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PAPER – 3: COST AND MANAGEMENT ACCOUNTING

QUESTIONS
Material Cost
1. Reliable India Pvt Ltd is a startup company engaged in manufacturing of Agro Tech product
from a raw material, which is purchased at `190 per kg. The company incurs a handling
cost of `1,470 plus, freight of `770 per order. The incremental carrying cost of inventory
of raw material is `3 per kg per month. In addition, the cost of working capital finance on
the investment in inventory of raw material is `20 per kg per annum. The annual production
of the product is 1,50,000 units and 3 units are obtained from one kg. of raw material.
Assume 360 days in a year.
Required:
(i) Calculate the economic order quantity of raw materials.
(ii) Determine, how frequently company should order for procurement be placed.
(iii) If the company proposes to rationalize placement of orders on quarterly basis,
determine the percentage of discount in the price of raw materials should be
negotiated?
Employee Cost
2. Following information are available from the cost records of BMR Limited, CALCULATE
Labour turnover rate and Labour flux rate:
No. of Employees as on 01.04.2021 = 9,400
No. of Employees as on 31.03.2022 = 10,600
During the year, 160 Employees left while 640 Employees were discharged and 1,500
Employees were recruited during the year; of these, 400 Employees were recruited
because of exits and the rest were recruited in accordance with expansion plans.
Overhead
3. SANDY Ltd. is a manufacturing company having three production departments, ‘A’, ‘B’ and
‘C’ and two service departments ‘X’ and ‘Y’. The following is the budget for December
2022:
Total (`) A (` ) B (` ) C (` ) X (` ) Y (` )
Direct material 1,60,000 3,20,000 6,40,000 3,20,000 1,60,000
Direct wages 8,00,000 3,20,000 12,80,000 1,60,000 3,20,000
Factory rent 6,40,000
Power 4,00,000
Depreciation 1,60,000

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2 INTERMEDIATE EXAMINATION: MAY, 2023

Other overheads 14,40,000

Additional
information:
Area (Sq. ft.) 800 400 800 400 800
Capital value of 32 64 32 16 16
assets (`) lakhs)
Machine hours 1,600 3,200 6,400 1,600 1,600
Horsepower of 80 64 32 24 40
machines
Apportionment of expenses of service departments is as under:
A B C X Y
Service Dept. ‘X’ 72 24 48 – 16
Service Dept. ‘Y’ 96 56 – 8 –
Required:
(i) PREPARE a statement showing distribution of overheads to various departments.
(ii) PREPARE a statement showing re-distribution of service departments expenses to
production departments using Repeated Distribution method. Also CALCULATE
machine hour rate of the production departments 'A', 'B', 'C'.
ABC Costing
4. Hygiene Care Ltd. is a manufacturer of a range of goods. The cost structure of its different
products is as follows:
Particulars Hand Wash Detergent Dishwasher
Powder
Direct Materials (` / Pu) 150 120 120
Direct Labour @ `10/ hour (` / 45 60 75
Pu)
Production Overheads ( ` / Pu) 40 50 40
Total Cost (` / Pu) 235 230 235
Quantity Produced (Units) 30,000 60,000 90,000
Hygiene Care Ltd. was absorbing overheads on the basis of direct labour hours.
Management accountant has suggested that the company should introduce ABC system
and has identified cost drivers and cost pools as follows:

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 3

Activity Cost Pool Cost Driver Associated Cost

(`)
Goods Receiving Number of Dispatch Order 8,88,000
Inspecting and Testing costs Number of Production Runs 26,82,000
Dispatching Number of dispatch order 6,30,000
Storage Cost Number of Batches of material 36,00,000
The following information is also supplied:
Details Hand Wash Detergent Powder Dishwasher
Batches of material 720 780 900
Number of dispatch order 360 540 600
No. of Production Runs 1,500 2,100 2,400
Number of Dispatch Orders 600 900 1,000
Required:
CALCULATE activity-based production cost of all the three products.
Cost Sheet
5. From the following data of Motilal Ltd., CALCULATE Cost of production:
(`)
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100
(x) Quality control cost for the products in manufacturing process 86,000
(xi) Research & development cost for improvement in production 92,600
process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000

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4 INTERMEDIATE EXAMINATION: MAY, 2023

