Question 1

Coal is transported from two mines X & Y and unloaded at ports in a railway network. Network X is at 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 mines. Records reveal that average speed of the lorries is 40 kms per hour while running and regularly takes 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 per hour
- Operated Fuel, oil tyres, repairs and maintenance, are ₹ 1.60 per km

You are required to prepare a statement showing the cost per tonne kilometre of carrying coal from each…

Accepted Answer

**Statement Showing Cost per Tonne Kilometre of Carrying Coal from Mine X and Mine Y**

**Lorry Carrying Capacity:** 4 tonnes | **Average Speed:** 40 km/hr

**Time per Trip:**

For **Mine X** (distance = 15 km, round trip = 30 km):
- Travel time (round trip): 30 km ÷ 40 km/hr = 0.75 hrs = 45 minutes
- Loading time at Mine X: 30 minutes
- Unloading time at rail head: 15 minutes
- **Total time per trip = 90 minutes = 1.5 hours**

For **Mine Y** (distance = 20 km, round trip = 40 km):
- Travel time (round trip): 40 km ÷ 40 km/hr = 1 hr = 60 minutes
- Loading time at Mine Y: 25 minutes
- Unloading time at rail head: 15 minutes
- **Total time per trip = 100 minutes = 5/3 hours**

**Cost per Trip:**

| Particulars | Mine X | Mine Y |
|---|---|---|
| **Time-based costs** (Drivers' wages, depreciation, insurance, taxes @ ₹12/hr) | 1.5 × ₹12 = **₹18.00** | 5/3 × ₹12 = **₹20.00** |
| **Distance-based costs** (Fuel, oil, tyres, repairs @ ₹1.60/km) | 30 km × ₹1.60 = **₹48.00** | 40 km × ₹1.60 = **₹64.00** |
| **Total Cost per Trip** | **₹66.00** | **₹84.00** |

**Tonne-Kilometres per Trip:**
- Mine X: 4 tonnes × 15 km = **60 tonne-km**
- Mine Y: 4 tonnes × 20 km = **80 tonne-km**

**Cost per Tonne-Kilometre:**
- Mine X: ₹66 ÷ 60 = **₹1.10 per tonne-km**
- Mine Y: ₹84 ÷ 80 = **₹1.05 per tonne-km**

**Conclusion:** Despite Mine Y being farther, its **cost per tonne-km (₹1.05) is lower** than Mine X (₹1.10), primarily because Mine Y has a shorter loading time (25 min vs 30 min), making it m…

Question 2

Compulsory question with three parts

Accepted Answer

**Part (a): Economic Order Quantity (EOQ)**

**(i) Calculation of EOQ:**

Annual requirement of raw material = 60,000 units ÷ 5 units per kg = **12,000 kg**

Ordering cost per order = Handling cost + Freight = ₹400 + ₹350 = **₹750 per order**

Carrying cost per kg per annum:
- Incremental carrying cost = ₹0.25 × 12 months = ₹3.00 per kg p.a.
- Working capital finance cost = ₹1.50 per kg p.a.
- **Total carrying cost = ₹4.50 per kg per annum**

EOQ = √(2 × Annual Demand × Ordering Cost per order / Carrying Cost per unit p.a.)
EOQ = √(2 × 12,000 × 750 / 4.5) = √(18,000,000 / 4.5) = √4,000,000 = **2,000 kg**

**(ii) Procurement advice:**

The company should adopt the EOQ-based procurement policy. At EOQ = 2,000 kg, the company should place **6 orders per year** (12,000 ÷ 2,000), with a re-order cycle of **60 days** (360 ÷ 6). This minimises total inventory cost as total ordering cost equals total carrying cost at EOQ.

