COST ACCOUNTING

Divya Jadi Booti

For CMA - Inter

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Preface
This is a compilation from the new syllabus of the Institute of Cost Accountants of India for the
subject of Cost Accounting. Entire module of Institute has been covered in this book. The effort
has been made to structure the material for ease of conceptual learning. Some solutions have
been modified to keep them consistent with all other solutions and for others we referred the
solution given by the institute.
The explanation of all the solutions here, have been given in the class and it is very important
that this study material should not be referred in isolation, (i.e., without the class)
In exam, the paper comprises of three types of questions, based on - MCQ, Theories (Short
notes) and Practical Questions. You need to prepare the MCQ’s and detailed theories directly
from the institute material. Everything is important for your exam and comprehensive
preparation is required to pass the examination. Please remember that in order to get full
confidence in the subject, you have to solve this material at least 3 times after you’ve learnt
with us in the classes.
We have segregated here the topics as per the relevant concepts and have given immense
effort along with our team to ensure that there are limited errors in this book.
All due care has been taken to eliminate the errors. However, some errors may have gone
unnoticed and we would be happy if you bring it to our notice by sending us an email to care@
sjc.co.in
We would like to thank our editorial team (Sayantan, Anirban) for their consistent effort to help
me to bring this compilation for you.
Wish you All the Best and Happy Learning 

Satish Jalan
• Chartered Accountant (AIR - 27 in Inter)
• Company Secretary (AIR 3 - Inter, AIR 5 - Final)
• Chartered Management Accountant (CIMA, UK)
(AIR - I in Gateway)
• St. Xavier’s College Alumnus, Kolkata

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 Our Aim
is to Gift CA/CMAs to Every Family

Welcome Abroad
To Our Goal

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 Bird’s Eye View

Sl.
Chapter name Term
No,
Jun’23 Dec’23 Jun’24
1 Introduction to Cost Accounting 7 11 11
2 Cost Ascertainment- Elements of Cost
Unit 1 : Material Cost 7 5 5
Unit 2 : Employee Cost 8 7 12
Unit 3 : Direct Expenses
Unit 4 : Overheads 7 7 7
3 Cost Accounting Standards 8 12 7
4 Cost Book keeping
Unit 1 : Cost Book Keeping
Unit 2 : Reconciliation of Costing and Financial Profit 8
Unit 3 : Integrated Accounting system 7 7
5 Methods of Costing
Unit 1 : Unit ,Batch and Job Costing 7 7
Unit 2 : Contract Costing 8 7 7
Unit 3 : Process Costing, Joint and By Products 7 7
Unit 4 : Operating costing 8 7 7
6 Cost Accounting Techniques
Unit 1 : Marginal Costing 15 14 14
Unit 2 : Standard Costing and Variance Analysis 7 7 7
Unit 3 : Budget and Budgetary Control 8 7 7
Total 105 98 98
MCQ 25 30 30

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Content

Sl.
Module Name Chapter Name Page No Weight
No.

SECTION A: INTRODUCTION TO COST ACCOUNTING

1.1 Introduction 1.2 – 1.5
Introduction to Cost Preparation of Cost Sheet and
1 1.2 1.6 – 1.118
Accounting Ascertainment of Profit
1.3 Important Cost Accounting Terms 1.19 – 1.22
2.1 Material Costs 2.2 – 2.13
Cost Ascertainment – 2.2 Employee Costs 2.14 – 2.25
2
Elements of Cost 2.3 Direct Expenses 2.26 – 2.28
2.4 Overheads 2.29 – 2.42
Cost Accounting
3 Standards (CAS 1 to Cost Accounting Standards 3.1 – 3.12
CAS 24)
Reconciliation of Costing and
4.1 4.2 – 4.10
4 Cost Book Keeping Financial Profit
4.2 Integrated Accounting System 4.11 – 4.16
SECTION B: METHODS OF COSTING
5.1 Job Costing 5.2 – 5.4
5.2 Batch Costing 5.5 – 5.7
5 Methods of Costing 5.3 Contract Costing 5.8 – 5.18
5.4 Process Costing 5.19 – 5.32
5.5 Operating Costing 5.33 – 5.44
SECTION C: COST ACCOUNTING TECHNIQUES
6.1 Marginal Costing 6.2 – 6.19
Cost Accounting Standard Costing and Variance
6 6.2 6.20 – 6.35
Techniques Analysis
6.3 Budget and Budgetary Control 6.36 – 6.48
SECTION D: OBJECTIVES
7 Objectives Objectives 7.1 – 7.34

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 Introduction to Cost Accounting


Chapter 1
Introduction to Cost Accounting

1.1 Introduction

Preparation of Cost Sheet and Ascertainment of

1.2 Profit

1.3 Important Cost Accounting Terms

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 Introduction to Cost Accounting
Introduction

1.1
Introduction

1 MTP Dec'23 Set 1

Explain the objectives of cost accounting. [4]

Objectives

Answer
The following are the main objective of Cost Accounting:
1. To ascertain the Costs under the different situation using different techniques and systems
of costing
2. To determine the selling prices under different circumstances.
3. To determine and control efficiency by setting standards for Materials, Labour and
Overheads
4. To determine the value of closing inventory for preparing financial statements of the
concern
5. To provide a basis for operating policies which may be determination of Cost Volume
relationship, whether to close or operate at a loss, whether to manufacture or buy from
market, whether to continue the existing method of production or to replace it by a more
improve method of production ... etc.

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 Introduction to Cost Accounting
Introduction

2 MTP Jun’24 Set 1

Distinguish between Financial and Cost Accounting. [4]

Financial vs Cost Accounting

Answer
Difference between Financial and Cost Accounting:
Basis of
Financial Accounting Cost Accounting
Comparison
Purpose It is prepared for providing informa- The main purpose of Cost Account-
tion about the results of the ing is to provide information to
business activities as a whole for a the management for the proper
particular period to the users. planning, control and decision
making.
Need Financial Accounts are maintained Cost accounts are maintained
as per the requirements of to meet the requirement of the
Companies Act and Income Tax Act. Management.
Recording Transactions are classified, recorded In cost accounting, transactions are
and analysed subjectively. classified, recorded and analysed
objectively according to the purpose
for which costs are incurred.
Analysis of Financial accounting reveals the Cost Accounting shows the profit
profit profit of a business as a whole. made on each product, job or
process.

3 Jun’24
State the essentials of a Cost Accounting System. [4]

Essentials of a Cost Accounting System

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 Introduction to Cost Accounting
Introduction

Answer
Essentials of a Good Cost Accounting System:
(i) Cost accounting system should be tailor made, practical, simple and capable of meeting
the requirement of a business concern.
(ii) The data to be used by the cost accounting system should be accurate, otherwise it may
distort the output of the system.
(iii) Necessary co-operation and participation of executives from various departments of the
concern is essential for developing a good system of cost accounting.
(iv) The cost of installing and operating the system should not be too high and ultimately pass
the cost- benefit analysis test.
(v) The system of costing should not sacrifice the utility by introducing meticulous and
unnecessary details.
(vi) A carefully phased programme should be prepared by using network analysis for the
introduction of the system.
(vii) Management should have a faith in the costing system and should also provide a helping
hand for its development and success.

4 MTP Dec’24 Set 1

Distinguish between Cost Accounting and Management Accounting. [4]

Cost Accounting vs Management

Accounting

Answer
Cost accounting is that branch of accounting which aims at generating information to control
operations with the aim of maximizing profits and efficiency of the company. Conversely,
management accounting is the type of accounting which assist management in planning and
decision-making and thus is also referred as decision accounting.

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 Introduction to Cost Accounting
Introduction

Following is a tabular representation of the differences between two accounting systems.

Basis of
Cost Accounting Management Accounting Meaning
Comparison
Meaning The recording, classifying and The accounting in which the both
summarising of cost data of an financial and non-financial informa-
organisation is known as cost tion are provided to managers is
accounting known as Management Accounting.
Information It is Quantitative in nature. It is both Quantitative and Qualita-
Type tive in nature.
Objective Ascertainment of cost of production. Providing information to managers
to make decisions, and forecast
strategies.
Scope Concerned with ascertainment, Managerial decision making.
allocation, distribution and account-
ing aspects of cost.
Specific There is a Specific procedure No. Thus the scope of management
Procedure accounting is much broad.
Target Recording of cost data (past and It gives more stress on the analysis
present). of future projections.

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

1.2
Preparation of Cost Sheet and
Ascertainment of Profit

1 MTP Jun’23 Set 1

Fire, Water and Air Ltd is a small machine part manufacturing company. You are the cost
accountant of the unit. The top management places before you the following information from
the cost records of the company. The records refer to the six months ending on 31st Dec., 2022.
₹
Materials used 1,50,000
Direct wages 1,20,000
Factory overhead expenses 24,000
Office expenses 17,640
From the above particulars you are to prepare a Cost Sheet for the period. The top management
also seeks from you the price which the company should quote for the manufacture of a
machine requiring materials valued at ₹ 1,250 and expenditure on productive wages of ₹ 750,
so that the price may yield a profit of 20% on the selling price.
For the purpose of price quotation, you are to charge factory overhead as a percentage of
direct wages and office overhead as a percentage of works cost which is the standard company
policy. [7]

Cost Sheet

Answer
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

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

Factory overhead expenses 24,000

Works or Factory Cost 2,94,000
Office expenses 17,640
Cost of Production 3,11,640
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.

2 Jun’23
M/s PQR Ltd. submits the following information on 31st March, 2023
Particulars Amount (₹)
Sales for the year 55,00,000
Purchases of material for the year 22,00,000
Direct labour 13,00,000
Inventories at the beginning of the year
Finished goods 1,40,000
Work-in-progress 80,000
Materials inventory
At the beginning of the year 60,000
At the end of the year 80,000
Inventories at the end of the year

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

Work in progress 1,20,000

Finished goods 1,60,000
Factory o a 60% of the direct labour cost.
Administration Expenses were 5% of sales.
Selling & distribution expenses were 10% of sales.
You are required to prepare a Cost Sheet with all elements. [7]

Cost Sheet Sales Computation

Answer
Cost Sheet on 31st March, 2019
Particulars Amount (₹)
Materials Consumed:
Opening Stock + Purchase – Closing Stock
( 60,000 + 22,00,000 – 80,000) 21,80,000
Direct Labour 13,00,000
Prime Cost 34,80,000
Factory Overheads (60% of Direct Labour Cost) 7,80,000
42,60,000
Add: Opening Work-in-progress 80,000
Less: Closing Work-in-progress 1,20,000
Factory Cost 42,20,000
Administration Expenses (5% of sales) 2,75,000
Cost of Production 44,95,000
Add : Opening Stock of Finished Goods 1,40,000
Less: Closing Stock of Finished Goods 1,60,000
Cost of Goods sold 44,75,000
Selling & Distribution Expenses 5,50,000
Cost of Sales 50,25,000
Sales 55,00,000
Profit (Sales-Cost of Sales) 4,75,000

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

3 MTP Dec'23 Set 1; MTP Jun’24 Set 1

From the following information, illustrate and prepare a statement showing profit for the
period and determine Cost per Unit.
1.
Opening Closing
Raw Materials: ₹ 29,500 ₹ 36,000
Work-in-progress:
Material 13,600 12,000
Wages 11,000 16,500
Works overhead 6,600 9,900
Finished Goods: 200 units@ ₹ 84 1600 Units
2. Purchases of raw material ₹1,90,000, Carriage on purchases ₹1,500, Sale of scrap of raw
materials ₹5,000
3. Wages ₹2,97,000
4. Works overheads are absorbed @ 60% of direct labour cost.
5. Administration overhead are absorbed @ ₹12 per unit produced.
6. Selling and distribution overhead are absorbed @ 20% of selling price.
7. Sales – 7600 units at a profit of 10% on sales price. [7]

Cost Sheet

Answer
Cost Sheet
Per Unit
Particulars Total (₹)
(₹)
A Raw-materials consumed:
Opening stock 29,500
Add: Purchases 1,90,000
Add: Carriage on purchases 1,500
Less: Scrap of raw materials 5,000
Less: Closing Stock 36,000 1,80,000
B. Add: Wages 2,97,000

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Preparation of Cost Sheet and Ascertainment of Profi

C. Prime cost [A + B] 4,77,000 53.00

D. Add: Works overhead [60% of ₹ 2,97,000] 1,78,200
Add: Opening WIP 31,200
Less : Closing WIP 38,400
E. Works cost 6,48,000 72.00
F. Add: Administration overhead [9,000 × ₹ 12] 1,08,000 12.00
G. Cost of goods produced [E + F] 7,56,000 84.00
H. Add: Opening stock of finished goods [200 units × 84] 16,800
Less: Closing stock of finished goods [1600 units × 84] 1,34,400
I. Cost of goods sold [G + H] 6,38,400 84.00
J. Add: Selling & dist. Overhead @ 20% on sales 1,82,400 24.00
K. Cost of Sales [I + J] 8,20,800 108.00
L. Add: Profit @ 10% on sales 91,200 12.00
M. Sales 9,12,000 120.00
Working Notes:
(i) Units produced = Closing Stock + Sales – Opening Stock
= 1600 + 7600-200
= 9000
(ii) Let Sales be X, then, X = 6,38,400 + 20% of X + 10% of X
0.7X = 6,38,400
X = 6,38,400/0.7
= ₹ 9,12,000

4 MTP Dec'23 Set 2

MNQ LLP submits the following information on 31st March 2023. Based on the given data,
illustrate and prepare a statement of cost.
Details ₹
Sales for the year 2,75,000
Inventories at the beginning of the year: Finished goods 7,000
Work in Progress 4,000
Purchase of the material for the year 1,10,000
Material inventory: At the beginning of the year 3,000
At the end of the year 4,000
Direct Labour 65,000
Factory overhead: 60% of direct labour cost

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

Inventories at the end of the year: Finished goods 8,000

Work in Progress 6,000
Other expenses for year:
Selling expenses - 10% of sales
Administrative expense - 5% of sales
[7]

Statement of Cost

Answer
Particulars ₹ ₹
Inventory (RM) at the beginning of the year 3,000
Add: Inventory (RM) during the year 1,10,000
1,13,000
Less: Inventory (RM) at the end of the year (4,000)
Material consumed 1,09,000
Add: Direct Labour 65,000
Prime Cost 1,74,000
Add: Factory Overhead @ 60% of direct labour 39,000
Works Cost 2,13,000
Adjustment for work in progress
Opening WIP 4,000
Less: Closing WIP (6,000) (2,000)
2,11,000
Add: Administrative Overhead5% of Sales i.e. 2,75,000 13,750
Cost of Production 2,24,750
Adjustment for Finished Goods
Opening Stock of Finished Goods 7,000
Less: Closing Stock of Finished Goods (8,000) (1,000)
Cost of goods sold 2,23,750
Add: Selling overhead @10% of Sales i.e. 32,75,000 27,500
Cost of Sales 2,51,250
Profit (Balancing figure) 23,750
Sales 2,75,000

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

5 MTP Dec'23 Set 2

Write short notes on Importance and objectives of Cost Sheet [4]

Importance and Objectives of Cost Sheet

Answer
Importance and objectives of cost sheet:
(i) Determining cost: The main objective of the cost sheet is to obtain an accurate product
cost. Both the total cost and cost per unit of a product is calculated with accuracy.
(i) Fixing selling price: The cost sheet furnishes the production cost which helps fixation of
selling price.
(ii)) Cost comparison: It helps the management compare the current cost of a product with a
previous per unit cost for the same product. Comparing the costs helps management take
corrective measures if costs have increased.
(iv) Cost control: The cost sheet is an important document for a manufacturing unit, as it helps
in controlling production costs. Using an estimated cost sheet aids in monitoring labour,
material and overhead costs at each step of production.
(v) Decision-making: Some of the most important decisions management makes are based
on the cost sheet. Whenever a business needs to produce or buy a component, or quote
prices for its goods on a tender, managers refer to the cost sheet.
(vi) Inter-firm and intra-firm comparison.

6 Dec'23
Sun & Moon Ltd. (SML) is a leading hardware manufacturing startup. It manufactured and sold
200 computers in the year 2022. The summarised Trading and Profit & Loss Account of SML for
the year 2022 is as follows:
Total Output (in units) = 200
Particulars ₹ Particulars ₹
To Cost of Material consumed 12,00,000 By Sales 60,00,000
To Direct Wages 18,00,000
To Manufacturing Charges 7,50,000
To Gross Profit c/d 22,50,000

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

To Management Expenscs 9,00,000 By Gross Profit b/d 22,50,000

To General Expenses 3,00,000
To Rent, Rates & Taxes 1,50,000
To Selling Expenses 4,50,000
To Net Profit 4,50,000
22,5000 250000
The management of SML estimated the following facts for the year 2023:
1. The output and sales will be 300 computers.
2. Price of material will rise by 25% compared (o previous year level.
3. Wages per unit will rise by 10%,
4. Manufacturing charges will increase in proportion to the combined cost of material and
wages.
5. Selling expenses per unit will remain unchanged.
6. Other expenses will remain unaffected by the rise in output.
Required:
(i) Prepare a Cost Sheet for the year 2023,
(ii) Suggest a Selling Price per unit to earn a profit of 20% on selling price. [7]

Cost Sheet SP Computation

Answer
Estimated Cost Sheet for the Year 2023
Cost per
Particulars Total Cost
Unit (₹)
Direct Material 22,50,000 7,500
Direct Labour 29,70,000 9,900
Prime Cost 52,20,000 17,400
Factory Overhead 13,05,000 4,350
Factory Cost 65,25,000 21,750
Office Overhead 13,50,000 4,500
Cost of Production 78,75,000 26,250
Selling & Distribution Overhead 6,75,000 2,250

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Preparation of Cost Sheet and Ascertainment of Profi

Total Cost 85,50,000 28,500

Profit 21,37,500 7,125
Selling Price 1,06,87,500 35,625

7 Postal Test Paper

PR Ltd manufactures and sells a typical brand of Tiffin Boxes under its own brand name. The
installed capacity of the plant is 1,20,000 units per year distributable evenly over each month of
calendar year. The Cost Accountant of the company has informed the following cost structure
of the product, which is as follows:

Raw Material ₹ 20 per unit.

Direct Labour ₹ 12 per unit.
Direct Expenses ₹ 2 per unit
Variable Overheads ₹ 16 per unit
Fixed Overheads ₹ 3,00,000
Semi-variable Overheads are as follows:
₹ 7,500 per month up to 50% capacity and additional ₹ 2,500 per month for every additional
25% capacity utilization or part thereof. The plant was operating at 50% capacity during the
first seven months of the calendar year 2022, at 100% capacity in the remaining months of the
year.
The selling price for the period from 1st January, 2022 to 31st July, 2022 was fixed at ₹ 69 per
unit. The firm has been monitoring the profitability and revising the selling price to meet its
annual profit target of ₹ 8,00,000.
You are required to suggest the selling price per unit for the period from 1st August, 2022 to
31st December, 2022.
Prepare Cost Sheet clearly showing the total and per unit cost and also profit for the period.
1. From 1st January to 31st July, 2022.
2. From 1st August to 31st December, 2022. [8]

Total Cost and Per unit Cost Unit Computation

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

Answer
Cost Sheet
Capacity Utilisation 50% Capacity 1st January – 31st 100% Capacity 1st August– 31st
Period July December
1, 20 , 000 1, 20 , 000
Units × 7 × 50% = 35,000 × 5 × 100% = 50,000
12 12
Raw Material 20 × 35,000 7,00,000 20 × 50,000 10,00,000
Direct Labour 12 × 35,000 4,20,000 12 × 50,000 6,00,000
Direct Expenses 2 × 35,000 70,000 2 × 50,000 1,00,000
Variable Overheads 16 × 35,000 5,60,000 16 × 50,000 8,00,000
3, 00 , 000 3, 00 , 000
Fixed Overheads ×7 1,75,000 ×5 1,25,000
12 12
Semi-Variable 7,500 × 7 52,500 12,500 × 5 62,500
Overhead
Total Cost 19,77,500 26,87,500
Profit (WN 1) 4,37,500 3,62,500
Sales (WN 2) 69 × 35,000 24,15,000 30,50,000
Selling Price per unit 30 , 50 , 000
69 61
(WN 2) 50 , 000
19 , 77, 500 26 , 87, 500
Cost per unit 56.50 53.75
35, 000 50 , 000

Working Notes:
1. Selling Price for 1st January – 31st July = ₹69
∴ Sales = 69 × 35,000 = ₹ 24,15,000
Profit for 1st January – 31st July = 24,15,000 – 19,77,500 = ₹ 4,37,500
2. Expected total profit for the year ₹ 8,00,000
Profit to earn from 1st August – 31st December = 8,00,000 – 4,37,500 = ₹ 3,62,500
Expected Sale from 1st August – 31st December = ₹ 30,50,000
Expected Selling price per unit from 1st August – 31st December
30 , 50 , 000
= = ₹ 61
50 , 000

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8 Jun’24; MTP Dec’24 Set 1

PQR & Co. is an advertising agency which has received an enquiry to submit the quotation. Bill
of Materials prepared by the production department for the quotation states the following
requirement of materials:
Paper 20 reams @ ₹ 2,200 per ream
Ink and other printing material ₹ 8,000
Binding material and other consumables ₹ 4,000
Some photography is required for the job. The agency does not have a photographer as an
employee. It decides to hire one by paying ₹ 20,000 to him. Estimated job card prepared by
production department specifies that service of following employees will be required for this
job:
Artist (₹ 18,000 per month) 80 hours
Copywriter (₹ 15,000 per month) 75 hours
Client servicing (₹ 13,500 per month) 30 hours
The primary packing material will be required to the tune of ₹ 6,000. Production Overheads 40%
of Prime cost, while the Selling and Distribution Overheads are likely to be 20% on Production
cost. The agency works 25 days in a month and 6 hours a day. The agency expects a profit of
20% on the quoted price.
Prepare a Statement of Profit showing quotation price. [7]

Cost Sheet

Answer
Statement of Profit Showing Quotation Price
₹ ₹
Direct Materials 62,000
Direct labour 39,800
Prime Cost 1,01,800
Production Overheads 40,720
Factory Cost 1,42,520
Selling &Distribution Overhead 28,504

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

Cost of Sales 1,71,024

Profit 42,756
Quotation Price 2,13,780

9 MTP Dec’24 Set 1

A company manufactures scooters and sells it at ₹5,000 each. An increase of 17% in cost of
materials and of 20% of labour cost is anticipated. The increased cost in relation to the present
sales price would cause at 25% decrease in the amount of the present gross profit per unit.
At present, material cost is 50%, wages 20% and overhead is 30% of cost of sales.
You are required to:
(i) Prepare a statement of profit and loss per unit at present.
(ii) Calculate the new selling price to produce the same percentage of profit to cost of sales as
before. [7]

Cost Sheet SP Computation

Answer
(i) Let the total cost per unit at present be ₹ X and Profit per unit be ₹ Y
Present Anticipated Cost
Particulars Cost Structure Percentage increase/decrease Structure
(₹) (₹)
Material 0.50X 17% increase = 0.50X × 117% 0.585X
Labour 0.20 X 20% increase = 0.20X × 120% 0.24X
Overhead 0.30X 0.30X
Total (Cost of Sales) X 1.125X
Profit Y 25% decrease = Y × 75% 0.75Y
Sales 5000 5000
So, two equations are:
X + Y = 5,000 ... (i)
And 1.125X + 0.75Y = 5,000 ... (ii)
Multiplying equation (i) by 1.125 and subtracting equation (ii) from (i)
1.125X + 1.125Y = 5,625

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 Introduction to Cost Accounting
Preparation of Cost Sheet and Ascertainment of Profi

(–) 1.125X + 0.75Y = 5,000

0.375Y = 625
or, Y = 1,667 or, Profit = ₹ 1,667
by putting the value of Y = 1,667 in equation (i) or, X + 1,667 = 5,000
or, X = 3,333
or Total Cost = ₹ 3,333
Statement of profit and loss per unit at present
Present
Particulars
Cost Structure (₹)
Material 1,666
Labour 667
Overhead 1,000
Total (Cost of Sales) 3,333
Profit 1,667
Sales 5000
Profit as a % of cost = 50%
(ii) The new selling price to produce the same percentage of profit to cost of sales as before: -
Particulars Cost Structure (₹)
Material 1,950
Labour 800
Overhead 1,000
Total (Cost of Sales) 3,750
Profit 1,875
Sales 5,625
Therefore, the new selling price to produce the same percentage of profit to cost of sales
as before is ₹5,625.

1.18 |CMA Inter Cost Accounting

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 Introduction to Cost Accounting
Important Cost Accounting Terms

1.3
Important Cost Accounting Terms

1 Dec’23
What is a Responsibility Centre? What are different types of Responsibility Centres? [4]

Types of Responisbility Centres

Answer
Responsibility Centre:
CIMA official terminology defines responsibility centre as departmental or organisational
function whose performance is the direct responsibility of a specific manager. Responsibility
centre refers to a particular segment or unit of an organisation for which a particular manager,
employee, or department is held responsible and accountable for its business goals and
objectives. It refers to the part of company where a manager has authority and responsibility.
A responsibility centre is a functional entity within a business that tends to have its own goals
and objectives, policies and procedures, thereby giving managers specific responsibility for
revenues, expenses incurred, funds invested, etc.
Types of Responsibility Centres:
(i) Cost Centre – Under this center, the manager is held responsible only for the costs, including
a production department, maintenance department, human resource department, etc.
(ii) Profit Centre – Under this center, the manager is responsible for all costs and revenues.
Here, the manager would have all the responsibility to make decisions that would affect
both the revenue and costs.
(iii) Revenue Centre–This segment is primarily responsible for attaining sales revenue. The
performance of this center is evaluated by comparing the actual revenue attained with the
budgeted revenue.
(iv) Investment Centre – Apart from looking into the profits, this center looks into returns
on the funds invested in the group’s operations. Thus, investment center is also a profit
center with additional responsibilities for capital investment and possibly for financing,
and whose performance is measured by its return on investment.

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Important Cost Accounting Terms

2 Postal Test Paper

Distinguish between relevant (avoidable) and irrelevant (unavoidable) costs and provide
examples of each type of cost. [7]

Relevant and Irrelevant Costs

Answer
Relevant (avoidable) Cost Irrelevant (unavoidable) Cost
Avoidable Costs are those which under given Unavoidable Costs which are inescapable
conditions of performance efficiency should costs, which are essentially to be incurred,
not have been incurred. within the limits or norms provided for.
It is not fixed in nature. It is fixed in nature.
This cost is used for decision making. This cost is not relevant for specific purpose
or situation.
Eg. Differential costs, Marginal costs, Eg. Sunk Costs, Committed Costs, Unavoida-
opportunity costs and Avoidable Costs. ble Costs and Absorbed Costs.

3 MTP Dec’24 Set 1

Analyze the costs based on the behaviour along with examples. [5]

Cost Classification Based on Behaviour

Answer
Classification based on Behaviour – Fixed, Semi-variable or Variable:
Costs are classified based on behaviour as fixed cost, variable cost and semi-variable cost
depending upon response to the changes in the activity levels.
Fixed Cost: Fixed cost is the cost which does not vary with the change in the volume of activity in
the short run. These costs are not affected by temporary fluctuation in activity of an enterprise.
These are also known as period costs. Example: Rent, Depreciation...etc.

1.20 |CMA Inter Cost Accounting

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Important Cost Accounting Terms

Variable Cost: Variable cost is the cost of elements which tends to directly vary with the volume
of activity. Variable cost has two parts (i) Variable direct cost (ii) Variable indirect costs. Variable
indirect costs are termed as variable overheads. Example: Direct labour, Outward Freight...etc
Semi-Variable Costs: Semi variable costs contain both fixed and variable elements. They are
partly affected by fluctuation in the level of activity. These are partly fixed and partly variable
costs and vice versa. Example: Factory supervision, Maintenance...etc.

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 Introduction to Cost Accounting
Important Cost Accounting Terms

NOTES

1.22 |CMA Inter Cost Accounting

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 Cost Ascertainment - Elements of Cost


Chapter 2
Cost Ascertainment - Elements of Cost

2.1 Material Costs

2.2 Employee Costs

2.3 Direct Expenses

2.4 Overheads

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 Cost Ascertainment - Elements of Cost
Material Costs

2.1
Material Costs

1 Jun'23 MTP Set 1

ASA FP LLP manufactures a particular brand of fountain pens called ASA MAYA, which requires
ebonite ‘Nicco’ for the blank. The following particulars were collected for the year 2021-22:

Monthly demand of ‘Nicco’ 7500 units

Cost of placing an order ₹ 500
Re-order period 5 to 8 weeks
Cost per unit ₹ 60
Carrying cost % p.a. 10%
Normal usage 500 units per week
Minimum Usage 250 units per week
Maximum Usage 750 units per week
You are required to calculate
(i) Re-order quantity
(ii) Re-order level
(iii) Minimum stock level
(iv) Maximum stock level
(v) Average stock level [8]

Re-order Quantity, Re-order Level,

Minimum Stock Level, Maximum Stock
Level, Average Stock Level

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Material Costs

Answer

2AO 2  7, 500  12  500

(i) Re-order 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
(iii) Minimmum Stock = Re-order Level – {Normal Usage × Normal Reorder Period}
level = 6,000 – (500 × 6.5) = 2,750 units
(iv) Maximum stock level = Re-order Level + Re-order Quantity – (Minimum Usage ×
Minimum Re-order Period) 6,000 + 3,873 – (250 × 5) = 8,623
units.
(v) Average stock level 1
= (Minimum Stock level + Maximum Stock Level)
2
1
= (2,750 + 8,623) = 5,687 units. or,
2
1
Minimum Level + Re-order quantity = 2,750 + 1,937
2
= 4,687 units.

2 MTP Jun'23 Set 2; MTP Jun’24 Set 1

Nikhil LLP buys its annual requirement of 36,000 units in six installments. Each unit cost ₹ 1 and
the ordering cost is ₹ 25. The inventory carrying cost is estimated at 20% of unit value. Find
the total annual cost of the existing inventory policy. How much money can be saved by using
EOQ? [5]

EOQ

Answer
2AO
EOQ =
C

A = Annual requirement = 36,000 units

O = Ordering Cost per order = ₹ 25

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 Cost Ascertainment - Elements of Cost
Material Costs

C = Carrying cost per unit per annum = 1 × 20% = ₹ 0.20

2 × 36 , 000 × 25
EOQ = = 3,000 units
0.20

Comparative Cost Statement of Existing Purchase Policy with proposed EOQ Purchase Policy

Existing Purchase Policy Proposed EOQ Purchase Policy

36,000 Ordering Quantity = 3,000 units
Ordering Quantity =
6
= 6,000 units
₹ ₹
Purchase Cost 36,000 × 1 36,000 36,000 × 1 36,000
Ordering Cost 6 × 25 150 12 × 25 300
Carrying Cost 1 600 1 300
× 6,000 × 1 × 20% × 6,000 × 1 × 20%
2 2
Total Cost 36,750 36,600
Net Savings = ₹ 36,750 – ₹ 36,600 = ₹ 150

3 Jun'23 MTP Set 2

What is scrap? How is it treated in cost accounting? [2]

Scrap and its treatment

Answer
This is also in the form of incidental material residue coming out of certain types of manufactur-
ing processes but it is usually in small amounts and has low measurable utility or market value,
recoverable without further processing. Numerous examples of scrap may be given; scrap may
arise in the form of turnings, borings, trimmings, fillings, shavings etc., from metals on which
machine operations are carried out; saw dust and trimmings in the timber industry; dead heads
and bottom ends in foundries; and cuttings, pieces, and split in leather industries. Scrap should
always be physically available unlike waste which may or may not be present in the form of a
residue.

