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)
Job Costing (1 Q)
Budgets & Budgetary Control (4 Q)
Material Cost (1 Q)
Marginal Costing (4 Q)
Employee Cost and Direct Expenses (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Activity Based Costing · hard
Scenario. Northvale Foods Pvt. Ltd. sells three spice-blend customer categories and is reviewing their profitability under activity-based costing. Annual data are: Wholesale Distributors: 1,50,000 kg sold, 300 sales orders, 600 deliveries, 120 customer visits, list price ₹240 per kg, trade discount 12%, cost of goods sold ₹170 per kg. Retail Supermarkets: 90,000 kg sold, 450 sales orders, 900 deliveries, 180 customer visits, list price ₹260 per kg, trade discount 8%, cost of goods sold ₹175 per kg. Direct Online: 60,000 kg sold, 1,200 sales orders, 1,500 deliveries, 60 customer visits, list price ₹280 per kg, trade discount 5%, cost of goods sold ₹180 per kg. Customer-level activity costs are: order processing ₹9,75,000; delivery ₹12,00,000; customer visits ₹5,40,000; product handling ₹18,00,000. The respective drivers are sales orders, deliveries, customer visits and kilograms sold. There is no stock change. The management wants category-wise activity cost allocation, net revenue after discount, operating income and margin analysis before deciding on service-level changes.
What is the total customer-level activity cost allocated to the Wholesale Distributors category?
Explanation. Activity rates are order processing ₹500 per order, delivery ₹400 per delivery, visits ₹1,500 per visit and handling ₹6 per kg. For Wholesale Distributors the allocation is ₹1,50,000 + ₹2,40,000 + ₹1,80,000 + ₹9,00,000 = ₹14,70,000. The option ₹16,50,000 is the Direct Online total, so it fails because it applies another category's driver volumes.
Where it goes wrong. Using total kilograms or total orders across all categories instead of the category-specific driver quantities.
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 is the customer-level operating income of the Retail Supermarkets category?
Explanation. Net revenue for Retail Supermarkets is 90,000 × ₹260 × 92% = ₹2,15,28,000. Cost of goods sold is 90,000 × ₹175 = ₹1,57,50,000. Activity cost is ₹2,25,000 + ₹3,60,000 + ₹2,70,000 + ₹5,40,000 = ₹13,95,000. Operating income is ₹43,83,000. The ₹47,10,000 option is the Wholesale Distributors result and ignores category-specific discounts and drivers.
Where it goes wrong. Deducting activity cost from gross revenue without first reducing revenue by the category trade discount.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 3 · 2 marks · Activity Based Costing · medium
What is the customer-level operating margin percentage for Retail Supermarkets?
Explanation. Operating income for Retail Supermarkets is ₹43,83,000 and net revenue after discount is ₹2,15,28,000. The margin is ₹43,83,000 ÷ ₹2,15,28,000 = 20.36%. Option 21.99% is the Direct Online margin and 14.87% is the Wholesale Distributors margin, so those mix up categories.
Where it goes wrong. Dividing operating income by list-price revenue before the trade discount, which inflates the margin.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 4 · 2 marks · Activity Based Costing · hard
Direct Online can eliminate customer visits by shifting to a digital service, but delivery cost per delivery will rise from ₹400 to ₹440 due to small-drop logistics. What is the net change in Direct Online operating income?
Explanation. Eliminating 60 visits saves 60 × ₹1,500 = ₹90,000. The delivery rate rises by ₹40 on 1,500 deliveries, adding ₹60,000. Net effect is a ₹30,000 increase in operating income. A decrease of ₹30,000 reverses the two effects and is the common sign error.
Where it goes wrong. Comparing only the delivery increase, or treating the visit saving as a cost rather than a benefit.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 5 · 2 marks · Job Costing · hard
Scenario. Apex Turbine Works completed Job J-417 at a manufacturing cost of ₹8,40,000. The job card shows that 6% of production against this order was spoiled. The normal spoilage rate for this process is 2% of manufacturing cost, and the spoiled units have a total realisable value of ₹24,000. The realisable value is apportioned between normal and abnormal spoilage in the ratio of their costs. The company records abnormal spoilage separately in the Costing Profit and Loss Account.
What amount is transferred to the Costing Profit and Loss Account for abnormal spoilage on Job J-417?
Explanation. Spoilage cost is 6% of ₹8,40,000 = ₹50,400. Normal spoilage cost is 2% of ₹8,40,000 = ₹16,800, so abnormal spoilage cost is ₹33,600. Realisable value of ₹24,000 is shared in the ratio 16,800:33,600 = 1:2, giving an abnormal credit of ₹16,000. The abnormal loss is ₹33,600 - ₹16,000 = ₹17,600. Option ₹33,600 ignores scrap recovery.
Where it goes wrong. Crediting the whole scrap value against abnormal spoilage instead of apportioning it between normal and abnormal spoilage.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Job Costing
Question 6 · 2 marks · Budgets & Budgetary Control · medium
Scenario. Crestline Ceramics Ltd. prepares a three-month cash budget for April to June 2027. Sales are: January ₹8,00,000; February ₹9,20,000; March ₹10,50,000; April ₹11,40,000; May ₹12,60,000; June ₹13,80,000. Cash sales are 20% of each month's sales. Credit sales are collected 60% in the next month, 30% in the second month and 8% in the third month; 2% is bad debt. Purchases are 60% of the same month's sales. Suppliers are paid 30% in the month of purchase and 70% in the next month. Monthly payroll is ₹2,80,000 and other cash expenses are ₹1,20,000. Advance tax of ₹90,000 is paid in June, and equipment costing ₹3,50,000 is purchased in May. Opening cash on 1 April is ₹1,25,000. The company wants to maintain a minimum cash balance of ₹2,00,000 by borrowing or repaying at each month-end. No interest on borrowing is considered for the quarter.
What amount is collected from credit customers only in May 2027?
Explanation. May credit collections come from April at 60%, March at 30% and February at 8%. Credit sales are 80% of sales: April ₹9,12,000; March ₹8,40,000; February ₹7,36,000. Collections are ₹5,47,200 + ₹2,52,000 + ₹58,880 = ₹8,58,080. Option ₹9,45,600 is June credit collections, and ₹8,76,480 uses a wrong February percentage.
Where it goes wrong. Including May cash sales of ₹2,52,000 even though the question asks only for credit collections.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 7 · 2 marks · Budgets & Budgetary Control · medium
What is the payment to material suppliers in June 2027?
Explanation. Purchases are 60% of sales. June purchases are ₹8,28,000 and May purchases are ₹7,56,000. June payment is 30% of June purchases plus 70% of May purchases: ₹2,48,400 + ₹5,29,200 = ₹7,77,600. Option ₹7,05,600 is the May supplier payment, while ₹8,28,000 is only June purchases.
Where it goes wrong. Paying 100 percent of current-month purchases or using the previous month's purchases alone.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 8 · 2 marks · Budgets & Budgetary Control · hard
What is the net cash surplus or deficit for June 2027 before any month-end borrowing or repayment?
Explanation. June receipts are ₹2,76,000 cash sales plus credit collections of ₹6,04,800 + ₹2,73,600 + ₹67,200 = ₹12,21,600. June payments are ₹7,77,600 suppliers + ₹2,80,000 payroll + ₹1,20,000 expenses + ₹90,000 tax = ₹12,67,600. The net deficit is ₹46,000. Option ₹3,08,720 is the cumulative cash shortfall without maintaining the minimum balance.
Where it goes wrong. Combining the monthly deficit with the minimum-balance borrowing requirement and calling it the monthly cash flow.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 9 · 2 marks · Budgets & Budgetary Control · hard
What is the cumulative borrowing required at the end of June 2027 to maintain the minimum cash balance of ₹2,00,000?
Explanation. April closing before borrowing is ₹82,800, so ₹1,17,200 is borrowed. May closes at negative ₹1,45,520 after opening ₹2,00,000, requiring ₹3,45,520 and taking cumulative borrowing to ₹4,62,720. June closes at ₹1,54,000 before borrowing, requiring ₹46,000 more, so cumulative borrowing is ₹5,08,720. Option ₹4,62,720 stops at May.
Where it goes wrong. Ignoring the April borrowing or treating the June deficit as the total cumulative borrowing.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Budgets & Budgetary Control
Question 10 · 2 marks · Material Cost · medium
Scenario. Orbit Polymers uses two materials, PX and QY. For the year ended 31 March 2027: PX opening stock ₹1,80,000, purchases ₹9,60,000, closing stock ₹2,40,000. QY opening stock ₹2,10,000, purchases ₹5,40,000, closing stock ₹1,50,000. The company computes inventory turnover ratio as material consumed divided by average stock, and average holding period as 365 days divided by that ratio.
What is the average inventory holding period, using 365 days, for materials PX and QY respectively?
Explanation. PX consumption is ₹9,00,000 and average stock is ₹2,10,000, giving turnover 4.2857 times and holding period about 85 days. QY consumption is ₹6,00,000 and average stock is ₹1,80,000, giving turnover 3.3333 times and holding period about 110 days. Option 110 and 85 reverses the two materials.
