CA Inter Cost & Mgmt — Question Paper — January 2025

Note: The question as presented is missing the product-specific data for Products P and Q (direct material cost per unit, direct labour hours per unit, units produced, and cost driver consumption by each product). The solution below computes all overhead rates fully and presents the cost structure framework. The final product unit costs can be inserted once that data is available.

Part (i): Traditional Absorption Costing

Overhead Absorption Rate (OAR):

Total Overhead = ₹45,000 + ₹1,62,000 + ₹27,000 + ₹36,000 = ₹2,70,000

OAR = Total Overhead / Total Direct Labour Hours = ₹2,70,000 / 72,000 hours = ₹3.75 per DLH

Cost per unit of Product P or Q = Direct Material + Direct Labour (DLH × ₹14.50) + Overhead (DLH × ₹3.75)

Part (ii): Activity Based Costing System

Step 1 — Allocate Technical/Indirect Staff Salary (₹45,000) in ratio 1:2:3 among Maintenance, Inspection, and Quality Control:
- Maintenance: ₹45,000 × 1/6 = ₹7,500
- Inspection: ₹45,000 × 2/6 = ₹15,000
- Quality Control: ₹45,000 × 3/6 = ₹22,500

Step 2 — Compute total Machine-related costs and distribute in ratio 3:1 (Stores : Production Setup):
- Machine Maintenance = Repairs ₹27,000 + Maintenance staff salary ₹7,500 = ₹34,500
- Machine Operation Expenses = ₹1,62,000
- Total Machine Costs = ₹1,96,500
- Stores (3/4): ₹1,96,500 × 3/4 = ₹1,47,375
- Production Setup (1/4): ₹1,96,500 × 1/4 = ₹49,125

Step 3 — Build Activity Cost Pools:

| Activity | Basis | Amount (₹) |
|---|---|---|
| Inspection | Staff salary allocation | 15,000 |
| Quality Control | Staff salary allocation | 22,500 |
| Production Setup | Machine cost allocation | 49,125 |
| Stores | Machine cost allocation (₹1,47,375) + Stores staff wages (₹36,000) | 1,83,375 |
| Total | | 2,70,000 |

Step 4 — Compute Activity Cost Driver Rates:

| Activity | Cost Pool (₹) | Cost Driver | Volume | Rate (₹) |
|---|---|---|---|---|
| Inspection (Regulations raised) | 15,000 | Regulations raised | 5,760 | 2.60 per regulation |
| Stores (Regulations raised) | 1,83,375 | Regulations raised | 5,760 | 31.83 per regulation |
| Production Setup | 49,125 | No. of setups | 7,200 | 6.82 per setup |
| Quality Control | 22,500 | No. of quality tests | 720 | 31.25 per test |

Note on cost driver mapping: Inspection and Stores both use 'Regulations raised' as the driver (stores requisitions/inspection reports). If treated as a combined pool: (₹15,000 + ₹1,83,375) / 5,760 = ₹34.44 per regulation.

Step 5 — ABC Unit Cost Structure:

For each product: Unit Cost = Direct Material + Direct Labour (DLH × ₹14.50) + Σ (Cost driver units consumed per unit × Activity rate)

Comparison: Under Traditional Costing, all overhead is recovered uniformly at ₹3.75/DLH regardless of actual activity consumption. Under ABC, overhead is traced to products based on actual consumption of each activity, producing more accurate costs — particularly where products differ in batch size, setup frequency, or quality testing requirements. Products consuming fewer setups or quality tests will show lower overhead under ABC compared to traditional costing.

Note on Question Clarity: The question text as presented appears to be severely garbled or corrupted Hindi/transliterated text that does not form coherent sentences or recognisable accounting/audit terminology. The sub-part labels (e.g., 'खाकी सामान विभाग', 'खा दस विभाग') do not correspond to any standard CA Intermediate syllabus topic in their current form. It is likely the source text was distorted during OCR, translation, or copy-paste. A confident, accurate answer cannot be constructed without the original, legible question.

What can be attempted based on available context:

The topic stated is 'Audit procedure and department classification' under Paper 4 (Auditing and Assurance). If the question is asking about classification of departments from an internal/government audit perspective, the following framework applies:

Classification of Departments for Audit Purposes (as relevant under SA 315 — Identifying and Assessing the Risks of Material Misstatement and provisions under the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 for government entities):

Purchase / Procurement Department: Auditor verifies purchase orders, supplier invoices, and approval authorities. Risk of fictitious purchases and over-invoicing is assessed.

Sales / Revenue Department: Vouching of sales invoices against dispatch records, credit notes, and collections. Cut-off procedures are critical.

Finance / Accounts Department: Review of books of account, reconciliations, and financial reporting controls.

Stores / Inventory Department: Physical verification of stock, comparison with bin cards and stock registers, and assessment of obsolescence.

Production / Operations Department: Review of cost records, output reports, and wastage norms.

HR / Payroll Department: Verification of payroll with attendance records, authorisation for increments, and ghost-employee risk.

IT / Systems Department: Assessment of general IT controls (GITCs) and application controls per SA 315.

Legal / Compliance Department: Review of pending litigation disclosures and regulatory compliance.

Capital Expenditure Department: Verification of fixed asset additions, authorisation, and capitalisation policies.

For each department, the auditor applies SA 330 (The Auditor's Responses to Assessed Risks) — designing both tests of controls and substantive procedures commensurate with the risk level identified.

Request to the student/examiner: Please re-submit the original question text (in clear English or legible Hindi) so an accurate, mark-specific answer can be provided.

Note: The question text appears to be severely garbled/corrupted Hindi and cannot be parsed into a coherent, solvable problem. The text contains fragments that do not form a complete, intelligible question. Partial data visible includes: 96,000 units, ₹20 per unit, ₹40,000, ₹20,00,000, ₹120 per unit, and completion percentages of 60%, 40%, and 100%. These figures suggest this may be an Equivalent Production (Process Costing) problem under Cost Accounting (Paper 4 — Cost and Management Accounting), or possibly a Contract Accounting problem under AS 7.

If this is an Equivalent Production problem, the typical approach would be:
1. Prepare a Statement of Equivalent Production using FIFO or Weighted Average method.
2. For units at 60%, 40%, 100% completion, multiply physical units by the respective completion percentage to get equivalent units for labour/overhead.
3. Divide total cost by equivalent units to get cost per equivalent unit.
4. Multiply cost per equivalent unit by equivalent units in closing WIP to value closing WIP.

If this is an AS 7 Construction Contract problem, the Percentage of Completion Method under AS 7 (Accounting Standard 7 — Construction Contracts) would apply: recognize revenue = (Work certified / Contract price) × Total contract price.

Please resubmit the question in clear English or properly formatted Hindi with all data legible so a complete and accurate solution can be provided.

Note: The question text as provided appears to be significantly garbled/corrupted in transliteration, and the sub-part (iii) has no mark allocation specified. The topic label 'IAT' (Indirect Audit Documentation) does not correspond to a standard ICAI nomenclature. The answer below is structured on Audit Documentation under SA 230 – Audit Documentation (issued by ICAI), which is the most proximate standard for a 5-mark descriptive question on Paper 4 (Auditing & Assurance) at CA Intermediate level.

(i) Meaning and Purpose of Audit Documentation (2 Marks)

Audit Documentation (also referred to as working papers) means the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached. As per SA 230, the auditor shall prepare documentation that enables an experienced auditor, having no previous connection with the audit, to understand: (a) the nature, timing, and extent of audit procedures performed; (b) the results of those procedures and the audit evidence obtained; and (c) significant matters arising during the audit and the conclusions reached thereon.

The primary purposes of audit documentation are: to provide evidence of the auditor's basis for a conclusion about achievement of the overall objective; to assist the engagement team to plan and perform the audit; to facilitate supervision and review of work; and to enable quality control reviews and inspections.

(ii) Form, Content, and Extent of Audit Documentation (3 Marks)

The form, content, and extent of audit documentation depend on factors such as: the size and complexity of the entity; the nature of the audit procedures performed; the significance of the audit evidence obtained; the nature and extent of exceptions identified; and the need to document conclusions or the basis for conclusions not readily determinable from the work performed.

Key requirements under SA 230 include:

Documentation of significant matters: The auditor shall document discussions of significant matters with management and those charged with governance, including the nature, timing, and subject of the discussions, as well as any significant decisions reached.

Assembly of the final audit file: The auditor shall assemble the audit documentation into an audit file and complete the administrative process of assembling the final audit file on a timely basis — ordinarily not more than 60 days after the date of the auditor's report.

Retention period: Under SA 230, audit documentation shall be retained for a period sufficient to meet the needs of the firm or as required by law or regulation — typically 7 years from the date of the auditor's report or from the date of the group auditor's report, whichever is later, per ICAI guidelines.

Prohibition on deletion: After the assembly of the final audit file, the auditor shall not delete or discard audit documentation before the end of its retention period. If changes are made after assembly, the auditor must document who made the changes, when, and the reasons therefor.

Final Answer: Audit documentation under SA 230 is the backbone of an audit, ensuring accountability, enabling review, and providing evidence of compliance with Standards on Auditing. Proper documentation in form, content, and timely assembly is a professional obligation of every statutory auditor.

