Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

INTERMEDIATE EXAMINATION
Syllabus 2016
Paper 8: COST ACCOUNTING (CAC)
Time Allowed: 3 Hours Full Marks: 100

There are Sections A, B, C and D to be answered subject to instructions given against each.
Section A 20 × 1 =
You are required to answer all the questions. Each question carries 1 mark. 20
Instructions: Each question is followed by 4 Answer choices and only one is correct. Marks
You are required to select the choice which according to you represents the correct answer.

1.

a. Notional cost is a __________ .

(i) Imputed cost A

(ii) Real cost

(iii) Normal cost

(iv) Variable cost

b. Sale of defective goods is ?

(i) Reduced from cost of production A

(ii) Added from cost of production

(iii) No relation with cost of production

(iv) None of the above

c. Which among the following is not a part of cost accounting?

(i) Product Costing

(ii) Planning

(iii) Profit sharing A

(iv) Controlling

d. Cost incurred due to shortage of stock is known as:

Choose the most appropriate word from the choices below.

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

(i) Out of stock cost A

(ii) Imputed cost

(iii) Urgent cost

(iv) Abnormal cost

e. There is a profit as per financial account amounting to Rs. 20,000, donation not shown in cost
accounts amount to Rs. 8,000. what would be the profit or loss as per cost accounting?

(i) Profit of Rs. 12,000

(ii) Profit of Rs. 28,000 A

(iii) Loss of Rs. 12,000

(iv) Loss of Rs. 28,000

f. Which of the following methods smoothes out the effect of fluctuations when material prices
fluctuate widely?

(i) FIFO

(ii) LIFO

(iii) Weighted average A

(iv) Average method

g. What is Idle time?

(i) Time spent by workers off their work A

(ii) Time spent by workers on their job

(iii) Time spent by workers in office

(iv) Time spent by workers in factory

h. Which standard deals with “production and operation overhead”?

(i) CAS – 8

(ii) CAS – 3 A

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

(iii) CAS – 10

(iv) CAS – 12

i. Spoilage that occurs under inefficient operating conditions and is generally controllable is called:

(i) Normal defectives

(ii) Abnormal spoilage A

(iii) Normal spoilage

(iv) None of the above

j. Absolute Tonne-km. is an example of:

(i) Composite unit for bus operation

(ii) Composite unit of transport sector A

(iii) Composite unit for oil and natural gas

(iv) All of the above

k. Which among the following methods are used when standardized products are manufactured
under a series of inter-connected operations?

(i) Job costing method

(ii) Process costing method A

(iii) Standard costing method

(iv) All of the above

l. For a toy manufacturing company, which among the following is most suitable

(i) Multiple costing

(ii) Process costing

(iii) Batch costing A

(iv) Unit costing

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

m. Which costing method is adopted in cement industries___________ . Which word(s) according

to you appropriately fills in above blank?

(i) Job Costing

(ii) Contract Costing

(iii) Operating Costing

(iv) Process Costing A

n. Batch costing method is suitable for__________

(i) Sugar Industry

(ii) Chemical Industry

(iii) Pharma Industry A

(iv) Oil Industry

o. What is the labour rate variance if standard hours for 100 units of output are 400 @ Rs. 2 per
hour and actual hours taken are 380 @ Rs. 2.25 per hour?

(i) Rs. 95 (adverse) A

(ii) Rs. 100 (adverse)

(iii) Rs. 120 (adverse)

(iv) Rs. 25 (favourable)

p. Which of the following is not a reason for an idle time variance?

(i) strike and lockouts

(ii) power failure

(iii) uncontrollable loss of time A

(iv) machine breakdown

q. The difference between fixed cost and variable cost assumes significance in the preparation of
which of the following budget?

(i) Flexible budget A

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

(ii) Master budget

(iii) Capital budget

(iv) Cash budget

r. Which cost is considered under marginal costing?

(i) Variable Cost A

(ii) Fixed Cost

(iii) Semi-variable Cost

(iv) Market Price

s. Which among the following are not useful for managerial decision making?

(i) Marginal Cost

(ii) Standard Cost

(iii) Sunk Cost A

(iv) None of the above

t. When sales exceed production (in units) then profit under:

(i) Marginal costing is higher than that of absorption costing A

(ii) Marginal costing is equal to that of absorption costing

(iii) Marginal costing is lower than that of absorption costing

(iv) None of the above

Section B 10 × 2
You are required to answer all the questions. Each question carries 2 Mark. =20
Instructions: Each question is followed by a space where you are required to type your answer. Marks

2. a. What are explicit costs?

