Maximum Marks: 100
Time: 3 Hours

Instructions:

1. Answer all questions.
2. Show detailed workings wherever required.
3. Use appropriate costing and management accounting techniques.

---

Section A: Theory & Conceptual Questions (20 Marks)

Answer any 4 questions. Each carries 5 marks.

1. Explain the concept of marginal costing and discuss its usefulness in decision making.
2. Differentiate between absorption costing and variable costing. Illustrate with examples.
3. Define standard costing. Explain the types of variances that can arise in material and labor costs.
4. Discuss the role of budgetary control in an organization and explain how it contributes to cost management.
5. Explain Activity-Based Costing (ABC) and highlight situations where ABC provides more accurate cost information than traditional costing.

---

Section B: Problem-Solving / Numerical Questions (50 Marks)

Answer any 5 questions. Each carries 10 marks.

1. A company produces 5,000 units of a product. The costs are as follows:
   • Direct material: ₹ 2,50,000
   • Direct labor: ₹ 1,50,000
   • Factory overheads: ₹ 1,00,000 (40% fixed, 60% variable)
   • Selling & admin expenses: ₹ 60,000 (30% fixed, 70% variable)
   Selling price per unit is ₹ 100.
   Required:
   a) Compute profit using absorption costing and marginal costing.
   b) Explain the difference in profits.
2. A standard cost card for a product shows:
   • Standard material: 5 kg @ ₹ 10 per kg
   • Standard labor: 2 hours @ ₹ 20 per hour
   Actual production: 1,000 units
   Actual material used: 5,500 kg @ ₹ 11 per kg
   Actual labor hours: 1,900 hours @ ₹ 22 per hour Required: Compute:
   a) Material cost variance (price & usage)
   b) Labor cost variance (rate & efficiency)
3. The following data relates to a company:
   • Fixed costs: ₹ 5,00,000
   • Selling price per unit: ₹ 50
   • Variable cost per unit: ₹ 30
   Required:
   a) Compute Break-Even Point (BEP) in units and sales value.
   b) Calculate margin of safety if the company plans to sell 40,000 units.
   c) Explain the significance of the contribution margin in decision-making.
4. A company has three products: X, Y, Z. The details are: ProductSelling Price/unitVariable Cost/unitMachine Hours/unitDemand (units)X₹ 60₹ 4021,000Y₹ 50₹ 3011,500Z₹ 70₹ 503800 Available machine hours: 4,000
   Required: Determine the product mix to maximize profit using contribution per machine hour.
5. Prepare a flexible budget for a company based on the following information:
   • Fixed production overheads: ₹ 1,00,000
   • Variable production overheads: ₹ 20 per unit
   • Selling price: ₹ 50 per unit
   • Budgeted sales: 10,000 units
   Required: Prepare a flexible budget for 8,000 and 12,000 units.

---

Section C: Case Study / Analytical Questions (30 Marks)

Answer any 2 questions. Each carries 15 marks.

1. Case Study: ABC Ltd. manufactures a single product. The following data is available:
   • Budgeted production: 10,000 units
   • Standard cost:
     • Material: 4 kg/unit @ ₹ 20/kg
     • Labor: 2 hours/unit @ ₹ 50/hour
     • Variable overhead: ₹ 30/unit
     • Fixed overhead: ₹ 1,50,000
   Actual production: 9,500 units
   Actual cost incurred:
   • Material: 38,500 kg @ ₹ 19.50/kg
   • Labor: 18,800 hours @ ₹ 52/hour
   • Variable overhead: ₹ 2,90,000
   • Fixed overhead: ₹ 1,40,000
   Required:
   a) Calculate material, labor, and overhead variances.
   b) Interpret the results to suggest areas of control improvement.
2. Analytical Question: A company wants to decide whether to make or buy a component. Relevant data:
   • Cost to make 10,000 units:
     • Material: ₹ 2,00,000
     • Labor: ₹ 1,50,000
     • Variable overhead: ₹ 50,000
     • Fixed overhead: ₹ 2,00,000
   • Supplier quotation for 10,000 units: ₹ 5,50,000
   Additional info: Making the component in-house will free 2,000 machine hours that can be used to produce a product with a contribution of ₹ 60 per hour. Required: Recommend whether to make or buy, with proper calculation.
3. Budgetary Control Scenario: A company has prepared an annual budget of ₹ 50,00,000. Actual sales achieved were ₹ 45,00,000 with actual costs ₹ 36,00,000. Required:
   a) Prepare a budgetary control statement and identify variances.
   b) Suggest managerial actions to address adverse variances.

