# November 2009

Total No. of Questions — 8]
Time Allowed : 3 Hours

Maximum Marks : 100
All questions are compulsory.
Working notes should form part of the answer.
Marks
1. Answer any five of the following: 5×2=10
(i) Define the following:
(a) Imputed cost (0)
(b) Capitalised cost (0)
(ii) Calculate efficiency and activity ratio from the following data:
Capacity ratio
Budgeted output
Actual output
Standard Time per unit =
=
=
= 75%
6,000 units
5,000 units
4 hours
(0)
(iii) List the Financial expenses which are not included in cost. (0)
(iv) Mention the main advantage of cost plus contracts. (0)
(v) A Company sells two products, J and K. The sales mix is 4 units of J and 3 units of K. The contribution margins per unit are Rs.40 for J and Rs.20 for K. Fixed costs are Rs.6,16,000 per month. Compute the break-even point. (0)
(vi) When is the reconciliation statement of Cost and Financial accounts not required? (0)
2. Mega Company has just completed its first year of operations. The unit costs on a normal costing basis are as under:
Rs.
Direct material 4 kg @ Rs.4
Direct labour 3 hrs @ Rs.18
Variable overhead 3 hrs @ Rs.4
Fixed overhead 3 hrs @ Rs.6 =
=
=
= 16.00
54.00
12.00
18.00
100.00
Variable
Fixed Rs.20 per unit
Rs.7,60,000
During the year the company has the following activity:
Units produced
Units sold
Unit selling price
Direct labour hours worked =
=
=
= 24,000
21,500
Rs.168
72,000
Actual fixed overhead was Rs.48,000 less than the budgeted fixed overhead. Budgeted variable overhead was Rs.20,000 less than the actual variable overhead. The company used an expected actual activity level of 72,000 direct labour hours to compute the predetermine overhead rates.

Required :

(i) Compute the unit cost and total income under:
(a) Absorption costing
(b) Marginal costing
(ii) Under or over absorption of overhead.
(iii) Reconcile the difference between the total income under absorption and marginal costing.
15 (0)
3. (a) XP Ltd. furnishes you the following information relating to process II.
(i) Opening work–in–progress – NIL
(ii) Units introduced 42,000 units @ Rs.12
(iii) Expenses debited to the process:
Rs.
Direct material
Labour
=
= 61,530
88,820
1,76,400
(iv) Normal loss in the process = 2 % of input.
(v) Closing work–in–progress – 1200 units
Degree of completion — Materials
Labour
50%
40%
(vi) Finished output – 39,500 units
(vii) Degree of completion of abnormal loss:
Materials
Labour
80%
60%
(viii) Units scraped as normal loss were sold at Rs.4.50 per unit.
(ix) All the units of abnormal loss were sold at Rs.9 per unit.
Prepare:
(i) Statement of equivalent production:
(ii) Statement showing the cost of finished goods, abnormal loss and closing workin – progress.
(iii) Process II account and abnormal loss account.
8 (0)
(b) The following information is available from the cost records of Vatika & Co. For the month of August, 2009:
Material purchased 24,000 kg Rs.1,05,600
Material consumed 22,800 kg
Actual wages paid for 5,940 hours Rs.29,700
Unit produced 2160 units.
Standard rates and prices are:
Direct material rate is Rs.4.00 per unit.
Direct labour rate is Rs.4.00 per hour
Standard input is 10 kg. for one unit
Standard requirement is 2.5 hours per unit.
Calculate all material and labour variances for the month of August, 2009.

8 (0)
4. Answer any three of the following: 3×3=9
(i) Standard Time for a job is 90 hours. The hourly rate of Guaranteed wages is Rs.50. Because of the saving in time a worker a gets an effective hourly rate of wages of Rs.60 under Rowan premium bonus system. For the same saving in time, calculate the hourly rate of wages a worker B will get under Halsey premium bonus system assuring 40% to worker. (0)
(ii) Explain briefly, what do you understand by Operating Costing. How are composite units computed? (0)
(iii) The following information relating to a type of Raw material is available:
Annual demand
Unit price
Ordering cost per order
Storage cost
Interest rate
Rs.20.00
Rs.20.00
2% p.a.
8% p.a.
Half–month
Calculate economic order quantity and total annual inventory cost of the raw material.

