MTP_Intermediate_Syllabus 2012_Dec2014_Set 2
Paper – 8: Cost Accounting & Financial Management
Full Marks: 100 Time Allowed: 3 Hours
This paper contains 3 questions. All questions are compulsory, subject to instruction provided
against each question. All workings must form part of your answer.
Assumptions, if any, must be clearly indicated.
1. Answer all questions: [2×10=20]
(a) Define Cost Apportionment.
(b) List the two objective of CAS-4.
(c) In a workshop the normal working hours is 8 hours for which `450 is paid as wages. However,
calculation of wages payable is made on piece rate basis that 30 pieces will be produced
per hour. When a worker produces below standard, 90% of the piece rate is paid but when
he produces above standard, 110% of piece rate is paid. On a particular day, a worker
produces 260 pieces in the allotted time of 8 hours. What will be his earning?
(d) State the treatment of Bad Debts in Cost record.
(e) A concern producing a single product estimates the following expenses for a production
period.
Particulars `
Direct Material 25,000
Direct Labour 25,000
Direct Expenses 2,500
Overhead Expenses 1,05,000
What will be the overhead recovery rate based on prime cost?
(f) State the cost units applicable to the following industries:
Cement, Goods Transport, Education, BPO
(g) Calculate the future value of `1,000 invested in State Bank Cash Certificate scheme for 2
years @5.5% p.a., compounded semi-annually.
(h) The capital of PQR Limited is as follows :
9% preference shares of `10 each `3,00,000
Equity shares of `10 each `8,00,000
Following further information is available:
Profit after Tax `2,70,000
Equity Dividend paid 20%
The market price of equity shares `40 each
Then the EPS and PE ratio are:
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
MTP_Intermediate_Syllabus 2012_Dec2014_Set 2
(i) Cactus Limited paid a dividend of `5 per share for 2013-14. The company follows a fixed
dividend payout ratio of 60%. The company earns a return of 20% on its investment. The cost
of capital to the company is 14%. What would be the expected market price of its share,
using the Walter Model?
(j) X owns a stock portfolio equally invested in a risk free asset and two stocks. If one of the
stocks has a beta of 0.8 and the portfolio is as risky as the market what must be the beta of
the other stocks in the portfolio?
2. Answer any three questions from a, b, c and d. [3×16=48]
(a)
(i) The following details are available in respect of a Consignment of 1,250 kgs. of materials „X‟:
Invoice price-`20 per kg.
Excise duty-25% of invoice price.
Sales Tax-8% on Invoice price including Excise Duty
Trade discount-10% on Invoice price
Insurance-1% of aggregate net price
Delivery charges-`250
Cost of containers @`60 per container for 50 kg. of material. Rebate is allowed @ `40 per
container if returned within six weeks, which is a normal feature.
One container load of material was rejected on inspection and not accepted.
Cost of unloading and handling @ 0.25% of the cost of materials ultimately accepted.
On the basis of above you are required to find out the landed cost per kg. of material „X‟.
[8]
(ii) The following details have been obtained from the cost records of Comet Paints Limited:
(`)
Stock of raw materials on 1st Sept. 2014 75,500
Stock of raw materials on 30th Sept. 2014 91,500
Direct Wages 52,500
Indirect wages 2,750
Sales 2,11,000
Work-in-progress on 1st Sept. 2014 28,000
Work-in-progress on 30th Sept. 2014 35,000
Purchase of raw materials 66,000
Factory rent rates and power 15,000
Depreciation of plant and machinery 3,500
Expenses on purchases 1,500
Carriage outwards 2,500
Advertising 3,500
Office rent and taxes 2,500
Travelers wages and commission 6,500
Stock of finished goods on 1st Sept. 2014 54,000
Stock of finished goods on 30th Sept. 2014 31,000
Prepare a Cost Sheet giving the maximum possible break up of costs and profits. [8]
(b)
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2
MTP_Intermediate_Syllabus 2012_Dec2014_Set 2
(i) Distinguish between “Incentives to indirect workers” and “Indirect incentives to direct
workers”. [6]
(ii) The following is an extract of stores ledger of a particular item of stock with incomplete
information for September 2014. You are required to fill in the rate column of issues correct to two
decimal places. Also fill in the values under the 'Balance column' wherever indicated with a "?".
Identify the method of stock issue followed by the company. How would you treat the value of
the shortages on 30th September in Cost Accounts?
Date Receipts Issues Balance
September 2014 Quantity Rate Quantity Rate Quantity Value
(Kg) (`/Kg) (Kg) (`/Kg) (Kg) (`)
1 50,000 1,25,000
7 5,000 2.4
10 30,000 62,000
15 20,000
20 15,000 2.6
25 10,000 2.5
29 20,000
30 200 ?
shortage-abnormal loss
30 400 ?
shortage-abnormal loss
31 9,400 ?
