 30,000 By Process Q A/c 9,000 1,39,500
To Production OHs - 22,500 (9,000 × 15.50)
(90,000 × 3/12)
10,000 1,40,500 10,000 1,40,500
!,$&,'&&1!,&&& !,%(,'&&
Normal cost per unit = !&,&&&1!,&&&
= (,&&&
= `15.50

Process Q Account
Particulars Units Amount Particulars Units Amount
To Process P A/c 9,000 1,39,500 By Normal Loss A/c 900 900
To Direct Material - 42,500 (900 × 1)
To Direct Labour - 40,000 By Process R A/c 8,200 2,54,200
To Production OHs - 30,000 (8,200 × 31)
(90,000 × 4/12)
To Abnormal gain A/c 100 3,100
(100 × 31)
9,100 2,55,100 9,100 2,55,100
",'",&&&1(&& ",'!,!&&
Normal cost per unit = (,&&&1(&&
= .,!&&
= `31

Process R Account
Particulars Units Amount Particulars Units Amount
To Process Q A/c 8,200 2,54,200 By Normal Loss A/c 820 820
To Direct Material - 42,880 (820 × 1)
To Direct Labour - 50,000 By Abnormal loss A/c 80 4,160
To Production OHs - 37,500 (80 × 52)
(90,000 × 5/12) By Finished Goods A/c 7,300 3,79,600
(7,300 × 52)
8,200 3,84,580 8,200 3,84,580
%,.$,'.&1."& %,.%,*)&
Normal cost per unit = .,"&&1."&
= *,%.&
= `52

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Calculation of selling price per unit of end product

Cost per unit `52.00
Add: Profit per unit – 25% on selling price i.e. 1/3 of cost `17.33
Selling price per unit `69.33

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Joint & By-Product

MAY – 2023 – 10 Marks
ABC Company produces a Product ‘X’ that passes through three processes: R, S and T. Three
types of raw materials, viz., J, K and L are used in the ratio of 40:40:20 in process R. The output
of each process is transferred to next process. Process loss is 10% of total input in each process.
At the stage of output in process T, a by-product ‘Z’ is emerging and the ratio of the main product
‘X’ to the by-product ‘Z’ is 80:20. The selling price of product ‘X’ is `60 per kg.

The company produced 14,580 kgs of product ‘X’.

Material price: Material K @ `15 per kg; Material K @ `9per kg.
Material L @ `7 per kg. Process costs are as follows:
Process Variable cost per kg (`) Fixed cost of input (`)
R 5.00 42,000
S 4.50 5,000
T 3.40 4,800
The by-product ‘Z’ cannot be processed further and can be sold at `30 per kg at the split-off stage.
There is no realizable value of process losses at any stage.

Required:
Present a statement showing the apportionment of joint costs on the basis of the sales value of
product ‘X’ and by-product ‘Z’ at the split-off point and the profitability of product ‘Z’ and by-
product ‘Z’.

Solution
Working Note:
(1) Let total raw material in Process R of raw material R be 100
Process Input Loss Output
R 100 100 ´ 10% = 10 90
S 90 90 ´ 10% = 9 81
T 81 81 ´ 10% = 8.10 72.90
Thus, for input of 100 units in process R, output of 72.90 units is obtained from process T.
Actual output of X = 14,580 units
80% of output of Process T = 14,580 units
Output of process T = 14,580 ÷ 80% = 18,225
!.,""'
Input of process R = *".( × 100 = 25,000 kgs

(2) Calculation of Joint cost

Process Inputs Variable costs Fixed cost Total cost

R 25,000 25,000 ´ 5 = 1,25,000 42,000 1,67,000

S 22,500 22,500 ´ 4.5 = 1,01,250 5,000 1,06,250
T 20,250 20,250 ´ 3.4 = 68,850 4,800 73,650
3,46,900
Raw material J = 10,000 ´ 15 = `1,50,000
Raw material K = 10,000 ´ 9 = `90,000
Raw material L = 5,000 ´ 7 = `35,000
`2,75,000

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Add: Processing cost (as above) `3,46,900

Total joint cost `6,21,900

(i) Statement showing apportionment of joint cost

Particulars Product X By-Product Z Total
Units 14,580 3,465
Selling price (`) 60 30
Sales value (`) 8,74,800 1,09,350 9,84,150
Share of joint cost 5,52,800 69,100 6,21,900
(`6,21,900 in ratio of
sales value)

(ii) Statement of profitability

Particulars Product X By-Product Z Total
Sales value (`) 8,74,800 1,09,350 9,84,150
(-) Share of joint cost (5,52,800) (69,100) (6,21,900)
Profit 3,22,000 40,250 3,62,250

NOV – 2022 – 5 Marks

ASR Limited produces Product ‘L’ and gets a by-Product ‘M’ out of a joint process. The net
realizable value of the by-product is used to reduce the joint production costs before the joint costs
are allocated to the main product. During the month of October 2022, company incurred joint
production costs of `4,00,000. The main product ‘L’ is not marketable at the split off point. Thus,
it has to be processed further. Details of company’s operation are as under:
Particulars Product L By-Product M
Production (units) 10,000 200
Selling price per kg `45 `5
Further processing cost `1,01,000 -
You are required to find out:
(i) Profit earned from Product ‘L’
(ii) Selling price per kg of product ‘L’, if the company wishes to earn a profit of `1,00,000 from
the above production.

Solution
(i) Calculation of profit on product ‘L’
Particulars `
Sales value 4,50,000
Less: Further processing cost (1,01,000)
3,49,000
Less: Joint production cost [4,00,000 – (200 ´ 5)] (3,99,000)
Loss (50,000)
!"#$% '"(#)*+(,-+. /-"0,# 3,55,666)7,67,666)7,66,666
(ii) Desired selling price = 12,#(
= 76,666
= `60 per kg

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MAY – 2022 – 5 Marks

RST Limited produces three joint products X, Y and Z. The products are processed further. Pre-
separation costs are apportioned on the basis of weight of output of each joint product. The
following data are provided for the month of April, 2022.

Cost incurred up to separation point: `10,000

Product X Product Y Product Z
Output (in Litre) 100 70 80
` ` `
Cost incurred after separation point 2,000 1,200 800
Selling price per litre:
After further processing 50 80 60
At pre-separation point (estimated) 25 70 45
You are required to:
(i) Prepare a statement showing profit or loss made by each product after further processing
using the presently adopted method of apportionment of pre-separation cost.
(ii) Advise the management whether, on purely financial consideration, the three products are to
be processed further or not.

Solution
(i) Statement of profit/(loss)
Particulars Product X Product Y Product Z
Sale value (A) 100 ´ 50 = 5,000 70 ´ 80 = 5,600 80 ´ 60 = 4,800
Share of joint cost 4,000 2,800 3,200
(10,000 in 100:70:80)
Further processing cost 2,000 1,200 800
Total cost (B) 6,000 4,000 4,000
Profit/(loss) (A – B) (1,000) 1,600 800

(ii) Statement of Evaluation of Decision

Particulars Product X Product Y Product Z
Sale value after FPC 100 ´ 50 = 5,000 70 ´ 80 = 5,600 80 ´ 60 = 4,800
(-) Sale value at split off 100 ´ 25 = 2,500 70 ´ 70 = 4,900 80 ´ 45 = 3,600
Incremental sales 2,500 700 1,200
(-) Further processing cost 2,000 1,200 800
Incremental Profit/(loss) 500 (500) 400
There is incremental loss in product Y and incremental profit in case of Product X and Z. Thus, it
is recommended to further process product X and Z whereas Product Y should be sold without
further processing i.e. at split off point.

JULY – 2021 – 5 Marks

OPR Ltd. purchases crude vegetable oil. It does refining of the same. The refining process results
in four products at the split-off point – S, P, N and A. Product ‘A’ is fully processed at the split-
off point. Product S, P and N can be individually further refined into SK, PM, and NL respectively.

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The joint cost of purchasing the crude vegetable oil and processing it were `40,000. Other details
are as follows:
Product Further Processing Sales at split-off Sales after further
costs (`) point (`) processing (`)
S 80,000 20,000 1,20,000
P 32,000 12,000 40,000
N 36,000 28,000 48,000
A - 20,000 -
You are required to identify the products which can be further processed for maximizing profits
and make suitable suggestions.

Solution
Statement of Incremental Profit/(Loss)
Particulars Product S Product P Product N
Sale after further processing 1,20,000 40,000 48,000
Less: Sale at split-off point 20,000 12,000 28,000
Incremental sale 1,00,000 28,000 20,000
Less: further processing cost 80,000 32,000 36,000
Incremental profit/(loss) 20,000 (4,000) (16,000)
Thus, it is recommended to further process Product S and Product P, N and A should be sold at
split off point.

JAN – 2021 – 10 Marks

Mayura Chemicals Ltd. buys a particular raw material at `8 per litre. At the end of the processing
in Department-1, this raw material splits-off into products X, Y and Z. Product X is sold at the
split-off point, with no further processing. Products Y and Z require further processing before they
can be sold. Product Y is processed in Department-2, and Product Z is processed in Department-
3. Following is a summary of the costs and other related data for the year 2019-20:
Particulars Department
1 2 3
Cost of Raw Material `4,80,000 - -
Direct Labour `70,000 `4,50,000 `6,50,000
Manufacturing Overhead `48,000 `2,10,000 `4,50,000
Products
X Y Z
Sales (litres) 10,000 15,000 22,500
Closing inventory (litres) 5,000 - 7,500
Sale price per litre (`) 30 64 50
There were no opening and closing inventories of basic raw materials at the beginning as well as
at the end of the year. All finished goods inventory in litres was complete as to processing. The
company uses the Net-realizable value method of allocating join costs.

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You are required to prepare:

(iii) Schedule showing the allocation of joint costs
(iv) Calculate the cost of goods sold of each product and the cost of each item in Inventory
(v) A comparative statement of Gross Profit

Solution
(i) Statement of allocation of joint cost
Particulars Product X Product Product Total
Y Z
Units sold 10,000 15,000 22,500
Add: Closing stock (A) 5,000 - 7,500
Units Produced (B) 15,000 15,000 30,000
Selling price per unit (C) 30 64 50
Sale value of Prod. (B × C) 4,50,000 9,60,000 15,00,000 29,10,000
Less: Additional cost - 6,60,000 11,00,000 17,60,000
Net realizable value 4,50,000 3,00,000 4,00,000 11,50,000
Share of joint cost (D) 2,34,000 1,56,000 2,08,000 5,98,000
(5,98,000 in NRV ratio)

(ii) Statement of calculation of cost of goods sold and inventory

Particulars Product X Product Y Product Z Total
Share of joint cost 2,34,000 1,56,000 2,08,000 5,98,000
Add: Additional costs - 6,60,000 11,00,000 17,60,000
Less: Cost of ",%$,&&&×',&&& - !%,&.,&&&×*,'&& (4,05,000)
!',&&&
= %&,&&&
inventories
(78,000) = (3,27,000)
Cost of goods sold 1,56,000 8,16,000 9,81,000 19,53,000

(iii) Statement of calculation of gross profit

Particulars Product X Product Y Product Z Total
Units sold 10,000 15,000 22,500
Selling price per unit 30 64 50
Sales 3,00,000 9,60,000 11,25,000 23,85,000
Less: Cost of goods 1,56,000 8,16,000 9,81,000 19,53,000
sold
Profit / (loss) 1,44,000 1,44,000 1,44,000 4,32,000

NOV – 2020 – 5 Marks

A company’s plant processes 6,750 units of a raw material in a month to produce two products ‘M’
and ‘N’. The process yield is as under:
Product M 80%
Product N 12%

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Process loss 8%
The cost of raw material is `80 per unit.
Processing cost is `2,25,000 of which labour cost is accounted for 66%. Labour is chargeable to
products ‘M’ and ‘N’ in the ratio of 100:80.

