ca inter suggested answers | Nov 23 Cost Paper
Table of Content
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)
Answer 1 : (A)
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.
Answer 1 : (B)
COMING SOON
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 ;roduct ‘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 ?
Answer 1 : (C)
COMING SOON
Unique Construction Limited commenced a contract on 01.08.2022. The total contract price was ₹96,00,000. The following information was available from their costing records as at 31.03.2023 :
| Material consumed | ₹35,91,000 |
| Wages paid | ₹9,65,000 |
| Wages outstanding as on 31.03.2023 | ₹75,000 |
| Plant issued to site on 01.08.2022 | ₹7,50,000 |
| Direct expenses | ₹1,96,650 |
| General overheads | ₹2,08,000 |
A supervisor who was paid 18,000 per month, had spent 40% of his time on this contract. Plant costing ₹60,000 was transferred to other contracts on 31.12.2022. Plant was to be depreciated at 15% per annum on straight line method (SLM) basis. On 31.03:2023, 60% of the contract was completed. The architect’s certificate had been issued covering 50% of the contract price.
Prepare a Contract account and show the notional profit or loss as on 31.03.2023.
Answer 1 : (D)
The following data relates.to the manufacture of product BXE for the year ended 31 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 |
Additlonnl Informatlon ;
(i) Further, some of the finlshed product was found defective and the defective products were reetified by Incurring expenditure of additional factory overheads to the extent of ₹33,600, The cost of rectificution i not included in detaily mentioned above.
(ii) An amount of' ₹1,20,600 way realised by selling serap and waste generated during the year,
Prepare Cost sheet 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 salcs.
Answer 2 : (A)
HL Limited produces and sells four varictics 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 | ₹20/- |
| 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 Coffeec 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 and 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 :
| 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.
Answer 2 : (B)
COMING SOON
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 | 15,000 | 30,000 |
| Factory Rent | 75,000 | ||||
| Depreciation on machinery | 37,500 | ||||
| Power | 96,000 | ||||
| Security Expense for Factory Premises | 24,000 | ||||
| Insurance- machinery | 12,000 | ||||
| Insurance machinery | 48,000 | ||||
| Additional information : | |||||
| Floor Area (Sq. metres) | 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 erarunents, 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.
Answer 3 : (A)
COMING SOON
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 rodm guests.
The restaurant and swimming pool is run by a contractor. The contractor recovers charges of ₹150 per persoh 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.
Answer 3 : (B)
COMING SOON
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.
Answer 4 : (A)
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 contifiuously 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.
Answer 4 : (B)
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 78,000 kg. @₹5 | ₹3,90,000 | |
| 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.
Answer 4 : (C)
COMING SOON
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 | ₹27,05,000 |
| 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.
Answer 5 : (A)
COMING SOON
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.
you are required to find out total cost of sales and profit for the month of October 2023.
Answer 5 : (B)
COMING SOON
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 | ₹3,60,0000 |
| (iii) | Wages charged to production | ₹80,000 |
| (iv) | Manufacturing overheads charged to production | ₹1,32,000 |
Answer 5 : (C)
COMING SOON
Explain very briefly the following terms used in Cost and Management Accounting :
(i) Pre-determined Cost
(ii) Estimated Cost
(iii) Imputed Cost
(iv) Discretionary Cost
Answer 6 : (A)
State with reasons whether the following independent statéments are true or false :
(i) Under LIFO method, in the period of falling prices, lower income Is reported and income-tax liability is reduced.
(ii) Under VED analysis, inventories are classified on the basis of cost of individual items.
(iii) Material requisition note is prepared by the store keeper.
(iv) Simple average pricing metthod is suitable when quantity purchased under each lot is different and prices fluctuate considerably
(v) Bin card and stores ledger are maintained by the purchasing department.
Answer 6 : (B)
COMING SOON
What do you mean by employee productivity ? Point out the factors which must be taken into consideration for increasing employee productivity.
Answer 6 : (C)
Explain very briefly the following terms :
(i) Retention Money
(ii) Escalation Clause
(iii) Co-Products
(iv) Job Costing
(v) Process Costing
Answer 6 : (D)
What is meant by cost driver ? Give its different categories. Suggest suitable cost drivers (at least two) in the following business functions :
(i) Distribution
(ii) Research and Development
(iii) Customer services
Answer 6 : (E)
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