CWA ICWA Inter Stage I : Cost and Management Accounting - December 2008

CWA ICWA Inter - Stage I • Cost and Management Accounting • December 2008

This Paper has 26 answerable questions with 0 answered.

1—5(CMA) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory and any five from the rest.
Please answer all the bits of a question at one place. Working notes should form part of the answer.
Marks

The figures in the margin on the right side indicate full marks.

Answer Question No. 1 which is compulsory and any five from the rest.

Please answer all the bits of a question at one place.
Working notes should form part of the answer.

Marks

(a)

Match the following correctly with what it relates.

(A)
(B)
(C)
(D)
(E)

ABC Analysis
Split–off–point
Flux Method
Variance Analysis
Liquidity

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Management by Exception
Current Ratio
Selective Control of Inventory
Measurement of Labour Turnover
Tool in Financial Analysis
Joint Products
Decision Making
Evaluation of a job

1x5=5

(0)

(b)

Choose the most appropriate one from the stated options and write it down. (Only indicate A, B, C, D as you think correct.

1x5=5

(i)

Store–keeping Expenses are to be apportioned on the basis of

A.
B.
C.
D

Floor area of the production departments
Direct labour hours of each product
Number of material requisitions
Sales price of each product

(0)

(ii)

The rate used in addition to the original rates for ascertaining the true profit for adjusting the under or over absorption of overheads is known as

A.
B.
C.
D

Pre–determined rate
Supplementary overhead rate
Blanket rate
Multiple overhead rate

(0)

(iii)

Which of the following can improve break–even point?

A.
B.
C.
D

Increase in variable cost
Increase in fixed cost
Increase in sale price
Increase in sales volume

(0)

(iv)

Equivalent production implies production of a process

A.
B.
C.
D

In incomplete units
In complete units
Where there is no opening and closing Work–in–Process
Without losses

(0)

(v)

For a given period, profit under absorption costing is less than the profit under marginal costing, if

A.
B.
C.
D

Production is more than sales
Production is equal to sales
Sales are more than production
Closing Stock is more than Opening Stock

(0)

(c)

In each of the cases given below one out of four is correct. Indicate the correct answer (=1 mark) and give your working/reasons briefly (=1 mark).

2x5=10

(i)

The current liabilities of AKASH LTD. is Rs. 30,000. If its current ratio 3 : 1 and Quick ratio is 1 : 1, the value of stock–in–trade will be (assuming that there is no any prepaid expenses of the company:

A.
B.
C.
D

Rs. 20,000
Rs. 30,000
Rs. 60,000
Insufficient Information

(0)

(ii)

HORIZON LTD. manufactures product BM for last 5 years. The company maintains a margin of safety of 37.5% with overall contribution to sales ratio of 40%. If the fixed cost is Rs. 5 lakh, the profit of the company is

A.
B.
C.
D

Rs. 24.00 lakh
Rs. 12.50 lakh
Rs. 3.00 lakh
None of A, B, C

(0)

(iii)

The total production cost of LALAJI LTD. for making 6000 units is Rs. 35,000 and the total production cost for making 15000 units is Rs. 67,000. Once the production exceeds 10000 units additional fixed costs of Rs. 5,000 are incurred. What will be the full production cost per unit for making 12000 units?

A.
B.
C.
D

Rs. 5.21
Rs. 4.83
Rs. 4.64
Insufficient data

(0)

(iv)

OPTIMA LTD. is committed to supply 24000 bearings per annum to BKT Ltd. on a steady basis. It is estimated that it costs Rs. 1.20 as inventory holding cost per bearing per annum and that the set–up cost per run of bearing manufacture is Rs. 324. What would be the optimum run (batch) size for bearing manufacture?

A.
B.
C.
D

3600 bearings
3200 bearings
4000 bearings
None of A, B, C

(0)

(v)

In a factory of ZEE LTD. when Standard Costing is followed, the budgeted fixed overheads for a budgeted production of 4800 units is Rs. 24,000. For a certain period actual expenditure was Rs. 22,000 resulting in a fixed overhead volume variance of Rs. 3,000 (Adv.), The actual production for the period was

A.
B.
C.
D

3000 units
4200 units
5400 units
Insufficient information

(0)

(a)

Enumerate the principles of a good incentive scheme which should be given due consideration prior to its implementation.

(0)

(b)

APEX LTD. has its factories at two locations. Rown Plan is in use at location–A and Halsey Plan at location–B. Standard time and basic rate of wages are same for a job which is similar and is carried out on similar machinery.
Time allowed is 60 hours.
Job at location–A is completed in 36 hours while at B it has taken 48 hours.
Conversion cost at respective places are Rs. 2.448 and Rs. 3,000. Overheads account for Rs. 40 per hour.
Requirements:

(i)	Find out Normal Wage Rate; and

(ii)	Prepare the Comparative Conversion Costs in detail.

8+2

(0)

ASHEEKA LTD. collects overhead expenses under three production departments—MAXING, MAKING, and PACKING and two service departments—MACHINE SHOP and CANTEEN. The following expenses figures are extracted from the accounts of November 2008.

	(Figures in Rs.)
Indirect wages Rent & Rates Power General Lighting Welfare Expenses Depreciation — Machines Other Expenses	2,400 5,000 1,500 900 2,200 8,800 3,200

The following details are also available:

Particulars	Units	Departments
Particulars	Units	Mixing	Making	Packing	Machine	Canteen
					Shop
Floor Space Light Points Direct Wages Machine Power Cost of Machine No. of Employees Machine Hours	Sq. Mtr. Number Rs. ‘000 H.P. Rs. ‘000 — Hours	400 20 60 100 25 25 1200	600 30 40 60 30 20 1200	500 30 44 90 45 40 2600	100 10 10 — 10 10 —	100 10 6 — — 15 —

The expenses of service departments are allocated as per following percentages:

Service Departments	Production Departments/Service Departments.
Service Departments	Mixing	Making	Packing	Machine Shop	Canteen
Machine Shop Canteen	20 35	30 20	40 30	— 15	10 —

Requirements:

(a)	Calculate the Overhead Recovery Rate per Machine hour for each of the three production departments showing the basis of apportionment.
(b)	Find out the total cost of product–DN2 with material cost Rs. 200 and direct labour cost of Rs. 120, which is processed for manufacture in departments—Mixing, Making and Packing for 6, 5 and 4 hours respectively.

(8+4)+(2+2)

(0)

(a)

Distinguish between Joint Products and By–Products.

(2+2)

(0)

(b)

NOVELTY LTD. operates a chemical process which produces four different P, Q, R and T from the Input of one raw material plus water. Budget information for the forthcoming financial year 2008–09 is as follows:

	(Rs. in lakh)
Raw materials Cost Initial processing Cost	2.68 4.64

(Rs. in lakh)
Product	Output in litre	Sales	Additional processing cost
P Q R T	400000 90000 5000 9000	7.68 2.32 0.32 2.40	1.60 1.28 – 0.8

The company policy is to apportion to the cost prior to the split–off–point on a Method based on Net Realisable value.

Currently, the intention is to sell product R without further processing but to process the other three products after the split–off–point. However, it has been proposed that an alternative strategy would be to sell all four products at the split–off–point without further processing. If this was done, the selling prices would be as follows:

	Rs. per litre
P Q R T	1.28 1.60 6.40 20.00

Required:

(i)	Prepare a budgeted profit statement showing the profit or loss for each product and in total if the current intention is proceeded with.

(ii)	Show the profit or loss by product and in total if the alternative strategy were to be adopted.

(iii)

Recommend what should be done and why assuming that there is no more profitable alternative use for the plant?

