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Management Control System Financial Goal Setting

Q.1. Calculate EVA from the following data for the year ended 31st March, 2009: Particulars Average Debt Average Equity Profit after tax, before exceptional items Interest after taxes Cost of Debt (Post tax) Cost of Equity Rs. Crores 30 270 145 0.5 7.50% 15.0%

Q.2. Vijay Ltd. Provides you the following information as on 31st March, 2009: Balance Sheet as on 31.03.2009 Liabilities Share capital Reserve & Surplus Long term Debt Creditors Rs. Lakhs Assets Rs. Lakhs 1000 Fixed Assets 2250 1300 Current Assets 750 200 500 3000 3000 Additional Information: (i) Profit before interest and taxes Rs. 2000 lakhs. (ii) Interest paid Rs. 30Lakh. (iii) Tax Rate 30% (iv) Risk Free Rate 11% (v) Long Term Market Rate = 12% (vi) Beta() = 1.62 You are required to calculate the Economic value Added. Q.3. Modern Industries Ltd. is engaged in textiles business. Its income statement and balance sheet are given below: (I) Income Statement for the year ended 31.03.2009: Rs. Lakhs 12000 9000 3000 20 2980 894 2086

Particulars Sales Revenue Less: Cost of Production PBIT Less: Interest on Loan PBT Less: Tax @ 30% Earnings after Tax

(II) Balance Sheet as on 31.03.2009: Liabilities Equity Share Capital (Rs. 10 each) Reserves & Surplus 10% bank Loan Creditors Rs. Lakhs 400 300 200 100 Assets Land & Building Plant & Machinery Debtors Stock Cash & Bank Rs. Lakhs 200 400 200 150 50 1000

1000 (III) The Companys weighted average cost of Capital is 12% (IV) The Company is listed on BSE and has a P/E Ratio of 6 times.

You are required to calculate (a) value of the the firm (b) EVA and (c) MVA. Q.4. The summarized income statement and balance sheet of GEM Ltd. for the year ended 31st March 2012 are as under: (I) Income Statement For the Year ended 31.03.2012: Particulars Sales Less: Cost of Goods sold Gross Profit Less: Depreciation Administration and Selling Expenses Profit before interest and taxes (PBIT) Less: Interest Profit Before Tax (PBT) Less: Tax @ 30% Net Profit After tax (II) Balance Sheet as on 31.03.2012: Liabilities Equity Share capital Reserve & Surplus Debentures Total Employed as: Fixed Assets Current Assets Stock Debtors Bills receivable Cash & Bank Less: Current Liabilities Creditors Bills payable Rs. Lakhs Rs. Lakhs 50.00 18.00 68.00 8.00 76.00 63.00 9.00 5.00 2.10 0.90 17.00 2.80 1.20 4.00 Net Working Capital 13.00 Total 76.00 You are required to calculate return on networth and comment on the performance of the company. Rs. Lakhs 80 64 16 1.50 2.50 4 12 3.00 9.00 2.70 6.30

Q.5. The Balance sheet of Yahoo Ltd. stood as follows: Rs. Lakhs Liabilities Capital Reserve Loans Creditors 2007-08 250 100 120 25 495 2008-09 250 116 100 129 595 Assets Fixed Assets Investments Stock Debtors Cash & Bank 2007-08 200 30 100 50 115 495 2008-09 260 40 120 70 105 595

You are also given the following information: Particulars 2007-08 2008-09 Sales 500 600 PBIT 120 150 Interest 30 24 Provision for tax 40 60 Proposed Dividend 30 50 You are required to calculate the RONW and comment on the performance in the year 2008-2009. Q.6. Calculate the P/E ratio from the following: Particulars Rs. Equity Share Capital (Rs. 10 each) 50,00,000 Reserve & Surplus 5,00,000 Secured Loans @ 15% 25,00,000 Unsecured Loans @ 12.5% 10,00,000 Fixed Assets 30,00,000 Investments 5,00,000 Operating Profit (PBIT) 20,00,000 Income tax rate is 30% and market price of the companys share is Rs. 40. Q.7. A Ltd. is capitalized as follows: Particulars Rs. 9% preference Share of Rs 100 each 6,00,000 Equity shares of Rs. 10 each 14,00,000 Total 20,00,000 The Following information is relevant as to its financial year 2008-09: Particulars Rs. Profit after tax @ 30% 5,54,000 Capital Commitments 2,40,000 Market Price of shares 40 Equity dividend paid 20% Depreciation 1,20,000 You are required to calculate the P/E ratio.

Q.8. Veena Ltd. has presented its financial information for the year ended 31st March , 2012: Particulars Rs. Earnings before interest and taxes (EBIT) 8,00,000 1,00,000 Equity shares of Rs. 10 each 10,00,000 10% Debentures 15,00,000 Reserves & Surplus 5,00,000 Provision for taxation 30% Proposed Dividend 20% Market price per Share 32 Calculate (i) EPS and (ii) P/E Ratio and comment on the performance of the Company. Q.9. The financial data relating to C Ltd. is given below: Particulars Rs. 8% preference shares of Rs. 100 each 5,00,000 1,00,000 Equity Shares of Rs. 10 each 10,00,000 Total 15,00,000 The following data is also available for the year ended of 31.03.2012 Particulars Rs. Net profit after tax 5,60,000 Market Price of Shares 24 Equity Dividend Paid 20% Depreciation 1,20,000 You are required to calculate the following: (a) EPS, (b) Cash EPS, (c) P/E Ratio. Q. 10. The following details are given regarding A Ltd. for the three years. Rs. Lakhs Particulars 2006-07 2007-08 Sales 60 63 Cost 54 56 Profit 06 07 Capital 40 44 Calculate: (a) Return on Sales, (b) Capital Turnover, (c) Return on Investment. 2008-09 65 58 07 45

Q.11.From the following figures extracted from the Income statement and Balance Sheet of Amar Sales Ltd., calculate the return on investment: Particulars Fixed Assets Current Assets Investment in Government Securities Sales Cost of goods sold Share capital: 10% preference Capital Equity Share Capital (Rs. 10) Reserve & Surplus 15% debentures Income from Investments Rs. Lakhs 450 150 100 500 295 100 200 100 100 10

Provision for tax @30% of net profits.

Q.12. The profit and loss account of X Ltd. for the year ended 31st December, 2012 and the Balance Sheet as on that date are given below: (a) Profit and Loss Account for the year ended 31-12-2012: Particulars Rs. Lakhs Sales 500 Less: Expenses 350 Depreciation 10 360 Profit before tax 140 Less: Income tax @ 30% 42 Profit after tax 98 The rate to be used for calculating capital charge is 10% (b) Balance sheet as on 31-12-2012 Liabilities Share Capital: Equity Shares of Rs. 10 each Reserve and Surplus Current liabilities: Creditors Bills Payable Other Liabilities Rs. Lakhs 200 80 Assets Fixed Assets: 500 Less: Accumulated Depreciation 200 Current Assets: Debtors Stock Cash & Bank Rs. Lakhs 300

300 320 600 600 You are required to calculate (a) return on investment and (b) Economic Value Added and comment on the relation between them. Q. 13. You are given the following details regarding Swam Sidhi Ltd.: Rs. Lakhs Investment Centre A B C Cash and Bank Balance 20 30 10 Inventories 40 30 20 Debtors / Receivables 60 50 40 Fixed Assets 180 130 100 Budgeted Profit 60 25 17

150 50 120

100 150 50

The corporate cost of capital relating to money invested in receivables and debtors is 7% post tax. The rate of return required by the company for investing in fixed assets is 8% post tax. Calculate the ROI and EVA from the above and show the difference between the two methods of investment centre evaluation. Q. 14. From the following information of HK Ltd. calculate the ROI and EVA. Rs. Lakhs Business Unit Cash Receivables Inventories Fixed Assets Budgeted profit A 10 20 30 60 24 B 20 20 30 50 14 C 15 40 40 10 10 D 05 10 20 40 04 E 10 05 10 10 -02 Assume that the companys required rate of return of investing in fixed assets is 10% after taxes and on working capital is 4%. Comment on the difference between ROI & EVA.

Q.15. Prakash Industries Ltd. has prepared the following budgeted profitability statement for the year ended 31st March, 2012: Particulars Rs. Rs. Sales (25000 units @ Rs. 40 each) 10,00,000 Less: Variable Cost Materials 4,00,000 Labour 3,00,000 7,00,000 3,00,000 Contribution 2,00,000 Less: Fixed Cost 1,00,000 Profit Make the sensitivity analysis with the help of the following data: (a) Selling price is reduced by 10% (b) If the sales units are reduced by 10% of the budgeted units of 25,000. (c) The labour cost increases by 33.33% (d) The material cost increases by 25%. Q. 16. From the following project details calculate the sensitivity of the (a) project cost, (b) annual cash flow, (c) cost of capital. Which variable is more sensitive? Project cost Rs. 12,00,000 , Annual cash flow Rs. 4,50,000 , life of the project 4 years, cost of capital 14%. The annuity factor @ 14% is 2.9137 and at 18% for 4 years is 2.6667.

Management Control System Responsibility Centres

Q.1. Atul Ltd. has two production departments X and Y and two service departments, P and Q. X produces product Z while department Y produces product B. the following are the details of costs incurred during January, 2012: Direct Materials Dept X Dept Y Rs. 21000 9000 Direct Labour Dept X Dept Y Rs. 12000 9000

Supplies: Supervisors Salary: Dept X 750 Dept X 1950 Dept Y 600 Dept Y 2550 Dept P 450 Dept P 4500 Dept Q 300 Dept Q 6000 The output of product Z is 3000 units while that of product B is 1500 units. Supplies of service departments are charged to production departments as a percentage of direct materials while supervisory salary is charged as a percentage of direct labour. You are required to calculate: (a) Total costs taking product Z and B as separate cost centres. (b) Responsibility cost taking each department as a responsibility centre.

