CA PCC Question Papers Group II Cost Accounting and Financial Management May 2010

CA PCC  Question Papers Group II

Cost Accounting and Financial Management -May 2010

Total No. of Questions – 8
Time Allowed : 3 Hours
Maximum Marks : 100
Answer all questions.
1. (i) What is Cost accounting? Enumerate its important objectives. 5×2=10 (0)
(ii) Distinguish between Fixed overheads and Variable overheads. (0)
(iii) Re–order quantity of material ‘X’ is 5,000 kg.; Maximum level 8,000 kg.; Minimum usage 50 kg. per hour; minimum re–order period 4 days; daily working hours in the factory is 8 hours. You are required to calculate the re–order level of material ‘X’. (0)
(iv) What do you understand by Key factor? Give two examples of it. (0)
(v) What are the main advantages of integrated accounts? (0)
2. SB Constructions Limited has entered into a big contract at an agreed price of Rs. 1,50,00,000 subject to an escalation clause for material and labour as spent out on the contract and corresponding actual are as follows:
Standard Actual
Material: Quantity
(Tonnes) Rate per
Tonne
Rs. Quantity
(Tonnes) Rate per
Tonne
(Rs.)
A
B
C
D
Labour:L1
L2 3,000
2,400
500
100
Hours60,000
40,000 1,000
800
4,000
30,000
Hourly Rate
(Rs.)
15
30 3,400
2,300
600
90
Hours

56,000
38,000 1,100
700
3,900
31,500
Hourly Rate
(Rs.)
18
35
You are required to:

(i) Give your analysis of admissible escalation claim and determine the final contract price payable.
(ii) Prepare the contract account, if the all expenses other than material and labour related to the contract are Rs. 13,45,000.
(iii) Calculate the following variances and verify them :
(a) Material cost variance
(b) Material price variance
(c) Material usage variance
(d) Labour cost variance
(e) Labour rate variance
(f) Labour efficiency variance.
4+3+8 (0)
3. (a) Pharma Limited produces product ‘Glucodin’ which passes through two processes before it is completed and transferred to finished stock. The following data relates to March, 2010:
Process–I
Rs. Process–II
Rs. Finished Stock
Rs.
Opening Stock 1,50,000 1,80,000 4,50,000
Direct materials 3,00,000 3,15,000 –
Direct Wages 2,24,000 2,25,000 –
Factory Overheads 2,10,000 90,000 –
Closing Stock 74,000 90,000 2,25,000
Inter process profit included in Opening stock NIL 30,000 1,65,000
Output of process I is transferred to process II at 25 percent profit on the transfer price, whereas output of process II is transferred to finished stock at 20 percent on transfer price. Stock in processes are valued at prime cost. Finished stock is valued at the price at which it is received from process II. Sales for the month is Rs. 28,00,000.

You are required to prepare Process–I a/c, Process–II a/c, and Finished Stock a/c showing the profit element at each stage.

8 (0)
(b) A transport company has been given a 40 kilometre long route to run 5 buses. The cost of each bus is Rs. 6,50,000. The buses will make 3 round trips per day carrying on an average 80 percent passengers of their seating capacity. The seating capacity of each but is 40 passengers. The buses will run on an average 25 days in a month. The other information for the year 2010–11 are given below:
Garage rent
Annual repairs and maintenance
Salaries of 5 drivers
Wages of 5 conductors
Manager’s salary
Road tax, permit fee, etc.
Office expenses
Cost of diesel per litre
Kilometre run per litre for each but
Annual depreciation
Annual Insurance Rs. 4,000 per month
Rs. 22,500each bus
Rs. 3,000 each per month
Rs. 1,200 each per month
Rs. 7,500 per month
Rs. 5,000 for a quarter
Rs. 2,000 per month
Rs. 33
6 kilometres
15% of cost
3% of cost
You are required to calculate the bus fare to be charged from each passenger per kilometre, if the company

wants to earn profits of 33
1
3
on taking (total receipts from passengers).
8 (0)
4. Answer of the following:
(i) Following informations are available for the year 2008 and 2009 of PIX Limited:
Year 2008 2009
Sales
Profit/(Loss) Rs. 32, 00,000
(Rs.3,00,000) Rs. 57, 00,000
Rs.7,00,000
Calculate –(a) P/V ratio, (b) Total fixed cost, and (c) Sales required to earn a Profit of Rs. 12,00,000

