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Past papers › Taxation › May 2022

CA Inter Taxation — Suggested Answers — May 2022

This page contains all 19 questions from the CA Inter Taxation Suggested Answers for the May 2022 attempt cycle, sourced from VSI Jaipur.

QdStandard Costing
16 marks very hard
Discuss briefly some of the criticism which may be levelled against the Standard Costing System.
Q1Inventory Management, Economic Order Quantity, Procurement C
20 marks very hard
A Limited a 'toy' company purchases its requirement of raw material from S Limited at ₹ 120 per kg. The company incurs a handling cost of ₹ 400 plus freight of ₹ 300 per order. The company operates carrying cost of inventory of raw material is ₹ 0.25 per kg per month. In addition the cost of working capital finance on the inventory of raw material is ₹ 15 per kg per annum. The annual production of the toys is 60,000 units and 5 units of toys are obtained from one kg. of raw material. Required: (i) Calculate the Economic Order Quantity (EOQ) of raw materials. (ii) Advise, how, frequently company should order to minimize its procurement cost. Assume 360 days in a year. (iii) Calculate the total ordering cost and total inventory carrying cost per annum as per EOQ.
Q2(a)Cost Accounting / Job Costing / Overhead Recovery
10 marks very hard
Case: Manufacturing company with Job 1 and Job 2 data: Direct materials (₹1,08,000 and ₹75,000), Direct wages (₹84,000 and ₹60,000), Selling price (₹3,33,312 and ₹2,52,000), Profit percentage on total cost (12% and 20%)
In a manufacturing company, the overheads are recovered as follows: Factory Overheads: a fixed percentage basis on direct wages and Administrative overheads: a fixed percentage basis on factory cost. The company has furnished the following data relating to two jobs undertaken by it in a period.
Q2(b)Contract Costing / Escalation Clause
5 marks hard
Case: Material (P, Q, R, S) and Labour (LM, LN) with Standard vs Actual quantities, rates per tonne and hourly rates provided in tables
Paramount Constructions Limited is engaged in construction and erection of bridges under long term contracts. It has entered into a big contract in an agreed price of ₹250 Lakhs. Given an escalation clause for material and labour as spelt out in the contract and corresponding actual as follows:
Q2(c)Cost Accounting / Job Costing vs Process Costing
5 marks medium
Distinguish between Job costing and Process Costing. (Any five points of differences)
Q3(a)Linear Programming / Production Planning & Budgeting
10 marks very hard
Case: SR Ltd manufactures Shirts (T) and Shorts (S). Production limited by 12,000 direct labour hours per month. Constraint: either garment must be minimum 25% of the other's production. Data: Shirt - Sales price ₹60, Raw Materials ₹24, Fabric ₹12 per metre, Dyes/cotton ₹6, Direct labour @ ₹8/hour, Fixed Overhead ₹4/hour, Profit ₹18. Short - Sales price ₹44, Raw Materials ₹12, Fabric ₹12 per metre, Dyes/cotton ₹4, Direct labour @ ₹4/hour, Fixed Overhead ₹2/hour, Profit ₹22. From July 2022, direct labour no longer available. Opening stock of 20,000 Shorts and 15,000 Shirts in July 2022. Sales expecte…
SR Ltd is a manufacturer of Garments. For the first three months of financial year 2022-23 commencing on 1st April 2022, production will be constrained by direct labour. It is estimated that only 12,000 hours of direct labour hours will be available in each month. For market reasons, protection of either of the garments must be at least 25% of the production of the other.
Q3(b)Human Resource Accounting / Labour Turnover
0 marks easy
PCS Limited has replaced 72 workers during the quarter ended 31st March 2023. The labour rates for the quarter are as follows: Fixed method 16%, Replacement method 8%, Separation method 5%. You are required to ascertain: (i) Average number of workers on roll (for the quarter), (ii) Number of workers left and discharged during the quarter, (iii) Number of workers recruited and joined in the quarter, (iv) Equivalent employee turnover rates for the year.
Q3(b)Cost Accounting
10 marks very hard
The following data are available from the books and records of A Ltd. for the month of April 2022
Q3(c)Costing / Make or Buy Decision / Capital Budgeting
0 marks hard
Case: Top-tech, a manufacturing company is presently evaluating two possible machines for the manufacture of superior Pen-drives. The following information is available: Machine A - Selling price per unit ₹ 400.00, Variable cost per unit ₹ 240.00, Total fixed costs per year ₹ 350 lakhs, Capacity (in units) 8,00,000. Machine B - Selling price per unit ₹ 400.00, Variable cost per unit ₹ 260.00, Total fixed costs per year ₹ 200 lakhs, Capacity (in units) 10,00,000.
You are required to: (i) Recommend which machine should be chosen? (ii) Would you change your answer, if you were informed that in near future demand will be unlimited and the capacities of the two machines are as follows? Machine A – 12,00,000 units, Machine B – 12,00,000 units. Why?
Q3(d)Transportation / Logistics Costing
0 marks easy
Case: Coal is transported from two mines X & Y and unloaded at a railway station. X is at a distance of 15 kms and Y is at a distance of 20 kms from the rail head. A fleet of lorries having carrying capacity of 4 tonnes is used to transport coal from the coal mines. Records reveal that average speed of the lorries is 40 kms per hour when running and regularly take 15 minutes to unload at the rail head. At Mine X average loading time is 30 minutes per load, while at mine Y average loading time is 25 minutes per load. Additional Information: Drivers' wages, depreciation, insurance and taxes, etc ₹ 12 …
