PAPER – 4 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
All Question are compulsory.
Working notes should form part of the answer.
Question 1
Answer any five of the following:
i. Explain Opportunity cost
ii. Escalation clause
iii. Equivalent units
iv. Idle capacity
v. Disposition of variance
vi. Blanket overhead rate.
(5*2=10 Marks)
Question 2
(a) Gowri Ltd has two production departments P-1 and P-2 and two service dept. S-1 and
S-2. The data relating to a period are as under:-
| Particulars | P-1 | P-2 | S-1 | S-2 |
| Direct materials | 80,000 | 40,000 | 10,000 | 20,000 |
| Direct wages | 95,000 | 50,000 | 20,000 | 10,000 |
| OH | 80,000 | 50,000 | 30,000 | 20,000 |
| Power required at normal capacity operations (kwh) | 20,000 | 25,000 | 12,500 | 17,500 |
| Actual power consumption during the period (kwh) | 13,000 | 23,000 | 10,250 | 10,000 |
A power generation plant meets the power requirement of these departments. The said plant incurred an expenditure, which is not included above of Rs.1,21,875 out of which a sum of Rs.84,375 was variable and the rest fixed.
After apportionment of power generation plant costs to the four dept. the service dept. OH are to be redistributed on the following basis:
| Dept. | P-1 | P-2 | S-1 | S-2 |
| S-1 | 50% | 40% | -- | 10% |
| S-2 | 60% | 20% | 20% | -- |
You are required to:
· Apportion the power generation plant costs to the four dept.
· Re-apportion service dept. costs to production dept.
Calculate the OH rates per direct labour hour of production dept. given that the direct wage rates of P1 and P2 are Rs.5 and Rs.4 per hour respectively
(b) If the minimum stock level and average stock level of raw-material 'X' are 4000 and 9000 units respectively, find out its re-order quantity
(12+3=15 marks)
Question 3
(a) Shree Mithai Pvt. Ltd gives following information
· Annual requirement of sugar for making sweets 50 tons
· Cost of purchase order Rs.10
· Stock holding cost Re.1 per container per annum.
Supplier of sugar offer quantity discounts as laid out below –
| No. of tons | 1-9 | 10-49 | 50-99 | 100 & above |
| Discount per unit ( Rs.) | Nil | 0.50 | 1.00 | 1.20 |
Compute EOQ in the above situation
(b) TP ltd. manufactures product A, which yields 2 by products B and C. The actual joint expenses of manufacture for a period were Rs.8,000. It was estimated that the profit on each products as a % of sales would 30%, 25% and 15%. Subsequently expenses were incurred as under:
| Particulars | A (Rs.) | B (Rs.) | C (Rs.) |
| Materials | 100 | 75 | 25 |
| Wages | 200 | 125 | 50 |
| OH | 150 | 125 | 75 |
| Total | 450 | 325 | 150 |
| Sales | 6,000 | 4,000 | 2,500 |
Prepare a statement showing the apportionment of the joint expenses of manufacture over the different products. Also presume that selling expenses are apportioned over the products as a % to sales.
(8+8=16 marks)
Question 4
Answer any three of the following:
(i) Pre requisite for installing cost accounting system
(ii) Explain the assumptions under BEP
(iii) Define labour turnover
(iv) Short notes Non integrated accounting system
(3*3=9 marks)
Question 5
Answer any five of the following:
(i) Explain Commercial paper
(ii) Short notes on Bridge finance
(iii) Short notes on Deep Discount Bonds.
(iv) Short notes on packing credit facility
(v) Find
Earnings per share 80
Dividend payout ratio 35%
Expected growth on dividend 3%
Face Value per share Rs.100
Market price 290
Cost of equity ?
(vi)Aaha Ltd & Ooho Ltd having the same sales and variable cost of Rs.1,50,000 and Rs.60,000 respectively. Fixed cost of Aaha Ltd is Rs36,000 and for Ooho Ltd is Rs.63,000. Find DOL
(5*2=10 marks)
Question 6
On 1st January, the Managing Director of A Ltd. Wishes to know the amount of working capital that will; be required during the year. From the following information prepare the working capital requirements forecast.
Production during the previous year was 60,000 units. It is planned that this level of activity would be maintained during the present year. The expected ratios of the cost to selling prices are Raw Materials 60%, Direct Wages 10% and Overheads 20%. Raw Materials are expected to remain in store for an average of 2 months before issue to production. Each unit is expected to be in process for 1 month, the raw materials being fed into the pipeline immediately and the labour and overhead costs an average of ½ month. Finished goods will stay in the warehouse awaiting dispatch to customers for approximately 3 months. Credit allowed by creditors is 2 months from the date of purchase of raw materials. Credit allowed to debtors is 3 months from the date of dispatch. Selling price is Rs.5 per unit. There is a regular production and sales cycle. Wages and overheads are paid on the 1st of each month for the previous month. The company normally keeps cash in hand to the extent of Rs.20,000.
(15 marks)
Question 7
(a) The cash flow of two mutually exclusive projects are as under :-
| Year | Project X | Project Y |
| 0 | (40,000) | (20,000) |
| 1 | 13,000 | 7,000 |
| 2 | 8,000 | 13,000 |
| 3 | 14,000 | 12,000 |
| 4 | 12,000 | - |
| 5 | 11,000 | - |
| 6 | 15,000 | - |
· Estimate the net present value (NPV) of the projects X & J using 15% as the hurdle rate.
· Estimate the IRR of the projects.
· Why is there a conflict in the project choice by using NPV and IRR criteria?
Make a Project choice.
(b) Calculate the average collection period from the following details by adopting 360 days to a year:
Average inventory Rs.360,000
Debtors Rs.230,000
Inventory Turnover Ratio 6
Gross profit Ratio 10%
Credit sales to total sales 20%
(c ) THIS OR THAT'S cost of debt is 6% (after tax) and the cost of equity is 14%. Find WACC if the capital structure of the company is –
ü Debt : Equity = 60:40,
ü Debt : Equity = 10:90,
ü Debt : Equity = 40:60, and
ü Debt : Equity = 90:10
(8+4+4 = 16)
Question 8
From the information as contained in the income statement and the balance sheet of A ltd., you are required to prepare a cash flow from operating activity using Direct method
A. Income statement and reconciliation of earnings for the year ended 31.03.2005
Rs.
Net sals 25,,20,000
Less: Cost of sales 19,80,000
Depreciation 60,000
Salaries and wages 2,40,000
Operating expenses 80,000
Provision for taxation 88,000 24,48,000
Net operating profit 72,000
Non-recurring income: Profit on sale of equipment 12,000
84,000
Retained earning (balance in P&L account b/f) 1,51,800
2,35,800
Dividend declared and paid during the year 72,000
Profit and loss account balance as on 31.03.2005 1,63,800
B. COMPARATIVE BALANCE SHEETS:
| PARTICULARS | As at 31.03.2004 Rs. | As at 31.03.2005 Rs. |
| Fixed assets: Land Building and equipments Current assets: Cash Debtors Stock Advances |
48,000 3,60,000
60,000 1,68,000 2,64,000 7,800 |
96,000 5,76,000
72,000 1,86,000 96,000 9,000 |
| Total | 9,07,800 | 10,35,000 |
| Capital Surplus in P & L A/c Sundry creditors Outstanding expenses Income tax payable Accumulated depreciation on building and equipment. | 3,60,000 1,51,800 2,40,000 24,000 12,000 1,20,000 | 4,44,000 1,63,800 2,34,000 48,000 13,200 1,32,000 |
| Total | 9,07,800 | 10,35,00 |
Cost of equipment sold was Rs.72,000.
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