Question 1

If Axe Traders pays the supplier within 30 days of purchase, then, what is the total amount of cash discount received from the supplier and how it is treated to calculate material cost?

Accepted Answer

**Answer: (C) ₹26,550 & it will not be deducted from the material cost**

**Calculation of Cash Discount:**

Since **Axe Trade is an unregistered dealer under GST**, it is **not eligible to claim Input Tax Credit (ITC)**. Consequently, the GST paid forms part of the cost, and the total invoice value (inclusive of GST) is the effective purchase amount on which cash discount is computed.

Listed Price = ₹2,50,000
Less: Trade Discount @ 10% = ₹25,000
Net Price = ₹2,25,000
Add: GST @ 18% on ₹2,25,000 = ₹40,500
**Total Invoice Value = ₹2,65,500**

Cash Discount @ 10% on Total Invoice Value = 10% × ₹2,65,500 = **₹26,550**

**Treatment of Cash Discount in Material Cost:**

Under cost accounting principles, **cash discount is a financing/treasury incentive** received for prompt payment — it is **not a reduction in the purchase price** of material. Unlike trade discount (which is deducted before arriving at the cost price), cash discount is treated as a **financial income** and is credited to a separate Discount Received Account or Profit & Loss Account.

Therefore, cash discount of ₹26,550 received from the supplier **will NOT be deducted from the material cost**. The material cost continues to be computed based on the invoice price (net of trade discount), plus all direct costs incurred to bring the material to its present location and condition.

Question 2

What will be the amount of other expenses and how it is treated in material cost?

Accepted Answer

**Answer: (A) ₹6,154.40 & it will be added with the material cost**

To determine **Other Expenses**, we must first compute the total material cost base (before other expenses), then apply 2% on it.

**Step 1 – Treatment of individual items:**

- **Listed Price:** ₹2,50,000 (starting point)
- **Trade Discount @ 10%:** Deducted — trade discount always reduces invoice price. Net = ₹2,25,000.
- **GST @ 18% (CGST + SGST):** Since Axe Trade is an **unregistered supplier under GST**, it **cannot claim Input Tax Credit (ITC)**. Hence GST of ₹40,500 becomes part of material cost.
- **Cash Discount @ 10%:** Payment was made within 21 days (within the 30-day window), so discount is earned. However, in **cost accounting**, cash discount is treated as a **financial income** and is **NOT deducted** from material cost.
- **Toll Tax ₹5,000:** Included in material cost as an inward handling expense.
- **Freight and Insurance ₹17,220:** Included in material cost as buying expenses.
- **Demurrage ₹5,000:** Demurrage is an **abnormal/avoidable cost** and is **excluded** from material cost; charged to **Costing Profit & Loss Account**.
- **Commission and Brokerage ₹10,000:** Included in material cost (direct procurement cost).
- **Returnable Containers:** Deposit ₹30,000 less refund ₹20,000 = **Net cost ₹10,000** included in material cost. The refundable portion is not a cost.

**Step 2 – Base for Other Expenses:**

Total cost base = ₹2,25,000 + ₹40,500 + ₹5,000 + ₹17,220 + ₹10,000 + ₹10,000 = *…

Question 3

What is the amount of GST and how will it be treated in cost sheet of Axe Traders?

Accepted Answer

**Answer: (B) ₹40,500 & it will be added with material cost**

**GST Calculation:**

The GST is levied on the price **after trade discount** (since trade discount is deducted before arriving at the transaction value under GST). Cash discount is not deducted at this stage as it is conditional.

Listed Price = ₹2,50,000
Less: Trade Discount @ 10% = ₹25,000
**Taxable Value = ₹2,25,000**
GST @ 18% (CGST 9% + SGST 9%) = **₹40,500**

**Treatment in Cost Sheet:**

**Axe Trade is an unregistered dealer** under GST. Since it is unregistered, it is **not eligible to claim Input Tax Credit (ITC)** under Section 16 of the Central Goods and Services Tax Act, 2017. The GST paid of ₹40,500 is an irrecoverable cost for Axe Trade.

As per cost accounting principles, any tax or duty that is not recoverable (i.e., no ITC is available) must be **included in the cost of material**. Therefore, the GST of ₹40,500 will be **added to the material cost** in the cost sheet of Axe Traders.

Had Axe Trade been a registered dealer eligible for ITC, the GST amount would have been excluded from the cost sheet (as it would be recoverable). Since that is not the case here, the correct answer is **(B)**.

Question 4

What is the total material cost chargeable in the cost sheet of Axe Traders?

Accepted Answer

**Answer: (D) ₹3,13,874**

The total material cost chargeable in the cost sheet of Axe Traders is computed as follows, applying the principles of **Cost Accounting** under the ICAI syllabus for CA Intermediate.

**Key treatments applied:**

**GST included as cost:** Axe Trade is an **unregistered supplier** under GST. Although the question states "Credit available" for CGST & SGST, this refers to the nature of the input tax credit on those supplies — since Axe Trade is unregistered, it **cannot claim ITC**. Therefore, GST paid (₹40,500) becomes part of the material cost.

**Trade discount deducted:** Trade discount is always deducted from the listed price as it reduces the purchase price itself.

**Cash discount NOT deducted:** Although payment was made within 21 days (qualifying for 10% cash discount), in **cost accounting**, cash discount is treated as a **financial/treasury item** and is NOT deducted from the material cost in the cost sheet.

**Demurrage excluded:** Demurrage paid to the transporter (₹5,000) is an **abnormal/avoidable cost** — it arises due to inefficiency or delay beyond contracted time. It is excluded from the cost sheet and written off separately.

**Returnable containers:** Only the **net irrecoverable cost** is included. Deposit = ₹30,000; Refund = ₹20,000; Net = ₹10,000.

**Normal shortage (20%):** This is a normal loss and does NOT change the **total** material cost — it only affects the cost per unit. The total cost remains absorbed over the net qu…

Question 5

The number of good units and cost per unit of the materials received are:

Accepted Answer

**Answer: (C) 4,000 units & ₹78.50**

The cost of material is computed by starting with the **listed price** and adjusting for permissible deductions and all legitimate procurement costs.

**Trade discount** is deducted from listed price as it is a reduction in the purchase price itself. **Cash discount**, however, is a financing incentive and is **not deducted** from material cost — it is treated as a financial income. Since payment was made within 21 days, cash discount is earned but not reduced from cost.

Axe Trade is an **unregistered supplier under GST**. Since it cannot claim Input Tax Credit (ITC), the GST paid (CGST + SGST @ 18%) becomes part of the material cost.

**Demurrage** paid to the transporter is an abnormal/penalty charge and is **excluded** from material cost as it does not form part of the cost of bringing the material to its present location under normal conditions.

For **returnable containers**: deposit of ₹30,000 is made but only ₹20,000 is refunded. The net irrecoverable amount of ₹10,000 (₹30,000 − ₹20,000) is included in cost.

**Other expenses @ 2% of total cost** requires a circular calculation: if subtotal before other expenses = ₹3,07,720, then Total Cost = 3,07,720 ÷ 0.98 = **₹3,14,000**.

**Normal shortage of 20%** represents an expected loss in material. Units received = 5,000; Normal shortage = 1,000 units; **Good (usable) units = 4,000 units**. The entire cost is borne by good units.

