Question 1

RST Ltd. manufactures a standard model of office desks. The company operates with a monthly manufacturing capacity of 5,000 units. The standard cost data for the product and cost of two consecutive months of production are as follows:

| Month | Units Manufactured | Direct Material (₹) | Direct Wages (₹) | Factory Overheads (₹) |
|---|---|---|---|---|
| April | 3,000 | 15,00,000 | 6,00,000 | 4,50,000 |
| May | 3,800 | 19,00,000 | 7,60,000 | 5,70,000 |

In the month of June, the number of units manufactured will be 4,500 units. However, the price of direct material will increase by 10%, direct wages will increase by 15%. The fixed factory overheads will increase by 20%.

The following information relates to two workers - Ajoy and Bijoy - who are engaged in producing the same product by usin…

Accepted Answer

**Part (a): Selling Price per Desk in June (Output: 4,000 units)**

From the April and May data, the standard cost per unit is derived by computing per-unit figures. April: DM ₹15,00,000 ÷ 3,000 = ₹500/unit; DW ₹6,00,000 ÷ 3,000 = ₹200/unit; FOH ₹4,50,000 ÷ 3,000 = ₹150/unit. May confirms these identical per-unit rates (₹19,00,000 ÷ 3,800 = ₹500; ₹7,60,000 ÷ 3,800 = ₹200; ₹5,70,000 ÷ 3,800 = ₹150). The **high-low method** confirms factory overhead is entirely variable at ₹150/unit with zero fixed component.

For June, applying the stated increases: **Direct Material** = ₹500 × 1.10 = ₹550/unit; **Direct Wages** = ₹200 × 1.15 = ₹230/unit; **Factory Overhead** = ₹150 × 1.20 = ₹180/unit. Total cost per unit in June = ₹960.

Profit desired = 11.5% on Selling Price, meaning Cost represents 88.5% of SP.
**Selling Price per desk = ₹960 ÷ 0.885 = ₹1,084.75**

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**Part (b): Total Wages — Ajoy (Halsey 50%) and Bijoy (Rowan Plan)**

Let W = Normal wage rate per hour (same for both); M = Material cost (same for both, using same material).

**Ajoy — Halsey 50% Plan:**
Time saved = 40 − 32 = 8 hours. Bonus = 50% × 8 × W = 4W. Total wages = 32W + 4W = **36W**. Factory OH = 32 × ₹100 = ₹3,200.
Factory Cost equation: M + 36W + 3,200 = 1,24,800 → **M + 36W = 1,21,600** … (1)

**Bijoy — Rowan Plan:**
Time saved = 40 − 30 = 10 hours. Bonus = (10/40) × 30 × W = 7.5W. Total wages = 30W + 7.5W = **37.5W**. Factory OH = 30 × ₹100 = ₹3,000.
Factory Cost equation: M + 37.5W + 3,000 = 1,24,800 → **M…

Question 2

XYZ Highway Toll Plaza Limited operates a toll plaza on a 100 km highway toll from vehicles passing through the plaza. The company has estimated that every year a total of 60 lakh vehicles (60% Passenger vehicles, 15% Heavy Commercial Vehicles and rest are Buses) will be using the highway during the 15 years toll collection tenure.

Accepted Answer

**Note:** The question as presented appears incomplete — it establishes the background data (vehicle mix, tenure) but does not provide the toll rates per vehicle category, project/concession cost, annual operating costs, or the specific sub-questions (a), (b), (c) typically accompanying this case scenario. The answer below demonstrates the full solution framework using the given data and standard assumptions consistent with ICAI Study Material patterns for toll plaza cost accounting.

**Given Information:**
- Highway length: 100 km
- Total annual vehicles: 60 lakh
- Passenger Vehicles (PV): 60% of 60 lakh = **36 lakh per year**
- Heavy Commercial Vehicles (HCV): 15% of 60 lakh = **9 lakh per year**
- Buses: (100% – 60% – 15%) = 25% of 60 lakh = **15 lakh per year**
- Toll collection tenure: 15 years

**Step 1 — Vehicle-wise Annual and Lifetime Traffic Volume**

Passenger Vehicles: 36 lakh/yr × 15 yrs = 540 lakh vehicles over tenure. Heavy Commercial Vehicles: 9 lakh/yr × 15 yrs = 135 lakh vehicles. Buses: 15 lakh/yr × 15 yrs = 225 lakh vehicles. **Total lifetime traffic = 900 lakh (9 crore) vehicles.**

**Step 2 — Equivalent Standard Axle Load (ESAL) / Weighted Vehicle Unit Approach**

In toll plaza cost accounting, different vehicle categories are assigned weights (multipliers) to compute 'Passenger Car Units (PCU)' or equivalent toll units. Commonly used multipliers (as per ICAI Study Material):
- Passenger Vehicle = 1 unit
- Bus = 2 units
- Heavy Commercial Vehicle = 3 uni…

Question 3

एक कंपनी के बिक्रय आंकड़े निम्न हैं—S₁, S₂, S₃ के बिक्रय—S₁, S₂, S₃ तीनों सेना वेतन बंटे हुए हैं जो एक दूसरे को कलाकृत प्रदान करती हैं। अनुसूची तीनों का निर्धारण करें।

Accepted Answer

**Note: Incomplete Question Data**

The question as provided is **incomplete**. It refers to three service departments **S₁, S₂, S₃** that render services to each other (reciprocal/inter-departmental transfers), but the **actual numerical data is missing** — specifically:

- The cost/budget of each service department (S₁, S₂, S₃)
- The percentage or ratio in which each department renders services to the other departments and to production departments

**Framework for Solution (Reciprocal Method — Simultaneous Equation Method):**

When service departments render services to each other, the **Simultaneous Equation Method** (also called the **Reciprocal Distribution Method**) is used under **Cost Accounting** principles.

**Step 1 — Set up equations.** Let the total cost of S₁, S₂, S₃ after reciprocal allocation be X, Y, Z respectively.

For example, if S₁ serves S₂ (10%), S₃ (5%); S₂ serves S₁ (15%), S₃ (10%); S₃ serves S₁ (20%), S₂ (10%), then:
- X = Own cost of S₁ + % share from S₂ + % share from S₃
- Y = Own cost of S₂ + % share from S₁ + % share from S₃
- Z = Own cost of S₃ + % share from S₁ + % share from S₂

**Step 2 — Solve simultaneous equations** to find X, Y, Z.

**Step 3 — Re-apportion** the solved total costs (X, Y, Z) to production departments in the given ratios (excluding the inter-service percentages).

**Step 4 — Verify** that total cost allocated to production departments equals total service department costs.

Please provide the complete data (department cost…

Question 4

Required:
(i) Compute the normal hourly wage rate.
(ii) Compute the cost of material used.

(c) MD Limited has furnished following information for the month of August, 2025:

Standard Variable Overhead rate: ₹3 per hour
Standard Hours for per unit of production: 5 hours
Actual Output: 15,500 units
Variable Overhead Efficiency Variance: ₹11,400 (F)
Variable Overhead Expenditure Variance: ₹37,000 (A)
Standard Fixed Overhead rate: ₹2 per hour
Actual Fixed Overheads: ₹1,85,000

You are required to calculate:
(i) Actual Hours
(ii) Actual Variable Overhead rate per hour
(iii) Variable Overhead Cost Variance
(iv) Fixed Overhead Cost Variance

Accepted Answer

**Note:** The data for sub-parts (i) Compute the normal hourly wage rate and (ii) Compute the cost of material used appears to belong to a separate preceding part of the question (parts a and b) whose input data has not been provided. The solution below addresses part (c) in full.

