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SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4

Marks Q. 2 Cash budget: Rupees January February March April May June Total Cash collections
Marks
Q. 2
Cash budget:
Rupees
January
February
March
April
May
June
Total
Cash collections
Current month
sales
Last month sales
Second last month
sales
Loan
360,000
540,000 630,000
945,000 1,102,500 1,653,750
5,231,250
846,000
720,000 1,080,000 1,260,000 1,890,000 2,205,000
8,001,000
1
43,200
96,000
144,000
168,000
252,000
703,200
1
600,000
600,000
Total collection
Cash payments
Purchases
Payroll
Lease payments
Advertising
Equipment
purchases
Loan and interest
1,806,000 1,303,200 1,806,000 2,349,000 3,160,500 4,110,750
14,535,450
1
1,200,000
720,000 1,080,000 1,260,000 1,890,000 2,205,000
8,355,000
54,000
81,000
94,500
141,750
784,688
90,000
90,000
90,000
90,000
165,375 248,063
90,000 90,000
540,000
420,000
480,000 540,000
617,143
694,286
793,469
3,544,898
48,000
ñ
ñ
ñ
ñ
ñ
48,000
696,000
696,000
1
1,812,000 1,371,000 1,804,500 2,108,893 2,839,661 4,032,532
13,968,585
2
Cash surplus /
(deficit)
Opening balance
Closing balance
(6,000)
(67,800)
1,500
240,107
320,839
78,218
566,865
1
156,000
150,000
82,200
83,700
323,807
644,646
156,000
1
150,000
82,200
83,700
323,807
644,646
722,865
722,865
1
OR
2
2
2
2
2
1
1
Q.
3
Operating statement
For the month ended December 31
(i)
Calculation of standard cost and selling prices:
Rs./ Unit
Direct material
Alpha
Beta
Direct wages
Fixed production overhead
(20 Kgs. @ Rs. 5)
(10 Kgs. @ Rs. 10)
(6 Hrs. @ Rs. 50)
(Rs. 300 x 300%)
100
100
300
900
Standard cost
Profit [1,400.00 X 30 ˜ (100 - 30)]
Budgeted selling price
1,400
600
2,000
D I S C L A I M E R : The suggested answers provided

DISCLAIMER: The suggested answers provided on and made available through the Instituteís website may only be referred, relied upon or treated as a guide and substitute for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4

Marks

Calculation of actual profit for the month: Rs. ë000í Sales (Rs. 2,000 x 110% =
Calculation of actual profit for the month:
Rs. ë000í
Sales (Rs. 2,000 x 110% = Rs. 2,200 x 19,000 units)
Direct material:
41,800
Alpha (400,000 Kgs. @ Rs. 6)
Beta (200,000 Kgs. @ Rs. 11)
Direct wages (110,000 Hrs. @ Rs. 60)
Fixed production overhead
Total
Actual Profit
(ii) Variances:
2,400
2,200
6,600
15,000
26,200
15,600
Direct Material Variance:
Price:
Alpha [400,000 Kgs. x (Rs. 5 ñ Rs. 6)
(400) A
Beta [200,000 Kgs. X
(Rs. 10 ñ Rs.11)
(200) A
(600) A
Usage:
Alpha [Rs.5.00 x(19,000 units x 20 Kgs. ñ 400,000)]
Beta [Rs.10.00 x (19,000 units x 10 Kgs. ñ 200,000)]
(100)
A
(100)
A
(200) A
There is no change in actual and standard mixing ratio; therefore, no mix variance
Direct wage variance:
(800) A
Rate [110,000 hrs. x (Rs. 50 ñ Rs. 60)
Efficiency [Rs. 50 x (19,000 units x 6 Hrs. ñ 110,000)]
(1,100) A
200
F
(900) A
Fixed overhead variance:
Expenditure (20,000 units x Rs. 900.00 - Rs. 15,000,000) Volume: 3,000 F Efficiency (19,000 units
Expenditure (20,000 units x Rs. 900.00 - Rs. 15,000,000)
Volume:
3,000
F
Efficiency (19,000 units x 6.00 Hrs. - 110,000) x 150.00)
Capacity (20,000 units x 6.00 Hrs. - 110,000) x 150.00)
600
F
(1,500)
A
(900) A
Alternate Fixed Overhead Volume Variance
Actual production at standard rate (19,000 units x Rs. 900)
Budgeted expenditure (20,000 units x Rs. 900)
17,100
18,000
(900) A
2,100
F
Sales margin variance:
Price [19,000 units x (Rs. 2200.00 - Rs. 2,000)
Volume (19,000 units - 20,000 units) x Rs. 600
(iii) Reconciliation:
3,800
F
(600) A
3,200
F
Total variance
Budgeted profit (20,000 units x Rs. 600)
Actual profit
3,600
F
12,000
15,600
F
1
D I S C L A I M E R : The suggested answers provided