**Cost per unit = ₹3,14,000 ÷ 4,000 = ₹78.50**

Question 6

The Actual output of Product Q produced during the year is:

Accepted Answer

**Answer: (A) 10,000 units**

To find the actual output, we use the **Material Usage Variance** formula:

**Material Usage Variance = (Standard Quantity for Actual Output − Actual Quantity) × Standard Price**

From the given data:
- Actual Quantity consumed = 24,000 units
- Standard Price = ₹2 per unit
- Usage Variance = ₹2,000 Favourable

The standard production requirement states **2 units of Raw Material Z** per unit of Product Q (net quantity). However, since the input has a **yield of 80%**, the gross standard input required to incorporate 2 units of material into the product is:

**Standard Gross Input = 2 ÷ 0.80 = 2.5 units per unit of Product Q**

Applying the Usage Variance formula:
2,000 (F) = (Standard Quantity for Actual Output − 24,000) × 2
1,000 = Standard Quantity for Actual Output − 24,000
Standard Quantity for Actual Output = **25,000 units**

Therefore:
**Actual Output = 25,000 ÷ 2.5 = 10,000 units**

The actual output of Product Q produced during the year is **10,000 units**.

Question 7

The Material price and material cost variance are:

Accepted Answer

**Answer: (B) Price variance – 3,000 Favourable, Cost Variance – 5,000 Favourable**

**Step 1 – Establish Standard Input Quantity per unit of Product Q:**
The standard specifies Raw Material Z at 2 units per unit of Product Q. However, the input yields only 80%, so the standard INPUT required to produce 1 unit of Product Q = 2 ÷ 0.80 = **2.5 units** of Raw Material Z.

**Step 2 – Find Actual Output using Usage Variance:**
Material Usage Variance = (Standard Qty for Actual Output – Actual Qty) × Standard Price
₹2,000 (F) = (SQ – 24,000) × ₹2
SQ for Actual Output = 24,000 + 1,000 = **25,000 units**
Actual Output = 25,000 ÷ 2.5 = **10,000 units of Product Q**

**Step 3 – Material Price Variance (MPV):**
Actual Price = ₹45,000 ÷ 24,000 units = ₹1.875 per unit
MPV = (Standard Price – Actual Price) × Actual Quantity
MPV = (₹2.00 – ₹1.875) × 24,000 = **₹3,000 Favourable**

**Step 4 – Material Cost Variance (MCV):**
MCV = Standard Cost for Actual Output – Actual Cost
MCV = (25,000 × ₹2) – ₹45,000 = ₹50,000 – ₹45,000 = **₹5,000 Favourable**

Note: MCV = MPV + MUV = ₹3,000 (F) + ₹2,000 (F) = ₹5,000 (F) — this confirms the answer.

Question 8

The Standard Hours, Net Actual hours and the idle time are:

Accepted Answer

**Answer: (D) Standard Hours – 25,000 hours; Net Actual Hours – 28,000 hours; Idle Time – 2,000 hours**

**Step 1 – Determine Actual Output from Material Usage Variance.**

Since Raw Material Z has a yield of 80%, the standard input required per unit of Product Q = 2 ÷ 0.80 = **2.5 units**. The standard price is ₹2 per unit.

Material Usage Variance = (Standard Quantity for Actual Output – Actual Quantity) × Standard Price
2,000 (F) = (SQ – 24,000) × ₹2
SQ for Actual Output = 25,000 units
Actual Output = 25,000 ÷ 2.5 = **10,000 units**

**Step 2 – Standard Hours.**

Standard hours per unit = 2.5 hours
Standard Hours for Actual Output = 10,000 × 2.5 = **25,000 hours**

**Step 3 – Idle Time.**

Idle Time Variance = Idle Hours × Standard Rate per hour
10,000 (A) = Idle Hours × ₹5
Idle Hours = **2,000 hours**

**Step 4 – Net Actual Hours.**

Net Actual Hours = Actual Hours – Idle Hours = 30,000 – 2,000 = **28,000 hours**

Thus: Standard Hours = 25,000 | Net Actual Hours = 28,000 | Idle Time = 2,000 hours → **Option (D)**.

Question 9

Labour Efficiency variance and Labour rate variance are:

Accepted Answer

**Answer: (C) Labour Efficiency Variance – 25,000 Adverse; Labour rate Variance – 30,000 Favourable**

**Step 1 – Determine Actual Production using Material Usage Variance**

The standard specifies 2 units of Raw Material Z as the **net material content** per unit of Product Q. Since the yield is 80%, the **gross standard input** required per unit of Product Q = 2 ÷ 0.80 = **2.5 units**.

Material Usage Variance formula: (Standard Quantity for Actual Production – Actual Quantity) × Standard Price

2,000 (F) = (AP × 2.5 – 24,000) × ₹2
1,000 = AP × 2.5 – 24,000
AP × 2.5 = 25,000
**Actual Production (AP) = 10,000 units**

**Step 2 – Labour Efficiency Variance (LEV)**

Standard hours for actual production = 10,000 × 2.5 = **25,000 hours**
Actual hours worked = **30,000 hours**
Standard rate = ₹5 per hour

LEV = (Standard Hours – Actual Hours) × Standard Rate
= (25,000 – 30,000) × ₹5
= –5,000 × ₹5
= **₹25,000 Adverse**

**Step 3 – Labour Rate Variance (LRV)**

Actual rate = ₹1,20,000 ÷ 30,000 hours = **₹4 per hour**
Standard rate = ₹5 per hour

LRV = (Standard Rate – Actual Rate) × Actual Hours
= (₹5 – ₹4) × 30,000
= ₹1 × 30,000
= **₹30,000 Favourable**

The idle time variance of ₹10,000 Adverse is a sub-variance of LEV (labour efficiency variance includes idle time), confirming the efficiency variance is adverse. The actual rate (₹4) being lower than standard (₹5) correctly produces a favourable rate variance. **Option (C) is correct.**

Question 10

Fixed Overhead volume variance is:

Accepted Answer

**Answer: (C) Fixed Overhead Volume Variance – ₹1,00,000 Adverse**

**Step 1 – Determine Actual Output (AP)**

Since Raw Material Z has a yield of 80%, the standard gross input per unit of Product Q = 2 / 0.80 = **2.5 units**.

Using the Material Usage Variance formula:
Usage Variance = (Standard Qty for Actual Output – Actual Qty) × Standard Price
2,000 (F) = (2.5 × AP – 24,000) × ₹2
1,000 = 2.5 × AP – 24,000
2.5 × AP = 25,000
**Actual Production (AP) = 10,000 units**

**Step 2 – Determine Budgeted Fixed Overhead**

Fixed Overhead Expenditure Variance = Budgeted FO – Actual FO
25,000 (F) = Budgeted FO – 1,50,000
**Budgeted Fixed Overhead = ₹1,75,000**

**Step 3 – Compute Fixed Overhead Volume Variance**

Fixed Overhead Volume Variance = Absorbed Fixed Overhead – Budgeted Fixed Overhead
Absorbed FO = Actual Output × Standard FO Rate = 10,000 × ₹7.5 = ₹75,000
Volume Variance = ₹75,000 – ₹1,75,000 = **₹1,00,000 (Adverse)**

The actual output of 10,000 units was significantly below the level implied by the budgeted fixed overhead of ₹1,75,000 (budgeted output = 1,75,000 ÷ 7.5 = 23,333 units), resulting in substantial under-absorption, hence the **₹1,00,000 Adverse** volume variance.

