Test Series: October 2019

MOCK TEST PAPER 1

INTERMEDIATE (NEW): GROUP – I
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
Answers are to be given only in English except in the case of the candidates who have opted for Hindi
medium. If a candidate has not opted for Hindi medium his/ her answer in Hindi will not be valued.
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) C.T . Ltd. manufactures and sells a single product X whose selling price is Rs. 100 per unit and
the variable cost is Rs. 60 per unit.
(i) If the Fixed Costs for this year are Rs. 24,00,000 and the annual sales are at 60% margin
of safety, CALCULATE the rate of net return on sales, assuming an income tax level of
40%.
(ii) For the next year, it is proposed to add another product line Y whose selling price would
be Rs. 150 per unit and the variable cost Rs. 100 per unit. The total fixed costs are
estimated at Rs. 28,00,000. The sales mix of X : Y would be 5 : 3. COMPUTE the break-
even sales in units for both the products.
(b) CALCULATE from the following figures:
(i) Efficiency ratio,
(ii) Activity, Ratio and
(iii) Capacity Ratio:
Budgeted Production 88,000 units
Standard Hours per unit 10
Actual Production 75,000 units
Actual Working Hours 6,00,000
(c) A Ltd. manufactures a product X which requires two raw materials A and B in a ratio of 1:4.
The sales department has estimated a demand of 5,00,000 units for the product for the year.
To produce one unit of finished product, 4 units of material A is required.
Stock position at the beginning of the year is as below:
Product- X 12,000 units
Material A 24,000 units
Material B 52,000 units
To place an order the company has to spend Rs.15,000. The company is financing its working
capital using a bank cash credit @13% p.a.
Product X is sold at Rs.1,040 per unit. Material A and B are purchased at Rs.150 and Rs.200
respectively.

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 Required:
COMPUTE economic order quantity (EOQ):
(i) If purchase order for the both materials is placed separately.
(ii) If purchase order for the both materials is not placed separately.
(d) A manufacturing company has disclosed a net loss of Rs 2,25,000 as per their cost accounting
records for the year ended March 31, 2019. However, their financial accounting records
disclosed a net loss of Rs 2,70,000 for the same period. A scrutiny of data of both the sets of
books of accounts revealed the following information:
(Rs)
(i) Factory overheads under-absorbed 5,000
(ii) Administration overheads over-absorbed 3,000
(iii) Depreciation charged in financial accounts 70,000
(iv) Depreciation charged in cost accounts 80,000
(v) Interest on investments not included in cost accounts 20,000
(vi) Income-tax provided in financial accounts 65,000
(vii) Transfer fees (credit in financial accounts) 2,000
(viii) Preliminary expenses written off 3,000
(ix) Over-valuation of closing stock of finished goods in cost accounts 7,000
Required:
PREPARE a Memorandum Reconciliation Account. [4 × 5 Marks = 20 Marks]
2. (a) Asian Mfg. Co. has decided to increase the size of the store. It wants the information about
the probability of the individual product lines : Lemon, Grapes and Papaya. It provides the
following data for the 2018 for each product line:
Particulars Lemon Grapes Papaya
Revenues (Rs.) 79,350 2,10,060 1,20,990
Cost of goods sold (Rs.) 60,000 1,50,000 90,000
Cost of bottles returned (Rs.) 1,200 0 0
Number of purchase orders placed 36 84 36
Number of deliveries received 30 219 66
Hours of shelf stocking time 54 540 270
Items sold 12,600 1,10,400 30,600
Asian Mfg. Co. also provides the following information for the year 2018:
Activity Description of Activity Total Costs Cost Allocation Basis
(Rs.)
Bottle returns Returning of empty bottles to 1,200 Direct tracing to
the store product line
Ordering Placing of orders of purchases 15,600 156 purchase orders
Delivery Physical delivery and the 25,200 315 deliveries
receipts of merchandise
Self- stocking Stocking of merchandise on 17,280 864 hours of time
store shelves and ongoing
restocking
2

