CA Inter Costing Important Question - Jan 26

Table of Content

1. Theory
2. Material Cost
3. Employee Cost and Direct Expense
4. Overheads - Absorption costing method
5. Activity Based Costing
6. Cost Sheet
7. Cost Accounting System
8. Unit and Batch Costing
9. Job Costing
10. Process and Operation Costing
11. Joint Products and By Products 
12. Service Costing
13. Standard Costing
14. Marginal Costing
15. Budget and Budgetary Control

Other Important Questions Blog :

1. Important Question Paper 1 : Advanced Accounting
2. Important Question Paper 2 : Corporate and Other Laws
3. Important Question Paper 3 :Taxation
4. Important Question Paper 5 : Auditing and Ethics
5. Important Question Paper 6 : Financial Management and Strategic Management
6. CA Inter Syllabus (New Update)

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Chapter 1: Theory

Question : 1

Differentiate between "Cost Accounting and Management Accounting". 

Solution:

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Chapter 2. Material Cost

Question : 2

The components A and B are used as follows:

Normal usage .... 300 units per week each

Maximum usage .... 450 units per week each

Minimum usage .... 150 units per week each

Reorder Quantity .... A 2,400 units; B 3,600 units.

Reorder period .... A 4 to 6 weeks, B 2 to 4 weeks.

Calculate for each component:

(a) Re-order Level (b) Minimum Level (c) Maximum Level (d) Average Stock Level.

Solution:

Question : 3

DISTINGUISH between Bill of Materials and Material Requisition Note

Solution:

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Chapter 3: Employee Cost and Direct Expense

Question : 4

GZ Ld. pays the following to a skilled worker engaged in production works. The following are the employee benefits paid to the employee:

(a)	Basic salary per day	₹ 1,000
(b)	Dearness allowance (DA)	20% of basic salary
(c)	House rent allowance	16% of basic salary
(d)	Transport allowance	₹ 50 per day of actual work
(e)	Overtime	Twice the hourly rate (considers basic and DA), only if works more than 9 hours a day otherwise no overtime allowance. If works for more than 9 hours a day then overtime is considered after 8th hours.
(f)	Work of holiday and sunday	Double of per day basic rate provided works atleast 4 hours. The holiday and sunday basic is eligible for all allowances and statutory deductions.
(g)	Earned leave and casual leave	These are paid leave.
(h)	emoployer's contribution to provident fund	12% of basic and DA
(i)	Employer's contribution to pension fund	7% of basic and DA

The company normally works 8-hour a day and 26-day in a month. The company provides 30 minutes lunch break in between.

During the month of August 2020, Mr.Z works for 23 days including 15th August and a Sunday and applied for 3 days of casual leave. On 15th August and Sunday he worked for 5 and 6 hours respectively without lunch break.

On 5th and 13th August he worked for 10 and 9 hours respectively.

During the month Mr. Z worked for 100 hours on Job no.HT200.

You are required to CALCULATE:

(i) Earnings per day

(ii) Effective wages rate per hour of Mr. Z.

(iii) Wages to be charged to Job no.HT200.

Solution:

Question : 5

A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours. His wage rate is ₹ 5 per hour. Following additional information are also available:

Material cost of work - ₹ 50

Factory overheads - 100% of wages

Calculate the factory cost of work under the following methods of wage payments:

(i) Rowan Plan

(ii) Halsey Plan

Solution:

Question : 6

Following information is given of a newly setup organization for the year ended on 31st March, 2025:

Number of workers replaced during the period:	78
Number of workers left and discharged during the period:	28
mployee turnover rates using separation method:	3.5%

Required:

Compute the employee turnover rates using

(i) Replacement method and

(ii) Flux method

Solution:

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Chapter 4: Overheads - Absorption costing method

Question : 7

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 infommation 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 ₹ 8per 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 arè 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 overhead in cost accounts.

