CA Intermediate September 2024 Suggested Answers Paper 4 Cost and Management Accounting

FOR CA INTERMEDIATE EXAM PREPARATION

CA Intermediate 2024
Suggested Answers ·
Paper 4 Cost and
Management
Accounting
EXAM YEAR TYPE

CA Intermediate 2024 Suggested Answers
SUBJECT DATE

Paper 4 Cost and Management Accounting September 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 4: COST AND MANAGEMENT
ACCOUNTING
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PART - I

l a a
g Limited, an oil refinery uses Process Costing for determining the cost of
Case Scenario I
aSagar
each process. Management of Sagar Limited is confused about method of
valuation of WIP. They have FIFO and Weighted Average Cost methods under
consideration.
Finance manager Mr. Sahil has put forward that Weighted Average Cost method
is suitable when there are significant fluctuations in. price and quantity. In this
method, calculation has to be done at every purchase and it is a complex and

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time-consuming method.

m . input and output material of Sagar
ehence FIFO method would be more suitable
He also stated that price and quantity of

a s
l that in oil refinery industry; FIFO method is
Limited is almost same for whole year;

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a Cost method and switching to FIFO method will
for the company. He also revealed
preferred over Weighted Average
save time and money.
He further stated that by using FIFO method closing WIP is valued at current cost
and provided the following information:
Opening WIP : 12,000 Units, Total cost ` 1,66,200.
Degree of Completion : Material - 100%

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Labour and Overhead - 80%
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c. o Material introduced: (74,500 Units) ` 4,76,465
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Direct Labour ` 3,70,395

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Direct Overhead ` 2,96,316
Units Scrapped : 1,900 units Degree of Completion :
Material 100%

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Labour and Overhead 70%
Closing WIP : 2,600 units Degree of Completion:
Material 100%
Labour and Overhead 60%
Rest of the units were transferred to next process.
Normal Loss is 2% of total input unit including opening work-in-process.
Realizable value of normal loss is ` 2 per unit deducted from cost of material
introduced.
You are required to calculate the following using FIFO method (MCQs 1 to 5) :
1. Equivalent units of Material and Material cost per unit
(A) 86,500 units and ` 5.50 per unit
(B) 74,500 units and ` 6.39 per unit
(C) 72,770 units and ` 6.50 per unit
(D) 72,600 units and ` 6.56 per unit
2. Equivalent units of labour and overheads and total cost per unit
(A) 82,490 units and ` 8.08 per unit
(B) 74,079 units and ` 9.00 per unit
(C) 75,290 units and ` 8.85 per unit
(D) 79,790 units and ` 8.35 per unit
3. Value of abnormal loss to be shown in process account
(A) ` 2,176.00
(B) ` 2,182.00
(C) ` 2,168.35
(D) ` 1,896.52
4. Value of units transferred to next process
(A) ` 11,10,660
(B) ` 12,75,600

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(C) ` 12,51,200
(D) ` 12,72,800
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5.
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Value of closing WIP
c. o
(A)
c. o
` 31,096
s em
(B)em` 31,044 a
s l
l a ag
ag (D) ` 28,340
(C) ` 30,940

Case Scenario-II
FW Limited manufactures various types of footwear and covers a considerable
market share. The footwear made by company are stylish and durable. The
management calls for an urgent meeting because it has come to their notice that
two of their old permanent customers have moved on to its competitors.

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Marketing Manager has stated that there are circumstances when company
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cannot fulfill the demand of their customers due to shortage of supply and this is

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the main reason for move on.

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Production Manager has stated that production team is working efficiently but
a
workers have to wait long enough for raw material which leads to idle time and
low production.
The cost accounts department of FW Limited has furnished the following data for
the component B :
Purchase Price ` 4,800 per unit
Trade Discount 2% of purchase price

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Total duties (No Credit availed) 8% of purchase price
m Insurance Charges .
c. o Units ` 62,000 per year
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em purchased during the year 60,000 units
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Opening Stock 5,000 units @ ` 5,150 per unit

a Closing Stock 4,500 units

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Usages per week Delivery period
Minimum 1,050 units Minimum 5 weeks
Maximum 1,200 units Maximum 9 weeks
Average 1,125 units Average 7 weeks
Lead time for emergency purchases is 2 weeks.
Additional Information :
• Normal wastage during the storage is 80 units (no realizable value) and
abnormal wastage is 40 units.
• Factory works for 365 days in a year.
You are required to calculate the followings (MCQs 6 to 10):
6. Calculate per unit cost of material by using Average Price Method.
(A) ` 5,100
(B) ` 5,119
(C) ` 5,094
(D) ` 5,133
7. Calculate minimum stock level.
(A) 10,800 units
(B) 7,825 units
(C) 5,250 units
(D) 2,925 units
8. What will be danger level of stock ?
(A) 2,400 units
(B) 7,875 units
(C) 2,250 units
(D) 2,240 units
9. Calculate average number of days (round off) for which average inventory
level to be held.

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(A) 27 days
(B) 29 days
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(C)
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26 days
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(D)
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30 days
s e m
e m amount of Abnormal Loss during storage to be transferred to la
l a s
10. Calculate
a g
ag (A) ` 2,04,000
Costing Profit & Loss Account (based on average price)

(B) ` 2,04,760
(C) ` 2,03,760
(D) ` 2,05,320
11. PS Limited is facing downfall in its demand. Marketing team has suggested
to reduce the selling price by 5% to compete in the market. Variable cost is

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76% of the current selling price.
You are required to find out the PN .Ratio after reducing the price by 5%
s em
(A) 20%
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(B) 24% a
(C) 25.26%
(D) 19%
12. In the automotive machine manufacturing sector, a component is
manufactured. The Economic Order Quantity (EOQ) for the component is
1,500 units. The cost of placing an order is ` 100, and the carrying cost per

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annum is 10%. The cost per unit of component is ` 20.

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Calculate the annual demand for this specific automative component.
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(A) 45,500 units
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las (B) 75,000 units
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ag (C) 36,000 units
(D) 22,500 units

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

13. In a mutual project, both Raj and Bhuvan are contributing their efforts,
using identical materials. Raj receives a bonus based on the Rowan plan,
while the Halsey plan determines Bhuvan’s bonus. The standard time
allocated for the project is 150 hours. Raj completes the project in 90 hours,
while Bhuvan finishes it in 120 hours. The normal hourly wage rate for Raj
is ` 30. The total earnings for both workers are equal.
Calculate the normal hourly wage rate to be paid to Bhuvan.
(A) ` 26.50
(B) ` 24.00
(C) ` 22.50
(D) ` 28.00
14. On 01-04-2023 number of workers employed in a factory was 150. During
the year 30 workers resigned and 5 workers were discharged. Due to
resignation and discharge, 15 workers were replaced. For the year 2023-24,
labour turnover rate by separation method will be :
(A) 21.43%
(B) 18%
(C) 25%
(D) 30%
15. A Chemical is passed through three processes and the output of Process 1
Account is transferred to Process 2 Account. The input units in Process 1 are
58,500 units and the output units are 55,200 units, normal loss is 2% and
rest is abnormal loss.
You are required to calculate the per unit cost of output units in Process 1
Account, if the total expenses incurred in Process 1 are, 6,87,960.
(A) ` 11.76
(B) ` 12.00
(C) ` 12.20
(D) ` 12.46

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Answer Key
Question No. Answer
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1.
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(C)
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2.
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3. (A)

4. l a
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(D)
(C)
6. (A)
7. (D)
8. (C)
9. (B)

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10. (A)
11. (A)
. co
12. (D)
s em
13. (D)
g l a
14. (C) a
15. (B)

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PAPER – 4: COST AND MANAGEMENT
ACCOUNTING

Part II
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) Language Achievers, a renowned institute specializing in TOEFL
preparation, has secured a spacious hall for 20,000 on weekly basis with a
seating capacity of 250 students. The instructor, highly qualified and
experienced, is compensated generously with an honorarium of 1,500 per
lecture. Additionally, he receives reimbursement for travel expenses of ` 200
per day along with refreshments costing 1,500 per week to ensure his comfort
and focus during teaching sessions. Administrative and miscellaneous
expenses, covering essential utilities and materials are, 500 per week.
Language Achievers has meticulously planned its curriculum, scheduling
batches of 2 lectures per day, 5 days a week for 30 weeks, ensuring
comprehensive coverage of the TOEFL syllabus.
Required:
(i) Calculate the total cost per batch.
(ii) Determine the minimum fee per student in a batch to cover costs, if the
batch is fully occupied.
(iii) Calculate the fee to be charged from. each student if batch is 80% filled
and institute aims to achieve a profit margin of 25% on the fee.
(5 Marks)

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(b) XYZ Ltd. declared a net profit of ` 2,25,000 based on their financial accounts
for the year ending 31st March, 2024. The profit disclosed in cost books are
not matched with financial accounts. The following information were
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revealed during the scrutiny of the figures of both the sets of books:
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Sr. Particulars
a
`

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No.
e Preliminary expenses written off in financial accounts l
g l a1. 35,000 ag
a 2. Factory Overheads Over charged in cost accounts 20,000
3. Expenses on issue of shares in financial accounts 30,000
4. Undervaluation of closing stock in cost accounts 65,000
5. Interest on Bank Deposits in financial accounts 60,000
6. Under recovery of administration overheads in cost 25,000
accounts

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7. Notional Rent of own premises charged in cost 30,000
accounts
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8.
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Under recovery of selling overheads in cost accounts 35,000
9.
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Bad debts recovered in financial accounts 50,000

Required: a
Prepare Reconciliation Statement to arrive at net profit/loss as per Cost
Accounts. (5 Marks)
(c) JC Ltd. has a production capacity of 80,000 units per year. Presently a
company produces 60,000 units. Its cost structure is as under:
Material Cost ` 6 per unit

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Labour Cost ` 4 per unit
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c. o Variable overheads ` 2 per unit
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Total fixed cost ` 3,00,000 per annum. Present selling price s` 20 per unit in
s em g laa Japanese client
gla a additional shipping
the month of January, 2024 company received an offer from

a to supply 20,000 units at a price of ` 14 per unit with the
cost of ` 8,000.

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Required:
(i) On the basis of changes in the profit, advice to the company, whether
the offer should be accepted or not?
(ii) Will your advice be different, if the customer is local one?
(iii) If Japanese client offer for supply of 30,000 units to a price of ` 14 (part
supply of order not accepted) and shipping cost treated as variable cost,
analyze the impact on the profit of JC Ltd., if order accepted.
(4 Marks)
Answer
(a) (i) Calculation of Total cost per batch

Particulars Amount (`)
Hall Charges (` 20,000 x 30) 6,00,000
Honorarium of instructor (` 1,500 x 2 x 5 x 30) 4,50,000
Reimbursement of travel expenses (` 200 x 5 x 30) 30,000
Refreshment (` 1,500 x 30) 45,000
Administrative and miscellaneous expenses 15,000
(` 500 x 30)
Total Cost 11,40,000
No. of Batches 1
Total cost per batch 11,40,000

(ii) Minimum fee per student in a batch to cover costs
Total cost per batch
=
Students per batch
11,40,000
= = ` 4,560
250

(iii) Number of Students if batch is 80% filled
= 250 students x 80% = 200 students
Total Fee to be recovered to achieve 25% profit margin on the fee

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

= ` 11,40,000 + (` 11,40,000 x 1/4th of sales or 1/3rd of the cost)
= ` 15,20,000

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Fee per student

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. per batch
Total Fee per batch
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mStudents
=

s e 15,20,000 l a
g a
l = 200 = ` 7,600 ag
a(b) Reconciliation Statement

(`) (`)
Profit (loss) as per Financial Accounts 2,25,000
Add:
Preliminary expenses written off 35,000

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Expenses on issue of shares in financial accounts 30,000

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Under recovery of administration overheads 25,000

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Under recovery of sellingasoverheads in cost
cost accounts

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35,000
accounts
1,25,000
Less:
Factory Overheads Over charged in cost accounts 20,000
Undervaluation of closing stock in cost accounts 65,000
Interest on Bank Deposits 60,000

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Notional Rent of own premises charged in cost 30,000

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accounts
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c. o Bad debts recovered in financial accounts 50,000
s
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e (2,25,000)
s em g la 1,25,000
gla Net Profit as per Cost Accounts
a
a

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(c) (i) Statement Showing “Cost and Profit under Both Situation”

Particulars Existing After Offer
Production (80,000 units)
(60,000 units)
(`) (`)
Sales
Existing (60,000 x ` 20) 12,00,000 12,00,000
Offer (20,000 x ` 14) - 2,80,000
Total Sales 12,00,000 14,80,000
Less: Direct Materials @ ` 6 3,60,000 4,80,000
Direct Labour @ ` 4 2,40,000 3,20,000
Variable Overheads @ ` 2 1,20,000 1,60,000
Contribution 4,80,000 5,20,000
Less: Additional Shipping cost - 8,000
Less: Fixed Cost 3,00,000 3,00,000
Profit 1,80,000 2,12,000

Since the Profit has increased by ` 32,000, the proposal of the Japanese
client should be accepted
(ii) Yes, the advice will be different, if the customer is local one since the
company is currently selling at ` 20 in local market and therefore,
selling at discounted price of ` 14 may impact its local market.
(iii) Statement Showing “Cost and Profit”

Particulars After Offer
(80,000 units)
(`)
Sales
Existing (50,000 x ` 20) 10,00,000
Offer (30,000 x ` 14) 4,20,000
Total Sales 14,20,000

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Less: Direct Materials @ ` 6 4,80,000
Direct Labour @ ` 4 3,20,000
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c. o
Variable Overheads @ ` 2 1,60,000
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c. oAdditional Shipping cost 12,000

s em
m (` 8,000/20,000 units) x 30,000 units
e Contribution l a
a s
l Less: Fixed Cost
4,48,000
ag
ag 3,00,000
Profit 1,48,000

If offer of Japanese client to supply 30,000 units at a price of ` 14 is
accepted, the Profit will decrease by `32,000 from the current level.
Question 2
(a) MNP Limited have the capacity to produce 84,000 units of a product very

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month. Its prime cost per unit at various levels of production is as follows:

Level
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Prime Cost per unit (`)
50 em
10%
l a s
20%
30% a g 48
46
40% 44
50% 42
60% 40
70% 38
80% 36

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90% 34
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c. o m
100% 32

s e and direct
s em Its prime cost consists of raw material consumed, direct wages
g a the company
l2024,
la a amounting to
expenses in the ratio of 3 : 2 : 1. In the month of January

ag worked at 40% capacity and raw material purchased
` 8,40,000. In the month of February 2024, the company worked at 100%
capacity and raw material purchased for ` 16,46,400.

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

It is the policy of the company to maintain opening stock of raw material
equal to 1/3 of closing stock of raw material. Factory overheads are recovered
at 60% of direct wages cost. Fixed administration expenses (as part of
production cost) and fixed selling and distribution expenses are ` 2,01,600
and ` 1,68,000 per month respectively. During the month of January 2024
company sold 33,600 units @ ` 68.8 per unit. The variable distribution cost
amounts to ` 1.5 per unit sold.
The management of the company chalks out a pl for the month of February
2024 to sell its whole output @ ` 61 per unit by incurring following further
expenditure :
(i) Company sponsors a television programme on every Sunday at a cost of
` 26,250 per week. There are 4 Sundays in February 2024.
(ii) Hi-tea programme every month for its potential customers at a cost of `
1,05,000.
(iii) Special gift item costing ` 105 on sale of a dozen units.
(iv) Lucky draws scheme is introduced every month by giving the first prize
of ` 1,00,000; second prize of ` 80,000; third prize of ` 40,000 and four
consolation prizes of ` 8,000 each.
Note: (In the month of February 2024, there is a significant saving in material
cost per unit due to entry of new suppliers in the market and saving in per
unit cost of Direct wages and Direct expenses due to introduction of new·
policy by the management.)
Prepare a cost sheet for the month of January 2024 and February 2024
showing prime cost (with different elements of prime cost), factory cost, cost
of production, total cost and profit earned. (8 Marks)
(b) In a factory there are 50 workers, working 8 hours per day including 30
minutes for lunch break, worked for 160 days during a period of six months
ended on 31st December, 2023. During this period total employee's cost was
recorded ` 3,90,000. The management of the factory decided the overtime
premium rates for the month of January 2024 as under :
Sundays and holidays 180% of basic wages rate
Before and after normal working hours 160% of basic wages rate

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

During the last six months (ended on 31st December, 2023), the following
hours were worked:

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Normal time 56,250

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Before.and after normal working hours
Sundays and holidays 750

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emhours· l a
3,000

a s
lDuring
Total 60,000
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a following manner.
the month of January 2024, the factory worked on a job BX in the

Normal working 2,400 men hours
Overtime on Sundays and holidays 200 men hours
Overtime before and after normal working 400 men hours
Total hours 3,000

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You are required to calculate the labour cost chargeable to job BX and

em in whole year as a policy on account
overheads in each of the following situations:

of shortage of workers. la
s
(i) Where overtime is worked regularly

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(ii) Where overtime is aworked irregularly to meet the requirement of
production.
(iii) Where overtime is worked at the request of the customer to complete the
job in time.
(iv) Where overtime is worked on account of flood in the area. (6 Marks)
Answer

o m
c
(a) Cost Sheet
m . 2024
c. o Particulars
em
January 2024 February
33,600 Units s84,000 Units
s em g la 1,51,200
gla Opening Stock of Raw Material
a
50,400

a Add: Purchases 8,40,000 16,46,400
Less: Closing stock of Raw Material (1,51,200) (4,53,600)
Direct materials consumed: 7,39,200 13,44,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Direct Wages 4,92,800 8,96,000
Direct expenses 2,46,400 4,48,000
Prime Cost 14,78,400 26,88,000
Factory overheads (60% of direct
2,95,680 5,37,600
wages)
Factory / Works Cost 17,74,080 32,25,600
Add: Administration overhead
2,01,600 2,01,600
(Production)
Cost of Production / Cost of goods
19,75,680 34,27,200
sold
Add: Fixed selling and distribution
1,68,000 1,68,000
Overhead
Variable distribution overheads
50,400 1,26,000
(` 1.5 per unit)
- Sponsorship cost - 1,05,000
- Hi tea programme - 1,05,000
- Special gifts (84,000 x 1/12 x 105) - 7,35,000
- Lucky draw prize * - 2,52,000
Cost of sales / Total Cost 21,94,080 49,18,200
Profit (Balancing figure) 1,17,600 2,05,800
Sales revenue 23,11,680 51,24,000

*Lucky draw prize:

Amount (`)
1st Prize 1,00,000
2 nd
Prize 80,000
3 Prize
rd
40,000
Consolation Prizes (4 × ` 8,000) 32,000
Total 2,52,000

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Working note :
Calculation of opening and costing stock of Raw Material
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January
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.co
Units Manufactured = 84,000 x 40% = 33,600 units
s em
e m l a
l a s
Prime Cost = 33,600 x 44 = ` 14,78,400
ag
ag Raw Material purchase (given) = ` 8,40,000
Raw Material consumed = ` 14,78,400 X 3/6 = ` 7,39,200

Let closing stock of Raw Material be x

Opening stock of Raw Material be 1/3x
Opening Stock + Purchase – closing stock = Raw Material consumed
1/3x + ` 8,40,000 – x = ` 7,39,200
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1/3x – x
c. o
= ` 7,39,200 – ` 8,40,000
2/3x
s em
= ` 1,00,800
x
Opening stock
g=l`a1,51,200 (closing stock)
a = ` 1,51,200 x 1/3 = ` 50,400
February

Prime Cost = 84,000 x 32 = ` 26,88,000
Raw Material consumed = ` 26,88,000 x 3/6 = ` 13,44,000

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Raw Material purchased (given) = ` 16,46,400

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c. o em
Opening Stock + Purchase – closing stock = Raw Material consumed

em
` 1,51,200 + ` 16,46,400 – closing stock = ` 13,44,000
la s
las a g
g
Closing stock = ` 4,53,600

a

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) Workings
Calculation of Basic Wage Rate
Effective Working Hours for six months ended 31st December, 2023
= 50 workers x (8-0.5) hours per day x 160 days = 60,000 hours
` 3,90,000
Basic Wage Rate =
60,000
= ` 6.50 per hour
Basic wage rate : ` 6.50 per hour
Overtime wage rate for Sundays and holidays : ` 6.50 × 180%
= ` 11.70 per hour
Overtime wage rate before and after working hours : ` 6.50 × 160%
= ` 10.40 per hour
Computation of average inflated wage rate (including overtime
premium):
Particulars (`)
Annual wages for the normal time (56,250 hrs × ` 6.50) 3,65,625
Wages for overtime on Sundays and holidays 8,775
(750 hrs × ` 11.70)
Wages for overtime before and after working hours 31,200
(3,000 hrs × ` 10.40)
Total wages for 60,000 hrs 4,05,600
` 4,05,600
Average inflated wage rate = = ` 6.76 per hour
60,000 hours

(a) Where overtime is worked regularly as a policy due to shortage of
workers:
The overtime premium is treated as a part of employee cost and job is
charged at an inflated wage rate. Hence, employee cost chargeable to
job BX
= Total hours × Inflated wage rate = 3,000 hrs. × ` 6.76 = ` 20,280
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(b) Where overtime is worked irregularly to meet the requirements of
production:

m
c. o
Basic wage rate is charged to the job and overtime premium is charged

o m m
c
to factory overheads as under:
. s e
e=m` 19,500 l a
Employee cost chargeable to Job BX: 3,000 hours @ ` 6.50 per hour
s
la Factory overhead: {200 hrs. × ` (11.70 – 6.50)} + {400hrs × ` (10.40 –a g
g
a 6.50)} = {` 1,040 + ` 1,560} = ` 2,600
(c) Where overtime is worked at the request of the customer to
complete the job in time.
Basic wage rate is charged to the job and overtime premium is charged
to job as under:

m
c. o
Employee cost chargeable to Job BX: 3,000 hours @ ` 6.50 per hour
= ` 19,500

s em× ` (11.70 – 6.50)} + {400hrs × ` (10.40 –
la = ` 2,600
Overtime premium: {200 hrs

g
6.50)} = {` 1,040 + ` 1,560}
Total = ` 19,500 + `a2,600 = ` 22,100
(d) Where overtime is worked on account of flood in the area
Basic wage rate is charged to the job and overtime premium is charged
to costing P & L Account as under:
Employee cost chargeable to Job BX: 3,000 hours @ ` 6.50 per hour

m
= ` 19,500

m .co
c. o
Costing P&L A/c : {200 hrs × ` (11.70 – 6.50)} + {400hrs × ` (10.40 –
m
se
6.50)} = {` 1,040 + ` 1,560} = ` 2,600

s em Total = ` 19,500 + ` 2,600 = ` 22,100
g la
gla a
a

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Question 3
(a) GST Limited is a multi-product company. The production and cost details of
its two products P and Q are given as follows:

Particulars Product
P Q
Quantity produced (No.) 9,000 7,200
Direct material cost (`) 72,000 50,000
Direct labour hours 800 600
Purchase requisition (No.) 180 144
Production runs (No.) 144 108
Quality inspections (No.) 27 18
Direct wages rate is ` 14.50 per hour. Presently the company uses a single
overhead recovery rate based on direct labour hours. Overhead incurred by
the company during the year 2023-24 are as follows:

Technical staff salary ` 45,000
Machine operation expenses ` 1,62,000
Machine maintenance expenses ` 27,000
Wages and salary of stores staff ` 36,000
During this period direct labour hours worked 72,000.
Now the Company wants to adopt Activity Based Costing. For this purpose,
following activities are identified:
- Quality control
- Setup of machine for production runs
- Store receiving
It is also decided that salary of technical staff should be distributed among
machine maintenance, setup and quality control in the ratio of 1 : 2 : 2.
Machine maintenance expenses and machine operation expenses should be
distributed in the ratio of 2 : 3 in between stores and production setup
activities.

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During this period cost drivers for these activities are identified as under:
- Requisition raised 5,760
m
-
m
Production setup 7,200
c. o
-
c. o
No. of quality test 720
s e m
s emrequired to compute:
You are
g l a
g l(i)a The cost of products P and Q based on traditional absorption costinga
a system.
(ii) The cost of products P and Q based on ABC Costing system. (8 Marks)
(b) Savi Limited is currently working at 80% of its capacity level and furnished
the following information for current period:
Production / Sales 96,000 units
Direct Variable Cost ` 20 per unit
`m
Factory Overheads
. o
c` 20,60,000
8,40,000

em 2% of Sales Value
Administrative Overheads (Fixed)
Sales Commission
l a s
Transportation Expensesa g ` 4,000 per truck
(Loading Capacity 4,000 units)
The selling price of the product is ` 120 per unit and Factory Overheads are
80% variable in nature.
The management of Savi Limited has come.to know that there will be high
fluctuations in the demand of the product in upcoming year and it would not

m
be an easy task to predict the demand. Selling price per unit will not be

m
affected by demand fluctuations.
c o
. at 60%,
c. o em
Savi Limited has decided to prepare a flexible budget for. the product
s
em latotal cost of the
80% and 100% capacity level.

las a
You are required to prepare the Flexible Budget showing g
ag product at each level. (6 Marks)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Answer
(a) (i) Statement Showing “Total Cost - Traditional Method”

Particulars of Costs P Q
(`) (`)
Direct Materials 72,000 50,000
Direct Labour [(800,600 hours) × ` 14.5] 11,600 8,700
Production Overheads [(800,600 hours) × ` 3.75] 3,000 2,250
(WN1)
Total Cost 86,600 60,950
Cost per unit (9,000, 7,200) 9.62 8.47

WN1: Calculation of Production Overhead:

(`)
Technical staff salary 45,000
Machine operation expenses 1,62,000
Machine maintenance expenses 27,000
Wages and salary of stores staff 36,000
Total Production Overhead 2,70,000
Total direct labour hours worked 72,000 hours
Production Overhead rate per hour 3.75

(ii) Statement Showing “Total Cost - Activity Based Costing”

Products P Q
Production (units) 9,000 7,200
(`) (`)
Direct Materials 72,000 50,000
Direct Labour [(800,600 hours) × ` 14.5] 11,600 8,700
Requisition Related Costs @ ` 20 per requisition 3,600 2,880
raised
(180,144) (WN2)

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Production Setup Costs @ ` 19 per production 2,736 2,052
runs

m
c. o
(144,108) (WN2)

m
co m
Quality Inspection Costs @ ` 25 per quality test 675 450

m .
(27,18) (WN2)
s e
s e Total Costs l a
la Cost per unit (9,000, 7,200) ag
90,611 64,082

ag
10.07 8.90

WN2: Statement Showing Distribution of Expenses

Machine Total Production Quality
maintenance Stores Setup Control
expenses

Technical staff salary of
9,000 - 18,000 18,000
` 45,000 (1:2:2)
m
Machine operation
c. o - 64,800
em
expenses of ` 1,62,000 97,200 -
(2:3)
l a s
Machine maintenance
expenses of ` 36,000 a g (9,000) 14,400 21,600 -
(2:3)
Wages and salary of
- 36,000 - -
stores staff
Total - 1,15,200 1,36,800 18,000

WN3: Cost for each activity cost driver:

o m
c
Activity Total Cost allocation Cost driver rate

m .
c. o
cost (`) base
m
e requisition
s
(1) (2) (3) (4) = [(2) ÷ (3)]

s em Stores Receiving
g la
1,15,200 5,760 Requisitions ` 20 per

la a
Raised raised

ag Production Setup 1,36,800 7,200 Production ` 19 per production
Setup setup
Quality Control 18,000 720 Quality Test ` 25 per quality test

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) Flexible Budget of Savi Ltd
60% 80% 100%
(72,000 units) (96,000 units) (1,20,000 units)
(`) (`) (`)
Sales (A) 120.00 120.00 120.00
Variable Costs:
- Direct Variable Cost 20.00 20.00 20.00
- Variable Factory 7.00 7.00 7.00
Overheads (WN1)
- Sales Commission (2%) 2.40 2.40 2.40
- Transportation Expenses 1.00 1.00 1.00
Total Variable Cost (B) 30.40 30.40 30.40
Contribution Per Unit (C) = 89.60 89.60 89.60
(A – B)
Total Contribution (D) 64,51,200.00 86,01,600.00 1,07,52,000.00
Fixed Costs:
- Administrative 20,60,000.00 20,60,000.00 20,60,000.00
Overheads (100%)
- Factory Overheads 1,68,000.00 1,68,000.00 1,68,000.00
(20%)
Total Fixed Costs (E) 22,28,000.00 22,28,000.00 22,28,000.00
Profit (D-E) 42,23,200.00 63,73,600.00 85,24,000.00
Total Cost 44,16,800.00 51,46,400.00 58,76,000.00

WN1:
Variable factory Overheads = ` 8,40,000 x 80% = ` 6,72,000
Variable factory Overheads per unit = ` 6,72,000/96,000 units =`7
Question 4
(a) BG company produces a standard product and sold in a packet of 10 kg. The
standard cost card per pack is as follows:
Direct Material:
A - 4 kg @ ` 50 per kg

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B - 8 kg @ ` 40 per kg
Direct Labour:
m
m
6 hours @ ` 20 per hour
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.co
The company manufactured and sold 1,600 packets during the month. Actual
s em
e m
data for material and labour recorded as under.
l a
a s
l A - 7,000 kg @ ` 40
Direct Material:
ag
ag
B - 12,500 kg @ ` 45
Labour hours paid for two different categories of workers:
Skilled 6,000 hours @ ` 25
Semi-skilled 4,000 hours @ ` 20
5% of the time paid was lost due to an abnormal reason.
m
. co
Calculate the following variances indicating their nature (Favourable or

em
Adverse):
(i) Material cost variances
l a s
ag
(ii) Material price variances
(iii) Material usage variances
(iv) Material mix variances
(v) Material yield variances
(vi) Labour cost variances
(vii) Labour rate variances

o m
m (ix) Labour Idle time variances
(viii)Labour efficiency variances
.c
c. o s
m
ethe following
(9 Marks)

em l a for Toll Roads:
las (b) Explain Build-Operate-Transfer (BOT) approach and
a g
classify

g
expenses in Capital Cost or Operating and Maintenance Cost

a (i) Land acquisition
(ii) Interest expenses incurred for servicing term loans
(iii) Material and Labour
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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(iv) Toll Collection Expenses
(v) Contingency Allowance
(vi) Periodic painting cost of railings etc. (2 + 3 = 5 Marks)
Answer
(a)
Budget Actual
Qty. (Kg.) Price Amount Qty. (Kg.) Price Amount
[SQ] (`) (`) [AQ] (`) (`)
[SP] [SQ x SP] [AP] [AQ x AP]
A 6,400 50 3,20,000 7,000 40 2,80,000
B 12,800 40 5,12,000 12,500 45 5,62,500
19,200 8,32,000 19,500 8,42,500

Material Cost Variance = (SQ X SP – AQ X AP)
= ` 8,32,000 – ` 8,42,500 = ` 10,500 (A)
Material Price Variance = (SP – AP) x AQ
A (` 50 – ` 40) × 7,000 Kg = ` 70,000 (F)
B (` 40 – ` 45) × 12,500 Kg = ` 62,500 (A)
` 7,500 (F)
Material Usage Variance = SP x (SQ – AQ)
A ` 50 × (6,400 Kg – 7000 Kg) = ` 30,000 (A)
B ` 40 × (12,800 Kg – 12,500 Kg) = ` 12,000 (F)
` 18,000 (A)
Material Mix Variance = (RSQ - AQ) X SP
A = (6,500 Kg – 7,000 Kg) x ` 50 = ` 25,000 (A)
B = (13,000 Kg – 12,500 Kg) x ` 40 = ` 20,000 (F)
` 5,000 (A)

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Material Yield Variance = (SQ – RSQ) X SP
A = (6,400 Kg – 6,500 Kg) x ` 50 = ` 5,000 (A)
m
m
B = (12,800 Kg – 13,000 Kg) x ` 40 = ` 8,000 (A)
c. o
c. o ` 13,000 (A)
s e m
s em
Labour
g l a
g a Hours for actual Production = 6 Hours X 1,600 Units = 9,600 Hours a
lStandard
a Labour Cost Variance = (SH X SR – AH X AR)
= 9,600 hrs x ` 20 – {(6,000 hrs x ` 25) + (4,000 hrs x ` 20)}
= ` 1,92,000 – ` 2,30,000 = ` 38,000 (A)
Labour Rate Variance = (SR – AR) X AH
= (` 20 -` 25) x 6,000 hrs = ` 30,000 (A)
Efficiency Variance
m
= (SH – AH worked) x SR

c. o
= (9,600 hrs – 9,500 hrs) x ` 20 = ` 2,000 (F)

s emX SR
= (AH l–aAH ) × SR
Idle time Variance = Idle Hours

a g #

= (10,000 hours – 9,500 hours) x ` 20 = ` 10,000 (A)
AH# refers to Actual Hours Worked
(b) Build-Operate-Transfer (BOT) Approach: BOT is an option for the
Government to outsource public projects to the private sector.
With BOT, the private sector designs, finances, constructs and operates the
facility and eventually, after specified concession period, the ownership is
m
co
transferred to the Government. Therefore, BOT can be seen as a developing
m .
c. o m
technique for infrastructure projects by making them amenable to private

se
sector participation.

s em g la
la Capital Cost a
Expenses Classification

ag Land acquisition
Interest expenses incurred for Operating and Maintenance Cost
servicing term loans

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Material and Labour Capital Cost
Toll Collection Expenses Operating and Maintenance Cost
Contingency Allowance Capital Cost
Periodic painting cost of railings Operating and Maintenance Cost
etc.

Question 5
(a) This data pertains to the three machines operating in the manufacturing
division of PQR Corp for the financial year 2023-2024:

Particulars Estimated Expenses
TOTAL Machines
(` ) X (` ) Y (` ) Z (` )
Direct Labour Expenses (per 2,50,000
quarter)
Oil Expenses (per quarter) 1,03,125 37,500 37,500 28,125
Machine Insurance 60,000
Expenses (per quarter)
Depreciation (per annum) 6,00,000 1,00,000 2,00,000 3,00,000
Building Maintenance 1,00,000
Expenses (per quarter)
Wages of Operator 2,25,000
(per quarter)
Electricity Expenses 3,00,000
(per quarter)
Rent and Rates (per month) 80,000
Salary of Technician 62,500
(per month)

(The Technician works only on machines X and Y and the Operator controls
all three machines and both spend equal time on each of the machines
worked upon by them.)

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There are 14 holidays besides Sundays in the year, of which six are on
Saturdays. There was a Strike of workers for 5 working days (including one
Saturday). The manufacturing department operates for 8 hours per day on
m
m
regular week days, while on Saturdays, the operating hours are reduced by 2
c. o
.co
hours per day. All machines operate at 80% capacity throughout the year.
s em
e m
Assume 366 days in a year.
l a
a s
l(i) A 20% hike in the price of oil.
The following additional information is also available:
ag
ag
(ii) A 10% rise in Oil consumption for machines 'X' and 'Y' only.
(iii)

Particulars Machines
X Y Z
No. of Workers 5 3 2
Ratio of K.W. Rating
m
o 1
3 3 4
Ratio of Floor space utilized
. c 2 1

s em
a
Required:

g l
a
Prepare a Statement detailing the allocation of expenses to each machine on
an annual basis and thereafter, compute the comprehensive machine hour
rate for each of the specified machine. (7 Marks)
(b) ABC Ltd. is a well-known company for producing baby care products.
The company produces and sells two variants of organic shampoo for
children: "Baby Rose" and "Baby Lily". The sales and cost data for both
products are provided below:

m
c. o3,000
Particulars Baby Rose Baby Lily

m
c. o 7,500 em 6,000
Current demand and Sales (Number of bottles) 4,000

em
Production Capacity (Number of bottles)
l a s
las Selling Price per bottle (`)
a g 600 750

ag Variable Costs per bottle:
- Direct Materials (` 20 Per litre) 160 200
- Other Variable Costs 270 350

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

The fixed costs amount to ` 5,00,000 and ` 4,50,000 for Baby Rose and Baby
Lily respectively. The Production Manager has informed that 1,00,000 litres
of material is available for production. A dealer has approached the company
and proposed to purchase both products at the existing selling prices, which
are to be produced by utilizing the remaining unused material. However, he
has insisted that all the bottles must be packed with eco-friendly packaging,
which will result in an additional cost of ` 10 per bottle for the company.
Presently, the company is not using eco-friendly material for packing of
bottles.
Required:
Prepare a detailed statement showing the overall contribution and profit of
the company after acceptance of the dealer's proposal. (7 Marks)
Answer
(a) Computation of Comprehensive Machine Hour Rate
Particulars Basis of Total (`) Machines
Apportion X (`) Y (`) Z (`)
ment
Standing Charges (Per
Annum)
Direct Labour Expenses No. of 10,00,000 5,00,000 3,00,000 2,00,000
Workers
(5:3:2)
Wages of Operator Equal 9,00,000 3,00,000 3,00,000 3,00,000
Machine Insurance Depreciation 2,40,000 40,000 80,000 1,20,000
Expenses (1:2:3)
Building Maintenance Floor Space 4,00,000 1,00,000 2,00,000 1,00,000
Expenses (1:2:1)
Rent and Rates Floor Space 9,60,000 2,40,000 4,80,000 2,40,000
(1:2:1)
Salary of Technician (1:1:0) 7,50,000 3,75,000 3,75,000 -
Total Standing Charges 42,50,000 15,55,000 17,35,000 9,60,000
Hourly Rate (A) 856.28 955.40 528.63
Machine Expenses (Per
Annum)

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Oil Expenses Direct 5,31,000 1,98,000 1,98,000 1,35,000
(W.N.1)

m
c. o
Depreciation Direct 6,00,000 1,00,000 2,00,000 3,00,000

o m
Electricity Expenses K. W. Rating 12,00,000 3,60,000 3,60,000 4,80,000
m
Total m
c
. Machine (3:3:4)
s e
s e 23,31,000 6,58,000 7,58,000 9,15,000
l a
a
l Hourly Rate (B) ag
Expenses

g
a Total Expenses 362.33 417.40 503.85
65,81,000 22,13,000 24,93,000 18,75,000
(A) + (B) 1,218.61 1,372.80 1,032.49

Calculation of Effective Working Hours.

Per Machine
Per Annum

m
Full Day Working Hours (250 days x 8 hours) 2,000

c. o x 6 hours)
6 hours per day Working Hours (45 days 270

e m
s
Total Hours 2,270
Capacity Utilization
g l a 80%
a
Effective working hours 1,816

No. of Shutdown Days
Sundays 52
Holidays 14
Strike Period 5

m
71

m .co
c. o
No. of 6 Hours Working Days
m
em
Saturdays 52

la se
las Less: Holidays (6)
a g
ag Less: Strike Period (1)
45

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

No. of Full Working Days
Total No of Days in a year 366
Less: No of Shutdown Days (71)
Less: No. of 6 Hours Working Days (45)
250
Working notes
1. Calculation of Oil Expenses.

Particulars Machines
X (`) Y (`) Z (`)
Oil Expenses 1,50,000 1,50,000 1,12,500
Add: Increase in Price @20% 30,000 30,000 22,500
1,80,000 1,80,000 1,35,000
Add: Increase in Consumption 18,000 18,000 -
@10%
Total 1,98,000 1,98,000 1,35,000

(b) Statement showing the Overall contribution and profit of the company

Particulars Baby Rose Baby Lily Total
(`) (`) (`)
Selling price per bottle 600 750 -
Less: Direct Materials 160 200 -
Other variable 270 350 -
costs
Additional 10 10
packaging
Contribution per 160 190 -
bottle
Material required per 8 litres 10
bottle
Contribution per litre 20 19
of material

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Ranking on the basis of I II
Contribution per litre

m
of material

m Baby Rose Baby Lily
c. o
.co (4,000 + 3,500 (3,000 +1,000

s em
m
e price per bottle
bottles) bottles)
l a
a s
l Sales Value
Selling 600 750 -
ag
g
a Variable Cost
45,00,000 30,00,000

Direct Materials 7,500 units x ` 160 4,000 units x ` 200
= 12,00,000 = 8,00,000
Other Variable Costs 7,500 units x ` 270 4,000 units x ` 350
= 20,25,000 = 14,00,000
Eco-friendly pack cost 3,500 units x ` 10 1,000 units x ` 10

m
= 35,000 = 10,000
Total Variable Costs
. c o
32,60,000 22,10,000
Contribution
e m
4,000 units x 170
3,500sunits x 160
3,000 units x 200

a
l = 12,40,000
1,000 units x 190

ag 5,00,000
= 7,90,000 20,30,000
Less: Fixed Cost 4,50,000 9,50,000
Profit 7,40,000 3,40,000 10,80,000

WN1

Baby Rose Baby Lily
Raw Material used per unit of bottle (a) 8 litres 10 litres

m
(` 160/` 20) (` 200/` 20)

m Current Demand and Sales (b)
c o
. litres
4,000 bottles 3,000 bottles

c. o Total Raw Material used (c = a x b) 32,000 litres
s em
30,000

s em g la
la
WN2

g a litres – 62,000 litres
a
Raw Material available after current sales = 1,00,000
= 38,000 litres
Since the contribution per unit of Baby Rose is higher than Baby Lily, the
company will produce and sale Baby Rose shampoo to the dealer.

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Number of units that can be produced in 38,000 litres = 38,000 litres/8 litres
= 4,750 bottles
However, the Production capacity of Baby Rose is 7,500 bottles, only 3,500
bottles can be produced.
Raw materials used in 3,500 bottles = 8 litres x 3,500 bottles = 28,000 litres
Remaining material = 10,000 litres
Number of Baby Lily that can be produced in 10,000 litres = 10,000 litres/10
litres
= 1,000 bottles
Alternatively, Solution can also be presented in following way:
Statement showing the Overall contribution and profit of the company

Particulars Baby Rose Baby Lily Total
(`) (`) (`)
Selling price per bottle 600 750 -
Less: Direct Materials 160 200 -
Other variable costs 270 350 -
Contribution per bottle Before 170 200 -
additional packaging
Contribution per bottle per unit 21.25 20
of raw material Before additional
packaging
Ranking on the basis of I II
Contribution per bottle per unit
of raw material

Particulars Current Additional Sales Additional Sales Total
Sales of Baby Rose of Baby Lily
(WN2) (3,500 bottles) (1,000 bottles)
(`) (`) (`) (`)
Selling price per bottle - 600 750 -
Less: Direct Materials - 160 200 -

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Other variable - 270 350 -
costs

m
c. o
Additional - 10 10
packaging
o m m
.c
Contribution per unit - 160 190 -
s e
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eFixed Cost l a
s
Total Contribution 12,80,000 5,60,000 1,90,000 20,30,000

a
lProfit a g
g
Less: 9,50,000 - - 9,50,000

a 3,30,000 5,60,000 1,90,000 10,80,000

WN1

Baby Rose Baby Lily
Raw Material used per unit of bottle (a) 8 litres 10 litres
(` 160/` 20) (` 200/` 20)
Current Demand and Sales (b) 4,000 bottles 3,000 bottles

o m 32,000 litres
c
Total Raw Material used (c = a x b) 30,000 litres
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WN2

l a s
Statement showing the current contribution and profit of the company

Particulars a g Baby Rose Baby Lily Total
(`) (`) (`)
Selling price per bottle 600 750 -
Less: Direct Materials 160 200 -
Other variable costs 270 350 -
Contribution per bottle Before 170 200 -

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additional packaging

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Contribution per bottle per unit of 21.25 20
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raw material Before additional

s em packaging
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gla Total Contribution Before 6,80,000
a 6,00,000 12,80,000

a additional packaging
Less: Fixed Cost 5,00,000 4,50,000 9,50,000
Profit 1,80,000 1,50,000 3,30,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

WN3
Raw Material available after current sales = 1,00,000 litres – 62,000 litres
= 38,000 litres
Since the contribution per unit of Baby Rose is higher than Baby Lily, the
company will produce and sale Baby Rose shampoo to the dealer.
Number of units that can be produced in 38,000 litres = 38,000 litres/8 litres
= 4,750 bottles
However, the Production capacity of Baby Rose is 7,500 bottles, only 3,500
bottles can be produced.
Raw materials used in 3,500 bottles = 8 litres x 3,500 bottles = 28,000 litres
Remaining material = 10,000 litres
Number of Baby Lily that can be produced in 10,000 litres = 10,000 litres/10
litres
= 1,000 bottles
Question 6
(a) Describe any five benefits of the Digital Costing System. (5 Marks)
(b) Define the following terms:
(i) Controllable Variance
(ii) Uncontrollable Variance
(iii) Budget Manual
(iii) Performance Budgeting
(iv) Budget Period (5 Marks)
(c) Discuss the treatment of By-products in cost accounting. (4 Marks)
OR
(c) Define Job costing and explain differences between job and batch Costing.
(4 Marks)

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

Answer
(a) Benefits of Digital Costing System are as follows:
m
(i)
m
Ascertainment of cost with certainty on a cost object. This helps to

o c. o
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analyse the activities for cost allocation and apportionment.

m plans. s e
eincentive
(ii) Analysis
s
of data on time spent on each activity to study and formulate

g l a
g a Helps in material requirement planning and scheduling the materiala
l(iii)
a procurement. Data on resource consumption can be analysed for
resource optimisation and finding the possibilities for zero wastage
and Just-in Time (JIT).
(iv) Helps to identify and eliminate the non-value-added activities.
(v) Data on resource consumption is helpful in setting the standards and
measurement of variances on real time basis.

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c. o
(vi) Data on current market prices of material and consumables helps to
estimate cost and setting standards on Marked to Market (M2M) basis.

e m behaviour towards the products to
s
a It is helpful is preparation of budgets and
(vii) Extrapolation of data on customer
l
g
predict the market demand.
a
planning of production.
(viii) A better analysis of cost behaviour improves the cost benefit analysis
and equipping the management in informed decision making.
(b) (i) Controllable variances: Controllable variances are those which can be
controlled under the normal operating conditions if a responsibility
centre takes preventive measures and acts prudently. Responsibility
centres are answerable for all adverse variances which could have been

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controlled.

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(ii) Uncontrollable variances: Uncontrollable variances are those which

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occurs due to conditions which are beyond the control of a

s
responsibility centre and cannot be controlled even though all
g la
gla preventive measures are in place.
a
a (iii) Budget Manual: The budget manual is a booklet specifying the
objectives of an organisation in relation to its strategy. The budget is

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

made to decide how much an organisation would earn and spend and
in what manner. In the budget, the organisation sets its priorities too.
Budget manual is also defined as, “A document which sets out the
responsibilities of the persons engaged in, the routine of, and the
forms and records required for, budgetary control.”
Effective budgetary planning relies on the provision of adequate
information to the individuals involved in the planning process. Many
of these information needs are contained in the budget manual. A
budget manual is a collection of documents that contains key
information for those involved in the planning process.
(iv) Performance budgeting: Performance budgeting (PB) involves
evaluation of the performance of an organisation in the context of both
specific as well as overall objectives of the organisation.
Performance Budgeting provide a meaningful relationship between
estimated inputs and expected outputs as an integral part of the
budgeting system. A performance budget is one which presents the
purposes and objectives for which funds are required, the costs of the
programmes proposed for achieving those objectives, and quantitative
data measuring the accomplishments and work performed under each
programme. Thus, PB is a technique of presenting budgets for costs
and revenues in terms of functions. Programmes and activities
correlate the physical and financial aspect of the individual items
comprising the budget.
(v) Budget period: The period covered by a budget is known as budget
period. There is no general rule governing the selection of the budget
period. In practice the Budget Committee determines the length of the
budget period suitable for the business. Normally, a calendar year or a
period co-terminus with the financial year is adopted. The budget
period for the calendar or financial year is then divided into shorter
periods; it may be monthly or quarterly or for such periods as coincide
with period of trading activity of the business.

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SUGGESTED ANSWER COST AND MANAGEMENT ACCOUNTING

(c) By-product cost can be dealt in cost accounting in the following ways:
(i) When they are of small total value: When the by-products are of
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c. o
small total value, the amount realised from their sale may be dealt in
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any one the following two ways:

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1. The sales value of the by-products may be credited to the Costing
l a s
l a s Profit and Loss Account and no credit be given in the Cost
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Accounts. The credit to the Costing Profit and Loss Account here
is treated either as miscellaneous income or as additional sales
revenue.
2. The sale proceeds of the by-product may be treated as deductions
from the total costs. The sale proceeds in fact should be deducted
either from the production cost or from the cost of sales.
(ii) When the by-products are of considerable total value: Where by-
products are of considerable total value, they may be regarded as joint

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products rather than as by-products. To determine exact cost of by-

.
products the costs incurred upto the point of separation, should be

em
apportioned over by-products and joint products by using a logical

l a s
basis. In this case, the joint costs may be divided over joint products

a g
and by-products by using relative market values; physical output
method (at the point of split off) or ultimate selling prices (if sold).
(iii) Where they require further processing: In this case, the net realisable
value of the by-product at the split-off point may be arrived at by
subtracting the further processing cost from the realisable value of by-
products.
If total sales value of by-products at split-off point is small, it may be
treated as per the provisions discussed above under (i).
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In the contrary case, the amount realised from the sale of by-products
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c. o will be considerable and thus it may be treated as discussed under (ii).
se
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OR

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(c) Job Costing is defined as “the category of basic costing methods which is
applicable where the work consists of separate contracts, jobs or batches,
each of which is authorised by specific order or contract.” According to this
method, costs are collected and accumulated according to jobs, contracts,

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products or work orders. Each job or unit of production is treated as a
separate entity for the purpose of costing.
Difference between job and batch costing

Sr. Job Costing Batch Costing
No.
1. Method of costing used for Homogeneous products produced
non- standard and non- in a continuous production flow in
repetitive products produced lots.
as per customer specifications
and against specific orders.
2. Cost determined for each Job Cost determined in aggregate for
the entire Batch and then arrived at
on per unit basis.
3. Jobs are different from each Products produced in a batch are
other and independent of homogeneous and lack of
each other. Each Job is unique. individuality

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