**Part (c): MD Limited — Overhead Variance Analysis for August 2025**

**Working Base:**
Standard Hours for Actual Output = 15,500 units × 5 hours = **77,500 hours**

**(i) Actual Hours Worked**

Variable Overhead Efficiency Variance = (Standard Hours for Actual Output − Actual Hours) × Standard Variable OH Rate

₹11,400 (F) = (77,500 − Actual Hours) × ₹3

Actual Hours = 77,500 − 3,800 = **73,700 hours**

**(ii) Actual Variable Overhead Rate per Hour**

Variable Overhead Expenditure Variance = (Standard Rate × Actual Hours) − Actual Variable Overheads

₹37,000 (A) means Actual > Standard for Actual Hours, so:
−37,000 = (₹3 × 73,700) − Actual Variable OH

Actual Variable OH = ₹2,21,100 + ₹37,000 = **₹2,58,100**

Actual Variable OH Rate per hour = ₹2,58,100 ÷ 73,700 = **₹3.50 per hour (approx.)**

**(iii) Variable Overhead Cost Variance (VOCV)**

VOCV = Efficiency Variance + Expenditure Variance
= ₹11,400 (F) + ₹37,000 (A)
= **₹25,600 (Adverse)**

Verification: VOCV = (SH for Actual Output × SR) − Actual Variable OH = (77,500 × 3) − 2,58,100 = ₹2,32,500 − ₹2,58,100 = ₹25,600 (A) ✓

**(iv) Fixed Overhead Cost Variance**

Standard Fixed OH Absorbed = Standard Hours for Actual Output × Standard Fixed OH…

Question 5

Compute the normal hourly wage rate and the cost of material used.

Accepted Answer

**Insufficient Data to Solve**

The question asks to compute (i) the normal hourly wage rate and (ii) the cost of material used under **Labour Costing** (Paper 4 – Cost and Management Accounting), but **no supporting data has been provided** in the question as submitted.

To solve **(i) Normal Hourly Wage Rate**, the following data is typically required:
- Total wages paid (or budgeted)
- Normal working hours (total hours including idle time allowance)
- Any overtime, bonus, or allowances to be included/excluded
- Number of workers

**Normal Hourly Wage Rate = Total Normal Wages ÷ Normal Hours**

To solve **(ii) Cost of Material Used**, the following data is typically required:
- Opening stock of material
- Purchases during the period (with freight/taxes if applicable)
- Closing stock of material
- Any material returned or transferred

**Cost of Material Used = Opening Stock + Purchases – Closing Stock**

Please provide the complete question data (table/exhibit) so the solution can be computed accurately.

Question 6

एक निर्माणी सेना तीन विभाग—लेखाकार, प्रबंधक और विज्ञान है। प्रोजेक्ट प्रबंधक सेना है। कुछ जानकारी दी गई है और अलोकेशन करें।

Accepted Answer

**Note:** The question as provided is incomplete — the specific cost data, cost drivers, and allocation bases for the three departments (Accountant/Client, Manager, Scientist) have not been included in the problem statement. Below is the **complete methodology and framework** for solving such a question under Activity Based Costing (ABC), which a student should apply once the actual figures are available.

**Activity Based Costing (ABC) — Conceptual Framework**

ABC is a costing method that assigns costs to products/services based on the actual activities consumed, rather than using a single blanket overhead rate. It is more accurate than traditional absorption costing for companies with multiple departments and diverse products.

**Step 1 — Identify Cost Pools**

Group overhead costs into activity-based cost pools. For a manufacturing company with three departments (e.g., Client Services, Management, and Scientific/Technical), each department may represent one or more activity cost pools. Common cost pools include: machine setup, quality inspection, material handling, administration, and project management.

**Step 2 — Identify Cost Drivers**

For each cost pool, identify the most appropriate cost driver — the factor that causes the cost to be incurred. Examples:
- Client Services: Number of client visits / client orders
- Manager Department: Number of projects managed / labour hours
- Scientist Department: Number of tests / machine hours

**Step 3 — Compute Cost Driver Rate…

Question 7

MD Limited has furnished following information for the month of August, 2025. Calculate: (i) Actual Hours, (ii) Actual Variable Overhead rate per hour, (iii) Variable Overhead Cost Variance, (iv) Fixed Overhead Cost Variance

Accepted Answer

**Note:** The question states 'following information' for MD Limited but the actual data table (budgeted/actual output, hours, overhead costs, etc.) has not been included in the submission. The numerical calculations below cannot be completed without the source data. The standard formulas and approach are provided so the student can apply them once the data is available.

**(i) Actual Hours:**
Actual Hours are typically derived from the **Variable Overhead Efficiency Variance** relationship or directly given. If Variable Overhead Expenditure Variance is given: Actual Hours = Actual VO Cost ÷ Standard VO Rate per hour (when expenditure variance is nil), or computed by back-working from given variances.

**(ii) Actual Variable Overhead Rate per Hour:**
Actual VO Rate = **Actual Variable Overhead Cost ÷ Actual Hours worked**

**(iii) Variable Overhead Cost Variance (VOCV):**
VOCV = **Standard Variable Overhead for Actual Output − Actual Variable Overhead Cost**
= (Standard VO Rate per hour × Standard Hours for Actual Output) − Actual VO Cost
Favourable if positive, Adverse if negative.

**(iv) Fixed Overhead Cost Variance (FOCV):**
FOCV = **Absorbed Fixed Overhead − Actual Fixed Overhead Cost**
= (Standard FO Rate per hour × Standard Hours for Actual Output) − Actual FO Cost
Standard FO Rate = Budgeted Fixed Overhead ÷ Budgeted Hours (or Budgeted Output in Standard Hours)
Favourable if positive, Adverse if negative.

To obtain full marks in the exam, apply these formulas with th…

Question 8

निर्दिष्ट-आधारित लागत (ABC) का प्रयोग करके तीनों प्रोजेक्ट सेना के लिए प्रोजेक्ट सेना को—लेखाकारी, प्रबंधक सेना और विज्ञान के लिए प्रोजेक्ट सेना वितरण करें।

Accepted Answer

**Note: The question as provided appears to be incomplete — the numerical data (overhead cost pools, cost driver rates, and activity consumption figures for the three project streams) has not been transmitted. The Hindi text translates to: 'Using Activity Based Costing (ABC), distribute the project overhead costs among three project streams — Accountancy, Management, and Science.' Without the supporting data table, a full numerical solution cannot be computed. The following framework shows exactly how the answer must be structured once data is available.**

**Activity Based Costing (ABC) — Methodology for Overhead Distribution**

**Step 1 — Identify Cost Pools and Assign Overheads:**
Each overhead item (e.g., scheduling costs, faculty costs, administration) is grouped into a separate **cost pool** based on the activity that drives it. Total overhead for each pool is identified from the given data.

**Step 2 — Identify Cost Drivers:**
For each cost pool, a suitable **cost driver** is identified (e.g., number of classes, number of students, number of administrative transactions). This is the key distinction of ABC from traditional absorption costing.

**Step 3 — Compute Cost Driver Rate (CDR):**
CDR = Total Cost of Pool ÷ Total Units of Cost Driver across all three project streams.

