CA (Chartered Accountancy) Intermediate: Cost and Management Accounting and Taxation Syllabus

Define Employee (Labour) Cost and distinguish direct from indirect labour.

Employee cost is the benefit paid/payable to employees for their services. Direct labour cost is traceable to a specific product/job (e.g., machine operator's wages). Indirect labour cannot be conveniently identified with a product (e.g., supervisor, maintenance staff) and is treated as overhead.

What is Labour Turnover? State the formulas under the Separation and Replacement methods.

Labour turnover is the rate of change in the workforce. $$\text{Separation Method} = \frac{\text{No. of Separations}}{\text{Avg. No. of Workers}} \times 100$$ $$\text{Replacement Method} = \frac{\text{No. of Replacements}}{\text{Avg. No. of Workers}} \times 100$$

Write the Flux method formula for labour turnover.

$$\text{Flux Method} = \frac{\text{No. of Separations} + \text{No. of Replacements (or Accessions)}}{\text{Average No. of Workers}} \times 100$$

Explain the Halsey premium bonus plan and its bonus formula.

Under the Halsey plan, a worker gets guaranteed time wages plus a bonus of 50% of the time saved. $$\text{Bonus} = 50\% \times (\text{Time Saved}) \times \text{Rate per hour}$$ $$\text{Earnings} = (\text{Time Taken} \times \text{Rate}) + \tfrac{1}{2}(\text{Time Saved}) \times \text{Rate}$$

Explain the Rowan premium bonus plan and its earnings formula.

Under the Rowan plan, bonus is the proportion of time saved to time allowed, applied to time wages. $$\text{Earnings} = (\text{Time Taken} \times \text{Rate}) + \frac{\text{Time Saved}}{\text{Time Allowed}} \times \text{Time Taken} \times \text{Rate}$$

What is the Taylor Differential Piece Rate system?

Taylor's system uses two piece rates with no guaranteed minimum: a lower rate (e.g., 83% of normal) for output below standard and a higher rate (e.g., 125% of normal) for output at or above standard. It sharply rewards efficient workers and penalises inefficient ones.

Define Idle Time and distinguish normal from abnormal idle time.

Idle time is the period for which workers are paid but no production occurs. Normal idle time (e.g., tea breaks, setup) is unavoidable and treated as part of cost/overhead. Abnormal idle time (e.g., strikes, machine breakdown) is avoidable and charged to the Costing Profit & Loss Account.

Define Overtime Premium and how it is treated in cost accounts.

Overtime premium is the extra amount (over normal rate) paid for hours worked beyond normal hours. If due to customer's urgent request, charge to that job; if general, treat as overhead; if due to abnormal reasons, charge to Costing P&L Account.

What are Overheads? How are they classified by function?

Overheads are the aggregate of indirect material, indirect labour and indirect expenses. By function they are classified as: Factory/Works overhead, Administration overhead, Selling overhead, and Distribution overhead.

Distinguish between Allocation and Apportionment of overheads.

Allocation is charging the whole of an overhead item directly to one cost centre to which it specifically relates. Apportionment is the proportionate distribution of a common overhead among several cost centres on a suitable basis (since it cannot be allocated wholly to one).

Give suitable apportionment bases for: rent, depreciation of machinery, and canteen expenses.

Rent/lighting/heating: floor area or volume. Depreciation and insurance of machinery: capital value of machinery. Canteen/welfare/personnel expenses: number of employees.

What is meant by re-apportionment (secondary distribution) of service department costs?

Re-apportionment is distributing the costs of service (non-production) departments to production departments that use their services. Methods include direct, step-ladder, and reciprocal (simultaneous equation, repeated distribution, trial-and-error) methods.

What is Overhead Absorption and name two common absorption rate bases.

Absorption is charging overheads to cost units by means of an overhead absorption rate. Common bases: machine hour rate, direct labour hour rate, percentage of direct wages, percentage of prime cost, and rate per unit of output.

Write the formula for a Machine Hour Rate.

$$\text{Machine Hour Rate} = \frac{\text{Total Overheads related to the machine}}{\text{Total Machine Hours}}$$

Distinguish between Over-absorption and Under-absorption of overheads.

Over-absorption occurs when overheads absorbed (recovered) exceed actual overheads incurred. Under-absorption occurs when overheads absorbed are less than actual incurred. The difference is adjusted via supplementary rate, transfer to Costing P&L, or carry forward.

What is Cost Ledger Control Account in a non-integrated (cost) accounting system?

In a non-integrated system, cost and financial accounts are kept separately. The Cost Ledger Control Account (also General Ledger Adjustment Account) records items that have their origin in financial accounts, completing double entry within the cost ledger so it is self-balancing.

Why is reconciliation of cost and financial accounts necessary?

Reconciliation is needed under a non-integrated system because the two sets of books often show different profit figures due to items recorded in only one set (purely financial/cost items), differences in stock valuation, and differences in overhead absorption (over/under-recovery).

List three causes of difference between profit shown by cost accounts and financial accounts.

(1) Purely financial items recorded only in financial accounts (e.g., interest received, dividend, loss on sale of assets). (2) Purely cost items like notional rent/interest. (3) Different valuation of stock and over/under-absorption of overheads.

Distinguish between Job Costing and Process Costing.

Job costing ascertains cost of each distinct job/order separately, suited to customised production. Process costing accumulates cost by process/operation and averages over output, suited to continuous/mass production of homogeneous units. Job costing has heterogeneous units; process costing has standardised units.

What is Batch Costing and how is Economic Batch Quantity computed?

Batch costing is a form of job costing where a batch of identical items is treated as one cost unit. $$EBQ = \sqrt{\frac{2DS}{C}}$$ where $D$ = annual demand, $S$ = setup cost per batch, $C$ = carrying cost per unit per annum.

In Contract Costing, how is profit on incomplete contracts recognised when 25% but less than 50% is complete?

A conservative portion is taken to P&L: $$\text{Profit to P\&L} = \frac{1}{3} \times \text{Notional Profit} \times \frac{\text{Cash Received}}{\text{Work Certified}}$$ The balance is kept as reserve.

Define Work Certified, Work Uncertified and Retention Money in contract costing.

Work Certified is the value of completed work approved by the contractee's architect/surveyor. Work Uncertified is completed work not yet certified, valued at cost. Retention Money is the part of certified value withheld by the contractee (Work Certified − Cash Received) as security.

Distinguish between Normal Loss and Abnormal Loss in process costing.

Normal loss is the unavoidable, expected loss inherent in the process; its cost is borne by good units and any scrap value reduces process cost. Abnormal loss is loss in excess of normal; it is valued at the same cost per unit as good output and charged to the Costing P&L Account.

How is the cost per unit (for valuing abnormal loss/gain) computed in a process?

$$\text{Cost per unit} = \frac{\text{Total Process Cost} - \text{Scrap Value of Normal Loss}}{\text{Normal Output (Input} - \text{Normal Loss)}}$$

What is Abnormal Gain and how is it treated?

Abnormal gain arises when actual output exceeds expected (normal) output, i.e., actual loss is less than normal loss. It is valued at the normal cost per unit and credited to the Costing P&L Account; its corresponding scrap loss is adjusted in the Normal Loss/scrap account.

What are Equivalent Units of production and why are they used?

Equivalent units express partly-completed (WIP) units in terms of fully-completed units. $$\text{Equivalent Units} = \text{Number of units} \times \% \text{ of completion}$$ They allow cost to be apportioned fairly between finished output and closing WIP.

Define Service (Operating) Costing and give two examples of composite cost units.

Service costing ascertains the cost of services rendered rather than goods produced. Composite (two-factor) cost units include passenger-kilometre (transport), tonne-kilometre (goods transport), patient-day (hospital), and kilowatt-hour (power).

Distinguish between Joint Products and By-products.

Joint products are two or more products of significant/comparable sales value produced simultaneously from common processing. By-products are incidental products of relatively low value arising during manufacture of the main product. The distinction rests on relative economic value.

Name common methods of apportioning joint costs up to the split-off point.

(1) Physical units/quantity method, (2) Net Realisable Value (reverse cost / sales value at split-off) method, (3) Average unit cost method, (4) Survey/weighted-units (technical estimate) method.

What is Standard Costing?

Standard costing is a technique of cost control that sets predetermined (standard) costs for products/operations, compares them with actual costs, computes variances, analyses their causes, and takes corrective action.

Write the formulas for Material Cost Variance, Material Price Variance and Material Usage Variance.

$$\text{MCV} = (\text{SQ} \times \text{SP}) - (\text{AQ} \times \text{AP})$$ $$\text{MPV} = \text{AQ} \times (\text{SP} - \text{AP})$$ $$\text{MUV} = \text{SP} \times (\text{SQ} - \text{AQ})$$ where SQ/AQ = standard/actual quantity, SP/AP = standard/actual price.

Write the formulas for Labour Rate Variance and Labour Efficiency Variance.

$$\text{Labour Rate Variance} = \text{AH} \times (\text{SR} - \text{AR})$$ $$\text{Labour Efficiency Variance} = \text{SR} \times (\text{SH} - \text{AH})$$ where AH/SH = actual/standard hours, SR/AR = standard/actual rate. (Standard hours are for actual output.)

What are the two sub-variances of Variable Overhead Cost Variance?

(1) Variable Overhead Expenditure (Spending) Variance = Actual VOH − (Std VOH rate per hour × Actual Hours). (2) Variable Overhead Efficiency Variance = Std VOH rate per hour × (Standard Hours − Actual Hours).

Write the formula for Sales Value (Price) Variance and Sales Volume Variance.

$$\text{Sales Price Variance} = \text{Actual Qty} \times (\text{Actual Price} - \text{Budgeted Price})$$ $$\text{Sales Volume Variance} = \text{Budgeted Price} \times (\text{Actual Qty} - \text{Budgeted Qty})$$

What is Marginal Costing?

Marginal costing is a technique where only variable (marginal) costs are charged to cost units, while fixed costs are treated as period costs and written off against the contribution of the period. It is used for decision-making and CVP analysis.

Define Contribution and write its formula.

Contribution is the excess of sales over variable cost; it contributes towards fixed costs and profit. $$\text{Contribution} = \text{Sales} - \text{Variable Cost} = \text{Fixed Cost} + \text{Profit}$$

Write the formula for P/V Ratio (Contribution/Sales ratio).

$$\text{P/V Ratio} = \frac{\text{Contribution}}{\text{Sales}} \times 100 = \frac{\text{Change in Profit}}{\text{Change in Sales}} \times 100$$

Write the formula for Break-Even Point in units and in value.

$$\text{BEP (units)} = \frac{\text{Fixed Cost}}{\text{Contribution per unit}}$$ $$\text{BEP (}\rupee\text{)} = \frac{\text{Fixed Cost}}{\text{P/V Ratio}}$$

Write the formula for Margin of Safety.

$$\text{Margin of Safety} = \text{Actual Sales} - \text{Break-Even Sales} = \frac{\text{Profit}}{\text{P/V Ratio}}$$ As a ratio: $\text{MoS \%} = \dfrac{\text{Profit}}{\text{Contribution}} \times 100$.

How is the sales required to earn a desired profit computed under CVP analysis?

$$\text{Required Sales (units)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{Contribution per unit}}$$ $$\text{Required Sales (}\rupee\text{)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{P/V Ratio}}$$

What is a Budget and what is Budgetary Control?

A budget is a quantitative/financial statement prepared before a defined period expressing the policy to be pursued to attain an objective. Budgetary control is the establishment of budgets, comparison of actuals with budgeted results, and taking corrective action on variances.

Distinguish between a Fixed Budget and a Flexible Budget.

A fixed budget is prepared for a single level of activity and does not change with actual output. A flexible budget is designed to change with the level of activity, giving budgeted costs at different capacity levels by separating fixed and variable costs.

What is a Cash Budget and what is its purpose?

A cash budget is a statement of estimated cash receipts and payments over a budget period, showing opening/closing balances. Its purpose is to ensure adequate liquidity, anticipate surpluses/deficits, and plan financing or investment of funds.

Under the Income-tax Act, what is the 'Previous Year' and the 'Assessment Year'?

Previous Year is the financial year in which income is earned. Assessment Year is the financial year immediately following the previous year, in which that income is assessed to tax. Both run from 1st April to 31st March.

List the five heads of income under the Income-tax Act, 1961.

(1) Salaries, (2) Income from House Property, (3) Profits and Gains of Business or Profession, (4) Capital Gains, and (5) Income from Other Sources.

How is the Residential Status of an individual determined (basic conditions under Section 6)?

An individual is Resident if he satisfies any one basic condition: (a) in India for 182 days or more in the previous year, OR (b) in India for 60 days or more in the previous year AND 365 days or more in the 4 preceding years. Otherwise he is Non-Resident.

What are the additional conditions to be a Resident and Ordinarily Resident (ROR)?

A resident individual is ROR only if he also satisfies BOTH: (a) Resident in India in at least 2 out of the 10 previous years preceding the relevant year, AND (b) in India for 730 days or more during the 7 years preceding the relevant previous year. If either is not met, he is Resident but Not Ordinarily Resident (RNOR).

How is the incidence of tax different for Resident, RNOR and Non-Resident?

A Resident (ROR) is taxed on global income (income received/accrued in India and abroad). RNOR is taxed on Indian income plus foreign income derived from a business controlled/profession set up in India. A Non-Resident is taxed only on income received or accruing/arising (or deemed to) in India.

What is meant by 'Income deemed to accrue or arise in India' (scope of total income)?

Certain incomes are deemed to accrue/arise in India regardless of where actually received—e.g., income from a business connection in India, property/asset/source in India, salary for services rendered in India, dividend paid by an Indian company, and interest/royalty/fees for technical services payable by the government or residents (subject to conditions). These are taxable for all assessees including non-residents.