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Solution: Similar to Page 11.14 Illus 1 [M 09] and other Illustrations in Handbook.
2. Fixed Cost = Total Costs less Variable Costs (estimated using 80,000 units output level data)
= ` 34,40,000 – (80,000 units×` 28) = ` 12,00,000 [Note: 1,20,000 units level can also be taken here.]
Contribution p.u. 40 − 28
3. PV Ratio = × 100 = × 100 = 30%
Sale Pr ice p.u. 40
May 2015.1
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
The estimated units to be sold in the first four months of the year 2015–2016 are as under:
Product April May June July
xml 8,000 10,000 12,000 16,000
yml 6,000 8,000 9,000 14,000
Prepare: (1) Production Budget (Month wise), (2) Production Cost Budget (for first quarter of the year).
May 2015.2
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Alternative Approach: Assuming that 90% of Bill is fully recoverable and 10% is not recoverable at all, the computation
can be made as under – (without using Decision Tree Approach)
Particulars `
Sales Value 2,40,000
Less: Cost of Sales at 80% of Sales 1,92,000
Less: Bad Debts at 10% of Sales 24,000 2,16,000
Pre Tax Income 24,000
Post Tax Income = Benefit (24,000 less 30% thereon) 16,800
1.5
Less: Interest Cost on Investment in Receivables = ` 1,92,000 × 40% × 9,600
12
Net Benefit /(Cost) from Sale to New Customer 7,200
May 2015.3
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
1. Basic Calculations
Variable OH Fixed OH
Δ OH 2,10,000 − 1,80,000 30,000 FOH Std Rate p.u = Total Std Absorption Rate
VOH Std Rate pu= = = =` 15 pu
Δ Qtty (10,000 − 8,000) uts 2,000 uts ` 20 p.u – VOH ` 15 p.u = ` 5 p.u
` 15 pu ` 5 pu
VOH Std Rate p.h. = = ` 3 p.h. FOH Std Rate p.h. = = ` 1 p.h.
` 5 ph ` 5 ph
` 20 pu
Note: Standard Time p.u. = = 5 hours p.u
` 4 ph
FOH Volume Variance = ` 77,800 – ` 60,000=` 17,800 F + FOH Expenditure Variance b/fd as above =` 2,500 A
Question 2(b): P & L Account and Balance Sheet Preparation from Ratios 8 Marks
SSR Ltd has furnished the following ratios and information for the year ending 31st March.
Sales ` 60,00,000 Current Ratio 2 times
Return on Net Worth 25% Cost of Goods Sold ` 18,00,000
Tax Rate 50% Interest on Debentures at 15% ` 60,000
Share Capital to Reserves 7 : 3 Sundry Debtors & Sundry Creditors Each ` 2,00,000
Net Profit to Sales (after Tax) 6.25% Inventory T/O (based on COGS and Closing Stock) 12 Times
You are required to (1) Calculate the Operating Expenses for the year, and prepare a Balance Sheet as at 31st March.
May 2015.4
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Current Assets
2. Current Ratio = = 2 times. So, Current Assets = 2 × Current Liabilities = 2 × Creditors
Current Liabilities
4. Profit and Loss Statement (to compute Operating Expenses as bal. figure)
Particulars Computation `
Sales Given 60,00,000
Less: Cost of Goods Sold Given 18,00,000
Gross Profit 42,00,000
Less: Operating Expenses (balancing figure) (i.e. Gross Profit less EBIT) 33,90,000
EBIT By reverse working (EBT + Interest) 8,10,000
Less: Interest on Debentures Given 60,000
EBT By reverse working (EAT + Tax) 7,50,000
Less: Tax at 50% Since Tax Rate = 50% on EBT, EAT = balance 50%. Hence, Tax = EAT 3,75,000
EAT = Net Profit after Tax = 6.25% on Sales of ` 60,00,000 3,75,000
May 2015.5
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Prepare Operating Cost Statement on annual basis and find out the Cost per Passenger Kilometer and One–Way Fare per
Passenger.
