CWA/ICWA Inter :: Cost and Management Accounting: December 2003

*I-5(CMA)* *Revised Syllabus*
Time Allowed : 3 Hours	Full Marks : 100
Answer Question No. 1 which is compulsory and any five from the rest .
		Marks

(a)

State whether the following statements are true (T) or false (F).

(i)	Marginal costing is useful for long term planning.
(ii)	Standards are arrived at based on past performance.
(iii)	Cost of floppy disc used for office computer is administration overhead.
(iv)	Opportunity cost is the value of benefit sacrificed in favour of an alternative course of action.
(v)	Bin cards show quantity and value of stores.
(vi)	A production order is an order received from a customer.
(vii)	LIFO method of pricing issues is useful during period of inflation.
(viii)	Obsolete stocks can be determined by the frequency of issues.

(b)

Fill in the blanks correctly:

(i)	__________ cost is the difference in total cost that results from two alternative courses of action.
(ii)	__________ is a must for meaningful inter firm comparison.
(iii)	The most powerful tool used to analyse and interpret the health of an enterprise is __________.
(iv)	Under __________ plan employees receive a constant portion of value added.
(v)	Idle time variance is always __________
(vi)	Generally an Item of expense, when identified with a specific cost unit is treated as __________
(vii)	Contribution earned after reaching BEP is __________ of the firm.
(viii)	In 'make or buy' decisions, it is profitable to buy from outside only when the suppliers price is below the firm's own __________.

(c)

Choose the correct answer from the brackets, giving brief workings:

(i)	In a company there were 1,200 employees on the rolls at the beginning of a year and 1,180 at the end. During the year 120 persons left service and 96 replacements were made. The rate of labour turnover according to flux method is __________%. (5.04, 4.03, 9.08).
(ii)	The variable cost of a product increases by 10% and the management raises the unit selling price by 10%. The fixed cost remain unchanged. Then BEP of the firm __________. (Increases, decreases, remain the same.).
(iii)	In a factory where standard costing is followed, 9,600 kg. of materials at Rs. 10.50/kg were actually consumed resulting in a price variance of Rs. 4,800 (A) and usage variance of Rs. 4,000 (F). The standard cost of actual production is Rs. __________. (1,00,000, 96,000, 1,20,000).
(iv)	The annual credit sales of a firm amounts to Rs. 12,80,000 and the debtors amount to Rs. 1,60,000. Then the debtors' turnover and average collection period are __________ respectively. (4 and 90 days, 8 and 45 days, 6 and 60 days).

(a)

A manufacturer requires 9,600 units of a certain component annually. This is currently purchased from a regular supplier at Rs. 50 per unit. The cost of placing an order is Rs. 60 per order and the annual carrying cost is Rs. 5 per price. What is the economic order quantity (EOQ) for placing order?
Recently the supplier has expressed his willingness to reduce the price to Rs. 48, if the total requirements are obtained from him in two equal orders and to Rs. 47, if the entire quantity required is purchased in one lot. Analyse the cost of the three options and recommend the best course.
What other factors should also be considered before the decision is taken?

(b)

The standard labour time required for the production of a certain component has been fixed as 4 hours. An incentive scheme was introduced recently to raise labour productivity. The relevant details of the scheme are as follows:

Efficiency
Below 100%
100% (i.e 4 hrs./unit)
Above 100%

Incentive as a percentage of basic wages
No incentive
10%
1% additional incentive for every 1% increase in
efficiency above 100%, fractions excluded.

Please turn over

( 2 )

I-5(CMA)
Revised syllabus

Marks

The following cost information for a period is available for a small engineering unit:

(a)

Allocated expenditure.

Allocated
		Production Departments		Service Departments
	Total (Rs.)	Machine shop	Assembly	General Plant Services	Stores & Misc.
Indirect wages	29,300	8,000	6,000	4,000	11,300
Stores consumed	6,700	2,200	1,700	1,100	1,700
Supervisory Salaries	14,000	—	—	14,000	—
Other Salaries	10,000	—	—	10,000	—

(b)

Expenditure to be apportioned

Power and Fuel
Rent
Insurance
Depreciation

15,000
15,000
3,000
1,00,000

(c)

Expenditure to be apportioned

	Floor Area (Sq. ft)	H.P. hrs. —	No. of Employees	Investment (Rs.)
Machine Shop Assembly General Plant Stores and Maintenance	2,000 1,000 500 1,500	3,500 500 — 1,000	30 15 5 10	6,40,000 2,00,000 10,000 1,50,000

(d)

Basis of distribution of service dept. costs:

Stores and Maintenance	Machine Shop 50%	Assembly 20%	General Plant Services 30%	Stores & Misc. —
General Plant and Services In proportion to the number of employees.