Question 11

The accountant for Brilliant Tools Ltd applies overhead based on machine hours. The budgeted overhead and machine hours for the year are ₹ 1,30,000 and 8,000 hours, respectively. The actual overhead and machine hours incurred were ₹ 1,37,500 and 10,000 hours. The cost of goods sold and inventory data compiled for the year is as follows: Direct Material ₹ 25,000; Cost of Goods Sold ₹ 2,25,000; Units: WIP 50,000 and Finished Goods 75,000. What is the amount of over/under absorbed overhead for the year?

Accepted Answer

**Answer: (A)**

The over/under absorbed overhead is calculated by comparing the overhead absorbed (based on actual activity) with the actual overhead incurred. First, compute the predetermined overhead absorption rate using budgeted figures: ₹1,30,000 ÷ 8,000 hours = ₹16.25 per machine hour. Next, apply this rate to actual machine hours to find absorbed overhead: ₹16.25 × 10,000 hours = ₹1,62,500. Finally, compare absorbed overhead with actual overhead: ₹1,62,500 (absorbed) − ₹1,37,500 (actual) = ₹25,000 over absorbed. Since the absorbed amount exceeds actual overhead, overhead is **over absorbed by ₹25,000**.

Question 12

The following information is available in respect of Process I: Raw material purchased and introduced 10,000 units @ ₹ 5 per unit; Raw Material received from store 4,000 units @ ₹ 6 per unit; Direct Labour ₹ 40,000; Overheads ₹ 28,000; Output of Process is 13,500 units; Normal wastage 5% of inputs; Scrap value of wastage ₹ 4 per unit. The value of Abnormal Gain is:

Accepted Answer

**Answer: (D)**

In process costing, abnormal gain is valued at the cost per unit of normal output after deducting the scrap value of normal wastage.

**Calculation:**

Total input units = 10,000 + 4,000 = 14,000 units

Normal wastage = 5% of 14,000 = 700 units

Expected/Normal output = 14,000 - 700 = 13,300 units

Actual output = 13,500 units

Abnormal gain = 13,500 - 13,300 = **200 units**

**Total costs incurred:**
Raw materials: (10,000 × ₹5) + (4,000 × ₹6) = ₹50,000 + ₹24,000 = ₹74,000
Direct labour = ₹40,000
Overheads = ₹28,000
Total cost = ₹142,000

**Net cost for allocation:**
Scrap value of normal wastage = 700 × ₹4 = ₹2,800
Net cost to allocate = ₹142,000 - ₹2,800 = ₹139,200

**Cost per unit of normal output:**
Cost per unit = ₹139,200 ÷ 13,300 = ₹10.4662 (rounded)

**Value of abnormal gain:**
Abnormal gain value = 200 units × ₹10.4662 = **₹2,093.24** ≈ **₹2,093.2**

Question 13

A hotel has 200 rooms (120 Deluxe rooms and 80 Premium rooms). The normal occupancy in summer is 80% and winter 60%. The period of summer and winter is taken as 8 months and 4 months respectively. Assume 30 days in each month. Room rent of Premium room will be double of Deluxe room. Hotel is expecting a profit of 20% on total revenue, total cost for the year is ₹ 2,66,11,200. Calculate the room rent to be charged for Premium room.

Accepted Answer

**Answer: (B)** ₹ 900 per room day

The Premium room rent is calculated by first determining the Deluxe room rent through the profit constraint, then applying the given 2:1 ratio.

Total available room-days are calculated as: Deluxe rooms (120) for 31,680 room-days (8 months × 80% + 4 months × 60%) and Premium rooms (80) for 21,120 room-days using the same seasonal split. Expressed in terms of Deluxe rent D, total revenue becomes 73,920D (where Premium contributes at rate 2D).

Using the profit equation: If profit is 20% on revenue, then Revenue - Cost = 0.20 × Revenue, simplifying to 0.80 × Revenue = Cost. Thus Revenue = ₹ 26,611,200 ÷ 0.80 = ₹ 33,264,000.

Solving for D: 73,920D = 33,264,000, therefore D = ₹ 450 per Deluxe room day.

Premium room rent = 2 × 450 = **₹ 900 per room day**

Question 14

Following information is available for the month of March relating to manufacturing of a product:

| Particulars | Amount (₹) |
|---|---|
| Cost of Sales | 37,51,540 |
| Stock of Raw material as on 1st March | 6,50,000 |
| Direct Wages | 11,44,000 |
| Hire charges paid for Plant (indirect expenses) | 3,24,740 |
| Salary to office staff | 1,78,750 |
| Maintenance of office building | 13,000 |
| Depreciation on Delivery van | 39,000 |
| Warehousing charges | 61,750 |
| Stock of Raw material as on 31st March | 1,95,000 |
| Realisable value on sale of scrap | 32,500 |

Factory overheads are 20% of the Prime cost.

FIND OUT the value of Raw Material purchased with the help of Statement of Cost.
(a) ₹ 10,40,000
(b) ₹ 14,95,000
(c) ₹ 26,39,000
(d) ₹ 34,91,540

Accepted Answer

**Answer: (A) ₹10,40,000**

Working backwards from the given Cost of Sales using the Statement of Cost:

**Step 1 – Identify overhead categories:**
- **Selling & Distribution OH:** Depreciation on delivery van (₹39,000) + Warehousing charges (₹61,750) = ₹1,00,750
- **Admin OH:** Salary to office staff (₹1,78,750) + Maintenance of office building (₹13,000) = ₹1,91,750
- **Factory OH:** 20% of Prime Cost (separate from hire charges)
- **Hire charges for plant (indirect):** ₹3,24,740 — treated as a direct factory-level cost added to Works Cost separately

**Step 2 – Work backwards from Cost of Sales:**
Cost of Sales = ₹37,51,540
Less: Selling & Dist. OH = ₹1,00,750
→ Cost of Goods Sold = ₹36,50,790
Less: Admin OH = ₹1,91,750
→ Cost of Production = ₹34,59,040
Add: Scrap realised = ₹32,500
→ Works Cost = ₹34,91,540

**Step 3 – Find Prime Cost:**
Works Cost = Prime Cost + Factory OH (20% of PC) + Hire charges for Plant
34,91,540 = 1.20 × PC + 3,24,740
1.20 × PC = 34,91,540 − 3,24,740 = 31,66,800
**Prime Cost = ₹26,39,000**

**Step 4 – Find RM Consumed:**
Prime Cost = RM Consumed + Direct Wages
26,39,000 = RM Consumed + 11,44,000
**RM Consumed = ₹14,95,000**

**Step 5 – Find RM Purchased:**
RM Consumed = Opening Stock + Purchases − Closing Stock
14,95,000 = 6,50,000 + Purchases − 1,95,000
**RM Purchased = ₹10,40,000**

**Final Answer: Raw Material Purchased = ₹10,40,000**

Question 15

ALC Ltd. is an insurance company. It launched a new term insurance policy named as Protection Plus. The total cost for the policy during the year is ₹ 1,60,00,000. Total number of policies sold is 410 and total insured value of policies is ₹ 920 crore. What is the cost per rupee of insured value?