Type your answer here Costs which involve immediate payment of cash, salaries, wages etc. are
known as explicit costs.

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

b. What is the basis used for classifying inventory under FSN system of inventory control?

Type your answer here Frequency of the items of inventory use.

c. How is the direct labour hour rate calculated?

Type your answer here The direct labor hour rate is computed by dividing the overheads by the
aggregate of the productive hours of direct workers.

d. In a company there were 1200 employee on the rolls at the beginning of a year and 1180 at the
end. During the year 120 persons left services and 96 replacements were made. What is the
percentage of labour turnover to flux method ?

Type your answer here 9.08

Rough Work ½ x (96+120)/(1180 + 1200) x 100 = 9.08%

e. What is Economic Batch Quantity?

Type your answer here Economic Batch Quantity refers to the optimum quantity batch which
should be produced at a point of time so that the Set up & Processing Costs and Carrying Costs
are together optimized.

f. In a process 8000 units are introduced during a period. 5% of input is normal loss. Closing work
in progress 60% complete is 1000 units. 6600 completed units are transferred to next process.
Equivalent production for the period is:

Type your answer here 7,200 unit

g. What are joint costs?

Type your answer here Costs incurred prior to the split off point are known as Joint costs.

h. A firm has Fixed Expenses of Rs. 1,80,000, Sales of Rs. 6,00,000 and Profit of Rs. 1,20,000. What is
the value of P/V Ratio of the firm ?

Type your answer here 50%

i. Standard price of material per kg is Rs. 20, standard usage per unit of production is 5 kg. Actual
usage of production 100 units is 520 kgs, all of which was purchase at the rate of Rs. 22 per kg.

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

Calculate material cost variance.

Type your answer here 1,440 Adverse

j. Standard price of material per kg Rs. 20, standards consumption per unit of production is 5 kg.
Standard material cost for producing 100 units is

Type your answer here Rs. 10,000

Section C 12 × 4 =
You are required to answer any 4 out of 6 questions in this section 48
Instructions: Each question is followed by a space where you are required to type your answer. Marks

3. a. The following data were obtained from the books of A Company for the half-year ended 30th
September 2020:
Expenses Amount (Rs.)

Store Overhead 800

Motive Power 3,000

Electric Lighting 400

Labour Welfare 6,000

Depreciation 12,000

Repair and Maintenance 2,400

General Overhead 20,000

Rent And Taxes 1,200

Particulars Production department Service department

P1 P2 P3 S1 S2

Area (sq. ft.) 400 300 300 100 100

Direct wages (Rs) 14000 12000 10000 2000 2000

Direct Material (Rs.) 6000 5000 4000 3000 2000

Value of Plant (Rs.) 50000 30000 20000 10000 10000

Employees (No.) 800 600 600 200 200

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

Horse Power of Plant 8000 6000 6000 2000 3000

light point (No.) 10 15 15 5 5

(i) What is the value of overheads allocated to each department? 4

Type your answer here

Overheads allocated:
P1 - 16,640
P2 - 12,440
P3 - 10,200
S1 - 8200
S2 - 7280
ROUGH WORK
Statement of Primary Distribution of Overheads
Expenses Total(Rs.) Basis P1(Rs.) P2(Rs.) P3(Rs.) S1(Rs.) S2(Rs.)

Direct wages 4,000 Actual - - - 2,000 2,000

Direct 5,000 Actual - - - 3,000 2,000

material

Depreciation 12,000 Plant 5,000 3,000 2,000 1000 1,000

Value

Lighting 400 No of 80 120 120 40 40

points

Store 800 Direct 240 200 160 120 80

overhead material

Motive power 3,000 horse 960 720 720 240 360

power

Labour 6,000 employe 2,000 1,500 1,500 500 500

welfare es

Repair and 2,400 Plant 1,000 600 400 200 200

maintenance Value

General 20,000 direct 7,000 6,000 5,000 1000 1,000

overhead wages

1,200 area 400 300 300 100 100

Rent and occupied
taxes

Total 54,800 16,680 12,440 10,200 8,200 7,280

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

(ii) What is the value of the overheads of the production department post re-distribution of the 4
service departments of the overheads, if the expense of department S1 apportion in the ratio of
4:3:3 and that of department S2 in proportion of direct wages?

