JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES MMS _ FTRST YEAR - SECOND SEMESTER (2010-1 1)

COST & MANAGEMENT ACCOUNTING Date : 21st APRIL

UNIVERSITY OF MUMBAI

2011

TIME: ll.00a.m. to 2.00p.m.

Marks :

100

1. 2.

Attempt all the questions. Marks for each question are given alongside, Questions must be attempted in the chronological order. Each dev-iation rvill

SECTION
Q:

t:

COST ACCOUNTTNG

Answer only TRUE or FALSE to the following without rewriting the statement:

r) Marginal cost is mostly equal to unit variable cost 2) Adverse variance is the one in which the actual cost is lesser than the stanclard cost 3) Fixed cost remains constant irrespective of the level of activity 4) Power bill is a perfect example of a semi variable cost 5) At Break Even Point, the margin of safety is positive 6) Process Costing is advancement of Unit Costing 7) If the level of activity is increased, the fixed cost per unit decreases 8) Application of predetermined overhead rate causes under or over absorption of
e)

l0

mark's

l0) 1l) t2) l3) t4)

ls)
l6)
17)
18)

le)
20)

marginal costing Y In an inflationary economy FIFO method could be more tax friendly Contribution margin concept is a marketer's friend Absorption costing technique does not allow the absorption of variable overheads Its mandatory to publish the cost accounts of an organization The advanced accounting techniques have evolve to tackle the issue of unlair allocation of overheads Standard costing theory fails to support the dual focus on customer and quality Raw material variance is the most effective parameter to judge the perforrnance of the purchase department if the JIT technique is being practiced Cost sheet is the Profit and Loss account of a unit of product Activity based costing is an accounting tool which is equally suitable in a service industry set up as in a manufacturing one Cost based pricing is successfully applied when the customer is king Kaizen costing, target costing, lifecycle costing and lean costing are all value based costing techniques

overhead in cost accounts Valuation of inventory in absorption costing technique is more conservative than

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Q.2

l0 marks

Fitwell Ltd a large manufacturing company has 3 factories: A, B, C. All 3 factories produce the same product which is sold at Rs 375l- per unit. The factory wise estimates of operating results for the current year as under
(Rs in lacs)
Sales

A
300
75 75 1200

C 600
145
140

Costs

Raw material Direct labour Factory overheadvariable Factory overhead-

350 280 I

20 40
23

l0

55 60 40 30

fixed Selling & Distribution Overhead Variable Selling & Distribution Overhead fixed Admin overheads Head office expense

120
70 50 90 50

l5

TOTAL
Profit

280n'r 1120 20 80

2A'a-, l2

40
30

540
60

When the above estimates were under finalisation the company's legal department advised that the lease for factory A just expired and that it could be renewed by enhancing the lease rent by Rs l2 lakhs per annum. Since this enhancement will have a heavy impact on profitability of the company the management is looking into the below proposals:

l)
2)

Renew the lease and bear the impact Close down factory A, sell off the plant & machinery and stocks & liquidate all liabilities including staff & worker retrenchment compensation from sale proceeds sufficient for this purpose.

'

In order however to maintain customer relations the planned output of factory A would be transferred to either factory B or C. Plant capacity is available at bo_th factories to take over the manufacturing job

a) Additional Fix overhead due to increased

capacity

40

BC lac
unit

50 lac

utilisation
b) Additional Freight distribute the output

& selling & other overhead to

Rs 25 per

Rs 35 per

unit

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Q"3

8 marks
a

The following data have been extracted from the budgets and standard cost of ABC limitecl company which manufactures and sells a single product.

Rs./per unit
Selling Price 45.00 Direct materials cost Direct wages cost 4.00 Variable overhead cost 2.s0 Fixed production overhead costs budgeted at Rs.4,00,000 pr annum. Nonral production levels are budgeted at 3,20,000 units per annum. Budgeted selling and distribution costs are as follows: Variable

Rs.l.50 per unit sold

Rs.80,000 per annum

Budgeted administration costs bre Rs.1,20,000 per annum. The following pattern of sales and production is expected during the flrst six rlonrSs

ofthe year:

January-lVlarch
Sales (units)

April-.Iunc
90.000

Production (units) There is to be no stock on

60,000 70,000

r.00.000

January.
a

You are required to prepare profit statements foreach of the two quarters. in columnar format, using

(ii)

(i)

marginal costing, and absorprion cosring

,k

** *rk*ts * * rk * :k * * * * t( )k rk ?k tr

SECTION 2: MANAGEMENT ACCOUNTING

Q4: MULTIPLE CHOICE

5 iVlarks

CHOOSE THE CORRECT OPTION AND GIVE CORRECT ALPHABET ONLY. DO NOT REWRITE THE ANSWER.