You are required to prepare an overhead distribution statement in detail. Service department costs are to be distributed by continued distribution. Carry through three cycles. Calculations to be shown to the nearest rupee.

Production in a manufacturing company passes through three distinct processes I, II and III. The output of each process is transferred to the next process and the output of process III is transferred to finished goods stock. The normal wastage in each process and the realisable value of the same are given below:

Process	% of normal waste related to input	Realisable value per Unit
I II III	5 7 10	Re. 0.70 Re. 0.80 Re. 1.00

The details of cost data and output for a month are as follows:
		Process
		I	II	III
Material Consumed Direct Labour Cost Production Expenses Output	(Rs.) (Rs.) (Rs.) (Units)	1,20,000 80,000 40,000 38,000	40,000 60,000 40,000 34,600	40,000 60,000 28,000 32,000

Process I was fed wutg 40,000 units of input costing Rs. 3,20,000. There were no opening of closing work progress.
Prepare the process accounts for the month.

Please turn over

( 3 )

I-5(CMA)
Revised syllabus

Marks

(a)

What are the important applications of marginal costing as a tool for decision making?

(b)

A company manufactures and sellts two standards products X and Y using the same raw material, labour and identical machines. Further particulars are given below:

	X			Y
			Perunit
Direct Material @ Rs. 20/kg Direct Labour @ Rs. 15/hr. Variable Overheads Machine hours required Fixed Overheads (allocated)	Rs. Rs. Rs. Rs.	20 15 15 ½ hr		Rs. Rs. Rs. Rs.	30 15 15 3/4 hr 18
			Per annum
Maximum Demand (units) Current Production (units)		18,000 15,000			15,000 12,000

Labour and materials are available according to requirements. But machine capacity cannot be increased immediately and the available capacity has been fully utilised by the current production plan.
Required

(i)	Current contribution analysis.
(ii)	Profit currently earned by the company.
(iii)	Alternative production plan, if any, more profitable to the company.
(iv)	Profit expected to be earned under the suggested plan.

(a)

What is meant by 'flexible budgeting'? Mention some important uses of this technique.

(b)

A newly established manufacturing company has an installed capacity to produce 1,00,000 units of a consumer product annually. However its practical capacity is only 90%. The actual capacity utilisation may be substantially lower, as the firm is new to the market and demand is uncertain. The following budget has been prepared for 90% capacity utilisation:

Direct Materials
Direct Labour
Direct Expenses
Production Overhads
Administration Overheads
Selling and Distribution

Cost per unit
Rs.
12
8
5
10
5
6

(40% variable)
(100% fixed)
(50% variable)

You are required to prepare budgets at 60%, 70% and 80% levels of capacity utilisation giving clearly the unit variable cost, the unit fixed cost and the total costs under various heads at all the above levels.

(a)

What is 'Fixed Production Overhead Variance'? Explain how this is calculated and further analysed.

(b)

Kolkata Furnitures manufactures modular tables, chairs and office desks. The standard labour times required per unit of table, chair and desk are 4 hours, 2 hours and 8 hours respectively. The budgeted production per week is 140 standard hours and budgeted fixed overheads per week is Rs. 70,000.
During a particular week the firm achieved the following output:

Tables
Chairs
Desks

8 Nos.
8 Nos.
9 Nos.

The actual fixed production overhead amounted to Rs. 75,000.
Calculate:

(i)	Fixed Production Overhead total variance;
(ii)	Fixed Production Overhead expenditure variance;
(iii)	Fixed Production Overhead volume variance.

Write short notes on any four of the following:

(a)	Management by exception;
(b)	Break even analysis;
(c)	Integrated accounts;
(d)	Equivalent production;
(e)	Liquidity ratios.

4x4=16

__________