Where it goes wrong. Using closing stock instead of average stock, or reversing the holding periods of the two materials.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Material Cost
Question 11 · 2 marks · Marginal Costing · medium
Scenario. Meridian Auto Components Ltd. needs 24,000 units of component ZX-14 annually. In-house variable costs per unit are: direct material ₹180, direct labour ₹90 and variable overhead ₹45. Attributable fixed overhead is ₹6,00,000 per year, of which ₹2,40,000 is avoidable if ZX-14 is bought outside. A vendor offers ZX-14 at ₹360 per unit, and freight is ₹12 per unit. If ZX-14 is bought, the released facility can be used to make product AY-7, which yields an annual contribution of ₹8,40,000. Alternatively, the released facility can only be rented out for ₹3,00,000 per year. The company evaluates make-or-buy decisions using relevant costs and opportunity benefit. No other costs are affected. The production manager wants a unit-cost and annual-cost comparison, including the maximum vendor invoice price at which the company would be indifferent between making and buying when the AY-7 contribution is available.
What is the relevant annual cost of making component ZX-14 in-house?
Explanation. Relevant variable cost per unit is ₹180 + ₹90 + ₹45 = ₹315. For 24,000 units it is ₹75,60,000. Avoidable fixed overhead of ₹2,40,000 is also relevant, giving ₹78,00,000. Option ₹75,60,000 excludes avoidable fixed cost, while ₹81,60,000 wrongly includes all attributable fixed overhead of ₹6,00,000.
Where it goes wrong. Including unavoidable fixed overhead or omitting the avoidable portion of fixed overhead.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 12 · 2 marks · Marginal Costing · hard
Using the AY-7 contribution as the opportunity benefit, what is the net advantage or disadvantage of buying ZX-14 from the vendor?
Explanation. Purchase cost is 24,000 × (₹360 + ₹12) = ₹89,28,000. After crediting the AY-7 contribution of ₹8,40,000, net buy cost is ₹80,88,000. Relevant make cost is ₹78,00,000, so buying is disadvantageous by ₹2,88,000. Option ₹11,28,000 ignores the alternative contribution, and the advantage option reverses the comparison.
Where it goes wrong. Comparing purchase cost with variable cost only and ignoring both avoidable fixed cost and alternative contribution.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 13 · 2 marks · Marginal Costing · hard
If the AY-7 contribution of ₹8,40,000 is available, what maximum vendor invoice price per unit makes the company indifferent between making and buying? Freight of ₹12 per unit continues.
₹348 per unit (correct answer)
₹360 per unit
₹372 per unit
₹315 per unit
Answer: A — ₹348 per unit
Working. Indifference total purchase = make + contribution = 78,00,000 + 8,40,000 = 86,40,000. Per unit including freight = 86,40,000/24,000 = 360. Invoice price = 360 - 12 = 348.
Explanation. At indifference, total purchase cost less AY-7 contribution equals relevant make cost. Total purchase per unit including freight must be ₹8,64,000 ÷ 24,000 = ₹360. Since freight is ₹12, the maximum invoice price is ₹348. Option ₹360 forgets to deduct freight, and ₹372 is the current total purchase cost per unit.
Where it goes wrong. Using total purchase cost per unit as the invoice price without separating freight.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 14 · 2 marks · Marginal Costing · hard
If the released facility can only be rented out for ₹3,00,000 per year, what is the net disadvantage of buying ZX-14 instead of making it?
Explanation. Purchase cost remains ₹89,28,000. The rent benefit is only ₹3,00,000, so net buy cost is ₹86,28,000. Relevant make cost is ₹78,00,000, giving a disadvantage of ₹8,28,000. Option ₹2,88,000 uses the higher AY-7 contribution and therefore understates the disadvantage.
Where it goes wrong. Continuing to use the AY-7 contribution after the alternative benefit falls to rent only.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Marginal Costing
Question 15 · 2 marks · Employee Cost and Direct Expenses · medium
Scenario. A skilled technician is paid a basic wage rate of ₹120 per hour. The standard time allowed for a specialised job is 50 hours, and the technician completes it in 40 hours. The company operates the Rowan premium plan. The technician wants to know the bonus as a percentage of time wages earned for the job.
Under the Rowan plan, what is the bonus as a percentage of time wages for the job?
Explanation. Time wages are 40 hours × ₹120 = ₹4,800. Rowan bonus is (time saved ÷ time allowed) × time taken × rate = (10 ÷ 50) × 40 × ₹120 = ₹960. Bonus as a percentage of time wages is ₹960 ÷ ₹4,800 = 20%. Option 25% incorrectly uses time saved divided by time taken.
Where it goes wrong. Using actual time in the denominator of the time-saved proportion instead of standard time allowed.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Employee Cost and Direct Expenses
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 Job Costing · 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 Material Cost · 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 Employee Cost and Direct Expenses
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 Activity Based Costing, Job Costing, Budgets & Budgetary Control, Material Cost, Marginal Costing, Employee Cost and Direct Expenses. 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 Activity Based Costing, Job Costing, Budgets & Budgetary Control, Material Cost, Marginal Costing, Employee Cost and Direct Expenses. 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.