Accepted Answer

**Answer: (A)**

In service costing for insurance, the cost per rupee of insured value measures the cost incurred per rupee of coverage provided. It is calculated as:

**Cost per rupee of insured value = Total Cost ÷ Total Insured Value**

Given: Total Cost = ₹ 1,60,00,000 and Total Insured Value = ₹ 920 crore

Calculation:
= 1,60,00,000 ÷ (920 × 1,00,00,000)
= 1,60,00,000 ÷ 9,20,00,00,000
= 16,000,000 ÷ 9,200,000,000
= 16 ÷ 9,200
= 1 ÷ 575
= 0.001739... ≈ **₹ 0.0017**

This metric is used in insurance costing to determine pricing per unit of insured value and assess the cost-efficiency of insurance policies.

Question 16

ICT Ltd. belongs to pharmaceutical industries. The chemical process that ICT Ltd. operates convert one compound into three category of medicines viz. BetaTab, Folick and TegriCap. Though BetaTab and Folick are already converted to final product at split-off point, Tegricap needs further processing along with addition of new compound with it.

The market for BetaTab and Folick is highly active, thus the production is sold at split-off point, however, Tegricap can be sold only after further processing.

Following information is provided for the current year:

| Products | Quantity sold (tons) | Selling price per ton (₹) |
|---|---|---|
| BetaTab | 372 | 7,500 |
| Folick | 1,054 | 5,625 |
| TegriCap | 1,472 | 3,750 |

The selling price is expected to remain the same for coming years.
The tota…

Accepted Answer

**Answer: (B)**

Under the **Net Realizable Value (NRV) method**, joint costs are allocated based on the relative NRV of each product at the split-off point. For products sold at split-off (BetaTab, Folick), NRV = Selling Price × Total Production. For TegriCap (requires further processing), NRV = Final Sales Value − Further Processing Costs.

**Total Production** (Sold + Closing Inventory):
- BetaTab: 372 + 360 = **732 tons**
- Folick: 1,054 + 120 = **1,174 tons**
- TegriCap: 1,472 + 50 = **1,522 tons**

**NRV at Split-off Point:**
- BetaTab: 732 × ₹7,500 = ₹54,90,000
- Folick: 1,174 × ₹5,625 = ₹66,03,750
- TegriCap: (1,522 × ₹3,750) − ₹31,00,000 = ₹57,07,500 − ₹31,00,000 = ₹26,07,500
- **Total NRV = ₹1,47,01,250**

**Joint Cost Allocated (Total ₹62,50,000):**
- BetaTab: (54,90,000 / 1,47,01,250) × 62,50,000 = **₹23,33,985**
- Folick: (66,03,750 / 1,47,01,250) × 62,50,000 = **₹28,07,478**
- TegriCap: (26,07,500 / 1,47,01,250) × 62,50,000 = **₹11,08,537**

This matches option **(B)**.

Question 17

A business manufactures a single product and is preparing its production budget for the year ahead. It is estimated that 2,00,000 units of the product can be sold in the year and the opening inventory is currently 25,000 units. The inventory level is to be reduced by 40% by the end of the year. What is production budget in units?

Accepted Answer

**Answer: (B)**

The production budget is calculated using the formula: Production = Expected Sales + Closing Inventory – Opening Inventory. Given opening inventory of 25,000 units and a required reduction of 40%, the closing inventory becomes 25,000 – (40% × 25,000) = 15,000 units. Therefore, Production = 2,00,000 + 15,000 – 25,000 = **1,90,000 units**.

Question 18

Ms. Gauri has the business of selling pens. She has setup this pen retailing for over 10 years with good profit volume ratio. Her average cost from the retailing is ₹ 11.25 per unit if she sells 16,000 units and is ₹ 11 per unit if she sells 20,000 units.

For the current month, she also charged ₹ 5,000 towards depreciation and the rental payment due.

The excess of sales revenue over the variable costs is ₹ 3.333 per unit.

You are required to CALCULATE Break-even Point (in units), Cash Break-even Point (in units) and Profit Volume Ratio.
(a) Break-even Point- 6,000 units, Cash Break-even Point- 6,000 units and Profit Volume Ratio- 33.33%
(b) Break-even Point- 6,000 units, Cash Break-even Point- 4,500 units and Profit Volume Ratio- 25%
(c) Break-even Point- 4,500 units, Cash Break-even Po…

Accepted Answer

**Answer: (B)**

**Step 1 — Variable Cost per unit (High-Low Method):**
Total cost at 16,000 units = ₹11.25 × 16,000 = ₹1,80,000. Total cost at 20,000 units = ₹11 × 20,000 = ₹2,20,000. Variable cost per unit = (2,20,000 − 1,80,000) ÷ (20,000 − 16,000) = ₹40,000 ÷ 4,000 = **₹10 per unit**.

**Step 2 — Fixed Costs:**
Fixed Cost = Total Cost − (VC per unit × Units) = 1,80,000 − (10 × 16,000) = **₹20,000**.

**Step 3 — Selling Price and P/V Ratio:**
Contribution per unit (given) = ₹3.333. Selling Price = Variable Cost + Contribution = 10 + 3.333 = ₹13.333 per unit. **P/V Ratio = 3.333 ÷ 13.333 = 25%**.

**Step 4 — Break-even Point:**
BEP (units) = Fixed Costs ÷ Contribution per unit = 20,000 ÷ 3.333 = **6,000 units**.

**Step 5 — Cash Break-even Point:**
Non-cash fixed costs (depreciation + rental payment due, both being non-cash charges) = ₹5,000. Cash Fixed Costs = 20,000 − 5,000 = ₹15,000. Cash BEP = 15,000 ÷ 3.333 = **4,500 units**.

Thus: BEP = 6,000 units, Cash BEP = 4,500 units, P/V Ratio = 25% — matching **Option (B)**.

Question 19

The labour turnover rates for the quarter ended 30th June, 2024 are computed as 14%, 8% and 6% under Flux method, Replacement method and Separation method respectively. If the number of workers replaced during 1st quarter of the financial year 2024-25 is 36, COMPUTE the following:

Accepted Answer

**Given Data:**
- Labour Turnover Rate (Flux Method) = 14%
- Labour Turnover Rate (Replacement Method) = 8%
- Labour Turnover Rate (Separation Method) = 6%
- Number of workers replaced = 36

**Relevant Formulae:**

**Replacement Method** = (Number of Replacements / Average Number of Workers) × 100

**Separation Method** = (Number of Separations / Average Number of Workers) × 100

**Flux Method** = (Number of Accessions + Number of Separations) / Average Number of Workers × 100

**Step 1 – Compute Average Number of Workers:**

Using Replacement Method:
8 = (36 / Average Workers) × 100
Average Workers = (36 × 100) / 8 = **450 workers**

**Step 2 – Compute Number of Workers Left and Discharged (Separations):**

Using Separation Method:
6 = (Separations / 450) × 100
Separations = (6 × 450) / 100 = **27 workers**

**(ii) Number of workers left and discharged = 27**

**Step 3 – Compute Number of Workers Recruited and Joined (Accessions):**

Using Flux Method:
14 = (Accessions + Separations) / 450 × 100
Accessions + 27 = (14 × 450) / 100 = 63
Accessions = 63 − 27 = **36 workers**

**(i) Number of workers recruited and joined = 36**

Question 20

Ani Ltd. uses 6 kg. of Material 'EXE' to produce 1 finished unit of Product 'EME'. The current demand of Product 'EME' is 16,000 units quarterly. 1 kg. of Material 'EXE' costs ₹ 40. The cost relating to quotations, documentation works, employee cost directly attributable to the procurement of material, every-time the order is made, is ₹ 2,000. The cost of fund invested in inventories, cost of storage, insurance cost, etc. is estimated to be 15% per annum of average inventory.

