Taxmann's Cost & Management Accounting (CMA) | CRACKER

Chapter-wise Marks Distribution

QUICK REVIEW

1. Inventory Control Levels: Re-order Level (ROL):

2.2 ×

2. Classification of items in ABC Analysis:

A Category:

B Category:

C Category:

3. Inventory Turnover Ratio: Cost of Materials Consumed Cost of Average Stock

365Days or12Months

Inventory turnover Ratio

THEORY QUESTIONS

Q1. State the objectives of system of material control. [ICAI Module]

Ans:

(i) Minimising interruption in production process:

(ii) Optimisation of Material Cost:

(

) Reduction in Wastages: (

) Adequate Information:

(v) Completion of order in time:

Q2. What is Bill of Material? Describe the uses of Bill of Material in following departments :

Dec. 2021, 5 Marks]

Q3. Distinguish between Bill of Material and Material Requisition note. [CA

May 2012, 4 Marks]

Ans. Differences between Bill of Material and Material Requisition Note

of Material Material Requisition Note

2.4

Bill of Material Material Requisition Note

Q4. Write the treatment of items associated with purchase of material:

(i) Cash discount

(ii) Subsidy/Grant/Incentives

(iii) GST

(iv) Commission brokerage paid [CA Inter May 2016, 4 Marks]

Ans.

(i) Cash discount:

(ii) Subsidy/Grant/Incentive:

(iii) GST:

(iv) Commission or brokerage paid:

Q5. State how the following items are treated in arriving at the value of cost of material purchased:

(i) Detention Charges/Fines

(ii) Demurrage

(iii) Cost of Returnable containers

(iv) Central Goods and Service Tax (CGST)

(v) Shortage due to abnormal reasons. [CA Inter Jan. 2021, 5 Marks]

Ans:

S. No. Items Treatment

Detention charges/Fine not included

Demurrage not included

S. No. Items Treatment

Cost of returnable containers

Central Goods and Service Tax (CGST) is excluded

Shortage due to abnormal reasons

Q6. State how the following items are treated in arriving at the value of cost of material purchased:

(i) Trade discount

(ii) Insurance charges

(iii) Freight inwards

(iv) Cost of non-returnable containers

(v) Shortage due to normal reasons [ICAI Module]

Ans: S. No. Items Treatment

2.6

S. No. Items Treatment

v

Q7. Distinguish clearly between Bin Cards and Stores Ledgers. [CA Inter Nov 2017, Nov 2004, May 2003, May 2002, May 2000, 4 Marks]

Ans.

Bin cards

Stores Ledger

Q8. Define Inventory control and given its objectives. List down the basis to be adopted for inventory control. [CA Inter Nov. 2019, 5 Marks]

Ans.-

Management may adopt the following basis for Inventory Control:

Q9. Explain ‘Just In Time’ (JIT) approach of inventory management. [CA Inter May 2018, 5 Marks] Ans.

Demand for final product

Production starts to process the demand for product

Material requirement is sent to Purchase department

Order for raw materials sent to supplier

Supplier sent the material for production

Q10. Discuss ABC Analysis as a system of Inventory Control. [CA Inter May 2000, Nov. 2004, Nov. 2005, May 2008, Nov. 2011, May 2017, 4 Marks]

2.8

(iii) ‘C’ category

Q11. What are the advantages of ABC analysis. [ICAI Module]

Ans:

(i) Continuity in production:

(ii) Lower cost: -

(iii) Less attention required:

(iv) Systematic working:

Q12. How is slow moving and non-moving item of stores detected and what steps are necessary to reduce such stocks? [CA Inter Nov. 2001, 4 Marks] Ans.

Steps to reduce stock of slow moving and non-moving items of stores

Q13. Write a short note on VED analysis of Inventory Control. [CA Inter July 2021, 5 Marks]

Ans.

Vital, Essential and Desirable (VED):

Vital:

Essential:

Desirable:

Q14. Describe perpetual inventory records and continuous stock verification. [CA Inter May 2001, 3 Marks]

Ans.

