CA Intermediate May 2026 Suggested Answers Paper 4 Cost and Management Accounting

FOR CA INTERMEDIATE EXAM PREPARATION

CA Intermediate 2026
Suggested Answers ·
Paper 4 Cost and
Management
Accounting
EXAM YEAR TYPE

CA Intermediate 2026 Suggested Answers
SUBJECT DATE

Paper 4 Cost and Management Accounting May 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 4: COST AND MANAGEMENT
ACCOUNTING
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PART – I Multiple Choice Questions

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aGraphite
Case Scenario - I
Core Industries established in 1995 is globally recognized for producing
reliable, high quality wooden pencils. It begins its production process by sourcing
raw graphite, clay, and cedar wood slats, holding them as raw materials.
The following are details about the manufacturing processes of the company:
- Core Manufacturing Process - In this process, the graphite and clay are mixed,

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extruded into rods and fired to create hardened pencil cores known as lead.

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Simultaneously, the cedar wood is cut into grooved slats. The output of this

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process i.e. lead and grooved slat is transferred to the Casing & Shaping Process

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at 30% profit on the transfer price.
Casing & Shaping ProcessgIn this process, the leads are glued between the
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grooved slats, shaped into individual pencils and painted. The output of this
process i.e. pencils, are then transferred to the Finished Stock at 10% profit on
the transfer price. Stock in process is valued at prime cost.
The Production manager has provided the following information for the month
of April 2026:

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Particulars Core Manufacturing Casing & Shaping

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Process (`)
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Process (`)

c. o Direct Materials 4,90,0000
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se 9,50,000
8,95,000

s em Direct Wages 3,60,000
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gla Direct Expenses 3,40,000 a 3,80,000
a Factory Overheads 3,00,000 5,00,000

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Additional Information:

Particulars Opening Stock (`) Closing Stock (`)
Core Manufacturing Process 5,10,000 2,50,000
Casing & Shaping Process 7,75,000 6,00,000
Finished Stock of Pencils 14,00,000 10,00,000

Finished stock is valued at the price at which it is received from the Casing &
Shaping Process. During the month of April 2026, the company sold pencils worth
` 75,00,000. Inter process profits included in opening stock for Casing & Shaping
Process and Finished Stock are ` 75,000 and ` 3,20,000 respectively.
On the basis of above case scenario for the month of April 2026, you are required
to answer the following MCQs 1 to 5:
1. What is the Profit of the Core Manufacturing Process?

(A) ` 7,50,000
(B) ` 5,25,000
(C) ` 6,00,000

(D) ` 6,75,000 (2 Marks)
2. What is the Prime Cost (including Inter Process Profit) of Casing & Shaping
Process?

(A) ` 53,25,000
(B) ` 44,00,000
(C) ` 46,75,000

(D) ` 55,00,000 (2 Marks)
3. What is the amount of profit included in the closing stock of Casing &
Shaping Process?

(A) ` 84,000
(B) ` 90,000
(C) ` 87,000

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

(D) ` 93,000 (2 Marks)
4. What is the transfer price of pencils (including inter process profit) transferred
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to Finished Stock account from the Casing & Shaping Process?
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(A) ` 57,50,000
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(B) `m a
s e 62,00,000 l
g a ` 60,00,000
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a (D) ` 64,00,000 (2 Marks)
5. What is the amount of total profit realized by Graphite Core Industries on
sale of finished stock of pencils which is transferred to the Costing Profit and
Loss Account?
(A) ` 25,40,000

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(B) ` 25,25,000
(C) ` 25,17,500
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(D) ` 25,32,500 (2 Marks)

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Case Scenario - II
Safety First Tyre Company is the manufacturer of 'Puncture Resistant' motorcycle
tyres. In the manufacturing process, it undertakes three different jobs namely,
Belting (B), Extrusion (E) and Vulcanizing (V). All the three jobs require the use of
a special machine and also the use of Artificial Intelligence (AI) system when
necessary. The Al system is hired from outside and the hire charges paid for every
quarter is ` 4,08,000. An estimate of overhead expenses relating to the special
machine is given below:
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• The cost of the special machine is ` 66,00,000 and depreciation is charged

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@ 10% per annum on straight line basis.

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• Rent paid for every six months is ` 1,38,000.

ag • Other indirect expenses per annum ` 4,92,000.
During the first month of operation, the following details are available from the
job book of the company:

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Jobs

Belting Extrusion Vulcanizing
(B) (E) (v)
Number of hours the special machine was used
Without the use of Artificial Intelligence (AI) 600 900 -
system
With the use of Artificial Intelligence (AI) 450 550 1000
system

Any fraction in calculations may be rounded off up to two decimal places.
On the basis of the above Case Scenario, you are required to answer the following
MCQs 6 to 10:
6. What is the amount of overheads per month for using the special machine
without the aid of Artificial Intelligence (AI) system?
(A) ` 36,000
(B) ` 44,000
(C) ` 51,000
(D) ` 58,000 (2 Marks)
7. What is the amount of overheads per month for using the special machine
with the aid of Artificial Intelligence (Al) system?
(A) ` 1,82,000
(B) ` 2,04,000
(C) ` 1,95,714
(D) ` 2,25,000 (2 Marks)
8. What is the machine hour rate for the company as a whole for a month when
the Artificial Intelligence (AI) system was used?
(A) ` 102 per hour
(B) ` 122.55 per hour
(C) ` 130 per hour
(D) ` 133.75 per hour (2 Marks)

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

9. What is the machine hour rate for the company as a whole for a month when
the Artificial Intelligence (AI) was not used?

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(A) ` 41 per hour

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(B) ` 29.45 per hour

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(C) ` 38.25
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per hour
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(D) ` 34 per hour
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a -Belting (B), Extrusion (E) and Vulcanizing (V) respectively?
10. What is the machine hour rate for the month in respect of the individual jobs

(A) ` 45.37 (B), 68.19 (E) and ` 98.95 (V) per hour
(B) ` 63.14 (B), 59.79 (E) and ` 102 (V) per hour
(C) ` 55.25 (B), 48.33 (E) and ` 105 (V) per hour
(D) ` 49.41 (B), 78.54 (E) and ` 94.35 (V) per hour (2 Marks)

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11. The management of Gamma Limited has provided the following information
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for Product X:

Re-Ordering Level (ROL) gl
Maximum Stock Level
as 1125 units

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Minimum rate of consumption per day
750 units
25 units
Minimum lead time 5 units

What is the Re-Order Quantity (ROQ)?
(A) 375 units
(B) 450 units

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c(2. oMarks)
(C) 500 units
m (D) 600 units
c. o 12. The following information pertains to a worker G: se
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gla Basic Pay 25,000 per month a
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Dearness Allowance ` 5,000 per month
Other Allowances ` 2,000 per month

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

The number of working days in a year is 325 of 8 hours each. G has availed
25 days as holidays on full pay in a year.
What is the wage rate per hour of worker G?
(A) ` 160
(B) ` 175
(C) ` 140
(D) ` 185 (2 Marks)
13. The following information pertains to Job Number 501 undertaken by PCM
Limited:

Direct Materials ` 60,000
Direct Wages ` 50,000
Factory Overheads 60% of Direct Wages
Administrative Overheads 25% of Factory Cost
Profit percentage on total cost 25%
What is the selling price of Job Number 501?
(A) ` 1,89,550
(B) ` 2,24,675
(C) ` 2,18,750
(D) ` 2,33,640 (2 Marks)
14. AMC Travels is running 4 luxury buses between two cities which are 60 kms.
apart. The seating capacity of each bus is 50 passengers. The actual
passengers carried were 70% of the seating capacity. All the four buses run
for 30 days for the month. Each bus made one round trip per day. During the
month of April 2026, AMC incurred total cost of ` 25,05,000.
What is the cost per passenger kilometer for the month of April 2026?
(A) ` 7.55
(B) ` 3.75
(C) ` 6.84
(D) ` 4.97 (2 Marks)

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

15. The following information has been extracted from the records of XYZ Ltd.
for two consecutive years:

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Particulars Year 1 Year 2
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Sales (`) 1,80,00,000 2,40,00,000

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Profit (`) 24,00,000 42,00,000

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l(A) ` 1,40,00,000 ag
What is the Break-even Sales Value?

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(B) ` 1,00,00,000
(C) ` 1,25,00,000
(D) ` 90,00,000 (2 Marks)
Answer Key

MCQ. No. Correct Answer
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1. (A)

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2. (D)
3. (B)
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4.
5.
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(D)
6. (C)
7. (B)
8. (A)
9. (D)

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10. (B)

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11. (C)

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12. (A)
la se
las 13. (C)
a g
ag 14. (D)
15. (B)

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

PART – II Descriptive Questions
Question No. 1 is compulsory.
Attempt any four questions out of the remaining five questions.
In case, any candidate answers extra question(s)/ sub-question(s) over and
above the required number, then only the requisite number of questions first
answered in the answer book shall be valued and subsequent extra
question(s) answered shall be ignored.
Working notes should form part of the answer.
Question 1
(a) XYZ Limited specializes in manufacture of high end office furniture. They use
a batch costing system to track production costs. The company received an
order for a special production run, Batch A - 01, consisting of 20 Ergonomic
Executive Chairs. The estimated costs for this specific:
batch are as follows:

Direct Material ` 55,500
Direct Labour :
Cutting & Shaping 300 hours @ ` 50 per hour
Polishing & Finishing 200 hours @ ` 40 per hour
Factory Overheads:
Cutting & shaping 300 hours @ ` 8 per hour
Polishing & Shaping 200 hours @ ` 8 per hour
Administrative & Selling Overheads 20% of Works Cost
Profit 25% on Selling Price

You are required to calculate:
(i) Total Cost of the Batch.
(ii) Selling Price per Chair. (5 Marks)
(b) EXA Ltd. operates a standard costing system for controlling its material costs
and has furnished the following information for the month of April, 2026:

Standard Price of raw material ` 30 per Kg
Standard Quantity of material required per unit of 5 kgs.
output

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

Standard labour rate ` 50 per hour
Standard labour requirement 2.5 hours per unit

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Actual Output 2000 units
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Material Price Variance ` 1,75,000 (Adverse)

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Actual Quantity of raw material purchased and 14,000 kgs.
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consumed

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Actual ` 3,24,000
a You are required to calculate:
(i) Actual price per kg of raw material
(ii) Material usage variance
(iii) Material cost variance
(iv) Labour rate variance

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(v) Labour efficiency variance

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(Indicate the nature of variance Favourable (F) or Adverse (A)) (5 Marks)

e ma net loss of ` 4,20,000 as per the Cost
(c) A manufacturing concern reported
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Accounts for the year ended 31 2026. Upon scrutiny of both sets of
st

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accounts, the following differences were identified:

Sr. Particulars Amount
No. (`)
(i) Profit on sale of investments (Financial Accounts only) 55,000
(ii) Factory overheads under-absorbed in Cost Accounts 70,000
(iii) Discount allowed to customers (Financial Accounts only) 30,000

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(iv) Depreciation overcharged in Cost Accounts 90,000

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(v) Selling overheads over-absorbed in Cost Accounts
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65,000

c. o (vi) Bad debts written-off (Financial Accounts only)
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se 40,000
1,10,000

s em (vii) Over-valuation of closing stock in Cost Accounts
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gla You are required to: a
a (i) Prepare a Reconciliation Statement.
(ii) Ascertain the net profit / (loss) as per the Financial Accounts. (4 Marks)

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Answer
(a) (i) Statement showing Total Cost of the Batch A – 01

Particulars Amount
(in `)
Direct Material Cost 55,500
Direct Labour:
Cutting & Shaping (300 hours @ ` 50 per hour) 15,000
Polishing & Finishing (200 hours @ ` 40 per hour) 8,000
Prime Cost 78,500
Add: Factory Overheads:
Cutting & Shaping (300 hours @ ` 8 per hour) 2,400
Polishing & Finishing (200 hours @ ` 8 per hour) 1,600
Factory Cost/Works Cost 82,500
Add: Administrative & Selling Overheads 16,500
(20% of Works Cost)
Total Cost 99,000

(ii) Selling Price per Chair:
Units produced & sold = 20 chairs
Sales = Total cost + 25% profit on sales or 33.3% (1/3rd) profit on cost
= `99,000 + 33.33% (1/3rd) of ` 99,000
= ` 1,32,000
Selling price per chair = Total sales/no. of chairs sold
= ` 1,32,000/20= ` 6,600 per chair
(b) Workings:
1. Standard Quantity for actual output = 2,000 x 5 kg = 10,000 kg
2. Standard Labour Hours for actual output = 2,000 x 2.5 hours per unit
= 5,000 hours

3. Actual Labour Rate = ` 3,24,000/6,000 hours

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

= ` 54
(i) Actual Price Per Kg
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Material Price Variance = (SP - AP) x AQ
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Material Price Variance = ` 1,75,000 (A)

s eTherefore: l a
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l (30 - AP) x 14,000 ag
a Actual Price = -1,75,000
= ` 42.5
(ii) Material Usage Variance= (SQ - AQ) x SP
= (10,000 – 14,000) x ` 30
= ` 1,20,000 (A)

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(iii) Material Cost Variance = SQ x SP - AQ X AP

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= 10,000 x ` 30 – 14,000 x ` 42.5
=e`m
s 2,95,000 (A)
(iv) Labour Rate Variance la= (SR - AR) X AH
ag = (` 50 - ` 54) x 6000
= ` 24,000 (A)
(v) Labour Efficiency Variance= (SH - AH) X SR

= (5,000 – 6,000) x ` 50
= ` 50,000 (A)

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(c) Reconciliation Statement
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c. o Particulars Amountm Amount
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las Net Loss as per Cost Accounts
ag 4,20,000

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Profit on sale of investments 55,000
Depreciation overcharged in Cost Accounts 90,000

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Selling overheads over-absorbed in Cost 65,000 2,10,000
Accounts
2,10,000
Less:
Factory overheads under-absorbed in Cost 70,000
Accounts
Discount allowed to customers 30,000
Bad debts written-off 1,10,000
Over-valuation of closing stock in Cost Accounts 40,000 2,50,000
Net Loss as per Financial Accounts 4,60,000

Question 2
(a) The cost particulars of cotton yarn manufactured by a textile mill in April
2026 are as follows:

Direct Material: - Cotton Bales: 2,000 kgs @ ` 120 per kg
- Other materials : 600 kgs @ ` 85 per kg
Direct Wages: - 75 skilled men @ ` 60 per day for 25 days
- 40 unskilled men @ ` 30 per day for 25 days
Direct Expenses: Hire charge for Special equipment ` 9,000 Power
and fuel ` 3,000
Works Overhead 160% of direct wages
Administration overhead ` 45,000
related with production
Selling and distribution ` 37,500
expenses
Selling Price per kg of ` 600
cotton yarn

Additional Information:
• 1,500 kgs. of Cotton yarn was produced.
• Waste cotton and chemical scrap realized during the manufacturing
process amounted to ` 23,500.

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

• There were no opening or closing stocks of raw materials and finished stock.
You are required to prepare a cost statement for the month of April 2026
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showing:

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(ii) Net .Works Cost
(i) Prime Cost

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(iii) Cost of Production
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a (iv) Cost of Sales
(v) Total Profit & Sales (7 Marks)
(b) PQR Ltd is a manufacturing company that operates at 80% capacity,
generating a profit of ` 7,50,000 by selling 36000 units. The cost details are
as follows:

Particulars Amount

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Material Cost per unit
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Labour Cost per unit
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Semi Variable Cost (Variable Component = 10 per unit) 8,20,000
Contribution per unit
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Margin of Safety Sales at the current level of sales 15,00,000
50

Fixed Cost upto 80% Capacity (Including depreciation of 5,90,000
` 1,90,000)
Additional Fixed Cost (Beyond 80% Capacity) 1,50,000

You are required to ascertain:
(i) Break Even Point in units at current Capacity utilisation.
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(ii) Total Sales value and Cash Break Even Sales Quantity at current capacity

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utilization.

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g unit and variable
(iii) Capacity utilisation & Margin of safety sales, if the company wants to

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earn a profit of ` 9,37,500. (Assume selling price per
a cost per unit remain unchanged.) (7 Marks)

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Answer
(a) Cost Sheet of Cotton Yarn Manufacturing for the month of April 2026

Particulars (`) (`)
Direct Material:
Cotton Bales (2,000 kgs × ` 120) 2,40,000
Other materials (600 kgs × ` 85) 51,000 2,91,000
Add: Direct Wages
75 skilled men @ ` 60 per day for 25 days 1,12,500
40 unskilled men @ ` 30 per day for 25 days 30,000 1,42,500
Add: Direct Expenses
Hire charges for special equipment 9,000
Power and fuel 3,000 12,000
Prime Cost 4,45,500
Add: Works / Factory Overheads (160% of direct 2,28,000
wages)
Works Cost / Factory Cost 6,73,500
Less: Sale of waste cotton and cotton scrap (23,500)
Net Works Cost 6,50,000
Add: Administration overhead related to 45,000
production
Cost of Production 6,95,000
Add: Selling and distribution expenses 37,500
Cost of Sales 7,32,500
Sales (1,500 kgs × ` 600) 9,00,000
Profit 1,67,500

(b) Workings:
1. No. of units at 80% level = 36,000 units.
36,000
No. of units at 100% level = = 45,000 units.
80%

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

2. Contribution per unit = ` 50
Variable cost per unit = Direct Material + Direct wages +Variable cost in
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semi variable component

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. Price (SP)
= (25 + 15 + 10) = ` 50 per unit

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Selling = Variable cost per unit+ Contribution per unit
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ag 3. Calculation of Total fixed cost:
= Fixed cost part of semi-variable cost + Fixed overheads
= (Total Semi-variable cost at 80% level – Variable cost part) + Fixed
Cost (at 80% capacity)
= {` 8,20,000 – (` 10 × 36,000 units)} + ` 5,90,000
= ` 4,60,000 + ` 5,90,000 = ` 10,50,000

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(i) Calculation of Break-even point at 80% Capacity:

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Contribution per unite
Total fixed cost
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=

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=
` 10,50,000
` 50
=a 21,000 units
(ii) Total Sales Value & Cash BEP at 80% Capacity
Total Sales Value = 36,000 units × ` 100 = ` 36,00,000
Now, Cash Fixed Cost = Total Fixed Cost - Depreciation
Or Cash Fixed Cost = `10,50,000 - ` 1,90,000 = ` 8,60,000

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Total cash fixed cost ` 8,60,000

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Cash BEP (units) = =

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Contribution per unit 50
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= 17,200 units
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las (iii) Capacity utilisation & Margin of safety (MOS) sales to earn a
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ag profit of ` 9,37,500
To earn a profit of ` 9,37,500, the company must exceed 80%
capacity, requiring additional fixed costs.

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

So, New Fixed Cost (>80%) = ` 10,50,000 + ` 1,50,000
= ` 12,00,000.
Fixed cost + Target profit
Required Units =
Contribution per unit

` 12,00,000 + ` 9,37,500
=
` 50
= 42,750 units
So, Capacity Utilisation = (42,750 / 45,000) × 100 = 95%
` 12,00,000
New BEP (units) = = 24,000 units.
` 50
So, MOS (units) = 42,750 - 24,000 = 18,750 units
Question 3
(a) Apex Chemicals Ltd. processes a basic chemical raw material in 8
Department I, which yields two joint products, A and B, at the split-off point
in the ratio 60 40. The input-output ratio of Department I is 100: 90.
Product A can either be sold at split-off or further processed in Department
II to produce A-Prime. Department II is used exclusively for Product A, and
its input-output ratio is 100: 80.
Production & Cost Data

Particulars Department I Department II
Raw Material Input 1,20,000 kg @ ` 7 per kg -
Conversion Costs: ` 4,50,000
Other Direct Material ` 4,50,000 ` 1,00,000
Direct Labour ` 4,00,000 ` 1,40,000
Variable Overhead ` 6,00,000 ` 2,60,000
Fixed Overhead ` 5,50,000 ` 40,000
Total Conversion Cost ` 20,00,000 ` 5,40,000

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SUGGESTED ANSWERS COST AND MANAGEMENT ACCOUNTING

Other Data:

Product Selling Price (` per kg) Selling Expense (`)
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A (split – off) 45 30,000
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B
.c 45 26,000
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A - Prime 75 22,000

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a (i) Prepare a joint cost apportionment statement for Products A and B on
the basis of sales value at split-off point.
(ii) Advise whether Product A should be sold at split-off or processed into
A-Prime, showing incremental revenue, incremental cost, and profit.
(8 Marks)
(b) Alpha Limited uses Standard Costing System for manufacturing its single

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product 'STAR'. The following data has been gathered from the cost records

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of the company to compute various fixed overhead variances for a specific

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period:

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Number of budgeted working days 25
Budgeted man-hours peraday 12,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted ` 6,00,000
Actual number of working days 28
Actual man-hours per day 12,500
Actual output per man-hour (in units) 0.9

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Actual fixed overhead incurred ` 6,24,000
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You are required to ascertain the following:

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(i) Fixed Overhead Expenditure Variance
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(ii) Fixed Overhead Volume Variance

a (iii) Fixed Overhead Calendar Variance
(iv) Fixed Overhead Cost Variance
(Indicate the nature of variance Favourable (F) or Adverse (A)) (6 Marks)
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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Answer
(a) Calculation of Total Joint Cost of Department I

Particulars Amount (`)
Raw material (1,20,000 kg × ` 7) 8,40,000.00
Conversion Cost:
Other direct material 4,50,000.00
Direct labour 4,00,000.00
Variable overhead 6,00,000.00
Fixed Overheads 5,50,000.00
Total Cost 28,40,000.00
(i) Joint Cost Apportionment Based on Sales Value at Split-off
Output total (1,20,000 x 90%) 1,08,000 units
Product A (60%) 64,800 units
Product B (40%) 43,200 units
Sales Value at split off point:
Product A (64,800 x ` 45) 29,16,000.00
Product B (43,200 x ` 45) 19,44,000.00
Total Sales value 48,60,000.00
Joint Cost (28,40,000) Apportioned:
Product A (28,40,000 × 29,16,000)/48,60,000 17,04,000.00
Product B (28,40,000 ×19,44,000)/48,60,000 11,36,000.00

(ii) If product A is processed further into A prime

Particulars Amount (`)
Output (64,800 x 80%) 51,840
(A) Incremental Revenue {(` 75 x 51,840) - (` 45 x 64,800)} 9,72,000.00
Increment Cost:
Conversion cost in Department II 5,40,000.00
Less: Savings on Selling Expenses (` 30,000 - ` 22,000) 8,000.00

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(B) Total Incremental Cost 5,32,000.00
(C) Incremental profit (A-B) 4,40,000.00
m
m
Apex Chemicals Ltd. should further process Product A into A-Prime. This
c. o
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decision results in an incremental profit of ` 4,40,000.
s em
e m l a
s
(b)

g a
l Particulars Budget Actual ag
a Days 25 28
Man hours per day 12,000 12,500
Hours 3,00,000 3,50,000
Units per man hour 1 0.9
Units 3,00,000 3,15,000
Fixed Overheads (`) 6,00,000 6,24,000

o m
(i) Fixed Overhead Expenditure Variance
= Budgeted Fixed Overhead - m
. c
s e Actual Fixed Overhead
= (` 6,00,000 – ` 6,24,000)a= ` 24,000 (A)
g l
a
(ii) Fixed Overhead Volume Variance
= Absorbed Overhead – Budgeted Overhead
= (` 2 x 3,15,000) – ` 6,00,000 = ` 30,000 (F)
(iii) Fixed Overhead Calendar Variance
= (Actual Days - Budgeted Days) x Budgeted Rate per day

m
co
= (28 - 25) x ` 24,000 = ` 72,000 (F)
m .
c. o (iv) Fixed Overhead Cost Variance
se
m
s em = Absorbed Overhead - Actual Fixed Overheads
g la
gla = (` 2 x 3,15,000) – ` 6,24,000 = ` 6,000 (F) a
a

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Working Note:
` 6, 00, 000
Standard fixed overhead rate per unit = = ` 2 per unit
3, 00, 000 units

Standard fixed overhead per day = ` 6,00,000 = ` 24,000
25 days

Question 4
(a) ZED Ltd. manufactures two categories of products, Omega and Theta. These
products are sold through two primary distribution channels, Online Portals
and Retail Stores. In the current financial year, Omega performed
exceptionally well online due to a viral trend, while Theta saw a surge in
retail stores. The following information is available for the year 2025-26:

Product Channel Budgeted Actual Sales Selling Price per
Sales unit (For Budgeted
and Actual Sales)
Omega Online 1000 units 1200 units ` 15,000
Retail 800 units 700 units ` 18,000
Theta Online 500 units 450 units `40,000
Retail 400 units 500 units ` 45,000
Market research indicates that Omega series is facing stiff competition
offline, therefore, management has decided to reduce the price by 10% across
both channels. Theta series has gained luxury status, so the management has
decided to increase the price by ` 5,000 per unit for both Online and Retail
sales. Based on these price changes, the Sales Manager has submitted the
following estimates of increase in sales for the year 2026-27 over the original
budgeted sales:

Product Online Channel Retail Channel
Omega + 15% +5%
Theta + 10% +20%

Furthermore, the company has signed a contract for an Influencer Marketing
Campaign. It is estimated that for the year 2026-27 this campaign will
generate the following additional sales:

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Product Online channel Retail Channel
Omega 200 units Nil
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Theta 100 units 50 Units

c. o
You are required to prepare:
s e m
m Budget for 2026-27 after incorporating the above estimates.
(i) eSales
l a
s
l(ii)a Statement showing Budgeted and Actual Sales for 2025-26. (9 Marks)a g
g
a(b) The labour turnover rates for the quarter ended 31 March, 2026 are st

computed as 12%, 6% and 4% under Flux method, Replacement method and
Separation method respectively. The number of workers replaced during that
quarter is 54.
You are required to ascertain -
(i) Average number of workers on roll for the quarter

m
co
(ii) Number of workers recruited and joined

.
em
(iii) Number of workers left and discharged (5 Marks)
Answer
l a s
(a) (i)
a g Sales Budget for 2026-27
Statement Showing
Channel Omega Theta Total
Qty. Rate Amt. (`) Qty. Rate Amt. (`) Amt. (`)
(`) (`)
Online 1,350¹ 13,500 1,82,25,000 650³ 45,000 2,92,50,000 4,74,75,000
Retail 840² 16,200 1,36,08,000 530⁴ 50,000 2,65,00,000 4,01,08,000
Total 2,190 3,18,33,000 1,180 5,57,50,000 8,75,83,000

m
m
Workings
.co
c. o 1. 1,000 × 115% + 200 = 1,350 units
se
m
s em 2. 800 × 105% + Nil = 840 units
g la
gla 3. 500 × 110% + 100 = 650 units a
a 4. 400 × 120% + 50 = 530 units

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

(ii) Statement Showing Budgeted Sales for 2025-26
Channel Omega Theta Total
Qty. Rate (`) Amt. (`) Qty. Rate (`) Amt. (`) Amt. (`)
Online 1,000 15,000 1,50,00,000 500 40,000 2,00,00,000 3,50,00,000
Retail 800 18,000 1,44,00,000 400 45,000 1,80,00,000 3,24,00,000
Total 1,800 2,94,00,000 900 3,80,00,000 6,74,00,000

Statement Showing Actual Sales for 2025-26

Omega Theta Total
Channel
Qty. Rate (`) Amt. (`) Qty. Rate (`) Amt. (`) Amt. (`)
Online 1,200 15,000 1,80,00,000 450 40,000 1,80,00,000 3,60,00,000
Retail 700 18,000 1,26,00,000 500 45,000 2,25,00,000 3,51,00,000
Total 1,900 3,06,00,000 950 4,05,00,000 7,11,00,000

(b) Working Note:
(i) Average number of workers on roll (for the quarter):
Employee Turnover rate using Replacement method
No. of replacements
= ×100
Average number of workers on roll

6 54
Or, =
100 Average number of workers on roll

54×100
Or, Average number of workers on roll = = 900
6
(ii) Number of workers recruited and joined:
Employee turnover rate (Flux method)
No. of Separations * (S)+No. of Accessions(A)
=
Average number of workers on roll

12 36 *+A 10,800 
Or, = Or, A = − 36  = 72
100 900  100 
No. of workers recruited and joined 72.

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(iii) Number of workers left and discharged:
Employee turnover rate (Separation method)
m
4
m
No. of Separations(S)
c. o
co
= × 100
100
.
Average number of workers on roll
em
m4
e100 l a s
s ag
S
a
= Or, S* = 36
l
ag
900
Hence, number of workers left and discharged comes to 36.
Question 5
(a) XYZ Private Limited manufactures two products, Mini and Maxi, utilising the
same production methods. The company operates under the Absorption
Costing System. The details of the products for financial year 2025-26 are
provided below:

om
Particulars Products

. c Mini Maxi
Number of units produced
s em 8000 units 10000 units
Number of units sold
g l a 6400 units 8000 units
Direct Material Cost per a
unit ` 250 `400
Direct Labour Hours per unit 4 Hours 5 Hours
Selling price per unit sold during the year ` 950 ` 1180
Using the traditional method, all the Production overheads were of
` 54,00,000, which were directly distributed on the basis of units produced.
Direct labour hour rate is ` 50 per hour.

m
Further, the Board of Directors is considering transitioning to an Activity -

m
Based Costing (ABC) system to determine the production overheads.
.c o
c. o The total production overheads are analyzed into the following:
s em
s em Particulars Amount (`)
g l a
gla Set -up costs 9,00,000 a
a Machine Running costs 18,00,000
Inspection costs 27,00,000
Total 54,00,000

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

The following data on cost drivers was provided by the production manager
relating to the bifurcation of production overheads:

Particulars Mini Maxi
Number of Setups 100 200
Number of Machine Runs 750 1,050
Number of Inspections 60 210

You are required to calculate:
(i) Total Sales and Total Profit earned for each product as per Absorption
Costing System.
(ii) Total Sales and Total Profit earned for each product as per Activity -
Based Costing System. (10 Marks)
(b) The following information has been furnished by the management
accountant of CMC Limited:

Margin of Safety 5600 units
Break even sales 2400 units
Margin of Safety ` 9,80,000
Total Cost ` 11, 94, 200
You are required to calculate:
(i) Profit
(ii) Profit Volume (P/V) Ratio
(iii) Break even sales value
(iv) Fixed Cost (4 Marks)
Answer
(a) (i) Total sales and total profit for each product under absorption
costing system
Factory overhead rate per unit = ` 54,00,000/18,000 units = ` 300 per
unit

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Particulars Mini Maxi
No. of units produced 8000 units 10000 units

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No. of units sold 6400 units 8000 units
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` `

m .
Direct Material Cost per unit 250 400
s e
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ag
Direct Labour Cost per unit

g l a (4 hours per unit @ ` 50 per hour) 200 250
a (5 hours per unit @ ` 50 per hour)
Factory overheads @ ` 300 per unit* 300 300
Cost per unit 750 950
Total Cost of Production 60,00,000 95,00,000
(Cost per unit x No. of units produced)
Less: Closing stock of finished goods 12,00,000 19,00,000
(Cost per unit x no. of units of closing

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stock)
Cost of Goods sold
. 48,00,000 76,00,000
Profit (Balancing figure)
s em 12,80,000 18,40,000
Total Sales
g l a 60,80,000 94,40,000

a
(Selling price per unit x No. of units sold)

Budgeted overheads
*Overhead rate =
Units Produced
` 54, 00, 000
= = ` 300
18, 000 units
(ii) Activity cost-Driver rates

m
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Activity Activity Cost-driver Cost-driver
m
c. o em
Costs (`) rate

em
Set-up cost 9,00,000 300 set-ups
la s ` 3,000 per

las a g set-up

ag Machine
costs
running 18,00,000 1,800 machine ` 1000 per
runs machine run
Inspection costs 27,00,000 270 ` 10,000 per
inspections inspection

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SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: MAY 2026

Total sales and total profit for each product as per Activity Based
Costing Method

Particulars Mini Maxi
No. of units produced 8,000 units 10,000 units
No. of units sold 6,400 units 8,000 units
` `

Direct Material Cost per unit 250 400
Direct Labour Cost per unit
(4 hours per unit @ ` 50 per hour) 200 250
(5 hours per unit @ ` 50 per hour)
Prime cost per unit 450 650
Total Prime Cost 36,00,000 65,00,000
Activity Costs:
Set-up cost (` 3,000 per set-up) 3,00,000 6,00,000
(3,000 x 100 (3,000 x 200
set-ups) set-ups)
Machine running costs (` 1,000 per 7,50,000 10,50,000
machine run) (1,000 x 750 (1,000 x 1050
machine runs) machine runs)
Inspection costs (` 10,000 per 6,00,000 21,00,000
inspection) (10,000 x 60 (10,000 x 210
inspections) inspections)
Total Overhead Cost 16,50,000 37,50,000
Overhead per unit 206.25 375
Cost per unit 656.25 1,025
Total Cost of Production 52,50,000 1,02,50,000
(Cost per unit x No. of units produced)
Less: Closing stock of finished goods 10,50,000 20,50,000

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(Cost per unit x no. of units of closing
stock)

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Cost of Goods sold 42,00,000 82,00,000

o m m
c
. Sales
Profit (Balancing figure) 18,80,000 12,40,000

m s e
se(Selling price per unit x No. of units
Total 60,80,000 94,40,000
l a
g la sold) ag
a(b) Working Notes:
Total Sales Units = Margin of Safety (Units) + Break-even Sales (Units)
= 5,600 + 2,400 = 8,000 units
Margin of Safety (MoS in Value)
Selling Price per Unit =
Margin of Safety (Units)

m
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= ` 9,80,000 / 5,600 = ` 175 per unit

.
em
Total Sales Value = Total Units × Selling Price = 8,000 × ` 175

la s
= ` 14,00,000
(i) Profit
a g
= Total Sales – Total Cost
= ` 14,00,000 – ` 11,94,200 = ` 2,05,800
(ii) Profit Volume (P/V) Ratio
Profit
= × 100
Margin of Safety (Value)

m
= (` 2,05,800 / ` 9,80,000) × 100 = 21%

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c. o
(iii) Break-even Sales Value
m
em
= Break-even Units × Selling Price

la se
las = 2,400 units × ` 175 = ` 4,20,000
a g
ag Alternatively,
= Total Sales × [100 – Margin of Safety %]
= ` 14,00,000 × 0.30 = ` 4,20,000

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(iv) Fixed Cost
= Break-even Sales Value × P/V Ratio
= ` 4,20,000 × 21% = ` 88,200
Question 6
(a) Which system of inventory management is known as 'Demand Pull' or 'Pull
through' system of production? Explain. Also, specify the two principles on
which this system is based. (5 Marks)
(b) Distinguish between cost control and cost reduction. (5 Marks)
(c) A factory employing 3000 workers faces issues of proxy attendance and
payroll errors under the manual system. The Plant Head has recommended
using an automated method, the Bio-Metric Attendance system. Discuss
briefly the features of this Bio-Metric Attendance System. (4 Marks)
OR
(c) Explain the meaning of spoiled work and defective work. Discuss the
treatment of defective work under the following circumstances:
(i) Where a percentage of defective work is allowed in a particular batch,
as it cannot be avoided.
(ii) Where the defect is due to bad workmanship.
(iii) Where the defect is due to the Inspection Department wrongly accepting
incoming material of poor quality. (4 Marks)
Answer
(a) Just In Time (JIT) Inventory Management is also known as ‘Demand pull’ or
‘Pull through’ system of production. JIT is a system of inventory
management with an approach to have zero inventories in stores.
According to this approach material should only be purchased when it is
actually required for production.
In this system, production process actually starts after the order for the
products is received. Based on the demand, production process starts and

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the requirement for raw materials is sent to the purchase department for
purchase.

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c. o
JIT is based on two principles
m
(i)
c. o
Produce goods only when it is required and
s e m
mproducts should be delivered to customers at the time only when they la
ewant.
s g
(ii) the

l a a
a(b)g Difference between Cost Control and Cost Reduction
Cost Control Cost Reduction

1. Cost control aims at 1. Cost reduction is concerned
maintaining the costs in with reducing costs. It
accordance with the challenges all standards and
established standards. endeavours to improvise them

m continuously

c. o Cost reduction recognises no
em condition as permanent, since
2. Cost control seeks to attain 2.
lowest possible cost under

l a s
g
existing conditions. a change will result in lower

a cost.

3. In case of cost control, 3. In case of cost reduction, it is
emphasis is on past and on present and future.
present

4. Cost control is a preventive 4. Cost reduction is a corrective
function function. It operates even
when an efficient cost control

o m
c
system exists.
m 5. Cost control ends when 5. Cost reduction has no. visible
c. o m
end and is asecontinuous
em la
targets are achieved.

las process.
a g
ag

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(c) Bio-Metric Attendance system-
1. Under bio-metric attendance system attendance is marked by
recognizing an employee on the basis of physical and behavioural
traits.
2. An employee’s unique identity like finger print, face and retina image
etc. are kept in a database which is matched at the time of marking of
attendance before the attendance device for this purpose.
3. Bio-metric attendance system includes fingerprint recognition system,
face recognition system, Time and attendance tracking technology etc.
4. This system reduces the risk of time manipulation and proxy
attendance. However, it may not be suitable for small organisations
due to cost associated with set-up and maintenance.
OR
(c) Spoiled work is the quantity of production that has been totally rejected
and cannot be rectified.
Defective work refers to production that is not as perfect as the saleable
product but is capable of being rectified and brought to the required
degree of perfection provided some additional expenditure is incurred.
Treatment of Defects arise in the following circumstances:

Circumstances Treatment
Where a percentage of If the actual number of defectives is within
defective work is allowed in a the normal limit or is near thereto the cost
particular batch as it cannot be of rectification will be charged to the
avoided. whole job and spread over the entire
output of the batch. If, on the other hand,
the number of defective units
substantially exceeds the normal, the cost
of rectification of the number which
exceeds the normal will be written off as a
loss in the Costing Profit and Loss
Account.

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Where the defect is due to bad In this case cost of rectification will be
workmanship. abnormal cost and shall be written off as

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a loss. However, if the management did

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provide for a certain proportion of

. defectives on account of bad
em
e m workmanship as an unavoidable feature
l a s
l a s of production, the cost of rectifying to the
ag
ag
extent provided for by the management
will be treated as a normal cost and
charged to the batch.
Where defect is due to the In this case the cost of rectification will be
Inspection Department charged to the department and will not
wrongly accepting incoming be considered as cost of manufacture of
material of poor quality. the batch. Being an abnormal cost, it will
be written off to the Costing Profit and

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Loss Account.

.
s em
g l a
a

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c. o se
m
s em g la
gla a
a

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