Sir Saud Tariq: 13 Important Revision Questions On Each Topic

Master Handout with Solution & Marks Allocation
CAF 8 Cost and Management Accounting

Sir SAUD TARIQ
13 important Revision Questions on each topic
Q1) Medal Ltd deals in manufacturing high quality rackets. Some information has been
gathered by cost accountant of Medal Ltd for the month of January 2020:
Units produced and sold 175,000 units
Selling Price Rs 174 per unit
Material Rs. 50 per unit
Direct labour Rs. 10 per unit
Variable overheads Rs. 20 per unit
Fixed overheads Rs. 16 per unit
Variable Selling expenses Rs. 6 per unit
Fixed Selling expenses Rs. 605,000
Administration expenses Rs. 507,000
Share Capital Rs 1,000,000
i. Inspection is performed at the end of production and defective units are estimated at
20% of the inspected units. The defective units are sold as scrap at Rs. 25 per unit.
ii. Medal Ltd computes Overheads Absorption Rate on good units. Actual fixed overheads
of the Company exceed estimated fixed overheads by Rs 262,500.
iii. Corporation tax rate is 30%.
iv. Accounting depreciation exceeds tax depreciation by Rs 500,000.
Required:
a) Calculate Breakeven Point of Medal Ltd. [9 Marks]
b) Compute how many rackets will be sold if Medal Ltd wants to pay dividend of 20% and
retain profits amounting to 3% of sales. [5 Marks]
Q2) Farman Limited has provided you with the following budgeted and actual data for the year
ended 31st December 2020:
Budget Actual
Production Units 12,000 13,000
Sale Rs. 36,000,000 40,300,000
Material Rs. 21,600,000 23,210,000
Labour Rs. 5,760,000 6,365,000
Variable Overheads Rs. 3,240,000 3,549,000
Fixed Overheads Rs. 3,000,000 2,800,000
The CFO has analysed the variation and ascertained the following reasons:
 The cost of material decreased by 5% below the standard price.
 The wages increased by 2% above the standard rate.
 Variable overheads are based on production units.
 The company follows absorption costing and computes Overheads Absorption rate (OAR)
only on the basis of production units.
Required: Calculate all possible and relevant variances for material, labour and overheads. (11)
For Online Lectures, visit sta.saudtariq.com 1 Sir Saud Tariq (ACA, ACCA) – CAF 8 CMA & BFD CFAP 4
Sir SAUD TARIQ
Q3) ST&Co. is preparing to launch a new product in a new market which is outside its current business
operations. The company has undertaken market research and test marketing at a cost of $500,000, as
a result of which it expects the new product to be successful. ST&Co. plans to charge a lower selling price
initially and then increase the selling price on the assumption that the new product will establish itself in
the new market. Forecast sales volumes, selling prices and variable costs are as follows:
Year 1 2 3 4
Sales volume (units/year) 200,000 800,000 900,000 400,000
Selling price ($/unit) 15 18 22 22
Variable costs ($/unit) 9 9 9 9
Selling price and variable cost are given here in current price terms before taking account of
forecast selling price inflation of 4% per year and variable cost inflation of 5% per year.
Incremental fixed costs of $500,000 per year in current price terms would arise as a result of
producing the new product. Fixed cost inflation of 8% per year is expected.
The initial investment cost of production equipment for the new product will be $2·5 million,
payable at the start of the first year of operation. Production will cease at the end of four years
because the new product is expected to have become obsolete due to new technology. The
production equipment would have a scrap value at the end of four years of $125,000 in future value
terms.
Investment in working capital of $1·5 million will be required at the start of the first year of
operation. Working capital inflation of 6% per year is expected and working capital will be
recovered in full at the end of four years.
ST&Co. pays corporation tax of 20% per year, with the tax liability being settled in the year in which
it arises. The company can claim tax-allowable depreciation on a 25% reducing balance basis on
the initial investment cost. ST&Co. currently has a nominal after-tax weighted average cost of
capital (WACC) of 12%. The company uses its current WACC as the discount rate for all investment
projects.
Required:
Calculate the net present value of the investment project in nominal terms and comment on
its financial acceptability. [12 Marks]
Q4 (a) M Umar Ltd has issued 5,000 bonds of Rs 100 each on 1 st January 2020. These 12% Bonds
are redeemable on 31st December 2024 at premium of 5%. Current Market Value of each Bond
is Rs 90 each. Compute Current Market Rate? (3 marks)
Q4 (b) Differentiate between “Venture Capital” and “Asset Securitization”. (2 marks)
Sir SAUD TARIQ
Q5) Hammad Ltd produces products which involve two processes P and Q. The
Company provided following information for the month of January 2021:
Process P Process Q
Litres Litres
Product W11 35,000
Product X23 31,500
By-Product 8A 7,000
Product M1 23,800
Closing Work in Progress - 4,550
Rs 000 Rs 000
Direct Material 40,236 -
Conversion Cost 18,270 10,794
i. Product W11 was Sold for Rs. 8,400 per liter after incurring packing cost of Rs. 840/
liter.
ii. Product X23 was transferred to process Q for conversion into a new product M1.
iii. By-Product 8A was sold for Rs. 500 per liter at the split-off point.
iv. Product M1 was sold for Rs. 1,400 per liter.
v. Work in progress was 70% complete as to conversion.
vi. Materials are introduced at the beginning of process and Saud Tariq Ltd uses
'weighted average method' for inventory valuation.
vii. Proceeds from sale of by-product are treated as reduction in joint costs. Joint costs
are allocated on the basis of net realisable values of the joint products at split-off
point.
viii. Normal production losses in both processes are estimated at 10% of the input and
are incurred at beginning of the process.
ix. Loss of each liter in process P results in a 0.8 kg waste which is sold for Rs. 700 per
kg. Loss of process Q has no sale value.
Required:
a) Compute the cost of sales of W11 and M1 for the month of January 2021. (12 marks)
b) Prepare accounting entries to record production gains/losses and their ultimate disposal
(3 marks)
Sir SAUD TARIQ
Q6) CVP Mori Naga
Sir SAUD TARIQ
Q7) Amsal Ali Ltd manufactures and sells cricket wide categories of cricket accessories. One of the
raw materials TIMBER is in short supply and only 80,000 kg are available in Amsal Ali Ltd’s stores.
Following information pertains to the products in which TIMBER is used (per unit data):
Gladiators United Qalandars
Material TIMBER (Rs. 500 per kg) kg 14 12 2
Other material (Rs. 300 per kg) kg 5 3 1
Direct labour hours (Rs. 100 per hour) hours 20 15 5
Variable overheads based on labour cost % 80% 80% 80%
Fixed overheads per direct labour hour Rs. 95 75 60
Budgeted local sales/requirement Units 4,500 1,000 2,500
 Sales Price of Product Galdiators is Rs 20,000 while United is sold for Rs 14,100 each.
 Qalandars is used in other products made by Saad Ltd. If it could not be produced internally,
it has to be purchased from market at Rs. 3,000 per unit.
 Committed export sales of United is 800 units.
Required: Determine the number of units of each product that should be manufactured, to earn
maximum profit. [10]
Q8) Learning Curve
Sir SAUD TARIQ
Q9) The following information has been extracted from the projected financial statements of Merit
Limited for the year ending 31st December 2019:
Rs. in million
Sales (100% credit sales) 9,000
Raw material consumption 2,700
Raw material inventory (including imports of Rs. 294 million) 474
Conversion cost: Variable 1,710
Fixed (including depreciation of Rs. 48 million) 120
Operating cost: Variable 2,190
Fixed (including depreciation of Rs. 81 million) 360
Trade creditors (local purchases) 285
Advance to suppliers for import of raw material 90
(i) Sale volume is projected to increase by 30%. In order to finance the additional
working capital, the management has decided to adopt the following measures:
 Introduce cash sales at a discount of 2%. It is estimated that 20% of the customers would
avail the discount.
 The present average collection period is 45 days. Merit Limited has decided to improve
follow-ups which would ensure collection within 40 days.
 40% of the raw material consumed is imported which is paid in advance on placement of
purchase order. The delivery is made within 30 days after the placement of order. Merit
Limited has negotiated with the foreign suppliers and agreed that from the next year,
payments would be made on receipt of the goods.
 Local purchases would be paid in 50 days.
(ii) As a result of increased production, economies of scale would reduce variable

