CA PE II Question Papers Group II
Cost Accounting and Financial Management Nov 2009
This Paper has 26 answerable questions with 0 answered.
Total No. of Questions — 9]
Time Allowed : 3 Hours
Maximum Marks : 100
Question Nos.1 and 6 are compulsory.
Working notes should form part of the answer.
Marks
1. (a) LM Company Limited manufactures three products – ‘N’, ‘O’ and ‘P’. The company furnishes the following particulars for the year ending 31st March, 2009:
N O P
Output and Sales (units)
Selling Price per unit (Rs.)
Direct Material per unit (Rs.)
Direct Labour per unit (Rs.) (@ Rs.20 per hr)
No. of purchase orders placed
No. of stores deliveries
No. of inspections 15,000
180
60
80
200
250
260 12,000
130
40
60
150
160
150 5,000
95
35
40
40
110
140
The above three products are similar and usually produced in production runs of 50 units. The manufacturing overheads are currently absorbed by using a blanket overhead rate on the basis of direct labour hours for analyzing the whole factory. Now the company plans to use activity based costing system for the profitability of its products. The activity analysis and total overheads for the year of LM Company Ltd. are as under:
Activity Area Total Overheads
(Rs.) Cost Driver
Material handling
Set–up
Quality Control
Material purchase ordering
Factory Control 92,040
1,22,240
1,23,200
89,700
1,82,320 No. of stores deliveries
No. of production runs
No. of inspections
No. of orders placed
Direct labour hours worked
You are required to:
(i) Calculate the total cost and profit of each product by using direct labour hour rate method for absorption of manufacturing overheads.
(ii) Calculate the total cost and profit of each product by using activity based costing system for absorption of manufacturing overheads.
12 (0)
(b) What are the assumptions involved in the definition of cost reduction? 2 (0)
(c) State the objectives of uniform costing. 3 (0)
2. (a) At the end of first year on 31st March, 2009, in the books of ABC Constructions Ltd. the Bridge Contract Account stands debited with the cost of material issued, labour, overheads expended and plant issued and its stands credited with material at site Rs.25,000; material returned Rs.15,000 and plant at site Rs.4,76,000 after charging depreciation at 15 percent. The material issued, labour, overheads and plant issued debited to the contract account, are in the ratio of5 : 4 : 2 : 4. 75 percent of the contract had been certified by the contractee’s architect as completed at the end of the year and 90 percent of the certified work value had been received in cash Rs.16,20,000. The accounts department informs that 2/3 of the profit on cash basis credit to Profit and Loss account on the contract is Rs.2,13,600.
You are required to prepare:
(i) The Bridge Contract Account showing the cost of work done but uncertified.
(ii) Work–in–progress Account.
(iii) Contractee’s Account.
6+1+1 (0)
(b) State the appropriate ‘Cost Unit’ for the following industries:
(i) Steel
(ii) Bricks making
(iii) Sugar
(iv) Power
2 (0)
(c) What do you mean by abnormal loss and abnormal gain in process costing? How are these dealt with in cost accounting? 4 (0)
3. (a) 2 hours allowed to a worker to produce 5 units and wages has been paid @ Rs.25 per hour. In a 48 hours week the worker produced 170 units.
You are required to calculate the total earnings and effective hourly rate of earnings of the worker under the following incentive wage systems:
(i) Halsey 50 percent system
(ii) Rowan system
(iii) Emerson’s efficiency system
(iv) Barth system.
8 (0)
(b) State the essential factors for installing a cost accounting system. 4 (0)
(c) The following information is available:
1st April, 2008 to
30th June, 2008 1st July, 2008 to
31st March, 2009
Output
Total overheads 10,000 units
Rs.40,000 35,000 units
Rs.1,35,000
You are required to calculate the amount of variable overhead per unit and amount of total fixed overheads for whole the year 2008–09.
