CA Sunil Keswani 1

Material Cost
Case Scenario
The purchase committee of A Ltd. has been entrusted to review the material procurement policy
of the company. The chief marketing manager has appraised the committee that the company
at present produces a single product X by using two raw materials A and B in the ratio of 3:2.
Material A is perishable in nature and has to be used within 10 days from Goods received note
(GRN) date otherwise material becomes obsolete. Material B is durable in nature and can be
used even after one year. Material A is purchased from the local market withing 1 to 2 days of
placing order. Material B, on the other hand, is purchased from neighboring state and it takes
2 to 4 days to receive the material in the store.

The purchase price of per kilogram of raw material A and B is `30 and `44 respectively
exclusive of taxes. To place an order, the company has to incur an administrative cost of
`1,200. Carrying cost for material A and B is 15% and 5% respectively. At present material A
is purchased in a lot of 15,000 kg to avail 10% discount on market price. GST applicable for
both the materials is 18% and the input tax credit is availed.

The sales department has provided an estimate that the company could sell 30,000 kg in January
2024 and also projected the same trend for the entire year.

The ratio of input and output is 5:3. Company works for 25 days in a month and production is
carried out evenly.

The following queries/ calculations to be kept ready for purchase committees’ reference:

Question – 1
For the month of January 2024, what would be the quantity of the materials to be requisitioned
for both material A and B:
(a) 9,000 kg & 6,000 kg respectively
(b) 18,000 kg & 12,000 kg respectively
(c) 27,000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively

Question – 2
The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 171,65 kg respectively
CA Sunil Keswani 2

Question – 3
What would be the maximum stock level for material A:
(a) 18,200 kg
(b) 12,000 kg
(c) 16,000 kg
(d) 16,200 kg

Question – 4
Calculate saving/loss in purchase of material A if the purchase order quantity is equal to EOQ.
(a) Profit of `3,21,201
(b) Loss of `3,21,201
(c) Profit of `2,52,500
(d) Loss of `2,52,500

Question – 5
What would be the minimum stock level for material A:
(a) 1,800 kg
(b) 1,200 kg
(c) 600 kg
(d) 2,400 kg

Question
Purchase price `10,00,000
Custom duty `2,00,000
GST (input credit available) @12% on purchase price
Octroi `5,000
Carriage inward `12,000
Demurrage charges `16,100
Commission on purchase `10,000
Stock of raw material:
Opening `1,00,000
Closing `2,00,000
Raw material consumed will be:
(a) `11,27,000
(b) `11,43,100
(c) `12,63,100
(d) `12,58,100
CA Sunil Keswani 3

Question
Monthly demand of product X – 1500 units
Requirement of component to produce 1 unit of product X: 5 units
Ordering, receiving and handling cost: `10 per order
Trucking costs: `5 per order
Deterioration and obsolescence cost: `10 per unit p.a.
Interest rate: 15% p.a.
Storage cost: `4,50,000 for 90,000 units
Purchase price of a component: `100
Calculate Economic Order Quantity
(a) 600 units
(b) 500 units
(c) 400 units
(d) 300 units
CA Sunil Keswani 4

Employee Cost
Case Scenario
The board of the J Ltd. has been appraised by the General Manager (HR) that the employee
attrition rate int eh company ahs increased. The following facts has been presented by the GM
(HR):
(1) Training period of the new recruits is 50,000 hours. During this period their productivity
is 60% of the experienced workers. Time required by an experienced worker is 10 hours
per unit.
(2) 20% of the output during training period was defective. Cost of rectification of a
defective unit was `25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is `180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was `1,83,480
(6) Recruitment cost was `1,56,340
(7) Training cost was `1,13,180
You being an associate finance to GM (HR), has been asked the following questions:

Question – 1
How much quantity of output is lost due to labour turnover?
(a) 10,000 units
(b) 8,000 units
(c) 12,000 units
(d) 12,600 units

Question – 2
How much loss in the form of contribution, the company incurred due to labour turnover?
(a) `4,32,000
(b) `4,20,000
(c) `4,36,000
(d) `4,28,000

Question – 3
What is the cost of repairing defective units.
(a) `75,000
(b) `15,000
(c) `50,00
(d) `25,000

Question – 4
Calculate the profit lost by the company due to increased labour turnover.
(a) `7,50,000
CA Sunil Keswani 5

(b) `15,00,000
(c) `5,00,000
(d) `9,00,000

Question – 5
How much quantity of output is lost due to inexperience of the new worker?
(a) 1,000 units
(b) 2,600 units
(c) 2,000 units
(d) 12,600 units

Question
The following data is available:
Labour turnover rates are 25%, 12% and 10% respectively under Flux method, Replacement
method and Separation method. No. of workers replaced is 72. Calculate average workers on
roll.
(a) 600
(b) 580
(c) 400
(d) 640

Question
If the amount of wages under Halsey plan is `420, total time allowed is 8 hours and the
guaranteed time rate is `60 per hour. What is the total time saved by the worker?
(a) 2 hours
(b) 3 hours
(c) 6 hours
(d) 3.5 hours
CA Sunil Keswani 6

Overheads
Case Scenario
Litto Limited is a manufacturing company which has as a machine shop cost center that
contains three machines of equal capacities. To operate these three machines nine operators are
required i.e. three operators on each machine. Operators are paid `20 per hour. The factory
works for forty eight hours in a week which includes 4 hours set up time. The work is jointly
done by operators. The operators are paid fully for the forty eight hours. In additions they are
paid a bonus of 10 percent of productive time. Costs are reported for this company on the basis
of thirteen four-weekly period.