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 Cost Ascertainment - Elements of Cost
Material Costs

Accounting treatment of scrap is as follows:

• Sales credited to revenue
In this method, the scrap is not cost and its value does not, therefore, appear separately in
the cost accounts. Only a quantitative record of the scrap returned to storeroom from the
shops is maintained and the sale value realize from time to time is credited to the profit
and loss account as miscellaneous revenue.
• Credit to overhead
In this method and in the following method the scrap is assigned a cost. The cost is usually
the sale value of the scrap less selling and distribution costs. If the scrap has no ready market
but has only utility or use value, and is taken as a credit to manufacturing overhead. The
effect of this credit is to reduce the overhead recovery rate. When predetermined overhead
rates are in use, it is more expedient to credit an estimated allowance for the scrap instead
of the amount of actual scrap.
• Credit to jobs
The scrap is assigned a cost and is traced to the job which yielded the scrap. This affords a
reasonable amount of credit to the jobs and widely different.
• Transfer to other jobs
Scrap arising in one job may be issued for utilization in another job. Such transfers of scrap
from one job to another should be affected through Material Transfer Notes. Alternatively,
scrap may be returned to store room and subsequently issued to another job for utilisa-
tion. The latter method is more appropriate when some further processing is required on
the scrap before it can be utilized for other jobs.

4 Jun'23
M/s KPM Ltd. buys its annual requirement of 80,000 units of a component‘Alpha’in 10 instalments.
Each unit of ‘Alpha’ costs ₹10 and the ordering cost is XR ₹ 25. The inventory carrying cost per
annum is estimated at 20% of unit value of ‘Alpha’.
You are asked by the KPM Ltd. to find the total annual cost of the existing inventory policy. Also,
how much money can be saved by using Economic Order Quantity (EOQ)? [5]

EOQ

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 Cost Ascertainment - Elements of Cost
Material Costs

Answer
Total Cost of existing Policy = ₹ 8,08,250
Total Cost of EOQ Policy = ₹ 8,02,828
Saving by using the EOQ = ₹ 5,422 (approx.)

5 Jun'23
Distinguish between scrap and spoilage. [2]

Scrap vs spoilage

Answer
Distinction between Scrap and Spoilage:
The distinction between scrap and spoilage is that while normal scrap arises mostly as a result
of the processing of materials, spoilage occurs due to some defect in operations or materials
which may or may not be inherent in the manufacturing process or operation. Further, scrap
has always a relatively low but some definite value, but the value of spoilage may range from
low, if it is a waste, to comparatively high values if the spoilage is to be sold as seconds. Spoilage
involves not only the loss of material but also labour and manufacturing overheads.

6 Postal Test Paper

M/s. Tubes Ltd are the manufacturers of picture tubes for TV. The following are the details of
their operation during the year 2022:

Average monthly market demand 2,000 Tubes

Ordering cost ₹ 100 per order
Inventory carrying cost 20% per annum
Cost of tubes ₹ 500 per tube
Normal usage 100 tubes per week
Minimum usage 50 tubes per week
Maximum usage 200 tubes per week
Lead time to supply 6 – 8 weeks

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Material Costs

Compute from the above:

(i) Economic order quantity. If the supplier is willing to supply quarterly 1,500 units at a
discount of 5%, is it worth accepting?
(ii) Re-order Level
(iii) Minimum level of stock
(iv) Maximum level of stock [7]

EOQ, ROL, Minimum Level and Maximum

Level

Answer
2AO
EOQ =
C

A = Annual usage of tubes = Normal usage per week × 52 weeks

or, A = 100 × 52 = 5,200 tubes
O = Ordering Cost per order = ₹ 100
C = Carrying Cost per unit per annum = 500 × 20% = ₹ 100
2 × 5, 200 × 100
(i) EOQ = = 102 tubes
100
Calculation of Total Inventory Cost
EOQ Purchase Policy Discount given by Supplier
Ordering Quantity 102 tubes 1,500 tubes
No. of Order per 5, 200 5, 200
annum ≈ 51 ≈4
102 1, 500
Purchase Cost (₹) 5,200 × 500 26,00,000 5,200 × 500 × 95% 24,70,000
Add: Ordering Cost 51 × 100 5,100 4 × 100 400
(₹)
Add: Carrying Cost 1 5,100 1 71,250
(₹) × 102 × 500 × 20% × 1500 × 500 ×
2 2
20% × 95%
Total (₹) 26,10,200 25,41,650

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Material Costs

Since the total cost under quarterly supply of 1,500 units with 5% discount is lower than
that when order size is 102 units, the offer should be accepted. While accepting this offer
capital blocked on order size of 1,500 units per quarter has been ignored.
(ii) Re-order Level = Maximum Usage × Maximum Re-order period
= 200 × 8 =1,600 tubes
(iii) Minimum Level of Stock = Re-order Level – (Average Usage × Average Re-order period)
= 1,600 – (100 × 7) = 900 tubes
(iv) Maximum Level of Stock
= Re-order Level + Re-order Quantity – (Minimum Usage × Minimum Re-order period)
= 1,600 + 102 – (50 × 6) = 1,402 tubes

7 MTP Dec'23 Set 1

PQR Tubes Ltd. are the manufacturer of picture tubes of T.V. The following are the details of their
operations during 2022-2023.

Ordering cost ₹ 100 per order Inventory carrying cost 20% p.a.
Cost of tubes ₹ 500 per tube Normal usage 100 tubes per week
Minimum usage 50 tubes per week Maximum usage 200 tubes per week
Lead time to supply 6-8 weeks
Compute:
(i) Economic order quantity. If the supplier is willing to supply quarterly 1,500 units at a
discount of 5%, is it worth accepting?
(ii) Re-order level;
(iii) Maximum level of stock;
(iv) Minimum level of stock. [7]

EOQ, ROL, Minimum Level and Maximum

Level

Answer
(i) Economic Order Quantity
A = Annual requirement of tubes
= 100 × 52 = 5,200 O = Ordering cost per order = ₹ 100 per order

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Material Costs

C = Inventory carrying cost per unit p.a. = 20% of ₹ 500 = ₹ 100

2AO 2  5, 200  100
E.O.Q =  = 102 tube (approx.)
C C
Total cost at EOQ = Total purchase cost of 5,200 + Total ordering cost + Total carrying
cost
 5, 200 units  1 
= (5,200 units × ₹ 500) +    100    102 units  ` 100 
 102 units  2 
= ₹ 26,00,000 + ₹ 5,098 + ₹ 5,100 = ₹ 26,10,198
Total cost (When the supplier is willing to give a discount of 5% on an order size of
1,500 units) will be:
Total cost at order size of 1,500
 5, 200 units  1 
= (5,200 units × ₹ 475) +    100    1, 500 units  ` 475 
 1, 500 units  2 
= ₹ 24,70,000 + ₹ 346.66 + ₹ 71,250
= ₹ 25,41,596.66 approx.
Decision: Since the total cost of inventory when supplier supplies quarterly 1,500 units at a
discount of % is less than that when the order size is of 102 units. Therefore, it is advisable to
accept the offer of 5% discount and save a sum of ₹ 68,601.34 (₹ 26,10,198 – ₹25,41,596.66)
Note: In the case of E.O.Q. the total ordering cost and the total carrying cost are always
equal, but in the above case it is not so because of the approximation made in arriving at
the figure of E.O.Q.
(ii) Re-order Level (RPL) = Maximum usage × Maximum lead time to supply
= 200 tubes per week × 8 weeks
= 1,600 tubes.
(iii) Maximum level of stock
= Re-order level + Re-order quantity – (Minimum usage × Minimum lead time to supply)
= 1,600 tubes + 102 tubes – (50 tubes × 6 weeks)
= 1,402 tubes
(iv) Minimum level of stock
= Re-order level – Normal usage × Average lead time to supply
= 1,600 tube – (100 tubes × 7 weeks)
= 900 tubes

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Material Costs

8 Dec'23 MTP Set 1

Prepare a statement showing the differences between ‘Bin Card’ and ‘Stores Ledger. [5]

Bin Card vs Stores Ledger

Answer
Difference between Bin Card and Stores Ledger:
Bin Card Stores Ledger
(1) It is maintained by the store keeper (1) It is maintained in the Costing department.
(2) It contains only quantitative details of (2) It contains information both in quantity
material and value
(3) Entries are made when transactions take (3) It is always posted after the transaction.
place
(4) Each transaction is individually posted (4) Transactions may be summarized and
then posted
(5) Inter-department transfers do not appear (5) Material transfers from one job to another
in Bin Card job are recorded for costing purpose.

9 Dec'23 MTP Set 2

Write short notes on Requisites of good Material Control System. [5]

Requisites of good Material Control

System

Answer
Requisites of good Material Control System
(i) Coordination and cooperation between the various departments concerned viz. purchase,
receiving, inspection,
(ii) storage, issues and accounts and cost departments.

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(iii) Use of standard forms and documents in all the stages of control.
(iv) Classification, coordination, standardization and simplification of materials.
(v) Planning of requirement of material.
(vi) Efficient purchase organisation.
(vii) Budgetary control of purchases.
(viii) Planned storage of materials, physical control as well as efficient book control through
satisfactory storage
(ix) control procedures, forms and documents.
(x) Appropriate records to control issues and utilization of stores in production.
(xi) Efficient system of internal audit and internal checks.
(xii) System of reporting to management regarding material purchase, storage and utilization.

10 Dec'23
What is Bill of Materials? What are basic purposes of preparing a Bill of Materials? [5]

Purposes of preparing Bill of material

Answer
Bill of Material:
Bill of Material is a complete schedule of parts and materials required for a particular order
prepared by the drawing office and issued together with necessary blue prints of drawings.
For standard products, printed copies of material bill are kept with blank spaces for any special
details of modification to be filled in for a particular job/order. The schedule details everything,
even to bolts and nuts, sizes and weights.
Purpose of Bill of Material:
(i) It provides a quantitative estimate of budget of material required for a given job, process
or operation which might be used for control purposes.
(ii) It substitutes material requirements and expedite issue of materials.
(iii) The store keeper can draw up a program of material purchases and issue for a given period.
(iv) It provides the basis for charging material cost to the respective job/process.

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11  Jun’24
Discuss the advantages of ABC analysis. [5]

ABC analysis

Answer
Advantages of ABC Analysis:
(i) Closer and stricter control of those items which represent a major portion of total stock
value is maintained.
(ii) Investment in inventory can be regulated and funds can be utilized in the best possible
manner. ‘A‘ class items are ordered as and when need arises, so that the working capital can
be utilized in a best possible way.
(iii) With greater control over the inventories, savings in material cost can be realised.
(iv) It helps in maintaining enough safety stock for ‘C‘ category items.
(v) Scientific and selective control helps in the maintenance of high stock turnover ratio.

12  MTP Dec’24 Set 1

The Purchase Department of S Ltd. has received an offer of quantity discounts on its orders of
materials as under:
Price per tonne (₹) Tonnes
1,180 500 and less than 1,000
1,160 1,000 and less than 2,000
1,140 2,000 and above
The annual requirement for the material is 5,000 tonnes. The delivery cost per order is ₹1,000
and the stock holding cost is estimated at 20% of material cost per annum. Calculate and
advise the Purchase Department the most economical purchase level. [7]

Economic Order Quantity [EOQ] Different Price Levels

2.12 |CMA Inter Cost Accounting

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Answer
Statement showing the most economic purchase level:
Particulars
1. Order Size (units in tonne) 500 1,000 2,000
2. No. of orders (Annual requirement ÷ order size) 10 5 2.5
₹ ₹ ₹
3. Value of order (Order size × Price per tonne) 5,90,000 11,60,000 22,80,000
4. Average inventory (Value per order ÷ 2) 2,95,000 5,80,000 11,40,000
5. Ordering Cost 10,000 5,000 2,500
(No. of order × ordering cost per order) i.e. (₹1,000)
6. Carrying cost (20% of item 4) 59,000 1,16,000 2,28,000
7. Total (5+6) 69,000 1,21,000 2,30,500
8. Add: Annual Cost of material (Annual demand × 59,00,000 58,00,000 57,00,000
Price per tonne)
9. Total annual cost 59,69,000 59,21,000 59,30,500
₹59,21,000 is the total minimum cost at 1,000 order size. Therefore, the most economical
purchase level is 1,000 tonnes.

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Employee Costs

2.2
Employee Costs

1 June'23 MTP Set 1

Calculate total monthly remuneration of three workers, A, B and C from the following data.
• Standard production per month per worker – 1000 units, actual production during the
month, A – 850 units, B – 750 units and C – 950 units.
• Piecework rate ₹10 per unit [actual production]
• Additional production bonus is ₹10 for each percentage of actual production exceeding
80%
• Dearness pay fixed ₹50 per month. [7]

Total Remuneration

Answer
Standard production = 1000 units per
Actual production:
Worker A = 850 units, efficiency level = 850/1000 × 100 = 85%
Worker B = 750 units, efficiency level = 750/1000 × 100 = 75%
Worker C = 950 units, efficiency level = 950/1000 × 100 = 95%
Statement showing total Remuneration of Workers
Particulars Worker A (₹) Worker B (₹) Worker C (₹)
Normal piece rate 850 units × ₹10 per unit 750 units × ₹10 950 units × ₹10 per
wages [₹10 per unit] 8500 per unit 7500 unit 9500
Bonus ₹10 × 5 = 50 -- ₹10 × 15 = 150
Dearness pay 50 50 50
Total 8600 7550 9700

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Employee Costs

*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%.

2 June'23 MTP Set 2

What is labour turnover? State the causes of labour turnover? What are the methods of
measuring labour turnover? [3]

Causes and methods of Labour Turnover

Answer
Labour turnover is the rate of change in the labour force of a concern during a specific period.
In every organisation some employees leave every year while new employees are recruited in
their place. This is a natural phenomenon in industrial sector and it gives rise to the problem
of labour turnover. The rate at which the employees depart from the organisation is normally
measured as the ratio of number of persons leaving in a period to the average number of
employees on the pay roll.
A controlled level of labour turnover is considered as desirable because it helps the firm to
adjust the size of its labour force in response to needs such as for seasonal changes or changes
in technology.
The rate of labour turnover is high if the number of employees leaving the organisation occurs
frequently. This leads to –
(i) decrease in the productivity and efficiency in the concern,
(ii) destabilize normal flow of work,
(iii) increases the labour cost.
Causes of Labour Turnover
The causes giving rise to high labour turnover may be broadly classified under the following
heads:
• Personnel Causes: Workers may leave employment purely on personal grounds, e.g.,
(a) Dislike for the job, locality or environments.
(b) Domestic troubles and family responsibilities.
(c) Change of line for betterment.

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(d) Retirement due to old age and ill health.

(e) Death.
In all such cases, personal factors count the most and employer can practically do nothing
to help the situation.
• Unavoidable Causes: In certain circumstances it becomes obligatory on the part of the
management to ask some of the workers to leave. These circumstances are:
(a) Retrenchment due to seasonal trade, shortage of any material and other resources,
slack market for the product, etc.
(b) Discharge on disciplinary grounds.
(c) Discharge due to continued or long absence.
• Avoidable Causes: Under this head, may be grouped the causes which need the attention
of the management most so that the turnover may be kept low by taking remedial
measures. The main reasons for which workers leave are:
(a) Unsuitability of job
(b) Low pay and allowance
(c) Unsatisfactory working conditions
(d) Unhappy relations with co-workers and unsatisfactory behaviour of superior
(e) Dispute between rival trade unions.
(f ) Lack of transport, accommodation, medical and other facto₹
(g) Lack of amenities like recreational centres, schools, etc.
The above causes may also be classified in a different manner under three heads, viz.,
Financial Causes, Social and Economic Causes and Psychological Causes relating to human
relationship.
Measurement of Labour Turnover
It is essential for any organisation to measure the Labour Turnover. This is necessary for having
an idea about the turnover in the organisation and also to compare the labour turnover of the
previous period with the current one. The following methods are available for measurement of
the labour turnover:
• Additions Method: Under this method, number of employees added during a particu-
lar period is taken into consideration for computing the Labour Turnover. The method of
computing is as follows:
Number of Additions
Labour Turnover = ×100
Average Number of Workers during the perriod

• Separation Method: In this method, instead of taking the number of employees added,
number of employees left during the period is taken into consideration. The method of
computation is as follows:

2.16 |CMA Inter Cost Accounting

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 Cost Ascertainment - Elements of Cost
Employee Costs

Number of Separation
Labour Turnover = ×100
Average Number of Workers during the pe
eriod

• Replacement Method: In this method neither the additions nor the separations are taken
into consideration. The number of employees replaced is taken into consideration for
computing the labour turnover.
Number of Replacements
Labour Turnover = ×100
Average Number of Workers during the period

• Flux Method: Under this method Labour Turnover is computed by taking into consider-
ation the additions as well as separations. The turnover can also be computed by taking
replacements and separations also. Computation is done as per the following methods:
1
× Number of Replacements
Labour Turnover = 2 ×100
Average Number of Workers during the period

3 June'23
M/s Peacock Ltd. is in the process of evaluation of employees’ welfare scheme of the company.
In this regard, it has selected three workers — K, L, and M to study their wage earnings. The
company furnishes the following particulars for the month of April, 2023 as under:
K L M
(a) Job completed (Units) 10,000 8,000 14,400
(b) Out of above output rejected and unsaleable 160 1,600
(Units) 400
(c) Time allowed for 100 units 2 Hrs. 36 Mins 3 Hrs. 1 Hr. 30 Min.
(d) Basic wage rate per hour (₹) 25 40 30
(e) Time taken (Hours) 200 216 184
The normal working hours per month at 176 hours. Bonus is paid @ 60% of the basic wage rate
for gross time worked gross output produced without deduction for rejected output. The rate
of imac for first 20 hours is paid at time plus 1/3 and for next 20 hours is paid at time plus 1/3
and for next 20 hours is paid at time plus 1/2.
From the above information, you are asked by the management to calculate the
(i) Number of Bonus hours and amount of bonus earned;
(ii) Total wages earned including basic wages, overtime premium and bonus;
(iii) Direct wages cost per 100 saleable units. [8]

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Employee Costs

Bonus and Wages Cost

Answer
Workers
Particulars
K L M
Bonus Hours 60 24 32
Amount of Bonus (₹) 900 576 576
Total Wages (₹) 6,116.67 9,882.67 6,176
Direct Wages Cost per 100 Saleable units (₹) 63.72 126.05 48.25

4 Dec'23 MTP Set 2

The management of XYZ Ltd is worried about the increasing Labour Turnover in the factory
and before analysing the causes and taking remedial steps; they want to have an idea of the
profit foregone as a result of Labour Turnover during the last year. Last year’s sales amounted to
₹83,03,300 and the profit/volume ratio was 20%. The total number of actual hours worked by
the direct labour force was 4.45 lakhs. As a result of the delays by the personnel department in
filling vacancies due to Labour Turnover, 1,00,000 potentially productive hours were lost. The
actual direct labour hours included 30,000 hours attributable to training new recruits, out of
which, half of the hours were unproductive. The cost incurred consequent on labour turnover
revealed, on analysis the following: Settlement cost due to leaving: ₹43,820, recruitment costs:
₹26,740, selection costs: ₹12,750 and training costs: ₹30,490.
Assuming that the potential production lost as a consequence of Labour Turnover could have
been sold at prevailing prices, compute the profit foregone last year on account of Labour
Turnover. [7]

Profit Foregone due to Labour Turnover

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Employee Costs

Answer
Profit foregone = Loss in Contribution + Additional Cost incurred as a result of labour turnover
(i) Actual Productive Hours during last year
= 4,45,000 – 15,000 [i.e. 50% × 30,000 hours]
= 4,30,000 hours
(ii) Sales during last year = ₹ 83,03,300
(iii) Productive Hours Lost in Current Year = ₹ 1,00,000 Hrs.
` 83, 03, 300
∴ Loss in Sales during the current year = × 1, 00 , 000 Hrs.
4 , 30 , 000
= ₹19,31,000
and Loss in Contribution = 20% × ₹ 19,31,000 = ₹ 3,86,200
Computation of Profit Foregone during the current year
Amount
(₹)
Contribution Lost 3,86,200
Settlement Cost due to leaving 43,820
Recruitment Cost 26,740
Selection Cost 12,750
Training Cost 30,490
Profit Foregone 5,00,000

5 Dec'23 MTP Set 2

Write short notes on the following: [5]
Items to be ‘excluded’ for the purpose of measuring Employee Cost.

Exclution in Employee Cost

Answer
The following items are to be ‘excluded’ for the purpose of measuring employee cost:
(i) Remuneration paid to non-executive director.

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(ii) Cost of idle time [Hours spent as idle time × hourly rate]
(iii) Variance in employee payments / costs, due to abnormal reasons (if standard costing
system is followed).
(iv) Any abnormal payment to an employee – which are material and quantifiable.
(v) Penalties, damages paid to statutory authorities or third parties.
(vi) Recoveries from employees towards benefits provided – this should be adjusted / reduced
from the employee cost.
(vii) Cost related to labour turnover – recruitment cost, training cost and etc.
(viii) Unamortized amount related to discontinued operations.

6 Dec'23
The management of Dolphin Ltd. wants to know the profit lost/forgone as a result of labour
turnover last year. Last year, sales accounted to ₹ 66,00,000 and the P/V ratio was 20%. The total
number of actual hours worked by the direct labour force was 3.45,000. As a result of the delays
by the personnel department in filling vacancies due to labour turnover, 75,000 potentially
productive hours were lost. The actual direct labour hours included 30,000 hours attributable
to training new recruits, out of which half of the hours were unproductive.
The cost incurred consequent on labour turnover revealed on analysis the following:
(₹)
Settlement cost due to leaving 25,000
Recruitment costs 18,000
Selection costs 20,500
Training costs 16,000
Assume that the potential production lost due to labour turnover could have been sold at
prevailing prices,
Required:
Ascertain the profit lost/forgone last year on account of labour turnover. [7]

Profit forgone on account of Labour

Turnover

Answer
Total Profit Forgone as a result of Labour Turnover ₹ 3,79,500

2.20 |CMA Inter Cost Accounting

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Employee Costs

7 Postal Test Paper

Amar, Akbar and Anthony are three workers in a manufacturing company and their output
during a particular 40 hours’ week was 96, 111 and 126 units respectively. The guaranteed rate
per hour is ₹ 10 per hour, low piece rate is ₹ 4 per unit, and high piece rate is ₹ 6 per unit. High
task is 100 units per week. Normal Piece Rate to be taken at ₹ 6 per unit.
Compute the total earnings and labour cost per unit under Taylor, Merrick and Gantt Task Bonus
Plan. [8]

Taylor, Merrick and Gantt

Answer
(i) Earnings under Taylor Plan
Particulars Amar Akbar Anthony
Standard Production
100 units 100 units 100 units
in 40 hours
Actual Production 96 units 111 units 126 units
Below Standard Above Standard Above Standard
Efficiency = 80% of Normal = 120% of Normal = 120% of Normal
Piece Rate Piece Rate Piece Rate
= 96 × 6 × 80% = 111 × 6 × 120% = 126 × 6 × 120%
Total Earnings
= ₹ 460.80 = ₹ 799.20 = ₹ 907.20
` 460 ` 799.20 ` 907.20
Labour Cost per unit = ₹ 4.80 = ₹ 7.20 = ₹ 7.20
96 units 111units 126 units

(ii) Earnings under Merrick Plan

Particulars Amar Akbar Anthony
Standard 100 units 100 units 100 units
Production in 40
hours
Actual Production 96 units 111 units 126 units
Efficiency 96 111 126
× 100 = 96% × 100 = 111% × 100 = 126%
100 100 100

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Rate to be applied 110% of Ordinary PR 120% of Ordinary PR 120% of Ordinary PR

(PR = Piece Rate) = ₹ 6 × 110% = ₹ 6 × 120% = ₹ 6 × 120%
= ₹ 6.6 = ₹ 7.20 = ₹ 7.20
Total Earnings ₹ 6.6 × 96 ₹ 7.20 × 111 ₹ 7.20 × 126
= ₹ 633.60 = ₹ 799.20 = ₹ 907.20
(iii) Earnings under Gantt Task Bonus Plan
Particulars Amar Akbar Anthony
Standard 100 units 100 units 100 units
Production in 40
hours
Actual Production 96 units 111 units 126 units
Efficiency Below Standard Above Standard Above Standard
= Guaranteed Time = High Piece Rate = High Piece Rate
Rate
Total Earnings = 40 × 10 = ₹ 400 = 111 × 6 = ₹ 666 = 126 × 6 = ₹ 756
Labour Cost per ` 400 ` 666 ` 756
unit = ₹ 4.17 =₹6 =₹6
96 units 111units 126 units

8 MTP Jun’24 Set 1

Analyse the Time Rate, Piece Rate and Differential Piece Rate Systems with regard to labour.
[5] 5

Time Rate, Price Rate, Differential Price

Rate

Answer
A. Time Rate System:
(i) Time Rate at Ordinary Levels: Under this method, rate of payment of wages per hour
is fixed and payment is made accordingly on the basis of time worked irrespective of
the output produced.
(ii) Time Rate at High Wage Levels: This system is a variation of time rate at ordinary levels
in the sense that in this system, workers are paid at time rate but the rate is much
higher than that is normally paid in the industry or area.

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Employee Costs

(iii) Graduated Time Rate: Under this method payment is made at time rate, which varies
according to personal qualities of the workers.
B. Piece Rate System: This method is also called as payment by results where the workers are
paid as per the production achieved by them. Thus, if a worker produces higher output, he
can earn higher wages. Under the piece rate system of wage payment, the workers receive
a flat rate of wages either for time worked or for units manufactured.

C. Differential Piece Rate System: Under these methods, the rate per standard hour of
production is increased as the output level rises. The increase in rates may be proportion-
ate to the increase in output or proportionately more or less than that as may be decided.
In other words, a worker is paid higher wages for higher productivity as an incentive.

9 Jun’24
The following particulars for the first week of July, 2023 relate to R, S and T three workers
employed in Sun Ltd.:
R S T
(a) Job completed (units) 5,000 4,000 7,200
(b) Out of above output rejected and unsalea- 200 80 800
ble (units)
(c) Time allowed for 100 units 2 hrs. 36 min. 3 hrs. 1 hr. 30 n
(d) Basic wage rate per hour (₹) 25 40 30
(e) Time taken (hours) 100 108 92
The normal working hours per week are fixed at 88 hours. Bonus is paid @ 60% of the basic
wage rate for gross time worked and gross output produced without deduction for rejected
output. The rate of overtime for first 10 hours is paid at time plus 1/3 and for next 10 hours is
paid at time plus 1/2.
Calculate the following for each worker:
(i) Number of bonus hours and amount of bonus earned.
(ii) Total wages earned including basic wages, overtime premium and bonus.
(iii) Direct wages cost per 100 saleable units. [7]

Labour Cost

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Employee Costs

Answer
Workers
Particulars
R S T
(i) Bonus Hours 30 12 16
Amount of Bonus (₹) 450 288 288
(ii) Overtime Premium (₹) 408.33 1133.33 160
Basic Wages (₹) 2,200 3,520 2,640
Total Wages (₹) 3,058.33 4,941.33 3,088
(iii) Direct Wages Cost per 100 Saleable units (₹) 63.72 126.05 48.25

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Direct Expenses

2.3
Direct Expenses

1 Jun'23 MTP Set 1; Dec’23 MTP Set 1

(i) What is direct expense?
(ii) State the definition of direct expenses as per CAS 10
(iii) State the principles of measurement of direct expense as per CAS 10 [1 + 2 + 5]

Meaning, Defination as per CAS 10,

principles of measurement.

Answer
(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) Principle of measurement of direct expenses as per CAS-10:
1. Identification of Direct Expenses shall be based on traceability in an economically feasible
manner.
2. (i) Direct expenses incurred for the use of bought out resources shall be determined at
invoice or agreed price including duties and taxes, and other expenditure directly
attributable thereto net of trade discounts, rebates, taxes and duties refundable or to
be credited.
(ii) Direct expenses other than those referred to in paragraph 5.2.1 shall be determined
on the basis of amount incurred in connection therewith.

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Direct Expenses

(iii) Direct Expenses paid or incurred in lump-sum or which are in the nature of ‘one – time’
payment, shall be amortised on the basis of the estimated output or benefit to be
derived from such direct expenses.
3. If an item of Direct Expenses does not meet the test of materiality, it can be treated as part
of overheads.
4. Finance costs incurred in connection with the self-generated or procured resources shall
not form part of Direct Expenses.
5. Direct Expenses shall not include imputed costs. In case of goods produced for captive
consumption, treatment of imputed cost shall be in accordance with Cost Accounting
Standard – 4 (CAS-4).
6. Where direct expenses are accounted at standard cost, variances due to normal reasons
shall be treated as part of the Direct Expenses. Variances due to abnormal reasons shall not
form part of the Direct Expenses.
7. Any Subsidy/Grant/ Incentive or any such payment received/receivable with respect to any
Direct Expenses shall be reduced for ascertainment of the cost of the cost object to which
such amounts are related.
8. Any abnormal portion of the direct expenses where it is material and quantifiable shall not
form part of the Direct Expenses.
9. Penalties, damages paid to statutory authorities or other third parties shall not form part of
the Direct Expenses.
10. Credits/ recoveries relating to the Direct Expenses, material and quantifiable, shall be
deducted to arrive at the net Direct Expenses.
11. Any change in the cost accounting principles applied for the measurement of the Direct
Expenses should be made only if, it is required by law or for compliance with the require-
ments of a cost accounting standard, or a change would result in a more appropriate
preparation or presentation of cost statements of an organisation

2 Postal Test Paper

What are the disclosure requirements as per CAS – 10? [5]

Disclosure requirements

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Direct Expenses

Answer
Paragraph 8 of CAS -10 states that disclosures shall be made only where material, significant
and quantifiable and such disclosures shall be made in the body of the cost statement or as a
foot note or as a separate schedule. The following points are stated as important aspects of the
disclosure of direct expenses in cost statements.
1. The basis of distribution of Direct Expenses to the cost objects/ cost units.
2. Quantity and rates of items of Direct Expenses, as applicable.
3. Where Direct Expenses are accounted at standard cost, the price and usage variances.
4. Direct expenses representing procurement of resources and expenses incurred in
connection with resources generated.
5. Direct Expenses paid/payable to related parties (Related party as per the applicable legal
requirements relating to the cost statement as on the date of the statement).
6. Direct Expenses incurred in foreign exchange.
7. Any Subsidy/Grant/Incentive and any such payment reduced from Direct Expenses.
8. Credits/recoveries relating to the Direct Expenses.
9. Any abnormal portion of the Direct Expenses.
10. Penalties and damages excluded from the Direct Expenses

3 MTP Jun’24 Set 1

A manufacturing unit produces two products X and Y. the following information is furnished:
Particulars Product X Product Y
Units produced (quantity) 20,000 15,000
Units sold (quantity) 15,000 12,000
Machine Hours utilized 10,000 5,000
Design charges 15,000 18,000
Software development charges 24,000 36,000
Royalty paid on sales ₹ 54,000 [@ ₹ 2 per unit sold, for both the products]; Royalty paid on units
produced ₹ 35,000 [@ ₹ 1 per unit produced, for both the products], Hire charges of equipment
used in manufacturing process of Product X only ₹ 5,000.
Compute the direct expenses. [7]

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Direct Expenses

Direct Expences

Answer
Computation of Direct Expenses
Particulars Product X (₹) Product Y (₹)
Royalty paid on sales 15,000 × 2 = 30,000 12,000 × 2 = 24,000
Add: Royalty paid on units produced 20,000 × 1 = 20,000 15,000 × 1 = 15,000
Add: Hire charges of equipment used in 5,000 ---
manufacturing process of Product X only
Add: Design charges 15,000 18,000
Add: Software development charges related to 24,000 36,000
production
Direct Expenses 94,000 93,000
Note:
1. Royalty on production and royalty on sales are allocated on the basis of units produced
and units sold respectively. These are directly identifiable and traceable to the number of
units produced and units sold. Hence, this is not an apportionment.
2. No adjustments are made related to units held, i.e., closing stock.