Prepare a comprehensive cost statement for each product showing:

(v) Apportionment of joint cost among products ‘M’ and ‘N’ and
(vi) Total cost of the products ‘M’ and ‘N’.

Solution
Total joint cost = Raw material cost + Processing cost = (6,750 × 80) + 2,25,000 = `7,65,000
Total labour cost = 2,25,000 × 66% = `1,48,500
Joint cost other than labour cost = 7,65,000 – 1,48,500 = `6,16,500
Statement of Joint Cost Apportionment
Particulars Product M Product N
Labour Cost 82,500 66,000
(1,48,500 in 100:80)
Cost other than labour cost 5,36,087 80,413
(6,16,500 in 80:12)
Share of Joint Cost 6,18,587 1,46,413
Statement of Total Cost
Particulars Product M Product N
Raw material cost 4,69,565 70,435
(5,40,000 in 80:12)
Labour Cost 82,500 66,000
(1,48,500 in 100:80)
Other Processing Cost 66,522 9,978
(76,500 in 80:12)
Share of Joint Cost 6,18,587 1,46,413

NOV – 2019 – 5 Marks

A Factory produces two products, ‘A’ and ‘B’ from a single process. The joint processing costs
during a particular month are:
Direct material `30,000
Direct labour `9,600
Variable Overheads `12,000
Fixed Overheads `32,000
Sales: A – 100 units @ `600 per unit; B – 120 units @ `200 per unit.
Apportion joint costs on the basis of:
(i) Physical Quantity of each product.
(ii) Contribution Margin method, and

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(iii) Determine Profit or Loss under both the methods.

Solution
(i) Statement showing Joint Cost Apportionment (Physical Quantity Basis)
Particulars A (`) B (` )
Direct Material (30,000 in 100:120) 13,636 16,364
Direct Labour (9,600 in 100:120) 4,364 5,236
Variable Overheads (12,000 in 100:120) 5,455 6,545
Fixed Overheads (32,000 in 100:120) 14,545 17,455
Joint Cost Allocable 38,000 45,600

(ii) Statement showing Contribution

Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Direct Material (30,000 in 100:120) 13,636 16,364
Less: Direct Labour (9,600 in 100:120) 4,364 5,236
Less: Variable Overheads (12,000 in 100:120) 5,455 6,545
Contribution 36,545 (4,145)

Statement showing Joint Cost Apportionment (Contribution Margin Method)

Particulars A (`) B (` )
Direct Material (30,000 in 100:120) 13,636 16,364
Direct Labour (9,600 in 100:120) 4,364 5,236
Variable Overheads (12,000 in 100:120) 5,455 6,545
Fixed Overheads 32,000 -
Joint Cost Allocable 55,455 28,145
(iii) Statement showing Profit or Loss (Under Physical Quantity Basis)
Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Joint Cost Allocable 38,000 45,600
Profit or (Loss) 22,000 (21,600)

Statement showing Profit or Loss (Under Contribution Margin Method)

Particulars A (`) B (` )
Sales (100 × 600) (120 × 200) 60,000 24,000
Less: Joint Cost Allocable 55,455 28,145
Profit or (Loss) 4,545 (4,145)

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MAY – 2019 – 5 Marks

A Factory is engaged in the production of chemical Bomex and in the course of its manufacture a
by-product Cromex is produced which after further processing has a commercial value. For the
month of April 2019 the following are the summarized cost data:
Joint Expenses Separate Expenses
` Bomex (`) Cromex (`)
Materials 1,00,000 6,000 4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling price per unit 100 40
Estimated profit per unit 5
Units Units
No. of units produced 2,000 2,000
The factory uses net realizable value method for apportionment of joint cost to by-products. You
are required to prepare statements showing:
(i) the joint cost allocable to Cromex
(ii) the product-wise and overall profitability of the factory for April 2019.

Solution
(i) Statement showing Joint Cost Allocation to ‘Cromex’
Particulars Cromex (`)
Sales (`40 × 2,000 units) 80,000
Less: Post split off costs (4,000 + 18,000 + 6,000) (28,000)
Less: Estimated profit (`5 × 2,000) (10,000)
Joint Cost Allocable 42,000

(ii) Statement showing product wise and Overall Profitability

Particulars Bomex (`) Cromex (`) Total (`)
Sales 2,00,000 80,000 2,80,000
Less: Share in Joint Expenses (1,38,000)* (42,000) (1,80,000)
Less: Post split off costs (36,000) (28,000) (64,000)
Profit 26,000 10,000 36,000
*This is a balancing figure i.e. 1,80,000 – 42,000 = 1,38,000

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Marginal Costing
MAY – 2023 – 5 Marks
MNP Company Limited produces two products ‘A’ and ‘B’. The relevant cost and sales data per
unit for output is as follows:
Particulars Product A (`) Product B (`)
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
Selling price 180 175
The availability of machine hours is limited to 55,000 hours for the month. The monthly demand
for product ‘A’ and product ‘B’ is 5,000 units and 6,000 units, respectively. The fixed expenses of
the company are `1,40,000 per month. Variable factory overheads are `4 per machine hours. The
company can produce both products according to the market demand.
Required:
Calculate the product mix that generates maximum profit for the company in the situation and also
calculate profit of the company.

Solution
Particulars Product A (`) Product B (`)
Selling price 180 175
Variable cost:
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
130 125
Contribution 50 50
Machine hour per unit 10 5
Contribution per machine hour 5 10
Rank II I

Statement of Product Mix and Profit

Product Units Hours per unit Material consumed Contribution
B 6,000 5 30,000 6,000×50 = 3,00,000
A 25,000÷10 = 10 (Bal. fig.) 25,000 2,500×50 = 1,25,000
2,500
37,600 55,000 4,25,000
Less: Fixed cost 1,40,000
Profit 2,85,000

MAY – 2023 – 5 Marks

The following information pertains to ZB Limited for the year:
Profit volume ratio 30%
Margin of Safety (as % of total sales) 25%
Fixed costs `12,60,000
You are required to calculate:

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(i) Break even sales value (`)

(ii) Total sales value (`) at present
(iii) Proposed sales value (`) if company wants to earn the present profit after reduction of 10%
in fixed cost,
(iv) Sales in value (`) to be made to earn a profit of 20% on sales assuming fixed cost remains
unchanged,
(v) New Margin of Safety if the sales value at present as computed in (ii) decreased by 12.5%

Solution
^A_?6 H<9G !",)&,&&&
(i) Break even sales value = [` P7GA< = %&% = `42,00,000

(ii) Sales = Breakeven sales + Margin of safety

Sales = 42,00,000 + (0.25 ´ Sales)
Sales = 42,00,000 ÷ 0.75 = `56,00,000

(iii) Present profit = Contribution – Fixed cost = (56,00,000 ´ 30%) – 12,60,000 = `4,20,000
^A_?6 H<9G / P?]KA>?6 C><=AG (!",)&,&&&×(&%) / $,"&,&&&
Proposed sales = [` P7GA<
= %&%
= `51,80,000

^A_?6 H<9G / P?]KA>?6 C><=AG

(iv) Sales = [` P7GA<
!",)&,&&& /(&."&)(@7F?9)
Sales = &.%&
Sales = 12,60,000 ÷ 0.10 = `1,26,00,000

(v) New Margin of Safety = Sales – BES = (56,00,000 ´ 87.5%) – 42,00,000 = `7,00,000

NOV – 2022 – 5 Marks

ABC Ltd. sells its product ‘Y’ at a price of `300 per unit and its variable cost is `180 per unit.
The fixed costs are `16,80,000 per year uniformly incurred throughout the year. The profit for the
year is `7,20,000. You are required to calculate:
(i) BEP in value (`) and units,
(ii) Margin of Safety
(iii) Profits made when sales are 24,000 units
(iv) Sales in value (`) to be made to earn a net profit of `10,00,000 for the year.

Solution
4<DG>ASKGA<D (%&&1!.&)
(i) PV Ratio = @7F?9
× 100 = %&&
× 100 = 40%
^A_?6 H<9G !),.&,&&&
Break-even Point in value (`) = [` P7GA<
= $&%
= `42,00,000
^A_?6 H<9G !),.&,&&&
Break-even Point in Units = 4<DG>ASKGA<D C?> KDAG = !"&
= 14,000 units

[><=AG *,"&,&&&
(ii) Margin of safety (in `) = [` P7GA< = $&%
= `18,00,000
[><=AG *,"&,&&&
Margin of safety (in units) = 4<DG>ASKGA<D C?> KDAG = !"&
= 6,000 units

NOV – 2022 – 5 Marks

An agriculture based company having 210 hectares of land is engaged in growing three different
cereals namely, wheat, rice and maize annually. The yield of the different crops and their selling
prices are given below:

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Wheat Rice Maize

Yield (in kgs per hectare) 2,000 500 100
Selling price (` per kg) 20 40 250
The variable cost data of different crops are given below:
(All figures in ` per kg)
Crop Labour Charges Packing Materials Other Variable Expenses
Wheat 8 2 4
Rice 10 2 1
Maize 120 10 20
The company has a policy to produce and sell all the three kinds of crops. The maximum and
minimum area to be cultivated for each crop is as follows:
Crop Maximum area (in hectares) Minimum area (in hectares)
Wheat 160 100
Rice 50 40
Maize 60 10
You are required to:
(i) Rank the crops on the basis of contribution per hectare.
(ii) Determine the optimum product mix considering that all the three cereals are to be produced.
(iii) Calculate the maximum profit which can be achieved if the total fixed cost per annum is
`21,45,000.
(Assume that there are no other constraints applicable to this company).

Solution
(i) Statement showing Ranking of Crops on the basis of Contribution per hectare
Particulars Wheat Rice Maize
Selling price per kg (`) 20 40 250
(-) Labour charges per kg (`) 8 10 120
(-) Packaging material per kg (`) 2 2 10
(-) Other variable expenses per kg (`) 4 1 20
Contribution per kg (`) 6 27 100
Yield (in kgs per hectare) 2,000 500 100
Contribution per hectare 12,000 13,500 10,000
Ranking II I III

(ii) & (iii) Statement showing optimum product mix and profit
Particulars Wheat Rice Maize Total
Minimum area (in hectare) 100 40 10 150
Remaining area (in hectare 60
Distribution of remaining area based 50 10 - 60
on raking considering maximum
area
Optimum mix (in hectare) 150 50 10 210
Contribution per hectare (`) 12,000 13,500 10,000
Total contribution (`) 18,00,000 6,75,000 1,00,000 25,75,000
(-) Fixed Cost - - - 21,45,000
Profit - - - 4,30,000

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MAY – 2022 – 5 Marks

UV Limited started a manufacturing unit from 1st October 2021. It produces designer lamps and
sells its lamps at `450 per unit.

During the quarter ending on 31st December, 2021, it produced awnd sold 12,000 units and suffered
a loss of `35 per unit.

During the quarter ending on 31st March, 2022, it produced and sold 30,000 units and earned a
profit of `40 per unit.

You are required to calculate:

(i) Total fixed cost incurred by UV Ltd. per quarter
(ii) Break Even sales value (in rupees)
(iii) Calculate Profit, if the sale volume reaches 50,000 units in the next quarter (i.e. quarter
ending on 30th June, 2022).