You are required to prepare a statement showing the cost per tonne kilometre of carrying coal from each mine 'X' and 'Y'.
Q4(a)Process Costing - Process Loss Accounting with Multiple Proc
10 marks very hard
STG Limited is a manufacturer of Chemical 'GK', which is required for industrial use. The complete production activity requires two processes. The raw material first passes through Process 1, where Chemical 'GI' is produced. Following data is furnished for the month of April 2022: Particulars (in kg.s): Opening work-in-progress quantity: 9,500 (Material 100% and conversion 50% complete) Material input quantity: 1,05,000 Work Completed quantity: 83,000 Closing work-in-progress quantity: 16,500 (Material 100% and conversion 60% complete) You are further provided that: Particulars (in ₹): Opening work-in-progress cost: (blank) Material cost: 29,500 Processing cost: 14,750 Material input cost: 3,34,500 Processing cost: 2,53,100 Normal process loss may be estimated to be 10% of material input. It has no realizable value. Any loss over and above normal loss is considered to be 100% complete in material and processing.
Q5(a)Activity Based Costing, Cost per unit calculation
10 marks hard
Star Limited manufactures three products (AX, BX, CX) using the same production methods. A conventional product costing system is being used currently. Product details: AX - Labour Hrs 1.00, Machine Hrs 2.00, Materials per unit ₹35, Volume 7,500 units; BX - Labour Hrs 0.90, Machine Hrs 1.50, Materials per unit ₹25, Volume 12,500 units; CX - Labour Hrs 1.50, Machine Hrs 2.50, Materials per unit ₹45, Volume 25,000 units. Direct Labour costs ₹ 20 per hour and production overheads are absorbed on a machine hour basis at ₹ 30 per machine hour. Management is considering Activity Based Costing. Production overhead allocation: Set-ups 40%, Machinery 10%, Material handling 30%, Inspection 20%. Activity volumes for the period: AX (Set-ups 350, Material movements 200, Inspections 200), BX (Set-ups 450, Material movements 280, Inspections 400), CX (Set-ups 740, Material movements 675, Inspections 900). Totals: 1,540 set-ups, 1,155 material movements, 1,500 inspections.
Q5(b)Labour costing, Wage variance
5 marks medium
A manufacturing department of a company has employed 120 workers. The standard output of product NPX is 20 units per hour and the standard wage rate is ₹ 25 per labour hour. In a 48 hours week, the department produced 1,000 units of NPX despite 5% of the time paid being lost due to an abnormal reason. The hourly wages actually paid were ₹ 25.70 per hour.
Q9Cost Accounting - Cost Sheet Preparation and Selling Price C
0 marks hard
GWX company furnishes the following information for the month of April 2022: Expenses paid for pollution control and engineering maintenance: ₹1,600 Stock of raw materials on 30th April 2022: ₹40,000 Primary packing cost: ₹8,000 Research & development cost (Process related): ₹5,000 Packing cost for redistribution of finished goods: ₹1,500 Advertisement expenses: ₹1,300 Stock of finished goods as on 1st April 2022 was 200 units having a total cost of ₹28,000. The entire opening stock of finished goods has been sold during the month of April, 2022 was 3,000 units. Closing stock of finished goods as on 30th April, 2022 was 400 units. You are required to: I. Prepare a Cost Sheet for the above period showing the: (i) Cost of Raw Material consumed (ii) Prime Cost (iii) Factory Cost (iv) Cost of Production (v) Cost of goods sold (vi) Cost of Sales II. Calculate selling price per unit, if sale is made at a profit of 20% on sales.
Q10Process Costing
0 marks hard
Case: Process costing scenario with chemical production across two processes
The Company transfers 60,000 kgs. of output (Chemical 'G') from Process I to Process II for further processing. Process I for producing Chemical 'GK'. Further materials are added in Process II which yield 1,20 kg. of Chemical 'GK' for every kg. of Chemical 'G' introduced. The chemicals transferred to Process II for further processing are then sold as Chemical 'G' for ₹ 10 per kg. Any output of output completed in Process I, are sold as Chemical 'G' @ ₹9 per kg. The monthly costs incurred in Process II (other than the cost of Chemical 'G') are: Input 60,000 kg. of Chemical 'G'. Materials Cost ₹ 85,000. Processing Costs ₹ 50,000.
Q11Cost Accounting & Journal Entries
0 marks hard
Case: Manufacturing company cost and profit analysis
UV Limited started a manufacturing unit from 1st October 2021. It produced 8,50,000 units and sells its lamps at ₹ 4.92 per unit. During the quarter ending on 31st December, 2021, it produced and sold 12,000 units and suffered a loss of 3.5 per unit. During the quarter ending on 31st March, 2022, it produced and sold 30,000 units and earned a profit of ₹ 4.80 per unit.
Q14(e)Joint Products - Profit/Loss Analysis
5 marks medium
RST Limited produces three joint products X, Y and Z. The products are processed further. Pre-separation costs are apportioned on the basis of weight of output of each joint product. The following data are provided for the month of April, 2022: Cost incurred up to separation point: ₹10,000 Output (in Litre): Product X 100, Product Y 70, Product Z 80 Cost incurred after separation point: Product X ₹2,000, Product Y ₹1,200, Product Z ₹800 Sale Price per Litre: Product X ₹50, Product Y ₹80, Product Z ₹60 At pre-separation point (estimated): Product X 25, Product Y 70, Product Z 45 You are required to: (i) Prepare a statement showing profit or loss made by each product after further processing, using the equally adopted method of apportionment of pre-separation cost. (ii) Advise the management whether, on purely financial consideration, the three products are to be processed further or not.