Question 1

Following details are related to a manufacturing concern:

Re-order Level: 1,60,000 units
Economic Order Quantity: 90,000 units
Minimum Stock Level: 1,00,000 units
Maximum Stock Level: 1,90,000 units
Average Lead Time: 6 days
Difference between minimum lead time and maximum lead time: 4 days

Calculate:

Accepted Answer

**Step 1: Determine Maximum and Minimum Lead Times**

Given: Average Lead Time = 6 days and Difference (Max LT − Min LT) = 4 days.

Using simultaneous equations:
- Max Lead Time + Min Lead Time = 2 × 6 = 12 days
- Max Lead Time − Min Lead Time = 4 days

Solving: **Maximum Lead Time = 8 days** and **Minimum Lead Time = 4 days**

**Sub-part (i): Maximum Consumption per day**

Using the Re-order Level formula:
**Re-order Level = Maximum Consumption × Maximum Lead Time**

1,60,000 = Maximum Consumption × 8
**Maximum Consumption = 20,000 units per day**

**Sub-part (ii): Minimum Consumption per day**

Using the Maximum Stock Level formula:
**Maximum Stock Level = Re-order Level + EOQ − (Minimum Consumption × Minimum Lead Time)**

1,90,000 = 1,60,000 + 90,000 − (Minimum Consumption × 4)
1,90,000 = 2,50,000 − (Minimum Consumption × 4)
Minimum Consumption × 4 = 2,50,000 − 1,90,000 = 60,000
**Minimum Consumption = 15,000 units per day**

**Summary of Results:**
- Maximum Consumption per day = **20,000 units**
- Minimum Consumption per day = **15,000 units**

Question 2

A skilled worker is paid a guaranteed wage rate of ₹120 per hour. The standard time allowed for a job is 6 hours. He took 5 hours to complete the job. He is paid wages under Rowan Incentive Plan.

Accepted Answer

**Part (i): Effective Hourly Rate under Rowan Incentive Plan**

Under the **Rowan Plan**, the bonus is calculated as a proportion of the time saved to the standard time, applied to the actual time worked at the day rate.

**Basic Wages** = Actual Time × Rate per Hour = 5 × ₹120 = **₹600**

**Bonus** = (Time Saved / Standard Time) × Actual Time × Rate per Hour
Bonus = (1/6) × 5 × ₹120 = **₹100**

**Total Earnings** = ₹600 + ₹100 = **₹700**

**Effective Hourly Rate** = Total Earnings / Actual Time = ₹700 / 5 = **₹140 per hour**

---

**Part (ii): Time to Complete Job under Halsey (50%) to Maintain ₹140/hour**

Let the actual time taken = **T hours**

Under the **Halsey 50% Plan**:

Total Earnings = (T × ₹120) + 50% × (6 − T) × ₹120
= 120T + 60(6 − T)
= 120T + 360 − 60T
= **60T + 360**

For effective hourly rate to equal ₹140:
(60T + 360) / T = 140
60T + 360 = 140T
360 = 80T
**T = 4.5 hours**

**The worker should complete the job in 4.5 hours** under the Halsey 50% Scheme to maintain the same effective hourly rate of ₹140 per hour.

Question 3

The following particulars refer to process used in the treatment of material subsequently incorporated in a component forming part of an electrical appliance:

(i) The original cost of the machine used (Purchased in June 2018) was ₹10,00,000. Its estimated life is 10 years, the estimated scrap value at the end of its life is ₹10,000, and the estimated working time per year (50 weeks of 44 hours) is 2,200 hours. Out of which machine maintenance is estimated to take up 200 hours. Setting up time, estimated at 100 hours, is regarded as productive time.

(ii) Electricity used by the machine during production is 16 units per hour at cost of ₹7 per unit. No power is consumed during maintenance or setting up.

(iii) The machine requires a chemical solution which is replaced at the end of week at …

Accepted Answer

**Machine Hour Rate Calculation**

The **Machine Hour Rate (MHR)** is computed by dividing the total machine-related costs for the year by the **effective machine hours** (i.e., hours during which the machine is productively engaged, including setting-up time).

