|1.||(a)|| ABC Ltd. Manufactures two types of machinery equipments Y and Z and applies/absorbs overheads on the basis of direct-labour hours. The budgeted overheads and directlabour hours for the month of December, 2006 are Rs. 12,42,500 and 20,000 hours respectively. The information about Company’s products is as follows: |
| || Equipment|
| Budgeted Production volume|
Direct material cost
| 2,500 units|
Rs. 300 per unit
| 3,125 units|
Rs. 450 per unit
| Direct labour cost|
Y : 3 hours @ Rs. 150 per hour
| X : 4 hours @ Rs. 150 per hour || Rs. 450 || Rs. 600 |
ABC Ltd.’s overheads of Rs. 12,42,500 can be identified with three major activities:
Order Processing (Rs. 2,10,000), machine processing (Rs. 8,75,000), and product inspection (Rs. 1,57,500). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. The data relevant to these activities is as follows:
| || Orders processed || Machine hours worked || Inspection hours |
| Total || 600 || 50,000 || 15,000 |
| (i) || Assuming use of direct-labour hours to absorb/apply overheads to production, compute the unit manufacturing cost of the equipments Y and Z, if the budgeted manufacturing volume is attained. |
| (ii) || Assuming use of activity-based costing, compute the unit manufacturing costs of the equipments Y and Z, if the budgeted manufacturing volume is achieved. |
| (iii) || ABC Ltd.’s selling prices are based heavily on cost. By using direct-labour hours as an application base, calculate the amount of cost distortion (under-costed or overcosted) for each equipment. |
| (iv) || Discuss, how an activity-based costing might benefit ABC Ltd. ||10|| (0) |
| ||(b)||Discuss the use of perpetual inventory records and continuous stock verification, and its advantages. ||4|| (0) |
| ||(c)||Discuss the various reports provided by Cost Accounting Department. ||4|| (0) |
|2.|| A Chemical Company carries on production operation in two processes. The material first pass through Process I, where Product ’A‘ is produced. |
Following data are given for the month just ended:
Normal process loss in quantity may be assumed to be 20% of material input. It has no realisable value.
| Material input quantity|
Opening work–in–progress quantity
(Material 100% and conversion 50% complete)
Work completed quantity
Closing work–in–progress quantity
(Material 100% and conversion two–third complete)
Material input cost
Opening work–in–progress cost
| 2,00,000 kgs.|
Any quantity of Product ’A‘ can be sold for Rs. 1.60 per kg.
Alternatively, it can be transferred to Process II for further processing and then sold as Product ’AX‘ for Rs. 2 per kg. Further materials are added in Process II, which yield two kgs. of product ’AX‘ for every kg. of Product ’A‘ of Process I.
Of the 1,60,000 kgs. per month of work completed in Process I, 40,000 kgs are sold as Product ’A‘ and 1,20,000 kgs. are passed through Process II for sale as Product ’AX‘. Process II has facilities to handle upto 1,60,000 kgs. of Product ’A‘ per month, if required.
The monthly costs incurred in Process II (other than the cost of Product ’A‘) are:
| 1,20,000 kgs. of Product ’A‘ input|
| 1,60,000 kgs. of Product ’A‘ input|
| Materials Cost|
(i) Determine, using the weighted average cost method, the cost per kg. of Product ’‘A’ in Process I and value of both work completed and closing work–in–progress for the month just ended.
(ii) Is it worthwhile processing 1,20,000 kgs. of Product ’A’ further?
(iii) Calculate the minimum acceptable selling price per kg., if a potential buyer could be found for additional output of Product ’AX’ that could be produced with the remaining Product ’A’ quantity.
|6+4+4=14|| (0) |
|3.||(a)|| A Manufacturing Company has an installed capacity of 1,50,000 units per annum. Its cost structure is given below: |
| Rs. |
| (i) || Variable cost per unit|
Labour (subject to a minimum of Rs. 1,00,000 per month)
| (ii) || Fixed overheads per annum || 1,92,300 |
| (iii) || Semi-variable overheads per annum at 75% capacity (It will|
will increase by Rs. 4,000 per annum for increase of every 5% of the
capacity utilisation or any part thereof)
| 60,000 |
The capacity utilisation for the next year is budgeted at 75% for first three months, 80% for the next six months and 90% for the remaining three months.
If the company is planning to have a profit of 20% on the selling price, calculate the selling price per unit for the next year.
|10|| (0) |
| ||(b)||Discuss briefly the principles to be followed while taking credit for profits on incomplete contracts. ||4|| (0) |
|4.||(a)||Distinguish between any two of the following:||2+2=4|| |
| || ||(i)||Cost control and Cost reduction. || || (0) |
| || ||(ii)||Controllable costs and Uncontrollable costs. || || (0) |
| || ||(iii)||Absolute ton–kms and Commercial ton–kms. || || (0) |
| ||(b)|| PQR Ltd., manufactures a special product, which requires ‘ZED’. The following particulars were collected for the year 2005–06: |
| Monthly demand of Zed|
Cost of placing an order
Cost per unit
Carrying cost % p.a.
| 7,500 units|
5 to 8 weeks
500 units per week
250 units per week
750 units per week
| Re–order quantity.|
Minimum stock level.
Maximum stock level.
Average stock level.
|10|| (0) |
|5.||(a)|| RST Ltd. has two production departments: Machining and Finishing. There are three service departments: Human Resource (HR), Maintenance and Design. The budgeted costs in these service departments are as follows: |
The usage of these Service Department’s output during the year just completed is as follows:
Provision of Service Output (in hours of service)
| Providers of Service |
| Users of Service || HR || Maintenance || Design |
| (i) || Use the direct method to re—apportion RST Ltd.’s service department cost to its production departments. |
| (ii) || Determine the proper sequence to use in re–apportioning the firm’s service department cost by step–down method. |
| (iii) || Use the step–down method to reapportion the firm’s service department cost. ||7|| (0) |
| ||(b)||What are the essential pre–requisites of integrated accounting system? Discuss. ||3|| (0) |
| ||(c)||What are the advantages of inter–firm comparison system? Discuss. ||4|| (0) |
|6.||(a)|| A proforma cost sheet of a Company provides the following particulars: |
| Amount per unit|
| Raw materials cost|
Direct labour cost
The Company keeps raw material in stock, on an average for one month; work–in progress, on an average for one week; and finished goods in stock, on an average for two weeks.
The credit allowed by suppliers is three weeks and company allows four weeks credit to its debtors. The lag in payment of wages is one week and lag in payment of overhead expenses is two weeks.
The Company sells one–fifth of the output against cash and maintains cash–in–hand and at bank put together at Rs.37,500. Required:
Prepare a statement showing estimate of Working Capital needed to finance an activity level of 1,30,000 units of production. Assume that production is carried on evenly throughout the year, and wages and overheads accrue similarly. Work–in–progress stock is 80% complete in all respects.
|12|| (0) |
| ||(b)||Discuss the conflicts in Profit versus Wealth maximization principle of the Firm. ||4|| (0) |
|7.||(a)|| A Company had the following Balance Sheet as on March 31, 2006: |
| Liabilities and Equity|
Equity Share Capital
(one crore shares of Rs. 10 each)
Reserves and Surplus
| Rs. (in crores)|
Fixed Assets (Net)
| Rs. (in crores)|
| The additional information given is as under:|
Fixed Costs per annum (excluding interest)
Variable operating costs ratio
Total Assets turnover ratio
Rs. 8 crores
Calculate the following and comment:
| Earnings per share|
|8|| (0) |
| ||(b)||Discuss the need for social cost benefit analysis. ||4|| (0) |
|8.||(a)||Discuss the financial ratios for evaluating company performance on operating efficiency and liquidity position aspects. ||4|| (0) |
| ||(b)|| Company UVW has to make a choice between two identical machines, in terms of Capacity, ‘A’ and ‘B’. They have been designed differently, but do exactly the same job. |
Machine ‘A’ costs Rs. 7,50,000 and will last for three years. It costs Rs. 2,00,000 per year to run.
Machine ‘B’ is an economy model costing only Rs. 5,00,000, but will last for only two years. It costs Rs. 3,00,000 per year to run.
The cash flows of Machine ‘A’ and ‘B’ are real cash flows. The costs are forecasted in rupees of constant purchasing power. Ignore taxes. The opportunity cost of capital is 9%.
Which machine the company UVW should buy?
The present value (PV) factors at 9% are:
| Year || t1|| t2|| t3|
| PVIF0.09.t|| 0.9174 || 0.8417 || 0.7722 ||8|| (0) |
|9.||(a)||Discuss the dividend–price approach, and earnings price approach to estimate cost of equity capital. ||2|| (0) |
| ||(b)|| From the information contained in Income Statement and Balance Sheet of ‘A’ Ltd., prepare Cash Flow Statement: |
| Income Statement for the year ended March 31, 2006 |
| Rs. |
| Net Sales || (A) ||2,52,00,000 |
Cash Cost of Sales
Salaries and Wages
Provision for Taxation
| (B) ||2,44,80,000|
| Net Operating Profit (A – B)|
Non–recurring Income – Profits on sale of equipment
Retained earnings and profits brought forward
Dividends declared and paid during the year
Profit and Loss Account balance as on March 31, 2006
| Balance Sheet as on |
| Assets || March 31, 2005|
| March 31, 2006|
| Fixed Assets:|
Buildings and Equipment
| Balance Sheet as on |
| Liabilities || March 31, 2005|
| March 31, 2006|
| Share Capital|
Surplus in Profit and Loss Account
on Buildings and Equipment
| The original cost of equipment sold during the year 2005–06 was Rs. 7,20,000. ||10|| (0) |