CWA/ICWA Inter :: Cost and Management Accounting: June 2004

*I-5(CMA)* *Revised Syllabus*
Time Allowed : 3 Hours	Full Marks : 100
Answer Question No. 1 which is compulsory and any five from the rest .
		Marks

(a)

Match the following correctly:

Relevant costs
Primary packing materials
Subsidised canteen facility
Normal capacity
Ratio analysis
JIT system

Helps in financial forecasting and planning
Practical capacity
Indirect materials
Control nof inventory
Long-term average capacity based on sales
expectancy
Value analysis
Future costs affected by decisions taken
Direct materials
Non-monetary incentive

1 x 6

(b)

Fill in the blanks correctly:

(i)	Work study consists of ______ and ______.
(ii)	Two methods used for calculation of equivalent production are ______ and ______.
(iii)	Two ratios used to assess the liquidity of a firm are ______ and ______.
(iv)	Economic Batch Quantity depends on ______ and ______ costs.
(v)	Normal idle time cost should be charged to ______ while that due to abnormal reasons should be charged to ______.
(vi)	Flexible budget recongnises the difference between ______ and ______.

1 x 6

(c)

Choose the correct answer from the brackets, supported by brief workings:

(i)	A company with a contribution/sales ratio of 33 1/3% and fixed cost of Rs. 3 lakhs per month should have a monthly sales of Rs. ______ lakhs to maintain a margin of safety of 10%. (8, 10, 12).
(ii)	If the capacity usage ratio of a production department is 90% and activity ratio is 99% then the efficiency ratio of the department is ______%. (120, 110, 90).
(iii)	The output of three different products P, Q and R in a factory are 20,000 kg, 15,000 kg and 15,000 kg respectively. If the costs are in the proportion 4: 6: 7 then the cost per equivalent unit is Rs. ______. (10, 7, 5).
(iv)	The budgeted fixed overheads for a budgeted production of 10,000 units is Rs. 20,000. For a certain period the actual production was 11,000 units and actual expenditure came to Rs. 24,000. Then the volume variance is Rs. ______. [4,000 (A), 2,000 (F), 2,000 (A)].

2x4=8

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( 2 )

I-5(CMA)
Revised syllabus

Marks

(a)

For the manufacture of a certain product two components A and B are used. The following particulars about these components are available

Normal usage (per week)
Maximum usage (")
Minimum usage (")
Reorder quantity
Reorder period A
60 nos.
80 nos.
30 nos.
400 nos.
4 to 6 weeks B
60 nos.
80 nos.
30 nos.
600 nos.
2 to 4 weeks

You are required to calculate for each component:

(i)	Reordering level;
(ii)	Minimum level;
(iii)	Maximum level;
(iv)	Average stock level.

(b)

Gain More Ltd. showed a net loss of Rs. 6,30,000 as per the financial accounts for the year ended 31st March 2004. The cost accounts however disclosed a loss of Rs. 5,00,000 for the same period. On sorutiny of the two accounts the following are available:

Factory overheads under-recovered
Administrative overheads over-recovered
Depreciation charged to financial accounts
Depreciation charged in cost accounts
Interest on investment not included in cost accounts
Income Tax provided in financial accounts
Stores adjustments (credit in financial accounts) Rs.
70,000
30,000
1,50,000
1,20,000
30,000
1,00,000
10,000

Prepare a Memorandum Reconciliation Account.

A certain raw material on undergoing a chemical process yields three products A, B and C and by-product X. The relevant particulars of the process for a month are given below:

Joint processing cost:
Raw materials
Other materials
Direct labour
Production overheads
: 20,000 kg @ Rs. 15
: Rs. 13,600
: 400 hours @ Rs. 20
: Rs. 1,00,000

Output, selling price and other particulars:

Product	Output (kg)	Selling price/kg if sold without further processing	Further processing cost	Selling price/kg after futher processing
A B C X	8,000 6,000 5,000 500	Rs. 28 Rs. 30 Rs. 32 Rs. 6	Rs. 56,000 Rs. 60,000 Rs. 60,000 Rs. 1,500	Rs. 38 Rs. 42 Rs. 43 Rs. 8

Required

(a)	If the company apportions the joint cost after taking credit for the sale value of the by-product, in proportion to the sale value of the three main products at point of separation, what is the cost per kg of each production at that stage?
(b)	Which of the products should be processed further? Show workings.
(c)	What is the profit earned if all the main products are sold without further processing? Give productwise details.
(d)	If further processing is done as suggested in (b), what is the profit earned? Give productwise details.

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( 3 )

I-5(CMA)
Revised syllabus

Marks

The following information relating to the third and last quarter of 2003-04 are furnished by a company which manufactures and sells a single product:

Sales	Third quarter (Actual) Rs. 6,24,000		Last quarter (Estimate) Rs. 6,60,000
Inventory of raw materials and finished goods:

Raw material 'A' (kg)
Raw material 'B' (kg)
Finished goods (units)

Opening
balance
25,000
12,650
670

Closing
balance
23,500
13,400
700

Closing
balance
25,000
15,000
1,000

Unit cost data:
Raw material 'A' (kg)
Raw material 'B' (kg)
Direct labour (Machine time 5 hrs. @ Rs. 4)
Assembly 2 hrs. @ Rs. 5 (labour time)

: 10 kg @ Rs. 3
: 5 kg @ Rs. 2
: Machine shop

= Rs. 30
= Rs. 10
= Rs. 20
= Rs. 10

Production overheads:
Machine shop @ Rs. 12 per machine hr.
Assembly @ Rs. 10 per labour hr.

Selling and Administration O.H. : 20% of production cost
Profit margin : 10% on selling price.

Your are required to prepare for the last quarter of the year

(a)	Production budget (in units)
(b)	Purchase budget (quantity and value)
(c)	Production cost budget.

(a)

A company has a project to install a new machine exclusively for the manufacture of a new product which is expected to have good demand and reasonably high margin. Maximum possible annual sales may not exceed Rs. 50 lakhs and if there is competition it may fall considerably. The company has obtained quotations and short listed two offers for the new machine. Details in respect of the two models are given below:

	Machine models
Maximum possible sales per year Fixed costs per year Estimated profit for maximum sales	Rs. 50 lakhs 5 lakhs 15 lakhs		Rs. 50 lakhs 8 lakhs 17 lakhs

You are required to calculate:

(i)	Break even sales of each machine;
(ii)	Sales at which both models will give the same profit;
(iii)	Range of sales over which one model is better than the other.

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( 4 )

I-5(CMA)
Revised syllabus

Marks

(b)

For the final assembly of a product in an engineering company, a certain component is required. The company has the options either to produce the component itself or purchase it from the market. The production department which can make the component is currently working to full capacity and earning a contribution of Rs. 10 per hour on an order which will last for another ten months. Repeat orders are very likely. Variable cost of making the component is Rs. 42 and its takes one hour per unit. Market price of the component is Rs. 45 per unit.
What advice will you give to the management of the company?

The following information is furnished by a company for the year ended 31st March 2004:

Current Ratio
Liquid Ratio
Total Assets Turnover (based on sales)
Fixed Assets Turnover

: 2.8
: 1.6
: 2/3
: 1.25

Long-term loans : Current Liabilities
Average Collection Period
Reserves : Capital

: 1.8
: 3 months
: 0.6

Sales for the year amounted to Rs. 40 lakhs. All sales are on credit.
Prepare the Balance Sheet of the company as on 31st March, 2004.

Explain the significance of cost reduction in the present global economy. Mention some important techniques used for cost reduction. Also mention the important areas in a manufacturing company to be subjected to cost reduction drives.

Write short notes on any four of the following:

(a)	Differential cost analysis;
(b)	Uniform costing;
(c)	Angle of incidence;
(d)	Labour turnover;
(e)	Flexible budget.

4x4=16

__________