INTERMEDIATE EXAMINATION SET 1

MODEL ANSWERS TERM – JUNE 2023

PAPER - 8
COST ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Answer Question No. 1 and any five from Question No. 2, 3, 4, 5, 6, 7 and 8.

SECTION - A
(Compulsory)

1. (a)
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)
c b b c c d a d a c a c

(b)
(i) (ii) (iii) (iv) (v) (vi) (vii)
False False True True True True True
(c)
(i) (ii) (iii) (iv) (v) (vi)
Sunk Cost Fixed Cost Capacity Master budget Cost Control Allocation

SECTION - B
(Answer any five questions)

2. (a)
Cost Sheet
for the period of six months ending 31st December, 2023
`
Materials used 1,50,000
Direct wages 1,20,000
Prime Cost 2,70,000
Factory overhead expenses 24,000
Works or Factory Cost 2,94,000
Office expenses 17,640
Cost of Production 3,11,640

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
Factory overheads 24,000
% of factory overhead to direct wages = ×100 = ×100 = 20%
Direct Wages 1,20,000
Office overheads 17,640
% of factory overhead to factory cost = ×100 = ×100 = 6%
Factory cost 2,94,000
Statement showing the Quotation of price of a Machine
`
Materials 1,250.00
Wages 750.00
Prime Cost 2,000.00
Factory overhead (20% on wages) 150.00
Factory Cost 2,150.00
Office Overhead (6% on Factory Cost) 129.00
Total Cost or Cost of Production 2,279.00
*Profit (25% of total cost) 569.75
Selling Price 2,848.75
*Profit of 20% on selling price is equal to 25% of total cost.

(b) (i) All expenditures other than those incurred for procurement of material and
labour are termed as ‘expenses’. Expenses can be classified direct expense or
indirect expense. This classification is based on whether the expense is
traceable to cost centre or cost unit. Expenses or costs which can be allocated
to a cost centre or cost unit are referred as direct expense.

(ii) Paragraph 4.4 of CAS 10 defines direct expenses as expenses relating to

manufacture of a product or rendering a service, which can be identified or
linked with the cost object other than direct material cost and direct employee
cost. It is also important to note that Paragraph 5.1 of CAS 10 states that
identification of Direct Expenses shall be based on traceability in an
economically feasible manner.

(iii) Any four ‘principles of measurement’ as mentioned in Para 5 of CAS 10

3. (a)
(i) Re-order = 2AO 2  7,500 12  500
quantity = = 3,873 units.
C 60 10%
(ii) Re-order level = Maximum Re-order Period × Maximum Usage 8 weeks
× 750 unit per week = 6,000 units

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
(iii) Minimum = Re-order Level – {Normal Usage × Normal Reorder
stock level Period}
6,000 – (500 × 6.5) = 2,750 units
(iv) Maximum = Re-order Level + Re-order Quantity – (Minimum Usage
stock level × Minimum Re-order Period) 6,000 + 3,873 – (250 × 5)
= 8,623 units.
(v) Average stock = 1
level (Minimum Stock level + Maximum Stock Level)
2
1
(2,750 + 8,623) = 5,687 units.
2
Or
1
Minimum Level + Re-order quantity = 2,750 + 1,937
2
= 4,687 units.

(b) Standard production = 1000 units per

Actual production:
Worker A = 850 units, efficiency level = 850/1000 x 100 = 85%
Worker B = 750 units, efficiency level = 750/1000 x 100 = 75%
Worker C = 950 units, efficiency level = 950/1000 x 100 = 95%

Statement showing total Remuneration of Workers

Particulars Worker A (`) Worker B (`) Worker C (`)
Normal piece rate 850 units x `10 750 units x `10 950 units x `10
wages [`10 per unit] per unit 8500 per unit 7500 per unit 9500
Bonus `10 x 5 = 50 -- `10 x 15 = 150
Dearness pay 50 50 50
Total 8600 7550 9700