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Overheads

2.4
Overheads

1 June'23 MTP Set 1

LOTUS FP LLP has three Production Departments and two Service Departments. The overhead
distribution sheet showed the following totals:
Production Departments ₹
A 25,000
B 31,000
C 28,000
Service Departments ₹
S 8,000
T 13,900
Given that the two service departments cater to the needs of the three production departments
as per the following schedule (in percentage).
A B C S T
Department S 30% 20% 40% - 10%
Department T 40% 15%, 25% 20% -
Under the circumstance you are required to distribute the Overhead cost of the two service
department on suitable basis such that iterations are avoided.
What according to you is the other way of apportioning the service department overheads
under the above circumstance? [3 + 4=7]

Apportionment of Cost

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Overheads

Answer
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

7, 35, 000
Or, 50y – y = ₹ 7,35,000 or, y = ₹ = 15,000
49

Putting the value of y we get

1
x = ₹ 8,000 + th of y,
5

1
or, x = ₹ 8,000 + th of ₹ 15,000
5

or x = ₹ 8,000 + ₹ 3,000, or x = ₹ 11,000

Total expenses of Dept. S = ₹ 11,000
Total expenses of Dept. ₹ = ₹ 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 in the ratio 3,300 2,200 4,400 -11,000 1,100
3:2:4:1

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 Cost Ascertainment - Elements of Cost
Overheads

Distribution of Expenses of Dept. ₹ in the ratio 6,000 2,250 3,750 3,000 -15,000
8:3:5:4
34,300 35,450 36,150 --- ---

2 June'23 MTP Set 2

During the second half of 2022, Mr Tandon noted down the electricity consumed in his
household along with the Bill amount which was raised by the electricity authority. This he
did as he was unable to decipher the unit cost and the Meter rental. He asks Mr Nitin his friend
who is also a Cost Accountant to let him know the unit cost of electricity and the meter rental
separately. The following is the data as noted by Mr Tandon.
Units Cost
July 400 ₹ 1000
August 500 ₹ 1200
September 600 ₹ 1400
October 700 ₹ 1600
November 800 ₹ 1800
December 900 ₹ 2000
You, on behalf of Mr Nitin, are required to calculate the unit cost (variable element of the
cost) and the Meter rental (fixed element of the cost). You are to use the high-low method for
segregation of the total cost. [7]

High - Low Point Method

Answer
High Low method Units Cost in ₹
Highest month 900 2,000
Lowest month (400) (1,000)
Net total 500 1000
The additional cost between the highest and lowest month
` 1, 000
= ₹ 2 per unit
500

So, taking either higher or lower number

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Overheads

Higher → 900 × ₹ 2 = ₹ 1,800 So fixed cost = ₹ 200

Lower → 400 × ₹ 2 = ₹ 800 So fixed cost = ₹ 200

3 June'23 MTP Set 2

In a certain factory three products are made from different materials by similar process.
For a typical period, production costs are as under:
Product A ₹ Product B ₹ Product C ₹
Material Used 1,600 2,000 800
Direct Labour Cost 1,200 1,000 400
Overhead (Actual) 800 650 350
Overhead is charged to cost of each product at the rate of 25% on prime cost.
Do you see anything wrong in principle in this method of charging overheads? If so, suggest a
preferable method. [7]

Method of Charging Overheads

Answer
If percentage on prime cost which is shown as follows:
Particulars Product A (₹) Product B (₹) Product C (₹)
Materials 1,600 2,000 800
Labour 1,200 1,000 400
Prime Cost 2,800 3,000 1,200
Actual Overhead Incurred 800 650 350
` 800 ` 650 ` 350
= × 100 = × 100 = × 100
` 1, 600 ` 2, 000 ` 800

= 50% = 32.50% = 43.75%

Overhead Recovery Rate is calculated based on historical data. So, actual overhead is used to
calculate the future recovery rate.

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Overheads

4 June'23
M/s Lotus Inc. manufactures the fountain pen called ‘Pluto’. In the manufacturing of Pluto’, the
overheads were recovered at a pre-determined rate of ₹ 25 per man-day. The other information
for the month of April, 2023 is as under:

Total factory overheads incurred ₹ 83,00,000

Man-days actually worked 2,97,200
Total units manufactured 80,000
Units sold during the month 60,000
Incomplete units (60% complete) 60,000
On analysing the reasons, it was found that 40% of the unabsorbed overheads were due to
defective planning and the rest were attributable to increased overhead costs.
Required :
You, as a qualiifed cost accountant, are asked to suggest how would unabsorbed overheads be
treated in Cost Accounts? [7]

Treatment of unabsorbed overhead

Answer
Under Absorption = ₹ 8,70,000
Supplementary Overhead Rate = ₹ 7.50 per unit
So, unabsorbed overheads will be absorbed as under:
Cost of Goods Sold = ₹ 4,50,000
Closing Stock of Finished Goods = ₹ 1,50,000
Work in Progress = ₹ 2,70,000
= ₹ 8,70,000

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5 Postal Test Paper

Yamuna Printing Co. has three operating departments:
1. Printing and Binding
2. Lithographing and
3. Engraving
The company has a job order cost system using a single predetermined expense rate. The
management has been made aware of the deficiencies of using such a rate and is now interest-
ed in departmentalizing factory overhead. A study reveals that:
Department 1 has 3 similar machines representing a large investment and calling for high
repairs and depreciation charges.
Department 2 has the workers perform similar tasks and are therefore paid the same hourly
wage.
Department 3 however has several classes of workers; each group being paid the same hourly
wage. The estimated factory overhead and production data costs are as follows:
Printing and Binding Lithographing Engraving
Factory Overhead (₹) 40,000 68,750 1,20,000
Direct Labour Hours 10,000 20,000 40,000
Direct Labour Cost (₹) 25,000 55,000 80,000
Machine Hours 20,000 Nil Nil
Required:
1. An analysis to advice the management regarding the types of rates to be used in these
departments.
2. A computation of the rates recommended. [8]

Types of Overhead Rates

Answer
1. Printing and Binding Department
It is appropriate to use machine hour rate method of absorbing overheads in Department
1 because there is large investment in machine and therefore, they are predominant

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Overheads

Factory Overhead ` 40 , 000

Overhead Rate per Machine Hour = =
Machine hours 20 , 000 Hours
= ₹ 2 per machine hour 20,000 hours
2. Lithographing Department
In Department 2, it is better and appropriate to use labour hour rate of overheads because
all the workers are paid at uniform wage rate.
Factory Overhead ` 68 , 750
Overhead Rate per Labour Hour = =
Labour hours 20 , 000 Hours
= ₹ 3.4375 per Labour hour
3. Engraving Department
In Department 3 it is better and appropriate to use overhead rate based on certain percent-
age of wages because workers are paid at different rates.
Factory Overhead ` 1, 20 , 000
Overhead Percentage on Wages =  100   100
Wages ` 80 , 000

= 150%

6 Dec'23 MTP Set 1

A Company has three production cost centers A, B and C are two service cost centres X and Y.
Cost allocated to service centres are required to be apportioned to the production centres to
find out cost of production of different products.
It is found that benefit of service cost centres is also received by each other along with production
cost centres.
Overhead cost as allocated to the five cost centres and estimates of benefit of service cost
centres received by each of them are as under:
Overhead costs as Estimates of benefits received from service centres
Cost Centres
allocated (%)
X Y
A 80,000 20 20
B 40,000 30 25
C 20,000 40 50
X 20,000 -- 5
Y 10,000 10 -
Required:
Compute the final overhead costs of each of the production department including

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Overheads

reapportioned cost of service centres using –

(a) Continuous distribution method and
(b) Simultaneous equation method [7]

Continuous Distribution Method and

Simultaneous Equation Method

Answer
(a) Overhead Cost after apportionment based on continuous distribution method would
be as follows:
A₹ B₹ C₹ X₹ Y₹
80,000 40,000 20,000 20,000 10,000
4,000 6,000 8,000 (20,000) 2,000
2,400 3,000 6,000 600 (12,000)
120 180 240 (600) 60
12 15 30 3 (60)
1 1 1 (3) * -
86,533 49,196 34,271 - -
* Equally distributed to all production cost centres, the amount remaining to be allocated
is very small and insignificant.
(b) Simultaneous equation method:
Equation will be:
x = 20,000 + 5% of Y
y = 10,000 + 10% of X
Solving the equation, we get:
X = ₹ 20,603
Y = ₹ 12,060
Overheads of A, B and C will be as follows:
Details A (₹) B (₹) C (₹)
Directly allocated 80,000 40,000 20,000
Share of X [20%, 30% & 40% of ₹ 20,600] 4,120 6,180 8,240
Share of Y [20%, 25% & 50% of ₹ 12,060] 2,412 3,015 6,030
Adhoc of residual amount of ₹3 1 1 1
86,533 49,196 34,271

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Overheads

7 Dec'23 MTP Set 2

The summary as per primary distribution is as follows:
Production departments A - ₹ 2,500; B - ₹ 2,300 & C - ₹ 1,700
Service departments X - ₹ 700; Y - ₹ 900
Expenses of service departments are distributed in the ratios of:
X department: A- 20%, B- 40%, C- 30% and Y- 10%
Y department: A- 40%, B- 20%, C- 20% and X- 20%
Prepare and show the distribution of service costs among A, B and C under repeated distribu-
tion method. [7]

Repeated Distribution Method

Answer
(a)
A B C X Y
Particulars
₹ ₹ ₹ ₹ ₹
As per primary distribution 2,400 2,100 1,500 700 900
Service department X (2:4:3:1) 140 280 210 (700) 70
Service department Y (4:2:2:2) 388 194 194 194 (970)
Service department X (2:4:3:1) 38.8 77.6 58.2 (194) 19.4
Service department Y (4:2:2:2) 7.76 3.88 3.88 3.88 (19.4)
Service departmentX (2:4:3:1) 0.776 1.552 1.164 (3.88) 0.388
Total 2,975.336 2,657.032 1,967.244 - 0.388

8 Dec'23
ACB Ltd. manufactures product “A”, at the rate of 80 pieces per hour. The company has becn
producing and selling 1,60,000 units annually since last five years. However, during the current
year, the company was ablc to produce 1,46,000 units only. The company’s annual fixed
overheads for the current year amounted to ₹ 5,84,000. The company. works on single shift
only at 8 hours per day and 6 days a week. The company had declared 13 holidays. The quarterly
preventive maintenance and repairs work involved 77 hours.

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 Cost Ascertainment - Elements of Cost
Overheads

Required:
(i) Calculate the Maximum, Practical, Normal and Actual Capacities for the current year in
terms of hours.
(ii) Calculate ldle Capacity Hours.
(iii) Compute Hourly Rate for Recovery of Overhead Rates for cach of the capacities computed
at (i) above.
(Assume 365 days and 52 Sundays during the current year) [7]

Maximum, Practical, Normal, Actual and

Idle Capacity, OH Recovery Rates

Answer
(i) Different Capacities
Maximum Capacity = 2,920 hours
Practical Capacity = 2,092 hours
Normal Capacity = 2,000 hours
Actual capacity = 1,825 hours
(ii) & (iii) Computation of Hourly Rate for Recovery of Overhead Rates for Each of Capacities
Base Capacity Idle Fixed Fixed
Particulars of capacity capacity utilized capacity overhead overhead rate
hours (hours) hours (₹) per hours (₹)
Maximum 2,920 1,825 1,095 5,84,000 200.00
Practical 2,092 1,825 267 5,84,000 279.16
Normal 2,000 1,825 175 5,84,000 292.00
Actual 1,825 1,825 - 5,84,000 320.00

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Overheads

9 Jun’24
MOON LTD. has three Production Departments and two Service Departments. The overhead
distribution sheet of the company showed the following totals:
Amount
Production Department:
(₹)
A 3,02,000
B 2,88,000
C 3,86,000
Service Department:
X 46,250
Y 15,750
Working hours of production departments are A-12,452 hours; B-8,056 hours and C-8,132 hours.
Given that the two service departments cater to the needs of the three production departments
as per the following schedule (in percentage):
A B C X Y
Department X 20% 30% 40% - 10%
Department Y 40% 20% 30% 10% -
Required:
(i) Calculate the total overhead of production departments distributing the cost of service
departments by Simultaneous Equation Method.
(ii) Calculate the overhead rate per hour of production departments. [7]

Simultaneous Equation Method

Answer
(i) Total Overheads of Production Departments:
A = ₹ 3,19,895
B = ₹ 3,06,608
C = ₹ 4,11,497

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(ii) Overhead Rate Per Hour of Production Departments:

A = ₹ 25.69
B = ₹ 38.06
C = ₹ 50.60

10  MTP Dec’24 Set 1

In a manufacturing unit, overhead was recovered at a predetermined rate of ₹25 per man-day.
The total factory overhead incurred and the man-days actually worked were ₹41,50,000 and
1,50,000 respectively. Out of the 40,000 units produced during a period of 30,000 units were
sold. There were also 30,000 uncompleted units which may be reckoned at 66.67% complete.
On analysing the reasons, it was found that 40% of the unabsorbed overheads were due to
defective planning and the rest were attributable to increase overhead costs.
Calculate the unabsorbed overhead and how would it be treated in Cost Accounts. [7]

Treatment of under absorption

Answer
Calculation of Unabsorbed Overhead:
Particulars Amount ₹
Overhead Incurred 41,50,000
Less: Overhead Absorbed 25 x 1,50,000 37,50,000
Under Absorption 4,00,000
The under absorption of ₹ 4,00,000 being considerable whether due to defective planning or
due to increase in prices, would be disposed of by applying supplementary overhead rate in
the following manner:
Supplementary Overhead Rate = ₹ 4,00,000 ÷(30,000 + 10,000 + 30,000×2/3)
= ₹ 4,00,000÷60,000 units
= ₹ 20÷3 per unit
Finished Goods Sold = 30,000 units
Work in Progress = 30,000 units; equivalent finished goods = 30,000 × 2/3 = 20,000 units

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Overheads

So, under absorbed overhead will be absorbed by

Cost of Goods Sold = 30,000 × 20/3 ₹ 2,00,000

Closing Stock of Finished Goods = 10,000 × 20/3 ₹ 66,667
Work in Progress = 20,000 × 20/3 ₹ 1,33,333
Total ₹ 4,00,000

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Overheads

NOTES

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 Cost Accounting Standards [CAS 1 to 24]


Chapter 3
Cost Accounting Standards [CAS 1 to 24]

3.1 Cost Accounting Standards

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 Cost Accounting Standards [CAS 1 to 24]
Cost Accounting Standards

3.1
Cost Accounting Standards

1 June'23 MTP Set 2

State the objective and scope of Cost Accounting Standard 6 (CAS-6) on “Material Cost” [2]

Objective and Scope - CAS - 6

Answer
The Accounting standard 6 (CAS - 6) deals with principles and methods of determining the
Material Cost. Material for the purpose of this standard includes raw materials, process
materials, and additives, manufactured/bought out components, sub-assemblies, accessories,
semi-finished goods, consumable stores, spares and other indirect materials. This standard
does not deal with Packing Materials as a separate standard is being issued on the subject. This
standard deals with the principles and methods of classification, measurement and assignment
of Material Cost, for determination of the cost of product or service, and the presentation and
disclosure in cost statements.
• Objective - The objective of this standard is to bring uniformity and consistency in the
principles and methods of determining the Material Cost with reasonable accuracy.
• Scope - This standard should be applied to cost statements which require classification,
measurement, assignment, presentation and disclosure of Material Costs including those
requiring attestation.

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 Cost Accounting Standards [CAS 1 to 24]
Cost Accounting Standards

2 June'23 MTP Set 2

How many cost accounting standards are issued by the Institute of Cost Accountants of India,
till date? Also explain the various basis of classification of cost as per CAS - 1. [3]

No. of CAS and CAS - 1

Answer
The Institute of Cost Accountants of India issued 24 CAS till to date (31/03/2023).
Classification of cost is the arrangement of items of costs in logical groups having regard to
their nature (subjective classification) or purpose (objective classification).
The Scheme of classification should be such, so that every item of cost can be classified. As per
CAS-1 the following basis are normally followed:
(a) Nature of expense;
(b) Relation to object – traceability;
(c) Functions / activities;
(d) Behaviour - Fixed, Semi-variable or Variable;
(e) Management decision making;
(f ) Production Process and
(g) Time period

3 June'23 MTP Set 2

What are the disclosure norms of overhead as per CAS-3? [3]

Disclosure Norms - CAS - 3

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Cost Accounting Standards

Answer
The cost statements shall disclose the following: -
1. The basis of assignment of overheads to the cost objects.
2. Overheads incurred in foreign exchange.
3. Overheads relating to resources received from or supplied to related parties.
4. Any Subsidy / Grant / Incentive or any amount of similar nature received / receivable
reduced from overheads.
5. Credits / recoveries relating to overheads.
6. Any abnormal cost not forming part of the overheads.
7. Any unabsorbed overheads

4 Dec'23 MTP Set 1; Dec’23, Jun’24

Describe the objectives and functions of Cost Accounting Standards Board. [7]

Objectives and Functions of CASB

Answer
The objectives of the Cost Accounting Standards Board (CASB) are to develop high quality
Cost Accounting Standards to enable the management to take informed decisions and to
enable regulators to function more effectively by integrating, harmonizing and standardizing
Cost Accounting Principles and Practices.
The following are the functions of the CASB:
(A) To issue the framework for the Cost Accounting Standards.
(B) To equip the Cost & Management Accounting professionals with better guidelines on Cost
Accounting Principles.
(C) To assist the members in preparation of uniform cost statements under various statutes.
(D) To provide from time to time interpretations on Cost Accounting Standards.
(E) To issue application guidance relating to a particular standard.
(F) To propagate the Cost Accounting Standards and to persuade the users to adopt them in
the preparation and presentation of General Purpose Cost Statement.

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Cost Accounting Standards

(G) To persuade the Government and appropriate authorities to enforce Cost Accounting
Standards, to facilitate the adoption thereof, by industry and corporate entities in order to
achieve the desired objectives of standardization of Cost Accounting Practices.
(H) To educate the users about the utility and the need for compliance of Cost Accounting
Standards.

5 Jun'23; Jun’24
Explain the following in detail:
(i) What are the various Advantages of Cost Accounting Standards.
(ii) How to determine the Installed Capacity and Normal Capacity of Production Department.
[4 + 4]

Advantages of CAS, Installed and Normal

Capacity in CAS - 2

Answer
(i) Advantages of Cost Accounting Standards:
(a) Providing a structured approach to measurement of cost in manufacturing process or
service Industry.
(b) Integrating, harmonizing, and standardizing cost accounting principles and practices.
(c) Providing guidance to users to achieve uniformity and consistency in classification,
measurement, assignment, and allocation of costs to products and services.
(d) Arriving at the basis of computing the cost of products, activity, or service where
required by legal or regulatory bodies.
(e) Enabling practicing members to make use of Cost Accounting Standards in the attesta-
tion of General Purpose Cost Statements.
(f ) Assisting in clear and uniform understanding of all the related issues by various user
organisations, government bodies, regulators, research agencies, and academic
institutions.
(ii) Determination of Installed Capacity:
Installed capacity is usually determined based on –
(a) Technical specifications of facility
(b) Technical evaluation

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Cost Accounting Standards

(c) Capacities of individual or interrelated production or operation centres

(d) Constrains or capacity of critical machines or equipment
(e) Number of shifts or machine hours or man hours.
Determination of Normal Capacity:
Normal capacity is determined after suitable adjustments to the Installed Capacity. The
adjustments May be of the following nature –
(a) Time lost due to scheduled preventive or planned maintenance
(b) Number of shifts or machine hours or man hours
(c) Holidays, normal shut down days, normal idle time
(d) Normal time lost in batch change over.

6 Postal Test Paper, MTP Jun’24 Set 1

LIst the name of all Cost Accounting Standard with objective. [3]

Objective

Answer
In the following table, an overview of the 24 CASs are presented along with the respective
objectives of the standards.
CAS No. Title Objective
CAS 1 Classification of Cost For preparation of Cost Statements.
CAS 2 Capacity Determination To bring uniformity and consistency in the principles
and methods of determination of capacity with reasona-
ble accuracy.
CAS 3 Production and To bring uniformity and consistency in the principles and
Operation Overheads methods of determining the Production or Operation
Overheads with reasonable accuracy.
CAS 4 Cost of Production for To determine the assessable value of excisable goods
Captive Consumption used for captive consumption.
CAS 5 Average (Equalized) To determine averaged / equalized transportation cost.
Cost of Transportation

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Cost Accounting Standards

CAS No. Title Objective

CAS 6 Material Cost To bring uniformity and consistency in the principles
and methods of determining the Material Cost with
reasonable accuracy in an economically feasible manner.
CAS 7 Employee Cost To bring uniformity and consistency in the principles
and methods of determining the Employee Cost with
reasonable accuracy.
CAS 8 Cost of Utilities To bring uniformity and consistency in the principles
and methods of determining the Cost of Utilities with
reasonable accuracy.
CAS 9 Packing Material Cost To bring uniformity and consistency in the principles
and methods of determining the Packing Material Cost
with reasonable accuracy.
CAS 10 Direct Expenses To bring uniformity and consistency in the principles
and methods of determining the Direct Expenses with
reasonable accuracy.
CAS 11 Administrative To bring uniformity and consistency in the principles and
Overheads methods of determining the Administrative Overheads
with reasonable accuracy.
CAS 12 Repairs and To bring uniformity and consistency in the principles and
Maintenance Cost methods of determining the Repairs and Maintenance
Cost with reasonable accuracy.
CAS 13 Cost of Service Cost To bring uniformity and consistency in the principles
Centre and methods of determining the Cost of Service Cost
Centre with reasonable accuracy.
CAS 14 Pollution Control Cost To bring uniformity and consistency in the principles
and methods of determining the Pollution Control
Costs with reasonable accuracy.
CAS 15 Selling and Distribution To bring uniformity and consistency in the principles
Overheads and methods of determining the selling and Distribu-
tion overheads with reasonable accuracy.
CAS 16 Depreciation and To bring uniformity and consistency in the principles
Amortisation and methods of determining the Depreciation and
Amortisation with reasonable accuracy.
CAS 17 Interest and Financing To bring uniformity and consistency in the principles,
Charges. methods of determining and assigning the Interest and
Financing Charges with reasonable accuracy.
CAS 18 Research and Develop- To bring uniformity and consistency in the principles
ment Costs and methods of determining the Research and Develop-
ment Costs with reasonable accuracy and presentation
of the same.

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Cost Accounting Standards

CAS No. Title Objective

CAS 19 Joint Costs To bring uniformity and consistency in the principles
and methods of determining the Joint Costs.
CAS 20 Royalty and Technical To bring uniformity and consistency in the principles
Know- How Fee and methods of determining the amount of Royalty and
Technical Know-how Fee with reasonable accuracy.
CAS 21 Quality Control To bring uniformity, consistency in the principles,
methods of determining and assigning Quality Control
cost with reasonable accuracy.
CAS 22 Manufacturing Cost To bring uniformity and consistency in the principles
and methods of determining the Manufacturing Cost of
excisable goods.
CAS 23 Overburden Removal To bring uniformity and consistency in the principles
Cost and methods of determining and assigning Overbur-
den Removal Cost with reasonable accuracy.
CAS 24 Treatment of Revenue To bring uniformity and consistency in the principles and
in Cost Statements methods for treatment of revenue in cost statements
with reasonable accuracy.

7 MTP Dec’23 Set 2

Name 3 factors that should be disclosed in the cost statements as per CAS-3. [4]

Disclousre Requirement - CAS - 3

Answer
The cost statements shall disclose the following:
1. The basis of assignment of Production or Operation Overheads to the cost objects
2. Production or Operation Overheads incurred in foreign exchange
3. Production or Operation Overheads relating to resources received from or supplied to
related parties
4. Any Subsidy, Grant, Incentive or any amount of similar nature received or receivable
reduced from Production or Operation Overheads
5. Credits or recoveries relating to the Production or Operation Overheads

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Cost Accounting Standards

6. Any abnormal cost not forming part of the Production or Operation Overheads
7. Any unabsorbed Production or Operation Overheads
Disclosures shall be made only where material, significant and quantifiable.

8 Dec'23
Write the Scope of CAS - 4 on Cost of Production for Captive Consumption. [3]

Scope - CAS - 4

Answer
Scope of CAS – 4:
This statement on Cost of Production for Captive Consumption should be applied to cost
statements which require classification, measurement, assignment, presentation and disclosure
of related cost for determination of the following under the relevant provisions of GST Act/
Rules:
• Determination of cost of production of goods,
• Determination of cost of acquisition of goods,
• Determination of cost of supply of goods,
• Determination of cost of provision/supply of services, and
• Determination of value of supply of goods or services as per open market value or as per
goods or services of like kind and quality.

9 Dec'23
What is Overtime Wages as per CAS - 7? How do You treat overtime wages in Cost Accounts as
per CAS - 7? [5]

Treatment of overtime wages - CAS - 7

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Cost Accounting Standards

Answer
Overtime Wages / Overtime Premium:
As per CAS -7, the overtime and overtime premium is defined as, “Overtime is the time spent
beyond the normal working hours which is usually paid at a higher rate than the normal time
rate. The extra amount payable beyond the normal wages and salaries for beyond the normal
working hours is called Overtime Premium”. Hence, payment of overtime consists of two
elements, viz., the normal (i.e., usual) amount and the extra payment, i.e., the premium.
Treatment of Overtime in Cost Records:
As per CAS-7, overtime premium shall be assigned directly to the cost object or treated as
overheads depending on the economic feasibility and specific circumstances requiring such
overtime.
When overtime is worked due to exigencies or urgencies of the work, the basic/normal payment
is treated as Direct Labour Cost and charged to production or cost unit on which the worker is
employed. Whereas the amount of premium (extra amount) is treated as overhead.
When overtime is spent at the request of the customer, the entire amount (including overtime
premium) is treated as direct wages and is charged to the job.
When overtime is worked due to lack of capacity as general policy of the company, then the
total amount paid is treated as direct wages which is computed at the estimated rate based on
the figures of the previous years.
Overtime worked on account of the abnormal conditions such as flood, earthquake, etc.,
should not be charged to cost, but to Costing Profit and Loss Account if integrated accounts are
maintained.

10  Jun’24
Explain Idle Time as per CAS-7. Also discuss the treatment of idle time in Cost Accounts as per
CAS-7. [5]

Idle Time - CAS - 7

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 Cost Accounting Standards [CAS 1 to 24]
Cost Accounting Standards

Answer
Idle Time as Per CAS-7:
Idle Time cost represents the wages paid for the time lost during which the worker does
not work, i.e., time for which wages are paid but no work is done. As per CAS-7, idle time is
defined as ―the difference between the time for which the employees are paid/payable and
the employees time booked against the cost object‖. Idle time happens because due to various
causes, for which he is not responsible, the worker remains idle but full wages is paid to him.
Even for workers who are paid on the basis of output, idle time payment may be required to be
made.
Treatment of Idle Time in Cost Accounts:
As per CAS-7, Idle time cost shall be assigned directly to the cost object or treated as overheads
depending on the economic feasibility and specific circumstances causing such idle time.
Treatment of different categories of idle time is as follows:
(i) Unavoidable idle time – This is allowed to remain merged in the production order or
standing order number on which the worker was otherwise employed.
(ii) Normal idle time – It is booked to factory or works overhead. For the purpose of effective
control, each type of idle time, i.e., idle time classified according to the causes is allocated
to a separate standing order number.
(iii) Abnormal idle time – It would usually be heavy in amount, involves longer periods and
would mostly be beyond the control of the management. Payment for such idle time is
not included in cost and is adjusted through costing profit and loss account or included in
profit and loss account, when the accounts are integrated.

11  MTP Dec’24 Set 1

Explain in detail CAS 6 - Material Cost. [5]

CAS - 6

Answer
CAS 6 - Material Cost:
CAS 6 aims to standardize the determination and reporting of material costs, promoting
consistency and transparency in cost accounting practices. It provides guidelines for valuation,
assignment, presentation, and disclosure of material costs in cost statements, contributing to
effective cost management and decision-making.

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Cost Accounting Standards

Objective: The primary objective is to establish uniformity and consistency in determining

material costs with reasonable accuracy.
Scope: CAS 6 applies to cost statements requiring classification, measurement, assignment,
presentation, and disclosure of material costs, including those requiring attestation.
Principles of Measurement: Details principles for the valuation of material receipts and issues,
including the treatment of abnormal costs, waste, spoilage, and the inclusion of imputed costs.
Assignment of Costs: Outlines the basis for assigning costs to products or services, covering
materials, direct expenses, and indirect materials
Disclosures: Specifies information to be disclosed in cost statements, including quantity and
rates of major items, valuation basis, changes in accounting principles, excluded abnormal
costs, demurrage or detention charges, subsidies/grants, and costs from related parties.

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 Cost Book Keeping


Chapter 4
Cost Book Keeping

4.1 Reconciliation of Costing and Financial Profit

4.2 Integrated Accounting System

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

4.1
Reconciliation of Costing and Financial Profit

1 June'23
The following information is available from the financial books of M/s Jyoti Ltd. having a normal
production capacity of 60,000 units for the year ended 31st March, 2023:
(i) Sales ₹ 10,00,000 (50,000 units).
(ii) There was no opening and closing stock of finished units.
(iii) Direct material and direct wages costs were ₹ 5,00,000 and ₹ 2,50,000 respectively.
(iv) Actual factory expenses were ₹ 1,50,000 of which 60% are fixed.
(v) Actual administrative expenses where ₹ 45,000 which are completely fixed.
(vi) Actual selling and distribution expenses were ₹ 30,000 of which 40% are fixed.
(vii) Interest and received ₹ 15,000.
You are required to -
(a) Find out profit as per financial books for the year ended 31st March, 2023.
(b) Prepare the cost sheet and ascertain the profit as per cost accounts for the year ended
31st March, 2023 assuming that the indirect expenses are absorbed on the basis of normal
production Capacity.
(c) Prepare a statement reconciling profits shown by financial and cost books. [8]

Reconciliation Financial P/L, Cost P/L

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

Answer
(a) Profit as per financial books ₹ 40,000
(b) Cost Sheet for the Year ended 31st March, 2023
₹
Cost of Sales 9,50,500
Profit 49,500
Sales 10,00,000
(c) Reconciliation Statement
₹ ₹
Profit as per Cost Accounts 49,500
Add: Interest and Dividends received only credited in Financial 15,000
Accounts
Sub-total 64,500
Less:
Factory Expenses under – charged in Cost Accounts 15,000
Administrative Expenses under charged in Cost Accounts 7,500
Selling and Distribution Expenses under charged in Cost 2,000 24,500
Accounts
Profit as per Financial Accounts 40,000

2 June'23 MTP Set 1

In XYZ Ltd, the management finds that for a particular period the Profit as per cost accounts is ₹
2,91,000 while for the same period Profit as per financial accounts in ₹ 2,88,000. He extracts the
following from the records as the possible reason for the difference.

Works overheads under-recovered ₹ 19,000

Administration overheads under - recovered ₹ 45,500
Selling overheads over - recovered ₹ 39,000
Overvaluation of opening stock in cost accounts ₹ 30,000
Overvaluation of closing stock in cost accounts ₹ 15,000
Interest earned during the year ₹ 7,500
Rent received during the year ₹ 54,000
Bad debts written off during the year ₹ 18,000
Preliminary expenses written off during the year ₹ 36,000
You, as a cost accountant of XYZ Ltd, are asked to analyse the above information and discuss
how the difference between profit as per cost accounts and profit as per financial accounts can

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Reconciliation of Costing and Financial Profi

be presented to management in a suitable manner. [8]

Reconciliation

Answer
Reconciliation Statement
Amount Amount
Particulars
(₹) (₹)
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

3 Dec'23 MTP Set 1

M/s Mysore Petro Ltd. showed a net loss of ₹ 2,08,000 as per their financial accounts for the year
ended 31st March, 2023. The Cost Accounts, however, disclosed a net loss of ₹ 1,64,000 for the
same period. The following information was revealed as a result of the scrutiny of the figures of
both the sets of books.