(i) Total Cost per Batch

The batch runs for 30 weeks, with lectures held 5 days per week. All costs below are computed on a per-week basis and then multiplied by 30 weeks.

| Cost Head | Per Week (₹) |
|---|---|
| Hall Rent | 20,000 |
| Instructor Honorarium | 1,500 |
| Travel Expenses (₹200 × 5 days) | 1,000 |
| Refreshments | 1,500 |
| Administrative & Miscellaneous | 500 |
| Total Weekly Cost | 24,500 |

Total Cost per Batch = ₹24,500 × 30 weeks = ₹7,35,000

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(ii) Minimum Fee per Student — Batch Fully Occupied

At full capacity, the hall accommodates 250 students. To merely cover costs (no profit), the minimum fee is:

Minimum Fee per Student = Total Cost ÷ Number of Students
= ₹7,35,000 ÷ 250
= ₹2,940 per student

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(iii) Fee per Student — Batch 80% Filled, 25% Profit Margin on Fee

When batch is 80% filled: Students enrolled = 250 × 80% = 200 students.

Since all costs are fixed in nature, total cost remains ₹7,35,000 regardless of occupancy.

A profit margin of 25% on fee means: Cost = 75% of Fee

Fee per student = (Total Cost ÷ 75%) ÷ Number of Students
= (₹7,35,000 ÷ 0.75) ÷ 200
= ₹9,80,000 ÷ 200
= ₹4,900 per student

Verification: Total Revenue = 200 × ₹4,900 = ₹9,80,000; Profit = ₹9,80,000 − ₹7,35,000 = ₹2,45,000; Profit Margin = ₹2,45,000 ÷ ₹9,80,000 = 25% ✓

(i) Break-Even Sales in Value:

Selling Price per unit = ₹100; Full Capacity = 50,000 units; Total Sales at full capacity = ₹50,00,000

Machine M:
Fixed Cost = ₹1,50,000. Profit at full capacity = ₹2,25,000.
Total Cost = ₹50,00,000 − ₹2,25,000 = ₹47,75,000.
Variable Cost = ₹47,75,000 − ₹1,50,000 = ₹46,25,000.
Variable Cost per unit = ₹46,25,000 ÷ 50,000 = ₹92.50.
Contribution per unit = ₹100 − ₹92.50 = ₹7.50.
P/V Ratio = ₹7.50 ÷ ₹100 = 7.5%.
Break-Even Sales (M) = Fixed Cost ÷ P/V Ratio = ₹1,50,000 ÷ 7.5% = ₹20,00,000

Machine N:
Fixed Cost = ₹1,50,000 − ₹60,000 = ₹90,000. Profit at full capacity = ₹1,60,000.
Total Cost = ₹50,00,000 − ₹1,60,000 = ₹48,40,000.
Variable Cost = ₹48,40,000 − ₹90,000 = ₹47,50,000.
Variable Cost per unit = ₹47,50,000 ÷ 50,000 = ₹95.
Contribution per unit = ₹100 − ₹95 = ₹5.
P/V Ratio = ₹5 ÷ ₹100 = 5%.
Break-Even Sales (N) = ₹90,000 ÷ 5% = ₹18,00,000

(ii) Sales Level (in units) where both machines are equally profitable:

Let x = number of units at which profits are equal.

Profit equation for Machine M: 7.50x − 1,50,000
Profit equation for Machine N: 5.00x − 90,000

Setting them equal: 7.50x − 1,50,000 = 5.00x − 90,000
2.50x = 60,000 → x = 24,000 units

Verification: Machine M profit = 7.50 × 24,000 − 1,50,000 = ₹30,000; Machine N profit = 5 × 24,000 − 90,000 = ₹30,000. ✓

At 24,000 units (Sales value = ₹24,00,000), both machines yield equal profit of ₹30,000.

Reconciliation of Profit as per Financial Accounts with Profit as per Cost Accounts

In cost accounting, certain items appear only in Financial Accounts (purely financial charges/incomes) and certain items appear only in Cost Accounts (notional charges, under/over-recovery of overheads). These cause the profits reported under the two systems to differ. A Reconciliation Statement is prepared to explain and verify this difference.

Reconciliation Statement of XYZ Ltd. for the year ending 31st March, 2024

| Particulars | ₹ | ₹ |
|---|---|---|
| Profit as per Financial Accounts | | 2,23,000 |
| Add: Purely financial charges included in Financial Accounts but NOT in Cost Accounts: | | |
| Preliminary expenses written off | 35,000 | |
| Goodwill written off | 40,000 | |
| Expenses on issue of shares | 30,000 | 1,05,000 |
| | | 3,28,000 |
| Less: Purely financial income included in Financial Accounts but NOT in Cost Accounts: | | |
| Interest on Bank Deposits | 60,000 | |
| Bad debts recovered | 30,000 | (90,000) |
| Less: Items charged in Cost Accounts but NOT in Financial Accounts: | | |
| Notional fuel for own premises | 30,000 | |
| Under-recovery of administration overheads | 25,000 | |
| Under-recovery of selling overheads | 35,000 | (90,000) |
| Less: Under-valuation of closing stock in Cost Accounts | | (65,000) |
| Profit as per Cost Accounts | | ₹83,000 |

Treatment Notes:
- Purely financial charges (preliminary expenses, goodwill written off, share issue expenses) are debited in Financial Accounts only; they reduce FA profit but not CA profit → added back.
- Purely financial incomes (interest on deposits, bad debts recovered) increase FA profit but are excluded from Cost Accounts → deducted.
- Notional costs and under-recoveries (notional fuel, under-recovery of admin and selling overheads) are charged in Cost Accounts but not recognised in Financial Accounts → deducted to reduce CA profit.
- Under-valuation of closing stock in Cost Accounts means closing stock is lower in CA than FA, leading to higher cost of goods sold in CA and therefore lower profit in CA → deducted.

Profit as per Cost Accounts = ₹83,000

(i) Contribution per Good Unit

Each batch consists of 2,000 units with an expected rejection rate of 3%, giving rejected units = 60 per batch and good units = 1,940 per batch.

Machine hours are allocated equally across 10 batches from the 3,000 available hours, so machine hours per batch = 300 hours. Variable overhead per batch = 300 × ₹120 = ₹36,000.

Total Variable Cost per Batch:
- Direct Material: ₹2,40,000
- Direct Labour: ₹1,65,000
- Variable Overhead: ₹36,000
- Gross Variable Cost = ₹4,41,000

Less: Scrap recovery on 60 rejected units @ ₹75 = ₹4,500
Net Variable Cost per Batch = ₹4,36,500

Variable Cost per Good Unit = ₹4,36,500 ÷ 1,940 = ₹225 per unit

Contribution per Good Unit = Selling Price − Variable Cost = ₹250 − ₹225 = ₹25 per good unit

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(ii) Total Monthly Profit

Total good units per month = 1,940 × 10 batches = 19,400 units
Total Contribution = 19,400 × ₹25 = ₹4,85,000
Less: Fixed Overheads = ₹1,25,000

Total Monthly Profit = ₹3,60,000

(i) Advice on Japanese Order (20,000 units at ₹14 with ₹8,000 shipping):

The company currently produces 60,000 units against a capacity of 80,000 units. Hence, spare capacity = 20,000 units, which exactly matches the Japanese order. No existing production needs to be sacrificed.

Since fixed costs are already absorbed by current production, the decision is based purely on incremental contribution.

Incremental Contribution from Japanese Order:
Selling Price per unit = ₹14
Less: Variable Cost per unit (Labour ₹4 + Variable OH ₹2) = ₹6
Contribution per unit = ₹8
Total Contribution (20,000 × ₹8) = ₹1,60,000
Less: Additional Shipping Cost = ₹8,000
Net Incremental Profit = ₹1,52,000

Advice: The order should be ACCEPTED as it increases profit by ₹1,52,000 without affecting existing sales or requiring additional fixed cost.

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(ii) If the Customer is a Local One:

If the customer is local, the ₹8,000 shipping cost will not apply. The incremental profit would be ₹1,60,000 (higher than the Japanese order). Financially, the order remains profitable.

However, the advice changes: It is NOT advisable to accept the order from a local customer because:
- Selling at ₹14 locally (against the normal price of ₹20) will disturb the existing price structure in the domestic market.
- Existing customers may demand the same reduced price, leading to revenue erosion across all domestic sales.
- Price discrimination is easier to sustain in export markets (Japanese client) than in the domestic market where it can create legal and commercial complications.

Conclusion: Yes, the advice will be different for a local customer — the order should be rejected despite being financially favourable, to protect the domestic pricing integrity.

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(iii) Japanese Order for 30,000 units at ₹14 (partial supply not accepted, shipping treated as variable):

Available spare capacity = 20,000 units; Order = 30,000 units. To supply 30,000 units, 10,000 units must be diverted from regular production (regular sales fall from 60,000 to 50,000 units).

Shipping cost (variable) = ₹8,000 ÷ 20,000 = ₹0.40 per unit; for 30,000 units = ₹12,000.

Incremental Analysis:
Revenue from Japanese order (30,000 × ₹14) = ₹4,20,000
Less: Variable cost of 30,000 units (30,000 × ₹6) = ₹1,80,000
Less: Shipping (variable) = ₹12,000
Less: Lost contribution from 10,000 regular units sacrificed (10,000 × ₹14) = ₹1,40,000
Net Incremental Profit = ₹88,000

Conclusion: Profit increases by ₹88,000 on accepting the 30,000-unit order. The order should be ACCEPTED. However, the gain is lower compared to Part (i) because contribution from 10,000 regular-priced units is sacrificed.

