Particulars P Q (a) Production / Sales Quantity (units) 1,00,000 50,000. (b) Batch Size (units) 1, (c) No. of Batches (a b)

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1 FINAL CA NOV 2018 SUB: COSTING Topics: Simulation, CPM & PERT, Activity Based Costing, Budgetary Control, Life Cycle Costing, Standard Costing, Integral & Non- Integral Accounts. Test Code CF7 Branch (MULTIPLE) (Date : ) (50 Marks) compulsory. Note: All questions are Question 1 (12 marks) Working Notes Particulars P Q (a) Production / Sales Quantity (units) 1,00,000 50,000 (b) Batch Size (units) 1, (c) No. of Batches (a b) (d) Setup Time per Batch (hours) Total Setup Hours (hours) (c 3,000 3,600 (e) (f) Machine Setup Cost Rs. 4,62,000 d) (g) Cost Driver per Machine Setup Hour Rs.4,62,000 / 6,600 hrs = Rs.70 = (h) Testing Time per Unit (hours) 5 9 (i) Total Testing Time (hours) (a (j) Testing Cost Rs.23,75,000 h) 5,00,000 4,50,000 (k) Cost Driver per Testing Hour = Rs.23,75,000 / 9,50,000 hrs = Rs.2.50

2 (i) Statement Showing Cost per unit- Activity Based Costing Particulars of Costs Basis P Q Direct Material Direct 42,00,000 30,00,000 Direct Labour Direct 15,00,000 10,00,000 Direct Machine Cost Direct 7,00,000 5,50,000 Machine Setup Cost 3,000 Rs.70 2,10, ,600 Rs ,52,000 Testing Cost 5,00,000 Rs ,50, ,50,000 Rs ,25,000 Engineering Cost Allocated 8,40,000 14,10,000 Total Cost (Rs.) 87,00,000 73,37,000 Cost per unit (Rs.) (ii) Statement Showing Mark-up (full cost basis)- Product P Particulars Per unit Selling Price Less: Full Cost Markup Percentage of Markup on Full cost ( / * 100) 15% (iii) Statement Showing Target Cost of Product P (After New Design is Implemented) Particulars (Rs.) Target Price (given) Mark-up (86.25 / * 15) 11.25

3 Target Cost per unit (iv) Statement Showing Cost of P (New Design) Particulars of Costs Basis of Costs Rate* Total Cost Direct Material Decrease by Rs. 5 p.u ,00,000 Direct Labour Decrease by Rs. 2 p.u ,00,000 Direct Machining No Change as Machine is ,00,000 Machine Setup Cost 100 Setup 28 hrs. Rs ,96,000 Testing Cost 1,00,000 units Rs hrs ,00,000 Engineering Cost No Change ,40,000 Total Cost ,36,000 * Rate per unit The target cost is Rs. 75 p.u. and estimated cost (new design) is Rs p.u. The new design does not achieve the target cost set by NEC Ltd. Hence the target mark up shall not be achieved. (v) Possible Management Action Value engineering and value analysis to reduce the direct material costs. Time and motion study in order to redefine the direct labour time and related costs. Exploring possibility of cost reduction in direct machining cost by using appropriate techniques. Identification of non-value added activities and eliminating them in order to reduce overheads. The expected selling price based on estimated cost of Rs per unit is (Rs %) Rs Introduce sensitivity analysis after implementation of new design to study the sales quantity changes in the price range of Rs to Rs Question 2 (8 marks) Time to Deal with Clients

4 Time Probability Cumulative Probability Assigned Numbers Time between Arrivals Time Probability Cumulative Probability Assigned Numbers Client Time Between Arrivals Simulation Table for Time between Arrivals and Service Time Arrival Time Time In Serving Time Time Out Waiting Time Voucher Yes Yes Total Clients in a Week of 75Hours = 433 (75 hours 60 minutes /10.4# minutes) # Average Time between Arrivals = 10.4 minutes ( )

5 2 out of the 12 clients receive Rs.15 voucher. So the Cost will be Rs.1, or Rs.1,083 [(2/12 433) Rs.15]. * Taking Cycle Time as 148 minutes, Voucher Cost can be computed as follows: Rs.15 per Client [(75 hours 60 minutes /148 minutes) No. of Cycles 2 Clients per Cycle Time] So, Voucher Cost will be Rs Question 3 (10 marks) (i) The network for the given problem: (ii) The Expected Time and Variance for each of the activities:

6 Activity Time Estimates (Weeks) Expected Time Variance Optimist. (to) Most Likely (tm) Pessimistic (tp) te = to + 4tm + tp/6 S t 2 = (tp to /6) 2 (1 2) (1 3) 20/6 (2 4) 40/6 16/36 (2 5) 16/36 35/6 49/36 (3 8) 52/6 35/6 25/36 35/6 49/36 31/6 25/36 17/6 9/36 47/6 49/36 29/6 25/36 Expected Project Length (Te) = 148 6

7 Or = Variance of the Critical Path B F K L (σ 2 ) = / /36 Or = Standard Deviation of the Critical Path (σe ) = 146 / 36 Or = (iii) Expected Time if the project to be completed with 99% chance: Probability of Completing the Project by Schedule Time Ts is given by Z = Ts Te σe Z Ts Ts Or Ts = Hence, expected time of completing the project with 99% of chances is (iv) Total Slack for activities of above network are given in the table below: Activity Duration EST EFT LST LFT Total Slack A (1 2) Dij Ei Ei + Dij Lj Dij Lj LST EST /6 27/6 15/6 B (1 3) 20/6 0 20/6 0 20/6 0 C (2 4) 40/6 2 52/6 27/6 67/6 15/6 D (2 5) /6 67/6 25/6 E (3 6) 35/6 20/6 55/6 32/6 67/6 2

8 F (3 8) 52/6 20/ / Dummy (4 5) 0 52/6 52/6 67/6 67/6 15/6 G (5 7) 35/6 52/6 87/6 67/ /6 H (6 7) 35/6 55/ / I (5 10) 31/6 52/6 83/6 117/6 148/6 65/6 J (7 9) 17/6 107/6 119/ K (8 9) 47/ / /6 0 L (9 10) 29/6 119/6 148/6 119/6 148/6 0 Question 4 (4 marks) Computation of Variances Efficiency Variance = Cost Impact of undertaking activities more/ less than standard = (21 deliveries* 19 deliveries) `200 = `400 F (*) 20 Deliveries 2,100 units 2,000 units. Expenditure Variance = Cost impact of paying more/ less than standard for actual activities undertaken = 19 deliveries `200 `3,900 = `100 (A) Question 5 (7 marks) Impact on Variances Sl. No. Independent Situations Impact on Variances (i) More units were produced than was Favourable Fixed Overhead budgeted. Volume (ii) Careless handling of materials by Adverse Material Usage

9 production personnel (iii) The purchase of inferior quality material Adverse Material Usage Favourable Material Price (iv) New competition entered the market. Adverse Sales Price (v) New suppliers were used. Adverse Material Price (vi) New production staff were recruited. Adverse Labour Efficiency (vii) Market share has fallen from 20% to 18% Adverse Market Share Variance Question 6 (5 marks) Analysis of WIP Account November December Opening WIP 36,000 55,100 Add: Direct Materials Usage 50,000 56,000 Add: Direct Labor 53,100 69,000 Add: Variable Overhead 25,000 29,000 Total Inflow into WIP 1,64,100 2,09,100 Less: Variable Cost of Goods Manufactured 1,09,000 1,14,800 Ending WIP 55,100 94,300 Analysis of Finished Goods Inventory Account November December Opening Finished Goods 44,000 30,000 Add: Cost of Goods Manufactured 1,09,000 1,14,800 Cost of Goods Available for Sale 1,53,000 1,44,800 Less: Cost of Goods Sold 1,23,000 99,800 Ending Finished Goods Inventory 30,000 45,000

10 Question 7 (4 marks) Phases in Life Cycle of a Product- Phase Introduction Characteristics Product is launched. Profits are almost nonexistent. Competition is almost negligible. Growth Maturity Sales/ Profits rise rapidly. Competition enters. Sales increases but at a declining rate. Some firms extend their product lines with new models. Saturation and Decline Drop in sales volume, need for product demand disappears. Better and cheaper substitutes are available in the market. ************* 10 P a g e