1. Factory overhead under recovered ₹ 3,000

2. Administration overhead over recovered ₹ 2,000
3. Depreciation charged in financial books ₹ 60,000
4. Depreciation recovered in costs ₹ 65,000

4.4 |CMA Inter Cost Accounting

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

5. Interest on investment not included in costs ₹ 10,000

6. Income-tax provided ₹ 60,000
7. Transfer fee (in financial Books) ₹ 1,000
8. Stores adjustment (credit in financial books) ₹ 1,000
Prepare Reconciliation Statement. [7]

Reconciliation

Answer
Reconciliation Statement
Particular ₹ ₹
Net Profit as per Cost books (1,64,000)
Add:
Administration overhead over recovered 2,000
Interest on investment not included in cost books 10,000
Transfer fee recorded in financial books 1,000
Depreciation under charged in financial books 5,000 19,000
(1,45,000)
Less:
Factory OH under recorded in cost books 3,000
Income tax provided 60,000 63,000
Net Profit as per financial books (2,08,000)

4 Dec'23 MTP Set 2, Postal Test Paper

The net profits of a manufacturing company appeared at ₹ 64,500 as per financial records for
the year ended 31st December, 2022. The cost books however, showed a net profit of ₹ 86,460
for the same period. A careful scrutiny of the figures from both the sets of accounts revealed
the following facts.
Particulars (₹)
(i) Income tax provided in financial books 20,000
(ii) Bank Interest (Cr) in financial books 250
(iii) Work overhead under recovered 1,550

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

(iv) Depreciation charged in financial records 5,600

(v) Depreciation recovered in cost 6,000
(vi) Administrative overheads over-recovered 850
(vii) Loss due to obsolescence charged in financial accounts 2,800
(viii) Interest on investments not included in cost accounts 4,000
(ix) Stores adjustments (Credit in financial books) 240
(x) Loss due to depreciation in stock value 3,350
Prepare Reconciliation Statement. [7]

Reconciliation

Answer
Statement showing Reconciliation of Profit shown by Cost and Financial Accounts as on
31-12-2021
Particulars ₹ ₹
Profit as per Financial Accounts 64,500
Add: Income tax provided in financial accounts only 20,000
Add: Works overhead under recovered 1,550
Add: Loss due to obsolescence charged in financial accounts only 2,800
Add: Loss due to depreciation in stock value (recorded in financial 3,350 27,700
accounts only)
92,200
Less: Bank interest credited in financial accounts only 250
Less: Over recovery of depreciation in cost accounts (6,000 – 5,600) 400
Less: Administrative Overhead over recovered 850
Less: Interest on investments not included in cost accounts 4,000
Less: Stores adjustments (credit in financial accounts) 240 5,740
Profit as per Cost Accounts 86,460

4.6 |CMA Inter Cost Accounting

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

5 Postal Test Paper

The following is the Trading and Profit & Loss Account of M/s. Time and Trading Limited for the
year ended 31.12.2022.
Dr. Trading and Profit & Loss Account Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
To Material (consumed) A/c 7,08,000 By Sales A/c (30,000 units) 15,00,000
To Direct Wages A/c 3,71,000 By Finished Stock A/c (1,000 units) 40,000
To Works Overhead A/c 2,13,000 By Work in Progress A/c
To Administration Overheads A/c 95,500 - Materials 17,000
To Selling and Distribution 1,13,500 - Wages 8,000
Overheads A/c
To Net Profit 69,000 - Works Overheads 5,000
15,70,000 15,70,000
Manufacturing a standard unit, the company’s cost records show that:
(i) Works overheads have been charged to work in progress at 20% on prime cost.
(ii) Administration overheads have been recovered at ₹ 3 per finished unit.
(iii) Selling and distribution overheads have been recovered at ₹ 4 per unit sold.
(iv) The unabsorbed or over absorbed overheads have not been adjusted into Costing Profit
and Loss Account.
Prepare:
(a) A Costing Profit and Loss Account indicating Net profit.
(b) A Statement Reconciling the Profit as disclosed by Cost Accounts and that shown in
Financial Accounts. [10]

Costing Profit and Loss A/c, Reconciliation

Statement

Answer
Cost Sheet (Computation of Profit as per Cost Accounts)
Particulars (₹)
Materials 7,08,000

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

Direct Wages 3,71,000

Prime Cost 10,79,000
Works Overhead 2,15,800
Less: Closing WIP 30,000
Works Cost 12,64,800
Administration Overhead A/c 93,000
Cost of Production 13,57,800
Less: Closing Stock of Finished Goods 43,800
Cost of Goods Sold 13,14,000
Selling & Distribution OH 1,20,000
Cost of Sales 14,34,000
Profit (Bal. Fig) 66,000
Sales 15,00,000
Statement showing Reconciliation of Profit shown by Cost and Financial Accounts
Amount Amount
(₹) (₹)
Profit as per Financial Accounts 69,000
Add: Under recovery of Office Expenses (95,500 – 93,000) 2,500
Over Valuation of Closing Stock of Finished Goods in Cost 3,800 6,300
Accounts (43,800 – 40,000)
75,300
Less: Over recovery of Works Overhead (2,15,800 – 2,13,000) 2,800
Over recovery of Selling & Distribution Overhead 6,500 9,300
(1,20,000 – 1,13,500)
Profit as per Cost Accounts 66,000

6 MTP Dec’24 Set 1

From the accounts of A Co. Ltd. the following Manufacturing, Trading and Profit and Loss
Account for the year ended 31st December, 2023, is extracted:
Particulars ₹ Particulars ₹
To Raw Materials: By Raw Materials:
Opening stock 59,000 Closing stock 64,000
Raw Materials Purchases 3,73,000

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

To Wages paid 5,62,000 By Work-in-Progress:

Materials 8,000 25,600
Wages 11,000
Factory exp. 6,600
To Wages accrued 34,000 By Cost of goods manufactured 13,19,900
(18,000 units)
To Factory expenses 3,81,500
14,09,500 14,09,500
To Cost of goods manufactured 13,19,900 By Sales (15,200 units) 18,24,000
To Administration expenses 2,45,000 By Finished Stock (2,800 units) 2,35,200
To Selling and Distribution 3,28,000 By Interest on Investments 2,600
Expenses
To Preliminary expenses 18,000 By Dividend earned 11,000
written-off
To Goodwill written-off 17,000
To Net Profit transferred to 1,44,900
Appropriation A/c
20,72,800 20,72,800
The following procedure is adopted in connection with the costing of the product:
(A) Factory expenses are allocated to production at 60% of direct labour cost.
(B) Administration expenses are applied at ₹12 per unit over the units produced.
(C) Selling and distribution expenses are charged so as to work out at 20% of selling price.
Prepare Costing Profit and Loss Account and the Statement of Reconciliation between the
profit or loss as per the two accounts. [7]

Reconciliation Cost P/L & Reconciliation

Answer
Costing profit and loss account
Particulars ₹ ₹ ₹
Material consumed:
Opening Stock 59,000
Add: Purchase 3,73,000

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 Cost Book Keeping
Reconciliation of Costing and Financial Profi

4,32,000
Less: Closing stock 64,000 3,68,000
Wages: Paid 5,62,000
Accrued 34,000 5,96,000
Prime cost 9,64,000
Factory expenses (60% of wages) 3,57,600
Works cost (for units finished and Work-in-progress) 13,21,600
Less: Work-in-progress 25,600
Works cost of units finished 12,96,000
Administration expenses
@₹12 per unit on (15,200 + 2,800) units 2,16,000
Cost of goods produced 15,12,000
Less: Finished Stock- 2,800 units @ ₹84 2,35,200
12,76,800
Selling and Distribution Expenses (20% of ₹18,24,000) 3,64,800
Cost of Sales (15,200 units) 16,41,600
Sales 18,24,000
Profit 1,82,400
Note: Cost per unit = ₹15,12,000 ÷18,000 units = ₹ 84. Reconciliation Statement

4.10 |CMA Inter Cost Accounting

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 Cost Book Keeping
Integrated Accounting System

4.2
Integrated Accounting System

7 June'23 MTP Set 2

Journalize the following transactions assuming that cost and financial accounts are integrated:
Amount
Particulars
(₹)
Raw material purchased 40,000
Direct materials issued to production 30,000
Wages paid (30% indirect) 24,000
Wages charged to production 16,800
Manufacturing expenses incurred 19,000
Manufacturing overhead charged to Production 18,000
Selling and distribution cost 4,000
Finished products (at cost) 40,000
Sales 58,000
Closing stock Nil
Receipts from debtors 13,800
Payments to creditors 12,000
[8]

Integrated System - Journal

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 Cost Book Keeping
Integrated Accounting System

Answer
Journal
Dr. Cr.
Particulars Amount Amount
(₹) (₹)
Material Control A/c Dr 40,000
To Cash A/c 40,000
Work in Progress Control A/c Dr 30,000
To Material Control A/c 30,000
Wages Control A/c Dr 24,000
To Cash A/c 24,000
Factory Overhead Control A/c (24,000 × 30%) Dr 7,200
To Wages Control A/c 7,200
Work in Progress Control A/c (24,000 × 70%) Dr 16,800
To Wages Control A/c 16,800
Factory Overhead Control A/c Dr 19,000
To Cash 19,000
Work in Progress Control A/c Dr 18,000
To Factory Overhead Control A/c 18,000
Selling and Distribution Overhead Control A/c Dr 4,000
To Cash A/c 4,000
Cost of Sales A/c Dr 4,000
To Selling and Distribution Overhead A/c 4,000
Finished Goods Control A/c Dr 40,000
To Work in Progress Control A/c 40,000
Debtors A/c Dr 58,000
To Profit and Loss A/c 58,000
Cash A/c Dr 13,800
To Debtors A/c 13,800
Creditors A/c Dr 12,000
To Cash A/c 12,000

8 Dec'23
Essbee Lid. maintains Tntegrated Accounts of Cost and Financial Accounts. Journalize the
following transactions in the books of the firm: [7]
(narration is not required)

4.12 |CMA Inter Cost Accounting

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 Cost Book Keeping
Integrated Accounting System

Amount
Particulars
(₹)
Raw material purchased on credit 8,00,000
Direct materials issued to production 6,00,000
Wages paid (30% indirect) 4,80,000
Wages charged to production 3,36,000
M: unfifacluring expenses incurred 3,80,000
Manufacturing overhead charged to production 3,60,000
Selling and distribution cost 80,000
Finished products (at cost) 8,00,000
Sales 11,60,000
Receipts from debtors 2,76,000

Integrated - Journal

Answer
Journal Entries
Dr Cr.
Particulars Amount Amount
(₹) (₹)
Material Control A/C Dr. 8,00,000
To Creditors A/C 8,00,000
Work in Progress Cont. A/C Dr. 6,00,000
To Material Control A/C 6,00,000
Wages Control A/C 4,80,000
To Cash A/C 4,80,000
Factory Overhead Control A/C Dr. 1,44,000
To Wages Control A/C 1,44,000
Work in Progress Control A/C Dr. 3,36,000
To Wages Control A/C 3,36,000
Factory Overhead Control A/C Dr. 3,80,000
To Cash A/C 3,80,000
Work in Progress Control A/C Dr. 3,60,000
To Factory Overhead Control A/C 3,60,000

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 Cost Book Keeping
Integrated Accounting System

S & D O.H. Control A/C Dr. 80,000

To Cash A/C 80,000
Cost of Sales A/C Dr. 80,000
To S & D O.H. Control A/C 80,000
Finished goods Control A/C Dr. 8,00,000
To WIP Control A/C 8,00,000
Debtors A/C Dr. 11,60,000
To Profit & Loss A/C 11,60,000
Cash A/C Dr. 2,76,000
To Debtors A/C 2,76,000

9 Jun’24; MTP Jun’24 Set 1

Pass the journal entries for the following transactions in a double entry cost accounting system:
(Narration is not required) [7]
Amount
Particulars
(₹)
(i) Issue of material:
- Direct 5,00,000
- Indirect 2,50,000
(ii) Allocation of wages and salaries:
- Direct 3,00,000
- Indirect 50,000
(iii) Overheads absorbed in jobs:
- Factory 2,80,000
- Administration 1,00,000
- Selling 50,000
(iv) Under/over absorbed overheads:
- Factory (over) 30,000
- Administration (under) 15,000

Non Integrated System

4.14 |CMA Inter Cost Accounting

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 Cost Book Keeping
Integrated Accounting System

Answer
Journal
Dr. Cr.
Particulars
₹ ₹
Work in Progress Control A/c Dr 5,00,000
Factory Overheads Control A/c Dr 2,50,000
To Material Control A/c 7,50,000
Work in Progress Control A/c Dr 3,00,000
Factory Overheads Control A/c Dr 50,000
To Wages Control A/c 3,50,000
Work in Progress Control A/c Dr 2,80,000
Finished Goods Control A/c Dr 1,00,000
Cost of Sales A/c Dr 50,000
To Factory Overheads Control A/c 2,80,000
To Administration Overheads Control A/c 1,00,000
To Selling Overheads Control A/c 50,000
Costing Profit and Loss A/c Dr 15,000
To Administration Overheads Control A/c 15,000
Factory Overheads Control A/c Dr 30,000
To Costing Profit and Loss A/c 30,000

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 Cost Book Keeping
Integrated Accounting System

NOTES

4.16 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Methods of Costing


Chapter 5
Methods of Costing

5.1 Job Costing

5.2 Batch Costing

5.3 Contract Costing

5.4 Process Costing

5.5 Operating Costing

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 Methods of Costing
Job Costing

5.1
Job Costing

1 June'23 MTP Set 1

You have been recently appointed as a Cost Accountant of Ratnamsons LTD. After going
through the cost records you find that the selling price of Job No. 3286 has been calculated in
the previous year on the following basis:
Amount
Particulars
(₹)
Materials 1,208
Direct Wages – 22 hours at ₹25 per hour 550
Department
A – 10 hours
B – 4 hours
C – 8 hours
Prime Cost 1,758
Plus 33% on Prime Cost 586
Total 2,344
An analysis of the previous year’s Profit & Loss Account shows the following:
Amount Amount
Particulars Particulars
(₹) (₹)
Materials Used 77,50,000 Factory Overheads:
Direct Wages: A 2,50,000
A 5,00,000 B 4,00,000
B 6,00,000 C 1,00,000
C 4,00,000 Selling Overhead 30,00,000
You are required to:
(i) Make suitable calculations after making revision to the cost estimate on the basis of the
previous year’s figures;
(ii) Draw up a Job Cost Sheet on the basis of the calculations made in (i) above.
(iii) Make suitable analysis on per unit basis and infer the selling price if profit is to be estimated
at add to 10% of cost of sales. [3 + 3 + 2 = 8]

5.2 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Methods of Costing
Job Costing

Job Cost Sheet

Answer
(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 Wages ₹ 5,000 ₹ 6,000 ₹ 4,000
∴ Labour  ` 5, 000   ` 6 , 000   ` 4 , 000 
  20,000   24,000   16,000
Hours  ` 0 .25 per hour   ` 0 .25 per hour   ` 0 .25 per hour 

Factory
₹ 2,500 ₹ 4,000 ₹ 1,000
Overheads
Factory
Overhead  ` 2, 500   ` 4 , 000   ` 1, 000 
 20 , 000  ₹ 0.125  24 , 000  ₹ 0.167  16 , 000  ₹ 0.063
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 = ₹ 30,000 × 100 = 30%
` 25 per hour

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 Methods of Costing
Job Costing

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

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

5.4 |CMA Inter Cost Accounting

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 Methods of Costing
Batch Costing

5.2
Batch Costing

2 June'23 MTP Set 2

Lotus Inc manufactures the fountain pen called ‘Shikhar’. One of the component of the Pen (The
Blank) is made entirely in cost centre CC125. In this cost centre CC 125, material cost is ₹ 6.00 per
component and each component takes 10 minutes to produce. The machine operator is paid
₹72.00 per hour, and machine hour rate is ₹ 150.00. The setting up of the machine to produce
the component ‘The Blank’ takes 2 hours 20 minutes.
On the basis of this information, prepare a cost sheet showing the production and setting up
cost, both in total and per component, assuming that a production batch of:
(i) 10 components,
(ii) 100 components, and
(iii) 1,000 components. [7]

Setup and Production Cost

Answer
Cost Sheet of Component ‘The Blank’
Batch Size
10 100 1,000
Particulars Components Components Components
p.u. Total p.u. Total p.u. Total
₹ ₹ ₹ ₹ ₹ ₹
A. Production Cost
Material Cost 0.06 0.60 0.06 6.00 0.06 60.00
Machine Operators Wages
(WN 1) 0.12 1.20 0.12 12.00 0.12 120.00
Overheads (WN 2) 0.25 2.50 0.25 25.00 0.25 250.00

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 Methods of Costing
Batch Costing

Total Production Cost 0.43 4.30 0.43 43.00 0.43 430.00

B. Setting up Cost
Machine Operator Wages
(WN 3) 0.168 1.68 0.0168 1.68 0.00168 1.68
Overheads (WN 4) 0.350 3.50 0.035 3.50 0.0035 3.50
Total Setting up Cost 0.518 5.18 0.0518 5.18 0.00518 5.18
Total Cost 0.948 9.48 0.4818 48.18 0.43518 435.18
Working Notes:
100
10 Components 1,000 Components
Components
Time taken to produce the 100 Minutes 1,000 Minutes 10,000 Minutes
Components @ 10 minutes per 100 1, 000 10 , 000
component or, hours or, hours or, hours
60 60 60
1. Machine Operators Wage @ ₹ 0.72 100 1, 000 10 , 000
per hour or, hours or, hours or, hours
60 60 60
= ₹ 1.20 = ₹ 12
2. Overheads @ ₹ 1.50 per hour 100 1, 000 10 , 000
× 1.50 × 1.50 × 1.50
60 60 60
= ₹ 2.50 = ₹ 25 = ₹ 250
3. Setting up Cost
1
(a) Machine Operators Wages = 2 hours 20 minutes × ₹ 0.72 = 2 × ₹ 0.72 = ₹ 1.68
3
1
(b) Overhead = 2 hours 20 minutes × ₹ 1.50 = 2 × ₹ 1.50 = ₹ 3.50
3

3 June'23
M/s PQR Ltd. undertakes supply of a component “₹ 25” in batches. Every month a fresh batch
order is opened against which materials and labour costs are booked at actuals. Overheads are
levied at a rate per labour hour. The selling price is contracted at @15 per unit and labour is paid
@ ₹ 2 per hour.
The company furnishes data for the three months of January, February and March, 2023 as
under:

5.6 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Methods of Costing
Batch Costing

Batch Material Labour Total

Overheads
Month Output Cost Cost Labour
(₹)
(Nos.) (₹) (₹) Hrs.
January 1,250 6,250 2,500 12,000 4,000
February 1,500 9,000 3,000 9,000 4,500
March 1,000 5,000 2,000 15,000 5,000
Calculate the cost and profit per unit. [7]

Cost and profit per unit of batch order

Answer
Statement Showing Cost and Profit per unit of each Batch Order
January February March
Total Cost 12,500 15,000 10,000
Profit per unit 5.00 5.00 5.00
Cost per unit 10.00 10.00 10.00

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 Methods of Costing
Contract Costing

5.3
Contract Costing

4 June'23 MTP Set 2, Dec'23 MTP Set 2

Deluxe limited undertook a contract for ₹ 5,00,000 on 1st July 2021. On 30th June 2022 when
the accounts were closed, the following details about the contract were gathered:
Amount
Particulars
(₹)
Materials purchased 1,00,000
Wages paid 45,000
General expenses 10,000
Plant purchased 50,000
Materials on hand 30.6.2022 25,000
Wages accrued 30.6.2022 5,000
Work certified 2,00,000
Cash received 1,50,000
Depreciation of Plant 5,000
Work uncertified 15,000
The above contract contained an escalation clause which read as follows:
“In the event of prices of materials and rates of wages increase by more than 5% the contract
price would be increased accordingly by 25% of the rise in the cost of materials and wages
beyond 5% in each case”.
It was found that since the date of signing the agreement the prices of materials and wage
rates increased by 25% the value of the work certify does not take into account the effect of the
above clause.
Prepare the Contract Account. [8]

Contract A/c Escalation

5.8 |CMA Inter Cost Accounting

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 Methods of Costing
Contract Costing

Answer
Particulars ₹ Particulars ₹
To Materials A/c (Purchased) 1,00,000 By Materials at Site c/d 25,000
To Wages A/c 45,000 By Cost of Construction c/d 1,40,000
To Outstanding Wages A/c 5,000
To General Expenses A/c 10,000
To Depreciation on Plant A/c 5,000
1,65,000 1,65,000
To Cost of Construction b/d 1,40,000 By Work in Progress A/c
To Notional Profit c/d 80,000 - Value of Work Certified 2,00,000
- Escalation 5,000
- Cost of Uncertified Work 15,000
2,20,000 2,20,000
To Profit & Loss A/c 19,512 By Notional Profit b/d 80,000
To Work in Progress A/c
- Provision for Contingencies 60,488
80,000 80,000
Working Notes:
• Increase in Contract Price due to Escalation in the Prices of Materials and Labour Cost of
Materials and Labour incurred = 1,00,000 + 45,000 + 5,000 – 25,000
= ₹ 1,25,000
Increase in prices of Materials and Labour by 25%
So, Cost of Materials and Labour before increase in Prices
100
= 1,25,000 × = ₹ 1,00,000
125
Increase in Contract Price (beyond 5% increase)
25  105 
=   1, 25, 000  1, 00 , 000  
100  100 
25
= × (1,25,000 – 1,05,000) = ₹ 5,000
100

• Amount to be transferred to Profit & Loss A/c

1 1, 50 , 000
= × 80 , 000 × = ₹ 19,512
3 2, 05, 000

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 Methods of Costing
Contract Costing

5 June'23
M/s North West Limited undertook a contract for ₹5,00,000 on 1st January 2022. The company
furnishes the following details for the year ended 31st December 2022:
₹
Materials Consumed 1,65,000
Direct Expenses 5,000
Wages 30,000
Materials retured to stores 5,000
Materials stolen from site 10,000
Insurance claim admitted 6,000
Works expenses @ 20% on wages
Office expenses @ 10% on works cost
Materials in hand on 31.12.2022 15,000
Cash received to the extent of 90% of works certified 2,70,000
Cost to site of work costing uncertified 11,000
Plant sent to site costing ₹60,000 with a scrap value of ₹10,000 and its useful life is 5 years.. The
plant was used on the contract for 146 days.
You are required to:
Prepare Contract Account showing therein the cost of materials issued to site and the amount
of profit or loss to be transferred to the Profit & Loss Account. [8]

Contract A/c

Answer
Cost of Materials issued to site ₹ 1,95,000
Profit transferred to profit and loss A/c ₹ 48,000
Total of Contract A/c Dr./ Cr. ₹ 3,11,000

5.10 |CMA Inter Cost Accounting

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 Methods of Costing
Contract Costing

6 June'23 MTP Set 1

VAZIR LTD. undertook a contract for ₹ 5,00,000 on 1st January, 2022. The company furnishes the
following details for the year ended 31st December, 2022:
₹
Materials consumed 1,65,000
Direct Expenses 5,000
Wages 30,000
Materials returned to stores 5,000
Materials stolen from site 10,000
Insurance claim admitted 6,000
Works expenses @ 20% on wages
Office expenses @ 10% on works cost
Materials in hand on 31.12.2022 15,000
Cash received to the extent of 90% of works certified 2,70,000
Cost of work uncertified 11,000
A machine was sent to site costing ₹60,000 with a scrap value of ₹ 10,000 and its useful life is 5
years. The machine was used for the contract for 146 days.
You are required to make suitable calculations and prepare the Contract Account for the year
ended 31/12/2022 showing therein the cost of contract and also calculate the amount of profit
or loss to be transferred to the Profit & Loss Account. [7]

Contract A/c

Answer
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

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 Methods of Costing
Contract Costing

Dr. Contract Account for the year ended 31 Dec. 2022 Cr.
₹ ₹
To Materials issued to site 1,95,000 By Materials returned to stores 5,000
To Direct Expenses 5,000 By Insurance claim A/c (Loss of 6,000
Stock)
To Wages 30,000 By Profit and Loss A/c 4,000
To Works Expenses 20% of wages 6,000 By Materials in hand (Stolen 15,000
₹10,000 – ₹6.000)
To Office Expenses 10% of Works 21,000 By Cost of Contract Balancing 2,31,000
Cost (Note 1) Figure)
To Depreciation on Plant (Note 2) 4,000
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:
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
Depreciation 4,000
2,10,000

7 Dec'23
Mohit is a leading civil contractor who prepares his accounts on 31st March each year.
He commenced a Contract No. 225 on 1st July, 2022. The following information is revealed from
his costing records on 31st March, 2023:

5.12 |CMA Inter Cost Accounting

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 Methods of Costing
Contract Costing

Particulars (₹)
Materials Cost 3,85,000
Labour Cost 4,45,600
Foreman's salary 67,300
A machine costing ₹ 2,60,000 remained in use on site for two-fifth of the year. lts working life is
estimated at 7 years and final scrap value at ₹ 15,000.
A supervisor is paid ₹ 8,000 per month and has devoted one-half of his time on the contract. All
other expenses amount to ₹ 1,36,500. Materials at site on 31st March, 2023 cost ₹ 35,400,
The contract price is ₹ 20,00,000. On 31st March, 2023 two-third of the contract was completed,
however, the architect gave certificate only for 50% of the contract price and ₹ 7,50,000 had so
far been paid on account.
Required:
Prepare Contract Account and show the amount of profit to be credited to the Profit and Loss
Account. [7]

Contract Account

Answer
Contract Account (For the year ended 31st March, 2023)
Particulars ₹ Particulars ₹
To Materials Cost 3,85,000 By Materials at site 35,400
To Labour Cost 4,45,600 By Balance c/d 10,49,000
To Foreman's Salary 67,300
To Supervisor's Salary 36,000
To Depreciation on Machine 14,000
To Other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress: 12,62,250
To Notional Profit c/d 2,13,250
12,62,250 12,62,250
To Profit & Loss a/c 1,06,625 By Notional Profit b/d 2,13,250
To Work-in-Progress a/c 1,06,625
2,13,250 2,13,250

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 Methods of Costing
Contract Costing

8 MTP Jun’24 Set 1

A contractor has undertaken a construction work at a price of ₹ 5,00,000 and begun the
execution of work on 1st January 2023. The following are the particulars of the contract up to
31st December, 2023:
Amount Amount
Particulars
(₹) (₹)
Machinery 30,000 Overheads 8,252
Materials 1,70,698 Materials returned 1,098
Wages 1,48,750 Work certified 3,90,000
Direct expenses 6,334 Cash received 3,60,000
Uncertified work 9,000 Materials on 31.12.2022 3,766
Wages outstanding 5,380
Value of Machinery on 31.12.2022 22,000
It was decided that the profit made on the contract in the year should be arrived at by deducting
the cost of work certified from the total value of the architect’s certificate, that 1/3rd of the profit
so arrived at should be regarded as a provision against contingencies and that such provision
should be increased by taking to the credit of Profit & Loss Account only such portion of the
2/3rd profit, as the cash received to the work certified.
Prepare the contract account for the year and show the amount taken to the credit of the Profit
and Loss account. [7]

Contract A/c

Answer
Dr. Contract Account Cr.
Particulars (₹) Particulars (₹)
To Depreciation on Machinery 8,000 By Materials (Returned) A/c 1,098
A/c [WN-1]
By Materials at site c/d 3,766
To Materials A/c 1,70,698 By Cost of Construction c/d (Bal. 3,42,550
fig.)
To Wages A/c 1,48,750
To Outstanding Wages A/c 5,380

5.14 |CMA Inter Cost Accounting

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 Methods of Costing
Contract Costing

To Direct Expenses A/c 6,334

To Overheads A/c 8,252
3,47,414 3,47,414
To Cost of Construction b/d 3,42,550 By Work in Progress A/c
To Notional Profit c/d (Bal. fig.) 56,450 - Value of work certified 3,90,000
- Cost of uncertified work 9,000
3,99,000 3,99,000
To Profit & Loss A/c [WN-2] 34,738 By Notional Profit b/d 56,450
To Work in progress A/c
- Provision for Contingencies 21,712
(Bal. fig.)
56,450 56,450
Working Notes
Depreciation on Machinery = ₹30,000 - ₹ 22,000 = ₹ 8,000
Since, degree of completion is above 50% so amount transferred to Profit & Loss A/c
2 3, 60 , 000
= × 56 , 450 × = ₹ 34,738.
3 3, 90 , 000

9 Jun’24
MR. JOHN who prepares his accounts on 31st March each year, commenced a Contract No. A-26
on 1st July, 2022. The following information is revealed from his costing records on 31st March,
2023:
Particulars (₹)
Materials cost 2,51,000
Labour cost 5,65,600
Foreman’s salary 81,300
A machine costing ₹ 2,60,000 remained in use on site for two-fifth of the year. Its working life is
estimated at 7 years and final scrap value at ₹ 15,000.
A supervisor is paid ₹ 8,000 per month and has devoted one-half of his time on the contract.
All other expenses amount to ₹ 1,36,500. Materials at site on 31st March, 2023 cost ₹ 35,400.
The contract price is ₹ 20,00,000. On 31st March, 2023 two-third of the contract was completed,
however, the architect gave certificate only for 50% of the contract price and ₹ 7,50,000 had so
far been paid on account.

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 Methods of Costing
Contract Costing

Required:
Prepare Contract Account for the year ended on 31st March, 2023 showing the amount of
profit/loss to be transferred to the Profit and Loss Account. [7]

Contract Account

Answer
Contract Account
(For the year ended 31st March, 2023)
Dr. Cr.
Particulars ₹ Particulars ₹
To Materials Cost 2,51,000 By Materials at site 35,400
To Labour Cost 5,65,600 By Balance c/d (Total Cost) 10,49,000
To Foreman's Salary 81,300
To Supervisor's Salary 36,000
To Depreciation on Machine 14,000
To Other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress (Certified 12,62,250
and Uncertified)
To Notional Profit c/d 2,13,250
12,62,250 12,62,250
To Profit & Loss a/c 1,06,625 By Notional Profit b/d 2,13,250
To Work-in-Progress a/c (Reserve) 1,06,625
2,13,250 2,13,250

10  MTP Dec’24 Set 1

A company undertook a contract for construction of a large building complex. The construction
work commenced on 1st April, 2023 and the following data are available for the year ended
31st March, 2024.
Particulars (₹ ‘000)
Contract Price 35,000

5.16 |CMA Inter Cost Accounting

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 Methods of Costing
Contract Costing

Work Certified 20,000

Progress Payments Received 15,000
Materials Issued to Site 8,500
Planning & Estimating Costs 1,000
Direct Wages Paid 4,020
Materials Returned From Site 270
Plant Hire Charges 2,000
Wage Related Costs 500
Site office costs 650
Head Office Expenses apportioned 350
Direct Expenses incurred 1,000
Work Not Certified 150
The contractors own a plant which originally cost ₹30 lacs have been continuously in use in this
contract throughout the year. The residual value of the plant after 5 years of life is expected to
be ₹5 lacs. Straight line method of depreciation is in use.
As on 31st March, 2024 the direct wages due and payable amounted to ₹2,50,000 and the
materials at site were estimated at ₹5,00,000.
Required:
(i) Prepare the contract account for the year ended 31st March, 2024.
(ii) Calculate the profit to be taken to the profit and loss account of the year. [7]

Contract A/c

Answer
Dr. Contract Account for the year ended 31st March, 2024 Cr.
Amount Amount
Particulars Particulars
(₹ ‘000 ) (₹ ‘000 )
To Materials issued 8,500 By Materials returned 270
To Direct Wages paid 4,020 By Materials at Site 500
Add: Accrued 250 4,270 By W.I.P A/c
To Wages related 500 - Work certified 20,000
costs

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 Methods of Costing
Contract Costing

To Direct expenses 1,000 - Work uncertified 150 20,150

incurred
To planning & 1,000
Estimating Costs
To Plant Hire charges 2,000
To Site Office Costs 650
To Head Office 350
expenses
apportioned
To Depreciation on 500
plant (WN 1)
To Notional profit c/d 2,150
20,920 20,920
To Profit & Loss A/c 1,075 By Notional Profit b/d 2,150
(WN 2)
To Reserve c/d 1,075
2,150 2,150
Working Notes:
1. Calculation of Depreciation on plant:
Amount
(‘000 )
Original Cost of plant 3,000
Less: Residual Value 500
Chargeable cost of plant [a] 2,500
Life of the plant [b] 5 years
Annual Depreciation [a÷b] 500
2. Profit to be transferred to profit & loss Account:
% of Completion = Work Certified /Contract Price ×100
Since the completion of contract is greater than 50% but not greater than 90%, 2/3rd of the
Notional Profit in the ratio of Cash received to work certified will be transferred to profit &
Loss A/c.
= 2/3 × Notional profit× Cash received/Work Certified
= 2/3 × 2,150 × 15, 000/20,000 = 1,075.

