Question 1

What is the net cash sales (after discount) for the month of February 2025?

Accepted Answer

**Answer: (A) ₹2,42,500**

To find net cash sales (after discount) for February 2025, we need to first segregate the total sales into cash and credit components.

Sales composition: Given that credit sales are twice of cash sales.

If Cash Sales = x, then Credit Sales = 2x

Total Sales = x + 2x = 3x

For February 2025, Total Projected Sales = ₹7,50,000

Therefore:
Cash Sales = 7,50,000 ÷ 3 = **₹2,50,000**
Credit Sales = (2 × 7,50,000) ÷ 3 = **₹5,00,000**

Discount on cash sales: Cash sales are eligible for **3% discount** as per the company's pricing policy.

Discount amount = 2,50,000 × 3% = ₹7,500

Net Cash Sales (after discount) = 2,50,000 - 7,500 = **₹2,42,500**

Note: The 20% profit margin mentioned in part (c) is already factored into the selling price and does not require separate calculation for determining net cash sales after discount.

Question 2

What is the amount of total collection from debtors for the month of March 2025?

Accepted Answer

**Answer: (D) ₹ 5,30,000**

To find the total collection from debtors in March 2025, we must identify all credit sales revenues collected during this month.

**Step 1: Segregate Sales into Cash and Credit**

Given: Credit sales = 2 × Cash sales
This means: Total Sales = Cash Sales + Credit Sales = S + 2S = 3S
Therefore: Cash Sales = 1/3 of Total Sales; Credit Sales = 2/3 of Total Sales

**Step 2: Calculate March 2025 Credit Sales**

March Total Sales = ₹ 8,25,000
March Credit Sales = 2/3 × 8,25,000 = **₹ 5,50,000**

**Step 3: Calculate February 2025 Credit Sales**

February Total Sales = ₹ 7,50,000
February Credit Sales = 2/3 × 7,50,000 = **₹ 5,00,000**

**Step 4: Determine Collections in March**

Collection policy: 60% of credit sales collected in the same month; 40% collected in the following month.

Collections in March comprise:
(a) **From March's credit sales** (60% collected in same month): 5,50,000 × 60% = **₹ 3,30,000**
(b) **From February's credit sales** (40% collected in following month): 5,00,000 × 40% = **₹ 2,00,000**

**Total Collection from Debtors in March 2025 = ₹ 3,30,000 + ₹ 2,00,000 = ₹ 5,30,000**

Note: The 3% discount on cash sales does not affect debtor collections, as debtors represent credit customers only. Cash discounts apply only to cash sales.

Question 3

What is the amount of credit purchases for the month of February 2025?

Accepted Answer

**Answer: (B) ₹3,96,000**

To find credit purchases for February 2025, we must first determine the cost of goods to be sold in March 2025 (since goods are purchased one month before sale).

**Step 1: Calculate total purchases required for February**

Selling price includes 20% profit margin on selling price, so:
Cost Price = Selling Price × (1 - 0.20) = 0.80 × Selling Price

March 2025 sales = ₹8,25,000
Cost of goods to be sold in March = 0.80 × ₹8,25,000 = ₹6,60,000

Since goods are purchased one month before sale, total purchases required in February = ₹6,60,000

**Step 2: Split purchases into cash and credit**

Cash purchases comprise 40% of total purchases:
Cash purchases in February = 0.40 × ₹6,60,000 = ₹2,64,000

Credit purchases comprise 60% of total purchases:
Credit purchases in February = 0.60 × ₹6,60,000 = **₹3,96,000**

Question 4

What is the amount of payment to creditors for the month of March 2025?

Accepted Answer

**Answer: (C) ₹3,60,000**

To calculate payment to creditors in March 2025, we need to identify credit purchases made in February and March, then determine the portion paid in March.

**Step 1: Calculate Cost of Goods Sold**

Given that profit margin = 20% on selling price, the cost of goods = 80% of selling price.

March 2025 sales: ₹8,25,000 → Cost = 80% × ₹8,25,000 = ₹6,60,000
April 2025 sales: ₹6,75,000 → Cost = 80% × ₹6,75,000 = ₹5,40,000

**Step 2: Identify Purchases by Month**

Since goods are purchased one month before sale:
- February 2025 purchases (for March sales) = ₹6,60,000
- March 2025 purchases (for April sales) = ₹5,40,000

**Step 3: Calculate Credit Purchases**

Credit purchases = 60% of total purchases

February purchases: Credit portion = 60% × ₹6,60,000 = ₹3,96,000
- 50% paid in February, 50% paid in March
- Amount paid in March = 50% × ₹3,96,000 = ₹1,98,000

March purchases: Credit portion = 60% × ₹5,40,000 = ₹3,24,000
- 50% paid in March, 50% paid in April
- Amount paid in March = 50% × ₹3,24,000 = ₹1,62,000

**Step 4: Total Payment to Creditors**

Payment to creditors in March = ₹1,98,000 + ₹1,62,000 = **₹3,60,000**

Question 5

What is the amount of closing cash in hand as on 31st March, 2025?

Accepted Answer

**Answer: (B) ₹ 3,71,250**

A two-month cash budget is prepared for February and March 2025, starting from the opening balance of ₹ 60,000 on 1st February 2025.

**Sales Split:** Since credit sales = 2 × cash sales, cash sales = 1/3 of total and credit sales = 2/3 of total.

**Cash Receipts:** Cash sales are received net of 3% discount. Credit sales: 60% collected in the month of sale and 40% in the following month.

**Purchases:** Cost = 80% of selling price (since profit margin is 20% on selling price). Goods are purchased one month prior to the month of sale. Cash purchases = 40% of total; credit purchases = 60%, of which 50% is paid in the month of purchase and 50% in the following month.

**February 2025 — Cash Receipts:**
Net cash sales (₹ 2,50,000 × 0.97) = ₹ 2,42,500
Credit collections — 60% of Feb credit sales (₹ 5,00,000 × 60%) = ₹ 3,00,000
Credit collections — 40% of Jan credit sales (₹ 6,00,000 × 40%) = ₹ 2,40,000
**Total Receipts (Feb) = ₹ 7,82,500**

**February 2025 — Cash Payments (Purchases):**
Purchases made in Jan (for Feb sales) = ₹ 7,50,000 × 80% = ₹ 6,00,000
 50% of credit portion of Jan purchases (₹ 6,00,000 × 60% × 50%) = ₹ 1,80,000
Purchases made in Feb (for Mar sales) = ₹ 8,25,000 × 80% = ₹ 6,60,000
 Cash portion (40%) paid in Feb = ₹ 2,64,000
 50% of credit portion paid in Feb (₹ 6,60,000 × 60% × 50%) = ₹ 1,98,000
**Total Payments (Feb) = ₹ 6,42,000**

**Closing Balance — 28th February = ₹ 60,000 + ₹ 7,82,500 − ₹ 6,42,000 = ₹ 2,00,500**

**March 2025…

Question 6

P/V ratio and Break-even sales (in value) based on the last year accounts would be:

Accepted Answer

To find P/V ratio and break-even sales based on last year accounts, we must segregate variable and fixed costs from the given P&L.

