RTP May 2020

REVISION TEST PAPER

MAY-2020
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
QUESTIONS
Material Cost
1. Arnav Electronics manufactures electronic home appliances. It follows weighted average
Cost method for inventory valuation. Following are the data of component X:
Date Particulars Units Rate per unit
(`)
15-12-19 Purchase Order- 008 10,000 9,930
30-12-19 Purchase Order- 009 10,000 9,780
01-01-20 Opening stock 3,500 9,810
05-01-20 GRN*-008 (against the Purchase Order- 008) 10,000 -
05-01-20 MRN**-003 (against the Purchase Order- 008) 500 -
06-01-20 Material Requisition-011 3,000 -
07-01-20 Purchase Order- 010 10,000 9,750
10-01-20 Material Requisition-012 4,500 -
12-01-20 GRN-009 (against the Purchase Order- 009) 10,000 -
12-01-20 MRN-004 (against the Purchase Order- 009) 400 -
15-01-20 Material Requisition-013 2,200 -
24-01-20 Material Requisition-014 1,500 -
25-01-20 GRN-010 (against the Purchase Order- 010) 10,000 -
28-01-20 Material Requisition-015 4,000 -
31-01-20 Material Requisition-016 3,200 -
*GRN- Goods Received Note; **MRN- Material Returned Note
Based on the above data, you are required to CALCULATE:
(i) Re-order level
(ii) Maximum stock level
(iii) Minimum stock level
(iv) PREPARE Store Ledger for the period January 2020 and DETERMINE the value of
stock as on 31-01-2020.
(v) Value of components used during the month of January, 2020.
(vi) Inventory turnover ratio.

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2 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

Employee Cost
2. From the following information, CALCULATE employee turnover rate using – (i) Separation
Method, (ii) Replacement Method, (iii) New Recruitment Method, and (iv) Flux Method :
No. of workers as on 01.01.2019 = 3,600
No. of workers as on 31.12.2019 = 3,790
During the year, 40 workers left while 120 workers were discharged. 350 workers were
recruited during the year, of these 150 workers were recruited because of exits and the
rest were recruited in accordance with expansion plans.
Overheads: Absorption Costing Method
3. ABC Ltd. has three production departments P 1, P2 and P3 and two service departments S 1
and S2. The following data are extracted from the records of the company for the month
of January, 2020:
(`)
Rent and rates 6,25,000
General lighting 7,50,000
Indirect wages 1,87,500
Power 25,00,000
Depreciation on machinery 5,00,000
Insurance of machinery 2,00,000
Other Information:
P1 P2 P3 S1 S2
Direct wages (`) 3,75,000 2,50,000 3,75,000 1,87,500 62,500
Horse Power of Machines 60 30 50 10 
used
Cost of machinery (`) 30,00,000 40,00,000 50,00,000 2,50,000 2,50,000
Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of light points 10 15 20 10 5
Production hours worked 6,225 4,050 4,100  

Expenses of the service departments S 1 and S2 are reapportioned as below:

P1 P2 P3 S1 S2
S1 20% 30% 40%  10%
S2 40% 20% 30% 10% 

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 3

Required:
(i) COMPUTE overhead absorption rate per production hour for each production
department.
(ii) DETERMINE the total cost of product X which is processed for manufacture in
department P 1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its
direct material cost is `6,250 and direct labour cost is `3,750.
Activity Based Costing
4. Following are the data of three product lines of a departmental store for the year 2019 -20:
Soft drinks Fresh produce Packaged
food
Revenues ` 39,67,500 ` 1,05,03,000 ` 60,49,500
Cost of goods sold ` 30,00,000 ` 75,00,000 ` 45,00,000
Cost of bottles returned ` 60,000 `0 `0
Number of purchase orders 360 840 360
placed
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000
Additional information related with the store are as follows:
Activity Description of activity Total Cost Cost-allocation
base
Bottles Returning of empty bottles ` 60,000 Direct tracing to soft
returns drink line
Ordering Placing of orders for purchases ` 7,80,000 1,560 purchase
orders
Delivery Physical delivery and receipt of ` 12,60,000 3,150 deliveries
goods
Shelf Stocking of goods on store ` 8,64,000 8,640 hours of shelf-
stocking shelves and on-going restocking stocking time
Customer Assistance provided to ` 15,36,000 15,36,000 items sold
Support customers including check-out
Required:
CALCULATE the total cost and operating income using Activity Based Costing method.

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4 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

Cost Sheet
5. From the following data of Arnav Metallic Ltd., CALCULATE Cost of production:
Amount (`)
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for plant & machinery 96,000
(iii) Raw materials purchased 64,00,000
(iv) Opening stock of raw materials 2,88,000
(v) Closing stock of raw materials 4,46,000
(vi) Wages paid 23,20,000
(vii) Value of opening Work-in-process 4,06,000
(viii) Value of closing Work-in-process 6,02,100
(ix) Quality control cost for the products in manufacturing process 86,000
(x) Research & development cost for improvement in production 92,600
process
(xi) Administrative cost for:
- Factory & production 9,00,000
- Others 11,60,000
(xii) Amount realised by selling scrap generated during the 9,200
manufacturing process
(xiii) Packing cost necessary to preserve the goods for further 10,200
processing
(xiv) Salary paid to Director (Technical) 8,90,000
Cost Accounting System
6. The following are the balances existed in the books of JPG Ltd. for the year ended,
31st March, 2019:
Particulars Dr. Cr.
(`) (`)
Stores Ledger Control A/c 30,00,000
WIP Control A/c 15,00,000
Finished Goods Control A/c 25,00,000
Manufacturing Overheads Control A/c 1,50,000
Cost Ledger Control A/c 68,50,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 5