(xiii) Amount realised by selling scrap generated during the 9,200

manufacturing process
(xiv) Packing cost necessary to preserve the goods for further 10,200
processing
(xv) Salary paid to Director (Technical) 8,90,000
Reconciliation
6. The financial records of Riva Private Limited showed a net profit of `1,69,500 for the year
ended 31st March, 2022. The cost accounts, however, disclosed a net loss of ` 88,500 for
the same period. The following information were revealed as a result of scrutiny of the
figures of cost accounts and financial accounts:
(`)
(i) (Administrative overhead under recovered 63,750.0
(ii) Factory overhead over recovered 3,37,500.0
(iii) Depreciation under charged in Cost Accounts 65,000.0
(iv) Dividend received 50,000.0
(v) Loss due to obsolescence charged in Financial Accounts 42,000.0
(vi) Income tax provided 1,09,000.0
(vii) Bank interest credited in Financial Accounts 34,000.0
(viii) Value of opening stock:
In Cost Accounts 4,12,500.0
In Financial Accounts 3,62,500.0
(ix) Value of closing stock:
In Cost Accounts 3,13,750.0
In Financial Accounts 3,30,000.0
(x) Goodwill written-off in Financial Accounts 62,500.0
(xi) Notional rent of own premises charged in Cost Accounts 1,50,000.0
(xii) Provision for doubtful debts in Financial Accounts 37,500.0
Prepare a reconciliation statement by taking costing net loss as base.
Job and Batch Costing
7. A jobbing factory has undertaken to supply 200 pieces of a component per month for the
ensuing six months. Every month a batch order is opened against which materials and
labour hours are booked at actual. Overheads are levied at a rate per labour hour. The
selling price contracted for is ` 80 per piece. From the following data.

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 5

COMPUTE the cost and profit per piece of each batch order and overall position of the
order for 1,200 pieces.
Month Batch Output Material cost Direct wages Direct labour
(Pieces) (`) (`) (Hours)
January 210 6,500 1,200 240
February 200 6,400 1,400 280
March 220 6,800 1,500 280
April 180 6,300 1,400 270
May 200 7,000 1,500 300
June 220 7,200 1,600 320
The other details are:
Month Chargeable expenses Direct labour
(`) Hours
January 1,20,000 4,800
February 1,05,600 4,400
March 1,20,000 5,000
April 1,05,800 4,600
May 1,30,000 5,000
June 1,20,000 4,800
Contract Costing
8. XYZ LLP, contractors and civil engineers, are building a new wing to a school. The quoted
fixed price for the contract is `30,00,000. Work commenced on 1 st January 20X2 and is
expected to be completed on schedule by 30 June 20X3.
Data relating to the contract at the year ended 31 st March 20X3 is as follows.
(`)
Plant sent to site at commencement of contract 2,40,000
Hire of plant and equipment 77,000
Materials sent to site 6,62,000
Materials returned from site 47,000
Direct wages paid 9,60,000
Wage related costs 1,32,000
Direct expenses incurred 34,000

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6 INTERMEDIATE EXAMINATION: MAY, 2023

Supervisory staff salaries 90,000

- Direct
- Indirect 20,000
Regional office expenses apportioned to contract 50,000
Head office expenses apportioned to contract 30,000
Surveyor’s fees 27,000
Progress payments received from school 18,00,000
Additional information:
1. Plant is to be depreciated at the rate of 25 % per annum following straight line method,
with no residual value.
2. Unused materials on site at 31st March are estimated at ` 50,000.
3. Wages owed to direct workers total ` 40,000
4. Budgeted profit on the contract is ` 8,00,000
5. Value of work certified by the surveyor is ` 24,00,000.
6. The surveyor has not certified the work costing ` 1,80,000
You are required to PREPARE the account for the school contract for the fifteen months
ended 31st March 20X3, and CALCULATE the notional profit to date.
Process Costing
9. ‘Dairy Wala Private limited’ is engaged in the production of flavoured milk. Its process
involve filtration and boiling of milk after that some sugar, flavour, colour is added and then
letting it cool to fill the product into clean and sterile bottles. For Producing 10 litre of flavour
milk, 100 litre of Raw milk is required, which extracts only 45 litres of standardized milk.
Following information regarding Process – I has been obtained from the manufacturing
department of Dairy Wala Private limited for the month of December 2022:
Items (`)
Opening work-in process (13,500 litre)
Milk 1,50,000
Labour 45,000
Overheads 1,35,000
Milk introduced for filtration and boiling (3,00,000 litre) 15,00,000
Direct Labour 6,00,000
Overheads 18,00,000
Abnormal Loss: 3,000 litres

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 7

Degree of completion:
Milk 100%
Labour and overheads 80%
Closing work-in process: 27,000 litres
Degree of completion:
Milk 100%
Labour and overheads 80%
Milk transferred for Packing: 1,18,500 litres
You are required to PREPARE using average method:
(i) Statement of equivalent production,
(ii) Statement of cost,
(iii) Statement of distribution cost, and
(iv) Process-I Account.
Joint Product by Product
10. Key Pee Limited produces and sells the following products:
Products Units Selling price at split-off Selling price after
point (`) further processing (`)
A 500000 42.5 62.5
B 75000 32.5 42.5
C 62500 20 30
D 50000 25 -
E 187500 35 50
Cost of raw material ` 89,75,000 and other manufacturing ex-penses cost `13,67,500 in
the manufacturing process which are absorbed on the products on the basis of their ‘Net
realisable value’. The further processing costs of A, B, C and E are `31,25,000;
` 3,75,000; `1,25,000 and `3,75,000 respectively. Fixed costs are `11,82,500.
You are required to PREPARE the following in respect of the coming year:
(a) Statement showing income forecast of the company assuming that none of its
products are to be further processed.
(b) Statement showing income forecast of the company assuming that products A, B, C
and E are to be processed further.