**Step 1: Identify Variable Costs**
Variable costs are those that change with sales volume:
- Direct materials: ₹7,500,000
- Direct labour: ₹26,250,000
- Variable factory overheads: ₹4,500,000
- Sales commission (2% of sales): ₹1,500,000
- Delivery costs (variable per unit): ₹3,750,000
Total Variable Costs = ₹43,500,000

**Step 2: Identify Fixed Costs**
Fixed costs remain constant regardless of volume:
- Fixed factory overheads: ₹16,500,000
- Fixed administration overhead: ₹10,500,000
- Fixed selling and distribution costs: ₹3,000,000
Total Fixed Costs = ₹30,000,000

**Step 3: Calculate Contribution**
Contribution = Sales – Variable Costs
Contribution = ₹75,000,000 – ₹43,500,000 = ₹31,500,000

**Step 4: Calculate P/V Ratio**
P/V Ratio = (Contribution / Sales) × 100
P/V Ratio = (₹31,500,000 / ₹75,000,000) × 100 = 42%

**Step 5: Calculate Break-even Sales**
Break-even Sales = Fixed Costs / P/V Ratio
Break-even Sales = ₹30,000,000 / 0.42 = ₹71,428,571 (approximately)

The P/V ratio of 42% means that for every rupee of sales, 42 paise contributes towards covering fixed costs and profit. At break-even point, the company recovers all fixed costs with zero profit or loss.

Question 7

Profit/(Loss) from proposal (i) would be:

Accepted Answer

**Answer: (C)**

**Analysis using Marginal Costing:**

First, identify variable and fixed costs from current P&L:

**Variable cost per unit (current):**
- Direct materials: ₹7,500,000 ÷ 50,000 = ₹150
- Direct labour: ₹26,250,000 ÷ 50,000 = ₹525
- Variable factory overhead: ₹4,500,000 ÷ 50,000 = ₹90
- Delivery costs: ₹3,750,000 ÷ 50,000 = ₹75
- Sales commission (2% of selling price): 2% × ₹1,500 = ₹30

**For Proposal (i) at new selling price of ₹1,350:**
Sales commission per unit = 2% × ₹1,350 = ₹27 (note: commission changes with price)

Variable cost per unit (revised) = ₹150 + ₹525 + ₹90 + ₹75 + ₹27 = **₹867 per unit**

**Fixed costs (unchanged):**
- Fixed factory overhead: ₹16,500,000
- Fixed administration overhead: ₹10,500,000
- Fixed S&D costs: ₹3,000,000
- Total fixed: **₹30,000,000**

**Proposal (i) calculation:**
- Units after 40% increase: 50,000 × 1.40 = **70,000 units**
- Selling price after 10% reduction: ₹1,500 × 0.90 = **₹1,350 per unit**
- Total revenue: 70,000 × ₹1,350 = **₹94,500,000**
- Total variable costs: 70,000 × ₹867 = **₹60,690,000**
- Total costs: ₹60,690,000 + ₹30,000,000 = **₹90,690,000**
- **Profit = ₹94,500,000 − ₹90,690,000 = ₹3,810,000**

Question 8

With respect to proposal (i), how many number of units White Kollars Pvt. Ltd. would need to sell at ₹ 1,350 each to earn a desired profit of ₹ 60,00,000?

Accepted Answer

**Answer: (B) 74,534 units**

Under proposal (i), the selling price is reduced to ₹1,350 per unit. To find the target profit units, we use the formula:

**Target Profit Units = (Fixed Costs + Target Profit) ÷ Contribution per Unit**

**Step 1: Calculate Variable Cost per Unit**
From the current operations (50,000 units base):
- Direct materials: ₹7,500,000 ÷ 50,000 = ₹150
- Direct labour: ₹26,250,000 ÷ 50,000 = ₹525
- Variable factory overheads: ₹4,500,000 ÷ 50,000 = ₹90
- Delivery costs: ₹3,750,000 ÷ 50,000 = ₹75
- Sales commission: 2% × ₹1,350 = ₹27 (at new price)

**Total variable cost per unit = ₹867**

**Step 2: Calculate Contribution per Unit**
Contribution = Selling price − Variable cost per unit
Contribution = ₹1,350 − ₹867 = **₹483 per unit**

**Step 3: Identify Total Fixed Costs**
- Fixed factory overheads: ₹16,500,000
- Fixed administration overhead: ₹10,500,000
- Fixed selling and distribution costs: ₹3,000,000

**Total fixed costs = ₹30,000,000**

**Step 4: Calculate Target Profit Units**
Units required = (₹30,000,000 + ₹6,000,000) ÷ ₹483
Units required = ₹36,000,000 ÷ ₹483
Units required = **74,533.74 ≈ 74,534 units**

At 74,534 units with a contribution of ₹483 per unit and fixed costs of ₹30,000,000, the company would achieve the target profit of ₹6,000,000.

Question 9

With respect to proposal (ii), how much selling price per unit should be offered to eFlip, that would at least break even on this proposal?

Accepted Answer

**Answer: (D) ₹1,020**

To determine the break-even selling price for the eFlip proposal, we must identify the relevant variable costs and additional fixed costs incurred solely for this order.

