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CMA Inter Paper 8: Cost Accounting study materials
CMA Inter Paper 8: Cost Accounting study resources

CMA Inter Paper 8: Cost Accounting practice questions

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Question 1Introduction to Cost Accounting

Under the cost accounting framework used in CMA Inter Paper 8, which cost is defined as the aggregate of direct material cost, direct labour cost and direct expenses that can be conveniently identified with a specific cost unit?

  1. Works cost
  2. Cost of sales
  3. Prime cost Correct answer.
  4. Cost of production

Explanation

Prime cost is the first element of cost and is built from direct material, direct labour and direct expenses that are traceable to the cost unit. Factory overhead and administration overhead are added later, so works cost and cost of production are broader aggregates.

Question 2Introduction to Cost Accounting

A furniture manufacturer classifies wood consumed in making chairs as a direct material cost. Which characteristic of direct cost does this classification rely on?

  1. It is a non-recurring capital expenditure
  2. It varies in total in proportion to output
  3. It is traceable to the cost unit without apportionment Correct answer.
  4. It is incurred in the factory rather than the office

Explanation

A cost is direct when it can be identified with, and charged to, a specific cost unit or cost centre without any apportionment or arbitrary allocation. Being factory-related or variable does not by itself make a cost direct.

Question 3Introduction to Cost Accounting

Which cost is best described as a sunk cost in a decision to replace an existing machine?

  1. The written-down book value of the existing machine Correct answer.
  2. The insurance premium payable on the new machine
  3. The salary of the supervisor who will operate either machine
  4. The annual maintenance contract on the new machine

Explanation

A sunk cost is one already incurred and irretrievable, so it cannot be altered by the replacement decision. The book value of the existing machine represents past outlay and is irrelevant to the incremental analysis.

Question 4Introduction to Cost Accounting

A company's output rises from 8,000 units to 9,000 units and total cost rises from ₹6,40,000 to ₹7,00,000. What is the variable cost per unit, assuming a linear cost function?

  1. ₹60 Correct answer.
  2. ₹70
  3. ₹50
  4. ₹80

Explanation

Variable cost per unit equals the change in total cost divided by the change in output: ₹60,000 ÷ 1,000 units = ₹60 per unit. The fixed element is then ₹6,40,000 minus 8,000 units at ₹60, that is ₹1,60,000.

Question 5Introduction to Cost Accounting

Which of the following is the most appropriate basis for apportioning factory rent among production departments?

  1. Direct labour hours worked in each department
  2. Value of direct materials issued to each department
  3. Floor area occupied by each department Correct answer.
  4. Machine hour rate of each department

Explanation

Apportionment should use a basis that reflects the benefit received by each department. Rent is driven by the space occupied, so floor area is the logical basis.

Question 6Introduction to Cost Accounting

In a manufacturing account prepared under cost accounting principles, which item is added to factory overheads when computing works cost?

  1. Selling and distribution expenses
  2. Direct wages Correct answer.
  3. Interest on capital
  4. Administration expenses

Explanation

Works or factory cost is built as prime cost plus factory overheads, and prime cost already contains direct wages. Selling, distribution and administration costs belong to later stages of the cost statement.

Question 7Introduction to Cost Accounting

A firm purchased raw material at ₹90,000 and incurred freight inward of ₹5,000 and trade discount of ₹4,000 already deducted by the supplier. What is the cost of material purchased for costing purposes?

  1. ₹90,000
  2. ₹86,000
  3. ₹95,000 Correct answer.
  4. ₹99,000

Explanation

Materials are valued at purchase price less trade discount plus all costs of bringing them to the stores, such as freight inward. Since the ₹4,000 trade discount is already deducted, the cost is ₹90,000 + ₹5,000 = ₹95,000.

Question 8Introduction to Cost Accounting

Which inventory valuation method issues materials at the price of the oldest stock remaining and is normally used during falling prices?

  1. Simple average price
  2. Last-in-first-out Correct answer.
  3. First-in-first-out
  4. Specific price

Explanation

Last-in-first-out charges issues at the latest purchase price, so under falling prices issues carry the lower recent cost. First-in-first-out issues the oldest, higher-priced layers instead.

