This chapter-wise practice test covers Chapter 8: Unit and Batch Costing - Test 1 for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 30 marks across 15 questions in case scenarios and standalone practical MCQs with a time limit of 35 minutes and no negative marking.
15 questions across 1 chapter, 30 marks and 35 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
15
Marks
30
Time limit
35 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 8: Unit and Batch Costing (15 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. Zenith Consumer Care Ltd is engaged in the continuous mass production of a standard herbal soap. The manufacturing process involves a single product with uniform specifications. The following data pertain to the year ended 31st March, 2026:
| Particulars | Amount/Units |
|-------------|--------------|
| Units introduced into the process | 10,000 units |
| Normal loss (as % of input) | 5% |
| Scrap value of normal loss | ₹5 per unit |
| Abnormal loss (due to machine breakdown) | 500 units |
| Direct materials consumed | ₹50,000 |
| Direct labour | ₹30,000 |
| Production overheads | ₹17,500 |
| Units sold | 8,500 units |
| Selling price per unit | ₹15 |
| Selling and distribution overheads | ₹2 per unit sold |
| Opening finished goods stock | Nil |
| Closing finished goods stock | 500 units |
Materials are introduced at the commencement of the process, while labour and overheads are incurred evenly throughout. The company follows the unit costing method and values abnormal loss at the cost per unit of good output. There was no opening or closing work-in-progress. You are required to answer the following four questions based on the above information.
What is the cost per unit of good output for the year ended 31st March, 2026?
₹9.50
₹9.80
₹10.00 (correct answer)
₹10.20
Answer: C — ₹10.00
Explanation. Step 1: Normal loss = 5% of 10,000 = 500 units. Scrap value = 500 × ₹5 = ₹2,500. Step 2: Good output = 10,000 – 500 – 500 = 9,000 units. Step 3: Total cost = ₹50,000 + ₹30,000 + ₹17,500 = ₹97,500. Step 4: Cost per unit = (Total cost – Scrap value) ÷ (Good units + Abnormal units) = (₹97,500 – ₹2,500) ÷ (9,000 + 500) = ₹95,000 ÷ 9,500 = ₹10.00 per unit. Note: Abnormal loss is valued at this cost per unit. Option (a) is a trap if scrap value is not deducted; option (b) if abnormal units are not included in denominator; option (d) if normal loss units are also added to denominator.
Where it goes wrong. Forgetting to deduct scrap value of normal loss or including only good units in the denominator.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 2 · 2 marks · Chapter 8: Unit and Batch Costing · hard
What is the value of abnormal loss for the year?
₹5,000 (correct answer)
₹4,800
₹5,200
₹5,500
Answer: A — ₹5,000
Explanation. Abnormal loss = Abnormal units × Cost per unit = 500 units × ₹10 = ₹5,000. This amount is transferred to Costing Profit & Loss Account as an abnormal loss. Option (b) arises if cost per unit is taken as ₹9.60 (ignoring scrap adjustment); option (c) if cost per unit is ₹10.40; option (d) if abnormal units are taken as 550 by mistake.
Where it goes wrong. Using a cost per unit that does not deduct scrap value or miscomputing abnormal units.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 3 · 2 marks · Chapter 8: Unit and Batch Costing · medium
What is the amount of scrap value credited to the process account?
₹2,000
₹2,200
₹2,400
₹2,500 (correct answer)
Answer: D — ₹2,500
Explanation. Normal loss units = 5% of 10,000 = 500 units. Scrap value per unit = ₹5. Total scrap value = 500 × ₹5 = ₹2,500. This is credited to the process account, reducing the cost of good output. Option (a) uses 400 units; option (b) uses 440 units; option (c) uses 480 units.
Where it goes wrong. Miscomputing normal loss units as a percentage of good output instead of input.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 4 · 2 marks · Chapter 8: Unit and Batch Costing · hard
What is the profit for the year (assuming closing finished goods are valued at cost)?
