| 1. | Please show your workings or give reasons for your chosen answer from each of the following multiple – choice questions. (No credit for an answer without workings/reasons) | | |
| | (a) | Nulook Ltd uses a JIT system and back flush accounting: it does not use a raw material stock control account. During May, 8000 units were produced and sold. The standard cost per unit is Rs.100: this includes materials of Rs.45. During May, Rs.4,80,000 of convention costs were incurred.
The debit balance on the cost of goods sold account for May was (A)
(B) | Rs. 8,00,000
Rs. 8,40,000 | (C)
(D) | Rs. 8,80,000
Rs. 9,20,000 |
| 4 | (0) |
| | (b) | A concern sells three products. The budgeted fixed cost for the period os Rs.6,00,000. the budgeted contribution to sales ratio (C/S ratio) and the sales mix are as under: | Product | | C/S ratio | | Mix | Super
Premium
Best | | 25%
40%
305 | | 20%
40%
40% |
What is the Break Even Sales revenue? (A)
(B) | Rs. 20,10,181
Rs.15,23,312 | (C)
(D) | Rs.18,18,181
Rs.17,60,500 |
| 4 | (0) |
| | (c) | The selling price of product P is set at Rs.1,500 for each unit and sales for the coming year are expected to be 500 units.
If the company requires a return of 15% in the coming year on its investment of Rs.15,00,000 in product P, the TARGET cost for each unit for the coming year is (A)
(B) | Rs.930
Rs.990 | (C)
(D) | Rs.1,050
Rs.1,110 |
| 4 | (0) |
| | (d) | A company makes and sells a single product. The selling price and marginal cost amount to Rs.20 per unit and are Selling price
Marginal revenue | = Rs.5 – Re.0.001X
= Rs.50 – Re.0.002X |
Where X is the product the company makes. The variable cost amount to Rs.20 per unit and the fixed costs are Rs.1,00,000.
In order to maximize the profit, the selling price should be (A)
(B) | Rs.25
Rs.30 | (C)
(D) | Rs.35
Rs.40 |
| 4 | (0) |
| | (e) | A company produces two products X and Y, which pass through two production processes P and Q. the time taken to make each product in each process is: | Product X | Product Y | Process P
Process Q | 6mins
20mins | 10mins
15mins |
The company operates a 16–hour day and the processes have an average down time each day of : Process P
Process Q | 3 hours
2 hours |
The cost and revenue for each unit of each product are: | Product X
Rs. | Product Y
Rs. | Direct materials
Direct labour
Variable overhead
Fixed costs
Total cost
Selling price | 15.00
17.00
8.00
8.00
48.00
90.00 | 15.00
12.00
6.00
6.00
39.00
80.00 |
Sales demand restricts the output of x ad Y to 40 and 60 units a day respectively.
The daily production plan that would maximize the THROUGHPUT contribution is: A
B
C
D | 40 units of X
36 units of X
3 units of X and 4 units of Y
56 units of Y |
| 4 | (0) |
| 2. | A practicing doctor who had some vacant space in his chamber established a new special unit providing two types of health check–Primary and advanced. For primary check–up the service of only a trained nurse is required and it takes 30 minutes. In case a person wants an Advanced health check–up to be done after the Primary check–up he is referred to the Doctor and an additional 60 minutes are required for medical assessment by the Doctor. The nurse and the Doctor work independently of each other. The standard labour rates are as under: Trained Nurse
Doctor | –
– | Rs.200 per hour
Rs. 500 per hour |
In the first month, it was estimated that there would be 200nos. of Primary Health check–up cases and 50 cases of Advanced Health check–up.
The fixed overhead for the specialist unit for the month was budgeted at Rs.30,000. These overheads were to be absorbed on the basis of per hour spent on check–up.
The actual results for the particular month were: | (a) | Check–up carried out :
Primary Health check–up
Advance Health check–up |
– 220 nos
– 60 nos. | | (b) | Time spent on check–up:
Trained nurse
Doctor |
– 125 hours
–70 hours. | | (c) | Amount spent on:
Trained nurse
Doctor |
– Rs.30,000
– Rs. 42,000. | | (d) | Fixed overheads amounted to Rs.35,000. |
You are required to | (i) | Calculate standard cost of Primary Health check–up and Advanced Health check–up. |
| (ii) | Prepare an operating cost statement for the month for the specialist unit showing standard cost and actual cost with variances. |
| 16 | (0) |
| 3. | Two joint products X and Y emerge at the end of Process I. Both the products can be sold at the split–off stage at Rs.12 per kg respectively,subject to selling expenses. 10% of the input into process I turns out into a By–product –A–. which can be sold at split–off stage at a price of Rs.2 per kg less Re.0.50 per kg for packing, forwarding and freight. Product X can be processed further in Process if whereupon it becomes Product Super X and can be sold at Rs.20 per kg. During this process 5% of the input emerges as another By–product–B– and it can be sold at Rs.3 per kg less re. 1 for packing, forwarding and freight.
Estimates of production and costs for a year are as under: | Production – | Product Super X
Product Y | 2,18,500 kg
3,55,000 kg | | Process I | Process II | | Cost | | Raw material | @Rs.4 per kg | | | Rs. | Rs. | Direct other material
Direct wages
Variable overheads
Fixed overheads | 4,00,000
8,00,000
10,00,000
15,00,000 | 1,50,000
2,00,000
3,00,000
4,00,000 | | Selling Expenses –– | Product Super X
Product Y | Rs.3,00,000
Rs. 6,00,000 |
To meet the stiff competition, the price of Super X needs to be reduced to Rs. 16 per kg. however, Product x can be still be sold at Rs.12 per kg. if the concern decides to sell product X as such the Process II will be closed down which will result in salving o f505 of direct wages. 100% of direct material costs are variable overheads. There will be a 75% saving of fixed overhead for that process. The selling expenses will be Rs.1,50,000 for product X instead of Rs.3,00,000 for Super X.
You are required to | (i) | Prepare schedule showing apportionment of joint cost to Product X and Y. |
| (ii) | Prepare a statement showing company’s profitability if Product x is sold at split–off stage and Process II closed down. |
| (iii) | Advance management about economies of processing Product X to Super X. |
| 8+6+2=16 | (0) |
| 4. | A multi product company has been producing an electronic components in its department P. the budget of department P for the next year is as under:
Budgeted Production and Sales 72,000 units. | Rs. Per unit | Selling price
Direct materials | 200 | X 1kg per unit
Y I kg per unit | 40
30 | Direct wages
Variable overheads
Fixed overheads
Total
Profit | 40
20
60
190
10 |
Subsequent to the preparation of the budget, the company offered that the setting up of an electronic park in the region where the company is situated, has resulted in migration of the majority of the departments workforce and consequently the company is forced to take a decision on the closer of the department and abandonment of the budget. The company was however, advised to produce either 24000 or 48,000 components in the next year by employing contract labour. A few remaining workers will be absorbed by the company with in the organization against vacancies. The relevant data are as under: | (a) | The cost of contract labour si Rs.6 per hour and the standard contract labour time per unit s 10 hours. The contract labour, however, will have to be trained at a fixed cost of Rs.40,000. | | (b) | The stock of material X is 72000kg. There is no other use for this material. The quantity not used in department P will have to be disposed of. The cost of disposal is Rs.4000 plus Re.1 per kg disposed off. | | (c) | The stock of material Y is 36000kg. if this material is not used in department P, a quantity up to 24000kg can be used in another department a substitute for an equivalent weight of a material which currently costs Rs.36 per kg. Material Y originally cost Rs.30 per kg and its current market price is Rs.40 per kg. if any surplus material Y is sold, it will fetch a realization of Rs.20 pre kg sold. | | (d) | The variance overheads will be 30% higher per unit produced than originally budgeted. | | (e) | If department P is to closed down immediately, the foreman who will otherwise retire at the end of next year, will be asked to retire earlier and he will be paid Rs.80,000 as compensation. His salary is Rs.6,000 per month. | | (f) | The only machine used in department P originally cost Rs. 1,40,000 and it can be currently sold for Rs.86,000. This sales values will go down to RS.80,000 at the end of the next year and if the machine is used during the next year for any production activity in the year, the sale value will further decrease by Rs.1000 per every 1000 units produced. | | (g) | The fixed overheads are apportionment of general overheads and will not be altered by any decision concerning department P. | | (h) | The sales manager states that a sales volume of 24000 units can be achieved if the selling price is set at Rs.180 per unit. He further stated that a sales volume of 48000 units will be achieved if the selling price per unit is reduced to Rs.150 and an advertisement expenditure of RS.30,000 is spent. |
Required: | (i) | Prepare a statement indicating the financial implications of the choice to be made between the following alternatives:
(A) Close down department P immediately.
(B) Operate department P for a further year to produce 24000 units of he component.
(C) Operate department P for a further year to produce 48000 units of the component. | | (ii) | Advise the management on the course of action to be taken. |
| 16 | (0) |
|
| 5. | (a) | Cauvery Silk Emporium sells a range of ties for school children. The budgeted and actual sales data for a period are as follows: | Budget | | Actual | Product Quantity
Type | | Unit selling
price
Rs. | Standard
Cost
Rs. | Quantity | Unit selling
Price
Rs. | Premium silk
Pure silk
Regular silk | 4,000
10,000
6,000 | 100
70
15 | 50
35
8 | 3,000
10,000
9,000 | 102
75
12 |
Market size for the period was estimated to be 2,00,000 ties. The actual marker size was 2,50,000 ties.
Required: | (i) | Total sales margin variance, | | (ii) | Sales margin quantity variance, | | (iii) | Market size variance, | | (iv) | Market share variance. |
| 8 | (0) |
| | (b) | The sales a product is expected to be normally distributed with a mean (μ ) of 1,00,000 units and standard deviation (s) of 30,000. the price of Rs.36 the variable cost of Rs.24 and the fixed cost of Rs.5,00,000 are all known to be exact estimates.
Find the probability distribution of the profit volume and hence derive the probability: | (i) | That the product will not break even, |
| (ii) | That the product will earn at least Rs.6,00,000 profit which represents the firm’s required return on investment. |
| (iii) | That the profit will not exceed Rs.12,60,000. |
N.B. for your reference, relevant extract from the table of area under normal curve is given below: | Z | 00 | .01 | .02 | .03 | .04 | .05 | .06 | .07 | .08 | .09 | 0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9 | .0000
.0398
.0793
.1179
.1554
.4332
.4452
.4554
.4041
.4713 | .0040
.0438
.0832
.1217
.1591
.4345
.4463
.4564
.4649
.4719 | .0080
.0478
.0871
.1255
.1628
.4357
.4474
.4573
.4656
.4727 | .0120
.0517
.0910
.1293
.1664
.4370
.4484
.4582
.4664
.4732 | .0160
.0557
.0948
.1331
.1700
.4382
.4495
.4891
.4671
.4738 | .0199
.0596
.0987
.1368
.1736
.4394
.4505
.4599
.4678
.4744 | .0839
.0636
.1026
.1406
.1772
.4406
.4545
..4608
.4686
.4080 | .0279
.0675
.1065
.1443
.1808
.4418
.4525
.4616
.4693
.4756 | .0319
.0714
.1103
.1480
.1844
.4429
.4535
.4625
.4699
.4761 | .0359
.0753
.1141
.1517
.1879
.4441
.4545
.4633
.4706
.4767 |
| 4+2+2 | (0) |
| 6. | --------------- | | |
| 7. | (a) | ---------- | | |
| | (b) | ------------- | | |
| 8. | (a) | Vigil Limited buy components which it uses in manufacturing solar water heater. Presently, each component is subjected to a through inspection process on delivery. Because of high cost involved in such inspection, it now considers not interesting at all. Records show that the components are of acceptable standard 90% if the time. If costs Rs.800 to inspect a component and another Rs.800 to put right any defect found at that stage. If the component is not inspected and is the found to be faulty at the finished foods stage, the cost of rework if Rs.3,200.
Required:
Advice the company whether or not the company should change its policy as considered above. Please show your workings. | 8 | (0) |
| | (b) | certain types of costing system encourage operational managers to produce in excess of both budget and demand.
Required: | (i) | Discuss how these costing systems encourage over–production. |
| (ii) | Suggest means to overcome the problem of over–production created by a costing system. |
| 4+4 | (0) |
