This practice test covers Cost and Management Accounting for CA Intermediate Group 2 students preparing for the January 2027 examination attempt. It carries 30 marks across 15 questions in 6 case scenarios with a time limit of 60 minutes and no negative marking.
15 questions across 6 chapters, 30 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 Paper 4 Cost and Management Accounting (relevant for the January 2027 examination attempt), Cost Accounting Standards (CAS) issued by ICMAI, and Guidance Notes.
Questions
15
Marks
30
Time limit
60 minutes
Attempt
January 2027
Group
Group 2
Law basis
ICAI Study Material for Paper 4 Cost and Management Accounting (relevant for the January 2027 examination attempt), Cost Accounting Standards (CAS) issued by ICMAI, and Guidance Notes
Content as of
2026-11-03
Chapters covered
Marginal Costing (4 Q)
Joint Products and By Products (1 Q)
Standard Costing (4 Q)
Activity Based Costing (1 Q)
Employee Cost and Direct Expenses (4 Q)
Cost Accounting Systems (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Marginal Costing · hard
Scenario. Meridian Tools Ltd. is evaluating a merger of Plant Alpha and Plant Beta, both producing industrial fasteners for different buyers. Alpha makes two fastener lines and currently sells ₹75,00,000 at 75% of its single-shift capacity. Its variable cost is ₹52,50,000 and plant fixed cost is ₹8,00,000. Beta makes three specialised fastener lines and currently sells ₹64,00,000 at 80% of its capacity; its variable cost is ₹35,20,000 and plant fixed cost is ₹10,00,000. Full-capacity sales are ₹1,00,00,000 for Alpha and ₹80,00,000 for Beta. Alpha runs 18 presses and Beta runs 12 CNC cells; maintenance, supervision and rent are included in fixed costs. The merger will retain both plants, product ranges, selling prices and variable-cost ratios. Fixed costs after merger are the sum of the two plant fixed costs, with no synergy savings. No stock build-up is planned; production equals sales. The board has set a profit target of ₹40,00,000 for the merged entity. The finance team uses contribution analysis and assumes that the current sales mix by value continues when capacity utilisation changes. All figures relate to the same annual period. The board also wants to know the current combined profit, the consolidated break-even sales and the percentage of combined full-capacity sales needed for the target.
What is the combined contribution-to-sales ratio of the merged entity, based on current sales values?
Explanation. Combined contribution is ₹22,50,000 + ₹28,80,000 = ₹51,30,000 on sales of ₹1,39,00,000. The combined P/V ratio is ₹51,30,000 ÷ ₹1,39,00,000 = 36.91%. Option 37.50% is the simple average of 30% and 45%, which ignores the different sales weights. Options 35.80% and 38.13% arise from weighting errors.
Where it goes wrong. Averaging the two plant P/V ratios without weighting by sales value gives 37.50%.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 2 · 2 marks · Marginal Costing · hard
What is the consolidated break-even sales value after merger?
Explanation. Fixed cost after merger is ₹8,00,000 + ₹10,00,000 = ₹18,00,000. Consolidated break-even sales = fixed cost ÷ combined P/V ratio = ₹18,00,000 ÷ 0.3690647 = ₹48,77,193. Using a simple average P/V ratio or applying only one plant's ratio gives the other options. The combined ratio must be based on total contribution and total sales.
Where it goes wrong. Using ₹18,00,000 ÷ 36% or another rounded ratio gives a nearby but wrong break-even.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 3 · 2 marks · Marginal Costing · medium
What is the current combined profit before any target-profit adjustment?
Explanation. Total contribution is ₹51,30,000 and total fixed cost is ₹18,00,000. Combined profit is ₹51,30,000 − ₹18,00,000 = ₹33,30,000. Options arise if fixed cost is omitted or one plant's profit is doubled. The merger profit is the pooled contribution less pooled fixed cost.
Where it goes wrong. Adding the two plants' profits without pooling contribution and fixed cost can give an incorrect total.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 4 · 2 marks · Marginal Costing · hard
If the merged entity must earn ₹40,00,000 profit and maintains the current sales mix, what percentage of combined full-capacity sales is needed?
Where it goes wrong. Using only target profit in the numerator instead of fixed cost plus target profit understates required sales.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 5 · 2 marks · Joint Products and By Products · hard
Scenario. Kestrel Refining Ltd. incurs joint cost of ₹7,00,000 to produce products J and K. Product J has final sales value ₹12,00,000 and separable post-split-off cost ₹2,80,000. Product K has final sales value ₹8,00,000 and separable post-split-off cost ₹1,40,000. No beginning or closing inventories exist and all output is sold. The company uses the constant gross margin percentage method to allocate joint cost. What amount of joint cost is allocated to Product J?