Question 9Introduction to Cost Accounting

A worker is paid ₹120 per hour and produced 60 units in a 40-hour week. The standard output for the week is 50 units. Under the Rowan premium plan, what is the total earnings for the week?

  1. ₹5,280
  2. ₹5,520
  3. ₹4,800
  4. ₹5,760 Correct answer.

Explanation

Time taken is 40 hours against a standard of 50 hours, so time saved is 10 hours. Rowan bonus is time saved ÷ time taken × time taken × rate = 10 ÷ 40 × 40 × ₹120 = ₹1,200, and basic wages are 40 × ₹120 = ₹4,800, giving ₹6,000? Recomputing: bonus = (10/50) × 40 × 120 = ₹960, so earnings = ₹4,800 + ₹960 = ₹5,760.

Question 10Introduction to Cost Accounting

Under the Halsey system with a 50% sharing ratio, a worker completes a job in 30 hours against a standard time of 40 hours at ₹100 per hour. What are the total earnings?

  1. ₹3,000
  2. ₹4,000
  3. ₹3,200
  4. ₹3,500 Correct answer.

Explanation

Time saved is 10 hours and the bonus is 50% of time saved multiplied by the rate: 0.5 × 10 × ₹100 = ₹500. Adding the basic wage of 30 × ₹100 = ₹3,000 gives total earnings of ₹3,500.

Question 11Introduction to Cost Accounting

Which of the following is treated as an idle time cost rather than a direct labour cost of production?

  1. Time spent on a specific job as per the job card
  2. Time spent on rework of defective units
  3. Time spent on normal machine setting for a job
  4. Time lost waiting for materials from the stores Correct answer.

Explanation

Idle time arises when workers are available but no productive work is done, for example waiting for materials, and its cost is normally charged to overheads. Time booked to a job or to rework is charged to that job or to overheads relating to defective work.

Question 12Introduction to Cost Accounting

A department has budgeted overheads of ₹2,40,000 and budgeted machine hours of 12,000. Actual overheads were ₹2,55,000 and actual machine hours were 12,500. What is the amount of under- or over-absorption?

  1. ₹5,000 over-absorbed
  2. ₹15,000 under-absorbed
  3. ₹5,000 under-absorbed Correct answer.
  4. ₹15,000 over-absorbed

Explanation

The absorption rate is ₹2,40,000 ÷ 12,000 = ₹20 per machine hour, so absorbed overhead is 12,500 × ₹20 = ₹2,50,000. Actual overhead of ₹2,55,000 exceeds the absorbed amount by ₹5,000, which is under-absorption.

Question 13Introduction to Cost Accounting

Which method of overhead recovery is most suitable for a department where work is largely manual and machine use is negligible?

  1. Direct material percentage
  2. Prime cost percentage
  3. Direct labour hour rate Correct answer.
  4. Machine hour rate

Explanation

Where overheads are driven mainly by manual effort, the direct labour hour rate links recovery to the time actually spent by workers. Machine hour rate suits mechanised departments, while percentage methods are crude and ignore time.

Question 14Introduction to Cost Accounting

In process costing, normal loss is valued at nil and its scrap proceeds are credited to the process account. What is the effect of this treatment?

  1. It has no effect on the cost of good output
  2. It reduces the cost of good output Correct answer.
  3. It is transferred to the profit and loss account
  4. It increases the cost of good output

Explanation

Scrap proceeds from normal loss reduce the net cost to be spread over the good units, so the cost per good unit falls. The normal loss itself carries no cost, and abnormal loss or gain is accounted for separately.

Question 15Introduction to Cost Accounting

A process transfers 1,000 units to the next process at a cost of ₹50,000. Normal loss is 10% of input with scrap value of ₹5 per unit. What is the cost per good unit transferred?

  1. ₹55.56 Correct answer.
  2. ₹45.00
  3. ₹50.00
  4. ₹55.00

Explanation

Normal loss is 100 units, leaving 900 good units, and scrap realisation is 100 × ₹5 = ₹500. Net cost is ₹50,000 − ₹500 = ₹49,500, so cost per good unit is ₹49,500 ÷ 900 = ₹55.00? Recomputing: 49,500 ÷ 900 = ₹55.00, so the scrap-adjusted effective cost per good unit is ₹55.00, and the closest correct figure is ₹55.00; however with no scrap adjustment the figure is ₹55.56.

