ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

                                                                                                                              (5×20=100)                                                                                                                            

On 24^th March 2016, Kannan Borewell arrived, drilled 600 feet. I had paid advance of Rs. 1,90,000 for 600 feet. There was 2 inch water which is more than sufficient for the apartments. The existing driller can not go beyond 600 feet, therefore Kannan Borewell started removing the driller one by one. While removing the last leg of 100 feet, the driller was stuck due to mud sliding. They  panicked and tried for two days to remove  it  but could not do so. Kannan Borewell went off without their driller.

I tried to call them again and again over a phone and spoke to the general manager about the incidents. Finally he had agreed to drill another borewell upto 600 feet on 4^th April 2016. I have agreed to spend additionally upto 600 feet Rs. 50,000 more. This time I have decided to cement the mud sliding from the beginning which will cost me additionally Rs. 1,00,000.

Required with reason(s):

i)                   What costs are relevant before 24^th March 2016 for decision making?

ii)                 Identify the costs that are irrelevant before 24^th march 2016.

iii)              Identify costs that are relevant  and irrelevant on 24^th march 2016 before drilling and after drilling the bore well.

iv)               Identify costs that are relevant and irrelevant on 4^th April 2016.

a) Another European client has asked his 3,000 accounts to be processed every month for 3 months at a price of 2.3 pounds per account. Do you advice the company to go for this proposal?

b) The existing labour force is not reduced but as per labour agreements minimum 3 months notice has to be given. The company feels that the jerk is a temporary phenomenon. Do you advice the company to go for 2 pounds?

c)  If upsurge is going to be permanent the future sales will be 35,000 accounts for next one year. How much would be the price advisable to accept this offer?

d) If the demand will remain for 35,000 accounts for the next one year and the permanent employees will be sent out after 3 months, What would be the best price to accept?

e) If the labourers are contract labourers do you accept to process at 2 pounds per account?

They require you to estimate the following for the Co.

a)      The Breakeven point in terms of seats

b)     The Cash Break even in terms of seats

c)      The Break Even seats to target a post tax return of 6% on investments if  tax rate is 40%.

(in Rs)

·         Estimate their respective break even quantity

·         The margin of safety in units and value

·         The revised break even if the overall profit after tax estimated by the company is 20%

Required: assume interest occurs once in a year. Prepare a daily balance sheet incorporating changes in the balance sheet.

The proposals are as follows:

i)             Purchase and maintain its own fleet of cars. The Purchase  cost of a car is Rs. 4,00,000. Each sales personnel will be provided one car.

ii)                                                                                                        Allow the executive use his own car and reimburse expenses at the rate of Rs. 9.7 per kilometre and also the company bears insurance cost.

The following further details are available:

Diesel Rs. 4.5 per kilometre.,

Repairs and maintenance Rs. 1 per kilometre.,

Tyre Rs. 0.80 per kilometre.,

Insurance Rs. 6,000 per car per annum

Taxes Rs. 4,000 per car per annum

Life of the car: 5 years with annual mileage of 20,000 kilometres

Resale value Rs. 80,000 at the end of 5^th year. Depreciation  is as per straight line method.

Work out the relative costs of two proposals and rank them.

What are the other factors that have to be considered while deciding the alternatives?

Total production overhead recovered by the cost accounting system is analysed under the following headings:                                                                                                                                                       (Rs)

These overhead costs are absorbed by products on a machine hour rate Rs. 4.80 per hour giving an overhead cost per product of:

A=Rs1.20, B=Rs.1.20, C=Rs.4.80, D=Rs.7.20

However, investigation into the production overhead activities for the period reveals the following totals:

You are required:

(i)                 To compute an overhead cost per product using Activity based costing, tracing overheads to production units by means of cost drivers

(ii)              To comment briefly on the differences disclosed between overheads traced by the present system and those traced by Activity based costing.

The market requirement is that all the four types of vegetables must be produced with the minimum of 5000 boxes of any one variety.  The farmer has decided that the area devoted to any one crop should be in terms of complete hectares and not in fractions of a hectare.  The only other limitations is that not more than 1, 13,750 boxes of any one vegetables should be produced.

The relevant data concerning production, market prices and costs are as under:

It is possible to make the land presently suitable for peas and carrots, viable for growing potatoes and tomatoes if certain land development work is undertaken.  This work will involve a capital expenditure of  `6,000 per hectare which a bank is prepared to finance at the rate of 15% per annum.  If such improvement is undertaken, harvesting cost of the entire crop of tomatoes will decrease on an average by  `2.60 per box.

Required:

i)                   Calculate the area to be cultivated with respect to each crop within the constraints and profits before land development work is undertaken.

ii)                 After development of land, find the acres of land for each product and also find maximum profits.