CWA/ICWA Final :: Cost Audit and Management Audit : December 2002

F—19(CAM)
Revised Syllabus

Time Allowed : 3 Hours Full Marks : 100
Answer Question Nos. 1 and 5, which are compulsory and
two each from the
remaining questions of Sections I & II.
Section — I(50 marks)
Marks
1. (a) State merely whether the following statements are ‘True’ or ‘False’. You need not give any reasons/explanations for your answer:
(i)Every company required to maintain Cost Records under section 209(1)(d) of the companies Act is required to get such records audited under section 233(B) of the companies act.
(ii)There is a set of Cost Accounting Record Rules prescribed under section 209(1)(d) of the companies Act, which is applicable to all the companies requiring Cost Audit.
(iii)Royalty is an item of Cost of Production under the Cost Accounting Record Rules.
(iv)Cost Audit is statutorily recognized form of audit in most of the countries.
(v)Efficiency Audit ensures an optimum return on the Capital Employed.
(vi)Depreciation in excess of that computed under section 205(2) of the Companies Act cannot be taken for determination of cost under the Cost Accounting Record Rules.
(vii)cost Auditor is entitled to get the Notice of the General Body Meeting.
(viii)Capital Work-in-progress is required to be shown in the Cost Records.
(ix)Cost Auditor has right of access to the Financial Books of the company
(x)Cost Auditor has a Statutory right to visit the Branch of the company.
1x10=10
(b) The table gives the Cost of Production of Product X: 5+5=10
Production 13,600 units
ParticularsTotal
Rs. Lakhs
Cost
Rs./Unit
(i)Raw Materials679.474,996
(ii)Wages and salaries15.96117
(iii)Stores and Chemicals20.20149
(iv)Services and Utilities87.644644
(v)Depreciation0.806
(vi)Other Overheads4.4132
(vii)Administration Overheads6.4047
(viii)Stock AdjustmentNilNil
Total814.885,991
(ix)Selling Overheads18.75138
Total833.636,129
(x)Interest42.60314
(xi)Total Cost of Sales876.236,443
(xii)Sales Realisation (inclusive of Excise Duty)1294.009,515
(xiii)Margin of Profit417.773,072
You are required to arrive at the following Ratios for the purpose of Para 24 fo the Annexure to the Cost Audit Report for the product only:
(a) Profit as a percentage of Capital Employed.
(b) Profit as a percentage to Sales Turnover.
Note:
1.Working Capital is assessed as 3months cost of sales (of relevant elements of cost only) as separate data relating to Current Assets and Current Liabilities for the product is not available.
2.Ratio of Net Block to depreciation is 10:1. The value of Gross Block is Rs.75 lakhs and Capital Work-in-progress is Rs.20 lakh.
3.Excise duty is 40% of the selling Price.
Please turn over

( 2 )

F—19(CAM)
Revised syllabus
Marks
2. (a) State briefly the salient features of the “Cost Audit Report Rules, 2001” highlighting the main difference over the Existing Provisions. 7
(b) ABC Ltd. has received an enquiry for the supply of 2,00,000 numbers of Special Type of Machine Parts. Capacity exists for the manufacture of the machine parts, but a fixed investment of Rs.80,000 and Working capital to the extent of 25% of Sales Value will be required if the job is undertaken.
The costs are estimated as follows:
Raw Materials – 20,000 kgs @Rs.2.50 per kg.
Labour Hours – 9,000 of which 1,000 would be over time hours payable at double the labour rate.
Labour Rate – Rs.2 per hour.
Factory Overhead – Rs.2 per direct labour hours.
Selling and Distribution Expenses – Rs.23,000
8
Material Recovered at the end of the operation will be Rs.6,000 (estimated).
The company expects a Net Return of 25 % on Capital Employed.
You are the Management Accountant of the company. The Managing Director requests you to prepare a Cost and Price Statement indicating the price which should be quoted to the customer.
3. (a) Following data is available for the company relating ot the Cost of Production of a product subjected to Cost Audit.
Prepare the Export Profitability Statement to be included in the Annexure to the Cost Audit Report.
7
Production10,000 units  
Rs.
Sales (Local)
Sales(Export)
Materials consumed
Imported component
@ Rs.3 /unit
Direct Labour
Factory Overhead
Administrative overhead
Freight & Packing (Local Sales)
Packing for Export
Handling at Port
Opening work-in-progress
Closing work-in-progress
9,000 units
1,000 units
20 Tonnes @Rs.5 kg
2,02,500
20,000
1,00,000
30,000

10,000
15,000
5,000
4,500
2,000
500
10,000
5,000 



(one unit /unit
of production)
Additional Information:
(i)Export incentive of 10% on F.O.B is receivable.
(ii)Draw Back-on-Duty paid on Raw Materials and Components available on exports is Rs.2,500.
(b)
(i)Why is Cost Audit Report not made public? Whether the members of Parliament have access to the Cost Audit Report?
(ii)A company manufacturing Cotton Textiles, wrote off in the same year the expenditure in replacement of Copper Rollers used for Printing Fabrics and Stainless Steel Frames used for Drying Yarn. Whether the Cost Auditor can qualify the report for these?
(iii)A person has been appointed as Cost Auditor for twenty products manufactured in seven companies. He is again proposed for appointment as Cost Auditor for three more products manufactured by two other companies. Will this appointment be ‘In Order’?
(iv) A person is doing Internal Audit on one of the factories manufacturing ‘Cement’ in a company. He was proposed for appointment as Cost Auditor in another factory of the same company manufacturing cement for the same period. Is this appointment as Cost Auditor ‘In Order’?
2x4=8
4. List the steps to be taken by a company from the time the Cost Audit is ordered for its product and the report is submitted by the Cost Auditor to the Government, specifying the time schedule and penalties for noncompliance. 15
Please turn over

( 3 )

F—19(CAM)
Revised syllabus
Marks
Section—II (50 marks)
5. (a) Indicate whether the following statements are ‘True’ or ‘False’. You need nit give reasons for your answer:
(i)Management audit in certain specified companies may be ordered by the Government by a special notification.
(ii)Management Audit can be conducted efficiently only by an expert in the area of Cost Audit.
(iii)Audit of Human Resource Development is outside the scope of Management Audit.
(iv)Operational Audit is merely an extension of Internal Auditing into Operational Areas.
(v)Management Auditors should not only be qualified Cost/Charted Accountant but have sound understanding of Audit procedures.
(vi)A practicing Cost Accountant cannot be appointed as Cost Auditor of a Cooperative Society.
(vii)Manufacturing and Other Companies (Auditor’s Report) Order (MAOCARO), 1988 does not apply to foreign companies.
(viii)Main objective of Internal Audit is to prevent errors and frauds.
(ix)Internal Audit is compulsory in large manufacturing companies.
(x)Physical verification is not a part of Stock Audit conducted by a Bank.
1x10=10
(b) he Escalation Clause of a long term contract stipulates the following quantities and rates of Materials of A, B and C and following number of Labour Hours of X, Y and Z and their rates of pay.
The actuals are also shown below:
10
Actuals
Qnty TonnesRate Rs. Qnty Tonnes Rate Rs.
Materials
A
B
C
1500
800
200
50
30
100
1750
900
210
47
33
102
Actuals
LabourHoursHourly Rate
Rs.
HoursHourly Rate
Rs.
X
Y
Z
4800
2400
9600
2.00
1.00
1.50
4500
3000
10000
2.25
1.50
1.75
Compute the amount of the Final Claim so far as Rate is concerned.
6. What do understand by “Anti-dumping duty”? Briefly explain the provisions in the Cost Accounting Record Rules and Cost Audit (Report) Rules covering this aspect. 15
7. List the tasks that can be performed by a Cost and Management Accountant in practice in the following areas:
(a) Direct Tax Laws;
(b) Central Excise; and
(c) Banks and Financial Institutions.
5x3=15
8. The following data are extracted from the accounts of a factory manufacturing industrial alcohol for pollution control:
Rs.
(a)Undertaking environment impact studies2,45,000
(b)Depreciation of Bio-gas Plant installed during the year6,75,000
(c)Other materials purchased for manufacture of Compost manure5,40,000
(d)Salaries and Wages for Bio-gas and Compost manure plant1,20,000
(e)Sale Proceeds of manure sold3,40,000
15
How you will treat he above items in the Cost Accounting Records taking into account the social responsibility of the company for preventing pollution?

__________

 

© Krishbhavara ♣