<\/p>\n
<\/p>\n
This\u00a0Paper\u00a0has 25 answerable questions with 0 answered.<\/p>\n
Total No. of Questions\u2014 9]
\nTime Allowed : 3 Hours<\/p>\n
Maximum Marks : 100
\nAnswers to questions\u00a0are to be given only in English except in the cases of\u00a0candidates\u00a0who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
\nQuestion Nos.1 and 6 are compulsory.
\nAttempt three questions out of the remaining Question numbers 2, 3, 4 and 5 and attempt two questions from the remaining Question numbers 7, 8 and 9.
\nWorking notes should form part of the answer.
\nMarks
\n1. (a) Discuss the limitations of Uniform costing. 2 (0)
\n(b) Discuss the three methods of Calculating labour turnover. 3 (0)
\n(c) Pokemon Chocolates manufactures and distributes chocolate products. It purchasesCocoa beans\u00a0and processes them into two intermediate products:
\n\u2022 Chocolate powder liquor base
\n\u2022 Milk\u2013chocolate liquor base.
\nThese two intermediate products become separately indentifiable at a single split off point, Every 500 pounds of\u00a0cocoa beans\u00a0yields 20 gallons of chocolate\u2013powder liquor base and 30 gallons of milk\u2013chocolate liquor base.
\nThe chocolate powder liquor base is further processed into chocolate powder. Every 20 gallons of chocolate\u2013powder liquor base yields 200 pounds of chocolate powder. The milk\u2013chocolate liquor base is further processed into milk\u2013chocolate. Every 30 gallons of milk\u2013chocolate liquor base yields 340 pounds of milk chocolate.
\nProduction and sales data for October, 2004 are :<\/p>\n
\u2022
\n\u2022 Cocoa beans\u00a0processed
\nCosts of processing\u00a0Cocoa beans\u00a0to split off point (including purchase of beans) 7,500 pounds
\nRs. 7,12,500
\nProduction Sales Selling Price
\nChocolate powder
\nMilk Chocolate 3,000 pounds
\n5,100 pounds 3,000 pounds
\n5,100 pounds Rs. 190 per pound
\nRs. 237.50 per pound
\nThe October, 2004 separable costs of processing chocolate\u2013powder liquor into chocolate powder are Rs. 3,02,812.50. The October, 2004 separable costs of processing milk\u2013chocolate liquor base into milk\u2013chocolate are RS. 6,23,437.50.<\/p>\n
Pokemon fully processes both of is intermediate products into chocolate powder or milk\u2013chocolate. There is an active market for these intermediate products. In October, 2004, Pokemon could have sold the chocolate powder liquor base for Rs. 997.50 a gallon and the milk\u2013chocolate liquor base for Rs. 1,235 a gallon.<\/p>\n
Required :
\n(i) Calculate how the joint cost of Rs. 7,12,500 would be allocated between the chocolate powder and milk\u2013chocolate liquor bases under the following methods :
\n(a) Sales value at split off point
\n(b) Physical measure (gallons)
\n(c) Estimated net realisable value, (NRV) and
\n(d) constant gross\u2013margin percentage NRV.
\n(ii) What is the gross\u2013margin percentage of the chocolate powder and milk\u2013chocolate liquor bases under each of the methods in requirement (i)?
\n(iii) Could Pokemon have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations.
\n8+2+3=13 (0)
\n2. (a) Discuss cost classification based on variability and controllability. 4 (0)
\n(b) Discuss ABC analysis as a system of Inventory control. 4 (0)
\n(c) RST Limited has received an offer of quantity discount on its order of materials as under :
\nPrice per tonne Tonnes number
\nRs. 9,600 Less than 50
\nRs. 9,360 50 and less than 100
\nRs. 9,120 100 and less than 200
\nRs. 8,880 200 and less than 300
\nRs. 8,640 300 and above
\nThe annual requirement for the material is 500 tonnes. The ordering cost per order is Rs. 12,500 and the\u00a0stock holding\u00a0cost is estimated at 25% of the material cost per annum.
\nRequired :<\/p>\n
(i) Compute the most economical purchase level.
\n(ii) Compute EOQ if there are no quantity discounts and the price per tonne is Rs. 10,500. 4+2=6 (0)
\n3. (a) Discuss the treatment of overtime premium in Cost\u00a0accounting 3 (0)
\n(b) Discuss the Gantt task and bonus system as a system of wage payment and incentives 3 (0)
\n(c) Popeye Company is a metal and wood cutting manufacturer, selling products to the home construction market. Consider the following data for the month of October, 2004 :
\nRs.
\nSandpaper
\nMaterial\u2013handling costs
\nLubricants and Coolants
\nMiscellaneous indirect manufacturing labour
\nDirect manufacturing labour
\nDirect materials, October 31, 2004
\nFinished goods, October 1, 2004
\nFinished goods, October 31, 2004
\nWork\u2013in\u2013process, October 1, 2004
\nWork\u2013in\u2013process, October 31, 2004
\nPlant\u2013leasing costs
\nDepreciation\u2013plant equipment
\nProperty taxes\u00a0on plant equipment
\nFire Insurance on plant equipment
\nDirect materials purchased
\nSales revenues
\nMarketing promotions
\nMarketing salaries
\nDistribution costs
\nCustomer\u2013service costs 5,000
\n1,75,000
\n12,500
\n1,00,000
\n7,50,000
\n1,00,000
\n1,25,000
\n2,50,000
\n3,75,000
\n25,000
\n35,000
\n1,35,000
\n90,000
\n10,000
\n7,500
\n11,50,000
\n34,00,000
\n1,50,000
\n2,50,000
\n1,75,000
\n2,50,000
\nRequired :<\/p>\n
(i) Prepare an income statement with a separate supporting schedule of cost of goods manufactured.
\n(ii) For all manufacturing items, indicate by V or F whether each is basically a variable cost or a fixed cost (where the cost object is a product unit).
\n6+2=8 (0)
\n4. (a) MNP suits is a ready\u2013to\u2013wear suit manufacturer. It has four customer : two wholesale\u2013channel customers and two retail\u2013channel customers.
\nMNP suits has developed the following activity\u2013based costing system :
\nActivity Cost driver Rate in 2004
\nOrder processing
\nSales visits
\nDelivery\u2013regular
\nDelivery\u2013rushed Number of purchase orders
\nNumber of customer visits
\nNumber of regular deliveries
\nNumber of rushed deliveries Rs. 1,225 per order
\nRs. 7,150 per visit
\nRs. 1,500 per delivery
\nRs. 4,250 per delivery
\nList selling price per suit is Rs. 1,000 and average cost per suit is Rs. 550. The CEO of MNP suits wants to evaluate the profitability of each of the four customers in 2003 to explore opportunities for increasing profitability of his company in 2004. The following data are available for 2003 :<\/p>\n
Item Wholesale Retail
\nCustomers Customers
\nW H R T
\nTotal number of orders
\nTotal number of sales visits
\nRegular deliveries
\nRush deliveries
\nAverage number of suits per order
\nAverage selling price per suit 44
\n8
\n41
\n3
\n400
\nRs. 700 62
\n12
\n48
\n14
\n200
\nRs. 800 212
\n22
\n166
\n46
\n30
\nRs. 850 250
\n20
\n190
\n60
\n25
\nRs. 900
\nRequired :<\/p>\n
(i) Calculate the customer\u2013level operating income in 2003.
\n(ii) What do you recommend to CEO of MNP suits to do to increase the Company\u2018s operating income in 2004?
\n(iii) Assume MNP suits distribution channel costs are Rs.l 17,50,000 for its wholesale customers and Rs. 10,50,000 for the retail customers. Also, assume that its Corporate sustaining costs are Rs. 12,50,000. Prepare Income statement of MNP suits for 2003.
