Intermediate Examination Syllabus 2016 Paper 8: Cost Accounting (Cac)

Mock -1 Question Paper and Model Answers for Online Examination
INTERMEDIATE EXAMINATION
Syllabus 2016
Paper 8: COST ACCOUNTING (CAC)
Time Allowed: 3 Hours Full Marks: 100
There are Sections A, B, C and D to be answered subject to instructions given against each.
(Time allotted for Sections A and B shall be limited to a maximum of 50 minutes)
Section A 20
Marks
1. You are required to answer all the questions. Each question carries 1 mark. 20 X 1
Instructions: Each question is followed by 4 Answer choices and only one is correct. You are required to = 20
select the choice which according to you represents the correct answer.
a. The meaning of Conversion Cost in Process Costing is … .

Which one of the choices from below according to you most appropriately completes the above
sentence?
(i) Cost of Direct Materials, Direct Labour, Direct expenses
(ii) Cost of Direct Labour, Direct Expenses, Indirect Material, Indirect Labour, Indirect A
Expenses
(iii) Prime Cost plus Factory Overheads
(iv) All costs up to the product reaching the consumer, less Cost of Direct Materials
b. In the context of Contract Account, Work Completed but not yet certified will be shown …
Which of the following is correct?
(i) at cost plus + 2/3rd of the notional profit under ‘Completed Work’
(ii) at cost plus notional profit less retention money under ‘Completed Work’
(iii) at cost under ‘Completed Work’
(iv) at cost under WIP A/c A
c. Standard costs and budgeted costs are __________________ .

Which word(s) according to you appropriately fills in above blank?
(i) Inter-related A
(ii) Different
(iii) Unrelated
(iv) None of the above
d. Which of the following is not a potential benefit of using a budget?

(i) More motivated managers
(ii) Enhanced co-ordination of firm activities
(iii) Improved inter-departmental communication
(iv) More accurate external financial statements A
e. Sales budget is an example of _______________ .

(i) Expenditure budget
(ii) Functional budget A
The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(iii) Capital budget

(iv) Master budget
f. Z Ltd. is planning to sell 1,00,000 units of product A for Rs. 12.00 per unit. The fixed costs are Rs.
2,80,000. In order to realize a profit of Rs. 2,00,000, what would the variable costs be?
(i) Rs. 4,80,000
(ii) Rs. 7,20,000 A
(iii) Rs. 9,00,000
(iv) Rs. 9,20,000
g. At the economic ordering quantity level, which of the following is True?

(i) The ordering cost is minimum
(ii) The carrying cost is minimum
(iii) The ordering cost is equal to the carrying cost A
(iv) The purchase price is minimum
h. When a direct worker is paid on a monthly fixed salary basis, which of the following is NOT False?
(i) There is no idle time lost.
(ii) There is no idle time cost. A
(iii) Idle time cost is separated and treated as overhead.
(iv) The salary is fully treated as factory overhead cost.
i. Which of the following choices is an example of direct expenses as per CAS-10?

(i) Special raw material which is a substantial part of the prime cost
(ii) Travelling expenses to site A
(iii) Overtime charges paid to direct worker to complete work before time
(iv) Catalogue of prices of finished products
j. When you attempt a reconciliation of profits as per Financial Accounts and Cost Accounts, which of
the following is done?
(i) Add the under absorption of overheads in Cost Accounts if you start from the profits as A
per Financial Accounts.
(ii) Add the under absorption of overheads in Cost Accounts if you start from the profits as
per Cost Accounts.
(iii) Add the over absorption of overheads in Cost Accounts if you start from the profits as
per Financial Accounts.
(iv) Add the over absorption of overheads in Cost Accounts if you start from the profits as
per Cost Accounts.
k. A certain process needed standard labour of 24 skilled labour hours and 30 unskilled labour hours
at Rs. 60 and Rs. 40 respectively as the standard labour rates. Actually, 20 and 25 labour hours were
used at Rs. 50 and Rs. 50 respectively. Then, the labour mix variance will be
(i) Adverse
(ii) Favourable
(iii) Zero A
(iv) Favourable for skilled and unfavourable for unskilled
l. Which of the following most appropriately defines ‘Idle time’?

(i) Time spent by workers in office
(ii) Time spent by workers in factory
(iii) Time spent by workers off their work A

(iv) Time spent by workers on their job
m Which of the following Standards deals with the principles and methods of determining
. depreciation and amortization cost?
(i) CAS-8
(ii) CAS -11
(iii) CAS-16 A
(iv) CAS-20
n. Where the cost and financial accounts are maintained independently of each other, it is
indispensable to them, as there are differences in the profits of two sets of books.
Choose the most appropriate word from the choices below.
(i) reconcile A
(ii) match
(iii) differentiate
(iv) equalize
o. In a Job Cost system, costs are accumulated _________ .

(i) on a monthly basis
(ii) by specific job A
(iii) by department or process
(iv) by kind of material used
p. Which of the following best describes a Fixed Cost?

(i) It may change in total where such change is unrelated to changes in production A
(ii) It may change in total where such change is related to changes in production
(iii) It is constant per unit of change in production
(iv) It may change in total where such change depends on production within the relevant
range
q. Equivalent production is expressed in terms of ___________ .

(i) Job
(ii) CAS 1
(iii) Work in progress
(iv) Completed units A
r. Materials which can be identified with the given product unit of cost centre is called as _____
materials.
Choose the most appropriate word from the choices below.
(i) Direct A
(ii) Spare
(iii) Indirect
(iv) Waste
s. There is a loss as per financial accounts amounting to Rs.10,600, donations not shown in cost
accounts amounts to Rs. 6,000. What would be the profit or loss as per cost accounts?
(i) Loss of Rs. 16,600
(ii) Profit of Rs. 16,600

(iii) Loss of Rs. 4,600 A
(iv) Profit of Rs. 4,600
t. Marginal Costing technique follows which of the following bases of classification?

