| 1. | (a) | Find the correct answer from the given four to each of the problems below, with your working: | | |
| | | (i) | M.Ltd. has two manufacturing divisions: Division A and Division B. Division A produces one type of product, Product X, which it transfers to Division B and also sells externally. Division B has been approached by another company which has offered to supply 2,500 units of Product X for Rs.35 each.
The following details for Division A are available: | Rs. | Sales revenue:
Sales to Division B @ Rs.40 per unit
External sales @ Rs.45 per unit
Less:
Variable cost @ Rs.22 per unit
Fixed costs
Profit |
4,00,000
2,70,000
3,52,000
1,00,000
2,18,000 |
If Division B decides to buy from the other company, the impact of the decision on the profits of Division A and M.Ltd., assuming external sales of Product X cannot be increased, will be | Division A | M.Ltd. | A.
B.
C.
D. | Rs.12,500 decrease
Rs.15,625 decrease
Rs.32,500 decrease
Rs.45,000 decrease | Rs.12,500 decrease
Rs.12,500 increase
Rs.32,500 increase
Rs.32,500 decrease |
| 4 | (0) |
| | | (ii) | The overhead costs of PQ Limited have been found to be accurately represented by the formula: y = Rs.10,000 + Rs.0.25x Where y is the monthly cost and x represents the activity level measured in machine hours. Monthly activity levels, in machine hours, may be estimated using a combined regression analysis and time series model: a = 1,00,000 + 30 b Where a represents the de–seasonalised monthly activity level and b represents the month number. In month 240, where the seasonal index value is 108, the overhead cost (to the nearest Rs.1,000) is expected to be | A. | Rs.35,000 | B. | Rs.37,000 | C. | Rs.39,000 | D. | Rs.41,000 |
| 3 | (0) |
| | | (iii) | V.Ltd. used an incremental budgeting approach to setting its budgets for the year ending 31 March, 2010. The budget for the company’s power cost was determined by analysing the past relationship between costs and activity levels and then adjusting for inflation of 6%. The relationship between monthly cost and activity levels, before adjusting for the 6% inflation, was found to be: | y = Rs.(14,000 + 0.0025 x²) | | where y = total cost; and | | x = machine hours |
In January 2010, the number of machine hours was 1,525 and the actual cost incurred was Rs.16,423. The total hour cost variance to be reported is nearest to | A. | Rs.3,391 (A) | B. | Rs.3,391 (F) | C. | Rs.3,740 (F) | D. | Rs.4,580 (F) |
| 3 | (0) |
| | (b) | State if each of the following statements is T (true) or F (false): | 1x5 | |
| | | (i) | Customers loyalty makes a product relatively price inelastic. | | (0) |
| | | (ii) | Transfer price (comprised of all costs including fixed costs) of the selling division is a variable cost for the buying division. | | (0) |
| | | (iii) | Under the queuing theory the probability that the service is idle is found out by applying the formula: P° = 1-ρ. | | (0) |
| | | (iv) | Skimming pricing is possible where the demand for an innovative product is rather elastic. | | (0) |
| | | (v) | The entire area under a normal distribution curve lies between ± 3σ . | | (0) |
| | (c) | Select the appropriate word (s) given in brackets to fill in the gap in each of the following sentences: | 1x5 | |
| | | (i) | ABC is the process of cost ____________ to cost units on the basis of benefit received from indirect activities (attribution/reduction). | | (0) |
| | | (ii) | Cost reduction is a _______________ function (corrective/preventive) | | (0) |
| | | (iii) | Companies adopting total quality control consider the manufacture and the operation of the product to be ____________ important than just the performance (less/more). | | (0) |
| | | (iv) | Budget is a comprehensive and coordinated plan for the operations and __________ of the firm (profit/resources). | | (0) |
| | | (v) | Mc Gregor’s theory Y assumes that the average human being _______________ work (has an inherent dislike of/does not inherently dislike). | | (0) |
| 2. | Give short answers to the following questions (attempt any four only): | 4x4 | (0) |
| | (a) | How to calculate risk–adjusted discount rates for capital investment decisions? | | (0) |
| | (b) | What is zero base budgeting? | | (0) |
| | (c) | What additional factors should be considered when setting transfer prices for multinational transactions? | | (0) |
| | (d) | How do we use balanced score card in performance evaluation? | | (0) |
| | (e) | ‘Distinguishing characteristics of service companies [as against manufacturing organizations] that influence performance measurement’ – What are they? | | (0) |
| | (f) | What are the steps required to estimate cost functions from past data? | | (0) |
| 3. | Autoking Ltd. has been invited by Airport Authority of India (AAI) to quote for 6 Nos. rescue trucks to carry emergency equipment and personnel at the Guahati airport. This contract must be completed by delivery of the trucks within 16 weeks of today’s date. The normal programme for a project of this scale of this scale at Autoking Ltd. is as follows: | Activity | Duration(weeks) | Depends on | A
B
C
D
E
F
G
H
I
J
K | Prepare proposal
Negotiate with customer
Modify and finalise design
Build chasis
Build body shell
Paint body shell
Assemble, fit out and finish
Write manuals
Print manuals
Test
Inspect and deliver | 2
6
4
3
4
1
2
3
1
1
1 | –
A
B
C
C
E
D,F
C
H
G, I
J |
Required: | (i) | Based on the normal programme for a project such as stated above, find the project elapsed time, from beginning to end. |