(i) CALCULATE the Economic Order Quantity for Material 'EXE'.

Accepted Answer

**Economic Order Quantity (EOQ) for Material 'EXE'**

EOQ is the order quantity that minimises the total of ordering cost and carrying cost. It is calculated using the formula:

**EOQ = √(2 × Annual Demand × Ordering Cost per Order / Carrying Cost per unit per annum)**

**Step 1 – Annual Demand for Material 'EXE'**

Quarterly demand of Product EME = 16,000 units
Annual demand of Product EME = 16,000 × 4 = **64,000 units**
Material required per unit = 6 kg
Annual demand of Material EXE = 64,000 × 6 = **3,84,000 kg**

**Step 2 – Ordering Cost (Co)**

Cost per order = ₹2,000 (includes quotation, documentation, and directly attributable employee costs)

**Step 3 – Carrying Cost per kg per annum (Cc)**

Cost per kg of Material EXE = ₹40
Carrying cost rate = 15% per annum
Cc = ₹40 × 15% = **₹6 per kg per annum**

**Step 4 – EOQ Calculation**

EOQ = √(2 × 3,84,000 × 2,000 / 6)
EOQ = √(15,36,00,00,000 / 6)

Wait — recalculating carefully:
2 × 3,84,000 × 2,000 = **15,36,000,000**
15,36,000,000 ÷ 6 = **2,56,000,000**
EOQ = √2,56,000,000 = **16,000 kg**

**The Economic Order Quantity for Material 'EXE' is 16,000 kg per order.**

Question 21

Ani Ltd. uses 6 kg. of Material 'EXE' to produce 1 finished unit of Product 'EME'. The current demand of Product 'EME' is 16,000 units quarterly. 1 kg. of Material 'EXE' costs ₹ 40. The cost relating to quotations, documentation works, employee cost directly attributable to the procurement of material, every-time the order is made, is ₹ 2,000. The cost of fund invested in inventories, cost of storage, insurance cost, etc. is estimated to be 15% per annum of average inventory.

(ii) COMMENT, should Ani Ltd. accept an offer of 2.5% discount by the supplier of Material 'EXE', if supply of the annual requirement of the Material is made in 4 equal installments?

Accepted Answer

**Evaluation of 2.5% Discount Offer — Whether Ani Ltd. Should Accept**

Before evaluating the discount, it is necessary to establish the **baseline total annual cost at EOQ** and then compare it with the **total cost under the discount offer**.

**Step 1 — Annual Material Requirement**

Quarterly demand of Product 'EME' = 16,000 units; Annual demand = 64,000 units. Material per unit = 6 kg. Therefore, **annual material requirement = 64,000 × 6 = 3,84,000 kg**.

**Step 2 — EOQ and Total Cost at EOQ (Baseline)**

EOQ = √(2 × 3,84,000 × ₹2,000 ÷ ₹6) = √(25,60,00,000) = **16,000 kg**. (Holding cost per kg = 15% × ₹40 = ₹6)

Number of orders = 3,84,000 ÷ 16,000 = **24 orders**.

| Cost Element | Amount (₹) |
|---|---|
| Purchase Cost (3,84,000 × ₹40) | 1,53,60,000 |
| Ordering Cost (24 × ₹2,000) | 48,000 |
| Holding Cost (16,000/2 × ₹6) | 48,000 |
| **Total Annual Cost at EOQ** | **1,54,56,000** |

**Step 3 — Total Cost Under Discount Offer**

Discount = 2.5%; Revised price = ₹40 × (1 − 0.025) = **₹39 per kg**. Supply in 4 equal instalments → Order quantity = 3,84,000 ÷ 4 = **96,000 kg**. Holding cost per kg at new price = 15% × ₹39 = **₹5.85**.

| Cost Element | Amount (₹) |
|---|---|
| Purchase Cost (3,84,000 × ₹39) | 1,49,76,000 |
| Ordering Cost (4 × ₹2,000) | 8,000 |
| Holding Cost (96,000/2 × ₹5.85) | 2,80,800 |
| **Total Annual Cost with Discount** | **1,52,64,800** |

**Step 4 — Decision**

| | Amount (₹) |
|---|---|
| Total Cost at EOQ | 1,54,56,000 |
| Total Cost with Di…

Question 22

From the details furnished below you are required to compute a comprehensive machine-hour rate:
Original purchase price of the machine (subject to depreciation at 10% per annum on original cost): ₹ 12,96,000
Normal working hours for the month (the machine works for only 75% of normal capacity): 200 hours
Wages to Machine-man: ₹ 800 per day (of 8 hours)
Wages to Helper (machine attendant): ₹ 500 per day (of 8 hours)
Power cost for the month for the time worked: ₹ 1,30,000
Supervision charges apportioned for the machine centre for the month: ₹ 18,000
Electricity & Lighting (fixed in nature) for the month: ₹ 9,500
Repairs & maintenance (machine) including consumable stores per month: ₹ 17,500
Insurance of Plant & Building (apportioned) for the year: ₹ 18,000
Other general expense per annum: ₹…

Accepted Answer

**Comprehensive Machine Hour Rate Computation**

**Step 1 – Determine Hours**
Normal working hours per month = 200 hours. Actual machine hours worked = 75% × 200 = **150 hours** (this is the denominator for the rate).

Normal working days = 200 hours ÷ 8 hours/day = **25 days**.

**Step 2 – Labour Cost (Comprehensive)**
Basic wages: Machine-man = 25 × ₹800 = ₹20,000; Helper = 25 × ₹500 = ₹12,500. Total basic = ₹32,500.
Fixed Dearness Allowance: 2 workers × ₹4,500 = ₹9,000.
Basic + DA = ₹41,500.
Production Bonus = 10% × ₹41,500 = ₹4,150.
Leave Wages & Holidays with Pay = 10% × ₹41,500 = ₹4,150.
**Total Comprehensive Labour = ₹49,800**

**Step 3 – Other Monthly Costs**
Depreciation = ₹12,96,000 × 10% ÷ 12 = **₹10,800**
Power Cost (for time worked) = **₹1,30,000**
Supervision Charges = **₹18,000**
Electricity & Lighting (fixed) = **₹9,500**
Repairs & Maintenance = **₹17,500**
Insurance = ₹18,000 ÷ 12 = **₹1,500**
Other General Expenses = ₹18,000 ÷ 12 = **₹1,500**

**Step 4 – Total Monthly Cost**
₹49,800 + ₹10,800 + ₹1,30,000 + ₹18,000 + ₹9,500 + ₹17,500 + ₹1,500 + ₹1,500 = **₹2,38,600**

**Step 5 – Comprehensive Machine Hour Rate**
MHR = ₹2,38,600 ÷ 150 hours = **₹1,590.67 per machine hour**

Question 23

AeBee Publishers works for various educational institutes for editing, binding, printing of various books and magazines on job work basis. Currently, the company has employed 30 workers and pays them on hour rate basis for each job assigned. To complete one of the process of binding, the average time allowed to an employee is 8 hours for a 10 pages magazine.

