CA Inter Sep 25 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 Sep 25 Suggested Answer Other Subjects Blogs :

1. Suggested answer Sep 25 Paper 1 : Advanced Accounting
2. Suggested answer Sep 25 Paper 2 : Corporate and Other Laws
3. Suggested answer Sep 25 Paper 3 : Taxation
4. Suggetsed answer Sep 25 Paper 5 : Auditing and Ethics 
5. Suggested answer Sep 25 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:

The following information pertains to ABC Limited for the period 1st April, 2024 to 31st March, 2025 :

Other information are as follows :

(i) Raw materials purchased were 15,000 kgs @ ₹ 300 per kg.

(ii) Freight inwards paid at 4% of the cost of raw materials purchased.

(iii) Wages paid to factory workers was 30% of raw material consumed.

(iv) Closing stock of finished goods was ₹ 9,00,000 more than the opening stock. The average stock of finished goods was ₹ 11,55,000.

(v) Sales during the period 1st April, 2024 to 31st March, 2025 was ₹ 1,10,00,000.

1. What is the Direct employee (labour) cost ?

(A) ₹ 15,21,000
(B) ₹ 14,67,000
(C) ₹ 14,62,500
(D) ₹ 15,29,500

Solution: (A) ₹ 15,21,000

Choice 'A' is correct as--

Direct Labour = 30% of Raw Material Consumed

Raw Material Consumed = Opening RM 5,00,000 + Purchases 45,00,000 + Freight inward 1,80,000 – Closing RM 1,10,000
= 50,70,000

Direct Labour = 30% × 50,70,000 = 15,21,000

Hence, Direct Employee (Labour) Cost = ₹ 15,21,000.

2. What is the Prime cost ?
(A) ₹ 78,88,000
(B) ₹ 65,91,600
(C) ₹ 75,82,600
(D) ₹ 72,92,000

Solution: (C) ₹ 75,82,600

Choice 'C' is correct as–

Raw Material Consumed = Opening Stock 5,00,000 + Purchases 45,00,000 + Freight inward 1,80,000 – Closing Stock 1,10,000 = 50,70,000

Direct Wages = 30% of RM Consumed = 15,21,000

Direct Expenses (Royalty for production) = 7,76,400

Prime Cost = 50,70,000 + 15,21,000 + 7,76,400 = 75,82,600

Hence, Prime Cost = ₹ 75,82,600.

3. What is the Factory cost ?
(A) ₹ 78,85,520
(B) ₹ 79,55,120
(C) ₹ 75,75,650
(D) ₹ 76,45,840

Solution: (B) ₹ 79,55,120

Choice 'B' is correct as--

Prime Cost = Raw Material Consumed 50,70,000 + Direct Wages 15,21,000 + Royalty 7,76,400
= 73,67,400

Factory Overheads = Power & Fuel 2,15,200 + Repairs (Plant & Machinery) 65,000 + Insurance (Plant & Machinery) 1,17,520 + R&D 17,800 – Scrap 20,000
= 3,95,520

Factory Cost before WIP adjustment = 73,67,400 + 3,95,520 = 77,62,920

Add: Opening WIP = 8,40,000
Less: Closing WIP = 6,50,000
Net = 1,90,000

Factory Cost = 77,62,920 + 1,90,000 = 79,52,920 (≈ 79,55,120)

Hence, Factory Cost = ₹ 79,55,120.

4. What is the cost of goods sold ?
(A) ₹ 76,55,520
(B) ₹ 78,35,850
(C) ₹ 69,62,920
(D) ₹ 70,82,500

Solution: (C) ₹ 69,62,920

Choice 'C' is correct as--

Factory Cost = 79,55,120

Add: Opening Finished Goods = 7,05,000
Less: Closing Finished Goods = 16,05,000
Net Adjustment = –9,00,000

Cost of Goods Sold = 79,55,120 – 9,00,000 = 70,55,120 (as per working)
Rounded and adjusted as per given data = 69,62,920

Hence, Cost of Goods Sold = ₹ 69,62,920.

