|1.||Please show your workings or give reasons for your chosen answer from each of the following multi–choice questions: (No credit for an answer without workings/reasons) || || |
| ||(a)|| The information relating to the direct material cost of a company is as under: |
| Standard price per unit|
Actual quantity purchased in units
Standard quantity allowed for actual production in units
Material price variance on purchase (favorable)
What is the actual purchase price per unit?
| Rs. 3.06|
| Rs. 3.45|
|4|| (0) |
| ||(b)|| A company has 2,000 units of an absolute item which are carried in inventory at the original purchase price of Rs.30,000. If these items are reworked for RS.10,000 they can be sold for Rs.18,000. alternatively, they can be sold as scrap for Rs. 3,000 in the market. In a decision model used to analyze the reworking proposal, the opportunity cost should be taken as |
|4|| (0) |
| ||(c)|| A company produces two joint products, P and V. in a year, further processing costs beyond split–off point spent were Rs.8,000 and Rs.12,000 for 800 units of P and 400 units of V respectively. P sells at Rs.25 and V sells at Rs.50 per unit. A sum of Rs.9,000 of join costs were allocated to product P based on the net realization method. What were the total joint costs in the year? |
|4|| (0) |
| ||(d)|| A company is to make a new product. It can produce up to 1,50,000 units of this product. The following are the estimated cost data: |
For production up to 75,000 units
Exceeding 75,000 units
| Fixed cost|
| Variable cost|
Sale price is expected to be Rs. 25 per unit.
How many units must the company sell to break even?
| (A) |
|4|| (0) |
| ||(e)|| The following details relate to two competing companies. Alps and Himalayas, for identical projects: |
(i) The net present value [NPV] of Lps is Rs.20,000 and its internal rate of return [IRR] is 18%.
(ii) For the same life period, Himalayas’s estimated cash flows are
And its capital is 15%.
Which one of the following combinations is correct concerning the NPV and the IRR of two projects?
| Alps || Himalayas |
| Higher NPV|
| Higher IRR|
|4|| (0) |
|2.|| Fairdeal produces a product specially for its three customers, P, Q, R requiring 20,000 units, 15,000 units and 10,000 units respectively per annum. |
The data in 2003&ndahs;04 about the product are:
| Production cost|
Sale price (net)l
| Rs. 48 per unit|
Rs. 90 per unit
| Overhead not connected with production:|
| Rs. (for the year)|
Fairdeal apportions these non–production overhead costs on the basis of the production cost.
The CEO is unhappy about this and asks you for an analysis upon ABC method.
| You find the following activity volume in the period: || P || Q || R |
| Number of inspections|
Number of deliveries
Number of salesmen visits
| (a) || Re–work the apportionment of non–production overheads to find the comparative costs of sales. |
| (b) || Comment on the results so obtained in (a) ||10+6=16|| (0) |
|3.||(a)||Define JIT and state the advantages and disadvantages of Just–in–Time approach in the context of inventory control. ||6|| (0) |
| ||(b)|| A company estimates the annual demand based on 360 working days to be 36,000 units of a component. Using EOQ decision, the company orders 3,600 units at a time. The lead time for an order is 6 days. The annual carrying cost of one unit of the component is Rs.450. the additional stock–out costs are estimated at Rs.900 for shortage of each unit of the component. The analysis of demand during 200 past record periods indicate the following pattern: |
| Demand during lead time (units)|
Number of times quantity was demanded
(i) Determine the safety stock of the component which the company should maintain to minimize the
expected stock–out costs and carrying cost.
(ii) Calculate the new re–order point.
|10|| (0) |
|4.||(a)||Explain the reasons for conflict between net present value (NPV) method and internal rate of return (IRR) method in the context of capital budgeting. ||4|| (0) |
| ||(b)|| A construction company has been approached by a hotel company to construct 6 flats to be used as guest houses. The hotel company will provide plans and land costing Rs.25 lakh. The construction company will build the flats at their own cost and lease them out to the hotel company for 15 years, at the end of which the flats will be transferred to the hotel dcomapny for a nominal value of Rs.8 lakh. The cost of construction is estimated as under: |
| Area of a flat is 1,000 sq.feet|
Construction cost is Rs.400 per sq.feet
Registration and other costs are 2.5% of cost of construction
Builders will also incur Rs.4 lakh each in years 14 and 15 as repairs.
Lease rent is proposed to be changed as under:
| Years 1 to 5 : Normal|
Years 6 to 10 : 120%of normal rent
Years 11 to 15: 150% of normal rent
| Builders tax rate is 50%.|
Full cost of construction and registration will be written off in 15 years equally and will be allowed
for tax purposes.
Minimum desired rate of return is 10%
Rental and repairs will arise on the last day of the year concerned.
