Test 3: Employee Cost and Direct Expenses: answer key
This chapter-wise practice test covers Chapter 3: Employee Cost and Direct Expenses - Test 3 for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 40 marks across 20 questions in case scenarios and standalone practical MCQs with a time limit of 45 minutes and no negative marking.
20 questions across 1 chapter, 40 marks and 45 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
20
Marks
40
Time limit
45 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 3: Employee Cost and Direct Expenses (20 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Vikram Steels Ltd operates a fabrication shop in Raipur. A direct worker, Ramesh, is paid a basic wage of ₹120 per hour. The standard time allowed to complete one batch on Job VX is 8 hours, and Ramesh completed the batch in 6 hours. The company operates two premium bonus plans for comparison: the Halsey 50% plan and the Rowan plan. Under Halsey, earnings = actual hours × rate + 50% of time saved × rate. Under Rowan, earnings = actual hours × rate + (time saved ÷ standard time) × actual hours × rate. The cost accountant has been asked to compute earnings, effective hourly wage rate, and the difference between the two plans. No other allowances or overtime apply. The worker’s actual time is fully productive. All amounts are in rupees. The factory works a single 8-hour shift, and the batch was completed within the shift. The data are to be used only for incentive comparison and not for payroll disbursement. There is no idle time, no overtime and no shift allowance. The worker is eligible for bonus only if he completes the batch within the standard time. The management wants to evaluate whether the Rowan plan gives a stronger incentive than the Halsey plan at this level of time saved. The time saved is 2 hours, and the actual time is 6 hours. The effective hourly rate is to be computed on actual hours worked, not on standard hours allowed. The company follows the standard ICAI treatment for both plans.
What are Ramesh’s earnings under the Halsey 50% premium plan?
₹720
₹840 (correct answer)
₹900
₹960
Answer: B — ₹840
Explanation. Halsey earnings = actual hours × rate + 50% of time saved × rate. Actual hours = 6, rate = ₹120, standard time = 8, time saved = 8 − 6 = 2 hours. Earnings = 6 × ₹120 + 50% × 2 × ₹120 = ₹720 + ₹120 = ₹840. Option a is wages without bonus; option c is Rowan earnings; option d adds full time saved at full instead of 50%.
Where it goes wrong. Giving full of time saved instead of 50%, or forgetting the bonus entirely.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 2 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
What are Ramesh’s earnings under the Rowan premium plan?
₹840
₹960
₹900 (correct answer)
₹1,020
Answer: C — ₹900
Explanation. Rowan earnings = actual hours × rate + (time saved ÷ standard time) × actual hours × rate. = 6 × ₹120 + (2 ÷ 8) × 6 × ₹120 = ₹720 + 0.25 × ₹720 = ₹720 + ₹180 = ₹900. Option a is Halsey earnings; option b uses a 1/3 ratio; option d uses a 5/12 ratio or wrong bonus.
Where it goes wrong. Using time saved divided by actual time instead of standard time in the Rowan bonus fraction.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 3 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
What is Ramesh’s effective hourly wage rate under the Halsey plan?
₹120
₹140 (correct answer)
₹150
₹160
Answer: B — ₹140
Explanation. Effective hourly rate = total earnings ÷ actual hours worked. Halsey earnings are ₹840 and actual hours are 6. Effective rate = ₹840 ÷ 6 = ₹140 per hour. Option a is the basic rate; option c is the Rowan effective rate (₹900 ÷ 6 = ₹150); option d adds an extra ₹20 without basis.
Where it goes wrong. Dividing by standard hours of 8 instead of actual hours of 6.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 4 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
By how much do Rowan earnings exceed Halsey earnings for Ramesh?
₹60 (correct answer)
₹120
₹180
₹240
Answer: A — ₹60
Explanation. Rowan earnings = ₹900; Halsey earnings = ₹840. Difference = ₹900 − ₹840 = ₹60. Option b is the Halsey bonus amount; option c is the Rowan bonus amount; option d is the sum of both bonuses. The comparison must use total earnings, not only bonus.
