CA-Inter Mock Test Subject : Cost Accounting

Marks : 100 Time : 180 Min

Section A – Multiple Choice Question

CASE STUDY BASED MCQ (2 Marks Each)

CASE SCENARIO 1 :
Monthly demand (units) 1,000
Cost of placing an order (Rs.) 100
Annual carrying cost (Rs per unit) 15
Normal usage (units per week) 50
Minimum usage (units per week) 25
Maximum usage (unit per week) 75

Yeshas Academy
Re-order period (weeks) 4-6
1.1. Re-order quantity = ?
(a) 115.47 units
(b) 186.19 units
(c) 188.47 units
(d) 400 units

1.2. Re-order level =?

(a) 368 units
(b) 536 units
(c) 200 units
(d) 450 units

1.3. Minimum level =?

(a) 368 units
(b) 536 units
(c) 200 units
(d) 450 units
1.4. Maximum level =?
(a) 550 units
(b) 650 units
(c) 750 units
(d) 850 units

1.5. Average stock level =?

(a) 275 units
(b) 375 units
(c) 475 units
(d) 575 units

CASE SCENARIO 2 :
Following details are provided by M/s ZIA Private Limited for the quarter ended 30th September,
2023:
Direct Expenses Rs.1,80,000

Cost of Goods Sold

Yeshas Academy
Direct Wages being 175% of Factory Overheads Rs.2,57,250
Rs.18,75,000
Selling and Distribution Overheads Rs.60,000
Sales Rs.22,10,000
Administration Overheads are 10% of Factory Overheads
Stock details as per Stock register:
30.06.2024 30.09.2024
Raw Materials Rs.2,45,600 Rs.2,08,000
Work-in-progress Rs.1,70,800 Rs.1,90,000
Finished Goods Rs.3,10,000 Rs.2,75,000
Based on above information
(i) Amount of Raw Material Consumed ?
(a)10,60,250
(b) 12,60,250
(c)14,60,250
(d) 16,60,250

(ii) Amount of Prime Cost ?

(a) 16,91,500
(b) 16,93,500
(c) 16,95,500
(d) 16,97,500

(iii) Amount of Factory Cost ?

(a) 14,25,300
(b) 16,25,300
(c) 18,25,300
(d) 20,25,300

(iv) Amount of Cost of Goods Sold ?

(a) 18,75,000
(b) 20,75,000
(c) 22,75,000
(d) 24,75,000

Yeshas Academy
(v) Amount of Profit ?
(a) 75,000
(b) 2,75,000
(c) 4,75,000
(d) 6,75,000

General MCQ
1. A company’s plant, processes 1,50,000 kg of raw materials in a month to produce two products,
viz. P & Q. the cost of raw material is Rs. 12 per kg. the other joint process costs per month are
Rs.
Direct Material 90,000
Direct wages 1,20,000
Variable overheads 1,00,000
Fixed overheads 1,00,000
The cost of processing of P into S is Rs. 1,85,000 per month. Joint cost =?
(a) 4,10,000
(b) 20,10,000
(c) 21,10,000
(d) 22,10,000 (2 Marks)
2. Set-up cost = Rs. 324, EBQ = 3,600 units, Carrying cost per month = Rs. 0.10, Annual requirement
qty.=?
(a) 24,000
(b) 36,000
(c) 30,000
(d) 25,000 (2 Marks)

3. Which of the following technique can be used for inventory control?

(a) Standard Costing
(b) ABC Analysis
(c) Integrated Accounting System
(d) Any of the above. (1 Marks)

4. The job cost sheet ----------------

(a) Is useful only in process costing
(b) Contains only direct costs such as direct materials and direct labour.

Yeshas Academy
(c) Summarizes all costs charged to a particular job.
(d) Is discarded adter production is completed on a particular job. (1 Marks)

5. Marginal costing lays emphasis on ----------------

(a) Production
(b) Sales
(c) marketing
(d) Advertising (1 Marks)

6. -------------- is an optimum quantity of material to be ordered every time an order is placed. It may
be defined as that quantity of purchase which minimizes material order cost and material carrying
cost.
(a) Quantity in such lot which has maximum discount.
(b) Special Order Quantity (SOQ)
(c) Standard order Quantity (SOQ)
(d) Economic Order Quantity (EOQ) (1 Marks)

7. In which of the following cost accounting do not have any role?

(a) Price fixation
(b) Inventory control
(c) Service sector
(d) Price earning (1 Marks)

8. Which of the following is not a reason for an idle time variance?

(a) Wage rate increase.
(b) Machine breakdown
(c) Illness or injury to worker
(d) Non-availability of material (1 Marks)

SECTION– B Descriptive Question

Q.1. is compulsory
Attempt any four Question from remaining
Q1.
(a) M/S X private Limited is manufacturing a special product which requires a component “SKY
BLUE” the following particulars are available for the year ended 31st march, 2018:

Yeshas Academy
Annual demand of “SKY BLUE” 12,000 units
Cost of placing an order Rs.1,800
Cost per unit of “SKY BLUE” Rs.640
Carrying cost per unit 18.75%
The company has been offered a quantity discount of 5% on purchase of “SKY BLUE” provided
order size is 3,000 components a time.
You are required to compute:
(1) Economic order quantity.
(2) Advise whether the discount offer be accepted by the firm or not. (4 Marks)
Solution :
2𝐴𝑂 2 𝑋 12,000 𝑋 1,800
(1) EOQ = √ =√ = 600 units
𝐶 640 𝑋 18.75%

(2) Evaluation of 5% discount offer

Particulars At EOQ (order At order size
size 600 units) 3,000 units
Purchase cost 12,000 units @ Rs.640/608 per unit 76,80,000 72,96,000
Ordering cost (A/ROQ × 1,800) 36,000 7,200
Carrying cost (ROQ × ½ × C) (C = 18.75% of 640/608) 36,000 1,71,000
Total cost 77,52,000 74,74,200
Advice : Discount should be accepted.
(b) AK Limited produces and sells a single product. Sales budget for calendar year 2012 by quarters
is as under:

Quarters I II III IV
No. of units to be sold 18,000 22,000 25,000 27,000
The year is expected to open with an inventory of 6,000 units of finished products and close with
inventory of 8,000 units. Production is customarily scheduled to provide for 70% of the current
quarter’s sales demand plus 30% of the following quarter demand. The budgeted selling price per
unit is Rs.40.
The standard cost details for one unit of the product are as follows:
Variable Cost : Rs.34.50 per unit.
Fixed Overheads : 2 hours 30 minutes @ Rs.2 per hour
Fixed overheads are based on a budgeted production volume of 1,10,000 direct labour hours for the
year, fixed overheads are evenly distributed through-out the year.
You are required to:
(i) Prepare Quarterly Production Budget for the year.
(ii) In which quarter of the year, company expected to achieve break-even point. (5 Marks)
Solution :

Particular
Yeshas Academy
(i) Production Budget (Quarterly)
IQ II Q III Q IV Q
70% of current quarter 12,600 15,400 17,500 18,900
30% of following quarter 6,600 7,500 8,100 7,400 (b.f.)
Production (in units) 19,200 22,900 25,600 *26,300

*Production in Quarter IV = Total production – Production upto III quarter

= 94,000 – 67,700
= 26,300 units
Total production = Units to be sold + Closing inventory – Opening inventory
= (18,000 + 22,000 + 25,000 + 27,000) + 8,000 – 6,000
= 94,000 units
Production upto Quarter III = 19,200 + 22,900 + 25,600
= 67,700 units
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
(ii) B.E.P. (in units) = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃.𝑈.
2,20,000
= 5.50

= 40,000 units
Calculation of fixed cost = 1,10,000 labour hours × Rs. 2 per hour
 = 2,20,000
Contribution per unit = Sale price per unit – Variable cost per unit
= 40 – 34.50
= Rs. 5.50 p.u.
In second quarter company is expected to achieve break - even point i.e. 40,000 units (18,000 +
22,000).

(c) Following figures have been extracted from the books of M/s. RST Private Limited:
Year Sales Profit
2016-17 Rs.4,00,000 15,000 (loss)
2017-18 Rs.5,00,000 15,000 (profit)
You are required to calculate:
(1) Profit Volume Ratio
(2) Fixed Costs
(3) Break Even Point
(4) Sales required to earn a profit of Rs.45,000

Solution :
Yeshas Academy
(5) Margin of Safety in financial year 2017-2018. (5 Marks)
Q2
(a) The following account balances and distribution of indirect charges are taken from the accounts
of a manufacturing concern for the year ending on 31st March, 2012.

Total Production Department Services Departments

Items
Amount X Y Z A B
Indirect material 1,25,000 20,000 30,000 45,000 25,000 5,000
Indirect Labour 2,60,000 45,000 50,000 70,000 60,000 35,000
Superintendence 96,000 - - 96,000 - -
Salary Fuel & Heat 15,000
Power 1,80,000
Rent & Rates 1,50,000
Insurance 18,000
Meal Charges 60,000
Deprecation 2,70,000
The departmental data are also available:
Production Department Service
Details Departments
X Y Z A B
Area (Sq. ft) 4,400 4,000 3,000 2,400 1,200
Capital Value of Assets (Rs.) 4,00,000 6,00,000 5,00,000 1,00,000 2,00,000
Kilowatt Hours
Radiator Sections
No. of Employees
Yeshas Academy 3,500
20
60
4,000
40
70
3,000
60
120
1,500
50
30
-
30
20
Expenses charged to the service departments are to be distributed to other departments by the
following percentage:
Departments X Y Z A B
Department A 30 30 20 - 20
Department B 25 40 25 10 -
Prepare an overhead distribution statement to show total overhead of production department after
re-apportioning service departments overhead by using simultaneous equation method. Show all
the calculation to the nearest rupee. (10 Marks)
Solution:
Statement Showing Secondary Distribution
Particulars Basis Production Service
X Y Z A B
Indirect Mat. Allocation 20,000 30,000 45,000 25,000 5,000
Indirect labour “ 45,000 50,000 70,000 60,000 35,000
Superintendent’s “ - - 96,000 - 3,750 - 2,250
Fuel & Heat Radiator Sec. 1,500 3,000 4,500 22,500 - 12,000
Power Kwt. Hours 52,500 60,000 45,000 24,000 2,000
Rent & Rates Area 44,000 40,000 30,000 1,000 4,000
Insurance Capital Asset 4,000 6,000 5,000 6,000 30,000
Meals charges value 12,000 14,000 24,000 15,000
Depreciation 60,000 90,000 75,000
 Total (Prim. Dist) No of 2,39,000 2,93,000 3,94,500 1,57,250 90,250
Apportionment: Employees
Department A Capital Value 50,900 50,900 33,934 (1,69,668) 33,934
Department B (30 : 30 : 20 : 20) 31,046 49,674 31,046 12,418 (1,24,184)
(25 : 40 : 25 : 10)
Total OH - 3,20,946 3,93,574 4,59,480 - -
Working Note:
Calculation of adjusted expenses of service department by using Simultaneous Equation method:
Expenses of Department A = 1,57,250 + 10% of Expenses of B
Expenses of Department B = 90,250 + 20% of Expenses of A
Now:
Expenses of Department A = 1,57,250 + 10% (90,250 + 20% of A)
Expenses of Department A = 1,57,250 + 9,025 + 2% of A
98% of Expenses of A = 1,66,275
Expenses of Department A = 1,66,275 ÷ 98%
= 1,69,668
Expenses of Department B = 90,250 + 20% of A

Yeshas Academy
= 1,24,184

(b) The management of Company are worried about their increasing labour turnover in the factory
and before analyzing the causes and taking remedial steps, they want to have an idea of the profit
foregone as a result of labour turnover in the last year.
Last year sales amounted to Rs.83,03,300 and P/V ratio was 20 per cent. The total number of actual
hours worked by the direct labour force was 4,45,000. As a result of the delays by the personnel
department in filling vacancies due to labour turnover 1,00,000 potentially productive hours were
lost. The actual direct labour hours included 30,000 hours attributable to training on new recruits,
out of which half of the hours were unproductive.
The costs incurred consequent on labour turnover revealed, on analysis the following:
Settlement cost due to leaving Rs.43,820
Recruitment Costs Rs.26,740
Selecting costs Rs.12,750
Training costs Rs.30,490
Assuming that the potential production lost as a consequence of labour turnover could have been
sold at prevailing prices, find the profit foregone last year on account of labour turnover. (4 Marks)
Solution :
Statement Showing Profit Foregone on Account of Labour Turnover
Particulars Amount
 Contribution Foregone (1,00,000 hours × Rs.3.862 per hour) 3,86,200
Settlement Cost due to leaving 43,820
Recruitment Costs 26,740
Selection Costs 12,750
Training Costs 30,490
Profit Foregone 5,00,000

Working Notes:
1. Calculation of productive hours:
Actual hours worked 4,45,000
Less: Unproductive training hours (½ of 30,000 hours) (15,000)
Actual productive hours 4,30,000
2. Contribution earned per productive hours:
Sales value 83,03,300
Contribution (20% of 83,03,300) 16,60,660
Contribution per productive hour (16,60,660 ÷ 4,30,000) Rs.3.862
Note: Unproductive training hours are considered as normal feature of the company.

Yeshas Academy
Q3.
(a) M/s HMB Limited is producing a product in 10 batches each of 15,000 units in a year incurring
the following overheads their on:
Particulars (Rs.)
Material procurement 22,50,000
Maintenance 17,30,000
Set-up 6,84,500
Quality control 5,14,800
The prime cost for the year amounted to Rs.3,01,39,000. The company is using currently the method
of absorbing overheads on the basis of prime cost. Now it wants to shift to activity based costing.
Information relevant to activity drivers for a year are as under:
Activity Driver Activity Volume
No. of purchase orders 1,500
Maintenance hours 9,080
No. of set-ups 2,250
2,710
No. of inspections
The company has produced a batch of 15,000 units and has incurred Rs.26,38,700 and Rs.3,75,200
on materials and wages respectively.
The usage of activities of the said batch are as follows:
Activity Driver Activity Volume
 Material orders 48
Maintenance hours 810
No. of set-ups 40
No. of inspections 25

You are required to:

(1) Find out cost of product per unit on absorption costing basis for the said batch.
(2) Determine cost driver rate, total cost and cost per unit of output of the said batch on the basis of
activity based costing. (8 Marks)
Solution:
(1) Statement Showing Unit Cost Using Absorption Costing Method
Particulars (Rs.)
Direct Material 26,38,700
Direct Labour 3,75,200
Prime Cost 30,13,900
Production Overhead @ 17.1847% of Prime Cost 5,17,930
Total Cost 35,31,830
Number of units 15,000
Cost Per Unit Rs.235.46
Calculation of overhead rate:

Yeshas Academy
Overheads Recovery Rate = (Total Overheads ÷ Total Prime Cost) × 100
= [(22,50,000 + 17,30,000 + 6,84,500 + 5,14,800) ÷ 3,01,39,000] × 100
= 17.1847 % of Prime Cost
(2) Statement Showing Unit Cost and Total Cost Using ABC Method
Particulars (Rs.)
Direct Material 26,38,700
Direct Labour 3,75,200
30,13,900
Prime Cost
Production Overhead: 72,000
Material procurement (Rs.1,500 × 48 orders) 1,54,329
Maintenance (Rs.190.53 × 810 hours) 12,169
Set-up (Rs.304.22 × 40 set-ups) 4,749
Quality control (Rs.189.96 × 25 inspections) 32,57,147
Total Cost 15,000
Number of units Rs.217.14
Cost Per Unit
Statement Showing Determination of Cost Driver Rate

Activity Cost Pool Amount Cost Driver Volum Cost Driver Rate
e
Material procurement Rs.22,50,000 Material orders 1,500 Rs.1,500 per order
Maintenance Rs.17,30,000 Maintenance hours 9,080 Rs.190.53 per hour
Set-up Rs.6,84,500 No. of set-ups 2,250 Rs.304.22 per set-up
Quality control No. of inspections
 Rs.5,14,800 2,710 Rs.189.96 per inspection

(b) A transport service company is running five buses between two towns which are 50 kms apart.
Seating capacity of each bus is 50 passengers.
The following particulars were obtained from their books for April 1998:
Wages of drivers, conductors and cleaners Rs.24,000
Salaries of office staff Rs.10,000
Diesel oil and other oil Rs.35,000
Repairs and maintenance Rs.8,000
Taxation, insurance etc. Rs.16,000
Depreciation Rs.26,000
Interest and other expenses Rs.20,000
Total Rs.1,39,000
Actually, passengers carried were 75 per cent of seating capacity. All buses ran on all days of the
month. Each bus made one round trip per day.

Solution : Yeshas Academy

Find out the cost per passenger-km. (6 Marks)

Operating Cost Sheet (For the month of April 1998)

Particulars Amount
Standing Charges:
Wages of drivers, conductors and cleaners 24,000
Salaries of office staff 10,000
Taxation, insurance etc. 16,000
Depreciation 26,000
Interest and other expenses 20,000
Total (A) 96,000
Running Charges:
Diesel oil and other oil 35,000
Total (B) 35,000
Maintenance Charges:
Repairs and maintenance 8,000
Total (C) 8,000
Total operating cost (A + B + C) 1,39,000
÷ Total tonne-kms 5,62,500
Cost per passenger-km Rs.0.2471
Working Notes:
Total Passenger kms = No. of Buses × Distance × Round trip × Seating capacity × % of capacity
utilization × No. of days operated
 = 5 Buses × 50 kms × 2 × 50 passengers × 75% × 30 days
= 5,62,500
Q4
(a) Product Z has a profit-volume ratio of 28%. Fixed operating costs directly attributable to product
Z during the quarter II of the financial year 2009-10 will be Rs.2,80,000.
Calculate the sales revenue required to achieve a quarterly profit of Rs.70,000. (4 Marks)
Solution :
Required Sales = Desired Contribution/P/V Ratio = Fixed Cost + Desired Profit/P/V Ratio
= 2,80,000 + 70,000/28% = `12,50,000

(b) The standard cost of a chemical mixture is as follows:

60% of Material A @ Rs.50 per kg
40% of Material B @ Rs.60 per kg
A standard loss of 25% on output is expected in production. The cost records for a period has shown
the following usage:
540 kg of Material A @ Rs.60 per kg

Yeshas Academy
260 kg of Material B @ Rs.50 per kg
The quantity processed was 680 kilograms of good product.
From the above given information calculate:
(1) Material Cost Variance
(2) Material Price Variance
(3) Material Usage Variance
(4) Material Mix Variance
(5) Material Yield Variance (10 Marks)
Solution:
(1) Material Cost Variance= (SQ × SP) – (AQ × AP)
= Rs.45,900 – Rs.45,400
= Rs.500 F
(2) Material Price Variance = (AQ × SP) – (AQ × AP)
= Rs.42,600 - Rs.45,400
= Rs.2,800 A
(3) Material Usage Variance = (SQ × SP) – (AQ × SP)
= Rs.45,900 – Rs.42,600
= Rs.3,300 F
(4) Material Mix Variance = (RQ × SP) – (AQ × SP)
= Rs.43,200 – Rs.42,600
= Rs.600 F
(5) Material Yield Variance = (SQ × SP) – (RQ × SP)
= Rs.45,900 – Rs.43,200
= Rs.2,700 F
Working notes:
a. Basic Calculation
Materials SQ × SP RQ × SP AQ × SP AQ × AP
AB 510 × Rs.50 480 × Rs.50 540 × Rs.50 540 × Rs.60
340 × Rs.60 320 × Rs.60 260 × Rs.60 260 × Rs.50
Total Rs.45,900 Rs.43,200 Rs.42,600 Rs.45,400
b. SQ of input for actual output:
Input – Loss = Output
Input – 25% Output = Output
Input = 125% Output

Yeshas Academy
Input of Raw Material = 125% × 680 kgs of Good Product = 850 kgs
Materials A = 850 kgs × 60% = 510 kgs
Materials B = 850 kgs × 40% = 340 kgs
c. RQ (Revised Quantity)of actual input:
Materials A = 800 kgs × 60% = 480 kgs
Materials B = 800 kgs × 40% = 320 kgs

Q5.
(a) Following information relate to a manufacturing concern for the year ended 31st March, 2018:
Raw Materials (opening) Rs.2,28,000
Raw Material (closing) Rs.3,05,000
Purchase of Raw Material Rs.42,25,000
Freight Inwards Rs.1,00,000
Direct wages paid Rs.12,56,000
Direct wages outstanding at the end of the year Rs.1,50,000
Factory Overheads 20% prime cost
Work-in-progress (opening) Rs.1,92,500
Work-in-progress (closing) Rs.1,40,700
Administrative Overheads (related to production) Rs.1,73,000
Distribution expenses Rs.16 per unit
Finished Stock (opening: 1,217 Units) Rs.6,08,500
Sale of scrap of material Rs.8,000
The firm produced 14,000 units of output during the year. The stock of finished goods at the end
of the year is valued at cost of production. The firm sold 14,153 units at a price of Rs.618 per unit
during the year.
Prepare cost sheet of the firm. (8 Marks)
Solution :

Yeshas Academy

(b) The M-Tech Manufacturing Company is presently evaluating two possible processes for the
manufacture of a toy. The following information is available:
 Particulars Process A Process B
(Rs.) (Rs.)
Variable cost per unit 12 14
Sales price per unit 20 20
Total fixed cost per year 30,00,000 21,00,000
Capacity (in units) 4,30,000 5,00,000
Anticipated sales (next year, in units) 4,00,000 4,00,000
Suggest:
1. Which process should be chosen?
2. Would you change your answer as given above, if you were informed that the capacities of the
two processes are as follows: A - 6,00,000 units; B - 5,00,000 units? Why? (6 Marks)
Solution :
1. Profit (Process A) = Contribution – Fixed cost
= 4,00,000 units × Rs.8 (Rs.20 - Rs.12) – Rs.30,00,000
= Rs.2,00,000

Profit (Process B) = Contribution – Fixed cost

= 4,00,000 units × Rs.6 (Rs.20 - Rs.14) – Rs.21,00,000
= Yeshas Academy
Rs.3,00,000

Suggestion: Process B should be chosen as it gives more profit.

2. Profit (Process A) = Contribution – Fixed cost

= 6,00,000 units × Rs.8 (Rs.20 - Rs.12) – Rs.30,00,000
= Rs.18,00,000
Profit (Process B) = Contribution – Fixed cost
= 5,00,000 units × Rs.6 (Rs.20 - Rs.14) – Rs.21,00,000
= Rs.9,00,000
Suggestion: Process A should be chosen as it will give more profit.
Note: It is assumed that capacity produced equals sales.

Q6.
(a) Explain equivalent units. (5 Marks)
Solution :
Equivalent units or equivalent production units, means converting the incomplete production
units into their equivalent completed units. Under each process, an estimate is made of the
percentage completion of work-in-process with regard to different elements of costs, viz., material,
labour and overheads. It is important that the estimate of percentage of completion should be as
accurate as possible. The formula for computing equivalent completed units is:

For instance, if 25% of work has been done on the average of units still under process, then 200 such
units will be equal to 50 completed units and the cost of work-in-process will be equal to the cost of
50 finished units.

(b) How apportionment of joint costs upto the point of separation amongst the joint products using
net realizable value method is done? DISCUSS. (5 Marks)
Solution :
Proper apportionment of joint cost over the joint products is of considerable importance, as this
affects (a) Valuation of closing inventory; (b) Pricing of products; and (c) Profit or loss on the sale of
different products. As the relations between materials, processes and joint products are complex
and unobservable, there is no way to determine the cost of the different production factors used in

Yeshas Academy
the processes for the production of each of the joint products. Therefore, the costs incurred in the
manufacture of each of the joint products cannot be correctly identified.
It can only be apportioned to the joint products by using some rational methods
The commonly used methods for apportioning total process costs upto the point of separation over
the joint products are as follows:
(i) Physical Units Method
(ii) Net Realisable Value at split-off point
(iii) Using Technical Estimates
Some other methods, which managers may also use for making decisions are:
(i) Market value at the point of separation
(ii) Market value after further processing
(iii) Average unit cost method
(iv) Contribution margin method

(c) Discuss cost classification based on variability and controllability. (4 Marks)

Answer :
Cost classification based on variability
(a) Fixed Costs – These are the costs which are incurred for a period, and which, within certain
output and turnover limits, tend to be unaffected by fluctuations in the levels of activity (output or
turnover). They do not tend to increase or decrease with the changes in output. For example, rent,
insurance of factory building etc., remain the same for different levels of production.
(b) Variable Costs – These costs tend to vary with the volume of activity. Any increase in the activity
results in an increase in the variable cost and vice-versa. For example, cost of direct labour, etc.
(c) Semi-variable Costs – These costs contain both fixed and variable components and are thus partly
affected by fluctuations in the level of activity. Examples of semi variable costs are telephone bills,
gas and electricity etc.
Cost classification based on controllability
(a) Controllable Costs - Cost that can be controlled, typically by a cost, profit or investment centre
manager is called controllable cost. Controllable costs incurred in a particular responsibility centre
can be influenced by the action of the executive heading that responsibility centre. For example,
direct costs comprising direct labour, direct material, direct expenses and some of the overheads
aregenerally controllable bytheshoplevel management.
(b) Uncontrollable Costs - Costs which cannot be influenced by the action of a specified member of
an undertaking are known as uncontrollable costs. For example, expenditure incurred by, say, the
tool room is controllable by the foreman in-charge of that section but the share of the tool-room

Yeshas Academy
expenditure which is apportioned to a machine shop is not to be controlled by the machine shop
foreman.
OR
(c) You have been asked to install a costing system in a manufacturing company. What practical
difficulties will you expect and how will you propose to overcome the same? (4 Marks)
Answer :
The practical difficulties with which one usually confronted with while installing a costing system
in a manufacturing company are as follows:
(i) Lack of top management support: Installation of a costing system does not receive the adequate
support of top management. They consider it as interference in their work. They believe that such,
a system will involve additional paperwork. They also have a misconception in their minds that the
system is meant for keeping a check on their activities.
(ii) Resistance from cost accounting departmental staff: The staff resists because of fear of loosing
their jobs and importance after the implementation of the new system.
(iii) Non co-operation from user departments: The foremen, supervisor and other staff members
may not co-operate in providing requisite data, as this would not only add to their responsibilities
but will also increase paper work of the entire team as well.
(iv) Shortage of trained staff: Since cost accounting system’s installation involves specialised work,
there may be a shortage of trained staff.
To overcome these practical difficulties, necessary steps required are:
- To sell the idea to top management – To convince them of the utility of the system.
- Resistance and non co-operation can be overcome by behavioral approach. To deal with the staff
concerned effectively.
- Proper training should be given to the staff at each level
- Regular meetings should be held with the cost accounting staff, user departments, staff and top
management to clarify their doubts / misgivings.

Yeshas Academy