In the month of March, two employees 'Cee' and 'Dee' were given 21 and 30 units of magazines respectively for binding work. The following are the details of the work assigned:

| Particulars | 'Cee' | 'Dee' |
|---|---|---|
| Work assigned | 21 units | 30 units |
| Time taken | 78 hours | 114 hours |

The existing rate of wages is ₹ 60 per hour along with bonus as per Halsey System.

However, a new wage agreement has been signed where …

Accepted Answer

**Calculation of Loss Due to Incorrect Rate Selection (March)**

Under the **Halsey Incentive Scheme**, total earnings = (Actual Time × Rate per hour) + 50% of (Time Saved × Rate per hour), where Time Saved = Standard Time – Actual Time.

**Standard Time Allowed:**
Standard time per magazine = 8 hours.
- Cee: 21 units × 8 = 168 hours
- Dee: 30 units × 8 = 240 hours

**Time Saved:**
- Cee: 168 – 78 = 90 hours saved
- Dee: 240 – 114 = 126 hours saved

**Correct Wages at ₹60 per hour (as applicable for March):**
- Cee: (78 × 60) + 50% × (90 × 60) = ₹4,680 + ₹2,700 = **₹7,380**
- Dee: (114 × 60) + 50% × (126 × 60) = ₹6,840 + ₹3,780 = **₹10,620**
- **Total Correct Wages = ₹18,000**

**Incorrect Wages Paid at ₹65 per hour (erroneously applied):**
- Cee: (78 × 65) + 50% × (90 × 65) = ₹5,070 + ₹2,925 = **₹7,995**
- Dee: (114 × 65) + 50% × (126 × 65) = ₹7,410 + ₹4,095 = **₹11,505**
- **Total Incorrect Wages Paid = ₹19,500**

**Loss Incurred = ₹19,500 – ₹18,000 = ₹1,500**

The company incurred an excess payment (loss) of **₹1,500** for the month of March due to the erroneous application of the revised rate of ₹65 per hour instead of the correct rate of ₹60 per hour.

Question 24

AeBee Publishers works for various educational institutes for editing, binding, printing of various books and magazines on job work basis. Currently, the company has employed 30 workers and pays them on hour rate basis for each job assigned. To complete one of the process of binding, the average time allowed to an employee is 8 hours for a 10 pages magazine.

In the month of March, two employees 'Cee' and 'Dee' were given 21 and 30 units of magazines respectively for binding work. The following are the details of the work assigned:

| Particulars | 'Cee' | 'Dee' |
|---|---|---|
| Work assigned | 21 units | 30 units |
| Time taken | 78 hours | 114 hours |

The existing rate of wages is ₹ 60 per hour along with bonus as per Halsey System.

However, a new wage agreement has been signed where …

Accepted Answer

**Rowan Incentive Scheme — Loss Due to Incorrect Rate Selection**

Under the **Rowan Scheme**, bonus is calculated as:
**Bonus = (Time Saved / Standard Time) × Time Taken × Rate per hour**

**Step 1 — Standard Time and Time Saved:**
Standard time per unit = 8 hours.
- Cee: Standard Time = 21 × 8 = **168 hours**; Time Taken = 78 hours; Time Saved = 168 − 78 = **90 hours**
- Dee: Standard Time = 30 × 8 = **240 hours**; Time Taken = 114 hours; Time Saved = 240 − 114 = **126 hours**

**Step 2 — Wages at Correct Rate (₹60/hr) under Rowan Scheme:**

For Cee:
- Time Wages = 78 × ₹60 = ₹4,680
- Bonus = (90/168) × 78 × ₹60 = ₹2,507.14
- **Total = ₹7,187.14**

For Dee:
- Time Wages = 114 × ₹60 = ₹6,840
- Bonus = (126/240) × 114 × ₹60 = ₹3,591.00
- **Total = ₹10,431.00**

**Total wages at correct rate = ₹17,618.14**

**Step 3 — Wages at Incorrect Rate (₹65/hr) under Rowan Scheme:**

For Cee:
- Time Wages = 78 × ₹65 = ₹5,070
- Bonus = (90/168) × 78 × ₹65 = ₹2,716.07
- **Total = ₹7,786.07**

For Dee:
- Time Wages = 114 × ₹65 = ₹7,410
- Bonus = (126/240) × 114 × ₹65 = ₹3,890.25
- **Total = ₹11,300.25**

**Total wages at incorrect rate = ₹19,086.32**

**Loss due to incorrect rate = ₹19,086.32 − ₹17,618.14 = ₹1,468.18**

This ₹1,468.18 represents the excess wages paid by AeBee Publishers in March due to the inadvertent application of the revised rate of ₹65/hr instead of the existing rate of ₹60/hr under the Rowan bonus scheme.

Question 25

AeBee Publishers works for various educational institutes for editing, binding, printing of various books and magazines on job work basis. Currently, the company has employed 30 workers and pays them on hour rate basis for each job assigned. To complete one of the process of binding, the average time allowed to an employee is 8 hours for a 10 pages magazine.

In the month of March, two employees 'Cee' and 'Dee' were given 21 and 30 units of magazines respectively for binding work. The following are the details of the work assigned:

| Particulars | 'Cee' | 'Dee' |
|---|---|---|
| Work assigned | 21 units | 30 units |
| Time taken | 78 hours | 114 hours |

The existing rate of wages is ₹ 60 per hour along with bonus as per Halsey System.

However, a new wage agreement has been signed where …

Accepted Answer

**Comparison: Halsey Scheme vs. Rowan Scheme at ₹60 per hour (correct rate for March)**

The existing scheme for March uses Halsey bonus at ₹60 per hour. To determine potential savings, wages under the Rowan Scheme are computed at the same rate and compared.

**Standard Time:**
Each magazine requires 8 hours → Cee (21 units): 168 hours | Dee (30 units): 240 hours

**Time Saved:**
Cee: 168 − 78 = **90 hours saved** | Dee: 240 − 114 = **126 hours saved**

**Halsey Scheme Wages (Bonus = 50% × Time Saved × Rate):**

Cee: Time wages = 78 × ₹60 = ₹4,680; Bonus = 50% × 90 × ₹60 = ₹2,700; **Total = ₹7,380**

Dee: Time wages = 114 × ₹60 = ₹6,840; Bonus = 50% × 126 × ₹60 = ₹3,780; **Total = ₹10,620**

**Total under Halsey = ₹18,000**

**Rowan Scheme Wages [Bonus = (Time Saved ÷ Standard Time) × Time Taken × Rate]:**

Cee: Bonus = (90 ÷ 168) × 78 × ₹60 = (17,550/7) = **₹2,507.14**; Total = ₹4,680 + ₹2,507.14 = **₹7,187.14**

Dee: Bonus = (126 ÷ 240) × 114 × ₹60 = **₹3,591**; Total = ₹6,840 + ₹3,591 = **₹10,431**

**Total under Rowan = ₹17,618.14**

**Amount that could have been saved = ₹18,000 − ₹17,618.14 = ₹381.86**

Note: Rowan scheme is always more beneficial to the employer (less bonus cost) when time saved exceeds 50% of standard time. Here, Cee saves 53.57% and Dee saves 52.50% of standard time — both exceed 50% — hence Rowan yields lower bonus outgo than Halsey.