Type your answer here

Overheads of the production departments:
P1 = Rs.22791
P2 = Rs.17327
P3 = Rs.14682
ROUGH WORK
Statement of Distribution of Service Department Costs to Primary Departments
Particulars P1 P2 P3

Rs. Rs. Rs.

Overhead Costs as per Primary Distribution 16680 12440 10200

Distribution of Service Department Costs:

S1 (8200) 3280 2460 2460

S2 (7280) 2831 2427 2022

TOTAL 22791 17327 14682

Working Notes:
Basis of Distribution of Service Department Costs
S1: 4:3:3 (given)
S2: direct wages (7:6:5)

b. R Limited has received an offer of quantity discount on its order of materials as under: 4
Tonnes Price per Tonne

100 and less than 200 Rs. 9,120

200 and less than 300 Rs. 8,880

300 and above Rs. 8,640

Additional Information:
The annual requirement for the material is 500 tonnes. The ordering cost per order is Rs 12,500
and the stock holding cost is estimated at 25% of the material cost per annum.
What is the Economic Order Quantity?

Type your answer here Most Economical Purchase Level: 300 tonnes
Rough Work
Computation of Most Economical Order Level
Order size 100 200 300 400
(tonnes)

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

No. of orders 5 3 2 2

Cost of purchase 45,60,000 44,40,000 43,20,000 43,20,000

(Rs.) (A) (500×9120) (500×8880) (500×8640) (500×8640
)

Ordering cost 62,500 37,500 25,000 25,000

(Rs.) (B)

Carrying cost 1,14,000 2,22,000 3,24,000 4,32,000

(Rs.) (C)

Total (Rs.) [(A) + 47,36,500 46,99,500 46,69,000 47,77,00

(B) + (C)] 0
The above table shows that the total cost of 500 units including ordering and carrying cost is
minimum (46,69,000) where the order size is 300 units. Hence the most economical purchase
level is 300 units.

4. a. The components A and B are used as follows: 4

Normal usage .... 300 units per week each
Maximum usage .... 450 units per week each
Minimum usage .... 150 units per week each
Reorder Quantity .... A 2,400 units; B 3,600 units.
Reorder period .... A 4 to 6 weeks, B 2 to 4 weeks.
Calculate for each component:
(i) Re-order Level (ii) Minimum Level (iii) Maximum Level (iv) Average Stock Level

Type your answer here

i. Re-order Level = A - 2700 units ; B – 1800 units
ii. Minimum Level = A - 1200 units ; B - 900 units
iii. Maximum Level = A - 4500 units ; B – 5100 units
iv. Average Stock Level = A - 2850 units or 2400 units ; B - 3000 units or 2700 units
ROUGH WORK
Particulars A B

(i) Reorder Level 2700 units 1800 units

[Max. Consumption x Max. Re-order (450 x 6) (450 x 4)
Period]
(ii) Minimum Level 1200 units 900 units
[ROL – (Normal Consumption x Normal [2700 – (300 x 5)] [1800 – (300 x 3)]
Re-order period)]
(iii) Maximum Level 4500 units 5100 units
[ROL + ROQ – (Min. Consumption x Min. [2700 + 2400 – [1800 + 3600 –
Re-order Period)] (150 x 4)] (150 x 2)]
(iv) Average Stock Level 2850 units 3000 units
[Min. Level + Max. Level]/2 [4500 + 1200]/2 [5100 + 900]/2
OR (or) 2400 units (or) 2700 units
[Min. level + ½ re – Order Quantity} 1200 + ½ (2400) 900 + ½ (3600)

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

b. The management of XYZ Ltd. is worried about the increasing Labour Turnover in the factory and 5
before analyzing 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 Rs.
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: Rs. 43, 820 & Recruitment costs: Rs.
26,740. Selection costs: Rs. 12,750, & Training costs: Rs. 30,490.
Assuming that the potential production lost as a consequence of Labour Turnover could have
been sold at prevailing prices.What is the profit foregone last year on account of Labour
Turnover?

