St. Joseph’s College of Commerce (Autonomous)

End Semester Examination – April 2011

M.Com – II semester

Advanced Management Accounting

Time : 3 hrs                                                                                                    Max. Marks: 100

Section – A

I)Answer ALL the following questions.                                                           (10×2 = 20)

 

1. What is capital rationing?
2. What are the uses of benchmarking? In what areas is it applicable?
3. What is marginal costing?
4. What is essence of beta in CAPM model.
5. What is present value annuity factor?
6. What are the steps towards implementing an activity based costing system?
7. What are applications of marginal costing?
8. Write the meaning of synergy.
9. What are the four perspectives of balance score card?
10. What are the various pricing strategies?

 

Section – B

II)Answer any FOUR out of SIX questions.                                         (4 x 5 = 20)

 

11. What is a arms length principle? Explain the methods of transfer pricing.

 

12. What is performance measurement? What are the various techniques of measuring financial performance?  Explain any two.

 

13. A company has prepared the following budget of sales:

Product	Sales	PV ratio(%)
A B C	6,00,000 9,00,000 10,00,000	40 30 25

 

You are required to revise the sales mix to ensure a profit of Rs. 10,000 in such a way that not more than Rs. 8,00,000 of sales of product A is possible and that the present total value  of sales should not be altered.

 

14. A company engaged in plantation activities has 200 hectares of virgin land which can be used for growing jointly or individually tea, coffee and cardamom. The yield per hectare of the different crops and their selling price per kg are as under:

	yield	Selling price per kg
Tea Coffee cardomom	2,000 kg 500 100	Rs. 20 40 250

The relevant cost data are given below

Variable cost per kg

	Tea (Rs.)	coffee(Rs.)	Cardamom(Rs.)
Labour charges Packing materials Other costs	8 2 4	10 2 1	120 10 20

 

Fixed costs per annum

Cultivation and growing cost Rs. 10,00,000

Administration cost Rs. 2,00,000

Land revenue Rs. 50,000

Repair and maintenance Rs. 2,50,000

Other costs Rs. 3,00,000

The policy of the company is to produce and sell all the three kinds of products and the maximum and minimum area to be cultivated per product is as follows:

	maximum	Minimum
Tea Coffee cardomom	160 hectares 50 30	120 hectares 30 10

Calculate the most profitable product mix and the maximum profit which can be achieved.

 

15. Fill in the blanks for each of the following independent situations

	A	B	C
Selling price per unit Variable cost as % of selling price No. of units sold Marginal contribution Fixed costs Profit/loss	? 60   10,000 20,000 12,000 ?	Rs. 50 ?   4,000 80,000 ? 20,000	Rs. 20 75   ? ? 1,20,000 30,000

 

16. Explain the concept of marginal costing? Describe the characteristics and limitations of marginal costing?

 

 

Section – C

III) Answer any THREE out of FIVE of the following questions.                 (3 x 15 = 45)

 

17. Relevant data relating to a company are

Particulars	P	Q	R	Total
Production and sales (units) Raw materials usage in units Raw material costs Direct labour hours Machine hours Direct labour costs No. of production runs No. deliveries No. of receipts No. of production orders	60,000 10 50/- 2.5 2.5 16/- 6 18 60 30	40,000 10 40/- 4 2 24/- 14 6 140 20	16,000 22 22/- 2 4 12/- 40 40 880 50	24,76,000 3,42,000 2,94,000   60 64 1080 1000

Over heads

• Set up Rs. 60,000
• Machines- Rs. 15,20,000
• Receiving – Rs. 8,70,000
• Packing Rs. 5,00,000
• Engineering Rs. 7,46,000

The company operates a JIT inventory policy and receives each component once per production run.

Required:

• Compute the product cost based on direct labour hour recovery rate of overheads
• Compute the product costs using activity based costing

 

18. What is business process re engineering? Explain its methodology.
19. Explain the concept of balance scorecard and its applications.

 

19. Mars are manufacturing three products. The cost details are as follows:

Particulars	Product A  Rs.		Product B		Product C
Direct materials Direct labour Direct expenses Selling price No. of units sold Total contribution Less : fixed costs Profit	4 units	12 5 8 35 20000 2,00,000	5 units	15 6 9 40 40000 4,00,000	6 units	18 6 11 50 20,000 3,00,000 7,50,000 1,50,000

 

The direct materials were all imported.  Due to foreign exchange restrictions, henceforth the company can import only 3,00,000 units of raw materials.  The company can produce in all 1,00,000 units maximum.  However they can market only 20,000 units of product A and C each.  There is a local substitute material which is available at a price of Rs.3.75 per unit.  Besides, the company has to spend Rs. 50,000 on intermediaries and consumables, if local substitute material is used in the production process.  There was also a third party who was willing to take a part of the plant on lease up to 50,000 units capacity of B and willing to pay lease charges of Rs. 2,75,000.

You are required to advise the management

• What should be the quantum of production/sales mix of products with existing import restrictions
• Whether the company can optimize production of 1,00,000 units with local substitute materials
• Whether the company can enhance profits by leasing out a part of the plant to the third party and restricting its own production?

 

20. S ltd has Rs. 10,00,000 allocated for capital budgeting purpose. The following proposal and associated profitability indexes have been determined.

Project	Amount Rs.	Profitability index
1 2 3 4 5 6	3,00,000 1,50,000 3,50,000 4,50,000 2,00,000 4,00,000	1.22 0.95 1.20 1.18 1.20 1.05

Which of the above investment should be undertaken?  Assume that projects are indivisible and there is not alternative use of the money allocated for capital budgeting.

 

21. As an investment manager you are given the following information

	Initial price Rs.	Dividends Rs.	Market price at the year endRs.	Beta
Investment in equity shares of Cement ltd Steel ltd Liquor ltd Government of India bonds	25 35 45 1000	2 2 2 140	50 60 135 1005	0.8 0.7 0.5 0.99

Risk free return may be taken at 14%

You are requested to calculate

• Expected rate of returns of the portfolio in each using CAPM
• Average return of the portfolio.

 

Section – D

 

1. IV) Answer the following question. (15 marks)

                                                                       

22. Lacquer Painters undertake painting jobs of cars, scooters,, buses etc. the pain materials of desired shades are purchased from market and then painted by spray gun in paint shop by skilled painters. The budget for next year is given below:

	Rs.
Paint materials 100 kilo litres Direct labour 25000 hours Total variable costs Fixed overheads Total expected costs Profit 25% Expected job work revenue	15,00,000 5,00,000 10,00,000 20,00,000 50,00,000 12,50,000 62,50,000

The firm always faced problems in getting paint materials from markets as the customer needs only a particular shade .  the skilled labour is also sometimes not available due to rush of jobs.

A customer wants to get his moped painted urgently.  It is estimated that one litre  paint is sufficient for painting the moped.  Four labour hours will be required to complete the job.

Required

• What should be the painting charges if fixed costs are absorbed on the basis of variable costs and profit at 25% on total costs
• What should be the charges in case the paint material is a limiting factor
• What should be the charges in case the skilled labour is a limiting factor
• Which price out of above three would you recommend to the customer and why
• Would your answer to (4) above differ if the customer has no urgency?

 

 

 

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