During the year 2019-20, the following transactions took place:

Particulars Amount (`)
Finished product (at cost) 22,50,000
Manufacturing Overhead incurred 8,50,000
Raw material purchased 12,50,000
Factory wages 4,00,000
Indirect labour 2,00,000
Cost of sales 17,50,000
Materials issued to production 13,50,000
Sales returned (at cost) 90,000
Material returned to suppliers 1,30,000
Manufacturing overhead charged to production 8,50,000
Required:
PREPARE the following control accounts and Trial balance at the end of the year:
Cost Ledger, Stores Ledger, Work-in-process, Finished Stock, Manufacturing Overhead,
Wages and Cost of Sales.
Job Costing
7. A factory uses job costing system. The following data are obtained from its books for the
year ended 31 st March, 2020:
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000
Selling and distribution overheads 10,50,000
Administration overheads 8,40,000
Factory overheads 9,00,000
Profit 12,18,000
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of
sales and the Sales value.
(ii) In 2019-20, the factory received an order for a job. It is estimated that direct materials
required will be `4,80,000 and direct labour will cost `3,00,000. DETERMINE what
should be the price for the job if factory intends to earn the same rate of profit o n
sales assuming that the selling and distribution overheads have gone up by 15%. The

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6 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

factory overheads is recovered as percentage of wages paid, whereas, other

overheads as a percentage of cost of production, based on cost rates prevailing in
the previous year.
Process Costing
8. Star Ltd. manufactures chemical solutions for the food processing industry. The
manufacturing takes place in a number of processes and the company uses FIFO method
to value work-in-process and finished goods. At the end of the last month, a fire occurred
in the factory and destroyed some of papers containing records of the process operations
for the month.
Star Ltd. needs your help to prepare the process accounts for the month during which the
fire occurred. You have been able to gather some information about the month’s operating
activities but some of the information could not be retrieved due to the damage. The
following information was salvaged:
• Opening work-in-process at the beginning of the month was 1,600 litres, 70%
complete for labour and 60% complete for overheads. Opening work-in-process was
valued at ` 1,06,560.
• Closing work-in-process at the end of the month was 320 litres, 30% complete for
labour and 20% complete for overheads.
• Normal loss is 10% of input and total losses during the month were 1,200 litres partly
due to the fire damage.
• Output sent to finished goods warehouse was 8,400 litres.
• Losses have a scrap value of `15 per litre.
• All raw materials are added at the commencement of the process.
• The cost per equivalent unit (litre) is `78 for the month made up as follows:
(`)
Raw Material 46
Labour 14
Overheads 18
78
Required:
(i) CALCULATE the quantity (in litres) of raw material inputs during the month.
(ii) CALCULATE the quantity (in litres) of normal loss expected from the process and the
quantity (in litres) of abnormal loss / gain experienced in the month.

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 7

(iii) CALCULATE the values of raw material, labour and overheads added to the process
during the month.
(iv) PREPARE the process account for the month.
Service Costing
9. AD Higher Secondary School (AHSS) offers courses for 11 th & 12th standard in three
streams i.e. Arts, Commerce and Science. AHSS runs higher secondary classes alongwith
primary and secondary classes but for accounting purpose it treats higher secondary as a
separate responsibility centre. The Managing committee of the school wants to revise its
fee structure for higher secondary students. The accountant of the school has provided the
following details for a year:
Amount (`)
Teachers’ salary (15 teachers × `35,000 × 12 months) 63,00,000
Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants × `15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × `10,000 × 12 months) 4,80,000
Salary to other staffs 4,80,000
Examinations expenditure 10,80,000
Office & Administration cost 15,20,000
Annual day expenses 4,50,000
Sports expenses 1,20,000
Other information:
(i)
Standard 11 & 12 Primary &
Arts Commerce Science Secondary

No. of students 120 360 180 840

Lab classes in a year 0 0 144 156
No. of examinations in a year 2 2 2 2
Time spent at library per 180 hours 120 hours 240 hours 60 hours
student per year
Time spent by principal for 208 hours 312 hours 480 hours 1,400 hours
administration
Teachers for 11 & 12 standard 4 5 6 -

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8 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

(ii) One teacher who teaches economics for Arts stream students also teaches
commerce stream students. The teacher takes 1,040 classes in a year, it includes
208 classes for commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students also
teaches business mathematics to commerce stream students. She takes 1,100
classes a year, it includes 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their
15% time for higher secondary section.
(v) All school students irrespective of section and age participate in annual functions and
sports activities.
Requirement:
(a) CALCULATE cost per student per annum for all three streams.
(b) If the management decides to take uniform fee of ` 1,000 per month from all higher
secondary students, CALCULATE stream wise profitability.
(c) If management decides to take 10% profit on cost, COMPUTE fee to be charged from
the students of all three streams respectively.
Standard Costing
10. ABC Ltd. had prepared the following estimation for the month of January:
Quantity Rate (`) Amount (`)
Material-A 800 kg. 90.00 72,000
Material-B 600 kg. 60.00 36,000
Skilled labour 1,000 hours 75.00 75,000
Unskilled labour 800 hours 44.00 35,200
Normal loss was expected to be 10% of total input materials and an idle labour time of 5%
of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 1,480 kg. finished product by using the followings:
Quantity Rate (`) Amount (`)
Material-A 900 kg. 86.00 77,400
Material-B 650 kg. 65.00 42,250
Skilled labour 1,200 hours 71.00 85,200
Unskilled labour 860 hours 46.00 39,560

