1. Cost & Financial Management ( Solution )
Novemeber 2011
Prepared By
CA. ARVIND SINGHAL
(a) 1. (a) (i) Margin of Safety = actual Sales – Break even sales
pr Process A/C
Actual Sales
40%= 5 lakhs- BES
5 lakh
Break even sales =3 lakhs.
(ii) Break Even sales = Fixed cost
Pv ratio
3 lakh = Fixed cost
50%
Fixed cost = 1.5 lakh
Required Sales = Fixed Expenses + .10 x
Pv ratio
x = 1.5 lakh +.10x
0 .50
X = 3.75 lakh
Sales in units = 375000/1000
= 375 units
1. (b) (i) Rowan system = time taken*rate per hour + time saved *time taken* rate per hour
Time allowed
= 120 hours *(10+30/8) + 30 *120* (10+30/8)
150
= Rs. 1980
(ii) Efficiency level = Time allowed
Time Taken
= 150/120
= 125 %
Basic wage = 120* (10+30/8)
= Rs. 1650
Bonus = 20 % * 1650 + 25% *1650
= Rs. 742.50
1. ( c ) incremental Gain = 120000*15%
= 18000
Investment in Debtors = 102000*1.5/12
= 12750
Incremental Cost
Bad Debts = 10%*120000 = 12000
Interest loss = 12750* 40%
1-.30
=7286
Total incremental Cost = 12000+7286
= 19286
Incremental loss = 19286-18000
= 1286
1. (d) ke = EPS/MPS
= 4/40
= 10%
OR
Ke = D1/P +G
= 4*25%/40+ .08
= 10.50%
Kd = upto 2 lakh = 10% (1-.30)
= 7%
= Beyond 2 lakh = 15 % (1-.30)
=10.50%
WACC = 10%*6/10+7%*2/10+10.50%*2/10
= 9.5%
Note :- We have given preference to the Gordon Model (for Ke ) for computing the WACC, alternatively we can also take the avg of both Ke and then can calculate WACC by taking that avg. Ke.
2 . (a) Actual overhead incurred = Rs 79 lakh
Absorbed overhead = 1.50 lakh days * Rs 50
= 75
Under absorbed overhead = 79-75 = 4 lakh
Underabsorbed overhead due to defective planning = 4 lakh *60%
= 2.40 lakh
These overhead will be charged to costing P & L account.
Overhead due to increased cost = 4-2.40
= 1.60 lakh
These overhead will be charged through the supplementary rate
Supplementary rate = Overhead
Equi. Prod.
= 1.60 lakh
(30000+5000+ 10000*.50)
= Rs 4 per unit.
Therefore amount chargeable to
1. Cost of sales = 30000*4 = 120000
2. Closing stock = 5000*4 = 20000
3. WIP = 10000*50%*4 = 20000
2. (b) (i) Liquid Asset = CA – stock - prepaid expenses
=3050000-2160000-10000
= 880000
Liquid Liability = current liab – bank od
= 1000000
Quick Ratio = 880000/1000000
= 0.88
(ii) Debt – equity Ratio = 1600000/(2000000+800000)
=0.5714
(iii) Return on capital employed = EBIT / capital employed
Where, EBIt= 120000
Capital employed = 1600000+2000000+800000
= 4400000
Ratio will be = 120000/4400000
=27.27 %
(iv) Avg collection period = Avg. debtors * 360 days
Cr sales
= 360 days * 400000/(4000000*80%)
=45 days.
3. (a) input detail output mat 1 Lab
8000 | Op wip | |||
182000 | Input | |||
Nor. loss | 15200 | |||
Abno effectives | (1200) | 100% (1200) | 100% (1200) | |
Output trfd | 158000 | 158000 | 158000 | |
cl. wip | 18000 | 100% 18000 | 70% 12600 | |
190000 | total | 190000 | 174800 | 169400 |
Statement of cost per unit
M 1 = 63900+756900-15200*8 = 4
174800
Lab & o/h = 10800+5400+328000+164000 = 3
169400
Statement of valuation
1. Abnormal effectives = 1200*( 4+3 ) = 8400
2. Closing WIP = M1= 4*18000 = 72000
Lab & ov = 12600*3 = 37800 109800
3. Output Trfd = 158000* (4+3 ) = 11,06,000
To op wip | 8000 | 80100 | By nor loss | 15200 | 121600 |
To mat intro | 182000 | 756900 | |||
To lab | 328000 | By next process | 158000 | 1106000 | |
To overhead | 164000 | ||||
By cl. wip | 18000 | 109800 | |||
To abno. eff | 1200 | 8400 | |||
3. (b) Total asset turnover ratio = sales / total asset
2.5 = sales / 4800000
Sales = 1,20,00,000
Now sales = 1,20,00,000
VC @ 60% = 72,00,000
Contribution = 48,00,000
(-) FC =28,00,000
EBIT 20,00,000
(-) intt. 4,20,000
EBT 15,80,000
(-) tax @ 30% 4,74,000
EAT 11,06,000
No. of share 100000
EPS = Rs. 11.06
(ii) combined leverage = 4800000/1580000
= 3.04
4. (a) Calculation of operating cycle :-
Raw material = avg raw material *365
Raw mat consumed
= (180000+200000)/2 * 365
180000+1100000-200000
= 64 days
WIP = Avg WIp * 365
Work Cost
= (60000+100000)/2 *365
(60000+1080000+300000+200000-100000)
= 80000 / 1540000 *365 = 19 days
Finished Goods = Avg stock * 365
Cost of goods sold
= (260000+300000)/2 *365
(260000+1540000+175000-300000)
= 280000/1675000 *365 = 61 days
Debotors = Avg debtors / credit sales *365
= (150000+200000)/2 *365
2000000
= 32 days
Creditors = avg creditors / cr purchase *365
= (200000+240000)/2 *365
1100000
= 73 days
Net operating cycle = 64+19+61+32-73
=103 days
4. (b) do yourself.
6. (a) Avg Rate of Return = Avg income / avg. investment *100
Avg income = cash flow – dep – tax
Machine X
Cash outflow =7000+6000+12000 = 25000 p.a.
Cash inflow = 10000+90000 = 1,00,000 p.a.
Cash flow = 100000-25000 = 75000 p.a.
Dep =150000/5 = 30000 p.a.
Cash flow after Tax = (75000 -30000)* (1-.30) = 31500 p.a.
& dep.
ARR = 31500/150000 *100 = 21 %
Similarly for Machine Y
ARR = 42000/240000 *100 = 17.50 %
Therefore Machine X should be purchased.
(ii ) Present value Index method = PV of Cash Inflow
PV of cash outflow
Machine X
PV of cash inflow = 100000*3.79 + 30000*30% + 25000*30% = 395500
PV of Cash outflow = 150000 + 25000* 3.79 + 100000*30% = 274750
PI = 395500/274750 = 1.4394
Machine Y
PV of cash Inflow =135000*4.354 +40000*30% + 35000*30% =610290
PV of Cash Outflow = 240000+ 35000*4.354+135000*30% =432890
PI = 610290/432890 = 1.4098
Therefore on the basis of PI value Machine x is preferable.
(b)
Budget | Standard | Actual | |||||||
Mat | 10 kg | 10 | 100 | 48000 | 10 | 480000 | 50000 kg | 10.5 | 525000 |
lab | 6 hrs | 5.50 | 33 | 28800 | 5.50 | 158400 | 31000 hrs | 5 | 155000 |
Var o/h | 6 hrs | 10 | 60 | 28800 | 10 | 288000 | 31000 hrs | 9.4516 | 293000 |
1 unit 4800 units 4800 units
Material cost variance = Standard cost - actual cost
= 480000-525000
= 45000 A
Labour Cost Variance = 158400-155000 = 3400 F
Variable oh variance = 288000-293000 = 5000 A
Fixed overhead cost variance = Recovered – actual
= (450000/30000)*(4800*6) – 470000
= Rs. 38000 A
Your Suggestion, Critics and arguments are pleasurely Welcomed.
Sincere efforts have been made to avoid any mistake , but if You
found any such one then that is deeply regretted.
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