CA Inter Cost DJB

CA Inter Cost MTP May’22

(New Questions)

1 MTP May’22
Cost Sheet
The following data relates to the manufacturing project received for the budgeted output of
19,600 units. You are required to CALCULATE the selling price per unit covering a profit of 25%
on the selling price. [10]
Direct materials: 40 sq. m. per unit @ ₹ 10.60 per sq. m.
Direct wages: Bonding department 48 hours per unit @ ₹ 25 per hour
Finishing department 30 hours per unit @ ₹ 19 per hour
Budgeted costs and hours per annum- Variable overhead:
(₹) Total hours
Bonding department 15,00,000 10,00,000
Finishing department 6,00,000 6,00,000
Fixed overhead-
(₹)
Production 15,68,000
Selling and distribution 7,84,000
Administration (General) 3,92,000

Selling Price

Answer
Decision making Cost Sheet (per unit)
Amount Amount
Particulars
(₹) (₹)
Direct materials 40 m2 at ₹ 10.60 per m2 424
Direct wages:
Bonding department- 48 hours at ₹ 25 per hour 1,200

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Finishing department- 30 hours at ₹ 19 per hour 570 1,770

Prime Cost 2,194
Variable overhead:*
Bonding department- 48 hours at ₹ 1.50 per hour 72
Finishing department- 30 hours at ₹ 1.00 per hour 30 102
Variable production cost 2,296
Fixed production overhead# 80
Total production cost 2,376
Selling and distribution cost$ 40
Administration cost$ 20 60
Total Cost 2,436
100
Selling price per unit = ₹ 2,436 × = ₹ 3,248
75
Working Notes:
* Variable overhead rates-
15, 00 , 000
Bonding: = ₹ 1.50
10 , 00 , 000 hours
6 , 00 , 000
Finishing: = ₹ 1.00
6 , 00 , 000 hours
15, 68 , 000
# Fixed production overhead rate per unit of output = = ₹ 80
19 , 600 units
7, 84 , 000
$ Selling and production cost per unit of output = = ₹ 40
19 , 600 units
3, 92, 000
Administration cost per unit of output = = ₹ 20
19 , 600 units

2 MTP May’22
Standard Costing
Following are the details given:
Budgeted Days 25
Budgeted Fixed Overheads 1,00,000
Budgeted Production 800 units per day
Actual Production 21,000 units
Fixed Overheads are absorbed @ ₹ 10 per hour.
Fixed overheads efficiency variance 10,000A

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Fixed overheads calendar variance 8,000F

Fixed overheads cost variance 15,000A
You are required to CALCULATE:
(a) Actual Fixed Overheads
(b) Actual Days
(c) Actual Hours
(d) Fixed overheads Expenditure variance
(e) Fixed overheads volume variance
(f ) Fixed overheads capacity variance [10]

Fixed Overhead Variances

Answer
(i) Fixed Overhead Cost Variance = (Std Fixed Overheads – Actual Fixed Overheads)
 1, 00 , 000 
=  21, 000 units  Actual Fixed Overheads  = 15,000A
 20 , 000 
= (1,05,000 - Actual Fixed Overheads) = 15,000A
=> Actual Fixed Overheads = 1,20,000
(ii) Fixed Overhead Calendar Variance = (Actual Days – Budgeted Days) × Budgeted rate per
day
1, 00 , 000
= (Actual Days – 25) × = 8,000F
25
= (Actual Days – 25) = 2
=> Actual Days = 27
(iii) Fixed Overhead Efficiency Variance = (Standard Hours for Actual Production – Actual
Hours) × Budgeted rate per hour
 10 , 000 
=  21, 000  Actual Hours   10 = 10,000A
 20 , 000 
= (10,500 – Actual Hours) = -1,000
=> Actual Hours = 11,500
(iv) Fixed overheads Expenditure variance = (Budgeted Fixed Overheads – Actual Fixed
Overheads)

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= (1,00,000 – 1,20,000) = 20,000A

(v) Fixed overheads volume variance = (Budgeted units – Actual Units ) × Budgeted Rate
per unit
1, 00 , 000
= (20,000 – 21,000) × = 5,000F
20 , 000
(vi) Fixed overheads capacity variance = (Budgeted Hours for Actual Days – Actual Hours) ×
Budgeted Rate per Hour
 10 , 000 
=  27  11, 500   10 = 7,000F
 25 

