Worked Solution
✓ VerifiedStatement of Cost of Material Purchased by Sky & Co. (per lot of 5,000 units)
Treatment of Key Items Before Calculation:
Trade Discount: Deducted from listed price — it is a reduction in purchase price, not a cost element.
GST (CGST + SGST @ 12%): Since Sky & Co. is an unregistered dealer, Input Tax Credit (ITC) is not available. Hence, GST is included in material cost.
Cash Discount: Payment was made within 21 days (i.e., within 30 days), so the 10% cash discount is available. However, in cost accounting, cash discount is a financial item and is NOT deducted from material cost. It is credited to Costing Profit & Loss Account.
Demurrage paid to transporter (₹5,000): Demurrage is an abnormal/avoidable charge (penalty for delay). It is excluded from material cost and charged to Costing P&L Account.
Returnable Containers: The deposit of ₹30,000 is a security deposit; the net irrecoverable amount = ₹30,000 − ₹20,000 = ₹10,000 is included in cost.
Other Expenses @ 2% of total cost: This is self-referential — 2% is applied on the final total cost (including other expenses).
Normal Material Shortage: 20% of 5,000 units = 1,000 units are normal loss. Cost is absorbed by the remaining 4,000 effective units.
---
Cost Statement:
Listed Price: ₹2,50,000
Less: Trade Discount @ 10%: ₹(25,000)
Net Purchase Price: ₹2,25,000
Add: CGST & SGST @ 12% (ITC not available): ₹27,000
Add: Toll Tax: ₹5,000
Add: Freight and Insurance: ₹17,000
Add: Commission and Brokerage: ₹10,000
Add: Net Container Cost (₹30,000 − ₹20,000): ₹10,000
Sub-total (before Other Expenses): ₹2,94,000
Add: Other Expenses @ 2% on total cost (see working notes): ₹6,000
Total Material Cost: ₹3,00,000
Normal Shortage = 20% × 5,000 = 1,000 units
Effective Units = 5,000 − 1,000 = 4,000 units
Cost per unit = ₹3,00,000 ÷ 4,000 = ₹75 per unit
Write it like this
1The skeleton
- Open with a 'Treatment of Key Items' block before your cost statement — examiners are trained to look for this; if you hide your reasoning inside the numbers, you get zero marks for the working even if the final answer is right.
- Handle GST in the treatment block first: state that Sky & Co. is an unregistered dealer → ITC not available → GST becomes part of material cost; one line of reasoning here protects the ₹27,000 addition from being scratched.
- Call out cash discount explicitly as a financial item — note that payment was made within 21 days so the discount IS earned, but still write 'cash discount is not deducted from material cost and is credited to Costing P&L A/c'; this one sentence is worth a dedicated half-mark.
- Separate demurrage as abnormal/avoidable and exclude it from the cost statement; then for containers write the net irrecoverable amount (₹30,000 − ₹20,000 = ₹10,000) — both need explicit labels, not silent omission.
- Show the Other Expenses working note: write x = 2% × (2,94,000 + x), solve to get ₹6,000 — or show the shortcut (2,94,000 × 2/98); skipping this working kills the step mark even if ₹3,00,000 is correct.
- Close with the normal shortage line then cost per unit: 5,000 × 20% = 1,000 units normal loss → effective units 4,000 → ₹3,00,000 ÷ 4,000 = ₹75 per unit; box your final answer so the examiner doesn't hunt for it.
2Examiner-rewarded phrases
3Common trap
The single biggest mark-killer here is silently omitting cash discount — either you deduct it (wrong) or you forget to mention it at all (also wrong). The question tells you payment was made within 21 days specifically to bait you; you MUST address it in treatments and then consciously NOT deduct it, or you lose the reasoning mark even if your total is right.