**Step 1 – Determine Effective Machine Hours (Denominator)**

Total working hours per year = 50 weeks × 44 hours = **2,200 hours**
Less: Maintenance time = **200 hours** (machine not in productive use)
Effective machine hours = **2,000 hours** (inclusive of 100 hours setting-up time, which is regarded as productive)

**Step 2 – Compute Each Cost Element**

**(i) Depreciation:**
Using Straight-Line Method: (₹10,00,000 − ₹10,000) ÷ 10 years = ₹99,000 per annum
Per hour: ₹99,000 ÷ 2,000 = **₹49.50**

**(ii) Electricity:**
Power is consumed only during actual running; not during maintenance (200 hrs) or setting-up (100 hrs).
Running hours = 2,200 − 200 − 100 = 1,900 hours
Annual cost = 1,900 × 16 units × ₹7 = ₹2,12,800
Per hour: ₹2,12,800 ÷ 2,000 = **₹106.40**

**(iii) Chemical Solution:**
Replaced weekly at ₹2,000; Annual cost = 50 × ₹2,000 = ₹1,00,000
Per hour: ₹1,00,000 ÷ 2,000 = **₹50.00**

**(iv) Maintenance:**
Annual cost = ₹1,20,000
Per hour: ₹1,20,000 ÷ 2,000 = **₹60.00**

**(v) Labour (Attendants):**
Two attendants control this machine + 5 identical machines = **6 machines in total**.
Annual wages, insurance & holiday pay = ₹9,000 × 50 = ₹4,50,000
Share attributable to this machine = ₹4,50,000 ÷ 6 = ₹75,000
Per h…

Question 4

L Limited manufactures three products P, Q and R which are similar in nature and are usually produced in production runs of 100 units. Product P and R require both machine hours and assembly hours, whereas product Q requires only machine hours. The overheads incurred by the company during the first quarter are as under:

Machine Department expenses: ₹18,48,000
Assembly Department expenses: ₹6,72,000
Setup costs: ₹90,000
Stores receiving cost: ₹1,20,000
Order processing and dispatch: ₹1,80,000
Inspect and Quality control cost: ₹36,000

The data related to the three products during the period:

Product P: 15,000 units produced and sold; 30,000 machine hours; 15,000 assembly hours; 1,250 customer orders; 40 requisitions
Product Q: 12,000 units produced and sold; 48,000 machine hours; - assemb…

Accepted Answer

**Statement of Overhead Costs Allocated to Each Product Using Activity-Based Costing**

Under Activity-Based Costing (ABC), overheads are assigned to products based on the activities that cause those costs. The six overhead pools are matched to appropriate **cost drivers** as follows:

**Cost Drivers Identified:**
- Machine Department expenses → Machine Hours
- Assembly Department expenses → Assembly Hours
- Setup costs → Number of Production Runs (each run = 100 units)
- Stores receiving cost → Number of Requisitions
- Order processing and dispatch → Number of Customer Orders
- Inspect and Quality control → Number of Production Runs

**Cost Driver Rates:**
- Machine Dept: ₹18,48,000 ÷ 1,32,000 MH = **₹14 per Machine Hour**
- Assembly Dept: ₹6,72,000 ÷ 42,000 AH = **₹16 per Assembly Hour**
- Setup costs: ₹90,000 ÷ 450 runs = **₹200 per Production Run**
- Stores receiving: ₹1,20,000 ÷ 120 requisitions = **₹1,000 per Requisition**
- Order processing: ₹1,80,000 ÷ 3,750 orders = **₹48 per Customer Order**
- Quality control: ₹36,000 ÷ 450 runs = **₹80 per Production Run**

**Overhead Allocation Statement (₹)**

| Cost Head | Rate | Product P | Product Q | Product R | Total |
|---|---|---|---|---|---|
| Machine Dept | ₹14/MH | 4,20,000 | 6,72,000 | 7,56,000 | 18,48,000 |
| Assembly Dept | ₹16/AH | 2,40,000 | — | 4,32,000 | 6,72,000 |
| Setup costs | ₹200/run | 30,000 | 24,000 | 36,000 | 90,000 |
| Stores receiving | ₹1,000/req | 40,000 | 30,000 | 50,000 | 1,20,000 |
| Order process…

Question 5

A Ltd. produces a single product X. During the month of July 2023, the company has produced 14,560 tonnes of X. The details for the month of July 2023 are as follows:

