IPCC : Cost Accounting and Financial Management - November 2009

IPCC • Cost Accounting and Financial Management • November 2009

This Paper has 28 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)

Define the following:

(a)

Imputed cost

(0)

(b)

Capitalised cost

(0)

(ii)

Calculate efficiency and activity ratio from the following data:

Capacity ratio
Budgeted output
Actual output
Standard Time per unit

=
=
=
=

75%
6,000 units
5,000 units
4 hours

(0)

(iii)

List the Financial expenses which are not included in cost.

(0)

(iv)

Mention the main advantage of cost plus contracts.

(0)

(v)

A Company sells two products, J and K. The sales mix is 4 units of J and 3 units of K. The contribution margins per unit are Rs.40 for J and Rs.20 for K. Fixed costs are Rs.6,16,000 per month. Compute the break-even point.

(0)

(vi)

When is the reconciliation statement of Cost and Financial accounts not required?

(0)

Mega Company has just completed its first year of operations. The unit costs on a normal costing basis are as under:

		Rs.
Direct material 4 kg @ Rs.4 Direct labour 3 hrs @ Rs.18 Variable overhead 3 hrs @ Rs.4 Fixed overhead 3 hrs @ Rs.6	= = = =	16.00 54.00 12.00 18.00 100.00
Selling and administrative costs:
Variable Fixed		Rs.20 per unit Rs.7,60,000
During the year the company has the following activity:
Units produced Units sold Unit selling price Direct labour hours worked	= = = =	24,000 21,500 Rs.168 72,000

Actual fixed overhead was Rs.48,000 less than the budgeted fixed overhead. Budgeted variable overhead was Rs.20,000 less than the actual variable overhead. The company used an expected actual activity level of 72,000 direct labour hours to compute the predetermine overhead rates.

Required :

(i)

Compute the unit cost and total income under:

(a)	Absorption costing
(b)	Marginal costing

(ii)

Under or over absorption of overhead.

(iii)

Reconcile the difference between the total income under absorption and marginal costing.

(0)

(a)

XP Ltd. furnishes you the following information relating to process II.

(i)

Opening work–in–progress – NIL

(ii)

Units introduced 42,000 units @ Rs.12

(iii)

Expenses debited to the process:

		Rs.
Direct material Labour Overhead	= = =	61,530 88,820 1,76,400

(iv)

Normal loss in the process = 2 % of input.

(v)

Closing work–in–progress – 1200 units

Degree of completion —

Materials
Labour
Overhead

100%
50%
40%

(vi)

Finished output – 39,500 units

(vii)

Degree of completion of abnormal loss:

Materials
Labour
Overhead

100%
80%
60%

(viii)

Units scraped as normal loss were sold at Rs.4.50 per unit.

(ix)

All the units of abnormal loss were sold at Rs.9 per unit.
Prepare:

(i)	Statement of equivalent production:
(ii)	Statement showing the cost of finished goods, abnormal loss and closing workin – progress.
(iii)	Process II account and abnormal loss account.

(0)

(b)

The following information is available from the cost records of Vatika & Co. For the month of August, 2009:

Material purchased 24,000 kg Rs.1,05,600

Material consumed 22,800 kg

Actual wages paid for 5,940 hours Rs.29,700

Unit produced 2160 units.

Standard rates and prices are:

Direct material rate is Rs.4.00 per unit.

Direct labour rate is Rs.4.00 per hour

Standard input is 10 kg. for one unit

Standard requirement is 2.5 hours per unit.

Calculate all material and labour variances for the month of August, 2009.

(0)

Answer any three of the following:

3x3=9

(i)

Standard Time for a job is 90 hours. The hourly rate of Guaranteed wages is Rs.50. Because of the saving in time a worker a gets an effective hourly rate of wages of Rs.60 under Rowan premium bonus system. For the same saving in time, calculate the hourly rate of wages a worker B will get under Halsey premium bonus system assuring 40% to worker.

(0)

(ii)

Explain briefly, what do you understand by Operating Costing. How are composite units computed?

(0)

(iii)

The following information relating to a type of Raw material is available:

Annual demand
Unit price
Ordering cost per order
Storage cost
Interest rate
Lead time

2000 units
Rs.20.00
Rs.20.00
2% p.a.
8% p.a.
Half–month

Calculate economic order quantity and total annual inventory cost of the raw material.

(0)

(iv)

List the eight functional budgets prepared by a business.

(0)

Answer any five of the following:

5x2=10

(i)

Explain briefly the limitations of Financial ratios.

(0)

(ii)

What do you understand by Business Risk and Financial Risk?

(0)

(iii)

Differentiate between Factoring and Bills discounting.

(0)

(iv)

Differentiate between Financial Management and Financial Accounting.

(0)

(v)

Y Ltd. retains Rs. 7,50,000 out of its current earnings. The expected rate of return to the shareholders, if they had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders come in 30% tax bracket. Calculate the cost of retained earnings.

(0)

(vi)

From the information given below calculate the amount of Fixed assets and Proprietor’s fund.

Ratio of fixed assets to proprietors fund
Net Working Capital

= 0.75
= Rs. 6,00,000

(0)

The Balance Sheets of a Company as on 31st March, 2008 and 2009 are given below:

Liabilities	31.3.2008 Rs.	31.3.2009 Rs.	Assets	31.3.2008 Rs.	31.3.2009 Rs.
Equity share capital Capital reserve General reserve Profit & Loss A/c 9% debentures Sundry creditors Bills payables Proposed dividend Provision for tax Unpaid dividend	14,40,000 – 8,16,000 2,88,000 9,60,000 5,50,000 26,000 1,44,000 4,32,000 —	19,20,000 48,000 9,60,000 3,60,000 6,72,000 5,90,000 34,000 1,72,800 4,08,000 19,200	Fixed assets Less: depreciation Investment Sundry debtors Stock Cash in hand Preliminary Expenses	38,40,000 11,04,000 27,36,000 4,80,000 12,00,000 1,40,000 4,000 96,000	45,60,000 13,92,000 31,68,000 3,84,000 14,00,000 1,84,000 — 48,000
	46,56,000	51,84,000		46,56,000	51,84,000

Additional information:

During the year ended 31^st March, 2009 the company:

(i)	Sold a machine for Rs.1,20,000; the cost of machine was Rs. 2,40,000 and depreciation provided on it was Rs. 84,000.
(ii)	Provided Rs. 4,20,000 as depreciation on fixed assets.
(iii)	Sold some investment and profit credited to capital reserve.
(iv)	Redeemed 30% of the debentures @ 105.
(v)	Decided to write off fixed assets costing Rs. 60,000 on which depreciation amounting to Rs. 48,000 has been provided.

You are required to prepare Cash Flow Statement as per AS 3.

(0)

(a)

From the following financial data of Company A and Company B: Prepare their Income Statements.

	Company A Rs.	Company B Rs.
Variable Cost Fixed Cost Interest Expenses Financial Leverage Operating Leverage Income Tax Rate Sales	56,000 20,000 12,000 5 : 1 — 30% —	60% of sales — 9,000 — 4 : 1 30% 1,05,000

(0)

(b)

A hospital is considering to purchase a diagnostic machine costing Rs. 80,000. The projected life of the machine is 8 years and has an expected salvage value of Rs. 6,000 at the end of 8 years. The annual operating cost of the machine is Rs. 7,500. It is expected to generate revenues of Rs. 40,000 per year for eight years. Presently, the hospital is outsourcing the diagnostic work and is earning commission income of Rs.12,000 per annum; net of taxes.

Required:

Whether it would be profitable for the hospital to purchase the machine? Give your recommendation under:

(i)	Net Present Value method
(ii)	Profitability Index method.

PV factors at 10% are given below:

Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
0.909	0.826	0.751	0.683	0.621	0.564	0.513	0.467

(0)

Answer any three of the following:

3x3=9

(i)

Explain the two basic functions of Financial Management.

(0)

(ii)

Explain the following terms:

(a)

Ploughing back of profits

(0)

(b)

Desirability factor.

(0)

(iii)

What do you understand by Weighted Average Cost of Capital?

(0)

(iv)

There are two firms P and Q which are identical except P does not use any debt in its capital structure while Q has Rs. 8,00,000, 9% debentures in its capital structure. Both the firms have earning before interest and tax of Rs. 2,60,000 p.a. and the capitalization rate is 10%.

Assuming the corporate tax of 30%, calculate the value of these firms according to MM Hypothesis.

(0)

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