Where it goes wrong. Comparing only the bonus amounts or subtracting in the wrong direction.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 5 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Apex Polychem Ltd runs a polymer components unit in Vadodara. The standard output is 25 units per day. The ordinary piece rate is ₹40 per unit. The company is evaluating two differential piece-rate systems. Under the Taylor differential piece-rate system, a worker producing below the standard output is paid 80% of the ordinary piece rate, and a worker producing at or above the standard output is paid 120% of the ordinary piece rate. Under the Merrick differential piece-rate system, output up to 83% of standard is paid at the ordinary piece rate; output above 83% and up to full of standard is paid at 110% of the ordinary piece rate; and output above full of standard is paid at 120% of the ordinary piece rate. Four workers produced the following output in a day: Worker A produced 20 units; Worker B produced 30 units; Worker C produced 24 units; Worker D produced 20 units. There is no process loss and all units produced are good units. The company wants to compare the wage cost under the two systems for these output levels. All amounts are in rupees. No other allowances, overtime or idle time are relevant. The ordinary piece rate and the differential multipliers are to be applied exactly as stated. The workers are daily-rated piece workers and are not entitled to any assured day wage. The cost accountant must compute wages under Taylor for Workers A and B, and under Merrick for Workers C and D. The output percentages are to be measured against the standard output of 25 units per day.
What are Worker A’s wages under the Taylor differential piece-rate system?
₹640 (correct answer)
₹800
₹960
₹600
Answer: A — ₹640
Explanation. Worker A produces 20 units against a standard of 25 units, i.e. 80% of standard. Under Taylor, below-standard output gets 80% of the ordinary rate. Rate = 80% × ₹40 = ₹32 per unit. Wages = 20 × ₹32 = ₹640. Option b uses the full ₹40 rate; option c uses the above-standard rate; option d uses ₹30 per unit.
Where it goes wrong. Applying the above-standard 120% rate to a below-standard output.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 6 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
What are Worker B’s wages under the Taylor differential piece-rate system?
₹1,200
₹1,320
₹1,440 (correct answer)
₹1,500
Answer: C — ₹1,440
Explanation. Worker B produces 30 units, which is above the standard of 25 units. Under Taylor, at or above standard output gets 120% of the ordinary rate. Rate = 120% × ₹40 = ₹48 per unit. Wages = 30 × ₹48 = ₹1,440. Option a uses ₹40 rate; option b uses ₹44 rate; option d uses ₹50 rate.
Where it goes wrong. Using the ordinary piece rate of ₹40 instead of the 120% differential rate for above-standard output.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 7 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
What are Worker C’s wages under the Merrick differential piece-rate system?
₹960
₹1,056 (correct answer)
₹1,080
₹1,100
Answer: B — ₹1,056
Explanation. Worker C produces 24 units against a standard of 25 units, i.e. 96%. Under Merrick, output above 83% and up to full gets 110% of the ordinary rate. Rate = 110% × ₹40 = ₹44 per unit. Wages = 24 × ₹44 = ₹1,056. Option a uses ₹40 rate; option c uses ₹45 rate; option d uses ₹45.83 rate.
Where it goes wrong. Applying the 120% rate because output is close to standard, instead of the 110% slab.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 8 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
What are Worker D’s wages under the Merrick differential piece-rate system?
₹640
₹760
₹800 (correct answer)
₹880
Answer: C — ₹800
Explanation. Worker D produces 20 units, i.e. 80% of the standard of 25 units. Under Merrick, output up to 83% of standard is paid at the ordinary piece rate. Wages = 20 × ₹40 = ₹800. Option a uses the Taylor below-standard rate of ₹32; option b uses ₹38; option d uses ₹44.
Where it goes wrong. Applying the Merrick 110% rate to an output below the 83% threshold.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 9 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. A worker is paid ₹180 per hour for a normal 40-hour week. He works 46 hours, and overtime is paid at 150% of the basic rate. What are his total weekly wages?
A worker is paid ₹180 per hour for a normal 40-hour week. He works 46 hours, and overtime is paid at 150% of the basic rate. What are his total weekly wages?
₹8,280
₹8,640
₹8,100
₹8,820 (correct answer)
Answer: D — ₹8,820
Explanation. Normal wages = 40 × ₹180 = ₹7,200. Overtime hours = 46 − 40 = 6. Overtime rate = 150% × ₹180 = ₹270. Overtime wages = 6 × ₹270 = ₹1,620. Total wages = ₹7,200 + ₹1,620 = ₹8,820. Option a uses ₹180 for overtime; option b uses ₹240; option c ignores overtime premium.
Where it goes wrong. Paying overtime hours at the basic rate instead of 150% of basic rate.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 10 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. A worker produces 1,250 units in a day and is paid a straight piece rate of ₹24 per unit. What are his wages?
A worker produces 1,250 units in a day and is paid a straight piece rate of ₹24 per unit. What are his wages?
₹30,000 (correct answer)
₹28,800
₹31,200
₹27,500
Answer: A — ₹30,000
Explanation. Straight piece-rate wages = units produced × rate per unit = 1,250 × ₹24 = ₹30,000. Option b uses ₹23.04 per unit; option c uses ₹24.96 per unit; option d uses ₹22 per unit. In a straight piece-rate system, wages depend only on output and not on time taken.