Solution
Quarter Units sold Profit/(loss) Total Total Sales
per unit Profit/(loss)
Ending 31st Dec 12,000 (35) (4,20,000) 54,00,000
Ending 31st March 30,000 40 12,00,000 1,35,00,000
Change 16,20,000 81,00,000
4Q7DE? AD C><=AG !),"&,&&&
(i) PV ratio = 4Q7DE? AD 97F?9
´ 100 = .!,&&,&&& ´ 100 = 20%
Fixed cost = Contribution – Profit = (1,35,00,000 ´ 20%) – 12,00,000 = `15,00,000

=A_?6 H<9G !',&&,&&&

(ii) Break-even sales (in `) = [` >7GA<
= "&%
= `75,00,000

(iii) Profit = Contribution – Fixed cost = (50,000 ´ 450 ´ 20%) – 15,00,000 = `30,00,000

MAY – 2022 – 5 Marks

Top-tech manufacturing company is presently evaluating two possible machines for the
manufacture of superior pen-drives. The following information is available:

Particulars Machine A Machine B

Selling price per unit `400.00 `400.00
Variable cost per unit `240.00 `260.00
Total fixed costs per year `350 lakhs `200 lakhs
Capacity (in units) 8,00,000 10,00,000
Required:
(i) Recommend which machine should be chosen?
(ii) Would you change your answer, if you were informed that in near future demand will be
unlimited and the capacities of the two machines are as follows?
Machine A – 12,00,000 units
Machine B – 12,00,000 units
Why?

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Solution
(i) Statement of Profit
Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 8 lakhs 10 lakhs
Total contribution (`) 1,280 lakhs 1,400 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 930 lakhs 1,200 lakhs
Machine B should be chosen as it gives more profit than Machine A.

(ii) Statement of Profit

Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 12 lakhs 12 lakhs
Total contribution (`) 1,920 lakhs 1,680 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 1,570 lakhs 1,480 lakhs
Machine A should be chosen as it gives more profit than Machine B.

DEC – 2021 – 10 Marks

AZ company has prepared its budget for the production of 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:

(i) Present break-even sales (in Rs. and in quantity)
(ii) Present profit-volume ratio
(iii) Revised break-even sales in Rs and the revised profit-volume ratio, if it reduces its selling
price by 10%.
(iv) What would be revised sales in quantity and the amount, if a company desires a profit
increase of 20% more than the budgeted profit and selling price is reduced by 10% as above
in point (iii).

Solution
(i) Present Fixed cost = 4 ´ 2,00,000 = `8,00,000
Present Profit = Total cost ´ 20% = (16 + 4) ´ 20% = `4
Present Selling price = Cost + Profit = (16 + 4) + 4 = `24
Contribution = Selling price – Variable cost = 24 – 16 = `8
^A_?6 H<9G .,&&,&&&
Present Break-even sales units = 4<DG>ASKGA<D C?> KDAG = .
= 1,00,000 units
Present Break-even sales value = 1,00,000 ´ 24 = `24,00,000

4<DG>ASKGA<D .
(ii) Present profit-volume ratio = @?FFADE C>AH?
´100 = "$ ´100 = 33.33%

(iii) New Selling price per unit = 24 – 10% = `21.60

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New contribution per unit = 21.60 – 16 = `5.60

'.)&
Revised PV ratio =
"!.)&
´100 = 25.93%
.,&&,&&&
Revised break-even sales = "'.(%%
= `30,85,229

(iv) Required profit = Existing profit ´ 120% = (4 ´ 2,00,000) ´ 120% = `9,60,000

P?]KA>?6 C><=AG/^A_?6 H<9G (,)&,&&&/.,&&,&&&
Required sales quantity = 4<DG>ASKGA<D C?> KDAG
= '.)&
= 3,14,286 units
Required sales value = 3,14,286 ´ 21.60 = ` 67,88,578

JULY – 2021 – 5 Marks

LR Ltd. is considering two alternative methods to manufacture product it intends to market. The
two methods have a maximum output of 50,000 units each and produce identical items with a
selling price of `25 each. The costs are:
Method – I Method – II
Semi-Automatic (`) Fully automatic (`)
Variable cost per unit 15 10
Fixed costs 1,00,000 3,00,000
You are required to calculate:
(iv) Cost Indifference Point in units. Interpret your results.
(v) The Break-even point of each method in terms of units

Solution
(i) Let cost indifference units = y
Thus, Total cost of Method – I = Total cost of Method – II
1,00,000 + 15y = 3,00,000 + 10y
5y = 2,00,000
y = 40,000
At y = 40,000 units, cost of the two methods will be equal.
If quantity produced is more than 40,000 units than option where variable cost per unit is low
i.e. Method - II will have greater benefits in term of cost. If quantity produced is less than
40,000 units than option with lowest fixed cost i.e. Method – I will have greater benefits in
terms of total cost.

(ii) Statement of Break-even point

Particulars Method – I Method - II
Contribution per unit (A) 25 – 15 = 10 25 – 10 = 15
Fixed cost (B) 1,00,000 3,00,000
Break-even point (in units) (B÷A) 10,000 20,000

JAN – 2021 – 5 Marks

During a particular period, ABC Ltd. has furnished the following data:
Sales `10,00,000

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Contribution to sales ratio 37% and

Margin of safety is 25% of sales
A decrease in selling price and decrease in the fixed cost could change the “contribution to sales
ratio” to 30% and “margin of safety” to 40% of the revised sales. Calculate:
(i) Revised Fixed Cost
(ii) Revised Sales and
(iii) New Break-Even Point

Solution
Existing variable cost ratio = 100 – Contribution to sales ratio = 100 – 37% = 63%
Existing variable cost = 10,00,000 × 63% = `6,30,000
New variable cost = Existing variable cost = `6,30,000
New variable cost ratio = 100 – 30% = 70%
),%&,&&&
New sales = *&%
= `9,00,000
New Margin of safety = 9,00,000 × 40% = `3,60,000
New Break-even point = 9,00,000 – 3,60,000 = `5,40,000
New Fixed cost = New Break-even point × PV Ratio = 5,40,000 × 30% = `1,62,000

JAN – 2021 – 10 Marks

Two manufacturing companies A and B are planning to merge. The details are as follows:
A B
Capacity utilization (%) 90 60
Sales (`) 63,00,000 48,00,000
Variable Cost (`) 39,60,000 22,50,000
Fixed Cost (`) 13,00,000 15,00,000
Assuming that the proposal is implemented, calculate:
(i) Break-Even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales Turnover of the merged plant to earn a profit of `60,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of `60,00,000, what
percentage of increase in selling price is required to sustain an increase of 5% in fixed
overheads.
Solution
(i) Statement of Profit (`in lakhs)
Particulars Plant A Plant B Total
Sales 63÷90% = 70 48÷60% = 80 150
(-) Variable Cost 39.6÷90% = 44 22.5÷60% = 37.50 81.50
Contribution 26 42.50 68.50
(-) Fixed Cost 13 15 28
Profit 13 27.50 40.50

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4<DG>ASKGA<D ).,'&,&&&
Overall P\V Ratio = @7F?9
× 100 = !,'&,&&,&&& × 100 = 45.67%
^A_?6 4<9G ".,&&,&&&
Overall Break-even point (in `) = 3L?>7FF [\` P7GA< = $'.)*%
= `61,30,939
Z>?7I1?L?D 97F?9 )!,%&,(%(
Break-even point capacity = O<G7F @7F?9 7G !&&% F?L?F × 100 = !,'&,&&,&&& × 100 = 40.87%
(ii) Sales at 80% level = 1,50,00,000 × 80% = `1,20,00,000
Profit = Contribution – Fixed Cost = (1,20,00,000 × 45.67%) – 28,00,000 = `26,80,400
^A_?6 4<9G/b?9A>?6 [><=AG ".,&&,&&&/)&,&&,&&&
(iii) Desired Sales = 3L?>7FF [\` P7GA<
= $'.)*%
= `1,92,68,867
(iv) Increase in fixed cost = 28,00,000 × 5% = `1,40,000
!,$&,&&&
\ Percentage increase in selling price = !,(",).,.)* × 100 = 0.726%

NOV – 2020 – 5 Marks

Moon Ltd. produces products ‘X’, ‘Y’ and ‘Z’ and has decided to analyse it’s production mix in
respect of these three products – ‘X’, ‘Y’ and ‘Z’.
You have the following information:
X Y Z
Direct materials (`) per unit 160 120 80
Variable overheads (`) per unit 8 20 12
Direct labour:
Departments: Rate per hour (`) Hours per unit Hours per unit Hours per unit
X Y Z
Department-A 4 6 10 5
Department-B 8 6 15 11
From the current budget, further details are as below:
X Y Z
Annual production at present (in units) 10,000 12,000 20,000
Estimated selling price per unit (`) 312 400 240
Sales department estimate of possible sales 12,000 16,000 24,000
in the coming year (in units)
There is a constraint on supply of labour in Department-A and its manpower cannot be increase
beyond its present level.
Required:
(i) Identify the best possible product mix of Moon Ltd.
(ii) Calculate the total contribution from the best possible product

Solution
Present supply of labour hours in Department-A
= (10,000 × 6) + (12,000 × 10) + (20,000 × 5) = 2,80,000 labour hours

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Statement of Contribution
Particulars X Y Z
Selling price per unit 312 400 240
(-) Direct material per unit 160 120 80
(-) Labour cost per unit
Department A 4×6 = 24 4×10 = 40 4×5 = 20
Department B 8×6 = 48 8×15 = 120 8×11 = 88
(-) Variable overheads per unit 8 20 12
Contribution per unit 72 100 40
Labour hours per unit 6 10 5
Contribution per labour hour 12 10 8
Rank I II III

Statement of Product Mix and Contribution

Product Units Labour hours Labour Hours Contribution
per unit consumed
X 12,000 6 72,000 72,000×12 = 8,64,000
Y 16,000 10 1,60,000 1,60,000×10 =
16,00,000
Z 48,000÷5 = 5 (Bal. fig.) 48,000 48,000×8 = 3,84,000
9,600
37,600 2,80,000 28,48,000

NOV – 2019 – 5 Marks

When volume is 4,000 units, average cost is `3.75 per unit. When volume is 5,000 units, average
cost is `3.50 per unit. The Break-even point is 6,000 units.
Calculate:- (i) Variable cost per unit; (ii) Fixed Cost and (iii) Profit Volume Ratio

Solution
Total cost when volume is 4,000 units = 4,000 × 3.75 = `15,000
Total cost when volume is 5,000 units = 5,000 × 3.50 = `17,500
bA==?>?DH? AD O<G7F 4<9G !*,'&&1!',&&&
Variable cost per unit = bA==?>?DH? AD cDAG9
= ',&&&1$,&&&
= `2.50
Fixed cost = Total cost – Variable cost = 15,000 – (4,000 × 2.50) = `5,000
^A_?6 H<9G
Break-even point (in units) = 4<DG>ASKGA<D C? >KDAG
^A_?6 H<9G ',&&&
Contribution per unit = Z>?7I1?L?D C<ADG = ),&&& = `0.83
Selling price pre unit = Variable cost per unit + Contribution per unit = 2.50 + 0.83 = `3.33
4<DG>ASKGA<D C?> KDAG &..%
P\V Ratio = @??FADE C>AH? C?> KDAG × 100 = %.%% × 100 = 24.92%

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MAY – 2019 – 5 Marks

M/s Gaurav Private Limited is manufacturing and selling two products:
‘BLACK’ and ‘WHITE’ at selling price of `20 and `30 respectively.
The following sales strategy has been outlined for the financial year 2019-20:
(i) Sales planned for the year will be `81,00,000 in the case of ‘BLACK’ and `54,00,000 in
the case of ‘WHITE’.
(ii) The selling price of ‘BLACK’ will be reduced by 10% and that of ‘WHITE’ by 20%.
(iii) Break-even is planned at 70% of the total sales of each product.
(iv) Profit for the year to be maintained at `8,26,200 in the case of ‘BLACK’ and `745,200 in
the case of ‘WHITE’. This would be possible by reducing the present annual fixed cost of
`42,00,000 allocated as `22,00,000 to ‘BLACK’ and `20,00,000 to ‘WHITE’.
You are required to calculate:
(1) Number of units to be sold of ‘BLACK’ and ‘WHITE’ to Break even during the financial
year 2019-20.
(2) Amount of reduction in fixed cost product-wise to achieve desired profit mentioned at (iv)
above.

Solution
(i) Statement showing Break Even Sales
Particulars BLACK WHITE
Sales Planned (in `) 81,00,000 54,00,000
Break-even sales % 70% 70%
Break-even sales (in `) (A) 56,70,000 37,80,000
Selling price per unit (in `) (B) 18 24
Break-even sales (in units) (A ÷ B) 3,15,000 2,25,000

(ii) Statement Showing Fixed Cost Reduction

Particulars BLACK WHITE
Profit to be maintained (`) (A) 8,26,200 7,45,200
Margin of Safety (30% × Sales) (B) 24,30,000 16,20,000
P/V Ratio (A ÷ B) 34% 46%
Desired Contribution (Sales × P/V Ratio) 27,54,000 24,84,000
Less: Desired Profit 8,26,200 7,45,200
Target Fixed Cost 19,27,800 17,38,800
Present Fixed Cost 22,00,000 20,00,000
Required reduction in fixed cost 2,72,200 2,61,200

NOV – 2018 – 10 Marks

A manufacturing company is producing a product ‘A’ which is sold in the market at `45 per unit.
The company has the capacity to product 40,000 units per year. The budget for the year 2018-19
projects a sale of 30,000 units. The costs of each unit are expected as under:
Material `12

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Wages `9
Overheads `6
Margin of safety is `4,12,500
You are required to:
(i) Calculate fixed cost and break-even point
(ii) Calculate the volume of sales to earn profit of 20% on sales
(iii) If management is willing to invest `10,00,000 with an expected return of 20%, calculate
units to be sold to earn this profit.
(iv) Management expects additional sales if the selling price is reduced to `44. Calculate units
to be sold to achieve the same profit as desired in above (iii).

Solution
$'1!"1(1)
P/V Ratio = $'
× 100 = 40%
[><=AG
Margin of safety = [/` P7GA<
[><=AG
4,12,500 = &.$&
Profit = 1,65,000
(i) Profit = Contribution – Fixed Cost
4,12,500 = (30,000 × 45 × 40%) – Fixed Cost
Fixed Cost = 5,40,000 – 1,65,000 = `3,75,000

Break-even point = Total sales – Margin of Safety = (30,000 × 45) – 4,12,500 = `9,37,500

(ii) Let required sales units = y

Total required sales value = 45y
^A_?6 H<9G/b?9A>?6 C><=AG
Desired sales = [/` P7GA<
%,*',&&&/($'8×"&%)
45y = &.$&
18y = 3,75,000 + 9y
9y = 3,75,000
y = 41,666.67 units

(iii) Let required sales units = y

^A_?6 H<9G/b?9A>?6 [><=AG
Desired sales units = 4<DG>ASKGA<D C?> KDAG
%,*',&&&/",&&,&&&
y= $'1!"1(1)
= 31,945 units (approx.)

(iv) Let required sales units = y

^A_?6 H<9G/b?9A>?6 [><=AG
Desired sales units = 4<DG>ASKGA<D C?> KDAG
%,*',&&&/",&&,&&&
y= $$1!"1(1)
= 33,824 units (approx.)

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MAY – 2018 – 5 Marks

Following figures have been extracted from the books of M/s RST Private Limited:
Financial Year Sales (`) Profit\Loss(`)
2016-17 4,00,000 15,000 (loss)
2017-18 5,00,000 15,000 (Profit)
You are required to calculate:
(i) Profit Volume Ratio
(ii) Fixed Costs
(iii) Break Even Point
(iv) Sales required to earn a profit of `45,000
(v) Margin of Safety in Financial Year 2017-18

Solution
bA==?>?DH? AD [><=AG %&,&&&
(i) Profit Volume Ratio = bA==?>?DH? AD @7F?9
× 100 = !,&&,&&& × 100 = 30%
(ii) Profit in 2017-18 = Contribution – Fixed Cost
15,000 = (5,00,000 × 30%) – Fixed Cost
Fixed Cost = 1,35,000
^A_?6 49<G !,%',&&&
(iii) Break-even point = [/` P7GA<
= %&%
= `4,50,000
^A_?6 H<9G/b?9A>?6 [><=AG !,%',&&&/$',&&&
(iv) Sales to earn a profit of `45,000 = [/` P7GA<
= %&%
= `6,00,00
(v) Margin of Safety = Actual sales – Break-even sales = 5,00,000 – 4,50,000 = `50,000

MAY – 2018 – 10 Marks

PH Gems Ltd. is manufacturing readymade suits. It has annual production capacity of 2,000 pieces.
The Cost Accountant has presented following information for the year to the management:
Particulars Amount (`) Amount (`)
Sales 1,500 pieces @ `1,800 per piece 27,00,000
Direct Material 5,94,200
Direct Labour 4,42,600
Overheads (40% Fixed) 11,97,000 22,33,800
Net Profit 4,66,300
Evaluate following options:
(i) If selling price is increased by `200, the sales will come down to 60% of the total annual
capacity. Should the company increase its selling price?
(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN with ready-
made suit. The cost of each TIEPIN is `18. Calculate the sales to earn a profit of 20% on
sales.

Solution
(i) Evaluation of option (i)

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New Selling price = 1,800 + 200 = `2,000

New Sales Quantity = 2,000 × 60% = 1,200 Pieces
Particulars Amount (`)
Sales (1,200 × `2,000) 24,00,000
',($,"&& 4,75,360
Less: Direct Material H !,'&&
× 1,200I
$,$",)&& 3,54,080
Less: Direct Labour H !,'&&
× 1,200I
!!,(*,&&&×)&% 5,74,560
Less: Variable Overheads H !,'&&
× 1,200I
Contribution 9,96,000
Less: Fixed Costs (11,97,000 × 40%) 4,78,000
Profit 5,17,200
If the price is increased by `200 than quantity is reducing by 20% (300 on 1,500). Through this
step, the profit of the firm will rise by `50,900 from the existing level. Since there is increase in
profit, thus it may be recommended to accept this policy.

(ii) Evaluation of option (ii)

Calculation of P/V Ratio
Selling price per unit 1,800.00
',($,"&&
Less: Direct material per unit H !,'&&
I 396.13
Less: cost of Tie pin 18.00
$,$",)&&
Less: Direct labour per unit H !,'&&
I 295.07
!!,(*,&&&×)&%
Less: Variable Overheads H !,'&&
I 478.80
Contribution 612.00
)!"
P/V Ratio = !,.&& × 100 = 34%
Let sales required to earn profit of 20% = y
^A_?6 4<9G/b?9A>?6 [><=AG
Desired sales = [/` P7GA<
$,*.,.&&/&."&8
y= %$%
0.34y = 4,78,800 + 0.2y
y = `34,20,000
Thus, sales required to earn a profit of 20% on sales = R.s 34,20,000
%$,"&,&&&
Sales units required to earn a profit of 20% of sales = !,.&&
= 1,900 units

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Standard Costing
MAY – 2023 – 10 Marks
NC Limited uses a standard costing system for the manufacturing of its product ‘X’. the following
information is available for the last week of the month:
• 25,000 kg of raw material were actually purchased for `3,12,500. The expected output is 8
units of product ‘X’ from each one kg of raw material. There is no opening and closing
inventories. The material price variance and material cost variance, as per cost records, are
`12,500 (F) and `1,800 (A) respectively.
• The standard time to produce a batch of 10 units of product ‘X’ is 15 minutes. The standard
wage rate per labour hour is 50. The company employs 125 workers in two categories, skilled
and semi-skilled, in a ratio of 60:40. The hourly wages actually paid were `50 per hour for
skilled workers and `40 per hour for semi-skilled workers. The weekly working hours are 40
hours per worker. Standard wage rate is the same for skilled and semi-skilled workers.
• The monthly fixed overheads are budgeted at `76,480. Overheads are evenly distributed
throughout the month and assume 4 weeks in a month. In the last week of the month, the actual
fixed overhead expenses were `19,500.
Required:
(a) Calculate the standard price per kg and the standard quantity of raw material
(b) Calculate the material usage variance, labour cost variance and labour efficiency variance.
(c) Calculate the fixed overhead cost variance, the fixed overhead expenditure variance and the
fixed overhead volume variance.

Solution
(a) Material price variance = (SP – AP) ´ AQ
12,500 (F) = (SP ´ AQ) – (AP ´ AQ)
12,500 (F) = (SP ´ 25,000) – 3,12,500
SP = `13

Material cost variance = Standard cost – Actual cost

1,800 (A) = (SQ ´ 13) – 3,12,500
SQ = 23,900 kg

(b) Material usage variance = (SQ – AQ) ´ SP

= (23,900 – 25,000) ´ 13 = 14,300 (A)

Labour cost variance = Standard cost – Actual cost

= 2,39,000 – 2,30,000 = `9,000 (F)

Labour efficiency variance = (SH – AH) ´ SR

= (4,780 – 5,000) ´ 50 = `11,000 (A)

(c) Fixed overhead cost variance = Recovered overheads – Actual overheads

!(,!"&
= !",&&,&&& × 1,91,200- – 19,500 = `1,221 (A)

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Fixed overhead expenditure variance = Budgeted overheads – Actual overheads

= 19,120 – 19,500 = `380 (A)
Fixed overhead volume variance = Recovered overheads – Budgeted overheads
!(,!"&
= !",&&,&&& × 1,91,200- – 19,120 = `841 (A)

Working notes:
(1) Budgeted time per unit = 15 minutes ÷ 10 units = 1.5 minutes
Budgeted units per hour = 60 ÷ 1.5 = 40 units
Budgeted output = 5,000 hours ´ 40 = 2,00,000 units
Actual output = 23,900 ´ 8 units = 1,91,200 units

(2) Calculation for labour variance

Standard for 1,91,200 units Actual for 1,91,200 units
Particulars
Hours Rate Amount Hours Rate Amount
!,(!,"&&
= 5,000 ´ 60% =
Labour $& 50 2,39,000 50 1,50,000
4,780 3,000
5,000 ´ 40% =
40 80,000
2,000
Total 4,780 50 2,39,000 5,000 2,30,000

*),$.&
(3) Budgeted fixed overheads per week = $
= `19,120

NOV – 2022 – 10 Marks

Y Lid manufactures “Product M” which requires three types of raw materials – “A”, “B” & “C”.
following information related to 1st quarter of the FY 2022-23 has been collected from its books
of accounts. The standard material input required for 1,000 kg of finished product ‘M’ are as under:
Material Quantity (Kg.) Std. Rate per Kg. (`)
A 500 25
B 3350 45
C 250 55
1100
Standard loss 100
Standard output 1000
During the period, the company produced 20,000 kg of product “M” for which the actual quantity
of materials consumed and purchase prices are as under:
Material Quantity (Kg.) Purchase price per kg. (`)
A 11,000 23
B 7,500 48
C 4,500 60
You are required to calculate:
(i) Material cost variance
(ii) Material price variance for each raw material and Product ‘M’
(iii) Material usage variance for each raw material and Product ‘M’
(iv) Material Yield variance
Note: indicate the nature of variance i.e. Favourable or Adverse

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Solution
Basic Calculation
Revised
Particulars Standard (20,000 Kg) Actual (20,000 Kg) Standard
Quantity Rate Amount Quantity Rate Amount Quantity
76,666
´23000
A 10,000 25 2,50,000 11,000 23 2,53,000 88,666
= 10454.54
9,666
88,666
´23000
B 7,000 45 3,15,000 7,500 48 3,60,000
= 7318.18
:,666
88,666
´23000
C 5,000 55 2,75,000 4,500 60 2,70,000
= 5227.27
Total 22,000 8,40,000 23,000 8,83,000 23,000

Calculation of Variances
(i) Material Cost Variance = Standard Cost – Actual cost
A = 2,50,000 – 2,53,000 =` 3,000 (A)
B = 3,15,000 – 3,60,000 =` 45,000 (A)
C = 2,75,000 – 2,70,000 =` 5,000 (F)
MCV = ` 43,000 (A)
(ii) Material Price Variance = (SP – AP) ´ AQ
A = (25 – 23) ´ 11,000 =` 22,000 (F)
B = (45 – 48) ´ 7,500 =` 22,500 (A)
C = (55 – 60) ´ 4,500 =` 22,500 (A)
MPV = ` 23,000 (A)
(iii) Material Usage Variance = (SQ – AQ) ´ SP
A = (10,000 – 11,000) ´ 25 =` 25,000 (A)
B = (7,000 – 7,500) ´ 45 =` 22,500 (A)
C = (5,000 – 4,500) ´ 55 =` 27,500 (A)
MUV = ` 20,000 (A)
(iv) Material Yield Variance = (SQ – RSQ) ´ SP
A = (10,000 – 10,454.54) ´ 25 =` 11,363.5 (A)
B = (7,000 – 7,318.18) ´ 45 =` 14,318.1 (A)
C = (5,000 – 5,227.27) ´ 55 =` 12,500 (A)
MYV = ` 38,181.6 (A)
Or Material Yield Variance = (Actual yield – Standard yield) ´ Standard rate per unit of output
86,666 ;,<6,666
= !20,000 − '88,666 × 23,000*+ ' 86,666 * = `38,178 (A)

MAY – 2022 – 5 Marks

A manufacturing department of a company has employed 120 workers. The standard output of
product “NPX” is 20 units per hour and the standard wage rate is `25 per labour hour.