5.18 |CMA Inter Cost Accounting

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 Methods of Costing
Process Costing

5.4
Process Costing

1 June'23 MTP Set 1

The following details are extracted from the cost records of MAGNACARTA LTD, an oil refining
factory for the year ended 31st March, 2022. Purchased 2000 tons of copra for ₹1,00,000 and
other expenses were as under:
Crushing (₹) Refining (₹) Finishing (₹)
Cost of Labour 10,000 6,000 4,000
Sundry Material 4,000 3,000 2,000
Electric Power 3,000 2,000 1,600
Steam 2,000 2,000 1,500
Repair of Machine 2,000 1,000 500
Cost of Casks — — 7,500
Factory Expenses were ₹ 10,000 to be apportioned on the basis of wages. 1700 tons of crude oil
was produced; 1540 tons of oil was refined and finally 1500 tons of oil was finished for delivery.
Realized ₹ 2,000 from sale of sacks; ₹ 5,000 by sale of 250 tons of copra residue and ₹ 5,100 by
sale of 120 tons of by-products in refining process.
Prepare Process Accounts for the year ending on 31st March, 2022. [8]

Process A/c

Answer
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

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 Methods of Costing
Process Costing

Materials 4,000 By Loss in Crushing

(Balancing Figure) 50 -
To Electric Power 3,000 By Transfer to Refining @ 1,700 1,19,000
₹ 70 per ton
To Steam 2,000
To Repairs of
Machines 2,000
To Factory
Expenses 5,000
2,000 1,26,000 2,000 1,26,000
Refining Process Account
Particulars Tons Amount ₹ Particulars Tons Amount ₹
To Crushing Process A/c 1,700 1,19,000 By Sale of by Products 120 5,100
To Labour 6,000 By Loss in Refining 40 -
Process (Balancing
Figure)
To Sundry Materials 3,000 -
To Electric Power 2,000 By Transfer to Finishing 1,540 1,30,900
@ ₹ 85 per ton
To Steam 2,000
To Repairs of Machines 1,000
To Factory Expenses 3,000
1,700 1,36,000 1,700 1,36,000
Finishing Process Account
Particulars Tons Amount ₹ Particulars Tons Amount ₹
To Refining Process A/c 1,540 1,30,900 By Loss in Finishing 40 -
(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 Materials 2,000
To Electric Power 1,600
To Steam 1,500
To Repairs of Machines 500
To Factory Expenses 2,000
1540 1,42,500 1,540 1,42,500

5.20 |CMA Inter Cost Accounting

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 Methods of Costing
Process Costing

To Cost of Production of 1,500 1,42,500 By Total Cost @ ₹ 100 per 1,500 1,50,000
Finished Oil Ton
To Cost of Casks 7,500
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.

2 June'23 MTP Set 2

From the following information compute Equivalent Production and prepare a statement of
apportionment of cost, and also prepare Process Account.

Work In Progress (Opening) 200 units @ ₹ 4 per unit 100% Material 40% Labour and
Overheads
Units introduced 1,050
Transfer to next process 1,100 units
Closing stock 150 units 100% Material
70% Labour and Overheads
The following information is also provided
Amount
(₹)
Material Cost 1,050
Labour 2,250
Production Overhead 1,125
Total Cost 4,425
[8]

WIP Valuation Average Method

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 Methods of Costing
Process Costing

Answer
Statement of Equivalent Production
Equivalent Production Units
Inputs Output
Material Labour Overhead
% % %
Items Units Items Units Com- Units Com- Units Com- Units
pletion pletion pletion
Op. WIP Units 200 Op. WIP 200 - - 60 120 60 120
Finished
Introduced 1,050 Goods 900 100 900 100 900 100 900
(Introduced &
Completed)
Cl. WIP 150 100 150 70 105 70 105
1,250 1,250 1,050 1,125 1,125
Transfer to Next Process = 1,100 units (given)
Work done on Op. WIP and Completed = 200 units
Work done on units introduced and completed (1,100 – 200) = 900 units
Statement of Cost per unit
Particulars Amount (₹) Equivalent Units Cost per unit (₹)
Material 1,050 1,050 1
Labour 2,250 1,125 2
Production Overhead 1,125 1,125 1
Valuation of Closing Stock
Particulars Units Cost per unit (₹) Total Cost (₹)
Material 150 1 150
Labour 105 2 210
Production Overhead 105 1 105
465
Process Account
Amount Amount
Particulars Units Rate Particulars Units Rate
(₹) (₹)
To Opening Stock 200 4 800 By Closing Stock 150 465 465
= 3.10
A/c A/c 150

To Material A/c 1,050 1 1,050

5.22 |CMA Inter Cost Accounting

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 Methods of Costing
Process Costing

To Labour A/c 2,250 By Finished Stock 1,100 4 , 760 4,760

= 4.33
A/c 1, 100

To Production 1,125
Overhead A/c
1,250 5,225 1,250 5,225

3 Dec'23 MTP Set 1

A product passes through two processes. The output of Process I becomes the input of Process
II and the output of Process II is transferred to warehouse. The quantity of raw materials
introduced into process I is 20,000 kgs. at ₹ 10 per kg. The cost and output data for the month
under review are as under:
Particulars Process I Process II
Direct materials ₹60,000 ₹ 40,000
Direct labour ₹40,000 ₹ 30,000
Production overheads ₹39,000 ₹40,250
Normal loss 8% 5%
Output 18,000 17,400
Loss realization of ₹/Unit 2.00 3.00
The company’s policy is to fix the selling price of the end product in such a way as to yield a
profit of 20% on selling price.
Required:
(i) Prepare the Process Accounts,
(ii) Determine the selling price per unit to the end product. [7]

Process A/c

Answer
Dr. Process I A/c Cr.
Amount Amount
Particulars Kgs. Rate (₹) Particulars Kgs. Rate (₹)
(₹) (₹)
To Raw 20,000 10.00 2,00,000 By Normal loss 1,600 2.00 3,200
materials

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 Methods of Costing
Process Costing

To Direct 60,000 By Abnormal 400 18.25 7.3000

materials loss
To Direct labour 40,000 By Transfer to 18,000 18.25 3,28,500
Process II
To Production 39,000
Overheads
20,000 3,39,000 20,000 3,39,000
Dr. Process II A/c Cr.
Amount Amount
Particulars Kgs. Rate (₹) Particulars Kgs. Rate (₹)
(₹) (₹)
To Raw materials 20,000 10.00 2,00,000 By Normal loss 1,600 2.00 3,200
To Process I A/c 18,000 18.25 3,28,5000 By Normal loss 900 3.00 2,700
To Direct 40,000 By Tr. to 17,400 25.50 4,43,700
materials Warehouse
To Direct labour 30,000
To Production 40,250
overhead
To Abnormal 300 25.50 7,650
gain
18,300 4,46,400 18,300 4,46,400

4 Dec'23 MTP Set 2

A company produces a product “M’ by three distinct processes before it is ready for sale. From
the information given below, work out the selling price of the product if the Management
decides to earn a profit of 20% over its works cost. Prepare the Process A/c for each process.
Process
Particulars
A B C
1 Input of raw materials @ 340 per kg. (kg) 10,000 - -
2 Normal loss of input 5% 5% 5%
3 Delivered to next process (kg) 9,000 8,000 -
4 Total direct labour cost %) 15,000 15,750 13,000
5 Variable overhead (%of direct labour) 150% 120% 100%
6 Fixed overhead (% of direct labour) 250% 180% 200%
7 Finished stock held back (kg) 400 400 -
[7]

5.24 |CMA Inter Cost Accounting

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 Methods of Costing
Process Costing

Process A/c Effect of Finished Stock

Answer
Process A Account
Particulars Kg. ₹ Particulars Kg. ₹
To Input of Raw Material 10,000 4,00,000 By Normal loss 500 -
To Direct Labour 15,000 By Abnormal loss 100 5,000
To Variable Overheads 22,500 By Transfer to Process B 9,000 4,50,000
To Fixed Overheads 3 7,500 By Closing Stock 400 20,000
10,000 4,75,000 10,000 4,75,000
Process B Account
Particulars Kg. ₹ Particulars Kg. ₹
To Transfer From 9,000 4,50,000 By Normal loss 450 -
Process A
To Direct Labour 15,750 By Abnormal loss 150 9,000
To Variable Overheads 18,900 By Transfer To Process C 8,000 4,80,000
To Fixed Overheads 28,350 By Closing Stock 400 24,000
9,000 5,13,000 9,000 5,13,000
Cost per kg = ₹ 5,13,000/8,550 kg = 60
Process C Account
Particulars Kg. ₹ Particulars Kg. ₹
To Transfer From Process 8,000 4,80,000 By Normal loss 400 -
B
To Direct Labour 13,000 By Transfer to Finished 7,600 5,32,000
Stock A/c
To Variable Overheads 13,000
To Fixed Overheads 26,000
8,000 5,32,000 8,000 5,32,000
Cost per kg. = ₹ 5,32,000/7,600 kg = ₹ 70
Selling Price = ₹ 70 × 120/100 = ₹ 84 per kg. (20% above Works Cost)

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 Methods of Costing
Process Costing

5 Dec'23 MTP Set 2

CBA Ltd., manufactures certain grades of products known as M, B1 and B2. In course of
manufacture of product M (main product), by-products - Bl and B2 emerge. The joint expenses
of manufacture amount to ₹ 2,37,600.
All the three products are processed further after separation and sold as per details given below:
(By Products)
Product - M Product - B1 Product - B2
Sales (₹) 2,00,000 1,20,000 80,000
Cost incurred after separation (%) 20,000 15,000 10,000
Profit as percentage on sales 25 20 15
Total fixed selling expenses are 10% of total cost of sales which are apportioned to the three
products in the ratio of 20:40:40.
Required:
(i) Prepare a statement showing the apportionment of joint costs to the products (M, B1 and
B2)
(ii) If the product B1 (by product) is not subject to further processing and is sold at the point of
separation, for which there is a market at ₹1,00,440 without incurring any selling expenses,
would you advise its disposal at this stage? Show the workings. [7]

Apportionment of Joint Cost Reverse Joint Cost Method

Answer
Statement of Apportionment of Joint Cost:

Total Product By-Products

Particulars
(₹) M (₹) B (₹) B (₹)
Sales 4,00,000 2,00,000 1,20,000 80,000
Less: Profit 86,000 50,000 24,000 12,000
Cost of Sales 3,14,000 1,50,000 96,000 68,000
Less: Selling & Distribution Expenses (10% of ₹ 31,400 6,280 12,560 12,560
3,14,000 in the Ratio 20 : 40 : 40)
Cost of Production 2,82,600 1,43,720 83,440 55,440

5.26 |CMA Inter Cost Accounting

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 Methods of Costing
Process Costing

Less: After separation Cost 45,000 20,000 15,000 10,000

Joint Cost 2,37,600 1,23,720 68,440 45,440
By product B1 earns ₹ 24,000 as profit after separation
Profit before separation = ₹ 1,00,440 – ₹ 68,440 = ₹ 32,000
If By product B1 is sold before further processing, then the profit of the by product may be
increased by ₹ (32,000 – 24,000) = ₹ 8,000.
Hence it is advisable to sell the product B1 at the point of separation.

6 June'23
M/s Golden Oil Refinery Ltd. (GORL) produces “Golden” brand oil which passes through three
different processes before getting finished oil. The following details are extracted from the
costing records of the company for the month of March,2023:
Crushing Refining Finishing
(₹) (₹) (₹)
Cost of Labour 5,000 3,000 2,000
Sundry Material 2,000 1,500 1,000
Electric Power 1,500 1,000 800
Steam 1,000 1,000 750
Repair of Machine 1,000 500 250
Cost of Cusks and Drums - - 3,750
M/s GORL purchased 1,000 tons of copra for ₹ 50,000. Factory overheads for the period were ₹
5,000 to be apportioned on the basis of wages. 850 tons of crude oil was produced; 770 tons of
oil was refined and finally 750 tons of oil was finished for delivery. Realised ₹ 1,000 from sale of
sacks; ₹ 2,500 by sale of 125 tons of copra residue and ₹ 2,550 by sale of 60 tons of by-refining
process.
Prepare Process Accounts for the month of March,2023. [7]

Process A/c

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Process Costing

Answer
Total of Crushing Process Account Dr. / Cr. ₹ 63,000
Transfer to Refining ₹ 59,500
Total of Refining Process Account Dr. / Cr. ₹ 68,000
Transfer to finishing ₹ 65,450
Cost of Production of Finishing Oil ₹ 71,250
Total Cost ₹ 75,000

7 Dec'23
“Super Bite” is a leading product in the confectionery market which is obtained after it has gone
through three distinct processes - X, Y and Z. The following information is obtained from cost
records of Super (India) Ltd. for the month of July, 2023:
Particulars Process X Process Y Process Z
Input of raw materials @ ₹ 30 per unit (units) 1,000 — —
Other materials (₹) 26,000 19,800 29,620
Direct wages (₹) 20,000 30,000 40,000
Normal loss of input 5% 10% 15%
Output (units) 950 840 750
Sale of scrap per unit (T) 20 40 50
Total overheads are ₹ 90,000 which are recovered at 100% of wages.
Prepare different Process Accounts of the firm for July 2023. [7]

Process A/c

Answer
Dr. Process X Account Cr.
Particulars Units ₹ Particulars Units ₹
To Input of raw 1,000 30,000 By Normal wastage 50 1,000
materials
To Other Materials 26,000 By Process Y A/c 950 95,000
To Direct Wages 20,000

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Process Costing

To Overheads 20,000
1,000 96,000 1,000 96,000
Dr. Process Y Account Cr.
Particulars Units ₹ Particulars Units ₹
To Process X A/c 950 95,000 By Normal Wastage 95 3,800
To Other materials 19,800 By Abnormal Wastage 15 3,000
To Direct wages 30,000 By Process Z A/c 840 1,68,000
To Overheads 30,000
950 1,74,800 950 1,74,800
Dr. Process Z Account Cr.
Particulars Units ₹ Particulars Units ₹
To Process Y A/c 840 1,68,000 By Normal Wastage 126 6,300
To Other materials 29,620 By Finished stock A/c 750 2,85,000
To Direct wages 40,000
To Overheads 40,000
To Abnormal gain 36 13,680
876 2,91,300 876 2,91,300

8 MTP Jun’24 Set 1

In manufacturing the main Product ‘A’, a company processes the resulting waste material into
two By-Products B and C. Using reversal cost method of By-Products, prepare a comparative
profit and loss statement of the three products from the following data:
(i) Total cost up to separation point was ₹ 68,000
A B C
(ii) Sales (all production) ₹ 1,64,000 ₹ 16,000 ₹ 24,000
(iii) Estimated net profit % to Sale Value - 20% 30%
(iv) Estimated Selling Expenses as % of Sales Value 20% 20% 20%
(v) Costs after separation - ₹ 4,800 ₹ 7,200
[7]

Apportionment of Joint Cost

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Answer
Allocation of Joint Cost to Product B and Product C
Product B (₹) Product C (₹)
Sales 16,000 24,000
Less: Profit 20% × 16,000 = 3,200 30% × 24,000 = 7,200
Total Cost 12,800 16,800
Less: Selling Expenses 20% × 16,000 = 3,200 20 % × 24,000 = 4,800
9,600 12,000
Less: Cost after Separation 4,800 7,200
Share in Joint Cost 4,800 4,800
∴ Share in Joint Cost of Product A = 68,000 – (4,800 + 4,800) = ₹ 58,400
Comparative Profit and Loss Statement
Product A Product B Product C Total
Particulars
(₹) (₹) (₹) (₹)
Sales (A) 1,64,000 16,000 24,000 2,04,000
Joint Cost 58,400 4,800 4,800 68,000
Cost After Separation - 4,800 7,200 12,000
Selling Expenses 32,800 3,200 4,800 40,800
Total Cost (B) 91,200 12,800 16,800 1,20,800
Profit (A – B) 72,800 3,200 7,200 83,200
Selling Expense of Product A = 20% × 1,64,000 = ₹ 32,800.

9 Jun’24
XYZ Ltd. processes 1,50,000 kg. of raw materials in a month to produce two products, viz. P and
Q.
The cost of raw material is ₹ 8 per kg.
The process costs per month are:

Direct Materials ₹ 3,50,000

Direct Wages ₹ 2,80,000
Variable Overheads ₹ 2,35,000
Fixed Overheads ₹ 1,45,000
The loss in process is 5% of input and the output ratio of P and Q which emerge simultaneously
is 1:2. The selling prices of the two products at the point of split off are: P - ₹ 12 per kg. and Q - ₹
20 per kg.

5.30 |CMA Inter Cost Accounting

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Process Costing

A proposal is available to further process the product P by mixing it with other purchased
materials. The entire current output of P can be processed further to obtain a new product ‘S’.
The price per kg. of ‘S’ is ₹ 15 and each kg. of output of ‘S’ will require 1 kg. of input P. The cost of
processing of P into ‘ S ’ (including other materials) is ₹ 1,85,000 per month.
Required:
Prepare a statement showing monthly profitability based both on the existing manufacturing
operations and on further processing. Will you recommend further processing?
Note: Apportionment of joint costs are made on sales value basis by the company. [7]

Approtionment of Joint Cost

Answer
Statement showing monthly profitability with and without further processing
Without Further Processing Further Processing P into S
Products P Q Total S Q Total
Sales Volume (kg) 47,500 95,000 1,42,500 47,500 95,000 1,42,500
Sales Value (₹) 5,70,000 19,00,000 24,70,000 7,12,500 19,00,000 26,12,500
Less: Joint Cost (₹) 5,10,000 17,00,000 22,10,000 6,95,000 17,00,000 23,95,000
Profit (₹) 60,000 2,00,000 2,60,000 17,500 2,00,000 2,17,500
Recommendation:
Total profit without further processing is ₹ 2,60,000 and with further processing is ₹ 2,17,500
only. Therefore, further processing of P into S is not recommended.

10  MTP Dec’24 Set 1

In manufacturing the main Product ‘A’, a company processes the resulting waste material into
two By-Products B and C. Prepare a comparative profit and loss statement of the three products,
using reversal cost method of By-Products from the following data:
(i) Total cost up to separation point was ₹68,000
A B C
(ii) Sales (all production) ₹ 1,64,000 ₹ 16,000 ₹ 24,000
(iii) Estimated net profit % to Sale Value - 20% 30%

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(iv) Estimated Selling Expenses as % of Sales Value 20% 20% 20%

(v) Costs after separation - ₹ 4,800 ₹ 7,200
[7]

Approtionment of Joint Cost

Answer
Allocation of Joint Cost to Product B and Product C
Product B (₹) Product C (₹)
Sales 16,000 24,000
Less: Profit 20% × 16,000 = 3,200 30% × 24,000 = 7,200
Total cost 12,800 16,800
Less: Selling Expense 20% × 16,000 = 3,200 20 % × 24,000 = 4,800
9,600 12,000
Less: Cost after separation 4,800 7,200
Share in Joint Cost 4,800 4,800
∴ Share in Joint Cost of Product A = 68,000 – (4,800 + 4,800) = ₹ 58,400
Comparative Profit and Loss Statement
Particulars Product A (₹) Product B (₹) Product C (₹) Total (₹)
Sales (A) 1,64,000 16,000 24,000 2,04,000
Joint Cost 58,400 4,800 4,800 68,000
Cost After Separation - 4,800 7,200 12,000
Selling Expenses 32,800 3,200 4,800 40,800
Total Cost (B) 91,200 12,800 16,800 1,20,800
Profit (A – B) 72,800 3,200 7,200 83,200
Selling Expense of Product A = 20% × 1,64,000 = ₹32,800.

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Operating Costing

5.5
Operating Costing

11 June'23 MTP Set 1

(i) There are two warehouses for storing finished goods produced in a factory. Warehouse ‘A’ is
at a distance of 10 kms. and Warehouse ‘B’ is at a distance of 15 kms from the factory. A fleet
of 5 tonne lorries is engaged in transporting the finished goods from the factory. The records
show that the lorries average a speed of 30 kms. per hour when running and regularly take
40 minutes to load at the factory. At warehouse ‘A’ unloading takes 30 minutes per load
while at warehouse ‘B’ it takes 20 minutes per load. Drivers’ Wages, depreciation, insurance
and taxes amount to ₹18 per hour operated. Fuel oil, tyres, repairs and maintenance cost
₹ 2.40 per kilometer.
Prepare a statement showing the cost per tonne kilometer of carrying the finished goods
to the two warehouses. [4]
(ii) Distinguish between absolute basis and commercial basis of calculating composite cost
unit. [3]

Statement Showing Cost Per Tonne

Kilometer, Absolute Basis Vs Commercial
Basis

Answer
(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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₹ ₹
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.

12 June'23 MTP Set 2

Janata Transport Co. has been given a route 20 km long for running buses. The company has a
fleet of 10 buses each costing ₹ 25,00,000 and having a life of 5 years without any scrap value.
From the following estimated expenditure and other details calculate the bus fare to be
charged from each passenger.

Insurance charges 3% p.a.

Annual tax for each bus ₹ 6,000
Total Garage charges ₹ 10,000 p.m.
Drivers’ salary for each bus per month ₹ 15,000 p.m.

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Operating Costing

Conductor’s Salary for each bus per month ₹ 10,000 p.m.

Annual repairs to each bus ₹ 12,000
Commission to be shared by the driver and conductor equally: 10% of the takings
Cost of stationery ₹ 1,500 p.m.
Manager’s salary ₹ 20,000 p.m.
Accountant’s salary ₹ 10,000 p.m.
Petrol and oil ₹ 400 per 100 km
Each bus will make 3 round trips carrying on an average 60 passengers on each trip. The bus will
run on an average for 25 days in a month. Assuming 15% profit on takings, calculate, the bus
fare to be charged from each passenger. [7]

Passenger Transport - Bus Service

Answer
Total Distance travelled by 10 bus per month
= (Distance of route one way × 2) × Number of trips per day × Number of days operating in the
month × Number of buses
= 20 × 2 × 3 × 25 × 10 = 30,000 km per month
Computation of Passenger-Km per month
= Total Distance Travelled by 10 bus per month × Number of passenger = 3,000 × 40
= 12,00,000 passenger – km per month
Computation of Total Cost for 10 bus per month
(Excluding Commission of Driver and Conductor)

Particulars ₹
Fixed or Standing Charges (Cost per month)
` 50 , 000 × 10 1
Depreciation × 8,333.33
5 years 12

` 50 , 000 × 10 × 3%
Insurance 1,250.00
12

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` 1, 000 × 10
Tax 833.33
12
Garage Charges 1,000.00
Salary of Drivers ₹ 150 × 10 1,500.00
Salary of Conductors ₹ 100 × 10 1,000.00
Cost of Stationery 500.00
Salary of Manager 2,000.00
Salary of Accountant 1,500.00
Maintenance Charges
` 1, 000 × 10
Repairs 833.34
12
Running Charges
30 , 000 km
Petrol and Oil × ₹ 25 7,500
100 km
26,250
Let the taking be ₹ X
Total Cost (Excluding Commission) + Commission + Profit = Takings
10 15
or, 26,250 + X+ X =X
100 100

75
or, X = 26,250
100

or, X = 35,00
∴ Takings = ₹ 35,000
Profit = 15% × 35,000 = ₹ 5,250
Commission of Driver and Conductor = 10% × 35,000 = ₹ 3,500
` 35, 000
∴ Fare per passenger – km = = ₹ 0.0292 ≈ ₹ 0.03
1, 20 , 000 passenger − km

5.36 |CMA Inter Cost Accounting

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Operating Costing

13 June'23
M/s Hotel Kings Highway has a capacity of 200 single rooms 50 double rooms. The average
occupancy of both single and double rooms is expected to be 80% throughout the year of 365
days. The rent for double room has been fixed at 150% of the rent of a single room . The costs
are as under:
Variable Costs :
Single Rooms ₹ 440 each per day
Double Rooms ₹ 700 each per day
Fixed Costs :
Single Rooms ₹ 240 each per day
Double Rooms ₹ 500 each per day
Calculate the rent chargeable for single and double rooms per day in such a way that the hotel
earns a margin of safety of 20% on rent of rooms.

Rent Chargeable

Answer
Rent per day per single room = ₹ 890.91
Rent per day per double room = ₹ 1,336.37

14 Dec'23 MTP Set 2

A transport service company is running five buses between two towns, which are 50 kilometers
apart. Seating capacity of each bus is 50 passengers. The following particulars are obtained
from their books for April 2022.
Amounts
Particulars
₹
Wage of drivers, conductors and cleaners 2,40,000
Salaries of office staff 1,00,000
Diesel oil and other oil 3,50,000
Repairs and maintenance 80,000

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Taxation, insurance etc. 1,60,000

Depreciation 2,60,000
Interest and other expenses 2,00,000
Total 13,90,000
Actually, passengers carried were 75% of seating capacity. All buses ran on all day of the month.
Each bus made one round trip per day.
Calculate out the cost per passenger kilo meter. [7]

Passenger Transport - Bus Service

Answer
Operating Cost Statement for the month of April 2022
Particulars Amounts Amounts
A. Standing Charges
Wages of drivers, conductors and cleaners 2,40,000
Salaries of office staff 1,00,000
Taxation, insurance etc. 1,60,000
Interest and other expenses 2,00,000
Depreciation 2,60,000
Total standing charges 9,60,000
B. Running and Maintenance Charges
Repairs and maintenance 80,000
Diesel oil and other oil 3,50,000
Total running and maintenance charges 4,30,000
C. Total cost [A + B] 13,90,000
D. Cost per passenger kilometre* ₹13,90,000 / 5,62,500 2471
passenger kilometers
Working:
* Passenger kilometers are computed as below:
= Number of buses × Distance in one round trip × Seating capacity available × Percentage of
seating capacity actually used × Number of days in a month × No. of trips
= 5 buses × 50 kilometers × 2 × 50 passengers × 75% × 30 days = 5,62,500 passenger-kms.

5.38 |CMA Inter Cost Accounting

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Operating Costing

15 Dec'23
Maxwell Hospital runs a Diabetic Care Centre (DCC) in a hired building. The DCC consists of 50
beds and 10 more beds can be added, if required in emergency. Further information regarding
DCC is as under:

Rent per month: ₹ 1,50,000

Supervisors: 2 persons @ ₹ 50,000 per month each
Nurses: 4 persons @ ₹ 30,000 per month each
Ward Boys: 4 persons @ ₹ 6,000 per month each
Doctors were paid ₹ 2,50,000 per month on the basis of number of patients attended and the
time spent by them.
Other expenses for the year are as follows:

Repairs (fixed): ₹ 90,000

Food to patients (variable): ₹ 8,80,000
Other services 1o patients (variable): ₹ 3,00,000
Laundry charges (variable): ₹ 6,00,000
Medicines (variable): ₹ 7,50,000
Other fixed expenses: ₹ 15,00,000
Administration expenses allocated: ₹ 12,00,000
It is estimated that for 150 days in a year, 50 beds are occupied and 40 beds are occupied for 80
days only.
The hospital hired 750 bed days at a charge of ₹ 100 per bed per day to accommodate the flow
of patients. However, this does not exceed more than 10 extra beds over and above the normal
capacity of 50 beds on any day.
The hospital recovers on an average ₹ 1,500 per day from each patient.
Required to calculate the following:
(i) Profit for the year.
(ii) Contribution per Patient Day.
(iii) Break Even Point (BEP) for the hospital.