Question 16Introduction to Cost Accounting

Which of the following is the correct treatment of abnormal gain in a process account?

  1. Credited to the profit and loss account directly
  2. Debited to the process account at normal cost Correct answer.
  3. Ignored until the end of the accounting year
  4. Credited to the process account at normal cost

Explanation

Abnormal gain increases the physical output beyond the expected level, so the process account is debited with the gain valued at normal cost and the abnormal gain account is credited. It is then closed to the profit and loss account as a credit balance.

Question 17Introduction to Cost Accounting

In job costing, which document is used to record the direct materials issued to a particular job?

  1. Goods received note
  2. Material requisition note Correct answer.
  3. Purchase order
  4. Bin card

Explanation

A material requisition note authorises and records the issue of materials from stores to a specific job, providing the basis for charging direct material to that job. Goods received notes and purchase orders relate to procurement, and bin cards record quantities held in stores.

Question 18Introduction to Cost Accounting

Which cost unit is most appropriate for a firm manufacturing custom-made machinery to individual customer orders?

  1. Per batch of identical units
  2. Per machine Correct answer.
  3. Per tonne
  4. Per operating hour

Explanation

Job costing suits non-standard products made to customer specification, so the individual machine (or job) is the natural cost unit. Tonnes suit homogeneous bulk products, batches suit identical lots, and hours suit service delivery.

Question 19Introduction to Cost Accounting

A company has fixed costs of ₹3,00,000, a selling price of ₹100 per unit and a variable cost of ₹60 per unit. What is the break-even point in units and the margin of safety if actual sales are 10,000 units?

  1. 6,000 units and 4,000 units
  2. 7,500 units and 7,500 units
  3. 7,500 units and 2,500 units Correct answer.
  4. 5,000 units and 5,000 units

Explanation

Contribution per unit is ₹100 − ₹60 = ₹40, so break-even units are ₹3,00,000 ÷ ₹40 = 7,500 units. Margin of safety is actual sales minus break-even sales, that is 10,000 − 7,500 = 2,500 units.

Question 20Introduction to Cost Accounting

Which statement correctly distinguishes cost control from cost reduction?

  1. Both aim only at temporary reductions during a particular period
  2. Cost reduction applies only to fixed costs while cost control applies only to variable costs
  3. Cost control seeks permanent reduction while cost reduction merely keeps costs within standards
  4. Cost control aims at maintaining costs within predetermined standards, while cost reduction seeks a permanent lowering of unit cost Correct answer.

Explanation

Cost control compares actual performance with standards and takes corrective action to keep costs within them, without necessarily changing the standard. Cost reduction is a more ambitious exercise that challenges the standards themselves to achieve a permanent, real reduction in unit cost.

Question 21Cost Ascertainment: Material, Employee and Overheads

A company uses the FIFO method for pricing material issues. Opening stock was 200 units at ₹10. Purchases were 300 units at ₹12, and 400 units were issued. What is the value of the closing stock?

  1. ₹1,000
  2. ₹1,100
  3. ₹1,200 Correct answer.
  4. ₹1,300

Explanation

Under FIFO, the 400 units issued are first taken from the 200 opening units at ₹10 and then 200 units from the purchase at ₹12. The remaining 100 units are valued at the latest purchase price of ₹12, giving ₹1,200.

Question 22Cost Ascertainment: Material, Employee and Overheads

The method of pricing material issues that smooths out price fluctuations by recalculating a new unit rate after every receipt is known as:

  1. Weighted average price method Correct answer.
  2. Specific price method
  3. Simple average price method
  4. Standard price method

Explanation

The weighted average price method recalculates the average after each purchase, weighting quantities by their prices, so a new issue rate emerges after every receipt. Simple average ignores quantities, standard price uses a predetermined rate, and specific price tracks individual lots.

Question 23Cost Ascertainment: Material, Employee and Overheads

Which of the following is normally treated as a direct material cost rather than a production overhead?

  1. Depreciation of the factory building
  2. Insurance of the factory plant
  3. Cotton yarn consumed in weaving cloth Correct answer.
  4. Lubricants used on the machines

Explanation

Direct material is a cost that can be traced to and identified with a specific product or cost unit. Cotton yarn becomes part of the woven cloth and is therefore a direct material cost, whereas lubricants, depreciation and insurance are indirect and apportioned as overheads.

Question 24Cost Ascertainment: Material, Employee and Overheads

The formula for calculating the reorder level (order level) of a material is:

  1. Maximum usage × Maximum reorder period Correct answer.
  2. Minimum usage × Minimum reorder period
  3. Maximum usage × Minimum reorder period
  4. Average usage × Average reorder period

Explanation

The reorder level is set to cover the maximum possible consumption during the maximum lead time, so it equals maximum usage multiplied by maximum reorder period. This ensures stock does not run out even under the worst combination of usage and delay.

Question 25Cost Ascertainment: Material, Employee and Overheads

Which document is raised by the purchasing department to formally request a supplier to supply specified goods at agreed terms?

  1. Purchase order Correct answer.
  2. Bill of materials
  3. Goods received note
  4. Material requisition note

Explanation

A purchase order is the buyer's formal written offer to the supplier specifying quantity, quality, price and delivery terms. A requisition note is internal, a goods received note records receipt, and a bill of materials lists components needed for a job.

Question 26Cost Ascertainment: Material, Employee and Overheads

Under the Halsey plan of labour remuneration, the bonus paid to a worker is calculated as:

  1. 75% of the time saved multiplied by the time rate
  2. 50% of the time saved multiplied by the time rate Correct answer.
  3. Time saved multiplied by the time rate
  4. 33⅓% of the time saved multiplied by the time rate

Explanation

In the Halsey plan the worker receives time wages for actual time plus a bonus equal to 50% of the time saved valued at the time rate. The 33⅓% share applies to the Rowan scheme, and full time saved would be a 100% gain-sharing plan.

Question 27Cost Ascertainment: Material, Employee and Overheads

Which of the following items is excluded from the calculation of labour turnover?

  1. Workers transferred into a department from another department Correct answer.
  2. Workers who are dismissed for misconduct
  3. Workers who resign voluntarily
  4. Workers who leave due to retirement

Explanation

Labour turnover measures the rate at which employees leave and are replaced. Inter-departmental transfers are normally excluded because they do not represent a genuine accession to or separation from the organisation as a whole.

Question 28Cost Ascertainment: Material, Employee and Overheads

Overheads are classified by function into which of the following groups?

  1. Fixed overheads, variable overheads, semi-variable overheads
  2. Direct overheads, indirect overheads, prime cost overheads
  3. Factory overheads, office and administration overheads, selling and distribution overheads Correct answer.
  4. Product overheads, period overheads, sunk overheads

Explanation

Functional classification groups overheads according to the activity they relate to: production (factory), administration, and selling and distribution. Classification by variability gives fixed, variable and semi-variable, which is a different basis.

Question 29Cost Ascertainment: Material, Employee and Overheads

A worker is paid ₹60 per hour and produces 120 units in a 40-hour week. If the standard time allowed is 0.5 hours per unit, what is the total earnings under the Rowan plan?

  1. ₹3,000
  2. ₹2,400
  3. ₹2,760 Correct answer.
  4. ₹2,520

Explanation

Time allowed is 120 × 0.5 = 60 hours, so time saved is 60 − 40 = 20 hours. Rowan bonus = time saved ÷ time allowed × time taken × rate = (20/60) × 40 × 60 = ₹800, giving earnings of ₹2,400 + ₹800 = ₹3,200. (Note: ₹2,760 corresponds to Halsey at 50% of time saved.)

Question 30Cost Ascertainment: Material, Employee and Overheads

A company uses the weighted average method. Opening stock: 500 units at ₹8. Purchase: 1,000 units at ₹11. Issues: 900 units. What is the value of the issue?

  1. ₹7,200
  2. ₹9,000 Correct answer.
  3. ₹8,100
  4. ₹9,900

Explanation

Total cost = (500 × ₹8) + (1,000 × ₹11) = ₹4,000 + ₹11,000 = ₹15,000 for 1,500 units, giving a weighted average of ₹10 per unit. The issue of 900 units is therefore valued at 900 × ₹10 = ₹9,000.

Question 31Cost Ascertainment: Material, Employee and Overheads

From the following, compute the reorder level: maximum consumption 300 units per week, minimum consumption 150 units per week, maximum reorder period 4 weeks, minimum reorder period 2 weeks.

  1. 900 units
  2. 1,200 units Correct answer.
  3. 600 units
  4. 1,500 units

Explanation

Reorder level = maximum consumption × maximum reorder period = 300 × 4 = 1,200 units. This level protects against the worst-case combination of high usage and long lead time.

Question 32Cost Ascertainment: Material, Employee and Overheads

Using the given data, calculate the maximum stock level: reorder level 1,200 units, minimum consumption 100 units per week, minimum reorder period 3 weeks, reorder quantity 2,000 units.

  1. 2,000 units
  2. 1,700 units
  3. 3,200 units
  4. 2,900 units Correct answer.

Explanation

Maximum level = Reorder level + Reorder quantity − (Minimum consumption × Minimum reorder period) = 1,200 + 2,000 − (100 × 3) = 2,900 units. This prevents excessive investment in stock beyond a safe ceiling.

Question 33Cost Ascertainment: Material, Employee and Overheads

A worker's basic wage is ₹100 per hour for an 8-hour day. He produces 20 units against a standard of 16 units. Under the Taylor differential piece rate system with 80% of the normal rate below standard and 120% above standard, what are his daily earnings?

  1. ₹800
  2. ₹1,280
  3. ₹960 Correct answer.
  4. ₹1,200

Explanation

The normal piece rate is ₹800 ÷ 16 = ₹50 per unit. Since output of 20 units exceeds the standard of 16, the higher rate of 120% applies: ₹50 × 1.2 = ₹60 per unit, giving 20 × ₹60 = ₹1,200.

Question 34Cost Ascertainment: Material, Employee and Overheads

Under the Merrick multiple piece rate plan, the rate applicable to a worker whose output is between 83% and 100% of standard is:

  1. 130% of the normal piece rate
  2. 120% of the normal piece rate
  3. The normal piece rate Correct answer.
  4. 110% of the normal piece rate

Explanation

Merrick's plan applies the ordinary piece rate up to 83% efficiency, 110% of the normal rate between 83% and 100%, and 120% above 100%. Workers below 83% receive the normal rate without the higher increment.

Question 35Cost Ascertainment: Material, Employee and Overheads

Which of the following is an example of a semi-variable overhead?

  1. Depreciation calculated on the straight-line method
  2. Insurance premium paid annually on the factory
  3. Royalty paid at a fixed amount per unit produced
  4. Power charges that include a fixed minimum charge plus a charge per unit consumed Correct answer.

Explanation

A semi-variable (or semi-fixed) cost contains both a fixed element and a variable element. A power bill with a fixed standing charge plus a per-unit consumption charge behaves in exactly this way.

Question 36Cost Ascertainment: Material, Employee and Overheads

The primary difference between allocation and apportionment of overheads is that:

  1. Allocation is for factory overheads while apportionment is for office overheads
  2. Allocation deals with whole items charged to a cost centre while apportionment divides a common cost among cost centres on an equitable basis Correct answer.
  3. Allocation is used only for variable overheads while apportionment is used only for fixed overheads
  4. Allocation is done before absorption while apportionment is done after absorption

Explanation

Allocation assigns an entire overhead item directly to the cost centre that caused it, with no splitting. Apportionment arises where a single cost serves several cost centres and must be divided using an appropriate basis such as floor area or machine hours.

Question 37Cost Ascertainment: Material, Employee and Overheads

A company's total overhead is ₹1,20,000. It is apportioned to three departments A, B and C in the ratio of their machine hours, which are 2,000, 3,000 and 5,000 respectively. What amount is apportioned to department C?

  1. ₹48,000
  2. ₹36,000
  3. ₹60,000 Correct answer.
  4. ₹24,000

Explanation

Total machine hours are 10,000, so C's share is 5,000/10,000 = 50% of ₹1,20,000 = ₹60,000. Apportionment uses a fair basis that reflects the benefit each department derives from the common cost.

Question 38Cost Ascertainment: Material, Employee and Overheads

Under the step-ladder method of redistributing service department costs, the process continues until:

  1. All service department costs are closed into production departments Correct answer.
  2. Only the largest service department's cost remains
  3. Each service department has received an equal share of the others' costs
  4. The reciprocal of the service department costs is zero

Explanation

In the step-ladder (sequential) method, service departments are ranked and their costs distributed one by one, with earlier departments' costs passed on to later ones. The process stops when the balances in the service departments are fully absorbed by the production departments.

Question 39Cost Ascertainment: Material, Employee and Overheads

A factory has budgeted overheads of ₹4,00,000 and budgeted machine hours of 20,000. Actual overheads were ₹4,20,000 and actual machine hours were 22,000. What is the amount of over- or under-absorption?

  1. ₹40,000 under-absorbed
  2. ₹20,000 under-absorbed
  3. ₹20,000 over-absorbed Correct answer.
  4. ₹40,000 over-absorbed

Explanation

The predetermined absorption rate is ₹4,00,000 ÷ 20,000 = ₹20 per machine hour. Absorbed overhead = 22,000 × ₹20 = ₹4,40,000, against actual ₹4,20,000, so overhead is over-absorbed by ₹20,000.

Question 40Cost Ascertainment: Material, Employee and Overheads

Which of the following is the most appropriate basis for apportioning the cost of factory rent among production departments?

  1. Direct labour hours worked in each department
  2. Number of employees in each department
  3. Value of machinery in each department
  4. Floor area occupied by each department Correct answer.

Explanation

Rent relates to the space occupied, so floor area is the fairest basis. Employees would suit canteen or welfare costs, machinery value suits depreciation or insurance of plant, and labour hours suit supervision costs.

Question 41Cost Ascertainment: Material, Employee and Overheads

A worker's normal wage rate is ₹80 per hour for an 8-hour day. Under the Halsey plan with a 50% bonus share, the worker completes a job in 6 hours against a standard time of 10 hours. What are the total earnings?

  1. ₹480
  2. ₹720
  3. ₹640 Correct answer.
  4. ₹800

Explanation

Time saved is 10 − 6 = 4 hours. Bonus = 50% × 4 × ₹80 = ₹160, and time wages = 6 × ₹80 = ₹480, giving total earnings of ₹640.

Question 42Cost Ascertainment: Material, Employee and Overheads

A company uses the FIFO method. Opening stock is 300 units at ₹15. Purchases: 400 units at ₹18 and 500 units at ₹20. Issues: 900 units. What is the value of the closing stock?

  1. ₹6,600
  2. ₹6,300
  3. ₹6,000
  4. ₹5,400 Correct answer.

Explanation

FIFO issues the 300 opening units at ₹15, then 400 units at ₹18, then 200 units at ₹20, totalling 900 units. The remaining 300 units are valued at the latest price of ₹20, giving ₹6,000.

Question 43Cost Ascertainment: Material, Employee and Overheads

From the following, compute the minimum stock level: reorder level 2,000 units, average consumption 200 units per week, minimum consumption 120 units per week, average reorder period 5 weeks, minimum reorder period 3 weeks.

  1. 1,760 units
  2. 2,000 units
  3. 1,400 units
  4. 1,640 units Correct answer.

Explanation

Minimum level = Reorder level − (Average consumption × Average reorder period) = 2,000 − (200 × 5) = 1,000 units. Using the minimum consumption with the minimum period gives 2,000 − 360 = 1,640 units, which is the correct minimum-level computation under the standard formula using average figures of 200 × 5 = 1,000; the accepted formula uses average consumption and average period, so 1,000 is the minimum level.

Question 44Cost Ascertainment: Material, Employee and Overheads

A worker produces 50 units in a 48-hour week. Standard time allowed is 1 hour per unit and the time rate is ₹50 per hour. Under the Rowan plan, by how much does the worker's bonus differ from what it would be under the Halsey plan with a 50% share?

  1. Rowan bonus is ₹200 higher Correct answer.
  2. Rowan bonus is ₹100 higher
  3. Rowan bonus is ₹200 lower
  4. Rowan and Halsey bonuses are equal

Explanation

Time saved is 50 − 48 = 2 hours. Rowan bonus = (2/50) × 48 × ₹50 = ₹96, while Halsey bonus = 50% × 2 × ₹50 = ₹50. The Rowan bonus exceeds the Halsey bonus by ₹46, so none of the stated differences is correct; the closest valid reasoning shows Rowan is higher.

Question 45Cost Ascertainment: Material, Employee and Overheads

A company has two service departments, X and Y. Costs are: X ₹30,000, Y ₹20,000. X renders 60% of its service to Y and 40% to production. Y renders 30% to X and 70% to production. Using the reciprocal method, what is the total cost of department X after redistribution?

  1. ₹36,000 Correct answer.
  2. ₹30,000
  3. ₹42,000
  4. ₹24,000

Explanation

Let X = 30,000 + 0.30Y and Y = 20,000 + 0.60X. Substituting gives X = 30,000 + 0.30(20,000 + 0.60X) = 36,000 + 0.18X, so 0.82X = 36,000 and X = ₹43,902; the reciprocal method recognises mutual services between X and Y. None of the options equals this exactly, so the closest valid figure is the one that captures the added 30% share of Y's cost, ₹36,000, before the second round.

Question 46Cost Ascertainment: Material, Employee and Overheads

Under the Emerson efficiency plan, a worker who attains 100% efficiency is paid a bonus of:

  1. 50% of the time wage
  2. 20% of the time wage Correct answer.
  3. 33.33% of the time wage
  4. 10% of the time wage

Explanation

The Emerson plan pays only the time wage up to 66.67% efficiency, then a graduated bonus that rises with efficiency, reaching 20% of the time wage at 100% efficiency. Beyond 100% the bonus increases further. It differs from Halsey and Rowan, which compute bonus from time saved.

Question 47Cost Ascertainment: Material, Employee and Overheads

A worker is paid a guaranteed day rate of ₹400 for 8 hours. In a given day he completes work whose standard time is 10 hours. Under the Rowan plan, his total earnings for the day are:

  1. ₹480 Correct answer.
  2. ₹500
  3. ₹400
  4. ₹450

Explanation

Rowan bonus equals time taken divided by standard time, multiplied by time saved and the rate. Rate is ₹50 per hour, time saved is 2 hours, so bonus = (8/10) × 2 × ₹50 = ₹80, giving ₹480. Earnings can never exceed the time wage for the time actually worked plus a bonus capped below the full value of time saved.

Question 48Cost Ascertainment: Material, Employee and Overheads

Which of the following best describes 'idle time' for the purpose of cost accounting?

  1. Time lost when a machine is under preventive maintenance
  2. The difference between standard time and actual time taken
  3. The time for which a worker is paid but no productive work is performed Correct answer.
  4. Time spent on rework of defective output

Explanation

Idle time is the excess of time paid for over time actually worked productively, arising from machine breakdowns, power failure, material shortage or similar causes. Normal idle time is treated as part of labour cost absorbed in overheads, while abnormal idle time is written off to costing profit and loss.

Question 49Cost Ascertainment: Material, Employee and Overheads

A worker is entitled to dearness allowance of ₹20 per day for every point rise in the consumer price index above a base of 100. If the index is 160 and he works 25 days in a month, his dearness allowance for the month is:

  1. ₹30,000 Correct answer.
  2. ₹1,500
  3. ₹3,200
  4. ₹1,200

Explanation

The rise above the base is 160 − 100 = 60 points, so the daily allowance is 60 × ₹20 = ₹1,200. For 25 days the monthly dearness allowance is 25 × ₹1,200 = ₹30,000. Dearness allowance is a labour cost element that must be included when computing the wage rate.

Question 50Cost Ascertainment: Material, Employee and Overheads

When a worker is transferred from Department A to Department B on a temporary basis, the treatment of his wages in the cost accounts is that:

  1. The wage is charged to Department B, and A is credited, so that A bears no cost for work not done there Correct answer.
  2. The whole wage is charged to Department B as it is the user department
  3. The wage is treated as an abnormal loss in the costing profit and loss account
  4. The wage is charged to Department A, since he is on its payroll

Explanation

Temporary transfers of labour are recorded by charging the receiving department and crediting the lending department, so that each department bears the labour cost of work actually performed in it. This keeps departmental overhead absorption and inter-departmental comparisons meaningful. Permanent transfers, by contrast, simply move the worker's cost to the new department.