CWA ICWA Inter - Stage II : Management Accounting Performance Management - June 2010

CWA ICWA Inter - Stage II • Management Accounting Performance Management • June 2010

This Paper has 31 answerable questions with 0 answered.

1–9(MPM) 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.
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.

Marks

(a)

Fill in the blanks with appropriate options given:

1x5

(i)

Decision Model is a method of making a choice, sometimes requiring elaborate _____________ procedure. (Options: quantitative/qualitative)

(0)

(ii)

CVP Analysis is the study of the effects of _____________ volume on revenue, expenses and net income. (Options: input/output)

(0)

(iii)

Discriminating Pricing is charging different pricing to different customers for the _____________ product(s) or service(S). (Options: same/different).

(0)

(iv)

Flexible Budget adjusts for changes in ______________ and other cost driver activities. (Options: price/sales volume)

(0)

(v)

Cost–Benefit Balance is weighing estimated costs against probable benefits, the primary condition in choosing among ______________ systems and methods. (Options: engineering/accounting)

(0)

(b)

Match each expression under Column I with Column II:

Column I		Column II
(i) (ii) (iii) (iv) (v)	Responsibility accounting Mixed costs Relevant costs and revenues Opportunity cost Process costing	(a) (b) (c) (d) (e)	Change by a decision Identical units of production Cost that will not require cash outlay Costs and revenues are traced to the individuals Includes both fixed and variable components

1x5

(0)

(c)

Which of the following statements are TRUE or FALSE:

1x5

(i)

Sunk costs are future costs where total will be affected by the choice between alternative.

(0)

(ii)

Only unavoidable costs are relevant for decision making purposes;

(0)

(iii)

Future costs, rather than past costs, are required for decision making;

(0)

(iv)

Standard costs are predetermined costs; they are target costs that should be incurred under efficient operating conditions;

(0)

(v)

Responsibility centre is a unit of organization for whose performance a manager is held responsible.

(0)

(d)

Define the following terms in not more than two sentences:

1x5

(i)

Goal Congruence;

(0)

(ii)

Break Even Point;

(0)

(iii)

Incremental Effect;

(0)

(iv)

Activity Based Accounting;

(0)

(v)

Target Costing.

(0)

(a)

Discuss the process of managing organizational change effectively.

(0)

(b)

How does the management help the organization in achieving its objectives?

(0)

(a)

The XYZ Ltd. produces a variety of products, each having a number of component parts. Product B takes 5 hours to produce on M/c. No.99, working to full capacity. Product B’s selling price and marginal cost are Rs.50 and Rs.30 respectively. A–10 is a component part that could be made on the same M/c. in 2 hours for a marginal cost of Rs.5 per unit. The supplier’s price is Rs.12.50 per unit.

Should the Company make or buy the component A–10? Assume that the machine hours is the limiting factor.
Advice accordingly.

(0)

(b)

A Marketing Manager suggests to his Managing Director that if only he is permitted to reduce the selling price of a product by 20%, he would be able to achieve 30% increase in sales volume. The Managing Director, in good faith, gives the clearance.

You are given the following information:

Present selling price per unit (Rs.)
Present volume of sales(units)
Total variable cost(Rs.)
Total fixed costs(Rs.)

7.50
2,00,000
10,50,000
3,60,000

Assume that there are no changes in the cost pattern in the coming period.

Required:

(i)	Examine the consequences of the Managing Director’s decisions, assuming that 30% increase in sales has realized.

(ii)	At what volume of sales, can the present quantum of profits be sustained, after affecting the price reduction?

5+5

(0)

(a)

The Pupils’s Book Co. has two book selling outlets: Kalidas Book House and Tulsidas Book House. Each store has a manager, who has a great deal of decision authority over the individuals stores. A central office however, handles advertising, marketing research, acquisition of books, legal services and other staff functions. The Pupils’ Book Co.’s current accounting system allocates all costs to the stores.

Results for 2009–10 were:

		Amount in Rs.
Item	Total Company	Kalidas Book House	Tulsidas Book House
Sales Cost of merchandise sold Gross margin Operating expenses: Salaries and wages Supplies Rent & utilities Depreciation Allocated Staff cost Total operating expenses Operating income(Loss)	7,00,000 4,50,000 2,50,000 63,000 45,000 60,000 15,000 60,000 2,43,000 7,000	3,50,000 2,25,000 1,25,000 30,000 22,500 40,000 7,000 30,000 1,29,000 (4,500)	3,50,000 2,25,000 1,25,000 33,000 22,500 20,000 8,000 30,000 1,13,000 11,500

Each book store manager makes decisions that affect salaries and wages, supplies and depreciation. In contrast, rent and utilities are beyond the manager’s control because the managers did not choose the location or the size of the store.

Supplies are variable costs. Variable salaries and wages are equal to 8% of the cost of merchandise sold, the remainder of salaries and wages is a fixed cost. Rent, utilities and depreciation are also fixed costs. Allocated staff costs are unaffected by any events at the book stores but they are allocated as a proportion of sales revenue.

Required:

(i)	Using the contribution approach, prepare a performance of each book store from that of the book store manager.

(ii)	Evaluate the performance of each book store.

(iii)

Evaluate the performance of each manager.

4+3+3

(0)

(b)

Viswakarma Enterprises conducted a study for its maintenance shop and found that the inter arrival times at tool–crib are exponential with an average time of 10mins. The length of the service time (amount of time taken by the tool–crib operator to meet the needs of the maintenance man) is assumed to be exponentially distributed, with mean 6 mins.

Required to find:

(i)	The probability that a person arriving at the booth of the shop will have to wait.

(ii) Average length of the queue that forms and the average time that an operator spends in the queue system.

2+(2+2)

(0)

(a)

What are the benefits accruing to an organization on account of implementation or ERP system?

(0)

(b)

Division A is a profit centre that produces three products X, Y and Z and each product has an external market.

The relevant data is as:

	X	Y	Z
External market price per unit (Rs.) Variable cost of production (division A) (Rs.) Labour hours per unit (division A) Maximum external sales units	48 33 3 800	46 24 4 500	40 28 2 300

Up to 300 units of Y can be transferred to an internal division B.

Division B has also the option of purchasing externally at a price of Rs.45 per unit.

Determine the transfer price for Y if the total labour hours available in division A is:

(i)	3,800 hours;

(ii)	5,600 hours;

4+8

(0)

A book store wishes to carry Ramayana in stock. Demand is probabilistic and replenishment of stock takes 2 days.

The probabilities of demand are given below:

Demand (daily)	0	1	2	3	4
Probability:	0.05	0.10	0.30	0.45	0.10

Each time the order is placed, the store incurs ordering cost of Rs.10 per order. The store also incurs a carrying cost of Re.0.50 per book per day. The inventory carrying cost is calculated on the basis of stock at the time of each day.

The manager of the book store wished to compare two options for his inventory decision.

Option A: Order 5 books when the inventory at the beginning of the day plus orders outstanding is less than 8 books.

Option B: Order 8 books when the inventory at the beginning of the day plus orders outstanding is less than 8.

Currently beginning of 1^st day, the store has stock of 8 books plus 6 books ordered two days ago and expected to arrive next day. Using Monte Carlo simulation for 10 cycles, recommend which option the manager should choose.

Two digit random Nos. are given below:

89, 34, 78, 63, 61, 81, 39, 16, 13, 73

(0)

(a)

The cost of an article at a capacity level of 5,000 units is given in the table, under column A below. For a variation of 25% in capacity above or below this level, the individual expenses vary as indicated in column B.

	A (Rs.)	B (%)
Material cost Labour cost Power Repairs and maintenance Stores Inspection Administration overheads Selling overheads Depreciation Total Cost per unit	25,000 15,000 1,250 2,000 1,000 500 5,000 3,000 10,000 62,750 12.55	100% Variable 100% Variable 80% Semi–variable 75% Semi–variable 100% Variable 20% Semi–variable 25% Semi–variable 50% Semi–variable 100% Fixed

Prepare the production cost budget (flexible)at

4,000 units and 6,000 units.

5+5

(0)

(b)

A diet of a sick person must contain at least 4,000 units of vitamins, 50 units of minerals and 1,400 units of calories. Two foods A and B are available at a cost of Rs.4 and Rs.3 per unit respectively. If one unit of A contains 200 units of vitamins, 1 unit of mineral and 40 units of calories and one unit of food B contains 100 units of vitamins, 2 units of minerals and 40 units of calories. Formulate LPP model. You need not solve the problem.

(0)

Write short notes on:

4x4

(i)

JIT;

(0)

(ii)

TQM;

(0)

(iii)

MRP;

(0)

(iv)

Rolling Budget.

(0)

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