Using the constant gross margin percentage method, what amount of joint cost is allocated to Product J?
Where it goes wrong. Allocating joint cost in the ratio of final sales values gives ₹4,20,000 and ignores the constant gross margin requirement.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Joint Products and By Products
Question 6 · 2 marks · Standard Costing · medium
Scenario. Vardhan Precision Ltd. operates three machining shops and two support shops. For a recent month the budget was 12,000 units, standard time 4 labour hours per unit, budgeted working days 25, variable overhead standard rate ₹12 per labour hour and fixed overhead standard rate ₹20 per labour hour. Budgeted fixed overhead therefore follows 48,000 budgeted hours. Actual output was 11,500 units; actual labour hours were 45,200; actual variable overhead was ₹5,55,000; actual fixed overhead was ₹9,78,000; and actual working days were 24. There was no abnormal idle time and no change in wage rates. The month had one public holiday that was not in the budget; the production plan was adjusted accordingly. Stock levels were unchanged. The company computes the variable overhead expenditure and efficiency variances, the fixed overhead expenditure and volume variances, and separates fixed overhead capacity and calendar effects after revising budgeted hours for the actual number of working days. All overheads are recovered on labour hours. The cost accountant asks for a variance report before the quarterly review.
What is the variable overhead expenditure variance?
₹12,600 (A) (correct answer)
₹9,600 (F)
₹3,000 (A)
₹12,600 (F)
Answer: A — ₹12,600 (A)
Working. AH x SR = 45,200 x 12 = 5,42,400. Actual VOH = 5,55,000. Expenditure variance = 5,42,400 - 5,55,000 = 12,600 A.
Explanation. Variable overhead expenditure variance = standard variable overhead for actual hours − actual variable overhead = (45,200 × ₹12) − ₹5,55,000 = ₹5,42,400 − ₹5,55,000 = ₹12,600 adverse. The ₹9,600 favourable figure is the efficiency variance, which compares standard hours for output with actual hours, not actual spending.
Where it goes wrong. Using standard hours for actual output instead of actual hours gives the efficiency variance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 7 · 2 marks · Standard Costing · medium
What is the variable overhead efficiency variance?
₹9,600 (A)
₹9,600 (F) (correct answer)
₹12,600 (A)
₹3,000 (F)
Answer: B — ₹9,600 (F)
Working. SH = 11,500 x 4 = 46,000. AH = 45,200. Efficiency variance = (46,000 - 45,200) x 12 = 9,600 F.
Explanation. Standard hours for actual output = 11,500 × 4 = 46,000. Variable overhead efficiency variance = (standard hours − actual hours) × standard rate = (46,000 − 45,200) × ₹12 = ₹9,600 favourable. Spending on variable overhead is measured by the expenditure variance, so ₹12,600 adverse is not the efficiency effect.
Where it goes wrong. Reversing standard and actual hours gives an adverse efficiency variance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 8 · 2 marks · Standard Costing · hard
What are the fixed overhead expenditure variance and fixed overhead volume variance, respectively?
₹18,000 (F) and ₹40,000 (A)
₹40,000 (A) and ₹18,000 (A)
₹18,000 (A) and ₹40,000 (A) (correct answer)
₹18,000 (A) and ₹40,000 (F)
Answer: C — ₹18,000 (A) and ₹40,000 (A)
Working. Budget FOH = 48,000 x 20 = 9,60,000. Absorbed FOH = 46,000 x 20 = 9,20,000. Expenditure = 9,60,000 - 9,78,000 = 18,000 A. Volume = 9,20,000 - 9,60,000 = 40,000 A.
Where it goes wrong. Using actual hours or actual fixed overhead in the volume variance changes the sign and amount.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 9 · 2 marks · Standard Costing · hard
What are the fixed overhead capacity variance and calendar variance, respectively, after revising budgeted hours for actual days?
₹56,000 (A) and ₹38,400 (A)
₹17,600 (F) and ₹38,400 (A)
₹17,600 (A) and ₹38,400 (A) (correct answer)
₹16,000 (F) and ₹38,400 (A)
Answer: C — ₹17,600 (A) and ₹38,400 (A)
Working. Revised budget hours = 48,000 / 25 x 24 = 46,080. Capacity = (45,200 - 46,080) x 20 = -17,600 A. Calendar = (24 - 25) x (9,60,000 / 25) = -38,400 A.
