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Wednesday, December 29, 2010

Model Test – IPCC - Labour costing

Model Test – IPCC

LABOUR COSTING

1. A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of Rs. 30 per hour. The standard time per unit for a particular product is 4 hours. Mr.Been, a machineman, has been paid wages under the Rowan Incentive Plan and he had earned an effective hourly rate of Rs. 37.50 on the manufacture of that particular product. What could have been his total earnings and effective hourly rate, had been put on Halsey Incentive Scheme (50%) ?

Ans:

Let T hours be the total time worked in hours by the skilled worker (machineman P); Rs. 30/- is the rate per hour; standard time is 4 hours per unit and effective hourly earning rate is Rs. 37.50 then

Earnings = Hours worked × Rage per hour + (Timesaved /Time allowed ) × Time taken × Rate per hour

(Under Rowan incentive plan)

Rs. 37.5 T = T × Rs. 30 + [(4-T) /4 ] × T × Rs. 30

Rs. 37.5 = Rs. 30 + (4 – T) × Rs. 7.5

Or Rs. 7.5 T = Rs. 22.5

Or T = 3 hours

Total earnings and effective hourly rate of skilled worker (machineman P) under Halsey Incentive Scheme (50%)

Total earnings = Hours worked × Rate per hour + ½  Time saved × Rage per hour

(Under 50% Halsey incentive Scheme)

= 3 hours × Rs. 30 + ½ × 1 hour × Rs. 30 = Rs. 105

Effective hourly rate = ( Time earnings/Time Allowed)

Rs.105/3hrs

= Rs.35

2.  Standard output in 10 hours is 240 units; actual output in 10 hours is 264 units. Wages rate is Rs.10 per hour. Calculate the amount of bonus and total wages under Emerson Plan.

(i) Efficiency = Actual output / standard output, 264/240 = 110%

(ii) Since efficiency  ≥ 100%, total wages under Emerson plan is calculated using the formulae:

Total wages = 120% of Time rate + 1% Bonus for every 1% increase in efficiency

beyond 100%

= {(10 hrs X Rs.10 per hour) X 120%] + 10% Bonus on Rs.10 per hour for 10 hrs

= Rs.120 + Rs.10 = Rs.130

Tuesday, December 28, 2010

Crash Course - CA Final Revised Schedule

PCC

PROFESSIONAL COACHING CENTRE

May 2011 Exam

(CA Final - Crash course)

 SUBJECT Faculty DAYS TIME Starts FEES Cost Mgt. (Adv. Mgt. A/c) CA.K.HARIHARAN 7 days 6pm – 8.45pm 01/04/11 3500 Indirect Tax Laws CMA.MD.RAFI 16 days 6pm – 8.45pm 16/03/11 5000
 Class Venue PROFESSIONAL COACHING CENTRE MMH Complex, 3rd Floor, Natesan street, (Behind Siva Vishnu Temple) T.Nagar, Chennai – 17 Registration at    (Pre registration is must) 10/9, Flat no.6, 2nd Floor, Rainbow Apartments Norton 1st Street Mandaveli, Chennai - 600 028 Ph: 98416 61405     99406 23954 044 – 2462 2694

Registration Fee: Rs.250/-

Sunday, December 26, 2010

Model Test – IPCC - Material Costing

Model Test – IPCC

MATERIAL COSTING

Qtn 1. About 50 items are required every day for a machine. A fixed cost of Rs. 50 per order is incurred for placing an order. The Inventory carrying cost per item amounts to Rs. 0.02 per day. The lead period is 32 days. Compute:

(i) Economic order quantity.

(ii) Re-order level.

Ans:

(i) EOQ =

√(2AB) / C

Where: A (ie. Annual consumption)  = 50 items × 365 days = 18,250 items

B (Ordering cost per order) = Rs. 50

C (carrying cost per item per annum) = Rs. 0.02 × 365 = Rs. 7.30

EOQ =

2 X 18,250 units X Rs. 50

Rs. 7.30

=500 units

(ii) Re-order level = Maximum usage per day × Maximum lead time

= 50 items per day × 32 days

= 1,600 items

Qtn 2. PQR limited produces a product which has monthly demand of 52,000 units.            The product requires a component X which is purchased @ Rs.15/unit. For every finished product,2 units of component X are required. The ordering cost is Rs.350/order and the carrying cost is 12% p.a.

Required:

Ø      Calculate the economic order quantity for component X.

Ø      If the minimum lot size to be supplied is 52,000 units, what is the extra cost the company has to incur?

Ans:

1. EOQ =  √ 2AB/C , Where

A = Annual requirement of RM = 52,000 X 12 months = 12,48,000 units.