conversion cost per unit by 5%.
(iii) Due to price increases, cost of raw material and all other costs (excluding
depreciation) would increase by 10% and 8% respectively.
(iv) Average days for payment of other costs would remain the same i.e. 25 days.
(v) There is no opening and closing finished goods inventory.
(vi) Quantity of closing local and imported raw material as a percentage of raw material
consumption would remain the same.
(vii) LE uses FIFO method of valuation of inventory.
Required:
Prepare cash budget for 31st December 2020. (Assume that all transactions occur evenly
throughout the year (360 days) unless otherwise specified) [15 Marks]
Sir SAUD TARIQ
Q10) Budgeting with Sales Tax, Withholding Tax and Stages of completion in projects
Q11) Sohaib Ltd (SL) produces and markets a single product. The company’s management has
raised concerns about the declining sales due to frequent stock-outs. In order to resolve the
problem, the finance manager has gathered following information from SL’s records:
Carrying costs of inventory (excluding financing costs) 8% p.a.

Variable costs of inventory 80% of sales
Fixed costs Rs. 120,000 p.a.
Applicable tax rate 30%
Based on stock-out reports, the finance manager has worked out three policies for the
improvement of sales and the projected data is as follows:
Inventory Policy Inventory turnover Sales
(based on cost of goods sold) (Rs. in 000’)
Existing 8 900,000
PI 7 1,267,500
PII 6 1,582,500
PIII 5 1,860,000
Required: Which of the above policy would maximize the incremental rate of return on
investment in inventories? (13 marks)
Sir SAUD TARIQ
Q12) Process Costing
Danish Ltd operates a process- cost system. It has two departments, cleaning and milling. For
both departments conversion costs are applied in proportion to the stage of completion. But
direct materials and added at the beginning of the process in the cleaning department and
additional direct materials are added at the end of the milling process. Following are the costs
and unit production statistics for May. All unfinished work at the end of May is 25% completed.
All beginning inventories were 80% completed as of May 1. All completed work is transferred to
the next department:
Beginning inventories Cleaning Milling

