FM11
FINANCIAL AND MANAGEMENT ACCOUNTING
Assignment I
Assignment Code: 2012 FM11 B1 Last Date of Submission: 15th October 2012
Maximum Marks: 100
Attempt all the questions. All questions carry equal marks.
Section A
1. (I) What is the purpose of the statement of changes in financial position?
(II) What is the relationship of the assets turnover rate to the rate of return on total assets?
2. (I) What portion of profit on uncompleted contracts is transferred to the profit and loss account. Explain for different situations.
(II) Why is reconciliation of cost and financial accounts necessary? State the possible reasons for difference in profits shown by both accounts.
3. A chemical process yields the following products out of materials introduced in the process:
% of Material
Main Product—A 60
By-product—B 15
By-product—C 20
Wastage 5
Following additional information has been given to you:
(i) Total cost incurred:
Input 1,000 units Rs. 4,600
Direct labour Rs. 4,100
Overheads Rs. 6,000
(ii) One unit of Product-C requires half the raw material required for one unit of Product-B; one unit of Product-A requires one and half times the raw material required for Product-B.
(iii) Product-A requires double the time needed for the production of one unit of Product-B and one unit of Product-C.
(iv) Product-C requires half the time required for production of one unit of Product-B.
(v) Overheads are to be absorbed in the ratio of 6:1:1.
You are required to calculate the total and per unit cost of each of the products.
4. You are given the following figures worked out from the profit and loss account and balance sheet of
Steadfast Ltd. relating to the year 2007-08. Prepare a balance sheet:
Fixed assets (net, after writing off 30%) Rs. 10,50,000/-
Fixed assets turnover ratio (cost of sales basis) 2
Finished goods turnover ratio 6
Rate of gross profit to sales 25%
Net profit (before interest) to sales 16%
Fixed charges cover (debenture interest 14%) 8
Debt collection period 1-1/2 months
Materials consumed to sales 30%
Stock of raw materials (in terms of number of months'
Consumption) 3
Current ratio 2.4
Quick ratio 1.0
Reserves to capital 0.21
Section B
5 Case Study
X Ltd has been offered a contract to manufacture six special machines for the Government. Manufacture would take a total of three years at the rate of two machines per year. Payment would be in two installments, Rs.3,50,000 at the start f manufacture and another Rs.3,50,000 upon completion.
The company is now evaluating the contract to see if it is worthwhile undertaking and its management accounting department has produced the following estimates about the resources required to produce the special machines:
(a) Materials:
Type of material Quantity per Amount in Original cost of. Current purchase Current realizable
M/c ton stock now stock per ton price per ton value per ton
Rs. Rs. Rs.
Copper 20 60 700 1000 800
Radium 10 20 500 750 See below
Copper is used regularly by the company on many contracts. Radium is used rarely and if the existing stock is not applied to this contract it will have to be disposed immediately at a net cost of Rs.100 per ton. Materials required for the contract must be purchased and paid for annually in advance. Replacement cost of copper and radium and the realizable value of copper are expected to increase at an annual compound rate of 20%.
(b) Labour:
Each of the six machines will require 3,000 hours of skilled electronic engineering and 5,000 hours of unskilled labour. Current wage rate are Rs.4 per hour for skilled electronic staff and Rs.3 per hour for unskilled labour.
X Ltd expects to suffer a shortage of skilled staff during the firs year so that acceptance of the contract would make it necessary for the firm to give up ‘other work’ on which a contribution of Rs. 7 per hour would be earned (the other work would require no unskilled labour.)
In the contract’s first year only, the company expects to have 20,000 surplus unskilled labour hours. the company has an agreement with the in-house trade union whereby it lays off employees for whom there is work and pays them two-thirds of their normal wages during the lay-off period. All wage rates are expected to increase at an annual compound rate of 15%.
(c) Overheads:
Overhead costs are currently allocated to contracts at a rate of Rs.14 per skilled labour hour calculated as follows:
Fixed overhead (including equipment depreciation of Rs.5) 11
Variable overhead 3
Special equipment will be required to undertake this contract and will be purchases at Rs.2,00,000/- payable immediately. It will be sold once the contract is completed for Rs.50,000/- both fixed and variable overheads are expected to increase in line with the Retail Price Index.
The special equipment will be financed with the first contract installment paid by Government.
The company believes that a return of 20% would be acceptable for the project. The Retail Price Index is expected to increase by 15% per year over the life of the contract.
All current prices will hold for the next 1 month, before increasing in line with inflation.
Therefore material cost for the second year’s production will be 20% higher than the current market prices.
Analyze and comment whether the project can be acceptable. Ignore Tax.
FINANCIAL AND MANAGEMENT ACCOUNTING
Assignment I
Assignment Code: 2012 FM11 B1 Last Date of Submission: 15th October 2012
Maximum Marks: 100
Attempt all the questions. All questions carry equal marks.
Section A
1. (I) What is the purpose of the statement of changes in financial position?
(II) What is the relationship of the assets turnover rate to the rate of return on total assets?
2. (I) What portion of profit on uncompleted contracts is transferred to the profit and loss account. Explain for different situations.
(II) Why is reconciliation of cost and financial accounts necessary? State the possible reasons for difference in profits shown by both accounts.
3. A chemical process yields the following products out of materials introduced in the process:
% of Material
Main Product—A 60
By-product—B 15
By-product—C 20
Wastage 5
Following additional information has been given to you:
(i) Total cost incurred:
Input 1,000 units Rs. 4,600
Direct labour Rs. 4,100
Overheads Rs. 6,000
(ii) One unit of Product-C requires half the raw material required for one unit of Product-B; one unit of Product-A requires one and half times the raw material required for Product-B.
(iii) Product-A requires double the time needed for the production of one unit of Product-B and one unit of Product-C.
(iv) Product-C requires half the time required for production of one unit of Product-B.
(v) Overheads are to be absorbed in the ratio of 6:1:1.
You are required to calculate the total and per unit cost of each of the products.
4. You are given the following figures worked out from the profit and loss account and balance sheet of
Steadfast Ltd. relating to the year 2007-08. Prepare a balance sheet:
Fixed assets (net, after writing off 30%) Rs. 10,50,000/-
Fixed assets turnover ratio (cost of sales basis) 2
Finished goods turnover ratio 6
Rate of gross profit to sales 25%
Net profit (before interest) to sales 16%
Fixed charges cover (debenture interest 14%) 8
Debt collection period 1-1/2 months
Materials consumed to sales 30%
Stock of raw materials (in terms of number of months'
Consumption) 3
Current ratio 2.4
Quick ratio 1.0
Reserves to capital 0.21
Section B
5 Case Study
X Ltd has been offered a contract to manufacture six special machines for the Government. Manufacture would take a total of three years at the rate of two machines per year. Payment would be in two installments, Rs.3,50,000 at the start f manufacture and another Rs.3,50,000 upon completion.
The company is now evaluating the contract to see if it is worthwhile undertaking and its management accounting department has produced the following estimates about the resources required to produce the special machines:
(a) Materials:
Type of material Quantity per Amount in Original cost of. Current purchase Current realizable
M/c ton stock now stock per ton price per ton value per ton
Rs. Rs. Rs.
Copper 20 60 700 1000 800
Radium 10 20 500 750 See below
Copper is used regularly by the company on many contracts. Radium is used rarely and if the existing stock is not applied to this contract it will have to be disposed immediately at a net cost of Rs.100 per ton. Materials required for the contract must be purchased and paid for annually in advance. Replacement cost of copper and radium and the realizable value of copper are expected to increase at an annual compound rate of 20%.
(b) Labour:
Each of the six machines will require 3,000 hours of skilled electronic engineering and 5,000 hours of unskilled labour. Current wage rate are Rs.4 per hour for skilled electronic staff and Rs.3 per hour for unskilled labour.
X Ltd expects to suffer a shortage of skilled staff during the firs year so that acceptance of the contract would make it necessary for the firm to give up ‘other work’ on which a contribution of Rs. 7 per hour would be earned (the other work would require no unskilled labour.)
In the contract’s first year only, the company expects to have 20,000 surplus unskilled labour hours. the company has an agreement with the in-house trade union whereby it lays off employees for whom there is work and pays them two-thirds of their normal wages during the lay-off period. All wage rates are expected to increase at an annual compound rate of 15%.
(c) Overheads:
Overhead costs are currently allocated to contracts at a rate of Rs.14 per skilled labour hour calculated as follows:
Fixed overhead (including equipment depreciation of Rs.5) 11
Variable overhead 3
Special equipment will be required to undertake this contract and will be purchases at Rs.2,00,000/- payable immediately. It will be sold once the contract is completed for Rs.50,000/- both fixed and variable overheads are expected to increase in line with the Retail Price Index.
The special equipment will be financed with the first contract installment paid by Government.
The company believes that a return of 20% would be acceptable for the project. The Retail Price Index is expected to increase by 15% per year over the life of the contract.
All current prices will hold for the next 1 month, before increasing in line with inflation.
Therefore material cost for the second year’s production will be 20% higher than the current market prices.
Analyze and comment whether the project can be acceptable. Ignore Tax.
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