CA Inter Costing RTP Nov23 Castudynotes Com

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING

QUESTIONS
Material Cost
1. Following details are related to a manufacturing concern:
Re-order Level 1,60,000 units
Economic Order Quality 90,000
Minimum Stock Level 1,00,000 units
Maximum Stock Level 1,90,000 units
Average Lead Time 6 days
Difference between minimum lead time and Maximum lead time 4 days
Calculate:
(i) Maximum consumption per day
(ii) Minimum consumption per day
Employee Cost
2. A skilled worker is paid a guaranteed wage rate of ` 120 per hour. The standard time
allowed for a job is 6 hour. He took 5 hours to complete the job. He is paid wages under
Rowan Incentive Plan.
(i) Calculate his effective hourly rate of earnings under Rowan Incentive Plan.
(ii) If the worker is placed under Halsey Incentive Scheme (50%) and he wants to
maintain the same effective hourly rate of earnings, calculate the time in which he should
complete the job.
Overheads: Absorption Costing Method
3. The following particulars refer to process used in the treatment of material subsequently
incorporated in a component forming part of an electrical appliance:
(i) The original cost of the machine used (Purchased in June 2018) was ` 10,00,000. Its
estimated life is 10 years, the estimated scrap value at the end of its life is ` 10,000,
and the estimated working time per year (50 weeks of 44 hours) is 2,200 hours . Out
of which machine maintenance etc., is estimated to take up 200 hours.
No other loss of working time expected, setting up time, estimated at 100 hours, is
regarded as productive time. (Holiday to be ignored).
(ii) Electricity used by the machine during production is 16 units per hour at cost of a
` 7 per unit. No power is consumed during maintenance or setting up.
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2 INTERMEDIATE EXAMINATION: NOVEMBER, 2023
(iii) The machine required a chemical solution which is replaced at the end of week at a
cost of ` 2,000 each time.
(iv) The estimated cost of maintenance per year is ` 1,20,000.
(v) Two attendants control the operation of machine together with five other identical
machines. Their combined weekly wages, insurance and the employer's contribution
to holiday pay amount is ` 9,000.
(vi) Departmental and general works overhead allocated to this machine for the current
year amount to ` 20,000.
You are required to calculate the machine hour rate of operating the machine.
Activity Based Costing
4. L Limited manufactures three products P, Q and R which are similar in nature and are
usually produced in production runs of 100 units. Product P and R require both machine
hours and assembly hours, whereas product Q requires only machine hours. The
overheads incurred by the company during the first quarter are as under:
`
Machine Department expenses 18,48,000
Assembly Department expenses 6,72,000
Setup costs 90,000
Stores receiving cost 1,20,000
Order processing and dispatch 1,80,000
Inspect and Quality control cost 36,000
The data related to the three products during the period are as under:
P Q R
Units produced and sold 15,000 12,000 18,000
Machine hours worked 30,000 hrs. 48,000 hrs. 54,000 hrs.
Assembly hours worked (direct labour 15,000 hrs. - 27,000 hrs.
hours)
Customers’ orders executed (in 1,250 1,000 1,500
numbers)
Number of requisitions raised on the 40 30 50
stores
Prepare a statement showing details of overhead costs allocated to each product type
using activity-based costing.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING 3
Cost Sheet
5. A Ltd. produces a single product X. During the month of July 2023, the company has
produced 14,560 tonnes of X. The details for the month of July 2023 are as follows:
(i) Materials consumed ` 15,00,000
(ii) Power consumed in operating production machinery 13,000 Kwh @ ` 7 per Kwh
(iii) Diesels consumed in operating production machinery 1,000 litres @ ` 93 per litre
(iv) Wages & salary paid – ` 64,00,000
(v) Gratuity & leave encashment paid – ` 44,20,000
(vi) Hiring charges paid for Heavy Earth Moving machines (HEMM) engaged in production
- ` 13,00,000. Hiring charges is paid on the basis of production.
(vii) Hiring charges paid for cars used for official purpose – ` 80,000
(viii) Reimbursement of diesel cost for the cars – ` 20,000
(ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the
time of despatch) – ` 7,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at
the time of despatch) and factory premises is ` 6,000 and ` 18,000 per month
respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ` 16,000
(xiii) The company has 180 employees works for 26 days in a month.
Required:
PREPARE a Cost sheet for the month of July 2023.
Cost Accounting System
6. The financial books of a company reveal the following data for the year ended
31st March, 2023:
(`)
Opening Stock:
Finished goods 625 units 1,06,250
Work-in-process 92,000
01.04.2022 to 31.03.2023
Raw materials consumed 16,80,000
Direct Labour 12,20,000