*As per the example, bonus will be paid only if the efficiency exceeds 80%. For A
and C the efficiency exceeds 80% and hence they will be entitled for a bonus of
`10 per percentage exceeding 80%. B will not be entitled for any bonus as his
production efficiency does not exceed 80%.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
4. (a) In case the service departments in addition to rendering services to the production
departments, also render services to other service departments. In other words, the
service department, S1 and S2 render services to each other besides rendering
services to the production departments. For example, the Canteen Department
which is a service department as it caters to the employees from various production
departments but the staff of the Maintenance Department (which is also a service
department) also enjoys the services of the Canteen. Thus there may be reciprocal
arrangements between the service departments. Hence share of overhead expenses
of S1 and S2 should be charged to each other along with the production
departments. The following method are used under Reciprocal Methods.
 Repeated Distribution Method: - Under this method, services rendered by
services departments to the production departments and other services
departments are quantified in the form of percentages. The services
departments costs are reapportioned to the production departments on the
basis of these percentages. The process is repeated again and again till a
negligible figure is reached. This method becomes complicated for
calculation if the figures are too large.
 Simultaneous Equation Method: - This is an algebraic method in which
simultaneous equations are formed and amount of overhead expenses of each
service department are found out, by solving the equations. The total
expenses thus obtained are then directly transferred to the production
departments. This is a non-iterative method and is thus suitable and more
accurate.
Solution on the basis of Simultaneous Equation Method (as asked for in the sum)
Let x be the expense of Department S
and y be the expense of Department T
1
Then x = `8.000 + th of y (20% of y)
5
1
Y = `3.900 + th of x
10
Putting the value of x we get:
1 1
y = ` 13,900 + of (8,000 + of y)
10 5
1
Or. y = ` 13.900 + `800 + y
50
1
Or, y = `14.700 + y, or 50 y = 7,35,000 + y
50

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MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
7,35,000
Or, 50y – y = ` 7,35,000 or, y = ` = 15,000
49
Putting the value of y we get
1 1
x = Rs 8,000 + th of y, or, x = ` 8,000 + of `15,000
5 5
or x = ` 8,000 + Rs, 3,000, or x = `11,000
Total expenses of Dept. S = `11,000
Total expenses of Dept. T = `15,000

Overhead Distribution Summary

Particulars A (`) B (`) C (`) S T
(`) (`)
Total as per
Primary Distribution 25,000 31,000 28,000 8,000 13,900
Distribution of Expenses of Dept. S 3,300 2,200 4,400 -11,000 1,100
in the ratio 3:2:4:1
Distribution of Expenses of Dept. T 6,000 2,250 3,750 3,000 -15,000
in the ratio 8:3:5:4
34,300 35,450 36,150 --- ---

(b) Reconciliation Statement

Particulars Amount Amount
(`) (`)
Profit as per cost accounts 2,91,000
Add:
Over-recovery of selling overheads 39,000
Over-valuation of opening stock in cost accounts 30,000
Interest earned not recorded in cost a/cs 7,500
Rent received not recorded in cost a/cs 54,000
Total 1,30,500
Total 4,21,500
Under recovery of work overheads 19,000
Under recovery of administrative overheads 45,500
Over-valuation of closing stock in cost a/cs 15,000
Bad debts not recorded in cost a/cs 18,000
Preliminary expenses written off not recorded in cost a/cs 36,000
Total 1,33,500
Profit as per Financial Accounts 2,88,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
5. (a) (i) In order to draw up Job Cost Sheet, the factory overhead rates of different
departments and percentage of selling cost will have to be determined first on the
basis of previous year’s figures as follows:

Factory Overhead Recovery Rates based on Labour Hours

Direct Wages ₹ 5.50
₹ 5.50
Labour Hours 22 hours (₹ 0.25 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟)

Department A Department B Department C

Direct ₹ 5,000 ₹ 6,000 ₹ 4,000
Wages
∴ Labour ₹ 5,000 20,000 ₹ 6,000 24,000 ₹ 4,000 16,000
( ) ( ) ( )
Hours ₹ 0.25 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 ₹ 0.25 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 ₹ 0.25 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟
Factory ₹ 2,500 ₹ 4,000 ₹ 1,000
Overheads
Factory ₹ 2,500 ₹ 0.125 ₹ 4,000 ₹ 0.167 ₹ 1,000 ₹ 0.063
( ) ( ) ( )
Overhead 20,000 24,000 16,000
Rate per
Labour
Hour

(ii) Cost Sheet of Previous Year

Amount
(₹)
Materials Used 77,500
Direct Wages (A = ₹ 5,000, B = ₹ 6,000, C = ₹ 4,000) 15,000
Prime Cost 92,500
Factory Overhead (A = ₹ 2,500, B = ₹ 4,000, C = ₹ 1,000) 7,500
Factory Cost 1,00,000
Selling Overhead 30,000
Cost of Sales 1,30,000

₹ 30,000
Percentage of Selling Overhead on Works Cost = ₹ 1,00,000 𝑥100 = 30%

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING

(iii) Cost Sheet of the Current Year (Job No. 3286)

Particulars Amount (₹)
Materials 12.08
Direct Wages
- Department A 10 hours x ₹ 0.25 = ₹ 2.50
- Department B 4 hours x ₹ 0.25 = ₹ 1.00
- Department C 8 hours x ₹ 0.25 = ₹ 2.00 5.50
Prime Cost 17.58
Factory Overhead
- Department A 10 hours x ₹ 0.125 = ₹ 1.25
- Department B 4 hours x ₹ 0.167 = ₹ 0.67
- Department C 8 hours x ₹ 0.063 = ₹ 0.50 2.42
Factory Cost 20.00
Selling Overhead ₹ 20 x 30% 6.00
Cost of Sales 26.00
Profit (10% x ₹ 26.00) 2.60
Selling Price 28.60

(b) Calculation of Cost of Materials Issued to site

`
Materials consumed 1,65,000
Add: Materials stolen 10,000
Materials returned to stores 5,000
Materials in hand (31.12.2017) 15,000
1,95,000

Contract Account
for the year ended 31 Dec. 2022
Dr. Cr.
` `
To Materials issued to site 1,95,000 By Materials returned to 5,000
stores
To Direct Expenses 5,000 By Insurance claim A/c 6,000
(Loss of Stock)
To Wages 30,000 By Profit and Loss A/c 4,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
To Works Expenses 20% of 6,000 By Materials in hand (Stolen 15,000
wages ` 10,000-`6.000)
To Office Expenses 10% of 21,000 By Cost of Contract 2,31,000
Works Cost (Note 1) Balancing Figure)
To Depreciation on Plant 4,000
(Note 2)
2,61,000 2,61,000
To Cost of Contract b/d 2,31,000 By Work in Progress:
To Notional Profit 80,000 Work certified 3,00,000
Work uncertified 11,000
3,11,000 3,11,000
To Profit & Loss A/c (Note 3) 48,000 By Notional Profit 80.000
To Profit Reserve 32,000
80,000 80.000

Working Notes:
1. Calculation of works cost
`
Materials consumed 1,65,000
Add: Direct Wages 30,000
Direct Expenses 5,000
Prime Cost 2,00,000
Add: Works expenses 6,000
Deprecation 4,000
2,10,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING

6. (a) Crushing Process Account

Particulars Tons Amount Particulars Tons Amount
₹ ₹
To Copra 2000 1,00,000 By Copra Sacks - 2,000
To Labour 10,000 By Copra Residue 250 5,000
To Sundry 4,000 By Loss in Crushing 50 -
Materials (Balancing Figure)
To Electric 3,000 By Transfer to Refining 1,700 1,19,000
Power @ ₹ 70 per ton
To Steam 2,000
To Repairs of 2,000
Machines
To Factory 5,000
Expenses
2000 1,26,000 2000 1,26,000

