CWA/ICWA Inter :: Management Accounting—Performance Management : June 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

PART — A
1. (a) Match the following by choosing the correct statement from Column II for each expression under Column I:
Column IColumn II
(i)Balance Score Card(a)Production line runs on a demand-pull basis.
(ii)Linear Programming(b)Links financial and non-financial measures.
(iii)Angle of Incidence(c)Integrates operation process and information
flows of organisation.
(iv)Enterprise Resource Planning(d)Profit earning capacity.
(v)JIT Production(e)A constraints optimisation technique.
 1x5=5
(b) From the following choose the most appropriate answer:
(i)Period cost means
(A)Variable cost;
(B)Fixed cost;
(C)Prime cost.
(ii)If the fixed cost is Rs. 10,000 and profit-volume (PV) ratio is 50% the break-even will be
(A)Rs. 20,000;
(B)Rs. 50,000;
(C)Rs. 10,000.
(iii)

Increase in capacity reduces the margin of safety if
(A)Total cost remains unchanged;
(B)Fixed costs at new capacity are increased;
(C)Fixed costs increase and sales grow.

(iv)An increase in sales price
(A)Lowers the BEP;
(B)Increase the BEP;
(C)Lowers the new profit.
(v)An increase in variable cost
(A)Reduces contribution;
(B)Increases PV ratio;
(C)Increases margin of safety.
 1x5=5
(c) Which of the following statements are TRUE or FALSE?
(i)A Budget is prepared for different segments of a business.
(ii)JIT philosophy is dedicated to the elimination of waste.
(iii)

Labour efficiency variance is the difference between standard hours for actual output and actual hours.

(iv)Recovered overheads and absorbed overheads mean one and the same thing.
(v)ERP bridges the information gap across the organisation.
 1x5=5
(d) Define the following terms in not more than two sentences:
(i)Perfection Standards;
(ii)Capacity Cost;
(iii)Cross Sectional Comparison;
(iv)Financial Planning Model;
(v)Economic Value Added (EV)
 1x5=5
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( 2 )

I-9(MPM)
Revised syllabus		 Marks
PART — B
2. (a) What do you understand by Budget Manual? 3
(b) What are the role of Budget Committee? 4
(c) Based on the data given below show the calculation of
(i)Efficiency ratio;
(ii)Production volume ratio;
(iii)Idle capacity volume ratio.
DataStandard hour
of output		Hours of
actual operations
Theoretical capacity
Theoretical capacity less unavoidable loss time
Planned activity for period
Actual activity for period		 100
95
81
68		 100
95
90
85
 9
3. (a) Briefly describe the merits and demerits of cost based and market based transfer price. 6
(b)

NOVELTY LTD. has two divisions-divisions DB. Division DA is currently operating at full capacity. It has been asked to supply its product to division DB. Division DA sells its product to its regular customers for Rs. 60 each. Division DB, currently operating at 50 per cent capacity, is willing to pay Rs. 40 each for the component produced by division DA (this represents the full absorption cost per component at division DA). The components will be used by division DB in supplementing its main product to conform to the need of special order. As per the contract terms of sale, the buyer calls for re-imbursement of full cost to division DB, plus 10 per cent.

 2+5+3

Division DA has a variable cost of Rs. 34 per component. The cost per unit of division DB subsequent to the buying part from division DA is estimated as follows:

Purchased parts-outside vendors
Purchased component from division DA
Other variable costs
Fixed overheads including administration		 Rs.
180
40
100
80
400

The company uses return on investment (ROI) in the measurement of divisional and Division Manager's performance.
Required:
(i)

As Manager of division DA would you recommend sales of your product to division DB at the stipulated price of Rs. 40?

(ii)

Would it be in the overall interest of the company for division DA to sell its product to division DB?

(iii)

Suggest an alternative transfer price and show how could it lead to goal congruence.
4. (a)

Define Residual Income and state its advantages and disadvantages in appraisal of divisional performance.