Q.2. Sun Pharma Ltd. has five plants A, B, C, D and E. Each plant has a Forming, Cleaning and Packaging Department. Each level of management at Sun Pharma has responsibility over costs incurred at its level. The budget for the current year has been set up as follows: Plant Budget Cost (Rs. Lakhs) A 1,35,000 B 1,22,500 C 1,08,400 D 1,35,000 E 1,35,000 Budgeted information for Plant C is as follows: Plant Managers office Forming Department Cleaning Department Packing Department Rs. 2,350 Rs. 30,000 Rs. 55,450 Rs. 20,600

Budgeted information for plant C: forming department is as follows: Direct materials Direct labour Factory Overheads The following additional budget costs are available: Rs. 8,333 Rs. 15,000 Rs. 6,667

Presidents office Vice- President marketing Vice- President mfg office

Rs. 16,250 Rs. 20,000 Rs. 4,167

The following actual costs were incurred during the current year: Plant Cost (Rs. Lakhs) A 1,27,650 B 1,24,300 C 1,08,475 D 1,31,000 E 1,36,800 Actual costs for plant Cs forming department were as follows: Direct materials Direct labour Factory Overheads Actual costs for Plant Cs were: Plant Managers office Forming Department Cleaning Department Packing Department Actual Costs for presidents level were: Presidents office Vice- President marketing Vice- President mfg office Rs. 16,375 Rs. 29,800 Rs. 6,33,315 Rs. 2,475 Rs. 26,000 Rs. 57,500 Rs. 22,500 Rs. 353 Rs. 4,000 Rs. 333 under budget under budget over budget

You are required to prepare a responsibility report for the year showing in detail the budgeted, actual, and variance amounts for level 1 to 4 for the following areas: Level 1: Forming Department Plant C Level 2: Plant Manager Plant C Level 3: Vice President Manufacturing Level 4: President

Q.3. The following is the profit plan prepared for Zee Ltd. for the year ending 31st March, 2012: Performance Evaluation Report Particulars Sales Revenue Controllable variable Cost to make sale controllable contribution Margin Common Firm wide costs (fixed) Profit Product Line A 1000 500 500 B 600 360 240 C 400 280 120 Total Rs. Lakhs 2000 1140 860 660 200

The income statement for the year ended 31st March, 2012 showed the following : Particulars Sales - Special discounts Product Line A 660 20 640 332 B 660 660 400 C 880 880 620 Total Rs. Lakhs 2200 20 2180 1352

Controllable variable Costs to make and sell Controllable contribution margin 308 260 260 828 Common firm wide Costs (fixed) 670 Profit 158 Special discounts were granted on large orders and additional appreciation of Rs. 6 lakhs was approved for advertising and sales promotion. There was no change in the selling prices. You are required to prepare an analysis of the changes in net income that would be helpful in fixing responsibility using the contribution approach. Q.4. A production department of a large manufacturing company has furnished the following data for May, 2011. Budgeted Actual Rs. Rs. Direct materials 5,00,000 5,10,000 Direct labour 2,50,000 3,25,000 Consumable stores (fixed) 75,000 95,000 Repairs and maintainance (Rs. 1,00,000 fixed) 2,00,000 2,20,000 Supervision (fixed) 1,00,000 1,10,000 Factory Rent (fixed) 50,000 50,000 Depreciation (fixed) 1,00,000 1,00,000 Tools (variable) 25,000 30,000 Power and Fuel (variable) 1,50,000 1,80,000 Administration (fixed) 2,50,000 2,65,000 The department has 50 identical machines. During May, 2011, the budgeted and actual productions of the department are 10,000 and 12,500 units respectively. However, if the department is closed and the machine production services are hired from outside, the cost of hiring the services of similar machine would be Rs. 150 per unit. You are requested to present a report showing the evaluation of the performance of the department based on the concept of responsibility centre. Particulars

Q.5. The operating results of a manufacturing company for the current year are given below: Particulars Sales (40000 units) Less: Trade discount Net sales Less: Cost of Sales Materials Labour Factory overheads Administrative overheads Selling & Distribution overheads Profit Rs. Rs. 480 24 456 144 126 63 36 45

414 42

The following changes are anticipated during the next year: (a) (b) (c) (d) Units to be sold to increase by 25% Material price to increase by 15% Labour charges to increase by 12% Overheads factory overheads will be limited to Rs. 65 Lakhs, Administrative and Selling and Distribution overheads are estimated to increase by 10% and 15% respectively. (e) Profit target for the year is Rs. 60 Lakhs. Calculate the selling proce and present the budgeted operating results, for the next year.

Management Control System Profit Centres

Q.1. From the following details, determine the net income of Z Ltd. for the year ended 31st December, 2012: Particulars Sales Cost of sales Variable Expenses Fixed Expenses (for the profit centres) Controllable Expenses Other Alloctions Tax @ 32% Rs. 10,00,000 6,00,000 1,80,000 90,000 10,000 20,000

Q.2. H Ltd. employs a budgetary control system and measures performance on segmented basis of its products A and B. The budgeted and actual sales for the month of November, 2009 are as follows: