MANAGEMENT ACCOUNTING

Maximum Marks:50 Time :1 Hour 30 minutes

Answer all questions

1) SG Ltd produces a product which passes through two process, CRA and REF. The company
uses the FIFO method of process costing. The Following details are given with respect to the
REF production process .

Units Rs Rs
Work in Progress- 1,000
REF
Transferred in Costs- 1,00,000
100% complete
Direct Materials-0% 0
complete
Conversion Costs- 5,850
25% complete
Cost of Raw Materials 67,150
issued to Process REF
Other Costs of
Process REF
Direct Labour 76,750
Overheads 61,114
Finished output of 20,000 5,37,390
CRA transferred to
REF
Finished output of 20,600
REF transferred to
finished goods
Closing Stock-REF 800
Transferred in Costs-
100% complete
Direct Materials-0%
complete
Labour and
overheads-50%
complete

Prepare a statement of equivalent units, Statement of cost per equivalent unit and Process REF
account. (Marks:20)
2 a)A company seeking to improve its competitive position has launched a cost reduction
programme in its existing plants apart from trying to increase output.The operating figures for
the last year were as follows:

Rs
Total Sales Value 12,00,000
Variable Costs 7,80,000
Contribution 4,20,000
Fixed Costs 2,40,000
Profit 1,80,000

It has been proposed to reduce the sale price by 5 % and increase the output by 20%. The
estimated increase in fixed costs is Rs 20,000.The current PV ratio is 35% and the company is
currently breaking even at a sales of Rs 6,85,714.

You are required to work out the PV ratio, BEP and Margin of Safety for the proposed plan
and offer your comments on the present vs proposed plan. (Marks:7)

b) The following information is presented to you by AB ltd

Product Sales Value PV Ratio

X Rs 2,50,000 50%
Y Rs 4,00,000 40%
Z Rs 6,00,000 30%

Fixed over head during the period is Rs 5,02,200. The management is worried about the results.

i. Prepare a statement showing the profit or loss from the current scenario
ii. Recommend a change in the total sales value maintaining the same sales mix, which
would eliminate the said loss.
iii. If the manager wanted to attempt to eliminate the said loss by only increasing the sales
value of X,by how much should the sales value of X be increased? (Marks:13)

3) The accountant of a retailer has just had a Rs 5,00,000 request to implement an activity-
based costing system quickly turned down. A senior vice-president, in rejecting the
request, noted, ‘Given a choice, I will always prefer a Rs 5,00,000 investment in
improving things a customer sees or experiences, such as our shelves or our store layout.
How does a customer benefit by our spending Rs 5,00,000 on a supposedly better
accounting system?’ How should the accountant respond? (Marks:10)