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 9

You are required to CALCULATE:

(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance.
Marginal Costing
11. A Ltd. manufacture and sales its product R-9. The following figures have been collected
from cost records of last year for the product R-9:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of Cost of Goods Sold --
Direct Labour 15% of Cost of Goods Sold --
Factory Overhead 10% of Cost of Goods Sold ` 2,30,000
Administration Overhead 2% of Cost of Goods Sold ` 71,000
Selling & Distribution Overhead 4% of Cost of Sales ` 68,000
Last Year 5,000 units were sold at `185 per unit. From the given DETERMINE the
followings:
(i) Break-even Sales (in rupees)
(ii) Profit earned during last year
(iii) Margin of safety (in %)
(iv) Profit if the sales were 10% less than the actual sales.
(Assume that Administration Overhead is related with production activity)
Budget and Budgetary Control
12. A Vehicle manufacturer has prepared sales budget for the next few months, and the
following draft figures are available:
Month No. of vehicles
October 40,000
November 35,000
December 45,000

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10 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

January 60,000
February 65,000
To manufacture a vehicle a standard cost of `11,42,800 is incurred and sold through
dealers at a uniform selling price of `17,14,200 to customers. Dealers are paid 15%
commission on selling price on sale of a vehicle.
Apart from other materials, four units of Part - X are required to manufacture a vehicle. It
is a policy of the company to hold stocks of Part-X at the end of each month to cover 40%
of next month’s production. 48,000 units of Part-X are in stock as on 1 st October.
There are 9,500 nos. of completed vehicles in stock as on 1 st October and it is policy to
have stocks at the end of each month to cover 20% of the next month’s sales.
You are required to -
(i) PREPARE Production budget (in nos.) for the month of October, November,
December and January.
(ii) PREPARE a Purchase budget for Part-X (in units) for the months of October,
November and December.
(iii) CALCULATE the budgeted gross profit for the quarter October to December.
Miscellaneous
13. (a) DIFFERENTIATE between Cost Accounting and Management Accounting.
(b) DISCUSS the impact of Information Technology (IT) on cost accounting system.
(c) DISCUSS the Escalation Clause in a Contract.
(d) DISCUSS the treatment of by-product cost in cost accounting.

SUGGESTED HINTS/ANSWERS

1. Workings:
Consumption is calculated on the basis of material requisitions:
Maximum component usage = 4,500 units (Material requisition on 10-01-20)
Minimum component usage = 1,500 units (Material requisition on 24-01-20)
Lead time is calculated from purchase order date to material received date
Maximum lead time = 21 days (15-12-2019 to 05-01-2020)
Minimum lead time = 14 days (30-12-2019 to 12-01-2020)

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 11

Calculations:
(i) Re-order level
= Maximum usage × Maximum lead time
= 4,500 units × 21 days = 94,500 units
(ii) Maximum stock level
= Re-order level + Re-order Quantity – (Min. Usage × Min. lead time)
= 94,500 units + 10,000 units – (1,500 units × 14 days)
= 1,04,500 units – 21,000 units = 83,500 units
(iii) Minimum stock level
= Re-order level – (Avg. consumption × Avg. lead time)
= 94,500 units – (3,000 units × 17.5 days)
= 94,500 units – 52,500 units
= 42,000 units
(iv) Store Ledger for the month of January 2020:
Date Receipts Issue Balance
GRN/ Units Rate Amt. MRN/ Units Rate Amt. Units Rate Amt.
MRN ` (` ‘000) MR ` (` ‘000) ` (` ‘000)
01-01-20 - - - - - - - - 3,500 9,810 34,335
05-01-20 008 10,000 9,930 99,300 003 500 9,930 4,965 13,000 9,898 1,28,670
06-01-20 - - - - 011 3,000 9,898 29,694 10,000 9,898 98,980
10-01-20 - - - - 012 4,500 9,898 44,541 5,500 9,898 54,439
12-01-20 009 10,000 9,780 97,800 004 400 9,780 3,912 15,100 9,823 1,48,327
15-01-20 - - - - 013 2,200 9,823 21,611 12,900 9,823 1,26,716
24-01-20 - - - - 014 1,500 9,823 14,734 11,400 9,823 1,11,982
25-01-20 010 10,000 9,750 97,500 - - - - 21,400 9,789 2,09,482
28-01-20 - - - - 015 4,000 9,789 39,156 17,400 9,789 1,70,326
31-01-20 - - - - 016 3,200 9,789 31,325 14,200 9,789 1,39,001
[Note: Decimal figures may be rounded-off to the nearest rupee value wherever required)
Value of stock as on 31-01-2020 (‘000) = `1,39,001
(v) Value of components used during the month of January 2020:
Sum of material requisitions 011 to 016 (‘000)
= ` 29,694 + ` 44,541 + ` 21,611 + ` 14,734 + ` 39,156 + ` 31,325 = ` 1,81,061