| (ii) | Assuming that the durations and dependencies of activities (C) to (K) in the programme cannot be changed, how long can Sangeet Halabi, the project manager at Autoking Ltd. for the AAI project, spend negotiating with the Purchase Director of AAI (Activity B), yet still deliver the vehicles in 16 weeks? |
| 11+5 | (0) |
| 4. | (a) | Fast Foods in Faridabad makes monda which sells fast. Past records show the following demand for monda with associate probabilities: Demand (No. of mondas)
Probability of demand | 400
0.05 | 500
0.10 | 600
0.20 | 700
0.30 | 800
0.20 | 900
0.10 | 1000
0.05 |
Mondas are sold at Rs.0.80 a price. Fresh mondas that are not sold on the day the are made, are sold the next day as doubly fried mondas at Re.0.40 per piece. The cost of making one monda is Re.0.55. The vendor is worried as often too many mondas remain unsold and he has to put in extra labour to make them saleable – and that at a loss! He knows that you are an expert in matters of finance. He seeks your opinion on the quantum of mondas he should make each day so as to make more profit. Please work out the optimum number of mondas Fast Foods should make. | 8 | (0) |
| | (b) | The purchase price of a machine is Rs.12,000. Its estimated life is 7 yrs. The annual running costs [R(n)] and the year–end resale values [S(n)] are given below: Year n
S (n)
R (n) | 1
Rs. 6,000
Rs. 2,000 | 2
3,000
2,400 | 3
1,500
2,900 | 4
750
3,500 | 5
400
4,200 | 6
400
5,000 | 7
400
6,400 |
Find the optimal period of replacement, ignoring the cost of money and taxation. | 8 | (0) |
|
| 5. | Oriental Pharmaceuticals Company is thinking of investing in a project costing Rs.10 lakhs. The life of the project is five years and the estimated salvage value of the project is zero. The company follows a straight line method of depreciation. The tax–rate is 55%. The expected cash flow before tax are: Years
Estimated Cash inflow
before tax (Rs. in lakh) | 1
2 | 2
3 | 3
3.5 | 4
4 | 5
4 |
You are required to determine | (ii) | Average rate of return, based on average income method; |
| (iv) | Internal Rate of Return. |
Given PV Factors: Year
At 10%
At 9%
At 8% | 1
0.909
0.917
0.926 | 2
0.826
0.842
0.857 | 3
0.751
0.772
0.794 | 4
0.683
0.708
0.735 | 5
0.621
0.650
0.681 |
| 4x4 | (0) |
| 6. | A Business School proposes to hold financial management courses on subjects to popular interest, viz., Leasing, Mutual Funds, Portfolio Management, and Swaps & Options. The schedule has been drawn in such a way that one course in a week will be held and only one topic will be assigned per course so that the number of participants who are unable to attend is kept at minimum. An analysis of the number of participants who cannot attend a particular course on specific day is as under: | Day | Leasing | Mutual Funds | Portfolio
Management | Swaps
& Options | Monday
Tuesday
Wednesday
Thursday
Friday | 50
40
60
30
10 | 40
30
20
30
20 | 60
40
30
20
10 | 20
30
20
30
30 |
Required:
Find the optimal schedule of the courses and the total number of participants who will be missing at least the seminar: | 16 | (0) |
| 7. | The CEO of a leading hospital has sought your assistance as a Management Accountant in preparing the budget for next year. The hospital obtains its revenues through charges for use of a hospital room and charges for use of the operating theatre. The use of basic room depends on whether the patient undergoes surgery during the stay in the hospital. The following estimated data are provided for your guidance: | | | Percentage occupancy of rooms | Patients
requiring | No. of Patient
expected | Average stay
(days) | Private | Semi–private | Ward | Medical attention
Surgical attention | 1,000
1,200 | 6
12 | 10
20 | 50
70 | 40
10 |
The basic room charges are Rs.100, Rs.60 and Rs.20 for private, semi–private and ward respectively. Charges for use of the operating theatre depend on the length of the operation and the number of persons required to perform it. The charges are Rs.5 per man–minute. (A man minute is one person for one minute, if an operation requires four persons for 60 minutes, the charges would be for 240 minutes at Rs.5 per minute, or Rs.1,200.) Based on past experience, the following is a breakdown of the types of operations to be performed: | Type of operation | No. | Minutes per
operation | No. of persons
Required | Minor
Major | 600
500 | 60
120 | 3
6 |
You are required to do the following: | (i) | Prepare a budgeted revenue statement of room charges by type of patient and type of room. |
| (ii) | Prepare a budgeted revenue statement of operating theatre charges by type of operations. |
| 8+8 | (0) |
| 8. | The soft drink company’s income statement for the preceding year is presented below. Except as noted, the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year. Income statement for the year ending 31st December is as follows: | | (Rs.) | Sales (20,00,000 bottles @ 25 paise each)
Variable cost
Fixed cost
Pre tax profit
Less Taxes
Profit after Taxes |
Rs.3,00,000
Rs.1,00,00 | 5,00,000
4,00,000
1,00,000
50,000
50,000 |
| (i) | What is the break even point in amount and units? |
| (ii) | Suppose that a plant expansion will add Rs.50,000 to fixed costs and increase capacity by 60%. How many bottles would have to be sold after the addition to break even? |
| (iii) | At what level of sales will the company be able to maintain its present pre–tax profit position even after expansion? |
| (iv) | The company management feels that it should earn at least Rs.10,000 (pre–tax per annum) on the new investment. What sales volume is required to enable the company to maintain existing profits and earn the minimum required return on new investments? |
| (v) | Suppose the plant operates at full capacity after expansion, what profit will be earned? |
| 3+3+3
+3+4 | (0) |