**(iii) Total Ordering and Carrying Cost at EOQ:**

Total Ordering Cost = (Annual Demand / EOQ) × Cost per order = 6 × ₹750 = **₹4,500 per annum**

Total Carrying Cost = (EOQ / 2) × Carrying cost per unit = 1,000 × ₹4.50 = **₹4,500 per annum**

The equality of both costs confirms correctness of EOQ. **Total inventory cost = ₹9,000 per annum.**

---

**Part (b): Labour Turnover — PQR Limited**

**(i) Average number of workers on roll:**

Using **Replacement Method** = (Replacements / Average Workers) × 100
8% = (72 / N) × 100 → **N = 900 workers**

**(ii) Number of …

Question 3

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, production of either of the two garments must be at least 25% of the production of the other. Estimated cost and revenue per garment are as follows:

Shirt (₹): Sales price 60, Raw Materials -, Fabric @12 per metre 24, Dyes and cotton 6, Direct labour @ 8 per hour 8, Fixed Overhead @4 per hour 4, Profit 18

Short (₹): Sales price 44, Raw Materials -, Fabric @12 per metre 12, Dyes and cotton 4, Direct labour @ 8 per hour 4, Fixed Overhead @4 per hour 2, Profit 22

From the month of July 2022 direct labour will…

Accepted Answer

**PART A — LINEAR PROGRAMMING FORMULATION (April to June 2022)**

**Decision Variables:** Let x = number of Shirts produced per month; y = number of Shorts produced per month.

**Contribution per Unit (excluding fixed overhead):**
Shirt: ₹60 − ₹24 − ₹6 − ₹8 = **₹22 per shirt**
Short: ₹44 − ₹12 − ₹4 − ₹4 = **₹24 per short**

**Direct Labour Hours per Unit:**
Shirt: ₹8 ÷ ₹8 per hour = **1 hour per shirt**
Short: ₹4 ÷ ₹8 per hour = **0.5 hours per short**

**Objective Function:** Maximise Z = 22x + 24y

**Subject to Constraints:**
(1) x + 0.5y ≤ 12,000 — Direct labour hours constraint
(2) x ≥ 0.25y, i.e., 4x − y ≥ 0 — Shirts must be ≥ 25% of Shorts (market constraint)
(3) y ≥ 0.25x, i.e., 4y − x ≥ 0 — Shorts must be ≥ 25% of Shirts (market constraint)
(4) x, y ≥ 0 — Non-negativity

**Contribution per Labour Hour (ranking):**
Shirt: ₹22 ÷ 1 hr = ₹22/hr | Short: ₹24 ÷ 0.5 hr = **₹48/hr** — Shorts rank higher; production should be maximised for Shorts subject to constraints.

---

**PART B — OPTIMAL PRODUCTION PLAN (April to June 2022)**

**Evaluating Corner Points of the Feasible Region:**

**Corner Point 1** — Intersection of Labour constraint (1) and Market constraint (2) where x = 0.25y:
Substituting y = 4x: x + 0.5(4x) = 12,000 → 3x = 12,000 → **x = 4,000 shirts; y = 16,000 shorts**
Check constraint (3): y ≥ 0.25x → 16,000 ≥ 1,000 ✓
Z₁ = 22(4,000) + 24(16,000) = 88,000 + 3,84,000 = **₹4,72,000**

**Corner Point 2** — Intersection of Labour constraint (1) and Market constraint …

Question 4

STG Limited is a manufacturer of Chemical 'GK', which is required for industrial use. The complete production requires two processes. The raw material first passes through Process 1, where Chemical 'G' is produced. Following data is furnished for the month April 2023:

Production Data (in kgs): 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).

Cost Data (in ₹): Opening work-in-progress cost: 29,500; 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 …

Accepted Answer

**Statement of Equivalent Production (Weighted Average Method) — Process 1 for April 2023**

**Step 1 — Quantity Reconciliation and Loss Calculation:**

Total input = Opening WIP + Material Input = 9,500 + 1,05,000 = **1,14,500 kgs**

Normal Loss = 10% × 1,05,000 (material input) = **10,500 kgs** (no realizable value)

Actual Loss = Total Input − (Work Completed + Closing WIP) = 1,14,500 − (83,000 + 16,500) = **15,000 kgs**

**Abnormal Loss** = Actual Loss − Normal Loss = 15,000 − 10,500 = **4,500 kgs** (treated as 100% complete for both material and processing)

**Step 2 — Statement of Equivalent Units:**

| Particulars | Kgs | Material EU | Processing EU |
|---|---|---|---|
| Work Completed | 83,000 | 83,000 | 83,000 |
| Abnormal Loss (100% complete) | 4,500 | 4,500 | 4,500 |
| Closing WIP (Material 100%, Conv. 60%) | 16,500 | 16,500 | 9,900 |
| Normal Loss | 10,500 | — | — |
| **Total** | **1,14,500** | **1,04,000** | **97,400** |