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12 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

(vi) Inventory Turnover Ratio

Value of materialsused
=
Average stock value

` 1,81,061 ` 1,81,061
= = = 2.09
` (1,39,001  34,335) / 2 ` 86,668
2. Employee turnover rate using:
(i) Separation Method:
No. of workers left + No. of workers discharged
=  100
Average number of workers
(40  120) 160
=  100 = 100 = 4.33%
(3,600  3,790) / 2 3,695
(ii) Replacement Method:
No. of workers replaced 150
= 100 =  100 = 4.06%
Average number of workers 3,695
(iii) New Recruitment Method:
No. of workers newly recruited
  100
Average number of wor ker s
No. Recruitments - No. of Replacements
 100
Average number of wor ker s
350 150 200
  100   100 = 5.41%
3,695 3,695
(iv) Flux Method:
No. of separations + No. of accessions
  100
Average number of wor ker s
(160  350) 510
  100   100 = 13.80%
(3,600  3,790) / 2 3,695
3. Primary Distribution Summary
Item of Basis of Total P1 P2 P3 S1 S2
cost apportionment (`) (`) (`) (`) (`) (`)
Direct Actual 2,50,000 -- -- -- 1,87,500 62,500
wages

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 13

Rent and Floor area 6,25,000 1,25,000 1,56,250 1,87,500 1,25,000 31,250
rates (4 : 5 : 6 : 4 : 1)
General Light points 7,50,000 1,25,000 1,87,500 2,50,000 1,25,000 62,500
lighting (2 : 3 : 4 : 2 : 1)
Indirect Direct wages 1,87,500 56,250 37,500 56,250 28,125 9,375
wages (6 : 4 : 6 : 3 : 1)
Power Horse Power of 25,00,000 10,00,000 5,00,000 8,33,333 1,66,667 
machines used
(6 : 3 : 5 : 1)
Depreciati Value of 5,00,000 1,20,000 1,60,000 2,00,000 10,000 10,000
on of machinery
machinery (12:16:20:1:1)
Insurance Value of 2,00,000 48,000 64,000 80,000 4,000 4,000
of machinery
machinery (12:16:20:1:1)
50,12,500 14,74,250 11,05,250 16,07,083 6,46,292 1,79,625

Overheads of service cost centres:

Let S1 be the overhead of service cost centre S 1 and S2 be the overhead of service cost
centre S2.
S1 = 6,46,292 + 0.10 S2
S2 = 1,79,625 + 0.10 S1
Substituting the value of S 2 in S1 we get
S1 = 6,46,292 + 0.10 (1,79,625 + 0.10 S1)
S1 = 6,46,292 + 17,962.5 + 0.01 S 1
0.99 S1 = 6,64,254.5
S1 = `6,70,964
S2 = 1,79,625 + 0.10  6,70,964
= `2,46,721.4
Secondary Distribution Summary
Particulars Total (`) P1 (`) P2 (`) P3 (`)
Allocated and Apportioned 41,86,583 14,74,250 11,05,250 16,07,083
overheads as per primary
distribution
S1 6,70,964 1,34,192.8 2,01,289.2 2,68,385.6

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14 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

S2 2,46,721.4 98,688.6 49,344.3 74,016.5

17,07,131.4 13,55,883.5 19,49,485.1
(i) Overhead rate per hour
P1 P2 P3
Total overheads cost (`) 17,07,131.4 13,55,883.5 19,49,485.1
Production hours worked 6,225 4,050 4,100
Rate per hour (`) 274.24 334.79 475.48
(ii) Cost of Product X
(`)
Direct material 6,250.00
Direct labour 3,750.00
Prime cost 10,000.00
Production on overheads
P1 5 hours  ` 274.24 = 1,371.20
P2 3 hours  ` 334.79 = 1,004.37
P3 4 hours  ` 475.48 = 1,901.92 4,277.49
Factory cost 14,277.49
4. Working notes:
(i) Total support cost:
(`)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000
(ii) Cost for each activity cost driver:
Activity Total cost (`) Cost allocation base Cost driver rate
(1) (2) (3) (4) = [(2) ÷ (3)]
Ordering 7,80,000 1,560 purchase `500 per purchase
orders order

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 15

Delivery 12,60,000 3,150 deliveries `400 per delivery

Shelf-stocking 8,64,000 8,640 hours `100 per stocking
hour
Customer 15,36,000 15,36,000 items sold `1 per item sold
support
Statement of Total cost and Operating income
Soft Fresh Packaged Total
drinks Produce Food
(`) (`) (`) (`)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Bottle return costs 60,000 0 0 60,000
Ordering cost* 1,80,000 4,20,000 1,80,000 7,80,000
(360:840:360)
Delivery cost* 1,20,000 8,76,000 2,64,000 12,60,000
(300:2190:660)
Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000
(540:5400:2700)
Customer Support cost* 1,26,000 11,04,000 3,06,000 15,36,000
(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income C:{(A)- (B)} 4,27,500 63,000 5,29,500 10,20,000
* Refer to working note (ii)
5. Calculation of Cost of Production of Arnav Metallic Ltd. for the period…..
Particulars Amount (`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000
Prime cost 85,62,000
Repair and maintenance cost of plant & machinery 9,80,500