Refining Process Account

Particulars Tons Amount Particulars Tons Amount
₹ ₹
To Crushing 1700 1,19,000 By Sale of by Products 120 5,100
Process A/c
To Labour 6,000 By Loss in Refining 40 -
Process (Balancing
Figure)
To Sundry 3,000 -
Materials
To Electric 2,000 By Transfer to Finishing 1,540 1,30,900
Power @ ₹ 85 per ton
To Steam 2,000
To Repairs of 1,000
Machines
To Factory 3,000
Expenses
1700 1,36,000 1700 1,36,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING

Finishing Process Account

Particulars Tons Amount Particulars Tons Amount
₹ ₹
To Refining 1540 1,30,900 By Loss in Finishing 40 -
Process A/c (Balancing Figure)
To Labour 4,000 By Cost of Production 1,500 1,42,500
Transferred to Finished
Oil A/c ₹ 95 per ton
To Sundry 2,000
Materials
To Electric 1,600
Power
To Steam 1,500
To Repairs of 500
Machines
To Factory 2,000
Expenses
1540 1,42,500 1,540 1,42,500
To Cost of 1,500 1,42,500 By Total Cost @ ₹ 100 1,500 1,50,000
Production of per Ton
Finished Oil
To Cost of 7,500
Casks
1,500 1,50,000 1,500 1,50,000
Working Notes: *Factory overhead of ₹10,000 is apportioned in the ratio of labour
cost i.e., 5:3:2.

(b) (i) Calculation of cost per tonne km

Statement showing computation of total cost per tonne kilometer for
carrying finished goods to warehouses
Particulars A B
Time for travelling 40 Min 60 Min
Time for loading 40 Min 40 Min
Time for unloading 30 Min 20 Min
110 Min 120 Min

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
₹ ₹
Cost of Insurance, wages, tax, etc. [(110/60) × 18] 33
[(120/60) × 18] 36
Fuel & oil etc. (20 × 2.4) (30 × 2.4) 48 72
Total Cost 81 108
Tonne Kilometers (5 × 10)// (5 × 15) 50 75
Cost per tonne KM ₹ 1.62 ₹ 1.44

(ii) Composite unit can be calculated in two ways; ‘Absolute (weighted average)’
basis and ‘Commercial (simple average)’ basis. - Sometime two
measurement units are combined together to know the cost of service or
operation. These are called composite cost units. For example, a public
transportation undertaking would measure the operating cost per passenger
per kilometer.

Examples of Composite units are Ton- km., Quintal- km, Passenger-km.,

Patient- day etc. Composite unit may be computed in two ways.
 Absolute (Weighted Average) basis
 Commercial (Simple Average) basis.

In both bases of computation of service cost unit, weightage is also given to

qualitative factors rather quantitative (which are directly related with variable
cost elements) factors alone.
 Weighted Average or Absolute basis – It is summation of the products
of qualitative and quantitative factors.
 Simple Average or Commercial basis – It is the product of average
qualitative and total quantitative factors. For example, in case of goods
transport, Commercial Ton-Km is arrived at by multiplying total
distance km., by average load quantity.

In both the example, variable cost is dependent of distance and is a

quantitative factor. Since, the weight carried does not affect the variable cost
hence and is a qualitative factor.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
7. (a)
Particulars ₹ ₹
Revenues 6,00,000
Deduct variable costs:
Cost of goods sold 3,00,000
Sales commissions 60,000
Other operating costs 30,000 3,90,000
Contribution margin 2,10,000
Contribution margin percentage = 210000/600000 = 0.35

Incremental revenue (15% × 600,000) = 90000

Incremental contribution margin (35% × 90,000) 31,500
Incremental fixed costs (advertising) 13,000
Incremental operating income 18,500

If Mr. Lurvey spends `13,000 more on advertising, the operating income will
increase by `18,500, decreasing the operating loss from ` 49,000 to an operating
loss of `30,500.