Solutions – Group II: Cost & Management Accounting (100 Marks)

---

Section A: Theory & Conceptual Questions (20 Marks)

1. Marginal Costing:
   • Definition: Marginal costing is a costing technique in which only variable costs are charged to products, and fixed costs are treated as period costs.
   • Usefulness: Helps in:
     • Pricing decisions
     • Profit planning
     • Make-or-buy decisions
     • Break-even analysis
2. Absorption vs Variable Costing:

Feature	Absorption Costing	Variable Costing
Treatment of Fixed OH	Allocated to products	Charged to P&L
Profit Reporting	Affected by inventory changes	Independent of inventory changes
Use	External reporting	Internal decision-making

3. Standard Costing & Variances:
   • Standard costing: Predetermined cost for materials, labor, and overheads.
   • Variances:
     • Material: Price & usage variance
     • Labor: Rate & efficiency variance
     • Overhead: Spending, efficiency, and volume variance
4. Budgetary Control:
   • Budgeting helps in planning, coordination, performance evaluation, and cost control.
   • Example: Comparing actual vs budgeted costs to identify inefficiencies.
5. Activity-Based Costing (ABC):
   • ABC assigns overheads based on activities driving costs, not just volume.
   • Useful in multi-product organizations with diverse overhead consumption.
   • Example: Setup-intensive products may consume more cost per unit than production hours suggest.

---

Section B: Numerical Questions (50 Marks)

Q1: Absorption vs Marginal Costing Profit

Data:

• Direct Material = 2,50,000
• Direct Labor = 1,50,000
• FOH = 1,00,000 (40% fixed → 40,000 fixed, 60,000 variable)
• S&A = 60,000 (30% fixed → 18,000 fixed, 42,000 variable)
• Selling Price/unit = 100
• Units = 5,000

Step 1: Absorption Costing

• Product Cost/unit = DM + DL + FOH/unit
  • FOH/unit = Total FOH ÷ units = 1,00,000 ÷ 5,000 = ₹ 20/unit
  • Cost/unit = 2,50,000 ÷ 5,000 = 50 + 1,50,000 ÷ 5,000 = 30 + 20 = ₹ 100/unit
• Sales = 5,000 × 100 = 5,00,000
• Total cost = 5,000 × 100 = 5,00,000
• Profit = 0

Step 2: Marginal Costing

• Variable Cost/unit = DM + DL + VOH + Variable S&A
  • VOH = 60,000 ÷ 5,000 = 12/unit
  • Variable S&A = 42,000 ÷ 5,000 = 8.4 ≈ 8/unit
  • Total variable cost/unit = 50 + 30 + 12 + 8 = 100/unit
• Contribution = Sales – Variable Cost = 5,00,000 – 5,00,000 = 0
• Less Fixed Costs (FOH + Fixed S&A = 40,000 + 18,000 = 58,000)
• Profit = –58,000

Observation: Profit differs because absorption costing allocates fixed OH to inventory, while marginal costing expenses fixed costs in the period.

---

Q2: Material & Labor Variance

Material:

• Standard Cost = 5 × 1,000 × 10 = ₹ 50,000
• Actual Cost = 5,500 × 11 = ₹ 60,500

Material Price Variance (MPV) = (SP – AP) × AQ = (10 – 11) × 5,500 = –₹ 5,500 (Adverse)

Material Usage Variance (MUV) = (SQ – AQ) × SP = (5,000 – 5,500) × 10 = –₹ 5,000 (Adverse)

Labor:

• Standard Cost = 2 × 1,000 × 20 = ₹ 40,000
• Actual Cost = 1,900 × 22 = ₹ 41,800

Labor Rate Variance (LRV) = (SR – AR) × AH = (20 – 22) × 1,900 = –₹ 3,800 (Adverse)

Labor Efficiency Variance (LEV) = (SH – AH) × SR = (2,000 – 1,900) × 20 = ₹ 2,000 (Favorable)

---

Q3: Break-Even & Margin of Safety

• Fixed Cost = 5,00,000
• Selling Price/unit = 50
• Variable Cost/unit = 30

Contribution/unit = 50 – 30 = 20

BEP (units) = Fixed Cost ÷ Contribution/unit = 5,00,000 ÷ 20 = 25,000 units

BEP (sales value) = 25,000 × 50 = ₹ 12,50,000

Margin of Safety = Planned Sales – BEP = 40,000 – 25,000 = 15,000 units
MOS (%) = 15,000 ÷ 40,000 × 100 = 37.5%

---

Q4: Product Mix (Contribution per Machine Hour)

• Contribution/unit = Selling Price – Variable Cost

Product	Contribution/unit	Machine Hrs/unit	Contribution/Hr
X	60 – 40 = 20	2	10
Y	50 – 30 = 20	1	20
Z	70 – 50 = 20	3	6.67

Allocate machine hours starting with highest contribution/hour:

• Y = 1,500 units × 1 hr = 1,500 hrs
• X = 1,000 units × 2 hr = 2,000 hrs
• Remaining hours = 4,000 – 3,500 = 500 hrs → partial Z = 500 ÷ 3 = 166 units

Product mix:

• Y = 1,500 units, X = 1,000 units, Z = 166 units

---

Q5: Flexible Budget

• Fixed OH = 1,00,000 (unchanged)
• Variable OH = 20/unit
• Selling Price = 50/unit

Flexible budget for 8,000 units:

• Sales = 8,000 × 50 = 4,00,000
• Variable OH = 8,000 × 20 = 1,60,000
• Total OH = 1,60,000 + 1,00,000 = 2,60,000

Flexible budget for 12,000 units:

• Sales = 12,000 × 50 = 6,00,000
• Variable OH = 12,000 × 20 = 2,40,000
• Total OH = 2,40,000 + 1,00,000 = 3,40,000

---

Section C: Case Study / Analytical Questions (30 Marks)

Q1: Variance Analysis

Material Standard Cost: 4 × 9,500 × 20 = 7,60,000
Actual Cost: 38,500 × 19.5 = 7,50,750

• MPV = (SP – AP) × AQ = (20 – 19.5) × 38,500 = 19,250 (Favorable)
• MUV = (SQ – AQ) × SP = (38,000 – 38,500) × 20 = –10,000 (Adverse)

Labor Standard Cost: 2 × 9,500 × 50 = 9,50,000
Actual: 18,800 × 52 = 9,77,600

• LRV = (SR – AR) × AH = (50 – 52) × 18,800 = –37,600 (Adverse)
• LEV = (SH – AH) × SR = (19,000 – 18,800) × 50 = 10,000 (Favorable)

Variable Overhead Variance:

• VOH Standard = 30 × 9,500 = 2,85,000
• Actual = 2,90,000
• Total VOH variance = 5,000 (Adverse)

Fixed OH variance = 1,50,000 – 1,40,000 = 10,000 (Favorable)

---

Q2: Make-or-Buy Decision

• Cost to make = 2,00,000 + 1,50,000 + 50,000 + 2,00,000 = 6,00,000
• Supplier price = 5,50,000

Machine hours freed contribution: 2,000 × 60 = 1,20,000

Net cost to make considering opportunity = 6,00,000 – 1,20,000 = 4,80,000
Decision: Make in-house (cost effective).

---

Q3: Budgetary Control

• Budgeted Sales = 50,00,000, Actual = 45,00,000 → Sales variance = –5,00,000 (Adverse)
• Budgeted Costs = 50,00,000 – Profit = assume profit 10% → 45,00,000 actual
• Total variance = 0 (example), focus on reducing costs or increasing sales.

Disclaimer:
This mock test is created for educational purposes. Questions are original and inspired by previous years’ patterns; they are not exact copies of any official exam papers.