Test Series: March 2018

MOCK TEST PAPER

INTERMEDIATE (IPC): GROUP – I
PAPER – 3: COST ACCOUNTING AND FINANCIAL MANAGEMENT
Answers are to be given only in English except in the case of the candidates who have opted for Hindi medium. If a
candidate has not opted for Hindi medium his/ her answers in Hindi will not be valued.
Question No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours Maximum Marks – 100

1. Answer the following:

(a) The following are the details in respect of Process A and Process B of a processing factory:
Process A (`) Process B (`)
Materials 40,000 --
Labour 40,000 56,000
Overheads 16,000 40,000
The output of Process A is transferred to Process B at a price calculated to give a profit of 20% on
the transfer price and the output of Process B is charged to finished stock at a profit of 25% on the
transfer price. The finished stock department realized ` 4,00,000 for the finished goods received
from Process B.
You are asked to show process accounts and total profit, assuming that there was no opening or
closing work-in-progress.
(b) Two workers ‘A’ and ‘B’ produce the same product using the same material. Their normal wage
rate is also the same. ‘A’ is paid bonus according to Rowan scheme while ‘B’ is paid bonus
according to Halsey scheme. The time allowed to make the product is 120 hours. ‘A’ takes 90
hours while ‘B’ takes 100 hours to complete the product. The factory overhead rate is ` 50 per
hour actually worked. The factory cost of product manufactured by ‘A’ is ` 80,200 and for product
manufactured by ‘B’ is ` 79,400.
Required:
(i) Compute the normal rate of wages.
(ii) Compute the material cost.
(iii) Prepare a statement comparing the factory cost of the product as made by two workers.
(c) What would be the amount of an investment of ` 50,000 after 3 years, if it is invested at an interest
rate of 12% p.a. when compounding is done as under:
(i) Annually
(ii) Semi-annually
(iii) Quarterly
(d) From the following details of X Ltd., prepare the Income Statement for the year ended 31 st
December, 2017:
Financial Leverage 2
Interest ` 5,000
1

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 Operating Leverage 3
Variable cost as a percentage of sales 75%
Income tax rate 30% (4 × 5 = 20 Marks)
2. (a) A store keeper has prepared the below list of items kept in the store of the factory.
Item Units Unit cost (`)
A 12,000 30.00
B 18,000 3.00
C 6,000 35.00
D 750 220.00
E 3,800 75.00
F 400 105.00
G 600 300.00
H 300 350.00
I 3,000 250.00
J 20,000 7.50
K 11,500 27.50
L 2,100 75.00
The store keeper requires your help to classify the items for prioritization. You are required to apply
ABC analysis to classify the store items as follows:
Store items which constitutes approx 70%, 20% and 10% of total value as A, B and C respectively.
(8 Marks)
(b) A bank is analysing the receivables of J Ltd. in order to identify acceptable collateral for a short -
term loan. The company’s credit policy is 2/10 net 30. The bank lends 80 percent on accounts
where customers are not currently overdue and where the average payment period does not
exceed 10 days past the net period. A schedule of J Ltd.’s receivables has been prepared. How
much will the bank lend on pledge of receivables, if the bank uses a 10 per cent allowance for cash
discount and returns?
Account Amount Days Outstanding Average Payment
no. (`) in days Period historically

74 25,000 15 20
91 9,000 45 60
107 11,500 22 24
108 2,300 9 10
114 18,000 50 45
116 29,000 16 10
123 14,000 27 48
1,08,800
(8 Marks)

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3 (a) R Limited is presently operating at 50% capacity and producing 60,000 units. The entire output is
sold at a price of ` 200 per unit. The cost structure at the 50% level of activity is as under:
(`)
Direct Material 75 per unit
Direct Wages 25 per unit
Variable Overheads 25 per unit
Direct Expenses 15 per unit
Factory Expenses (25% fixed) 20 per unit
Selling and Distribution Exp. (80% variable) 10 per unit
Office and Administrative Exp. (100% fixed) 5 per unit
The company anticipates that the variable costs will go up by 10% and fixed costs will go up by
15%.
You are required to prepare an Expense budget on the basis of marginal cost for the company at
50% and 60% level of activity and find out the profits at respective levels. (8 Marks)
(b) X Ltd. is considering selecting a machine out of two mutually exclusive machines. The company’s
cost of capital is 15 per cent and corporate tax rate is 30 per cent. Other information relating to
both machines are as follows:
Machine – I Machine – II
Cost of Machine ` 30,00,000 ` 40,00,000
Expected Life 10 years 10 years
Annual Income (Before Tax and ` 12,50,000 `17,50,000
Depreciation)
Depreciation is to be charged on straight line basis:
You are required to calculate:
(i) Discounted Pay Back Period
(ii) Net Present Value
(iii) Profitability Index
The present value factors of Re.1 @ 15% are as follows:
Year 1 2 3 4 5
PV factor @ 15% 0.870 0.756 0.658 0.572 0.497
(8 Marks)
4. (a) Following information have been extracted from the cost records of XYZ Pvt. Ltd.
Stores: (`)
Opening balance 1,08,000
Purchases 5,76,000
Transfer from WIP 2,88,000
Issue to WIP 5,76,000
Issue for repairs 72,000
Deficiency found in stock 21,600