**Step 3 — Cost per Equivalent Unit:**

Total Material Cost = Opening WIP Material (₹29,500) + Current Material (₹3,34,500) = **₹3,64,000**
Total Processing Cost = Opening WIP Processing (₹14,750) + Current Processing (₹2,53,100) = **₹2,67,850**

Cost per EU (Material) = ₹3,64,000 ÷ 1,04,000 = **₹3.50 per kg**
Cost per EU (Processing) = ₹2,67,850 ÷ 97,400 = **₹2.75 per kg**
**Total Cost per EU = ₹6.25 per kg**

**Step 4 — Cost Assignment:**

- **Work Completed (transferred out):** 83,000 × ₹6.25 = **₹5,18,750**
- **Abnormal Loss:** 4,500 × ₹6.25…

Question 5

Star Limited manufactures three products using the same production facilities, but uses conventional product costing system is being used currently. Details of the three products for a typical period are:

| Product | Labour Hrs per unit | Machine Hrs per unit | Materials per unit | Volume in units |
|---|---|---|---|---|
| AX | 1.00 | 2.00 | 35 | 7,500 |
| BX | 0.90 | 1.50 | 25 | 12,500 |
| CX | 1.50 | 2.50 | 45 | 25,000 |

Direct Labour costs ₹20 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is ₹30 per machine hour.

Management is considering using Activity Based Costing system to ascertain the cost of the products. Further analysis shows that the total production overhead can be divided as follows:

| Particulars | % …

Accepted Answer

**Part (a): Product Cost Statement under Conventional (Traditional) Costing System**

Under the conventional system, production overheads are absorbed using a single plant-wide rate of ₹30 per machine hour.

**Cost per unit:**

| Particulars | AX (₹) | BX (₹) | CX (₹) |
|---|---|---|---|
| Direct Materials | 35.00 | 25.00 | 45.00 |
| Direct Labour (@ ₹20/hr) | 20.00 | 18.00 | 30.00 |
| Production Overhead (@ ₹30/machine hr) | 60.00 | 45.00 | 75.00 |
| **Total Cost per unit** | **115.00** | **88.00** | **150.00** |

**Total Production Overhead absorbed:** 96,250 machine hours × ₹30 = **₹28,87,500**

---

**Part (b): Activity Based Costing (ABC) Framework**

Under ABC, the total production overhead of ₹28,87,500 is divided into **four cost pools** based on the activities that drive cost:

| Activity Cost Pool | % | Amount (₹) | Suggested Cost Driver |
|---|---|---|---|
| Set-ups | 40 | 11,55,000 | Number of production runs/set-ups |
| Machinery | 10 | 2,88,750 | Machine hours |
| Material Handling | 30 | 8,66,250 | Number of material requisitions |
| Inspection | 20 | 5,77,500 | Number of inspections |
| **Total** | **100** | **28,87,500** | |

**Cost Driver Rate — Machinery Activity** (cost driver = machine hours, which is available):

Machinery cost driver rate = ₹2,88,750 ÷ 96,250 machine hours = **₹3.00 per machine hour**

For the remaining three activity pools (set-ups, material handling, inspection), the **cost driver quantities per product** (i.e., number of set-ups, num…

Question 6

Paramount Constructions Limited is engaged in construction and erection of bridges under long term contracts. It has entered into a big contract at an agreed price of ₹250 Lakhs subject to an escalation clause for material and labour as spelt out in the contract and corresponding actual are as follows:

Materials:
Standard - P: 2,800 Tonnes @ ₹1,500/Tonne, Q: 3,100 Tonnes @ ₹900/Tonne, R: 800 Tonnes @ ₹4,500/Tonne, S: 180 Tonnes @ ₹32,500/Tonne
Actual - P: 3,000 Tonnes @ ₹1,750/Tonne, Q: 2,900 Tonnes @ ₹4,550/Tonne, R: 950 Tonnes @ ₹4,550/Tonne, S: 120 Tonnes @ ₹34,200/Tonne

Labour:
Standard - LM: 65,000 Hours @ ₹60/hour, LN: 46,000 Hours @ ₹45/hour
Actual - LM: 61,500 Hours @ ₹40/hour, LN: 45,000 Hours @ ₹50/hour

Required:
(i) Prepare a statement showing admissible additional claim of m…

Accepted Answer

**Solution:**

Under an **escalation clause**, the contractor is entitled to an additional claim only when actual rates/prices exceed the standard (contractual) rates. The admissible claim is computed using **standard quantities at the difference between actual and standard rates**. No escalation is admissible for (a) rate decreases, or (b) excess quantities consumed over standard.

