Solved Scanner Appendix CA Final Gr. II Paper - 5 (Solution of November - 2015) Paper - 5 : Advance Management Accounting Chapter - 1 : Developments in the Business Environment 2015 - Nov [1] {C} (b) Costs PC AC IFC EFC Q. Nos. (iv) (iii) (i) (viii) (v) (vi) (ii) (x) 2015 - Nov [2] (a) Comparative cost statement (vii) Particulars Constant JIT Variable Cost Period - 1 5,25,000 2,85,000 (ix) (17,500 30) (9,500 30) Period - 2 5,25,000 5,10,000 (17,500 30) (17,000 30) Period - 3 5,68,750 6,06,125 (17,500 32.50) (18,500 32.50) + (500 9.75) Period - 4 6,12,500 9,48,500 (17,500 35) (25,000 35) + (7,000 10.50) 1
Solved Scanner Appendix CA Final Gr. II Paper - 5 2 Inventory Holding Cost Average Inventory P1 = = 4,000 26,000 27,625 P2 = = 4,250 24,375 P3 = = 3,750 P4 = = 0 0 Total Cost 23,09,250 23,49,625 (i) (ii) Incremental Production Cost 23,49,625 23,09,250 = 40,375 Savings in Inventory Holding Cost = 26,000 + 27,625 + 24,375 = 78,000 Company should go for constant rate of 17,500 units of production as total cost is lower in this method. 2015 - Nov [6] (a) (i) Calculation of units and production run to break even: Current situation: Total units produced = 960 x 42 = 40,320 units Calculation of Contribution in current situation: Sales = 40,320 x 10 = 4,03,200 (-) Cost = 40,320 x 5 = (2,01,600) (-) Set up Cost = 42 x 450 = (18,900) (-) Engineering Cost = 500 x 10 = (5,000) Contribution 1,77,700 Contribution P.U. = = 44,072
Solved Scanner Appendix CA Final Gr. II Paper - 5 3 Proposed changed: Production Run = = 40 runs Revised Contribution = 1,77,700 + 4,220(422 x 10) + (40 x 360) = 1,96,320 Number of units = 1,96,320 5 = 39,264 units (i) Units to breakeven = 39,264 units Production Run = = 39 runs (ii) Yes, X Ltd. should break even the fixed cost into activity based costs, as there is change in fixed costs in both the scenario i.e. 96,000 in current situation, whereas 72,100 in proposed change. 2015 - Nov [7] (e) (i) Statement is valid. Reason: Target costing has been described as a process, that occurs in a competitive environment. It means in competitive environment, target costing is applicable, in monopoly market, target costing is not applicable. (ii) Statement is Invalid. Reason: Target costing will minimize non value added activities. But it is incorrect to say that target costing ignores non value added activities. Chapter - 2 : Cost Concepts, CVP Analysis and Decision Making 2015 - Nov [1] {C} (a), (d) (a) (i) Calculation of Cost Indifference Point Particulars Alternative-A Alternative-B Alternative-C (a) Difference in Fixed Cost (b) D if f e r e n c e i n variable cost p.u. Cost indifference point (a/b) A & B A & C B & C 6,000 (9,000 3,000) 20 (48 28) 300 cases 22,000 (25,000 3,000) 40 (48 8) 550 cases 16,000 (25,000 9,000) 20 (28 8) 800 cases
Solved Scanner Appendix CA Final Gr. II Paper - 5 4 Interpretation of Results No. of Cases Cases 300 Cases 300 x 800 Alternative Alternative A Alternative B Cases 800 Alternative C (d) (i) Calculation of Profitability Statement Particulars Customers A Customers B Sales 18,90,000 27,00,000 [5,400 350] [5,400 500] Less: Discount 5% (94,500) (1,35,000) Cost of production (4,420 p.u.) (15,47,000) (22,10,000) Order processing cost (10,000) (20,000) (2000 per order) Delivery cost (17,500) (3500 per delivery) Less: Further Discount @ 8% [5,400 8% 500] (2,16,000) Net profit 2,21,000 1,19,000 No. of Units 350 500 Profit per unit 631.43 238 (ii) Comment: Company is achieving lower profit per unit by giving further discount 8% as discount policy. 2015 - Nov [7] (a), (d) (a) Decision to manufacture a product or not Calculation of Product cost per unit ` (p.u.) Manufacturing Cost 16 Research and development cost - [ It is sunk cost, not relevant] Promotion and capacity cost - [ It is sunk cost, not relevant]