B = Buying cost per order = Rs.350

C = Carrying cost per unit per annum = Rs.15 X 12% = Rs.1.80 p.u.p.a

EOQ = 22,030 units.

2. Cost Comparison of EOQ with purchase policy of 52,000 units:

 Particulars Quantity ordered every time(a) No. of Orders p.a (b) Buying cost p.a @ Rs.350(c) Average Inventory(d) = ½ of (a) Carriying cost p.a @ Rs.1.80 (e) Associated cost p.a = (c)+(e) EOQ 22,030 units 12,48,000/22,030 =56.65 orders 56.65 X Rs.350 = Rs.19,828 ½ X 22,030 = 11,015 units 11,015 X Rs.1.80 = Rs.19,827 Rs.39,655 Minimum lot size 52,000 units 12,48,000/52,000 = 24 orders 24 X Rs.350 = Rs.8,400 ½ X 52,000 = 26,000 units 26,000 X Rs.1.80 =Rs.46,0800 Rs.55,200
Hence, additional cost by ordering 52,000 units every time = Rs.55,200- Rs.39,655 = Rs.15,545

Friday, December 24, 2010

Model Test – Final - BUDGETARY CONTROL

Model Test – Final

BUDGETARY CONTROL

The budgeted and actual cost data of M Ltd. For 6 months from April to September, 2008 are as under:

Budget                            Actual

Production units                                         16,000                            14,000

Material cost                                          Rs.25,60,000               Rs.41,60,000

(1,600 MT @ Rs.1, 600)        (at Rs. 1,650)

Labour cost                                            Rs.16,00,000               Rs.15,99,840

(at Rs.40 per hour)             (@Rs.44 per hour)

Variable overhead                                  Rs.3,00,000                 Rs.2,76,000

Fixed overhead                                       Rs.4,60,000                 Rs.5,80,000

In the first half of the financial year 2009-10, production is budgeted for 30,000 units, material cost per tonne will increase from last year's actual by Rs.150, but it is proposed to maintain the consumption efficiency of 2008 as budgeted. Labour efficiency will be lower by 1% and labour rate will be Rs.44 per hour. Variable and fixed overhead will go up by 20% over 2008 actuals. Prepare the production cost budget for the period April-September, 2009 giving all workings.

Solution:

Production Cost Budget

(for 6 months ending 30th September, 2009)

30,000 Units

Cost per unit                Total

Rs.                           Rs.

Material cost                                                                      180                   54,00,000

Labour cost                                                                        115.21              34,56,420

Variable overhead                                                                23.65               7,09,500

Fixed overhead                                                                     23.20               6,96,000

342.06                            1,02,61,920

Assumption:

Here, difference in actual and standard time is also considered for calculating the lower efficiency i.e 3.74% + 1% = 4.74%.

Working Notes:

I . Material cost:

Material consumption per unit = 1,600 MT = 0.10 MT

16,000

Consumption for 30,000 units = 3,000 MT.

Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.

II. Labour cost can be calculated as follows:

Time required for 30,000 units                                                       = 75,000 hours

Add: *(3.74%+1%) = 4.74% for lower efficiency                         =    3,555 hours

= 78,555 hours

* 3.74% = Difference in actual and standard hours

Actual hours

= 1,360 hours

36,360 hours

Labour cost = 78,555 hours x 44 per hour

= 34,56,420

Actual rate = Rs.2,76,000          =  19.71 per unit

14,000

Add: 20                                      =    3.94

New rate                                         23.65

Total variable overhead = 30,000 x 23.65 = Rs.7,09,500

Actual                                  = Rs.5, 80,000

Add: 20%                                  = Rs.1, 16,000

Rs.6, 96,000

According to the above production cost budget will be as follows:

Alternative:

Production Cost Budget

( for 6 months ending 30th September, 2009)

30,000 units

Cost per unit        Total

Rs.                    Rs.

Material cost                                                                  180               54, 00,000

Labour cost                                                                    111.1            33, 33,000

Variable overhead                                                           23.65             7, 09,500

Fixed overhead                                                                23.20             6,96,000

337.95         1,01,38,500

Working Notes:

1. Material cost

Material consumption per unit = 1,600 MT                             = 0.10 MT

16,000

Consumption for 30,000 units = 3,000 MT

Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.

