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
Service Costing (4 Q)
Process and Operation Costing (1 Q)
Activity Based Costing (4 Q)
Material Cost (1 Q)
Standard Costing (4 Q)
Unit and Batch Costing (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Service Costing · medium
Scenario. Nexora Learning Solutions runs two corporate certification modules, Data Analytics (DA) and Cloud Operations (CO), at its Bengaluru academy. Annual enrolment is 240 students in DA and 160 students in CO. DA is delivered in eight batches of 30 students; CO in five batches of 32 students. Trainer fee is ₹72,000 per DA batch and ₹96,000 per CO batch. Lab infrastructure depreciation for the year is ₹18,00,000 and annual software licence cost is ₹9,60,000; both are allocated on lab hours. Each DA student uses 30 lab hours and each CO student uses 45 lab hours. Administration cost of ₹12,00,000 is allocated on the number of students. Consumables cost ₹1,200 per DA student and ₹1,800 per CO student. The academy uses absorption costing for module pricing. It plans a combined two-module package for 20 corporate learners. For fee setting, the academy adds a margin of 20% on revenue, so fee equals cost divided by 0.80. Software licences are site licences used across both modules, and lab depreciation includes servers and training kits. There is no opening or closing work-in-progress. All amounts relate to the same annual period. The finance team first computes a cost per student for each module and then applies the stated margin for pricing. For the combined package, one learner takes one DA module and one CO module; batch and shared costs are allocated using the same bases as for individual module costing.
What is the software licence cost allocated to each CO student?
₹2,000 per CO student
₹3,000 per CO student (correct answer)
₹3,600 per CO student
₹4,000 per CO student
Answer: B — ₹3,000 per CO student
Working. DA lab hours = 240×30 = 7,200; CO lab hours = 160×45 = 7,200; total = 14,400. Licence rate = 9,60,000÷14,400 = 66.6667. CO allocation per student = 45×66.6667 = ₹3,000.
Explanation. Lab hours are DA 240×30=7,200 and CO 160×45=7,200, total 14,400. Licence rate is ₹9,60,000÷14,400=₹66.6667 per hour. CO uses 45 hours, so allocation is 45×₹66.6667=₹3,000. Dividing licence cost by student count ignores differing lab intensity.
Where it goes wrong. Using total students 400 or CO students only gives an unrelated charge; the driver is lab hours.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 2 · 2 marks · Service Costing · hard
What is the total cost per DA student?
₹11,750 per DA student
₹13,100 per DA student
₹12,350 per DA student (correct answer)
₹14,000 per DA student
Answer: C — ₹12,350 per DA student
Working. Dep rate = 18,00,000÷14,400 = 125. Trainer per DA = 8×72,000÷240 = 2,400. Dep = 30×125 = 3,750. Licence = 30×66.6667 = 2,000. Admin = 12,00,000÷400 = 3,000. Total = 2,400+3,750+2,000+3,000+1,200 = ₹12,350.
Explanation. DA trainer cost is 8×72,000=5,76,000, or ₹2,400 per student. Depreciation is 30×125=₹3,750; licence 30×66.6667=₹2,000; administration 12,00,000÷400=₹3,000; consumables ₹1,200. Total is ₹12,350. Omitting shared costs or using CO lab intensity gives a different figure.
Where it goes wrong. Using 20% mark-up or allocating administration on lab hours instead of students changes the answer.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 3 · 2 marks · Service Costing · hard
What fee per CO student is required to earn a 20% margin on revenue?
Explanation. CO trainer cost is 5×96,000=4,80,000, or ₹3,000 per student. Depreciation is 45×125=₹5,625; licence 45×66.6667=₹3,000; administration ₹3,000; consumables ₹1,800. Total cost is ₹16,425. For 20% margin on revenue, fee=16,425÷0.80=₹20,531.25. Adding 20% to cost gives ₹19,710, the tempting error.
Where it goes wrong. Marking up cost by 20% instead of dividing by 0.80 overstates margin on cost and understates fee.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 4 · 2 marks · Service Costing · hard
For the 20-learner combined package, what is the package fee per learner and profit per learner?
Explanation. Combined cost is DA ₹12,350 plus CO ₹16,425=₹28,775. With 20% margin on revenue, fee=28,775÷0.80=₹35,968.75. Profit is fee less cost, ₹7,193.75. Using a 20% mark-up on cost gives a lower fee and is the common error.