The company for the purpose of computing machine hour rate includes the direct wages of the
operator and also recoups the factory overheads allocated to the machines. The following
details of factory overheads applicable to the cost centre are available:
• Depreciation 10% per annum on original cost of the machine. Original cos tof each
machine is `52,000.
• Maintenance and repair per week per machine is `60.
• Consumbale stores per week per machine are `75
• Power: 20 units per hour per machine at the rate of 80 paise per unit. No power is used
during the set-up hours.
• Apportionment to the cost centre: Rent per annum `5,400, Heat and Light per annum
`9,720, foreman’s salary per annum `12,960 and other miscellaneous expenditure per
annum `18,000.

Question – 1
What is the effective machine hour for four-week period?
(a) 170 hours
(b) 176 hours
(c) 189 hours
(d) 192 hours

Question – 2
What is the bonus charges and power expenses for four-week period?
(a) `1,056 and `2,816
(b) `1,562 and `3,560
(c) `1,240 and `3,325
(d) `860 and `2,450

Question – 3
What is the standing charges for four-week period?
(a) `12,357
CA Sunil Keswani 7

(b) `10,450
(c) `13,757
(d) `14,226

Question – 4
What is the machine expenses for four-week period?
(a) `2,500
(b) `3,450
(c) `3,986
(d) `3,756

Question – 5
What is the machine hour rate?
(a) `99.51
(b) `92.25
(c) `105.22
(d) `86.90

Case Scenario
During half year ending inter departmental review meeting of P Ltd., cost variance report was
discussed and the performance of the departments were assessed. The following figures were
presented.

For a period of first six months of the financial year, following information were extracted from
the books:
Actual production overheads `34,08,000
The above amount is inclusive of the following payments made:
Paid as per court’s order `4,50,000
Expenses of previous year booked in current year `4,20,000
Obsolete stores written off `36,000
Production and sales data for the six months are as under:
Production:
Finished goods 1,10,000 units
Work-in-progress 80,000 units
(50% complete in every respect)
Sale:
Finished goods 90,000 units
Machine hours work during the period was 3,000 hours.

At the time of preparation of revenue budget, it was estimated that a total of `50,40,000 would
be required for budgeted machine hours of 6,000 as production overheads for the entire year.
CA Sunil Keswani 8

During the meeting, a data analytic report revealed that 40% of the over/under absorption was
due to defective production policies and the balance was attributable to increase in costs.

You were also present at the meeting; the chairperson of the meeting has asked you to be ready
with the following for the performance appraisal of the departmental heads:

Question – 1
How much was the budgeted machine hour rate used to recover overhead?
(a) `760
(b) `820
(c) `780
(d) `840

Question – 2
How much amount of production overhead has been recovered (absorbed) upto the end of half
year end?
(a) `25,20,000
(b) `34,08,000
(c) `24,00,000
(d) `24,60,000

Question – 3
What is the amount of overhead under/over absorbed?
(a) `1,18,000 over absorbed
(b) `1,18,000 under absorbed
(c) `18,000 over absorbed
(d) `18,000 under absorbed

Question – 4
What is the supplementary rate for apportionment of over absorbed overheads over WIP,
Finished goods and Cost of sales?
(a) `0.315 per unit
(b) `0.472 per unit
(c) `0.787 per unit
(d) `1 per unit

Question – 5
What is the amount of over absorbed overheads apportioned to work in progress?
(a) `9,440
(b) `42,480
(c) `18,880
(d) `70,800
CA Sunil Keswani 9

Question
Based on the data below, what is the amount of the overhead under/over absorbed?
Budgeted overhead = `5,25,000
Budgeted machine hours = 17,500
Actual machine hours = 17,040
Actual overheads = `5,20,000
(a) `5,000 under absorbed
(b) `8,800 under absorbed
(c) `8,800 over absorbed
(d) `5,000 over absorbed
CA Sunil Keswani 10

Activity Based Costing

Case Scenario
‘Humara – Apna’ bank offers three products, viz. deposits, Loans and Credit Cards. The bank
has selected 4 activities for a detailed budgeting exercise, following activity based costing
method.
The bank wants to know the product wise total cost per unit for the selected activities, so that
price may be fixed accordingly. The following information is made available to formulate the
budget:
Activity Present Cost Estimation for the budget period
(` )
ATM Services:
(a) Machine Maintenance 4,00,000 All fixed, no change
(b) Rents 2,00,000 Fully fixed, no change
(c) Currency replenishment cost 1,00,000 Expected to double during budget
7,00,000 (This activity is driven by no. of ATM
transactions)
Computer Processing 5,00,000 Half this amount is fixed and no
change is expected.
The variable portion is expected to
increase to three times the current
level.
(This activity is driven by the number
of computer transactions)
Issuing Statements 18,00,000 Presently, 3 lakh statements are made.
In the budget period, 5 lakh statements
are expected.
For every, increase of one lakh
statement, one lakh rupees is the
budgeted increase.
(This activity is driven by the number
of statements)
Computer Inquiries 2,00,000 Estimated to increase by 80% during
the budgeted period.
(This activity is driven by telephone
minutes)
The activity drivers and their budgeted quantities are given below:
Activity Drivers Deposits Loans Credit Cards
No. of ATM transactions 1,50,000 - 50,000
No. of Computer Processing Transactions 15,00,000 2,00,000 3,00,000
No. of Statements to be issued 3,50,000 50,000 1,00,000
Telephone Minutes 3,60,000 1,80,000 1,80,000
CA Sunil Keswani 11

The bank budgets a volume of 58,600 deposit accounts, 13,000 loan accounts and 14,000 credit
card accounts.

Question – 1
The budgeted rate for ATM service activity is:
(a) `4
(b) `2
(c) `1
(d) `0.50

Question – 2
The budgeted rate for computer processing activity is:
(a) `4
(b) `2
(c) `1
(d) `0.50

Question – 3
The budgeted rate for issuing statement activity is:
(a) `4
(b) `2
(c) `1
(d) `0.50

Question – 4
The budgeted rate for computer inquiries activity is:
(a) `4
(b) `2
(c) `1
(d) `0.50

Question – 5
Total cost for credit cards as per activity based costing is:
(a) `3,90,000
(b) `8,40,000
(c) `15,60,000
(d) `29,30,000
CA Sunil Keswani 12

Question
From the following information, calculate the total cost of Product A and B using the ABC
analysis:
Product A Product B
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering cost `4,00,000
Delivery cost `1,35,000

Calculate the total cost of Product A and B using the ABC Analysis:
(a) A = `47,500; B = `1,27,500
(b) A = `2,67,500; B = `2,67,500
(c) A = `1,60,000; B = `3,75,000
(d) A = 1,47,500; B = 1,47,500

Question
MNP Ltd. manufactures three products with total production overheads of `22,00,000. The
cost of production scheduling/ machine set-ups is `10,00,000 for which cost driver is number
of setups.

Details on the three products are as follows:

L M N
Production (units) 10,000 15,000 20,000
Number of set-ups 140 160 200

What is the charge our rate for production scheduling/machine set ups is?
(a) `1,500
(b) `2,000
(c) `500
(d) `1,000
CA Sunil Keswani 13

Cost Sheet
Case Scenario
M Ltd. is producing a single product and may expand into product diversification in next one
to two years. M Ltd. is amongst a labour-intensive company where majority of processes are
done manually. Employee cost is a major cost element in the total cost of the company. The
company conventionally uses performance parameters Earnings per manshift (EMS) to
measure cost paid to an employee for a shift of 8 hours, and Output per manshift (OMS) to
measure an employee’s output in a shift of 8 hours.

The Chief Manager (Finance) of the company has emailed you few information related to the
last month. The email contains the following data related to the last month:

During the last month, the company has produced 2,34,000 tonnes of output. Expenditures for
the last months are:
(i) Raw materials consumed `50,00,000

(ii) Power consumed 13,000 Kwh @ `8 per Kwh to run the machines for production.

(iii) Diesels consumed 2,000 litres @ `93 per litre to run power generator used as alternative
or backup for power cuts.

(iv) Wages & salary paid – `6,40,00,000

(v) Gratuity & leave encashment paid – `64,20,000

(vi) Hiring charges paid for HEMM- `30,00,000. HEMM are directly used in production.

(vii) Hiring charges paid for cars used for official purpose – `66,000

(viii) Reimbursement of diesel cost for the cars – `22,000

(ix) The hiring of cars attracts GST under RCM @5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the time
of dispatch) – `12,000

(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the
time of dispatch) and factory premises is `8,000 and `18,000 per month respectively.

(xii) TA/ DA and hotel bill paid for sales manager- `36,000

(xiii) The company has 1,800 employees works for 26 days in a month.

You are asked to calculate the followings:

Question – 1
What is the amount of prime cost incurred during the last month:
CA Sunil Keswani 14

(a) `7,54,20,000
(b) `7,57,10,000
(c) `7,56,06,000
(d) `7,87,10,000

Question – 2
What is the total and per shift cost of production for last month:
(a) `7,87,10,000 and `336.37 respectively
(b) `7,87,10,000 and `1,681.84 respectively
(c) `7,87,28,000 and `1,682.22 respectively
(d) `7,87,28,000 and `336.44 respectively

Question – 3
What is the value of administrative cost incurred during the last month:
(a) `92,400
(b) `88,000
(c) `1,48,400
(d) `1,44,000

Question – 4
What is the value of selling and distribution cost and total cost of sales:
(a) `36,000 & `7,88,76,400 respectively
(b) `56,000 & `7,88,76,400 respectively
(c) `36,000 & `7,88,72,000 respectively
(d) `56,000 & `7,88,72,000 respectively

Question – 5
What is the value EMS and OMS for the last month:
(a) `1,504.70 & 5 tonnes respectively
(b) `1,367.52 & 5 tonnes respectively
(c) `1,504.70 & 4.37 tonnes respectively
(d) `1,367.52 & 4.37 tonnes respectively

Case Scenario
P Ltd. has gathered cost information from ledgers and other sources for the year ended 31st
December 2023. The information are tabulated below:
Particulars Amount (`) Amount (`)
Raw material purchased 5,00,00,000
Freight inward 9,20,600
Wages paid to factory workers 25,20,000
CA Sunil Keswani 15

Royalty paid for production 1,80,000

Amount paid for power & fuel 3,50,000
Job charges paid to job worders 3,10,000
Stores and spares consumed 1,10,000
Depreciation on office building 50,000
Repairs & maintenance paid for:
- Plant & Machinery 40,000
- Sales office building 20,000 60,000
Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
Expenses paid for quality control check 18,000
Research & Development cost paid for 20,000
improvement in production process
Expenses paid for pollution control and 36,000
engineering & maintenance
Salary paid to Sales & marketing managers 5,60,000
Salary paid to General Manager 6,40,000
Packing cost paid for:
- Primary packing necessary to maintain 46,000
quality
- For re-distribution of finished goods 80,000 1,26,000
Fee paid to independent directors 1,20,000
Performance bonus paid to sales staffs 1,20,000
Value of stock as on 1st April of last year:
- Raw materials 10,00,000
- Work-in-process 8,60,000
- Finished goods 12,00,000 30,60,000
st
Value of stock as on 31 March of current year:
- Raw materials 8,40,000
- Work-in-process 6,60,000
- Finished goods 10,50,000 25,50,000
Amount realized by selling of scrap and waste generated during manufacturing process -
`48,000.
The board meeting is scheduled to be held in next week and you being an associate to the chief
cost controller of the company, has been asked to be prepared with the following figures:

Question – 1
How much is the prime cost of the company?
CA Sunil Keswani 16

(a) `5,10,80,600
(b) `5,44,40,600
(c) 15,36,00,600
(d) `5,19,20,600

Question – 2
How much is the cost of production?
(a) `5,49,09,600
(b) `5,50,59,600
(c) `5,48,73,600
(d) `5,50,59,000

Question – 3
What is the value of cost of goods sold?
(a) `5,49,09,600
(b) `5,50,59,600
(c) `5,48,73,600
(d) `5,50,59,000

Question – 4
How much is the factory cost?
(a) `5,49,09,600
(b) `5,50,59,600
(c) `5,48,73,600
(d) `5,50,59,000

Question – 5
What is the value of cost of sales?
(a) `5,66,49,600
(b) `5,50,59,600
(c) `5,48,73,600
(d) `5,50,59,000

Question
What would be price cost from below information?
Direct material purchased : `75,000
Direct labour : `45,000
Direct expenses : `15,000
Manufacturing overhead : `22,500
Direct materials consumed : `67,500
What would be the prime cost?
CA Sunil Keswani 17

(a) `1,35,000
(b) `,127500
(c) `1,57,500
(d) `1,50,000

Question
Calculate value of closing stock from the following:
Opening stock of finished goods (500 units) : `2,000
Cost of production (10000 units) : `50,000
Closing stock (1000 units):?
(a) `4,000
(b) `4,800
(c) `5,000
(d) `6,000
CA Sunil Keswani 18

Batch Costing
Case Scenario
Arnav Ltd. operates in beverages industry where it manufactures soft-drink in three sizes of
Large (3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are processed in
batches. The 5,000 litres capacity processing plant consumes electricity of 90 kilowatts per
hour and a batch takes 1 hours 45 minutes to complete. Only symmetric size of products can
be processed at a time. The machine set-up takes 15 minutes to get ready for next batch
processing. During the set-up power consumption is only 20%.

(i) The current price of Large, Medium and Small are `150, `90 and `50 respectively.
(ii) To product a litre of beverage, 14 litres of raw material–W and 25 ml of material–C are
required which costs `0.50 and `1,000 per litre respectively.
(iii) 20 direct workers are required. The workers are paid `880 for 8 hours shift of work.
(iv) The average packing cost per bottle is `3
(v) Power cost is `7 per kilowatt-hour (Kwh)
(vi) Other variable cost is `30,000 per batch
(vii) Fixed cost (administration and marketing) is `4,90,00,000.
(viii) The holding cost is `1 per bottle per annum.
The marketing team has surveyed the following demand (bottle) of the product:
Large Medium Small
3,00,000 7,50,000 20,00,000
The following information has been sought from you the purpose of performance review
meeting:

Question – 1
Number of large size bottles that can be processed in a batch?
(a) 5,000 bottles
(b) 1,666 bottles
(c) 3,333 bottles
(d) 8,333 bottles

Question – 2
Total number of batches to be run to process medium size bottles
(a) 180
(b) 225
(c) 240
(d) 645
CA Sunil Keswani 19

Question – 3
Material-W required for small size bottles.
(a) 1,26,000 litres
(b) 1,68,000 litres
(c) 1,57,500 litres
(d) 1,51,50,000 litres

Question – 4
Profit/loss per batch:
(a) 7,72,17,370
(b) 5,52,54,550
(c) 2,82,17,370
(d) 4,50,25,225

Question – 5
What is the Economic Batch Quantity (EBQ) small bottles?
(a) 1,34,234 bottles
(b) 2,12,243 bottles
(c) 3,46,592 bottles
(d) 4,12,268 bottles

Question
A customer has been ordering 80,000 caps during the year. It is estimated that it costs `1 as
inventory holding cost per cap per month and that the set-up cost per run of cap manufacture
is `3,500. What is optimum run size of cap manufacture?
(a) 12 runs
(b) 10 runs
(c) 15 runs
(d) 7 runs
CA Sunil Keswani 20

Service Costing

Case Scenario
A LMV Pvt. Ltd., operates cab/car rental service in Delhi/NCR. It provides its service to the
offices of Noida, Gurugram and Faridabad. At present it operates CNG fueled cars but it is also
considering to upgrade these into Electric vehicles (EV). The details related with the owning
of CNG & EV propelled cars are as tabulated below:
Particulars CNG Car EV Car
Car purchase price (`) 9,20,000 15,20,000
Govt. subsidy on purchase of car (`) - 1,50,000
Life of the car 15 years 10 years
Residual value (`) 95,000 1,70,000
Mileage 20 km/kg 240 km per charge
Electricity consumption per full charged - 30 Kwh
CNG cost per Kg (`) 60 -
Power cost per Kwh (`) - 7.60
Annual Maintenance cost (`) 8,000 5,200
Annual insurance cost (`) 7,600 14,600
Tyre replacement cost in every 5 year (`) 16,000 16,000
Battery replacement cost in every 8 years 12,000 5,40,000
(`)
Apart from the above, the following are the additional information:
Particulars
Average distance covered by a car in a month 1,500 km
Driver’s salary (`) 20,000 p.m.
Garage rent per car (`) 4,500 p.m.
Share of office and administration cost per car (`) 1,500 p.m.
You have been approached by the management of A LMV Pvt. Ltd. for consultation on the two
options of operating the cab service. The expected questions that may be asked by the
management are as follows:

Question - 1
What would be the depreciable value of CNG car and EV car respectively?
(a) `13,50,000 and `14,40,000
(b) `15,20,000 and `8,25,000
(c) `8,25,000 and `14,40,000
(d) `8,25,000 and `12,00,000
CA Sunil Keswani 21

Question – 2
What would be the monthly cost of fuel and electricity for an CNG and EV care respectively?
(a) `4,500 and `1,425
(b) `1,500 and `4,500
(c) `1,525 and `1,450
(d) `1,525 and `1,425

Question – 3
What would be the total cost to be incurred for replacement of tyres for CNG and EV care
respectively?
(a) `32,000 and `24,000
(b) `12,000 and `32,000
(c) `32,000 and `16,000
(d) `16,000 and `12,000

Question – 4
What would be the total cost to be incurred for replacement of battery for CNG and EV car
respectively?
(a) `5,40,000 and `12,000
(b) `12,000 and `5,40,000
(c) `2,00,000 and `12,000
(d) `1,00,000 and `2,00,000

Question – 5
What would be the operating cost of vehicle per month per car for both CNG and EV options?
(a) `36,627.78 and `43,708.33
(b) `36,627.78 and `48,523.26
(c) `48,523.26 and `28,150.29
(d) `48,523.26 and `28,510.29

Question
Total passenger km run by APL logistic Ltd. was 43,80,480 for the year between Delhi and
Manesar. The bus made 3 round trips per day. Seating capacity of the bus was 52 passengers
and average daily occupancy was 75% and the bus runs on an average 26 days in a month.
Calculate the distance between Delhi and Manesar.
(a) 55 km
(b) 720 km
(c) 65 km
(d) 60 km
CA Sunil Keswani 22

Question
Find out the most appropriate unit cost from the following information of ZMD Transport
Services Ltd. dealing in goods carriage:
Total cost = `5,25,000
Kms. Travelled = 8,75,000
Tonnes carries = 4,000
No. of Drivers = 25
No. of trucks = 20
Tonnes Km carried = 6,55,000
(a) `0.6
(b) `0.8
(c) `21,000
(d) `131.25
CA Sunil Keswani 23

Process Costing
Case Scenario
Arnav Ltd. manufactures chemical solutions used in paint and adhesive products. Chemical
solutions are produced in different processes. Some of the processes are hazardous in nature
which may results in fire accidents.

At the end of the last month, one fire accident occurred in the factory. The fire destroyed some
of the paper files containing records of the process operations for the month.

You being an associate to the Chief Manager (finance), are assigned to prepare the process
accounts for the month during which the fire occurred. From the documents and files of other
sources, following information could be retrieved:

Opening work-in-process at the beginning of the month was 500 litres, 80% complete for
labour and 60% complete for overheads. Opening work-in-process was valued at `2,78,000.

Closing work-in-process at the end of the month was 100 litres, 20% complete for labour and
10% complete for overheads.

Normal loss is 10% of input(fresh) and total losses during the month were 800 litres partly due
to the fire damage.

Output transferred to finished goods was 3,400 litres

Losses have a scrap value fo `20 per litre

All raw material are added at the commencement of the process.

The cost per equivalent unit is `660 for the month made up as follows:
Raw material `300; labour `200; Overheads `160.

The company uses FIFO method to value work-in-process and finished goods. The following
information are required for managerial decisions:

Question – 1
How much quantity of raw material introduced during the month?
(a) 4,300 litres
(b) 3,500 litres
(c) 4,200 litres
(d) 3,800 litres
CA Sunil Keswani 24

Question – 2
The quantity of normal loss and abnormal loss are:
(a) Normal loss – 380 litres and abnormal loss – 420 litres
(b) Normal loss – 350 litres and abnormal loss – 450 litres
(c) Normal loss – 430 litres and abnormal loss – 370 litres
(d) Normal loss – 420 litres and abnormal loss – 380 litres

Question – 3
Value for raw material added to the process during the month is:
(a) `10,10,000
(b) `10,33,600
(c) `10,18,400
(d) `10,20,000

Question – 4
Value of labour and overhead in closing Work-in-process are:
(a) `4,000 & `1,600 respectively
(b) `20,000 & `16,000 respectively
(c) `16,000 & `9,000 respectively
(d) `13,200 & `6,600 respectively

Question – 5
Value of output transferred to finished goods is:
(a) `22,57,200
(b) `20,06,400
(c) `22,44,000
(d) `19,27,.200

Case Scenario
The following data are available in respect of Process-I for January 2024:
(1) Opening stock of work in process: 600 units at a total cost of `4,200
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of `55,200 for 9,200 units.
(4) Direct wages incurred `18,600
(5) Overheads `8,630
(6) Units scrapped 200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
CA Sunil Keswani 25

Overheads 80%
(7) Closing work in process: 700 units. The stage of completion of these units was:
Materials 100%
Labour 70%
Overheads 70%
(8) 8,900 units were completed and transferred to the next process
(9) Normal loss is 4% of the total input (opening stock plus units put in)
(10) Scrap value is `6 per unit
You are required to be ready with the following information:

Question – 1
What is the equivalent units for labour?
(a) 9,800 units
(b) 8,808 units
(c) 9,030 units
(d) 8,838 units

Question – 2
What is the total cost of per equivalent units?
(a) `9.08
(b) `10.10
(c) `8.08
(d) `8.68

Question – 3
What is the total cost of abnormal gain?
(a) `1,743.36
(b) `1,209.52
(c) `2,506.25
(d) `3,728.16

Question – 4
What is the total cost of closing work in process?
(a) `5,709.20
(b) `5,809.20
(c) `5,806.20
(d) `5,734.80

Question – 5
What is the cost of the units to be transferred to the next process using the FIFO method?
(a) `50,900.15
(b) `80,303.20
CA Sunil Keswani 26

(c) `80,800.36
(d) `50,300.80

Question
A product passes through Process-I. Input raw material issued were 8,000 units. Normal loss
anticipated was 10% of input with realisable value of `5 per unit. 7,600 units of output were
produced and transferred to next process. If the total cost incurred under Process-I was
`40,000, then amount of abnormal gain/(loss) is:
(a) `2,000
(b) (`5,000)
(c) (`2,500)
(d) `3,000
CA Sunil Keswani 27

Joint & By-Product

Case Scenario
A company processes a raw material in its Department 1 to produce three products, viz. A, B
and X at the same split-off stage. During a period 1,80,000 kgs of raw materials were processed
in Department 1 at a total cost of `12,88,000 and the resultant output of A, B and X were
18,000 kgs, 10,000 kgs and 54,000 kgs respectively. a and B were further processed in
Department 2 at a cost of `1,80,000 and `1,50,000 respectively. Joint Cost will be apportioned
on the basis of sale value at split off point.

X was further processed in Department 3 at a cost of `1,08,000. There is no waste in further

processing. The details of sales effected during the, period were as under:
A B X
Quantity Sold (Kgs) 17,000 5,000 44,000
Sales Value (`) 12,24,000 2,50,000 7,92,000
There were no opening stocks. If these products were sold at split-off stage, the selling prices
of A, B and X would have been `50, `40 and `10 per kg respectively.

Question – 1
The share of joint cost of product A is:
(a) `2,80,000
(b) `3,78,000
(c) `5,24,000
(d) `6,30,000

Question – 2
The share of joint cost of product B is:
(a) `2,80,000
(b) `3,78,000
(c) `5,24,000
(d) `6,30,000

Question – 3
The share of joint cost of product X is:
(a) `2,80,000
(b) `3,78,000
(c) `5,24,000
(d) `6,30,000

Question – 4
The profit of product A for the given period is:
(a) `35,000
CA Sunil Keswani 28

(b) `3,96,000
(c) `4,59,000
(d) `5,41,000

Question – 5
The profit of product X for the given period is:
(a) `35,000
(b) `3,96,000
(c) `4,59,000
(d) `5,41,000

Question
In case of joint products, the main objective of accounting of the cost is to apportion the joint
cost incurred up to the split off point. For cost apportionment one company has chosen Physical
Quantity Method. Three joint products A, B and C are produced in the same process. Up to the
point of split off the total production of A, B and C is 60,000 kg, out of which A produces
30,000 kg and joint costs are `3,60,000. Joint cost allocated to the product A is:
(a) `1,20,000
(b) `60,000
(c) `1,80,000
(d) `2,00,000
CA Sunil Keswani 29

Marginal Costing
Case Scenario
A meeting of the heads of departments of the Arnav Ltd. has been called to review the operating
performance of the company in the last financial year. The head of the production department
appraised that during the last year the company could operate at 70% capacity level but in the
coming financial year 95% capacity level can be achieved if an additional amount of `100
crore on capex and working capital is incurred.

The head of the finance department has presented that during the last financial year the
company and a P/V ratio of 40%, margin of safety and the break-even were `50 crore and
`200 crore respectively.

To the reply to the proposal of increasing the production capacity level to 95%, the head of the
finance department has informed that this could be achieved if the selling price and variable
cost are reduced by 8% and 5% of sales respectively. Fixed cost will also increase by `20 crore
due to increased depreciation on additional assets. The additional capital will be arranged at a
cost of 15% p.a. from a bank.

In the coming financial year, it has been aimed to achieve an additional profit of `10 crore
over and above the last year’s profit after adjusting the interest cost on the additional capital.

The following points is required to be calculated on urgent basis to put the same in the meeting.
You being an assistant to the head of finance, has been asked the followings:

Question – 1
What will be the revised sales for the coming financial year?
(a) `322.22 crore
(b) `311.11 crore
(c) `300.00 crore
(d) `324.24 crore

Question – 2
What will be the revised break-even point for the coming financial year?
(a) `222.22 crore
(b) `252.22 crore
(c) `244.44 crore
(d) `255.56 crore
CA Sunil Keswani 30

Question – 3
What will be the revised margin of safety for the coming financial year?
(a) `100 crore
(b) `58.89 crore
(c) `55.56 crore
(d) `66.66 crore

Question – 4
The profit of the last year and for the coming year are:
(a) `50 crore and `95 crore respectively
(b) `20 crore and `65 crore respectively
(c) `20 crore and `30 crore respectively
(d) `45 crore and `66.66 crore respectively

Question – 5
The total cost of the last year and for the coming year are:
(a) `230 crore and `292.22 crore
(b) `230 crore and `275 crore
(c) `220 crore and `282.22 crore
(d) `220 crore and `292.22 crore

Case Scenario
Miniso Pvt Ltd a company engaged in the business of manufacturing wireless Bluetooth
earphones. The company wishes to track its operating profitability and the margin it needs to
maintain to sustain profitability in the long run. Further the company has adopted the marginal
costing technique and define operational levels. In this regard the company has provided the
following information for the current year:
Opening stock of earphones - 30,000 units
Selling price of the earphones - `450 per unit
Variable costs incurred in manufacture - `270 per unit
Units produced during the previous year - 1,80,000 units
Expected production for the current year - 2,25,000 units
Expected sales for the current year - 2,40,000 units
Fixed cost per unit for last year was - `60 per unit
Expected rise in fixed cost - 10%
Expected increase in variable cost - 25%
Based on the above information available, the following needs to be determined:
CA Sunil Keswani 31

Question – 1
The profit that the company will make on achieving its targeted sales amounts to:
(a) `1,51,20,000
(b) `1,62,00,000
(c) `1,71,45,000
(d) `1,72,00,000

Question – 2
The units to be sold by the company to achieve Break-even is:
(a) 57,600 units
(b) 87,600 units
(c) 1,05,600 units
(d) 96,000 units

Question – 3
The total fixed cost for the current year post the cost increase amounts to:
(a) `1,08,00,000
(b) `1,48,50,000
(c) `1,18,80,000
(d) `1,44,00,000

Question – 4
The quantity of closing stock and its value amounts to:
(a) Closing stock in units – Nil and Value – Nil
(b) Closing stock in units – 15,000 and Value - `40,50,000
(c) Closing stock in units – 15,000 and Value - `50,62,500
(d) Closing stock in units – 15,000 and Value - `58,05,000

Question – 5
Margin of safety in units amounts to:
(a) 87,600 units
(b) 1,52,400 units
(c) 1,62,000 units
(d) 1,60,000 units

Case Scenario
The analysis of cost sheet of A Ltd. for the last financial year has revealed the following
information for its product R:
Elements of cost Variable Cost Portion Fixed Cost
Direct Material 30% of cost of goods sold -
Direct Labour 15% of cost of goods sold -
CA Sunil Keswani 32

Factory overheads 10% of cost of goods sold `2,30,000

General & Administration Overheads 2% of cost of goods sold `71,000
Selling & Distribution Overhead 4% of cost of sales `68,000
Last year 5,000 units were sold at `185 per unit.
You being an associate to cost controller of the A Ltd., is expected to answer the following:

Question -1
What is the cost of goods sold for the last year?
(a) `7,20,000
(b) `7,00,000
(c) `7,10,000
(d) `7,30,000

Question – 2
What is the cost of sales for the last year?
(a) `8,00,000
(b) `8,20,000
(c) `8,10,000
(d) `7,90,000

Question – 3
The total fixed cost is:
(a) `3,79,000
(b) `3,89,000
(c) `3,59,000
(d) `3,69,000

Question – 4
Calculate the Break-even sales (in rupees)
(a) `6,90,882
(b) `7,90,000
(c) `3,89,000
(d) `5,48,692

Question – 5
What is the Margin of Safety (in %)
(a) 26.58%
(b) 25.31%
(c) 53.41%
(d) 34.25%
CA Sunil Keswani 33

Question
A company sells two products, A and B. The sales mix is 4 units and 3 units of B. the
contribution margins per unit are `140 for A and `70 for B. Fixed costs are `6,16,000 per
month. What is break-even point for Product B?
(a) 5,600 units
(b) 2,400 units
(c) 3,200 units
(d) 800 units
CA Sunil Keswani 34

Standard Costing
Case Scenario
K Ltd. is a manufacturer of a single product A. 8,000 units of the product A has been produced
in the month of March 2024. At the beginning of the year a total 1,20,000 units of the product-
A has been planned for production. The cost department has provided the following estimates
of overheads:
Particulars Amount (`)
Fixed 12,00,000
Semi-variable 1,80,000
Variable 6,00,000
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40
per cent of variable character.

The records of the production department shows that the company could have operated for 20
days but there was a festival holiday during the month.

The actual cost data for the month of March 2024 are as follows:
Particulars Amount (`)
Fixed 1,10,000
Semi-variable 19,200
Variable 48,000
The cost department of the company is now preparing a cost variance report for managerial
information and action. You being an accounts officer of the company are asked to calculate
the following information for preparation of the variance report:

Question – 1
What is the amount of variable overhead cost variance for the month of March 2024:
(a) `10,200 (A)
(b) `10,400 (A)
(c) `10,800 (A)
(d) `10,880 (A)

Question – 2
What is the amount of fixed overhead volume variance for the month of March:
(a) `9,000 (F)
(b) `9,000 (A)
(c) `21,800 (A)
(d) `11,000 (A)
CA Sunil Keswani 35

Question – 3
What is the amount of fixed overhead expenditure variance for the month of March:
(a) `21,520 (A)
(b) `21,500 (A)
(c) `21,400 (A)
(d) `21,480 (A)

Question – 4
What is the amount of fixed overhead calendar variance for the month of March:
(a) `5,400 (A)
(b) `5,450 (A)
(c) `5,480 (A)
(d) `5,420 (A)

Question – 5
What is the amount of fixed overhead cost variance for the month of March:
(a) `43,220 (A)
(b) `43,300 (A)
(c) `43,200 (A)
(d) `43,380 (A)

Question
The wages budget for the last period was based on a standard repair time of 30 minutes per unit
and a standard wage rate of `50 per hour. The actual data for the last period are as follows:
Number of units = 30,000
Labour rate variance = 7,500 (A)
Labour efficiency variance = Nil
From the information find out the actual rate of wages per unit.
(a) `50
(b) `25.50
(c) `50.50
(d) `25.25

Question
PQR Ltd. has normal monthly machine hour capacity of 120 machine working 8 hours per day
for 24 working days in a month. The budgeted fixed overhead is `5,60,000. The actual
production was 4,500 units. The actual fixed overhead was `5,75,000. Fixed overhead
expenditure variance will be:
(a) `15,000 (A)
(b) `15,000 (F)
CA Sunil Keswani 36

(c) `20,000 (F)

(d) `20,000 (A)

Question
The following information is given:
Budgeted production 12,000 units
Budgeted variable overhead `2,40,000
Standard time for one unit of output 2 hours
Actual production 11,800 units
Actual overhead incurred `2,44,000
Actual hours worked 23,200 hours
What is ‘Variable Overhead Efficiency Variance?
(a) `4,000 (A)
(b) `6,000 (A)
(c) `2,000 (F)
(d) `4,000 (F)
CA Sunil Keswani 37

Budget & Budgetary Control

Case Scenario
SR Ltd. is a manufacturer of Garments. For the first three months of financial year 2022-23
commencing on 1st April, 2022, production will be constrained by direct labour. It is estimated
that only 12,000 hours of direct labour hours will be available in each month.

For market reasons, production of either of the two garments must be at least 25% of the
production of the other. Estimated cost and revenue per garment are as follows:
Shirt (`) Short (`)
Sales price 60 44
Raw materials
Fabric @12 per metre 24 12
Dyes and cotton 6 4
Direct labour @8 per hour 8 4
Fixed Overhead @4 per hour 4 2
Profit 18 22
From the month of July 2022 direct labour will no longer be a constraint. The company expects
to be able to sell 15,000 shirts and 20,000 shorts in July 2022. There will be no opening stock
at the beginning of July 2022.

Sales volumes are expected to grow at 10% per month cumulatively thereafter throughout the
year. Following additional information is available:
• The company intends to carry stock of finished garments sufficient to meet 40% of the
next month’s sale from July 2022 onwards.
• The estimated selling price will be same as above.

Question – 1
The contribution per labour hour for shirt and short is:
(a) `22 and `24 respectively
(b) `22 and `48 respectively
(c) `44 and `24 respectively
(d) `44 and `48 respectively

Question – 2
The number of shirts to be manufactures is:
(a) 4,000
(b) 8,000
(c) 12,000
(d) 16,000
CA Sunil Keswani 38

Question – 3
The number of shorts to be manufactures is:
(a) 4,000
(b) 8,000
(c) 12,000
(d) 16,000

Question – 4
The amount of sales for shirt for month of august is:
(a) `9,00,000
(b) `9,90,000
(c) `8,80,000
(d) `9,68,000

Question – 5
The number of units to be manufactured of short for august is:
(a) 21,600
(b) 28,800
(c) 22,880
(d) 25,168

Question
ABC Co. makes a single product and is preparing its material usage budget for next year. Each
unit of product requires 2kg of material and 5,000 units of product are to be produced next year.
Opening inventory of material is budgeted to be 800 kg and ABC Co. budgets to increase
material inventory at the end of next year by 20%. The material usage for next year is:
(a) 8,000 kg
(b) 9,940 kg
(c) 10,000 kg
(d) 10,160 kg

Question
Product units are produced at the rate of 3 units per useful direct labour hour. Direct labour idle
time is 10% of hours paid for. Sales of 540 units are planned. Which of the following is the
direct labour budget (hours)?
(a) 1,620 hours
(b) 1,800 hours
(c) 180 hours
(d) 200 hours
CA Sunil Keswani 39

Question
The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead (`) 30,00,000 40,00,000

What would be the budgeted overhead for 60% level of activity:

(a) `32,00,000
(b) `34,00,000
(c) `30,00,000
(d) `36,00,000