CA Final :: Cost Management : November 2006

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—10
Time Allowed : 3 Hours	Maximum Marks : 100
LG
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Question No. 1 is compulsory. Answer any four Questions from the rest. Working notes should form part of the answer. Make assumptions wherever necessary.
Marks

(a)

X Ltd. manufactures a semiconductor for which the cost and price structure is given below:

Rs. per unit

Selling price
Direct material
Direct labour
Variable overhead 500
150
100
50

Fixed cost = Rs. 2 lakhs.

The product is manufactured by a machine, whose spare part costing Rs. 2,000 needs replacement after every 100 pieces of output. This is in addition to the above costs. Assume that no defectives are produced and that the spare part is readily available in the market at all times at Rs. 2,000.

(i)	Prepare the profitability statement for production levels of 2,000 units and 3,000 units, when fixed cost = Rs. 1 lakhs.
(ii)	What is the break-even point (BEP) for the above data?
(iii)	Comment on the BEP, if the fixed cost can be reduced to Rs. 1,80,000 from the existing level of 2 lakhs.

(b)

Give two examples for each of the following categories in activity based costing:

(i)	Unit level activities
(ii)	Batch level activities
(iii)	Product level activities
(iv)	Facility level activities.

(c)

Outline the features of penetration pricing strategy.

14+4+6

(a)

A BPO company is taking bids for 4 routes in the city to ply pick-up and drop cabs. Four companies have made bids as detailed below:

Bids for Routes (Rs.)

Company/Routes R₁ R₂ R₃ R₄

C₁ 4,000 5,000 — —

C₂ — 4,000 — 4,000

C₃ 3,000 — 2,000 —

C₄ — — 4,000 5,000

Each bidder can be assigned only one route. Determine the minimum cost that the BPO should incur.

(b)

A network is given below:

(i)	Name the paths and give their total duration.
(ii)	Give three different ways of reducing the project above duration by four days.

P.T.O.

( 2 )

Marks

(c)

Division Z is a profit center which produces four products A, B, C and D. Each product is sold in the external market also. Data for the period is:

A B C D

Market price per unit (Rs.)
Variable cost of pdn. Per unit (Rs.)
Labour hours required per unit 150
130
3 146
100
4 140
90
2 130
85
3

Product D can be transferred to division Y, but the maximum quantity that may be required for transfer is 2,500 units of D.

The maximum sales in the external market are:

A
B
C
D

2,800 units
2,500 units
2,300 units
1,600 units

Division Y can purchase the same product at a price of Rs. 125 per unit from outside instead of receiving transfer of product D from Division Z.
What should be the transfer price for each unit for 2,500 units of D, if the total labour hours available in division Z are 20,000 hours?

6+6+7

(a)

A Multinational company runs a Public Medical Health Centre. For this purpose, it has hired a building at a rent of Rs. 10,000 per month with 5% of total taking. Health centre has three types of wards for its patients namely. General ward, Cottage ward and Deluxe ward. State the rent to be charged to each bed-day for different type of ward on the basis of the following informations:

(i)

The number of beds of each type are General ward 100, Cottage ward 50, Deluxe ward 30.

(ii)

The rent of Cottage ward bed is to be fixed at 2.5 times of the General ward bed and that of Deluxe ward bed as twice of the Cottage ward bed.

(iii)

The occupancy of each type of ward is as follows:
General ward 100%, Cottage ward 80% and Deluxe ward 60%. But, in general ward there were occasions when beds are full, extra beds were hired at a charges of Rs. 20 per bed. The total hire charges for the extra beds incurred for the whole year amount to Rs. 12,000.

(iv)

The Health Centre engaged a heart specialist from outside and on an average fees paid to him was Rs. 15,000 per trip. He makes three trips in the whole year.

(v)

The other expenses for the year were as under:

Rs.

Salary of Supervisors, Nurses, Ward boys
Repairs and maintenance
Salary of doctors
Food supplied to patients
Laundry charges for their bed linens
Medicines supplied
Cost of oxygen, X-ray etc. other than directly borne for
Treatment of patients
General administration charges 4,25,000
90,000
13,50,000
40,000
80,500
74,000

49,500
63,000

(vi)

Provide profit @ 20% on total taking.

(vii)

The Health Centre imposes 8% service tax on rent received.