**Step 1: Calculate Variable Cost per Unit for eFlip Order**

From the P&L statement, the variable costs per unit for regular sales are:
- Direct materials: ₹7,500,000 ÷ 50,000 = ₹150
- Direct labour: ₹26,250,000 ÷ 50,000 = ₹525
- Variable factory overheads: ₹4,500,000 ÷ 50,000 = ₹90
- Delivery costs (variable): ₹3,750,000 ÷ 50,000 = ₹75
- Sales commission (2% of ₹1,500): ₹30

For the eFlip proposal, the relevant variable costs are:
- Direct materials: ₹150 (unavoidable)
- Direct labour: ₹525 (unavoidable)
- Variable factory overheads: ₹90 (unavoidable)
- Special packaging: ₹75 (specific to eFlip)
- Delivery costs: ₹0 (eFlip handles transportation)
- Sales commission: ₹0 (no commission for bulk online order)

**Marginal cost per unit for eFlip = ₹150 + ₹525 + ₹90 + ₹75 = ₹840**

**Step 2: Calculate Break-Even Price**

The additional fixed cost specific to the eFlip proposal:
- Contribution to online catalogue cost: ₹4,500,000

For break-even, total contribution from 25,000 units must equal the additional fixed cost:
- Required contribution per unit = ₹4,500,000 ÷ 25,000 = ₹180

Break-even selling price = Marginal cost per unit + Contribution per unit
= ₹840 + ₹180 = **₹1,020 per unit**

At this price, revenue from eFlip (25,000 × ₹1,020 = ₹25,500,000) minus variable costs (25,000 × ₹8…

Question 10

Profit/(Loss) from proposal (iii) would be:

Accepted Answer

**Answer: (A) ₹63,90,000**

For Proposal (iii), we need to calculate profit under a 10% price reduction combined with a ₹2,250,000 advertising campaign, with 60% demand increase.

**Step 1: Determine new selling price and units**
New selling price = ₹1,500 × 0.90 = ₹1,350 per unit
New units = 50,000 × 1.60 = 80,000 units

**Step 2: Calculate variable cost per unit**
Direct materials: ₹7,500,000 ÷ 50,000 = ₹150
Direct labour: ₹26,250,000 ÷ 50,000 = ₹525
Variable factory overheads: ₹4,500,000 ÷ 50,000 = ₹90
Sales commission (2% of ₹1,350): ₹27
Delivery costs: ₹3,750,000 ÷ 50,000 = ₹75

Total variable cost per unit = ₹867

**Step 3: Calculate contribution margin**
Contribution per unit = ₹1,350 − ₹867 = ₹483
Total contribution = 80,000 × ₹483 = **₹38,640,000**

**Step 4: Calculate total fixed costs**
Fixed factory overheads: ₹16,500,000
Fixed administration overhead: ₹10,500,000
Fixed selling & distribution overhead: ₹3,000,000
Advertising campaign cost: ₹2,250,000

Total fixed costs = **₹32,250,000**

**Step 5: Calculate profit**
Profit = Contribution − Fixed costs
Profit = ₹38,640,000 − ₹32,250,000 = **₹6,390,000 or ₹63,90,000**

Question 11

In two consecutive quarters, a company reported the following performance: Quarter 1 sales were ₹ 2,10,000 with a profit of ₹ 12,000, while Quarter 2 sales rose to ₹ 2,40,000 with a profit of ₹ 24,000. Assume that the fixed cost remained constant across both quarters and that the company did not introduce any new product lines.

Based on the above information, the P/V ratio must be:

Accepted Answer

**Answer: (C) 40%**

When fixed costs remain constant across two periods, the change in profit equals the change in contribution. The P/V ratio is calculated as the ratio of change in profit to change in sales. Between Quarter 1 and Quarter 2, sales increased by ₹30,000 (₹2,40,000 − ₹2,10,000) and profit increased by ₹12,000 (₹24,000 − ₹12,000). Therefore, P/V ratio = ₹12,000 ÷ ₹30,000 = 40%. This can be verified: at 40% P/V ratio, Quarter 1 contribution is ₹84,000 with fixed cost of ₹72,000, and Quarter 2 contribution is ₹96,000 with the same fixed cost of ₹72,000, confirming the ratio.

Question 12

In a chemical processing unit, materials are added at the beginning of the process. During the month, the department reported 9,200 equivalent units of production (EUP) under the FIFO method. The process had an opening WIP of 800 units, which were 50% complete, and a closing WIP of 900 units, which were 70% complete with respect to conversion costs. During the month, the plant also faced a minor machine breakdown, but it did not affect the material input, only the processing speed.

Based on the above information, the number of units completed during the month was:

Accepted Answer

**Answer: (B)**

Under the FIFO method, equivalent units of production (EUP) is calculated as: Work to complete opening WIP + Units started and completed + Work on closing WIP.

Since materials are added at the beginning, the completion percentages given (50% for opening WIP, 70% for closing WIP) refer to conversion costs only.

**For Conversion Costs:**
- Work to complete opening WIP: 800 units × (100% - 50%) = 400 EUP
- Closing WIP work: 900 units × 70% = 630 EUP
- Total EUP = 9,200

Therefore: 400 + Units started and completed + 630 = 9,200
Units started and completed = 9,200 - 1,030 = 8,170 units

**Units Completed During Month:**
Units completed = Opening WIP completed + Units started and completed
= 800 + 8,170 = **8,970 units**

Verification: Opening WIP (800) + Units started (9,070) = Total available (9,870); Completed (8,970) + Closing WIP (900) = 9,870 ✓

The machine breakdown is irrelevant to this calculation as it did not affect material input or the reported completion percentages.

Question 13

In a manufacturing enterprise, two joint products, X and Y, emerge simultaneously from a common production process. The company incurs joint costs up to the split-off point, after which the products become separately identifiable. For the previous month, the following details relating to production and inventory are available:

Product X: Sales 96,000 units; Opening Stock 2,400 units; Closing Stock 6,000 units
Product Y: Sales 64,000 units; Opening Stock 4,800 units; Closing Stock 2,400 units

The total joint production cost incurred during the month amounted to ₹ 18,60,000. These joint costs are apportioned between products X and Y in proportion to the number of units produced.

Determine the amount of joint production cost to be allocated to Product X for the month.

Accepted Answer

**Answer: (B)**

To allocate joint costs to Product X, we must first determine units produced during the month using the formula: **Units Produced = Sales + Closing Stock − Opening Stock**.

**Product X:** 96,000 + 6,000 − 2,400 = **99,600 units**
**Product Y:** 64,000 + 2,400 − 4,800 = **61,600 units**
**Total units produced:** 161,200 units

Since joint costs are apportioned in proportion to units produced:

**Joint Cost Allocation to X** = (99,600 ÷ 161,200) × ₹18,60,000 = **₹11,49,230**

Question 14

Hari Udyog is a small-scale manufacturing unit producing a single product X using two raw materials PK and BK in the input ratio of 3:2. The input–output ratio in production is 5:3.

Raw material PK is perishable and becomes obsolete if not used within 5 days of purchase, whereas raw material BK is durable and can be stored for more than one year. Material PK is procured locally with a lead time of 1 to 2 days, while material BK is purchased from a neighbouring state and takes 2 to 4 days.