**Step 4 — Absorb Overheads into Each Project Stream:**
Overhead absorbed = CDR × Units of cost driver consumed by that specific project stream. This is done separately for each cost pool and each s…

Question 9

निर्माण सुझाव के लागतकरण के आधार पर लागत विश्लेषण करें।

Accepted Answer

**Cost Analysis Based on Costing of a Manufacturing Proposal (निर्माण सुझाव का लागत विश्लेषण)**

When a business evaluates a manufacturing proposal or suggestion, a structured cost analysis is essential to determine its feasibility, profitability, and comparative advantage. The analysis is typically built on the principles of **Marginal Costing** and **Absorption Costing**, combined with relevant cost concepts.

**1. Classification of Costs for Manufacturing Proposal**

The first step is to classify all costs associated with the manufacturing proposal into the following categories:

- **Direct Material Cost:** Cost of raw materials directly attributable to production. Calculated as: Opening Stock + Purchases − Closing Stock.
- **Direct Labour Cost:** Wages paid to workers directly engaged in manufacturing (also called **Prime Cost** when added to Direct Material).
- **Direct Expenses:** Any other expenses directly traceable to the product (e.g., special tools, royalties).
- **Prime Cost = Direct Material + Direct Labour + Direct Expenses**
- **Factory/Works Overhead:** Indirect manufacturing costs — factory rent, power, supervisor salaries, depreciation of plant.
- **Works Cost = Prime Cost + Factory Overhead**
- **Office & Administration Overhead:** General management expenses allocated to production.
- **Cost of Production = Works Cost + Administration Overhead**
- **Selling & Distribution Overhead:** Costs incurred to market and deliver the product.
- **Total Cost (Cost of…

Question 10

SVS Limited manufactures a single product 'A1'. The company has estimated its quarter-wise sales for the next year as follows: Quarter I: 72,000 units, Quarter II: 90,000 units, Quarter III: 99,000 units, Quarter IV: 1,00,000 units. In the beginning of the year, the opening stock of finished goods is 9,400 units and the company expects to maintain the closing stock of finished goods at 29,400 units at the end of the year. The production pattern in each quarter is based on 80% of the current quarter and 30% of the sales of the next quarter. The company maintains this specific ratio of finished goods as opening stock of next quarter. The opening stock of raw materials at the beginning of the year is 24,000 kgs and the end stock at the end of the year is required to be maintained at 12,000 kg…

Accepted Answer

**(i) Production Budget and Raw Material Consumption Budget**

**Step 1 — Total Production Requirement:**
Total Sales = 72,000 + 90,000 + 99,000 + 1,00,000 = **3,61,000 units**
Total Production = Sales + Closing Stock – Opening Stock = 3,61,000 + 29,400 – 9,400 = **3,81,000 units**

**Production Budget (in units) — Quarter-wise:**

Production formula: 80% of current quarter sales + 30% of next quarter sales
- Q1 = 80% × 72,000 + 30% × 90,000 = 57,600 + 27,000 = **84,600 units**
- Q2 = 80% × 90,000 + 30% × 99,000 = 72,000 + 29,700 = **1,01,700 units**
- Q3 = 80% × 99,000 + 30% × 1,00,000 = 79,200 + 30,000 = **1,09,200 units**
- Q4 = Balancing figure = 3,81,000 – (84,600 + 1,01,700 + 1,09,200) = **85,500 units**

| Particulars | Q1 | Q2 | Q3 | Q4 | Total |
|---|---|---|---|---|---|
| Opening Stock (units) | 9,400 | 22,000 | 33,700 | 43,900 | — |
| Add: Production | 84,600 | 1,01,700 | 1,09,200 | 85,500 | 3,81,000 |
| Total Available | 94,000 | 1,23,700 | 1,42,900 | 1,29,400 | — |
| Less: Sales | 72,000 | 90,000 | 99,000 | 1,00,000 | 3,61,000 |
| **Closing Stock** | **22,000** | **33,700** | **43,900** | **29,400** | — |

**Raw Material Consumption Budget (in Kgs):**

Each unit of A1 requires **2 kgs** of raw material.

| Particulars | Q1 | Q2 | Q3 | Q4 | Total |
|---|---|---|---|---|---|
| Production (units) | 84,600 | 1,01,700 | 1,09,200 | 85,500 | 3,81,000 |
| RM per unit (kgs) | 2 | 2 | 2 | 2 | 2 |
| **RM Consumption (kgs)** | **1,69,200** | **2,03,400** | **2,18,400** | **1…

Question 11

Sundar Limited maintains an IB Cost Accounting System on the basis of Non-Integral System of Accounting. The following transactions arose in the month of August 2025: Materials purchased on credit: ₹10,25,000; Materials issued to production (Direct): ₹5,55,000; Direct Wages allocated to production: ₹3,00,000; Factory Overheads absorbed: ₹2,50,000; Administration Overheads under-absorbed: ₹1,40,000

Accepted Answer

**Journal Entries in Cost Books under Non-Integrated System of Accounting**

Sundar Limited — Cost Books | Month: August 2025

In a **Non-Integrated (Non-Integral) System**, cost accounts are maintained separately from financial accounts. The link between the two sets of books is maintained through the **Cost Ledger Control Account (CLCA)**, which represents all items (creditors, cash, etc.) that are recorded in financial books but not individually in cost books.

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**Transaction 1 — Materials Purchased on Credit: ₹10,25,000**

Stores Ledger Control A/c &emsp; Dr. &emsp; ₹10,25,000
&emsp; To Cost Ledger Control A/c &emsp;&emsp;&emsp;&emsp;&emsp;&emsp; ₹10,25,000
*(Being materials purchased on credit; creditor's account maintained only in financial books, hence CLCA is credited in cost books)*

---

**Transaction 2 — Direct Materials Issued to Production: ₹5,55,000**

Work-in-Progress Control A/c &emsp; Dr. &emsp; ₹5,55,000
&emsp; To Stores Ledger Control A/c &emsp;&emsp;&emsp;&emsp;&emsp; ₹5,55,000
*(Being direct materials issued to production as per material requisition)*

---

**Transaction 3 — Direct Wages Allocated to Production: ₹3,00,000**

*Step (a) — Recording wages incurred:*
Wages Control A/c &emsp; Dr. &emsp; ₹3,00,000
&emsp; To Cost Ledger Control A/c &emsp;&emsp;&emsp;&emsp; ₹3,00,000
*(Being direct wages incurred; cash/bank maintained only in financial books)*

*Step (b) — Allocation of wages to WIP:*
Work-in-Progress Control A/c &emsp; Dr. &emsp; ₹3,00,000
&…

Question 12

SVS Limited manufactures a single product 'A1'. The company has estimated its quarter-wise sales for the next year as follows: Quarter I: 72,000 units, Quarter II: 90,000 units, Quarter III: 99,000 units, Quarter IV: 1,08,000 units. In the beginning of the year, the opening stock of finished goods is 4,400 units and the company expects to maintain the closing stock of finished goods at 29,400 units at the end of the year. The production pattern in each quarter is based on 40% of the current quarter and 30% of the next quarter sales. The company maintains 2% of the opening stock of raw materials for the next quarter. The opening stock of raw materials at the beginning of the year is 24,000 kgs and the closing stock at the end of the year is required to be maintained at 12,000 kgs. Each unit…

Accepted Answer

**(i) Production Budget and Raw Material Consumption Budget**

**Closing Stock Policy (Finished Goods):**
The production pattern states closing stock at end of each quarter = 40% of current quarter sales + 30% of next quarter sales.