Check (optional)
Particulars ` `
(115% ×
Revenues 600,000) 6,90,000
Cost of goods sold (50% of sales) 3,45,000
Gross margin 3,45,000
Operating costs:
Salaries and wages 1,70,000
Sales commissions (10% of sales) 69,000
Depreciation of equipment and fixtures 20,000
Store rent 54,000
Advertising 13,000
Other operating costs:
Variable (30000×690000)÷600000 34,500
Fixed 15,000 3,75,500
Operating income 30,500

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
(b) (i) Production Budget
Product A B
Sales 2000 1500
Opening Stock (100) (200)
Closing Stock (10% x Sales level) 200 150
2100 1450

(ii) Material Usage Budget

Material Type X Y
(2100 x2) + (1450 x 3) 8550
2100 x1) + (1450 x 4) 7900

(iii) Material Purchases Budget

Product X Y
Material Usage Budget 8550 7900
Opening Stock (300) (1000)
Closing Stock a 850 800
9100 x ₹10 = ₹ 91000 1450 x ₹= ₹ 53900

(iv) Labour Budget

Material Type X Y
(2100 x4) + (1450 x 2) 11,300
2100 x2) + (1450 x 5) 11,450
11,300 x ₹12 ₹ 1,35,600
11,450 x ₹ 8 ₹ 91,600

Note:
a
Material Closing Stock
Material X (2000 x 2 + 1500 x 3) x 10% = 850
Material Y (2000 x 1 + 1500 x 4) x 10% = 850

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
8. (a) The following calculation are required for a submitting a comprehensive report to
Mr Hardik which covers the analysis of the variances calculated.
Working note
A. 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 (𝑖𝑛 𝑎𝑐𝑡𝑢𝑎𝑙 𝑚𝑖𝑥) × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑟𝑎𝑡𝑒
Skilled – 13 workers × 40 hrs × ` 4.80 per hour = 2496
Semi-skilled - 4 workers × 40 hrs × 3.40 per hour = 544
Unskilled – 3 workers × 40 hrs × 2.60 per hour = 312
3352
B. 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 (𝑖𝑛 𝑎𝑐𝑡𝑢𝑎𝑙 𝑚𝑖𝑥) × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒
Skilled – 13 workers × 40 hrs × ` 5.00 per hour = 2600
Semi-skilled - 4 workers × 40 hrs × 3.20 per hour = 512
Unskilled – 3 workers × 40 hrs × 2.80 per hour = 336 3448

C. 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 (𝑖𝑛 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑚𝑖𝑥) × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒

Skilled – 10 workers × 40 hrs × ` 5.00 per hour = 2000
Semi-skilled - 5 workers × 40 hrs × 3.20 per hour = 640
Unskilled – 5 workers × 40 hrs × 2.80 per hour = 560
3200
D. 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑝𝑎𝑖𝑑 (𝑖𝑛 𝑎𝑐𝑡𝑢𝑎𝑙 𝑚𝑖𝑥) × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒
Skilled – 10 workers × 38 hrs × ` 5.00 per hour = 1900
Semi-skilled –5 workers × 38 hrs × 3.20 per hour = 608
Unskilled – 5 workers × 38 hrs × 2.80 per hour = 532
3040
E. 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑦𝑖𝑒𝑙𝑑
40 ℎ𝑟𝑠×(10 × 5.00 𝑝𝑒𝑟 ℎ𝑟 + 4 ×3.20 𝑝𝑒𝑟 ℎ𝑟 + 3 ×2.60 𝑝𝑒𝑟 ℎ𝑟)
× 960 𝑢𝑛𝑖𝑡𝑠 = 3072
1000 𝑢𝑛𝑖𝑡𝑠
And
𝐿𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= (𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑟𝑎𝑡𝑒)
− 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑦𝑖𝑒𝑙𝑑
= 𝐴 – 𝐸 = 𝟐𝟖𝟎 (𝑨)
𝐿𝑎𝑏𝑜𝑢𝑟 𝑟𝑎𝑡𝑒 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= (𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑟𝑎𝑡𝑒)
− (𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒
= 𝐴 – 𝐵 = 𝟗𝟔 (𝑭)
𝐿𝑎𝑏𝑜𝑢𝑟 𝑖𝑑𝑙𝑒 𝑡𝑖𝑚𝑒 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= ((ℎ𝑜𝑢𝑟𝑠 𝑝𝑎𝑖𝑑 – ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑)
× 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟)
= 𝐶 − 𝐷 = 𝟏𝟔𝟎 (𝑨)

