- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
End Semester Examinations – MARCH /APRIL 2014
m.com – ii semester
ADVANCED MANAGEMENT ACCOUNTING
Duration: 3 Hrs Max. Marks: 100
Section – A
- Answer any SEVEN out of 10 questions. Each carries 5 marks. (7 x 5 = 35)
- XYZ Ltd. has on hand 5,000 units of a product that cannot be sold through regular sales. These were produced at a total cost of Rs. 1,50,000, and would normally have been sold for Rs. 40 per unit. Three alternatives are being considered:
- Sell the items as scrap for Rs. 2 per unit
- Repackage at a cost of Rs. 20,000, and sell them at Rs. 8 per unit
- Dispose them off at the city dump at removal cost of Rs. 500.
Which alternative should be accepted?
- Fine Garments Ltd. manufactures readymade garments and uses its cut-pieces of cloth to manufacture dolls. The following statement of cost has been prepared:
| Particulars | Readymade garments | Dolls | Total |
| Direct materials | Rs. 80,000 | Rs. 6,000 | Rs. 86,000 |
| Direct labour | 13,000 | 1,200 | 14,200 |
| Variable overheads | 17,000 | 2,800 | 19,800 |
| Fixed overheads | 24,000 | 3,000 | 27,000 |
| Total cost | 1,34,000 | 13,000 | 1,47,000 |
| Sales | 1,70,000 | 12,000 | 1,82,000 |
| Profit(loss) | 36,000 | (1,000) | 35,000 |
The cut-pieces used in dolls have a scrap value of Rs. 1,000 if sold in the market. As there is a loss of Rs. 1000 in the manufacturing of dolls, it is suggested to discontinue their manufacture. Advise the management.
- The Premier Chemicals Ltd manufactures two chemical solvents, A and B, in fixed proportions of 1:2 respectively. During one month, 60,000 litres were produced and common processing costs of Rs. 2,40,000 were incurred. A and B solvents could be sold in their present form for Rs. 6 and Rs. 8 per litre respectively. However, solvent A can be sold as A-plus for Rs. 8 per litre by adding an extra ingredient costing Rs. 1.50 per litre. Solvent B can be sold as Super-B for Rs.12 per litre if it is processed at an additional cost for Rs. 4 per litre plus an additional Rs. 40,000 per month for hiring a special filtering machine with a capacity of 40,000 litres per month.
Should the solvents be sold at the split-off point or be processed further?
- Garden Products Ltd. manufactures the ‘Rainpour’ garden spray. The accounts of the company for the year 2013 are expected to reveal a profit of Rs. 14,00,000 from the manufacture of ‘Rainpour’ after charging fixed costs of Rs. 10,00,000. The ‘Rainpour’ is sold for Rs. 50 per unit and has a variable unit cost of Rs. 20.
Market sensitivity test suggest the following responses to price changes:
| Alternatives | Selling price reduced by | Quantity sold increased by |
| A | 5% | 10% |
| B | 7% | 20% |
| C | 10% | 25% |
Evaluate these alternatives and state which, on profitability consideration, should be adopted for the forthcoming year, assuming cost structure unchanged from 2013.
- The following particular are given to you:
| Particulars | Product A | Product B |
| Units produced | 20 | 20 |
| Material handling per product unit | 6 | 14 |
| Direct labour hours per unit | 870 | 870 |
Budgeted material handling costs are Rs. 1,74,000. You are required to determine cost per unit of the products under ABC method.
- ABC Ltd. is producing a spare part no. 009, for its product. The cost of manufacturing 5000 units of 009 is as under:
Direct material Rs. 11,750
Direct wages Rs. 94,000
Variable overheads Rs. 47,000
Fixed overheads Rs. 58,750
Another manufacturer is offering to sell the same spare part for Rs. 41. It is estimated that by avoiding the production of this spare part, the company has to incur Rs. 35200 as fixed overheads.
Should the company make or buy this spare part?
- What is a balance score card? What are the perspectives under the balance score card?
- What is decentralization? What are the advantages of decentralization?
- Write a note on Business Process Outsourcing and value chain management in Indian companies.
- What do you understand by capital rationing?
- What are the uses of WACC?