**(i) Statement of Admissible Additional Claim Due to Escalation Clause**

**Materials:**

| Material | Std Qty (T) | Std Rate (₹) | Actual Rate (₹) | Rate Increase (₹) | Admissible Claim (₹) |
|---|---|---|---|---|---|
| P | 2,800 | 1,500 | 1,750 | 250 | 7,00,000 |
| Q | 3,100 | 900 | 4,550 | 3,650 | 1,13,15,000 |
| R | 800 | 4,500 | 4,550 | 50 | 40,000 |
| S | 180 | 32,500 | 34,200 | 1,700 | 3,06,000 |
| **Total Material Escalation** | | | | | **1,23,61,000** |

**Labour:**

| Labour | Std Hours | Std Rate (₹) | Actual Rate (₹) | Rate Increase (₹) | Admissible Claim (₹) |
|---|---|---|---|---|---|
| LM | 65,000 | 60 | 40 | Nil (rate decreased) | — |
| LN | 46,000 | 45 | 50 | 5 | 2,30,000 |
| **Total Labour Escalation** | | | | | **2,30,000** |

**Total Admissible Escalation = ₹1,23,61,000 + ₹2,30,000 = ₹1,25,91,000**

Note: LM rate decreased from ₹60 to ₹40/hour — no escalation admissible. Excess quantities (e.g., P actual 3,000 T vs standard 2,800 T) are the contractor's risk and not covered by the clause.

**(ii) Final Contract Price Payable After Admissible Escalation**

| Particulars | ₹ |
|…

Question 7

Distinguish between Job costing and Process Costing. (Any five points of differences)

Accepted Answer

**Distinction between Job Costing and Process Costing**

Job Costing and Process Costing are two fundamentally different methods of cost ascertainment, applicable to different types of manufacturing environments.

**1. Nature of Production:** Job Costing is used where production is carried out against specific customer orders or jobs, each of which is distinct and non-repetitive (e.g., construction, ship-building, printing). Process Costing is used where production is continuous and homogeneous, involving a sequence of operations or processes (e.g., chemicals, textiles, oil refining).

**2. Unit of Cost:** In Job Costing, the **cost unit is the job or order** itself, which may be a single item or a batch. In Process Costing, the cost unit is the output of each process, typically expressed per tonne, per litre, or per unit of homogeneous product.

**3. Cost Accumulation:** Under Job Costing, costs (material, labour, overheads) are accumulated separately for **each job** through a Job Cost Card or Job Cost Sheet. Under Process Costing, costs are accumulated **process-wise** for a given period, and the total cost is averaged over all units produced in that process.

**4. Transfer of Cost:** In Job Costing, there is generally **no transfer** of cost from one job to another; each job is independent. In Process Costing, the output of one process becomes the **input of the next process**, and cost is transferred along with the output through successive processes.

**5. Treatment of …

Question 8

Answer any four of the following:

Accepted Answer

**Note:** All five sub-parts are solved below. Attempt any four as instructed.

**(a) Essential Features of a Good Cost Accounting System**

A good Cost Accounting System should possess the following essential features:

**1. Suitability:** The system must be tailor-made to suit the nature, size, and requirements of the organisation. A system suitable for a manufacturing concern may not be appropriate for a service enterprise.

**2. Simplicity:** The system should be simple and easy to understand and operate. Complicated procedures lead to errors and inefficiency.

**3. Economy:** The cost of installing and operating the system should not exceed the benefits derived from it. The system must be cost-effective.

**4. Accuracy:** The system must ensure that data collected and recorded is accurate and reliable, as cost decisions are based on this data.

**5. Promptness:** Cost information must be made available to management promptly and in time for effective decision-making.

**6. Comparability:** The system should facilitate comparison of costs over different periods and with competitors or standard costs to identify variances and inefficiencies.

**7. Integration:** The cost accounting records should be capable of reconciliation or integration with financial accounting records to ensure consistency.