Type your answer here

Profit foregone last year on account of Labour Turnover=4,30,000 actual productive hours.
ROUGH WORK
1)Actual productive hours: Actual hours worked – Unproductive training hours
= 4,45,000 – 15,000 [50% of 30, 000]
= 4,30,000 actual productive hours.
Total hours lost: 1,00,000 hrs
Sales lost [Rs. 83,03,300 × 1,00,000]/4,30,000 = Rs. 19,31,000
Loss of contribution – 20% of Rs.19,31,000 = Rs.3,86,200
Profit foregone = Rs. 5,00,000

2) Statement Showing Profit Foregone

Amount (Rs.)
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

c. Gross pay Rs.10,30,000 (including cost of idle time hours paid to employee Rs. 25,000); 3
Accommodation provided to employee free of cost [this accommodation is owned by employer,
depreciation of accommodation Rs.1,00,000, maintenance charges of the accommodation Rs.
90,000, municipal tax paid for this accommodation Rs. 3,000], Employer’s Contribution to P.F. Rs.
1,00,000 (including a penalty of Rs. 2,000 for violation of PF rules), Employee’s Contribution to
P.F. Rs. 75,000. What is the Employee cost?

Type your answer here Employee Cost = Rs. 12,96,000

ROUGH WORK

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

5. a. A contractor undertook a contract for Rs. 5 lakh on 1-07-2020 for the construction of a library 7
building. On 30-06-2021, when the accounts were closed, the following details about the contract
were gathered:
Particulars (Rs.)

Materials purchased 1,00,000

wages paid 45,000

General expenses 9,000

Plant purchased 60,000

Material in hand on 30-06-2021 25,000

Wages accrued 30-06-2021 5,000

Work certified 2,00,000

Work uncertified 15,000

Cash received 1,50,000

Plant depreciation 6,000

The above contract contains an escalation clause which reads as follows. ‘In the event the price
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 price of materials and wage rates
increased by 25%. The value of work certified does not take into account the effect of the above
clause.
(a) Determine the escalation value?
(b) What is the amount of profit transferred to P/L A/c?
(c) What is the amount transferred to reserve?

Type your answer here

(a) Escalation value – Rs. 5,000
(b) Profit transferred to P/L A/c – Rs. 20,000
(c) Amount transferred to reserve - Rs. 60,000

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

ROUGH WORK

Contract Account (for the year ended 30th, June 2021)

Dr. Cr.
Particulars Rs. Particulars Rs.
To Materials 1,00,000 By WIP:
To Labour 45,000 work certified 2,00,000
Add: Accrued 5,000 50,000
To General expense 9,000 work uncertified 15,000
To Depreciation 6,000 By material in hand 25,000
By contract escalation 5,000
To Balance c/d (Notional profit) 80,000

2,45,000 2,45,000

To P&L a/c (80000*⅓*150000/200000) 20,000 By balance b/d 80,000

To balance c/d (reserve) 60,000

80,000 80,000
Working Notes:
a) Calculation of Escalation:
material consumed = 1,00,000 – 25,000 = 75,000
increased in material cost = 75,000 * 25/125 = 15,000
wags = 45,000 + 5,000 = 50,000
increase in wages = 50,000*25/125 = 10,000
Total increase 25,000
since the increase in materials and wages is more than 5%, the escalation will apply. escalation
is 25% of the increase in the cost of material and wages beyond 5%.
25% increase 25,000
less: 5% increase 5,000
increased beyond = 20,000
escalation = 20,000*25% = 5,000
this contract escalation of 5000 will be credited to contract account.
b) As the contract is only 40% certified, only ⅓ of the profit in cash ra o has been transferred to
P&L Account.

b. Mr. S has started a transport business with a fleet of 10 taxies. The various expenses incurred by 5
him are given below:
(i) Cost of each taxi Rs. 3,80,000.
(ii) Salary of Office and garage Staff Rs. 38,000 p.m.
(iii) Rent of Garage Rs. 12,000 p.m.
(iv) Drivers Salary (per taxi) Rs. 4,000 p.m.
(v) insurance, Road Tax and Repairs per taxi Rs. 55,200 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 Rs. 20,000.
A taxi runs on an average 4,000 Km. per month. Petrol consumption is 12 km per litre of petrol
costing Rs. 30 per litre. What is the cost of running a taxi per km?

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

Type your answer here

Cost of running a taxi per km = Rs. 7.10/km
Rough Work
Operating Cost Sheet
Particulars Details/Computation Per taxi p.m (Rs.) Per Km
(Rs.)