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16 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

Insurance premium paid for plant & machinery 96,000

Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and production 9,00,000
1,07,17,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,21,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Cost of Production 1,05,22,000
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.
6. Cost Ledger Control Account
Particulars (`) Particulars (`)
To Stores Ledger control A/c 1,30,000 By Balance b/d 68,50,000
To Costing Profit & Loss A/c 17,10,000 By Stores Ledger control A/c 12,50,000
By Wages Control A/c 6,00,000
To Balance c/d 77,10,000 By Manufacturing overhead 8,50,000
control A/c
95,50,000 95,50,000
Store Ledger Control Account
Particulars (`) Particulars (`)
To Balance b/d 30,00,000 By WIP Control A/c 13,50,000
To Cost Ledger control A/c 12,50,000 By Cost Ledger control A/c 1,30,000
(return)
By Balance c/d 27,70,000
42,50,000 42,50,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 17

WIP Control Account

Particulars (`) Particulars (`)
To Balance b/d 15,00,000 By Finished Stock Control 22,50,000
A/c
To Wages Control A/c 4,00,000
To Stores Ledger control A/c 13,50,000
To Manufacturing overhead 8,50,000 By Balance c/d 18,50,000
control A/c
41,00,000 41,00,000
Finished Stock Control Account
Particulars (`) Particulars (`)
To Balance b/d 25,00,000 By Cost of Sales A/c 17,50,000
To WIP Control A/c 22,50,000
To Cost of Sales A/c (sales 90,000 By Balance c/d 30,90,000
return)
48,40,000 48,40,000
Manufacturing Overhead Control Account
Particulars (`) Particulars (`)
To Cost Ledger Control A/c 8,50,000 By Balance b/d 1,50,000
To Wages Control A/c 2,00,000 By WIP Control A/c 8,50,000
By Costing P&L A/c (under 50,000
recovery)
10,50,000 10,50,000
Wages Control Account
Particulars (`) Particulars (`)
To Cost Ledger Control A/c 6,00,000 By WIP Control A/c 4,00,000
By Manufacturing overhead 2,00,000
control A/c
6,00,000 6,00,000
Cost of Sales Account
Particulars (`) Particulars (`)
To Finished Stock Control 17,50,000 By Finished Stock Control 90,000
A/c A/c (sales return)

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18 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

By Costing Profit & Loss A/c 16,60,000

17,50,000 17,50,000
Trial Balance
Particulars Dr. Cr.
(`) (`)
Stores Ledger Control A/c 27,70,000
WIP Control A/c 18,50,000
Finished Goods Control A/c 30,90,000
Cost Ledger Control A/c 77,10,000
77,10,000 77,10,000

Working:

Costing P&L Account

Particulars (`) Particulars (`)
To Cost of Sales A/c 16,60,000 By Cost Ledger control A/c 17,10,000
To Manufacturing overhead 50,000
control A/c
17,10,000 17,10,000
7. (i) Production Statement
For the year ended 31 st March, 2020
Amount (`)
Direct materials 18,00,000
Direct wages 15,00,000
Prime Cost 33,00,000
Factory overheads 9,00,000
Cost of Production 42,00,000
Administration overheads 8,40,000
Selling and distribution overheads 10,50,000
Cost of Sales 60,90,000
Profit 12,18,000
Sales value 73,08,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 19

Calculation of Rates:
`9,00,000
1. Percentage of factory overheads to direct wages =  100 = 60%
`15,00,000
2. Percentage of administration overheads to Cost of production
`8,40,000
=  100 = 20%
` 42,00,000
3. Selling and distribution overheads = `10,50,000 × 115% = `12,07,500
Selling and distribution overhead % to Cost of production
`12,07,500
=  100 = 28.75%
` 42,00,000
`12,18,000
4. Percentage of profit to sales =  100 = 16.67% or, 1/6
`73,08,000
(ii) Calculation of price for the job received in 2019-20
Amount (`)
Direct materials 4,80,000
Direct wages 3,00,000
Prime Cost 7,80,000
Factory overheads (60% of `3,00,000) 1,80,000
Cost of Production 9,60,000
Administration overheads (20% of `9,60,000) 1,92,000
Selling and distribution overheads (28.75% of `9,60,000) 2,76,000
Cost of Sales 14,28,000
Profit (1/5 of `14,28,000) 2,85,600
Sales value 17,13,600
8. (i) Calculation of Raw Material inputs during the month:
Quantities Entering Litres Quantities Leaving Litres
Process Process
Opening WIP 1,600 Transfer to Finished Goods 8,400
Raw material input 8,320 Process Losses 1,200
(balancing figure)
Closing WIP 320
9,920 9,920

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(ii) Calculation of Normal Loss and Abnormal Loss/Gain