1. No. of Passengers = 32×70%= 22.4; No. of Kms p.a. = 10 trips × 2 ways × 30 kms × 25 days × 12 months =1,80,000
So, Total Number of Passenger–Kms p.a. = 22.4 × 1,80,000 = 40,32,000
Note: It is given that Profit=25% of Takings, & Passenger Tax=22% of Takings. Hence, Total Operating Cost = 100% – 25%
7,25,800
– 22% = 53% of Total Takings, which equals ` 7,25,800. Hence, Total Takings = = ` 13,69,433. Now, Profits and
53%
Passenger Tax are calculated at 25% and 22% respectively, on Total Takings.
7,25,800 13,69,433
3. Cost per Passenger–Km. = = ` 0.18 Fare per Passenger–Km = = ` 0.34
40,32,000 40,32,000
Hence, One–Way Fare per Passenger = 30 km × ` 0.34 = ` 10.20
May 2015.6
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
1. Since IRR = 15%, Discounted Cash Inflows at 15% = Initial Investment in the Project.
So, Cost of Project = Initial Investment = CFAT p.a. × Cum. PVF at 15% for 4 years = ` 60,000 × 2.855 ` 1,71,300
Initial Investment ` 1,71,300
2. Payback Period = = = 2.855 yrs
CFAT per annum ` 60,000
Total DCFAT 1.064 × 1,71,300
3. Profitability Index = = 1.064 (given). So, Total DCFAT = PI × Initial Investment =
Initial Investment = ` 1,82,263
DCFAT = CFAT p.a. × PVF at Ko. On substitution, ` 1,82,263 = ` 60,000× PVF at Ko.
` 1,82,263
On solving, PVF at Ko = = 3.038. From the above Table, Ko= 12% Ko= 12%
` 60,000
4. NPV = Total DCFAT (WN 3) – Initial Investment (WN 1) = ` 1,82,263 – ` 1,71,300 ` 10,963
2. Joint Cost allocable to M1 = Total Joint Cost – Estimated NRV of By–Products B1 & B2
= 2,12,400 – (11,800 + 25,500) = ` 1,75,100
3. Profit Statement
Particulars M1 B1 B2 Total
(a) Sales Value 4000 × 100 = 4,00,000 1800× 40 = 72,000 3000 × 30 = 90,000 5,62,000
(b) Costs:
1,75,100 11,800 25,500 2,12,400
Joint Cost (WN 1 & WN 2)
Post Separation Costs Nil 35,000 24,000 59,000
SOH 20% = 80,000 10,800 13,500 1,04,300
Total Costs 2,55,100 57,600 63,000 3,75,700
(c) Profit 1,44,900 14,400 27,000 1,86,300
May 2015.7
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Particulars Result
1. Loan required = 30% of ` 30 Lakhs ` 9,00,000
2. Interest on Loan = (` 3,00,000 × 11%) + (` 6,00,000 × 14%) = ` 33,000 + ` 84,000 ` 1,17,000
Interest × (100% − Tax Rate) ` 1,17,000x(100% − 30%)
3. Kd = = 9.10%
Net Pr oceeds of Issue 9,00,000
DPS1 ` 15 x 70% Dividend x 110%
4. Kr = Ke = +g= + 10% = 12.83% + 10% 22.83%
MPS0 ` 90
5. Ko = (Kd × Wd) + (Ke × We) = (9.10% × 30%) + (22.83% × 70%) = 2.730% + 15.981% 18.711%
Note: DPS1 has been considered in computation of Ke. Alternatively, Earnings–Growth model may also be applied.
Shareholders’ Personal Tax Rate is not considered since Dividends are exempt from Tax in their hands.
The Company for the purpose of computing machine hour rate includes the Direct Wages of the Operator and also recoups the
Factory Overheads allocated to the machines. The following details of Factory OH applicable to the Cost Centre are available –
• Depreciation 10% per annum on original cost of the machine. Original Cost of each machine is ` 52,000.
• Maintenance and Repairs per week per machine is ` 60.
• Consumable Stores per week per machine are ` 75.
• Power 20 units per hour per machine at the rate of 80 paise per unit.
• Apportionment to the Cost Centre: Rent p.a. ` 5,400, Heat and Light p.a. ` 9,720, and Foreman’s Salary p.a. ` 12,960.
