- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – OCTOBER 2014
B.B.M.– V SEMESTER
ACCOUNTING FOR MANAGEMENT DECISIONS
Duration: 3 Hours Max. Marks: 100
SECTION A
- Answer ALL the questions. Each carries 2 marks. (2 x10 = 20)
- What is the difference between ‘absorption costing’ and ‘marginal costing?
- Briefly explain what is ‘KAIZEN COSTING’?
- What are ‘activity drivers’ in Activity based Costing?
- From the following data calculate break even point in terms of units and also the new B.E.P. If selling price is reduced by10%. Fixed expenses Rs.2,00,000, Variable expenses: Material Rs.3 per unit, Labour Rs.2 per unit, Selling price Rs.10 per unit.
- What is the difference between Break Even chart and Profit/Volume Chart?
- Mention the situations when a product can be priced below the Marginal cost?
- P/V ratio is 60% and marginal cost of the product is Rs.50. What will be the Selling Price?
- Explain, how Marginal costing is applied in measuring the performance efficiencies of a department or product line or sales division?
- Explain: (a) Opportunity Cost (b) Sunk cost
- Define Budget and Budgetary control?
SECTION – B
- II) Answer FOUR Each carries 5 marks. (4 x 5 = 20)
- You are required to calculate the Break Even point in the following case:
The fixed costs for the year is Rs.80,000; variable cost per unit for the single product being made is Rs.4. Estimated sales for the period are valued at Rs.2,00,000. The number of units involved coincides with the expected volume of output. Each Unit sells at Rs.20. Calculate the Break even point.
- Meenakshi ltd manufactures auto parts. The following costs are incurred for processing 1,00,000 units of a component.
| Direct materials cost | Rs.5 lakhs |
| Direct Labour cost | Rs.8 Lakhs |
| Variable factory overheads | Rs.6 Lakhs |
| Fixed factory overheads | Rs.5 Lakhs |
The purchase price of the component is Rs.22. The fixed overheads would continue to be incurred even when the component is bought from outside although there would be reduction to the extent of Rs.2,00,000
Required
- Shoud the part be made or bought, considering that the present facility when released following a buying decision would remain idle?
- In case the released (spare) capacity can be rented out to another company for Rs.1.5 Lakhs, what would be the decision?
- What is a Cash Budget? Explain the need for a cash Budget?
- Discuss in detail about ‘Balance Score Card’?
- Briefly explain the process involved in Target Costing?
- Asgar Ltd supplies you the following information
| Normal capacity of plant | 10,000 units |
| Fixed cost | Rs.1,00,000 |
| Marginal cost per unit | Rs.75 |
| Estimated selling price | Rs.80 |
| Estimated sales volume at this selling price | 5,000 units |
Suggest whether the plant should be temporarily closed down
SECTION –C
- Answer THREE questions. Each carries 15 marks. (3 x 15 = 45)
- A company produces a single product which is sold by it presently in the domestic market at Rs.75 per unit. The present production and sale is 40,000 units per month, representing 50% of the capacity available. The cost data of the product are as follows.
Variable cost per unit Rs.50; Fixed cost per month Rs.10 Lakhs.
To improve the profitability the management has 3 proposals on hand as under
- To accept an export order for 30,000 units per month at reduced price of Rs.60 per unit, incurring additional variable costs of Rs. 5 per unit towards export packing duties etc.
- To increase the domestic market sales by selling to a domestic chain stores 30,000 units at Rs.55 per unit, retaining the existing sales at the existing price.
- To reduce the selling price for the increased domestic sale as advised by the sales department as under
| Reduced selling price per unit by Rs | Increase in sales expected (units) |
| 5 | 10,000 |
| 8 | 30,000 |
| 11 | 35,000 |
Prepare a table to present the results of the above proposals and give your comments and advice on the proposals.
- Work out a flexible budget for overhead expenses on the basis of the following data available and determine overhead rates at 60%, 80% and 100% capacity levels
|
|
80% capacity
levels
|
| Variable overheads
Indirect Materials Indirect Labour |
Rs.1,44,000 Rs.64,000 |
| Semi-Variable overheads
Power (80%variable) Repairs & maintenance (60% fixed) |
Rs.1,50,000 Rs.60,000 |
| Fixed overheads
Depreciation Insurance Others |
Rs. 27,000 Rs. 20,000 Rs. 79,000
|
| Estimated direct labour hours | 1,60,000 hours |
- A company is expected to have Rs.25,000 cash in hand on 1st April 2004 and it requires you to prepare an estimate of cash position during the three months. April to June 2004. The following information is supplied to you
| Month | Sales (Rs.) | Purchases(Rs.) | Wages(Rs.) | Expenses(Rs.) |
| Feb | 70,000 | 40,000 | 8,000 | 6,000 |
| March | 80,000 | 50,000 | 8,000 | 7,000 |
| April | 92,000 | 52,000 | 9,000 | 7,000 |
| May | 1,00,000 | 60,000 | 10,000 | 8,000 |
| June | 1,20,000 | 55,000 | 12,000 | 9,000 |
Other information (a) 20% of Sales of each month is for Cash, 50% of credit Sales is collected in the next month and 50% in the following month (b) Suppliers allow credit of half a month (c) Delay in payment of wages and expenses – ½ month (d) Income tax of Rs.25,000 to be paid in June 2004.
- Draw the Break Even chart from the following information:
Output-80,000units
Selling Price Rs.20 per unit
Variable cost Rs.10 per unit
Fixed Cost: Rs.4,00,000
- What is Activity Based Costing? Briefly explain the steps in Activity Based Costing.
Section – D
- IV) Compulsory question. (15 marks)
- An umbrella manufacturer makes an average profit of Rs.2.50 per unit on selling price of Rs.14.30 by producing and selling 60,000 units @ 60% of potential capacity
His cost of sales per unit is as follows
| Direct Materials | Rs.3.50 |
| Direct wages | Rs.1.25 |
| Factory overhead (50% fixed) | Rs.6.25 |
| Sales overhead (25% variable) | Re. 0.80 |
During the current year, he intends to produce the same number but estimates that his fixed cost would go up by 10%, while the rates of direct wages and direct materials will increase by 8% and 6% respectively. However the selling price cannot be changed
Under this situation, he obtains an offer for further 20%of his potential capacity. What minimum price would you recommend for a further decrease in potential capacity by @20%of his potential capacity. What minimum price would recommend for acceptance of this offer to ensure the manufacturer an overall profit Rs.1,67,300 ?
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