ST.JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examination – APRIL 2012

M.Com – II semester

ADVANCED MANAGEMENT ACCOUNTING

Duration: 3 Hrs                                                                                                             Max. Marks: 100 

Section – A

1. Answer SEVEN questions out of Ten.                  (7 x 5 = 35 )

 

1. What is ABC? Why is it needed?  What is a cost driver?  What is the role of cost driver in tracing costs to product?
2. What is a transfer price? Explain any 4 transfer pricing systems.
3. A company has a capacity of producing 1, 00,000 units of a certain product in a month. The sales department reports that the following schedule of sale price is possible:

Volume of production	Selling price per unit
60% 70% 80% 90% 100%	0.90 0.90 0.75 0.67 0.61

The variable cost of manufacture between these levels is Rs. 0.15 per unit and fixed cost Rs. 40,000.  At which volume of production will the profit be maximum?

 

4. BC limited has the following book value capital structure:

Particulars	Rs. Million
Equity shares capital (150 million shares Rs. 10 par) Reserves and surplus 10.5% Preference share capital (1 million shares of Rs 100 each) 9.5% debentures (1.5 million debentures Rs. 1000 par) 15% term loans from financial institutions	1500 2250   100 1500 500

The debentures of ABC limited are redeemable after three years and are quoting Rs. 981.05 per debenture.  The applicable income tax rate is 35%

The current market price per equity share is Rs. 602.  The prevailing default risk free interest is 5.5%.  The average market risk premium is 8%.  The beta of the company is 1.1875.

The preferred stock of the company is redeemable after 5 years and is currently selling Rs. 98.15 per preference share.

Calculate weighted cost of capital of the company using market value weights.

 

5. What are the various pricing strategies? Explain any 4.
6. Explain the process of implementing a balance score card in a company.
7. What is Benchmarking? What is the process of benchmarking?
8. Explain the concept of cost of quality in relation to Total quality management
9. Explain the concept of marginal costing as a cost accounting technique.
10. Explain the concept of value chain management.

 

Section – B

1. Answer THREE question  out of Five.                                        (3 x 15 = 45)

 

11. An agriculturist has 480hectares of land on which he grows potatoes, peas, and carrots. Out of the total area of land 340 hectares are suitable for all four vegetables but the remaining 140 hectares of land are suitable only for growing peas and carrots.  Labour for all kinds of farm works is available in plenty.  The market requirement is that all the four types of vegetables must be produced with the minimum of 5000 boxes each.  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 are that not more than 1, 13,750 boxes of any one vegetable should be produced.

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

particulars	Potatoes	Peas	Carrots	Tomatoes
Annual yield : boxes per hectare Costs Direct material per hectare Direct labour per hectare Harvesting per box Transport per box Market price per box	350 Rs. 952 1792 7.20 10.4 30.76	100 Rs. 432 1216 6.56 10.40 31.76	70 Rs. 384 744 8.80 8.00 36.80	180 Rs. 624 1056 10.40 19.20 44.55

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 Rs. 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 Rs. 2.60 per box.

 

Required

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

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

 

 

12. A toy manufacturer earns an average net profit of Rs. 3 per piece in a selling price of 15 by producing and selling 60,000 pieces at 60% of the potential capacity. Composition of his cost of sales is

• Direct material Rs. 4
• Direct wages Rs. 1
• Works overhead Rs. 6 (50% fixed)
• Sales Re. 1 (25% variable)

During the current year, he intends to produce the same number but anticipates that:

1. The fixed charge will go up by 10%
2. Rates of direct labour will increase by 20%.
3. Rates of direct material will increase by 5%.
4. Selling price cannot be increased.

Under these circumstances he obtains an order for a further 20% of his capacity.  What minimum price will you recommend for accepting the order to ensure the manufacture an overall profit of Rs. 1,80,500?

 

 

13. The cost per unit of the three products A,B and C of a concern is as follows:

	A	B	C
Direct materials Direct labour Variable expenses Fixed expenses Total cost Profit Selling price Number of units produced	10 6 4 3 23 9 32 10,000	8 7 5 3 23 7 30 5000	9 6 3 2 20 6 26 8000

Production arrangements are such that if one product is given up the production of the others can be raised by 50%.  The directors propose that C should be given up because the contribution in that case is the lowest.  Do you agree?

 

14. Alpha limited is considering fiver capital projects for the years 2010 and 2011. The company is financed by equity entirely and its cost of capital is 12%.  The expected cash flows of the project are as below:

(‘000)

Project	Year 1	Year 2	Year3	Year 4
A B C D E	(70) (40) (50)   (60)	35 (30) (60) (90) (20)	35 45 70 55 40	20 55 80 65 50

Figures in brackets represent cash outflows

All projects are divisible.  None of the projects can be delayed or undertaken more than once.  Calculate which project the company should undertake if the capital available for investment is limited to Rs. 1, 10,000 in year 1 and with no limitation in subsequent years.

 

15. Explain the financial and non financial measures of business performance measurement.

 

                                                                                                                             P.T.O……

 

 

 

 

 

Section – C

1. Compulsory Case study (No choice)                                  (1 x 20= 20)
2. A businessman employs 20swing machinists, but he is aware that ten are the better workers than others. He is considering conducting a training programme for his ten less efficient mechanists to increase their efficiency to be equal to that achieved by better workers.  Relevant data are as follows:

• There is one sewing machine for each machinist
• All the mechanists are engaged on similar work  are paid Rs. 2.20 each for good garment produced on piece work system
• To rectify each rejected garment costs Rs. 4, this work is done by subcontractor
• Garment machining department operates 2000 hours a year
• Average output of per machinist (on the basis of 20 machinists) is 12 good garments with one rejected per worker per hour.  However 10 less efficient machinists averages only 10 good garments with 1.5 rejected per worker per hour
• Depreciation of each machine is Rs. 10,000 per year and the variable cost of power, cleaning, preventive maintenance is Rs 5per hour per machine
• Fixed production overhead other than depreciation is Rs. 20 per machine hour
• Selling price per garment Rs. 18
• Direct material cost per garment Rs. 12
• Training will not reduce productive hours
• There is no problem in selling increased output.

You are required:

• To prepare a statement of comparative costs for the better workers and the less efficient workers excluding material cost.
• To find out the benefit derived over a one year period if Rs. 1, 00,000 is spent on a training course for the less efficient workers to match the efficiency with the better workers.

 

Latest Govt Job & Exam Updates:

View Full List ...