4 (0)
4. (a) SK Engineering Company Limited manufactures two types of auto bearing – type ‘XD’ and type ‘XE’. The company’s records show the following particulars for those bearings for the month of May, 2009 :
(Rs.)
Direct Materials
Direct labour
Production overheads
Office Overheads 38,10,000
20,10,000
6,03,000
6,42,300
There was no work–in–progress at the beginning or at the end of the month. It was ascertained that:
(i) Direct material cost per bearing for type ‘XD’ was 160 percent of those for type ‘XE’.
(ii) Direct labour cost per bearing for type ‘XE’ was 40 percent of those for type ‘XD’.
(iii) Production overheads were absorbed on the basis of direct labour cost.
(iv) Office overheads were absorbed on the basis of factory cost.
(v) Selling and distribution overheads were Rs.2 per bearing sold for each type.
(vi) Stock of finished bearing on 1st May, 2009 was 15,000 bearings @ Rs.15 of type ‘XD’ and 20,000 bearings @ Rs.8 of type ‘XE’.
(vii) Production during the month of May, 2009 was 2,70,000 bearings of type ‘XD’ and 3,30,000 bearings of type ‘XE’ and out of May’s output 25,000 bearings of type ‘XD’ and 40,000 bearings of type ‘XE’ would be remains in stock on 31st May, 2009 which valued at cost of production.
You are required to:
(i) Prepare a statement showing cost of production each type of bearings.
(ii) Prepare a statement showing the selling price at which the bearings would be marketed, if the company desires @ 20 percent profit on selling price.
9 (0)
(b) ML Manufacturing Ltd. is required 1,000 units of material ‘EX’ on an average for a week which is purchased at a price of Rs.30 per unit. The ordering cost is Rs.150 per purchase order and inventory carrying cost per unit amounted to Rs.0.06 per week. The re–order period is 1 to 3 weeks and the weekly usage of material ‘EX’ varies from 750 to 1,250 units.
You are required to compute:
(i) The Economic order Quantity. [2]
(ii) Re–order Stock Level, Minimum Stock Level and Maximum Stock Level. [3]
2+3=5 (0)
5. (a) The following information is available in the financial accounts of a manufacturing company for the year ending 31st March, 2009:
Rs.
Direct Material consumption
Direct wages
Manufacturing expenses
Office and administrative expenses
Selling and distribution expenses
Donation and charity
Interest on debentures
Preliminary expenses (written off)
Provision for income–tax
Interest received on deposits
Sales : 1,80,000 units
Closing stock of finished goods : 30,000 units 3,55,000
3,60,000
2,4,5000
2,40,000
2,00,000
20,000
48,000
20,000
75,000
25,000
16,20,000
1,50,000
The Cost accounts reveals:
(i) Manufacturing overheads recovered at 80 percent on direct wages.
(ii) Office and administrative overheads recovered at 25 percent on factory cost.
(iii) Selling and distribution overheads at Re. 1.00 per unit sold.
(iv) Closing stock of finished goods valued at cost of production.
You are required to:
(i) Prepare profit and loss account showing net profit in financial accounts.
(ii) Prepare a statement showing profit in the cost accounts.
(iii) Prepare a statement reconciling the profits disclosed as per above (i) and (ii).
2+3+5 (0)
(b) Explain the followings: 2+2=4
(i) Two Bin System. (0)
(ii) Multiple Costing< (0)
6. (a) MN Limited gives you the following information related for the year ending 31st March, 2009:
- Current Ratio
- Debt–Equity Ratio
- Return on Total Assets
- Total Assets Turnover Ratio
- Gross Profit Ratio
- Stock Turnover Ratio
- Current Market Price per Equity Share
- Net Working Capital
- Fixed Assets
60,000 Equity Shares of
20,000, 9% Preference Shares of
Opening Stock 2.5 : 1
1 : 1.5
15%
2
20%
7
Rs.16
Rs. 4,50,000
Rs. 10,00,000
Rs. 10 each
Rs. 10 each
Rs. 3,80,000
You are required to calculate:
(i)
(ii)
(iii)
(iv)
(v) Quick Ratio
Fixed Assets Turnover Ratio
Proprietary Ratio
Earnings per Share
Price–Earning Ratio.