Factory overheads 8,44,000

Administration overheads (production related) 3,96,000
Dividend paid 2,44,000
Bad Debts 36,000
Selling and Distribution Overheads 1,44,000
Interest received 76,000
Rent received 92,000
Sales 12,615 units 45,60,000
Closing Stock: Finished goods 415 units 91,300
Work-in-process 82,400
The cost records provide as under:
➢ Factory overheads are absorbed at 70% of direct wages.
➢ Administration overheads are recovered at 15% of factory cost.
➢ Selling and distribution overheads are charged at ` 6 per unit sold.
➢ Opening Stock of finished goods is valued at ` 240 per unit.
➢ The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.
Required:
(i) Prepare statements for the year ended 31 st March, 2023 showing:
➢ the profit as per financial records
➢ the profit as per costing records.
(ii) Prepare a statement reconciling the profit as per costing records with the profit as per
financial records.
Job Costing
7. SM Motors Ltd. is a manufacturer of auto components. Following are the details of
expenses for the year 2022-23:
(`)
(i) Opening Stock of Material 15,00,000
(ii) Closing Stock of Material 20,00,000
(iii) Purchase of Material 1,80,50,000
(iv) Direct Labour 90,50,000
(v) Factory Overhead 30,80,000
(vi) Administrative Overhead 20,50,400

During the FY 2023-24, the company has received an order from a car manufacturer where
it estimates that the cost of material and labour will be ` 80,00,000 and ` 40,50,000
respectively. The company charges factory overhead as a percentage of direct labour and
administrative overheads as a percentage of factory cost based on previous year's cost.
Cost of delivery of the components at customer's premises is estimated at ` 4,50,000.
You are required to:
(i) Calculate the overhead recovery rates based on actual costs for 20 22-23.
(ii) Prepare a Job cost sheet for the order received and the price to be quoted if the
desired profit is 25% on sales.
Process Costing
8. The following information is furnished by ABC Company for Process - II of its manufacturing
activity for the month of April 2023:
(i) Opening Work-in-Progress – Nil
(ii) Units transferred from Process I – 55,000 units at ` 3,27,800
(iii) Expenditure debited to Process – II:
Consumables ` 1,57,200
Labour ` 1,04,000
Overhead ` 52,000
(iv) Units transferred to Process III – 51,000 units
(v) Closing WIP – 2,000 units (Degree of completion):
Consumables 80%
Labour 60%
Overhead 60%
(vi) Units scrapped - 2,000 units, scrapped units were sold at ` 5 per unit
(vii) Normal loss – 4% of units introduced
You are required to:
(i) Prepare a Statement of Equivalent Production.
(ii) Determine the cost per unit
(iii) Determine the value of Work-in-Process and units transferred to Process – III

Joint Products & By Products

9. A factory producing article A also produces a by-product B which is further processed into
finished product. The joint cost of manufacture is given below:
Material ` 5,000
Labour ` 3,000
Overhead ` 2,000
` 10,000
Subsequent cost in ` are given below:
A B
Material 3,000 1,500
Labour 1,400 1,000
Overhead 600 500
5,000 3,000
Selling prices are A ` 16,000
B ` 8,000
Estimated profit on selling prices is 25% for A and 20% for B.
Assume that selling and distribution expenses are in proportion of sales prices. Show how
you would apportion joint costs of manufacture and prepare a statement showing cost of
production of A and B.
Service Costing
10. P Holiday Resorts offers three types of rooms to its guests, viz deluxe room, super delux e
room and luxury suite. You are required to ascertain the tariff to be charged to the
customers for different types of rooms on the basis of following information:
Types of Room Number of Rooms Occupancy
Deluxe Room 100 90%
Super Deluxe Room 60 75%
Luxury Suite 40 60%
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and that of ‘luxury
suite’ is 3 times of ‘deluxe room’. Annual expenses are as follows:
Particulars Amount (` lakhs)
Staff salaries 680.00
Lighting, Heating and Power 300.00

Repairs, Maintenance and Renovation 180.00

Linen 30.00
Laundry charges 24.00
Interior decoration 75.00
Sundries 30.28
An attendant for each room was provided when the room was occupied and he was paid
` 500 per day towards wages. Further, depreciation is to be provided on building @ 5%
on ` 900 lakhs, furniture and fixtures @ 10% on ` 90 lakhs and air conditioners @ 10%
on ` 75 lakhs.
Profit is to be provided @ 25% on total taking and assume 360 days in a year.
Standard Costing
11. The following information has been provided by a company:
Number of units produced and sold 6,000
Standard labour rate per hour `8
Standard hours required for 6,000 units -
Actual hours required 17094 hours
Labour efficiency 105.3%
Labour rate variance ` 68,376 (A)
You are required to calculate:
(i) Actual labour rate per hour
(ii) Standard hours required for 6,000 units
(iii) Labour Efficiency variance
(iv) Standard labour cost per unit
(v) Actual labour cost per unit.
Marginal Costing
12. (a) A dairy product company manufacturing baby food with a shelf life of one year
furnishes the following information:
(i) On 1st April, 2023, the company has an opening stock of 20,000 packets whose
variable cost is ` 180 per packet.
(ii) In 2022-23, production was 1,20,000 packets and the expected production in
2023-24 is 1,50,000 packets. Expected sales for 2023-24 is 1,60,000 packets.

(iii) In 2022-23, fixed cost per unit was ` 60 and it is expected to increase by 10%
in 2023-24. The variable cost is expected to increase by 25%. Selling price for
2023-24 has been fixed at ` 300 per packet.
You are required to calculate the Break-even volume in units for 2023-24.
(b) The M-Tech Manufacturing Company is presently evaluating two possible processes
for the manufacture of a toy. The following information is available:
Particulars Process A (`) Process B (`)
Variable cost per unit 12 14
Sales price per unit 20 20
Total fixed costs per year 30,00,000 21,00,000
Capacity (in units) 4,30,000 5,00,000
Anticipated sales (Next year, in units) 4,00,000 4,00,000
Suggest:
1. Identify the process which gives more profit.
2. Would you change your answer as given above, if you were informed that the
capacities of the two processes are as follows:
A - 6,00,000 units; B - 5,00,000 units?
Budget and Budgetary Control
13. XY Co. Ltd manufactures two products viz., X and Y and sells them through two divisions,
East and West. For the purpose of Sales Budget to the Budget Committee, following
information has been made available for the year 2022-23:
Budgeted Sales Actual Sales
Product
East Division West Division East Division West Division
X 400 units at ` 9 600 units at ` 9 500 units at ` 9 700 units at ` 9
Y 300 units at ` 21 500 units at ` 21 200 units at ` 21 400 units at ` 21
Adequate market studies reveal that product X is popular but underpriced. It is expected
that if the price of X is increased by ` 1, it will, find a ready market. On the other hand, Y
is overpriced and if the price of Y is reduced by ` 1 it will have more demand in the market.
The company management has agreed for the aforesaid price changes. On the basis of
these price changes and the reports of salesmen, following estimates have been prepared
by the Divisional Managers:

Percentage increase in sales over budgeted sales

Product East Division West Division
X + 10% + 5%
Y + 20% + 10%
With the help of intensive advertisement campaign, following additional sales (over and
above the above-mentioned estimated sales by Divisional Mangers) are possible:
Product East Division West Division
X 60 units 70 units
Y 40 units 50 units
You are required to prepare Sales Budget for 2023-24 after incorporating above estimates
and also show the Budgeted Sales and Actual Sales of 2022-23.
Miscellaneous
14. (a) What is cost plus contract? What are its advantages?
(b) Narrate the objectives of cost accounting.
(c) How would you account for idle capacity cost in Cost Accounting?
(d) Explain the treatment of over and under absorption of overheads in cost accounts.
(e) Distinguish between cost allocation and cost absorption.
SUGGESTED HINTS/ANSWERS
1. Difference between Minimum lead time Maximum lead time = 4 days

Max. lead time – Min. lead time = 4 days
Or, Max. lead time = Min. lead time + 4 days.............................................(i)
Average lead time is given as 6 days i.e.
Max.leadtime + Min.leadtime
= 6 days..................................................... (ii)
2
Putting the value of (i) in (ii),
Min. lead time + 4 days + Min.lead time
= 6 days
2
Or, Min. lead time + 4 days + Min. lead time = 12 days
Or, 2 Min. lead time = 8 days

8days
Or, Minimum lead time = = 4 days
2
Putting this Minimum lead time value in (i), we get
Maximum lead time = 4 days + 4 days = 8 days
(i) Maximum consumption per day:
Re-order level = Max. Re-order period × Maximum Consumption per day
1,60,000 units = 8 days × Maximum Consumption per day
1,60,000units
Or, Maximum Consumption per day = = 20,000 units
8days
(ii) Minimum Consumption per day:
Maximum Stock Level =
Re-order level + Re-order Quantity – (Min. lead time × Min. Consumption per day)
Or, 1,90,000 units = 1,60,000 units + 90,000 units – (4 days × Min. Consumption per day)
Or, 4 days × Min. Consumption per day = 2,50,000 units – 1,90,000 units
60,000 units
Or, Minimum Consumption per day = = 15,000 units
4 days
2. (i) Effective hourly rate of earnings under Rowan Incentive Plan
Earnings under Rowan Incentive plan =
Time Saved
(Actual time taken × wage rate) + × Time taken × Wage rate
Time Allowed
 1 hour 
= (5 hours × ` 120) +   5 hours ` 120 
 6 hours 
= ` 600 + ` 100 = ` 700
Effective hourly rate = ` 700/5 hours = ` 140 /hour
(ii) Let time taken = X
Earnings under Halsay Scheme
 Effective hourly rate =
Time Taken
Or, Effective hourly rate under Halsey Incentive plan =
(Time taken  Rate) + 50% of Rate  (Time allowed − Time taken)
TimeTaken

(X ` 120) + 50% of ` 120  (6 − X)

Or, `140 =
X
Or, 140X = 120X + 360 – 60X
Or, 80X = 360
360
Or, X= = 4.5 hours
80
Therefore, to earn effective hourly rate of `140 under Halsey Incentive Scheme
worker has to complete the work in 4.5 hours.
3. Working Notes:
(i) Total Productive hours = Estimated Working hours – Machine Maintenance hours
= 2,200 hours – 200 hours = 2,000 hours
10,00,000 -10,000
(ii) Depreciation per annum = = ` 99,000
10
(iii) Chemical solution cost per annum = ` 2,000 × 50 weeks = ` 1,00,000
9,000 × 50 weeks
(iv) Wages of attendants (per annum) = = ` 75,000
6 machines
Calculation of Machine hour rate
Particulars Amount Amount
(per annum) (per hour)
A. Standing Charge
(i) Wages of attendants 75,000
(ii) Departmental and general works overheads 20,000
Total Standing Charge 95,000
Standing Charges per hour 47.50
B. Machine Expense
(iii) Depreciation 99,000 49.50
(iv) Electricity - 106.40
(7 × 1,900 × 16 units) ÷ 2,000
(v) Chemical solution 1,00,000 50.00
(vi) Maintenance cost 1,20,000 60.00
Machine operating cost per hour (A + B) 313.40

4. Calculation of “Activity Rate”

Cost Pool Cost (`) Cost Driver Cost Driver
Rate (`)
[A] [B] [C] = [A]÷[B]
Machine Department Expenses 18,48,000 Machine Hours 14.00
(1,32,000 hrs.)
Assembly Department Expenses 6,72,000 Assembly Hours 16.00
(42,000 hrs.)
Setup Cost 90,000 No. of Production Runs 200.00
(450*)
Stores Receiving Cost 1,20,000 No. of Requisitions Raised 1,000.00
on the Stores (120)
Order Processing and Dispatch 1,80,000 No. of Customers Orders 48.00
Executed (3,750)
Inspection and Quality Control 36,000 No. of Production Runs 80.00
Cost (450*)
Total (`) 29,46,000
*Number of Production Run is 450 (150 + 120 + 180)
Statement Showing “Overheads Allocation”
Particulars of Cost Cost P Q R Total
Driver
Machine Department Machine Hours 4,20,000 6,72,000 7,56,000 18,48,000
Expenses (30,000 × (48,000 × (54,000 ×
`14) `14) `14)
Assembly Department Assembly Hours 2,40,000 --- 4,32,000 6,72,000
Expenses (15,000 × (27,000 ×
`16) `16)
Setup Cost No. of Production 30,000 24,000 36,000 90,000
Runs (150 × (120 × (180 ×
`200) `200) `200)
Stores Receiving Cost No. of Requisitions 40,000 30,000 50,000 1,20,000
Raised on the Stores (40 × (30 × (50 ×
`1,000) `1,000) `1,000)
Order Processing and No. of Customers 60,000 48,000 72,000 1,80,000
Dispatch Orders Executed (1,250 × (1,000 × (1,500 ×
`48) `48) `48)

Inspection and No. of Production 12,000 9,600 14,400 36,000

Quality Control Cost Runs (150 × (120 × (180 ×
`80) `80) `80)
Overhead (`) 8,02,000 7,83,600 13,60,400 29,46,000
5. (a) Cost Sheet of A Ltd. for the month of July 2023

Particulars Amount (`) Amount (`)
Materials consumed 15,00,000
Wages & Salary 64,00,000
Gratuity & leave encashment 44,20,000 1,08,20,000
Power cost (13,000 kwh × ` 7) 91,000
Diesel cost (1,000 ltr × ` 93) 93,000 1,84,000
HEMM hiring charges 13,00,000
Prime Cost 1,38,04,000
AMC cost of CCTV installed at factory premises 18,000
Cost of Production/ Cost of Goods Sold 1,38,22,000
Hiring charges of cars 80,000
Reimbursement of diesel cost 20,000
1,00,000
Add: GST @5% on RCM basis 5,000 1,05,000
Maintenance cost for weighing bridge 7,000
AMC cost of CCTV installed at weigh bridge 6,000 13,000
TA/ DA & hotel bill of sales manager 16,000
Cost of Sales 1,39,56,000
6. (i) Statement of Profit as per financial records

(for the year ended March 31, 2023)
(`) (`)
To Opening stock of 1,06,250 By Sales 45,60,000
Finished Goods
To Work-in-process 92,000 By Closing stock of 91,300
finished Goods

To Raw materials consumed 16,80,000 By Work-in-Process 82,400

To Direct labour 12,20,000 By Rent received 92,000
To Factory overheads 8,44,000 By Interest received 76,000
To Administration overheads 3,96,000
To Selling & distribution 1,44,000
overheads
To Dividend paid 2,44,000
To Bad debts 36,000
To Profit 1,39,450
49,01,700 49,01,700
Statement of Profit as per costing records

(for the year ended March 31,2023)
(`)
Sales revenue (A) 45,60,000
(12,615 units)
Cost of sales:
Opening stock 1,50,000
(625 units × ` 240)
Add: Cost of production of 12,405 units 43,28,140
(Refer to working note 2)
Less: Closing stock (1,44,795)
 ` 43,28,140  415 units 
 
 12,405 units 
Production cost of goods sold (12,615 units) 43,33,345
Selling & distribution overheads
(12,615 units × `6) 75,690
Cost of sales: (B) 44,09,035

Profit: {(A) – (B)} 1,50,965

(ii) Statement of Reconciliation

(Reconciling the profit as per costing records with the profit as per
financial records)
(`) (`)
Profit as per Cost Accounts 1,50,965
Add: Administration overheads over absorbed 1,68,540
(`5,64,540 – `3,96,000)
Opening stock overvalued 43,750
(`1,50,000 – ` 1,06,250)
Interest received 76,000
Rent received 92,000
Factory overheads over recovered 10,000 3,90,290
(` 8,54,000 – ` 8,44,000)
5,41,255
Less: Selling & distribution overheads under recovery 68,310
(` 1,44,000 – ` 75,690)
Closing stock overvalued (`1,44,795 – ` 91,300) 53,495
Dividend 2,44,000
Bad debts 36,000 (4,01,805)
Profit as per financial accounts 1,39,450
Working notes:
1. Number of units produced
Units
Sales 12,615
Add: Closing stock 415
Total 13,030
Less: Opening stock (625)
Number of units produced 12,405
2. Cost Sheet
(`)
Raw materials consumed 16,80,000
Direct labour 12,20,000

Prime cost 29,00,000

Factory overheads 8,54,000
(70% of direct wages)
Factory cost 37,54,000
Add: Opening work-in-process 92,000
Less: Closing work-in-process (82,400)
Factory cost of goods produced 37,63,600
Administration overheads 5,64,540
(15% of factory cost)
Cost of production of 12,405 units 43,28,140
(Refer to working note 1)
Cost of production per unit:
TotalCost of Pr oduction `43,28,140
= = = ` 348.90
No.of unitsproduced 12,405units
7. (i) Calculation of Overhead Recovery Rate:

` 30,80,000
Factory Overhead Recovery Rate = 100 = 34% of Direct labour
` 90,50,000
` 20,50,400
Administrative Overhead Recovery Rate = 100 = 6.91% of Factory Cost
` 2,96, 80,000
Working Note: Calculation of Factory Cost in 2022-23
Particulars Amount (`)

Opening Stock of Material 15,00,000
Add: Purchase of Material 1,80,50,000
Less: Closing Stock of Material (20,00,000)
Material Consumed 1,75,50,000
Direct Labour 90,50,000
Prime Cost 2,66,00,000
Factory Overhead 30,80,000
Factory Cost 2,96,80,000

(ii) Job Cost Sheet for the order received in 2023-24

Particulars Amount (`)
Material 80,00,000
Labour 40,50,000
Factory Overhead (34% of ` 40,50,000) 13,77,000
Factory Cost 1,34,27,000
Administrative Overhead (6.91% of `1,34,27,000) 9,27,806
Cost of delivery 4,50,000
Total Cost 1,48,04,806
Add: Profit @ 25% of Sales or 33.33% of cost 49,34,935
Sales value (Price to be quoted for the order) 1,97,39,741
Hence the price to be quoted is `1,97,39,741.
8. (i) Statement of Equivalent Production
Equivalent Production
Output Material- A* Consumables Labour &
Input Details Units Units
Particulars Overheads
% Units % Units % Units
Units 55,000 Units transferred 51,000 100 51,000 100 51,000 100 51,000
transferred to Process-III
from
Process-I
Normal loss (4% 2,200 - - - - - -
of 55,000)
Closing W-I-P 2,000 100 2,000 80 1,600 60 1,200
Abnormal Gain (200) 100 (200) 100 (200) 100 (200)
55,000 55,000 52,800 52,400 52,000
*Material A represent transferred-in units from process-I
(ii) Determination of Cost per Unit
Particulars Amount (`) Units Per Unit (`)
(i) Direct Material (Consumables) :
Value of units transferred from 3,27,800
Process-I
Less: Value of normal loss
(2,200 units × ` 5) (11,000)

3,16,800 52,800 6.00

(ii) Consumables added in Process-II 1,57,200 52,400 3.00
(iii) Labour 1,04,000 52,000 2.00
(iii) Overhead 52,000 52,000 1.00
Total Cost per equivalent unit 12.00
(iii) Determination of value of Work-in-Process and units transferred to Process-III
Particulars Units Rate (`) Amount (`)
Value of Closing W-I-P:
Material from Process-I 2,000 6.00 12,000
Consumables 1,600 3.00 4,800
Labour 1,200 2.00 2,400
Overhead 1,200 1.00 1,200
20,400
Value of units transferred to Process-III 51,000 12.00 6,12,000
9. Apportionment of Joint Costs
Particulars A (`) B (`)
Selling Price 16,000 8,000
Less: Estimated profit 4,000 1,600
(25% of `16,000) (20% of ` 8,000)
Cost of sales 12,000 6,400
Less: Selling & Distribution exp. 267 133
(Refer working note) (` 400 × 2/3) (` 400 × 1/3)
Less: Subsequent cost 5,000 3,000
Share of Joint cost 6,733 3,267
So, Joint cost of manufacture is to be distributed to A & B in the ratio of 6733 : 3267
Statement showing Cost of Production of A and B
Elements of cost Joint Cost Subsequent Cost Total Cost
A B A B A B
Material 3,367 1,633 3,000 1,500 6,367 3,133
Labour 2,020 980 1,400 1,000 3,420 1,980
Overheads 1,346 654 600 500 1,946 1,154
Cost of production 11,733 6,267

Working Note:
Calculation of Selling and Distribution Expenses
Particulars (`)
Total Sales Revenue (` 16,000 + ` 8,000) 24,000
Less: Estimated Profit (` 4,000 + ` 1,600) (5,600)
Cost of Sales 18,400
Less: Cost of production:
- Joint Costs (10,000)
- Subsequent costs (` 5,000 + ` 3,000) (8,000)
Selling and Distribution expenses (Balancing figure) 400
10. Operating cost statement of P Holiday Resorts
Particulars Cost per annum
(` In lakhs)
Staff Salaries 680.00
Room Attendant’s Wages (Refer WN-3) 286.20
Lighting, Heating & Power 300.00
Repairs, Maintenance & Renovation 180.00
Linen 30.00
Laundry charges 24.00
Interior Decoration 75.00
Sundries 30.28
Depreciation: (Refer WN-4)
Building 45.00
Furniture & Fixture 9.00
Air Conditioners 7.50
Total cost for the year 1666.98
Computation of profit:
Let ` x be the rent for deluxe from.
Equivalent deluxe room days are 90,720 (Refer WN-2)
Total takings = ` 90,720x
Profit is 25% of total takings.
Profit = 25% of ` 90,720x = ` 22,680x

Total takings = Total Cost + Profit

` 90,720x = ` 16,66,98,000 + ` 22,680x
` 90,720x - ` 22,680x = ` 16,66,98,000
` 68,040x = ` 16,66,98,000
` 16,66,98,000
X= =` 2,450
` 68,040
Rent to be charged for deluxe room ` 2,450

Rent to be charged for super deluxe room = ` 4,900
Rent of deluxe room x 2 = ` 2,450 x 2
Rent to be charged for luxury suite = ` 7,350
Rent of Deluxe room x 3 = ` 2,450 x 3
Working Notes:
1. Computation of Room Occupancy
Type of Room No. of rooms x no. of days x Room days
occupancy %
Deluxe Room 100 rooms x 360 days x 90% occupancy 32,400
Super Deluxe Room 60 rooms x 360 days x 75% occupancy 16,200
Luxury Suite 40 x 360 days x 60% occupancy 8,640
Total 57,240
2. Computation of equivalent deluxe room days
Rent of ‘super deluxe’ room is to be fixed at 2 times of ‘deluxe room’ and luxury suite’
is 3 times of ‘deluxe room’. Therefore, equivalent room days would be:
Type of Room Room days Equivalent deluxe room days
Deluxe Room 32,400 x 1 32,400
Super Deluxe Room 16,200 x 2 32,400
Luxury Suite 8,640 x 3 25,920
Total 90,720
3. Computation of room attendant’s wages:
Room occupancy days @ ` 500 per day
= 57,240 days × ` 500 per day = ` 2,86,20,000

4. Computation of Depreciation per annum:

Particulars Cost (`) Rate of Depreciation
Depreciation (`)
Building 900,00,000 5% 45,00,000
Furniture & Fixtures 90,00,000 10% 9,00,000
Air Conditioners 75,00,000 10% 7,50,000
11. SR – Standard labour Rate per Hour

AR – Actual labour rate per hour
SH – Standard Hours
AH – Actual hours
(i) Labour rate Variance = AH (SR – AR)
Or 17,094 (8 – AR) = 68,376(A)
Or 17,094 (8 – AR) = - 68,376
Or 8 – AR = -4
Or AR = `12
SH
(ii) Labour Efficiency = x 100 = 105.3
AH
AH  105.3 17,094  105.3
= SH = =
100 100
= 17,999.982
= SH = 18,000 hours
(iii) Labour Efficiency Variance = SR (SH – AH)
= 8(18,000 – 17,094)
= 8 X 906
= ` 7,248(F)
18,000  8
(iv) Standard Labour Cost per Unit = = ` 24
6,000
17,094  12
(v) Actual Labour Cost Per Unit = = ` 34.19
6,000

12. (a) Working Notes:

Particulars 2022-23 (`) 2023-24 (`)
Fixed Cost 72,00,000 79,20,000
(` 60 × 1,20,000 units) (110% of ` 72,00,000)
Variable Cost 180 225
(125% of ` 180)
Calculation of Break-even Point (in units):

Since, shelf life of the product is one year only, hence, opening stock is to be sold
first.
(`)
Total Contribution required to recover total fixed cost in 2023- 79,20,000
24 and to reach break-even volume.
Less: Contribution from opening stock 24,00,000
{20,000 units × (` 300 – ` 180)}
Balance Contribution to be recovered 55,20,000
Units to be produced to get balance contribution
` 55,20,000
= = 73,600 packets.
` 300 − ` 225
Break-even volume in units for 2023-24
Packets
From 2023-24 production 73,600
Add: Opening stock from 2022-23 20,000
93,600
(b) (1) Comparative Profitability Statements
Particulars Process- A (`) Process- B (`)
Selling Price per unit 20.00 20.00
Less: Variable Cost per unit 12.00 14.00
Contribution per unit 8.00 6.00
Total Contribution 32,00,000 24,00,000
(` 8 × 4,00,000) (` 6 × 4,00,000)
Less: Total fixed costs 30,00,000 21,00,000
Profit 2,00,000 3,00,000

Capacity (units) 4,30,000 5,00,000

Total Contribution at full capacity 34,40,000 30,00,000
(` 8 × 4,30,000) (` 6 × 5,00,000)
Fixed Cost 30,00,000 21,00,000
Profit 4,40,000 9,00,000
Process - B gives more profit.
(2)
Particulars Process- A (`) Process- B (`)
*Capacity (units) 6,00,000 5,00,000
Total contribution 48,00,000 30,00,000
(` 8 × 6,00,000) (` 6 × 5,00,000)
Fixed Cost 30,00,000 21,00,000
Profit 18,00,000 9,00,000
Process-A be chosen.
*Note: It is assumed that capacity produced equals sales.
13. Statement Showing Sales Budget for 2023-24
Product X Product Y Total
Division Qty. Rate (`) Amt. (`) Qty. Rate (`) Amt. (`) Amt. (`)
East 5001 10 5,000 4003 20 8,000 13,000
West 7002 10 7,000 6004 20 12,000 19,000
Total 1,200 12,000 1,000 20,000 32,000
Workings
1. 400 × 110% + 60 = 500 units
2. 600 × 105% + 70 = 700 units
3. 300 × 120% + 40 = 400 units
4. 500 × 110% + 50 = 600 units
Statement Showing Sales Budget for 2022-23
Division Product X Product Y Total
Qty. Rate (`) Amt. (`) Qty. Rate (`) Amt. (`) Amt. (`)
East 400 9 3,600 300 21 6,300 9,900
West 600 9 5,400 500 21 10,500 15,900
Total 1,000 9,000 800 16,800 25,800

Statement Showing Actual Sales for 2022-23

Product X Product Y Total
Division
Qty. Rate (`) Amt. (`) Qty. Rate (`) Amt. (`) Amt. (`)
East 500 9 4,500 200 21 4,200 8,700
West 700 9 6,300 400 21 8,400 14,700
Total 1,200 10,800 600 12,600 23,400
14. (a) Cost plus contract: Under cost plus contract, the contract price is ascertained by
adding a percentage of profit to the total cost of the work. Such types of contracts
are entered into when it is not possible to estimate the contract cost with reasonable
accuracy due to unstable condition of material, labour services etc.
Following are the advantages of cost-plus contract:
(i) The contractor is assured of a fixed percentage of profit. There is no risk of
incurring any loss on the contract.
(ii) It is useful specially when the work to be done is not definitely fixed at the time
of making the estimate.
(iii) Contractee can ensure himself about the ‘cost of contract’ as he is empowered
to examine the books and documents of the contractor to ascertain the veracit y
of the cost of contract.
(b) The main objectives of introduction of a Cost Accounting System in a manufacturing
organization are as follows:
(i) Ascertainment of cost: The main objective of a Cost Accounting system is to
ascertain cost for cost objects. Costing may be post completion or continuous
but the aim is to arrive at a complete and accurate cost figure to assist the users
to compare, control and make various decisions.
(ii) Determination of selling price: Cost Accounting System in a manufacturing
organisation enables to determine desired selling price after adding expected
profit margin with the cost of the goods manufactured.
(iii) Cost control and Cost reduction: Cost Accounting System equips the cost
controller to adhere and control the cost estimate or cost budget and assist them
to identify the areas of cost reduction.
(iv) Ascertainment of profit of each activity: Cost Accounting System helps to
classify cost on the basis of activity to ascertain activity wise profitability.
(v) Assisting in managerial decision making: Cost Accounting System provides
relevant cost information and assists managers to make various decisions.

(c) Idle capacity costs are treated in the following ways in Cost Accounts:
(i) If the idle capacity cost is due to unavoidable reasons: A supplementary
overhead rate may be used to recover the idle capacity cost. In this case, the
costs are charged to the production capacity utilised.
(ii) If the idle capacity cost is due to avoidable reasons: Such as faulty planning,
etc. the cost should be charged to Costing Profit and Loss Account.
(iii) If the idle capacity cost is due to trade depression, etc.: Being abnormal in
nature the cost should also be charged to the Costing Profit and Loss Account.
(iv) If the idle capacity cost is due to seasonal factors, then the cost should be
charged to cost of production by inflating overhead rate.
(d) Treatment of over and under absorption of overheads are:
(i) Writing off to costing P&L A/c: Small difference between the actual and absorbed
amount should simply be transferred to costing P&L A/c, if difference is large
then investigate the causes and after that abnormal loss/ gain shall be
transferred to costing P&L A/c.
(ii) Use of supplementary Rate: Under this method the balance of under and over
absorbed overheads may be charged to cost of W.I.P., finished stock and cost
of sales proportionately with the help of supplementary rate of overhead.
(iii) Carry Forward to Subsequent Year: Difference should be carried forward in t he
expectation that next year the position will be automatically corrected.
(e) Distinguish between Cost allocation and Cost absorption:
Cost allocation is the allotment of whole item of cost to a cost centre or a cost unit. In
other words, it is the process of identifying, assigning or allowing cost to a cost centre
or a cost unit.
Cost absorption is the process of absorbing all indirect costs or overhead costs
allocated or apportioned over particular cost center or production department by the
units produced.


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PAPER – 3: COST AND MANAGEMENT ACCOUNTING

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2 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 3

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4 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Factory overheads 8,44,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 5

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6 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Joint Products & By Products

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 7

Repairs, Maintenance and Renovation 180.00

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8 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 9

Percentage increase in sales over budgeted sales

1. Difference between Minimum lead time Maximum lead time = 4 days

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10 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 11

(X ` 120) + 50% of ` 120  (6 − X)

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12 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

4. Calculation of “Activity Rate”

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 13

Inspection and No. of Production 12,000 9,600 14,400 36,000

5. (a) Cost Sheet of A Ltd. for the month of July 2023

6. (i) Statement of Profit as per financial records

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14 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

To Raw materials consumed 16,80,000 By Work-in-Process 82,400

Statement of Profit as per costing records

Cost of sales: (B) 44,09,035

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 15

(ii) Statement of Reconciliation

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16 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

Prime cost 29,00,000

7. (i) Calculation of Overhead Recovery Rate:

Working Note: Calculation of Factory Cost in 2022-23

Particulars Amount (`)

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 17

(ii) Job Cost Sheet for the order received in 2023-24

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18 INTERMEDIATE EXAMINATION: NOVEMBER, 2023

3,16,800 52,800 6.00

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 19

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20 INTERMEDIATE EXAMINATION: NOVEMBER, 2023