CA Final Question Papers – Group II :
Advanced Management Accounting – November 2009
This Paper has 14 answerable questions with 0 answered.
Total No. of Questions — 6] [Total No. of Printed Pages — 2
Time Allowed : 3 Hours Maximum Marks : 100
Answer all question
1. (a) Lee Electronic manufactures four types of electronic products, A,B,C and D. All these products have a good demand in the market. The following figures are given to you:
A B C D
Material cost (Rs./u)
Machining Cost (Rs/u @ Rs. 8 per hour)
Other variable costs (Rs/u)
Selling Price (Rs/u)
Market Demand (Units) 64
Fixed overhead at different levels of operation are :
Level of operation (in production hours) Total fixed cost (Rs.)
1,50,000 – 30,00,000
3,00,000 – 4,50,000
4,50,000 – 6,00,000 10,00,000
At present, the available production capacity in the company is 4,98,000 machine hours. This capacity is not enough to meet the entire market demand and hence the production manager wants to increase the capacity. The company wants to retain the customers by meeting their demands through alternative ways. One alternative is to sub–contract a part of its production. The sub–contract offer received as under:
A B C D
Sub–contract Price (Rs./u) 146 126 155 108
The company seeks your advice in terms of products and quantities to be produced and/or sub–contracted, so as to achieve the maximum possible profit. You are required to also compute the profit expected from your suggestion.
(b) Explain briefly the concept of skimming pricing policy. 2 (0)
2. (a) A bank offers three products, viz., deposits, Loans and Credit Cards. The bank has selected 4 activities for a detailed budgeting exercise, following activity based costing methods.
The bank wants to know the product wise total cost per unit for the selected activities, so that prices may be fixed accordingly.
The following information is made available to formulate the budget:
Activity Present Cost
(Rs.) Estimation for the budget period
(i) ATM Services:
(a) Machine maintenance
(c) Currency Replenishment Cost
(all fixed, no change)
(fully fixed; no change)
(expected to double during budget period)
(This activity is driven by no. of ATM
(ii) Computer Processing 5,00,000 (Half this amount is fixed and no
change is expected)
(The variable portion is expected to
increase to three times the current
This activity is driven by the number
of computer transactions.
(iii) Issuing Statements 18,00,000 Presently, 3 lac statements are
made. In the budget period, 5 lac
statements are expected;
For every increase of one lac
statement, one lac rupees is the
budgeted increase (this activity is
driven by the number of statements)
(iv) Computer Inquiries 2,00,000 Estimated to increase by 80%
during the budget period. (This
activity is driven by telephone
The activity drivers and their budgeted quantifies are given below:
Deposits Loans Credit Cards
No. of ATM Transactions
No. of Computer Processing Transactions
No. of Statements to be issued
Telephone Minutes 1,50,000
The bank budgets a volume of 58,600 deposit accounts, 13,000 loan accounts, and 14,000 Credit Card Accounts.
You are required to:
(i) Calculate the budgeted rate for each activity.
(ii) Prepare the budgeted cost statement activity wise.
(iii) Find the budgeted product cost per account for each product using (i) and (ii) above.
(b) How do you know whether an alternative solution exists for a transportation problem? 4 (0)
3. (a) Hind Metals Manufactures an alloy product ‘Incop’ by using iron and Copper. The metals pass through two plants, X and Y. The company gives you the following details for the manufacture of one unit of Incop:
Materials Iron: 10 kgs @ Rs.5 per kg.
Cooper: 5 kg @ Rs.8 per kg.
Wages 3 hours @ Rs.15 per hour in Plant X
5 hours @ Rs.12 per hour in Plant Y
Overhead recovery On the basis of direct labour hours
Fixed overhead Rs.8 per hour in Plant X
Rs.5 per hour in Plant Y
Variable overhead Rs.8 per hour in Plant X
Rs.5 per hour in Plant Y
Selling overhead : (fully variable) – Rs.20 per unit
(i) Find out the minimum price to be fixed for the alloy, when the alloy is new to the market. Briefly explain this pricing strategy.
(ii) After the alloy is well established in the market. What should be the minimum selling price? Why?
(b) What are the critical success factors for the implementation of a “Total Quality Management” programme? 5 (0)
(c) How can value analysis achieve cost reduction? 5 (0)
4. (a) Optically Ltd. makes two kinds of products, P (lenses) and Q (swimming goggles) in divisions P and Q respectively. P is an input for Q and two units of P are needed to make one unit of Q.
The following data is given to you for a period :
Rs./u of P Q
Rs./u of Q
External Demand (units)
Selling Price Rs./u (outside market) 20
100 25 (excluding P)
If Q buys P from outside, it has the following costs:
For order quantity 2,499 or less
For order quantity 2,500 – 5,000
For order quantity more than 5,000 Rs.90 per unit for the entire quantity ordered.
Rs.80 per unit for the entire quantity ordered.
Rs.70 per unit for the entire quantity ordered.
You are required to:
(i) Evaluate the best strategies for Division P and Q.
(ii) Briefly explain the concept of goal congruence.
(b) In an assignment problem to assign jobs to men to minimize the time taken, suppose that one man does not know how to do a particular job, how will you eliminate this allocation from the solution? 4 (0)
5. (a) The following information relates to labour of x Ltd.
Type of Labour Skilled Semi Skilled UnSkilled Total
No. of workers in standard gang
Standard rate per hour (Rs)
Number of workers in actual gang
Actual rate per hour (Rs.) 4
In a 40 hours week, the gang produced 270 standard hours.
The actual number of semi–skilled workers is two times the actual number of unskilled workers. The rate variance of semi–skilled workers is Rs.160 (F).
Find the following:
(i) The number of workers in each category
(ii) Total gang variance
(iii) Total Sub–efficiency variance
(iv) Total labour rate variance
(v) Total labour cost variance
(b) The following is a linear programming problem. You are required to set up the initial simplex tableau. (Please do not attempt further iterations or solution):
100×1 = 80×2
3×1 + 5×2 ≤ 150
x1 ≤ 20
8×1 + 5×2 ≤ 300
x1 + x2 ≥ 25
x1, x2 ≥ 0
6. (a) The following network gives the duration in days for each activity :
(i) You are required to list the critical paths.
(ii) Given that each activity can be crashed by a maximum of one day, choose to crash any four activities so that the project duration is reduced by 2 days.
(b) In the past, a machine has produced pipes of diameter 50 mm. To determine whether the machine is in proper working order, a sample of 10 pipes is chosen, for which mean diameter is 53 mm and the standard deviation is 3 mm. Test the hypothesis that the machine is in proper working order, given that the critical value of the test statistic from the table is 2.26. 4 (0)
(c) The Gifts Company makes mementos for offering chief guests and other dignitaries at functions. A customer wants 4 identical pieces of hand–crafted gifts for 4 dignitaries invited to its function.
For this product, the Gifts Company estimates the following costs for the 1st unit of the product
Direct variable costs (excluding labour)
Direct labour (20 hours @ Rs. 50 hour) 2,000
90 % learning curve ratio is applicable and one labourer works for one customer’s order.
(i) What is the price per piece to be quoted for this customer if the targeted contribution is Rs.1,500 per unit?
(ii) If 4 different labourers made the 4 products simultaneously to ensure faster delivery to the customer, can the price at (i) above be quoted? Why?