Statement of Cost of Production — January 2024
(Capacity: 40% | Units Produced: 33,600)

From the prime cost table, prime cost at 40% capacity = ₹44 per unit; total = ₹14,78,400. Applying ratio RM : DW : DE = 3 : 2 : 1:

- Raw Material Consumed (3/6 × 14,78,400) = ₹7,39,200 (₹22.00/unit)
- Direct Wages (2/6 × 14,78,400) = ₹4,92,800 (₹14.67/unit)
- Direct Expenses (1/6 × 14,78,400) = ₹2,46,400 (₹7.33/unit)
- Prime Cost = ₹14,78,400 (₹44.00/unit)
- Factory Overheads (60% of Direct Wages) = ₹2,95,680 (₹8.80/unit)
- Works Cost = ₹17,74,080 (₹52.80/unit)
- Fixed Administration Expenses = ₹2,00,000 (₹5.95/unit)
- Cost of Production = ₹19,74,080 (₹58.75/unit)

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Statement of Profit — January 2024 (Units Sold: 33,600)

Note: The selling price appears as ₹7.65 in the question, which would yield an absurd loss (cost ₹58.75/unit). The figure ₹76.50 is used here, consistent with a clean profit of ₹11.25/unit.

- Sales (33,600 × ₹76.50) = ₹25,70,400
- Less: Cost of Production = ₹19,74,080
- Gross Profit = ₹5,96,320
- Less: Variable Distribution Cost (33,600 × ₹1.50) = ₹50,400
- Less: Fixed Selling & Distribution Expenses = ₹1,68,000
- Net Profit = ₹3,77,920 (₹11.25 per unit)

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Verification of Raw Material Purchases

Policy: Opening stock of raw material = 20% of that month's consumption.

February data first (needed for January closing stock): 100% capacity = 84,000 units; prime cost = ₹32/unit; RM consumed = 3/6 × ₹26,88,000 = ₹13,44,000.

*January 2024:*
- RM Consumed = ₹7,39,200
- Opening Stock (20% × ₹7,39,200) = ₹1,47,840
- Closing Stock = Opening of Feb (20% × ₹13,44,000) = ₹2,68,800
- Computed Purchases = ₹7,39,200 + ₹2,68,800 − ₹1,47,840 = ₹8,60,160

*February 2024:*
- RM Consumed = ₹13,44,000
- Opening Stock = ₹2,68,800
- Closing Stock (20% of March RM; assuming March reverts to 40% level) = 20% × ₹7,39,200 = ₹1,47,840
- Computed Purchases = ₹13,44,000 + ₹1,47,840 − ₹2,68,800 = ₹12,23,040

The computed purchases (₹8,60,160 for Jan; ₹12,23,040 for Feb) differ from the figures stated in the question (₹15,00,000 and ₹16,40,400). This discrepancy suggests a typographical error in the source data; the methodology and cost sheet figures are correct.

Note: The question as provided appears to be incomplete. Only Raw Material stock and Work-in-Progress (WIP) stock figures are given. A complete Manufacturing Account requires additional data such as Purchases of Raw Material, Direct Wages (Labour), Factory/Manufacturing Overheads (e.g., power, factory rent, depreciation on plant, etc.), and any Carriage Inward on raw materials. The solution below presents the standard Manufacturing Account format using the available figures and identifies where missing data would be inserted.

Manufacturing Account of A Ltd. for the year ended 31st March 2024

*Debit Side (Cost Elements):*

Opening Stock of Raw Material: ₹3,40,000 is brought forward from the previous year's balance sheet.

Add: Purchases of Raw Material: ₹ — (Not given; required to compute total raw material available).

Add: Carriage Inward: ₹ — (if any; not given).

Less: Closing Stock of Raw Material (31st March 2024): ₹1,80,000.

This gives Raw Material Consumed = Opening RM + Purchases − Closing RM = ₹3,40,000 + Purchases − ₹1,80,000 = Purchases + ₹1,60,000.

Add: Direct Wages: ₹ — (not given).

Add: Prime Cost = Raw Material Consumed + Direct Wages.

Add: Factory/Manufacturing Overheads: ₹ — (not given).

Add: Opening Work-in-Progress: ₹5,50,000.

Less: Closing Work-in-Progress: ₹3,50,000.

Adjustment for WIP = Opening WIP − Closing WIP = ₹5,50,000 − ₹3,50,000 = ₹2,00,000 (net addition to cost of production, i.e., more WIP was converted to finished goods than was introduced).

*Credit Side:*

Cost of Goods Produced (transferred to Trading Account): This is the balancing figure = Raw Material Consumed + Direct Wages + Factory Overheads + Opening WIP − Closing WIP.

From the data available, the partial cost impact is: ₹1,60,000 (net RM consumed before purchases) + ₹2,00,000 (net WIP reduction) = ₹3,60,000 plus all missing figures.

Key Accounting Treatment: The Manufacturing Account is a Nominal Account prepared as part of Final Accounts of a manufacturing entity. It ascertains the Cost of Production / Cost of Goods Manufactured, which is then transferred to the Trading Account as 'Cost of Goods Produced' on the credit side (instead of 'Purchases'). WIP is shown on both sides of the Manufacturing Account — Opening WIP on the Debit side and Closing WIP on the Credit side (or as a deduction on debit side).

Conclusion: With the figures available — Opening RM ₹3,40,000, Closing RM ₹1,80,000, Opening WIP ₹5,50,000, Closing WIP ₹3,50,000 — a complete Manufacturing Account cannot be prepared. Additional data (Purchases, Direct Wages, Factory Overheads) is required. The net effect of the given figures is: RM consumed (net of opening/closing) contribution = ₹1,60,000 and WIP net credit to cost = ₹2,00,000, totalling a partial base of ₹3,60,000.

Note: The question as presented is incomplete — the sub-part (a) text and the overhead cost pool data (i.e., the ₹ amounts for each activity cost pool such as ordering, setup, and quality inspection costs) are not visible beyond the table. Without the overhead cost pool amounts, the full numerical ABC cost calculation cannot be completed. The solution below demonstrates the complete ABC methodology using the given activity data, structured so that once the overhead figures are available the solution can be finished immediately.

Activity-Based Costing — Framework and Partial Solution

Step 1 — Identify Activity Cost Drivers and Totals

The three overhead activities and their cost drivers are:

| Activity | Cost Driver | P | Q | Total |
|---|---|---|---|---|
| Ordering/Receiving | Purchase Requisitions | 180 | 144 | 324 |
| Production Setup | Production Runs | 144 | 108 | 252 |
| Quality Inspection | Quality Inspections | 27 | 18 | 45 |

Step 2 — Compute Cost Driver Rate (once overhead pool ₹ amounts are known)

Cost Driver Rate = Total Overhead Cost of Pool ÷ Total Cost Driver Units

For example:
- Ordering rate = ₹[Ordering Pool] ÷ 324 requisitions
- Setup rate = ₹[Setup Pool] ÷ 252 production runs
- Inspection rate = ₹[Inspection Pool] ÷ 45 inspections

Step 3 — Assign Overhead to Products

Overhead assigned to P = (180 × Ordering rate) + (144 × Setup rate) + (27 × Inspection rate)
Overhead assigned to Q = (144 × Ordering rate) + (108 × Setup rate) + (18 × Inspection rate)

Step 4 — Compute Total Cost and Cost Per Unit

Total Cost of P = Direct Material ₹72,000 + Direct Labour (hours × wage rate) + Overhead assigned to P
Cost per unit of P = Total Cost of P ÷ 9,000 units

Total Cost of Q = Direct Material ₹50,000 + Direct Labour (hours × wage rate) + Overhead assigned to Q
Cost per unit of Q = Total Cost of Q ÷ 7,200 units

Direct costs derivable from given data:
- Direct material per unit of P = ₹72,000 ÷ 9,000 = ₹8.00
- Direct material per unit of Q = ₹50,000 ÷ 7,200 = ₹6.94 (approx.)
- DLH per unit of P = 800 ÷ 9,000 = 0.0889 hours
- DLH per unit of Q = 600 ÷ 7,200 = 0.0833 hours

Please provide the overhead cost pool amounts and the direct labour wage rate to complete the full numerical solution.

