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CMA Intermediate · Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Rohan Chemicals sets the standard price of a raw material. The supplier's list price is ₹500 per kg. A 4% trade discount is allowed on the list price. Freight inward is ₹12 per kg, and normal loss in handling is 2% of the quantity purchased, with no recovery value. What is the standard cost per kg of usable material, to the nearest paisa?

The standard cost is ₹502.04 per usable kg. List price less 4% discount is ₹480, freight adds ₹12 to make ₹492 per kg purchased, and since only 98% is usable, dividing ₹492 by 0.98 gives ₹502.04. Ignoring normal loss would give ₹492.

  1. A₹492.00
  2. B₹502.04Correct
  3. C₹481.60
  4. D₹510.20

Explanation

Net price = 500 x 0.96 = 480. Add freight 12 = 492 per kg purchased. Usable quantity is 98%, so cost per usable kg = 492 / 0.98 = 502.04. Check: 502.04 x 0.98 = 492.00. The ₹492 option ignores normal loss.

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