**8. Flexibility:** The system should be adaptable to changing business conditions and organisational needs without a complete overhaul.

**9. Minimum Disruption:** Installation s…

Question 9

Various requirements regarding budgeting and cost accounting

Accepted Answer

**Sub-part (a):** The data required to solve sub-part (a) — regarding shirts and shorts production, sales mix optimisation, and monthly budgets for July, August and September 2022 — has **not been provided** in the case scenario. Sub-part (a) appears to reference a separate case with different facts (product constraints, selling prices, contribution data). It cannot be solved without that missing information.

---

**Sub-part (b)(I): Cost Sheet of A Ltd. for April 2022 (3,000 units produced)**

**(i) Cost of Raw Material Consumed**
Opening Stock of Raw Materials ₹10,000 + Purchases ₹2,80,000 − Closing Stock of Raw Materials ₹40,000 = **₹2,50,000**

**(ii) Prime Cost**
Raw Material Consumed ₹2,50,000 + Manufacturing Wages (direct labour) ₹70,000 + Primary Packing Cost (direct expense) ₹8,000 = **₹3,28,000**

**Note:** Primary packing cost is a direct expense forming part of Prime Cost, as it is integral to the product itself. Packing cost for redistribution is a selling overhead, excluded here.

**(iii) Factory Cost (Works Cost)**
Prime Cost ₹3,28,000 + Factory Overheads ₹50,000 = **₹3,78,000**

Factory Overheads comprise: Depreciation on Plant ₹15,000 + Quality Control Check Expenses ₹4,000 + Lease Rent of Production Assets ₹10,000 + Administrative Overheads (Production) ₹15,000 + Pollution Control & Engineering/Maintenance ₹1,000 + Research & Development – Process Related ₹5,000 = ₹50,000.

R&D (process related) is treated as a **production overhead** since it directly relat…

Question 10

The Company transfers 60,000 kgs. of output (Chemical 'G') from Process I to Process II 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 are sold as Chemical 'GK' for ₹ 10 per kg. Any quantity of output completed in Process I are sold as Chemical 'G' for ₹ 7.5 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

Accepted Answer

**Important Note:** Sub-parts (i) and (ii) require specific Process I data — namely opening WIP (quantity and cost), materials input (quantity and cost), conversion costs (labour and overheads), normal loss percentage, and closing WIP (quantity and stage of completion). This data does not appear in the question as presented. Below, the complete **methodology** for parts (i) and (ii) is provided, followed by the **fully solved** part (iii) using the available Process II data.

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**(i) Statement of Equivalent Production — Process I (Weighted Average Method)**

Under the **Weighted Average Cost (WAC) method**, opening WIP is merged with current period input; completion to date is counted, not completion in the current period only.

**Equivalent Units (EU)** for each cost element:
- Materials EU = Units transferred out + (Closing WIP units × % completion for materials)
- Processing EU = Units transferred out + (Closing WIP units × % completion for processing)

(Note: Normal loss units receive zero EU; abnormal loss units receive full EU.)

**Cost per kg of Chemical G** = (Opening WIP Cost + Period Cost) ÷ Equivalent Units
- Cost per kg (Materials) = (OWIPₘ + Period Material Cost) ÷ Materials EU
- Cost per kg (Processing) = (OWIPₚ + Period Processing Cost) ÷ Processing EU
- **Total cost per kg of Chemical G** = Sum of both

Insert Process I figures into the above template to arrive at the cost per kg.

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**(ii) Statement of Cost — Process I**

Once cost per kg is determined …

Question 11

UV Limited started a manufacturing unit from 1st October 2021. It produces designer lamps and sells in lumps at ₹450 per unit. During the quarter ending 31st December, 2021, it produced and sold 12,000 units and suffered a loss of ₹35 per unit. During the quarter ending 31st March, 2022, it produced and sold 8,000 units and earned a profit of ₹40 per unit. You are required to calculate:

Accepted Answer

**Note:** As stated, the question implies a loss at higher volume (12,000 units) and profit at lower volume (8,000 units), which is mathematically impossible with constant fixed costs (it yields a variable cost > selling price). The data for profit/loss is evidently transposed in the question. The economically consistent and solvable interpretation is: Q1 (12,000 units) — **Profit ₹35/unit**; Q2 (8,000 units) — **Loss ₹40/unit**. The solution below uses this corrected reading.

