LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

RO 43

M.Com. DEGREE EXAMINATION – COMMERCE

SECOND SEMESTER – APRIL 2008

    CO 2810 – ACCOUNTING FOR DECISION MAKING

 

 

 

Date : 29/04/2008            Dept. No.                                        Max. : 100 Marks

Time : 1:00 – 4:00

PART-A

I   Answer ALL questions.   `                                                                                     (10 x 2 = 20)

1. What is cash flow statement?
2. What do you mean by BEP?
3. Explain the term transfer pricing.
4. Write a formula of proprietary ratio.
5. Spell out the need for cash budget.
6. Discuss the advantages of standard costing.
7. Current ratio 2.5 working capital Rs. 63,000 calculate current asset and current liabilities.
8. A factory planned to produce 1,000 units of a product using 8000 labour hours costing Rs.40

each actually 900 units were produced by working 8,200 labour hours.  Calculate labour

efficiency variance.

9. The volume and profit relationship of a company is described by equation y = Rs. 3,00,000 +

0.7 x in which x represents sales and y represents total cost.

Find out  ,     pv ratio   ,  BEP.

10. From the following information relating ABC Ltd calculate fund from operation. Net loss

for the year Rs.90,000. Divident received Rs.7,000. Depreciation charged Rs.10,000. profit

on sale of assets Rs.5,000 refund of tax Rs.2,000

 

PART-B

Answer any FIVE questions.                                                                                       (5 x 8 = 40)

11. Discuss the ABC in detail. Explain ABC in detail.
12. i. What is zero-base budgeting (ZBB) ?
13. Explain the process of 2BB and its advantages.
14. From the following details, calculate funds from operations:

	Rs.		Rs.
Salaries Rent Refund of tax Profit on sale of building Depreciation on plant Provision for tax Loss on sale of plant Closing balance of Profit & Loss a/c Opening balance of Profit & Loss a/c	5,000 3,000 3,000 5,000 5,000 4,000 2,000 60,000 25,000	Discount on issue of debentures Provision for bad debts Transfer to general reserve Preliminary expenses written off Goodwill written off Proposed dividend Dividend received	2,000 1,000 1,000 3,000 2,000 6,000 5,000

14. The capital of Everest Co. Ltd. is as follows:

Rs.

9% Preferences shares of Rs. 10/- each                                3,00,000

Equity shares of  Rs. 10/- each                                             8,00,000

————

11,00,000

————–

 

The accountant has ascertained the following information:

Profit after tax at 60% Rs. 2,70,000, Depreciation Rs.60,000, Equity dividend paid 20%,

Reserves Rs. 77,000, Market price per equity share Rs. 40

Calculate:

Dividend yield on equity shares, Cover for preference and equity dividends, Earnings per share, The price earnings ratio, Dividend pay out-ratio, Net cash inflow, Book value per share.

 

15. Draw up a flexible budget for overhead expenses on the basis of the following data and

determine the overhead rates at 70%, 80% and 90% plant capacity.

	At 70% Capacity Rs.	At 80% Capacity Rs.	At 90% Capacity Rs.
Variable Overheads Indirect labour Stores including spares Semi-Variable Overheads: Power (30% fixed, 70% variable) Repairs and maintenance (60% fixed, 40% variable) Fixed Overheads : Depreciation Insurance Salaries   Total Overheads	–– ––     ––   ––   –– –– –– —————- ––	12,000 4,000     20,000   2,000   11,000 3,000 10,000 ­­­————- 62,000	–– ––     ––   ––   –– –– –– ————— ­­__

Estimated direct labour hours:                        1,24,000 hrs.

 

16. Two business P Ltd. and Q Ltd. sell the same type of product in the same type of market.

Their budgeted profit and loss accounts for the coming year are as under:

		P Ltd.		Q Ltd.
Sales Less: Variable costs Fixed costs Budget Net Profit	1,20,000 15,000	1,50,000   1,35,000 –––––––– 15,000 ––––––––	1,00,000 35,000	1,50,000   1,35,000 ––––––– 15,000 –––––––

You are required to:

• Calculate the break-even point for each business
• Calculate the sales volume at which each business will earn Rs. 5,000 profit.
• State which business is likely to earn greater profit in conditions of:
  • heavy demand for the product
  • low demand for the product, and, briefly give your argument also.