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 Work-in-process: (`)
Opening balance 2,16,000
Direct wages applied 2,16,000
Overheads charged 8,64,000
Closing balance 1,44,000

Finished Production: (`)

Entire production is sold at a profit of 15% on cost of WIP
Wages paid 2,52,000
Overheads incurred 9,00,000
Draw the Stores Ledger Control Account, Work-in-Process Control Account, Overheads Control
Account and Costing Profit and Loss Account. (8 Marks)
(b) A Company earns a profit of ` 6,00,000 per annum after meeting its interest liability of ` 1,20,000
on 12% debentures. The tax rate is 50%. The number of equity shares of ` 10 each are 80,000
and the retained earnings amount to ` 18,00,000. The company proposes to take up an expansion
scheme for which a sum of ` 8,00,000 is required. It is anticipated that after expansion, the
company will be able to achieve the same return on investment as at present. The funds required
for expansion can be raised either through debt at the rate of 12% or by issuing equity shares at
par.
Required:
(i) Compute the Earnings per Share (EPS), if:
 The additional funds were raised as debt
 The additional funds were raised by issue of equity shares.
(ii) Advise the company as to which source of finance is preferable. (8 Marks)
5. (a) Discuss cost classification based on variability.
(b) Explain Single and Multiple Overhead Rates.
(c) Differentiate between Business risk and Financial risk.
(d) Explain the importance of trade credit and accruals as source of working capital. What is the cost
of these sources? (4 × 4=16 Marks)
6. (a) The standard labour component and the actual labour component engaged in a week for a job are
as follows:
Skilled Semi-skilled Un-Skilled
Workers Workers workers
Standard number of workers in the gang 32 12 6
Standard wage rate per hour (`) 30 20 10
Actual number of workers employed in the gang 28 18 4
during the week
Actual wages rate per hour (`) 34 23 12
During the 40 hours working week the gang produced 1,800 standard labour hours of work.
Calculate:
(i) Total labour cost variance;

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 (ii) Labour yield variance;
(iii) Labour mix variance; and
(iv) Labour wage rate variance. (8 Marks)
(b) X Ltd. has the following balances as on 1 st April 20X7:
(`)
Plant and equipment 11,40,000
Depreciation on plant and equipment 3,99,000
Inventories and trade receivables 4,75,000
Cash and cash equivalent 66,500
Trade payables 1,14,000
Bills payable 76,000
Equity share capital (Share of `100 each) 5,70,000
The Company made the following estimates for financial year 20X7-X8:
(i) The company will pay a free of tax dividend of 10%, the rate of dividend distribution tax being
25%.
(ii) The company will acquire plant costing ` 1,90,000 after selling one machine for ` 38,000
costing ` 95,000 and on which depreciation provided amounted to ` 66,500.
(iii) Inventories and trade receivables, Trade payables and Bills payables at the end of fina ncial
year are expected to be ` 5,60,500, ` 1,48,200 and ` 98,800 respectively.
(iv) The profit would be ` 1,04,500 after depreciation of ` 1,14,000.
Prepare the projected cash flow statement and ascertain the bank balance of X Ltd. at the end of
financial year 20X7-X8. (8 Marks)
7. Answer any four of the following:
(a) Discuss the four different methods of costing alongwith their applicability to concerned industry?
(b) Define Explicit costs. How is it different from implicit costs?
(c) Elaborate the practical application of Marginal Costing.
(d) Discuss the dividend-price approach, and earnings price approach to estimate cost of equity capital.
(e) How Economic Batch Quantity is determined? (4 × 4 =16 Marks)

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