3 MTP May’22
Employee Cost
The standard time allowed for a certain piece of work is 240 hours. Normal wage rate is ₹ 75 per
hour.
The bonus system applicable to the work is as follows:
Percentage of time saved to time allowed (slab rate) Bonus
(i) Up to the first 20% of time allowed 25% of the corresponding saving in time.
(ii) For and within the next 30% of time allowed 40% of the corresponding saving in time.
(iii) For and within the next 30% of time allowed 30% of the corresponding saving in time.
(iv) For and within the next 20% of time allowed 10% of the corresponding saving in time.
CALCULATE the total earnings of a worker over the piece of work and his earnings per hour
when he takes -
(a) 256 hours,
(b) 120 hours, and
(c) 24 hours respectively. [10]

Piece Rate System

Answer
Calculation of total earnings and earnings per hour:
(a) Time taken is (b) Time taken is (c) Time taken is
Particulars
256 hours 120 hours 24 hours
A. Time Allowed 240 hours 240 hours 240 hours
B. Time taken 256 hours 120 hours 24 hours

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C. Time Saved (A – B) Nil 120 hours 216 hours

D. Bonus hours (Refer workings) Nil 40.80 hours 64.80 hours
E. Hours to be paid (B + D) 256 hours 160.80 hours 88.80 hours
F. Wages rate per hour ₹ 75 ₹ 75 ₹ 75
G. Total earnings (E × F) ₹ 19,200 ₹ 12,060 ₹ 6,660
H. Earnings per hour (G ÷ B) ₹ 75 ₹ 100.50 ₹ 277.50
Working Notes:
Calculation of bonus hours:
Time saved 120 hours Time saved 216 hours
For first 20% of time allowed i.e. 48 hours 12 12
(25% of 48 hours) (25% of 48 hours)
For next 30% of time allowed i..e. 72 hours 28.80 28.80
(40% of 72 hours) (40% of 72 hours)
For next 30% of time allowed i..e. 72 hours - 21.60
(30% of 72 hours)
For next 20% of time allowed i..e. 48 hours - 2.40
(10% of 24 hours)
Bonus hours 40.80 64.80

4 MTP May’22
Marginal Costing
At budget activity of 80% of total capacity, a company earns a P/V ratio of 30% and a profit of
15% of total sales. Due to covid pandemic resulting in poor demand, the company has to reduce
its selling price by 10%. The company was able to achieve a production and sales volume for
the year equivalent to 50% of total capacity. The sales value at this level was ₹ 27,00,000 at a
reduced price of ₹ 18 per unit. Due to reduction in production, the actual variable cost went up
by 5% of the budget.
You are required to:
(i) PREPARE statement of profitability at budget and actual activity.
(ii) FIND P/V ratio and BES (in ₹ and unit of the actual sales activity). [10]

Statement of Profitability, PV Ratio and

BES

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Answer
Actual Sales ₹ 27,00,000
Actual Selling Price per unit 18
Actual units (50%)
 27, 00 , 000  1,50,000
 
 18 
Therefore, budgeted units (80%)
 80  2,40,000
 1, 50 , 000  
 50 
Budgeted Selling Price
 18  20
 
 90% 

 2, 40, 000  20  1 .30   33, 60 , 000

Budgeted Variable cost per unit = = 33,60,000
2, 40 , 000 units 2, 40 , 000 units
(i) Statement of profitability at budget and actual activity
Particulars Budget (80%) Actual (50%)
Units 2,40,000 1,50,000
Sales (₹) (a) 48,00,000 27,00,000
Variable cost (₹) (b) 33,60,000 22,05,000
Contribution (₹) (c = a – b) 14,40,000 4,95,000
Fixed cost (₹) (d) 7,20,000 7,20,000
Profit (₹) (e = c – d) 7,20,000 (2,25,000)

(ii) Calculation of P/V ratio and BES

Contribution
P/V ratio = ×100
Sales
4,95,000
= ×100 = 18.33%
27,00,000
Fixed Cost
Break Even Sales (in ₹) =
P/v Ratio
7,20,000
= = ₹ 39,27,987
18.33%