(i) Materials consumed: ₹15,00,000
(ii) Power consumed in operating production machinery: 13,000 Kwh @ ₹7 per Kwh
(iii) Diesels consumed in operating production machinery: 1,000 litres @ ₹93 per litre
(iv) Wages & salary paid: ₹64,00,000
(v) Gratuity & leave encashment paid: ₹44,20,000
(vi) Hiring charges paid for Heavy Earth Moving machines (HEMM) engaged in production: ₹13,00,000
(vii) Hiring charges paid for cars used for official purpose: ₹80,000
(viii) Reimbursement of diesel cost for the cars: ₹20,000
(ix) The hiring of cars attracts GST under RCM @5% without credit
(x) Maintenance cost paid for weighing bridge (used f…

Accepted Answer

**Cost Sheet of A Ltd. for the month of July 2023**
**Product: X | Output: 14,560 Tonnes**

| Particulars | Total (₹) | Per Tonne (₹) |
|---|---|---|
| **A. PRIME COST** | | |
| Materials Consumed | 15,00,000 | 103.02 |
| Wages & Salary (Direct Labour) | 64,00,000 | 439.56 |
| **Total Prime Cost** | **79,00,000** | **542.58** |
| **B. WORKS/FACTORY OVERHEAD** | | |
| Power for production machinery (13,000 Kwh × ₹7) | 91,000 | 6.25 |
| Diesel for production machinery (1,000 L × ₹93) | 93,000 | 6.39 |
| Gratuity & Leave Encashment (employee benefit cost) | 44,20,000 | 303.57 |
| Hiring charges – HEMM (production use) | 13,00,000 | 89.29 |
| AMC of CCTV – Factory premises | 18,000 | 1.24 |
| **Total Works Overhead** | **59,22,000** | **406.73** |
| **C. WORKS COST (A + B)** | **1,38,22,000** | **949.31** |
| **D. ADMINISTRATION OVERHEAD** | | |
| Hiring charges – Cars (official purpose) | 80,000 | 5.49 |
| Reimbursement of diesel – Cars | 20,000 | 1.37 |
| GST under RCM on car hiring (5% × ₹80,000 – no ITC) | 4,000 | 0.27 |
| **Total Admin Overhead** | **1,04,000** | **7.14** |
| **E. COST OF PRODUCTION (C + D)** | **1,39,26,000** | **956.45** |
| **F. SELLING & DISTRIBUTION OVERHEAD** | | |
| Maintenance of weighing bridge (despatch point) | 7,000 | 0.48 |
| AMC of CCTV – Weighing bridge (despatch) | 6,000 | 0.41 |
| TA/DA & Hotel – Sales Manager | 16,000 | 1.10 |
| **Total Selling Overhead** | **29,000** | **1.99** |
| **G. COST OF SALES (E + F)** | **1,39,55,000** | **958.44*…

Question 6

The financial books of a company reveal the following data for the year ended 31st March, 2023:

Opening Stock: Finished goods 625 units (₹1,06,250); Work-in-process (₹92,000)
Raw materials consumed: ₹16,80,000
Direct Labour: ₹12,20,000
Factory overheads: ₹8,44,000
Administration overheads (production related): ₹3,96,000
Dividend paid: ₹2,44,000
Bad Debts: ₹36,000
Selling and Distribution Overheads: ₹1,44,000
Interest received: ₹76,000
Rent received: ₹92,000
Sales: 12,615 units @ ₹45,60,000
Closing Stock: Finished goods 415 units (₹91,300); Work-in-process (₹82,400)

Cost records: Factory overheads absorbed at 70% of direct wages; Administration overheads recovered at 15% of factory cost; Selling and distribution overheads charged at ₹6 per unit sold; Opening stock of finished goods valued…