Process Costing — Process X, Process Y, Normal Loss Account and Abnormal Gain Account

Overhead Absorption Rate:
Departmental overhead ₹30,000 is absorbed on direct labour cost basis.
Total direct labour = ₹35,000 (Process X) + ₹25,000 (Process Y) = ₹60,000
Rate = 30,000 / 60,000 = 50% on direct labour cost
Process X overhead = 50% × ₹35,000 = ₹17,500; Process Y overhead = 50% × ₹25,000 = ₹12,500

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PROCESS X ACCOUNT

| Dr | Kgs | ₹ | Cr | Kgs | ₹ |
|---|---|---|---|---|---|
| To Direct Material | 1,000 | 50,000 | By Normal Loss A/c (250 × ₹8) | 250 | 2,000 |
| To Direct Labour | — | 35,000 | By Abnormal Loss A/c (50 × ₹135.60) | 50 | 6,780 |
| To Process Plant time (200 × ₹6) | — | 1,200 | By Process Y A/c (700 × ₹135.60) | 700 | 94,920 |
| To Overhead (50% × ₹35,000) | — | 17,500 | | | |
| Total | 1,000 | 1,03,700 | Total | 1,000 | 1,03,700 |

Cost per kg (Process X) = (1,03,700 − 2,000) / 750 = 1,01,700 / 750 = ₹135.60 per kg
Normal Loss = 25% × 1,000 = 250 kgs; Actual output = 700 kgs; Abnormal Loss = 750 − 700 = 50 kgs

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PROCESS Y ACCOUNT

Input to Process Y = 700 kgs (from Process X) + 700 kgs (direct material) = 1,400 kgs
Normal Loss = 20% × 1,400 = 280 kgs; Expected output = 1,120 kgs; Actual output = 1,150 kgs; Abnormal Gain = 1,150 − 1,120 = 30 kgs

| Dr | Kgs | ₹ | Cr | Kgs | ₹ |
|---|---|---|---|---|---|
| To Process X A/c | 700 | 94,920 | By Normal Loss A/c (280 × ₹5) | 280 | 1,400 |
| To Direct Material (700 × ₹90) | 700 | 63,000 | By Finished Goods A/c (1,150 × ₹174.09) | 1,150 | 2,00,203 |
| To Direct Labour | — | 25,000 | | | |
| To Process Plant time (120 × ₹8) | — | 960 | | | |
| To Overhead (50% × ₹25,000) | — | 12,500 | | | |
| To Abnormal Gain A/c (30 × ₹174.09) | 30 | 5,223 | | | |
| Total | 1,430 | 2,01,603 | Total | 1,430 | 2,01,603 |

Cost per kg (Process Y) = (1,96,380 − 1,400) / 1,120 = 1,94,980 / 1,120 = ₹174.09 per kg (rounded)

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NORMAL LOSS ACCOUNT

| Dr | Kgs | ₹ | Cr | Kgs | ₹ |
|---|---|---|---|---|---|
| To Process X A/c | 250 | 2,000 | By Cash/Bank (Process X scrap) | 250 | 2,000 |
| To Process Y A/c | 280 | 1,400 | By Abnormal Gain A/c (30 × ₹5) | 30 | 150 |
| | | | By Cash/Bank (Process Y scrap, 250 × ₹5) | 250 | 1,250 |
| Total | 530 | 3,400 | Total | 530 | 3,400 |

*Note: In Process Y, actual scrap sold = 280 − 30 (abnormal gain) = 250 kgs × ₹5 = ₹1,250*

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ABNORMAL GAIN ACCOUNT

| Dr | Kgs | ₹ | Cr | Kgs | ₹ |
|---|---|---|---|---|---|
| To Normal Loss A/c (30 × ₹5) | 30 | 150 | By Process Y A/c | 30 | 5,223 |
| To Profit & Loss A/c (net gain) | — | 5,073 | | | |
| Total | 30 | 5,223 | Total | 30 | 5,223 |

*The Abnormal Gain A/c is debited with the scrap value foregone (Normal Loss A/c) and the net surplus ₹5,073 is credited to P&L A/c.*

Note: Process X generates an Abnormal Loss of 50 kgs (₹6,780) — the corresponding Abnormal Loss Account (not explicitly asked) would be debited ₹6,780 and credited to P&L Account after adjustment for scrap realisation.

Step 1 — Establish Base Sales Units (generating ₹8,00,000 profit)

Total Variable Cost per unit = ₹200 (manufacturing) + ₹100 (selling & distribution) = ₹300

Contribution per unit (present) = ₹800 − ₹300 = ₹500

Required Total Contribution = Fixed Costs + Expected Profit = ₹16,00,000 + ₹8,00,000 = ₹24,00,000

Base Sales Units = ₹24,00,000 ÷ ₹500 = 4,800 units

---

Step 2 — Evaluate Each Alternative

Under each alternative, variable cost per unit remains ₹300 and fixed costs remain ₹16,00,000. Only selling price and volume change.

Alternative 1 (Price reduced by 10%; Volume up by 15%):
New Price = ₹800 × 0.90 = ₹720 | New Volume = 4,800 × 1.15 = 5,520 units
Contribution p.u. = ₹720 − ₹300 = ₹420
Total Contribution = 5,520 × ₹420 = ₹23,18,400
Profit = ₹23,18,400 − ₹16,00,000 = ₹7,18,400

Alternative 2 (Price reduced by 12.5%; Volume up by 20%):
New Price = ₹800 × 0.875 = ₹700 | New Volume = 4,800 × 1.20 = 5,760 units
Contribution p.u. = ₹700 − ₹300 = ₹400
Total Contribution = 5,760 × ₹400 = ₹23,04,000
Profit = ₹23,04,000 − ₹16,00,000 = ₹7,04,000

Alternative 3 (Price reduced by 15%; Volume up by 25%):
New Price = ₹800 × 0.85 = ₹680 | New Volume = 4,800 × 1.25 = 6,000 units
Contribution p.u. = ₹680 − ₹300 = ₹380
Total Contribution = 6,000 × ₹380 = ₹22,80,000
Profit = ₹22,80,000 − ₹16,00,000 = ₹6,80,000

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Summary & Recommendation

| Particulars | Present | Alt. 1 | Alt. 2 | Alt. 3 |
|---|---|---|---|---|
| Selling Price (₹) | 800 | 720 | 700 | 680 |
| Units Sold | 4,800 | 5,520 | 5,760 | 6,000 |
| Contribution p.u. (₹) | 500 | 420 | 400 | 380 |
| Total Contribution (₹) | 24,00,000 | 23,18,400 | 23,04,000 | 22,80,000 |
| Fixed Costs (₹) | 16,00,000 | 16,00,000 | 16,00,000 | 16,00,000 |
| Profit (₹) | 8,00,000 | 7,18,400 | 7,04,000 | 6,80,000 |
| Change in Profit (₹) | — | −81,600 | −96,000 | −1,20,000 |

None of the three alternatives generates more profit than the present level. All result in a net decline in profit because the percentage increase in volume is insufficient to offset the reduction in contribution per unit caused by the price cut.

Recommendation: If SW Limited must choose one alternative to counter competition from IK Enterprises, Alternative 1 is recommended — it yields the highest profit of ₹7,18,400 among the three, with the least decline of ₹81,600 from the current profit. Larger price reductions (Alternatives 2 and 3) destroy more value than the additional volume can recover.

Note on Question Completeness: The question as provided contains only the standard cost card data. Actual production data (actual units produced, actual quantities of materials consumed, actual prices paid, actual hours worked, and actual wages paid) appears to be missing from the sub-part. The solution below therefore: (1) prepares the complete Standard Cost Card, (2) highlights the normal loss / mix framework, and (3) sets up the full variance analysis structure — ready for substitution once actual figures are available.

Standard Cost Card — Per Pack of 10 kg (Output)

The standard input-output relationship is: Material A (4 kg) + Material B (8 kg) = 12 kg input → 10 kg output. Therefore standard normal loss = 2 kg per pack (16.67% of input).

| Element | Qty/Hrs | Rate | Amount (₹) |
|---|---|---|---|
| Direct Material A | 4 kg | ₹50/kg | 200 |
| Direct Material B | 8 kg | ₹40/kg | 320 |
| Direct Labour | 6 hrs | ₹20/hr | 120 |
| Total Standard Cost per pack | | | 640 |

Standard Material Cost Analysis:
Total standard material cost = ₹520 per pack (₹200 + ₹320). Standard material mix ratio: A : B = 4 : 8 = 1 : 2. Weighted average standard price = ₹520 ÷ 12 kg = ₹43.33/kg.

Variance Framework applicable to this question:

Material Variances:
- Material Cost Variance (MCV) = Standard Cost of Actual Output − Actual Cost
- Material Price Variance (MPV) = (Standard Price − Actual Price) × Actual Qty Purchased/Used
- Material Usage Variance (MUV) = (Standard Qty for Actual Output − Actual Qty Used) × Standard Price
- Material Mix Variance (MMV) = (Revised Standard Qty − Actual Qty) × Standard Price [applicable since two materials are used]
- Material Yield Variance (MYV) = (Actual Yield − Standard Yield from Actual Input) × Standard Cost per unit of Output

Labour Variances:
- Labour Cost Variance (LCV) = Standard Labour Cost for Actual Output − Actual Labour Cost
- Labour Rate Variance (LRV) = (Standard Rate − Actual Rate) × Actual Hours Worked
- Labour Efficiency Variance (LEV) = (Standard Hours for Actual Output − Actual Hours Worked) × Standard Rate

If actual data were, for example: Actual output = X packs; Material A used = p kg at ₹q/kg; Material B used = r kg at ₹s/kg; Labour hours = h hrs at ₹w/hr — all variances above can be computed by direct substitution into the formulae.

Key relationship check: MCV = MPV + MUV; MUV = MMV + MYV; LCV = LRV + LEV.

Conclusion: The standard cost per pack is ₹640, comprising material cost of ₹520 and labour cost of ₹120. To compute and reconcile all nine variances for 9 marks, please provide the actual production and cost data for the period.

Statement of Cost and Fare per Passenger Kilometre for XYZ Transport

Operating Data:
Distance per one-way trip = 100 km. Each round trip = 200 km. 4 round trips per day = 8 one-way trips per day. Distance per day = 8 × 100 = 800 km. Working days = 25 per month, so distance per month = 800 × 25 = 20,000 km per month.

Passengers per trip = 30; trips per day = 8; passenger km per day = 30 × 8 × 100 = 24,000. Passenger km per month = 24,000 × 25 = 6,00,000 passenger km per month.

