This chapter-wise practice test covers Chapter 2: Material Cost - Test 5 for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 50 marks across 25 questions in case scenarios and standalone practical MCQs with a time limit of 60 minutes and no negative marking.
25 questions across 1 chapter, 50 marks and 60 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt).
Questions
25
Marks
50
Time limit
60 minutes
Attempt
January 2027
Group
Group 2
Law basis
ICAI Study Material for CA Intermediate Paper 4: Cost and Management Accounting (relevant for 2027 attempt)
Content as of
2026-11-10
Chapters covered
Chapter 2: Material Cost (25 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 2: Material Cost · medium
Scenario. Pragati Engineering Components Ltd. manufactures precision-machined automobile components and industrial equipment parts. Its manufacturing facility has an annual production capacity of 2,40,000 components and operates approximately 36,000 machine hours and 24,000 direct labour hours annually. Direct workers receive wages of ₹30 per hour. The company purchases a specialised alloy used in its machining operations from an approved domestic supplier.
During October, the purchase department received an invoice for 2,000 kg of alloy at ₹50 per kg. The supplier granted a trade discount of 10%. GST was charged at 18% on the discounted invoice value, and the company is eligible to claim the entire input tax credit. The consignment was transported directly to the factory, and the company incurred freight and transit insurance charges. It also purchased packing containers, some of which are non-returnable and others returnable.
Invoice and procurement details:
| Particulars | Amount |
| Gross invoice price | ₹1,00,000 |
| Trade discount | 10% |
| GST | 18% on discounted price |
| Input tax credit | Fully available |
| Freight inward | ₹4,000 |
| Transit insurance | ₹1,000 |
| Non-returnable packing containers | ₹2,000 |
| Returnable containers paid for | ₹5,000 |
| Refund on return of containers | ₹4,000 |
| Cash discount | 2% if paid within 15 days |
| Demurrage for delayed unloading | ₹3,000 |
The finance department has confirmed that the cash discount is a financing incentive and that the demurrage arose from avoidable unloading delays. The returnable containers will be returned to the supplier against the stated refund. The cost accountant must determine the material purchase cost for stores ledger valuation, ensuring that only relevant procurement expenditure is included. All figures relate to the same consignment, and the material is available for production after inspection.
Calculate the material purchase cost per kg of alloy to be entered in the stores ledger.
₹49.00 (correct answer)
₹50.00
₹48.50
₹47.50
Answer: A — ₹49.00
Explanation. Gross invoice value = 2,000 × ₹50 = ₹1,00,000. Less trade discount of 10% = ₹10,000; net purchase price = ₹90,000. Add freight ₹4,000, insurance ₹1,000, non-returnable containers ₹2,000 and returnable-container shortfall (₹5,000 − ₹4,000) = ₹1,000. Total purchase cost = ₹98,000. GST is excluded because credit is available, while cash discount and demurrage are ignored. Cost per kg = ₹98,000 ÷ 2,000 = ₹49.
Where it goes wrong. Including recoverable GST or demurrage, or adding the full returnable-container deposit instead of only the non-refundable shortfall.
Question 2 · 2 marks · Chapter 2: Material Cost · hard
What amount of GST should be excluded from the material purchase cost because the company is eligible for complete input tax credit?
₹18,000
₹15,000
₹16,200 (correct answer)
₹20,000
Answer: C — ₹16,200
Explanation. Net purchase value after trade discount = ₹1,00,000 − ₹10,000 = ₹90,000. GST at 18% = ₹90,000 × 18/100 = ₹16,200. Since the entire input tax credit is available, the GST amount is excluded from the material purchase cost. It does not increase the stores ledger rate. Adding this amount would overstate the cost by ₹16,200, whereas calculating GST on the original gross invoice would use an incorrect tax base.
Where it goes wrong. Calculating GST on the gross invoice value without deducting trade discount or adding recoverable input tax credit to material cost.