**Given:** Selling Price (SP) = ₹450 per unit. Let **F** = Fixed Cost per quarter (₹), **V** = Variable Cost per unit (₹).

**(i) Total Cost per Quarter**

Using simultaneous equations from the two quarters:

Q1 (12,000 units, Profit ₹35/unit): Total Cost = 12,000 × (450 − 35) = **₹49,80,000**
Equation: F + 12,000V = 49,80,000 … (1)

Q2 (8,000 units, Loss ₹40/unit): Total Cost = 8,000 × (450 + 40) = **₹39,20,000**
Equation: F + 8,000V = 39,20,000 … (2)

Subtracting (2) from (1): 4,000V = 10,60,000 → **V = ₹265 per unit**
Substituting in (1): F = 49,80,000 − 31,80,000 → **F = ₹18,00,000 per quarter**

**Total Cost Function:** TC = ₹18,00,000 + ₹265 × Q
Q1 Total Cost = ₹49,80,000 | Q2 Total Cost = ₹39,20,000

**(ii) Break-Even Sales Value**

**Contribution per unit** = SP − Variable Cost = 450 − 265 = **₹185**
**P/V Ratio** = 185 ÷ 450 × 100 = **41.11%** (= 37/90)
**BEP (Units)** = Fixed Cost ÷ Contribution per unit = 18,00,000 ÷ 185 = **9,730 units (approx.)**
**BEP (Sales Value)** = Fixed Cost ÷ P/V Ra…

Question 12

Journalize the following transactions assuming the cost and financial accounts are integrated:
Direct Materials issued to production: ₹5,88,000
Allocation of Wages (Indirect): ₹7,50,000
Factory Overheads (Over absorbed): ₹2,25,000
Administrative Overheads (Under absorbed): ₹1,55,000
Deficiency found in stock of Raw material (Normal): ₹2,00,000

Accepted Answer

**Integrated Cost Accounts — Journal Entries**

In an **integrated (integral) accounting system**, cost and financial accounts are maintained in a single set of books. All transactions are recorded using **control accounts** such as Stores Ledger Control A/c, Wages Control A/c, WIP Control A/c, and Overhead Control A/cs.

**(i) Direct Materials issued to production — ₹5,88,000**
When direct materials are requisitioned from stores, the **Work-in-Progress Control A/c** is debited (cost of production increases) and **Stores Ledger Control A/c** is credited (stores balance reduces).
Dr. Work-in-Progress Control A/c — ₹5,88,000
Cr. Stores Ledger Control A/c — ₹5,88,000

**(ii) Allocation of Wages (Indirect) — ₹7,50,000**
Indirect wages do not attach directly to a product; they are a **factory overhead**. Hence, **Factory Overhead Control A/c** is debited and **Wages Control A/c** is credited.
Dr. Factory Overhead Control A/c — ₹7,50,000
Cr. Wages Control A/c — ₹7,50,000

**(iii) Factory Overheads — Over Absorbed — ₹2,25,000**
**Over absorption** arises when absorbed overheads exceed actual overheads. The surplus is a notional gain and is transferred to the credit of **Costing Profit & Loss A/c** by debiting Factory Overhead Control A/c.
Dr. Factory Overhead Control A/c — ₹2,25,000
Cr. Costing Profit & Loss A/c — ₹2,25,000

**(iv) Administrative Overheads — Under Absorbed — ₹1,55,000**
**Under absorption** arises when absorbed overheads fall short of actual overheads. The shortfall…

Question 13

The following activity volumes are associated with the product line for the period as a whole:

| Product | No. of set-ups | No. of movements of Materials | No. of Inspections |
|---|---|---|---|
| AX | 350 | 200 | 200 |
| BX | 450 | 280 | 400 |
| CX | 740 | 675 | 900 |
| Total | 1,540 | 1,155 | 1,590 |

Required:
(a) (i) Calculate the cost per unit for each product using the conventional method.
    (ii) Calculate the cost per unit for each product using activity based costing method.

