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
Activity Based Costing (4 Q)
Material Cost (1 Q)
Budgets & Budgetary Control (4 Q)
Job Costing (1 Q)
Service Costing (4 Q)
Marginal Costing (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Activity Based Costing · medium
Scenario. Suvarna Retail Bank processes three retail credit products: Home Loan (HL), Personal Loan (PL) and Card (CC). Annual applications are HL 1,200, PL 3,000 and CC 5,800. The branch has four activity cost pools: application intake ₹8,40,000 driven by number of applications; document verification ₹16,68,000 driven by documents checked; credit scoring ₹9,24,000 driven by scoring runs; and compliance audit ₹6,69,000 driven by audit hours. Documents checked per application are HL 12, PL 6 and CC 4. Scoring runs per application are HL 3, PL 2 and CC 1. Audit hours per application are HL 1.5, PL 0.5 and CC 0.2. At present, the bank uses a single average cost per application for product profitability. The operations head wants an activity-based view of processing cost before revising product pricing and branch incentives.
What is the document verification activity rate per document checked?
Explanation. The document verification cost pool is divided by total documents checked. Documents checked are (1,200 × 12) + (3,000 × 6) + (5,800 × 4) = 14,400 + 18,000 + 23,200 = 55,600. The rate is ₹16,68,000 ÷ 55,600 = ₹30 per document. Option (a) is a plausible nearby rate but does not use the total document volume.
Where it goes wrong. Using number of applications rather than documents checked as the denominator.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 2 · 2 marks · Activity Based Costing · hard
What total activity-based cost is assigned to Personal Loan applications?
Explanation. For one Home Loan application, intake is ₹84, document verification is 12 × ₹30 = ₹360, scoring is 3 × ₹60 = ₹180, and audit is 1.5 × ₹150 = ₹225. Total is ₹849 per application. Option (b) resembles a total that includes an extra scoring or audit unit but does not match the driver consumption.
Where it goes wrong. Multiplying audit rate by 2 hours instead of 1.5 hours.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 4 · 2 marks · Activity Based Costing · hard
Using the single average cost per application, by how much is a Card application over-costed or under-costed compared with activity-based costing?
Over-costed by ₹105.90 per application
Over-costed by ₹124.20 per application
Under-costed by ₹94.80 per application
Over-costed by ₹116.10 per application (correct answer)
Answer: D — Over-costed by ₹116.10 per application
Working. Total cost = 8,40,000 + 16,68,000 + 9,24,000 + 6,69,000 = 41,01,000; average = 410.10; CC ABC = 294; over-cost = 116.10.
Explanation. Total ABC cost is ₹41,01,000 over 10,000 applications, giving ₹410.10 per application on average. A Card application consumes ₹84 intake + ₹120 documents + ₹60 scoring + ₹30 audit = ₹294. The single average cost over-assigns ₹410.10 − ₹294 = ₹116.10. Option (a) uses a nearby average but not the correct total pool.
Where it goes wrong. Dividing only one cost pool by total applications instead of all four pools.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 5 · 2 marks · Material Cost · medium
Scenario. Aster Components operates a just-in-time kanban system for a fastener used in assembly. Daily usage is 480 units. Procurement lead time is 3 days and a safety stock equal to 0.5 day of usage is maintained. Each kanban container holds 60 units. The production planner is reviewing the number of kanban cards needed to support the line without building avoidable inventory.
How many kanban cards are required for the fastener?
Explanation. Kanban quantity must cover usage during lead time plus safety stock. Usage during lead time is 480 × 3 = 1,440 units. Safety stock is 480 × 0.5 = 240 units. Total required is 1,680 units. With 60 units per container, cards needed are 1,680 ÷ 60 = 28. Option (b) omits part of safety stock.
