CA PE II Exam Papers Group II

Cost Accounting and Financial Management Nov 2008

 

This Paper has 26 answerable questions with 0 answered.

Total No. of Questions — 9]
Time Allowed : 3 Hours

Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Question Nos.1 and 6 are compulsory.
Attempt three questions out of the remaining question numbers 2, 3, 4 and 5 and attempt two questions from the remaining Questions Nos. 7, 8 and 9.
Working notes should form part of the answer.
Marks
1. (a) A product passes through three processes ‘X’, ‘Y’ and ‘Z’. The output of process ‘X’ and ‘Y’ is transferred to next process at cost plus 20 per cent each on transfer price and the output of process ‘Z’ is transferred to finished stock at a profit of 25 per cent on transfer price. The following informations are available in respect of the year ending 31st March, 2008:
Process
X
Rs. Process
Y
Rs. Process
Z
Rs. Finished
Stock
Rs.
Opening stock
Material
Wages
Manufacturing Overheads
Closing stock
Inter process profit included in
Opening stock 15,000
80,000
1,25,000
96,000
20,000

NIL 27,000
65,000
1,08,000
72,000
32,000

4,000 40,000
50,000
92,000
66,500
39,000

10,000 45,000

50,000

20,000
Stock in processes is valued at prime cost. The finished stock is valued at the price at which it is received from process ‘Z’. Sales of the finished stock during the period was Rs. 14,00,000.
You are required to prepare:

(i)
(ii)
(iii) Process accounts and finished stock account showing profit element at each stage.
Profit and Loss account.
Show the relevant items in the Balance Sheet.
12 (0)
(b) What are the limitations of inter–firm comparison system? 3 (0)
(c) What is cost plus contract? State its advantages. 3 (0)
2. (a) A transport company has 20 vehicles, which capacities are as follows:
No. of Vehicles
5
6
7
2 Capacity per vehicle
9 tonne
12 tonne
15 tonne
20 tonne
The company provides the goods transport service between stations ‘A’ to station ‘B’.Distance between these stations is 200 kilometres. Each vehicle makes one round trip per day an average. Vehicles are loaded with an average of 90 per cent of capacity at the time of departure from station ‘A’ to station ‘B’ and at the time of return back loaded with 70 per cent of capacity. 10 per cent of vehicles are laid up for repairs every day. The following informations are related to the month of October, 2008:

Salary of Transport Manager
Salary of 30 drivers
Wages of 25 Helpers
Wages of 20 Labourers
Consumable stores
Insurance (Annual)
Road License (Annual)
Cost of Diesel per litre
Kilometres run per litre each vehicle
Lubricant, Oil etc.
Cost of replacement of Tyres, Tubes, other parts etc.
Garage rent (Annual)
Transport Technical Service Charges
Electricity and Gas charges
Depreciation of vehicles Rs. 30,000
Rs. 4,000 each driver
Rs. 2,000 each helper
Rs. 1,500 each labourer
Rs. 45,000
Rs. 24,000
Rs. 60,000
Rs. 35
5 Km.
Rs. 23,500
Rs. 1,25,000
Rs. 90,000
Rs. 10,000
Rs. 5,000
Rs. 2,00,000
There is a workshop attached to transport department which repairs these vehicles and other vehicles also. 40 per cent of transport manager’s salary is debited to the workshop. The transport department is charged Rs. 28,000 for the service rendered by theworkshop during October, 2008. During the month of October, 2008 operation was 25 days.
You are required:

(i)
(ii) Calculate per ton–km operating cost.
Find out the freight to be charged per ton–km, if the company earned a profit of 25 per cent on freight.
12 (0)
(b) Explain the following: 6
(i) Job costing and batch costing. (0)
(ii) Profit centres and investment centres. (0)
(iii) Period cost and discretionary costs. (0)
3. (a) In a manufacturing company factory overheads are charged as fixed percentage basis on direct labour and office overheads are charged on the basis of percentage of factory cost. The following informations are available related to the year ending 31st March, 2008 :
Product A Product B
Direct Materials
Direct Labour
Sales
Profit
Rs. 19,000
Rs. 15,000
Rs. 60,000
25% on cost Rs. 15,000
Rs. 25,000
Rs. 80,000
25% on sales price
You are required to find out:

(i)
(ii) The percentage of factory overheads on direct labour.
The percentage of office overheads on factory cost.
6 (0)
(b) The following information is collected from the personnel department of ST limited for the year ending 31st March, 2008:
Number of workers at the beginning of the year
Number of workers at the end of the year
Number of workers left the company during the year
Number of workers discharged during the year
Number of workers replaced due to left and discharges
Additional workers employed for expansion during the year 8,000
9,600
500
100
700
1,500
You are required to calculate labour turnover rate by using separation method, replacement method and flux method.