Monthly Cost Statement (Excluding Commission on Takings):

Fixed / Semi-Fixed Costs:
- Depreciation (SLM): ₹5,00,000 ÷ 3 years ÷ 12 months = ₹13,889
- Insurance: (2% × ₹5,00,000) ÷ 12 = ₹833
- Annual Tax: ₹2,000 ÷ 12 = ₹167
- Garage Rent: ₹300
- Annual Repairs: ₹8,000 ÷ 12 = ₹667
- Driver's Salary: ₹15,000
- Conductor's Salary: ₹12,000
- Stationery: ₹800
- Manager-cum-Accountant's Salary: ₹35,000

Variable Cost:
- Petrol and Oil: ₹1 per km × 20,000 km = ₹20,000

Total Monthly Cost (excluding commission) = ₹98,656

Determination of Takings (T):

Let total monthly takings = T.
- Commission to driver and conductor = 10% of T = 0.10T (part of cost)
- Profit = 15% on takings = 0.15T

Equation: Total Cost + Profit = Takings
98,656 + 0.10T + 0.15T = T
98,656 = T – 0.25T = 0.75T
T = 98,656 ÷ 0.75 = ₹1,31,541 (approx.)

Fare per Passenger Kilometre:
Fare = Total Takings ÷ Total Passenger Km
= ₹1,31,541 ÷ 6,00,000
= ₹0.2192 per passenger km (approximately 22 paise per passenger km)

(i) Overhead Recovery Rates for 2023

First, Raw Materials Consumed = Opening Stock + Purchases – Closing Stock = ₹2,00,000 + ₹12,00,000 – ₹2,50,000 = ₹11,50,000.

Prime Cost = Raw Materials Consumed + Labour = ₹11,50,000 + ₹5,00,000 = ₹16,50,000.

Cost of Production = Prime Cost + Production Overheads = ₹16,50,000 + ₹2,50,000 = ₹19,00,000.

Rate 1 – Production Overhead Recovery Rate (as % of Prime Cost):
= (Production Overheads ÷ Prime Cost) × 100 = (₹2,50,000 ÷ ₹16,50,000) × 100 = 15.15%

Rate 2 – Marketing & Distribution Overhead Rate (as % of Cost of Production):
= (₹1,52,000 ÷ ₹19,00,000) × 100 = 8%

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(ii) Cost Statement for the 2024 Bulk Order

| Particulars | ₹ |
|---|---|
| Raw Material Cost | 3,00,000 |
| Labour Cost | 1,50,000 |
| Prime Cost | 4,50,000 |
| Add: Production Overhead @ 15.15% of Prime Cost | 68,182 |
| Cost of Production | 5,18,182 |
| Add: Marketing & Distribution Overhead @ 8% of Cost of Production | 41,455 |
| Add: Packaging & Transportation (actual estimated cost) | 49,600 |
| Total Cost of the Bulk Order | 6,09,237 |

Determination of Sales Price for 20% Profit on Sales:

Since profit margin is 20% on sales, cost represents 80% of the sales value.

Sales = Total Cost ÷ (1 – Profit Margin) = ₹6,09,237 ÷ 0.80 = ₹7,61,546

Profit = ₹7,61,546 × 20% = ₹1,52,309
Verification: ₹7,61,546 – ₹1,52,309 = ₹6,09,237 ✓

Therefore, LMN Foods must price the bulk order at ₹7,61,546 to achieve a profit margin of 20% on sales.

(i) Maximum Consumption per day:

First, determine the Maximum Lead Time and Minimum Lead Time from the given data.

Average Lead Time = 7 days; Difference (Max LT − Min LT) = 4 days

Using simultaneous equations:
Max Lead Time + Min Lead Time = 14 (since Average = 7, and assuming arithmetic mean)
Max Lead Time − Min Lead Time = 4

Solving: Maximum Lead Time = 9 days; Minimum Lead Time = 5 days

Applying the Reorder Level formula:
Reorder Level = Maximum Consumption per day × Maximum Lead Time

1,80,000 = Maximum Consumption × 9

Maximum Consumption per day = 20,000 units

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(ii) Minimum Consumption per day:

Applying the Maximum Stock Level formula:
Maximum Stock Level = Reorder Level + Reorder Quantity − (Minimum Consumption per day × Minimum Lead Time)

1,50,000 = 1,80,000 + 90,000 − (Minimum Consumption × 5)

Minimum Consumption × 5 = 2,70,000 − 1,50,000 = 1,20,000

Minimum Consumption per day = 24,000 units

*Note: The given stock level data produces minimum consumption exceeding maximum consumption, indicating the problem data contains an internal inconsistency; however, the mechanical application of the prescribed formulas yields these results as expected in exam conditions.*

Part (a): Cost Sheet for January 2024 and February 2024

A cost sheet is a statement that presents the cost of production under different heads. The structure below incorporates the February 2024 marketing expenditures as Selling & Distribution Overhead, with adjustments to material cost as noted.

February 2024 – Selling & Distribution Overhead Calculation:

(i) Television Programme Sponsorship: ₹26,250 × 4 Sundays = ₹1,05,000

(ii) Gift Coupons (monthly): ₹1,05,000

(iii) Special Gift Items: ₹195 per unit × number of units sold (demus units) — to be included at ₹195 per unit in the per-unit cost sheet.

(iv) Lucky Draw Scheme: First prize ₹1,00,000 + Second prize ₹40,000 + Two consolation prizes (₹8,000 × 2) = ₹1,56,000

Total Selling & Distribution Overhead for February 2024 = ₹1,05,000 + ₹1,05,000 + ₹1,56,000 + ₹195 per unit (special gifts) = ₹3,66,000 + ₹195 per unit

Note: As per the given note, in February 2024, the material cost per unit increases (due to scarcity) and transport cost decreases (saving). These must be netted off to arrive at the revised material cost per unit for February 2024. The factory cost and cost of production for February shall be adjusted accordingly.

Cost Sheet Framework (per unit / total):

| Element | January 2024 | February 2024 |
|---|---|---|
| Prime Cost | | |
| Direct Material | ₹XX | ₹XX (adjusted for scarcity + transport saving) |
| Direct Labour | ₹XX | ₹XX |
| Direct Expenses | ₹XX | ₹XX |
| Prime Cost | ₹XX | ₹XX |
| Factory Overhead | ₹XX | ₹XX |
| Factory Cost | ₹XX | ₹XX |
| Opening WIP | ₹XX | ₹XX |
| Closing WIP | (₹XX) | (₹XX) |
| Cost of Production | ₹XX | ₹XX |
| Opening Finished Goods | ₹XX | ₹XX |
| Closing Finished Goods | (₹XX) | (₹XX) |
| Cost of Goods Sold | ₹XX | ₹XX |
| Selling & Distribution OH | ₹XX | ₹3,66,000 + ₹195/unit |
| Total Cost / Cost of Sales | ₹XX | ₹XX |
| Profit (Markup) | ₹XX | ₹XX |
| Sales | ₹XX | ₹61 crore (target) |

*(Note: Base figures for January 2024 — units, material cost, direct labour, factory overhead — require the full data set from the original question. The February adjustments to material cost per the given note must be applied as: Revised Material Cost = January Material Cost + Rise due to scarcity − Saving in transport cost.)*

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Part (b): Labour Cost Chargeable to Job BX

Step 1 – Determine Basic Wage Rate:

Employee cost of ₹3,90,000 covers the first five months (ended 31st December 2023) with total hours = 60,000.

Let R = basic wage rate per hour.

Overtime premium rates: Sundays/Holidays: 180% of basic → premium = 80% of basic. Before/After normal hours: 160% of basic → premium = 60% of basic.

Employee Cost = Basic wages for all hours + OT Premium
= R × 60,000 + (80% × R) × 750 + (60% × R) × 3,000
= 60,000R + 600R + 1,800R = 62,400R

62,400R = ₹3,90,000 → R = ₹6.25 per hour

Step 2 – Compute Labour Cost for Job BX (January 2024):

| Hours Type | Hours | Basic Wages @ ₹6.25 | OT Premium |
|---|---|---|---|
| Normal | 2,400 | ₹15,000 | Nil |
| Sunday/Holiday OT | 200 | ₹1,250 | 200 × ₹6.25 × 80% = ₹1,000 |
| Before/After OT | 400 | ₹2,500 | 400 × ₹6.25 × 60% = ₹1,500 |
| Total | 3,000 | ₹18,750 | ₹2,500 |

Total Labour Cost = ₹18,750 + ₹2,500 = ₹21,250

Treatment under Different Situations:

(i) Overtime worked REGULARLY to meet production requirements:
OT premium is a normal feature of production. It is included in the factory overhead rate and spread over all jobs/products. Job BX bears only its share of basic wages.
- Labour cost to Job BX = ₹18,750 (basic wages for 3,000 hours)
- Overhead = ₹2,500 (OT premium absorbed via overhead pool)

(ii) Overtime worked IRREGULARLY to meet production requirements:
OT premium is still treated as factory overhead (though not pre-budgeted). It is charged to the overhead account and spread over all production of the period, not loaded onto a specific job.
- Labour cost to Job BX = ₹18,750
- Overhead = ₹2,500

(iii) Overtime worked at the REQUEST OF THE CUSTOMER to complete Job BX in time:
Since the overtime arises specifically for this job at the customer's insistence, the entire OT premium is directly chargeable to Job BX.
- Labour cost to Job BX = ₹18,750 + ₹2,500 = ₹21,250
- Overhead = Nil

(iv) Overtime worked on account of FLOOD in the area:
Flood is an abnormal cause beyond normal operating conditions. OT premium arising from such abnormal circumstances is treated as an abnormal cost and charged to Costing Profit & Loss Account — not to the job or to overheads.
- Labour cost to Job BX = ₹18,750 (basic wages only)
- Overhead = Nil
- Abnormal Cost (Costing P&L) = ₹2,500

Machine Cost Statement (per quarter) for PQR Corp — FY 2023-2024

All expenses are converted to a quarterly basis before allocation. The basis of allocation for each expense is determined by the nature of the expense and the information given.

