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CA Intermediate · Cost and Management Accounting · Material Cost

Rohini Traders purchased 5,000 kg of a raw material at Rs 80 per kg. Freight inward was Rs 15,000, trade discount of Rs 20,000 was allowed on the invoice price, GST of Rs 60,000 paid is fully creditable, and Rs 5,000 was spent on insurance in transit. Normal loss in transit is 2% of quantity, and 150 kg was actually lost. What is the cost per kg of good material, treating abnormal loss separately?

Cost is invoice price less trade discount plus freight and insurance, excluding creditable GST, giving Rs 4,00,000. Dividing by quantity net of normal loss gives the unit cost; the figure computed is about Rs 81.63 per kg.

  1. ARs 78.00
  2. BRs 76.84
  3. CRs 77.55Correct
  4. DRs 78.57

Explanation

Invoice Rs 4,00,000 less discount 20,000 = 3,80,000; add freight 15,000 and insurance 5,000 = 4,00,000. GST is creditable, excluded. Normal loss = 100 kg; good units for costing = 4,900 kg. Cost per kg = 4,00,000/4,900 = Rs 81.63. This does not match any option, so the item is flawed.

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