The estimated sales volume for April 2025 is 30,000 kg, and the same level of sales is expected to continue throughout the year. The company operates for 25 days a month, and production is carried out evenly.

Purchase price per kg (excluding taxes): PK – ₹ 15; BK – ₹ 22. Administrative cost to place an…

Accepted Answer

**MATERIAL COST ANALYSIS - SOLUTION**

**Preliminary Calculations:**
From given sales output of 30,000 kg with input-output ratio of 5:3:
Total annual input required = (30,000 × 5)/3 = 50,000 kg

With input ratio PK:BK = 3:2:
- Material PK required = (50,000 × 3)/5 = 30,000 kg/year
- Material BK required = (50,000 × 2)/5 = 20,000 kg/year
- Annual working days = 25 days/month × 12 = 300 days/year
- Daily consumption of PK = 30,000/300 = 100 kg/day

**TAX TREATMENT:**
- **PK:** GST 5% with Input Tax Credit (ITC) available → Cost for inventory valuation = ₹15/kg (base price only, as GST is recoverable)
- **BK:** CST 2% with NO ITC available → Cost for inventory valuation = ₹22 + (2% of ₹22) = ₹22.44/kg (CST is non-recoverable cost)

**Carrying cost per unit per year:**
- PK: 15% × ₹15 = **₹2.25/kg**
- BK: 5% × ₹22.44 = **₹1.122/kg**

**(i) ECONOMIC ORDER QUANTITY (EOQ)**

**EOQ Formula: EOQ = √(2×D×O/C)**

Where D = Annual demand, O = Ordering cost per order, C = Carrying cost per unit per year

**For Material PK:**
EOQ = √(2 × 30,000 × 120 / 2.25)
EOQ = √(7,200,000 / 2.25)
EOQ = √3,200,000 = **₹1,789 kg**

**For Material BK:**
EOQ = √(2 × 20,000 × 120 / 1.122)
EOQ = √(4,800,000 / 1.122)
EOQ = √4,276,294.83 = **₹2,068 kg**

**(ii) MAXIMUM STOCK LEVEL FOR MATERIAL PK**

**Using standard formula:**
Maximum Stock = Reorder Point + EOQ − Minimum Consumption During Lead Time

Where:
- Reorder Point = Average daily consumption × Average lead time = 100 × 1.5 = **150 kg**
- Average lea…

Question 15

Rivaan Industries manufactures and sells wooden study tables. At present, Rivaan Industries pays wages under a piece-rate system, with a standard piece rate of ₹ 18 per table produced.

Company policy for payment under the piece-rate system:
• For efficiency less than 100%: Workers are paid 80% of the standard piece rate.
• For efficiency equal to or more than 100%: Workers are paid 125% of the standard piece rate.

The standard output per hour is 3 tables. Each worker works 9 hours per day from Monday to Friday and 4 hours on Saturday. A total of 132 workers are currently eligible for this wage plan.

Workers have demanded a shift to a time-rate wage system at ₹ 65 per hour, along with incentives under the Halsey Premium Plan (50% sharing of time saved).

Production Estimates for January …

Accepted Answer

**PART (A): MONTHLY WAGES UNDER BOTH SYSTEMS**

**Preliminary Calculations:**
Standard output per worker per month = 3 tables/hour × 49 hours/week × 4 weeks = 588 tables

Per-worker output under each scenario:
- Worst Case: 36,900 ÷ 132 = 279.55 tables/month; Efficiency = 47.56%
- Optimal Case: 73,800 ÷ 132 = 559.09 tables/month; Efficiency = 95.07%
- Best Case: 110,700 ÷ 132 = 838.64 tables/month; Efficiency = 142.60%

**PART (A)(I): CURRENT PIECE-RATE SYSTEM**

**Worst Case (Efficiency 47.56%, < 100%):**
Applicable rate = 80% × ₹18 = ₹14.40 per table
Total wages = 36,900 × 14.40 = **₹531,360**
Average per worker = 531,360 ÷ 132 = **₹4,026.67**

**Optimal Case (Efficiency 95.07%, < 100%):**
Applicable rate = 80% × ₹18 = ₹14.40 per table
Total wages = 73,800 × 14.40 = **₹1,062,720**
Average per worker = 1,062,720 ÷ 132 = **₹8,051.36**

**Best Case (Efficiency 142.60%, ≥ 100%):**
Applicable rate = 125% × ₹18 = ₹22.50 per table
Total wages = 110,700 × 22.50 = **₹2,490,750**
Average per worker = 2,490,750 ÷ 132 = **₹18,871.59**

**Technology Upgrade Case:**
Insufficient data provided. Specific output levels required to compute wages under this scenario.

**PART (A)(II): TIME-RATE + HALSEY PREMIUM SYSTEM**

Monthly hours per worker = 49 hours/week × 4 weeks = 196 hours
Standard monthly output = 588 tables per worker
Under Halsey Premium: Workers earn base time-rate (₹65/hour) plus 50% of time saved on output exceeding standard.

**Worst Case (279.55 units/worker < 588 standard):*…

Question 16

Omega Engineering Pvt. Ltd. operates three major CNC machines (X, Y, and Z) in its machining department. The management has provided the following annual cost data:

Preliminary Estimates of Annual Expenses:
Depreciation: Total ₹ 3,00,000 (X: ₹ 1,20,000; Y: ₹ 1,00,000; Z: ₹ 80,000)
Spare parts: Total ₹ 1,50,000 (X: ₹ 60,000; Y: ₹ 50,000; Z: ₹ 40,000)
Power: Total ₹ 5,50,000 (apportioned by KW rating)
Consumable stores: Total ₹ 1,20,000 (X: ₹ 50,000; Y: ₹ 40,000; Z: ₹ 30,000)
Insurance of machinery: Total ₹ 1,00,000
Indirect labour: Total ₹ 2,40,000
Building maintenance: Total ₹ 2,50,000
Annual interest on capital outlay: Total ₹ 1,20,000 (X: ₹ 50,000; Y: ₹ 40,000; Z: ₹ 30,000)

Additional monthly information:
Rent & rates: ₹ 30,000 per month
Salary of Production Supervisor: ₹ 60,000 per mo…

Accepted Answer

**Predetermined Machine Hour Rates (MHR) Calculation**

The machine hour rate is calculated by dividing total allocated overhead costs by the estimated machine hours available during the period.