Litres
Total process losses for month 1,200
Normal Loss (10% input) 832
Abnormal Loss (balancing figure) 368
(iii) Calculation of values of Raw Material, Labour and Overheads added to the
process:
Material Labour Overheads
Cost per equivalent unit `46.00 `14.00 `18.00
Equivalent units (litre) 7,488 7,744 7,872
(refer the working note)
Cost of equivalent units `3,44,448 `1,08,416 `1,41,696
Add: Scrap value of normal loss `12,480 -- --
(832 units × `15)
Total value added `3,56,928 `1,08,416 `1,41,696
Workings:
Statement of Equivalent Units (litre):
Equivalent Production
Input
Units Output details Units Material Labour Overheads
Details
Units (%) Units (%) Units (%)
Opening 1,600 Units
WIP completed:
Units 8,320 - Opening 1,600 -- -- 480 30 640 40
introduced WIP
- Fresh 6,800 6,800 100 6,800 100 6,800 100
inputs
Normal loss 832 -- -- -- -- -- --
Abnormal loss 368 368 100 368 100 368 100
Closing WIP 320 320 100 96 30 64 20
9,920 9,920 7,488 7,744 7,872

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 21

(iv) Process Account for the month

Litres Amount Litres Amount
(`) (`)
To Opening WIP 1,600 1,06,560 By Finished 8,400 6,55,200
goods
[8400 x ` 78]
To Raw Materials 8,320 3,56,928 By Normal loss 832 12,480
[832 x ` 15]
To Wages -- 1,08,416 By Abnormal loss 368 28,704
[368 x ` 78]
To Overheads -- 1,41,696 By Closing WIP 320 17,216
[(320 x ` 46) + (320
x .30 x ` 14) + (320
x .20 x ` 18)]
9,920 7,13,600 9,920 7,13,600
9. Calculation of Cost per annum
Particulars Arts (`) Commerce Science Total (`)
(`) (`)
Teachers’ salary (W.N-1) 16,80,000 21,00,000 25,20,000 63,00,000
Re-apportionment of Economics (84,000) 1,45,091 (61,091) -
& Mathematics teachers’ salary
(W.N- 2)
Principal’s salary (W.N-3) 1,24,800 1,87,200 2,88,000 6,00,000
Lab assistants’ salary (W.N-4) - - 1,72,800 1,72,800
Salary to library staff (W.N-5) 43,200 28,800 57,600 1,29,600
Salary to peons (W.N-6) 31,636 94,909 47,455 1,74,000
Salary to other staffs (W.N-7) 38,400 1,15,200 57,600 2,11,200
Examination expenses (W.N- 8) 86,400 2,59,200 1,29,600 4,75,200
Office & Administration expenses 1,21,600 3,64,800 1,82,400 6,68,800
(W.N- 7)
Annual Day expenses (W.N-7) 36,000 1,08,000 54,000 1,98,000
Sports expenses (W.N- 7) 9,600 28,800 14,400 52,800
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400

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22 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

(a) Calculation of cost per student per annum

Particulars Arts (`) Commerce Science Total (`)
(`) (`)
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400
No. of students 120 360 180 660
Cost per student per 17,397 9,533 19,238 13,610
annum
(b) Calculation of profitability
Particulars Arts (`) Commerce Science (`) Total (`)
(`)
Total Fees per annum 12,000 12,000 12,000
Cost per student per 17,397 9,533 19,238
annum
Profit/ (Loss) per student (5,397) 2,467 (7,238)
per annum
No. of students 120 360 180
Total Profit/ (Loss) (6,47,640) 8,88,120 (13,02,840) (10,62,360)
(c) Computation of fees to be charged to earn a 10% profit on cost
Particulars Arts (`) Commerce Science (`)
(`)
Cost per student per annum 17,397 9,533 19,238
Add: Profit @10% 1,740 953 1,924
Fees per annum 19,137 10,486 21,162
Fees per month 1,595 874 1,764
Working Notes:
(1) Teachers’ salary
Particulars Arts Commerce Science
No. of teachers 4 5 6
Salary per annum (`) 4,20,000 4,20,000 4,20,000
Total salary 16,80,000 21,00,000 25,20,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 23

(2) Re-apportionment of Economics and Mathematics teachers’ salary

Economics Mathematics
Particulars Arts Commerce Science Commerce
No. of classes 832 208 940 160
Salary re-apportionment (`) (84,000) 84,000 (61,091) 61,091
 `4,20,000   `4,20,000 
  208   1,100  160 
 1,040   
Total addition to Commerce stream = ` 84,000 + ` 61,091 = ` 1,45,091
(3) Principal’s salary has been apportioned on the basis of time spent by him for
administration of classes.
(4) Lab attendants’ salary has been apportioned on the basis of lab classes attended by
the students.
(5) Salary of library staffs are apportioned on the basis of time spent by the students in
library.
(6) Salary of Peons are apportioned on the basis of number of students. The peo ns’
salary allocable to higher secondary classes is calculated as below:
Amount (`)
Peon dedicated for higher secondary 1,20,000
(1 peon × `10,000 × 12 months)
Add: 15% of other peons’ salary 54,000
{15% of (3 peons × `10,000 × 12 months)}
1,74,000
(7) Salary to other staffs, office & administration cost, Annual day expenses and sports
expenses are apportioned on the basis of number of students.
(8) Examination Expenses has been apportioned taking number of students and number
of examinations into account.
10. Material Variances:
Material SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
(WN-1) (`) (`) (WN-2) (`) (`) (`) (`)

A 940 kg. 90.00 84,600 886 kg. 79,740 900 kg. 81,000 86.00 77,400
B 705 kg. 60.00 42,300 664 kg. 39,840 650 kg. 39,000 65.00 42,250
1645 kg 1,26,900 1550 kg 1,19,580 1550 kg 1,20,000 1,19,650

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24 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

