PAPER 4: COST ACCOUNTING AND FINANCIAL MANAGEMENT
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( Max. Time = 3hrs) (Max. Mks=100)
Question No. 1 is compulsory. Answer any five questions from the rest. Working notes should form part of the answer.
1. a. Vignesh Auto Ltd is in the business of selling cars. It also sells insurance and Finance as part of its overall business strategy .The following information is available for the company. Line of Business Physical units Sales units Earnings before expenses Sales of cars 10,000 cars Rs.30,000 lacs 3% of sales value Sales of insurance 6,000 policies Rs.1,500 lacs 20% of sales value Sales of finance 8,000 loans Rs.19,200 lacs 2% of sales value The expenses of the company are as follows: Salesman salaries Rent Electricity Advertising Documentation cost per insurance policy Documentation cost for each loan Direct sales expense per car Rs.200 lacs Rs.100 lacs Rs.100 lacs Rs.200 lacs Rs.100 Rs.200 Rs.5,000
Indirect costs have to be allocated in the ratio of physical units sold. Required: Make a cost sheet for each product allocating the direct and indirect Costs and also showing the product wise profit and total profit. Calculate the percentage of profit to revenue earned from each line of business. b. Discuss the concept of under/ over recovery of overheads. c. Define the concept of labour turnover. How can it be controlled? (12 + 3 + 5= 20 marks) 2. a. A Company supplies plastic crockery to fast food restaurants in metropolitan city. One of its products is a special bowl, disposable after initial use, for serving soups to its customers. Bowls are sold in pack 10 pieces at a price of Rs.50 per pack. The demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The company purchases the bowl direct from manufacturer at Rs.40 per pack within a three days lead time. The ordering and related cost is Rs.8 per order. The storage cost is 10% per cent per annum of average inventory investment. Required:
(i) (ii) (iii) (iv)
Calculate Economic Order Quantity. Calculate number of orders needed every year. Calculate the total cost of ordering and storage bowls for the year. Determine when the next order to be placed should. (Assuming that the company does maintain a safety stock and that the present inventory level is 333 packs with a year of 360 working days.
b. Mention the main advantage of cost plus contracts. c. 1. Distinguish between product and period cost. 2. List the financial expenses not included in the cost. (10+3 + 3 = 16 marks) 3. a. Explain and illustrate break even chart. b. XYZ Ltd furnishes the following information with respect to its process II. Prepare: Statement of Equivalent production. Process II account and abnormal Loss account. Opening WIP NIL Units introduced 42,000 units at Rs.12 Expenses debited to process: - Direct material Rs.61,530 - Labour Rs.88,820 - Overheads Rs.1,76,400 Finished output = 39,500 units Normal loss in the process = 2% of input. Closing WIP = 1,200 units, Degree of completion : Material 100%, labour50% and Overhead- 40% Degree of completion of abnormal loss: Material 100%, labour 80% and overhead 60% Units scrapped as normal loss were sold at Rs.4.50/unit. All the units of abnormal loss were sold at Rs.9 per unit.
c. Discuss the concept of operating costing and list down few industries to which it is suited. (4+9+3 =16 marks) 4. a. The management of Bina and Rina Ltd. are worried about their increasing labour turnover in the factory and before analyzing the causes and taking remedial steps; they want to have an idea of the profit foregone as a result of labour turnover in the last year. Last year sales amounted to Rs. 83, 03, 300 and P/V ratio was 20 per cent. The total number of actual hours worked by the Direct Labour force was 4.45 Lakhs. As a result of the delays by the Personnel Department in filling vacancies due to labour turnover, 1, 00,000 potentially productive hours were lost. The actual direct labour hours included 30,000 hours attributable to training new recruits, out of which half of the hours were unproductive.
