CA Inter Cost & Mgmt — Question Paper — May 2022

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 marginally more cost-efficient on a tonne-km basis.

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.

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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 (3) where y = 0.25x:
Substituting x = 4y: 4y + 0.5y = 12,000 → 4.5y = 12,000 → y = 2,667; x = 10,667 shirts; y = 2,667 shorts (approx.)
Check constraint (2): x ≥ 0.25y → 10,667 ≥ 667 ✓
Z₂ = 22(10,667) + 24(2,667) = 2,34,667 + 64,000 = ₹2,98,667

Optimal Solution: Produce 4,000 Shirts and 16,000 Shorts per month during April–June 2022.

Monthly Contribution = ₹4,72,000
Less: Fixed Overhead = 12,000 hours × ₹4 = ₹48,000
Monthly Profit = ₹4,24,000
Total Profit for Q1 (April–June 2022) = ₹4,24,000 × 3 = ₹12,72,000

Verification of resource use: (4,000 × 1) + (16,000 × 0.5) = 4,000 + 8,000 = 12,000 hours ✓ (Fully utilised)

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PART C — SALES AND PRODUCTION BUDGET (July 2022 Onwards)

Sales Projection (10% cumulative monthly growth):

July 2022: Shirts 15,000 | Shorts 20,000
August 2022: Shirts 16,500 | Shorts 22,000
September 2022: Shirts 18,150 | Shorts 24,200
October 2022: Shirts 19,965 | Shorts 26,620

Closing Stock Policy: 40% of next month's forecast sales. Opening stock at 1 July 2022 = Nil.

Production Budget — Shirts (Units):

| Particulars | July | August | September |
|---|---|---|---|
| Opening Stock | 0 | 6,600 | 7,260 |
| Add: Production | 21,600 | 17,160 | 18,876 |
| Less: Sales | 15,000 | 16,500 | 18,150 |
| Closing Stock (40% of next month) | 6,600 | 7,260 | 7,986 |

Production Budget — Shorts (Units):

| Particulars | July | August | September |
|---|---|---|---|
| Opening Stock | 0 | 8,800 | 9,680 |
| Add: Production | 28,800 | 22,880 | 25,168 |
| Less: Sales | 20,000 | 22,000 | 24,200 |
| Closing Stock (40% of next month) | 8,800 | 9,680 | 10,648 |

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PART D — REVENUE ANALYSIS (July–September 2022)

| Month | Shirt Revenue (₹) | Short Revenue (₹) | Total Revenue (₹) |
|---|---|---|---|
| July 2022 | 9,00,000 | 8,80,000 | 17,80,000 |
| August 2022 | 9,90,000 | 9,68,000 | 19,58,000 |
| September 2022 | 10,89,000 | 10,64,800 | 21,53,800 |

Contribution from Sales (July): Shirts 15,000 × ₹22 = ₹3,30,000; Shorts 20,000 × ₹24 = ₹4,80,000; Total = ₹8,10,000

Final Answer Summary: The optimal monthly production plan for April–June 2022 is 4,000 Shirts and 16,000 Shorts, yielding a monthly contribution of ₹4,72,000 and monthly profit of ₹4,24,000. From July 2022, production is demand-driven with a 40% stock cover policy; production requirements are 21,600 shirts and 28,800 shorts in July, declining to demand-led levels thereafter as opening stocks stabilise.

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 = ₹28,125
- Closing WIP: (16,500 × ₹3.50) + (9,900 × ₹2.75) = ₹57,750 + ₹27,225 = ₹84,975

Process 1 Account (₹):

| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Opening WIP | 44,250 | By Normal Loss (10,500 kgs) | Nil |
| To Material Input | 3,34,500 | By Abnormal Loss A/c (4,500 kgs) | 28,125 |
| To Processing Cost | 2,53,100 | By Process 2 / Finished Goods (83,000 kgs) | 5,18,750 |
| | | By Closing WIP (16,500 kgs) | 84,975 |
| Total | 6,31,850 | Total | 6,31,850 |

The account balances at ₹6,31,850, confirming accuracy. The abnormal loss of ₹28,125 will be debited to the Abnormal Loss Account and ultimately written off to the Costing Profit & Loss Account.

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

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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, number of material requisitions, and number of inspections attributable to AX, BX, and CX) are required to compute cost driver rates and apportion costs.

