Worked Solution
✓ VerifiedMaterial Cost Calculation — Sky & Company
Sky & Company is an unregistered supplier under GST, hence it cannot claim Input Tax Credit (ITC). Therefore, GST paid (CGST + SGST @ 12%) becomes part of the cost of material.
Treatment of Key Items:
Trade Discount (1st — on listed price): Deducted from listed price — reduces invoice cost.
Cash/Settlement Discount @ 10% (2nd — if payment within 30 days): Payment was made within 21 days, so discount is available. However, in cost accounting, cash discounts are treated as a financing/treasury item and are NOT deducted from material cost.
GST @ 12%: ITC not available (unregistered dealer) — included in cost.
Municipal Tax: Incidental cost of procurement — included.
Freight and Insurance: Direct procurement cost — included.
Delay Charges to Transporter ₹5,000: These are abnormal in nature (penalty for delay) and are excluded from material cost.
Commission and Brokerage: Cost incurred to procure material — included.
Returnable Containers: Deposit ₹30,000; refund on return ₹20,000; net non-refundable cost = ₹10,000 — included.
Other Expenses @ 2% of total cost: Circular computation — solved algebraically.
Normal Wastage 20%: Cost is absorbed by good/usable units only. Usable units = 5,000 × 80% = 4,000 units.
Total Material Cost = ₹3,00,000
Cost per unit = ₹3,00,000 ÷ 4,000 = ₹75 per unit
Write it like this
1The skeleton
- Lead with the ITC status line — your very first sentence must state Sky & Company is unregistered, ITC unavailable, so GST @ 12% is included in cost. Examiners look for this upfront; missing it makes every GST line look unjustified.
- Build a cost statement top-down: Listed Price → minus Trade Discount → add GST → add incidentals — this columnar flow is what the model answer structure rewards; narrative prose gets zero presentation marks.
- Call out each exclusion explicitly with the reason — for delay charges write 'abnormal in nature — excluded' and for returnable containers write 'net non-refundable cost = ₹10,000 — included'; examiners are scanning for the word 'abnormal' and 'net' to award concept marks.
- Handle cash discount with a one-liner treatment box — state 'payment made within 21 days so discount is available, but cash discounts are financing items in cost accounting and are NOT deducted from material cost'; this single line is worth standalone marks because most candidates either skip it or wrongly deduct it.
- Set up the 2% Other Expenses algebraically — write 'Let total cost = x, then x = [known items] + 0.02x, solving: x = known items / 0.98'; showing the algebra explicitly prevents the examiner doubting your method.
- Divide by 4,000 usable units, not 5,000 — close your answer with 'Normal wastage 20% ∴ usable units = 4,000; cost per unit = ₹3,00,000 ÷ 4,000 = ₹75' and underline the final answer; the unit denominator line is where most marks are lost silently.
2Examiner-rewarded phrases
3Common trap
Heads up — most students either deduct the cash discount (because payment was made on time) OR include the delay charges (treating them like freight). Both are wrong: cash discount stays out because it's a treasury item, and delay charges go out because they're abnormal. Write the reason next to each line or the examiner will not give you the treatment mark even if your total is correct.