\n6+2+2=10 (0)
\n(b) Discuss the step method and reciprocal service method of secondary distribution of overheads. 4 (0)
\n5. (a) Distinguish between any three of the following : 2+2+2=6
\n(i) Cost control and cost reduction (0)
\n(ii) Bin card and stores ledger (0)
\n(iii) Job costing and batch costing (0)
\n(iv) Cost audit and statutory audit. (0)
\n(b) Brock Construction Ltd. Commenced a contract on November 1, 2003. The total contract was for Rs. 39,37,500. It was decided to estimate the total profit on the contract and to take to the credit of P\/L A\/C that proportion of estimated profit on cash basis, which work completed bore to the total contract. Actual expenditure for the period November 1, 2003 to October 31, 2004 and estimated expenditure for November 1, 2004 to March 31, 2005 are given below :
\nNovember 1, 2003 to
\nOctober 31, 2004
\n(Actuals)
\nRs. November 1, 2004 to
\nMarch 31, 2005
\n(Estimated)
\nRs.
\nMaterials issued
\nLabour: Paid
\nPrepaid
\nOutstanding
\nPlant purchased
\nExpenses: Paid
\nOutstanding
\nPlant returns to store 6,75,000
\n4,50,000
\n25,000
\n\u2014
\n3,75,000
\n2,00,000
\n50,000
\n75,000 12,37,500
\n5,62,500
\n\u2014
\n2,500
\n\u2014
\n3,50,000
\n25,000
\n3,00,000
\n(historical cost) (On March 31, 2004) (On March 31, 2005)
\nWork certified
\nWork uncertified
\nCash received
\nMaterial at site 20,00,000
\n75,000
\n17,50,000
\n75,000 Full<\/p>\n
37,500
\nThe plant is subject to annual depreciation @33% on written down value method. The contract is likely to be completed on March 31, 2005.
\nRequired :<\/p>\n
(i) Prepare the contract A\/c. Determine the profit on the contract for the year November, 2003 to October, 2004 on prudent basis, which has to be credited to P\/L A\/C.
\n8 (0)
\n6. PQR Ltd. is evaluating a proposal to acquire new equipment would cost Rs. 3.5 million and was expected to generate cash inflows of Rs. 4,70,000 a year for nine years. After that point, the equipment would be obsolete and have no significant salvage value. The company\u2019s weighted average cost of capital is 16%. The management of the PQR Ltd. seemed to be convinced with the merits of the investment but was not sure about the best way to finance it. PQR Ltd. could raise the money by issuing a secured eight\u2013year note at an interest rate of 12%. However, PQR Ltd. had huge tax\u2013loss carry forwards from a disastrous foray into foreign exchange options. As a result, the company was unlikely to be in a position of tax-paying for many years. The CEO of PQR Ltd. thought it better to lease the equipment than to buy it. The proposals for lease have been obtained from MGM Leasing Ltd. and Zeta Leasing Ltd. The terms of the lease are as under :
\nMGM Leasing Ltd. Zeta Leasing Ltd.
\nLease period offered
\nNumber of lease rental payments with initial lease payment due on entering the lease contract
\nAnnual lease rental
\nLease terms equivalent to borrowing cost (Claim of lessor)
\nLeasing Proposal coverage<\/p>\n
Tax rate 9 years<\/p>\n
10
\nRs. 5,44,300<\/p>\n
11.5% p.a.
\nEntire Rs. 3.5 million
\ncost of equipment
\n35% 7 years<\/p>\n
8
\nRs. 6,19,140<\/p>\n
11.41% p.a.
\nEntire Rs. 3.5 million
\ncost of equipment
\n35%
\nBoth the Leasing companies were in a tax \u2013 paying and write off their investment in new equipment using following rate :
\nYear 1 2 3 4 5 6
\nDepreciation rate 20% 32% 19.20% 11.52% 11.52% 5.76%
\nRequired :
\n(i) Calculate the NPV to PQR Ltd. of the two lease proposals.
\n(ii) Does the new equipment have a positive NPV with (i) ordinary financing (ii)lease financing?
\n(iii) Calculate te NPVs of the leases from the lessors view points. Is there a chance that they could offer more attractive terms?
\n(iv) Evaluate the terms presented by each of the lessors.
\n5+3+3+5=16 (0)
\n7. (a) You are analysing the beta for ABC Computers Ltd. and have divided the Company into four broad business groups, with market values and betas for each group.
\nBusiness group Market value
\nof equity Unleveraged
\nbeta
\nMain frames
\nPersonal Computers
\nSoftware
\nPrinters Rs. 100 billion
\nRs. 100 billion
\nRs. 50 billion
\nRs. 150 billion 1.10
\n1.50
\n2.00
\n1.00
\nABC Computers Ltd. had Rs. 50 billion in debt outstanding.
\nRequired :<\/p>\n
(i) Estimate the beta for ABC Computers Ltd. as a Company. Is this beta going to be equal to the beta estimated by regressing past returns on ABC Computers stock against a market index. Why or Why not?
\n(ii) If the treasury bond rate is 7.5%, estimate the cost of equity for ABC Computers Ltd. Estimate the cost of equity for each division. Which cost of equity would you use to value the printer division ? The average market risk premium is 8.5%.
\n2+4=6 (0)
\n(b) Explain the \u2018Ageing Schedule\u2019 in the context of monitoring of receivables. 3 (0)
\n(c) Discuss any three ratios computed for investment analysis. 3 (0)
\n8. (a) The following summarizes the percentage changes in operating income, percentage changes in revenues, and betas for four pharmaceutical firms.
\nFirm Change in Change in Beta
\nrevenue operating income
\nPQR Ltd.
\nRST Ltd.
\nTUV Ltd.
\nWXY Ltd. 27%
\n25%
\n23%
\n21% 25%
\n32%
\n36%
\n40% 1.00
\n1.15
\n1.30
\n1.40
\nRequired :
\n(i) Calculate the degree of operating leverage for each of these firms Comment also.
\n(ii) Use the operating leverage to explain why these firms have different beta.
\n3+3=6 (0)
\n(b) What is debt Securitisation? Explain the basic debt securitisation process. 6 (0)
\n9. (a) Consider a firm that has existing assets in which it has capital invested of Rs. 100 crores. The after \u2013 tax operating income on assets \u2013 in \u2013 place is Rs. 15 crores. The return on capital employed of 15% is expected to be sustained in perpetuity, and company has a cost of capital of 10%. Estimate the present value of economic value added (EVA) of the firm from its assets in place. 4 (0)
\n(b) A firm is considering offering 30 \u2013 day credit to its customers. The firm like to charge them an annualized rate of 24%. The firm wants to structure the credit in terms of a cash discount for immediate payment. How much would the discount rate have to be? 4 (0)
\n(c) Discuss the risk \u2013 considerations in financing of current assets. 4 (0)<\/p>\n","protected":false},"excerpt":{"rendered":"
CA PE II Question Papers Group\u00a0II Cost\u00a0Accounting and Financial Management Nov 2004 This\u00a0Paper\u00a0has 25 answerable questions with 0 answered. Total No. of Questions\u2014 9] Time Allowed : 3 Hours Maximum Marks : 100 Answers to questions\u00a0are to be given only in English except in the cases of\u00a0candidates\u00a0who have opted for Hindi medium. If … Read more<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":""},"categories":[4731,120,4930],"tags":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/24598"}],"collection":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/comments?post=24598"}],"version-history":[{"count":0,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/24598\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/media?parent=24598"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/categories?post=24598"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/tags?post=24598"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}