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

1-5(CMA)
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 any five from the rest.
Marks
1. (a) Match the following correctly.
 
(i)
(ii)
(iii)
(iv)
(v)		 Opportunity Cost
Variance Analysis
Ratio Analysis
Relevant Cost:
Standard hour		 Financial forecasting and planning
Standard measuring of work to be done in one hour
Decision making
Value of benefit lost by choosing alternative course of action
Management by exception
Measure of time taken for work done
Cost of alternative course of action
Flow of funds

1x5
(b)

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

 1x5
(i)

Standard costing can be introduced in all types of manufacturing industries.

(ii)Defective and spoilage mean the same for cost accounting purposes and require the same treatment.
(iii)

When a factory operates at full capacity, fixed cost also become relevant for ‘Make or Buy’ decisions.

(iv)

Net profit will be the same under Marginal costing and Absorption costing if no inventory exists.

(v)

Principal Budget Factor is a factor controllable by the Manager of the Budget Center.

(c)

Choose the correct answer from the answers given for each of the following questions. Indicate workings briefly:

 2x5
(i)

A company has a margin of safety of Rs. 40 lakhs and earns an annual profit of Rs. 10 lakhs. If the fixed costs amount to Rs. 20 lakhs, annual sales will be ________
(A)Rs. 160 lakhs (B)Rs.140 lakhs (C)Rs. 120 lakhs (D)Rs. 200 lakhs

(ii)

A chemical is manufactured by combining two standard items of input A (standard price Rs. 60/kg) and B (Rs. 45/kg) in the ratio 60%:40%. Ten per cent of input is lost during processing. If during a month 1200 kg of the chemical is produced incurring a total cost of Rs. 69,600, the total material cost variance will be ________
(A)Rs. 2,400 (Adv.) (B)Rs. 2,400 (Fav.) (C)Rs. 3,000 (Adv.) (D)Rs. 2,000 (Fav.)

(iii)

A factory makes use of a component purchased from the market for assembling its final product. Current usage varies between 300 and 450 units per week and replenishment time is normally two weeks but can go up to five weeks. The minimum stock level of the component is _______ units.
(A)1500 (B)1600 (C)2000 (D)2400

(iv)

In a factory where piece work system is followed with guaranteed minimum wages of Rs. 120 (for eight hours), incentive payments are made according to Rowan Bonus Scheme. The standard time per unit is 10 minutes. If in a five-day week of 40 working hours the actual production is 300 units, the total earnings of the worker is ________
(A)Rs. 640 (B)Rs. 720 (C)Rs. 750 (D)Rs. 800

(v)

A company has an annual sales of Rs. 120 lakhs entirely on credit. It keeps an average inventory sufficient to meet sales demand for half month and gives its customers one month credit. Its current liabilities average Rs. 9 lakhs. The company must maintain cash (including bank balance) to have a current ratio of 2. Its cash balance will be ________
(A)Rs. 1 lakh (B)Rs. 2 lakh (C)Rs. 3 lakh (D)Rs. 4 lakh

Please turn over

( 2 )

1-5(CMA)
Revised syllabus		 Marks
2. Briefly distinguish between the following (any four only):
(a)Fixed budget and Flexible budget;
(b)Marginal cost and Differential cost;
(c)Joint products and By-products;
(d)Funds Flow and Cash Flow;
(e)Cost control and Cost reduction.
 4x4
3. A Company has three production departments P, Q, R and two service departments Mand C. The following details in respect of indirect expenses incurred are furnished for a typical month:
Item of expenses Amount (Rs.)
Indirect labour
Lighting
Rent & rates
Power
Depreciation
Sundry expenses		 9,000
1,200
12,000
6,000
24,000
7,800
60,000
12+4=16

Following further data are available for distribution of overheads:
ParticularsDepartments:
PQRMC
Value of machinery ('000 of Rs.)
H.P. of machines
Light points (Nos.)
Floor space (Sq. meteres)
Direct Wages ('000 of Rs)
Machine hrs. worked		 60
40
20
150
30
2,940		 50
45
30
200
20
2,060		 40
60
40
250
40
2,150		 10
15
20
100
4
-		 -
-
10
50
6
-
The service Dept. costs are appointed as follows:
Department
M (%)
C (%)		 P
20
40		 Q
30
20		 R
40
30		 M
-
10		 C
10
-
Calculate
(a)Overhead recovery rates showing the basis of apportionment.
(b)Total cost of job no. 234, the job card of which has recorded the following data;
ParticularsDepartments
PQR
Materials consumed (Rs.)
Direct wages (Rs.)
Machine hrs worked		 228
162
10		 136
114
8		 136
114
12

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

( 3 )

1-5(CMA)
Revised syllabus
Marks
4. (a) Mention the different methods of by-product cost accounting. 4
(b)

In a chemical plant four different products viz., AB, BC, CD and DD emerge from the input of crude oil. Product AB can be sold immediately, but the remaining three products require further processing before they cn be marketed.
In a month, 40,000 litres of crude oil were procured at a cost of Rs. 30 per litre and processed at a cost of Rs. 3 lakhs. The details of output obtained, further processing cost, selling price per unit etc. are given below:
ProductOutputFurther processing
cost (Rs.)		Selling price at the
point of sale
AB
BC
CD
DD		 8,000 kg
10,000
12,000
5,000 litres		 -
80,000
1,20,000
60,000		 Rs. 45/kg
Rs. 60/kg
Rs. 70/kg
Rs.80/litre
Prepare:
(i)

Statement showing apportionment of joint cost on suitable basis and product-wise profitability statement.

(ii)

If the company finds a market for CD at Rs. 63/kg without further processing, will it be advisable to accept it?

 8+4
5. (a)

Mention the basic assumptions made for 'Breakeven Analysis' and examine how for they are valid.

 6+10
(b)

Two cement plants decide to merge to earn higher profits. The working results of the two plants for last year were as follows:
Plant IPlant II
Capacity utilisation
Sales (lakhs of rupees)
Variable cost (,,)
Fixed cost(,,)		80%
400
320
50		60%
240
180
40
After merger, the management wants information on the following:
(i)Capacity at which the combined plant will break even.
(ii)Profit likely to be made if the combined plant works at 90% capacity.
(iii)

Sales required to earn a profit of Rs. 60 lakhs. If the total fixed costs are reduced by Rs. 10 lakhs, what sales will yield a profit of Rs. 60 lakhs?
Please turn over

( 4 )

1-5(CMA)
Revised syllabus		 Marks
6.

A building can be constructed by engaging a gang of workers as per details given below, for 100 working days of eight hours each.
Sundard data:
SkilledSemi-skilledUnskilled
No.of workers in the gang
Standard rate of wages/hr.		6
Rs. 25		8
Rs. 20		6
Rs. 16

 16

Actual completionof the work however took 104-days of eight hours each. This includes 16 hours of stoppages due to heavy rains. The actud number of workers engaged and the actual rates paid are given below:
SkilledSemi-skilledUnskilled
Number engaged
Actual rate/hr.		8
Rs. 30		6
Rs. 24		6
Rs. 16

Calculate the following variances:
(a)Labour cost variances
(b)Labur rate variance
(c)Labour efficieng variance
(d)Labour mix variance
(e)Idle time variance
7. Globe Traders Ltd. has furnished its Balance Sheets as at 30.6.2005 and 30.6.2005 and 30.6.2005 and 30.6.2006 and as per details given below:
Balance Sheet as at
30.6.200530.6.2006
Capital and liabilities(in lakhs of rupees)
Equity Capital
General Reserve
Revaluation Reserve
15% Debentures
Dividend
Current Liabilities		 200
30
-
-
10
10
250		 250
40
25
50
12
13
390
Properties and Assets
Land
Buildings (net after depreciation)
Machinery (,,)
Furniture (,,)
Stock
Debtors
Cash and bank		 10

15
140
20
15
30
20
250		 35

17
220
23
20
40
35
390
 16
The following additional particulars are also given;
(a)During the year ended 30.6.06, Land was revalued.
(b)Dividend for the year ended 30.6.05 was paid during the next year.
(c)An old machine (original value Rs. 10 lakhs, W.D.V. Rs. 2 lakhs) was sold for Rs. 3 lakhs.
(d)Depreciation on assets for 2005-06 was written off as follows:
Building Rs. 60,000; Machinery Rs. 12,00,000; Furniture Rs. 2,00,000.
Prepare the Funds Flow Statement for the year ended 30.6.2006 supported by relevant Accounts/statements.
8. Write short notes on any four of the following:
(a)Application of marginal costing to price fixing;
(b)Budgetary control and its objectives;
(c)Methods for disposal of under/over-absorbed overheads;
(d)Installation of a cost system;
(e)Cost-plus contracts.
 4x4

__________

 

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