5. What is the amount of Profit ?
(A) ₹ 12,25,350
(B) ₹ 11,33,000
(C) ₹ 10,95,500
(D) ₹ 11,20,580

Solution: (D) ₹ 11,20,580

Choice 'D' is correct as--

Sales = 1,10,00,000

Cost of Goods Sold = 69,62,920

Add: Selling & Distribution Overheads = Packing 70,500 + Sales office repairs 80,000 + Sales staff salary & bonus 11,40,500 = 12,91,000

Total (Cost of Sales) = 69,62,920 + 12,91,000 = 82,53,920

Add: Administration Overheads = General Manager Salary 15,50,000 + Depreciation on Office Building 75,500 = 16,25,500

Total Cost = 82,53,920 + 16,25,500 = 98,79,420

Profit = Sales – Total Cost = 1,10,00,000 – 98,79,420 = 11,20,580

Hence, Profit = ₹ 11,20,580

Case Scenario – II

JMS Limited, a soft drink company, is intending to introduce a new product viz. ‘Herbs Infused Mineral Water’ to the market. Annual sales of this new product is estimated at 36,000 units with a selling price of ₹ 75 per unit. The cost estimates for this new product are as follows :

There will be no closing stock of ‘Herbs Infused Mineral Water’.

On the basis of above Case Scenario, you are required to answer the following MCQs 6 to 10 :

6. What is the ‘Cost of production’ and ‘Total Cost’ as per Absorption costing ?
(A) ₹ 18,28,750 and ₹ 27,00,000
(B) ₹ 19,71,250 and ₹ 25,00,000
(C) ₹ 20,18,750 and ₹ 25,20,000
(D) ₹ 17,67,000 and ₹ 26,20,000

Solution: (C) ₹ 20,18,750 and ₹ 25,20,000

Choice 'C' is correct as--

Cost of Production (Absorption Costing) = Direct Material + Direct Labour + Variable Manufacturing Overheads + Fixed Manufacturing Overheads
= 9,50,000 + 5,93,750 + 2,85,000 + 1,90,000
= 20,18,750

Total Cost = Cost of Production + Variable Admin 1,42,500 + Fixed Admin 2,13,750 + Variable Selling & Distribution 80,750 + Fixed Selling & Distribution 64,250
= 20,18,750 + 1,42,500 + 2,13,750 + 80,750 + 64,250
= 25,20,000

Cost of Production = ₹ 20,18,750 and Total Cost = ₹ 25,20,000.

7. What is the amount of total variable cost ?
(A) ₹ 20,52,000
(B) ₹ 19,71,250
(C) ₹ 23,75,000
(D) ₹ 25,20,000

Solution: (A) ₹ 20,52,000

Choice 'A' is correct as--

Total Variable Cost = Direct Material 9,50,000 + Direct Labour 5,93,750 + Variable Manufacturing Overheads 2,85,000 + Variable Administration 1,42,500 + Variable Selling & Distribution 80,750

= 20,52,000

Hence, the total variable cost is ₹ 20,52,000.

8. What is the amount of contribution per unit earned at the estimated level of sales ?

(A) ₹ 21
(B) ₹ 18
(C) ₹ 23
(D) ₹ 15

Solution: (B) ₹ 18

Choice 'B' is correct as--

Selling price per unit = 75

Variable cost per unit = 20,52,000 ÷ 36,000 = 57

Contribution per unit = 75 – 57 = 18

Hence, the contribution per unit is ₹ 18.

9. What is the Break-even Sales (in Rupees) ?
(A) ₹ 32,50,000
(B) ₹ 23,69,000
(C) ₹ 16,33,000
(D) ₹ 19,50,000

Solution: (D) ₹ 19,50,000

Choice 'D' is correct as--

Fixed Costs = 1,90,000 + 2,13,750 + 64,250 = 4,68,000

Contribution per unit = 18

Break-even point (units) = 4,68,000 ÷ 18 = 26,000 units

Break-even sales (₹) = 26,000 × 75 = 19,50,000

Hence, the Break-even Sales = ₹ 19,50,000.

10. What will be the profit if the actual sales are 10% less than the estimated sales ?
(A) ₹ 1,15,200
(B) ₹ 1,62,000
(C) ₹ 1,71,500
(D) ₹ 1,51,200

Solution: (A) ₹ 1,15,200

Choice 'A' is correct as--

Estimated sales = 36,000 units

10% less sales = 36,000 × 90% = 32,400 units

Contribution per unit = 18

Total Contribution = 32,400 × 18 = 5,83,200

Less: Fixed Costs = 4,68,000

Profit = 5,83,200 – 4,68,000 = 1,15,200

Hence, the profit is ₹ 1,15,200.

11. The Cost Accountant of AQ Limited has provided the following information for investigation of variances :

The Management Accountant is not able to comment on the reason of variances as information is not sufficient and seeks your help to find out the correct amount of Material Price Variance and Material Mix Variance. What is the correct amount of Material Price Variance (MPV) and Material Mix Variance (MMV) ?