(b) 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 reaso…

Accepted Answer

**Part (a) — Activity-Based Costing vs Conventional Method:** The question provides activity volume drivers (set-ups, material movements, inspections) for products AX, BX, and CX, but the overhead cost pool totals and production volume per product are not included in the question as presented. Without (i) total overhead cost allocated to each activity pool, and (ii) units produced per product, neither the conventional overhead rate nor the ABC cost per driver can be computed. If this is part of a larger question, the missing data from the preceding paragraph (overhead pool costs and production quantities) is required to complete part (a). Once that data is available, the conventional method would apply a single blanket overhead rate (Total Overhead ÷ Total Units or Total Labour Hours), while the ABC method would compute a cost per driver for each pool (e.g., Cost per Set-up = Pool Cost ÷ 1,540; Cost per Movement = Pool Cost ÷ 1,155; Cost per Inspection = Pool Cost ÷ 1,590) and assign costs to each product based on its driver consumption.

**Part (b) — Labour Cost Variances for Product NPX:**

Key input data: 120 workers, 48-hour paid week, standard output = 20 units per labour hour, standard wage rate = ₹25 per hour, actual output = 1,000 units, abnormal idle time = 5% of hours paid, actual wage rate = ₹25.70 per hour.

**Step 1 — Hours:**
Total man-hours paid = 120 × 48 = **5,760 hours**
Abnormal idle man-hours = 5% × 5,760 = **288 hours**
Actual man-hours worked = 5,760 − 2…

Question 14

Calculate:
(i) Labour Cost Variance
(ii) Labour Rate Variance
(iii) Labour Efficiency Variance
(iv) Labour Idle time Variance

(c) RST Limited produces three joint products X, Y and Z. The products are processed further. 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

| | Product X | Product Y | Product Z |
|---|---|---|---|
| Output (in Litres) | 100 | 70 | 80 |
| Cost per Litre (₹) | [to be calculated] | [to be calculated] | [to be calculated] |
| Cost incurred after separation point | 2,000 | 1,200 | 800 |
| Selling Price per Litre (After further processing) | 50 | 80 | 60 |
| Estimated Selling Price at pre-separation point | 25 | 50 | 4…

Accepted Answer

**Note on Labour Variances (i)–(iv):** The manufacturing department data (standard hours, actual hours worked, idle time, standard rate, actual rate) referenced as 'Question 13(b)' was not provided in the question. Labour variances cannot be calculated without this input data. The formulae are: **LCV = (Standard Cost of Actual Output) − (Actual Cost)**; **LRV = (Standard Rate − Actual Rate) × Actual Hours Paid**; **LEV = (Standard Hours for Actual Output − Actual Hours Worked) × Standard Rate**; **Labour Idle Time Variance = Idle Hours × Standard Rate (Adverse)**.

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**(c) RST Limited — Joint Product Costing**

**Pre-separation cost apportionment (basis: weight/volume of output)**

Total output = 100 + 70 + 80 = **250 litres**

Apportioned pre-separation cost:
- Product X: (100/250) × ₹10,000 = **₹4,000**
- Product Y: (70/250) × ₹10,000 = **₹2,800**
- Product Z: (80/250) × ₹10,000 = **₹3,200**

**(i) Statement of Profit or Loss after Further Processing**

| Particulars | X (₹) | Y (₹) | Z (₹) |
|---|---|---|---|
| Selling Price per litre (after processing) | 50 | 80 | 60 |
| Output (litres) | 100 | 70 | 80 |
| **Revenue** | **5,000** | **5,600** | **4,800** |
| Pre-separation cost (apportioned) | 4,000 | 2,800 | 3,200 |
| Post-separation cost | 2,000 | 1,200 | 800 |
| **Total Cost** | **6,000** | **4,000** | **4,000** |
| **Profit / (Loss)** | **(1,000)** | **1,600** | **800** |

Product X shows a **loss of ₹1,000**; Products Y and Z show profits of ₹1,600 and ₹800 respect…

Particulars	Mine X	Mine Y
Time-based costs (Drivers' wages, depreciation, insurance, taxes @ ₹12/hr)	1.5 × ₹12 = ₹18.00	5/3 × ₹12 = ₹20.00
Distance-based costs (Fuel, oil, tyres, repairs @ ₹1.60/km)	30 km × ₹1.60 = ₹48.00	40 km × ₹1.60 = ₹64.00
Total Cost per Trip	₹66.00	₹84.00

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap