CA PCC/PCE Group II : Cost Accounting and Financial Management - November 2008

CA PCC/PCE - Group II • Cost Accounting and Financial Management • November 2008

This Paper has 30 answerable questions with 0 answered.

Roll No……………
Total No. of Questions — 8]	[Total No. of Printed Pages — 5
Time Allowed : 3 Hours	Maximum Marks : 100

All questions are compulsory.

Working notes should form part of the answer.

Marks

Answer any five of the following:

5x2=10

(i)

The annual carrying cost of material ‘X’ is Rs. 3.6 per unit and its total carrying cost is Rs. 9,000 per annum. What would be the Economic order quantity for material ‘X’, if there is no safety stock of material X ?

(0)

(ii)

A machinery was purchased from a manufacturer who claimed that his machine could produce 36.5 tonnes in a year consisting of 365 days. Holidays, break-down, etc., were normally allowed in the factory for 65 days. Sales were expected to be 25 tonnes during the year and the plant actually produced 25.2 tonnes during the year. You are required to state the following figures:
(a) rated capacity
(b) practical capacity
(c) normal capacity
(d) actual capacity.

(0)

(iii)

State the unit of cost for the following industries
(a) Transport
(b) Power
(c) Hotel
(d) Hospital

(0)

(iv)

State the method of costing that would be most suitable for
(a) Oil refinery
(b) Bicycle manufacturing
(c) Interior decoration
(d) Airlines company.

(0)

(v)

Differentiate between "scrap" and "defectives" and how they are treated in cost accounting.

(0)

(vi)

Explain briefly the concept of ‘flexible budget’.

(0)

As of 31st March, 2008, the following balances existed in a firm’s cost ledger, which is maintained separately on a double entry basis:

	Debit Rs.	Credit Rs.
Stores Ledger Control A/c Work–in–progress Control A/c Finished Goods Control A/c Manufacturing Overhead Control A/c Cost Ledger Control A/c	3,00,000 1,50,000 2,50,000 7,00,000	– – – 15,000 6,85,000 7,00,000

During the next quarter, the following items arose:

	Rs.
Finished Product (at cost) Manufacturing overhead incurred Raw material purchased Factory wages Indirect labour Cost of sales Materials issued to production Sales returned (at cost) Materials returned to suppliers Manufacturing overhead charged to production	2,25,000 85,000 1,25,000 40,000 20,000 1,75,000 1,35,000 9,000 13,000 85,000

You are required to prepare the Cost Ledger Control A/c, Stores Ledger Control A/c, Work–inprogress Control A/c, Finished Stock Ledger Control A/c, Manufacturing Overhead Control A/c, Wages Control A/c, Cost of Sales A/c and the Trial Balance at the end of the quarter.

(0)

(a)

ABC Ltd. can produce 4,00,000 units of a product per annum at 100% capacity. The variable production costs are Rs. 40 per unit and the variable selling expenses are Rs. 12 per sold unit. The budgeted fixed production expenses were Rs. 24,00,000 per annum and the fixed selling expenses were Rs. 16,00,000. During the year ended 31st March, 2008, the company worked at 80% of its capacity. The operating data for the year are as follows:

Production
Sales @ Rs. 80 per unit
Opening stock of finished goods

3,20,000 units
3,10,000 units
40,000 units

Fixed production expenses are absorbed on the basis of capacity and fixed selling expenses are recovered on the basis of period.
You are required to prepare Statements of Cost and Profit for the year ending 31st March, 2008:

(i)
(ii)

On the basis of marginal costing
On the basis of absorption costing.

(0)

(b)

Describe briefly, how wages may be calculated under the following systems:

(i)

Gantt task and bonus system

(0)

(ii)

Emerson’s efficiency system

(0)

(iii)

Rowan system

(0)

(iv)

Halsey system

(0)

(v)

Barth system.

(0)

Answer any three of the following:

3x3=9

(i)

A product passes from Process I and Process II. Materials issued to Process I amounted to Rs. 40,000, Labour Rs. 30,000 and manufacturing overheads were Rs. 27,000. Normal loss was 3% of input as estimated. But 500 more units of output of Process I were lost due to the carelessness of workers. Only 4,350 units of output were transferred to Process II. There were no opening stocks. Input raw material issued to Process I were 5,000 units. You are required to show Process I account.

(0)

(ii)

PQ Ltd. reports the following cost structure at two capacity levels:

(100% capacity)
	2,000 units	1,500 units
Production overhead I Production overhead II	Rs. 3 per unit Rs. 2 per unit	Rs. 4 per unit Rs. 2 per unit

If the selling price, reduced by direct material and labour is Rs. 8 per unit, what would be its break–even point?

(0)

(iii)

A contract expected to be completed in year 4, exhibits the following information:

End of Year	Value of work certified (Rs.)	Cost of work to date (Rs.)	Cost of work not Yet certified (Rs.)	Cash received (Rs.)
1. 2. 3.	0 3,00,000 8,00,000	50,000 2,30,000 6,60,000	50,000 10,000 20,000	0 2,75,000 7,50,000

The contract price is Rs. 10,00,000 and the estimated profit is 20%.
You are required to calculate, how much profit should have been credited to the Profit and Loss A/c by the end of years 1, 2 and 3.