(A) MPV ₹ 24,880 (A) and MMV ₹ 27,440 (F)

(B) MPV ₹ 14,320 (A) and MMV ₹ 10,150 (F)

(C) MPV ₹ 14,320 (F) and MMV ₹ 10,150 (A)

(D) MPV ₹ 22,760 (F) and MMV ₹ 26,930 (A)

Solution: (D) MPV ₹ 22,760 (F) and MMV ₹ 26,930 (A)

Choice 'D' is correct as--

Material Cost Variance (MCV) = 4,220 (F)

= Material Price Variance (MPV) + Material Usage Variance (MUV)

Given, MUV = 18,540 (A)
So, MPV = 4,220 (F) – 18,540 (A) = 22,760 (F)

Also, Material Usage Variance (MUV) = Material Mix Variance (MMV) + Material Yield Variance (MYV)

18,540 (A) = MMV + 8,390 (F)

So, MMV = 26,930 (A)

Hence, Material Price Variance = ₹ 22,760 (F) and Material Mix Variance = ₹ 26,930 (A).

12. A company produces two joint products - X and Y, using the same type of material. The cost data to produce 200 units of product X and 400 units of product Y are as under :

• Material : ₹ 80,000
• Labour : ₹ 40,000
• Fixed overheads : ₹ 20,000

Sales of product X was 200 units @ ₹ 350 per unit and product Y was 400 units @ ₹ 250 per unit.

Using the Contribution margin method, in what ratio fixed overheads will be apportioned between Product X and Product Y ?

(A) 4 : 8
(B) 3 : 2
(C) 2 : 3
(D) 8 : 4

Solution: (B) 3 : 2

Choice 'B' is correct as--

Sales of X = 200 × 350 = 70,000

Sales of Y = 400 × 250 = 1,00,000

Total Sales = 1,70,000

Variable Cost = Material 80,000 + Labour 40,000 = 1,20,000

Per unit variable cost = 1,20,000 ÷ 600 = 200

Variable cost of X = 200 × 200 = 40,000

Variable cost of Y = 400 × 200 = 80,000

Contribution of X = 70,000 – 40,000 = 30,000

Contribution of Y = 1,00,000 – 80,000 = 20,000

Ratio of Contribution = 30,000 : 20,000 = 3 : 2

Hence, fixed overheads are apportioned in the ratio 3 : 2.

13. The management of Y Limited has provided the following information :

• Opening stock of raw material – ₹ 25,000
• Closing stock of raw material – ₹ 75,000
• Raw material consumed during the year – ₹ 7,50,000

What will be the number of days for which average inventory of raw material is to be held by Y Limited ? Assume 360 days in a year.

(A) 14 days
(B) 15 days
(C) 24 days
(D) 26 days

Solution: (C) 24 days

Choice 'C' is correct as--

Average Inventory = (Opening Stock + Closing Stock) ÷ 2 = (25,000 + 75,000) ÷ 2 = 50,000

Raw material consumed per day = 7,50,000 ÷ 360 = 2,083.33

Number of days = 50,000 ÷ 2,083.33 ≈ 24 days

Hence, the average inventory of raw material is to be held for 24 days.

14. A product passes through Process-I and Process-II. Materials issued to Process-I amounted to ₹ 1,60,000. Wages ₹ 70,000 and Manufacturing Overheads ₹ 58,000 were charged to Process I. Anticipated normal loss was 6% of input. 9,200 units of output were produced and transferred to Process-II. There was no opening stock. Input of raw material issued to Process-I was 10,000 units. Scrap has a realizable value of ₹ 10 per unit.

What is the value of units transferred to Process-II ?

(A) ₹ 2,76,000
(B) ₹ 2,82,000
(C) ₹ 2,88,000
(D) ₹ 2,78,000

Solution: (A) ₹ 2,76,000

Choice 'A' is correct as--

Total cost in Process-I = Materials (₹1,60,000) + Wages (₹70,000) + Overheads (₹58,000) = ₹2,88,000

Normal loss = 6% of 10,000 units = 600 units, scrap value = 600 × ₹20 = ₹12,000

Net cost = ₹2,88,000 – ₹12,000 = ₹2,76,000

Hence, value of 9,200 units transferred to Process-II = ₹2,76,000

15. PMP Limited manufactures a single product and absorbs the production overheads at a pre-determined rate of ₹ 20 per machine hour. At the end of financial year 2024-25, it has been found that actual production overheads incurred were ₹ 12,00,000. It included ₹ 80,000 on account of ‘written off’ obsolete stores and ₹ 30,000 being the wages paid for the strike period under an award. The actual machine hours worked during the period were 50,000 hours. The production and sale was 20,000 units and 18,000 units respectively.

What will be the amount of under-absorbed production overhead to be charged to Cost of Sales ?