Fixed Expenses:

Salary of office and garage staff 38000/10 3,800

Rent of garage 12000/10 1,200

Driver Salary 4,000

Insurance, Road tax and repairs 55200/12 4,600

Fixed Cost of 1 taxi per month 13,600

Fixed Cost per Taxi per km 13600/4000 3.40

Running Costs:

Depreciation (3,80,000 - 20,000) / 1.20

3,00,000

Petrol 2.50

Total Cost per taxi per Km 7.10

6. a. AB Ltd.is committed to supply 24,000 bearings per annum to CD Ltd. On a steady basis. It is 4
estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-
up cost per run of bearing manufacture is Rs. 324.
What is the minimum inventory holding cost at optimum run size?

Type your answer here Minimum holding cost (run size 3600 bearings) = Rs. 2160
ROUGH WORK

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

b. State 3 differences between Absorption Costing and Marginal Costing 3

Type your answer here

1. In Absorption Costing both fixed and variable costs are considered for product costing and
inventory valuation whereas in Marginal Costing only variable costs are considered for
product costing and inventory valuation.
2. Under Absorption Costing fixed costs are charged to the cost of production. Each product
bears a reasonable share of fixed cost and thus the profitability of a product is influenced by
the apportionment of fixed costs while under Marginal Costing fixed costs are regarded as
period costs. The profitability of different products is judged by their P/V ratio.
3. Cost data are presented in conventional pattern. Net profit of each product is determined
after subtracting fixed cost along with their variable cost in Absorption Costing. However in
Marginal Costing cost data are presented to highlight the total contribution of each product.

c. On the basis of the following data, determine the overhead rates at 70% and 80%. 5

Particulars Amount (Rs.)

Production capacity At 80%

Variable Overheads: capacity
Indirect labour 12,000
Stores including spares 4,000
Semi Variable:
Power (30% - Fixed: 70% -Variable) 20,000
Repairs (60%- Fixed: 40% -Variable) 2,000
Fixed Overheads:
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Total overheads 62,000
Estimated Direct Labour Hours 1,24,000

Type your answer here:

Overhead rate:
at 70% = 0.536
at 80% = 0.5

ROUGH WORK

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

Particulars Capacity Utilisation

70% 80%

(A) Variable Overheads:

Indirect labour 10,500 12,000

Stores including spares
3,500 4,000

Total (A) 14,000 16,000

(B) Semi Variable Overheads:

Power 18,250 20,000

Repair
1,900 2,000

Total (B) 20,150 22,000

(C) Fixed Overheads:

depreciation 11,000 11,000

3,000 3,000
insurance
10,000 10,000
salaries

Total (C) 24,000 24,000

Grand Total (A+B+C) 58,150 62,000

Labour hours 1,08,500 1,24,000

(124000*⅞)

Overhead rate per hour (Rs.) = 0.536 = 0.50

(58150/108500) (62000/124000)
Workings:
Semi Variable Overheads
70% 80%

Variable 14000*(⅞)= 12250 14000*(9/8) = 15750

Fixed 6,000 6,000

Fixed 6,000 6,000

Total 18,250 21,750

Repairs

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

Variable 800*(⅞) = 700 800*(9/8) = 900

Fixed 1,200 1,200

Total 1,900 2,100

7. a. When the volume is 3,000 units, the average cost is Rs 4 per unit. When volume is 4,000 units,
average cost is Rs 3.50 per unit. The break-even point is 5,000 units.

(i) What is the profit volume ratio? 3

Type your answer here Profit-volume ratio = 37.5%

ROUGH WORK
Output (units) Average cost (Rs.) Total cost (Rs.)

3,000 4 12,000

4,000 3.50 14,000

Difference 1,000 2,000

Variable cost per unit = 2,000/1,000 = Rs 2

Total Fixed cost = 12000 - (3,000 units * 2) = Rs 6,000
At BEP: sales = Fixed cost + Variable cost
Cost at 5,000 units = 6,000 + (5,000 * 2) = 16,000
BEP = fixed cost / p/v ratio
16,000 = 6,000 / p/v ratio
p/v ratio = 6,000/16,000 = 37.50%

(ii) If margin of safety is 40% of sales, what is the fixed cost when profit is Rs 2,00,000? 3

Type your answer here Fixed cost = Rs. 30,000

ROUGH WORK
Margin of Safety = 40%, thus BEP = 60% of sales
Margin of Safety (M/S) = profit/ P/V ratio, BEP = Fixed cost / P/V ratio
M/S/BEP = 40% of sales/ 60% of sales
= Profit/pv ratio divided by fixed cost / pv ratio
= Profit / Fixed cost
= 40%/60% = ⅔
= ⅔ = Profit / Fixed cost
= 20,000/Fixed cost
= Fixed cost = 60000/2
= Rs 30,000

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

b. For making 10 kg of Gemco, the standard material requirement is: 6

Material Quantity (kg) Rate per kg (Rs.)