Conversion of non-quarterly items:
- Depreciation (given per annum) ÷ 4: X = ₹25,000; Y = ₹50,000; Z = ₹75,000
- Rent and Rates (₹80,000 per month) × 3 = ₹2,40,000 per quarter
- Salary of Technician (₹62,500 per month) × 3 = ₹1,87,500 per quarter

Allocation Basis:
- Wages of Operator: Operator controls all three machines with equal time → 1:1:1 among X, Y, Z
- Salary of Technician: Technician works only on X and Y with equal time → 1:1 between X and Y; Z = Nil
- Oil & Depreciation: Directly given for each machine
- All other shared expenses (Direct Labour, Building Insurance, Building Maintenance, Electricity, Rent & Rates): No specific basis provided → allocated equally among all three machines

Machine Cost Statement (Quarterly)

| Particulars | Basis | Machine X (₹) | Machine Y (₹) | Machine Z (₹) | Total (₹) |
|---|---|---|---|---|---|
| Direct Labour Expenses | Equal (1:1:1) | 83,333 | 83,333 | 83,334 | 2,50,000 |
| Oil Expenses | Direct | 37,500 | 37,500 | 28,123 | 1,03,123 |
| Building Insurance | Equal (1:1:1) | 20,000 | 20,000 | 20,000 | 60,000 |
| Depreciation | Direct (Annual÷4) | 25,000 | 50,000 | 75,000 | 1,50,000 |
| Building Maintenance | Equal (1:1:1) | 33,333 | 33,333 | 33,334 | 1,00,000 |
| Wages of Operator | Equal (1:1:1) | 75,000 | 75,000 | 75,000 | 2,25,000 |
| Electricity Expenses | Equal (1:1:1) | 1,00,000 | 1,00,000 | 1,00,000 | 3,00,000 |
| Rent and Rates | Equal (1:1:1) | 80,000 | 80,000 | 80,000 | 2,40,000 |
| Salary of Technician | X & Y equally | 93,750 | 93,750 | — | 1,87,500 |
| Total Quarterly Cost | | 5,47,916 | 5,72,916 | 4,94,791 | 16,15,623 |

Note: The stated total of Oil Expenses (₹1,05,123) differs from the sum of the given machine-wise breakdown (₹37,500 + ₹37,500 + ₹28,123 = ₹1,03,123) by ₹2,000. The individual machine figures as given have been used; this appears to be a typographical discrepancy in the question data.

Conclusion: The quarterly machine costs are — Machine X: ₹5,47,916 | Machine Y: ₹5,72,916 | Machine Z: ₹4,94,791 — aggregating to ₹16,15,623.

Labour Cost Variances — Solution

(i) Actual Labour Rate per Hour

Using the Labour Rate Variance (LRV) formula:

LRV = (Standard Rate – Actual Rate) × Actual Hours

Since LRV is ₹71,280 (A)dverse, it means actual rate exceeded standard rate:

–71,280 = (9 – AR) × 17,820
–4 = 9 – AR → AR = ₹13 per hour

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(ii) Standard Hours Required for 7,000 Units

Using the Labour Efficiency Ratio formula:

Efficiency Ratio = (Standard Hours / Actual Hours) × 100

106.8 = (Standard Hours / 17,820) × 100

Standard Hours = 17,820 × (106.8 / 100) = 19,031.76 hours (≈ 19,032 hours) for 7,000 units

Standard hours per unit = 19,031.76 / 7,000 = 2.719 hours per unit

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(iii) Labour Efficiency Variance (LEV)

LEV = (Standard Hours – Actual Hours) × Standard Rate

LEV = (19,031.76 – 17,820) × ₹9 = 1,211.76 × 9 = ₹10,905.84 (Favourable)

Favourable because actual hours worked (17,820) are less than standard hours allowed (19,031.76) — workers were more productive than standard.

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(iv) Standard Labour Cost per Unit

Standard Labour Cost per Unit = Standard Hours per Unit × Standard Rate

= 2.719 × ₹9 = ₹24.47 per unit (approx.)

Alternatively: (19,031.76 × ₹9) / 7,000 = ₹1,71,285.84 / 7,000 = ₹24.47 per unit

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(v) Actual Labour Cost per Unit

Actual Labour Cost per Unit = (Actual Hours × Actual Rate) / Units Produced

= (17,820 × ₹13) / 7,000 = ₹2,31,660 / 7,000 = ₹33.09 per unit

Note: The specific transactions to be journalized were not included in the question as submitted (the question ends at 'Journalize the following transactions assuming that cost and financial accounts are integrated:'). The answer below provides journal entries for the standard set of transactions typically examined under this topic for a 4-mark question. If your question has specific figures, map them to the entries below.

Key Feature of Integrated Accounts: In an integrated (integral) accounting system, only one set of books is maintained. Cost accounts and financial accounts are merged, eliminating the need for a Cost Ledger Control Account or Memorandum Reconciliation Statement.

Journal Entries under Integrated Accounts:

1. Purchase of Raw Materials on Credit
Debit: Stores Ledger Control A/c ₹XX
Credit: Creditors / Accounts Payable A/c ₹XX
*(Being raw materials purchased on credit)*

2. Issue of Materials to Production
Debit: Work-in-Progress Control A/c ₹XX
Credit: Stores Ledger Control A/c ₹XX
*(Being direct materials issued to production)*

3. Issue of Indirect Materials
Debit: Factory Overhead Control A/c ₹XX
Credit: Stores Ledger Control A/c ₹XX
*(Being indirect materials issued)*

4. Labour Cost Incurred
Debit: Work-in-Progress Control A/c ₹XX (Direct Labour)
Debit: Factory Overhead Control A/c ₹XX (Indirect Labour)
Credit: Wages & Salaries Payable A/c ₹XX
*(Being labour cost allocated)*

5. Absorption of Factory Overhead into Production
Debit: Work-in-Progress Control A/c ₹XX
Credit: Factory Overhead Control A/c ₹XX
*(Being overheads absorbed at predetermined rate)*

6. Transfer of Completed Production to Finished Goods
Debit: Finished Goods Control A/c ₹XX
Credit: Work-in-Progress Control A/c ₹XX
*(Being cost of goods completed transferred)*

7. Sale of Finished Goods (Cost Entry)
Debit: Cost of Goods Sold A/c ₹XX
Credit: Finished Goods Control A/c ₹XX
*(Being cost of goods sold transferred)*

7A. Sale of Finished Goods (Revenue Entry)
Debit: Debtors / Bank A/c ₹XX
Credit: Sales A/c ₹XX
*(Being sales recorded at selling price)*

Important: Under integration, there is no separate Cost Ledger Control A/c. All entries appear in the same double-entry system, so both the cost and financial impact are captured simultaneously.

Spoiled Work refers to units of output that do not meet the required quality standards and cannot be economically rectified or reworked. These units are typically discarded, sold at scrap value, or written off as a loss. Defective Work refers to units that fail to meet quality standards but are capable of being rectified or reworked to bring them to an acceptable condition. The key distinction is that spoiled work is beyond economical repair, while defective work can be corrected.

Treatment of Defective Work:

(i) Where a Percentage of Defective Work is Allowed as Unavoidable:

When defective work is an inherent characteristic of the production process and cannot be avoided regardless of effort (e.g., certain manufacturing processes have inherent tolerances), it is treated as normal wastage. The cost of rectification or the loss value is absorbed as part of normal production cost. This cost is allocated to all good output and forms part of the cost of goods produced. The defective units are considered a normal part of the batch, and their cost (including rework cost) is spread across the entire batch. The loss is not shown separately but is incorporated into standard/normal costing. This approach is appropriate because the defect is beyond control and is an expected outcome of the production method.

(ii) Where the Defect is Due to Bad Workmanship:

When defects arise due to poor workmanship, carelessness, or lack of skill by workers, this is treated as abnormal loss or controllable loss. The cost of reworking these units should be charged separately to the responsible worker, department, or cost center. This cost is not allocated to normal production costs. The treatment serves two purposes: (a) it acts as a control mechanism by holding the responsible party accountable for the avoidable loss, and (b) it prevents the cost from inflating the normal product cost. In practice, such costs may be charged to a specific job or department overhead account, and in some cases, disciplinary action may be taken. The worker/supervisor responsible may be required to bear a portion of the cost or face consequences.

(iii) Where Defect is Due to Poor Quality Incoming Material Accepted by Inspection Department:

When defects originate from substandard raw material that was wrongly accepted by the Inspection Department (indicating a control failure), the cost of rework should be charged to the Inspection Department rather than to production. This clearly identifies the responsibility and highlights the control weakness. Such costs should not be allocated to product cost as the defect is not attributable to production inefficiency but to a failure in the inspection/procurement function. Additionally, the company should initiate recovery action against the supplier for providing material below agreed specifications. This treatment ensures that the Inspection Department is held accountable for quality control lapses and encourages stricter adherence to inspection procedures. It also prevents distortion of product costs caused by external (supplier) quality failures.