- End of Q1: 40% × 72,000 + 30% × 90,000 = 28,800 + 27,000 = **55,800 units**
- End of Q2: 40% × 90,000 + 30% × 99,000 = 36,000 + 29,700 = **65,700 units**
- End of Q3: 40% × 99,000 + 30% × 1,08,000 = 39,600 + 32,400 = **72,000 units**
- End of Q4: **29,400 units** (given)

**Production Budget (units):**

Production = Sales + Closing Stock − Opening Stock

| Particulars | Q I | Q II | Q III | Q IV | Total |
|---|---|---|---|---|---|
| Opening Stock (units) | 4,400 | 55,800 | 65,700 | 72,000 | 4,400 |
| + Sales (units) | 72,000 | 90,000 | 99,000 | 1,08,000 | 3,69,000 |
| + Closing Stock (units) | 55,800 | 65,700 | 72,000 | 29,400 | 29,400 |
| **Production Required** | **1,23,400** | **99,900** | **1,05,300** | **65,400** | **3,94,000** |

Verification: 3,69,000 + 29,400 − 4,400 = **3,94,000 units** ✓

**Raw Material Consumption Budget (kgs):**

Each unit of A1 requires **2 kgs** of raw material. Consumption = Production × 2.

| Particulars | Q I | Q II | Q III | Q IV | Total |
|---|---|---|---|---|---|
| Production (units) | 1,23,400 | 99,900 | 1,05,300 | 65,400 | 3,94,000 |
| **RM Consumption (kgs)** | **2,46,800** | **1,99,800** | **2,10,600** | **1,30,800** | **7,88,000** |

Note: Opening RM stock = 24,000 kgs; Closing RM stock = 12,000 kgs. Th…

Question 13

Sundar Limited maintains IB Cost Accounting System on the basis of Non-integral System of Accounting. The following transactions arose during the month of August 2025: Materials purchased on credit ₹10,25,000; Materials issued to production (Direct) ₹5,55,000; Direct Wages allocated to production ₹3,00,000; Factory Overheads overabsorbed ₹2,50,000; Administration Overheads under-absorbed ₹1,40,000.

Accepted Answer

In a **Non-Integrated System of Accounting**, separate books are maintained for cost accounting purposes, independent of financial accounting records. All transactions are journalized in the **Cost Books** as follows:

**Entry 1 — Materials Purchased on Credit (₹10,25,000):**
Dr. Materials A/c                     ₹10,25,000
    Cr. Creditors A/c                             ₹10,25,000
(Being materials purchased on credit recorded in cost books)

**Entry 2 — Direct Materials Issued to Production (₹5,55,000):**
Dr. Work-in-Progress A/c              ₹5,55,000
    Cr. Materials A/c                             ₹5,55,000
(Being direct materials issued to production)

**Entry 3 — Direct Wages Allocated to Production (₹3,00,000):**
Dr. Work-in-Progress A/c              ₹3,00,000
    Cr. Wages A/c                                 ₹3,00,000
(Being direct wages allocated to production)

**Entry 4 — Factory Overheads Overabsorbed (₹2,50,000):**
Dr. Factory Overheads A/c             ₹2,50,000
    Cr. Costing P&L A/c                           ₹2,50,000
(Being factory overheads overabsorbed [absorbed exceeds actual] transferred to Costing P&L as a gain)

**Entry 5 — Administration Overheads Under-absorbed (₹1,40,000):**
Dr. Costing P&L A/c                   ₹1,40,000
    Cr. Administration Overheads A/c              ₹1,40,000
(Being administration overheads under-absorbed [actual exceeds absorbed] transferred to Costing P&L as a loss)

**Key Points:** In a non-integrated system, cost books an…

Question 14

TS Limited is suffering from material deterioration and finds that their valuable stocks are not properly stored. The company furnishes the following information: Material MA: 54,105 units, Total Cost ₹14,855; Material MB: 32,300 units, Total Cost ₹12,823; Material MC: 28,600 units, Total Cost ₹13,972; Material MD: 10,250 units, Total Cost ₹47,685; Material ME: 23,410 units, Total Cost ₹39,013; Material MF: 2,580 units, Total Cost ₹1,08,260; Material MG: 8,900 units, Total Cost ₹89,410; Material MH: 4,855 units, Total Cost ₹98,980

Accepted Answer

**ABC Analysis for Inventory Management — TS Limited**

To address material deterioration and improper storage, the materials are classified using **ABC Analysis** based on their total cost (value). This helps identify which materials deserve the most rigorous storage controls.

**Step 1: Rank materials by Total Cost (Descending)**

| Rank | Material | Units | Total Cost (₹) | % of Total Value | Cumulative % |
|------|----------|-------|--------------|-----------------|-------------|
| 1 | MF | 2,580 | 1,08,260 | 25.47% | 25.47% |
| 2 | MH | 4,855 | 98,980 | 23.29% | 48.76% |
| 3 | MG | 8,900 | 89,410 | 21.04% | 69.80% |
| 4 | MD | 10,250 | 47,685 | 11.22% | 81.02% |
| 5 | ME | 23,410 | 39,013 | 9.18% | 90.20% |
| 6 | MA | 54,105 | 14,855 | 3.50% | 93.70% |
| 7 | MC | 28,600 | 13,972 | 3.29% | 96.99% |
| 8 | MB | 32,300 | 12,823 | 3.02% | 100.00% |
| | **Total** | **1,65,000** | **4,24,998** | **100%** | |

**Step 2: ABC Classification**

**Class A — High Value (≈ top 70% of value):** MF, MH, MG → 3 items (37.5% of types), ₹2,96,650 → **69.80% of total value**. These require the strictest storage controls, frequent monitoring, and dedicated storage space.

**Class B — Medium Value (≈ next 20% of value):** MD, ME → 2 items (25% of types), ₹86,698 → **20.40% of total value**. Moderate control with periodic review.

**Class C — Low Value (≈ bottom 10% of value):** MA, MB, MC → 3 items (37.5% of types), ₹41,650 → **9.80% of total value**. Bulk storage with minimal oversight; cand…

Question 15

Other Annual costs: A company incurs the following annual costs: Electricity ₹14,40,000, Telephone & Communication Cost ₹2,40,000, Maintenance Cost ₹60,000, Depreciation and amortization ₹12,00,00,000, Insurance and safety cost ₹15,00,000, Interest expense incurred for servicing term loans ₹73,43,000. The toll rate per vehicle is to be fixed as under: Heavy commercial vehicles - 500% of toll rate for Passenger vehicle; Bus - 400% of toll rate for Passenger vehicle. Required: (i) Calculate the total cost per month for the toll plaza. (ii) The company aims to achieve a 20% profit margin over total takings. Calculate the toll rate to be charged for each type of vehicle. (Assume a 360 days/year.)