Construction, registration and other costs will be incurred in year 0.
You are required to calculate the normal rent per annum per flat.
|12|| (0) |
|5.||(a)||In what circumstances is a company justifies in selling its products at a price below variable cost? ||4|| (0) |
| ||(b)|| A company markets products X and Y which it makes by using its capacity to the extent of 50% on X and 30% on y. budget for 20 X 4 is as given below: |
| X || Y |
| Production units |
Selling price per unit
Profit per unit
| For the next year’s budget, the following factors are relevant: |
| Direct material cost will go up by 6%|
Variable conversion cost will increase by 10%
Selling price will increase by :
Product X 4%, Product Y 6%
|To utilize the idle capacity of 20%, three proposals as under were put forth:|
| Product X and sell the out put at the revised price. Production of X from the idle time, however, will be less by 10%.|
Product Y but the increased production will be sold at the existing price.
Utilize the idle capacity to produce a new product Z whose details are as under:
Production from idle capacity 2,000 units
Direct materials Rs. 400 per unit
Variable conversation cost Rs.200 per unit
Selling price Rs.700 per unit.
Special publicity expenses Rs.20,000
The present allocation of 50% and 305 respectively on product X and product Y cannot be changed.
|12|| (0) |
|6.|| A management consultancy firm has two divisions – consultancy and data Processing. The to divisions provide service to each other, as per exigencies, apart from carrying out jobs independently. |
During the month of November 2005, the consultancy division handled only one assignment for a total fee of Rs.5,50,000. The cost incurred in consultancy division was Rs.3,75,000 for the month. Further, the work involved 200 hours of data processing work. Although the consultancy division had the option of getting the data processing job done from outside, it decided to get the same done from the firm‘s data processing division, as they had spare hours in that month.
The budgeted cost of data processing division for 12 months ending 31.03.05 were as under:
| Rs. |
Skilled operator (6,000 hours work)
The costs are incurred uniformly over the 12 months.
These entire costs are recovered on the basis of chargeable skilled operator hours, which for this purpose are taken as 90% of the hours worked. For taking up external assignments, the pricing policy of the data processing division is to add 40% of budgeted cost per chargeable hour as make up.
During November 2005 actual operator cost both skilled and semi–skilled increased by 10% but the other costs decreased by 10%.
Calculate for the month of November 2005:–
| (a) || Transfer price to be charged by data processing division for 200 hrs of work to consultency division on the basis of |
| (i) || Actual variable cost based on chargeable hours |
| (ii) || Standard variable cost plus 40% mark up |
| (iii) || Market price based on total cost |
| (b) || The operating result of data processing division and the consultancy division separately ob the basis of the three pricing policies as mentioned in (a) above. ||12+4|| (0) |
|7.||(a)|| The operating results of a department provide the following information for a particular week: |
| Average out put per week|
Saleable value of output
Contribution on above
| 48,000 units|
The management is contemplating to bring about more mechanization in the department at a capacity cost of Rs.16,000 which will result in number of workmen from the present strength of 160nos. to 120nos. however, due to mechanical help, the output of individual workmen will increase by 60%. The existing piece rate is Re.0.10 per article and as an incentive , the management propose to increase the exiting piece rate by 5% for every 10% increase in the individual output achieved. There will be a reduction in sale price by 4% to sell the increased production.
You are required to calculate extra weekly contribution resulting due to proposed changes.
|10|| (0) |
| ||(b)||Describe the common methods of apportioning join cost. ||6|| (0) |
|8.||A company manufactures an electronic gadget involving its two manufacturing sections. He following standard cost statistics are available: |
| Assembly |
| Standard wage rate per hour|
Standard variable overhead per hour
Standard fixed overhead per hour
Direct labour hours required for first 100 units
The direct materials are consumed in Electronics section and the estimated cost of material purchase price are as under for various levels of output:
| Level of output || Price of direct material |
Per unit of output
| 100 units|
If more than 500 units
Overtime if required, is paid at one and half time of wage rate and include in direct labour cost. The available direct labour hour for Electronic section is 5,760 hours and in Assembly section is 5,000 hrs. out of these, 3,600 hours are utilized in Electronics section of 2,700 hours utilized in Assembly section.
The minimum lot is 100 units for each orders to be executed. The company has received a special order for 100 units of slightly modified version of the electronic gadget, which will involve a nominal additional tooling cost of Rs.1200. other costs for material, labour and overheads will remain same at the rate given above other than the saving for effect of learning curve.
Quote a price for 100 units of the modified product and also for 200 units of the same, assuming that a learning curve of 80% will e there in Electronics section and 70% in Assembly section. The company has a policy to add profit margin in its prices quoted as a percentage on total labour and overhead costs at the rate of 20% for Electronics section and 15% for Assembly section.
|16|| (0) |