Sub-part (a): Cost Statement

The particulars and additional information required to prepare the Cost Statement for the year ended 31st March, 2024 have not been provided in the question as stated. A complete Cost Statement would typically include: Prime Cost (Direct Materials + Direct Labour + Direct Expenses), Works/Factory Cost (Prime Cost + Factory Overhead), Cost of Production (Works Cost + Opening WIP − Closing WIP), Cost of Goods Sold (Cost of Production + Opening Finished Goods − Closing Finished Goods), Cost of Sales (Cost of Goods Sold + Selling & Distribution Overhead), and finally Profit/Loss (Sales − Cost of Sales). Once the specific data is provided, each element can be computed and presented in the proforma.

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Sub-part (b): Worker Earnings under Halsey and Rowan Plans

Given: Time Rate = ₹25 per hour, Time Allowed = 9 hours, Time Taken = 6 hours, Time Saved = 3 hours.

Halsey Plan (50%):
Under this plan, the worker earns his time wages for actual hours worked, plus a bonus of 50% of the wages of time saved.

Earnings = (Time Taken × Rate) + 50% × (Time Saved × Rate)
= (6 × ₹25) + 50% × (3 × ₹25)
= ₹150 + ₹37.50
= ₹187.50

Rowan Plan:
Under this plan, the bonus is calculated as the proportion of time saved to time allowed, applied to the wages for time taken.

Earnings = (Time Taken × Rate) + (Time Saved / Time Allowed) × Time Taken × Rate
= (6 × ₹25) + (3/9) × 6 × ₹25
= ₹150 + (1/3) × ₹150
= ₹150 + ₹50
= ₹200.00

Conclusion: The Rowan Plan is more beneficial for the worker, yielding ₹200 compared to ₹187.50 under Halsey Plan — a difference of ₹12.50.

Key Rule: When Time Saved < 50% of Time Allowed, Rowan Plan yields higher earnings than Halsey Plan. Here, Time Saved = 3 hrs < 50% of 9 hrs (= 4.5 hrs), confirming Rowan is better for the worker.

Reconciliation of Cost and Financial Accounts

(i) Steps Involved in Procedure for Reconciliation of Cost & Financial Accounts

The reconciliation process involves identifying and explaining the difference between the profit/loss shown by Cost Accounts and the profit/loss shown by Financial Accounts. The following steps are involved:

Step 1 – Ascertain the Profit/Loss as per Both Sets of Accounts: Extract the net profit or loss as reported in the Financial Accounts (Profit & Loss Account) and the profit or loss as shown by the Cost Accounts (Costing Profit & Loss Account) for the same period.

Step 2 – Identify Items Shown Only in Financial Accounts: Identify income and expenditure items that appear exclusively in Financial Accounts but are not incorporated in Cost Accounts. Examples include:
- Purely financial charges such as interest on loans, bank charges, loss on sale of investments
- Purely financial incomes such as dividend received, interest on investments, rent received
- Appropriations such as income tax, transfer to reserves, dividends paid

Step 3 – Identify Items of Difference in Treatment: Identify items that are included in both sets of accounts but treated differently in terms of amount or basis. Common differences arise from:
- Overhead absorption: Financial accounts record actual overhead, whereas cost accounts may use predetermined (absorbed) overhead rates, creating over/under absorption differences
- Depreciation: Different methods or rates may be used in the two sets of accounts
- Opening/Closing Stock valuation: Cost accounts may value stock at cost (using FIFO, LIFO, or weighted average) while financial accounts may use cost or net realisable value (whichever is lower)

Step 4 – Prepare the Memorandum Reconciliation Statement: Starting with the profit as per Cost Accounts, adjustments are made for each identified difference to arrive at the profit as per Financial Accounts (or vice versa). The standard format of the Memorandum Reconciliation Account is:

- Start with: Profit as per Cost Accounts
- Add: Incomes shown only in Financial Accounts; Over-absorption of overheads in Cost Accounts; Higher closing stock value in Financial Accounts; Lower opening stock value in Financial Accounts
- Less: Expenses shown only in Financial Accounts; Under-absorption of overheads in Cost Accounts; Higher depreciation in Cost Accounts; Lower closing stock in Financial Accounts
- Result: Profit as per Financial Accounts

Step 5 – Verify Agreement: After all adjustments, the reconciled figure must agree with the profit/loss as per Financial Accounts. If not, the differences must be re-examined to locate errors or omissions.

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(ii) Circumstances Where Reconciliation Statement Can be Avoided

Reconciliation between Cost Accounts and Financial Accounts becomes unnecessary (i.e., can be avoided) under the following circumstances:

1. Integrated Accounting System (Integral Accounts): When a business maintains an integrated (or integral) cost accounting system, both cost and financial transactions are recorded in a single set of books. There is no separate Cost Ledger and Financial Ledger — both are merged into one unified system. Since only one set of accounts exists, the profit/loss figures are identical, and no reconciliation is required.

2. Same Basis of Treatment: If the cost accounts and financial accounts use identical methods for valuation of stock, charging depreciation, and overhead absorption — i.e., there are no differences in treatment — then both sets will naturally produce the same profit figure, making reconciliation redundant.

In practice, reconciliation is most commonly avoided when an Integrated Accounting System is adopted, as this eliminates the root cause of differences between the two sets of records.

Final Note: Reconciliation is a periodic exercise (usually monthly or annually) and is critical in non-integrated systems to ensure the accuracy and reliability of cost data used for decision-making and cost control.

Cost Unit is a unit of product or service in relation to which costs are ascertained. The following are the standard cost units for commonly examined industry sectors:

Industry Sector → Cost Unit:

1. Steel Industry → Per Tonne of steel produced

2. Cement Industry → Per Tonne or per Bag (50 kg) of cement

3. Sugar Industry → Per Quintal or per Tonne of sugar produced

4. Electricity/Power Generation → Per Kilowatt Hour (kWh)

5. Transport (Goods) → Per Tonne-Kilometre; Transport (Passengers) → Per Passenger-Kilometre

6. Hotel Industry → Per Room-Day or per Bed-Day

7. Hospital → Per Patient-Day or per Bed-Day

8. Coal Mines → Per Tonne of coal raised

9. Brick Making → Per Thousand Bricks

10. Dairy Industry → Per Litre of milk processed

11. Textile Industry → Per Metre of cloth produced

12. Paper Industry → Per Ream or per Tonne of paper

13. Chemical Industry → Per Litre, Kilogram, or Tonne (depending on physical form)

14. Automobile Industry → Per Vehicle manufactured

15. Gas Supply → Per Cubic Metre or per Therm

Note: Where a question specifies particular sectors, only those relevant cost units need to be stated. In exam scenarios with 5 marks, typically 5 industry sectors × 1 mark each are required.

Methods for Controlling Selling and Distribution Overheads:

1. Budgetary Control involves pre-determining selling and distribution overheads based on expected sales volume and comparing actual expenses with budgeted amounts. Significant variances are investigated, enabling timely corrective action. This method provides a systematic framework for planning and monitoring overhead costs.

2. Standard Costing entails setting standard costs for various elements of selling and distribution overheads and measuring actual performance against these standards. Variance analysis (favorable or unfavorable) helps identify inefficiencies in distribution channels, advertising expenditure, sales commission, and other overhead components.

3. Flexible Budgets adjust budgeted overhead amounts based on actual sales volume or activity level. Since many selling and distribution costs (like sales commission, transport costs) vary with sales volume, flexible budgets provide a more realistic control mechanism than fixed budgets, allowing meaningful variance analysis.

4. Territory or Zone-wise Analysis divides sales territories into zones and controls overheads separately for each. This method enables comparison of cost performance across territories, identifies inefficient zones, and facilitates targeted cost reduction measures in specific regions.

5. Ratio and Key Factor Analysis uses relevant ratios and metrics such as: (a) Distribution cost as percentage of sales; (b) Sales per salesman; (c) Cost per unit delivered; (d) Sales per rupee of distribution cost. Trends in these ratios indicate efficiency changes and enable comparison with industry benchmarks or prior periods.

6. Product or Customer Profitability Analysis tracks selling and distribution costs by product line or customer group. This reveals which products or customer segments consume disproportionate overheads, enabling management to withdraw unprofitable lines or renegotiate terms with high-cost customers.

7. Responsibility Center Approach assigns specific overhead elements to individual departments, sales teams, or managers, making them accountable for cost control. Regular reporting on departmental costs promotes cost consciousness and enables prompt intervention.

8. Comparative Analysis compares current period overhead costs with prior periods and industry benchmarks. This highlights trends, unusual variations, and opportunities for efficiency improvement.

Note: The question appears to have incomplete data — the specific context (department names, cost figures, and activity data) has not been provided. The answer below addresses the concept and illustrates the most commonly tested method for 4-mark questions on this topic.

Basis of Re-apportionment of Service Department Overheads

Service department costs are not directly traceable to products; they must first be re-apportioned (secondary distribution) to production departments before being absorbed into product costs.

Suggested Basis: Direct Re-distribution Method (Direct Method)

Under this method, service department costs are apportioned directly to production departments only, ignoring any inter-service department services. This is the simplest and most commonly used method.

Typical Bases Used per Service Department:

- Maintenance Department → Machine hours in each production department
- Power/Electricity Department → Units of power consumed or KWH
- Canteen/Welfare Department → Number of employees in each production department
- Stores Department → Number of material requisitions or value of materials issued
- Human Resources Department → Number of employees
- Transport Department → Tonne-kilometres or distance travelled

Illustrative Example (assuming typical data):

Suppose Maintenance Department overhead = ₹60,000. Machine hours: Production Dept A = 3,000 hrs; Production Dept B = 2,000 hrs; Service Dept (Canteen) = 1,000 hrs.

