This chapter-wise practice test covers Chapter 12: Service Costing - 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 12: Service Costing (20 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 12: Service Costing · medium
Scenario. TechNova Solutions Ltd is an IT services company employing 50 software developers. Each developer is paid for 2,000 hours per annum. The company expects 80% of paid hours to be billable. Annual costs are: Developer salaries ₹5,00,00,000; Project managers ₹1,00,00,000; Infrastructure ₹70,00,000; Administration ₹80,00,000; Depreciation ₹30,00,000; Training ₹20,00,000. Total annual cost is ₹8,00,00,000. The company wants to determine the cost per billable hour, break-even billable hours at a billing rate of ₹1,600 per hour, profit at 75,000 billable hours, and the effect of a 10% increase in developer salaries on the cost per billable hour. All costs are fixed in the short run. The company operates in a competitive market and needs to ensure its pricing is both competitive and profitable. The management is considering various scenarios to improve profitability. The cost data provided is for the year 2025-26. The billable hours are calculated as 50 developers × 2,000 hours × 80% = 80,000 hours. The company uses a cost-plus pricing approach for its services. The developers are highly skilled and the company invests significantly in training and infrastructure. The project managers oversee multiple projects and their salaries are included in the total cost. The administration cost includes rent, utilities, and administrative staff salaries. Depreciation is on computers and other equipment. Training cost is for keeping developers updated with latest technologies. The company has no variable costs that change with billable hours; all costs are fixed. This is typical in the IT services industry where salaries are the major cost component. The company wants to analyze its cost structure to make informed pricing decisions.
What is the cost per billable hour for TechNova Solutions Ltd?
₹1,000 (correct answer)
₹1,200
₹1,400
₹1,600
Answer: A — ₹1,000
Explanation. Billable hours = 50 developers × 2,000 hours × 80% = 80,000 hours. Total annual cost = ₹8,00,00,000. Cost per billable hour = 8,00,00,000 ÷ 80,000 = ₹1,000. Option b uses full billable hours; option c uses 70,000 billable hours; option d uses ₹1,25,00,000 total cost.
Where it goes wrong. Forgetting to multiply by the billable percentage or using total paid hours instead of billable hours.
Question 5 · 2 marks · Chapter 12: Service Costing · medium
Scenario. Sunrise Academy is an educational institution offering two courses: B.Com and BBA. Currently, there are 400 students in B.Com and 200 students in BBA. The academy uses equivalent student units for cost allocation, with B.Com assigned a weight of 1 and BBA a weight of 1.5, reflecting the higher resource usage of the BBA program. Total annual cost is ₹1,40,00,000. The academy wants to determine the cost per student for each course, the profit if it charges ₹25,000 for B.Com and ₹35,000 for BBA, and the new cost per equivalent student if B.Com enrollment increases to 500 students while BBA remains at 200. All costs are fixed for the year. The academy operates in a competitive education market and needs to ensure its fees are competitive while covering costs and earning a reasonable surplus. The equivalent student method allows the academy to allocate common costs fairly across programs with different resource requirements. The costs include faculty salaries, administrative expenses, infrastructure, library, and other overheads. The academy has no variable costs that change with student numbers in the short run. The management is considering expanding the B.Com program and needs to understand the impact on cost per student. The fee structure is designed to cover costs and generate a surplus for reinvestment in infrastructure and faculty development. The academy follows a not-for-profit philosophy but aims to generate a modest surplus to fund growth.
What is the cost per B.Com student per term?
₹20,000 (correct answer)
₹25,000
₹30,000
₹35,000
Answer: A — ₹20,000
Explanation. Equivalent students = (400 × 1) + (200 × 1.5) = 400 + 300 = 700. Total cost = ₹1,40,00,000. Cost per equivalent student = 1,40,00,000 ÷ 700 = ₹20,000. Since B.Com weight is 1, cost per B.Com student = ₹20,000. Option b uses total students (600); option c uses BBA weight for B.Com; option d adds 75% markup.
Where it goes wrong. Using total number of students instead of equivalent students, or applying wrong weights.
Question 9 · 2 marks · Chapter 12: Service Costing · medium
Scenario. A software company has 20 developers, each paid for 2,000 hours per annum. Billable hours are 80% of paid hours. Total annual cost is ₹32,00,000. What is the cost per billable hour?
A software company has 20 developers, each paid for 2,000 hours per annum. Billable hours are 80% of paid hours. Total annual cost is ₹32,00,000. What is the cost per billable hour?