 6
(b)

Apparel division of ALERT LTD. has employed Rs. 20 lakhs and earned an annual profit (after depreciation) of Rs. 3,50,000. The Divisional Manager is considering an investment of Rs. 80,000 in an asset which will have a eight-year life with no residual value and will earn a constant annual profit after depreciation of Rs. 12,800. The cost of capital is 15 per cent. Ignore taxation.
You are required to work out:
(i)

the return on divisional investment and the divisional residual income before and after the new investment.

(ii)

the Net Present Value (NPV) of the new investment. (PV factor of an annuity of Re. 1 for 8 years at 15% = 4.4873.)
Also comment on the results.

 3+3+4
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( 3 )

I-9(MPM)
Revised Syllabus

Marks
5. (a)

FOAMSTAR LTD: makes three main products using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an Activity Based Costing (ABC) system is being considered. Details of the three products for a typical period are:
Hours per unitMaterialsVolume
Labour
hours		Machine
hours		per unit
hour		units
Product P
Product Q
Product R		 0.50
1.50
1.00		 1.50
1.00
3.00		 20
12
25		 750
1250
7000

Direct labour costs Rs. 6 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is Rs. 28 per machine hour.
Further analysis shows that the total of production overheads can be divided as follows:

Cost relating to set ups
Cost relating to machinery
Cost relating to materials handling
Cost relating to inspection		 %
35
20
15
30
Total production overhead100

The following activity volumes are associated with the product line for the period as a whole. Total activities for the period:
Number of
set-ups		Number of movements
of materials		Number of
inspections
Product P
Product Q
Product R		 75
115
480
670		 12
21
87
120		 150
180
670
1000
Required:
(i)

Calculate the cost per unit for each product using conventional methods;

(ii)

Calculate the cost per unit for each product using Activity Based Costing (ABC) principles;

(iii)

Comment on the reasons for any differences in the costs in your answers to (i) and (ii)

 2+7+3
(b) In what circumstances is a company justified in selling its products at a price below variable cost? 4
6. (a)

A Department head has four subordinates and four tasks have to be performed. Subordinates differ in efficiency and takes differ in their intrinsic difficulty. Time each man would take to perform each task is given in the effectiveness matrix. How the task would be allotted to each person so as to minimize the total man-hours?
Subordinate

A
B
C
D		 I
8
13
38
19		 II
26
28
10
26		 III
17
4
18
24		 IV
11
26
15
10

Tasks
 
(16 marks)
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( 4 )

I-9(MPM)
Revised syllabus		 Marks
7. (a) Following data are in respect of a firm manufacturing a single product for a particular period:

Sales (20000 units)
Cost of production (20000 units)
Selling and distribution expenses
Maximum capacity (25000)		 Rs.
2,00,000
1,20,000
30,000
 5

Fixed costs included in cost of production are Rs. 40,000 and only variable cost included in selling and distribution expenses are commission @ 10% on sales and packing expenses @ 20 p. per unit.
(1)

An offer for purchase of 4000 units is received from outside India. No sales commission is payable on such foreign order but packing costs will be 80 p. per unit. What minimum price may be quoted for the foreign offer?

(2)

What should be the minimum price had the offer size been 8000 units instead of 4000 units?

 4+4=8
(b) In a manufacturing process the following standards apply:
Standard prices:Raw material A Rs. 10 per kg
B Rs. 50 per kg.
Standard mix:75% A and 25% B (by weight)
 8
Standard output (weight of product as a percentage of weight of raw material)——90%.
In a particular period actual costs, usages and output were as follows:
4400 kgs of A costing Rs. 46,500
1600 kgs of B costing Rs. 78,500
Output 5670 kgs of product.
The budgeted output for the period was 7200 kgs.
Compute the material cost variances.
8. Write short notes on the following (any four):
(a)Management Control System in Non-Profit Organization;
(b)Value Engineering;
(c)Target costing;
(d)Simulation;
(e)Benchmarking.
 4x4=16

__________

 

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