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Monday 8 October 2012

AIMA assignments: FM11 FINANCIAL AND MANAGEMENT ACCOUNTING: contact us for answers at assignmentssolution@gmail.com

FM11

FINANCIAL AND MANAGEMENT ACCOUNTING

Assignment II
Assignment Code: 2012 FM11 B2                    Last Date of Submission: 15th November 2012
    Maximum Marks: 100

Attempt all the questions. All questions carry equal marks.

Section A

1.    What is capital budgeting? Explain IRR and Discounted NPV methods for appraisal if investments.
                       
2   (I) Explain the factors to be considered in pricing-decision and describe the stages involved in decision   
         Process.
    (II) Explain relevance of time value of money in investment decision. What are the disadvantages of the   same?
3.   ABC earns an average net profit of Rs.3 per unit at a selling price of Rs. 15 by producing and selling 60,000 units at 60% potential capacity.

  The composition of cost of sales is as follows:

      Direct materials            Rs.4.00
      Direct labour                Rs.1.00
      Production overhead            Rs.6.00 (50 fixed)
      Sales overhead            Re.1.00 (75% fixed)
During the current year the firm intends to produce the same number but   anticipates that:
(i)    its fixed expenses will increase by 10%;
(ii)    rates of direct material will increase by 5%;
(iii)    rates of direct labour will increase by 20%; and
(iv)    Selling price can not be increased.
Under these circumstances, the firm obtains an order for an additional 20% of its capacity.
What minimum price, would you recommend for accepting the order to ensure ABC an overall         profit of Rs.1,80,500 ?

4.        The following information is available from the records of Always First Ltd. for a particular week with regard to the composition and rates of a gang of workmen:
            Standard    Standard
            Composition    Hourly Rate
                (Rs.)
            20 Skilled workmen    12.00
            15 Semi-skilled workmen    10.00
            5 Unskilled workmen    8.00
        The standard output for a week is 3,600 units and a week consists of 48 hours.
        During a particular week, a gang consisted of 25 skilled workmen, 12 semi-skilled workmen and 3 unskilled workmen and the actual wages paid were as follows:
        Skilled workmen @ Rs. 11.60 per hour; semi-skilled workmen @ Rs. 10.20 per hour; and unskilled workmen @ Rs. 8.00 per hour.
        Actual output during the week was 3,750 units despite the fact that 6 hours were lost in that week due to abnormal idle time.
        Based on the above information, you are required to work out —
    (i)    Labour rate variance;
    (ii)    Labour mix variance;
    (iii)    Labour idle time variance;
    (iv)    Labour yield variance;
         (v)     Labour efficiency variance; and
    (vi)   Labour cost variance.

Section B
5.    Case Study

A multi product company has been producing an electronic component in its department P. The budget of department P for the next year is as under:
 Budgeted Production and Sales 72,000 units.
                                Rs. Per unit
            Selling price                 200
            Direct materials
               X 1kg per unit                  40
                  Y I kg per unit                  30
            Direct wages                   40
            Variable overheads                       20
            Fixed overheads                                       60    
            Total                     190
Subsequent to the preparation of the budget, the company offered that the setting up of an electronic park in the region where the company is situated has resulted in migration of the majority of the departments workforce and consequently the company is forced to take a decision on the closer of the department and abandonment of the budget. The company was however, advised to produce either 24000 or 48,000 components in the next year by employing contract labour. A few remaining workers will be absorbed by the company with in the organization against vacancies. The relevant data are as under:
(a)  The cost of contract labour is Rs.6  per hour and  the  standard  contract labour time per units 10  hours.
       The contract labour, however, will have to be trained at a fixed cost of Rs.40,000. 
(b)  The stock of material X is 72000kg. There is no  other  use for t his  material. The  quantity not used in  
      department P will have to be disposed of. The cost of disposal is Rs.4000 plus Re.1 per kg disposed off.
 (c)  The stock of material Y is  36000 kg.  if  this material  is not  used  in  department P, a quantity  up to    
       24000 kg can be used in another department a  substitute for an equivalent weight of a material which          
       currently costs Rs.36 per kg. Material Y  originally  cost  Rs.30 per kg  and its  current market price is 
       Rs.40 per kg. if any surplus  material Y is sold, it will fetch a realization of Rs.20 pre kg sold.
(d)  The variance overheads will be 30% higher per unit produced than originally budgeted.
(e)  If department P is to closed down immediately, the foreman who will otherwise retire at the end of next  
      year, will  be   asked  to retire  earlier  and  he will   be  paid  Rs.80,000  s  compensation. His  salary  is        
      Rs.6,000 per month.
(f) The only machine used in  department P originally   cost Rs.1,40,000  and it  can  be  currently  sold  for    
      Rs.86,000. This sales values will go down to RS.80,000 at the end of the next year and if the machine is  
      used during the next year for any production activity in the year, the sale value will further  decrease by   
      Rs.1000 per every 1000 units produced.
(g) The fixed overheads are  apportionment  of general  overheads and  will  not be  altered by any decision    
     concerning department P.
(h) The sales manager states that a sales volume of 24000 units can be achieved if the selling price is set at 
      Rs.180 per unit. He further stated that a sales volume of 48000 units will be achieved if the selling price   
      per unit is reduced to Rs.150 and an advertisement expenditure of RS.30,000 is spent.

Required:
( i )    Prepare a statement indicating the financial implications of the choice to be made between the following alternatives:
             (A) Close down department P immediately.
             (B) Operate department P for a further year to produce 24000 units of he component.
             (C) Operate department P for a further year to produce 48000 units of the component.
   (ii)    Advise the management on the course of action to be taken.

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