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Fixed Cost
Break Even Sales (in Units) =
Contribution per unit

7,20,000
= = 2,18,182 Units
3.3*
4,95,000
*Contribution per unit = = 3.3 per unit
1,50,000 units

5 MTP May’22
Material Costing
DISTINGUISH clearly between Bin cards and Stores Ledger. [5]

Bin Cards and Stores Ledger - Differences

Answer
Bin Card Stores Ledger
It is maintained by the storekeeper in the It is maintained in cost accounting
store. department.
It contains only quantitative details of material It contains information both in quantity and
received, issued and returned to stores. value.
Entries are made when transaction takes It is always posted after the transaction.
place.
Each transaction is individually posted. Transactions may be summarized and then
posted.
Inter-department transfers do not appear in Material transfers from one job to another job
Bin Card. are recorded for costing purposes.

6 MTP May’22
Basics of Cost Accounting
Some of the items of PR Company, a manufacturer of corporate office furniture, are provided
below. As the company is in the process of developing a formal cost accounting system, you are
required to CLASSIFY the items into three categories namely: (i) Cost tracing (ii) Cost allocation
(iii) Non- manufacturing item. [5]

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Classification of items

Answer
Item Cost Tracing Cost Allocation Non-manufacturing
Carpenter wages √
Depreciation - office building √
Glue for assembly √
Lathe department supervisor √
Metal brackets for drawers √
Factory washroom supplies √
Lumber √
Samples for trade shows √
Lathe depreciation √
Lathe operator wages √

7 MTP May’22
Process Costing
WHAT is inter-process profit? STATE its advantages and disadvantages. [5]

Inter-process Profit

Answer
Inter-Process Profit: To control cost and to measure performance, different processes within an
organization are designated as separate profit centres. In this type of organizational structure,
the output of one process is transferred to the next process not at cost but at market value or
cost plus a percentage of profit. The difference between cost and the transfer price is known as
inter - process profits.
The advantages and disadvantages of using inter-process profit, in the case of process type
industries are as follows:

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Advantages:
1. Comparison between the cost of output and its market price at the stage of completion is
facilitated.
2. Each process is made to stand by itself as to the profitability.
Disadvantages:
1. The use of inter-process profits involves complication.
2. The system shows profits which are not realised because of stock not sold out.

8 MTP May’22
Marginal Costing
Company manufacture and sell 3 types of mobile handset. It also manufactures wireless charger
for mobile. The company has worked out following estimates for next year.
Annual Demand Selling Price Material cost Labour cost
(in units) (₹ per unit) (₹ per unit) (₹ per unit)
X5 5,000 8,000 2,000 1,000
X6 4,000 9,000 2,500 1,500
X7 3,000 12,000 3,000 2,000
Wireless Charger 15,000 1,500 300 200
To encourage the sale of wireless charger a discount of 10% in its price is being offered if it were
to be purchased along with mobile. It is expected that customer buying mobile will also buy
the wireless charger. The company factory has an effective capacity of 35,000 labour hours. The
labour is paid @ ₹ 500 per hour. Overtime of labour has to be paid at double the normal rate.
Other variable cost work out to be 50% of direct labour cost and fixed cost is ₹ 1,00,00,000.
There will be no inventory at the end of the year.
PREPARE statement of profitability. [10]

Profitability Statement

Answer
Calculation of Labour overtime hours
Total hours required for production
X5 (5,000 x 2 hrs) 10,000
X6 (4,000 x 3 hrs) 12,000

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X7 (3,000 x 4 hrs) 12,000

Wireless Charger (15,000 x 0.40 hrs) 6,000
40,000
Hours available (35,000)
Overtime 5,000
Statement of Profitability
Particulars Amount (₹) Amount (₹)
Sales
X5 (5,000 x 8,000) 4,00,00,000
X6 (4,000 x 9,000) 3,60,00,000
X7 (3,000 x 12,000) 3,60,00,000
Wireless Charger [(12,000 x 1,350) + (3,000 x 1,500) 2,07,00,000 13,27,00,000
Less: Variable cost
Material:
X5 (5,000 x 2,000)
X6 (4,000 x 2,500)
X7 (3,000 x 3,000)
Wireless Charger (15,000 x 300) 3,35,00,000
Labour:
X5 (5,000 x 1,000)
X6 (4,000 x 1,500)
X7 (3,000 x 2,000)
Wireless Charger (15,000 x 200)
Overtime (5,000 x 1,000) 2,50,00,000
Other variable overheads 1,25,00,000 7,10,00,000
Contribution 6,17,00,000
Less: Fixed Cost 1,00,00,000
Profit 5,17,00,000