[10]
(c)
(i) Distinguish between Financial Accounting and Cost Accounting. [8]
(ii) ABC Ltd. company having 25 different types of automatic machine, furnishes you the
following data for 2013-2014 in respect of machine B:
I. Cost of machine `50,000
Life-10 years Scrap value is nil
II. Overhead expenses are:
Factory rent `50,00 p.a
Heating & lighting `40,000
Supervision `1,50,000 p.a
Reserve equipment of machine B `6,000 p.a
Area of the factory 80,000 sq.ft.
Area occupied by machine B 3,000 sq.ft.
III. Wages of operator is `24 per day of 8 hours including all fringe benefits. He
attends to one machine when it is under set up and two machines while
under operation.
IV. Estimated production hours 3,600 p.a.
Estimated set up time 400 hrs. p.a.
Power 0.5 per hour
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3
MTP_Intermediate_Syllabus 2012_Dec2014_Set 2
Prepare a schedule of comprehensive machine hour rate and find the cost of the
following jobs:
Job 1002 Job 1008
Set up time (hrs.) 80 40
Operation time (hrs.) 130 160
[6+2]
(d)
(i) The details of present output of a manufacturing department are given below:
Average output per week from 160 employees 48,000 units
Saleable value of output `6,00,000
Contribution made by output towards fixed expenses and profit `2,40,000
The Board of Directors plans to introduce more mechanization into the department at a
capital cost of `1,60,000. The effect of this will be to reduce the number of employees to 120,
and increasing the output per individual employees by 60%.
To provide the necessary incentive to achieve the increased output, the Board intends to
offer a 1% increase on the piece work rate of `1 per unit for every 2% increase in average
individual output achieved.
To sell the increased output, it will be necessary to decrease the selling price by 2%.
Calculate the extra weekly contribution resulting from the proposed change and evaluate
for the Board‟s information, the desirability of introducing the change. [10]
(ii) How do you treat Idle Time in Cost Accounting? [6]
3. Answer any two questions from a, b and c [2×16=32]
(a)
(i) Indicate the important accounting ratios that would be used by each of the following:
I. A long–term creditor interested in determining whether his claim is adequately secured.
II. A bank that has been approached by a company for short-term loan / overdraft.
III. A Shareholder who is examining his portfolio and who is to decide whether he should
hold or sell his shares in a company. [3]
(ii) What do you understand by „Trading on Equity‟? State the limitations of Trading on Equity?
[1+4]
(iii) A firm‟s sales, variable costs and fixed cost amount to `75,00,000, `42,00,000 and `6,00,000
respectively. It has borrowed `45,00,000 at 9 per cent and its equity capital totals `55,00,000.
I. What is the firm‟s ROI?
II. Does it have favourable financial leverage?
III. If the firm belongs to an industry whose asset turnover is 3, does it have high or low asset
leverage?
IV. What are the operating, financial and combined leverages of the firm?
V. If the sales drop to `50,00,000, and variable cost is `28,000, what will the new EBIT be?
VI. At what level will the EBT of the firm equal to zero? [1+1+1+3+1+1]
(b)
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4
MTP_Intermediate_Syllabus 2012_Dec2014_Set 2
(i) AMRITAM Ltd. has a total saleof `3.2 crores and its average collection period is 90 days. The
past experience indicates that bad debts losses are 1.5% on sales. The expenditure incurred
by the firm in administering its receivable collection efforts is `5,00,000. A factor is prepared
to buy the firm‟s receivables by charging 2% commission. The factor will pay advance on
receivables to the firm at an Interest rate of 18% per annum after withholding 10% as reserve.
Assume 360 days in a year. Calculate the effective cost of factoring to the firm. [8]
(ii) A company is considering, purchase of a new machinery which costs `8,00,000 and which
has an estimated life of 10 years. This machine will generate additional sales of `4,00,000 per
year, while increased cost of maintenance will be `1,00,000 per year. The cost of the
machine is depreciated on a straight line and has no salvage value at the end of its 10 year
life. The company has a cost of capital of 12 per cent and a corporate tax rate of 40 per
cent.
You are required to calculate:
I. Annual Cash Flow
II. Net Present Value (NPV)
III. Payback period
IV. Internal Rate of Return. Should the Company purchase the new machine?
Note: The present value Factors are as follows:
At the end of 10 years
Present value of annuity of Re.1@ 12% 5.651
Present value of annuity of Re. 1 @ 23% 3.799
Present value of annuity of Re. 1 @ 24% 3.682
[8]
(c)
(i) Describe the features of Venture Capital. [6]
(ii) The Balance – Sheet of XYZ Ltd. for the year ended 31.03.2014 is given below:
Balance Sheet as at 31.03.2014
Liabilities ` Assets `
Equity Share Capital 5,00,000 Land & Building 1,00,000
Preference Share Capital 2,00,000 Machinery 4,00,000
General Reserve 1,00,000 Furniture 50,000
Secured Loans 3,00,000 Inventory 3,00,000
Sundry Creditors 1,00,000 Sundry Debtors 3,00,000
Cash/Bank Balances 50,000
Total 12,00,000 12,00,000
Calculate the following ratios from the given Balance Sheet
I. Current Ratio
II. Proprietory Ratio
III. Debt-Equity Ratio
IV. Capital Gearing Ratio [10]
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 5
