1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations – MARCH / April 2013

m.com – ii semester

ADVANCED MANAGEMENT ACCOUNTING

Duration: 3 Hrs                                                                                                       Max. Marks: 100

Section – A

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

 

1. The following particulars are extracted from the records of a company

	Product A (per unit)	Product B (per unit)
Sale price (Rs) Consumption of materials (kg) Material cost (Rs) Direct wages (Rs) Machine hours used Variable overheads	100 5 24 2 2 4	110 4 14 3 3 6

 

Comment on the profitability of each product (both use the same raw material) when

1. Total sales potential in units is the key factor
2. Total sales potential in value is limited
3. Raw materials is in short supply
4. Production capacity (in terms of machine hour) is the key factor

 

2. A firm can purchase a spare part from an outside source @Rs.11 per unit. There is a proposal that the spare part be produced in the factory itself.  For this purpose a machine costing Rs. 100000 with annual capacity of 20000 units and a life of 10 years will be required.  A foreman with a monthly salary of Rs.500 will have to be engaged.  Materials required will be Rs.4.00 per unit and wages Rs. 2.00 per unit.  Variable overheads are 150% of direct labor.  The firm can easily raise funds @ 10% p.a.  Advice the firm whether the proposal should be accepted.

 

3. A company manufacturing two products furnishes the following data for a year:

Product	Annual output (uts)	Total machine hours	Total number of purchase orders	Total number of set ups
A B	5000 60000	20000 120000	160 384	20 44

 

The annual overheads are as under

Volume related activity costs Rs. 550000

Set up costs Rs. 820000

Purchase related costs Rs. 618000

 

You are required to calculate the cost per unit of each product based on activity based costing.

 

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

Particulars	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 10000	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 the case is the lowest.  Do you agree?

 

5. Ram Dass pvt ltd Nasik, is currently operating at 80% capacity.  The profit and loss account shows the following

Sales Cost of sales: Direct materials Direct expenses Variable overheads Fixed overheads   Profit	280 80 40 260	640           580 60

The managing director has been discussing an offer from Middle East of a quantity which will require 50% capacity of the factory .  The price is 10% less than the current price in the local market.  Order cannot be split.  You are asked by him to find out the most profitable alternative.  The factory capacity can be augmented by 10% by adding facilities at the increase of Rs. 40 lakhs in fixed cost.

 

6. For the final assemble of product in an engineering company, a certain component is required. The company has the options either to produce the component itself or purchase it from the market.  The production department which can make the component is currently working to full capacity and earning a contribution of Rs 10 per hour on an order which will last for another ten months.  Repeat orders are very likely.  Variable cost of making the component is Rs. 42 and it takes one hour per unit.  Market price of the component is Rs. 45 per unit

 

What advice will you give to the management of the company?

 

7. What is a balance score card? What are the perspectives under the balance score card?
8. What is a transfer price? Explain any four types of transfer pricing method
9. Explain the concept of benchmarking with its process.
10. Define business process re engineering process. Explain its methodology.

 

 

Section – B

1. Answer any THREE out of FIVE questions.                   (3 x 15   = 45)
   
2. 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 prices per kg are as under

	Yield (kgs)	Selling price per kg
Tea Coffee Cardamom	2000 500 100	20 40 250

Variable cost per kg

	Tea (Rs.)	Coffee (Rs.)	Cardamom (Rs.)
Labour charges Packing materials Other costs Total costs	8 2 4 14	10 2 1 13	120 10 20 150

Fixed cost per annum

Cultivation and growing cost Rs. 10,00,000

Administrative cost s. 200000

Land revenue Rs. 50000

Repairs and maintenance Rs. 250000

Other costs Rs. 300000

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

	Max hectares	Min hectares
Tea Coffee Cardamom	160 50 30	120 30 10

 

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

 

12. An organization manufacture a product, particulars of which are detailed below;

Annual production Material costs Other variable costs Fixed cost Total cost Apportioned investment	20000 units Rs. 60000 120000 40000 220000 200000

Determine the unit selling price under each of the following.  Assume that the organizational tax rate is 52%

1. 20% return on investment
2. 30% mark up based on total cost

• 20% profit on net sales price

1. 15% profit on list sales when trade discount is 35%
2. 40% mark up based on incremental cost
3. 50% mark up based on value added by manufacturer.

 

13. A machine used on a production line must be replaced at least every four years. The cost incurred in running the machine according to its age are

Age of machine (years)

particulars	0	1	2	3	4
Purchase price Maintenance Repairs Net realizable value	3000	800   1600	900 200 1200	1000 400 800	1000 800 400

 

Future replacement will be identical machines with the same costs.  Revenue is unaffected by the age f the machine.  Assume there is not inflation and ignore tax.  The cost of capital is 15%.  Determine the optimum replacement cycle.

 

14. German remedies ltd has prepared the following budge estimates for the year

Sales (uts)	Product A 6000	Product B 16000
Selling price Direct materials Direct wages @ Re 1 per hour Variable overheads Fixed overheads Total profit	40 12 8 4 8 32 8	64 22 12 6 12 52 12

After the finalization of above manufacturing program me, it is observed that one third capacity of the company is till idle.  In order to improve the working the following proposals are put up for consideration

1. Discontinue product A and the capacity so released will be used on product B. The selling price of product B however will be reduced by Rs. 2 per unit on the entire sales.
2. Discontinue product B and divert the capacity to Product C whose unit cost data are as under

Selling price Direct material Direct labour Variable overheads

52 15 10 5

1. Utilize the idle capacity for meeting an export demand for the product D whose unit cost data are as under

Selling price Direct materials Direct labour Variable overheads

72 40 20 10

1. Hire out the idle capacity hours by fixing up a price in such a way that the same rate of profit per direct labour hour as obtained in the original budget estimates is achieved. Indicate the hire charges per direct labour hour.

 

• Prepare a statement showing the profitability as envisaged in the original program me
• Evaluate the above proposals and prepare profit statement under each.

 

15. What do you mean by philosophy of continuous process improvement? What are its challenges.

 

Section – C

 

• ONE Compulsory Case study (No choice)                   (1 x 20 = 20)

 

• A manufacturing company purchase one of the components required for the manufacture f product from two sources supplier A and supplier B. The price quoted by Supplier A is Rs. 15.00 per hundred numbers of the component and it is found that on the average 3% of the total receipt from this source is defective. The corresponding quotation from supplier B is Rs. 14.50 but the defectives would go  up to 5% for the total supply.  If the defectives are not detected, they are utilized in production causing a damage of Rs. 15.00 per hundred components.

The company intends to introduce a system of inspection for the components on receipt which would cost Rs. 2.00 per hundred components.  Such an inspection will however be able to detect only 90% of the defective component received.  No payment will be made for components found to be defective in inspection.

Offer your opinion.

• Whether inspection at the point of receipt is justified
• Which of the two suppliers should be asked to supply
• Assume total requirement of components to be 10000units (10 marks)

 

• The details of the output presently available from a manufacturing department of Hi tech industries are as follows

Average output per week 48000 units from 160 employees

Saleable value of output Rs. 600000

Contribution made by the output towards fixed expenses and profit Rs. 240000

The board of directors plans to introduce more automation in the department at a capital cost of Rs. 160000.  The effect of its will be to reduce the number of employees to 120 but to increase the output per individual employee by 60%.  To provide the necessary incentive to achieve the increased output the board intends to offer a 1% increase in the piecework rate of one rupee per article for every 2% increase in average individual output achieved.  To sell the increased output , it will be necessary to decrease the selling price by 4%

Required

Calculate the extra weekly contribution resulting from the proposed change and evaluate for the board’s information the worth of the project.

(10 marks)

 

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