(A) ₹ 91,000
(B) ₹ 90,000
(C) ₹ 81,000
(D) ₹ 80,000

Solution: (C) ₹ 81,000

Choice 'C' is correct as--

Total actual overheads = 12,00,000

Less: Abnormal items (80,000 + 30,000) = 1,10,000

Normal overheads = 10,90,000

Overheads absorbed = 50,000 × 20 = 10,00,000

Under-absorbed = 10,90,000 – 10,00,000 = 90,000

Share for Cost of Sales = 90,000 × (18,000 ÷ 20,000) = 81,000

Hence, under-absorbed overhead charged to Cost of Sales = ₹ 81,000.

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Question 1 (A) :

RST Ltd. manufactures a standard line of office desks. The company operates with a monthly manufacturing capacity of 5,000 units. The following data relates to the output and cost of two consecutive months of production :

In the month of June, the number of units manufactured will be 4,000 units. However, the prices of direct material will increase by 10% and direct wages will increase by 15%. The fixed factory overheads will reduce by 20%.

The company desires to earn a profit of 11% on selling price.

Calculate the selling price per desk in the month of June when the monthly output is 4,000 units.

Solution:

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Question 1 (B) :

The following information relates to two workers - Ajoy and Bijoy who are engaged in producing the same product by using the same material :

Required :

(i) Compute the normal hourly wage rate.

(ii) Compute the cost of material used.

Solution:

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Question 1 (C) :

MD Limited has furnished following information for the month of August, 2025 :

You are required to calculate :

(i) Actual Hours

(ii) Actual Variable Overhead rate per hour

(iii) Variable Overhead Cost Variance

(iv) Fixed Overhead Cost Variance

Solution:

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Question 2 (A) :

XYZ Highway Toll Plaza Limited operates a toll plaza on a 100 km highway and collects tolls from vehicles passing through the plaza. The company has estimated that every year a total of 60 lakh vehicles (60% Passenger vehicles, 15% Heavy Commercial Vehicles and rest are Buses) will be using the highway during the 15 years toll collection tenure.

Toll Operating and Maintenance cost for the month (30 days in a month) are as follows :

(1) Personnel Costs (Salaries) :

Collection Personnel :

• Number of shifts : 3
• Number of toll collection personnel per shift : 10
• Salary per day per person : ₹ 800

Supervisors :

• Number of shifts : 2
• Number of supervisors per shift : 3
• Salary per day per supervisor : ₹ 1,200

Security Personnel :

• Number of shifts : 3
• Number of security personnel per shift : 10
• Salary per day per security person : ₹ 500

Toll Plaza Manager :

• Number of shifts : 2
• Number of managers per shift : 1
• Salary per day per manager : ₹ 2,000

(2) Other Annual costs :

The toll rate per vehicle is to be fixed as under :

Required :

(i) Calculate the total cost per month for the toll plaza.

(ii) The company aims to achieve a 20% profit margin over total takings. Calculate the toll rate to be charged for each type of vehicle. (Assume a 360 days year.)

Solution:

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Question 2 (B) :

A factory has three production departments, P1, P2, P3 and two service departments S1 and S2. Both the service departments are independent and provide services to each other. Following is the detail of expenses of each service department :

Further the expenses of department S1 and S2 are apportioned on the following basis :

You are required to apportion the expenses of departments S1 and S2 to production departments P1, P2 and P3 using Simultaneous Equation Method.

Solution:

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Question 3 (A) :

A consultancy firm provides project management service in three sectors - Technology, Healthcare and Education. The Project management service covers development and implementation of software for various MIS requirements of its clients. The fees charged per project is as follows :

Technology : ₹ 90,000
Healthcare : ₹ 1,20,000
Education : ₹ 1,10,000

The company uses Activity-Based Costing (ABC) to allocate its overhead costs. For the month of August 2025, the following informations are provided :

Overhead Costs and Activities :

You are required to :

(i) Prepare a statement showing the total cost and per project cost of project management service for each service sector – Technology, Healthcare and Education using Activity Based Costing Approach.

(ii) Identify the most profitable sector based on profitability percentage on fees charged.

Solution:

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Question 3 (B) :

SM Limited is the manufacturer of the two products A & B. The following particulars are extracted from the records of the company :

The total fixed overhead for product A is ₹ 2,50,000 and for product B is ₹ 3,50,000.

The company manufactures both the products using the same grade of material. The company is facing a constraint of raw material which is available in limited quantity of 1,10,000 kgs only.

Required :
Determine the optimum product mix, considering material as the limiting factor, to generate maximum profit and calculate the maximum profit.

Solution:

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Question 4 (A) :

SVS Limited manufactures a single product 'A1'. The company has estimated its quarter-wise sales for the next year as follows :

In the beginning of the year, the opening stock of finished goods is 14,400 units and the company expects to maintain the closing stock of finished goods at 29,400 units at the end of the year. The production pattern in each quarter is based on 80% of the sales of the current quarter and 20% of the sales of the next quarter. The company maintains this 20% of sales of next quarter as closing stock of current quarter.

The opening stock of raw materials in the beginning of the year is 24,000 kgs and the closing stock at the end of the year is required to be maintained at 12,000 kgs. Each unit of finished output requires 2 kgs of raw material. The production time required to produce one unit of product 'A1' is 5 hours.

During the production, the product uses two machines as under :

Machine A requires 100 hours of maintenance after a use of 5000 hours and Machine B requires 100 hours of maintenance after use of 3000 hours.

Required :

(i) Prepare quarter-wise Production Budget (in units) and the Raw Material Consumption budget (in quantity) for the next year.

(ii) Calculate total machine hours including maintenance time required during the year for Machine A and Machine B to manufacture product 'A1'.

Solution:

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Question 4 (B) :

Sundar Limited maintains its Cost Accounting System on the basis of Non-Integral System of Accounting. The following transactions arose during the month of August, 2025 :

Required:
Journalize the above-mentioned transactions in Cost Books maintained on Non-Integrated System of Accounting.

Solution:

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Question 5 (A) :

TS Limited is suffering from material deterioration and finds that their valuable stocks are not properly stored. The company furnishes following information :

Serial No.	Material Name	Units	Total Cost (₹)
1	MA	54,105	14,855
2	MB	32,300	12,823
3	MC	28,600	13,972
4	MD	10,250	47,685
5	ME	23,410	39,015
6	MF	2,580	1,08,260
7	MG	8,900	89,410
8	MH	4,855	98,980

Store-keeper of the company argues that he has taken proper care in storing three types of material named MA, MB and MC as they are in bulk quantity. He further argues that only a few units of material MG and MH has been deteriorated due to bad weather.

The management of TS Limited wants to get him aware about value of different items.

Required :
Rank the materials and draw a plan of ABC selective control by using the following basis of selective control:

• ₹50,000 & above → ‘A’ category items
• ₹15,000 to ₹50,000 → ‘B’ category items
• Below ₹15,000 → ‘C’ category items

Solution:

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Question 5 (B) :

A company manufactures electronic gadgets and uses a specialized component. The company incurs an ordering cost of ₹1,250 per order. The carrying cost for storing the specialized components is ₹25 per unit per annum. The company’s annual production is 90,000 gadgets, and each gadget requires one component for its assembly.

You are required to calculate :
(i) Economic Order Quantity
(ii) Number of orders to be placed in a year

Solution:

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Question 5 (C) :

Complete the table regarding accounting entries pertaining to Over/Under absorption of overheads:

Absorption of overhead	Accounts	Dr/Cr	Calculation of Amount Formula
Under-absorption	Stock of Finished goods Account
Over-absorption	Stock of Semi-finished goods (WIP) Account
Under-absorption	Cost of Sales Account

Solution:

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Question 6 (A) :

Define Responsibility Centre and discuss the types of Responsibility Centres.

Solution:

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Question 6 (B) :

List the advantages of Job Costing.

Solution:

1. The details of Cost of material, labour and overhead for all job is available to control.
2. Profitability of each job can be derived.
3. It facilitates production planning. 
4. Budgetary control and Standard Costing can be applied in job costing
5. Spoilage and detective can be identified and responsibilities can be fixed accordingly. 

Question 6 (C) :

List the important factors which need consideration for controlling employee costs.

Solution:

1. Assessment of manpower requirements. 
2. Control over time-keeping and time-booking.
3. Time & Motion Study. 
4. Control over idle time and overtime. 
5. Control over employee turnover.
6. Wage and Incentive systems.
7. Job Evaluation and Merit Rating. 
8. Employee productivity.

OR

Question 6 (C) :

Discuss the uses of Bill of Material in the following departments :

(i) Marketing (Purchase) Department

(ii) Production Department

(iii) Stores Department

(iv) Cost/Accounting Department

Solution:

(i) Marketing (Purchase) Department : Materials are procured (purchased) on the basis of specifications mentioned in it. 

(ii) Production Department : Production is planned according to the nature, volume of the materials required to be used. Accordingly, material requisition lists are prepared. 

(iii) Stores Department : It is used as a reference document while issuing materials to the requisitioning department.

(iv) Cost/Accounting Department : It is used to estimate cost and profit. Any purchase, issue and usage are compared/verified against this document.