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In a 48 hour week, the department produced 1,000 units of ‘NPX’ despite 5% of the time paid
being lost due to an abnormal reason. The hourly wages actually paid were `25.70 per hour.

Calculate:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Idle Time Variance

Solution
Actual hours paid = 48 ´ 120 = 5,760
Actual wage rate paid = `25.70
Total wages paid = 5,760 ´ `25.70 = `1,48,032
Idle time = 5,760 ´ 5% = 288 hours
Actual hours worked = 5,760 – 288 = 5,472 hours
!"&´!
Standard hours (for 1,000 units of NPX) = "&
´ 1,000 = 6,000 hours
Standard rate = `25
Standard wages = 6,000 ´ `25 = `1,50,000

(i) Labour cost variance = Standard wages – Actual wages

= `1,50,000 - `1,48,032 = `1,968 (F)
(ii) Labour rate variance = (Std. rate – Actual rate) ´ Actual hours paid
= (25 – 25.70) ´ 5,760 = `4,032 (A)
(iii) Labour efficiency variance = (Std. hours – Actual hours worked) ´ Std. rate
= (6,000 – 5,472) ´ 25 = `13,200 (F)
(iv) Labour idle time variance = Idle hours ´ Std. rate
= 288 ´ 25 = `7,200 (A)

DEC – 2021 – 10 Marks

In a manufacturing company the standard units of production for the year were fixed at 1,20,000
units and overhead expenditures were estimated to be as follows:
Particulars Amount (`)
Fixed 12,00,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable 1,80,000
nature)
Variable 6,00,000
Actual production during the month of April, 2021 was 8,000 units. Each month has 20 working
days. During the month there was one public holiday. The actual overheads were as follows:
Particulars Amount (`)
Fixed 1,10,000
Semi-variable (60% expenses are of fixed nature and 40% are of variable 19,200
nature)
Variable 48,000
You are required to calculate the following variances for the month of April 2021:

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(i) Overhead cost variance

(ii) Fixed overhead cost variance
(iii) Variable overhead cost variance
(iv) Fixed overhead volume variance
(v) Fixed overhead expenditure variance
(vi) Calendar variance

Solution
Basic Calculations:
(1) Fixed overheads out of semi-variable overheads = 1,80,000 × 60% = `1,08,000
⸫Total Fixed overheads p.a. = 12,00,000 + 1,08,000 = `13,08,000
Total Fixed overheads per month = 13,08,000 ÷ 12 = `1,09,000
!,&(,&&&
Fixed overheads per unit = !,"&,&&&÷!" = `10.90

(2) Variable overheads out of semi-variable overheads = 1,80,000 × 40% = `72,000

⸫Total variable overheads p.a. = 6,00,000 + 72,000 = `6,72,000
Total variable overheads per month = 6,72,000 ÷ 12 = `56,000
'),&&&
Variable overheads per unit = !,"&,&&&÷!" = `5.60

(3) Variable overheads recovered = 8,000 × 5.60 = `44,800

(4) Total actual fixed overheads = 1,10,000 + (19,200 × 60%) = `1,21,520

Total actual variable overheads = 48,000 + (19,200 × 40%) = `55,680

(5) For Fixed Overheads

Budgeted Units Recovery Rate Budgeted OHs
10,000 10.90 1,09,000
Revised Bud. Units Actual Units Actual OHs
!&,&&& 8,000 1,21,520
"&
× 19 = 9,500
Standard Units Recovery Rate Recovered OHs
8,000 10.90 87,200
Calculation of Variances
(i) Overhead Cost Variance = Recovered Overheads – Actual Overheads
= (87,200 + 44,800) – (1,21,520 + 55,680) = `45,200 (A)
(ii) Fixed OHs Cost Variance = Recovered Fixed OHs – Actual Fixed OHs
= 87,200 – 1,21,520 = `34,320 (A)
(iii) Variable OHs Cost Variance = Recovered Variable OHs – Actual Variable OHs
= 44,800 – 55,680 = `10,880 (A)
(iv) Fixed OHs Volume Variance = Recovered Fixed OHs – Budgeted Fixed OHs
= 87,200 – 1,09,000 = `21,800 (A)

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(v) Fixed OHs Expenditure Variance = Budgeted overhead – Actual overhead

= 1,09,000 – 1,21,520 = `12,520 (A)
(vi) Calendar Variance = (Revised Bud. units – Budget units) × Recovery rate
= (9,500 – 10,000) × 10.90 = `5,450 (A)

JULY – 2021 – 10 Marks

The standard output of product ‘DJ’ is 25 units per hour in manufacturing department of a company
employing 100 workers. In a 40 hours week, the department produced 960 units of product ‘DJ’
despite 5% of the time paid was lost due to an abnormal reason. The hourly wage rates actually
paid were `6.20, `6.00 and `5.70 respectively to group ‘A’ consisting 10 workers, Group ‘B’
consisting 30 workers and Group ‘C’ consisting 60 workers. The standard wage rate per labour is
same for all the workers. Labour Efficiency Variance is given `240 (F).
You are required to calculate:
(iii) Total Labour Cost Variance
(iv) Total Labour rate Variance
(v) Total Labour Gang Variance
(vi) Total Labour Yield Variance, and
(vii) Total Labour Idle Time Variance

Solution
Labour Efficiency Variance = (SH – AH worked) × SR
!&&
240 (F) = !H960 × "'
I − {(10 + 30 + 60) × (40 − 5%)}- × e`
240 = (3,840 – 3,800) × SR
SR = `6
Particulars Standard (960 units)
Quantity Rate Amount
Labour !&& 6 23,040
960 × "'
= 3,840

Actual data (960 units)

No. of Hours paid Wage rate Wages Idle hours Hours worked
workers
10 10×40 = 400 6.20 2,480 400×5% = 20 400 – 20 = 380
30 30×40 = 1,200 6 7,200 1,200×5% = 60 1,200 – 60 = 1,140
60 60×40 = 2,400 5.70 13,480 2,400×5% = 2,400 – 120 = 2,280
120
Total 4,000 23,360 200 3,800

Calculation of Variances
(i) Labour Cost Variance = Standard Cost – Actual cost
= 23,040 – 23,360 = `320 (A)

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(ii) Labour Rate Variance = (SR – AR) ´ AH paid

= [(6 – 6.20) × 400] + [(6 – 6)×1,200] + [(6 - 5.70)×2,400] = `640 (F)
(iii) Labour Gang Variance = (RSH – AH worked) ´ SR
= (3,800 – 3,800) × 6 = Nil
(iv) Labour Yield Variance = (Actual yield – St. yield) ´ St. cost per unit of output
()& "%,&$&
= !960 − H%,.$& × 3,800I- ´ H ()&
I= `240 (F)
(v) Idle Time Variance = Idle Hours ´ SR
= 200 × 6 = `1,200 (A)

JAN – 2021 – 10 Marks

Premier Industries has a small factory where 52 workers are employed on an average for 25 days
a month and they work 8 hours per day. The normal down time is 15%. The firm has introduced
standard costing for cost control. Its monthly budget for November, 2020 shows that the budgeted
variable and fixed overhead are `1,06,080 and `2,21,000 respectively.

The firm reports the following details of actual performance for November, 2020 after the end of
the month:
Actual hours worked 8,100 hrs.
Actual production expressed in standard hours 8,800 hrs.
Actual Variable Overheads `1,02,000
Actual Fixed Overheads `2,00,000
You are required to calculate:
(i) Variable Overhead Variances:
(a) Variable overhead expenditure variance
(b) Variable overhead efficiency variance
(ii) Fixed Overhead Variances:
(a) Fixed overhead budget variance
(b) Fixed overhead capacity variance
(c) Fixed overhead efficiency variance
(iii) Control Ratios:
(a) Capacity ratio
(b) Efficiency ratio
(c) Activity ratio
Solution
Basic Calculations
Standard Actual
Particulars Hrs. Rate Amount Hrs. Rate Amount
` ` ` `
!,&),&.& !,&",&&&
Variable = =
8,800 .,.$& 1,05,600 8,100 .,!&& 1,02,000
Expenses 12 12.5926

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Budgeted Hours Recovery Rate Budgeted Overheads

8,840 25 2,21,000
Actual Hours Actual Overheads
8,100 2,00,000
Standard Hours Recovery Rate Recovered Overheads
8,800 25 2,20,000

(i) (a) Variable overhead expenditure variance = (SR – AR) × Actual Hrs.
= (12 – 12.5926) × 8,100 = `4,800 (A)
(b) Variable overhead efficiency variance = (SH – AH) × Std. Rate
= (8,800 – 8,100) × 12 = `8,400 (F)
(ii) (a) Fixed overhead budget variance = Budgeted OH – Actual OH
= 2,21,000 – 2,00,000 = `21,000 (F)
(b) Fixed overhead capacity variance = (AH – BH) × Recovery rate
= (8,100 – 8,840) × 25 = `18,500 (A)
(c) Fixed overhead efficiency variance = (SH – AH) × Recovery rate
= (8,800 – 8,100) × 25 = `17,500 (F)
2HGK7F V<K>9 .,!&&
(iii) (a) Capacity ratio = ZK6E?G?6 V<K>9 × 100 = .,.$& × 100 = 91.63%
@G7D67>6 V<K>9 .,.&&
(b) Efficiency ratio = 2HGK7F V<K>9
× 100 = .,!&& × 100 = 108.64%
@G7D67>6 V<K>9 .,.&&
(c) Activity ratio = ZK6E?G?6 V<K>9 × 100 = .,.$& × 100 = 99.54%

NOV – 2020 – 10 Marks

ABC Ltd. has furnished the following information regarding the overheads for the month of June
2020:
(i) Fixed overhead cost variance `2,800 (Adverse)
(ii) Fixed overhead volume variance `2,000 (Adverse)
(iii) Budgeted Hours for June, 2020 2,400 hours
(iv) Budgeted Overheads for June, 2020 `12,000
(v) Actual rate of recovery of overheads `8 per hour
From the above given information calculate:
(v) Fixed overhead expenditure variance
(vi) Actual overheads incurred
(vii) Actual hours for actual production
(viii) Fixed overhead capacity variance
(ix) Standard hours for actual production
(x) Fixed overhead efficiency variance

