Summer Exam-2014

Corporate Sector
Performance Measurement (06.05.2014)
Duration: 3 hrs.

Marks-100

[Instructions]

Ensure that the question paper delivered to you is the same, in which you intend to appear.
Read the instructions given on the title page of Answer Script.
Start each question from fresh page.

Attempt all Questions

Q.1. Northminister Ltd. produces clocks and has two divisions: the Frames Division and the Works
Division. The Frames Division produces the outside casings for the clocks, which it sells to the
outside market. The casing for the Desktop Grandfather sells for Rs. 135. The casing has
variable costs per unit of Rs. 72 and fixed costs of Rs. 280,000, based on monthly production of
5,500 casings. Each casing could be sold to outside customers by the Frames Division, as
casings are in high demand. The Frames Division has no idle capacity.

The Works Division uses the casing in the production of the Desktop Grandfather clock, one
of its most popular clocks. The market price of a Desktop Grandfather clock is Rs. 275. The
Works Division can acquire casings from outside supplier for Rs. 140. The manager of the
Works Division is interested in purchasing 3,000 casings from the Frames Division, but he
wants to negotiate for a lower transfer price of Rs. 130. The current transfer price for a casing is
full market price of Rs. 135. The fixed costs in producing Desktop Grandfather clocks are
Rs. 104,000, and the variable cost of producing a clock is Rs. 85, excluding the casing.
Required:

What is the operating profit before tax for each division using the market transfer price of
Rs. 135? Calculate the operating profit before tax for the both divisions and the entire company.

13

Q.2. Prior Great Company designs and manufactures parts for special machinery. The static budget
for the year ended December 31, 2002 and the actual results incurred in 2002 are given below:
Units Sold
Revenues
Variable costs:
Direct materials
Direct labor
Variable MOH
Total variable cost
Contribution margin
Fixed costs
Operating Income

Actual Results
80,000
1,665,000

Static Budget
85,000
1,700,000

495,000
189,000
144,000
(828,000)
837,000
830,000
7,000

510,000
170,000
119,000
(799,000)
901,000
850,000
51,000

Required:

a) Prepare a flexible budget for 2002.

06

b) Find the flexible budget variances for revenue, variable costs and fixed costs using the
following format:

10

Particulars

Static
Budget

Flexible
Budget

Actual
Result

Volume
Variances

Price & Variable Cost

Variances
Contd. on back

Q.3. Perak State Company produced 125,000 units Vegetable Oil and sold 112,500 units Vegetable
Oil, during its first year of operations. Actual fixed costs came in right on budget, and variable
selling costs were Rs. 1.50 per unit sold. Additional data follow:
Sales

Rs. 2,868,750

Manufacturing Costs:
Material & labor Cost

Rs. 1,125,000

Variable OHs

431,250

Fixed OHs

656,250

Variable

337,500

Fixed

131,250

Selling Expenses

Required:

Prepare an income statement for the year using:

(i)

Absorption Costing

06

(ii)

Marginal Costing

06

(iii)

Reconcile operating income in Absorption Costing with operating income in

Marginal Costing

04

Q.4. a) Explain theory of constraints, what does it explain or what is its usage?

05

b) Sultan Food Company is in business since the last 14 years. It produces 2 products,
frozen canned Haleem and fresh canned Haleem; the demand of products of the
company is very high abroad. Following particulars are extracted from the records of the
company:
Particulars
Products
Sales Price

Per unit
Frozen
Fresh
canned
canned
Haleem
Haleem
Rs. 50
Rs. 60

Qty Material

1 kg

1.5 kg

Material cost

Rs. 5

Rs. 7.5

Direct wages

Rs. 7.5

Rs. 5

Direct expenses

Rs. 2.5

Rs. 3

0.5

Fixed

Rs. 2.5

Rs. 5

Variable

Rs. 7.5

Rs. 10

Machine hours used

Overhead expenses:

Direct wages per hour is Rs. 2.5.

Required:

Comment on the profitability of each product (both use the same raw material) when raw
material is in short supply. Assuming that, raw material as the key factor, the availability of raw
material is limited to 5,000kgs. Maximum sales potential for Frozen Canned Haleem being
1,750 units and Fresh Canned Haleem being 3500 units, find the product mix which will
yield the maximum profit.

12

Contd

Q.5.

Palm Marine Co. is a company dedicated to life style change through its products aimed at
personality grooming. The company produces shampoos, hair colors, beauty soaps, and
lotions. Following are the extracts from its financial statements:
Palm Marine, Co.
Balance Sheet as of December 31, 2012 and 2013
(In millions of Rs.)
Assets
Current assets:
Cash and marketable Securities
Accounts receivable
Inventory
Total
Fixed assets:
Gross Plant and Equipment
Less: Depreciation
Net Plant and Equipment
Other long-term assets
Total
Total Assets
Liabilities & Equity
Current liabilities:
Accrued wages and taxes
Accounts payable
Notes payable
Total
Long-term debt:
Stockholders equity:
Preferred stock (5 million shares)
Common stock and paid-in surplus (65 million shares)
Retained earnings
Total
Total liabilities and equity

2012
Rs.
65
110
190
365

2013
Rs.
75
115
200
390

471
100
371
49
420
785

580
110
470
50
520
910

Rs.
43
80
70
193
280

Rs.
40
90
80
210
300

5
65
242
312
785

5
65
330
400
910

Palm Marine, Co.

Income Statement for years ending
December 31, 2012 and 2013
(In millions of Rs.)
Net sales (all credit)
Less: Cost of goods sold
Gross profits
Less: Depreciation
Earnings before interest and taxes (EBIT)
Less: Interest
Earnings before taxes (EBT)
Less: Taxes
Net income

2012
432
200
232
20
212
30
182
55
127

2013
515
260
255
22
233
33
200
57
143
Contd. on back

Required:

Calculate the following ratios for year 2013 using the Financial Statements produced above;
(i)

Current Ratio

(ii)

Quick Ratio

(iii)

Receivable turnover in days

(iv)

Inventory turnover in days

(v)

Debt Equity Ratio

(vi)

Return on total Assets

20

(vii) Turnover on Fixed Asset

(viii) Gross Profit Margin
(ix)

Net Profit Margin

(x)

Interest Coverage Ratio

Q.6. a) Define Standard Costing and list its advantages?

06

b) Green Board Company is a famous producer of home appliances, following are the
particulars related to one of its product A. 900kgs of material A @ Rs. 15 per kg, 800kgs
of material B @ Rs. 45 per kg and 200kgs of material C @ Rs. 85 per kg were planned to
be purchased/used to produce 9,500 units. 2250kgs of material A @ Rs. 16 per kg,
1,950kgs of material B @ Rs. 42 per kg and 550kgs @ Rs. 86 per kg of material C were
actually purchased and used to manufacture 22,800 units.
Required:

Calculate the following separately for each of the materials A, B and C:

(i) Material Price Variance

03

(ii) Material Total Quantity Variance

03

(iii) Material Mix Variance

03

(iv) Material Yield Variance

03

******************************