₹1,000 (correct answer)
₹1,200
₹1,400
₹1,600
Answer: A — ₹1,000
Explanation. Billable hours = 20 × 2,000 × 80% = 32,000 hours. Cost per billable hour = ₹32,00,000 ÷ 32,000 = ₹1,000. Option b uses 26,667 hours; option c uses 22,857 hours; option d uses 20,000 hours.
Where it goes wrong. Using total paid hours instead of billable hours, or miscalculating billable hours by using wrong percentage.
Question 10 · 2 marks · Chapter 12: Service Costing · hard
Scenario. A company has fixed costs of ₹60,00,000 per annum. It bills clients at ₹1,500 per hour and incurs a variable cost of ₹300 per billable hour. What is the break-even number of billable hours?
A company has fixed costs of ₹60,00,000 per annum. It bills clients at ₹1,500 per hour and incurs a variable cost of ₹300 per billable hour. What is the break-even number of billable hours?
4,000
5,000 (correct answer)
6,000
7,000
Answer: B — 5,000
Explanation. Contribution per hour = ₹1,500 – ₹300 = ₹1,200. Break-even billable hours = ₹60,00,000 ÷ ₹1,200 = 5,000 hours. Option a uses ₹1,500 contribution; option c uses ₹1,000 contribution; option d uses ₹857 contribution.
Where it goes wrong. Using total cost instead of fixed cost, or including variable cost in the numerator instead of contribution.
Question 11 · 2 marks · Chapter 12: Service Costing · medium
Scenario. An institute has 200 students in Course A (weight 1) and 100 students in Course B (weight 2). Total annual cost is ₹8,00,000. What is the cost per student for Course B?
An institute has 200 students in Course A (weight 1) and 100 students in Course B (weight 2). Total annual cost is ₹8,00,000. What is the cost per student for Course B?
₹2,000
₹3,000
₹4,000 (correct answer)
₹5,000
Answer: C — ₹4,000
Explanation. Equivalent students = (200 × 1) + (100 × 2) = 200 + 200 = 400. Cost per equivalent student = ₹8,00,000 ÷ 400 = ₹2,000. Cost per Course B student = ₹2,000 × 2 = ₹4,000. Option a is cost per equivalent; option b uses weight 1.5; option d uses weight 2.5.
Where it goes wrong. Forgetting to multiply by the weight for Course B, or using total students instead of equivalent students.
Question 12 · 2 marks · Chapter 12: Service Costing · hard
Scenario. An institute has fixed costs of ₹42,00,000 and variable cost of ₹4,000 per student. It charges ₹10,000 per student. What is the break-even number of students?
An institute has fixed costs of ₹42,00,000 and variable cost of ₹4,000 per student. It charges ₹10,000 per student. What is the break-even number of students?
5,000
6,000
8,000
7,000 (correct answer)
Answer: D — 7,000
Explanation. Contribution per student = ₹10,000 – ₹4,000 = ₹6,000. Break-even students = ₹42,00,000 ÷ ₹6,000 = 7,000 students. Option a uses ₹8,400 contribution; option b uses ₹7,000 contribution; option c uses ₹5,250 contribution.
Where it goes wrong. Using total cost instead of fixed cost, or using variable cost as contribution.
Question 14 · 2 marks · Chapter 12: Service Costing · hard
Scenario. A toll road costs ₹80,00,00,000 to build and has a concession period of 25 years. Annual operating cost is ₹3,00,00,000. Expected traffic is 4,00,000 vehicles per year. What toll rate per vehicle is needed to recover total costs over the concession period (ignore time value of money)?
A toll road costs ₹80,00,00,000 to build and has a concession period of 25 years. Annual operating cost is ₹3,00,00,000. Expected traffic is 4,00,000 vehicles per year. What toll rate per vehicle is needed to recover total costs over the concession period (ignore time value of money)?
₹145
₹155 (correct answer)
₹165
₹175
Answer: B — ₹155
Explanation. Total capital cost = ₹80,00,00,000. Total operating cost = 25 × ₹3,00,00,000 = ₹75,00,00,000. Total cost = ₹1,55,00,00,000. Total vehicles = 25 × 4,00,000 = 1,00,00,000. Toll per vehicle = 1,55,00,00,000 ÷ 1,00,00,000 = ₹155. Option a uses ₹1,45,00,000; option c uses ₹1,65,00,000; option d uses ₹1,75,00,000.
Where it goes wrong. Forgetting to multiply annual operating cost by the concession period, or dividing by annual traffic instead of total traffic.
Question 15 · 2 marks · Chapter 12: Service Costing · medium
Scenario. A toll plaza has fixed costs of ₹1,00,00,000 per annum, variable cost of ₹20 per vehicle, and charges a toll of ₹70 per vehicle. What is the break-even number of vehicles?
A toll plaza has fixed costs of ₹1,00,00,000 per annum, variable cost of ₹20 per vehicle, and charges a toll of ₹70 per vehicle. What is the break-even number of vehicles?
1,50,000
1,80,000
2,00,000 (correct answer)
2,20,000
Answer: C — 2,00,000
Explanation. Contribution per vehicle = ₹70 – ₹20 = ₹50. Break-even vehicles = ₹1,00,00,000 ÷ ₹50 = 2,00,000 vehicles. Option a uses ₹66.67 contribution; option b uses ₹55.56 contribution; option d uses ₹45.45 contribution.
Where it goes wrong. Using total cost instead of fixed cost, or subtracting variable cost from fixed cost.
Question 16 · 2 marks · Chapter 12: Service Costing · hard
Scenario. A canteen has monthly fixed cost of ₹1,50,000, variable cost of ₹35 per meal, and selling price of ₹60 per meal. What is the break-even number of meals?
A canteen has monthly fixed cost of ₹1,50,000, variable cost of ₹35 per meal, and selling price of ₹60 per meal. What is the break-even number of meals?
4,000
5,000
7,000
6,000 (correct answer)
Answer: D — 6,000
Explanation. Contribution per meal = ₹60 – ₹35 = ₹25. Break-even meals = ₹1,50,000 ÷ ₹25 = 6,000 meals. Option a uses ₹37.50 contribution; option b uses ₹30 contribution; option c uses ₹21.43 contribution.
Where it goes wrong. Using total cost instead of fixed cost, or using selling price instead of contribution.
Question 18 · 2 marks · Chapter 12: Service Costing · hard
Scenario. A canteen has fixed cost of ₹80,000 per month, selling price of ₹50 per meal, and variable cost of ₹30 per meal. If it serves 6,000 meals, what is the profit?
A canteen has fixed cost of ₹80,000 per month, selling price of ₹50 per meal, and variable cost of ₹30 per meal. If it serves 6,000 meals, what is the profit?
₹30,000
₹40,000 (correct answer)
₹50,000
₹60,000
Answer: B — ₹40,000
Explanation. Contribution per meal = ₹50 – ₹30 = ₹20. Total contribution = 6,000 × ₹20 = ₹1,20,000. Profit = ₹1,20,000 – ₹80,000 = ₹40,000. Option a uses 5,500 meals; option c uses 6,500 meals; option d uses 7,000 meals.
Where it goes wrong. Using revenue instead of contribution, or forgetting to deduct fixed cost.
Question 19 · 2 marks · Chapter 12: Service Costing · medium
Scenario. A software company has 50 developers, each paid for 2,000 hours per annum. Billable hours are 85% of paid hours. Total annual cost is ₹1,02,00,000. What is the cost per billable hour?
A software company has 50 developers, each paid for 2,000 hours per annum. Billable hours are 85% of paid hours. Total annual cost is ₹1,02,00,000. What is the cost per billable hour?
₹1,000
₹1,100
₹1,200 (correct answer)
₹1,300
Answer: C — ₹1,200
Explanation. Billable hours = 50 × 2,000 × 85% = 85,000 hours. Cost per billable hour = ₹1,02,00,000 ÷ 85,000 = ₹1,200. Option a uses 1,02,000 hours; option b uses 92,727 hours; option d uses 78,462 hours.
Where it goes wrong. Using 80% instead of 85% billable hours, or miscalculating total billable hours.
Question 20 · 2 marks · Chapter 12: Service Costing · hard
Scenario. An institute has 300 students in Course A (weight 1) and 200 students in Course B (weight 1.5). Total annual cost is ₹1,80,00,000. What is the cost per student for Course B?
An institute has 300 students in Course A (weight 1) and 200 students in Course B (weight 1.5). Total annual cost is ₹1,80,00,000. What is the cost per student for Course B?
₹30,000
₹35,000
₹40,000
₹45,000 (correct answer)
Answer: D — ₹45,000
Explanation. Equivalent students = (300 × 1) + (200 × 1.5) = 300 + 300 = 600. Cost per equivalent student = ₹1,80,00,000 ÷ 600 = ₹30,000. Cost per Course B student = ₹30,000 × 1.5 = ₹45,000. Option a is cost per equivalent; option b uses weight 1.17; option c uses weight 1.33.
Where it goes wrong. Forgetting to multiply by the weight for Course B, or using total students instead of equivalent students.
ICAI SM: Cost and Management Accounting, Chapter 12 (Service Costing)
Questions people ask
What does this Chapter 12: Service Costing - 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.