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8 INTERMEDIATE EXAMINATION: MAY, 2023

Service Costing
11. PREPARE cost statement of Panipat Thermal Power Station showing the cost of electricity
generated per kwh, from the following data.
Total units generated 16,50,000 kWh
(`)
Operating labour 21,75,000
Repairs & maintenance 7,25,000
Lubricants, spares and stores 5,80,000
Plant supervision 4,35,000
Administration overheads 29,00,000
Insurance Charges 15,00,000
Fuel Charges 8,00,000
7 kWh. of electricity generated per kg. of coal consumed @ `4.75 per kg. Depreciation
charges @ 5% on capital cost of `3,10,00,000.
Standard Costing
12. XYZ Manufacturing Ltd. had prepared the following estimation for the month of Janua ry:
Quantity Rate (`) (`)
Raw Material-DF 1,600 kg. 50 80,000
Raw Material-CE 1,200 kg. 35 42,000
Skilled labour 2,000 hours 40 80,000
Semiskilled labour 1,600 hours 25 40,000
Standard loss in the process was expected to be 10% of total input materials and an idle
labour time of 5% of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 2,960 kg. finished product by using the followings:
Quantity Rate (`) (`)
Raw Material-DF 1,800 kg. 40 72,000
Raw Material-CE 1,300 kg. 30 39,000
Skilled labour 2,400 hours 35 84,000
Semiskilled labour 1,720 hours 20 34,400

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 9

You are required to CALCULATE:

(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance
Marginal Costing
13. The following data are available from the budget records of Finesign Women's Handbag
Company for the forthcoming budget period.
`
Selling Price per unit 1000
Variable cost per unit:
Cost of Material used 750.00
Sales commission 50.00
Total Variable Cost 800.00
Annual fixed expenses:
Rent 7,00,000
Salaries 11,00,000
Other fixed expenses 5,00,000
Total Fixed Cost 23,00,000
Although the firm manufactures Bags with different styles, they have identical purchase
costs and selling price.
Requirement:
(a) What is the annual break-even point both in terms of units and value?
(b) If the store manager is paid 1 per cent commission on sales, what would be the annual
break-even point both in terms of units and value?
(c) If the firm decides to pay a fixed salary of ` 9,00,000 in lieu of sales commission,
what would be the annual break-even point in terms of units and value.
Considering break-even point in requirement (a), If the stores manager is paid 2 per
cent commission on each bag sold in excess of the break-even point, what would be
the profit if 20000 bags were sold.

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10 INTERMEDIATE EXAMINATION: MAY, 2023

Budget and Budgetary Control

14. EDF Ltd. produces two products using Skilled labour and two types of materials. S hown
below the information for the next month’s budget:
Product- A Product-B
Budgeted sales (in units) 4,080 6,120
Budgeted material consumption per unit (in kg):
Material-X 8.5 5.1
Material-Y 6.8 10.2
Standard labour hours allowed per unit of product 5.1 8.5

Material-X and Material-Y cost `8 and `10 per kg and labours are paid `30 per hour.
Overtime premium is 75% and is payable, if a worker works for more than 45 hours a week.
There are 400 direct workers.
The target efficiency ratio for the productive hours worked by the direct workers in actually
manufacturing the products is 85%. In addition the non-productive down-time is budgeted
at 15% of the productive hours worked.
There are four 6-days weeks in the budgeted period and it is anticipated that sales and
production will occur evenly throughout the whole period.
It is anticipated that stock at the beginning of the period will be:
Product-A 550 units
Product-B 350 units
Material-X 1,200 kgs.
Material-Y 600 kgs.
The anticipated closing stocks for budget period are as below:
Product-A 5 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 5 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers,
showing the quantities and values, for the next month.

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 11

Miscellaneous
15. (a) SUGGEST the unit of cost for following industries:
(a) Transport
(b) Power
(c) Hotel
(d) Hospital
(e) Steel
(f) Coal mining
(g) Professional Services
(h) Gas
(i) Engineering
(j) Oil
(b) DISCUSS the difference between Job costing and Batch costing.
(c) EXPLAIN what are the essential pre-requisite for Integrated Accounting system?
(d) DISCUSS the difference between cost control and cost reduction.

ANSWERS

1. (i) Calculation of Economic Order Quantity (E.O.Q)

1,50,000units
Annual requirement (usage) of raw material in kg. (A) = = 50,000kg.
3unitsperkg.
Ordering Cost (Handling & freight cost) (O) = `1,470 + `770 = `2,240
Carrying cost per unit per annum (C) i.e. inventory carrying cost + working capital
cost= (`3 × 12 months) + `20 = `56 per kg.

2AO 2×50,000 kg.× ` 2,240

E.O.Q = √ = √ = 2,000 kg.
C ` 56
(ii) Frequency of placing orders for procurement :
Annual consumption (A) = 50,000 kg.
Quantity per order (E.O.Q) = 2,000 kg.
A 50,000kg.
No. of orders per annum = = = 25 orders
E.O.Q 2,000kg.

