Management Accounting ( 1

st
half Morning)
Answer any 2 questions in 1.5 hours Full marks 50
Show the workings as a part of your answer


1A. State the objective of budget preparation. Marks: 5

1B. Sahara Airlines is a small air freight company based in Mumbai and operating throughout Western
India. The company has 4 aircraft of different types, namely 1 type A & 2 type B & 1 type C
Whose operating costs and load carrying capacities are as follows:
Aircraft Fixed cost Variable cost ( ) Capacity
Type ( per day) per mile per ton (tons)
A 80,000 600 3,000 10
B 70,000 400 3,500 8
C 50,000 1.000 2,500 7
On one particular day, there are 4 loads to be delivered to various destinations, the size of load and
distances being:
Load 1 2 3 4
Size in tons 9 7 8 6
Distance (miles) 420 500 520 480
The distances given above are direct from the companys base in Mumbai and to the location
involved and in each case there is no return load so that the aircraft will fly back empty. loads
cannot be divided up and delivered in parts. Fixed cost will be incurred in case of journey only.
Find the best assignment. Marks: 9

1C. Mahila Griha Udyog Industries is considering to supply its products a special range of namkeens
to a department store. The contract will last for 50 weeks, and the details are given below :

Material : Rs.
X (in stock at original cost) 1,50,000
Y (on order on contract) 1,80,000
Z (to be ordered) 3,00,000

Labour :
Skilled 5,40,000
Non-skilled 3,00,000
Supervisory 1,00,000
General overheads 10,80,000
Total cost 26,50,000
Price offered by department store 18,00,000
Net Loss 8,50,000

Should the contract be accepted if the following additional information is considered ?
(.i) Material X is an obsolete material. It can only be used on another product, the material for
which is available at Rs.1,35,000 (Material X requires some adaptation to be used and costs
Rs.27,000).
(ii) Material Y is ordered for some other product which is no longer required. It now has a
residual value of Rs.2,10,000.
(iii) Skilled labour can work on other contracts which are presently operated by semi-skilled
labour at a cost of Rs.5,70,000.
(iv) Non-skilled labour are specifically employed for this contract.
(v) Supervisory staff will remain whether or not the contract is accepted. Only two of them can
replace other positions where the salary is Rs.35,000.
(vi) Overheads are charged at 200% of skilled labour. Only Rs.1,25,000 would be avoidable, if
the contract is not accepted. Marks: 11
2A. A small project is having seven activities. The relevant data about these activities is given below

Activity Dependence Normal Crash Normal Crash
Duration duration cost cost
(Days) (days) ( ) ( )
A -- 7 5 500 900
B A 4 2 400 600
C A 5 5 500 500
D A 6 4 800 1,000
E B, C 7 4 700 1,000
F C, D 5 2 800 1,400
G E, F 6 4 800 1,600
(i) Find the optimum duration and the minimum duration, If indirect cost is 350 per day.
(ii) What is the percentage decrease in cost to complete the project in 20 days ?
Marks: 7+3=10


2B. Maruti Ltd. produces a single product. The selling price of the product is 150 per unit. The
following are the result obtained by the company during the last two quarters:

Quarter 1 Quarter 2

Sales units 5,100 4,800
Production units 5,500 4,500

Direct materials A 1,21,000 99,000
B 55,000 45,000
Manufacturing wages 1,56,750 1,38,000
Factory overheads 86,000 83,000
Selling overheads 1,79,000 1,73,000

The company estimates its sales for the next quarter to range between 5,500 units and 6,500 units,
the most likely volume being 6,000 units. The manufacturing programme will match with the sales
quantity such that no increase in inventory of finished goods is contemplated in the next quarter. The
following price and cost changes will, however, apply to the next quarter:
- The price of direct material A & B will increase by 10% 12% respectively. .
- The wage costs will go up by 8%. If the production volume increases beyond 5,500 units,
overtime premium of 50% is payable on the increased volume due to overtime working to be
done by the variable labour complement.

- The fixed factory and selling expenses will increase by 25% and 35% respectively.

- A discount in the selling price of 3% is allowed on all sales made at 6,500 units level of output.
The selling price, however, will remain unaltered, if the volume of output is below 6,500 units.

While operating at a volume of output of 6,500 units in the next quarter, the company intends to quote
for an additional volume of 2,800 units to be supplied to a government department for its consumption.
For this a special machine has to be taken on basis of one time rent of Rs. 45,000. The working capital
requirement of this order is estimated at 70% of the sales value of the government order. The company
desires a return of 25% on the capital employed in respect of this order.

(i) Prepare a flexible budget for the next quarter at 5,500, 6,000 and 6,500 unit levels and
determine the profit at the respective volumes.
(ii) Calculate the lowest price p.u. to be quoted in respect of the govt. Order. Marks: 7+4=11


2C. Explain the concept of Loss Leader pricing. Marks: 4



3A. The summarized profit and loss statement for Exewye plc for the last year is as follows:

(Rs. 000) (Rs. 000)
Sales (50,000 units) 1,000
Direct materials 350
Direct wages 200
Fixed production overhead 200
Variable production overhead 50
Administration overhead 180
Selling and distribution overhead 120 1,100
Profit / (loss) (100)

At a recent board meeting the directors discussed the years results, following which the chairman
asked for suggestions to improve the situation. You are required as management accountant, to
evaluate the following alternative proposals and to comment briefly on each:

(a) Pay salesmen a commission of 10% of sales and thus increase sales to achieve break even
point.

(b) Reduce selling price 10%, which it is estimated would increase sales volume by 30%

(c) Increase direct wage rates from Rs. 4 to Rs. 5 per hour, as part of a productivity/ pay deal. It is
hoped that this would increase production and sales by 20%, but advertising costs would
increase by Rs. 50,000.

(d) Increase sales by additional advertising of Rs. 3,00,000, with an increased selling price of 20%,
setting a profit margin of 10%. Marks: 4 x 2 = 8


3B. Distinguish between Marginal costing & absorption costing. Marks: 5


3C. A company manufactures three products from an intermediate produced in its own plant . The
downstream units at full capacity operations require one lakh kilos of intermediate . However , in
view of certain constraints , this output would be affected by 25%. Intermediate is charged to user
divisions at Rs. 10 per kilo inclusive of its variable cost of Rs. 8 per kg.
Following particulars are furnished :

Downstream Units A B C
Capacity (kgs.) 60,000 40,000 20,000
Intermediate required (kgs.) 66,000 20,000 14,000
Variable cost (Rs./kg.) 14 8 9
Fixed cost ( ) 3 5 3
Profit ( ) 3 2 4
Total Price ( ) 20 15 16

Constraints would prevail throughout the year and no other arrangement is possible to meet
shortage. Company had an opening stock of 7,500 kgs. and minimum stock of 3,500 kgs. has to be
maintained in any case in the Downstream div. For economic reason, the Downstream plants have
to be operated at a minimum of 70% capacity .

Required to calculate the most profitable mix & total profit. Marks: 12