CMA Inter Suggested Answers | Jun 25 Paper 8 Cost Accounting (CA)

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Section B

Question 2 (A):

Standard Engineering Limited (SEL) manufactures and sells standard size of machine. The SEL submits the following details for the accounting year ended on 31st March, 2025:

Factory overheads were 60% of direct labour cost.

Administration overheads were 6% of sales and not related to the production activity.

Selling & distribution overheads were 12% of sales.

You are required to:

Prepare a Cost and Profit Statement for the year ended on 31st March, 2025.

Solution:

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Question 2 (B):

Babbu Small Industries employ two workmen, Vikas and Shiv. Both works to produce the same product, with the help of same raw material and also with the same normal wage rate. Vikas is paid bonus according to the Rowan System, while Shiv is paid bonus according to the Halsey System. The time allowed to make the product is 50 hours. Vikas takes 30 hours while Shiv takes 40 hours to complete the product. The factory overhead rate is ₹ 10 per man-hour actually worked. The factory cost of the product for Vikas is ₹ 14,560 and for Shiv it is ₹ 15,200.

You are required to:

(i) Find the cost of materials;

(ii) Prepare a Statement comparing the factory cost of the product as made by the two workmen

Solution:

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Question 3 (A):

Following details are taken from the books of ABC Ltd. for the month of October, 2024:

Indirect Materials: Production Departments: X ₹19,000; Y ₹24,000; Z ₹4,000;
Service Departments: Maintenance ₹30,000; Stores ₹8,000.

Indirect Wages: Production Departments: X ₹18,000; Y ₹22,000; Z ₹6,000;
Service Departments: Maintenance ₹20,000; Stores ₹13,000.

Other Expenses: Power and Light ₹1,20,000; Rent and Rates ₹56,000; Insurance of Assets ₹20,000;
Meal Charges ₹60,000; Depreciation @ 6% p.a. on capital value of assets.

 

Service rendered by Maintenance Department to Production Departments:

X 50%; Y 30%; Z 20%

Service rendered by Stores Department to Production Departments:

X 40%; Y 40%; Z 20%

You are required to:

Prepare a Departmental Distribution Summary showing apportion of costs of Service Departments to the Production Departments and the Total Overheads of the Production Departments.

Solution:

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Question 3 (B):

A summary of the Profit & Loss Account of ABC Ltd. for the year ended on 31st March, 2025 is as follows:

The company manufactures a standard unit. The cost accounting records of the company shows the following information:

(i) Factory overheads have been charged at 20% on prime cost.

(ii) Administration overheads have been recovered at ₹ 3 per finished unit.

(iii) Selling and distribution overheads have been recovered at ₹ 4 per unit sold.

(iv) Work-in-progress is valued at prime cost.

Prepare:

(I) A Costing Profit and Loss Account indicating Net Profit.

(II) A statement reconciling the profit as disclosed by cost accounts with that shown in financial accounts.

Solution:

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Question 4 (A):

Component ‘Diamond’ is made entirely in Machine Shop No. XYZ-II. Material cost is ₹10 per component and each component takes 6 minutes to produce. The machine operator is paid ₹12 per hour and machine hour rate is ₹72 per hour.

The setting up of the machine to produce the component ‘Diamond’ takes 3 hours for the operator.

Required:

Prepare a Cost Sheet showing the setting up costs and the production costs, both in total (i.e. for the batch) and per component, assuming a batch size of:

(i) 100 components,

(ii) 150 components, and

(iii) 200 components.

Solution:

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Question 4 (B):

PQR Ltd. undertook a contract on 1st April, 2023 for the construction of a building at a contract price of ₹45,00,000. During the first year 2023-24, the following amounts were spent against which a sum of ₹16,87,500 (representing 90% of the work certified) was received by the contractor:

During the second year 2024-25, the contractor spent the following amounts:

In the second year, the contract was completed and a sum of ₹26,25,000 was received by the contractor.

Required:

Prepare the Contract Account and the Contractee’s Account for both the years and determine the profits.

