CWA/ICWA Inter :: Management Accounting-Performance Management: December 2005

*I-9(MPM)* *Revised Syllabus*
Time Allowed : 3 Hours		Full Marks : 100
The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory and another five questions from the rest .
Marks

(a)

Match the following by choosing the correct statement from column II for each expression under column I:

Column I		Column II
(i)	Measure of probability	(a)	Evaluation of alternative investment opportunities
(ii)	Angle of incidence	(b)	Consider goal congruence
(iii)	P/V graph	(c)	Return on capital employed
(iv)	Simulation	(d)	Profit path of product
(v)	Transfer Pricing	(e)	Relationship between profit and sales

1x5=5

(b)

From the following choose the most appropriate answer:

(i)

Labour Cost Variance is the differnce between

(a)	Standard labour cost and and the actual labour cost;
(b)	Fixed labour cost and variable labour cost;
(c)	Estimated labour cost and standard labour cost.

(ii)

If the PV ratio is 40% and the sales value is Rs. 10,000, the variable cost is:

(a)	Rs. 40,000;
(b)	Rs. 4,000;
(c)	None of the above.

(iii)

If sales and fixed cost remains unchanged, contribution will remain unchanged when

(a)	Revised profit increased;
(b)	Fixed costs at new capacity are increased;
(c)	Variable cost per unit increases.

(iv)

If sales are Rs. 2 lacs, fixed cost Rs. 30,000, and the PV ratio is 40%, the profit will be

(a)	Rs. 50,000;
(b)	Rs. 80,000;
(c)	Rs. 12,000.

(v)

Contribution is known as

(a)	Marginal income;
(b)	Gross profit;
(c)	Net income.

1x5=5

(c)

Which of the following statements are TRUE or FALSE?

(i)	Feasible solution in LPP is always optimum solutiom.
(ii)	ZBB reverses the working process of traditonal budgetting.
(iii)	The excess of actual sales revenue ove the sales revenue at BEP is known as Margin of Saftey.
(iv)	The Balanced Score Card has five perspectives.
(v)	Just-in-Time deals with controlling defects in time.

1x5=5

(d)

Define the following terms in not more than two sentences:

(i)	Benchmark.
(ii)	Cost of Capital.
(iii)	Decision Model.
(iv)	Investement Centre.
(v)	Product Lifr Cycle.

1x5=5

Please turn over

( 2 )

I-9(MPM)
Revised syllabus

Marks

Astha Insurance Ltd. process a variety of insurance claims for losses, accidents, thefts, and so on. Account analysis has estimated the varialble cost of processing each claim at 0.5% (.005) of the Rupee value of the claim. This estimate seemed reasonable because higher claims often involve more analysis before settelement. To control processing costs better, however, Astha Insuarance conducted an activity analysis of claims processing. The analysis suggested that more appropriate cost drivers and behaviour for automobile accident claims are:
    0.2% of Astha Insurance policyholders' property claims
  +0.6% of other parties' property claims
  +0.8% of total personal injury claims
Data from two recent auromobile accident claims are as under:

Automobile Claim
No. A/893405 Automobile Claim
No. A/578341

Policyholder Claim
Other party Claim
Personal Injury Claim Rs. 4,500
0
Rs. 12,400 Rs. 13,600
Rs. 3,400
0

Total Claim Amount Rs. 16,900 Rs. 27,000

10+6

Required:

(i)	Estimate the cost of processing each claim using data from account analysis and then the activity analysis.
(ii)	How would you recommend that Astha Insurance estimate the cost of processing claims?

(a)

Why do transfer-pricing systems exist?

(b)

Identify the relative advantages and disadvantages of basing trasfer-pricing on total costs, variable costs, and market prices.

(c)

Identify the factors affecting multinational transfer-prices.

4+4+4
+2+2

Viswakarma Enterprises conduct a study for its maintenance shop and found that the inter arrival times at tool crib are exponential with an average time of 10 minutes. The length of the service time (amount of the time taken by the tool-crib operator to meet the needs of the maintenance man) is assumed to be exponentially distributed, with mean 6 minutes. Find:

(i) The probability that a person arriving at the booth of the shop will have to wait.

(ii) Average length of the queue that forms and the average time that an operator spend in the queue system.

(iii) The manager of the shop will install a second booth when an arrival would have to wait 10 minutes or more for the service. By how much must the rate of arrival be increased in order to justify a second booth?

(iv) Estimate the fraction of the day that tool crib operator will be idle.

(v) The probability that there will be six or more operators waiting for the service.

( 3 )

I-9(MPM)
Revised syllabus

Marks

(a)

Explain what is a Flexible Budget and state how this budget is useful to management.

(b)

What is known as the principal Budget Factor?

(c)

Brilliant Ltd. is engaged in production of certain products, 100% capacity being 10000 units per month. Givenbelow are the information for the just concluded previous two months:

Month 1 Month 2

Units produced 6000 9000

Cost (other than direct material and labour)

Salaries
Power
Consumable Stores
Repair
Indirect Shop Labour
Depreciation
Inspection Rs.
30000
30000
30000
40000
15000
25000
10000 Rs.
30000
39000
45000
46000
22500
25000
13000

Rate of production per hour is 10 units. Direct material costs are Rs. 20 per unit and direct labour hour costs per hour are Rs. 80. You are required to compute cost of production segregating fixed, semi-variable and variable costs seperately at 100%, 80% and 50% capacity utilisation levels respectively. Also work out the overhead absorbtion rate per hour at 100% capacity utilisation level. (Show your workings as part of the answer.)

(a)

What is Resposibility Center? Briefly differentiate costs, profit and investement centres identifying the basic characteristics of each.

(b)

ZED Ltd. produces two products, P and Q. The budgeted selling price per unit for P and Q are Rs. 3600 and Rs. 4320 respectively. Variable costs of productio and sales for P and Q are Rs. 1800 and Rs. 3600 respectively. Annual fixed cost of the company amounted to Rs. 176000. The company has two different production/sales options as under
Option 1—A mix of 2 units of P for every 3 units of Q
Option 2—Amix of 1 unit of P for every 2 units of Q
Find out the combined Break Even point under each option and the optimal mix that the company should adopt.

(a)

For a company engaged in the manufacture of three products A, B, C, the available data is given below:

Table—1
Product
A
B
C
Minimum sales required per month
20
40
60

Table—2
Operations
Hrs required per item of
Total available hours per month

1
2
3 A
2
4
6 B
4
2
2 C
4
2
4
800
880
720

Table—3

Product
A
B
C

Profit per unit (Rs.)
20
30
16

To find out the product mix and to maximize profit, formulate the problem as a Linear programming model.

(b)

What are the benefits to an organisation on implementation of an ERP system?

Write short notes on any four from the following:-

(a)	Important features of a Performance Management System;
(b)	Zero Based Budgeting;
(c)	Behavioural consideration in Standard costing;
(d)	Cost Volume Profit Analysis;
(e)	Material Requirement planning.

4x4=16

__________

CWA/ICWA Inter :: Management Accounting - Performance Management : December 2005