Question 26

SOFTHUG is a global brand created by Green-lush Ltd. The company manufactures three range of beauty soaps: SOFTHUG-Gold, SOFTHUG-Pearl, and SOFTHUG-Diamond. The budgeted costs and production for the month of May 2024 are as follows:

Production: SOFTHUG-Gold 4,000 units; SOFTHUG-Pearl 3,000 units; SOFTHUG-Diamond 2,000 units.

Resources per unit — Essential Oils: Gold 60 ml @ ₹200/100ml, Pearl 55 ml @ ₹300/100ml, Diamond 65 ml @ ₹300/100ml; Cocoa Butter: all 20g @ ₹200/100g; Filtered Water: all 30 ml @ ₹15/100ml; Chemicals: Gold 10g @ ₹30/100g, Pearl 12g @ ₹50/100g, Diamond 15g @ ₹60/100g; Direct Labour: Gold 30 min @ ₹10/hr, Pearl 40 min @ ₹10/hr, Diamond 60 min @ ₹10/hr.

Green-lush Ltd. followed an Absorption Costing System absorbing production overheads using direct labour hour rate; b…

Accepted Answer

**Part (i): Absorption Costing — Unit and Total Costs**

**Step 1 — Direct Material Cost per unit:**

| Ingredient | Gold (₹) | Pearl (₹) | Diamond (₹) |
|---|---|---|---|
| Essential Oils | 60/100×200 = 120.00 | 55/100×300 = 165.00 | 65/100×300 = 195.00 |
| Cocoa Butter | 20/100×200 = 40.00 | 40.00 | 40.00 |
| Filtered Water | 30/100×15 = 4.50 | 4.50 | 4.50 |
| Chemicals | 10/100×30 = 3.00 | 12/100×50 = 6.00 | 15/100×60 = 9.00 |
| **Total DM** | **167.50** | **215.50** | **248.50** |

**Step 2 — Direct Labour per unit:** Gold: 30/60×10 = ₹5.00 | Pearl: 40/60×10 = ₹6.67 | Diamond: 60/60×10 = ₹10.00

**Step 3 — Overhead Absorption Rate (OAR):**
Total DLH = (4,000×30/60) + (3,000×40/60) + (2,000×60/60) = 2,000+2,000+2,000 = **6,000 hrs**
OAR = ₹1,98,000 ÷ 6,000 = **₹33 per DLH**
Overhead per unit: Gold = 0.5×33 = ₹16.50 | Pearl = 0.667×33 = ₹22.00 | Diamond = 1×33 = ₹33.00

**Absorption Costing — Statement of Costs:**

| | Gold (₹/unit) | Pearl (₹/unit) | Diamond (₹/unit) |
|---|---|---|---|
| Direct Material | 167.50 | 215.50 | 248.50 |
| Direct Labour | 5.00 | 6.67 | 10.00 |
| Production Overhead | 16.50 | 22.00 | 33.00 |
| **Unit Cost** | **189.00** | **244.17** | **291.50** |
| Units produced | 4,000 | 3,000 | 2,000 |
| **Total Cost (₹)** | **7,56,000** | **7,32,500** | **5,83,000** |

**Grand Total = ₹20,71,500**

---

**Part (ii): Activity Based Costing (ABC) — Product Costs**

**Activity 1 — Forklifting (₹58,000; driver: weight of material lifted)**

Mass per unit (input…

Question 27

Han Ltd. sells three products namely 'A', 'B' and 'C'. The following information is available regarding sales, costs and activity for the year ended 31st March:

| Particulars | A | B | C |
|---|---|---|---|
| Sales (₹) | 60,00,000 | 90,00,000 | 54,00,000 |
| Cost of Sales (₹) | 30,00,000 | 78,00,000 | 27,00,000 |
| Area of storage (sq.ft.) | 72,000 | 1,08,000 | 36,000 |
| Number of parcels sent | 2,40,000 | 3,00,000 | 2,10,000 |
| Number of invoices sent | 60,000 | 90,000 | 1,44,000 |

Selling and Distribution overheads and basis of allocation:

| Fixed Cost | Amount (₹) | Basis |
|---|---|---|
| Rent and Insurance | 6,00,000 | Square feet |
| Depreciation | 2,70,000 | Parcels |
| Salesman's salaries & expenses | 11,40,000 | Sales Volume |
| Administrative wages and salaries | 9,00,000 | …

Accepted Answer

**Profitability Statement of Han Ltd. for the year ended 31st March**

The statement below shows sales, cost of sales, gross profit, and the allocation of all selling and distribution overheads (both fixed and variable) to arrive at the net profit/(loss) for each product.

| Particulars | Product A (₹) | Product B (₹) | Product C (₹) | Total (₹) |
|---|---|---|---|---|
| Sales | 60,00,000 | 90,00,000 | 54,00,000 | 2,04,00,000 |
| Less: Cost of Sales | 30,00,000 | 78,00,000 | 27,00,000 | 1,35,00,000 |
| **Gross Profit** | **30,00,000** | **12,00,000** | **27,00,000** | **69,00,000** |
| **Less: S&D Overheads – Fixed** | | | | |
| Rent & Insurance (Sq. ft.) | 2,00,000 | 3,00,000 | 1,00,000 | 6,00,000 |
| Depreciation (Parcels) | 86,400 | 1,08,000 | 75,600 | 2,70,000 |
| Salesman's Salaries (Sales Vol.) | 3,35,294 | 5,02,941 | 3,01,765 | 11,40,000 |
| Admin. Wages & Salaries (Invoices) | 1,83,673 | 2,75,510 | 4,40,817 | 9,00,000 |
| **Less: S&D Overheads – Variable** | | | | |
| Packing Wages & Materials | 11,52,000 | 14,40,000 | 10,08,000 | 36,00,000 |
| Commission @ 2.40% on Sales | 1,44,000 | 2,16,000 | 1,29,600 | 4,89,600 |
| Stationery (per Invoice) | 1,08,000 | 1,62,000 | 2,59,200 | 5,29,200 |
| **Total S&D Overheads** | **22,09,367** | **30,04,451** | **23,14,982** | **75,28,800** |
| **Net Profit / (Loss)** | **7,90,633** | **(18,04,451)** | **3,85,018** | **(6,28,800)** |
| **% on Sales** | **13.18%** | **(20.05%)** | **7.13%** | **(3.08%)** |

**Examination of the Fina…

Question 28

From the following data of Appu Ltd., CALCULATE (i) Material Consumed; (ii) Prime Cost and (iii) Cost of production.