Section – B
- Answer any THREE Each carries 15 marks. (3 x 15 = 45)
11) A company manufactures and markets three products A,B, and C. All the three products are made from the same set of machines. Production is limited by machine capacity. From the data given below indicate priorities for products A,B and C with a view to maximizing profits:
| particulars | Product A (Rs.) | Product B (Rs.) | Product C (Rs.) |
| Raw material cost per unit | 2.25 | 3.25 | 4.25 |
| Direct labour cost per unit | 0.50 | 0.50 | 0.50 |
| Other variable cost per unit | 0.30 | 0.45 | 0.71 |
| Selling price per unit | 5.00 | 6.00 | 7.00 |
| Standard machine time required per unit | 39 mts | 20 mts | 28 mts |
In the following year, the company faces extreme shortage of raw materials. It is noted that 3 kgs, 4 kgs, and 5 kgs of raw materials are required to produce one unit of A,B, and C, respectively. How would products priorities change?
12) Anand Furnishing Ltd. Manufactures a variety of premium board room chairs. Its job-costing system is designed using an activity-based approach. There are two direct cost categories of direct materials and direct manufacturing labour and three indirect costs pools representing three activity areas at the plant:
| Manufacturing
Activity area |
Budgeted costs | Cost driver used as
Allocation base |
Cost allocation
rate |
| Material handling | Rs. 2,00,000 | parts | Rs.0.25 |
| Cutting | Rs. 21,60,000 | parts | 2.50 |
| Assembly | Rs. 20,00,000 | Direct manufacturing labour-hours | 25.00 |
Two styles of chairs were produced in March: executive chair and chairman chair. Their quantities, direct material costs and other data for March are as follows:
| Type of chair | Units produced | Direct material costs | Number of parts | Direct manufacturing labour-hours |
| Executive | 5000 | Rs. 6,00,000 | 1,00,000 | 7,500 |
| chairman | 100 | Rs. 25,000 | 3,500 | 500 |
The direct manufacturing labour rate is Rs. 20 per hour. Assuming no beginning/ending inventory, compute the total manufacturing costs and units costs of the two type of chairs.
13) Ambitious Enterprises is currently working at 50% capacity and produces 10,000 units. At 60% working, raw material cost increases by 2% and selling price falls by 2%. At 80% working, raw material cost increases by 5% and selling price falls by 5%. At 50% capacity working, the product costs Rs. 180 per unit and is sold at Rs. 200 per unit. The unit cost of Rs.180 is made up as follows:
Material Rs. 100
Wages Rs. 30
Factory overheads Rs. 30 (40%fixed)
Administration overheads Rs. 20 (50% fixed)
Prepare a marginal cost statement showing the estimated profit of the business when it is operated at 60% and 80% capacity.
14) What is transfer pricing? What are the different methods of transfer pricing?
15) Write a note on the following:
- a) Life cycle costing
- b) Target costing
- c) Business Process Re-engineering
- d) Cost of quality
Section – C
- Compulsory Case study. (1 x 20 = 20)
- a) Royal industries Ltd. Manufactures three different products from single raw materials and by a common process.
Budgeted data for the coming years are presented below. The production costs identified with the individual products are only the separate processing costs incurred after the split-off point.
| particulars | Product A | B | C | Joint cost |
| Out put (units) | 45,000 | 30,000 | 15,000 | |
| Selling price per unit | 6 | 12 | 18 | |
| Production units: | ||||
| Direct material | ——- | ——— | ——- | 3,00,000 |
| Direct labour | 24,000 | 36,000 | 30,000 | 1,50,000 |
| Variable manufacturing overheads | 12,000 | 18,000 | 12,000 | 48,000 |
| Fixed manufacturing overheads | 18,000 | 30,000 | 24,000 | 96,000 |
The sales manager has suggested the following sales-mix of products – A: 30,000; B: 40,000 and C: 20,000 involving additional joint processing costs of Rs. 1,00,000.
Comment on the economic feasibility of the proposed mix. (10 Marks)
- b) Olive Ltd.(OL) is a shoe manufacturing company that started two year back. Their target group of customers is kids below age of five. Its production capacity is 6,500 pairs of shoes per month and there is inventory of 200 pairs of shoes on hand. Expected sales at regular prices for the coming month are 6,000 pairs of shoes. Price and cost data per unit are as follows:
Selling price Rs. 500
Variable cost:
Production Rs.240
Selling Rs. 60 300
Profit contribution 200
The OL has received an order from a store to buy 1000 pairs at Rs. 350 each. The variable selling costs on the special order would be Rs. 10 per unit. The delivery is to be mad within 30 days.
- Should OL go for the offer or reject it straight away?
- What should be the lowest price that the OL should charge on the special order and not reduce its income?
- Suppose now that the shopkeeper offers to buy 800 pairs per month at Rs. 350 per pair. The offer would be for an entire year. Expected sales are 6000 pairs per month without accepting the special order. Assuming further that is no beginning inventory, determine whether the offer should be accepted by OL. (10 Marks)
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