PREMIER ACADEMY
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Advanced Management Accounting
Question no.1 is compulsory.
Answer any five from the remaining six questions.
Working notes should form part of the answer.
(Time allowed = 3 hours) (Maxi. Marks= 100)
Question 1
a) Following is the sales budget for the first six months of the year 2009 in respect of PQR Ltd. :
Month : Jan. Feb. March April May June
Sales (units) : 10,000 12,000 14,000 15,000 15,000 16,000
Finished goods inventory at the end of each month is expected to be 20% of budgeted sales quantity for the following month. Finished goods inventory was 2,700 units on January 1, 2009. There would be no work-in-progress at the end of any month.Each unit of finished product requires two types of materials as detailed below:
Material X : 4 kgs @ Rs.10/kg;Material Y : 6 kgs @ Rs.15/kg
Material on hand on January 1, 2009 was 19,000 kgs of material X and 29,000 kgs of material Y. Monthly closing stock of material is budgeted to be equal to half of the requirements of next month's production. Budgeted direct labour hour per unit of finished product is ¾ hour. Budgeted direct labour cost for the first quarter of the year 2009 is Rs.10,89,000.Actual data for the quarter one, ended on March 31, 2009 is as under:
Actual production quantity : 40,000 units
Direct material cost: (Purchase cost based on materials actually issued to production)
Material X : 1,65,000 kgs @ Rs.10.20/kg
Material Y : 2,38,000 kgs @ Rs.15.10/kg
Actual direct labour hours worked : 32,000 hours
Actual direct labour cost : Rs.13,12,000
Required :
(a) Prepare the following budgets:
(i) Monthly production quantity for the quarter one.
(ii) Monthly raw material consumption quantity budget from Jan2009 to Apr2009.
(iii) Materials purchase quantity budget for the quarter one.
(b) Compute the following variances :
(i) Material cost variance
(ii) Material price variance
(iii) Material usage variance
(iv) Direct labour cost variance
(v) Direct labour rate variance
(vi) Direct labour efficiency variance
b) Determine the selling price per unit to earn a return of 12% net on capital employed (net of taxes @40%).
The cost of production and sale of 80,000 units per annum are:
Material Rs.4,80,000 Labour Rs.1,60,000
Variable overheads Rs.3,20,000 Fixed overheads Rs.5,00,000
The fixed portion of capital employed is Rs.12 lacs and the varying portion is 50% of sales turnover.
c) What are the applications of incremental cost techniques in managerial decision making? (12+4+4=20 marks)
Question 2
a) Aashish Ltd will produce 2,70,000 kgs of S and 5,40,000 kgs of Y from an input of 9,00,000 kgs of raw material Z. The selling price of S is Rs.8 per Kg and that of Y is Rs.6 per Kg.
Processing costs amounts to Rs.54 lacs per month as under:
Raw material Z 9,00,000 Kgs @ Rs.3 per kg Rs.27,00,000
Variable processing costs Rs.18,00,000
Fixed processing costs Rs. 9,00,000
Total costs Rs.54,00,000
There is an offer to purchase 54,000 kgs of Y additionally at a price of Rs.4 per Kg. The existing market for Y will not be affected by accepting the offer. But the price of S is likely to be decreased uniformly on all sales. Find the minimum reduced average price for S to sustain the increased sales.
b) Explain skimming pricing strategy.
c) Explain main features of ERP.
(10+3+3= 16 marks)
Question 3
a) An advertising firm desires to reach two type of audiences- customers with annual income of more than Rs.40,000 ( target audience A) and customers with annual income of less than Rs.40,000 ( target audience B) . The total advertising budget is Rs. 2,00,000. One programme of T.V advertising costs Rs.50,000 and one programme of Radio advertising costs Rs.20,000. Contract conditions require that there should be atleast 3 programmes on T.V and number of Programmes on Radio must not exceed 5. survey indicates that a single T.V programme reaches 7,50,000 customers in target audience A and 1,50,000 in target audience B. one radio programme reaches 40,000 customers in Target audience A and 2,60,000 in target audience B.
Formulate this as a linear programming problem and determine the media mix to maximize the total reach.
b) Distinction between PERT and CPM.
c) Explain 'back flushing' in JIT system.
(8+4+4=16 marks)
Question 4
a) Division A is a profit centre that produces three products X,Y & Z and each product has an external market. The relevant data is as;
| Particulars | X | Y | Z |
| External Market Price p.u (Rs.) | 48 | 46 | 40 |
| VC of Div.A (Rs.) | 33 | 24 | 28 |
| Labour hours p.u – Div. A | 3 | 4 | 2 |
| Maxi. External sales units | 800 | 500 | 300 |
Up to 300 units of Y can be transferred to an internal division B. Division B has also the option of purchasing externally at a price of Rs.45 p.u.