Solution:

Question : 8

SNS Trading Company has three Main Departments and two Service Departments. The data for each department is given below:

 

Departments	Expenses (in ₹)	Area in (Sq. Mtr)	Number of Employees
Main Department:
Purchase Department	5,00,000	12	800
Packing Department	8,00,000	15	1700
Distribution Department	3,50,000	7	700
Service Departments:
Maintenance Department	6,40,000	4	200
Personnel Department	3,20,000	6	250

 

The cost of Maintenance Department and Personnel Department is distributed on the basis of ‘Area in Square Metres’ and 'Number of Employees' respectively.

You are required to:

(i) Prepare a Statement showing the distribution of expenses of Service Departments to the Main Departments using the "Step Ladder method" of Overhead Distribution.

(ii) Compute the Rate per hour of each Main Department, given that, the Purchase Department, Packing Department and Distribution Department works for 12 hours a day, 24 hours a day and 8 hours a day respectively. Assume that there are 365 days in a year and there are no holidays.

Solution:

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Chapter 5: Activity Based Costing

Question : 9

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	0.40	0.50
Number of Machine setups	120	120	160
Number of purchase orders	90	135	125
Number of purchase orders	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:

Question : 10

Beta Limited produces 50,000 Units, 45,000 Units and 62,000 Units of product ‘A’. ‘B’ and ‘C’ respectively. At present the company follows absorption costing method and absorbs overhead on the basis of direct labour hours. Now, the company wants to adopt Activity Based Costing. 

The information provided by Beta Limited is as follows

	Product A	Product B	Product C
Floor Space Occupied	5,000 Sq. Ft.	4,500 Sq. Ft.	6,200 Sq. Ft.
Direct Labour Hours	7,500 Hours	7,200 Hours	7,800 Hours
Direct Machine Hours	6,000 Hours	4,500 Hours	4,650 Hours
Power consumption	32%	28%	40%

 

Overhead for year are as follows

	₹
Rent & Taxes	8,63,500
ElectricityExpenses	10,66,475
Indirect labour	13,16,250
Repair& Maintenance	1,28,775
	33,75,000

Required :

Calculate the overhead rate per labour  hour under Absorption Costing. 

Prepare a cost statement showing overhead cost per unit for each product - ‘A’,‘B’ and ‘C’ as per Activity based Costing. 

Solution:

Question : 11

Provide EXAMPLE(S) of the cost driver for the following cost pools:

Cost Pool
Quality Control
Research and Development
Machine Maintenance
Employee Training Costs
Customer Service

 

Solution:

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Chapter 6: Cost Sheet

Question : 12

PR Ltd. manufactures and sells a typical brand of Tiffin Boxes under its on brand name. The installed capacity of the plant is 1,20,000 units per year distributable evenly over each month of calendar year. The Cost Accountant of the company has informed the following cost structure of the product, which is as follows:

Raw Material ₹ 20 per unit.

Direct Labour ₹ 12 per unit

Direct Expenses ₹ 2 per unit

Variable Overheads ₹ 16 per unit.

Fixed Overhead ₹ 3,00,000.

Semi-variable Overheads are as follows:

₹ 7,500 per month upto 50% capacity & Additional ₹ 2,500 per month for every additional 25% capacity utilization or part thereof.

The plant was operating at 50% capacity during the first seven months of the calendar year 2016, at 100% capacity in the remaining months of the year.

The selling price for the period from 1st Jan, 2025 to 31st July, 2025 was fixed at ₹ 69 per unit. The firm has been monitoring the profitability and revising the selling price to meet its annual profit target of ₹ 8,00,000. You are required to suggest the selling price per unit for the period from 1st August 2025 to 31st December 2025.

Prepare Cost Sheet clearly showing the total and per unit cost and also profit for the period.

1. from 1st Jan. to 31st July, 2025

2. from 1st Aug. to 31st Dec, 2025.

Solution:

Question : 13

Kidz Company manufactures and sells two models of baby toys namely, Max and Pro. During the Financial Year 2024-25, 1500 units of Max and 3600 units of Pro were manufactured. However, only 60% of Max and 80% of Pro were sold during the year. Labour cost per unit of Max is two times that of Pro. There was no opening stock of finished goods or work-in-progress.

The cost particulars of the two models of Baby Toys are given below:

Particulars	Max (₹)	Pro (₹)	Total (₹)
Material Cost	42,000	63,000	1,05,000
Labour Cost			1,21,000

Further, the cost controller of the factory informed that:

• Works overhead is 50% of labour cost

• Office overhead is recovered at 20% of works cost

• Selling and distribution overhead is ₹ 20 and ₹ 30 per unit sold for Model Pro and Model Max respectively

Required:

1. Prepare a cost sheet for the financial year 2024-25, showing the various elements of cost for each model of Baby Toys (Prime cost, work cost, cost of production, cost of goods sold and cost of sales).

2.Calculate the per unit selling price of each model of Baby Toys if profit is charged at 20 percent on sales.

Solution:

Question : 14

LMN Foods is a manufacturer of organic snacks. For the year ending 2023, the company compiled the following financial data:

Item	Amount (in ₹)
Opening inventory of raw materials	2,00,000
Closing inventory of raw materials	2,50,000
Raw material purchases	12,00,000
Labour costs	5,00,000
Production overheads	2,50,000
Marketing and distribution expenses	1,52,000

 

In 2024, LMN Foods accepted a request for a bulk supply of their best-selling snacks. The estimated costs for fulfilling this order are as follows: 
• Estimated raw material cost: ₹ 3,00,000 
• Estimated labour cost: ₹ 1,50,000 
• Packaging and transportation costs: ₹ 49,400 
LMN Foods allocates production overhead based on direct labour costs and marketing and distribution expenses as a percentage of the total production cost based on the previous year's data. 

Required: 

(i) Calculate the overhead recovery rates for 2023 based on actual costs. 
(ii) Prepare a comprehensive cost statement for the bulk order and determine the Sales required for achieving a profit margin of 20% on the final sales amount. 

Solution:

Question : 15

PH Gems Ltd. is manufacturing readymade suits. It has annual production capacity of 2,000 pieces. The Cost Accountant has presented following information for the year to the management:

Particulars	Amount (₹)	Amount (₹)
Sales 1,500 pieces @ ₹ 1,800 per piece		27,00,000
Direct Material	5,94,200
Direct Labour	4,42,600
Overheads (40% Fixed)	11,97,000	22,33,800
Net Profit		4,66,200

Evaluate following options:

(i) If selling price is increased by ₹ 200, the sales will come down to 60% of the total annual capacity. Should the company increase its selling price?

(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN with ready-made suit. The cost of each TIEPIN is ₹ 18. Calculate the sales to earn a profit of 20% on sales.

Solution:

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Chapter 7: Cost Accounting System

Question : 16

During a particular year, the auditors certified the financial accounts, showing profit of ₹1,68,000 whereas the same, as per costing books was coming out to be ₹ 2,40,000. Given the following information you are asked to prepare a Reconciliation Statement showing the reasons for the gap.

 Trading and Profit and Loss Account 

Dr.			Cr.
Particulars	Amount (₹)	Particular	Amount (₹)
To, Opening stock A/c	8,25,000	By, Sales	34,65,000
To, Purchases A/c	24,72,000	By, Closing stock A/c	7,50,000
To, Direct wages A/c	2,30,000
To, Factory overhead A/c	2,10,000
To, G.P. C/d	4,83,000
	42,15,000		42,15,000
To, Admn.Expenses A/c	95,000	By, G.P. b/d	4,83,000
To, Selling Expenses A/c	2,25,000	By, Sundry Income A/c	5,000
To, Net profit	1,68,000
	4,88,000		4,88,000

The costing records show:

(i) Book value of closing stock ₹7,80,000

(ii) Factory overheads have been absorbed to the extent of ₹1,89,800

(iii) Sundry income is not considered

(iv) Total absorption of direct wages ₹2,46,000

(v) Administrative expenses are covered at 3% of selling price.

(vi) Selling prices include 5% for selling expenses.

Solution:

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Chapter 8: Unit and Batch Costing

Question : 17

A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey Pox, Covid-19 and Chickenpox. A distributor had given an order for 1,600 Monkey Pox Vaccines. The company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox vaccines, the following costs would be incurred:

	₹
Direct Materials	4,250
Direct wages	500
Lab set-up cost	1,400

 

The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total production cost is charged in each batch for Selling, distribution and administration Overheads. The company is willing to earn profit of 25% on sales value. 

You are required to determine: 

(i) Total Sales value for 1,600 Monkey Pox Vaccines

(ii) Selling price per unit of the Vaccine.

 

Solution:

Question : 18

TSK Limited manufactures a variety of products. The annual demand for one of its products - Product ‘X’ is estimated as 1,35,000 units, Product ‘X’ is to be manufactured done in batches. Set up cost of each batch is ? 3,375 and inventory holding cost is ? 5 per unit. It is expected that demand of Product ‘X’ would be uniform throughout the year. 

Required :

(i) Calculate the Economic Batch Quantity (EBQ) for Product ‘X’. 

(ii) Assuming that the company has a policy of manufacturing 7,500 units of Product ‘X’ per batch, calculate the additional cost incurred as compared to the cost incurred as per Economic Batch Quantity (EBQ) as computed in (i) above.

Solution:

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Chapter 9: Job Costing

Question : 19

USP Ltd. is the manufacturer of ‘double grip motorcycle tyres’. In the manufacturing process, it undertakes three different jobs namely, Vulcanising, Brushing and Striping. All of these jobs require the use of a special machine and also the aid of a robot when necessary. The robot is hired from outside and the hire charges paid for every six months is ₹ 2,70,000. An estimate of overhead expenses relating to the special machine is given 

below: 

• Rent for a quarter is ₹ 18,000. 

• The cost of the special machine is ₹ 19,20,000 and depreciation is charged @10% 

Per annum on straight line basis. 

• Other indirect expenses are recovered at 20% of direct wages. 

The factory manager has informed that in the coming year, the total direct wages will be 

₹ 12,00,000 which will be incurred evenly throughout the year. 

During the first month of operation, the following details are available from the job book: 

Number of hours the special machine was used

Jobs	Without the aid of the robot	With the of the robot
Vulcanising	500	400
Brushing	1000	400
Striping	-	1200

 

You are required to : 

(i) Compute the Machine Hour Rate for the company as a whole for a month (A) when the robot is used and (B) when the robot is not used. 

(ii) Compute the Machine Hour Rate for the individual jobs i.e. Vulcanising, Brushing and Striping. 

Solution:

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Chapter 10: Process and Operation Costing

(ii) Will your advice be different, it the customer is local one ?

(iii) If Japanese client offer for supply of 30,000 units to a price of ₹ 14 (part supply of order not accepted) and shipping cost treated as variable cost, analyze the impact on the profit of JC Ltd., if order accepted . 

Solution:

Question : 29

Two businesses AB Ltd and CD Ltd sell the same type of product in the same market. Their budgeted profits and loss accounts for the year ending 30th June, 20X1 are as follows: 

		AB LTd.		CD Ltd.
Sales			1,50,000		1,50,000
Less:	Variable costs	1,20,000		1,00,000
	Fixed costs	15,000	1,35,000	35,000	1,35,000
Profit			15,000		15,000

 

You are required to calculate the B.E.P of each business and state which business is likely to earn greater profits in conditions. 

(a) Heavy demand for the product

(b) Low demand for the product.

Solution:

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Chapter 15: Budget and Budgetary Control 

Question : 30

Besides having advantages of Budgetary Control System being a powerful instrument used by business entity for the control of their expenditure, it has certain limitations as well. ELABORATE any four limitations of Budgetary Control System. 

Solution:

Question : 31

You are required to prepare a Selling Overhead Budget from the estimates given below:

	Amount (₹)
Advertisement	1,000
Salaries of the Sales Dept	1,000
Expenses of the Sales(Fixed)	750
Salesmen’s remuneration	3,000

 

Salesmen’s and Dearness Allowance - Commission @ 1% on sales affected

Carriage Outwards: Estimated @ 5% on sales

Agents Commission: 7½% on sales

The sales during the period were estimated as follows:

(a) ₹ 80,000 including Agent’s Sales ₹ 8,000

(b) ₹ 90,000 including Agent’s Sales ₹ 10,000

(c) ₹ 1,00,000 including Agent’s Sales ₹ 10,500

Solution:

Question : 32

 

Solution: