PCC
PROFESSIONAL COACHING CENTRE
PAPER – 4: COST ACCOUNTING AND FINANCIAL MANAGEMENT
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( 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
Advertising Rs.200 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 Machine Expected life Scrap value | Rs.8,00,000 6 years Rs.20,000 | Rs.10,20,000 6 years Rs.30,000 |
Estimated Net Income before Depreciation and Tax are as under:
| Year 1 | Year 2 | Year3 | Year4 | Year5 | Year6 |
Machine MX\ Machine MY | 2,50,000 2,70,000 | 2,30,000 3,60,000 | 1,80,000 3,80,000 | 2,00,000 2,80,000 | 1,80,000 2,60,000 | 1,60,000 1,85,000 |
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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