IPCC : Cost Accounting and Financial Management - November 2011

IPCC • Cost Accounting and Financial Management • November 2011

This Paper has 22 answerable questions with 0 answered.

Roll No………
Total No. of Questions — 7]	[Total No. of Printed Pages — 16
Time Allowed : 3 Hours	Maximum Marks : 100

Answers to questions are to be given only in English except in the case of candidates who
have opted for Hindi medium. If a candidate has not opted for Hindi medium, his answers in
Hindi will not be valued.

Question No. 1 is compulsory.

Attempt any five questions from the remaining six questions.

Working notes should form part of the answer.

Marks

Answer the following:

4x5=20

(a)

The P/V Ratio of Delta Ltd. is 50% and margin of safety is 40%. The company sold 500 units for Rs. 5,00,000. You are required to calculate:

(i)	Break even point, and
(ii)	Sales in units to earn a profit of 10% on sales

(0)

(b)

X executes a piece of work in 120 hours as against 150 hours allowed to him. His hourly rate is Rs. 10 and he gets a dearness allowance @ Rs. 30 per day of 8 hours worked in addition to his wages. You are required to calculate tota1 wages received by X under the following incentive schemes:

(i)	Rowan Premium Plan, and
(ii)	Emerson’s Efficiency Plan

(0)

(c)

A new customer with 10% risk of non-payment desires to establish business connections with you. He would require 1.5 month of credit and is likely to increase your sales by Rs. 1,20,000 p.a. Cost of sales amounted to 85% of sales. The tax rate is 30%.
Should you accept the offer if the required rate of return is 40% (after tax) ?

(0)

(d)

Beeta Ltd. has furnished the following information :

—
—
—
—
—

Earning per share (EPS)
Dividend payout ratio
Market price per share
Rate of Tax
Growth rate of dividend

Rs. 4
25%
Rs. 40
30%
8%

The company wants to raise additional capital of Rs. 10 lakhs including debt of Rs. 4 lakhs. The cost of debt (before tax) is 10% upto Rs. 2 lakhs and 15% beyond that.
Compute the after tax cost of equity and debt and the weighted average cost of capital.

(0)

(a)

X Ltd. recovers overheads at a pre–determined rate of Rs. 50 per man–day. The total factory overheads incurred and the man–days actually worked were Rs. 79 lakhs and 1.5 lakhs days respectively. During the period 30,000 units were sold. At the end of the period 5,000 completed units were held in stock but there was no opening stock of finished goods. Similarly, there was no stock of uncompleted units at the beginning of the period but at the end of the period there were 10,000 uncompleted units which may be treated as 50% complete.

On analyzing the reasons, it was found that 60% of the unabsorbed overheads were due to defective planning and the balance were attributable to increase in overhead cost
How would unabsorbed overheads be treated in cost accounts?

(0)

(b)

The financial statements of a company contain the following information for the year ending 31^st March, 2011 :

Particulars	Rs.
Cash Sundry Debtors Short–term Investment Stock Prepaid Expenses Total Current Assets Current Liabilities 10% Debentures Equity Share Capital Retained Earnings	1,60,000 4,00,000 3,20,000 21,60,000 10,000 30,50,000 10,00,000 16,00,000 20,00,000 8,00,000
Statement of Profit for the year ended 31^st March, 2011
Sales (20% cash sales) Less: Cost of goods sold Profit before Interest & Tax Less: Interest Profit Before Tax Less: Tax @ 30% Profit After Tax	40,00,000 28,00,000 12,00,000 1,60,000 10,40,000 3,12,000 7,28,000

You are required to calculate:

(i)	Quick Ratio
(ii)	Debt–equity Ratio
(iii)	Return on Capital Employed, and
(iv)	Average collection period (Assuming 360 days in a year).

(0)

(a)

The following details are available of Process X for August 2011 :

(1)	Opening work-in-process		8,000 units
	Degree of completion and cost:
	Material (100%) Labour (60%) Overheads (60%)	Rs. Rs. Rs.	63,900 10,800 5,400
(2)	Input 1,82,000 units at	Rs.	7,56, 900
(3)	Labour paid	Rs.	3,28,000
(4)	Overheads incurred	Rs.	1,64,000
(5)	Units scrapped Degree of completion: Material Labour and overhead		14,000 100% 80%
(6)	Closing work-in-process Degree of completion: Material Labour and overhead		18000 units 100% 70%
(7)	1,58,000 units were completed and transferred to next process.
(8)	Normal loss is 8% of total input including opening work–in–process.
(9)	Scrap value is Rs. 8 per unit to be adjusted in direct material cost.

