CA/CMA/CS ISFS -International School for Financial Studies

CMA INTER (Jun’22) WEEKEND EXAM 06

IJ22
PAPER - 08: COST ACCOUNTING
Date: 04th Dec, 2021 SUGGESTED ANSWERS Maximum Marks- 50
Portion:
Study Note 2.2, 2.3 : Employee Cost(CAS-7) and Direct Expenses (CAS-10)
Study Note 2.4 : Overheads: Absorption Costing Method (CAS-3)

I. CHOOSE THE CORRECT ANSWER 5x1=5M

1. Under Taylor’s differential piece rate scheme, if a worker fails to complete the task within the standard time, then
he is paid
(a) 83% of the piece work rate (b) 175% of the piece work rate
(c) 67% of the piece work rate (d) 125% of the piece work rate

2. Identify, which one of the following, does not account for increasing labour productivity
(a) Motivating workers (b) Job satisfaction
(c) Proper supervision and control (d) High labour turnover

3. Royalty paid on sales Rs. 89,000 and Software development charges related to product is Rs. 22,000. Calculate
Direct Expenses.
(a) Rs.1,11,100 (b) Rs.1,11,000 (c) Rs.111,110 (d) Rs. 1,10,000

4. Which of the following classification is meant for distinction between direct cost and indirect cost?
(a) Function (b) Element (c) Variability (d) Controllability

5. Which of the following is considered as normal loss of material?

(a) Pilferage (b) Loss due to accident
(c) Loss due to careless handling of material (d) None of these

II. FILL IN THE BLANKS 5x1=5M

1. Materials are issued from one process to another, based on Material Transfer Note.

2. Sunk costs are not considered for decision making because all past costs are not relevant.

3. Quantity Discount is discount allowed to the bulk purchaser.

4. Overheads are an aggregate of Indirect material, Indirect Labour and Indirect Expenses.

5. As per the Payment of Bonus Act, 1965 the maximum limit of bonus is 20% of gross earning.

III. MATCH THE FOLLOWING 4x1=4M

1. Overheads (a) Work beyond normal working hours
2. Overtime Premium (b) technique and process of ascertaining costs
3. FIFO (c) pricing material issues using the oldest purchase price first
4. Costing (d) Indirect material Indirect Labour and Indirect Expenses

Answer: 1- d 2- a 3- c 4- b

IV. ANSWER ANY 3 OF THE FOLLOWING 3X4=12M

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayathnagar 9849222244 1

 CA/CMA/CS ISFS -International School for Financial Studies
1. The following information is extracted from the Stores Ledger:
Material X
Opening Stock Nil
Purchases:
Jan. 1 100 @ Rs. 1 per unit
Jan. 20 100 @ Rs. 2 per unit
Issues:
Jan. 22 60 for Job W 16
Jan. 23 60 for Job W 17
Complete the receipts and issues valuation by adopting the First-In-First-Out Method. Tabulate the values
allocated to Job W 16, Job W 17 and the closing stock under the method aforesaid.
Solution:

2. Calculate the Employee hour rate of a worker X from the following data:
Basic pay Rs. 10,000 p.m.
D.A. Rs. 3,000 p.m.
Fringe benefits Rs. 1,000 p.m.
Number of working days in a year 300. 20 days are availed off as holidays on full pay in a year. Assume a
day of 8 hours.
Solution:
(i) Effective working days in a year 300
Less: Leave days on full pay 20
Effective working days 280 days
Total effective working hours (280 days × 8 hours) 2,240

(ii) Total wages paid in a year (Rs.)

Basic pay 1,20,000
D.A. 36,000
Fringe benefits 12,000
1,68,000

(iii) Hourly rate: Rs.1,68,000/2,240 hours Rs.75.00

3. A manufacturing unit produces two products X and Y. The following information is furnished:

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayatnagar 9849222244 2

CA/CMA/CS ISFS -International School for Financial Studies

Royalty paid on sales Rs.54,000 [@ Rs.2 per unit sold, for both the products]; Royalty paid on units
produced Rs.35,000 [@ Rs.1 per unit purchased, for both the products], Hire charges of equipment used in
manufacturing process of Product X only Rs.5,000, Compute the Direct Expenses.
Solution:

Note:
(i) Royalty on production and royalty on sales are allocated on the basis of units produced and units sold
respectively. These are directly identifiable and traceable to the number of units produced and units sold.
Hence, this is not an apportionment.
(ii) No adjustments are made related to units held, i.e. closing stock.

4. State causes for labour turnover

Answer:
Causes of Labour Turnovers:
(i) Personnel Causes: Workers may leave employment purely on personal grounds, e.g.,
(a) Dislike for the job, locality or environments
(b) Domestic troubles and family responsibilities
(c) Change of line for betterment
(d) Retirement due to old age and ill health
(e) Death

(ii) Unavoidable Causes: In certain circumstances it becomes obligatory on the part of the management to ask
some of the workers to leave. These circumstances are:
(a) Retrenchment due to seasonal trade, shortage of any material and other resources, slack market for the
product, etc.
(b) Discharge on disciplinary grounds
(c) Discharge due to continued or long absence

(iii) Avoidable Causes: Under this head, may be grouped the causes which need the attention of the management
most so that the turnover may be kept low by taking remedial measures. The main reasons for which workers
leave are:
(a) Unsuitability of job
(b) Low pay and allowance
(c) Unsatisfactory working conditions
(d) Unhappy relations with co-workers and unsatisfactory behaviour of superiors
(e) Dispute between rival trade unions
(f) Lack of transport, accommodation, medical and other factors
(g) Lack of amenities like recreational centres, schools, etc.
V. ANSWER THE FOLLOWING 2X12=24M
1. Mr. A. is working by employing 10 skilled workers. He is considering the introduction of some incentive
scheme - either Halsey Scheme (with 50% bonus) or Rowan Scheme - of wage payment for increasing the
Employee productivity to cope with the increased demand for the product by 25%. He feels that if the

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayathnagar 9849222244 3

CA/CMA/CS ISFS -International School for Financial Studies
proposed incentive scheme could bring about an average 20% increase over the present earnings of the
workers, it could act as sufficient incentive for them to produce more and he has accordingly given this
assurance to the workers. As a result of the assurance, the increase in productivity has been observed as
revealed by the following figures for the current month:
Hourly rate of wages (guaranteed) Rs.40
Average time for producing 1 piece by one worker
at the previous performance (This may be taken as time allowed) 2 hours
No. of working days in the month 25
No. of working hours per day for each worker 8
Actual production during the month 1,250 units
Required:
(i) Calculate effective rate of earnings per hour under Halsey Scheme and Rowan Scheme.
(ii) Calculate the savings to Mr. A in terms of direct labour cost per piece under the schemes.

Solution:
Working Notes:
1. Total time wages of 10 workers per month:
= No. of working days in the month × No. of working hours per day of each worker × Hourly rate of wages ×
No. of workers = 25 days × 8 hrs. × Rs.40 × 10 workers = Rs.80,000
2. Time saved per month:
Time allowed per piece to a worker 2 hours
No. of units produced during the month by 10 workers 1,250 pieces
Total time allowed to produce 1,250 pieces (1,250 × 2 hours) 2,500 hours
Actual time taken to produce 1,250 pieces 2,000 hours
Time saved (2,500 hours – 2,000 hours) 500 hours
3. Bonus under Halsey scheme to be paid to 10 workers:
Bonus = (50% of time saved) × hourly rate of wages = 50/100 × 500 hours × Rs.40 = Rs.10,000
Total wages to be paid to 10 workers are (Rs.80,000 + Rs.10,000) Rs.90,000, if Mr. A considers the introduction
of Halsey Incentive Scheme to increase the employee productivity.
4. Bonus under Rowan Scheme to be paid to 10 workers:

Total wages to be
Rowan Incentive Scheme to increase the Employee productivity.
(i) (a) Effective hourly rate of earnings under Halsey scheme: (Refer to Working Notes 1, 2 and 3)

(b) Effective hourly rate of earnings under Rowan scheme: (Refer to Working Notes 1, 2 and 4)

(ii) (a) Saving in terms of direct Employee cost per piece under Halsey scheme: (Refer to Working Note 3)
Employee cost per piece (under time wage scheme) = 2hours × Rs.40 = Rs.80.
Employee cost per piece (under Halsey scheme)

Saving per piece: (Rs.80 – Rs.72) = Rs.8

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayatnagar 9849222244 4

CA/CMA/CS ISFS -International School for Financial Studies

(b) Saving in terms of direct Employee cost per piece under Rowan Scheme: (Refer to Working Note 4)
Employee cost per piece under Rowan scheme = Rs.96,000/1,250 units = Rs.76.80
Saving per piece = Rs.80 – Rs.76.80 = Rs.3.20

2. Modern Manufactures Ltd. has three Production Departments P1, P2, P3 and two Service Departments
S1and S2 details pertaining to which are as under:

The following figures extracted from the Accounting records are relevant:

The expenses of the service departments are allocated as under:

Determine the total cost of product X which is processed for manufacture in Departments P1, P2 and P3 for
4, 5 and 3 hours respectively, given that its Direct Material Cost is Rs. 50 and Direct Labour Cost is Rs. 30.

Solution:
Statement Showing Distribution of Overheads of Modern Manufactures Ltd.

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayathnagar 9849222244 5

CA/CMA/CS ISFS -International School for Financial Studies

Redistribution of Service Department’s Expenses over Production Departments

Determination of total cost of Product ‘X’

Working Note:
Overhead cost:
(Rs. 3 × 4 hrs.) + (Rs. 2.02 × 5 hrs.) + (Rs. 5.03 × 3 hrs.) = Rs. 12 + Rs. 10.10 + Rs. 15.09 = Rs. 37.19

**** THE END ****

www.isfs.edu.in L B Nagar/Secunderabad/Kukatpally/Himayatnagar 9849222244 6