Hospital Industry Break Even Point

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Operating Costing

Answer
(i) Profit for the year = ₹ 40,52,000
(ii) Contribution Per Patient Day = ₹ 1,010.48
(iii) Break Even Point (BEP) = 7,440 Patient Days

16  MTP Jun’24 Set 1

A transport service company is running five buses between two towns, which are 50 kilometers
apart. Seating capacity of each bus is 50 passengers. The following particulars are obtained
from their books for April 2023:
Amount
Particulars
(₹)
Wage of drivers, conductors and cleaners 2,40,000
Salaries of office staff 1,00,000
Diesel oil and other oil 3,50,000
Repairs and maintenance 80,000
Taxation, insurance etc. 1,60,000
Depreciation 2,60,000
Interest and other expenses 2,00,000
Total 13,90,000
Actually, passengers carried were 75% of seating capacity. All buses ran on all day of the month.
Each bus made one round trip per day. Calculate the cost per passenger kilometer. [7]

Passenger Transport - Bus Service

Answer
Operating Cost Statement for the month of April 2023
Amounts Amounts
Particulars
(₹) (₹)
A. Standing Charges
Wages of drivers, conductors and cleaners. 2,40,000
Salaries of office staff 1,00,000
Taxation, insurance etc. 1,60,000

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Operating Costing

Interest and other expenses 2,00,000

Depreciation 2,60,000
Total standing charges 9,60,000
B. Running and Maintenance Charges
Repairs and maintenance 80,000
Diesel oil and other oil 3,50,000
Total running and maintenance charges 4,30,000

C. Total cost [A+B] 13,90,000

D. Cost per passenger kilometre* ₹13,90,000/5,62,500 passenger 2.471
kilometers
Working:
* Passenger kilometers are computed as below:
= Number of buses × Distance in one round trip × Seating capacity available × Percentage of
seating capacity actually used × Number of days in a month × No. of trips
= 5 buses × 50 kilometers × 2 × 50 passengers × 75% × 30 days
= 5,62,500 passenger-kms

17  Jun’24
ACODA Ltd. runs a holiday home in a small hill station. It has three types of suites for its
customers with a capacity of 200 single rooms, 100 double rooms and 60 triple rooms. The
average occupancy of single, double and triple rooms is expected to be 80%, 80% and 60%
respectively. The rent for double room has been fixed at 125% and for triple room 150% of the
rent of a single room. The costs are as under:

Variable costs: Single rooms ₹ 220 each per day

Double rooms ₹ 340 each per day
Triple rooms ₹ 400 each per day
Fixed costs: Single rooms ₹ 120 each per day
Double rooms ₹ 240 each per day
Triple ₹ 320 each per day
The holiday home runs throughout the year of 365 days and earns a margin of 20% on rent of
rooms.
Required:
Calculate the rent to be charged for each type of suite (room). [7]

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Operating Costing

Hotel Industry

Answer
Room Rent to be Charged:
Rent per day per Single Room = ₹ 504.46 or ₹ 504
Rent per day per Double Room = ₹ 630
Rent per day per Triple Room = ₹ 756
Alternative:
Rent per day per Single Room = ₹ 573.25 or ₹ 573
Rent per day per Double Room = ₹ 716
Rent per day per Triple Room = ₹ 860

18  MTP Dec’24 Set 1

Mr. Nikhil started transport business with a fleet of 10 taxis. The various expenses incurred by
him are given below:
(A) Cost of each taxi ₹ 1,20,000
(B) Salary of office staff ₹ 6,500 p.m.
(C) Salary of garage staff ₹ 3,500 p.m.
(D) Rent of garage ₹ 10,000 p.m.
(E) Driver’s salary per taxi ₹ 5,000 p.m.
(F) Road tax and repairs per taxi ₹ 30,000 p.a.
(G) Insurance premium @ 5% of cost p.a.
The life of a taxi is 3,00,000 Km. and at the end of which it is estimated to be sold at ₹30,000. A
taxi runs on an average of 5,000 km. per month of which 20% it runs empty. Petrol consumption
is 10 Km. per liters of petrol costing ₹70 per liters. Oil and other sundry expenses amount to ₹50
per 100 Km.
Calculate the effective cost of running a taxi per Km. If the hire charge is ₹15 per Km, determine
the profit Mr. Nikhil may expect to make in the first year of operation. [7]

5.42 |CMA Inter Cost Accounting

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Operating Costing

Passenger Transport - Bus service

Answer
Operating Cost Sheet:
Particulars Workings Per month Per Km (₹)
Fixed costs per taxi:
1. Salary of Office staff [6,500 ÷ 10] 650
2. Salary of garage staff [3,500 ÷ 10] 350
3. Garage rent [10,000 ÷ 10] 1,000
4. Driver’s Salary 5,000
5. Road tax and repairs [30,000 ÷ 12] 2,500
6. Insurance [ (5% on 1,20,000) ÷ 12] 500
Fixed cost per taxi 10,000
Fixed cost per effective Km [10,000 ÷ 4,000(W.N 1)] 2.50
Variable costs:
1. Depreciation (1,20,000 - 0.375
30,000)/2,40,000 [W.N 2]
2. Petrol per month Per effective Km. (70 × 5,000)/10 = ₹ 35,000 8.75
₹ 35,000 ÷ 4,000 Km
3. Oil and other sundries per month [50 × 5,000/100] = ₹ 2,500 0.625
Per effective Km. ₹ 2,500 ÷ 4,000 Km
Operating cost per effective Km.
12.25
Calculation of profit in First Year:
Amount
Particulars
(₹)
Hire Charges per Km. 15.00
Operating cost effective per Km 12.25
Profit per effective km 2.75
Profit for one year (4,80,000 km [W.N 3] @ 2.75 per km) = ₹ 13,20,000 Working Notes:
1. Effective Km. per month = 5,000 – 20% of 5000 = 4,000 km

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2. Effective Km of life of a taxi = [3,00,000 – 20% of 3,00,000] = 2,40,000 km

3. Effective km for first year of operation for all the 10 taxis = 4,000 × 12 × 10 = 4,80,000 km

5.44 |CMA Inter Cost Accounting

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 Cost Accounting Techniques


Chapter 6
Cost Accounting Techniques

6.1 Marginal Costing

6.2 Standard Costing

6.3 Budget and Budgetary Control

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 Cost Accounting Techniques
Marginal Costing

6.1
Marginal Costing

1 June'23 MTP Set 1

Lurvey Men’s Clothing’s revenues and cost data for 2022 are as follows:
Particulars ₹ ₹
Revenues 6,00,000
Cost of goods sold 3,00,000
Gross margin 3,00,000
Operating costs:
Salaries (fixed) 1,70,000
Sales commissions (10% of sales) 60,000
Depreciation of equipment and fixtures 20,000
Store rent (4,500 per month) 54,000
Other operating costs 45,000 3,49,000
Operating income (loss) -49,000
Mr. Lurvey, the owner of the store, is unhappy with the operating results. An analysis of other
operating costs reveals that it includes ₹ 30,000 variable costs, which vary with sales volume,
and ₹ 15,000 (fixed) costs. Mr. Lurvey approaches you as a qualified cost accountant and asks
you to
(i) Critically assess the contribution margin of Lurvey Men’s Clothing.
(ii) Evaluate the contribution margin percentage.
(iii) Mr. Lurvey estimates that he can increase revenues by 15% by incurring additional advertis-
ing costs of ₹13,000. Assess the impact of the additional advertising costs on operating
income [7]

Contribution Margin, Evaluation of

Additional Advertising

6.2 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

Answer
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 = 2,10,000 / 6,00,000 = 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 ₹ ₹
Revenues (115% × 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 20,000
fixtures
Store rent 54,000
Advertising 13,000
Other operating costs:
Variable (30,000 × 6,90,000) ÷ 6,00,000 34,500
Fixed 15,000 3,75,500
Operating income 30,500

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Marginal Costing

2 June'23 MTP Set 1

The following particulars are extracted from the records of a company.
Per Unit
Particulars
Product A Product B
Sales ₹ 100 ₹ 120
Consumption Of Material 2 Kg 3 Kg
Material Cost ₹ 10 ₹ 15
Direct Wages Cost ₹ 15 ₹ 10
Direct Expenses ₹5 ₹6
Machine Hours Used 3 hours 2 hours
Overhead Expenses
Fixed ₹5 ₹ 10
Variable Direct Wages per hour ₹ 5 ₹ 15 ₹ 20
(i) You as a Cost Accountant is required to comment on profitability of each product, both of
which use the same raw material in the following alternative situations:
(a) Total sales potential in units is limited;
(b) Total sales potential in value is limited;
(c) Raw material is in short supply;
(d) Production capacity (in terms of machine hours) is the limiting factor
(ii) Assuming raw material as the key factor, availability of which is 10,000 kgs and each
product cannot be sold more than 3,500 units, advise on the product mix which will yield
the maximum profit. [8]

Key Factor

Answer
(i) Production Budget
Product A B
Sales 2000 1500
Opening Stock (100) (200)
Closing Stock (10% × Sales level) 200 150
2100 1450

6.4 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

(ii) Material Usage Budget

Material Type X Y
(2100 x2) + (1450 × 3) 8550
2100 x1) + (1450 × 4) 7900
(iii) Material Purchases Budget
Product X Y
Material Usage Budget 8550 7900
Opening Stock (300) (1000)
Closing Stock a 850 800
9100 × ₹10 = ₹ 91,000 1450 × ₹= ₹ 53,900
(iv) Labour Budget
Material Type X Y
(2100 x4) + (1450 × 2) 11,300
2100 x2) + (1450 × 5) 11,450
11,300 × ₹12 850 800
11,450 × ₹ 8 ₹ 1,35,600 ₹ 91,600
Note:
* Material Closing Stock
Material X (2000 × 2 + 1500 × 3) × 10% = 850
Material Y (2000 × 1 + 1500 × 4) × 10% = 850

3 June'23 MTP Set 2

VAZIR LLP. produces a single product called the ‘Checkmate’. The following figures relate to the
‘Checkmate’ for the period: 2021 - 2022.
Activity Level 50% 100%
Sales and production(units) 400 800
₹ ₹
Sales 8,00,000 16,00,000
Production costs:
- Variable 3,20,000 6,40,000
- Fixed 1,60,000 1,60,000
Selling and distribution costs:
- Variable 1,60,000 3,20,000
- Fixed 2,40,000 2,40,000

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Marginal Costing

The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout
the year, and actual fixed costs are the same as budgeted.
There were no stocks of The Checkmate at the beginning of the year.
In the first quarter 220 units were produced and160 units were sold.
You are required to advice the management on the following issues:
(i) Fixed production costs absorbed by The Checkmate if absorption costing is followed.
(ii) Under/over-recovery of overheads during the period.
(iii) Profit as per absorption costing.
(iv) Profit as per marginal costing. [7]

Profit as per Absorption and Marginal

Costing

Answer
Fixed production costs absorbed
Particulars ₹
Budgeted fixed production costs 1,60,000
Budgeted output (normal level of activity 800 units)
Therefore, the absorption rate : 1,60,000/800 = ₹200 per unit
During the first quarter, the fixed production cost absorbed by Boost Would be 44,000
(220 units × ₹200)
Under / over recovery of overheads during the period
Particulars ₹
Actual fixed production overhead (1/4 of ₹1,60,000) 40,000
Absorbed fixed production overhead 44,000
Over-recovery of overheads 4,000

Particulars ₹ ₹
Sales revenue (160 units × ₹2,000) : (A) 3,20,000
Less : Production costs:
- Variable cost (220 units × ₹ 800) 1,76,000
- Fixed overheads absorbed (220units × ₹ 200) 44,000 2,20,000

6.6 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

Profit for the Quarter (Absorption Costing)

Particulars ₹ ₹
Add :Opening Stock –
Less: Closing Stock ( ₹ 2,20,000/220 units × 60 units) (60,000)
Cost of Goods sold 1,60,000
Less: Adjustment forever-absorption of fixed production overheads (4,000)
Less: Selling & Distribution Overheads:
-Variable (160 units× ₹ 400) 64,000
- Fixed (1/4th of ₹ 2,40,000) 60,000 1,24,000
Cost of Sales (B) 2,80,000
Profit {(A) – (B)} 40,000
Profit for the Quarter (Marginal Costing)
Particulars ₹ ₹
Sales revenue (160 units × ₹ 2,000):(A) 3,20,000
Less: Production costs:
-Variable cost (220 units × ₹ 800) 1,76,000
Add: Opening Stock –
Less: Closing Stock (₹ 1,76,000/220 units × 60 units) (48,000)
Variable cost of goods sold 1,28,000
Add: Selling & Distribution Overheads:
-Variable (160 units × ₹ 400) 64,000
Total Variable Cost (B) 1,92,000
Contribution {(C) = (A) – (B)} 1,28,000
Less: Fixed Costs:
- Production cost (40,000)
- Selling & distribution cost (60,000) (1,00,000)
Profit 28,000

4 Dec'23 MTP Set 1

The Chief Cost Accountant of a company running an orchard with an adequate supply of labour,
presents the following data and request you to advise about the area to be allotted for the
cultivation of various types of fruits, which would result in maximization of profits.
The company contemplates growing Apples, Lemons, Oranges and Peaches:

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Particulars Apples Lemons Oranges Peaches

Selling Price per box (₹) 15 15 30 45
Season yield in boxes per acre 500 150 100 200
Costs: ₹ ₹ ₹ ₹
Material per acre 270 105 90 150
Labour: Growing per acre 300 225 150 195
Picking and Packing per box 1.50 1.50 3 4.50
Transport per box 3 3 1.50 4.50
The Total Fixed Costs in each season would be ₹ 2,10,000
The following limitations are also placed before you:
(i) The area available is 450 acres but not of this, 300 acres are suitable for growing only
oranges and lemons. The balance of 150 acres is suitable for growing any of the four fruits.
(ii) The marketing strategy of the company requires the compulsory production of all the four
types of fruits in a season and the minimum quantity of any one type to be 18,000 boxes.
Calculate the total profit that would accrue if your advice is followed. [14]

Key Factor

Answer
Statement Showing Contribution per Acre
Particulars Apples Lemons Oranges Peaches
Selling Price per box (₹) 15 15 30 45
Season yield in boxed per acre 500 150 100 200
Sales Value per acre (A) (₹) 7500 2250 3000 9000
Material Cost per acre (₹) 270 105 90 150
Labour: Growing per acre (₹) 300 225 150 195
Picking, Packing and Transport per acre (₹)
500 × 4.50 2,250
150 × 4.50 675
100 × 4.50 450
200 × 9 1,800
Variable Cost per acre (₹) (B) 2,820 1,005 69 2,145

6.8 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

Contribution per acre (A)-(B)(₹) 4,680 1,245 2,310 6,800

Preference according to Contribution per acre II IV III I
Since the minimum quantity of production of each type is 18,000 boxes and all the four types of
fruits have to produced, the minimum acreage to be allocated to each fruit would be as follows:
Apples = 18,000/500 = 36 acres
Lemons = 18,000/150 = 120 acres
Oranges = 18,000/100 = 180 acres
Peaches = 18,000/200 = 90 acres
Total = 426 acres
Lemons and oranges requires 300 acres total to produce. Moreover, 300 acres of land is suitable
only for these two products, hence 300 acres would be used to produce only these products.
The balance of 24 acres (i.e. 450-426) is available for production of any of the fruits. Since the
peaches give the highest contribution per acre and hence they should be preferred to allocation
of 24 acres. The total acreage for peaches would therefore be 90 + 24 = 114 acres.
Statement of Profit
Particulars Apples Lemons Oranges Peaches Total
Area(acres) 36 120 180 114 450
Contribution per acre (₹) 4,680 1,245 2,310 6,855
Total Contribution (₹) 1,68,480 1,49,400 4,15,800 7,81,470 15,15,150
Less: Fixed Cost (₹) 2,10,000
Total Profit (₹) 13,05,150

5 Dec'23 MTP Set 2

The Dynamic company has three divisions. Each of which makes a different product. The
budgeted data for the coming year are as follows:
Division Division B Division
Particulars
(₹) (₹) (₹)
Sales 1,12,000 56,000 84,000
Direct Material 14,000 7,000 14,000
Direct Labour 5,600 7,000 22,400
Direct Expenses 14,000 7,000 28,000
Fixed Cost 28,000 14,000 28,000
Total Cost 61,600 35,000 92,400

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Marginal Costing

The management is considering to close down the Division C. There is no possibility of reducing
fixed cost.
Analyse whether or not Division C should be closed down. [14]

Discontinue a division

Answer
Statement showing computation of profit before closing down Division C
Sl Division A Division B Division C Total
Particulars
No. (₹) (₹) (₹) (₹)
(i) Sales 1,12,000 56,000 84,000 2,52,000
(ii) Variable Cost Direct
Material Direct 14,000 7,000 14,000 35,000
Labour Direct 5,600 7,000 22,400 35,000
Expenses 14,000 7,000 28,000 49,000
(iii) Total Variable Cost 33,600 21,000 64,400 1,19,000
(iv) Contribution (i – iii) 78,400 35,000 19,600 1,33,000
(v) Fixed Cost 28,000 14,000 28,000 70,000
(vi) Profit (iv – v) 63,000
Statement showing computation of profit closing down Division C
Sl Division A Division B Total
Particulars
No. (₹) (₹) (₹)
(i) Sales 1,12,000 56,000 1,68,000
(ii) Variable Cost Direct
Material Direct 14,000 7,000 21,000
Labour Direct 5,600 7,000 12,600
Expenses 14,000 7,000 21,000
(iii) Total Variable Cost 33,600 21,000 54,600
(iv) Contribution (i. —iii.) 78,400 35,000 1,13,400
(v) Fixed Cost 70,000
(vi) Profit (iv. —v) 43,400
If Division C is closed down then there is a reduction in the overall profit by ₹ 19,600 (63,000
– 43,400). Since, there is no possibility of reducing the fixed cost of Division C, so as long as if
there is a contribution of 2 1 from division C, it should not be closed down.

6.10 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Cost Accounting Techniques
Marginal Costing

6 June'23
M/s Alpha Ltd. manufactures a single product and has the following data for the year 2022:

Selling price per unit ₹ 200

Direct material cost per unit ₹ 54
Direct wages per unit ₹40
Fixed overheads ₹ 1,90,000
Variable overheads 50% of direct wages
Trade discount 5%
M/s Alpha Ltd. approaches you as a qualified Cost accountant and asks you to:
1. Advise the Profit Volume Ratio of the company
2. Critically assess the Break-even sales (in units and in ₹)
3. Evaluate the Margin of Safety (in ₹ and as % of sales).
4. Recommend the Net profif sales are 10% and 20% above the Break-even Volume.

PV Ratio, BES, MOS

Answer
1. Profit/Volume Ratio = 40%
2. Break Even-Sales (in units) = 2,500 units
Break-Even Sales (in %) = ₹ 4,75,000
3. Margin of Safety (in value) = ₹ 47,500 and ₹ 95,000
Margin of Safety (as % of sale) = 9.09% and 16.67%
4. Net Profit = ₹ 19,000 and ₹ 38,000

7 June'23
Mr. Lurvey is an umbrella manufacturer and marks an average Net Profit of ₹ 5 per piece on a
selling price of ₹ 28.60 by producing and selling 12,000 pieces or 60% of the capacity. Fffs cost
of sales is -

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Marginal Costing

Particulars ₹
Direct material 7.00
Direct wages 2.50
Works overheads (50% fixed) 12.50
Sales overheads (25% variable) 1.60
During the current year, he intends to produce the same number but anticipates that fixed
charges will go up by 10% while direct labour rate and material will increase by 8% and 6%
respectively but he has no option of increasing the selling price.
Under this situation, he obtains an offer for further 20% of the capacity. Mr. Lurvey approaches
you as a cost accountant and asks you to ADVISE the minimum price per unit for acceptance
the offer if he wants to ensure an overall profit of ₹ 70,000.

Minimum Price

Answer
Minimum price per units for the offer = ₹ 23.365

8 Dec'23
New Vistas Ltd. is manufacturing three household products X, Y and Z and selling them in
competitive market. The following details regarding current demand, selling price and cost
structure are extracted from the records of the company for the year ending March, 2023:
Particulars X Y Z
Epected demand (units) 20,000 24,000 40,000
Selling price per unit (₹) 40 32 20
Variable cost per unit (₹):
Direct materials (₹ 20/kg.) 12 8 4
Direct labour (₹ 30/hr.) 6 6 3
Variable overheads 4 2 2
Fixed overheads per unit (%) 10 8 4
The company is [requently affected by acute scarcity of raw material and high labour turnover.
During the next year, il is expected to have one of the following situations:
(a) Raw materials available will be only 24,200 kg.
(b) Direct labour hours available will be only 10,000 hours.

6.12 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

Calculate Net Profit of the company in each of the above situations. [14]

Limiting Factor

Answer
Situation (a):
Net Profit = ₹ 4,70,000
Situation (b):
Net Profit = ₹ 4,08,000

9 MTP Jun’24 Set 1

S Ltd. furnishes you the following information relating to the half year ended 30th June, 2023:
Fixed Expenses ₹ 45,000
Sales Value ₹ 1,50,000
Profit ₹ 30,000
During the second half of the year the company has projected a loss of ₹ 10,000.
Calculate:
(i) The Break Even Sales and Margin of Safety for the six months ending 30th June, 2023.
(ii) Expected sales volume for the second half of the year assuming that the P/V Ratio and
Fixed expenses re- main constant in the second half year also.
(iii) The Break Even Sales and Margin of Safety for the whole year 2023. [14]

BES, MOS, PVR, Fixed Expenses

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Marginal Costing

Answer
Contribution Fixed Cost + Profit 45, 000  30 , 000
(i) P/V Ratio =  100   100   100  50%
Sales Sales 1, 50 , 000
Fixed Cost 45, 000
Break Even Sales for the six months ending 30th June, 2023 = =
P/V Ratio 50%
= ₹ 90,000
Margin of Safety for the six months ending 30th June, 2023 = Sales – Break Even Sales
= 1,50,000 – 90,000
= ₹ 60,000.
(ii) Income Statement for the second half of the year 2023
Particulars Workings (₹)
Contribution 35, 000
Sales Sales = = 70,000
P/V Ratio 50%
Less: Variable Cost Bal. fig. or Sales × (1 – P/V Ratio) 35,000
Contribution Fixed Cost – Loss = 45,000 – 10,000 35,000
Less: Fixed Cost 45,000
Loss 10,000
Step 1 – Calculation of Contribution = Fixed Cost – Loss = 45,000 – 10,000 = ₹ 35,000
Step 2 – Calculation of Sales
Step 3 – Calculation of Variable Cost
Fixed Cost for the year 45, 000  45, 000
(iii) Break Even Sales for the year 2023 = 
P/V Ratio 50%
= ₹ 1,80,000
Margin of Safety for the year 2023 = Sales for year – Break Even Sales
= (1,50,000 + 70,000) – 1,80,000
= ₹ 40,000

10  Jun’24
Aristocrat Ltd. while operating at 70% level of activity produces and sells two products A and B.
The cost and sales data of these two products are as under:

6.14 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

(₹ per unit)
Product A Product B
Units Produced and Sold 3,000 2,000
Direct Materials 10 20
Direct Labour 20 20
Factory Overheads (40% fixed) 25 15
Administration & Selling Overheads (60% fixed) 40 25
Total Cost per unit 95 80
Selling Price per unit 115 95
Factory overheads are absorbed on the basis of machine hour which is the limiting factor. The
machine hour rate is ₹ 10 per hour.
Aristocrat Ltd. receives an offer from USA for the purchase of product A at a price of ₹ 87.50 per
unit. Alternatively, the company has another offer from UK for the purchase of product B at a
price of ₹ 77.50 per unit. In both the cases, a special packing charge of ₹ 2.50 per unit has to be
borne by the company. The company can accept either of the two export orders by utilising the
balance 30% of its capacity.
Examine and advise the company as to which proposal should be accepted showing total
profit in your support after incorporating the export proposal suggested by you. [14]

Export Orders

Answer
Statement of Profitability
₹ ₹
Contribution:
Local sales -A 1,62,000
-B 72,000
Export sales - B 48,000
Total Contribution 2,82,000
Fixed Cost 1,44,000
Net Profit 1,38,000
Advise: The company should accept offer received from UK and export 3,000 units resulting
net profit of ₹ 1,38,000.

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Marginal Costing

11 Postal Test Paper

A company is at present working at 90% of its capacity and producing 13,500 units per annum.
It operates a flexible budgetary control system. The following figures are obtained from its
budget:
90% 100%
Amount (₹) Amount (₹)
Sales 15,00,000 16,00,000
Fixed expenses 3,00,500 3,00,600
Semi-fixed expenses 97,500 1,00,500
Variable expenses 1,45,000 1,49,500
Units made 13,500 15,000
Labour and material costs per unit are constant under present conditions. Profit margin is 10%.
(A) You are required to determine the differential cost of producing 1,500 units by increasing
capacity to 100%.
(B) What would you recommend for an export price for these 1,500 units taking into account
that overseas prices are much lower than indigenous prices? [7]

Differential Cost & Export Offer

Answer
Computation of Material and Labour cost
Amount Amount
Particulars
(₹) (₹)
Sales at present 15,00,000
Less: Profit @ 10% 1,50,000
Total Cost 13,50,000
Less: All costs other than material and labour
Fixed expenses 3,00,500
Semi fixed expenses 97,500
Variable expenses 1,45,000
Material and Labour Cost
(a) Statement showing differential cost of producing 1,500 units

6.16 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

Amount
Particulars
(₹)

1, 500 units 
Material and Labour Cost =  ` 8 , 07, 000   ₹ 89,667
 13, 500 units 
Fixed expenses (3,00,600 – 3,00,500) 100
Semi-fixed expenses (1,00,500 – 97,500) 3,000
Variable expenses (1,49,500 – 1,45,000) 4,500
Differential cost 97,267
` 97, 267
(b) Differential cost per unit = = ₹ 64.84
1, 500 units
The minimum price for these 1,500 units should not be less than ₹ 64.84 for export.

12 Postal Test Paper

An umbrella manufacturer marks an average net profit of ₹ 2.50 per piece on a selling price of
₹14.30 by producing and selling 6,000 pieces or 60% of the capacity.
Amount
(₹)
His cost of sales is:
Direct material 3.50
Direct wages 1.25
Works overhead (50% fixed) 6.25
Sales overhead (25% variable) 0.80
During the current year, he intends to produce the same number but anticipates that fixed
charges will go up by 10% which direct labour rate and material will increase by 8% and 6%
respectively but he has no option of increasing the selling price. Under this situation, he obtains
an offer for further 20% of the capacity.
What minimum price you will recommend for acceptance to ensure the manufacturer an
overall profit of ₹ 16,730. [8]

Minimum Price

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Marginal Costing

Answer
Statement showing present and anticipated cost structure
Present Cost Anticipated Cost
Particulars Workings
Structure (₹) Structure (₹)
Variable Cost per unit
Material 3.50 3.50 × 106% 3.71
Labour 1.25 1.25 × 108% 1.35
Works overhead (50% × 6.25) 3.125 3.125
Sales overhead (25% × 0.80) 0.20 0.20
Total Variable Cost per unit 8.075 8.385
Fixed Cost
Works overhead (50% × 6.25 × 6,000) 18,750 18,750 × 110% 20,625
Sales overhead (75% × 0.80 × 6,000) 3,600 3,600 × 110% 3,960
Total Fixed Cost 22,350 24,585
Computation of Profit at Present at an anticipated Cost Structure
6,000 units
Particulars
Workings (₹)
Sales 6,000 × 14.30 85,800
Less: Variable Cost 6,000 × 8.385 50,310
Contribution 35,490
Fixed Cost 24,585
Profit 10,905
Computation of Minimum Selling Price per unit from additional 2,000 units so as to get
an overall profit of ₹ 16,730
Particulars Workings (₹)
Variable Cost to recover from 2,000 units 2,000 × 8.385 16,770
Balance amount of Profit to recover 16,730 – 10,905 5,825
Minimum Sales Value for 2,000 units 22,595
` 22, 595
Expected Selling Price per unit = = ₹ 11.2975 or ₹ 11.30
2, 000 units

6.18 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Marginal Costing

13 Postal Test Paper

Mr. Young has ₹ 1,50,000 investment in a business. He wants a 15% profit on his money. From
an analysis of recent cost figures, he finds that his variable cost of operating is 60% of sales; his
fixed costs are ₹ 75,000 per year. Show supporting computations for each Solution:
(a) What sales volume must be obtained to break even?
(b) What sales volume must be obtained to his 15% return of investment?
(c) Mr. Young estimates that even if he closed the doors of his business, he would incur ₹25,000
expenses per year. At what sales would be better off by locking his sales up? [6]

Break Even, Sales to earn profit, Shut

Down Point

Answer
Variable Cost Ratio = 60% (given)
P/V Ratio = 1 – Variable Cost Ratio = 1 – 60% = 40%
Fixed Cost 75, 000
(a) Break Even Point (in ₹) = = = ₹ 1,87,500
P/V Ratio 40%
(b) Desired Profit = 1,50,000 × 15% = ₹ 22,500
Fixed Cost + Desired Profit 75, 000  22, 500
Expected Sales =  = ₹ 2,43,750
P/V Ratio 40%
Fixed Cost  Shut Down Cost 75, 000  25, 000
(c) Shut Down Sales =  = ₹ 1,25,000
P/V Ratio 40%

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Standard Costing and Variance Analysis

6.2
Standard Costing and Variance Analysis

1 June'23 MTP Set 1

Mr. Hardik, the owner of Trident Ltd. provides the following information regarding the
production process of a particular fountain pen called the Magneye. After careful consideration
he has noted that a group of workers usually consists of 10 skilled, 5 semi-skilled and 5 unskilled
workers, paid at standard hourly rates of ₹ 50.00, ₹ 32.00 and ₹ 28.00 respectively. In a normal
working week of 40 hours, the group is expected to produce 1,000 units of Magneye.
During March 2023, adjustments were to be made to the actual composition of the group, due
to non-availability of labour and actually consisted of 13 skilled, 4 semi-skilled and 3 unskilled
employees; actual wages paid were ₹ 48.00, ₹ 34.00 and ₹ 26.00 respectively.
Two hours were lost due to abnormal idle time and 960 units of Magneye were produced.
Mr Hardik is worried about the variances in labour cost and asks you as a Cost Accountant to
analyse the labour cost variances. [7]

Labour Cost Variances

Answer
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 works (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

6.20 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Unskilled – 3 workers × 40 hrs × 2.80 per hour = 336 = 3448

C. Actual hour paid (in actual 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  10  5.00 per hr  4  3.20 per hr  3  2.60 per hr 
 960 units = 3,072
1, 000 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)
Labour efficiency variance = (Actual hour 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)
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)

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Labour yield variance

= (Actual yield or output – Standard yield or output for actual input) × Standard cost per units
= D – E = 32 (F)
Reconciliation
Labour Cost Variance
280 (A)

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

Labour mix variance Labour yield variance

248 (A) 32 (F)

2 June'23 MTP Set 2

The following are extracts from the cost records of Milano Inc. which follows a standard cost
system. The standard cost in reference to one unit of the products ‘TICO’ is given as under. As
such three materials, namely A, B and C are used in the mix to produce one unit of TICO.
Materials Quantity (kg) Price (₹)
A 40 76
B 10 50
C 50 20
The standard input mix is 100 kg and the standard output of the finished product is 90 kg as
reflected in the above standard cost card.
For the particular period the actual results were also extracted from the cost records, which is
given below.
Price (₹)
Materials Quantity (kg)
per kg
A 1,95,000 80
B 42,500 52
C 2,25,000 21
For the particular period the actual output of TICO is 4,18,500 kg
You, as the cost accountant of the company, are required to analyse material variances and
report the same to the manager. [7]

6.22 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Material Variance

Answer
SQ = Standard Quantity for Actual Output
40
Material A = × 4,18,500 = 1,86,000 kg
90

10
Material B = × 4,18,500 = 46,500 kg
90

50
Material C = × 4,18,500 = 2,32,500 kg
90

SP = Standard Price per unit

Material A = ₹ 76 Material B = ₹ 50 Material C = ₹ 20
AQ = Actual Quantity used
Material A = 1,95,000 kg Material B = 42,500 kg Material C = 2,25,000 kg
AP = Actual Price per unit
Material A = ₹ 80 Material B = ₹ 52 Material C = ₹ 21
RSQ = Revised Standard Quantity for Actual Input
40 40
Material A = × (1,95,000 + 42,500 + 2,25,000 ) = × 4,62,500 = 1,85,000 kg
100 100

10
Material B = × 4,62,500 = 46,250 kg
100

50
Material C = × 4,18,500 = 2,31,250 kg
100
(i) Material Cost Variance = SQ × SP – AQ × AP
Material A = 1,86,000 × ₹76 – 1,95,000 × ₹80 = ₹ 14,64,000 (A)
Material B = 46,500 × ₹50 – 42,500 x₹ 52 = ₹ 1,15,000 (F)
Material C = 2,32,500 x₹ 20 – 2,25,000 × ₹21 = ₹ 75,000 (A)
= ₹ 14,24,000 (A)

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Standard Costing and Variance Analysis

(ii) Material Price Variance = (SP – AP) × AQ

Material A =₹ (76 – 80) × 1,95,000 = ₹ 7,80,000 (A)
Material B = ₹(50 – 52) × 42,500 = ₹ 85,000 (A)
Material C =₹ (20 – 21) × 2,25,000 = ₹ 2,25,000 (A)
= ₹ 10,90,000 (A)
(iii) Material Usage Variance = (SQ – AQ) × SP
Material A = (1,86,000 – 1,95,000) × ₹76 = ₹ 6,84,000 (A)
Material B = (46,500 – 42,500) × ₹ 50 = ₹ 2,00,000 (F)
Material C = (2,32,500 – 2,25,000) × ₹ 20 = ₹ 1,50,000 (F)
= ₹ 3,34,000 (A)
(iv) Material Mix Variance = (RSQ – AQ) × SP
Material A = (1,85,000 – 1,95,000) × ₹76 = ₹ 7,60,000 (A)
Material B = (46,250 – 42,500) × ₹50 = ₹ 1,87,500 (F)
Material C = (2,31,250 – 2,25,000) × ₹20 = ₹ 1,25,000 (F)
= ₹ 4,47,500 (A)
(v) Material Yield Variance = (SQ – RSQ) × SP
Material A = (1,86,000 – 1,85,000) × ₹76 = ₹ 76,000 (F)
Material B = (46,500 – 46,250) × ₹50 = ₹ 12,500 (F)
Material C = (2,32,500 – 2,31,250) x₹ 20 = ₹ 25,000 (F)
= ₹ 1,13,500 (F)

3 Dec'23 MTP Set 1

The standard material inputs required for 1,000 kgs. of a finished product are given below:
Quantity Standard rate
Material
(in kg) per kg. (in ₹)
P 450 20
Q 400 40
R 250 60
1,100
Standard loss 100
Standard output 1,000
Actual production in a period was 20,000 kgs. of the finished product for which the actual
quantities of material used and the prices paid thereof, are as under:

6.24 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Quantity Standard rate

Material
(in kgs) per kg. (in ₹)
P 10,000 19
Q 8,500 42
R 4,500 65
Calculate:
(i) Material Cost Variances;
(ii) Material Price Variance;
(iii) Material Usage Variance;
(iv) Material Mix Variance;
(v) Material Yield Variance.
Present a reconciliation among the variances. [7]

Material Cost Variances; Material Price

Variance; Material Usage Variance; Material
Mix Variance; Material Yield Variance

Answer
For Material Cost Variances:
M1-Acutal cost of material used (AQ × AR)
Actual Qty. (AQ) (kg.) Actual Rate (AR) (₹) Amount (₹)
P 10,000 19 1,90,000
Q 8,500 42 3,57,000
R 4,500 65 2,92,500
8,39,500
M2- Standard cost of material used (AQ × SR)
Actual Qty. (AQ) (kg.) Actual Rate (AR) (₹) Amount (₹)
P 10,000 20 2,00,000
Q 8,500 40 3,40,000
R 4,500 65 2,70,000
8,10,000

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M3- Standard cost of material if it had been used in standard proportion

Standard Proportion Standard Rate Amount
P 23,000 × 450/1,100 X 20 1,88,182
Q 23,000 × 400/1,100 X 40 3,34,545
R 23,000 × 250/1,100 X 60 3,13,636
8,36,363
M4- Standard cost of output (SQ X SR)
Standard Qty. for 20,000kg Standard Rate Amount
P 450 × 20 = 9000 X 20 1,80,000
Q 400 × 20 = 8,000 X 40 3,20,000
R 250 × 20 = 5,000 X 60 3,00,000
8,00,000
Calculation of Variance:
Material Price Variance = M1-M2 = ₹ 8,39,500 – ₹ 8,10,000 = ₹ 29,500 (A)
Material Mix Variance = M2-M3 = ₹ 8,10,000 – ₹ 8,36,363 = ₹ 26,363 (F)
Material Yield Variance = M3-M4 = ₹ 8,36,363 – ₹ 8,00,000 = ₹ 36,363 (A)
Material Usage Variance = M2-M4 = ₹ 8,10,000 – ₹ 8,00,000 = ₹ 10,000 (A)
Material Cost Variance = M1-M4 = ₹ 8,39,500 – ₹ 8,00,000 = ₹ 39,500 (A)
Reconciliation
Material Usage Variance = Material Mix Variance + Material Yield Variance
= ₹ 26,363(F) + 36,363 (A)
= ₹ 10,000 (A)
Material Cost Variance = Material Price Variance + Material usage Variance
= ₹ 39,500 (A)

4 Dec'23 MTP Set 2

A manufacturing concern which has adopted standard costing furnishes the following
information:
Standard
Material for 70 kg of finished product of 100 kg
Price of materials @ ₹ 1 per kg

6.26 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Actual

Output 2,10,000 kg.