You are required to compute, assuming that average method of inventory is used:

(i)	Equivalent production, and
(ii)	Cost per unit

(0)

(b)

Alpha Ltd. has furnished the following Balance Sheet as on March 31, 2011 :

Liabilities	Rs.	Assets	Rs.
Equity Share Capital (1,00,000 Equity shares off Rs. 10 each) General Reserve 15% Debentures Current Liabilities	10,00,000 2,00,000 28,00,000 8,00,000 48,00,000	Fixed Assets Current Assets	30,00,000 18,00,000 48,00,000

Additional informations:

(1) (2) (3) (4)	Annual Fixed Cost other than Interest Variable Cost Ratio Total Assets Turnover Ratio Tax Rate	28,00,000 60% 2.5 30%
You are required to calculate:
(i)	Earning Per Share (EPS), and
(ii)	Combined Leverage.

(0)

(a)

The Trading and Profit and Loss Account of Beta Ltd. for the year ended 31^stMarch, 2011 is given below:

Particulars

Amount
Rs.

Particulars
Rs.

Amount
Rs.

To Opening Stock:

Raw materials
Work–in–progress
Finished Goods

1,80,000
60,000
2,60,000

5,00,000

By Sales (Credit)
By Closing Stock '

Raw materials
Work–in–progress
Finished Goods

2,00,000
1,00,000
3,00,000

20,00,000

6,00,000

To purchases (credit)
To Wages
To Production Expenses
To Gross Profit C/d

11,00,000
3,00,000
2,00,000
5,00,000

26,00,000

To Administration Expenses
To Selling Expenses
To Net Profit

1,75,000
75,000
2,50,000

By Gross Profit b/d

5,00,000

The opening and closing balances of debtors were Rs. 1,50,000 and Rs. 2,00,000 respectively whereas opening and closing creditors were Rs. 2,00,000 and Rs. 2,40,000 respectively.
You are required to ascertain the working capital requirement by operating cycle method.

(0)

(b)

The following information have been extracted from the cost records of a manufacturing company:

Stores		Rs.
∗	Opening balance	9,000
∗	Purchases	48,000
∗	Transfer from WIP	24,000
∗	Issue to work–in–process	48,000
∗	Issue for repairs	6,000
∗	Deficiency found in stock	1,800
Work–in–Progress:
∗	Opening balance	18,000
∗	Direct wages applied	18,000
∗	Overhead charged	72,000
∗	Closing balance	12,000
Finished Production:
∗	Entire production is sold at a profit of 10% on cost from work–in–process.
∗	Wages paid.	21,000
∗	Overheads incurred.	75,000

Draw the Stores Ledger Control A/c, Work–in–Progress Control A/c, Overheads Control A/c, and Costing Profit and Loss A/c.

(0)

Distinguish between:

4x4=16

(a)

Cost control and cost reduction.

(0)

(b)

Fixed and flexible budget.

(0)

(c)

Operating lease and financial lease, and

(0)

(d)

Net present value method and internal rate of return method.

(0)

(a)

A Ltd. is considering the purchase of a machine which will perform some operations which are at present performed by workers. Machines X and Y are alternative models. The following details are available:

	Machine X Rs.	Machine Y Rs.
Cost of machine Estimated life of machine Estimated cost of maintenance p.a. Estimated cost of indirect material p.a Estimated savings in scrap p.a. Estimated cost of supervision p.a Estimated savings in wages p.a.	1,50,000 5 years 7,000 6,000 10,000 12,000 90,000	2,40,000 6 years 11,000 8,000 15,000 16,000 1,20,000

Depreciation will be charged on straight line basis. The tax rate is 30%. Evaluate the alternatives according to :

(i)	Average rate of return method, and
(ii)	Present value index method assuming cost of capital being 10%.

(The present value off 1.00 @ 10% p.a. for 5 years is 3.79 and for 6 years is 4.354)

(0)

(b)

Gama Ltd. has furnished the following standard cost data per unit of production:

∗	Material 10 kg @ Rs. 10 per kg
∗	Labour 6 hours @ Rs. 5.50 per hour.
∗	Variable overhead 6 hours @ Rs. 10 per hour.
∗	Fixed overhead Rs. 4,50,000 per month (Based on a normal volume of 30,000 labour hours).
The actual cost data for the month of August 2011 are as follows:
∗	Material used 50,000 kg at a cost of Rs. 5,25,000.
∗	Labour paid Rs. 1,55,000 for 31,000 hours worked.
∗	Variable overheads Rs. 2,93,000.
∗	Fixed overheads Rs. 4,70,000.
∗	Actual production 4,800 units.
Calculate:
(i)	Material cost variance.
(ii)	Labour cost variance.
(iii)	Fixed overhead cost variance.
(iv)	Variable overhead cost variance.

(0)

Answer any four of the following:

4x4=16

(a)

Elucidate the responsibilities of Chief Financial Officer.

(0)

(b)

Explain the relevance of time value of money.

(0)

(c)

Discuss ABC analysis as a system of inventory control.

(0)

(d)

Explain the terms notional profit and retention money in contract costing.

(0)

(e)

Explain the following:

(i)

Bridge finance

(0)

(ii)

Essentials of budget

(0)

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