Under Direct Method, Canteen's share is ignored:
- Total machine hours (production depts only) = 3,000 + 2,000 = 5,000 hrs
- Dept A share = (3,000/5,000) × ₹60,000 = ₹36,000
- Dept B share = (2,000/5,000) × ₹60,000 = ₹24,000

Other Methods of Re-apportionment (briefly):

- Step/Non-reciprocal Method: Service dept costs apportioned in a predetermined sequence; once a dept's costs are distributed, it receives no further allocation.
- Repeated Distribution Method: Costs are apportioned repeatedly in rounds (including inter-service transfers) until the residual becomes negligible.
- Simultaneous Equation (Algebraic) Method: Reciprocal services are recognised by forming simultaneous equations to find the true cost of each service dept before apportionment.

Conclusion: For examination purposes, where reciprocal services exist, the Simultaneous Equation Method gives the most accurate result. Where reciprocal services are absent or immaterial, the Direct Re-distribution Method is most appropriate and widely applied.

Flexible Budget of Savi Limited at 80%, 90% and 100% Capacity Levels

Step 1 — Determine Units of Production at Each Level
At 80% capacity, production = 96,000 units. Therefore, 100% capacity = 96,000 ÷ 0.80 = 1,20,000 units. At 90% = 1,08,000 units.

Step 2 — Nature of Each Cost
- Direct Variable Cost: Variable (₹20 per unit)
- Factory Overheads: Variable (stated explicitly)
- Administrative Overheads: Fixed (₹20,60,000)
- Selling Overheads: Variable (2% of sales value, which varies with units sold)
- Transportation Expenses: Step/Semi-variable (₹4,000 per truck; 1 truck per 4,000 units — varies in steps)

Flexible Budget Statement (Total Cost)

| Particulars | 80% (96,000 units) ₹ | 90% (1,08,000 units) ₹ | 100% (1,20,000 units) ₹ |
|---|---|---|---|
| Direct Variable Cost | 19,20,000 | 21,60,000 | 24,00,000 |
| Factory Overheads (Variable) | 8,40,000 | 9,45,000 | 10,50,000 |
| Administrative Overheads (Fixed) | 20,60,000 | 20,60,000 | 20,60,000 |
| Selling Overheads (2% of Sales) | 2,30,400 | 2,59,200 | 2,88,000 |
| Transportation Expenses | 96,000 | 1,08,000 | 1,20,000 |
| Total Cost | 51,46,400 | 55,32,200 | 59,18,000 |

Total Cost at 80% = ₹51,46,400 | At 90% = ₹55,32,200 | At 100% = ₹59,18,000

Part (a): Variance Analysis

Note: The question as presented provides only actual data (Material: A = 7,000 kg @ ₹40; B = 12,500 kg @ ₹45; Skilled: 6,000 hrs @ ₹25; Semi-skilled: 4,000 hrs @ ₹20; Output: 1,600 packets). To compute all variances, standard cost data (standard quantities, standard mix ratio, standard prices, standard hours, and standard rates per unit of output) is essential. The standard cost card appears to have been omitted from the transcription. The complete methodology is presented below for exam purposes.

Formulae and Approach for Each Variance:

(i) Material Cost Variance (MCV) = Standard Cost of Actual Output − Actual Cost
= (SQ for AO × SP) − (AQ × AP) | Nature: F if Standard Cost > Actual Cost

(ii) Material Price Variance (MPV) = (Standard Price − Actual Price) × Actual Quantity
For A: (SP_A − ₹40) × 7,000; For B: (SP_B − ₹45) × 12,500

(iii) Material Usage Variance (MUV) = (Standard Quantity for Actual Output − Actual Quantity) × Standard Price
For A: (SQ_A − 7,000) × SP_A; For B: (SQ_B − 12,500) × SP_B

(iv) Material Mix Variance (MMV) = (Standard Mix of Actual Input − Actual Input) × Standard Price
Actual total input = 7,000 + 12,500 = 19,500 kg. Revise each material to standard mix ratio applied to 19,500 kg, then compare with actual mix at SP.

(v) Material Yield Variance (MYV) = (Actual Yield − Standard Yield from Actual Input) × Standard Cost per unit of output
Standard Yield = (Actual Input ÷ Standard Input for standard output) × Standard Output. MYV = MUV − MMV.

(vi) Labour Cost Variance (LCV) = Standard Labour Cost for Actual Output − Actual Labour Cost
Actual Labour Cost = (6,000 × ₹25) + (4,000 × ₹20) = ₹1,50,000 + ₹80,000 = ₹2,30,000

(vii) Labour Rate Variance (LRV) = (Standard Rate − Actual Rate) × Actual Hours Paid
For Skilled: (SR_s − ₹25) × 6,000; For Semi-skilled: (SR_ss − ₹20) × 4,000

(viii) Labour Efficiency Variance (LEV) = (Standard Hours for Actual Output − Actual Hours Worked) × Standard Rate
Idle hours = 5% of total hours paid = 5% × 10,000 = 500 hours (Skilled: 300; Semi-skilled: 200)
Actual Hours Worked: Skilled = 6,000 − 300 = 5,700 hrs; Semi-skilled = 4,000 − 200 = 3,800 hrs
LEV = (SH_AO − AH Worked) × SR

(ix) Labour Idle Time Variance (LIdTV) = Idle Hours × Standard Rate = Always Adverse
Skilled: 300 hrs × SR_s; Semi-skilled: 200 hrs × SR_ss

Relationship: LCV = LRV + LEV + LIdTV; MCV = MPV + MUV; MUV = MMV + MYV

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Part (b): Build-Operate-Transfer (BOT) Approach

BOT Approach: Under the Build-Operate-Transfer model, a private entity (concessionaire) is granted a concession by the government to finance, design, build, and operate an infrastructure facility (e.g., a toll road) for a defined concession period. During this period, the concessionaire recovers investment and earns returns through toll/user charges. At the end of the concession period, the facility is transferred back to the government authority at no or nominal cost. This model enables infrastructure development without immediate government funding.

Classification of Expenses for Toll Roads:

(i) Land Acquisition → Capital Cost. Land is a permanent, non-recurring acquisition forming the physical foundation of the project.

(ii) Interest Expenses for Servicing Loans → Capital Cost (to the extent interest accrues during the construction/pre-commissioning period — capitalized as borrowing cost under AS 16). Interest incurred after the road becomes operational is an Operating and Maintenance Cost (finance charge).

(iii) Material and Labour (used for construction of road) → Capital Cost. These are direct costs of the build phase and form part of the project's total capital expenditure.

(iv) Toll Collection Expenses → Operating and Maintenance Cost. These are recurring expenses directly related to day-to-day operations of collecting tolls (salaries of toll booth staff, equipment, etc.).

(v) Contingency Allowance → Capital Cost. Provision for unforeseen or uncertain costs during the construction phase is treated as part of the project capital cost.

(vi) Periodic Painting Cost of Railings etc. → Operating and Maintenance Cost. This is routine maintenance expenditure incurred to preserve the condition and safety of the road asset during the operation period.

Note: This question is a sub-part of a larger case scenario. The data required — selling prices per bottle, variable costs per bottle, and material consumption per bottle for Baby Rose and Baby Lily — would have been provided in the earlier parts of the case. The solution below presents the exact structure, format, and methodology required for full marks. Students must substitute actual figures from the question preamble.

Statement of Overall Contribution and Profit after Acceptance of Dealer's Proposal

Step 1 — Determine bottles producible from unused material:
Using the material consumption (litres per bottle) for each product, allocate the 1,00,000 litres of unused material between Baby Rose and Baby Lily in the ratio specified (or based on the product mix determined in earlier parts of the case).
- Baby Rose bottles = Allocated litres ÷ Litres per bottle
- Baby Lily bottles = Remaining litres ÷ Litres per bottle

Step 2 — Adjusted Variable Cost under Dealer's Proposal:
Since eco-friendly packaging adds ₹10 per bottle as an additional variable cost:
- Adjusted VC (Baby Rose) = Normal VC + ₹10
- Adjusted VC (Baby Lily) = Normal VC + ₹10

Step 3 — Contribution per bottle under Dealer's Proposal:
- Contribution (Baby Rose) = SP − Adjusted VC
- Contribution (Baby Lily) = SP − Adjusted VC

Step 4 — Overall Statement:
The statement combines normal production (already underway) and the additional dealer's order (using unused material):

| Particulars | Baby Rose (₹) | Baby Lily (₹) | Total (₹) |
|---|---|---|---|
| Contribution — Normal Production (Contribution/bottle × Normal qty) | XX | XX | XX |
| Contribution — Dealer's Proposal (Contribution/bottle after ₹10 eco cost × Dealer qty) | XX | XX | XX |
| Total Contribution | XX | XX | XX |
| Less: Fixed Costs | (5,00,000) | (4,30,000) | (9,30,000) |
| Net Profit / (Loss) | XX | XX | XX |

Key Decision Point: If the contribution per bottle from the dealer's order (after deducting the ₹10 eco-packaging cost) is positive, the proposal adds to profit. Since fixed costs are already being incurred in normal operations, they are not incremental to the dealer's order — any positive contribution from the dealer's order improves overall profit. If contribution per bottle after eco-packaging becomes zero or negative, the proposal should be rejected.