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Posted By: Praveen Kumaar Member Level: Gold Posted Date: 20 Mar 2008

2006 Calicut University Certification CWA/ICWA Institute Of Cost and Works Accountants Of India, 2006 Question paper

Course: Certification CWA/ICWA

University: Calicut University

CWA/ICWA Inter :: Cost and Management Accounting: June 2006
Answer Question No. 1 which is compulsory and any five from the rest.

1. (a) Match the following correctly. 1x5=5

Make or buy decision Over head absorption
Brick making Process costing
Motion study Work study
Supplementary rate Gilbreth
Split-off point Single output costing
Differential cost analysis
Joint cost

(b) In the following cases one of the answers is correct. Choose the correct answer and give your workings/reasons briefly: 2x5=10
(i) Tom Company Ltd. has Sales of Rs. 200,000 with variable expenses of Rs. 150,000, Fixed expenses of Rs. 60,000
and an operating loss of Rs. 10,000. How much would Tom Company have to increase its Sales in order to achieve an
operating income of 10% of Sales?
A: Rs. 400,000
B: Rs. 251,000
C: Rs. 231,000
D: Rs. 200,000
(ii) Warfied Company having net working Capital of Rs. 3 lakh has the current ratio of 1.8 and liquid ratio of 1.6. Its
value of Stock is
A: Rs. 55,000
B: Rs. 65,000
C: Rs. 75,000
D: Rs. 85,000
(iii) In a factory of ZB Ltd. operating standard cost system, 2,000 Kgs. of material @ Rs. 12 per Kg. were used for a
product, resulting in price variance of Rs. 6,000 (FAV) and usage variance of Rs. 3,000 (Adv.). Then standard
material cost of actual production was
A: Rs. 24,000
B: Rs. 27,000
C: Rs. 30,000
D: Rs. 33,000
(iv) The standard time required per unit of a product is 20 minutes. In a day of 8 working hours a worker gives an output
of 30 units. If he gets a time rate of Rs. 20 per hour, his total earnings under Halsey Bonus Scheme will be
A: Rs. 200
B: Rs. 192
C: Rs. 180
D: Rs. 160

(v) A manufacturer used 400 units of a Component every month and buys them entirely from an outside supplier @ Rs.
40 per unit. The order placing and receiving cost is Rs. 100 and storage and carrying cost is 15% of the value of
Stock. To get maximum benefit the manufacturer should place order at a time for
A: 300 units
B: 400 units
C: 450 units
D: 500 units.
(c) State whether the following statements are True (T) or False (F): 1x5=5

(i) National expenses are not included for ascertaining cost.
(ii) Mention rating is same as Job evaluation.
(iii) A firm which has a very high current ratio and very low liquid ratio, has a low level of inventory.
(iv) Units that do not meet production standards and must be processed further in order to be stable as good units or
irregulars are called Spoiled units.
(v) Labour cost may be viewed as a Committed cost rather than discretionary cost.
2. (a) What is labour turnover? What are the costs associated with it? How would you treat it in costing?
(2+3 +2)

(b) The profitability position of TARGET LTD. for the year ending 31.3.2006 is as under: +9=16
(Rs. in lakhs) (Rs. in lakhs)
Annual Turnover 200
Variable Costs:
Direct Material 60
Direct Labour 40
Variable Overheads 50 150
Marginal Contribution 50
Fixed Overheads 10
Profit 40

The profit for the year did not match with Company's expectation and works management attributed it to Labour turnover.
Analysis of the data revealed the following:

Permanent workmen worked during the year 960,000 Direct labour hours
Apprentice workmen worked 80,000 Direct labour hours
__________
1,040,000 Direct labour hours
The effectiveness of Direct labour hours put in by apprentice workmen was 50% and delay in replacing against separations
during the year resulted in loss of 20,000 Direct labour hours.
You are required to calculate the loss of Profit on account of loss of production from Labour turnover.

3. (a) Define "flexible budget" and explain its importance as a budgeting technique and tool of control. 6
(b) BMS LTD. has prepared annual budget for the year ending 31.3.07 on the basis of 60% capacity utilisation.
Summarised budget is given below:

Particulars Amount
(Rs. in lakh)

I. Sales 150.00
II. Direct Materials 36.50
Direct Labour 22.82
Direct Expenses 8.68
III. Semi-Variable Expenses:
Repairs & Maintenance 5.30
Indirect Labour 7.70
Supervision 6.00
Heating & Lighting 3.00
IV. Fixed Expenses:
Salaries—Managerial 9.50
Rent, Rates & Taxes 6.60
Depreciation 7.40
Audit Fees 6.50
V. Total Cost of Sales 120.00
VI. Budgeted Profit 30.00

Construct a Flexible Budget for 50%, 75% and 90% capacity utilization, showing (a) Variable & Semi - Variable cost (b)
Cost of Sales and (c) Profit — with the help of the following assumptions:
(i) Fixed expenses remain constant at all levels of activity.
(ii) Semi - variable expenses remain constant between 45% and 64% capacity, increasing by 10% between 65% and
80% capacity, and by 20% above 80% capacity.

4. (a) What are equivalent units of production? Mention two principal methods of calculating equivalent units.
(2+2)

(b) SBL LTD. furnishes you the following information relating to process-B for the month of April, 2006: +12
(i) Opening work-in-progress: NIL.
(ii) Units introduced—10,000 units @ Rs. 5 per unit.
(iii) Expenses debited to the process-B:
Processing Materials — Rs. 24,600; Direct Labour — Rs. 10,400; Overheads — Rs. 5,000.
(iv) 8,000 units of finished output were transferred to the next process during the month.
(v) Normal Loss in process — 10% of input.
(vi) Closing work-in progress — 800 units.
Degree of Completion: Material — 100%; Labour & Overheads — 50%.
(vii) Degree of Completion of Abnormal Loss: Material — 100%; Labour & Overheads — 80%.
(viii) Scrap realisation: Normal Loss — @ Rs. 2 per unit; Abnormal Loss—@ Rs. 4 per unit.
You are required to prepare:
(1) Statement of Equivalent production.
(2) Statement of Cost of each element.
(3) Statement of Evaluation.
(4) Process-B Account.
(5) Abnormal Loss Account.

5. (a) What is Sales Value Volume Variance? 2+14
(b) The Summarised budget and Actual working results of GEMCO LTD. for the year 2005-06 are given below.
Budget Actual
Details Products Products
A B C A B C
Rs. Rs. Rs. Rs. Rs. Rs.
Selling Price per Unit 12 16 25 13 16 27
Cost per Unit 9 11 20 10 12 21
Sales (units) 40,000 32,000 24,000 42,000 40,000 22,000

Analyse the results and calculate the following:
(i) Budgeted profit, actual profit and variance in profit.
(ii) Analysis of the variance in profit into the
following.
(1) Price variance.
(2) Cost variance.
(3) Sales margin volume variance.
(4) Sales margin mix variance.
(5) Sales margin quantity variance.

6. NOVINA INDUSTRIES LTD. has received an export order for its only product that would require the use of half of the factory's
present capacity of 400,000 units per annum. The factory is currently operating at 60% level to meet the demand of its domestic market. 16
As against current price of Rs. 6.00 per unit, the export order offers @ 4.50 per unit, which is less than the cost of production, the details of which are given below:

Direct Materials Re. 2.50 per unit
Direct Labour Re. 1.00 per unit
Direct Expenses Re. 0.50 per unit
Fixed Overheads Re. 1.00 per unit
The condition of the export is that it has either to be accepted in full or totally rejected. The following alternative proposals are
available for decision:
A. Accept the order and keep domestic sales unfulfilled to the extent of the excess demand for the same.
B. Increase factory capacity by installing a few balancing machinery and equipments and also by working extra time to meet the balance of the required capacity. This will increase fixed overheads by Rs. 20,000 annually and the additional cost of Overtime will work out to Rs. 40,000 per annum.
C. Out-source the production of additional requirement by supplying direct materials and paying Conversion charges of Rs. 1.75 per unit to small converter, and engaging one Supervisor at a cost of Rs. 3,000 per month to look after quality, packing and despatch.
D. Reject the order and remain with the domestic market only.
As a Management Accountant, you are required to make comparative analysis of various proposals and suggest which of the alternative proposals is the most attractive to Novina Industries Ltd.

7. The following accounting information and financial ratios of ZENITH LTD., pertain to the year ended 31.3.2006:

Paid up Capital 2,00,000
Plant and Machinery 5,00,000
Total Sales (Annual) 2,000,000
Sales Return 20% sales
Annual Credit Sales 80% of net sales
Gross Profit Margin 25%
Current Ratio 2
Inventory Turnover Ratio (Cost of Sales) 4
Fixed Assets Turnover (Net Sales) 2
Average Collection Period 73 Days
Bank Credit to Trade Credit 2
Cash to Inventory 1:15
Total Debt to Current Liabilities 3
You are required to prepare Balance Sheet of Zenith Ltd. as on 31.3.2006 showing the details of workings. Ignore Taxation.

8. Write short notes on any four of the following: 16
(a) Economic Order Quantity (EOQ).
(b) Principal Budget factor.
(c) Profit - Volume Chart.
(d) Value analysis.
(e) Accounting of idle time.

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