Accepted Answer

**Part (i): Total Cost per Month**

The total annual cost is computed by summing all the given cost heads:

| Cost Head | Annual Amount (₹) |
|---|---|
| Electricity | 14,40,000 |
| Telephone & Communication | 2,40,000 |
| Maintenance Cost | 60,000 |
| Depreciation & Amortization | 12,00,00,000 |
| Insurance & Safety Cost | 15,00,000 |
| Interest Expense (Term Loans) | 73,43,000 |
| **Total Annual Cost** | **13,05,83,000** |

**Total Cost per Month = ₹13,05,83,000 ÷ 12 = ₹1,08,81,917 (approx.)**

---

**Part (ii): Toll Rate per Vehicle**

**Note:** To calculate the absolute toll rate for each vehicle category, the daily traffic volume (number of Passenger Vehicles, Buses, and Heavy Commercial Vehicles per day) is an essential input. This data appears to have been provided in an earlier part of the original question but is not included in the extract above. The complete solution framework is presented below so that the student can apply the figures once the traffic data is available.

**Framework:**

Let **P** = Toll rate for one Passenger Vehicle (₹)
Then: Toll for Bus = **4P** (400% of P), Toll for HCV = **5P** (500% of P)

Let the daily traffic be: n₁ = Passenger Vehicles, n₂ = Buses, n₃ = HCVs

Using 360 days/year → **30 days per month**

Monthly Revenue = 30 × [n₁·P + n₂·4P + n₃·5P] = 30P(n₁ + 4n₂ + 5n₃)

For a **20% profit margin on total takings (revenue)**:
Profit = 20% of Revenue → Cost = **80% of Revenue**

So: Monthly Cost = 0.80 × Monthly Revenue

₹1,08,81,917 = 0.…

Question 16

TS Limited is suffering from material deterioration and finds that their valuable stocks are not properly stored. The company furnishes following information: Material MA (Units: 54,105, Total Cost: ₹14,855); Material MB (Units: 32,500, Total Cost: ₹12,823); Material MC (Units: 28,600, Total Cost: ₹13,972); Material MD (Units: 10,250, Total Cost: ₹47,685); Material ME (Units: 23,410, Total Cost: ₹39,013); Material MF (Units: 2,580, Total Cost: ₹1,08,260); Material MG (Units: 8,900, Total Cost: ₹89,410); Material MH (Units: 4,855, Total Cost: ₹98,980).

Accepted Answer

**ABC Analysis for TS Limited — Stock Management and Control**

TS Limited is experiencing material deterioration due to improper storage. To address this, **ABC Analysis** (also known as Selective Inventory Control) is applied. This technique classifies materials based on their **annual consumption value** so that management attention and storage care can be prioritised accordingly.

**Ranking of Materials by Total Cost (Value):**

Materials are ranked in descending order of total cost and their percentage of total inventory value is computed. Total inventory value = ₹4,24,998.

| Rank | Material | Units | Total Cost (₹) | % of Total Value | Cumulative % | Category |
|------|----------|-------|---------------|-----------------|-------------|----------|
| 1 | MF | 2,580 | 1,08,260 | 25.47% | 25.47% | A |
| 2 | MH | 4,855 | 98,980 | 23.29% | 48.76% | A |
| 3 | MG | 8,900 | 89,410 | 21.04% | 69.80% | A |
| 4 | MD | 10,250 | 47,685 | 11.22% | 81.02% | B |
| 5 | ME | 23,410 | 39,013 | 9.18% | 90.20% | B |
| 6 | MA | 54,105 | 14,855 | 3.50% | 93.70% | C |
| 7 | MC | 28,600 | 13,972 | 3.29% | 96.99% | C |
| 8 | MB | 32,500 | 12,823 | 3.02% | 100.00% | C |
| | **Total** | **1,65,200** | **4,24,998** | **100%** | | |

**Classification Summary:**

**Category A — High Value Materials (MF, MH, MG):** These 3 items (37.5% of items) represent approximately **69.80%** of total inventory value (₹2,96,650). They require **maximum control** — strict storage conditions, frequent stock checks, …

Question 17

A factory has three production departments, P₁, P₂, P₃ and two service departments S₁ and S₂. Both the service departments are independent and provide services to each other. Following is the detail of expenses of each service department: S₁ ₹1,60,000, S₂ ₹2,40,000. Further the expenses of departments S₁ and S₂ are apportioned on the following basis: S₁ apportioned 25% to P₁, 35% to P₂, 20% to P₃, - to S₁, 20% to S₂; S₂ apportioned 35% to P₁, 30% to P₂, 25% to P₃, 10% to S₁, - to S₂. You are required to apportion the expenses of departments S₁ and S₂ to production departments P₁, P₂ and P₃ using Simultaneous Equation Method.

Accepted Answer

**Simultaneous Equation Method — Apportionment of Service Department Costs**

Let **S₁** = Total cost of Department S₁ (including share received from S₂)
Let **S₂** = Total cost of Department S₂ (including share received from S₁)

**Setting up the equations:**

S₁ = 1,60,000 + 10% of S₂ → S₁ = 1,60,000 + 0.10 S₂ ... (i)
S₂ = 2,40,000 + 20% of S₁ → S₂ = 2,40,000 + 0.20 S₁ ... (ii)

**Solving the equations:**

Substituting (i) into (ii):
S₂ = 2,40,000 + 0.20 × (1,60,000 + 0.10 S₂)
S₂ = 2,40,000 + 32,000 + 0.02 S₂
0.98 S₂ = 2,72,000
**S₂ = ₹2,77,551.02**

From (i): S₁ = 1,60,000 + 0.10 × 2,77,551.02 = 1,60,000 + 27,755.10
**S₁ = ₹1,87,755.10**

**Apportionment to Production Departments:**

| Department | From S₁ | From S₂ | Total (₹) |
|---|---|---|---|
| P₁ | 25% × 1,87,755.10 = **46,938.78** | 35% × 2,77,551.02 = **97,142.86** | **1,44,081.63** |
| P₂ | 35% × 1,87,755.10 = **65,714.29** | 30% × 2,77,551.02 = **83,265.31** | **1,48,979.59** |
| P₃ | 20% × 1,87,755.10 = **37,551.02** | 25% × 2,77,551.02 = **69,387.76** | **1,06,938.78** |
| **Total** | **1,50,204.08** | **2,49,795.92** | **4,00,000.00** |

**Verification:** Total apportioned = ₹1,44,081.63 + ₹1,48,979.59 + ₹1,06,938.78 = **₹4,00,000** = ₹1,60,000 + ₹2,40,000 ✓

Question 18

You are required to apportion the expenses of departments S₁ and S₂ to production departments P₁, P₂ and P₃ using Simultaneous Equation Method.

Accepted Answer

**Simultaneous Equation Method — Apportionment of Service Department Expenses**

Let **S₁** = Total cost of department S₁ (including amount received from S₂)
Let **S₂** = Total cost of department S₂ (including amount received from S₁)

**Setting up the equations:**

S₁ = 1,60,000 + 10% of S₂  → S₁ = 1,60,000 + 0.10 S₂  ... (i)
S₂ = 2,40,000 + 20% of S₁  → S₂ = 2,40,000 + 0.20 S₁  ... (ii)

**Solving the equations:**

Substituting (i) into (ii):
S₂ = 2,40,000 + 0.20 × (1,60,000 + 0.10 S₂)
S₂ = 2,40,000 + 32,000 + 0.02 S₂
0.98 S₂ = 2,72,000
**S₂ = ₹2,77,551.02**

From (i): S₁ = 1,60,000 + 0.10 × 2,77,551.02
**S₁ = ₹1,87,755.10**

**Apportionment to Production Departments:**

| Department | From S₁ (₹) | From S₂ (₹) | Total (₹) |
|---|---|---|---|
| P₁ | 25% × 1,87,755.10 = **46,938.78** | 35% × 2,77,551.02 = **97,142.86** | **1,44,081.64** |
| P₂ | 35% × 1,87,755.10 = **65,714.29** | 30% × 2,77,551.02 = **83,265.31** | **1,48,979.59** |
| P₃ | 20% × 1,87,755.10 = **37,551.02** | 25% × 2,77,551.02 = **69,387.76** | **1,06,938.78** |
| **Total** | **1,50,204.08** | **2,49,795.92** | **4,00,000.00** |

**Verification:** Total apportioned = ₹4,00,000 = ₹1,60,000 + ₹2,40,000 ✓

**Final Answer:** Expenses of S₁ and S₂ apportioned to P₁ = ₹1,44,081.64, P₂ = ₹1,48,979.59, P₃ = ₹1,06,938.78.

Question 19

Define Responsibility Centre and discuss the types of Responsibility Centres.

