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
Chapter 5 - Activity Based Costing (4 Q)
Chapter 9 - Job Costing (1 Q)
Chapter 14 - Marginal Costing (4 Q)
Chapter 1 - Introduction to Cost and Management Accounting (1 Q)
Chapter 13 - Standard Costing (4 Q)
Chapter 12 - Service Costing (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Chapter 5 - Activity Based Costing · medium
Scenario. Novera Motion Systems Ltd. manufactures two industrial pump assemblies, P-40 and P-90, at its Pune plant. For the budgeted quarter ending 31 December 2026, management is reviewing whether its machine-hour absorption method distorts product costs. The plant expects production overheads of ₹13,20,000 in four activity pools:\nPool | Pool cost | Total driver\nProduction set-ups | ₹3,60,000 | 120 set-ups\nQuality inspections | ₹2,40,000 | 800 inspections\nMaterial handling | ₹1,80,000 | 300 moves\nMachine operations | ₹5,40,000 | 18,000 machine-hours\n\nProduct | Units | Set-ups | Inspections | Moves | Machine-hours | Direct material | Direct labour\nP-40 | 1,000 | 30 | 200 | 60 | 6,000 | ₹4,20,000 | ₹1,80,000\nP-90 | 500 | 90 | 600 | 240 | 12,000 | ₹3,50,000 | ₹1,30,000\n\nP-40 uses six machine-hours per assembly, while the deep-bore machining and pressure-test routing of P-90 requires 24 machine-hours per assembly. All pool costs and driver quantities relate only to these two products, and no overhead remains unallocated. Under the traditional system, all overhead is absorbed using machine-hours. The proposed ABC review assigns each pool using its stated activity driver, while direct material and direct labour remain traceable to the products. Management wants to determine whether the current method assigns a disproportionate share of set-up, inspection and handling resources to either assembly.
Which set of activity cost driver rates should Novera use for the four overhead pools?
Set-ups ₹3,000 per set-up; inspections ₹300 per inspection; moves ₹600 per move; machine use ₹30 per machine-hour. (correct answer)
Set-ups ₹2,400 per set-up; inspections ₹320 per inspection; moves ₹540 per move; machine use ₹36 per machine-hour for the quarter.
Set-ups ₹3,000 per set-up; inspections ₹240 per inspection; moves ₹600 per move; machine use ₹36 per machine-hour.
Set-ups ₹3,600 per set-up; inspections ₹300 per inspection; moves ₹500 per move; machine use ₹24 per machine-hour.
Answer: A — Set-ups ₹3,000 per set-up; inspections ₹300 per inspection; moves ₹600 per move; machine use ₹30 per machine-hour.
Working. Set-ups: ₹3,60,000 ÷ 120 = ₹3,000 per set-up. Inspections: ₹2,40,000 ÷ 800 = ₹300 per inspection. Material moves: ₹1,80,000 ÷ 300 = ₹600 per move. Machine operations: ₹5,40,000 ÷ 18,000 = ₹30 per machine-hour.
Explanation. An ABC rate is calculated separately for each cost pool by dividing that pool's cost by its own activity-driver volume. This produces ₹3,000 per set-up, ₹300 per inspection, ₹600 per move and ₹30 per machine-hour. Option c incorrectly divides the inspection pool by a different volume, while the other alternatives alter one or more pool rates. A single rate based on total output would not preserve the cause-and-effect link between each activity and the products using it.
Where it goes wrong. Using a product's driver consumption as the denominator instead of the total driver volume for the activity pool.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 5 - Activity Based Costing
Question 2 · 2 marks · Chapter 5 - Activity Based Costing · hard
What is the ABC production overhead cost per P-90 assembly?
Explanation. P-90 consumes 90 set-ups, 600 inspections, 240 material moves and 12,000 machine-hours. Applying the respective activity rates gives total overhead of ₹9,54,000 for P-90; dividing by its 500 assemblies gives ₹1,908 each. The close alternatives can result from misapplying one driver rate or omitting part of an activity pool. The product's machine-hours alone cannot represent its demand for set-ups, inspections and material handling under ABC.
Where it goes wrong. Applying the machine-hour rate to the entire overhead pool, or omitting a non-machine activity when accumulating the product's ABC overhead.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 5 - Activity Based Costing
Question 3 · 2 marks · Chapter 5 - Activity Based Costing · hard
Which statement correctly compares complete manufacturing cost per unit under traditional machine-hour absorption and ABC?
P-40: ₹1,040 traditional and ₹932 ABC; P-90: ₹2,720 traditional and ₹2,902 ABC.
P-40: ₹1,040 traditional and ₹1,040 ABC; P-90: ₹2,720 traditional and ₹2,868 ABC.
P-40: ₹1,040 traditional and ₹966 ABC; P-90: ₹2,720 traditional and ₹2,868 ABC. (correct answer)
P-40: ₹966 traditional and ₹1,040 ABC; P-90: ₹2,868 traditional and ₹2,720 ABC.
Answer: C — P-40: ₹1,040 traditional and ₹966 ABC; P-90: ₹2,720 traditional and ₹2,868 ABC.
Working. Traditional rate = ₹13,20,000 ÷ 18,000 MH = ₹73.333 per MH. P-40 traditional OH/unit = 6,000 × ₹73.333 ÷ 1,000 = ₹440; total = ₹420 + ₹180 + ₹440 = ₹1,040. P-90 traditional OH/unit = 12,000 × ₹73.333 ÷ 500 = ₹1,760; total = ₹700 + ₹260 + ₹1,760 = ₹2,720. ABC totals: P-40 OH ₹3,66,000 ÷ 1,000 = ₹366; total ₹966. P-90 OH ₹9,54,000 ÷ 500 = ₹1,908; total ₹2,868.
Explanation. Traditional costing absorbs all ₹13,20,000 of overhead over 18,000 machine-hours, giving ₹73.333 per machine-hour. That produces overhead per unit of ₹440 for P-40 and ₹1,760 for P-90. ABC overhead per unit is ₹366 for P-40 and ₹1,908 for P-90. Adding traceable direct material and labour gives the stated total unit costs. Option d reverses the traditional and ABC labels, while option b leaves P-40's ABC overhead at the traditional amount.
Where it goes wrong. Comparing only overhead per unit while omitting direct material and labour, or reversing the two costing methods in the final comparison.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 5 - Activity Based Costing
Question 4 · 2 marks · Chapter 5 - Activity Based Costing · hard
Which conclusion identifies the direction and amount of product-cost distortion caused by the traditional machine-hour method?
Traditional costing overstates P-40 by ₹148 per unit and understates P-90 by ₹74; P-90 subsidises P-40.
Traditional costing understates P-40 by ₹74 per unit and overstates P-90 by ₹148; P-90 subsidises P-40.
Traditional costing overstates both products because the activity pools contain non-volume overheads; no cross-subsidy occurs.
Traditional costing overstates P-40 by ₹74 per unit and understates P-90 by ₹148; P-40 subsidises P-90. (correct answer)
Answer: D — Traditional costing overstates P-40 by ₹74 per unit and understates P-90 by ₹148; P-40 subsidises P-90.
Working. P-40 distortion = traditional ₹1,040 − ABC ₹966 = ₹74 overcost per unit; total overcost = ₹74 × 1,000 = ₹74,000. P-90 distortion = ABC ₹2,868 − traditional ₹2,720 = ₹148 undercost per unit; total undercost = ₹148 × 500 = ₹74,000. The ₹74,000 over-absorption on P-40 offsets the ₹74,000 under-absorption on P-90. Therefore P-40 subsidises P-90.
Explanation. P-40's traditional unit cost of ₹1,040 exceeds its ABC unit cost of ₹966 by ₹74. P-90's traditional unit cost of ₹2,720 is below its ABC unit cost of ₹2,868 by ₹148. Across the production volumes, these differences are equal: ₹74 × 1,000 = ₹74,000 and ₹148 × 500 = ₹74,000. Thus the traditional method shifts overhead burden from P-90 to P-40. Option b reverses the direction of the distortion.
Where it goes wrong. Comparing only the per-unit differences without considering which product is overcosted and which is undercosted, or reversing the cross-subsidy direction.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 5 - Activity Based Costing
Question 5 · 2 marks · Chapter 9 - Job Costing · hard
Scenario. Aster Forge Pvt. Ltd. receives an order for three bespoke hydraulic press frames. The job requires direct materials of ₹8,40,000, direct labour of 1,600 hours at ₹250 per hour and 750 machine-hours. Factory overhead is applied at a predetermined rate of ₹400 per machine-hour. Direct expenses traceable to the job are ₹60,000. Administration overhead is absorbed at 10% of works cost, while selling and distribution overhead is 5% of production cost. The company quotes a profit mark-up of 25% on total cost. Determine the total quotation price for the three-frame job.
What total quotation price should Aster Forge quote for the three-frame job?
₹23.10 lakh (correct answer)
₹22.00 lakh
₹22.63 lakh
₹24.64 lakhs
Answer: A — ₹23.10 lakh
Working. Direct labour = 1,600 × ₹250 = ₹4,00,000. Factory OH = 750 × ₹400 = ₹3,00,000. Works cost = ₹8,40,000 + ₹4,00,000 + ₹3,00,000 + ₹60,000 = ₹16,00,000. Administration OH = 10% × ₹16,00,000 = ₹1,60,000. Production cost = ₹17,60,000. Selling and distribution OH = 5% × ₹17,60,000 = ₹88,000. Total cost = ₹18,48,000. Profit = 25% × ₹18,48,000 = ₹4,62,000. Quotation = ₹23,10,000.
Explanation. The factory overhead applied to the job is based on the predetermined machine-hour rate, and the resulting works cost is the base for administration overhead. Selling and distribution overhead is then applied to production cost. Total cost is ₹18,48,000; a 25% mark-up on cost adds ₹4,62,000, giving a quotation of ₹23,10,000. Option d divides cost by 75%, which treats the 25% mark-up as a margin on selling price rather than a mark-up on cost.
Where it goes wrong. Applying the 25% profit as a percentage of selling price, or using the wrong cost base for administration or selling overhead.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 9 - Job Costing
Question 6 · 2 marks · Chapter 14 - Marginal Costing · medium
Scenario. Kestrel Components Ltd. manufactures one model of precision valve. Its current monthly plan and cost structure are as follows:\nParticulars | Monthly level or rate\nSales volume | 45,000 valves\nSelling price | ₹250 per valve\nVariable cost | ₹150 per valve\nFixed costs | ₹24,00,000\n\nProduction is aligned with sales and there is no opening or closing inventory. The finance team uses marginal costing for short-term volume and profit planning. The sales director has asked for the current profit-volume ratio and break-even levels in both units and sales value. The board also wants the margin of safety expressed in units and sales value at the planned volume, so that it can assess the buffer before the business begins to incur a loss. Assume the stated selling price, variable cost per valve and fixed costs remain constant within the relevant activity range.\n\nFor a separate planning exercise, the board has set a target net profit after corporate tax of ₹15,00,000. For this exercise only, assume tax is charged at 25% of profit before tax and that the tax rate does not change with the level of activity. The company is also considering a 10% reduction in selling price to respond to a competitor. Under that proposal, variable cost per valve and monthly fixed costs are expected to remain unchanged. Management wants the sales volume needed after the price cut to preserve the current monthly profit, rather than merely to break even.
What are the contribution per valve and the profit-volume ratio at the current selling price?
Contribution ₹95 per valve; P/V 38%
Contribution ₹100 per valve; P/V 40% (correct answer)
Contribution ₹90 per valve; P/V 36%
Contribution ₹110 per valve; P/V ratio 44%
Answer: B — Contribution ₹100 per valve; P/V 40%
Working. Contribution per valve = ₹250 − ₹150 = ₹100. P/V ratio = (₹100 ÷ ₹250) × 100 = 40%.
Explanation. Contribution per unit is selling price less variable cost, so each valve contributes ₹100. The P/V ratio is contribution divided by sales value, giving 40%. This ratio expresses the portion of sales available to recover fixed costs and then generate profit. Option a uses a contribution figure that does not follow from the stated ₹250 selling price and ₹150 variable cost.
Where it goes wrong. Subtracting a cost other than the stated variable cost, or expressing contribution per unit as a percentage without dividing by selling price.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 14 - Marginal Costing
Question 7 · 2 marks · Chapter 14 - Marginal Costing · hard
Which combination gives break-even units, break-even sales value, margin of safety in units and margin of safety in sales value at the planned volume?
BEP 24,000 units/₹60,00,000; MOS 20,000 units/₹50,00,000.
BEP 25,000 units/₹62,50,000; MOS 20,000 units/₹50,00,000, respectively.
BEP 24,000 units/₹60,00,000; MOS 21,000 units/₹52,50,000. (correct answer)
BEP 22,500 units/₹56,25,000; MOS 22,500 units/₹56,25,000.
Answer: C — BEP 24,000 units/₹60,00,000; MOS 21,000 units/₹52,50,000.
Working. Contribution per valve = ₹250 − ₹150 = ₹100. BEP units = ₹24,00,000 ÷ ₹100 = 24,000 units. BEP sales = 24,000 × ₹250 = ₹60,00,000. Margin of safety units = 45,000 − 24,000 = 21,000 units. Margin of safety sales value = 21,000 × ₹250 = ₹52,50,000.
Explanation. At ₹100 contribution per valve, fixed costs of ₹24,00,000 require 24,000 valves to break even. At ₹250 each, break-even sales are ₹60,00,000. The planned volume is 45,000 valves, so the margin of safety is 21,000 valves, or ₹52,50,000 at the planned selling price. Option a understates the margin of safety by 1,000 units and ₹2,50,000; the other alternatives use an incorrect break-even figure.
Where it goes wrong. Calculating margin of safety as a percentage of planned volume and then mistaking that figure for the number of units, or using selling price instead of contribution to calculate break-even units.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 14 - Marginal Costing
Question 8 · 2 marks · Chapter 14 - Marginal Costing · hard
How many valves must Kestrel sell, and what sales value is required, to earn the target net profit after the stated corporate tax?
Explanation. The target is net profit after tax, so it must first be converted to profit before tax using the 25% tax assumption in the scenario. The resulting pre-tax target is ₹20,00,000. Adding fixed costs gives required contribution of ₹44,00,000; at a 40% P/V ratio, sales must be ₹1,10,00,000, equal to 44,000 valves at ₹250 each. Option c uses the current plan volume, not the target-profit requirement.
Where it goes wrong. Using the after-tax target of ₹15,00,000 directly in the contribution equation and thereby omitting the tax gross-up.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 14 - Marginal Costing
Question 9 · 2 marks · Chapter 14 - Marginal Costing · medium
If the selling price is reduced by 10% and variable cost and fixed costs remain unchanged, what monthly volume is needed to preserve the current profit?
Explanation. Current monthly profit is ₹21,00,000. After the 10% price reduction, selling price becomes ₹225 and contribution per valve falls to ₹75. To preserve the current profit, contribution must still cover ₹24,00,000 fixed costs plus ₹21,00,000 profit. This requires 60,000 valves. Option b does not provide enough contribution to preserve the current profit.
Where it goes wrong. Reducing selling price but continuing to use the original ₹100 contribution per valve when calculating the new required volume.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 14 - Marginal Costing
Question 10 · 2 marks · Chapter 1 - Introduction to Cost and Management Accounting · medium
Scenario. Meridian Fabricators is deciding whether to accept a one-time order that will occupy a restricted machine slot. A design charge of ₹3,60,000 was paid last quarter and cannot be recovered. The order will require additional materials and labour costing ₹2,10,000. Accepting it will displace regular production that would have earned a contribution of ₹1,20,000. A non-cancellable factory lease charge of ₹1,80,000 and the supervisor's annual salary of ₹2,40,000 will be payable whether the order is accepted or rejected. Identify the correctly classified relevant cost item for this decision.
Which statement correctly identifies a relevant opportunity cost for Meridian's accept-or-reject decision?
The ₹3,60,000 drawing charge paid last quarter is a differential cost of the new order.
The ₹1,20,000 contribution lost on displaced regular output is a relevant opportunity cost. (correct answer)
The ₹1,80,000 non-cancellable lease charge is avoidable because the order uses the machine slot.
The ₹2,40,000 supervisor salary, unchanged by the order, is an incremental variable cost.
Answer: B — The ₹1,20,000 contribution lost on displaced regular output is a relevant opportunity cost.
Working. Sunk cost: drawing charge ₹3,60,000, already paid; exclude. Differential cost: additional materials and labour ₹2,10,000 caused by accepting the order; include. Opportunity cost: ₹1,20,000 contribution from regular output displaced; include. Committed fixed costs: lease ₹1,80,000 and supervisor salary ₹2,40,000 payable either way; exclude because they do not differ between options.
Explanation. The contribution sacrificed from regular production is the benefit foregone by choosing the special order, so it is an opportunity cost and is relevant to the decision. The drawing charge has already been incurred and is sunk. The lease and salary continue under either option, so they are committed fixed costs that do not differ between alternatives. The additional ₹2,10,000 materials and labour are differential costs because they arise only if the order is accepted.
Where it goes wrong. Treating every cost assigned to the order as relevant, even when it has already been incurred or remains unchanged under both alternatives.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 1 - Introduction to Cost and Management Accounting
Question 11 · 2 marks · Chapter 13 - Standard Costing · medium
Scenario. Virel Process Materials Ltd. manufactures a specialist industrial compound, VC-9, by blending two ingredients, Alpha Silicate and Beta Polymer. The standard formulation specifies Alpha at 60% and Beta at 40% of total input. Their standard prices are ₹8 per kg and ₹12 per kg, respectively. A normal process loss of 5% of input is expected, and the standard output for the month is 9,500 kg of finished compound.\nIngredient | Standard mix | Standard price | Actual quantity used | Actual price\nAlpha Silicate | 60% | ₹8/kg | 6,300 kg | ₹8.50/kg\nBeta Polymer | 40% | ₹12/kg | 3,500 kg | ₹11.50/kg\n\nThe production report for October 2026 records actual output of 9,500 kg of good compound. All material purchased during the month was consumed in production; there was no opening or closing stock of either ingredient. No abnormal material loss or scrap recovery is reported, and the standard loss percentage and ingredient proportions are used for setting material standards. The purchase ledger and production report therefore relate to the same actual input quantities for this exercise.\n\nThe cost accountant is preparing a material variance report for the plant manager. The report is to separate total material cost variance into price and usage components, and to analyse usage further between the effect of actual ingredient proportions and the effect of total input yield. Use standard prices for usage, mix and yield analysis, and use actual purchase quantities for price variance.
What standard quantities of Alpha and Beta are allowed for the actual good output of 9,500 kg?
Alpha 5,700 kg and Beta 3,800 kg (SQ)
Alpha 6,300 kg and Beta 3,500 kg
Alpha 6,000 kg and Beta 4,000 kg (correct answer)
Alpha 6,120 kg and Beta 4,080 kg
Answer: C — Alpha 6,000 kg and Beta 4,000 kg
Working. Standard input for actual output = 9,500 kg ÷ (1 − 5%) = 9,500 ÷ 0.95 = 10,000 kg. Alpha SQ = 10,000 × 60% = 6,000 kg. Beta SQ = 10,000 × 40% = 4,000 kg.
Explanation. The 5% standard process loss means that 9,500 kg of good output requires 10,000 kg of standard input. Applying the standard formulation gives 6,000 kg of Alpha and 4,000 kg of Beta. Option b uses the actual quantities consumed rather than the standard quantities allowed for actual output. Option a applies the standard proportions to finished output without adjusting for normal process loss.
Where it goes wrong. Applying the mix percentages directly to good output instead of first grossing up for the standard process loss.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 13 - Standard Costing
Question 12 · 2 marks · Chapter 13 - Standard Costing · hard
What are the net Material Cost Variance and Material Price Variance for the month?
Net MCV ₹2,200 (A); MPV ₹1,400 (F)
MCV ₹2,200 (F); MPV ₹1,400 (F)
MCV ₹3,600 (F); MPV ₹1,400 (A)
MCV ₹2,200 (F); MPV ₹1,400 (A) (correct answer)
Answer: D — MCV ₹2,200 (F); MPV ₹1,400 (A)
Working. Standard cost = (6,000 × ₹8) + (4,000 × ₹12) = ₹48,000 + ₹48,000 = ₹96,000. Actual cost = (6,300 × ₹8.50) + (3,500 × ₹11.50) = ₹53,550 + ₹40,250 = ₹93,800. MCV = ₹96,000 − ₹93,800 = ₹2,200 F. MPV Alpha = 6,300 × (₹8 − ₹8.50) = ₹3,150 A. MPV Beta = 3,500 × (₹12 − ₹11.50) = ₹1,750 F. Net MPV = ₹1,400 A.
Explanation. Standard material cost for the actual output is ₹96,000, while actual material cost is ₹93,800, producing a ₹2,200 favourable Material Cost Variance. Price variance uses actual purchased quantities: Alpha has an adverse variance of ₹3,150 and Beta a favourable variance of ₹1,750, giving a net ₹1,400 adverse variance. Option c reports the usage variance as the total cost variance.
Where it goes wrong. Using only the net price effect as the total material cost variance, or switching favourable and adverse signs when actual price is above or below standard.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 13 - Standard Costing
Question 13 · 2 marks · Chapter 13 - Standard Costing · hard
What are the Material Usage Variance and Material Mix Variance, respectively?
Usage variance ₹3,600 F; mix variance ₹1,680 F (correct answer)
Usage variance ₹3,600 F; mix variance ₹1,680 A
Usage variance ₹1,920 F; mix variance ₹1,680 F
Usage variance ₹1,680 F; mix variance ₹3,600 F combined
Answer: A — Usage variance ₹3,600 F; mix variance ₹1,680 F
Working. Actual total input = 6,300 + 3,500 = 9,800 kg. MUV Alpha = (6,000 − 6,300) × ₹8 = ₹2,400 A. MUV Beta = (4,000 − 3,500) × ₹12 = ₹6,000 F. Net MUV = ₹3,600 F. RSQ Alpha = 9,800 × 60% = 5,880 kg; RSQ Beta = 9,800 × 40% = 3,920 kg. MMV Alpha = (5,880 − 6,300) × ₹8 = ₹3,360 A. MMV Beta = (3,920 − 3,500) × ₹12 = ₹5,040 F. Net MMV = ₹1,680 F.
Explanation. Usage variance compares standard quantities for actual output with the actual quantities used, at standard prices. Its net result is ₹3,600 favourable. For mix variance, actual total input of 9,800 kg is first redistributed in the 60:40 standard proportion, giving revised standard quantities of 5,880 kg and 3,920 kg. Comparing these with actual consumption gives ₹1,680 favourable. Option c substitutes yield variance for usage variance.
Where it goes wrong. Using actual output quantity or standard quantity in place of total actual input when calculating revised standard quantities for mix variance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 13 - Standard Costing
Question 14 · 2 marks · Chapter 13 - Standard Costing · hard
What is the Material Yield Variance for VC-9?
₹1,680 (F)
₹1,920 F (correct answer)
₹1,920 (A)
₹3,600 (F)
Answer: B — ₹1,920 F
Working. SQ: Alpha 6,000 kg; Beta 4,000 kg. RSQ based on actual total input of 9,800 kg: Alpha 5,880 kg; Beta 3,920 kg. Yield variance Alpha = (6,000 − 5,880) × ₹8 = ₹960 F. Yield variance Beta = (4,000 − 3,920) × ₹12 = ₹960 F. Total Material Yield Variance = ₹1,920 F. Check: MUV ₹3,600 F = MMV ₹1,680 F + MYV ₹1,920 F.
Explanation. Yield variance isolates the difference between standard input allowed for actual production and the revised standard quantity representing actual total input in standard proportions. The reduction from 10,000 kg to 9,800 kg is 200 kg, split as 120 kg of Alpha and 80 kg of Beta. At standard prices, the favourable effect is ₹960 plus ₹960, or ₹1,920. Option a is the mix variance, not the yield variance.
Where it goes wrong. Confusing the change in ingredient proportions with the change in total input quantity; the former is mix variance and the latter is yield variance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 13 - Standard Costing
Question 15 · 2 marks · Chapter 12 - Service Costing · medium
Scenario. Cobalt City Transit operates four buses on a route that is 25 km one way. Each bus has 40 seats and carries passengers at an average utilisation of 75% of seating capacity. Each bus makes four single trips per operating day, and the fleet runs for 24 days in the month. Monthly standing charges comprise staff salaries ₹1,25,000, insurance and taxes ₹55,000, depreciation ₹40,000 and interest ₹20,000. Diesel and lubricants cost ₹4,32,000 for the month, while repairs and maintenance cost ₹48,000. Classify the charges as standing, running and maintenance costs, then determine the cost per passenger-kilometre.
Which option gives the monthly passenger-kilometres, cost per passenger-kilometre and cost classification?
Explanation. Passenger-kilometres include the number of buses, route distance, seats, average utilisation, operating days and single trips. This gives 2,88,000 passenger-km. Monthly standing charges are ₹2,40,000, diesel and lubricants are running charges of ₹4,32,000, and repairs are maintenance charges of ₹48,000. Total cost is ₹7,20,000, or ₹2.50 per passenger-km. Option b uses the correct cost heads but an incorrect unit-cost divisor.
Where it goes wrong. Counting a round trip as one single trip, or classifying repairs and maintenance as running fuel cost rather than maintenance cost.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 12 - Service Costing
Authorities cited in this paper
ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 5 - Activity Based Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 9 - Job Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 14 - Marginal Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 1 - Introduction to Cost and Management Accounting · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 13 - Standard Costing · ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Chapter 12 - Service 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 9 - Job Costing, Chapter 14 - Marginal Costing, Chapter 1 - Introduction to Cost and Management Accounting, Chapter 13 - Standard Costing, Chapter 12 - Service 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 9 - Job Costing, Chapter 14 - Marginal Costing, Chapter 1 - Introduction to Cost and Management Accounting, Chapter 13 - Standard Costing, Chapter 12 - Service 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.