Question 3 · 2 marks · Chapter 2: Material Cost · medium
How should the demurrage charge of ₹3,000 arising from delayed unloading be treated while valuing the material receipt?
Add ₹3,000 to the material purchase price.
Treat ₹3,000 as an abnormal cost and exclude it from material purchase cost. (correct answer)
Absorb ₹3,000 through the good units produced.
Deduct ₹3,000 from the trade-discount amount.
Answer: B — Treat ₹3,000 as an abnormal cost and exclude it from material purchase cost.
Explanation. Demurrage is a penalty imposed by the transporter for delay in loading or unloading materials. Under the chapter's purchase-cost treatment, it is an abnormal cost and is not included in material purchase cost. Therefore, ₹3,000 must be excluded from the stores ledger valuation and accounted for separately as an abnormal cost. Freight inward and transit insurance are different because they are directly attributable to bringing the material to the factory.
Where it goes wrong. Treating demurrage as freight inward merely because both charges appear on the transporter's invoice.
Question 4 · 2 marks · Chapter 2: Material Cost · hard
Determine the total amount relating to packing and container charges that should be included in material purchase cost.
₹2,000
₹5,000
₹7,000
₹3,000 (correct answer)
Answer: D — ₹3,000
Explanation. The non-returnable packing containers are fully included in purchase cost at ₹2,000. For the returnable containers, ₹5,000 is paid but only ₹4,000 is refundable. Therefore, the non-refundable shortfall of ₹1,000 is added to purchase cost. Total amount included = ₹2,000 + ₹1,000 = ₹3,000. The full ₹5,000 deposit cannot be included because ₹4,000 will be recovered on return.
Where it goes wrong. Including the full purchase value of returnable containers even though a substantial refund will be received.
Question 5 · 2 marks · Chapter 2: Material Cost · medium
Scenario. Apex Industrial Alloys Ltd. manufactures specialised steel components for automobile, aerospace and heavy-equipment manufacturers. The factory has an annual practical production capacity of 1,20,000 components, with 32,000 machine hours and 20,000 direct labour hours budgeted for the year. The company imports a specialised alloy that is unavailable from domestic suppliers. Procurement is handled by a centralised purchasing department, which records all duties, taxes, freight and insurance associated with imported material.
The company imports 1,000 kg of alloy at a gross invoice price of ₹100 per kg. The foreign supplier allows a trade discount of 10%. Customs duty is payable on the discounted purchase value. GST of ₹16,200 is paid on the consignment, but the company is not eligible to claim input tax credit for this amount. The company also incurs freight inward, transit insurance, brokerage and road toll tax. The transport company additionally charges demurrage because unloading was delayed, and the supplier allows a cash discount for early settlement.
Procurement information:
| Particulars | Amount or Rate |
| Gross invoice price | ₹1,00,000 |
| Trade discount | 10% |
| Customs duty | 10% of discounted purchase price |
| GST paid | ₹16,200 |
| GST input credit | Not available |
| Freight inward | ₹3,000 |
| Transit insurance | ₹1,000 |
| Brokerage | ₹2,000 |
| Road toll tax | ₹500 |
| Demurrage | ₹2,000 |
| Cash discount | 2% of discounted invoice value |
All amounts are supported by the relevant supplier and transport documents. The purchase department has confirmed that customs duty, GST without input credit, freight, insurance, brokerage and road toll tax are attributable to bringing the material to the factory. Demurrage arose from an avoidable delay and is to be considered separately. The cost accountant must calculate the appropriate purchase cost without treating the financing discount as a reduction in material cost.
Calculate the total material purchase cost per kg of the imported alloy after considering all applicable purchase components.
₹105.50
₹119.70
₹121.70 (correct answer)
₹123.70
Answer: C — ₹121.70
Explanation. Gross purchase price = ₹1,00,000. Less trade discount of 10% = ₹10,000; net price = ₹90,000. Customs duty = 10% of ₹90,000 = ₹9,000. Add non-creditable GST ₹16,200, freight ₹3,000, insurance ₹1,000, brokerage ₹2,000 and toll tax ₹500. Total = ₹1,21,700. Demurrage and cash discount are excluded. Cost per kg = ₹1,21,700 ÷ 1,000 = ₹121.70.
