SUGGESTED ANSWERS TO QUESTIONS

SECTION – A
1 (a)
(i) (C)
(ii) (A)
(iii) (D)
(iv) (C)
(v) (D)
(vi) (A)
(vii) (D)
(viii) (A)
(ix) (B)
(x) (B)
(xi) (B)
(xii) (D)

1 (b)
(i) False
(ii) False
(iii) False
(iv) False
(v) False
(vi) True
(vii) True

1 (c)
(i) Standard
(ii) Cost-volume-profit (CVP) / Break even
(iii) Angle of Incidence
(iv) Cost driver
(v) Margin of safety
(vi) Learning curve

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 SECTION – B

2 (a):
Cost Accounting Management Accounting
Cost accounting revolves around cost Management accounting helps management
computation, cost control, and cost make effective decisions about operations of
reduction. the business.
Cost accounting prevents a business from Management accounting offers a big picture of
incurring costs beyond budget. how management should strategize.
The scope is much narrower. The scope is much broader.
Quantitative. Quantitative and qualitative.
Cost accounting is one of the many sub-
Management accounting is the universal set.
sets of management accounting.
The task of decision making very less.
Historic and predictive information is the basis
Even if there is some, it is based on
of decision-making.
historic information
Statutory audit of cost accounting is a The audit of management accounting has no
requirement in some specified industries. statutory requirement
Cost accounting isn't dependent on Management accounting is dependent on both
management accounting to be successfully cost & financial accounting for successful
implemented. implementation.
Management, shareholders, and vendors. Only for management.

2 (b):
(a) Operating Income and Operating Income as a percentage of revenues for each
product line.
(When support costs are allocated to product lines based on costs of goods sold of each
product)

Drug S (₹) Drug T (₹) Drug Z (₹) TOTAL (₹)

Operating income: 16,47,700 16,31,550 17,35,750 50,15,000

Operating income as a % of revenues: 22.12% 14.60% 9.32% 13.46%

(b) Operating Income and Operating Income as a percentage of revenues for each
product line.
(When support costs are allocated to product lines using an activity-based costing system)
Drug S (₹) Drug T (₹) Drug Z (₹) TOTAL (₹)
Operating Income 6,56,400 14,20,300 29,38,300 50,15,000
Operating income as a % of
8.81% 12.71% 15.78% 13.46%
Revenues

3 (a):
i. Present Break-even Sales (quantity) = 1,00,000 units
ii. Revised Break-even Sales (quantity) = 1,42,858 units

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3 (b):
(i) The differences between Absorption Costing & Marginal Costing are:
Absorption Costing Marginal Costing
Both fixed and variable costs are considered for Only variable costs are considered for product
product costing and inventory valuation. costing and inventory valuation.
Fixed costs are charged to the cost of production.
Fixed costs are regarded as period costs. The
Each product bears a reasonable share of fixed cost
profitability of different products is judged by
and thus the profitability of a product is influenced
their P/V ratio.
by the apportionment of fixed costs.

Cost data are presented in conventional pattern. Net

Cost data are presented to highlight the total
profit of each product is determined after
contribution of each product.
subtracting fixed cost along with their variable cost.

The difference in the magnitude of opening stock The difference in the magnitude of opening stock
and closing stock affects the unit cost of production and closing stock does not affect the unit cost of
due to the impact of related fixed cost. production.

In case of absorption costing the cost per unit

In case of marginal costing the cost per unit
reduces, as the production increases as it is fixed
remains the same, irrespective of the production
cost which reduces, whereas, the variable cost
as it is valued at variable cost.
remains the same per unit.

(ii)
A. Number of units of products- sold in 2022-23
1'' PVC Pipe 10,000 units
1/2'' PVC Pipe 5,000 units
B. Total expected profit of the company from the two products in 2023-24 = ` 3,15,500

4 (a)
(i) Transfer price where total labour hours available is 70000 hours = ` 295
(ii) Transfer price where total labour hours available is 80000 hours = ` 286

4 (b)
(i) Net profit or loss of purchasing (rather than manufacturing) the lenses required for CCTV
Camera. = ` - 20,00,000
(ii) Indifference point = 6363.64 Units

If the future volume level is predicted to decrease, the option where Fixed cost is lower is
preferable, i.e., Purchase from outside market.
(iii) Net Profit if the lenses are purchased rather than manufacturing in-house = ` 5,00,000
Therefore, the company should buy the lenses from outside market rather than making
them in-house.

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5 (a)
(i) Here, Division M is more successful since its return (ROI) is Rs. 0.25 for each
rupee invested in operating assets which is more than that of Division N i.e. 20%.
(ii) The residual income (RI) at 15% for each division is

Division M (₹) Division N (₹)

Residual Income 6,00,000 6,25,000

(iii) Division N is more successful since its RI is greater than Division N.

5 (b)

(i) Economic Value Added (EVA) = ` 70,00,000

(ii) Learning Curve:
A learning curve is a function that measures how labour hours per unit reduces as units of
production increases, because workers are learning and becoming expert at their jobs. The
management uses this technique to predict how labour hours and labour cost will decreases as
more units are produced.
Application of Learning Curve:
The areas in which the application of learning curve can help an organization are as follows:
1. Improvement of productivity: As the experience is gained, the performance of workers
improves, time taken per unit of production is reduces and thus productivity increases.
2. Cost Prediction: Learning Curve provides better cost predictions to enable organization to
quote competitive price for potential orders.
3. Work scheduling: Learning curve enables organizations to predict the inputs required
more effectively and helps in the preparation of accurate delivery schedule.
4. Standards setting: Organizations prepare budgets & standards considering learning curve
to avoid significance variances.

6 (a)

(i) Production Budget for the period of April to July

Month Budgeted Production (units)

X Y
April 1,100 2,800
May 1,400 2,600
June 1,800 2,200
July 2,200 1,800
Total 6,500 9,400

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 (ii) Production cost budget for the period April to July:

Total Cost for X & Y

Details
(Rs)

Direct Material 2,59,850

Direct Labour 95,050
Factory Overhead 57,100

Total 4,12,000

6 (b)
Master Budget for the year ended March 31, 2024
(₹) (₹)
Total Sales 80,00,000
Less: Works Cost
Prime Cost 51,60,000
Fixed Factory Overhead 2,64,000
Variable Factory Overhead 3,16,000
57,40,000
Gross Profit 22,60,000
Less: Adm., Selling and distribution expenses 3,60,000
Net Profit 19,00,000

7 (a)
(i) Fixed Overheads Volume Variance = ₹ 25,000 (Adv.)
(ii) Fixed Overheads Efficiency Variance = ₹ 75,000 (Adv.)
(iii) Fixed Overheads Cost Variance = ₹ 5,000 (Fav.)

7 (b)
(i)
 Material Price variance = ₹2,000 (Adv)
 Material Usage variance = ₹10,000 (Fav)
 Direct wage rate variance = ₹20,000 (Adv)
 Wage Efficiency variance = ₹32,000 (Fav)
 Variable Overhead expenditure variance = ₹ 20,000 (Adv)
 Variable overhead efficiency variance = ₹16,000 (Fav)
 Fixed overhead expenditure variance = ₹2,000 (Fav)
 Fixed overhead capacity variance = ₹16,667(Adv)
 Fixed overhead efficiency variance = ₹6,667 (Fav)
 Sales margin price variance = ₹40,000 (Adv)
 Sales margin volume variance = ₹8,000 (Adv)
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 (ii) Reconciliation of Profit

₹
Budgeted Profit 80,000
Favorable Variances: 1,46,667
Adverse variances: (1,06,667)
Actual Profit (for the period): 40,000

8 (a)
(i)

(ii) The best strategy is to accept A first, and then to accept B, if A is successful.

8 (b)
(i) Maximin Criterion: S 3 Strategy is to be selected.
(ii) Maximax Criterion: S 1 Strategy is to be selected.
(iii) Laplace Criterion: S 1 Strategy is Selected.
(iv) Hurwicz Criterion   0.4 : S Strategy is Selected.
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