Cleaning: Rs. 10,000 direct materials, Rs. 8,000 conversion cost Rs. 18,000
Milling: Rs. 64,500 previous Department. (transferred- in- cost) Rs. 89,000
and Rs. 24,500 conversion costs
Current costs
Direct materials Rs. 90,000 Rs. 6,400
Conversion costs Rs 80,000 Rs 49,500
Physical units
Units in beginning inventory 1,000 3,000
Units started this month 9,000 7,400
Total units finished and transferred 7,400 6,000
Normal spoilage 500 400
Abnormal spoilage 500 0
Additional factors:
i. Spoilage is assumed to occur at the end of each of the two processes when the units are
inspected.
ii. Assume that there is no wastage, shrinkage, evaporation, or abnormal spoilage other than
that indicated in the tabulation above.
iii. Carry out unit cost calculation to three decimal places where necessary. Calculate final totals
to the nearest rupee.
Required:
Using the weighted average method, show for each department:
a) Analysis of physical units and an analysis of equivalent units.
b) Calculations of unit costs.
c) Detailed presentation of the total costs assigned to goods transferred out the total costs
assigned to ending work in process.
Sir SAUD TARIQ
Q13) PSL Ltd has just completed production of a machine for IPL Ltd which has recently gone into
liquidation. The sales price of the machine was agreed at Rs.506,000 including 10% profit on total
costs. IPL Ltd has paid a non-refundable deposit equal to 12% of agreed sales price of the machine.
Costs incurred for the manufacture of the machine were as follows:
Rs.
Direct Material 190,000
Direct Labour 120,000
Variable Overhead 30,000
Fixed Production Overhead 100,000
Fixed Selling and Administrative Overhead 20,000
Total 460,000
The Chairman Ehsaan Mani has been able to find a customer BBL Ltd, who is willing to buy the
machine if certain modifications are made in the machine to meet his requirements. Such
modifications would involve following:
Direct Material (at cost) Rs.32,000
Direct Labour:
Department A : 6 men for 4 weeks each paid a weekly salary of Rs.750
Department B : 2 men for 4 weeks each paid a weekly salary of Rs.600
Variable overheads: 20% of direct labor cost
Avoidable Fixed overheads based on following rates:
Department A : 83-1/3 % of direct labor cost
Department B : 25% of direct labor cost
Other relevant information is as follows:

i) Three types of material were used in the original machine which can be sold as scrap as
follows:
A type : Rs.30,000
B type : Rs.20,000, but it would take 120 hours of casual labour paid at
Rs.15 per hour for dismantling
C type : It would be scrapped at a cost of Rs.6,000
ii) Direct material required for modifications is available in store and being used for the
manufacture of other machines. Its current purchase price is Rs.38,000.
iii) Modification work would be carried out in both the departments i.e. A and B. Department
A is extremely busy and operating at full capacity. It is contributing to profit equal to 2.5
times of labor cost. Department B has sufficient idle capacity as it is presently operating at
40% capacity & cannot lay off any of its 8 employees who are paid Rs.600/week employee.
iv) The designs and specifications of the original machine can be sold to customer CPL for
Rs.15,000, if the machine is scrapped.
v) If modification of the machine is undertaken, a technical expert Haris Rauf would be
engaged for 4 weeks at a salary of Rs.2,250 a week. The company treats supervision cost as
fixed overhead.
Required: Minimum price to be accepted from the BBL for the modified machine (13)
Sir SAUD TARIQ
Notes for CAF 8 Students near Exam Days:
 Please Refer 6 Quality Questions of Grand Mock as well

for Revision after this Handout (Already shared on Social
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of Brain work.
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the last day as your concepts in mind will help in Exams.
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useful in our efforts !
NOW You may Refer Solution in Upcoming Pages
Sir SAUD TARIQ
Solutions
Q1
a) Inspected units = Good + Bad units = Output + Loss = Input Units

 Input – Normal Loss = Output => x – 0.2x = 175,000
 x = input = 175,000/0.8 = 218,750 units => Normal Loss = 43,750 units (1)
 Estimated fixed FOH = 16 X 175,000 = 2,800,000
 Actual fixed FOH = 2,800,000 + 262,500 = 3,062,500
 Breakeven Point (Units) with Taxes = After Tax Fixed Costs
After Tax CM per Unit
Rs
Actual Fixed FOH 3,062,500 (1)
Fixed Selling 605,000
Fixed Admin 507,000
Accounting Fixed Costs 4,174,500
Less Excess Accounting Depreciation (500,000) (1)
Tax Fixed Costs 3,674,500
Tax Rate 30%
Tax Saving on Fixed Cost 1,102,350 (1)
Accounting Fixed Costs 4,174,500
Tax Saving on Fixed Cost (1,102,350)
Fixed Cost Net of Tax/After Tax Fixed Cost 3,072,150 (1)
{4}
Computation of CM per Unit Rs

Material (50*218,750) 10,937,500
Labour (10*218,750) 2,187,500
Variable Overheads (20*218,750) 4,375,000
Less Scrap Value (25*43,750) (1,093,750) (1)
Total Net Production Cost 16,406,250
No of Units Produced (Output) 175,000
Variable Production Cost per unit 93.75 (1)
variable selling costs 6
Total Variable Cost per Unit 99.75
Selling Price Per unit 174
CM per Unit 74.25
Tax @ 30% 22.275
After Tax CM per Unit 51.975 (1)
{3}
Breakeven Point (Units) with Taxes = After Tax Fixed Costs = 3,072,150 = 59,108 units (1)
After Tax CM per Unit 51.975
Sir SAUD TARIQ
b) Target dividends = 1,000,000 x 0.2 = Rs 200,000 (1)
Target Retained
Earnings = 3% of sales
Units Sold = x
Sales = 174*x => target retained earnings = 174x * 3% = 5.22x (2)
Target Sales (Units) = After Tax Fixed Costs + Targets
After Tax CM
per Unit
Target Sales (Units) = 3,072,150 + 200,000 + 5.22x = x (1)
51.975
51.975x = 3,072,150 + 200,000 + 5.22x => x = Units Sold = 69,985 units (1)
Q2) Farman Limited

