oll No……………

Total No. of Questions — 6] [Total No. of Printed Pages — 3

Time Allowed : 3 Hours Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who
have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers
in Hindi, his answers in Hindi will not be valued.
Question No. 1 is compulsory.
Answer any four Questions from the rest. Working notes should form part of the answer.
Make assumptions wherever necessary.
Marks
1. (a) A Ltd. Makes and sells a single product. The company‘s trading results for the 12 (0)

year are:
Figs. – Rs. ‘000 (Year 2007)
Sales 3,000
Direct materials 900
Direct labour 600
Overheads 900 2,400
Profits 600

For the year 2008, the following are expected:

(i) Reduction in the selling price by 10%.

(ii) Increase in the quantity sold by 50%.
(iii) Inflation of direct material cost by 8%.
(iv) Price inflation in variable overhead by 6%.
(v) Reduction of fixed overhead expenses by 25%.
It is also known that :
(a) In 2006, overhead expenditure totalled to Rs. 8,00,000.
(b) Total overhead cost inflation for 2007 has been 5% more than 2006.
Production and sales volumes have been 25% higher in 2007 than in
(c)
2006.
You are required to:
(i) Prepare a statement showing the estimated trading results for 2008.
(ii) Calculate the Break–even point for 2007 and 2008.
(iii) Comment on the BEP and profits of the years 2007 and 2008.
(b) The following information is available: 9 (0)

No. of men required

Activity No. of days
per day
 A 1—2 4 2
B 1—3 2 3
C 1—4 8 5
D 2—6 6 3
E 3—5 4 2
F 5—6 1 3
F 4—6 1 8
(i) Draw the network and find the critical path.
What is the peak requirement of Manpower? On which day(s) will this
(ii)
occur?
If the maximum labour available on any day is only 10, when can the
(iii)
project be completed?
(c) Draw and explain the angle of incidence in a break–even chart. What is its 3 (0)

significance to the management?

2. (a) Is it justifiable to sell at a price below marginal cost at any time? Mention the 6 (0)

circumstances in which it is justifiable.

(b) The following information has been extracted from the books of Goru 6 (0)

Enterprises which is using standard costing system:

Actual output
Direct wages paid 9,000 units
=
1,10,000 hours at Rs.22 per hour, of which
=
Standard hours 5,000 hours, being idle time, were not
Labour efficiency recorded in production
=
variance 10 hours per unit
=
Standard variable Rs. 3,75,000 (A)
=
Overhead Rs. 150 per unit
=
Actual variable Rs. 16,00,000
Overhead

You are required to calculate:

(i) Idle time variance

(ii) Total variable overhead variance
(iii) Variable overhead expenditure variance
(iv) Variable overhead efficiency variance.
(c) M Ltd. Manufactures a special product purely carried out by manual labour. It 7 (0)

has a capacity of 20,000 units. It estimates the following cost structure:

Direct material 30 Rs. / unit
Direct labour (1 hour / unit) 20 Rs. / unit
Variable overhead 10 Rs. / unit

Fixed overheads at maximum capacity is Rs. 1,50,000.

It is estimated that at the current level of efficiency, each unit requires one
hour for the first 5,000 units. Subsequently it is possible to achieve 80%
learning rate. The market can absort the first 5,000 units at Rs.100 per unit.
What should be the minimum selling price acceptable for an order of 15,000
units for a prospective client?
3. (a) X Ltd. has two divisions, A and B, which manufacture products A and B 14 (0)

respectively. A and B are profit centres with the respective Divisional

Managers being given full responsibility and credit for their performance.
The following figures are presented:
Division A Division B
Rs. Per Rs. Per
Unit Unit
Direct material cost
Material A, if transferred from 50 24*
Division A — 144
Material A, if purchased from — 160
outside 25 14 *(other
Direct labour 20 than
2
Variable production overhead 13 A)
26
Variable selling overhead 160 300
Selling price in outside market 144 —
Selling price to B — 250
Selling price to S Ltd.

Other Information:

To make one unit of B, one unit of component A is needed. If transferred

from A, B presently takes product A at Rs.144 per unit, with A not incurring
variable selling overheads on units transferred to B.
Product A is available in the outside market at Rs. 160 per unit from
competitors.

B can sell its product B in the external market at Rs. 300 per unit, whereas, if
it supplied to X Ltd.’s subsidiary, S Ltd., it supplies at Rs. 250 per unit, and
need not incur variable selling overhead on units transferred to S Ltd. S Ltd.
requires 6,000 units and stipulates a condition that either all 6,000 units be
taken from B or none at all.

A(units) B(units)
Manufacturing capacity 20,000 28,000 or Zero
Demand in external market 18,000 26,000
S Ltd.’s deman — 6,000

Assume that Divisions A and B will have to operate during the year.
What is the best strategy for:

(i) Department A?
(ii) Department B, given that A will use its best strategy?
(iii) For X Ltd. As a whole?
(b) What is Pareto Analysis? Name some applications. 5 (0)

4. (a) Biscuit Ltd. Manufactures 3 types of biscuits, A, B and C, in a fully 11 (0)

mechanised factory. The company has been following conventional method of

costing and wishes to shift to Activity Based Costing System and therefore
wishes to have the following data presented under both the systems for the
month.
 Inspection cost Rs. p.m. 73,000
Machine – Repairs & Maintenance Rs. p.m. 1,42,000
Dye cost Rs. p.m. 10,250
Selling overheads Rs. p.m. 1,62,000
Product
B C
A
Prime cost (Rs. per unit) 12 9 8
Selling price (Rs. per unit) 18 14 12
Gross production 2,520 2,810 3.010
(units/production run) 20 10 10
No. of defective units / production
run
Inspection: C
No. of hours / production run 3 4 4
Dye cost / production run (Rs.) 200 300 250
No. of machine hours / production 20 12 30
run 25,000 56,000 27,000
Sales – No. of units / month

The following additional information is given:

No accumulation of inventory is considered. All good units produced are

(i)
sold.
All manufacturing and selling overheads are conventionally allocated on
(ii)
the basis of units sold.
(iii) Product A needs no advertisement. Due to its nutritive value, it is
readily consumed by diabetic patients of a hospital. Advertisement
costs included in the total selling overhead is Rs. 83,000.
(iv) Product B needs to be specially packed before being sold, so that it
meets competition. Rs. 54,000 was the amount spent for the month in
specially packing B, and this has been included in the total selling
overhead cost given.

You are required to present productwise profitability of statements under the

conventional system and the ABC system and accordingly rank the products.
(b) What do you mean by a dummy activity? Why is it used in networking? 4 (0)

(c) How would you use the Monte Carlo Simulation method in inventory control? 4 (0)

5. (a) Transport Ltd. Provides tourist vehicles of 3 types – 20 –seater vans, 8– 8 (0)

seater big cars and 5–seater small cars. These seating capacities are
excluding the drivers. The company has 4 vehicles of the 20–seater van type,
10 vehicles of the 8–seater big car types and 20 vehicles of the 5–seater
small car types. These vehicles have to be used to transport employees of
their client company from their residences to their offices and back. All the
residences are in the same housing colony. The offices are at two different
places, one is the Head Office and the other is the Branch. Each vehicle plies
only one round trip per day, if residence to office in the morning and office to
 residence in the evening. Each day, 180 officials need to be transported in
Route I (from residence to Head Office and back) and 40 officials need to be
transported in Route II (from Residence to Branch office and back). The cost
per round trip for each type of vehicle along each route is given below.

You are required to formulate the information as a linear programming

problem, with the objective of minimising the total cost of hiring vehicles for
the client company, subject to the constraints mentioned above. (only
formulation is required. Solution is not needed).

Figs. – Rs. /round trip

20– 8–seater 5–seater
seater big small
vans Cars cars
Route I —
Residence — Head Office and Back 600 400 300
Route II —
Residence — Branch Office and 500 300 200
Back
(b) Explain the concept and aim of theory of constraints. What are the key 7 (0)

measures of theory of constraints?

(c) What are the major areas of decision–making in which differential costing is 4 (0)

used?
6. (a) Goods manufactured at 3 plants, A, B and C are required to be transported to 10 (0)

sales outlets X, Y and Z. The unit costs of transporting the goods from the
plants to the outlets are given below:
Plants A B C Total Demand
Sales outlets
X 3 9 6 20
Y 4 4 6 40
Z 8 3 5 60
Total suppl 40 50 30 120

You are required to:

(i) Compute the initial allocation by North–West Corner Rule.

Compute the initial allocation by Vogel’s approximation method and
(ii)
check whether it is optional.
(iii) State your analysis on the optionality of allocation under North–West
corner Rule and Vogel’s Approximation method.
(b) Kangan Resorts operates a lodging house with attached facilities of a 7+2 (0)

shopping arcade and restaurant on a National Highway. The following details

are available:
(i) The lodging house has 40 twin–bedded rooms, which are to be rented
for Rs. 200 per night on double occupancy basis. The occupancy ratio is
expected at 85% and always both the beds in the room will be
occupied. The lodging facilities are operated, for 200 days in the year
during foreign tourists season time only.
 (ii) As per past record the spending pattern of each tourist staying in the
lodge will be as under:
Rs. 50 per day in the shopping arcade and Rs. 80 per day in the
restaurant.
(iii) Ratios of variable cost to respective sales volume are:
Shops Restaurant
50% 60%
For the lodging house the variable cost on house–keeping and electricity
(iv)
will amount Rs. 30 per day per occupied room.
Annual fixed overhead for the entire complex is estimated at Rs.
(v)
10,00,000.
Required:
(i) Prepare an income statement for the next year.
(ii) The Lodging House Manager suggests a proposal of reducing room rent
to Rs. 150 per day on double occupancy basis, which will increase
occupancy level to 95%. Should the proposal be accepted or not?

What do you mean by a flexible budget? Give an example of an industry

where this type of budget is typically needed?