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Question Paper

Cost & Management Accounting Duration: 180

Details: Full Test- 1 Marks: 100

Instructions:
 All the questions are compulsory
 Properly mention test number and page number on your answer sheet, Try to upload sheets
in arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
 Do not copy any solution from any material. Attempt as much as you know to fairly judge
your performance

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 Question No. 1 is compulsory.

Candidates are also required to answer any four questions from the remaining five
questions. Working notes should form part of the answer.

Q-1. (a) M/s. KBC Bearings Ltd. is committed to supply 48,000 bearings per annum to M/s.
KMR Fans on a steady daily basis. It is estimated that it costs Rs. 1 as inventory holding cost
per bearing per month and that the set up cost per run of bearing manufacture is Rs. 3,200

(i) DETERMINE the optimum run size of bearing manufacture?

(ii) STATE what would be the interval between two consecutive optimum runs?

(iii) FIND OUT the minimum inventory cost?

(5 Marks)

(b) Mr. A is working by employing 10 skilled workers. He is considering the introduction of

some incentive scheme-either Halsey Scheme (with 50% bonus) or Rowan Scheme-of wage
payment for increasing the labour productivity to cope with the increased demand for the
product by 25%. He feels that if the proposed incentive scheme could bring about an
average 20% increase over the present earnings of the workers. It could act as sufficient
incentive for them to produce more and he has accordingly given this assurance to the
workers.

As a result of this assurance, the increase in productivity has been observed as revealed by
the following figures for the current month:

Hourly rate of wages (guaranteed) Rs.2.00

Average Time for producing 1 piece by one worker at the previous 2 hours
performance (This may be taken as time allowed)

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 No. of working Days in the month 25

No. of Working Hours per day for each worker 8

Actual production during the month 1250 units

Required:

1. Calculate Effective Rate of Earnings per hour under Halsey Scheme and Rowan Scheme.
2. Calculate the savings to Mr. A in terms of direct labour cost per piece under the above
schemes.
3. Advise Mr. A about the selection of the scheme to fulfill his assurance.

(5 Marks)

(c) A Ltd. maintains a margin of safety of 37.5% with an overall contribution to sales ratio of
40%. Its fixed costs amount to Rs.5 lakhs.

Calculate the following:

i. Break-Even Sales;
ii. Total Sales;
iii. Total Variable cost;
iv. Current profit

v. New “margin of safety” if the sales volume is increased by

(5 Marks)

(d) Mr. X, an employee of a company, uses his own car for official purposes and the
company reimburses him at Rs.1.80 per km. He claims that the re-imbursement should be at
higher amount. A scrutiny of expenses incurred on car reveals the following:

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1. Oil change Rs.120 (every 4,800 kilometers)

2. Maintenance Rs.1, 800 (every 9,600 kilometers)

3. Yearly Insurance Premium Rs.4, 000.

4. Cost of the car is Rs.1, 08,000. The residual value after useful life of 3 years is Rs.60, 000.

5. Petrol price is Rs.5 per litre and 8 kilometers are traveled on one litre.

Mr X travels an average of 192 kilometers in a day, works 5 days in a week, has 16 days’
vacation in a year and spends 15 working days a month in the office. Total 365 days in a
year.

Required: (a) Determine an equitable rate of re-imbursement,

(b) Number of kilometers that has to be traveled per day to break-even at the current rate
of reimbursement

(5 Marks)

Q-2. (a) K Ltd. produces and markets a very popular product called ‘X’. The company is
interested in presenting its budget for the second quarter of 2020.

The following information are made available for this purpose:

(i) It expects to sell 1, 50,000 bags of ‘X’ during the second quarter of 2020 at the selling
price of Rs.1, 200 per bag.

(ii) Each bag of ‘X’ requires 2.5 mtr. Of raw – material ‘Y’ and 7.5 mtr. Of raw – material ‘Z’.

(iii) Stock levels are planned as follows:

Particulars Beginning of Quarter End of Quarter

Finished Bags of ‘X’ (Nos.) 45,000 33,000

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Raw – Material ‘Y’ (mtr) 96,000 78,000

Raw – Material ‘Z’ (mtr) 1,71,000 1,41,000

Empty Bag (Nos.) 1,11,000 84,000

iv) ‘Y’ cost Rs.160 per mtr. ‘Z’ costs Rs.30 per mtr. and ‘Empty Bag’ costs Rs.110 each.

(v) It requires 9 minutes of direct labour to produce and fill one bag of ‘X’. Labour cost is Rs.
70 per hour.

(vi) Variable manufacturing costs are Rs.60 per bag. Fixed manufacturing costs Rs.40, 00,000
per quarter.

(vii) Variable selling and administration expenses are 5% of sales and fixed administration
and selling expenses are Rs.3, 75,000 per quarter.

Required

(i) PREPARE a production budget for the said quarter in quantity.

(ii) PREPARE a raw – material purchase budget for ‘Y’, ‘Z’ and ‘Empty Bags’ for the said
quarter in quantity as well as in rupees.

(iii) COMPUTE the budgeted variable cost to produce one bag of ‘X’.

(10 Marks)

(b) A company undertook a contract for construction of a large building complex. The
construction work commenced on 1st April, 2021 and the following data are available for
the year ended 31st March, 2022.

Rs. 000

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Contract Price 35,000

Work Certified 20,000

Progress Payments Received 15,000

Materials Issued to Site 7,500

Planning & Estimating Costs 1,000

Direct Wages Paid 4,000

Materials Returned From Site 250

Plant Hire Charges 1,750

Wage Related Costs 500

Site Office Costs 678

Head Office Expenses Apportioned 375

Direct Expenses Incurred 902

Work Not Certified 149

The contractors own a plant which originally cost Rs.20 Lakh has been continuously in use in
this contract throughout the year. The residual value of the plant after 5 years of life is
expected to be Rs.5 Lakh. Straight line method of depreciation is in use. As on 31st March,
2022 the direct wages due and payable amounted to Rs.2, 70,000 and the materials at site
were estimated at Rs.2, 00,000.

Required:

(i) Prepare the contract account for the year ended 31 st March, 2022.

(ii) Show the calculation of profit to be taken to the profit and loss account of the year,

(iii) Show the relevant balance sheet entries.

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 (10 Marks)

Q-3. (a) The accountant of manufacturing company provides you the following details for
year 2020:

Direct materials 1,75,000 Other variable costs 80,000

Direct Wages 1,00,000 Other fixed costs 80,000

Fixed factory overheads 1,00,000 Profit 1,15,000

Variable factory overheads 1,00,000 Sales 7,50,000

During the year, the company manufactured two products A and B and the output and costs
were:

Output (units) 2,00,000 1,00,000

Selling price per unit Rs. 2.00 Rs. 3.50

Direct materials per unit Rs. 0.50 Rs. 0.75

Direct wages per unit Rs. 0.25 Rs. 0.50

Variable factory overhead is absorbed as a percentage of direct wages. Other variable costs
have been computed as: Product A Rs.0.25 per unit; and B Rs.0.30 per unit.

During 2021, it is expected that the demand for product A will fall by 25 % and for B by 50%.
It is decided to manufacture a further product C, the cost for which is estimated as follows

Product C

Output (units) 2,00,000

Selling price per unit Rs. 1.75

Direct materials per unit Rs. 0.40

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Direct wages per unit Rs. 0.25

It is anticipated that the other variable costs per unit will be the same as for product A.
PREPARE a budget to present to the management, showing the current position and the
position for 2021. Comment on the comparative results.

(10 Marks)

(b) Arnav Inspat Udyog Ltd. has the following expenditures for the year ended 31st March,
2020:

Sl. No. Particulars Amount Amount

(i) Raw materials purchased 10,00,00,000

(ii) GST paid on the above purchases @18% (eligible for 1,80,00,000
input tax credit)

(iii) Freight inwards 11,20,600

(iv) Wages paid to factory workers 29,20,000

(v) Contribution made towards employees’ PF & ESIS 3,60,000

(vi) Production bonus paid to factory workers 2,90,000

(vii) Royalty paid for production 1,72,600

(viii) Amount paid for power & fuel 4,62,000

(ix) Amount paid for purchase of moulds and patterns 8,96,000

(life is equivalent to two years production)

(x) Job charges paid to job workers 8,12,000

(xi) Stores and spares consumed 1,12,000

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 (xii) Depreciation on:

 Factory building 84,000

 Office building 56,000

 Plant & Machinery 1,26,000

 Delivery vehicles 86,000 3,52,000

(xiii) Salary paid to supervisors 1,26,000

(xiv) Repairs & Maintenance paid for:

 Plant & Machinery 48,000

 Sales office building 18,000

 Vehicles used by directors 19,600 85,600

(xv) Insurance premium paid for:

 Plant & Machinery 31,200

 Factory building 18,100

 Stock of raw materials & WIP 36,000 85,300

(xvi) Expenses paid for quality control check activities 19,600

(xvii) Salary paid to quality control staffs 96,200

(xviii) Research & development cost paid for improvement 18,200

in production process

(xix) Expenses paid for pollution control and engineering 26,600

& maintenance

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 (xx) Expenses paid for administration of factory work 1,18,600

(xxi) Salary paid to functional mangers:

 Production control 9,60,000

 Finance & Accounts 9,18,000

 Sales & Marketing 10,12,000 28,90,000

(xxii) Salary paid to General Manager 12,56,000

(xxiii) Packing cost paid for:

 Primary packing necessary to maintain 96,000

quality

 For re-distribution of finished goods 1,12,000 2,08,000

(xxiv) Interest and finance charges paid (for usage of non- 7,20,000
equity fund)

(xxv) Fee paid to auditors 1,80,000

(xxvi) Fee paid to legal advisors 1,20,000

(xxvii) Fee paid to independent directors 2,20,000

(xxviii) Performance bonus paid to sales staffs 1,80,000

(xxix) Value of stock as on 1st April, 2019:

 Raw materials 18,00,000

 Work-in-process 9,20,000

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  Finished goods 11,00,000 38,20,000

(xxx) Value of stock as on 31st March, 2020:

 Raw materials 9,60,000

 Work-in-process 8,70,000

 Finished goods 18,00,000 36,30,000

Amount realized by selling of scrap and waste generated during manufacturing process – Rs.
86,000/-

From the above data you are required to PREPARE Statement of cost for Arnav Ispat Udyog
Ltd. for the year ended 31st March, 2020, showing

(i) Prime cost, (ii) Factory cost, (iii) Cost of Production, (iv) Cost of goods sold and (v) Cost of
sales.

(10 Marks)

Q-4. (a) A coke manufacturing company produces the following products by using 5,000
tons of coal @ Rs.1,100 per ton into a common process.

Coke 3,500 tons

Tar 1,200 tons

Sulphate of ammonia 52 tons

Benzol 48 tons

PREPARE a statement apportioning the joint cost amongst the products on the basis of the
physical unit method.

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 (10 Marks)

(b) ABC Ltd. is a multiproduct company, manufacturing three products A, B and C. The
budgeted costs and production for the year ending 31st March, 2020 are as follows:

A B C

Production quantity (Units) 4,000 3,000 1,600

Resources per Unit:

- Direct Materials (Kg.) 4 6 3

- Direct Labour (Minutes) 30 45 60

The budgeted direct labour rate was Rs. 10 per hour, and the budgeted material cost was
Rs. Rs 2 per kg. Production overheads were budgeted at Rs. 99,450 and were absorbed to
products using the direct labour hour rate. ABC Ltd. followed the Absorption Costing
System.

ABC Ltd. is now considering to adopt an Activity Based Costing system. The following
additional information is made available for this purpose.

1. Budgeted overheads were analyzed into the following:

(Rs.)

Material handling 29,100

Storage costs 31,200

Electricity 39,150

2. The cost drivers identified were as follows:

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Material handling Weight of material handled

Storage costs Number of batches of material

Electricity Number of Machine operations

3. Data on Cost Drivers was as follows:

A B C

For complete production:

Batches of material 10 5 15

Per unit of production:

Number of Machine operators 6 3 2

You are requested to:

1. PREPARE a statement for management showing the unit costs and total costs of each
product using the absorption costing method.

2. PREPARE a statement for management showing the product costs of each product using
the ABC approach.

3. STATE what are the reasons for the different product costs under the two approaches?

(5 Marks)

(c) A company's plant processes 6,750 units of a raw material in a month to produce two
products 'M' and 'N'.

The process yield is as under:

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Product M 80%

Product N 12%

Process Loss 8%

The cost of raw material is Rs. 80 per unit.

Processing cost is Rs. 2,25,000 of which labour cost is accounted for 66%. Labour is
chargeable to products 'M' and 'N' in the ratio of 100:80.

Prepare a Comprehensive Cost Statement for each product showing:

(i) Apportionment of joint cost among products 'M' and 'N' and

(ii) Total cost of the products 'M' and 'N'.

(5 Marks)

Q-5. (a) NPX Ltd. uses standard costing system for manufacturing of its product X. Following
is the budget data given in relation to labour hours for manufacture of 1 unit of Product X :

Labour Hours Rate (Rs.)

Skilled 2 6

Semi-Skilled 3 4

Un- Skilled 5 3

Total 10

In the month of January, 2020, total 10,000 units were produced following are the details:

Labour Hours Rate (Rs.) Amount (Rs.)

Skilled 18,000 7 1,26,000

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Semi-Skilled 33,000 3.5 1,15,500

Un- Skilled 58,000 4 2,32,000

Total 1,09,000 4,73,500

Actual Idle hours (abnormal) during the month:

Skilled: 500

Semi- Skilled: 700

Unskilled: 800

Total 2,000

CALCULATE:

(a) Labour Variances.

(b) Also show the effect on Labour Rate Variance if 5,000 hours of Skilled Labour are paid @
Rs. 5.5 per hour and balance were paid @ Rs. 7 per hour.

(10 Marks)

(b) M/s. H.K. Piano Company showed a net loss of Rs. 4,16,000 as per their financial
accounts for the year ended 31st March, 2020. The cost accounts, however, disclosed a net
loss of Rs. 3,28,000 for the same period. The following information was revealed as a result
of scrutiny of the figures of both the sets of books:

(i) Factory overheads under-recovered 6,000

(ii) Administration overheads over-recovered 4,000

(iii) Depreciation charged in financial accounts 1,20,000

(iv) Depreciation recovered in costs 1,30,000

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(v) Interest on investment not included in costs 20,000

(vi) Income-tax provided 1,20,000

(vii) Transfer fees (credit in financial books) 2,000

(viii) Stores adjustment (credit in financial books) 2,000

PREPARE a Memorandum reconciliation account.

(5 Marks)

(c) DISCUSS the four different methods of costing along with their applicability to concerned
industry.

a) A Series of Processes
b) Construction of building
c) Similar units of a Single Product, produced by Single Process
d) Rendering of Services
e) Customer Specifications: single Unit
f) Consisting of multiple varieties of activities and processes

(5 Marks)

Q-6. (Attempted any four question)

(a) DISTINGUISH between cost allocation and cost absorption.

(5 Marks)

(b) STATE what is Activity based Management? How does ABC help ABM?

(5 Marks)

(c) STATE the method of costing and the suggested unit of cost for the following industries:

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 (a) Transport

(b) Power

(c) Hotel

(d) Hospital

(e) Steel

(f) Coal

(g) Bicycles

(h) Bridge Construction

(i) Interior Decoration

(j) Advertising

(k) Furniture

(l) Brick-works

(5 Marks)

(d) STATE how normal and abnormal loss of material arising during storage are treated
in Cost Accounts?

(5 Marks)

(e) Write is brief note on Performance Budgeting describing its main concepts.

(5 Marks)

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