(1.5 marks for each correct variance….. Max 3 marks each for material, labour and Fixed FOH
variance)
Material cost variance = (Actual Material Cost – Standard Material Cost Allowed)
Material cost variance = (23,210,000 - (21,600,000/12,000*13,000)
Material cost variance = (23,210,000 - 23,400,000) = 190,000 Favourable
Total Material Cost Variance = 190,000 Favourable
Material Price Variance Material Usage Variance

= 23,210,000  95% = Balancing
23,210,000/0.95 x 0.05 = 1,221,579 ( = 1,031,580 (Adverse)
Or Material Price Variance can be calculated as per the following:

Material Price Variance = (Actual Material Price – Standard Material Price) x Actual Material quantity
= (0.95x – x ) * 23,210,000
0.95x
= (0.05x)* 23,210,000 (x will be cancelled out)
0.95x
= 1,221,579 (Fav)
Material Usage Variance through balancing as shown above.
Labour cost variance = (Actual Labour Cost – Standard Labour Cost Allowed)
Labour cost variance = (6,365,000 – 5,760,000/12,000*13,000)
Labour cost variance = (6,365,000 – 6,240,000) = 125,000 (Adverse)
Sir SAUD TARIQ
Total Labour Cost Variance = 125,000 (Adverse)
Labour Rate Variance Labour Efficiency Variance

= 6,365,000  102% = Balancing
6,365,000/1.02 x 0.02 = 124,804 (Adverse = 196 (Adverse)
Or Labour Rate Variance can be calculated as per the following:

Labour Rate Variance = (Actual Labour Rate – Standard Labour Rate) x Actual Labour Hours
= (1.02x – x ) * 6,365,000
1.02x
= (0.02x)* 23,210,000 (x will be cancelled out)
1.02x
= 124,804 (Adverse)
Labour Efficiency through balancing as shown above.
Variable OVERHEADS Variance = (Actual Variable Overheads – Budgeted Variable Overheads)
= (3,549,000 - (3,240,000/12,000*13,000)) = 39,000 (Adverse)
Fixed OVERHEADS Expenditure Variance = (Actual Fixed Overheads cost– Budgeted Fixed
Overheads)
= (3,000,000 – 2,800,000) = 200,000 (Adverse)
Fixed Foh Volume Variance = (Actual volume units – Standard volume units) x Fixed Foh rate/hr
Fixed Foh Volume Variance = (13,000 – 12,000) x 2,800,000/12,000 = 233,333 (Favourable)
Sir SAUD TARIQ
Q3) ST&Co.
Net present value calculation
Rs. 000
Marks 0 1 2 3 4
Sales revenue (W1) (2) 3,120 15,568 22,266 10,292
Variable costs (W2) (2) (1,890) (7,938) (9,369) (4,372)
Fixed costs (W3) (1) (540) (583) (630) (680)
Cash flow before tax 690 7,047 12,267 5,240
Tax loss (1) (666)
Tax depreciation (0.5) (625) (469) (352) (264)
Profit before tax 65 6,578 11,916 4,310
Tax @ 20% (1) (13) (1,316) (2,383) (862)
Profit after tax 52 5,262 9,533 3,448
Add back: Depreciation (0.5) 625 469 352 264
Add back: Tax loss (0.5) 666
Working capital (2) (1,500) (90) (95) (101) (107)
Working capital recovered 1,894
Asset (1) (2,500) 125
Net cash flow (4,000) 587 5,636 9,784 6,290
Discount factor @ 12% (0.5) 1 0.892 0.797 0.712 0.636
Present value (4,000) 524 4,492 6,966 4,000
NPV = 11,982
Sir SAUD TARIQ
Q4 a)
Market Rate (%) of Bonds = IRR (%)
Cash Discount Present Discount Present