Accepted Answer

**(i) Profit as per Financial Records**

**Statement of Profit as per Financial Books** for the year ended 31st March, 2023

| Particulars | ₹ | ₹ |
|---|---|---|
| **Sales (12,615 units)** | | 45,60,000 |
| **Add:** Interest received | | 76,000 |
| **Add:** Rent received | | 92,000 |
| **Total Revenue** | | **47,28,000** |
| **Less: Cost of Goods Sold:** | | |
| Opening WIP | 92,000 | |
| Raw Materials consumed | 16,80,000 | |
| Direct Labour | 12,20,000 | |
| Factory Overheads (actual) | 8,44,000 | |
| Admin Overheads – production (actual) | 3,96,000 | |
| **Gross Works Cost** | **41,32,000** | |
| Add: Opening FG (625 units) | 1,06,250 | |
| Less: Closing WIP | (82,400) | |
| Less: Closing FG (415 units) | (91,300) | |
| **Cost of Goods Sold** | | **41,64,550** |
| Selling & Distribution Overheads (actual) | | 1,44,000 |
| Bad Debts | | 36,000 |
| Dividend Paid | | 2,44,000 |
| **Total Expenses** | | **45,88,550** |
| **Profit as per Financial Records** | | **₹1,39,450** |

---

**(i) Profit as per Costing Records**

**Step 1 – Cost of Production (Cost Records)**

| Particulars | ₹ |
|---|---|
| Opening WIP (at factory cost) | 92,000 |
| Add: Raw Materials consumed | 16,80,000 |
| Add: Direct Labour | 12,20,000 |
| Add: Factory OH absorbed (70% × ₹12,20,000) | 8,54,000 |
| **Works Cost incurred** | **38,46,000** |
| Less: Closing WIP (at factory cost) | (82,400) |
| **Factory Cost of Production** | **37,63,600** |
| Add: Admin OH absorbed (15% × ₹37,63,600) | 5,64,540 |
| …

Question 7

SM Motors Ltd. is a manufacturer of auto components. Following are the details of expenses for the year 2022-23:

Opening Stock of Material: ₹15,00,000
Closing Stock of Material: ₹20,00,000
Purchase of Material: ₹1,80,50,000
Direct Labour: ₹90,50,000
Factory Overhead: ₹30,80,000
Administrative Overhead: ₹20,50,400

During FY 2023-24, the company has received an order from a car manufacturer where the cost of material and labour is estimated at ₹80,00,000 and ₹40,50,000 respectively. The company charges factory overhead as a percentage of direct labour and administrative overheads as a percentage of factory cost based on previous year's cost. Cost of delivery at customer's premises is estimated at ₹4,50,000.

Accepted Answer

**Part (i): Overhead Recovery Rates for 2022-23**

**Material Consumed** = Opening Stock + Purchases − Closing Stock = ₹15,00,000 + ₹1,80,50,000 − ₹20,00,000 = **₹1,75,50,000**

**Prime Cost** = Material Consumed + Direct Labour = ₹1,75,50,000 + ₹90,50,000 = **₹2,66,00,000**

**Factory Cost (Works Cost)** = Prime Cost + Factory Overhead = ₹2,66,00,000 + ₹30,80,000 = **₹2,96,80,000**

**Factory Overhead Recovery Rate** = (Factory Overhead ÷ Direct Labour) × 100 = (₹30,80,000 ÷ ₹90,50,000) × 100 = **34.03% on Direct Labour**

**Administrative Overhead Recovery Rate** = (Admin Overhead ÷ Factory Cost) × 100 = (₹20,50,400 ÷ ₹2,96,80,000) × 100 = **6.91% on Factory Cost**

---

**Part (ii): Job Cost Sheet for the Order (FY 2023-24)**

| Particulars | ₹ |
|---|---|
| Material Cost | 80,00,000 |
| Direct Labour | 40,50,000 |
| **Prime Cost** | **1,20,50,000** |
| Add: Factory Overhead (34.03% on DL of ₹40,50,000) | 13,78,215 |
| **Factory Cost (Works Cost)** | **1,34,28,215** |
| Add: Admin Overhead (6.91% on Factory Cost) | 9,27,890 |
| **Cost of Production** | **1,43,56,105** |
| Add: Delivery Charges to Customer | 4,50,000 |
| **Total Cost / Cost of Sales** | **1,48,06,105** |
| Add: Profit (25% on Sales = 1/3 on Cost) | 49,35,368 |
| **Quoted Selling Price** | **1,97,41,473** |

**The price to be quoted for the order is ₹1,97,41,473.**

*Note: Since profit desired is 25% on **sales**, cost represents 75% of sales. Therefore, Selling Price = Total Cost × (100/75).*

Question 8

The following information is furnished by ABC Company for Process - II of its manufacturing activity for the month of April 2023:

(i) Opening Work-in-Progress: Nil
(ii) Units transferred from Process I: 55,000 units @ ₹3,27,800
(iii) Expenditure debited to Process – II: Consumables ₹1,57,200; Labour ₹1,04,000; Overhead ₹52,000
(iv) Units transferred to Process III: 51,000 units
(v) Closing WIP: 2,000 units (Consumables 80%; Labour 60%; Overhead 60%)
(vi) Units scrapped: 2,000 units, sold at ₹5 per unit
(vii) Normal loss: 4% of units introduced

Accepted Answer

**Process Costing — Process II (April 2023) — ABC Company**

**Preliminary Workings:**

Units introduced into Process II = 55,000 units
**Normal Loss** = 4% × 55,000 = **2,200 units**
Expected output = 55,000 − 2,200 = 52,800 units

Actual output = Transferred to Process III (51,000) + Closing WIP (2,000) + Actual Scrap (2,000) = 55,000 units
Actual Loss = 2,000 units; Normal Loss = 2,200 units
∴ **Abnormal Gain = 2,200 − 2,000 = 200 units**

---

**(i) Statement of Equivalent Production**

| Output | Total Units | Process-I Mat. % | EU | Consumables % | EU | Labour % | EU | Overhead % | EU |
|---|---|---|---|---|---|---|---|---|---|
| Transferred to Process III | 51,000 | 100 | 51,000 | 100 | 51,000 | 100 | 51,000 | 100 | 51,000 |
| Closing WIP | 2,000 | 100 | 2,000 | 80 | 1,600 | 60 | 1,200 | 60 | 1,200 |
| Less: Abnormal Gain | (200) | 100 | (200) | 100 | (200) | 100 | (200) | 100 | (200) |
| Normal Loss | 2,200 | — | — | — | — | — | — | — | — |
| **Total** | **55,000** | | **52,800** | | **52,400** | | **52,000** | | **52,000** |

Abnormal gain equivalent units are **deducted** because they represent units produced above expectation, reducing the cost pool.

---

**(ii) Cost per Equivalent Unit**

Scrap value of Normal Loss = 2,200 × ₹5 = ₹11,000 (deducted from Process-I transferred-in cost)

| Cost Element | Gross Cost (₹) | Less: Normal Loss Scrap (₹) | Net Cost (₹) | Equiv. Units | Cost per EU (₹) |
|---|---|---|---|---|---|
| Process-I Material | 3,27,800 | 11,000 | 3…

Question 9

A factory producing article A also produces a by-product B which is further processed into finished product. The joint cost of manufacture is: Material ₹5,000; Labour ₹3,000; Overhead ₹2,000 (Total ₹10,000)

Subsequent costs - Product A: Material ₹3,000; Labour ₹1,400; Overhead ₹600 (Total ₹5,000). Product B: Material ₹1,500; Labour ₹1,000; Overhead ₹500 (Total ₹3,000)

Selling prices: A ₹16,000; B ₹8,000
Estimated profit on selling prices: A 25%; B 20%

Assuming that selling and distribution expenses are in proportion of sales prices, show how you would apportion joint costs of manufacture and prepare a statement showing cost of production of A and B.

Accepted Answer

**Method: Reverse Cost / Estimated Profit Method for Apportionment of Joint Costs**

Since selling and distribution (S&D) expenses are in proportion to sales prices, we use reverse working to simultaneously determine both S&D expenses and joint cost apportionment.

**Step 1 – Determine Total Cost of each product (backward from selling price)**

Profit is given as a percentage **on selling price**:
- Product A: Total Cost = ₹16,000 × (1 – 25%) = **₹12,000**
- Product B: Total Cost = ₹8,000 × (1 – 20%) = **₹6,400**

**Step 2 – Set up S&D expense variable**

S&D expenses are in ratio of sales = 16,000 : 8,000 = **2 : 1**

Let S&D for B = x; then S&D for A = 2x

**Step 3 – Derive Joint Cost apportionment**

Total Cost = Joint Cost (apportioned) + Subsequent Costs + S&D

- Joint cost to A = 12,000 – 5,000 – 2x = **7,000 – 2x**
- Joint cost to B = 6,400 – 3,000 – x = **3,400 – x**