The costs incurred consequent on labour turnover revealed, on analysis, the following Settlement cost due to leaving Rs. 43,820 Recruitment costs Rs. 26,740 Selection costs Rs. 12,750 Training costs Rs. 30,490 Assuming that the potential production lost as a consequence of labour turnover could have been sold at prevailing prices, find the profit foregone last year on account of labour turnover. b. The standard and actual figures of product Z are as under: Material quantity Material price per unit Standard 50 units Re. 1.00 Actual 45 units Re. 0.80
Calculate material price variance c. Discuss the treatment with respect normal and abnormal loss in cost accounting. (9+3+4 = 16 marks) 5 a. 1. What is optimum capital structure? b. 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 alternatives Models MX and MY are available: Particulars Cost of Machine Expected life Scrap value MX Rs.8,00,000 6 years Rs.20,000 MY Rs.10,20,000 6 years Rs.30,000 Year5 1,80,000 2,60,000 Year6 1,60,000 1,85,000
Estimated Net Income before Depreciation and Tax are as under: Year 1 Year 2 Year3 Year4 Machine MX\ 2,50,000 2,30,000 1,80,000 2,00,000 Machine MY 2,70,000 3,60,000 3,80,000 2,80,000
Corporate tax rate for this company is 30% and companys required rate of return on investment proposals is 10%. Depreciation will be charged on straight line basis. You are required to : 1. Calculate the payback period of each proposal. 2. calculate the net present value of each proposal, if PV factor at 10% is 0.909,0.826,0.751,0.683,0.621 and 0.564 3. Which proposal would you recommend and why? c. Differentiate between on American depository receipts and Global depository receipts.
(3+10+3= 16 marks) 6. a. The following data relate to Vishnu Ltd: Earning before interest and tax (EBIT) Fixed cost Earning Before Tax (EBT) Required: Calculate combined leverage. Rs. 10,00,000 20,00,000 8,00,000
b. The following is the capital structure of a Company: Source of capital Book Value (Rs.) Equity Share @Rs.100 each 80,00,000 9% cumulative preference Shares @ Rs.100 20,00,000 each 11% debentures 60,00,000 Retained earnings 40,00,000
Market Value (Rs.) 1,60,00,000 24,00,000 66,00,000 ---
The current market price of the companys equity share is Rs.200. for the last year the company had paid equity dividend at 25 per cent and its dividend is likely to grow 5 per cent every year. The corporate tax rate is 30 per cent and share holders personal income tax rate is 20 per cent. (i) (ii) You are required to calculate: Cost of capital for each source of capital. Weighted average cost of capital on the basis of book value weights. c. Name the various financial instruments dealt with in the international market. (5+9+2 = 16 marks) 7. a The following are the summarised Balance Sheets of Zeta Limited as on 31st March, 2008 and 2009: (Rs. in 000) Liabilities 31.3.08 31.3.09 5,200 2,600 1,300 1,222 65 195 Assets 31.3.08 31.3.09 5,525 1,040 130 975 1,131 52 1,677 52 10,582
Share Capital 3,900 Reserve and Surplus 1,690 12% Debentures Sundry Creditors 936 Outstanding Rent 52 Income-tax Payable 520
plant & Machinery 3,978 Land & Building 1,040 Investment 130 Inventories 676 Sundry Debtors 728 Prepaid Selling Expenses 26 Cash at Bank 494 Cash in Hand 26 7,098
7,098
10,582
Profit & Loss Account for the year ended 31st March, 2009
To Opening stock To Purchases To Wages To Gross Profit c/d
Rs. 806 2,080 650 3,900 7,436
(Rs. in 000) Rs. By Sales 6,331 By Closing Stock 1,105
7,436 By Gross Profit b/d By Discount By Commission By Dividend 3,900 39 91 260
To Depreciation 390 To Office Expenses 390 To Rent 130 To Selling & Distribution Expenses 780 To Income Tax 1,040 To Net Profit c/d 1,560 4,290 To Dividend To Balance c/d 650 2,600
4,290 By Balance b/d By Net Profit b/d 1,690 1,560 3,250
3,250 You are required to prepare a Cash flow statement as per AS 3 (revised).
b. A company operates at a production level of 5,000 units. The contribution is 60 per unit, operating leverage is 24. If the tax rate is 30 %, what would be its earnings after tax? c. Write short notes on the following: Debt Securitisation Factoring Venture capital financing. (10+3+3 = 16 marks)