Where it goes wrong. Computing profit as 20% of cost rather than 20% of revenue changes both fee and profit.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Service Costing
Question 5 · 2 marks · Process and Operation Costing · hard
Scenario. Orchid Polymers processes a resin through Process I. In August, opening work-in-process was 1,200 units, complete as to materials, 50% as to labour and 30% as to overheads. During the month, 14,800 fresh units were introduced. Completed output transferred to Process II was 13,400 units. Closing work-in-process was 2,000 units, complete as to materials, 60% as to labour and 40% as to overheads. Normal loss was 600 units and had no realisable value. The company uses FIFO for equivalent-unit computation. No abnormal loss or gain arose.
Using FIFO, what are the equivalent units of production for labour?
13,800 equivalent units
14,600 equivalent units
14,000 equivalent units (correct answer)
15,200 equivalent units
Answer: C — 14,000 equivalent units
Working. Opening WIP current labour = 1,200×(1−0.50) = 600. Started and completed = 13,400−1,200 = 12,200. Closing WIP labour = 2,000×0.60 = 1,200. Total equivalent units = 600+12,200+1,200 = 14,000.
Explanation. Under FIFO, only the remaining 50% work on opening WIP is done this period: 1,200×50%=600. Units started and completed are 13,400−1,200=12,200. Closing WIP labour equivalent is 2,000×60%=1,200. Normal loss carries no labour equivalent. Total is 600+12,200+1,200=14,000.
Where it goes wrong. Including the full opening WIP of 1,200 gives 14,600, but FIFO counts only the current-period work.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Process and Operation Costing
Question 6 · 2 marks · Activity Based Costing · medium
Scenario. Kavren Precision Works manufactures three components—PX-10, QY-20 and RZ-30—in a single factory. Annual output and sales are PX-10 4,000 units, QY-20 2,500 units and RZ-30 1,500 units. Direct material per unit is ₹180, ₹240 and ₹360 respectively. Each unit requires 2, 3 and 4 direct labour hours; the direct labour rate is ₹120 per hour. The company presently absorbs total production overhead of ₹21,50,000 on direct labour hours. Selling prices are ₹700, ₹1,050 and ₹1,500 per unit for PX-10, QY-20 and RZ-30 respectively. A cost team proposes activity-based costing with four pools: machine setup ₹6,00,000 driven by 400 setups; material testing ₹4,50,000 driven by 750 tests; packing ₹3,00,000 driven by 6,000 packing orders; machine operation ₹8,00,000 driven by 20,000 machine hours. Driver quantities consumed by the products are: PX-10—100 setups, 150 tests, 1,000 packing orders and 8,000 machine hours; QY-20—120 setups, 250 tests, 2,000 packing orders and 7,500 machine hours; RZ-30—180 setups, 350 tests, 3,000 packing orders and 4,500 machine hours. There is no opening or closing inventory. The management compares unit margin (selling price less unit cost) under the present absorption method and under ABC to review product pricing. No other production overheads are incurred.
Under traditional absorption, what is the unit margin of PX-10?
Explanation. Total direct labour hours are 8,000+7,500+6,000=21,500. Traditional overhead rate is ₹21,50,000÷21,500=₹100 per hour. PX-10 overhead is 2×100=₹200. Prime cost is ₹180+2×₹120=₹420. Total cost is ₹620; margin is ₹700−₹620=₹80.
Where it goes wrong. Using ABC overhead or omitting direct labour from prime cost gives a different margin.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 7 · 2 marks · Activity Based Costing · medium
Explanation. Activity rates are setup ₹1,500, testing ₹600, packing ₹50 and machine operation ₹40. QY-20 overhead is 120×1,500=1,80,000; 250×600=1,50,000; 2,000×50=1,00,000; 7,500×40=3,00,000. Total ₹7,30,000 divided by 2,500 units gives ₹292 per unit.
Where it goes wrong. Applying the traditional ₹100 per labour hour gives ₹300, which ignores non-volume activities.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 8 · 2 marks · Activity Based Costing · hard
Under ABC, what is the unit margin of RZ-30?
₹100 per unit
₹110 per unit
₹120 per unit (correct answer)
₹140 per unit
Answer: C — ₹120 per unit
Working. RZ overhead = 2,70,000+2,10,000+1,50,000+1,80,000 = 8,10,000. Per unit = 8,10,000÷1,500 = 540. Prime = 360+480 = 840. Cost = 1,380. Margin = 1,500−1,380 = ₹120.
Explanation. RZ-30 ABC overhead is 180×1,500=2,70,000; 350×600=2,10,000; 3,000×50=1,50,000; 4,500×40=1,80,000; total ₹8,10,000, or ₹540 per unit. Prime cost is ₹360+4×₹120=₹840, so total cost is ₹1,380. Margin is ₹1,500−₹1,380=₹120.
Where it goes wrong. Using traditional overhead of ₹400 per unit gives margin ₹260 and ignores the high setup and testing intensity.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 9 · 2 marks · Activity Based Costing · hard
How does traditional absorption affect RZ-30 unit margin compared with ABC?
Explanation. Traditional RZ-30 overhead is 4×₹100=₹400, so cost is ₹840+₹400=₹1,240 and margin is ₹260. ABC margin is ₹120. Traditional costing therefore overstates the margin by ₹260−₹120=₹140 per unit. Treating the difference as understatement or using another product's overhead fails.
Where it goes wrong. Comparing total costs instead of margins or mixing QY-20 overhead with RZ-30 gives wrong overstatement.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Activity Based Costing
Question 10 · 2 marks · Material Cost · medium
Scenario. Veyra Stores lists six inventory codes. Annual usage and unit cost are: P 1,500 units at ₹400; Q 3,000 units at ₹100; R 10,000 units at ₹20; S 20,000 units at ₹5; T 30,000 units at ₹2; U 40,000 units at ₹1. Management classifies items by annual usage value: A items cover up to about 70% of cumulative usage value, B items the next 20%, and C items the remainder. The purchase manager wants the A-class share before revising review periods.
What proportion of total annual usage value is represented by A items, and how many codes are A?
53.85% of value and two codes
69.23% of value and two codes (correct answer)
76.92% of value and three codes
69.23% of value and three codes
Answer: B — 69.23% of value and two codes
Working. P = 1,500×400 = 6,00,000. Q = 3,000×100 = 3,00,000. R = 2,00,000. Total = 13,00,000. A value = 9,00,000. Share = 9,00,000÷13,00,000 = 69.23%. A codes = P and Q, two codes.
Explanation. Values are P ₹6,00,000; Q ₹3,00,000; R ₹2,00,000; S ₹1,00,000; T ₹60,000; U ₹40,000, total ₹13,00,000. Cumulative P+Q is ₹9,00,000, or 69.23%, which is up to about 70%. R would take cumulative value to 84.62%, so A has two codes.
Where it goes wrong. Including R because it is the third item crosses 70% and misclassifies A; counting codes without cumulative value also fails.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Material Cost
Question 11 · 2 marks · Standard Costing · hard
Scenario. Meridian Home Care Ltd sells two products, AquaPure and FreshNest. The annual sales budget and actual results are used for sales-margin variance analysis. Budget: AquaPure 1,200 units at a selling price of ₹500 per unit and variable cost ₹300 per unit; FreshNest 800 units at ₹800 per unit and variable cost ₹560 per unit. Actual: AquaPure 1,000 units at ₹520 per unit and variable cost ₹310 per unit; FreshNest 1,100 units at ₹780 per unit and variable cost ₹570 per unit. Fixed costs are unchanged and are excluded from the margin variances. The company uses the profit-margin method: standard margin per unit is selling price less variable cost, and the sales value variance is the difference between actual total margin and budgeted total margin. Mix variance is measured as (actual quantity less revised standard quantity) × standard margin per unit, where revised standard quantity uses the budgeted mix applied to total actual quantity. Quantity variance is the balancing volume variance after mix. No opening or closing inventory exists. The sales director wants a reconciliation of the total margin movement into price, mix and quantity effects. All amounts are in rupees; adverse variances are identified by A and favourable variances by F.
What is the sales value variance under the profit-margin method?
Explanation. Budgeted total margin is 1,200×(500−300)+800×(800−560)=2,40,000+1,92,000=₹4,32,000. Actual total margin is 1,000×(520−310)+1,100×(780−570)=2,10,000+2,31,000=₹4,41,000. The difference is ₹9,000 favourable. Using sales turnover instead of margin gives a different variance.
Where it goes wrong. Comparing actual and budgeted sales revenue gives ₹1,38,000, not the profit-margin sales value variance.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 12 · 2 marks · Standard Costing · medium
What is the sales price variance?
₹10,000 favourable
₹33,000 adverse
₹23,000 favourable
₹23,000 adverse (correct answer)
Answer: D — ₹23,000 adverse
Working. Price variance = 1,000×(210−200)+1,100×(210−240) = 10,000−33,000 = −23,000, i.e. ₹23,000 A.
Explanation. For AquaPure, actual margin ₹210 less standard ₹200 is ₹10 favourable per unit on 1,000 units=₹10,000 F. For FreshNest, actual ₹210 less standard ₹240 is ₹30 adverse per unit on 1,100 units=₹33,000 A. Net is ₹23,000 adverse. Ignoring one product or using selling price only misstates the result.
Where it goes wrong. Taking only AquaPure price effect or comparing prices without variable cost gives the wrong sign and amount.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 13 · 2 marks · Standard Costing · hard
What is the sales volume variance?
₹21,600 favourable
₹32,000 favourable (correct answer)
₹40,000 adverse
₹72,000 favourable
Answer: B — ₹32,000 favourable
Working. Volume variance = 200×(1,000−1,200)+240×(1,100−800) = −40,000+72,000 = ₹32,000 F.
Explanation. Volume variance uses standard margin per unit. AquaPure: 200×(1,000−1,200)=−₹40,000. FreshNest: 240×(1,100−800)=+₹72,000. Net is ₹32,000 favourable. Using actual margins or total units without product weights gives a different figure.
Where it goes wrong. Applying a single average actual margin or omitting the adverse AquaPure volume effect gives a wrong total.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 14 · 2 marks · Standard Costing · hard
What is the sales quantity variance?
₹10,400 favourable
₹21,600 adverse
₹21,600 favourable (correct answer)
₹32,000 favourable
Answer: C — ₹21,600 favourable
Working. Total AQ = 1,000+1,100 = 2,100. Budget qty = 1,200+800 = 2,000. Weighted standard margin = 4,32,000÷2,000 = 216. Quantity variance = (2,100−2,000)×216 = ₹21,600 F.
Explanation. Total actual quantity is 2,100 units and budget is 2,000 units, an increase of 100. Weighted average standard margin is ₹4,32,000÷2,000=₹216 per unit. Quantity variance is 100×216=₹21,600 favourable. Using individual product margins without weighting or taking mix variance alone gives ₹10,400.
Where it goes wrong. Reporting mix variance ₹10,400 F as quantity variance ignores the overall volume increase.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Standard Costing
Question 15 · 2 marks · Unit and Batch Costing · medium
Scenario. Ternova Components uses batch production for a stabiliser bracket. Annual demand is 36,000 units. Each production run requires a setup costing ₹1,200. The annual holding cost is ₹15 per unit. The company currently schedules batches of 3,000 units. Management compares this policy with the economic batch quantity (EBQ) and asks for the extra total setup and holding cost caused by the current batch size.
What is the extra annual setup and holding cost of using 3,000-unit batches instead of EBQ?
₹900 (correct answer)
₹1,200
₹600
₹1,500
Answer: A — ₹900
Working. EBQ = √(2×36,000×1,200÷15) = √5,760,000 = 2,400. EBQ total = 15×1,200 + 1,200×15 = 18,000+18,000 = 36,000. At 3,000: 12×1,200 + 1,500×15 = 14,400+22,500 = 36,900. Extra = ₹900.
Explanation. EBQ is √(2×36,000×1,200÷15)=2,400 units. At EBQ, setups are 15, setup cost ₹18,000, average inventory 1,200 and holding cost ₹18,000; total ₹36,000. At 3,000 units, setups are 12, setup cost ₹14,400, average inventory 1,500 and holding cost ₹22,500; total ₹36,900. Extra is ₹900.
Where it goes wrong. Comparing setup costs alone shows a saving, but the higher holding cost more than offsets it.
Authority. ICAI Study Material, Paper 4: Cost and Management Accounting, Module relevant for Unit and Batch Costing
Authorities cited in this paper
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 Process and Operation 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 Material Cost · 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 Unit and Batch 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 Service Costing, Process and Operation Costing, Activity Based Costing, Material Cost, Standard Costing, Unit and Batch 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 Service Costing, Process and Operation Costing, Activity Based Costing, Material Cost, Standard Costing, Unit and Batch 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.