**Step 4 – Equate to total joint cost**

(7,000 – 2x) + (3,400 – x) = 10,000
10,400 – 3x = 10,000
3x = 400 → **x = ₹133.33 (i.e., 400/3)**

S&D for A = 2x = ₹266.67; S&D for B = x = ₹133.33

**Step 5 – Joint Cost Apportioned**

- To Product A = 7,000 – 266.67 = **₹6,733.33**
- To Product B = 3,400 – 133.33 = **₹3,266.67**
- Total = ₹10,000 ✓

**Statement of Cost of Production of A and B**

| Particulars | Product A (₹) | Product B (₹) | Total (₹) |
|---|---|---|---|
| Joint Cost apportioned | 6,733.33 | 3,266.67 | 10,000.00 |
| Add: Subsequent Costs | | | |
| – Material | 3,000.00 | 1,500.00 | 4,500.00 |…

Question 10

P Holiday Resorts offers three types of rooms: Deluxe Room (100 rooms, 90% occupancy); Super Deluxe Room (60 rooms, 75% occupancy); Luxury Suite (40 rooms, 60% occupancy).

Rent of 'super deluxe' room is 2 times of 'deluxe room' and 'luxury suite' is 3 times of 'deluxe room'.

Annual expenses: Staff salaries ₹680.00 lakhs; Lighting, Heating and Power ₹300.00 lakhs; Repairs, Maintenance and Renovation ₹180.00 lakhs; Linen ₹30.00 lakhs; Laundry charges ₹24.00 lakhs; Interior decoration ₹75.00 lakhs; Sundries ₹30.28 lakhs.

An attendant for each occupied room paid ₹500 per day. Depreciation: Building @5% on ₹900 lakhs; Furniture and fixtures @10% on ₹90 lakhs; Air conditioners @10% on ₹75 lakhs.

Profit @ 25% on total takings. Assume 360 days in a year.

Ascertain the tariff to be charged to …

Accepted Answer

**Service Costing — Tariff Determination for P Holiday Resorts**

**Step 1: Compute Occupied Room Days**

The number of room days actually occupied (on which attendant cost is incurred) is:
- Deluxe Room: 100 × 90% × 360 = **32,400 room days**
- Super Deluxe Room: 60 × 75% × 360 = **16,200 room days**
- Luxury Suite: 40 × 60% × 360 = **8,640 room days**
- **Total occupied room days = 57,240**

**Step 2: Convert to Equivalent Deluxe Room Days (using rent ratio as weights)**

Let rent of Deluxe Room = x; Super Deluxe = 2x; Luxury Suite = 3x.

- Deluxe: 32,400 × 1 = 32,400
- Super Deluxe: 16,200 × 2 = 32,400
- Luxury Suite: 8,640 × 3 = 25,920
- **Total equivalent deluxe room days = 90,720**

**Step 3: Compute Total Annual Costs (₹ in lakhs)**

Fixed/Period costs: Staff salaries ₹680.00 + Lighting, Heating & Power ₹300.00 + Repairs & Maintenance ₹180.00 + Linen ₹30.00 + Laundry ₹24.00 + Interior Decoration ₹75.00 + Sundries ₹30.28 = ₹1,319.28 lakhs

Depreciation: Building (5% × ₹900) = ₹45.00 + Furniture & Fixtures (10% × ₹90) = ₹9.00 + Air Conditioners (10% × ₹75) = ₹7.50 → Total depreciation = ₹61.50 lakhs

Variable cost — Attendant (₹500/day per occupied room): 57,240 × ₹500 = ₹2,86,20,000 = **₹286.20 lakhs**

**Total Annual Cost = 1,319.28 + 61.50 + 286.20 = ₹1,666.98 lakhs**

**Step 4: Compute Total Takings (Revenue)**

Profit = 25% on total takings → Cost = 75% of total takings

Total Takings = ₹1,666.98 ÷ 0.75 = **₹2,222.64 lakhs**

**Step 5: Compute Tariff per Room per Da…

Question 11

The following information has been provided by a company:

Number of units produced and sold: 6,000
Standard labour rate per hour: ₹8
Actual hours required: 17,094 hours
Labour efficiency: 105.3%
Labour rate variance: ₹68,376 (A)

You are required to calculate:

