XYZ Limited manufactures a standard product in a competitive market. During the year, the company experienced operational changes, including partial…

CA Intermediate · Cost and Management Accounting · RTP · January 2026
XYZ Limited manufactures a standard product in a competitive market. During the year, the company experienced operational changes, including partial automation and fluctuations in input costs. Although the company continued using traditional costing methods, discrepancies were observed between financial and cost profits. Management has requested a detailed analysis to understand the variance and assess the accuracy of overhead absorption. The following is the Trading and Profit & Loss Account of XYZ Limited: Dr. ₹ Cr. ₹ To Raw Materials 32,50,000 By Sales (40,000 units) 92,00,000 To Direct Wages 21,75,000 By Closing Finished Goods (2,000 units) 3,90,000 To Production Overheads 11,20,000 By Work-in-Progress: Materials 72,000 To Administration Overheads 6,25,000 To Selling & Distribution Overheads 4,60,000 Wages 34,000 To Preliminary Expenses Written Off 30,000 Production Overheads 26,500 To Goodwill Written Off 55,000 By Dividend Received 5,25,000 To Fines 10,000 By Interest from Bank Deposits 1,20,000 To Interest on Term Loan 18,000 To Loss on Sale of Equipment 20,000 To Tax 2,25,000 To Net Profit for the Year 23,79,500 Total 1,03,67,500 Total 1,03,67,500 XYZ Limited manufactures a standard product and uses traditional costing systems for internal reporting. The Cost Accounting records of XYZ Ltd. show the following: Production Overheads have been absorbed into work-in-progress at 25% on Prime Cost.Administration Overheads have been charged at 14.75 per unit of finished goods produced.Selling and Distribution Overheads have been charged at 11.50 per unit sold.The under- or over-absorption of overheads has not been adjusted in the Costing Profit & Loss Account. You are required to: Prepare a Proforma Costing Profit and Loss Account, showing the net profit as per cost accounts.Prepare control accounts for:Production OverheadsAdministration OverheadsSelling & Distribution OverheadsReconcile the profit as per cost accounts with the profit shown in the financial accounts.

Suggested Answer and Working Notes:

(i) Costing Profit & Loss Statement Particulars Amount (₹) Raw Materials 32,50,000 Direct Wages 21,75,000 Prime Cost 54,25,000 Add: Production Overheads (25% of Prime Cost) 13,56,250 Factory Cost 67,81,250 Less: Work-in-Progress (1,32,500) Manufacturing Cost Incurred During the Period 66,48,750 Add: Administration Overheads (14.75 x 42,000 units) 6,19,500 Cost of Production 72,68,250 Less: Closing Finished Goods (2,000 units x 173.05) (3,46,100) Cost of Goods Sold 69,22,150 Add: Selling & Distribution Overheads (11.50 x 40,000 units) 4,60,000 Cost of Sales 73,82,150 Profit (Balancing Figure) 18,17,850 Sales (40,000 units) 92,00,000 (ii) Control Accounts Production Overheads A/c Particulars Amount (₹) Particulars Amount (₹) To General Ledger Adjustment A/c 11,20,000 By WIP A/c (absorbed) 13,56,250 To Overhead Adjustment A/c (Over-absorption) 2,36,250 Total 13,56,250 Total 13,56,250 Administration Overheads A/c Particulars Amount (₹) Particulars Amount (₹) To General Ledger Adjustment A/c 6,25,000 By Finished Goods A/c 6,19,500 By Overhead Adjustment A/c (Under-absorption) 5,500 Total 6,25,000 Total 6,25,000 Selling & Distribution Overheads A/c Particulars Amount (₹) Particulars Amount (₹) To General Ledger Adjustment A/c 4,60,000 By Cost of Sales A/c 4,60,000 Total 4,60,000 Total 4,60,000 (iii) Reconciliation Statement Particulars Amount (₹) Amount (₹) Profits as per Cost Accounts 18,17,850 Add: – Production Overheads – over-absorbed 2,36,250 – Dividend received 5,25,000 – Interest from bank deposits 1,20,000 – Write-down of Finished Stock (3,90,000 – 3,46,100) 43,900 Total Additions 9,25,150 Less: – Administration Overheads – under-absorbed 5,500 – Preliminary expenses written off 30,000 – Goodwill written off 55,000 – Fines 10,000 – Interest on term loan 18,000 – Loss on sale of equipment 20,000 – Taxation 2,25,000 Total Deductions 3,63,500 Profit as per Financial Accounts 23,79,500

Topics: Cost Accounting Systems

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