Costing Practise Sheet Jan 2025

EDU91 PRESENTS
COSTING
PRACTICE
SHEETS
JAN 25 -
MAY 25
CA NITIN GURU
Introduction
Dear CA Intermediate Students,
I am pleased to present to you this practice booklet, specially compiled to aid your preparation for the CA
Intermediate exams. This comprehensive resource, brought to you by EDU91 and meticulously compiled by CA
Nitin Guru, is designed to provide you with an invaluable study aid.
Inside this booklet, you will find past years' exam questions, revision test papers, and mock test paper
questions presented by ICAI. These have been simplified and organized in a chapter-wise manner to facilitate
easier understanding and revision. Additionally, this booklet includes multiple-choice questions (MCQs) and
case-based questions, also provided by ICAI, to help you practice and perfect your exam techniques.
Every effort has been made to ensure that this booklet is error-free. However, if you come across any mistakes,
please do not hesitate to bring them to our attention so we can correct them. Your feedback is invaluable to
us.
I extend my heartfelt thanks to my students for their continuous appreciation, hard work, and consistent
support. Your dedication is the driving force behind this initiative. This practice booklet is a small token of
gratitude from EDU91 and CA Nitin Guru to help you succeed in your exams.
Best wishes for your preparation!
Yours
CA Nitin Guru
Compiled by: CA Nitin Guru

Presented by: EDU91
CA Nitin Guru | www.edu91.org

Introduction
ABOUT THE AUTHOR

CA Nitin Guru is a Post Graduate in Commerce & a Member of The Institute of Chartered Accountants of India.
● He is the lead trainer for various courses for Costing and Financial management at Edu91 and
Learn91.
● He is a First Class Graduate from Delhi College of Arts and Commerce.
● He is a College Topper & a Gold Medallist.
● His areas of specialisation are Cost & Management Accounting, Financial Management, Economics for
Finance and Strategic Financial Management.
● At a young age, he has amassed vast experience of teaching over 25,000 students.
● His style of teaching, techniques and guidelines for preparing for examination are well accepted &
acknowledged by all the students. His friendly and interactive approach makes him popular amongst
the students.
● He has maintained a very high passing rate. He has been a Visiting Faculty to various Professional
Institutes & MBA Colleges in the past.
CLASS ATTRACTIONS
● Start the topic from the base.
● Explains reasons and logic inbuilt behind concepts and has a unique method of making students
understand them.
● Real life examples make classes interesting & lively.
CLASSES AVAILABLE ON WWW.EDU91.ORG

● CA Inter - Cost & Management Accounting (Regular & Fast Track)
● CA Inter - Financial Management (Regular & Fast Track)
● CA Final - Advanced Financial Management (Regular & Fast Track)
Thank You !!
CA Nitin Guru

Introduction
INDEX
Chapter No. Name of the Chapter Page No.
0 Cased Based Questions and MCQs 1-19
1 Material Costing 1.1-1.5
2 Employee Costs 2.1-2.7
3 Overheads 3.1-3.12
4 Activity Based Costing 4.1-4.13
5 Cost Sheet 5.1-5.10
6 Cost Accounting System 6.1-6.7
7 Reconciliation 7.1-7.4
8 Unit, Job & Batch Costing 8.1-8.7
9 Process Costing 9.1-9.12
10 Joint & By Product 10.1-10.7
11 Service Sector Costing 11.1-11.13
12 Standard Costing 12.1-12.8
13 Marginal Costing 13.1-13.9
14 Budgetary Costs 14.1-14.13

MCQs and Cased Based Question - COSTING CA INTER
Material Costing
Question 1 : (RTP Sept 2024)
‘Axe Trade’, an unregistered supplier under GST, purchased material from Vye Ltd. which is registered supplier
under GST. During the month of June 2024, the Axe Traders has purchased a lot of 5,000 units on credit from
Vye Ltd. The information related to the purchase are as follows:
Listed price of one lot of 5,000 units ₹ 2,50,000
Trade discount @ 10% on listed price
CGST and SGST (Credit available) 18% (9% CGST + 9% SGST)
Cash discount @ 10%
(Will be given only if payment is made within 30 days.)
Toll Tax paid ₹ 5,000
Freight and Insurance ₹ 17,220
Demurrage paid to transporter ₹ 5,000
Commission and brokerage on purchases ₹ 10,000
Amount deposited for returnable containers ₹ 30,000
Amount of refund on returning the container ₹ 20,000
Other Expenses @ 2% of total cost
A 20% shortage in material on receipt is expected considering the nature of the raw material.
The payment to the supplier was made within 21 days of the purchases.
(i) If Axe Traders pays the supplier within 30 days of purchase, then, what is the total amount of cash discount
received from the supplier and how it is treated to calculate material cost?
(a) ₹ 25,000 & it will not be deducted from the material cost
(b) ₹ 26,550 & it will be deducted from the material cost
(c) ₹ 26,550 & it will not be deducted from the material cost
(d) ₹ 22,500 & it will not be deducted from the material cost
(ii) What will be the amount of other expenses and how it is treated in material cost?
(a) ₹ 6,154.40 & it will be added with the material cost
(b) ₹ 6,280.00 & it will be added with the material cost
(c) ₹ 5,344.40 & it will be added with the material cost
(d) ₹ 5,453.47 & it will not be added with the material cost
(iii) What is the amount of GST and how will it be treated in cost sheet of Axe Traders?
(a) ₹ 40,500 & it will not be added with material cost
(b) ₹ 40,500 & it will be added with material cost
(c) ₹ 45,000 & it will not be added with material cost
(d) ₹ 45,000 & it will be added with material cost
(iv) What is the total material cost chargeable in the cost sheet of Axe Traders?
(a) ₹ 3,14,000
(b) ₹ 2,73,500
(c) ₹ 2,72,673
(d) ₹ 3,13,874
(v) The number of good units and cost per unit of the materials received are:
(a) 5,000 units & ₹ 62.80
(b) 5,000 units & ₹ 54.70
(c) 4,000 units & ₹ 78.50
(d) 4,000 units & ₹ 68.38
Solution 1 :
(i) (d) Cash discount is received when credit amount is paid within the stipulated period of 30 days. The
amount of cash discount to be received from the supplier is:
Particulars Amount (₹)
A. Listed price 2,50,000
B. Less: Trade Discount @10% (25,000)
C. Taxable value (A-B) 2.25,000
D. Add: GST@18% (18% of C) 40,500
CA Nitin Guru | www.edu91.org 1

E. Total amount payable to the supplier 2,65,500

F. Cash discount @10% (10% of C) (22,500)
G. Net amount to be paid to the supplier (E-F) 2,43,000
(ii) (b)
Particulars Units (₹)
Listed Price of Materials 5,000 2,50,000
Less: Trade discount @ 10% on invoice price (25,000)
2,25,000
Add: GST @ 18% of ₹ 2,25,000 40,500
2,65,500
Add: Toll Tax 5,000
Freight and Insurance 17,220
Commission and Brokerage Paid 10,000
Add: Cost of returnable containers:
Amount deposited ₹ 30,000
Less: Amount refunded ₹ 20,000 10,000
3,07,720
Add: Other Expenses @ 2% of Total Cost (
3,07,720
×2) 6,280
98
Total cost of material 3,14,000
Less: Shortage material due to normal reasons @ 20% 1,000 -
Total cost of material of good units 4,000 3,14,000
Cost per unit (₹ 3,14,000/4,000 units) 78.5
(iii) (b) Axe Traders is an unregistered supplier in the GST; thus, GST credit is not applicable for it. GST paid on
the purchase of the material will be the part of the material cost.
(iv) (a) Please refer the solution above
(v) (c) Please refer the solution above
Question 2 : (RTP May 2024)

The purchase committee of A Ltd. has been entrusted to review the material procurement policy of the
company. The chief marketing manager has appraised the committee that the company at present produces a
single product X by using two raw materials A and B in the ratio of 3:2. Material A is perishable in nature and
has to be used within 10 days from Goods received note (GRN) date otherwise material becomes obsolete.
Material B is durable in nature and can be used even after one year. Material A is purchased from the local
market within 1 to 2 days of placing order. Material B, on the other hand, is purchased from neighbouring state
and it takes 2 to 4 days to receive the material in the store.
The purchase price of per kilogram of raw material A and B is ₹30 and ₹44 respectively exclusive of taxes. To
place an order, the company has to incur an administrative cost of ₹1,200. Carrying cost for Material A and B is
15% and 5% respectively. At present material A is purchased in a lot of 15,000 kg. to avail 10% discount on
market price. GST applicable for both the materials is 18% and the input tax credit is availed.
The sales department has provided an estimate that the company could sell 30,000 kg. in January 2024 and
also projected the same trend for the entire year.
The ratio of input and output is 5:3. Company works for 25 days in a month and production is carried out
evenly.
The following queries/ calculations to be kept ready for purchase committees’ reference:
(i) For the month of January 2024, what would be the quantity of the materials to be requisitioned for both
material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.
(ii)The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively

(d) 13,197 kg & 17,165 kg respectively
(iii) What would the maximum stock level for material A:

(a) 18,200 kg.
(b) 12,000 kg.
(c) 16,000 kg.
(d) 16,200 kg.
(iv) Calculate saving/ loss in purchase of Material A if the purchase order quantity is equal to EOQ.
(a) Profit of Rs. 3,21,201.
(b) Loss of Rs. 3,21,201.
(c) Profit of Rs. 2,52,500.
(d) Loss of Rs. 2,52,500.
(v) What would the minimum stock level for material A:

(a) 1,800 kg.
(b) 1,200 kg.
(c) 600 kg.
(d) 2,400 kg.
Solution 2 :
(i) (d) Monthly Production of X = 30,000 kgs.
30,000
Raw Material Required = 3 ×5 = 50,000 kgs.
50,000
Material A = 5
×3 = 30,000 kg.
50,000
Material B = 5
×2 = 20,000 kg.
(ii) (a) Calculation of Economic Order Quantity (EOQ):

2 × 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 × 𝑂𝑟𝑑𝑒𝑟 𝐶𝑜𝑠𝑡
Material A = 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝.𝑎
2×(30,000×12)×1,200
= 15% 𝑜𝑓 30
= 13,856 kg
2×(20,000×12)×1,200
Material B = 5% 𝑜𝑓 44
= 16,181 kg.
(iii) (b) Calculation of Maximum Stock level:

Since, the Material A is perishable in nature and it required to be used within 10 days, hence, the Maximum
Stock Level shall be lower of two:
30,000
(a) Stock equal to 10 days consumption = 25 x 10 Days = 12,000 kg
(b) Maximum Stock Level for Material A:

Re-order Quantity + Re-order level – (Min consumption* × Min. lead time)
Where,
Re-order Quantity = 15,000 kg.
Re-order level = Max. Consumption* × Max. Lead time = 30,000/25 × 2 days = 2,400 kg.
Maximum stock Level = 15,000 kg + 2,400 kg. - (30,000/25 × 1 day) = 17,400 – 1,200 = 16,200 kg.
Stock required for 10 days consumption is lower than the maximum stock level calculated through the
formula. Therefore, Maximum Stock Level will be 12,000 kg.
(*Since, production is processed evenly throughout the month hence material consumption will also be even.)
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity equals to EOQ.
Purchase Quantity = 15,000 kg. Purchase Quantity = EOQ i.e. 13,856 kg.
3,60,000 kg. 3,60,000 kg.
Annual consumption
(30,000 × 12 months) (30,000 × 12 months)
30 30
No. of orders [Note- (i)]
(3,60,000 ÷ 12,000) (3,60,000 ÷ 12,000)
Ordering Cost (a) ₹36,000 ₹36,000

(₹1200 × 30) (₹1200 × 30)

₹30,375 ₹31,176
Carrying Cost (b) [Note- (ii)]
(15% of ₹27 × 7,500) (15% of ₹30 × 6,928)
Purchase Cost (c) (for good ₹97,20,000 ₹1,08,00,000
portion) (₹27 × 3,60,000) (₹30 × 3,60,000)
Loss due to obsolescence (d) ₹24,30,000 ₹16,70,400
[Note- (iii)] [₹27 × (30 × 3,000)] [₹30 × (30 × 1,856)]
Total Cost [(a) + (b) + (c) +(d)] ₹ 1,22,16,375 ₹ 1,25,37,576
Purchasing of material -A at present policy of 15,000 kg. saves ₹ 3,21,201.

Notes: (i) Since, material gets obsolete after 10 days, the quantity in excess of 10 days consumption i.e.
12,000 kg. are wasted. Hence, after 12,000 kg. a fresh order needs to be given.
(ii) Carrying cost is incurred on average stock of Materials purchased.
(iii) The excess quantity of material becomes obsolete and loss has to be incurred.
(v) (C) Minimum Stock Level for Material A

= Re-order level – (Average Consumption Rate x Average Re- order Period) = 2400 – (1200 x 1.5) = 600 kgs
Re-order level = Max. Consumption* × Max. Lead time = 30,000/25 × 2 days = 2,400 kg.
Average Consumption Rate = (30,000/25 + 30,000/25)/2 = 1,200 Kg
Average Re-order Period = (1 + 2)/2 =1.5 Days
Stock required for 10 days consumption is lower than the maximum stock level calculated through the
formula. Therefore, Maximum Stock Level will be 12,000 kg.
(*Since, production is processed evenly throughout the month hence material consumption will also be even.)
Labour Costing
Question 3 :(RTP May 2024)
The board of the J Ltd. has been appraised by the General Manager (HR) that the employee attrition rate in the
company has increased. The following facts has been presented by the GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this period their productivity is 60% of the
experienced workers. Time required by an experienced worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of rectification of a defective unit was ₹ 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is ₹ 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was ₹ 1,83,480.
(6) Recruitment cost was ₹ 1,56,340
(7) Training cost was ₹ 1,13,180
You being an associate finance to GM(HR), has been asked the following questions:
(i) How much quantity of output is lost due to labour turnover?
(a) 10,000 units
(b) 8,000 units
(c) 12,000 units
(d) 12,600 units
(ii) How much loss in the form of contribution, the company incurred due to labour turnover?
(a) ₹ 4,32,000
(b) ₹ 4,20,000
(c) ₹ 4,36,000
(d) ₹ 4,28,000
(iii) What is the cost of repairing defective units?

(a) ₹ 75,000
(b) ₹ 15,000
(c) ₹ 50,000
(d) ₹ 25,000
(iv) Calculate the profit lost by the company due to increased labour turnover.

(a) ₹ 7,50,000
(b) ₹ 15,00,000
(c) ₹ 5,00,000
(d) ₹ 9,00,000
(v) How much quantity of output is lost due to inexperience of the new worker?
(a) 1,000 units
(b) 2,600 units
(c) 2,000 units
(d) 12,600 units
Solution 3 :
50,000
(i)(c) Output by experienced workers in 50,000 hours = 10
= 5,000 units
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
Total loss of output = Due to delay recruitment + Due to inexperience
= 10,000 +2,000=12,000 units
(ii) (a) Contribution per unit = 20% of ₹ 180 = ₹ 36

Total contribution lost = ₹ 36 × 12,000 units = ₹ 4,32,000
(iii)(b) Cost of repairing defective units = 3,000 units × 0.2 × ₹ 25 = ₹ 15,000
(iv)(d) Calculation of loss of profit due to labour turnover

(₹)
Loss of Contribution 4,32,000
Cost of repairing defective units 15,000
Recruitment cost 1,56,340
Training cost 1,13,180
Settlement cost of workers leaving 1,83,480
Profit forgone in 2022-23 9,00,000
50,000
(v) (c) Output by experienced workers in 50,000 hours = 10
= 5,000 units
Overhead
The accountant for Brilliant Tools Ltd applies overhead based on machine hours. The budgeted overhead and
machine hours for the year are ₹ 1,30,000 and 8,000 hours, respectively. The actual overhead and machine
hours incurred were ₹ 1,37,500 and 10,000 hours. The cost of goods sold and inventory data compiled for the
year is as follows:
Direct Material ₹ 25,000
Cost of Goods Sold ₹ 2,25,000
Units: WIP 50,000 and Finished Goods 75,000
What is the amount of over/under absorbed overhead for the year?

(a) Over absorbed by ₹ 25,000
(b) Under absorbed by ₹ 25,000
(c) Over a absorbed by ₹ 32,500
(d) Under absorbed by ₹ 32,500
Solution 4 :
(a) Overabsorbed by ₹ 25,000
Predetermined Overhead Rate = Budgeted Overhead / Budgeted hours
i.e. 130,000 / 8,000 = ₹ 16.25 per hour.
Hence, absorbed overhead = 10,000 X 16.25 = ₹ 1,62,500.
Since actual overhead incurred were ₹ 1,37,500

Hence the overhead were over absorbed by 1,62,500 – 1,37,500 = ₹ 25,000.

During half year ending inter departmental review meeting of P Ltd., cost variance report was discussed and
the performance of the departments were assessed. The following figures were presented.
For a period of first six months of the financial year, following information were extracted from the books:
Actual production overheads ₹ 34,08,000
The above amount is inclusive of the following payments made:
Paid as per court’s order ₹ 4,50,000
Expenses of previous year booked in current year ₹ 1,00,000
Paid to workers for strike period under an award ₹ 4,20,000
Obsolete stores written off ₹ 36,000
Production and sales data for the six months are as under:
Production:
Finished goods 1,10,000 units
Works-in-progress (50% complete in every respect) 80,000 units
Sale:
Finished goods 90,000 units
Machine worked during the period was 3,000 hours.
At the of preparation of revenue budget, it was estimated that a total of
₹ 50,40,000 would be required for budgeted machine hours of 6,000 as production overheads for the entire
year.
During the meeting, a data analytic report revealed that 40% of the over/under-absorption was due to defective
production policies and the balance was attributable to increase in costs.
You were also present at the meeting; the chairperson of the meeting has asked you to be ready with the
followings for the performance appraisal of the departmental heads:
(i) How much was the budgeted machine hour rate used to recover overhead?
(a) ₹ 760
(b) ₹ 820
(c) ₹ 780
(d) ₹ 840
(ii) How much amount of production overhead has been recovered (absorbed) upto the end of half year end?
(a) ₹ 25,20,000
(b) ₹ 34,08,000
(c) ₹ 24,00,000
(d) ₹ 24,60,000
(iii) What is the amount of overhead under/ over absorbed?

(a) 1,18,000 over-absorbed
(b) 1,18,000 under- absorbed
(c) 18,000 over-absorbed
(d) 18,000 under-absorbed
(iv) What is the supplementary rate for apportionment of over/under absorbed overheads over WIP, Finished
goods and Cost of sales?
(a) ₹ 0.315 per unit
(b) ₹ 0.472 per unit
(c) ₹ 0.787 per unit
(d) ₹ 1 per unit
(v) What is the amount of over/under absorbed overhead apportioned to Work in Progress?
(a) ₹ 9,440
(b) ₹ 42,480
(c) ₹ 18,880
(d) ₹ 70,800

Solution 5 :
₹ 50, 40,000
(i) (d) Budgeted Machine hour rate (Blanket rate) = 6,000 ℎ𝑜𝑢𝑟𝑠
= ₹ 840 per hour
(ii) (a) ₹ 25,20,000
(iii) (a)
Amount (₹) Amount (₹)
Total production overheads actually incurred during the period 34,08,000
Less: Amount paid to worker as per court order 4,50,000
Expenses of previous year booked in the current year 1,00,000
Wages paid for the strike period under an award 4,20,000
Obsolete stores written off 36,000 10,06,000
24,02,000
Less: Production overheads absorbed as per machine hour
rate (3,000 hours × ₹ 840*) 25,20,000
Amount of over absorbed production overheads 1,18,000
* Budgeted Machine hour rate (Blanket rate) calculated in part (i)
(iv) (b) Accounting treatment of over absorbed production overheads: As, 40% of the over absorbed
overheads were due to defective production policies, this being abnormal, hence should be credited to Costing
Profit and Loss Account.
Amount to be credited to Costing Profit and Loss Account = ₹ 1,18,000× 40% = ₹ 47,200.
Balance of over absorbed production overheads should be distributed over Works in progress, Finished goods
and Cost of sales by applying supplementary rate*.
Amount to be distributed = ₹ 1,18,000× 60% = ₹ 70,800
₹ 70,800
Supplementary rate = 1,50,000 𝑢𝑛𝑖𝑡𝑠 = ₹ 0.472 per unit
(v) (c) Apportionment of over absorbed production overheads over WIP, Finished goods and Cost of sales:
Equivalent completed units Amount (₹)
Work-in-Progress 40,000 18,880
(80,000 units × 50% ×0.472)
Finished Goods 20,000 9,440
(20,000 units × 0.472)
Cost of Sales 90,000 42,480
(90,000 units × 0.472)
Total 1,50,000 70,800
Process Costing
Question 6 :(RTP Sept 2024)
The following information is available in respect of Process I: Raw material purchased and introduced 10,000
units @ 5 per unit Raw Material received from store 4000 units @ 6 per unit Direct Labour 40,000 Overheads
28,000 Output of Process is 13,500 units, Normal wastage 5% of inputs Scrap value of wastage 4 per unit The
value of Abnormal Gain is:
(a) ₹ 2062.68
(b) ₹ 2135.34
(c) ₹ 2103.70
(d) ₹ 2093.2
Solution 6 :
(d) ₹ 2093.2
Process a/c
Particulars Units AmountParticulars units Amount
Raw material 10,000 50,000Normal loss 700 2,800
Stores 4,000 24,000Units transferred 13,500 1,41,293.2
Direct Wages 40,000

Production
overheads 28,000
Abnormal gain
200 2,093.2
1,44,093.2 1,44,093.2
1,42,000−2,800
Cost per unit= 14,000−700
= 10.466 per unit
Question 7 :(MTP March 2024)

Arnav Ltd. manufactures chemical solutions used in paint and adhesive products. Chemical solutions are
produced in different processes. Some of the processes are hazardous in nature which may results in fire
accidents.
At the end of the last month, one fire accident occurred in the factory. The fire destroyed some of the paper
files containing records of the process operations for the month.
You, being an associate to the Chief Manager (Finance), are assigned to prepare the process accounts for the
month during which the fire occurred. From the documents and files of other sources, following information
could be retrieved:
Opening work-in-process at the beginning of the month was 500 litres, 80% complete for labour and 60%
complete for overheads. Opening work-in- process was valued at ₹ 2,78,000.
Closing work-in-process at the end of the month was 100 litres, 20% complete for labour and 10% complete for
overheads.
Normal loss is 10% of input (fresh) and total losses during the month were 800 litres partly due to the fire
damage.
Output transferred to finished goods was 3,400 litres.
Losses have a scrap value of ₹ 20 per litre.

All raw materials are added at the commencement of the process.
The cost per equivalent unit is ₹ 660 for the month made up as follows: Raw Material ₹ 300 Labour ₹ 200
Overheads ₹ 160
The company uses the FIFO method to value work-in-process and finished goods. The following information
are required for managerial decisions:
(i). How much quantity of raw material was introduced during the month?
A. 4,300 Litres
B. 3,500 Litres
C. 4,200 Litres
D. 3,800 Litres
(ii). The Quantity of normal loss and abnormal loss are:

A. Normal loss- 380 litres & Abnormal loss- 420 litres
B. Normal loss- 350 litres & Abnormal loss – 450 litres
C. Normal loss- 430 litres & Abnormal loss – 370 litres
D. Normal loss- 420 litres & Abnormal loss – 380 litres.
(iii). Value of raw material added to the process during the month is:
A. ₹ 10,10,000
B. ₹ 10,33,600
C. ₹ 10,18,400
D. ₹ 10,20,000
(iv). Value of labour and overhead in closing Work-in-process are:

A. ₹ 4,000 & ₹ 1,600 respectively
B. ₹ 20,000 & ₹ 16,000 respectively
C. ₹ 16,000 & ₹ 9,000 respectively
D. ₹ 13,200 & ₹ 6,600 respectively
(v). Value of output transferred to finished goods is:

A. ₹ 22,57,200
B. ₹ 20,06,400

C. ₹ 22,44,000
D. ₹ 19,27,200
Solution 7 :
(i).D
Inflow into process Litres Outflow from process Litres
Opening WIP 500 Transferred to finished goods 3,400
Quantity introduced (Balancing figure) 3,800 Total loss 800
Closing WIP 100
4,300 4,300
(ii). A
Total loss 800 litres
Normal loss (10% of fresh input i.e. 3,800) 380 litres
Abnormal loss 420 litres
(iii). B
Calculation of Equivalent production units
Equivalent Production
Input Details Units Output Particulars Units Material Labour Overheads
% Units % Units % Units
Opening WIP 500 From Opening WIP 500 - - 20 100 40 200
Fresh inputs 3,800 From fresh units 2900 100 2900 100 2900 100 2900
Normal loss 380 - - -
Closing WIP 100 100 100 20 20 10 10
Abnormal loss 420 100 420 100 420 100 420
4,300 4,300 3,420 3,440 3,530
Value of raw materials introduced during the month

Equivalent Cost per EU Total cost
units (₹) (₹)
Total value of raw material 3420 300 10,26,000
Add: Scrap value of normal loss 380 20 7,600
Value of raw material introduced 10,33,600
(iv). A
Value of labour and overhead in closing Work in process
Cost elements Equivalent units Cost per EU (₹) Total cost (₹)
Labour 20 200 4,000
Overheads 10 160 1,600
(v). C
Value of output transferred to finished goods Output transferred (Units) × Equivalent cost per unit 3,400 Litres
× ₹660 = ₹22,44,000
Cost Sheet
M Ltd. is producing a single product and may expand into product diversification in the next one to two years.
M Ltd. is amongst a labour-intensive company where the majority of processes are done manually. Employee
cost is a major cost element in the total cost of the company. The company conventionally uses performance
parameters Earnings per manshift (EMS) to measure cost paid to an employee for a shift of 8 hours, and
Output per manshift (OMS) to measure an employee’s output in a shift of 8 hours.
The Chief Manager (Finance) of the company has emailed you few information related to the last month. The
email contains the following data related to the last month:
During the last month, the company has produced 2,34,000 tonnes of output. Expenditures for the last months
are:
(i) Raw materials consumed ₹ 50,00,000

(ii) Power consumed 13,000 Kwh @ ₹ 8 per Kwh to run the machines for production.
(iii)Diesels consumed 2,000 litres @ ₹ 93 per litre to run power generators used as alternative or backup for
power cuts.
(iv) Wages & salary paid – ₹ 6,40,00,000
(v) Gratuity & leave encashment paid – ₹ 64,20,000
(vi) Hiring charges paid for HEMM- ₹ 30,00,000. HEMM are directly used in production.
(vii)Hiring charges paid for cars used for official purpose – ₹ 66,000
(viii)Reimbursement of diesel cost for the cars – ₹ 22,000
(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 dispatch) – ₹
12,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the time of dispatch)
and factory premises is ₹ 8,000 and ₹ 18,000 per month respectively.
(xii) TA/ DA and hotel bill paid for sales manager- ₹ 36,000
(xiii)The company has 1,800 employees who work for 26 days in a month.
You are asked to calculate the followings:

(i).What is the amount of prime cost incurred during the last month:
A. ₹ 7,54,20,000
B. ₹ 7,57,10,000
C. ₹ 7,56,06,000
D. ₹ 7,87,10,000
(ii).What is the total and per shift cost of production for last month:
A. ₹ 7,87,10,000 and ₹ 336.37 respectively
B. ₹ 7,87,10,000 and ₹ 1,681.84 respectively
C. ₹ 7,87,28,000 and ₹ 1,682.22 respectively
D. ₹ 7,87,28,000 and ₹ 336.44 respectively
(iii).What is the value of administrative cost incurred during the last month:
A. ₹ 92,400
B. ₹ 88,000
C. ₹ 1,48,400
D. ₹ 1,44,000
(iv).What is the value of selling and distribution cost and total cost of sales:
A. ₹ 36,000 & ₹ 7,88,76,400 respectively
B. ₹ 56,000 & ₹ 7,88,76,400 respectively
C. ₹ 36,000 & ₹ 7,88,72,000 respectively
D. ₹ 56,000 & ₹ 7,88,72,000 respectively
(v). What is the value EMS and OMS for the last month:
A. ₹ 1,504.70 & 5 tonnes respectively
B. ₹ 1,367.52 & 5 tonnes respectively
C. ₹ 1,504.70 & 4.37 tonnes respectively
D. ₹ 1,367.52 & 4.37 tonnes respectively
Solution 8 :
(I). D
(ii).C Please refer cost sheet below for cost of production Cost of production per manshift = Cost of
production ÷ Total manshift, ₹ 7,87,28,000 ÷ 46,800 = ₹1,682.22
(iii). A Car hire charges including GST @5%, please refer the cost sheet
(iv). B Selling and distribution cost includes the following:
Maintenance cost for weighing bridge 12,000
AMC cost of CCTV installed at weigh bridge 8,000
TA/ DA & hotel bill of sales manager 36,000
56,000
For Cost of Sale please refer the cost sheet

(v). A Manshift = 1,800 employees × 26 days = 46,800 manshifts

Computation of earnings per manshift (EMS):
𝑇𝑜𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑎𝑖𝑑 ₹ 7,04,20,000
EMS = 𝑀𝑎𝑛𝑠ℎ𝑖𝑓𝑡
= 46,800 = ₹ 1504.70
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡/ 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 2,34,000 𝑇𝑜𝑛𝑛𝑒
Computation of Output per manshift (OMS): 𝑀𝑎𝑛𝑠ℎ𝑖𝑓𝑡
= 46,800
= 5 tonnes
Workings
Cost Sheet of M Ltd. for the last month
Particulars Amount (₹) Amount (₹)
Materials consumed 50,00,000
Wages & Salary 6,40,00,000
Gratuity & leave encashment 64,20,000 7,04,20,000
Power cost (13,000 kwh × ₹8) 1,04,000
Diesel cost (2,000 ltr × ₹93) 1,86,000 2,90,000
HEMM hiring charges 30,00,000
Prime Cost 7,87,10,000
AMC cost of CCTV installed at factory premises 18,000
Cost of Production/ Cost of Goods Sold 7,87,28,000
Hiring charges of cars 66,000
Reimbursement of diesel cost 22,000
88,000
Add: GST @5% on RCM basis 4,400 92,400
AMC cost of CCTV installed at weighbridge 8,000 20,000
Cost of Sales 7,88,76,400
Marginal Costing
Question 9 : (MTP April 2024)
A meeting of the heads of departments of the Arnav Ltd. has been called to review the operating performance
of the company in the last financial year. The head of the production department appraised that during the last
year the company could operate at 70% capacity level but in the coming financial year 95% capacity level can
be achieved if an additional amount of ₹100 Crore on capex and working capital is incurred.
The head of the finance department has presented that during the last financial year the company had a P/V
ratio of 40%, margin of safety and the break-even were ₹50 crore and ₹200 crore respectively.
To reply to the proposal of increasing the production capacity level to 95%, the head of the finance department
has informed that this could be achieved if the selling price and variable cost are reduced by 8% and 5% of
sales respectively. Fixed cost will also increase by ₹20 crore due to increased depreciation on additional
assets. The additional capital will be arranged at a cost of 15% p.a. from a bank.
In the coming financial year, it has been aimed to achieve an additional profit of ₹10 crore over and above the
last year’s profit after adjusting the interest cost on the additional capital.
The following points are required to be calculated on an urgent basis to put the same in the meeting. You
being an assistant to the head of finance, has been asked the followings:
(i).What will be the revised sales for the coming financial year?
A. ₹ 322.22 Crore
B. ₹ 311.11 Crore
C. ₹ 300.00 Crore
D. ₹ 324.24 Crore
(ii). What will be the revised break-even point for the coming financial year?
A. ₹ 222.22 Crore
B. ₹ 252.22 Crore
C. ₹ 244.44 Crore
D. ₹ 255.56 Crore

(iii). What will be the revised margin of safety for the coming financial year?
A. ₹ 100 Crore
B. ₹ 58.89 Crore
C. ₹ 55.56 Crore
D. ₹ 66.66 Crore
(iv).The profit of the last year and for the coming year are:
A. ₹ 50 Crore & ₹95 Crore respectively
B. ₹ 20 Crore & ₹ 65 Crore respectively
C. ₹ 20 Crore & ₹ 30 Crore respectively
D. ₹ 45 Crore & ₹ 66.66 Crore respectively
(v). The total cost of the last year and for the coming year are:
A. ₹ 230 Crore & ₹292.22
B. ₹ 230 Crore & ₹275 Crore
C. ₹ 220 Crore & ₹282.22 Crore
D. ₹ 220 Crore & ₹292.22 Crore
Solution 9 :
𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐹𝑖𝑥𝑒𝑑𝐶𝑜𝑠𝑡 + 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡
(i). A Revised Sale = 𝑃 / 𝑉 𝑅𝑎𝑡𝑖𝑜
= {₹115 + (20+10)} ÷ 45% = ₹ 322.22 crores
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
(ii). D 𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐵𝑟𝑒𝑎𝑘 – 𝑒𝑣𝑒𝑛 𝑃𝑜𝑖𝑛𝑡 = 𝑃 / 𝑉 𝑅𝑎𝑡𝑖𝑜 = ₹115 Crore ÷ 45% = ₹255.56 Crore (Refer working notes)
(iii).D Revised Margin of Safety = Revised Sales – Revised Break-even Sales
= ₹ 322.22Crores – ₹ 255.56Crores = ₹ 66.66 Crores.
(iv).C ₹ 20 Crore & ₹30 Crore respectively (Refer working note)
(v). A Total cost in last year = ₹230 Crore
Total cost in coming year = Variable Cost + Fixed Cost Revised sales × 55% + 115 Crore
= ₹ 322.22 Crore × 55% + ₹ 115 Crore = ₹ 292.22 Crore
Working Note
Present Sales and Profit
Total Sales = Break – even Sales + Margin of Safety = ₹ 200 Crores + ₹ 50 Crores = ₹ 250 Crores
P/V Ratio = 40%
Variable Cost = 60% of Sales = ₹ 250 Crores × 60% = ₹ 150 Crores
Fixed Cost = Break – even Sales × P/V Ratio = ₹ 200 Crores × 40% = ₹ 80 Crores
Total Cost = ₹ 150 Crores + ₹ 80 Crores = ₹ 230 Crores
Profit = Total Sales – Total Cost = ₹ 250 Crores – ₹ 230 Crores = ₹ 20 Cores
Revised Sales (₹ in Crores)

Present Fixed Cost 80.00
Increase in Fixed Cost 20.00
Interest at 15 per cent on Additional Capital (₹100Crores × 15%) 15.00
Total Revised Fixed Cost (in crore) 115.00
Assuming that the Present Selling Price is ₹100
Revised Selling Price will be (8% Less) 92.00
New Variable Cost (Reduced from 60% to 55%) of Sales (₹ 92 × 55%) 50.60
Contribution (₹92.00 – ₹ 50.60) 41.40
₹ 41.40
New P / V Ratio = ₹ 92.00
x 100 = 45%
Standard Costing
ABC Pvt Ltd is engaged in the manufacture of a Product Q. The product has the following standard production
requirements determined by the technical team of the company post satisfactory completion of test run.
Raw Material Z – 2 units @ ₹ 2 per unit
Skilled labour of – 2.5 hours@ ₹ 5 per hour
Fixed Overheads – ₹ 7.5 per unit
The input of Raw material Z has a yield of 80% everytime when infused into production. The actual quantity of
Raw material Z consumed for production during the year was 24,000 units. The Usage variance of Material Z

was 2,000 Favourable. Further the actual amount of material cost for the material consumed amounted to ₹
45,000.
During the said year, the actual working hours were 30,000 for which the labour cost paid by the company
amounted to ₹1,20,000. The idle time variance amounted to 10,000 Adverse.
The actual fixed overheads incurred for the year amounted to ₹ 1,50,000 and the expenditure variance was
₹25,000 Favourable.
In the context of the above, the following needs to be determined:
(i) The Actual output of Product Q produced during the year is:
(a) 10,000 units
(b) 12,500 units
(c) 25,000 units
(d) 15,000 units
(ii) The Material price and material cost variance are:

(a) Price variance – 3,000 Adverse, Cost Variance – 5,000 Adverse
(b) Price variance – 3,000 Favourable, Cost Variance – 5,000 Favourable
(c) Price variance – 3,000 Favourable, Cost Variance – 8,000 Adverse
(d) Price variance – 5,000 Adverse, Cost Variance – 3,000 Favourable
(iii)The Standard Hours, Net Actual hours and the idle time are:
(a) Standard Hours – 27,500 Net Actual Hours – 28,000 hours Idle Time – 2,000 hours
(b) Standard Hours – 22,500 Net Actual Hours – 28,500 hours Idle Time – 1,500 hours
(c) Standard Hours – 24,000 Net Actual Hours – 29,000 hours Idle Time – 1,000 hours
(d) Standard Hours – 25,000 hours Net Actual Hours –28,000 hours Idle Time – 2,000 hours
(iv)Labour Efficiency variance and Labour rate variance are:

(a) Labour Efficiency Variance – 30,000 Favourable Labour rate Variance – 25,000 Adverse
(b) Labour Efficiency Variance – 25,000 Favourable, Labour rate Variance – 30,000 Adverse
(c) Labour Efficiency Variance – 25,000 Adverse, Labour rate Variance – 30,000 Favourable
(d) Labour Efficiency Variance – 30,000 Adverse Labour rate Variance – 25,000 Favourable
(v)Fixed Overhead volume variance is:

(a) Fixed Overhead volume variance – 1,00,000 Favourable
(b) Fixed Overhead volume variance – 50,000 Adverse
(c) Fixed Overhead volume variance – 1,00,000 Adverse
(d) Fixed Overhead volume variance – 50,000 Favourable
Solution 10:
(i)(a)10,000 units
Usage variance of Material Z = 2,000 F
Usage Variance = SQ x SP – AQ x SP
SP =₹2
AQ = 24,000 units
2 x (SQ – 24,000) = 2,000
2SQ = 50,000
Therefore SQ = 25,000
No of units of Input required per output = 2
Yield of input = 80% = (25000/2) x 80% = 10,000 units.
(ii)(b)Price variance – 3,000 Favourable,

Cost Variance – 5,000 Favourable
Price variance = AQ x (SP-AP)
24,000 x (2-1.875) = 3,000 Favourable.
Cost variance = SQ x SP – AQ x AP = 50,000–45,000=5,000 Favourable.
(iii)(d)Standard Hours – 25,000 hours

Net Actual Hours –28,000 hours

Idle Time – 2,000 hours

Actual output = 10,000 units
Standard hours per unit = 2.5
Therefore standard hours = 10,000 x 2.5 = 25,000 hours.
Idle time variance = SR x (Net AH – AH)
5 x (Net AH – 30,000) = 10,000 Adverse
5 Net AH – 1,50,000 = -10,000
5 Net AH = 1,40,000
Net AH = 28,000 hours
Idle time = 2,000 hours
(iv) (C ) Labour Efficiency Variance – 25,000 Adverse,

Labour rate Variance – 30,000 Favourable
Efficiency Variance = SR x (SH-AH)
= 5 x (25,000 – 30,000)
= 25,000 Adverse
Rate Variance = AH x (SR – AR)
= 30,000 (5 – 4) [1,20,000/30,000]
= 30,000 Favourable.
(v) (C ) Fixed Overhead Volume variance – 1,00,000 Adverse

Overhead Volume variance = Actual Output x SR per unit –Budgeted FOH
Budgeted FOH = Actual FOH (+/-) Expenditure variance
1,50,000 + 25,000 = 1,75,000
AO x SR = 10,000 x 7.5 = 75,000
Therefore volume variance = 75,000 – 1,75,000 =1,00,000 Adverse.