Accepted Answer

**Responsibility Centre** is an organizational unit or segment headed by a manager who is accountable for the activities and performance of that unit. It is a part of an organization where a manager is assigned authority over revenues, costs, profits, or investments, and is held responsible for the results. The primary objective of responsibility centres is to facilitate **decentralization of authority** while ensuring accountability at each level of management.

**Types of Responsibility Centres:**

**1. Cost Centre:** A cost centre is a segment where the manager is held responsible only for **costs incurred** within that unit. The manager has no control over revenues or investment decisions. Cost centres are further classified as:
- *Standard Cost Centres* — where standard costs can be established (e.g., production departments)
- *Discretionary Cost Centres* — where output cannot be measured in monetary terms (e.g., R&D, HR, legal departments)

Performance is evaluated by comparing **actual costs with budgeted/standard costs**.

**2. Revenue Centre:** A revenue centre is a segment where the manager is held responsible only for **revenues generated**. The manager has no control over costs or capital investment. Sales departments or marketing divisions are typical examples. Performance is measured by comparing **actual revenue with budgeted revenue**. It is important to note that costs of running the revenue centre itself are generally not the responsibility of this manager.
…

Question 20

List the advantages of Job Costing.

Accepted Answer

**Job Costing** is a method of cost ascertainment used where production is carried out against specific customer orders or jobs, each of which is distinct in nature. The following are the key advantages of Job Costing:

**1. Accurate Cost Ascertainment:** Since costs are accumulated separately for each job using a **Job Cost Sheet**, it is possible to determine the exact cost of each job. This helps in identifying profitable and unprofitable jobs.

**2. Profitability Analysis:** Management can assess the profit or loss on each individual job by comparing actual costs with the price charged to the customer. This enables better pricing decisions for future orders.

**3. Cost Control:** By comparing **estimated costs** with **actual costs** for each job, variances can be identified and corrective action can be taken. This promotes accountability and cost discipline.

**4. Basis for Estimating Future Jobs:** Historical cost data maintained in job cost sheets serves as a reliable basis for **preparing future quotations and tenders**. This improves the accuracy of future cost estimates.

**5. Facilitates Selling Price Determination:** Since the exact cost of each job is known, management can fix a **reasonable selling price** ensuring adequate profit margin, especially for customised or one-off orders.

**6. Helps in Performance Evaluation:** The actual costs recorded against each job help in evaluating the **efficiency of workers and departments**. It highlights areas where wastag…

Question 21

List the important factors which need consideration for controlling employee costs.

Accepted Answer

**Important Factors for Controlling Employee Costs:**

**Manpower Planning and Recruitment:** Proper workforce planning ensures right number of employees at right time, avoiding excess payroll. Effective recruitment policies help select cost-conscious workforce and reduce hiring expenses.

**Compensation Structure:** Establishing a rational wage and salary structure based on job evaluation prevents anomalies and unnecessary cost escalation. Regular review of compensation packages ensures alignment with industry standards and organizational capacity.

**Performance Management System:** Linking remuneration to performance through appraisal systems encourages productivity and cost-consciousness. Merit-based increments and incentive schemes motivate employees while controlling unjustified wage increases.

**Productivity and Work Study:** Work study and method improvement techniques optimize employee utilization and reduce idle time. Setting standard productivity norms and monitoring actual against standard helps identify inefficiencies and excess labor costs.

**Control of Absenteeism and Turnover:** High absenteeism increases costs through overtime payments and replacement labor. Effective absence management policies, exit interviews, and retention strategies reduce separation costs and maintain stable workforce.

**Training and Development:** Systematic training improves employee skills and efficiency, reducing wasteful practices and rework. Well-trained workforce operates equi…

Question 22

Discuss the uses of Bill of Material in the following departments: (i) Marketing (Purchase) Department (ii) Production Department (iii) Stores Department (iv) Cost/Accounting Department

Accepted Answer

**Bill of Material (BOM)** is a comprehensive list of all raw materials, components, sub-assemblies, and their quantities required to manufacture one unit of a finished product. It is a critical document used across multiple departments for different purposes.

**Bill of Material in Marketing (Purchase) Department:** The Purchase Department uses BOM to determine the exact quantity and specification of materials to be procured. It serves as the basis for preparing purchase requisitions and purchase orders. BOM enables the department to plan procurement schedules, negotiate with suppliers on the basis of detailed material specifications, and estimate material costs for budgeting purposes. It also helps in maintaining optimal stock levels and planning delivery schedules with suppliers.

**Bill of Material in Production Department:** The Production Department uses BOM for production planning and scheduling. It enables the department to issue production orders with specific material requirements for each product or batch. BOM facilitates the allocation of materials to different production runs, ensures that all required materials are available before production commences, and prevents delays due to material shortages. It also helps in quality control by verifying that all required materials as per BOM are used in production and assists in tracking material consumption during the manufacturing process.

**Bill of Material in Stores Department:** The Stores Department uses BOM to ma…

Question 23

Prepare a statement showing the total cost and per project cost of project management service for each service sector - Technology, Healthcare and Education using Activity Based Costing Approach. Identify the most profitable sector based on profitability percentage on fees charged.

Accepted Answer

**Note: The question as provided does not include the underlying data table** (activity costs, cost drivers, number of projects per sector, fees charged, direct costs, etc.) required to perform the numerical computation. The framework below shows the complete ABC methodology a CA student must apply once data is available.

**Activity Based Costing — Project Management Services**

**Step 1 — Identify Activities and Cost Pools**
Under ABC, overheads are grouped into activity cost pools (e.g., Project Planning, Client Meetings, Documentation, Quality Review, Administration). Each pool collects costs driven by a common activity.

**Step 2 — Determine Cost Drivers and Compute Cost Driver Rates**
For each activity pool, identify the appropriate **cost driver** (e.g., number of planning hours, number of client meetings, number of documents, number of review hours). Then:
**Cost Driver Rate = Total Activity Cost ÷ Total Cost Driver Units**

**Step 3 — Assign Activity Costs to Each Sector**
Multiply the cost driver rate by the number of cost driver units consumed by each sector (Technology / Healthcare / Education).
**Activity Cost Assigned = Cost Driver Rate × Units consumed by sector**

**Step 4 — Compute Total Cost per Sector**
Total Cost (Sector) = Direct Costs attributable to sector + Sum of all Activity Costs assigned to sector

**Step 5 — Compute Per Project Cost**
Per Project Cost = Total Cost of Sector ÷ Number of Projects in that Sector

**Step 6 — Statement of Total Cost an…

Question 24

You are required to:
(i) Prepare a statement showing the total cost and per project cost of project management service for each service sector – Technology, Healthcare and Education using Activity Based Costing Approach.
(ii) Identify the most profitable sector based on profitability percentage on fees charged.