WN-1: Standard Quantity (SQ):

 800kg. 
Material A-  1,480kg.  = 939.68 or 940 kg.
 0.9 1,400kg. 
 600kg. 
Material B-  1,480kg.  = 704.76 or 705 kg.
 0.9 1,400kg. 
WN- 2: Revised Standard Quantity (RSQ):
 800kg. 
Material A-  1,550kg.  = 885.71 or 886 kg.
 1,400kg. 
 600kg. 
Material B-  1,550kg.  = 664.28 or 664 kg.
 1,400kg. 
(a) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
= {1,26,900 – 1,19,650} = 7,250 (F)
(b) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)
= {1,20,000 – 1,19,650} = 350 (F)
(c) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}
= {1,19,580 – 1,20,000} = 420 (A)
(d) Material Yield Variance (A + B) = {(SQ × SP) – (RSQ × SP)}
= {1,26,900 – 1,19,580} = 7,320 (F)
Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN-3) (`) (`) (WN-4) (`) (`) (`) (`)
Skilled 1,116 hrs 75.00 83,700 1144 85,800 1,200 90,000 71.00 85,200
Unskilled 893 hrs 44.00 39,292 916 40,304 860 37,840 46.00 39,560
2,009 hrs 1,22,992 2,060 1,26,104 2,060 1,27,840 1,24,760

WN- 3: Standard Hours (SH):

 0.95 1,000hr. 
Skilled labour-  1,480kg.  =1,115.87 or 1,116 hrs.
 0.90  1,400kg. 
 0.95  800hr. 
Unskilled labour-  1,480kg.  = 892.69 or 893 hrs.
 0.90  1,400kg. 

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 25

WN- 4: Revised Standard Hours (RSH):

 1,000hr. 
Skilled labour-   2,060hr.  = 1,144.44 or 1,144 hrs.
 1,800hr. 
 800hr. 
Unskilled labour-   2,060hr.  = 915.56 or 916 hrs.
 1,800hr. 
(e) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH × AR)}
= {1,22,992 – 1,24,760} = 1,768 (A)
(f) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH × SR)}
= {1,22,992 – 1,27,840} = 4,848 (A)
(g) Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH × SR)}
= {1,22,992 – 1,26,104} = 3,112 (A)
11. Working Notes:
(1) Calculation of Cost of Goods Sold (COGS):
COGS = DM + DL + FOH + AOH
COGS = {0.3 COGS + 0.15 COGS + (0.10 COGS + ` 2,30,000) +
(0.02 COGS + ` 71,000)}
Or, COGS = 0.57 COGS + ` 3,01,000
` 3,01,000
Or, COGS = = ` 7,00,000
0.43
(2) Calculation of Cost of Sales (COS):
COS = COGS + S&DOH
COS = COGS + (0.04 COS + ` 68,000)
Or, COS = ` 7,00,000 + (0.04 COS + ` 68,000)
` 7,68,000
Or, COS = = ` 8,00,000
0.96
(3) Calculation of Variable Costs:
Direct Material- (0.30 × ` 7,00,000) ` 2,10,000
Direct Labour- (0.15 × ` 7,00,000) ` 1,05,000
Factory Overhead- (0.10 × ` 7,00,000) ` 70,000
Administration OH- (0.02 × ` 7,00,000) ` 14,000
Selling & Distribution OH (0.04 × ` 8,00,000) ` 32,000
` 4,31,000

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26 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

(4) Calculation of total Fixed Costs:

Factory Overhead- ` 2,30,000
Administration OH- ` 71,000
Selling & Distribution OH ` 68,000
` 3,69,000
(5) Calculation of P/V Ratio:
Contribution Sales  VariableCosts
P/V Ratio = 100 = 100
Sales Sales
(`185 5,000units)  ` 4,31,000
= 100 = 53.41%
`185 5,000units
(i) Break-Even Sales
FixedCos ts ` 3,69,000
= = = `6,90,882
P / VRatio 53.41%
(ii) Profit earned during the last year
= (Sales – Total Variable Costs) – Total Fixed Costs
= (`9,25,000 - `4,31,000) - `3,69,000
= `1,25,000
(iii) Margin of Safety (%)
Sales  Breakevensales
= 100
Sales
` 9,25,000  ` 6,90,882
= 100 = 25.31%
` 9,25,000
(iv) Profit if the sales were 10% less than the actual sales:
Profit = 90% (`9,25,000 - `4,31,000) - `3,69,000
= `4,44,600 - `3,69,000 = `75,600
12. (i) Preparation of Production Budget (in units)
October November December January
Demand for the month (Nos.) 40,000 35,000 45,000 60,000
Add: 20% of next month’s demand 7,000 9,000 12,000 13,000
Less: Opening Stock (9,500) (7,000) (9,000) (12,000)
Vehicles to be produced 37,500 37,000 48,000 61,000