Years flows Factor (15%) Value Factor (16%) Value
Market Value 0 (90.00) 1.00 (90.00) 1.00 (90.00)
Interest 1 to 5 12.00 3.35 40.23 3.27 39.29
Redemption 5 105.00 0.50 52.20 0.48 49.99
2.43 (0.72)
IRR = 15% + 1% 2.43 ) == 15.68 %
(2.143 + 0.72)
Q4 b)
Venture capital
The term ‘venture capital’ is normally used to mean capital provided to a private company
by specialist investment institutions, sometimes with support from banks in the form of
loans.
The company must demonstrate to the venture capitalist organisation that it has a clear
strategy and a convincing business plan. A venture capital organisation will only invest if
there is a clear ‘exit route’ (e.g. a listing on an exchange).
Investment is typically for 3-7 years after which the VC will realise their profits and exit the
investment.
Asset Securitization:
Securitisation is the process of converting existing assets or future cash flows into
marketable securities.
Typically the following occur simultaneously:
 Company A sets up Company B (described as a special purpose vehicle or SPV) and
transfers an asset to it (or rights to future cash flows).
 Company B issues securities to investors for cash. These investors are then entitled to
the benefits that will accrue from the asset.
 The cash raised by Company B is then paid to Company A.
In substance this is like Company A raising cash and using the asset as security. Accounting
rules might require Company A to consolidate Company B even though it might have no
ownership interest in it.
Conversion of existing assets into marketable securities is known as asset- backed securitisation
and the conversion of future cash flows into marketable securities is known as future-flows
securitisation.
Sir SAUD TARIQ
Question 5 (a) Marks
PROCESS P ACCOUNT
Litres Rs. Litres Rs.
Material W1 81,667 40,236,000 Normal Loss 8,167 4,573,520
Conversion Cost 18,270,000 By-Product 8A 7,000 3,500,000
Product W11 35,000 45,067,323
Product X23 31,500 5,365,157
81,667 58,506,000 81,667 58,506,000
W1
Normal Loss = 10% of input
Output / By-Product in Process P = 73,500 (35000+31,500+7,000)
% Litres
Input 100 X
Normal Loss (10)
Output / By-Product 90 73,500
X = Input = 73,500/0.9 = 81,667 Litres 2
W2
Process Q Input 31,500 (output of Process Q)
Less : Normal Loss @10% (3,150)
Expected output 28,350
Less : CWIP (4,550) No Abnormal Loss in Process 2
Output 23,800
Net Joint Cost in Process P = 50,432,480 (40,236,000+18,270,000-4,573,520-3,500,000) 2
Computation of Market Value (MV) at SOP
Market Value at SOP = Final Market Value - Further Processing Costs
Further Costs in Process Q = 10,794,000 (Given)
EPU in Process Q due to CWIP %
EPU Litres
Output 23,800
CWIP (4,550*0.7) 3,185
EPU of Process Q 26,985 2
Sir SAUD TARIQ
Conversion Cost per unit in Process Q = Rs. 400 / Litre (10,794,000/26,985) 1
MV at SOP of X23 = 1,000 / Litre (1,400-400 ) 1
MV at SOP of W11 = 7,560 / Litre (8,400-840) 1
Joint Cost Allocation 1
MV at SOP Total MV Allocation of

Product Litres
Per Litres SOP Joint Costs
W11 35,000 7,560 264,600,000 450,667,323
X23 31,500 1,000 31,500,000 5,365,157
Cost of Goods Sold (COGS) Rupees
Cost of Goods Sold for W11 45,067,323 (same as cost in Process Q) 1

COGS for M1 47,318,897 [5,368,157 / (31,500-3150)]*23,800 2
Conversion Cost 9,520,000 (400*23,800)
Total 56,838,897
Total 13
Question 5 (b)
Entries for Gain / Loss & Disposal

Description Dr. Cr.
31 January 2018
1) Normal Loss A/c 4,573,520

1
Process P A/c 4,573,520
2) Scrap A/c 4,573,520 1

Normal Loss A/c 4,573,520
3) Cash / Bank 4,573,520 1

Scrap A/c 4,573,520 Total 3
Sir SAUD TARIQ
Q6) Umair Limited CVP Analysis Question
Sir SAUD TARIQ
Q7) Amsal Ali Ltd
Gladiators United Qalandars Material

---------- Units----------
Budgeted sales/requirements Marks 4,500 1,800 3,000
---------- Rupees ----------
For internal
use only
Sales price per unit 20,000 14,100
Opportunity cost per unit (Purchase
price) (1) - - 3,000
Cost of production per unit:
Material XPI usage at Rs. 500 per kg (0.5) (7,000) (6,000) (1,000)
Other material usage at Rs. 300 per kg (0.5) (1,500) (900) (300)
Direct labour at Rs. 100 per hour (0.5) (2,000) (1,500) (500)
Variable overheads at 80% of labour cost (0.5) (1,600) (1,200) (400)
(12,100) (9,600) (2,200)
CM/savings from own manufacturing (A) (1) 7,900 4,500 800
Per unit usage of material XPI (B) kg (1) 14 12 2

CM per one kg of material XPI (A)÷(B) Rs. (1) 564 375 400
Ranking based on CM per XPI kg (1) 1st 3rd 2nd
Production from available material XPI:

Production of committed export sales - 800 - 9,600
Production in ranking order 4,500 200 2,500 70,400
Optimal production Units (3) 4,500 1,000 2,500 80,000
Sir SAUD TARIQ
Q8)
a) 1) Pricing, 2) Work scheduling 3) Std Setting
b) No of Lots to be produced = 10,000 = 100 Lots
100
Material Price exclusive of loss = Material Price inclusive of loss
1 – NL
Material Price exclusive of loss = 66,000 Input 1,100 kgs
0.9 Normal Loss 10% (110) kgs
x = Material Price exclusive of loss = 66,000 x 0.9 = Output 990 kgs
59,400
Batches Material Price Revised Input 990 = 1,053.2
kgs
0 – 16 66,000 or (59,400 /0.9) OR 0.94
17 – 100 59,400 / 0.94 = 63,191.5 Revised Material 66,000 x 1053.2
Cost 1,100
Rate of Learning =? =Rs 63,192
Unit Avg Time Total Time Additional Time

1 200 200 -
2 180 (360/2) 360 (200 +160) 160
4 162 648 288(148 + 140)
Learning Rate = ‘X’
200 * X = 180 OR 180 * X = 162
X = 0.9 X = 0.9 Learning Rate = 90%
0 64 100
63 Batches 64 Batches
y = ax n y = axn
y = 200 (63)-.0152 y = 200 (64) –0.152
y= 106.54 y= 106.29
Total hours 6,712 6,802.5
Hour for 64 Batch = 6,802.5 – 6,712 = 90.5 hr/unit
Total Labour Hours hours
Upto 64 Batches 6,803
36 Batches (90.5 x 36) 3,258
Total Hours 10,061
Less Normal Hours (8,000)
Overtime Hour 2,061
Sir SAUD TARIQ
Computation of cost of Order Rs.
Material – 0 to 16 Batches (66,000 x 16) 1056,000
17 to 100 Batches (63,191.5 x 84) 5308,086
Labour cost – Normal (8,000 x 44,000/200) 1760,000
Overtime (2061 x 220 x 1.5) 680,130
FOH - Normal (8,000 x 30,000/200) 1200,000
- Overtime (2061 x 150 x 1.25) 386,438
Total Cost 10,390,654
Margin @ 0.25 ÷0.75
13,854,205
No of Machines ÷10,000
SP per washing machine 1385.42
= 1385
Sir SAUD TARIQ
Q9) Merit Limited For the year ending 31 December 2020
Rs. 000
Receipts (W1) 11,738 (3)
Less: Payments
Local raw material (W6) (2,331) (3)
Imported raw material (W7) (1,542) (3)
Variable conversion cost (W2) (2,241) (2)
Fixed conversion cost (W3) (77) (1)
Variable operating cost (W4) (3,013) (2)
Fixed operating cost (W5) (300) (1)
Net cash flow 2,227
Workings
1. Receipts Rs. 000
Total sales (9,000 x 1.3) = 11,700 (1 Mark)
Cash sales Credit sales = 9,360 (0.5 Mark)

2340 x = 2,293 Opening balance = 1,125 (0.5 Mark)
(0.5 Mark) (9,000 x )
Closing balance = (1,040) (0.5 Mark)

(9,360 x )
Receipts = 9,445
Total receipts (2,293 + 9,445) = 11,738
2. Variable conversion cost

Rs. 000
Expense (1,710 x 1.13 x 0.95 x 1.08) (1 Mark) 2,280.798
Less: Closing balance (2,280.798 x
𝟐𝟓
) (0.5 Mark) (158.387)
𝟑𝟔𝟎
Add: Opening balance (1,710 x
𝟐𝟓
) (0.5 Mark) 118.75
𝟑𝟔𝟎
Payment for variable conversion cost 2,241.161
3. Fixed conversion cost

Rs. 000
Expense (120 – 48) x 1.08 (0.5 Mark) 77.76
Less: Closing balance (77.76 x
𝟐𝟓
) (5.4)
𝟑𝟔𝟎
Add: Opening balance (72 x
𝟐𝟓
) 5
𝟑𝟔𝟎
Payment for fixed conversion cost (0.5 Mark) 77.36
Sir SAUD TARIQ
4. Variable operating cost
Rs. 000
Expense (2,190 x 1.13 x 1.08) (1 Mark) 3,074.76
Less: Closing balance (3,074.76 x
𝟐𝟓
) (0.5 Mark) (213.525)
𝟑𝟔𝟎
Add: Opening balance (2,190 x
𝟐𝟓
) (0.5 Mark) 152.083
𝟑𝟔𝟎
Payment for variable operating cost 3,013.318
5. Fixed operating cost
Rs. 000
Expense (360 – 81) x 1.08 (0.5 Mark) 301.32
Less: Closing balance (301.32 x
𝟐𝟓
) (20.925)
𝟑𝟔𝟎
Add: Opening balance (279 x
𝟐𝟓
) 19.375
𝟑𝟔𝟎
Payment for fixed operating cost (0.5 Mark) 299.77
6. Local raw material
Consumption Purchase Payment
Raw material (before price change) = 2,700 x 1.3 x 0.6 = 2,106 (1 Mark)
From opening stock (474 - 294) = 180 From purchases (2,106 – 180) = 1,926
At old prices At inflated prices
Raw material (after price change) = 180 (0.5 Mark) + (1,926 x 1.1) (0.5 Mark)
= 2,298.6
Raw material purchases = consumption + closing stock – opening stock

Rs. 000
Raw material consumption = 2,298.6
Add: Closing stock = 257.4 (0.5 Mark)
(180 x 1.1 x 1.3)
Less: Opening stock = (180)
Raw material purchases = 2,376
Trade creditors (op.) = (330)
Trade creditors (cl.) = 285 (0.5 Mark)
Payments = 2,331
Sir SAUD TARIQ
7. Imported raw material
Raw material (before price change) = 2,700 x 1.3 x 0.4 = 1,404 (1 Mark)
Advance
From opening stock = 294 From purchases 1,404 – 294 – 90 = 1,020