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12 INTERMEDIATE EXAMINATION: MAY, 2023

360days
Frequency of placing orders (in days) = = 14.4 Days
25orders
(iii) Percentage of discount in the price of raw materials to be negotiated:
Particulars On Quarterly Basis On E.O.Q Basis
1. Annual Usage (in Kg.) 50,000 kg. 50,000 kg.
2. Size of the order 12,500 kg. 2,000 kg.
3. No. of orders (1 ÷ 2) 4 25
4. Cost of placing orders ` 8,960 ` 56,000
or Ordering cost
(No. of orders × Cost (4 order × ` 2,240) (25 orders × ` 2,240)
per order)
5. Inventory carrying `3,50,000 `56,000
cost
(Average inventory × (12,500 kg. × ½ × ` 56) (2,000 kg. × ½ × ` 56)
Carrying cost per unit)
6. Total Cost (4 + 5) ` 3,58,960 ` 1,12,000
When order is placed on quarterly basis the ordering cost and carrying cost increased
by `2,46,960 (`3,58,960 - `1,12,000). So, discount required = ` 2,46,960
Total annual purchase = 50,000 kg. × `190 = `95,00,000 So, Percentage of discount
` 2,46,960
to be negotiated = = ×100 = 2.60%
` 95,00,000
2. Employee turnover rate:
It comprises of computation of Employee turnover by using following methods:
Number of employees seperated during the period
(i) Separate Method: = x 100
Average number of employees during the period on roll
Number of employees left + Number of employees discharged
OR, = x 100
Average number of employees during the period on roll
(160 + 640)
= x100
(9,400 + 10,600) ÷
800
= x 100 = 8%
10,000
Number of employees replaced during the period
(ii) Replacement Method = x 100
Average number of employees during the period on roll

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 13

400
= x 100 = 4%
10,000
Number of employees joining in a period (excluding replacement)
(iii) New Recruitment = x 100
Average number of employees during the period on roll

Number of Recruitments - Number of Replacements

= x 100
Average number of employees during the period on roll

1500 - 400
= x 100
10,000
1,100
= 10,000 𝑥 100 = 11%

Number of separation + Number of replacement + Number of new joining

Flux Method = x 100
Average number of employees during the period on roll

(800 + 400 + 1,100)

= x 100
(9,400 + 10,600) ÷ 2
2,300
= x 100 = 23%
10,000
3. (i) Overhead Distribution Summary
Basis Total (`) A (`) B (`) C (`) X (` ) Y (` )
Direct materials Direct – – – – 3,20,000 1,60,000
Direct wages Direct – – – – 1,60,000 3,20,000
Factory rent Area 6,40,000 1,60,000 80,000 1,60,000 80,000 1,60,000
(2:1:2:1:2)
Power H.P. × 4,00,000 80,000 1,28,000 1,28,000 24,000 40,000
(10:16:16:3:5)* Machine
Hrs.
Depreciation Capital 1,60,000 32,000 64,000 32,000 16,000 16,000
(2:4:2:1:1) value of
assets
Other overheads Machine 14,40,000 1,60,000 3,20,000 6,40,000 1,60,000 1,60,000
(1:2:4:1:1) hrs.
Total 26,40,000 4,32,000 5,92,000 9,60,000 7,60,000 8,56,000

*{(1600×80) : (3200×64) : (6400×32) : (1600×24) : (1600×40)}

(1,28,000 : 2,04,800 : 2,04,800 : 38,400 : 64,000)
(10:16:16:3:5)

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14 INTERMEDIATE EXAMINATION: MAY, 2023

(ii) Redistribution of service department’s expense using repeated distribution

Method:
A (`) B (`) C (`) X (` ) Y (` )
Total overheads 4,32,000 5,92,000 9,60,000 7,60,000 8,56,000
Dept. X overhead 3,42,000 1,14,000 2,28,000 -7,60,000 76,000
apportioned in the ratio
(72:24:48: —:16)
Dept. Y overhead 5,59,200 3,26,200 - 46,600 -9,32,000
apportioned in the ratio
(96:56: —:8: —)
Dept. X overhead 20,970 6,990 13,980 -46,600 4,660
apportioned in the ratio
(72:24:48: —:16)
Dept. Y overhead 2,796 1,631 - 233 -4,660
apportioned in the ratio
(96:56: —:8: —)
Dept. X overhead 105 35 70 -233 23
apportioned in the ratio
(72:24:48: —:16)
Dept. Y overhead 15 8 - - -23
apportioned in the ratio
(96:56: —:8: —)
13,57,086 10,40,864 12,02,050 - -

Calculation of machine hour rate

A B C
A Total overheads (`) 13,57,086 10,40,864 12,02,050
B Machine hours 1,600 3,200 6,400
C Machine hour rate (`) [A ÷ B] 848.18 325.27 187.82
4. 1. The Total Production Overhead are 78,00,000
Items Labour Hour Overheads allocation on the
basis of direct Labour Hour (`)
Labour Hour Ratio (4.5:6:7.5)
Hand Wash 1,35,000 9,00,000
Detergent Powder 3,60,000 24,00,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 15

