The following financial information is available for a company with a normal production capacity of 40,000 units for the year ended 31st March,…

CA Intermediate · Cost and Management Accounting · PYQS · January 2026
The following financial information is available for a company with a normal production capacity of 40,000 units for the year ended 31st March, 2025: Sales amounted to 8,00,000, Units sold: 35,000 units.There was no opening or closing stock of finished units.Direct material and direct wages costs were - 3,50,000 and - 2,00,000 respectively.Actual factory expenses were - 1,00,000, of which 55% were fixed.Administrative expenses related to production activities incurred during the year but not paid were - 50,000, which were entirely fixed.Actual selling and distribution expenses amounted to 20,000, of which 35% were fixed.The company earned interest and dividend income totaling - 10,000. You are required to prepare: (i) The cost sheet and ascertain the profit as per cost accounts for the year ended 31st March, 2025, assuming that the indirect expenses are absorbed on the basis of normal production capacity; and (ii) A statement reconciling the profits shown by financial and cost accounts.

Suggested Answer and Working Notes:

Cost Sheet for the year ended 31st March 31st March 2025 Particulars (₹) (₹) Direct Material 3,50,000 Direct Wages 2,00,000 Prime cost 5,50,000 Factory expenses: Variable (45% of 1,00,000) 45,000 Fixed* (₹ 55,000 × 35,000/40,000) 48,125 93,125 Works cost 6,43,125 Administrative expenses related to production activities (₹ 50,000 × 35,000/40,000) 43,750 Cost of production 6,86,875 Selling & Distribution expenses: Variable (65% of 20,000) 13,000 Fixed (₹ 7,000 × 35,000/40,000) 6,125 19,125 Cost of Sales 7,06,000 Profit (Balancing figure) 94,000 Sales revenue 8,00,000 Statement Reconciling profits shown by Financial and Cost Accounts Particulars (₹) Profit as per Cost Accounts 94,000 Add: Income from interest and dividends 10,000 1,04,000 Less: Factory expenses under-charged in Cost Accounts (₹ 1,00,000 - 93,125) 6,875 Administrative expenses under-charged in Cost Accounts (₹ 50,000 - 43,750) 6,250 (14,000) Selling & distribution expenses under—charged in Cost Accounts (₹ 20,000 - 19,125) 875 Profit as per Financial Accounts 90,000

Topics: Cost Accounting Systems

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