CWA/ICWA Inter :: Cost and Management Accounting: June 2005

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
1. (a) Match the following correctly with what is relates:
Uniform costing
Variance analysis
Point rating
Liquidity
Value engineering
Stepped cost		 Supervisors' salaries
Decision making
Design of the product
Technique to assist inter-firm comparison
Job evaluation
Engineered cost
Management by exception
Quick ratio
Method of costing
1x6
(b) State whether the following statements are True (T) or False (F):
(i)If an expense can be identified with a specific cost unit, it is treated as direct expense.
(ii)

Time and motion study which is a function of the engineering department, is useless for the determination of wages.

(iii)Fixed costs vary with volume rather than time.
(iv)The relationship of value, function and cost can be expressed as Cost = Value/Function;
(v)Future costs are not relevant while making management decisions.
(vi)In break-even analysis it is assumed that variable costs fluctuate inversely with volume.
 1x6
(c)

In the following cases one of the answers is correct, Choose the correct answer and give your workings/reasons briefly:
(i)

The current ratio of BM Ltd. is 2 : 1, while quick ratio is 1.80 : 1. If the current liabilities are Rs. 40,000, the value of stock will be
A:Rs. 6,400
B:Rs. 8,000
C:Rs. 10,000
D:Rs. 12,000

(ii)

a Company maintains a margin of safety of 25% on its current sales and earns a profit of Rs. 30 lakhs per annum. If the company has a profit volume (P/V) ratio of 40%, its current sales amount to
A:Rs. 200 lakhs
B:Rs. 300 lakhs
C:Rs. 325 lakhs
D:None of the above.

(iii)

In a factory of PEE Ltd. where standard costing is followed, the budgeted fixed overheads for a budgeted production of 4800 units is Rs. 24,000. For a certain period actual expenditure incurred was Rs. 22,000 resulting in a fixed overhead volume variance of Rs. 3,000 (Adv.). Then actual production for the period was
A:5400 units
B:4200 units
C:3000 units
D:None of the above.

(iv)

ZEE Ltd. uses material — A for the production of product M. The safety stock of material A is 300 units; the supplier quotes a delivery delay of two or three weeks. If the company uses 500 to 800 units a week according to the activity levels, the re-order level of material -A will be
A:2300 units
B:2400 units
C:2700 units
D:28 units.

 (1+1)
x4=8
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( 2 )

I-5(CMA)
Revised syllabus		 Marks
2. (a)

What are over and under-absorption of overheads? How are such under or over absorbed overheads treated in cost accounts?

 2+2+2=6
(b)

A machine shop of Avon Ltd. has six identical machines manned by 6 operators. The machines cannot be worked without an operator wholly engaged on it. The cost of all these 6 machines including installation charges works out to Rs. 12 lakhs and these machines are deemed to have a scrap value of 10% at the end of its effective life (9 years). These particulars are furnished for a six month period:

 10
Normal available hours, per month
Absenteeism (without pay) hours
Leave (with pay) — hours
Stoppage for repairs and maintenance etc. — hours
Average rate of wages per day of 8 hours
Production bonus estimated
Value of power consumed
Supervision and indirect labour
Lighting and electricity
These particulars are fo a year:
Repairs and maintenance including consumables
Insurance
Other sundry works expenses
General management expenses allocated




15%
Rs.
Rs.
Rs.

Rs.
Rs.
Rs.
Rs.		 218
18
20
20
Rs. 80
on wages
24,150
9,900
4,800

36,000
60,000
36,000
1,09,0404
You are required to work out a comprehensive machine hour rate for the machine shop.
3. The annual flexible budget of TBA Ltd. is as follows: 4+12
Production Capacity
Costs
Direct wages
Direct material
Production overheads
(Fixed and variable)
Administrative overheads
(Fixed and variable)
Selling and distribution overheads
(Fixed and variable)		 40%
Rs.
20,000
16,000

11,400

5,800

6,200		 60%
Rs.
30,000
24,000

12,600

6,200

6,800		 80%
Rs.
40,000
32,000

13,800

6,600

7,400		 100%
Rs.
50,000
40,000

15,000

7,000

8,000
Total59,40079,60099,8001,20,000

The company is presently passing through a period of very lean market demand and operating at 50% capacity and have also selling its product at a discounted price generating a total sales revenue of Rs. 60,000 at that level.
It is expected that the market scenerio will improve in the next year and, on a conservative estimate, the company is likely to operate at 70% capacity level with increased sales revenue of Rs. 1,20,000.
As an option, the management is considering to close down the operation for one year and restart operation after one year when the market conditions are likely to improve. If closed down for the year it is estimated that
(i)The present fixed costs will reduce by 60%;
(ii)There will be a cost of Rs. 10,000 towards closing down operations;
(iii)To maintain a skeleton maintenance service for which Rs. 24,000 to be incurred;
(iv)

An initial cost of re-opening of Rs. 20,000 to be incurred.
The other option is to keep the factory operational for one year and wait for better time next year.