Where it goes wrong. Excluding GST despite input credit being unavailable, or adding demurrage while calculating the landed material cost.
Question 6 · 2 marks · Chapter 2: Material Cost · hard
What is the aggregate amount of customs duty, freight, transit insurance, brokerage and road toll tax included in the purchase cost?
₹15,500 (correct answer)
₹14,500
₹16,200
₹17,500
Answer: A — ₹15,500
Explanation. Customs duty = 10% of discounted purchase price = 10% × ₹90,000 = ₹9,000. Add freight ₹3,000, transit insurance ₹1,000, brokerage ₹2,000 and road toll tax ₹500. Total attributable expenditure = ₹9,000 + ₹3,000 + ₹1,000 + ₹2,000 + ₹500 = ₹15,500. These amounts are included because they are duties or costs incurred in bringing the inventory to the factory.
Where it goes wrong. Ignoring customs duty or road toll tax, or incorrectly including demurrage in the aggregate attributable expenditure.
Question 7 · 2 marks · Chapter 2: Material Cost · medium
What amount must be excluded from the purchase cost because it represents demurrage arising from delayed unloading?
₹1,500
₹500
₹1,000
₹2,000 (correct answer)
Answer: D — ₹2,000
Explanation. The consignment attracts demurrage of ₹2,000 because unloading was delayed. Demurrage is a penalty arising from an abnormal delay and is not part of material purchase cost. Accordingly, the full ₹2,000 is excluded from the stores ledger valuation. Freight inward and insurance remain included because they are directly attributable to procurement, while demurrage does not represent the cost of bringing the material to its present condition and location.
Where it goes wrong. Including an abnormal penalty as part of inward freight and thereby overstating material purchase cost.
Question 8 · 2 marks · Chapter 2: Material Cost · hard
Calculate the cash discount available for early settlement and determine its treatment in material purchase valuation.
₹2,000; deducted from purchase cost.
₹1,800; ignored as a financing item. (correct answer)
₹1,620; added to material cost.
₹1,800; deducted from freight inward.
Answer: B — ₹1,800; ignored as a financing item.
Explanation. Discounted invoice value = ₹1,00,000 − 10% = ₹90,000. Cash discount = 2% × ₹90,000 = ₹1,800. The chapter treats cash discount as an interest and finance item, not as a reduction in purchase price. Therefore, the ₹1,800 is ignored while valuing material receipts. Trade discount is deducted because it directly reduces the purchase price, but cash discount does not receive the same treatment.
Where it goes wrong. Treating cash discount in the same manner as trade discount when determining the cost of materials purchased.
Question 9 · 2 marks · Chapter 2: Material Cost · medium
Scenario. Zenith Precision Manufacturing Ltd. produces precision-engineered components for industrial machinery and automobile manufacturers. The company operates at an annual practical capacity of 1,50,000 components, utilising approximately 45,000 machine hours and 28,000 direct labour hours. Its fabrication department processes alloy and steel inputs through cutting, machining and finishing operations. Material costs are accumulated against individual production orders.
During the month, a production order incurred material cost of ₹1,00,000 before separate accounting for recoverable scrap and spoiled output. The production department records that ordinary process scrap is unavoidable and has a recoverable sale value. Some finished components are also spoiled during production. A portion of spoilage is inherent in the manufacturing process, whereas another portion results from avoidable operator errors.