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SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4

Q. 4 (a) Unit cost using activity based costing: Rupees B1 B3 B5 Paint* Labour*
Q. 4
(a)
Unit cost using activity based costing:
Rupees
B1
B3
B5
Paint*
Labour*
Paint stirring and quality control (W-1)
Electricity (W-2)
550.00
500.00
450.00
64.50
86.00
71.67
41.67
41.67
41.67
163.64
109.09
81.82
Filling of machines (W-3)
Unit cost*
94.03
67.16
53.73
913.83
803.92
698.88
+
+
=
Workings:
W-1: Paint stirring and quality control:
A
B
C
Units
Batches
Share of overhead
Per unit
500
400
300
10
8
6
24
20,833
16,667
12,500
50,000
41.67
41.67
41.67
W-2: Electricity:
B1
B3
B5
Coats per Unit
Total coats
Share of overhead
Per unit
6
4
3
3,000
1,600
900
5,500
81,818
43,636
24,545
150,000
163.64
109.09
81.82
W-3: Filling:
B1
B3
B5
Liters per Unit
Total Liters
Share of overhead
Per unit
7.00
5.00
4.00
3,500
2,000
1,200
6,700
47,015
26,866
16,119
90,000
94.03
67.16
53.73
(b)
(i)
M/s. Voice Ltd.
Contribution Income Statement
Rupees
LL 300
LV 400
Total
Amount
%
Amount
%
Amount
%
Sales
Less: Variable expenses
20,000
100%
80,000
100%
100,000
100%
15,000
75%
40,000
50%
55,000
55%
Contribution margin
5,000
25%
40,000
50%
45,000
45%
Less: Fixed cost
Net operating income
27,000
18,000
Computation of the break-even point:
Fixed expenses
27,000
=
=
Rs. 60,000
CM % (Total
45%

Marks

*1

*1

*1

0.75

0.75

0.75

0.75

0.75

0.75

2

1

D I S C L A I M E R : The suggested answers provided

DISCLAIMER: The suggested answers provided on and made available through the Instituteís website may only be referred, relied upon or treated as a guide and substitute for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4

Marks

(ii) Verification of the break-even point: Rupees LL 300 LV 400 Total Current Sales Rs.
(ii) Verification of the break-even point:
Rupees
LL 300
LV 400
Total
Current Sales Rs.
Percentage of sales
Sales at break-even
20,000
80,000
100,000
20%
80%
100%
12,000
48,000
60,000
1
LL 300
LV 400
Total
Amount
%
Amount
%
Amount
%
Sales
Less: Variable expenses
12,000
100%
48,000
100%
60,000
100%
9,000
75%
24,000
50%
33,000
55%
Contribution margin
3,000
25%
24,000
50%
27,000
45%
1.5
Less: Fixed cost
Net operating income
27,000
ñ
Q. 5 (a)(i)
Payback period:
1,000 ñ 897
Project-A =
3 years +
1
320
Project-A =
3.32
years
1
Project-B =
3.00
years
1
Project-C =
2.00
years
1
(ii)
Accounting rate of return (ARR):
ARR
= Average profit ˜ Average investment
1
Year
A
B
C
0 (1,000)
(1,000)
(1,000)
1 286
114
571
2 314
286
429
3 297
600
686
4 320
743
114
5 394
457
ñ
6 457
ñ
ñ
7 514
ñ
ñ
Net cash flow
Project life
Average profit
Average investment
ARR
1,583
1,200
800
7
5
4
226.12
240.00
200.00
500
500
500
45.22%
48.00%
40.00%
2
+
2
+
2
=
6
(iii)
Project
Payback
ARR
A
3
2
+
B
2
1
+
C
1
3
+
OR
1
+
1
=
3
D I S C L A I M E R : The suggested answers provided

DISCLAIMER: The suggested answers provided on and made available through the Instituteís website may only be referred, relied upon or treated as a guide and substitute for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4 Marks (b) NPV of manufacturing project: Cost of capital = 15%
MANAGEMENT ACCOUNTING ñ SEMESTER-4
Marks
(b)
NPV of manufacturing project:
Cost of capital
=
15%
Inflation
=
10%
(1+nominal rate)
1.15
Real discount rate =
ñ 1
=
ñ 1
=
4.55%
3
(1+ inflation rate)
1.10
Annual cash flow
=
(80,000 x 40)
3,200,000
1
PV Factor @
Year
Cash Flow
PV
4.55 %
0
(1,000,000)
1.0000
(1,000,000)
1
3,200,000
0.9565
3,060,870
2
3,200,000
0.9149
2,927,788
3
3,200,000
0.8752
2,800,493
4
3,200,000
0.8371
2,678,733
5
3,200,000
0.8007
2,562,266
13,030,149
1
Q. 6
(a)
Relaxation of credit standard:
Rs.
Sales increase [50,000,000 x 30%]
15,000,000
1
Variable cost [15,000,000 x 55%]
Increase in contribution
8,250,000
1
6,750,000
Bed debts expense:
Current [50,000,000 x 3%]
1,500,000
1
Proposed [65,000,000 x 8%]
5,200,000
1
(3,700,000)
Opportunity (extra financing) cost:
Current [50,000,000 x 0.55 x 30 ˜
360 x 12%]
275,000
1
Proposed [65,000,000 x 0.55 x 60 ˜ 360 x 12%]
715,000
1
(440,000)
2,610,000
Recommendation:
Yes, the company should relax credit standard because this will increase profit by
Rs.2,610,000.
D I S C L A I M E R : The suggested answers provided

DISCLAIMER: The suggested answers provided on and made available through the Instituteís website may only be referred, relied upon or treated as a guide and substitute for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

SUGGESTED ANSWERS ñ EXTRA ATTEMPT, MAY 2014 EXAMINATIONS

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MANAGEMENT ACCOUNTING ñ SEMESTER-4

Marks

(b)

Working Capital Requirement for 2014: Rs. in million Projected Sales for 2014 (Rs. 2,400) Cost
Working Capital Requirement for 2014:
Rs. in million
Projected Sales for 2014 (Rs. 2,400)
Cost break up as follows:
2400
Direct material (2400 x 30%)
Direct labour (2400 x 20%)
720
480
Variable overhead (2400 x 10%)
240
1440
Fixed overhead (2400 x 10%)
Selling and distribution (2400 x 10%)
240
240
Average Value of Current Assets:
Rs. in million
Receivables
Raw material
Work-in-progress (50%)
(2400 x 2 /12)
(720 X 2/12 )
(1440 X 1/12 )
400
120
60
Finished goods
(1440 X 1.25/12 )
150
730
Less: Average value of current Liabilities
Direct material
Direct labour
Variable overhead
Fixed overhead
(720 X 2/12 )
(480 X 1/12)
(240 X 0.5/12 )
(240 X 0.5/12)
120
40
10
10
Selling and distribution
Working capital required
(240 X 1/12)
20
200
530
1
THE END
capital required (240 X 1/12) 20 200 530 1 THE END D I S C L
D I S C L A I M E R : The suggested answers provided

DISCLAIMER: The suggested answers provided on and made available through the Instituteís website may only be referred, relied upon or treated as a guide and substitute for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.