(0)

(iv)

UV Ltd. presents the following information for November, 2008:
Budgeted production of product P = 200 units.
Standard consumption of Raw materials = 2 kg. per unit of P.
Standard price of material A = Rs. 6 per kg.
Actually, 250 units of P were produced and material A was purchased at Rs. 8 per kg and consumed at 1.8 kg per unit of P. Calculate the material cost variances.

(0)

Answer any five of the following:

5x2=10

(i)

Write a short note on "Deep Discount Bonds".

(0)

(ii)

What is meant by "Venture Capital Financing"?

(0)

(iii)

Discuss the concept of "Optimal Capital Structure".

(0)

(iv)

Name the various financial instruments dealt with in the international market.

(0)

(v)

How is return on capital employed calculated? What is its significance?

(0)

(vi)

What is quick ratio? What does it signify?

(0)

Balance Sheets of a company as on 31st March, 2007 and 2008 were as follows:

Liabilities	31.3.07 Rs.	31.3.08 Rs.	Assets	31.3.07 Rs.	31.3.08 Rs.
Equity Share Capital 8% P.S. Capital General Reserve Securities Premium Profit and Loss A/c 11% Debentures Creditors Provision for tax Proposed Dividend	10,00,000 2,00,000 1,20,000 – 2,10,000 5,00,000 1,85,000 80,000 1,36,000	10,00,000 3,00,000 1,45,000 25,000 3,00,000 3,00,000 2,15,000 1,05,000 1,44,000	Goodwill Land and Building Plant and Machinery Investments (non–trading) Stock Debtors Cash and Bank Prepaid Expenses Premium of redemption of debentures	1,00,000 7,00,000 6,00,000 2,40,000 4,00,000 2,88,000 88,000 15,000 —	80,000 6,50,000 6,60,000 2,20,000 3,85,000 4,15,000 93,000 11,000 20,000
	24,31,000	25,34,000		24,31,000	25,34,000

Additional Information:

1. 2. 3. 4. 5. 6.	Investments were sold during the year at a profit of Rs. 15,000.M During the year an old machine costing Rs. 80,000 was sold for Rs. 36,000. Its written down value was Rs. 45,000. Depreciation charged on Plants and Machinery @ 20 per cent on the opening balance. There was no purchase or sale of Land and Building. Provision for tax made during the year was Rs. 96,000. Preference shares were issued for consideration of cash during the year.
You are required to prepare:
(i) (ii)	Cash flow statement as per AS–3. Schedule of Changes in Working Capital.

(0)

(a)

MN Ltd. is commencing a new project for manufacture of electric toys. The following cost information has been ascertained for annual production of 60,000 units at full capacity:

		Amount per unit Rs.
Raw materials Direct labour		20 15
Manufacturing overheads:
	Rs.
Variable Fixed	15 10	25
Selling and Distribution overheads:
	Rs.
Variable Fixed Total cost Profit Selling price	3 1	4 64 16 80

In the first year of operations expected production and sales are 40,000 units and 35,000 units respectively. To assess the need of working capital, the following additional information is available:

(i)
(ii)
(iii)
(iv)
(v)

Stock of Raw materials
Credit allowable for debtors
Credit allowable by creditors
Lag in payment of wages
Lag in payment of overheads

……………………………………
……………………………………
……………………………………
……………………………………
……………………………………

3 months consumption.
1½ months.
4 months.
1 month.
½ month

(vi)	Cash in hand and Bank is expected to be Rs. 60,000.
(vii)	Provision for contingencies is required @ 10% of working capital requirement including that provision.

You are required to prepare a projected statement of working capital requirement for the first year of operations. Debtors are taken at cost.

(0)

(b)

A company wants to invest in a machinery that would cost Rs. 50,000 at the beginning of year 1. It is estimated that the net cash inflows from operations will be Rs. 18,000 per annum for 3 years, if the company opts to service a part of the machine at the end of year 1 at Rs. 10,000. In such a case, the scrap value at the end of year 3 will be Rs. 12,500. However, if the company decides not to service the part, then it will have to be replaced at the end of year 2 at Rs. 15,400. But in this case, the machine will work for the 4th year also and get operational cash inflow of Rs. 18,000 for the 4th year. It will have to be scrapped at the end of year 4 at Rs. 9,000. Assuming cost of capital at 10% and ignoring taxes, will you recommend the purchase of this machine based on the net present value of its cash flows?

If the supplier gives a discount of Rs. 5,000 for purchase, what would be your decision? (The present value factors at the end of years 0, 1, 2, 3, 4, 5 and 6 are respectively 1, 0.9091, 0.8264, 0.7513, 0.6830, 0.6209 and 0.5644).

(0)

Answer any three of the following:

3x3=9

(i)

A company offers a Fixed deposit scheme whereby Rs. 10,000 matures to Rs. 12,625 after 2 years, on a half&ndah;yearly compounding basis. If the company wishes to amend the scheme by compounding interest every quarter, what will be the revised maturity value?

(0)

(ii)

A company operates at a production level of 1,000 units. The contribution is Rs. 60 per unit, operating leverage is 6, and combined leverage is 24. If tax rate is 30%, what would be its earnings after tax?

(0)

(iii)

What do you mean by Stock Turnover ratio and Gearing ratio?

(0)

(iv)

Explain the concept of Multiple Internal Rate of Return.

(0)

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