Key Conceptual Distinction: Under conventional costing, all three products bear overhead in proportion to machine hours — high-volume product CX absorbs the largest share simply due to volume. Under ABC, overhead is traced to products based on the activities they actually consume. A low-volume, complex product (e.g., AX) that triggers frequent set-ups or inspections would bear a higher overhead burden under ABC, making product costs more accurate and decision-relevant.

Conclusion: Under the traditional system, the unit costs are ₹115 (AX), ₹88 (BX), and ₹150 (CX). A complete ABC cost statement requires cost driver quantity data (number of set-ups, requisitions, and inspections per product), which, once provided, would allow computation of activity-wise cost driver rates and more accurate product cost ascertainment.

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 | ₹ |
|---|---|
| Original agreed contract price | 2,50,00,000 |
| Add: Admissible escalation — Materials | 1,23,61,000 |
| Add: Admissible escalation — Labour | 2,30,000 |
| Final price payable | 3,75,91,000 |

The final price payable = ₹3,75,91,000 (i.e., ₹375.91 Lakhs)

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 Losses: In Job Costing, losses are typically identified with a specific job and charged to that job directly. In Process Costing, concepts of Normal Loss, Abnormal Loss, and Abnormal Gain are specifically computed and accounted for at each process stage, forming a critical part of process accounts.

6. Cost Determination: Under Job Costing, the cost of a job is determined only upon completion of that job, making cost ascertainment periodic and order-specific. Under Process Costing, costs are determined at the end of each accounting period on an average basis, irrespective of whether production is complete.

7. Suitability: Job Costing is suitable for industries producing heterogeneous products made to customer specification. Process Costing is suitable for industries producing standardised, homogeneous products through a series of distinct processes or stages.

Conclusion: The choice between the two methods depends on the nature of the production process. Job Costing focuses on the individuality of each order, while Process Costing focuses on the continuity and uniformity of production.

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.

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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 relates to the manufacturing process. Administrative overheads specifically attributable to production are included in Factory Cost per CAS-3 (Cost Accounting Standard on Overheads).

(iv) Cost of Production
No opening or closing WIP is given; therefore Cost of Production = Factory Cost = ₹3,78,000 for 3,000 units.
Cost of Production per unit = ₹3,78,000 ÷ 3,000 = ₹126 per unit

(v) Cost of Goods Sold
Opening Finished Goods ₹28,000 (200 units) + Cost of Production ₹3,78,000 − Closing Finished Goods (400 units × ₹126) ₹50,400 = ₹3,55,600
Units sold = 200 + 3,000 − 400 = 2,800 units

(vi) Cost of Sales
Cost of Goods Sold ₹3,55,600 + Packing Cost for Redistribution of Finished Goods ₹1,500 + Advertisement Expenses ₹1,300 = ₹3,58,400

Advertisement expenses and redistribution packing are selling & distribution overheads and are added at the Cost of Sales stage, not Factory Cost.

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Sub-part (b)(II): Selling Price per Unit at 20% Profit on Sales

Average Cost of Sales per unit = ₹3,58,400 ÷ 2,800 units = ₹128 per unit

If profit = 20% on sales, then cost represents 80% of sales price.
Selling Price = ₹128 ÷ 0.80 = ₹160 per unit

Verification: Revenue = 2,800 × ₹160 = ₹4,48,000; Profit = ₹4,48,000 − ₹3,58,400 = ₹89,600; Profit % on sales = ₹89,600 ÷ ₹4,48,000 = 20% ✓

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 in (i):

- Cost of Chemical G transferred to Process II = 60,000 kg × Total cost per kg
- Cost of Abnormal Loss = Abnormal Loss units × Total cost per kg
- Cost of Closing WIP = (Closing WIP EU for materials × Material cost/EU) + (Closing WIP EU for processing × Processing cost/EU)

These three figures plus the value of normal loss (scrap value, if any) reconcile to total process costs.

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(iii) Make-or-Sell Decision: Sell as Chemical G vs. Process further into Chemical GK

The cost of Chemical G from Process I is a sunk / common cost — it is incurred regardless of whether further processing happens. The decision is based purely on incremental (differential) analysis.