K Ltd. is a manufacturer of a single product A. 8,000 units of product A have been produced in the month of
March 2024. At the beginning of the year a total 1,20,000 units of the product-A had been planned for
production. The cost department has provided the following estimates of overheads:
Fixed ₹ 12,00,000 Variable ₹ 6,00,000

Semi-Variable ₹ 1,80,000
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40 percent of
variable character.
The records of the production department shows that the company could have operated for 20 days but there
was a festival holiday during the month.
The actual cost data for the month of March 2024 are as follows:
Fixed ₹ 1,19,000 Variable ₹ 48,000
Semi-Variable ₹ 19,200
The cost department of the company is now preparing a cost variance report for managerial information and
action. You being an accounts officer of the company are asked to calculate the following information for
preparation of the variance report:
(i).What is the amount of variable overhead cost variance for the month of March 2024:
A. ₹ 10,200 (A)
B. ₹ 10,400 (A)
C. ₹ 10,800 (A)
D. ₹ 10,880 (A)
(ii).What is the amount of fixed overhead volume variance for the month of March 2024:
A. ₹ 9,000 (F)
B. ₹ 9,000 (A)
C. ₹ 21,800 (A)
D. ₹ 11,000 (A)
(iii).What is the amount of fixed overhead expenditure variance for the month of March 2024:
A. ₹ 21,520 (A)

B. ₹ 21,500 (A)
C. ₹ 21,400 (A)
D. ₹ 21,480 (A)
(iv).What is the amount of fixed overhead calendar variance for the month of March 2024:
A. ₹ 5,400 (A)
B. ₹ 5,450 (A)
C. ₹ 5,480 (A)
D. ₹ 5.420 (A)
(v).What is the amount of fixed overhead cost variance for the month of March 2024:
A. ₹ 43,320 (A)
B. ₹ 43,300 (A)
C. ₹ 43,200 (A)
D. ₹ 43,380 (A)
Solution 11 :
(i). D Variable Overhead Cost Variance = Standard Variable Overheads for Production – Actual
Variable Overheads
= ₹ 44,800 – ₹ 55,680 = ₹ 10,880 (A)
(ii). C Fixed Overhead Volume Variance = Absorbed Fixed Overheads – Budgeted Fixed Overheads
= ₹ 87,200 – ₹ 1,09,000 =₹ 21,800 (A)
(iii). A Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads – Actual Fixed Overheads
= ₹ 10.9 × 10,000 units – ₹ 1,30,520 = ₹ 21,520 (A)
(iv). B Calendar Variance = Possible Fixed Overheads – Budgeted Fixed Overheads

= ₹ 1,03,550 – ₹ 1,09,000 = ₹ 5,450 (A)
(v). A Fixed Overhead Cost Variance = Absorbed Fixed Overheads – Actual Fixed Overheads
= ₹ 87,200 – ₹ 1,30,520= ₹ 43,320 (A)
WORKING NOTE
Fixed Overheads =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠
= 12,00,000÷1,20,000 ₹ 10.00
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂𝑢𝑡𝑝𝑢𝑡
Fixed Overheads element in Semi-Variable Overheads ₹ 1,08,000
i.e. 60% of ₹ 1,80,000
Fixed Overheads =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠
= ₹ 1,08,000/120,000 ₹ 0.90
Standard Rate of Absorption of Fixed Overheads per unit (₹ 10.00 + ₹ 0.90) ₹ 10.90
Fixed Overheads Absorbed on 8,000 units @ ₹10.90 ₹ 87,200
Budgeted Variable Overheads ₹ 6,00,000
Add: Variable element in Semi-Variable Overheads 40% of ₹ 1,80,000 ₹ 72,000
Total Budgeted Variable Overheads ₹ 6,72,000
Standard Variable Cost per unit
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠 ₹5.60
Standard Variable Overheads for 8,000 units @ ₹5.60 ₹ 44,800
Budgeted Annual Fixed Overheads (₹ 12,00,000 + 60% of ₹ 1,80,000) ₹ 13,08,000
Possible Fixed Overheads
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑖𝑥𝑒𝑑 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝐷𝑎𝑦𝑠 ₹ 1,03,550
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐷𝑎𝑦𝑠
= 1,09,000/20 days ×19 days
Actual Fixed Overheads (₹ 1,19,000 + 60% of ₹ 19,200) ₹ 1,30,520
Actual Variable Overheads (₹ 48,000 + 40% of ₹ 19,200) ₹ 55,680
Service Costing
A hotel has 200 rooms (120 Deluxe rooms and 80 Premium rooms). The normal occupancy in summer is 80%
and winter 60%. The period of summer and winter is taken as 8 months and 4 months respectively. Assume 30
days in each month. Room rent of Premium room will be double of Deluxe room. Hotel is expecting a profit of

20% on total revenue, total cost for the year is 2,66,11,200. Calculate the room rent to be charged for Premium
room.
(a) ₹ 450 per room day
(b) ₹ 900 per room day
(c) ₹ 380 per room day
(d) ₹ 760 per room day
Solution 12 :
(b) ₹ 900 per room day
Total Revenue (2,66,11,200/80%) = 3,32,64,000
Calculation of Room Days:
Deluxe Premium
Summer 120 rooms x 80% x 30 days x 8 80 rooms x 80% x 30 days x 8
months = 23,040 months = 15,360
Winter 120 rooms x 60% x 30 days x 4 80 rooms x 60% x 30 days x
months = 8,640 4 months = 5,760
Total room days 31,680 21,120
Let’s assume the room rent of Deluxe room be ‘x’
Then rent of Premium room will be ‘2x’
Therefore: 31,680x + 42,240x = 3,32,64,000 , X = 450
Rent of Premium room will be 450 x 2 = ₹ 900 per room day

ALC Ltd. is a insurance company. It launched a new term insurance policy Names as Protection Plus. The total
cost for the policy during the year is ₹ 1,60,00,000. Total number of policies sold is 410 and total insured value
of policies is ₹ 920 crore.
What is the cost per rupee of insured value?
(a) ₹ 0.0017
(b) ₹ 0.18
(c) ₹ 575
(d) ₹ 2.24
Solution 13 :
(a) ₹ 0.0017
Cost per rupee of insured value
= Total Cost/ Total Insured Value
= 1.6 cr/920 cr = ₹ 0.0017
Budget And Budgeting control

A business manufactures a single product and is preparing its production budget for the year ahead. It is
estimated that 2,00,000 units of the product can be sold in the year and the opening inventory is currently
25,000 units. The inventory level is to be reduced by 40% by the end of the year. What is production budget in
units?
(a) 1,95,000 units
(b) 1,90,000 units
(c) 1,84,000 units
(d) 1,75,000 units
Solution 14 :
(b) 1,90,000 units
Units
Sales budget 2,00,000
Add: Closing Inventory (25,000 x 0.6) 15,000
Less: Opening Inventory (25,000)
Production Budget 1,90,000

Mixed MCQs
Question 15 : (MTP March 2024)
The wages budget for the last period was based on a standard repair time of 30 minutes per unit and a
standard wage rate of ₹ 50 per hour. The actual data for the last period are as follows:
Number of units = 30,000 Labour rate variance = 7,500 (A) Labour efficiency variance = Nil
From the information find out the actual rate of wages per unit
A. ₹ 50
B. ₹ 25.50
C. ₹ 50.50
D. ₹ 25.25
Solution 15 :
D. Labour rate variance = Standard time for actual production (SR- AR)
7,500 (A) = (30,000 × 30 minutes/60 minutes) × (50-AR)
AR = (7,50,000 + 7,500)/15,000 = ₹50.50 per hour
Actual wages per unit = 50.50/2 = ₹25.25

The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead (₹) 30,00,000 40,00,000
What would be the budgeted overhead for 60% level of activity:
A. ₹ 32,00,0000
B. ₹ 34,00,000
C. ₹ 30,00,000
D. ₹ 36,00,000
Solution 16 :
B
40,00,000−30,00,000
Variable overhead for each % of level of activity = 75−50
= 40,000
Fixed cost = 30,00,000 – (40,000 × 50) = 10,00,000
Total overheads for 60% level of activity
= 10,00,000 + (40,000 × 60) = 34,00,000

Which of the following statements relating to Zero Based Budgeting (ZBB) is false:
A. It is a method of budgeting whereby all activities are re-evaluated each time a budget is formulated.
B. ZBB attempts to eliminate unnecessary expenditure being retained in budgets.
C. It is probably the least time consuming and least costly approach to budgeting.
D. It requires that budgets are built up from scratch.
Solution 17:
C

Based on the data below, what is the amount of the overhead under-/over- absorbed?
Budgeted overhead – ₹ 5,25,000 Budgeted machine hours- 17,500 Actual machine hours- 17,040 Actual
overheads- ₹ 5,20,000
A. 5,000 under-absorbed
B. 8,800 under-absorbed
C. 8,800 over-absorbed
D. 5,000 over-absorbed
Solution 18:
B Actual Overhead – (Actual machine hours × machine hour rate)
5,20,000 – (17040 × 30) = 8,800 under absorbed


A customer has been ordering 80,000 caps during the year. It is estimated that it costs ₹ 1 as inventory
holding cost per cap per month and that the set up cost per run of cap manufacture is ₹ 3,500
What is the optimum run size of cap manufacture?
A. 12 runs
B. 10 runs
C. 15 runs
D. 7 runs
Solution 19 :
A Optimum batch size or Economic Batch Quantity (EBQ):
2𝐷𝑆 2 × 80,000 × 3,500

EBQ = 𝐶
= 12
= 6,832 units.
Number of Optimum runs = 80,000 ÷ 6,832 = 11.70 or 12 run

If the amount of wages under Halsey plan is ₹ 420, total time allowed is 8 hours and the guaranteed time rate
is ₹ 60 per hour. What is the total time saved by the worker?
A. 2 hours
B. 3 hours
C. 6 hours
D. 3.5 hours
Solution 20 :
A (TT x 60) + [0.50 x (8-TT) x 60] = 420 TT* = 6 hours, Time saved = 8-6 = 2
* TT=Total Time Taken

From the following information, calculate the Total cost of Product A and B using the ABC analysis:
Product A Product B
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering Cost ₹ 4,00,000
Delivery Cost ₹ 1,35,000
A. A = ₹ 47,500; B = ₹ 1,27,500
B. A = ₹ 2,67,500; B = ₹ 2,67,500
C. A = ₹ 1,60,00; B = ₹ 3,75,000
D. A = ₹ 1,47,500; B = ₹ 1,47,500
Solution 21:
C Ordering Cost = 4,00,000/320 = 1,250 , Delivery Cost = 1,35,000/270 = 500
A = 1,250 x 100 + 500 x 70 = 1,60,000
B = 1,250 x 220 + 500 x 200 = 3,75,000

What would be the Prime cost from the below information?
Direct materials Purchased : ₹ 75,000
Direct labour : ₹ 45,000
Direct expenses : ₹ 15,000
Manufacturing overheads : ₹ 22,500
Direct materials consumed : ₹ 67,500
A. ₹ 1,35,000
B. ₹ 1,27,500
C. ₹ 1,57,500
D. ₹ 1,50,000

Solution 22 :
B Direct labour : ₹ 45,000
Direct expenses : ₹ 15,000
Direct materials consumed : ₹ 67,500
Prime Cost ₹ 1,27,500

A product passes through Process-I. Input raw material issued were 8,000 units. Normal loss anticipated was
10% of input with realisable value of ₹ 5 per unit. 7,600 units of output were produced and transferred to next
process. If the total cost incurred under Process-I was ₹ 40,000, then amount of abnormal gain/(loss) is:
A. ₹ 2,000
B. (₹ 5,000)
C. (₹ 2,500)
D. ₹ 3,000
Solution 23 :
A Abnormal gain units = 7600 - [8000 - 800] = 400 Abnormal gain
= [40,000 - (800 x 5)]/ 7200 units x 400 units = 2,000

Find out the most appropriate unit cost from the following information of ZMD Transport Services Ltd. dealing
in goods carriage:
Total cost = ₹ 5,25,000
Kms. Travelled = 8,75,000
Tonnes carries = 4,000
No. of Drivers = 25
No. of trucks = 20
Tonnes Km carried = 6,55,000
A. ₹ 0.6
B. ₹ 0.8
C. ₹ 21,000
D. ₹ 131.25
Solution 24 :
B Total cost = ₹ 5,25,000
Tonnes Km carried = 6,55,000
Unit Cost = ₹ 525000/655000 Km = ₹ 0.801

Costing Practice Sheet - Chapter 1 - Materials
Question 1 : (NOV 2023 )

ABC Limited manufactures a product ‘AM25’ using material ‘CEE’. The following information is available
regarding material ‘CEE’:
Purchase price per unit ₹ 300
Cost of placing an order ₹ 150
Carrying cost per unit per annum 6% of purchase price
Consumption of material ‘CEE’ per annum 1,94,400 units
Lead time Average 6 days, Maximum 8 days,
Minimum 4 days
Maximum consumption of material ‘CEE’ per day is 200 kg more than the average
consumption per day.
Required:
Calculate the following in relation to material ‘CEE’:
(i) Economic Order Quantity.
(ii) Reorder Level
(iii) Maximum Stock Level. (Assume 360 days in a year)
Solution 1 :
2𝐴𝑂
(i) Economic Order Quantity (EOQ) = 𝐶
Where, A= Annual demand for the material CEE = 1,94,400 Kgs
O = Ordering cost = ₹ 150
C = Carrying cost per unit per annum = 6% of ₹ 300 = 18
2×1,94,400×150
EOQ = 18
= 1,800 Units (Kgs.)
(ii) Re-order level (ROL) = Maximum consumption# × Maximum lead time

ROL = 740 × 8 = 5,920 Kg.
# Maximum Consumption = Average consumption +200 kg
1,94,400
= 360 + 200 = 540 + 200 Kg = 740 Kg.
Maximum lead time = 8 days
(iii) Maximum Stock level = Re-order quantity + Re-order level – (Min. consumption* × Min. lead time)
= 1,800 + 5,920 – (340×4)
= 7,720 – 1,360 = 6,360 Kg
*Minimum consumption = 2 × Average consumption – Maximum Consumption
= 2 × 540 – 740
= 1080 – 740 = 340 kg.
Question 2 : (May 2024)

Tesco Cycles ltd. uses about 3,60,000 cycle locks per annum and the usage is fairly constant at 30,000 per
month. The cycle lock costs ₹240 each at wholesale rates and carrying cost is estimated to be 10% of the
annual average inventory value. The cost to place an order is ₹1,200. It takes 45 days to receive delivery from
the date of order. In order to avoid any kind of disruption in assembly line, safety stock of 6,500 cycle locks is
always maintained by Tesco Cycles Ltd.
(Assume 360 days in a year).
Compute:
(i) E.O.Q.
(ii) The re-order level.
(iii) The company has been offered a quantity discount of 2% on the purchase of cycle locks provided the order
size is 30,000 units at a time. Advise whether quantity discount offer can be accepted?
Question 3 : (MTP Sept 2023)

Sky & Co., an unregistered supplier under GST, purchased material from Vye Ltd. which is registered under
GST. The following information is available for one lot of 5,000 units of material purchased:
Listed price of one lot ₹ 2,50,000
CGST and SGST (Credit Not available) 12% (6% CGST + 6% SGST)
Cash discount @ 10%
CA Nitin Guru | www.edu91.org 1.1


20% of material shortage is due to normal reasons.
You are required to CALCULATE cost per unit of material purchased by Sky & Co.
Solution 3 :
Calculation of cost per unit:
2,25,000
Add: CGST @ 6% of ₹ 2,25,000 13,500
Add: SGST @ 6% of ₹ 2,25,000 13,500
2,52,000
Add: Toll Tax 5,000
Add: Cost of returnable containers:
Amount deposited ₹ 30,000
2,94,000
Add: Other Expenses @ 2% of Total Cost (
₹2,94,000
×2) 6,000
98
Less: Shortage material due to normal reasons @ 20% 1,000 -
Cost per unit (₹ 3,00,000/4,000 units) 75
Note:
1. GST is payable on net price i.e., listed price less discount.
2. Cash discount is treated as interest and finance charges; hence it is ignored.
3. Demurrage is penalty imposed by the transporter for delay in uploading or off -loading of materials. It
is an abnormal cost and not included.
4. Shortage due to normal reasons should not be deducted from cost to ascertain total cost of good units
Question 4 : (MTP Oct 2023)

P Limited produces product 'P'. It uses annually 60,000 units of a material 'Rex' costing ₹ 10 per unit. Other
relevant information are:
Cost of placing an order : ₹ 800 per order
Carrying cost : 15% per annum of average inventory
Re-order period : 10 days
Safety stock : 600 units
The company operates 300 days in a year.
You are required to calculate:
(i) Economic Order Quantity for material 'Rex'.
(ii) Re-order Level.
(iii) Maximum Stock Level.
(iv) Average Stock Level.
Solution 4 :
(i)Economic Order Quantity (E.O.Q)

2×𝐴𝑛𝑛𝑢𝑎𝑙 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝑜𝑓 '𝑅𝑒𝑥" ×𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟

= 𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 𝑎𝑛𝑛𝑢𝑚
2×60,000 𝑢𝑛𝑖𝑡𝑠×₹800 9,60,00,000
= ₹10×15%
= ₹1.5
= 8,000 units
(ii)Re-order Level = Safety Stock + (Normal daily Usage × Re-order period)
60,000 𝑢𝑛𝑖𝑡𝑠
= 600 + ( 300 𝑑𝑎𝑦𝑠 × 10 𝑑𝑎𝑦𝑠)
= 600 + 2,000
= 2,600 units
(iii)Maximum Stock Level = E.O.Q (Re-order Quantity) + Safety Stock
= 8,000 units + 600 units
= 8,600 units
1
(iv) Average Stock Level = Minimum Stock level + 2 Re-order Quantity
1
= 600* + 2 8,000 units = 4,600 units
OR
Average Stock Level = (MaximumStocklevel + MinimumStocklevel)/2
= (8,600units + 600units)/2 = 4,600 units
* Minimum Stock Level = Re-order level – (Normal daily usage × Re-order period)
= 2,600 – ( 60,000units/300days)
= 2,600 – 2,000 = 600 units OR
Minimum Stock Level = Safety Stock level = 600 units

S & Sons, an unregistered supplier under GST, purchases material from V Ltd. which is a GST registered
supplier. The following information is available for one lot of 5,000 units of material purchased:
Listed price of one lot ₹ 5,00,000
CGST and SGST (Credit Not available) 18% (9% CGST + 9% SGST)
Cash discount @ 10%

5% of material shortage is due to normal reasons.
You are required to calculate cost per unit of material purchased by S & Sons.
Solution 5 :
Calculation of cost per unit:
4,50,000
Add: GST @18% of ₹ 4,50,000 81,000
5,31,000
Add: Toll Tax 1,800
Add: Cost of returnable containers: Amount
deposited ₹ 30,000
5,82,800
Add: Other Expenses @ 2% of Total Cost 11,894

₹ 5,82,800
( 98
x 2)
Less: Shortage material due to normal reasons @ -
250
5%
Cost per unit (₹ 5,94,694/4,750 units) 125.20
Note:
1. GST is payable on net price i.e., listed price less discount.
2. GST paid on purchase is added with cost as ITC on GST cannot be claimed
3. Cash discount is treated as interest and finance item; hence it is ignored.
4. Demurrage is penalty imposed by the transporter for delay in uploading or off-loading of materials. It is an
abnormal cost and not included.
5. Shortage due to normal reasons should not be deducted from cost to ascertain total cost of good units.

DSM Ltd manufactures speed boats which require propeller TP-M4. The following particulars are collected for
the year 2023-24:
(i) Annual demand of TP-M4 12,000 units
(ii) Cost of placing an order ₹1,200 per order
(iii) Cost per unit of TP-M4 is ₹1,740/-
(iv) Carrying cost p.a. 12%
The company has been offered a quantity discount of 5 % on the purchase of TP-M4, provided the order size is
6,000 units at a time.
Required to:
(i) COMPUTE the economic order quantity (EOQ)
(ii) ADVISE whether the quantity discount offer can be accepted.
Solution 6 :
(i) Calculation of Economic Order Quantity
2 × 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 × 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 2 × 12.000 𝑈𝑛𝑖𝑡𝑠 × ₹ 1,200
EOQ = 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑈𝑛𝑖𝑡 𝑝𝑒𝑟 𝑎𝑛𝑛𝑢𝑚
= ₹1,740 × 0.12
= 371 units (Approx)
(ii) Evaluation of Profitability of Different Options of Order Quantity

(a) When EOQ is ordered
(₹)
Purchase Cost (12,000 units x ₹ 1,740) 2,08,80,000.00
Ordering Cost* [(12,000 units ÷ 371 units) i.e. 33 x ₹ 1,200] 39,600.00
Carrying Cost** (371 units x ₹ 1,740 x ½ x 12/100) 38,732.40
Total Cost 2,09,58,332.40
(b) When a Quantity Discount of 5% is offered.

(₹)
Purchase Cost (12,000 units x ₹ 1,740 × 0.95) 1,98,36,000.00
Ordering Cost* [(12,000 units ÷ 6,000 units) x ₹1,200] 2,400.00
Carrying Cost** (6,000 units x ₹1,653 x ½ x´ 12/100) 5,95,080.00
Total Cost 2,04,33,480.00
Advise – The total cost of inventory is lower if a quantity discount offer is accepted. Hence, the company is
advised to accept the quantity discount.
𝐴𝑛𝑛𝑢𝑎𝑙𝐷𝑒𝑚𝑎𝑛𝑑
* Ordering Cost = 𝑂𝑟𝑑𝑒𝑟 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 × Cost of placing an order
𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 ×𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑟𝑑𝑒𝑟𝑒𝑑×𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔𝐶𝑜𝑠𝑡
** Carrying Cost = 2
Question 7 : (RTP Nov 2023)

Following details are related to a manufacturing concern:
Reorder 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
Solution 7 :
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.𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 +𝑀𝑖𝑛.𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒
2
= 6 days ............................................................................................ (ii)
Putting the value of (i) in (ii),
𝑀𝑖𝑛. 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 + 4 𝑑𝑎𝑦𝑠+𝑀𝑖𝑛.𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒
2
= 6 Days
Or, Min. lead time + 4 days + Min. lead time = 12 days
Or, 2 Min. lead time = 8 days
8 𝐷𝑎𝑦𝑠
Or, Minimum lead time = 2 = 4 Days
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 = 8 𝐷𝑎𝑦𝑠
= 20,000 units
(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
Or, Minimum Consumption per day = 4 𝐷𝑎𝑦𝑠
= 15,000 units

Costing Practice Sheet - Chapter 2 - Employee Costs
Question 1 :(Nov 2023)

A worker took 60 hours to complete a job in a factory. The normal rate of wages is ₹ 80 per hour. The worker is
entitled to receive bonus according to the Halsey Premium Plan. Factory overhead is recovered on the job at ₹
60 per man hour actually worked. The factory cost of the job is ₹ 37,280 and material cost of the job is ₹
28,400.Required:
(i) Calculate the standard time for completing the job and effective hourly rate under the Halsey Premium plan.
(ii)Calculate the effective rate of earnings per hour if wages would have been paid under the Rowan Plan.
Solution 1 :
(i) Calculation of standard time and effective hourly rate:
Standard time = Actual hours worked + time saved = 60 +12 = 72 hours
𝑇𝑜𝑡𝑎𝑙 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 5,280
Effective hourly rate under Halsey premium plan = 𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟 𝑤𝑜𝑟𝑘𝑒𝑑 = 60 = ₹ 88
(ii) Calculation of effective rate earnings under Rowan plan:
𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑
(Rate × Actual hours worked) + Rate × 𝑆𝑡𝑑. 𝑇𝑖𝑚𝑒 × Time taken
12
₹ 80 × 60 hours + ₹ 80 × 72 × 60
₹ 4,800 + 800 = ₹ 5,600
Effective rate per hour = 5,600 ÷ 60 hour = ₹ 93.33
Working Note:
(1)Calculation of labour cost = Factory cost – Material cost – Factory Overhead
= 37,280 – 28,400 – (₹ 60 × 60 hours)
= 37,280 – 28,400 – 3,600 = ₹ 5,280
(2)Calculation of bonus and time saved
Total labour cost = Normal Rate × Actual hours worked + ½ time saved × normal rate
₹ 5,280 = (₹ 80 × 60 hours) + ½ (time saved × ₹ 80)
40 × time saved = ₹ 5,280 – ₹ 4,800
Time saved = (5,280 - 4,800) ÷ 40
Time saved = 12 hours
The solution can also be presented in following way:

Particulars (₹)
Factory Cost 37,280
Less: Factory Overheads 60 x ₹ 60 3,600
Prime Cost 33,680
Direct material 28,400
Direct wages (Balancing Figure) 5,280
(i) Wages under Halsey Plan (Rate × Actual hours worked) + Rate × 𝑆𝑡𝑑. 𝑡𝑖𝑚𝑒
× time taken
₹ 5,280 = 60 x ₹ 80 + (S* – 60)/2 x ₹ 80
₹ 5,280 = ₹ 4,800 + 40S – 2,400
S = ₹ 2,880/40 = 72 hours
*Standard time
Effective rate of earnings per hour = 5,280/60 = ₹ 88
(ii) Wages under Rowan Plan: (Rate × Actual hours worked) + Rate × 𝑆𝑡𝑑. 𝑇𝑖𝑚𝑒
× taken
72−60
= 60 x 80 + 72
x 60 x 80 = ₹ 5,600
Effective rate of earnings per hour = 5,600/60 = ₹ 93.33

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

Solution 2 :
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑑
Labour Turnover Rate (Replacement method) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
8 36
Or, 100
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
Or, Average No. of workers = 450
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑
Labour Turnover Rate (Separation method) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
6 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑
Or, 100
= 450
Or, No. of workers separated = 27
𝑁𝑜. 𝑜𝑓 𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛𝑠 + 𝑁𝑜. 𝑜𝑓 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛 (𝐽𝑜𝑖𝑛𝑖𝑛𝑔𝑠)
Labour Turnover Rate (Flux Method) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
14 27+ 𝑁𝑜. 𝑜𝑓 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 (𝐽𝑜𝑖𝑛𝑖𝑛𝑔𝑠)
Or, 100
= 450
Or, 100 (27 + No. of Accessions) = 6,300
Or, No. of Accessions = 36
(i) The No. of workers recruited and Joined = 36
(ii) The No. of workers left and discharged = 27

Super Ltd, a manufacturing company is facing the problem of high labour turnover in the factory. Before
analysing the causes and taking remedial steps, the management of the company wants to ascertain the profit
lost for the year 2022-23 on account of labour turnover. For this purpose, it has given you the following
information:
(i) Sales for the last year 2022-23 was ₹2,16,18,000 and P/V ratio was 15%.
(ii) The total number of actual hours worked by the direct labour force was 5,00,000 hours. The actual direct
labour hours included 60,000 hours attributable to training new recruits, out of which 40% of the hours were
unproductive.
(iii) Due to delays by the Personnel Department in filling vacancies on account of labour turnover, 95,000
potential productive hours (excluding unproductive training hours) were lost.
(iv) 1,500 units of the output produced during training period were defective. Cost of rectification of defective
units was ₹40 per unit.
(v) Settlement cost of the workers leaving the organization was ₹2,37,880.
(vi) Recruitment and Selection cost was ₹1,40,000.
(vii) Cost of Training and Induction was ₹1,61,950.
Assuming that the potential production lost as a consequence of labour turnover could have been sold at
prevailing prices, find the profit lost for the year 2022-23 on account of labour turnover.

J Ltd. wants to ascertain the profit lost during the year 2022-23 due to increased labour turnover. For this
purpose, they have given you the following information:
(1) Training period of the new recruits is 50,000 hours. During this period their productivity is 60% of the
experienced workers. Time required by an experienced worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of rectification of a defective unit was ₹25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is ₹ 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was ₹ 1,83,480.
(6) Recruitment cost was ₹ 1,56,340
(7) Training cost was ₹ 1,13,180
You are required to calculate the profit lost by the company due to increased labour turnover during the year
2022-23.
Solution 4 :
50,000
Output by experienced workers in 50,000 hours = 10 = 5,000 units
Total loss of output = Due to delay recruitment + Due to inexperience
= 10,000 + 2,000 = 12,000 units
Contribution per unit = 20% of ₹180 = ₹ 36

Total contribution lost = ₹36 × 12,000 units = ₹ 4,32,000

Cost of repairing defective units = 3,000 units × 0.2 × ₹ 25 = ₹ 15,000
Profit forgone due to labour turnover
(₹)
Loss of Contribution 4,32,000
Cost of repairing defective units 15,000
Recruitment cost 1,56,340
Training cost 1,13,180
Settlement cost of workers leaving 1,83,480
Profit forgone in 2022-23 9,00,000
Question 5 :(MTP Oct 2023)

The rate of change of labour force in a company during the year ending 31st March, 2023 was calculated as
13%,8% and 5% respectively under 'Flux Method', 'Replacement method' and 'Separation method'. The number
of workers separated during the year is 40.
(i) Average number of workers on roll.
(ii) Number of workers replaced during the year.
(iii) Number of new accessions i.e. new recruitment.
(iv) Number of workers at the beginning of the year.
Solution 5 :
(i) Labour Turnover Rate (Separation method)
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑜𝑛 𝑟𝑜𝑙𝑙
5 40
Or, 100
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑜𝑛 𝑟𝑜𝑙𝑙
Or, Average no. of workers on roll = 800
(ii) Labour Turnover Rate (Replacement method)

𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑑
= 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑜𝑛 𝑟𝑜𝑙𝑙
8 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑑
Or, 100
= 800
Or, No. of workers replaced = 64
(iii) Labour Turnover Rate (Flux Method)

𝑁𝑜. 𝑜𝑓 𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛𝑠 + 𝑁𝑜. 𝑜𝑓 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 (𝑛𝑒𝑤 𝑟𝑒𝑐𝑟𝑢𝑖𝑡𝑚𝑒𝑛𝑡𝑠)
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑜𝑛 𝑟𝑜𝑙𝑙
13 40 + 𝑁𝑜. 𝑜𝑓 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 (𝑁𝑒𝑤 𝑟𝑒𝑐𝑟𝑢𝑖𝑡𝑚𝑒𝑛𝑡𝑠)
Or, 100
= 800
Or, 100 (40 + No. of Accessions) = 10,400
Or, No. of new accessions = 64
(iv) No. of workers at the beginning of the year
Let workers at the beginning of the year were ‘X’
𝑊𝑜𝑟𝑘𝑒𝑟𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑

Average no. of workers on roll = 2
𝑋 + (𝑋 + 𝑁𝑒𝑤 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 − 𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛𝑠)
800 = 2
𝑋 + (𝑋 + 64−40)
800 = 2
𝑋 + (𝑋 + 24)
800 = 2
2X = 1,600 – 24 or, X = 788 workers

The following particulars have been compiled in respect of three workers, which are under consideration of the
management.
I II III
Actual hours worked 380 100 540
Hourly rate of wages (in ₹) 40 50 60
Productions in units:

- Product X 210 - 600

- Product Y 360 - 1350
- Product Z 460 250 -
Standard time allowed per unit of each
product is:
X Y Z
Minutes 15 20 30
For the purpose of piece rate, each minute is valued at ₹ 1/- You are required to calculate the wages of each
worker under:
(i) Guaranteed hourly rate basis
(ii) Piece work earning basis, but guaranteed at 75% of basic pay (Guaranteed hourly rate if his earnings are
less than 50% of basic pay.)
(iii) Premium bonus basis where the worker received bonus based on Rowan scheme.
Solution 6 :
(i) Computation of wages of each worker under guaranteed hourly rate basis
Worker Actual hours worked (Hours) Hourly wage rate (₹) Wages (₹)
I 380 40 15,200
II 100 50 5,000
III 540 60 32,400
(ii) Computation of Wages of each worker under piece work earning basis
Product Piece rate per Worker-I Worker-II Worker-III
unit
(₹) Units Wages (₹) Units Wages (₹) Units Wages (₹)
X 15 210 3,150 - - 600 9,000
Y 20 360 7,200 - - 1,350 27,000
Z 30 460 13,800 250 7,500 - -
Total 24,150 7,500 36,000
Since each worker’s earnings are more than 50% of basic pay. Therefore, worker-I, II and III will be paid the
wages as computed i.e. ₹24,150, ₹7,500 and ₹36,000 respectively.
Working Notes:
1. Piece rate per unit
Product Standard time per unit in minute Piece rate each minute (₹) Piece rate per unit (₹)
X 15 1 15
Y 20 1 20
Z 30 1 30
2. Time allowed to each worker

Worker Product-X Product-Y Product-Z Total Time (Hours)
I 210 units × 15 360 units × 20 460 units × 30 24,150/60
= 3,150 = 7,200 = 13,800 = 402.50
II - - 250 units × 30 7,500/60
= 7,500 = 125
III 600 units × 15 1, 350 units × 20 - 36,000/60
= 9,000 = 27,000 = 600
(iii) Computation of wages of each worker under Premium bonus basis (where each worker receives bonus
based on Rowan Scheme)
Worker Time Time Time Wage Rate Earnings (₹) Bonus (₹)* Total Earning
Allowed (Hr.) Taken saved per hour (₹) (₹)
(Hr.) (Hr.)
I 402.5 380 22.5 40 15,200 850 16,050
II 125 100 25 50 5,000 1,000 6,000
III 600 540 60 60 32,400 3,240 35,640

𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
* 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
x Time Saved x WageRate
380
Worker-I = 402.5
x 22.5 x 40 = 850
100
Worker-II = 125 x 25 x 50 = 1,000
540
Worker-III = 600 x 60 x 60 = 3,240

A skilled worker in Shanu Ltd. is paid a guaranteed wage rate of ₹ 30 per hour. The standard time per unit for a
particular product is 4 hours. Sam, a machine-man, has been paid wages under the Rowan Incentive Plan and
he had earned an effective hourly rate of ₹ 37.50 on the manufacture of that particular product.
WHAT could have been his total earnings and effective hourly rate, had he been put on Halsey Incentive
Scheme (50%)?
Solution 7 :
Let T hours be the total time worked in hours by the skilled worker (machine-man Sam); ₹ 30/- is the rate per
hour; standard time is 4 hours per unit and effective hourly earning rate is ₹ 37.50 then
𝑇𝑖𝑚𝑒 𝑠𝑎𝑣𝑒𝑑
Earning = Hours worked × Rate per hour + 𝑇𝑖𝑚𝑒 𝑎𝑙𝑙𝑜𝑤𝑒𝑑
× Time taken × Rate per hour
(Under Rowan incentive plan)
(4 − 𝑇)
₹ 37.5 T = (T × ₹ 30) + 4 × T × ₹ 30
₹ 37.5 = ₹ 30 + (4 – T) × ₹ 7.5
Or ₹ 7.5 T = ₹ 22.5
Or T= 3 hours
Total earnings and effective hourly rate of skilled worker (machine man Sam) under Halsey Incentive
Scheme (50%)
Total earnings = (Hours worked × Rate per hour) + (½ Time saved × Rate per hour)
(under 50% Halsey Incentive Scheme)
= (3 hours × ₹ 30) + (½ × 1 hour × ₹ 30)
𝑇𝑜𝑡𝑎𝑙 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 ₹ 105

Effective hourly rate = 𝐻𝑜𝑢𝑟𝑠 𝑇𝑎𝑘𝑒𝑛
= ₹ 35
= 3 hours

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.
Solution 8 :
(i) Effective hourly rate of earnings under Rowan Incentive Plan
Earnings under Rowan Incentive plan = (Actual time taken × wage rate) + 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
× Time taken × Wage rate
= (5 hours × ₹ 120) + ( 1 ℎ𝑜𝑢𝑟
6 ℎ𝑜𝑢𝑟 )
𝑋 5 ℎ𝑜𝑢𝑟𝑠 𝑋 ₹ 120 = ₹ 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
(𝑇𝑖𝑚𝑒 𝑡𝑎𝑘𝑒𝑛 𝑋 𝑅𝑎𝑡𝑒) + 50% 𝑜𝑓 𝑅𝑎𝑡𝑒 𝑋 (𝑇𝑖𝑚𝑒 𝑎𝑙𝑙𝑜𝑤𝑒𝑑 −𝑇𝑖𝑚𝑒 𝑡𝑎𝑘𝑒𝑛)
Or, Effective hourly rate under Halsey Incentive plan = 𝑇𝑖𝑚𝑒𝑇𝑎𝑘𝑒𝑛
(𝑋 𝑋 ₹120) + 50% 𝑜𝑓 ₹ 120 𝑋 (6 − 𝑋)

Or, ₹140 = 𝑋
Or, 140X = 120X + 360 – 60X
Or, 80X = 360
360
Or, X = 80 360 = 4.5 hours
Therefore, to earn an effective hourly rate of ₹140 under Halsey Incentive Scheme, a worker has to complete
the work in 4.5 hours.

Question 9 : (MTP July 2024)

A job can be executed either through workman A or B. A takes 32 hours to complete the job while B finishes it
in 30 hours. The standard time to finish the job is 40 hours.
The hourly wage rate is same for both the workers. In addition workman A is entitled to receive bonus
according to Halsey plan (50%) sharing while B is paid bonus as per Rowan plan. The works overheads are
absorbed on the job at ₹ 7.50 per labour hour worked. The factory cost of the job comes to ₹ 2,200 irrespective
of the workman engaged.
FIND out the hourly wage rate and cost of raw materials input. Also SHOW cost against each element of cost
included in factory cost.
Solution 9 :
Calculation of:
(i) Time saved and wages:
Workmen A B
Standard time (hrs.) 40 40
Actual time taken (hrs.) 32 30
Time saved (hrs.) 08 10
Wages paid @ ₹ x per hr. (₹) 32x 30x
(ii) Bonus Plan:

Halsey Rowan
Time saved (hrs.) 8 10
Bonus (₹) 4x 7.5x
8ℎ𝑟𝑠 × 𝑥 10 ℎ𝑟𝑠
⎡ ⎤ ⎡ 40 ℎ𝑟𝑠 × 30 ℎ𝑟𝑠 × 𝑥⎤
⎣ 2 ⎦ ⎣ ⎦
(iii) Total wages:
Workman A: 32x + 4x = ₹ 36x
Workman B: 30x + 7.5x = ₹ 37.5x
Statement of factory cost of the job
Workmen A B
₹ ₹
Material cost (assumed) y y
Wages (shown above) 36x 37.5x
Works overhead 240 225
Factory cost (given) 2,200 2,200
The above relations can be written as follows:
36x + y + 240 = 2,200 (i)
37.5x+ y+ 225 = 2,200 (ii)
Subtracting (i) from (ii) we get
1.5x – 15 = 0
or 1.5 x = 15
or x = ₹ 10 per hour
On substituting the value of x in (i) we get y = ₹ 1,600
Hence the wage rate per hour is ₹ 10 and the cost of raw material is ₹ 1,600 on the job.
Question 10 : (MTP August 2024)

A skilled worker is paid a guaranteed wage rate of ₹ 150.00 per hour. The standard time allowed for a job is 50
hours. He gets an effective hourly rate of wages of ₹ 180.00 under Rowan Incentive Plan due to saving in time.
For the same saving in time, CALCULATE the hourly rate of wages he will get, if he is placed under Halsey
Premium Scheme (50%).
Solution 10 :
Increase in hourly rate of wages under Rowan Plan is ₹ 30 i.e. (₹180 – ₹ 150)
𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
× ₹150 = ₹30 (Please refer Working Note)
Or, 50 ℎ𝑜𝑢𝑟𝑠
× 150= ₹ 30
1,500
Or, Time saved = 150
= 10 hours
Therefore, Time Taken is 40 hours i.e. (50 hours – 10 hours)
Effective Hourly Rate under Halsey System:

Time saved = 10 hours

Bonus @ 50% = 10 hours × 50% × ₹ 150 = Rs 750
Total Wages = (₹150 × 40 hours + ₹ 750) = Rs 6,750
Effective Hourly Rate = ₹ 6,750 ÷ 40 hours = ₹ 168.75
Working Note:
Effective hourly rate
(𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛×𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟)+ 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑 ×𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑×𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟
= 𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛×𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 ×𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑 ×𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟
Or, ₹ 180 = 𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
+ 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛 ×𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛 1

Or, ₹ 180 - 𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
= 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
× 𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑 × 𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 × 𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
Or, ₹180 - ₹150 = 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑 × ₹150

Costing Practice Sheet - Chapter 3 - Overheads

HCP Ltd. is a manufacturing company having two production departments, P and Q and two service
departments, R and S. The budgeted cost information for the month of October 2023 is furnished below:
Production Departments Service Departments
(₹) P (₹) Q (₹) R (₹) S (₹)
Indirect material 1,77,500 94,750 49,750 18,270 14,730
Indirect Labour 1,55,000 35,000 75,000
Factory Rent 75,000
Depreciation on machinery 37,500
Power 96,000
Security Expenses for Factory Premises 24,000
Insurance- machinery 12,000
Supervisor Expenses 48,000
Additional information
Floor Area (Sq. meters) 1250 750 200 300
Net book value of machinery (₹) 21,00,000 5,00,000 1,00,000 3,00,000
H.P. of machines 800 200 80 120
Machine hours 4,000 1,000 600 800
Number of employees 10 30 6 4
Labour hours 2,000 6,000 1,200 600
The overhead costs of the two service department are distributed using step method in the same order viz. R
and S respectively on the following basis:
Department R Number of employees
Department S Machine hours
Required:
(i)Prepare a statement showing distribution of overheads to various departments, clearly showing the basis of
distribution.
(ii)Calculate the total budgeted overheads for both production departments after the service departments
have been re-apportioned to them.
(iii)Calculate the most appropriate overhead absorption rate for each of the production department.
Solution 1 :
(i) Overhead Distribution Statement
Particular Basis Total Production Service Departments
Amount Departments
(₹) P (₹) Q (₹) R (₹) S (₹)
Indirect material Direct 1,77,500 94,750 49,750 18,270 14,730
Indirect labour Direct 1,55,000 35,000 75,000 15,000 30,000
Factory rent (125:75:20:30) Floor Area 75,000 37,500 22,500 6,000 9,000
Depreciation of machinery Book value of 37,500 26,250 6,250 1,250 3,750
(21:5:1:3) machinery
Power (80:20:8:12) H.P. of 96,000 64,000 16,000 6,400 9,600
machines
Security expenses for factory Floor Area 24,000 12,000 7,200 1,920 2,880
premises (125:75:20:30)
Insurance- machinery (21:5:1:3) Book value of 12,000 8,400 2,000 400 1,200
machinery
Supervisor expenses (10:30:6:4) Number of 48,000 9,600 28,800 5,760 3,840
employees
Total 6,25,000 2,87,500 2,07,500 55,000 75,000
(ii) Redistribution of Service Department’s Expenses
Particular Production Departments Service Departments
P (₹) Q (₹) R (₹) S (₹)
Overhead as per primary distribution 2,87,500 2,07,500 55,000 75,000
Expenses of service department R is 12,500 37,500 (55,000) 5,000
apportioned among other

departments P, Q & S in the ratio of number of

employees (10:30:4)
Expenses of service department S is 64,000 16,000 - (80,000)
apportioned among other departments P & Q
in the ratio of Machine hours (40:10)
Total Budgeted overheads 3,64,000 2,61,000 - -
(iii) Calculation of overhead rates for each of the production department

Particular Production Departments
P (₹) Q (₹)
Total Budgeted overheads 3,64,000 2,61,000
Actual machine hours 4000 hours -
Actual labour hours - 6000 hours
Actual machine/labour hour rate 91 43.5
Note: Department P is assumed to be machine oriented and Department Q is assumed to be labour oriented
as per information available in the question
The solution 3(a) can also be presented in following way for Distribution of Power expenses:
Overhead Distribution Statement
Particular Basis Total Amount Production Service
(₹) Departments Departments
P (₹) Q (₹) R (₹) S (₹)
Indirect material Direct 1,77,500 94,750 49,750 18,270 14,730
Indirect labour Direct 1,55,000 35,000 75,000 15,000 30,000
Factory rent (125:75:20:30) Floor Area 75,000 37,500 22,500 6,000 9,000
Depreciation of machinery Book value 37,500 26,250 6,250 1,250 3,750
(21:5:1:3) of machinery
Power (3200:200:48:96) H.P. x 96,000 86,682 5,418 1,300 2,600
machine
hours
Security expenses for factory Floor Area 24,000 12,000 7,200 1,920 2,880
premises (125:75:20:30)
Insurance- machinery (21:5:1:3) Book value 12,000 8,400 2,000 400 1,200
of machinery
Supervisor expenses (10:30:6:4) Number of 48,000 9,600 28,800 5,760 3,840
employees
Total 6,25,000 3,10,182 1,96,918 49,900 68,000
Power can be distributed on the basis of HP of machines x machine hours
800 x 4000 = 32,00,000, 200 x 1000 = 2,00,000, 80 x 600 = 48,000, 120 x 800 = 96,000
Ratio is 3200:200:48:96
(ii) Redistribution of Service Department’s Expenses

Particular Production Departments Service Departments
P (₹) Q (₹) R (₹) S (₹)
Overhead as per primary distribution 3,10,182 1,96,918 49,900 68,000
Expenses of service department R is 11,340.90 34,022.73 (49,900) 4,536.37
apportioned among other departments P, Q & S
in the ratio of number of employees (10:30:4)
Expenses of service department S is 58,029.10 14,507.27 - (72,536.37)
apportioned among other departments P & Q in
the ratio of Machine hours (40:10)
Total Budgeted overheads 3,79,552 2,45,448 - -
(iii) Calculation of overhead rates for each of the production department

Particular Production Departments
P (₹) Q (₹)
Total Budgeted overheads 3,79,552 2,45,448

Actual machine hours 4000 hours -

Actual labour hours - 6000 hours
Actual machine/labour hour rate 94.89 40.91
Note: Department P is assumed to be machine oriented and Department Q is assumed to be labour
oriented as per information available in the question

From the details furnished below you are required to compute a comprehensive machine-hour rate:
Original purchase price of the machine (subject to
depreciation at 10% per annum on original cost) ₹ 12,96,000
Normal working hours for the month (The machine works for only 200 hours
75% of normal capacity)
Wages to Machine-man ₹ 800 per day (of 8 hours)
Wages to Helper (machine attendant) ₹ 500 per day (of 8 hours)
Power cost for the month for the time worked ₹ 1,30,000
Supervision charges apportioned for the machine
centre for the month ₹ 18,000
Electricity & Lighting (fixed in nature) for the month ₹ 9,500
Repairs & maintenance (machine) including consumable stores ₹ 17,500
per month
Insurance of Plant & Building (apportioned) for the year ₹ 18,000
Other general expense per annum ₹ 18,000
The workers are paid a fixed dearness allowance of ₹ 4,500 per month. Production bonus payable to workers
in terms of an award is equal to 10% of basic wages and dearness allowance. Add 10% of the basic wage and
dearness allowance against leave wages and holidays with pay to arrive at a comprehensive labour-wage for
debit to production.
Solution 2 :
Effective machine hours = 200 hours × 75% = 150 hours
Computation of Comprehensive Machine Hour Rate
Per month Per hour
(₹) (₹)
Fixed cost
Supervision charges 18,000.00
Electricity and lighting 9,500.00
Insurance of Plant and building (₹ 18,000 ÷12) 1,500.00
Other General Expenses (₹ 18,000÷12) 1,500.00
Depreciation (₹ 1,29,600÷12) 10,800.00
41,300.00 275.33
Direct Cost
Repairs and maintenance 17,500.00 116.67
Power 1,30,000.00 866.67
Wages of machine man 196.00
Wages of Helper 136.00
Machine Hour rate (Comprehensive) 1,590.67
Wages per machine hour

Machine man Helper
Wages for 200 hours
Machine-man (₹ 800 × 25) ₹ 20,000.00 ---
Helper (₹ 500 × 25) --- ₹ 12,500.00
Dearness Allowance (DA) ₹ 4,500.00 ₹ 4,500.00
₹ 24,500.00 ₹ 17,000.00
Production bonus (10% of Basic and DA) 2,450.00 1,700.00
Leave wages (10% of Basic and DA) 2,450.00 1,700.00
29,400.00 20,400.00
Effective wage rate per machine hour 196.00 136.00


From the details furnished below you are required to COMPUTE a comprehensive machine-hour rate:
Original purchase price of the machine (subject to
depreciation at 10% per annum on original cost) ` 6,48,000
Normal working hours for the month (The machine 200 hours
works for only 75% of normal capacity)
Wages to Machine-man ` 400 per day (of 8 hours)
Wages to Helper (machine attendant) ` 275 per day (of 8 hours)
Power cost for the month for the time worked ` 65,000
Supervision charges apportioned for the machine
centre for the month ` 18,000
Electricity & Lighting for the month ` 9,500
Repairs & maintenance (machine) including ` 17,500
Consumable stores per month
Insurance of Plant & Building (apportioned) for the year ` 18,250
Other general expense per annum ` 17,500
The workers are paid a fixed Dearness allowance of ` 4,575 per month. Production bonus payable to workers in
terms of an award is equal to 33.33% of basic wages and dearness allowance. Add 10% of the basic wage and
dearness allowance against leave wages and holidays with pay to arrive at a comprehensive labour-wage for
debit to production.
Solution 3 :
(a) Effective machine hours = 200 hours × 75% = 150 hours
Computation of Comprehensive Machine Hour Rate
Per month (`) Per hour (`)
Fixed cost
Supervision charges 18,000.00
Electricity and lighting 9,500.00
Insurance of Plant and building (`18,250 ÷12) 1,520.83
Other General Expenses (`17,500÷12) 1,458.33
Depreciation (`64,800÷12) 5,400.00
35,879.16 239.19
Direct Cost
Repairs and maintenance 17,500.00 116.67
Power 65,000.00 433.33
Wages of machine man 139.27
Wages of Helper 109.41
Machine Hour rate (Comprehensive) 1,037.87
Wages per machine hour

Machine man Helper
Wages for 200 hours
Machine-man (`400 × 25) `10,000.00 ---
Helper (`275 × 25) --- `6,875.00
Dearness Allowance (DA) `4,575.00 `4,575.00
`14,575.00 `11,450.00
Production bonus (1/3 of Basic and DA) 4,858.33 3,816.67
Leave wages (10% of Basic and DA) 1,457.50 1,145.00
20,890.83 16,411.67
Effective wage rate per machine hour `139.27 `109.41

The cost variance report was being discussed at a review meeting where in Cost Accountant of the company
reported under-absorption of production overheads.
The following information was available from the cost records of the company at the end of financial year
2023-24:

● Actual production overheads incurred were ₹4,50,000 which included ₹42,000 on account of ‘written
off’ obsolete stores.
● 18,000 units were produced during the year out of which 10,000 units were sold and 8,000 units of
finished goods were in stock.
● There were also 5,000 units in progress which may be reckoned as 40% complete.
● The actual machine hours worked during the period were 43,000.
ABC Ltd. absorbs the production overheads at a predetermined rate of ₹8 per machine hour.
On investigation, it has been found that 20% of the under-absorption of production overheads was due to
defective planning and the rest was attributable to normal increase in costs of indirect materials and indirect
labour.
You are required to:
(i) Calculate the amount of under-absorption of production overheads during the year 2023-24; and
(ii) Show the treatment of under-absorption of production overheads in cost accounts.

The following information are available for the three machines of a manufacturing department of KBC Ltd.:
Preliminary estimates of expenses
Total (per annum)
Machines
P Q R
(₹) (₹) (₹) (₹)
Depreciation 20,000 7,500 7,500 5,000
Spare parts 10,000 4,000 4,000 2,000
Power 40,000
Consumable stores 10,000 4,000 3,000 3,000
Insurance of machinery 8,000
Indirect labour 20,000
Building maintenance expenses 20,000
Annual interest on capital outlay 60,000 25,000 25,000 10,000
Monthly charge for rent and rates 10,000
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
(The foreman and the attendant control all the three machines and spend equal time on them.)
The following additional information is also available:
Machines
P Q R
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 14 holidays besides Sundays in the year, of which two were on Saturdays. The manufacturing
department works 8 hours a day but Saturdays are half days. All machines work at 85% capacity throughout
the year and 2% is reasonable for breakdown.
You are required to :
CALCULATE predetermined machine hour rates for the above machines after taking into consideration the
following factors:
● An increase of 15% in the price of spare parts.
● An increase of 25% in the consumption of spare parts for machine ‘Q’ & ‘R’ only.
● 20% general increase in wages rates.
● A 10% decrease in the consumption of consumable stores.
Solution 5 :
Computation of Machine Hour Rate
Basis of Total Machines
apportionment P Q R
(₹) (₹) (₹) (₹)
(A) Standing Charges
Insurance Depreciation Basis 8,000 3,000 3,000 2,000

Indirect Labour Direct Labour 24,000 6,000 9,000 9,000

Building Maintenance Floor Space
expenses 20,000 8,000 8,000 4,000
Rent and Rates Floor Space 1,20,000 48,000 48,000 24,000
Salary of foreman Equal 2,40,000 80,000 80,000 80,000
Salary of attendant Equal 60,000 20,000 20,000 20,000
Total standing charges 4,72,000 1,65,000 1,68,000 1,39,000
Hourly rate for standing
charges 90.36 92.00 76.12
(B) Machine Expenses:
Depreciation Direct 20,000 7,500 7,500 5,000
Spare parts Final estimates 13,225 4,600 5,750 2,875
Power K.W. rating 40,000 15,000 10,000 15,000
Consumable Stores Direct 9,000 3,600 2,700 2,700
Total Machine expenses 82,225 30,700 25,950 25,575
Hourly Rate for Machine
expenses 16.81 14.21 14.01
Total (A + B) 5,54,225 1,95,700 1,93,950 1,64,575
Machine Hour rate 107.17 106.22 90.13
Working Notes:
(i) Calculation of effective working hours:
No. of holidays 52 (Sundays) + 14 (other holidays) = 66
Saturday (52 – 2) = 50
No. of days (Work full time) = 365 – 66 – 50 = 249
Hours
Full days work 249 x 8 = 1,992
Half days work 50 x 4 = 200
2,192
Hours
Effective capacity 85% of 2,192 1,863 (Rounded off)
Less: Normal loss of time (Breakdown) 2% 37 (Rounded off)
Effective running hour 1,826
(ii) Amount of spare parts is calculated as under:

P Q R
₹ ₹ ₹
Preliminary estimates 4,000 4,000 2,000
Add: Increase in price @ 15% 600 600 300
4,600 4,600 2,300
Add: Increase in consumption @ 25% - 1,150 575
Estimated cost 4,600 5,750 2,875
(iii) Amount of Indirect Labour is calculated as under:

₹
Preliminary estimates 20,000
Add: Increase in wages @ 20% 4,000
24,000
(iv) Amount of Consumables Stores is calculated as under:

₹
Preliminary estimates 10,000
Less: Decrease in consumption @ 10% 1,000
9,000
(v) Interest on capital outlay is a financial matter and, therefore it has been excluded from the cost accounts.


The following are the budgeted details are available from the records of a manufacturing company SP Ltd.:
₹ ₹
Direct Materials 2,13,000
Direct Wages:
Machine Shop (12,000 hours)
Assembly Shop (10,000 hours) 48,000 1,11,000
Works Overhead:
Machine Shop 88,200
Assembly Shop 51,800 1,40,000
Administrative Overhead 92,800
Selling Overhead 81,000
Distribution Overhead 62,100
(a)PREPARE a Schedule of Overhead Rates from the figures available stating the basis of overhead recovery
rates used under the given circumstances.
(b)WORK OUT a Cost Estimate for the following job based on overhead calculated on the above basis.
Direct Material: 25 kg @ ₹ 17.20/kg
15 kg @ ₹ 21.00/kg
Direct labour: (On the basis of hourly rate Machine shop 30 hours
For machine shop and assembly shop) Assembly shop 42 hours
Solution 6 :
Job Cost Sheet for the period…..
₹
Direct materials 2,13,000
Direct wages:
Machine shop 63,000
Assembly shop 48,000 1,11,000
Prime Cost 3,24,000
Works overhead:
Machine shop 88,200
Assembly shop 51,800 1,40,000
Work Cost 4,64,000
Administration overhead 92,800
Cost of Production 5,56,800
Selling overhead 81,000
Distribution overhead 62,100
Total Cost 6,99,900
Schedule of Overhead Rate

(i) Works Overhead: Hourly rate = (Overhead amount ÷ Hours)
Machine shop = (88,200 ÷ 12,000) = ₹ 7.35 per hour
Assembly shop = (51,800 ÷ 10,000) = ₹ 5.18 per hour
92,800
(ii) Administrative Overhead as a % of works cost = 4,64,000
x 100 = 20%
81,000 + 62,100
(iii) Selling and distribution overhead as % of works cost = 4,64,000
x 100 = 30.84%
Labour hour rates are calculated as under:
Machine shop = ₹ 63,000 ÷ 12,000 hrs. = ₹ 5.25
Assembly shop = ₹ 48,000÷10,000 hrs. = ₹ 4.80
(b) Cost Estimate for Job

Direct Materials ₹ ₹
(i) 25 kg @ ₹ 17.20 per kg 430
(ii) 15 kg @ ₹ 21 per kg 315 745.00
Direct Labour

Machine shop (30 hrs. @ ₹ 5.25) 157.50

Assembly shop (42 hrs. @ ₹ 4.80) 201.60 359.10
Prime Cost 1104.10
Works Overhead
Machine shop (30 hours @ ₹ 7.35) 220.50
Assembly shop (42 hours @ ₹ 5.18) 217.56 438.06
Works Cost 1542.16
Administration overhead (20% of works cost) 308.43
Cost of Production 1850.59
Selling and distribution cost (30.84% of works cost) 475.60
Total Estimated Cost 2326.19

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 a cost of ₹ 7 per unit. No power is
consumed during maintenance or setting up.
(iii)The machine required a chemical solution which was 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 the 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.
Solution 7 :
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 = 10
= ₹ 99,000
(iii) Chemical solution cost per annum = ₹ 2,000 × 50 weeks = ₹ 1,00,000
9,000 × 50 𝑤𝑒𝑒𝑘𝑠
(iv) Wages of attendants (per annum) = 6 𝑚𝑎𝑐ℎ𝑖𝑛𝑒𝑠 = ₹ 75,000
Calculation of Machine hour rate
Particulars Amount (per annum) Amount (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 (7 × 1,900 × 16 units) ÷ 2,000 - 106.40
(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

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 2023) was ₹ 10,000. Its estimated life is 10
years, the estimated scrap value at the end of its life is ₹ 1,000, and the estimated working time per year (50
weeks of 44 hours) is 2,200 hours 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 9 paisa per unit. No
current is taken during maintenance or setting up.
(iii) The machine required a chemical solution which is replaced at the end of week at a cost of ₹ 20 each
time.
(iv) The estimated cost of maintenance per year is ₹ 1,800.
(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 ₹ 120.
(vi) Departmental and general works overhead allocated to this machine for the current year amount to ₹
3,000.
You are required to CALCULATE the machine hour rate of operating the machine.
Solution 8 :
Working Notes:
(i) Total Productive hours = Estimated Working hours – Machine Maintenance hours
= 2,200 hours – 200 hours = 2,000 hours
₹10,000−₹1,000
(ii) Depreciation per annum = 10 𝑦𝑒𝑎𝑟𝑠 = ₹ 900
(iii) Chemical solution cost per annum = ₹ 20 × 50 weeks = ₹ 1,000
₹120 × 50 𝑤𝑒𝑒𝑘𝑠
(iv) Wages of attendants (per annum) = 6 𝑚𝑎𝑐ℎ𝑖𝑛𝑒𝑠 = ₹ 1,000
Calculation of Machine hour rate

Particulars Amount (per Amount (per
annum) hour)
A. Standing Charge
(i) Wages of attendants 1,000
(ii) Departmental and general 3,000
works overheads
Total Standing Charge 4,000
Standing Charges per hour
4,000 2.0
2,000
B. Machine Expense
(iii) Depreciation 900 0.45
(
(iv) Electricity
₹0.09 × 16 𝑢𝑛𝑖𝑡𝑠 × 1,900 ℎ𝑜𝑢𝑟𝑠
2,000 ℎ𝑜𝑢𝑟𝑠 ) - 1.37
(v) Chemical solution 1,000 0.50
(vi) Maintenance cost 1,800 0.90
Machine operating cost per hour (A + B) 5.22

Allurgy Ltd. is into metallic tools manufacturing. It has four production departments. The work performed in
every department is fairly uniform, thus the manager of the company created a policy to recover the
production overheads of the entire company by adopting a single blanket rate.
The relevant data for a month are given below:
Departments Direct Materials Direct Wages Factory Direct Labour Machine
(₹) (₹) Overheads (₹) Hours Hours
Budget:
Operating 64,35,000 7,92,000 35,64,000 1,98,000 7,92,000
Assembly 11,73,000 24,15,000 9,66,000 6,90,000 69,000
Quality Control 5,10,000 10,50,000 4,20,000 3,00,000 30,000
Packing 9,90,000 6,93,000 12,37,500 4,95,000 -
Actual: - - - - -
Operating 77,22,000 9,50,400 38,61,000 2,37,600 9,50,400
Assembly 9,38,400 18,63,000 5,79,600 6,21,000 75,900

Quality Control 4,08,000 8,10,000 2,52,000 2,70,000 33,000

Packing 11,88,000 8,91,000 13,36,500 5,94,000 -
Additional details relating to one of the jobs during the month are also provided below:
Job No. 157
Departments Direct Materials Direct Wages Direct Labour Machine
(₹) (₹) Hours Hours
Operating 11,880 2,376 594 1,782
Assembly 4,140 2,484 828 207
Quality Control 1,800 1,080 360 90
Packing 2,970 594 396 -
During Quality Control phase of this particular Job, the company incurred certain additional expenditure of ₹
495 on direct wages as there were certain production that was not as perfect as the saleable product. The
defective units were normal in nature and after rectification have been brought to the required degree of
perfection.
The company adds 25% on the factory cost to cover administration overheads and profit.
You are required to figure out the following:
(a) COMPUTE the overhead absorption rate as per the blanket rate based on the percentage of total factory
overheads to total factory wages and determine the selling price of the Job No. 157
(b) The new manager thinks that the machinery is used to a varying degree in the different departments.
Thus, it is not appropriate to follow one blanket rate for the whole company. Therefore, suggest an alternative
method of absorption of the factory overheads and CALCULATE the overhead rates based on the method so
suggested.
(c) DETERMINE the selling price of Job 157 based on the overhead rates calculated in (b) above.
(d) CALCULATE the department-wise under or over recovery of overheads based on the company’s current
policy and the method suggested in (b) above.
Solution 9 :
Computation of overhead absorption rate (as per the blanket rate)
Department Budgeted factory Budgeted direct
Overheads (₹) wages (₹)
Operating 35,64,000 7,92,000
Assembly 9,66,000 24,15,000
Quality Control 4,20,000 10,50,000
Packing 12,37,500 6,93,000
Total 61,87,500 49,50,000
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠
Overhead absorption rate = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑤𝑎𝑔𝑒𝑠
× 100
61,87,500
= 49,50,000
× 100
= 125% of Direct wages
Selling Price of the Job No. 157

Particulars Operating Assembly Quality Packing Total
Control
(₹) (₹) (₹) (₹) (₹)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost 495 495
of normal defectives
Overheads 8,786.25
[(125% x (6,534 +
495)]
Total Factory Cost 36,605.25
Add: Mark-up 9,151.31
(25% x ₹ 36,605.25)
Selling Price 45,756.56

(b) As the machinery is used to a varying degree in different departments, the use of departmental rates is
to be preferred. The overhead recovery rates in different departments would be as follows:
(i) Operating Department: The use of machine hours is the predominant factor of production in
Operating Department. Hence, machine hour rate should be used to recover overheads.
The overhead recovery rate based on machine hours would be calculated as follows:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠 ₹35,64,000
Machine hour rate = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟𝑠 = 7,92,000 = ₹ 4.50 per hour
(ii) Assembly Department: Direct labour hours is the main factor of production in Assembly
Department. Hence, direct labour hour rate should be used to recover overheads.
The overhead recovery rate based on direct labour hours would be calculated as follows:
Budgeted factory Overheads
Direct labour hour rate = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟𝑠 = 6,90,000 = ₹ 1.40 per hour
(iii) Quality Control Department: Direct labour hours is the main factor of production in Quality Control
Department. Hence, direct labour hour rate should be used to recover overheads.
(iv) Packing Department: Direct labour hours is the main factor of production in Packing Department.
Hence, direct labour hour rate should be used to recover overheads.
(c) Selling Price of Job No. 157

[based on the overhead rates calculated in (b) above]
Particulars Operating Assembly Quality Control Packing Total
(₹) (₹) (₹) (₹) (₹)
Direct Materials 11,880 4,140 1,800 2,970 20,790
Direct Wages 2,376 2,484 1,080 594 6,534
Rectification cost of
normal defectives 495 495
Overheads
(refer working note) 10,672
Total Factory Cost 38,491
Add: Mark-up (25% x ₹ 38,491) 9,622.75
Selling Price 48,113.75
Working note:
Overhead Statement
Department Basis Hours Rate (₹) Overheads
(₹)
Operating Machine hour 1,782 4.50 8,019
Assembly Direct labour hour 828 1.40 1,159
Quality Control Direct labour hour 360 1.40 504
Packing Direct labour hour 396 2.50 990
Total 10,672
(d) Department-wise statement of under or over recovery of overheads

(i) As per the current policy
Particulars Operating Assembly Quality Control Packing Total
(₹) (₹) (₹) (₹) (₹)
Direct wages (Actual) 9,50,400 18,63,000 8,10,000 8,91,000 45,14,400
Overheads recovered @ 11,88,000 23,28,750 10,12,500 11,13,750 56,43,000
125% of Direct wages:
(A)
Actual overheads: (B) 38,61,000 5,79,600 2,52,000 13,36,500 60,29,100

(Under)/Over recovery (26,73,000) 17,49,150 7,60,500 (2,22,750) (3,86,100)

of overheads: (A–B)
(ii) As per the method suggested

Machine Direct labour Direct labour Direct labour Total (₹)
hours hours hours (Quality hours (Packing)
(Operating) (Assembly) Control)
Hours worked 9,50,400 6,21,000 2,70,000 5,94,000
Rate/hour (₹) 4.50 1.40 1.40 2.50
Overhead recovered (₹): (A) 42,76,800 8,69,400 3,78,000 14,85,000 70,09,200
Actual overheads (₹): (B) 38,61,000 5,79,600 2,52,000 13,36,500 60,29,100
(Under)/Over recovery: 4,15,800 2,89,800 1,26,000 1,48,500 9,80,100
(A-B)

Costing Practice Sheet - Chapter 4 - ABC
Question 1 : (Nov 2023)

JH Plastics Limited manufactures three products S, M and L. To date, simple traditional absorption costing
system has been used to allocate overheads to products. Total production overheads are allocated on the
basis of machine hours. The machine hour rate for allocating production overheads is ₹ 240 per machine hour
under the traditional absorption costing system. Selling prices are calculated by adding mark up of 40% of the
product cost. Information related to products for the most recent year is as under:
Products
S M L
Units produced and sold 7,500 12,500 9,000
Direct material cost per unit (₹) 158 179 250
Direct labour cost per unit (₹) 40 45 60
Machine hours per unit 0.30 0.45 0.50
Number of Machine setups 120 120 160
Number of purchase orders 90 135 125
Number of inspections 100 160 140
The management wishes to introduce activity-based method (ABC) system of attributing production
overheads to products and has identified major cost pools for production overheads and their associated cost
drivers as follows:
Cost pool Amount Cost driver
Purchasing Department Cost ₹ 7,00,000 Number of Purchase orders
Machine setup Cost ₹ 9,00,000 Number of Machine setups
Quality Control Cost ₹ 6,56,000 Number of inspections
Machining Cost ₹ 5,64,000 Machine hours
Required:
(i) Calculate the total cost per unit and selling price per unit for each of the three products using:
(a) The traditional costing approach currently used by JH Plastics Limited;
(b) Activity based costing (ABC) approach.
(ii) Calculate the difference in selling price per unit as per (a) and (b) above and show which product is
under-priced or over-priced.
Solution 1 :
(i) (a) Statement showing ‘Cost per unit & Selling price per unit – Traditional Method’.
Particular Products
S (₹) M (₹) L (₹)
Direct material cost per unit 158 179 250
Direct labour cost per unit 40 45 60
Production overhead @ ₹ 240 per 72 96 120
machine hour (₹ 240 x 0.3) (₹ 240 x 0.4) (₹ 240 x 0.5)
Cost per unit 270 320 430
Add: Profit @ 40% 108 128 172
Selling price per unit 378 448 602
(b) Statement showing ‘Cost per unit & Selling price per unit – Activity Based Costing’.
Particular Activity Drivers Total Products
Amount S M L
(₹)
Production (units) - - 7500 12500 9000
Machine hours - - 2250 5000 4500
(7500 x 0.3) (12500 x 0.4) (9000 x 0.5)
(₹) (₹) (₹)
Direct material cost per 158 179 250
unit (i)
Direct labour cost per 40 45 60
unit (ii)
Overheads

Purchasing department Number of 7,00,000 1,80,000 2,70,000 2,50,000

cost (90:135:125) purchase orders
Machine setup cost Number of 9,00,000 2,70,000 2,70,000 3,60,000
(120:120:160) machine setups
Quality control cost Number of 6,56,000 1,64,000 2,62,400 2,29,600
(100:160:140) inspections
Machining cost Machine hours 5,64,000 1,08,000 2,40,000 2,16,000
(225:500:450)
Total Overhead 7,22,000 10,42,400 10,55,600
Overhead Cost per unit 96.27 83.39 117.29
(iii)
Total Cost per unit 294.27 307.39 427.29
(i+ii+iii)
Add: Profit @ 40% 117.71 122.96 170.92
Selling price per unit 411.98 430.35 598.21
Note: The question may also be solved by calculating cost driver rate & allocating various cost based on cost
driver rate. However, there will be no change in any of the answer.
(ii)
Particular Products
S (₹) M (₹) L (₹)
Selling price per unit as per Traditional Costing 378 448 602
Selling price per unit as per Activity Based Costing 411.98 430.35 598.21
Difference (33.98) 17.65 3.79
Product S is underpriced while product M and L is overpriced using Traditional costing approach.

SOFTHUG is a global brand created by Green-lush Ltd. The company manufactures three range of beauty
soaps i.e. SOFTHUG- Gold, SOFTHUG- Pearl, and SOFTHUG- Diamond. The budgeted costs and production for
the month of May, 2024 are as follows:
(Units) SOFTHUG- Gold SOFTHUG- Pearl SOFTHUG- Diamond
Production of soaps 4,000 3,000 2,000
Resources per Unit: Qty Rate Qty Rate Qty Rate
- Essential Oils 60 ml ₹ 200/100 ml 55 ml ₹ 300/100 ml 65 ml ₹ 300/100 ml
- Cocoa Butter 20 g ₹ 200/100 g 20 g ₹ 200/100 g 20 g ₹ 200/100 g
- Filtered Water 30 ml ₹ 15/100 ml 30 ml ₹ 15/100 ml 30 ml ₹ 15/100 ml
- Chemicals 10 g ₹ 30/100 g 12 g ₹ 50/100 g 15 g ₹ 60/100 g
- Direct Labour 30 minutes ₹ 10/hour 40 minutes ₹ 10/hour 60 minutes ₹ 10 / hour
Green-lush Ltd. followed an Absorption Costing System and absorbed its production overheads, to its products
using direct labour hour rate, which were budgeted at ₹ 1,98,000.
Now, Green-lush Ltd. is considering adopting an Activity Based Costing system. For this, additional information
regarding budgeted overheads and their cost drivers is provided below:
Particulars (₹) Cost drivers
Forklifting cost 58,000 Weight of material lifted
Supervising cost 60,000 Direct labour hours
Utility cost 80,000 Number of Machine operations
The number of machine operators per unit of production are 5, 5, and 6 for SOFTHUG- Gold, SOFTHUG- Pearl,
and SOFTHUG- Diamond respectively.
(Consider (i) Mass of 1 litre of Essential Oils and Filtered Water equivalent to 0.8 kg and 1 kg respectively (ii)
Mass of output produced is equivalent to the mass of input materials taken together.)

(i)PREPARE a statement showing the unit costs and total costs of each product using the absorption costing
method.
(ii)PREPARE a statement showing the product costs of each product using the ABC approach.
(iii)STATE what are the reasons for the different product costs under the two approaches?

Solution 2 :
(i) Traditional Absorption Costing
SOFTHUG- Gold SOFTHUG - SOFTHUG - Diamond Total
Pearl
(a) Production of soaps (Units) 4,000 3,0002,000 9,000
(b) Direct labour (minutes) 30 40 60 -
(c) Direct labour hours 2,000 2,0002,000 6,000
(a × b)/60 minutes
Overhead rate per direct labour hour:
= Budgeted overheads ¸ Budgeted labour hours
= ₹ 1,98,000 ¸ 6,000 hours = ₹ 33 per direct labour hour
Unit Costs:
SOFTHUG-Gold (₹) SOFTHUG-Pearl (₹) SOFTHUG-Diamond (₹)
Direct Costs:
- Direct Labour 5.00 (
10×30
60
6.67 )
10×40
60
10×60
10.00 ( 60 )( )
- Direct Material 167.50 215.50 248.50
(Refer working note 1)
Production Overhead: 16.50 ( 33×30
60 ) 22.00 ( 33×40
60 ) 33.00 ( 33×60
60 )
Total unit costs 189.00 244.17 291.50
Number of units 4,000 3,000 2,000
Total costs 7,56,000 7,32,510 5,83,000
Working note -1
Calculation of Direct material cost
SOFTHUG- Gold SOFTHUG- Pearl (₹) SOFTHUG- Diamond (₹)
(₹)
120.00 165.00 195.00
Essential oils 200×60
( 300×55
100 ) 300×65
( 100 ) ( 100 )
40.00 40.00 40.00
Cocoa Butter
( 200×20
100 ) ( 200×20
100 ) ( 200×20
100 )
Filtered water 4.50 4.50 4.50
Chemicals
( 15×30
100 ) ( 15×30
100 ) ( 15×30
100 )
3.00 6.00 9.00
( 30×10
100 ) ( 50×12
100 ) ( 60×15
100 )
Total costs 167.50 215.50 248.50
(ii) Activity Based Costing

SOFTHUG-Gold SOFTHUG-Pearl SOFTHUG- Diamond Total
Quantity (units) 4,000 3,000 2,000 -
Weight per unit (grams) 108 106 117 -
{(60 × 0.8) + 20 + {(55 × 0.8) + 20 + {(65 × 0.8) + 20 + 30
30 + 10} 30 + 12} + 15}
Total weight (grams) 4,32,000 3,18,000 2,34,000 9,84,000
Direct labour (minutes) 30 40 60 -
Direct labour 2,000 2,000 2,000 6,000
hours
(4,000×30
60 )3,000×40
( 2,000×60
60 ) ( 60 )
Machine operations per 5 5 6 -
unit
Total operations 20,000 15,000 12,000 47,000
Forklifting rate per gram = ₹ 58,000 ¸ 9,84,000 grams = ₹ 0.06 per gram
Supervising rate per direct labour hour = ₹ 60,000 ¸ 6,000 hours = ₹ 10 per labour hour
Utilities rate per machine operations = ₹ 80,000 ¸ 47,000 machine operations

= ₹ 1.70 per machine operations
Unit Costs under ABC:

SOFTHUG SOFTHUG SOFTHUG
- Gold (₹) - Pearl (₹) - Diamond (₹)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct material 167.50 215.50 248.50
Production Overheads:
Forklifting cost 6.48 6.36 7.02
(0.06 x 108) (0.06 x 106) (0.06 x 117)
Supervising cost 5.00 6.67 10.00
( 10×30
60 ) ( 10×40
60 ) ( 10×60
60 )
Utilities 8.50 8.50 10.20
(1.70 x 5) (1.70 x 5) (1.70 x 6)
Total unit costs 192.48 243.70 285.72
Number of units 4,000 3,000 2,000
Total costs 7,69,920 7,31,100 5,71,440
(iii)Comments: The difference in the total costs under the two systems is due to the differences in the
overheads borne by each of the products. The Activity Based Costs appear to be more precise.

Luxury Designer Pvt. Ltd. is a manufacturing company, which manufactures readymade designer shirts. It has
four customers: two wholesale category customers and two retail category customers. It has developed the
following Activity-Based Costing system:
Activity Cost Driver Rate (₹)
Order Processing 1,260 per purchase order

Customer Visits 1,500 per customer visit
Regular Delivery 30 per delivery Km. travelled
Expedited Delivery 4,490 per expedited delivery
List selling price per shirt is ₹1,000 and average cost per shirt is ₹600. CEO of Luxury Designer Pvt. Ltd. wants
to evaluate the profitability of his Company in the next year 2024. The following data in context of four
customers are available for 2023:
Wholesale Customers Retail Customers
WC-1 WC-2 RC-1 RC-2
Number of Purchase Orders 50 65 224 245
Number of Customers visits 10 13 25 22
Regular Deliveries 46 52 175 198
Kilometres travelled per delivery 20 15 10 25
Expedited Deliveries 5 16 50 62
Average Number of Shirts per order 215 110 18 15
Average Selling Price per Shirt ₹700 ₹800 ₹900 ₹950
Calculate the customer-level operating income and operating income as a % of revenues in 2023 and rank
them on the basis of relative profitability.

PCP Limited belongs to the apparel industry. It specializes in the distribution of fashionable garments. It buys
from the industry and resells the same to the following two different supermarkets:
(i) Supermarket A dealing in Adults’ garments (Age group 15 - 30)
(ii)Supermarket B dealing in Kids’ garments (Age group 5 - 10)
The following data for the month of April in respect of PCP Limited has been reported :
Supermarket A (₹) Supermarket B (₹)
Average revenue per delivery 1,69,950 57,750
Average cost of goods sold per delivery 1,65,000 55,000

Number of deliveries 660 1,650

In the past, PCP Limited has used gross margin percentage to evaluate the relative profitability of its
supermarket segments.
The company plans to use activity –based costing for analysing the profitability of its supermarket segments.
The April month’s operating costs (other than cost of goods sold) of PCP Limited are
₹ 16,55,995. These operating costs are assigned to five activity areas. The cost in each area and Activity
analysis including cost driver for the month of April are as follows:
Activity Area Total costs (₹) Cost Driver
Store delivery 3,90,500 Store deliveries
Cartons dispatched to store 4,15,250 Cartons dispatched to a store
per delivery
Shelf-stocking at customer store 64,845 Hours of shelf-stocking
Line-item ordering 3,45,400 Line-items per purchase order
Customer purchase order processing 4,40,000 Purchase orders by customers
Other data for the month of April include the following:
Supermarket A Supermarket B
Total number of store deliveries 1,100 2,805
Average number of cartons shipped per store delivery 250 50
Average number of hours of shelf-stocking per store delivery 6 1.5
Average number of line items per order 14 12
Total number of orders 770 1,980
Required:
(i) COMPUTE gross-margin percentage for each of its supermarket segments and compute PCP
Limited’s operating income.
(ii)COMPUTE the operating income of each supermarket segments using the activity-based costing
information.
Solution 4 :
(i) PCP Limited’s
Statement of operating income and gross margin percentage
for each of its supermarket segments
Particulars Supermarket A Supermarket B Total
Revenues: (₹) 11,21,67,000 9,52,87,500 20,74,54,500
(660 × ₹ 1,69,950) (1,650 × ₹57,750)
Less: Cost of goods sold: (₹) 10,89,00,000 9,07,50,000 19,96,50,000
(660 × ₹ 1,65,000) (1650 × ₹ 55,000)
Gross Margin: (₹) 32,67,000 45,37,500 78,04,500
Less: Other operating costs: (₹) 16,55,995
Operating income: (₹) 61,48,505
Gross Margin 2.91% 4.76 % 3.76%
Operating income % 2.96%
(ii) Operating Income Statement of each distribution channel

in April (Using the Activity based Costing information)
Supermarket A Supermarket B
Gross margin (₹) : (A) 32,67,000 45,37,500
(Refer to (i) part of the answer)
Operating cost (₹): (B) 6,55,600 10,00,395
(Refer to working note)
Operating income (₹): (A–B) 26,11,400 35,37,105
Operating income (in %) 2.33 3.71
(Operating income/Revenue) ×100
Working note:
Computation of rate per unit of the cost allocation base for each of the five activity
areas for the month of April
(₹)

Store delivery 100 per delivery

[₹ 3,90,500/ (1,100 + 2,805 store deliveries)]
Cartons dispatched 1 per carton dispatch
[₹ 4,15,250/ {(250×1,100) +( 50×2,805)} carton dispatches]
Shelf-stocking at customer store (₹) 6 per hour
[₹ 64,845/ {(6×1,100) + (1.5×2,805)} hours]
Line item ordering 10 per line item order
[₹ 3,45,400/ {(14×770) + (12×1,980)} line items]
Customer purchase order processing 160 per order
[₹ 4,40,000/ (770 + 1,980 orders)]
Computation of operating cost of each distribution channel:

Supermarket A (₹) Supermarket B (₹)
Store delivery 1,10,000 2,80,500
(₹ 100 × 1,100 deliveries) (₹ 100 × 2,805 deliveries)
Cartons dispatched 2,75,000 1,40,250
(₹ 1× 250 cartons × 1,100 deliveries) (₹ 1 × 50 cartons × 2,805 deliveries)
Shelf stocking 39,600 25,245
(₹ 6 × 1,100 deliveries × 6 Av.hrs.) (₹ 6 × 2,805 deliveries × 1.5 Av.hrs)
Line item ordering 1,07,800 2,37,600
(₹ 10 × 14 line item x 770 orders) (₹ 10 × 12 line item x 1,980 orders)
Customer purchase 1,23,200 3,16,800
order processing (₹ 160 × 770 orders) (₹ 160 × 1,980 orders)
Operating cost 6,55,600 10,00,395

HP bank offers three products, viz., deposits, Loans and Credit Cards. The bank has selected 4 activities for a
detailed budgeting exercise, following activity-based costing methods.
The bank wants to know the product wise total cost per unit for the selected activities, so that prices may be
fixed accordingly.
The following information is made available to formulate the budget:
Activity Present Cost Estimation for the budget period
(₹)
ATM Services:
Machine Maintenance 4,00,000 All fixed, no change. Fully fixed, no change.
Rents 2,00,000 Expected to double during budget period.
Currency Replenishment Cost 1,00,000
7,00,000 (This activity is driven by no. of ATM transactions)
Computer Processing 5,00,000 Half this amount is fixed and no change is expected.
The variable portion is expected to increase to three
times the current level.
(This activity is driven by the number of computer
transactions)
Issuing Statements 18,00,000 Presently, 3 lakh statements are made. In the budget
period, 5 lakh statements are expected.
For every increase of one lakh statement, one lakh
rupees is the budgeted increase.
(This activity is driven by the number of statements)
Computer Inquiries 2,00,000 Estimated to increase by 80% during the budget
period.
(This activity is driven by telephone minutes)
The activity drivers and their budgeted quantifies are given below:
Activity Drivers Deposits Loans Credit Cards
No. of ATM Transactions 1,50,000 --- 50,000
No. of Computer Processing Transactions 15,00,000 2,00,000 3,00,000
No. of Statements to be issued 3,50,000 50,000 1,00,000
Telephone Minutes 3,60,000 1,80,000 1,80,000

The bank budgets a volume of 58,600 deposit accounts, 13,000 loan accounts, and 14,000 Credit Card
Accounts.
Required:
(i) Calculate the budgeted rate for each activity.
(ii) Prepare the budgeted cost statement activity wise.
(iii) Compute the budgeted product cost per account for each product using (i) and (ii) above.
Solution 5 :
Statement Showing “Budgeted Cost per unit of the Product”
Activity Activity Cost Activity Driver No. of Activity Deposits Loans Credit
(Budgeted) Units of Rate (₹) Cards
(₹) Activity
Driver
(Budget)
ATM Services 8,00,000No. of ATM 2,00,000 4.00 6,00,000 --- 2,00,000
Transaction
Computer 10,00,000No. of Computer 20,00,000 0.50 7,50,000 1,00,000 1,50,000
Processing processing
Transaction
Issuing 20,00,000No. of Statements 5,00,000 4.00 14,00,000 2,00,000 4,00,000
Statements
Customer 3,60,000Telephone 7,20,000 0.50 1,80,000 90,000 90,000
Inquiries Minutes
Budgeted 41,60,000 29,30,000 3,90,000 8,40,000
Cost
Units of Product (as estimated in the budget period) 58,600 13,000 14,000
Budgeted Cost per unit of the product 50 30 60
Working Note
Activity Budgeted Cost Remark
(₹)
ATM Services:
(a) Machine Maintenance 4,00,000−All fixed, no change.
(b) Rents 2,00,000−Fully fixed, no change.
(c) Currency Replenishment Cost 2,00,000−Doubled during budget period.
Total 8,00,000
Computer Processing 2,50,000−₹ 2,50,000 (half of ₹5,00,000) is
fixed and no change is expected.
7,50,000 −₹ 2,50,000 (variable portion) is expected to
Total 10,00,000 increase to three times the current level.
Issuing Statements 18,00,000−Existing.
2,00,000−2 lakh statements are expected to
Total 20,00,000 be increased in budgeted period. For every
increase of one lakh statement, one lakh
rupees is the budgeted increase.
Computer Inquiries 3,60,000 - Estimated to increase by 80% during the
. budget period.
Total 3,60,000 (₹2,00,000 × 180%)

The following budgeted information relates to Pinku Ltd. for the year 2024:
Products
A B C
Production and Sales (units) 1,00,000 80,000 60,000
(₹) (₹) (₹)
Selling price per unit 90 180 140
Direct cost per unit 50 90 95

Hours Hours Hours

Machine department (machine hours per unit) 3 4 5
Assembly department (direct labour hours per unit) 6 4 3
The estimated overhead expenses for the year 2024 will be as below:
Machine Department ₹ 73,60,000
Assembly Department₹ 55,00,000
Overhead expenses are apportioned to the products on the following basis:
Machine Department On the basis of machine hours Assembly DepartmentOn the basis of labour hours
After a detailed study of the activities the following cost pools and their respective cost drivers are found:
Cost Pool Amount (₹) Cost Driver Quantity

Machining services 64,40,000 Machine hours 9,20,000 hours
Assembly services 44,00,000 Direct labour hours 11,00,000 hours
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups
Order processing 7,20,000 Customer orders 7,200 orders
Purchasing 4,00,000 Purchase orders 800 orders
As per an estimate the activities will be used by the three products:

Products
A B C
Machine set-ups 4,500 3,000 1,500
Customer orders 2,200 2,400 2,600
Purchase orders 300 350 150
Prepare a product-wise profit statement using Activity-based methods.
Solution 6 :
Profit Statement using Activity based costing (ABC) method:
Particulars Product Total
A B C
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling price per unit (₹) 90 180 140
C. Sales Value (₹) [A×B] 90,00,000 1,44,00,000 84,00,000 3,18,00,000
D. Direct cost per unit (₹) 50 90 95
E. Direct Cost (₹) [A×D] 50,00,000 72,00,000 57,00,000 1,79,00,000
F. Overheads:
(Refer working note-3)
(i) Machining services (₹) 21,00,000 22,40,000 21,00,000 64,40,000
(ii) Assembly services (₹) 24,00,000 12,80,000 7,20,000 44,00,000
(iii) Set-up costs (₹) 4,50,000 3,00,000 1,50,000 9,00,000
(iv) Order processing (₹) 2,20,000 2,40,000 2,60,000 7,20,000
(v) Purchasing (₹) 1,50,000 1,75,000 75,000 4,00,000
G. Total Cost (₹) [E+F] 1,03,20,000 1,14,35,000 90,05,000 3,07,60,000
H. Profit (₹) (C-G) (13,20,000) 29,65,000 (6,05,000) 10,40,000
Working Notes: 1.
Products
A B C Total
A. Production (units) 1,00,000 80,000 60,000
B. Machine hours per unit 3 4 5
C. Total Machine hours [A×B] 3,00,000 3,20,000 3,00,000 9,20,000
D. Rate per hour (₹) 8 8 8
E. Machine Dept. cost [C×D] 24,00,000 25,60,000 24,00,000 73,60,000
F. Labour hours per unit 6 4 3
G. Total labour hours [A×F] 6,00,000 3,20,000 1,80,000 11,00,000
H. Rate per hour (₹) 5 5 5
I. Assembly Dept. cost [G×H] 30,00,000 16,00,000 9,00,000 55,00,000

₹73,60,000
Machine hour rate = 9,20,000ℎ𝑜𝑢𝑟𝑠
= ₹8
₹55,00,000
Labour hour rate = 11,00,000ℎ𝑜𝑢𝑟𝑠
= ₹5
2. Calculation of cost driver rate

Cost Pool Amount Cost Driver Quantity Driver rate (₹)
(₹)
Machining services 64,40,000 Machine hours 9,20,000 hours 7.00
Assembly services 44,00,000 Direct labour hours 11,00,000 hours 4.00
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups 100.00
Order processing 7,20,000 Customer orders 7,200 orders 100.00
Purchasing 4,00,000 Purchase orders 800 orders 500.00
3. Calculation of activity-wise cost

Products
A B C Total
A. Machining hours (Refer Working note-1) 3,00,000 3,20,000 3,00,000 9,20,000
B. Machine hour rate (₹) (Refer Working note-2) 7 7 7
C. Machining services cost (₹) [A×B] 21,00,000 22,40,000 21,00,000 64,40,000
D. Labour hours (Refer Working note-1) 6,00,000 3,20,000 1,80,000 11,00,000
E. Labour hour rate (₹) (Refer Working note-2) 4 4 4
F. Assembly services cost (₹) [D×E] 24,00,000 12,80,000 7,20,000 44,00,000
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (₹) (Refer Working note-2) 100 100 100
I. Set-up cost (₹) [G×H] 4,50,000 3,00,000 1,50,000 9,00,000
J. Customer orders 2,200 2,400 2,600 7,200
K. Rate per order (₹) (Refer Working note-2) 100 100 100
L. Order processing cost (₹) [J×K] 2,20,000 2,40,000 2,60,000 7,20,000
M. Purchase orders 300 350 150 800
N. Rate per order (₹) (Refer Working note-2) 500 500 500
O. Purchasing cost (₹) [M×N] 1,50,000 1,75,000 75,000 4,00,000
Question 7 :(MTP April 2024)

Anju Limited has collected the following data for its two activities. It calculates activity cost rates based on
cost driver capacity.
Activity Cost Driver Capacity Cost (₹)
Power Kilowatt hours 60,000 kilowatt hours 60,00,000
Quality Inspections Number of Inspections 10,000 Inspections 90,00,000
The company makes three products A, B and C. For the year ended March 31, 20XX, the following
consumption of cost drivers was reported:
Product Kilowatt hours Quality Inspections
A 10,000 3,500
B 20,000 2,500
C 15,000 3,000
Required:
(i) PREPARE a statement showing cost allocation to each product from each activity.
(ii)CALCULATE the cost of unused capacity for each activity.
Solution 7 :
(i) Statement of cost allocation to each product from each activity
Product
A (₹) B (₹) C (₹) Total (₹)
Power 10,00,000 20,00,000 15,00,000 45,00,000
(Refer to working
note)
(10,000 kWh ×₹ 100) (20,000 kWh × ₹ 100) (15,000 kWh × ₹ 100)
Quality 31,50,000 22,50,000 27,00,000 81,00,000

Inspections (3,500 (2,500 (3,000

(Refer to inspections inspections inspections
working note) × ₹ 900) × ₹ 900) × ₹ 900)
Working Note:
Rate per unit of cost driver:
Power : (₹ 60,00,000 ÷ 60,000 kWh) = ₹100/kWh
Quality Inspection: (₹ 90,00,000 ÷ 10,000 inspections) = ₹900 per inspection
(ii)Calculation of cost of unused capacity for each activity:

(₹)
Power 15,00,000
(₹60,00,000 – ₹45,00,000)
Quality Inspections (₹90,00,000 – ₹81,00,000) 9,00,000
Total cost of unused capacity 24,00,000
Question 8 :(RTP Nov 2023)

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 hours) 15,000 hrs. - 27,000 hrs.
Customers’ orders executed (in numbers) 1,250 1,000 1,500
Number of requisitions raised on the stores 40 30 50
Prepare a statement showing details of overhead costs allocated to each product type using activity-based
costing.
Solution 8 :
Calculation of “Activity Rate”
Cost (₹) Cost Driver Cost
Cost Pool Driver
[A] [B] Rate (₹)
Machine Department Expenses 18,48,000Machine Hours (1,32,000 hrs.) 14.00
Assembly Department Expenses 6,72,000Assembly Hours (42,000 hrs.) 16.00
Setup Cost 90,000No. of Production Runs (450*) 200.00
Stores Receiving Cost 1,20,000No.of RequisitionsRaised on the Stores (120) 1,000.00
Order Processing and Dispatch 1,80,000No. of Customers Orders Executed (3,750) 48.00
Inspection &Quality Control Cost 36,000No. of Production Runs (450*) 80.00
Total (₹) 29,46,000
*Number of Production Run is 450 (150 + 120 + 180)
Statement Showing “Overheads Allocation”
Particulars of Cost Cost Driver P Q R Total

Machine Department 4,20,000 6,72,000 7,56,000
Machine Hours 18,48,000
Expenses (30,000 × ₹14) (48,000 × ₹14) (54,000 × ₹14)

Assembly Department 2,40,000 4,32,000

Assembly Hours --- 6,72,000
Expenses (15,000 × ₹16) (27,000 × ₹16)
30,000 24,000 36,000
Setup Cost No. of Production Runs 90,000
(150 × ₹200) (120 × ₹200) (180 × ₹200)
No. of Requisitions 40,000 30,000 50,000
Stores Receiving Cost 1,20,000
Raised on the Stores (40 × ₹1,000) (30 × ₹1,000) (50 × ₹1,000)
Order Processing and No. of Customers Orders 60,000 48,000 72,000
1,80,000
Dispatch Executed (1,250 × ₹48) (1,000 × ₹48) (1,500 × ₹48)
Inspection and Quality 12,000 9,600 14,400
No. of Production Runs 36,000
Control Cost (150 × ₹80) (120 × ₹80) (180 × ₹80)
Overhead (₹) 8,02,000 7,83,600 13,60,400 29,46,000

The sales department of A Limited is analysing the customer profitability for its Product Z. It has decided to
analyse the profitability of its five new customers using activity-based costing method. It buys Product Z at
₹ 5,400 per unit and sells to retail customers at a listed price of ₹ 6,480 per unit. The data pertaining to five
customers are:
Customers
A B C D E
Units sold 4,500 6,000 9,500 7,500 12,750
Listed Selling Price ₹6,480 ₹6,480 ₹6,480 ₹6,480 ₹6,480
Actual Selling Price ₹6,480 ₹6,372 ₹5,940 ₹6,264 ₹5,832
Number of Purchase orders 15 25 30 25 30
Number of Customer visits 2 3 6 2 3
Number of deliveries 10 30 60 40 20
Kilometers travelled per delivery 20 6 5 10 30
Number of expedited deliveries 0 0 0 0 1
After a detailed analysis and computation, the following activities has been identified and respective cost has
been calculated:
Activity Cost Driver Rate

Order taking ₹4,500 per purchase order
Customer visits ₹ 3,600 per customer visit
Deliveries ₹ 7.50 per delivery Km travelled
Product handling ₹ 22.50 per case sold
Expedited deliveries ₹ 13,500 per expedited delivery
You are required to COMPUTE the customer-level operating income of each of five retail customers.
Solution 9 :
Working note:
1. Computation of revenues (at listed price), discount, cost of goods sold and customer level operating
activities costs:
Customers
A B C D E
Units sold: (a) 4,500 6,000 9,500 7,500 12,750
Revenues (at listed price) (₹): 2,91,60,000 3,88,80,000 6,15,60,000 4,86,00,000 8,26,20,000
(b)
{(a) ×₹6,480)}
Revenues (at listed price) (₹): 2,91,60,000 3,82,32,000 5,64,30,000 4,69,80,000 7,43,58,000
© {(a) ×Actual selling price)} (4,500 × (6,000 × 6,372) (9,500 × (7,500 × (12,750 ×
6,480) 5,940) 6,264) 5,832)
Discount (₹) (d) 0 6,48,000 51,30,000 16,20,000 82,62,000
{(b) – (c)}
Cost of goods sold (₹) : (e) {(a) 2,43,00,000 3,24,00,000 5,13,00,000 4,05,00,000 6,88,50,000
x ₹5,400}

Customer level operating activities costs

Order taking costs (₹): 67,500 1,12,500 1,35,000 1,12,500 1,35,000
(No. of purchase orders × ₹
4,500)
Customer visits costs (₹) 7,200 10,800 21,600 7,200 10,800
(No. of customer visits x ₹
3,600)
Delivery vehicles travel costs 1,500 1,350 2,250 3,000 4,500
(₹)
(Kms travelled by delivery
vehicles x ₹ 7.50 per km.)
Product handling costs (₹) {(a) 1,01,250 1,35,000 2,13,750 1,68,750 2,86,875
x ₹ 22.50}
Cost of expediting deliveries - - - - 13,500
(₹)
{No. of expedited deliveries x ₹
13,500}
Total cost of
customer
level operating activities (₹) 1,77,450 2,59,650 3,72,600 2,91,450 4,50,675
Computation of Customer level operating income

Customers
A B C D E
(₹) (₹) (₹) (₹) (₹)
Revenues (At list 2,91,60,000 3,82,32,000 5,64,30,000 4,69,80,000 7,43,58,000
price)
(Refer to working
note)
Less: Cost of goods (2,43,00,000) (3,24,00,000) (5,13,00,000) (4,05,00,000) (6,88,50,000)
sold (Refer to
working note)
Gross margin 48,60,000 58,32,000 51,30,000 64,80,000 55,08,000
Less: Customer level
operating activities
costs
(Refer to working (1,77,450) (2,59,650) (3,72,600) (2,91,450) (4,50,675)
note)
Customer level 46,82,550 55,72,350 47,57,400 61,88,550 50,57,325

operating income

Icecold a FMCG Company manufactures and sells three flavors of ice cream:
Dark chocolate Chocolate Butterscotch
Projected sales in units 5,00,000 8,00,000 6,00,000
Per Unit Data:
Selling price ₹80 ₹75 ₹60
Direct materials ₹20 ₹15 ₹14
Direct labor ₹4 ₹2 ₹2
Hours per 1000-unit batch:
Direct labor hours 20 10 10
Fridge hours 1 1 1
Packaging hours 0.5 0.5 0.5
Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs Activity levels
Direct labor 2,400 hours

Fridge ₹2,10,00,000 1,900 fridge hours

Packaging ₹1,50,00,000 950 packaging hours
₹3,60,00,000
Required:
a. With the help of ABC system, for the Chocolate ice cream:
1.Compute the activity-cost-driver rate
2.Compute the estimated overhead costs per thousand ice cream.
3.Compute the estimated operating profit per thousand ice cream.
b. With the help of traditional system (with direct labor hours as the overhead allocation base), for the
Chocolate ice cream, compute the estimated operating profit per thousand ice cream.
Solution 10 :
1. Estimation of cost-driver rate
Activity Overhead cost (₹) Cost driver Cost driver rate (₹)
Packaging 1,50,00,000 950 Packaging hours 15,789.47
Fridge 2,10,00,000 1,900 Fridge hours 11,052.63
2. Overhead cost for chocolate ice cream

Activity Overhead for a 1,000 ice cream batch Amount (₹)
Packaging 1 x ₹ 11,052.63 11,052.63
Fridge 0.5 x ₹ 15,789.47 7,894.74
Total 18,947.37
3. Operating profit for chocolate ice cream

Revenue (1,000 x ₹ 75) 75,000.00
Less: Direct Material (1,000 x ₹ 15) 15,000.00
Less: Direct Labour (10,000 x ₹ 2) 20,000.00
Less: Overhead 18,947.37
Operating Profit 21,052.63
b. Overhead per direct hour

= Total Overhead / Total Direct Labour Hours
= ₹ 3,60,00,000 / 24,000 hours
= ₹ 1,500 per direct labour hour
Since it takes 10 direct labour hour per 1,000 Chocolate ice cream, the overhead is ₹ 15,000
Revenue (1,000 x ₹ 75) 75,000.00
Less: Direct Material (1,000 x ₹ 15) 15,000.00
Less: Direct Labour (10,000 x ₹ 2) 20,000.00
Less: Overhead 15,000
Operating Profit 25,000

Costing Practice Sheet - Chapter 5 - Cost Sheet

The following data relates to the manufacture of product BXE for the year ended 31st March,2023:
Amount (₹)
Value of stock as on 1st April,2022
Raw materials 27,00,000
Work in progress 10,60,000
Finished Goods 25,00,000
Material purchased 2,48,00,000
Freight inward 7,50,000
Direct wages 42,00,000
Power & Fuel 18,75,000
Cost of special drawings 3,60,000
Trade Discount 4,50,000
Insurance on material procured 15,000
Rent of Factory Building (1/5th used for office purpose) 7,00,000
Depreciation on machinery 6,25,000
Depreciation on Delivery Vans 1,20,000
Consumable stores and indirect wages 15,20,000
Quality Control cost 9,00,000
Primary packing cost 12,90,000
General Administrative overheads (excluding rent of building) 17,50,000
Salary paid to Marketing Staff 9,60,000
Packing cost for transportation 1,84,000
Value of stock as on 31st March, 2023
Raw materials 32,60,000
Work in progress 11,80,000
Finished Goods 28,38,000
Additional Information:
● Further, some of the finished product was found defective and the defective products were rectified by
incurring expenditure of additional factory overheads to the extent of ₹ 33,600. The cost of rectification
is not included in details mentioned above.
● An amount of ₹ 1,20,600 was realised by selling scrap and waste generated during the year.
Prepare Cost sheet for the year ended 31stMarch, 2023 showing:
(i) Prime cost,
(ii) Factory cost,
(iii) Cost of production.
(iv) Cost of goods sold, and
(v) Cost of sales.
Solution 1 :
Cost Sheet for the product BXE
Sl. Particulars (₹) (₹)
No.
(i) Material Consumed:
Raw materials purchased 2,48,00,000
Freight inwards 7,50,000
Insurance on material procured 15,000
Less: Trade discount (4,50,000)
Add: Opening stock of raw materials 27,00,000
Less: Closing stock of raw materials (32,60,000) 2,45,55,000
(ii) Direct wages 42,00,000
(iii) Direct expenses:
Power & fuel 18,75,000
Cost of special drawings 3,60,000 22,35,000
(iv) Works/ Factory overheads:
Rent of factory building (4/5th of 7,00,000) 5,60,000
Depreciation on machinery 6,25,000

Defective rectification cost 33,600

Consumable stores & indirect wages 15,20,000 27,38,600
Gross works cost 3,37,28,600
Add: Opening work in process 10,60,000
Less: Closing work in process (11,80,000)
Factory cost 3,36,08,600
(v) Quality control cost 9,00,000
(vi) Primary packing cost 12,90,000
(vii) Less: Amount realised from scrap sale (1,20,600)
Cost of production 3,56,78,000
Add: Opening stock of finished goods 25,00,000
Less: Closing stock of finished goods (28,38,000)
Cost of Goods Sold 3,53,40,000
Administrative overheads:
(viii) Rent of factory building (1/5th of 7,00,000) 1,40,000
General administrative overheads 17,50,000
Selling and Distribution overheads:
(x) Salary paid to marketing staff 9,60,000
(xi) Packing cost for transportation 1,84,000
(xii) Depreciation on delivery vans 1,20,000
Alternatively, Power and fuel expenses of ₹ 18,75,000 can be taken as a part of factory overhead.
Accordingly, prime cost will be 2,91,15,000. However, there will be no change in factory cost, cost of
production, cost of goods sold and cost of sales.

The following data relate to the manufacture of a product 'VD-100* during the month of October 2023:
Good units produced 12,600
Units Sold 11,800
Direct wages ₹ 8,82,000
Administrative Overheads ₹ 4,72,000
Selling price per unit ₹ 416
Each unit produced requires 2 kg. of material 'Z'. Cost of material 'Z' is ₹ 72 per kg. 10% of the production has
been scrapped as bad and fetches ₹ 45 per unit. Factory overheads are 80% of wages. Selling and distribution
overheads are ₹ 54 per unit sold. There is no opening or closing stock of material and work in progress.
You are required to find out total cost of sales and profit for the month of October 2023.
Solution 2 :
Since 10% units are scrapped.
Units produced (total) is 14,000 (12,600/90%)
Calculation of cost of sales and profit
Particulars ₹
Raw Material (28,000 × ₹ 72) 20,16,000
Wages 8,82,000
Prime Cost 28,98,000
Factory overheads 7,05,600
Factory Cost 36,03,600
Sale of Scrap (1,400 × ₹ 45) (63,000)
Less: Closing Stock of finished goods 2,24,800
Cost of goods sold 33,15,800
Add: Administration overheads 4,72,000
Add: Selling & Distribution overheads (₹ 54 x 11,800) 6,37,200
Cost of Sales 44,25,000
Sales (11,800 × ₹ 416) 49,08,800
Profit 4,83,800


From the following data of Appu Ltd., CALCULATE (i) Material Consumed; (ii) Prime Cost and (iii) Cost
of production.
Amount (₹)
(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 86,000
process
(xi) Research & development cost for improvement in 92,600
production 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 10,200
further processing
(xv) Salary paid to Director (Technical) 8,90,000
Solution 3 :
Calculation of Cost of Production of Appu Ltd.
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and 9,00,000
production
1,07,43,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Cost of Production 1,05,48,000
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.


Following figures has been extracted from the books of M/s A&R Brothers:
Amount (`)
Stock on 1st March, 2023
- Raw materials 6,06,000
- Finished goods 3,59,000
Stock on 31st March, 2023
- Finished goods 3,09,000
Work-in-process:
- On 1st March, 2023 12,56,000
- On 31st March, 2023 14,22,000
Purchase of raw materials 28,57,000
Sale of finished goods 1,34,00,000
Factory expenses 21,25,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Sale of scrap 26,000
You are required to compute:
(i) Value of material consumed
(ii) Prime cost
(iii) Cost of production
(iv) Cost of goods sold
(v) Cost of sales
(vi) Profit/ loss
Solution 4 :
Cost Sheet of M/s A&R Brothers for the month ended March 2023:
Particulars Amount (`) Amount (`)
(i) Materials consumed:
- Opening stock 6,06,000
- Add: Purchases 28,57,000
34,63,000
- Less: Closing stock (7,50,000) 27,13,000
(ii) Prime cost 64,63,000
Factory expenses 21,25,000
85,88,000
Add: Opening W-I-P 12,56,000
Less: Closing W-I-P (14,22,000)
Factory cost 84,22,000
Less: Sale of scrap (26,000)
(iii) Cost of Production 83,96,000
(iv) Cost of Goods Sold 84,46,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
(v) Cost of Sales 1,02,30,000
(vi) Profit (balancing figure) 31,70,000
Sales 1,34,00,000

Following information relate to a manufacturing concern for the year ended 31st March, 2023:
(₹)
Raw Material (opening) 2,28,000

Raw Material (closing) 3,05,000

Purchases of Raw Material 43,50,000
Freight Inwards 1,20,000
Direct wages paid 12,56,000
Direct wages-outstanding at the end of the year 1,50,000
Factory Overheads 20% of prime cost
Work-in-progress (opening) 1,92,500
Work-in-progress (closing) 1,40,700
Administrative Overheads (related to production) 1,73,000
Distribution Expenses ₹ 16 per unit
Finished Stock (opening)- 1,320 Units 6,08,500
Sale of scrap of material 7,000
The firm produced 14,350 units of output during the year. The stock of finished goods at the end of the year is
valued at cost of production. The firm sold 14,903 units at a price of ₹579 per unit during the year.
PREPARE cost sheet of the firm.
Solution 5 :
Cost sheet for the year ended 31st March, 2023.
Units produced - 14,000 units Units sold - 14,153 units
Add: Freight Inward 1,20,000
Add: Opening value of raw materials 2,28,000
Less: Closing value of raw materials (3,05,000)
43,93,000
Less: Sale of scrap of material (7,000)
Direct Wages (12,56,000 + 1,50,000) 14,06,000
Prime Cost 57,92,000
Factory overheads (20% of Prime Cost) 11,58,400
Factory Cost 70,02,200
Add: Administrative overheads 1,73,000
Add: Value of opening finished stock 6,08,500
Less: Value of closing finished stock [₹
500(71,75,200/14,350) × 767] (3,83,500)
(1,320 + 14,350 – 14,903 = 767 units)
Cost of Goods Sold 74,00,200
Distribution expenses (₹16 × 14,903 units) 2,38,448
Cost of Sales 76,38,648
Profit (Balancing figure) 9,90,189
Sales (₹ 579 × 14,903 units) 86,28,837

A Ltd. produces a single product X. During the month of July 2023, the company 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 the 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.
Solution 6 :
Cost Sheet of A Ltd. for the month of July 2023
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
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
AMC cost of CCTV installed at weigh bridge 6,000 13,000

P Ltd. has gathered cost information from ledgers and other sources for the year ended 31st December 2023.
The information are tabulated below:
Sl. No. Amount (₹) Amount (₹)
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 40,000
- Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Factory building 18,800 47,000
(xi) Expenses paid for quality control check activities 18,000
(xii) Research & development cost paid for improvement in production 20,000
process
(xiii) Expenses paid for pollution control and engineering & maintenance 36,000
(xiv) Salary paid to Sales & Marketing managers 5,60,000
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
- Primary packing necessary to maintain quality 46,000
- For re-distribution of finished goods 80,000 1,26,000

(xvii) Fee paid to independent directors 1,20,000

(xviii) Performance bonus paid to sales staffs 1,20,000
(xix) Value of stock as on 1stJanuary, 2023:
- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31stDecember, 2023:
- Finished goods 10,50,000 25,50,000
Amount realized by selling of scrap and waste generated during manufacturing process – ₹ 48,000/-
The board meeting is scheduled to be held next week and you, being an associate to the chief cost controller
of the company, has been asked to PREPARE a cost sheet.
Solution 7 :
Statement of Cost of P Ltd. for the year ended 31st December, 2023:
Sl. No. Particulars Amount (₹) Amount (₹)
- Raw materials purchased 5,00,00,000
- Freight inward 9,20,600
(ii) Direct employee (labour) cost:
- Wages paid to factory workers 25,20,000
- Royalty paid for production 1,80,000
- Amount paid for power & fuel 3,50,000
- Job charges paid to job workers 3,10,000 8,40,000
- Stores and spares consumed 1,10,000
- Repairs & Maintenance paid for plant & machinery 40,000
- Insurance premium paid for plant & machinery 28,200
- Insurance premium paid for factory building 18,800
- Expenses paid for pollution control and engineering
& maintenance 36,000 2,33,000
Gross factory cost 5,46,73,600
Factory Cost 5,48,73,600
(v) Quality control cost:
- Expenses paid for quality control check activities 18,000
(vi) Research & development cost paid for improvement in 20,000
production process
(vii) Less: Realisable value on sale of scrap and waste (48,000)
(viii) Add: Primary packing cost 46,000
(ix) Administrative overheads:
- Depreciation on office building 50,000
- Salary paid to General Manager 6,40,000
- Fee paid to independent directors 1,20,000 8,10,000
(x) Selling overheads:
- Repairs & Maintenance paid for sales office 20,000
building

- Salary paid to Manager- Sales & Marketing 5,60,000

- Performance bonus paid to sales staffs 1,20,000 7,00,000
(xi) Distribution overheads:
- Packing cost paid for re-distribution of finished
goods 80,000
Question 8 : (July MTP 2024)

From the following data of Meta Ltd., CALCULATE Cost of production:
Amount
(₹)
(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 process 92,600
(xii) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the manufacturing process 9,200
(xiv) Packing cost necessary to preserve the goods for further processing 10,200
(xv) Salary paid to Director (Technical) 8,90,000
(xvi) Expenses paid for pollution control and engineering & maintenance 22,000
Solution 8.
Calculation of Cost of Production of Meta Ltd for the period…..
Add: Opening stock 2,88,000
Material consumed 62,42,000
Wages paid 23,20,000
Repair and maintenance cost of plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and production 9,00,000
1,07,43,100
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Add: Expenses paid for pollution control and engineering & 22,000
maintenance
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.


ABC Ltd is engaged in producing electronic equipments. It has furnished following details related to its
products produced during a month:
Units Amount (₹)
Opening stock 10,000 5,00,00,000
Purchases 4,90,000 25,20,00,000
Closing stock 17,500 85,00,000
Works-in-progress
Opening 20,000 1,20,00,000
Closing 10,000 60,50,000
Direct employees' wages, allowances etc. 5,50,50,000
Primary packaging cost (per unit) 140
R&D expenses & Quality control expenses 1,90,00,000
Guards’ salaries 20,00,000
Directors’ salaries 60,00,000
Consumable stores, depreciation on plant related to factory 3,42,00,000
overhead
Product inspection (before primary packaging) 22,00,000
Rearrangement design of factory machine 75,00,000
Administrative overheads related to production 3,45,00,000
Selling expenses 3,94,50,000
Royalty paid for production 3,10,50,000
Cost of web-site (for online sale)maintenance 60,75,000
Gifts & Snacks 30,50,000
GST (credit allowed) 5,50,00,000
AMC cost of CCTV 10,00,000
Hiring of cars for the transportation of employees and guests 25,00,000
Audit and Legal Fees 29,00,000
Secondary packaging cost (per unit) 20
Distribution of the following costs:

Guard’s salaries to Factory, Office and Distribution in the ratio 7: 2:1.
Hiring of cars is only for selling and distribution
AMC of CCTV to Factory, Office and Selling in the ratio 6 : 2 : 2.
The company paid EPF of 12% over above basic pay. However, Guards will not receive any incentive or EPF.
It has lucky draws every month giving the first prize of ₹ 1,00,000; 2nd prize of ₹ 50,000, 3rd prize of ₹ 20,000
and three consolation prizes of ₹ 10,000 each to customers buying the product.
It also sponsors a television programme every week at a cost of ₹ 20,00,000 per month.
The hiring of cars attracts GST under RCM @5% without credit.
There was a normal scrap of 2,000 units of direct material which realized ₹ 350 per unit. The entire finished
product was sold at a profit margin of 25% on sales.
You are required to PREPARE a cost sheet.
Solution 9.
Cost Sheet
Particulars Units Amount (₹)
Material
Opening stock 10,000 5,00,00,000
Add: Purchases 4,90,000 25,20,00,000
Less: Closing stock (17,500) (85,00,000)
4,82,500 29,35,00,000
Less: Normal wastage of materials realized @ ₹ 350 per unit (2,000) (7,00,000)
Material consumed 29,28,00,000
Direct employee's wages and allowances 5,50,50,000
Direct expenses- Royalty paid for production 3,10,50,000
Prime cost 4,80,500 37,89,00,000

Factory overheads - Consumable stores, depreciation etc. 3,42,00,000

Rearrangement design of factory machine 75,00,000
Gross Works Cost 4,80,500 38,64,00,000
Add: Opening WIP 20,000 1,20,00,000
Less: Closing WIP (10,000) (60,50,000)
Factory/Works Cost 4,90,500 39,23,50,000
Administration Overheads related 3,45,00,000
to production
R&D expenses and Quality control cost 1,90,00,000
AMC cost of CCTV installed at factory premises 6,00,000
Guard Salaries for factory premises 14,00,000
Product Inspection 22,00,000
Add: Primary packaging cost @ ₹ 140 per unit 6,86,70,000
Cost of production 4,90,500 51,87,20,000
Administration Overheads
Guard salaries for office 4,00,000
Audit and legal fees 29,00,000
Director’s Salaries 60,00,000
EPF Director’s Salaries @12% 7,20,000
AMC cost for CCTV installed at office. 2,00,000
Selling and Distribution Overheads
Cost of maintaining website for online sale 60,75,000
Secondary packaging cost @ ₹ 20 per unit 4,90,500 98,10,000
Gift and snacks 30,50,000
Guard salaries for selling department 2,00,000
AMC cost for CCTV installed at selling department 2,00,000
Hiring charges of cars 25,00,000
Add: GST @5% on RCM basis 1,25,000
Television programme sponsorship cost 20,00,000
Customers’ prize cost* 2,00,000
Selling expenses 3,94,50,000
Cost of sales 58,64,75,000
Add: Profit @ 25% on sales or 33.333% of cost 19,54,89,712
Sales value 78,19,64,712
*Customers’ prize cost:
Amount (₹)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000
Consolation Prizes (3 × ₹10,000) 30,000
Total 2,00,000
*Customers’ prize cost:

Amount (₹)
1st Prize 1,00,000
2nd Prize 50,000
3rd Prize 20,000
Consolation Prizes (3 × ₹10,000) 30,000
Total 2,00,000

Costing Practice Sheet - Chapter 6 - Cost Accounting System

Construct journal entries in the following situations assuming that cost and financial transactions are
integrated:
(i) Purchase of raw material ₹ 4,40,000
(ii) Direct Material issued to production ₹ 3,60,000
(iii) Wages charged to production ₹ 80,000
(iv) Manufacturing overheads charged to production ₹ 1,32,000
Solution 1 :
Journal entries are as follows
DR. (₹) Cr. (₹)
Stores Ledger Control A/c Dr. 4,40,000
To Payables (Creditors)/ Bank A/c (Materials purchased) 4,40,000
Work-in-Process Control A/c Dr. 3,60,000
To Stores Ledger Control A/c (Materials issued to production) 3,60,000
Work-in-Process Control A/c To Wages Control A/c Dr. 80,000
(Direct wages charged to production) 80,000
Work-in-Process Control A/c Dr. 1,32,000
To Factory Overhead Control A/c (Manufacturing overhead 1,32,000
charged to production)

A manufacturing company disclosed a net loss of ₹ 3,47,000 as per their cost accounts for the year ended
March 31,2024. The financial accounts however disclosed a net loss of ₹ 5,10,000 for the same period. The
following information was revealed as a result of scrutiny of the figures of both the sets of accounts.
(₹)
(i) Factory Overheads under-absorbed 40,000
(ii) Administration Overheads over-absorbed 60,000
(iii) Depreciation charged in Financial Accounts 3,25,000
(iv) Depreciation charged in Cost Accounts 2,75,000
(v) Interest on investments not included in Cost Accounts 96,000
(vi) Income-tax provided 54,000
(vii) Interest on loan funds in Financial Accounts 2,45,000
(viii) Transfer fees (credit in financial books) 24,000
(ix) Stores adjustment (credit in financial books) 14,000
(x) Dividend received 32,000
PREPARE a memorandum Reconciliation Account
Solution 2 :
Memorandum Reconciliation Accounts
Dr. Cr.
(₹) (₹)
To Net Loss as per Costing 3,47,000By Administration overheads 60,000
books over recovered in cost
accounts
To Factory overheads under 40,000 By Interest on investment not 96,000
absorbed in Cost Accounts included in Cost Accounts
To Depreciation under charged 50,000 By Transfer fees in financial 24,000
in Cost Accounts books
To Income-Tax not provided in 54,000 By Stores adjustment (Credit in 14,000
Cost Accounts financial books)
To Interest on Loan Funds 2,45,000 By Dividend received in 32,000
in Financial Accounts financial books
By Net loss as per 5,10,000
financial books
7,36,000 7,36,000


G Ltd. has the following expenditures for the year ended 31 st March, 2023:
Sl. No. Amount (₹) Amount (₹)
(i) Raw materials purchased 20,00,00,000
(ii) Freight inward 22,41,200
(iii) Wages paid to factory workers 58,40,000
(iv) Royalty paid for production 3,45,200
(v) Amount paid for power & fuel 9,24,000
(vi) Job charges paid to job workers 16,24,000
(vii) Stores and spares consumed 2,24,000
(viii) Depreciation on office building 1,12,000
(ix) Repairs & Maintenance paid for: 96,000
- Plant & Machinery
- Sales office building 36,000 1,32,000
(x) Insurance premium paid for:
- Factory building 36,200 98,600
(xi) Expenses paid for quality control check 39,200
activities
(xii) Research & development cost paid 36,400
improvement in production process
(xiii) Expenses paid for pollution control and 53,200
engineering & maintenance
(xiv) Salary paid to Sales & Marketing mangers: 20,24,000
(xv) Salary paid to General Manager 25,12,000
(xvi) Packing cost paid for:
- Primary packing necessary to 1,92,000
maintain quality
- For re-distribution of finished 2,24,000 4,16,000
goods
(xvii) Performance bonus paid to sales staffs 7,20,000
(xviii) Value of stock as on 1st April, 2022:
- Finished goods 22,00,000 76,40,000
(xix) Value of stock as on 31st March, 2023:
- Finished goods 36,40,000 73,00,000
Amount realized by selling of scrap and waste generated during manufacturing process –
₹1,72,000/-
From the above data you are requested to PREPARE Statement of cost for G Ltd. for the year ended 31st
March, 2023, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost of goods sold and (v)
Cost of sales.
Solution 3 :
Statement of Cost of G Ltd. for the year ended 31st March, 2023:
Sl. No. Particulars Amount (₹) Amount (₹)
Raw materials purchased 20,00,00,000
Freight inward 22,41,200
(ii) Direct employee (labour) cost:
Wages paid to factory workers 58,40,000
Royalty paid for production 3,45,200

Amount paid for power & fuel 9,24,000

Job charges paid to job workers 16,24,000 28,93,200
Prime Cost 21,26,54,400
Stores and spares consumed 2,24,000
Repairs & Maintenance paid for plant & machinery 96,000
Insurance premium paid for factory building 36,200
Expenses paid for pollution control and engineering &
maintenance 53,200 4,71,800
Gross factory cost 21,31,26,200
(v) Quality control cost:
Expenses paid for quality control check activities 39,200
(vi) Research & development cost paid improvement in 36,400
production process
(vii) Less: Realisable value on sale of scrap and waste (1,72,000)
(viii) Add: Primary packing cost 1,92,000
(ix) Administrative overheads:
Depreciation on office building 1,12,000
Salary paid to General Manager 25,12,000 26,24,000
(x) Selling overheads:
Repairs & Maintenance paid for sales office building 36,000
Salary paid to Manager- Sales & Marketing 20,24,000
Performance bonus paid to sales staffs 3,60,000 24,20,000
(xi) Distribution overheads:
Packing cost paid for re-distribution of finished goods
2,24,000

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
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
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 31st 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.
Solution 4 :
(i) Statement of Profit as per financial records (for the year ended March 31, 2023)
(₹) (₹)
To Opening stock of Finished Goods 1,06,250 By Sales 45,60,000
To Work-in-process 92,000 By Closing stock of finished Goods 91,300
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 overheads 1,44,000
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) (12,615 units) 45,60,000
Cost of sales:
Opening stock (625 units × ₹ 240) 1,50,000
Add: Cost of production of 12,405 units (Refer to working note 2) 43,28,140
₹ 43,28,140 𝑋 415 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 (₹1,50,000 – ₹ 1,06,250) 43,750
Factory overheads over recovered (₹ 8,54,000 – ₹ 8,44,000) 10,000 3,90,290
Less: Selling & distribution overheads under recovery (₹ 5,41,255

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
(₹)
Direct labour 12,20,000

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

(₹)
Opening Stock:
Finished goods 875 units 76,525
01.04.2022 to 31.03.2023
Goodwill written off 95,000
Administration overheads 3,15,000
Income tax paid 72,000
Bad debts 21,000
Selling and distribution overheads 65,000
Sales 14,500 units 20,80,000
The management of the company, for preparing cost sheet and variance analysis uses the following cost
recovery basis which has been elaborated by the cost controller of the company:
Factory overheads are absorbed at 60% of direct wages.
Administration overheads (production related) are recovered at 20% of factory cost.
Selling and distribution overheads are charged at ₹ 5 per unit sold.
Opening Stock of finished goods is valued at ₹105 per unit.
The company values work-in-process at factory cost for both financial and cost accounting purpose.
You being an associate to the cost controller of the company has been asked to:
(i) PREPARE a statement of profit as per costing records and financial records.
(ii) CALCULATE cost of production per unit.
(iii)PREPARE a statement reconciling the profit as per costing records with the profit as per financial records.

Solution 5 :
Statement of Profit as per financial records (for the year ended March 31, 2023)
(₹) (₹)
To Opening stock: By Sales 20,80,000
Finished goods 76,525 By Closing stock:
Work-in-process 33,000 Finished Goods 43,250
To Raw materials consumed 7,84,000 Work-in-Process 48,200
To Direct labour 4,65,000 By Rent received 72,000
To Factory overheads 2,65,000 By Interest received 18,500
To Goodwill written off 95,000
To Administration overheads 3,15,000
To Selling & distribution overheads 65,000
To Income tax paid 72,000
To Bad debts 21,000
To Profit 70,425
22,61,950 22,61,950
Statement of Profit as per costing records (for the year ended March 31,2023)
(₹) (₹)
Sales revenue (14,500 units) (A) 20,80,000
Cost of Sales:
Opening stock (875 units x ₹ 105) 91,875
Add: Cost of production of 14,000 units 18,15,360
(Refer to Working Note 1& 2)
Less: Closing stock (
₹18,15,360 × 375 𝑢𝑛𝑖𝑡𝑠
14,000 𝑈𝑛𝑖𝑡𝑠 ) (48,626)
Selling & distribution overheads (14,500 units x ₹ 5) 72,500
Cost of sales: (B) 19,31,109 19,31,109
Profit: {(A) – (B)} 1,48,891
Workings:
1.Number of units produced Units
Sales 14,500
Total 14,875
Less: Opening stock 875
Cost Sheet
(₹) (₹)
Factory overheads (60% of direct wages) 2,79,000
Less: Closing work-in-process (48,200)
Administration overheads (20% of factory cost) 3,02,560
Cost of production of 14,000 units 18,15,360
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 ₹18,15,360

Cost of production per unit: 𝑁𝑜. 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
= 14,000 𝑢𝑛𝑖𝑡𝑠
= ₹129.67
Statement of Reconciliation

(₹) (₹)
Profit as per Cost Accounts 1,48,891
Add: Factory overheads over absorbed 14,000
(₹ 2,79,000 – ₹ 2,65,000)
S & D overheads over absorbed 7,500
(₹ 72,500 - ₹ 65,000)
Opening stock overvalued (₹ 91,875 – ₹ 76,525) 15,350
Rent received 72,000 1,27,350
2,76,241
Less: Administration overheads under recovery 12,440
(₹ 3,15000 – ₹ 3,02,560)
Closing stock overvalued (₹ 48,626 – ₹ 43,250) 5,376
Goodwill written off 95,000
Bad debts 21,000 2,05,816
Profit as per financial accounts 70,425

Costing Practice Sheet - Chapter 7 - Reconciliation

S.K. Manufacturing Co. Ltd. showed a net profit of ₹5,40,400 as per their cost accounts for the year ended
31.03.2024. However, the financial books disclosed a net profit of ₹2,60,500 for the same period. The following
information was revealed as a result of scrutiny of the figures of both the sets of books:
₹
Factory overheads under absorbed 84,800
Administrative overheads over absorbed 24,000
Interest paid on bank borrowings 50,000
Interest & Dividend received 65,200
Notional rent of own premises charged in cost accounts 60,000
Losses on the sales of fixed assets and investments 48,000
Donations and subscriptions 18,800
Overvaluation of closing stock of finished goods in Cost accounts 1,25,000
Store adjustments (credited in financial books) 7,500
Depreciation over charged in cost accounts 40,000
Income tax provided 1,50,000
(i) Prepare a reconciliation statement taking net profit as per cost accounts as base.
(ii) State when is the reconciliation statement of Cost and Financial accounts not required?
Solution 2 .
Statement of Reconciliation of profit as obtained under Cost and Financial Accounts
(`) (`)
Profit as per cost records 5,40,400
Add: Administrative Overhead over absorbed 24,000
Interest & Dividend Received 65,200
Notional rent of own premises 60,000
Stores adjustments (Credited in financial books) 7,500
Depreciation over charged in cost accounts 40,000 1,96,700
7,37,100
Less: Factory overheads under absorbed 84,800
Interest paid on bank borrowings 50,000
Lossed on sale of fixed assets and investments 48,000
Donations and subscriptions 18,800
Over-valuation of closing stock of finished goods in cost 1,25,000
accounts
Income tax 1,50,000 (4,76,600)
Profit as per Financial Records 2,60,500
(ii) Circumstances where reconciliation statement can be avoided:

When the Cost and Financial Accounts are integrated - there is no need to have a separate
reconciliation statement between the two sets of accounts. Integration means that the same set of
accounts fulfil the requirement of both i.e., Cost and Financial Accounts.

A manufacturing company has disclosed net loss of ₹ 48,700 as per their cost accounting records for the year
ended 31st March, 2024. However their financial accounting records disclosed net profit of ₹ 30,400 for the
same period. A scrutiny of data of both the sets of books of accounts revealed the following informations:
₹
(i) Factory overheads under absorbed 30,500
(ii) Administrative overheads over absorbed 65,000
(iii) Depreciation charged in financial accounts 2,25,000
(iv) Depreciation charged in cost accounts 2,70,000
(v) Income-tax provision 52,400
(vi) Transfer fee (credited in financial accounts) 10,200
(vii) Obsolescence loss charged in financial accounts 20,700
(viii) Notional rent of own premises charged in cost accounts 49,000

(ix) Value of opening stock:

(a) in cost accounts 1,38,000
(b) in financial accounts 1,15,000
(x) Value of closing stock:
(a) in cost accounts 1,22,000
(b) in financial accounts 1,12,500
PREPARE a Memorandum Reconciliation Account by taking costing loss as base.
Solution 2 .
Memorandum Reconciliation Accounts
Dr. Cr.
Particulars Amount Particulars Amount
(₹ ) (₹ )
To Net Loss as per Cost Accounts 48,700 By Administration overheads over 65,000
recovered in Cost Accounts
To Factory overheads under 30,500 By Depreciation overcharged in 45,000
absorbed in Cost Accounts Cost Accounts
(₹ 2,70,000 –₹ 2,25,000)
To Provision for Income tax 52,400 By Transfer fees in Financial 10,200
Accounts
To Obsolescence loss 20,700 By Notional Rent of own 49,000
premises
To Overvaluation of closing stock 9,500 By Overvaluation of Opening stock in 23,000
in Cost Accounts** Cost Accounts*
To Net Profit (as per Financial 30,400
Accounts)
1,92,200 1,92,200
* Overvaluation of Opening Stock as per Cost Accounts
= Value in Cost Accounts – Value in Financial Accounts
= ₹ 1,38,000 – ₹ 1,15,000 = ₹ 23,000.
** Overvaluation of Closing Stock as per Cost Accounts
= Value in Cost Accounts – Value in Financial Accounts = ₹ 1,22,000 – ₹ 1,12,500 = ₹ 9,500.

(₹)
Opening Stock:
Finished goods 545 units 48,250
01.04.2023 to 31.03.2024
Stores Adjustment debited in financial Account 50,000
Dividend paid 98,000
Bad Debts 16,000
Selling and Distribution Overheads 84,000
Sales 14,250 units 13,96,500
The cost records provide as under:
● Factory overheads are absorbed at 60% of direct wages.
● Administration overheads are recovered at 20% of factory cost.
● Selling and distribution overheads are charged at ₹ 6 per unit sold.
● Opening Stock of finished goods is valued at ₹ 90 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 31st March, 2024 show
● the profit as per financial records
● the profit as per costing records.
(ii) Present a statement reconciling the profit as per costing records with the profit as per Financial Records.
Solution 3 .
(i) Statement of Profit as per financial records
(for the year ended March 31, 2024)
(₹) (₹)
To Opening stock of Finished 48,250By Sales 13,96,500
Goods
To Work-in-process 38,000By Closing stock of finished 44,500
Goods
To Raw materials 5,00,000By Work-in-Process 36,200
consumed
To Direct labour 4,20,000By Interest received 42,000
To Factory overheads 3,56,000By Loss 3,35,050
To Administration 2,10,000
overheads
To Selling & distribution 84,000
overheads
To Dividend paid 98,000
To Bad debts 16,000
To Stores adjustment 50,000
To Income tax 34,000
18,54,250 18,54,250
Statement of Profit as per costing records

(for the year ended March 31,2024)
(₹)
Sales revenue (A) 13,96,500
(14,250 units)
Cost of sales:
Opening stock 49,050
(545 units x ₹ 90)
Add: Cost of production of 14,165 units 14,08,560
(Refer to working note 2)
Less: Closing stock (₹ 99.44 x 460 units) 45,742
Selling & distribution overheads
(14,250 units x ₹ 6) 85,500
Cost of sales: (B) 14,97,368
Profit/Loss: {(A) – (B)} (1,00,868)
(ii) Statement of Reconciliation

(₹) (₹)
Loss as per Cost Accounts (1,00,868)
Add: Administration overheads over absorbed (₹ 2,34,760 24,760
– ₹ 2,10,000)
Opening stock overvalued (₹ 49,050 – ₹ 48,250) 800
Selling & distribution overheads over recovered (₹ 85,500 – 1,500 69,060
₹ 84,000)

(31,808)
Less: Factory overheads over recovered (₹ 1,04,000
3,56,000 - ₹2,52,000)
Closing stock overvalued (₹ 45,742 – ₹ 44,500) 1,242
Stores adjustment 50,000
Income tax 34,000
Dividend 98,000
Bad debts 16,000 (3,03,242)
Loss as per financial accounts (3,35,050)
Working notes:
1. Number of units produced

Units
Sales 14,250
Total 14,710
Less: Opening stock 545
2. Cost Sheet
(₹)
Prime cost 9,20,000
(60% of direct wages)
Less: Closing work-in-process 36,200
(20% of factory cost)
Cost of production of 14,165 units (Refer to working note 1) 14,08,560
Cost of production per unit:
₹14,08,560 99.44
14,165

Costing Practice Sheet - Chapter 8 - Unit, Job & Batch Costing

A jobbing factory has undertaken to supply 300 pieces of a component per month for the ensuing six months.
Every month a batch order is opened against which materials and labour hours are booked at actual.
Overheads are levied at a rate per labour hour. The selling price contracted for is ₹ 8 per piece. From the
following data CALCULATE the cost and profit per piece of each batch order and overall position of the order
for 1,800 pieces.
Month Batch Output Material cost Direct wages Direct labour
(₹) (₹) hours
January 310 1150 120 240
February 300 1140 140 280
March 320 1180 150 280
April 280 1130 140 270
May 300 1200 150 300
June 320 1220 160 320
The other details are:
Month Chargeable expenses Direct labour
(₹) (Hours)
January 12,000 4,800
February 10,560 4,400
March 12,000 5,000
April 10,580 4,600
May 13,000 5,000
June 12,000 4,800
Solution 1 :
Statement of Cost and Profit per batch
Particulars Jan. Feb. March April May June Total
Batch output (in units) 310 300 320 280 300 320 1,830
Sale value (₹) 2,480 2,400 2,560 2,240 2,400 2,560 14,640
Material cost (₹) 1,150 1,140 1,180 1,130 1,200 1,220 7,020
Direct wages (₹) 120 140 150 140 150 160 860
Chargeable expenses* (₹) 600 672 672 621 780 800 4,145
Total cost (₹) 1,870 1,952 2,002 1,891 2,130 2,180 12,025
Profit per batch (₹) 610 448 558 349 270 380 2,615
Total cost per unit (₹) 6.03 6.51 6.26 6.75 7.10 6.81 6.57
Profit per unit (₹) 1.97 1.49 1.74 1.25 0.90 1.19 1.43
Overall position of the order for 1,800 units
Sales value of 1,800 units @ ₹ 8 per unit ₹ 14,400
Total cost of 1,800 units @ ₹ 6.57 per unit ₹ 11,826
Profit ₹ 2,574
𝐶ℎ𝑎𝑟𝑔𝑒𝑎𝑏𝑙𝑒 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
* 𝐷𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑚𝑜𝑛𝑡ℎ ×Direct labour hours for batch
Question 2 : (MTP sept 2023)

AT Ltd. manufactures machine parts used in industrial plants. As per market research it is expected that the
annual demand for the parts will be 9,20,000 units. It is estimated that it costs ₹1.50 as inventory holding cost
per unit per month and that the set-up cost per run is ₹ 3,500.
(i) DETERMINE the optimum run size for parts manufacturing?
(ii) Assuming that the company has a policy of manufacturing 40,000 parts per run, CALCULATE how much
extra costs the company would be incurring as compared to the optimum run suggested in (i) above?
Solution 2 :
2×𝐷×𝑆
(i) Optimum run size or Economic Batch Quantity (EBQ) = 𝐶
Where, D = Annual demand = 9,20,000 units
S = Set-up cost per run = ₹ 3,500
C = Inventory holding cost per unit per annum
= ₹ 1.5 × 12 months = ₹ 18

2×9,20,000 𝑢𝑛𝑖𝑡𝑠×₹3,500
EBQ = ₹18
= 18,915 units
(ii) Calculation of Total Cost of set-up and inventory holding
Batch size No. of set- ups Set-up Cost Inventory holding Total Cost
(₹) cost (₹) (₹)
23 80,500 3,60,000 4,40,500
A 40,000 units (9,20,000
40,000 )
(23 × ₹ 3,500) (
40,000×₹18
2 )
B 18,915 units 49 1,71,500 1,70,235 3,41,735
( 9,20,000
18,915 ) (49 × ₹ 3,500) ( 18,915×₹18
2 )
Extra Cost (A – B) 98,765

In an engineering company, the factory overheads are recovered on a fixed percentage basis on direct wages
and the administrative overheads are absorbed on a fixed percentage basis on factory cost.
The company has furnished the following data relating to two jobs undertaken by it in a period:
Job 101 Job 102
(₹) (₹)
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Selling price 1,66,650 1,28,250
Profit percentage on Total Cost 10% 20%
Required:
(i) Computation of percentage recovery rates of factory overheads and administrative overheads.
(ii)Calculation of the amount of factory overheads, administrative overheads and profit for each of the two
jobs.
(iii)Using the above recovery rates determine the selling price of job 103. The additional data being:
Direct materials ₹ 24,000
Direct wages ₹ 20,000
Profit percentage on selling price 12-½%
Solution 3 :
(i) Computation of percentage recovery rates of factory overheads and administrative overheads.
Let the factory overhead recovery rate as percentage of direct wages be F and administrative overheads
recovery rate as percentage of factory cost be A.
Factory Cost of Jobs:
Direct materials + Direct wages + Factory overhead
For Job 101 = ₹ 54,000 +₹ 42,000 + ₹ 42,000F
For Job 102 = ₹ 37,500 +₹ 30,000 + ₹ 30,000F
Total Cost of Jobs:
Factory cost + Administrative overhead
For Job 101 = (₹ 96,000 + ₹ 42,000F) + (₹ 96,000+ ₹ 42,000F) A = ₹ 1,51,500*
For Job-102 = (₹ 67,500 + ₹ 30,000F) + (₹ 67,500+ ₹ 30,000F) A = ₹ 1,06,875**
The value of F & A can be found using following equations
96,000 + 42,000F + 96,000A + 42,000AF = 1,51,500 …………eqn (i)
67,500 + 30,000F + 67,500A + 30,000AF = 1,06,875 …………eqn (ii)
Multiply equation (i) by 5 and equation (ii) by 7
4,80,000 + 2,10,000F + 4,80,000A + 2,10,000AF = 7,57,500 ……eqn (iii)
4,72,500 + 2,10,000F + 4,72,500A + 2,10,000AF = 7,48,125 ……eqn (iv)
- - - - -
7,500 + 7,500A = 9,325
7,500 A = 9,325 – 7,500
A = 0.25
Now put the value of A in equation (i) to find the value of F
96,000 + 42,000F + 24,000 + 10,500F = 1,51,500
52,500F = 1,51,500 – 1,20,000
F = 0.6

On solving the above relations: F = 0.60 and A = 0.25

Hence, percentage recovery rates of:
Factory overheads = 60% of wages and
Administrative overheads = 25% of factory cost.
Working note:
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
Total Cost = (100% + 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑝𝑟𝑜𝑓𝑖𝑡)
₹1,66,650
*For Job 101= (100% + 10%) = ₹1,51,500
₹1,28,250
**For Job 102= (100% + 20%) = ₹1,06,875
(ii) Statement of jobs, showing amount of factory overheads, administrative overheads and profit:
Job 101 Job 102
(₹) (₹)
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Prime cost 96,000 67,500
Factory overheads
60% of direct wages 25,200 18,000
Factory cost 1,21,200 85,500
Administrative overheads
25% of factory cost 30,300 21,375
Total cost 1,51,500 1,06,875
Profit (10% & 20% respectively) 15,150 21,375
Selling price 1,66,650 1,28,250
(iii) Selling price of Job 103

(₹)
Direct materials 24,000
Direct wages 20,000
Prime cost 44,000
Factory overheads (60% of Direct Wages) 12,000
Factory cost 56,000
Administrative overheads (25% of factory cost) 14,000
Total cost 70,000
Profit margin (balancing figure) 10,000
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
Selling price 87.5% 80,000

Arnav Ltd. operates in beverages industry where it manufactures soft- drink in three sizes of Large (3 litres),
Medium (1.5 litres) and Small (600 ml) bottles. The products are processed in batches. The 5,000 litres
capacity processing plant consumes electricity of 90 Kilowatts per hour and a batch takes 1 hour 45 minutes
to complete. Only symmetric size of products can be processed at a time. The machine set-up takes 15
minutes to get ready for next batch processing. During the set-up power consumption is only 20%.
(i) The current price of Large, Medium and Small are ₹ 150, ₹ 90 and ₹ 50 respectively.
(ii) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-C are required which
costs ₹ 0.50 and ₹ 1,000 per litre respectively.
(iii) 20 direct workers are required. The workers are paid ₹ 880 for an 8 hours shift of work.
(iv) The average packing cost per bottle is ₹ 3
(v) Power cost is ₹ 7 per Kilowatt -hour (Kwh)
(vi) Other variable cost is ₹ 30,000 per batch.
(vii) Fixed cost (Administration and marketing) is ₹ 4,90,00,000.
(viii) The holding cost is ₹ 1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of the product:
Large Medium Small
3,00,000 7,50,000 20,00,000
You are required to CALCULATE profit/ loss per batch and also COMPUTE Economic Batch Quantity (EBQ).

Solution 4 :
Workings:
5,000 𝑙𝑡𝑟𝑠
1. Maximum number of bottles that can be processed in a batch: 𝐵𝑜𝑡𝑡𝑙𝑒 𝑣𝑜𝑙𝑢𝑚𝑒
Large Medium Small

Qty (ltr) Max bottles Qty (ltr) Max bottles Qty (ltr) Max bottles
3 1,666 1.5 3,333 0.6 8,333
*For simplicity of calculation small fractions has been ignored.
2. Number of batches to be run:

Large Medium Small Total
A Demand 3,00,000 7,50,000 20,00,000
B Bottles per batch (Refer WN-1) 1,666 3,333 8,333
C No. of batches [A÷B] 180 225 240 645
*For simplicity of calculation small fractions has been ignored.
Quantity of Material-W and Material C required to meet demand:

Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000
B Qty per bottle (Litre) 3 1.5 0.6

C Output (Litre) [A×B] 9,00,000 11,25,000 12,00,000 32,25,000
D Material-W per litre of 14 14 14
output (Litre)
E Material-W required 1,26,00,000 1,57,50,000 1,68,00,000 4,51,50,000
(Litre) [C×D]
F Material-C required per 25 25 25
litre of output (ml)
G Material-C required 22,500 28,125 30,000 80,625
(Litre) [(C×F)÷1000]
3. No. of Man-shift required:

A No. of batches 180 225 240 645
B Hours required per batch 2 2 2
(Hours)
C Total hours required (Hours) [A×B] 360 450 480 1,290
D No. of shifts required [C÷8] 45 57 60 162
E Total manshift [D×20 workers] 900 1,140 1,200 3,240
4. Power consumption in Kwh

For processing
A No. of batches 180 225 240 645
B Hours required per batch (Hours) 1.75 1.75 1.75 1.75
C Total hours required (Hours) [A×B] 315 393.75 420 1,128.75
D Power consumption per hour 90 90 90 90
E Power consumption in Kwh [C×D] 28,350 35,437.5 37,800 1,01,587.5
F Per batch consumption (Kwh) 157.5 157.5 157.5 157.5
[E÷A]
For set-up
G Hours required per batch (Hours) 0.25 0.25 0.25 0.25
H Total hours required (Hours) [A×G] 45 56.25 60 161.25
I Power consumption per hour 18 18 18 18
[20%×90]

J Power consumption in Kwh [H×I] 810 1,012.5 1,080 2,902.5

K Per batch consumption (Kwh) 4.5 4.5 4.5 4.5
[J÷A]
Calculation of Profit/ loss per batch:

Particulars Large Medium Small Total
A Demand (bottle) 3,00,000 7,50,000 20,00,000 30,50,000
B Price per bottle (₹) 150 90 50
C Sales value (₹) [A×B] 4,50,00,000 6,75,00,000 10,00,00,000 21,25,00,000
Direct Material cost:
E Material-W (₹) [Qty in 63,00,000 78,75,000 84,00,000 2,25,75,000
WN-3 × ₹ 0.50]
F Material-C 2,25,00,000 2,81,25,000 3,00,00,000 8,06,25,000
(₹) [Qty in WN-3 ×
₹1,000]
G [E+F] 2,88,00,000 3,60,00,000 3,84,00,000 10,32,00,000
H Direct Wages (₹) 7,92,000 10,03,200 10,56,000 28,51,200
[Man-shift in WN- 4 × ×
₹ 880]
I Packing cost (₹) [A×₹3] 9,00,000 22,50,000 60,00,000 91,50,000
Power cost (₹)
J For processing (₹) 1,98,450 2,48,062.5 2,64,600 7,11,112.5
[WN-5 × ₹7]
K For set-up time (₹) 5,670 7,087.5 7,560 20,317.5
[WN-5 × ₹7]
L [J+K] 2,04,120 2,55,150 2,72,160 7,31,430
M Other variable cost (₹) 54,00,000 67,50,000 72,00,000 1,93,50,000
[No. of batch in WN-2 ×
₹ 30,000]
N Total Variable cost per 3,60,96,120 4,62,58,350 5,29,28,160 13,52,82,630
batch
[G+H+I+L+M]
O Profit/ loss before 89,03,880 2,12,41,650 4,70,71,840 7,72,17,370
fixed cost [C-N]
P Fixed Cost 4,90,00,000
Q Total Cost [O-P] 2,82,17,370
2×𝐷×𝑆
Computation of Economic Batch Quantity (EBQ): 𝐶
D = Annual Demand for the Product = Refer A below

S = Set-up cost per batch = Refer D below
C = Carrying cost per unit per annum =Refer E below
Particulars Large Medium Small

A Annual Demand (bottle) 3,00,000 7,50,000 20,00,000
Set-up Cost:
B Power cost for set-up time (₹) [Consumption 31.50 31.50 31.50
per batch in WN-5 × ₹7]
C Other variable cost (₹) * 30,000 30,000 30,000
D Total Set-up cost [B+C] 30,031.50 30,031.50 30,031.50
E Holding cost: 1.00 1.00 1.00
F EBQ (Bottle) 1,34,234 2,12,243 3,46,592
* Other variable cost is assumed to be part of set-up cost.


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 2022-23.
(ii) Prepare a Job cost sheet for the order received and the price to be quoted if the desired profit is 25% on
sales.
Solution 5 :
(i) Calculation of Overhead Recovery Rate:
₹ 30,80,000
Factory Overhead Recovery Rate = ₹90,50,000 X 100 = 34% of Direct labour
₹ 20,50,400
Administrative Overhead Recovery Rate = ₹ 2,96,80,000
X 100 = 6.91% of Factory Cost
Working Note: Calculation of Factory Cost in 2022-23
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
Factory Overhead 30,80,000
(ii) Job Cost Sheet for the order received in 2023-24

Material 80,00,000
Labour 40,50,000
Factory Overhead (34% of ₹ 40,50,000) 13,77,000
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.

Alpha Ltd. has an Annual demand from a single customer for 60,000 Covid-19 vaccines. The customer prefers
to order 15,000 vaccines per order. The production cost of vaccine is ₹ 5,000 per vaccine. The set-up cost per
production run of Covid-19 vaccines is ₹ 4,800. The carrying cost is ₹ 12 per vaccine per month.
(i) FIND the most Economical Production Run.
(ii) CALCULATE the extra cost that company incurs due to production of 15,000 vaccines in a batch.
Solution 6 :
(i) Calculation of most Economical Production Run

2×60,000×₹4,800
= 12×12
= 2,000 Vaccine
(ii) Calculation of Extra Cost due to processing of 15,000 vaccines in a batch

When run size is 2,000 vaccines When run size is 15,000 vaccines
Total set up cost =
60,000
× ₹4, 800 = ₹1,44,000 =
60,000
× ₹4, 800 = ₹19,200
2,000 15,000
Total carrying cost ½ × 2, 000 × ₹144 = ₹1,44,000 ½ × 15, 000 × ₹144= ₹10,80,000
Total cost ₹2,88,000 ₹10,99,200
Thus, extra cost = ₹ 10,99,200 – ₹ 2,88,000 = ₹ 8,11,200

Costing Practice Sheet - Chapter 9 - Process Costing

A product passes through two processes; Process A and Process B.
The output of Process A is treated as input of Process B.
The following information has been furnished:
Process A Process B
Input Material ₹ 3,90,000 -
78,000 Kg.@ ₹ 5
Indirect Material - ₹34,320
Wages ₹ 2,85,000 ₹ 3,30,000
Overhead ₹ 1,67,400 ₹ 1,11,600
Output transferred to Process B 68,640 kgs
Transfer to Finished Stock - 69,000 kgs
Normal loss of input material (weight in kgs.) 7,800 kgs 240 kgs
There is no realisable value for normal loss. No stock of raw materials on work-in-process was left at the end.
You are required to prepare the Process account for each Process.
Solution 1 :
Process A Account
Particulars Units ₹Particulars Units ₹
To Material 78,000 3,90,000By Normal Loss 7,800 -
To Wages 2,85,000By Abnormal Loss 1,560 18,720
To Overheads 1,67,400By Process B A/c 68,640 8,23,680
Total 78,000 8,42,400Total 78,000 8,42,400
8,42,400
Cost per unit of completed units and abnormal loss = 78,000 𝑢𝑛𝑖𝑡𝑠−7,800 𝑢𝑛𝑖𝑡𝑠 = ₹ 12 unit
Process B Account
Particulars Units ₹Particulars Units ₹
To Process A A/c 68,640 8,23,680By Normal loss 240 -
To Indirect Material 34,320By Finished stock 69,000 13,11,000
To Wages 3,30,000
To Overheads 1,11,600
To Abnormal gain 600 11,400
Total 69,240 13,11,000 Total 69,240 13,11,000
Cost per unit of completed units and abnormal gains:
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 ₹12,99,600
𝐼𝑛𝑝𝑢𝑡𝑠−𝑁𝑜𝑟𝑚𝑎𝑙 𝑙𝑜𝑠𝑠
= 68,640 𝑢𝑛𝑖𝑡𝑠−240 𝑢𝑛𝑖𝑡𝑠 = ₹19

The following data are available in respect of Process-I for June 2024:
(1) Opening stock of work in process: 600 units at a total cost of ₹ 4,20,000.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of ₹ 55,20,000 for 9,200 units.
(4) Direct wages incurred ₹ 18,60,000
(5) Production overhead ₹ 8,63,000.
(6) Units scrapped 200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 700 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 8,900 units were completed and transferred to the next process.
(9) Normal loss is 4% of the total input (opening stock plus units put in)
(10) Scrap value is ₹ 60 per unit.

(i) COMPUTE equivalent production,

(ii) CALCULATE the cost per equivalent unit for each element.
(iii)CALCULATE the cost of abnormal loss (or gain), closing work in process and the units transferred to the
next process using the FIFO method.
Solution 2 :
(i) Statement of Equivalent Production (FIFO Method)
Input Output Equivalent Production
Materials Labour Production
Overhead
Details Units Details Units % Units % Units % Units
Opening Stock 600From opening stock 600 - - 40 240 40 240
- From fresh materials 8,300 100 8,300 100 8,300 100 8,300
Closing W-I-P 700 100 700 70 490 70 490

Fresh inputs 9,200 Normal loss 392 - - - - - -
9,992 9,000 9,030 9,030
Less: Abnormal Gain (192) 100 (192) 100 (192) 100 (192)
9,800 9,800 8,808 8,838 8,838
(ii) Statement of Cost per equivalent units

Elements Cost Equivalent Cost per
(₹) (₹) units (EU) EU (₹)
Material Cost 55,20,000
Less: Scrap realisation 392 units @ ₹ (23,520) 54,96,480 8,808 624.03
60/- p.u.
Labour cost 18,60,000 8,838 210.45
Production OH Cost 8,63,000 8,838 97.65
Total Cost 82,19,480 932.13
(iii) Cost of Abnormal Gain – 192 Units

(₹) (₹)
Material cost of 192 units @ ₹ 624.03 p.u. 1,19,813.76
Labour cost of 192 units @ ₹ 210.45 p.u. 40,406.40
Production OH cost of 192 units @ ₹ 97.65 p.u. 18,748.80 1,78,968.96
Cost of closing WIP – 700 Units
Material cost of 700 equivalent units @ ₹ 624.03 p.u. 4,36,821.00
Labour cost of 490 equivalent units @ ₹ 210.45 p.u. 1,03,120.50
Production OH cost of 490 equivalent @ ₹ 97.65 p.u. 47,848.50 5,87,790.00

Cost of 8,900 units transferred to next process ₹
(i) Cost of opening W-I-P Stock b/f – 600 units 4,20,000.00
(ii) Cost incurred on opening W-I-P stock
Material cost —
Labour cost 240 equivalent units @ ₹ 210.45 p.u. 50,508.00
Production OH cost 240 equivalent units @ ₹ 97.65 p.u.
23,436.00
4,93,944.00
(iii) Cost of 8,300 completed units
8,300 units @ ₹ 932.13 p.u. 77,36,679.00
Total cost [(i) + (ii) + (iii))] 86,50,623.00


Meta Company Ltd. is engaged in the production of product ‘Trio’ which passes through two different
processes - Process P and Process Q. Other information obtained from books of account for the year is as
follows:
Particulars Process P Process Q
Raw material used 10,000 –
Raw material cost per unit ₹80 –
Direct wages ₹52,000 ₹78,000
Direct Expenses ₹8,600 ₹11,100
Selling price per unit of output ₹130 ₹190
Production overheads of ₹3,00,000 are recovered as percentage of direct wages.
Actual output of the two processes was:
P - 9,200 units and Q - 6,400 units. 3/4th of the output of Process P was passed on to the Process Q and the
balance was sold. The entire output of Process Q was sold.
Management & Selling expenses during the year were ₹1,70,000. These are not allocable to the processes.
The normal loss of the two processes, calculated on the input of every process was:
Process P - 6% and Process Q - 10%.
The Loss of Process P was sold at ₹5 per unit and that of Q at ₹8 per unit. Assume that Process P and Process
Q are not the responsibility centres.
You are required to prepare:
(i) Process P Account
(ii) Process Q Account
(iii)Abnormal Loss and Abnormal Gain Account
(iv) Costing Profit & Loss Account.

A Ltd. mixes powdered ingredients in two different processes to produce one product. The output
of Process- I becomes the input of Process-II and the output of Process-II is transferred to the Packing
department. From the information given below, you are required to PREPARE accounts for Process-I, Process-
II and Abnormal loss/ gain A/c to record the transactions for the month of August 2023.
Process-I
Input:
Material A 6,000 kilograms at ₹ 50 per kilogram
Material B 4,000 kilograms at ₹ 100 per kilogram
Labour 430 hours at ₹ 50 per hour
Normal loss 5% of inputs. Scrap is disposed off at ₹16 per kilogram
Output 9,200 kilograms.
There is no work-in-process at the beginning or end of the month.
Process-II
Input:
Material C 6,600 kilograms at ₹ 125 per kilogram
Material D 4,200 kilograms at ₹ 75 per kilogram
Flavouring Essence ₹ 3,300
Labour 370 hours at ₹50 per hour
Normal loss 5% of inputs with no disposal value
Output 18,000 kilograms.
There is no work-in-process at the beginning of the month but 1,000 kilograms in process at the end of the
month and estimated to be only 50% complete so far as labour and overhead were concerned.
Overhead of ₹ 92,000 incurred to be absorbed on the basis of labour hours.
Solution 4 :
Process-I A/c
Particulars Qty. (kgs) Amount ) Particulars Qty. (kgs) Amount (₹)
To Material A 6,000 3,00,000 By Normal loss 500 8,000
To Material B 4,000 4,00,000 By Process-II A/c 9,200 7,38,857
To Labour -- 21,500 By Abnormal loss A/c 300 24,093
To Overhead -- 49,450

( ₹92,000×430ℎ𝑟𝑠
800 ℎ𝑟𝑠 )
10,000 7,70,950 10,000 7,70,950
{(₹3,00,000+₹4,00,000+₹21,500+₹49,450)−₹8,000} ₹7,70,950−₹8,000
* (10,000−500)𝑢𝑛𝑖𝑡𝑠
= 9,500 𝑢𝑛𝑖𝑡𝑠
= ₹80.3105
Process-II A/c
Particulars Qty.(kgs) Amount (₹) Particulars Qty. (kgs) Amount (₹)
To Process-I A/c 9,200 7,38,857 By Normal loss 1,000 --
To Material C 6,600 8,25,000 By Packing Dept. A/c 18,000 18,42,496
(See the working notes)
To Material D 4,200 3,15,000 By WIP A/c 1,000 1,00,711
(See the working notes)
To Flavouring essence -- 3,300
To Labour -- 18,500
To Overheads -- 42,550
( ₹92,000×370 ℎ𝑟𝑠
800 ℎ𝑟𝑠 )
20,000 19,43,207 20,000 19,43,207
Abnormal loss A/c

Particulars Qty.(kgs) Amount (₹) Particulars Qty. (kgs) Amount (₹)
To Process-I A/c 300 24,093 By Bank 300 4,800
By Costing Profit & Loss -- 19,293
A/c
300 24,093 300 24,093
Working Notes:
Calculation of Equivalent Production units
Input Units Output Units Process-I Mat-C & D Labour & OH
(%) Units (%) Units (%) Units
9,200Transferred to 18,000 100 18,000 100 18,000 100 18,000
Packing.
Mat-C 6,600Closing WIP 1,000 100 1,000 100 1,000 50 500
Mat-D 4,200Normal loss 1,000 -- -- -- -- -- --
20,000 20,000 19,000 19,000 18,500
Calculation of Unit cost

Cost component Amount (₹) Equivalent units Cost per unit (₹)
Transferred-in 7,38,857 19,000 38.8872
Material-C 8,25,000 19,000 43.4211
Material-D 3,15,000 19,000 16.5789
Flavouring essence 3,300 19,000 0.1737
Total Material Cost 18,82,157 19,000 99.0609
Labour 18,500 18,500 1.0000
Overheads 42,550 18,500 2.3000
Total Cost 19,43,207 102.3609
Value of Materials transferred to Packing Department
= 18,000 unit × ₹102.3609 = 18,42,496
Value of WIP: For Materials- 1,000 units × ₹99.0609 = ₹99,061
For Labour & Overheads 500 units × ₹3.30 = ₹1,650
₹1,00,711

G K Ltd. produces a product "XYZ" which passes through two processes, viz. Process -A and Process-B. The
details for the year ending 31st March, 2023 are as follows:
Process- A Process - B
40,000 units of input introduced at a cost of ₹ 3,60,000 -

Material consumed ₹ 2,42,000 2,25,000

Direct wages ₹ 2,58,000 1,90,000
Manufacturing expenses ₹ 1,96,000 1,23,720
Output in units 37,000 27,000
Normal wastage of inputs 5% 10%
Scrap value (per unit) ₹ 15 20
Selling price (per unit) ₹ 37 61
Additional Information:
(a) 80% of the output of Process-A, was passed on to the next process and the balance was sold. The entire
output of Process- B was sold.
(b) Indirect expenses for the year were ₹ 4,48,080.
(c) It is assumed that Process-A and Process-B are not responsibility centre.
Required:
(i) Prepare Process-A and Process-B Account.
(ii) Prepare Costing Profit & Loss Account showing the net profit I net loss for the year.
Solution 5 :
(i) Process- A Account
Particulars Units Amount (₹) Particulars Units Amount (₹)
To Inputs 40,000 3,60,000 By Normal wastage 2,000 30,000
(2,000 units × ₹15)
To Material --- 2,42,000 By Abnormal loss 1,000 27,000
A/c
(1,000 units × ₹27)
To Direct wages --- 2,58,000 By Process- B 29,600 7,99,200
(29,600 units × ₹27)
To Manufacturing Exp. --- 1,96,000 By Profit & Loss A/c 7,400 1,99,800
(7,400 units × ₹27)
40,000 10,56,000 40,000 10,56,000
₹10,56,000−₹30,000
Cost per unit = 40,000 𝑢𝑛𝑖𝑡𝑠−2,000 𝑢𝑛𝑖𝑡𝑠
=₹27 per unit
Normal wastage = 40,000 units × 5% = 2,000 units
Abnormal loss = 40,000 units – (37,000 units + 2,000 units) = 1,000 units
Transfer to Process- B = 37,000 units × 80% = 29,600 units
Sale = 37,000 units × 20% = 7,400 units
Process- B Account
Particulars Units Amount (₹)Particulars Units Amount (₹)
To Process- A A/c 29,600 7,99,200By Normal wastage 2,960 59,200
(2,960 units × ₹ 20)
To Material --- 2,25,000By Profit & Loss A/c 27,000 12,96,000
To Direct Wages --- 1,90,000 (27,000 units × ₹ 48)
To Manufacturing Exp. --- 1,23,720
To Abnormal Gain A/c 360 17,280
(360 units × ₹ 48)
29,960 13,55,200 29,960 13,55,200
₹13,37,920−₹59,200
Cost per unit = 29,600 𝑢𝑛𝑖𝑡𝑠−2,960𝑢𝑛𝑖𝑡𝑠 = ₹ 48 per unit
Normal wastage = 29,600 units × 10% = 2,960 units
Abnormal gain = (27,000 units + 2,960 units) – 29,600 units = 360 units
(ii) Costing Profit & Loss Account

Particulars Amount (₹)Particulars Amount (₹)
To Process- A A/c 1,99,800By Sales:
To Process- B A/c 12,96,000- Process-A 2,73,800
(7,400 units × ₹ 37)
To Abnormal loss A/c 12,000- Process- B 16,47,000
(27,000 units × ₹ 61)
To Indirect Expenses 4,48,080By Abnormal gain 10,080
By Net loss 25,000

19,55,880 19,55,880
Working Notes:
Normal wastage (Loss) Account
Particulars Units Amount Particulars Units Amount (₹)
(₹)
To Process- A A/c 2,000 30,000By Abnormal Gain 360 7,200
A/c
(360 units × ₹ 20)
To Process- B A/c 2,960 59,200By Bank (Sales) 4,600 82,000
4,960 89,200 4,960 89,200
Abnormal Loss Account

Particulars UnitsAmount Particulars Units Amount (₹)
(₹)
To Process- A A/c 1,000 27,000By Bank A/c 1,000 15,000
(1,000 units × ₹ 15)
By Profit & Loss A/c --- 12,000
1,000 27,000 1,000 27,000
Abnormal Gain Account
Particulars Units Amount (₹)Particulars Units Amount (₹)
To Normal loss A/c 360 7,200By Process- B A/c 360 17,280
(360 units × ₹ 20)
To Profit & Loss A/c 10,080
360 17,280 360 17,280

The product of a manufacturing concern passes through two processes A and B and then to finished stock.
The details of expenses incurred on the two processes during the year were as under:
Process A (₹) Process B (₹)
Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000
On completion, the output of Process A is transferred to Process B at a price calculated to give a profit of 20%
on the transfer price and the output of Process B is charged to finished stock at a profit of 25% on the transfer
price. The finished stock department realized ₹ 4,00,000 for the finished goods received from Process B.
You are asked to SHOW process accounts and total profit, assuming that there was no opening or closing
work-in-progress.
Solution 6 :
Process A Account
Dr Cr.
₹ ₹
To Materials 40,000 By Transfer to Process B A/c 1,20,000
To Labour 40,000
To Overheads 16,000
96,000
To Profit (20% of transfer price, i.e.,
25% of cost) 24,000
1,20,000 1,20,000
Process B Account
Dr Cr.
₹ ₹
To Transferred from Process A A/c 1,20,000 By Transfer to Finished Stock A/c 2,88,000
To Labour 56,000
To Overhead 40,000
2,16,000

To Profit (25% of transfer price i.e., 72,000

33.33% of cost)
2,88,000 2,88,000
Statement of Total Profit

₹
Profit from Process A 24,000
Profit from Process B 72,000
Profit on Sales (₹ 4,00,000 – ₹ 2,88,000) 1,12,000
Total Profit 2,08,000

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
(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
Solution 7 :
(i) Statement of Equivalent Production
Equivalent Production
Labour &
Material- A* Consumables
Output Particulars Overheads
Input Details Units Units
Units
Units transferred to
transferred 55,000 51,000 100 51,000 100 51,000 100 51,000
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 Materia
(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
1,57,200 52,400 3.00
Process-II
(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
51,000 12.00 6,12,000
Process-III

The following data are available in respect of Process-I for January 2024:
(1) Opening stock of work in process: 600 units at a total cost of ₹ 4,200.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of ₹ 55,200 for 9,200 units.
(4) Direct wages incurred ₹ 18,600
(5) Overheads ₹ 8,630.
(6) Units scrapped 200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 700 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 8,900 units were completed and transferred to the next process.
(9) Normal loss is 4% of the total input (opening stock plus units put in)
(10) Scrap value is ₹ 6 per unit. You are required to:
(i) PREPARE using FIFO method, Statement of equivalent production,
(ii) PREPARE Statement of cost,
(iii) CALCULATE cost of closing WIP,
(iv) CALCULATE the cost of the units to be transferred to the next process.
Solution 8 :
(i) Statement of Equivalent Production (FIFO Method)
Input Output Equivalent Production

Materials Labour Overheads
Details Units Details Units % Units % Units % Units
Opening 600 Finished goods
Stock transferred
to next process:
-From 600 - 100 - 8,300 40 240 40 240
opening stock
-From fresh 8,300 100 700 100 8,300 100 8,300
materials - -

9,200 Closing W-I-P 700 70 490 70 490

Fresh inputs Normal loss 392 - - - -
Less: 9,992 9,000 9,030 9,030
Abnormal Gain (192) 100 (192) 100 (192) 100 (192)
9,800 9,800 8,808 8,838 8,838
(ii) Statement of Cost per equivalent units

Elements (₹) Cost Equivalent Cost per equivalent
(₹) units Unit (₹)
Material Cost 55,200
Less: Scrap realisation 392 units @ ₹ 6/- p.u. 2,352 52,848 8,808 6.00
Labour cost 18,600 8,838 2.10
Overheads 8,630 8,838 0.98
Total Cost 80,078 9.08
Cost of Abnormal Gain – 192 Units

(₹) (₹)
Material cost of 192 units @ ₹ 6.00/- p.u. 1,152.00
Labour cost of 192 units @ ₹ 2.10/- p.u. 403.20
Overheads of 192 units @ ₹ 0.98/- p.u. 188.16 1,743.36
(iii) Cost of closing WIP – 700 Units

Material cost of 700 equivalent units @ ₹ 6.00/- p.u. 4,200.00
Labour cost of 490 equivalent units @ ₹2.10/- p.u. 1,029.00
Overheads of 490 equivalent @ ₹ 0.98/- p.u. 480.20 5709.20
(iv) Calculation of cost of 8,900 units transferred to next process

(₹)
(i) Cost of opening W-I-P Stock b/f – 600 units 4,200.00
(ii) Cost incurred on opening W-I-P stock
Material cost —
Labour cost 240 equivalent units @ ₹ 2.10 p.u. 504.00
Overheads 240 equivalent units @ ₹ 0.98/- p.u. 235.20
739.20
(iii) Cost of 8,300 completed units
8,300 units @ ₹9.08 p.u. 75,364.00
Total cost [(i) + (ii) + (iii))] 80,303.20

PQR Company Ltd. provides the following information relating to Process-P:
(i) Opening Work-in-progress - NIL
(ii) Units Introduced - 45,000 units @ ₹ 10 per unit
(iii) Expenses debited to the process:
Direct material ₹ 65,500
Labour ₹ 90,800
Overhead ₹ 1,80,700
(iv) Normal loss in the process - 2% of Input
(v) Work-in progress - 1800 units Degree of completion
Materials - 100%
Labour - 50%
Overhead - 40%
(vi) Finished output - 42,000 units
(vii) Degree of completion of abnormal loss:
Materials - 100%
Labour - 80%
Overhead - 60%
(viii) Units scrapped as normal loss were sold at ₹ 5 per unit.
(ix) All the units of abnormal loss were sold at ₹ 2 per unit.

You are required to PREPARE:

● Statement of equivalent production.
● Statement showing the cost of finished goods, abnormal loss and closing balance of
work-in-progress.
● Process-P account and abnormal loss account.
Solution 9.
(a) Statement of Equivalent Production
Input Units Output ParticularsUnits Equivalent Production
Details Material Labour Overhead
Unit 45,000 Finished output 42,000 100 42,000 100 42,000 100 42,000
Introduced Normal 900 - - - - - -
loss
(2% of
45,000)
Abnormal loss 300 100 300 80 240 60 180
Closing W-I-P 1,800 100 1,800 50 900 40 720
45,000 45,000 44,100 43,140 42,900
Statement of Cost
Particulars Units Rate Amount Amount
(₹) (₹) (₹)
(i) Finished goods 42,000 17.9042 7,51,976.40
(ii) Abnormal Loss
Material 300 11.5873 3,476.19
Labour 240 2.1048 505.15
Overhead 180 4.2121 758.18 4,739.52
(iii) Closing W-I-P:
Material 1,800 11.5873 20,857.14
Labour 900 2.1048 1,894.32
Overhead 720 4.2121 3,032.71 25,784.17
Cost per Unit
Particulars Amount (₹) Units Per Unit (₹)
(i) Direct Material :
Unit Introduced 4,50,000
Add: Material 65,500
5,15,500
Less: Value of normal loss (900 units × ₹ (4,500)
5)
5,11,000 44,100 11.5873
(ii) Labour 90,800 43,140 2.1048
(iii) Overhead 1,80,700 42,900 4.2121
17.9042
Process – P A/c
Particulars Units Amount Particulars Units
Amount
(₹) (₹)
To Input 45,000 4,50,000 By Normal loss 900 4,500
To Direct Material - 65,500 By Abnormal loss 300 4,740
To Labour - 90,800 By Finished goods 42,000 7,51,976
To Overhead 1,80,700 By Closing W-I-P 1,800 25,784
45,000 7,87,000 45,000 7,87,000
Abnormal Loss A/c

Particulars Units Amount Particulars Units Amount
(₹) (₹)

To Process-B A/c 300 4,740 By Cost ledger control 300 600

A/c or Bank A/c
By Costing Profit & loss - 4,140
A/c
300 4,740 300 4,740

As demand for LED light increases, more entrepreneurs are coming into its manufacturing process. eLED Pvt.
Ltd. is also one of the recently formed companies whose main business is related to LED lights.
The company has extended its hand into various LED products like COB (Chip On Board) LEDs, SMD (Surface
Mounted Device) LEDs, RGB LEDs, Flashing LEDs, Miniature LEDs, OLEDs, Filament Bulbs, etc.
However, at the beginning stage, the company has decided to only assemble the products and enter into the
manufacturing stage at later years.
The details relating to the first process of mounting for the month of August are given below:
Opening Work-in-Process: 31,000 units
Material ₹ 12,40,000
Labour ₹ 2,32,500
Overheads ₹ 6,97,500
Introduction during the process: 5,89,000 units
Material ₹ 2,29,40,000
Labour ₹ 55,64,500
Overheads ₹ 1,66,93,500
The process involve some wastage as well. The management estimated a normal loss of 5% of total input
including opening work-in-process which can be sold out for ₹ 20 per unit. However, the workers reported
46,500 units as scrapped in which 100% material was used along with 80% of Labour and overheads.
5,42,500 units were transferred for next process of soldering.
Some units were still in process and thus, shifted for the next month process of mounting. With 100% material
used along with 80% labour and overheads, 31,000 units were shifted.
Following the average method of inventory, you are required to PREPARE:
(i) Statement of cost showing cost per equivalent unit
(ii) Statement of distribution cost
(iii) Process Account (Mounting)
(iv) Normal Loss Account and Abnormal Loss Account.
Solution 10.
Statement of Equivalent Production
Particulars Input Particulars Output Equivalent Production
Units Units Material Labour & O.H.
% Units % Units
Opening WIP 31,000Completed and 5,42,500 100 5,42,500 100 5,42,500
transferred to Process
(Soldering)
Units introduced 5,89,000Normal Loss (5% of 31,000 -- -- -- --
6,20,000)
Abnormal loss 15,500 100 15,500 80 12,400
(Balancing figure)
Closing WIP 31,000 100 31,000 80 24,800
6,20,000 6,20,000 5,89,000 5,79,700
Statement showing cost for each element

Particulars Materials Labour Overhead Total
(₹) (₹) (₹) (₹)
Cost of opening work-in- process 12,40,000 2,32,500 6,97,500 21,70,000
Cost incurred during the month 2,29,40,000 55,64,500 1,66,93,500 4,51,98,000
Less: Realisable Value of normal scrap (₹ (6,20,000) -- -- (6,20,000)
20 × 31,000 units)
Total cost: (A) 2,35,60,000 57,97,000 1,73,91,000 4,67,48,000
Equivalent units: (B) 5,89,000 5,79,700 5,79,700

Cost per equivalent unit: (C) = (A ÷ B) 40.00 10.00 30.00 80.00
(ii) Statement of Distribution of cost

Amount (₹) Amount (₹)
1. Value of units completed and transferred 4,34,00,000
(5,42,500 units × ₹ 80)
2. Value of Abnormal Loss:
- Materials (15,500 units × ₹ 40) 6,20,000
- Labour (12,400 units × ₹ 10) 1,24,000
- Overheads (12,400 units × ₹ 30) 3,72,000 11,16,000
3. Value of Closing W-I-P:
- Materials (31,000 units × ₹ 40) 12,40,000
- Labour (24,800 units × ₹ 10) 2,48,000
- Overheads (24,800 units × ₹ 30) 7,44,000 22,32,000
Total 4,67,48,000
(iii) Process Account (Mounting)

Particulars Units (₹) Particulars Units (₹)
To Opening W.I.P: By Normal Loss 31,000 6,20,000
(₹ 20 × 31,000 units)
- Materials 31,000 12,40,000 By Abnormal loss 15,500 11,16,000
- Labour -- 2,32,500 By Process A/c 5,42,500 4,34,00,000
(Soldering)
- Overheads -- 6,97,500 By Closing WIP 31,000 22,32,000
To Materials 5,89,000 2,29,40,000
introduced
To Direct Labour 55,64,500
To Overheads 1,66,93,500
6,20,000 4,73,68,000 6,20,000 4,73,68,000
(iv) Normal Loss A/c

To Process Account 31,000 6,20,000 By Cost Ledger Control 31,000 6,20,000
(Mounting) A/c
31,000 6,20,000 31,000 6,20,000
Abnormal Loss A/c

To Process Account 15,500 11,16,000 By Cost Ledger Control A/c 15,500 3,10,000
(Mounting)
By Costing Profit & Loss A/c 8,06,000
15,500 11,16,000 15,500 11,16,000

Costing Practice Sheet - Chapter 10 - Joint & By Product

XYZ Limited manufactures three joint products A, B and C from a joint process. Product B is sold at split off
point whereas product A and C are sold after further processing. 10% of the quantity of product A is lost in
further processing. Data regarding these products for the year ending 31st March,2023 are as follows:
A B C
Number of units produced and sold 3,60,000 2,10,000 4,50,000
Selling price per unit at split off point - ₹6 -
Selling price per unit after further processing ₹ 9.50 - ₹ 12
Further processing costs ₹ 8,60,000 - ₹10,40,000
The joint production cost upto the split off point at which A, B and C become separable products is ₹
57,26,000.
Required:
(i) Prepare a statement showing apportionment of joint cost to the products using Net realizable value
method.
(ii) Assume XYZ Limited has received an offer from D Limited to purchase product 'A' at the split off point at ₹
7 per unit and another company PQR Limited has offered to purchase product 'C' at split off point at 9 per unit.
Advise whether these offers should be accepted or not?
Solution 1 :
(i) Statement showing apportionment of joint cost to the products using NRV method
Particulars Product A (₹) Product B (₹) Product C (₹)
Sales value 34,20,000 12,60,000 54,00,000
(3,60,000 x ₹ 9.5) (2,10,000 x ₹ 6) (4,50,000 x ₹ 12)
Less: Further processing cost 8,60,000 - 10,40,000
Net Realisable Value 25,60,000 12,60,000 43,60,000
Apportionment of Joint cost of ₹ 17,92,000 8,82,000 30,52,000
57,26,000 in the ratio of 256:126:436
(ii) Decision whether to Process further or not

Particulars Product A (₹) Product C (₹)
Incremental Revenue 9,00,000 13,50,000
(₹ 9.5-₹ 7) x 3,60,000 (₹ 12- ₹ 9) x 4,50,000
Less: Further processing cost 8,60,000 10,40,000
Less: wastage if further processed 2,80,000 -
₹ 7 x (3,60,000*10%/90%)
Incremental profit/(loss) (2,40,000) 3,10,000
On comparing incremental sales revenue with further processing cost, there is net loss of ₹ 2,40,000 in case of
product A and profit of ₹ 3,10,000 in case of product C. Hence offer of D Ltd should be accepted and Product
A should be sold at split off point Whereas product C should be sold after further processing.

Profit from further processing
Particulars Product A (₹) Product C (₹)
Sales Revenue 34,20,000 54,00,000
(3,60,000 x 9.5) (4,50,000 x 12)
Less: Joint cost 17,92,000 30,52,000
Less: Further processing cost 8,60,0000 10,40,000
(i) Profit/(loss) 7,68,000 13,08,000
Profit from Accepting offer (Sale at separation point)

Particulars Product A (₹) D Product C (₹) PQR
Limited offer Limited offer
accepted accepted
Sales Revenue 28,00,000 40,50,000
(3,60,000/0.90) x 7 (4,50,000 x 9)
Less: Joint cost 17,92,000 30,52,000
(ii) Profit/(loss) 10,08,000 9,98,000

Incremental profit (loss) (i)-(ii) (2,40,000) 3,10,000

On comparing profit at separation point with further processing profit, there is net loss of ₹ 2,40,000 in case of
product A and profit of ₹ 3,10,000 in case of product C. Hence offer of D Ltd should be accepted and Product
A should be sold at split off point Whereas product C should be sold after further processing.

Three products X, Y and Z alongwith a byproduct B are obtained again in a crude state which require further
processing at a cost of ₹ 5 for X; ₹ 4 for Y; and ₹ 2.50 for Z per unit before sale. The byproduct is however
saleable as such to a nearby factory. The selling prices for the three main products and byproduct, assuming
they should yield a net margin of 25 percent of cost, are fixed at ₹ 13.75 ₹ 8.75 and ₹ 7.50 and ₹ 1.00
respectively – all per unit quantity sold.
During a period, the joint input cost including the material cost was ₹ 90,800 and the respective outputs were:
X 8,000 units
Y 6,000 units
Z 4,000 units
B 1,000 units
By product should be credited to the joint cost and only the net joint costs are to be allocated to the main
products.
CALCULATE the joint cost per unit of each product and the margin available as a percentage on cost.
Solution 2 :
Working Notes:
(i) Computation of Allocation Ratio for Joint Costs
Products
X Y Z.
₹ ₹ ₹
Selling Price 13.75 8.75 7.50
Less: anticipated margin@ 25% on cost of 20% on 2.75 1.75 1.50
sales
Cost of sales 11.00 7.00 6.00
Less: post split off cost 5.00 4.00 2.50
Joint cost per unit 6.00 3.00 3.50
Output (units) 8,000 6,000 4,000
Total output cost 48,000 18,000 14,000
Allocation ratio for joint costs 24 9 7
(ii) Computation of net allocable joint costs

₹ ₹
Joint input cost including material cost 90,800
Less: Credit for realization from by-product B: Sales
revenue (1,000 × Re. 1) 1,000
Less: profit @ 25% on cost or 20% on sales 200 800
Net joint costs to be allocated 90,000
Determination of joint cost per unit of each product

Product Net joint costs allocation Output (units) Joint cost per unit
₹ ₹ ₹
X 54,000 (Note: 1) 8,000 6.75
Y 20,250 6,000 3.38
Z 15,750 4,000 3.94
90,000
Profit margin available on each product as a percentage on cost

Product Joint Post Total Selling Margin Margin
Cost spilt-off Cost Price % on cost
cost

₹ ₹ ₹ ₹ ₹ ₹
X 6.75 5.00 11.75 13.75 2.00 17.02
Y 3.38 4.00 7.38 8.75 1.37 18.56
Z 3.94 2.50 6.44 7.50 1.06 16.46
Note: 1
24
X= 40 × 90, 000 =54,000
9
Y= 40 × 90, 000 = 20,250

A company produces two products, A and B, through a joint production process. The total joint production cost
incurred is as under:
Material - ₹20,000
Labour - ₹10,000
Variable Overheads - ₹6,000
Fixed Overheads - ₹24,000
Product A and B can be sold for ₹20 pe unit and ₹15 per unit respectively at split off point. The produced
quantities are Product A - 2,000 units and Product B - 4,000 units.
(i) You are required to calculate the joint production cost allocation for each product using the:
(a) Physical unit method.
(b) Contribution margin method.
(ii) Product B can be further processed by incurring expenditure of ₹12,000. Loss in further processing is 2%. It
can be sold @ ₹18 per unit. Explain the impact on profitability if Product B is further processed.

A company processes a raw material in its Department 1 to produce three products, viz. A, B and X at the
same split-off stage. During a period 1,80,000 kgs of raw materials were processed in Department 1 at a total
cost of ₹ 12,88,000 and the resultant output of A, B and X were 18,000 kgs, 10,000 kgs and 54,000 kgs
respectively. A and B were further processed in Department 2 at a cost of ₹ 1,80,000 and ₹ 1,50,000
respectively.
X was further processed in Department 3 at a cost of ₹1,08,000. There is no waste in further processing. The
details of sales affected during the period were as under:
A B X
Quantity Sold (kgs.) 17,000 5,000 44,000
Sales Value (₹) 12,24,000 2,50,000 7,92,000
There were no opening stocks. If these products were sold at split-off stage, the selling prices of A, B and X
would have been ₹ 50, ₹ 40 and ₹ 10 per kg respectively. Required:
(i) Prepare a statement showing the apportionment of joint costs to A, B and X.
(ii) Present a statement showing the cost per kg of each product indicating joint cost and further processing
cost and total cost separately.
(iii) Prepare a statement showing the product wise and total profit for the period.
State with supporting calculations as to whether any or all the products should be further processed or not.
Solution 4 :
(i) Statement showing the apportionment of joint costs to A, B and X
Products A B X Total
Output (kg) 18,000 10,000 54,000
Sales value at the point 9,00,000 4,00,000 5,40,000 18,40,000
of split off (₹) (₹ 50 x 18,000) (₹ 40 x 10,000) (₹ 10 x 54,000)
Joint cost 6,30,000 2,80,000 3,78,000 12,88,000
apportionment on the
basis of sales value at
(
₹12,88,000
18,40,000 )(
₹12,88,000
× 9, 00, 000 18,40,000 × 4, 00, 000 )( ₹12,88,000
18,40,000 )
× 5, 40, 000
the point of split off (₹)
(ii) Statement showing the cost per kg. of each product

(indicating joint cost; further processing cost and total cost separately)
Products A B X

Joint costs apportioned (₹) : (I) 6,30,000 2,80,000 3,78,000

Production (kg) : (II) 18,000 10,000 54,000
Joint cost per kg (₹): (I ÷ II) 35 28 7
Further processing Cost per kg. (₹) 10 15 2
( ₹1,80,000
18,000 𝑘𝑔 ) ( ₹1,50,000
10,000 𝑘𝑔 ) ( ₹1,08,000
54,000 𝑘𝑔 )
Total cost per kg (₹) 45 43 9
(iii) Statement showing the product wise and total profit for the period
Sales value (₹) 12,24,000 2,50,000 7,92,000
Add: Closing stock value (₹)
(Refer to Working note 2) 45,000 2,15,000 90,000
Value of production (₹) 12,69,000 4,65,000 8,82,000 26,16,000
Apportionment of joint cost (₹) 6,30,000 2,80,000 3,78,000
Add: Further processing cost (₹) 1,80,000 1,50,000 1,08,000
Total cost (₹) 8,10,000 4,30,000 4,86,000 17,26,000
Profit (₹) 4,59,000 35,000 3,96,000 8,90,000
Working Notes
1.
Products A B X
Sales value (₹) 12,24,000 2,50,000 7,92,000
Quantity sold (Kgs.) 17,000 5,000 44,000
Selling price ₹/kg 72 50 18
( ₹12,24,000
17,000 𝑘𝑔 ) ( ₹2,50,000
5,000 𝑘𝑔 ) ( ₹7,92,000
44,000 𝑘𝑔 )
2. Valuation of closing stock:
Since the selling price per kg of products A, B and X is more than their total costs, therefore closing stock will
be valued at cost.
Closing stock (kgs.) 1,000 5,000 10,000
Cost per kg (₹) 45 43 9
Closing stock value (₹) 45,000 2,15,000 90,000 3,50,000
(₹ 45 x 1,000 kg) (₹ 43 x 5,000 kg) (₹9x10,000 kg)
(iv) Calculations for processing decision

Products A B X
Selling price per kg at the point of split off (₹) 50 40 10
Selling price per kg after further processing (₹) 72 50 18
(Refer to working Note 1)
Incremental selling price per kg (₹) 22 10 8
Less: Further processing cost per kg (₹) (10) (15) (2)
Incremental profit (loss) per kg (₹) 12 (5) 6
Product A and X has an incremental profit per unit after further processing, hence, these two products may be
further processed. However, further processing of product B is not profitable hence, product B shall be sold at
split off point.

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.
Solution 5 :
(a) 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

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.
Solution 6 :
Apportionment of Joint Costs
Particulars A (₹) B (₹)
Selling Price 16,000 8,000
4,000 1,600
Less: Estimated profit
(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
Joint Cost Subsequent Cost Total Cost
Elements of 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

A company manufactures one main product (MN) and two by-products AB and PQ. For the month of January
2024, following details are available:
Total Cost upto separation Point ₹ 2,12,400
MN AB PQ
Cost after separation - ₹ 35,000 ₹ 24,000
No. of units produced 4,000 1,800 3,000
Selling price per unit ₹ 100 ₹ 40 ₹ 30
Estimated net profit as percentage to sales - 20% 30%
value
Estimated selling expenses as percentage to 30% 15% 15%
sales value
There are no beginning or closing inventories.
PREPARE statement showing:
(i) Allocation of joint cost; and
(ii) Product-wise and overall profitability of the company for January 2024.
Solution 7 :
(i) Statement showing allocation of Joint Cost
Particulars AB PQ
No. of units Produced 1,800 3,000

Selling Price Per unit (₹) 40 30

Sales Value (₹) 72,000 90,000
Less: Estimated Profit (AB -20% & PQ - 30%) (14,400) (27,000)
Cost of Sales 57,600 63,000
Less: Estimated Selling Expenses (AB -15% & PQ -15%) (10,800) (13,500)
Cost of Production 46,800 49,500
Less: Cost after separation (35,000) (24,000)
Joint Cost allocated 11,800 25,500
(ii) Statement of Profitability

Particulars MA (₹) AB (₹) PQ (₹)
Sales Value (A) 4,00,000 72,000 90,000
(4,000x ₹ 100)
Less:- Joint Cost 1,75,100 11,800 25,500
(2,12,400 -11,800
- 25,500)
Cost after separation - 35,000 24,000
Selling Expenses 1,20,000 10,800 13,500
(MA- 30%, AB-15% & PQ-15%)
(B) 2,95,100 57,600 63,000
Profit (A –B) 1,04,900 14,400 27,000
Overall Profit = 1,04,900 + 14,400 + 27,000 = ₹ 1,46,300

Costing Practice Sheet - Chapter 11 - Service Sector Costing
Question 1 : (NOV 2023)

Royal Hotel offers three types of rooms to its guests - Deluxe Room, Executive Room and Suite Room. Other
information is as follows:-
Deluxe Room Executive Room Suite Room
Room Tariff per day ₹ 1,500 ₹ 2,400 ₹ 3,800
No. of rooms 20 10 4
Average occupancy during the year 80% 60% 75%
Housekeeping expenses per day ₹280 ₹320 ₹425
The hotel provides complimentary breakfast facility to its executive room and suite room guests while
swimming pool facility is provided free of cost only to suite room guests.
The restaurant and swimming pool is run by a contractor. The contractor recovers charges of ₹ 150 per person
for breakfast and ₹ 200 per person for using swimming pool facility from Royal Hotel.
Besides the above-mentioned charges, annual fixed expenses are as follows:
Salaries to staff ₹ 57,60,000
Electricity Expenses ₹ 24,00,000
Salaries to staff are apportioned to Deluxe Room. Executive Room and Suite Room in the ratio of 25:35:40 and
electricity expenses are to be apportioned in proportion to occupancy.
You are required to calculate the total profit of each room type on annual basis. Note: Assume 360 days in a
year and double occupancy in each category of room.
Solution 1 :
Calculation of room days:
Nature of Room Occupancy (Room-days)
Deluxe room 5760
(20 x 80% x 360)
Executive room 2160
(10 x 60% x 360)
Suite room 1080
(4 x 75% x 360)
Statement showing Total Profit for each room type

Elements Deluxe room Executive room Suite room Total
(₹) (₹) (₹) (₹)
Room Days 5760 2160 1080
Revenue 86,40,000 51,84,000 41,04,000 1,79,28,000
Cost
Housekeeping @ ₹ 280 per room day 16,12,800 6,91,200 4,59,000 27,63,000
Breakfast @ ₹ 150 per person - 6,48,000 3,24,000 9,72,000
Swimming pool @ ₹ 200 per person - - 4,32,000 4,32,000
Salaries to staff (25:35:40) 14,40,000 20,16,000 23,04,000 57,60,000
Electricity expenses (occupancy) 15,36,000 5,76,000 2,88,000 24,00,000
Total cost 45,88,800 39,31,200 38,07,000 1,23,27,000
Profit 40,51,200 12,52,800 2,97,000 56,01,000

Calculation of room days
Particulars Occupancy during the year
Deluxe Room Executive Room Suite Room
(i) No. of Rooms 20 10 4
(ii) Occupancy in % 80% 60% 75%
No. of rooms occupied per day 16 6 3
No. of rooms occupied per year 5,760 2,160 1,080
Statement showing Total Profit for each room type

Annual Room Rent Deluxe Room Executive Room Suite Room
Room Rent per day per room ₹ 1,500 ₹ 2,400 ₹ 3,800
Annual Room Rent (A) ₹ 86,40,000 ₹ 51,84,000 ₹ 41,04,000

Annual Fixed Expenses

Staff Salary (25:35:40) ₹ 14,40,000 ₹ 20,16,000 ₹ 23,04,000
Electricity Expenses (Occupancy) ₹ 15,36,000 ₹ 5,76,000 ₹ 2,88,000
Total (B) ₹ 29,76,000 ₹ 25,92,000 ₹ 25,92,000
Housekeeping Expenses ₹ 16,12,800 ₹ 6,91,200 ₹ 4,59,000
Breakfast Charges ₹ 6,48,000 ₹ 3,24,000
(2,160 x 2 x 150) (1,080 x 2 x 150)
Swimming Pool Charges ₹ 4,32,000
(1,080 x 2 x 200)
Total (C) ₹ 16,12,800 ₹ 13,39,200 ₹12,15,000
Total Cost (B+C) ₹ 45,88,800 ₹ 39,31,200 ₹ 38,07,000
Profit ₹ 40,51,200 ₹ 12,52,800 ₹ 2,97,000

BK Infra Ltd. built and operates a 110 k.m. long highway on the basis of Built-Operate-Transfer (BOT) model for
a period of 25 year. 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. (₹ 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, 29,055.60
footbridge, etc.
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 114,495.25
An average cost of ₹ 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) CALCULATE 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]
Solution 2 :
(i) Calculation of total project cost per day of concession period:
Activities Amount (₹ in
lakh)
Site clearance 170.70

Land development and filling work 9,080.35

Sub base and base courses 10,260.70
Bituminous work 35,070.80
Bridge, flyovers, underpasses, Pedestriansubway,footbridge, etc. 29,055.60
Drainage and protection work 9,040.50
Traffic sign, marking and road appurtenance 8,405.00
Maintenance, repairing and rehabilitation 12,429.60
Environmental management 982.00
Total Project cost 114,495.25
Administration and toll plaza operation cost 1,120.00
Total Cost 115,615.25
Concession period in days (25 years × 365 days) 9,125
Cost per day of concession period (₹ in lakh) 12.67
(ii) Computation of toll fee:

Cost to be recovered per day = Cost per day of concession period + 15% profit on cost
= ₹ 12,67,000 + ₹ 1,90,050
= ₹ 14,57,050
₹14,57,050
Cost per equivalent vehicle = 76,444 𝑢𝑛𝑖𝑡𝑠 (𝑅𝑒𝑓𝑒𝑟 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑛𝑜𝑡𝑒)
= ₹ 19.06 per equivalent vehicle
Vehicle type-wise toll fee:
Sl. Type of vehicle Equivalent Weight Toll fee per
No. cost vehicle
[A] [B] [A×B]
1. Two wheelers ₹ 19.06 1 19.06
2. Car and SUVs ₹ 19.06 4 76.24
3. Bus and LCV ₹ 19.06 6 114.36
4. Heavy commercial vehicles ₹ 19.06 9 171.54
Working Note:
The cost per day has to be recovered from the daily traffic. Each type of vehicle is to be converted into
equivalent unit. Let’s convert all vehicle types equivalent to Two-wheeler
Sl. Type of vehicle Daily traffic Weight Ratio Equivalent
No. volume Two-wheeler
[A] [B] [A×B]
1. Two wheelers 44,500 0.05 1 44,500
2. Car and SUVs 3,450 0.20 4 13,800
3. Bus and LCV 1,800 0.30 6 10,800
4. Heavy commercial vehicles 816 0.45 9 7,344
Total 76,444

Star Airlines operates a single aircraft of 180 seats capacity between city ‘ND’ and ‘GA’. The average normal
occupancy is estimated at 70% per flight. The average one-way fare is ₹12,500 from city ‘ND’ to ‘GA’. The costs
of operation of the flight as collected by an expert analyst are:
Fuel cost (Variable) per flight from ‘ND’ to ‘GA’ ₹2,28,000 per flight
Food served on flight from ‘ND’ to ‘GA’ (no charge to passenger) ₹270 per passenger
Commission paid to Travel Agents (All ticket booking through agents) 7.5% of fare
Fixed costs:
Lease & landing charges per flight ‘ND’ to ‘GA’ ₹9,12,000
Salaries of flight crew per flight ‘ND’ to ‘GA’ ₹90,000
Note: Assume that fuel costs are unaffected by the actual number of passengers on a flight.
(i) Calculate the net operating income that Star Airlines makes per flight from ‘ND’ to ‘GA’.
(ii) Star Airlines expects that its occupancy will increase to 144 passengers per flight if the fare is reduced to
₹11,670. Advise whether this proposal should be implemented or not.


A transport company has a fleet of three trucks of 10 tonnes capacity each plying in different directions for
transport of customer's goods. The trucks run loaded with goods and return empty. The distance travelled,
number of trips made and the load carried per day by each truck are as under:
Truck No. One way Distance KmNo. of trips per day Load carried per trip /day tonnes
1 16 4 6
2 40 2 9
3 30 3 12
The analysis of maintenance cost and the total distance travelled during the last two years is as underhThe
following are the details of expenses for the year under review:
Diesel ₹ 65 per litre. Each litre gives 4 km per litre of
diesel on an average.
Driver's salary ₹ 24,000 per month
Licence and taxes ₹ 25,000 per annum per truck
Insurance ₹ 45,000 per annum for all the three vehicles
Purchase Price per ₹ 30,00,000, Life 10 years. Scrap value at the end
truck of life is ₹ 1,00,000.
Oil and sundries ₹ 250 per 100 km run.
General Overhead ₹ 1,15,600 per annum
The vehicles operate 24 days per month on an average.
On the basis of commercial tone-km, you are required to:
(i) PREPARE an Annual Cost Statement covering the fleet of three vehicles.
(ii) CALCULATE the cost per km. run.
(iii) DETERMINE the freight rate per tonne km. to yield a profit of 10% on freight.
Solution 4:
(i) Annual Cost Statement of three vehicles
(₹)
Diesel {(1,34,784 km. ÷ 4 km) × ₹ 65) (Refer to Working Note 1) 21,90,240
Oil & sundries {(1,34,784 km. ÷ 100 km.) × ₹ 250} 3,36,960
Maintenance {(1,34,784 km. × ₹ 0.25) + ₹ 6,000} (Refer to 39,696
Working Note 2)
Drivers' salary {(₹24,000 × 12 months) × 3 trucks} 8,64,000
Licence and taxes (₹ 25,000 × 3 trucks) 75,000
Insurance 45,000
Depreciation {(₹ 29,00,000 ÷ 10 years) × 3 trucks} 8,70,000
General overhead 1,15,600
Total annual cost 45,36,496
(ii) Cost per km. run

𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑣𝑒ℎ𝑖𝑐𝑙𝑒𝑠
Cost per kilometer run = 𝑇𝑜𝑡𝑎𝑙 𝑘𝑖𝑙𝑜𝑚𝑒𝑡𝑟𝑒 𝑡𝑟𝑎𝑣𝑒𝑙𝑙𝑒𝑑 𝑎𝑛𝑛𝑢𝑎𝑙𝑙𝑦 (Refer to Working Note 1)
₹45,36,496
= 1,34,784 𝐾𝑚𝑠
= ₹33.66
(iii) Freight rate per tonne km (to yield a profit of 10% on freight)
𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑟𝑒𝑒 𝑣𝑒ℎ𝑖𝑐𝑙𝑒𝑠
Cost per tonne km.= 𝑇𝑜𝑡𝑎𝑙 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑡𝑜𝑛𝑛𝑒𝑠 𝑘𝑚𝑠. 𝑝𝑒𝑟 𝑎𝑛𝑛𝑢𝑚 (Refer to Working Note 1)
₹45,36,496
= 6,06,528 𝑘𝑚𝑠 = ₹ 7.48
₹7.48
Freight rate per tonne km. 0.9
×1
Working Notes:
1. Total kilometer travelled and Commercial tonnes kilometer (load carried) by three trucks in one year
Truck One way No. of Total distance Total distance Load carried Total effective
distance in trips covered in km covered in km per trip / day tonnes km
kms per day (with per day (up & in tonnes
load) down)
a b c=a×b d=c×2 e f = 27/3 × c

1 16 4 64 128 6 576
2 40 2 80 160 9 720
3 30 3 90 180 12 810
Total 234 468 27 2,106
Total kilometre travelled by three trucks in one year
(468 km. × 24 days × 12 months) = 1,34,784
Total effective tonnes kilometre of load carried by three trucks during one year
(2,106 tonnes km. × 24 days × 12 months) = 6,06,528 tonne-km
2. Fixed and variable component of maintenance cost:

𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑖𝑛 𝑚𝑎𝑖𝑛𝑡𝑒𝑛𝑎𝑛𝑐𝑒 𝑐𝑜𝑠𝑡
Variable maintenance cost per km. = 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑖𝑛 𝑑𝑖𝑠𝑡𝑎𝑛𝑐𝑒 𝑡𝑟𝑎𝑣𝑒𝑙𝑙𝑒𝑑
₹46,050−₹45,175
= 1,60,200 𝑘𝑚𝑠−1,56,700 𝑘𝑚𝑠 = ₹ 0.25
Fixed maintenance cost = Total maintenance cost–Variable maintenance cost

= ₹ 46,050 – 1,60,200 kms × ₹ 0.25= ₹ 6,000

ABC Hospital runs a Critical Care Unit (CCU) in a hired building. CCU consists of 35 beds and 5 more beds can
be added, if required.
Rent per month - ₹ 75,000
Supervisors – 2 persons – ₹ 25,000 per month – each
Nurses – 4 persons – ₹ 20,000 per month – each
Ward Boys – 4 persons – ₹ 5,000 per month – each
Doctors paid ₹ 2,50,000 per month – paid on the basis of number of patients attended and the time spent by
them
Other expenses for the year are as follows:
Repairs (Fixed) – ₹ 81,000
Food to Patients (Variable) – ₹ 8,80,000
Other services to patients (Variable) – ₹ 3,00,000
Laundry charges (Variable) – ₹ 6,00,000
Medicines (Variable) – ₹ 7,50,000
Other fixed expenses – ₹ 10,80,000
Administration expenses allocated – ₹ 10,00,000
It was estimated that for 150 days in a year 35 beds are occupied and for 80 days only 25 beds are occupied.
The hospital hired 750 beds at a charge of ₹ 100 per bed per day, to accommodate the flow of patients.
However, this does not exceed more than 5 extra beds over and above the normal capacity of 35 beds on any
day.
You are required to –
(i)Calculate profit per patient day, if the hospital recovers on an average ₹ 2,000 per day from each patient.
(ii)Find out breakeven point for the hospital.
Solution 5 :
Working Notes:
(1) Calculation of number of patient days
35 Beds × 150 days = 5,250
25 Beds × 80 days = 2,000
Extra beds = 750
Total = 8,000
Statement of Profitability
Particulars Amount Amount
Income for the year (₹ 2,000 per patient per day × 1,60,00,000
8,000 patient days)
Variable Costs:
Doctor Fees (₹ 2,50,000 per month × 12) 30,00,000
Food to Patients (Variable) 8,80,000
Other services to patients (Variable) 3,00,000
Laundry charges (Variable) – (₹) 6,00,000

Medicines (Variable) – (₹) 7,50,000

Bed Hire Charges (₹100 × 750 Beds) 75,000
Total Variable costs 56,05,000
Contribution 1,03,95,000
Fixed Costs:
Rent (₹ 75,000 per month × 12) 9,00,000
Supervisor (2 persons × ₹25,000 × 12) 6,00,000
Nurses (4 persons × ₹ 20,000 × 12) 9,60,000
Ward Boys (4 persons × ₹ 5,000 × 12) 2,40,000
Repairs (Fixed) 81,000
Other fixed expenses – (₹) 10,80,000
Administration expenses allocated – (₹) 10,00,000
Total Fixed Costs 48,61,000
Profit 55,34,000
(i) Calculation of Contribution per Patient- day
Total Contribution – ₹ 1,03,95,000
Total Patient days – 8,000
Contribution per Patient -day – ₹ 1,03,95,000 / 8,000 = ₹ 1,299.375
(ii) Breakeven Point = Fixed Cost / Contribution per Patient- day
= ₹ 48,61,000 / ₹1,299.375
= 3,741 patient days

Chiku Transport Service is a Delhi based national goods transport service provider, owning four trucks for this
purpose. The cost of running and maintaining these trucks are as follows:
Particulars Amount
Diesel cost ₹ 19.20 per km.
Engine oil ₹ 4,200 for every 13,000 km.
Repair and maintenance ₹ 36,000 for every 10,000 km.
Driver’s salary ₹ 24,000 per truck per month
Cleaner’s salary ₹ 15,000 per truck per month
Supervision and other general expenses ₹ 14,000 per month
Cost of loading of goods ₹ 180 per Metric Ton (MT)
All four trucks were purchased for ₹ 30 lakhs with an estimated life of 7,20,000 km each.
During the next month, it is expecting 6 bookings, the details are as follows:
Sl. Journey Distance in Weight- Up Weight- Down (in

No. km (in MT) MT)
1. Delhi to Kochi 2,700 14 6
2. Delhi to Guwahati 1,890 12 0
3. Delhi to Vijayawada 1,840 15 0
4. Delhi to Varanasi 815 10 0
5. Delhi to Asansol 1,280 12 4
6. Delhi to Chennai 2,185 10 8
Total 10,710 73 18
Required
(i) Calculate the total absolute Ton-km for the vehicles.
(ii)Calculate the cost per ton-km.
Solution 6 :
(i) Calculation of Absolute Ton-km for the next month:
Journey Distance in Weight- Up Ton-km Weight- Ton-km Total
km (in Down (in
MT) MT)
(a) (b) (c)=(a)×(b) (d) (e)= (a)×(d) (c)+(e)
Delhi to Kochi 2,700 14 37,800 6 16,200 54,000
Delhi to Guwahati 1,890 12 22,680 0 0 22,680

Delhi to Vijayawada 1,840 15 27,600 0 0 27,600

Delhi to Varanasi 815 10 8,150 0 0 8,150
Delhi to Asansol 1,280 12 15,360 4 5,120 20,480
Delhi to Chennai 2,185 10 21,850 8 17,480 39,330
Total 10,710 73 1,33,440 18 38,800 1,72,240
Total Ton-Km = 1,72,240 ton-km
(ii) Calculation of cost per ton-km:

A. Running cost:
- Diesel Cost {₹19.20 × (10,710 × 2)} 4,11,264.00
- ( )
Engine oil cost 13,000 𝐾𝑚 × 21, 420 𝑘𝑚 6,920.31
₹4,200
- Cost of loading of goods 16,380.00

{₹180 × (73+18)}
- Depreciation 3,57,000.00 7,91,564.31
{(30,00,000/720,000×21,420km)×4}
B. Repairs & Maintenance 77,112.00
Cost (36,000/10,000×21,420)
C. Standing Charges
- Drivers’ salary (₹24,000 × 4 trucks) 96,000.00
- Cleaners’ salary (₹15,000 × 4 trucks) 60,000.00
- Supervision and 14,000.00 1,70,000.00
other general exp.
Total Cost (A + B + C) 10,38,676.31
Total ton-km 1,72,240
Cost per ton-km 6.03

A hotel having 20 single rooms has 80% occupancy in normal season (8 months) and 50% in off- season (4
months) in a year (take 30 days a month).
Annual fixed expenses Amount in ₹
Salary of the staff (excluding room attendant) 15,00,000
Repair & maintenance 12,60,000
Depreciation on building & furniture 12,40,000
Other fixed expenses like dusting, sweeping etc. 13,25,000
53,25,000
Variable expenses (per guest per day)
Linen, laundry & security support 80.00
Electricity & other facilities 120.00
Misc. expenses like attendant etc. 300.00
500.00
Management wishes to make a margin of 25% of total cost.
Required
(a) CALCULATE the Tariff per room per day.
(b) CALCULATE the break-even occupancy in normal season (in percentage also) assuming there is 50%
occupancy in off-season.
Solution 7 :
Workings:
Total occupancy = Occupancy in normal season + Occupancy in off- season
= (20 rooms × 80% × 8 months × 30 days) + (20 rooms × 50% × 4 months × 30 days)
= 3,840 + 1,200 = 5,040 room-days
Total Cost = Variable cost + Fixed cost
= (₹ 500 × 5,040 room-days) + ₹ 53,25,000
= ₹ 25,20,000 + ₹ 53,25,000 = 78,45,000
(a) Calculation of tariff rate per room
Tariff per room per day = (Total cost + 25% Margin on total cost) ÷ Total occupancy

= (₹ 78,45,000 + 19,61,250) ÷ 5,040 = ₹ 1,945.68
(b) Calculation of break-even occupancy

Contribution per day = Tariff – Variable cost = = ₹ 1,945.68 – 500 = ₹ 1445.68
Break-even occupancy = ₹ 53,25,000 ÷ 1445.68 = 3683
Occupancy in normal season = Break-even occupancy – Occupancy in off-season
= 3683 – (20 rooms × 50% × 4 months × 30 days)
= 3683 – 1200 = 2483 room-days
In Percentage = 2483 ÷ 4800 = 51.73%

P Holiday Resorts offers three types of rooms to its guests, viz deluxe room, super deluxe 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
Lighting, Heating and Power 300
Repairs, Maintenance and Renovation 180
Linen 30
Laundry charges 24
Interior decoration 75
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.
Solution 8 :
Operating cost statement of P Holiday Resorts
Cost per annum

Particulars
(₹ 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= ₹ 68,040
=₹ 2,450
Rent to be charged for deluxe room ₹ 2,450
Rent to be charged for super deluxe room = Rent of deluxe room x 2 = ₹ 2,450 x 2 ₹ 4,900
Rent to be charged for luxury suite = Rent of Deluxe room x 3 = ₹ 2,450 x 3 ₹ 7,350
Working Notes:
1.Computation of Room Occupancy
Type of Room No. of rooms x no. of days x occupancy % Room days
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

A LMV Pvt. Ltd, operates cab/ car rental service in Delhi/NCR. It provides its service to the offices of Noida,
Gurugram and Faridabad. At present it operates CNG fuelled cars but it is also considering to upgrade these
into Electric vehicle (EV). The following details related with the owning of CNG & EV propelled cars are as
tabulated below:
Particulars CNG Car EV Car
Car purchase price (₹) 9,20,000 15,20,000
Govt. subsidy on purchase of car (₹) -- 1,50,000
Life of the car 15 years 10 years
Residual value (₹) 95,000 1,70,000
Mileage 20 km/kg 240 km per charge
Electricity consumption per full charge -- 30 Kwh
CNG cost per Kg (₹) 60 --
Power cost per Kwh (₹) -- 7.60
Annual Maintenance cost (₹) 8,000 5,200
Annual insurance cost (₹) 7,600 14,600
Tyre replacement cost in every 5 - year (₹) 16,000 16,000
Battery replacement cost in every 8- year (₹) 12,000 5,40,000
Apart from the above, the following are the additional information:
Particulars

Average distance covered by a car in a month 1,500 km

Driver’s salary (₹) 20,000 p.m
Garage rent per car (₹) 4,500 p.m
Share of Office & Administration cost per car (₹) 1,500 p.m
You have been approached by the management of A LMV Pvt. Ltd. for consultation on the two options of
operating the cab service.
CALCULATE the operating cost of vehicle per month per car for both CNG & EV options.
Solution 9 :
Workings:
1.Calculation of Depreciation per month:
A Car purchase price (₹) 9,20,000 15,20,000
B Less: Govt. subsidy (₹) -- (1,50,000)
C Less: Residual value (₹) (95,000) (1,70,000)

D Depreciable value of car (₹) [A-B-C] 8,25,000 12,00,000
E Life of the car 15 years 10 years
F Annual depreciation (₹) [D÷E] 55,000 1,20,000
G Depreciation per month (₹) [F÷12] 4,583.33 10,000
2.Fuel/ Electricity consumption cost per month:

A Average distance covered in a month (KM) 1,500 1,500
B Mileage (KM) 20 240
C Qty. of CNG/ Full charge required [A÷B] 75 kg. 6.25
D Electricity Consumption [C×30kwh] - 187.5
E Cost of CNG per kg (₹) 60 -
F Power cost per Kwh (₹) - 7.60
G CNG Cost per month (₹) [C×E] 4,500 -
H Power cost per month (₹) [D×F] - 1,425
3.Amortised cost of Tyre replacement:

A Life of vehicle 15 years 10 years
B Replacement interval 5 years 5 years
C No. of time replacement required 2 times 1 time
D Cost of tyres for each replacement (₹) 16,000 16,000
E Total replacement cost (₹) [C×D] 32,000 16,000
F Amortised cost per year (₹) [E÷A] 2,133.33 1,600
E Cost per month (₹) [F÷12] 177.78 133.33
4.Amortised cost of Battery replacement:

A Life of vehicle 15 years 10 years
B Replacement interval 8 years 8 years
C No. of time replacement required 1 time 1 time
D Cost of battery for each replacement (₹) 12,000 5,40,000
E Total replacement cost (₹) [C×D] 12,000 5,40,000
F Amortised cost per year (₹) [E÷A] 800 54,000
E Cost per month (₹) [F÷12] 66.67 4,500
Calculation of Operating cost per month

Particulars CNG Car (₹) EV Car (₹)
A Running cost:
Fuel cost/ Power consumption cost [Refer WN-2] 4,500 1,425

B Maintenance cost:
Annual Maintenance cost [Annual cost ÷12] 666.67 433.33
Annual Insurance cost [Annual cost ÷12] 633.33 1,216.67
Amortised cost of Tyre replacement [Refer WN-3] 177.78 133.33
Amortised cost of Battery replacement [Refer WN-4] 66.67 4,500
1,544.45 6,283.33
C Fixed cost:
Depreciation [Refer WN-1] 4,583.33 10,000
Driver’s salary 20,000 20,000
Garage rent 4,500 4,500
Share of Office & Administration cost 1,500 1,500
30,583.33 36,000
D Operating cost per month [A+B+C] 36,627.78 43,708.33

A mini-bus, having a capacity of 32 passengers, operates between two places - 'A' and 'B'. The distance
between the place 'A' and place 'B' is 30 km. The bus makes 10 round trips in a day for 25 days in a month. On
an average, the occupancy ratio is 70% and is expected throughout the year.
The details of other expenses are as under:
Amount (₹)
Insurance 15,600 Per annum
Garage Rent 2,400 Per quarter
Road Tax 5,000 Per annum
Repairs 4,800 Per quarter
Salary of operating staff 7,200 Per month
Tyres and Tubes 3,600 Per quarter
Diesel: (one litre is consumed for every 5 km) 13 Per litre
Oil and Sundries 22 Per 100 km run
Depreciation 68,000 Per annum
Passenger tax @ 22% on total taking is to be levied and bus operator requires a profit of 25% on total taking.
PREPARE operating cost statement on the annual basis and find out the cost per passenger kilometer and one
way fare per passenger.
Solution 10 :
b) Operating Cost Statement
Particulars Total Cost Per
annum (₹)
A. Fixed Charges:
Insurance 15,600
Garage rent (₹ 2,400 × 4 quarters) 9,600
Road Tax 5,000
Salary of operating staff (₹ 7,200 × 12 months) 86,400
Depreciation 68,000
Total (A) 1,84,600
B. Variable Charges:
Repairs (₹ 4,800 × 4 quarters) 19,200
Tyres and Tubes (₹ 3,600 × 4 quarters) 14,400
Diesel {(1,80,000 km. ÷ 5 km.) × ₹ 13} 4,68,000
Oil and Sundries {(1,80,000 km. ÷ 100 km.) ×₹ 22} 39,600
Total (B) 5,41,200
Total Operating Cost (A+B) 7,25,800
Add: Passenger tax (Refer to WN-1) 3,01,275
Add: Profit (Refer to WN-1) 3,42,359
Total takings 13,69,434
Calculation of Cost per passenger kilometre and one way fare per passenger:
𝑇𝑜𝑡𝑎𝑙 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑜𝑠𝑡
Cost per Passenger-Km. = 𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟 − 𝑘𝑚

₹7,25,800
= 40,32,000 𝑃𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟−𝑘𝑚 = ₹ 0.18
𝑇𝑜𝑡𝑎𝑙 𝑇𝑎𝑘𝑖𝑛𝑔𝑠
One way fare per passenger = 𝑇𝑜𝑡𝑎𝑙 𝑃𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟 − 𝐾𝑚
× 30 𝐾𝑚
₹13,69,434
= 40,32,000 𝑃𝑎𝑠𝑠𝑒𝑛𝑔𝑒𝑟 − 𝐾𝑚
×30 km = ₹10.20
Working Notes:
1. Let total taking be X then Passenger tax and profit will be as follows:
X = ₹ 7,25,800 + 0.22 X + 0.25X
X – 0.47 X = ₹ 7,25,800
₹7,25,800
X = 0.53 = ₹ 13,69,434
Passenger tax = ₹ 13,69,434 × 0.22 = ₹ 3,01,275
Profit = ₹ 13,69,434 × 0.25 = ₹ 3,42,359
2. Total Kilometres to be run during the year
= 30 km.× 2 sides × 10 trips × 25 days × 12 months = 1,80,000 Kilometres
3. Total passenger Kilometres
= 1,80,000 km. × 32 passengers × 70% = 40,32,000 Passenger- km.

SpeedEx Logistics, established in 2010 and headquartered in Mumbai, India, operates within the transportation
and logistics industry as a third- party logistics (3PL) provider. The company’s fleet consists of 10 trucks, 15
vans, and 5 trailer, each serving distinct purposes. The records of Truck R-40 reveal the following information
for July 2024.
Days Maintained 30
Days Operated 25
Total Hours Operated 300
Total Kilometres Covered 2,500
Total Tonnage Carried
(4 tonne-load per trip, return journey empty 2 round trips per day)
The following further information is made available:
A. Operating Costs for the month: Petrol ₹ 400, oil ₹170, Grease ₹ 90, Wages to driver ₹ 550, Wages to Worker
₹ 350.
B. Maintenance Costs for the month: Repair ₹ 170, Overhaul ₹ 60, Tyres ₹ 150, Garage charges ₹ 100.
C. Fixed Costs for the month based on the estimates for the year: Insurance ₹ 50, Licence, tax etc. ₹ 80,
Interest ₹ 40, Other Overheads ₹ 190
D. Capital costs: Cost of acquisition ₹ 54,000; Residual Value at the end of 5 years life ₹ 36,000.
You are required to CALCULATE:
(i) cost per days maintained
(ii) cost per days operated
(iii) cost per hours operated
(iv) cost per kilometres covered
(v) cost per commercial tonne km
Solution 11 :
Particulars Amount in ₹
A Operating costs:
Petrol 400
Oil 170
Grease 90
Wages to Driver 550
Wages to Worker 350
(A) 1,560
B Maintenance Costs:
Repairs 170
Overhead 60
Tyres 150
Garage Charges 100
(B) 480
C Fixed Cost:

Insurance 50
License, Tax etc 80
Interest 40
Other Overheads 190
Depreciation
(54,000−36,000) 300
5×12
(C) 660
Total Cost (A + B + C) 2,700
(i) Cost per days maintained = ₹ 2700/30 days = ₹ 90
(ii) Cost per days operated = ₹ 2700/25 days = ₹ 108
(iii) Cost per hours operated = ₹ 2700/300 hours = ₹ 9
(iv) Cost per kilometres covered = ₹ 2700/2500 kms = ₹ 1.08
(v) Cost per commercial tonne kms= ₹ 2700/5000 tonne kms = ₹ 0.54
*Commercial tonne kms = Total distance travelled x Average load
(4 𝑡𝑜𝑛𝑛𝑒𝑠 + 0 𝑡𝑜𝑛𝑛𝑒𝑠)
= 2
x 2500 kms
= 5000 tonne kms

Costing Practice Sheet - Chapter 12 - Standard Costing

PQR Alloys Ltd. uses a standard costing system.
Budgeted information for the year:
Budgeted output 84,000 units
Variable Factory Overhead per unit ₹ 16
Standard time for one unit of output 0.80 machine hour
Fixed factory overheads ₹ 6,72,000
Actual results for the year:
Actual output 87,600 units
Variable Overhead efficiency variance ₹ 67,200 (A)
Actual Fixed factory overheads ₹ 7,05,000
Actual variable factory overheads ₹ 14,37,000
Required:
Calculate the following variances clearly indicating Adverse(A) or Favourable (F):
(i) Variable factory overhead expenditure variance.
(ii) Fixed factory overhead expenditure variance.
(iii) Fixed factory overhead efficiency variance.
(iv) Fixed factory overhead capacity variance.
Solution 1 :
Calculation of actual hours
𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 16
Standard rate per hour = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝑜𝑛𝑒 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡 = 0.8 = ₹ 20
Variable Overhead Efficiency Variance:
(Standard hours for actual production – Actual hours) × Standard rate per hour
Let actual hours be x
[(87,600 × 0.8) – x] ×20 = -67,200
(70,080 – x) × 20 = -67,200
x = 73,440
(i) Variable Factory Overhead Expenditure Variance:

(Variable overhead at actual hours – Actual variable overheads)
( 13,44,000
)
⎡ 67,200 × 73, 440 − 14, 37, 000⎤ = 31,800 F
⎣ ⎦
(ii)Fixed Factory Overhead Expenditure Variance:

Budgeted fixed overhead – Actual fixed overhead.
(6,72,000 – 7,05,000) = 33,000 A
(iii)Fixed Factory Overhead Efficiency Variance:

(Standard hours for actual production – Actual hours) × Standard rate per hour
(70,080 – 73,440) × 10 = 33,600 A
(iv)Fixed Overhead Capacity Variance:

(Actual hours - Budgeted hours) × Standard rate per hour
(73,440 - 67,200) ×10 = 62,400 F
The solution can also be presented in following way based on Quantity (units)
Calculation of standard quantity for actual hours:

Variable standard rate per unit (SR) = ₹ 16
Variable Overhead Efficiency Variance:
(SR x AQ) – (SR x standard quantity for Actual hours worked)
-67,200 = (16 x 87,600) – 16 x
-67200 = 14,01,600- 16 x
x = 14,68,800 / 16 = 91,800 (SQ for actual hours worked)
(i) Variable Factory Overhead Expenditure Variance:

(SR x SQ for actual hour worked – Actual variable overheads)
16 x 91,800 – 14,37,000 or 14,68,800 – 14,37,000 = 31,800 F

(ii)Fixed Factory Overhead Expenditure Variance:

Budgeted fixed overhead – Actual fixed overhead.
(6,72,000 – 7,05,000) = 33,000 A
(iii)Fixed Factory Overhead Efficiency Variance:

Standard rate per unit (SR) = 6,72,000 / 84,000 = ₹ 8 per unit
(SR x AQ) – (SR x standard quantity for Actual hours)
(8 x 87,600) – (8 x 91,800)
(7,00,800 – 7,34,400) = 33,600 A
(iv)Fixed Overhead Capacity Variance:

(SR x standard quantity for Actual hours - Budgeted fixed overheads)
(8 x 91800) – (6,72,000)
(7,34,400 – 6,72,000) = 62,400 F
Question 2 :(MTP Sept 2023)

Essel Minerals Ltd. operates in iron ore mining through open cast mining method. Explosives and detonators
are used for excavation of iron ores from the mines. The following are the details of standard quantity of
explosives materials used for mining:
Particulars Rate (₹) Standard Qty. for Iron ore Standard Qty. for Overburden (OB)
SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic- meter
Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic- meter
The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden soil to be removed to get one tonne of
iron ore).
During the month of December 2021, the company produces 20,000 tonnes of iron ore and 58,000 cubic-
meter of OB. The quantity of explosive materials used and paid for the month is as below:
Material Quantity Amount (₹)
SME 1,67,200 kg. 63,53,600
Detonators 1,18,400 pcs 24,27,200
Required:
(i) COMPUTE the material price variance
(ii) COMPUTE the material quantity variance
COMPUTE the material cost variance
Solution 2 :
Workings:
1. Calculation of Standard Qty. of Explosives and Detonators for actual output:
Particulars Iron ore Overburden (OB) Total
SME:
A Actual Output 20,000 tonne 58,000 M3
B Standard Qty per unit 2.4 kg./tonne 1.9 kg./M3
C Standard Qty. for 48,000 kg. 1,10,200 kg. 1,58,200 kg.
actual production [A×B]
Detonators:
D Standard Qty per unit 2 pcs/tonne 2 pcs/𝑀3
E Standard Qty. for actual 40,000 pcs. 1,16,000 pcs 1,56,000 pcs
production [AxD]
2. Calculation of Actual Price per unit of materials:

Material Quantity [A] Amount (₹) [B] Rate (₹) [C = B÷A]
SME 1,67,200 kg. 63,53,600 38.00
Detonators 1,18,400 pcs 24,27,200 20.50
(i) Computation of material price variance:

Material Price Variance = Actual Qty. × (Std. Price - Actual Price)

SME = 1,67,200 kg. × (₹ 40 – ₹ 38) = ₹ 3,34,400 (F)

Detonators = 1,18,400 pcs × (₹ 20 – ₹ 20.5) = ₹ 59,200 (A)
Total = ₹ 2,75,200 (F)
(ii) Computation of material quantity variance:
Material Qty. Variance = Std. Price × (Std. Qty for actual output - Actual Qty.)
SME = ₹ 40 × (1,58,200 kg. - 1,67,200 kg.) = ₹ 3,60,000 (A)
Detonators = ₹ 20 × (1,56,000 pcs -1,18,400 pcs) = ₹ 7,52,000 (F)
Total = ₹3,92,000 (F)
(iii) Computation of material cost variance:
Material cost variance = Std. cost – Actual Cost
Or, (Std. Price × Std. Qty) – (Actual Price × Actual Qty.)
SME = (₹ 40 × 1,58,200 kg) – (₹ 38 × 1,67,200 kg.)
= ₹ 63,28,000 – ₹ 63,53,600 = ₹ 25,600 (A)
Detonators = (₹ 20 × 1,56,000 pcs) – (₹ 20.50 × 1,18,400 pcs)
= ₹ 31,20,000 – ₹ 24,27,200 = 6,92,800 (F)
Total = ₹ 6,67,200 (F)
Question 3: (MTP Oct 2023)

X Associates undertake to prepare income tax returns for individuals for a fee. They use the weighted average
method and actual costs for the financial reporting purposes. However, for internal reporting, they use a
standard costs system. The standards, based on equivalent performance, have been established as follows:
Labour per return 5 hrs @ ₹ 40 per hour
Overhead per return 5 hrs @ ₹ 20 per hour
For July 2023 performance, budgeted overhead is ₹98,000 for standard labour hours allowed. The following
additional information pertains to the month of July 2023:
July 1 Return-in-process (25% complete) 200 No.
Return started in July 825 Nos
July 31 Return-in-process (80% complete) 125 Nos
Cost Data:
July 1 Return-in-process labour ₹ 12,000
- Overheads ₹ 5,000
July 1 to 31 Labour : 4,000 hours ₹ 1,78,000
Overheads ₹ 90,000
You are required to compute:
(i) For each element, equivalent units of performance and the actual cost per equivalent unit.
(ii) Actual cost of return-in-process on July 31.
(iii) The standard cost per return.
(iv) The labour rate and labour efficiency variance as well as overhead volume and overhead expenditure
variance.
Solution 3 :
(a) (i)Statement Showing Cost Elements Equivalent Units of Performance and the Actual Cost per
Equivalent Unit
Detail of Returns Detail of Details Equivalent Units
Input Output Labour Overheads
Units Units Units % Units %
Returns in 200Returns 900 900 100 900 100
Process Completed in
at Start July
Returns Started in July 825Returns in 125 100 80 100 80
Process at the
end of July
1,025 1,025 1,000 1,000
Costs: Labour (₹) Overhead (₹)

From previous month 12,000 5,000
During the month 1,78,000 90,000
Total Cost 1,90,000 95,000

Cost per Equivalent Unit 190.00 95.00
(ii) Actual cost of returns in process on July 31:

Numbers Stage of Rate per Return Total (₹)
Completion (₹)
Labour 125 returns 0.80 190.00 19,000
Overhead 125 returns 0.80 95.00 9,500
28,500
(iii)Standard Cost per Return:
Labour 5 Hrs × ₹ 40 per hour = ₹200
Overhead 5 Hrs × ₹ 20 per hour = ₹100
₹ 300
Budgeted volume for July = ₹ 98,000 / 1000 = 980 Returns
Actual labour rate = ₹ 178000 / 4000 = ₹44.50
(iv) Computation of Variances:

Statement Showing Output (July only) Element Wise Labour Overhead
Actual performance in July in terms of equivalent
units as Calculated above 1,000 1,000
Less: Returns in process at the beginning of July in
terms of equivalent units i.e. 25% of returns (200) 50 50
950 950
Variance Analysis:
Labour Rate Variance
= Actual Time × (Standard Rate – Actual Rate)
= Standard Rate × Actual Time – Actual Rate × Actual Time
= ₹ 40 × 4,000 hrs. – ₹ 1,78,000 = ₹ 18,000(A)
Labour Efficiency Variance
= Standard Rate × (Standard Time – Actual Time)
= Standard Rate × Standard Time – Standard Rate × Actual Time
= ₹ 40 × (950 units × 5 hrs.) – ₹ 40 × 4,000 hrs.
= ₹ 30,000(F)
Overhead Expenditure or Budgeted Variance
= Budgeted Overhead – Actual Overhead
= ₹ 98,000 – ₹ 90,000
= ₹ 8,000(F)
Overhead Volume Variance
= Recovered/Absorbed Overhead – Budgeted Overhead
= 950 Units × 5 hrs. × ₹20 – ₹ 98,000 = ₹ 3,000(A)

SARA Ltd. has furnished the following standard cost data per' unit of production:
Material 15 kg @ ₹ 15 per kg.
Labour 6 hours @ ₹ 5 per hour
Variable overhead 6 hours @ ₹ 12 per hour.
Fixed overhead ₹ 4,50,000 per month (Based on a normal volume of 30,000 labour hours.)
The actual cost data for the month of August 2023 are as follows:
Material used 65,000 kg at a cost of ₹ 9,85,000.
Labour paid ₹ 1,40,000 for 31,500 hours worked.
Variable overheads ₹ 3,60,200
Fixed overheads ₹ 4,70,000
Actual production 4,800 units. CALCULATE:
(i) Material Cost Variance.
(ii) Labour Cost Variance.
(iii) Fixed Overhead Cost Variance.
(iv) Variable Overhead Cost Variance.

Solution 4 :
Budgeted Production 30,000 hours ÷ 6 hours per unit = 5,000 units
Budgeted Fixed Overhead Rate = ₹ 4,50,000 ÷ 5,000 units = ₹ 90 per unit Or
= ₹ 4,50,000 ÷ 30,000 hours = ₹ 15 per hour.
(i) Material Cost Variance = (Std. Qty. × Std. Price) – (Actual Qty. × Actual Price)
= (4,800 units × 15 kg. × ₹15) - ₹ 9,85,000
= ₹ 10,80,000 – ₹ 9,85,000 = ₹ 95,000 (F)
(ii) Labour Cost Variance = (Std. Hours × Std. Rate) – (Actual Hours × Actual rate)
= (4,800 units × 6 hours × ₹ 5) – ₹1,40,000
= ₹ 1,44,000 – ₹ 1,40,000 = ₹ 4,000 (F)
(iii)Fixed Overhead Cost Variance = (Budgeted Rate × Actual Qty) – Actual Overhead
= (₹ 90 x 4,800 units) – ₹ 4,70,000 = ₹ 38,000 (A)
OR
= (Budgeted Rate × Std. Hours) – Actual Overhead
= (₹ 15 x 4,800 units × 6 hours) – ₹ 4,70,000 = ₹ 38,000 (A)
(iv)Variable Overhead Cost Variance = (Std. Rate × Std. Hours) – Actual Overhead
= (4,800 units × 6 hours × ₹ 12) - ₹ 3,60,200
= ₹ 3,45,600 - ₹ 3,60,200 = ₹ 14,600 (A)

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)
(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.
Solution 5 :
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 = 𝐴𝐻
x 100 = 105.3
𝐴𝐻 𝑋 105.3 17,094 𝑋 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 𝑋 8
(iv)Standard Labour Cost per Unit = 6,000
= ₹ 24

17,094 𝑋 12
(v)Actual Labour Cost Per Unit = 6,000
= ₹ 34.19

EML operates in coal mining through an open cast mining method. Explosives and detonators are used for
excavation of coal from the mines. The following are the details of standard quantity of explosives materials
used for mining:
Particulars Rate (₹) Standard Qty. for Iron ore Standard Qty. for Overburden (OB)
SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic- meter
Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic- meter
The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden soil to be removed to get one tonne of
coal).
During the month of December 2023, the company produces 20,000 tonnes of coal and 58,000 cubic- meter of
OB. The quantity of explosive materials used and paid for the month is as below:
Material Quantity Amount (₹)
SME 1,67,200 kg. 63,53,600
Detonators 1,18,400 pcs 24,27,200
Explosive suppliers are paid for the explosive materials on the basis of performance of the explosives which is
termed as powder factor. One of the suppliers has presented their bill for explosive supplied for the month of
December 2023. You being a bill passing officer of EML is required to COMPUTE the material price variance,
material quantity variance and material cost variance.
Solution 6 :
Workings:
1. Calculation of Standard Qty. of Explosives and Detonators for actual output:
Particulars Coal Overburden (OB) Total
SME:
A Actual Output 20,000 tonne 58,000 M3
B Standard Qty per unit 2.4 kg./ tonne 1.9 kg./M3
C Standard Qty. for actual 48,000 kg. 1,10,200 kg. 1,58,200 kg.
production [A×B]
Detonators:
D Standard Qty per unit 2 pcs/ tonne 2 pcs/ M3
E Standard Qty. for actual 40,000 pcs. 1,16,000 pcs 1,56,000 pcs
production [A × D]
2. Calculation of Actual Price per unit of materials:

Material Quantity [A] Amount (₹) [B] Rate (₹) [C = B÷A]
SME 1,67,200 kg. 63,53,600 38.00
Detonators 1,18,400 pcs 24,27,200 20.50
Computation of material price variance:

Material Price Variance = Actual Qty. × (Std. Price - Actual Price) SME
= 1,67,200 kg. × (₹40 – ₹38) = ₹3,34,400 (F)
Detonators = 1,18,400 pcs × (₹20 – ₹20.5) = ₹59,200 (A)
Total = ₹2,75,200 (F)
Computation of material quantity variance:

Material Qty. Variance = Std. Price × (Std. Qty for actual output - Actual Qty.)
SME = ₹40 × (1,58,200 kg. - 1,67,200 kg.) = ₹3,60,000 (A)
Detonators = ₹20 × (1,56,000 pcs -1,18,400 pcs) = ₹7,52,000 (F)
Total = ₹3,92,000 (F)
Computation of material cost variance:

Material cost variance = Std. cost – Actual Cost
Or, (Std. Price × Std. Qty) – (Actual Price × Actual Qty.) SME
= (₹ 40 × 1,58,200 kg) – (₹ 38 × 1,67,200 kg.)
= ₹ 63,28,000 – ₹ 63,53,600 = ₹ 25,600 (A)

Detonators = (₹ 20 × 1,56,000 pcs) – (₹ 20.50 × 1,18,400 pcs)

= ₹31,20,000 – ₹24,27,200 = 6,92,800 (F)
Total = ₹6,67,200 (F)

Anju Limited produces a product 'Pect' which is sold in a 10 Kg. packet. The standard cost card per packet of
'Pect' are as follows:
₹
Direct materials 10 kg @ ₹ 45 per kg 450
Direct labour 8 hours @ ₹ 50 per hour 400
Variable Overhead 8 hours @ ₹ 10 per hour 80
Fixed Overhead 200
1,130
Budgeted output for the third quarter of a year was 10,000 Kg. Actual output is 9,000 Kg.
Actual cost for this quarter are as follows :
₹
Direct Materials 8,900 Kg @ ₹ 46 per Kg. 4,09,400
Direct Labour 7,000 hours @ ₹ 52 per hour 3,64,000
Variable Overhead incurred 72,500
Fixed Overhead incurred 1,92,000
You are required to CALCULATE:
(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance
(iv) Labour Efficiency Variance
(v) Labour Rate Variance
(vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance
Solution 7 :
(i) Material Usage Variance = Std. Price (Std.Quantity – Actual Quantity)
= ₹ 45 (9,000 kgs. – 8,900 kgs.)
= ₹ 4,500 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 8,900 kgs. (₹ 45 – ₹ 46)
= ₹ 8,900 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (9,000 kgs. × ₹ 45) – (8,900 kgs. × ₹ 46)
= ₹ 4,05,000 – ₹ 4,09,400
= ₹ 4,400 (Adverse)
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
9,000
= ₹ 50 ( 10 ×8hours – 7,000 hrs.)
= ₹ 50 (7,200 hrs. – 7,000 hrs.)
= ₹ 10,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 7,000 hrs. (₹ 50 – ₹ 52)
= ₹ 14,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (7,200 hrs. × ₹ 50) – (7,000 hrs. × ₹ 52)
= ₹ 3,60,000 – ₹ 3,64,000
= ₹ 4,000 (Adverse)
(vii) Variable Overhead Cost Variance = Std. Overhead for Actual Production – Actual Variable Overhead
Cost
= (7,200 hrs. × ₹ 10) – ₹ 72,500

= ₹ 500 (Adverse)
(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead – Actual Fixed Overhead
₹200
= 10 𝑘𝑔𝑠 ×9,000kgs.- ₹1,92,000
= ₹ 1,80,000 – ₹ 1,92,000
= ₹ 12,000 (Adverse)

Costing Practice Sheet - Chapter 13 - Marginal Costing

R Ltd. produces and sells 60,000 units of product 'AN', at its Noida Plant. The selling price of the product is ₹
15 per unit. The variable cost is 80% of selling price per unit. Fixed cost during this period is ₹ 4,20,000. The
company is continuously suffering losses, and management plans to shut down the Noida Plant.
The fixed cost is expected to be reduced by ₹ 2,50,000.
Additional costs of plant shut down are expected at ₹ 25,000.
You are required to comment on:
(i) Whether the Noida plant be shut down?
(ii) Find the shut-down point in units.
Solution 1 :
Statement of profit
Particulars ₹
Selling Price 15 per unit
Less : Variable cost 12 per unit
Contribution 3 per unit
Capacity 60,000 units
Total contribution (60,000 units × ₹ 3) 1,80,000
Less: Fixed Cost 4,20,000
Loss (2,40,000)
Shut down cost
Particular ₹
Fixed cost 1,70,000
Additional cost 25,000
Shut down cost 1,95,000
(i) Since the loss of Noida plant exceeds shut down cost it is better to shut down the plant.
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡−𝑆ℎ𝑢𝑡 𝑑𝑜𝑤𝑛 𝑐𝑜𝑠𝑡
(ii) Shut down point: 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
4,20,000−1,95,000
3
= 75,000 units
The solution can also be presented in following way

Statement of profit
Particulars If plant is continued ₹ If plant is shut down ₹
Selling Price 15 per unit -
Less : Variable cost 12 per unit -
Contribution 3 per unit -
Capacity 60,000 units -
Total contribution (60,000 units ×₹ 3) 1,80,000
Less : Fixed Cost 4,20,000 1,70,000
Additional Fixed Cost - 25,000
Loss 2,40,000 1,95,000
(i) Since the loss of Noida plant exceeds shut down cost it is better to shut down the plant.
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 − 𝑆ℎ𝑢𝑡 𝑑𝑜𝑤𝑛 𝑐𝑜𝑠𝑡
(ii) Shut down point: 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
4,20,000−1,95,000
3
= 75,000 units
RS Ltd. manufactures and sells a single product X whose selling price is ₹ 100 per unit and the variable cost is
₹ 60 per unit.
(i)If the Fixed Costs for this year are ₹ 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 ₹ 150 per unit
and the variable cost₹ 100 per unit. The total fixed costs are estimated at ₹ 28,00,000. The sales mix of X : Y
would be 5 : 3. COMPUTE the break-even sales in units for both the products.
Solution 2 :
(i) Contribution per unit = Selling price – Variable cost

= ₹ 100 – ₹ 60
= ₹ 40
₹24,00,000
Break-even Point = ₹40
= 60,000 units
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠−𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑠𝑎𝑙𝑒𝑠
Percentage Margin of Safety = 𝐴𝑐𝑡𝑢𝑎𝑙 𝑠𝑎𝑙𝑒𝑠
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠−60,000 𝑢𝑛𝑖𝑡𝑠
Or, 60% = 𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
Actual Sales = 1,50,000 units
(₹)
Sales Value (1,50,000 units × ₹ 100) 1,50,00,000
Less: Variable Cost (1,50,000 units × ₹ 60) (90,00,000)
Contribution 60,00,000
Less: Fixed Cost (24,00,000)
Profit 36,00,000
Less: Income Tax @ 40% (14,40,000)
Net Return 21,60,000
Rate of Net Return on Sales = 14.40% ( ₹21,60,000
₹1,50,00,000
× 100 )
(ii) Products
X (₹) Y (₹)
Selling Price per unit 100 150
Variable Cost per unit 60 100
Contribution per unit 40 50
Composite contribution will be as follows:
40
(
Contribution per unit = 8 × 5 + 8 × 3
50
) ( )
= 25 + 18.75 = ₹ 43.75
Break-even Sale = 64,000 units (
₹28,00,000
₹43.75 )
Break-even Sales Mix:
X (64,000 units × 5/8) = 40,000 units
Y (64,000 units × 3/8) = 24,000 units

The following information is given by PQR Ltd:
Year Sales (₹) Profit/(Loss) (₹)
2022-23 1,80,00,000 (3,80,000)
2023-24 2,40,00,000 11,20,000
(i) Calculate the Break even sales.
(ii) In 2024-25, it is estimated that the variable cost will go up by 5% and fixed cost will reduce by ₹4,80,000.
Selling price will remain same. Calculate the sales volume to earn a profit of ₹15,00,000.

LK Ltd. has an annual fixed cost of ₹ 98,50,000. In the year 2022-23, sales amounted to
₹7,80,60,000 as compared to ₹5,93,10,000 in the preceding year 2021-22. Profit in the year 2022-23 is
₹37,50,000 more than that in 2021-22.
Required:
(i) CALCULATE Break-even sales of the company;
(ii) DETERMINE profit/ loss on a forecasted sales volume of ₹8,20,00,000.
(iii) If there is a reduction in selling price by 10% in the financial year 2022-23 and company desires to earn the
same amount of profit as in 2021-22, COMPUTE the required sales amount?
Solution 4 :
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
(i) Break-even sales = 𝑃/𝑉 𝑅𝑎𝑡𝑖𝑜
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑜𝑓𝑖𝑡 ₹37,50,000
P/V Ratio = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠
× 100 or, ₹7,80,60,000−₹5,93,10,000
× 100

₹37,50,000
Or, ₹1,87,50,000 × 100 or 20%
₹98,50,000
Break-even sales = 20%
= ₹4,92,50,000
(ii) Profit/ loss = Contribution – Fixed Cost

= ₹8,20,00,000 × 20% - ₹98,50,000
= ₹1,64,00,000 – ₹98,50,000 = ₹65,50,000
(iii) To earn same amount of profit in 2022-23 as was in 2021-22, it has to earn the same amount of
contribution as in 2021-22.
Sales – Variable cost = Contribution equal to 2021-22 contribution
Contribution in 2021-22 = Sales in 2021-22 × P/V Ratio in 2021-22
= ₹5,93,10,000 × 20% = ₹1,18,62,000
Let the number of units to be sold in 2022-23 = X
Sales in 2022-23 – Variable cost in 2022-23 = Desired Contribution
90 X – 80 X = ₹1,18,62,000
Or, 10 X = 1,18,62,000
Or, X = 11,86,200 units
Therefore, Sales amount required to earn a profit equal to 2021-22 profit
= ₹ 90 × 11,86,200 units = ₹ 10,67,58,000

T Ltd., produces and sells 95,000 units of ‘X’ in a year at its 80% production capacity. The selling price of
product is ₹ 8 per unit. The variable cost is 75% of sales price per unit. The fixed cost is ₹ 3,50,000. The
company is continuously incurring losses and management plans to shut-down the plant. The fixed cost is
expected to be reduced to ₹ 1,30,000. Additional costs of plant shutdown are expected at ₹ 15,000.
Should the plant be shut-down? Find the shut-down point in units and also in percentage of capacity level of
production.
Solution 5 :
Statement Showing “Operating Loss”
If Plant is Continued If Plant is Shutdown
Sales 7,60,000 ---
Less: Variable Cost 5,70,000 ---
Contribution 1,90,000 ---
Less: Fixed Cost 3,50,000 1,30,000
Less: Additional Cost --- 15,000
Operating Loss 1,60,000 1,45,000
Decision on Shut Down
A comparison of loss figures (indicated as above) points out that loss is reduced by ₹15,000
(₹ 1,60,000 - ₹ 1,45,000) if plant is shut down.
→ Accordingly, plant should be Shut Down.
₹3,50,000−₹1,45,000
Shut Down Point = ₹8−₹6
= 1,02,500 units
Capacity Level at Shut Down Point (%)
At 100% Level – Production Capacity
= 1,18,750 × 0.80
Capacity Level at Shut Down Point
( )
1,02,500 𝑢𝑛𝑖𝑡𝑠
= 86.32% 1,18,750 𝑢𝑛𝑖𝑡𝑠

A company manufactures four products. The annual demand for products, selling prices and variable
production costs are as follows:
Product P Q R S
Demand (Units) 1,20,000 1,86,000 1,71,000 99,000
₹ ₹ ₹ ₹
Selling price/unit 23.88 28.68 55.08 47.88
Direct Material/Unit 10.08 13.20 30.48 24.96

Direct Labour/unit 4.08 4.08 6.72 6.36

Variable overheads/unit 1.44 1.44 2.40 2.16
Other data:
(i) The variable overheads are absorbed on a machine hour basis at a rate of ₹ 1.20 per machine hour.
(ii) Fixed overheads total ₹ 46,84,000 per annum.
(iii) Production capacity available 8,15,000 machine hours per annum.
(iv) Products P, Q and R can be bought-in at ₹ 21.36 per unit, ₹ 24 per unit and ₹ 48 per unit respectively.
You are required to calculate Best product mix and Profitability statement for the year.
Solution 6 :
(a) (i) Statement Showing “Calculation of Contribution/ unit”
P (₹) Q (₹) R (₹) S (₹)
Selling Price …(A) 23.88 28.68 55.08 47.88
Variable Cost
Direct Material 10.08 13.20 30.48 24.96
Direct Labour 4.08 4.08 6.72 6.36
Variable Overheads 1.44 1.44 2.40 2.16
Total Variable Cost …(B) 15.60 18.72 39.60 33.48
Contribution per unit …(A) - (B) 8.28 9.96 15.48 14.40
(ii) Calculation of Machine Hours/ unit

Machine Hours per unit 1.20 1.20 2.00 1.80
(iii) Machine Hours Required

Machine Hours per unit 1,44,000* 2,23,200% 3,42,000@ 1,78,200#
Total 8,87,400
* - (1,20,000 × 1.2); % - (1,86,000 × 1.2); @ - (1,71,000 × 2); # - (99,000 × 1.8)
(iv) Total Machine Hours Available 8,15,000. Hence, it is a key factor. Product ‘S’ is to be
manufactured, since it is not available with sub-contractor/ market.
(v) Statement Showing “Make or Buy for Products P, Q, R”
P Q R
(₹) (₹) (₹)
Sub-Contractor/ Buy Price 21.36 24.00 48.00
Less: Variable Manufacturing Cost 15.60 18.72 39.60
Saving in Cost 5.76 5.28 8.40
Saving in Cost per machine hour 4.8 4.4 4.20
Ranking I II III
(vi) Statement Showing “Best Product Mix”
Product Units Machine Hour/ Total Machine Hours
Unit
S 99,000 1.8 1,78,200
P 1,20,000 1.2 1,44,000
Q 1,86,000 1.2 2,23,200
R (Balance) 1,34,800 2.0 2,69,600
Total 8,15,000
Balance quantity of R to be purchased 36,200 units (1,71,000 – 1,34,800).
(vii) Profitability Statement

Product No of Units Contribution/unit (₹) Total Cont.
(₹)
P (Mfg) 1,20,000 8.28 9,93,600
Q (Mfg) 1,86,000 9.96 18,52,560
R (Mfg) 1,34,800 15.48 20,86,704
R (Buy) 36,200 7.08 (₹55.08 - ₹48.00) 2,56,296
S (Mfg) 99,000 14.40 14,25,600

Total Contribution 66,14,760

Less: Fixed Overheads 46,84,000
Net Profit 19,30,760
Question 7 :(MTP MArch 2024)

AB Ltd produces a single product V2 and sells it at a fixed price of ₹ 2,050 per unit. The production and sales
data for first quarter of the year 2023-24 are as follows:
April May June
Sales in units 4,200 4,500 5,200
Production in units 4,600 4,400 5,500
Actual/budget information for each month was as follows:
Direct materials 4 kilograms at ₹ 120 per kilogram
Direct labour 6 hours at ₹ 60 per hour
Variable production overheads 150% of direct labour
Fixed production overheads ₹ 5,00,000
Fixed selling overheads ₹ 95,000
There was no opening inventory at the start of the quarter. Fixed production overheads are budgeted at ₹
60,00,000 per annum and are absorbed into products based on a budgeted normal output of 60,000 units per
annum.
Required:
(i) Prepare a profit statement for each of the three months using absorption costing principles.
(ii) Prepare a profit statement for each of the three months using marginal costing principles.
(iii) Present a reconciliation of the profit or loss figures given in your answer to (i) and (ii).
Solution 7 :
(i) Statement of Profit under Absorption Costing
Particulars April (₹) May (₹) June (₹)

Sales (units) 4,200 4,500 5,200
Selling price per unit 2,050 2,050 2,050
Sales value (A) 86,10,000 92,25,000 1,06,60,000
Cost of Goods Sold:
Opening Stock @ ₹1,480 0 5,92,000 4,44,000
Production cost @ ₹1,480 68,08,000 65,12,000 81,40,000
Closing Stock @ ₹1,480 (5,92,000) (4,44,000) (8,88,000)
Under/ (Over) absorption 40,000 60,000 (50,000)
Add: Fixed Selling Overheads 95,000 95,000 95,000
Cost of Sales (B) 63,51,000 68,15,000 77,41,000
Profit (A – B) 22,59,000 24,10,000 29,19,000
Workings:
1. Calculation of full production cost
(₹)
Direct Materials (4 kg. × ₹ 120) 480
Direct labour (6 hours × ₹ 60) 360
Variable production Overhead (150% of ₹ 360) 540
Total Variable cost 1,380
(
₹60,00,000
Fixed production overhead 60,000𝑢𝑛𝑖𝑡𝑠 ) 100
1,480
2. Calculation of Opening and Closing stock

April May June
Opening Stock 0 400 300
Add: Production 4,600 4,400 5,500
Less: Sales 4,200 4,500 5,200
Closing Stock 400 300 600

3. Calculation of Under/Over absorption of fixed production overhead

April (₹) May (₹) June (₹)
Actual Overhead 5,00,000 5,00,000 5,00,000
Overhead absorbed 4,60,000 4,40,000 5,50,000
(4,600 units × ₹100) (4,400 units × ₹100) (5,500 units × ₹100)
Under/(Over) absorption 40,000 60,000 (50,000)
(ii) Statement of Profit under Marginal Costing

Sales (units) 4,200 4,500 5,200
Selling price per unit 2,050 2,050 2,050
Sales value 86,10,000 92,25,000 1,06,60,000
Less: Variable production 57,96,000 62,10,000 71,76,000
cost @ ₹1,380
Contribution 28,14,000 30,15,000 34,84,000
Less: Fixed 5,00,000 5,00,000 5,00,000
Production Overheads
Less: Fixed Selling Overheads 95,000 95,000 95,000
Profit 22,19,000 24,20,000 28,89,000
(iii) Reconciliation of profit under Absorption costing to Marginal Costing

Profit under Absorption 22,59,000 24,10,000 29,19,000
Costing
Add: Opening Stock 0 40,000 30,000
(400 × ₹100) (300 × ₹100)
Less: Closing Stock 40,000 30,000 60,000
(400 × ₹100) (300 × ₹100) (600 × ₹100)
Profit under Marginal Costing 22,19,000 24,20,000 28,89,000

PQ Ltd. sells bottles and currently is trying to find out the profitability of opening another store which will have
the following expenses and revenues:
Amount per piece (₹)
Selling Price 600
Variable costs:
Material cost 410
Salesmen’s commission 60
Total variable cost 470
Annual fixed expenses are: (₹)
- Rent 6,00,000
- Office and administrative expenses 20,00,000
- Advertising 8,00,000
- Other fixed expenses 2,00,000
Calculate the annual break-even point in units and in value. Also determine the profit or loss if 35,000 units of
bottles are sold.
Solution 8 :
Total Fixed Cost = ₹ 6,00,000 + ₹20,00,000 + ₹8,00,000 + ₹ 2,00,000 = ₹ 36,00,000
Contribution per unit = ₹600 - ₹470 = ₹130
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡 ₹130

P/V Ratio = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔𝑃𝑟𝑖𝑐𝑒
×100 = ₹600
x 100 = 21.67%
𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 ₹36,00,000

Break-even Point = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡
= ₹130
= 27,692.31 or 27,693 units

𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 ₹36,00,000

Break-even Sales = 𝑃/𝑉 𝑅𝑎𝑡𝑖𝑜
= 21.67 %
= ₹1,66,12,829
Calculation of Profit/ (loss):
Total Contribution (₹130 × 35,000 units) = ₹45,50,000

Less: Fixed Cost = ₹36,00,000
Profit = ₹ 9,50,000

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 had an opening stock of 20,000 packets whose variable cost was ₹ 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.
Solution 9 :
Working Notes:
Particulars 2022-23 (₹) 2023-24 (₹)

72,00,000 79,20,000
Fixed Cost
(₹ 60 × 1,20,000 units) (110% of ₹ 72,00,000)
225
Variable Cost 180
(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
79,20,000
in 2023- 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
= ₹300 −₹ 225 = 73,600 packets.
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

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?
Solution 10 :
(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
32,00,000 24,00,000
Total Contribution
(₹ 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
34,40,000 30,00,000
Total Contribution at full capacity
(₹ 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
48,00,000 30,00,000
Total contribution
(₹ 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.

The analysis of cost sheet of A Ltd. for the last financial year has revealed the following information for it’s
product R:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of cost of goods sold --
Direct Labour 15% of cost of goods sold --
Factory Overhead 10% of cost of goods sold ₹ 2,30,000
General & Administration Overhead 2% of cost of goods sold ₹ 71,000
Selling & Distribution Overhead 4% of cost of sales ₹ 68,000
Last year 5,000 units were sold at ₹185 per unit.
You being an associate to cost controller of the A Ltd., CALCULATE :
(i) Break-even Sales (in rupees),
(ii) Profit earned during last year,
(iii) Margin of safety (in %) and
(iv) The profit if the sales were 10% less than the actual sales.
Solution 11 :
Workings:
Calculation of Cost of Goods Sold (COGS):
COGS = {(DM- 0.3 COGS) + (DL- 0.15 COGS) + (FOH- 0.10 COGS +
₹ 2,30,000) + (G&AOH- 0.02 COGS + ₹ 71,000)} Or COGS = 0.57 COGS + ₹ 3,01,000
₹3,01,000
Or COGS = 0.43
= ₹ 7,00,000
Calculation of Cost of Sales (COS):
COS = COGS + (S&DOH- 0.04 COS + ₹ 68,000)
Or COS = ₹ 7,00,000 + (0.04 COS + ₹ 68,000)
₹7,68,000
Or COS = 0.96 = ₹ 8,00,000

Calculation of total Fixed Costs:

Factory Overhead ₹ 2,30,000
General & Administration OH ₹ 71,000
Selling & Distribution OH ₹ 68,000
₹ 3,69,000
Calculation of Variable Costs:

Direct Material (0.3 × ₹ 7,00,000) ₹ 2,10,000
Direct Labour (0.15 × ₹ 7,00,000) ₹ 1,05,000
Factory Overhead (0.10 × ₹ 7,00,000) ₹ 70,000
General & Administration OH (0.02 × ₹ 7,00,000) ₹ 14,000
Selling & Distribution OH (0.04 × ₹ 8,00,000) ₹ 32,000
₹ 4,31,000
Calculation of P/V Ratio:

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑆𝑎𝑙𝑒𝑠− 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
P/V Ratio = 𝑆𝑎𝑙𝑒𝑠
× 100 = 𝑆𝑎𝑙𝑒𝑠
× 100
(₹185×5,000 𝑢𝑛𝑖𝑡𝑠)−₹4,31,000
= ₹185×5,000 𝑢𝑛𝑖𝑡𝑠
×100 = 53.41%
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠 ₹3,69,000
(i) Break-Even Sales = 𝑃 / 𝑉 𝑅𝑎𝑡𝑖𝑜 = 53.41% = ₹ 6,90,882
(ii) Profit earned during the last year
= (Sales – Total Variable Costs) – Total Fixed Costs
= (₹ 9,25,000 - ₹ 4,31,000) - ₹ 3,69,000
= ₹ 1,25,000
𝑆𝑎𝑙𝑒𝑠−𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑆𝑎𝑙𝑒𝑠
(iii) Margin of Safety (%) = 𝑆𝑎𝑙𝑒𝑠
×100
₹9,25,000−₹6,90,882
= ₹9,25,000
×100 = 25.31%
(iv) Profit if the sales were 10% less than the actual sales:
Profit = 90% (₹ 9,25,000 - ₹ 4,31,000) - ₹ 3,69,000
= ₹ 4,44,600 - ₹ 3,69,000 = ₹ 75,600

Costing Practice Sheet - Chapter 14 - Budgetary Costs

HL Limited produces and sells four varieties of beverage. The past data shows different demand patterns for
various quarters during the year. The sales quantity and selling price for the month of September 2023 is as
follows:
Sales Quantity Selling Price per unit
Hot Coffee 1,40,000 Units ₹ 20/-
Cold Coffee 3,40,000 Units ₹ 40/-
Fruit Juice 4,20,000 Units ₹ 20/-
Carbonated Soft Drink 2,70,000 units ₹ 20/-
For the quarter October to December 2023, it is estimated that due to climate changes the demand for Hot
Coffee would increase every month by 50% of the previous month and the demand for Cold Coffee would
decrease every month by 30% of the previous month. The demand for Fruit Juice would decrease by 20% in
the month of October 2023 and thereafter it will remain constant. HL Limited would be able to sell only 60,000
units, 50,000 units and 30,000 units of Carbonated Soft Drink respectively during the months of October,
November and December 2023. There would be no change in the selling price of all the products during the
next quarter.
Standard Quantity of closing stock for the period September 2023 to December 2023 is as follows:
(in units)
Hot Coffee Cold Coffee Fruit Juice Carbonated Soft Drink
September 2023 12,000 13,000 11,000 7,500
October 2023 15,000 14,000 12,000 5,500
November 2023 13,000 15,000 10,000 6,000
December 2023 11,000 16,000 13,000 7,000
You are required to prepare a Production Budget (in units) and Sales Budget (in units and sales value) for the
months of October, November and December 2023.
Solution 1 :
Production Budget (in units)
Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated Soft Drink
October 2023
Sales* 2,10,000 2,38,000 3,36,000 60,000
Add: Closing stock 15,000 14,000 12,000 5,500
Total Quantity Required 2,25,000 2,52,000 3,48,000 65,500
Less: Opening stock 12,000 13,000 11,000 7,500
Production 2,13,000 2,39,000 3,37,000 58,000
November 2023
Sales* 3,15,000 1,66,600 3,36,000 50,000
Production 3,13,000 1,67,600 3,34,000 50,500
December 2023
Sales* 4,72,500 1,16,620 3,36,000 30,000
Production 4,70,500 1,17,620 3,39,000 31,000
*sales units are taken from sales budget
Sales Budget (in Units and sales value)

Particulars Hot Coffee Cold Coffee Fruit Juice Carbonated Soft Drink
October 2023 2,10,000 2,38,000 3,36,000 60,000
(in units) [1,40,000+ [3,40,000- [420000-
(1,40,000 x50%)] (3,40,000 x 30%)] (4,20,000x20%)]
October 2023 42,00,000 95,20,000 67,20,000 12,00,000
(Sales Value in ₹) (2,10,000 x ₹ 20) (2,38,000 x ₹ 40) (3,36,000 x ₹20) (60,000 x ₹ 20)
November 2023 3,15,000 1,66,600 3,36,000 50,000

(in units) [2,10,000+ [2,38,000-

(2,10,000 x 50%)] (2,38,000 x 30%)]
November 2023 63,00,000 66,64,000 67,20,000 10,00,000
(Sales Value in ₹) (3,15,000 x ₹ 20) (1,66,600 x ₹ 40) (3,36,000 x ₹ 20) (50,000 x ₹ 20)
December 2023 4,72,500 1,16,620 3,36,000 30,000
(in units) [3,15,000+ [1,66,600-
(3,15,000 x 50%)] (1,66,600 x 30%)]
December 2023 94,50,000 46,64,800 67,20,000 6,00,000
(Sales Value in ₹) (4,72,500x ₹ 20) (1,16,620x ₹ 40) (3,36,000 x ₹ 20) (30,000 x ₹ 20)
Sales Budget can also be presented in following way:

Oct 2023 Nov 2023 Dec 2023
Quantity Amount Quantity Amount Quantity Amount
(units) (₹) (units) (₹) (units) (₹)
Hot Coffee @ ₹ 20 per unit 2, 10,000 42,00,000 3,15,000 63,00,000 4,72,500 94,50,000
Cold Coffee @ ₹ 40 per unit 2,38,000 95,20,000 1,66,600 66,64,000 1,16,620 46,64,800
Fruit Juice @ ₹ 20 per unit 3,36,000 67,20,000 3,36,000 67,20,000 3,36,000 67,20,000
Carbonated Soft Drink @ ₹ 60,000 12,00,000 50,000 10,00,000 30,000 6,00,000
20 per unit
2,16,40,000 2,06,84,000 2,14,34,800

A business manufactures a single product and is preparing its production budget for the year ahead. It is
estimated that 2,00,000 units of the product can be sold in the year and the opening inventory is currently
25,000 units. The inventory level is to be reduced by 40% by the end of the year. What is production budget in
units?
(a) 1,95,000 units
(b) 1,90,000 units
(c) 1,84,000 units
(d) 1,75,000 units
Solution 2 :
(b) 1,90,000 units
Units
Sales budget 2,00,000
Add: Closing Inventory (25,000 x 0.6) 15,000
Less: Opening Inventory (25,000)
Production Budget 1,90,000

Raja Ltd manufactures and sells a single product and has estimated sales revenue of ₹ 302.4 lakh during the
year based on 20% profit on selling price. Each unit of product requires 6 kg of material A and 3 kg of material
B and processing time of 4 hours in machine shop and 2 hours in assembly shop. Factory overheads are
absorbed at a blanket rate of 20% of direct labour. Variable selling & distribution overheads are ₹ 60 per unit
sold and fixed selling & distribution overheads are estimated to be ₹ 69,12,000.
The other relevant details are as under:
Purchase Price: Material A ₹ 160 per kg
Materials B ₹ 100 per kg
Labour Rate: Machine Shop ₹ 140 per hour
Assembly Shop ₹ 70 per hour
Finished Stock Material A Material B

Opening Stock 2,500 units 7,500 kg 4,000 kg
Closing Stock 3,000 units 8,000 kg 5,500 kg
Required
(i) CALCULATE number of units of product proposed to be sold and selling price per unit,
(ii) PREPARE Production Budget in units and

(iii) PREPARE Material Purchase Budget in units.
Solution 3 :
Workings
Statement Showing “Total Variable Cost for the year”
Estimated Sales Revenue 3,02,40,000
Less: Desired Profit Margin on Sale @ 20% 60,48,000
Estimated Total Cost 2,41,92,000
Less: Fixed Selling and Distribution Overheads 69,12,000
Total Variable Cost 1,72,80,000
Statement Showing “Variable Cost per unit”

Particulars Variable Cost p.u. (₹)
Direct Materials:
A: 6 Kg. @ ₹ 160 per kg. 960
B: 3 Kg. @ ₹ 100 per kg. 300
Labour Cost:
Machine Shop: 4 hrs @ ₹ 140 per hour 560
Assembly Shop: 2 hrs @ ₹ 70 per hour 140
Factory Overheads: 20% of (₹ 560 + ₹ 140) 140
Variable Selling & Distribution Expenses 60
Total Variable Cost per unit 2,160
(i) Calculation of number of units of product proposed to be sold and selling price per unit:
Number of Units Sold = Total Variable Cost/Variable Cost per unit
= ₹ 1,72,80,000 / ₹ 2,160
= 8,000 units
Selling Price per unit = Total Sales Value / Number of Units Sold
= ₹ 3,02,40,000 / 8,000 units
= ₹ 3,780
(ii) Production Budget (units)
Particulars Units
Budgeted Sales 8,000
Add: Closing Stock 3,000
Total Requirements 11,000
Less: Opening Stock (2,500)
Required Production 8,500
(iii) Materials Purchase Budget (Kg.)

Particulars Material Material
A B
Requirement for Production 51,000 25,500
(8,500 units × 6 Kg.) (8,500 units × 3Kg.)
Add: Desired Closing Stock 8,000 5,500
Total Requirements 59,000 31,000
Less: Opening Stock (7,500) (4,000)
Quantity to be purchased 51,500 27,000

Following data is available for XYZ Ltd. for the month of February 2024:
Standard working hours 8 hours per day of 6 days per week
No. of weeks in the month 4
Maximum capacity 150 employees
Actual working 125 employees
Actual usage of Budgeted Capacity Ratio 86%
Efficiency Ratio 110%
You are required to calculate the following:

(i) Actual Hours worked.

(ii) Standard Hours for actual output.
(iii) Activity Ratio.
(iv) Standard Capacity Usage Ratio.

A factory is currently working at 60% capacity and produces 12,000 units of a product. Management is
thinking to increase the working capacity either to 70% or 90% level. It is estimated that at both the levels, it
will be able to sell all the produced units. The other details are as under:
● At 70% capacity, the cost of raw materials increases by 4% and the selling price falls by 3%.
● At 90% capacity, the cost of raw materials increase by 5% and selling price falls by 4%.
● At 60% capacity, the product cost is ₹360 per unit and it is sold at ₹400 per unit.
● The unit cost of ₹360 consists of the following:
Material - ₹200
Labour - ₹60
Factory overhead - ₹60 (50% fixed)
Administrative & Selling overhead - ₹40 (60% fixed)
● Additional advertising cost of ₹20,000 is to be incurred for selling the product above 80% capacity.
(i) Calculate the profits of the company when the factory works at 60%, 70% and 90% capacity level.
(ii) Offer your comments regarding increase in the capacity based on profit calculated.

G Ltd. manufactures two products called ‘M’ and ‘N’. Both products use a common raw material Z. The raw
material Z is purchased @ ₹ 36 per kg from the market. The company has decided to review inventory
management policies for the forthcoming year.
The following information has been extracted from departmental estimates for the year ended 31st March
2023 (the budget period):
Product M Product N
Sales (units) 28,000 13,000
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg
Material Z wastage (%) 10 5
Additional information:
● Usage of raw material Z is expected to be at a constant rate over the period.
● Annual cost of holding one unit of raw material in stock is 11% of the material cost.
● The cost of placing an order is ₹ 320 per order.
● The management of G Ltd. has decided that there should not be more than 40 orders in a year for the
raw material Z.
Required:
(a)Prepare functional budgets for the year ended 31st March 2023 under the following headings:
(i) Production budget for Products M and N (in units).
(ii) Purchases budget for Material Z (in kgs and value).
(b) Calculate the Economic Order Quantity for Material Z (in kgs).
Solution 6 :
(a) (i) Production Budget (in units) for the year ended 31st March 2023
Product M Product N
Budgeted sales (units) 28,000 13,000
Add: Increase in closing stock 320 160
No. good units to be produced 28,320 13,160
Post production rejection rate 4% 6%
No. of units to be produced 29,500 14,000
( 28,320
0.96 ) ( 13,160
0.94 )
(ii) Purchase budget (in kgs and value) for Material Z

Product M Product N
Usage of Material Z per unit of production 5 kg. 6 kg.
Material needed for production 1,47,500 kg. 84,000 kg.
Materials to be purchased 1,63,889 kg. 88,421 kg.
( 1,47,500
0.90 ) ( 84,000
0.95 )
Total quantity to be purchased 2,52,310 kg.
Rate per kg. of Material Z ₹36
Total purchase price ₹90,83,160
(b) Calculation of Economic Order Quantity for Material Z

2×2,52,310 𝑘𝑔×₹320 16,14,78,400
EOQ = 36×11%
= ₹3.96
= 6,385.72 kg.

N Ltd., a vehicle manufacturer, has prepared sales budget for the next few months, and the following draft
figures are available:
Month No. of vehicles
October 40,000
November 35,000
December 45,000
January 60,000
February 65,000
To manufacture a vehicle a standard cost of ₹5,71,400 is incurred and sold through dealers at a uniform
selling price of ₹8,57,100 to customers. Dealers are paid 15% commission on selling price on sale of a vehicle.
Apart from other materials four units of Part - X are required to manufacture a vehicle. It is a policy of the
company to hold stocks of Part-X at the end of each month to cover 40% of next month’s production. 48,000
units of Part-X are in stock as on 1st October.
There are 9,500 nos. of completed vehicles are in stock as on 1st October and it is policy to have
stocks at the end of each month to cover 20% of the next month’s sales.
You are required to -
(i) Prepare Production budget (in nos.) for the month of October, November, December and January.
(ii) Prepare a Purchase budget for Part-X (in units) for the months of October, November and December.
(iii) Calculate the budgeted gross profit for the quarter October to December
Solution 7 :
(i) Preparation of Production Budget (in units)
October November December January
Demand for the month (Nos.) 40,000 35,000 45,000 60,000
Add: 20% of next month’s demand 7,000 9,000 12,000 13,000
Less: Opening Stock (9,500) (7,000) (9,000) (12,000)
Vehicles to be produced 37,500 37,000 48,000 61,000
(ii) Preparation of Purchase budget for Part-X

October November December
Production for the month 37,500 37,000 48,000
(Nos.)
Add: 40% of next month’s 14,800 19,200 24,400
production (40% of 37,000) (40% of 48,000) (40% of 61,000)
52,300 56,200 72,400
No. of units required for 2,09,200 2,24,800 2,89,600
production (52300 × 4 units) (56200 × 4 units) (72,400 × 4 units)
Less: Opening Stock (48,000) (59,200) (76,800)
(14800 × 4 units) (19200 × 4 units)
No. of units to be purchased 1,61,200 1,65,600 2,12,800

(iii) Budgeted Gross Profit for the Quarter October to December

October November December Total
Sales in nos. 40,000 35,000 45,000 1,20,000
Net Selling Price per unit* 7,28,535 7,28,535 7,28,535
Sales Revenue (₹ in lakh) 2,91,414 2,54,987.25 3,27,840.75 8,74,242
Less: Cost of Sales (₹ in lakh) 2,28,560 1,99,990.00 2,57,130.00 6,85,680
(Sales unit × Cost per unit)
Gross Profit (₹ in lakh) 62,854 54,997.25 70,710.75 1,88,562
* Net Selling price unit = ₹ 8,57,100 – 15% commission on ₹ 8,57,100 = ₹7,28,535.
Question 8 : (MTP MARCH 2024)

P Ltd. manufactures two products called ‘X’ and ‘Y’. Both products use a common raw material Z. The raw
material Z is purchased @ ₹ 72 per kg from the market. The company has decided to review inventory
management policies for the forthcoming year.
The following forecast information has been extracted from departmental estimates for the year ended 31st
March 2025 (the budget period):
Product X Product Y
Sales (units) 28,000 13,000
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg
Material Z wastage (%) 10 5
● Usage of raw material Z is expected to be at a constant rate over the period.
● Annual cost of holding one unit of raw material in stock is 11% of the material cost.
● The cost of placing an order is ₹ 15,600 per order.
● The management of P Ltd. has decided that there should not be more than 40 orders in a year for the
raw material Z.
Required:
(a) (i) Prepare Production budget for Products X and Y (in units) for the year ended 31st March 2025.
(ii) Calculate the Economic Order Quantity for Material Z (in kgs).
(b)Prepare Purchases budget for Material Z (in kgs and value) for the year ended 31st March 2025.
(c)If there is a sole supplier for the raw material Z in the market and the supplier do not sale more than 4,000
kg. of material Z at a time. Keeping the management purchase policy and production quantity mix into
consideration, calculate the maximum number of units of Product X and Y that could be produced.
Solution 8 :
(a) (i) Production Budget (in units) for the year ended 31st March 2025
Product X Product Y
Budgeted sales (units) 28,000 13,000
Add: Increase in closing stock 320 160
No. good units to be produced 28,320 13,160
Post production rejection rate 4% 6%
( 28,320
0.96 ) ( 13,160
0.94 )
(ii) Calculation of Economic Order Quantity for Material Z
2×2,52,310×15,600 5,04,620×15,600
EOQ = 72×11%
= 72×11%
= 31,526.95 kg.
(b) Purchase budget (in kgs and value) for Material Z
Product X Product Y
Usage of Material Z per unit of 5 kg. 6 kg.
production
Material needed for production 1,47,500 kg. 84,000 kg.
Materials to be purchased 1,63,889 kg. 88,421 kg.

( 1,47,500
0.90 ) ( 84,000
0.95 )
Total quantity to be purchased 2,52,310 kg.
Rate per kg. of Material Z ₹72
Total purchase price ₹1,81,66,320
(c)
Since, the maximum number of orders per year cannot be more than 40 orders and the maximum quantity per
order that can be purchased is 4,000 kg. Hence, the total quantity of Material Z that can be available for
production:
= 4,000 kg. × 40 orders =1,60,000 kg.
Product X Product Y
Material needed for 1,03,929 kg. 56,071 kg.
production to maintain the
same production mix
( 1,63,889
1, 60, 000 × 2,52,310 ) ( 88,421
1, 60, 000 × 2,52,310 )
Less: Process wastage 10,393 kg. 2,804 kg.
Net Material available for 93,536 kg. 53,267 kg.
production
Units to be produced 18,707 units 8,878 units
( 93,536𝑘𝑔
5 𝐾𝑔 ) ( 53,267𝑘𝑔
6 𝐾𝑔 )

Aman International School has a total of 180 students consisting of 6 sections with 30 students per section.
The school plans for a picnic around the city during the week-end to places such as Prayag zoo, the Capi Park,
Azad planetarium etc. A private transport operator has come forward to lease out the buses for taking the
students. Each bus will have a maximum capacity of 50 (excluding 2 seats reserved for the teachers
accompanying the students). The school will employ two teachers for each bus, paying them an allowance of
₹ 500 per teacher. It will also lease out the required number of buses. The following are the other cost
estimates:
Cost per student (₹)
Breakfast 50
Lunch 100
Tea 10
Entrance fee at zoo 20
Rent ₹ 6500 per bus.
Special permit fee ₹ 500 per bus.
Block entrance fee at the planetarium ₹ 2500. Prizes to students for games ₹ 500.
No cost are incurred in respect of the accompanying teachers (except the allowance of ₹ 500 per teacher).
You are required to PREPARE:
(a)A flexible budget estimating the total cost for the levels of 60, 90,120,150 and 180 students. Each item of
cost is to be indicated separately.
(b)COMPARE the average cost per student at these levels.
(c)WHAT will be your conclusions regarding the break-been level of student if the school proposes to collect ₹
400 per student?
Solution 9 :
(a) Flexible Budget for different levels
₹ ₹ ₹ ₹ ₹
No. of Students 60 90 120 150 180
VARIABLE COST
Breakfast 3000 4500 6000 7500 9000

Lunch 6000 9000 12000 15000 18000
Tea 600 900 1200 1500 1800

Entrance fee 1200 1800 2400 3000 3600

Sub-total (A) 10800 16200 21600 27000 32400
Variable cost/unit 180 180 180 180 180
SEMI-VARIABLE COST
Bus rent 13000 13000 19500 19500 26000
Special permit fee 1000 1000 1500 1500 2000
Allowance 2000 2000 3000 3000 4000
for teachers
Sub-total (B) 16000 16000 24000 24000 32000
FIXED COST
Block entrance fee 2500 2500 2500 2500 2500
Prize to students 500 500 500 500 500
Sub total (C) 3000 3000 3000 3000 3000
Total cost (A + B + C) 29,800 35,200 48,600 54,000 67,400
(b)Cost per student 496.67 391.11 405.00 360.00 374.44
(c) Break-even level ₹

Collection per students 400
Less Variable Cost 180
Contribution 220
Since semi-fixed costs relate to a block of 50 students, the fixed and semi-variable cost for three level will be:
Level of Student 51–100 101–150 151-200
Fixed + Semi–variable cost (₹) 19,000 27,000 35,000
Contribution per unit (₹) 220 220 220
Break Even level of students 86 123 159

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.
Solution 10 :
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
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

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
Question 11: (RTP May 2024)

M Ltd. is a public sector undertaking (PSU), producing a product A. The company is in the process of preparing
its revenue budget for the year 2024. The company has the following information which can be useful in
preparing the budget:
(i) It has anticipated 12% growth in sales volume from the year 2023 of 4,20,000 tonnes.
(ii) The sales price of ₹ 23,000 per tonne will be increased by 10% provided Wholesale Price Index (WPI)
increases by 5%.
(iii) To produce one tonne of product A, 2.3 tonnes of raw material are required. The raw material cost is ₹
4,500 per tonne. The price of raw material will also increase by 10% if WPI increase by 5%.
(iv) The projected increase in WPI for 2024 is 4%
(v) A total of 6,000 employees works for the company. The company works 26 days in a month.
(vi) 85% of employees of the company are permanent and getting salary as per 5- year wage agreement. The
earnings per manshift (means an employee cost for a shift of 8 hours) is ₹ 3,000 (excluding terminal benefits).
The new wage agreement will be implemented from 1st July 2024 and it is expected that a 15% increase in pay
will be given.
(vii) The casual employees are getting a daily wage of ₹ 850. The wages in linked to Consumer Price Index
(CPI). The present CPI is 165.17 points and it is expected to be 173.59 points in year 2024.
(viii) Power cost for the year 2023 is ₹ 42,00,000 for 7,00,000 units (1 unit = 1 Kwh). 60% of power is used for
production purpose (directly related to production volume) and remaining are for employee quarters and
administrative offices.
(ix) During the year 2023, the company has paid ₹ 60,00,000 for safety and maintenance works. The amount
will increase in proportion to the volume of production.
(x) During the year 2023, the company has paid ₹ 1,20,000 for the purchase of diesel to be used in car hired
for administrative purposes. The cost of diesel will increase by 15% in year 2024.
(xi) During the year 2023, the company has paid ₹ 6,00,000 for car hire charges (excluding fuel cost). In year
2024, the company has decided to reimburse the diesel cost to the car rental company. Doing this will attract
5% GST on Reverse Charge Mechanism (RCM) basis on which the company will not get GST input credit.
(xii) Depreciation on fixed assets for the year 2023 is ₹ 80,40,00,000 and it will be 15% lower in 2024.
You being an associate to the budget controller of the company, PREPARE Revenue (Flexible) budget for the
year 2024 and also show the budgeted profit/ loss for the year.
Solution 11 :
Revenue Budget (Flexible Budget) of M Ltd. for the Year 2024
Particulars PY 2023 CY 2024

A Sales Volume (Tonnes) 4,20,000 4,70,400

[112%×4,20,000]
B Selling Price per tonne (₹) 23,000 23,000
(₹ in lakh) (₹ in lakh)
C Sales value [A×B] 96,600 1,08,192
D Raw material Cost:
(i) Qty. of Material [2.3 tonnes × A] 9,66,000 10,81,920
(tonnes)
(ii) Price per tonne (₹) 4,500 4,500
(iii) Total raw material cost [(i)×(ii)] 43,470 48,686.40
E Wages & Salary Cost:
(i) Wages to casual employees 2,386.80 2,508.47
(15%×6,000 = 900 employees) [900×26×12×₹850] [900×26×12×₹893.33]
(ii) Salary to permanent employees 47,736 51,316.20
(85%×6,000 =5,100 employees) [5100×26×12×₹3,000] [(5100×26×6×₹3,000) +
(5100×26×6×₹3,450)]
(iii) Total wages & salary [(i)+(ii)+(iii)] 50,122.80 53,824.67
F Power cost:
(i) For production (units) 4,20,000 4,70,400
[60%×7,00,000] [112%×4,20,000]
(ii) For employees & offices (units) 2,80,000 2,80,000
[40%×7,00.000]
(iii) Total Power consumption (units) 7,00,000 7,50,400
[(i)+(ii)]
(iv) Power rate per unit (₹) 6.00 6.00
[₹42,00,000÷7,00,000]
(v) Total power cost [(iii)×(iv)] 42 45.024
G Safety and maintenance Cost 60 67.20
[112%×4,20,000]
H Diesel cost 1.2 -
I Car Hire charge:
(i) Car hire charge 6 6
(ii) Fuel reimbursement cost - 1.38
[115%×1.2]
(iii) GST@5% on RCM basis [5%×(i+ii)] - 0.369
(iv) Total Car hire charge cost 6 7.749
[(i)+(ii)+(iii)]
J Depreciation 8,040 6,834
[85%×8040]
K Total Cost [Sum of D to J] 1,01,742 1,09,465.043
L Profit/ (Loss) [C-L] (5,142) (1273.043)

Bicon Ltd. manufactures two products using two types of materials and one grade of labour. Shown below is
an extract from the company’s working papers for the next month’s budget:
Product - A Product-B
Budgeted sales (in units) 2,400 3,600
Budgeted material consumption per unit (in kg):
Material-X 5 3
Material-Y 4 6
Standard labour hours allowed per unit of product 3 5
Material-X and Material-Y cost ₹ 4 and ₹ 6 per kg and labours are paid ₹ 25 per hour. Overtime premium is 50%
and is payable, if a worker works for more than 40 hours a week. There are 180 direct workers.
The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in
actually manufacturing the products is 80%. In addition the non-productive down-time is budgeted at 20% of
the productive hours worked.
There are four 5-days weeks in the budgeted period and it is anticipated that sales and production will occur
evenly throughout the whole period.

It is anticipated that stock at the beginning of the period will be:

Product-A 400 units
Product-B 200 units
Material-X 1,000 kgs.
Material-Y 500 kgs.
The anticipated closing stocks for budget period are as below:
Product-A 4 days sales
Product-B 5 days sales
Material-X 10 days consumption
Material-Y 6 days consumption
Required:
CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers, showing the
quantities and values, for the next month.
Solution 12 :
Number of days in budget period = 4 weeks × 5 days = 20 days
Number of units to be produced
Product-A Product-B
(units) (units)
Budgeted Sales 2,400 3,600
Add: Closing stock
( 2,400 𝑢𝑛𝑖𝑡𝑠
20 𝑑𝑎𝑦𝑠
× 4 𝑑𝑎𝑦𝑠 )(
× 5 𝑑𝑎𝑦𝑠
20 𝑑𝑎𝑦𝑠 ) 480 900
Less: Opening stock 400 200
Production (units) 2,480 4,300
(i) Material Purchase Budget

Material-X (Kg.) Material-Y (Kg.)
Material required:
Product-A 12,400 9,920
(2,480 units × 5 kg.) (2,480 units × 4 kg.)
Product-B 12,900 25,800
(4,300 units × 3 kg.) (4,300 units × 6 kg.)
25,300 35,720
Add: Closing stock
(25,300 𝑘𝑔𝑠
20 𝑑𝑎𝑦𝑠
× 10 𝑑𝑎𝑦𝑠 ) 12,650 10,716
( 35,720 𝑘𝑔𝑠
20 𝑑𝑎𝑦𝑠
× 6 𝑑𝑎𝑦𝑠)
Less: Opening stock 1,000 500
Quantity to be purchased 36,950 45,936
Rate per kg. of Material ₹4 ₹6
Total Cost ₹ 1,47,800 ₹ 2,75,616
(ii) Wages Budget

Product-A (Hours) Product-B (Hours)
Units to be produced 2,480 units 4,300 units
Standard hours allowed per unit 3 5
Total Standard Hours allowed 7,440 21,500
Productive hours required for 7,440 ℎ𝑜𝑢𝑟𝑠
=9,300
21,500 ℎ𝑜𝑢𝑟𝑠
=26,875
80% 80%
production
Add: Non-Productive down time 1,860 hours. 5,375 hours.
(20% of 9,300 hours) (20% of 26,875 hours)
Hours to be paid 11,160 32,250
Total Hours to be paid = 43,410 hours (11,160 + 32,250)
Hours to be paid at normal rate = 4 weeks × 40 hours × 180 workers
= 28,800 hours
Hours to be paid at premium rate = 43,410 hours – 28,800 hours = 14,610 hours
Total wages to be paid = 28,800 hours × ₹ 25 + 14,610 hours × ₹ 37.5
= ₹ 7,20,000 + ₹ 5,47,875 = ₹ 12,67,875


PPP Ltd. is currently operating at 80% of its capacity producing 80,000 units. For the past two years, the
production is increasing by 10% of its capacity consistently. The cost details are as follows:
Year 3 Year 2 Year 1 (Current
year)
(₹) (₹) (₹)
Direct Materials 12,00,000 14,00,000 16,00,000
Direct Labour 6,00,000 7,00,000 8,00,000
Factory Overheads 3,20,000 3,40,000 3,60,000
Selling Overheads 3,40,000 3,80,000 4,20,000
Administrative Overheads 1,60,000 1,60,000 1,60,000
26,20,000 29,80,000 33,40,000
The company is planning for 90% capacity level for next year.
Due to increase in demand of the raw material, the distributor is expected to increase the price by 10% from
the next year.
At the beginning of the current year, the dispute occurred between workers and employees regarding wages
which lead them to go on strike. Later on, they settled for 20% increase in wages from next year.
Following increases in overhead cost are expected for next year:
Variable Factory Overheads 5%
Fixed Factory Overheads 10%
Variable Selling Overheads 10%
Fixed Selling Overheads 15%
Administrative Overheads 15%
Profit is estimated @ 25% on total cost.
You are required to PREPARE flexible budget for the next year at 90% level of capacity.
Also ascertain profit and contribution.
Solution 13 :
PPP Ltd.
Budget for 90% capacity level for the next year
Budgeted production (units) 90,000
Per Unit Amount
(₹) (₹)
Direct Material (note 2) 22 19,80,000
Direct Labour (note 3) 12 10,80,000
Variable factory overhead (note 4) 2.10 1,89,000
Variable selling overhead (note 5) 4.40 3,96,000
Variable cost 40.50 36,45,000
Fixed factory overhead (note 4) 2,20,000
Fixed selling overhead (note 5) 1,15,000
Administrative overhead (note 6) 1,84,000
Fixed cost 5,19,000
Total cost 41,64,000
Add: Profit 25% on total cost 10,41,000
Sales 52,05,000
Contribution (Sales – Variable cost) 15,60,000
Working Notes:
1. At 80% level of capacity (current year), the production is 80,000 units.
Thus, total level of capacity is 1,00,000 units.
Therefore, Year 2 is at 70% capacity and Year 3 is at 60% capacity as the production is increasing
by 10% of its capacity consistently.
2. Direct Material
(₹) (₹)
80% Capacity 16,00,00070% Capacity 14,00,000
10% change in capacity 2,00,00010% change in capacity 2,00,000

For 10% increase in capacity, the total direct material cost regularly changes by ₹ 2,00,000
Thus, Direct material cost (variable) = ₹ 2,00,000 ÷ 10,000
= ₹ 20
After 10% increase in price, direct material cost per unit = ₹ 20 ×
1.10 = ₹ 22
Direct material cost at 90,000 budgeted units = 90,000 × ₹ 22
= ₹ 19,80,000
3. Direct labour:
(₹) (₹)
10% change in capacity 1,00,00010% change in capacity 1,00,000
For 10% increase in capacity, direct labour cost regularly changes by ₹ 1,00,000.
Direct labour cost per unit = ₹ 1,00,000 ÷ 10,000 = ₹ 10
After 20% increase in price, direct labour cost per unit = ₹ 10 × 1.20 = ₹ 12
Direct labour for 90,000 units = 90,000 units × ₹ 12 = ₹ 10,80,000.
4. Factory overheads are semi-variable overheads:

(₹) (₹)
10% change in capacity 20,00010% change in capacity 20,000
Variable factory overhead = ₹ 20,000 ÷ 10,000 units = ₹ 2
Variable factory overhead for 80,000 units = 80,000 × ₹ 2= ₹ 1,60,000
Fixed factory overhead = ₹ 3,60,000 – ₹ 1,60,000 = ₹ 2,00,000.
Variable factory overhead after 5% increase = ₹ 2 × 1.05 = ₹ 2.10
Fixed factory overhead after 10% increase = ₹ 2,00,000 × 1.10= ₹ 2,20,000.
5. Selling overhead is semi-variable overhead:

(₹) (₹)
10% change in capacity 40,00010% change in capacity 40,000
Variable selling overhead = ₹ 40,000 ÷ 10,000 units = ₹ 4
Variable selling overhead for 80,000 units = 80,000 × ₹ 4= ₹ 3,20,000.
Fixed selling overhead = ₹ 4,20,000 – ₹ 3,20,000 = ₹ 1,00,000
Variable selling overhead after 10% increase = ₹ 4 × 1.10= ₹ 4.40
Fixed selling overhead after 15% increase = ₹ 1,00,000 × 1.15= ₹ 1,15,000
6. Administrative overhead is fixed:

After 15% increase = ₹ 1,60,000 × 1.15 = ₹ 1,84,000

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EDU91 PRESENTS

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Chapter No. Name of the Chapter Page No.

0 Cased Based Questions and MCQs 1-19

1 Material Costing 1.1-1.5

2 Employee Costs 2.1-2.7

4 Activity Based Costing 4.1-4.13

5 Cost Sheet 5.1-5.10

6 Cost Accounting System 6.1-6.7

8 Unit, Job & Batch Costing 8.1-8.7

9 Process Costing 9.1-9.12

10 Joint & By Product 10.1-10.7

11 Service Sector Costing 11.1-11.13

12 Standard Costing 12.1-12.8

13 Marginal Costing 13.1-13.9

14 Budgetary Costs 14.1-14.13

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E. Total amount payable to the supplier 2,65,500

Question 2 : (RTP May 2024)

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(d) 13,197 kg & 17,165 kg respectively

(iii) What would the maximum stock level for material A:

(v) What would the minimum stock level for material A:

(ii) (a) Calculation of Economic Order Quantity (EOQ):

(iii) (b) Calculation of Maximum Stock level:

(b) Maximum Stock Level for Material A:

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(₹1200 × 30) (₹1200 × 30)

Purchasing of material -A at present policy of 15,000 kg. saves ₹ 3,21,201.

(v) (C) Minimum Stock Level for Material A

(iii) What is the cost of repairing defective units?

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(ii) (a) Contribution per unit = 20% of ₹ 180 = ₹ 36

(iv)(d) Calculation of loss of profit due to labour turnover

What is the amount of over/under absorbed overhead for the year?

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Hence the overhead were over absorbed by 1,62,500 – 1,37,500 = ₹ 25,000.

Question 5 :(RTP May 2024)

(iii) What is the amount of overhead under/ over absorbed?

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Question 7 :(MTP March 2024)

Losses have a scrap value of ₹ 20 per litre.

(ii). The Quantity of normal loss and abnormal loss are:

(iv). Value of labour and overhead in closing Work-in-process are:

(v). Value of output transferred to finished goods is:

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Value of raw materials introduced during the month

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You are asked to calculate the followings:

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(v). A Manshift = 1,800 employees × 26 days = 46,800 manshifts

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