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Suggested answers of AMA (CA Final) for May 2016 Exam

Vikas Kumar 
on 06 June 2016

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Question

Chapter

Level of Question

1(a)

Target Costing

5

A

1(b)

Total Quality Management

5

B

1(c)

Service Sector Costing

5

B

1(d)

Transportation

5

B

2(a)

Total Quality Management

8

C

2(b)

Pricing

8

A

3(a)

Transfer Pricing

8

A

3(b)

Budgeting

8

B

4(a)

Standard Costing

8

B

4(b)

Network Analysis

8

B

5(a)

Learning Curve + Life Cycle + Pricing

8

B

5(b)

Relevant Cost

8

A

6(a)

Marginal Costing

8

B

6(b)

LPP – Graphical Method

8

B

7(a)

Assignment

8

C

7(b)

Performance Measurement

4

C

7(c)

Simulation

4

B

7(d)

ABC Costing

4

B

7(e)

Pricing

4

C

 

A denotes innovative question
B denotes concept based question
C denotes average question

Q 1(a):

5 Marks

UK Ltd prepared a Draft Budget for the next year as follows:

Quantity

10,000 units

Rs.

Selling Price per Unit

60

Variable Cost per Unit

–   Direct Materials

16

–   Direct Labour (2 hours ×Rs. 6)

12

–   Variable Overheads (2 hrsRs. 1)

2

Contribution per Unit

30

Total Budgeted Contribution

3,00,000

Less: Total Budgeted Fixed Overheads

2,80,000

Total Budgeted Profit

20,000

The Board of Directors are not satisfied with this Draft Budget and suggested the following changes for the better profit:

(i) The Budgeted Profit is Rs. 50,000,

(ii) The Company should spend Rs. 57,000 on advertisement and the Target Sales Price up to Rs. 64 per unit.

(iii) It is expected that the Sales Volume will also rise, inspite of the price rise, to 12,000 units.

In order to achieve the extra Production Capacity, however, the work force must be able to reduce the time taken to make each unit of the product. It is proposed to offer a pay and productivity deal in which the wages rate per hour is increased to Rs. 8. The hourly rate for Variable Overheads will be unaffected.

You are required to calculate the target labour time require to achieve the Target Profit.

Ans. 1(a)

1.  Target Contribution Per Unit =

Fixed Cost + Target Profit

=

(2,80,000 + 57,000) + 50,000

= Rs. 32.25 PerUnit

Sale Quantity

12,000 Units

2.  Target Variable Cost Per Unit = New sale Price – Target Contribution pu = Rs. 64 – Rs. 32.25 = Rs. 31.75 Per Unit

3.  Direct Materials + Direct Labour + VOH = Rs. 16+ (H × Rs. 8) + (H × Rs. 1) = Rs. 31.75

Solving, we have 9H = 15.75. So, H = 15.75 / 9 = 1.75 Hours

Q 1(b): 5 Marks Supreme Prakashan Ltd is in the business of publishing a leading newspaper which has a wide customer base. It measures quality of service in terms of –

(i)  Print Quantity

(ii) On time Delivery

(iii) Number of Damaged and Unsold Paper

To improve its business prospects and performance, the Company is considering installing a scheduling and tracking system which involve an annual additional cost of Rs. 3,00,000, beside Equipments costing Rs. 4,00,000 needed for the installation of System.

To purchase the Equipment, the Company is planning to utilize the proceeds of an Investment fetching an Annual Income of 9%. Details, regarding the present and future performance are given as under:–

 

Present

Expected

On–Time Delivery

85%

97%

Variable Cost per lot of Newspaper Damaged and Unsold

Rs. 40

Rs. 40

Fixed Cost

Rs. 50,000

Rs. 50,000

No. of lots of Newspaper Damaged and Unsold

6,000

1,000

It is expected that each percentage increase in on time performance will result in Revenue Increase of Rs. 36,000 per annum. Required Contribution Margin is 40%.Should Supreme Prakashan Ltd install the New System?

Ans. 1(b)Statement of Decision For New System

Relevant Costs

Rs.

Relevant Benefits

Rs.

Annual Costs of new system (given)

3,00,000

Contribution Earned (Rs. 36,000 × 12 times × 40%)

1,72,800

Income lost on Capital Investment (Rs. 4,00,000¯9%)

36,000

Savings in Variable Costs:

Fixed Costs (Apportionment, and not relevant)

Nil

(6,000 – 1,000) × Rs. 40

2,00,000

Net Benefit (balancing figure)

36,800

Total

3,72,800

Total

3,72,800

Decision: The new system may be implemented.

Courtesy: CA Vikas Kumar

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Click here to view the full article / suggested answers 

Click here to enrol Advanced Management Accounting subject of the author


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