A 8 6

B 4 4

During April, 1000 kg of Gemco were produced. The actual consumption of material is as under:

Material Quantity (kg) Rate per kg (Rs.)

A 750 7

B 500 5
Calculate:
Material Cost Variance
Material Price Variance
Material Usage Variance.

Type your answer here

Material Cost Variance - 1350 (A)
Material Price Variance - A = 750 (A), B = 500 (A)
Material Usage Variance - A = 300 (F), B = 400 (A)
ROUGH WORK
Standard for 1000 kg Actual for 1000 kg
Material Qty (kg) Rate (Rs.) Amount (Rs.) Qty (kg) Rate (Rs.) Amount (Rs.)

A 800 6 4,800 750 7 5,250

B 400 4 1,600 500 5 2,500

Total 1,200 6,400 1,250 7,750

Calculation of variance:
Material cost variance: SC for actual cost - AC = 6400 - 7750 = 1350 (A)
Material price variance = (SP-AP) x AQ
A = (6-7 × 750 = 750 (A)
B = (4-5) × 500 = 500 (A)
= 1250 (A)
Material usage variance = (SQ- AQ) x SP
A = (800-750) × 6 = 300 (F)
B = (400-500) × 4 = 400 (A)
= 100 (A)

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

8. You are required to write Short Notes on any 4 out of 5 questions. 4× 3 = 12

Marks

(i) Explain the Objectives of Cost Accounting Standard Board (CASB)

Type your answer here

The objectives of the CASB are to develop high quality Cost Accounting Standards on important
issues/topics relating to Cost and Management Accounting with the following objectives:
(i) To issues the guidelines for Cost Accounting Standard.
(ii) To equip the profession with better guidelines on standard cost accounting practices.
(iii) To assists the Cost Accountant in preparation of uniform cost statements.
(iv) To provide from time to time proper interpretations on various Cost Accounting Standards.
(v) To assist the management to follow the standard cost accounting practices in the matter of
compliances of statutory obligations.
(vi) To issue appropriate guidelines relating to particular standard.
(vii) To help Government and Industry towards better cost control and cost management. (viii)
To assist the cost accountant to undertake cost audit in appropriate way as all cost statement
are in uniform format.

(ii) Role of the Cost Accountants in an organization. (Any 6)

Type your answer here

The role of the cost accountants in the organisations can be enumerated as follows:
(i) to analyse various elements of cost of production/services such as material, labour, overhead
expenses etc.
(ii) to introduce appropriate costing methods in the organisation so as to facilitate management
with the knowledge of cost of production/services for managerial decision making
(iii) to determine the cost of the new product/service in order to facilitate management in
arriving at the correct pricing decisions
(iv) to determine the feasibility and profitability of the various project proposals considered by
the management
(v) to analyse variances against standard by reason to enable concerned department to initiate
corrective action
(vi) collection, collation of extraneous information for management to compare the company’s
performance with that of peers and the industry for better appreciation and decision−making.

(iii) Advantages of job costing (Any 3)

Type your answer here

Job costing offers the following advantages:
(a) The cost of material, labour and overhead for every job or product in a department is available
daily, weekly or as often as required while the job is still in progress.
(b) On completion of a job, the cost under each element is immediately ascertained. Costs may
be compared with the selling prices of the products in order to determine their profitability and
to decide which product lines should be pushed or discontinued.
(c) Historical costs for past periods for each product, compiled by orders, departments, or

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

machines, provide useful statistics for future production planning and for estimating the costs of
similar jobs to be taken up in future. This assists in the prompt furnishing of price quotations for
specific jobs.
(d) The adoption of predetermined overhead rates in job costing necessitates the application of
a system of budgetary control of overhead with all its advantages.
(e) The actual overhead costs are compared with the overhead applied at predetermined rates;
thus, at the end of an accounting period, overhead variances can be analyzed.
(f) Spoilage and defective work can be easily identified with specific jobs or products.
(g) Job costing is particularly suitable for cost-plus and such other contracts where selling price is
determined directly on the basis of costs .