Production-loss particulars:
| Particulars | Quantity | Cost or Realisable Value |
| Normal scrap | 100 kg | ₹20 realisable per kg |
| Normal spoiled components | 10 units | Material cost ₹300 per unit |
| Realisation from normal spoilage | 10 units | ₹50 per unit |
| Abnormal spoiled components | 5 units | Material cost ₹400 per unit |
| Realisation from abnormal spoilage | 5 units | ₹80 per unit |
The company follows the prescribed cost accounting treatment for material losses. Normal scrap realisation is credited against the concerned production order or production overhead. Normal spoilage costs are included in production cost, with any realisable amount credited to the production order or production overhead. Abnormal spoilage costs are excluded from normal manufacturing cost and transferred to the Costing Profit and Loss Account after considering the realisable value. The cost accountant has been asked to calculate the separate financial effects of these losses and identify the amount absorbed by good production.
Calculate the realisable value of normal scrap generated during the production order. How much should be credited against production cost?
₹2,000 (correct answer)
₹1,500
₹2,500
₹3,000
Answer: A — ₹2,000
Explanation. Normal scrap quantity = 100 kg. Realisable value per kg = ₹20. Total scrap realisation = 100 × ₹20 = ₹2,000. Under the chapter's treatment, the cost of normal scrap is borne by good units, and any realisable value is deducted from the cost of production. Therefore, ₹2,000 is credited to the concerned production order or production overhead. The scrap proceeds are not treated as an independent abnormal loss.
Where it goes wrong. Ignoring the sale proceeds of normal scrap while calculating the net cost of good production.
Question 10 · 2 marks · Chapter 2: Material Cost · hard
What is the net material cost of normal spoilage that must be absorbed by good production?
₹3,000
₹2,000
₹2,500 (correct answer)
₹3,500
Answer: C — ₹2,500
Explanation. Gross cost of normal spoilage = 10 units × ₹300 = ₹3,000. Realisable value = 10 units × ₹50 = ₹500. Net normal spoilage cost = ₹3,000 − ₹500 = ₹2,500. Since the spoilage is inherent in the manufacturing process, its net cost is included in production cost, either by charging the production order or production overhead. Abnormal spoilage would instead be transferred to the Costing Profit and Loss Account.
Where it goes wrong. Charging the gross spoilage cost to good production without deducting the realisable value of spoiled units.
Question 11 · 2 marks · Chapter 2: Material Cost · medium
Calculate the net abnormal spoilage loss to be transferred to the Costing Profit and Loss Account.
₹2,000
₹1,400
₹1,800
₹1,600 (correct answer)
Answer: D — ₹1,600
Explanation. Gross abnormal spoilage cost = 5 units × ₹400 = ₹2,000. Realisable value = 5 units × ₹80 = ₹400. Net abnormal spoilage loss = ₹2,000 − ₹400 = ₹1,600. Because this spoilage arose from avoidable operator errors, it is abnormal and its net material cost is transferred to the Costing Profit and Loss Account. It must not be absorbed by the good production units.
Where it goes wrong. Absorbing abnormal spoilage in good production or transferring the gross cost without deducting the realisable value.
Question 12 · 2 marks · Chapter 2: Material Cost · hard
What is the combined net cost of normal and abnormal spoilage, after considering the realisable value of both categories?
₹4,500
₹4,100 (correct answer)
₹3,900
₹5,000
Answer: B — ₹4,100
Explanation. Normal spoilage: Gross cost = 10 × ₹300 = ₹3,000; realisation = 10 × ₹50 = ₹500; net cost = ₹2,500. Abnormal spoilage: Gross cost = 5 × ₹400 = ₹2,000; realisation = 5 × ₹80 = ₹400; net loss = ₹1,600. Combined net spoilage cost = ₹2,500 + ₹1,600 = ₹4,100. Of this amount, ₹2,500 is absorbed by good production and ₹1,600 is transferred to the Costing Profit and Loss Account.
Where it goes wrong. Combining normal and abnormal spoilage costs without separately deducting realisation and identifying their different accounting treatments.
Question 13 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A company purchases 1,000 units of a raw material at ₹50 per unit. The supplier grants a trade discount of 10% and a further quantity discount of 5% on the reduced invoice value. Freight inward is ₹1,500, transit insurance is ₹500 and non-returnable packing costs ₹1,000. GST of 18% is fully creditable. A cash discount of 2% is available for early payment and demurrage of ₹600 is also incurred. Calculate the material purchase cost per unit.
A company purchases 1,000 units of a raw material at ₹50 per unit. The supplier grants a trade discount of 10% and a further quantity discount of 5% on the reduced invoice value. Freight inward is ₹1,500, transit insurance is ₹500 and non-returnable packing costs ₹1,000. GST of 18% is fully creditable. A cash discount of 2% is available for early payment and demurrage of ₹600 is also incurred. Calculate the material purchase cost per unit.
₹46.50
₹47.00
₹45.75 (correct answer)
₹48.00
Answer: C — ₹45.75
Explanation. Gross price = 1,000 × ₹50 = ₹50,000. Trade discount = ₹5,000; balance = ₹45,000. Quantity discount = 5% × ₹45,000 = ₹2,250. Net purchase price = ₹42,750. Add freight ₹1,500, insurance ₹500 and non-returnable packing ₹1,000. Total material cost = ₹45,750. GST credit, cash discount and demurrage are excluded. Cost per unit = ₹45,750 ÷ 1,000 = ₹45.75.
Where it goes wrong. Applying both discounts to the original price instead of applying the quantity discount to the reduced invoice value, or including recoverable GST.
Question 14 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A factory purchases 800 units at ₹75 each. A trade discount of 5% is allowed. GST of ₹6,840 is paid, but no input tax credit is available. Freight inward is ₹2,000. Returnable containers cost ₹3,000, but the supplier will refund only ₹2,000 upon their return. What is the material purchase cost per unit?
A factory purchases 800 units at ₹75 each. A trade discount of 5% is allowed. GST of ₹6,840 is paid, but no input tax credit is available. Freight inward is ₹2,000. Returnable containers cost ₹3,000, but the supplier will refund only ₹2,000 upon their return. What is the material purchase cost per unit?
₹83.55 (correct answer)
₹80.55
₹82.50
₹85.00
Answer: A — ₹83.55
Explanation. Gross purchase price = 800 × ₹75 = ₹60,000. Less trade discount = ₹3,000; net purchase price = ₹57,000. Add non-creditable GST ₹6,840, freight ₹2,000 and container shortfall (₹3,000 − ₹2,000) = ₹1,000. Total material cost = ₹66,840. Cost per unit = ₹66,840 ÷ 800 = ₹83.55. The refundable container portion and trade discount are not included in cost.
Where it goes wrong. Excluding non-creditable GST or including the entire returnable-container payment instead of its non-refundable shortfall.
Question 15 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A company imports 500 kg of a material at ₹120 per kg. Customs duty is 10% of the purchase price. Freight inward is ₹2,000, insurance is ₹500 and brokerage is ₹1,500. GST paid on the import is fully eligible for input tax credit. A statutory detention penalty of ₹1,000 is also incurred. Calculate the material purchase cost per kg.
A company imports 500 kg of a material at ₹120 per kg. Customs duty is 10% of the purchase price. Freight inward is ₹2,000, insurance is ₹500 and brokerage is ₹1,500. GST paid on the import is fully eligible for input tax credit. A statutory detention penalty of ₹1,000 is also incurred. Calculate the material purchase cost per kg.
₹134
₹140 (correct answer)
₹142
₹144
Answer: B — ₹140
Explanation. Purchase price = 500 × ₹120 = ₹60,000. Customs duty = 10% × ₹60,000 = ₹6,000. Other attributable charges = freight ₹2,000 + insurance ₹500 + brokerage ₹1,500 = ₹4,000. Total purchase cost = ₹60,000 + ₹6,000 + ₹4,000 = ₹70,000. GST is excluded because credit is available, and the statutory penalty is abnormal. Cost per kg = ₹70,000 ÷ 500 = ₹140.
Where it goes wrong. Including recoverable GST or statutory penalties as part of the material purchase cost.
Question 16 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A purchase invoice contains the following charges: freight inward ₹2,500, transit insurance ₹1,200, demurrage ₹1,000 and a statutory penalty ₹500. Calculate the total amount to be included in material purchase cost from these four charges.
A purchase invoice contains the following charges: freight inward ₹2,500, transit insurance ₹1,200, demurrage ₹1,000 and a statutory penalty ₹500. Calculate the total amount to be included in material purchase cost from these four charges.
₹4,200
₹5,200
₹4,700
₹3,700 (correct answer)
Answer: D — ₹3,700
Explanation. Freight inward of ₹2,500 is included because it is directly attributable to procurement. Transit insurance of ₹1,200 is also included because it protects the goods during transit. Demurrage of ₹1,000 and statutory penalty of ₹500 are abnormal charges and are excluded. Therefore, purchase-cost additions = ₹2,500 + ₹1,200 = ₹3,700. The remaining ₹1,500 must not be capitalised into the material cost.
Where it goes wrong. Including demurrage or statutory penalties as procurement expenditure merely because they appear on the same supplier or transporter invoice.
Question 17 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A supplier charges ₹12,000 for returnable containers supplied with a raw material consignment. The company returns all containers and receives a refund of ₹10,500. What amount should be included in the material purchase cost?
A supplier charges ₹12,000 for returnable containers supplied with a raw material consignment. The company returns all containers and receives a refund of ₹10,500. What amount should be included in the material purchase cost?
₹1,500 (correct answer)
₹10,500
₹12,000
Nil
Answer: A — ₹1,500
Explanation. The cost of returnable containers is not included in material purchase cost when their amount is fully refunded. However, where the refund is less than the amount paid, only the shortfall is included. Amount paid = ₹12,000; amount refunded = ₹10,500. Non-refundable shortfall = ₹12,000 − ₹10,500 = ₹1,500. Therefore, ₹1,500 is added to purchase cost rather than the full ₹12,000.
Where it goes wrong. Ignoring the difference between the amount originally paid for returnable containers and the amount actually refunded.
Question 18 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A manufacturer purchases 1,000 kg of raw material for ₹90 per kg and incurs freight inward of ₹6,000. During handling, 200 kg is lost due to normal evaporation. The material loss is unavoidable and has no recoverable value. Calculate the effective material cost per usable kg.
A manufacturer purchases 1,000 kg of raw material for ₹90 per kg and incurs freight inward of ₹6,000. During handling, 200 kg is lost due to normal evaporation. The material loss is unavoidable and has no recoverable value. Calculate the effective material cost per usable kg.
₹90
₹100
₹120 (correct answer)
₹112
Answer: C — ₹120
Explanation. Purchase price = 1,000 × ₹90 = ₹90,000. Add freight inward ₹6,000. Total material purchase cost = ₹96,000. Normal loss = 200 kg, so usable quantity = 1,000 − 200 = 800 kg. Effective cost per usable kg = ₹96,000 ÷ 800 = ₹120. Normal loss is absorbed by good units, increasing their effective cost. The cost must not be divided by the original 1,000 kg.
Where it goes wrong. Ignoring normal material loss while determining the effective cost of usable material.
Question 19 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A company purchases 2,000 units of raw material at ₹25 each. The supplier grants a trade discount of 10%. The company also receives a government subsidy of ₹3,000 against the purchase. Freight inward is ₹2,000. GST is fully creditable and a cash discount of 2% is available. Calculate the material purchase cost per unit.
A company purchases 2,000 units of raw material at ₹25 each. The supplier grants a trade discount of 10%. The company also receives a government subsidy of ₹3,000 against the purchase. Freight inward is ₹2,000. GST is fully creditable and a cash discount of 2% is available. Calculate the material purchase cost per unit.
₹25
₹22 (correct answer)
₹21
₹23
Answer: B — ₹22
Explanation. Gross purchase price = 2,000 × ₹25 = ₹50,000. Less trade discount of ₹5,000 gives ₹45,000. Deduct government subsidy of ₹3,000, resulting in ₹42,000. Add freight inward ₹2,000. Total material purchase cost = ₹44,000. GST is excluded because input credit is available, and cash discount is ignored as a financing item. Cost per unit = ₹44,000 ÷ 2,000 = ₹22.
Where it goes wrong. Treating government subsidy as income unrelated to purchase valuation or deducting cash discount in the same manner as trade discount.
Question 20 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A manufacturer purchases raw material for ₹1,00,000 after trade discount. GST of ₹18,000 is charged, but input tax credit is available only for ₹12,000. Freight inward amounts to ₹4,000. Determine the total material purchase cost, assuming the remaining GST is not recoverable.
A manufacturer purchases raw material for ₹1,00,000 after trade discount. GST of ₹18,000 is charged, but input tax credit is available only for ₹12,000. Freight inward amounts to ₹4,000. Determine the total material purchase cost, assuming the remaining GST is not recoverable.
₹1,04,000
₹1,18,000
₹1,22,000
₹1,10,000 (correct answer)
Answer: D — ₹1,10,000
Explanation. Total GST paid = ₹18,000. Recoverable input credit = ₹12,000. Non-recoverable GST = ₹18,000 − ₹12,000 = ₹6,000. Material purchase cost = Net purchase price ₹1,00,000 + non-recoverable GST ₹6,000 + freight inward ₹4,000 = ₹1,10,000. Recoverable GST is excluded, while the non-recoverable portion forms part of the purchase cost under the stated circumstances.
Where it goes wrong. Excluding the entire GST amount merely because some input tax credit is available.
Question 21 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A manufacturing order has 20 normal spoiled units. Each unit carries material cost of ₹500 and can be sold for ₹100 per unit. Determine the net spoilage cost to be absorbed by good production.
A manufacturing order has 20 normal spoiled units. Each unit carries material cost of ₹500 and can be sold for ₹100 per unit. Determine the net spoilage cost to be absorbed by good production.
₹10,000
₹6,000
₹8,000 (correct answer)
₹7,500
Answer: C — ₹8,000
Explanation. Gross material cost of normal spoilage = 20 × ₹500 = ₹10,000. Realisable value from selling spoiled units = 20 × ₹100 = ₹2,000. Net normal spoilage cost = ₹10,000 − ₹2,000 = ₹8,000. Normal spoilage is inherent in the manufacturing operation, so its net cost is included in the production order or production overhead. The realisable value is credited to the corresponding production cost.
Where it goes wrong. Absorbing the full cost of normal spoilage without deducting the amount recoverable from its sale.
Question 22 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A batch of 12 components is abnormally spoiled due to avoidable production errors. The material cost is ₹600 per component, and the spoiled components can be sold for ₹150 each. What is the net loss to be transferred to the Costing Profit and Loss Account?
A batch of 12 components is abnormally spoiled due to avoidable production errors. The material cost is ₹600 per component, and the spoiled components can be sold for ₹150 each. What is the net loss to be transferred to the Costing Profit and Loss Account?
₹5,400 (correct answer)
₹7,200
₹6,000
₹1,800
Answer: A — ₹5,400
Explanation. Gross abnormal spoilage material cost = 12 × ₹600 = ₹7,200. Realisable value = 12 × ₹150 = ₹1,800. Net abnormal spoilage loss = ₹7,200 − ₹1,800 = ₹5,400. Since the spoilage arose from avoidable production errors, it is abnormal and must be excluded from normal production cost. Its net loss is transferred to the Costing Profit and Loss Account.
Where it goes wrong. Charging the full cost of abnormal spoilage to production or forgetting to deduct the realisable value before transferring the loss.
Question 23 · 2 marks · Chapter 2: Material Cost · medium
Scenario. Abnormal scrap generated during a production process has a full cost of ₹15,000. The scrap is subsequently sold for ₹12,500. What is the amount of loss transferred to the Costing Profit and Loss Account on realisation?
Abnormal scrap generated during a production process has a full cost of ₹15,000. The scrap is subsequently sold for ₹12,500. What is the amount of loss transferred to the Costing Profit and Loss Account on realisation?
₹15,000
₹2,500 (correct answer)
₹12,500
₹27,500
Answer: B — ₹2,500
Explanation. Under the chapter's abnormal scrap treatment, the Scrap Account is charged with the full scrap cost of ₹15,000, and corresponding credit is given to the concerned job or process. On realisation, sale proceeds are ₹12,500. Loss on realisation = ₹15,000 − ₹12,500 = ₹2,500. This loss is transferred to the Costing Profit and Loss Account. The entire scrap cost is not automatically the loss because part is recovered through sale.
Where it goes wrong. Transferring the full cost of abnormal scrap to the Costing Profit and Loss Account without considering sale proceeds.
Question 24 · 2 marks · Chapter 2: Material Cost · hard
Scenario. A manufacturing order generates 30 normal defective units. Each defective unit has a material cost of ₹400 and can be sold for ₹100. Determine the net amount charged to the material cost of good production.
A manufacturing order generates 30 normal defective units. Each defective unit has a material cost of ₹400 and can be sold for ₹100. Determine the net amount charged to the material cost of good production.
₹12,000
₹10,500
₹6,000
₹9,000 (correct answer)
Answer: D — ₹9,000
Explanation. Gross material cost of normal defectives = 30 × ₹400 = ₹12,000. Realisable value on sale = 30 × ₹100 = ₹3,000. Net cost of normal defectives = ₹12,000 − ₹3,000 = ₹9,000. Under the chapter's treatment, the cost less the realisable value of normal defectives is charged to the material cost of good production. The entire gross amount is therefore not absorbed.
Where it goes wrong. Treating normal defectives as abnormal loss or charging their gross material cost without deducting sale proceeds.
Question 25 · 2 marks · Chapter 2: Material Cost · medium
Scenario. A production department identifies 25 abnormal defective units caused by careless inspection. Material cost is ₹500 per unit and the defective components can be sold for ₹200 per unit. Calculate the net abnormal material loss to be transferred to the Costing Profit and Loss Account.
A production department identifies 25 abnormal defective units caused by careless inspection. Material cost is ₹500 per unit and the defective components can be sold for ₹200 per unit. Calculate the net abnormal material loss to be transferred to the Costing Profit and Loss Account.
₹12,500
₹5,000
₹7,500 (correct answer)
₹10,000
Answer: C — ₹7,500
Explanation. Gross material cost of abnormal defectives = 25 × ₹500 = ₹12,500. Realisable value = 25 × ₹200 = ₹5,000. Net abnormal material loss = ₹12,500 − ₹5,000 = ₹7,500. Since careless inspection is an avoidable cause, the defectives are abnormal. Their net material cost is excluded from good production and transferred to the Costing Profit and Loss Account after allowing for recovery through sale.
Where it goes wrong. Absorbing abnormal defective costs in good production or transferring the full gross cost without deducting the realisable value.
ICAI SM: Cost and Management Accounting, Chapter 2 (Material Cost)
Questions people ask
What does this Chapter 2: Material Cost - Test 5 practice test cover?
This practice test carries 50 marks across 25 questions covering core costing principles, cost accounting standards, formulas, mathematical models, and practical ICAI case scenarios.
How many questions are there and what is the time limit?
There are 25 questions carrying 2 marks each, giving a maximum score of 50 marks in 60 minutes with no negative marking.
Which study material and syllabus apply to these questions?
Questions strictly reflect the official ICAI Study Material for CA Intermediate Paper 4 Cost and Management Accounting for the 2027 examination sessions.
Can I sit this test in both exam and practice modes?
Yes. Practice mode gives immediate answers with mathematical step-by-step workings and trap explanations after each question. Exam mode simulates actual exam conditions with a live timer and issues a downloadable performance certificate.