(viii)

360 days may be taken in a year.

LG	Contind...

( 3 )

Marks

(b)

(i)	What is simulation?
(ii)	What are the steps in simulation?

(c)

Briefly explain the learning curve ratio.

12+5+2

(a)

A company following standard marginal costing system has the following interim trading statement for the quarter ending 30th June, 2005, which reveals a loss of Rs. 17,000, detailed below:

		Rs.
Sales Closing stock (at prime cost)		4,99,200 18,000 5,17,200
Costs
Direct material Direct labour Variable overhead Fixed overhead Fixed Admn. Overhead Variable distribution Overhead Fixed selling Overhead	1,68,000 1,05,000 42,000 3,15,000 1,20,000 40,000 19,200 40,000 2,19,200
Total costs Loss		5,34,000 17,000

Additional information is as follows:

(i)	Sales for the quarter were 1,200 units. Production was 1,400 units, of which 100 units were scrapped after complete manufacture. The factory capacity is estimated at 2,000 units.
(ii)	Because of low production, labour efficiency during the quarter is estimated to be 20% below normal level.
You are required to analyse the above and report to the management giving the reasons for the loss.

(b)

List the steps involved in target costing process with the help of a block diagram.

13+6=19

(a)

(i)	What do you mean by ERP?
(ii)	Name six benefits of ERP in an enterprise.

(b)

A project consists of seven activities for which relevant data are given below:

(i)

Draw the network

(ii)

Name and highlight the critical path.

Activity Preceding activity Activity duration (days)

A
B
C
D
E
F
G —
—
—
A, B
A, B
C, D, E
C, D, E 4
7
6
5
7
6
5

(c)

A Ltd. makes 2 products, Tables (T) and Chairs (C), which must be processed through Assembly (A) and Finishing (F) departments. Assembly has 60 hours available per week; finishing can handle upto 48 hours a week.

P.T.O.

( 4 )

Marks

Manufacture of one table requires 4 hours of assembly and 2 hours in finishing. Each chair requires 2 hours in assembly and 4 hours in finishing.
Profit is Rs. 80 per table and Rs. 60 per chair. Choose the best combination of chairs and tables to be produced to maximize profit.

(i)	Formulate the Linear Programming model equations.
(ii)	Present graphically.
(iii)	What is the maximum profit?
Use the graph provided as follows

5+6+8

(a)

The following figures are available. Find out the missing figures, giving appropriate formulae:

		Rs.
Budgeted profit	15,000
Less: Adverse variances:
Contribution price variance Direct materials variance Fixed overhead variance	10,600 1,000 600	(12,200)
Add: Favourable variances
Contribution quantity variance Direct wages variance Variable overhead variance Actual profit	1,800 600 1,800	4,200 7,000
There is no inventory Production units = Sales units for both actual and budget. Other Information
Standard selling price Standard variable cost Standard contribution Actual selling price Budgeted sales		Rs. 18/unit Rs. 15/unit Rs. 3/unit Rs. 17/unit 10,000 units

LG	Contind...

( 5 )

Marks

Standard material cost p.u. = Re. 1 (which is 5 kg. @ Rs. 20 Paise/kg.).
Material usage variance = 400 (Adv.)
Actual labour hours @ actual rate = Rs. 63,000
Actual labour hours @ standard rate = Rs. 61,950
Variable overhead standard rate = Rs. 2
Standard hours of production = 4 per unit
Variable overhead at standard rate = Rs. 84,800.
Variable overhead expenditure variance = 400 (A).
Budgeted fixed overhead = Rs. 15,000.
Find out the following:
(i)	Actual sales units
(ii)	Actual sales rupees
(iii)	Actual quantity of raw materials used
(iv)	Labour efficiency variance
(v)	Actual variable overhead in rupees
(vi)	Variable overhead efficiency variance
(vii)	Actual fixed overheads
(viii)	Operating profit variance.

(b)

Under the single plan, record the journal entries giving appropriate narration, with indication of amounts of debits or credits alongside the entries, for the following atransactions using the respective control A/c.

(i)	Material price variance (on purchase of materials)
(ii)	Material usage variance (on consumption)
(iii)	Labour rate variance.

(c)

Explain with a diagram the value chain activities within the firm with suitable classifications under primary and support activities and also the industry value chain indicating what the end use consumer pays for.

8+6+5