(iv) Any 6 limitations of Break-even analysis.

Type your answer here

a. That Costs are either fixed or variable and all costs are clearly segregated into their fixed and
variable elements. This cannot possibly be done accurately and the difficulties and complications
involved in such segregation make the break-even point inaccurate.
b. That the behavior of both costs and revenue is not entirely related to changes in volume.
c. That costs and revenue patterns are linear over levels of output being considered. In practice,
this is not always so and the linear relationship is true only within a short run relevant range.
d. That fixed costs remain constant and variable costs vary in proportion to the volume. Fixed
costs are constant only within a limited range and are liable to change at varying levels of activity
and also over a long period, particularly when additional plants and equipments are introduced.
e. That sales mix is constant or only one product is manufactured. A combined analysis taking all
the products of the mix does not reflect the correct position regarding individual products.
f. That production and sales figures are identical or the change in opening and closing stocks of
the finished product is not significant.
g. That the units of production on the various product range are identical. Otherwise, it is difficult
to find a homogeneous factor to represent volume.
h. That the activities and productivity of the concern remain unchanged during the period of
study.
i. As output is continuously varied within a limited range, the contribution margin remains
relatively constant. This is possible mainly where the output is more or less homogeneous as in
the case of process industries.

(v) Causes of Direct Rate labour variance (Any 3).

Type your answer here

a. Change in basic wage structure or change in piece-work rate. These will give rise to a variance
till such time the standards are not revised
b. Employment of workers of grades and rates of pay different from those specified, due to
shortage of labour of the proper category, or through mistake, or due to retention of surplus
labour
c. Payment of guaranteed wages to workers who are unable to earn their normal wages if such
guaranteed wages form part of direct labour cost
d. Use of a different method of payment, e.g. payment at day-rates while standards are based

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
 Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

on piece-work method of remuneration.

e. Higher or lower rates paid to casual and temporary workers employed to meet seasonal
demands, or urgent or special work
f. New workers not being allowed full normal wage rates
g. Overtime and night shift work in excess of or less than the standard, or where no provision
has been made in the standard. This will be applicable only if overtime and shift differential
payments form part of the direct labour cost.
h. The composition of a gang as regards the skill and rates of wages being different from that
laid down in the standard .

Section D 12 × 1 =
You are required to answer all the questions in this section 12
Instructions: Each question is followed by a space where you are required to type your Marks
answer.

9. Mr. Y has completed his graduation very recently and undertaken a course on entrepreneurship.
He has learnt various concepts of cost and management accounting.
He has managed to gather some funds amounting to Rs.50,000. However, applying the various
concepts of cost and management accounting, he arrived at a conclusion that the fixed costs
would amount to Rs. 75,000 per year.
He had a discussion with a Cost and Management Account who opined that the Variable Cost
would be 60% of Sales Revenue.
However, Rs.50,000 would not be sufficient for starting the business instead Rs. 1,50,000 would
be the total investment required for the business.
Mr. Y seeks a 15% profit on the total investment in the business.

a. Mr. Y is interested to know the P/V Ratio. You are required to assist him in commuting the P/V 3
Ratio.

Type your answer here

P/V Ratio = 40%
ROUGH WORK
P/V Ratio= Sales - Variable cost
=40 %

b. Now he want to know that what sales volume must be obtained to reach at a position of no 3
profit no loss situation?

Type your answer here

Break even sales = Rs. 1,87,500
ROUGH WORK
b) Break even sales = Sales/Profit volume ration
=75,000 / 40%
= Rs. 1,87,500

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
Mock Test Paper with Model Answer for June 2022 Online Examination-Inter/P08-CAC/S2

c. Mr Y want to achieve 15 % return on his investment , now you suggest him the targeted sales 3
volume to reach his desired income.

Type your answer here

Rs 2,43,750/-
ROUGH WORK
Required sales to get desired income = Fixed Cost+15% of Investment/profit Volume ratio
=75,000+(15%of 1,50,000)/40%
= Rs. 2,43,750

d. Mr. Y estimates that even if he closed the doors of his business he would incur Rs. 25,000 3
expenses per year. At what sales would be better off by locking his sales up?

Type your answer here

Rs. 1,25,000
ROUGH WORK
Shut down sales = Fixed cost – shut down cost P/V Ratio
= (75,000 – 25,000) / 40%
= Rs. 1,25,000

END

The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)