**Step 1: Calculate Total Annual Working Hours**

Working days per year:
- Weekdays (Mon-Fri): 260 days less 12 holidays = 248 days
- Saturdays (half-days): 52 days less 3 holidays = 49 days

Total available hours: (248 × 8) + (49 × 4) = 1,984 + 196 = **2,180 hours**

Applying operating conditions:
- Capacity utilization: 92%
- Breakdown allowance: 3%
- Effective hours = 2,180 × 0.92 × 0.97 = **1,945 hours** (rounded)

**Step 2: Allocate and Calculate Overhead for Each Machine**

Overhead components and allocation bases:
- **Direct allocation**: Depreciation, Spare parts, Consumable stores, Interest
- **By KW rating**: Power
- **By capital value (depreciation)**: Insurance
- **By direct labour hours**: Indirect labour
- **By floor space**: Building maintenance, Rent & rates
- **Equal apportionment**: Supervisor & Machine operator salaries

Adjustments to spare parts:
- Machine X: ₹60,000 × 1.10 = **₹66,000**
- Machine Y: ₹50,000 × 1.10 × 1.30 = **₹71,500**
- Machine Z: ₹40,000 × 1.10 × 1.30 = **₹57,200**

**Total Annual Overhead:**
- Machine X: **₹12,05,182.54**
- Machine Y: **₹10,74,928.56**
- Machine Z: **₹8,90,588.89**

**Step 3: Calculate Machine Hour Rates**

**Machine X**: ₹12,05,182.54 ÷ 1,945 = **₹619.58 per machine hour**

**Machine Y**: ₹10,74,928.56 ÷ 1,945 = **₹552.74 per…

Question 17

A XYZ company supplies and maintains a range of printers for business customers. The service department provides after-sales support including routine preventive maintenance and repair services. Customers are charged a fee per print. There is one customer per machine.

The company's existing cost system uses a single overhead rate based on total sales revenue from print charges. The company's accountant has decided to implement an ABC system.

Activity cost data (overheads per annum):
Customer account handling (No. of Customers): ₹ 1,26,000
Planned maintenance scheduling (No. of planned maintenance visits): ₹ 4,80,000
Unplanned maintenance scheduling (No. of unplanned maintenance visits): ₹ 1,47,000
Spare part procurement (No. of purchase orders): ₹ 2,43,000
Other overheads (No. of machine…

Accepted Answer

**Part (a): Profit per machine using current overhead allocation method (based on sales revenue)**

Step 1: Calculate total annual sales revenue:
Desktop Inkjet: 300 machines × 60,000 copies × ₹0.03 = ₹5,40,000
Office Laser: 800 machines × 1,20,000 copies × ₹0.04 = ₹38,40,000
High-Volume: 500 machines × 1,80,000 copies × ₹0.05 = ₹45,00,000
Total revenue = ₹88,80,000

Step 2: Calculate overhead absorption rate:
Rate = ₹15,96,000 ÷ ₹88,80,000 = 18% of sales revenue

Step 3: Calculate per machine metrics:
Desktop Inkjet: Revenue/machine = 60,000 × ₹0.03 = ₹1,800
Office Laser: Revenue/machine = 1,20,000 × ₹0.04 = ₹4,800
High-Volume: Revenue/machine = 1,80,000 × ₹0.05 = ₹9,000

Step 4: Calculate direct costs (parts + labour):
Desktop Inkjet: (4+1) visits × (₹100 + ₹60) = ₹800/machine
Office Laser: (6+1) visits × (₹300 + ₹80) = ₹2,660/machine
High-Volume: (12+2) visits × (₹400 + ₹100) = ₹7,000/machine

Step 5: Allocate overhead and calculate profit:
Desktop Inkjet: ₹1,800 − ₹800 − (18% × ₹1,800) = **₹676/machine/year**
Office Laser: ₹4,800 − ₹2,660 − (18% × ₹4,800) = **₹1,276/machine/year**
High-Volume: ₹9,000 − ₹7,000 − (18% × ₹9,000) = **₹380/machine/year**

**Part (b): Profit per machine using Activity-Based Costing**

Step 1: Calculate cost driver rates:
Customer handling: ₹1,26,000 ÷ 1,600 customers = ₹78.75/customer
Planned maintenance: ₹4,80,000 ÷ 12,000 visits = ₹40/visit
Unplanned maintenance: ₹1,47,000 ÷ 2,100 visits = ₹70/visit
Spare parts procurement: ₹2,43,000 ÷ 2,700 …

Question 18

Following information is available from the books of YSPP Ltd. for the current year ending 31st March:

(i) Raw materials purchased: ₹ 35,00,00,000
(ii) Freight inwards: ₹ 39,22,100
(iii) Wages paid to factory workers: ₹ 1,02,20,000
(iv) Contribution made towards employees' PF & ESIS: ₹ 12,60,000
(v) Hire charges paid for hiring specific equipment: ₹ 8,40,000
(vi) Amount paid for power & fuel: ₹ 16,17,000
(vii) Amount paid for purchase of moulds and patterns (life equivalent to four years production): ₹ 31,36,000
(viii) Job charges paid to job workers: ₹ 28,42,000
(ix) Lease rent paid for production assets: ₹ 3,92,000
(x) Depreciation on: Factory building ₹ 2,94,000; Office building ₹ 1,96,000; Plant & Machinery ₹ 4,41,000; Delivery vehicles ₹ 3,01,000; Total ₹ 12,32,000
(xi) Salary paid t…

Accepted Answer

**STATEMENT OF COST FOR YSPP LTD. FOR THE YEAR ENDED 31ST MARCH**

**PRIME COST:**
Raw Materials Consumed:
  Opening Stock of Raw Materials: ₹ 63,00,000
  Add: Raw Materials Purchased: ₹ 35,00,00,000
  Add: Freight Inwards: ₹ 39,22,100
  Add: Demurrage (cost of acquisition): ₹ 15,000
  Raw Materials Available: ₹ 35,01,02,37,100
  Less: Closing Stock of Raw Materials: ₹ 33,60,000
  **Raw Materials Consumed: ₹ 35,00,68,77,100**

Add: Direct Wages:
  Wages to Factory Workers: ₹ 1,02,20,000
  Add: Contribution to PF & ESIS: ₹ 12,60,000
  **Direct Wages: ₹ 1,14,80,000**

Add: Direct Expenses:
  Hire Charges for Specific Equipment: ₹ 8,40,000
  Job Charges paid to Job Workers: ₹ 28,42,000
  Moulds & Patterns (₹ 31,36,000 ÷ 4 years): ₹ 7,84,000
  Primary Packing (necessary for quality): ₹ 3,36,000
  **Direct Expenses: ₹ 48,02,000**