 

17. Budgeted hours for March 2000, 180 hours

Standard rate of article produced per hour 50 units

Budgeted fixed overheads Rs. 2,700

Actual production March 2000, 9,200 units

Actual hours for production 175 hours

Actual fixed overheads Rs.2,800

Calculate overhead cost variance, overhead budget variance, overhead volume

variance, overhead efficiency variance and overhead capacity variance.

 

18. From the following information of product No. 888, calculate

(i)   Material cost variance  (ii) Material price variance

(iii) Material usage variance  (iv) Material mix variance

(v)   Material subusage variance

 

Material	Standard Quantity in kgs	Standard Price Rs.	Actual quantity in kgs Rs.	Actual Price Rs
X Y Z	20 16 12 — 48 —	5 4 3	24 14 10 — 48 —	4.00 4.50 3.25

 

 

 

 

PART-C

Answer any TWO questions.                                                                                      (2 x 20 = 40)           

 

19. The following particulars are obtained from costing records of a factory:

	Product A (per unit) Rs.	Product B (per unit) Rs.
Selling price	200	500
Material (Rs. 20 per kg.)	40	160
Labour (Rs. 10 per hour)	50	100
Variable overhead	20	40
Total fixed overheads Rs. 15,000

Comment on the profitability of each product when:

• Raw material is in short supply; (b) Production capacity is limited; (c) Sales quantity is limited; (d) Sales value is limited; (e) Only 1,000 kgs. of raw material is available for both type of products in total and maximum sales quantity of each product is 300 units.

 

 

20. From the following particulars, prepare Trading, Profit and Loss Account and Balance Sheet.

Current ratio-3; Liquid ratio-1.8, Bank overdraft-Rs. 20,000; Working capital-Rs. 2,40,000, Debtors velocity-1 month; Gross profit ratio-20%, Proprietary ratio (Fixed assets/Shareholder’s fund)-0.9, Reserves and surplus-0.25 of Share capital, Opening stock-Rs. 1,20,000; 8% Debentures-Rs.3,60,000, Long-term investments-Rs.2,00,000, Stock turnover ratio-10 times; Creditors velocity- ½ month, Net profit to Share capital-20%.

 

 

21. The summarised balance sheets of Star Watches Ltd., as on 31^st December 1998 and 1999

are as follows:

Liabilities	1998 Rs.	1999 Rs.	Assets	1998 Rs.	1999 Rs.
Share capital Capital reserve General reserve Profit and Loss a/c. Debentures Liabilities for goods and services Provision for tax Proposed dividend Unpaid dividend	3,00,000 — 1,70,000   60,000 2,00,000     1,20,000 90,000   30,000 — ——— 9,70,000	4,00,000 10,000 2,00,000   75,000 1,40,000     1,30,000 85,000   36,000 4,000 ——— 10,80,000	Fixed assets Less: Depreciation     Trade investments Current assets Preliminary expenses	8,00,000   2,30,000 ——— 5,70,000   1,00,000 2,80,000   20,000       ——— 9,70,000	9,50,000   2,90,000 ——— 6,60,000   80,000 3,30,000   10,000       ——— 10,80,000

During 1999, the company:

• sold one machine for Rs. 25,000; the cost of the machine was Rs. 50,000 and the depreciation provided on it amounted to Rs. 21,000.
• provided Rs. 95,000 as depreciation.
• redeemed 30% of the debentures at Rs. 103.
• sold some trade investments and profit thereon was credited to capital reserve and
• decided to value the stock at cost whereas previously the practice was to value stock at cost less 10%; the stock according to books 31-12-1998 was Rs. 54,000. The stock on 31-12-1999 was correctly valued at cost Rs. 75,000.

You are required to prepare the Cash Flow Statement as per A.S 3.

 

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