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 27

(ii) Preparation of Purchase budget for Part-X

October November December
Production for the month 37,500 37,000 48,000
(Nos.)
Add: 40% of next 14,800 19,200 24,400
month’s production (40% of 37,000) (40% of 48,000) (40% of 61,000)
52,300 56,200 72,400
No. of units required for 2,09,200 2,24,800 2,89,600
production (52,300 × 4 units) (56,200 × 4 units) (72,400 × 4 units)
Less: Opening Stock (48,000) (59,200) (76,800)
(14,800 × 4 units) (19,200 × 4 units)
No. of units to be 1,61,200 1,65,600 2,12,800
purchased
(iii) Budgeted Gross Profit for the Quarter October to December
October November December Total
Sales in nos. 40,000 35,000 45,000 1,20,000
Net Selling Price per unit* (`) 14,57,070 14,57,070 14,57,070
Sales Revenue (` in lakh) 5,82,828 5,09,974.50 6,55,681.50 17,48,484
Less: Cost of Sales (` in lakh) 4,57,120 3,99,980 5,14,260 13,71,360
(Sales unit × Cost per unit)
Gross Profit (` in lakh) 1,25,708 1,09,994.50 1,41,421.50 3,77,124
* Net Selling price unit =`17,14,200 – 15% commission on `17,14,200
= `14,57,070.
13. (a) Difference between Cost Accounting and Management Accounting
Basis Cost Accounting Management Accounting
(i) Nature It records the quantitative
It records both qualitative and
aspect only. quantitative aspect.
(ii) Objective It records the cost ofIt Provides information to
producing a product and
management for planning and
providing a service. co-ordination.
(iii) Area It only deals with cost
It is wider in scope as it includes
Ascertainment. financial accounting, budgeting,
taxation, planning etc.
(iv) Recording of It uses both past and It is focused with the projection
data present figures. of figures for future.

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28 INTERMEDIATE (NEW) EXAMINATION: MAY, 2020

(v) Development Its development is related It develops in accordance to the

to industrial revolution. need of modern business world.
(vi) Rules and It follows certain principles It does not follow any specific
Regulation and procedures for rules and regulations.
recording costs of different
products.
(b) The impact of IT in cost accounting system may include the following:
(i) After the introduction of ERPs, different functional activities get integrated and
as a consequence a single entry into the accounting system provides custom
made reports for every purpose and saves an organisation from preparing
different sets of documents. Reconciliation process of results of both cost and
financial accounting systems become simpler and less sophisticated.
(ii) A move towards paperless environment can be seen where documents like Bill
of Material, Material Requisition Note, Goods Received Note, labour utilisation
report etc. are no longer required to be prepared in multiple copies, the related
department can get e-copy from the system.
(iii) Information Technology with the help of internet (including intranet and extranet)
helps in resource procurement and mobilisation. For example, production
department can get materials from the stores without issuing material requisition
note physically. Similarly, purchase orders can be initiated to the suppliers with
the help of extranet. This enables an entity to shift towards Just-in-Time (JIT)
approach of inventory management and production.
(iv) Cost information for a cost centre or cost object is ascertained with accuracy in
timely manner. Each cost centre and cost object is codified and all related costs
are assigned to the cost object or cost centre. This process automates the cost
accumulation and ascertainment process. The cost information can be
customised as per the requirement. For example, when an entity manufacture or
provide services, it can know information job-wise, batch-wise, process-wise,
cost centre wise etc.
(v) Uniformity in preparation of report, budgets and standards can be achieved with
the help of IT. ERP software plays an important role in bringing uniformity
irrespective of location, currency, language and regulations.
(vi) Cost and revenue variance reports are generated in real time basis which
enables the management to take control measures immediately.
(vii) IT enables an entity to monitor and analyse each process of manufacturing or
service activity closely to eliminate non value added activities.
The above are examples of few areas where Cost Accounting is done with the help
of IT.

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PAPER – 3: COST AND MANAGEMENT ACCOUNTING 29

(c) Escalation clause in a contract empowers a contractor to revise the price of the
contract in case of increase in the prices of inputs due to some macro-economic or
other agreed reasons. A contract takes longer period to complete and the factors
based on which price negotiation is done at the time of entering into the contract may
change till the contract completes. This protect the contractor from adverse financial
impacts and empowers the contractor to recover the increased prices. As per this
clause, the contractor increases the contract price if the cost of materials, employees
and other expenses increase beyond a certain limit. Inclusion of such a clause in a
contract deed is called an “Escalation Clause”.
(d) By-product cost can be dealt in cost accounting in the following ways:
(i) When they are of small total value: When the by-products are of small total
value, the amount realised from their sale may be dealt in any one the following
two ways:
1. The sales value of the by-products may be credited to the Costing Profit
and Loss Account and no credit be given in the Cost Accounts. The credit
to the Costing Profit and Loss Account here is treated either as
miscellaneous income or as additional sales revenue.
2. The sale proceeds of the by-product may be treated as deductions from
the total costs. The sale proceeds in fact should be deducted either from
the production cost or from the cost of sales.
(ii) When the by-products are of considerable total value: Where by-products
are of considerable total value, they may be regarded as joint products rather
than as by-products. To determine exact cost of by-products the costs incurred
upto the point of separation, should be apportioned over by-products and joint
products by using a logical basis. In this case, the joint costs may be divided
over joint products and by-products by using relative market values; physical
output method (at the point of split off) or ultimate selling prices (if sold).
(iii) Where they require further processing: In this case, the net realisable value
of the by-product at the split-off point may be arrived at by subtracting the further
processing cost from the realisable value of by-products.
If total sales value of by-products at split-off point is small, it may be treated as
per the provisions discussed above under (i).
In the contrary case, the amount realised from the sale of by-products will be
considerable and thus it may be treated as discussed under (ii).

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