Material used 2,80,000 kg.
Cost of materials ₹ 2,52,000
Calculate:
(a) Material Cost Variance
(b) Material Price Variance
(c) Material Usage Variance [7]

Material Variances

Answer
Computation of Required Values
(1) SQSPR) (2) AQSP(₹) (3) AQAPR)
[210,000 × 100/70] × 1 280.000 × 1
3,00,000 2,80,000 2,52,000
Computation of Required Variances:
(i) Material Usage Variance = (1) – (2) = 320,000 (F)
(ii) Material Price Variance = (2) – (3) = ₹ 28,000(F)
(iii) Material Cost Variance = (1) – (3) = ₹ 48,000(F)

5 Dec'23
Delta Ltd. furnishes the following information:
The standard mix to produce one unit of product ‘R’ is as under -
Material X 3 kg @ ₹ 300 per kg
Material Y 4 kg @ ₹ 500 per kg
Material Z 5 kg @ ₹ 400 per kg
During the month of June 2023, 10 units of product ‘R’ were actually produced and consump-
tion was as under -

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Material X 32 kg @ ₹ 350 per kg

Material Y 47.5 kg @ ₹ 550 per kg
Material Z 43.5 kg @ ₹ 360 per kg
Required:
Calculate the following Material Variances:
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Quantity Variance
(iv) Material Mix Variance
(v) Material Yield Variance [7]

Material Variances

Answer
(i) Material Cost Variance = ₹ 3,985 (A)
(ii) Material Price Variance = ₹ 2,235 (A)
(iii) Material Quantity Variance = ₹ 1,750 (A)
(iv) Material Mix Variance = ₹ 525(A)
(v) Material Yield Variance = ₹ 1,225(A)

6 June'23
M/s Picaso Inc. 18 is a company which follows standard costing system. The details regarding
the composition and the weekly wage rates of labour force engage on Job No ‘XP - 25’.
Which is scheduled to be completed in 30 weeks are as follows :
Standard Actual
Category of
Workers Weekly Wage Rate Weekly Wage Rate
No. of workers No. of workers
per worker (₹) per worker (₹)
Skilled 75 60 70 70
Semi-skilled 45 40 30 50
Unskilled 60 30 80 20

6.28 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

The work on the job actually completed in 32 weeks.

You, as the cost accountant of the company, are asked to ANALYSE the following Labour
Variances and report the same to the manager:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Revised Efficiency Variance
(v) Labour Mix Variance

Labour Cost Variance, Labour Rate Variance,

Labour Efficiency Variance, Labour Revised
efficiency Variance, Labour Mix Variance

Answer
(i) Labour Cost Variance = ₹ 13,000 (A)
(ii) Labour Rate Variance = ₹ 6,400 (A)
(iii) Labour Efficiency Variance = ₹ 6,600 (A)
(iv) Labour Revised efficiency Variance = ₹ 16,200 (A)
(v) Labour Mix Variance = ₹ 9,600 (F)

7 Postal Test Paper

The standard cost of a certain chemical mixture is as under:
40% of Material A at ₹ 20 per kg. 60% of Material B at ₹ 30 per kg. A standard loss of 10% is
expected in production. The following actual cost data is given for the period:
180 kg material A at a cost of ₹ 18 per kg 220 kg material B at a cost of ₹ 34 per kg The weight
produced is 360 kg.
Calculate and present:
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Usage Variance
(iv) Material Mix Variance
(v) Material Yield Variance [9]

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Standard Costing and Variance Analysis

Material Cost Variance, Material Price

Variance, Material Usage Variance, Material
Mix Variance, Material Yield Variance

Answer
Assume 100 kg of Standard Input is used in the ratio of 40% and 60% for Material A and Material
B respectively.
So, the information can be presented as follows:
Standard Actual
Quantity Rate Quantity Rate
Kg (₹) Kg (₹)
Material A 40 20 180 18
Material B 60 30 220 34
Total 100 400
Less: Loss 10 40 (Bal. fig.)
Output 90 360
When there are more than one input then five parameters are to be calculated as follows:
1. SQ – Standard Quantity for Actual Output
40
Material A = × 360 = 160 kg
90
60
Material B = × 360 = 240 kg
90
2. SP – Standard Price per unit
Material A = ₹ 20, Material B = ₹ 30
3. AQ – Actual Quantity
Material A = 180 kg, Material B = 220 kg
4. AP – Actual Price per unit
Material A = ₹ 18, Material B = ₹ 34
5. RSQ – Revised Standard Quantity for Actual Input
40
Material A = × 400 = 160 kg
100

6.30 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

60
Material B = × 400 = 240 kg
100
6. Material Cost Variance = SQ × SP – AQ × AP
Material A = 160 × 20 – 180 × 18 = 3,200 – 3,240 = ₹ 40 (A)
Material B = 240 × 30 – 220 × 34 = 7,200 – 7,480 = ₹ 280 (A)
= ₹ 320 (A)
7. Material Price Variance = (SP – AP) × AQ
Material A = (20 – 18) × 180 = ₹ 360 (F)
Material B = (30 – 34) × 220 = ₹ 880 (A)
= ₹ 520 (A)
8. Material Usage Variance = (SQ – AQ) × SP
Material A = (160 – 180) × 20 = ₹ 400 (A)
Material B = (240 – 220) × 30 = ₹ 600 (F)
= ₹ 200 (F)
9. Material Mix Variance = (RSQ – AQ) × SP
Material A = (160 – 180) × 20 = ₹ 400 (A)
Material B = (240 – 220) × 30 = ₹ 600 (F)
= ₹ 200 (F)
10. Material Yield Variance = (SQ – RSQ) × SP
Material A = (160 – 160) × 20 = Nil
Material B = (240 – 240) × 30 = Nil

8 MTP Jun’24 Set 1

Using the following information calculate each of three labour variance for each department:
Department X Department Y
Gross wages direct ₹ 28,080 ₹ 19,370
Standard hours produced 8,640 6,015
Standard rate per hour ₹3 ₹ 3.40
Actual hours worked 8,200 6,395
[7]

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Standard Costing and Variance Analysis

Labour Variances

Answer
Department X:
SH – Standard Hours for Actual Output = 8,640 hours
SR – Standard Rate per hour = ₹ 3 per hour
AH – Actual Hours Paid for = 8,200
` 28 , 080
AR – Actual Rate per hour =
8 , 200 hours
(i) Labour Cost Variance = SH × SR – AH × AR
28 , 080
= ₹8,640 × 3 – 8,200 ×
8 , 200
= ₹25,920 – 28,080
= ₹ 2,160 (A)
(ii) Labour Rate Variance = (SR – AR) × AH = SR × AH – AR × AH
 28 , 080 
= (3 × 8,200) –   8 , 200 
 8 , 200 
= ₹24,600 – ₹28,080
= ₹ 3,480 (A)
(iii) Labour Efficiency Variance = (SH – AH) × SR
= (8,640 – 8,200) × 3
= ₹ 1,320 (F)
Department Y:
SH = 6,015 hours
SR = ₹ 3.40 per hour
AH = 6,395 hours
` 19 , 370
AR =
6.395 hours

6.32 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

(i) Labour Cost Variance = SH × SR – AH × AR

 19 , 370 
= (6,015 × ₹3.40) –  6 , 395  
 6 , 395 

= ₹ 1,081 (F)
(ii) Labour Rate Variance = (SR – AR) × AH = SR × AH – AR × AH
 19 , 370 
= (₹3.40 × 6,395) –   6 , 395 
 6 , 395 
= ₹ 2,373 (F)
(iii) Labour Efficiency Variance = (SH – AH) × SR
= (6,015 – 6,395) × ₹3.40
= ₹ 1,292 (A)

9 Jun’24
J & M Ltd. submits the following information regarding composition and wage rates of labour
force engaged on Job No. R-40 which is scheduled to be completed in 80 hours:
Standard Actual
Category of
workers Hourly wage rate Hourly wage rate
No. of workers No. of workers
per worker (₹) per worker (₹)
Grade - P 60 2.50 55 3.00
Grade - Q 40 1.75 30 2.00
Grade - R 50 1.25 70 1.00
The work is actually completed in 88 hours.
Calculate the following:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Revised Efficiency Variance
(v) Labour Mix Variance [7]

Labour Variances

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Standard Costing and Variance Analysis

Answer
(i) Labour Cost Variance = ₹ 3,360 (A)
(ii) Labour Rate Variance = ₹ 1,540 (A)
(iii) Labour Efficiency Variance = ₹1,820 (A)
(iv) Labour Revised Efficiency Variance = ₹ 3,088.50 (A)
(v) Labour Mix Variance = ₹ 1,268.50 (F)

10  MTP Dec’24 Set 1

The Standard labour complement and the actual labour complement engaged in a week for a
job are as under:
Skilled Semi-Skilled Unskilled
workers workers workers
(a) Standard no. of workers in the gang 32 12 6
(b) Standard wage rate per hour (₹) 3 2 1
(c) Actual no. of workers employed in the gang during 28 18 4
the week
(d) Actual wage rate per hour (₹) 4 3 2
During the 40 hour working week the gang produced 1,800 standard labour hours of work.
Calculate the following:
(1) Labour Efficiency Variance
(2) Mix Variance
(3) Rate of Wages Variance
(4) Labour Cost Variance [14]

Labour Variances

6.34 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Standard Costing and Variance Analysis

Answer
Analysis of Given Data
Standard Data Actual Data
Value Value
Hours Rate Hours Rate
(₹) (₹)
Skilled 32×40 =1,280 3 3,840 Skilled 28×40 = 1,120 4 4,480
Semi-skilled 12×40 = 480 2 960 Semi-skilled 18×40 = 720 3 2,160
Unskilled 6×40 = 240 1 240 Unskilled 4×40 = 160 2 320
2,000 5,040 2,000 6,960
Computation of Required Values
SRSH(1) SRRSH(2) SRAH(3) ARAH(4)
skilled 3,840 3×1,152 = 3,456 3×1,120 = 3,360 4,480
Semi-skilled 960 2×432 = 864 2×720 = 1,440 2,160
unskilled 240 1×216 = 216 1×160 = 160 320
5,040 4,536 4,960 6,960
Computation of SH
SH = (SH for that worker/ SH for all the worker)× AQ for that worker
For Skilled Worker = (1,280/2000) × 1,800 = 1,152
For Semiskilled worker = (480/2000) × 1,800 = 432
For Unskilled worker = (240 /2000) × 1,800 = 216
Where,
(1)SRSH = Standard Cost of Standard Labour = ₹4,536
(2)SRRSH = Revised Standard Cost of Labour = ₹ 5,040
(3)SRAH = Standard Cost of Actual Labour = ₹ 4,960
(4)ARAH = Actual Cost of Labour = ₹ 6,960
Computation of Labour Variances:
(a) Labour Sub-Efficiency Variance = (1) – (2) = ₹504 (F) [(5,040–4,536)]
(b) Labour Mix or Gang Variance = (2) – (3) = ₹ 424 (A) [(4,536– 4,960)]
(c) Labour Efficiency Variance = (1) – (3) = ₹ 80 (F) [(5,040– 4,960)]
(d) Labour Rate Variance = (3) – (4) = ₹ 2,000 (A) [(4,960 – 6,960)]
(e) Labour Cost Variance = (1) – (4) = 1,920 (A) [(5,040– 6,960)]

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Budget and Budgetary Control

6.3
Budget and Budgetary Control

1 June'23 MTP Set 1

Trinity Engineering Ltd. wishes to calculate an operating budget for the forthcoming period.
Information regarding products, costs and sales levels is as follows:
Product A B
Material required
X (kg) 2 3
Y (litres) 1 4
Labour hours required
Skilled (hours) 4 2
Semi – Skilled (hours) 2 5
Sales level (units) 2000 1500
Opening stock (units) 100 200
Closing Stock of materials and finished goods will be sufficient to meet 10% of demand.
Opening stocks of material X was 300 kg and for material Y was 1000 litres. Material prices are ₹
100.00 per kg for material X and ₹ 80.00 per hour for the semi-skilled workers.
You are required to prepare the following budget:
• Production budget
• Material usage budget
• Material Purchase budget [8]

Production budget, Material usage

budget, Material Purchase budget

6.36 |CMA Inter Cost Accounting

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 Cost Accounting Techniques
Budget and Budgetary Control

Answer
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
January February March
Particulars
(Units) (Units) (Units)
Production Requirement – 4 units of Material A for each of 48,000 59,000 47,000
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
January February March
Particulars
(Units) (Units) (Units)
Production Requirement – 54 units of Material B for each 60,000 73,750 58,750
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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Budget and Budgetary Control

2 June'23 MTP Set 2

A sales budget for the first five months of 2022 is given for a particular product line manufac-
tured by Kaehler Co. Ltd.:
Month Budgeted Sales (Units)
January 10800
February 15600
March 12200
April 10400
May 9200
The inventory of finished products at the end of each month is to be equal to 25 per cent of the
sales estimate for the next month. On January 1, there were 2700 units of product in hand. No
work is in process at the end of any month Each unit of product requires two types of materials
in the following quantities:
Material A: 4 units
Material B: 5 units
Material equal to one half of the next month’s requirements is to be in hand at the end of each
month. This requirement was met on January 1, 2022.
Analyse the above budgeted volumes and determine the quantities of each type of material to
be purchased each month for the first quarter of 2022. [8]

Production Budget and Material Purchase

Budget

Answer
KAEHLER CO. 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: Closing 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

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KAEHLER CO. LTD.

Direct Material Usage and Purchase Budget for the Quarter ended March 2022
Material A
Particulars January February March
Production Requirement – 4 units of Material A for each
unit of finished Product
Add: Closing Inventory 48,000 59,000 47,000
29,500 23,500 20,500
Less : Opening Inventory 77,500 82,500 67,500
Budgeted Purchase 24,000 29,500 23,500
53,500 53,000 44,000
Material B
Particulars January February March
Production Requirement – 5 units of Material B for each
unit of finished Product
Add: Closing Inventory 60,000 73,750 58,750
36,875 29,375 25,625
Less : Opening Inventory 96,875 1,03,125 67,500
Budgeted Purchase 30,000 36,785 29,375
66,875 66,250 55,000

3 Dec'23 MTP Set 1

A factory is currently running at 50% capacity and produces 5,000 units at a cost of ₹90 per unit
as per details below:

Material ₹50
Labour 15
Factory Overheads 15 (₹ 6/- fixed)
Administrative Overheads 10 (₹ 5/- fixed)
The current selling price is ₹100 per unit.
At 60% working, material cost per unit increase by 2% and selling price per unit falls by 2%. At
80% working, material cost per unit increase by 5 % and selling price per unit falls by 5%.
Compute and estimate profits of the factory at 60% and 80% working and offer your
comments. [7]

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Estimate Profits of the Factory at 60% and

80% Working

Answer
Flexible Budget

Capacity 50% 60% 80%

Production (units) 5,000 6,000 8,000
₹ per unit
Material 50 51 52.50
Labour 15 15 15.00
Variable Overheads:
Factory 9 9 9.00
Administration 5 5 5.00
Variable costs per unit 79 80 81.50
Total Variable cost ₹ 3,95,000 ₹ 4,80,00 ₹ 6,52,000
Fixed Overheads:
Factory (₹) 30,000 30,000 30,000
Administration (₹) 25,000 25,000 25,000
Total cost of production (₹) 4,50,00 5,35,000 7,07,000
Selling price per unit@ ₹ 100 (₹) 5,00,000 5,88,000 7,60,000
Profit (₹) 50,000 53,000 53,000
Comments: It is clear from above working that profit has gone up by ₹ 3,000 by utilization of
additional 10% capacity despite given changes. However, by increasing the capacity utilization
from 60% to 80%, the profit gets neutralized by increase in cost and decease in selling price.

4 Dec'23 MTP Set 2

You are required to prepare a Selling Overhead Budget from the estimates given below:
Amount
(₹)
Advertisement (Fixed) 1,000
Salaries of the Sales Department (Fixed) 1,000
Expenses of the Sales Department (Fixed) 750
Salesmen’s Remuneration (Fixed) 3,000

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Salesmen’s Commission @ 1% on sales excluding Agent’s Sales

Carriage Outwards: Estimated @ 5% on sales
Agent’s Commission: 71/2 % on Agent’s sales
The sales during the period were estimated as follows:
(i) ₹ 80,000 including Agent’s Sales ₹ 8,000
(ii) ₹ 90,000 including Agent’s Sales ₹ 10,000
(iii) ₹ 1,00,000 including Agent’s Sales ₹ 10,500 [7]

Selling Overhead Budget

Answer
Selling Overhead Budget
Particulars ₹ ₹ ₹
Sales 80,000 90,000 1,00,000
A. Fixed Overhead
Advertisement 1,000 1.000 1.000
Salaries of Sales Dept. 1,000 1,000 1,000
Expenses of Sales Dept. 750 750 750
Salesmen 3,000 3,000 3,000
Remuneration
Total (A) 5,750 5,750 5,750
B. Variable Overhead
Salesmen Commission 720 800 895
[(80,000 – 8,000) × 1%] [(90,000 – 10,000) × 1% ] [(1,00,000 – 10,500) × 1%)
Carriage Outward 4,500 5,000 4,000
[80,000 × 5%] [9,00,000 × 5%] [1,00,000 × 5%]
Agent’s Commission 600 [8,000 × 7.5%] 750 [10,000 × 7.5%] 788 [10,500 × 7.5%]
Total (B) 5,320 6,050 6,683
Grand Total (A + B) 11,070 11,800 12,433

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5 June'23
M/s Jolly Ltd. manufactured product X and product Y during the year ending on 31st March
2023. It is expected to sell 7,500 kg of product X and 37,500 kg of product Y @ ₹ 60 and ₹ 32 per
kg respectively.
The direct materials A, B and C are mixed in the proportion of 4:4:2 in the manufacture of
Product X and in the proportion of 3:5:2 in the manufacture of product Y. The actual and budget
inventories for the year are as follows:
Opening Stock Expected closing Anticipated Cost
Particulars
(kg) stock (kg) per kg (₹)
Material A 3,000 2,400 10
Material B 2,500 5,800 8
Material C 16,000 17,300 6
Product X 1,500 2,000 -
Product Y 3,000 3,500 -
Prepare the Production Budget and Materials Budget showing the purchase cost of materials
for the year ending 31st March, 2023

Production Budget, Materials Budget,

Total Purchase Cost

Answer
Production Budget (Kg.)
Product X = 8,000
Product Y = 38,000
Materials Budget (Kg.)
Material A = 14,000
Material B = 25,500
Material C = 10,500
Total Purchase Cost = ₹ 4,07,000

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6 Dec'23
Easy Walk Ltd. produces and sells a single product. Sales budget for calendar year 2022 by
quarters is as under:
Quarters First Second Third Fourth
No. of units to be sold 40,000 48,000 60,000 72,000
The year is expected to open with an inventory of 12,000 units of finished products and close
with inventory of 16,000 units. Production is customarily scheduled to provide for 70% of the
current quarter’s sales demand plus 30% of the following quarter demand. The budgeted
selling price per unit is ₹ 40 and variable cost per unit is ₹ 35.
Fixed Overheads are ₹ 4,40,000 which are evenly distributed throughout the year.
Required:
(i) Prepare Quarterly Production Budget for the year.
(ii) Calculate in which quarter of the year company is expected to achieve Break Even Point
(BEP). [7]

Production Budget BEP

Answer
(i) Quarterly Production Budget:
First Second Third Fourth
42,400 51,600 63,600 66,400
(ii) Break Even Point (BEP) = 88,000 units
Break Even Point will be achieved in Second quarter.

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7 MTP Jun’24 Set 1

The monthly budgets for manufacturing overheads of a concern for two levels of activity were
as follows:

Capacity 60% 100%

Budgeted Production (units) 600 1,000
(₹) (₹)
Wages 1,200 2,000
Consumable stores 900 1,500
Maintenance 1,100 1,500
Power and fuel 1,600 2,000
Depreciation 4,000 4,000
Insurance 1,000 1,000
Total Cost 9,800 12,000
You are required to:
(i) Inspect which of the items are fixed, variable and semi-variable.
(ii) Prepare a budget for 80% capacity, and
(iii) Compute total cost, both fixed and variable per unit of output at 60%, 80% and 100%
capacity. [7]

Flexible Budget

Answer
(i) Statement showing segregation of the items in Fixed, Variable and Semi-Variable
Nature of
Items of Cost Variable Cost p.u Fixed
Cost
Wages Variable 1, 200
= ₹ 2 p.u.
600
Consumable Variable 900
stores = ₹ 1.50 p.u.
600

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Maintenance Semi Change in total Cost Total Cost – Variable Cost

Variable =
Change in Output = 1,100 – (600 × 1)
1, 500  1, 100 400 = ₹ 500
=  = ₹ 1 p.u.
1, 000  600 400
Power and fuel Semi Change in total Cost Total Cost – Variable Cost
Variable =
Change in Output = 1,600 – (600 × 1)
2, 000  1, 600 400 = ₹ 1,000
=  = ₹ 1 p.u.
1, 000  600 400
Depreciation Fixed ₹ 4,000
Insurance Fixed ₹ 1,000
(ii) Budget at 80% Capacity
Production 1,000 × 80% = 800 units (₹)
Wages 800 × 2 = 1,600
Consumable stores 800 × 1.50 = 1,200
Maintenance 800 × 1 + 500 = 1,300
Power and fuel 800 × 1 + 1,000 = 1,800
Depreciation 4,000
Insurance 1,000
Total Cost 10,900
(iii)
Capacity 60% 80% 100%
Production 600 units 800 units 1000 units
p.u. (₹) Total (₹) p.u. (₹) Total (₹) p.u. (₹) Total (₹)
Variable Costs
Wages 2.00 1,200 2.00 1,600 2.00 2,000
Consumable stores 1.50 900 1.50 1,200 1.50 1,500
Maintenance 1.00 600 1.00 800 1.00 1,000
Power and Fuel 1.00 600 1.00 800 1.00 1,000
Total Variable Costs 5.50 3,300 5.50 4,400 5.50 5,500
Fixed Costs
Maintenance 500 500 500
Power and Fuel 1,000 1,000 1,000
Depreciation 4,000 4,000 4,000
Insurance 1,000 1,000 1,000

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Total Fixed Costs 6 , 500 6,500 6 , 500 6,500 6 , 500 6,500

600 800 1, 000
= 10.83 = 8.125 = 6.50
Total Costs 16.33 9,800 13.625 10,900 12.00 12,000

8 Jun’24
Jack & Jones Ltd. submits the following budgeted figures of revenue and expenditures for the
month of July to December, 2023:
Month Sales Purchases Wages Expenses
(₹) (₹) (₹) (₹)
July 13,00,000 8,00,000 2,40,000 1,00,000
August 14,00,000 9,60,000 3,00,000 1,00,000
September 15,00,000 9,00,000 3,00,000 1,20,000
October 16,00,000 9,60,000 3,60,000 1,20,000
November 16,40,000 8,00,000 3,60,000 1,60,000
December 17,80,000 10,00,000 4,00,000 1,60,000
The following further information is available:
(i) 10% of purchases and sales are on cash basis.
(ii) Advance payment of income tax in December, 2023 is ₹ 2,00,000.
(iii) Plant purchased and price to be paid in October, 2023 is ₹ 80,000.
(iv) Time lag -

Credit sales 2 months

Credit purchases 1 month
Wages 1/2 month
Expenses 1/2 month

Required:
Prepare a Cash Budget for 3 months starting on 1st October, 2023 when cash balance is ₹
2,70,000. [7]

Cash Budget

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Answer
Cash Budget
(For October to December, 2023)
Particulars Oct. (₹) Nov. (₹) Dec. (₹)
Cash Balance 2,70,000 2,54,000 3,24,000
Receipts :
Cash sales 1,60,000 1,64,000 1,78,000
Collection from debtors 12,60,000 13,50,000 14,40,000
Total Receipts 16,90,000 17,68,000 19,42,000
Payments :
Cash purchases 96,000 80,000 1,00,000
Payment to Creditors 8,10,000 8,64,000 7,20,000
Wages 3,30,000 3,60,000 3,80,000
Expenses 1,20,000 1,40,000 1,60,000
Advance income tax — — 2,00,000
Plant 80,000 — —
Total Payments 14,36,000 14,44,000 15,60,000
Cash Balance 2,54,000 3,24,000 3,82,000

9 MTP Dec’24 Set 1

Prepare Sales Overhead Budget for the month of January, February and March for the estimates
given below:

Advertisement ₹ 3,000
Salaries of the Sales Department ₹ 4,000
Expenses of the Sales Department ₹ 2,000
Counter Salesmen’s Salaries and Dearness Allowance ₹ 6,000
Counter Salesmen’s commission is 2% on their sales.
Travelling salesmen’s commission at 10% on their sales and expenses at 5% on their sales. The
sales during the period were estimated as follows:
Counter Sales Travelling Salesmen’s Sales
Month
(₹) (₹)
January 1,00,000 20,000
February 1,50,000 30,000
March 1,75,000 40,000

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[7]

Selling Overhead Budget

Answer
Sales Overhead Budget (For the month of January, February and March)
Particulars January February March
Variable Overheads:
Commission to counter salesmen @ 2% on their sales 2,000 3,000 3,500
Travelling salesmen’s commission @ 10% on their sales 2,000 3,000 4,000
Travelling salesmen’s expenses @ 5% on their sales 1,000 1,500 2,000
Total variable overheads [A] 5,000 7,500 9,500
Fixed Overheads
Advertisement 3,000 3,000 3,000
Salaries of Sales department 4,000 4,000 4,000
Expenses of Sales Department 2,000 2,000 2,000
Salaries to the counter salesmen 6,000 6,000 6,000
Total Fixed Overhead [B] 15,000 15,000 15,000
Total Sales overhead [A]+[B] 20,000 22,500 24,500

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 Objectives


Chapter 7
Objectives

MTP Jun’23 Set 1

1. Multiple Choice Questions

(i) Costs which are ascertained after they have been incurred are known as
(a) Sunk Costs
(b) Imputed Costs
(c) Historical Costs
(d) Opportunity Costs
(ii) Prime cost plus variable overheads is known as
(a) Factory Cost
(b) Marginal Cost
(c) Cost of Production
(d) Total Cost
(iii) In which of the following methods, issue of materials is priced at pre-determined rate?
(a) Specific price method
(b) Standard price method
(c) Inflated price method
(d) Replacement price method
(iv) For reducing the labour cost per unit, which of the following factors is the most important?
(a) Low wage rates
(b) Longer hours of work
(c) Higher input-output ratio
(d) Strict control and supervision
(v) Maximum possible productive capacity of a plant when no operating time is lost is its
(a) Normal capacity
(b) Practical capacity
(c) Theoretical capacity

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(d) Capacity based on sales expectancy

(vi) In job costing, which of the following documents is used to record the issue of direct
materials to a job?
(a) Goods Receipt Note
(b) Purchase Order
(c) Purchase Requisition Note
(d) Material Requisition Note
(vii) The main purpose of accounting of joint products and by-products is to
(a) determine the profit/loss on each product line.
(b) determine the selling price.
(c) comply with the statutory requirements.
(d) identify the cost and load it on the main product.
(viii) The following is not treated as a manufacturing overhead:
(a) Lubricants
(b) Cotton waste
(c) Apportioned administration overheads
(d) Night shift allowance paid to a factory worker due to general work pressure.
(ix) When you attempt a reconciliation of profits as per Financial Accounts and Cost Accounts,
the following is done:
(a) Add the under absorption of overheads in Cost Accounts if you start from the profits
as per Financial Accounts.
(b) Add the under absorption of overheads in Cost Accounts if you start from the profits
as per Cost Accounts.
(c) Add the over absorption of overheads in Cost Accounts if you start from the profits as
per Financial Accounts.
(d) Add the over absorption of overheads in Cost Accounts if you start from the profits as
per Cost Accounts.
(x) The fixed-variable cost classification has a special significance in the preparation of
(a) Cash budget
(b) Master budget
(c) Flexible budget
(d) Capital budget
(xi) Which one of the following is related to the calculation of labour turnover.
(a) Replacement method

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 Objectives


(b) Cost of utilities

(c) Decision package
(d) Direct expenses
(xii) Cost Accounting Standard 10 (CAS-10) relates to
(a) Cost of utilities
(b) Decision package
(c) Direct expenses
(d) Production strategy

2. State whether the following statements are “True” or “False”. [1 × 7 = 7]

(i) Profit is the result of two varying factors sales and variable cost.
(ii) Bin card is a record of both quantities and value.
(iii) Overtime premium is directly assigned to cost objects.
(iv) In a reconciliation statement, expenses shown only in financial accounts are added to
financial profit.
(v) The basic assumption under which Direct Costing is operational is that the contribution to
sales ratio remains constant at all levels of activity.
(vi) Performance Budgeting is synonymous with Responsibility Accounting.
(vii) Any deviation from the standards can be quickly detected and responsibility pinpointed so
that the company can take appropriate action to eliminate inefficiencies or take advantage
of efficiencies - this is termed as management by exception.

3. Fill in the blanks [1 × 6 = 6]

(i) _____ costs are historical costs which are incurred in the past.
(ii) In Absorption Costing, _____ cost is added to inventory.
(iii) CAS-2 is the Cost Accounting Standard on _____ determination.
(iv) _____is the summary of all functional budgets.
(v) Standard Costing is one of the _____ techniques.
(vi) Distribution of identifiable expenses to any department is called _____ .
Answers:
(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

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(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 Cost Control Allocation
budget

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 Objectives


MTP Jun’23 Set 2

1. Multiple Choice Questions

(i) Which of the following statements is/are correct?

1. A materials requisition note is used to record the issue of direct material to a specific
job
2. A typical job cost will contain actual costs for material, labour and production
overheads, and non- production overheads are often added as a percentage of total
production cost
3. The job costing method can be applied in costing batches
(a) (1) only
(b) (1) and (2) only
(c) (1) and (3) only
(d) (2) and (3) only
(ii) Cost of idle time arising due to non-availability of raw material is
(a) Recovered by inflating the raw material rate.
(b) Recovered by inflating the wage rate.
(c) Charged to factory overheads.
(d) Charged to costing profit and loss account.
(iii) Selling and distribution overheads are absorbed on the basis of
(a) Rate per unit.
(b) Percentage on works cost.
(c) Percentage on selling price of each unit.
(d) Any of the above
(iv) What entry will be passed under integrated system for purchase of stores on credit?
(a) Dr. Stores
Cr. Creditors
(b) Dr. Purchases
Cr. Creditors
(c) Dr. Stores Ledger Control A/c
Cr. Creditors
(d) Dr. Stores Ledger Control A/c
Cr. General Ledger Adjustment A/c

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(v) _____ deals with the principles and methods of determining the production or operation
overheads.
(a) CAS-3
(b) CAS-5
(c) CAS-9
(d) CAS-16
(vi) Marginal costing technique follows the following basis of classification:
(a) Element-wise
(b) Function-wise
(c) Behaviour-wise
(d) Identifiability-wise
(vii) Which of the following is not a potential benefit of using a budget?
(a) More motivated managers
(b) Enhanced co-ordination of firm activities
(c) Improved inter-departmental communication
(d) More accurate external financial statements
(viii) Cost Accounting Standard 1 (CAS1) deals with _____
(a) Classification of cost
(b) In terms of completed units
(c) Reference to the job
(d) To determine the value of closing inventory
(ix) Equivalent Production refers to production
(a) Of items which have high initial costs
(b) For classification of cost
(c) In terms of completed units
(d) To determine the value of closing inventory
(x) One of the major de-merit of a centralized purchase organization
(a) High initial costs
(b) Classification of cost
(c) Reference to the job
(d) To determine the value of closing inventory
(xi) The fixed-variable cost classification has a special significance in the preparation of
(a) Cash budget

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 Objectives


(b) Master budget

(c) Flexible budget
(d) Capital budget
(xii) Which of the following closely matches with Just In Time (JIT)
(a) Decision package
(b) Cost of utilities
(c) Production strategy
(d) Replacement method

2. State whether the following statements are “True” or “False”. [1 × 7 = 7]

(i) By-products may undergo further processing before sale.

(ii) Materials which can be identified with the given product unit of cost centre is called as
indirect materials.
(iii) Increasing Labour Turnover increases the productivity of labour resulting in low costs.
(iv) In case of materials that suffers loss in weight due to evaporation etc. the issue price of the
materials is inflated to cover up the losses
(v) Penalties and fines are included in cost accounts to determine the cost of production.
(vi) Chemical works, soap making and Milk dairy production are examples of process costing.
(vii) Split-off point is a point beyond input factors are commonly used for production of
multiple products, which can be either joint products or by-products. After this point, the
joint products or by-products gain individual identity.

3. Fill in the blanks [1 × 6 = 6]

(i) In standard costs, _____ norm is applied as a scale of reference for assessing actual cost to
serve as a basis of cost control.
(ii) Material Transfer Note is a _____ for transferring the materials from one job to other job.
(iii) One of the disadvantages of overtime working is incurring _____ labour cost.
(iv) CAS-2 deals with Cost Accounting Standard on _____ determination.
(v) Where the cost and financial accounts are maintained independently of each other, it is
indispensable to _____ them, as there are differences in the profits of two sets of books.
(vi) The _____ is the starting point in preparing the master budget.
Answers:

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

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2. (i) (ii) (iii) (iv) (v) (vi) (vii)

True False False True False True False

3. (i) (ii) (iii) (iv) (v) (vi)

pre-determined document excess (or capacity reconcile sales budget
additional or
more or higher)

7.8 |CMA Inter Cost Accounting

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 Objectives


Jun’23

1. Multiple Choice Questions

(i) B Ltd. pays 10 per unit royalty to the designer of a product which it manufactures and sells.
The royalty charge would be classified in the company’s accounts as a
(a) Direct expense
(b) Production overhead
(c) Administrative overhead
(d) Selling overhead
(ii) The sum of direct labour and factory overhead is termed as
(a) Sunk cost
(b) Fixed cost
(c) Conversion cost
(d) Variable cost
(iii) Overtime is
(a) Actual hours being more than normal hours
(b) Actual hours being more than standard hours
(c) Standard hours being more than actual hours
(d) Actual hours being less than standard hours
(iv) Directors’ remuneration and expenses form a part of
(a) Production overhead
(b) Administration overhead
(c) Selling overhead
(d) Distribution overhead
(v) Which of the following CAS deals with the principles and methods of determining depreci-
ation and amortization cost?
(a) CAS-8
(b) CAS - 12
(c) CAS - 14
(d) CAS-16
(vi) For the purpose of cost sheet preparation, costs are classified based on
(a) Nature
(b) Functions

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(c) Relevance
(d) Variability
(vii) Which of the following items should be added to costing prbfit to arrive at financial profit?
(a) Income tax paid
(b) Over absorption of works overhead
(c) Interest paid on bonds
(d) All of the above
(viii) Which of the following statements is true?
(a) Batch costing is a variant of job costing
(b) Job cost sheet may be used for estimating profit of jobs
(c) Job costing cannot be used in conjunction with marginal costing
(d) In cost plus contracts, the contractor runs a risk of incurring a loss
(ix) Which of the following is an example of by-product?
(a) Curd and butter in a dairy
(b) Mustard seeds and mustard oil
(c) Edible oils and oil cakes
(d) Diesel and petrol in an oil refinery
(x) Standard price of material per kg is ₹ 20, standard usage per unit of production is 5 kg.
Actual usage of production of 100 units is 520 kgs, all of which was purchased at the rate
of ₹ 22 per kg. Material usage varianceis
(a) ₹ 400 (Adverse)
(b) ₹ 400 (Favourable)
(c) ₹ 1,040 (Adverse)
(d) ₹ 1,040 (Favourable)
(xi) Which of the following factors are responsible for change in the break-even point?
(a) Change in fixed cost
(b) Change in variable cost
(c) Change in selling price
(d) All of the above
(xii) Which of the following is not a potential benefit of using a budget?
(a) More motivated managers
(b) Improved inter-departmental communication
(c) Enhanced co-ordination of firm activities

7.10 |CMA Inter Cost Accounting

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 Objectives


(d) More accurate external financial statements

2. State whether the following statements are “True” or “False”. (You may write only the
Roman numeral and whether “True” or “False” without copying the statements into the
answer books): [1 × 7 = 7]

(i) Cost unit is anything for which a separate measurement of cost is required.
(ii) Stores Ledger is maintained inside the stores by the store-keeper.
(iii) Continuous stock taking is an essential feature of the perpetual inventory system.
(iv) Travelling expense to the project site is a direct expense.
(v) Cost of idle time arising due to non-availability of raw material is charged to factory
overheads.
(vi) Budgetary control facilitate introduction of ‘Management by Exception’.
(vii) Costs incurred prior to the split off point are known as “Incremental Costs”.

3. Fill in the blanks (You may write only the Roman numeral and the content filling the
blanks): [1 × 6 = 6]

(i) Ticket counter in a Cinema Hall is an example of _____ centre.

(ii) As per the Payment of Bonus Act, 1965, the maximum limit of bonus is _____ per cent of
gross earnings.
(iii) Under absorption of overheads means that actual overheads are _____ than absorbed
overheads.
(iv) CAS _____ stands for cost of service cost centre.
(v) _____ is a system for reporting revenue and cost information to the individual responsible
for the revenue-causing and/or cost-incurring function.
(vi) Under integrated accounting system, the accounting entry for payment of wages is to
debit _____ and to credit cash account.
Answers:

1. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)
A C A B D B B B C A D D

2. (i) (ii) (iii) (iv) (v) (vi) (vii)

False False True True False True False

3. (i) (ii) (iii) (iv) (v) (vi)

Revenue 20 More 13 Responsibility Accounting Wages Control Account

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 Objectives


MTP Dec’23 Set 1

1. Multiple Choice Questions

(i) _____ deals with the principles and methods of determining the production or operation
overheads.
(a) CAS-3
(b) CAS-5
(c) CAS-9
(d) CAS-16
(ii) Time and motion study is conducted by the _____.
(a) Time –keeping department
(b) Personnel department
(c) Payroll department
(d) Engineering department
(iii) Royalty paid on sales ₹89,000 and Software development charges related to product is
₹22,000. Calculate Direct Expenses.
(a) ₹1,11,100
(b) ₹1,11,000
(c) ₹1,11,110
(d) ₹1,10,000
(iv) Marginal Costing technique follows which of the following basis of classification?
(a) Element wise
(b) Function wise
(c) Behaviour
(d) Identifiability wise
(v) If an organization has all the resources it needs for production, then the principal budget
factor is most likely to be _____.
(a) non-existing
(b) sales demand
(c) raw materials
(d) labour supply
(vi) In process, conversion cost means _____.
(a) Cost of direct materials, direct labour, direct expenses

7.12 |CMA Inter Cost Accounting

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 Objectives


(b) Direct labour, direct expenses, indirect material, indirect labour, indirect expenses
(c) Prime cost plus factory overheads
(d) All costs up to the product reaching the consumer, less direct material costs
(vii) If sales are ₹150,000 and variable cost are ₹50,000. Compute P/V ratio.
(a) 66.66%
(b) 100%
(c) 133.33%
(d) 65.66%
(viii) Selling and distribution overheads are absorbed on the basis of _____.
(a) rate per unit.
(b) percentage on works cost.
(c) percentage on selling price of each unit.
(d) Any of the above
(ix) In a process 800 units are introduced during 2022-23. 5% of input is normal loss. Closing
work-in-progress 60% complete is 100 units. 660 completed units are transferred to next
process. Equivalent production for the period is _____.
(a) 760 units
(b) 744 units
(c) 540 units
(d) 720 units
(x) A hotel having 100 rooms of which 80% are normally occupied in summer and 25% in
winter. Period of summer and winter be taken as 6 months each and normal days in a
month be assumed to be 30. The total occupied room days will be _____.
(a) 1525 Room days
(b) 18900 Room days
(c) 36000 Room days
(d) None of the above
(xi) Integral accounts eliminate the necessity of operating _____.
(a) Cost Ledger Control Account
(b) Store Ledger Control Account
(c) Overhead Adjustment Account
(d) None of the above
(xii) Batch Costing is suitable for _____.
(a) Sugar Industry

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 Objectives


(b) Chemical Industry

(c) Pharma Industry
(d) Oil Industry
(xiii) In which of the following incentive plan of payment, wages on time basis are not
Guaranteed?
(a) Halsey plan
(b) Rowan plan
(c) Taylor’s differential piece rate system
(d) Gantt’s task and bonus system
(xiv) During a period 13600 labour hours were worked at a standard rate of ₹8 per hour. The direct
labour efficiency variance was ₹8,800 (Adv). How many standard hours were produced?
(a) 12000 hours
(b) 12500 hours
(c) 13000 hours
(d) 13500 hours
(xv) Difference between standard cost and actual cost is called as _____.
(a) Wastage
(b) Loss
(c) Variance
(d) Profit
Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xix) (xv)
a d b c b b a d d b a c c b c

7.14 |CMA Inter Cost Accounting

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 Objectives


MTP Dec’23 Set 2

Multiple Choice Questions
(i) Which of the following is not a feature of Job Costing?
(a) Each job maintains its separate identity throughout the production stage
(b) The job is meant for a mass market
(c) Production pattern is not repetitive and continuous
(d) Production begins only after getting order from the customer
(ii) Cost of Sales = Cost of Production + _____.
(a) Selling and Distribution Overhead rate per unit
(b) Factory Overhead Cost
(c) Direct Labour
(d) None of the above
(iii) Charging to a cost centre those overheads that result solely for the existence of that cost
centre is known as:
(a) Allocation
(b) Apportionment
(c) Absorption
(d) Allotment
(iv) P/V ratio will increase if:
(a) There is a decrease in fixed cost
(b) There is an increase in fixed cost
(c) There is a decrease in selling price per unit.
(d) There is a decrease in variable cost per unit.
(v) The following is not treated as a manufacturing overhead:
(a) Lubricants
(b) Cotton waste
(c) Apportioned administration overheads
(d) Night shift allowance paid to a factory worker due to general work pressure.
(vi) Which of the following would not be used to estimate standard direct material prices?
(a) The availability of bulk purchase discounts
(b) Purchase contracts already agreed
(c) The forecast movement of prices in the market
(d) Performance standards in operation

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(vii) The main purposes of accounting of joint products and by-products is to:
(a) Determine the replacement cost
(b) Determine the opportunity cost
(c) Determine profit or loss on each product line
(d) None of the above
(viii) A certain process needed standard labour of 24 skilled labour hours and 30 unskilled
labour hours at ₹ 60 and ₹ 40 respectively as the standard labour rates. Actually, 20 and 25
labour hours were used at ₹ 50 and ₹ 50 respectively. Then, the labour mix variance will be:
(a) Adverse
(b) Favourable
(c) Zero
(d) Favourable for skilled and unfavourable for unskilled
(ix) 1200 units were introduced in a process in which 120 units is the normal loss. If the actual
output is 900 units, then there is:
(a) No abnormal gain
(b) Abnormal loss of 180 units
(c) No abnormal loss
(d) Abnormal gain of 180 units
(x) Z Ltd. is planning to sell 1,00,000 units of product A for ₹ 12.00 per unit. The fixed costs are
₹ 2,80,000. In order to realize a profit of ₹ 2,00,000, what would the variable costs be?
(a) ₹4,80,000
(b) ₹ 7,20,000
(c) ₹ 9,00,000
(d) ₹ 9,20,000
(xi) A firm has fixed expenses ₹ 90,000, sales ₹ 3,00,000 and profit ₹ 60,000. The P/V ratio of the
firm is:
(a) 10%
(b) 20%
(c) 30%
(d) 50%
(xii) When costing loss is ₹ 5,600, administrative overhead under-absorbed being ₹ 600, the
loss as per financial accounts should be _____ .
(a) ₹ 5,000
(b) ₹ 5,600

7.16 |CMA Inter Cost Accounting

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 Objectives


(c) ₹ 6,200
(d) None of the above
(xiii) At the economic ordering quantity level, the following is true:
(a) The ordering cost is minimum
(b) The carrying cost is minimum
(c) The ordering cost is equal to the carrying cost
(d) The purchase price is minimum
(xiv) A company has to pay a ₹ 1 per unit royalty to the designer of a product which it manufac-
tures and sells. The royalty charge would be classified in the company’s accounts as a _____
(a) Direct expense
(b) Production overhead
(c) Administrative overhead
(d) Selling overhead.
(xv) If the time saved is less than 50% of the standard time, then the wages under Rowan and
Halsey premium plan on comparison gives:
(a) Equal wages under two plans
(b) More wages to workers under Halsey Plan than Rowan Plan
(c) More wages to workers under Rowan Plan than Halsey Plan
(d) None of the above.
Answers:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
b a a d d d c c b b d c c a c

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Dec ‘23
(i) Which of the following is applicable for cost control?
(a) It is a corrective function.
(b) It is related with the future,
(c) It challqucs the standard cost.
(d) It ends when the targets are achieved.
(ii) Under integral accounts, issue of direct material is debited to the following account:
(a) Purchase account
(b) Stores ledger control account
(c) Factory overhead control account
(d) Work-in-progress control account
(iii) Product ‘X’ generates a contribution to sales ratio of 40%. Fixed costs directly attributable
to ‘X’ amounts to ₹ 60,000 per month. The sales required to achieve a monthly profit of ₹
12,000 will be
(a) ₹ 1,87,500
(b) ₹ 2,00,000
(c) ₹ 1,65,000
(d) ₹ 1,80,000
(iv) The most suitable cost system where the products differ in type of materials and work
performed is _____
(a) Batch Costing
(b) Job Costing
(c) Process Costing
(d) Operating Costing
(v) Primary packing is a part of
(a) Direct material cost
(b) Production cost
(c) Selling overhead
(d) Distribution overhead
(vi) Cash Budget of PQR & Co. forewarns of a short-term surplus. Which of the following would
be the appropriate action to be taken in such a situation?
(a) Purchase new fixed assets
(b) Repay long-term loans
(c) Pay creditors early to obtain a cash discount

7.18 |CMA Inter Cost Accounting

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 Objectives


(d) Write-off preliminary expenses

(vii) The sales amount of Product ‘Z is ₹ 1,00,000. Its variable cost is ₹ 40,000 and fixed cost is ₹
50,000. The amount of BEP sales will be
(a) ₹ 60,000
(b) ₹ 50,000
(c) ₹ 83,333
(d) ₹ 90,000
(viii) Which of the following does not form part of prime cost?
(a) Cost of packing
(b) Overtime premium paid to workers
(c) GST paid on raw materials (input credit can be claimed)
(d) Cost of transportation paid to bring materials to factory
(ix) S & Co., which is using batch costing, provides the following information:
Annual demand for the components 4,800 units
Setting up cost per batch ₹ 50
Manufacturing cost per unit ₹ 100
Carrying cost per unit 12% per annum
On the basis of the above, Economic Batch Quantity of the firm is
(a) 100 units
(b) 200 units
(c) 300 units
(d) 400 units
(x) The method of apportioning joint costs on the basis of output of each joint product at
split-off is known as—
(a) Physical unit method
(b) Average cost method
(c) Sales value method
(d) Marginal cost and contribution method
(xi) In a process 12,000 units are introduced during a period. 5% of input is normal loss.
work-in-progress transferred 60% complete is 1,500 units. 9,900 completed units are to
next process,
Equivalent production for the period is
(a) 13,500 units
(b) 11,160 units

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 Objectives


(c) 8.100 units

(d) 10,800 units
(xii) Time allowed for a job is 80 hours, A worker takes 68 hours to complete the job. rate per
hour is ₹ 15, Total earnings of the worker under the Rowan Bonus Plan is
(a) ₹ 1,020
(b) ₹ 1,200
(c) ₹ 1,173
(d) ₹ 1,110
(xiii) Following information is available:
Overhead incurred ₹ 3,00,000
Overhead recovered ₹ 2,00,000
Cost of sales ₹ 5,00,000
Finished goods ₹ 4,00,000
Work-in-progress ₹ 3,50,000
From the above, Supplementary Overhead Rate to recover the under-absorbed overhead
is _____
(a) ₹ 0.20
(b) ₹ 0.25
(c) ₹ 0.08
(d) ₹ 0.29
(xiv) Which of the following Cost Accounting Standards (CASs) deals with Determination of
Average (Equalized) Cost of Transportation?
(a) CAS-5
(b) CAS-6
(c) CAS-9
(d) CAS-16
(xv) If standard hours for 100 units of output are 800 @ ₹ 4 per hour and actual hours taken are
760 @ ₹ 4.50 per hour, then the Labour Rate Variance is _____
(a) ₹ 480 (Adverse)
(b) ₹ 400 (Adverse)
(c) ₹ 380 (Adverse)
(d) ₹ 100 (Favourable

7.20 |CMA Inter Cost Accounting

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 Objectives


Answer :

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
d d d b b c c b b a d c c a c

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 Objectives


MTP Jun’24 Set 1

1. Choose the correct option: [15 x 2 = 30]

(i) Which standards deals with the principles and methods of determining depreciation and
amortization cost?
(a) CAS 9
(b) CAS 12
(c) CAS 15
(d) CAS 16
(ii) _____ is anything for which a separate measurement of cost is required.
(a) Cost driver
(b) Cost centre
(c) Cost unit
(d) Cost object
(iii) Direct Expenses _____ includes imputed cost.
(a) Shall
(b) Shall not
(c) Shall be
(d) None of these
(iv) Fixed costs are treated as
(a) Overhead costs
(b) Prime costs
(c) Period costs
(d) Conversion costs
(v) Sales budget is a _____ .
(a) expenditure budget
(b) functional budget
(c) master budget
(d) None of these
(vi) In which of the following situations an abnormal gain in a process occurs:
(a) When normal loss is equal to actual loss
(b) When the actual output is greater than the planned output
(c) When actual loss is more than the expected

7.22 |CMA Inter Cost Accounting

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 Objectives


(d) When actual loss is less than the expected loss

(vii) Absorption means
(a) Charging of overheads to cost centres
(b) Charging of overhead to cost units
(c) Charging of overheads to cost centres or cost units
(d) None of the above
(viii) Primary packing cost is a part of
(a) Direct material cost
(b) Distribution overhead
(c) Selling overhead
(d) Production cost
(ix) Equivalent production of 1,000 units, 60% complete in all respect, is:
(a) 1,000 units
(b) 1,600 units
(c) 600 units
(d) 1,060 units (1000 × 60%)
(x) When costing loss is ₹ 5,600, administrative overhead under-absorbed being ₹ 600, the
loss as per financial accounts should be _____ .
(a) ₹ 5,000
(b) ₹ 5,600
(c) ₹ 6,200
(d) None of the above
(xi) Contribution is ₹ 3,00,000 and sales is ₹ 15,00,000. Compute P/V ratio.
(a) 15%
(b) 20%
(c) 22%
(d) 17.5%
(xii) What is the labour rate variance if standard hours for 100 units of output are 400 @ ₹ 2 per
hour and actual hours taken are 380 @ ₹ 2.25 per hour?
(a) ₹ 120 (adverse)
(b) ₹ 100 (adverse)
(c) ₹ 95 (adverse)
(d) ₹ 25 (favourable)

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 Objectives


(xiii) Standard cost of material for a given quantity of output is ₹ 15,000 while the actual cost of
material used is ₹ 16,200. The material cost variance is:
(a) ₹ 1,200 (A)
(b) ₹ 16,200 (A)
(c) ₹ 15,000 (F)
(d) ₹ 31,200 (A)
(xiv) Job Costing is used in:
(a) Furniture making
(b) Repair shops
(c) Printing press
(d) All of the above
(xv) Under Taylor’s differential piece rate scheme, if a worker fails to complete the task within
the standard time, then he is paid
(a) 83% of the piece work rate
(b) 175% of the piece work rate
(c) 67% of the piece work rate
(d) 125% of the piece work rate
Answer :

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
d d b c b d b d c c b c a d a

7.24 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Objectives


Jun’24

1. Choose the correct answer from the given alternatives (You may write only the Roman
numeral and the alphabet chosen for your answer): 2 × 15 = 30

(i) _____ is a method of dealing with overheads which involves spreading common costs
over cost centres on the basis of benefit received.
(a) Overhead analysis
(b) Overhead apportionment
(c) Overhead allocation
(d) Overhead absorption
(ii) Which of the following CAS deals with the principles and methods of determining the
Production and Operation Overheads?
(a) CAS-2
(b) CAS-3
(c) CAS-5
(d) CAS-10
(iii) Hotel Dream House is having 250 rooms of which 70% are normally occupied in summer
and 40% are occupied in winter. Period of summer and winter be taken as 6 months each
and normal days in a month be assumed to be 30. What is the value of total occupied room
days?
(a) 31,500 room days
(b) 45,000 room days
(c) 36,000 room days
(d) 49,500 room days
(iv) In which of the following methods of pricing, costs lag behind the current economic values?
(a) Replacement price method
(b) Weighted average price method
(c) FIFO price method
(d) LIFO price method
(v) A Lorry starts with a load of 40 Metric Tonnes (MT) of goods from Station ‘A’. It unloads 16
MT in Station ‘B’ and the balance goods in Station ‘C’. On return trip, it reaches Station ‘A’
with a load of 32 MT, loaded at Station ‘C’. The distance between A to B, B to C and C to A are
40 kms, 60 kms and 80 kms respectively. On the basis of above information, “Commercial
MT-kilometers” are -
(a) 5,600 MT-kilometers

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(b) 5,760 MT-kilometers

(c) 6,200 MT-kilometers
(d) 6,450 MT-kilometers
(vi) In a process 800 units are introduced during 2023-24. 5% of input is normal loss. Closing
work-in-progress 60% complete is 100 units. 660 completed units are transferred to next
process. Equivalent production for the period is _____.
(a) 900 units
(b) 744 units
(c) 540 units
(d) 720 units
(vii) Following information is available :
Opening stock ₹ 4,000
Closing stock ₹ 6,400
Material consumed ₹ 31,200
On the above basis, what is the Inventory Turnover Ratio?
(a) 7.8
(b) 5
(c) 6
(d) 3
(viii) When P/V ratio is 20% and margin of safety ratio is 30%, profit is _____ of
(a) sales.
(b) 4%
(c) 6%
(d) 8%
(e) 10%
(ix) In P Ltd., labour force at the beginning of July 2023 was 3,800 and at the end of July 2023
was 4,200. During the month, 50 workers left while 80 workers were discharged. 560
workers were engaged out of which only 60 were appointed in the vacancy created by the
number of workers separated and the rest on account of expansion scheme. On the basis
of above information, Labour Turnover Ratio of the firm by Flux Method is _____.
(a) 14.00%
(b) 3.25%
(c) 1.50%
(d) 8.63%

7.26 |CMA Inter Cost Accounting

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 Objectives


(x) If an organisation has all the resources it needs for production, then the principal budget
factor is most likely to be _____.
(a) Cash supply
(b) Sales demand
(c) Raw materials
(d) Labour supply
(xi) The sum of direct labour and factory overheads is termed _____.
(a) Sunk cost
(b) Opportunity cost
(c) Direct cost
(d) Conversion cost
(xii) RST & Co. has set up a laboratory for testing of products for compliance with standards.
Salary of this laboratory staff is a part of _____.
(a) Direct expenses
(b) Works overhead
(c) Quality control cost
(d) Research and development cost
(xiii) A company requires 1,00,000 units of an item annually. The cost per unit is ₹ 10. Ordering
cost is ₹ 500 per order and inventory carrying cost is 50% per unit per annum. The Economic
Order Quantity (EOQ) in this case is _____.
(a) 4,470 units
(b) 4,472 units
(c) 6,420 units
(d) 6,472 units
(xiv) Which of the following method is used for evaluation of equivalent production when prices
are fluctuating in the market?
(a) FIFO method
(b) LIFO method
(c) Simple average method
(d) Weighted average method
(xv) In the year 2023-24, X & Co. used 2,820 kg of material at a total standard cost of ₹ 11,562.
The material usage variance was ₹ 123 (Favourable). In the above case, Standard Weight of
Material (SQ) for the period is _____.
(a) 2,900 kg.
(b) 2,850 kg.

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 Objectives


(c) 3,048 kg.

(d) 2,648 kg.
Answer :

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
(b) (b) (d) (c) (b) (d) (c) (b) (d) (b) (d) (c) (b) (d) (b)

7.28 |CMA Inter Cost Accounting

Divya Jadi Booti
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 Objectives


MTP Dec’24 [Set 1]

Choose the correct option: [15 × 2 = 30]
(i) What is the primary objective of cost accounting?
(a) Maximize profits
(b) Record financial transactions
(c) Provide financial statements
(d) Facilitate cost control and decision-making
(ii) If the direct materials consumed are ₹30,000, direct labour is ₹20,000, and factory overhead
is 15,000, what is the total manufacturing cost?
(a) 50,000
(b) 65,000
(c) 35,000
(d) 20,000
(iii) The sum of direct labour and factory overhead is termed _____.
(a) Prime Cost
(b) Conversion Cost
(c) Cost of goods manufactured
(d) Direct Cost
(iv) A company employs three drivers to deliver goods to its customers. The salaries paid to
these drivers are:
(a) a part of prime cost
(b) a direct production expense
(c) a production overhead
(d) a selling and distribution overhead
(v) What does CAS-11 emphasize regarding the treatment of abnormal administrative costs?
(a) Inclusion in cost calculations
(b) Exclusion from cost calculations
(c) Separate disclosure in footnotes
(d) Attestation by external auditors
(vi) Which of the following is a scientific and accurate method for calculating factory overhead
absorption?
(a) Percentage of prime cost method
(b) Machine hour rate method

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(c) Percentage of direct material cost method

(d) Percentage of direct labour cost method
(vii) A company calculates the prices of jobs by adding overheads to the prime cost and adding
30% to total costs as a profit margin. Job number Y256 was sold for ₹1,690 and incurred
overheads of ₹694. What was the prime cost of the job?
(a) 489
(b) 606
(c) 996
(d) 1,300
(viii) Which of the following does not form part of prime cost?
(a) GST paid on raw materials (input credit can be claimed)
(b) Cost of transportation paid to bring materials to factory
(c) Cost of packing
(d) Overtime premium paid to workers
(ix) Job costing is:
(a) Suitable where similar products are produced on a mass scale
(b) Method of costing used for non-standard and non-repetitive products
(c) Applicable to all industries regardless of the products or services produced
(d) None of the above
(x) Normal capacity of a plant refers to the difference between:
(a) Maximum capacity and practical capacity
(b) Maximum capacity and actual capacity
(c) Practical capacity and estimated idle capacity as revealed by long term sales trend
(d) Practical capacity and normal capacity
(xi) A flexible budget requires a careful study of:
(a) Fixed, semi-fixed and variable expenses
(b) Past and current expenses
(c) Overheads, selling and administrative expenses.
(d) None of these.
(xii) Marginal Costing technique follows the _____ basis of classification of costs.
(a) Element wise
(b) Function Wise
(c) Behaviour wise

7.30 |CMA Inter Cost Accounting

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 Objectives


(d) Identifiability wise

(xiii) What characterizes a non-integrated cost accounting system?
(a) Unified ledger system
(b) Separate cost and financial accounts
(c) Sole reliance on cost principles
(d) Complex reconciliation processes
(xiv) Administration overheads are usually absorbed as a percentage of _____.
(a) Works Cost
(b) Prime Cost
(c) Cost of goods sold
(d) Cost of production
(xv) If the time saved is less than 50% of the standard time, then the wages under Rowan and
Halsey premium plan on comparison gives:
(a) Equal wages under two plans
(b) More wages to workers under Halsey Plan than Rowan Plan
(c) More wages to workers under Rowan Plan than Halsey Plan
(d) None of the above
Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
d b b d b b b d b c a c b a b

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CMA Inter Cost Accounting
| 7.31
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 Objectives


Postal Test Paper

1. Multiple Choice Questions

(i) Ticket counter in a Metro Station is an example of:

(a) Profit centre
(b) Investment centre
(c) Cost centre
(d) Revenue centre
(ii) Which of the following is applicable for Cost Control?
(a) It is related with the future
(b) It is a corrective function
(c) It ends when the targets are achieved
(d) It challenges the standards set
(iii) Absorption costing is also referred as:
(a) Historical costing
(b) Traditional costing
(c) Full costing
(d) All of the above terms
(iv) Prime cost is:
(a) all costs incurred in manufacturing a product
(b) the total of direct costs
(c) the material cost of a product
(d) the cost of operating a department
(v) Direct Material is a:
(a) Administration Cost
(b) Selling and Distribution Cost
(c) All of these
(d) None of these
(vi) Which of the following methods smoothes out the effect of fluctuations when material
prices fluctuate widely?
(a) FIFO
(b) Simple Average
(c) LIFO

7.32 |CMA Inter Cost Accounting

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 Objectives


(d) Weighted average

(vii) Labour turnover is measured by:
(a) Number of workers replaced / average number of workers
(b) Number of workers left / number in the beginning plus number at the end
(c) Number of workers joining / number in the beginning of the period
(d) All of these
(viii) Under Taylor’s differential piece rate scheme, if a worker fails to complete the task within
the standard time, then he is paid:
(a) 83% of the piece work rate
(b) 175% of the piece work rate
(c) 67% of the piece work rate
(d) 125% of the piece work rate
(ix) Normal capacity of a plant refers to the difference between:
(a) Maximum capacity and practical capacity
(b) Maximum capacity and actual capacity
(c) Practical capacity and estimated idle capacity as revealed by long term sales trend
(d) Practical capacity and normal capacity
(x) Selling and Distribution overhead are absorbed on the basis of:
(a) Rate per unit
(b) Percentage on works cost
(c) Percentage on selling price of each unit
(d) Any of these
(xi) A company employs three drivers to deliver goods to its customers. The salaries paid to
these drivers are:
(a) a part of prime cost
(b) a direct production expense
(c) a production overhead
(d) a selling and distribution overhead
(xii) Which of the following is considered an accounting record?
(a) Bin Card
(b) Bill of Material
(c) Store Ledger
(d) None of these

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| 7.33
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 Objectives


2. State whether the following statements are “True or “False”: [1×7=7]

(i) Material returned note is prepared to keep a record of return of surplus materials to stores.
(ii) As per the Payment of Bonus Act, 1965 the maximum limit of bonus is 20% of gross earning
(iii) Departments that assist producing department indirectly are called service departments.
(iv) Primary packaging cost is included in distribution cost.
(v) Cost ledger control account makes the cost ledger self-balancing.
(vi) Notional interest on owner’s capital appears only in financial profit and loss account.
(vii) Operating costing is applied to ascertain the cost of products.

3. Fill in the blanks: [1 × 6 = 6]

(i) The _____ product generally has a greater sale value than by product.
(ii) Three types of standards are_____ , _____, _____.
(iii) Responsibility Accounting is a system of accounting that recognizes various_____ through-
out the organisation.
(iv) Only difference between variable costing and absorption costing is the classification
of_____.
(v) Variable costs change _____ in direct proportion to changes in output.
(vi) A variable cost is _____per unit.
Answers:

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

2. (i) (ii) (iii) (iv) (v) (vi) (vii)

True True True False True False False

3. (i) (ii) (iii) (iv) (v) (vi)

Main Basic, Ideal responsibility fixed factory in total constant
and Current centres overhead

7.34 |CMA Inter Cost Accounting

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www.sjcinstitute.com 8100 11 2222