COST MANAGEMENT AND EVALUATION

Question No. 1 is compulsory.

Answer any Four questions from the remaining Five questions

Q-1(A) Shandaar Bangle Ltd (SBL) have been recognized as a manufacturers and exporters of
high quality Bangles, designed and manufactured using optimum quality raw material, sourced
from trustworthy vendors of the market.

Manufacturing Process
The process of manufacture of glass bangles is highly skilled labour oriented one comprising of
the following main operations:

Glass Melting Phase Parison Making Phase Spiral/Coil Forming Phase

In first phase, glass batch materials like sand, soda ash, lime stone feldspar, borax etc. with
other additives and colouring materials in a suitable proportion are mixed manually and fed
into the pot places in pot furnace. The raw material is melted in the furnace at a temperature of
about 1300 – 1400 (°C) to obtain molten glass.

In second phase, molten glass is drawn from the pot of the furnace with the help of the iron
pipeand formed into gob to gather required quantity of glass for formation into parisons on
iron plates. The parisons of different colours are joined together and reheated in an auxiliary
furnace to obtain required designs.

In third phase, the reheated parison is then transferred to ‘Belan Furnace’ from which the glass
is further drawn into spiral/ coil of bangles on the spindle counted and rotated manually at
uniform rate of revaluation synchronizing with the manually at the other end of the furnace.

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Spiral are then taken out from the spindle and cut with the help of a pencil cutter to separate
out the single pieces of bangles from spiral. These cut or un-joined bangles are then sent for
joining of end, finishing cutting & polishing, decoration etc. The finished products are then
neatly packed for sale.

Environmental Impact

But unfortunately, these processes have environmental impact at all stages of the process,
including emissions of airborne pollution in the form of ashes, gases, noise and vibration.
Conditions of the Workplace

Due to limitations of maintaining appropriate temperature for melting and moulding of the
glass, furnaces are kept burning. Therefore, workers have to work with such working conditions
continuously without proper leisure time.

The above-mentioned factors become more harmful while working in immense heat and sound
which is normally higher than permissible levels.

Health Impact
A recent study has revealed adverse impact of pollution over workers and people who are living
in nearby area.

Management Initiatives

The management of company is worried about environmental impact and health impact and
has taken certain initiatives in taking care of environment like- batch house cyclonic dust
collector, noise absorbing device, natural gas fired furnace, better refractory materials, training
for waste minimization, treatment of solid waste, research and development activities aimed at
reducing pollution level, planting trees, treatment of nitrogen oxide and other harmful gases.

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Required
Management desires to adopt environmental management accounting as a part of strategic
decision making process.
(i) EXPLAIN the requirement to have environmental management accounting and IDENTIFY the
SBL’s environmental prevention, appraisal, and failure costs.
(ii) ANALYZE the appropriateness of SBL incorporating the following in implementing
Environmental Management Accounting:
 Activity Based Costing
 Life Cycle Costing
 Input Output Analysis
(iii) EXPLAIN the need of non-financial consideration in decision making and suggest safety
measures that can be taken into consideration for workers (10 marks)

(B) ANI is a government-owned bank. The Bank has over 2,500 branches in country ‘A’ spread
over all states/ union territories including specialized branches. These branches are controlled
through 27 Zonal Offices and 4 NBG Offices. As a government owned bank it has usually been
the first preference for customers while choosing a bank. In the last six years, the Government
has permitted a number of foreign banks to operate within the country in order to solve the
problem of foreign exchange shortage and open up foreign trade as an instrument to promote
economic development. These foreign banks offer diverse range of services such as direct
access to executive management, a single point of contact to coordinate all banking needs,
appointment banking to save time, free online banking services 24/7, free unlimited ATM
access etc.

In contrast, ANI has very elementary information systems, covering only for internal transaction
handling and accounting activities. Customers have to visit banks to carry out transactions like
checking bank balance, cash deposit and withdrawals, transferring money from one account to

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another in operational hours. Often customers complain about the amount of time as the
employees and clerical staff of the bank can attend only few customers at a time. Customer
service evaluation has never been undertaken by ANI. Other processes, new account
applications, are complex, requiring completion of many documents formalities. Board of
Directors were worried from growing popularity of new style banks. The Board of Directors of
ANI has recently held meeting to discuss the shortfalls in its current services and the need to
reengineer the ANI’s business processes.

Required
ADVISE how Business Process Reengineering (BPR) can be used to improve ANI’s current
processes. (10 marks)

Q-2(A) ADR Cements Ltd. has a captive power generation plant for its cement works. The
following information is available regarding power generation for the month of April, 2017.

