Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)

Division A of Narmada Ltd. had total costs of ₹12,00,000, of which ₹3,00,000 was an apportioned share of corporate costs. Of the remaining divisional costs, 20% were committed fixed costs set by the board when the plant was approved, which the divisional head cannot change. Treat everything else in the divisional costs as controllable by the head. What is the controllable cost?

The controllable cost is ₹7,20,000. Remove the ₹3,00,000 corporate share from ₹12,00,000 to get ₹9,00,000, then remove the committed 20% of that, ₹1,80,000. The 20% applies to the divisional costs, not the total including corporate apportionment.

  1. A₹9,60,000
  2. B₹7,20,000Correct
  3. C₹6,00,000
  4. D₹2,40,000

Explanation

Divisional costs excluding corporate share = 12,00,000 - 3,00,000 = ₹9,00,000. Committed costs = 20% of 9,00,000 = ₹1,80,000. Controllable = 9,00,000 - 1,80,000 = ₹7,20,000. Taking 20% of 12,00,000 (₹2,40,000) as committed gives ₹9,60,000 less... a wrong base; ₹9,60,000 deducts only that amount from 12,00,000 and ignores corporate share.

Did you get it right without looking?

One question tells you little. A timed set on Classification of Costs (CAS 1) shows your real accuracy, how long you take and where you lose marks.

Practise Classification of Costs (CAS 1)Free diagnostic mock

More Classification of Costs (CAS 1) questions