10 (0)
(b) What do you understand by desirability factor/profitability index? 2 (0)
(c) Explain with example the formula used for determining optimum cash balance according to Baumal’s cash management model. 2 (0)
(d) State the main features of deep discount bonds. 2 (0)
7. (a) Following information is forecasted by the CS Limited for the year ending 31st March, 2010:
Balance as at
1st April, 2009
Rs. Balance as at
31st March, 2010
Rs.
Raw Material
Work–in–progress
Finished goods
Debtors
Creditors
Annual purchases of raw material (all credit)
Annual cost of production
Annual cost of goods sold
Annual operating cost
Annual sales (all credit) 45,000
35,000
60,181
1,12,123
50,079 65,356
51,300
70,175
1,35,000
70,469
4,00,000
7,50,000
9,15,000
9,50,000
11,00,000
You may take one year as equal to 365 days.
You are required to calculate:
(i) Net operating cycle period.
(ii) Number of operating cycles in the year.
(iii) Amount of working capital requirement.
8 (0)
(b) Write short notes on the following: 4
(i) Cut – off Rate (0)
(ii) Floating Rate Bonds. (0)
8. (a) PR Engineering Ltd. is considering the purchase of a new machine which will carry out some operations which are at present performed by manual labour. The following information related to the two alternative models – ‘MX’ and ‘MY’ are available:
Machine ‘MX’ Machine ‘MY’
Cost of Machine
Expected Life
Scrap Value Rs. 8,00,000
6 years
Rs. 20,000 Rs. 10,20,000
6 years
Rs. 30,000
Estimated net income before depreciation and tax:
Year Rs. Rs.
1
2
3
4
5
6 2,50,000
2,30,000
1,80,000
2,00,000
1,80,000
1,60,000 2,70,000
3,60,000
3,80,000
2,80,000
2,60,000
1,85,000
Corporate tax rate for this company is 30 percent and company’s required rate of return on investment proposals is 10 percent. Depreciation will be charged on straight line basis.
You are required to:
(i) Calculate the pay–back period of each proposal.
(ii) Calculate the net present value of each proposal, if the P.V. factor at 10% is – 0.909, 0.826, 0.751, 0.683, 0.621 and 0.564.
(iii) Which proposal you would recommend and why?
9 (0)
(b) The capital structure of a company consists of equity shares of Rs. 50 lakhs; 10 percent preference shares of Rs. 10 lakhs and 12 percent debentures of Rs. 30 lakhs. The cost of equity capital for the company is 14.7 percent and income-tax rate for this company is 30 percent.
You are required to calculate the Weighted Average Cost of Capital (WACC)
3 (0)
9. (a) Z Limited is considering the installation of a new project costing Rs. 80,00,000. Expected annual sales revenue from the project is Rs. 90,00,000 and its variable costs are 60 percent of sales. Expected annual fixed cost other than interest is Rs. 10,00,000. Corporate tax rate is 30 percent. The company wants to arrange the funds through issuing 4,00,000 equity shares of Rs. 10 each and 12 percent debentures of Rs. 40,00,000.
You are required to:
(i) Calculate the operating, financial and combined leverages and Earnings per Share (EPS).
(ii) Determine the likely level of EBIT, if EPS is (1) Rs. 4, (2) Rs. 2, (3) Rs. 0.
7 (0)
(b) Describe the three principles relating to selection of marketable securities. 3 (0)
(c) A doctor is planning to buy an X-Ray machine for his hospital. He has two options. He can either purchase it by making a cash payment of Rs. 5 lakhs or Rs. 6,15,000 are to be paid in six equal annual installments. Which option do you suggest to the doctor assuming the rate of return is 12 percent? Present value of annuity of Re. 1 at 12 percent rate of discount for six years is 4.111. 2 (0)