3 (0)
(c) Discuss briefly the benefits of “Direct Product Profitability”. 2 (0)
(d) How cost audit is useful to the society ? Discuss. 3 (0)
4. (a) The following are the details of receipts and issues of a material of stores in a manufacturing company for the period of three months ending 30th June, 2008:
Receipts:
Date Quantity (kgs) Rate per kg.
Rs.
April 10
April 20
May 5
May 17
May 25
June 11
June 24 1,600
2,400
1,000
1,100
800
900
1,400 5
4.90
5.10
5.20
5.25
5.40
5.50
There was 1,500 kgs. in stock at April 1, 2008 which was valued at Rs. 4.80 per kg.
Issues:

Date
April 4
April 24
May 10
May 26
June 15
June 21 Quantity (kgs)
1,100
1,600
1,500
1,700
1,500
1,200
Issues are to be priced on the basis of weighted average method. The stock verifier of the company reported a shortage of 80 kgs. on 31st May, 2008 and 60 kgs. on 30th June, 2008. The shortage is treated as inflating the price of remaining material on account of shortage.
You are required to prepare a Stores Ledger Account.

7 (0)
(b) What are the essential prerequisites of integrated accounting system? 4 (0)
(c) What do you mean by Idle time ? How would you treat idle time in cost accounting? 3 (0)
5. (a) Maximum production capacity of JK Ltd. is 5,20,000 units per annum. Details of estimated cost of production are as follows:
– Direct material Rs. 15 per unit.
– Direct wages Rs. 9 per unit (subject to a minimum of Rs. 2,50,000 per month).
– Fixed overheads Rs. 9,60,000 per annum.
– Variable overheads Rs. 8 per unit.
– Semi–variable overheads are Rs. 5,60,000 per annum up to 50 per cent capacity and additional Rs. 1,50,000 per annum for every 25 per cent increase in capacity or a part of it.
JK Ltd. worked at 60 per cent capacity for the first three months during the year 2008, but it is expected to work at 90 per cent capacity for the remaining nine months.

The selling price per unit was Rs. 44 during the first three months.
You are required, what selling price per unit should be fixed for the remaining nine months to yield a total profit of Rs. 15,62,500 for the whole year. 8 (0)
(b) Calculate machine hour rate for recovery of overheads for a machine from the following information:
Cost of machine is Rs. 25,00,000 and estimated salvage value is Rs. 1,00,000. Estimated working life of the machine is 10 years. Annual working hours are 3,000 in the factory. The machine is required 400 hours per annum for repairs and maintenance. Setting–up time of the machine is 156 hours per annum to be treated as productive time. Cost of repairs and maintenance for whole working life of the machine is Rs. 3,50,000. Power used 15 units per hour at a cost of Rs. 5 per unit. No power is consumed during maintenance and setting-up time. A chemical required for operating the machine is Rs. 9,880 per annum. Wages of an operator is Rs. 4,000 per month. The operator, devoted one-third of his time to the machine. Annual insurance charges 2 per cent of cost of machine.
Light charges for the department is Rs. 2,500 per month, having 48 points in all, out of which only 8 points are used at this machine. Other indirect expenses are chargeable to the machine are Rs. 6,500 per month.

6 (0)
6. (a) Balance Sheet of OP Ltd. as on 31st March, 2007 and 2008 are as follows:
Liabilities Amount
31.3.2007
Rs. Amount
31.3.2008
Rs. Assets Amount
31.3.2007
Rs. Amount
31.3.2008
Rs.
Share capital
General Reserve
Profit and Loss A/c
10% Debentures
Bank Loan (long–term)
Creditors
Outstanding Expenses
Proposed Dividend
Provision for taxation 20,00,000
4,00,000
2,50,000
10,00,000
5,00,000
4,00,000
20,000
3,00,000
1,00,000 20,00,000
4,50,000
3,60,000
8,00,000
6,00,000
5,80,000
25,000
3,60,000
1,20,000 Land and Building
Plant and Machinery
Investment
Stock
Debtors
Prepaid Expenses
Cash and Bank 15,00,000
18,00,000
4,00,000
4,80,000
6,00,000
50,000
1,40,000 14,00,000
17,50,000
3,72,000
8,50,000
7,98,000
40,000
85,000
49,70,000 52,95,000 49,70,000 52,95,000
Additional informations:

(i) New machinery for Rs. 3,00,000 was purchased but an old machinery costing Rs. 1,45,000 was sold for Rs. 50,000 and accumulated depreciation thereon was Rs. 75,000.
(ii) 10% debentures were redeemed at 20% premium.
(iii) Investment were sold for Rs. 45,000, and its profit was transferred to general reserve.
(iv) Income–tax paid during the year 2007–08 was Rs. 80,000.
(v) An interim dividend of Rs. 1,20,000 has been paid during the year 2007–08.
(vi) Assume the provision for taxation as current liability and proposed dividend as noncurrent liability.
(vii) Investment are non-trade investment.
You are required to prepare:
(i) Schedule of changes in working capital.
(ii) Funds flow statement.
12 (0)
(b) Explain the following: 4
(i) Seed capital assistance. (0)
(ii) Bridge finance. (0)
7. (a) WX Ltd. has a machine which has been in operation for 3 years. Its remaining estimated useful life is 8 years with no salvage value in the end. Its current market value is Rs. 2,00,000. The company is considering a proposal to purchase a new model of machine to replace the existing machine. The relevant informations are as follows:
Existing Machine New Machine
Cost of machine
Estimated life
Salvage value
Annual output
Selling price per unit
Annual operating hours
Material cost per unit
Labour cost per hour∗
Indirect cash cost per annum Rs. 3,30,000
11 years
Nil
30,000 units
Rs. 15
3,000
Rs. 4
Rs. 40
Rs. 50,000 Rs. 10,00,000
8 years
Rs. 40,000
75,000 units
Rs. 15
3,000
Rs. 4
Rs. 70
Rs. 65,000
The company follow the straight line method of depreciation. The corporate tax rate is 30 per cent and WX Ltd. does not make any investment, if it yields less than 12 per cent. Present value of annuity of Re. 1 at 12% rate of discount for 8 years is 4.968. Present value of Re. 1 at 12% rate of discount, received at the end of 8th year is 0.404. Ignore capital gain tax.

Advise WX Ltd. whether the existing machine should be replaced or not.

∗In the question paper this word was wrongly printed as ‘unit’ instead of word ‘hour’. The answer provided here is on the basis of correct word i.e. ‘Labour cost per hour’.

8 (0)
(b) Discuss the factors to be taken into consideration while determining the requirement of working capital. 4 (0)
8. (a) The following is the capital structure of a Company:
Source of capital Book value
Rs. Market value
Rs.
Equity shares @ Rs. 100 each
9 per cent cumulative preference
shares @ Rs. 100 each
11 per cent debentures
Retained earnings 80,00,000

20,00,000
60,00,000
40,00,000 1,60,00,000

24,00,000
66,00,000
—
2,00,00,000 2,50,00,000
The current market price of the company’s equity share is Rs. 200. For the last year the company had paid equity dividend at 25 per cent and its dividend is likely to grow 5 per cent every year. The corporate tax rate is 30 per cent and shareholders personal income tax rate is 20 per cent.

You are required to calculate:
(i)
(ii)
(iii) Cost of capital for each source of capital.
Weighted average cost of capital on the basis of book value weights.
Weighted average cost of capital on the basis of market value weights.
7 (0)
(b) Annual sales of a company is Rs. 60,00,000. Sales to variable cost ratio is 150 per cent and Fixed cost other than interest is Rs. 5,00,000 per annum. Company has 11 per cent debentures of Rs. 30,00,000.
You are required to calculate the operating, Financial and combined leverage of the company. 3 (0)
(c) What is “Internal Rate of Return”? State its acceptance rule. 2 (0)
9. (a) A publishing house purchases 72,000 rims of a special type paper per annum at cost Rs. 90 per rim. Ordering cost per order is Rs. 500 and the carrying cost is 5 per cent per year of the inventory cost. Normal lead time is 20 days and safety stock is NIL. Assume 300 working days in a year:
You are required:
(i) Calculate the Economic Order Quantity (E.O.Q).
(ii) Calculate the Reorder Inventory Level.
(iii) If a 1 per cent quantity discount is offered by the supplier for purchases in lots of 18,000 rims or more, should the publishing house accept the proposal?
8 (0)
(b) What is Capital rationing? Describe various ways of implementing it. 4 (0)