(1 Mark)
At old prices At inflated prices
Raw material (after price change) = 294 + 90 + (1,020 x 1.1) = 1,506 (0.5
Mark)
Rs. 000
Raw material consumption = 1,506
Add: Closing stock = 420.42 (0.5 Mark)
(294 x 1.1 x 1.3)
Less: Opening stock = (294)
Raw material consumed = 1,632.42
Advance to suppliers = (90)
Payments for imports = 2,331
Sir SAUD TARIQ
Q10) Budgeting with Sales Tax, Withholding Tax and Stages of completion in projects
JAN FEB MARCH APR MAY

Receipts: Key
Advance A 35
Running bills B 42 63 35
Less:Adjust of advance C= B x 0.25 (10.50) (15.75) (8.75)
Net amount D = B-C 31.5 47.25 26.25
Retention Money E = B x 0.05 (2.10) (3.15) (1.75) 7
Sales tax F= (B-C x 0.16) 5.6 5.04 7.56 4.2
Gross Receipts G=SUM 40.6 34.44 51.66 28.7 7
WHT tax @ 6% H=G x 0.06 (2.44) (2.07) (3.10) (1.72) (0.42)
Net Receipts I = G-H 38.16 32.37 48.56 26.98 6.58
Payments:
Equipment J - - (95) - -
Sub - contract K = W1 (11.13) - (25.97) - -
Sales tax L = W2 - - - (5.10) (4.20)
Net Cashflow M=I-J-K-L 27.03 32.37 -72.41 21.88 2.38
(W1) Payment to sub – contractor:

Contract Revenue 140
Less: Profit (0.15 x 140) (21)
Total Costs of the project 119
Cost of machine in project (*95/1.16) (95) (81.9)
Subcontracting Cost 24 37.1  30% JAN 11.13
 70% march 25.97
*Input tax included in cost of machine can be adjusted against output tax as shown below so
should not be part of cost.
(W2) Computation of Sales Tax
January February March April

Sales tax charged as calculated above 5.6 5.04 7.56 4.2
Input tax machine (95/1.16*0.16) (13.1) (7.5) (2.46) Nil
Net tax payable OR (Carried forward) (7.5) (2.46) 5.1 4.2
Payment Month C/f c/f Payment in April Payment in May
Sir SAUD TARIQ
Q11.
Rs. 000’
Existing PI PII PIII
Sales 900,000 1,267,500 1,582,500 1,860,000
Less: Cost of Goods Sold
Variable Cost (80%) (2) (720,000) (1,014,000) (1,266,000) (1,488,000)
Fixed cost (1) (120) (120) (120) (120)
Gross Profit 179,880 253,380 316,360 371,880
Holding cost (w1) below (7,201) (11,590) (16,882) (23,810)
Profit before tax 172,679 241,790 299,478 348,070
Tax@30% (51,804) (72,537) (89,844) (104,421)
Profit after tax (1) 120,875 169,253 209,634 243,649
Incremental Profit (A) (1) 48,378 40,381 34,015
W1 Existing PI PII PIII

Cost of goods sold (1) 720,120 1,014,120 1,266,120 1,488,120
Stock turnover 8 7 6 5
Average stock (X) (2) 90,015 144,874 211,020 297,624
Incremental inventory (B) (1) 54,859 66,146 86,604
Holding cost (8%) (1) 7,201 11,590 16,882 23,810
(Total 5)
(0.5) 48,378 40,381 34,015
(0.5) 54,859 66,146 86,604
Incremental rate of return (A/B) (2) 88% 61% 39%
Sir SAUD TARIQ
Q12 Process Costing
 2 departments Cleaning => material added at beginning
Milling => Material added at end of the process
 CWIP >25% (C.C)
 OWIP => 80%
 INSPECTION AT THE END >CWIP=>INSPECTED=>N.L=>EPU
QTY SCHEDULE CLEANING MILLY
OWIP 1,000 3,000
FENLTES 9,000 7,400
10,000 10,400
TRANSFERRED 7,400 6,000
NORMAL LOSS 500 400
ABNORMAL 500 -----
CWIP (Balancing figure) 1,600 4,000
10,000 10,400
EPU Cleaning Material Conversion Cost

Output 7,400 7,400
N.L 500 500
A.L 500 500
CWIP 1,600 400
10,000 8,800
EPU MILLING CFPD (Cost from Previous Material Conversion Cost

department)
Output 6,000 6,000 6,000
N.L 400 400 *0 400
CWIP 4,000 ----- 1,000
10,400 6,400 6,000 7,400
* Since inspection occurs at the end and material at Milling also adds at the end therefore it is
wise to assume that material adds at end after inspection only to good units. It will not be
appropriate to assume that first material is added and then inspection occurs to find put loss
units as in such case material will be applied on loss units and thus wasted. In other words, in
this question, addition of material was delayed in Milling in order to first identify loss units
through inspection and then add material only to good output.
COST PER UNITS COST EPU COST/UNITS
(Cleaning)
D.M(10+90) 100,000 10,000 10
C.C(8+88) 88,000 8,800 10
188,000 20
Sir SAUD TARIQ
Cost Account For / Quantification of EPU (Cleaning) Rs
Output (7,400 x 20) 148,000
N.L (7,400 x 20) 10,000
Total Cost Charged To Milling (Including Normal Loss) 158,000
Abnormal Loss (500x20) 10,000

