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ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXMAINATION OCTOBER 2013
B.B.M – V SEMESTER
ACCOUNTING FOR MANAGEMENT DECISION
Time: 3 HOURS MAX.MARKS: 100
SECTION – A
I) Answer ALL the following questions. (10X2=20)
1. Write a short note on cost driver?
2. What is the meaning of marginal cost?
3. Explain briefly the circumstances under which selling below marginal cost may be
justified.
4. What is limiting factor?
5. Explain the terms (a) Differential Cost (b) Replacement Cost.
6. What are the objectives of Budgetary Control ?
7. True or False: (i) Break even sales in Rs x P/V Ratio= Fixed Cost
(ii) Profit is the difference between sales and contribution
8. What is the meaning of Sunk Cost?
9. What is the difference between Committed Fixed Cost and Discretionary Fixed Cost?
10. When sales increase from Rs. 20,000 to Rs. 40,000, while profit increase from Rs. 1,000 to
Rs. 2,000 , P/V ratio is_____________________
SECTION – B
II) Answer any FOUR questions. (4×5=20 )
11. Briefly explain differences between Absorption Costing and Marginal Costing.
12. What are the Essentials of a good Budgetary System?
13. Explain the steps in Activity Based costing.
14. Following is the data taken from the records of a concern manufacturing a special part
ABL.
Particulars Rs.
Selling price per unit Rs. 25
Direct material cost per unit Rs. 6
Direct labour cost per unit Rs. 3
Variable overhead cost per unit Rs. 2
Budgeted level of output 75,000 units
Budgeted recovery rate of fixed overheads cost per unit Rs.5
You are required to :
(a) Draw a break-even chart and show the break-even point.
(b) IN the same chart show the impact on break-even point:
(i) If selling price per unit is increased by 20% and
(ii) If selling price per unit is decreased by 10%
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15. A department of Alstom India Company attains sales of rs. 6,00,000 at 80% of its normal
capacity. Its expenses are given below:
Particulars Rs. Per unit
Office salaries 90,000
General expenses 2% of sales
Depreciation 7,500
Rent and rates 8,750
Selling Cost:
Salaries 8% of sales
Travelling expenses 2% of sales
Sales office 1% of sales
General expenses 1% of sales
Distribution Cost:
Wages 15,000
Rent 1% of sales
Other expenses 4% of sales
Draw up Flexible Administration, Selling and Distribution Costs Budgets, Operating at
90 per cent, 100 per cent and 110 per cent of normal capacity.
16. From the following information, prepare an Income Statement under:
(a) Marginal costing (b) Absorption costing
Particulars Product
A B C
Direct materials 7,500 30,000 3,000
Direct Wages 9,000 9,000 1,500
Factory overhead Fixed 3,000 1,500 1,500
Variable 3,900 9,000 4,500
Selling overhead Fixed 1,500 900 600
Variable 2,100 6,000 3,000
Sales 32,000 61,000 16,000
Fixed factory overhead and fixed selling overhead were apportioned to products A,B
and C on equitable bases.
SECTION – C
III) Answer any THREE out the following : (3×15=45 )
17. Company A and Company B both under the same management make and sell the same
type of product. Their budgeted profit and loss accounts for the year ending 2011 are as
follows:
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Particulars Company A
Rs Rs.
Company B
Rs Rs.
Sales
Less: Variable cost
Fixed cost
2,40,000
30,000
3,00,000
2,70,000
2,00,000
70,000
3,00,000
2,70,000
Profit 30,000 30,000
You are required to:
(a) Calculate the break-even points for each company.
(b) Calculate the sales volume at which each of the two companies will make a profit of Rs.
10,000.
(c) Calculate MOS
(d) State which company is likely to earn greater profits in conditions of :
(i) Heavy demand for the product.
(ii) Low demand for the product.
Give reasons.
18. A B Ltd is manufacturing three products Micro wave oven, Washing Machine and
Refrigerator and selling them in a competitive market. Details of current demand,
selling price and cost structure are given below:
Particulars Micro wave oven, Washing Machine Refrigerator
Expected demand
(units)
10,000 12,000 20,000
Selling price per unit 20 16 10
Variable cost per unit
Direct materials
(Rs. 10/kg)
6 4 2
Direct labour
(Rs. 15/ hr)
3 3 1.50
Variable overheads 2 1 1
Fixed overhead per
units
5 4 2
The company is frequently affected by acute scarcity of raw material and high labour
turnover. During the next period, it is expected to have one of the following situations:
(a) Raw Materials available will be only 12,100 Kg.
(b) Direct labour hours available will be only 5,000 hrs.
Suggest the best production plan in each case and the resultant profit that the
company would earn according to your suggestion.
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19. Explain briefly the following concepts.
a)Life cycle costing.
b) Kaizen costing,
c) Balance score card.
20. Prepare a Cash Budget for the three months ending 30th June 2012 from the information
give below: (a)
Month Sales (Rs) Materials (Rs) Wages (Rs) Overheads (Rs)
February 14,000 9,600 3,000 1,700
March 15,000 9,000 3,000 1,900
April 16,000 9,200 3,200 2,000
May 17,000 10,000 3,600 2,200
June 18,000 10,400 4,000 2,300
b) Credit terms are: Sale and debtors – 10% sales are on cash, 50% of the credit sales
are collected next month and the balance in the following month.
Creditors Materials 2 month
Wages ¼ month
Overheads ½ month
c) Cash and bank balance on 1st April 2012. Is expected to be Rs. 6,000
Other relevant information are:
(i) Plant and machinery will be installed in February 2012 at a cost of Rs. 96,000.
The monthly installment of Rs. 2,000 is payable from April onwards.
(ii) Dividend @ 5% on Preference Share Capital of Rs. 2,00,000 will be paid on 1st
June .
(iii) Advance to be received for sale of vehicles Rs. 9,000 in June.
(iv) Dividends form investments amounting to Rs. 1,000 are expected to be
received in June.
(v) Income tax (advance ) to be paid in June is Rs. 2,000
21. Explain the following concepts with the examples:
a) Relevant Cost
b) Opportunity Cost
c) Decision Driven Cost.
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SECTION – D
IV) Compulsory question (15 Marks)
22. Excel Parts Ltd has an annul production of 90,000 units for a motor component. The
component cost structure is as below:
Materials 270 per unit.
Labour (25% fixed) 180 per unit
Expenses:
Variable 90 per unit
Fixed 135 per unit
Total 675 per unit
(a) The purchase manger has an offer from a supplier who is willing to supply the
component at Rs. 540. Should the component be purchased and production stopped?
(b) Assume the resources now used for this component’s manufacture are to be used to
produced another new product for which the selling price is Rs. 485
In the latter case, the material price will be Rs. 200 per unit . 90,000 units of this
product can be produced at the same cost basis as above for labour and expenses .
Discuss whether it would be advisable to divert the resources to manufacture that
new product, on the footing that the component presently being produced would,
instead of being produced, be purchased from the market.