Shree Guru Kripa s Institute of Management

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1 COST ACCOUNTING & FINANCIAL MANAGEMENT Reg. No.. Total Number of Printed Pages: 5 Date: Maximum Marks: 100 Question 1 is compulsory (4 5 = 20 Marks). Answer any 5 from the remaining 6 (16 5 = 80 Marks) 1(a) The following data is given. Calculate VOH Variances. Particulars Production Man hours to produce the output VOH (in ` ) Budget 400 units 8,000 10,000 Actual 360 units 7,000 9,150 1(b) A Company producing a single article sells it at ` 20 each. The Marginal Cost of production is ` 12 each and the Fixed Costs are ` 9,000 per quarter. You are required to calculate for the year, the following: 1. Profit Volume Ratio (PV Ratio) 4. Sales required to earn a Profit of ` 12, Break Even Sales in value 5. Profit at Sales of ` 2,00, Break Even Sales in units (volume) 1(c) The following current data are available concerning Mitra Limited: Share issued 10,000 Market Price per Share ` 20 Interest Rate 12% Tax Rate 46% Expected EBIT ` 15,000 The Company requires an additional ` 50,000 for the coming year. You are required to determine: (i) Which financing option (Debt or Equity Issue) will give higher EPS for the expected EBIT? (ii) What is the Indifference Level of EBIT for the two alternatives? (iii)what is the EPS for that EBIT? 1(d) A Bank is analysing the receivables of Meera Ltd in order to identify acceptable collateral for a short term loan. Meera s credit policy is 2/10 net 30. The Bank lends 80% on accounts where customers are not currently overdue and where the Average Payment Period does not exceed 10 days past the net period. A schedule of Meera s Receivables has been prepared. How much will the Bank lend on a pledge of Receivables, if the Bank uses a 10% allowance for Cash Discount and Returns? 1

2 Account Amount (`) Days Outstanding (in days) Avg. Payment Period historically (in days) 74 25, , , , , , , ,08,800 What would be the effect if the Bank imposes an additional condition of minimum amount due ` 15,000? 2(a) Explain the treatment of Over Absorption and Under Absorption of Production Overhead. 2(b) State the Unit of Cost for the following (i) University (ii) Hospital (iii) Hotel (iv) Professional Services (v) Power / Electricity (vi) Road Transport (vii) Cargo Transport (viii) Cinema Houses 2(c) Explain (i) Work Certified (ii) Progress Payment (iii) Escalation Clause (iv) Cost Plus Contract. 2(d) Write short notes on any 4 Methods of Apportionment of Joint Cost. 3 Balance Sheets of a Company as on 31st March 2015 and 2016 were as follows Liabilities Assets Equity Share Capital 10,00,000 10,00,000 Goodwill 1,00,000 80,000 8% Pref. Share Capital 2,00,000 3,00,000 Land and Building 7,00,000 6,50,000 General Reserve 1,20,000 1,45,000 Plant and Machinery 6,00,000 6,60,000 Securities Premium 25,000 Investments (Non 2,40,000 2,20,000 Trading) Profit & Loss Account 2,10,000 3,00,000 Stock 4,00,000 3,85,000 11% Debentures 5,00,000 3,00,000 Debtors 2,88,000 4,15,000 Creditors 1,85,000 2,15,000 Cash and Bank 88,000 93,000 Provision for Tax 80,000 1,05,000 Prepaid Expenses 15,000 11,000 Proposed Dividend 1,36,000 1,44,000 Premium on Redemption of Deb. 20,000 Total 24,31,000 25,34,000 Total 24,31,000 25,34,000 2

3 Additional Information: 1. Investments were sold during the year at a profit of ` 15, During the year, an old machine costing ` 80,000 was sold for ` 36,000. Its WDV was ` 45, Depreciation charged on Plant and Machinery at 20% on the Opening Balance. 4. There was no purchase or sale of Land and Building. 5. Provision for tax made during the year was ` 96, Preference Shares were issued for consideration of cash during the year. From the above, prepare (a) Cash Flow Statement as per AS 3, (b) Schedule of Changes in Working Capital. 16 marks 4(a) Following are the ratios relating to the activities of Technopak Limited. Debtors Velocity 3 months. Stock Velocity 8 months. Creditors Velocity 2 months Gross Profit 25%, Gross Profit for the year ended amounts to ` 4 Lakhs.. Closing Stock of the year is ` 10,000 above the Opening Stock. Bills Payable and Receivable were ` 10,000 and ` 25,000 respectively. From the above, Calculate (a) Sales, (b) Sundry Debtors, and (c) Sundry Creditors. 4(b) Hanumanth Inc. gives you the following details for Budgeted Sales Quantity is 18,000 Units 2. Actual Sales Quantity is 20,000 Units 3. Stocks at 2015 year end were: (a) Finished Product: 4,000 Units, (b) Raw Materials: 7,000 Kg Budget for 2016 is to be prepared on the following premises 1. Sales Quantity will be 15% more than last year actuals. 2. Forecast Stocks at 2016 end will be: (a) Finished Product: 20% of the year s Sales, and (b) Raw Materials: 10% of the Year s Consumption. 3. Every Unit of Finished Product requires 5Kg of Raw Materials. Compute the following for Budget 2016 (a) Sales Quantity (b) Production Quantity (c) Raw Material Usage Quantity (d) Raw Material Purchase Quantity 3