Option A — Sell 60,000 kg of Chemical G without further processing:
Revenue = 60,000 kg × ₹7.50 = ₹4,50,000
Additional costs = Nil
Net Incremental Revenue = ₹4,50,000

Option B — Process 60,000 kg in Process II to produce Chemical GK:
Output of Chemical GK = 60,000 × 1.20 = 72,000 kg
Revenue = 72,000 × ₹10 = ₹7,20,000
Additional costs of Process II:
- Materials cost = ₹85,000
- Processing cost = ₹50,000
- Total additional costs = ₹1,35,000
Net Incremental Revenue = ₹7,20,000 − ₹1,35,000 = ₹5,85,000

Incremental benefit of further processing over direct sale:
₹5,85,000 − ₹4,50,000 = ₹1,35,000

Conclusion: It is beneficial for STG to continue processing Chemical G further in Process II. By processing, the company earns an additional net benefit of ₹1,35,000 per month compared to selling Chemical G directly. The incremental revenue of ₹2,70,000 (₹7,20,000 − ₹4,50,000) comfortably exceeds the incremental Process II costs of ₹1,35,000.

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 Ratio = 18,00,000 × 450 ÷ 185 = ₹43,78,378 (approx.)

(iii) Profit at 50,000 Units (Quarter ending 30th June 2022)

Total Contribution = 50,000 × 185 = ₹92,50,000
Less: Fixed Cost = ₹18,00,000
Profit = ₹74,50,000

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 is a notional loss and is transferred to the debit of Costing Profit & Loss A/c by crediting Administration Overhead Control A/c.
Dr. Costing Profit & Loss A/c — ₹1,55,000
Cr. Administration Overhead Control A/c — ₹1,55,000

(v) Deficiency in Stock of Raw Material (Normal) — ₹2,00,000
Normal losses in stores (arising from evaporation, handling, natural shrinkage, etc.) are unavoidable and are treated as a factory overhead — they are absorbed into the cost of production. Accordingly, Factory Overhead Control A/c is debited and Stores Ledger Control A/c is credited.
Dr. Factory Overhead Control A/c — ₹2,00,000
Cr. Stores Ledger Control A/c — ₹2,00,000

Note: Had the deficiency been abnormal, it would have been debited to Costing Profit & Loss A/c instead of Factory Overhead Control A/c, as abnormal losses are not part of the cost of production.

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 − 288 = 5,472 hours

Step 2 — Standard man-hours for actual output:
Standard department-hours for 1,000 units = 1,000 ÷ 20 = 50 hours
Standard man-hours = 50 × 120 workers = 6,000 man-hours

Step 3 — Actual and Standard Labour Cost:
Actual wages paid = 5,760 × ₹25.70 = ₹1,48,032
Standard cost of actual output = 6,000 × ₹25 = ₹1,50,000

Labour Rate Variance (LRV):
= (Standard Rate − Actual Rate) × Actual Hours Paid
= (₹25 − ₹25.70) × 5,760 = ₹4,032 (Adverse)

Labour Idle Time Variance (LITV):
= Idle Hours × Standard Rate
= 288 × ₹25 = ₹7,200 (Adverse)

Labour Efficiency Variance (LEV) — net of idle time:
= (Standard Hours for Actual Output − Actual Hours Worked) × Standard Rate
= (6,000 − 5,472) × ₹25 = ₹13,200 (Favourable)

Labour Cost Variance (LCV):
= Standard Cost − Actual Cost = ₹1,50,000 − ₹1,48,032 = ₹1,968 (Favourable)

Verification: LRV ₹4,032(A) + LITV ₹7,200(A) + LEV ₹13,200(F) = ₹1,968(F) ✓

The favourable LCV arises because the efficiency gain on actual hours worked (₹13,200 F) more than offsets the adverse rate and idle time variances.

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 respectively.

(ii) Advice on Further Processing Decision

For further processing decisions, pre-separation costs are sunk and irrelevant. The decision is based solely on incremental revenue vs. incremental (post-separation) cost.

| Product | Revenue after processing (₹) | Revenue at separation point (₹) | Incremental Revenue (₹) | Post-separation Cost (₹) | Net Gain/(Loss) (₹) | Decision |
|---|---|---|---|---|---|---|
| X | 5,000 | 100 × 25 = 2,500 | 2,500 | 2,000 | +500 | Process Further |
| Y | 5,600 | 70 × 50 = 3,500 | 2,100 | 1,200 | +900 | Process Further |
| Z | 4,800 | 80 × 45 = 3,600 | 1,200 | 800 | +400 | Process Further |

Advice: On purely financial grounds, all three products — X, Y, and Z — should be processed further, as incremental revenue exceeds incremental cost in each case. The apparent loss on Product X in part (i) is a result of the pre-separation cost allocation method and is not relevant to the further processing decision. The pre-separation cost of ₹10,000 is unavoidable regardless of the decision taken.