Where it goes wrong. Multiplying by hours worked or applying a time-rate formula to a piece-rate worker.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 11 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Under the Halsey 50% plan, standard time is 20 hours, actual time is 16 hours, and the time rate is ₹90 per hour. What are the worker’s earnings?
Under the Halsey 50% plan, standard time is 20 hours, actual time is 16 hours, and the time rate is ₹90 per hour. What are the worker’s earnings?
₹1,440
₹1,620 (correct answer)
₹1,800
₹1,980
Answer: B — ₹1,620
Explanation. Time saved = 20 − 16 = 4 hours. Halsey earnings = 16 × ₹90 + 50% × 4 × ₹90 = ₹1,440 + ₹180 = ₹1,620. Option a ignores bonus; option c gives full of time saved; option d uses a 75% bonus. Only 50% of the saved time is paid as bonus under the standard Halsey plan.
Where it goes wrong. Paying the full time saved at full instead of the 50% Halsey bonus share.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 12 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. Under the Rowan plan, standard time is 15 hours, actual time is 10 hours, and the time rate is ₹75 per hour. What are the worker’s earnings?
Under the Rowan plan, standard time is 15 hours, actual time is 10 hours, and the time rate is ₹75 per hour. What are the worker’s earnings?
₹750
₹900
₹1,000 (correct answer)
₹1,125
Answer: C — ₹1,000
Explanation. Time saved = 15 − 10 = 5 hours. Rowan earnings = 10 × ₹75 + (5 ÷ 15) × 10 × ₹75 = ₹750 + 0.3333 × ₹750 = ₹750 + ₹250 = ₹1,000. Option a ignores bonus; option b uses a 20% bonus; option d uses a 50% bonus. The Rowan fraction is time saved divided by standard time.
Where it goes wrong. Using actual time as the denominator in the Rowan bonus fraction instead of standard time.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 13 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Under the Rowan plan, standard time is 10 hours, actual time is 8 hours, and the time rate is ₹100 per hour. What is the effective hourly wage rate?
Under the Rowan plan, standard time is 10 hours, actual time is 8 hours, and the time rate is ₹100 per hour. What is the effective hourly wage rate?
₹100
₹110
₹125
₹120 (correct answer)
Answer: D — ₹120
Explanation. Time saved = 2 hours. Rowan earnings = 8 × ₹100 + (2 ÷ 10) × 8 × ₹100 = ₹800 + ₹160 = ₹960. Effective hourly rate = ₹960 ÷ 8 = ₹120. Option a is the basic rate; option b uses ₹880 total; option c uses ₹1,000 total. Effective rate must be based on actual hours worked.
Where it goes wrong. Dividing total earnings by standard hours of 10 instead of actual hours of 8.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 14 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. Standard time is 12 hours, actual time is 6 hours, and the time rate is ₹50 per hour. What is the relationship between Halsey 50% and Rowan earnings?
Standard time is 12 hours, actual time is 6 hours, and the time rate is ₹50 per hour. What is the relationship between Halsey 50% and Rowan earnings?
Both plans give ₹450 (correct answer)
Halsey is higher by ₹75
Rowan is higher by ₹75
Both plans give ₹600
Answer: A — Both plans give ₹450
Explanation. Halsey earnings = 6 × ₹50 + 50% × 6 × ₹50 = ₹300 + ₹150 = ₹450. Rowan earnings = 6 × ₹50 + (6 ÷ 12) × 6 × ₹50 = ₹300 + ₹150 = ₹450. They are equal because actual time is exactly half of standard time. Option b applies a wrong bonus; option c reverses the comparison; option d ignores the bonus formula.
Where it goes wrong. Assuming Rowan always pays more than Halsey, even when actual time is 50% of standard time.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 15 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Under Taylor differential piece rate, standard output is 50 units per day and the ordinary rate is ₹20 per unit. A worker produces 45 units. What are his wages?
Under Taylor differential piece rate, standard output is 50 units per day and the ordinary rate is ₹20 per unit. A worker produces 45 units. What are his wages?
₹900
₹800
₹1,080
₹720 (correct answer)
Answer: D — ₹720
Explanation. Output is 45 units, i.e. 90% of the 50-unit standard, so it is below standard. Taylor below-standard rate = 80% × ₹20 = ₹16 per unit. Wages = 45 × ₹16 = ₹720. Option a uses the full ₹20 rate; option b uses ₹17.78; option c uses the above-standard 120% rate of ₹24.
Where it goes wrong. Applying the 120% Taylor rate merely because output is close to standard.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 16 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. Under Taylor differential piece rate, standard output is 50 units per day and the ordinary rate is ₹20 per unit. A worker produces 60 units. What are his wages?
Under Taylor differential piece rate, standard output is 50 units per day and the ordinary rate is ₹20 per unit. A worker produces 60 units. What are his wages?
₹1,200
₹1,440 (correct answer)
₹1,500
₹1,080
Answer: B — ₹1,440
Explanation. Output is 60 units, which is above the standard of 50 units. Taylor above-standard rate = 120% × ₹20 = ₹24 per unit. Wages = 60 × ₹24 = ₹1,440. Option a uses the ordinary ₹20 rate; option c uses ₹25; option d uses the below-standard rate.
Where it goes wrong. Using the ordinary piece rate instead of the 120% Taylor rate for above-standard output.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 17 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Under Merrick differential piece rate, standard output is 100 units and the ordinary rate is ₹10 per unit. A worker produces 90 units. What are his wages?
Under Merrick differential piece rate, standard output is 100 units and the ordinary rate is ₹10 per unit. A worker produces 90 units. What are his wages?
₹900
₹1,080
₹990 (correct answer)
₹1,000
Answer: C — ₹990
Explanation. Output is 90 units, i.e. 90% of standard, which falls in the Merrick slab above 83% and up to full. Rate = 110% × ₹10 = ₹11 per unit. Wages = 90 × ₹11 = ₹990. Option a uses the ordinary ₹10 rate; option b uses the 120% rate; option d uses ₹11.11 per unit.
Where it goes wrong. Applying the 120% Merrick rate to an output below full of standard.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 18 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. Under Merrick differential piece rate, standard output is 100 units and the ordinary rate is ₹10 per unit. A worker produces 80 units. What are his wages?
Under Merrick differential piece rate, standard output is 100 units and the ordinary rate is ₹10 per unit. A worker produces 80 units. What are his wages?
₹880
₹960
₹840
₹800 (correct answer)
Answer: D — ₹800
Explanation. Output is 80 units, i.e. 80% of standard. Under Merrick, output up to 83% of standard is paid at the ordinary rate. Wages = 80 × ₹10 = ₹800. Option a uses ₹11 per unit; option b uses the 120% rate; option c uses ₹10.50 per unit.
Where it goes wrong. Incorrectly applying the 110% Merrick slab to an 80% output, which is below the 83% threshold.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 19 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · medium
Scenario. Under Halsey 50%, standard time is 18 hours, actual time is 12 hours, and the time rate is ₹60 per hour. What is the effective hourly wage rate?
Under Halsey 50%, standard time is 18 hours, actual time is 12 hours, and the time rate is ₹60 per hour. What is the effective hourly wage rate?
₹75 (correct answer)
₹60
₹80
₹90
Answer: A — ₹75
Explanation. Time saved = 18 − 12 = 6 hours. Halsey earnings = 12 × ₹60 + 50% × 6 × ₹60 = ₹720 + ₹180 = ₹900. Effective hourly rate = ₹900 ÷ 12 = ₹75. Option b is the basic rate; option c uses ₹960 total; option d uses ₹1,080 total. Effective rate uses actual hours.
Where it goes wrong. Dividing total earnings by standard hours of 18 instead of actual hours of 12.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Question 20 · 2 marks · Chapter 3: Employee Cost and Direct Expenses · hard
Scenario. Under the Rowan plan, standard time is 20 hours, actual time is 10 hours, and the time rate is ₹80 per hour. What is the bonus amount?
Under the Rowan plan, standard time is 20 hours, actual time is 10 hours, and the time rate is ₹80 per hour. What is the bonus amount?
₹200
₹300
₹800
₹400 (correct answer)
Answer: D — ₹400
Explanation. Time saved = 20 − 10 = 10 hours. Rowan bonus = (time saved ÷ standard time) × actual time × rate = (10 ÷ 20) × 10 × ₹80 = 0.5 × ₹800 = ₹400. Option a uses 5 hours saved; option b uses a 3/8 fraction; option c is wages before bonus. The Rowan bonus is maximum when actual time is half of standard time.
Where it goes wrong. Treating the full wages of ₹800 as bonus, or using time saved divided by actual time.
Authority. ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Authorities cited in this paper
ICAI SM: Cost and Management Accounting, Chapter 3 (Employee Cost and Direct Expenses)
Questions people ask
What does this Chapter 3: Employee Cost and Direct Expenses - Test 3 practice test cover?
This practice test carries 40 marks across 20 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 20 questions carrying 2 marks each, giving a maximum score of 40 marks in 45 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.