4 4(c) Vetrivel Enterprise manufactures a special product Kulisa. The following particulars are collected for the year. Annual Consumption 12,000 Units (360 Days) Cost per unit ` 1 Ordering Cost ` 12 per order Inventory Carrying Cost 24% Normal Lead Time 15 days Safety Stock 30 days consumption Required: (1) Compute Re order Quantity, and Re order Level, (2) What should be the inventory level (ideally) immediately before the material order is received? 5(a) Varuna & Co. have applied for Working Capital limits from M/s Full of Funds Bank Ltd, who have agreed to sanction the same by retaining the margins as Raw Materials 20%, WIP 30%, Finished Goods 25%, Debtors 10% Annual Sales at one month credit ` 14,40,000 Cost of Production ` 12,00,000 Raw Material Purchases (at 15 days credit) ` 7,05,000 Monthly Cash Expenditure ` 25,000 Anticipated Raw Material Stocks Opening ` 1,40,000 Closing ` 1,25,000 Inventory Norms are: Raw Materials 2 months, WIP 15 days, Finished Goods 1 month. The Firm has received an advance of ` 15,000 from customers on Sales Orders. From the above projections for the forthcoming year, you are required to work out the following 1. Working Capital required by the Firm (Cash Cost Approach), and 2. Working Capital limits likely to be sanctioned by the Bankers. 5(b) Pass Journal Entries (Without Narration) for the following under Non Integrated and Integrated systems. 1. Purchase of Raw Materials on credit: ` 3,60, Cost of Goods Sold to Customers: ` 4,50,000 (Actual Sales value includes 20% Profit on Sale Price) 5(c) The following summarises the percentage changes in Revenue, EBIT and the betas for four pharmaceutical Firms. Firm Change in Revenue Change in Operating Income Beta PQR Ltd 27% 25% 1.00 RST Ltd 25% 32% 1.15 TUV Ltd 23% 36% 1.30 WXY Ltd 21% 40% Calculate the Degree of Operating Leverage for each of these Firms. 2. Use the Operating Leverage to explain why these Firms have different beta. 4

5 6(a) A product passes through two processes. The output of Process I becomes the input for Process II and the output of Process II is transferred to the warehouse. The quantity of Raw Materials introduced into Process I is 20,000 kg at ` 10 per kg. The cost and output data for the month under review are as below Particulars Process I Process II Direct Materials ` 60,000 ` 40,000 Direct Labour ` 40,000 ` 30,000 Production Overheads ` 39,000 ` 40,250 Normal Loss 8% 5% Output 18,000 kg 17,400 kg Loss realisation per unit ` 2.00 ` 3.00 The Company s policy is to fix the Selling Price of the end product in such a way so as to yield a profit of 20% on Selling Price. You are required to (1) Prepare the Process Accounts, and (2) Determine the Selling Price per unit of the end product. 6(b) A Company has to make a choice between 2 projects namely A and B. The initial outlay of A & B are ` 1,35,000 and ` 2,40,000 respectively for A and B. with no Scrap Value. The Cost of Capital of the Company is 16%. The Annual Incomes are Year Project A ` 30,000 ` 1,32,000 ` 84,000 ` 84,000 Project B ` 60,000 ` 84,000 ` 96,000 ` 1,02,000 ` 90,000 Disc. Factor at 16% Calculate the following, for each project (1) Discounted Payback Period, (2) PI and (3) Net Present Value. Which Project will the Company prefer? 7. Answer any four of the following Questions: (4 4 = 16 Marks) (a) Give the treatment of the following in Cost Accounting (i) Employee Training Expenses & (ii) Holiday & Leave Wages. (b) What are the Objectives of Cost Accounting? (c) Distinguish between Profit Maximization and Wealth Maximization (d) (i) Give 2 examples of Perpetuity. (ii) What is the Formula for computing Effective Rate of Interest, if Interest is paid K times a Year? (e) Briefly explain the 4 Methods of Venture Capital Financing. 5

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