(i) Element-wise
(ii) Function-wise
(iii) Behaviour-wise A
(iv) Identifiability-wise
Section B 20
Marks
2. You are required to answer all the questions. Each question carries 1 mark. 20 X 1
Instructions: Each question is followed by a space where you are required to type your answer. = 20
a. In Standard Costs, __________________ norm is applied as a scale of reference for assessing

actual cost to serve as a basis of cost control.
What word(s) appropriately fill in the blank above?
Type your answer here predetermined
b. What word(s) appropriately fill in the blank below?

In Absorption Costing _____________ is added to inventory.
Type your answer here Fixed Costs
c. By-products may undergo further processing before sale.

State whether the above statement is ‘True’ or ‘False’:
Type your answer here True
d. State whether the following statement is ‘True’ or ‘False’:

In case of materials that suffers loss in weight due to evaporation etc. the issue price of the
materials is inflated to cover up the losses
Type your answer here True
e. What word(s) appropriately fills in the blank below?

One of the disadvantages of overtime working is incurring __________ labour cost.
Type your answer here excess (or additional or more or higher)
f.
Item Column I Item Column II
(i) Component of Cost Sheet (A) High initial costs
(B) Reference to the job
Match the item (i) in Column I with the most appropriate item in Column II. State the item no. only
Type your answer here

Column I Item (i) matches with Column II Item
g. State whether the following statement is ‘Correct’ or ‘Incorrect’:

Factory overhead cost applied to a job is usually based on a pre-determined rate.
Type your answer here Correct
h. Operation Costing and Operating Costing are interchangeably used for the same technique of
costing.
Do you Accept or Reject the statement above?
Type your answer here Reject
i. State whether the following is ‘True’ or ‘False’

In Marginal and Absorption Costing, Variable Factory Overhead is treated as Direct Cost.
Type your answer here False
j. What word(s) appropriately fill in the blank below?

In the graph showing the angle of incidence, when the quantity is zero, the Total Cost line cuts the
Costs axis (Y- axis) at which cost value?
Type your answer here Fixed Cost Value
k. What is the name the type of loss for which a Process Account is credited with value for such loss
when scrap value is zero?
Type your answer here Abnormal loss
l. What is the change in Profit Volume Ratio with increase in Fixed Cost?
Type your answer here It remains constant
m A hotel having 100 rooms of which 80% are normally occupied in summer and 25% in winter.
. Period of summer and winter be taken as 6 months each and normal days in a month be assumed
to be 30. Then, what is the value of total occupied room days?
Type your answer here 18,900
n. In a process 6,000 units are introduced during a period. 5% of input is normal loss. Closing work-in-
process which is 60% complete is 800 units. 4,900 completed units are transferred to next process.
How much is the Equivalent production for the period in units?
Type your answer here 5,380
o. Which of the following items in Column A is correctly matched with the corresponding item in
Column B?
Sl. No. Column A Column B
(i) Imputed Costs Costing Profit and Loss Account
(ii) Captive Power Plant Expenses Treated as part of Factory Expenses
Type your answer here (ii)
p. Which method is followed for evaluation of equivalent production when prices are fluctuating?
Type your answer here FIFO
q. A firm has Fixed Expenses of Rs. 90,000, Sales of Rs. 3,00,000 and Profit of Rs. 60,000. What is the
value of P/V Ratio of the firm?
Type your answer here 50%
r. What is the name of the document which describes the budgeting organisation, budgeting
procedure, etc.?
Type your answer here Budget Manual
s. Variance analysis is a costing technique based on management by ___________.
What word appropriately fills in the blank above?
Type your answer here Exception
t. During a period, 800 units were introduced in a process. The normal loss is 5%. Closing work-in-
progress (60% complete) was 100 units. If the Equivalent production for the period is 720 units,
how many completed units were transferred to the next process?
Type your answer here 660 units
Section C 40
Marks
You are required to answer any 4 out of 6 questions in this section 10 X 4
3. a. A factory has 3 production departments (P1, P2 and P3) and 2 service departments (S1 serving P1
and S2 serving P2 and P3 equally). The following overheads and other information are extracted
from the books for the month of May 2021:
Expenses Amount (Rs.)
Rent 7,200
Plant Repair 3,600
Depreciation 2,700
Lighting 600
Supervision 9,000
Fire Insurance for stock 3,000
Cost of Idle Time 900
Power 5,400
Particulars P1 P2 P3 S1 S2
Area (sq. ft.) 400 300 270 150 80
No. of workers 54 48 36 24 18
Wages (Rs.) 18,000 15,000 12,000 9,000 6,000
Value of Plant (Rs.) 72,000 54,000 48,000 6,000
Stock Value (Rs.) 45,000 27,000 18,000
Horse Power of Plant 600 400 300 150 50
(i) Allocate the overheads among the various departments on the most appropriate basis (Primary 5
Distribution only).
Statement of Primary Distribution of Overheads
Expenses Total Basis P1 P2 P3 S1 S2
Rs. Rs. Rs. Rs. Rs. Rs.
Rent 7,200 Area sq. ft. 2,400 1,800 1,620 900 480
Plant Repair 3,600 Plant value 1,440 1,080 960 120
Depreciation 2,700 Plant Value 1,080 810 720 90
Lighting 600 Area sq. ft. 200 150 135 75 40
Supervision 9,000 No. of Workers 2,700 2,400 1,800 1,200 900
Fire Insurance for stock 3,000 Stock Value 1,500 900 600
Cost of Idle Time 900 Wages 270 225 180 135 90
Power 5,400 Horse Power 2,160 1,440 1,080 540 180
Total 32,400 11,750 8,805 7,095 3,060 1,690
(iii) Compute the Overhead Costs of the primary departments – P1, P2 and P3 after apportionment 2
of service department costs.
Statement of Distribution of Service Department Costs to Primary Departments
Particulars P1 P2 P3
Rs. Rs. Rs.
Overhead Costs as per Primary Distribution 11,750 8,805 7,095
Distribution of Service Department Costs:
S1 3,060
S2 845 845
TOTAL 14,810 9,650 7,940
Working Notes:
Basis of Distribution of Service Department Costs
S1: Rs. 3,060 only to P1
S2: Rs. 1,690 to be distribution between P2 and P3 in the ratio of 1:1
b. Fill up the following table in accordance with the principles of Cost Accounting Standards 3
applicable:
SI. No. Items of Expenses Employee Cost as per CAS Disclosure Element of
Cost
(i) Basic Wages to Direct Worker Included/Excluded/Not Yes/No/ ?
applicable (NA) NA
(ii) Normal Idle time Cost of Direct Included/Excluded/Not Yes/No/ ?
Worker applicable (NA) NA
For Employee Cost as per CAS and Disclosure state whichever is appropriate.
SI. No. Items of Expenses Employee Cost as per Disclosure Required Element of
CAS under CAS 7 Cost
(i) Basic Wages to Direct Included Yes Direct Labour
Worker
(ii) Normal Idle time Cost of Excluded No Factory
Direct Worker Overhead
4. A firm can produce three different products from the same raw material using the same
production facilities. The requisite labour is available in plenty at Rs. 8 per hour for all products.
The supply of raw material, which is imported at Rs. 8 per Kg is limited to 10,400 kg. for the
budget period. The variable overheads are Rs. 5.60 per hour. The fixed overheads are Rs. 50,000.
The selling commission is 10% on sales.
From the following information, you need to advise the firm on the sales mix which will maximize
the firm’s profits.
Product Market Selling Price Labour (Hours Raw Material
Demand (units) Per unit (Rs.) Required per unit) (Kgs. Required per unit)
X 8,000 30 1 0.7
Y 6,000 40 2 0.4
Z 5,000 50 1.5 1.5
a. Prepare the Marginal Profitability Statement 4