Explanation. Budgeted hours per day = 48,000 ÷ 25 = 1,920. Revised budgeted hours for 24 days = 46,080. Capacity variance = (45,200 − 46,080) × ₹20 = ₹17,600 adverse. Calendar variance = (24 − 25) × ₹38,400 = ₹38,400 adverse. Using unrevised budgeted hours of 48,000 gives ₹56,000 adverse, the common trap.
Where it goes wrong. Computing capacity with original budgeted hours ignores the one-day calendar effect and gives ₹56,000 adverse.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 10 · 2 marks · Activity Based Costing · medium
Scenario. Orion Components Ltd. has two activity cost pools. Purchase-order processing costs are ₹4,80,000 for 1,600 purchase orders. Machine inspection costs are ₹3,60,000 for 4,500 inspection hours. The company uses activity-based costing and treats each pool as driven by its stated cost driver. The pools are independent and no cost is allocated between them. All quantities relate to the same annual period. What are the activity cost driver rates for purchase-order processing and machine inspection, respectively?
What are the activity cost driver rates for purchase-order processing and machine inspection, respectively?
₹320 per order and ₹80 per inspection hour
₹300 per order and ₹75 per inspection hour
₹320 per order and ₹75 per inspection hour
₹300 per order and ₹80 per inspection hour (correct answer)
Answer: D — ₹300 per order and ₹80 per inspection hour
Explanation. Purchase-order processing rate = ₹4,80,000 ÷ 1,600 orders = ₹300 per order. Machine inspection rate = ₹3,60,000 ÷ 4,500 inspection hours = ₹80 per inspection hour. Mixing the two cost pools or using orders for inspection gives the other rates. Each rate must use its own driver quantity.
Where it goes wrong. Dividing the inspection pool by purchase orders or the purchase pool by inspection hours produces a mismatched rate.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 11 · 2 marks · Employee Cost and Direct Expenses · medium
Scenario. NovaFast Components Ltd. makes a standard bracket used in conveyor assemblies. The standard time is 0.50 hour per unit, the basic time rate is ₹120 per hour and the piece rate is ₹60 per unit. Four operators worked a 40-hour week under different payment plans. Operator P is on time rate and produced 72 units. Operator Q is on piece rate with a floor equal to 40 hours at the time rate and produced 78 units. Operator R is on Halsey 50% plan; for R's output the time allowed is 38 hours, actual time is 36 hours and output is 76 units. Operator S is on Rowan plan; for S's output the time allowed is 40 hours, actual time is 34 hours and output is 80 units. The four operators use the same machine and material, and no overtime, idle time or defective output occurred. Factory overhead is excluded from these wage computations. The supervisor wants a comparison of earnings and wage cost per unit. The floor under the piece plan is treated as the minimum weekly payment; the Halsey bonus is 50% of time saved; and the Rowan bonus uses time saved divided by time allowed. The standard output for a 40-hour week is 80 units. The company is reviewing whether a plan gives lower unit wage cost without increasing total wage payment beyond the weekly floor.
Under the time-rate plan, what is P's wage cost per unit?
₹60.00
₹64.00
₹66.67 (correct answer)
₹68.00
Answer: C — ₹66.67
Working. Time wages = 40 x 120 = 4,800. Cost per unit = 4,800 / 72 = 66.6667.
Explanation. P is on time rate, so earnings = 40 hours × ₹120 = ₹4,800. Cost per unit = ₹4,800 ÷ 72 units = ₹66.67. Using the piece rate or dividing by standard output rather than actual output gives the other choices.
Where it goes wrong. Dividing the time wage by 80 standard units instead of P's 72 actual units gives a lower unit cost.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Employee Cost and Direct Expenses
Question 12 · 2 marks · Employee Cost and Direct Expenses · hard
Under the piece-rate plan with a floor wage, what are Q's total earnings and cost per unit?
₹4,680 and ₹60.00
₹4,800 and ₹61.54 (correct answer)
₹4,800 and ₹60.00
₹4,680 and ₹61.54
Answer: B — ₹4,800 and ₹61.54
Working. Piece wages = 78 x 60 = 4,680. Floor = 40 x 120 = 4,800. Paid = 4,800. Cost per unit = 4,800 / 78 = 61.5385.
Explanation. Piece earnings = 78 × ₹60 = ₹4,680. The floor wage is 40 × ₹120 = ₹4,800, so Q receives ₹4,800. Cost per unit = ₹4,800 ÷ 78 = ₹61.54. Using ₹4,680 ignores the floor; using ₹60.00 assumes the piece rate applies without the weekly floor.
Where it goes wrong. Comparing piece earnings with the floor incorrectly may retain ₹4,680 even though the floor is higher.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Employee Cost and Direct Expenses
Question 13 · 2 marks · Employee Cost and Direct Expenses · hard
What is the excess of S's Rowan earnings over R's Halsey earnings?
₹252 (correct answer)
₹120
₹612
₹372
Answer: A — ₹252
Working. R Halsey = 36 x 120 + 0.5 x 2 x 120 = 4,440. S Rowan = 34 x 120 + (6/40) x 34 x 120 = 4,692. Excess = 4,692 - 4,440 = 252.
Explanation. Cost per unit: time rate ₹4,800 ÷ 72 = ₹66.67; piece floor ₹4,800 ÷ 78 = ₹61.54; Halsey ₹4,440 ÷ 76 = ₹58.42; Rowan ₹4,692 ÷ 80 = ₹58.65. The lowest is Halsey at ₹58.42. A simple comparison of total earnings can mislead because output differs across operators.
Where it goes wrong. Choosing Rowan because it often gives a higher bonus ignores the different output levels and unit-cost calculation.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Employee Cost and Direct Expenses
Question 15 · 2 marks · Cost Accounting Systems · medium
Scenario. At 31 March, an integrated cost ledger shows a debit balance of ₹48,000 in Factory Overhead Control Account and a credit balance of ₹17,000 in Administrative Overhead Control Account before year-end disposal. The company transfers the net overhead balance to Costing Profit and Loss Account. No overhead adjustment account is retained. What is the effect of the disposal entry on Costing Profit and Loss Account?
What is the effect of the year-end disposal entry on Costing Profit and Loss Account?
Explanation. A debit balance in factory overhead control is under-absorption and is debited to Costing Profit and Loss Account. A credit balance in administrative overhead control is over-absorption and is credited. Net effect = ₹48,000 debit − ₹17,000 credit = ₹31,000 debit to Costing Profit and Loss Account. Adding both balances ignores their opposite signs.
Where it goes wrong. Adding the debit and credit balances gives ₹65,000 and ignores that over-absorption is a credit.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Cost Accounting Systems
Authorities cited in this paper
ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Joint Products and By Products · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Employee Cost and Direct Expenses · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Cost Accounting Systems
Questions people ask
What does this Cost and Management Accounting test cover?
This practice paper carries 30 marks across 15 questions arranged in 6 case scenarios covering Chapter 14: Marginal Costing, Chapter 11: Joint Products and By Products, Chapter 13: Standard Costing, Chapter 5: Activity Based Costing, Chapter 3: Employee Cost and Direct Expenses, Chapter 7: Cost Accounting Systems. Each scenario presents realistic manufacturing and commercial operational data requiring practical cost computations, variance analysis, and managerial decision criteria.
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. The time limit is 60 minutes. There is no negative marking, so an incorrect answer costs nothing.
Which study material applies to these questions?
The questions follow the ICAI Study Material for Paper 4 Cost and Management Accounting (relevant for the January 2027 examination attempt) and Cost Accounting Standards (CAS) issued by ICMAI.
Which specific chapters are included in this paper?
The questions are drawn from Chapter 14: Marginal Costing, Chapter 11: Joint Products and By Products, Chapter 13: Standard Costing, Chapter 5: Activity Based Costing, Chapter 3: Employee Cost and Direct Expenses, Chapter 7: Cost Accounting Systems. They evaluate cost accumulation, overhead apportionment, unit/batch costing, variance analysis, and relevant costing principles.
Is this test affiliated with ICAI?
No. This is an independent practice paper prepared for CA Intermediate students. It is not issued by or affiliated with ICAI. Questions are prepared with AI tools and cross-checked by independent solvers; they are not reviewed by a Chartered Accountant.
How do exam mode and practice mode work?
In exam mode the test is timed and marked upon final submission, providing your score, tier, and a performance certificate. In practice mode you can review answers, working steps, and citations as you work through the questions.
What should I do if I notice a potential mistake in a question?
Every question on the review screen includes a Report a mistake button that allows students to submit feedback directly.
