Summer Exam-2010

PUBLIC SECTOR
Performance Measurement (04-05-2010)
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 Copy.

Attempt all Questions

Q.1. Define the following:
a) Common Cost (02)
b) Conversion Cost (02)
c) Incremental Cost (03)
d) Prime Costs (02)
e) Sunk cost (02)
f) Degree of Operating Leverage (03)
g) Margin of Safety (03)
h) Activity-based Costing (ABC) (03)

Q.2. Make out a cash budget for July-September, 2010 from the following information: (15)

Actual Actual Actual Actual Budgeted Budgeted Budgeted Budgeted

Sales Purchase Wages Expenses Sales Purchase Wages Expenses
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
April 80,000 45,000 20,000 5,000 July 90,000 50,000 24,000 7,000
May 80,000 40,000 18,000 6,000 August 85,000 45,000 20,000 6,000
June 75,000 42,000 22,000 6,000 September 80,000 35,000 18,000 5,000

Other Informations:
a) Special Advance Income Tax in August Rs. 4,000/-, Plant in July Rs. 10,000/-
b) Rent of Rs. 300/- payable each month is not included in expenses
c) 10% of purchases and sales are on cash terms
d) Credit purchases are paid after 1 month and credit sales are collected after 2 months
e) Time lag in wages and expenses is half month
f) Cash and Bank Balances on July 1st is Rs. 13,000/-.
Q.3. Engine Limited manufactures engine mountings for wide-bodied air lines. They have been asked
to bid on a prospective contract for 90 engine mountings for the jumbo jet aircraft. They have
just completed an initial run of 30 of these mounting at the following costs:
Rs.
Direct materials 200,000
Direct labour (6,000 hours @ Rs. 40/-) 240,000
Tooling Cost (re-usable) 30,000
Variable overhead (Rs. 5/- per labour hour) 30,000
Fixed overhead (Rs. 10/- per labour hour) 60,000
560,000
An 80% learning curve is thought to be pertinent in this case. The marketing director believes (15)
that the quote is unlikely to be accepted if it exceeds Rs. 1,100,000/- and as the company are
short of work, he believes the contract to be vital.
You are required to comment whether it is worth accepting at Rs. 1,100,000/-. State your
assumptions clearly.
Contd. on back
 2

Q.4. Processed Foods Limited has recently launched a new product, Tastewell, after initial
estimation of demand and costs; company would like to have a review through fresh
projections based on available information on actual production, cost and revenues. The
product is sold in one kg. home packs. Performance, pertaining to the previous two quarters
can be taken a presenting representative pattern of costs and operations that can be projected
to the future. There were no inventories at the end of each quarter. Tax incidence can be
reckoned at 50 per cent.
First Second
Quarter Quarter
Rs. Rs.
Sales 60,000 packs at Rs. 160/- 9,600,000 80,000 packs at Rs. 160/- 12,800,000
Cost of goods sold 5,800,000 7,000,000
Gross Profit 3,800,000 5,800,000
Selling and Administration Expenses 4,800,000 5,200,000
Profit before Tax (1,000,000) 600,000
Tax (50%) ---- 300,000
Profit (Loss) after Tax (1,000,000) 300,000

Required:
a) What is the break even volume in terms of quarterly sales of home packs? (13)
b) On an investment of Rs. 1,000,000/- for Tastewell, an after tax return of 15 per cent is (07)
expected. What should be the Sales Revenue for getting this return?
c) The Marketing Manager of Processed Foods Limited expects a 20 per cent increase in (10)
sales over the second quarter, if a reduction of Rs. 10 per pack in price is coupled with an
advertisement outlay of Rs. 600,000/-. Should this proposal be accepted?

Q.5. An engineering company manufacture a single product whose standard cost structure is as
follows:
Direct Material 2.4 Kgs. @ Rs. 30/- per Kg. 72.00
Direct Labour 6 hours @ Rs. 4/- per hour 24.00
Factory Overhead 6 hours @ Re. 0.75 per hour 4.50
100.50
The factory overhead is based on the following flexible budget:
80% 90% 100% 110%
Production (units) 6,000 6,750 7,500 8,250
Variable Overheads (Rs.) 18,000 20,250 22,500 24,750
Fixed Overheads (Rs.) 11,250 11,250 11,250 11,250
Total Overheads (Rs.) 29,250 31,500 33,750 36,000
Actual data for the month of January, 2010:
Budget Production 7,500 units
Materials used 19,240 Kgs. @ Rs. 31 per Kg.
Direct Labour 46,830 hours @ Rs. 4.20 per hour
Actual Factory Overheads 36,340 units
Production Completed 7,620 units
Details of work-in-progress:
Opening 120 units, materials fully supplied 50% converted.
Closing 100 units, materials fully supplied 50% converted.
Determine and Analyze:
i) Statement of Equivalent Units (08)
ii) Price Variance (03)
iii) Materials Usage Variance (03)
iv) Labour Cost Variances (03)
v) Labour Rate Variance (03)

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