Accepted Answer

**Standard Costing — Labour Variances**

**(i) Actual Labour Rate per Hour**

Using the **Labour Rate Variance** formula:
LRV = (Standard Rate – Actual Rate) × Actual Hours
–₹68,376 = (₹8 – AR) × 17,094
(₹8 – AR) = –₹4
**Actual Labour Rate = ₹12 per hour**

**(ii) Standard Hours Required for 6,000 Units**

**Labour Efficiency Ratio** = (Standard Hours / Actual Hours) × 100
105.3 = (Standard Hours / 17,094) × 100
Standard Hours = 17,094 × 1.053 = **18,000 hours**

**(iii) Labour Efficiency Variance (LEV)**

LEV = (Standard Hours for Actual Output – Actual Hours) × Standard Rate
LEV = (18,000 – 17,094) × ₹8
LEV = 906 × ₹8
**LEV = ₹7,248 (Favourable)**

Favourable because actual hours worked (17,094) are less than standard hours allowed (18,000), meaning workers were more efficient than standard.

**(iv) Standard Labour Cost per Unit**

Standard hours per unit = 18,000 ÷ 6,000 = 3 hours
Standard Labour Cost per unit = 3 × ₹8 = **₹24 per unit**

**(v) Actual Labour Cost per Unit**

Total actual labour cost = 17,094 × ₹12 = ₹2,05,128
Actual Labour Cost per unit = ₹2,05,128 ÷ 6,000 = **₹34.19 per unit** (rounded to nearest paisa)

Question 12

XY Co. Ltd manufactures two products X and Y and sells them through East and West divisions.

For 2022-23:
Budgeted Sales - X: East 400 units @ ₹9; West 600 units @ ₹9. Y: East 300 units @ ₹21; West 500 units @ ₹21
Actual Sales - X: East 500 units @ ₹9; West 700 units @ ₹9. Y: East 200 units @ ₹21; West 400 units @ ₹21

Market analysis reveals X is underpriced; increasing price by ₹1 will find ready market. Y is overpriced; reducing price by ₹1 will increase demand. Management has agreed to these changes.

Based on price changes and sales reports, Divisional Managers estimate percentage increase in sales over budgeted sales:
X: East +10%, West +5%
Y: East +20%, West +10%

With intensive advertisement, additional sales are possible:
X: East 60 units, West 70 units
Y: East 40 units, West 50 …

Accepted Answer

**Sales Budget for 2023-24 with Comparative 2022-23 Data**

The budget is prepared by first determining the revised selling prices, then applying the estimated percentage increases over 2022-23 budgeted sales, and finally adding the additional units from intensive advertisement.

**Revised Prices for 2023-24:** Product X — ₹9 + ₹1 = **₹10 per unit**. Product Y — ₹21 − ₹1 = **₹20 per unit**.

**Sales Budget for 2023-24:**

| Division | Units (Base) | % Increase | Units after % | Advt. Units | **Total Units** | Price (₹) | **Amount (₹)** |
|---|---|---|---|---|---|---|---|
| **Product X** | | | | | | | |
| East | 400 | 10% → 40 | 440 | 60 | **500** | 10 | **5,000** |
| West | 600 | 5% → 30 | 630 | 70 | **700** | 10 | **7,000** |
| **Total X** | | | | | **1,200** | | **12,000** |
| **Product Y** | | | | | | | |
| East | 300 | 20% → 60 | 360 | 40 | **400** | 20 | **8,000** |
| West | 500 | 10% → 50 | 550 | 50 | **600** | 20 | **12,000** |
| **Total Y** | | | | | **1,000** | | **20,000** |
| **Grand Total** | | | | | **2,200** | | **32,000** |

**2022-23 Budgeted Sales (for reference):**

| Product | Division | Units | Rate (₹) | Amount (₹) |
|---|---|---|---|---|
| X | East | 400 | 9 | 3,600 |
| X | West | 600 | 9 | 5,400 |
| Y | East | 300 | 21 | 6,300 |
| Y | West | 500 | 21 | 10,500 |
| **Total** | | **1,800** | | **25,800** |

**2022-23 Actual Sales (for reference):**

| Product | Division | Units | Rate (₹) | Amount (₹) |
|---|---|---|---|---|
| X | East | 500 | 9 | 4,500 |
…

CA Inter Taxation

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