(i) Repair & maintenance paid for plant & machinery: ₹ 9,80,500
(ii) Insurance premium paid for inventories: ₹ 26,000
(iii) Insurance premium paid for plant & machinery: ₹ 96,000
(iv) Raw materials purchased: ₹ 64,00,000
(v) Opening stock of raw materials: ₹ 2,88,000
(vi) Closing stock of raw materials: ₹ 4,46,000
(vii) Wages paid: ₹ 23,20,000
(viii) Value of opening Work-in-process: ₹ 4,06,000
(ix) Value of closing Work-in-process: ₹ 6,02,100
(x) Quality control cost for products in manufacturing process: ₹ 86,000
(xi) Research & development cost for improvement in production process: ₹ 92,600
(xii) Administrative cost for Factory & production: ₹ 9,00,000; Others: ₹ 11,60,…

Accepted Answer

**Cost Sheet of Appu Ltd.**

**(i) Material Consumed**

Material Consumed = Opening Stock of Raw Materials + Raw Materials Purchased − Closing Stock of Raw Materials
= ₹2,88,000 + ₹64,00,000 − ₹4,46,000
= **₹62,42,000**

**(ii) Prime Cost**

Prime Cost = Material Consumed + Direct Labour + Direct Expenses

**Direct Labour:** Wages paid = ₹23,20,000
**Direct Expenses:** Packing cost necessary to preserve goods for further processing = ₹10,200 (included as a direct expense since it is incidental to production)

Prime Cost = ₹62,42,000 + ₹23,20,000 + ₹10,200
= **₹85,72,200**

**(iii) Cost of Production**

Cost of Production = Prime Cost + Works/Factory Overhead + Opening WIP − Closing WIP

**Factory/Works Overhead:**
- Repair & maintenance for plant & machinery: ₹9,80,500
- Insurance premium for inventories: ₹26,000
- Insurance premium for plant & machinery: ₹96,000
- Quality control cost (manufacturing process): ₹86,000
- R&D cost for improvement in production process: ₹92,600
- Administrative cost — Factory & production: ₹9,00,000
- Salary paid to Director (Technical): ₹8,90,000
- Less: Scrap realised during manufacturing: (₹9,200)

Total Factory Overhead = **₹30,61,900**

Cost of Production = ₹85,72,200 + ₹30,61,900 + ₹4,06,000 − ₹6,02,100
= **₹1,14,38,000**

**Notes on items excluded:**
- Administrative cost — Others (₹11,60,000): General administration, not related to factory/production; excluded from cost of production.
- Packing cost for further processing (₹10,200): Trea…

Question 29

IC Ltd. manufactures two types of phone covers, one is 'plastic' phone cover and another is 'silicon' phone cover.

The cost data relating to the manufacturing of both the phone covers for the year ended 31st March is provided below:

| Particulars | Amount (₹) |
|---|---|
| Direct Materials | 1,00,00,000 |
| Direct Wages | 56,00,000 |
| Production Overhead | 32,00,000 |
| Total | 1,88,00,000 |

Other information:
• Direct material cost per unit of 'silicon' phone cover was twice that of 'plastic' phone cover.
• Direct wages per unit for 'plastic' phone cover were 60% of those for 'silicon' phone cover.
• Production overhead per unit was at same rate for both types of phone covers.
• Administration overhead being part of cost of production was 50% of Production overhead.
• Selling cost and…

Accepted Answer

**Cost Sheet for 'Silicon' Phone Cover** (For the year ended 31st March)

**Step 1 – Determination of Per Unit Costs (Silicon Cover)**

**Direct Material per unit:**
Let direct material cost per unit of plastic cover = x, then silicon = 2x.
Total: 3,00,000x + 1,00,000(2x) = 5,00,000x = ₹1,00,00,000 → x = ₹20 (plastic), **silicon = ₹40 per unit**.

**Direct Wages per unit:**
Let wages per unit of silicon = y, then plastic = 0.6y.
Total: 3,00,000(0.6y) + 1,00,000(y) = 2,80,000y = ₹56,00,000 → y = ₹20 (silicon), plastic = ₹12.
**Silicon direct wages = ₹20 per unit.**

**Production Overhead per unit (same rate for both):**
Total units = 1,00,000 + 3,00,000 = 4,00,000.
Rate = ₹32,00,000 ÷ 4,00,000 = **₹8 per unit.**

**Administration Overhead per unit:**
Admin OH = 50% × ₹32,00,000 = ₹16,00,000 (part of cost of production, allocated equally).
Rate = ₹16,00,000 ÷ 4,00,000 = **₹4 per unit.**

**Step 2 – Cost Sheet**

| Particulars | Per Unit (₹) | Total (₹) |
|---|---|---|
| **Direct Material** | 40 | 40,00,000 |
| **Direct Wages** | 20 | 20,00,000 |
| **Prime Cost** | **60** | **60,00,000** |
| Add: Production Overhead | 8 | 8,00,000 |
| **Works Cost** | **68** | **68,00,000** |
| Add: Administration Overhead | 4 | 4,00,000 |
| **Cost of Production** (1,00,000 units) | **72** | **72,00,000** |
| Less: Closing Stock (10,000 units × ₹72) | — | (7,20,000) |
| **Cost of Goods Sold** (90,000 units) | **72** | **64,80,000** |
| Add: Selling Cost | 8 | 7,20,000 |
| **Cost of Sales** | **8…

Question 30

A manufacturing company disclosed a net loss of ₹ 3,47,000 as per their cost accounts for the year ended March 31, 2024. The financial accounts however disclosed a net loss of ₹ 5,10,000 for the same period. The following information was revealed as a result of scrutiny of the figures of both sets of accounts:

(i) Factory Overheads under-absorbed: ₹ 40,000
(ii) Administration Overheads over-absorbed: ₹ 60,000
(iii) Depreciation charged in Financial Accounts: ₹ 3,25,000
(iv) Depreciation charged in Cost Accounts: ₹ 2,75,000
(v) Interest on investments not included in Cost Accounts: ₹ 96,000
(vi) Income-tax provided: ₹ 54,000
(vii) Interest on loan funds in Financial Accounts: ₹ 2,45,000
(viii) Transfer fees (credit in financial books): ₹ 24,000
(ix) Stores adjustment (credit in financial b…

Accepted Answer

**Memorandum Reconciliation Account** for the year ended March 31, 2024

| Dr. | Particulars | ₹ | Cr. | Particulars | ₹ |
|---|---|---|---|---|---|
| | Net Loss as per Cost Accounts | 3,47,000 | | Admin. Overheads over-absorbed | 60,000 |
| | Factory Overheads under-absorbed | 40,000 | | Interest on Investments (not in Cost A/c) | 96,000 |
| | Excess Depreciation in Financial A/c (3,25,000 − 2,75,000) | 50,000 | | Transfer Fees (credit in Financial Books) | 24,000 |
| | Income Tax provided (in Financial A/c only) | 54,000 | | Stores Adjustment (credit in Financial Books) | 14,000 |
| | Interest on Loan Funds (in Financial A/c only) | 2,45,000 | | Dividend Received (in Financial A/c only) | 32,000 |
| | | | | Net Loss as per Financial Accounts | 5,10,000 |
| | **Total** | **7,36,000** | | **Total** | **7,36,000** |

**Treatment rationale:**

**Debit side (increase the loss from Cost to Financial A/c):**
- **Factory Overheads under-absorbed (₹40,000):** Under-absorption means cost accounts absorbed less than actual overhead, so financial accounts reflect higher cost → increases financial loss.
- **Excess Depreciation in Financial A/c (₹50,000):** Financial accounts charge ₹3,25,000 vs. ₹2,75,000 in cost accounts → higher charge in financial accounts → increases financial loss.
- **Income Tax (₹54,000):** Purely a financial account charge; not included in cost accounts → increases financial loss.
- **Interest on Loan Funds (₹2,45,000):** A financing cost recorded only in financ…

CA Inter Cost & Mgmt

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