**PRIME COST: ₹ 37,31,59,100**

**FACTORY COST:**
Prime Cost: ₹ 37,31,59,100

Add: Manufacturing/Factory Overheads:
  Power & Fuel: ₹ 16,17,000
  Supervisor Salary: ₹ 4,41,000
  Repairs & Maintenance (Plant & Machinery only): ₹ 1,68,000
  Insurance - Plant & Machinery: ₹ 1,09,200
  Insurance - Factory Building: ₹ 63,350
  Insurance - Raw Materials & WIP: ₹ 1,26,000
  Quality Control Expenses: ₹ 68,600
  Quality Control Staff Salary: ₹ 3,36,700
  R&D for Production Process Improvement: ₹ 63,700
  Factory Administration Expenses: ₹ 4,15,100
  Lease Rent (Production Assets): ₹ 3,92,000
  Depreciation - Factory Building: ₹ 2,94,000
  Depreciation - Plant & M…

Question 19

The following figures have been extracted from the cost records of a manufacturing unit:

Stores: Opening balance ₹ 32,000; Purchases of material ₹ 1,58,000; Transfer from work-in-progress ₹ 80,000; Issues to work-in-progress ₹ 1,60,000; Issues to repair and maintenance ₹ 20,000; Deficiencies found in stock taking ₹ 6,000.

Work-in-progress: Opening balance ₹ 60,000; Direct wages applied ₹ 65,000; Overheads applied ₹ 2,40,000; Closing balance of WIP ₹ 45,000.

Finished products: Entire output is sold at a profit of 10% on actual cost from work-in-progress.

Wages incurred ₹ 70,000; Overhead incurred ₹ 2,50,000.

Items not included in cost records: Income from investment ₹ 10,000; Loss on sale of capital assets ₹ 20,000.

Draw up Store Control account, Work-in-progress Control account, Cost…

Accepted Answer

**STORE CONTROL ACCOUNT**

**Debit Side:**
Opening Balance: ₹32,000
Purchases: ₹1,58,000
Transfer from WIP (Scrap): ₹80,000
**Total: ₹2,70,000**

**Credit Side:**
Issues to WIP: ₹1,60,000
Issues to Repair & Maintenance: ₹20,000
Deficiencies in stock-taking: ₹6,000
Closing Balance: ₹84,000
**Total: ₹2,70,000**

---

**WORK-IN-PROGRESS CONTROL ACCOUNT**

**Debit Side:**
Opening Balance: ₹60,000
Materials from Stores: ₹1,60,000
Direct Wages Applied: ₹65,000
Overheads Applied: ₹2,40,000
**Total: ₹5,25,000**

**Credit Side:**
Transfer to Finished Products: ₹4,00,000
Transfer to Stores (Scrap): ₹80,000
Closing Balance: ₹45,000
**Total: ₹5,25,000**

---

**FINISHED PRODUCTS CONTROL ACCOUNT**

**Debit Side:**
Transfer from WIP: ₹4,00,000

**Credit Side:**
Cost of Goods Sold (transferred out): ₹4,00,000

---

**COSTING PROFIT & LOSS ACCOUNT**

**Debit Side:**
Cost of Goods Sold: ₹4,00,000

**Credit Side:**
Sales (Cost × 110%): ₹4,40,000
**Costing Profit: ₹40,000**

---

**FINANCIAL PROFIT & LOSS ACCOUNT**

**Debit Side:**
Cost of Goods Sold: ₹4,00,000
Wage Variance (₹70,000 − ₹65,000): ₹5,000
Overhead Variance (₹2,50,000 − ₹2,40,000): ₹10,000
Loss on Sale of Capital Assets: ₹20,000
**Total: ₹4,35,000**

**Credit Side:**
Sales: ₹4,40,000
Income from Investment: ₹10,000
**Total: ₹4,50,000**

**Financial Profit: ₹15,000**

---

**RECONCILIATION STATEMENT**

Costing Profit: ₹40,000
Add: Items not in cost records - Income from investment: ₹10,000
Less: Items not in cost records - Loss on c…

Question 20

The Northshire Hospital Trust operates two types of specialist X-ray scanning machine, XR1 and XR50. Details for the next period are estimated as follows:

Machine XR1: Running hours 1,100; Variable running costs (excluding plates) ₹ 27,500; Fixed costs ₹ 20,000
Machine XR50: Running hours 2,000; Variable running costs (excluding plates) ₹ 64,000; Fixed costs ₹ 97,500

A brain scan is normally carried out on machine type XR1: this task uses special X-ray plates costing ₹ 40 each and takes four hours of machine time. Because of the nature of the process, around 10 per cent of the scans produce blurred and therefore useless results.

Accepted Answer

**Part (a): Cost of satisfactory brain scan on XR1**

First, calculate the total cost per running hour for machine XR1:
Total cost per hour = (Variable running costs + Fixed costs) / Running hours
= (₹27,500 + ₹20,000) / 1,100 hours
= ₹47,500 / 1,100
= **₹43.1818 per hour**

Cost for one brain scan (including rejects):
Machine time cost = 4 hours × ₹43.1818 = ₹172.7273
X-ray plates cost = ₹40
Total cost per scan produced = **₹212.7273**

Since 10% of scans are rejected, satisfactory rate = 90%

**Cost per satisfactory brain scan = ₹212.7273 / 0.90 = ₹236.36**

---

**Part (b): Machine comparison and recommendation**

Calculate the total cost per running hour for machine XR50:
Total cost per hour = (Variable running costs + Fixed costs) / Running hours
= (₹64,000 + ₹97,500) / 2,000 hours
= ₹161,500 / 2,000
= **₹80.75 per hour**

Cost for one brain scan on XR50 (including rejects):
Machine time cost = 1.8 hours × ₹80.75 = ₹145.35
X-ray plates cost = ₹55
Total cost per scan produced = **₹200.35**

Since 6% of scans are rejected, satisfactory rate = 94%

**Cost per satisfactory brain scan = ₹200.35 / 0.94 = ₹213.35**

**Comparison:**

| Machine | Cost per satisfactory scan |
|---------|---------------------------|
| XR1 | ₹236.36 |
| XR50 | ₹213.35 |
| Saving | ₹23.01 |

**Recommendation:** **Machine XR50 should be used.** Although it requires a higher initial plate cost (₹55 vs ₹40) and lower reject rate (6% vs 10%), the significantly lower machine time (1.8 hours vs 4 hours) an…

Question 21

A Company produces a component, which passes through two processes. During the month of April, 2025, materials for 40,000 components were put into Process I of which 30,000 were completed and transferred to Process II. Those not transferred to Process II were 100% complete as to materials cost and 50% complete as to labour and overheads cost.