(0)
(iv) List the eight functional budgets prepared by a business. (0)
5. Answer any five of the following: 5×2=10
(i) Explain briefly the limitations of Financial ratios. (0)
(ii) What do you understand by Business Risk and Financial Risk? (0)
(iii) Differentiate between Factoring and Bills discounting. (0)
(iv) Differentiate between Financial Management and Financial Accounting. (0)
(v) Y Ltd. retains Rs. 7,50,000 out of its current earnings. The expected rate of return to the shareholders, if they had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders come in 30% tax bracket. Calculate the cost of retained earnings. (0)
(vi) From the information given below calculate the amount of Fixed assets and Proprietor’s fund.
Ratio of fixed assets to proprietors fund
Net Working Capital = 0.75
= Rs. 6,00,000
(0)
6. The Balance Sheets of a Company as on 31st March, 2008 and 2009 are given below:
Liabilities 31.3.2008
Rs. 31.3.2009
Rs. Assets 31.3.2008
Rs. 31.3.2009
Rs.
Equity share capital
Capital reserve
General reserve
Profit & Loss A/c
9% debentures
Sundry creditors
Bills payables
Proposed dividend

Provision for tax
Unpaid dividend 14,40,000

8,16,000
2,88,000
9,60,000
5,50,000
26,000
1,44,000

4,32,000
— 19,20,000
48,000
9,60,000
3,60,000
6,72,000
5,90,000
34,000
1,72,800

4,08,000
19,200 Fixed assets
Less: depreciation

Investment
Sundry debtors
Stock
Cash in hand
Preliminary
Expenses 38,40,000
11,04,000
27,36,000
4,80,000
12,00,000
1,40,000
4,000
96,000 45,60,000
13,92,000
31,68,000
3,84,000
14,00,000
1,84,000

48,000
46,56,000 51,84,000 46,56,000 51,84,000

During the year ended 31st March, 2009 the company:

(i) Sold a machine for Rs.1,20,000; the cost of machine was Rs. 2,40,000 and depreciation provided on it was Rs. 84,000.
(ii) Provided Rs. 4,20,000 as depreciation on fixed assets.
(iii) Sold some investment and profit credited to capital reserve.
(iv) Redeemed 30% of the debentures @ 105.
(v) Decided to write off fixed assets costing Rs. 60,000 on which depreciation amounting to Rs. 48,000 has been provided.
You are required to prepare Cash Flow Statement as per AS 3.

15 (0)
7. (a) From the following financial data of Company A and Company B: Prepare their Income Statements.
Company A
Rs. Company B
Rs.
Variable Cost
Fixed Cost
Interest Expenses
Financial Leverage
Operating Leverage
Income Tax Rate
Sales 56,000
20,000
12,000
5 : 1

30%
— 60% of sales

9,000

4 : 1
30%
1,05,000
8 (0)
(b) A hospital is considering to purchase a diagnostic machine costing Rs. 80,000. The projected life of the machine is 8 years and has an expected salvage value of Rs. 6,000 at the end of 8 years. The annual operating cost of the machine is Rs. 7,500. It is expected to generate revenues of Rs. 40,000 per year for eight years. Presently, the hospital is outsourcing the diagnostic work and is earning commission income of Rs.12,000 per annum; net of taxes.
Required:

Whether it would be profitable for the hospital to purchase the machine? Give yourrecommendation under:

(i) Net Present Value method
(ii) Profitability Index method.
PV factors at 10% are given below:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467
8 (0)
8. Answer any three of the following: 3×3=9
(i) Explain the two basic functions of Financial Management. (0)
(ii) Explain the following terms:
(a) Ploughing back of profits (0)
(b) Desirability factor. (0)
(iii) What do you understand by Weighted Average Cost of Capital? (0)
(iv) There are two firms P and Q which are identical except P does not use any debt in its capital structure while Q has Rs. 8,00,000, 9% debentures in its capital structure. Both the firms have earning before interest and tax of Rs. 2,60,000 p.a. and the capitalization rate is 10%.
Assuming the corporate tax of 30%, calculate the value of these firms according to MM Hypothesis.