9 MTP May’22
Standard Costing
Rounak Minerals Ltd. operates in iron ore mining through open cast mining method. Explosives
and detonators are used for excavation of iron ores from the mines. The following are the details
of standard quantity of explosives materials used for mining:

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Standard Qty. for Standard Qty. for

Particulars Rate (₹)
Iron ore Overburden (OB)
SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic- meter
Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic-meter
The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden soil to be removed to
get one tonne of iron ore).
During the month of December 2021, the company produced 20,000 tonnes of iron ore and
removed 58,000 cubic- meter of OB. The quantity of explosive materials used and paid for the
month is as below:
Material Quantity Amount (₹)
SME 1,67,200 kg. 63,53,600
Detonators 1,18,400 pcs 24,27,200
You are required to COMPUTE:
(i) Material price variance
(ii) Material quantity variance
(iii) Material cost variance. [10]

Material Variances

Answer
Workings:
1. Calculation of Standard Qty. of Explosives and Detonators for actual output:
Overburden
Particulars Iron ore Total
(OB)
SME:
A Actual Output 20,000 tonne 58,000 M3
B Standard Qty per unit 2.4 kg./tonne 1.9 kg./M3
C Standard Qty. for actual production 48,000 kg. 1,10,200 kg. 1,58,200 kg.
[A × B]
Detonators:
D Standard Qty per unit 2 pcs/ tonne 2 pcs/ M3
E Standard Qty. for actual production 40,000 pcs. 1,16,000 pcs 1,56,000 pcs
[A × D]

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2. Calculation of Actual Price per unit of materials:

Material Quantity [A] Amount (₹) [B] Rate (₹) [C = B ÷ A]
SME 1,67,200 kg. 63,53,600 38.00
Detonators 1,18,400 pcs 24,27,200 20.50
(i) Computation of material price variance:
Material Price Variance = Actual Qty. × (Std. Price - Actual Price)
SME = 1,67,200 kg. × (₹ 40 – ₹ 38) = ₹ 3,34,400 (F)
Detonators = 1,18,400 pcs × (₹ 20 – ₹ 20.5) = ₹ 59,200 (A)
Total = ₹ 2,75,200 (F)
(ii) Computation of material quantity variance:
Material Qty. Variance = Std. Price × (Std. Qty for actual output – Actual Qty.)
SME = ₹ 40 × (1,58,200 kg. - 1,67,200 kg.) = ₹ 3,60,000 (A)
Detonators = ₹ 20 × (1,56,000 pcs -1,18,400 pcs) = ₹ 7,52,000 (F)
Total = ₹ 3,92,000 (F)
(iii) Computation of material cost variance:
Material cost variance = Std. cost – Actual Cost
Or, (Std. Price × Std. Qty) – (Actual Price × Actual Qty.)
SME = (₹ 40 × 1,58,200 kg) – (₹ 38 × 1,67,200 kg.)
= ₹ 63,28,000 – ₹ 63,53,600 = ₹ 25,600 (A)
Detonators = (₹ 20 × 1,56,000 pcs) – (₹ 20.50 × 1,18,400 pcs)
= ₹ 31,20,000 – ₹ 24,27,200 = ₹ 6,92,800 (F)
Total = ₹ 6,67,200 (F)

10 MTP May’22

Material Cost
M/s SE Traders is a distributor of an electronic items. A periodic inventory of electronic items on
hand is taken when books are closed at the end of each quarter. The following information is
available for the quarter ended on 30th September, 2021:
Sales ₹ 2,19,30,000
Opening Stock 12,500 units @ ₹ 600 per unit
Administrative Expenses ₹ 5,62,500 Purchases (including freight inward):
- July 1, 2021 25,000 units @ ₹ 573 per unit

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- September 30, 2021 12,500 units @ ₹ 630 per unit

Closing stock- September 30, 2021 16,000 units
You are required to COMPUTE the following by WAM (Weighted Average Method), FIFO method
and LIFO method assuming issue/ consumption pattern was even throughout the quarter:
(i) Value of Inventory on 30th September, 2021.
(ii) Profit or loss for the quarter ended 30th September, 2021. [10]

Value of Inventory & P/L , WAM, FIFO &

LIFO Method

Answer
(i) Computation of Value of Inventory as on 30th September 2021:
Date Particulars Units WAM (₹) FIFO (₹) LIFO (₹)
01-07-21 Opening Stock 12,500 75,00,000 75,00,000 75,00,000
(₹ 600×12,500) (₹ 600×12,500) (₹ 600×12,500)
01-07-21 Purchases 25,000 1,43,25,000 1,43,25,000 1,43,25,000
(₹ 573×25,000) (₹ 573×25,000) (₹ 573×25,000)
30-09-21 Purchases 12,500 78,75,000 78,75,000 78,75,000
(₹ 630×12,500) (₹ 630×12,500) (₹ 630×12,500)
01-07-21 Issues/ 34,000 2,01,96,000* 1,98,19,500** 2,01,94,500***
to Consumption
30-09-21 (Balancing
figure)
30-09-21 Closing Stock 16,000 95,04,000 98,80,500 95,05,500
` 75,00,000  ` 1, 43, 25, 000  ` 78 , 75, 000
Weighted average rate = = ₹ 594
12, 500  25, 000  12, 500  units
* ₹ 594 x 34,000 = ₹ 2,01,96,000
** ₹ 600 × 12,500 + ₹ 573 × 21,500 = ₹ 1,98,19,500
*** ₹ 630 × 12,500 + ₹ 573 × 21,500 = ₹ 2,01,94,500
(ii) Computation of Profit or Loss for the Quarter ended 30th September 2021
Particulars WAM (₹) FIFO (₹) LIFO (₹)
Sales 2,19,30,000 2,19,30,000 2,19,30,000
Less: Consumption 2,01,96,000 1,98,19,500 2,01,94,500

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Less: Administrative Exp. 5,62,500 5,62,500 5,62,500

Profit or Loss 11,71,500 15,48,000 11,73,000

11 MTP May’22

Material Cost
Arnav Ltd. operates in beverages industry where it manufactures soft -drink in three sizes of
Large (3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are processed in
batches. The 5,000 litres capacity processing plant consumes electricity of 90 Kilowatts per
hour and a batch takes 1 hour 45 minutes to complete. Only symmetric size of products can be
processed at a time. The machine set-up takes 15 minutes to get ready for next batch process-
ing. During the set-up, power consumption is only 20%.
(i) The current price of Large, Medium and Small are ₹ 150, ₹ 90 and ₹ 50 respectively.
(ii) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-C are
required which costs ₹ 0.50 and ₹ 1,000 per litre respectively.
(iii) 20 direct workers are required. The workers are paid ₹ 880 for 8 hours shift of work.
(iv) The average packing cost per bottle is ₹ 3
(v) Power cost is ₹ 7 per Kilowatt-hour (Kwh)
(vi) Other variable cost is ₹ 30,000 per batch.
(vii) Fixed cost (Administration and marketing) is ₹ 4,90,00,000.
(viii) The holding cost is ₹ 1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of products:
Large Medium Small
3,00,000 7,50,000 20,00,000
Required:
CALCULATE net profit/ loss of the organisation and also COMPUTE Economic Batch Quantity
(EBQ). [10]

Economic Batch Quantity

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Answer
Workings:
1. Maximum number of bottles that can be processed in a batch:
5,000 ltrs
=
Bottle volume
Large Medium Small
Qty (ltr) Max bottles Qty (ltr) Max bottles Qty (ml) Max bottles
3 1,666 1.5 3,333 600 8,333
For simplicity of calculation small fractions has been ignored.
2. Number of batches to be run:
Large Medium Small Total
A Demand 3,00,000 7,50,000 20,00,000
B Bottles per batch (Refer WN-1) 1,666 3,333 8,333
C No. of batches [A÷B] 180 225 240 645
For simplicity of calculation small fractions has been ignored.
3. Quantity of Material-W and Material C required to meet demand:
Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000
B Qty per bottle (Litre) 3 1.5 0.6
C Output (Litre) [A × B] 9,00,000 11,25,000 12,00,000 32,25,000
D Material-W per litre of output 14 14 14
(Litre)
E Material-W required (Litre) 1,26,00,000 1,57,50,000 1,68,00,000 4,51,50,000
[C × D]
F Material-C required per litre of 25 25 25
output (ml)
G Material-C required (Litre) 22,500 28,125 30,000 80,625
[(C × F) ÷ 1000]
4. No. of Man-shift required:
Large Medium Small Total
A No. of batches 180 225 240 645
B Hours required per batch (Hours) 2 2 2
C Total hours required (Hours) [A×B] 360 450 480 1,290
D No. of shifts required [C÷8] 45 57 60 162
E Total manshift [D×20 workers] 900 1,140 1,200 3,240
For simplicity of calculation small fractions has been ignored.

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5. Power consumption in Kwh

Large Medium Small Total
For processing
A No. of batches 180 225 240 645
B Hours required per batch (Hours) 1.75 1.75 1.75 1.75
C Total hours required (Hours) [A × B] 315 393.75 420 1,128.75
D Power consumption per hour (Kwh) 90 90 90 90
E Total Power consumption (Kwh) 28,350 35,437.5 37,800 1,01,587
[C × D]
F Per batch consumption* (Kwh) 157.5 157.5 157.5 157.5
[E ÷ A]
For set-up
G Hours required per batch (Hours) 0.25 0.25 0.25 0.25
H Total hours required (Hours) [A×G] 45 56.25 60 161.25
I Power consumption per hour (Kwh) 18 18 18 18
[20% × 90]
J Total Power consumption (Kwh) 810 1,012.5 1,080 2,902.5
[H × I]
K Per batch consumption* (Kwh) 4.5 4.5 4.5 4.5
[J ÷ A]
* Per batch consumption can be directly calculated as [Hours required per batch × Power
consumption per hour]
Calculation of Profit/ loss per batch:
Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000 30,50,000
B Price per bottle (₹) 150 90 50
C Sales value (₹) [A×B] 4,50,00,000 6,75,00,000 10,00,00,000 21,25,00,000
Direct Material cost:
E Material-W (₹) [Qty in 63,00,000 78,75,000 84,00,000 2,25,75,000
WN-3 × ₹ 0.50]
F Material-C (₹) [Qty in 2,25,00,000 2,81,25,000 3,00,00,000 8,06,25,000
WN-3 × ₹ 1,000]
G [E+F] 2,88,00,000 3,60,00,000 3,84,00,000 10,32,00,000
H Direct Wages (₹) [Man- 7,92,000 10,03,200 10,56,000 28,51,200
shift in WN-4 × ₹ 880]
I Packing cost (₹) [A × ₹ 3] 9,00,000 22,50,000 60,00,000 91,50,000
Power cost (₹)
J For processing (₹) [WN-5 1,98,450 2,48,062.5 2,64,600 7,11,112.5
× ₹ 7]

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K For set-up time (₹) [WN-5 5,670 7,087.5 7,560 20,317.5

× ₹ 7]
L [J+K] 2,04,120 2,55,150 2,72,160 7,31,430
M Other variable cost (₹) 54,00,000 67,50,000 72,00,000 1,93,50,000
[No. of batch in WN-2 ×
₹ 30,000]
N Total Variable cost per 3,60,96,120 4,62,58,350 5,29,28,160 13,52,82,630
batch [G + H + I + L + M]
O Profit/ loss before fixed 89,03,880 2,12,41,650 4,70,71,840 7,72,17,370
cost [C – N]
P Fixed Cost 4,90,00,000
Q Net Profit [O – P] 2,82,17,370
Computation of Economic Batch Quantity (EBQ):
2D  S
EBQ 
C
D = Annual Demand for the Product = Refer A below
S = Set-up cost per batch = Refer D below
C = Carrying cost per unit per annum =Refer E below
Particulars Large Medium Small
A Annual Demand (bottle) 3,00,000 7,50,000 20,00,000
B Power cost for set-up time (₹) [Consumption per 31.50 31.50 31.50
batch in WN-5 × ₹ 7]
C Other variable cost (₹) 30,000 30,000 30,000
D Total Set-up cost [B + C] 30,031.50 30,031.50 30,031.50
E Holding cost: 1.00 1.00 1.00
F EBQ (Bottle) 1,34,234 2,12,243 3,46,592

12 MTP May’22

Overhead - Machine Hour Rate
M/s Avyukt Automobile Parts has four identical machines in its factory. Cost of each machine is
₹ 5,00,000 with expected scrap value of 10% at the end of its effective life (9 years). The expected
annual running hours of machine is expected to run for 2,200 hours. The other details in respect
of the machine shop are:
(i) Factory Rent ₹ 5,000 per month
(ii) Lighting of Factory ₹ 3,000 per month

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(iii) Operator Wages (Two operators and each operator is in charge of two machines)
₹ 10,000 per month (per Operator)
(iv) Fixed repairs and maintenance charges per machine ₹ 2,000 per quarter
(v) Insurance premium for the machine (Annual) 3% of cost
(vi) Forman’s salary (Devoted 1/6th of his time to this factory) ₹ 2,500 per month
(vii) Other factory overhead (Annual) ₹ 40,000
(viii) Power Consumption per machine per hour 80 units
(ix) Rate of Power ₹ 150 for 100 units
(x) Unproductive Hours lost during repairs 50 per annum
(xi) Unproductive Hours Lost while Job Setting 650 per annum
You are required to COMPUTE a comprehensive machine hour rate assuming power is used
during operating time only. [10]

Comprehensive Machine Hour Rate

Answer
Computation of Comprehensive Machine Hour Rate per Machine
Per Per Hour
Particulars
Annum (₹) (₹)
Standing Charges:
Depreciation (Working Note 2) 50,000
Factory Rent (₹ 5,000 x 12 months / 4) 15,000
Lighting of Factory (₹ 3,000 x 12 months / 4) 9,000
Operator Wages (₹ 10,000 x 12 months / 2) 60,000
Repairs and maintenance (₹ 2,000 x 4) 8,000
Insurance premium (₹ 5,00,000 x 3%) 15,000
Forman’s salary (₹ 2,500 x 12 x 1/6 / 4) 1,250
Other factory overhead (₹ 40,000 / 4) 10,000
1,68,250
Standing Charges per hour (₹ 1,68,250 / 1,500 hours) 112.17
Running Charges:
Power (80 units x ₹ 150 / 100) 120.00
Comprehensive Machine Hour Rate 232.17

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Working Notes:
1. Computation of Total Operative Hours
Total Running Hours: 2,200
Less: Unproductive hours lost during repairs 50
Less: Unproductive hours Lost while Job Setting 650
Total Operative Hours 1,500 per annum
2. Calculation of Annual Depreciation
Purchase Cost − Estimated Scrap Value
Annual Depreciation =
Effective Life in Years
` 5, 00 , 000 − ` 50 , 000
=
9 Years
= ₹ 50,000

13 MTP May’22

Employee Cost
BRIEF OUT advantages and disadvantages of Halsey Premium Plan. [5]

Halsey Premium Plan - Advantages and

Disadvantages

Answer
Advantages Disadvantages
1. Time rate is guaranteed while there is 1. Incentive is not so strong as with piece
opportunity for increasing earnings by rate system. In fact the harder the worker
increasing production. works, the lesser he gets per piece.
2. The system is equitable in as much as 2. The sharing principle may not be liked by
the employer gets a direct return for his employees.
efforts in improving production methods
and providing better equipment.

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14 MTP May’22

Unit, Job and Batch Costing
STATE the method of costing for the following industries: [5]
(i) Sugar manufacturing
(ii) Bridge Construction
(iii) Advertising
(iv) Car Assembly

Methods of Costing

Answer
S. No. Industry Method of costing
(i) Sugar manufacturing Process costing
(ii) Bridge Construction Contract Costing
(iii) Advertising Job costing
(iv) Car Assembly Multiple Costing (Combination of any method)

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