Where it goes wrong. Forgetting the half-day safety stock and using only lead-time demand.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Material Cost
Question 6 · 2 marks · Budgets & Budgetary Control · medium
Scenario. Orion Packaging operates at a normal capacity of 20,000 machine hours. The cost accountant has observed three semi-variable overhead costs at two activity levels. At 12,000 machine hours, electricity was ₹3,24,000, maintenance was ₹2,10,000 and supervisor cost was ₹1,80,000. At 18,000 machine hours, electricity was ₹4,44,000, maintenance was ₹2,70,000 and supervisor cost was ₹2,10,000. The high-low method is considered appropriate for segregating each cost into fixed and variable portions. The management wants a flexible overhead budget at 70%, 80% and 100 percent of normal capacity. The budget will be used to compare actual overhead at 17,000 machine hours, where actual total overhead was ₹9,10,000. No step changes in fixed cost are expected within the relevant range.
Using the high-low method, what are the variable electricity rate per machine hour and the fixed electricity cost?
Explanation. Electricity changes by ₹1,20,000 when activity rises by 6,000 hours, so variable rate is ₹20 per hour. Fixed cost is total cost at 12,000 hours minus variable cost: ₹3,24,000 − (12,000 × 20) = ₹84,000. Option (d) uses the correct rate but an incorrect fixed portion.
Where it goes wrong. Using the higher activity total as the fixed cost base without subtracting variable cost.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 7 · 2 marks · Budgets & Budgetary Control · hard
What is the total budgeted overhead at 70% of normal capacity?
₹7,49,000
₹7,84,000 (correct answer)
₹8,19,000
₹8,54,000
Answer: B — ₹7,84,000
Working. 14,000 × 35 = 4,90,000; fixed 2,94,000; total 7,84,000.
Explanation. At 70% capacity, machine hours are 14,000. Total variable rate is ₹20 electricity + ₹10 maintenance + ₹5 supervisor = ₹35 per hour. Total fixed cost is ₹84,000 + ₹90,000 + ₹1,20,000 = ₹2,94,000. Budget is (14,000 × 35) + 2,94,000 = ₹7,84,000. Option (d) is the 80% level, not 70%.
Where it goes wrong. Using 80% activity or adding fixed costs after incorrectly segregating supervisor cost.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 8 · 2 marks · Budgets & Budgetary Control · medium
At 80% activity, what is the total variable maintenance and supervisor cost?
Explanation. Maintenance variable rate is ₹10 per hour and supervisor variable rate is ₹5 per hour, giving ₹15 per hour combined. At 80% of 20,000 hours, activity is 16,000 hours. Variable maintenance and supervisor cost is 16,000 × ₹15 = ₹2,40,000. Option (a) uses only maintenance variable cost or an incorrect hour base.
Where it goes wrong. Adding fixed portions of maintenance and supervisor cost to the variable total.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 9 · 2 marks · Budgets & Budgetary Control · hard
At 17,000 machine hours, actual total overhead was ₹9,10,000. What is the overhead spending variance?
Explanation. Flexible budget at 17,000 hours is (17,000 × ₹35) + ₹2,94,000 = ₹8,89,000. Actual overhead is ₹9,10,000, which is higher by ₹21,000. Since actual cost exceeds the flexible budget, the variance is adverse. Option (a) reverses the sign by treating excess cost as favourable.
Where it goes wrong. Comparing actual with the 80% budget instead of the 17,000-hour flexible budget.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 10 · 2 marks · Job Costing · medium
Scenario. Zenith Engineering completed Job Z-441, a specialised tooling contract. Rework cost on the job was ₹56,000. Of this, ₹20,000 is treated as a normal rework allowance included in factory overhead. The remaining ₹36,000 arose from internal bad workmanship, is not recoverable from the customer or employees, and is not covered by any normal allowance. The job accountant is determining the amount to be written off as abnormal rework cost in the Costing Profit and Loss Account.
What amount should be written off to the Costing Profit and Loss Account as abnormal rework cost?
₹56,000
₹36,000 (correct answer)
₹20,000
Nil
Answer: B — ₹36,000
Working. Abnormal rework = total rework 56,000 - normal allowance 20,000 = 36,000.
Explanation. Normal rework allowance of ₹20,000 is absorbed as part of normal cost. The remaining ₹36,000 arises from internal bad workmanship and is not recoverable, so it is abnormal and written off to Costing Profit and Loss Account. Option (a) wrongly treats the entire rework as abnormal.
Where it goes wrong. Writing off the full rework cost without deducting the normal allowance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Job Costing
Question 11 · 2 marks · Service Costing · hard
Scenario. Northline Cargo operates four identical 20-tonne trucks on inter-city routes. For a representative truck in March, the journeys were: 5 trips from P to Q, each carrying 18 tonnes over 160 km; 3 trips from P to R via Q, each carrying 10 tonnes over 260 km; 4 return trips from R to P, each carrying 15 tonnes over 260 km; and 2 return trips from Q to P, each carrying 8 tonnes over 160 km. Diesel costs ₹92 per litre and the truck gives 4 km per litre. Variable maintenance is ₹1.50 per km. Fixed operating cost is ₹28,000 per truck per month. The transport manager wants absolute tonne-kilometres, commercial tonne-kilometres, diesel cost and cost per absolute tonne-kilometre for this representative truck. No penalties, taxes or abnormal charges are to be considered.
What is the absolute tonne-kilometre value for the representative truck for March?
Explanation. Total distance is 2,940 km. At 4 km per litre, diesel consumed is 2,940 ÷ 4 = 735 litres. At ₹92 per litre, diesel cost is 735 × ₹92 = ₹67,620. Option (b) may arise from using a nearby distance or mileage assumption.
Where it goes wrong. Multiplying total distance by diesel rate without dividing by mileage.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 14 · 2 marks · Service Costing · hard
What is the approximate cost per absolute tonne-kilometre for the representative truck?
Explanation. Diesel is ₹67,620. Variable maintenance is 2,940 × ₹1.50 = ₹4,410. Fixed operating cost is ₹28,000. Total cost is ₹1,00,030. Dividing by 40,360 absolute tonne-km gives ₹2.4784, approximately ₹2.48. Option (a) divides by commercial tonne-km instead of absolute tonne-km.
Where it goes wrong. Dividing total cost by commercial tonne-km while the question asks for absolute tonne-km.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 15 · 2 marks · Marginal Costing · hard
Scenario. Kaveri Products sells a product at ₹120 per unit. Variable cost is ₹72 per unit and fixed cost is ₹1,80,000. Current sales volume is 6,000 units. The production team proposes a change that reduces variable cost per unit by ₹8, while selling price and fixed cost remain unchanged. The manager wants to know the effect of this change on break-even point and margin of safety at the current sales volume.
What is the effect of the ₹8 reduction in variable cost per unit on break-even point and margin of safety at 6,000 units?
BEP falls by 535.71 units; MOS rises by 535.71 units (correct answer)
BEP falls by 375.00 units; MOS rises by 375.00 units
BEP rises by 535.71 units; MOS falls by 535.71 units
BEP falls by 535.71 units; MOS falls by 535.71 units
Answer: A — BEP falls by 535.71 units; MOS rises by 535.71 units
Working. Old BEP 1,80,000/48 = 3,750; new BEP 1,80,000/56 = 3,214.29; decrease = 535.71; MOS increase = 535.71.
Explanation. Original contribution is ₹120 − ₹72 = ₹48, so BEP is ₹1,80,000 ÷ 48 = 3,750 units. New contribution is ₹120 − ₹64 = ₹56, so new BEP is ₹1,80,000 ÷ 56 = 3,214.29 units. BEP falls by 535.71 units. At 6,000 units, MOS rises by the same 535.71 units. Option (b) uses the old contribution incorrectly for the change.
Where it goes wrong. Applying the ₹8 saving to fixed cost rather than to contribution per unit.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Authorities cited in this paper
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 Material Cost · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Job Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
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 5: Activity Based Costing, Chapter 2: Material Cost, Chapter 15: Budgets & Budgetary Control, Chapter 9: Job Costing, Chapter 12: Service Costing, Chapter 14: Marginal Costing. 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 5: Activity Based Costing, Chapter 2: Material Cost, Chapter 15: Budgets & Budgetary Control, Chapter 9: Job Costing, Chapter 12: Service Costing, Chapter 14: Marginal Costing. 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.
