BBA/B.Com Cost and Management Accounting JUNE 2026

Description

Cost and Management Accounting

Jun 2026 Examination

 

Q1. Veda Manufacturing Ltd. provides the following information for the year ended 31st March 2025: Opening Stock of Raw Materials – 40,000; Closing Stock of Raw Materials – 30,000; Purchases of Raw Materials – 3,50,000; Carriage Inwards – 20,000; Direct Wages – 2,40,000; Outstanding Direct Wages – 10,000; Indirect Wages – 60,000; Factory Rent – 80,000; Factory Lighting – 25,000; Depreciation on Plant – 50,000; Repairs to Machinery – 30,000; Office Salaries – 1,20,000; Office Rent – 40,000; Selling Expenses – 70,000; Carriage Outwards – 25,000; Advertisement – 55,000; Opening Work-in-Progress – 35,000; Closing Work-in-Progress – 45,000; Opening Finished Goods – 60,000; Closing Finished Goods – 50,000; Sales – 12,00,000. Prepare a Statement of Cost for the year ended 31st March 2025. (10 Marks)

Ans 1.

Introduction

A Statement of Cost, commonly referred to as a Cost Sheet, is a formal document that classifies and accumulates all costs incurred during a given production period in a structured, layered format. It is one of the most essential instruments in cost accounting because it allows management to trace exactly how money flows from the procurement of raw materials to the final sale of finished goods. The purpose goes beyond mere recording of expenditure. It organises cost data in a way that directly supports pricing decisions, profitability analysis, and ongoing cost control. Each layer of the cost sheet adds a new category of expenditure, progressively building from prime cost to works cost to cost of production and finally to cost of sales. The

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Q2 (A). Nova Textiles, a medium-sized textile manufacturer, has recently implemented the Economic Order Quantity (EOQ) model to optimize its inventory and purchasing process. Previously, the company suffered from both frequent stockouts and overstocking, leading to lost sales, production delays, and excessive storage costs. Some managers remain skeptical, arguing that the EOQ relies heavily on steady demand and fixed costs, which may not be reflective of their rapidly changing environment. Given conflicting perspectives between the operations, finance, and sales teams, management asks you to evaluate the impact of EOQ on overall inventory efficiency, including its limitations and benefits in this dynamic context. Critically evaluate whether the adoption of the EOQ model has achieved an optimal balance between ordering and holding costs at Nova Textiles. In your answer, assess its effectiveness amidst fluctuating demand and varying input costs, discuss alternative approaches, and justify any improvements or modifications you would recommend to further enhance inventory management in such a dynamic business environment. (5 Marks)

Ans 2(A).

Introduction

The Economic Order Quantity model is a classical inventory management formula that determines the ideal order quantity at which the combined total of ordering costs and holding costs is minimised. Nova Textiles adopted EOQ to resolve a long-standing problem of oscillating between costly stockouts and wasteful overstock. While this decision was structurally sound, the textile industry operates under conditions of seasonal demand swings, volatile raw material prices, and shifting buyer requirements that directly challenge the core assumptions on which

 

 

Q2 (B). A factory utilizing unit costing discovers that its material costs have increased significantly over the past two quarters, resulting in a drop in profit margins. Despite regular tracking via material requisition notes and cost sheets, the cost accountant suspects inefficiencies in procurement and minimal leverage of supplier discounts. The management is also considering whether to balance cost control by reducing material quality or invest in technology for better procurement planning, weighing the trade-off between cost savings and product integrity. Evaluate the available strategies for controlling rising material costs in a unit costing environment, considering both short-term and long-term business impact. Should the company focus on aggressive negotiation and technology investment, or accept some quality compromise to protect margins? Justify your response in light of operational efficiency and competitive positioning. (5 Marks)

Ans 2(B).

Introduction

In a unit costing environment, material cost is directly absorbed into every unit produced. A sustained rise in material cost therefore erodes margins unit by unit, and this deterioration is immediately visible on each cost sheet. When material requisition notes and cost sheets consistently reflect higher material values without a corresponding increase in output volume or quality, the root cause is most likely a combination of procurement inefficiency and failure to leverage available supplier