Perpetual Inventory Records:

Continuous Stock Verification:

physical verification of items of inventory

2.10

Q15. Discuss the advantages of perpetual inventory records and continuous stock verification. [CA Inter Nov. 2006, 4 Marks]

Ans.

Advantages of Perpetual Inventory Records:

Advantages of Continuous Stock Taking

Q16. “Perpetual inventory system comprises Bin Card and Stores Ledger, but the efficacy of the system depends on continuous stock taking.” Comment. [CA Inter May 2013, 4 Marks]

Ans.

The main advantages of continuous stock taking are as follows:

Q17. Explain FIFO and LIFO method of stores issue.

[CA Inter May 2018, 2.5 Marks]

Ans.

First-in First-out (FIFO) method:-

Last-in-First-out (LIFO) method:

2.12

Q18. Explain, why the Last in First out (LIFO) has an edge over First in First out (FIFO) or any other method of pricing material issues.

[CA Inter Nov. 2007, 3 Marks]

Ans.

Q19. Explain the meaning of waste, spoilage, defectives and scrap and give the accounting treatment for each one.

[CA Inter Nov, 2019, Nov. 2015, May 2009, Nov. 2008, May 2007, May 2005, Nov. 2003, May 2003, May 2000, 8 Marks]

Ans.

Waste:

Accounting Treatment:

Normal Wastage:

Abnormal Wastage:

Spoilage:

Accounting Treatment:

Normal Spoilage: i.e.,

Abnormal Spoilage: i.e.,

Defectives: -

Accounting Treatment: Normal Defects:

Abnormal Defects:

Scrap:

Accounting Treatment: Normal Scrap:

Abnormal Scrap:

Q20. Explain obsolescence and circumstances under which materials become obsolete, state the steps to be taken for its treatment.

[CA Inter Nov. 2018, 5 Marks]

Ans. -

circumstances:

Treatment:

2.14

Q21. Differentiate between ‘scrap’ and ‘defectives’ and how they are treated in cost accounting. [CA Inter Nov. 2015, Nov. 2008, 4 Marks]

Ans. Difference between Scrap and Defectives

PRACTICAL QUESTIONS

VALUATION OF MATERIAL RECEIPTS

Q1. SKD Company Ltd., not registered under GST, purchased material P from a company which is registered under GST. The following information is available for the one lot of 1,000 units of material purchased:

Listed price of one lot ` 50,000

Trade discount @ 10% on Listed price

CGST and SGST (Credit Not available) 12% (6% CGST + 6% SGST) Cash discount @10% (Will be given only if payment is made within 30 days.)

20% of material shortage is due to normal reasons.

The payment to the supplier was made within 20 days of the purchases. You are required to calculate cost per unit of material purchased to SKD Company Ltd. [CA Inter RTP May 2022]

Ans. Computation of Total cost of material purchased to SKD Company Ltd.

2.15

Notes:

ECONOMIC ORDER QUANTITY (EOQ)

Q2. The following information relating to a type of Raw material is available:

Annual demand 2,000 units

Unit price ` 20

Ordering cost per order ` 20

Storage cost 2% p.a.

Interest rate 8% p.a.

Lead time Half-month

2.16

Calculate economic order quantity and total annual inventory cost of the raw material. [CA Inter Nov. 2019, Nov. 2009, 5 Marks] Ans.

Q3. (i) Compute EOQ and the total cost for the following:

Annual Demand = 5,000 units

Unit price = ` 20.00

Order cost = ` 16.00

Storage rate = 2% per annum

Interest rate = 12% per annum

Obsolescence rate = 6% per annum

(ii) Determine the total cost that would result for the items if a new price of ` 12.80 is used.

Ans. i `

Q4. The demand for a certain product is random. It has been estimated that the monthly demand of the product has a normal distribution with a mean of 390 units. The unit price of product is ` 25. Ordering cost is ` 40 per order and inventory carrying cost is estimated to be 35 per cent per year.

Required: Calculate Economic Order Quantity (EOQ). [CA Inter Nov. 2007, 2 Marks]

2.18

Q5. M/s. X Private Limited is manufacturing a special product which requires a component “SKY BLUE”. The following particulars are available for the year ended 31st March, 2021:

Annual demand of “SKY BLUE” 12,000 Units

Cost of placing an order ` 1,800 Cost per unit of “SKY BLUE” ` 640

The company has been offered a quantity discount of 5% on the purchases of “SKY BLUE” provided the order size is 3,000 components at a time. You are required to:

(

(

i) Compute the Economic Order Quantity.

ii) Advise whether the quantity discount offer can be accepted. [CA Inter May 2018, 5 Marks]

Ans.

(

i) Calculation of Economic Order Quantity:

(ii) Evaluation of Profitability of Different Options of Order Quantity

When EOQ is ordered

When discount of 5% is accepted and order size is 3,000 units

Note: assumed that carrying cost varies due to discount

Advice:

2.19

Q6. PQR Limited produces a product which has a monthly demand of 52,000 units. The product requires a component X which is purchased at ` 15 per unit. For every finished product, 2 units of Component X are required. The Ordering cost is ` 350 per order and the carrying cost is 12% p.a.

Required:

(

i) Calculate the economic order quantity for component X.

(ii) If the minimum lot size to be supplied is 52,000 units, what is the extra cost, the company has to incur?

(iii) What is the minimum carrying cost, the Company has to incur? [CA Inter May 2006, 8 Marks]

(ii) Extra cost incurred by the company:

(iii) Minimum carrying cost, the company has to incur:

2.20

Q7. A company manufactures a product from a raw material, which is purchased at ` 60 per kg. The company incurs a handling cost of ` 360 plus freight of ` 390 per order. The incremental carrying cost of inventory of raw material is ` 0.50 per kg. per month. In addition, the cost of working capital finance on the investment in inventory of raw material is ` 9 per kg. per annum. The annual production of the product is 1,00,000 units and 2.5 units are obtained from one kg. of raw material.

Required:

(

(

(

i) Calculate the economic order quantity of raw material

ii) Advise, how frequently should orders for procurement be placed

iii) If the company proposes to rationalise placement of orders on quarterly basis, what percentage of discount in the price of raw material should be negotiated?

Assume 360 days in a year.

Ans.

[CA Inter May 2014, Nov. 2001, 8 Marks]

(ii) Frequency of orders for procurement:

COST & MANAGEMENT ACCOUNTING (CMA) | CRACKER

AUTHOR : RAVI CHHAWCHHARIA , YASH DOCTOR

PUBLISHER : TAXMANN

DATE OF PUBLICATION : DECEMBER 2022

EDITION : 4th Edition

ISBN NO : 9789356224780

NO. OF PAGES : 744

BINDING TYPE : PAPERBACK

DESCRIPTION

Rs. 750 USD 40

This book is prepared exclusively for the Intermediate Level of Chartered Accountancy Examination requirement. It covers the questions & detailed answers strictly as per the new syllabus of ICAI. The Present Publication is the 4th Edition for CA-Inter | New Syllabus | May/Nov. 2023 exams. This book is authored by CA Ravi Chhawchharia & CA Yash Doctor with the following noteworthy features:

• Strictly as per the New Syllabus of ICAI

• Coverage of this book includes:

• Past Exam Questions, including

• CA Intermediate May 2022 – Cost & Management Accounting | Suggested Answers

• CA Intermediate Nov. 2022 – Cost & Management Accounting | Suggested Answers

• Questions from RTPs and MTPs of ICAI

• [Previous Exam Trend Analysis] from May 2018 Onwards | New Syllabus

• [Marks Distribution] Chapter-wise marks distribution from May 2018 onwards

• [Comparison with Study Material] Chapter-wise comparison with ICAI Study Material

ORDER NOW