DECEMBER 2011 EXAMINATION
FM 11
Financial and Management Accounting
Time: Three Hrs. Maximum Marks: 100
Note:
1. The paper is divided into three sections: Section A, Section B and Section C.
2. There are seven questions in Section A of 10 marks each. Attempt any four.
3. Section B has 5 questions of 15 marks each. Attempt any three.
4. All the questions of Section C (Case Study) are compulsory. This section is of 15 marks.
Marks will be awarded for the right procedure also in numerical questions.
Section – A
1. Management accounting is based on the past or yester information of cost accounting and financial accounting which influences the effectiveness of the entire management accounting. Comment. (10)
2. Information provided by financial accounting is summarized in three primary financial statements balance sheet, income statement and cash flow statement. In the light of the statement, briefly explain the useful means of each one of them. (10)
3. Financial analysis is the process of determining the significant operating and financial characteristics of a firm from accounting data. Elaborate. (10)
4. Each cost has some true cost behavior pattern, called a cost function, which helps in the prediction of changes in costs. Explain with suitable examples. (10)
5. Cost-Volume-Profit Analysis is the most used financial analysis technique for financial planning and control. Elaborate the relevance of the statement on the basis of the degree of responsiveness of the cost at various activity levels. (10)
6. Budgetary control is defined as ‘the establishment of departmental budgets relating to the responsibilities of executives to the requirements of a policy, either to secure by individual action the objectives of that policy or to provide a firm basis for its revision. Explain this definition. (10)
7. Highlight the corporate examples in fixing the responsibility on the managerial positions. (10)
Section – B
1. Two components A and B are used as follows
Normal usage 50 units per week
Minimum usage 25 units per week
Maximum usage 75 units per week
Reorder quantity A: 4 to 6 weeks
B: 2 to 4 weeks
Calculate for each component
(a) Reorder level
(b) Minimum level
(c) Maximum level
(d) Average stock level (15)
2. The personnel department at Rexil Company has Rs. 45,000 in budgeted costs for the coming period. Rexil is trying to determine whether to allocate these costs to the two production departments based on the number of employees or on machine hours used in the department. Information about the production department is given below:
Particulars Department A Department B
Number f employees 15 35
Anticipated machine hours 600 400
Calculate the costs allocated to each of the production departments using each allocation base. Comment on which allocation base is preferable. (15)
3. Parkers Pvt. Ltd. manufactures two brands of pen Light and Elite. The sales department of the company has three departments in different regions of the country.
The sales budgets for the year ending 31st march 2011 are as follows.
Light – department I – 3,00,000; department II – 5,62,000; department III – 1,80,000.
Elite – department I – 4,00,000; department II – 6,00,000; department III – 20,000.
Sale prices are Rs. 3 and Rs. 1.20 in all departments.
It is estimated that by forced sales promotion the sales of Elite in department I will increase by 1,75,000. It is also expected that by increasing production and arranging extensive advertisement, department III will be enable to increase the sales of Elite by 50,000.
It is recognized that the estimated sales by department II represent the unsatisfactory target. It is agreed to increase both estimates by 20%.
Prepare the sales budget for the year 2011. (15)
4. “Success of the firm relies upon the rational capital budgeting decisions”. Discuss. (15)
5. ABC Ltd. uses standard costing. The standard price for the metal used as a principal raw material was Rs. 2 per pound. The standard allowances were six pound per finished unit of product. The standard rate for direct labour was Rs. 7 per hour. The standard allowances are one hour par finished unit of product. During the last week 10,000 finished goods units were produced. Actual labour costs were Rs. 78,000 for 13,000 actual hours, 80,000 pounds of metal were acquired for Rs. 1.80 per pound. 71,000 pounds of metal were consumed during production.
Compute material and labour variances. (15)
Section – C
Case Study
Mexicon Ltd. undergoes a rapid expansion programme through the establishment of two units, one at Sri Perumbudhur, Tamil Nadu and another at cyber city at Andhra Pradesh.
The factory at Sri Perumbudhur is in need of a plant and machinery which costs around Rs. 10,00,000. The Canara bank of Sri Perumbudhur has gone through the profile of newly established subsidiary of Mexicon, Mumbai and finally agreed to sanction a loan of Rs 10,00,000 @ 10%.
The second factory situated at cyber city Hyderabad is in need of pressure dye casting unit which amounted Rs. 20,00,000. The state finance corporation has come forward to sanction a loan amount of Rs. 20,00,000 @ 24% towards the purchase of a required plant by way of attaining the satisfaction on the performance of the holding company Mexicon Ltd. and the subsidiary company.
The following table illustrates future expected earning potential:
Year 1 2 3 4 5 6
Sri Perumbudhur Rs. A 50,000 1,50,000 3,50,000 4,00,000 3,00,000 2,00,000
B 20,000 1,00,000 2,50,000 2,00,000 4,00,000 5,20,000
Cyber city project Rs. A 5,00,000 5,00,000 8,00,000 1,50,000 3,00,000 2,00,000
B 2,00,000 2,50,000 1,00,000 6,00,000 5,00,000 8,00,000
Questions
1. Which project is more profitable than the other one under each category?
2. Select the project on the basis of the present value of the future cash flows and the risk associated.
3. Highlight the reasons for the rejection of the other investment proposal.
PV of a Re 1 are as follows:
Year 1 2 3 4 5 6 7 8
10% .909 .826 .751 .683 .621 .564 .513 .467
24% .806 .650 .524 .423 .341 .275 .222 .179
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