Coal consumption - 150 tons @ Rs. 400 per ton

Oil - 200 liters @ Rs. 8 per litre
Water - 1,500 gallons @ Rs. 200 per gallon
Stores and other consumable - Rs. 2,000

Salaries of generating Plant - 1 Supervisor @ Rs. 3,000 p.m.; 4 Skilled Workers @ Rs. 2,000 p.m.;
3Helpers @ Rs. 1,200 p.m.
Salaries of Boiler house attendants - 6Workers@Rs. 1,500 p.m.
Cost of Generating Plant - Rs. 5,00,000 having life of the plant is 10 years with a residual value
of Rs. 50,000.
Cost of Steam boiler - Rs. 1,50,000 having a life of 10 years with no residual value.
Miscellaneous income received by sale of Ash Rs. 2,000

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Repairs and maintenance :Generating Plant Rs. 2,500;BoilerHouseRs. 1,500 Share of
Administrative overhead Rs. 4,000
1/10th of the units generated were used by the Generating Plant itself. No. of units generated
during the month 4,00,000.

You are required to prepare the operating cost sheet and calculate the cost per unit of
electricity generated. (8 marks)

(B) XYZ Ltd. produces and sells sophisticated glass items 'A' and 'B'. In connection with both the
products the following informations are revealed from the cost records for the month February,
2018:
Product A
Output (in units) 60,000 15,000
Sales (Rs.) 37,80,000 20,55,000
Cost Structure:
Direct Material (Rs. per unit) 18.75 45.00
Direct Wages (Rs. per unit) 10.00 13.00
Direct labour hours 30,000 hours 9,750 hours
No. of quantity produced per batch 240 50
Setup time per batch 2 hours 5 hours

The indirect costs for the month are as under: (Rs.)

Cleaning and maintenance wages 2,70,000
Designing costs 4,50,000
Set up costs 3,00,000
Manufacturing operation's costs 6,37,500
Shipment costs 81,000

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 Distribution costs 3,91,500
Factory administration costs 2,55,000

At present the company adopts the policy to absorb indirect costs applying direct labour hour
basis and enjoying a good position in the market with regard to Product B, but facing a stiff
price competition with regard to Product A. The Cost Accountant of the company, after making
a rigorous analysis of the data, decided to shift from the absorption technique based on direct
labour hours to activity cost driver basis and also to treat cleaning and maintenance wages as
direct cost.

The Cost Accountant identified Rs. 1,20,000 for Product A and the balance of cleaning and
maintenance wages for Product B.

The data relevant to activities and products are as follows:

Activity Cost Driver Product A Product B
Designing Square feet 30 sq. ft. 70 sq. ft.
Manufacturing operations Moulding machine hours 9,000 hrs. 3,750 hrs
Shipment Number of shipments 100 100
Distribution Cubic feet 45,000 cu. ft. 22,500 cu. ft.
Setup of moulding machine Setup hours
Factory administration Direct labour hours

You are required:

(i) To compute the total manufacturing cost and profits of both the products by applying direct
labour basis of absorption, assuming cleaning and maintenance cost as indirect,

(ii) To compute the total manufacturing cost and profits of both the products by applying
activity based costing, assuming cleaning and maintenance cost as indirect.

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(iii) To compare the results obtained from(i) and (ii) and give your opinion on the decision of
Cost Accountant. (8 marks)
(C) Differentiate between abnormal loss and gain. (4 marks)

Q-3(A) Two manufacturing companies which have the following operating details decide to
merge: (Rs in lakhs)
Company X Company Y
Capacity utilization (%) 90 60
Sales 540 300
Variable cost 396 225
Fixed cost 80 50

Assuming that the proposal is implemented, calculate:

(i) Break-even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization
(iii) Sales turnover of the merged plant to earn a profit of Rs. 75 lakhs.
(iv) When the merged plant is working at a capacity to earn a profit of Rs. 75 lakhs what
percentage increase in selling price is required to sustain an increase of 5%in fixed overheads.
(8 marks)

(B) The Modern Manufacturing Company submits the following information on 31st March,
2018:

Sales for the year Rs 2,75,000

Inventories at the beginning of the year:
Work-in-progress Rs. 4,000

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 Finished goods Rs. 7,000
Purchases of materials for the year Rs. 1,10,000
Materials inventory:
At the beginning of the year Rs. 3,000
At the end of the year Rs. 4,000
Direct labour Rs. 65,000
Factory overhead was 60%of the direct labour cost Inventories at
the end of the year:
Work-in-progress Rs. 6,000
Finished goods Rs. 8,000
Other expenses for the year:
Selling expenses 10%of sales
Administrative expenses 5% of sales

Prepare a statement of cost. (8 marks)

(C) A worker is given job for completion in 10 hours and actual time taken for completion of it is
8 hours. The hourly rate fixed is Rs. 6. Each minute of time is considered as a Bedaux point.
Calculate the earnings of a worker under Bedaux plan (4 marks)

Q-4(A) A contract expected to be completed in year 4, exhibits the following information:

End of Value of work Cost of work to Cost of work not yet Cash received
year certified (Rs.) date (Rs.) certified (Rs.) (Rs.)
1 0 50,000 50,000
2 3,00,000 2,30,000 10,000 2,75,000
3 8,00,000 6,60,000 20,000 7,50,000

The contract price is Rs. 10,00,000 and the estimated profit is 20%.

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You are required to calculate, how much profit should have been credited to the Profit and Loss
A/c by the end of years 1, 2 and 3. (8 marks)

(B) A company produces single product which sells for Rs. 20 per unit. Variable cost is Rs. 15 per
unit and Fixed overhead for the year is Rs. 6,30,000.

Required:

(a) Calculate sales value needed to earn a profit of 10% on sales.

(b) Calculate sales price per unit to bring BEP down to 1,20,000 units.
(c) Calculate margin of safety sales if profit is Rs. 60,000. (8 marks)

(C) State the limitations of Uniform Costing (4 marks)

Q-5(A) A company has the option to procure a particular material from two sources:

Source I assures that defective will not be more than 2% of supplied quantity.

Source II does not give any assurance, but on the basis of past experience of supplies received
from it, it is observed that defective percentage is 2.8%.

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The material is supplied in lots of 1,000 units. Source II supplies the lot at a price, which is lower
by Rs. 100 as compared to source I. The defective units of material can be rectified for use at a
cost of Rs. 5 per unit. You are required to find out which of the two sources is more economical.
(4 marks)

(B) A company manufactures two products X and Y. The Product X is a low-volume and its sales
are only 5,000 units p.a. Product Y is high-volume, and labour intensive, its sales are 25,000
units p.a. Product X takes 6 labour hours to make one unit, but Product Y requires 8 hours per
unit.
Details of costs for materials and labour for each product are:
PARTICULARS PRODUCT X PRODUCT Y
Direct materials 200 100
Direct Labour (@Rs. 10 per hour) 60 80
260 180

The company works 1,00,000 direct labour hours p.a. Total manufacturing overhead costs are
Rs. 17,50,000 p.a.

You are required to compute per unit cost of each product using:

(a) Direct labour hour rate method for absorption of overhead costs, and
(b) ABC technique for absorption of overhead costs. (8 marks)

(C) In a machine shop, the machine hour rate, worked out at the beginning of a year on the
basis of 13 week period which is equal to 3 calendar months. The following estimates for
operating a machine are relevant:

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Total working hours available per week 48 hours
Maintenance time included in above 2 hours
Setting up time included in above 2 hours

Cost Details
Rs.
Operator's wages p.m. 650
Supervisory salary p.m. (Common supervisor for 3 machines) 1,500
W.D.V. of machine (Depre. at 10% plus 2% on an average for extra shift 1,80,000
allowance)
Repairs and maintenance p.a. 16,000
Consumable stores p.a. 30,000
Rent, rates and taxes (for the quarter apportioned) 5,000

Power consumed @ 15 units per hour @ 40 paise per unit. Power required for productive hours
only. Setting up time is part of productive time but no power is required for setting up jobs.

The operator and supervisors are permanent. Repairs and maintenance and consumable stores
are variable.

You are required to:

(a) Work out the machine hour rate.
(b) Work out the rate for quoting to the outside party for utilizing the idle capacity in the
machine shop assuming a profit of 20% above variable cost. (8 marks)

Q-6(A) Vivekananda Primary School has a total of 150 students consisting of 5 sections with 30
students per section. The school plans for a picnic around the city during the weekend to places
such as the zoo, the Japanese park, Birla planetarium etc. A private transport operator has

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come forward to lease out the buses for taking the students. Each bus will have a maximum
capacity of 50 (excluding 2 seats reserved for the teachers accompanying the students.) The
school will employ two teachers for each bus paying them an allowance of 2500 per teacher. It
will also lease out the required number of buses. The following are the other cost estimates:

Particulars Cost per student

Breakfast 50
Lunch 100
Tea 30
Entrance fee at zoo 20
Bus hire charge 6,500 per bus
Special permit fee 500 per bus
Block Entrance fee at the planetarium 2,500
Prizes to students for games 2.500

No costs are incurred in respect of the accompanying teachers (except the allowances of Z 500
per teacher).

You are required to prepare:

(a) A flexible budget estimating the total cost for the students' levels of 30, 60, 90, 120 and 150.
Each item of cost is to be indicated separately.
(b) Compute the average cost per student at these levels.
(c) What will be your conclusions regarding the break-even level of students if the school
proposes to collect 450 per student. (10 marks)

(B) The following data has been collected from the cost records of a unit for computing the
various fixed overhead variances for a period:

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 Number of budgeted working days 25
Budgeted man-hours per day 6,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted Rs 1,50,000
Actual number of working days 27
Actual man-hours per day 6,300
Actual output per man-hour (in units) 0.9
Actual fixed overhead incurred Rs 1,56,000

Calculate Fixed Overhead Variances:

(a)Expenditure variance
(b) Calendar variance
(c) Capacity variance
(d) Efficiency variance
(e) Volume variance
(f) Fixed cost variance (10 marks)

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