Assume there is no WIP, Determine the transfer price for Y if the total labour hours available in division A is;
6199 hours .
b) Explain the concept of discretionary costs with examples.
(12+4= 16 marks)
Question 5
A private firm employs typists on hourly piece rate basis for their daily work. Five typists are working in that firm and their charges and speeds are different. On the basis of some earlier understanding, only one job is given to one typist and the typist is paid in for full hours even when he or she works for a fraction of an hour. Find the least cost allocation for the following data
Typist Rate per hour (Rs.) Number of pages Job No. of pages
Typed per hr
A 5 12 P 199
B 6 14 Q 175
C 3 8 R 143
D 4 10 S 298
E 4 11 T 178
b) Explain the concept of cost drivers with examples.
(12+4=16 marks)
Question 6
a) The following figures are available. Find out the missing figures, giving appropriate formulae;
Budgeted profit 15,000
Less: Adverse variances:-
Contribution price variance 10,600
Direct materials variance 1,000
Fixed overhead variance 600 (12,200)
Add: Favourable variance:
Contribution quantity variance 1,800
Direct wages variance 600
Variable overhead variance 1,800 4,200
Actual Profit 7,000
There is no inventory
Production unit = sales units for both actual and budget.
Std. selling price Rs.18 / unit
Std. variable cost Rs.15/unit
Std. contribution Rs.3/unit
Actual selling price Rs.17/unit
Budgeted sates 10,000 units
Std. material cost p.u = Re.1 ( which is 5kgs @ 20 paise/kg)
Material usage variance = 400 (A)
Actual labour hours @ actual rate = Rs.63,000
Actual labour hours @ std. rate = Rs.61,950
Variable overhead standard rate = Rs.2
Std. hours of production = 4 p.u
Variable overhead at standard rate = Rs.84,800
Variable overhead expenditure variance = 400 (A)
Budgeted fixed overhead = Rs.15000
Find out the following;
o Actual sales units
o Actual sales rupees
o Actual quantity of raw materials used
o Labour efficiency variance
o Actual variable overhead in rupees
o Variable overhead efficiency variance
o Actual fixed overheads
o Operating profit variance
b) A Pharmaceutical company produces formulations having a shelf life of one year. The company has a opening stock of 30,000 boxes on 1st January,2005. and expected to produce 1,30,000 boxes as was in the just year ended 2004. expected sale would be 1,50,000 boxes. Costing department has worked out escalation in cost by 25% on variable cost and 10% on fixed cost. Fixed cost for the year 2004 is Rs. 40 per unit. New price announced for 2005 is Rs.100 per box. Variable cost on opening stock is Rs.40 per box. Compute breakeven volume for the year 2005, statement of profit under marginal costing approach and absorption costing approach.
(10+6=16 marks)
Question 7
a) Explain the impact of the following issues;
(i) If Sales quantity is 50,000kgs and production during the year is 40,000 kgs what could be the impact of profit in marginal costing approach?
(ii) If Sales quantity is 80,000kgs and production during the year is 95,000 kgs what could be the impact of profit in absorption costing approach?
b) Explain the circumstance with leads to consider the opportunity cost for fixation of transfer pricing.
c) M/S. VJ Moon Ltd facing the following problems;
(i) Rise in sales levels at decreasing rates;
(ii) Reduction in Prices due to competition.
(iii) Normal rate of profits due to reduction in selling price.
(iv) Facing fierce Competition
You are required to comment about its business situation;
d) Classify the following items under appropriate categories of quality costs;
| ITEMS | COSTS |
| 1) Retesting | ? |
| 2) Contribution lost due to reputation | ? |
| 3) Testing of Purchase Parts | ? |
| 4) Second sales at lower price | ? |
| 5) Maintenance | ? |
| 6) Work stoppages due to defects | ? |
| 7) Cost of handling customer Complaints | ? |
| 8) Quality engineering and training | ? |
e) Classify the following items under the three measures used in the theory of constraints;
| ITEMS | MEASURES |
| 1)Research and development cost | ? |
| 2)Stock of raw materials | ? |
| 3)Raw materials used in Production | ? |
| 4)Cost of Equipments and Buildings | ? |
| 5)Labour Cost | ? |
| 6)Rent/Utilities | ? |
| 7)Sales | ? |
| 8)Depreciation | ? |
(3+2+3+4+4=16 marks)
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