Marginal Profitability Statement
Products
Particulars
X (Rs.) Y (Rs.) Z (Rs.)
Direct Materials 5.60 3.20 12.00
Direct Labour 8.00 16.00 12.00
Variable Production Overheads 5.60 11.20 8.40
Variable Selling Overheads 3.00 4.00 5.00
Total Variable Cost per unit 22.20 34.40 37.40
Selling Price per unit 30.00 40.00 50.00
Contribution per unit 7.80 5.60 12.60
Contribution per unit of limiting factor 11.14 14.00 8.40
Ranking II I III
Working Notes:
Direct Materials = Price of Raw Materials per Kgs. (Rs. 8) X Raw Material required per unit
Direct Labour = Direct Labour Hour Rate (Rs. 8) X No. of Labour Hours required per unit
Variable Production Overheads = Variable Overhead Rate per hour (Rs. 5.60) X No. of Direct
Labour Hours required per unit
Variable Selling Overheads (Selling Commission) = 10% of Selling Price per unit
Contribution per unit = Selling Price per unit – Total Variable Cost per unit
b. Which is the Limiting factor in this case and Rank the products according to their contribution per 2
unit of the limiting factor.
Limiting Factor: Direct Material as it is limited to 10,400 kg.
Particulars Products
X Y Z
Contribution per unit (Rs.) 7.80 5.60 12.60
Limiting Factor required per unit 0.7 0.4 1.5
Contribution per unit of limiting factor 11.14 14.00 8.40
Ranking II I III
Working Notes:
Limiting Factor required per unit = Raw Material required per unit (Kgs. / unit)
Contribution per unit of limiting factor = Contribution per unit (Rs.) / Raw Material required per
unit (Kgs. / unit)
Ranking: Highest rank to the Highest Contributor according to Contribution per unit of limited
factor
c. Suggest the optimum sales mix which will maximize the profit. 2
Optimum Sales Mix:
X: 8,000 units; Y: 6,000 units and Z: 1,600 units
Firstly, Produce and Sell Y (Rank I): 6,000 units
Secondly, Produce and Sell X (Rank II): 8,000 units
With remaining Raw Materials, Produce and Sell Z (Rank III): 1,600 units
Product Market Demand Suggested Production Raw Materials Balance of Raw
(Units) (Max. Units) Consumed (Kgs.) Materials (Kgs.)
10,800
Y 6,000 6,000 2,400 8,000

X 8,000 8,000 5,600 2,400
Z 5,000 1,600 2,400 NIL
Working Notes:
Suggested Production (Units) maximum limited to Market Demand and available Raw Materials
Suggested Production (Units) in case of Z: Opening Balance of Raw Materials (Kgs.) / Raw Materials
required per unit (Kgs/unit) = 2,400 Kgs. / 1,5 Kgs. Per unit = 1,600 units
Raw Materials Consumed (Kgs.) = Suggested Production (Units) X Raw Materials required per unit
(Kg.)
Balance of Raw Materials (Kgs.) = Previous Balance of Raw Materials (Kgs. ) – Raw Materials
Consumed (Kgs.)
d. Determine the profit that will be earned at the optimum sales level. 2
Profit with optimum sales mix: Rs. 60,160
Product Optimum Sales Mix Contribution per Contribution (Rs.)
(Units) unit (Rs.)
Y 6,000 5.60 33,600
X 8,000 7.80 59,200
Z 1,600 12.60 20,160
Total Contribution 1,16,160
Less: Fixed Cost 50,000
Profit 60,160
Working Notes:
Contribution (Rs.) = Optimum Sales Mix (Units) X Contribution per unit (Rs.)
5. a. A contractor, who prepares his accounts on 31st March each year, commenced a Contract No. 220 7
on 1st July, 2020. The following information is revealed from his costing records on 31st March,
2021:
Particulars (Rs.)
Materials sent to site 2,51,000
Labour 5,65,600
Foreman’s salary 81,300
A machine costing Rs.2,60,000 remained in use on site for 146 days. Its working life is estimated at
7 years and final scrap value at Rs. 15,000. A supervisor is paid Rs. 8,000 per month and has
devoted one half of his time on the contract. All other expenses amount to Rs. 1,36,500. Materials
at site on 31st March, 2021 cost Rs. 35,400. The contract price is Rs. 20,00,000. On 31st March,
2021 two-third of the contract was completed, however, the architect gave certificate only for 50%
of the contract price and Rs. 7,50,000 had so far been paid on account.
Prepare Contract Account and state how much profit or loss should be included on 31st March,
2021 in financial accounts.

Contract Account (for the year ended 31st March, 2021)
Dr. Cr.
Particulars Rs. Particulars Rs.
To Materials 2,51,000 By Materials at site 35,400
To Labour 5,65,600 By Balance c/d (Total Cost) 10,49,000
To Foreman’s Salary 81,300
To Supervisor’s Salary (Rs. 8,000 × ½ × 9) 36,000

To Depreciation on Machine 14,000
To Other Expenses 1,36,500
10,84,400 10,84,400
To Balance b/d 10,49,000 By Work-in-Progress:

To Notional Profit c/d 2,13,250 Certified Rs. 10,00,000
Uncertified Rs. 2,62,250 12,62,250
12,62,250 12,62,250
To Profit & Loss Account 1,06,625 By Notional Profit b/d 2,13,250

To Work-in-Progress A/c (Reserve) 1,06,625
2,13,250 2,13,250
Working Notes:
(i) Calculation of Depreciation on Machine:
Cost of Machine Rs. 2,60,000
Less: Scrap Value Rs. 15,000
Cost of Machine to be written Rs. 2,45,000
Depreciation of 1 Year = Rs. 2,45,000/7 = Rs. 35,000
Depreciation for 146 days = Rs. 35,000 (146/365)= Rs.14,000
(ii) Calculation of Cost of Work Uncertified:
Cost of 2/3rd completed work = Rs. 10,49,000
Total Cost of completed Contract = Rs. 10,49,000× 3/2= Rs. 15,73,500 Part of uncertified
work = 2/3 – ½ = 1/6
Therefore, Cost of uncertified work = Rs. 15,73,500× 1/6 = Rs. 2,62,250
(iii) Profit Transferred to Profit and Loss Account:
Notional Profit × 2/3 × (7,50,000 / 10,00,000) = Rs. 1,06,625
b. The Standard Cost card of A & Co. shows the following costs: 3
unit Wages - 2 hours @ 50 paise each Re.1.00 per unit
The actual data from business operations are as follows: Production 8,000 units
Actual total cost of production:
Wages -18,000 hours @ 40 paise each Rs. 7,200
Calculate the Labour Cost Variance (LCV) and Labour Rate Variance (LRV).
Labour Cost Variance (LCV) = Rs. 800 (Favourable)
Labour Rate Variance (LRV) = 1,800 (Favourable)
Working Notes:
Standard Hours for Actual Output = 8,000 Units × 2 hours = 16,000 hours
Standard Cost of Wages (SC) = SH × SR = 16,000 hours × Re.0.50 = Rs. 8,000
Actual Cost of Wages (AC) = AH × AR = 18,000 hours × Re. 0.40 =Rs. 7,200
Labour Cost Variance (LCV) = SC – AC = Rs. 8,000 – Rs.7,200 = Rs. 800 (F)
Labour Rate Variance (LRV) = AH (SR –AR) = 18,000 hours ( Re.0.50 – Re. 0.40) = Rs. 1,800 (F)
6. a. What the Direct Expenses are as defined in CAS-10? 2

Direct Expenses: As per CAS - 10, Direct Expenses are the “Expenses relating to manufacture of a
product or rendering a service, which can be identified or linked with the cost object other than
direct material cost and direct employee cost.”
b. Mr. T has started transport business with a fleet of 10 taxies. The various expenses incurred by him
are given below:
(i) Cost of each taxi Rs. 3,00,000.
(ii) Salary of Office Staff Rs. 5,000 p.m.
(iii) Salary of Garage’s Supervisor Rs. 10,000 p.m.
(iv) Rent of Garage Rs. 5,000 p.m.
(v) Drivers Salary (per taxi) Rs. 10,000 p.m.
(vi) Road Tax and Repairs per taxi Rs. 6,000 p.a.
(vii) Insurance premium @ 6% of cost p.a.
The life of a taxi is 300000 Km. and at the end of which it is estimated to be sold at Rs. 25,000. A
taxi runs on an average 6000 Km. per month of which 10% it runs empty, petrol consumption is 11
Km. per litre of petrol costing Rs. 72 per litre. Oil and other sundry expenses amount to Rs. 50 per
100 Km.
Depreciation is be assumed as variable in nature.
(i) Calculate the effective cost of running a taxi per kilometre. 6
Statement showing computation of effective cost and profit for the year
Particulars Details/Computation Amount (Rs.) Per Km (Rs.)
Fixed Expenses:
Salary of staff 5,000
Salary of garage supervisor 10,000
Rent of garage 5,000
Driver Salary 10 X 10,000 1,00,000
Road tax and repairs 6,000 X 10/12 5,000
Insurance premium 3,00,000 x 6% x 10/12 15,000
Fixed Cost of 10 taxis per month 1,40,000
Fixed Cost per Taxi 2.33
Running Costs:
Depreciation (3,00,000 - 25,000) / 3,00,000 0.92
Petrol 72/11 6.55
Oil & sundry expenses 50/100 0.50
Total Cost per Km 10.30
Effective Cost per Km 10.30 / 90% 11.44
Working Notes:
Cost per taxi = Fixed Cost of 10 taxis per month / No. of taxis = Rs. 1,40,000/10 = Rs. 14,000
Cost per km = 14,000/6,000 = 2.33
Effective Cost per Km = Total Cost per Km / (100% – 10% allowance for empty run)
(ii) If the hire charge is Rs. 13 per kilometre on average, find out the profit that Mr. T may expect to 2
make in the first year of operation.
Profit for year = Rs. 10,10,880
Working Notes:
Computation of Profit for the year
Profit = (Hire Charge per Km – Effective Cost per Km) X No. of Taxis X Average Km runs X (100% -
% of Empty Runs) x No. of months in a year

= (13.00 - 11.44) x 10 x 6,000 x 90% X 12
= Rs.10,10,880
7. a. SG Ltd. manufactures product A which yields two by-products B and C. The actual joint expenses of 5
manufacturing for a period were Rs. 9,000.
The profits on each product as a percentage of sales are 33-1/3%, 25% and 15% respectively.
Subsequent expenses are as follows:
Figures in Rs.
Particulars Products
A B C
Material 100 75 25
Direct 200 125 50
Overheads 150 125 75
Total 450 325 150
Sales 6,300 4,800 2,500
Apportion the joint expenses.
Statement Showing Apportionment of Joint Expenses (Figures in Rs.)
Particulars A B C Total
Sales 6,300 4,800 2,500 13,600
Profit 2,100 1,200 375 3,675
Total Cost (Joint and Separate Cost) 4,200 3,600 2,125 9,925
Separate Expenses 450 325 150 925
Share of Joint Expenses 3,750 3,275 1,975 9,000
Working Notes:
Profit = Sales X % of Sales
Total Cost (Joint and Separate Costs) = Sales – Profit
b. The existing Incentive system of S LTD is as under: 5

Normal working week: 5 days of 8 hours each plus 3 late shifts of 3 hours each.
Rate of Payment:
Day work: Rs.160 per hour
Late shift: Rs. 225 per hour
Average output per operator for 49-hours week i.e. including 3 late shifts: 120 articles.
In order to increase output and eliminate overtime, it was decided to switch on to a system of
payment by results.
Time-rate (as usual): Rs. 160 per hour
Basic time allowed for 15 articles: 5 hours
Premium Bonus: Add 50% to time.
Required:
Prepare a Statement showing hours worked, weekly earnings, number of articles produced and
labour cost per article for one operator under the Rowan System.
Assume that 135 articles are produced in a 40-hour week under Rowan Premium System.
Method of Payment Hours Weekly Earnings Number of Labour Cost per
worked Produced (Rs.) articles article (Rs.)
(Hours) produced
Rowan Premium System 40 9,007.36 135 66.72
Working Notes:
Basic Time = 5 hours for 15 articles

Premium Bonus = 50% to time = 7.5 hours for 15 articles or 30 minutes per article
Time Allowed = Time Allowed for 135 articles = 135 X 30 mins = 67.50 hours
Actual Time = Actual Time taken for 135 articles = 40 hours
Formula to compute Earnings as per Rowan Premium System
= (HW × RH) + [(TA – HW) / TA] X (HW X RH)
= (40 hours × Rs.160/hr) + [(67.5 hours – 40 hours)/ 67.5 hours](40 hours X Rs. 160/hr)
= Rs. 6,400 + 27.5/67.5 X Rs.6,400 = Rs. 6,400 + 0.4074 X Rs. 6,400
= Rs. 6,400 + Rs. 2,607.36 = Rs. 9,007.36
8. You are required write Short Notes on any 4 out of 5 4 X 2.5

= 10
a. Enumerate the need for a predetermined overhead rate
Advantages of Predetermined Overhead Rate:
i) Enables prompt preparation of cost estimates, quotations and fixation of selling prices.
ii) Cost data is available to management along with financial data.
iii) In case of Cost-plus contracts prompt billing is possible through predetermined recovery
rate/s.
iv) In concerns having budgetary control system, no extra clerical efforts are required in computing
the pre-determined overhead rate.
b. Cost Accounting has emerged as a specialized discipline due to various factors. List out these
factors.
The main factors attributable for emerging cost accounting as a specialized discipline are as under:
(i) Limitations placed on financial accounting.
(ii) Improved cost consciousness.
(iii) Rapid industrial development after industrial revolution and World wars.
(iv) Growing competition among the manufacturers.
(v) To control galloping price rise, the cost of computing the precise cost of product / service.
(vi) To control cost, several legislations passed throughout the World and in India too, such as
Essential Commodities Act, Industrial Development and Regulation Act (IDRA), etc.
(Any Five Factors)
c. Responsibility Accounting
Responsibility Accounting:
It is a system of accounting that recognizes various responsibility centres throughout the
organisation and reflects the plans and actions of each of these centres by assigning particular
revenues and costs of the one having the pertinent responsibility.
It is a system in which the person holding the supervisory posts as president, function head,
foreman, etc. are given a report showing the performance of the company or department or
section as the case may be. The report will show the data relating to operational results of the area
and the items of which he is responsible for control. Responsibility accounting follows the basic
principles of any system of cost control and standard costing. It differs only in the sense that it lays
emphasis on human beings and fixes responsibilities for individuals. It is based on the belief that
control can be exercised by human beings, so responsibilities should be fixed for individuals.
d. Classification of costs based on behaviour

Fixed Costs:
Costs that do not vary with the change in the volume of activity in the short run. They are not
affected by temporary fluctuation in the activity of an enterprise.
Example: rent, depreciation, etc.
Variable Costs:
These costs vary directly with the volume of activity, Variable costs may be direct (like Direct
Material, Direct Labour and Direct Expenses), when they are part of prime cost or they could be
indirect, like selling expenses, variable factory overheads, etc. when they are called variable
overheads.
Semi-Variable costs:
These contain both fixed and variable elements. The variable elements behave like the Variable
Cost and the fixed element behaves like the Fixed Cost. The sum total therefore varies with change
in activity, but not in the same proportion as variable costs.
Example: Factory supervision, maintenance, etc.
e. Conditions when profits under Absorption Costing be

(i) higher than the profits under Marginal Costing
(ii) equal to the profits under Marginal Costing, and
(iii) lower than the profits under Marginal Costing.
Profits as per Absorption Costing will be:
(i) higher than in Marginal Costing when closing stock is more than opening stock, since some
overheads will be included in the inventory value under absorption costing while Marginal
Costing considers the full overheads as cost of production,
(ii) equal when the opening and closing stocks are equal,
(iii) lower when opening stock is more than closing stock.
Since under Marginal Costing, only the current period’s overheads are charged to production, while
under Absorption Costing, a portion of the earlier period’s overheads will be included in the
opening stock value.
Section D 20
Marks
You are required to answer all the questions in this section 10 X 2
Marks
9. Very quickly in P’s career, he figured out two things: he was neither very good at, nor very
interested in, working with large companies.
The first question [an entrepreneur needs] to ask is: “Would I buy this product?”
If the answer is “No”, then they haven’t found the right product.
The best businesses are born out of a need to solve a problem. In most cases the person who
invests the time and money into starting a business is attempting to solve a problem they had that
no one else seemed to be able to solve.
Major corporations lead innovation, so it required P to really sharpen his skills. A good friend of his
from work, M, screened a portfolio of straight razor and shaving domains and they registered
them. Before they launched their company as partners, they conducted a market survey about the
demand for their product. This helped them figure out the details such as whether the customers
will spend a certain amount of money for their products/services, inclination levels among
customers about upcoming features or products, what are their thoughts about the competitor
products etc.
They requested the services of a marketing consultant, who suggested a product survey and
offered help with it. New products/concept testing survey templates offer questions to obtain
insights about products and concepts. These survey questions were curated by market research
expert and would help in analyzing which kind of products or features will work in a market.
Market survey provided them a platform to analyze the scope of success of upcoming products and
make changes in strategizing the product according to the feedback they receive. This helped them
get information about factors such as market size, demographics such as age, gender, family
income etc. to lay out a roadmap by considering the growth rate of the market.
Since neither of the partners had any experience with launching a new product, they had no idea
about the pricing of their product either. Affordability of products also is an aspect that drives the
market for organizations. Product variants cater to multiple price ranges and target customers for
each of the products. They conducted another market survey, for the price.
After many rounds of market testing, and with their first major radio advertisement offering 1,000
units, they sold nearly Rs. 30,000 in straight razors in 24 hours. They decided to try it on a small
scale. All the business plans in the world don’t compare to actually trying it to understand what the
main challenges are going to be.
They set up their business in 2017, and have been going strong ever since. Although P and M
decided to appoint a financial accountant, M feels that the accountant may be involved in
unethical practices. He approached you, a Management Accountant, to assuage his fears. He has
not approached any of the professional accounting bodies as he has yet to get any proof of
wrongdoing. He trusts the production head, as they were colleagues before. Since most of the
heads of the departments have been appointed by him personally, he does not believe there is any
internal wrongdoing. He has brought the operational records for your perusal.
Keep in mind, P believes that M is questioning P’s choice of personnel, as he was the one who was
involved in the appointment of an accountant, P is of the opinion that M wants to keep their
operation in control of himself and is thus unwilling to accept or appreciate the inputs of who M
perceives as not being a stakeholder due to not having a long association with either partner.
You have to maintain your objectivity as a professional and find out if the discrepancy in cost and
financial accounts is intentional, or a mere adjustment. This is possible by reconciling the profit
disclosed by Cost Accounts with that shown in Financial Accounts.
The following is the Trading & Profit and Loss Account of P & Co.
Particulars Rs. Particulars Rs.
To Materials Consumed 23,01,000 By Sales (30000 units) 48,75,000
To Direct Wages 12,05,750 By Stock of Finished Goods (1000 1,30,000
units)
To Production Overheads 6,92,250 By W.I.P: Rs.
Material 55,250
Wages 26,000 97,500
Production Overhead 16,250
To Administration Overheads 3,10,375 By Interest on Bank Deposit 65,000
To Selling & Distribution Overheads 3,68,875 By Dividends 3,90,000
To Preliminary Expenses written off 22,790
To Goodwill written off 45,000
To Fines 3,250
To Interest of Mortgage 13,000
To Loss on Sale of Machine 16,250
To Taxation 1,95,000
To Net Profit 3,83,960
55,57,500 55,57,500
P & Co. manufactures a standard unit. The cost accounting records of the firm shows the following
information:
(i) Production overheads have been charged at 20% on prime cost.

(ii) Administration overheads have been recovered at Rs. 9.75 per finished unit.
(iii) Selling and distribution overheads have been recovered at Rs. 13 per unit sold.
a. Calculate the Cost of Production. 3

Statement Showing Cost of Production
Amount (Rs.)
Particulars
Total W.I.P. Production
Material Consumed 23,01,000 55,250 22,45,750
Wages 12,05,750 26,000 11,79,750
Prime Cost 35,06,750 81,250 34,25,500
Production Overhead (20% on prime cost) 7,01,350 16,250 6,85,100
Works Cost 42,08,100 97,500 41,10,600
Administration Overhead @ Rs. 9.75 per unit 3,02,250
Cost of Production 44,12,850
b. Prepare a Abridged Statement of Cost and Profit in Cost Records. 2

Abridged Statement Showing Cost and Profit in Cost Records
Particulars Amount (Rs.)
Cost of Production 44,12,850
Closing Stock 1,42,350
Production Cost of Goods Sold 42,70,500
Selling and Distribution Overhead (30,000×13) 3,90,000
Cost of Sales 46,60,500
Profit 2,14,500
Sales 48,75,000
Working Notes:
Value of Closing Stock (1,000 units) = Cost of Production per unit (Rs. 44,12,850 / 31,000 units) X
No. of units of Closing Stock
c. Prepare a Statement to reconciling the profit disclosed by cost accounts with that shown in 3
financial accounts.
Type your answer here:
Reconciliation Statement
Particulars Rs. Rs.
Net Profit as per Cost Accounts 2,14,500
Add:
Excess Production Overhead in Cost Records [6,85,100 - (6,92,250 - 16,250 9,100
WIP)]
Excess selling overhead in Cost Records [3,90,000-3,68,875] 21,125
Interest on bank deposits not included in Cost Books 65,000
Dividend not shown in Cost Books 3,90,000
4,85,225
6,99,725
Less:
Administration Overhead under-recovered in Cost Books (3,10,375 - 8,125
3,02,250)
Closing stock overvalued in Financial Books (1,42,350-1,30,000) 12,350
Preliminary expenses written off in Financial Books only 22,790
Goodwill written off in Financial Books only 45,000
Fines shown in Financial Books only 3,250
Interest charged in Financial Books only 13,000
Loss on sale of machine shown in Financial Books only 16,250
Income tax provided in Financial Books only 1,95,000
3,15,765
Net Profit as per Financial Books 3,83,960
d. What is your opinion on the financial records maintained by the Financial Consultant? 2
Opinion on the financial records maintained by the Financial Consultant:
P and M should not doubt the work of the Financial Consultant. The Net Profit as per Financial
Books amounting to Rs. 3,83,960 have been reconciled with the profit as per Cost Records which is
Rs. 2,14,500 and the differences have been adequately reconciled. There appears no reasonable
doubt about truth and fairness of the financial statements.
10. The XYZ Bakery focuses on making cakes that have nostalgic homemade flavours, with a
contemporary twist on every flavour and design. They specialise in stylish buttercream cakes, fresh
profiteroles and other sweet confectionary. By focusing on and being specialised in a niche
selection they ensure their offering is backed by more experience and technique than their
competitors.
The mission of XYZ Bakery is to offer their customers delicious, beautiful and memorable sweet
treats for any occasion. The bakery wants to create a bakery which makes the best quality baked
goods on site from scratch, fresh daily, and creating an inviting warm atmosphere for clients and
customers to be able to purchase their baked goods. Since their brand is built around the goal of
providing all of the customers with an unparalleled product and experience. The hand-picked
talented team of pastry chefs use the purest of ingredients and cutting-edge techniques to create a
product that is truly superior in quality.
XYZ Bakery have earned a reputation of constantly providing outstanding customer service and
they truely believe that customer satisfaction is their ultimate goal. Since starting their business in
2014, they have grown to have five new branches in different cities. The newest among these five
new branches, in Noida, is unable to earn a profit, and claims a falling market is to blame.
On a closer investigation, their competitor in the same city has picked up more profit recently.
Many of the customers claim that the Noida branch uses cheap raw material and often inferior
quality ingredients for the confectionaries. At the same time, the manager of the branch claims
that the raw material prices have increased.
One of the proprietors has recently attended a workshop about the wonders of applying standard
costing techniques for cost control. Standard costing is a performance appraisal technique used by
comparing actual performance against the standards for all areas of operations with the
organization. This is done in discussion with various heads of organization segments. When actual
performance takes place, the actual data are compared with standards; if there is a difference
between actual and standards, the difference is analysed to find reason thereof.
The proprietor has appointed you, a close friend of the family, who happens to be a Management
Consultant by profession, to investigate the reasons behind such variance.
You decide to analyse the raw material first for any discrepancy.
The standard material inputs required for 1,000 kgs. of a finished product are provided as below:
Material Quantity (in kgs.) Standard Rate per kg (in Rs.)
A 450 20
B 400 40
C 250 60
1,100
Less: Standard loss 100
Standard output 1,000
Actual production in the period was 40,000 kgs. of finished product for which the actual quantities
of material used and the prices paid thereof are as under:
Material Quantity (in Kg) Purchase price per kg. (in Rs.)
A 20,000 19
B 17,000 42
C 9,000 65
a. Compute Standard Quantity for Actual Output (SQ) and Revised Standard Quantity (RSQ) 2
Computation Sheet for Standard Quantity for Actual Output (SQ) and Revised Standard Quantity
(RSQ)
(Figures in Kg.s)
Material Sd.Q SQ SP RSQ AQ AP
A 450 18,000 20 18,818.18 20,000 19
B 400 16,000 40 16,727.27 17,000 42
C 250 10,000 60 10,454.55 9,000 65
1100 44,000 46,000 46,000
Loss 100 4,000 6,000
Output 1000 40,000 40,000
Working Notes:
Sd.Q = Standard Quantity (Kg.)
SQ = Standard Quantity for Actual Output (Kg.)
SP = Standard Price (Rs./Kg.)
AQ = Actual Quantity (Kg.)
AP = Actual Price (Rs./Kg.)
Factor for Computing SQ = Actual Output / Standard Output
SQ = Standard Quantity for Actual Output (Kg.) = 40000/1000 = 40
Factor for Computing RSQ = Actual Quantity (Total) / Standard Quantity (Total)
RSQ = Revised Standard Quantity = 46000/1100 = 41.81818
b. Compute Standard Cost for Standard Material (SQSP), Revised Standard Cost of Material (RSQSP), 3
Standard Cost of Actual Material (AQSP) and Actual Cost of Material (AQAP)
Computation Sheet for Standard Cost for Standard Material (SQSP), Revised Standard Cost of
Material (RSQSP), Standard Cost of Actual Material (AQSP) and Actual Cost of Material (AQAP)
(Figures in Rs.)
Material SQSP RSQSP AQSP AQAP

A 3,60,000 3,76,363.6 4,00,000 3,80,000
B 6,40,000 6,69,090.9 6,80,000 7,14,000
C 6,00,000 6,27,272.7 5,40,000 5,85,000
Total 16,00,000 16,72,727 16,20,000 16,79,000
Working Notes:
Standard Cost for Standard Material (SQSP) = Standard Quantity for Actual Output (Kg.) X
Standard Price (Rs./Kg.) = SQ X SP
Revised Standard Cost of Material (RSQSP) = Revised Standard Quantity (Kg.) X Standard Price
(Rs./Kg.) = RSQ X SP
Standard Cost of Actual Material (AQSP) = Actual Quantity (Kg.) X Standard Price (Rs./Kg.) = AQ X
SP
Actual Cost of Material (AQAP) = Actual Quantity (Kg.) X Actual Price (Rs./Kg.) = AQ X AP
c. Compute Material Yield Variance, Material Mix Variance and Material Usage Variance with brief 3
comments (Favourable/Adverse/Nil).
Variances Amount (Rs.) Comments
Material Yield Variance (72727) Adverse
Material Mix Variance 52727 Favourable
Material Usage Variance (20000) Adverse
Workings:
Material Yield Variance = SQSP – RSQSP = Rs. 1600000 – Rs. 1672727 = Rs. (72727)
Material Mix Variance = RSQSP – AQSP = Rs. 1672727 – Rs. 1620000 = Rs. 52727
Material Usage Variance = SQSP – AQSP = Rs. 1600000 – Rs. 1620000 = Rs. (20000)
d. Compute the various Material Price Variance and Material Cost Variance with brief comments 2
(Favourable/Adverse/Nil).
Variances Amount (Rs.) Comments
Material Price Variance (59000) Adverse
Material Cost Variance (79000) Adverse
Workings:
Material Price variance = AQSP – AQAP = Rs. 1620000 – Rs. 1679000 = Rs. (59000)
Material Cost Variance = SQSP – AQAP = Rs. 1600000 – Rs. 1679000 = Rs. (79000)
END

Intermediate Examination Syllabus 2016 Paper 8: Cost Accounting (Cac)

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Intermediate Examination Syllabus 2016 Paper 8: Cost Accounting (Cac)

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Mock -1 Question Paper and Model Answers for Online Examination

Paper 8: COST ACCOUNTING (CAC)

Time Allowed: 3 Hours Full Marks: 100

a. The meaning of Conversion Cost in Process Costing is … .

c. Standard costs and budgeted costs are __________________ .

d. Which of the following is not a potential benefit of using a budget?

e. Sales budget is an example of _______________ .

(iii) Capital budget

g. At the economic ordering quantity level, which of the following is True?

i. Which of the following choices is an example of direct expenses as per CAS-10?

l. Which of the following most appropriately defines ‘Idle time’?

(iii) Time spent by workers off their work A

o. In a Job Cost system, costs are accumulated _________ .

p. Which of the following best describes a Fixed Cost?

q. Equivalent production is expressed in terms of ___________ .

(ii) Profit of Rs. 16,600

t. Marginal Costing technique follows which of the following bases of classification?

a. In Standard Costs, __________________ norm is applied as a scale of reference for assessing

b. What word(s) appropriately fill in the blank below?

c. By-products may undergo further processing before sale.

d. State whether the following statement is ‘True’ or ‘False’:

e. What word(s) appropriately fills in the blank below?

Type your answer here

g. State whether the following statement is ‘Correct’ or ‘Incorrect’:

i. State whether the following is ‘True’ or ‘False’

j. What word(s) appropriately fill in the blank below?

s. Variance analysis is a costing technique based on management by ___________.

What word appropriately fills in the blank above?

Type your answer here Exception

a. Prepare the Marginal Profitability Statement 4

Y 6,000 6,000 2,400 8,000

Type your answer here

To Supervisor’s Salary (Rs. 8,000 × ½ × 9) 36,000

To Balance b/d 10,49,000 By Work-in-Progress:

To Profit & Loss Account 1,06,625 By Notional Profit b/d 2,13,250

6. a. What the Direct Expenses are as defined in CAS-10? 2

Type your answer here

% of Empty Runs) x No. of months in a year

b. The existing Incentive system of S LTD is as under: 5

Basic Time = 5 hours for 15 articles

8. You are required write Short Notes on any 4 out of 5 4 X 2.5

d. Classification of costs based on behaviour

e. Conditions when profits under Absorption Costing be

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

a. Calculate the Cost of Production. 3

b. Prepare a Abridged Statement of Cost and Profit in Cost Records. 2

Net Profit as per Financial Books 3,83,960

Material SQSP RSQSP AQSP AQAP

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