Solution
Computation of required variances for February 2019:
1. Overheads expenditure variance = Overhead Cost Variance – Overheads Volume variance

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= `2,800(A) - `2,000(A) = - `2,800 – (- `2,000) = - `800 = `800 (A)

2. Actual Overheads incurred = Budgeted Overhead - Overhead Expenditure Variance
= `12,000 - `800(A) = `12,000 – (- `800) = `12,000 + `800 = `12,800
2HGK7F 3L?>Q?769 NDHK>>?6
3. Actual hours for actual production = 2HGK7F P7G? <= P?H<L?>8 3L?>Q?76 [?> V<K>
!",.&&
= .
= 1,600 hours
4. Overheads Capacity Variance = Std rate of OH rate (Actual hrs for actual production –
Budgeted hours)
= `5 ´ (1,600 – 2,400) = `5 ´ (- 800) = `4,000 Adverse
ZK6E?G7>8 3L?>Q?769 !",&&&
* Standard rate of Overhead recovery = ZK6E?G?6 Q<K>9
= ",$&& Q<K>9 = `5 per hour
5. Volume Variance = Std. rate of OHs recovery (Standard hours for actual production –
Budgeted hours)
or, `2,000(A) = `5 [Std. hrs. – 2,400 hours]
",&&&
or, Std. hrs. – 2,400 hours = - '
or, Std. hrs. – 2,400 hours = - 400 hours
or, Std. hrs. = 2,400 hours - 400 hours
Standard hours for actual production = 2,000 hours
6. Fixed overhead efficiency variance = (Std. hours for AO – Actual Hrs.) × SR
= (2,000 – 1,600) × 5 = 2,000 (F)
Or
Fixed overhead efficiency variance = Volume variance – Capacity Variance
= `2,000(A) - `4,000(A) = - `2,000 – (- `4,000) = - `2,000 + `4,000 = `2,000 (F)

NOV – 2019 – 10 Marks

The standard cost of a chemical mixture is as follows:
60% of Material A @ `50 per kg
40% of Material B @ `60 per kg
A standard loss of 25% on output is expected in production. The cost records for a period has
shown the following usage.
540 kg of Material A @ `60 per kg
260 kg of Material B @ `50 per kg
The quantity processed was 680 kilograms of good product.
From the above given information, calculate:
(i) Material cost variance
(ii) Material price variance
(iii) Material usage variance
(iv) Material mix variance
(v) Material yield variance

Solution
Basic Calculation

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Standard Actual Revised

Particulars Std.
Quantity Rate Amount Quantity Rate Amount Quantity
850 × 60% 800 × 60%
Material A 50 25,500 540 60 32,400
= 510 = 480
850 × 40% 800 × 40%
Material B 60 20,400 260 50 13,000
= 340 = 320
Input 850 45,900 800 45,400 800
680 × 25%
(-) Loss 120
= 170
Output 680 680
Calculation of Variances
(i) Material Cost Variance = Standard Cost – Actual cost
A = 25,500 – 32,400 =` 6,900 (A)
B = 20,400 – 13,000 =` 7,400 (F)
MCV = ` 500 (F)
1. Material Price Variance = (SP – AP) ´ AQ
A = (50 – 60) ´ 540 =` 5,400 (A)
B = (60 – 50) ´ 260 =` 2,600 (F)
MPV = ` 2,800 (A)
2. Material Usage (or Quantity) Variance = (SQ – AQ) ´ SP
A = (510 – 540) ´ 50 =` 1,500 (A)
B = (340 – 260) ´ 60 =` 4,800 (F)
MUV = ` 3,300 (F)
3. Material Mix Variance = (RSQ - AQ) ´ SP
A = (480 – 540) ´ 50 =` 3,000 (A)
B = (320 – 260) ´ 60 =` 3,600 (F)
MMV = ` 600 (F)
4. Material Yield Variance = (SQ - RSQ) ´ SP
A = (510 – 480) ´ 50 =` 1,500 (F)
B = (340 – 320) ´ 60 =` 1,200 (F)
MYV = ` 2,700 (F)
OR Material Yield Variance (MYV)
= (Actual yield – St. yield) ´ St. cost per unit of output
).& $',(&&
= !680 − H.'& × 800I- ´ H ).&
I= `2,700 (F)

MAY – 2019 – 10 Marks

A gang of workers normally consists of 30 skilled workers, 15 semi-skilled workers and 10
unskilled workers. They are paid at standard rate per hour as under:
Skilled `70

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Semi-skilled `65
Unskilled `50
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of output.
During the week ended 31st March, 2019, the gang consisted of 40 skilled, 10 semi-skilled and 5
unskilled workers. The acutal wages paid were at the rate of `75, `60 and `52 per hour
respectively. Four hours were lost due to machine breakdown and 1,600 units were produced.

Calculate the following variances showing clearly adverse (A) or favorable (F)
(i) Labour Cost Variance (ii) Labour Rate Variance
(iii) Labour Efficiency Variance (iv) Labour Mix Variance
(v) Labour Idle Time variance

Solution
Basic Calculation
Standard (1,600 units) Actual (1,600 units) Revised
Particulars
Quantity Rate Amount Quantity Rate Amount Std. Qty.
$&×%& ()&
",&&&
×1600 = 40×40 = !,*)&
×1980
Skilled 70 67,200 75 1,20,000
960 1,600 = 1,080
$&×!' $.&
×1600 = 40×10 = !,*)&
×1980
Semi-skilled ",&&& 65 31,200 60 24,000
480 400 = 540
$&×!& %"&
",&&&
×1600 = 40×5 = !,*)&
×1980
Unskilled 50 16,000 52 10,400
320 200 = 360
Total 1,760 1,14,400 2,200 1,54,400 1,980

Particulars Hours Paid Idle Hours Hours Worked

Skilled 40 × 40 =1,600 40 × 4 = 160 1,600 – 160 = 1,440
Semi-skilled 40× 10 = 400 10 × 4 = 40 400 – 40 = 360
Unskilled 40× 5 = 200 5 × 4 = 20 200 – 20 = 180
Total 22,00 220 1,980
Calculation of Variances
(i) Labour Cost Variance = Standard Cost – Actual cost
Skilled = 67,200 – 1,20,000 =` 52,800 (A)
Semi-skilled = 31,200 – 24,000 =` 7,200 (F)
Unskilled = 16,000 – 10,400 =` 5,600 (F)
LCV = ` 40,000 (A)
(ii) Labour Rate Variance = (SR – AR) ´ AH paid
Skilled = (70 – 75) × 1,600 =` 8,000 (A)
Semi-Skilled = (65 – 60) × 400 =` 2,000 (F)
Unskilled = (50 – 52) × 200 =` 400 (A)
LRV = ` 6,400 (A)

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(iii) Labour Efficiency Variance = (SH – AH worked) ´ SR

Skilled = (960 – 1,440) × 70 =` 33,600 (A)
Semi-Skilled = (480 – 360) × 65 =` 7,800 (F)
Unskilled = (320 – 180) × 50 =` 7,000 (F)
LEV = ` 18,800 (A)
(iv) Labour Mix Variance = (RSH – AH worked) ´ SR
Skilled = (1,080 – 1,440) × 70 =` 25,200 (A)
Semi-Skilled = (540 –360) × 65 =` 11,700 (F)
Unskilled = (360 – 180) × 50 =` 9,000 (F)
LMV = ` 4,500 (A)
(v) Idle Time Variance = Idle Hours ´ SR
Skilled = 160 × 70 =` 11,200 (A)
Semi-Skilled = 40 × 65 =` 2,600 (A)
Unskilled = 20 × 50 =` 1,000 (A)
Idle time variance = ` 14,800 (A)

MAY – 2019 – 5 Marks

Following data is available for ABC Ltd.:
Standard working hours 8 hours per day of 5 days per week
Maximum capacity 60 employees
Actual working 50 employees
Actual hours expected to be worked per four week 8,000 hours
Standard hours expected to be earned per four week 9,600 hours
Actual hours worked in the four week period 7,500 hours
Standard hours earned in the four week period 8,800 hours
The related period is of four weeks. Calculate the following Ratios:
(i) Efficiency ratio
(ii) Activity ratio
(iii) Standard capacity usage ratio
(iv) Actual capacity usage ratio
(v) Actual usage of Budgeted capacity ratio

Solution
Working Notes:
(1) Max. capacity in a budget period = 60 employees × 8 hrs. × 5 days × 4 weeks = 9,600 hrs.
(2) Budgeted hours = 50 employees × 8 hrs. × 5 days × 4 weeks = 8,000 hrs.
(3) Actual hours = 7,500 hrs. (given)
(4) Standard hours for actual output = 8,800 hours
Calculation of ratios:
@G7D67>6 V<K>9 .,.&&
(i) Efficiency ratio = 2HGK7F V<K>9
× 100 = *,'&& × 100 = 117.33%

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@G7D67>6 V<K>9 .,.&&

(ii) Activity ratio = × 100 = × 100 = 110%
ZK6E?G?6 V<K>9 .,&&&
ZK6E?G?6 V<K>9 .,&&&
(iii) Standard Capacity Usage ratio = W7_. C<99ASF? Q<K>9 AD SK6E?G C?>A<6
× 100 = (,)&&
× 100 =
83.33%
2HGK7F V<K>9 *,'&&
(iv) Actual capacity usage ratio = W7_. C<99ASF? R<>IADE Q<K>9 AD C?>A<6
× 100 = (,)&&
× 100 =
78.125%
2HGK7F Q<K>9 *,'&&
(v) Actual usage of budgeted capacity ratio = ZK6E?G?6 b789× 100 = .,&&& × 100 = 93.75%

NOV – 2018 – 5 Marks

A manufacturing concern has provided following information related to fixed overheads:
Standard Actual
Output in a month 5,000 units 4,800 units
Working days in a month 25 days 23 days
Fixed overheads `5,00,000 `4,90,000
Compute:
(i) Fixed overhead variance
(ii) Fixed overhead expenditure variance
(iii) Fixed overhead volume variance
(iv) Fixed overhead efficiency variance

Solution
Basic Calculations:
Budgeted Days Recovery Rate Budgeted Overheads
25 5,00,000 ÷ 25 = 20,000 5,00,000
Actual Days Actual Overheads
23 4,90,000
Standard Days Recovery Rate Recovered Overheads
"' 20,000 4,80,000
',&&&
× 4,800 = 24
Calculation of Variances
(a) F. O. Cost Variance = Recovered overhead – Actual overhead
= 4,80,000 – 4,90,000 = `10,00 (A)
(b) Expenditure Variance = Budgeted overhead – Actual overhead
= 5,00,000 – 4,90,000 = `10,000 (F)
(c) Volume Variance = Recovered overhead – Budgeted overhead
= 4,80,000 – 5,00,000 = `20,000 (A)
(d) Efficiency Variance = (Std. days – Actual days) × Recovery Rate
= (24 – 23) × 20,000 = `20,000 (F)

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MAY – 2018 – 5 Marks

Beta Ltd. is manufacturing Product N. This is manufactured by mixing two materials namely
Material P and Material Q. The Standard Cost of Mixture is as under:
Material P 150 ltrs @ `40 per ltr.
Material Q 100 ltrs @ `60 per ltr.
Standard loss @ 20% of total input is expected during production
The cost records for the period exhibit the following consumption:
Material P 140 ltrs. @ `42 per ltr.
Material Q 110 ltrs. @ `56 per ltr.
Quantity produced was 195 ltrs.
Calculate:
(i) Material Cost Variance
(ii) Material Usage Variance
(iii) Material Price Variance

Solution
Basic Calculation
Standard Actual
Particulars
Quantity Rate Amount Quantity Rate Amount
243.75 × 150/250
Material A 40 5,850 140 42 5,880
= 146.25
243.75 × 100/250
Material B 60 5,850 110 56 6,160
= 97.50
192 ÷ 80%
Input 11,520 250 12,040
= 243.75
(-) Loss 48.75 55
Output 195 195
Calculation of Variances
1. Material Cost Variance = Standard Cost – Actual cost
P = 5,850 – 5,880 =` 30 (A)
Q = 5,850 – 6,160 =` 310 (A)
MCV = ` 340 (A)
2. Material Price Variance = (SP – AP) ´ AQ
P = (40 – 42) ´ 140 =` 280 (A)
Q = (60 – 56) ´ 110 =` 440 (F)
MPV = ` 160 (F)
3. Material Usage (or Quantity) Variance = (SQ – AQ) ´ SP
P = (146.25 – 140) ´ 40 =` 250 (F)
Q = (97.50 – 110) ´ 60 =` 750 (A)
MUV = ` 500 (A)

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Budget & Budgetary Control

MAY – 2023 – 10 Marks
PQR Limited manufactures three products – Product X, Product Y and Product Z. The output for
the current year is 2,50,000 units of Product X, 2,80,000 units of Product Y and 3,20,000 units of
Product Z respectively.