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 Customer Assistance provided to 30,720 1,53,600 items sold
support customers including bagging
and checkout
Required
(i) Asian Mfg. Co. currently allocates store support costs (all costs other than the cost of
goods sold) to the product line on the basis of the cost of goods sold of each product
line. CALCULATE the operating income and operating income as the percentage of
revenue of each product line.
(ii) If Asian Mfg. Co. allocates store support costs (all costs other than the cost of goods
sold) to the product lines on the basis of ABC system, CALCULATE the operating income
and operating income as the percentage of revenue of each product line.
(iii) SHOW a comparison statement. [10 Marks]
(b) APFL Ltd. deals in plumbing materials and also provides plumbing services to its customers.
On 12th August, 2019, APFL received a job order for a students’ hostel to supply and fitting
of plumbing materials. The work is to be done on the basis of specification provided by the
hostel owner. Hostel will be inaugurated on 5th September, 2019 and the work is to be
completed by 3rd September, 2019. Following are the details related with the job work:
Direct Materials
APFL uses a weighted average method for the pricing of materials issues.
Opening stock of materials as on 12th August 2019:
- 15mm GI Pipe, 12 units of 15 feet size @ Rs.600 each
- 20mm GI Pipe, 10 units of 15 feet size @ Rs.660 each
- Other fitting materials, 60 units @ Rs. 26 each
- Stainless Steel Faucet, 6 units @ Rs. 204 each
- Valve, 8 units @ Rs. 404 each
Purchases:
On 16th August 2019:
- 20mm GI Pipe, 30 units of 15 feet size @ Rs. 610 each
- 10 units of Valve @ Rs. 402 each
On 18th August 2019:
- Other fitting materials, 150 units @ Rs. 28 each
- Stainless Steel Faucet, 15 units @ Rs. 209 each
On 27th August 2019:
- 15mm GI Pipe, 35 units of 15 feet size @ Rs.628 each
- 20mm GI Pipe, 20 units of 15 feet size @ Rs.660 each
- Valve, 14 units @ Rs. 424 each
Issues for the hostel job:
On 12th August 2019:
- 20mm GI Pipe, 2 units of 15 feet size
- Other fitting materials, 18 units

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 On 17th August 2019:
- 15mm GI Pipe, 8 units of 15 feet size
- Other fitting materials, 30 units
On 28th August 2019:
- 20mm GI Pipe, 2 units of 15 feet size
- 15mm GI Pipe, 10 units of 15 feet size
- Other fitting materials, 34 units
- Valve, 6 units
On 30th August:
- Other fitting materials, 60 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ Rs. 50 per hour (includes 12 hours overtime)
Helper: 192 hours @ Rs.35 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ Rs. 13 per labour hour.
Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on sales
price.
You are required to
(a) CALCULATE the total cost of the job.
(b) CALCULATE the price to be charged from the customer. [10 Marks]
3. (a) V Ltd. produces and markets a very popular product called ‘X’. The company is interested in
presenting its budget for the second quarter of 2019.
The following information are made available for this purpose:
(i) It expects to sell 50,000 bags of ‘X’ during the second quarter of 2019 at the selling price
of Rs. 900 per bag.
(ii) Each bag of ‘X’ requires 2.5 kgs. of a raw – material called ‘Y’ and 7.5 kgs. of raw –
material called ‘Z’.
(iii) Stock levels are planned as follows:
Particulars Beginning of End of Quarter
Quarter
Finished Bags of ‘X’ (Nos.) 15,000 11,000
Raw – Material ‘Y’ (Kgs.) 32,000 26,000
Raw – Material ‘Z’ (Kgs.) 57,000 47,000
Empty Bag (Nos.) 37,000 28,000
(iv) ‘Y’ cost Rs.120 per Kg., ‘Z’ costs Rs.20 per Kg. and ‘Empty Bag’ costs Rs.80 each.
(v) It requires 9 minutes of direct labour to produce and fill one bag of ‘X’. Labour cost is

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 Rs.50 per hour.
(vi) Variable manufacturing costs are Rs.45 per bag. Fixed manufacturing costs
Rs.30,00,000 per quarter.
(vii) Variable selling and administration expenses are 5% of sales and fixed administration
and selling expenses are Rs.20,50,000 per quarter.
Required
(i) PREPARE a production budget for the said quarter.
(ii) PREPARE a raw – material purchase budget for ‘Y’, ‘Z’ and ‘Empty Bags’ for the said
quarter in quantity as well as in rupees.
(iii) COMPUTE the budgeted variable cost to produce one bag of ‘X’.
(iv) PREPARE a statement of budgeted net income for the said quarter and show both per
unit and total cost data. [10 Marks]
(b) V Ltd. manufactures luggage trolleys for airports. The factory, in which the company
undertakes all of its production, has two production departments- ‘Fabrication’ and ‘Assembly’,
and two service departments- ‘Stores’ and ‘Maintenance’.
The following information have been extracted from the company’s budget for the financial
year ended 31st March, 2019:
Particulars Rs.
Allocated Overhead Costs
Fabrication Department 15,52,000
Assembly Department 7,44,000
Stores Department 2,36,000
Maintenance Department 1,96,000
Other Overheads
Factory rent 15,28,000
Factory building insurance 1,72,000
Plant & machinery insurance 1,96,000
Plant & Machinery Depreciation 2,65,000
Subsidy for staffs’ canteen 4,48,000

Direct Costs Rs. Rs.

