PAPER 8 - COST ACCOUNTING
SUGGESTED ANSWERS
SECTION – A
1.
(i) (C)
(ii) (C)
(iii) (C)
(iv) (A)
(v) (C)
(vi) (A)
(vii) (B)
(viii) (B)
(ix) (C)
(x) (B)
(xi) (A)
(xii) (B)
(xiii) (A)
(xiv) (C)
(xv) (B)
SECTION – B
2. (a)
Cost Sheet for the month of September 2024:
Particulars (D)
Opening Stock of Raw Material 20000
Add : Purchases 165000
Less : Closing Stock of Raw Material (35000)
Raw Material Consumed 150000
Add : Direct Labour Cost 120000
Prime Cost 270000
Add : Factory Overheads 100000
Gross Work Cost 370000
Add : Opening Work – in – progress 20000
Less : Closing Work – in – progress (30000)
Works Cost 360000
Cost of Production 360000
Add : Opening Stock of finished goods 50000
Less : Closing Stock of finished goods (60000)
Cost of Goods sold 350000
Add : General and administration expenses 18000
Add : Selling Expenses 22000
Cost of Sales 390000
Profit 110000
Sales 500000
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Alternative:
Cost of Goods sold 350000
Add : General and administration expenses 18000
Add : Selling Expenses 22000
Add : Distribution overhead 10000
Cost of Sales 400000
Profit 100000
Sales 500000
2. (b)
(i) Minimum stock of P:
= 8000 – (200 x 10 x 2) = 4000 kgs
(ii) Minimum stock of Q:
= 4750 – (200 x 4 x 4) = 1550 kgs
(iii) Re-order level of R:
= 4 x 225 x 6 = 5400 kgs
OR
Re-order level of R:
= 2000 + [(200 x 6) x 3] = 5600 kgs.
(iv) Average stock level of P:
= 4000 +0.5 x 10000 = 4000 + 5000 = 9000 kgs.
OR
Average Stock level of P:
3. (a)
(i) Amount of under - absorption of overheads during the year 2023 – 24
D D
Total production overheads actually incurred during the year 3550000
Less : Wages paid during strike period 200000
Wages of previous year booked in current Year 100000 300000
Net production overheads actually incurred: 3250000
Production overheads absorbed by 1.50 lakh man-days @ D 20 per man - 3000000
day :
Amount of under-absorption of production overheads: 250000
(ii) Accounting treatment of under absorption of production overheads :
It is given in the statement of the question that 62000 units (50000 sold + 12000 closing stock – 0 opening
stock) were completely finished and 20000 units were 65% complete, 40% of the under-absorbed overheads
were due to factory inefficiency and the rest were attributable to increase in cost of indirect materials and
indirect labour.
D
This being abnormal, should be debited to the Costing Profit and Loss A/c. 100000
Balance D 150000 of under – absorbed overheads should be distributed over work -in- progress, 150000
finished goods and cost of sales by using supplementary rate.
Total under-absorbed overheads 250000
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Apportionment of unabsorbed overheads of D150000 over work-in-progress, finished goods and cost of sales
Equivalent Completed Units (D)
Work-in-progress 13000 26000
Finished goods 12000 24000
Cost of Sales 50000 100000
75000 150000
Supplementary Overhead Absorption Rate: = D2
3. (b)
Profit and Loss Account (As per financial records)
(D) (D)
To Direct Material 5000000 By Sales (120000 units) 12000000
To Direct Wages 3000000 By Closing Stock
To Factory Overheads 1600000 WIP 240000
To Gross Profit 2960000 Finished Goods (4000 units) 320000
12560000 12560000
To Administration Overheads 700000 By Gross Profit b/d 2960000
To Selling and Distribution 960000 By Dividend 100000
To Bad Debts 80000 By Interest 20000
To Preliminary Expenses Written off 40000
To Legal Charge 10000
To Net Profit 1290000
3080000 3080000
Statement of Cost and Profit (As per Cost records)
Total (D)
Direct Material 5600000
Direct Wages 3000000
Prime Cost 8600000
Factory Overhead 1720000
10320000
Less : Closing Stock (WIP) (240000)
Works Cost (124000 units) 10080000
Administration overhead 744000
Cost of production of (124000 units) 10824000
Less : Finished Goods (349160)
Cost of goods sold (120000 units) 10474840
Selling and Distribution Overhead 960000
Cost of Sales 11434840
Net profit 565160
Sales Revenue 12000000
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Statement of Reconciliation of Profit as obtained under Cost and Financial Accounts
(D) (D)
Profit as per Cost Records 565160
Add : Excess of Material Consumption 600000
To Factory Overhead 120000
To Administration Overhead 44000
Dividend Received 100000
Interest Received 20000 884000
1449160
Less : Bad debts 80000
Preliminary expenses written off 40000
Legal Charges 10000
Over-valuation of stock in cost book 29160 (159160)
Profit as per Financial Records 1290000
4. (a)
(i) Total effective passenger Kms. per month :
Sweet Village and back = 2 x 250 x (90% of 60) x 10 = 270000 P.Kms.
Rajpur & back = 2 x 200 x (80% of 60) x 10 = 192000 P.Kms.
Local Trips = 5 x 80 x 60 = 24000 P.Kms.
Passenger Kms. = 486000
Statement showing Operating Cost and Profit and Fare Rate to be charged per passenger KM, for the month
Particulars Amount (D) Amount (D)
Fixed Expenses :
Driver’s Salary 20000
Conductor’s Salary 12000
Part time Clerk’s Salary 6000
Insurance 2000
Token Tax 3000
Permit Fee 4000
Depreciation 118000 165000
Running Expenses :
Repair and Maintenance 17236
Diesel 84600
L. Oil 37600
Sundry Expenses 5389 144825
Total Cost 309825
Add : 25% Profit on takings 103275
Total Takings (Total Fare) 413100
Effective passenger Kms. per month 486000
Rate per passenger Km. D0.85
Fare Rate to be Charges per Passenger:
To Sweet Village from Newtown = D 213
To Rajpur from Newtown = D 170
Local Trip from Newtown = D 68
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4. (b)
(i) Contract Account for the year ended March 31, 2024.
(D) (D)
To Materials issued 251000 By Machine 246000
To Labour Charges 565600
To Foreman Salary 81300 By Material (in Hand) 35400
To Machine 260000 By Work Cost 1049000
To Supervisor’s Salary 36000
To Adm. Charges 136500
1330400 1330400
To Work Cost 1049000 By Work Certified 1000000
To Notional Profit 213250 By Work uncertified 262250
1262250 1262250
To Profit & Loss A/c. 106625 By Notional Profit 213250
To Work-in-Progress 106625
213250 213250
(ii) Profit to be transferred to Profit & Loss Account of the Company will be: D 106625.
5. (a)
(i) Process A Account
Particulars Units Amount (D) Particulars Units Amount (D)
To Input 8000 72000 By Normal Loss 400 800
To Direct Wages 12000 By Abnormal Loss 100 1250
To Direct Exp. 6000
To Overheads (1:2) 5800 By Process B A/c. 5000 62500
By Profit and Loss A/c. 2500 31250
8000 95800 8000 95800
Cost of abnormal Loss in process= 12.50 per unit
Process B Account
Particulars Units Amount (D) Particulars Units Amount (D)
To Process A A/c. 5000 62500 By Normal Loss 500 5000
To Direct Wages 24000 By Finished Stock A/c. or 4800 104640
Profit & Loss A/c.
To Direct Exp. 5000
To Overheads 11600
To Abnormal Gain 300 6540
5300 109640 5300 109640
Cost of Abnormal Gain = D 21.80
(ii) Profit & Loss Account
Particulars Amount (D) Particulars Amount (D)
To Cost of Sales By Sales :
Process A 31250 Process A 37500
Process B 104640 135890 Process B 120000 157500
To Abnormal Loss: By Abnormal gain:
Process A 1050 Process B 3540
To Selling expenses 5000
To Net Profit 19100
161040 161040
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5. (b)
Basic Calculation
Material S Material T Total
Standard Quantity for
Actual Output (SQ) 60 40 100
Actual Quantity (AQ) 44 66 110
Required Quantity (RQ) 66 44 110
Standard Showing the Basic Calculations for the
Computation of Material Cost Variance
Material Cost Variance:
= D 1600 – D 1430 = D 170 (F)
Material Price Variance:
Material S = D 880 – D 1100 = D 220 (A)
Material T = D 660 – D 330 = D 330 (F)
MPV = D 110 (F)
Material Usage Variance:
Material S = D 1200 – D 880 = D 320 (F)
Material T = D 400 – D 660 = D 260 (A)
MUV = D 60 (F)
Material Mix Variance:
Material S = D 1320 – D 880 = D 440 (F)
Material T = D 440 – D 660 = D 220 (A)
MMV = D 220 (F)
Material Yield Variance = D 160 (A)
6.
(i) P/V Ratio =
Let S be the desired Sales
Accordingly, Contribution = 0.50 S and desired Profit = 0.25 S
Contribution – Profit = Fixed Cost
= 0.50 S – 0.25 S = D600000
600000
S= = D2400000
0.25
Hence, the desired Sales = D 2400000
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(ii)
D
Present Variable cost per unit 6.50
Less: Variable selling and distribution overheads per unit 0.90
5.60
Add: Special packing cost per unit 2.00
Revised variable cost per unit 7.60
The break-even price per unit for this additional offer of 30,000 units would be D 7.60 per unit, In other words
the breakeven price for this additional offer here means the price per unit at which 30,000 units offer can be
accepted without earning any profit on it.
Note: The existing business will bear the impact of fixed cost. Fixed costs will not affect this additional offer of
30,000 units.
(iii)
D
New selling price per unit 18.00
Less: Variable cost per unit 6.50
Contribution per unit 11.50
Total contribution 1380000
Less: Present fixed cost 600000
Less: Additional expenditure on advertising 300000
Profit 480000
Justification: The amount of profit on the sale of 1,00,000 units was D 2,50,000 (Refer to the statement of the
question). On increasing the sale of product units from 1,00,000 to 1,20,000 the profit of the concern increased
from D 2,50,000 to D 4,80,000 therefore, the expenditure on advertisement is justifiable and the proposal
under consideration is viable.
(iv)
Revised selling price per unit 13.00
Less : Variable Cost per unit 6.50
Contribution per unit 6.50
Total contribution of 100% capacity utilization 975000
Less : Fixed Cost 600000
Profit 375000
Justification: A reduction in selling price by D 2 per unit for 100% Capacity utilization increases the present
Profit of D 250000 to D 375000. Hence the reduction in Selling price is justified.
7. (a)
Flexible Budget - For the Month of September 2024
80 % 90 % 100 % 110 %
(D) (D) (D) (D)
Sales 600000 675000 750000 825000
Administration Costs:
Office Salaries (fixed) 90000 90000 90000 90000
General expenses 12000 13500 15000 16500
Depreciation (fixed) 7500 7500 7500 7500
Rent and rates (fixed) 8750 8750 8750 8750
Total Adm. Costs 118250 119750 121250 122750
Selling Costs:
Salaries 48000 54000 60000 66000
Travelling expenses 12000 13500 15000 16500
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Sales office 6000 6750 7500 8250
General expenses 6000 6750 7500 8250
Total Selling Costs 72000 81000 90000 99000
Distribution Costs:
Wages (fixed) 15000 15000 15000 15000
Rent 6000 6750 7500 8250
Other expenses 24000 27000 30000 33000
Total Distribution Costs 45000 48750 52500 56250
Total Costs 235250 249500 263750 278000
7. (b)
The Object and Scope of CAS – 5 are stated below:
Objective:
(a) To bring uniformity in the application of principles and methods used in the determination of averaged /
equalized Transportation Cost.
(b) To prescribe the system to be followed for maintenance of records for collection of cost of transportation, its
allocation/apportionment to cost centres, locations or products.
(c) To provide transparency in the determination of cost of transportation.
Scope :
This standard should be applied for calculation of cost of transportation required under any statute or regulations or for
any other purpose. For example, this standard can be used for:
(a) Determination of average transportation cost for claiming the deduction for arriving at the assessable value of
goods and services.
(b) Insurance claim valuation.
(c) Working out claim for freight subsidy under Fertilizer Industry Coordination Committee.
(d) Administered price mechanism of freight cost element.
(e) Determination of inward freight costs included or to be included in the cost of purchases attributable to the
acquisition.
(f) Computation of freight included in the value of inventory for accounting on inventory or valuation of stock
hypothecated with Banks / Financial Institution ...etc.
8. (a)
Objection of Cost Accounting:
The objectives are Summaried in the following lines
1. To ascertain the cost of production on per unit basis, for example, cost per kg, cost per meter, cost per litre, cost
per ton etc.
2. Cost accounting helps in the fixation of selling price. Cost accounting enables to determine the cost of
production which helps to fix the selling price.
3. Cost accounting helps in cost control and cost reduction.
4. Ascertainment of division wise, activity wise and unit wise profitability is analysed through cost accounting.
5. Cost accounting also helps in locating wastages, inefficiencies and other gaps in the production processes/
services offered.
6. Cost accounting helps in presentation of relevant data to the management which helps in decision making.
Decision making is the most important functions of Management which has specific linkages to the strategic
success/failure of an organisation.
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8. (b)
Advantages of Just-in-Time (JIT):
The advantages of Just-in-Time system are as follows:
(a) Increased emphasis on supplier relationships. A company without inventory does not want a supply system
problem that creates a part shortage. This makes supplier relationships extremely important.
(b) Supplies come in at regular intervals throughout the production day. Supply is synchronized with production
demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck
to the point of assembly, the need for storage facilities is reduced.
(c) Reduces the working capital requirements, as very little inventory is maintained.
(d) Minimizes storage space.
(e) Reduces the chance of inventory obsolescence or damage.
8. (c)
Disclosures of CAS – 3 on Production and Operation Overheads:
The cost statements shall disclose the following:
(a) The basis of assignment of Production or Operation Overheads to the cost objects.
(b) Production or Operation Overheads incurred in foreign exchange.
(c) Production or Operation Overheads relating to resources received from or supplied to related parties.
(d) Any Subsidy, Grant, Incentive or any amount of similar nature received or receivable reduced from Production
or Operation Overheads.
(e) Credits or recoveries relating to the Production or Operation Overheads.
(f) Any abnormal cost not forming part of the Production or Operation Overheads.
(g) Any unabsorbed Production or Operation Overheads.
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