Selling price of Product X is 1.25 times of Product Z whereas Product Y can be sold at double the
price at which product Z can be sold. Product Z can be sold at a profit of 20% on its marginal cost.

Other information are as follows:

Product X Product Y Product Z
Direct material cost (per unit) `20 `20 `20
Direct wages cost (per unit) `16 `24 `16
Raw material used for manufacturing all the three products is the same. Direct wages are paid @`4
per labour hour.

Total overhead cost of the company is `52,80,000 for the year, out of which `1 per labour hour
is variable and the rest is fixed.

In the next year it is expected that sales of product X and product Z will increase by 12% and 15%
respectively and sale of product Y will decline by 5%. The total overhead cost of the company for
the next year is estimated at `55,08,000. The variable cost of `1 per labour our remains
unchanged.

It is anticipated that all other costs will remain same for the next year and there is opening and
closing stock. Selling price per unit of each product will remain unchanged in the next year.

Required:
Prepare a budget showing the current position and the position for the next year clearly indicating
the total product-wise contribution and profit for the company as a whole.

Solution
(i) Budget showing current position of total product wise contribution and profitability
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Direct material cost 20 20 20
(per unit)
B Direct wages cost (per 16 24 16
unit)
C Variable overhead per 4 6 4
unit (WN – 1)
D Total variable cost per 40 50 40
unit (A+B+C)
E Add: Profit (20%´D) - - 8
F Selling price per unit - - 48
(D+E)
G Price weight 1.25 2 1
H Selling price per unit 60 96 48
(G´SP of Z)

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I Contribution per unit 20 46 8

(H-D)
J Quantity to be sold 2,50,000 2,80,000 3,20,000
K Contribution (J ´ I) 50,00,000 1,28,80,000 25,60,000 2,04,40,000
L Fixed Overheads (WN 13,20,000
– 2)
M Profit 1,91,20,000

(i) Budget showing next year’s position of total product wise contribution and profitability
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Selling price per unit 60 96 48
B Contribution per unit 20 46 8
C Quantity to be sold 2,80,000 2,66,000 3,68,000
(112%´250000) (95%´280000) (115%´320000)
D Total contribution 56,00,000 1,22,36,000 29,44,000 2,07,80,000
(B´C)
E Fixed overheads 13,20,000
(WN-2)
F Profit 1,94,60,000

Working Note:
(1) Segregation of overheads into variable and fixed in current year
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Total Overhead cost - - - 52,80,000
B Labour hour per unit 4 6 4
(Direct wages ÷ `1)
C Quantity produced 2,50,000 2,80,000 3,20,000
D Total variable 10,00,000 16,80,000 12,80,000 39,60,000
overhead cost (B ´ C)
E Fixed overhead cost 13,20,000
(A-D)
(2) Segregation of overheads into variable and fixed in next year
Particulars Product X (`) Product Y (`) Product Z (`) Total (`)
A Total Overhead cost - - - 55,08,000
B Labour hour per unit 4 6 4
(Direct wages ÷ `1)
C Quantity produced 2,80,000 2,66,000 3,68,000
D Total variable 11,20,000 15,96,000 14,72,000 41,88,000
overhead cost (B ´ C)
E Fixed overhead cost 13,20,000
(A-D)

MAY – 2023 – 10 Marks

A Limited has furnished the following information for the months from 1st January to 30th April,
2023:
January February March April
Number of working days 25 24 26 25
Production (in units) per working day 50 55 60 52
Raw material purchases (% by weights 21% 26% 30% 23%
to total of 4 months)
Purchase price of raw material (per kg) `10 `12 `13 `11

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Quantity of raw material per unit of product: 4 kg

Opening stock of raw material on 1st January: 6,020 kg. (Cost `63,210)
Closing stock of raw material on 30th April: 5,100 kg.
All the purchases of material are made at the start of each month.
Required:
(i) Calculate the consumption of raw material (in kgs) month-by-month and in total
(ii) Calculate the month-wise quantity and value of raw materials purchased
(iii) Prepare the priced stores ledger for each month using the FIFO method.

Solution
(i) Calculation of consumption for Raw Material (in kgs) month by month and total
Particulars Jan Feb March April Total
No. of working cays 25 24 26 25 -
Production (per day) 50 55 60 52 -
Production 1,250 1,320 1,560 1,300 5,430
Raw material consumed (in kgs) 5,000 5,280 6,240 5,200 21,720

Calculation of Raw Material Purchased

Purchased Kg
Closing stock on 30th April 5,100
Add: Raw material consumed 21,720
Less: Opening stock on 1st January (6,020)
Raw material purchased 20,800

(ii) Calculation of month wise quantity and value of raw materials purchased
Month Purchase quantity (Kgs) Price (`) Value (`)
January 20,800 ´ 21% = 4,368 10 43,680
February 20,800 ´ 26% = 5,408 12 64,896
March 20,800 ´ 30% = 6,240 13 81,120
April 20,800 ´ 23% = 4,784 11 52,624
Total 20,800 2,42,320

(iii) Stores Price Ledger by using FIFO Method

Receipts Issues Balance
Month
Qty. (kg) Rate (`) Amount Qty. (kg) Rate (`) Amount Qty. (kg) Rate (`) Amount
Jan - - - - - - 6,020 10.5 63,210
6,020 10.5 63,210
Jan 4,368 10 43,680 - - -
4,368 10 43,680
1,020 10.5 10,710
Jan - - - 5,000 10.5 52,500
4,368 10 43,680
1,020 10.5 10,710
Feb 5,408 12 64,896 - - - 4,368 10 43,680
5,408 12 64,896
1,020 10.5 10,710 108 10 1,080
Feb - - -
4,260 10 42,600 5,408 12 64,896
108 10 1,080
March 6,240 13 81,120 - - - 5,408 12 64,896
6,240 13 81,120

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108 10 1,080
March - - - 5,408 12 64,896 5,516 13 71,708
724 13 9,412
5,516 13 52,624
April 4,784 11 52,624 - - -
4,784 11 71,708
316 13 4,108
April - - - 5,200 13 67,600
4,784 11 52,624

MAY – 2022 – 10 Marks

SR Ltd. is a manufacturer of Garments. For the first three months of financial year 2022-23
commencing on 1st April, 2022, production will be constrained by direct labour. It is estimated that
only 12,000 hours of direct labour hours will be available in each month.

For market reasons, production of either of the two garments must be at least 25% of the production
of the other. Estimated cost and revenue per garment are as follows:
Shirt (`) Short (`)
Sales price 60 44
Raw materials
Fabric @12 per metre 24 12
Dyes and cotton 6 4
Direct labour @8 per hour 8 4
Fixed Overhead @4 per hour 4 2
Profit 18 22
From the month of July 2022 direct labour will no longer be a constraint. The company expects to
be able to sell 15,000 shirts and 20,000 shorts in July 2022. There will be no opening stock at the
beginning of July 2022.

Sales volumes are expected to grow at 10% per month cumulatively thereafter throughout the year.
Following additional information is available:
• The company intends to carry stock of finished garments sufficient to meet 40% of the next
month’s sale from July 2022 onwards.
• The estimated selling price will be same as above.

Required:
(i) Calculate the number of shirts and shorts to be produced per month in the first quarter
of financial year 2022-23 to maximize company’s profit.
(ii) Prepare the following budgets on a monthly basis for July, August and September 2022:
(a) Sales budget showing sales units and sales revenue for each product.
(b) Production budget (in units) for each product.

Solution
(i) Statement of contribution per unit
Particulars Shirt (`) Short (`)
Selling price per unit (A) 60 44
Fabric cost per unit 24 12

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Dyes & Cotton per unit 6 4

Direct labour per unit 8 4
Variable cost per unit (B) 38 20
Contribution per unit (A – B = C) 22 24
Labour hours per unit . $
.
=1 .
= 0.5
Contribution per labour hour "" "$
!
= 22 &.'
= 48
Since contribution per labour hour is higher in case of short, thus it is advisable to produce it first.

Let number of shorts to be produced = y

Labour hours required used to produce shorts = 0.5y
Labour hours available for shirts = 12,000 – (0.5y)
!",&&&1&.'8
Number of shirts that can be produced = !
= 12,000 – 0.5y
As per condition of 25% given in question,
Production of shirt = 25% of production of short
12,000 – 0.5y = 25% ´ y
12,000 – 0.5y = 0.25y
12,000 = 0.75y
y = 16,000
Thus, number of shorts to be produced = y = 16,000
and, number of shirts to be produced = 12,000 – 0.5(16,000) = 4,000

(ii) (a) Sales budget

Shirt Short
Particulars
July August September July August September
Sale units 15,000 16,500 18,150 20,000 22,000 24,200
S.P. per unit 60 60 60 44 44 44
Total Sales 9,00,000 9,90,000 10,89,000 8,80,000 9,68,000 10,64,800

(ii) (b) Production Budget

Shirt Short
Particulars
July August September July August September
Sale units 15,000 16,500 18,150 20,000 22,000 24,200
(+) Closing Stock 6,600 7,260 7,986* 8,800 9,680 10,468*
(40% of next
month sale)
(-) Opening stock - (6,600) (7,260) - (8,800) (9,680)
Total Production 21,600 17,160 18,876 28,800 22,880 24,988
*Closing stock for September
Closing stock of shirts = Sales of October ´ 10% = (18,150 ´ 110%) ´ 40% = 7,986
Closing stock of shorts = Sales of October ´ 10% = (24,200 ´ 110%) ´ 40% = 10,468

DEC – 2021 – 5 Marks

The Accountant of KPMR Ltd. has prepared the following budget for the coming year 2022 for its
two products ‘AYE’ and ‘ZYE’:

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Particulars Product ‘AYE’ Product ‘ZYE’

Production and Sales (in Units) 4,000 3,000
Amount (in `) Amount (in `)
Selling price per unit 200 180
Direct material per unit 80 70
Direct labour per unit 40 35
Variable overhead per unit 20 25
Fixed overhead per unit 10 10
After reviewing the above budget, the management has called the marketing team for suggesting
some measures for increasing the sales. The marketing team has suggested that by promoting the
products on social media, the sales quantity of both the products can be increased by 5%. Also, the
selling price per unit will go up by 10%. But this will result in increase in expenditure on variable
overhead and fixed overhead by 20% and 5% respectively for both the products.