2. Labour cost:

2008- Total Budgeted Hour = 16,00,000                                     = 40,000 hours

40

Labour hour budget for each unit = 40,000                                 =     2.5

16,000

Actual time paid = 15,99,840                                                      =  36,360 hours

44

Less: standard labour hours for 14,000 units (i.e 14,000 x 2.5)  = 35,000 hours

Difference in actual and standard hours                                     =    1,360

Time required for 30,000 units ( 30,000 x 2.5)                          = 75,000 hours

Add: 1% for lower efficiency                                                     =      750 hours

= 75,750 hours

Labour cost = 75,750 hours x 44 per hour

= 33,33,000

Actual rate = Rs.2,76,000                                                           =           19.71 per unit

14,000 units

Add: 20                                                                                       =             3.94

New rate                                                                                                   23.65

Total variable overhead = 30,000 x 23.65 = Rs.7,09,500

Actual                                                                                   = Rs.5,80,000

Add: 20%                                                                                 = Rs.1,16,000

= Rs.6,96,000

Thursday, November 18, 2010

Live Program - DD Podhigai Channel

The topic is on "Career Guidelines and Opportunities for CA / CWA / CS Courses".

Date:19/11/2010; Timing 12 to 1pm

Special  Speakers of the occasion :

Mr. N.S. GOVINDAN,  Senior Faculty, CA Institute
Mr.K.HARIHARAN, Chartered Accountant, Faculty CA Institute.

Saturday, October 23, 2010

IPCC ICAI Model exam Question Paper - Nov.10

PCC

PROFESSIONAL COACHING CENTRE

PAPER – 4: COST ACCOUNTING AND FINANCIAL MANAGEMENT

.

( 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 Rs.200 lacs

Rent Rs.100 lacs

Electricity Rs.100 lacs

Documentation cost per insurance policy Rs.100

Documentation cost for each loan Rs.200

Direct sales expense per car Rs.5,000

Indirect costs have to be allocated in the ratio of physical units sold.

Required:

Ø Make a cost sheet for each product allocating the direct and indirect

Ø Costs and also showing the product wise profit and total profit.

Ø 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) Calculate Economic Order Quantity.

(ii) Calculate number of orders needed every year.

(iii) Calculate the total cost of ordering and storage bowls for the year.

(iv) 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. (MAT COMP PG 2)

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%, labour- 50% 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:

Standard Actual

Material quantity 50 units 45 units

Material price per unit Re. 1.00 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 'MX' ' MY' Cost of MachineExpected lifeScrap value Rs.8,00,0006 yearsRs.20,000 Rs.10,20,0006 yearsRs.30,000

Estimated Net Income before Depreciation and Tax are as under:

 Year 1 Year 2 Year3 Year4 Year5 Year6 Machine MX\Machine MY 2,50,0002,70,000 2,30,0003,60,000 1,80,0003,80,000 2,00,0002,80,000 1,80,0002,60,000 1,60,0001,85,000

Corporate tax rate for this company is 30% and company's 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:

Rs.

Earning before interest and tax (EBIT) 10,00,000

Fixed cost 20,00,000

Earning Before Tax (EBT) 8,00,000

Required: Calculate combined leverage.

b. The following is the capital structure of a Company:

 Source of capital Book Value (Rs.) Market Value (Rs.) Equity Share @Rs.100 each 80,00,000 1,60,00,000 9% cumulative preference Shares @ Rs.100 each 20,00,000 24,00,000 11% debentures 60,00,000 66,00,000 Retained earnings 40,00,000 ---

The current market price of the company's 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.

You are required to calculate:

(i) Cost of capital for each source of capital.

(ii) 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 Assets 31.3.08 31.3.09

Share Capital 3,900 5,200 plant & Machinery 3,978 5,525

Reserve and Surplus 1,690 2,600 Land & Building 1,040 1,040

12% Debentures - 1,300 Investment 130 130

Sundry Creditors 936 1,222 Inventories 676 975

Outstanding Rent 52 65 Sundry Debtors 728 1,131

Income-tax Payable 520 195 Prepaid Selling Expenses 26 52

Cash at Bank 494 1,677

Cash in Hand 26 52    7,098 10,582 7,098 10,582

Profit & Loss Account for the year ended 31st March, 2009

(Rs. in 000')

Rs. Rs.

To Opening stock 806 By Sales 6,331

To Purchases 2,080 By Closing Stock 1,105

To Wages 650

To Gross Profit c/d 3,900  7,436 7,436

To Depreciation 390 By Gross Profit b/d 3,900

To Office Expenses 390 By Discount 39

To Rent 130 By Commission 91

To Selling & Distribution Expenses 780 By Dividend 260

To Income Tax 1,040

To Net Profit c/d 1,560  4,290 4,290

To Dividend 650 By Balance b/d 1,690

To Balance c/d 2,600 By Net Profit b/d 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)

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