CMA Intermediate · Cost Accounting · Contract Costing
A contract has an escalation clause. The contractor's original estimate used materials Rs 10,00,000 and labour Rs 6,00,000. Actual material prices rose 10% and labour rates rose 5%, with the same quantities and hours. The clause allows recovery of the full increase for price rise beyond the agreed rates. What additional amount is claimable?
The claimable escalation is Rs 1,30,000. Materials rose 10% on Rs 10,00,000, giving Rs 1,00,000, and labour rose 5% on Rs 6,00,000, giving Rs 30,000. Because quantities are unchanged, the price-rise effect is simply the percentage increase on each original cost.
- ARs 1,30,000Correct
- BRs 1,60,000
- CRs 1,00,000
- DRs 80,000
Explanation
Material increase = 10% of 10,00,000 = 1,00,000. Labour increase = 5% of 6,00,000 = 30,000. Total = 1,30,000. Rs 1,60,000 mistakenly applies 10% to both; Rs 1,00,000 omits labour.
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