PAPER – 4 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
All Question are compulsory.
Working notes should form part of the answer.
Question 1
a. Find out the cost unit of following industries;
- Automobile
- Cement
- Chemicals
- Power
- Steel
- Nursing home
- Bridge construction
- Advertising
b. Discuss the process of estimating profit or loss on incomplete contracts
c. Distinguish between Perpetual inventory system & continuous stock taking
d. The total cost for producing 10 items are Rs.15 and that for producing 15 items are Rs.20. Find out the fixed cost?
(2+4+4+2=12 Marks)
Question 2
(a) The following data pertains to process I for march 2009 of DISA Ltd;
Opening WIP 1500 units at Rs.15,000.
Degree of completion - Material 100%; Labour and Overhead 33 1/3 %.
Input of materials 18500 units at Rs.52000.
Direct labour Rs.14,000.
Overhead Rs.28,000
Closing WIP 5000 units - Degree of completion – Material 90%; Labour & OH 30%
Normal process loss is 10% of total input.
Scrap value Rs.2 per unit
Unit transferred to the next process 15000 units.
You are required to compute Statement of equivalent production, Prepare the process.
b) ICAI Ltd produces two joint products, PCC & IPCC. In a year, further processing costs beyond split-off point spent were Rs.8000 and Rs.12000 for 800 units of PCC and 400 units of IPCC respectively. PCC sells at Rs.25 and IPCC sells at Rs.50 per units. A sum of Rs.9000 of joint costs was allocated to product PCC based on the net realization method. What were the total joint costs in the year?
c) 'HAI' is product manufactured out of 3 raw materials 'X', 'Y' and 'Z'. Each unit of HAI requires 10 Kgs, 8 Kgs and 6 Kgs, of X, Y and Z respectively. The re-order levels of 'X' and 'Y' are 15000 Kgs. and 10,000 kgs. respectively while the minimum level of 'Z' is 2500 kgs. The weekly production of HAI varies from 300 to 500 units, while the weekly average production is 400 units. You are required to compute:-
· the minimum stock level of X
· the maximum stock level of Y, and
· the reorder level of Z.
The following additional data are given:
X Y Z
Reorder quantity (kg) | 20,000 | 15,000 | 20,000 |
Delivery (weeks) minimum Average Maximum | 2 3 4 | 4 5 6 | 3 4 5 |
(8+3+4=15 marks)
Question 3
(a) Two workers, Ravi and Radhi , produce the same product using the same material. Their normal wage rate is also the same. Ravi is paid bonus according to the Rowan system, while Radhi is paid bonus according to the Halsey system. The time allowed to make the product is 100 hours. Ravi takes 60 hours while Radhi takes 80 hours to complete the product. The factory overhead rate is Rs.10 per man-hour actually worked. The factory cost for the product of Ravi is Rs.7280 and for Radhi it is Rs.7600.
You are required to –
a) find the normal rate of wages
b) compute the cost of materials
(b) NANO has been promised a contract to run a tourist car on a 20 km long route for the chief executive of a multinational firm. He buys a car costing Rs.1,50,000. The annual cost of insurance and taxes are Rs.4500 and Rs.900 respectively. He has to pay Rs.500 per month for a garage where he keeps the car when it is not in use. The annual repair costs are estimated at Rs.4,000. The car is estimated to have a life of 10 years at the end of which the scrap value is likely to be Rs.50,000.
He hires a driver who is to be paid Rs.300 p.m plus 10% of the taking as commission. Other incidental expenses are estimated at Rs.200p.m.Petrol and oil will cost Rs.100 per 100 kms. The car will make 4 round trips each day. Assuming that a profit of 15% on takings is desired and that the car will be on the road for 25 days on an average p.m, what should he charge per round-trip? .
(c ) What are the advantages and limitations of zero based budgeting?(for PCC)
Or Types of Activities in ABC? (for PE.2)
(6+5+4=15 marks)
Question 4
Answer any three of the following:
(i) Sales Profit
Period I Rs.14,433 Rs.385
Period II Rs.18,203 Rs.1,139
Find -P/V Ratio & -Fixed Cost (for PCC) or
MST Limited has collected the following data for its two activities. It calculates activity cost rates based on cost driver capacity.
