Cost & Management Accounting December 2026

Q.1: A manufacturing company provides the following information for the production of 10,000 units during the year:

The company follows a cost-sheet approach for determining product cost and pricing. Prepare a Cost Sheet showing Prime Cost, Factory/Works Cost, Cost of Production, Cost of Goods Sold and Cost of Sales. Calculate the cost per unit and determine the selling price per unit if the company wants to earn a profit of 20% on cost.

Answer:

Introduction:

A cost sheet is an important statement of management accounting which is prepared to ascertain the total cost of manufacturing a product and also to find out the cost incurred at various stages of production. It helps the management to know the various items, viz., material, labour, direct expenses and various elements of overheads which go to constitute the cost of production. Here in this case, the manufacturing company produces 10,000 units during the year and gives information relating to raw materials, direct wages, factory overheads, administrative overheads, finished goods and selling and distribution expenses. The cost-sheet approach is used to calculate Prime Cost, Factory or Works Cost, Cost of Production, Cost of Goods Sold and Cost of Sales in a systematic way. The opening and the closing stocks have to be adjusted appropriately since they constitute materials, work-in-progress and finished goods carried from one accounting period to the next. After finding out the total cost, the cost per unit can be ascertained by dividing the appropriate total cost by 10,000 units. In the end, the required selling price is calculated by adding the profit of 20% on cost to the cost per unit.

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Q.2 (A): A manufacturing company is facing rising costs, inefficient resource utilisation and increasing competition. The Managing Director believes that financial accounting information alone is sufficient to address these issues. The newly appointed Management Accountant disagrees and recommends using management accounting information for managerial decisions. Evaluate the Management Accountant's recommendation by explaining how management accounting information can support planning, resource allocation, monitoring and control, and operational decision-making in this situation.

Answer:

Introduction:

Management accounting is all about furnishing both financial and non-financial information so as to assist management in planning, resource utilization, cost control, and decision-making. In the provided manufacturing company, rising costs, inefficient utilisation of resources and increasing competition require more detailed and timely information than that provided by financial accounting. Indeed, financial accounting focuses primarily on providing information about the past financial performance to external stakeholders, unlike management accounting whose purpose is to aid management in its operations. Thus, the recommendation by the Management Accountant is appropriate since management accounting can help the company to monitor cost behaviour, improve resource allocation, evaluate performance and choose the most appropriate alternatives for its operations.

Q.2 (B): A diversified manufacturing and engineering company receives the following three assignments:

• Assignment A: Manufacture a customised machine according to the specifications of one customer.

• Assignment B: Manufacture 1,000 identical electronic components together as one production lot.

• Assignment C: Execute a two-year construction project at the customer’s site.

Analyse the nature of each assignment and recommend whether Job Costing, Batch Costing or Contract Costing should be applied in each case. Justify each recommendation based on the nature of the cost unit, production/order characteristics and duration of the work.

Answer:

Introduction:

Costing methods allow a business to identify and measure the cost of producing a product or of completing a specific order. The appropriate method depends on the nature of work, the cost unit, the production volume, customer requirements and assignment duration. Job Costing is normally suitable when work is done separately for an individual customer, while Batch Costing is applied when identical products are produced together as one batch. Contract Costing is applicable to large, long-term projects such as construction work. The three assignments can thus be analysed according to these features.