You are required to work out the profitability under the two options and give your comment.
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( 3 )

I-5(CMA)
Revised syllabus		Marks
4 (a)

Modern Mills Ltd. manufactures certain grades of products known as M, B1, and B2 emerge. The joint expenses of manufacture amount of Rs. 2,37,600.
All the three products are processed further after separation and sold as per details given below:

 5+3
Product—M(By-Product)

Sales
Cost incurred after separation
Profit as percentage on sales
Rs. 2,00,000
Rs. 20,000
25		 Product B1
1,20,000
15,000
20		 Product B2
80,000
10,000
15

Total fixed selling expenses are 10% of total cost of sales which are apportioned to the three products in the ratio of 20 : 40 : 40.
Required
(i)Prepare a statement showing the apportionment of joint costs to the products (M, B1 and B2).
(ii)

If the Product B1, (by product) is not subject to further processing and is sold at the point of separation, for which there is a market at Rs. 1,00,440 without incurring, any selling expenses, would you advise its disposal at this stage? Show the workings.
(b)

ACME Company is considering there proposals for conveyance facilities for its sales staff, who normally travels on an average 20000 kilometres per annum locally. The proposals are as follow:
I.

Purchase and maintain own fleet of cars. Average cost of a car is Rs. 2.50 lakhs. Petrol consumption is @ 12 kms/litre. Each has a resale value of Rs. 50,000 at the end of five years.

II.

Allow the executives to use their own car and reimburse expenses @ Rs. 5 per km and Insurance premia.

III.

Hire cars from outside agency for Rs. 30,000 per year per car.
The company shall also bear the cost of petrol (Rs. 3.75 per kms), taxes and tyres etc.
Following cost data are available for consideration:
(i)Petrol—Rs. 45 per litre
(ii)Repairs and maintenance—@ 50 paise per km
(iii)Insurance—Rs. 4,800 per year per car
(iv)Taxes—Rs. 2,400 per year per car;
(v)Tyres—@ 40 paise per km.
(vi)Driver's wages and Bonus Rs. 30,000 per annum per car which of the proposals is acceptable?

 5+3
5. (a)

MPC Ltd. of Mumbai presently sells an equipment for Rs. 42,000. Increase in prices of material and labour cost are anticipated to the extent of 10% and 20% respectively in the coming year. Material cost represents 40% of cost of sales and labour cost 30% of cost of sales. The remaining relate to overheads.
If the existing selling price is retained, despite the increase in labour and material prices, the company would face a 25% decrease in the existing amount of profit on the equipment.
Required:
(i)

Calculate a selling price so as to give the same percentage of profit on increased cost of sales, as before.

(ii)

Prepare a statement of profit/loss per unit showing the new selling price and cost per unit in support of your answer.

 13
(b) Mention some possible courses of action to improve profit volume ratio. 3
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( 4 )

I-5(CMA)
Revised syllabus		 Marks
6. (a) Define "variance analysis". What are the ways of disposing of cost variances? 3+3=6
(b)

ZED Ltd. has a standard costing system for its single output. Their standard cost for 100 units produced are as follows:

Material — 100 kg @ Rs. 10
Labour — 40 hours @ Rs. 20 per hour
Variable factory overhead—@ Rs. 10 per standard direct labour hour
Fixed factory overhead—@ Rs. 5.00 per standard direct labour hour		 Rs.
1,000
800
400
200
2,400

 10
The following operating data were taken for May, 2005;
(i)500 units were manufactured.
(ii)Normal volume is 220 direct labour hours.
(iii)520 kgs. of material @ Rs. 11.00 were consumed.
(iv)190 labour hours @ Rs. 19.00 were used.
(v)Actual variable factory overhead Rs. 2,090.
(vi)Actual fixed factory overhead Rs. 1,150.
You are required to calculate the different cost variances.
7.

Star Enterprises Ltd. indicates the following financial ratios and performance figures for the year ending 31.3.2005;
Current ratio
Liquid ratio
Inventory turnover (on cost of sales)
Gross profit on sales
Credit allowed
Net working capital		 2.5
1.6
8
20%
1.5 months
Rs. 3 lakhsl

16

The Company's fixed assets are equivalent to 80%; of its net worth i.e. share Capital and reserve & surplus, while the latter amount to 50% of share capital.
Prepare balance sheet of the company as on 31.3.2005. Explain your workings.
8. Write short notes on any four of the following:
(a)Relevant cost;
(b)Job evaluation;
(c)Integrated accounts;
(d)Value analysis;
(e)Incentive to indirect workers.
 4x4=16

__________

 

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