Closing WIP (1,600x10)+(400+10) 20,000
188,000
Process Account Cleaning

Units Rs Units Rs
Opening Work in Progress 1,000 18,000 Normal Loss 500 -
Material 9,000 90,000 Output 7,400 158,000
Conversion Cost 80,000 Abnormal Loss 500 10,000
Closing Work in Progress 1,600 20,000
10,000 188,000 10,000 188,000
Milling
Cost EPU Cost per unit
C.F.P.D (158,000 from above)+64,5000 222,500 10,400 21.394
Material 6,400 6,000 1.067
C.C (24,500+49,500) 24,000 7,400 10
302,900 32.461
COST A/C FOR (MILLY)

Output(6,000x 32,46) 194,766
Normal Loss:
CFPD (400 x 21.394)
Conversion Cost (400 x 10) 12,558
Total cost to customer 207,324
Closing Work in Progress:
CFPD (4,000 x 21.394)
Conversion Cost (1,000 x 10) 95,576
302,900
Process Account Cleaning

Units Rs Units Rs
Opening Work in Progess 3,000 89,000 Normal Loss 400 -
CFPD (From Cleaning) 7,400 158,000 Output 6,000 207,324
Material 6,400 CWIP 4,000 95,576
Conversion Cost 49,500
10,400 302,900 10,400 302,900
Sir SAUD TARIQ
Question 13 Marks
Relevant Cost of Modification Rupees
Direct Material : Current Replacement Price 38,000 1

Direct Labour Department A : 6 x 4 x 750 18,000 1
Loss of CM 2.5 x 18,000 45,000 2
Direct Labour Department B : (2 x 4 x 600 = 4,800 But Nil 1
Relevant is Nil as Idle Payment)
Variable Factory Overheads 20% of (18,000 + 4800) 4,560 2
Additional Fixed Factory Overheads
Dept A : 83.33% of 18,000 15,000
Dept B : 25% of 4,800 1,200 1
Supervisory cost 2,250 x 4 9,000 1
130,760
Loss of scrap value
Direct Material A 30,000 1

Direct Materia 20,000
Less : 120 x 15 (1,800)
18,200 1
Direct Material C (Cost of Disp (6,000) 1
Design 15,000 1
57,200
Minimum price to be quoted 187,960
Total 13

Sir Saud Tariq: 13 Important Revision Questions On Each Topic

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Master Handout with Solution & Marks Allocation

CAF 8 Cost and Management Accounting

Q4 (b) Differentiate between “Venture Capital” and “Asset Securitization”. (2 marks)

Budgeted local sales/requirement Units 4,500 1,000 2,500

Q8) Learning Curve

(ii) As a result of increased production, economies of scale would reduce variable

Carrying costs of inventory (excluding financing costs) 8% p.a.

Beginning inventories Cleaning Milling

Other relevant information is as follows:

 Please Refer 6 Quality Questions of Grand Mock as well

NOW You may Refer Solution in Upcoming Pages

a) Inspected units = Good + Bad units = Output + Loss = Input Units

Computation of CM per Unit Rs

Q2) Farman Limited

Material Price Variance Material Usage Variance

Or Material Price Variance can be calculated as per the following:

Labour Rate Variance Labour Efficiency Variance

Or Labour Rate Variance can be calculated as per the following:

Market Rate (%) of Bonds = IRR (%)

Cash Discount Present Discount Present

Material W1 81,667 40,236,000 Normal Loss 8,167 4,573,520

Conversion Cost 18,270,000 By-Product 8A 7,000 3,500,000

Product W11 35,000 45,067,323

Product X23 31,500 5,365,157

81,667 58,506,000 81,667 58,506,000

Output / By-Product in Process P = 73,500 (35000+31,500+7,000)

X = Input = 73,500/0.9 = 81,667 Litres 2

Net Joint Cost in Process P = 50,432,480 (40,236,000+18,270,000-4,573,520-3,500,000) 2

Computation of Market Value (MV) at SOP

Market Value at SOP = Final Market Value - Further Processing Costs

Further Costs in Process Q = 10,794,000 (Given)

EPU in Process Q due to CWIP %

Conversion Cost per unit in Process Q = Rs. 400 / Litre (10,794,000/26,985) 1

MV at SOP of X23 = 1,000 / Litre (1,400-400 ) 1

MV at SOP of W11 = 7,560 / Litre (8,400-840) 1

Joint Cost Allocation 1

MV at SOP Total MV Allocation of

Cost of Goods Sold (COGS) Rupees

Cost of Goods Sold for W11 45,067,323 (same as cost in Process Q) 1

Entries for Gain / Loss & Disposal

1) Normal Loss A/c 4,573,520

2) Scrap A/c 4,573,520 1

3) Cash / Bank 4,573,520 1

Gladiators United Qalandars Material

Per unit usage of material XPI (B) kg (1) 14 12 2

Production from available material XPI:

Unit Avg Time Total Time Additional Time

Cash sales Credit sales = 9,360 (0.5 Mark)

Closing balance = (1,040) (0.5 Mark)

Total receipts (2,293 + 9,445) = 11,738

2. Variable conversion cost

3. Fixed conversion cost

At old prices At inflated prices

Raw material purchases = consumption + closing stock – opening stock

From opening stock = 294 From purchases 1,404 – 294 – 90 = 1,020

At old prices At inflated prices

JAN FEB MARCH APR MAY

(W1) Payment to sub – contractor:

(W2) Computation of Sales Tax

January February March April

W1 Existing PI PII PIII

EPU Cleaning Material Conversion Cost