Calculate – (a) Cost of running one machine for a four–week period, and (b) Machine Hour Rate.
May 2015.8
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
1. Effective Working Hours (excluding Set–Up Time) = (48 – 4) × 4 Weeks = 176 hours for 4–week period.
Total OH ` 17,403
3. Machine Hour Rate = = = ` 98.88 per hour.
Effective Machine Hours 176 hours
Note: Set–up Time is not considered in calculation of Effective Machine Hours. However, it is assumed that Power is
consumed during Set–up Time also. Alternative assumptions and treatments exist.
May 2015.9
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Question 7: Theory – Various Topics – Answer any four of the following 4 × 4 = 16 Marks
May 2015.10
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
2. Computation of EOQ
Particulars Mustards Soybeans Olives
(45,000 Ltr.× 5 Kg × 12 (15,000 Ltr. × 6 Kg × 12 (3,000 Ltr. × 4.5 Kg × 12
Annual Requirement (A)
Months) = 27,00,000 Kg Months) = 10,80,000 Kg Months) = 1,62,000 Kg
Market Wholesale Farmers Wholesale Farmers Wholesale Farmers
Buying Cost per Order (B)
(a) Transportation 6,000 15,000 9,000 12,000 3,000 11,000
(b) Sorting and Piling Cost – 1,200 – 800 1,800 –
Total 6,000 16,200 9,000 12,800 4,800 11,000
Carrying Cost per Kg p a. (C)
(a) Interest at 12.5% on
1.9425 1.5800 1.4050 1.1375 4.5300 3.9175
Purchase Cost as per WN 1
(b) Warehouse Rent at ` 1 / Kg 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Total 2.9425 2.5800 2.4050 2.1375 5.5300 4.9175
2AB
EOQ = (in kgs) 1,04,933.53 1,84,138.47 89,906.40 1,13,730.98 16,769.90 26,921.34
C
May 2015.11
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Solution: 1. Computation of Annual Consumption & Annual Demand for Raw Material ‘Dee’
Sales Forecast of Product ‘Exe’ 10,000 units
Less: Opening Stock of ‘Exe’ 900 units
Hence, Exe’ to be produced 9,100 units
Raw Material required to produce 9,100 units of ‘Exe’ (9,100 units × 2 kg) 18,200 kg.
Less: Opening Stock of ‘Dee’ 1,000 kg.
Annual Demand for Raw Material ‘Dee’ 17,200 kg.
May 2015.12
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Workers are paid Bonus as per Halsey System. The existing rate of wages is ` 50 per hour. As per the new Wages Agreement,
the workers will be paid ` 55 per hour w.e.f. 1st April 2015. At the end of the month, the Accountant of the Company has
calculated Wages to these two workers taking ` 55 per hour.
(i) Calculate the amount of Loss that the Company has incurred due to incorrect rate selection.
(ii) What would be the Loss incurred by JBL due to incorrect rate selection if it had followed Rowan Scheme of bonus payment?
(iii) What is the amount that could have been saved if Rowan Scheme of Bonus Payment is followed?
(iv) Do you think Rowan Scheme of Bonus Payment is suitable for JBL?
Solution:
1. Computation of Time Saved
Particulars (in hrs) Ram Shyam
Time allowed 30 Pieces × 2 hrs = 60 42 Pieces × 2 hrs = 84
Less: Time Taken 28 40
Time Saved 32 44
2. Loss due to incorrect rate selection, i.e. Excess of `55 – 50 = ` 5 per hour
Ram Shyam Total
(a) Basic Wages (28 Hrs. × 5) = 140.00 (40 Hrs. × 5) = 200.00 340.00
(b) Bonus (Halsey Scheme) (50% × Time saved × (50% × 32 Hrs. × 5) (50% × 44 Hrs. × 5) =
190.00
Excess Rate) = 80.00 110.00
(c) Excess Wages paid = Loss (Halsey Scheme) (a + b) = 220.00 (a + b) = 310.00 530.00
(d) Bonus (Rowan Scheme)
28 40
TimeTaken ( ×32×5) = 74.67 ( × 44 × 5) = 104.76 179.43
( × Time Saved × Excess Rate) 60 84
Time Allowed
(e) Excess Wages paid = Loss (Rowan Scheme) (a + d) = 214.67 (a + d) = 304.76 519.43
(f) Amount that could have been saved if Rowan
5.33 5.24 10.57
Scheme is followed (c – e)
Conclusion: Rowan Scheme of Incentive Payment is suitable due to its benefits (Refer Illustration N 86 Question in
Page No.3.16 of Padhuka’s Students Handbook on Cost Accounting and Financial Management.
May 2015.13
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Solution: 1. Computation of Employees at the beginning and end of the year, Category–wise
Category At the Beginning of the At the end of the Net
year year Change
Data Processors Given = 540 Given = 1,560 + 1020
Payroll Processors [Left 60 + Closing 40 – Joined 20] 80 Given = 40 – 40
Supervisors Note 1 = 30 Note 2 = 90 + 60
Voice Agents Note 1 = 30 Note 2 = 30 Nil
Assistant Managers Note 1 = 20 Given = 30 + 10
Senior Voice Agents Given = 4 Given = 12 +8
Senior Data Processors Given = 8 Given = 34 + 26
Team Leaders Transfer to Subsidiary = 60 All Transferred, So = 0 – 60
Total Given 772 1,796 + 1,024
Note:
1. At the beginning of the year:
(a) Total of Supervisors, Voice Agents and Asst. Managers = [772 – {540 + 80 + 4 + 8 + 60} = 80 Employees]
3 3 2
(b) Apportioned in 3:3:2, Hence, Supervisors: 80 × = 30, Voice Agents: 80 × = 30 & Asst. Managers: 80 × = 20.
8 8 8
2. At the end of the year:
(a) Supervisors = (Opening 30 + Joined 60) = 90, (b) Voice Agents = (Opening 30 + Joined 20 – Left 20) = 30
2. Computation of Employees Separated, Replaced and Newly Recruited during the year
Note:
• Since the Company and its Subsidiary are maintaining separate Personnel Departments, the transfer–in and transfer–
out are treated as Recruitment and Separation respectively.
• Separations (S) and Accessions (A) are given in the Question itself.
May 2015.14
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
• Accessions (A) = Replacement (R) + New Recruitments (N). Here, Accessions are given and Replacements (R) are
computed by comparing with Separations (S), and Net Change in the Labour Force as per WN 1. For example –
(a) Data Processors: 60 Left (Separations), and hence taken as fully replaced with 60 persons.
(b) Payroll Processors: 60 left, but Labour Force at end is less by 40 persons. Hence, Replacement = only 20 persons.
• After computing Replacements (R) as above, New Recruitment (N) = Accessions (A) – Replacements (R).
Conclusion: Labour Turnover of 24.92% calculated by the Executive Trainee of the Personnel Department is not correct. It
has been taken as Separation + Replacement = 16.36% + 8.57% = 24.92% and he has not taken the Number of New
Recruitments, in using the Flux Method.
2. Depreciation is provided @ 15% p.a.(This machine can be used for any other projects). As per the contract agreement, the
Contractee shall retain 20% of Work Certified as Retention Money.
Prepare Contract A/c for the two Housing Projects showing the Profit or Loss on each project for the year ended 31.03.2016.
May 2015.15
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Solution: Contract Account for the year ended 31st March 2016 (Amounts in `)
Particulars HP–1 HP–2 Particulars HP–1 HP–2
To WIP b/d 7,80,000 2,80,000 By WIP:
To Material purchased 6,20,000 8,10,000 Value of Work Certified 20,50,000 16,10,000
To Wages: (` 85,000 + ` 12,000) 97,000 Cost of Work Uncertified 1,90,000 1,40,000
(` 62,000 + ` 8,400) 70,400 By Material at site c/d 47,000 52,000
To Donation to Local Club (Note 1) 5,000 2,500
To Plant Hire Charges:
(` 72,000×1/3) and (` 57,000×1/3) 24,000 19,000
To Deprn on Concrete Mixture M/c:
(` 8,20,000 × 15% × 180/365) 60,658
(` 8,20,000 × 15% × 100/365) 33,699
To Notional Profit (balancing figure) 7,00,342 5,86,401
Total 22,87,000 18,02,000 Total 22,87,000 18,02,000
To P & L A/c (Note 3) 1,86,758 1,56,374 By Notional Profit b/d 7,00,342 5,86,401
To Reserve Profit c/d (bal. fig.) 5,13,584 4,30,027
Total 7,00,342 5,86,401 Total 7,00,342 5,86,401
Note:
