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TEST-4
CA INTER
(16-07-2023)
COST AND MANAGEMENT ACCOUNTING

Topics Covered: Process Costing

Roll No …487512……
Total No. of Question: 9 Total No. of Printed Pages: 7
Time allowed: 3 hours Maximum Marks: 100

Answer to questions are to be given only in English except in the case of candidates who
have opted for Hindi Medium. If a candidate has not opted for Hindi Medium, his/her
answers in Hindi will not be valued.

All Questions are compulsory.

Working notes should form part of the answer.

Q.1 A product passes through three processes – A, B, and C. The details of expenses incurred on the three
processes during the year 2012 were as under:

Process A B C
Units issued/introduced 10,000
Cost per unit Rs.100
Sundry materials Rs.28,000 Rs.15,000 Rs.8,000
Labour 3,00,000 48,500 65,000
Direct expenses 41,000 53,570 27,360
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Office & administration expenses during the year were Rs.80,000 and selling expenses were
Rs.50,000
.
Actual output of the three processes was: A – 9,200 units, B – 4,200 units and C – 2,100 units. One-
half of the output of Process A, two – thirds of the output of Process B was passed on to the next
process and the balance was sold. The entire output of Process C was sold. The Selling price is fixed
to provide a profit of 20% on cost in process A, 25% on cost in process B & 50% of selling
price in process C. The normal loss of the three processes, calculated on the input of every process
was: Process A – 6%, B – 10% and C – 20%. The loss of Process A was sold at Rs.10 per unit, that of
B at Rs.20 per unit and of Process C at Rs.30 per unit. Prepare the three Process Accounts, Normal
loss and abnormal gain/loss accounts & the Profit and Loss Account. {15 Marks}

Q.2 The following details are given in respect of manufacturing unit for the month of April, 2015:

(i) Opening work-in-progress 5000 units

(a) Materials Rs. 18,750
(b) Labour 7,500
(c) Overheads 3,750
(ii) Units introduced into the process 17,500 units
(iii) 18,500 units are transferred to the next process.
(iv) Process costs for the period are:
Material Rs. 2,50,000
Labour 1,95,000
Overheads 97,500
(v) Normal loss @ 4% realizable @ Rs.5 per unit whereas actual scrap is 1500 units.
(vi)The stage of completion of units in closing WIP is estimated to be: Material 100%, Labour 60% and
Overheads 50%.

You are required to prepare Process A/c showing

Statement of equivalent units of production, Statement of cost, Statement of value {12 Marks}

Q.3 R.P. Ltd furnished you the following information relating to process B for the month of October 2014:

(i) Opening work-in-progress 5000 units of the value of Rs.11,500

(a) Materials (80% complete)
(b) Labour & Overheads (60% complete)

(ii) Units received – 20,000 units @ Rs.3/- per unit.

(iii) Expenses debited to the process:

Direct materials – Rs. 14,650;
Labour – Rs. 21,148;
Overheads – Rs. 42,000.

(iv) Normal loss in process – One per cent of input.

(v) Closing Work-in- Progress – 3500 units; Degree of completion:

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Material – 100%
Labour and Overheads – 50%

(vi) Finished Output – 19,500 units

(vii) Degree of completion of abnormal loss:

Material – 100%
Labour and Overheads – 80%

(viii) Units scrapped as normal loss were sold at Re. 2 per unit.

(ix) All the units of abnormal loss were sold at Rs.2.50 per unit.

Prepare
(1) Statement of Equivalent production;

(2) Statement of Cost of Finished goods, Abnormal Loss and Closing Work-in-progress.
{15 Marks}

Q.4 In a manufacturing process, in the course of manufacture of the product X, the by – products P and Q also
emerge. The preparation expenses amount to Rs.1,31,505. All the three products are processed further and
sold in the market (details given below).
Main Product By – Products
X P Q
Sales value (Rs.) 90,000 60,000 40,000
Post – separation costs (Rs.) 6,000 5,000 4,000
Profit as a percentage of sales 25 20 15

Total fixed selling and distribution expenses are 10% of the total cost of sales and are apportioned to the three
products in the ratio of 20 : 40 : 40.

(i) Prepare a statement showing the apportionment of pre – separation costs to the main product and the two by
– products.

(ii) If the by – product P is not processed further and can be sold just after separation at Rs.58,500 without
incurring any selling & distribution expenses, would you advise its disposal at that stage? {10 Marks}

Q.5 ABC Ltd operates a simple chemical process to convert a single material into three separate items,
referred to here as X, Y, and Z. All three end products are separated simultaneously at a single split-off
point.

Product X and Y are ready for sale immediately upon split-off without further processing or any other
additional costs. Product Z, however, is processed further before being sold. There is no available
market price for Z at the split-off point.

The selling prices quoted here are expected to remain the same in the coming year. During 2002-03, the
selling prices of the items and the total amounts sold were: X – 196 tons sold for Rs.1,500 per ton.
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Y – 567 tons sold for Rs.1,200 per ton.

Z – 766 tons sold for Rs.950 per ton.

The total joint manufacturing costs for the year were Rs. 6,25,000. An additional Rs.3,10,000 was spent to
finish product Y & Rs.1,80,000 for Z. Closing quantity were:
X – 180 tons
Y – 83 tons
Z – 64 tons
There was no opening or closing work-in-progress.

Required:
(i) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods sold for
income statement purpose as of March 31,2003, using:
(a) Net realizable value (NRV) method of joint cost allocation.
(b) Constant gross-margin percentage NRV method of joint-cost allocation.
(ii) Compare the gross-margin percentages for X, Y and Z using two methods given in requirements (i).
{12 Marks}

Q.6 Following costs were incurred in producing 800 M.T. of M. S. Rods:

Materials Rs.3,80,000
Labour Rs.1,60,000
Processing Charges Rs.89,560
-----------------
Total Cost Rs. 6,29,560

Of the total output 15% was defective and had to be sold after a discount of 20% off the normal price. The scrap
arising out of the production is to be disposed at a cost of Rs.8,760. The sale price is calculated to yield 15%
profit on sales you are required to find out the normal price as well as the discounted price per M.T. of M. S.
Rods. {6 Marks}

Q.7 The input to a purifying process was 16,000 kgs. of basic material purchased @ ₹12 per kg. Process
wages amounted to ₹ 72,000 and overhead was applied @ 240% of the labour cost. Indirect materials of
negligible weight were introduced into the process at a cost of ₹33,000. The actual output from the
process weighted 15,000 kgs. The normal yield of the process is 90%. Any difference in weight between
the input of basic material and output of purified material (product) is sold @ ₹5 per kg.

The process is operated under a licence, which provides for the payment of royalty @ ₹ 2 per kg of the
purified material produced.

This Process resulted in three products A,B and C in 3:2:1 realisable @ Rs. 40, 50 & 60 per Kg.

Prepare:
(i) Purifying Process Account (ii) Normal Wastage Account
(iii) Abnormal Wastage/Yield Account (iv) Royalty Payable Account
{8 Marks}
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Q.8 A company manufactures one main product (M) and two by-products B1and B2. For the month of January
2022, following details are available:
Total Cost upto Separation point ₹ 2,15,400
M B1 B2
Cost after separation − ₹ 35,000 ₹ 24,000
No. of units produced 4,000 1,800 3,000
No. of Units sold 3,000 1,500 2,500
Selling price per unit ₹100 ₹50 ₹39
Estimated net profit as − 25% 30%
parentage of cost
Estimated selling expenses 20% 15% 15%
as percentage to sales value

Prepare statement showing:

(i) Allocation of joint cost; and
(ii) Product wise and overall profitability of the company for January 2022. {7 Marks}

Q.9 (a) JKL Limited produces two products – J and K – together with a by-product L from a single main
process (process I). Product J is sold at the point of separation for ₹55 per kg. whereas product K is sold
for ₹77 per kg after further processing into product K2. By-product L is sold without further processing
for ₹18 per kg.

Process I is closely monitored by a team of chemists, who planned the output per 1,000 kg of output
materials to be as follows:

Product J 500 kg
Product K 350 kg
Product L 100 kg
Toxic waste 50 kg

The toxic waste is disposed at a cost of ₹15.00 per kg, and arises at the end of processing.

Process II which is used for further processing of product K into product K2, has the following cost
structure:
Fixed costs ₹2,64,000 per week
Variable cost ₹16.50 per kg processed

The following actual data relate to the first week of the month:

Process I
Opening work-in-progress Nil
Material input 40,000 kg costing ₹7,00,000
Direct labour ₹4,50,000
Variable Overheads ₹1,76,000
Fixed Overheads ₹2,64,000
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Outputs:
Product J 19,200 kg
Product K 14,400 kg
Product L 4,000 kg
Toxic Waste 2,400 kg
Closing work-in-progress Nil
Process II
Opening work-in-progress Nil
Input of product K 14,400 kg
Output of product K2 13,200 kg
Closing work-in-progress (40% converted and 1,200 kg
conversion costs were incurred in accordance
with the planned cost structure)

Required:
(i) Prepare Process I account for the first week of the month using the final sales value method of
attribute the pre-separation costs to joint products.
(ii) Prepare the toxic waste account and Process II account for the first week of the month.
(iii) Comment on the method used by the JKL Limited to attribute the pre - separation costs to joint
products.
(iv) Advise the management of JKL Limited whether or not, on purely financial grounds, it should
continue to process product K into product K2:
(a) If product K could be sold at the point of separation for ₹47.30 per kg; and
(b) If the 60% of the weekly fixed costs of Process II were avoided by not processing product K further.
{15 Marks}
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SPACE FOR ROUGH WORK