Ql. A company

buys and sells cD and DVD players. In a monrh it bought 200 DVD machines at a price of Rs 80 each and sold 140 at a price of Rs I 50 each. 50% of its purchases and 75o/o of its sales were on credit. These were the only transactions lor the for the month. What effect did this have on the level of debtors that the business had'? (a) + Rs 8,000

firrr

(b) + Rs 15,750 (c) - Rs 15,750 (d) - Rs 8,00d

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purchases and7So/o.of its sales were on credit. These were the only transactions for the firrn for the month. what effect did this have in the cash position of the business? (a) + Rs 5,000 (b) - Rs 5,000 (c) + Rs 2,750 (d) - Rs 2,750

Q2.A company buys and sells cD and DVD players. In a month it bought 200 DVD machines at a price of Rs 80 each and sold 140 at a price of Rs I 50 eacli. 50% of its

(b) - Rs 20 Unfavourable (c) + Rs 20 Favourable (d) + ns 20 Unfavourable

Q3. A firm budgeted it use and costs of a raw material in a particular depaftment at 50 tonnes per month at a price of Rs 1,000 per tonne. Currently, the aitual cost and usage was Rs 9g0 per tonne and 51 tonnes. The accountants calculated and reported the materia'i variance as (a) - Rs 20 Favourable

Q4.A firm had budgeted its sales at 10,000 per month at a price of Rs 50 per unit. The actual performance was sale of 9,000 at an average price of Rs SZ.+O per unit. The accountants
calculated a reported a sales revenue variance (a) - Rs 28,400 Favourable (b) + Rs 28,400 Unfavourable (c) + Rs 28,400 Favourable

of

(d)

- Rs 28,400 Unfavourable
is

Q5.A budget

(a) a statement showing how much must be spent in a period of time.

(b) a plan, in financialterms, of a company's expenditure for a period of time in the future" (c) A plan, in financial terms, of a company's revenues and expenditures for a period of time
ahead. (d) a statement, in financial terms, showing how much was received and spent last

year,

Q5:

15 marks

Goodmorning Products market corn flakes for the breakfast table under the brand narne CRISPO FLAKES. The budgeted Revenue Account and Net Assets for the next year is
prepared as under:

-s-!qgg!gd39yguq4r_qgu!t_ Sales (20,000 boxes containing l0 standard packets)

Direct materials 2,40,000
1,02,000 70000 1.22.000

(Rs.)

6,00,000

Direct labour
ariable overhead tv r-'ixed overhead l' iProfit

5.34.000 66000

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Budseted Net Assets

iFixed Assets (net of

depreciation)

.
i

18.r,) 3,10,000

'Debtors
i--'

50000

.. -|Stocks

''
;

iCreditors

f-- . -- ---

-25000

iNet assets emploYed

The existing plant and equipment is considerably under utilised and a proposal is being different considered io extend sales to super markets where the product would be sold under a are estimated'and been proposal have brand name CRUNCHO FLAKES, The effects of this

t'9*ttt:1;raff,;""""1

sales to supermarkets 8,000 boxes at Rs. 24 per box

of l0 standard

packets. Cost of direct materials

will

be reduced as result of a 5Yo bulk discount on all

.
. o

EfflXir:;rvisory

and adminisrrative personnel wilt be required at a cost of Rs. 16,000 per annum. Market survey has indicated that sales to existing outlets will fall by approximately l0o/o andther! will be no change in selling price to these customers' the Stock and creditors will increase by Rs. 25,000 and Rs. 15,000 respectively and given existing to credit period extended to supermarkets will be double that customers.

I j

i i
I

you are required to prepare

a revised budgeted revenu.e account and statement of net assets on the employed incorporating the results of the lroposal and advise the management profit on sales and return suiiaUitity of thi propoll by computing and comparing the revised

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the revision' on capitut employed'(ROI) with the corresponding figures before

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pricing. The cost structure of a Product is: Direct Materials Direct Labour Variable Overheads Fixed overheads Sales 50,000 units Per annum

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to atign his The General Manager of a Company, during the budget process needs him decide his help Please department with the plan & requirements ofTop Management'

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Rs. 6

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Rs.2 Rs.4 Rs.5,10,000

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50% of sales' The capital employed in fixed assets is Rs. l2 lacs and in current assets is employed' on capital 20o/o of Detgrmine ttte tetiing price per unit to earn a return

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Q7

5 Marks

A iompany has l0 aars in operation. The budget for the transport q?uqry^based on 25,000kms of run for a month.is Rs. 87,500 out of which a sum of Rs. 25,000 is fixed'
During the last month the total kilometers run by all the l0 cars wete 22,400 and the costs incunEd were Rs. 83,150. The cost of hiring a car would have been Rs.4 per km'

(b) Profit Evaluate the performance of the transport department on the basis of (a) Cost centre centre.

profit Comment on the result with respect to the advantages of working as a cost centre v/s a
centre.

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ALL THE BEST

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