1. Donation paid to Local Club is assumed as exclusively for the above projects, hence included in the Contract Account.
Work Certified 20,50,000 16,10,000
2. Percentage of Completion = : HP–1= = 42.71% HP – 2 = = 44.72%
Contract Price 48,00,000 36,00,000
1 Cash Received
3. Profit to be recognized in P&L A/c =
× Notional Profit ×
3 Work Certified
1 1
HP–1: × 7,00,342 × 80% = ` 1,86,758 HP–2: × 5,86,401 × 80% = ` 1,56,374
3 3
May 2015.16
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May 2015.17
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Solution:
1. Cost of Goods Sold (COGS) = Material + Labour + FOH + General & AOH
So, COGS = (30% + 15%+ 10% + 2%) = 57% of COGS + 2,30,000 +71,000
3,01,000
So, 0.43 COGS = 3,01,000. Hence, COGS = = 7,00,000
0.43
Contribution Sales (-) Variable Costs (185 x 5,000 units) (-) 4,31,000
4. PV Ratio = × 100 = × 100 = × 100 = 53.41%
Sales Sales (185 x 5,000 units)
5. Computations:
Fixed Costs 3,69,000
(a) Break–Even Sales = = = ` 6,90,882.
PVR 53.41%
(b) Profit earned during the last year = (Sales – Total Variable Costs) – Total Fixed Costs
= (` 9,25,000 – ` 4,31,000) – ` 3,69,000 = ` 1,25,000
(d) Profit if the Sales were 10% less than the Actual Sales: (Assumed 10% reduction in Sale Qtty).
Profit = 90% of (` 9,25,000 – ` 4,31,000) – ` 3,69,000 = ` 4,44,600 – ` 3,69,000 = ` 75,600
Question 8: If a Company finds that its Cost of Capital has changed, does this affect the profitability of the Company? RTP
1. If the Company is financed mainly from short–term sources, an increase in interest rates will reduce its Profits. Hence, it
may choose to switch to long–term financing. This will be at a higher rate and profitability will be diminished.
2. If the Company is financed mainly from long–term sources, an increase in interest rates will not affect its profits
directly. However, higher interest rates may depress economic activity and its profits may fall accordingly.
3. If the Company is financed mainly from Retained Earnings or Equity, an increase in the required return of Shareholders
will lead to pressure for higher dividends. The Company may have insufficient funds to meet such demands.
May 2015.18
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Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Cost Accounting & Financial Management Exam
Solution: Cash Flow Statement for the year ended 31st March 2015 using Direct Method
Particulars ` in Crores ` in Crores
A. CASH FLOWS FROM OPERATING ACTIVITIES
Cash Sales (135 × 0.6) 81
Cash Receipts from Debtors [OB 45+ Credit Sales (135 × 40%) – CB 50] 49
Cash Purchases (20% of 55) (11)
Cash Payments to Suppliers [OB 21+ Credit Purch. (55 × 80%) – CB 23] (42)
Cash Paid to Employees (22)
Cash Payments for Overheads (Adm. and Selling OH) (18)
Cash Generated from Operations 37
Less: Income Tax Paid (8)
Net Cash Generated from Operating Activities [A] 29
B. CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Investments (12+ 2.40) 14.4
Payments for Purchase of Fixed Assets (11)
Net Cash Used in Investing Activities [B] 3.4
C. CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Debentures (22–15) (7)
Interest Paid (1.5)
Dividend Paid + Dividend Distribution Tax at 17% = (10 + 1.7) (11.7)
Net Cash Used in Financing Activities [C] (20.2)
D. Net Increase in Cash and Cash Equivalents (A + B + C) 12.2
E. Cash and Cash Equivalents at Beginning of the period 6.0
F. Cash and Cash Equivalents at end of the period (D + E) 18.2
May 2015.19
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STUDENTS’ NOTES
May 2015.20
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