Solution:

Contract Account

(At the end of 1st Year)

Particulars	₹	Particulars	₹
To Materials Used	7,87,500	By Work-in-Progress (16,87,500 / 0.90)	18,75,000
To Wages Paid	4,50,000
To Overhead Expenses	1,12,500
To Notional Profit c/d	5,25,000
			18,75,000
To Profit & Loss A/c (5,25,000 × 1/3 × 90%)	1,57,500	By Notional Profit b/d	5,25,000
To Work-in-Progress (Reserve)	3,67,500
			5,25,000

Contractee Account

Particulars	₹		₹
To Balance c/d	16,87,500	By Bank A/c	16,87,500
	16,87,500		16,87,500

Contract Account 
(On completion of Contract in the 2nd Year)

Particulars	₹	Particulars	₹
To Work-in-Progress (Rs. 18,75,000 - Rs. 3,67,500)	15,07,500	By Contractee Account	45,00,000
To Materials Used	11,25,000
To Wages Paid	9,00,000
To Overhead Expenses	2,25,000
To Profit & Loss A/c (Transfer)	7,42,500
	45,00,000		45,00,000

Contractee Account

Particulars	₹	Particulars	₹
To Contract A/c	45,00,000	By Balance b/d	16,87,500
		By Bank A/c	26,25,000
		By Balance c/d	1,87,500
	45,00,000		45,00,000

Question 5 (A):

Moon Ltd. is the market leader in the manufacture and sale of specialized product “GPT”. In manufacturing the main product ‘GPT’, Moon Ltd. processes the resulting waste into two by-products X and Y. From the records of the company, you receive the information as given below:

(i) Total cost up to the point of separation: ₹ 1,36,000

Required:

Prepare Comparative Profit and Loss Statement using the Reverse Cost Method for by-products.

Solution:

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Question 5 (B):

QTR Ltd., which is following standard costing system, furnishes the following information regarding production budget for December, 2024:

Product X = 40,000 units and Product Y = 80,000 units

One standard hour represents 10 units of Product X and 8 units of Product Y.

The standard wage rate per hour is ₹ 0.50.

During the month, 15,000 hours were paid (@ ₹ 0.60 per hour) which included 700 unproductive hours due to unbudgeted holidays and also loss of production of 500 units of Product X due to machine breakdown.

Actual production for the month was 48,000 units of X and 76,000 units of Y.

Required to calculate the following Labour Variances:

(i) Direct Labour Rate Variance

(ii) Direct Labour Idle Time Variance

(iii) Direct Labour Efficiency Variance

(iv) Direct Labour Total Variance

Solution:

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Question 6 :

Man Limited manufactures and sells Product-X. Following data are available in this regard for the year ended March, 2025:

Additional Information:

Fixed Cost: ₹ 8,00,000

Present Sales: 1,50,000 units

Capacity Utilization: 60 per cent

There is an acute competition in the market. Extra efforts are necessary to sell the product. Following suggestions have been made for increasing sales:
(i) To reduce selling price by 4 per cent.
(ii) To increase dealer’s margin by 20 per cent over the existing rate.

Required:
If the company desires to maintain the present level of profit in the next year, which of the above two suggestions would you recommend? Give your reasons.

Solution:

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Question 7 (A):

Sun & Moon Ltd. manufactures two products—Product R and Product S. During the year ending on 31st March, 2025, it is expected to sell 30,000 kg of Product R and 1,50,000 kg of Product S @ ₹120 and ₹64 per kg respectively.

The direct materials X, Y and Z are mixed in the proportion of 4:4:2 in the manufacture of Product R and in the proportion of 3:5:2 in the manufacture of Product S.

The actual and budget inventories for the year are as follows:

You are required to:

Prepare the Production Budget and Materials Budget showing the purchase cost of materials for the year ending 31st March, 2025. 

Solution:

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Question 7 (B):

 What are Direct Expenses as defined in CAS-10? Also discuss the general principles of measurement of direct expenses as per CAS-10. 

Solution:

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Question 8 (A):

 What are the essentials of a good Cost Accounting System (any four)?

Solution:

Question 8 (B):

 What is ABC Analysis? State the main advantages (any three) of ABC Analysis.

Solution:

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Question 8 (C):

State the objectives and scope of Cost Accounting Standard-8 (CAS-8) on ‘Cost of Utilities’

Solution:

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