Dishwasher 6,75,000 45,00,000

Total 11,70,000 78,00,000
2. On the basis of ABC analysis this amount will be apportioned as follows:
Statement Showing "Activity Based Production Cost"
Activity Cost Cost Driver Ratio Total Hand Detergent Dishwas
Pool Amount Wash (`) Powder her
(` ) (` ) (` )
Goods Receiving Dispatch order 06:09:10 8,88,000 2,13,120 3,19,680 3,55,200
Inspecting and Production Runs 05:07:08 26,82,000 6,70,500 9,38,700 10,72,800
Testing costs
Dispatching Dispatch Order 06:09:10 6,30,000 1,51,200 2,26,800 2,52,000
Storage Cost Batches of 12:13:15 36,00,000 10,80,000 11,70,000 13,50,000
material
Total Activity Cost 21,14,820 26,55,180 30,30,000
Quantity Produces 30,000 60,000 90,000
Unit Cost
(Overheads) 70.49 44.25 33.67
Add: Conversion
Cost (Material +
Labour) 195 180 195
Total 265.49 224.25 228.67

Note: This question can also be solved by using cost driver rate
5. Calculation of Cost of Production of Motilal Ltd for the period…..
Particulars (`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000

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16 INTERMEDIATE EXAMINATION: MAY, 2023

Research & development cost 92,600

Administrative overheads related with factory and production 9,00,000
1,07,43,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Cost of Production 1,05,48,000
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.
6. Statement of Reconciliation
Sl. No. Particulars (`) (`)
Net loss as per Cost Accounts (88,500)
Additions
1 Factory O/H over recovered 3,37,500
2 Dividend Received 50,000
3 Bank Interest received 34,000
4 Difference in Value of Opening Stock 50,000
(4,12,500 – 3,62,500)
5 Difference in Value of Closing Stock 16,250
(3,30,000 – 3,13,7500)
6 Notional Rent of own Premises 1,50,000 6,37,750
Deductions
1 Administration O/H under recovered 63,750
2 Depreciation under charged 65,000
3 Loss due to obsolescence 42,000
4 Income tax Provided 1,09,000
5 Goodwill written-off 62,500
6 Provision for doubtful debts 37,500 (3,79,750)
Net Profit as per Financial A/c. 1,69,500

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 17

7.
Particulars Jan. Feb. March April May June Total
(`) (`) (`) (`) (`) (`) (`)
Batch output 210 200 220 180 200 220 1,230
(in pieces)
Sale value @ `80 16,80 16,00 17,60 14,40 16,00 17,60 98,40
0 0 0 0 0 0 0
Material cost 6,500 6,400 6,800 6,300 7,000 7,200 40,20
0
Direct wages 1,200 1,400 1,500 1,400 1,500 1,600 8,600
Chargeable 6,000 6,720 6,720 6,210 7,800 8,000 41,45
expenses* 0
Total cost 13,70 14,52 15,02 13,91 16,30 16,80 90,25
0 0 0 0 0 0 0
Profit per batch 3,100 1,480 2,580 490 (300) 800 8,150
Total cost per piece 65.2 72.6 68.3 77.3 81.5 76.4 73.4
Profit per piece 14.8 7.4 11.7 2.7 (1.5) 3.6 6.6
Overall position of the order for 1,200 pieces
Sales value of 1,200 pieces @ ` 80 per piece ` 96,000
Total cost of 1,200 pieces @ ` 73.4 per piece ` 88,080
Profit ` 7,920
Chargeable expenses
*  Direct labour hours for batch
Direct labour hour for the month
8. School Contract Account
Particulars (`) Particulars (`)
To Plant 2,40,000 By Material returned 47,000
To Hire of plant 77,000 By Plant c/d 1,65,000
To Materials 6,62,000 By Materials c/d 50,000
To Direct wages 9,60,000 By WIP c/d:
Add: Accrued 40,000 10,00,000 Value of work certified 24,00,000
To Wages related costs 1,32,000 Cost of work not certified 1,80,000
To Direct expenses 34,000
To Supervisory staff:
Direct 90,000

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18 INTERMEDIATE EXAMINATION: MAY, 2023

Indirect 20,000 1,10,000

To Regional office 50,000
expenses
To Head office expenses 30,000
To Surveyors’ fees 27,000
To Notional profit c/d 4,80,000
28,42,000 28,42,000
9. (i) Statement of Equivalent Production
Particulars Input Particulars Output Equivalent Production
Units Units Milk Labour & O.H.
% Units % Units
Opening WIP 13,500 Completed and 1,18,500 100 1,18,500 100 1,18,500
transferred to Process-II
Units 3,00,000 Normal Loss (55%* of 1,65,000 -- -- -- --
introduced 3,00,000)
Abnormal loss 3,000 100 3,000 80 2400
Closing WIP 27,000 100 27,000 80 21,600
3,13,500 3,13,500 1,48,500 1,42,500
* 100 litre of milk extracts only 45 litre of standardized milk. Thus, normal loss = 100 – 45 = 55%

