This chapter-wise practice test covers Chapter 8: Unit and Batch Costing - Test 2 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. Vikram Steels Ltd manufactures a specialized steel component used in automotive engines. The company produces the component in batches. The annual demand for the component is 24,000 units, which is evenly distributed throughout the year. The production process requires a setup for each batch, costing ₹800 per setup. The carrying cost of inventory is ₹15 per unit per annum. Currently, the company operates with a batch size of 4,000 units. The production manager has provided the following additional information for the year:
| Particulars | Amount |
|-------------|--------|
| Annual demand | 24,000 units |
| Setup cost per batch | ₹800 |
| Carrying cost per unit per annum | ₹15 |
| Current batch size | 4,000 units |
| Machine hours per batch | 200 hours |
| Machine hour rate | ₹40 |
| Direct material cost per unit | ₹30 |
| Direct labour cost per unit | ₹20 |
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) for Vikram Steels Ltd?
1,600 units (correct answer)
1,200 units
2,000 units
2,400 units
Answer: A — 1,600 units
Explanation. EBQ = √(2DS/C) = √(2 × 24,000 × 800 ÷ 15) = √(3,84,00,000 ÷ 15) = √(25,60,000) = 1,600 units. Option (b) results from using setup cost ₹600; option (c) from using carrying cost ₹12; option (d) from using annual demand 36,000 units.
Where it goes wrong. Arithmetic error in the EBQ formula or using wrong values for setup cost or carrying cost.
Authority. ICAI SM: Cost and Management Accounting, Chapter 8 (Unit and Batch Costing)
Question 2 · 2 marks · Chapter 8: Unit and Batch Costing · hard
How many batches will be produced in a year if the company operates at the Economic Batch Quantity?
Where it goes wrong. Dividing annual demand by the current batch size (4,000) instead of EBQ, or using incorrect EBQ.
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 total setup cost per annum at the Economic Batch Quantity?
₹10,000
₹14,000
₹12,000 (correct answer)
₹16,000
Answer: C — ₹12,000
Explanation. Setup cost per annum = Number of batches × Setup cost per batch = 15 × ₹800 = ₹12,000. Option (a) uses 12.5 batches; option (b) uses 17.5 batches; option (d) uses 20 batches.
Where it goes wrong. Computing setup cost at the current batch size (6 batches × ₹800 = ₹4,800) or using wrong number of batches.
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 extra cost (setup + carrying) incurred by using the current batch size of 4,000 units instead of the Economic Batch Quantity?
₹8,000
₹9,600
₹12,000
₹10,800 (correct answer)
Answer: D — ₹10,800
Explanation. At EBQ (1,600 units): setup cost = 15 × ₹800 = ₹12,000; carrying cost = (1,600 ÷ 2) × ₹15 = ₹12,000; total = ₹24,000. At current batch size (4,000 units): batches = 24,000 ÷ 4,000 = 6; setup cost = 6 × ₹800 = ₹4,800; carrying cost = (4,000 ÷ 2) × ₹15 = ₹30,000; total = ₹34,800. Extra cost = ₹34,800 – ₹24,000 = ₹10,800. Option (a) uses EBQ 2,000; option (b) uses carrying cost ₹12; option (c) is the total cost at EBQ.
Where it goes wrong. Forgetting to include carrying cost or using the wrong batch size for comparison.
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. Sunrise Electronics Ltd produces a component that is used in its final product. The company has an annual demand of 24,000 units for this component, which is evenly distributed throughout the year. The component can be produced internally in batches or purchased from an external supplier at ₹50 per unit. For internal production, the setup cost per batch is ₹1,200, and the carrying cost is ₹10 per unit per annum. The variable production cost is ₹40 per unit, which includes direct material of ₹25 per unit and direct labour of ₹15 per unit. Fixed production overheads are ₹1,00,000 per annum and are absorbed based on a normal capacity of 30,000 units; however, these fixed overheads are considered irrelevant for the batch size decision as they will be incurred regardless. Currently, the company produces the component in batches of 4,000 units. The production facility has a maximum capacity of 30,000 units per annum. The machine hours required per batch are 150 hours, and the machine hour rate is ₹60. The company follows a just-in-time philosophy and maintains no safety stock. The supplier has offered a lead time of 2 weeks and a price of ₹50 per unit with no quantity discounts. The company's cost of capital is 12% per annum, which is used to determine the carrying cost. The production manager is evaluating whether to continue internal production or outsource the component. The company uses the Economic Batch Quantity (EBQ) model to determine the optimal batch size for internal production. 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) for internal production at Sunrise Electronics Ltd?
Where it goes wrong. Forgetting to include variable production cost in the comparison (only batch costs are relevant for this question) or using the wrong batch size for 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 company has a monthly demand of 1,500 units. The setup cost per batch is ₹400. 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 a monthly demand of 1,500 units. The setup cost per batch is ₹400. The carrying cost is 10% of the unit cost, and the unit cost is ₹100. What is the Economic Batch Quantity (EBQ)?
1,200 units (correct answer)
1,000 units
1,400 units
1,600 units
Answer: A — 1,200 units
Explanation. Annual demand D = 1,500 × 12 = 18,000 units. Carrying cost per unit per annum C = 10% of ₹100 = ₹10. EBQ = √(2DS/C) = √(2 × 18,000 × 400 ÷ 10) = √(1,44,00,000 ÷ 10) = √(14,40,000) = 1,200 units. Option (b) uses annual demand 12,000; option (c) uses carrying cost ₹8; option (d) uses setup cost ₹500.
Where it goes wrong. Forgetting to convert monthly demand to annual demand or miscalculating the percentage carrying cost.
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 uses 24,000 units per annum. The setup cost per batch is ₹600. The carrying cost is ₹5 per unit per annum. What is the optimal number of batches per year?
A company uses 24,000 units per annum. The setup cost per batch is ₹600. The carrying cost is ₹5 per unit per annum. What is the optimal number of batches per year?
Where it goes wrong. Computing number of batches using the current batch size or using an incorrect EBQ.
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. A company produces a product in batches. The setup cost per batch is ₹800. The carrying cost is ₹8 per unit per annum. The annual demand is 20,000 units. Calculate the total cost (setup + carrying) at the Economic Batch Quantity.
A company produces a product in batches. The setup cost per batch is ₹800. The carrying cost is ₹8 per unit per annum. The annual demand is 20,000 units. Calculate the total cost (setup + carrying) at the Economic Batch Quantity.
Where it goes wrong. Forgetting that at EBQ, setup cost equals carrying cost, or making an arithmetic error in the formula.
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 a batch size of 4,000 units. The annual demand is 32,000 units. The setup cost per batch is ₹1,000. The carrying cost is ₹10 per unit per annum. What is the total annual cost of setup and carrying?
A company has a batch size of 4,000 units. The annual demand is 32,000 units. The setup cost per batch is ₹1,000. The carrying cost is ₹10 per unit per annum. What is the total annual cost of setup and carrying?
Where it goes wrong. Using the EBQ to compute total cost when the question explicitly asks for the given batch size.
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. A company has an annual demand of 30,000 units. The setup cost per batch is ₹750. The carrying cost is 20% of the unit cost, and the unit cost is ₹100. What is the Economic Batch Quantity (EBQ)?
A company has an annual demand of 30,000 units. The setup cost per batch is ₹750. The carrying cost is 20% of the unit cost, and the unit cost is ₹100. What is the Economic Batch Quantity (EBQ)?
1,200 units
1,400 units
1,500 units (correct answer)
1,600 units
Answer: C — 1,500 units
Explanation. Carrying cost per unit per annum C = 20% of ₹100 = ₹20. EBQ = √(2DS/C) = √(2 × 30,000 × 750 ÷ 20) = √(4,50,00,000 ÷ 20) = √(22,50,000) = 1,500 units. Option (a) uses carrying cost ₹25; option (b) uses setup cost ₹600; option (d) uses annual demand 36,000.
Where it goes wrong. Using the unit cost directly as carrying cost instead of multiplying by the percentage.
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 two options for producing a component: Batch size A of 2,000 units and Batch size B of 4,000 units. The annual demand is 20,000 units. The setup cost per batch is ₹600. The carrying cost is ₹5 per unit per annum. Which batch size gives the lower total cost (setup + carrying)?
A company has two options for producing a component: Batch size A of 2,000 units and Batch size B of 4,000 units. The annual demand is 20,000 units. The setup cost per batch is ₹600. The carrying cost is ₹5 per unit per annum. Which batch size gives the lower total cost (setup + carrying)?
Batch size A (2,000 units) (correct answer)
Batch size B (4,000 units)
Both give the same total cost
Cannot be determined from the given data
Answer: A — Batch size A (2,000 units)
Explanation. At batch size A (2,000 units): batches = 20,000 ÷ 2,000 = 10; setup cost = 10 × ₹600 = ₹6,000; carrying cost = (2,000 ÷ 2) × ₹5 = ₹5,000; total cost = ₹11,000. At batch size B (4,000 units): batches = 20,000 ÷ 4,000 = 5; setup cost = 5 × ₹600 = ₹3,000; carrying cost = (4,000 ÷ 2) × ₹5 = ₹10,000; total cost = ₹13,000. Batch size A gives the lower total cost. Option (b) is incorrect as it has higher carrying cost; option (c) is incorrect as costs differ; option (d) is incorrect as data is sufficient.
Where it goes wrong. Assuming that a larger batch size always reduces total cost because setup cost per unit falls, ignoring the increase in carrying cost.
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 is considering outsourcing production of a component. The annual demand is 10,000 units. Internal production requires a setup cost of ₹500 per batch, a carrying cost of ₹10 per unit per annum, and a variable cost of ₹20 per unit. What is the total annual cost of internal production at the Economic Batch Quantity?
A company is considering outsourcing production of a component. The annual demand is 10,000 units. Internal production requires a setup cost of ₹500 per batch, a carrying cost of ₹10 per unit per annum, and a variable cost of ₹20 per unit. What is the total annual cost of internal production at the Economic Batch Quantity?
Where it goes wrong. Forgetting to add batch costs to the variable cost, or using the wrong EBQ formula 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 2 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.