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Directorate of Studies, The Institute of Cost Accountants of India
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PAPER - 8
COST ACCOUNTING
𝐿𝑎𝑏𝑜𝑢𝑟 𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= (𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒)
− 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑦𝑖𝑒𝑙𝑑
= 𝐵 – 𝐸 = 376 (𝐴)

But idle time variance is to be calculated separately which is recommend.

Thus labour efficiency variance adjusted for idle time variance = 376(A) – 160
(A) = 216 (A)1

Labour mix variance

= ((actual hours for grade – hours for grade based on total labour hours split in
standard proportions) × (weighted average cost per hour – standard cost per
hour))
= Standard Cost of Standard Mix of Labourers – Standard Cost of Actual Mix
of Labourer
= 𝐵 – 𝐶 = 𝟐𝟒𝟖 (𝑨)
𝐿𝑎𝑏𝑜𝑢𝑟 𝑦𝑖𝑒𝑙𝑑 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
= (𝐴𝑐𝑡𝑢𝑎𝑙 𝑦𝑖𝑒𝑙𝑑 𝑜𝑟 𝑜𝑢𝑡𝑝𝑢𝑡 – 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑦𝑖𝑒𝑙𝑑 𝑜𝑟 𝑜𝑢𝑡𝑝𝑢𝑡 𝑓𝑜𝑟 𝑎𝑐𝑡𝑢𝑎𝑙 𝑖𝑛𝑝𝑢𝑡)
× 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
= 𝐷 – 𝐸 = 𝟑𝟐 (𝑭)

Reconciliation

Labour cost variance

280 (A)

Labour rate Labour efficiency

variance variance
Labour idle time variance
96 (F) 216 (A)
160 (A)

Labour mix
variance 248 Labour
(A) yield
variance
32 (F)

1Labour idle time variance is shown separately from efficiency variance as discussed in previous section.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2023
PAPER - 8
COST ACCOUNTING
(b)
TRINITY ENGINEERING LTD.
Production Budget for the Quarter ended March 2022 and for the month April, 2022
(Figures in Units)
Particulars January February March April
Budgeted Sales 10,800 15,600 12,200 10,400
Add: Opening Inventory 3,900 3,050 2,600 2,450
14,700 18,650 14,800 12,850
Less: Opening Inventory 2,700 3,900 3,050 2,600
Required Monthly Production 12,000 14,750 11,750 10,250

TRINITY ENGINEERING LTD.

Direct Material Usage and Purchase Budget for the Quarter ended March 2022
Material A
Particulars January February March
(Units) (Units) (Units)
Production Requirement – 4 units of Material A for 48,000 59,000 47,000
each of Finished Product
Add: Closing Inventory 29,500 23,500 20,500
77,500 82,500 67,500
Less: Opening Inventory 24,000 29,500 23,500
53,500 53,000 44,000

Material B
Particulars January February March
(Units) (Units) (Units)
Production Requirement – 54 units of Material B for 60,000 73,750 58,750
each of Finished Product
Add: Closing Inventory 36,875 29,375 25,625
96,875 1,03,125 84,375
Less: Opening Inventory 30,000 36,785 29,375
66,875 66,250 55,000

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Directorate of Studies, The Institute of Cost Accountants of India