Fabrication Department:
Material 63,26,000
Labour 8,62,000 71,88,000
Assembly Department:
Material 1,42,000
Labour 13,06,000 14,48,000
The following additional information is also provided:
Fabrication Assembly Stores Maintenance
Department Department Department Department
Floor area (square meters) 24,000 10,000 2,500 3,500

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 Value of plant & machinery (Rs.) 16,50,000 7,50,000 75,000 1,75,000
No. of stores requisitions 3,600 1,400 --- ---
Maintenance hours required 2,800 2,300 400 ---
No. of employees 120 80 38 12
Machine hours 30,00,000 60,000
Labour hours 70,000 26,00,000
Required:
(i) PREPARE a table showing the distribution of overhead costs of the two service
departments to the two production departments using step method; and
(ii) CALCULATE the most appropriate overhead recovery rate for each department.
(iii) Using the rates calculated in part (ii) above, CALCULATE the full production costs of the
following job order:
Job number IGI2019
Direct Materials Rs. 2,30,400
Direct Labour:
Fabrication Department 240 hours @ Rs. 50 per hour
Assembly Department 180 hours @ Rs. 50 per hour
Machine hours required:
Fabrication Department 210 hours
Assembly Department 180 hours
[10 Marks]
4. (a) In a manufacturing company the standard units of production of the year were fixed at 1,20,000
units and overhead expenditures were estimated to be:
Fixed Rs. 12,00,000; Variable Rs. 6,00,000;
Semi-Variable Rs. 1,80,000
Actual production during the April, 2019 of the year was 8,000 units. Each month has 20
working days.
During the month there was one public holiday. The actual overheads amounted to:
Fixed Rs. 1,10,000; Variable Rs. 48,000
Semi-variable Rs. 19,200
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40
per cent of variable character.
CALCULATE the followings:
(i) Overhead Cost Variance
(ii) Fixed Overhead Cost Variance
(iii) Variable Overhead Cost Variance
(iv) Fixed Overhead Volume Variance
(v) Fixed Overhead Expenditure Variance
(vi) Calendar Variance. [10 Marks]

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 (b) From the following data of A Ltd., CALCULATE (i) Material Consumed; (ii) Prime Cost and (iii)
Cost of production.
Amount (Rs.)
(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 the products in manufacturing process 86,000
(xi) Research & development cost for improvement in production 92,600
process
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the 9,200
manufacturing process
(xiv) Packing cost necessary to preserve the goods for further 10,200
processing
(xv) Salary paid to Director (Technical) 8,90,000
[10 Marks]
5. (a) SLS Infrastructure builts and operates a 110 k.m. long highway on the basis of Built-Operate-
Transfer (BOT) model for a period of 25 years. A traffic assessment has been carried out to
estimate the traffic flow per day. The details are as below:
Sl. No. Type of vehicle Daily traffic volume
1. Two wheelers 44,500
2. Car and SUVs 3,450
3. Bus and LCV 1,800
4. Heavy commercial vehicles 816

The following is the estimated cost of the project:

Sl. Activities Amount
no. (Rs. in lakh)
1 Site clearance 170.70
2 Land development and filling work 9,080.35
3 Sub base and base courses 10,260.70
4 Bituminous work 35,070.80
5 Bridge, flyovers, underpasses, Pedestrian subway, footbridge, etc . 29,055.60

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 6 Drainage and protection work 9,040.50
7 Traffic sign, marking and road appurtenance 8,405.00
8 Maintenance, repairing and rehabilitation 12,429.60
9 Environmental management 982.00
Total Project cost 1,14,495.25

An average cost of Rs.1,120 lakh has to be incurred on administration and toll plaza operation.
On the basis of the vehicle specifications (i.e. weight, size, time saving etc.), the following
weights has been assigned to the passing vehicles:
Sl. No. Type of vehicle
1. Two wheelers 5%
2. Car and SUVs 20%
3. Bus and LCV 30%
4. Heavy commercial vehicles 45%
Required:
(i) CACULATE the total project cost per day of concession period.
(ii) COMPUTE toll fee to be charged for per vehicle of each type, if the company wants to
earn a profit of 15% on total cost.
[Note: Concession period is a period for which an infrastructure is allowed to operate and
recovers its investment] [10 Marks]
(b) In an Oil Mill, four products emerge from a refining process. The total cost of input during the
quarter ending March 2019 is Rs.22,20,000. The output, sales and additional processing costs
are as under:
Products Output in Litres Additional processing Sales value (Rs.)
cost after split off (Rs.)
A 8,000 6,45,000 25,87,500
B 4,000 1,35,000 2,25,000
C 2,000  90,000
D 4,000 22,500 6,75,000
In case these products were disposed-off at the split off point that is before further processing,
the selling price per litre would have been:
A (Rs.) B (Rs.) C (Rs.) D (Rs.)
225.00 90.00 45.00 112.50
PREPARE a statement of profitability based on:
(i) If the products are sold after further processing is carried out in the mill.
(ii) If they are sold at the split off point. [10 Marks]
6. (a) DISCUSS the essential features of a good cost accounting system.
(b) DISTINGUISH between Bill of Materials and Material Requisition Note.
(c) DISCUSS the remedial steps to be taken to minimize the labour turnover.
(d) DISTINGUISH between Job and Batch costing. [4 × 5 = 20 Marks]
8

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