(ii) Statement showing cost for each element

Particulars Milk (`) Labour (`) Overhead (`) Total (`)
Cost of opening work-in- 1,50,000 45,000 1,35,000 3,30,000
process
Cost incurred during the 15,00,000 6,00,000 18,00,000 39,00,000
month
Total cost: (A) 16,50,000 6,45,000 19,35,000 42,30,000
Equivalent units: (B) 1,48,500 1,42,500 1,42,500
Cost per equivalent unit: (C) 11.111 4.526 13.578 29.216
= (A ÷ B)
(iii) Statement of Distribution of cost
(`) (`)
1. Value of units completed and transferred (1,18,500 34,62,096
units × ` 29.216)

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 19

2. Value of Abnormal Loss: -

Milk (3,000 units × ` 11.111) 33,333
Labour (2400 units × ` 4.526) 10,863
Overheads (2400 units × ` 13.579) 32,590 76,786
3. Value of Closing W-I-P:
Milk (27,000 units × ` 11.111) 299997
Labour (21,600 units × ` 4.526) 97,762
Overheads (21,600 units × ` 13.579) 2,93,306 6,91,065
(iv) Process-I A/c
Particulars Units Amount Particulars Units Amount
(` ) (` )
To Opening W.I.P: By Normal Loss 1,65,000 --
Milk 13,500 1,50,000 By Abnormal Loss 3,000 76,839
(`.44 difference due
to approximation)
Labour -- 45,000 By Process-II A/c 1,18,500 34,62,096
Overheads -- 1,35,000 By Closing WIP 27,000 6,91,065
To Milk introduced 3,00,000 15,00,000
To Direct Labour 6,00,000
To Overheads 18,00,000
3,13,500 42,30,000 3,13,500 42,30,000

10. Working Note:

Apportionment of joint costs on the basis of Net Realisable Value method
Products Sales Value (`) Post separation Net Realisable Apportioned
Cost (`) Value (`) Cost (`)
A 3,12,50,000 31,25,000 2,81,25,000 67,74,563
(5,00,000 units x ` 62.50)
B 31,87,500 3,75,000 28,12,500 6,77,456
(75,000 units x ` 42.5)
C 18,75,000 1,25,000 17,50,000 4,21,528
(62,500 units x ` 30)
D 12,50,000 --- 12,50,000 3,01,092
(50,000 units x ` 25)

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20 INTERMEDIATE EXAMINATION: MAY, 2023

E 93,75,000 3,75,000 90,00,000 21,67,860

(1,87,500 units x ` 50)
4,29,37,500 1,03,42,500

Total joint cost =Raw material costs + Manufacturing expenses = `89,75,000 +

`13,67,500 = `1,03,42,500
Apportioned joint cost = (Total Joint Cost/ Total Net Realisable value of each X Net
Realisable value of each product)
Apportioned joint cost for Product A = (1,03,42,500 / 4,29,37,500 X 2,81,25,000) =
`67,74,563.32
Similarly, the apportioned joint cost for products B, C, D and E are `6,77,456, `4,21,528,
`3,01,092 and `21,67,860 respectively.
(a) Statement showing income forecast of the company assum-ing that none of its
products are further processed.
Products
A (`) B (`) C (`) D (`) E (`) Total (`)
Sales revenue 2,12,50,000 24,37,500 12,50,000 12,50,000 65,62,500 3,27,50,000
(`42.5 × (` 32.5 × (` 20 × (` 25 × (` 35 ×
5,00,000) 75,000) 62,500) 50,000) 1,87,500)
Less: Apportioned
Costs (Refer
Working note) 67,74,563 6,77,456 4,21,528 3,01,092 21,67,860 1,03,42,500
1,44,75,437 17,60,044 8,28,472 9,48,908 43,94,640 2,24,07,500
Less: Fixed Cost 11,82,500
Profit 2,12,25,000

(b) Statement showing income forecast of the company: assuming that products A, B, C
and E are further processed (Refer to working note)
Products
A (`) B (` ) C (`) D (`) E (` ) Total (`)
A. Sales revenue 3,12,50,000 31,87,500 18,75,000 12,50,000 93,75,000 4,69,37,500
B. Apportioned 67,74,563 6,77,456 4,21,528 3,01,092 21,67,860 1,03,42,500
Costs
C. Further 31,25,000 3,75,000 1,25,000 - 3,75,000 40,00,000
processing cost

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 21

D. Total 98,99,563 10,52,456 5,46,528 3,01,092 25,42,860 1,43,42,500

processing cost
(B+ C)
E. Excess of sales 2,13,50,437 21,35,044 13,28,472 9,48,908 68,32,140 3,25,95,000
revenue (A-D)
F. Fixed Cost 11,82,500
G. Profit (E - F) 3,14,12,500