Activity | Cost Driver | Capacity | Cost |
Power | Kilowatt hours | 50,000 kilowatt hours | Rs.2,00,000 |
Quality inspections | Number of inspections | 10,000 Inspections | Rs.3,00,000 |
The company makes three products M,S and T. For the year ended March31, 2004, the following consumption of cost drivers was reported:
Product | Kilowatt hours | Quality Inspections |
M | 10,000 | 3,500 |
S | 20,000 | 2,500 |
T | 15,000 | 3,000 |
Required: (a) Compute the costs allocated to each product from each activity.
(b) Calculate the cost of unused capacity for each activity. (for PE.2)
(ii) The information relating to the direct material cost of a company is as under; (for pcc)
Standard price per unit | Rs.3.60 |
Actual quantity purchased in units | 1600 |
Standard quantity allowed for actual production in units | 1450 |
Material price variance on purchase | Rs.240 (Favourable) |
Actual price per unit | ? |
Or Define cost object and cost driver (for PE.2)
(iii) Discuss the two types of costs associated with labour tournover.
(iv) Distinguish between Job costing and batch costing.
(3*3=9 marks)
Question 5
Answer any three of the following:
(i) Discuss the eligibility criteria for issue of commercial paper
(ii) Short note on venture capital financing
(iii) Short note on factoring
(iv) Discuss the major considerations in capital structure planning
(3*3=9 marks)
Question 6
a. The bank balance of a business firm has increased during the last financial year by Rs.150,000. During the same period it issued shares of Rs.200,000 and redeemed debentures of Rs.150,000. It purchased fixed assets for Rs.40,000 and charged depreciation of Rs.20,000. The working capital of the firm, other than bank balance increased by Rs.115,000 during the period.
Find out the profit of the firm for the year?
b. Find out the IRR of an investment of Rs.3.2 lakhs which yields Cash Inflows after Tax (CFAT) of Rs.58,000 per annum for 10 years?
c. Initial investment = 490,000
Salvage value = nil
Life = 7 years
CFAT p.a.
Year 1 = 88,000
Year 2 = 1,25,000
Year 3 = 1,89,000
Year 4 = 2,43,000
Year 5 = 1,20,500
Year 6 = 95,000
Year 7 = 75000
Calculate Average rate of return.
(3+3+4=10 marks)
Question 7
WOW Ltd. has a present annual sale of 10,000 units at Rs.300 per unit. The variable cost is Rs.200 per unit and the fixed costs amount to Rs.3,00,000 per annum. The present credit period allowed by the company is 1 month. The company is considering a proposal to increase the credit period to 2 months and 3 months and has made the following estimates:
| Existing | Proposed |
Credit policy Increase in sales %of Bad Debts
| 1 month --- 1%
| 2 months 3 months 15% 30% 3% 5% |
There will be increase in fixed cost by Rs.50,000 on account of increase of sales beyond 25% of present level.
The company plans on a pre-tax return of 20% on investment in receivables.
You are required to calculate the most paying credit policy for WOW Ltd.
(7 marks)
Question 8
(a) Calculate the level of Earnings Before Interest and Tax (EBIT) at which the EPS
indifference point between the following financing alternatives will occur.
(a) Equity share capital of Rs.6,00,000 and 12% debenture of Rs.4,00,000
or
(b) Equity share capital of Rs.4,00,000, 14% preference share capital of Rs.200,000 and 12% debenture of Rs.400,000.
Assume the corporate tax rate is 35% and par value of equity share is Rs.10 in each case.
(b) A firm maintains a separate account for cash disbursement. Total disbursements are Rs.1,05,000 per month or Rs.12,60,000 per year. Administrative and transaction cost of transferring cash to disbursement account is Rs.20 per transfer. Marketable securities yield is 8% per annum.
(i) Determine the optimum cash balance according to J.Baumal model.
Also find out –
(ii) Avg. cash balance;(iii) No. of transfers per year;(iv) Time interval between 2 transfers;(v) Total Transaction cost;(vi) Total carrying cost ;(vii) Total associated cost
(7+7 = 14)
Question 9
a. Stock velocity 6
Fixed Asset Turnover Ratio 4
Capital Turnover Ratio 2
Gross profit ratio 20%
Debt collection period 2 months
Creditors pay. Period 73 days
Gross profit Rs.60,000
Closing stock Rs.5000 in excess of Opening stock
Prepare Balance Sheet.
b. What is optimum capital structure?
(5+4=9 marks)
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