Solved Scanner Appendix CA Final Gr. II Paper - 5 5 End of life cost [If product starts to manufacture, this cost is to be incurred, hence relevant] = 1.75 1.75 (d) Total Product Cost p.u. 17.7500 + Mark up 25% targeted on cost= 4.4375 Target selling price p.u. 22.1875 A product can be sold at ` 25 per unit, which is more than target selling price p.u. Decision: Product should be manufactured. I Sl. No. (i) (ii) (iii) (iv) IV Condition under which the classification happens If variable cost is already incurred than variable cost per unit is irrelevant. Unavoidable fixed costs is relevant when company reaches to shut down point, and procedure of shut down is under process. Out of pocket costs in future is relevant if proposal for which it is incurred is accepted. Sunk cost is irrelevant if it is incurred in past, means if it is already incurred. Chapter - 3 : Pricing Decisions 2015 - Nov [5] (b) Cost plus method: As here 25% mark up on full budgeted cost is to be computed, calculation is done as under: Variable Cost = 2,00,000 x 32 = 64,00,000 Fixed Cost 16,00,000 80,00,000 + Mark up 25% 20,00,000 1,00,00,000 Total contribution = 20,00,000 + 16,00,000 = 36,00,000
Solved Scanner Appendix CA Final Gr. II Paper - 5 6 Market Research Particulars 44 48 50 56 60 Variable Cost p.u. 32 32 32 32 32 Contribution p.u. 12 16 18 24 28 Units 1,68,000 1,52,000 1,40,000 1,28,000 1,08,000 Total contribution 20,16,000 24,32,000 25,20,000 30,72,000 30,24,000 Decision: Best course of action is 25% mark up on cost as budgeted contribution is higher. 2015 - Nov [7] (b) (i) Skimming or penetration pricing strategy. (ii) Variable cost pricing or cost plus pricing policy is well suitable. (iii) Skimming pricing method is suitable. (iv) Skimming pricing method is suitable as technological advanced car in highly priced segment is launched. Chapter - 4 : Budget and Budgetary Control 2015 - Nov [4] (a) (i) Production Budget: (Units) Particulars RB RD Projected sales 75,000 50,000 Add: Closing Stock 31,250 11,250 Less: Opening Stock (25,000) (10,000) Production Budgeted 81,250 51,250 (ii) Direct Material Purchase Budget (K.g.) Particulars A B C Requirement for Production RB 4,06,250 2,03,125 0 (81,250 5) (81,250 2.50) (81,250 0) RD 2,56,250 1,53,750 51,250
Solved Scanner Appendix CA Final Gr. II Paper - 5 7 (51,250 5) (51,250 3) (51,250 1) 6,62,500 3,56,875 51,250 Add: Closing Stock 45,000 40,000 8,750 Less: Opening Stock (40,000) (36,250) (7,500) Budgeted Purchase 6,67,500 3,60,625 52,500 (iii) Calculation of Principal Budgeted Factor: Production and Labour Hours: RB 75,000-25,000 = 50,000 4 = 2,00,000 Hours RD 50,000-10,000 = 40,000 6 = 2,40,000 Hours Total 4,40,000 Labour Hours Available 6,00,000 Means Labour Hours are not principal budget factor. Raw Material: A B C RB 50,000 2,50,000 1,25,000 0 RD 40,000 2,00,000 1,20,000 40,000 4,50,000 2,45,000 40,000 Add: Closing Inventory 45,000 40,000 8,750 Less: Opening Inventory (40,000) (36,750) (7,500) Budget 4,55,000 2,48,250 41,250 Principal Budget Factor is Material A 2015 - Nov [7] (c) Steps involved in the process of Zero Based Budgeting: (i) Determination of set of objects is the pre-requisite and essential step in the direction os ZBB technique. (ii) Deciding about the extent to which the technique of ZBB is to be applied weather in all areas of organisation activities or only in few selected areas on trial basis. (iii) Identify the areas where decisions are required to be taken. (iv) Developing decision packages and ranking them in order of performance.
Solved Scanner Appendix CA Final Gr. II Paper - 5 8 (v) Preparation of budget that is translating decision packages into practicable units/items and allocating financial resources. ZBB is simply an extension of the cost, benefit analysis method to the area of corporate planning and budgeting. Chapter - 5 : Standard Costing 2015 - Nov [3] (a) (i) Direct labour rate variance = Standard cost for Actual Hours Actual Cost = (SR AH) Actual Cost = (8 3,00,000) 24,42,000 = 24,00,000 24,42,000 = 42,000 (A) (ii) Direct labour efficiency variance = Standard cost of standard time for Actual production Standard cost for Actual time = (SH SR) (AH SR) = (52,000 6) 8) (3,00,000 8) = 24,96,000 24,00,000 = 96,000 (F) (iii) (iv) Sales volume variance = Standard sales Budgeted sales = BP AQ BP BQ = (AQ BQ) BP = (51,200 50,000) 120 = 1,44,000 (F) Sales price variance = Actual Qty. (AP BP) = 51,200 (v) = 10,240 (A) Labour are more efficient than standard or budgeted calculation. But labour cost are more then budgeted or standard.
Solved Scanner Appendix CA Final Gr. II Paper - 5 9 Chapter - 7 : Transfer Pricing 2015 - Nov [5] (a) (i) Contribution net of specific fixed cost Calculation of contribution per unit of key factor i.e. Labour Hours Particulars P Q R S Market Price p.u. 70 69 56 46 Variable Cost p.u. 66 59 36 37 Contribution p.u. 4 10 20 9 Units 30,000 31,000 28,000 18,000 Labour Hours p.u. 3 2 2 3 Contribution p.u. per Labour Hour 1.33 5 10 3 Ranking IV II I III Optimal Product Mix - Labour Hours = 1,92,000 Product Units Labour Hour P.U. Total Labour Hour Labour Hour Remain R 28000 2 56000 136000 Q 31000 2 62000 74000 S 18000 3 54000 20000 P 6666(%) 3 20000 (i) Contribution net of specific fixed cost: P - 6,666 x 4 = 26,664 Q - 31,000 x 10 = 3,10,000 R - 28,000 x 20 = 5,60,000 S - 18,000 x 9 = 1,62,000 10,58,664 Less: Specific fixed cost: P - = (1,667) Q - = (39,060)
Solved Scanner Appendix CA Final Gr. II Paper - 5 10 R - = (42,000) S - = (32,400) Contribution 9,43,537 Assumption: It is assumed that specific fixed cost are divisible based on units produced. (ii) Division A should transfer product P to Division B : Units = 30,000-6,666 = 23,334 Price = Variable Cost + Specific Fixed Cost [ Assumed to be divisible] = = 66.25/ Unit (iii) Transfer of 20,000 units of S to B : If Division A wants to transfer 20,000 units, of S to B then product mix will be: P = 4,666 Units Q = 31,000 Units R = 28,000 Units S = 20,000 Units As for production of additional 2,000 units of S 2,000 units of P has to be foregone. Contribution net of fixed cost: P = 4,666 x 4 = 18,664 Q = 31,000 x 10 = 3,10,000 R = 28,000 x 20 = 5,60,000 S = 20,000 x 8 (45-37) = 1,60,000 10,48,664 (-) Specific fixed cost: P = = (1,166) Q = = (39,060)
Solved Scanner Appendix CA Final Gr. II Paper - 5 11 R = = (42,000) S = = (36,000) Total Contribution = (9,30,438) Decision: It is not advisable to transfer unit S to Division B Chapter - 10 : Linear Programming 2015 - Nov [4] (b) Calculation of Rate of Return Per Risk Factor Expected Return Risk Rating Per Risk Factor Return Stock L 15% 5 3% II Rank Stock M 18% 8 2.25% III Mutual Fund 13% 4 3.25% I Let x 1, x 2 and x 3 denote investment in stock L, stock M and mutual fund respectively. x 1 7,00,000 x 2 7,00,000 x 3 7,00,000 x 1 + x 2 + x 3 10,00,000 Average Risk Factor should not exceed 6 6 Z Function: = 0.15 x 1 + 0.18 x 2 + 0.13 x 3 Coefficients: x 1 7,00,000 x 2 7,00,000 x 3 7,00,000 x 1 + x 2 + x 3 10,00,000 0.15 x 1 + 0.18 x 2 + 0.13 x 3 0.12
Solved Scanner Appendix CA Final Gr. II Paper - 5 12 6 5x 1 + 8x 2 + 4x 3 6x 1 + 6x 2 + 6x 3 2x 2 - x 1 - x 3 0 Mr. X should invest 7,00,000 in mutual fund and 3,00,000 in stock L Return = = 13.60% which is more than 12% Risk = (0.7 4) + (0.3 5) = 4.30 which is less than 6 Chapter - 11: Transportation Problem 2015 - Nov [1] {C} (c) Profit Matrix Factories Sales Depots Supply S 1 S 2 S 3 F 1 6 6 1 10 F 2-2 -2-4 150 F 3 3 2 2 50 F 4 8 5 3 100 Dummy 0 0 0 40 Demand 80 120 150 350 Minimization Matrix Preparing minimization matrix by subtracting all elements from highest element.
Solved Scanner Appendix CA Final Gr. II Paper - 5 13 Factories Sales Depots S 1 S 2 S 3 10 Supply F 1 2 2 7 10/0 5 5 80 70 Difference F 2 10 10 12 150/80/0 2 2 2 2 2 F 3 5 6 6 50/0 1 1 0 0 50 70 30 F 4 0 3 5 100/30/0 5 5 2 40 Dummy 8 8 8 40/0 0 0 0 0 0 Demand 80/70/0 120/40/0 150/120 /70/0 350 Difference 2 2 4 2 2 4 2 2 4 Initial basic Feasible Solution Units Profit p. u. Profit F 1 S 2 10 6 60 F 2 S 2 80 2 160 F 2 S 3 70 4 280 F 3 S 3 50 2 100 F 4 S 1 70 8 560 F 4 S 3 30 3 90 Dummy S 2 40 0 0 350 370
Solved Scanner Appendix CA Final Gr. II Paper - 5 14 Chapter - 12: Assignment Problem 2015 - Nov [2] (b) R 1 0 C 1 C 2 C 3 C 4 R 2 0 R 3 0 0 0 R 4 0 0 (i) (ii) No. Students will not arrive at the optimal assignment, as from above solution all the zeros can be covered by only three lines. As here no. of matrix no. of lines. This is not optimum solution. So, further calculation should be done by following the steps given for preparing new matrix table. From the given matrix keep figures as it is where only single line touches. Subtract lowest uncovered element from all the uncovered element and add the lowest uncovered element where the lines interacts. If R 2 C 2 is lesser than Row 1 and Row 2 non zero values, then for arriving at optimal solution, if no. of lines no. of matrix, then subtract this element from all uncovered element. Add this element where the line interacts, and keep as it is all the elements where lien covers the elements singly. Do this process until we get No. of lines = No. of Matrix.
Solved Scanner Appendix CA Final Gr. II Paper - 5 15 Chapter - 14: Programme Evaluation and Review Technique 2015 - Nov [3] (b) Normal Duration (i) (ii) Normal project duration is 20 days. Crashing Step - 1 Critical path is 1 3 4 5 In critical path 3 4 have minimum cost slope we can reduce or crash activity 3 4 by 4 days with cost 60. Step - 2 Various path after step - 1 1 3 4 5 = 16 days 1 2 4 5 = 16 days 1 4 5 = 16 days Crash 1 day from activity 4 5 by incurring cost 40 Step - 3 New critical path with duration 1 3 4 5 = 15 days 1 2 4 5 = 15 days 1 4 5 = 16 days Now reduce 1 day from path 1 4 5 from activity 1 4 with cost 30. We get path with duration 15 days. (iii) Independent of (ii)
Solved Scanner Appendix CA Final Gr. II Paper - 5 16 Highest saving per day in 4 5 = 40 1 = 40 Next highest savings per day in 1 4 = 30 4 = 120 160 Total saving = 160 Days = 5 Chapter - 15 : Simulation 2015 - Nov [6] (b) (i) Simulation Table R. No. of Arrival of Patient Patient Punctuality Patient Arrival R. No. of Consultation Time Consultation Time Consult Start Consult End Patient waiting 15 2 min early 9:58 17 18 min. 10:00 10:18 2 min. - 4 3 min early 10:17 15 18 min. 10:18 10:36 1 min. - Diet Idle Time 35 1 min early 10:39 12 15 min. 10:39 10:54-3 min. 67 on time 11:00 58 25 min. 11:00 11:25-6 min. 75 on time 11:20 60 25 min. 11:25 11:50 5 min. - 86 on time 11:40 72 25 min. 11:50 12:15 10 min. - 25 1 min early 11:59 30 20 min. 12:15 12:35 16 min. - Total Patient waiting = 34 minutes Total Dietician Idle time = 9 minutes (ii) If clients are sensitive to waiting. As a Management Account, it is advisable to Dietician that, dietician should give appointment to the patient with interval of more than 20 minutes, advisable that client should give appointment with interval of 35 minutes, as by this exercise patients waiting time is no longer in existence. Shuchita Prakashan (P) Ltd. 25/19, L.I.C. Colony, Tagore Town, Allahabad - 211002 Visit us: www.shuchita.com