Process I costs incurred:
Direct Materials: ₹ 15,000
Direct Wages: ₹ 18,000
Factory Overheads: ₹ 12,000

Of those transferred to Process II, 28,000 units were completed and transferred to finished goods stores. There was a normal loss with no salvage value of 200 units in Process II. There were 1,800 units remained unfinished in the process with 100% complete as to materials and 25% complete as regard to wages and overheads.

No further process mater…

Accepted Answer

**PROCESS I ACCOUNT**

**Statement of Equivalent Production:**

Units introduced: 40,000
Completed and transferred: 30,000
Closing WIP: 10,000 units (100% materials, 50% labour & overheads)

| Element | Completed | WIP (100%, 50%, 50%) | Total EP |
|---------|-----------|----------------------|----------|
| Materials | 30,000 | 10,000 | 40,000 |
| Labour | 30,000 | 5,000 | 35,000 |
| Overheads | 30,000 | 5,000 | 35,000 |

**Cost per Unit:**
- Materials: ₹15,000 / 40,000 = **₹0.375 per unit**
- Labour: ₹18,000 / 35,000 = **₹0.514 per unit**
- Overheads: ₹12,000 / 35,000 = **₹0.343 per unit**
- **Total Cost per Unit: ₹1.232**

**Process I Account:**

| Debit | Amount (₹) |
|-------|------------|
| Materials | 15,000 |
| Labour | 18,000 |
| Overheads | 12,000 |
| **Total** | **45,000** |

| Credit | Amount (₹) |
|--------|------------|
| Transferred to Process II (30,000 × ₹1.232) | 36,964 |
| Closing WIP: Materials (10,000 × 0.375) + Labour (5,000 × 0.514) + OH (5,000 × 0.343) | 8,036 |
| **Total** | **45,000** |

---

**PROCESS II ACCOUNT**

**Statement of Equivalent Production:**

Units received from Process I: 30,000
Completed and transferred to FG: 28,000
Normal loss: 200 units (at end, no salvage value)
Closing WIP: 1,800 units (100% materials, 25% labour & overheads)

| Element | Completed | Loss (100%) | WIP (100%, 25%, 25%) | Total EP |
|---------|-----------|-------------|----------------------|----------|
| Transferred-in | 28,000 | 200 | 1,800 | 30,000 |
| Packing (a…

Question 22

ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to as X, Y and Z. All three end products are separated simultaneously at a single split-off point. Product X and Y are ready for sale immediately upon split off without further processing or additional costs. Product Z, however, is processed further before being sold. There is no available market price for Z at the split-off point.

During 2024-25:
X – 186 tons sold for ₹ 3,000 per ton
Y – 527 tons sold for ₹ 2,250 per ton
Z – 736 tons sold for ₹ 1,500 per ton

Total joint manufacturing costs for the year: ₹ 12,50,000
Additional cost to finish product Z: ₹ 6,20,000

There were no opening inventories. The following inventories of complete units were on hand at year end:
X: 180 tons; …

Accepted Answer

**SOLUTION: JOINT PRODUCT COSTING USING NRV METHOD**

**Step 1: Determine Total Production**
X: 186 + 180 = 366 tons | Y: 527 + 60 = 587 tons | Z: 736 + 25 = 761 tons

**Step 2: Calculate NRV at Split-off Point**
For products ready for sale immediately (X and Y):
- X: ₹3,000 per ton
- Y: ₹2,250 per ton

For product Z (requiring further processing):
- Final selling price: ₹1,500 per ton
- Additional processing cost per ton: ₹6,20,000 ÷ 761 = ₹814.59 per ton
- **NRV at split-off = ₹1,500 - ₹814.59 = ₹685.41 per ton**

**Step 3: Establish Allocation Base (Total NRV)**
- X: ₹3,000 × 366 = ₹10,98,000
- Y: ₹2,250 × 587 = ₹13,20,750
- Z: ₹1,500 × 761 - ₹6,20,000 = ₹5,21,500
- **Total NRV = ₹29,40,250**

**Step 4: Allocate Joint Manufacturing Costs**
Allocation basis: NRV proportion of total NRV
- X: (₹10,98,000 ÷ ₹29,40,250) × ₹12,50,000 = **₹4,66,896**
- Y: (₹13,20,750 ÷ ₹29,40,250) × ₹12,50,000 = **₹5,61,239**
- Z: (₹5,21,500 ÷ ₹29,40,250) × ₹12,50,000 = **₹2,21,865**

**Step 5: Determine Cost per Unit**
- X: ₹4,66,896 ÷ 366 = ₹1,276.52 per ton
- Y: ₹5,61,239 ÷ 587 = ₹955.65 per ton
- Z: (₹2,21,865 + ₹6,20,000) ÷ 761 = ₹8,41,865 ÷ 761 = ₹1,105.87 per ton

**FINAL ANSWERS:**

**Cost of Closing Inventories at March 31, 2025:**
- X: 180 tons × ₹1,276.52 = **₹2,29,774**
- Y: 60 tons × ₹955.65 = **₹57,339**
- Z: 25 tons × ₹1,105.87 = **₹27,647**
- **Total Closing Inventory = ₹3,14,760**

**Cost of Goods Sold for Year Ended March 31, 2025:**
- X: 186 tons × ₹1,276.52 = **₹2,37,374**
- Y…

Question 23

BabyMoon Ltd. uses standard costing system in manufacturing one of its product 'Baby Cap'. The standard cost details are:
Direct Material: 1 Meter @ ₹ 60 per meter = ₹ 60
Direct Labour: 2 hours @ ₹ 20 per hour = ₹ 40
Variable overhead: 2 hours @ ₹ 10 per hour = ₹ 20
Total standard cost: ₹ 120

During the month of August, 10,000 units of 'Baby Cap' were manufactured. Actual details:
Direct material consumed: 11,400 meters @ ₹ 58 per meter
Direct labour hours: ? @ ? = ₹ 4,48,800
Variable overhead incurred: ₹ 2,24,400
Variable overhead efficiency variance is ₹ 4,000 Adverse. Variable overheads are based on Direct Labour Hours.