11. Total units generated 16,50,000 kWh.

Cost Statement of Panipat Thermal Power Station
Per annum (`) Per kWh. (`)
Fixed costs:
Plant supervision 4,35,000
Administration overheads 29,00,000
Insurance Charges 15,00,000
Depreciation (5% of ` 3,10,00,000 p.a.) 15,50,000
Total fixed cost: (A) 63,85,000 3.87
Variable costs:
Operating labour 21,75,000
Fuel Charges 8,00,000
Lubricants, spares and stores 5,80,000
Repairs & maintenance 7,25,000
Coal cost (Refer to working note) 11,19,643
Total variable cost: (B) 53,99,643 3.27
Total cost [(A) + (B)] 1,17,84,643 7.14
Working Note:
Coal cost (16,50,000 kWh. ÷ 7 kWh) × `4.75 per kg. = `11,19,643
12. Material Variance
Raw SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
Material (kg.) (WN-2)
(WN-1) ( `) ( `) (kg.) ( `) ( `) ( `) ( `)
DF 1879 50 93,950 1771 88,550 1800 90,000 40 72,000
CE 1410 35 49,350 1329 46,515 1300 45,500 30 39,000
3289 1,43,300 3,100 1,35,065 3100 1,35,500 1,11,000

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22 INTERMEDIATE EXAMINATION: MAY, 2023

WN-1: Standard Quantity (SQ):

 1,600 kg. 
1879.365 or 1879 kg. =  × 2,960 kg. 
 0.9 × 2,800 kg. 
 1,200 kg. 
Raw Material DF =  × 2,960 kg. 
 0.9 × 2,800 kg. 
 1,200 kg. 
Raw Material CE = 1409.52 or 1410 kg.  × 3,100 kg. 
 2,800 kg. 
WN- 2: Revised Standard Quantity (RSQ):
 1,200 kg. 
Raw Material DF = 1,771.43 or 1,771 kg.  × 3,100 kg. 
 2,800 kg. 
Raw Material CE = 1,328.57 or 1,329 kg.
(a) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
{1,43,300 –1,11,000} = 32,300(F) (F)
(b) Material Price Variance (A + B) = {(AQ × SP) – (AQ ×AP)
{1,35,500 – 1,11,000} = 24,500(F)
(c) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
{1,35,065 – 1,35,500} = 435 (A)
(d) Material Yield Variance (A + B) = {(SQ × SP) – (RSQ × SP)}
{1,43,300 – 1,35,065} = 8,235 (F)

Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN-3) (`) (WN-4)
(` ) (` ) (` ) (` ) (` )
Skilled 2232 40 89,280 2289 91,560 2,400 96,000 35 84,000
Semiskilled 1785 25 44,625 1831 45,775 1720 43,000 20 34,400
4,017 hrs 1,33,905 4,120 1,37,335 4,120 1,39,000 1,18,400

WN- 3: Standard Hours (SH):

 0.95 x 2,000 hr 
Skilled labour = 2,231.746 or 2,232 hrs  x 2,960 kg 
 0.90 x 2,800 kg 

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 23

 0.95 x 1600 hr 
Semiskilled labour = 1785.397 or 1785 hrs  x 2,960 kg 
 0.90 x 2,800 kg 
WN- 4: Revised Standard Hours (RSH):
 2,000 hrs 
Skilled labour = 2,288.889 or 2,289 hrs. =  x 4,120 hrs 
 3,600 kg 
 1,600 hrs 
Semiskilled labour = 1831.11 or 1831 hrs. =  x 4,120 hrs 
 3,600 kg 
(e) Labour Cost Variance (Skilled + Semiskilled) = {(SH × SR) – (AH × AR)}
{1,33,905 – 1,18,400} =15,505 (F)
(f) Labour Efficiency Variance (Skilled + Semiskilled) = {(SH × SR) – (AH × SR)}
{1,33,905 – 1,39,000} = 5,095 (A)
(g) Labour Yield Variance (Skilled + Semiskilled) = {(SH × SR) – (RSH × SR)}
= {1,33,905 – 1,37,335} = 3,430 (A)
Sales per unit - Variable Cost per unit
13. (a) P/V ratio: 100
Selling price per unit
1000 − 800
=  100
1000
200
=  100 = 20%
1000
Annual fixed cost
Annual BEP in units:
Contribution per unit

` 23,00,000
= = 11,500 units
` 200
Annual fixed cost
Annual BEP in value:
P / V ratio
` 23,00,000
= `1,15,00,000
` 20%
(b) Revised P/V ratio and BEP :
commission on sales per unit= 1% of 1,000= `10

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24 INTERMEDIATE EXAMINATION: MAY, 2023

1000 − ( 750 + 50 + 10 )
So, P/V ratio :
1000
190
=  100 = 19%
1000
Annual fixed cost
BEP in terms of units:
Contribution per unit

23,00,000
= = 12,106 units
190
Annual fixed cost
BEP in terms of value:
P/V
23,00,000
= = `1,21,05,263
19%
(c) Break-even point under fixed salary plan:
Contribution per unit 1000 − 750 250
P/V ratio = =  100 = ×100 =25%
Selling price per unit 1000 1000

Revised fixed cost :

Original fixed cost ` 23,00,000
Proposed fixed salary ` 9,00,000
Total ` 32,00,000
Annual fixed cost 32,00,000
BEP in terms of units: = = 12,800 units
Contribution per unit 250
Annual fixed cost 32,00,000
BEP in terms of value: = = 1,28,00,000
P / v ratio 25%
(d) Annual break-even point under requirement (a) is 11,500 units.
Margin of safety at sales volume of 20,000 unit of bags (20,000 – 11,500) = 8500
units
Contribution on sales beyond break-even sales:
Revised contribution per unit: 200 – (2% of 1000) = 180
Profit = Margin of safety (in units) × Contribution per unit
= 8500 × 180 = ` 15,30,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 25

14. Number of days in budget period = 4 weeks × 6 days = 24 days

Number of units to be produced
Product-A (units) Product-B (units)
Budgeted Sales 4,080 6,120
Add: Closing stock 850 1275
 4,080 units   6,120 units 
  5 days    5 days 
 24 days   24 days 
Less: Opening stock 550 350
4,380 7,045
(i) Material Purchase
Budget
Material-X (Kg.) Material-Y (Kg.)
Material required:
Product-A 37,230 29,784
(4,380 units × 8.5 kg.) (4,380 units × 6.8 kg.)
Product-B 35,930 71,859
(7,045 units × 5.1 kg.) (7,045 units × 10.2 kg.)
73,160 1,01,643
Add: Closing stock 30,483 21,176
73,160 kgs. 1,01,643 kgs.
( × 10 days) ( × 5 days)
24 days 24 days
Less: Opening stock 1,200 600
Quantity to be purchased 1,02,443 1,22,219
Rate per kg. of Material 8 10
Total Cost 8,19,541 12,22,186
(ii) Wages Budget
Product-A (Hours) Product-B (Hours)
Units to be produced 4,380 7,045
Standard hours allowed per 5.1 8.5
unit
Total Standard Hours 22,338 59,883
allowed

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26 INTERMEDIATE EXAMINATION: MAY, 2023

Productive hours required 22,338 hours 59,883 hours

for production  26,280  70,450
85% 85%
Add: Non-Productive down 3942 10568
time hours (15% of 26,280 hours) (15% of 70,450 hours)
Hours to be paid 30,222 81,018
Total Hours to be paid = 1,11,240
Hours to be paid at normal 72000
rate (4 weeks × 45 hours ×
400 workers) =
Hours to be paid at premium 39,240
rate
Total wages to be paid = ` 21,60,000 + ` 20,60,100 = ` 42,20,100
= (72,000 hours × `30 +
39,240 hours × ` 52.5)
15. (a) Cost units are as follows:
Industry or Product Cost Unit Basis
Transport Passenger- kilometer
Power Kilo-watt hour (kWh)
Hotel Room
Hospitals Patient day
Steel Ton
Coal mining Tonne/ton
Professional services Chargeable hour, job, contract
Gas Cubic feet
Engineering Contract, job
Oil Barrel, tonne, litre

(b) Differences between Job costing and Batch costing:

Sr. No Job Costing Batch Costing
1. Method of costing used for non- Homogeneous products
standard and non- repetitive produced in a continuous
products produced as per customer production flow in lots.

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 27

specifications and against specific

orders.
2. Cost determined for each Job. Cost determined in aggregate
for the entire Batch and then
arrived at on per unit basis.
3. Jobs are different from each other Products produced in a batch
and independent of each other. are homogeneous and lack of
Each Job is unique. individuality.

(c) Essential pre-requisites for Integrated Accounts: The essential pre-requisites for
integrated accounts include the following steps-
1. The management’s decision about the extent of integration of the two sets of
books. Some concerns find it useful to integrate up to the stage of prime cost or
factory cost while other prefers full integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve the accounting
purposes of financial and cost accounts.
3. An agreed routine, with regard to the treatment of provision for accruals, prepaid
expenses, other adjustment necessary for preparation of interim accounts.
4. Perfect coordination should exist between the staff responsible for the financial
and cost aspects of the accounts and an efficient processing of accounting
documents should be ensured.
(d)
S. No. Cost Control Cost Reduction
1 Cost control aims at maintaining Cost reduction is concerned with
the costs in accordance with the reducing costs. It challenges all
established standards. standards and endeavours to
improvise them continuously
2 Cost control seeks to attain lowest Cost reduction recognises no
possible cost under existing condition as permanent, since a
conditions. change will result in lower cost.
3 In case of cost control, emphasis In case of cost reduction, it is on
is on past and present present and future.
4 Cost control is a preventive Cost reduction is a corrective
function function. It operates even when an
efficient cost control system exists.
5 Cost control ends when targets Cost reduction has no visible end and
are achieved. is a continuous process.

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