₹25,000
₹25,500 (correct answer)
₹26,000
₹26,500
Answer: B — ₹25,500
Explanation. Cost of goods sold = 8,500 units × ₹10 = ₹85,000. Sales = 8,500 × ₹15 = ₹1,27,500. Selling overheads = 8,500 × ₹2 = ₹17,000. Profit = Sales – Cost of goods sold – Selling overheads = ₹1,27,500 – ₹85,000 – ₹17,000 = ₹25,500. Closing stock (500 units × ₹10 = ₹5,000) is not included in cost of goods sold. Option (a) ignores selling overheads; option (c) adds closing stock to cost; option (d) uses a different cost per unit.
Where it goes wrong. Including closing stock in cost of goods sold or omitting selling overheads.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 5 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. Apex Polychem Ltd produces a specialized chemical in batches. The annual demand for the product is 36,000 units, which is evenly distributed throughout the year. The production process requires a setup for each batch, costing ₹800 per setup. The carrying cost for inventory is ₹10 per unit per annum. Currently, the company operates with a batch size of 3,000 units. The company is considering revising its batch size to minimize the total of setup costs and inventory holding costs. The production manager has provided the following additional information:
| Particulars | Amount |
|-------------|--------|
| Annual demand | 36,000 units |
| Setup cost per batch | ₹800 |
| Carrying cost per unit per annum | ₹10 |
| Current batch size | 3,000 units |
The company follows the batch costing method and uses the Economic Batch Quantity (EBQ) model to determine the optimal batch size. The EBQ formula is: EBQ = √(2DS/C), where D = annual demand, S = setup cost per batch, and C = carrying cost per unit per annum. You are required to answer the following four questions based on the above information.
What is the Economic Batch Quantity (EBQ)?
2,000 units
2,200 units
2,400 units (correct answer)
2,600 units
Answer: C — 2,400 units
Explanation. EBQ = √(2DS/C) = √(2 × 36,000 × 800 ÷ 10) = √(5,76,00,000 ÷ 10) = √(57,60,000) = 2,400 units. Option (a) arises if setup cost is taken as ₹600; option (b) if carrying cost is ₹12; option (d) if annual demand is taken as 40,000.
Where it goes wrong. Using incorrect values in the EBQ formula or forgetting to take the square root.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 6 · 2 marks · Chapter 8: Unit and Batch Costing · hard
What is the total minimum cost (setup + carrying) at the Economic Batch Quantity?
₹24,000 (correct answer)
₹22,000
₹26,000
₹28,000
Answer: A — ₹24,000
Explanation. At EBQ = 2,400 units, number of batches = 36,000 ÷ 2,400 = 15. Setup cost = 15 × ₹800 = ₹12,000. Carrying cost = (2,400 ÷ 2) × ₹10 = ₹12,000. Total = ₹24,000. Note that at EBQ, setup cost equals carrying cost. Option (b) uses 2,200 units; option (c) uses 2,600 units; option (d) uses 2,800 units.
Where it goes wrong. Computing setup and carrying costs at a batch size other than EBQ.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 7 · 2 marks · Chapter 8: Unit and Batch Costing · medium
If the company continues with a batch size of 3,000 units, what is the total cost (setup + carrying)?
₹24,000
₹24,200
₹24,400
₹24,600 (correct answer)
Answer: D — ₹24,600
Explanation. Number of batches = 36,000 ÷ 3,000 = 12. Setup cost = 12 × ₹800 = ₹9,600. Carrying cost = (3,000 ÷ 2) × ₹10 = ₹15,000. Total = ₹24,600. Option (a) is the cost at EBQ; option (b) uses 12.1 batches; option (c) uses 12.2 batches.
Where it goes wrong. Using the EBQ total cost instead of recalculating at the given batch size.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 8 · 2 marks · Chapter 8: Unit and Batch Costing · hard
What is the extra cost incurred by using a batch size of 3,000 units instead of the EBQ?
₹400
₹600 (correct answer)
₹800
₹1,000
Answer: B — ₹600
Explanation. Total cost at batch size 3,000 = ₹24,600. Total cost at EBQ = ₹24,000. Extra cost = ₹24,600 – ₹24,000 = ₹600. Option (a) is the difference if setup cost is taken as ₹700; option (c) if carrying cost is ₹12; option (d) if annual demand is 40,000.
Where it goes wrong. Subtracting the wrong cost figures or using a different EBQ.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 9 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. A manufacturing company provides the following data for a month: Total cost incurred ₹1,00,000; input units 5,000; normal loss 10% of input; scrap value of normal loss ₹2 per unit; abnormal loss 200 units. What is the cost per unit of good output?
A manufacturing company provides the following data for a month: Total cost incurred ₹1,00,000; input units 5,000; normal loss 10% of input; scrap value of normal loss ₹2 per unit; abnormal loss 200 units. What is the cost per unit of good output?
₹21.50
₹21.80
₹22.00 (correct answer)
₹22.20
Answer: C — ₹22.00
Explanation. Normal loss = 10% of 5,000 = 500 units. Scrap value = 500 × ₹2 = ₹1,000. Good output = 5,000 – 500 – 200 = 4,300 units. Cost per unit = (Total cost – Scrap value) ÷ (Good units + Abnormal units) = (₹1,00,000 – ₹1,000) ÷ (4,300 + 200) = ₹99,000 ÷ 4,500 = ₹22.00. Option (a) ignores abnormal units in denominator; option (b) uses 4,500 units but ₹98,000; option (d) adds scrap value instead of deducting.
Where it goes wrong. Dividing by only good units or incorrectly adjusting scrap value.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 10 · 2 marks · Chapter 8: Unit and Batch Costing · hard
Scenario. A company has an annual demand of 10,000 units for a product. The setup cost per batch is ₹500. The carrying cost is 10% of the unit cost, and the unit cost is ₹100. What is the Economic Batch Quantity (EBQ)?
A company has an annual demand of 10,000 units for a product. The setup cost per batch is ₹500. The carrying cost is 10% of the unit cost, and the unit cost is ₹100. What is the Economic Batch Quantity (EBQ)?
800 units
900 units
950 units
1,000 units (correct answer)
Answer: D — 1,000 units
Explanation. Carrying cost per unit per annum = 10% of ₹100 = ₹10. EBQ = √(2DS/C) = √(2 × 10,000 × 500 ÷ 10) = √(1,00,00,000 ÷ 10) = √(10,00,000) = 1,000 units. Option (a) uses carrying cost as ₹12.5; option (b) uses ₹11.11; option (c) uses ₹10.53.
Where it goes wrong. Forgetting to multiply the percentage carrying cost by the unit cost.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 11 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. In a unit costing system, the following data are available: Total cost ₹96,000; input 2,000 units; normal loss 5% of input; scrap value ₹10 per unit; abnormal loss 100 units. What is the value of abnormal loss?
In a unit costing system, the following data are available: Total cost ₹96,000; input 2,000 units; normal loss 5% of input; scrap value ₹10 per unit; abnormal loss 100 units. What is the value of abnormal loss?
₹5,000 (correct answer)
₹4,800
₹5,200
₹5,400
Answer: A — ₹5,000
Explanation. Normal loss = 5% of 2,000 = 100 units. Scrap value = 100 × ₹10 = ₹1,000. Good output = 2,000 – 100 – 100 = 1,800 units. Cost per unit = (₹96,000 – ₹1,000) ÷ (1,800 + 100) = ₹95,000 ÷ 1,900 = ₹50. Abnormal loss = 100 × ₹50 = ₹5,000. Option (b) uses cost per unit ₹48; option (c) uses ₹52; option (d) uses ₹54.
Where it goes wrong. Using a cost per unit computed on good units only (₹95,000 ÷ 1,800 = ₹52.78) leading to ₹5,278.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 12 · 2 marks · Chapter 8: Unit and Batch Costing · hard
Scenario. A company has an annual demand of 12,000 units. The setup cost per batch is ₹300 and the carrying cost is ₹5 per unit per annum. The company currently uses a batch size of 2,000 units. What is the extra cost incurred compared to the Economic Batch Quantity?
A company has an annual demand of 12,000 units. The setup cost per batch is ₹300 and the carrying cost is ₹5 per unit per annum. The company currently uses a batch size of 2,000 units. What is the extra cost incurred compared to the Economic Batch Quantity?
Where it goes wrong. Computing total cost at the wrong batch size or using incorrect EBQ.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 13 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. Which of the following statements correctly distinguishes job costing from batch costing?
Which of the following statements correctly distinguishes job costing from batch costing?
Job costing is used for homogeneous products, while batch costing is used for heterogeneous products.
In job costing, cost is determined for each job, whereas in batch costing, cost is determined for the entire batch and then averaged per unit. (correct answer)
Job costing is a type of process costing, while batch costing is a type of unit costing.
Job costing is used in continuous production, while batch costing is used for specific customer orders.
Answer: B — In job costing, cost is determined for each job, whereas in batch costing, cost is determined for the entire batch and then averaged per unit.
Explanation. Job costing is a specific order costing method where each job is unique and cost is ascertained per job. Batch costing is also a specific order costing method but used when homogeneous products are produced in batches; cost is first determined for the batch and then divided by the number of units in the batch. Option (a) reverses the product types; option (c) misclassifies both methods; option (d) describes job costing as continuous, which is incorrect.
Where it goes wrong. Confusing batch costing with process costing or unit costing.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 14 · 2 marks · Chapter 8: Unit and Batch Costing · hard
Scenario. A company has a normal loss of 4% of input. The scrap value of normal loss is ₹5 per unit. The total cost of production is ₹1,94,000. The input is 10,000 units. Abnormal loss is 300 units. What is the cost per unit of good output?
A company has a normal loss of 4% of input. The scrap value of normal loss is ₹5 per unit. The total cost of production is ₹1,94,000. The input is 10,000 units. Abnormal loss is 300 units. What is the cost per unit of good output?
₹19.50
₹19.80
₹20.20
₹20.00 (correct answer)
Answer: D — ₹20.00
Explanation. Normal loss = 4% of 10,000 = 400 units. Scrap value = 400 × ₹5 = ₹2,000. Good output = 10,000 – 400 – 300 = 9,300 units. Cost per unit = (Total cost – Scrap value) ÷ (Good units + Abnormal units) = (₹1,94,000 – ₹2,000) ÷ (9,300 + 300) = ₹1,92,000 ÷ 9,600 = ₹20.00. Option (a) uses 9,600 units but ₹1,87,200; option (b) uses 9,300 units; option (c) adds scrap value.
Where it goes wrong. Dividing by good units only or incorrectly handling scrap value.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 15 · 2 marks · Chapter 8: Unit and Batch Costing · medium
Scenario. A company has an annual demand of 40,000 units. The setup cost per batch is ₹500. The carrying cost is ₹10 per unit per annum. What is the Economic Batch Quantity (EBQ)?
A company has an annual demand of 40,000 units. The setup cost per batch is ₹500. The carrying cost is ₹10 per unit per annum. What is the Economic Batch Quantity (EBQ)?
Where it goes wrong. Arithmetic error in the EBQ formula or using wrong inputs.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Authorities cited in this paper
ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Questions people ask
What does this Chapter 8: Unit and Batch Costing - Test 1 practice test cover?
This practice test carries 30 marks across 15 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 15 questions carrying 2 marks each, giving a maximum score of 30 marks in 35 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.