(3+3+3+3)

(0)

AKASH LTD. operates a system of standard costing. The company manufactures a certain insecticide by mixing four chemical A, B, C and D (filler) and processing the same. The standard cost data for the product is as follows:

Material	Quantity (Standard proportion) (kgs.)	Standard Price per kg Rs.
A B C D (filter) Total Input Loss in processing Output	5 20 25 50 100 5 95	200 50 20 7

During November 2008, 18500 kgs. of insecticide was produced incurring actual cost as follows:

Material	Quantity (kg)	Rs.
A B C D (filter)	1010 4200 4800 10200	2,10,000 2,05,000 1,00,000 68,000

You are required to calculate the following variances duly reconciling them:
(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Material Usage Variance.

(3x3)+2+3+2

(0)

MORISON LTD. has given its Balance Sheets as on March 31, 2007 and March 31, 2008 in the following summarised form:

Balance Sheet as on
	March 31, 2007	March 31, 2008
	(In lakhs of Rupees)
Capital and liabilities Equity Capital General Reserve Profit and Loss Account 16% Debentures Sundry Creditors Total	120.00 61.80 3.00 — 6.20 191.00	120.00 68.20 3.60 30.00 7.40 229.20
Properties and Assets: Land and Buildings (Less depreciation) Plant and Machinery (Less depreciation) Furniture and Fixtures (Less depreciation) Investments Stock Debtors Cash and Bank Total	28.40 62.00 16.80 1.00 6.80 60.00 16.00 191.00	35.00 75.00 19.60 1.20 8.40 72.00 18.00 229.20

Additional information for the year ended March 31, 2008:

(a)

Dividend of Rs. 3,60,000 for the year ended 31.3.2007 was paid during the year 2007–08.

(b)

Investment Costing Rs. 20,000 was sold for Rs. 24,000.

(c)

Depreciation on Fixed Assets for the year ended 31.3.2008 was charged to Profit and Loss Account as follows:

Land and Buildings
Plant and Machinery
Furniture and fixtures

—
—
—

Rs. 84,000
Rs. 9,48,000
Rs. 3,68,000

(d)

Sale of fixed Assets:

Machinery
Furniture & Fixtures

:
:

Sale value Rs. 2,00,000 (WDV Rs. 4,40,000)
Sale value Rs. 60,000 (WDV Rs. 40,000)

Required:
Prepare FUNDS FLOW Statement for the year ended March 31, 2008 supported by relevant Accounts/Statements.

7+(2+2+2+2+1)

(0)

(a)

Enumerate the important areas where Marginal Costing technique helps Short–Term decision making.

(0)

(b)

KOOTCHAR LTD. currently at 80% capacity has the following particulars:

	Rs.
Sales Direct Materials Direct Labour Variable Overheads Fixed Overheads	48,00,000 15,00,000 6,00,000 3,00,000 19,00,000

An export order has been received that would utilise half (50%) the capacity of the factory. The order connot be split i.e. it has either to be taken in full and executed at 10% below the normal domestic price or reject totally.
The alternatives available to the Management of the company are:

(i)

Reject the order and continue with domestic sales only: (as at present level of sales).

Or,

(ii)

Accept the order, split the capacity (100%) between overseas and domestic sales and turn away excess domestic demand.

Or,

(iii)

Increase capacity so as to accept the export order and maintain the present domestic sales by

A.	Buying an equipment that will increase capacity by 10%. This will result in an increase of Rs. 1,50,000 in fixed costs; and
B.	Work overtime to meet balance of required capacity. In that case labour will be paid at one and a half (1½) times the normal wage rate.

You are required to prepare a comparative statement of profitability and suggest the best alternative.

(3x3+1+2)

(0)

Write short notes on any four of the following:

4x4=16

(a)

Economic Batch Quantity;

(0)

(b)

Relevant Cost;

(0)

(c)

Flexible Budget;

(0)

(d)

Value Analysis;

(0)

(e)

Cost plus Contract;

(0)

(f)

Equivalent Production.

(0)

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