CWA/ICWA Inter :: Cost and Management Accounting: June 2006

In the following cases one of the answers is correct. Choose the correct answer and give your workings/reasons briefly:

State whether the following statements are True (T) or False (F):

(i)	National expenses are not included for ascertaining cost.
(ii)	Mention rating is same as Job evaluation.
(iii)	A firm which has a very high current ratio and very low liquid ratio, has a low level of inventory.
(iv)	Units that do not meet production standards and must be processed further in order to be stable as good units or irregulars are called Spoiled units.
(v)	Labour cost may be viewed as a Committed cost rather than discretionary cost.

The profit for the year did not match with Company's expectation and works management attributed it to Labour turnover.

Analysis of the data revealed the following:
Permanent workmen worked during the year	960,000	Direct labour hours
Apprentice workmen worked	80,000	Direct labour hours
	1,040,000	Direct labour hours

The effectiveness of Direct labour hours put in by apprentice workmen was 50% and delay in replacing against separations during the year resulted in loss of 20,000 Direct labour hours.

You are required to calculate the loss of Profit on account of loss of production from Labour turnover.

BMS LTD. has prepared annual budget for the year ending 31.3.07 on the basis of 60% capacity utilisation.
Summarised budget is given below:

Construct a Flexible Budget for 50%, 75% and 90% capacity utilization, showing (a) Variable & Semi - Variable cost (b) Cost of Sales and (c) Profit — with the help of the following assumptions:

(i)	Fixed expenses remain constant at all levels of activity.
(ii)	Semi - variable expenses remain constant between 45% and 64% capacity, increasing by 10% between 65% and 80% capacity, and by 20% above 80% capacity.

What are equivalent units of production? Mention two principal methods of calculating equivalent units.

SBL LTD. furnishes you the following information relating to process-B for the month of April, 2006:

(i)	Opening work-in-progress: NIL.
(ii)	Units introduced—10,000 units @ Rs. 5 per unit.
(iii)	Expenses debited to the process-B: Processing Materials — Rs. 24,600; Direct Labour — Rs. 10,400; Overheads — Rs. 5,000.
(iv)	8,000 units of finished output were transferred to the next process during the month.
(v)	Normal Loss in process — 10% of input.
(vi)	Closing work-in progress — 800 units. Degree of Completion: Material — 100%; Labour & Overheads — 50%.
(vii)	Degree of Completion of Abnormal Loss: Material — 100%; Labour & Overheads — 80%.
(viii)	Scrap realisation: Normal Loss — @ Rs. 2 per unit; Abnormal Loss—@ Rs. 4 per unit. You are required to prepare: (1) Statement of Equivalent production. (2) Statement of Cost of each element. (3) Statement of Evaluation. (4) Process-B Account. (5) Abnormal Loss Account.

The Summarised budget and Actual working results of GEMCO LTD. for the year 2005-06 are given below.

NOVINA INDUSTRIES LTD. has received an export order for its only product that would require the use of half of the factory's present capacity of 400,000 units per annum. The factory is currently operating at 60% level to meet the demand of its domestic market.

As against current price of Rs. 6.00 per unit, the export order offers @ 4.50 per unit, which is less than the cost of production, the details of which are given below:

Direct Materials Direct Labour Direct Expenses Fixed Overheads

— — — —

Re. Re. Re. Re.

2.50 per unit 1.00 per unit 0.50 per unit 1.00 per unit

The condition of the export is that it has either to be accepted in full or totally rejected. The following alternative proposals are available for decision:

A.	Accept the order and keep domestic sales unfulfilled to the extent of the excess demand for the same.
B.	Increase factory capacity by installing a few balancing machinery and equipments and also by working extra time to meet the balance of the required capacity. This will increase fixed overheads by Rs. 20,000 annually and the additional cost of Overtime will work out to Rs. 40,000 per annum.
C.	Out-source the production of additional requirement by supplying direct materials and paying Conversion charges of Rs. 1.75 per unit to small converter, and engaging one Supervisor at a cost of Rs. 3,000 per month to look after quality, packing and despatch.
D.	Reject the order and remain with the domestic market only.
As a Management Accountant, you are required to make comparative analysis of various proposals and suggest which of the alternative proposals is the most attractive to Novina Industries Ltd.

The following accounting information and financial ratios of ZENITH LTD., pertain to the year ended 31.3.2006:

		Rs.
Paid up Capital Plant and Machinery Total Sales (Annual) Sales Return Annual Credit Sales Gross Profit Margin Current Ratio Inventory Turnover Ratio (Cost of Sales) Fixed Assets Turnover (Net Sales) Average Collection Period Bank Credit to Trade Credit Cash to Inventory Total Debt to Current Liabilities	20% Sales 80% of Net Sales 25% 2 4 2 73 Days 2 1 : 15 3	200,000 500,000 2,000,000

You are required to prepare Balance Sheet of Zenith Ltd. as on 31.3.2006 showing the details of workings. Ignore Taxation.