Cost & Management Accounting
Jun 2026 Examination
Q1. A home appliance manufacturing company is preparing a cost sheet to analyze the production cost of its newly launched electric kettles. During the month of April 2026, the company produced 5,000 units.
The following cost information is available:
| Particulars | Amount (Rs.) |
| Direct Materials | 3,00,000 |
| Direct Labour | 2,00,000 |
| Direct Expenses | 50,000 |
| Factory Rent | 60,000 |
| Factory Power & Fuel | 40,000 |
| Office and Administrative Expenses | 70,000 |
| Selling & Distribution Expenses | 80,000 |
The company desires a profit of 20% on Cost. Required:
- a) Prepare a Cost Sheet showing:
– Prime Cost
– Factory Cost
– Cost of Production
– Total Cost (Cost of Sales)
- b) Calculate the Selling Price per Unit if profit is 20% on total cost. (10 Marks)
Ans 1.
Introduction
In the field of management and cost accounting making a cost spreadsheet is the first step to understanding the total cost of production, and also determining the right selling price of the item. When it comes to the electric kettle company, studying the various elements of cost aids in identifying the way resources are being utilized and the ways it is possible to ensure profitability. A cost report not just can provide an accurate analysis of expenses but allows for effective pricing decisions. If you arrange costs into logical areas like prime cost and factory cost as well as total cost, the management team can evaluate operational efficiency and set prices that
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Q2(A). A fast-growing electric scooter company has recently expanded production due to increasing demand. However, the CEO notices that despite higher sales, overall profitability is not improving significantly. The finance team suggests implementing budgeting, variance analysis, and performance reports to better understand cost behavior and operational efficiency.
Question:
Explain how Management Accounting techniques can help the company improve planning, cost control, and strategic decision-making in this situation. Support your explanation with relevant examples. (5 Marks)
Ans 2a.
Introduction
The electric scooter company is confronted with a typical situation in which rising sales are not translating to higher profit. This is due to inefficiencies in managing costs and planning. Management Accounting techniques can help an organization understand its cost-related behavior as well as improve operational efficiency and take better strategic choices.
Concept and Application
For businesses that are rapidly expanding, profit troubles often come from inadequate awareness
Q2(B). A consumer electronics company producing Bluetooth headphones reported different profit figures under Marginal Costing and Absorption Costing during the same financial period. The finance manager observed that production was higher than sales, resulting in unsold inventory at the end of the period.
The management wants to understand why profit figures differ under the two costing methods.
Question:
Explain how Marginal Costing and Absorption Costing treat fixed manufacturing overheads differently, and how this difference leads to variation in reported profit when production exceeds sales. (5 Marks)
Ans 2b.
Introduction
The distinction in the profit numbers when comparing Marginal Costing and Absorption Costing arises due to the treatment of manufacturing overheads fixed. In the event that production outpaces sales, the inventory that is not sold bears a percentage of these costs, leading to a variation in profit reported. The ability to recognize this variance is critical for an accurate