You are required to prepare flexible budget for both the products:
(i) Before promotion on social media
(ii) After promotion on social media

Solution
(i) Flexible Budget (Before promotion)
Particulars Product AYE Product ZYE Total
Sales 4,000 ´ 200 = 8,00,000 3,000 ´ 180 = 5,40,000 13,40,000
Less: Direct 4,000 ´ 80 = 2,40,000 3,000 ´ 70 = 2,10,000 4,50,000
Material
Less: Direct labour 4,000 ´ 40 = 1,60,000 3,000 ´ 35 = 1,05,000 2,65,000
Less: Variable OHs 4,000 ´ 20 = 80,000 3,000 ´ 25 = 75,000 1,55,000
Less: Fixed OHs 4,000 ´ 10 = 40,000 3,000 ´ 10 = 30,000 70,000
Profit 2,80,000 1,20,000 4,00,000

(ii) Flexible Budget (After promotion)

Particulars Product AYE Product ZYE Total
Sales 4,200 ´ 220 = 9,24,000 3,150 ´ 198 = 6,23,700 15,47,700
Less: Direct 4,200 ´ 80 = 3,36,000 3,150 ´ 70 = 2,20,500 5,56,500
Material
Less: Direct labour 4,200 ´ 40 = 1,68,000 3,150 ´ 35 = 1,05,000 2,73,000
Less: Variable OHs 4,200 ´ 24 = 1,00,800 3,150 ´ 25 = 1,10,250 2,11,050
Less: Fixed OHs 40,000 + 5% = 42,000 30,000 + 5% = 31,500 73,500
Profit 2,77,200 1,56,450 4,33,650

JULY – 2021 – 10 Marks

PSV Ltd. manufactures and sells a single product and estimated the following related information
for the period November, 2020 to March, 2021.

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Particulars November, December, January, February, March,

2020 2020 2021 2021 2021
Opening Stock of Finished 7,500 3,000 9,000 8,000 6,000
goods (in Units)
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per unit (in 10 12 15 15 20
`)
Additional information:
• Closing stock of finished goods at the end of march, 2021 is 10,000 units
• Each unit of finished output requires 2kg of Raw Material ‘A’ and 3kg of Raw Material ‘B’.
You are required to prepare the following budgets for the period November, 2020 to March 2021
on monthly basis:
(i) Sales budget (in `)
(ii) Production Budget (in units) and
(iii) Raw material budget for raw material ‘A’ and ‘B’ separately (in units)

Solution
(i) Sales Budget
Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Sales (in Units) 30,000 35,000 38,000 25,000 40,000
Selling Price per unit (in 10 12 15 15 20
`)
Sales Value 3,00,000 4,20,000 5,70,000 3,75,000 8,00,000

(ii) Production Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Sales Units 30,000 35,000 38,000 25,000 40,000
Add: Closing Stock Units 3,000 9,000 8,000 6,000 10,000
Less: Opening Stock Units (7,500) (3,000) (9,000) (8,000) (6,000)
Production Units 25,500 41,000 37,000 23,000 44,000

(iii) Raw Material ‘A’ Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Production Units 25,500 41,000 37,000 23,000 44,000
Raw material consumption 2 2 2 2 2
per unit
Raw Material 51,000 82,000 74,000 46,000 88,000
Consumption

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Raw Material ‘B’ Budget

Particulars November, December, January, February, March,
2020 2020 2021 2021 2021
Production Units 25,500 41,000 37,000 23,000 44,000
Raw material 3 3 3 3 3
consumption per unit
Raw Material 76,500 1,23,000 1,11,000 69,000 1,32,000
Consumption

JAN – 2021 – 10 Marks

XYZ Ltd. is engaged in the manufacturing of toys. It can produce 4,20,000 toys at its 70% capacity
on per annum basis. Company is in the process of determining sales price for the financial year
2020-21. It has provided the following information:
Direct Material `60 per unit
Direct Labour `30 per unit
Indirect Overheads:
Fixed `65,50,000 per annum
Variable `15 per unit
Semi-variable `5,00,000 per annum upto 60% capacity and `50,000 for every 5%
increase in capacity or part thereof upto 80% capacity and thereafter
`75,000 for every 10% increase in capacity or part thereof.
Company desires to earn a profit of `25,00,000 for the year. Company has planned that the factory
will operate at 50% of capacity for the first six months of the year and at 75% of capacity for
further three months and for the balance three months, factory will operate at full capacity.
You are required to:
(vii) Determine the average selling price at which each of the toy should be sold to earn the desired
profit.
(viii) Given the above scenario, advise whether company should accept an offer to sell each Toy
at:
(a) `130 per Toy
(b) `129 per Toy

Solution
(i) Statement of Cost
Particulars Amount
Direct material (4,12,500 × 60) 2,47,50,000
Direct wages (4,12,500 × 30) 1,23,75,000
Prime Cost 3,71,25,000
Factory Overheads:
Fixed expenses 65,50,000
Variable expenses (4,12,500 × 15) 61,87,500
Semi-variable expenses (w.n.-1) 6,25,000

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Work Cost/ COP/ COGS/COS 5,04,87,500

Add: Required profit 25,00,000
Total Sales 5,29,87,500
Total Units 4,12,500
Selling price per unit 128.45
Working note – 1
)
For First 6 months = 5,00,000 × !" = 2,50,000
%
For next 3 months = (5,00,000 + 50,000 + 50,000 + 50,000) × !" = 1,62,500
For balance 3 months = (5,00,000 + 50,000 + 50,000 + 50,000 + 50,000 + 75,000 + 75,000)(3/12)
= 2,12,500
Total Semi Variable expenses = 2,50,000 + 1,62,500 + 2,12,500 = `6,25,000

Working Note – 2
Maximum capacity p.a. = 4,20,000 ÷ 70% = 6,00,000 units
Units in first 6 months = 6,00,000 × 50% × (6/12) = 1,50,000 units
Units in next 3 months = 6,00,000 × 75% × (3/12) = 1,12,500 units
Units in balance 3 months = 6,00,000 × 100% × (3/12) = 1,50,000 units
Total units produced = 1,50,000 + 1,12,500 + 1,50,000 = 4,12,500 units

(ii) (a) (b)

Selling price per unit 130 129
Less: Variable cost per unit 105 105
Contribution per unit 25 24_
Unutilized plant capacity without changing cost = 4,20,000 – 4,12,500 = 7,500 units

Thus, if the company has order upto 7,500 units than it can accept the offer for goods either at 130
or 129 at both levels as contribution will increase which in turn increase the profit.
For order beyond 7,500 units, the acceptability of the offer will depend on other cost and the benefit
involved beyond that level.

NOV – 2020 – 5 Marks

G Ltd. manufactures a single product for which market demand exists for additional quantity.
Present sales of `6,00,000 utilizes only 60% capacity of the plant. The following data are
available:
(1) Selling price : `100 per unit
(2) Variable cost : `30 per unit
(3) Semi-variable expenses : `60,000 fixed + `5 per unit
(4) Fixed expenses : `1,00,000 at present level, estimated to
increase by 25% at and above 80% capacity.

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You are required to prepare a flexible budget so as to arrive at the operating profit at 60%, 80%
and 100% levels.

Solution
Flexible Budget
Amount Amount Amount
Particulars
at 60% at 80% at 100%
No. of units 6,000 8,000 10,000
Selling price per unit 100 100 100
Sales 6,00,000 8,00,000 10,00,000
Less: Variable cost @ `30 1,80,000 2,40,000 3,00,000
Less: Semi variable cost - variable portion @ `5 30,000 40,000 50,000
Less: Semi variable cost - fixed portion 60,000 60,000 60,000
Less: Fixed cost 1,00,000 1,25,000 1,25,000
Operating Profit 2,30,000 3,35,000 4,65,000

NOV – 2019 – 10 Marks

PJ Ltd. manufactures hockey sticks. It sells the products at `500 each and makes a profit of `125
on each stick. The Company is producing 5,000 stocks annually by using 50% of its machinery
capacity. The cost of each stick is as under:
Direct material `150
Direct wages `50
Work Overheads `125 (50% fixed)
Selling Expenses `50 (25% variable)
The anticipation for the next year is that cost will go up as under:
Fixed charges 10%
Direct wages 20%
Direct material 5%
There will not be any change in selling price There is an additional order for 2,000 sticks in the
next year. Calculate the lowest price that can be quoted so that the Company can earn the same
profit as it earned in the current year?

Solution
Statement of calculation of selling price
Particulars Amount (`)
Direct Material [(150 + 5%) × 7,000] 11,02,500
Direct Wages [(50 + 20%) × 7,000] 4,20,000
Variable Works Overhead [125 × 50% × 7,000] 4,37,500
Fixed Works Overhead [125 × 50% × 5,000 × 110%] 3,43,750
Variable Selling Expenses [50 × 25% × 7,000] 87,500
Fixed Selling Expenses [50 × 75% × 5,000 × 110%] 2,06,250

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Total Cost 25,97,500

Add: Desired Profit (125 × 7,000) 8,75,000
Total Sales Value 34,72,500
Less: Existing Sales from 5,000 units [5,000 × 500] 25,00,000
Sales value to be obtained from remaining 2,000 units (A) 9,72,500
Sale units (B) 2,000
Selling price per unit (A ÷ B) 486.25

NOV – 2018 – 10 Marks

An electronic gadget manufacturer has prepared sales budget for the next few months. In this
respect, following figures are available:
Month Electronic gadgets’ sales
January 5,000 units
February 5,000 units
March 7,000 units
April 7,500 units
May 8,000 units

To manufacture an electronic gadget, a standard cost of `1,500 is incurred and it is sold through
dealers at an uniform price of `2,000 per gadget to customers. Dealers are given a discount of 15%
on selling price.

Apart from other materials, two units of batteries are required to manufacture a gadget. The
company wants to hold stock of batteries at the end of each month to cover 30% of next month’s
production and to hold stock of manufactured gadgets to cover 25% of the next month’s sale. 3,250
units of batteries and 1,200 units of manufactured gadgets were in stock on 1st January.

Required:
(i) Prepare production budget (in units) for the month of January, February, March and April
(ii) Prepare purchase budget for batteries (in units) for the month of January, February and March
and calculate profit for the quarter ending on March.

Solution
(i) Production Budget
Particulars January February March April
Budgeted Sales 5,000 6,000 7,000 7,500
Add: Closing Stock 1,500 1,750 1,875 2,000
Less: Opening Stock (1,200) (1,500) (1,750) (1,875)
Production 5,300 6,250 7,125 7,625

Working Notes:
(1) Closing stock of January = 25% × 6,000 = 1,500

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Closing stock of February = 25% × 7,000 = 1,750

Closing stock of March = 25% ×7,500 = 1,875
Closing stock of April = 25% × 8,000 = 2,000
(2) Opening stock of February, March and April are taken as equal to closing stock of respective
previous month.

(ii) Material Purchase Budget

Material A
Particulars
January February March
Raw material consumption @`2 per gadget 10,600 12,500 14,250
Add: Closing Stock 3,750 4,275 4,575
Less: Opening Stock (3,250) (3,750) (4,275)
Raw Material Purchase 53,500 53,000 44,000

Working Notes:
(1) Closing stock of material of January = 30% × 12,500 = 3,750
Closing stock of material of February = 30% × 14,250 = 4,275
(2) Raw Material consumption of Material for Month of April = 7,625 × 2 = 15,250
Closing stock of material of March of Material = 30% × 15,250 = 4,575
(3) Opening stock for material for month of February and March are taken as equal to closing
stock of respective previous month.

Statement Showing Profit

Particulars January February March Total
Sales (A) 5,000 6,000 7,000 18,000
Selling price per unit `2,000 `2,000 `2,000 `2,000
Less: Discount @15% of selling `300 `300 `300 `300
price
Less: Standard cost of `1,500 `1,500 `1,500 `1,500
manufacturing
Profit (B) `200 `200 `200 `200
Total Profit (A × B) `10,00,000 `12,00,000 `14,00,000 `36,00,000

Sunil Keswani PYQs of Cost & Management Accounting