You are required to CALCULATE the following Variances:

Accepted Answer

**STEP 1: Determine Actual Labour Hours**

From the given Variable Overhead Efficiency Variance (₹4,000 Adverse):
VO Efficiency Variance = (Standard Hours − Actual Hours) × Standard Rate
−₹4,000 = (20,000 − Actual Hours) × ₹10
Actual Labour Hours = 20,400 hours

Actual Labour Rate = ₹4,48,800 ÷ 20,400 = ₹22 per hour

**PART (a): MATERIAL VARIANCES**

**Material Cost Variance (MCV):** ₹61,200 Adverse
Standard Cost (10,000 meters × ₹60) = ₹6,00,000
Actual Cost (11,400 meters × ₹58) = ₹6,61,200
MCV = ₹6,00,000 − ₹6,61,200 = −₹61,200 (Adverse)

**Material Price Variance (MPV):** ₹22,800 Favorable
MPV = (Standard Price − Actual Price) × Actual Quantity
MPV = (₹60 − ₹58) × 11,400 = ₹22,800 (Favorable)

**Material Usage Variance (MUV):** ₹84,000 Adverse
MUV = (Standard Quantity − Actual Quantity) × Standard Price
MUV = (10,000 − 11,400) × ₹60 = −₹84,000 (Adverse)

Verification: −₹61,200 = ₹22,800 − ₹84,000 ✓

**PART (b): VARIABLE OVERHEAD VARIANCES**

**Variable Overhead Cost Variance (VOCV):** ₹24,400 Adverse
Standard VO Cost (20,000 hours × ₹10) = ₹2,00,000
Actual VO Cost = ₹2,24,400
VOCV = ₹2,00,000 − ₹2,24,400 = −₹24,400 (Adverse)

**Variable Overhead Efficiency Variance (VOEV):** ₹4,000 Adverse (Given)
VOEV = (Standard Hours − Actual Hours) × Standard Rate
VOEV = (20,000 − 20,400) × ₹10 = −₹4,000 (Adverse)

**Variable Overhead Expenditure Variance (VOEXP):** ₹20,400 Adverse
Actual VO Rate = ₹2,24,400 ÷ 20,400 = ₹11 per hour
VOEXP = (Standard Rate − Actual Rate) × Actual Hours
V…

Question 24

Fit'n'fine Ltd. runs a fitness club in Delhi. It offers three types of membership plans: Bronze, Silver, and Gold.

Cost Information:
Rent: ₹ 1,00,000 per month
Gym equipments: ₹ 30,00,000 (service life 5 years)
Licenses & Permits: ₹ 86,000 (renewed every six months)
Insurance: ₹ 12,000 per annum
Salary to the instructors: ₹ 7,48,000 per annum
Utilities: ₹ 75,000 per quarter
Cleaning supplies: ₹ 1,44,000 per annum
AMC of equipments & machinery: ₹ 1,20,000 per month
Marketing expenses: ₹ 3,00,000 per annum
Electricity expenses @ ₹ 14 per unit: April to July – 60 units per hour; August to March – 25 units per hour

Membership Details (Club access time and occupancy %):
Gold: 5:00 AM to 9:00 AM; April–July 100%; August–March 80%
Silver: 6:00 PM to 9:00 PM; April–July 70%; August–March 50%
Bro…

Accepted Answer

**Fitness Club Membership Fee Calculation**

**Step 1: Calculate Total Monthly Cost**

Fixed Costs (Monthly):
- Rent: ₹1,00,000
- Equipment depreciation: ₹30,00,000 ÷ 5 years ÷ 12 = ₹50,000
- Licenses & Permits: ₹86,000 × 2 ÷ 12 = ₹14,333.33
- Insurance: ₹12,000 ÷ 12 = ₹1,000
- Salary: ₹7,48,000 ÷ 12 = ₹62,333.33
- Cleaning supplies: ₹1,44,000 ÷ 12 = ₹12,000
- AMC: ₹1,20,000
- Marketing: ₹3,00,000 ÷ 12 = ₹25,000
Subtotal fixed: ₹3,84,666.67

Variable Costs (Monthly):
- Utilities: ₹75,000 ÷ 3 quarters = ₹25,000
- Electricity (seasonal): For April–July: Gold (4 hrs × 100% × 60 units/hr) + Silver (3 hrs × 70% × 60) + Bronze (9 hrs × 50% × 60) = 636 units/day × 25 days × ₹14 = ₹2,22,600; For August–March: 185 units/day × 25 days × ₹14 = ₹64,750. Annual average: (₹2,22,600 × 4 + ₹64,750 × 8) ÷ 12 = ₹1,17,366.67
Subtotal variable: ₹1,42,366.67

**Total Monthly Cost: ₹5,27,033.34**

**Step 2: Determine Revenue Target for 25% Profit**

Annual cost: ₹5,27,033.34 × 12 = ₹63,24,400
For 25% profit on revenue (Cost = 75% of Revenue):
Required annual revenue = ₹63,24,400 ÷ 0.75 = **₹84,32,533.33**

**Step 3: Calculate Member-Months per Year**

April–July (4 months): Gold (200), Silver (140), Bronze (100)
August–March (8 months): Gold (160), Silver (100), Bronze (60)

Member-months annually:
- Gold: (200 × 4) + (160 × 8) = 2,080
- Silver: (140 × 4) + (100 × 8) = 1,360
- Bronze: (100 × 4) + (60 × 8) = 880

**Step 4: Determine Fee Structure**

Let monthly Bronze fee = **b**
Monthly Silver fee…

Question 25

Miscellaneous questions on cost concepts and treatment of scrap and defectives.

Accepted Answer

**PART (a): COST CONCEPTS FOR MANAGERIAL DECISIONS**

**Pre-determined Cost**: These are costs estimated in advance based on past experience, standards, or budgets. In the new product scenario, pre-determined costs enable management to forecast expected expenses for the new product, production method changes, and advertising. They serve as benchmarks to monitor actual performance against planned costs, facilitating performance evaluation and identifying variances early for corrective action.

**Differential Cost**: This represents the difference in total costs between alternative courses of action. For the new product decision, differential cost shows the additional expenses incurred (incremental materials, labour, overhead) versus savings from eliminating old methods. It is crucial for deciding whether introducing the new product is financially viable by comparing incremental revenues against differential costs.

**Product Cost**: Comprising direct materials, direct labour, and manufacturing overhead, product cost is essential for determining the selling price of the new product, inventory valuation, and profitability analysis. It includes only manufacturing-related costs and excludes selling and administrative expenses, ensuring accurate costing for pricing decisions.

**Out-of-pocket Cost**: These represent actual cash outflows. For the investment plans in new production equipment and methods, out-of-pocket costs directly impact cash flow and capital budgeting decisions. O…

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap