CA Inter Jan 26 Suggested Answers | Costing

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Table of Content

1. MCQs
2. Q 1 (A) : 
3. Q 1 (B) : 
4. Q 1 (C) : 
5. Q 2 (A) : 
6. Q 2 (B) : 
7. Q 3 (A) : 
8. Q 3 (B) : 
9. Q 4 (A) : 
10. Q 4 (B) : 
11. Q 5 (A) : 
12. Q 5 (B) : 
13. Q 5 (C) : 
14. Q 6 (A) : 
15. Q 6 (B) : 
16. Q 6 (C) : 
    OR
17. Q 6 (C) :

CA Inter Jan 26 Suggested Answer Other Subjects Blogs :

1. Suggested answer Jan 26 Paper 1 : Advanced Accounting
2. Suggested answer Jan 26 Paper 2 : Corporate and Other Laws
3. Suggested answer Jan 26 Paper 3 : Taxation
4. Suggetsed answer Jan 26 Paper 5 : Auditing and Ethics 
5. Suggested answer Jan 26 Paper 6 : Financial Management and Strategic Management 
6. CA Inter Syllabus (New Update)
7. CA Inter Online Classes

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MCQs

Case Scenario – I:

Spice Guard Ltd. manufactures ‘Pepper Spray’ that is used by women for their self-defence. As per the estimates, there will be an average quarterly total market demand of 3,125 units of ‘Pepper Spray’. Spice Guard Ltd. is expected to have 8% market share of the total market demand of the ‘Pepper Spray’.

The company produces the ‘Pepper Spray’ using two raw materials - ‘OC’ and ‘OE’. Each unit of pepper spray requires 4 kgs. of ‘OC’ and 1.6 kgs. of ‘OE’.

On the basis of above case scenario, you are required to answer the following (MCQs 1 to 5) :

1. What is the total annual cost of raw material ‘OC’, at Economic Order Quantity (EOQ) level ?

(A) ₹ 80,00,000

(B) ₹ 81,20,000

(C) ₹ 81,00,000

(D) ₹ 80,40,000

Solution: (C)

Choice ‘C’ is correct as--

Annual purchase cost of OC = 4,000 kg × ₹ 2,000 = ₹ 80,00,000.
Ordering cost at EOQ = 16 orders × ₹ 3,125 = ₹ 50,000.
Carrying cost at EOQ = (250 ÷ 2) × ₹ 400 = ₹ 50,000.

Total annual cost at EOQ = ₹ 80,00,000 + ₹ 50,000 + ₹ 50,000 = ₹ 81,00,000.

2. What is the total annual cost of ‘OC’, if the company proposes to keep order size to 200 kgs. of ‘OC’ per order ?

(A) ₹ 80,80,000

(B) ₹ 81,00,000

(C) ₹ 81,25,000

(D) ₹ 81,02,500

Solution: (D)

Choice ‘D’ is correct as--

Annual demand of OC = 4,000 kg and order size = 200 kg, so number of orders = 4,000 ÷ 200 = 20 orders.
Ordering cost = 20 × ₹ 3,125 = ₹ 62,500 and carrying cost = (200 ÷ 2) × ₹ 400 = ₹ 40,000.
Total annual cost = Purchase cost ₹ 80,00,000 + ₹ 62,500 + ₹ 40,000 = ₹ 81,02,500.

3. What is the annual demand for raw material ‘OC’ and ‘OE’?

(A) 4,000 kgs & 1,600 kgs respectively
(B) 1,000 kgs & 400 kgs respectively
(C) 12,500 kgs & 5,000 kgs respectively
(D) 50,000 kgs & 20,000 kgs respectively

Solution: (A)

Choice ‘A’ is correct as--

Average quarterly market demand = 3,125 units and company’s market share = 8%, so quarterly production = 250 units.
Annual production = 250 × 4 = 1,000 units.
Annual demand of OC = 1,000 × 4 kg = 4,000 kg and OE = 1,000 × 1.6 kg = 1,600 kg.

4. What is the Economic Order Quantity (EOQ) in kgs. for raw material ‘OE’ required by Spice Guard Ltd.?

(A) 500 kgs
(B) 200 kgs
(C) 400 kgs
(D) 231 kgs

Solution: (B)

Choice ‘B’ is correct as--

Annual demand of OE = 1,600 kg.
Ordering cost per order = ₹ 500.
Carrying cost per kg per annum = Storage (₹ 2.5 × 12 = ₹ 30) + Interest (5% of ₹ 200 = ₹ 10) = ₹ 40.

EOQ = √(2 × 1,600 × 500 ÷ 40) = √40,000 = 200 kg.

5. What is the Economic Order Quantity (EOQ) in kgs. for raw material ‘OC’ required by Spice Guard Ltd. and number of orders to be placed in a year?

(A) 250 kgs and 16 orders
(B) 210 kgs and 19 orders
(C) 200 kgs and 20 orders
(D) 400 kgs and 10 orders

Solution: (A)

Choice ‘A’ is correct as--

Annual demand of OC = 4,000 kg and ordering cost per order = ₹ 3,125.
Carrying cost per kg per annum = Storage (5% of ₹ 2,000 = ₹ 100) + Interest (13% of ₹ 2,000 = ₹ 260) + Obsolescence (2% of ₹ 2,000 = ₹ 40) = ₹ 400.
EOQ = √(2 × 4,000 × 3,125 ÷ 400) = 250 kg and number of orders = 4,000 ÷ 250 = 16 orders.

6. In a factory, during the month of October 2025, the following have occurred in respect of purchase and issue of “Material A”:

Material A

Stock on 01.10.2025: 100 units at ₹ 50 per unit

Purchases:
05-10-2025: 2,500 units at ₹ 55 per unit
08-10-2025: 600 units at ₹ 56 per unit

Issues:
15-10-2025: 1,500 units

What is the value of material A consumed during the period, using LIFO method of pricing issues?

(A) ₹ 82,000
(B) ₹ 83,100
(C) ₹ 82,500
(D) ₹ 84,000

Solution:

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7. The following information has been given regarding the two machines of a manufacturing department of X Ltd. for the month of September 2025 :

Further estimates for the month of October 2025 :

(i) There is an increase of 15% in the prices of spare parts of both machines.

(ii) There is an increase of 25% in the consumption of spare parts for machine B only.

What is the total spare parts cost for the month of October 2025 ?

(A) ₹ 1,43,750

(B) ₹ 1,25,000

(C) ₹ 1,26,500

(D) ₹ 1,32,250

Solution:

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8. A company’s wage budget for the last month was based on a standard production time of 30 minutes per unit and a standard wage rate of ₹ 50 per hour.

During the last month, it produced 30,000 units. The labour rate variance was ₹ 7,500 adverse and the labour efficiency variance was nil.

What is the actual wage rate per unit during the last month?

(A) ₹ 25.50
(B) ₹ 50.00
(C) ₹ 50.50
(D) ₹ 25.25

Solution:

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9. T Ltd., a textile manufacturing company, recovers factory overheads on a fixed percentage basis on direct wages and administrative overheads at 25% on factory cost.

The company has furnished the following data for Job 201:

Direct materials are ₹ 56,350
Direct wages are ₹ 45,000
Sales are ₹ 1,90,000
Profit is 25% on total cost

What is the percentage recovery rate for factory overheads for Job 201?

(A) 40%
(B) 35%
(C) 45%
(D) 50%

Solution:

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10. A garment factory stitches each shirt through a single hand sewing machine operator. The sewing time required to stitch each shirt is 15 minutes. Operator is paid at ₹ 65 per hour. The factory works for 40 hours per week and the production target is 480 dozens of shirts per week.

What is the number of hours and the number of operators required to meet the shirts target?

(A) 1,440 Hours & 36 Operators
(B) 1,800 Hours & 45 Operators
(C) 1,800 Hours & 36 Operators
(D) 1,440 Hours & 40 Operators

Solution:

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Case Scenario – II :

Zed Manufacturing Ltd. produces three different types of specialized products namely X, Y and Z. The following information has been collected from their books of accounts for the year ended March 2025 :

Total fixed costs : ₹ 18,00,000

Zed Manufacturing Ltd. is currently discussing proposals to maintain a sales mix ratio, to discontinue the manufacturing of Product Z and replace it with a new product – Product W in anticipation of following results :

Total fixed costs : ₹ 18,80,000

Total sales : ₹ 85,00,000

Based on the above, you are required to calculate the following (MCQ 11 to 15):

11. What is the break-even sales at the level of proposed sales mix (with Product W)?

(A) ₹ 40,00,000
(B) ₹ 40,75,000
(C) ₹ 48,83,117
(D) ₹ 53,80,000

Solution: (A) 

Choice ‘A’ is correct as--

New combined contribution-to-sales (C/S) ratio = 47% (as computed earlier).
Total fixed costs in proposed situation = ₹ 18,80,000.
Break-even sales = ₹ 18,80,000 ÷ 47% = ₹ 40,00,000 (approx.).

12. What is the total profit at the level of proposed sales mix (with Product W)?

(A) ₹ 21,15,000
(B) ₹ 10,95,000
(C) ₹ 15,62,500
(D) ₹ 19,60,000

Solution: (A)

Choice ‘A’ is correct as--

Total sales in proposed situation = ₹ 85,00,000.
New combined contribution-to-sales ratio = 47%.
Total contribution = ₹ 85,00,000 × 47% = ₹ 39,95,000.
Total profit = ₹ 39,95,000 − ₹ 18,80,000 = ₹ 21,15,000.

13. What is the combined contribution-to-sales (C/S) ratio at the existing sales level?

(A) 40%
(B) 37.5%
(C) 32.5%
(D) 45%

Solution: (D)

Choice ‘D’ is correct as--

Total sales at existing level = ₹ 40,00,000 + ₹ 23,80,000 + ₹ 16,20,000 = ₹ 80,00,000.
Total contribution = ₹ 20,00,000 (X) + ₹ 9,52,000 (Y) + ₹ 6,48,000 (Z) = ₹ 36,00,000.
Combined contribution-to-sales ratio = ₹ 36,00,000 ÷ ₹ 80,00,000 = 45%.

14. What is the total profit at the existing sales level?

(A) ₹ 32,00,000
(B) ₹ 18,00,000
(C) ₹ 36,00,000
(D) ₹ 16,00,000

Solution: (B)

Choice ‘B’ is correct as--

Total contribution at existing sales level = ₹ 36,00,000.
Total fixed costs = ₹ 18,00,000.
Total profit = ₹ 36,00,000 − ₹ 18,00,000 = ₹ 18,00,000.

15. What is the new contribution-to-sales (C/S) ratio in the proposed situation (with Product W)?

(A) 35%
(B) 38.5%
(C) 47%
(D) 40.5%

Solution: (C)

Choice ‘C’ is correct as--

Contribution-to-sales ratio of X = (500 − 250) / 500 = 50%.
Contribution-to-sales ratio of Y = (700 − 420) / 700 = 40%.
Contribution-to-sales ratio of W = (500 − 250) / 500 = 50%.

New combined C/S ratio = (55% × 50%) + (30% × 40%) + (15% × 50%)
= 27.5% + 12% + 7.5% = 47%.

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Question 1 (A) :

ABC Limited manufactures four products A, B, C and D in the same factory. The following information is given for a certain period :

The finished goods’ packaging cost is ₹ 4,600.

Other information :

(1) All the products are packed in boxes where each box is having capacity of 24 units.

(2) Product A and product B are packed in larger boxes whereas product C and product D are packed in smaller boxes, which cost half the price of bigger box.

(3) Each box contains only one type of product. There is no product mix up in packaging.

You are required to :

(i) Find out how many large and small boxes are used.

(ii) Find out the cost of per large box and per small box.

(iii) Allocate the packaging cost among the four finished products.

Solution:

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Question 1 (B) :

ECO Cotton Limited manufactures two joint products Cotton Fiber, Cotton Seed and a by-product Cotton Linters by processing a raw cotton.

The joint processing costs are ₹ 1,46,100.

Joint products can be further processed and sold at a higher market price, with some sales promotion efforts whereas, by-product Cotton Linters can be sold only after further processing.

The relevant details of three products are as follows :

You are required to :

(i) Show how joint cost would be apportioned between Cotton Fiber and Cotton Seed using the sales value at split-off, after crediting net realisable value of by-product Cotton Linters.

(ii) Determine the total profit or loss if the joint products are sold without further processing.

(iii) Which of the joint products can be processed further for maximizing profits using incremental analysis of profit?

Solution:

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Question 1 (C) :

Worker ‘X’ of M/s ABC Manufacturing Ltd. was assigned a Job no. 101. He began the job on 1st June at 9:00 A.M. and completed on 4th June at 12:00 P.M. There are 9 working hours in a day from 9:00 A.M. onwards. Work done and approved was 1,800 units.

Other information :

Standard quantity per hour : 45 units per hour

Wage rate : ₹ 150 per hour

Bonus (Halsey plan) : 50% of time saved

You are required to calculate the remuneration of worker X on the basis of Halsey plan and Rowan Plan.

Solution:

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Question 2 (A) :

Dhol Makers Ltd. sold 6,000 units of a musical instrument “Dholak”. The cost data for the year ended 31st March, 2025 is as follows :

It is further ascertained that :

(1) Labour is paid @ ₹ 1,000 per labour hour.

(2) Specific equipment is hired for the number of labour hours worked.

(3) The company follows the ‘First-In, First-Out’ (FIFO) method for closing stock valuation.

(4) Selling and distribution overhead is ₹ 25 per dholak.

(5) Profit is 20% on sales.

You are required to prepare a cost sheet showing :

(i) Raw material consumed

(ii) Prime cost

(iii) Works/Factory cost

(iv) Cost of goods sold

(v) Cost of sales

(vi) Net profit & Sales

Solution:

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Question 2 (B) :

A producer of oils purchases 400 litres of oil at ₹ 75 per litre in containers of 40 litres each. Other expenses at the process were ₹ 37,350 including an abnormal loss of ₹ 12,500 due to an accident. Normal waste at the process is 10%. Waste is sold at ₹ 10 per litre and each empty container is sold for ₹ 50. Generally 10% of containers gets damaged so badly that they became unsalable. However in the given situation, more containers were damaged and only 5 containers were in saleable condition. Actual output was 375 litres which is sold at a profit of 20% on cost.

You are required to prepare Process Account and Income Statement.

Solution:

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Question 3 (A) :

Gold Drive Bank is having a branch which is engaged in processing of ‘Gold Loan’ and ‘Car Loan’ applications in addition to other services to customers.

The bank has hired three direct professional workers for processing ‘Gold Loan’ applications and four direct professional workers for processing ‘Car Loan’ applications.

In addition to above, following expenses are incurred by the branch:

(1) Branch manager who supervises all the activities of branch, is paid at ₹ 1,10,000 per month.

(2) Legal charges, printing & stationery and advertising expenses are incurred at ₹ 28,000, ₹ 15,000 and ₹ 20,000 respectively for a month.

(3) Other expenses are ₹ 51,000 per quarter.

(4) Depreciation on building is ₹ 4,20,000 per annum.

(5) Overhead costs of the branch allocable to processing of ‘Gold Loan’ applications and to ‘Car Loan’ applications is 20% & 15% respectively of total overhead costs of the branch.

Number of applications processed:

• ‘Gold Loan’ – 400 applications per month; and
• ‘Car Loan’ – 500 applications per month.

You are required to:

(i) Compute the total salary of direct professionals for processing of ‘Gold Loan’ and ‘Car Loan’ applications respectively, by assuming that cost of processing a ‘Car Loan’ application is same as ‘Gold Loan’ application.

(ii) Find out the total cost of processing a ‘Car Loan’ application.

Solution:

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Question 3 (B) :

Wings Institute of Air-hostess training has reserved a spacious training hall for ₹ 25,000 on a weekly basis, with a seating capacity of 320 trainees. The institute has designed an intensive training schedule comprising 3 training sessions per day, 5 days a week for 25 weeks, on aviation and hospitality.

Training delivered by the lead trainer to whom a honorarium of ₹ 3,600 per training session is paid. In addition, she receives travel reimbursement of ₹ 500 per day and refreshments costing ₹ 1,200 per week to maintain comfort and focus during sessions.

She also takes 2 lectures per week on safety and customer services during weekends only at ₹ 5,000 per lecture (inclusive of travelling and refreshment expenses), ensuring complete coverage of aviation education. Trainee support services covering utilities and essential training aids amount to ₹ 2,020 per week.

You are required to :

(i) Calculate the total cost per training batch.

(ii) Determine the minimum training fee per trainee in a batch to cover costs, if the batch is fully occupied.

(iii) If the institute targets 20% profit margin on the training fee and decides to charge ₹ 14,800 per trainee, then calculate minimum percentage of batch size to be filled.

Solution:

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Question 4 (A) :

The following data pertaining to a company engaged in manufacturing and sale of a single product during the year :

Additional information is given below :

You are required to calculate :

(i) Direct material usage variance

(ii) Direct material price variance

(iii) Direct labour efficiency variance

(iv) Direct labour rate variance

(v) Variable overhead cost variance

Solution:

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Question 4 (B) :

The following financial information is available for a company with a normal production capacity of 40,000 units for the year ended 31st March, 2025 :

• Sales amounted to ₹ 8,00,000. Units sold : 35,000 units.
• There was no opening or closing stock of finished units.
• Direct material and direct wages costs were ₹ 3,50,000 and ₹ 2,00,000 respectively.
• Actual factory expenses were ₹ 1,00,000, of which 55% were fixed.
• Administrative expenses related to production activities incurred during the year but not paid were ₹ 50,000, which were entirely fixed.
• Actual selling and distribution expenses amounted to ₹ 20,000, of which 35% were fixed.
• The company earned interest and dividend income totalling ₹ 10,000.

You are required to prepare :

(i) The cost sheet and ascertain the profit as per cost accounts for the year ended 31st March, 2025, assuming that the indirect expenses are absorbed on the basis of normal production capacity; and

(ii) A statement reconciling the profits shown by financial and cost accounts.

Solution:

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Question 5 (A) :

A machine shop has 6 identical drilling machines manned by 4 operators.

The machine cannot be worked without an operator wholly engaged on it.

The original cost of all these machines works out to ₹ 3,00,000.

These particulars are furnished pertaining to a period of 4 months :

These particulars are furnished for a year :

Repairs and maintenance including consumables - 2% per annum of value of machines.

Depreciation - 15% per annum of original cost.

Other sundry works expenses - ₹ 12,000 p.a.

General management expenses allocated - ₹ 24,000 p.a.

The machine shop has taken an annual insurance for all 6 machines also.

Given that the comprehensive machine hour rate for 4 months period is ₹ 125 per machine hour.

You are required to find out the total amount of annual insurance premium.

Solution:

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Question 5 (B) :

Following data is available for XYZ Ltd. for the month of March 2025 :

Calculate the following :

(i) Actual Hours worked

(ii) Standard Hours for actual output

(iii) Standard Capacity Usage Ratio

(iv) Actual Usage of Budgeted Capacity Ratio

Solution:

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Question 5 (C) :

A company can make any one of the 2 products M or S during the year. It can exercise its option only at the beginning of each year.

Relevant information about the products for the next year is given below :

You are required to compute the opportunity cost for each of the product.

Solution:

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Question 6 (A) :

Classify the following items of expenses by functions and variability :

Solution:

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Question 6 (B) :

Suggest a suitable incentive scheme to a factory for its workers, keeping in view the following :

(i) The entire gains of improved production should not go to the workers.

(ii) In the name of speed, quality should not suffer.

(iii) The rate setting department being newly established are liable to commit mistakes.

Solution:

Rowan Scheme of premium bonus (variable sharing plan) is a suitable incentive scheme for the workers of the factory. If this scheme is adopted, the entire gains due to time saved by a worker will not pass to him.

Another feature of this scheme is that a worker cannot increase his earnings or bonus by merely increasing its work speed. The reason for this is that the bonus under Rowan Scheme is maximum when the time taken by a worker on a job is half of the time allowed. As this fact is known to the workers, therefore, they work at such a speed which helps them to maintain the quality of output too.

Lastly, Rowan System provides a safeguard in the case of any loose fixation of the standards by the rate-setting department. It may be observed from the following illustration that in the Rowan Scheme the bonus paid will be low due to any loose fixation of standards. Workers cannot take undue advantage of such a situation. The above three features of Rowan Plan can be discussed with the help of the following illustration:

(i) Time allowed = 4 hours

Time taken = 3 hours

Time saved = 1 hour

Rate = ₹ 5 per hour

Bonus = Time taken / Time allowed × Time saved  × rate   

=  (3 hours/ 4 hours) × 1 hour × 5 = ₹ 3.75

In the above illustration time saved is 1 hour and, therefore, total gain is ₹ 5. Out of ₹5 according to Rowan Plan only ₹3.75 is given to the worker in the form of bonus and the remaining ₹ 1.25 remains with the management. In other words, a worker is entitled for 75 percent of the time saved in the form of bonus.

(ii) The figures of bonus in the above illustration when the time taken is 2 hours and

1 hour respectively are as below: 

Bonus = Time taken / Time allowed × Time saved  × rate    

= (2 hours/ 4 hours) × 2 hour × 5 = ₹ 5 

= (1 hours/ 10 hours) × 3 hour × 5 = ₹ 3.75

The above figures of bonus clearly show that when time taken is half of the time allowed, the bonus is maximum. When the time taken is reduced from 2 to 1 hour, the bonus figure fell by ₹ 1.25. Hence, it is quite apparent to workers that it is of no use to increase speed of work. This feature of Rowan Plan thus protects the quality of output.

(iii) If the rate-setting department erroneously sets the time allowed as 10 hours instead of 4 hours, in the above illustration; then the bonus paid will be as follows:

Bonus = (3 hours/ 10 hours) × 7 hour × 5 = ₹ 10.50  

The bonus paid for saving 7 hours thus is ₹ 10.50 which is approximately equal to the wages of 2 hours. In other words, the bonus paid to the workers is low.

Hence workers cannot take undue advantage of any mistake committed by the time setting department of the concern.

Question 6 (C) :

Discuss the usefulness / suitability of Activity Based Costing.

Solution:

OR

Question 6 (C) :

Discuss the four components of Budgetary Control System.

Solution:

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