Accepted Answer

**Activity Based Costing — SM Limited**

**Part (i): Statement of Total Cost and Per Project Cost using ABC**

**Step 1 — Cost Driver Rate Calculation**

Total cost drivers across all sectors are first aggregated:
- Number of Projects: 20 + 10 + 10 = **40 projects**
- Consulting Hours: 6,400 + 5,600 + 2,000 = **14,000 hours**
- Client Meetings: 30 + 20 + 40 = **90 meetings**
- Software Development Hours: 10,000 + 7,000 + 5,000 = **22,000 hours**

**Cost Driver Rates (CDR):**
- Management of Projects: ₹8,10,000 ÷ 40 = **₹20,250 per project**
- Consulting Service Delivery: ₹4,20,000 ÷ 14,000 = **₹30 per consulting hour**
- Client Interaction & Meetings: ₹6,30,000 ÷ 90 = **₹7,000 per meeting**
- Administration and Support: ₹15,40,000 ÷ 22,000 = **₹70 per software dev hour**

**Step 2 — Overhead Allocation to each Sector**

**Technology Sector (20 Projects):**
- Management of Projects: 20 × ₹20,250 = ₹4,05,000
- Consulting Service Delivery: 6,400 × ₹30 = ₹1,92,000
- Client Interaction & Meetings: 30 × ₹7,000 = ₹2,10,000
- Administration and Support: 10,000 × ₹70 = ₹7,00,000
- **Total Cost = ₹15,07,000 | Per Project = ₹75,350**

**Healthcare Sector (10 Projects):**
- Management of Projects: 10 × ₹20,250 = ₹2,02,500
- Consulting Service Delivery: 5,600 × ₹30 = ₹1,68,000
- Client Interaction & Meetings: 20 × ₹7,000 = ₹1,40,000
- Administration and Support: 7,000 × ₹70 = ₹4,90,000
- **Total Cost = ₹10,00,500 | Per Project = ₹1,00,050**

**Education Sector (10 Projects):**
- Managemen…

Question 25

SM Limited is the manufacturer of two products A & B. Following particulars are extracted from the records of the company. The company manufactures both the products using the same grade of material. The company is facing a constraint of raw material which is available in limited quantity of 1,10,000 kgs only. Determine the optimum product mix, considering material as the limiting factor, to generate maximum profit and calculate the maximum profit.

Accepted Answer

**Step 1 – Calculation of Contribution per Unit**

The variable cost per unit for each product is determined by summing raw material, wages, direct expenses, and variable overhead (fixed overhead is excluded as it is period cost).

**Product A:** Selling Price ₹1,800 – Variable Cost (₹300 + ₹150 + ₹200 + ₹80) = ₹1,800 – ₹730 = **Contribution ₹1,070 per unit**

**Product B:** Selling Price ₹1,500 – Variable Cost (₹400 + ₹100 + ₹300 + ₹120) = ₹1,500 – ₹920 = **Contribution ₹580 per unit**

**Step 2 – Raw Material (kg) per Unit**

Since both products use the same grade of raw material at ₹20 per kg:
- Product A: ₹300 ÷ ₹20 = **15 kg per unit**
- Product B: ₹400 ÷ ₹20 = **20 kg per unit**

Total requirement at full capacity = (5,000 × 15) + (3,500 × 20) = 75,000 + 70,000 = 1,45,000 kg > 1,10,000 kg available. **Raw material is indeed the binding constraint.**

**Step 3 – Contribution per kg (Limiting Factor Ranking)**

- Product A: ₹1,070 ÷ 15 kg = ₹71.33 per kg → **Rank 1**
- Product B: ₹580 ÷ 20 kg = ₹29.00 per kg → **Rank 2**

**Step 4 – Optimum Product Mix**

Allocate the 1,10,000 kg available to Product A first (higher ranking), then balance to Product B.

| Priority | Product | Units | kg/unit | kg Used | Cumulative kg |
|----------|---------|-------|---------|---------|----------------|
| 1st | A | 5,000 (max) | 15 | 75,000 | 75,000 |
| 2nd | B | 1,750 | 20 | 35,000 | 1,10,000 |

Remaining kg after A = 1,10,000 – 75,000 = 35,000 kg; B units = 35,000 ÷ 20 = **1,750 units** …

Question 26

SM Limited is the manufacturer of two products A & B. The following particulars are extracted from the records of the company:

Product details:
- Maximum Capacity: A = 5,000 units, B = 3,500 units
- Selling price per unit: A = ₹1,000, B = ₹1,500
- Raw Material @ ₹20 per kg: A = ₹200 per unit, B = ₹400 per unit
- Wages @ ₹10 per hour: A = ₹150, B = ₹100
- Direct Expenses: A = ₹200, B = ₹300
- Variable overhead: A = ₹80, B = ₹120
- Fixed overhead: Product A = ₹2,50,000, Product B = ₹3,30,000

The company manufactures both the products using the same grade of material. The company is facing a constraint of raw material which is available in limited quantity of 1,10,000 kgs only.

Required: Determine the optimum product mix, considering material as the limiting factor, to generate maximum pro…

Accepted Answer

**Optimum Product Mix with Material as Limiting Factor**

**Step 1: Calculation of Contribution per Unit**

The **contribution per unit** is calculated as Selling Price minus all Variable Costs (Raw Material + Wages + Direct Expenses + Variable Overhead).

For **Product A**: ₹1,000 − (₹200 + ₹150 + ₹200 + ₹80) = ₹1,000 − ₹630 = **₹370 per unit**

For **Product B**: ₹1,500 − (₹400 + ₹100 + ₹300 + ₹120) = ₹1,500 − ₹920 = **₹580 per unit**

**Step 2: Material Consumption per Unit (Limiting Factor)**

Raw material is priced at ₹20 per kg.

Product A: ₹200 ÷ ₹20 = **10 kg per unit**
Product B: ₹400 ÷ ₹20 = **20 kg per unit**

**Step 3: Contribution per kg of Material (Key Ratio)**

Since raw material is the **limiting factor**, products are ranked by **contribution per kg**.

Product A: ₹370 ÷ 10 kg = **₹37 per kg** → **Rank I**
Product B: ₹580 ÷ 20 kg = **₹29 per kg** → **Rank II**

**Step 4: Optimum Product Mix**

Total material available = **1,10,000 kgs**

First priority — Product A (maximum 5,000 units):
Material used = 5,000 × 10 kg = 50,000 kgs
Remaining material = 1,10,000 − 50,000 = **60,000 kgs**

Second priority — Product B (maximum 3,500 units requiring 70,000 kgs):
Units produced = 60,000 ÷ 20 = **3,000 units** (limited by material)

**Optimum Mix: Product A = 5,000 units; Product B = 3,000 units**

**Step 5: Maximum Profit**

Total Contribution = (5,000 × ₹370) + (3,000 × ₹580) = ₹18,50,000 + ₹17,40,000 = ₹36,90,000

Less: Total Fixed Overheads = ₹2,50,000 + ₹3,30,00…

Question 27

Store-keeper of the company argues that he has taken proper care in storing three types of material named MA, MB and MC as they are in bulk quantity. He further argues that only a few units of material MG and MH has been deteriorated due to bad weather. The management of TS Limited wants to get him aware about value of different items. Required: Rank the materials and draw a plan of ABC selective control by using the following basis of selective control:
- ₹50,000 & above: 'A' category items
- ₹15,000 to ₹50,000: 'B' category items
- Below ₹15,000: 'C' category items

Accepted Answer

**Part (a): ABC Analysis — Ranking and Selective Control**

**Note:** The numerical data table (units and unit prices for MA, MB, MC, MG, MH) appears to have been omitted from the question as provided. The methodology and classification framework are presented below; the same steps apply once the data is substituted.

**Step 1 — Calculate Annual Value:** For each material, multiply Annual Consumption (units) × Unit Cost (₹) to arrive at Total Annual Value.

**Step 2 — Rank Materials:** Arrange materials in descending order of their total annual value.

**Step 3 — Classify under ABC:**

| Category | Criterion (Annual Value) | Control Focus |
|----------|--------------------------|---------------|
| **A** | ₹50,000 and above | Tight control; continuous review; low safety stock |
| **B** | ₹15,000 to ₹50,000 | Moderate control; periodic review |
| **C** | Below ₹15,000 | Loose control; bulk ordering; maximum safety stock |

**Management Implication:** The storekeeper's argument is flawed. ABC analysis is based on **value**, not quantity. Materials MA, MB and MC may be in bulk by units but if their total value is low, they fall in Category C and require minimal control. Materials MG and MH, though few in units, may carry high per-unit value — placing them in Category A — and therefore warrant the highest degree of care. The deterioration of even a few units of MG/MH represents a disproportionately large monetary loss, which is precisely why **selective control** is important.

--…

Question 28

Store-keeper of TS Limited argues he has taken proper care in storing three types of material named MA, MB and MC as they are in bulk quantity. He further argues that only a few units of material MG and MH has been deteriorated due to bad weather. The management of TS Limited wants to get him aware about value of different units. Rank the materials and draw a plan of ABC selective control by using the following basis of selective control: ₹50,000 & above = 'A' category items; ₹15,000 to ₹50,000 = 'B' category items; Below ₹15,000 = 'C' category items.

Accepted Answer

**ABC Analysis — TS Limited**

**Note:** The question as presented does not include the data table (units in stock and cost per unit for each material). The solution below uses **assumed illustrative data** consistent with the narrative and the given ABC criteria, to demonstrate the complete methodology. In the actual exam, substitute the given figures.

**Assumed Data:**

| Material | Units in Stock | Cost per Unit (₹) | Total Value (₹) |
|----------|---------------|-------------------|------------------|
| MA | 5,000 | 6 | 30,000 |
| MB | 3,000 | 8 | 24,000 |
| MC | 8,000 | 1.50 | 12,000 |
| MG | 100 | 650 | 65,000 |
| MH | 80 | 700 | 56,000 |

**Step 1 — Rank materials by total value (descending):**

| Rank | Material | Total Value (₹) | ABC Category |
|------|----------|------------------|--------------|
| 1 | MG | 65,000 | **A** |
| 2 | MH | 56,000 | **A** |
| 3 | MA | 30,000 | **B** |
| 4 | MB | 24,000 | **B** |
| 5 | MC | 12,000 | **C** |

**Step 2 — Apply ABC Criteria:**

- **Category A (₹50,000 & above):** MG (₹65,000), MH (₹56,000) — **High Value; Require maximum control, close supervision, accurate records, and frequent review.**
- **Category B (₹15,000 to ₹50,000):** MA (₹30,000), MB (₹24,000) — **Medium Value; Moderate control with periodic review.**
- **Category C (Below ₹15,000):** MC (₹12,000) — **Low Value; Simple controls, bulk ordering, minimum attention.**

**Conclusion — Flaw in Storekeeper's Argument:**

The storekeeper's reasoning is based on **volume/q…

Question 29

A company manufactures electronic gadgets and uses a specialized component. The company incurs an ordering cost of ₹1,250 per order. The carrying cost of storing the specialized components is ₹25 per unit per annum. The company's annual production is 90,000 gadgets, and each gadget requires one component for its assembly. Calculate: (i) Economic Order Quantity (ii) Number of orders to be placed in a year

Accepted Answer

**Economic Order Quantity (EOQ) and Number of Orders**

The **Economic Order Quantity (EOQ)** is the order size that minimises the total of ordering costs and carrying costs. It is calculated using the standard EOQ formula.

**Given Information:**
- Annual Demand (D) = 90,000 units (since each gadget requires one component)
- Ordering Cost per order (Co) = ₹1,250
- Carrying Cost per unit per annum (Cc) = ₹25

**(i) Economic Order Quantity:**

EOQ = √(2 × D × Co / Cc)

EOQ = √(2 × 90,000 × 1,250 / 25)

EOQ = √(9,00,00,000 / 25)

EOQ = √(36,00,000)

**EOQ = 3,000 units**

**(ii) Number of Orders per Year:**

Number of Orders = Annual Demand / EOQ

Number of Orders = 90,000 / 3,000

**Number of Orders = 30 orders per year**

Question 30

| Absorption of Overhead | Accounts | Dr/Cr | Calculation of Amount Formula |
|---|---|---|---|
| Under-absorption | Stock of Finished Goods Account | Dr | |
| Over-absorption | Stock of Semi-finished Goods (WIP) Account | Cr | |
| Under-absorption | Cost of Sales Account | Dr | |

Accepted Answer

**Completed Table: Accounting Entries for Over/Under Absorption of Overheads**

**Row 1: Under-absorption - Stock of Finished Goods Account**
- Absorption of Overhead: Under-absorption
- Accounts: Stock of Finished Goods A/c (Dr.) / Overhead Control A/c (Cr.)
- Dr/Cr: Dr. Stock of Finished Goods A/c; Cr. Overhead Control A/c
- Calculation of Amount Formula: Under-absorption × (Cost of Finished Goods / Total Cost of Production)

**Row 2: Over-absorption - Stock of Semi-finished Goods (WIP) Account**
- Absorption of Overhead: Over-absorption
- Accounts: Overhead Control A/c (Dr.) / Stock of WIP A/c (Cr.)
- Dr/Cr: Dr. Overhead Control A/c; Cr. Stock of WIP A/c
- Calculation of Amount Formula: Over-absorption × (Cost of WIP / Total Cost of Production)

**Row 3: Under-absorption - Cost of Sales Account**
- Absorption of Overhead: Under-absorption
- Accounts: Cost of Sales A/c (Dr.) / Overhead Control A/c (Cr.)
- Dr/Cr: Dr. Cost of Sales A/c; Cr. Overhead Control A/c
- Calculation of Amount Formula: Under-absorption × (Cost of Goods Sold / Total Cost of Production)

**Key Principles:**

**Under-absorption** occurs when **actual overhead exceeds absorbed overhead**. Since insufficient overhead has been charged to production, the deficiency is allocated to inventory and expense accounts by **debiting** them to increase cost values.

**Over-absorption** occurs when **absorbed overhead exceeds actual overhead**. Since excess overhead has been charged to production, the surplus is alloc…

Element	Ajoy (₹)	Bijoy (₹)
Material Cost	1,16,800	1,16,800
Total Wages (Normal + Bonus)	4,800	5,000
Factory Overhead (@ ₹100/hr)	3,200	3,000
Total Factory Cost	1,24,800	1,24,800

CA Inter Cost & Mgmt

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