3 (0)
(ii) Explain the treatment of over and under absorption of Overheads in Cost accounting 3 (0)
(iii) Which is better plan out of Halsey 50 percent bonus scheme and Rowan bonus scheme for an efficient worker? In which situation the worker get same bonus in both schemes? 3 (0)
5. Answer the following: 5×2=10
(i) What do you understand by Capital structure? How does it differ from Financial structure? (0)
(ii) Explain briefly the accounts receivable systems. (0)
(iii) Briefly discuss the concept of seed capital assistance. (0)
(iv) Enumerate the various forms of bank credit in financing working capital of a business organization. (0)
(v) Ascertain the compound value and compound interest of an amount of Rs. 75,000 at 8 percent compounded semiannually for 5 years. (0)
6. The following figures and ratios are related to a company:

  1. (x) Sales for the year (all credit)
  2. Gross Profit ratio
  3. Fixed assets turnover (based on cost of goods sold)
  4. Stock turnover (based on cost of goods sold)
  5. Liquid ratio
  6. Current ratio
  7. Debtors collection period
  8. Reserves and surplus to Share capital
  9. Capital gearing ratio
  10. Fixed assets to net worth Rs. 30,00,000

25 percent
1.5
6
1 : 1
1.5 : 1
2 months
0.6 : 1
0.5
1.20 : 1
You are required to prepare:

(i) Balance Sheet of the company on the basis of above details.
(ii) The statement showing working capital requirement, if the company wants to make a provision for contingencies @ 10 percent of net working capital including such provision.
11+4=15 (0)
7. (a) The management of P Limited is considering selecting a machine out of two mutually exclusive machines. The company’s cost of capital is 12 percent and corporate tax rate for the company is 30 percent. Details of the machines are as follows:
Machine – I Machine – II
Cost of machine
Expected life
Annual income before tax and depreciation
Depreciation is to be charged on straight line basis. Rs. 10,00,000
5 years
Rs. 3,45,000 Rs. 15,00,000
6 years
Rs. 4,55,000
You are required to:

(i) Calculate the discounted pay–back period, net present value and internal rate of return for each machine.
(ii) Advise the management of P Limited as to which machine they should take up.
The present value factors of Re. 1 are as follows:

Year
At 12%
At 13%
At 14%
At 15%
At 16% 1
.893
.885
.877
.87
.862 2
.797
.783
.769
.756
.743 3
.712
.693
.675
.658
.641 4
.636
.613
.592
.572
.552 5
.567
.543
.519
.497
.476 6
.507
.48
.456
.432
.41
9+7=16 (0)
(b) The following details are forecasted by a company for the purpose of effective utilization and management of cash:
(i) Estimated sales and manufacturing costs:
Year and month
2010
April
May
June
July
August
September Sales
Rs.
4,20,000
4,50,000
5,00,000
4,90,000
5,40,000
6,10,000 Materials
Rs.
2,00,000
2,10,000
2,60,000
2,82,000
2,80,000
3,10,000 Wages
Rs.
1,60,000
1,60,000
1,65,000
1,65,000
1,65,000
1,70,000 Overheads
Rs.
45,000
40,000
38,000
37,500
60,800
52,000
(ii) Credit terms:
– Sales – 20 percent sales are on cash, 50 percent of the credit sales are collected next month and the balance in the following month.
– Credit allowed by suppliers is 2 months.
– Delay in payment of wages is ½ (one–half) month and of overheads is 1 (one) month.
(iii) Interest on 12 percent debentures of Rs. 5,00,000 is to be paid half–yearly in June and December.
(iv) Dividends on investments amounting to Rs. 25,000 are expected to be received in June, 2010.
(v) A new machinery will be installed in June, 2010 at a cost of Rs. 4,00,000 which is payable in 20 monthly installments from July, 2010 onwards.
(vi) Advance income-tax, to be paid in August, 2010, is Rs. 15,000.
(vii) Cash balance on 1st June, 2010 is expected to be Rs. 45,000 and the company wants to keep it at the end of every month around this figure. The excess cash (in multiple of thousand rupees) is being put in fixed depos
You are required to prepare monthly Cash budget on the basis of above information for four months beginning from June, 2010.

(0)
8. Answer the following: 3×3=9
(i) SK Limited has obtained funds from the following sources, the specific cost are also given against them:
Source of funds Amount (Rs.) Cost of Capital
Equity shares 30,00,000 15 percent
Preference shares 8,00,000 8 percent
Retained earnings 12,00,000 11 percent
Debentures 10,00,000 9 percent(before tax)
You are required to calculate weighted average cost of capital. Assume that Corporate tax rate is 30 percent.

(0)
(ii) State the role of a Chief Financial Officer. (0)
(iii) Distinguish between Funds Flow Statement and Cash Flow Statement. (0)

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