Cost and Management Accounting Model Test Paper - 8 (Answers) - CA Intermediate PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 8 
INTERMEDIATE: GROUP – II 
PAPER – 4: COST AND MANAGEMENT ACCOUNTING  
Suggested Answers/ Solution 
PART I – Case Scenario based MCQs  
 
1. (i) (d)  Monthly Production of X = 30,000 kgs. 
 Raw Material Required = 
30,000
5
3
× = 50,000 kgs. 
 Material A = 
50,000
3
5
× = 30,000 kg. 
 Material B = 
50,000
2
5
× = 20,000 kg. 
(ii)  (a) Calculation of Economic Order Quantity (EOQ): 
 Material A   = 
2 Annualconsumption Order cos t
Carryingcos t per unit p.a.
××
  
     = ?
2×( 3 0, 0 0 0× 1 2)× 1, 2 0 0
1 5 % ???? ???? 3 0
 = 13,856 kg. 
 Material B  = ?
2×( 2 0, 0 0 0× 1 2)× 1, 2 0 0
5 % ???? ???? 4 4
 = 16,181 kg. 
(iii) (b) Calculation of Maximum Stock level: Since, the Material A is 
perishable in nature and it required to be used within 10 days, 
hence, the Maximum Stock Level shall be lower of two: 
(a) Stock equal to 10 days consumption 
 =
3 0 0 0 0
2 5
× 10 ???????? ????????  = 12,000 kg. 
(b)  Maximum Stock Level for Material A: 
 Re-order Quantity + Re-order level – (Min consumption* ×  
      Min. lead time) 
 Where, Re-order Quantity = 15,000 kg.  
 Re-order level    = Max. Consumption* × Max. Lead  
        time 
         = 30,000/25×2 days=2,400 kg. 
 Maximum stock Level  = 15,000 kg. + 2,400 kg. -  
         (30,000/25  × 1 day) 
         = 17,400 – 1,200 = 16,200 kg. 
 Stock required for 10 days consumption is lower than the maximum 
stock level calculated through the formula. Therefore, Maximum 
Stock Level will be 12,000 kg. 
399
Page 2


ANSWERS OF MODEL TEST PAPER 8 
INTERMEDIATE: GROUP – II 
PAPER – 4: COST AND MANAGEMENT ACCOUNTING  
Suggested Answers/ Solution 
PART I – Case Scenario based MCQs  
 
1. (i) (d)  Monthly Production of X = 30,000 kgs. 
 Raw Material Required = 
30,000
5
3
× = 50,000 kgs. 
 Material A = 
50,000
3
5
× = 30,000 kg. 
 Material B = 
50,000
2
5
× = 20,000 kg. 
(ii)  (a) Calculation of Economic Order Quantity (EOQ): 
 Material A   = 
2 Annualconsumption Order cos t
Carryingcos t per unit p.a.
××
  
     = ?
2×( 3 0, 0 0 0× 1 2)× 1, 2 0 0
1 5 % ???? ???? 3 0
 = 13,856 kg. 
 Material B  = ?
2×( 2 0, 0 0 0× 1 2)× 1, 2 0 0
5 % ???? ???? 4 4
 = 16,181 kg. 
(iii) (b) Calculation of Maximum Stock level: Since, the Material A is 
perishable in nature and it required to be used within 10 days, 
hence, the Maximum Stock Level shall be lower of two: 
(a) Stock equal to 10 days consumption 
 =
3 0 0 0 0
2 5
× 10 ???????? ????????  = 12,000 kg. 
(b)  Maximum Stock Level for Material A: 
 Re-order Quantity + Re-order level – (Min consumption* ×  
      Min. lead time) 
 Where, Re-order Quantity = 15,000 kg.  
 Re-order level    = Max. Consumption* × Max. Lead  
        time 
         = 30,000/25×2 days=2,400 kg. 
 Maximum stock Level  = 15,000 kg. + 2,400 kg. -  
         (30,000/25  × 1 day) 
         = 17,400 – 1,200 = 16,200 kg. 
 Stock required for 10 days consumption is lower than the maximum 
stock level calculated through the formula. Therefore, Maximum 
Stock Level will be 12,000 kg. 
399
 (*Since, production is processed evenly throughout the month 
hence material consumption will also be even.) 
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity 
equals to EOQ. 
 Purchase Quantity  
= 15,000 kg. 
Purchase Quantity 
= EOQ i.e. 13,856 
kg. 
Annual 
consumption 
3,60,000 kg. 
(30,000 × 12 months) 
3,60,000 kg. 
(30,000 × 12 months) 
No. of orders 
[Note- (i)] 
30 
(3,60,000 ÷ 12,000) 
30 
(3,60,000 ÷ 12,000) 
Ordering Cost (a) ` 36,000 
(` 1200 × 30) 
` 36,000 
(` 1200 × 30) 
Carrying Cost (b) 
[Note- (ii)] 
`30,375 
(15% of ` 27 × 7,500) 
`31,176 
(15% of ` 30 × 6,928) 
Purchase Cost 
(c) 
(for good portion) 
` 97,20,000 
(` 27 × 3,60,000) 
` 1,08,00,000 
(` 30 × 3,60,000) 
Loss due to 
obsolescence (d) 
[Note- (iii)] 
` 24,30,000 
[` 27 × (30 × 3,000)]  
`16,70,400 
[` 30 × (30 × 1,856)] 
Total Cost [(a) + 
(b) + (c) + (d)] 
` 1,22,16,375 ` 1,25,37,576 
 Purchasing of material - A at present policy of 15,000 kg. saves  
` 3,21,201. 
 Notes: (i) Since, material gets obsolete after 10 days, the quantity 
in excess of 10 days consumption i.e. 12,000 kg. are wasted. 
Hence, after 12,000 kg. a fresh order needs to be given. 
(ii)  Carrying cost is incurred on average stock of Materials 
purchased.  
(iii)  the excess quantity of material gets obsolete and loss has to 
be incurred.  
(v)  (c) Minimum Stock Level for Material A 
 = Re-order level – (Average Consumption Rate x Average Re-order 
Period) 
= 2400 – (1200 x 1.5)  = 600 kgs 
Re-order level   = Max. Consumption* × Max. Lead time 
   = 30,000/25 × 2 days = 2,400 kg. 
2. (i)  (d) Budgeted Machine hour rate (Blanket rate)  
= 
50,40,000
840 per hour
6,000 hours
=
` 
  `  
 
 
400
Page 3


ANSWERS OF MODEL TEST PAPER 8 
INTERMEDIATE: GROUP – II 
PAPER – 4: COST AND MANAGEMENT ACCOUNTING  
Suggested Answers/ Solution 
PART I – Case Scenario based MCQs  
 
1. (i) (d)  Monthly Production of X = 30,000 kgs. 
 Raw Material Required = 
30,000
5
3
× = 50,000 kgs. 
 Material A = 
50,000
3
5
× = 30,000 kg. 
 Material B = 
50,000
2
5
× = 20,000 kg. 
(ii)  (a) Calculation of Economic Order Quantity (EOQ): 
 Material A   = 
2 Annualconsumption Order cos t
Carryingcos t per unit p.a.
××
  
     = ?
2×( 3 0, 0 0 0× 1 2)× 1, 2 0 0
1 5 % ???? ???? 3 0
 = 13,856 kg. 
 Material B  = ?
2×( 2 0, 0 0 0× 1 2)× 1, 2 0 0
5 % ???? ???? 4 4
 = 16,181 kg. 
(iii) (b) Calculation of Maximum Stock level: Since, the Material A is 
perishable in nature and it required to be used within 10 days, 
hence, the Maximum Stock Level shall be lower of two: 
(a) Stock equal to 10 days consumption 
 =
3 0 0 0 0
2 5
× 10 ???????? ????????  = 12,000 kg. 
(b)  Maximum Stock Level for Material A: 
 Re-order Quantity + Re-order level – (Min consumption* ×  
      Min. lead time) 
 Where, Re-order Quantity = 15,000 kg.  
 Re-order level    = Max. Consumption* × Max. Lead  
        time 
         = 30,000/25×2 days=2,400 kg. 
 Maximum stock Level  = 15,000 kg. + 2,400 kg. -  
         (30,000/25  × 1 day) 
         = 17,400 – 1,200 = 16,200 kg. 
 Stock required for 10 days consumption is lower than the maximum 
stock level calculated through the formula. Therefore, Maximum 
Stock Level will be 12,000 kg. 
399
 (*Since, production is processed evenly throughout the month 
hence material consumption will also be even.) 
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity 
equals to EOQ. 
 Purchase Quantity  
= 15,000 kg. 
Purchase Quantity 
= EOQ i.e. 13,856 
kg. 
Annual 
consumption 
3,60,000 kg. 
(30,000 × 12 months) 
3,60,000 kg. 
(30,000 × 12 months) 
No. of orders 
[Note- (i)] 
30 
(3,60,000 ÷ 12,000) 
30 
(3,60,000 ÷ 12,000) 
Ordering Cost (a) ` 36,000 
(` 1200 × 30) 
` 36,000 
(` 1200 × 30) 
Carrying Cost (b) 
[Note- (ii)] 
`30,375 
(15% of ` 27 × 7,500) 
`31,176 
(15% of ` 30 × 6,928) 
Purchase Cost 
(c) 
(for good portion) 
` 97,20,000 
(` 27 × 3,60,000) 
` 1,08,00,000 
(` 30 × 3,60,000) 
Loss due to 
obsolescence (d) 
[Note- (iii)] 
` 24,30,000 
[` 27 × (30 × 3,000)]  
`16,70,400 
[` 30 × (30 × 1,856)] 
Total Cost [(a) + 
(b) + (c) + (d)] 
` 1,22,16,375 ` 1,25,37,576 
 Purchasing of material - A at present policy of 15,000 kg. saves  
` 3,21,201. 
 Notes: (i) Since, material gets obsolete after 10 days, the quantity 
in excess of 10 days consumption i.e. 12,000 kg. are wasted. 
Hence, after 12,000 kg. a fresh order needs to be given. 
(ii)  Carrying cost is incurred on average stock of Materials 
purchased.  
(iii)  the excess quantity of material gets obsolete and loss has to 
be incurred.  
(v)  (c) Minimum Stock Level for Material A 
 = Re-order level – (Average Consumption Rate x Average Re-order 
Period) 
= 2400 – (1200 x 1.5)  = 600 kgs 
Re-order level   = Max. Consumption* × Max. Lead time 
   = 30,000/25 × 2 days = 2,400 kg. 
2. (i)  (d) Budgeted Machine hour rate (Blanket rate)  
= 
50,40,000
840 per hour
6,000 hours
=
` 
  `  
 
 
400
(ii)  (a) 
(iii)  (a) 
 Amount (`) Amount 
(`) 
Total production overheads actually 
incurred during the period  
 34,08,000 
Less: Amount paid to worker as per court 
order 
4,50,000  
 Expenses of previous year booked in 
the current year 
1,00,000  
 Wages paid for the strike period under 
an award 
4,20,000  
 Obsolete stores written off 36,000 10,06,000 
  24,02,000 
Less: Production overheads absorbed as 
per machine hour rate (3,000 hours × 
`840*) 
  
25,20,000 
Amount of over absorbed production 
overheads 
 1,18,000 
 * Budgeted Machine hour rate (Blanket rate) calculated in part (i) 
(iv) (b) Accounting treatment of over absorbed production overheads: 
As, 40% of the over absorbed overheads were due to defective 
production policies, this being abnormal, hence should be credited 
to Costing Profit and Loss Account. 
 Amount to be credited to Costing Profit and Loss Account  
= `1,18,000× 40% = `47,200. 
 Balance of over absorbed production overheads should be 
distributed over Works in progress, Finished goods and Cost of 
sales by applying supplementary rate*. 
 Amount to be distributed = `1,18,000× 60% =  `70,800 
 Supplementary rate =        
(v)  (c) Apportionment of over absorbed production overheads over WIP, 
Finished goods and Cost of sales: 
 Equivalent 
completed 
units 
Amount 
(`) 
Work-in-Progress (80,000 units × 50% × 0.472) 40,000 18,880 
Finished goods (20,000 units × 0.472) 20,000 9,440 
Cost of sales (90,000 units × 0.472) 90,000 42,480 
Total 1,50,000 70,800 
401
Page 4


ANSWERS OF MODEL TEST PAPER 8 
INTERMEDIATE: GROUP – II 
PAPER – 4: COST AND MANAGEMENT ACCOUNTING  
Suggested Answers/ Solution 
PART I – Case Scenario based MCQs  
 
1. (i) (d)  Monthly Production of X = 30,000 kgs. 
 Raw Material Required = 
30,000
5
3
× = 50,000 kgs. 
 Material A = 
50,000
3
5
× = 30,000 kg. 
 Material B = 
50,000
2
5
× = 20,000 kg. 
(ii)  (a) Calculation of Economic Order Quantity (EOQ): 
 Material A   = 
2 Annualconsumption Order cos t
Carryingcos t per unit p.a.
××
  
     = ?
2×( 3 0, 0 0 0× 1 2)× 1, 2 0 0
1 5 % ???? ???? 3 0
 = 13,856 kg. 
 Material B  = ?
2×( 2 0, 0 0 0× 1 2)× 1, 2 0 0
5 % ???? ???? 4 4
 = 16,181 kg. 
(iii) (b) Calculation of Maximum Stock level: Since, the Material A is 
perishable in nature and it required to be used within 10 days, 
hence, the Maximum Stock Level shall be lower of two: 
(a) Stock equal to 10 days consumption 
 =
3 0 0 0 0
2 5
× 10 ???????? ????????  = 12,000 kg. 
(b)  Maximum Stock Level for Material A: 
 Re-order Quantity + Re-order level – (Min consumption* ×  
      Min. lead time) 
 Where, Re-order Quantity = 15,000 kg.  
 Re-order level    = Max. Consumption* × Max. Lead  
        time 
         = 30,000/25×2 days=2,400 kg. 
 Maximum stock Level  = 15,000 kg. + 2,400 kg. -  
         (30,000/25  × 1 day) 
         = 17,400 – 1,200 = 16,200 kg. 
 Stock required for 10 days consumption is lower than the maximum 
stock level calculated through the formula. Therefore, Maximum 
Stock Level will be 12,000 kg. 
399
 (*Since, production is processed evenly throughout the month 
hence material consumption will also be even.) 
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity 
equals to EOQ. 
 Purchase Quantity  
= 15,000 kg. 
Purchase Quantity 
= EOQ i.e. 13,856 
kg. 
Annual 
consumption 
3,60,000 kg. 
(30,000 × 12 months) 
3,60,000 kg. 
(30,000 × 12 months) 
No. of orders 
[Note- (i)] 
30 
(3,60,000 ÷ 12,000) 
30 
(3,60,000 ÷ 12,000) 
Ordering Cost (a) ` 36,000 
(` 1200 × 30) 
` 36,000 
(` 1200 × 30) 
Carrying Cost (b) 
[Note- (ii)] 
`30,375 
(15% of ` 27 × 7,500) 
`31,176 
(15% of ` 30 × 6,928) 
Purchase Cost 
(c) 
(for good portion) 
` 97,20,000 
(` 27 × 3,60,000) 
` 1,08,00,000 
(` 30 × 3,60,000) 
Loss due to 
obsolescence (d) 
[Note- (iii)] 
` 24,30,000 
[` 27 × (30 × 3,000)]  
`16,70,400 
[` 30 × (30 × 1,856)] 
Total Cost [(a) + 
(b) + (c) + (d)] 
` 1,22,16,375 ` 1,25,37,576 
 Purchasing of material - A at present policy of 15,000 kg. saves  
` 3,21,201. 
 Notes: (i) Since, material gets obsolete after 10 days, the quantity 
in excess of 10 days consumption i.e. 12,000 kg. are wasted. 
Hence, after 12,000 kg. a fresh order needs to be given. 
(ii)  Carrying cost is incurred on average stock of Materials 
purchased.  
(iii)  the excess quantity of material gets obsolete and loss has to 
be incurred.  
(v)  (c) Minimum Stock Level for Material A 
 = Re-order level – (Average Consumption Rate x Average Re-order 
Period) 
= 2400 – (1200 x 1.5)  = 600 kgs 
Re-order level   = Max. Consumption* × Max. Lead time 
   = 30,000/25 × 2 days = 2,400 kg. 
2. (i)  (d) Budgeted Machine hour rate (Blanket rate)  
= 
50,40,000
840 per hour
6,000 hours
=
` 
  `  
 
 
400
(ii)  (a) 
(iii)  (a) 
 Amount (`) Amount 
(`) 
Total production overheads actually 
incurred during the period  
 34,08,000 
Less: Amount paid to worker as per court 
order 
4,50,000  
 Expenses of previous year booked in 
the current year 
1,00,000  
 Wages paid for the strike period under 
an award 
4,20,000  
 Obsolete stores written off 36,000 10,06,000 
  24,02,000 
Less: Production overheads absorbed as 
per machine hour rate (3,000 hours × 
`840*) 
  
25,20,000 
Amount of over absorbed production 
overheads 
 1,18,000 
 * Budgeted Machine hour rate (Blanket rate) calculated in part (i) 
(iv) (b) Accounting treatment of over absorbed production overheads: 
As, 40% of the over absorbed overheads were due to defective 
production policies, this being abnormal, hence should be credited 
to Costing Profit and Loss Account. 
 Amount to be credited to Costing Profit and Loss Account  
= `1,18,000× 40% = `47,200. 
 Balance of over absorbed production overheads should be 
distributed over Works in progress, Finished goods and Cost of 
sales by applying supplementary rate*. 
 Amount to be distributed = `1,18,000× 60% =  `70,800 
 Supplementary rate =        
(v)  (c) Apportionment of over absorbed production overheads over WIP, 
Finished goods and Cost of sales: 
 Equivalent 
completed 
units 
Amount 
(`) 
Work-in-Progress (80,000 units × 50% × 0.472) 40,000 18,880 
Finished goods (20,000 units × 0.472) 20,000 9,440 
Cost of sales (90,000 units × 0.472) 90,000 42,480 
Total 1,50,000 70,800 
401
3.  (b) Let the wages be ‘X’ 
Therefore: 
Material      2,40,000 
Wages      ‘X’  
Prime cost     2,40,000 + X 
Factory overheads   0.75X  
Factory cost     2,40,000 + 1.75X 
Quality control cost and  20% (2,40,000 + 1.75X)  
research and development cost 
Cost of Production    75,000 
288000 + 2.1X     = 7,50,000 
X        = 2,20,000 
4.  (b) Rooms days 
Summer   200 x 80% x 30 x 4 =19,200  
Winter   200 x 25% x 30 x 4 =   6,000 
Autumn   200 x 60% x 30 x 4 = 14,400 
Total room days:                    39,600 
5.  (a) Variable overhead cost variance: Standard Variable overheads - Actual 
variable overheads 
8,000/2,500 x 3,000 – 10,000 = 400A 
Fixed overhead cost variance: Standard fixed overheads - Actual fixed 
overheads 
12,000/2,500 x 3,000 – 11,800 = 2,600F 
6.  (c) Equivalent Units: 
Units transferred: 24,000 x 100%  =  24,000 
Closing WIP: 2,500 x 60%    =    1,560 
Total Equivalent units     25,560 
7.  (a) If final sales are ` 50,000 and separable costs are ` 35,000, then net 
realizable value will be `15,000. 
  
402
Page 5


ANSWERS OF MODEL TEST PAPER 8 
INTERMEDIATE: GROUP – II 
PAPER – 4: COST AND MANAGEMENT ACCOUNTING  
Suggested Answers/ Solution 
PART I – Case Scenario based MCQs  
 
1. (i) (d)  Monthly Production of X = 30,000 kgs. 
 Raw Material Required = 
30,000
5
3
× = 50,000 kgs. 
 Material A = 
50,000
3
5
× = 30,000 kg. 
 Material B = 
50,000
2
5
× = 20,000 kg. 
(ii)  (a) Calculation of Economic Order Quantity (EOQ): 
 Material A   = 
2 Annualconsumption Order cos t
Carryingcos t per unit p.a.
××
  
     = ?
2×( 3 0, 0 0 0× 1 2)× 1, 2 0 0
1 5 % ???? ???? 3 0
 = 13,856 kg. 
 Material B  = ?
2×( 2 0, 0 0 0× 1 2)× 1, 2 0 0
5 % ???? ???? 4 4
 = 16,181 kg. 
(iii) (b) Calculation of Maximum Stock level: Since, the Material A is 
perishable in nature and it required to be used within 10 days, 
hence, the Maximum Stock Level shall be lower of two: 
(a) Stock equal to 10 days consumption 
 =
3 0 0 0 0
2 5
× 10 ???????? ????????  = 12,000 kg. 
(b)  Maximum Stock Level for Material A: 
 Re-order Quantity + Re-order level – (Min consumption* ×  
      Min. lead time) 
 Where, Re-order Quantity = 15,000 kg.  
 Re-order level    = Max. Consumption* × Max. Lead  
        time 
         = 30,000/25×2 days=2,400 kg. 
 Maximum stock Level  = 15,000 kg. + 2,400 kg. -  
         (30,000/25  × 1 day) 
         = 17,400 – 1,200 = 16,200 kg. 
 Stock required for 10 days consumption is lower than the maximum 
stock level calculated through the formula. Therefore, Maximum 
Stock Level will be 12,000 kg. 
399
 (*Since, production is processed evenly throughout the month 
hence material consumption will also be even.) 
(iv) (b) Calculation of Savings/ loss in Material A if purchase quantity 
equals to EOQ. 
 Purchase Quantity  
= 15,000 kg. 
Purchase Quantity 
= EOQ i.e. 13,856 
kg. 
Annual 
consumption 
3,60,000 kg. 
(30,000 × 12 months) 
3,60,000 kg. 
(30,000 × 12 months) 
No. of orders 
[Note- (i)] 
30 
(3,60,000 ÷ 12,000) 
30 
(3,60,000 ÷ 12,000) 
Ordering Cost (a) ` 36,000 
(` 1200 × 30) 
` 36,000 
(` 1200 × 30) 
Carrying Cost (b) 
[Note- (ii)] 
`30,375 
(15% of ` 27 × 7,500) 
`31,176 
(15% of ` 30 × 6,928) 
Purchase Cost 
(c) 
(for good portion) 
` 97,20,000 
(` 27 × 3,60,000) 
` 1,08,00,000 
(` 30 × 3,60,000) 
Loss due to 
obsolescence (d) 
[Note- (iii)] 
` 24,30,000 
[` 27 × (30 × 3,000)]  
`16,70,400 
[` 30 × (30 × 1,856)] 
Total Cost [(a) + 
(b) + (c) + (d)] 
` 1,22,16,375 ` 1,25,37,576 
 Purchasing of material - A at present policy of 15,000 kg. saves  
` 3,21,201. 
 Notes: (i) Since, material gets obsolete after 10 days, the quantity 
in excess of 10 days consumption i.e. 12,000 kg. are wasted. 
Hence, after 12,000 kg. a fresh order needs to be given. 
(ii)  Carrying cost is incurred on average stock of Materials 
purchased.  
(iii)  the excess quantity of material gets obsolete and loss has to 
be incurred.  
(v)  (c) Minimum Stock Level for Material A 
 = Re-order level – (Average Consumption Rate x Average Re-order 
Period) 
= 2400 – (1200 x 1.5)  = 600 kgs 
Re-order level   = Max. Consumption* × Max. Lead time 
   = 30,000/25 × 2 days = 2,400 kg. 
2. (i)  (d) Budgeted Machine hour rate (Blanket rate)  
= 
50,40,000
840 per hour
6,000 hours
=
` 
  `  
 
 
400
(ii)  (a) 
(iii)  (a) 
 Amount (`) Amount 
(`) 
Total production overheads actually 
incurred during the period  
 34,08,000 
Less: Amount paid to worker as per court 
order 
4,50,000  
 Expenses of previous year booked in 
the current year 
1,00,000  
 Wages paid for the strike period under 
an award 
4,20,000  
 Obsolete stores written off 36,000 10,06,000 
  24,02,000 
Less: Production overheads absorbed as 
per machine hour rate (3,000 hours × 
`840*) 
  
25,20,000 
Amount of over absorbed production 
overheads 
 1,18,000 
 * Budgeted Machine hour rate (Blanket rate) calculated in part (i) 
(iv) (b) Accounting treatment of over absorbed production overheads: 
As, 40% of the over absorbed overheads were due to defective 
production policies, this being abnormal, hence should be credited 
to Costing Profit and Loss Account. 
 Amount to be credited to Costing Profit and Loss Account  
= `1,18,000× 40% = `47,200. 
 Balance of over absorbed production overheads should be 
distributed over Works in progress, Finished goods and Cost of 
sales by applying supplementary rate*. 
 Amount to be distributed = `1,18,000× 60% =  `70,800 
 Supplementary rate =        
(v)  (c) Apportionment of over absorbed production overheads over WIP, 
Finished goods and Cost of sales: 
 Equivalent 
completed 
units 
Amount 
(`) 
Work-in-Progress (80,000 units × 50% × 0.472) 40,000 18,880 
Finished goods (20,000 units × 0.472) 20,000 9,440 
Cost of sales (90,000 units × 0.472) 90,000 42,480 
Total 1,50,000 70,800 
401
3.  (b) Let the wages be ‘X’ 
Therefore: 
Material      2,40,000 
Wages      ‘X’  
Prime cost     2,40,000 + X 
Factory overheads   0.75X  
Factory cost     2,40,000 + 1.75X 
Quality control cost and  20% (2,40,000 + 1.75X)  
research and development cost 
Cost of Production    75,000 
288000 + 2.1X     = 7,50,000 
X        = 2,20,000 
4.  (b) Rooms days 
Summer   200 x 80% x 30 x 4 =19,200  
Winter   200 x 25% x 30 x 4 =   6,000 
Autumn   200 x 60% x 30 x 4 = 14,400 
Total room days:                    39,600 
5.  (a) Variable overhead cost variance: Standard Variable overheads - Actual 
variable overheads 
8,000/2,500 x 3,000 – 10,000 = 400A 
Fixed overhead cost variance: Standard fixed overheads - Actual fixed 
overheads 
12,000/2,500 x 3,000 – 11,800 = 2,600F 
6.  (c) Equivalent Units: 
Units transferred: 24,000 x 100%  =  24,000 
Closing WIP: 2,500 x 60%    =    1,560 
Total Equivalent units     25,560 
7.  (a) If final sales are ` 50,000 and separable costs are ` 35,000, then net 
realizable value will be `15,000. 
  
402
PART-II – Descriptive Questions 
1. (a)  Calculation of Total Cost and Selling Price   
   Job XYZ  Job MNO 
   (`)  (`) 
Direct material  15,400  10,800 
Direct labour     
 Department A (20 x `76) 1,520 (16 x` 76) 1,216 
 Department B (12 x `70) 840 (10 x `70) 700 
 Department C (10 x ` 68) 680 (14 x `68) 952 
Total Direct cost  18,440  13,668 
Overhead: 
    
 Department A (20 x `12.86) 257.20 (16 x `12.86) 205.76 
 Department B (12 x `12.40) 148.80 (10 x `12.40) 124.00 
 Department C (10 x ` 14.03) 140.30 (14 x ` 14.03) 196.42 
Total cost  18,986.30  14,194.18 
Profit (note)  6,328.77  4,731.39 
Quoted selling price  25,315.07  18,925.57 
Note: If profit is 25% on selling price this is the same as 33 1/3 % (25/75) 
on cost. 
        (`) 
Selling price     100 
Cost         75 
Profit         25 
 (b)  (i) Calculation of Administration cost: 
Particulars Amount (`) 
Salary paid to office staffs 8,20,000 
Fees paid to auditors 92,000 
Vehicle hire charges paid for directors attending 
general meeting 
10,200 
Fees paid to independent directors  1,02,000 
 10,24,200 
(ii)  Calculation of Selling cost: 
Particulars Amount (`) 
Salary paid to sales manager 8,00,000 
Wages paid to workers engaged in storing goods 
at sales depot 
7,200 
Travelling allowance paid to sales staffs 9,600 
Electricity bill paid for sales office 1,800 
403